AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1996
REGISTRATION STATEMENT NO. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST AMERICAN RAILWAYS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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NEVADA 4011 87-0443800
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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ALLEN C. HARPER
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
FIRST AMERICAN RAILWAYS, INC.
FIRST AMERICAN RAILWAYS, INC. 1360 SOUTH DIXIE HIGHWAY
2445 HOLLYWOOD BLVD. CORAL GABLES, FLORIDA 33416
HOLLYWOOD, FLORIDA 33020 (305) 667-6781
(954) 920-0606 (NAME, ADDRESS AND TELEPHONE NUMBER
(ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
OF PRINCIPAL EXECUTIVE OFFICES
OR INTENDED PRINCIPAL PLACE OF BUSINESS)
COPIES TO:
DENNIS J. OLLE, ESQ. RUBI FINKELSTEIN, ESQ.
OLLE, MACAULAY & ZORRILLA, P.A. ORRICK, HERRINGTON & SUTCLIFFE
1402 MIAMI CENTER 666 FIFTH AVENUE
201 SOUTH BISCAYNE BOULEVARD NEW YORK, NEW YORK 10022
MIAMI, FLORIDA 33131 (212) 506-5000
(305) 358-9200 (212) 506-5151 (FAX)
(305) 358-9617 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [x]
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CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED PROPOSED
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
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Common Stock, $.001 par value....................... 4,425,275 $5.125 $22,679,534.38 $ 7,820.53
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Series A Warrants................................... 3,962,773 -- -- --
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Financial Advisory Warrants......................... 100,000 -- -- --
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Common Stock, $.001 Par Value, Underlying
Outstanding Series A Warrants(2).................. 3,962,773 $ 3.50 $13,869,705.50 $ 4,782.66
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Common Stock, $.001 Par Value, Underlying
Outstanding Financial Advisory Warrants........... 100,000 $ 2.50 $ 250,000 $ 86.21
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Common Stock, $.001 par value, Underlying
Outstanding Convertible Secured Notes ("Notes")... 3,300,273 $ 3.50 $11,550,455.50 $ 3,983.09
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Series A Warrants to be Issued in Connection with
Prepayment of the Notes........................... 2,357,338 -- -- --
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Common Stock, $.001 par value, Underlying Series A
Warrants to be Issued in Connection with
Prepayment of the Notes(2)........................ 2,357,338 $ 3.50 $ 8,250,683 $ 2,845.06
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Total Registration Fee(2)........................... $ 19,517.55
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(1) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457(c) on the basis of $5.125 which was the average of
the high and low sale prices per share of the Company's Common Stock on
August 1, 1996, as reported by the OTC Bulletin Board. With respect to
the Warrants, the calculation of the registration fee has been based on
the exercise price thereof.
(2) Pursuant to Rule 416, this Registration Statement also covers such
indeterminate number of shares of Common Stock as may be issuable
pursuant to the anti-dilution provisions of the Warrants.
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THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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(CROSS REFERENCE SHEET)
FORM SB-2
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
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1. Front of Registration Statement
Outside Front Cover of Prospectus ............... Cover Page
2. Inside Front Cover and Outside
Back Cover Pages of Prospectus .................. Inside Front and Outside Back;
Back Cover Pages
3. Summary Information and Risk Factors................ Prospectus Summary; Risk Factors
4. Use of Proceeds .................................... Use of Proceeds
5. Determination of Offering Price..................... Not Applicable
6. Dilution............................................ Not Applicable
7. Selling Security Holders............................ Principal and Selling Shareholders
8. Plan of Distribution................................ Plan of Distribution
9. Legal Proceedings .................................. Business--Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons .................... Management
11. Security Ownership of Certain
Beneficial Owners and Management ................. Principal and Selling Shareholders
12. Description of Securities .......................... Description of Capital Stock
13. Interest of Named Experts and Counsel............... Experts; Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Not Applicable
15. Organization Within Last Five Years................. Not Applicable
16. Description of Business............................. Business
17. Management's Discussion and Analysis
or Plan of Operation ............................. Plan of Operation
18. Description of Property............................. Business
19. Certain Relationships and Related Transactions...... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........................ Risk Factors; Price Range of Common
Stock; Principal and Selling
Shareholders
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ............................... Experts
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED AUGUST 6, 1996
11,788,321 SHARES OF COMMON STOCK
6,320,111 SERIES A REDEEMABLE WARRANTS
100,000 FINANCIAL ADVISORY WARRANTS
FIRST AMERICAN
RAILWAYS, INC. [LOGO]
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This Prospectus relates to the offering of 11,788,321 shares of Common
Stock, $.001 par value (the "Shares"), along with 6,320,111 Series A
Redeemable Warrants ("Series A Warrants") and 100,000 financial advisory
warrants ("Advisory Warrants"), (collectively the "Warrants") of First
American Railways, Inc. (the "Company"), by certain securityholders of the
Company (collectively, the "Selling Shareholders"). A total of 4,425,275
Shares offered hereby are owned of record by the Selling Shareholders, and
7,263,046 shares offered hereby represent Common Stock underlying outstanding
Series A Warrants and Common Stock underlying outstanding convertible secured
notes (the "Notes"), which securities were issued in connection with two
recent private placements by the Company (collectively, the "Private
Placements"). Also included in the Common Stock offered hereby are 2,357,338
Shares underlying certain additional Series A Warrants which may be issued in
the future, as described below, and 100,000 Shares underlying the Financial
Advisory Warrants, described below. The outstanding Series A Warrants are
held as follows: (i) warrants to purchase an aggregate of 650,000 Shares that
expire in April 1998 and have an exercise price of $3.50 per share are held
by Capital Growth International, LLC, the Company's placement agent in the
Private Placements and its designees ("Capital Growth"); and (ii) warrants to
purchase 3,312,773 Shares which are exercisable until April or May 1998 at an
exercise price of $3.50 per share are held by the Selling Shareholders who
participated in the Private Placements; and (iii) 2,357,338 warrants that
would expire in April and May 1998 and have an exercise price of $3.50 per
share which may be issued to the holders of the Notes in certain
circumstances in connection with the prepayment of the Notes. The Series A
Warrants may be redeemed under certain circumstances. The remaining warrants
offered hereby consist of 100,000 Advisory Warrants that expire in February
2001, which are not redeemable and are exercisable at $2.50 per share. See
"Description of Securities."
The Company will not receive any proceeds from this offering; however, the
maximum gross proceeds payable to the Company from the exercise of all of the
outstanding Warrants would be $14,119,705, and an additional $8,250,683 would
be payable to the Company if the Warrants that may be issued in certain
circumstances in repayment of the Notes are exercised in full.
The Company has applied for the listing of its Common Stock on the Nasdaq
SmallCap Market ("Nasdaq"). The Company's Common Stock is currently quoted on
the OTC Bulletin Board under the symbol FTRN. On August 1, 1996, the last
reported sales price of the Common Stock was $5.75 per share. See "Price
Range of Common Stock." Currently there is no public market for the Warrants,
nor is one expected to develop.
The Company is unaware of any specific plan of distribution of the Selling
Shareholders with respect to the Shares or the Warrants; however, it believes
that the Shares will be sold from time to time by such Selling Shareholders
or by their pledgees, donees, transferees or other successors in interest, to
or through underwriters or directly to other purchasers or through brokers or
agents in one or more transactions at varying prices determined at the time
of sale or at a fixed or negotiated price. See "Plan of Distribution." The
aggregate net proceeds to the Selling Shareholders from the sale of the
Shares or Warrants pursuant to this Prospectus will be the sale price of such
Shares or Warrants less any commissions. The Company is paying all of the
expenses in connection with the preparation of this Prospectus and the
related registration statement and the qualification of the shares under
applicable state securities laws.
This offering is being made without using the services of an underwriter.
The Selling Shareholders and any broker-dealers, agents or underwriters that
participate with the Selling Shareholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), in which event any commission
received by such broker-dealers, agents or underwriters and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1996.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS.
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE
HEADING "RISK FACTORS."
THE COMPANY
The Company was organized in the State of Nevada in 1987 and completed a
public offering of its securities in May 1987. Prior to the Merger (described
below) the Company's business purpose was to seek to acquire suitable
property, assets or businesses by means of completing a merger with or the
acquisition of a privately-held business enterprise seeking to obtain the
perceived advantages of being a public company. The Company's predecessor by
merger, First American Railways, Inc., a Florida corporation ("First
American-Florida"), was formed in February 1994 with management who has
experience in the passenger rail and tourism industries. The Company plans to
offer a series of entertainment-based trains, and initially the Company
intends to capitalize upon Florida's growing tourist base of over 41 million
tourists per year by providing a unique entertainment-based passenger rail
service, the "Florida Fun-Train," between South and Central Florida.
Florida attracts tourists from across the world and was the top tourist
destination in the United States in 1995. South Florida not only contains a
number of well-known tourist destinations, but is also a key entry point into
the state for cruise ships entering and leaving the Port of Miami and Port
Everglades (Fort Lauderdale), as well as tourists utilizing Miami
International and Hollywood-Fort Lauderdale Airports. Central Florida
(Greater Orlando) plays host to world renowned tourist destinations such as
Universal Studios Florida, Walt Disney World, Sea World, Kennedy Space Center
and Port Canaveral. In 1993, approximately 11.1 million people traveled
between South and Central Florida.
The Florida Fun-Train is being designed to provide passengers with an
exciting and fun-filled overland leisure excursion. The Company expects that
this will be accomplished through the use of a variety of entertainment
features, including "virtual reality" and "high-tech" games, as well as
dining, dancing and lounge cars offering a variety of live entertainment. It
is anticipated that the exterior of the Florida Fun-Train will be designed to
have the appearance of an ultra-modern, colorful, sleek, high-speed train.
The colors will be vibrant unlike the typical passenger train in the United
States. The Company expects that most of its passengers will be tourists, and
that the Company's service will be offered as an "extension" of the
passenger's vacation. The Company intends to provide a high level of service
in order to accommodate its passengers.
The Fun-Train concept is to provide an enjoyable, high-quality
entertainment alternative to other means of transportation between South and
Central Florida. The Company's goal is to maximize the entertainment value of
the travel time while providing an efficient, safe and reliable form of
transportation at a reasonable price. As such, management of the Company
believes that the Florida Fun-Train will be able to capture both a portion of
the tourist market intent on travelling between South and Central Florida
while also encouraging travel by tourists and residents who would not
otherwise make the trip. Currently, travel (without an entertainment focus)
is made between South and Central Florida primarily by automobile, bus or
airplane. The Company believes the entertainment aspects of the Florida
Fun-Train will provide its passengers with a reasonably-priced, enjoyable
alternative for travel in this corridor.
The Company is in its developmental stage, and it has had no operations;
however, the Company has taken significant steps to commence operations of
the Florida Fun-Train including constructing its
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first passenger car, entering into a track rights agreement with FEC,
entering into a memorandum of understanding with CSXT for track use (which
the Company is currently negotiating a binding contract in this regard),
negotiating a letter of intent with the Greater Orlando Aviation Authority to
locate a terminal at the Orlando International Airport, negotiating with the
proposed manufacturer of the railcars for the Florida Fun-Train, entering the
final design phase of two station terminals, contracting with an outside
consultant for the preparation of a definite marketing study, and conducting
discussions with major wholesale travel, tour companies, tourist attractions
and hotels for the marketing of the Company's services.
The Company's ability to meet its planned commencement date (Fall 1997)
depends on, among other things, successful and prompt completion of the
Company's pre-opening development activities. Presently, the Company believes
it has sufficient funds to commence operations of the Florida Fun-Train. See
"Plan of Operation."
In the future the Company contemplates offering another
entertainment-based passenger train in Florida to be known as the "Space
Coast Fun-Train" which is to provide passenger service between South Florida
and the Florida Space Coast (near the Kennedy Space Center). Additional
funding will be required for this or any other future rail operations; there
can be no assurance, however, that the Company will be in a position to
launch the Space Coast Fun-Train or any other rail operations at any time.
The Company maintains offices at 2445 Hollywood Boulevard, Hollywood, FL
33020. Its telephone number is (954) 920-0606.
THE MERGER
On April 26, 1996, the Company merged with First American-Florida (the
"Merger") and the Company was the surviving entity. As a result of the Merger
the Company assumed all of the contractual rights, privileges and duties of
First American-Florida. In connection with the Merger the Company amended its
Articles of Incorporation to, among other things, change its name and create
a series of "blank check" preferred stock. See "The Merger."
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THE OFFERING
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THE OFFERING:
Maximum Common Stock Offered by the Selling
Shareholders Assuming Exercise of Warrants and
Conversion of Notes(1) ............................ 11,788,321 Shares
Maximum Common Stock Outstanding after the
Offering Assuming Exercise of All Warrants and
Conversion of Notes(1) ............................ 16,413,324 Shares
Nasdaq Small Cap Symbol for Common Stock ............ FTRN
Series A Warrants Offered
by Selling Shareholders(2) ........................ 6,320,111 Warrants
Advisory Warrants Offered by Selling Shareholders .. 100,000 Warrants
Use of Proceeds ..................................... The Company will not receive any proceeds from the
sale of the Shares or Warrants by the Selling
Shareholders. Any proceeds received by the Company,
from time to time, upon exercise of the Warrants
will be used for working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors ........................................ The securities offered hereby involve a substantial
degree of risk and should not be purchased by anyone
who cannot afford the loss of their entire investment.
See "Risk Factors."
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(1) Includes Shares to be issued upon the exercise of the Warrants, and
conversion of the Notes (or alternatively, the exercise of Series A
Warrants issued in connection with prepayment of Notes); as a result an
additional maximum 7,363,046 shares will be outstanding.
(2) No public market exists for the Warrants. Includes 2,357,338 Series A
Warrants that may be issued, in certain circumstances, in connection with
the prepayment of the Notes.
PLAN OF DISTRIBUTION:
The Company is unaware of any specific plan of distribution of the Selling
Shareholders with respect to the Shares or the Warrants, but believes that
the Shares will be sold at prevailing market prices on Nasdaq, without
payment of any underwriting commissions or discounts other than ordinary
brokerage transaction fees. See "Plan of Distribution." The aggregate net
proceeds to the Selling Shareholders from the sale of the Shares or Warrants
pursuant to this Prospectus will be the sale price of such Shares or Warrants
less any commissions. The Company is paying all of the expenses in connection
with the preparation of this Prospectus and the related registration
statement.
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE
THESE SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT
DECISION, SHOULD CAREFULLY READ THIS OFFERING DOCUMENT AND CONSIDER, ALONG
WITH OTHER MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:
NO REVENUE; SUBSTANTIAL LOSSES. Neither the Company nor its predecessor by
merger, First American-Florida, have had any revenue from operations, and
they have an accumulated deficit during the development stage of $2,098,616
(unaudited) for the period from February 14, 1994 (incorporation) through
June 30, 1996. The Company expects such losses to continue at least through
commencement of its rail operations in the Fall of 1997, and perhaps
thereafter. See "Plan of Operation."
NEW BUSINESS; SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF MARKET. The
Company is a development stage enterprise. The Company has not begun actual
passenger rail operations, has had no revenues to date and will not have any
revenues until such time, if any, as the Florida Fun-Train is placed into
service. The Company has incurred and will continue to incur substantial
expenses prior to the commencement of passenger rail operations, which is
scheduled to begin in the Fall of 1997. The Company is also subject to all of
the risks inherent in the creation of a new business. The Company's ability
to deliver its new service with good quality at a reasonable price cannot be
assured; and as a result, there can be no assurance that the Company's
efforts will result in a commercially viable business or that the Company
will ever operate at a profit. The level of acceptance of the Company's
services by consumers and the travel/tourism industry cannot be predicted. As
a result of its small size and capitalization and lack of operating history,
the Company is particularly susceptible to adverse effects of changing
economic conditions and consumer tastes, competition, technological
developments, and other contingencies beyond the control of the Company. Due
to changing circumstances, the Company may be forced to change dramatically,
or even terminate, its planned operations.
CERTAIN ASSUMPTIONS WITH RESPECT TO THE COMPANY'S PROPOSED OPERATIONS. The
Company's proposed rail operations are based on assumptions that are
inherently subject to significant economic and competitive uncertainties, all
of which are difficult to predict and many of which are beyond the control of
the Company. These assumptions are also based on information about
circumstances and conditions existing at the time the prospective information
was prepared. There can be no assurance that any of the prospective
information can be realized or that the actual results will not be materially
higher or lower than assumed herein.
REQUIREMENTS FOR ADDITIONAL FINANCING. The Company believes that its
current funds, along with the interest earned thereon, will be sufficient to
allow the Company to commence full revenue service of the Florida Fun-Train
in the Fall of 1997. Additional financing(s) will be required to fund
operations if the Company's operations do not generate sufficient revenues to
cover operating expenses and assuming no exercise of any of the Warrants.
Moreover, expansion of passenger rail operations will require substantial
additional financing after such time period. The Company has made no
arrangements to obtain future additional financing, and there can be no
assurance that such financings will be available, or that financing will be
available on acceptable terms.
TRACK RIGHTS. The Company entered into an agreement with the Florida East
Coast Railroad Company ("FEC") for the use of certain track rights in the
Fort Lauderdale-West Palm Beach-Titusville corridor. Among other things, this
ten-year agreement calls for significant payments to FEC, and it requires the
Company to maintain a significant amount of comprehensive general liability
insurance once the Florida Fun-Train is operational. See "Business--Florida
Fun-Train." Failure to comply with these and other obligations set forth in
the agreement with FEC could result in the loss of such track rights without
which the Company could not operate. See "Business--Florida Fun-Train."
The Company has also negotiated a Memorandum of Understanding (the "CSXT
Memorandum") with CSXT Transportation, Inc. ("CSXT") for the use of the track
between West Palm Beach and
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Orlando. Among other things, this memorandum provides for a five-year
agreement and calls for significant payments to CSXT. See "Business." Like
the FEC agreement, the CSXT Memorandum contemplates requirements of
comprehensive general liability insurance. If for any reason the Company is
not successful in finalizing a formal agreement with CSXT, the Company would
have to seek alternative track rights in this corridor, and failure to do so
would have a material adverse effect on the prospects of the Company. Failure
to comply with these and other obligations under the agreement with CSXT
could result in loss of such track rights without which the Company could not
operate the Florida Fun-Train. See "Plan of Operation."
The contractual payments by the Company to the track owners as
contemplated by the above-described agreements and understandings are
significant and such payments are based on the use of track, and not on the
Company's profitability. Further, there can be no assurance that either
contractual arrangement will be renewed after the expiration of the
applicable terms and the failure to renew either could materially adversely
affect the financial prospects of the Company.
CONSTRUCTION AND INDUSTRY RISKS ASSOCIATED WITH THE FUN-TRAIN. The
railcars for the Florida Fun-Train (and the remodeling of the locomotives)
must be constructed. The Company expects that the construction and remodeling
will be done in Denver, Colorado, by Rader Railcar, Inc. ("RRI"), which is
owned by Thomas G. Rader, a director and the largest shareholder of the
Company. While there is no binding construction agreement in place, RRI has
provided a draft construction contract to the Company which is currently
being negotiated. This proposal forms the basis of the projected cost of the
Florida Fun-Train set forth elsewhere herein. Assuming an agreement can be
negotiated between the parties on terms acceptable to the Company, the
Company expects the railcars and locomotives (collectively, "railcars") to be
ready for delivery to the Company beginning in approximately June, 1997.
There can be no assurance, however, that construction and remodeling of the
railcars will be completed on a timely basis. Delays may be caused by
technical difficulties, strikes, insufficient financing, and many other
factors beyond the Company's control. In the event of such delays, the
Company's operations could be delayed and any such delay could have a
material adverse effect on the Company's financial condition. See "Certain
Transactions," and "Business--Florida Fun-Train."
Further, the Company has not finalized plans for the construction of the
terminals for the Florida Fun-Train and additional governmental approvals
will be required. See "Business--Governmental Regulation." There can be no
assurance that the terminals will be timely constructed.
The Company's operations may be adversely affected by general economic
conditions and by numerous other factors, some of which are common to all
businesses and some of which are unique to the passenger rail industry. Such
factors include, among others: labor disturbances or strikes, either by on
board employees or land-based personnel, which could delay trains or force
their cancellation; government regulatory orders or rules which could
adversely affect the Company's operations; accidents causing damage to or
resulting in the impounding of the Company's railcars, which could result
from a variety of natural or man-made causes and could temporarily or
permanently prevent the Company's train(s) from operating; and insurance,
which may be insufficient to cover losses from the cessation of operations or
the replacement or repair of lost or damaged property.
NO AGREEMENT WITH ENTERTAINMENT PROVIDERS. The success of the Company's
Fun-Train concept will depend in part on the provision of entertainment,
including video presentations and computer games as well as live
entertainment to its railway passengers. To date, the Company has not entered
into any agreement with any entity to provide entertainment on the
Fun-Trains. The failure to enter into such agreements on terms acceptable to
the Company would adversely affect the Company's operations.
RELIANCE ON FLORIDA TOURISM MARKET. The Company's initial services, the
Florida Fun-Train and the Space Coast Fun-Train, will target tourists
visiting Florida. These planned operations may be materially adversely
affected by declining growth or absolute declines in the number of tourists
visiting Florida. From time to time the Florida tourism market has
experienced slowdowns (declines in growth
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or absolute declines). The most recent decline was the result of
highly-publicized criminal attacks on tourists, as well as increasing
competition from other tourist destinations in the U.S. and the Caribbean
region, and economic problems in some of Florida's overseas tourism markets.
There can be no assurance that any such declines in Florida tourism will not
occur in the future, or that such declines would have a direct and adverse
impact on the Company's business. See "Business--Markets."
The Company's business may also be subject to certain seasonal
fluctuations, depending on the tourist seasons in Florida, particularly in
South Florida (Miami/Ft. Lauderdale) and the Orlando area.
MARKETING/DEPENDENCE ON WHOLESALE TOUR OPERATORS. The introduction of the
Company's passenger railroad service will depend on the Company's ability to
successfully implement a marketing program. Initially, the Company expects to
rely on wholesale tour operators and travel agents to sell tickets for its
passenger train service as part of a travel package. Thus far, the Company
has not entered into any agreement with any wholesale tour operator, or other
third party distributor. There can be no assurance that the Company will
establish satisfactory arrangements with such third party distributors or
that sales of tickets for the Company's new railway service will be at prices
or in quantities that will be profitable. The Company's present internal
marketing and sales capabilities are limited, and the Company will be
dependent upon independent representatives for the marketing of its new
service. Such persons also market competing tourist services and
entertainment attractions. Failure of the Company to establish the necessary
marketing and distribution network or to generate profitable sales of tickets
for the Company's new railway service will have a material adverse effect on
the Company's financial condition and results of operations.
HIGH OPERATING COSTS; RISKS ASSOCIATED WITH FUEL PRICES AND MAINTENANCE OF
RAILROAD EQUIPMENT. The passenger rail industry is characterized by a high
degree of operating leverage. Specifically, fixed costs represent the major
portion of a railroad's operating expenses and cannot be significantly
reduced when competition or any of various other factors causes a reduction
in load factors (passenger occupancy as a percentage of capacity) or
passenger fares or en route revenues. Since railcar purchase or lease
installment payments, train operating expenses (including fuel, insurance,
track usage charges and wages) and corporate overhead will represent the vast
majority of the Company's expenses, the Company may not be able to reduce or
decrease these costs on a timely basis in the event that passenger levels
drop or fares or en route prices must be lowered because of competitive
pressures. Accordingly, there is no assurance that the Company will be able
to operate profitably. Future increases in the cost of diesel fuel, a major
anticipated expense of train operations, are difficult to predict given the
continued economic and political uncertainties in certain areas of the world.
Despite the fact that the Company intends to purchase new railcars and
related rail equipment, there can be no assurance that a significant amount
of maintenance will not be required. See "Business--Competition."
RISK OF OPERATING A RAILWAY SERVICE; POTENTIAL FOR LIABILITY CLAIMS. The
Company faces an inherent risk of exposure to liability claims in the event
that the operation of its trains results in accidents or other adverse
effects. Further, the Company's track usage agreements with the track owners
require (or are expected to require) that the Company maintain certain levels
of liability insurance protecting the track owners. See "Business." There can
be no assurance that the Company will not be faced with exposure to material
liability claims. The track rights agreements require (or will likely
require) substantial general comprehensive liability insurance (up to
$300,000,000 in coverage), and the premiums for such insurance will be
significant. While the Company has obtained commitments for liability
insurance for the operation of the Florida Fun-Train, there can be no
assurance that this insurance will be available or that it will be adequate,
or that the Company will be able to maintain such insurance at reasonable
rates. Failure to maintain adequate insurance could place the Company at
great financial risk in the event of accidents and adversely affect the
Company's ability to do business. Further, even if the Company were to
maintain adequate insurance, adverse publicity from accidents could have a
material adverse effect on the Company's business.
COMPETITION. Numerous companies, most of which are substantially larger
than the Company and have much greater financial and other resources, offer
alternative modes of transportation over the
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routes where the Company intends to operate. These alternative modes of
transportation, principally private motor vehicles, bus service and passenger
air service, offer transportation that is less expensive and/or faster than
the Company's proposed rail service. Most of these competitors already enjoy
an established presence in the Florida and United States transportation and
tourism markets. The Company expects to compete on the basis of what it
believes to be its unique combination package of transportation and
entertainment.
The Company also has a rail service competitor in the South/Central
Florida corridor; the Company competes with the National Passenger Rail
System ("Amtrak"). AmTrak currently operates a passenger train service
between Miami/Fort Lauderdale and Orlando, Florida with numerous stops. While
the present AmTrak service does not include the "entertainment-type" service
which the Company proposes to provide on the Florida Fun-Train, there can be
no assurance that AmTrak will not improve its service and offer amenities
similar to those proposed to be offered by the Company.
Generally, the Company faces extensive competition for the spending of
leisure time and dollars from numerous attractions in the tourist
entertainment sector. The Company's success will depend primarily on its
ability to quickly develop an entertaining, high-quality, efficient, safe and
reliable service, as well as its ability to market the service and secure
consumer acceptance. It is highly uncertain whether the Company will be
successful in these efforts.
GOVERNMENTAL REGULATION. The Company's contemplated railroad operations
are strictly intrastate and therefore not regulated by the federal government
except for various safety regulations promulgated by the Federal Railroad
Administration, as well as the Florida Department of Transportation's
application of federal safety rules. The Company's trains will be required to
have a safety inspection by the U.S. Department of Transportation, Federal
Railroad Administration and the Florida Department of Transportation before
rail operations commence (and periodically thereafter). The failure to "pass"
safety inspections both before operations commence and periodically
thereafter would result in the railroad operations ceasing until such time as
the reason(s) for failure are remedied. And such delay or cessation of
operations would materially, adversely affect the Company and its financial
performance. See "Business--Governmental Regulation."
In addition, the Company's operations will also be subject to
environmental regulation by federal and state agencies, as well as liquor
license and other regulations promulgated by state and local authorities.
There can be no assurance that future regulatory compliance will not
materially adversely affect the Company's operations and profitability.
CONTROL OF THE COMPANY. The executive officers and directors of the
Company (six persons) jointly own an aggregate of 42.34% of the issued and
outstanding Common Stock of the Company (excluding Shares to be issued upon
exercise of the Warrants or conversion of the Notes), which is the only
outstanding capital stock of the Company and which has one vote per share.
Thomas Rader, a director of the Company, is the single largest shareholder of
the Company with 17.84% of the Common Stock. Therefore, management of the
Company should be able to control virtually all matters requiring approval of
the shareholders of the Company, including the election of all of the
directors. See "Principal and Selling Shareholders."
POTENTIAL CONFLICTS OF INTEREST. A significant portion of the Company's
available cash (approximately $9.2 million) is expected to be used to
purchase the railcars for the Florida Fun-Train from RRI, a company which is
controlled by one of the Company's Directors, Thomas G. Rader. Mr. Rader is
currently the Company's largest single shareholder. The Company also expects
to satisfy its future needs for railcars through agreements with RRI. There
can be no assurance that the Company will enter any future agreements with
RRI, or if so, that there will not be material adverse consequences to the
Company from the inherent conflict of interest and lack of arm's-length
negotiations with RRI. Further, in the event that disputes arise between Mr.
Rader or RRI and the Company, resolution of such disputes, whether through
legal action or otherwise, could be severely complicated by Mr. Rader's
status as a director and a principal shareholder. See "Business--Florida
Fun-Train" and "Certain Transactions."
8
<PAGE>
NO PAYMENT OF CASH DIVIDENDS. The Company has not paid any cash dividends
to holders of its Common Stock nor does it intend to declare any cash
dividends with respect thereto in the near future. Instead, the Company
intends to retain future earnings, if any, for use in its business
operations. Further, the security instrument securing the Notes prohibit the
payment of any dividends on the Common Stock. See "Dividend Policy."
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF SERIES A WARRANTS. Upon
redemption of the Series A Warrants, the holders thereof would be required to
(i) exercise such warrants and pay the exercise price at a time when it may
be disadvantageous for them to do so, or (ii) accept the redemption price
which is likely to be substantially less than the market value of such
warrants at the time of redemption. See "Description of Securities."
EXERCISE OF THE WARRANTS AND/OR THE CONVERSION OF THE NOTES INTO COMMON
STOCK WILL HAVE DILUTIVE EFFECT. The Warrants will provide an opportunity for
the holders thereof to profit from a rise in the market price of the Common
Stock, of which there is no assurance, with resulting dilution in the
ownership interest in the Company held by the then present shareholders.
Holders of the Warrants or the Notes most likely would exercise such Warrants
or convert the Notes and purchase the Common Stock underlying such securities
at a time when the Company may be able to obtain capital by a new offering of
securities on terms more favorable than those provided by such Warrants or
Notes, in which event the terms on which the Company may be able to obtain
additional capital would be affected adversely.
SHARES ELIGIBLE FOR FUTURE SALE. All but 350,000 of the Company's current
outstanding shares of Common Stock (9,050,278 Shares) are "restricted
securities"; however, pursuant to this offering a significant number of such
currently outstanding shares (4,425,275 shares) are being offered hereby for
sale. In addition, in the future, these "restricted securities" along with
the balance of the Common Stock outstanding may be sold upon compliance with
Rule 144, adopted under the Act. Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of two years may sell only an
amount every three months equal to the greater of (a) one percent of the
Company's issued and outstanding Common Stock, or (b) the average weekly
volume of sales during the four calendar weeks preceding the sale. The amount
of "restricted securities" which a person who is not an affiliate of the
Company may sell is not so limited, since non-affiliates may sell without
volume limitation their Shares held for three years if there is adequate
current public information available concerning the Company. During each
three-month period, beginning in April 1998, a holder of restricted
securities who has held them for at least the two-year period may sell under
Rule 144 a number of Shares up to approximately 90,500 Shares (assuming no
exercise of Warrants or conversion of Notes). Non-affiliated persons who hold
for the three-year period described above may sell unlimited Shares once
their holding period is met.
DILUTION; FUTURE SALES OF STOCK BY THE COMPANY. After reserving a total of
7,363,046 Shares of Common Stock for issuance upon the exercise of the
outstanding Warrants and conversion of the Notes, the Company will have in
excess of 83,000,000 Shares of authorized but unissued Common Stock available
for issuance without further shareholder approval. As a result, any issuance
of additional Shares of Common Stock may cause current shareholders of the
Company to suffer significant dilution which may adversely affect the market
for the securities of the Company. See "Description of Securities."
Prospective investors should be aware that the possibility of sales may,
in the future, depress the price of the Common Stock in any market which may
develop and, therefore, the ability of any investor to market Shares may be
dependent directly upon the number of Shares that are offered and sold.
Affiliates of the Company may sell their Shares during a favorable movement
in the market price of the Common Stock which may have a negative effect on
its price per share. See "Description of Securities."
POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK ON MARKET PRICE AND
RIGHTS OF COMMON STOCK. The Company's Articles of Incorporation authorize the
issuance of 500,000 shares of "blank
9
<PAGE>
check" preferred stock ("Preferred Stock") with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. The issuance of any series of
Preferred Stock having rights superior to those of the Common Stock may
result in a decrease in the value or market price of the Common Stock.
Holders of Preferred Stock to be issued in the future may have the right to
receive dividends and certain preferences in liquidation and conversion
rights. The issuance of such Preferred Stock could make the possible takeover
of the Company or the removal of management of the Company more difficult,
discourage hostile bids for control of the Company in which shareholders may
receive premiums for their Common Stock and adversely affect the voting and
other rights of the holders of the Common Stock. The Company may in the
future issue additional shares of its Preferred Stock. See "Description of
Securities--Preferred Stock."
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Company will be able to
issue the Shares issuable upon the exercise of the Warrants only if (i) there
is a current Prospectus relating to the securities offered under an effective
Registration Statement filed with the Commission, and (ii) such Common Stock
is then qualified for sale or exempt therefrom under applicable state
securities laws of the jurisdictions in which the various holders of such
Warrants reside. While this Prospectus relates to a current, effective
registration statement, there can be no assurance, that the Company will be
successful in maintaining a current Registration Statement. After a
Registration Statement becomes effective, it may require updating by the
filing of post-effective amendments.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. This Prospectus contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding, among other items (i) the Company's
growth strategies, (ii) the impact of the Company's products and anticipated
trends in the Company's business, and (iii) the Company's ability to enter
into contracts with certain suppliers and strategic partners. These
forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. Actual results could differ materially from
these forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire or prove to
be accurate.
10
<PAGE>
THE MERGER
GENERAL. In conjunction with the Private Placements on April 26, 1996,
(see "Plan of Operation"), the Company merged with First American-Florida, a
Florida corporation (the "Merger"). The Company was the surviving entity in
the Merger, and as part of the Merger the Company issued one share of Common
Stock for each share of common stock of First American-Florida then
outstanding, and changed its name to "First American Railways, Inc." By
virtue of the Merger, the Company has succeeded to all of the contractual
rights, duties and obligations of First American-Florida, including, but not
limited to, those arising under the Warrants and other obligations incurred
executed in connection with the Private Placement. See "Certain
Transactions."
The Company (formerly known as "Asia-America Corporation" and prior to
that "Barona Enterprises, Inc.") was formed in March 1987 for the purpose of
acquiring one or more potential business ventures within the United States,
without restriction as to any particular type of business or industry. In
March 1988, the Company completed a public offering of its securities.
REVERSE STOCK SPLIT. Prior to completion of the Merger, the Company
effectuated a reverse stock split on a 1-for-108 basis which reduced its
issued and outstanding shares of common stock to 350,000 shares. All
fractional shares were rounded up to the nearest whole share. A pre-Merger
shareholder of the Company contributed sufficient shares to the Company for
cancellation to offset whole shares issued in lieu of fractional shares and
to round off the exact number of issued and outstanding shares to 350,000.
AMENDMENT TO THE ARTICLES OF INCORPORATION. At the time of the Merger, the
Company amended its Articles of Incorporation to (i) change its corporate
name, (ii) authorize 500,000 shares of preferred stock, $.001 par value, to
be issued in such series and with such rights, preferences and designations
as determined by the Company's Board of Directors, and (iii) to provide that
officers and directors of the Company shall have no liability for breach of
fiduciary duty except as provided under Nevada law.
The State of Nevada has amended its corporation law subsequent to the
incorporation of the Company in 1987 to provide that directors and officers
of a Nevada corporation, if so stated in the Articles of Incorporation, shall
not be personally liable to the corporation or its stockholders for a breach
of fiduciary duty except in the instance of intentional misconduct, fraud,
knowing violation of law, or the improper payment of dividends. By amending
its Articles of Incorporation, the Company intended to include a provision in
its Articles of Incorporation to take advantage of this provision in the law
so as to be able to retain the best qualified officers and directors free
from claims under spurious and frivolous shareholders' suits.
The Company has no present intention to issue any of its preferred stock,
but proposed new management desires to have such shares available should the
need arise to issue such shares for financing or other corporate purposes in
the future. All terms, conditions, rights and preferences of such shares,
including any separate series thereof shall be determined at the sole
discretion of the Company's Board of Directors. See "Description of
Securities--Preferred Stock."
The preferred stock may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors of
the Company may determine by resolution. The rights, preferences and
limitations of separate series of preferred stock may differ with respect to
such matters as may be determined by the Board of Directors, including,
without limitation, the rate of dividends, method and nature of payment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions (if any), conversion rights (if any) and voting rights. The
potential exists that the preferred stock could be issued which would grant
dividend preferences and liquidation preferences to preferred shareholders.
See "Description of Securities--Preferred Stock."
11
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
offered by the Selling Shareholders. Management estimates that the aggregate
expense of this offering will be approximately $116,800, all of which will
be borne by the Company.
The gross proceeds from the exercise of all of the outstanding Warrants
would be $14,119,705. The Company intends to use the proceeds from the
exercise of the Warrants, if any, for working capital and general corporate
purposes. Proceeds not immediately required for such purposes will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term
interest-bearing investments.
PRICE RANGE OF COMMON STOCK
The Company has applied for the listing of its Common Stock on the Nasdaq
SmallCap Market ("Nasdaq"). The Company's Common Stock is currently quoted on
the OTC Bulletin Board under the symbol FTRN. The following table sets forth
the high and low sales prices of the Common Stock for the period indicated in
1996.
1996: HIGH LOW
- ----- ------ -----
Second Quarter (April 26 through June 30)*.. $6.375 $3.00
Third Quarter (through July 30) .......... $5.375 $4.75
On August 1, 1996, the last reported sales price of the Common Stock was
$5.75 per share. As of that date, there were 381 holders of record of the
Common Stock.
- ----------
* Market prices have been disclosed for the post-Merger period; prior thereto
there had been no active trading market for the stock during the last three
years.
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<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. The Company does not anticipate the payment of any dividends in the
foreseeable future. The Company intends to retain future earnings, if any, to
finance the development and expansion of its business. Future dividend policy
will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and other factors.
Therefore, there can be no assurance that any dividends of any kind will ever
be paid. Further, the Notes provide that the Company will not (i) declare or
pay any dividend or make any other distribution of the Company, except
dividends or distributions payable in equity securities of the Company, or
(ii) purchase, redeem or otherwise acquire or retire for value any equity
securities of the Company, except (a) an equity security acquired upon
conversion thereof into other equity securities of the Company and (b) any
equity security issued to employees, directors or others performing services
in accordance with agreements providing for such repurchase at original cost
upon termination of employment, membership on the Board of Directors or other
affiliation with the Company.
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1995, and for the
eight months then ended and the year ended April 30, 1995, is derived from
the Company's audited financial statements included elsewhere herein. The
financial data as at June 30, 1996 and 1995 and for six months ended June 30,
1996 and 1995 and for the cumulative period for February 14, 1994
(incorporation) through June 30, 1996, has not been audited by independent
auditors; however, in the opinion of management such financial data includes
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the information set forth therein. Interim results are not
necessarily indicative of results for the entire year. The following data
should be read in conjunction with the financial statements of the Company,
including notes thereto, and other financial information included elsewhere
herein.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
CUMULATIVE FROM
THE PERIOD
FEBRUARY 14, 1994 FOR THE SIX MONTHS FOR THE EIGHT FOR THE YEAR
(INCORPORATION) ENDED JUNE 30, MONTHS ENDED ENDED
THROUGH -------------- DECEMBER 31, APRIL 30,
JUNE 30, 1996 1995 1995 1996 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Loss .......... $(2,098,616) $(759,207) $(442,316) $(720,413) $(618,996)
Net Loss Per Share -- $ (.12) $ (.10) $ (.17) $ (.14)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
JUNE 30, 1996 DECEMBER 31, 1995
(UNAUDITED)
------------- -----------------
<S> <C> <C>
Working Capital .................... $12,748,710 $(580,366)
Total Assets ....................... 14,724,221 357,672
Total Liabilities .................. 8,407,041 582,046
Total Stockholders' Equity
(Deficit) ........................ 6,317,180 (224,374)
</TABLE>
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<PAGE>
PLAN OF OPERATION
PLAN OF OPERATION
The Company is in its developmental stage, and it has had no rail
operations; however, the Company has taken significant steps to commence
operations of the Florida Fun-Train including purchasing its first passenger
car (for $850,000 from RRI), entering into a track rights agreement with FEC,
entering into a memorandum of understanding with CSXT for track use (which
the Company is currently negotiating to reduce to a final contract),
negotiating a letter of intent with the Greater Orlando Aviation Authority to
locate a terminal at the Orlando International Airport, negotiating with RRI,
(which is owned by a director of the Company) for the construction of the
railcars for the Florida Fun-Train, entering the final design phase of two
station terminals, contracting with an outside consultant for the preparation
of a definite marketing strategy and conducting discussions with major
wholesale travel, tour companies, tourist attractions and hotels for the
marketing of the Company's services. The Company anticipates commencing
promotional rail service for the Florida Fun-Train in the Summer 1997 and
full rail service in the Fall 1997. Until full service is commenced, the
Company does not expect to generate any material revenues; nevertheless,
during the next twelve months the Company expects to have significant capital
expenditures for railcar construction, terminal construction, and track and
leasehold improvements, and significant operating expenses for salaries,
marketing and track use (when rail service commences).
The Company plans to use its current available funds (i) to pay the
expenses in connection with the commencement of the operation of the Florida
Fun-Train and (ii) provide working capital to support the Florida Fun-Train's
initial operations to the extent that cash flow from such operation is
insufficient. See "Business."
The Company intends to commence operations of the Florida Fun-Train in the
Fall 1997. The track rights for the use of the subject route for the Florida
Fun-Train are held by the FEC (between Ft. Lauderdale and West Palm Beach and
the CSXT (between West Palm Beach and Orlando). The Company has entered into
a ten year agreement with FEC for these rights. This agreement provides that
the Company will pay FEC $18 per train-mile (with a stipulated train size of
15 cars) once the Fun-Train commences operation, with a minimum payment of
$500,000 per year per train. The Company has also entered into a Memorandum
of Understanding with CSXT for use of its portion of the subject route. This
latter understanding is expected to be reduced to a more formal agreement
which is expected to require the Company to pay the greater of (i) $20 per
train-mile, or (ii) 16% of the passenger revenues of the Florida Fun-Train.
The Company expects to begin passenger railroad operations using the Florida
Fun-Train; however, if for any reason that operation cannot commence as
planned then the Company will commence its operations using the Space Coast
Fun-Train, the track rights for which have been obtained (FEC track use
only). The FEC track rights agreement is applicable to the commencement of
either Fun-Train.
During this development stage, the Company intends to purchase additional
Fun-Train railcars pursuant to a construction agreement expected to be
negotiated with RRI. The Company expects to spend a maximum of approximately
$9.2 million to purchase up to 12 railcars and make exterior modifications to
three diesel locomotives. The Company expects to lease the three diesel
locomotives prior to commencing operations, and it believes that diesel
locomotives are generally available for lease for approximately
$10,000/month/locomotive.
The anticipated construction agreement is expected to require an advance
payment of a portion of the contract price upon execution with the balance of
the contract price to be paid thereafter in 11 equal monthly installments.
The Company expects the railcars to be completed and delivery to begin in the
Summer 1997. The Company expects staggered delivery of the railcars from RRI
during the Summer 1997 and it expects to begin offering promotional rail
service of the Florida Fun-Train at that time. See "Risk
Factors--Construction and Industry Risks Associated with the Fun-Train."
Before the Florida Fun-Train rail operations can commence, the Company
must construct or otherwise obtain the use of terminals at each end of the
proposed route. The Company is currently in
15
<PAGE>
negotiations in this regard, and in this connection the Company is in the
process of finalizing its cost estimates and determining the extent of
governmental support for these activities, if any. Also, during the next 12
months the Company expects to increase its work force from the six persons
currently employed by the Company (four of whom are management). The Company
will be required to hire approximately 25 additional employees; however, the
exact number of employees is dependent on the Company's decision with respect
to "outsourcing", its marketing and rail operations functions, etc.
There can be no assurance that all of the foregoing arrangements or
agreements, which are still to be negotiated, will be made in a timely
fashion. See "Risk Factors" and "Business." In addition, the Company will be
required to obtain certain levels of insurance, hire qualified employees and
it may be required to develop its own maintenance services and its own
reservation system.
Upon launching the Florida Fun-Train, revenues will be generated from both
passenger ticket sales and on-board passenger revenues. The Company
estimates, although there can be no assurance, that such prices will be
realized, that the initial one-way ticket price for the Florida Fun-Train
will be approximately $55 and that average per passenger en route revenue
(for food, beverages, entertainment and souvenirs) will be approximately $14.
A significant portion of the tickets sold for the Florida Fun-Train are
anticipated to be sold through travel wholesalers and travel agents. Travel
wholesalers and travel agents typically earn commissions of approximately 20%
and 10%, respectively. The Florida Fun-Train is anticipated to consist of up
to eight passenger cars which would accommodate up to 640 passengers
(approximately 80 passengers per car).
Presently, the Company contemplates offering in the future another
entertainment train to be known as the Space Coast Fun-Train which is to
provide passenger service between South Florida and the Florida Space Coast
(near the Kennedy Space Center).
DEVELOPMENT STAGE ACTIVITIES AND LIQUIDITY
GENERAL:
Neither the Company nor its predecessor by merger, First American-Florida,
have had any revenue from operations, and the Company has had accumulated
losses of $2,098,616 (unaudited) for the period from February 14, 1994
(incorporation) through June 30, 1996. The Company expects such losses to
continue at least through commencement of its full rail operations in the
Fall 1997, and perhaps thereafter. Since inception the Company's (and its
predecessor's) activities have been funded by the private placement of its
securities and by borrowings, the net cash proceeds from which have totaled
$15,417,649.
YEAR ENDED APRIL 30, 1995:
The Company was initially capitalized with $18,000. Thereafter, in October
1994, the Company completed a private placement of securities in which it
sold an aggregate of 420,570 shares of common stock to 24 investors for a
total of approximately $961,000 in net proceeds. There was no placement agent
retained in connection with this private placement. These aggregate funds
were used to pay a deposit of $350,000 on the first railcar for the Florida
Fun-Train, and the balance was used to pay costs associated with further
capital raising, and general and administrative expenses (which were related
to the pre-commencement activities for the Florida Fun-Train and capital
raising activities).
EIGHT MONTHS ENDED DECEMBER 31, 1995:
The Company explored various financing alternatives; however, no
additional capital was raised during this period. The Company borrowed an
additional $270,000 in order to support its operations. During this period,
the Company had a net loss of $720,413, of which approximately $282,000 were
expenses of offerings not completed. In addition, a significant amount of
other expenses, principally the salaries of officers and employees, were
expended in connection with capital raising activities.
16
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996:
In March 1996, the Company completed a private placement of securities in
which it sold an aggregate 375,004 shares of common stock and issued $500,000
in convertible notes, bearing interest at 10% per annum, for aggregate net
proceeds of $393,709. In April-May 1996, the Company completed a private
placement of securities, in which it sold 3,950,271 Series A Warrants,
exercisable at $3.50 per share, and 4,050,271 shares of Common Stock valued
at $8,250,683 and issued $8,250,682 (principal amount) in Notes, bearing
interest at 10% per annum, for aggregate net proceeds of $14,514,905 (of
which $416,300 was not cash consideration, but represented the conversion of
the principal and accrued interest on certain secured notes issued in the
March 1996 private placement into securities sold in the April-May 1996
private placement).
The Company used $783,388 of the proceeds to repay $333,388 in notes
payable to related parties and others, and $445,000 to repay notes payable
from the financing completed in March 1996. In addition, in June 1996, the
Company made a payment of $536,000 to RRI representing the final payment
(plus interest) due on the first railcar purchased. In addition, a
significant portion of the proceeds of the May 1996 private placement
(approximately $830,000) were escrowed to pay the first year's interest on
the Notes sold in that private placement.
To date the Company has not generated any revenue and as of June 30, 1996
it had accumulated losses of $2,098,616 (unaudited). At June 30, 1996, the
Company had working capital of $12,748,710 and stockholders' equity of
$6,317,180 (unaudited).
LIQUIDITY:
The Company's future cash requirements will be significant. The Company
expects that the proceeds from the Private Placements, in conjunction with
other leasing and financing opportunities, to be sufficient to enable the
Company to commence operations of the Florida Fun-Train in the Fall 1997.
There can be no assurance, however, that operations will in fact commence as
scheduled, nor that unanticipated problems may arise which may necessitate
the need for additional financing until the Company can generate revenues
sufficient to meet operating expenses. Further, there can be no assurance
that the Company will not experience adverse changes in its business
prospects, its proposed operations, or in the transportation or tourism
industries, or the U.S. economy, generally. See "Business."
FUTURE ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires, among other things, impairment loss
of assets to be held and gains or losses from assets that are expected to be
disposed of be included as a component of income from continuing operations
before taxes on income. The Company has adopted SFAS No. 121 as of January 1,
1996 and its implementation did not have a material effect on the financial
statements.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 123 requires that a fair value method for accounting
for stock-based compensation plans be calculated and either recognized in the
financial statements or disclosed in the notes to the financial statements.
The Company does not presently intend to adopt the fair value based method
and as such, earnings will not be impacted by these options. However, it will
disclose in the footnotes the effects of the calculation required by the
statement.
17
<PAGE>
BUSINESS
The Company was organized in the State of Nevada in 1987 and completed a
public offering of its securities in May 1987. Prior to the merger described
below, the Company's business purpose was to seek to acquire suitable
property, assets or businesses by means of completing a merger with or the
acquisition of a privately-held business enterprise seeking to obtain the
perceived advantages of being a public company.
First American-Florida was organized in February 1994 with management who
has experience in the passenger rail and tourism industries. The Company
plans to offer a series of entertainment-based trains, and initially the
Company intends to capitalize upon Florida's growing tourist base of over 41
million tourists per year by developing and operating unique
entertainment-based passenger rail service, the "Florida Fun-Train", between
South and Central Florida. First American-Florida merged into the Company in
April 1996.
Florida attracts tourists from across the world and was the top tourist
destination in the United States in 1995. South Florida not only contains a
number of well-known tourist destinations, but is also a key entry point into
the state for cruise ships entering and leaving the Port of Miami and Port
Everglades (Fort Lauderdale), as well as tourists utilizing Miami
International and Hollywood-Fort Lauderdale Airports. Central Florida
(Greater Orlando) plays host to world renowned tourist destinations such as
Universal Studios Florida, Walt Disney World, Sea World, Kennedy Space Center
and Port Canaveral. In 1994, approximately 14 million people traveled between
South and Central Florida.
The Florida Fun-Train is being designed to provide passengers with an
exciting, unique, fun-filled overland leisure excursion. The Company expects
that this will be accomplished through the use of a variety of entertainment
features, including "virtual reality" and "high-tech" games, as well as
dining, dancing and lounge cars offering a variety of live entertainment. It
is anticipated that the exterior of the Florida Fun-Train will be designed to
have the appearance of an ultra-modern, colorful, sleek, high-speed train.
The train's colors will be vibrant unlike the typical passenger train in the
United States. The Company expects that most of its passengers will be
tourists, and that the Company's service will be offered as an "extension" of
the passenger's vacation. The Company intends to provide a high level of
service in order to accommodate its passengers.
In the future the Company contemplates offering another
entertainment-based passenger train in Florida to be known as the "Space
Coast Fun-Train" which is to provide passenger service between South Florida
and the Florida Space Coast near the Kennedy Space Center. The Company will
be required to seek additional financing for the Space Coast Fun-Train; there
can be no assurance that such financing will be available on terms acceptable
to the Company or that the Company will be in a position to launch the Space
Coast Fun-Train or any other rail operations at any time.
Management of the Company has extensive experience in the passenger rail
and tourism markets. The Company's Chairman of the Board is the Chairman of
the Tri-County Rail Authority (from October 1992 to October 1993). The
Authority operates a 67-mile mass transit railroad service known as
"Tri-Rail" between the metropolitan areas of Miami, Fort Lauderdale and West
Palm Beach, Florida, and carries approximately 10,000 passengers daily. The
Company's Vice Chairman was the founder and is the former Chairman of the
Board of Directors of the Auto-Train Corporation (which carries passengers
and their automobiles on the same train, between the Washington, D.C. area
and the Orlando, Florida area).
The Fun-Train concept is to provide an enjoyable, high-quality
entertainment alternative to other means of transportation between South and
Central Florida. The Company's goal is to maximize the entertainment value of
the travel time while providing an efficient, safe and reliable form of
transportation at a reasonable price. As such, management of the Company
believes it will be able to capture both a portion of the tourist market
intent on travelling between South and Central Florida
18
<PAGE>
while also encouraging travel on the Florida Fun-Train by tourists and
residents who would not otherwise make the trip. Currently, travel is made
between South and Central Florida primarily by either automobile or airplane.
The Company believes the Florida Fun-Train will offer significant price
advantages to travelling by airplane while travelling by automobile does not
offer the entertainment value provided on the Florida Fun-Train.
COMPETITION
Numerous companies, most of which are substantially larger than the
Company and have much greater financial and other resources, offer
alternative modes of transportation over the routes where the Company intends
to operate. In addition to the extensive competition in the transportation
sector, the Company faces extensive competition for the spending of leisure
time and dollars from numerous attractions in the tourist entertainment
sector. These alternative modes of transportation, offer transportation that
is less expensive and/or faster than the Company's proposed rail service.
Most of these competitors already enjoy an established presence in the
Florida and United States transportation and tourism markets. The Company
expects to compete on the basis of what it believes to be its unique product,
which will provide a combined package of transportation and entertainment.
The Company believes its principal competition in the transportation
sector occurs from airlines,, automobiles and inter-city buses. While air
travel is a faster means of transportation, it is more expensive than the
Company's proposed fares, nor does this mode of travel provide greater
convenience within the scope of the Florida Fun-Train's projected routes.
Automobile travel is, on the other hand, less expensive, but lacks the
convenience and ease of transport expected to be provided by the Florida
Fun-Train.
In addition, the Company also has a rail service competitor in the
South/Central Florida corridor) the National Passenger Rail System
("Amtrak"). Amtrak currently operates passenger train service between
Miami/Fort Lauderdale and Orlando, Florida with numerous stops in between.
The cost of a round-trip ticket between Miami/Fort Lauderdale and Orlando is
currently $284 (first class service) and $55 (coach service.) While the
present Amtrak service does not include the "entertainment-type" service
which the Company proposes to provide on the Florida Fun-Train, there can be
no assurance that Amtrak will not improve its service and offer amenities
similar to those proposed to be offered by the Company. The Company believes
that its principal competition stems from air, automobile and other railway
companies. The Company is not aware of any other person or entity currently
planning to provide a service directly competitive with the Florida
Fun-Train, the Space Coast Fun-Train or any of the other trains contemplated
by the Company; however, the Company is generally aware of the fact that Walt
Disney Company has indicated from time to time its interest in establishing a
rail link between its operations in greater Orlando and one or more cruise
ports in Florida. There can be no assurance that such a competitor will not
appear before or after the Company commences operations.
Generally, the Company faces extensive competition for the spending of
leisure time and dollars from numerous attractions in the tourist
entertainment sector. The Company's success will depend primarily on its
ability to quickly develop an entertaining, high-quality, efficient, safe and
reliable service, as well as its ability to market the service and secure
consumer acceptance. It is highly uncertain whether the Company will be
successful in these efforts. See "Business--Competition."
FLORIDA FUN-TRAIN
The Company plans to commence operations of the Florida Fun-Train during
the Fall 1997.
19
<PAGE>
The Florida Fun-Train is anticipated to consist of:
<TABLE>
<S> <C>
8 Full Dome Passenger Cars Each car will provide comfortable, spacious seating and meal service for up to 80 passengers.
2 Lounge Cars The adult lounge and entertainment car will serve cocktails and hors d'oeuvres and provide music
and live entertainment, including musicians and disc jockeys for listening and/or dancing.
The youth lounge will provide young passengers with food and soft drinks, as well as music and live
entertainment will be provided by musicians, disc jockeys, magicians, comedians and clowns, etc.
1 Space Station Arcade Car This car will allow travelers of all ages to experience the latest high-tech video and virtual
reality games.
1 "Interactive" Car/Gift Shop Educationally oriented computer and video games will fill one side of the car. On the other side, a
gift shop will offer interesting train gifts and souvenirs.
1 Power and Luggage Car This car will provide the electricity needed for operation of the train's facilities, as well as
additional storage space for the passengers' luggage.
</TABLE>
The Company intends to have all of these railcars constructed by Rader
Railcar, Inc. See "Certain Transactions."
In addition, each Fun-Train will utilize two leased diesel locomotives,
which will be remodelled to give the appearance of a sleek, high-speed
locomotive. It is currently contemplated that one locomotive will be
positioned on each end of the train, allowing the train to be operated in
either direction without the need to turn the train around.
The Company plans to initially operate the Florida Fun-Train between Fort
Lauderdale and Orlando over existing tracks. The Company may, in the future,
conduct certain operations from Miami; however, to date no arrangements have
been made for locating a terminal in Miami. Until such time, passengers will
be brought by either ferry or bus from Miami to Fort Lauderdale. The Company
intends to operate the Florida Fun-Train on currently existing FEC and CSXT
tracks.
On February 28, 1995, the Company entered into an agreement with FEC for
the use of certain track rights in the Miami-Fort Lauderdale-West Palm
Beach-Titusville corridor. The ten-year term of the FEC agreement starts when
either the Florida Fun-Train or the Space Coast Fun-Train is operational and
the agreement provides for a standard, per-car mileage charge of $1.20 per
car-mile (which is equivalent to $18 per train-mile based on the minimum FEC
15-car train requirement), payable monthly, with a minimum guaranteed annual
amount of $500,000 per route to be paid by the Company to FEC. When and if
both Fun-Trains are operable, the minimum payment will be $1 million per
annum. The Company will operate the Florida Fun-Train and/or Space Coast
Fun-Train with locomotives it provides subject to dispatching (and related
controls) by FEC. The agreement provides for limited exclusivity to the
Company to operate "Fun-Train" type train services and/or services to cruise
lines over the prescribed routes, with certain exceptions. Further, the
Company is obliged to indemnify FEC for claims under actions arising from the
operation of the Florida Fun-Train and the Space Coast Fun-Train, and the
Company is obliged to obtain a minimum of $200 million in comprehensive
general liability insurance coverage in favor of FEC, with a minimum
deductible.
The CSXT Memorandum dated August 24, 1995, provides for the use of CSXT's
tracks between West Palm Beach and the Orlando International Airport
Tradeport site to be used for the operation of the Florida Fun-Train. The
CSXT Memorandum which contains the essential terms of the agreement between
the Company and CSXT, provides, in part, that the Company will pay CSXT the
greater of $20 per train mile, or 16% of the Company's revenue from the
Florida Fun-Train operations. In addition,
20
<PAGE>
the Company is required to maintain at least $300 million in comprehensive
general liability insurance with a minimal deductible (or self-assured).
Pursuant to the CSXT Memorandum, CSXT has agreed not to grant similar access
rights to the subject rail corridor (between West Palm Beach and Orlando) to
any other private rail passenger operator or contractor which would provide
comparable conventional rail passenger service (primarily servicing the
cruise ship market). The exclusivity provision specifically excepts the
provision of access to the subject CSXT route by Amtrak and the Tri-County
Commuter Rail Authority, as well as other publicly-funded authorities with
statutory and/or contractual rights with respect thereto. The exclusivity
also does not apply to high-speed rail activities. In addition, the
exclusivity clause will be voidable at CSXT's option if (i) after the first
year of operation, the Company does not operate at least 16 Florida
Fun-Trains a week, or (ii) management of the Company changes significantly.
The term of the agreement will be five years. In addition to the foregoing,
the Company has tentatively agreed to sell up to 400,000 warrants to CSXT,
the terms of which are to be negotiated; no provision has been made herein
for the effect of the issuance or exercise of these warrants when and if
issued. Also, the Company has tentatively agreed to appoint a CSXT
representative, selected by the Company, to its Board of Directors.
The initial terminal locations are planned to be in Fort Lauderdale (which
is located in the center of the metropolitan area comprising Dade, Broward
and Palm Beach Counties) and in Greater Orlando, the home of Walt Disney
World, Universal Studios Florida, Sea World and numerous other attractions.
The Company has commenced preliminary discussions with representatives of the
Port of Miami to construct a second terminal to serve Port of Miami cruise
passengers. Until the Miami terminal is in operation, of which there can be
no assurance, the Company expects to transport its passengers from the Port
of Miami to its planned Fort Lauderdale terminal by bus, ferry or other means
of transportation.
The Company has entered into discussions with representatives of Port
Everglades which is under the authority of the Broward County commission for
a Fort Lauderdale terminal. A proposed site has been selected adjacent to the
Broward County Convention Center, which is adjacent to the piers for cruise
ships and within two miles of the Fort Lauderdale International Airport.
Representatives of Port Everglades have been supportive of the Company's
plans, and the Company's architects and engineers intent to proceed with the
design plans for the Port Everglades Terminal. Further, the Company has
entered into a Letter of Intent with the Greater Orlando Aviation Authority
to locate a terminal at the Orlando International Airport. Although the
Company expects to obtain funding for some or all of these facilities from
State and/or local governments, final terms regarding the construction of
these facilities have not been negotiated. There can be no assurance that any
such negotiations will be successful.
The estimated travel time for the Florida Fun-Train between Central
Florida and South Florida is approximately four hours. To serve the general
domestic and international tourist market, the Company plans to offer daily
weekday service origination in South Florida in the morning and in Central
Florida in the afternoon. To serve the South Florida weekend cruise market
(Port Everglades and Port of Miami) the Company plans to offer special
inbound and outbound service for cruise passengers.
FUTURE FUN-TRAINS
After the introduction of the Florida Fun-Train, and assuming the Company
has sufficient capital available, it expects to provide "Fun-Train" passenger
service between South Florida and the Florida Space Coast (near the Kennedy
Space Center). The Space Coast Fun-Train is expected to provide daily
round-trip service at a fixed price which will include a full tour of the
Kennedy Space Center. The Kennedy Space Center is one of Florida's most
popular tourist attractions, receiving over 2.1 million visitors in 1994 and
is especially popular with international tourists. The Company expects to
market the Space Coast Fun-Train as a convenient and entertaining travel
opportunity to see the Kennedy Space Center. The Space Coast Fun-Train will
operate over existing tracks owned and operated by FEC.
21
<PAGE>
MARKETING
The Company estimates that the initial one-way ticket price for the
Florida Fun-Train will be approximately $55 and the per-passenger en route
revenue (for food, beverages, entertainment and souvenirs) will be
approximately $14. On the Space Coast Fun-Train, the Company estimates an
initial round-trip ticket price of approximately $140, which will include
transportation and the cost of admission to the Kennedy Space Center as well
as en route revenue of approximately $20.
On July 23, 1996, the Company engaged Management Resource Group, Inc.
("MRG") to conduct a market study for the Company for the purpose of
providing recommendations with respect to targeting market segments most
likely to use the Florida Fun-Train, traffic volume (including seasonal
fluctuations), schedules that would generate the highest volume of ridership,
fare structure, types of entertainment, and key product attributes such as
classes of service, language or other special requirements. The total cost of
this market study (including reimbursement for professional fees and
out-of-pocket expenses) will be approximately $172,000.
Over the next 12 months the Company plans to develop and implement its
sales and marketing efforts. The Company plans to hire approximately five
employees who will begin marketing the Company to the travel and tour
industries. Among other things these employees will market and sell tickets
(passenger seats) through wholesale tour operators and retail travel agents.
Wholesale tour operators have historically represented a material source of
business for the travel industry in South and Central Florida, particularly
in the cruise and lodging businesses. While the Company cannot anticipate
what percentage of its future business will be with wholesale tour operators
it is expected that wholesalers will represent approximately one-half of its
business.
In addition, marketing efforts which feature the Company's services are
presently planned through various channels such as trade shows and
conferences, as well as advertising in various tour industry publications as
well as to the general public. During this stage, the Company plans to sell
Fun-Train tickets through an internal reservation system which must be
developed. The Company also may negotiate computer time-sharing or other
arrangements with third parties which operate systems for or similar to those
used by the travel and tour industries. In addition, the Company intends to
attempt to market its services and sell tickets by means of joint
arrangements with cruise lines, airlines and hotels. General advertising on
radio and television and in periodicals, newspapers and other media, is also
planned as an important component of the Company's marketing program.
The Company has also entered into discussions with Universal Studios
Florida regarding joint marketing efforts in connection with the Florida
Fun-Train. Further, it is anticipated that Universal may advertise on the
train and install rides and exhibits which promote the Florida Fun-Train.
MARKET
The Company's principal market is approximately 41 million persons who
visit Florida each year. The Company also intends to rely for passengers on
the more than 1.4 million residents of the Central Florida (principally the
Greater Orlando metropolitan area) and the more than 3.5 million residents of
the South Florida (Miami/Ft. Lauderdale) metropolitan area, as well as on the
rest of the more than 13.4 million residents of Florida. SOURCE: "1994
Florida Visitor Study," Florida Department of Commerce, Bureau of Economic
Analysis, Tallahassee, FL (1995).
From 1980 to 1995 the number of annual visitors to Florida increased by
105%, from 20 million to 41.3 million. According to the Florida Department of
Transportation, approximately half of these visitors arrived without an
automobile. From 1980 to 1995, the resident population of Florida increased
from 9.7 million to 14.4 million, a 49% increase. During that period, the
population of Central Florida increased by 75%, from 800,000 to 1.4 million,
and the South Florida population grew from 2.6 million to 3.5 million, a 35%
increase. SOURCE: Florida Department of Commerce, Division of Economic
Development, Bureau of Economic Analysis. According to the 1994 Florida
Visitor Study, Florida's
22
<PAGE>
population and tourist base are expected to continue to grow significantly
during the next decade; however, the rates of growth are expected to slow
somewhat.
During the 1990's, the growth in portions of Florida's tourism industry
slowed, with some areas and attractions experiencing declines. The recent
slowdown has been attributed, in part, to highly-publicized criminal attacks
on tourists, and increasing competition from other tourist destinations in
the U.S. and the Caribbean region as well as economic problems in some of
Florida's overseas tourism markets.
<TABLE>
<CAPTION>
VISITORS BY SOUTHEAST AND CENTRAL FLORIDA REGIONS (1989-94)(1)(4)
1989 1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Southeast(2) ..... 11,788,156 12,839,327 13,386,130 13,560,302 13,419,865 13,321,071
Central(2) ....... 11,614,149 11,504,725 10,554,752 10,965,330 10,713,397 9,891,095
State Estimate(3) 38,712,303 40,970,233 39,560,874 40,536,194 41,032,560 39,883,447
</TABLE>
- ----------
(1) Southeast region includes: Dade (including Miami), Broward (including Ft.
Lauderdale), Palm Beach, Monroe and three less populated counties.
Central region includes: Orange (including Orlando) and eight less
populated counties.
(2) These figures count survey respondents who visited both regions, in which
case they were included in both figures for the applicable year.
(3) The State estimate is not based on total of regional numbers for reasons
set forth in Note 2, above.
(4) Source: 1994 Florida Visitor Study.
The Company's planned operations may be materially adversely affected by
declining growth or an absolute decline in the number of tourists visiting
Florida; however, the Company believes that, by offering a unique and safe
tourist attraction and service, it can attract the passenger base needed for
profitability, notwithstanding possible adverse trends in the growth of the
Florida tourist market as a whole.
According to the Florida Department of Transportation, in 1994
approximately 14 million persons traveled between Central and South Florida.
Of these trips, 55% were for tourism/recreation, 24% were for family/personal
reasons, and 21% were for business.
Given the status of both Central Florida and South Florida as major
tourist destinations, as well as the size of the underlying metropolitan
areas, the Company sees great potential in the market for transportation
between the two areas. The Company plans to target the tourists and residents
already traveling between the two destinations, but it also plans to
stimulate, through a marketing effort, travel between the areas on the
Florida Fun-Train and Space Coast Fun-Train by persons who otherwise would
not have made the trip. By providing a convenient, entertaining and
reasonably priced service between South Florida and Central Florida, the
Company's Fun-Train will be marketed as an inducement to South Florida
visitors and residents to travel to Central Florida, and vice versa. Given
the huge size of the potential market, the Company believes that it needs to
capture only a small portion in order to be successful.
CENTRAL FLORIDA
According to the 1995 Department of Commerce Study, the greater Orlando
area was the fastest growing metropolitan statistical area in Florida in the
early 1990's. The greater Orlando area added nearly 172,000 residents between
1990 and 1995 for an estimated population of 1.4 million. The Orlando area's
rate of growth during this period was 2.5 times the United States average.
Approximately 22.4 million passengers enplaned and deplaned at the Orlando
International Airport in 1994, up from approximately 21.5 million in 1993 and
21.1 million in 1992. These increases compare favorably to nationwide
increases in the magnitude of 2.5% (for 1992). Of these passengers, a
significant portion (approximately 24%) were international visitors,
primarily from Europe, Canada and, to a lesser extent, Latin America.
23
<PAGE>
Central Florida is filled with a plethora of attractions including Walt
Disney World's Magic Kingdom, Epcot Center, Disney-MGM Studios, Universal
Studios (Florida), Sea World of Florida, as well as Church Street Station,
Seminole Greyhound Park (Turf Club) and Splendid China.
Walt Disney World (and its related attractions) is a dominant component of
the Central Florida economy and has been historically (since 1971) the single
most important generator of airline traffic at the Orlando International
Airport. The international character of Disney's EPCOT Center has had a
particularly important influence on the number of international visitors
using that airport. In recent years, the relative influence of the Disney
attractions has lessened with the significant development of other major
tourist attractions and convention facilities; however, the magnitude of
Disney's importance to Florida tourism is demonstrated by the fact that Walt
Disney World's 1995 attendance total of approximately 35.3 million was over
four times the total at Central Florida's next most popular attraction
(Universal Studios).
One of the fastest growing components of the Central Florida economy is
the convention industry. Orlando is one of the largest convention markets (in
terms of number of delegates) in the United States. Reasons cited for the
increasing popularity of Orlando as a location for conventions and
conferences include the continuing development of area attractions, the
addition of hotel rooms, and the increased availability of transportation.
SOUTH FLORIDA
The Miami/Fort Lauderdale metropolitan area contains approximately 3.3
million residents and is also a major tourist destination, with numerous
attractions, two major cruise ports, four major-league professional sports
teams and miles of beaches. The area attracts millions of domestic and
international visitors each year, who come for tourism, shopping, business
and family visits. Miami is the financial and trade capital of Latin America,
and Miami Beach, famous for its night life, is internationally known as a
center for the fashion, music and movie industries. Fort Lauderdale, Miami
and Miami Beach are also major convention destinations. Miami International
Airport is the primary travel connection linking the Americas, the Caribbean,
Europe and Africa. Served by over 100 scheduled airlines, more than any other
airport in the world, Miami International Airport logs approximately 1,400
daily departures and arrivals. In 1994, over 13 million international
passengers flew to or from Miami.
South Florida has expanded from its traditional role as a wintertime
destination for North Americans to become a year-round destination for
domestic and international visitors. South Americans now comprise 35% of
annual international visitors, European visitors make up 27% of the annual
total, visitors from Central America and the Caribbean account for 23%, and
North Americans account for 15%.
The Port of Miami is the home port to a world-leading fleet of 16 luxury
cruise ships, including five of the world's largest passenger ships, which
are expressly outfitted for pleasure cruise vacations. The Port of Miami
handles approximately 3 million passengers per year from its 12 passenger
terminals--more than any other cruise port.
Port Everglades, located approximately 30 miles north of Miami in Fort
Lauderdale, received a total of 2,379,520 cruise passengers during 1993.
There are 25 cruise ships based at Port Everglades, with four cruise
terminals just a short walk from the Broward County Convention Center.
The Fort Lauderdale/Hollywood International Airport is another major
transportation destination for tourists going to South Florida. In 1993, the
airport handled approximately 9.2 million domestic passengers and 1.2 million
international passengers. There are 19 major airlines serving the Fort
Lauderdale/Hollywood International Airport with 362 daily arrivals and
departures. The airport is located just one and one-half miles from Port
Everglades and the Broward County Convention Center.
EMPLOYEES
The Company currently employs six persons, four of whom are management and
two of whom are staff members. Over the next 12 months, the Company expects
to hire approximately 25 persons. See
24
<PAGE>
"Plan of Operation.'' The Company also intends to rely extensively on
independent contractors and the out-sourcing of certain functions, e.g.
marketing and rail operations.
Traditionally, railroad operating crews have been unionized, and the
Company may have no alternative but to use a unionized crew. Further, while
unionization among railroad passenger service workers is less prevalent then
among crew members, there can be no assurance that the Company will not have
to use unionized personnel in passenger service positions as well. While the
Company does not anticipate material labor relations problems and believes
that it can reach mutually beneficial collective bargaining agreements with
any unionized employees, there can be no assurance that these problems will
be avoided. The Company is considering "outsourcing" its rail operations.
GOVERNMENTAL REGULATION
The Company's operations will be subject to safety regulation by the
Federal Railroad Administration and the Florida Department of Transportation
applying federal safety standards, as well as environmental regulation by
federal and state agencies. The primary responsibility for safety at
crossings will lie with the track owners, i.e., most likely CSXT in the case
of the Florida Fun-Train and FEC in the case of the Space Coast Fun-Train.
The Company also will be subject to liquor license and other regulations
promulgated by state and local authorities. Any interstate operations by the
Company would subject it to regulation by the federal Interstate Commerce
Commission. The Company does not anticipate any material regulatory problems;
however, there can be no assurance that they will not develop.
The Company's proposed intrastate railroad operations will be subject to
various federal and state environmental laws and regulations. The Company
believes that its proposed operations will be in material compliance with all
such laws and regulations, and the Company estimates that such compliance
will not have any material effect on the its profitability or capital
expenditures. Nevertheless, there can be no assurance that current
environmental regulatory requirements will not change and that any such
change may have a material effect on the Company's operations.
LEGAL PROCEEDINGS
The Company is not party to any pending legal proceedings or arbitration
proceedings, and to the best of its knowledge and belief, none is
contemplated or threatened.
25
<PAGE>
MANAGEMENT
The directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Allen C. Harper(1)...... 51 Chairman of the Board of Directors
Eugene K. Garfield...... 60 Vice Chairman of the Board of Directors
Raymond Monteleone...... 48 Director
Thomas G. Rader(2)...... 50 Director
David H. Rush(1)(2)..... 75 Director
Luigi Salvaneschi(1).... 65 Director
</TABLE>
- ----------
(1) Member of the Compensation Committee, the Chairman of which is Mr. Rush
(2) Member of the Audit Committee, the Chairman of which is Mr. Rader.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Allen C. Harper...... 51 Chief Executive Officer
Raymond Monteleone .. 48 President, Chief Operating Officer
</TABLE>
MR. HARPER, has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since the Merger (April 1996), and prior to
that he served in similar capacities with First American-Florida since its
incorporation (February 1994). He has over 30 years of business experience,
principally in the areas of real estate management and development and rail
transportation. Since 1984, he has been principally employed as the Chairman,
President and principal shareholder of First Reserve, Inc., the holding
company for Esslinger-Wooten-Maxwell, Inc., a residential and commercial real
estate brokerage and management firm based in Coral Gables, FL. Since
September 1989, Mr. Harper has been a director, and from October 1992 to
October 1993, and beginning in September 1995 to date, he has served as
Chairman of the Board of the Tri-County Rail Authority. Since May 1994, he
has served as a Director of Florida East Coast Railway Co. (a railroad
company based in St. Augustine, FL) and Vacation Break U.S.A., Inc. (a travel
and time-share corporation based in Fort Lauderdale, FL).
MR. GARFIELD, has been the Vice Chairman of the Board since June 1996.
From the Merger (April 1996) to June 1996 he served as the President of the
Company, and prior to that he served in a similar capacity with First
American-Florida since its incorporation. Mr. Garfield has served as a
director of the Company since the Merger and prior to that was a director of
First American-Florida since its incorporation. During the last five years,
he has held several positions, including: professor of Business Law at
Miami-Dade Community College (Miami, FL -1990-1992), during which period he
also served as a director of the Entrepreneur-in-Residence-Program for the
School of Business and Entrepreneurship of Nova University (Fort Lauderdale,
FL). Thereafter, Mr. Garfield served as an advisor to the Florida Department
of Transportation (Office of the Governor) on the development of a high-speed
rail system for the State of Florida from January 1992 to April 1994. Since
April 1993, he has been Chairman of the Institute for Transportation Research
and Education at Barry University's Andreas School of Business (Miami Shores,
FL), and since October 1993, he has been a member of the Dade County Select
Committee. Mr. Garfield was appointed by former President Gerald R. Ford to
serve on the National Highway Safety Commission from 1977 to 1981. In 1969,
he was the founder and Chairman of the Board of Directors of the Auto-Train
Corporation, which operates the only passenger railroad of its kind in the
United States, carrying passengers and their automobiles on the same train.
Mr. Garfield was Assistant to the U.S. Secretary of Transportation from 1967
to 1968, and liaison assistant to President Lyndon B. Johnson from 1968 to
1969. In December 1995, Mr. Garfield was
26
<PAGE>
appointed to the Metropolitan Orlando International Affairs Commission
(MOIAC) by the Mayor of Orlando. Mr. Garfield serves on the International
Transportation Committee of the MOIAC.
MR. MONTELEONE, became President, Chief Operating Officer, and a Director
of the Company in July 1996. Most recently (1988-1996) Mr. Monteleone served
as the Vice President of Corporate Development, Planning, Administration, and
Acting Chief Financial Officer of Sensormatic Electronics Corporation. In
addition, from May 1988 until January 1995 he served as a consultant to and
Board member of various businesses . From 1973 until May 1988, he was a staff
accountant and later a partner, and then the Director of Taxes (three South
Florida offices) of Arthur Young & Company, an international accounting firm.
Mr. Monteleone is a Certified Public Accountant licensed in Florida, as well
as other states. He graduated cum laude from the New York Institute of
Technology in 1969, and received his Masters in Business Administration from
Florida Atlantic University (Boca Raton, FL) in 1992. He serves on the Boards
of Directors of Loren Industries, Inc. (a jewelry casting company), Pointe
Financial Corporation (a federal savings and commercial bank holding company)
and Rexall Sundown, Inc. (a pharmaceutical company). Mr. Monteleone has also
served on the Boards of Directors of numerous civic, industrial, and
professional associations, and he has received numerous governmental
appointments.
MR. RADER, has been a Director of the Company since the Merger, and prior
to that he served in a similar capacity with First American-Florida since its
incorporation. Since 1982, Mr. Rader has been the President and sole
shareholder of Rader Railcar, Inc., Denver, CO, which designs, builds and
operates unique rail cars. He has more than 20 years' experience in both the
tourism and railroad industries. From 1970 to 1975, he served as Vice
President and director with Sheraton Hawaii (a subsidiary of ITT-Sheraton
Corporation) and from 1978 to 1982, he served as Vice President and General
Manager of Holland America (a division of Holland America Line, Inc.). In
1982, he founded Tour Alaska, a privately-held Alaskan tour company which
offered the first private railcar tour through Alaska.
MR. RUSH has been a Director of the Company since the Merger, and prior to
that he served in a similar capacity with First American-Florida since June
1994. He has extensive experience in the private and public sectors,
principally in the areas of high tech industry, economic development and rail
transportation. Mr. Rush has served as a member and chairman of the Florida
High Speed Rail Commission, and he is also currently the Chairman of the
Tri-County Commuter Rail Authority. Mr. Rush was former chairman of the
National High Tech Council and is a current member of the Defense Conversion
and Transition Commission in 1993. Mr. Rush was the President and Chief
Executive Officer of Aptek Technologies, Inc., Deerfield Beach, FL, from 1982
to April 1995, and has been President of Rush Holdings, Inc., in Deerfield
Beach since 1958. He is also President of RTX Telecom and Electro Data Corp.
since 1982.
MR. SALVANESCHI has been a Director of the Company since the Merger, and
prior to that he served in a similar capacity with First American-Florida
since June 1994. His career has been in "mass-marketing service" businesses
which are oriented toward consumers' discretionary dollars. In 1969, he
became Vice President/Real Estate Administration, and in that position, he
was instrumental in setting national standards and policies for market
development and store locations. In 1971, he was made an advisory member of
McDonald's Board of Directors. From 1983 to 1987, Mr. Salvaneschi was
employed by Kentucky Fried Chicken as senior Vice President. In January 1988,
he joined Blockbuster Entertainment Corporation as Executive Vice President
of Development, and in June 1988 he became President, Chief Operating Officer
and a Director of Blockbuster. He retired from Blockbuster in February 1991.
* * * *
Directors are elected at the Company's annual meeting of shareholders and
serve for one year or until their successors are elected and qualified.
Officers are elected by the Board of Directors and their terms of office are
at the discretion of the Board, subject to the Company's obligation to pay
any compensation required under applicable employment agreements. All of the
Company's executive
27
<PAGE>
officers except Mr. Harper are full-time employees of the Company. There are
no family relationships among any of the officers or directors of the
Company.
The Company has agreed to use its best efforts to cause the designee of
Capital Growth (the Company's financial advisor) to be elected to the
Company's Board of Directors, for the three-year period commencing on April
26, 1996. In the event that the Capital Growth's designee shall not be
elected, or is unavailable to serve if elected, an individual selected by
Capital Growth shall be permitted to attend all meetings of the Board of
Directors. To date no designee has been named by Capital Growth to serve on
the Company's Board of Directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to the Company's Bylaws, the Company is obligated to indemnify
each of its officers and directors to the fullest extent permitted by law
with respect to all liability and loss suffered, and reasonable expense
incurred, by such person in any action, suit or proceeding in which such
person was or is made or threatened to be made a party or is otherwise
involved by reason of the fact that such person is or was a director or
officer of the Company. The Company is also obligated to pay the reasonable
expenses of indemnified directors or officers in defending such proceedings
if the indemnified party agrees to repay all amounts advanced should it be
ultimately determined that such person is not entitled to indemnification.
The Company has procured and maintains a policy of insurance under which
the directors and officers of the Company are insured, subject to the limits
of the policy, against certain losses arising from claims made against such
directors and officers, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
EMPLOYMENT AGREEMENTS
The Company and Messrs. Harper and Garfield have entered into employment
agreements. These agreements are for a three-year term (expiring February
1997) and provide for the base salaries of $75,000 and $125,000,
respectively, (along with cost-of-living adjustments based on the appropriate
consumer price index). In addition, the agreements provide for health care
insurance and other standard employment benefits. These agreements also
contain customary non-competition provisions prohibiting competition with the
Company during the term of employment and for two years thereafter. The
agreement with Mr. Garfield requires his full-time efforts on behalf of the
Company; however, the agreement with Mr. Harper requires that he devote at
least 30 hours per week to Company business. While the Company believes that
the extent of Mr. Harper's efforts will be sufficient, there is no assurance
that an additional time commitment will not prove necessary or that
additional management personnel will not be needed as a result of Mr.
Harper's limited availability.
In addition, the Company has entered into an employment agreement with Mr.
Monteleone. Mr. Monteleone was employed by the Company to be its President
and Chief Operating Officer, pursuant to an employment agreement dated July
1, 1996, the initial term of which is three years with automatic one-year
renewals (cancelable by either party) thereafter. The agreement provides for
an initial base salary of $150,000 per annum and a minimum bonus of $12,500
on January 1, 1997. There will be a minimum increase in his base salary to
$175,000 on January 1, 1997, $189,000 on January 1, 1998, and $204,120 on
January 1, 1999. In addition, he will receive an annual bonus of at least
$25,000 on January 1, 1998, January 1, 1999 and June 1, 1999. The agreement
also provides for standard life and health care insurance benefits, which
begin in January 1997, along with other standard employment benefits.
Pursuant to the agreement, Mr. Monteleone received a stock grant of 7,500
shares, effective July 1, 1996, and he will be granted a minimum of 30,000
non-qualified stock options annually during
28
<PAGE>
the three-year employment term and any subsequent renewal term; the first of
these 30,000-share options was granted on July 1, 1996. Mr. Monteleone will
receive a $500 per month car allowance, plus an automobile mileage
reimbursement for business travel of $.20 per mile. During the initial
three-year term the Company has agreed to fund an individual retirement plan
on behalf of Mr. Monteleone in the aggregate of $35,000.
The agreement with Mr. Monteleone provides that he may receive, in certain
circumstances, a severance package consisting of twice his current base
salary and all of the stock options which were to be granted to him during
the remaining term of his employment will become fully granted and vested.
This severance package shall be payable upon the termination of the agreement
and the occurrence of any of the following events, (i) "change in control" of
the Company (where more than 50% of the Company's stock is sold to a third
party), (ii) should someone other than Mr. Monteleone or Mr. Harper (the
current Chief Executive Officer) be the Company's Chief Executive Officer, or
(iii) should there be a substantial reduction in Mr. Monteleone's duties
under the agreement. The agreement also contains a non-competition provision
which prohibits Mr. Monteleone from competing with the Company for two years
following the termination of the agreement.
BOARD COMPENSATION
Employee directors of the Company are not compensated for their services
as directors. In June 1996, the Company instituted a policy whereby each
"non-management" director would receive a $5,000 annual retainer along with a
per meeting stipend ($500 for "in person" and $300 for "telephonic"
attendance). In addition, the Company has to award each "non-employee"
director with a one-time grant of stock options covering 15,000 shares (at
the then current market price) and thereafter each such non-employee director
will receive an annual stock option grant covering 3,000 shares, all of which
options are to be awarded under a stock option plan to be developed by the
Company. To date, this stock option plan has not been prepared and,
therefore, no such options have been granted.
EXECUTIVE COMPENSATION
The following table provides information with respect to the compensation
paid by First American-Florida, the Company's predecessor by merger, to Allen
C. Harper, the Chairman of the Board and Chief Executive Officer. There was
no executive officer whose salary exceeded $100,000 for any applicable
period. During the subject periods, First American-Florida paid no long-term
compensation to any person. The Company did not pay any form of compensation
to any officer or director during its last three full fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
----------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- --------------------------- ------------------------------------ --------- --------
<S> <C> <C> <C>
Allen C. Harper Eight months ended December 31, 1995 38,461 --
Chairman and Chief Twelve months ended April 30, 1995 79,775 --
Executive Officer
</TABLE>
29
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
COMMON STOCK:
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 1, 1996, and
as adjusted to reflect the sale of Shares offered by the Selling Shareholders
with respect to (i) each of the Company's executive officers and directors,
(ii) all officers and directors as a group, (iii) each person known to the
Company to be the beneficial owner of more than 5% of the Common Stock, eight
of whom are Selling Shareholders, and (iv) each of the Selling Shareholders.
Unless otherwise indicated, all shares of Common Stock are owned directly and
of record and the persons so indicated have voting and investment power with
respect thereto. With respect to the Selling Shareholders, it has been
assumed that all their shares so offered will be sold.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
BEFORE AND AFTER OFFERING(1)
----------------------------- SHARES
NAME POSITION WITH COMPANY SHARES PERCENT(2) OFFERED
- ---- --------------------- ------ ---------- -------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS:(3)
Thomas G. Rader Director 1,614,581 17.84 0
Allen C. Harper Chairman of the 1,379,032(4) 15.24 0
Board of Directors
and Chief Executive Officer
Eugene K. Garfield Vice Chairman 718,343 7.94 0
of the Board of Directors
Ray Monteleone President, Chief 17,500(5) * 0
Operating Officer
and Director
Luigi Salvaneschi Director 85,654 * 0
David H. Rush Director 21,414 * 0
All Officers and Directors 3,836,524(3) 42.34 0
as a Group (6 persons)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
-----------------------
SHARES
NAME SHARES(6) PERCENT(2) OFFERED(7)
- ---- --------- ---------- ----------
<S> <C> <C> <C>
SELLING SHAREHOLDERS:
Capital Growth International, LLC(8)
666 Steamboat Road
Greenwich, CT 06830 823,274 8.84 823,274
Lancer Partners L.P.
237 Park Ave., 8th Fl.
New York, NY 10017 814,286 8.51 900,000
Egger & Co.
c/o The Chase Manhattan Bank N.A.
P.O. Box 1508 Church Street Station
New York, NY 10008 797,928 8.36 880,934
EFO Fund, Ltd.
1111 W. Mockingbird Lane, #1400
Dallas, TX 75247 732,857 7.70 810,000
Rush & Co.
c/o Swiss American Securities, Inc.
100 Wall Street, 4th Fl.
New York, NY 10005 572,177 6.09 628,834
Fairnoon Management Ltd.
11 Queenstreet Mayfair
London W1X 7PD, England 570,000 6.06 630,000
Emanon Partners, L.P.
237 Park Avenue
Suite 901
New York, NY 10017 515,714 5.50 570,000
Rosebud Capital Growth Fund Ltd.
c/o Euro-Dutch Trust Co. (Bahamas)
Charlotte House, Charlotte St.
Nassau, Bahamas 512,747 5.48 563,267
Edgeport Nominees, Ltd. 401,888 4.32 439,625
Demachy Worms & Co. International, Ltd. 325,714 3.52 360,000
Alan L. Jacobs 318,176 3.47 318,176
Corner Bank, Ltd. 195,429 2.13 216,000
BFI Banque De Financement & D'Investissement, Geneve 162,857 1.78 180,000
Republic National Bank of New York (Suisse) SA 162,785 1.78 178,933
Faisal Finance (Switzerland) SA 155,286 1.70 169,000
Republic National Bank of New York (Luxemburg) SA 146,571 1.60 162,000
James F. Ellis Trust DTD 4/11/89 97,281 1.07 101,600
Stanley Hollander IRA Cowen & Co. Custion 58-03120 89,495 * 96,942
Cameo Trust Corporation Limited 81,429 * 90,000
The Gifford Fund Ltd. 81,429 * 90,000
Charles L. and Donna Greenberg, JTWROS 81,429 * 90,000
Napier Brown Holdings Ltd. 81,429 * 90,000
Veritas Films SA 81,429 * 90,000
Heptagon Investments Ltd. 81,356 * 88,933
Stolzoff Family Trust of 2/05/95, Martin S. Stolzoff
and Barbara R. Stolzoff, Trustees 68,123 * 74,468
Ronald Koenig 67,406 * 73,422
Phillip Bibicoff 65,143 * 72,000
Bostar A.S. 65,143 * 72,000
C.M. Investment Nominees Limited 65,143 * 72,000
David A. Rees 65,143 * 72,000
P.G. Ridgwell 65,071 * 70,933
Banque Privee Edmond De Rothschild S.A. 56,964 * 62,467
Vital Miljo AS 56,017 * 59,308
Bauer Family Limited Partnership 48,857 * 54,000
Falcon Management Ltd. 48,857 * 54,000
Fixtar Holdings, Inc. 48,857 * 54,000
Richard B. Liroff 48,857 * 54,000
Saracen International 48,857 * 54,000
Tradeco Limited 48,857 * 54,000
UOB Luxembourg S.A. 48,857 * 54,000
31
<PAGE>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
-----------------------
SHARES
NAME SHARES(6) PERCENT(2) OFFERED(7)
- ---- --------- ---------- ----------
Gibesgelt 46,250 * 46,250
Euro Capital 45,000 * 45,000
Lawrence Burstein 40,695 * 44,485
Michael Schaenen 35,625 * 35,625
Christopher Fox 35,625 * 35,625
Brookbank Holdings, Ltd. 33,300 * 33,300
Gary Barnett, IRA Standard/Rollover 32,571 * 36,000
Harvey R. Brice BSSC Master Defined Contribution M/P Pension
Plan 32,571 * 36,000
Compass Investment Management Limited 32,571 * 36,000
Coutts & Co. S.A. 32,571 * 36,000
Barrie M. Damson 32,571 * 36,000
Ernest Dorner GST Non-Exempt Trust A U/T/A 5/26/94 32,571 * 36,000
Elmtree Corporation 32,571 * 36,000
Milton and Irene Geller 1985 Trust 32,571 * 36,000
Susan Greenberg 32,571 * 36,000
Alan D. Jacobson, IRA 32,571 * 36,000
Robert Katz 32,571 * 36,000
Peter Barrington Kirk 32,571 * 36,000
Lago Wernstedt 32,571 * 36,000
Morgan Steel Limited 32,571 * 36,000
John D. Murphy 32,571 * 36,000
Nicator S.A., Zurich 32,571 * 36,000
Pictet & Cie 32,571 * 36,000
Robinson Gear (Nominees) Limited A/CJ-10 32,571 * 36,000
Stoneman Investor Partnership 32,571 * 36,000
Terrier Finance, Inc. 32,571 * 36,000
Ghazi Allawi 32,499 * 34,933
Helix Investments, Ltd. 31,497 * 32,220
Dan Purjes 30,010 * 30,010
Kimberly A. Goguen 25,000 * 25,000
Christopher D. Jennings 24,409 * 26,485
Gary H. Stolzoff 22,768 * 25,003
Pyramid Partners, LP 21,714 * 24,000
Prime, Grieb & Co. Limited 19,286 * 21,000
Gerald Rosen 19,000 * 21,000
Michael S. Jacobs 18,750 * 18,750
Sachem Corporate Finance Ltd. 16,875 * 16,875
Philip Altheim 16,286 * 18,000
Gary Barnett 16,286 * 18,000
Denis Baylin 16,286 * 18,000
I. Bibicoff, Inc., Pension Trust Fund 16,286 * 18,000
Boel AS 16,286 * 18,000
Credit Lyonnais (Suisse) SA Geneva 16,286 * 18,000
Credit Suisse Zurich 16,286 * 18,000
Owen H. Gassaway 16,286 * 18,000
David Greenberg, IRA 16,286 * 18,000
David Greenberg and Susan Greenberg,
Trustees FBO Greenberg and Panish,
a Prof. Corp. Def. Bene. Pension Plan 2/01/88 16,286 * 18,000
Haaco AS 16,286 * 18,000
David M. Hallman, Sr. 16,286 * 18,000
Hapoalim Mayo Casa Bancaria 16,286 * 18,000
Allan B. Hechtman, Inc., Pension Plan & Trust 16,286 * 18,000
Allan B. and Linda S. Hechtman, JTWROS 16,286 * 18,000
Trustees of the Hill Oldridge Ltd. Pension Fund 16,286 * 18,000
Nils Otto Holmen 16,286 * 18,000
P.B. Hubbard/J.D. Boden as Trustees of the Vector Trust 16,286 * 18,000
Svein Huse 16,286 * 18,000
32
<PAGE>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
-----------------------
SHARES
NAME SHARES(6) PERCENT(2) OFFERED(7)
- ---- --------- ---------- ----------
Intergalactic Growth Fund, Inc. 16,286 * 18,000
Lenard E. Jacobson, MD, PC Profit Sharing Trust 16,286 * 18,000
Robert Jones 16,286 * 18,000
Mazin Kamouna 16,286 * 18,000
William A. Kamke and Dorothy S. Kamke, JTWROS 16,286 * 18,000
A/S Kapitalutvikling 16,286 * 18,000
Ronald Korn, IRA 16,286 * 18,000
Pierre and Francoise Lambert 16,286 * 18,000
Metropolitan Finance Limited 16,286 * 18,000
John Bell Moran, Jr. 16,286 * 18,000
Anne P. Newman and Harry Newman, Jr. JTWROS 16,286 * 18,000
Scott Notowitz 16,286 * 18,000
Oistein Nyberg 16,286 * 18,000
RNB (France) Monaco 16,286 * 18,000
Rigel AS 16,286 * 18,000
Allan Rudnick, IRA 16,286 * 18,000
J.R.L. Smith 16,286 * 18,000
K.E. Smith 16,286 * 18,000
Ivor Spiro 16,286 * 18,000
Craig Taines 16,286 * 18,000
Taines Family Limited Partnership 16,286 * 18,000
Abraxas Partners, Ltd. 16,286 * 18,000
Michael Morris 16,247 * 16,971
Walter Prime 16,247 * 16,971
Peter R. McMullin 16,213 * 16,933
Rudnick Living Trust DTD 7/22/91 16,213 * 16,933
John VanOrdstrand 12,500 * 12,500
Joseph and Lillian Matulich JTWROS 9,375 * 9,375
Trafina Privatebank AG 9,375 * 9,375
Magne F. Aaby 8,143 * 9,000
Birger Dalen 8,143 * 9,000
John Heckler 8,143 * 9,000
Norman Leben 8,143 * 9,000
Svein A. Loken 8,143 * 9,000
Steven Millner 8,143 * 9,000
Asher Plaut and Evelyn Plaut, JTWROS 8,143 * 9,000
Svein-Erik Stiansen 8,143 * 9,000
Bank Julius Baer & Co. 8,107 * 8,467
Craig A. Blumberg 5,429 * 6,000
Steven H. Marvin 5,429 * 6,000
Daniel J. Marx 5,428 * 6,000
Peter Sheib 5,010 * 5,010
Lori Shepps 5,000 * 5,000
Lawrence Rice 4,990 * 4,990
Southeast Research Partners 4,500 * 4,500
Matthew Balk 3,880 * 3,880
John T. Clarke 3,750 * 3,750
Charles Roden 3,530 * 3,530
Nancy Tarlow Barrett 3,500 * 3,500
First National Fund 2,250 * 2,250
Giant Trading Company 1,500 * 1,500
Michael Loew 1,325 * 1,325
Cheviot Capital 750 * 750
Value Investing Partners 750 * 750
Joelle Jacobs 750 * 750
Scott A. Weisman 445 * 445
Brill Securities 375 * 375
33
<PAGE>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
-----------------------
SHARES
NAME SHARES(6) PERCENT(2) OFFERED(7)
- ----------------------------------------------------------------- ---------- ----------- ---------------
Paul Fitzgerald 365 * 365
Sherwood P. Larkin 290 * 290
Richard Sichenzio 155 * 155
</TABLE>
- ----------
* Less than 1%
(1) Unless otherwise indicated, each shareholder has sole voting and
investment power with respect to the Common Stock indicated as
beneficially owned thereby.
(2) In accordance with Rule 13d-2 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), shares that are not outstanding, but that
are issuable pursuant to (i) the exercise of outstanding Warrants and
(ii) the conversion of the Notes, all of which are exercisable or
convertible within 60 days of the date of this Prospectus, have been
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares owned by the individual having such right, but have
not been deemed outstanding for the purpose of computing the percentage
for any other person. These amounts do not include the exercise of
certain warrants to purchase an aggregate of 400,00 shares of Common
Stock. See "Description of Securities."
(3) Unless otherwise indicated, the address for each director is c/o First
American Railways, Inc., 2445 Hollywood Boulevard, Hollywood, Florida
33020.
(4) Includes 1,379,032 shares which are jointly-owned with his wife, and
1,285 shares which are owned of record by Harper Partners of Miami, Ltd.,
a Florida limited partnership, for which his wife, Carol E. Harper,
serves as trustee.
(5) Includes 7,500 shares owned of record, and 10,000 shares issuable upon
the exercise of currently exercisable stock options.
(6) These share amounts include up to an aggregate of 3,300,273 shares which
may be issued either upon the conversion of the Notes or upon the
exercise of the Series A Warrants which may be issued, in certain
circumstances, upon the prepayment of the Notes.
(7) With respect to the Selling Shareholders, it has been assumed that all
their Shares so offered will be sold. Further, these amounts include
shares which may be issued to certain Selling Shareholders upon
conversion of accrued interest payable upon their Notes.
(8) Does not include the shares owned of record by various officers and/or
employees of Capital Growth International, LLC, including Messrs. S.
Hollander, R. Koenig, A. Jacobs and M. Jacobs, whose share totals are
included elsewhere in this table.
SERIES A WARRANTS:
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Series A Warrants as of
August 1, 1996, and as adjusted to reflect the sale of such Warrants offered
by the holders thereof, none of whom hold any position with the Company and
six of whom own more than 5% thereof.
<TABLE>
<CAPTION>
BEFORE OFFERING
---------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- -------- ------- --------
<S> <C> <C> <C>
Lancer Partner L.P.
237 Park Ave., 8th Fl.
New York, NY 10017 300,000 7.57 300,000
Egger & Co.
c/o The Chase Manhattan Bank N.A.
P.O. Box 1508 Church Street Station
New York, NY 10008 290,519 7.33 290,519
EFO Fund, Ltd.
1111 W. Mockingbird Lane, #1400
Dallas, TX 75247 270,000 6.81 270,000
34
<PAGE>
BEFORE OFFERING
---------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- -------- ------- --------
Capital Growth International, LLC**
666 Steamboat Road
Greenwich, CT 06830 260,774 6.58 260,774
Fairnoon Management Ltd.
11 Queenstreet Mayfair
London W1X 7PD, England 210,000 5.30 210,000
Rush & Co.
c/o Swiss American Securities, Inc.
100 Wall Street, 4th Fl.
New York, NY 10005 208,799 5.27 208,799
Emanon Partners, L.P. 190,000 4.79 190,000
Rosebud Capital Growth Fund Ltd. 176,818 4.46 176,818
Edgeport Nominees, Ltd. 147,333 3.72 147,333
Demachy Worms & Co. International, Ltd. 120,000 3.03 120,000
Alan L. Jacobs 86,926 2.19 86,926
Faisal Finance (Switzerland) SA 73,000 1.84 73,000
Corner Bank, Ltd. 72,000 1.82 72,000
BFI Banque De Financement & D'Investissement, Geneve 60,000 1.51 60,000
Republic National Bank of New York (Suisse) SA 56,519 1.43 56,519
Republic National Bank of New York (Luxemburg) SA 54,000 1.36 54,000
Gibesgelt 46,250 1.17 46,250
Eurocapital 45,000 1.14 45,000
Michael Schaenen 35,625 * 35,625
Christopher Fox 35,625 * 35,625
Bookbank Holdings, Ltd. 33,300 * 33,300
Cameo Trust Corporation Limited 30,000 * 30,000
The Gifford Fund Ltd. 30,000 * 30,000
Charles L. and Donna Greenberg, JTWROS 30,000 * 30,000
Napier Brown Holdings Ltd. 30,000 * 30,000
Veritas Films SA 30,000 * 30,000
Vital Miljo AS 26,894 * 26,894
Heptagon Investments Ltd. 26,519 * 26,519
Stanley Hollander IRA Cowen & Co. Custion 58-03120 26,064 * 26,064
Phillip Bibicoff 24,000 * 24,000
Bostar A.S. 24,000 * 24,000
C.M. Investment Nominees Limited 24,000 * 24,000
David A. Rees 24,000 * 24,000
Stolzoff Family Trust of 2/05/95, Martin S. Stolzoff and Barbara R.
Stolzoff, Trustees 23,023 * 23,023
Ronald Koenig 21,058 * 21,058
P.G. Ridgwell 20,519 * 20,519
Banque Privee Edmond De Rothschild S.A. 19,260 * 19,260
Bauer Family Limited Partnership 18,000 * 18,000
Falcon Management Ltd. 18,000 * 18,000
Fixtar Holdings, Inc. 18,000 * 18,000
Richard B. Liroff 18,000 * 18,000
35
<PAGE>
BEFORE OFFERING
---------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- -------- ------- --------
Saracen International 18,000 * 18,000
Tradeco Limited 18,000 * 18,000
UOB Luxembourg S.A. 18,000 * 18,000
Helix Investments, Ltd. 17,782 * 17,782
James F. Ellis Trust DTD 4/11/89 15,117 * 15,117
Lawrence Burstein 13,266 * 13,266
John VanOrdstrand 12,500 * 12,500
Dean Witter Reynolds Custodian for Gary Barnett, IRA Standard/Rollover 12,000 * 12,000
Harvey R. Brice BSSC Master Defined Contribution M/P Pension Plan 12,000 * 12,000
Compass Investment Management Limited 12,000 * 12,000
Coutts & Co. S.A. 12,000 * 12,000
Barrie M. Damson 12,000 * 12,000
Ernest Dorner GST Non-Exempt Trust A U/T/A 5/26/94 12,000 * 12,000
Elmtree Corporation 12,000 * 12,000
Milton and Irene Geller 1985 Trust 12,000 * 12,000
Susan Greenberg 12,000 * 12,000
Jacobson, Alan D., IRA 12,000 * 12,000
Robert Katz 12,000 * 12,000
Peter Barrington Kirk 12,000 * 12,000
Lago Wernstedt 12,000 * 12,000
Morgan Steel Limited 12,000 * 12,000
John D. Murphy 12,000 * 12,000
Nicator S.A., Zurich 12,000 * 12,000
Pictet & Cie 12,000 * 12,000
Robinson Gear (Nominees) Limited A/CJ-10 12,000 * 12,000
Stoneman Investor Partnership 12,000 * 12,000
Terrier Finance, Inc. 12,000 * 12,000
Prime Grieb 9,000 * 9,000
Ghazi Allawi 8,519 * 8,519
Pyramid Partners, LP 8,000 * 8,000
Sachem Corporate Finance, Ltd. 7,500 * 7,500
Christopher D. Jennings 7,266 * 7,266
Gary H. Stolzoff 7,009 * 7,009
Gerald Rosen 7,000 * 7,000
Abraxas Partners, Ltd. 6,000 * 6,000
Philip Altheim 6,000 * 6,000
Gary Barnett 6,000 * 6,000
Denis Baylin 6,000 * 6,000
I. Bibicoff, Inc., Pension Trust Fund 6,000 * 6,000
Boel AS 6,000 * 6,000
Credit Lyonnais (Suisse) SA Geneva 6,000 * 6,000
Credit Suisse Zurich 6,000 * 6,000
Owen H. Gassaway Trustee, FBO Owen H. Gassaway Trust 6,000 * 6,000
36
<PAGE>
BEFORE OFFERING
---------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- -------- ------- --------
David Greenberg, IRA 6,000 * 6,000
David Greenberg and Susan Greenberg, Trustees FBO Greenberg and Panish,
a Prof. Corp. Def. Bene. Pension Plan 2/01/88 6,000 * 6,000
Haaco AS 6,000 * 6,000
David M. Hallman, Sr. 6,000 * 6,000
Hapoalim Mayo Casa Bancaria 6,000 * 6,000
Allan B. Hechtman, Inc., Pension Plan & Trust 6,000 * 6,000
Allan B. and Linda S. Hechtman, JTWROS 6,000 * 6,000
Trustees of the Hill Oldridge Ltd. Pension Fund 6,000 * 6,000
Nils Otto Holmen 6,000 * 6,000
P.B. Hubbard/J.D. Boden as Trustees of the Vector Trust 6,000 * 6,000
Svein Huse 6,000 * 6,000
Intergalactic Growth Fund, Inc. 6,000 * 6,000
Lenard E. Jacobson, MD, PC Profit Sharing Trust 6,000 * 6,000
Robert Jones 6,000 * 6,000
Mazin Kamouna 6,000 * 6,000
William A. Kamke and Dorothy S. Kamke, JTWROS 6,000 * 6,000
A/S Kapitalutvikling 6,000 * 6,000
Ronald Korn, IRA 6,000 * 6,000
Pierre and Francoise Lambert 6,000 * 6,000
Metropolitan Finance Limited 6,000 * 6,000
John Bell Moran, Jr. 6,000 * 6,000
Anne P. Newman and Harry Newman, Jr. JTWROS 6,000 * 6,000
Scott Notowitz 6,000 * 6,000
Oistein Nyberg 6,000 * 6,000
Prime, Grieb & Co. Limited 6,000 * 6,000
RNB (France) Monaco 6,000 * 6,000
Rigel AS 6,000 * 6,000
Allan Rudnick, IRA 6,000 * 6,000
J.R.L. Smith 6,000 * 6,000
K.E. Smith 6,000 * 6,000
Ivor Spiro 6,000 * 6,000
Craig Taines 6,000 * 6,000
Taines Family Limited Partnership 6,000 * 6,000
Southeast Research Partners 4,500 * 4,500
John T. Clarke 3,750 * 3,750
Magne F. Aaby 3,000 * 3,000
Birger Dalen 3,000 * 3,000
John Heckler 3,000 * 3,000
Norman Leben 3,000 * 3,000
Svein A. Loken 3,000 * 3,000
Steven Millner 3,000 * 3,000
Asher Plaut and Evelyn Plaut, JTWROS 3,000 * 3,000
37
<PAGE>
BEFORE OFFERING
---------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- -------- ------- --------
Svein-Erik Stiansen 3,000 * 3,000
First National Fund 2,250 * 2,250
Michael Morris 2,532 * 2,532
Walter Prime 2,532 * 2,532
Peter R. McMullin 2,519 * 2,519
Rudnick Living Trust DTD 7/22/91 2,519 * 2,519
Craig A. Blumberg 2,000 * 2,000
Steven H. Marvin 2,000 * 2,000
Daniel J. Marx 2,000 * 2,000
Giant Trading Company 1,500 * 1,500
Bank Julius Baer & Co. 1,260 * 1,260
Cheviot Capital 750 * 750
Value Investing Partners 750 * 750
Joelle Jacobs 750 * 750
Brill Securities 375 * 375
</TABLE>
- ----------
* Less than 1%
** Does not include the Series A Warrants owned of record by various officers
and/or employees of Capital Growth International, LLC, including Messrs.
S. Hollander, R. Koenig, A. Jacobs and M. Jacobs, whose warrant totals are
included elsewhere in this table.
38
<PAGE>
FINANCIAL ADVISORY WARRANTS:
The following table sets forth certain information with respect to the
beneficial ownership of the Advisory Warrants as of August 1, 1996, and as
adjusted to reflect the sale of such Warrants offered by the holders thereof,
none of whom hold any position with the Company nor own more than 5% of such
warrants.
<TABLE>
<CAPTION>
BEFORE OFFERING
--------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- -------- ------- --------
<S> <C> <C> <C>
Dan Purjes 30,010 * 30,010
Alan Jacobs 25,000 * 25,000
Kimberly A. Goguen 25,000 * 25,000
Peter Sheib 5,010 * 5,010
Lawrence Rice 4,990 * 4,990
Mathew Balk 3,880 * 3,880
Charles Roden 3,530 * 3,530
Michael Loew 1,325 * 1,325
Scott A. Weisman 445 * 445
Paul Fitzgerald 365 * 365
Sherwood P. Larkin 290 * 290
Richard Sichenzio 155 * 155
</TABLE>
- ----------
* Less than 1%
* * * *
RELATIONSHIP BETWEEN THE COMPANY AND CERTAIN SELLING SHAREHOLDERS:
Capital Growth International, LLC acted as the placement agent in
connection with the Company's Private Placements and received compensation
therefor in the form of cash and securities. See "Certain Transactions." The
following Selling Shareholders may be deemed affiliates of Capital Growth:
Ronald Koenig, Alan L. Jacobs, Stanley Hollander IRA, Sachem Corporate
Finance, Ltd.
39
<PAGE>
CERTAIN TRANSACTIONS
1994 PRIVATE OFFERING
In October 1994, the Company closed a private offering of 420,570 shares
of its Common Stock for gross proceeds of $982,000. A total of 26 investors
purchased Common Stock in that private offering which began in July 1994, and
the two largest investors therein were Company Directors Thomas Rader
(256,774 shares; $350,000) and Luigi Salvaneschi (146,728 shares; $200,000).
David Rush, one of the Company's directors, also invested in that private
offering (36,683 shares; $50,000).
ACQUISITION OF RAILCARS
The Company expects that RRI will be its primary source of railcars for
the Florida Fun-Train and its other planned trains. RRI is owned by Thomas G.
Rader, a Director and currently the largest shareholder of the Company. The
Company entered into an agreement with RRI as of June 28, 1994, whereby RRI
produced the initial railcar for the Company. The total purchase price was
$850,000. Title to the railcar was transferred to the Company on July 2,
1996. The Company believes the transaction for the purchase of the railcar
was no less favorable to the Company than a similar transaction conducted
with an unaffiliated third party.
The Company anticipates entering into another agreement with RRI for the
design and production of the 12 additional railroad cars and the exterior
modification of the three leased locomotives all of which will be used for
the Florida Fun-Train (or alternatively the Space Coast Fun-Train). The
railcars required for the Florida Fun-Train are not currently being built and
would only be built if the Offering is successful. The proposed total cost of
this equipment is expected to be approximately $9.3 million.
The terms of the transactions between the Company and RRI have been and
are expected to be determined by negotiations between RRI and the Company's
disinterested directors. Competitive bidding has not been used nor is it
expected to be used for any of these railcar purchase agreements. The
Company's Board of Directors believes that the design and acquisition of the
railcars through RRI is and will be on commercially reasonable terms;
however, there can be no assurance that the Company will be able to negotiate
a favorable contract with RRI for the purchase of the additional railcars, as
described above. Further, the Company believes there are several other
sources for the manufacture or remodeling of railcars which would be suitable
for the Company's intended use with the Fun-Trains.
The purchase price, along with the other terms of this agreement, will be
determined by negotiations between representatives of the Company and Mr.
Rader on behalf of RRI. There is an inherent conflict of interest in this
process and no competitive bids were sought in this regard.
Should the Company contract with RRI to purchase the 12 railcars
(described above), Mr. Rader and RRI have agreed that for a five-year period
they will not, directly or indirectly, engage in the design, marketing sale
or lease of passenger railcars for the purpose of operating passenger
entertainment, tourism or excursion trains in Florida.
RUSH LOAN
In June and July 1995, David Rush, a director and shareholder of the
Company, loaned an aggregate of $125,000 to the Company. The promissory note
associated with this loan provided for simple interest at 18% and the
obligation was personally guaranteed as to collection by Allen C. Harper, the
Company's Chairman of the Board of Directors. At the time of the transaction,
the Board of Directors (with Mr. Rush abstaining) concluded that the interest
rate paid on this loan was reasonable and customary, given the financial
condition of the Company and the current business environment, and that the
terms of such loan were no less favorable than those for a similar
transaction with a third party. The loan was repaid with a portion of the
proceeds from the Private Placements.
COMPENSATION TO PLACEMENT AGENT
In connection with the Private Placements, the Company paid Capital Growth
(as the placement agent for such Private Placements) an aggregate cash
commission of $1,320,109.17 and paid Capital Growth a nonaccountable expense
allowance of $330,027.29.
40
<PAGE>
In connection with the April 1996 closing of the Private Placements, the
Company issued to Capital Growth and its designee Alan Jacobs an aggregate of
750,000 shares of the Company's Common Stock; in addition, the Company issued
an aggregate of 650,000 Series A Warrants, 260,774 warrants directly to
Capital Growth and the balance (389,226 warrants) to 22 designees. These
Shares and Series A Warrants are included in this Offering.
The Company agreed to indemnify Capital Growth against certain liabilities
in connection with the Private Placements, including liabilities under the
Securities Act.
The Company has retained Capital Growth for a period of twenty-four months
(the "Advisory Period") at a fee of $5,000 per month, to render various
financial advisory services thereto, and specified fees for additional
financings and other transactions. Further, Capital Growth will be paid a
warrant advisory fee equal to five (5%) percent of the exercise price of the
warrants if it solicits the exercise of such warrants. The Company has agreed
not to solicit the exercise of the warrants other than through Capital
Growth.
41
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized common stock of the Company consists of 100,000,000 shares
of Common Stock, $.001 par value. Each holder of Common Stock is entitled to
one vote per share on all matters on which shareholders are entitled to vote,
and the holders of the Common Stock do not have preemptive rights to purchase
additional shares of Common Stock or other subscription rights. The Common
Stock carries no conversion rights and is not subject to redemption or to any
sinking fund provisions. All shares of Common Stock are entitled to share
equally in dividends from sources legally available therefor when, as and if
declared by the Board of Directors and, upon liquidation or dissolution of
the Company, whether voluntary or involuntary, to share equally in the assets
of the Company available for distribution to shareholders. All outstanding
shares of Common Stock are validly authorized and issued, fully paid and
nonassessable, and all shares to be sold and issued as contemplated hereby
will be validly authorized and issued, fully paid and nonassessable.
SERIES A REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Series A
Redeemable Warrants ("Series A Warrants"), but such summary does not purport
to be complete and is qualified in all respects by reference to the actual
text of the subject warrant certificates.
Each Series A Warrant entitles the registered holder to purchase one share
of Common Stock at an initial exercise price of $3.50 per share (subject to
adjustment for stock splits, combinations and reclassifications) at any time
prior to redemption from the date of issuance (April 26 or May 9, 1996) until
two years thereafter. The exercise price of each Series A Warrant bears no
relationship to any objective criteria of value and should in no event be
regarded as an indication of any future market price of the securities
offered hereby. Provided that the applicable Circumstances exist (described
below), all, but not less than all, of the Series A Warrants may be redeemed
by the Company at $.10 per share on thirty days' notice at any time, but only
after six months from the consummation of the Merger (October 26, 1996) and
only if the market price (as described below) for the Common Stock exceeds
$5.00 per share. The "Circumstances" shall exist if (i) the subject
securities are registered under the Securities Act and applicable state "blue
sky" laws, (ii) a current Prospectus is then available for the sale of the
securities, and (iii) the closing bid price of the Common Stock as reported
by Nasdaq, the OTC Bulletin Board, or such other market on which the Common
Stock is then traded, exceeds $5.00 per share for the twenty consecutive
trading days ending on the fifth trading day prior to the date of the notice
of redemption or prepayment, as the case may be.
Each Series A Warrant may be exercised by surrendering the warrant
certificate, with the subscription form attached to the warrant certificate
properly completed and executed, together with payment of the exercise price.
The Series A Warrants may be exercised in whole or from time to time in part.
If less than all of the Warrants evidenced by a warrant certificate are
exercised, a new warrant certificate will be issued for the remaining number
of Series A Warrants.
The Series A Warrants do not confer upon the holders thereof any voting,
dividend or other rights as shareholders of the Company.
The Series A Warrants are not exercisable unless, at the time of the
exercise, the Company has a current Prospectus covering the shares of Common
Stock issuable upon the exercise of such warrants, and such shares have been
registered, or qualified under the securities laws of the state of residence
of the exercising holder of such warrants, unless such exercise is deemed to
be exempt under federal and applicable state securities laws. Although the
Company will use its best efforts to have all of the shares of Common Stock
issuable upon the exercise of the Series A Warrants registered or qualified
on or before the exercise date and to maintain a current Prospectus relating
thereto until the expiration of such warrants, there can be no assurance that
it will be able to do so.
FINANCIAL ADVISORY WARRANTS
The following is a brief summary of certain provisions of the Financial
Advisory Warrants ("Advisory Warrants"), but such summary does not purport to
be complete and is qualified in all respects by reference to the actual text
of the warrant certificates.
42
<PAGE>
Each Advisory Warrant entitles the registered holder to purchase one share
of Common Stock at an initial exercise price of $2.50 per share (subject to
adjustment for stock splits, combinations and reclassifications) at any time
for a period of five years from the date of issuance (February 1996). The
exercise price of each Advisory Warrant bears no relationship to any
objective criteria of value and should in no event be regarded as an
indication of any future market price of the securities offered hereby.
Each Advisory Warrant may be exercised by surrendering the warrant
certificate, with the subscription form attached to the warrant certificate
properly completed and executed, together with payment of the exercise price.
The Advisory Warrants may be exercised in whole or from time to time in part.
If less than all of the Warrants evidenced by a warrant certificate are
exercised, a new warrant certificate will be issued for the remaining number
of Advisory Warrants.
The Advisory Warrants do not confer upon the holders thereof any voting,
dividend or other rights as shareholders of the Company.
The Advisory Warrants are not exercisable unless, at the time of the
exercise, the Company has a current Prospectus covering the shares of Common
Stock issuable upon the exercise of such warrants, and such shares have been
registered, or qualified under the securities laws of the state of residence
of the exercising holder of such warrants, unless such exercise is deemed to
be exempt under federal and applicable state securities laws. Although the
Company will use its best efforts to have all of the shares of Common Stock
issuable upon the exercise of the Advisory Warrants registered or qualified
on or before the exercise date and to maintain a current Prospectus relating
thereto until the expiration of such warrants, there can be no assurance that
it will be able to do so.
PREFERRED STOCK
In connection with the Merger, the Company amended its Articles of
Incorporation to authorize, among other things, the issuance of 500,000
shares of Preferred Stock, $.001 par value. See "The Merger." The Preferred
Stock may be issued in series from time to time with such designation,
rights, preferences and limitations as the Board of Directors may determine
by resolution. The rights, preferences and limitations of separate series of
Preferred Stock may differ with respect to such matters as may be determined
by the Board of Directors, including, without limitation, the rate of
dividends, method and nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions (if any), conversion
rights (if any) and voting rights. The potential exists, therefore, that
preferred stock might be issued which would grant dividend preferences and
liquidation preferences to preferred shareholders over common shareholders.
Unless the nature of a particular transaction and applicable statute require
such approval, the Board of Directors has the authority to issue these shares
without shareholder approval. The issuance of Preferred Stock may have the
effect of delaying or preventing a change in control of the Company without
any further action by shareholders.
43
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus covers the sale of Shares and Warrants by the Selling
Shareholders. See "Principal and Selling Shareholders." Any distribution of
the Shares by the Selling Shareholders, or by their pledgees, donees,
transferees or other successors in interest, may be effected from time to
time in one or more of the following transactions: (a) to underwriters who
will acquire securities for their own account and resell them in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale (any public
offering price and any discount or concessions allowed or reallowed or paid
to dealers may change from time to time); (b) through brokers, acting as
principal or agent, in transactions (which may involve block transactions) on
the Nasdaq SmallCap Market or on one or more exchanges on which the
securities are then listed, in special offerings, exchange distributions
pursuant to the rules of the applicable exchanges or in the over-the-counter
market, or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or at
fixed prices; (c) directly or through brokers or agents in private sales at
negotiated prices; or (d) by any other legally available means.
The Company will not receive any proceeds from the sale of the Shares and
Warrants offered hereby. The aggregate proceeds to the Selling Shareholders
from the securities offered hereby will be the offering price less applicable
commissions or discounts, if any. There is no assurance that the Selling
Shareholders will sell any of the securities offered hereby.
The Selling Shareholders and such underwriters, brokers, dealers or
agents, upon effecting a sale of securities, may be considered "underwriters"
as that term is defined in the Securities Act. Sales effected through agents,
brokers or dealers will ordinarily involve payment of customary brokerage
commissions although some brokers or dealers may purchase such shares as
agents for others or as principals for their own account. The Selling
Shareholders will pay any sales commissions or other sellers' compensation
applicable to such transactions. A portion of any proceeds of sales and
discounts, commissions or other sellers' compensation may be deemed to be
underwriting compensation for purposes of the Securities Act.
Pursuant to applicable rules and regulations under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any person engaged in the
distribution of the securities offered hereby may not simultaneously engage
in market making activities for the Common Stock for a period of two business
days prior to the commencement of such distribution. In addition, each
Selling Shareholder and any other person who participates in a distribution
of the securities will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Rules 10b-2, 10b-6
and 10b-7, which provisions may limit the timing of purchases and may affect
the marketability of the securities and the ability of any person to engage
in market making activities for the Common Stock.
At the time a particular offering of securities is made, to the extent
required, a Prospectus supplement will be distributed which will set forth
the number of securities being offered and the terms of the offering,
including the purchase price or the public offering price, the name or names
of any underwriters, dealers or agents, the purchase price paid by any
underwriters for securities purchased from the Selling Shareholders, any
discounts, commissions and other items constituting compensation from the
Selling Shareholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the securities will be sold in such jurisdictions, if required,
only through registered or licensed brokers or dealers. In addition, in
certain states the securities may not be sold unless the securities have ben
registered or qualified for sale in such state or an exemption from
registration or qualification is available and the conditions of such
exemption have been satisfied.
The Company has agreed that it will bear all costs, expenses and fees in
connection with the registration or qualification of the securities under
federal and state securities laws. The Company and each Selling Shareholder
have agreed to indemnify each other and certain other persons against certain
liabilities in connection with the offering of the securities, including
liabilities arising under the Securities Act.
44
<PAGE>
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Olle, Macaulay & Zorrilla, P.A., Miami, Florida. Dennis J.
Olle, a shareholder of that firm, is the beneficial owner of 1,714 shares of
the Common Stock of the Company.
EXPERTS
The financial statements of the Company included in this Prospectus for
the eight months ended December 31, 1995, and the year ended April 30, 1995,
have been audited by BDO Seidman LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein and is included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
On May 6, 1996, the Company's Board of Directors voted to engage BDO
Seidman, LLP to act as the Company's independent certified public
accountants, thereby discharging Hansen, Barnett & Maxwell, P.C. (Salt Lake
City, UT). The former accountants' reports for the Company's last two fiscal
years did not contain any adverse opinion, or disclaimer of opinion, nor were
any such reports modified as to uncertainty, audit scope or accounting
principles. There have been no disagreements between the Company and the
former accountants with regard to any matters which would have caused such
accountants to make reference to the subject matter thereof with their
report.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's Regional Offices at Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661; and
13th Floor, Seven World Trade Center, New York, New York 10048. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act with respect to the
securities offered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge at the
Commission's public reference facility at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and upon request at its above-described
Regional Offices. Copies of the Registration Statement may be obtained from
the Commission at its public reference facility upon payment of prescribed
fees. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, where the
contract or other document has been filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by reference to
the applicable documents filed with the Commission.
In addition, reports and other information concerning the Company may be
inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
45
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants .. F-2
Balance Sheets ....................................... F-3
Statements of Operations ............................. F-4
Statements of Stockholders' Equity (Deficit) ........ F-5
Statements of Cash Flows ............................. F-6
Notes to Financial Statements ........................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
First American Railways, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of First American Railways,
Inc. (a development stage company) as of December 31, 1995 and the related
statements of operations, stockholders' equity (deficit) and cash flows for
the eight months then ended, and for the year ended April 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First American Railways,
Inc., (a development stage company) as of December 31, 1995 and the results
of its operations and its cash flows for the eight months then ended, and for
the year ended April 30, 1995 are in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Miami, Florida
July 3, 1996
F-2
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
----------- ------------
<S> <C> <C>
ASSETS
CURRENT
Cash ....................................................... $11,930,645 $ --
Restricted cash (Note 8) ................................... 829,924 --
----------- -----------
Cash and cash items ........................................ 12,760,569 --
Prepaids and other ......................................... 144,500 1,680
----------- -----------
Total current assets ........................................ 12,905,069 1,680
EQUIPMENT (NOTE 2) .......................................... 12,722 5,992
ASSET HELD FOR FUTURE USE ................................... 840,000 --
DEPOSIT TO RELATED PARTY (NOTE 5) ........................... -- 350,000
DEFERRED LOAN COSTS (NOTE 8) ................................ 966,430 --
----------- -----------
$14,724,221 $ 357,672
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT
Accounts payable ........................................... $ 13,683 $ 196,076
Accrued liabilities ........................................ 142,676 120,970
Notes payable to related parties and others (Note 7) ...... -- 265,000
----------- -----------
Total current liabilities ................................... 156,359 582,046
CONVERTIBLE NOTES PAYABLE, NET (NOTE 8) ..................... 8,250,682 --
----------- -----------
8,407,041 582,046
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 4)
Preferred stock, $.001 par value, 500,000 shares authorized -- --
Common stock, $.001 par value, 100,000,000 shares
authorized,
9,050,275 and 4,275,000 shares issued and outstanding .... 9,050 4,275
Additional paid-in capital ................................. 8,406,746 1,110,760
Deficit accumulated during the development stage .......... (2,098,616) (1,339,409)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ........................ 6,317,180 (224,374)
----------- -----------
$14,724,221 $ 357,672
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FROM
FEBRUARY 14, 1994
(INCORPORATION) FOR THE FOR THE FOR THE
THROUGH SIX MONTHS ENDED EIGHT MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, APRIL 30,
1996 1996 1995 1995 1995
(UNAUDITED) (UNAUDITED)
----------------- ------------------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
EXPENSES:
Salaries and payroll taxes .. $ 762,434 $ 157,635 $ 164,251 $ 242,007 $ 362,792
Professional fees ............ 30,790 26,875 63,416 3,464 451
General and administrative .. 380,394 179,064 69,747 125,723 75,607
Interest, net ................ 207,164 188,085 517 19,079 --
Consulting fees (Note 5) .... 86,637 27,265 32,013 46,802 12,570
Amortization of deferred loan
costs (Note 8) ............. 121,399 121,399 -- -- --
Depreciation ................. 3,235 1,055 780 1,088 1,092
Expenses from offerings
not completed .............. 506,563 57,829 111,592 282,250 166,484
----------- ---------- ---------- ---------- ----------
Total expenses ................ 2,098,616 759,207 442,316 720,413 618,996
----------- ---------- ---------- ---------- ----------
Net loss, representing deficit
accumulated during the
development stage ........... $(2,098,616) $ (759,207) $ (442,316) $ (720,413) $ (618,996)
=========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding
(Note 1) .................... -- 6,193,452 4,275,000 4,275,000 4,275,000
=========== ========== ========== ========== ==========
Net loss per common share .... -- $ (.12) $ (.10) $ (.17) $ (.14)
=========== ========== ========== ========== ==========
</TABLE>
The Company had no operating activities from February 14, 1994
(incorporation) through April 30, 1994.
See accompanying notes to financial statements.
F-4
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE
------ ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at February 14, 1994 and April 30, 1994 ...... -- $ -- $ -- $ --
Initial capitalization for cash at $0.0046 per share
(Note 4(b)) ......................................... 3,854,430 3,854 14,146 --
Issuance of common stock for cash at $2.29 per share,
net offering costs of $20,965 (Note 4(c)) ........... 420,570 421 960,614 --
Capital cotnribution--forgiven salaries (Note 5) ..... -- -- 136,000 --
Net loss .............................................. -- -- -- (618,996)
--------- ------ ---------- -----------
Balance at April 30, 1995 ............................. 4,275,000 $4,275 $1,110,760 (618,996)
Net loss .............................................. -- -- -- (720,413)
--------- ------ ---------- -----------
Balance at December 31, 1995 .......................... 4,275,000 $4,275 $1,110,760 $(1,339,409)
Issuance of common stock in connection with Stage 1
offering, net of offering costs of $11,692 (unaudited)
(Note 8(a)) ......................................... 375,004 375 42,933 --
Issuance of common stock in connection with Stage II
offering, net of offering costs of $993,230
(unaudited) (Note 8(a)) ............................. 4,050,271 4,050 7,253,403 --
Merger with Asia-America Corporation (unaudited) (Note
8(c)) ............................................... 350,000 350 (350) --
Net loss (unaudited) .................................. -- -- -- (759,207)
--------- ------ ---------- -----------
Balance at June 30, 1996 (unaudited) .................. 9,050,275 $9,050 $8,406,746 $(2,098,616)
========= ====== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE FROM
FEBRUARY 14, 1994
(INCORPORATION) FOR THE FOR THE FOR THE
THROUGH SIX MONTHS ENDED EIGHT MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, APRIL 30,
1996 1996 1995 1995 1995
(UNAUDITED) (UNAUDITED)
----------------- -------------------------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................. $(2,098,616) $ (759,207) $(442,316) $(720,413) $(618,996)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Salaries forgiven .................. 136,000 -- -- -- 136,000
Depreciation ....................... 3,235 1,055 780 1,088 1,092
Amortization of deferred loan costs 121,399 121,399 -- -- --
Write-off of deferred offering costs 25,000 -- -- 25,000 --
Increase in restricted cash ........ (829,924) (829,924) -- -- --
Increase in prepaids and other...... (144,500) (142,820) (1,000) -- (1,680)
Increase (decrease) in accounts
payable .......................... 13,683 (182,393) 24,924 173,954 22,122
Increase in accrued liabilities ... 142,676 21,706 518 120,970 --
----------- ----------- --------- --------- ---------
Total adjustments ..................... (532,431) (1,010,977) 25,222 321,012 157,534
----------- ----------- --------- --------- ---------
Net cash used by operating activities (2,631,047) (1,770,184) (417,094) (399,401) (461,462)
----------- ----------- --------- --------- ---------
INVESTING ACTIVITIES:
Deposit for purchase of railcar from
related party ...................... (350,000) -- -- -- (350,000)
Capital expenditures ................. (505,957) (497,785) (1,137) -- (8,172)
----------- ----------- --------- --------- ---------
Net cash used in investing activities (855,957) (497,785) (1,137) -- (358,172)
----------- ----------- --------- --------- ---------
FINANCING ACTIVITIES:
Borrowings from related parties ..... 338,388 68,388 50,000 270,000 --
Repayments of notes payable to
related parties and others ......... (338,388) (333,388) -- (5,000) --
Net proceeds from issuance of notes
payable ............................ 8,695,682 8,695,682 -- -- --
Repayment of notes payable ........... (445,000) (445,000) -- -- --
Payment of loan costs ................ (1,087,829) (1,087,829) -- -- --
Net proceeds from issuance of common
stock .............................. 8,279,796 7,300,761 -- -- 979,035
Payment of offering costs ............ (25,000) -- -- -- (25,000)
----------- ----------- --------- --------- ---------
Net cash provided by
financing activities ............... 15,417,649 14,198,614 50,000 265,000 954,035
----------- ----------- --------- --------- ---------
Net increase in cash .................. 11,930,645 11,930,645 (368,231) (134,401) 134,401
Cash at beginning of period ........... -- -- 368,231 134,401 --
----------- ----------- --------- --------- ---------
Cash at end of period ................. $11,930,645 $11,930,645 $ -- $ -- $ 134,401
=========== =========== ========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest ............... $ 125,341 $ 125,341 $ -- $ -- $ --
Application of deposit to related
party for purchase of asset held for
future use ......................... $ 350,000 $ 350,000 $ -- $ -- $ --
=========== =========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
First American Railways, Inc. ("the Company") was incorporated on February
14, 1994, in the state of Florida. The Company is a development stage entity,
organized for the purpose of constructing, acquiring and marketing
entertainment based passenger trains. Initially the Company intends to
initiate service between Ft. Lauderdale and Orlando and subsequently to other
parts of the United States and internationally.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EQUIPMENT AND DEPRECIATION
Equipment is stated at cost less accumulated depreciation. Equipment is
depreciated on the straight line basis over 5 years.
ASSET HELD FOR FUTURE USE
Asset held for future use will be depreciated beginning at the time it is
placed into service.
OFFERING COSTS
Costs incurred in connection with the Company's efforts to obtain
additional financing through a public offering or private placement of
securities are deferred and offset against the proceeds in stockholders'
equity (deficit) or charged to operations if an offering or placement is
unsuccessful.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including accounts and notes
payable approximated fair value due to the relatively short maturity.
INCOME TAXES
The Company has no income since inception and accordingly has not provided
for income taxes.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of
shares of common stock outstanding, as adjusted for the effects of the
application of Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 83. Pursuant to SAB No. 83, common stock issued by the Company at a
price less than the contemplated public offering price is treated as
outstanding for all periods presented.
FUTURE ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived
F-7
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires, among
other things, impairment loss of assets to be held and gains or losses from
assets that are expected to be disposed of be included as a component of
income from continuing operations before taxes on income. The Company has
adopted SFAS No. 121 as of January 1, 1996 and its implementation did not
have a material effect on the financial statements.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 123 requires that a fair value method for accounting
for stock-based compensation plans be calculated and either recognized in the
financial statements or disclosed in the notes to the financial statements.
The Company does not presently intend to adopt the fair value based method
and as such, earnings will not be impacted by these options. However,
appropriate disclosures will be made in the notes to the financial statements
of the effects of the calculation required by the statement.
UNAUDITED FINANCIAL STATEMENTS
The interim financial statements as of June 30, 1996 and for the six
months ended June 30, 1996 and 1995 and for the cumulative period from
February 14, 1994 through June 30, 1996 are unaudited. In the opinion of
management, such statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
financial position, results of operations and changes in cash flows. The
results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results for the entire year.
2. EQUIPMENT
The Company's equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Office and computer equipment $ 8,172
Less accumulated depreciation (2,180)
-------
$ 5,992
=======
</TABLE>
Also see Note 5 for assets held for future use.
3. INCOME TAXES
At December 31, 1995, the Company had an accumulated net loss of
approximately $1,340,000 for financial reporting purposes. In general,
expenses incurred during the development stage are capitalized for tax
purposes as pre-operating expenses and may be amortizable over a 60 month
period commencing with the month in which active business begins.
Realization of any portion of the approximate $500,000 deferred tax asset
at December 31, 1995, resulting from the future amortization of capitalized
pre-operating expenses, is not considered more likely than not and,
accordingly, a valuation allowance has been established for the full amount
of such asset.
4. STOCKHOLDERS' EQUITY (DEFICIT)
a) In May 1995, the Company executed a stock split and exchanged the
1,996,400 then outstanding shares of its common stock for 2,495,500 shares of
common stock and changed the par value of its
F-8
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
4. STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
common stock from $.01 to no par. In February 1996, the Company executed a
second stock split and exchanged the 2,495,500 shares of its common stock for
4,275,000 shares of common stock with no par value, 10,000,000 shares
authorized to be issued. In connection with the merger with Asia-America, the
common stock was recapitalized at $.001 par value (Note 8(c)). The components
of stockholders' equity and all per share amounts in the accompanying
financial statements have been adjusted retroactively to reflect the stock
splits and changes in par value.
b) In 1994, the Company issued 3,854,430 shares of common stock to its
initial shareholders for cash of $18,000.
c) In connection with a private placement, the Company issued 420,570
shares of common stock for cash of $961,035 net of offering costs of $20,965.
5. COMMITMENTS AND CONTINGENCIES
a) The Company entered into employment agreements, which expire by 1997,
with three of its officers providing for aggregate annual salaries of
approximately $250,000 and for certain payments in the event of termination.
During the period from February 14, 1994 (incorporation) to April 30, 1995,
such officers waived approximately $136,000 of salaries due them under the
terms of their respective employment agreements. The amounts waived were
recorded as salary expense and a capital contribution. The officers do not
plan to waive future salaries due them under the agreements. The Company has
modified certain employment agreements and entered into others (Note 8(g)).
b) The Company pursuant to an agreement with Rader Railcar, Inc. ("Rader")
a company owned by a director and shareholder, had a railcar constructed to
be acquired by the Company at a total cost of $850,000. During the year ended
April 30, 1995, the Company advanced $350,000 to Rader which is included in
deposit in the accompanying balance sheet at December 31, 1995. The Company
took delivery of the railcar on April 28, 1995, and at that time assumed the
full risk of loss of such car. The balance was paid in June 1996 at which
time title passed to the Company. In April 1996, Rader had entered into a
lease agreement with Great Canadian Railtour Co., to lease the railcar for a
period of seven months for $10,000 per month. In June 1996, this lease was
assigned to the Company and therefore the Company will receive monthly lease
payments of $10,000 through September 1, 1996. Since this leasing activity is
not the intended use of the railcar, the June 1996 payment was recorded as a
reduction in the cost of the railcar.
c) In February 1995, the Company entered into an agreement with the
Florida East Coast Railway Company ("FEC") for the use of FEC track in
connection with the Company's proposed rail operations. Under the agreement,
the Company will pay a fee to the FEC upon commencement of operations of no
less than either $500,000 per train, per year, or $18 per train-mile (with a
stipulated train size of 15 cars). Effective January 1 of the year in which
the third anniversary of the commencement service occurs, and January 1 in
every third year thereafter, the car mile rate and the minimum amount payable
shall, upon the request of either party, be adjusted based on the "Consumer
Price Index For Urban Wage Earners and Clerical Workers" unadjusted, as
published by the Bureau of Labor Statistics, U.S. Department of Labor. The
agreement will expire ten years from the date of commencement of service. At
the conclusion of the initial ten year term, the company will have the right
to extend the agreement for an additional ten year period upon twelve months
advance notice to the FEC.
F-9
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
6. OTHER EVENTS
On August 24, 1995 the Company entered into a memorandum of understanding
with CSX Transportation, Inc. ("CSXT") for the use of its tracks between West
Palm Beach and the Orlando International Airport tradeport site in connection
with the operation of the Florida Fun-Train. The Memorandum which contains
the essential terms of the agreement between the Company and CSXT, provides,
in part, that the Company will pay CSXT the greater of $20 per train mile, or
16% of the Company's ticket revenue from the Florida Fun-Train operations. In
addition, the Company is required to maintain at least $300 million in
comprehensive general liability insurance with a minimal deductible (or self
insured). The Memorandum also provides for a certain degree of exclusivity
for the Company's proposed rail operations. Specifically CSXT has agreed not
to grant similar access rights to the subject rail corridor (between West
Palm Beach and Orlando) to any other private rail passenger operator or
contractor which would provide comparable conventional rail passenger service
(primarily servicing the cruise ship market). This exclusivity clause is
voidable by CSXT upon the occurrence of certain conditions. The term of the
agreement is five years. In addition to the foregoing, the Company has agreed
to sell up to 400,000 warrants to CSXT the terms of such warrants are to be
negotiated. Also, the Company has agreed to appoint a CSXT representative,
selected by the Company, to its Board of Directors. CSXT has not yet
nominated their representative to the Board.
7. NOTES PAYABLE TO RELATED PARTIES AND OTHERS
On June 9, 1995 the Company entered into a loan agreement with a
shareholder and director for up to $125,000, with simple interest of 18%. As
of December 31, 1995, the Company had borrowed $125,000. In addition, the
Company entered into loan agreements with two other shareholders for a total
of $140,000 with simple interest of 18%. Subsequent to December 31, 1995, an
additional $68,388 was borrowed from related parties bearing interest of 18%
per annum. All loans were repaid with the proceeds of the private offering
that closed in May 1996.
8. SUBSEQUENT EVENTS
a) In March 1996, the Company completed its Stage I financing. The Company
received gross proceeds of $500,000 in exchange for $500,000 in notes payable
bearing interest at 10% per annum, with a $55,000 original issue discount,
and 375,004 shares of common stock valued at $55,000. Costs associated with
the offering were $106,291.
In May 1996, the Company completed its Stage II financing. Total
consideration of $16,501,365 was received consisting of $16,085,000 in cash
and the conversion of $412,500 in notes payable and $3,865 in accrued
interest from Stage I financing. In connection with this transaction
$8,250,682 in five-year convertible notes bearing interest at 10% per annum
were issued. Interest is payable semi-annually in April and October and the
notes are convertible at $3.50 per share. In addition, 3,950,271 redeemable
common stock purchase warrants and 4,050,271 shares of common stock valued at
$8,250,683 were issued. Costs associated with the offering were $1,986,460.
The Company used $783,388 of the net proceeds to paydown $333,388 in notes
payable to related parties and others and $445,000 in notes payable from the
Stage I financing. In connection with the retirement of the Stage I debt,
$94,599 of deferred loan costs was charged to operations as amortization of
deferred loan costs. In addition, $55,000 of original issue discount was
charged to operations as interest expense.
Prepaid interest of $829,924 representing the first year's interest on the
Stage II debt was placed in escrow.
F-10
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
8. SUBSEQUENT EVENTS--(CONTINUED)
b) In 1996, the Company granted two-year warrants to purchase 12,500
shares of common stock at $3.50 per share to a shareholder, in consideration
for extending the repayment terms of a loan made to the Company.
c) On April 26, 1996, the Company merged into Asia-America Corporation
(Asia) a public company and accounted for the transaction as a reverse
acquisition for financial statement purposes, and was recapitalized with
9,050,271 shares of $.001 par value stock, 100,000,000 shares authorized to
be issued. In connection with this transaction, there was no impact on the
operating results of the Company and it resulted only in an adjustment to
stockholders equity.
d) During 1996, the Company granted three year warrants to purchase
100,000 shares of common stock at $2.50 per share (the market value at the
date of grant) pursuant to a consulting agreement.
e) In May 1996, the Company entered into a two year agreement with an
underwriter to provide financial advisory and consulting services. The
agreement provides for annual fees of $60,000. It also provides for
additional fees comprising of 3% to 5% of consideration paid for acquisitions
or mergers with other companies, joint ventures, license and royalty
agreements, etc., that the consultant arranges and 1.5% to 8% of the gross
proceeds resulting from the sale of any securities issued by the Company.
f) In July 1996, the Company entered into a three year employment
agreement with its new President and Chief Operating Officer. The agreement
provides for an initial annual base salary of $150,000 and a minimum annual
bonus of $25,000 with minimum increases in the base salary to $175,000 on
January 1, 1997, $189,000 on January 1, 1998, and $204,120 on January 1, 1999.
In addition, nonqualified stock options will be granted annually to purchase a
minimum of 30,000 shares of common stock. In connection with this agreement, in
July 1996, the Company issued 7,500 shares of common stock and granted options
to purchase 30,000 shares at $3.50 per share (the market value at the date of
grant).
g) In June 1996, the employment agreements previously entered into with
the officers of the Company were modified to provide for aggregate annual
base salaries of approximately $300,000. (Note 5(a))
h) In July 1996, the Company entered into a consulting agreement to
undertake a market study designed to evaluate target market segments most
likely to use the Company's trains. The cost of the study will be
approximately $172,000.
F-11
<PAGE>
===============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ........................ 2
The Merger ................................ 3
Risk Factors .............................. 5
Use of Proceeds ........................... 12
Price Range of Common Stock ............... 12
Dividend Policy ........................... 13
Selected Financial Data ................... 14
Plan of Operation.......................... 15
Business .................................. 18
Management ................................ 26
Executive Compensation .................... 29
Principal and Selling Shareholders ....... 30
Certain Transactions ...................... 40
Description of Securities ................. 42
Plan of Distribution ...................... 44
Legal Matters ............................. 45
Experts ................................... 45
Additional Information .................... 45
Index to Financial Statements ............. F-1
Report of Independent Certified Public
Accountants ............................... F-2
</TABLE>
===============================================================================
11,788,321 SHARES OF COMMON STOCK
6,320,111 SERIES A REDEEMABLE WARRANTS
100,000 FINANCIAL ADVISORY WARRANTS
FIRST AMERICAN RAILWAYS, INC. [LOGO]
FIRST AMERICAN RAILWAYS, INC.
COMMON STOCK
AND
WARRANTS
----------
PROSPECTUS
----------
, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law empowers a Nevada
corporation to indemnify any person who was or is, or is threatened to be
made, a party to any threatened, pending or contemplated action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided that such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding such person had no reasonable cause to believe his conduct was
unlawful. A Nevada corporation may indemnify such person against expenses
including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by such person in connection with actions brought by or
in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and to the extent the court in which
such action or suit was brought or other court of competent jurisdiction,
shall determine upon application that, in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. To the extent such person has been
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation
must indemnify such person against expenses, including attorneys' fees,
actually and reasonably incurred by such person in connection therewith. The
indemnification and advancement of expenses provided for in, or granted
pursuant to, Section 78.751 is not exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled
under the articles of incorporation of the Registrant or any by-law,
agreement, vote of shareholders or disinterested directors or otherwise.
Section 78.751 also provides that a corporation may maintain insurance
against liabilities for which indemnification is not expressly provided by
the statute.
Article VII of the Registrant's Restated Bylaws provides for
indemnification of the directors, officers, employees and agents of the
Company (including the advancement of expenses) to the extent permitted by
Nevada law. In addition, the Company has contractually agreed to indemnify
its directors and officers to the fullest extent permitted by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses to be incurred by the
Company in connection with the sale of the securities offered hereby, other
than underwriting discounts and commissions. Except for the Securities and
Exchange Commission registration fee, all of the amounts set forth in the
table are estimates.
Securities and Exchange Commission registration fee $ 19,517.55
Legal fees and expenses ........................... 35,000.00
Blue Sky fees and expenses ........................ 10,000.00
Accounting fees and expenses ...................... 40,000.00
Printing and engraving ............................ 10,000.00
Miscellaneous ..................................... 2,282.45
-----------
Total ............................................. $116,800.00
===========
II-1
<PAGE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
The following is information regarding the Company's sales of unregistered
securities for the last three years. All shares were issued without
registration in reliance upon Section 3(b) or 4(2) of the Act, or Regulation
D thereunder, except as noted below.
<TABLE>
<CAPTION>
AMOUNT AND TYPES CASH
OF SECURITIES DATE OF SALE PURCHASER(S) CONSIDERATION
---------------- ------------ ------------ -------------
<S> <C> <C> <C>
9,991,216 shares of
Common Stock(1) 2/15/96 Lynn Dixon $9,991
20 Units(2) 2/27/96 Various private 500,000
(375,000 shares of common stock, and placement "accredited"
$500,000 (principal amount) convertible investors and foreign
secured notes) investors
550 Units(3) 4/26/96 & 5/9/96 Various private 16,500,000
(4,050,271 shares of common stock, placement "accredited"
4,050,271 Series A Redeemable Warrants, and investors and foreign
$7.5 million (principal amount) convertible investors
secured notes).
750,000 shares of Common Stock and 650,000 April 26, 1996 Capital Growth --(4)
Series A Redeemable Warrants International, LLC
100,000 warrants to purchase 100,000 shares June 12, 1996 Josephthal Lyon & --(5)
of Common Stock Ross Incorporated
(and its designees)
</TABLE>
- ----------
(1) Before a 1-for-108 reverse stock split effective April 23, 1996.
(2) Each unit consisted of (a) 18,750 shares of the Company's common stock,
no par value, and (b) a convertible secured note in the principal amount
of $25,000, bearing interest at the rate of 10% per annum. A total of
8.25 units sold in the private placement were sold without registration
in reliance upon Regulation S under the Securities Act. Capital Growth
International, LLC, acted as placement agent for the private placement
for which it was paid a non-accountable expense allowance of $10,000 and
sales commissions of $40,000.
(3) Each unit consisted of (a) a convertible secured note in the principal
amount of $15,000, which bears interest at the rate of 10% per annum, (b)
6,000 shares of the Company's Common Stock, $.001 par value, and (c)
6,000 redeemable Common Stock Purchase Warrants, each Warrant entitling
the holder thereof to purchase one share of Common Stock at an exercise
price of $3.50 per share (subject to adjustment under certain
circumstances) at any time prior to redemption from the date of issuance
until two years thereafter. A total of 299.28 units sold in the private
placement were sold without registration in reliance upon Regulation S
under the Securities Act. Capital Growth International, LLC, acted as
placement agent for the 1996 private placement for which it was paid a
non-accountable expense allowance of $330,027.29 and sales commissions of
$1,320,109.17.
(4) Issued as consideration pursuant to a Placement Agent Agreement dated
April 26, 1996, between First American Railways, Inc., a Florida
corporation ("First American-Florida") and Capital Growth International,
LLC.
(5) Issued as consideration pursuant to a Financial Advisory Agreement dated
February 24, 1994, between First American-Florida and Josephthal Lyon &
Ross Incorporated.
II-2
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation, as amended, is hereby incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form 8-A, filed May 30, 1996.
3.2 Plan and Articles of Merger, is hereby incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form 8-A, filed May 30, 1996.
3.3 Bylaws, is hereby incorporated by reference to Exhibit 3.3 of the Company's Registration Statement
on Form 8-A, filed May 30, 1996.
4.1 Form of Common Stock Certificate, is hereby incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form 8-A, filed May 30, 1996.
4.2 Form of Series A Redeemable Warrant Certificate.
4.3 Series A Redeemable Warrant Agreement.
4.4 Form of Financial Advisory Warrant Certificate.
4.5 Financial Advisory Warrant Agreement.
5 Opinion of Olle, Macaulay & Zorrilla, P.A.*
10.1 Agreement effective as of June 28, 1994, between First American-Florida and Rader Railcar, Inc.,
as amended.
10.2 Employment Agreement dated February 16, 1994, between the Registrant and Allen C. Harper.
10.3 Employment Agreement dated February 16, 1994, between the Registrant and Eugene K. Garfield, as
amended.
10.4 Employment Agreement dated February 16, 1996, between First American-Florida and Michael J. Acierno,
as amended.
10.5 Employment Agreement dated July 1, 1996, between the Company and Ray Monteleone.
10.6 Agreement dated February 28, 1995, between First American-Florida and Florida East Coast Railway
Company.
10.7 Form of Non-Competition Agreement between Thomas G. Rader and First American-Florida.
10.8 Form of Railcar Construction Agreement between the Registrant and Rader Railcar, Inc.
10.9 Financial Advisory and Consulting Agreement between the Registrant and Capital Growth International,
LLC, dated April 26, 1996.
10.10 Note Escrow Agreement between the Registrant, Capital Growth International, LLC and Sterling National
Bank and Trust Company of New York dated April 26, 1996.
10.11 Form of Convertible Secured Note.
23.1 Consent of Olle, Macaulay & Zorrilla, P.A., included as part of Exhibit 5.
23.2 Consent of BDO Seidman, LLP.
24 Power of Attorney (included on page II-5 hereof).
</TABLE>
- ----------
* To be filed by Amendment
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) The registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any additional or changed material information on the
plan of distribution.
(2) That it will, for determining any liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time to be
the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.
(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 Securities and
Exchange Commission (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.
(c) The undersigned registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Coral
Gables, State of Florida, on August 5, 1996.
FIRST AMERICAN RAILWAYS, INC.
By: /s/ ALLEN C. HARPER
---------------------------------
Allen C. Harper, Chairman of
the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that First American Railways, Inc., and
each person whose signature appears below, constitutes and appoints Allen C.
Harper and Raymond L. Monteleone and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and
re-substitution for him and in his name or in the name of the Company and in
any and all capacities, to sign any and all amendments to the Form SB-2
Registration Statement under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as full to all items and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ALLEN C. HARPER Chairman of the Board August 5, 1996
- ---------------------------
Allen C. Harper (principal executive,
financial and principal
accounting officer)
/s/ EUGENE K. GARFIELD Vice Chairman of the Board August 5, 1996
- ---------------------------
Eugene K. Garfield
/s/ RAYMOND L. MONTELEONE President, Chief August 5, 1996
- ---------------------------
Raymond L. Monteleone Operating Officer
and Director
/s/ THOMAS G. RADER Director August 5, 1996
- ---------------------------
Thomas G. Rader
/s/ DAVID H. RUSH Director August 5, 1996
- ---------------------------
David H. Rush
/s/ LUIGI SALVANESCHI Director August 5, 1996
- ---------------------------
Luigi Salvaneschi
</TABLE>
Exhibit 4.2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, HYPOTHECATED, PLEDGED, OR OTHERWISE DISPOSED OF IN THE UNITED
STATES OR TO U.S. PERSONS EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE
HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR
THIS CORPORATION, IS AVAILABLE.
May 9, 1996
FIRST AMERICAN RAILWAYS, INC.
SERIES A REDEEMABLE COMMON STOCK
PURCHASE WARRANT
The Transferability of this Warrant is Restricted as
Provided in SECTION 3 hereof.
1 ~ Warrants
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by FIRST AMERICAN RAILWAYS, INC., a Nevada
corporation (the "Company"), 2 ~ is hereby granted the right to purchase,
subject to redemption hereof in accordance with SECTION 7 hereof, at the initial
exercise price of three dollars and fifty cents ($3.50) per share (subject to
adjustment as set forth herein), 3 ~ (1 ~) shares of common stock of the Company
(the "Shares"). Each Series A Redeemable Common Stock Purchase Warrant
("Warrant") may be exercised from the date hereof until May 9, 1998. The Shares
and the Warrants are sometimes referred to herein as the "Securities."
Each Warrant initially is exercisable at a price of three dollars
and fifty cents ($3.50) per Share payable in cash or by certified or official
bank check in New York Clearing House funds, subject to adjustments as provided
in SECTION 6 hereof. Upon surrender of this Warrant, with the annexed
Subscription Form duly executed, together with payment of the Purchase Price (as
hereinafter defined) for the Shares purchased at the offices of the Company, the
registered holder of this Warrant (the "Holder") shall be entitled to receive a
certificate or certificates for the Shares so purchased.
<PAGE>
1. EXERCISE OF WARRANT.
The purchase rights represented by this Warrant are exercisable at
the option of the Holder, in whole or in part (but not as to fractional Shares
underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
Shares purchasable under this Warrant, the Company shall cancel this Warrant
upon the surrender hereof and shall execute and deliver a new Warrant of like
tenor for the balance of the Shares purchasable hereunder.
At any time upon the exercise of any Warrants, the Company shall, on
a daily basis, within two (2) business days after any such exercise, notify
Capital Growth International, L.L.C. or its successors or assigns of the
exercise of any such Warrants and shall, on a weekly basis (subject to
collection of funds constituting the tendered Purchase Price (as defined
herein), but in no event later than five (5) business days after the last day of
the calendar week in which such funds were tendered), remit to CGI or its
successors or assigns an amount equal to five percent (5%) of the Purchase Price
of such Warrants being then exercised unless the CGI or its successors or
assigns shall have notified the Warrant agent (or the Company, if there is no
Warrant agent) that the payment of such amount with respect to any such Warrant
is violative of the rules and regulations promulgated under the Securities
Exchange Act, as amended, the rules and regulations of the National Association
of Securities Dealers, Inc. or applicable state securities or "blue sky" laws,
or the Warrants are those underlying CGI's Warrants, in any of which events the
Warrant agent (and/or the Company) shall have to pay such amount to the Company;
PROVIDED, HOWEVER, that the Warrant agent (and/or the Company, as applicable)
shall not be obligated to pay any amounts pursuant to this SECTION 1 during any
week that such amounts payable are less than one thousand dollars ($1,000) and
the Warrant agent's obligation (or Company's obligation, if there is no Warrant
agent) to make such payments shall be suspended until the amount payable
aggregates one thousand dollars ($1,000), and provided further, that, in any
event, any such payment (regardless of amount) shall be made not less frequently
than monthly.
2. ISSUANCE OF CERTIFICATES.
Upon the exercise of this Warrant and payment in full for the
Shares, the issuance of certificates for Shares underlying this Warrant shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder, including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of SECTION 3 hereof) be issued in the name of, or in
such names as may be directed by, the Holder; PROVIDED, HOWEVER, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The certificates representing the Shares underlying this
Warrant shall be executed on behalf of the Company by the manual or facsimile
2
<PAGE>
signature of the present or any future President or Vice President and Secretary
or Assistant Secretary of the Company.
3. RESTRICTION ON TRANSFER.
Neither this Warrant nor any Share issuable upon exercise hereof has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Securities Act which has become effective and is current with respect to
such securities, or, (ii) pursuant to a specific exemption from registration
under the Securities Act but only upon a Holder hereof first having obtained the
written opinion of counsel to the Company, or other counsel reasonably
acceptable to the Company, that the proposed disposition is consistent with all
applicable provisions of the Securities Act as well as any applicable "Blue Sky"
or similar state securities law. Upon exercise, in part or in whole, of this
Warrant, each certificate issued representing the Shares underlying this Warrant
shall bear a legend to the foregoing effect.
4. REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
4.1 THE COMPANY'S REGISTRATION. As soon as practicable, and in any
event not later than 30 days after April 26, 1996 (the date of the consummation
of the merger of First American Railways, Inc., a Florida corporation with and
into Asia-American Corporation, a Nevada corporation (the "Merger")), the
Company shall prepare and file with the Securities and Exchange Commission (the
"Commission"), a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Placement Agent and the holders of the Securities and of any
other securities of the Company with registration rights similar to those
granted in this Section 4 (collectively, the "Registration Rights Holders"), in
order to comply with the provisions of the Securities Act, so as to permit a
public offering and sale of their respective securities (collectively, the
"Registration Rights Securities") for a consecutive period ending twenty-four
(24) months after the earlier of (i) the exercise and (ii) the expiration, of
all of the Warrants and Series B redeemable warrants (when issued), or for such
longer period as long as any Registration Rights Securities held by such
Registration Rights Holders are deemed "restricted" under the Securities Act.
The costs and expenses associated with the preparation, filing and prosecution
of such registration statement(s) shall be borne by the Company.
4.2 DEMAND REGISTRATION.
(a) In the event the registration statement referred to in Section
4.1 does not become effective within six months after the Merger or the
effectiveness thereof is not maintained, Registration Rights Holders
representing a Majority (as defined in Section 4.4(g)) of the Registration
Rights Securities shall have the right, exercisable by written notice to the
Company, to have the Company prepare and file with the Commission, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Placement Agent and the Registration Rights
3
<PAGE>
Holders in order to comply with the provisions of the Securities Act, so as to
permit a public offering and sale of the Registration Rights Securities, for a
consecutive period ending twenty-four (24) months after the earlier of (i) the
exercise and (ii) the expiration of all of the Warrants and Series B Redeemable
Warrants (when issued) held by such Registration Rights Holders, by such
Registration Rights Holders and any other Registration Rights Holders who notify
the Company within ten (10) days after receiving notice from the Company of such
registration request, as set forth below.
(b) The Company covenants and agrees to give written notice of any
registration request under this SECTION 4.2 by any Registration Rights Holder to
all other Registration Rights Holders within ten (10) days from the date of the
receipt of any such registration request.
(c) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor and to have
any registration statement declared effective at the earliest possible time. The
Company shall furnish each Registration Rights Holder desiring to sell
Registration Rights Securities such number of prospectuses as shall reasonably
be requested.
4.3 PIGGYBACK REGISTRATION.
(a) If, at any time commencing six months after the Merger and
expiring five (5) years from the date hereof, if any of the Registration Rights
Securities are "restricted securities" within the meaning of the rules and
regulations promulgated under the Securities Act, the Company proposes to
register any of its securities under the Securities Act (other than in
connection with a merger, acquisition or exchange offer on Form S-4 or pursuant
to Form S-8 or successor forms) it will give written notice by registered or
certified mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Registration Rights Holders of its intention to
do so. Upon the written request of any Registration Rights Holder given within
ten (10) days after receipt of any such notice of his or her desire to include
any Registration Rights Securities in such proposed registration statement, the
Company shall afford the Registration Rights Holders the opportunity to have any
such Registration Rights Securities registered under such registration
statement.
(b) Notwithstanding the provisions of this Section 4.3, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 4.3 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
4
<PAGE>
4.4 COVENANTS WITH RESPECT TO REGISTRATION. In connection with any
registration under any of Sections 4.1, 4.2 and 4.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall pay all costs (excluding fees and expenses of
Registration Rights Holder(s)' counsel and any underwriting or selling
commissions or other charges of any broker-dealer acting on behalf of
Registration Rights Holder(s)), fees and expenses in connection with all
registration statements filed pursuant to any of Sections 4.1, 4.2 and 4.3
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses and blue sky fees and expenses.
(b) The Company will take all necessary action which may be required
in qualifying or registering the securities included in a registration statement
for offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Registration Rights Holder(s), provided that the
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(c) The Company shall indemnify the Registration Rights Holder(s),
each of their directors and officers and each person, if any, who controls such
Registration Rights Holder(s) within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Securities and Exchange Act of 1934 (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the
Securities Act, the Exchange Act or any other statute, common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in such registration statement executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Registration Rights Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, the National Association of Securities Dealers, Inc., The
Nasdaq Stock Market or any securities exchange, or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements contained therein not misleading, unless such statement
or omission was made in reliance upon and in strict conformity with written
information furnished to the Company by the Registration Rights Holder(s)
expressly for use in such registration statement, any amendment or supplement
thereto or any application, as the case may be. If any action is brought against
the Registration Rights Holder(s) or any controlling person of the Registration
Rights Holder(s) in respect of which indemnity may be sought against the Company
pursuant to this Section 4.4(c), the Registration Rights Holder(s) or such
controlling person shall, within thirty (30) days after the receipt of a summons
or complaint, notify the Company in writing of the institution of such action
and the Company shall assume the defense of such action, including the
employment and payment of reasonable fees and expenses of counsel (which counsel
shall be reasonably satisfactory to the Registration Rights Holder(s) or such
controlling person), but the failure to give such notice shall not affect such
indemnified person's right to indemnification hereunder except to the extent
that the Company's defense of such action was materially adversely affected
thereby. The Registration Rights Holder(s) or such controlling person shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Registration Rights
Holder(s) or such
5
<PAGE>
controlling person unless the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of such
action, or the Company shall not have employed counsel to have charge of the
defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to the Company (in which
case the Company shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events the fees
and expenses of not more than one additional firm of attorneys for all of the
Registration Rights Holder(s) and/or such controlling person shall be borne by
the Company. Except as expressly provided in the previous sentence, in the event
that the Company shall have assumed the defense of any such action or claim, the
Company shall not thereafter be liable to the Registration Rights Holder(s) or
such controlling person in investigating, preparing or defending any such action
or claim. The Company agrees to notify promptly the Registration Rights
Holder(s) of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the resale of any of the Registration Rights Securities in connection with
such registration statement. The Company further agrees that upon demand by an
indemnified person, at any time or from time to time, it will promptly reimburse
such indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the Company
has indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Section 4.4(c), any such payment or reimbursement by the
Company of fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against any
Registration Rights Holder or such indemnified person as a direct result of any
Registration Rights Holder or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
(d) The Registration Rights Holder(s), and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which they may become subject under the Securities Act,
the Exchange Act or any other statute, common law or otherwise, arising from
written information furnished by or on behalf of such Registration Rights
Holder(s), or their successors or assigns, expressly for use in such
registration statement. The Registration Rights Holder(s) further agree(s) that
upon demand by an indemnified person, at any time or from time to time, they
will promptly reimburse such indemnified person for any loss, claim, damage,
liability, cost or expense actually and reasonably paid by the indemnified
person as to which the Registration Rights Holder(s) have indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of this Section
4.4(d), any such payment or reimbursement by the Registration Rights Holder(s)
of fees, expenses or disbursements incurred by an indemnified person in any
proceeding in which a final judgment by a court of competent jurisdiction (after
all appeals or the expiration of time to appeal) is entered against the Company
or such indemnified person as a direct result of the Company or such person's
gross negligence or willful misfeasance will be promptly repaid to the
Registration Rights Holder(s).
6
<PAGE>
(e) Nothing contained in this Agreement shall be construed as
requiring the Registration Rights Holder(s) to convert, exchange or exercise any
securities convertible, exchangeable or exercisable for Common Stock prior to
the initial filing of any registration statement or the effectiveness thereof.
(f) The Company shall enter into an underwriting agreement with the
managing underwriter, if any, selected for such underwriting by Registration
Rights Holders holding a Majority of the securities requested to be included in
such underwriting. Such agreement shall be satisfactory in form and substance to
the Company each Registration Rights Holder and such managing underwriter, and
shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter. The Registration Rights Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their securities
and may, at their option, require that any or all of the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Registration
Rights Holders. Such Registration Rights Holders shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Registration Rights Holders and
their intended methods of distribution.
(g) For purposes of this Agreement, the term "Majority" in reference
to the Registration Rights Holders shall mean in excess of fifty percent (50%)
of the then outstanding Registration Rights Securities (assuming the exercise of
all outstanding warrants, if not yet exercised) that (i) are not held by the
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as nominees
or in conjunction therewith and (ii) have not been resold to the public pursuant
to a registration statement filed with the Commission under the Securities Act.
5. PRICE.
5.1 INITIAL AND ADJUSTED PURCHASE PRICE. The initial purchase price
shall be three dollars and fifty cents ($3.50) per Share. The adjusted purchase
price shall be the price which shall result from time to time from any and all
adjustments of the initial purchase price in accordance with the provisions of
SECTION 6 hereof.
5.2 PURCHASE PRICE. The term "Purchase Price" herein shall mean the
initial purchase price or the adjusted purchase price, depending upon the
context.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK
DELIVERABLE.
(a) (i) Except as hereinafter provided, in the event the Company
shall, at any time or from time to time after the date hereof, sell any shares
of Common Stock for a consideration per share less than the Purchase Price or
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision
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or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price for the Warrants (whether
or not the same shall be issued and outstanding) in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (A) the sum of
(x) the total number of shares of Common Stock outstanding immediately prior to
such Change of Shares, multiplied by the Purchase Price in effect immediately
prior to such Change of Shares, and (y) the consideration, if any, received by
the Company upon such sale, issuance, subdivision or combination by (B) the
total number of shares of Common Stock outstanding immediately after such Change
of Shares; PROVIDED, HOWEVER, that in no event shall the Purchase Price be
adjusted pursuant to this computation to an amount in excess of the Purchase
Price in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance with
this SECTION 6(a)(i) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or sale
of shares of Common Stock) for a consideration part or all of which shall be
cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company on the basis of a record
of values of similar property or services.
(C) Shares of Common Stock issuable by way of dividend
or other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash
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immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (B) of this SECTION 6(a)(i).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant to
this SECTION 6, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Purchase Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Purchase Price.
(b) In case the Company shall at any time after the date hereof
issue options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share (determined as provided in SECTION 6(a)(i)
hereof and as provided below) less than the Purchase Price in effect immediately
prior to the issuance of such options, rights or warrants, or such convertible
or exchangeable securities, or without consideration (including the issuance of
any such securities by way of dividend or other distribution), the Purchase
Price for the Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of SECTION 6(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; PROVIDED, HOWEVER, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
SECTION 6(a)(i) hereof) shall be reduced by the number of shares as to which
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Purchase Price
then in effect shall forthwith be readjusted and thereafter be the price that it
would have been had adjustment been made on the basis of the issuance only of
the shares actually issued plus the shares remaining issuable upon the exercise
of those options, rights or warrants as to which the exercise rights shall not
have expired or terminated unexercised.
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(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; PROVIDED, HOWEVER, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of SECTION 6(a)(i) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(A) of this SECTION 6(b), or in the price per share or ratio at which the
securities referred to in subsection (B) of this SECTION 6(b) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
(c) In case of any reclassification or change of outstanding shares
of Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par value
or as a result of a subdivision or combination), or in case of any consolidation
or merger of the Company with or into another corporation (other than a merger
with a Subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification or change of the then outstanding
shares of Common Stock or other capital stock issuable upon exercise of the
Warrants), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
corporate office of the Warrant agent (or the Company, if there is no Warrant
agent) a statement signed by its Chairman of the Board, President or a Vice
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President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary evidencing such provision. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in SECTIONS 6(a) and 6(b) hereof.
The above provisions of this SECTION 6(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to the terms hereof, continue to express the Purchase Price per share
and the number of shares purchasable thereunder as the Purchase Price per share
and the number of shares purchasable thereunder were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
SECTION 6, the Company will promptly prepare a certificate signed by the
Chairman of the Board, President, or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant, after such
adjustment, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the holder to whom the Company failed to mail such notice, or except as to the
holder whose notice was defective. The affidavit of an officer of the Warrant
Agent or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(f) No adjustment of the Purchase Price shall be made as a result of
or in connection with (A) the issuance or sale of shares of Common Stock
pursuant to options, warrants, stock purchase agreements and convertible or
exchangeable securities outstanding or in effect on the date hereof, (B) the
issuance or sale of shares of Common Stock upon the exercise of any "incentive
stock options" (as such term is defined in the Internal Revenue Code of 1986, as
amended), whether or not such options were outstanding on the date hereof, or
(C) the issuance or sale of shares of Common Stock if the amount of said
adjustment shall be less than ten cents ($.10); PROVIDED, HOWEVER, that in such
case, any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that shall amount, together with any adjustment so carried
forward, to at least ten cents ($.10). In addition, Registered Holders shall not
be entitled to cash dividends paid by the Company prior to the exercise of any
Warrant or Warrants held by them.
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7. REDEMPTION OF THE WARRANTS.
(a) Commencing six months from the effective date of the Merger,
the Company may, on 30 days' prior written notice redeem all the Warrants at ten
cents ($.10) per Warrant, provided, however, that before any such call for
redemption of Warrants can take place, (i) the Securities are registered under
the Securities Act and applicable "Blue Sky" laws, (ii) a current prospectus is
then available for the resale of the Securities and (iii) the closing bid price
of the Common Stock as reported by Nasdaq, the OTC Bulletin Board, or such other
market on which the Common Stock is then traded, exceeds $5.00 per share for the
20 consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption contemplated by (b) and (c) below is given (subject to
adjustment in the event of any stock splits or other similar events as provided
herein).
(b) In case the Company shall exercise its right to redeem all of
the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Company. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five business days prior
to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to Capital Growth
International, LLC a similar notice telephonically and confirmed in writing
together with a list of the Registered Holders (including their respective
addresses and number of Warrants beneficially owned) to whom such notice of
redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, which shall in no event be less than thirty
(30) days after the date of mailing of such notice, (iii) the place where the
Warrant Certificate shall be delivered and the redemption price shall be paid,
and (iv) that the right to exercise the Warrant shall terminate at 5:00 p.m.
(New York time) on the business day immediately preceding the date fixed for
redemption. The date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Secretary or Assistant Secretary of the Company
that notice of redemption has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m.
(New York time) on the business day immediately preceding the Redemption Date.
The redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
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8. MERGER OR CONSOLIDATION.
In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding common stock of the Company), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of his Warrant,
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger by a holder of the number of shares
of common stock of the Company for which his Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in SECTION 6. The above provisions of this
SECTION 8 shall similarly apply to successive consolidations or mergers.
9. EXCHANGE AND REPLACEMENT OF WARRANT.
This Warrant is exchangeable without expense, upon the surrender
hereof by the registered Holder at the principal executive office of the Company
for a new Warrant of like tenor and date representing in the aggregate the right
to purchase the same number of Shares as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
10. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated.
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11. RESERVATION OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized common stock, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price therefor, all Shares issuable upon such exercise
shall be duly and validly issued, fully paid and nonassessable.
12. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company.
13. NOTICES.
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally, telegraphed or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
(a) If to the Company, to:
First American Railways, Inc.
1360 South Ocean Boulevard
Pompano Beach, Florida 33062
Attn: Eugene K. Garfield, President
(b) If to the Holder, to the address of such Holder as shown on the
books of the Company.
14. SUCCESSORS.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
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15. HEADINGS.
The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
16. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of New York, without giving effect to
conflicts of law, rules or principles.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its corporate name by, and such signature to be attested to by, a duly
authorized officer on the date first above written.
FIRST AMERICAN RAILWAYS, INC.
By:___________________________________
Allen C. Harper
Chairman of the Board of Directors
Attest:
- ------------------------------------
Eugene K. Garfield
President and Assistant Secretary
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SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase Shares represented by this Warrant in accordance to the conditions
hereof and herewith makes payment of the Purchase Price of such Shares in full.
--------------------------------------
Signature
--------------------------------------
Address
---------------------------------------
Social Security Number or Taxpayer's
Identification Number
Exhibit 4.3
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED
OR TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR
(II) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
APRIL 26, 1996
FIRST AMERICAN RAILWAYS, INC.
SERIES A REDEEMABLE COMMON STOCK
PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in SECTION 3 hereof.
_______ Warrants
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by FIRST AMERICAN RAILWAYS, INC., a Florida
corporation, and its successor by merger or consolidation (the "Company"),
______________________ is hereby granted the right to purchase, subject to
redemption hereof in accordance with SECTION 7 hereof, at the initial exercise
price of three dollars and fifty cents ($3.50) per share (subject to adjustment
as set forth herein), ____________________ (_______) shares of common stock of
the Company (the "Shares"). Each Series A Redeemable Common Stock Purchase
Warrant ("Warrant") may be exercised from the date hereof until April 26, 1998.
The Shares and the Warrants are sometimes referred to herein as the
"Securities."
Each Warrant initially is exercisable at a price of three dollars and
fifty cents ($3.50) per Share payable in cash or by certified or official bank
check in New York Clearing House funds, subject to adjustments as provided in
SECTION 6 hereof. Upon surrender of this Warrant, with the annexed Subscription
Form duly executed, together with payment of the Purchase Price (as
<PAGE>
hereinafter defined) for the Shares purchased at the offices of the Company, the
registered holder of this Warrant (the "Holder") shall be entitled to receive a
certificate or certificates for the Shares so purchased.
1. EXERCISE OF WARRANT.
The purchase rights represented by this Warrant are exercisable at the
option of the Holder, in whole or in part (but not as to fractional Shares
underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
Shares purchasable under this Warrant, the Company shall cancel this Warrant
upon the surrender hereof and shall execute and deliver a new Warrant of like
tenor for the balance of the Shares purchasable hereunder.
At any time upon the exercise of any Warrants, the Company
shall, on a daily basis, within two (2) business days after any such exercise,
notify Capital Growth International, L.L.C. or its successors or assigns of the
exercise of any such Warrants and shall, on a weekly basis (subject to
collection of funds constituting the tendered Purchase Price (as defined
herein), but in no event later than five (5) business days after the last day of
the calendar week in which such funds were tendered), remit to CGI or its
successors or assigns an amount equal to five percent (5%) of the Purchase Price
of such Warrants being then exercised unless the CGI or its successors or
assigns shall have notified the Warrant agent (or the Company, if there is no
Warrant agent) that the payment of such amount with respect to any such Warrant
is violative of the rules and regulations promulgated under the Securities
Exchange Act, as amended, the rules and regulations of the National Association
of Securities Dealers. Inc. or applicable state securities or "blue sky" laws,
or the Warrants are those underlying CGI's Warrants, in any of which events the
Warrant agent (and/or the Company) shall have to pay such amount to the Company;
PROVIDED, HOWEVER, that the Warrant agent (and/or the Company, as applicable)
shall not be obligated to pay any amounts pursuant to this SECTION 1 during any
week that such amounts payable are less than one thousand dollars ($1,000) and
the Warrant agent's obligation (or Company's obligation, if there is no Warrant
agent) to make such payments shall be suspended until the amount payable
aggregates one thousand dollars ($1,000), and provided further, that, in any
event, any such payment (regardless of amount) shall be made not less frequently
than monthly.
2. ISSUANCE OF CERTIFICATES.
Upon the exercise of this Warrant and payment in full for the Shares,
the issuance of certificates for Shares underlying this Warrant shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder, including, without limitation, any tax which may be
payable in respect of the
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issuance thereof, and such certificates shall (subject to the provisions of
SECTION 3 hereof) be issued in the name of, or in such names as may be directed
by, the Holder; PROVIDED, HOWEVER, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The certificates
representing the Shares underlying this Warrant shall be executed on behalf of
the Company by the manual or facsimile signature of the present or any future
President or Vice President and Secretary or Assistant Secretary of the Company.
3. RESTRICTION ON TRANSFER.
Neither this Warrant nor any Share issuable upon exercise hereof has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Securities Act which has become effective and is current with respect to
such securities, or, (ii) pursuant to a specific exemption from registration
under the Securities Act but only upon a Holder hereof first having obtained the
written opinion of counsel to the Company, or other counsel reasonably
acceptable to the Company, that the proposed disposition is consistent with all
applicable provisions of the Securities Act as well as any applicable "Blue Sky"
or similar state securities law. Upon exercise, in part or in whole, of this
Warrant, each certificate issued representing the Shares underlying this Warrant
shall bear a legend to the foregoing effect.
4. REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
4.1 THE COMPANY'S REGISTRATION. As soon as practicable after
the consummation of the merger of First American Railways, Inc., a Florida
corporation with and into a public corporation, including, without limitation,
Asia-American Corporation, a Nevada corporation (the "Merger") and in any event
not later than 30 days thereafter, the Company shall prepare and file with the
Securities and Exchange Commission (the "Commission"), a registration statement
and such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Placement Agent and
the holders of the Securities and of any other securities of the Company with
registration rights similar to those granted in this Section 4 (collectively,
the "Registration Rights Holders"), in order to comply with the provisions of
the Securities Act, so as to permit a public offering and sale of their
respective securities (collectively, the
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"Registration Rights Securities") for a consecutive period ending twenty-four
(24) months after the earlier of (i) the exercise and (ii) the expiration, of
all of the Warrants and Series B redeemable warrants (when issued), or for such
longer period as long as any Registration Rights Securities held by such
Registration Rights Holders are deemed "restricted" under the Securities Act.
The costs and expenses associated with the preparation, filing and prosecution
of such registration statement(s) shall be borne by the Company.
4.2 DEMAND REGISTRATION.
(a) In the event the registration statement referred to in
Section 4.1 does not become effective within six months after the Merger or the
effectiveness thereof is not maintained, Registration Rights Holders
representing a Majority (as defined in Section 4.4(g)) of the Registration
Rights Securities shall have the right, exercisable by written notice to the
Company, to have the Company prepare and file with the Commission, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Placement Agent and the Registration Rights Holders in order to comply with the
provisions of the Securities Act, so as to permit a public offering and sale of
the Registration Rights Securities, for a consecutive period ending twenty-four
(24) months after the earlier of (i) the exercise and (ii) the expiration of all
of the Warrants and Series B Redeemable Warrants (when issued) held by such
Registration Rights Holders, by such Registration Rights Holders and any other
Registration Rights Holders who notify the Company within ten (10) days after
receiving notice from the Company of such registration request, as set forth
below.
(b) The Company covenants and agrees to give written
notice of any registration request under this SECTION 4.2 by any Registration
Rights Holder to all other Registration Rights Holders within ten (10) days from
the date of the receipt of any such registration request.
(c) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand therefor
and to have any registration statement declared effective at the
earliest-possible time. The Company shall furnish each Registration Rights
Holder desiring to sell Registration Rights Securities such number of
prospectuses as shall reasonably be requested.
4.3 PIGGYBACK REGISTRATION.
(a) If, at any time commencing six months after the Merger
and expiring five (5) years from the date hereof, if any of the Registration
Rights Securities are "restricted securities" within the meaning of the rules
and regulations promulgated under
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the Securities Act, the Company proposes to register any of its securities under
the Securities Act (other than in connection with a merger, acquisition or
exchange offer on Form S-4 or pursuant to Form S-8 or successor forms) it will
give written notice by registered or certified mail, at least thirty (30) days
prior to the filing of each such registration statement, to the Registration
Rights Holders of its intention to do so. Upon the written request of any
Registration Rights Holder given within ten (10) days after receipt of any such
notice of his or her desire to include any Registration Rights Securities in
such proposed registration statement, the Company shall afford the Registration
Rights Holders the opportunity to have any such Registration Rights Securities
registered under such registration statement.
(b) Notwithstanding the provisions of this Section 4.3,
the Company shall have the right at any time after it shall have given written
notice pursuant to this Section 4.3 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
4.4 COVENANTS WITH RESPECT TO REGISTRATION. In connection with
any registration under any of Sections 4.1, 4.2 and 4.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall pay all costs (excluding fees and
expenses of Registration Rights Holder(s)' counsel and any underwriting or
selling commissions or other charges of any broker-dealer acting on behalf of
Registration Rights Holder(s)), fees and expenses in connection with all
registration statements filed pursuant to any of Sections 4.1, 4.2 and 4.3
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses and blue sky fees and expenses.
(b) The Company will take all necessary action which may
be required in qualifying or registering the securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Registration Rights
Holder(s), provided that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(c) The Company shall indemnify the Registration Rights
Holder(s), each of their directors and officers and each person, if any, who
controls such Registration Rights Holder(s) within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Securities and Exchange Act of 1934
(the "Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Securities Act, the Exchange
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Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order to
qualify the Registration Rights Securities under the securities laws thereof or
filed with the Commission, any state securities commission or agency, the
National Association of Securities Dealers, Inc., The Nasdaq Stock Market or any
securities exchange, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading, unless such statement or omission was made in reliance
upon and in strict conformity with written information furnished to the Company
by the Registration Rights Holder(s) expressly for me in such registration
statement, any amendment or supplement thereto or any application, as the case
may be. If any action is brought against the Registration Rights Holder(s) or
any controlling person of the Registration Rights Holder(s) in respect of which
indemnity may be sought against the Company pursuant to this Section 4.4(c), the
Registration Rights Holder(s) or such controlling person shall, within thirty
(30) days after the receipt of a summons or complaint, notify the Company in
writing of the institution of such action and the Company shall assume the
defense of such action, including the employment and payment of reasonable fees
and expenses of counsel (which counsel shall be reasonably satisfactory to the
Registration Rights Holder(s) or such controlling person), but the failure to
give such notice shall not affect such indemnified person's right to
indemnification hereunder except to the extent that the Company's defense of
such action was materially adversely affected thereby. The Registration Rights
Holder(s) or such controlling person shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of the Registration Rights Holder(s) or such controlling person
unless the employment of such counsel shall have been authorized in writing by
the Company in connection with the defense of such action, or the Company shall
not have employed counsel to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys for all of the Registration Rights Holder(s) and/or
such controlling person shall be borne by the Company. Except as expressly
provided in the previous sentence, in the event that the Company shall have
assumed the defense of any such action or claim, the Company shall not
thereafter be liable to the Registration Rights Holder(s) or such controlling
person in investigating, preparing or defending any such action or claim. The
Company agrees to notify promptly the Registration Rights Holder(s) of the
commencement of any litigation or proceedings against the
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Company or any of its officers, directors or controlling persons in connection
with the resale of any of the Registration Rights Securities in connection with
such registration statement. The Company further agrees that upon demand by an
indemnified person, at any time or from time to time, it will promptly reimburse
such indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the Company
has indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Section 4.4(c), any such payment or reimbursement by the
Company of fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against any
Registration Rights Holder or such indemnified person as a direct result of any
Registration Rights Holder or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
(d) The Registration Rights Holder(s), and their
successors and assigns, shall severally, and not jointly, indemnify the Company,
its officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the
Securities Act, the Exchange Act or any other statute, common law or otherwise,
arising from written information furnished by or on behalf of such Registration
Rights Holder(s), or their successors or assigns, expressly for use in such
registration statement. The Registration Rights Holder(s) further agree(s) that
upon demand by an indemnified person, at any time or from time to time, they
will promptly reimburse such indemnified person for any loss, claim, damage,
liability, cost or expense actually and reasonably paid by the indemnified
person as to which the Registration Rights Holder(s) have indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of this Section
4.4(d), any such payment or reimbursement by the Registration Rights Holder(s)
of fees, expenses or disbursements incurred by an indemnified person in any
proceeding in which a final judgment by a court of competent jurisdiction (after
all appeals or the expiration of time to appeal) is entered against the Company
or such indemnified person as a direct result of the Company or such person's
gross negligence or willful misfeasance will be promptly repaid to the
Registration Rights Holder(s).
(e) Nothing contained in this Agreement shall be construed
as requiring the Registration Rights Holder(s) to convert, exchange or exercise
any securities convertible, exchangeable or exercisable for Common Stock prior
to the initial filing of any registration statement or the effectiveness
thereof.
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(f) The Company shall enter into an underwriting agreement
with the managing underwriter, if any, selected for such underwriting by
Registration Rights Holders holding a Majority of the securities requested to be
included in such underwriting. Such agreement shall be satisfactory in form and
substance to the Company each Registration Rights Holder and such managing
underwriter, and shall contain such representations, warranties and covenants by
the Company and such other terms as are customarily contained in agreements of
that type used by the managing underwriter. The Registration Rights Holders
shall be parities to any underwriting agreement relating to an underwritten sale
of their securities and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such
Registration Rights Holders. Such Registration Rights Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Registration
Rights Holders and their intended methods of distribution.
(g) For purposes of this Agreement, the term "Majority" in
reference to the Registration Rights Holders shall mean in excess of fifty
percent (50%) of the then outstanding Registration Rights Securities (assuming
the exercise of all outstanding warrants, if not yet exercised) that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith and (ii) have not been resold to the
public pursuant to a registration statement filed, with the Commission under the
Securities Act.
5. PRICE.
5.1 INITIAL AND ADJUSTED PURCHASE PRICE. The initial purchase
price shall be three dollars and fifty cents ($3.50) per Share. The adjusted
purchase price shall be the price which shall result from time to time from any
and all adjustments of the initial purchase price in accordance with the
provisions of SECTION 6 hereof.
5.2 PURCHASE PRICE. The term "Purchase Price" herein shall mean
the initial purchase price or the adjusted purchase price, depending upon the
context.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OR COMMON STOCK
DELIVERABLE.
(a) (i) Except as hereinafter provided, in the event the
Company shall, at any time or from tune to time after the date hereof, sell any
shares of Common Stock for a consideration per share less than the Purchase
Price or issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or
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<PAGE>
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the Purchase Price for the Warrants (whether or not
the same shall be issued and outstanding) in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable fraction
of a cent to the nearest cent) determined by dividing (A) the sum of (x) the
total number of shares of Common Stock outstanding immediately prior to such
Change of Shares, multiplied by the Purchase Price in effect immediately prior
to such Change of Shares, and (y) the consideration, if any, received by the
Company upon such sale, issuance, subdivision or combination by (B) the total
number of shares of Common Stock outstanding immediately after such Change of
Shares; PROVIDED, HOWEVER, that in no event shall the Purchase Price be adjusted
pursuant to this computation to an amount in excess of the Purchase Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance
with this SECTION 6(a)(i) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price, if shares of Common
Stock are offered by the Company for subscription, or (ii) the public offering
price (before deducting therefrom any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith),
if such securities are sold to underwriters or dealers for public offering
without a subscription offering, or (iii) the gross amount of cash actually
received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company on the basis of a record
of values of similar property or services.
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(C) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (B) of this SECTION 6(a)(i).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(ii) Upon each adjustment of the Purchase Price
pursuant to this SECTION 6, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Purchase Price in effect prior to such adjustment and dividing
the product so obtained by the applicable adjusted Purchase Price.
(b) In case the Company shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in SECTION
6(a)(i) hereof and as provided below) less than the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities,.or without consideration (including the
issuance of any such securities by way of dividend or other distribution), the
Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the issuance of such options, rights
or warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making the computation in accordance
with the provisions of SECTION 6(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of
Common Stock, as the case may be, issuable or that may become issuable under
such options, rights or warrants (assuming exercise
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in full even if not then currently exercisable or currently exercisable in full)
shall be deemed to be issued and outstanding at the time such options, rights or
warrants were issued, for a consideration equal to the minimum purchase price
per share provided for in such options, rights or warrants at the time of
issuance, plus the consideration, if any, received by the Company for such
options, rights or warrants; PROVIDED, HOWEVER, that upon the expiration or
other termination of such options, rights or warrants, if any thereof shall not
have been exercised, the number of shares of Common Stock deemed to be issued
and outstanding pursuant to this subsection (A) (and for the purposes of
subsection (E) of SECTION 6(a)(i) hereof) shall be reduced by the number of
shares as to which options, warrants and/or rights shall have expired, and such
number of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon the exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of
Common Stock issuable or that may become issuable upon conversion or exchange of
any convertible or exchangeable securities (assuming conversion or exchange in
full even if not then currently convertible or exchangeable in full) shall be
deemed to be issued and outstanding at the time of issuance of such securities,
for a consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; PROVIDED, HOWEVER, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of SECTION 6(a)(i) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
subsection (A) of this SECTION 6(b), or in the price per share or ratio at which
the securities referred to in subsection (B) of this SECTION 6(b) are
convertible or
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exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
(c) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a Subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants), or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the corporate office of the Warrant agent
(or the Company, if there is no Warrant agent) a statement signed by its
Chariman of the Board, President or a Vice President and by its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such
provision. Such provisions shall include provision for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
SECTIONS 6(a) and 6(b) hereof. The above provisions of this SECTION 6(c) shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to the terms hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share and the number of shares purchasable thereunder
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were expressed in the Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price
pursuant to this SECTION 6, the Company will promptly prepare a certificate
signed by the Chairman of the Board, President, or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant,
after such adjustment, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each Registered Holder at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(f) No adjustment of the Purchase Price shall be made
as a result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof, (B) the issuance or sale of shares of Common Stock upon the exercise of
any "incentive stock options" (as such term is defined in the Internal Revenue
Code of 1986, as amended), whether or not such options were outstanding on the
date hereof, or (C) the issuance or sale of shares of Common Stock if the amount
of said adjustment shall be less than ten cents ($.10); PROVIDED, HOWEVER, that
in such case, any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment that shall amount, together with any adjustment so
carried forward, to at least ten cents ($.10). In addition, Registered Holders
shall not be entitled to cash dividends paid by the-Company prior to the
exercise of any Warrant or Warrants held by them.
7. REDEMPTION OF THE WARRANTS.
(a) Commencing six months from the effective date of the
Merger, the Company may, on 30 days' prior written notice redeem all the
Warrants at ten cents ($.10) per Warrant, provided, however, that before any
such call for redemption of Warrants can take place, (i) the Securities are
registered under the Securities Act and applicable "Blue Sky" laws, (ii) a
current prospectus is then available for the resale of the Securities and (iii)
the
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closing bid price of the Common Stock as reported by Nasdaq, the OTC Bulletin
Board, or such other market on which the Common Stock is then traded, exceeds
$5.00 per share for the 20 consecutive trading days ending on the fifth trading
day prior to the date of the notice of redemption contemplated by (b) and (c)
below is given (subject to adjustment in the event of any stock splits or other
similar events as provided herein).
(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Company. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five business days prior
to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to Capital Growth
International, LLC a similar notice telephonically and confirmed in writing
together with a list of the Registered Holders (including their respective
addresses and number of Warrants beneficially owned) to whom such notice of
redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificate shall be delivered and the redemption price shall be
paid, and (iv) that the right to exercise the Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the date fixed
for redemption. The date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Secretary or Assistant Secretary of the Company
that notice of redemption has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be mailed to
such persons at their addresses of record.
8. MERGER OR CONSOLIDATION.
In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not
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result in any reclassification or change of the outstanding common stock of the
Company), the corporation formed by such consolidation or merger shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
Holder shall have the right thereafter (until the expiration of such Warrant) to
receive, upon exercise of his Warrant, the kind and amount of shares of stock
and other securities and property receivable upon such consolidation or merger
by a holder of the number of shares of common stock of the Company for which his
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in SECTION 6.
The above provisions of this SECTION 8 shall apply to successive consolidations
or mergers.
9. EXCHANGE AND REPLACEMENT OF WARRANT.
This Warrant is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company for a
new Warrant of like tenor and date representing in the aggregate the right to
purchase the same number of Shares as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the tune of such
surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant.
10. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated.
11. RESERVATION OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized common stock, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price therefor, all Shares issuable upon such exercise
shall be duly and validly issued, fully paid and nonassessable.
12. NOTICES TO WARRANT HOLDERS.
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Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company.
13. NOTICES.
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally, telegraphed or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
(a) If to the Company, to:
First American Railways, Inc.
1360 South Ocean Boulevard
Pompano Beach, Florida 33062
Attn: Eugene K. Garfield, President
(b) If to the Holder, to the address of such Holder as
shown on the books of the Company.
14. SUCCESSORS.
All the covenants, agreements, representations and warranties contained
in this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
15. HEADINGS.
The headings in this Warrant are inserted for purposes of convenience
only and shall have no substantive effect.
16. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of New York, without giving effect to
conflicts of law, rules or principles.
16
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its corporate name by, and such signature to be attested to by, a duly
authorized officer and has caused its corporate seal to be affixed hereto on the
date first above written.
FIRST AMERICAN RAILWAYS, INC.
By: /s/ ALLEN C. HARPER
------------------------------
Allen C. Harper
Chairman of the Board of Directors
Attest:
/s/ MARY ACEITUNO
- --------------------------------
Mary Aceituno, Secretary
17
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the
right to purchase Shares represented by this Warrant in accordance to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
-------------------------------
Signature
-------------------------------
Address
-------------------------------
Social Security Number or
Taxpayer's Identification
Number
18
Exhibit 4.4
WARRANT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M. NEW YORK TIME, JUNE 30, 1999
NO. W-1 100,000 WARRANTS
WARRANT CERTIFICATE
This Warrant Certificate certifies that JOSEPHTHAL LYON & ROSS
INCORPORATED, or registered assigns, is the registered holder of 100,000
Warrants, each Warrant entitling the holder to purchase initially at any time
from March 1, 1996 until 5:30 p.m. New York time on June 30, 1999 (the
"Expiration Date"), one fully-paid and non-assessable share of common stock,
$.01 par value ("Common Stock") of FIRST AMERICAN RAILWAYS, INC., a Florida
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $2.50 per share, upon
surrender of this Warrant Certificate and payment of the applicable Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the Warrant Agreement dated as of February 29, 1996 between
the Company and Josephthal Lyon & Ross Incorporated (the "Warrant Agreement").
Payment of the applicable Exercise Price shall be made by certified or official
bank check in New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated
<PAGE>
by reference herein and made a part of this instrument and is hereby referred to
for a description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the then applicable Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the then applicable Exercise
Price and the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company' a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of February 29, 1996
FIRST AMERICAN RAILWAYS, INC.
[SEAL]
By:_____________________________________
Name:
Title:
Attest:
______________________
, Secretary
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
___________________________ shares of Common Stock
and herewith tenders in payment for such
securities a certified or official bank check
payable in New York Clearing House Funds to
the order of FIRST AMERICAN RAILWAYS, INC. in
the amount of $__________________ , all in
accordance with the terms hereof. The
undersigned requests that a certificate for
such securities be registered in the name of _
_____________________ whose address is________
________ and that such Certificate be
delivered to __________________ whose
address is ___________________________________
___.
DATED:
SIGNATURE _____________________________________________
(SIGNATURE MUST CONFORM IN ALL
RESPECTS TO NAME OF HOLDER AS
SPECIFIED ON THE FACE OF THE
WARRANT CERTIFICATE.)
(INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF HOLDER)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by me registered holder if such holder desires to transfer
me Warrant Certificate.)
FOR VALUE RECEIVED
here sells, assigns and transfers unto
(PLEASE PRINT NAME AND ADDRESS OF TRANSFEREE)
THIS WARRANT CERTIFICATE, TOGETHER WITH ALL RIGHT, TITLE AND
INTEREST THEREIN, AND DOES NOT HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ATTORNEY, TO TRANSFER THE WITHIN WARRANT CERTIFICATE ON
THE BOOKS OF ME WITHIN-NAMED COMPANY, WITH FULL POWER OF
SUBSTITUTION.
DATED:
SIGNATURE: __________________________________
(SIGNATURE MUST CONFIRM IN ALL RESPECTS TO NAME OF HOLDER AS
SPECIFIED ON THE FACE OF THE WARRANT CERTIFICATE.)
(INSERT SOCIAL SECURITY OR OMER IDENTIFYING NUMBER OF
ASSIGNEE).
Exhibit 4.5
FIRST AMERICAN RAILWAYS, INC.
AND
JOSEPHTHAL LYON & ROSS INCORPORATED
WARRANT AGREEMENT
Dated as of February 29, 1996
<PAGE>
WARRANT AGREEMENT dated as of February 29, 1996 between FIRST AMERICAN
RAILWAYS, INC., a Florida corporation (the "Company"), and JOSEPHTHAL LYON &
ROSS INCORPORATED (hereinafter referred to variously as the "Holder" or
"Josephthal").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to Josephthal warrants (the
"Warrants") to purchase up to 100,000 shares of common stock, $.01 par value per
share, of the Company ("Common Stock"); and
WHEREAS, Josephthal has agreed pursuant to that certain financial
consulting agreement (the "Consulting Agreement") dated as of February 28, 1994
between Josephthal and the Company to act as financial consultant to the
Company; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued to Josephthal in consideration for, and as part of Josephthal's
compensation in connection with, its acting as financial consultant pursuant to
the Consulting Agreement;
NOW, THEREFORE, in consideration of the premises made herein, the
agreements herein set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT. The Holder (as defined in Section 3 hereof) is
hereby granted the right to purchase, at any time from March 1,
1996 until 5:30 P.M., New York time, on June 30, 1999, up to
100,000 shares of Common Stock at an initial exercise price
1
<PAGE>
(subject to adjustment as provided in Article 8 hereof) of $2.50 per share of
Common Stock.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3.1 METHOD OF EXERCISE. The Warrants initially are exercisable at an
initial exercise price (subject to adjustment as provided in Section 8 hereof)
per share of Common Stock and per Redeemable Warrant set forth in Section 6
hereof, payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Warrant Certificate with the annexed Form of Election
to Purchase duly executed, together with payment of the Purchase Price (as
hereinafter defined) for the shares of Common Stock purchased at the Company's
principal of flees (presently located at 1360 South Ocean Blvd., Pompano Beach,
Florida 33062) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrants). Warrants may be exercised to purchase all
2
<PAGE>
or part of the shares of Common Stock or Redeemable Warrants represented, or all
or part of the shares of Common Stock represented. In the case of the purchase
of less than all the shares of Common Stock purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
3.2 EXERCISE BY OF WARRANT. In addition to the method of payment set
forth in Section 3.1 and in lieu of any cash payment required thereunder, the
Holder(s) of the Warrants shall have the right at any time and from time to time
to exercise the Warrants in whole or in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof in exchange for that
number of shares of Common Stock equal to the product of (x) the number of
shares as to which such Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as hereinafter defined) of
the Common Stock less the Exercise Price and the denominator of which is such
Market Price. Solely for the purposes of this Section 3.2, Market Price shall be
calculated either (i) on the date on which the Form of Election to Purchase
annexed to such Warrant Certificate as to such exercise is deemed to have been
sent to the Company pursuant to Section 13 hereof (the "Notice Date") or (ii) as
the average of the Market Prices for each of the five trading days preceding the
Notice Date, whichever results in a higher Market Price.
3
<PAGE>
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within three (3) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof be issued in the name of, or in such names
as may be directed by, the Holder thereof; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock (and/or other securities, property or rights issuable
upon the exercise of the Warrants) shall be executed on behalf of the Company by
the manual or facsimile signature of the then present Chairman or Vice Chairman
of the Board of Directors or President or Vice President of the Company under
its corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary of the Company.
Warrant Certificates shall be
4
<PAGE>
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and
agrees that the Warrants described therein are being acquired as an
investment and not with a view to the distribution thereof.
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $2.50 per share of Common Stock. The adjusted exercise price of each Warrant
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise
price, depending upon the context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrants, and
the shares of Common Stock issuable upon exercise of the Warrants or other
securities issuable upon exercise of the Warrants, have not been registered
under the Securities Act of 1933, as amended (the "Act"). Upon exercise, in part
or in whole of the Warrants, certificates representing the shares of Common
Stock and any other securities issuable upon exercise of the Warrants
5
<PAGE>
(collectively, the "Warrant Securities") shall bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (III) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE
REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
7.2 PIGGYBACK REGISTRATION. If, at any time commencing after January
1, 1997 and expiring five (5) years thereafter, the Company proposes to register
any of its securities under the Act (other than in connection with a merger or
pursuant to Form S-8) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement, to
Josephthal and to all other Holders of the Warrants and/or the Warrant
Securities of its intention to do so. If Josephthal or other Holders of the
Warrants and/or Warrant Securities notify the Company within twenty (20) days
after receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford
Josephthal and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities
6
<PAGE>
shall have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the effective
date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasions, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of counsel for the Company and counsel for
Josephthal and the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or the Warrant Securities who notify the Company within ten
(10) days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(1) days from the date of the receipt of any such registration request.
7
<PAGE>
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities;
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.3(a) hereof pursuant to
the written notice specified in Section 7.3(a) hereof of a majority of the
Holders of Warrants and/or Warrant Securities, the Company agrees that upon the
written notice of election of a majority of the Holders of the Warrants and/or
Warrant Securities it shall repurchase (i) any and all Warrant Securities at the
higher of the Market Price (as defined in Section 8.1(a)) per share of Common
Stock on (x) the date of the notice sent pursuant to Section 7.3(a), or (y) the
expiration of the period specified in Section 7.4(a) and (ii) any and all
Warrants at such Market Price less the
8
<PAGE>
exercise price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a), or (ii) the delivery of
the written notice of election specified in this Section 7.3(d).
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Sections 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statement declared
effective at the earliest possible time, and shall furnish each Holder desiring
to sell Warrant Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs (excluding fees and
expenses of the Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c). If the Company shall
fail to comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the Holders(s), be
liable for any and all
9
<PAGE>
incidental, special and consequential damages and damages due to loss of profit
sustained by the Holder(s) requesting registration of their Warrant Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and all
loss,
10
<PAGE>
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof without the prior written consent
of the Holders of the Warrants and Warrant Securities representing a Majority of
such securities (assuming an exercise of all of the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a Cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public
11
<PAGE>
offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors any all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do
12
<PAGE>
such investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(k) The Company may enter into an underwriting agreement with
the managing underwriter if any, selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included in such
underwriting, which may be Josephthal. Such agreement shall be satisfactory in
form and substance to the Company, each Holder and such managing underwriter,
and shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type
used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company
13
<PAGE>
or the underwriter except as they may relate to such Holders and their intended
methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, director, creditor,
employee or agent thereof or any of their respective affiliates, members of
their family, persons acting as nominees or in conjunction therewith, or (ii)
have not been resold to the public.
(m) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into or exchangeable for shares of Common Stock.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1 COMPUTATION OF ADJUSTED EXERCISE PRICE. Except in connection
with the issuance of shares of Common Stock, warrants, and convertible notes
relating to a private placement of approximately $15 million and a related
merger with a public shell, all of which shall close on or before April 30,
1996, and except as hereinafter provided, in case the Company shall at any time
after the date hereof issue or sell any shares of Common Stock (other than the
issuances or sales referred to in Section 8.7 hereof),
14
<PAGE>
including shares held in the Company's treasury and shares of Common Stock
issued upon the exercise of any outstanding options, rights or warrants, to
subscribe for shares of Common Stock and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance or sale of such shares or the "Market Price"
(as defined in Section 8.1(vi) hereof) per share of Common Stock on the date
immediately prior to the issuance or sale of such shares, or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the lower of (i) the Exercise
Price in effect immediately prior to such issuance or sale and (ii) the Market
Price per share of Common Stock on the date immediately prior to the issuance or
sale of such shares, in either event, reduced, but not below .001, by the
positive difference between (u) the Market Price per share of Common Stock on
the date immediately prior to the issuance or sale and (v) the amount per share
received in connection with such issuance or sale, multiplied by (b) the total
number of shares of Common Stock outstanding immediately prior to such issuance
or sale plus, (Y) the aggregate of the amount of all consideration, if any,
received by the Company upon such issuance or sale, by (B) the total number of
shares of Common Stock outstanding immediately after such
15
<PAGE>
issuance or sale; provided, however, that in no event shall the Exercise Price
be adjusted pursuant to this computation to an amount in excess of the Exercise
Price in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 8.3
hereof.
For the purposes of this Section 8 the term "Exercise Price" shall
mean the Exercise Price per share of Common Stock set forth in Section 6 hereof,
as adjusted from time to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with
this Section 8.1, the following provisions shall apply:
(i) In case of the issuance or sale of shares of Common Stock
for a consideration, part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or if either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services, or any expenses incurred in connection therewith.
16
<PAGE>
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any capital stock of the Company shall be deemed to have
been issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual
17
<PAGE>
issuance thereof) upon the exercise of options, rights, warrants and upon the
conversion or exchange of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average closing bid price as furnished by the
NASD through NASDAQ or similar organization if NASDAQ is no longer reporting
such information, or if the Common Stock is not quoted on NASDAQ, as determined
in good faith by resolution of the Board of Directors of the Company, based on
the best information available to it
8.2 OPTIONS. RIGHTS. WARRANTS AND CONVERTIBLE AND EXCHANGEABLE
SECURITIES. Except in connection with the issuance of shares of Common Stock,
warrants, and convertible notes relating to a private placement of approximately
$15 million and a related merger with a public shell, which shall close on or
before April 30, 1996, in case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Exercise Price in
effect or the Market Price
18
<PAGE>
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or without consideration, the Exercise
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provisions of Section 8.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall be deemed
to be issued and outstanding at the time such options, rights or warrants were
issued, and for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance, plus
the consideration (determined in the same manner as consideration received on
the issue or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of the Warrants) received by
the Company for such securities, plus the minimum consideration,
19
<PAGE>
if any, receivable by the Company upon the conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (a) of
this Section 8.2, or in the price per share at which the securities referred to
in subsection (b) of this Section 8.2 are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
8.3 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.4 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise of each Warrant shall be adjusted
to the nearest full
20
<PAGE>
amount by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Securities issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
8.5 DEFINITION OF COMMON STOCK. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as may be amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either shares of Common Stock or a like number of
such securities with greater or superior voting rights.
8.6 MERGER OR CONSOLIDATION. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder of each
Warrant then outstanding or to be
21
<PAGE>
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Common Stock of
the Company for which such Warrant might have been exercised immediately prior
to such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 8. The above provision of this Subsection shall
similarly apply to successive consolidations or mergers.
8.7. NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants, or the options, rights
and Warrants issued and outstanding on the date hereof; or
(b) If the amount of said adjustment shall be less than 2
cents ($.02) per Security, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
2 cents ($.02) per Security.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company
shall at any time prior to the exercise of all
22
<PAGE>
Warrants declare a dividend (other than a dividend consisting solely of shares
of Common Stock) or otherwise distribute to its stockholders any assets,
property, rights, evidences of indebtedness, securities (other than shares of
Common Stock), whether issued by the Company or by another, or any other thing
of value, the Holders of the unexercised Warrants shall thereafter be entitled,
in addition to the shares of Common Stock or other securities and property
receivable under the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Warrants had been
exercised immediately prior to such dividend or distribution. At the time of any
such dividend or distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this Subsection 8.8.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of
23
<PAGE>
any Warrant Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Warrants, if mutilated, the Company will make and deliver a
new Warrant Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock, or other securities, properties
or rights.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, full paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common
24
<PAGE>
Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges, if any, on which the
Common Stock issued to the public in connection herewith may then be listed
and/or quoted on NASDAQ.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) He Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger)
25
<PAGE>
or a sale of all or substantially all of its property, assets and business as an
entirety shall be proposed; then, in any one or more of said events, the Company
shall give written notice of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
26
<PAGE>
14. SUPPLEMENTS AND AMENDMENTS. The Company and Josephthal may from time
to time supplement or amend this Agreement without the approval of any Holders
of Warrant Certificates (other than Josephthal) in order to cure any ambiguity,
to correct or supplement any provision contained herein which may be defective
or inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and
Josephthal may deem necessary or desirable and which the Company and Josephthal
deem shall not adversely affect the interests of the Holders of Warrant
Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of business
on June 30, 2001. Notwithstanding the foregoing, the indemnification provisions
of Section 7 hereof shall survive such termination until the close of business
on June 30, 2007.
17. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State, without giving effect to the rules of
said State governing the conflicts of laws.
The Company, Josephthal and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or
27
<PAGE>
relating in any way to, this Agreement shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company, Josephthal and the Holders
hereby irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon any of the
Company, Josephthal and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 13 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim. The Company, Josephthal and the
Holders agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action and proceeding
and/or incurred in connection with the preparation therefor.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Consulting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
28
<PAGE>
19. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, not should they be
construed as a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and
Josephthal and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and Josephthal any other Holder(s) of the Warrant Certificates or
Warrant Securities.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
FIRST AMERICAN RAILWAYS, INC.
[SEAL]
ATTEST: BY: /s/ ALLEN C. HARPER
-------------------------------------
NAME: ALLEN C. HARPER
TITLE: CHAIRMAN OF THE BOARD
/s/ MARY ACEITUNO
- -----------------------------
MARY ACIETUNO, SECRETARY
JOSEPHTHAL LYON & ROSS INCORPORATED
BY: /s/ SCOTT WEISNER
-------------------------------------
NAME:
TITLE:
30
EXHIBIT 10.1
AMENDED AND RESTATED AGREEMENT
BETWEEN RADER AND FARI
THIS AMENDED AND RESTATED AGREEMENT is entered into effective
as of the 28th day of June, 1994 between Rader Railcar, Inc.
("Rader") and First American Railways, Inc. ("FARI").
RECITALS:
A. Rader and FARI entered into that certain agreement dated June 28,
1994 setting forth the terms and conditions under which Rader would construct a
single level domed railcar (the "Car") for FARI and sell such Car after
construction to FARI. The original agreement was supplemented by a letter
agreement dated June 29, 1994, and thereafter the parties entered an amended and
restated agreement effective June 28, 1994 (collectively, the "Composite
Agreement").
B. The parties now desire to restate their agreement with respect to
the Car in its entirety in order to more accurately reflect their respective
rights, duties and obligations as presently intended:
ACKNOWLEDGEMENTS:
A. Rader acknowledges the receipt from FARI of $350,000 under the
Composite Agreement as partial payment for the Car, and that this amount
represents a non-refundable deposit by FARI toward the purchase of the Car from
Rader.
B. FARI acknowledges that Rader experienced unforeseeable delays in
construction of the Car, but that the Car has been shipped to Florida and such
Car is currently in the possession of FARI.
C. The parties acknowledge that the total price of the Car is $830,000,
and that the remaining principal balance due is $480,000 which, along with
mutually-agreed interest of $20,000 (which is for the period commencing on the
date hereof to October 1, 1995), results in a total amount due of $500,000.
D. The parties acknowledge that title to the Car remains with Rader
until the entire unpaid balance of $500,000 is paid by FARI to Rader.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto intending legally to be bound
hereby agree as follows:
<PAGE>
1. FARI will pay Rader the remaining $500,000 for the purchase of the
Car ($480,000 principal and $20,000 interest) on or before October 1, 1995, at
which time title to the Car will be conveyed to FARI, or redeliver the Car to
Rader (FOB: Denver, Colorado) free and clear of any and all liens.
2. Rader will not be obligated to repay any balances or deposits to
FARI. All deposits previously paid by FARI to Rader under the Composite
Agreement are the property of Rader.
3. FARI agrees to pay Rader the final payment of $500,000 on the
earlier of receipt of (i) funding from its proposed public offering, or (ii)
October 1, 1995. In the event FARI does not make this payment, FARI agrees to
redeliver and ship the Car to Rader on or before October 5, 1995.
4. For the period from delivery of the Car in Florida until (i) FARI
pays the remaining balance due to Rader as set forth in Section 3, above, or
(ii) FARI redelivery of the Car to Rader as described in Section 1, above, FARI
agrees to keep the Car insured against loss or damage due to fire and the risks
normally included in extended coverage, malicious mischief and vandalism, for
not less than $830,000, and FARI shall also carry public liability insurance,
both personal injury and property damage, covering the Car, with a combined
single limit of not less than Five Million dollars ($5,000,000) per occurrence,
naming Rader and Thomas G. Rader as additional insureds on all such insurance
policies.
5. Until the full payment is made for the Car and title thereto is
conveyed to FARI, Rader shall be responsible for maintaining the Car in good
working order such that it is capable of being used for its intended purpose.
6. FARI is prohibited from transferring title to the car prior to full
payment transfer to Rader.
7. This Agreement replaces in its entirety the Composite Agreement.
EXECUTED this ____ day of May, 1995.
RADER RAILCAR, INC., a FIRST AMERICAN RAILWAYS, INC.,
Colorado Corporation a Florida corporation
By: /S/ JOHN L. THOMPSON By: /S/ MICHAEL J. ACIERNO
-------------------- ----------------------
John L. Thompson Michael J. Acierno
Its: Vice-President and Chief Its: Vice President
Financial Officer
<PAGE>
LETTER AGREEMENT
BETWEEN
RADER RAILCAR, INC. AND FIRST AMERICAN RAILWAYS INC.
JUNE 28, 1994
THIS LETTER AGREEMENT is entered into this 28th day of June, 1994
between Rader Railcar, Inc. ("Rader") and First American Railways,
Inc. ("FARI").
WHEREAS FARI is in the process of raising funding for the Florida
Fun Train project; and
WHEREAS FARI desires a completed low-level domed railcar
("RAILCAR"); and
WHEREAS RADER has a railcar to finish for such purposes.
NOW THEREFORE, the parties agree that;
1. FARI will pay to Rader the total amount of $350,000 to
complete the railcar on the following payment schedule:
On signing of this Agreement $100,000
August 1, 1994 $100,000
Delivery of car $150,000
2. Rader will complete the railcar in a workmanlike manner
for delivery, FOB, Florida on or about September 1, 1994.
The railer will be AMTRAK compatible with HEP, MU and 27
point communication. In addition, the railcar will have
a 50 KW prime power Stadco generator, service kitchen and
bar and seating for approximately 70. Title and risk of
loss of the railcar, including the above completion,
remains with Rader.
3. When completed, FARI agrees to lease the railcar from
Rader for $10,000 per month for the six month period
approximately September 1, 1994 to February 28, 1995.
4. Rader and FARI agree to enter into a lease agreement
prior to the completion of the railcar for the general
terms in section 3 above and Rader agrees to grant FARI
an option to extend the lease for six months or to
purchase the railcar for $420,000. This option shall be
effective February 1, 1995 to February 28, 1995, and must
be exercised by February 28, 1995. Should FARI elect to
not extend the lease nor purchase the railcar, FARI
agrees to, at its OWN EXPENSE redeliver the railcar to
Rader at its plant in Denver, Colorado on or before March
15, 1995.
<PAGE>
LETTER AGREEMENT BETWEEN
RADER RAILCAR, INC. AND FIRST AMERICAN RAILWAYS INC.
JUNE 28, 1994
PAGE 2/2
5. For the period from delivery of the car in Florida until
a) FARI purchases the railcar or b) FARI redelivers the
railcar to Rader as described above, FARI agrees to keep
the railcar insured against loss or damage due to fire
and the risks normally included in extended coverage,
malicious mischief and vandalism, for not less than
$830,000, and FARI shall also carry public liability
insurance, both personal injury and property damage,
overing the railcar, with a combined single limit of not
less than Five Million dollars ($5,000,000) per
occurrence, naming Rader Railcar, Inc. and Thomas G.
Rader as additional insureds on all insurance policies.
A certificate of insurance, evidencing that such
insurance is in place shall be delivered to Rader before
the initial delivery of the railcar to Florida.
6. Any and all sales or use taxes which may be due as a
result of this Agreement are the Obligation of FARI.
This Letter Agreement shall be governed by the laws of the
State of Colorado. Notice hereunder shall be in writing and shall
be effective no later than actual receipt by the party to be
notified.
Dated at Denver, Colorado this 28th day of June, 1994.
RADER RAILCAR, INC. FIRST AMERICAN RAILWAYS INC.
By: /s/ JOHN L. THOMPSON By: /s/ EUGENE K. GARFIELD
- ------------------------ --------------------------
Its: VP/CFO Its: President
<PAGE>
LETTER AGREEMENT
BETWEEN
RADER RAILCAR, INC. AND FIRST AMERICAN RAILWAYS INC.
JUNE 29, 1994
THIS LETTER AGREEMENT is entered into this 29th day of June, 1994
between Rader Railcar, Inc. ("RADER") and First American Railways,
Inc. ("FARI").
WHEREAS FARI is in the process of raising funding for the Florida
Fun Train project; and
WHEREAS FARI desires a completed low-level domed railcar
("RAILCAR"); and
WHEREAS RADER and FARI have signed the Letter Agreement dated June 28, 1994 to
complete and lease a railcar to FARI.
NOW THEREFORE, the parties agree that;
1. In the event that FARI redelivers the railcar to Rader at the end of the
lease, Rader will pay to FARI the total amount of $350,000 twelve (12) months
after such redelivery.
This Letter Agreement shall be governed by the laws of the State of Colorado.
Notice hereunder shall be in writing and shall be effective no later than actual
receipt by the party to be notarized.
Dated at Denver, Colorado this 29th day of June, 1994.
RADER RAILCAR, INC. FIRST AMERICAN RAILWAYS INC.
By: /s/ JOHN L. THOMAS By: /s/ EUGENE K. GARFIELD
- ---------------------- ----------------------------
Its: VP/CFO Its: President
EXHIBIT 10.2
February 16, 1994
Mr. Allen C. Harper
Esslinger Wooten & Maxwell, Inc.
1360 South Dixie Highway
Coral Gables, Florida 33146
RE: EMPLOYMENT AGREEMENT
Dear Al:
This letter confirms our mutual agreement with respect to the
following:
First American Railways, Inc. (the "Company"), agrees to employ you and
you agree to accept such employment, upon the terms and conditions set forth
below beginning February 16, 1994, for a period of three years subject to the
terms of extension provided below. The term of your employment shall be
automatically renewed for additional periods of one year each unless and until
you or the Company gives the other party written notice, received not later than
90 days prior to the then current expiration date of your employment, of your or
its intention to terminate your employment.
During the period of your employment, you will serve as Chairman of the
Board and Chief Executive Officer of the Company. You agree that, during the
period of your employment under this agreement, you shall serve the Company
faithfully, diligently and to the best of your ability, under the direction and
supervision of the Board of Directors of the Company, devoting at least 30 hours
per week of your time, energy and skill to such employment. You further agree to
perform from time to time such services and to act
<PAGE>
Mr. Allen C. Harper
February 16, 1994
Page 2
in such capacities as the Board of Directors of the Company shall request
without further compensation other than that for which provision is made in this
agreement.
During the period of your employment, the Company shall pay you an
annual salary at the rate of $125,000, such salary to be payable in accordance
with the Company's regular payroll practice.
It is contemplated that, in connection with your employment by the
Company, you will be required to incur travel, entertainment and other business
expenses which you deem necessary for the performance of your duties and
responsibilities. The Company agrees to reimburse you for all such necessary
out-of-pocket expenses reasonably incurred by you upon the submission to the
Company of expense vouchers or other statements satisfactorily evidencing the
expenses for which reimbursement is sought.
In the event that you are incapacitated by reason of mental or physical
disability or otherwise during the period of your employment so that you are
prevented from performing your principal duties and services to the Company for
a period of 90 consecutive days or for shorter periods aggregating 90 days
during any 12-month period, the Company shall have the right to terminate your
employment by sending or telecopying written notice of such termination to you
or to your legal representative, as the case may be. Upon such termination or in
the event of your death, the Company shall be relieved of any further
obligations under this
<PAGE>
Mr. Allen C. Harper
February 16, 1994
Page 3
agreement with the exception of the obligation to pay to you or your legal
representative, as the case may be, any accrued and unpaid salary earned by you.
Insurance and other benefits, if any, due to you under plans and programs of the
Company shall be determined under the applicable provisions of such plans and
programs.
The Company shall have the right to terminate your employment for
"cause" at any time by reason of one or more of the following occurrences: (i)
your conviction, by a court of competent and final jurisdiction, of any crime
(whether or not involving the Company) which constitutes a felony in the
jurisdiction involved; (ii) your commission of a material act of malfeasance,
fraud, dishonesty or breach of trust against the Company; or (iii) your material
violation of the terms of this agreement. In the event the Company elects to
terminate your employment for "cause," the Company shall send or telecopy
written notice to you informing you of such election and setting forth the
action or omission constituting the reason for terminating your employment for
"cause." If your employment is validly terminated for "cause" under this
paragraph, notwithstanding any other provisions of this agreement, the Company
will be relieved of any further obligations under this agreement with the
exception of the obligation to pay you any accrued and unpaid salary due to you.
<PAGE>
Mr. Allen C. Harper
February 16, 1994
Page 4
You shall be entitled to participate in any and all life insurance,
medical insurance, disability insurance and other employee benefit plans which
are made available during the term of your employment to other employees of the
Company of comparable rank, to the extent that you qualify under the eligibility
provisions of such plan or plans. You shall also be entitled to participate to
the same extent as other employees of the Company of a like capacity and
position in any profit sharing plan, pension plan or incentive compensation plan
that the Board of Directors of the Company shall determine to make available to
such employees. In addition, you shall be entitled to vacation with pay
aggregating four weeks (exclusive of office holidays) each calendar year during
the term of your employment, to be taken at times consistent with the effective
discharge of your duties.
You agree that, during and following cessation of your employment with
the Company, you shall not, without the prior written consent of the Board of
Directors of the Company, disclose to any person, firm, corporation or other
entity, for any reason or for any purpose whatsoever, any confidential or
proprietary knowledge or information pertaining to the Company or any of its
affiliates.
You covenant and agree that during the term hereof and, if you or the
Company shall terminate this agreement prior to the expiration of the term
hereof, then for a period ending two years
<PAGE>
Mr. Allen C. Harper
February 16, 1994
Page 5
from the termination date, you will not be a consultant, director, officer or
employee or have any interest either directly or indirectly in any individual,
partnership, corporation or other entity which is engaged in a business
competitive with the business of the Company; provided, however, that the
foregoing shall not prohibit the ownership by you of less than 5% of any class
of outstanding voting securities (or any options, warrants or rights to acquire
such securities or any securities convertible into such securities) of any
corporation.
You represent to the Company that you are not subject to any
restriction, contractual or otherwise, which prohibits you from undertaking
employment by the Company in accordance with the terms and provisions of this
agreement.
This agreement represents the entire understanding and agreement
between us with respect to your employment by the Company and supersedes all
prior negotiations, representations and agreements made by and between us. No
alteration, amendment or modification of any of the terms or provisions of this
agreement shall be valid unless made pursuant to an instrument in writing and
signed by each of us. This agreement shall be governed by and construed in
accordance with the laws of the State of Florida
Kindly indicate below that the foregoing represents our mutual
agreement with respect to the matters described in this
<PAGE>
Mr. Allen C. Harper
February 16, 1994
Page 6
agreement by signing and returning a copy of this agreement, whereupon this
agreement shall constitute an agreement between us.
Very truly yours,
FIRST AMERICAN RAILWAYS, INC.
By: /s/ EUGENE K. GARFIELD
---------------------------
Eugene K. Garfield
Its: President
Agreed to and Accepted this
16th day of February, 1994
/s/ ALLEN C. HARPER
- ---------------------------
Allen C. Harper
EXHIBIT 10.3
February 16, 1994
Mr. Eugene K. Garfield
8315 Southwest 72nd Avenue
Suite 111
Miami, Florida 33143
RE: EMPLOYMENT AGREEMENT
Dear Gene:
This letter confirms our mutual agreement with respect to the
following:
First American Railways, Inc. (the "Company"), agrees to employ you and
you agree to accept such employment, upon the terms and conditions set forth
below beginning February 16, 1994 for a period of three years subject to the
terms of extension provided below. The term of your employment shall be
automatically renewed for additional periods of one year each unless and until
you or the Company gives the other party written notice, received not later than
90 days prior to the then current expiration date of your employment, of your or
its intention to terminate your employment.
During the period of your employment, you will serve as President and
Chief Operating Officer of the Company. You agree that, during the period of
your employment under this agreement, you shall serve the Company faithfully,
diligently and to the best of your ability, under the direction and supervision
of the Board of Directors and Chief Executive Officer of the Company, devoting
your full business time, energy and skill to such employment. You
<PAGE>
Mr. Eugene K. Garfield
February 16, 1994
Page 2
further agree to perform from time to time such services and to act in such
capacities as the Board of Directors and Chief Executive Officer of the Company
shall request without further compensation other than that for which provision
is made in this agreement.
During the period of your employment, the Company shall pay you an
annual salary at the rate of $100,000, such salary to be payable in accordance
with the Company's regular payroll practice.
It is contemplated that, in connection with your employment by the
Company, you will be required to incur travel, entertainment and other business
expenses which you deem necessary for the performance of your duties and
responsibilities. The Company agrees to reimburse you for all such necessary
out-of-pocket expenses reasonably incurred by you upon the submission to the
Company of expense vouchers or other statements satisfactorily evidencing the
expenses for which reimbursement is sought.
In the event that you are incapacitated by reason of mental or physical
disability or otherwise during the period of your employment so that you are
prevented from performing your principal duties and services to the Company for
a period of 90 consecutive days or for shorter periods aggregating 90 days
during any 12-month period, the Company shall have the right to terminate your
employment by sending or telecopying written notice of such termination to you
or to your legal representative, as the case may be. Upon such termination or in
the event of your death, the
<PAGE>
Mr. Eugene K. Garfield
February 16, 1994
Page 3
Company shall be relieved of any further obligations under this agreement with
the exception of the obligation to pay to you or your legal representative, as
the case may be, any accrued and unpaid salary earned by you. Insurance and
other benefits, if any, due to you under plans and programs of the Company shall
be determined under the applicable provisions of such plans and programs.
The Company shall have the right to terminate your employment for
"cause" at any time by reason of one or more of the following occurrences: (i)
your conviction, by a court of competent and final jurisdiction, of any crime
(whether or not involving the Company) which constitutes a felony in the
jurisdiction involved; (ii) your commission of a material act of malfeasance,
fraud, dishonesty or breach of trust against the Company; or (iii) your material
violation of the terms of this agreement. In the event the Company elects to
terminate your employment for "cause," the Company shall send or telecopy
written notice to you informing you of such election and setting forth the
action or omission constituting the reason for terminating your employment for
"cause." If your employment is validly terminated for "cause" under this
paragraph, notwithstanding any other provisions of this agreement, the Company
will be relieved of any further obligations under this agreement with the
exception of the obligation to pay you any accrued and unpaid salary due to you.
<PAGE>
Mr. Eugene K. Garfield
February 16, 1994
Page 4
You shall be entitled to participate in any and all life insurance,
medical insurance, disability insurance and other employee benefit plans which
are made available during the term of your employment to other employees of the
Company of comparable rank, to the extent that you qualify under the eligibility
provisions of such plan or plans. You shall also be entitled to participate to
the same extent as other employees of the Company of a like capacity and
position in any profit sharing plan, pension plan or incentive compensation plan
that the Board of Directors of the Company shall determine to make available to
such employees. In addition, you shall be entitled to vacation with pay
aggregating four weeks (exclusive of office holidays) each calendar year during
the term of your employment, to be taken at times consistent with the effective
discharge of your duties.
You agree that, during and following cessation of your employment with
the Company, you shall not, without the prior written consent of the Board of
Directors of the Company, disclose to any person, firm, corporation or other
entity, for any reason or for any purpose whatsoever, any confidential or
proprietary knowledge or information pertaining to the Company or any of its
affiliates.
You covenant and agree that during the term hereof and, if you or the
Company shall terminate this agreement prior to the expiration of the term
hereof, then for a period ending two years
<PAGE>
Mr. Eugene K. Garfield
February 16, 1994
Page 5
from the termination date, you will not be a consultant, director, officer or
employee or have any interest either directly or indirectly in any individual,
partnership, corporation or other entity which is engaged in a business
competitive with the business of the Company; provided, however, that the
foregoing shall not prohibit the ownership by you of less than 5% of any class
of outstanding voting securities (or any options, warrants or rights to acquire
such securities or any securities convertible into such securities) of any
corporation.
You represent to the Company that you are not subject to any
restriction, contractual or otherwise, which prohibits you from undertaking
employment by the Company in accordance with the terms and provisions of this
agreement.
This agreement represents the entire understanding and agreement
between us with respect to your employment by the Company and supersedes all
prior negotiations, representations and agreements made by and between us. No
alteration, amendment or modification of any of the terms or provisions of this
agreement shall be valid unless made pursuant to an instrument in writing and
signed by each of us. This agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
Kindly indicate below that the foregoing represents our mutual
agreement with respect to the matters described in this
<PAGE>
Mr. Eugene K. Garfield
February 16, 1994
Page 6
agreement by signing and returning a copy of this agreement, whereupon this
agreement shall constitute an agreement between us.
Very truly yours,
FIRST AMERICAN RAILWAYS, INC.
By: /s/ ALLEN C. HARPER
---------------------------
Allen C. Harper
Its: Chairman and Chief
Executive Officer
Agreed to and Accepted this
16th day of February, 1994
/s/ EUGENE K, GARFIELD
-----------------------
Eugene K. Garfield
EXHIBIT 10.4
July 1, 1994
Mr. Michael J. Acierno
5 Tam O'Shanter Lane
Ft. Lauderdale, Florida 33308
RE: EMPLOYMENT AGREEMENT
Dear Mike:
This letter confirms our mutual agreement with respect to the
following:
First American Railways, Inc. (the "Company"), agrees to employ you and
you agree to accept such employment, upon the terms and conditions set forth
below beginning July 1, 1994 for a period of three years subject to the terms of
extension provided below. The term of your employment shall be automatically
renewed for additional periods of one year each unless and until you or the
Company gives the other party written notice, received not later than 90 days
prior to the then current expiration date of your employment, of your or its
intention to terminate your employment.
During the period of your employment, you will serve as Vice President
of the Company. You agree that, during the period of your employment under this
agreement, you shall serve the Company faithfully, diligently and to the best of
your ability, under the direction and supervision of the Board of Directors,
Chief Executive Officer and Chief Operating Officer of the Company, devoting
your full business time, energy and skill to such employment. You further agree
to perform from time to time such services and to act in such capacities as the
Board of Directors,
<PAGE>
Mr. Michael J. Acierno
July 1, 1994
Page 2
Chief Executive Officer and Chief Operating Officer of the Company shall request
without further compensation other than that for which provision is made in this
agreement.
During the period of your employment, the Company shall pay you an
annual salary at the rate of $75,000, such salary to be payable in accordance
with the Company's regular payroll practice.
It is contemplated that, in connection with your employment by the
Company, you will be required to incur travel, entertainment and other business
expenses which you deem necessary for the performance of your duties and
responsibilities. The Company agrees to reimburse you for all such necessary
out-of-pocket expenses reasonably incurred by you upon the submission to the
Company of expense vouchers or other statements satisfactorily evidencing the
expenses for which reimbursement is sought.
In the event that you are incapacitated by reason of mental or physical
disability or otherwise during the period of your employment so that you are
prevented from performing your principal duties and services to the Company for
a period of 90 consecutive days or for shorter periods aggregating 90 days
during any 12-month period, the Company shall have the right to terminate your
employment by sending or telecopying written notice of such termination to you
or to your legal representative, as the case may be. Upon such termination or in
the event of your death, the Company shall be relieved of any further
obligations under this
<PAGE>
Mr. Michael J. Acierno
July 1, 1994
Page 3
agreement with the exception of the obligation to pay to you or your legal
representative, as the case may be, any accrued and unpaid salary earned by you.
Insurance and other benefits, if any, due to you under plans and programs of the
Company shall be determined under the applicable provisions of such plans and
programs.
The Company shall have the right to terminate your employment for
"cause" at any time by reason of one or more of the following occurrences: (i)
your conviction, by a court of competent and final jurisdiction, of any crime
(whether or not involving the Company) which constitutes a felony in the
jurisdiction involved; (ii) your commission of a material act of malfeasance,
fraud, dishonesty or breach of trust against the Company; or (iii) your material
violation of the terms of this agreement. In the event the Company elects to
terminate your employment for "cause," the Company shall send or telecopy
written notice to you informing you of such election and setting forth the
action or omission constituting the reason for terminating your employment for
"cause." If your employment is validly terminated for "cause" under this
paragraph, notwithstanding any other provisions of this agreement, the Company
will be relieved of any further obligations under this agreement with the
exception of the obligation to pay you any accrued and unpaid salary due to you.
<PAGE>
Mr. Michael J. Acierno
July 1, 1994
Page 4
You shall be entitled to participate in any and all life
insurance, medical insurance, disability insurance and other employee benefit
plans which are made available during the term of your employment to other
employees of the Company of comparable rank, to the extent that you qualify
under the eligibility provisions of such plan or plans. You shall also be
entitled to participate to the same extent as other employees of the Company of
a like capacity and position in any profit sharing plan, pension plan or
incentive compensation plan that the Board of Directors of the Company shall
determine to make available to such employees. In addition, you shall be
entitled to vacation with pay aggregating four weeks (exclusive of office
holidays) each calendar year during the term of your employment, to be taken at
times consistent with the effective discharge of your duties.
You agree that, during and following cessation of your employment with
the Company, you shall not, without the prior written consent of the Board of
Directors of the Company, disclose to any person, firm, corporation or other
entity, for any reason or for any purpose whatsoever, any confidential or
proprietary knowledge or information pertaining to the Company or any of its
affiliates.
You covenant and agree that during the term hereof and, if you or the
Company shall terminate this agreement prior to the expiration of the term
hereof, then for a period ending two years
<PAGE>
Mr. Michael J. Acierno
July 1, 1994
Page 5
from the termination date, you will not be a consultant, director, officer or
employee or have any interest either directly or indirectly in any individual,
partnership, corporation or other entity which is engaged in a business
competitive with the business of the Company; provided, however, that the
foregoing shall not prohibit the ownership by you of less than 5% of any class
of outstanding voting securities (or any options, warrants or rights to acquire
such securities or any securities convertible into such securities) of any
corporation.
You represent to the Company that you are not subject to any
restriction, contractual or otherwise, which prohibits you from undertaking
employment by the Company in accordance with the terms and provisions of this
agreement.
This agreement represents the entire understanding and agreement
between us with respect to your employment by the Company and supersedes all
prior negotiations, representations and agreements made by and between us. No
alteration, amendment or modification of any of the terms or provisions of this
agreement shall be valid unless made pursuant to an instrument in writing and
signed by each of us. This agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
Kindly indicate below that the foregoing represents our mutual
agreement with respect to the matters described in this
<PAGE>
Mr. Michael J. Acierno
July 1, 1994
Page 6
agreement by signing and returning a copy of this agreement, whereupon this
agreement shall constitute an agreement between us.
Very truly yours,
FIRST AMERICAN RAILWAYS, INC.
By: /s/ ALLEN C. HARPER
---------------------------
Allen C. Harper
Its: Chairman and Chief
Executive Officer
Agreed to and Accepted this
1st day of July, 1994
/s/ MICHAEL J. ACIERNO
- ---------------------------
Michael J. Acierno
EXHIBIT 10.5
July 1, 1996
Mr. Ray Monteleone
3965 North 32nd Terrace
Hollywood, Florida 33021
RE: EMPLOYMENT AGREEMENT
Dear Ray:
This letter confirms our mutual agreement with respect to the
following:
First American Railways, Inc. (the "Company"), agrees to employ you and
you agree to accept such employment, upon the terms and conditions set forth
below beginning July 1, 1996, for a period of three years subject to the terms
of extension provided below. The term of your employment shall be automatically
renewed for consecutive additional one-year periods, unless and until you or the
Company gives the other party written notice, received not later than 120 days
prior to the then current expiration date of your employment, of your or the
Company's intention to terminate your employment hereunder.
During the period of your employment, you will serve as President and
Chief Operating Officer of the Company. You agree that, during the period of
your employment under this Agreement, you shall serve the Company faithfully,
diligently and to the best of your ability, under the direction and supervision
of the Board of Directors of the Company, devoting your full time, energy and
skill to such employment; provided, however, you may serve on the
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 2
Board of Directors of up to four "for-profit" entities (a current list of which
is attached as Schedule A, which schedule shall be updated by you from time to
time), and further provided that there shall be no such limitation on the
service provided by you on behalf of any "not-for-profit" entities, so long as
such entities are approved by the Chairman of the Board*. You further agree to
perform from time to time such services and to act in such capacities as the
Board of Directors of the Company shall request without further compensation
other than that for which provision is made in this Agreement.
During the initial term of your employment, the Company shall pay you a
salary (in accordance with the Company's regular payroll practices) as follows:
1996: (July 1 - December 31)
$75,000 ($150,000 annualized) with a bonus payable on
or before January 1, 1997, in an amount which shall
be no less than $12,500 for that year and may be up
to 50% of your base compensation for the subject
six-month period.**
- --------------------
* Lynn University (Boca Raton) shall be an approved not-for profit
corporation.
** As determined by mutual agreement between you and the Chief Executive
Officer of the Company; provided, however, if such an agreement cannot be
reached, then the Board of Directors shall establish the amount of such bonus
within the applicable parameters.
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 3
1997: $175,000 base compensation along with a bonus
payable on or before January 1, 1998 in an amount
which shall be no less than $25,000 and may be up
to 50% of your base compensation for the subject
year.**
1998: Base compensation shall be at least 8% more than the
base compensation in 1997, along with a bonus payable
on or before January 1, 1999, in an amount which is
at least $25,000 and may be up to 50% of the
compensation for the subject year.**
1999: (January 1 - June 30)
Base compensation shall be at least 8% more than the
base compensation in 1998 (pro rated for the six
month period) with a bonus payable on or before June
30, 1999, in an amount which is at least $25,000 and
may be up to 50% of the base compensation for the
subject six-month period.**
The Company agrees to promptly grant you a total of 7,500 shares of
common stock which shares shall be fully paid, non-assessable and not subject to
forfeiture or return to the Company for any reason. In addition, the Company
will grant to you annually (beginning on the date hereof and thereafter on each
anniversary of this Agreement during its term and any extensions thereof)
non-qualified, ten-year stock options to purchase at least 30,000 shares of
common stock (subject to standard anti-dilutive protection) at an exercise price
which is equal to the then current
- --------------------
** Footnote text on preceding page.
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 4
market price which for purposes of the initial grant shall be $3.50 per share,
each of such 30,000-share options shall vest in one-third increments (10,000
shares) annually, with the initial vesting beginning on the date hereof;
provided, however, any such options which remain to be granted and/or vested
hereunder shall be immediately and fully granted and vested in their entirety
upon your election to terminate this Agreement by reason of a "change in
control" of the Company as provided below, or in the event of the termination of
this Agreement by the Company for reasons other than for "cause." The Company
shall as soon as reasonably possible prepare and file a Form S-8 Registration
Statement covering the resale of the shares granted to you as provided above and
the shares underlying your granted stock option, as well as those shares
underlying all employee stock option plans.
It is contemplated that, in connection with your employment by the
Company, you will be required to incur travel, entertainment and other business
expenses which you deem necessary for the performance of your duties and
responsibilities. The Company also agrees to reimburse you for all such
necessary out-of-pocket expenses reasonably incurred by you upon the submission
to the Company of expense vouchers or other statements satisfactorily evidencing
the expenses for which reimbursement is sought. The Company will pay you a $500
per month car allowance and will
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 5
reimburse you at the rate of $.20 per mile for all mileage driven by you while
on Company business (for automobile expenses, e.g., gas, oil, maintenance,
etc.).
In the event that you are incapacitated by reason of mental or physical
disability or otherwise during the period of your employment so that you are
prevented from performing your principal duties and services to the Company for
a period of 120 consecutive days or for shorter periods aggregating 120 days
during any 12- month period, the Company shall have the right to terminate your
employment by sending or telecopying written notice of such termination to you
or to your legal representative, as the case may be. Upon such termination or in
the event of your death, the Company shall be relieved of any further
obligations under this Agreement with the exception of the obligation to pay to
you or your estate, as the case may be, any accrued and unpaid salary earned by
you, and all granted but unvested options shall become fully vested.
Notwithstanding the foregoing, in the event that you die prior to January 14,
1997 (the date upon which the life insurance policy described herein becomes
effective), the Company will continue to pay your salary, at normal payroll
intervals, to your estate for period of three months after the date of your
death.
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 6
The Company shall have the right to terminate your employment for
"cause" at any time by reason of one or more of the following occurrences: (i)
your conviction, by a court of competent and final jurisdiction, of any crime
(but only in the event such crime involves the Company or directly relates to
your duties thereto) which constitutes a felony in such jurisdiction; or (ii)
your commission of a material act of malfeasance, fraud, dishonesty or breach of
trust against the Company; or (iii) your material violation of the terms of this
Agreement; or (iv) your failure to devote sufficient time, e.g., averaging 40
hours per week (taking into account vacation and holiday time) to the Company's
business. In the event the Company elects to terminate your employment for
"cause," the Company shall send or telecopy written notice to you informing you
of such election and setting forth the action or omission constituting the
reason for terminating your employment for "cause." If your employment is
validly terminated for "cause" under this paragraph, notwithstanding any other
provisions of this Agreement, the Company will be relieved of any further
obligations under this Agreement with the exception of the obligation to pay you
any accrued and unpaid salary due to you, and those obligations (if any)
regarding the granting and/or vesting of your stock options as described in the
first full paragraph on page 3 as carried over to page 4, above.
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 7
You shall be entitled to paid sick days and paid vacation days
commensurate with that due to an executive at your level of employment, which
initially shall be up to four weeks of vacation time, with no more than two
weeks of which to be consecutive. The Company's Chief Executive Officer shall be
responsible for monitoring this aspect of your Employment Agreement to determine
that the amount of sick time and vacation time is in a manner consistent with
the policies of the Company and the effective discharge of your duties herein.
Beginning on January 14, 1997, the Company shall provide you with life
insurance (with coverage equal to at least twice your applicable annual base
compensation), medical insurance and disability insurance (with coverage equal
to at least 60% of your applicable annual base compensation). You shall also be
entitled to participate to the same extent as other employees of the Company of
a like capacity and position in any profit sharing plan, pension plan or
incentive compensation plan that the Board of Directors of the Company shall
determine to make available to such employees.
The Company shall fund an individual retirement plan established on
your behalf as follows: $5,000 in December 1996; $10,000 in December 1997;
$10,000 in December 1998; and $10,000 in June 1999. To supplement the foregoing,
the Company shall use its best efforts to establish a non-qualified defined
contribution or
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 8
defined benefit retirement plan in which you shall participate along with other
members of the Company's management, at a level commensurate with your position
with the Company. Any such retirement plan(s) shall immediately vest to you upon
(i) any termination of this Agreement by the Company other than for "cause", or
(ii) your election to terminate this Agreement upon the occurrence of a "change
in control" of the Company, as provided below.
In the event (i) there is a "change in control" of the Company (as
defined below) and you promptly terminate (within 12 months) this Agreement, or
(ii) you are terminated by the Company for any reason during the 12-month period
following such "change in control", then in either case you shall, within
fifteen days of such termination, receive a payment in cash of an amount equal
to twice your current annualized compensation (base compensation plus applicable
maximum bonus) as severance pay along with the above-described acceleration of
the granting and vesting of your stock options and the vesting of any retirement
plans (the "Termination Benefits"). Further, in the event you terminate this
Agreement because your duties hereunder have been substantially reduced during
the 12-month period following a "change in control", or if this Agreement is not
renewed beyond the expiration of any of the applicable one-year renewal term, as
provided above, you will be
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 9
entitled to receive the Termination Benefits. For purposes of this Agreement, a
"change in control" of the Company shall occur when (i) more than 50% of the
Company's voting capital stock is acquired by any "individual", "entity" or
"group" as those terms are defined in the Securities Exchange Act of 1934, or
(ii) someone other than Allen C. Harper or you, is the Company's Chief Executive
Officer.
It is further expressly understood and agreed that this Agreement must
be terminated as a result of a "change in control," or a substantial reduction
in your duties hereunder, in order for the Termination Benefits become available
and are payable to you.
You agree that during, and for a period of two years following
cessation of, your employment with the Company, you shall not, without the prior
written consent of the Board of Directors of the Company, disclose to any
person, firm, corporation or other entity, for any reason or for any purpose
whatsoever, any confidential or proprietary knowledge or information pertaining
to the Company or any of its affiliates.
You covenant and agree that during the term hereof and, if you or the
Company shall terminate this Agreement prior to the expiration of the term
hereof, then for a period ending two years from the termination date, you will
not be a consultant, director, officer or employee or have any interest either
directly or indirectly in any individual, partnership, corporation or other
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 10
entity which is engaged in a business competitive with the business of the
Company; provided, however, that the foregoing shall not prohibit the ownership
by you of less than 5% of any class of outstanding voting securities (or any
options, warrants or rights to acquire such securities or any securities
convertible into such securities) of any corporation.
You shall also be elected to the Board of Directors of the Company and
the Company agrees to use its best efforts to see that you are nominated as part
of management's slate of director nominees in connection with all subsequent
election(s) of directors by the Company's shareholders which are held during the
term of this Agreement. You will receive no additional compensation from the
Company for your service as a director.
You represent to the Company that you are not subject to any
restriction, contractual or otherwise, which prohibits you from undertaking
employment by the Company in accordance with the terms and provisions of this
Agreement. The Company acknowledges that you are party to a January 12, 1996
agreement with Sensormatic Electronics Corporation ("Sensormatic") which
provides, among other things, that you are subject to certain non-competition
and confidentiality provisions thereof. In addition, you have advised the
Company that you may be required to provide certain consulting services to
Sensormatic for a limited period of time; however, your
<PAGE>
Mr. Ray Monteleone
July 1, 1996
Page 11
services thereunder will not materially interfere with your obligations
hereunder.
This Agreement represents the entire understanding and agreement
between us with respect to your employment by the Company and supersedes all
prior negotiations, representations and agreements made by and between us. No
alteration, amendment or modification of any of the terms or provisions of this
Agreement shall be valid unless made pursuant to an instrument in writing and
signed by each of us. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
Kindly indicate below that the foregoing represents our mutual
agreement with respect to the matters described in this Agreement by signing and
returning a copy of this Agreement, whereupon this Agreement shall constitute an
agreement between us.
Very truly yours,
FIRST AMERICAN RAILWAYS, INC.
By: /s/ ALLEN C. HARPER
-------------------------
Allen C. Harper, Chairman
of the Board of Directors
Agreed to and Accepted this
10 day of July, 1996
/s/ RAYMOND MONTELEONE
- ----------------------
Ray Monteleone
EXHIBIT 10.6
AGREEMENT
THIS AGREEMENT dated February 28, 1995, is entered into between First
American Railways, Inc. (hereinafter referred to as "FAR") a corporation
incorporated in the State of Florida with offices at 1390 South Dixie Highway,
Coral Gables, FL 33146 and Florida East Coast Railway Company (hereinafter
referred to as "FEC") a corporation incorporated in the State of Florida with
offices at 1 Malaga Street, P. O. Drawer 1048, Saint Augustine, FL 32085
providing rail freight services throughout the State of Florida.
FAR is desirous of obtaining the right to provide rail passenger
service over certain of FEC's rail lines and FAR is willing to compensate FEC
for such rights on a mutually agreed upon basis.
FAR desires to operate rail passenger service over FEC rail lines from
FAR's terminal facility at the Port of Miami and/or Port Everglades, FL to the
interchange at CSX Transportation, Inc.'s (CSX) track at West Palm Beach, FL
(hereinafter referred to as the "Florida Fun Train") and from FAR's terminal
facility at the Port of Miami and/or Port Everglades, FL to FAR's terminal
facility in the Titusville, FL general area (hereinafter referred to as the
"Space Coast Excursion Train") pursuant to the terms of this Agreement. For
purposes of this Agreement, the Service operated by FAR will be referred to
collectively as "FFT/SCET". In addition, FAR is desirous of purchasing certain
services from FEC in
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connection with its operation of rail passenger service as prescribed by this
Agreement.
Subject to the terms and conditions set forth herein, FEC grants to FAR
trackage rights on and over and continued access to and use of FEC tracks and
related facilities required to provide FFT/SCET service from FAR's terminal
facility at the Port of Miami and/or Port Everglades, FL to the interchange
track of CSX at West Palm Beach, FL and from the Port of Miami and/or Port
Everglades, FL to FAR's terminal facility in the Titusville, FL general area
(hereinafter referred to as "Routes"). FAR, its agents, servants, employees,
consultants and contractors, shall also have the right to enter upon the Routes
and operate equipment in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter contained, the parties do hereby mutually
agree as follows:
GENERAL
1. FFT/SCET CONSIST: FAR will operate the FFT/SCET with the following
equipment (hereinafter referred to as "Consists):
a. Two leased diesel locomotives, with one unit positioned on each
end of the train;
b. Eight full dome passenger cars each with an 80-passenger capacity
and food service facilities;
c. One bi-level adult cocktail lounge car with live entertainment;
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d. One bi-level youth dance and lounge car with entertainment;
e. One bi-level space station video game car with virtual reality
games;
f. One bi-level education-oriented video game car with a gin shop;
and
g. One power and baggage car to provide electricity needed for
operation of the train's facilities and storage space for passenger baggage.
2. EQUIPMENT SPECIFICATIONS: All locomotives and equipment utilized by
FAR in connection with its operation of the FFT/SCET shall be designed and
constructed in conformity with standards prescribed by the Federal Railroad
Administration (hereinafter referred to as "FRA") and shall meet all
requirements of FEC for operation over its lines of railroad. FAR will equip all
of its locomotives in service over FEC's trackage with Automatic Train Control
devices.
3. SUBSTITUTION OF EQUIPMENT: FAR reserves the right to substitute such
other combination of locomotives, passenger and service cars as it deems
necessary for the efficient operation of its business, provided the equipment
meets the requirements of Section 2 of this Agreement. The compensation payable
by FAR to FEC shall be fixed and based on the Consist defined in Section 1.
4. UNAVAILABILITY OF EQUIPMENT: In the event locomotives or equipment
utilized by FAR is temporarily out of service or
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unavailable for any reason, FAR may operate FFT/SCET without such equipment for
such period of time as it is unavailable for service.
5. ROUTES: The terms of this agreement apply to operations over the routes
described below (hereinafter referred to collectively as the "Standard Routes"):
A. STANDARD ROUTES
1. PORT OF MIAMI AND/OR PORT EVERGLADES, FL TO WEST PALM BEACH,
FL: FEC's rail line extending from FAR's terminal facility at the Port of Miami
and/or Port Everglades, FL to the interchange track of CSX at West Palm Beach,
FL. This Standard Route would continue on from West Palm Beach, FL to Orlando
International Airport, FL via CSX trackage under a separate operating agreement
with that railroad.
2. PORT OF MIAMI AND/OR PORT EVERGLADES, FL TO TITUSVILLE FL:
FEC's rail line extending from FAR's terminal facility at the Port of Miami
and/or Port Everglades, FL to its terminal facility in the Titusville, FL
general area.
B. CONTINGENT ROUTES
1. TITUSVILLE, FL TO ORLANDO INTERNATIONAL AIRPORT ROUTE: A
rail line extending from FAR's terminal facility in the Titusville, FL general
area to Orlando International Airport, FL that is anticipated to be constructed
by FEC in cooperation with the Greater Orlando Aviation Authority and Florida
Department of Transportation.
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FAR initiated discussions and has coordinated the effort between
FEC, the Greater Orlando Airport Authority and State of Florida to establish a
rail line between these two locations. If such a line is subsequently
constructed, FAR desires to initiate service over this Route on essentially the
same basis as it has on other FEC Routes. It will be identified as the Space
Coast Express. FAR will undertake all reasonable action necessary to assist the
Greater Orlando Airport Authority and FEC in obtaining the required permits and
completing construction work for that line.
2. ADDITIONAL ROUTES: In the event FAR desires to commence
additional rail passenger service over other routes owned by FEC, the terms will
be subject to the mutual agreement of both FAR and FEC and shall be essentially
the same as those set forth in this Agreement.
6. ALTERNATE ROUTING/DETOURS: In the event scheduled service over the
Standard Routes is prevented by an accident or emergency condition that
necessitates a curtailment of operations over the Standard Routes, the following
will apply:
a. if an accident or emergency occurs while the FFT/SCET Train is in
transit over the Standard Routes, FEC will immediately notify FAR of the
situation and make arrangements for FFT/SCET to continue to its final
destination in an expeditious manner via such alternate route and under terms
that FAR and FEC agree upon, if such route is available, and
b. if an accident or emergency occurs at a time when FFT/SCET is not
enroute over the Standard Routes, FEC will
5
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immediately notify FAR of the situation and make arrangements for FFT/SCET to
embark to its final destination in an expeditious manner via such alternate
route and under terms that FAR and FEC agree upon, if such route is available.
c. FAR shall compensate FEC for reasonable additional costs
associated with such alternate rerouting or detour.
d. FAR hereby indemnifies FEC against and saves it harmless from any
and all claims which may arise in the event standard service is prevented by an
accident or emergency condition. FAR hereby releases FEC from all liability
which arise for any claims which FAR may have against FEC in the event standard
service is prevented by an accident or emergency condition. FAR understands and
acknowledges that the indemnity and release provided by this subparagraph is
without regard to fault and is intended to be as broad and inclusive as
allowable under the laws of-the State of Florida.
SERVICES TO BE PROVIDED BY FEC
7. FEC SERVICES: FEC shall undertake all actions reasonably necessary to
insure the on time operation of the FFT/SCET Consist over the Standard Routes
consistent with a schedule agreed to by FAR and FEC and in conformity with the
following terms:
a. TRIPS: A "trip" in the case of a FAR FFT Train over FEC's lines
shall be a complete transit from FAR's terminal facility at the Port of Miami or
Port Everglades to the interchange track of CSX at West Palm Beach, regardless
of direction. A "trip"
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<PAGE>
in the case of a FAR SCET Train over FEC's lines shall be a complete transit
from FAR's terminal facility at the Port of Miami or Port Everglades to FAR's
terminal facility at Titusville, FL. The number of FFT/SCET trips shall be in
accordance with the schedule agreed upon between FAR and FEC. FAR may, by
providing FEC ten (10) days advance written notice, request additional trains be
awed. FEC, in its sole discretion, may agree to-add such additional trains.
b. SCHEDULES: A proposed schedule for the Florida Fun Train is
attached hereto as Exhibit No. 1 and the proposed schedule for the Space Center
Excursion Train is attached hereto as Exhibit No. 2. Changes in FAR rail
passenger service over the Standard Routes shall be made by FAR so as to afford
optimum convenience and attractiveness to prospective passengers and shall take
into account freight service that is currently operated over the Standard
Routes. FEC, in its sole discretion, may approve schedules and changes.
8. DISPATCHING AND CONTROL: The following terms and conditions will apply
with regard to the dispatching and control of FFT/SCET Trains on the Standard
Routes:
a. The management, operation and maintenance of the Standard Routes
and its tracks shall be under the exclusive direction and control of FEC.
b. The movement of FFT/SCET Consists over the Standard Routes shall
be under the direction and control of FEC's dispatching headquarters in Saint
Augustine, FL.
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<PAGE>
c. FEC shall dispatch FFT/SCET Trains in a safe, reliable and on-time
manner.
d. FEC shall provide employees of FAR with reasonable access to FEC'
dispatch acilities to permit monitoring of dispatching services.
e. FEC shall allow FAR the use of its radio frequencies in FAR's
FFT/SCET operations and FAR hereby indemnifies FEC against any misuse by FAR of
this privilege.
9. PROVISION FOR EMERGENCY LOCOMOTIVES: In the event one or more FAR
locomotives used in providing FFT/SCET service over the Standard Routes becomes
disabled for any reason, within 2 hours prior to its scheduled departure, FEC
shall furnish a suitable replacement locomotive as soon thereafter as is
reasonably possible to power FFT/SCET Trains, provided it can be accomplished
without interfering with FEC's freight operations. FAR shall compensate FEC for
additional locomotives at the rate of $400.00 each per day or fraction thereof.
10. SWITCHING SERVICES: FEC shall furnish FAR with such switching services
as it requires for the timely and efficient operation of its FFT/SCET.over the
Standard Routes. FAR shall compensate FEC for switching services beyond routine
operations at actual cost of labor, fringe benefits and locomotive rental plus a
10% overhead fee.
11. REPORTS: FEC shall provide to FAR with such reports and information
that may be reasonably necessary for FAR to operate its FFT/SCET Trains over the
Standard Routes.
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<PAGE>
12. LABOR PROTECTION: FAR will not be obligated to compensate FEC for any
payments made under labor protective agreements, wage guarantee arrangements,
relocation programs it has entered into with its employees or for protective
conditions previously imposed by the Interstate Commerce Commission. FEC shall
assume responsibility for the cost of any such payments or benefits it is
obligated to pay to its employees. FAR shall be responsible for labor protection
payments or benefits in the event FEC becomes obligated for such payments as a
direct result of FAR's operations over FEC.
13. CERTIFICATION BY FEC: Each statement submitted to FAR by FEC shall be
accompanied by a statement certified by an officer of FEC detailing goods and
services that are being billed for. FAR shall have the right for a period of one
year commencing with the date on which it is provided a certified statement to
inspect FEC's books and records pertaining to such certified statements at its
own expense upon reasonable notice to FEC. Such records shall be subject to
inspection at FEC's headquarters during normal business hours, unless otherwise
agreed to by the parties.
TO BE PROVIDED BY FAR
14. EQUIPMENT AND FACILITIES: It shall be the responsibility of FAR to
provide the following equipment and facilities at its own expense in connection
with its operation of FFT/SCET service over the Standard Routes:
a. EQUIPMENT: FAR shall provide an equipment Consist as specifically
described in Section 1 of this Agreement.
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b. TERMINAL FACILITIES: FAR shall construct or cause to be
constructed terminal facilities at or adjacent to the Standard Routes at the
Port of Miami and Port Everglades and the Titusville, FL general area and/or
other locations required to provide service over the Standard Routes.
c. INTERCHANGE FACILITIES: If it is deemed necessary by FEC to
facilitate FAR's operations over FEC's lines that the existing interchange
tracks between CSX and FEC at West Palm Beach, FL be relocated, realigned or
otherwise improved, FEC will perform the work and FAR shall assume the total
cost of such improvement. 15.
15. EQUIPMENT INSPECTION, MAINTENANCE AND REPAIR: FAR shall be responsible
for all mechanical repairs that may be required for safe and timely operations.
16. FAR EMPLOYEES: Except as otherwise provided herein, FAR or its
designated representatives shall provide sufficient employees to perform the
following duties required for the efficient operation of FFT/SCET Trains over
the Standard Routes:
a. Locomotive engineers.
b. Conductors.
c. Locomotive, inspection, repair and maintenance.
d. Passenger coach repair, inspection and maintenance.
e. On board mechanical repairs.
f. Customer service.
g. Ticketing and reservations.
h. Baggage handling.
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The employees who are designated by FAR to perform the services
identified in this Section shall be employed under the control of by FAR,
whether employed directly by FAR or provided by an independent contractor. FAR
employees will be required to meet all FEC, FRA and/or other regulatory agencies
requirements as to certifications, qualifications, etc., before being allowed to
perform service.
17. EQUIPMENT AND MAINTENANCE: Except as provided in Section 9 of this
Agreement, FAR will be responsible for furnishing all locomotives and equipment
comprising the Consist which are required for operation of the FFT/SCET.
18. RESERVATIONS AND TICKET SALES: All reservations and sales of tickets
for passage on FFT/SCET Trains shall be entirely FAR's responsibility.
19. TAXES: FAR shall during the term of this Agreement be responsible for
the prompt payment of all taxes, assessments, and similar charges assessed or
levied by any government or governmental agency upon any interest in equipment
or facilities owned or leased by FAR and used in connection with operating the
FFT/SCET. This shall not include taxes, assessments and similar charges assessed
or levied by any governmental agency on the tracks, bridges, buildings or
appurtenances comprising the Standard Routes which are owned or leased by FEC.
20. TERMS OF COMPENSATION: In consideration for all services rendered by
FEC on behalf of FAR pursuant to the terms of this Agreement and in addition to
compensation provided for under
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Sections 9 and 10 hereof, FAR shall compensate FEC at the rate of $1.20 per car
mile for each car mile generated by FFT/SCET over the Standard Routes
(hereinafter referred to as "Car Mile Rate"). The Car Mile Rate, as well as
other compensation provided for under this Agreement, shall be payable by FAR to
FEC on a monthly basis, 30 days following receipt of FEC's monthly statement.
The Car Mile Rate is intended to cover all indirect costs of operating on the
Standard Routes including, but not limited to the following services:
a. Routine switching operations.
b. Dispatching.
c. Track, signal and interlocking maintenance.
d. Bridge and building maintenance.
e. Ad valorem taxes.
The compensation payable by FAR to FEC shall be fixed and based on the
Consist defined in Section 1. The compensation due FEC shall not be reduced on
account of equipment that FAR may exclude from the Consist for any reasons.
It is understood and agreed that effective with commencement of
operation of both the Florida Fun Train and the Space Coast Excursion Train the
minimum amount payable by FAR to FEC will be no less than one million dollars
($1,000,000.00) per year to be billed in twelve monthly installments of
$83,333.33 each.
FAR agrees if the FFT commences operation prior to the SCET, the
minimum amount payable by FAR to FEC will be no less than five
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<PAGE>
hundred thousand dollars ($500,000) per annum to be billed in twelve monthly
installments of $41,666.66 each.
Effective January 1 of the year in which the third anniversary of the
commencement of FFT/SCET service by FAR occurs, and January 1 in every third
year thereafter (hereinafter referred to as the "Recalculation Dater), the Car
Mile Rate and the minimum amount payable shall, upon the request of either
party, be adjusted upward or downward in an amount equivalent to the percent of
increase or decrease in the "Consumer Price Index For Urban Wage Earners and
Clerical Workers (Revised Series)(CP-W)(1967-100)" (hereinafter referred to as
the "Index") unadjusted, as published by the Bureau of Labor Statistics, U. S.
Department of Labor. Any adjustment of the Car Mile Rate and the minimum amount
payable on the Recalculation Date(s) shall be computed by calculating the
percentage increase or decrease in the Index from January 1 in the year in which
service commences and the Recalculation date and applying the percentage
increase or decrease derived to the then existing Car Mile Rate and the minimum
amount payable. The same calculation shall be made to establish the increase or
decrease in the Car Mile Rate and the minimum amount payable for successive
measurement periods. In no event will any adjustment be made which would reduce
the Car Mile Rate or the minimum amount payable below the initial rates set
forth in this Section.
On the tenth anniversary of operations under this Agreement, either
party, upon thirty (30) days' advance written notice to the
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other may request a modification of the terms of compensation provided for in
this Section.
21. INDEMNIFICATION: FAR agrees to assume all risks of, and to indemnify
FEC against and save it harmless from all loss, cost, expense, reasonable
attorneys' fees, claims, suits and judgments whatsoever incurred, made
instituted or sought to be enforced by any party or parties other than FAR
incident to the operation of FFT/SCET service pursuant hereto, including, but
not limited to, injury to, or death of, any person or persons, including
employees of FAR and of FEC, or any loss of, or damage to, property, including
property of FEC, caused by, or in any way connected with, the operation of FAR's
equipment or the performance of FAR's services, regardless of whether such
injury, death, loss or damage results from any cause whatsoever or whether such
injury, death, loss or damage results from the negligent acts or omissions of
FEC, its agents, servants or employees.
22. WAIVER: FAR waives any and all claims that it may have against FEC for
any loss, cost, expense, attorneys' fees, claims, suits or judgments whatsoever
incurred by it incident to the operation of FFT/SCET service pursuant hereto,
including, but not limited to, any such relating to injury to, or death of, any
person or persons, including employees of FAR and FEC, or any loss of, or damage
to, property, including property of FAR, caused by, or in any way connected
with, the operation of FAR's equipment or the performance of FAR's services,
regardless of whether such injury, death, loss or damage results from any cause
whatsoever or whether
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such injury, death, loss or damage results from the negligent acts or omissions
of FEC, its agents, servants or employees. It is understood and agreed, however,
that by the foregoing provisions of this Section FAR neither waives any claim or
claims that it may have, whether embodied in an arbitrators' award otherwise,
based upon its right to have FEC perform the terms and conditions of this
Agreement on their part to be performed, nor does it waive any claim or claims
that it may have for any conversion or other misappropriation by FAR, whether
temporary or otherwise, of any FAR Consist, locomotive or passenger coach.
23. INSURANCE: FAR shall procure at its expense no less than $200 million
in comprehensive general liability insurance coverage to protect FEC under all
conditions as stipulated in this Agreement. Said insurance coverage shall
contain a maximum deductible not in excess of $100,000.00. The form of the
policy; the carrier providing the coverage; and the amounts of such coverage
shall be subject to the prior approval FEC.
It is expressly understood that such coverage will contain a
contractual liability endorsement which will cover the obligations assumed by
FAR under Section 22 of this Agreement.
A Certificate of Insurance specifying such coverage will be furnished
to FEC and kept in force at the cost and expense of FAR until such time as this
Agreement is terminated, or FAR shall have been specifically released therefrom
by a written instrument signed and sealed by an authorized officer of FEC.
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The insurance coverage shall provide the insurance company will give
FEC and FAR 30 days advance written notice of any change in coverage under said
liability policy together with certificate of such revised coverage, which shall
be subject to FEC's approval. The insurance shall also provide that the
insurance company will give FEC and FAR 30 days' written notice in advance of
cancellation of such policy. All of these notices shall be stated on the
Certificate of Insurance.
24. CERTIFICATION BY FAR: Each payment by FAR to FEC shall be accompanied
by a statement certified by an officer of FAR showing the calculation of Train
Mile Charges and other charges covered by the statement. FEC shall have the
right form period of one year commencing with the date on which it is provided a
certified statement to inspect FAR's books and records pertaining to such
certified statements at its own expense upon reasonable notice to FAR. Such
records shall be subject to inspection at FAR's headquarters during normal
business hours, unless otherwise agreed to by the parties.
OTHER
25. TERM OF AGREEMENT: This Agreement shall commence on the first day
above written and shall continue until the end of the 10th year from the date
FAR commences scheduled FFT/SCET service on the Standard Routes or until rail
freight and passenger service is abandoned by FEC on the Routes if earlier than
10 years. At the conclusion of said 10-year term, FAR shall have the right to
extend this Agreement under similar abandonment conditions for an
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additional 10-year period upon 12 months' advance written notice to FEC of its
intent to do so.
26. COVENANT AGAINST COMPETITION: FEC does not by this Agreement commit to
any covenant against any other operator of rail passenger service over the
Routes except to the extent that the service being offered by such an operator
is comparable in all respects to the excursionary nature of the FAR FFT/SCET
trains and/or is intended to primarily serve cruise ship passengers. In this
regard, it is expressly understood that this exclusion does not preclude FEC
from entering into agreement with Amtrak or Tri-County Rail for services of the
type currently provided by those entities nor does it preclude FEC entering into
agreement with any other organization offering services similar to those
provided by the two named entities.
27. COMPLIANCE WITH LAWS, REGULATIONS AND RULES: FAR and FEC shall comply
with all applicable laws and state and federal regulations, FEC Operating Rules,
general orders and timetables in the dispatching, operation, maintenance,
inspection and testing related to the operation of FFT/SCET Trains over the
Standard Routes. Where compliance with the foregoing requires FAR to obtain any
regulatory approval for the operation of the train or the changing of any
equipment, fixture, on appliance or any FAR equipment, thereby necessitating the
expenditure of funds, such compliance shall be accomplished at FAR's expense.
28. INVENTIONS, IDEAS AND PATENTS: FAR hereby reserves its respective
entire rights, titles and interest in and to any and all
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inventions or ideas, whether patentable or not, that relate in any manner to
FAR's actual or intended business and research and development.
29. CONFIDENTIAL INFORMATION: FEC acknowledges that unless otherwise agreed
to the contrary, the following items of information as the same may exist from
time to time during the term of this Agreement are and will be, valuable and
unique assets of FAR's business, and FEC agrees that it will not disclose such
information, or any part thereof, to any person who is not an officer of FAR or
a member of its board of directors without FAR's express written permission:
a. All methods, techniques and procedures used or proposed to be used
by FAR;
b. the design, detail, operation and layout of FFT/SCET and any other
equipment used or proposed to be used by FAR;
c. all information as to FAR's actual or proposed suppliers, sales
representatives, contract operators, customers and ticket sales and reservation
arrangements; and
d. all information as to FAR's actual or projected operating costs
and profit margins.
30. RELATIONSHIP OF PARTIES: Under the terms of this Agreement the
relationship of FEC to FAR is that of an independent contractor. FEC shall not
be deemed to be an agent of FAR's to any extent whatsoever, except to the extent
that the parties so expressly agree in writing by way of a supplement to this
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Agreement. This Agreement shall not be deemed to create a joint venture or
partnership between FAR and FEC.
31. FORCE MAJEURE: Each party shall be excused from the performance of any
of its obligations hereunder to the other party where such nonperformance is
occasioned by any event beyond its control, which shall include without
limitations, any order, rule or regulations of any federal, state or local
governmental body, agency or instrumentality, work stoppage, accident, natural
disaster, or civil disorder, provided the party so excused hereunder shall use
all reasonable efforts to minimize its non-performance and to overcome, remedy,
cure, or remove such event as soon as reasonably practicable. Nonperformance
shall be excused only to the extent that, and for so long as, in any given case
the force or circumstance making performance impossible shall exist.
32. WAIVER AND MODIFICATION: The waiver by any party hereto of a breach of
any provision hereof shall not be construed to operate as a waiver of any
subsequent breach of the same, or any other provision of this Agreement. This
instrument contains the entire agreement of the parties with respect to the
subject maker hereof and said parties have not made any agreements relating to
such subject maker which are not set forth herein. No modification of this
Agreement shall be effective unless in writing and signed by the party against
which it is sought to be enforced.
33. ASSIGNMENT RESTRICTED: Neither this Agreement nor any right thereunder, may
be assigned by FAR without the written consent of FEC.
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34. NOTICES: All notices, demands, requests, and other communications under
this Agreement shall be deemed properly served if delivered by hand (personally,
by courier service such as Federal Express, or by other messenger) to the party
to whose attention it is directed, or same shall be deemed to have been properly
served and delivered when deposited in the United States Mails, registered or
certified mail, postage prepaid, return receipt requested, addressed as set
forth below:
IF INTENDED FOR FAR: FIRST AMERICAN RAILWAYS, INC.
1390 South Dixie Highway
Coral Gables, FL 33146
IF INTENDED FOR FEC: FLORIDA EAST COAST RAILWAY CO.
1 Malaga Street
P. O. Drawer 1048
Saint Augustine, FL 32085
WITH A COPY TO: GENERAL COUNSEL
1 Malaga Street
P. O. Drawer 1043
Saint Augustine, FL 32085
Each party may designate by notice in writing substitute parties and/or a new
address to which any notice, demand request or communication shall thereafter be
served. From time to time by written notice to the other party, each party shall
designate its representative for operations matters under this Agreement. With
respect to discussions with such representative on makers of operations under
this Agreement, each party shall be entitled to rely on the responses and
decisions made by the other party's representative so designated.
35. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida
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36. SEVERABILITY: Each provision of this Agreement shall be interpreted
so as to be effective and valid under applicable law to the fullest extent
possible. If any provision contained herein shall for any reason be held
invalid, illegal or unenforceable in any respect, then, in order to effect the
purposes of this Agreement, it shall be construed as if such provision had never
been contained herein.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
as of the day and year first above written.
FLORIDA EAST COAST RAILWAY CO. FIRST AMERICAN RAILWAYS, INC.
BY: /s/ C.F. ZELLERS, JR. BY: /s/ EUGENE K. GARFIELD
- -------------------------- ------------------------------
PRINTED NAME: C.F. Zellers, Jr. PRINTED NAME: Eugene K. Garfield
TITLE: President TITLE: President
21
EXHIBIT 10.7
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
Agreement made this _____ day of _________, 1996, among Thomas G. Rader
("Rader") of 30786 Snowbird Lane, Evergreen Colorado, Rader Railcar, Inc., a
Colorado corporation ("RRI") and First American Railways, Inc., a Nevada
corporation (the "Company").
WHEREAS, Rader is a director and shareholder of the Company;
WHEREAS, Rader's principal employment is RRI, of which he is the sole
shareholder and which, among other things, designs, manufactures,
markets and sells/leases customized passenger railcars;
WHEREAS, the Company has agreed to purchase approximately $9 million
worth of customized railcars from RRI pursuant to an agreement of even
date (the "Purchase Agreement"); and
WHEREAS, the Company is desirous of fostering and continuing a close
relationship with RRI.
NOW, THEREFORE, in consideration of the Company's entering into the
Purchase Agreement, the parties agree as follows:
1. Rader and RRI shall not at any time, without the prior written
consent of the Board of Directors of the Company, disclose to any person, firm,
corporation or other entity, for any reason or for any purpose whatsoever, any
confidential or proprietary knowledge or information pertaining to the Company.
2. During the Non-competition Period (defined below), Rader and RRI
shall not, directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation, joint venture or business or any other
person or entity other than the Company (whether as an employee, officer,
director, partner, agent, security holder, creditor, consultant or otherwise)
that
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directly or indirectly engage in, the design, marketing, sale or lease of
passenger railcars for the purpose of operating a passenger entertainment,
tourism or excursion train(s) in the state of Florida.
3. For purposes of this Agreement, the term "Non-competition Period"
shall mean the four-year period commencing on the date first set forth above.
4. It is recognized and hereby acknowledged by the parties hereto that
a breach by Rader or RRI of any of the covenants contained in this Agreement
will cause irreparable harm and damage to the Company, the monetary amount of
which may be virtually impossible to ascertain. As a result, Rader and RRI
recognize and acknowledge that the Company shall be entitled to an injunction
from any court of competent jurisdiction enjoining and restraining any violation
of any or all of the covenants contained in this Agreement by Rader or RRI or
any of their affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to whatever other remedies the Company may possess.
5. Any provisions of this Agreement which is invalid or unenforceable
in any jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provisions thereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
2
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6. In the event of litigation arising hereunder, the prevailing party
shall be entitled to recover from the non-prevailing party its reasonable
attorneys' fees and expenses in connection with such litigation at all levels.
7. This Agreement shall be governed by and interpreted and enforced in
accordance with the substantive laws of Florida.
FIRST AMERICAN RAILWAYS, INC. RADER RAILCAR, INC.
By:___________________________ By:___________________________
Allen C. Harper, Chairman Thomas G. Rader
and Chief Executive Officer
___________________________
Thomas G. Rader
3
EXHIBIT 10.8
RAILCAR CONSTRUCTION AGREEMENT
BY AND BETWEEN
RADER RAILCAR II, INC.
AND
FIRST AMERICAN RAILWAYS, INC.
DATED __________, 199__
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TABLE OF CONTENTS
PAGE
1. DEFINITIONS...............................................................1
1.1 "AAA"................................................................1
1.2 "ADA"................................................................1
1.3 "Applicable U.S. Standards"..........................................1
1.4 "Arbitrator".........................................................1
1.5 "ARC"................................................................2
1.6 "ARC Report".........................................................2
1.7 "Change Order".......................................................2
1.8 "Clearance Diagram"..................................................2
1.9 "Complete"...........................................................2
1.10 "Completion Costs"...................................................2
1.11 "Contract Price".....................................................2
1.12 "Damages"............................................................2
1.13 "Delivery Date"......................................................2
1.14 "Dispute Notice".....................................................2
1.16 "Force Majeure"......................................................2
1.17 "Other Costs"........................................................2
1.18 "Operating Trials"...................................................2
1.19 "Owner's Representative".............................................2
1.20 "Payment Notice......................................................2
1.21 "Plans"..............................................................3
1.22 "Production Schedule"................................................3
1.23 "Railcars"...........................................................3
1.24 "Reference Rate".....................................................3
1.25 "Reimbursable Costs".................................................3
1.26 "Specifications".....................................................3
1.27 "Vendor Parts".......................................................3
1.28 "Work"...............................................................3
2. DELIVERY DATE; SCHEDULES.................................................3
3. SCOPE OF WORK............................................................3
4. GENERAL DESCRIPTION OF THE RAILCARS......................................4
4.1 Prior to Construction...............................................4
4.2 At Completion.......................................................4
5. INTERPRETATION...........................................................5
Table of Contents
Page i
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PAGE
6. OWNER'S REPRESENTATIVE...................................................5
7. CONTRACT PRICE; TERMS OF PAYMENT AND CONDITIONS PRECEDENT................5
7.1 Contract Price......................................................5
7.2 Terms of Payment....................................................6
8. LIMITED ARBITRATION......................................................7
8.1 Designation.........................................................7
8.2 Limitation of Issues Subject to Arbitration.........................8
8.3 Determination.......................................................8
8.4 Initiation..........................................................8
8.5 Costs...............................................................8
9. DELIVERY AND ACCEPTANCE-OPERATING TRIALS.................................8
9.1 Notification........................................................8
9.2 Conduct of Operating Trials.........................................8
9.3 Completion..........................................................9
9.4 Delivery............................................................9
9.5 Indemnity...........................................................9
9.6 Documentation.......................................................9
9.7 Title and Risk of Loss..............................................9
9.8 Interchange Requirements............................................9
10. LIQUIDATED DAMAGES AND FORCE MAJEURE CLAIMS..............................9
10.1 Liquidated Damages..................................................9
10.2 Force Majeure......................................................10
10.3 Delay In Applying Liquidated Damages...............................10
11. CHANGE ORDERS...........................................................10
11.1 Authorized Parties.................................................10
11.2 Procedure..........................................................11
11.3 Cost of Changes....................................................11
12. WARRANTY................................................................11
12.1 Materials and Workmanship.........................................11
12.2 Ride Quality......................................................11
12.3 Engineering and Design Warranty...................................11
12.4 Regulatory Compliance.............................................12
12.5 Warranty Period...................................................12
12.6 Notice of Claim -- Breach of Warranty.............................12
Table of Contents
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PAGE
12.7 Exterior Dimensions...............................................13
12.8 Third Party Warranties............................................13
12.9 Payments to Vendors...............................................13
12.10 Consequential Damages Precluded...................................13
12.11 Warranty Limitation...............................................14
13. DEFAULT.................................................................14
13.1 Default by Rader..................................................14
13.2 Default by FARI...................................................14
14. REMEDIES................................................................15
14.1 Remedies of FARI..................................................15
14.2 Remedies of Rader.................................................15
14.3 Delays Due to Force Majeure.......................................16
15. FARI STANDBY LETTER OF CREDIT...........................................16
15.1 Posting of Letter of Credit.......................................16
15.2 Draw Procedure....................................................16
15.3 Issuing Bank......................................................16
15.4 Payment Under Letter of Credit....................................16
16. FARI'S SECURITY INTEREST................................................17
16.1 Grant.............................................................17
16.2 Rights Upon Default By Rader......................................17
16.3 Breach by FARI....................................................17
16.4 Termination.......................................................17
17. RADER'S SECURITY INTEREST...............................................17
17.1 Grant.............................................................17
17.2 Right Upon Default by FARI........................................17
17.3 Breach by Rader...................................................17
17.4 Termination.......................................................17
18. REPRESENTATIONS.........................................................18
18.1 By FARI...........................................................18
18.2 By Rader..........................................................18
19. CURRENCY.................................................................8
20. INSURANCE...............................................................18
21. TAX LIABILITY...........................................................19
Table of Contents
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PAGE
22. PATENTS, TRADEMARKS, TRADE SECRETS AND COPYRIGHTS.......................19
23. JURISDICTION, VENUE AND GOVERNING LAW...................................19
24. ATTORNEY'S FEES.........................................................20
25. NOTICE..................................................................20
26. ASSIGNMENT..............................................................20
27. TIME OF THE ESSENCE.....................................................21
28. WAIVER..................................................................21
29. BINDING AGREEMENT.......................................................21
30. SEVERABILITY............................................................22
31. ASSIGNMENT AND SUBCONTRACTING...........................................22
32. SURVIVAL................................................................22
33. AMENDMENTS..............................................................22
34. INDEPENDENT CONTRACTOR..................................................22
35. HEADINGS................................................................22
36. PUBLICITY...............................................................22
37. COUNTERPARTS............................................................23
38. NEGOTIATED AGREEMENT....................................................23
39. ENTIRE AGREEMENT........................................................23
40. CONFIDENTIALITY AND CONFIDENTIAL INFORMATION............................23
Table of Contents
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TABLE OF APPENDICES
APPENDIX A PLANS
APPENDIX B SPECIFICATIONS
APPENDIX C CHANGE ORDER FORM
APPENDIX D PRODUCTION SCHEDULE
APPENDIX E DESIGN DECISION SCHEDULE
APPENDIX F BILL OF SALE
APPENDIX G ACKNOWLEDGMENT OF DELIVERY
APPENDIX H FINITE ELEMENT ANALYSIS
APPENDIX I CLEARANCE DIAGRAM
Table of Appendices
Page 1
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RAILCAR CONSTRUCTION AGREEMENT
THIS RAILCAR CONSTRUCTION AGREEMENT ("AGREEMENT") is entered into
this _____ day of __________, 199__, by and between Rader Railcar II, Inc., a
Colorado corporation ("Rader") and First American Railways, Inc., a Florida
corporation ("FARI").
RECITALS:
A. Rader is engaged in the business of constructing specially
outfitted passenger railroad cars.
B. FARI is engaged in the business of providing rail services to
the public.
C. FARI desires to have Rader construct twelve (12) Railcars to
the Specifications set forth in this Agreement and to purchase such Railcars
from Rader on the terms set forth in this Agreement for use in FARI's rail
operations in Florida.
D. Rader desires to construct the Railcars for FARI and to sell
the Railcars to FARI on the terms set forth in this Agreement.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS
In addition to other defined terms contained in this
Agreement, the following definitions shall apply:
1.1 "AAA" has the meaning assigned in Section 8 hereof.
1.2 "ADA" means the Americans with Disabilities Act, as
amended.
1.3 APPLICABLE U.S. "STANDARDS" means those standards in
effect on the effective date hereof imposed on the Railcars by: (i) the
Association of American Railroads ("AAR"); (ii) the Federal Railroad
Administration; and (iii) the standard maintenance practices of AMTRAK (Sup No.
46617) for the overhaul of heavy passenger trucks.
1.4 "ARBITRATOR" shall have the meaning assigned in Section 8
hereof.
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1.5 "ARC" means ARC Group, Inc., which company has been
engaged by Rader to review engineering and design of the modification and
reconstruction specifications that Rader will implement with respect to the
Railcar.
1.6 "ARC REPORT" means the document to be prepared by ARC at
the request of Rader to review engineering and design of the modification and
reconstruction specifications that Rader will implement with respect to the
Railcar.
1.7 "CHANGE ORDER" means a change to the terms of this
Agreement or any appendix hereto effectuated in accordance with Section 11
hereof. The form approved by the parties to effect a Change Order is attached as
APPENDIX C.
"CLEARANCE DIAGRAM" means the clearance plate requirements imposed
by AMTRAK for railcar interchange service and operation. The drawings and/or
plans necessary for FARI to request approval for interchange service and
operation are attached as APPENDIX I.
1.9 "COMPLETE" whenever it appears in this Agreement or on
APPENDIX G shall refer to substantial completion without regard to whether the
term "SUBSTANTIAL" also appears, provided that the Railcars shall be
substantially complete and will be free from material cosmetic incompletion when
delivered in accordance with the terms hereof.
1.10 "COMPLETION COSTS" has the meaning assigned in Section
14.1(b) hereof.
1.11 "CONTRACT PRICE" shall have the meaning assigned in
Section 7.1 hereof.
1.12 "DAMAGES" has the meaning assigned in Section 14.1(b)
hereof.
1.13 "DELIVERY DATE" means the date agreed to by the parties
under Section 2 hereof.
1.14 "DISPUTE NOTICE" shall have the meaning assigned in
Section 7.2(f).
1.15 "EXPIRATION DATE" has the meaning assigned in Section 2
hereof.
1.16 "FORCE MAJEURE" shall have the meaning assigned in
Section 10.2 hereof.
1.17 "OTHER COSTS" has the meaning assigned in Section 14
hereof.
1.18 "OPERATING TRIALS" shall have the meaning assigned in
Section 9 of this Agreement.
1.19 "OWNER'S REPRESENTATIVE" shall have the meaning assigned
in Section 6 of this Agreement.
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1.20 "PAYMENT NOTICE" shall have the meaning assigned in
Section 7.2(e).
1.21 "PLANS" shall mean the general arrangement drawings and
plan documents attached hereto as APPENDIX A.
1.22 "PRODUCTION SCHEDULE" is the schedule for completion of
the Work to be agreed to by the parties in accordance with Section 2 hereof.
1.23 "RAILCARS" means the passenger railcars (denoted by car
numbers in Section 6 hereof) that Rader shall construct for and sell to FARI in
accordance with the terms of this Agreement.
1.24 "REFERENCE RATE" shall have the meaning assigned in
Section 7.2(g) hereof.
1.25 REIMBURSABLE COSTS" has the meaning assigned in Section
14.1(b) hereof.
1.26 "SPECIFICATIONS" shall mean a description of the
technical responsibilities of Rader and the specific technical and design
requirements to construct the Railcars for use by FARI in its business. The
Specifications are attached hereto as APPENDIX B. The Specifications also
include outlines and listings of Specifications pertaining to the furniture,
fixtures, equipment and fabrics that will be installed on or in the Railcars,
which Specifications have been or will be initialed and dated by each party
through their duly authorized representatives for incorporation into APPENDIX B.
The Specifications also include the Recommended Fire Safety Practices For Rail
Transit Material Selection which are attached hereto as a part of APPENDIX B.
1.27 "VENDOR PARTS" shall have the meaning assigned in Section
12.8(a).
1.28 "WORK" means all design services, fabrication,
supervision, assembly, labor, materials, systems, supplies, tools, equipment and
machinery provided by Rader and required to complete and deliver the Railcars in
accordance with the requirements set forth in this Agreement, the Plans and the
Specifications.
2. DELIVERY DATE; SCHEDULES
The Delivery Date for the Railcars shall be September 1, 1997
unless otherwise mutually agreed to by the parties hereto. The parties
acknowledge that they shall each execute this Agreement and, within thirty (30)
days after such execution, the parties shall mutually agree upon the Production
Schedule to be attached hereto as APPENDIX D and the Design Decision Schedule to
be attached hereto as APPENDIX E. Upon completion of such Schedules, such
Schedules shall be attached to this Agreement.
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3. SCOPE OF WORK
Rader shall construct the Railcars at one of its plants in the
Denver, Colorado area and will furnish all labor, materials, supplies and
equipment and perform all Work necessary to design, build, test, complete and
deliver the Railcars to FARI in accordance with the Plans and in accordance with
the Specifications. Rader will provide FARI with drawings and/or plans complying
with the Clearance Diagram to assist FARI in requesting approvals for
interchange service and operations on a timely basis as to permit such approvals
of the Railcars before or forthwith upon delivery.
4. GENERAL DESCRIPTION OF THE RAILCARS
4.1 PRIOR TO CONSTRUCTION. The Railcars will be existing
railcars, which are being extensively modified in accordance with the Plans and
Specifications, utilizing only the existing railcar lower level steel frame and
end collision posts. As and when called for in the Plans and Specifications,
Rader will inspect and take necessary steps to repair the existing railcar
structures to make them suitable for rebuilding in accordance with the Plans and
Specifications. As and when required by the Plans and Specifications, the
Railcar will be outfitted with new crossbearers, new sidesill members, rebuilt
trucks, new steel framework, new steel walls on both levels, and a glass and
steel dome for panoramic viewing. All installed components will be of new
materials.
4.2 AT COMPLETION. Three different models of Railcars are to
be constructed pursuant to the terms of this Agreement: (i) seven (7) full dome
car(s); (ii) four (4) bilevel car(s); and (iii) one (1) power/bag
car. In addition, two (2) locomotive modifications are being provided by Rader
under this Agreement.
(a) FULL DOME CARS. The seven (7) full dome cars will be
single-level cars with dome glass windows the full length of
the car. Each full dome car will have an 80 passenger capacity with food service
capability.
(b) BILEVEL CARS. The bilevel cars will consist of one
(1) dance/lounge car, one (1) video game car, one (1) gift
shop/lounge car, and one (1) show (theater) car.
(c) POWER/BAG CAR. The power/bag car will feature a
self-contained electrical generating system capable of serving the power
requirements of the entire train consist. A portion of the car will be allocated
to baggage storage.
(d) LOCOMOTIVE MODIFICATIONS. Modifications will be made
to two (2) locomotives to be leased by FARI. These modifications will consist of
a fiberglass shell to be attached to the locomotives to give the locomotives a
more streamlined appearance.
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(e) RAILCAR IDENTIFICATION. The individual Railcars and
the applicable plan for construction will be identified prior to construction.
5. INTERPRETATION
The general language of the Plans and Specifications is
intended to amplify, explain and implement the provisions of this Agreement. If
any language or provision of the Plans and Specifications is subject to an
interpretation inconsistent with the provisions of this Agreement or an
interpretation which would render this Agreement ambiguous, the terms of the
applicable provision of this Agreement shall control and shall be interpreted
without reference to the Plans and Specifications. The Plans and Specifications
explain each other such that anything in the Plans not in the Specifications or
anything in the Specifications not in the Plans shall be considered to be
embodied in both; however, in the event of a conflict between the Plans and
Specifications, the Specifications shall control.
6. OWNER'S REPRESENTATIVE
FARI shall have the right to appoint an owner's representative
(the "OWNER'S REPRESENTATIVE") to act as its representative throughout the
construction period of the Railcars. Rader will provide, without charge, office
space, computer, telephone and facsimile machine and reasonable access (i.e,
approximately 1 hour per day) to a typist, for one Owner's Representative at all
times during the construction period. For purposes of this Agreement the
construction period commences on the execution date of this Agreement and
continues until completion of the Operational Trials under Section 9 of this
Agreement. The construction of the Railcars and all materials and parts procured
by Rader for this purpose may be inspected by the Owner's Representative or any
other persons designated by FARI in writing at Rader's plant during normal
business hours. All inspections by such persons will be made in such a way that
the construction process is not hindered or delayed.
7. CONTRACT PRICE; TERMS OF PAYMENT AND CONDITIONS PRECEDENT
7.1 CONTRACT PRICE. The contract price for the performance of
all Work by Rader under this Agreement shall be $9,092,162 ("CONTRACT PRICE")
allocated as follows:
(a) FULL DOME CAR. The price for each of the seven (7)
full dome cars to be built for FARI pursuant to the terms of this Agreement is
$887,040 or $6,209,280 in the aggregate.
(b) BILEVEL CAR. The price for each of the two (2) lounge
bilevel cars to be built for FARI pursuant to the terms of this
Agreement is $498,960 or $997,920 in the aggregate. The price for each of the
video game and show cars is $554,400 or $1,108,800 in the aggregate.
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(c) POWER/BAG CAR. The price for the single power/baggage
car to be built for FARI pursuant to the terms of this Agreement is $498,960.
(d) LOCOMOTIVE MODIFICATION. The aggregate price for both
of the locomotive modifications to be furnished to FARI pursuant to this
Agreement is $277,200.
7.2 TERMS OF PAYMENT.
(a) DOWN PAYMENT. Upon execution of this Agreement by
FARI, FARI shall pay Rader the sum of $1,818,432 or 20% of the aggregate
Contract Price (as adjusted) described in Section 7.1 hereof, as an advance
payment on the Contract Price for the Railcars and locomotive modifications to
be constructed and purchased under this Agreement.
(b) PERIODIC PAYMENTS. Provided that each stage of the
Work for each Railcar as set out below has been performed and Payment Notice (as
hereinafter defined) has been delivered and not disputed in any material
respect, FARI shall be obligated to pay Rader thirteen (12) monthly installments
of $362,001 for full dome Railcars; $122,821 for the bilevel Railcars; $29,089
for the power/bag Railcar and $16,160 for locomotive modifications.
(c) PRODUCTION SCHEDULE. The schedules set out in
APPENDIX D set forth Work to be accomplished on each type of Railcar and the
date such work is to be accomplished. Further, APPENDIX D sets forth payment
schedules for each type of Railcar once Work detailed the Schedules is
accomplished.
(d) DESIGN DECISIONS. Subject to Section 2, APPENDIX E
sets forth design and/or material decisions to be made by FARI on each type of
Railcar and the dates by which such decisions must be finalized in order for
Rader to accomplish the Production Schedule set forth in the above mentioned
APPENDIX D. Any delays in design and/or material decisions by FARI shall extend,
day-for-day, delivery dates and dates for commencement of liquidated damages set
forth in Section 10 of this Agreement. If Rader has accomplished all Work as set
forth in APPENDIX D, except for items caused by delay in FARI meeting the
design/materials decision schedule as set forth in APPENDIX E, for purposes of
this Agreement all Work shall be considered performed by Rader and the scheduled
payments shall be due and payable in full by FARI. Late payments shall bear
interest as provided in Section 7.2(g) hereof.
(e) PAYMENT NOTICE. When all Work on each Railcar
specified to be accomplished as of such date has been performed, Rader will
provide FARI with written notice that the Work is performed (the "PAYMENT
NOTICE").
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(f) PAYMENT PROCEDURE. Within 24 hours of receipt of a
Payment Notice, FARI shall either accept the Payment Notice or convey to Rader
through written notification its disagreement as to the stage of Work identified
in the Payment Notice. If there is a continuing disagreement as to the Payment
Notice after Rader receives notification of disagreement, FARI shall submit in
writing, within 72 hours from receipt of Payment Notice, a notice ("DISPUTE
NOTICE") to the Arbitrator as described in Section 8 hereof, with a copy to
Rader, that it is disputing the Payment Notice pursuant to Section 8 hereof. If
FARI fails to submit the Dispute Notice to the Arbitrator within 72 hours of
receipt of the Payment Notice, FARI shall be deemed to have accepted the Payment
Notice at the end of such 72 hour period. If the Arbitrator finds that the Work
specified in the Payment Notice has been performed on the date of delivery of
the Payment Notice, FARI shall be deemed to have accepted the Payment Notice 24
hours after receiving the Payment Notice. If the Arbitrator finds that the Work
specified in the Payment Notice has not been performed on the date of delivery
of the Payment Notice, Rader shall, upon completion of the uncompleted Work
identified by the Arbitrator, deliver a further Payment Notice to FARI which
FARI may accept, dispute or resolve by submitting a Dispute Notice to the
Arbitrator. The making of a payment shall not be construed to be an agreement by
FARI that the applicable Work has been performed.
(g) PAYMENT DUE DATES. Payments shall be due and payable
before the close of banking in Denver, Colorado on the fourth (4th) day after
the date of acceptance or deemed acceptance of the Payment Notice and shall be
made by wire transfer in U.S. funds to an account designated in writing by
Rader. In the event a payment is not made when due, the delivery date for all
the Railcars specified in Section 9 hereof shall be extended one day for each
day payment is late. FARI shall pay interest on any late payment at a rate equal
to the higher of 12% per annum or the reference rate of Bank of America, N.A. &
S.A., plus 2% ("REFERENCE RATE"), in addition to any other remedy available to
Rader at law or in equity. Interest shall accrue at the Reference Rate beginning
on the day after payment is due and shall accrue at the effective Reference Rate
thereafter.
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(h) FINAL PAYMENT. Upon acceptance of the Railcars after
completion of the Operating Trials as described in Section 9 hereof, in
accordance with the terms hereof, FARI will pay Rader $89,059 for each of the
full dome cars and $50,096 for each of the lounge bilevel cars and $55,662 for
each of the game and show bilevel cars; in each case being an amount which,
together with amounts previously paid, equals the Contract Price for such
Railcar specified in Section 7.1 hereof. FARI shall also pay Rader $50,096 for
the power/bag car and $27,830 for locomotive modifications, which are to be
delivered to FARI with the Railcars. The amounts due upon acceptance shall be
reduced by any amounts owing by Rader as liquidated damages pursuant to Section
10 of this Agreement.
8. LIMITED ARBITRATION
8.1 DESIGNATION. For purposes of this Agreement, the
"ARBITRATOR" shall be appointed by mutual agreement of the parties within ten
(10) days after the parties are unable to resolve a dispute hereunder. If the
"Arbitrator" is unable or unwilling to serve at any time, the substitute
Arbitrator shall be assigned by mutual agreement of the parties. If the parties
are unable to mutually agree upon the appointment of an Arbitrator hereunder,
one shall be appointed by a court of competent jurisdiction as provided in
Section 23 hereof. Once an individual commences to act as Arbitrator with
respect to a dispute, he shall act as Arbitrator until resolution of that
dispute unless he becomes unable to continue in which case his next successor
shall act and the first act of a successor who replaces an acting Arbitrator
with respect to an ongoing dispute shall be to determine procedural rules with
respect to succession of future Arbitrators, if needed.
8.2 LIMITATION OF ISSUES SUBJECT TO ARBITRATION. The
arbitration provided for hereunder is not a general agreement by the parties to
submit all disputes under this Agreement to arbitration but is instead a limited
agreement to submit only one kind of issue to arbitration at the time the
dispute arises. The only matter subject to arbitration under this Agreement
shall be: whether or not the Work prerequisite to an installment progress
payment has been performed in accordance with Section 7.2 of this Agreement.
8.3 DETERMINATION. A determination by the Arbitrator that the
Work prerequisite to an installment progress payment has been performed as
provided for by Section 7.2 and the installment payment is due: (i) shall have
the legal effect of a judgment entered by a court of competent jurisdiction;
(ii) shall be the sole and exclusive remedy of the parties hereunder regarding
such issue; and (iii) shall be final and binding on the parties and not subject
to appeal or reconsideration. If after receiving such a ruling from the
Arbitrator and FARI still does not pay, then Rader may file such a decision or
award with the United States Federal District Court Clerk of Colorado (or other
court of competent jurisdiction) in Denver, Colorado, in which case it shall be
the basis for judgment and an order or execution or other appropriate action may
be issued for its enforcement and Rader may rely on such a decision to draw (if
not previously drawn by Rader) on the FARI letter of credit provided for by
Section 15 hereof or realize on its security interest provided for by Section 17
hereof or to exercise any
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other remedy it may have at law or in equity for breach by FARI of its duty to
make the installment payments provided for hereunder.
8.4 INITIATION. Arbitration of a matter subject to
arbitration hereunder shall be initiated by the Dispute Notice. The Arbitration
hearing or such fact or evidentiary submission shall be made as specified by the
Arbitrator no more than 96 hours after the Dispute Notice is effective under the
notice provision of Section 25 hereof.
8.5 COSTS. The Arbitrator shall have the power to allocate
and assess against a non-prevailing party costs and fees of arbitration
including the fees of the Arbitrator as the Arbitrator shall deem just and
equitable.
9. DELIVERY AND ACCEPTANCE-OPERATING TRIALS
9.1 NOTIFICATION. Approximately thirty (30) days prior to the
reasonably expected date for completion of construction, Rader will notify FARI
of the expected schedule for Operating Trials, delivery of the Railcars and the
reasonably estimated cost of delivery as herein set forth.
9.2 CONDUCT OF OPERATING TRIALS. Operating Trials shall
consist of demonstrating the reasonably satisfactory operation of: ride qualify,
air-conditioning and heating systems, airbrake and handbrake systems, coupling
of Railcars, electrical and lighting systems, plumbing systems, doors and entry
ways, a demonstration pull on track, weighing of Railcars and trucks and testing
for water leakage.
9.3 COMPLETION. Upon completion of the Operating Trials FARI
shall make the payments as per Section 7.2 hereof. FARI shall be obligated: (1)
to pay Rader the remaining balance of the Contract Price for each
Railcar and locomotive modifications as set out in Section 7.2; (2) to pay
balances due on any outstanding Change Orders and (3) to accept delivery of the
Railcars when tendered for delivery in the State of Florida.
9.4 DELIVERY. Following performance by FARI of its
obligations to be performed prior to delivery and after completion of Operating
Trials, Rader will arrange for towage of the cars to Florida for delivery and
FARI will reimburse Rader for all reasonable transportation and insurance costs
related to moving the Railcars from Denver to Fort Lauderdale, Florida. Should
another delivery point be identified by FARI, other than Fort Lauderdale, which
would not put Rader at risk for collection and/or payment of sales or use or
similar taxes, Rader will not unreasonably oppose such alternate delivery point
provided FARI agrees to pay for all such delivery and insurance costs and any
related sales, use or similar tax (including interest and penalties) that may
arise.
9.5 INDEMNITY. FARI agrees to indemnify, defend, and hold
Rader harmless from and against the payment of any and all sales, use, or
similar taxes as well as related penalties and interest at any
delivery point selected by Rader or FARI.
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9.6 DOCUMENTATION. Delivery shall occur when the Railcars are
located in Florida pursuant to towage arrangements as provided for upon delivery
of a bill of sale and such other documents as are reasonably required to
transfer title to the purchased Railcars being delivered to FARI. At delivery
FARI will execute a document acknowledging delivery of the Railcars in the form
attached hereto as APPENDIX G. Contemporaneously with delivery, FARI will
release its security interests in the Railcars being delivered and title to the
Railcars at delivery shall be free and clear of any liens and encumbrances other
than Rader's security interest which shall terminate only when the Contract
Price is paid in full in accordance with this Agreement. Rader will also
surrender the letter of credit provided for by Section 15 hereof when the
Contract Price is paid in full in accordance with this Agreement. Delivery and
transfer of documents shall be accomplished at such location in Florida as is
reasonably designated by Rader or other mutually agreed upon location.
9.7 TITLE AND RISK OF LOSS. Title and risk of loss to the
Railcars shall pass from Rader to FARI at the time Rader delivers the Railcars
to a Class 1 railroad in Florida.
9.8 INTERCHANGE REQUIREMENTS. For all purposes under this
Agreement, the approval by any Class 1 Railroad to move the Railcars in
interchange service shall be deemed to constitute compliance with interchange
requirements.
10. LIQUIDATED DAMAGES AND FORCE MAJEURE CLAIMS
10.1 LIQUIDATED DAMAGES. Subject to the provisions of this
Section 10, Rader has agreed to complete construction and Operating Trials for
the Railcars according to the Production Schedule attached as APPENDIX D.
Subject to the provisions of this Section 10, Rader agrees to pay as liquidated
damages on a per Railcar basis, for any delay, and not as a penalty, $500 with
respect to each day of delay or part thereof beginning with 15 days after
Delivery Date as scheduled in APPENDIX D.
10.2 FORCE MAJEURE. Upon of occurrence of a force majeure
("FORCE MAJEURE") event, the date for commencement of the daily liquidated
damages amount shall be extended for each day the Force Majeure event causes
delay in delivery of the Railcars. In the event of such occurrence, Rader shall
notify FARI of the occurrence as promptly as possible and furnish an estimate of
the period of time which delivery will be delayed as a consequence of the
occurrence of such event. A Force Majeure event shall be any event or occurrence
beyond the control of Rader which has the effect of delaying performance of
Rader's obligations hereunder and shall include, but not be limited to, war
(including undeclared conflicts, police actions and revolutions), sabotage,
strikes, labor disputes of any nature, governmental action, interruption of the
transportation, banking or financial system, and shall include weather or other
local conditions that have the effect of delaying completion of Operating Trials
or delay in the delivery of the Railcars provided that no such event shall
constitute a Force Majeure event if it could be avoided by reasonable prudence
of Rader, or could be rectified or terminated by the reasonable efforts of
Rader, acting in good faith.
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10.3 DELAY IN APPLYING LIQUIDATED DAMAGES. The dates for
commencement of operation of the liquidated damages amount shall be further
extended by one (1) day for each day by which there are delays on the part of
FARI in meeting the payment schedule set forth in Section 7 and shall be further
extended by one (1) day for each day FARI is in default in delivering an
additional letter of credit to replace any funds drawn down by Rader under the
letter of credit described in Section 15 hereof and shall be further extended by
one (1) day for each day FARI delays design or material selection as required
under APPENDIX E.
11. CHANGE ORDERS
11.1 AUTHORIZED PARTIES. Changes to this Agreement or the
Plans and Specifications may be requested by either party in accordance with
this section; however, such changes shall be effective only when incorporated in
a written document executed on behalf of both parties specifying the change to
be effected in sufficient detail, the effect of the change on the Delivery Date
and the Contract Price, and the timing of payment of any increase, or credit in
respect of and decrease to the Contract Price. A written change may be executed
only:
On behalf of Rader, by: Authority
Thomas G. Rader, President Unlimited
On behalf of FARI, by:
----------------------------- $------------
----------------------------- $------------
----------------------------- $------------
11.2 PROCEDURE. Oral directions, agreements or other
attempted modifications shall be ineffective to modify the obligations of the
parties hereto even if they would otherwise amount to effective amendments to
this Agreement at law. A written agreement which does not bear the signatures of
one of the above mentioned authorities of both Rader and FARI shall be
ineffective. Either of the parties may change the person authorized to execute
Change Orders by written directive executed by an authorized officer and
delivered to the other party under Section 25. The form of the Change Order to
be used is attached as APPENDIX C.
11.3 COST OF CHANGES. Rader shall determine the cost of
changes based on the incremental direct costs of materials and labor, plus 200%
of such incremental direct labor costs to cover overhead expenses and 25% of
such incremental direct material and labor costs for profit.
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12. WARRANTY
12.1 MATERIALS AND WORKMANSHIP. Subject to Section 12.5,
Rader warrants that the Railcars, at the time of delivery by Rader, shall be
free from:
(a) Material defects in material, components, and
workmanship.
(b) Material defects arising from failure to conform
to the Plans and Specifications, except as to
portions thereof stated to be estimates or
approximations or stated to be design objectives.
12.2 RIDE QUALITY. Subject to Section 12.5, Rader warrants
that at completion of the Operating Trials in accordance with Section 9, the
Railcars will have a ride quality and comfort level equivalent to Princess Tours
Ultra Dome cars. By acceptance of any Railcar at Operating Trials, FARI agrees
that the Railcars comply with this warranty for all purposes under this
Agreement.
12.3 ENGINEERING AND DESIGN WARRANTY. Railcars shall meet the
Applicable U.S. Standards. All electrical work shall conform to applicable
sections in effect as of date of this Agreement of the NEC and with AMTRAK
standards for passenger railcar electrical systems. All welding shall conform to
applicable recommendations of AWS. Noise levels shall be equivalent to Princess
Tours Ultra Dome cars. Car shall comply with ADA regulations in effect as of
date of this Agreement for trains not requiring access to services in other
cars.
Changes in above mentioned Applicable U.S. Standards
after the date of signing this Agreement and during the construction period
which require design or construction modifications will be incorporated into the
construction process through the Change Order process detailed in Section 11.
ARC will have performed a Finite Element Analysis of the
proposed structure for construction of the Full Dome Car and a Finite Element
Analysis of the Collision Posts of the Full Dome and Bilevel cars and will have
rendered an opinion in substantially the form attached hereto as APPENDIX H.
12.4 REGULATORY COMPLIANCE. Rader warrants that the Railcar
shall be constructed in accordance with the Applicable U.S. Standards and shall
comply with the interchange requirements of Class 1 railroads provided by the
AAR.
12.5 WARRANTY PERIOD. The warranty provided by Rader
hereunder shall be applicable solely to defects which occur or become apparent
to FARI within a period three hundred and sixty-five (365) days following
delivery and acceptance of the Railcars by FARI. This warranty will include all
material and labor costs required to correct the defect. With respect to defects
which occur or come to the attention of FARI on or after the three hundred and
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sixty-sixth (366) day following delivery and acceptance of the Railcars under
this Agreement, responsibility for such defects shall rest solely with FARI and
FARI hereby releases Rader from any and all liability associated therewith and
does further agree to defend, indemnify, and hold Rader harmless and hereby
releases Rader from any liability related thereto and indemnifies Rader from any
and all liabilities and costs (including legal and attorney's fees) associated
therewith.
(a) NO REMOVAL OF SYSTEM FROM SERVICE. If any installed
system on a Railcar is defective and the Railcar is not removed from service,
the warranty on such system will be extended by one (1) day for each day during
the warranty period in excess of 10 cumulative days that such system is out of
service;
(b) REMOVAL FROM SERVICE. If any Railcar is removed from
service as a result of a defect, the warranty for such Railcar shall be extended
1 day for each day during the warranty period in excess of 5 cumulative days
that such Railcar is out of service;
(c) TIME PERIOD. In each case described in Section
12.5(a) or (b), for other than regularly scheduled maintenance, the number of
days removed from service will be calculated from the date written notice of
defect is received by Rader until the date such defect is rectified so as to be
fit to return to service, regardless of whether such Railcar is actually
returned to service.
12.6 NOTICE OF CLAIM -- BREACH OF WARRANTY. In the event of
claim, defect or damage for which Rader would be liable under the terms of this
Agreement, FARI shall notify Rader within 48 hours after FARI learns of such
defect, claim, or damage except that in all events FARI shall be obligated to
notify Rader of such an event in writing not later than seven (7) consecutive
days after its discovery by FARI. This notification is to be made by FAX
transmission and is to be followed by a written warranty claim within fifteen
(15) consecutive days of initial notification. Rader shall have fifteen (15)
consecutive days from receipt of written notice of claim to respond in writing,
either denying or accepting financial responsibility for such claim. In the
event that Rader refuses to accept financial responsibility for such claim made
by FARI with respect to the Railcars, FARI may commence litigation. If any
litigation is not commenced by FARI within one (1) year of the date on which
notice of such rejection is received, such litigation shall be barred forever
and any remedy at law or in equity which FARI or any of its affiliates might
have shall be deemed released, waived and terminated. This Agreement strictly
establishes the time periods within which claims for breach of warranties may be
brought by FARI under this Agreement.
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12.7 EXTERIOR DIMENSIONS. Rader does not represent, warrant,
or covenant (either expressly or implied) that the exterior dimensions of the
Railcars, as provided for by the Plans and Specifications, permit operation on
the rail track system to be used by FARI including tunnels, structures, and
repair and maintenance facilities, but does warrant that the exterior dimensions
of the Railcars, as built, will not exceed the exterior dimensions set out in
the Clearance Diagram attached as APPENDIX I.
12.8 THIRD PARTY WARRANTIES.
(a) VENDOR PARTS. Rader has made or shall make
reasonable efforts to obtain standard manufacturers' warranties from third party
manufacturers with respect to components, parts, and materials supplied by such
manufacturers ("VENDOR PARTS") and to the extent obtained will assign to the
extent lawfully permitted such warranties to FARI at the expiry of the warranty
period provided for by this Section 12.
(b) WARRANTIES. The warranties and all other terms and
conditions of this Section 12 shall apply to Vendor Parts for 365 days following
delivery and acceptance as if the Vendor Parts had been manufactured by Rader,
and FARI will cooperate with Rader in pursuing remedies against manufacturers of
Vendor Parts under the warranties assigned to FARI pursuant to the foregoing
paragraph, provided that Rader's obligations with respect to Vendor Parts under
this Section 12 shall be independent of the performance by the manufacturers of
Vendor Parts of any obligations under applicable warranties.
12.9 PAYMENTS TO VENDORS. Rader will indemnify and hold
harmless FARI against any and all claims from vendors supplying materials, parts
or labor relating to the construction of Railcars under this Agreement.
12.10 CONSEQUENTIAL DAMAGES PRECLUDED. Rader's sole
obligation to FARI with respect to the warranties provided for hereunder shall
be to repair or replace defective parts or components. FARI shall notify Rader
of any warranty repair needed. If Rader cannot perform the required work within
a reasonable time period under the circumstances, FARI may proceed to repair or
replace the parts or components at Rader's expense in a reasonable economic
manner and be reimbursed by Rader within 30 days for all reasonable direct
material and labor costs for such repair or replacement, subject to such works
being a valid warranty claim, under the circumstances.
Notwithstanding anything contained in this Agreement, Rader
shall have no liability or responsibility other than as specifically set forth
herein, and without limitation, Rader shall have no liability or responsibility
for breach of warranty (express or implied) except as expressly set forth in
this Agreement or for consequential or punitive damages, that is, any claim for
damage other than repair or replacement of defective parts or components.
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12.11 WARRANTY LIMITATION. THE FOREGOING EXPRESS LIMITED
WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED AND ALL OTHER
WARRANTY OR OTHER CONTRACTUAL OBLIGATION IS EXPRESSLY EXCLUDED. SUCH EXCLUSION
SHALL BE APPLICABLE GENERALLY AND SPECIFICALLY TO IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE (except for the express
warranty set forth above).
13. DEFAULT.
13.1 DEFAULT BY RADER. During the term of this Agreement, the
occurrence of one or more of the following events (after applicable notice and
cure has expired) shall be deemed an "EVENT OF DEFAULT" by Rader:
(a) MATERIAL DEFAULT. Rader shall default in any material
respect in the observance or performance of any covenant, condition or
obligation of Rader contained herein, including: Rader's failure to perform the
Work in a skilled and expeditious manner; the failure of the Railcar to meet any
warranty obligation provided herein; and if such Event of Default continues for
thirty (30) days after written notice to Rader specifying the Event of Default
and demanding that the same be remedied; provided, however, that such thirty
(30) day period shall be extended provided Rader has commenced and is diligently
pursuing such cure;
(b) BANKRUPTCY. Rader shall: (i) file a petition
commencing a voluntary bankruptcy or similar proceeding under any applicable
bankruptcy or similar law, (ii) be declared bankrupt or insolvent under any law
relating to bankruptcy, or (iii) admit in writing its inability to pay its debts
as they become due; or
(c) RECEIVER. A custodian, receiver, trustee or
liquidator shall be appointed in any proceeding brought against Rader and shall
not be discharged within ninety (90) days after such appointment.
13.2 DEFAULT BY FARI. During the term of this Agreement, the
occurrence of one or more of the following events (after applicable notice and
cure has expired) shall be deemed an "EVENT OF DEFAULT" as to FARI:
(a) MATERIAL DEFAULT. FARI shall default in any material
respect in the observance or performance of any other covenant, condition or
obligation of FARI contained herein, and if such Event of Default continues for
thirty (30) days after written notice to FARI specifying the default and
demanding that the same be remedied; provided, however, that such thirty (30)
day period shall be extended provided FARI has commenced and is diligently
pursuing such cure;
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(b) BANKRUPTCY. FARI shall: (i) file a petition
commencing a voluntary bankruptcy or similar proceeding under any applicable
bankruptcy or similar law, (ii) be declared bankrupt or insolvent under any law
relating to bankruptcy, or (iii) admit in writing its inability to pay its debts
as they become due; or
(c) RECEIVER. A custodian, receiver, trustee or
liquidator shall be appointed in any proceeding brought against FARI and shall
not be discharged within ninety (90) days after such appointment.
14. REMEDIES.
14.1 REMEDIES OF FARI. Upon the occurrence of an Event of
Default by Rader, which is not cured, FARI may:
(a) PENALTY. Continue to rely on the liquidated damages
provision set forth in Section 10 above.
(b) FORECLOSE. Exercise its rights under Section 16.2
hereof.
(c) COMPLETE CAR. Rader shall transfer, and FARI shall
accept title to an unfinished Railcar and FARI shall complete construction of
the Railcar and Rader shall pay to FARI: (i) any and all costs of completing the
Railcar ("COMPLETION COSTS"); plus (ii) $100,000 US representing complete
payment and satisfaction of any and all damages arising as a result of Rader's
failure to complete the renovation of the Railcar (the "DAMAGES"); plus (iii)
any and all costs associated with enforcing FARI's rights hereunder, including
reasonable attorneys' fees and court costs ("OTHER COSTS"). The above Completion
Costs, Damages and Other Costs shall collectively be referred to as the
"REIMBURSABLE COSTS," and in no event shall such Reimbursable Costs exceed more
than $150,000 per unfinished Railcar.
14.2 REMEDIES OF RADER. Upon the occurrence of an Event of
Default by FARI, which is not cured, Rader may:
(a) TERMINATION. Terminate this Agreement by written
notice to FARI, and recover from FARI any damages proximately
caused by the FARI default, including the profit earned by Rader prior to the
FARI default.
(b) FORECLOSE. Exercise its rights under Sections 16.3,
16.4 and Section 17 hereof.
(c) REMEDIES NOT EXCLUSIVE. Rader's remedies set forth in
this Section 14.2 shall not be exclusive, but shall be cumulative and may be
exercised
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concurrently or consecutively, and shall be in addition to all other
remedies Rader may have under this Agreement or provided by law.
14.3 DELAYS DUE TO FORCE MAJEURE. Rader shall be granted an
extension of time, without incurring delay penalties, to deliver the Railcar
should the delay be the result of Force Majeure as defined in Section 10.2
hereof.
15. FARI STANDBY LETTER OF CREDIT
15.1 POSTING OF LETTER OF CREDIT. Within five (5) business
days after signing this Agreement, FARI will furnish to Rader a clean
irrevocable standby letter of credit for the sum of $2,000,000, in form
satisfactory to Rader's legal counsel, in favor of Rader, payable at the counter
of Norwest Bank, N.A., in Denver, Colorado, USA, or other financial institution
acceptable to Rader having an expiration date of December 31, 1997 or a date 30
days later than the date of the letter of credit, whichever is later. At any
time Rader draws on the letter of credit provided hereunder, on the day
following the day on which the draw occurs, FARI will deliver to Rader a new
additional clean irrevocable standby letter of credit in the amount of the draw
which additional letter of credit shall be in the same form as the letter of
credit provided for herein.
15.2 DRAW PROCEDURE. In the event of a default by FARI that
has not been timely cured, Rader may draw on the letter of credit for the entire
amount of any unpaid amount due Rader under this Agreement plus
interest as provided for by Section 7.2.
15.3 ISSUING BANK. Norwest Bank N.A. of Denver, Colorado, or
other financial institution acceptable to Rader shall be the issuing or
negotiating bank and is authorized to reimburse itself for drawings by debiting
the account of the issuing bank with Norwest Bank of Denver, Colorado, or other
financial institution acceptable to Rader.
15.4 PAYMENT UNDER LETTER OF CREDIT. The letter of credit is
to be payable immediately and without further condition against presentation of
a draft drawn on Norwest Bank N.A. or other financial institution acceptable to
Rader in the amount of the draw and a certificate executed on behalf of Rader by
a person authorized to execute such a certificate that FARI is in default under
this Agreement, such default has not been timely cured and the amount that Rader
desires to draw.
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16. FARI'S SECURITY INTEREST.
16.1 GRANT. Rader hereby grants FARI a security interest
under Article 9 of the Uniform Commercial Code as adopted in the State of
Colorado or other applicable law in and to the Railcars, work in process,
and all goods and materials identified to performance of this contract and in
addition in and to all Plans and Specifications for the Railcars to secure
Rader's performance under this Agreement.
16.2 RIGHTS UPON DEFAULT BY RADER. In the event of default,
FARI shall have all the rights of a secured party under the Uniform Commercial
Code including but not limited to the right to sell the collateral at a private
sale to be held on thirty (30) days notice under Section 25 hereof at which
private sale, FARI may be the purchaser EXCEPT THAT in the event of realization
on such security interest by FARI, FARI's right as a secured party and the right
of any successor in interest whether by private sale or sale following a
judicial foreclosure to use the Plans and Specifications for the Railcars shall
be limited to the right to use such Plans and specifications for the sole
purpose of completing the Railcars which are the subject matter of this
Agreement and not for the purpose of constructing other Railcars.
16.3 BREACH BY FARI. In the event of breach by FARI of its
obligations under this Agreement, this security interest shall terminate and
FARI shall upon demand by Rader execute appropriate security interest
termination documents.
16.4 TERMINATION. FARI's security interest shall terminate
upon delivery of the Railcars in accordance with Section 9 hereof.
17. RADER'S SECURITY INTEREST.
17.1 GRANT. FARI hereby grants Rader a security interest
under Article 9 of the Uniform Commercial Code as adopted in the State of
Colorado or other applicable law in and to any interest FARI may have in
the Railcars, work in process and all goods, components, and materials
identified to performance of this Agreement. Such security interest shall secure
FARI's performance of its obligations under this Agreement including but not
limited to its duty to make payments on account of the Purchase Price when due.
17.2 RIGHT UPON DEFAULT BY FARI. In the event of default by
FARI, Rader shall have all of the rights of a secured party under the Uniform
Commercial Code as in effect in the State of Colorado
including but not limited to the right of private sale to be held on thirty (30)
days notice hereunder at which private sale, at which private sale Rader may be
the purchaser.
17.3 BREACH BY RADER. In the event of breach by Rader of its
obligations under this Agreement, this security interest shall terminate and
Rader shall upon demand by FARI execute appropriate security interest
termination documents.
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17.4 TERMINATION. Rader's security interest shall terminate
when the Purchase Price is paid in full as described in Section 9 hereof.
18. REPRESENTATIONS.
18.1 BY FARI. FARI represents to Rader, the following:
(a) AUTHORITY. FARI has all necessary power and
authority to execute, deliver and perform its obligations under this Agreement,
and each of the execution, delivery and performance by FARI of this Agreement
has been duly authorized by all necessary action on the part of FARI and
requires no additional consent to be effective.
(b) BINDING. This Agreement constitutes a legal, valid
and binding obligation of FARI enforceable against it in accordance with its
terms except to the extent that enforcement thereof may be limited by applicable
bankruptcy, reorganization, insolvency or moratorium laws affecting the
enforcement of creditors' rights or by the principles governing the availability
of equitable remedies.
18.2 BY RADER. Rader represents to FARI, the following:
(a) AUTHORITY. Rader has all necessary power and
authority to execute, deliver and perform its obligations under this Agreement,
and each of the execution, delivery and performance by Rader of this Agreement
has been duly authorized by all necessary action on the part of Rader and
requires no additional consent to be effective.
(b) BINDING. This Agreement constitutes a legal, valid
and binding obligation of Rader enforceable against it in accordance with its
terms except to the extent that enforcement thereof may be limited by applicable
bankruptcy, reorganization, insolvency or moratorium laws affecting the
enforcement of creditors' rights or by the principles governing the availability
of equitable remedies.
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(c) MECHANICS LIENS. Rader shall obtain supplier lien
releases from all suppliers with cumulative invoices of $50,000 US or greater
related to the Railcar. In the event a lien is filed against the Railcar, Rader
shall be required to notify FARI of such filing and endeavor to take such steps
to remove such lien prior to the Delivery Date. Prior to the Delivery Date,
Rader represents and warrants to FARI to deliver the Railcar to FARI free and
clear from any and all mechanic's liens.
19. CURRENCY.
All references to currency in the Agreement are to be
considered as stated in US dollars.
20. INSURANCE.
Rader will purchase and maintain a builders all risk
insurance policy on the Railcars in an amount at least equal to the cumulative
amount of payments received from FARI hereunder at any time. Rader shall provide
FARI with a true, correct, and complete copy of the binder for such insurance
policy. In the event of a loss to the Railcars of any nature, Rader may elect to
apply any amount received on account of such insurance policy to construction of
the Railcars and performance of Rader's obligations hereunder in which case this
Agreement shall continue in force or in the alternative, Rader may elect to pay
over to FARI the amount received on account of such insurance policy up to the
total amount of payments received from FARI hereunder, less any amount necessary
to compensate Rader for any materials, parts or work-in-process costs relating
to this Agreement in excess of the aggregate amount of payments received from
FARI since the most recent payment, and to terminate this Agreement in which
case neither FARI nor Rader shall have any other or further obligation to the
other hereunder. FARI may request to receive the amount received on account of
such insurance policy up to the amount of payments received by Rader from FARI,
less any amount necessary to compensate Rader for any materials, parts or
work-in-process costs relating to this Agreement in excess of the aggregate
amount of payments received from FARI since the most recent payment, in which
case if such request is approved by Rader neither FARI nor Rader shall have any
other or further obligation to the other hereunder.
21. TAX LIABILITY.
Payments on account of the Contract Price hereunder shall be
due in full on the dates specified without regard to claims or offsets and the
amount of such payments shall be increased by any sales (State or Federal), use,
value-added or import duty tax liabilities levied on or collected by Rader based
on receipt of the gross amount of the payment or on the transaction contemplated
by this Agreement. The Railcars are not intended to be operated in Colorado and
are to be delivered in Florida for use by FARI in tourist rail operations. FARI
agrees to defend, indemnify, and hold Rader harmless against the payment of any
and all sales (State or Federal), use, value added, import duties or similar
taxes as well as related penalties and interest at any delivery point selected
by Rader and FARI. Should the payment of any of the foregoing taxes be
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required to be paid by Rader as a result of changes in the law after the signing
of the Agreement, FARI agrees to reimburse Rader, in full, in advance of the
payment of such taxes by Rader.
22. PATENTS, TRADEMARKS, TRADE SECRETS AND COPYRIGHTS.
The parties acknowledge that all property rights (including,
but not limited to, patents, trademarks, trade secrets and copyrights) related
to the Railcar as described in the Specifications and any drawings, designs and
other intellectual property rights associated therewith are retained by and
remain the sole property of Rader.
23. JURISDICTION, VENUE AND GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
Colorado other than choice of law rules of that jurisdiction which shall not be
applicable. In the event of litigation, such litigation shall be laid only in
the United States Federal District Court of Colorado at Denver. Jurisdiction in
the event of such litigation may be obtained by service of process in accordance
with applicable court and statutory rules or by thirty (30) days written notice
under the notice provision of this Agreement.
24. ATTORNEY'S FEES.
In the event of litigation arising as a consequence of this
Agreement or the transactions contemplated hereby, the prevailing party shall be
entitled to recover, in addition to other relief available at law or equity, all
allowable costs and reasonable legal and attorney's fees.
25. NOTICE.
Notice hereunder shall be in writing and shall be effective
no later than actual receipt by the party to be notified. Notice may be by any
method reasonably calculated to inform, including deposit in the United States
mail, certified mail, return receipt requested adequate postage prepaid, FAX, or
overnight courier, and properly addressed as follows:
To FARI:
FIRST AMERICAN RAILWAYS, INC.
201 South Biscayne Boulevard, Suite 1402
Miami, Florida 33131
FAX: (305) 565-5144
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To Rader:
RADER RAILCAR II, INC.
10525 E. 40th Avenue, Suite 207
Denver, Colorado 80239
Attention: Mr. Thomas G. Rader
FAX: (303) 375-1895
Notice by mail shall be deemed to be received on the fifth
(5th) business day following deposit in the mail as specified. Notice by FAX
which is received prior to 10:00 A.M. EDT on any weekday which is not a banking
holiday at the place of receipt shall be effective on the date received. Any
other notice by FAX shall be effective at 10:00 A.M. EDT on the first weekday
which is not a banking holiday at the place of receipt following the day on
which such FAX is received.
26. ASSIGNMENT.
Except as expressly provided in this Section, FARI may not
assign its rights or benefits under this Agreement. FARI may, otherwise at any
time with the prior written approval of Rader, such approval not to be
unreasonably withheld (and for the purposes of such approval, Rader may exact
evidence of any proposed assignee's financial capacity to meet FARI's
obligations under this Agreement) assign all (but not less than all) of its
rights and benefits under this Agreement to any person if:
(A) Rader is given thirty (30) days prior written notice of
the proposed assignment; and
(B) the assignee delivers to Rader an instrument in writing
executed by the assignee confirming that it is bound by
and shall perform all of the obligations of FARI under
this Agreement as if it were an original signatory;
provided that no assignment shall relieve FARI of its obligations under this
Agreement. In the event of an assignment contemplated above, any reference in
this Agreement to "FARI" shall be deemed to include the assignee.
27. TIME OF THE ESSENCE.
Time is of the essence of this Agreement.
-22-
<PAGE>
28. WAIVER.
Except as expressly provided in this Agreement, no amendment,
waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any provision of this
Agreement shall constitute a waiver of any other provision nor shall any waiver
of any provision of this Agreement constitute a continuing waiver unless
otherwise expressly provided.
29. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be binding
upon the undersigned and their respective legal representatives, successors and
assigns. Whenever in this Agreement a reference to any party is made, such
reference shall be deemed to include a reference to the legal representatives,
successors, and assigns of such party.
30. SEVERABILITY.
The remainder hereof shall not be voided or otherwise
affected by the invalidity of one or more of the terms herein.
31. ASSIGNMENT AND SUBCONTRACTING.
Except as permitted pursuant to this Agreement, neither party
shall assign, subcontract or otherwise delegate any of its rights or obligations
hereunder without the prior written consent of the other party hereto.
32. SURVIVAL.
All warranties, indemnities, intellectual property and
confidentiality rights and obligations provided herein shall survive the
termination, completion or cancellation hereof.
33. AMENDMENTS.
No amendment, modification or waiver of any term hereof shall
be effective unless set forth in a writing signed by FARI and Rader.
34. INDEPENDENT CONTRACTOR.
Rader is an independent contractor for all purposes hereof.
The contract evidenced by this Agreement is not intended to be one of hiring
under the provisions of any workers' compensation or other laws and shall not be
so construed.
35. HEADINGS.
-23-
<PAGE>
Headings contained herein are inserted for convenience and
shall have no effect on the interpretation or construction hereof.
36. PUBLICITY.
Each party agrees that no information relative to this
Agreement shall be released for publication, advertising or any other purpose
without the other party's prior written consent.
37. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which when taken together
shall constitute one and the same document.
38. NEGOTIATED AGREEMENT.
This Agreement represents the negotiated agreement of both
parties and shall not be construed against the drafting party.
39. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the
parties with respect to the subject matter herein and supersedes any prior or
contemporaneous agreement or understanding between the parties. No course of
dealing, no usage of trade and no course of performance shall be used to
supplement or explain any term, condition or instruction herein, nor be deemed
to effect any amendment.
40. CONFIDENTIALITY AND CONFIDENTIAL INFORMATION.
This Agreement and the terms and conditions herein are
considered confidential. Neither party hereto shall disclose this Agreement or
its terms to any third party except: (i) their respective accountants, attorneys
or banking and lending institutions; or (ii) pursuant to court order or other
legal process.
-24-
<PAGE>
DATED this _____ day of __________, 199__.
RADER RAILCAR II, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
FIRST AMERICAN RAILWAYS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-25-
<PAGE>
APPENDIX A
PLANS
Appendix A
Page 1
<PAGE>
APPENDIX B
SPECIFICATIONS
Appendix B
Page 1
<PAGE>
APPENDIX C
CHANGE ORDER FORM
Appendix C
Page 1
<PAGE>
APPENDIX D
PRODUCTION SCHEDULE
Appendix D
Page 1
<PAGE>
APPENDIX E
DESIGN DECISION SCHEDULE
Appendix E
Page 1
<PAGE>
APPENDIX F
BILL OF SALE
Appendix F
Page 1
<PAGE>
APPENDIX G
ACKNOWLEDGMENT OF DELIVERY
Appendix G
Page 1
<PAGE>
APPENDIX H
FINITE ELEMENT ANALYSIS
Appendix H
Page 1
<PAGE>
APPENDIX I
CLEARANCE DIAGRAM
Appendix I
Page 1
EXHIBIT 10.9
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this 26th day of April,
1996, by and between First American Railways, Inc. and its successor by merger
or consolidation (the "Company"), and Capital Growth International, LLC (the
"Consultant").
In consideration of and for the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. PURPOSE. The Company hereby retains the Consultant during the term
specified in SECTION 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters, upon the terms and
conditions as set forth herein.
2. TERM. Subject to the provisions of SECTIONS 8, 9 and 10 hereof, this
Agreement shall be effective for a period of twenty four (24) months commencing
the date
hereof.
3. DUTIES OF CONSULTANT. During the term of this Agreement, the
Consultant will provide the Company with such regular and customary consulting
advice as is reasonably requested by the Company, provided that the Consultant
shall not be required to undertake duties not reasonably within the scope of the
consulting advisory service contemplated by this Agreement. In performance of
these duties, the Consultant shall provide the Company with the benefits of its
best judgment and efforts. It is understood and acknowledged by the parties that
the value of the Consultant's advice is not measurable in any quantitative
manner, and that the Consultant shall be obligated to render advice, upon the
request of the Company, in good faith, but shall not be obligated to spend any
specific amount of time in doing so. The Consultant's duties may include, but
will not necessarily be limited to:
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company to the investment
community at large under a systematic planned approach.
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press releases.
C. Arranging, on behalf of the Company and its representatives, at
appropriate times, meetings with securities analysts of major regional
investment banking firms.
<PAGE>
D. Assisting in the Company's financial public relations,
including discussions between the Company and the financial community.
E. Rendering advice with regard to internal operations, including:
(1) advice regarding the formation of corporate goals and their
implementation;
(2) advice regarding the financial structure of the Company and
its future divisions or subsidiaries, if any, or any programs and
projects of such entities;
(3) advice concerning the securing, when necessary and if
possible, of additional financing through banks, insurance
companies and/or other institutions; and
(4) advice regarding corporate organization and personnel.
F. Rendering advice with respect to any acquisition program of the
Company.
G. Rendering advice regarding a future public or private offering
of securities of the Company or of any future subsidiary.
4. RELATIONSHIPS WITH OTHERS. The Company acknowledges that the
Consultant and its affiliates are in the business of providing financial service
and consulting advice (of all types contemplated by this Agreement) to others.
Nothing herein contained shall be construed to limit or restrict the Consultant
or its affiliates from rendering such services or advice to others.
5. CONSULTANT'S LIABILITY. In the absence of gross negligence or
willful misconduct on the part of the Consultant or the Consultant's breach of
this Agreement, the Consultant shall not be liable to the Company, or to any
officer, director, employee, shareholder or creditor of the Company, for any act
or omission in the course of or in connection with the rendering or providing of
advice or services hereunder. Except in those cases where the gross negligence
or misconduct of the Consultant or the breach by the Consultant of this
Agreement is alleged and proven, the Company agrees to defend, indemnify and
hold the Consultant harmless from and against any and all reasonable costs,
expenses and liability (including, but not limited to, attorneys' fees paid in
the defense of the Consultant) which may in any way result from services
rendered by the Consultant pursuant to or in any connection with this Agreement.
6. EXPENSES. The Company, upon receipt of appropriate supporting
documentation, shall reimburse the Consultant for any and all reasonable
out-of-pocket expenses incurred by the Consultant in connection with services
rendered by the Consultant
2
<PAGE>
to the Company pursuant to this Agreement, including, but not limited to, hotel,
food and associated expenses, all charges for travel and long-distance telephone
calls and all other expenses incurred by the Consultant in connection with
services rendered by the Consultant to the Company pursuant to this Agreement.
Expenses payable under this SECTION 6 shall not include allocable overhead
expenses of the Consultant, including, but not limited to, attorneys' fees,
secretarial charges and rent.
7. COMPENSATION. As compensation for the services to be rendered by the
Consultant to the Company pursuant to SECTION 3 hereof during the term set forth
in SECTION 2 hereof, the Company shall pay the Consultant on a monthly basis a
financial consulting fee of five thousand dollars ($5,000) per month payable in
advance on or before the first business day of each month.
8. OTHER ADVICE. In addition to the duties set out in SECTION 3 hereof,
the Consultant agrees to advise the Company in connection with any transaction
involving the Company with respect to (a) an acquisition of, or merger or
consolidation with, any other company, (b) a sale of the Company itself (or any
significant percentage, subsidiary or affiliate thereof), (c) a joint venture
with any third party, (d) a license or royalty agreement or (e) a financing
(other than the private or public sale of the Company's securities for cash).
In the event that any transaction listed in the previous paragraph is
directly or indirectly originated, facilitated or arranged, at any time during a
period of five (5) years from the date hereof, by the Consultant, the Company
shall pay fees to the Consultant as follows:
LEGAL CONSIDERATION FEE
---------------------- -----
$-0- - $ 8,000,000 5% of Legal Consideration
$8,000,001 - $12,000,000 4% of excess over $8,000,000
Over $12,000,000 3% of excess over $12,000,000
Legal Consideration is defined, for purposes of this Agreement, as the
total of stock (valued at market on the day of closing, or if there is no public
market, valued at fair market value as agreed or, if not, by an independent
appraiser), cash and assets and property or other benefits exchanged by the
Company or received by the Company or its shareholders (all valued at fair
market value as agreed or, if not, by an independent appraiser), irrespective of
period of payment or terms.
9. SALES OR DISTRIBUTIONS OF SECURITIES.
A. The Company hereby grants to the Consultant a preferential
right on the terms and subject to the conditions set forth in this paragraph,
for a period of two (2) years from the date hereof, to purchase for its account,
or to sell for the account of the
3
<PAGE>
Company any securities of the Company with respect to which the Company may seek
a public or private placement, offering or sale. The Company, for a period of
two (2) years from the date hereof, will consult with the Consultant with regard
to any such sale, offering or placement and will offer to the Consultant the
opportunity, on terms not more favorable to the Company than it can secure
elsewhere, to purchase or sell any such securities. If the Consultant fails to
accept in writing a proposal under this Section 9(A) made by the Company within
10 business days after receipt of a written, detailed notice containing such
proposal, then the Consultant shall not have further claim or right with respect
to such proposal. If, thereafter, such proposal is materially modified, the
Company shall again consult with the Consultant in connection with such
modification and shall in all respects have the same obligations and adopt the
same procedures with respect to the modified proposal as are provided herein
with respect to the original proposal. In addition to the foregoing, the parties
hereto agree that the Consultant shall be offered the first opportunity to act
as managing underwriter of the Company's public offering of any of its
securities, which offer will provide that the managing underwriter shall receive
its customary underwriting compensation. This provision shall also apply to the
Company's present and future subsidiaries and affiliates.
B. If the Consultant assists the Company in the sale or
distribution of securities to the public or in a private transaction, the
Company shall pay fees to the Consultant (in the absence of other fee
arrangements) as follows:
SECURITIES ISSUED FEE
- ---------------------- ------
Senior or secured debt 1.5% of gross proceeds
Subordinated debt 4% of gross proceeds
Equity 8% of gross proceeds
10. FORM OF PAYMENT. All fees due to the Consultant pursuant to
SECTIONS 8 and 9 hereof are due and payable to the Consultant, in cash or by
certified check, at the closing or closings of any transaction specified in such
SECTIONS 8 and 9 or as otherwise shall mutually be agreed between the parties
hereto; PROVIDED, HOWEVER, that in the case of license and royalty agreements
specified in SECTION 8 hereof, the fees due the Consultant in respect of such
license and royalty agreements shall be paid as and when license and/or royalty
payments are received by the Company. In the event that this Agreement shall not
be renewed for a period of at least twelve (12) months at the end of the five
(5) year period referred to in SECTION 8 hereof, or the two (2) year period
referred to in SECTION 9 hereof, or if terminated for any reason prior to the
end of such five (5) year period, or two (2) year period, as the case may be,
then, notwithstanding any such non-renewal or termination, the Consultant shall
be entitled to the full fee for any transaction contemplated under SECTION 8 and
SECTION 9, respectively hereof which closes within twelve (12) months after such
non-renewal or termination.
4
<PAGE>
11. LIMITATION UPON THE USE OF ADVICE AND SERVICES.
A. No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such advice
to others, or encourage or facilitate the use or reliance upon such advice by
others, without the prior consent of the Consultant.
B. It is clearly understood that the Consultant, with respect to
services rendered under this Agreement, makes no commitments whatsoever to make
a market in the securities of the Company or to recommend or advise its clients
to purchase the securities of the Company. Research reports or corporate finance
reports that may be prepared by the Consultant will, when and if prepared, be
done solely on the merits or judgment of analysts of the Consultant or senior
corporate finance personnel of the Consultant.
C. The use of the Consultant's name in any annual report or other
report of the Company, or any release or similar document prepared by or on
behalf of the Company, must have the prior approval of the Consultant unless the
Company is required by law to include the Consultant's name in such annual
report, other report or release, in which event the Consultant will be furnished
with a copy of such annual report, other report or release using the
Consultant's name in advance of publication by or on behalf of the Company.
D. Should any purchases of securities be requested to be effected
through the Consultant by the Company, its officers, directors, employees or
other affiliates, or by any person on behalf of any profit sharing, pension or
similar plan of the Company, for the account of the Company or the individuals
or entities involved, such orders shall be taken by a registered account
executive of the Consultant, shall not be subject to the terms of this
Agreement, and the normal brokerage commission as charged by the Consultant will
apply in conformity with all rules and regulations of the New York Stock
Exchange, the National Association of Securities Dealers, Inc. or other
regulatory bodies. Where no regulatory body sets the fee, the normal established
fee as used by the Consultant shall apply.
E. The Consultant shall not disclose confidential information which
it learns about the Company as a result of its engagement hereunder, except for
such disclosure as may be required for Consultant to perform its duties
hereunder.
12. INDEMNIFICATION. Since the Consultant will be acting on behalf of
the Company in connection with its engagement hereunder, the Company and
Consultant have entered into a separate indemnification agreement substantially
in the form attached hereto as EXHIBIT A and dated the date hereof, providing
for the indemnification of Consultant by the Company. The Consultant has entered
into this Agreement in reliance on the indemnities set forth in such
indemnification agreement.
13. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is deemed unlawful or invalid for any
reason
5
<PAGE>
whatsoever, such unlawfulness or invalidity shall not affect the validity of the
remainder of this Agreement.
14. MISCELLANEOUS.
A. Any notice or other communication between the parties hereto
shall be sent by certified or registered mail, postage prepaid, if to the
Company, addressed to it at First American Railways, Inc., 1360 South Ocean
Boulevard, Pompano Beach, Florida 33062, Attention: Allen C. Harper with a copy
to Olle, Macaulay & Zorrilla, P.A., 1402 Miami Center, 201 South Biscayne
Boulevard, Miami, Florida, 33131, Attention: Dennis J. Olle, Esq., or, if to the
Consultant, addressed to it at Capital Growth International, LLC, 666 Steamboat
Road, 2nd Floor, Greenwich, Connecticut 06830, Attention: Michael Jacobs, with a
copy to Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York
10103, Attention: Rubi Finkelstein, Esq., or to such address as may hereafter be
designated in writing by any of such entities to the others. Such notice or
other communication shall be deemed to be given on the date of receipt.
B. If, during the term hereof, the Consultant shall cease to do
business, the provisions hereof relating to the duties of the Consultant and the
compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger or
acquisition, shall be binding upon the Company and the corporation surviving
such merger or acquisition.
C. This Agreement embodies the entire agreement and understanding
between the Company and the Consultant and supersedes any and all negotiations,
prior discussions and preliminary and prior agreements and understandings
related to the central subject matter hereof.
D. This Agreement has been duly authorized, executed and delivered
by and on behalf of the Company and the Consultant.
E. This Agreement shall be governed by and construed in all
respects under the laws of the State of New York, without reference to its
conflict of laws rules or principles. Any suit, action, proceeding or litigation
arising out of or relating to this Agreement shall be brought and prosecuted in
such federal or state court or courts located within the State of New York as
provided by law. The parties hereby irrevocably and unconditionally consent to
the jurisdiction of each such court or courts located within the State of New
York and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum.
6
<PAGE>
F. This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law) and shall be binding upon and inure to
the benefit of the Parties and their respective successors, assigns and legal
representatives.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date hereof.
FIRST AMERICAN RAILWAYS, INC.
By:___________________________________
Name:
Title:
CAPITAL GROWTH INTERNATIONAL, LLC
By:__________________________________
Name:
Title:
8
<PAGE>
EXHIBIT A
_______ , 1996
Capital Growth International, LLC
666 Steamboat Road
2nd Floor
Greenwich, Connecticut 06830
Ladies and Gentlemen:
In connection with our engagement of CAPITAL GROWTH INTERNATIONAL, LLC
(the "Consultant") as our financial advisor and investment banker, we hereby
agree to indemnify and hold the Consultant and its affiliates, and the
directors, officers, partners, shareholders, agents and employees of the
Consultant (collectively the "Indemnified Persons"), harmless from and against
any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including, but not limited to, fees and expenses of counsel) which are (A)
related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
us, or (ii) any actions taken or omitted to be taken by any Indemnified Person
in connection with our engagement of the Consultant pursuant to the Financial
Advisory and Consulting Agreement, of even date herewith, between the Consultant
and us (the "Consulting Agreement"), or (B) otherwise related to or arise out of
the Consultant's activities on our behalf pursuant to the Consultant's
engagement under the Consulting Agreement, and we shall reimburse any
Indemnified Person for all expenses (including, but not limited to, fees and
expenses of counsel) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such claim, action, suit or proceeding
(collectively a "Claim"), whether or not in connection with pending or
threatened litigation in which any Indemnified Person is a party. We will not,
however, be responsible for any Claim which is finally judicially determined to
have resulted exclusively from the gross negligence or willful misconduct of any
person seeking indemnification hereunder. We further agree that no Indemnified
Person shall have any liability to us for or in connection with the Consultant's
engagement under the Consulting Agreement except for any Claim incurred by us
solely as a direct result of any Indemnified Person's gross negligence or
willful misconduct.
We further agree that we will not, without the prior written consent of
the Consultant, settle, compromise or consent to the entry of any judgment in
any pending or threatened Claim in respect of which indemnification may be
sought hereunder (whether or not any Indemnified Person is an actual or
potential party to such Claim), unless such settlement, compromise or consent
includes a legally binding, unconditional, and irrevocable release of each
Indemnified Person hereunder from any and all liability arising out of such
Claim.
A-1
<PAGE>
Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless, and only to the extent that, such failure results in the forfeiture by
us of substantial rights and defenses, and such failure to so notify us will not
in any event relieve us from any other obligation or liability we may have to
any Indemnified Person otherwise than under this Agreement. If we so elect or
are requested by such Indemnified Person, we will assume the defense of such
Claim, including the employment of counsel reasonably satisfactory to such
Indemnified Person and the payment of the fees and expenses of such counsel. In
the event, however, that such Indemnified Person reasonably determines in its
sole judgment that having common counsel would present such counsel with a
conflict of interest or such Indemnified Person concludes that there may be
legal defenses available to it or other Indemnified Persons that are different
from or in addition to those available to us, then such Indemnified Person may
employ its own separate counsel to represent or defend it in any such Claim and
we shall pay the reasonable fees and expenses of such counsel. Notwithstanding
anything herein to the contrary, if we fail timely or diligently to defend,
contest, or otherwise protect against any Claim, the relevant Indemnified Party
shall have the right, but not the obligation, to defend, contest, compromise,
settle, assert crossclaims or counterclaims, or otherwise protect against the
same, and shall be fully indemnified by us therefor, including, but not limited
to, for the fees and expenses of its counsel and all amounts paid as a result of
such Claim or the compromise or settlement thereof. In any Claim in which we
assume the defense, the Indemnified Person shall have the right to participate
in such defense and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether or
not the Consultant is the Indemnified Person) we and the Consultant shall
contribute to the Claim for which such Indemnity is held unavailable in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and the Consultant, on the other, in connection with the Consultant's
engagement by us under the Consulting Agreement, subject to the limitation that
in no event shall the amount of the Consultant's contribution to such Claim
exceed the amount of fees actually received by the Consultant from us pursuant
to the Consultant's engagement under the Consulting Agreement. We hereby agree
that the relative benefits to us, on the one hand, and the Consultant, on the
other, with respect to the Consultant's engagement under the Consulting
Agreement shall be deemed to be in the same proportion as (a) the total value
paid or proposed to be paid or received by us or our shareholders as the case
may be, pursuant to the transaction (whether or not consummated) for which the
Consultant is engaged to render services bears to (b) the fee paid or proposed
to be paid to the Consultant in connection with such engagement.
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that any Indemnified Party may have at law or at
equity.
A-2
<PAGE>
Should the Consultant, or any of its directors, officers, partners,
shareholders, agents or employees, be required or be requested by us to provide
documentary evidence or testimony in connection with any proceeding arising from
or relating to the Consultant's engagement under the Consulting Agreement, we
agree to pay all reasonable expenses (including, but not limited to, fees and
expenses of counsel) in complying therewith and one thousand dollars ($1,000)
per day for any sworn testimony or preparation therefor, payable in advance.
We hereby consent to personal jurisdiction and service of process and
venue in any court in which any claim for indemnity is brought by any
Indemnified Person.
It is understood that, in connection with the Consultant's engagement
under the Consulting Agreement, the Consultant may be engaged to act in one or
more additional capacities and that the terms of the original engagement or any
such additional engagement may be embodied in one or more separate written
agreements. The provisions of this Agreement shall apply to the original
engagement and any such additional engagement and shall remain in full force and
effect following the completion or termination of the Consultant's
engagement(s).
Very truly yours,
FIRST AMERICAN RAILWAYS, INC.
By:___________________________________
Name:
Title:
CONFIRMED AND AGREED TO:
CAPITAL GROWTH INTERNATIONAL, LLC
By:____________________________________
Name:
Title:
A-3
Exhibit 10.10
NOTE ESCROW AGREEMENT
AGREEMENT made as of the 26th day of April, 1996, by and among FIRST
AMERICAN RAILWAYS, INC. and its successor by merger or consolidation (the
"Issuer") and CAPITAL GROWTH INTERNATIONAL, LLC (the "Placement Agent") as agent
for the holders of the Notes (as defined below) attached to this Agreement), and
STERLING NATIONAL BANK & TRUST COMPANY OF NEW YORK, a national banking
association with offices at 355 Lexington Avenue, New York, New York 10017 (the
"Note Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Issuer proposes to offer for sale, through the Placement
Agent and pursuant to a Confidential Offering Memorandum dated March 11, 1996
(as may be supplemented or amended from time to time), certain securities of the
Issuer in the form of units (the "Units"), which Units will include, among other
securities, convertible secured notes (the Notes");
WHEREAS, the Notes provide that, at each closing of the purchase and
sale of the Units (a "Closing"), the Issuer shall irrevocably deposit into
escrow a cash amount ("Interest") sufficient to meet the Issuer's interest
payment obligations under the Notes issued at such Closing, for the first twelve
months after the issuance of such Notes (the "Term");
WHEREAS, the Notes also provide that, on each of the Principal Escrow
Payment Dates (as defined in the Note), the Issuer shall irrevocably deposit
into escrow an amount equal to the Principal Escrow Payments due on such
Principal Escrow Payment Date as provided in the Note and summarized in the
Information Sheet attached hereto; and
WHEREAS, the Issuer and the Placement Agent propose to establish two
separate escrow accounts with the Note Escrow Agent in connection with the
Offering and the Note Escrow Agent is willing to establish such escrow accounts
on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. INFORMATION SHEET. Each capitalized term not otherwise defined in
this Agreement shall have the meaning set forth for such term on the information
sheet which is
<PAGE>
attached to this Agreement and is incorporated by reference herein and made a
part hereof (the "Information Sheet").
2. ESTABLISHMENT OF THE INTEREST ESCROW ACCOUNT.
2.1 The parties hereto shall establish an interest bearing
escrow account at the Trust Department of the Note Escrow Agent bearing the
designation "Interest Escrow Account".
2.2 As soon a practicable, but no later than five (5) business
days after the initial Closing (and as soon a practicable, but no later than
five (5) business days after each subsequent Closing) the Company shall (a) send
a notice, substantially in the form attached hereto as Exhibit A, to the Note
Escrow Agent, with a copy to the Placement Agent of (i) the principal amount of
the Notes to be issued at such Closing to each Noteholder and (ii) the amount of
Interest that will accrue on each such principal amount for a twelve month
period that is required to be deposited in such Interest Escrow Account pursuant
to the terms of the Notes, and (b) irrevocably deposit the Interest in the
Interest Escrow Account. The Note Escrow Agent shall not be required to accept
any amounts for deposit in the Note Escrow Account prior to its receipt of such
notice.
3. ESTABLISHMENT OF THE PRINCIPAL ESCROW ACCOUNT.
3.1 The parties hereto shall establish an interest bearing
escrow account at the Trust Department of the Note Escrow Agent bearing the
designation "Principal Escrow Account". The Interest Escrow Account and the
Principal Escrow Account are sometimes referred to herein individually as an
"Escrow Account" and collectively as the "Escrow Accounts".
3.2 On or before each of the following dates (the "Principal
Escrow Payment Dates"), the Company shall (a) send a notice, substantially in
the form attached hereto as Exhibit B, to the Note Escrow Agent, with a copy to
the Placement Agent, of the principal amounts of each Note then outstanding and
the amount of the Principal Escrow Payment due on such Principal Escrow Payment
Date and (b) irrevocably deposit in the Principal Escrow Account the following
cash amounts (the "Principal Escrow Payments") to secure the Company's
obligation to pay principal on the Notes outstanding on April 26, 2001 (the
"Maturity Date"):
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PRINCIPAL ESCROW PAYMENTS DUE
(REPRESENTED AS A PERCENT OF
PRINCIPAL AMOUNT OF NOTES
OUTSTANDING ON SUCH PRINCIPAL
PRINCIPAL ESCROW PAYMENT DATES ESCROW PAYMENT DATE)
Third anniversary date of the first Closing (April
26, 1999)......................................... 33 1/3%
Quarterly thereafter until and including the
Maturity Date..................................... 8 1/3%
The Company's obligations under this Section 3 shall survive until the Notes are
no longer outstanding. The Note Escrow Agent shall not be required to accept any
amounts for deposit in such Escrow Account prior to its receipt of the notice
described in this Section 3.2.
4. DEPOSITS IN THE ESCROW ACCOUNT.
4.1 All amounts received from the Company shall be deposited in
the appropriate Escrow Account, which amount will be in the form of checks,
cash, or wire transfers representing the payment of money.
4.2 Amounts deposited in the Interest Escrow Account which have
cleared the banking system and have been collected by the Note Escrow Agent for
the payment of interest are sometimes referred to herein as the "Interest Fund."
Amounts deposited in the Principal Escrow Account which have cleared the banking
system and have been collected by the Note Escrow Agent for the payment of
principal are sometimes referred to herein as the "Principal Fund." The Interest
Fund and the Principal Fund are sometimes referred to herein as a "Fund".
5. DISBURSEMENTS FROM THE INTEREST ESCROW ACCOUNT.
5.1 The Note Escrow Agent will hold the Interest Payments in the
Escrow Account until each Interest Payment Date during the first twelve months
the Notes are outstanding, on which date, the Note Escrow Agent, without any
further authorization by the Company, subject to Section 7 hereof, shall use the
funds in the Interest Escrow Account to make Interest Payments in accordance
with the terms of the Notes. The Escrow Agent shall make such payments of
interest on the Notes directly to the respective Holders at each such Holder's
respective address, which addresses shall be delivered to the Escrow Agent by
the Company within three (3) business days after each Closing and updated
thereafter by the Company. The Note Escrow Agent may rely upon such
certification and shall have no responsibility to verify the contents thereof.
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5.2 Upon disbursement of the Interest Funds in the Interest
Escrow Account pursuant to the terms of this Section 5, the Note Escrow Agent
shall be relieved of all further obligations and released from all liability
under this Agreement with respect to its obligation under this Section 5. It is
expressly agreed and understood that in no event shall the aggregate amount of
payments made by the Note Escrow Agent with respect to the Interest Fund exceed
the amount of such Interest Fund.
6. DISBURSEMENTS FROM THE PRINCIPAL ESCROW ACCOUNT.
6.1. The Note Escrow Agent will hold the Principal Payments in
the Escrow Account until the Maturity Date, on which date, the Note Escrow Agent
shall use the Principal Funds in the Principal Escrow Account to make Principal
Payments in accordance with the terms of the Notes. Not later than three (3)
business days before the Maturity Date, the Company will deliver to the Note
Escrow Agent, with a copy to the Placement Agent, an Officers' Certificate
signed by the President and by the Chief Financial Officer of the Company
specifying the respective principal amounts due on the Notes outstanding on the
Maturity Date. The Escrow Agent shall, without any further authorization by the
Company, subject to Section 7 hereof, make such payments of principal on the
Notes directly to the respective Holders at each such Holder's respective
address, which addresses shall be delivered to the Escrow Agent by the Company
within three (3) business days after each Closing and updated thereafter by the
Company. The Note Escrow Agent may rely upon such certification and shall have
no responsibility to verify the contents thereof.
6.2. Upon disbursement of the Principal Funds in the Principal
Escrow Account pursuant to the terms of this Section 6, the Note Escrow Agent
shall be relieved of all further obligations and released from all liability
under this Agreement with respect to its obligation under this Section 6. It is
expressly agreed and understood that in no event shall the aggregate amount of
payments made by the Note Escrow Agent with respect to the Principal Fund exceed
the amount of such Principal Fund.
7. EVENTS OF PREPAYMENT OR CONVERSION.
7.1. Except for Notes previously converted in accordance with
their terms, all, but not less than all, of the outstanding principal amount of
the Notes, together with accrued but unpaid interest thereon, may be prepaid by
the Company in accordance with Section 4 thereof. Within three (3) business days
after the Company mails a notice of prepayment to the holders of the Notes, the
Company shall send such prepayment notice to the Note Escrow Agent, with a copy
to the Placement Agent, which notice shall include the Prepayment Price (as
defined in the Notes) payable to each of such holders. Not later than five (5)
business days before the prepayment date, the Company shall deposit in the
Principal Fund and the Interest Fund, as applicable, cash equal to the aggregate
Prepayment Price due in order to prepay all of the then outstanding Notes. Any
amounts in the Interest Fund and/or the Principal Fund may, at the direction of
the Company be applied toward the Prepayment Price. The Note Escrow Agent shall,
on the prepayment date set forth in the Company's notice of prepayment, use the
Funds to pay to each Holder of outstanding Notes their respective Prepayment
Price in accordance with the terms of the notice of prepayment.
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7.2. If the Notes are not prepaid by the Company in accordance
with Section 7.1 above and Section 4 of the Notes, each Holder has the option,
at any time prior to the Maturity Date, to convert all, but not less than all,
of the principal amount of such Holder's Notes and accrued but unpaid interest
thereon into shares of the Company's Common Stock, pursuant to Section 6 of the
Notes. Within three (3) business days after conversion of any Note, the Company
shall send a notice to the Note Escrow Agent, with a copy to the Placement
Agent, together with a copy of the Conversion Notice sent by the holder. The
notice shall state the name of the holder of the Note and the amount of
principal and interest converted. The Note Escrow Agent shall be entitled to
rely on such notice without independent verification thereof. The Company's
obligation to pay the principal amount and accrued but unpaid interest on each
Note converted shall, upon conversion, be discharged; and, unless the Note
Escrow Agent shall have received a notice from the Placement Agent as agent for
the Noteholders that an Event of Default under the Notes has occurred and is
continuing, any Principal Funds and/or Interest Funds attributable to such
converted Note shall be applied by the Note Escrow Agent, first, to reduce the
next due Principal Escrow Payment pursuant to Section 3.2 hereof, which
reduction shall be set forth on the notice delivered to the Note Escrow Agent
pursuant to Section 3.2 hereof and, second, if any Funds remain after all the
Notes are either prepaid or converted in accordance with their terms, such
remaining Funds shall be returned to the Company provided that no outstanding
amounts hereunder are due to the Note Escrow Agent.
8. EVENTS OF DEFAULT. If an Event of Default shall occur and be
continuing under Section 2 of the Notes, the Placement Agent shall promptly give
notice to the Note Escrow Agent and upon receipt of such notice, the Note Escrow
Agent shall be entitled to hold a Fund, or a portion thereof, in such Escrow
Account pending the resolution of any uncertainty as to the proper disbursement
of such Fund to the Note Escrow Agent's sole satisfaction, by final judgment of
a court of competent jurisdiction or otherwise, provided, however, that the Note
Escrow Agent shall be entitled to rely without independent verification on any
instructions received with respect to the Funds that is executed by the Company
and by or on behalf of the holders of at least 50% of the aggregate principal
amount of the Notes then outstanding; or the Note Escrow Agent, at its sole
option, may deposit such Fund (and any other amounts that thereafter become part
of such Fund) with the Clerk of a court of competent jurisdiction in a
proceeding to which all parties in interest are joined. Upon the deposit by the
Note Escrow Agent of such Fund with the Clerk of any court, the Note Escrow
Agent shall be relieved of all further obligations and released from all
liability hereunder.
9. RIGHTS, DUTIES AND RESPONSIBILITIES OF NOTE ESCROW AGENT. It
is understood and agreed that the duties of the Note Escrow Agent are purely
ministerial in nature, and that:
9.1 The Note Escrow Agent shall not be responsible for or be
required to enforce any of the terms or conditions of the Notes or of any
agreement between the Placement Agent and the Issuer nor shall the Note Escrow
Agent be responsible for the performance by the Issuer of its obligations under
the Notes, or by the Placement Agent or the Issuer of their respective
obligations under this Agreement.
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9.2 The Note Escrow Agent shall be under no duty or responsibility
to enforce collection of any check delivered to it hereunder.
9.3 The Note Escrow Agent shall be entitled to rely upon the
accuracy, act in reliance upon the contents, and assume the genuineness, of any
notice, instruction, certificate, signature, instrument or document which is
given to the Note Escrow Agent pursuant to this Agreement whether containing
original or facsimile signatures without the necessity of the Note Escrow Agent
verifying the truth or accuracy thereof, including, without limitation, the
accuracy of the Issuer's calculations of interest and principal payments and the
addresses of the holders of the Notes as furnished by the Issuer. The Note
Escrow Agent shall not be obligated to make any inquiry as to the authority,
capacity, existence or identity of any person purporting to give any such notice
or instruction or to execute any such certificate, instrument or document.
9.4 In the event that the Note Escrow Agent shall be uncertain
as to its duties or rights hereunder or shall receive instructions with respect
to an Escrow Account or a Fund which, in its sole determination, are in conflict
either with other instructions received by it or with any provisions of this
Agreement, it shall be entitled to hold such Fund, or a portion thereof, in such
Escrow Account pending the resolution of such uncertainty to the Note Escrow
Agent's sole satisfaction, by final judgment of a court of competent
jurisdiction or otherwise; or the Note Escrow Agent, at its sole option, may
deposit such Fund (and any other amounts that thereafter become part of such
Fund) with the Clerk of a court of competent jurisdiction in a proceeding to
which all parties in interest are joined. Upon the deposit by the Note Escrow
Agent of such Fund with the Clerk of any court, the Note Escrow Agent shall be
relieved of all further obligations and released from all liability hereunder.
9.5. The Note Escrow Agent shall not be liable for any action
taken or omitted hereunder, or for the misconduct of any employee, agent or
attorney appointed by it, except in the case of willful misconduct. The Note
Escrow Agent shall be entitled to consult with counsel of its own choosing and
shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
9.6. The Note Escrow Agent shall have no responsibility at any
time to ascertain whether or not any security interest exists in any Fund or any
part of any Fund or to file any financing statement under the Uniform Commercial
Code with respect to any Fund or any part of any Fund.
9.7. The Note Escrow Agent shall be relieved from its obligations
hereunder to make any payment of principal or interest on the Notes if the
Issuer shall have defaulted on its obligations to deposit funds with the Note
Escrow Agent sufficient to make such payments pursuant to Sections 2, 3 and 7
hereof.
10. AMENDMENT; RESIGNATION. This Agreement may be altered or
amended only with the written consent of the Issuer, the Placement Agent and the
Note Escrow Agent. The Note Escrow Agent may resign for any reason upon three
(3) business days' written notice to
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the Issuer and the Placement Agent. Should the Note Escrow Agent resign as
herein provided, it shall not be required to accept any deposit, make any
disbursement or otherwise dispose of a Fund, but its only duty shall be to hold
such Fund for a period of not more than five (5) business days following the
effective date of such resignation, at which time (a) if a successor escrow
agent shall have been appointed and written notice thereof (including the name
and address of such successor escrow agent) shall have been given to the
resigning Note Escrow Agent by the Issuer, the Placement Agent and such
successor escrow agent, then the resigning Note Escrow Agent shall pay over to
the successor escrow agent such Fund, less any portion thereof previously paid
out in accordance with this Agreement; or (b) if the resigning Note Escrow Agent
shall not have received a written notice signed by the Issuer, the Placement
Agent and a successor escrow agent, then the resigning Note Escrow Agent shall
promptly refund the amount in such Fund to each prospective purchaser, without
interest thereon or deduction therefrom, and the resigning Note Escrow Agent
shall notify the Issuer and the Placement Agent in writing of its liquidation
and distribution of such Fund; whereupon, in either case, the Note Escrow Agent
shall be relieved of all further obligations and released from all liability
under this Agreement. Without limiting the provisions of Section 12 hereof, the
resigning Note Escrow Agent shall be entitled to be reimbursed by the Issuer for
any expenses incurred in connection with its resignation, transfer of a Fund to
a successor escrow agent or distribution of a Fund pursuant to this Section 10.
11. REPRESENTATIONS AND WARRANTIES. The Issuer hereby represents
and warrants to the Note Escrow Agent that:
11.1 To the best of its knowledge, no party other than the
parties hereto and the Noteholders have, or shall have, any lien, claim or
security interest in any Fund or any part of any Fund.
11.2 To the best of its knowledge, no financing statement under
the Uniform Commercial Code is on file in any jurisdiction claiming a security
interest in or describing (whether specifically or generally) any Fund or any
part of any Fund.
11.3 All of the information contained in the Information Sheet
is, as of the date hereof, and will be, at the time of any disbursement of each
Fund, true and correct in all material respects.
11.4 The information contained in any notice given pursuant to
Sections 2.2, 3.2, 7.1 or 7.2 hereof shall be true and correct in all material
respects on the date such notice is given and on the date any funds are
disbursed pursuant to such notice, and that all of the information contained in
any certificate given under this Agreement shall be true and correct in all
material respects on the date such certificate is given and on the date any
funds are disbursed pursuant to such certificate.
12. FEES AND EXPENSES. The Note Escrow Agent shall be entitled
to the Note Escrow Agent Fee set forth on the Information Sheet, payable upon
execution of this Agreement. In addition, the Issuer agrees to reimburse the
Note Escrow Agent for any reasonable expense incurred in connection with this
Agreement.
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13. INDEMNIFICATION AND CONTRIBUTION.
13.1 The Issuer (the "Indemnitor") agrees to indemnify the Note
Escrow Agent and its officers, directors, employees, agents and shareholders
(jointly and severally the "Indemnitees") against, and hold them harmless of and
from, any and all loss, liability, cost, damage and expense, including without
limitation, reasonable counsel fees, which the Indemnitees may suffer or incur
by reason of any action, claim or proceeding brought against the Indemnitees
arising out of or relating in any way to this Agreement or any transaction to
which this Agreement relates, unless such action, claim or proceeding in the
result of the willful misconduct or gross negligence of the Indemnitees.
13.2 If the indemnification provided for in this Section 13 is
applicable, but for any reason is held to be unavailable, the Indemnitor shall
contribute such amounts as are just and equitable to pay, or to reimburse the
Indemnitees for, the aggregate of any and all losses, liabilities, costs,
damages and expenses, including counsel fees, actually incurred by the
Indemnitees as a result of or in connection with, any amount paid in settlement
of, any action, claim or proceeding arising out of or relating in any way to any
actions or omission of the Indemnitor.
13.3 The provisions of this Section 13 shall survive any
termination of this Agreement, whether by disbursement of each Fund, resignation
of the Note Escrow Agent or otherwise.
14. GOVERNING LAW AND ASSIGNMENT. This Agreement shall be
construed in accordance with and governed by the laws of the State of New York
and shall be binding upon the parties hereto and their respective successors and
assigns; provided, however, that any assignment or transfer by any party of its
rights under this agreement or with respect to the Fund shall be void as against
the Note Escrow Agent unless:
(a) written notice thereof shall be given to the Note
Escrow Agent; and
(b) the Note Escrow Agent shall have consented in writing
to such assignment or transfer.
The Note Escrow Agent hereby acknowledges notice of the merger (the
"Merger") of the Issuer with and into Asia-America Corporation, a Nevada
corporation ("Asia-America"), pursuant to which Asia-America will succeed to all
the rights and obligations of the Issuer, including those under the Notes and
under this Agreement. The Note Escrow Agent hereby consents to the Merger and is
authorized to accept and act upon any and all notices, certificates and other
communications from Asia-America as if such notices, certificates and
communications were submitted by the Issuer.
15. NOTICES. All notices required to be given in connection with
this Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt acknowledged, or by the Express Mail
service offered by the United States Post Office, or by any overnight delivery
service, or by facsimile if confirmation of such
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transmission is received by the sender thereof, and addressed, if to the Issuer
or the Placement Agent, at their respective addresses set forth on the
Information Sheet, and if to the Note Escrow Agent, at its address set forth
above, to the attention of the Trust Department.
16. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be determined to be
invalid or unenforceable, the remaining provisions of this Agreement or the
application of such provision to persons or circumstances other than those to
which it is held invalid or unenforceable shall not be affected thereby and
shall be valid and enforceable to the fullest extent permitted by law.
17. EXECUTION IN SEVERAL COUNTERPARTS. This Agreement may be
executed in several counterparts or by separate instruments and all of such
counterparts and instruments shall constitute one agreement, binding on all of
the parties hereto.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
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IN WITNESS WHEREOF, the undersigned have executed this Note Escrow
Agreement as of the day and year first above written.
STERLING NATIONAL BANK & TRUST
COMPANY OF NEW YORK
By:
----------------------------------
Name:
Title:
FIRST AMERICAN RAILWAYS, INC.
By:
----------------------------------
Name:
Title:
CAPITAL GROWTH INTERNATIONAL, LLC,
as agent for the holders of the Notes
By:
----------------------------------
Name:
Title:
EXHIBIT 10.11
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (II) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE ISSUER, OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE ISSUER, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR OTHER SIMILAR SECURITIES LAW.
FIRST AMERICAN RAILWAYS, INC.
CONVERTIBLE SECURED NOTE
$__________ April 26, 1996
New York, New York
FOR VALUE RECEIVED, First American Railways, Inc., a Florida
corporation, and its successor by merger or consolidation (the "Company"),
promises to pay to the order of______________________________________________
(the "Holder"), the principal amount of______________________________ DOLLARS
($__________), and to pay interest (computed on the basis of a 360-day year of
30-day months) ("Interest") (a) on the unpaid principal amount at the rate of
ten percent (10%) semiannually on April 30th and October 31st, commencing on
October 31, 1996 (each, an "Interest Payment Date") and (b) to the extent
permitted by law on any overdue payment of the principal amount at the rate of
twelve percent (12%) per annum. Principal and accrued but unpaid Interest
hereunder shall be due and payable on demand on or after the Maturity Date (as
defined in SECTION 5 hereof), unless prepaid by the Company in accordance with
SECTION 4 hereof or converted by the Holder in accordance with SECTION 6 hereof.
Payments of principal and Interest shall be made in lawful money of the
United States of America by check and mailed to the address designated by the
Holder in the subscription agreement (the "Subscription Agreement") for the
subscription hereof.
This Note is one of several secured convertible notes (collectively,
the "Notes") offered by the Company (the "Financing") to several holders
(collectively, the "Holders") in the form of units along with (i) shares (the
"Shares") of common stock of the Company, no par value per share (the "Common
Stock"), and (ii) Series A redeemable common stock purchase warrants (the
"Series A Redeemable Warrants"), pursuant to a Confidential
<PAGE>
Placement Memorandum, together with all amendments thereof and supplements and
exhibits thereto (the "Memorandum"). The Shares, the Series A Redeemable
Warrants (including the Series A Redeemable Warrants referenced in SECTION 4
hereof), the shares of Common Stock issuable upon exercise of the Series A
Redeemable Warrants, (the "Series A Warrant Shares") and the Note Shares
referenced in SECTION 6 hereof are sometimes referred to collectively as the
"Securities." This Note may be held by Capital Growth International, LLC
("CGI"), the Company's placement agent in connection with the Financing, or its
officers and affiliates.
This Note is subject to the terms and conditions of a certain General
Security Agreement (the "Security Agreement") between CGI, as security agent for
the benefit of the Holders, and the Company dated April 26, 1996, as it now
exists or may be amended, and the following terms and conditions:
1. COLLATERALIZATION
(a) SECURITY AGREEMENT. The Company has granted to CGI, as agent
for the Holders of this Note, a security interest in and a lien (the "Lien")
upon all of the Company's right, title and interest in and to certain property
of the Company (the "Collateral"), which Lien shall be first in priority to all
future liens, all as more fully set forth and subject to the terms of the
Security Agreement. The Collateral shall include but not be limited to all of
the accounts receivable, inventory, equipment, intellectual property and fixed
assets of the Company and the proceeds of all of the foregoing. In the event of
the occurrence of an Event of Default (as defined in the SECTION 2 hereof), CGI,
as security agent for the benefit of the Holders, shall have all of the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of Florida and all applicable federal and state laws as the same shall be in
effect on the date hereof and from time to time thereafter for so long as this
Note shall remain unpaid. Any recovery effected by CGI with respect to the
Collateral shall be for the benefit of the several Holders of the Notes pro rata
to the principal amount of the Notes held by such Holders.
(b) ESCROW AGREEMENT. On or before each closing of the Financing,
the Company shall irrevocably deposit in trust (the "Interest Escrow Account")
with Sterling National Bank & Trust Company of New York or such other agent
reasonably acceptable to the Company and CGI (the "Escrow Agent"), pursuant to
an escrow agreement (the "Escrow Agreement") an amount sufficient to meet the
Company's Interest payment obligations under the Notes issued at such closing
for the first twelve months after the issuance of such Notes. The Escrow
Agreement shall provide that the Escrow Agent shall make payments of Interest on
the Notes when due directly to the respective Holders at each such Holder's
respective address as set forth in the respective Subscription Agreements, which
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addresses shall be delivered to the Escrow Agent by the Company within three (3)
business days of each closing of the Financing and updated thereafter by the
Company. The Company shall be responsible for all expenses and fees of the
Escrow Agent in connection with the Escrow Account. The Escrow Agent will have
no obligations or duties with respect to the Interest Escrow Account other than
those set forth in the Escrow Agreeement.
(c) SINKING FUND PAYMENTS. The Company shall irrevocably deposit
in trust (the "Principal Escrow Account") with the Escrow Agent pursuant to the
Escrow Agreement, the following cash amounts (the "Principal Escrow Payments")
on or before each of the following dates (the "Principal Escrow Payment Dates")
to secure the Company's obligation to pay the principal amount of the Notes
outstanding on the Maturity Date:
PRINCIPAL ESCROW PAYMENTS DUE
(REPRESENTED AS A PERCENT OF
PRINCIPAL AMOUNT OF NOTES
OUTSTANDING ON SUCH PRINCIPAL
PRINCIPAL ESCROW ESCROW PAYMENT DATE)
PAYMENT DATES
Third anniversary date of the
first closing of the Financing.. 33 1/3%
Quarterly thereafter until (and
including) the Maturity Date.... 8 1/3%
The Company's obligations under the Notes, the Security Agreement and the Escrow
Agreement shall survive until the Notes are no longer outstanding. The Escrow
Agreement shall provide that the Escrow Agent shall, from the Principal Escrow
Account, make payments of principal on the Notes when due directly to the
respective Holders at each such Holder's respective address as set forth in the
respective Subscription Agreements, which addresses shall be delivered to the
Escrow Agent by the Company within three (3) business days of each closing of
the Financing and updated thereafter by the Company. The Escrow Agent will have
no obligations or duties with respect to the Principal Escrow Account other than
those set forth in the Escrow Agreement.
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2. DEFAULT
(a) DEFAULT. The occurrence of any one or more of the following
events shall constitute an event of default (an "Event of Default") hereunder:
(i) if the Company shall default in the punctual payment of
any sum payable with respect to, or in the observance or
performance of any of the agreements, promises,
covenants, terms and conditions of any of, the Notes,
any Obligations (as defined in the Security Agreement),
the Security Agreement or the Escrow Agreement;
(ii) if any warranty, representation or statement of fact
made herein or in the Security Agreement or the Escrow
Agreement by the Company is false or misleading in any
material respect when made;
(iii) in the event of loss, theft, substantial damage to or
destruction of any of the Collateral (as defined in the
Security Agreement) which is not covered by insurance,
or the making or filing of any levy, or execution on, or
seizure, attachment or garnishment of, any of the
Collateral;
(iv) if the Company shall be dissolved or liquidated or any
proceeding for dissolution or liquidation of the Company
is commenced or the Company fails to maintain its
corporate existence;
(v) if the Company becomes insolvent (however defined or
evidenced) or makes an assignment for the benefit of
creditors;
(vi) if there shall be filed by or against the Company any
petition for any relief under the bankruptcy laws of the
United States now or hereafter in effect or any
proceeding shall be commenced with respect to the
Company under any insolvency, readjustment of debt,
reorganization, dissolution, liquidation or similar law
or statute of any jurisdiction now or hereafter in
effect (whether at law or in equity), provided that in
the case of any involuntary filing or the commencement
of any involuntary proceeding against the Company such
proceeding or petition shall have
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continued undismissed and unvacated for a least 60 days;
(vii) if the usual business of the Company shall cease or be
terminated or suspended;
(viii) if any proceeding, procedure or remedy supplementary to
or in enforcement of judgment shall be commenced
against, or with respect to any property of, the
Company; or
(ix) if any petition or application to any court or tribunal,
at law or in equity, be filed by or against the Company
for the appointment of any receiver or trustee for the
Company or any part of the property of the Company,
provided that in the case of any involuntary filing
against the Company, such proceeding or appointment
shall have continued undismissed and unvacated for at
least 60 days.
(b) REMEDIES UPON DEFAULT. If any Event of Default shall occur
for any reason, then and in any such event, in addition to all rights and
remedies of the Holder under the Security Agreement, applicable law or
otherwise, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently, the Holder may, at its
option, declare any or all of the Company's obligations, liabilities and
indebtedness owing to the Holder under the Security Agreement and all amounts
owing under this Note, to be due and payable, whereupon the then unpaid balance
hereof, together with all interest accrued thereon, shall forthwith become due
and payable, together with interest accruing thereafter at the then applicable
interest rate stated above until the indebtedness evidenced by this Note is paid
in full, plus the costs and expenses of collection hereof, including, but not
limited to, attorney's fees and legal expenses.
(c) THE COMPANY'S WAIVERS. The Company (i) waives diligence,
demand, presentment, protest and notice of any kind, (ii) agrees that it will
not be necessary for the Holder to first institute suit in order to enforce
payment of this Note and (iii) consents to any one or more extensions or
postponements of time of payment, release, surrender or substitution of
collateral security, or forbearance or other indulgence, without notice or
consent. The pleading of any statute of limitations as a defense to any demand
against the Company is hereby expressly waived by the Company.
(d) CERTAIN OBLIGORS. The Holder shall not be required to resort
to any Collateral for payment, but may proceed against the Company and any
guarantors or endorsees hereof in such order and manner as the Holder may
choose. None of the rights of the
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Holder shall be waived or diminished by any failure or delay in the exercise
thereof.
3. COVENANTS. The Company covenants and agrees that, so long as this
Note is outstanding and unpaid:
(a) PAYMENT OF NOTE. The Company will punctually pay or cause to
be paid the principal, premium, if any, and Interest on this Note at the dates
and places and in the manner specified herein. Any sums required to be withheld
from any payment of principal, premium, if any, or Interest on this Note by
operation of law or pursuant to any order, judgment, execution, treaty, rule or
regulation may be withheld by the Company and paid over in accordance therewith.
In the event any restriction is placed upon payment of principal, premium, if
any, or Interest by virtue of a currency or monetary control law, rule or
regulation of the United States Federal Government, as set forth in a written
notice delivered to the Holder within thirty (30) days after the imposition of
such a restriction, such payments shall be deposited to the account of the payee
in a bank, trust company or other financial institution, as directed by the
payee. Such payment or deposit will be deemed payment to the Holder.
(b) MAINTENANCE OF CORPORATE EXISTENCE; MERGER AND CONSOLIDATION.
The Company will at all times cause to be done all things necessary or
appropriate to preserve and keep in full force and effect its corporate
existence and all of its rights and franchises and shall not consolidate with or
merge into any other corporation or transfer all or substantially all of its
assets to any person unless (i) the corporation formed by such consolidation or
into which the Company is merged or to which the assets of the Company are
transferred is a corporation that expressly assumes all of the obligations of
the Company under this Note and (ii) after giving effect to such transaction, no
Event of Default and no event which, after notice or lapse of time, or both,
would become an Event of Default, shall have occurred and be continuing.
(c) MAINTENANCE OF PROPERTIES. The Company will reasonably
maintain in good repair, working order and condition, reasonable wear and tear
excepted, its properties and other assets, and from time to time make all
necessary or desirable repairs, renewals and replacements thereto.
(d) PAYMENT OF TAXES. The Company will use its best efforts to
pay or discharge or cause to be paid, set aside for payment or discharge, before
the same shall become delinquent, all taxes, assessments and governmental
charges levied or imposed upon the Company or upon its income, profits or
property; provided, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount or validity is being contested in good faith by appropriate
proceedings.
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(e) COMPLIANCE WITH STATUTES. The Company will comply in all
material respects with all applicable statutes and regulations of the United
States of America and of any state or municipality, and of any agency thereof,
in respect of the conduct of business and the ownership of property by the
Company; provided, that nothing contained in this SECTION 3(e) shall require the
Company to comply with any such statute or regulations so long as its legality
or applicability shall be contested in good faith.
(f) REPORTS; FINANCIAL STATEMENTS; NO ADVERSE CHANGE. The
financial statements of the Company included in the Memorandum did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading. The
Company's financial statements included in the Memorandum (including the related
notes and schedules) fairly present, as of January 31, 1996, the financial
position of the Company and results of operations of the Company for the periods
set forth therein (subject, in the case of unaudited statements, to the omission
of certain notes not ordinarily accompanying such unaudited financial
statements, and to normal year-end audit adjustments which are not material in
amount or effect), in each case in accordance with generally accepted accounting
principles consistently applied during the period involved. Since January 31,
1996, there has been no material adverse change in the Company's business,
properties, financial condition or results of operations.
(g) RESTRICTIONS ON DIVIDENDS, REDEMPTIONS, ETC. The Company will
not (i) declare or pay any dividend or make any other distribution of the
Company, except dividends or distributions payable in equity securities of the
Company, or (ii) purchase, redeem or otherwise acquire or retire for value any
equity securities of the Company, except (A) equity securities acquired upon
conversion thereof into other equity securities of the Company and (B) any
equity security issued to employees, directors of others performing services in
accordance with agreements providing for such repurchase at original cost upon
termination of employment, membership on the Board of Directors or other
affiliation with the Company.
(h) TRANSACTIONS WITH AFFILIATES. The Company will not itself,
and will not permit any officer, director or holder of 5% or more of the
Company's Common Stock, to engage in any transaction of any kind or nature with
any affiliate of the Company, other than transactions with any wholly-owned
subsidiary of the Company or pursuant to the terms of any agreement existing as
of the date hereof between the Company and any affiliate of the Company, unless
such transaction, or in the case of a course of related or similar transactions
or continuing transactions, such course of transactions or continuing
transactions is or are upon terms which
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<PAGE>
are fair to the Company and which are reasonably similar to, or more beneficial
to the Company than the terms deemed likely to occur in similar transactions
with unrelated persons under the same circumstances.
(i) LIENS. The Company will not create, incur or suffer to exist
any future liens, claims, or encumbrances of any kind whatsoever upon any of its
assets or properties which have priority over the Notes, except those permitted
under the Security Agreement or this Note.
4. OPTIONAL PREPAYMENT
(a) If this Note has not been converted by the Holder in
accordance with SECTION 6 hereof, all, but not less than all, of the outstanding
Notes, may be prepaid by the Company in accordance with the terms hereof.
(b) The prepayment price shall equal the outstanding principal
amount of this Note together with accrued but unpaid interest (the "Prepayment
Price"), provided that the Prepayment Circumstances exist on the date of the
notice of prepayment. The "Prepayment Circumstances" shall exist if (i) the
Securities are registered under the Securities Act of 1933, as amended (the
"Securities Act") and applicable "Blue Sky" laws, (ii) a current prospectus is
then available for the resale of the Securities and (iii) the closing bid price
of the Common Stock as reported by Nasdaq, the OTC Bulletin Board, or such other
market on which the Common Stock is then traded, exceeds $5.00 per share for the
20 consecutive trading days ending on the fifth trading day prior to the date of
the notice of prepayment.
(c) If the Prepayment Circumstances do not exist on the date of
the notice of prepayment, in addition to payment of the Prepayment Price, the
Company shall issue to the Holder one Series A Redeemable Warrants for each
$3.50 in principal amount of this Note that is to be prepaid.
(d) At least 30 days but not more than 60 days before a
prepayment date, the Company shall mail a notice of prepayment to each Holder of
the Notes. The notice shall state (i) the prepayment date, (ii) the Prepayment
Price, (iii) the Conversion Price (as defined in SECTION 6(a) hereof), (iv)
whether or not the Prepayment Circumstances existed on the date of the notice of
prepayment and, if not, the number of Series A Redeemable Warrants to be issued
to the Holder upon prepayment, (v) that the Notes may be converted in accordance
with SECTION 6 hereof at any time before the close of business on the prepayment
date, (vi) that Notes must be surrendered to the Company to collect the
Prepayment Price and (vii) that interest on Notes called for prepayment ceases
to accrue on and after the prepayment date.
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<PAGE>
(e) Once notice of prepayment is mailed, Notes called for
prepayment become due and payable on the prepayment date.
5. MATURITY
If this Note is not prepaid by the Company as provided in SECTION
4 hereof, or converted at the option of the Holder in accordance with SECTION 6
hereof, the principal amount of this Note, together with accrued but unpaid
interest, shall be due and payable on demand on April 26, 2001 (the "Maturity
Date").
6. CONVERSION.
If this Note is not prepaid by the Company in accordance with
SECTION 4 hereof, all, but not less than all, of the principal amount of this
Note, together with accrued but unpaid interest, may be converted into shares of
Common Stock (the "Note Shares") at the option of the Holder at any time on or
prior to the Maturity Date, subject to the terms and conditions set forth in
this SECTION 6. Upon conversion into Note Shares, the principal amount and
accrued but unpaid interest on this Note shall be discharged.
(a) CONVERSION PRICE. The number of Note Shares into which this
Note may be converted shall be determined by dividing the aggregate amount of
principal and accrued but unpaid interest outstanding on this Note on the
Conversion Date (as defined below) by three dollars and fifty cents ($3.50)
(subject to adjustment under certain circumstances) (the "Conversion Price").
(b) METHOD OF CONVERSION. Before the Holder shall be entitled to
receive Note Shares upon the conversion of this Note, the Holder shall surrender
this Note and deliver a Notice of Conversion (in the form attached hereto as
EXHIBIT A) to the office of the Company or its designated agent. The Notice of
Conversion shall state therein the amount(s) in which the certificate(s) for
Note Shares are to be issued. The time of conversion (the "Conversion Date")
shall be the close of business on the first business day following the date on
which the Company receives the Notice of Conversion. Interest on Notes converted
ceases to accrue on and after the date of the Notice of Conversion.
(c) ISSUANCE OF NOTE SHARES. The Company shall, as soo as
practicable after surrender of this Note and receipt of the Notice of
Conversion, but in no event more than three (3) business days thereafter, issue
and deliver to the Holder, a certificate(s) for the number of Note Shares to
which the Holder shall be entitled as aforesaid.
(d) NO FRACTIONAL SHARES. No fractional Note Shares shall be
issuable upon conversion of this Note. If the conversion of this Note would
result in the issuance of a fractional share of
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<PAGE>
Common Stock, such fractional share shall be rounded up to the nearest whole
share and issued to the Holder.
(e) ADJUSTMENT OF CONVERSION PRICE; MERGER.
(i) If the Company at any time or from time to time while
this Note is issued and outstanding shall declare or
pay, without consideration, any dividend on the Common
Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by
stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to
acquire Common Stock), or if the outstanding shares of
Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of
shares of Common Stock, then the Conversion Price in
effect immediately before such event shall, concurrently
with the effectiveness of such event, be proportionately
decreased or increased, as appropriate. If the Company
shall declare or pay, without consideration, any
dividend on the Common Stock payable in any right to
acquire Common Stock for no consideration, then the
Company shall be deemed to have made a dividend payable
in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(ii) If the Note Shares issuable upon this Note, if any,
shall be changed into the same or a different number of
shares of any other class or classes of stock, whether
by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares
provided for in SECTION 6(e)(i)), the Conversion Price
then in effect shall, concurrently with the
effectiveness of such reorganization or
reclassification, be proportionately adjusted so that
the Note Shares shall be convertible into, in lieu of
the number of shares of Common Stock which the Holder
would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock
equivalent to the number of shares of Note Shares that
would have been subject to receipt by the Holder
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<PAGE>
upon payment of Note Shares on this Note immediately
before that change.
(iii) In case of any consolidation or merger of the Company
with any other corporation, limited liability company or
any other entity (each such transaction, a "Merger"),
the corporation formed by the Merger shall succeed to
the covenants, stipulations, promises and the agreements
contained in this Note. In the event of a Merger, the
Company shall make appropriate provisions so that the
Holder shall have the right thereafter to convert this
Note into the kind and amount of securities receivable
upon such Merger by a Holder of the number of securities
into which this Note might have been converted
immediately prior to a Merger. The above provisions
shall similarly apply to successive Mergers.
(iv) NOTICE OF ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price
pursuant to this SECTION 6(e), the Company at its
expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and
prepare and furnish to the Holder a notice setting forth
such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is
based.
(f) RESERVATION OF STOCK. The Company shall at all times reserve
and keep available out its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of this Note into Note
Shares, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Notes; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all of the Notes then, the Company will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Articles of
Incorporation.
(g) ISSUE TAXES. The Company shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of Note
Shares; provided, that the Company shall not be
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<PAGE>
obligated to pay any transfer taxes resulting from any transfer requested by the
Holder in connection with any such conversion.
7. OTHER PROVISIONS RELATING TO RIGHTS OF THE HOLDER OF THIS NOTE
(a) RIGHTS OF THE HOLDER OF THIS NOTE. This Note shall not
entitle the Holder to any of the rights of a shareholder of the Company,
including, without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
shareholders or any other proceedings of the Company. This SECTION 7(a) shall
not affect the rights of the Holder in its capacity as a shareholder of the
Company upon conversion of this Note and issuance to the Holder of Note Shares
pursuant to SECTION (6) hereof.
(b) LOST, STOLEN, MUTILATED OR DESTROYED NOTE. If this Note shall
be mutilated, lost, stolen, or destroyed, the Company shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Note, or
in lieu of or in substitution for a lost, stolen, or destroyed Note, a new Note
for the principal amount of this Note so mutilated, lost, stolen, or destroyed
but only upon receipt of evidence (which may consist of a signed affidavit of
the Holder), of such loss, theft, or destruction of such Note, and of the
ownership thereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
8. SECURITIES LAW COMPLIANCE; REGISTRATION RIGHTS
(a) RESTRICTIONS ON TRANSFER. The Holder and the Company
understand that each of (i) the Holder's right to convert this Note, (ii) the
ability of the Company to issue the Note Shares and (iii) the ability of the
Company to issue Series A Redeemable Warrants are subject to full compliance
with the provisions of all applicable securities laws and the availability
thereunder of an exemption from registration, and that the certificates
evidencing the Note Shares, the Series A Redeemable Warrants and the Series A
Warrant Shares, shall bear a legend to the following effect:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (II) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE ISSUER, OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE ISSUER, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR OTHER SIMILAR SECURITIES LAW."
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(b) COMPLIANCE WITH LAWS. The Holder agrees to comply with all
applicable laws, rules and regulations of all federal and state securities
regulators, including but not limited to, the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and applicable
state securities regulators with respect to disclosure, filings and any other
requirements resulting in any way from the issuance of this Note.
9. OTHER MATTERS
(a) BINDING EFFECT; ASSIGNMENT. The provisions of this Note
shall be binding upon and inure to the benefit of the parties hereto and the
successors and assigns of the Company.
(b) FURTHER ACTIONS. At any time and from time to time, the
Company and the Holder agree, without further consideration, to take such
actions and to execute and deliver such documents as the other may reasonably
request to consummate the transactions contemplated in this Note, including
without limitation, the due execution of the Security Agreement and the
execution and filing of financing statements with the appropriate filing offices
resulting in perfected security interests.
(c) MODIFICATION; WAIVER. This Note, the Security Agreement and
the Escrow Agreement set forth the entire understanding of the Company and the
Holder with respect to the subject matter hereof and supersede all existing
agreements between them concerning such subject matter. This Note may be
amended, modified, superseded, canceled, renewed or extended, and the terms
hereof may be waived, only by a written instrument signed by the Company and
Holders of at least fifty-one percent (51%) in principal amount of the Notes at
the time outstanding; provided, however, that the consent of a Holder shall be
required to modify the terms of this Note affecting the payment of principal
amount of, or Interest on, such Holder's Note or the term of such Holder's Note.
Any waiver by the Company or the Holder of a breach of any provision of this
Note shall not operate as or be construed to be a waiver of any other breach of
such provision or of any breach of any other provision of this Note. The failure
of the Company or the Holder to insist upon strict adherence to any term of this
Note on one or more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Note. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof or hereof,
nor shall any waiver on the part of any party of any right, power or privilege
hereunder preclude any other or further exercise hereof or the exercise of any
other right, power or privilege hereunder. Any waiver must be in writing. The
rights and remedies provided herein are cumulative and are not exclusive of any
rights or remedies which any party may otherwise have at law or in equity.
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<PAGE>
(d) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt if to (i)
the Company, to First American Railways, Inc., 1360 South Ocean Boulevard, Suite
1905, Pompano Beach, Florida 33062 and (ii) the Holder to such Holder at their
last address as shown on the books of the Company (or to such other address as
the party shall have furnished in writing in accordance with the provisions of
this SECTION 9(d)). Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof.
(e) SEVERABILITY. If any provision of this Note is invalid,
illegal, or unenforceable, the balance of this Note shall remain in effect, and
if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. The rate
of interest on this Note is subject to any limitations imposed by applicable
usury laws.
(f) HEADINGS. The headings in this Note are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Note.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in all respects under the laws of the State of New York, without
reference to its conflict of laws rules or principles. Any suit, action,
proceeding or litigation arising out of or relating to this Agreement shall be
brought and prosecuted in such federal or state court or courts located within
the State of New York as provided by law. The parties hereby irrevocably and
unconditionally consent to the jurisdiction of each such court or courts located
within the State of New York and to service of process by registered or
certified mail, return receipt requested, or by any other manner provided by
applicable law, and hereby irrevocably and unconditionally waive any right to
claim that any suit, action, proceeding or litigation so commenced has been
commenced in an inconvenient forum.
(h) DUE AUTHORIZATION. The execution and delivery of this Note
and the consummation of the transactions contemplated herein have been
authorized by the Board of Directors of the Company and by any necessary vote or
with the consent of the shareholders of the Company.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by its Chairman of the Board of Directors thereunto duly authorized.
FIRST AMERICAN RAILWAYS, INC.
BY:____________________________
Allen C. Harper
Chairman Of The Board Of Directors
ATTEST:
_________________________________
Mary Aceituno, Secretary
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned being the holder of the attached Secured Convertible
Note(s) (the "Note(s)") due the Maturity Date (as defined in the Note) of First
American Railways, Inc. (the "Corporation"), hereby exercises the option to
convert the Note(s) into Note Shares (as defined in the Note(s)) in accordance
with the terms of the Note(s).
The amount of principal and accrued but unpaid interest outstanding on
the Note(s) as of the Conversion Date (as defined in the Note(s)) is $__________
and the number of Note Shares to be issued upon conversion [principal and
accrued but unpaid interest divided by the then effective Conversion Price per
Note Share] is $______________.
The undersigned directs that the Note Shares be issued in the name of
______________________________________ and delivered as soon as practicable and
in accordance with the provisions of the Note(s) to:
Full address: ________________________________________
________________________________________
________________________________________
________________________________________
Date: ________________________
______________________________
Name: [HOLDER]
16
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
First American Railways, Inc.
Hollywood, Florida
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated July 3, 1996, relating to the
financial statements of First American Railways, Inc., which is contained in
that Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
/s/ BDO SEIDMAN, LLP
--------------------
BDO Seidman, LLP
Miami, Florida
August 2, 1996
