AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1996
REGISTRATION STATEMENT NO. 333-9601
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST AMERICAN RAILWAYS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
NEVADA 4011 87-0443800
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) classification code number) Identification Number)
</TABLE>
ALLEN C. HARPER
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
FIRST AMERICAN RAILWAYS,
FIRST AMERICAN RAILWAYS, INC. INC.
2445 HOLLYWOOD BLVD. 1360 SOUTH DIXIE HIGHWAY
HOLLYWOOD, FLORIDA 33020 CORAL GABLES, FLORIDA 33416
(954) 920-0606 (305) 667-6781
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE
OF PRINCIPAL EXECUTIVE OFFICES NUMBER
OR INTENDED PRINCIPAL PLACE OF OF AGENT FOR SERVICE)
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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<S> <C> <C> <C> <C>
Amount Proposed Proposed
TITLE OF EACH CLASS to be Offering Price Aggregate Amount of
OF SECURITIES TO BE REGISTERED Registered Per Share 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(1) ................ 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(1) ...................... 2,357,338 $ 3.50 $ 8,250,683 $ 2,845.06
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Total Registration Fee(1) ....................... $19,517.55(2)
===================================================================================================================
<FN>
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(1) 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.
(2) Filing fee previously paid.
_______________________
</FN>
</TABLE>
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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<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(CROSS REFERENCE SHEET)
FORM SB-2
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
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<S> <C> <C>
1. Front of Registration Statement
Outside Front Cover of Prospectus ................. Cover Page
2. Inside Front Cover and Outside Inside Front and Outside Back;
Back Cover Pages of Prospectus .................... 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 Risk Factors; Price Range of Common
Related Stockholder Matters........................ 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
</TABLE>
<PAGE>
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 NOVEMBER 5, 1996
11,788,321 SHARES OF COMMON STOCK
6,320,111 SERIES A REDEEMABLE WARRANTS
100,000 FINANCIAL ADVISORY WARRANTS
[LOGO]
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's Common Stock is quoted on the Nasdaq SmallCap Market
("Nasdaq") under the symbol FTRN. On October 30, 1996, the last reported
sales price of the Common Stock was $3.75 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.
____________________
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
____________________
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.
____________________
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
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 organized in February 1994 with management who has
experience in the passenger rail and tourism industries.
Initially the Company intends to capitalize upon Florida's growing tourist
base by providing a unique entertainment-based passenger rail service, the
"Florida Fun-Train," between South and Central Florida. The Company plans to
offer a series of entertainment-based trains. Over the last several years
Florida has had an annual tourist base of approximately 40 million tourists.
Florida attracts tourists from across the world and was the top tourist
destination in the United States in 1995. South Florida, including the
Florida Keys, offers a number of well-known tourist destinations and a
climate that allows year-round outdoor activities, and 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 a colorful, ultra-modern train. The Florida Fun-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.
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 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, bus or airplane. The Company believes
the Florida Fun-Train will offer advantages to traveling by airplane, bus or
automobile.
The Company is in the development stage, and to date it has had no
material operations; however, the Company has taken significant steps to
commence operations of the Florida Fun-Train. In that
2
<PAGE>
regard the Company has: purchased its first passenger car; entered into an
agreement with Rader Railcar II, Inc. ("RRI") to manufacture the remaining
railcars for the Florida Fun-Train; entered into an agreement with CSX
Transportation, Inc. ("CSXT") for track use; obtained a letter of intent to
enter into an agreement with the Florida Department of Transportation
("FDOT") for track use and a terminal location in South Florida; selected a
prospective terminal site on the Orlando International Airport property and
commenced negotiations with the Orlando Utilities Commission ("OUC") and the
Greater Orlando Aviation Authority ("GOAA") in that regard and for the rights
to use OUC tracks leading into the proposed site, and commenced discussions
with others regarding an alternative terminal location in the Greater Orlando
area; commenced negotiations with the National Passenger Rail System
("Amtrak") for certain technical services in connection with the Florida
Fun-Train; engaged an outside consultant to complete a definitive marketing
study (which will include discussions with wholesale travel and tour
companies, rental car companies, airlines and cruise lines); entered into an
agreement with Universal Studios Florida for joint marketing and sales
efforts in connection with the Florida Fun-Train services; and entered into a
track rights agreement with Florida East Coast Railroad Company ("FEC") for
future use.
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 or will have access to sufficient funds to commence operations of the
Florida Fun-Train. See "Plan of Operation."
In the future the Company contemplates offering other entertainment-based
passenger trains for example: (i) developing and operating the "Space Coast
Fun-Train", which is to provide passenger service between South Florida and
the Florida Space Coast (near the Kennedy Space Center), and (ii) acquiring a
tourist destination train ("scenic railroad") outside Florida. Additional
funding will be required for these 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."
3
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
THE OFFERING:
Maximum Common Stock Offered by the Selling
Shareholders Assuming Exercise of Warrants and
Conversion of Notes(1) ............................. 11,799,121 Shares
Maximum Common Stock Outstanding after the
Offering Assuming Exercise of All Warrants and
Conversion of Notes(1) ............................. 16,424,124 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."
<FN>
- -----------------
(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.
</FN>
</TABLE>
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.
4
<PAGE>
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, and the interest earned thereon, along with funds from additional
financing(s), 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 cover operating and capital expenditures if the Company's
initial operations do not materially exceed revenue expectations and assuming no
exercise of a material amount 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.
LIMITED AND CONTINGENT TRACK RIGHTS. The Company has also negotiated an
agreement with CSXT (the "CSXT Agreement") for the use of the track between
West Palm Beach and Orlando. Among other things, this Agreement provides for
a five-year agreement and calls for significant payments to CSXT; in
addition, this contract will require the consent of Amtrak. See "Business."
The CSXT Agreement contemplates the requirement of a significant amount of
comprehensive general liability insurance.
5
<PAGE>
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 Company has entered into a letter of intent with the FDOT for use of
track rights in Dade, Broward and Palm Beach Counties and use of a terminal in
Broward County for the Florida Fun-Train.
In connection with the Space Coast Fun Train, the Company entered into an
agreement with the Florida East Coast Railroad Company ("FEC") for the use of
certain track rights along 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 Space Coast Fun-Train
is operational. See "Business--Future Entertainment Trains."
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/or certain Florida Fun-Train revenue
(whichever is greater), and not on the Company's profitability. Further, there
can be no assurance that these 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. This construction and remodeling will be done in Denver,
Colorado, by Rader Railcar II, Inc. ("RRI"), which is controlled by Thomas G.
Rader, a director and the largest shareholder of the Company. The Company
expects the railcars and locomotives 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,
financial wherewithal and many other factors which RRI may experience and
which are 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 made its preliminary terminal site selections, but
has not made the necessary arrangements (by leasing or purchase and
construction) for any of the terminals for the Florida Fun-Train. The Company is
currently negotiating with various third parties in this regard; however, there
can be no assurance that these negotiations will be successful. 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 anyone 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 service, the
Florida Fun-Train, will target tourists visiting Florida. These planned
operations may be materially adversely affected by
6
<PAGE>
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 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, in large part, upon independent representatives of tour operators
in the wholesale and retail travel trade for the marketing and sales 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. The Company has not obtained any commitment for liability
insurance for the operation of the Florida Fun-Train, 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.
7
<PAGE>
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. 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.
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
licensing, health regulations 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 (eleven persons) jointly own an aggregate of 42.45% 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 17.82% 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 exclusive of applicable sales
taxes) is expected to be used to purchase the remaining 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 there will not be material adverse consequences to the Company from the
inherent conflict of interest and lack of arm's-length negotiations in
connection with any agreement 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
8
<PAGE>
complicated by Mr. Rader's status as a director and a principal shareholder.
See "Business--Florida Fun-Train" and "Certain Transactions."
The CSXT Agreement provides that CSXT has the right to designate one member
of the Board of Directors of the Company. This could give rise to a conflict of
interest between the Company and CSXT.
OFFICER AND DIRECTOR INDEMNIFICATION. 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.
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 (9,061,078 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,
9
<PAGE>
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."
NO ASSURANCE OF CONTINUED NASDAQ LISTING AND "PENNY STOCK" REGULATIONS
MAY IMPOSE CERTAIN RESTRICTIONS
The Company's Common Stock began trading on the Nasdaq SmallCap Market on
September 12, 1996. The Board of Governors of the National Association of
Securities Dealers, Inc. has established certain standards for the initial
listing and continued listing of a security on Nasdaq. The standards for
initial listing require, among other things, that an issuer have total assets
of $4,000,000 and capital and surplus of at least $2,000,000; that the
minimum bid price for the listed securities be $3.00 per share; that the
minimum market value of the public float (the shares held by non-insiders) be
at least $2,000,000, and that there be at least two market makers for the
issuer's securities. The maintenance standards require, among other things,
that an issuer have total assets of at least $2,000,000 and capital and
surplus of at least $1,000,000; that the minimum bid price for the listed
securities be $1.00 per share; that the minimum market value of the "public
float" be at least $1,000,000 and that there be at least two market makers
for the issuer's securities. A deficiency in either the market value of the
public float or the bid price maintenance standard will be deemed to exist if
the issuer fails the individual stated requirement for ten consecutive
trading days. If an issuer falls below the bid price maintenance standard, it
may remain on Nasdaq if the market value of the public float is at least
$1,000,000 and the issuer has $2,000,000 in equity. There can be no assurance
that the Company will continue to satisfy the requirements for maintaining
the Nasdaq listing. If the Company's securities were to be excluded from
Nasdaq, it would adversely affect the prices of such securities and the
ability of holders to sell them, and the Company would be required to comply
with the initial listing requirements to be relisted on Nasdaq. Should the
Company's Common Stock be delisted by Nasdaq then the only likely public
market for the Company's Common Stock would be the OTC Bulletin Board.
If the Company is unable to satisfy Nasdaq's maintenance requirements and
the price per share were to drop below $5.00, then unless the Company
satisfied certain net asset tests, the Company's securities would become
subject to certain penny stock rules promulgated by the Securities and
Exchange Commission. The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document prepared by the Commission
that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer must also provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules,
the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary market
for a stock that becomes subject to the penny stock rules. If the Company's
Common Stock becomes subject to the penny stock rules, investors in the
Offering may find it more difficult to sell their shares.
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
10
<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.
11
<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 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. In
March 1988, Barona Enterprises, Inc. 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."
12
<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's Common Stock recently began trading on the Nasdaq SmallCap
Market ("Nasdaq") under the symbol "FTRN". Prior to September 11, 1996, the
Company's Common Stock was quoted on the OTC Bulletin Board under the same
symbol. The following table sets forth the high and low sales prices of the
Common Stock for the period indicated in 1996.
<TABLE>
<CAPTION>
1996: HIGH LOW
- ----- ------- -------
<S> <C> <C>
Second Quarter (beginning April
26) ............................... $6.375 $3.00
Third Quarter ..................... $5.375 $3.25
Fourth Quarter (through October
30) ............................... $ 4.75 $2.75
On October 30, 1996, the last reported sales price of the Common Stock was
$3.75 per share. As of that date, there were approximately 360 holders of
record of the Common Stock.
<FN>
- -----------------
* 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.
</FN>
</TABLE>
13
<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.
14
<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.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
CUMULATIVE FROM
THE PERIOD FOR THE SIX MONTHS
FEBRUARY 14, 1994 ENDED JUNE 30, FOR THE EIGHT FOR THE YEAR
(INCORPORATION) ---------------------------- MONTHS ENDED ENDED
THROUGH DECEMBER 31, APRIL 30,
JUNE 30, 1996 1996 1995 1995 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>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
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>
15
<PAGE>
PLAN OF OPERATION
PLAN OF OPERATION
The Company proposes to provide its customers with innovative, quality,
entertainment-based passenger rail service. The Company is in the development
stage, and to date it has had no material operations; however, the Company has
taken significant steps to commence operations of the Florida Fun-Train. In that
regard the Company has: purchased its first passenger car; entered into an
agreement with RRI to manufacture the remaining railcars for the Florida
Fun-Train; entered into an agreement with CSXT for track use; obtained a letter
of intent to enter into an agreement with the FDOT for track use and a terminal
location in South Florida; selected a prospective terminal site on the Orlando
International Airport property and commenced negotiations with the OUC and GOAA
in that regard and for the rights to use OUC tracks leading into the proposed
site, and commenced discussions with others regarding an alternative terminal
location in the Greater Orlando area; commenced negotiations with Amtrak for
certain technical services in connection with the Florida Fun-Train; engaged an
outside consultant to complete a definitive marketing study (which will include
discussions with wholesale travel and tour companies, rental car companies,
airlines and cruise lines); entered into an agreement with Universal Studios
Florida for joint marketing and sales efforts in connection with the Florida
Fun-Train services; and entered into a track rights agreement with FEC for
future use. See "Business." 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 leasing and/or 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."
During this development stage, the Company has agreed to purchase
additional Fun-Train railcars pursuant to a construction agreement with RRI.
The Company has contracted to spend a maximum of approximately $9.7 million
(including applicable sales taxes) to purchase up to 12 railcars and make
exterior modifications to three diesel locomotives. The Company expects to
lease two diesel locomotives prior to commencing operations, and it
estimates, based on currently available information, that diesel locomotives
are generally available for lease for approximately $14,000/month/locomotive.
The railcar construction agreement with RRI required a significant down
payment with the balance of the contract price to be paid in installments;
however, this payment schedule will vary depending on the number and delivery
schedules of the cars actually purchased. The Company expects the railcars to
be completed and delivery to begin in the Summer 1997 and it expects
staggered delivery of the railcars to continue during the Summer 1997 so that
it can 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 negotiations in this regard, and it is in the
process of finalizing its cost estimates and determining the extent of
governmental support for these activities, if any. During the next 12 months the
Company expects to increase its work force from the ten persons currently
employed by the Company (eight of whom are management). The Company will be
required to hire approximately 75 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.
16
<PAGE>
Upon launching the Florida Fun-Train, revenues will be generated from both
passenger ticket sales and onboard 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 in the range of
$65-$75 (before discounts) and that the average per passenger en route revenue
(for food, beverages, entertainment and souvenirs) will be in the range of
$22-$25. 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 and discounts 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 632
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). Also, the Company is actively pursuing a
strategy of acquiring a tourist destination train. See "Business--Future
Entertainment Trains."
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; of this amount, approximately $507,000 in cash was used to pay
the expenses of offerings not completed, and approximately $850,000 in cash
was used to purchase a rail car for future use.
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 direct 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.
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
17
<PAGE>
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 $778,388 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 and costs of repairs) due on the first railcar purchased. In
addition, a significant portion of the proceeds of the April-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, along with prospective
leasing and financing opportunities, will 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.
18
<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. The Company's goal is to
become a recognized leader in providing innovative, quality,
entertainment-based passenger rail service.
First American-Florida was organized in February 1994 with management who
has experience in the passenger rail and tourism industries. Over the last
several years Florida has had an annual tourist base of approximately 40
million tourists. Initially the Company intends to capitalize upon Florida's
growing tourist base 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. The
Company plans to develop and offer a series of entertainment-based trains,
beginning with the "Florida Fun-Train".
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 a colorful, ultra-modern 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 ("customer care") in order to
accommodate its passengers; to facilitate this the Company has hired an employee
(vice president) who is specifically charged with these duties. See
"Management."
In the future the Company contemplates offering other entertainment-based
passenger trains including (i) developing and operating the "Space Coast
Fun-Train", which is to provide passenger service between South Florida and
the Florida Space Coast near the Kennedy Space Center, and (ii) acquiring a
tourist destination train ("scenic railroad") outside Florida. The Company
will be required to seek additional financing for these future opportunities;
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 experience in the passenger rail and tourism
markets. The Company's Chairman of the Board is on the Board of Directors of
the Tri-County Rail Authority (Chairman from October 1992 to October 1993 and
from July 1995 to June 1996). 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
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<PAGE>
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 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
traveling by airplane while travelling by automobile does not offer the
entertainment value provided on the Florida Fun-Train.
COMPETITION
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 uncertain whether the Company will be successful
in these efforts.
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 generally more expensive
than the Company's proposed fares; however, there are certain low-fare air
carriers operating in the South Florida/Orlando corridor. Further the Company
believes that airline travel does not provide significantly 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, 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 on Amtrak between Miami/Fort Lauderdale and
Orlando is currently $123 (first class service) and $55 (coach service.)
Presently Amtrak service does not include the "entertainment-type" service
which the Company proposes to provide on the Florida Fun-Train; however,
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
is currently negotiating with Amtrak for the latter to provide certain
"technical services" for the Florida Fun-Train. See "Business--Florida
Fun-Train."
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, or the Space Coast Fun-Train; 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.
FLORIDA FUN-TRAIN
The Company plans to commence operations of the Florida Fun-Train during
the Fall 1997.
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<PAGE>
The Florida Fun-Train is anticipated to consist of:
<TABLE>
<CAPTION>
<S> <C>
8 Dome Passenger Cars* Each car will provide comfortable, spacious seating and
meal service for approximately 80 passengers (which
includes the initial prototype car already owned by the
Company).
4 Bilevel Entertainment These cars will consist of (i) one "bar car" which will
Cars* serve cocktails and hors d'oeuvres and provide live
entertainment, and music for listening and/or dancing,
(ii) one "electronic game" car which is expected to
contain high-tech video and virtual reality as well as
music and live entertainment (provided by musicians,
disc jockeys, magicians, clowns, etc.), (iii) one multi
media car which will include a custom designed
entertainment area which will provide the latest in
audio/visual special effects and (iv) one lounge car
which will consist of an ice cream/pizza parlor, a
children's play area and gift shop.
1 Baggage Car This car will provide storage space for the passengers'
luggage.
<FN>
- -------
* The Fun-Train's operation may commence with less than eight passenger cars and/or
less than four entertainment cars.
</FN>
</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 remodeled 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 on currently existing FDOT and CSXT tracks.
The tracks between Ft. Lauderdale and West Palm Beach which comprise part of
the proposed route of the Florida Fun-Train are controlled by FDOT. The Company
has been in negotiations with FDOT to obtain the right to use this track. The
Company has entered into a letter of intent in this regard. Based on this letter
of intent, the Company anticipates that the track usage fee for the use of this
portion of the proposed route will range from $400 to $600 per train trip
(one-way); this cost to the Company is expected to include the right to use a
railroad terminal in Broward County which would serve as the southern terminal
for the Florida Fun-Train (as described below) and the track rights to an
existing railroad maintenance facility in Hialeah, FL. The Company believes it
will have a final agreement in this regard in the near future.
The CSXT Agreement dated October 31, 1996, provides for the use of CSXT's
tracks between West Palm Beach and Orlando to be used for the operation of the
Florida Fun-Train. The CSXT provides, in part, that the Company will initially
pay CSXT the greater of $20 per train-mile, or 16% of the Company's gross ticket
revenue (less discounts) from the Florida Fun-Train operations. The Company's
payment requirements under the CSXT Agreement are as follows: the per train-mile
amount is subject to various increases for inflation and other price adjustments
including, (i) an annual increase, beginning January 1, 1999, in the per
train-mile charge equal to the inflation index of the Association of American
Railroads, (ii) a $50,000 per month reduction for the aggregate train-mile
charge in 1997, 1998 and 1999, and (iii) a $2.20 increase in the per train-mile
charge along with a limit in certain circumstances on the total annual
compensation to CSXT beginning in the year 2000 and thereafter. In addition, 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 Agreement, 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 for the cruise ship
21
<PAGE>
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 agreed to
sell up to 475,000 warrants to CSXT, exercisable at $4.50 per warrant with
the initial installment of 75,000 warrants being exercisable upon the
commencement of operations of the Florida Fun-Train and thereafter in four
equal annual installments of 100,000 warrants each commencing January 1,
1998; 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 track rights agreements that the Company has or are expected to have
with track owners, will require the substantial amounts of general
comprehensive liability insurance (up to $300 million in coverage). The
Company has received proposals from various insurance brokers to assist it in
obtaining the coverage. In this regard, the Company has selected an
internationally--recognized insurance brokerage firm which has advised the
Company that this type and amount of insurance is generally available, at
reasonable rates, and it believes the Company will be able to secure a
commitment for such insurance prior to the commencement of the Florida
Fun-Train's operations.
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 the Greater Orlando area, the home of Walt
Disney World, Universal Studios Florida, Sea World and numerous other
attractions.
The Company has entered into a letter of intent with FDOT for the use of an
existing railroad terminal which is currently used by Tri-Rail and Amtrak and
which is located on a rail corridor in Broward County and is proximate to the
intersection of I-95 and Broward Boulevard. This site will serve as the southern
terminal for the Florida Fun-Train. The Company is also negotiating with
Tri-Rail and Amtrak for the right to use various sidings along this section of
the route, including those near the aforementioned terminal site and with Amtrak
for the use of the rail maintenance facility in Hialeah, FL. The proposed
northern terminal location is on Orlando International Airport property
controlled by GOAA and OUC. The Company has commenced negotiations with OUC and
GOAA in this regard. OUC has advised the Company that it may construct a rail
terminal and platform on its main line near Boggy Creek Road (which is proximate
to the Orlando International Airport), and for the rights to use OUC tracks
leading to the proposed site. Further, the Company is negotiating with OUC for
rights to temporarily "store" the Florida Fun-Train on this property. Although
the Company is attempting to obtain funding for the northern terminal from state
and/or local governments, final terms regarding the construction of these
facilities have not been negotiated, and 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 and one-half 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.
MARKETING
The initial one-way ticket price for the Florida Fun-Train is expected to
be in the range of $65-$75, and the per-passenger en route revenue (for food,
beverages, entertainment and souvenirs) is expected to be in the range of
$22-$25.
On July 23, 1996, the Company engaged Management Resource Group, Inc. to
conduct a market study for the Company for the purpose of providing
recommendations with respect to targeting market
22
<PAGE>
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 and is expected to be
completed in late November 1996.
Over the next 12 months the Company plans to develop and implement its
sales and marketing efforts. The Company plans to hire approximately four
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 travel and 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.
On October 30, 1996, the Company entered into an agreement with Universal
Studios Florida (a major Central Florida tourist attraction) for joint
advertising, promotion and publicity programs in order to form a "strategic
alliance" for on-going joint activities from November 4, 1996 to December 31,
1998.
FUN-TRAIN OPERATIONS
The Company is currently negotiating with Amtrak for the provision of
technical services by the latter in connection with the operation of the
Florida Fun-Train. These technical services may include the provision of
train and engine crews, maintenance of equipment, fuel and leasing of
locomotives and a baggage car. The Company expects to reach an agreement with
Amtrak in this regard in the near future. As part of these negotiations, the
Company has requested Amtrak's consent to the Company's use of the CSXT
track, as required by the CSXT Agreement.
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 3.3 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
23
<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.
VISITORS BY SOUTHEAST AND CENTRAL FLORIDA REGIONS (1989-94)(1)(4)
<TABLE>
<CAPTION>
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
<FN>
- --------------------
(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.
</FN>
</TABLE>
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 to be
serviced by 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 22.5 million passengers enplaned and deplaned at the Orlando
International Airport in 1994, up from approximately 22.4 million in 1993 and
21.5 million in 1992. Of these passengers, approximately 11% were
international visitors, primarily from Europe, Canada and, to a lesser
extent, Latin America.
24
<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 approximately 135 airlines, more than any other
airport in the world, Miami International Airport logs approximately 1,400
daily departures and arrivals. In 1995, over 33.5 million (14.5 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 17 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 3.2 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 in excess of 2.3 million cruise passengers during 1995.
There are 32 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 1995, the
airport handled approximately 8.6 million domestic passengers and 1.2 million
international passengers. There are approximately 35 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.
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<PAGE>
FUTURE ENTERTAINMENT 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.
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
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 the Space Coast Fun-Train is
operable, the minimum payment will be $500,000 per annum. The Company will
operate the 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 route, with certain exceptions.
Further, the Company is obliged to indemnify FEC for claims under actions
arising from the operation of 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 Company is actively pursuing its strategy of acquiring a tourist
destination train ("scenic railroad"). The Company has had contact with
representatives of The Durango & Silverton Narrow Gauge Railroad Company
("D&SNG") regarding the acquisition of D&SNG by the Company. On November 4,
1996, the Company executed a non-binding letter of intent for the acquisition of
all of the capital stock of D&SNG for $20 million (which includes cash,
assumption of indebtedness and purchase money financing), 200,000 shares of
common stock, and common stock purchase warrants covering 600,000 shares. This
letter of intent contains an "exclusivity" clause which prohibits for a period
of time, D&SNG from negotiating the sale of that company to any other third
party. The parties have commenced "due diligence" under the terms of the letter
of intent. The consummation of this proposed acquisition is subject to, among
other things, (i) the execution of a definitive purchase and sale agreement
between the parties, (ii) the satisfactory conclusion of the "due diligence"
review, and (iii) the Company obtaining sufficient funds to pay the purchase
price. There are significant events including the execution of a binding
contract, satisfactory completion of due diligence, and financing, which must
occur before any such acquisition could be consummated. At the present time, it
is not probable that this acquisition will occur. If the acquisition is
consummated, it will materially affect the operations of the Company; however,
there can be no assurance that the acquisition will occur on the proposed terms
or at all.
D&SNG operates an antique, narrow gauge tourist railroad along a 45-mile
route between Durango and Silverton, Colorado along the Animas River. D&SNG
provides a scenic railroad excursion which is unique within the industry, and it
has been operated as a tourist railroad since 1968.
The railroad was built between 1880 and 1882 by the Denver & Rio Grande
Railway Company to service the mining regions of the San Juan Mountains. The
steam operated locomotives were manufactured by the American Locomotive Works
and Baldwin Locomotive Works between 1923 and 1925. The coaches, many of
which are original, are of 1880 vintage. The railroad is a registered
National Historic Landmark and has exclusive rights for passage through the
San Juan National Forest.
D&SNG's operations are seasonal with peak months in June, July and August,
and with four daily trains except during the winter. The 90-mile round trip
takes nine hours including a two-hour layover in
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Silverton. From November through April, one train is operated daily from
Durango to Cascade Canyon (a 52-mile round trip lasting five hours). D&SNG
logs more passenger miles annually than any other railroad in the country
with the exception of Amtrak and various commuter lines.
EMPLOYEES
The Company currently employs ten persons, eight of whom are management
and two of whom are staff members. Over the next 12 months, the Company
expects to hire approximately 75 persons. See "Plan of Operation." The
Company also intends to rely extensively on independent contractors and the
outsourcing 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. The Company also will be subject to
liquor license, as well as health and other regulations promulgated by state
and local authorities. 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.
DESCRIPTION OF PROPERTY
The Company leases approximately 1,025 square feet of temporary space in a
facility located at 2445 Hollywood Blvd., Hollywood, Florida 33020, for its
executive offices, pursuant to a week-to-week lease at a monthly rental rate
of $4,450 (which includes various office amenities, e.g., secretarial
service, conference room, photocopying services, etc.). The existing lease is
short-term; the Company intends to lease permanent office space by the first
quarter of 1997.
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.
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<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
Glenn P. Michael....... 52 Director
<FN>
- -------------
(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.
</FN>
</TABLE>
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 and Chief Operating Officer
William T. Nanovsky.... 48 Vice President, Secretary, Treasurer and
Chief Financial Officer
Don P. Cumming......... 35 Vice President, Controller and Chief
Accounting Officer
Thomas E. Blayney...... 56 Vice President of Operations
Pamela S. Petcash...... 34 Vice President, Customer Care and
Entertainment
</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 from July 1995 to June 1996, he 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
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<PAGE>
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 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 (an
electronics security company). 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 a member of the Tri-County
Commuter Rail Authority. Mr. Rush was former chairman of the National High
Tech Council and is a past member of the Defense Conversion and Transition
Commission. 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 of McDonald's Corporation, 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.
29
<PAGE>
MR. MICHAEL has been a Director of the Company since September 1996. He has
had extensive experience in the railroad and transportation industries since
1982. In 1996 he became President and Chief Executive Officer of Novoeste
Railways, Brazil's first privatized railroad. In 1995, Mr. Michael formed
G.P.M. Associates, a railroad consulting company. Also during 1995, he served
as the railways consultant specialist for the Bosnia and Hezergovina World
Bank Mission. Mr. Michael was the Vice President of Operations of Southern
Pacific Rail Corporation (Denver, CO) from 1992 to 1994. Prior to that, he
served as Vice President/Chief Transportation Officer for CSXT Corporation
from 1986 to 1992. Mr. Michael served as Vice President Labor Relations of
Chessie System, a rail transportation company in Baltimore, Maryland, from
1982 to 1986. Mr Michael has served on the Board of Directors of several rail
companies.
MR. NANOVSKY, became Vice President, Treasurer and Chief Financial Officer of
the Company in August 1996, and Secretary in October 1996. More recently
(1993-1995), Mr. Nanovsky served as Vice President, Chief Financial Officer and
Secretary of GameTek, Inc. (an interactive enterainment software company). Since
his resignation from GameTek, he has been a consultant within the interactive
software industry focusing on mergers and acquisitions; planning equity
offerings; and restructuring debt facilities. From 1991 to 1993, he served as
Senior Vice President, Chief Financial Officer and Treasurer of Marietta
Corporation (a unit-of-use packaged goods company). From 1986 to 1991, Mr.
Nanovsky was a member of the Board of Directors, Senior Vice President, Chief
Financial Officer and Secretary of Seneca Foods Corporation (an international
consumer goods company).
MR. CUMMING, became Vice President, Controller and Chief Accounting
Officer of the Company in August 1996. Mr. Cumming served as Division
Controller of Export Sales and Corporate Finance Manager for Sensormatic
Electronics Corporation (an electronic security corporation) from 1992 to
1996. Prior to that he served as Staff Auditor--Senior Manager for Ernst &
Young (an international accounting firm) from 1982 to 1992.
MR. BLAYNEY, became Vice President of Operations in August 1996. From 1989
to 1995 Mr. Blayney served as Executive Vice President and General Manager of
Southland Greyhound Park (a parimutuel attraction in Arkansas).
MISS PETCASH, Vice President, Customer Care and Entertainment, commenced her
employment with the Company in September 1996. Miss Petcash was Cruise Director
and Senior Officer for Princess Cruises from 1995 to 1996, and Entertainment and
Cruise Director for Gold Star Cruises, LLP from 1994 to 1995. Miss Petcash was
affiliated with Kloster Cruises beginning in 1982 through 1994 working with
Norwegian Cruise Line and Royal Viking Line. She held the position of Cruise
Director between 1989 and 1994 onboard various ships operated by Kloster
Cruises.
* * * *
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 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 a 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 Capital Growth does not designate such director,
or if 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. As part of the CSXT Agreement, the Company has tentatively agreed
to elect a designee of CSXT to the Company's Board of Directors.
30
<PAGE>
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
In February 1994, the Company and Messrs. Harper and Garfield,
respectively, entered into employment agreements. These agreements are for a
three-year term (expiring February 1997) and provide for the base salaries of
$125,000 and $100,000, 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.
Effective June 1, 1996, Mr. Garfield's salary was increased to $125,000
per annum and he became Vice Chairman of the Board of Directors; in addition,
Mr. Garfield was reimbursed $13,000 by the Company for the use of office
space for the previous twenty-four months, and he was awarded a one-time
bonus of $25,000. Also effective that date the Company agreed to reimburse a
corporate affiliate of Mr. Harper in the amount of $5,700 per month for costs
associated with maintaining an office (e.g. secretarial, telephone and
related expenses) as well as health insurance and automobile expenses.
The Company has also entered into an employment agreement with Mr.
Monteleone. Mr. Monteleone has been 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 10,800
shares, effective July 1, 1996, and he will be granted a minimum of 30,000
non-qualified stock options annually during 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
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<PAGE>
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.
Mr. Nanovsky serves as Vice President, Secretary, Treasurer and Chief
Financial Officer of the Company pursuant to an August 1996 employment agreement
with the Company. The initial term of this agreement is one year with two,
one-year renewals (cancelable by either party) thereafter. The agreement
provides for initial base compensation of $115,000 per annum and a bonus of up
to 30% of his base compensation. In January 1997, he will receive base
compensation of $120,000 per annum; in addition, Mr. Nanovsky is to receive a
bonus up to 30% of his base compensation subject to the attainment of certain
pre-determined goals. Thereafter and commencing on January 1, 1998, further base
compensation, bonus amounts and stock option awards shall be as determined by
the Company. The employment agreement provides for health care insurance
benefits commencing in January 1997 (until that time he will receive a monthly
allowance of $300), along with participation in pension and/or profit sharing
plans, should such plans be instituted by the Company, as well as other standard
benefits. Beginning in January 1997, he will receive an automobile allowance of
$400 per month. Pursuant to the agreement, Mr. Nanovsky was granted
non-qualified stock options covering 18,000 shares which vest annually in three
equal increments; in addition he will be granted an 18,000-share stock-options
exercisable at the then current market price on the first two anniversary dates
of his employment (unless his employment has not been renewed). Pursuant to the
agreement, Mr. Nanovsky may receive, in certain circumstances following a
"change in control" of the Company, a severance package consisting of one year's
worth of his then current annualized compensation (base salary plus applicable
bonus, if any) along with acceleration of the vesting of the above-described
stock options.
Mr. Cumming serves as Vice President, Controller and Chief Accounting Officer
of the Company pursuant to an August 1996 employment agreement with the Company.
The initial term of this agreement is one year with two, one-year extensions
which will automatically renew unless previously cancelled by either party. The
agreement provides for an initial base compensation of $85,000 per annum; in
addition, Mr. Cumming is to receive a bonus of not less than 10% and up to 25%
of his base compensation subject to the attainment of certain pre-determined
goals. His 1997 base compensation will be $90,000 and his bonus range will be
the same as that for 1996. For 1998, such compensation and bonus is to be
determined by the Company. Pursuant to the agreement, Mr. Cumming was granted
non-qualified stock options covering 13,000 shares, 6,333 of which vest
immediately and the balance will vest annually in two equal increments. The
employment agreement provides for health care insurance benefits commencing in
January 1997 (until that time he will receive a monthly allowance of $397), and
participation in pension and profit sharing plans, should such plans be
instituted by the Company, as well as other standard benefits. Beginning in
January 1997, he will receive an automobile allowance of $300 per month.
Pursuant to the agreement, Mr. Cumming may receive, in certain circumstances
following a "change in control" of the Company, a severance package consisting
of one year's worth of his then current annualized compensation (base salary
plus applicable bonus, if any) along with the acceleration of the vesting of the
above-described stock option.
Mr. Blayney serves as Vice President of Operations of the Company pursuant
to a August 1996 employment agreement with the Company. The initial term of
this agreement is one year with two, one-year extensions which will
automatically renew unless previously cancelled by either party. The
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<PAGE>
agreement provides for an initial base compensation of $85,000 per annum; in
addition, Mr. Blayney is to receive a bonus of not less than 10% and up to
25% of his base compensation subject to the attainment of certain
pre-determined goals. His 1997 base compensation and bonus range will be the
same as that for 1996. For 1998, such compensation and bonus is to be
determined by the Company. Pursuant to the agreement, Mr. Blayney was granted
non-qualified stock options covering 10,000 shares which vest annually in
three equal increments. The employment agreement provides for health care
insurance benefits commencing in January 1997 (until that time he will
receive a monthly allowance of $300), along with participation in pension
and/or profit sharing, should such plans be instituted by the Company, as
well as other standard benefits. Beginning on August 21, 1996, he will
receive an automobile allowance of $300 per month. Pursuant to the agreement,
Mr. Blayney may receive, in certain circumstances following a "change in
control" of the Company, a severance package consisting of one year's worth
of his then current annualized compensation (base salary plus applicable
bonus, if any) along with the acceleration of the vesting of the
above-described stock option.
Miss Petcash serves as Vice President, Customer Care and Entertainment of
the Company pursuant to a September 1996 employment agreement with the
Company. The initial term of this agreement is one year with two, one-year
extensions which will automatically renew unless previously cancelled by
either party. The agreement provides for an initial base compensation of
$100,000 per annum; in addition, Miss Petcash is to receive a bonus of up to
25% of her base compensation subject to the attainment of certain
pre-determined goals. Her 1997 base compensation and bonus range will be the
same as that for 1996. For 1998, her compensation and bonus is to be
determined by the Company. Pursuant to the agreement, Miss Petcash was
granted non-qualified stock options covering 10,000 shares which vest
annually in three equal increments. The employment agreement provides for
health care insurance benefits commencing in January 1997 (until that time
she will receive a monthly allowance of $300), along with participation in
pension and/or profit sharing plans, should such plans be instituted by the
Company, as well as other standard benefits. Beginning in January 1997, she
will receive an automobile allowance of $300 per month. Pursuant to the
agreement, Miss Petcash may receive, in certain circumstances following a
"change in control" of the Company, a severance package consisting of one
year's worth of her then current annualized compensation (base salary plus
applicable bonus, if any) along with the acceleration of the vesting of the
above-described stock option.
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 agreed 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 $100,000 for any applicable
period. During the subject periods, First American-Florida paid no long-term
compensation to any person. The Company did not pay any form of compensation
to any officer or director during its last three full fiscal years.
33
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) 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>
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 October 30, 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 17.82 0
Allen C. Harper Chairman of the 1,379,032(4) 15.22 0
Board of Directors
and Chief Executive Officer
Eugene K. Garfield Vice Chairman 718,343 7.93 0
of the Board of Directors
Ray Monteleone President, Chief 20,800(5)(6) * 0
Operating Officer
and Director
Luigi Salvaneschi Director 85,654(7) * 0
David H. Rush Director 21,414 * 0
Glenn P. Michael Director 0 * 0
William T. Nanovsky Vice President, Secretary, 6,000(6) * 0
Treasurer and Chief Financial
Officer
Don P. Cumming Vice President, Controller 6,333(6) * 0
and Chief Accounting Officer
Thomas E. Blayney Vice President of Operations 3,333(6) * 0
Pamela S. Petcash Vice President, Customer Care 3,333(6) * 0
and Entertainment
All Officers and Directors 3,858,823(3) 42.45 0
as a Group (11 persons)
</TABLE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
----------------------
SHARES
NAME SHARES(8) PERCENT(2) OFFERED(9)
- ---- --------- ----------- ----------
<S> <C> <C> <C>
SELLING SHAREHOLDERS:
Auric Investments Limited
24 St. Georges Street, Douglas
Isle of Man IM1 1AH 823,274 8.84 823,274
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
----------------------
SHARES
NAME SHARES(8) PERCENT(2) OFFERED(9)
- ---- --------- ----------- ----------
<S> <C> <C> <C>
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 299,426 3.27 299,426
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
Gibesgelt 46,250 * 46,250
Euro Capital 45,000 * 45,000
Lawrence Burstein 40,695 * 44,485
Michael S. Jacobs 37,500 * 37,500
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
----------------------
SHARES
NAME SHARES(8) PERCENT(2) OFFERED(9)
- ---- --------- ----------- ----------
<S> <C> <C> <C>
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
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
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
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
----------------------
SHARES
NAME SHARES(8) PERCENT(2) OFFERED(9)
- ---- --------- ----------- ----------
<S> <C> <C> <C>
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
Paul Fitzgerald 365 * 365
Sherwood P. Larkin 290 * 290
Richard Sichenzio 155 * 155
37
<PAGE>
<FN>
- -------------
* 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 475,000 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 10,800 shares owned of record by Mr. Monteleone.
(6) Includes 10,000 shares, 6,000 shares, 6,333 shares, 3,333 shares and
3,333 shares which are issuable to Messrs. Monteleone, Nanovsky,
Cumming, Blayney and Miss Petcash, respectively, upon the exercise of
currently exercisable stock options.
(7) Mr. Salvaneschi serves as the Trustee for a trust under an agreement
dated October 19, 1993, in which name these shares are held, and for
which Mr. Salvaneschi has sole voting and depositive power.
(8) 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.
(9) 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.
</FN>
</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
Auric Investments Limited
24 St. Georges Street, Douglas
Isle of Man IM1 1AH 260,774 6.58 260,774
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
BEFORE OFFERING
--------------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- ---------- ---------- --------
<S> <C> <C> <C>
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
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
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
BEFORE OFFERING
--------------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- ---------- ---------- --------
<S> <C> <C> <C>
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
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
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
BEFORE OFFERING
--------------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- ---- ---------- ---------- --------
<S> <C> <C> <C>
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
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
<FN>
- --------------
* Less than 1%
</FN>
</TABLE>
41
<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
<FN>
- -------------
* Less than 1%
</FN>
</TABLE>
42
<PAGE>
CERTAIN TRANSACTIONS
The Company requires that transactions with affiliates be made on terms
that the Company believes are at least as favorable as those obtainable from
unaffiliated third parties, and such transactions will be approved by a
majority of the independent, disinterested directors.
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
RRI will be the Company's 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.
On October 23, 1996 the Company contracted with RRI for the design and
production of up to 12 additional railroad cars and the exterior modification
of the three leased locomotives all of which will be used for the Florida
Fun-Train. The total cost of this equipment, including applicable sales
taxes, is approximately $9.7 million. Pursuant to the RRI contract the
Company has paid a down payment of $1.4 million. The RRI contract provides
for the delivery of various railcars over a period of several months
beginning June 1, 1997.
The terms of the transactions between the Company and RRI have been
determined by negotiations between RRI and the Company's disinterested
directors. Because of Mr. Rader's involvement, there is an inherent conflict
of interest in this process; further, competitive bidding was not used for
any of these railcar purchase agreements. The Company's Board of Directors
believes that the terms of the agreements with RRI for the construction of the
Fun-Train railcars are commercially reasonable.
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 $1,352,109.17 and paid Capital Growth a nonaccountable expense
allowance of $338,027.29.
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;
43
<PAGE>
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.
TEMPORARY LEASE
During fiscal 1995, prior to its present temporary space arrangement, the
Company leased approximately 250 square feet of office space from Eugene K.
Garfield, a director and Vice Chairman of the Board of Directors of the
Company, for a total annual rental of $6,500.
44
<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.
45
<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.
46
<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.
47
<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.
48
<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, except for Notes 8(i), (j), (k) and (l)
which are as of October 29, 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 2,416 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 57,829 172,592 282,250 166,484
------------------ ------------- ------------- ------------------- -------------
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 STATE
------------ ------------ ------------- -------------
<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 to related party 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, the
remaining proceeds of the lease were assigned to the Company and, therefore,
the Company will receive monthly lease payments of $10,000 through September
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
(Note 8(j)).
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 (Note 8(k)).
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 $778,388 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 10,800 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.
i) In August and September 1996, the Company entered into one year employment
agreements with four of its new officers providing for annual aggregate initial
base compensation of $385,000. In addition, nonqualified stock options were
granted to purchase 51,000 shares of common stock at the market price at the
date of grant (ranging from $3.50 to $4.75 per share) of which 19,000 vest
immediately, with the remaining 32,000 vesting equally in two annual increments.
j) In October 1996, the Company entered into an agreement with Rader for
design and production of up to twelve additional railcars for a total cost of
approximately $9,700,000. Pursuant to the agreement the Company has made a
down payment of $1,400,000 to Rader. The agreement provides for delivery of
various railcars over a period of several months beginning June 1997 (Note 5
(b)).
k) In October 1996, the Company reduced the CSXT memorandum to a formal
agreement. Modification to the memorandum includes a provision whereby the
pre-train mile amount is subject to various increases for inflation and other
price adjustments. In
F-11
<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)
addition, the Company has agreed to sell up to 475,000 warrants to CSXT,
exercisable at $4.50 per warrant with 75,000 warrants being exercisable upon
commencement of operations of the Florida Fun-Train and thereafter in four
equal annual installment of 100,000 warrants each commencing January 1, 1998
(Note 6).
l) In October 1996, the Company entered into a letter of intent with the
Florida Department of Transportation for the right to use the tracks between Ft.
Lauderdale and West Palm Beach which comprise part of the proposed route of the
Florida Fun-Train. The Company anticipates that the track usage fee will range
from $400 to $600 per one way trip. The cost to the Company is expected to
include the right to use a railroad terminal in Broward County and the track
rights to an existing railroad maintenance facility in Dade County.
F-12
<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
Risk Factors .............................. 5
The Merger ................................ 12
Use of Proceeds ........................... 13
Price Range of Common Stock ............... 13
Dividend Policy ........................... 14
Selected Financial Data ................... 15
Plan of Operation ......................... 16
Business .................................. 19
Management ................................ 28
Principal and Selling Shareholders ....... 34
Certain Transactions ...................... 43
Description of Securities ................. 45
Plan of Distribution ...................... 47
Legal Matters ............................. 48
Experts ................................... 48
Additional Information .................... 48
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.
<TABLE>
<CAPTION>
<S> <C>
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
===========
</TABLE>
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)
10,800 shares of Common Stock July 1, 1996 Raymond Monteleone --(6)
<FN>
- -------------
(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.
(6) Issued as part of Mr. Monteleone's employment agreement with the Company.
</FN>
</TABLE>
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, 1994, between First American-Florida and Michael J. Acierno,
as amended October 15, 1996.*
10.5 Employment Agreement dated July 1, 1996, between the Company and Ray Monteleone, as amended October
28, 1996.*
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 Railcar Construction Agreement (without appendices) between Fun Trains, Inc. and Rader Railcar II,
Inc., dated October 23, 1996.*
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.
10.12 Employment Agreement dated October 15, 1996, between the Company and William T. Nanovsky.*
10.13 Employment Agreement dated October 9, 1996, between the Company and Don P. Cumming.*
10.14 Employment Agreement dated August 23, 1996 between the Company and Thomas E. Blayney.*
10.15 Employment Agreement dated September 30, 1996 between the Company and Pamela S. Petcash.*
10.16 Form of Confidentiality and Noncompetition Agreement between the Company's executive employees and
the Registrant.*
10.17 Consulting Agreement between Managment Resource Group, Inc. and the Company, dated July 23, 1996.*
10.18 Agreement between Universal Studios Florida and the Company, dated October 30, 1996.*
10.19 Agreement between CSX Transportation, Inc. and the Company, dated October 31, 1996.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
16 Letter dated May 10, 1996, from the Registrant's former accountants, Hansen, Barnett & Maxwell, to
the Registrant is incorporated by reference to Exhibit 16 to the Registrant's Current Report on Form
8-K dated May 6, 1996.
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).
<FN>
- -------------
* Filed herewith.
</FN>
</TABLE>
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 November 4, 1996.
FIRST AMERICAN RAILWAYS, INC.
By: /s/ ALLEN C. HARPER
---------------------------------------
Allen C. Harper, Chairman of
the Board and
Chief Executive Officer
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 November 4, 1996
- ----------------------------- (principal executive officer)
Allen C. Harper
/s/ EUGENE K. GARFIELD* Vice Chairman of the Board November 4, 1996
- -----------------------------
Eugene K. Garfield
/s/ RAYMOND MONTELEONE President, Chief Operating Officer November 4, 1996
- ----------------------------- and Director
Raymond Monteleone
/s/ THOMAS G. RADER* Director November 4, 1996
- -----------------------------
Thomas G. Rader
/s/ DAVID H. RUSH* Director November 4, 1996
- -----------------------------
David H. Rush
/s/ LUIGI SALVANESCHI* Director November 4, 1996
- -----------------------------
Luigi Salvaneschi
Director
- -----------------------------
Glenn P. Michael
/s/ WILLIAM T. NANOVSKY Vice President, Treasurer and November 4, 1996
- ----------------------------- Chief Financial Officer
William T. Nanovsky (principal financial officer)
/s/ DON P. CUMMING Vice President and Controller November 4, 1996
- ----------------------------- (principal accounting officer)
Don P. Cumming
*/s/ By: ALLEN C. HARPER
- -----------------------------
Allen C. Harper
Attorney-In-Fact
</TABLE>
II-5
EXHIBIT 5
OLLE, MACAULAY & ZORRILLA, P.A.
Attorneys At Law
1402 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
__________
(305) 358-9200
Telecopier (305) 358-9617
November 4, 1996
First American Railways, Inc.
2445 Hollywood Boulevard
Hollywood, Florida 33020
Re: FIRST AMERICAN RAILWAYS, INC. FORM SB-2
REGISTRATION STATEMENT (NO. 333-9601)
Gentlemen:
We have acted as counsel to First American Railways, Inc., (the "Company"),
in connection with the preparation of the Registration Statement on Form SB-2
(the "Registration Statement"), as filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the distribution and sale by certain security
holders of the Company of (i) 4,425,275 shares of the Company's Common Stock,
par value $.001 per share, and (ii) up to 5,757,611 shares of the Company's
Common Stock which may become outstanding and which underlie (i) the Series A
and Financial Advisory Warrants, and (ii) certain Series A Warrants underlying
certain outstanding convertible secured notes, all as more fully described in
the Registration Statement (collectively, the "Shares"). You have requested the
opinion of this firm with respect to the Shares in connection with the proposed
offering to which the Registration Statement relates.
We have examined original, photostatic or certified copies of such records
of the Company, including the Articles of Incorporation, the Bylaws and
minutes, the Registration Statement and other documents as we have deemed
relevant and necessary for purposes of the opinions hereinafter set forth. In
such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents and instruments submitted to us as originals and
the conformity to authentic originals of all documents and instruments submitted
to us as certified or photostatic copies. As to various questions of fact
material to our opinions we have relied upon representations made to us by
various officers and directors of the Company and we have not conducted or
received independent verification of those facts.
<PAGE>
First American Railways, Inc.
November 4, 1996
Page 2
Based on the foregoing and subject to the comments and exceptions noted
below, we are of the opinion that the Shares covered by the Registration
Statement have been or, when duly issued and delivered upon warrant exercise as
described in the Registration Statement, will be legally issued, fully paid and
non- assessable.
* * * * *
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required by Section 7 of the Securities Act or the Commission's
rules and regulations thereunder.
Sincerely,
Olle, Macaulay & Zorrilla, P.A.
By: /s/ Dennis J. Olle
----------------------------
Dennis J. Olle
DJO:smc
cc: Raymond Monteleone
William T. Nanovsky
EXHIBIT 10.4
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT (the "Amendment") is entered into as of the 15th
day of October, 1996, by and between Michael J. Acierno (the "Executive") and
First American Railways, Inc. (the "Company").
WHEREAS, the Company and the Executive entered into an Employment
Agreement, dated July 1, 1994 (the "Agreement"); and
WHEREAS, the Company and the Executive wish to modify the terms of the
Agreement pursuant to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
TERMS AND CONDITIONS
1. The foregoing recitals are true and correct and are incorporated
herein by reference.
2. Effective June 1, 1996, the Executive's title shall be changed from
Vice President to Vice President, Financial Relations and Corporate Development
of the Company.
3. Effective June 1, 1996, the Executive's salary shall be increased to
$100,000 per annum, such salary to be payable in accordance with the Company's
regular payroll practices.
4. The Company shall grant Executive non-qualified, ten-year stock
options to purchase 10,000 shares of common stock at the current market price.
5. The second full paragraph of page two of the Agreement shall be
deleted. All travel and related expenses shall be pre-approved by the President
of the Company.
6. Beginning on January 1, 1997, the Company will pay you a car
allowance of $300 per month.
7. To the extent your existing employment agreement dated July 1, 1994,
contains certain confidentiality and non-competition provisions, those
provisions shall be replaced in their entirety by the Confidentiality and
Noncompetition Agreement between you and the Company dated October 7, 1996.
<PAGE>
8. Except as modified above, all terms and conditions of the Agreement
shall continue in full force and effect.
9. If there is a conflict between the provisions of the Agreement and
the provisions of this Amendment, the provisions of this Amendment shall
control.
IN WITNESS WHEREOF, the foregoing Amendment was executed by the parties
hereto as of the date first above written.
WITNESSES: COMPANY:
FIRST AMERICAN RAILWAYS, INC.,
A NEVADA CORPORATION
_______________________________ BY:/s/ RAYMOND MONTELEONE
-------------------------
Raymond Monteleone, President
_______________________________
EXECUTIVE:
_______________________________ /s/ MICHAEL J. ACIERNO
-------------------
Michael J. Acierno
_______________________________
2
EXHIBIT 10.5
First American
Railways, Inc.
October 28, 1996
Mr. Raymond Monteleone
3965 North 32 Terrace
Hollywood, FL 33021
Re: Employment Agreement
Dear Ray,
This letter will confirm our agreement with you concerning your Employment
Agreement dated July 1, 1996, and amended on July 12, 1996, as follows:
The grant of 7,500 shares of common stock which shares are fully paid,
non-assessable and not subject to forfeiture or return to the Company
for any reason are hereby increased to 10,800 common shares effective
as of July 1, 1996. Further, it is agreed that the price per share of
the above 10,800 common shares shall be equal to the then current
market price which was $3.50 per share (the same market price as your
initial, non-qualified, ten-year stock option to purchase 30,000
shares).
I hope this clarifies any open items we have with regard to the agreement;
however, if you have any further questions, please feel free to contact me.
Sincerely,
/s/ ALLEN C. HARPER
-------------------
Allen C. Harper
Chairman of the Board and
Chief Executive Officer
Agreed To:
______________________________
Raymond Monteleone
________________________ Date:_________________________
1360 South Dixie Highway
Coral Gables, Florida 33146
305/667-8871 - Fax: 305/662-5646
EXHIBIT 10.8
RAILCAR CONSTRUCTION AGREEMENT
by and between
RADER RAILCAR II, INC.
and
FUN TRAINS, INC.
DATED OCTOBER 23, 1996
<PAGE>
RAILCAR CONSTRUCTION AGREEMEENT
THIS RAILCAR CONSTRUCTION AGREEMENT ("AGREEMENT") is entered into this
23RD day of OCTOBER, 1996, by and between Rader Railcar II, Inc., a Colorado
corporation ("RADER") and Fun Trains, Inc., a Florida corporation ("FTI").
RECITALS:
A. Rader is engaged in the business of constructing specially outfitted
passenger railroad cars.
B. FTI is engaged in the business of providing rail services to the
public.
C. FTI desires to have Rader construct up to 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 FTIs rail operations.
D. Rader desires to construct the Railcars for FTI and to sell the
Railcars to FTI on the terms set forth in this Agreement.
E. Rader has furnished FTI with a report of its current financial
condition, and FTI has reviewed and accepted the report.
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 to this Agreement and shall be
substantive provisions of the Agreement:
1.1 "AAA" has the meaning assigned in Section 8 hereof.
1.2 "ACCEPTANCE NOTICE" has the meaning assigned in Section 7.2(f)
hereof.
<PAGE>
1.3 "ADA" means the Americans with Disabilities Act, as amended.
1.4 APPLICABLE 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; (iii) the standards imposed by Amtrak regarding
private passenger Railcars plus the standard maintenance practices
of AMTRAK (Sup No. 46617) for the overhaul of heavy passenger
trucks, NEC electrical standards and Amtrak standards for passenger
railcar electrical systems; and (iv) operating rules, procedures and
standards (the "CSX STANDARDS") imposed by CSX Transportation, Inc.
("CXS"), operating rules, procedures and standards (the "FDOT
STANDARDS") imposed by the Florida Department of Transportation
("FDOT") and the operating rules, procedures and standards ("FEC
STANDARDS") of Florida East Coast Railway Company ("FEC"). (provided
however, that the CSX Standards, the FDOT Standards, and the FEC
standards (copies of which are to be delivered to Rader by FTI)
shall only apply to the extent they have been accepted by Rader and
FTI and attached hereto as APPENDIX J.)
1.5 "ARBITRATOR" shall have the meaning assigned in Section 8 hereof.
1.6 "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 Railcars.
1.7 "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 Railcars.
1.8 "CHANGE ORDER" means a change to the terms of this Agreement, any
appendix hereto or other change requested by FTI and agreed to in
writing by Rader, which is effectuated in accordance with Section 11
hereof. The form approved by the parties to effect a Change Order is
attached as APPENDIX C.
1.9 "CLEARANCE DIAGRAM" means the drawings and/or plans necessary for FTI
to request approval for interchange service and operation are
attached as APPENDIX I. Rader shall deliver to FTI on or before
November 15, 1996, a copy of the clearance diagrams for the Railcars.
FTI shall be required to obtain the approval of CSX regarding such
cleamce di on or before December 10, 1996. By executing this
Agreement, FTI acknowledges that Rader is under no obligaton to
obtain any information regarding clearance requirements for the
Railcars and that FTI shall be solely responsible for obtaining such
information and informing Rader thereof. Rader's sole obligation
under this Agreement is to meet the clem-ance requirements delivered
to Rader by FTI pursuant to this Section 1.9..
2
<PAGE>
1.10 "COMPLETE" whenever it appears in this Agreement or in Appendix G
shall refer to completion in all material respects of all work
required to be performed under this Agreement Completion also
contemplates that the Railcars will be free material cosmetic
incompletion or minor defects when delivered in accordance the terms
hereof. A minor defect shall consist of a condition that does not
interfere with the safe operation of the Railcar in question.
1.11 "CONTRACT PRICE" shall have the meaning assigned in Section 7.1
hereof.
1.12 "DELIVERY DATE" means the dates agreed to by the parties under
Section 2 hereof
1.13 "DISPUTE NOTICE' shall have the meaning assigned in Section 7.2(h).
1.14 "FORCE MAJEURE" shall have the meaning assigned in Section 10 hereof
1.15 "OPERATING TRIALS" shall have the meaning assigned in Section 9.2 of
this Agreement.
1.16 "OWNER'S REPRESENTATIVE" shall have the meaning assigned in Section 6
of this Agreement
1.17 "PAYMENT NOTICE" shall have the meaning assigned in Section 7.2(e).
1.18 "PLANS" shall mean the general arrangement drawings and plan
documents attached hereto as APPENDIX A.
1.19 "PRODUCTION AND PAYMENT SCHEDULE" is the production and payment
schedule for completion of the Work and corresponding payments to be
made to be agreed to by the parties in accordance with Sections 2 and
7.2(c) hereof as reflected in APPENDIX D.
1.20 "RAILCARS" means the passenger railcars (denoted by car letters and
numbers in Section 6 hereof) that Rader shall construct for and sell
to FTI in accordance with the terms of this Agreement.
1.21 "REFERENCE RATE" shall have the meaning assigned in Section 42
hereof.
1.22 "SHAKEDOWN TRIALS" shall have the meaning assigned in Section 9.3 of
this Agreement.
1.23 "SPECIFICATIONS" shall mean a description of the technical
responsibilities of Rader
3
<PAGE>
and the specific technical and design requirements to construct the
Railcars for use by FIT in its business. The Specifications will
consist of or include information addressing the following three
areas (i) general; (ii) car specific; and (iii)AMTRAK compatibility
practices for private passenger railcars and will be submitted to
FTI on or before October 28, 1996. The Specifications will 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 will be initialed and dated
by each party through their duly authorized representatives for
incorporation into APPPENDIX B. Rader will provide the proposed
Specifications to FTI on or before November 1, 1996. FTI will
provide Rader with its written comments and requested changes to the
Specifications on or before November 15, 1996, in the case of major
modifications. In the case of all remaining modifications, Rader
will submit the final revised Specifications to FTI on or before
December 10, 1996. The Specifications will also include the
Recommended Fire Safety Practices For Rail Transit Material
Selection.
1.24 "VENDOR Parts" shall have the meaning assigned in Section 12.8(a).
1.25 "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
2.1 DELIVERV DATE. Unless otherwise mutually agreed to by the parties
hereto pursuant to a Chance Order or subject to the options
specified in Section 2.2 hereof, the Delivery Date for the Railcars
shall be reflected in APPENDIX D as follows: (i) June 1, 1997 for
the Bar Car; E-1, the Electronic Game Car; E-2, and one (1) Domed
Passenger Car; C-1 as those terms are defined in Section 4-2; (ii)
September 1, 1997 for three (3) Domed Passenger Cars; C-2, C-3, and
C-4, the Lounge Car; E-3 and Multi Media Car, E-4; and (iii) March
1, 1998 for three (3) Domed Passenger Cars; C-5, C-6, and C-7. A
prototype car shall be refitted and delivered per separate
agreement. 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 and Payment
Schedule to be attached hereto as APPENDIX D and the Design Decision
Schedule to be attached hereto as APPENDIX E.
4
<PAGE>
2.2 OPTION TO DELETE BAGGAGE CAR AND LOCOMOTIVE COWLINGS. On or before
January 15, 1997, and provided FTI is not in default hereunder, FTI
has the option to notify Rader in writing and inform Rader that FTI
elects to exclude from this Agreement (i) the Baggage Car, as
defined in Section 4.2(c); and/or (ii) the Locomotive Cowlings as
defined in Section 4.2(d). At such time as FTI timely exercises its
option under this Section 2.2, the Contract Price shall be reduced
by $498,960 for the Baggage Car and $415,800 for the Locomotive
Cowlings. FTI may also elect to have the electrical generating
system omitted and instead elect to receive a generic baggage car at
a price and pursuant to Specifications to be agreed upon by the
parties; with an expected cost ranging between $80,000 and $120,000.
3 SCOPE OF WORK
(a) 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 FTI in accordance
with the Plans and in accordance with the Specifications for
completion in accordance with the schedule attached hereto as
APPENDIX D. Rader will provide FTI with drawings and/or plans
complying with the Clearance Diagram to assist FTI 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.
(b) Rader shall provide technical and maintenance manuals in
accordance with the final Specifications for the Railcars as
delivered. These manuals shall cover warranty maintenance, scheduled
maintenance, and trouble shooting and shall be in sufficient detail
to be used as a text and reference manual for training programs.
Rader will furnish preliminary manuals when the Railcars are sent to
Florida to be updated and replaced with final manual within 90 days
after completion of the Shakedown Trials. The warranty period shall
begin on the Transport Date as defined in Section 9.6. Provision of
the manuals under this Section 3(b) is not intended and shall not
extend any warranty period provided wwith Section 12 hereof.
(C) Rader and FTI shall agree upon an inventory of spare parts
required to maintain the Railcars in accordance with applicable
technical and maintenance manuals and their current purchase price
on or before December 16, 1996, which shall be attached hereto as
Appendix M.
5
<PAGE>
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. 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 Railcars 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. No rim stamp wheels
shall be used in the construction of the Railcars. All installed
components will be of new materials.
4.2 AT COMPLETION. Three different models of Railcars may 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, three (3) locomotive modifications may
be provided by Rader under this Agreement
(a) DOMED PASSENGER CARS. The seven (7) full dome cars ("DOMED
OR C PASSENGER CARS" designated C-1 through C-7) will be
single-level cars with dome glass windows the full length of
the car. Each full dome car will have an approximately 80
passenger capacity with food service capability as agreed to by
the parties in the Specifications.
(b) BILEVEL CARS. The bilevel cars will consist of one (1) bar
car ("the "BAR OR E-1 Car"), one (1) electronic game car
("ELECTRONIC GAME OR E-2 CAR"), one (1) lounge car ("LOUNGE OR
E-3 CAR"), and one (1) multi media car ("Multi Media or E-4
Car").
(c) POWER/BAG CAR. Subject to Section 2.2, the power/bag car
(the "BAGGAGE CAR") will feature a self-contained electrical
generating system capable of serving the power requirements of
the entire train consist and based upon the Specifications. A
portion of the car will be allocated to baggage storage.
(d) LOCOMOTIVE COWLINGS. Subject to Section 2.2 modifications
will be made to three (3) locomotives to be leased by FTI.
These modifications will consist of a fiberglass glass shell to
be attached to the locomotives to give the locomotives a more
streamlined appearance ("LOCOMOTIVE COWLINGS").
(e) RAILCAR IDENTIFICATION. The individual Railcars and the
applicable plan for construction will be identified prior to
construction.
6
<PAGE>
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
6.1 APPOINTMENT/SUPPORT. FTI shall have the right to appoint an owner's
representative (the "OWNERS 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 2 hours 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 Shakedown Trials under Section 9.3 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 reasonably designated bv FTI 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.
6.2 STOP WORK PROCEDURE. In the event Owner's Representative reasonably
believes that it is necessary for Rader to stop work on one or more
of the Railcars, the following procedures shall apply:
(a) NOTICE. The Owner's Representative shall immediately
notify Rader in writing and FTI's home office (the "NOTICE")
of the reason why the Owner's Representative believes the stop
work order should be honored.
(b) RESPONSE. Rader shall be required to respond ("RESPONSE")
in writing to the Notice within one (1) business day and
during such time period both parties shall endeavor to
understand and resolve the problem to their mutual
safisfaction.
7
<PAGE>
(c) CONTINUATION OF WORK. If after reviewing the problem,
Rader concludes in its Response that the stop work order
should not be honored, Rader shall be authorized to continue
work on the Railcars; provided however that if it is
subsequently determined (pursuant to Section 8 or otherwise)
that continuing the work caused or necessitated additional
costs to be incurred in the completion of the Railcars, Rader
shall be responsible for the payment of such additional costs.
If after reviewing the problem, Rader concludes in its
Response that the stop work order should be honored, Rader and
FTI shall mutually agree upon the circumstances required to
remedy the problem identified in the Notice and immediately
adjust the terms of the Agreement (including an adjustment
pursuant to Section 11 hereof) so as to recommence work as
soon as reasonably possible.
(d) Arbitration. In the event the partie are unable to resolve
their differences under this Section 6.2 within ten (10)
business days of the Response, the matter shall be submitted
to arbitration under Section 8 hereof
7 CONTRACT PRICE; TERMS OF PAYMENT
7.1 CONTRACT PRICE . The contract price for the performance of all Work
by Rader under this Agreement shall be $9,230,762 ("CONTRACT PRICE")
allocated as follows:
(a) FULL DOME CAR. The price for each of the seven (7) full
Dome Cars to be built for FTI pursuant to the terms of this
Agreement is $887,040, or $6,209,280 in the aggregate.
(b) BILEVEL CAR. The price for the Bar Car and Lounge Car to
be built for FTI pursuant to the terms of this Agreement is
$498,960 each or $997,920 in the aggregate. The price for the
Electronic Game Car and Multi Media Car is $554,400 each, or
$1,108,800 in the aggregate.
(c) BAGGAGE CAR. Subject to Section 2.2, the price for the
Baggage Car to be built for FTI pursuant to the terms of this
Agreement is $498,960.
(d) LOCOMOTIVE COWLINGS. The aggregate price for all three (3)
of the Locomotive Cowlings to be furnished to FTI pursuant to
this Agreement is $415,800.
7.2 TERMS OF PAYMENT
(a) DOWN PAYMENT. Upon execution of this Agreement by FTI, FTI
8
<PAGE>
Shall pay Rader the sum of $1,410,000 as an advance payment on
the Contract Price for the Railcars and Locomotive Cowlings 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, FTI shall be obligated
to pay Rader the installment payments shown on APPENDIX D
attached hereto. Periodic payments shall be made by FTI on a
per Railcar basis.
(c) PRODUCTION AND PAYMENT SCHEDULE. The schedules set out in
APPENDIX D set forth Work to be accomplished on each type of
Railcar, the date such work is to be accomplished, and the
payments to be made upon completion of the work. Further,
APPENDIX D sets forth payment schedules for each type of
Railcar once Work detailed in the Schedules is accomplished.
(d) DESIGN DECISIONS. APPENDIX E will set forth design and/or
material decisions to be made by FTI on each type of Railcar
and the dates by which such decisions must be finalized in
order for Rader to accomplish the Production and Payment
Schedule set forth in the above mentioned APPENDIX D. Rader
will furnish FTI with a preliminary Design Decision Schedule
on or before November 11, 1996 and FTI will furnish Rader with
proposed changes on or before November 22, 1996. Any delays in
design and/or material decisions by FTI shall extend,
day-for-day, delivery dates under of this Agreement. If Rader
has accomplished all Work as set forth in APPENDIX D, except
for items caused by delay in FTI 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 FTI. Late payments shall bear interest as provided in
Section 42 hereof.
(e) PAYMENT NOTICE. When all Work on each Railcar specified to
be accomplished as of such date has been performed, Rader will
provide FTI with written notice that the Work is performed
(the "PAYMENT NOTICE").
(f) ACCEPTANCE NOTICE. Upon receipt of the Payment Notice
specified in Section 7.2(e), FTI shall inspect the Railcar(s)
to determine that all work has been performed in accordance
with the Specifications. FTI shall be required to provide
written notice to Rader of its findings within two (2)
business days of receipt of the Payment Notice from Rader. If
the work
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complies with the Specifications in all material respects, FTI
will provide Rader with an acceptance notice ("ACCEPTANCE
NOTICE") and a list of minor items ("PUNCH LIST") that need to
be completed by Rader within two (2) business days of
receiving such Punch List. If the work does not comply with
the Specifications in all material respects, FTI will notify
Rader of the specific work that needs to be performed to
comply with the Specifications in all material respects ("SPEC
REQUIREMENTS"). Upon completion of the Spec Requirements, FTI
shall issue an Acceptance Notice to Rader within two (2)
business days of such completion.
(g) PAYMENT DUE DATES. Payments as provided in Appendix D
shall be due and payable before the close of banking in
Denver, Colorado on the seventh (7th) business day after the
Acceptance Notice or deemed acceptance of the Payment Notice,
but in no event later than the due date required by Appendix
D, 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.
(h) PAYMENT PROCEDURE. If there is a continuing disagreement
as to the Payment Notice or Acceptance Notice after Rader
receives notification of disagreement, FTI shall submit in
writing, within three (3) business days from receipt of
Payment Notice, a notice ("DISPUTE Notice with a copy to
Rader, that it is disputing the Payment Notice pursuant to
Section 8 hereof. If FTI fails to submit the dispute
identified in the Dispute Notice to arbitration under Section
8 hereof, within three (3) business days of receipt of the
Payment Notice, FTI shall be deemed to have accepted the
Payment Notice at the end of such 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, FTI
shall be deemed to have accepted the Payment Notice three (3)
business days 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 FTI which FTI may accept, dispute or resolve by submitting
a dispute identified in the Dispute Notice to arbitration
under Section 8 hereof
(i) FINAL PAYMENT. Upon acceptance of the Railcars after
completion of the Shakedown Trials as described in Section 9.3
hereof in accordance with and subject to the terms hereof, FTI
will pay Rader the final payment required to be paid pursuant
to the schedule attached on APPENDIX D in each
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case being an amount which, together with amounts previously
paid, equals the Contract Price for such Railcar specified in
Section 7.1 hereof Notwithstanding the provision of this
Section 7.2(i), FTI shall be entitled to withhold from final
payment an amount(the "PUNCH LIST AMOUNT"), for a period of no
longer that sixty (60) days after formal payment is due, in
order to assure completion of outstanding minor items and
Punch List items. In the event the cost of completing the
final Punch List items exceed the Punch List Amount, FTI shall
be authorized to withhold such excess costs from the final
payment if Rader has not paid for such costs or otherwise
reimbursed FTI therefor.
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
the American Arbitration Association ("AAA") for arbitadon under its
Commercial Arbitration Rules. 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 fim 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 specific issues to
arbitration at the time the dispute arises. The only matters subject
to arbitration under this Agreement shall be: (i) resolutions of
stop work disputes under Section 6; and (ii) 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: (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 FTI still
does not pay, then Rader or FTI may file such a decision or award
with the United States 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 of execution or
other appropriate action may be issued for its enforcement and Rader
may rely on such a decision to
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realize on its security interest provided for by Section 17 hereof
or to exercise any other remedy it may have at law or in equity for
breach by FTI 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 three (3) business days 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/SHAKEDOWN TRIALS
9.1 NOTIFICATION. Approximately thirty (30) days prior to the reasonably
expected date for completion of construction, Rader will notify FTI
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 Rader
demonstrating the reasonably satisfactory operation of: ride
quality, 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 CONDUCT OF SHAKEDOWN TRIALS. Shakedown Trials shall consist of FTI
conducting trouble shooting at a location of its choice for a period
of not longer than Ninety (90) days after successful completion of
the Operating Trials. Upon expiration of the 90 day period, the
Shakedown Trials shall be considered as having been concluded.
9.4 ACCEPTANCE. Following performance by FTI of its obligations to be
performed prior to acceptance, Rader will arrange for towage of the
cars to Florida for Acceptance and FTI win reimburse Rader for all
reasonable transportation and insurance costs related to moving the
Railcars from Colorado to Fort Lauderdale, Florida. Should a point
of destination, other than Fort Lauderdale, be identified by FTI,
which would not put Rader at risk for collection and/or payment of
sales or use or Similar taxes, Rader will not unreasoaably oppose
such alternate destination point provided FTI agrees to indemnify,
defend Rader and pay for all such delivery and insurance costs and
any related sales, use or similar tax (including interest and
penalties) that may arise all in accordance with Section 9.4 and
Section 9.5 hereof.
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9.5 INDEMNIFY AND INSURANCE.
(a) FTI 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 FTI. FTI shall at its cost arrange to provide liability
insurance coverage on Rader's behalf to cover delivery of the
Railcars to Florida and during the period of Shakedown Trials.
(b) As between FTI and Rader, and not in any manner between either
FTI or Rader and any carrier, FTI shall, to the fullest extent
permitted by law, indemnify defend (pursuant to 9.5 (c)) and save
harmless Rader (its officers, employees, directors, affiliates, and
agents) from any, and all claims, suits, losses, damages or expenses
(including reasonable attorneys fees and costs) whatsoever
(collectively "CLAIMS"), including but not limited to claims arising
on account of injuries or death of any and all persons whomsoever,
and any and all loss or damage to or destruction of the Railcars or
other property whatsoever to whomsoever belonging, arising or growing
out of, or in any manner connected with the transportation of a
Railcar to FTI from the time a Railcar is caused to be placed by
Rader on trackage for receipt by the initial carrier accompanied by
documentation permitting the transportation of a Railcar to FTI (the
"Transport Date") until the completion of the Shakedown Trial
pursuant to Section 9.3 hereof. As between FTI and Rader, before the
Transport Date such liability shall be borne solely by Rader and on
or after the Transport Date, liability shall be borne solely by FTI,
without regard to fault; notwithstanding the foregoing, nothing
herein contained is to be construed as an indemnification against the
sole negligence of Rader or its officers, employees or agents.
(c) FTI further agrees that it will defend as its own expense
(including reasonable attorney's fees and costs), in the name and on
behalf of Rader, all claims or suits for injuries to or death of
persons or loss or destruction or damage to property (including the
Railcars) arising or growing out of the foregoing indemnities, for
which FTI is liable, or is alleged to be liable.
9.6 DOCUMENTATION. Following the Operating Trials, FTI will execute a
document acknowledging receipt of the Railcars in the form attached
hereto as APPENDIX G. Contemporaneously with receiving final payment
under Section 7.2 (i), Rader will release its security interests in
the Railcars being delivered and title to the Railcars shall,
subject to Section 12-11, 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 Transfer of documents shall be accomplished at
such location in Florida as is reasonably designated by Rader or
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Other mutually agreed upon location.
9.7 RISK OF LOSS. Risk of loss to Railcars shall each pass from Rader to
FTI at the time Rader delivers the Railcar to a carrier on the
Transport Date or defined in Section 9.5 (b), following successful
completion of the Operating Trials.
9.8 TITLE. Title to each Railcar shall transfer from Rader to FTI upon
successful completion of the Shakedown Trial and upon receipt by
Rader of full payment from FTI for each individual Railcar under
this Agreement.
9.9 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 FORCE MAJEURE CLAIMS
FORCE MAJEURE. In the event of such occurrence, Rader shall notify
FTI in writing 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
("FORCE MAJEURE") shall be defined to mean 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, and labor disputes
involving Rader employees or employees of suppliers, governmental
action, 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. Rader shall use all
reasonable efforts to minimize its nonperformance and to overcome,
remedy, cure, or remove such event as soon as reasonably practicable
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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 any decrease, to the Contract Price. A written Change
Order may be executed only:
ON BEHALF OF RADER, BY: AUTHORITY
Thomas G. Rader, President Unlimited
and Lowell Malo; Project Team Leader
ON BEHALF OF FTI. BY:
Raymond Monteleone, Unlimited
Vice President, Operations, or $50,000
Chief Financial Officer $20,000
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 required signatures of the above mentioned authorities
of both Rader and FTI shall be ineffective. Either of the parties
may change the person authorthorized 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 cost of materials and hourly wage rates, plus
an overhead and indirect cost burden (the "BURDENED RATE"). For
purposes of this Section 11.3, the Burdened Rate is defined to mean
an amount equal to the sum of (i) the amount of direct labor costs
multiplied by a factor of two; and (ii) the amount of direct
material costs multiplied by a factor of one hundred and twenty-five
percent (125%).
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12 WARRANTY
12.1 MATERIALS AND WORKMANSHIP. Subject to Section 12.5, Rader warrants
that the Railcars, commencing on the Transport Date (as defined in
Section 9.5) 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 as set forth in the Princess Tours
Ultra Dome power, spectral density test results of ride quality
study conducted in Alaska, a copy of which is attached hereto as
APPENDIX K. By acceptance of any Railcar at Operating Trials, FTI
agrees that the Railcars comply with this warranty for all purposes
under this Agreement. The ride quality shall be applicable for the
period prescribed in Section 12.5 of this Agreement.
12.3 ENGINEERING AND DESIGN WARRANTY. Railcars shall meet the Applicable
Standards. All welding shall conform to applicable recommendations
of AWS. Noise levels shall be equivalent to Princess Tours Ultra
Dome cars. Railcars shall comply with ADA regulations in effect as
of the date of this Agreement for trains not requiring access to
services in other cars.
Changes in the above mentioned Applicable 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 Domed Passenger 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, to be provided on or before January
1, 1997.
12.4 COMLIANCE. Rader warrants that the Railcars shall be constructed in
accordance with the Applicable Standards, Plans, and Specifications.
12.5 WARRANTY PERIOD. The warranty provided by Rader hereunder shall be
applicable solely to defects which occur or become apparent to FTI
within a period three
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hundred and sixty-five (365) days following the Transport Date as
defined in Section 9.5(b).Replacement parts shall be guaranteed for
thirty (30) days beyond the 365 day warranty period provided such
replacement parts are installed during the initial 365 day warranty
period. This warranty will include all and labor costs required to
correct the defect. With respect to defects which occur or come to
the attention of FTI after the Transport Date as defined in Section
9.5 (b) the responsibility for such defects shall rest solely with
FTI and FTI 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 indemnities Rader from any and all liabilities
and costs (including legal and attoney'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 5 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 FTI shall notify Rader within two (2) business days after
FTI learns of such defect, claim, or damage except that in all
events FTI shall be obligated to notify Rader of such an event in
writing not later than seven (7) consecutive business days after its
discovery by FTI. This notification is to be made by FAX
transmission and is to be followed by a written warranty claim
within fifteen (15) consecutive business days of initial
notification. Rader shall have fifteen (15) consecutive business
days from receipt of written notice of claim to respond in writing,
either denying or accepting financial responsibility for such claim
responm In the event that Rader refuses to accept financial
responsibility for such claim made by FTI with respect to the
Railcars, FTI may commence litigation. If any litigation is not
commenced by FTI within one (1) year of the date on which notice of
such rejection is received, such litigation shall be
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barred forever and any remedy at law or in equity which FTI 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 FTI
under this Agreement.
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 FTI 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 FTI at the expiration of the period provided
for by this Section 12. Rader will FTI a list of all
reconditioned and remanufactured parts utilized in the
construction of the Railcars provided in the Specifications.
(b) WARRANTIES. EXCEPT AS OTHERWISE PROVIDED IN SECTION 12.5.
the warranties and all other terms and conditions of this
Section 12 shall apply to Vendor Parts provided for in the
Specifications for 365 days following acceptance as if the
Vendor Parts had been manufactured by Rader, and FIT will
cooperate with Rader in pursuing remedies against manufacturers
of Vendor Parts under the warranties assigned to FTI 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 FTI
against any and all claims from vendors supplying materials, parts
or labor relating to the construction of Railcars under this
Agreement Rader shall provide FTI with a list of sole source vendors
it intends to use in connection with construction of the Railcars
provided in the Specifications.
12.10 CONSEQUENTIAL DAMAGES PRECLUDED. Rader's sole obligation to FTI with
respect to the warranties provided for hereunder shall be to repair
or replace defective parts or components. FTI shall notify Rader of
any warranty repair needed. If Rader cannot
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perform the required work within a reasonable time period under the
circumstances, FIT 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 thirty (3O) 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 limitations 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.
12.11 TITLE WARRANTY. Rader warrants that it has good and marketable title
to the Railcars free and clear of liens and encumbrances (other than
those in favor of FTI or expressly permitted by this Agreement) and
will deliver said title to FTI at the completion of the Shakedown
Trials and receipt by Rader of full payment from FTI for a Railcar
under this Agreement.
12.12 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
any Appendix to this Agreement) including: Rader's failure to
perform the Work in a skilled and expeditious manner; the
failure of the Railcars 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;
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(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 FTI. 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 FTI:
(a) MATERIAL DEFAULT. FTI shall default in any material
respect in the observance or performance of any other covenant
condition or obligation of FTI contained herein and if such
Event of Default continues for thirty (30) days after written
notice to FTI specifying the default and demanding that the
same be remedied, provided, however, that such thirty (30) day
period shall be extended provided FTI has commenced and is
diligently pursuing such cure;
(b) BANKRUPTCY. FTI 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;
(c) RECEIVER. A custodian, receiver, trustee or liquidator
shall be appointed in any proceeding brought against FTI and
shall not be discharged within ninety (90) days after such
appointment
14 REMEDIES
14.1 REMEDIES OF FTI. Upon the occurrence of an Event of Default by
Rader, which is not cured, FTI may:
(a) FORECLOSE. Exercise its rights under Section 16.2 hereof.
(b) REMEDIES NOT EXCLUSIVE. Subject to Section 12.10, FTI's
remedies
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set forth in this Section 14.1 shall not be exclusive, but
shall be cumulative and may be exercised concurrently or
consecutively, and shall be in addition to all other remedies
FTI may have under this Agreement or provided by law.
14.2 REMEDIES OF RADER. Upon the occurrence of an Event of Default by
FTI, which is not cured, Rader may:
(a) TERMINATION. Terminate this Agreement by written notice to
FTI, and recover from FTI any damages proximately caused by
the FTI default.
(b) FORECLOSE. Exercise its rights under Sections 16.3, 16.4
and Section 17 hereof. In the event the proceeds from said
foreclosure exceed the amount due Rader under this Agreement,
the surplus shall be promptly paid to FTI.
(c) REMEDIES NOT EXCLUSIVE. Raders remedies set forth in this
Section 14.2 shall not be exclusive, but shall be cumulative
and may be exercised 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 or damages, to deliver the
Railcars should the delay be the result of Force Majeure as defined
in Section 10 hereof.
15 FINANCIAL STATEMENT BY FTI
Commencing with financials for the calendar month ending November 30,
1996. FTI shall provide Rader with a monthly financial statement until the
final payment is made pursuant to Paragraph 7.2 (i) above.
16 FTI'S SECURITY INTEREST
16.1 GRANT. Rader hereby grants FTI 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, FIT 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
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under Section 25 hereof at which private sale, FTI may be the
purchaser EXCEPT THAT in the event of realization on such security
interest by FTI, FTI'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 FTI. In the event of uncured breach by FTI of its
obligations under this Agreement, this security interest shall
terminate and FTI shall upon demand by Rader execute appropriate
security interest termination documents.
16.4 TERMINATION. FTI's security interest shall terminate upon delivery
of the Railcars in accordance with Section 9 hereof.
17 OWNERSHIP BY RADER; RADER'S SECURITY INTEREST
17.1 GRANT. Subject to Section 17.5 hereof, FTI 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 FTI 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 FTI'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 FTI. In the event of default by FTI, Rader
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 uncured breach by Rader of its
obligations under this Agreement, this security interest shall
terminate and Rader shall upon demand by FTI execute appropriate
security interest termination documents.
17.4 TERMINATION. Rader's security interest shall terminate when the
Purchase Price is paid in full as described in Section 9 hereof.
17.5 OWNERSHIP BY RADER. Notwithstanding anything contained in this
Agreement (including Section 17.1 through 17.4 hereof), the grant by
Rader of a security interest pursuant to this Section 17 shall not
detract from the fact of Rader's ownership of the Railcars, work in
process, and all goods, components and
22
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materials identified to this Agreement, prior to receiving full
payment therefor in accordance with the terms of this Agreement.
18 REPRESENTATIONS
18.1 BY FTI. FTI represents to Rader, the following:
(a) AUTHORITY. Subject to Section 41, FTI 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 FTI of this Agreement has been duly authorized by all necessary
action on the part of FTI and requires no additional consent to be
effective.
(b) BINDING. This Agreement constitutes a legal, valid and binding
obligation of FTI 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 FTI, 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) BINDINIG. 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.
(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 FTI 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
FTI to deliver the Railcar to FTI free and clear from any and all
mechanic's liens.
23
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19 CURRENCY
All references to currency in the Agreement are to be considered as stated
in US dollars.
20 INSURANCE
(a) BUILDERS RISK. Rader will purchase and maintain a builders all
risk insurance policy (or a similarly designated policy) and
installation coverage on the Railcars and work in progress in an
amount at least equal to the cumulative amount of payments received
from FTI hereunder at any time. Rader shall provide FTI with a true,
correct, and complete certificates of insurance for each such
insurance policy. In addition to any contractual Endorsement coverage
contained in any policy of insurance, if requested by FTI and at FTI's
expense, Rader shall exert its best efforts to be provided a specific
contractual insurance endorsement covering this Agreement. 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 FTI the amount
received on account of such insurance policy up to the total amount of
payments received from FTI 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 FTI since the most recent payment, and to
terminate this Agreement in which case neither FTI nor Rader shall
have any other or further obligation to the other hereunder. FTI may
request to receive the amount received on account of such insurance
policy up to the amount of payments received by Rader from FTI, 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 FTI since the most recent
payment, in which case if such request is approved by Rader neither
FTI nor Rader shall have any other or further obligation to the other
hereunder.
(b) COVERAGE. The insurance described above shall provide at least the
following coverage and limits of insurance which shall be taken out
and maintained with insurers and under forms of policies satisfactory
to FTI:
(i) COMPREHENSIVE GENERAL LIABILITY INSURANCE:
Bodily Injury - $10 million per occurrence
Property Damage - $10 million per occurrence
24
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Contractual Liability - $10 million per occurrence
(ii) PRODUCTS LIABILITY INSURANCE - $10 million per occurrence for
a period of two (2) years after delivery of the last Railcar under
this Agreement.
(iii) AUTOMOBILE LIABILITY INSURANCE:
Bodily Injury - $1 million per occurrence
Property Damage - $1 million per occurrence
(iv) INSTALLATION COVERAGE
(a) At the installation site - $40 million
(b) At any location other
than the installation
site - $2 million
(c) While in transit - $200 thousand
(d) For all coverage - $40 million
(c) ENDORSEMENT. All insurance policies described above shall contain
an endorsement providing that written notice shall be given to FTI at
least (30) days prior to termination, cancellation or reduction of
coverage.
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, 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 FTI in tourist rail operations. FTI
agrees to defend, indemnify, and hold Rader harmless against the payment of
any and all sales, use, value added, import duties or taxes as well as
related penalties and interest at any delivery point selected by Rader and
FTI. Should the payment of any of the foregoing taxes be required to be
paid by Rader as a result of changes in the law after the signing of the
25
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Agreement, FTI 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 including
those items disclosed on APPENDIX L) 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. Notwithstanding the foregoing, any patents resulting
from the construction or design process of the Railcars being constructed
pursuant to the Agreement, which were jointly developed by Rader and FTI
during the term of the Agreement, shall be the joint patent of both parties
and shall be registered with the appropriate authorities in such manner.
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 to 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 ATTORNEYS 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 FTI:
FUN TRAINS, INC.
Hollywood Boulevard
26
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Hollywood, Florida 33020
Attention: Mr. Raymond Monteleone
FAX: (954) 920-0602
TO RADER
RADER RAILCAR II, INC.
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 26, FTI may not assign any of
its rights or benefits under this Agreement. FTI 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 FTI'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 at least (30) days prior written notice of the
proposed assignment;
(b) the assignee delivers to Rader an instrument in writing
(acceptable to Rader's counsel) executed by the assignee confirming
that it is bound by and shall perform all of the obligations of FTI
under this Agreement as if it were an original signatory; and
(c) Notwithstanding the foregoing, FTI will be permitted to assign all
of its interest in its rights to purchase the Railcars to a third
party subject to Rader's prior written approval, which shall not be
unreasonably withheld provided said assignment is solely for the
purpose of FTI's leasing the Railcars from such assignor. FTI's
assignment of its interest in its right to purchase the Railcars shall
not require
27
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prior approval by Rader if assigned to a directly or indirectly
controlled (i.e. 80% or more of the voting common stock) subsidiary of
FTI. The provision is not intended to release FTI from any guarantees
under this Agreement.
(d) Provided further that no assignment shall relieve FTI of its
obligations under this Agreement.
In the event of an assignment contemplated above, any reference in this
Agreement to "FTI" shall be deemed to include the assignee and any
corporation, entity or person which owns, either directly or indirectly,
all or any portion of the stock of FTI.
27 TIME OF THE ESSENCE
Time is of the essence of this Agreement.
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 Section 26 of 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
28
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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 FTI 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
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.
29
<PAGE>
40 CONFIDENTIALITY AND CONFIDENTIAL INFORMATION
This Agreement (including Appendixes hereto) and the terms and conditions
hereof 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, applicable law (i.e. securities law) or
other legal process.
41 CONTINGENT APPROVAL
This Agreement will continue in effect for a period of sixty (60) days
following its execution and its continued application to the parties
beyond that date shall be subject to FTI's negotiation of the required
trackage rights agreements with CSX, FDOT and/or Amtrak within that
period. In the event FTI is unable to conclude any of the required
trackage rights agreements that are necessary for its operations, it may
upon seven (7) days' advance written notice to Rader, terminate all
obligations under this Agreement. In the event FTI terminates this
Agreement, it shall be obligated to compensate Rader for all reasonable
expenses incurred in the construction of the Railcars through the date the
notice was served on Rader by FTI plus all reasonable demobilization costs
(i.e. including but not limited to equipment purchase/lease costs and
employee severance costs). The dates prescribed by this Section may be
modified by mutual agreement of the parties.
42 DELINQUENT PAYMENTS
In the event either party is delinquent in making payments required by
this Agreement, said party 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 it 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.
43 APPROVALS
This Agreement shall be subject to the approval of the Board of Directors
of First American Railways, Inc. And Fun Trains Inc.
44 GUARANTEES
The mutual guarantee of the parties are attached hereto and made part of
this Agreement N and O.
30
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45 FURTHER ASSURANCES AND COOPERATION
FIT and Rader shall execute, acknowledge and deliver to the other any
further instruments that may be reasonably required to give full force and
effect to the provisions of this Agreement; provided, however, that
neither party shall be required to deliver any other instrument which
expands its duties, obligations or representations and warranties or which
diminishes its rights under this Agreement.
DATED THIS 23RD DAY OF OCTOBER, 1996.
RADER RAILCAR 11, INC., A COLORADO CORPORATION
BY:
---------------------------------------
NAME: THOMAS G. RADER
-------------------------------------
TITLE: PRESIDENT
-------------------------------------
FUN TRAINS, INC., A FLORIDA CORPORATION
BY:
---------------------------------------
NAME: RAYMOND MONTELEONE
-------------------------------------
TITLE: PRESIDENT AND TREASURER
-------------------------------------
31
<PAGE>
SIGNATURE PAGE
TO BE ATTACHED
TO
RAILCAR CONSTRUCTION AGREEMENT
by and between
RADER RAILCAR II, INC.
and
FUN TRAINS, INC.
"RADER"
Rader Railcar II, Inc.
A Colorado Corporation
By: /s/ THOMAS G. RADER
-----------------------------
Thomas G. Rader
President
FTI
Fun Trains, Inc.
a Florida Corporation
By: /s/ RAYMOND MONTELEONE
-----------------------------
Raymond Monteleone
Vice President & Treasurer
EXHIBIT 10.12
October 15, 1996
William T. Nanovsky
1401 Northwest 101st Terrace
Plantation, Florida 33322
RE: EMPLOYMENT AGREEMENT WITH FIRST AMERICAN
RAILWAYS, INC. (THE "COMPANY")
Dear Bill:
This letter confirms that the Company agrees to employ you, and you agree to
accept such employment, upon the terms and conditions set forth below beginning
August 5, 1996 and continuing for a period of one year. The term of your
employment shall be automatically renewed for two consecutive additional
one-year periods unless and until you or the Company give the other party
written notice, received not later than 90 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 Vice President, Treasurer
and Chief Financial Officer of the Company. You agree that, during the period of
your employment under this Agreement, you will serve the Company faithfully,
diligently and to the best of your ability under the direction and supervision
of the President of the Company and you will devote your full 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 President of the Company shall
request without further compensation other than that for which provision is made
in this Agreement. You will be allowed to participate in various entities so
long as the nature and scope of such participation is approved in advance in
writing by the President.
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:
<PAGE>
Mr. William T. Nanovsky
October 15, 1996
Page 2
1996: $47,917.00 base compensation (which
(Commencement - 12/31/96) represents an annual rate of $115,000)
along with a target bonus of 30% of base
compensation, to be paid in January,
1997, as determined by the President of
the Company consistent with your
attainment of pre-determined individual
and corporate objectives.
Calendar 1997: $120,000 per annum base compensation
(1/1/97 - 12/31/97) along with a target bonus of 30% of base
compensation as determined by the
President of the Company consistent with
your attainment of pre-determined
individual and corporate objectives. (If
your employment is not renewed as
provided herein effective August 5,
1997, you will only be entitled to
receive the prorated amount of your base
compensation for Calendar Year 1997, for
the period of your actual employment.)
Base compensation, target bonus and
Calendar 1998: future stock options to be evaluated and
(1/1/98 - 12/31/98) determined by the President.
The Company agrees to grant you on September 23, 1996 and thereafter on each of
the first and second anniversaries of that date (so long as this agreement has
not otherwise been terminated except as otherwise provided herein)
non-qualified, ten-year stock options to purchase 18,000 shares of common stock
(subject to standard anti-dilutive protections) at an exercise price which is
equal to the then current market price, each of such 18,000-share options shall
vest in one-third increments (6,000 shares) annually, with the initial vesting
beginning on the date granted; 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 hereafter defined.
<PAGE>
Mr. William T. Nanovsky
October 15, 1996
Page 3
In the event that you are incapacitated by reason of mental or physical
disability 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. Further, in the event of
termination pursuant to this paragraph, the Company will pay the health and life
insurance premiums in connection with the coverage contemplated hereby for the
six-month period following such termination.
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."
You shall be entitled to paid sick days and paid vacation days commensurate with
that due to an executive at your level of employment, with no more than two
weeks of which to be consecutive.
Until the establishment by the Company of a health insurance plan for its
executives, which is contemplated to be done on or before January 15, 1997, the
Company will pay you $300 per month to reimburse you for maintaining your own
health insurance coverage; you will provide the Company with receipts to
document your expenditure for such coverage. Thereafter, it is anticipated that
<PAGE>
Mr. William T. Nanovsky
October 15, 1996
Page 4
beginning on January 15, 1997, the Company shall provide you with "standard"
medical insurance. 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, executive non-qualified deferred compensation plan or incentive
compensation plan that the Board of Directors of the Company shall determine to
make available to such employees. Beginning on January 1, 1997, the Company will
pay you a car allowance of $400 per month.
Subject to the provisions of the subsequent paragraph, in the event your
employment with the Company is terminated (i) for "cause" (as defined above),
you will be entitled to receive 90 days' worth of your then current base
compensation along with any applicable bonus, or (ii) other than for "cause" you
will be entitled to the full benefits hereunder through the existing term
hereof.
In the event there is a "change in control" of the Company (as defined below)
and (i) within 12 months of such "change in control" you terminate your
employment hereunder, or (ii) your employment hereunder is terminated by the
Company for any reason or no reason within 12 months of such "change in
control", then in either case you shall, within fifteen days of such
termination, receive as severance pay a payment in cash of an amount equal to
one year's worth of your then current base compensation plus applicable bonus
(if any), along with the above-described acceleration of the granting and
vesting of your stock options (the "Termination Benefits"). For purposes of this
Agreement, a "change in control" of the Company shall occur when 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.
It is expressly understood and agreed that your employment must terminate in
order for the provisions of the preceding paragraph (which provides for the
payment of Termination Benefits to you in certain circumstances) to be
operative.
You agree that you will execute the Company's standard confidentiality and
noncompetition agreement upon your acceptance of employment with the Company.
For the sixty-day period commencing September 1, 1996, the Company agrees to
sell to you up to 10,000 shares of its common stock for a per share price equal
to the current public market price of the Company's common stock.
<PAGE>
Mr. William T. Nanovsky
October 15, 1996
Page 5
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/ RAYMOND MONTELEONE
- -----------------------------
Raymond Monteleone, President
and Chief Operating Officer
Agreed to and Accepted this
15th day of October, 1996
/s/ WILLIAM T. NANOVSKY
- -----------------------
William T. Nanovsky
October 9, 1996 EXHIBIT 10.13
Mr. Don P. Cumming
2120 N.E. 64th Street
Ft. Lauderdale, Florida 33308
RE: EMPLOYMENT AGREEMENT WITH FIRST AMERICAN
RAILWAYS, INC. (THE "COMPANY")
Dear Don:
This letter confirms that the Company agrees to employ you and you agree to
accept such employment, upon the terms and conditions set forth below beginning
on August 12, 1996, and continuing for a period of one year. The term of your
employment shall be automatically renewed for two consecutive additional
one-year periods, 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 the Company's intention to
terminate your employment hereunder.
During the period of your employment, you will serve as Vice President and
Controller of the Company. You agree that, during the period of your employment
under this Agreement, you will serve the Company faithfully, diligently and to
the best of your ability, under the direction and supervision of the Chief
Financial Officer of the Company, and you will devote your full 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 President or Chief Financial
Officer 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:
<PAGE>
Mr. Don P. Cumming
October 9, 1996
Page 2
1996:
(Commencement-12/31/96) $32,836 base compensation (which
represents an annual rate of $85,000),
along with a target bonus of 25% of base
compensation (pro-rated), but not less
than 10% of base compensation for the
subject employment period, to be paid in
January 1997. The criteria for
determining bonus compensation shall be
developed and agreed to by you and the
President of the Company on or before the
end of 1996.
Calendar 1997: $90,000 per annum base compensation along
(1/1/97 - 12/31/97) with a target bonus of 25% of base
compensation, but not less than 10%
of base compensation. The criteria
for determining bonus compensation
shall be developed and agreed to by
you and the President of the Company
on or before December 20, 1996. (If
your employment is not renewed as
provided herein effective August 12,
1997, you will only be entitled to
receive the prorated amount of your
base compensation for Calendar Year
1997, for the period of your actual
employment.)
Calendar 1998: Base compensation, bonus, vacation time
(1/1/98 - 12/31/98) and future stock options, all to be
evaluated and determined by the
President.
The Company agrees to grant you, as of September 23, 1996 non-qualified,
ten-year, stock options to purchase 3,000 shares of common stock (subject to
standard anti-dilution protections) at an exercise price which is equal to the
then current market price, such 3,000-share options shall vest immediately.
In addition, the Company agrees to grant to you as of the date of your
acceptance of these employment terms, non-qualified, ten-year stock options to
purchase 10,000 shares of common stock (subject to standard anti-dilution
protections) at an exercise price which is equal to the then current market
price, with such 10,000-share option vesting in one-third increments (so long as
this Agreement has not otherwise been terminated except as otherwise provided
below) with the initial vesting of 3,333 shares on the date of grant, the second
3,333-share increment vesting on
<PAGE>
Mr. Don P. Cumming
October 9, 1996
Page 3
the first anniversary of the date of grant, and the remaining 3,334-share
increment vesting on the second anniversary of the date of grant; provided,
however, any such options which remain to be 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.
In the event that you are incapacitated by reason of mental or physical
disability 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. Further, in the event of
termination pursuant to this paragraph, the Company will pay the health and life
insurance premiums in connection with the coverage contemplated hereby for the
six-month period following such termination.
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."
You shall be entitled to paid sick days and paid vacation days commensurate
with that due to an executive at your level of employment, with no more than two
weeks of which to be consecutive.
Until the establishment by the Company of a health insurance plan for its
executives, which is contemplated to be done on or before January 15, 1997, the
Company will pay amounts required by
<PAGE>
Mr. Don P. Cumming
October 9, 1996
Page 4
your previous employer to continue your health insurance benefits pursuant to
COBRA, except for $35.10 every two weeks which will be paid by you. Thereafter,
it is anticipated that beginning on January 15, 1997, the Company shall provide
you with its "standard" medical insurance. 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, executive non-qualified
deferred compensation plan or incentive compensation plan that the Board of
Directors of the Company shall determine to make available to such employees.
Beginning on January 1, 1997, the Company will pay you a car allowance of $300
per month.
Subject to the provisions of the subsequent paragraph, in the event your
employment with the Company is terminated (i) for "cause" (as defined above),
you will be entitled to receive as severance pay a payment in cash of an amount
equal to the greater of the balance of your then current base compensation along
with any applicable bonus for the remainder of the existing term of this
Agreement, or 120 days' worth of your then current base compensation, along with
any applicable bonus, or (ii) for other than "cause" you will be entitled to the
full benefits hereunder through the existing term hereof.
In the event there is a "change in control" of the Company (as defined
below) and (i) within 12 months of such "change in control"you terminate your
employment hereunder, or (ii) your employment hereunder is terminated by the
Company for any reason or no reason within months of such "change in control",
then in either case you shall, within fifteen days of such termination, receive
as severance pay a payment in cash of an amount equal to one year's worth of
your then current base compensation plus applicable bonus (if any), along with
the above-described acceleration of the vesting of your stock options (the
"Termination Benefits"). For purposes of this Agreement, a "change in control"
of the Company shall occur when 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.
It is understood and agreed that your employment must terminate in order
for the provisions of the preceding paragraph (which provides for the payment of
Termination Benefits to you in certain circumstances) to be operative.
For the sixty-day period commencing September 1, 1996, the Company agrees
to sell to you up to 10,000 shares of its common stock for a per share price
equal to the current public market price of the Company's common stock.
<PAGE>
Mr. Don P. Cumming
October 9, 1996
Page 5
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/ RAYMOND MONTELEONE
----------------------
Raymond Monteleone, President
and Chief Operating Officer
Agreed to and Accepted this
9th day of October, 1996
/s/ DON P. CUMMING
- ---------------------------
Don P. Cumming
EXHIBIT 10.14
August 21, 1996
Mr. Thomas E. Blayney
362 Dream Lake Drive
Apopka, Florida 32712
RE: EMPLOYMENT AGREEMENT WITH FIRST AMERICAN
RAILWAYS, INC. (THE "COMPANY")
Dear Tom:
This letter confirms that the Company agrees to employ you and you agree to
accept such employment, upon the terms and conditions set forth below beginning
on August 21, 1996, and continuing for a period of one year. The term of your
employment shall be automatically renewed for two consecutive additional
one-year periods, 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 the Company's intention to
terminate your employment hereunder.
During the period of your employment, you will serve as Vice
President-Operations of the Company. You agree that, during the period of your
employment under this Agreement, you will serve the Company faithfully,
diligently and to the best of your ability, under the direction and supervision
of the Chief Financial Officer of the Company, and you will devote your full
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 President or
Chief Financial Officer 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:
(Commencement-12/31/96) $30,975 base compensation (which
represents an annual rate of $85,000)
along with a target bonus of 25% of base
compensation (pro-rated), but not less
<PAGE>
Mr. Thomas E. Blayney
August 21, 1996
Page 2
than 10% of base compensation for
the subject employment period, to be
paid in January 1997. The criteria
for determining bonus compensation
shall be developed and agreed to by
you and the President of the Company
on or before August 30, 1996.
Calendar 1997: $85,000 per annum base compensation along
(1/1/97 - 12/31/97) with a target bonus of 25% of base
compensation, but not less than 10%
of base compensation. The criteria
for determining bonus compensation
shall be developed and agreed to by
you and the President of the Company
on or before December 20, 1996. (If
your employment is not renewed as
provided herein effective August 12,
1997, you will only be entitled to
receive the prorated amount of your
base compensation for Calendar Year
1997, for the period of your actual
employment.)
Calendar 1998: Base compensation, bonus, vacation time
(1/1/98 - 12/31/98) and future stock options, all to be
evaluated and determined by the
President.
In addition, the Company agrees to grant to you as of the date of your
acceptance of these employment terms, non-qualified, ten year, stock options to
purchase 10,000 shares of common stock (subject to standard anti-dilution
protections) at an exercise price which is equal to the then current market
price, with such 10,000-share option vesting in one-third increments (so long as
this Agreement has not otherwise been terminated except as otherwise provided
below) with the initial vesting of 3,333 shares on the date of grant, the second
3,333-share increment vesting on the first anniversary of the date of grant, and
the remaining 3,334-share increment vesting on the second anniversary of the
date of grant; provided, however, any such options which remain to be 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.
In the event that you are incapacitated by reason of mental or physical
disability 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
<PAGE>
Mr. Thomas E. Blayney
August 21, 1996
Page 3
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. Further, in the event of termination pursuant
to this paragraph, the Company will pay the health and life insurance premiums
in connection with the coverage contemplated hereby for the six-month period
following such termination.
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; or (v) your violation of the ethics provisions established by the
American Institute of Certified Public Accountants. 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."
You shall be entitled to paid sick days and paid vacation days
commensurate with that due to an executive at your level of employment, with no
more than two weeks of which to be consecutive.
Until the establishment by the Company of a health insurance plan for
its executives, which is contemplated to be done on or before January 15, 1997,
the Company will pay you up to $300 per month to reimburse you for maintaining
your own health insurance coverage; you will provide the Company with receipts
to document your expenditure for such coverage. Thereafter, it is anticipated
that beginning on January 15, 1997, the Company shall provide you with
"standard" medical insurance. 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, executive non-qualified deferred compensation plan or
<PAGE>
Mr. Thomas E. Blayney
August 21, 1996
Page 4
incentive compensation plan that the Board of Directors of the Company shall
determine to make available to such employees. Beginning on August 21, 1996, the
Company will pay you a car allowance of $300 per month.
Subject to the provisions of the subsequent paragraph, in the event
your employment with the Company is terminated (i) for "cause" (as defined
above), you will be entitled to receive 90 days' worth of your then current base
compensation along with any applicable bonus, or (ii) for other than "cause" you
will be entitled to the full benefits hereunder through the existing term
hereof.
In the event there is a "change in control" of the Company (as defined
below) and (i) within 12 months of such "change in control" you terminate your
employment hereunder, or (ii) your employment hereunder is terminated by the
Company for any reason or no reason within months of such "change in control",
then in either case you shall, within fifteen days of such termination, receive
as severance pay a payment in cash of an amount equal to one year's worth of
your then current base compensation plus applicable bonus (if any), along with
the above-described acceleration of the vesting of your stock options (the
"Termination Benefits"). For purposes of this Agreement, a "change in control"
of the Company shall occur when 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.
It is expressly understood and agreed that your employment must
terminate in order for the provisions of the preceding paragraph (which provides
for the payment of Termination Benefits to you in certain circumstances) to be
operative.
You agree that you will execute the Company's standard confidentiality
and noncompetition agreement upon your acceptance of employment with the
Company.
For the sixty-day period commencing September 1, 1996, the Company
agrees to sell to you up to 10,000 shares of its common stock for a per share
price equal to the current public market price of the Company's common stock.
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
<PAGE>
Mr. Thomas E. Blayney
August 21, 1996
Page 5
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/ RAYMOND MONTELEONE
------------------------------
Raymond Monteleone, President
and Chief Operating Officer
Agreed to and Accepted this
23rd day of August, 1996
/s/ THOMAS E. BLAYNEY
- ---------------------------
Thomas E. Blayney
EXHIBIT 10.15
September 1, 1996
Ms. Pamela S. Petcash
221 N.E. 12th Avenue
Ft. Lauderdale, Florida 33301
RE: EMPLOYMENT AGREEMENT WITH FIRST AMERICAN
RAILWAYS, INC. (THE "COMPANY")
Dear Pamela:
This letter confirms that the Company agrees to employ you and you
agree to accept such employment, upon the terms and conditions set forth below
beginning September 1, 1996, and continuing for a period of three years.
During the period of your employment, you will serve as Vice President,
Customer Care and Entertainment of the Company. You agree that, during the
period of your employment under this Agreement, you will serve the Company
faithfully, diligently and to the best of your ability, under the direction and
supervision of the President of the Company, and you will devote your full 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 President 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:
(9/1/96-12/31/96) $33,333 base compensation (which represents
an annual rate of $100,000) along with a
target bonus of 25% of base compensation (pro-
rated) as determined by the President of the
Company consistent with your attainment of
pre-determined individual and corporate
objectives.
<PAGE>
Ms. Pamela S. Petcash
September 1, 1996
Page 2
Calendar 1997: $100,000 per annum base compensation along
(1/1/97-12/31/97) with a target bonus of 25% of base compen-
sation as determined by the President of the
Company consistent with your attainment of
pre-determined individual and corporate
objectives. (If your employment is not
renewed as provided hereunder effective
September 1, 1997, you will only be entitled
to receive the prorated amount of your base
compensation for calendar year 1997 for the
period of your actual employment.)
Calendar 1998: Base compensation, bonus, and future stock
(1/1/98-12/31/98) options, all to be evaluated and determined by
the President.
The Company agrees to grant you on September 1, 1996 ten-year,
non-qualified stock options to purchase 10,000 shares of common stock (subject
to standard anti-dilution protections) at an exercise price which is equal to
the then current market price, with such 10,000-share option vesting in
one-third increments (so long as this Agreement has not otherwise been
terminated except as otherwise provided herein) with the initial vesting of
3,333 shares on the date of grant, the second 3,333-share increment vesting on
the first anniversary of the date of grant, and the remaining 3,334-share
increment vesting on the second anniversary of the date of grant; provided,
however, that any such options which remain to be vested hereunder shall be
immediately and fully vested upon your election to terminate this Agreement by
reason of a "change in control" of the Company as hereafter defined.
In the event that you are incapacitated by reason of mental or physical
disability 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. Further, in the event of
termination pursuant to this paragraph, the Company will pay the health and life
insurance premiums in connection with
<PAGE>
Ms. Pamela S. Petcash
September 1, 1996
Page 3
the coverage contemplated hereby for the six-month period following
such termination.
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."
You shall be entitled to paid sick days and paid vacation days
commensurate with that due to an executive at your level of employment, with no
more than two weeks of which to be consecutive.
Until the establishment by the Company of a health insurance plan for
its executives, which is contemplated to be done on or before January 15, 1997,
the Company will pay you up to $300 per month to reimburse you for maintaining
your own health insurance coverage; you will provide the Company with receipts
to document your expenditure for such coverage. Thereafter, it is anticipated
that beginning on January 15, 1997, the Company shall provide you with
"standard" medical insurance. 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, executive non-qualified deferred compensation plan or
incentive compensation plan that the Board of Directors of the Company shall
determine to make available to such employees. Beginning on January 1, 1997, the
Company will pay you a car allowance of $300 per month.
Subject to the provisions of the subsequent paragraph, in the event
your employment with the Company is terminated (i) for "cause" (as defined
above), you will be entitled to receive 90 days' worth of your then current base
compensation along with any applicable bonus, or (ii) other than for "cause" you
will be entitled to the full benefits hereunder through the existing term
hereof.
<PAGE>
Ms. Pamela S. Petcash
September 1, 1996
Page 4
In the event there is a "change in control" of the Company (as defined
below) and (i) within 12 months of such "change in control" you terminate your
employment hereunder, or (ii) your employment hereunder is terminated by the
Company for any reason or no reason within 12 months of such "change in
control", then in either case you shall, within fifteen days of such
termination, receive as severance pay a payment in cash of an amount equal to
one year's worth of your then current base compensation plus applicable bonus
(if, along with the above-described acceleration of the granting and vesting of
your stock options (the "Termination Benefits"). For purposes of this Agreement,
a "change in control" of the Company shall occur when 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.
It is expressly understood and agreed that your employment must
terminate in order for the provisions of the preceding paragraph (which provides
for the payment of Termination Benefits to you in certain circumstances) to be
operative.
You agree that you will execute the Company's standard confidentiality
and noncompetition agreement upon your acceptance of employment with the
Company.
For the sixty-day period commencing September 1, 1996, the Company
agrees to sell to you up to 10,000 shares of its common stock for a per share
price equal to the current public market price of the Company's common stock.
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.
<PAGE>
Ms. Pamela S. Petcash
September 1, 1996
Page 5
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/ RAYMOND MONTELEONE
-----------------------------
Raymond Monteleone, President
and Chief Operating Officer
Agreed to and Accepted this
30th day of September, 1996
/s/ PAMELA S. PETCASH
- -----------------------------
Pamela S. Petcash
EXHIBIT 10.16
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is dated this _____ day of ___________, 19___, by and
between ________________ ("Executive") and First American Railways, Inc. (the
"Company").
RECITALS:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept such employment, subject to the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and the parties hereto intending
to be legally bound, the Company and Executive hereby agree as follows:
TERMS AND CONDITIONS
1. CONFIDENTIAL INFORMATION. Except as required if furtherance of the
business of the Company, executive shall not divulge or communicate to any
person, corporation, governmental agency, or other entity (except in performing
Executive's duties as an employee), or use for Executive's own purposes, any
trade secret or confidential commercial information, or any other information,
knowledge, or data of the Company or any affiliate which is not generally known
to the public (including, but not limited to, information relating to research,
product and/or route development, maintenance or repair processes, purchasing,
product or material costs, sales or sales strategies or prospects, pricing or
pricing strategies, advertising or promotional programs, product information, or
mailing or customer lists), and shall use Executive's best efforts to prevent
the publication or disclosure by any other person or entity of any such secret,
information, knowledge or data. While Executive is a director of the Company,
all documents and objects made, compiled, received, held, or used by Executive
in connection with the business of the Company shall remain the Company's
property, and shall be delivered by Executive to the Company upon the
termination of Executive's position with the Company for whatever reason. It is
understood that Executive shall retain ownership of Executive's personal
property, including Executive's private papers not containing any trade secret
of confidential commercial information, or any other information, knowledge or
data of the Company or any affiliate thereof.
<PAGE>
2. UNFAIR COMPETITION.
(a) While Executive is an employee of the Company, Executive shall
not, directly or indirectly, whether or not for compensation, and whether or not
as an employee, be engaged in or have a financial interest in any other
business, continue or assume any other corporate affiliations, or pursue any
other commercial activities, duties, or pursuits whatsoever without the prior
written consent of the Company.
(b) As a condition of Executive's employment with the Company, and
as material inducement to the Company to allow Executive to continue as an
employee of the Company, Executive agrees that for a period of two years after
the termination of Executive's employment with the Company for whatever reason,
Executive shall not, directly or indirectly, whether or not for compensation,
and whether or not as an employee, be engaged in or have a financial interest in
any business competing with or which may compete with the business of the
Company (or with any business of any affiliate of the Company) anywhere within
the United States.
(c) For purposes of this Agreement, Executive shall be deemed to
be engaged in or have a financial interest in a business if Executive is an
employee, officer, director, consultant, independent contractor, agent, security
holder, proprietor, or partner of any person, partnership, corporation, trust or
other entity which is engaged in such business, or if Executive directly or
indirectly performs services for such entity or if Executive or any member of
Executive's immediate family beneficially owns an equity interest, or interest
convertible into equity, in any such entity; provided, however, that the
foregoing shall not prohibit Executive or a member of Executive's immediate
family from owning, for the purpose of passive investment, less than 5% of any
class of securities of any publicly held corporation.
(d) Executive agrees and acknowledges that, by virtue of
Executive's employment with the Company, Executive shall have access to and
maintain an intimate knowledge of the Company's activities and affairs,
including trade secrets and confidential commercial information, and other
confidential matters. As a result of such access and knowledge, and because of
the special, unique and extraordinary services that Executive is capable of
providing to the Company or any one of its competitors, Executive acknowledges
that the services to be rendered by Executive to the Company are of a character
giving them a peculiar value, the loss of which cannot adequately or reasonably
be compensated by money damages. Consequently, Executive agrees that any breach
or threatened breach by Executive of Executive's obligations under this
Paragraph 2, or of Paragraphs 1 or 3 of this Agreement, would cause irreparable
injury to the Company, and that the Company shall be entitled to (i) preliminary
and permanent injunctions enjoining Executive from violating such provisions,
and (ii) money damages in
2
<PAGE>
the amount of fees, compensation, benefits, profits or other remuneration earned
by Executive or any competitor as a result of any such breach, together with
interest, and costs and attorneys' fees expended to collect such damages or
secure such injunctions, Nothing in this Agreement, however, shall be construed
to prohibit the Company from pursuing any other remedy, the Company and
Executive having agreed that all such remedies shall be cumulative.
(e) Executive acknowledges that the limitations set forth in this
Paragraph 2 shall not prevent Executive from earning a livelihood after
Executive either leaves the Company's employ, but merely prevents unfair
competition against the Company for a limited period.
3. SOLICITATION OF EMPLOYEES. Executive agrees that for a period of two
years after the termination of Executive's position with the Company, for
whatever reason, Executive shall not, directly or indirectly, employ any person
who was employed by the Company or any affiliate thereof, or induce such person
to accept employment other than with the Company or any affiliate thereof.
4. INVENTIONS. Executive hereby agrees that any and all improvements,
inventions, discoveries, formulae, processes, methods, or designs, and any
documents, things, or information relating thereto (individually and
collectively, "Work Product") within the scope of any business of the Company or
any affiliate thereof which Executive may conceive or make, or may have
conceived or made during Executive's employment with the Company, shall be and
are the sole and exclusive property of the Company, and that Executive shall,
whenever requested to do so by the Company (whether during Executive's
employment or thereafter), at the Company's expense, execute any and all
applications, assignments, or other instruments, and do all other things
(including giving testimony in any legal proceeding) which the Company may deem
necessary or appropriate in order to (a) apply for, obtain, maintain, enforce,
or defend letters patent of the United States or any other country for any Work
Product, or (b) assign, transfer, convey, or otherwise make available to the
Company any right title or interest which Executive might otherwise have in any
Work Product. Executive shall promptly communicate, disclose, and, upon request,
report and deliver all Work Product to the Company, and shall not use or permit
any Work Product to be used for any purpose other than on behalf of the Company,
whether while Executive is an employee of the Company, or thereafter.
5. ADDITIONAL OBLIGATIONS. Executive shall, upon reasonable notice,
furnish the Company with such information as may be in Executive's possession,
and cooperate with the Company, as may reasonably be requested by the Company
(and, after the termination of Executive's employment with the Company, with due
consideration for Executive's obligations with respect to any new employment or
business activity) in connection with any litigation in which the
3
<PAGE>
Company or any affiliate thereof is or may become a party. The Company shall
reimburse Executive for all reasonable expenses incurred by Executive in
fulfilling Executive's obligations under this Paragraph 5.
6. NOTICE. Any notice or other communication required or permitted
under this Agreement by either party hereto to the other shall be in writing,
and shall be deemed effective upon (a) personal delivery, if delivered by hand,
(b) three (3) days after the date deposited in the U.S. Mail, postage prepaid,
if mailed by registered or certified mail, return receipt requested, or (c) the
next business day, if sent by prepaid overnight courier service, and in each
case addressed as follows:
IF TO THE EXECUTIVE: MICHAEL J. ACIERNO
5 TAM O'SHANETR LANE
FORT LAUDERDALE, FLORIDA 33308
FACSIMILE: (954) 565-5144
IF TO THE COMPANY: FIRST AMERICAN RAILWAYS, INC.
2445 HOLLYWOOD BOULEVARD
HOLLYWOOD, FLORIDA 33020
ATTENTION: RAYMOND MONTELEONE,
PRESIDENT
FACSIMILE: (954) 920-0602
WITH COPY TO: OLLE, MACAULAY & ZORRILLA, P.A.
1402 MIAMI CENTER
201 SOUTH BISCAYNE BLVD.
MIAMI, FLORIDA 33130
ATTENTION: DENNIS J. OLLE, ESQ.
FACSIMILE: (305) 358-9617
Either party may change the address or addresses to which notices are to be sent
by giving notice of such change of address in the manner provided by this
Paragraph 6.
7. ENTIRE AGREEMENT. This Agreement supersedes and is in full
substitution for any and all prior agreements or understandings, whether written
or oral, between the parties relating to the subject matter of this Agreement.
8. AMENDMENT. This Agreement may not be cancelled, changed, modified or
amended orally, and no cancellation, change, modification or amendment hereof
shall be effective or binding unless in a written instrument signed by the
Company and Executive. A provision of this Agreement may be waived only by a
written instrument signed by the party against whom or which enforcement of such
waiver is sought.
4
<PAGE>
9. NO WAIVER. The failure at any time of either of the Company or
Executive to require the performance by the other of any provision of this
Agreement shall in no way affect the full right of such party to require such
performance at any time thereafter, nor shall the waiver by either the Company
or Executive of any breach of any provision of this Agreement be taken or held
to constitute a waiver of any succeeding breach of such or any other provision
of this Agreement.
10. ASSIGNMENT. This Agreement is binding on and for the benefit of the
Company and Executive and their respective successors, heirs, executors,
administrators, personal representatives, and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may be sold,
transferred, assigned, or pledged by the Company (except to an affiliate) or by
Executive without the prior written consent of the other. However, nothing in
this Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to, another entity
which assumes this Agreement and all obligations and undertakings of the Company
hereunder.
11. SEVERABILITY. If any term, provision, covenant, or condition of
this Agreement, or the application thereof to any person, place or circumstance,
shall be held to be limited, invalid, unenforceable, or void, the remainder of
this Agreement and such term, provision, covenant or condition as applied to
other persons, places or circumstances shall remain in full force and effect.
12. NO CONFLICT. Executive represents and warrants that Executive is
not subject to any agreement, order, judgment, or decree of any kind which would
prevent Executive from entering into this Agreement or performing fully
Executive's obligations hereunder.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Florida, without
application of its conflict or choice of law provisions.
14. EXECUTION. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
15. HEADINGS. The headings contained in this Agreement are for
reference purposes only, and shall not affect the meaning or interpretation of
this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the Company and Executive have executed this
Agreement as of the day and year first above written.
THE COMPANY:
FIRST AMERICAN RAILWAYS, INC.,
A NEVADA CORPORATION
BY:_________________________________
RAYMOND MONTELEONE, PRESIDENT
EXECUTIVE:
____________________________________
____________________________________
EXHIBIT 10.17
MANAGEMENT
RESOURCE
GROUP, INC.
July 22, 1996
Mr. Ray Monteleone
President
First American Railways, Inc.
3965 North 32nd Terrace
Hollywood, FL 33021
Dear Ray:
We are pleased to have this opportunity to present a proposal for assisting you
in conducting a study that will facilitate the final definition of various key
product attributes of the Florida Fun Train.
Based on the discussions during our July 11 and July 16 meetings, the following
outlines our suggestions of how MRG might help you with this project.
THE SITUATION
First American Railways Inc. (FAR) will provide privately owned and operated
train service between South Florida (Fort Lauderdale or Palm Beach) and Central
Florida (Orlando) with a product branded as the Florida Fun Train (FFT). The
FFT, which will operate in each direction on a daily basis, will be much more
than just a mode of transportation, as it will provide a variety of dining and
entertainment options for passengers of all ages.
It is planned that the FFT will begin full service on October 1, 1997. FAR
expects to receive some cars of the train in June 1997 for use in advance
promotion.
Subject to the results of the project for which this proposal has been prepared,
it is intended that the train set will consist of 8 glass domed coaches with
passenger seating, plus four bi-level gallery cars dedicated to entertainment
facilities and one car for power and baggage storage.
19495 Biscayne Boulevard
Suite 801
Aventura, Florida 33180
<PAGE>
Mr. Ray Monteleone
July 22, 1996
Page 2
One of the eight coaches has already been constructed in a configuration that
includes seating for 72 passengers at 4 top tables, plus a small galley for food
preparation. The car also has an outdoor platform which occupies the space that
might have otherwise been devoted to 8 seats. At least four or five additional
coaches will be built to this same design. Total coach seating will accommodate
approximately 576 passengers.
The basic design for two of the entertainment cars has essentially been
established. One of these cars will be devoted to various types of video games.
The second car will consist of a lounge with bar, dance floor, and bandstand.
By October 1, the basic design of the last 2 entertainment cars must be defined.
By November 1, the basic design of the last 2 or 3 passenger coaches must be
decided.
It is currently anticipated that the design of the last 2 entertainment cars
will include 1 car for live entertainment (and perhaps movies) with theater
style seating. The last entertainment car is currently anticipated to be a
combination lounge and logo merchandise shop.
The design of the last 2 or 3 passenger coaches will be primarily dependent upon
a decision of whether to offer more than one class of service.
FAR currently anticipates that the duration of the train trip will be 4 hours
and 40 minutes. Its financial projections anticipate a minimum one-way fare of
$55 plus $15 to $20 per passenger in onboard revenue.
While FAR management recognizes that the Florida Fun Train is essentially a mode
of transportation that will be one of several options available to its potential
customers, it is believed that quality dining and entertainment facilities are
key to the appeal and attractiveness of the Florida Fun Train and to customer
satisfaction. The dining and entertainment options will also be important
factors in generating the onboard revenue required for profitability.
THE PROJECT/ASSIGNMENT
The primary objective of this project is to finalize the definition of various
key product attributes of the FFT, including pricing. To accomplish this, we
believe that it is important to first establish an understanding of the market
segments that will be most
<PAGE>
Mr. Ray Monteleone
July 22, 1996
Page 3
receptive to using the FFT and to understand how they might weigh the FFT
against other options available to them.
We believe this project can be viewed as consisting of three discrete elements,
which are reviewed in the work plan description. We understand that our primary
liaison for this project will be John VanOrdstrand.
We recognize that time is of the essence, and we anticipate completing our work
on a schedule consistent with FAR's timing requirements. To meet our time
targets, we will be dependent upon access to FAR's management and, in some
cases, their quick approval for actions to be taken.
THE WORK PLAN
We anticipate that the activities in the three key elements of our work plan
will include the following:
1.0 COMPILE/ANALYZE SECONDARY RESEARCH
1.1 The primary objective of this activity will be to improve our
understanding of the composition or market segments of the potential market and
the attributes of their current travel patterns (mode of transport, party size,
etc.). As part of this analysis, we will try to identify the regional origin of
the best prospects and their basic demographic characteristics. As a first step,
we would like to receive and review as soon as possible the relevant secondary
data that has been compiled by FAR.
1.2 We will attempt to secure research studies and relevant data
from such sources as the State of Florida (transportation and tourism
departments), the Miami Convention and Visitors Bureau, the Orlando Visitors
Bureau, the Ft. Lauderdale Visitors Bureau, the Palm Beach Visitors Bureau, the
appropriate airport authorities, and the successor to the U.S. Travel and
Tourism Administration.
1.3 We will conduct a review of traffic statistics ( to the extent
they exist), frequency of service, and costs for alternative modes of
transportation including air, scheduled and charter bus service, and car rental.
2.0 CHANNELS OF DISTRIBUTION RESEARCH
2.1 The objective of this activity will be to add to our
understanding of the potential users of the train and to obtain suggestions
regarding key product attributes, services, and pricing from the entities that
will ultimately contribute to a large
<PAGE>
Mr. Ray Monteleone
July 22, 1996
Page 4
portion of sales. These entities should be able to provide insight regarding
schedules, pricing and commissions, identification of the market segments that
will be most receptive to the product, product amenities, class of service,
language or other special requirements, and the travel/trip attributes of the
key market segments.
2.2 We anticipate completing telephone interviews with key decision
makers in the following entities:
NATURE OF ENTITY NUMBER OF INTERVIEWS
---------------- --------------------
/bullet/ U.S. Package/Tour Wholesalers 5 to 6
/bullet/ International Package/Tour Wholesalers 12 to 15 (6 to 8
(Europe, Latin America, countries)
and Japan)
/bullet/ Inbound Reception Operators 5 to 6
/bullet/ Day Cruise Lines (not "cruises to 2
nowhere")
/bullet/ Other Cruise Lines 4-5
/bullet/ Car Rental Companies 3
/bullet/ Time Share Promoters 3
/bullet/ Sightseeing Operators 3
Based on the above, our target is to complete approximately 40 telephone
interviews among these various entities. It is expected that FAR will be able to
provide names of key contact personnel at some of these organizations.
MRG will also prepare a topic outline/questionnaire which FAR management will
use to interview executives of several foreign airlines.
3.0 CONSUMER RESEARCH
We do not have a definite plan for consumer research at this time. We believe
that the research plan should reflect the result of our analysis and conclusions
derived from 1.0 and 2.0 above.
In principal, we anticipate doing a limited number of focus group studies and
following this with quantitative research among the key target market segments
that will include domestic and foreign visitors to Florida as well as residents
of Central and South Florida.
The objective of this research will be to develop reliable, actionable
information that will enable us to facilitate decisions regarding schedules,
pricing, classes of service, forms and types
<PAGE>
Mr. Ray Monteleone
July 22, 1996
Page 5
of entertainment, and language or other special requirements. This research will
also provide insight regarding decor, preferences for 4 top seating vs. forward
facing seating, quiet zones, non-smoking areas, baggage storage requirements,
preferred types of electronic games, and entertainment car configuration.
Given their resources and prior work with the Las Vegas Train Project, Elrick
and Lavidge is likely to be the best candidate for conducting this research.
Once we are able to give them better direction regarding the research
requirements, we will obtain for your review and approval a detailed proposal
from Elrick and Lavidge. We expect to review and manage their work as well as
their analysis and recommendations.
This research should enable us to determine the best mix of product attributes
and pricing to maximize the appeal and success of the FFT.
If we receive authorization this week to proceed with the project, we will have
approximately 15 weeks to complete the work and meet the FAR timing
requirements. The following chart shows the timetable and estimated number of
hours of work for completion of the project:
MRG
WEEK WEEK WORK PLAN WORK DESIGN
NUMBER OF ELEMENT HOURS DEADLINES
- ------ -- ------- ----- ---------
1 7-22 1.0 60
2 -29
3 8-5
4 -12 2.0 155
5 -19
6 -26
7 9-2 First 2 entertainment cars
8 -9
9 -16 3.0 60
10 -23
11 -30 Last 2 entertainment cars
12 10-7
13 -14
14 -21
15 -28 ___ Last 3 or 4 coach cars
275
Client meetings, report
writing, admin., etc. 50
---
325
<PAGE>
Mr. Ray Monteleone
July 22, 1996
Page 6
It should be emphasized that the above timetable is very aggressive and has no
cushion built into it. However, MRG is committed to the completion of this
project in the prescribed time frame.
We recognize that, during the course of this project, MRG may learn and obtain
confidential information. We agree to respect the confidentiality of that
information and understand that we are not to disclose any part of it to a third
party.
DELIVERABLES
At the conclusion of both elements 1.0 and 2.0 of the work plan, MRG will
present a report reviewing and summarizing the data that has been compiled and
the conclusions drawn from it. At the conclusion of the third element of the
work plan, The Consumer Research, the market research firm will provide a
detailed report and analysis of their findings. MRG will collaborate with the
research firm in the preparation of this report.
Throughout this project MRG will provide weekly progress reviews to John
VanOrdstrand. Approximately every three weeks, MRG will present its recent
findings to Ray Monteleone, Al Harper, and other FAR executives.
Upon conclusion of this project, we expect to provide specific recommendations
regarding the market segments most likely to use the FFT, approximations to
traffic volume including seasonality patterns, the most attractive schedules,
appropriate pricing, the best types of entertainment to be offered, and key
product attributes such as classes of service, language or other special
requirements, seating design, etc.
MRG'S PROJECT TEAM
The two primary members of MRG's project team will be Ron Kurtz, the project
director, and Howard Waddell. In addition to Ron's extensive experience in the
travel industry and his work on the Marlboro Unlimited train project, both
Howard and Ron are currently working together on the feasibility study for the
Southern California/Las Vegas train project.
The attachments include personal biographies and a listing of MRG's past
industry/client experience. References can be provided upon request.
<PAGE>
Mr. Ray Monteleone
July 22, 1996
Page 7
MRG'S COMPENSATION
For completing the work outlined above, MRG proposes the following budget:
MRG's Professional Fees $ 40,000
MRG's Out of Pocket Expenses 2,000
-------
Sub-total $ 42,000
Consumer Research +/- $ 130,000 (fixed cost TBD)
MRG's professional fees will cover all work required to complete elements 1.0
and 2.0 of the work plan. MRG's professional fees will also include managing and
directing the work of the firm selected to conduct the consumer research. Based
on our experience with the Las Vegas project, we have estimated that the
consumer research will involve an expenditure of approximately $130,000. A firm
figure can not be established until we are better able to define the research
requirements. A comprehensive draft proposal from Elrick & Lavidge will be
forthcoming.
The out of pocket expenses, which will be billed at actual cost net of any mark
up upon completion of the assignment, will cover typing, copying,
communications, and courier services. We have made no provisions for travel
expenses or travel time (e.g. to attend focus groups), nor for the possible
purchase of secondary research studies or special cross tabulations. Any out of
pocket expenses that would result in exceeding the $2,000 estimate shown above
will be submitted to FAR in advance for its prior approval.
The MRG fee would be payable in installments of $20,000 upon commencement of the
project and final payment upon completion of the project. The research firm will
contract directly with FAR, and payments will be made directly to them by FAR.
If this proposal is acceptable to you, as I hope it will be, please indicate
your acceptance by signing in the space below and returning a copy to me. Our
work can begin upon receipt of the initial payment installment.
<PAGE>
Mr. Ray Monteleone
July 22, 1996
Page 8
Howard and I believe that this will be a very interesting project, and we would
welcome the opportunity to work with you and your team.
Sincerely,
/s/ Ron Kurtz
- ----------------
Ron Kurtz
President
Agreed and Accepted
By: /s/ RAY MONTELEONE Date: 7/23/96
------------------ -------------
Ray Monteleone
EXHIBIT 10.18
UNIVERSAL STUDIOS
October 23, 1996
Raymond Monteleone VIA FAX (954) 920-0602
President and COO
First American Railways, Inc.
2445 Hollywood Blvd.
Hollywood, FL 33020
Dear Ray,
The following outlines the individual commitments of Universal Studios Florida
(hereafter USF) and First American Railways, Inc. (hereafter FAR) between the
dates of November 4, 1996 and December 31, 1998.
USF will:
/bullet/Extend opportunities to FAR for participation with USF in strategic
integrated marketing programs including consumer and industry trade programs
supported in part through advertising promotions, publicity, on and off-site
events, etc. FAR will be integrated within the program(s) as a travel partner.
FAR's inclusion in programs will be contingent upon acceptance of each proposal
and FAR's financial and in-kind service contributions to each program.
/bullet/Create a minimum of three consumer and / or industry trade marketing /
promotional programs within the Miami market per year that incorporate FAR
travel packages. Program execution will be contingent upon acceptance of and
financial and in-kind service contribution by FAR for the proposed programs.
/bullet/Partner with FAR to create USF event themed cars (ex. HHN, Mardi Gras,
etc.) and associated travel packages for sale and promotional use by FAR and
USF.
/bullet/Facilitate participation by USF Corporate Partners in USF and FAR
cooperative strategic marketing programs.
/bullet/Explore mutually beneficial opportunities for the sale of USF
merchandise by FAR on board the Fun Train. Such opportunities, if agreed upon,
would be detailed under a separate contract.
<PAGE>
FAR will:
/bullet/Extend licensing, at no cost to USF, for FAR and Fun Train logos and
related materials for use in marketing materials designed to support the
program. FAR will approve, in-advance, their participation in any cooperative
programs.
/bullet/Not enter into comprehensive marketing agreement with any other major
theme park or attraction. FAR will provide USF with full disclosure of the
nature and extent of any agreement with any other theme park or attraction prior
to entering into that agreement.
/bullet/FAR may partner with Sea World, Busch Gardens, or Wet'N Wild on
individual marketing programs provided that they extend first right of refusal
to USF.
/bullet/Extend sponsorship, at no cost to USF, of one car selected by and at the
discretion of USF, (entertainment, passenger or engine), with sponsor benefits
including but not limited to, design involvement, exposure on outside inclusion
in all appropriate on board printed materials, signage and opportunity to sell
merchandise. FAR will not extend car sponsorship to any other major theme park
or attraction. If USF creates a design with costs greater than that budgeted by
FAR for the design construction, USF will be responsible for payment of those
incremental costs.
/bullet/FAR will provide, at no cost to USF, space on-board for the installation
of a USF kiosk to facilitate execution by passengers of additional vacation
plans while in transit.
/bullet/Provide, at no cost to USF, 3,000 complimentary tickets for use at the
sole discretion of USF. Use of these complimentary tickets are subject to
mutually agreed upon blackout dates with such dates to be provided by FAR, to
USF no later than February 1, 1997. Further, FAR will provide, additional
complimentary tickets to USF (i.e. in-kind service) in-partial consideration for
inclusion in programs previously referenced within this document.
/bullet/Distribute at no cost to USF, USF brochures to passengers boarding in
South Florida and maintain current USF information materials on-board as a guest
service for passengers.
/bullet/FAR may not use the USF logo or related proprietary materials without
the prior written approval and consent of USF. Further, USF reserves the right
of final approval for all materials that incorporate the USF logo or any mention
of USF, its rides, shows or attractions including but not limited to, consumer
and trade advertising and publicity releases and materials. Such approvals will
be extended on a timely basis and will not be unreasonably withheld.
<PAGE>
USF and FAR will:
/bullet/Continue to pursue and develop opportunities including but not limited
to travel packaging "private label" reservations, merchandise, entertainment,
sponsorships, etc.
Ray, we're pleased to be a partner with First American Railways in this exciting
entrepreneurial endeavor. We look forward to extending the bounds of this
partnership with you and further developing opportunities of mutual benefit. If
you are in agreement with this partnership and commitments as outlined above,
please sign below and return to me for execution by Universal Studios.
Best regards,
/s/ ANNA J. HOWIE
- -----------------
Anna J. Howie
Marketing Manager
Agreed to this 30th day of October, 1996 for First American Railways by:
/s/ RAYMOND MONTELEONE
- ----------------------
Name / Title Raymond Monteleone, President
Agreed to this 30th day of October, 1996 for Universal Studios Florida by:
/s/ ANNA J. HOWIE
- -----------------
Name / Title
EXHIBIT 10.19
TRACKAGE RIGHTS AGREEMENT
by, between, and among
FUN TRAINS, INC. and
FIRST AMERICAN RAILWAYS, INC.
2445 Hollywood Boulevard
Hollywood, Florida 33020
and
CSX TRANSPORTATION, INC.
500 Water Street
Jacksonville, Florida 32202
Dated October 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. PREREQUISITE REGULATORY AUTHORITIES.................................... 2
2. PREREQUISITE CONSENT OF AMTRAK......................................... 2
3. PREREQUISITE CERTIFICATION OF TRACK USAGE AGREEMENTS
WITH FEC, FLORIDA DEPARTMENT OF TRANSPORTATION
AND ORLANDO UTILITIES.................................................. 3
4. PREREQUISITE PROCUREMENT OF SPECIFIED INSURANCE
COVERAGE ACCEPTABLE TO CSXT............................................ 3
a. Liability Insurance................................................ 3
b. Other Required Insurance........................................... 5
c. General Provisions Applicable to Required Policies................. 5
d. Restrictions on All Required Policies.............................. 6
5. CSXT GRANTS TRACKAGE RIGHTS TO FUN TRAINS.............................. 6
6. FAR SOLELY RESPONSIBLE FOR FFT LOCOMOTIVES AND
PASSENGER EQUIPMENT.................................................... 7
7. FAR SOLELY RESPONSIBLE FOR PROVIDING PERSONNEL
FOR FFT OPERATION...................................................... 7
8. FFT SCHEDULE........................................................... 8
9. INITIAL CONSIST OF FFT................................................. 9
10. FAR TRAIN CREWS SUBJECT TO CONTROL OF CSXT OPERATING
OFFICIALS..............................................................10
11. MANDATORY TOXICOLOGICAL TESTING........................................10
12. BREAKDOWNS OR SIMILAR PROBLEMS ON LINE OF ROAD.........................11
13. NO DETOUR ROUTE IS AVAILABLE...........................................11
14. GENERAL OPERATING PARAMETERS/ON TIME OPERATION NOT
GUARANTEED.............................................................12
15. ACCESS TO CSXT RADIO FREQUENCIES.......................................12
16. ASSUMPTION OF ALL RISKS AND COMPLETE INDEMNIFICATION
OF CSXT................................................................13
17. LABOR CLAIMS...........................................................14
18. FAR SOLELY RESPONSIBLE FOR TERMINAL FACILITIES.........................14
- i -
<PAGE>
TABLE OF CONTENTS (Continued)
PAGE
----
19. CAPITAL IMPROVEMENTS INVOLVING CSXT TRACKAGE.......................... 15
20. FAR SOLELY RESPONSIBLE FOR FFT TAXES.................................. 15
21. COMPENSATION FOR TRACKAGE RIGHTS...................................... 16
22. ARBITRATION OF DISPUTES............................................... 19
23. AGREEMENT CONTINGENT UPON CSXT'S CONTINUED OPERATION OF
TRACKAGE RIGHTS SEGMENT............................................... 20
24. TERM OF AGREEMENT..................................................... 20
25. EXCLUSIVE ACCESS RIGHTS............................................... 21
26. POTENTIAL FOR HIGH SPEED RAIL SERVICE................................. 21
27. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................. 22
28. BOARD OF DIRECTORS.................................................... 22
29. FORCE MAJEURE......................................................... 22
30. WAIVER AND MODIFICATION............................................... 23
31. GENERAL PROCEDURES FOR DEFAULT.........................................23
32. NO INTENT TO CREATE JOINT BUSINESS RELATIONSHIP........................24
33. FIRST AMERICAN AND FUN TRAINS JOINTLY AND SEVERALLY
ASSUME OBLIGATIONS.....................................................24
34. SECTIONS HEADINGS USED FOR CONVENIENCE ONLY............................24
35. ASSIGNMENT RESTRICTED................................................. 25
36. NOTICES............................................................... 25
37. GOVERNING LAW......................................................... 25
38. SEVERABILITY.......................................................... 26
APPENDICES
APPENDIX A........................................... PROPOSED SCHEDULE FOR FFT
APPENDIX B..................................................FFT INITIAL CONSIST
- ii -
<PAGE>
TRACKAGE RIGHTS AGREEMENT
This Trackage Rights Agreement is entered into this 31st day
of October, 1996, by, between, and among FUN TRAINS, INC. ("Fun Trains"), a
corporation formed pursuant to the laws of the State of Florida with offices at
2445 Hollywood Boulevard, Hollywood, Florida 33020, FIRST AMERICAN RAILWAYS,
INC. ("First American"), a corporation formed pursuant to the laws of the State
of Nevada, with principal offices at 2445 Hollywood Boulevard, Hollywood,
Florida 33020 (Fun Trains and First American are affiliated corporations
collectively referred to as "FAR"), and CSX TRANSPORTATION, INC. ("CSXT"), a
corporation formed pursuant to the laws of the Commonwealth of Virginia, with
principal offices at 500 Water Street, Jacksonville, Florida 32202.
WHEREAS, Fun Trains is desirous of obtaining trackage rights
to operate a certain type of rail passenger service over CSXT's line of railroad
between West Palm Beach, Florida and the Orlando/Kissimmee, Florida area; and
WHEREAS, CSXT is willing to grant Fun Trains the desired
trackage rights subject to the following terms and conditions; and
WHEREAS, First American is willing to jointly and severally
assume the obligations assumed pursuant to this Agreement by its subsidiary Fun
Trains.
<PAGE>
- 2 -
NOW THEREFORE, in consideration of the valuable benefits which
will inure to both CSXT and FAR by virtue of this Agreement, the parties do
hereby covenant and agree as follows:
1. PREREQUISITE REGULATORY AUTHORITIES - As a condition
precedent to the passenger train operations contemplated in this Agreement, Fun
Trains shall obtain from the Surface Transportation Board ("STB") pursuant to 49
U.S.C. ss.10901 a certificate of public convenience and necessity authorizing
Fun Trains' planned trackage rights operation over CSXT's line of railroad
between the CSXT-Florida East Coast Railway Company ("FEC") interchange at West
Palm Beach, Florida or the northern terminus of the South Florida Rail Corridor
owned by Florida Department of Transportation ("FDOT") on the south end and a
location to be selected by FAR in the Orlando/Kissimmee, Florida area on the
north end (the "CSXT Trackage Rights Segment" or the "Trackage Rights Segment").
CSXT will support FAR's application to the STB, and upon receipt of the required
certificate and order, FAR will provide CSXT with certified copies of those
documents. If the STB finds that it does not have jurisdiction over the subject
matter of Fun Trains' application or otherwise declines to rule on Fun Trains'
application, the parties will endeavor to address this issue in some other
mutually acceptable manner, but operations shall not commence unless and until
the parties agree to some other approach.
2. PREREQUISITE CONSENT OF AMTRAK - As a condition
<PAGE>
- 3 -
precedent to the passenger train operations contemplated in this Agreement, FAR
shall provide CSXT with a copy of Amtrak's written consent to FAR's planned
operation of passenger trains over the CSXT Trackage Rights Segment pursuant to
49 U.S.C. ss.24701(b).
3. PREREQUISITE CERTIFICATION OF TRACK USAGE AGREEMENTS WITH
FEC, FLORIDA DEPARTMENT OF TRANSPORTATION, AND ORLANDO UTILITIES - As a
condition precedent to the passenger train operations contemplated in this
Agreement, FAR shall provide CSXT with letters from FEC, Florida Department of
Transportation, Orlando Utilities, and any other entity whose track Fun Trains
plans to utilize in conjunction with its contemplated passenger train operations
confirming that FAR has entered into the necessary track usage agreements with
those entities. FAR need not provide CSXT with a letter from an entity named in
this section in the event it elects not to operate over that entity's trackage.
4. PREREQUISITE PROCUREMENT OF SPECIFIED INSURANCE
COVERAGE ACCEPTABLE TO CSXT
a. LIABILITY INSURANCE. As a condition precedent to the
passenger train operations contemplated in this
Agreement, FAR shall procure, and thereafter maintain
and renew without lapse, for the full term of this
Agreement, liability insurance with available limits of
not less than $300 million to cover any and all
liability arising from or relating to FAR's passenger
train operations over or presence on the CSXT Trackage
<PAGE>
- 4 -
Rights Segment and any premises incidental thereto, including
but not limited to, employers' liability including liability
under the Federal Employers' Liability Act, and damages for
environmental pollution and remediation. FAR shall promptly
reinstate the required coverage in the event of any loss which
partially or completely exhausts the aggregate limits of any
policy or policies. The insurance policy or policies obtained
in compliance with this section shall cover CSX Corporation,
CSXT, CSX Intermodal, Inc. ("CSXI"), CSX Technology, Inc.
("CSX Tech"), and all other direct and indirect subsidiaries
of CSX Corporation, as named insureds and FAR for its
contractual indemnity obligation to CSXT and its affiliates
and shall not exclude coverage for gross negligence, willful
and wanton conduct, punitive damages, or other enhanced
damages. The self-retention or deductible for this required
coverage shall not exceed $100,000, and the policy or policies
must include "severability of interests" clauses acceptable to
CSXT. The insurer and the insurance policy or policies
obtained in compliance with this Section 4a must be approved
by CSXT prior to the commencement of FFT's operations, and
CSXT shall have full and complete authority to approve or
disapprove such policies at its sole discretion.
<PAGE>
- 5 -
In subsequent years, the minimum amount of coverage
required and the self-retention amount may be adjusted
downward and upward, respectively, in recognition of favorable
claims experience or changes in the law that limit the
liability of the parties. Such adjustments shall, however, be
at the sole discretion of CSXT.
b. OTHER REQUIRED INSURANCE - In addition to the liability
insurance required by Section 4a, above, FAR shall also
procure the following insurance coverage and thereafter
maintain it for the full term of this Agreement:
REQUIRED AVAILABLE LIMITS
TYPE OF POLICY OF NOT LESS THAN
-------------- -------------------------
Workers' Compensation Statutory limits
Property $10 million
Motor Vehicle $5 million
The policies required by this Section 4b shall include
endorsements waiving subrogation against CSXT, CSX
Corporation, CSXI, CSX Tech, and all other direct and indirect
subsidiaries of CSX Corporation.
c. GENERAL PROVISIONS APPLICABLE TO REQUIRED POLICIES -
FAR acknowledges that CSXT would not have entered
into this Agreement absent the insurance coverage required by
this Section 4 and acknowledges and agrees that non-compliance
with said insurance requirements
<PAGE>
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will constitute a major default resulting in immediate
suspension of FAR's passenger train operations over the CSXT
Trackage Rights Segment.
FAR shall require its insurance carrier or carriers
to provide CSXT with certified copies of all policies required
by this Section 4 whenever they are issued, reissued, or
modified.
The policies procured in compliance with this Section
4 shall require the insurance carrier or carriers to provide
CSXT with at least ten days written notice prior to
cancellation, reduction of coverage, or other policy
modifications. Insurance coverage shall remain in effect to
cover all occurrences, claims, or lawsuits existing or
occurring prior to cancellation or modification of the
required policy or policies.
d. RESTRICTIONS ON ALL REQUIRED POLICIES - During the term
of this Agreement, the insurance policies required by
this Section 4 shall not be changed, amended,
cancelled, commuted, sold back, or endorsed without the
prior written consent of CSXT.
5. CSXT GRANTS TRACKAGE RIGHTS TO FUN TRAINS -
Subject to approval by the STB, as required by ss.1, above, CSXT hereby grants
Fun Trains trackage rights to operate a passenger train to be known as the
FLORIDA FUN TRAIN ("FFT") over the CSXT Trackage Rights Segment defined in
Section 1, above.
<PAGE>
- 7 -
6. FAR SOLELY RESPONSIBLE FOR FFT LOCOMOTIVES AND PASSENGER
EQUIPMENT - FAR shall be solely responsible for providing, inspecting,
maintaining, repairing, and replacing any and all locomotives and passenger
equipment (collectively referred to as the "Equipment") required for the FFT's
operation over the Trackage Rights Segment. The Equipment provided by FAR for
the FFT operation will meet and be maintained to comply with all applicable
Federal Railroad Administration ("FRA") requirements and all applicable CSXT
mechanical and safety requirements. FAR shall defend, indemnify, and hold
harmless CSXT with respect to any FRA fines or violations assessed for alleged
non-compliance of FFT Equipment with FRA regulations. Furthermore, FAR shall be
solely responsible for insuring that the Equipment is adequately equipped with
appropriate emergency equipment, including but not limited to fire
extinguishers, emergency lighting systems, and well-marked emergency exits with
readily accessible release mechanisms for use in the absence of normally
available power sources.
7. FAR SOLELY RESPONSIBLE FOR PROVIDING PERSONNEL FOR FFT
OPERATION - FAR shall be solely responsible for providing all personnel
necessary for train and engine operations, switching, Equipment maintenance and
service, customer services, baggage handling and ticket sales in conjunction
with the FFT operation over the CSXT Trackage Rights Segment. FAR shall also be
solely responsible for insuring that all FAR employees engaged in the FFT
operation over the CSXT Trackage Rights Segment are qualified by CSXT with
regard to its operating and safety rules
<PAGE>
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and certified in compliance with applicable FRA regulations. FAR shall defend,
indemnify, and hold harmless CSXT with regard to any FRA fines or violations
assessed for alleged non-compliance of FAR train and engine crews with FRA
regulations. Furthermore, FAR shall be solely responsible for insuring that all
FFT train crews and on board passenger service personnel receive adequate
training in passenger safety including preparedness training in emergency
procedures.
8. FFT SCHEDULE - The FFT's proposed operating schedule over
the CSXT Trackage Rights Segment is attached as Appendix A and incorporated as
part of this agreement. CSXT and FFT developed this schedule with due regard for
FAR's marketing considerations, but FAR acknowledges and agrees that any
subsequent schedules must be developed with the understanding that the FFT
operation shall not interfere with CSXT's freight operations or Amtrak's
intercity passenger operations, that CSXT shall have sole discretion to
prescribe safe operating speeds and practices, and that the maximum operating
speed for the FFT will be 79 m.p.h. CSXT shall maintain the CSXT Trackage Rights
Segment at a level that will permit FAR to maintain FFT service at a reasonable
schedule throughout the term of this Agreement, as well as any extensions,
exclusive of unusual occurrences such as slow orders, program maintenance,
accidents, storm damage or emergencies.
The parties recognize that it may be necessary or desirable to
modify the FFT's schedule from time to time, and such schedule changes may be
requested by either party and
<PAGE>
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implemented by mutual agreement of the parties without amending this agreement.
Assent to requested schedule changes shall not be unreasonably withheld, and the
parties shall give due regard to FAR's marketing requirements, CSXT's marketing
and operating requirements, and Amtrak's scheduling. Such schedule modifications
may be approved on behalf of CSXT by its Assistant Vice President Passenger
Service and on behalf of FAR by its President.
If Amtrak ceases operations over the CSXT Trackage Rights
Segment during the term of this Agreement, CSXT shall be entitled to reduce the
level of utility of the Trackage Rights Segment and thereby reduce the 79 m.p.h.
maximum operating speed to a lesser speed consistent with the requirements of
its freight operations. CSXT will, however, continue to maintain the Trackage
Rights Segment at its current level of utility despite the absence of Amtrak
operations, and thereby preserve the 79 m.p.h. maximum operating speed, if FAR
elects to pay the entire incremental cost of maintaining the Trackage Rights
Segment at the current level of utility rather than the lower level of utility
required for CSXT's freight operations.
9. INITIAL CONSIST OF FFT - FAR shall be solely responsible
for insuring that the FFT has an adequate power-tonnage ratio and is in
sufficient mechanical condition to enable it to maintain its current schedule.
If the FFT operates materially behind schedule on a consistent basis due to
FAR's failure to comply with these requirements, CSXT shall provide FAR with a
reasonably detailed, written notice of the timekeeping
<PAGE>
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problem. If FAR does not take corrective action sufficient to restore reasonably
consistent timekeeping for the FFT within 15 days, CSXT may at its sole
discretion suspend all FFT operations.
The FFT initially will operate with the basic consist set
forth in Appendix B, which is attached and incorporated as part of this
Agreement. The parties acknowledge and agree that said basic consist may vary in
minor respects from day to day due to passenger demand and equipment
availability. The initial consist and basic consist may be modified from time to
time by mutual agreement of the parties, and such agreement may be authorized on
behalf of CSXT by its AVP Passenger Service and on behalf of FAR by its
President.
10. FAR TRAIN CREWS SUBJECT TO CONTROL OF CSXT OPERATING
OFFICIALS - While the FFT is operating on the CSXT Trackage Rights Segment,
FAR's train and engine crews shall at all times be subject to and follow the
direction and control of CSXT's dispatchers, operators, superintendents,
trainmasters, and all other operating officials in authority. FAR shall permit
designated CSXT operating officers to ride aboard the FFT for the purposes of
monitoring rules compliance and performing efficiency tests.
11. MANDATORY TOXICOLOGICAL TESTING - If the FFT is involved
in an accident or incident which triggers mandatory toxicological testing of FFT
personnel and such testing is performed by CSXT, FAR shall reimburse CSXT for
any and all costs incurred in conjunction with performing such tests.
<PAGE>
- 11 -
12. BREAKDOWNS OR SIMILAR PROBLEMS ON LINE OF ROAD -
If the FFT encounters unexpected operating problems such as
locomotive failures or mechanical problems with its passenger
equipment, CSXT will endeavor to provide necessary assistance and
service if the means to do so are available. FAR shall fully
reimburse all costs incurred by CSXT in conjunction with
providing such assistance and service.
13. NO DETOUR ROUTE IS AVAILABLE - FRA acknowledges that if
the CSXT Trackage Rights Segment is out of service for any reason, there is no
practicable alternate rail route over which the FFT can be detoured. Therefore,
in the event an accident or emergency condition necessitates curtailment of
operations over the CSXT Trackage Rights Segment, FAR shall be solely
responsible for arranging transportation via alternate modes and/or providing
refunds for FFT passengers. If the FFT is in transit over the CSXT Trackage
Rights Segment and an accident or emergency condition on the Trackage Rights
Segment precludes completion of the trip, CSXT shall promptly notify FAR, and
FAR shall promptly advise CSXT whether it wishes to disembark the FFT passengers
at an intermediate point for transfer to another mode of transportation or
return the FFT to its point of origin. The normal charges for the FFT operation,
including but not limited to the agreed per-train-mile charge, will apply to all
special movements under such conditions. CSXT shall address any accident or
emergency condition on the Trackage Rights Segment and restore Amtrak, freight,
and FFT operations as promptly as practicable, but it shall not be liable to FAR
for any damages resulting from
<PAGE>
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delay to or interruption of FFT service while operations are
suspended.
14. GENERAL OPERATING PARAMETERS/ON TIME OPERATION NOT
GUARANTEED - CSXT shall dispatch the FFT pursuant to CSXT's safety and operating
rules. Although CSXT will endeavor to dispatch the FFT in a manner which enables
it to traverse the CSXT Trackage Rights Segment in keeping with the schedule
then in effect, FAR acknowledges and agrees that CSXT does not guarantee on time
operation of the FFT and shall not have any liability whatsoever for additional
costs, claims, damages, causes of action, or legal actions resulting from delays
causing the FFT to operate behind schedule. If requested by FAR at least two
business days in advance, CSXT shall provide FAR representatives reasonable
access to CSXT's Operations Center in Jacksonville for the purpose of monitoring
the dispatching services provided for the FFT. If the FFT operates materially
behind schedule on a consistent basis, the parties will join in a cooperative,
good faith effort to correct the timekeeping problems and will adjust the FFT's
schedule if necessary.
15. ACCESS TO CSXT RADIO FREQUENCIES - CSXT will provide
access to CSXT radio frequencies, as necessary, for FFT train and engine crews
operating over the CSXT Trackage Right Segment and other FAR personnel involved
in the FFT operation. FAR shall at its own expense equip the FFT with
multi-channel radios suitable for maintaining necessary communications between
CSXT and FFT personnel.
<PAGE>
- 13 -
16. ASSUMPTION OF ALL RISKS AND COMPLETE INDEMNIFICATION OF
CSXT - FAR hereby assumes any and all risks arising from, caused by, resulting
from, or in any way related to FFT's operation over or presence on the CSXT
Trackage Right Segment or any premises incidental thereto. FAR moreover shall
fully and completely protect, defend, release, indemnify, and hold harmless CSXT
with regard to any and all claims, damages, causes of action, legal or
administrative actions, judgments, liabilities, losses, penalties, fines,
assessments, expenses, costs - including but not limited to attorneys' fees and
costs of environmental remediation- for any and all deaths, injuries, property
damages or any other form of damages which arise from, are caused by, result
from, or are in any way related to, FAR's FFT operations over or presence on the
CSXT Trackage Rights Segment or any premises incidental thereto. FAR expressly
acknowledges and agrees that its obligation to protect, defend, release,
indemnify, and hold harmless CSXT shall include but not be limited to damages of
any nature or degree, including compensatory, punitive, and exemplary damages
and that FAR's obligation to protect, defend, release, indemnify, and hold
harmless CSXT, as set forth in this Section, shall further include but not be
limited to compensatory, punitive, and exemplary damages resulting, in whole or
in part, from the negligence, gross negligence, or willful and wanton acts of
the employees, agents, servants, officers, and directors of CSXT, CSXI, CSX
Tech, CSX Corporation, and all other direct and indirect subsidiaries of CSX
Corporation. FAR acknowledges and
<PAGE>
- 14 -
agrees that its obligation to protect, defend, release, indemnify, and hold
harmless CSXT and its affiliated companies is in no way capped or limited by the
limits of the insurance required by Section 4 above.
FAR acknowledges CSXT's concerns about the liability exposure
associated with rail passenger service, and its clear understanding that CSXT
would not have considered entering into this Agreement absent FAR's commitment
to assume all risks which would not have occurred but for the operation or
presence of the FFT on the CSXT Trackage Rights Segment or any premises
incidental thereto and to fully and completely indemnify CSXT as provided in
this section and FAR's commitment to procure and maintain the insurance
protection described in Section 4 above.
17. LABOR CLAIMS - Although the parties do not anticipate that
the FFT operation over the CSXT Trackage Rights Segment will result in any valid
labor claims, FAR shall fully reimburse CSXT for any labor claims, labor
protection costs, wage guarantee payments, and relocation costs that CSXT may
incur as a result of FAR's exercise of its trackage rights over CSXT. In the
event of strike activity affecting FFT's operations or CSXT as a result of FFT's
operations, FFT operations shall be immediately suspended until the strike
activity is enjoined, and CSXT shall not be liable for losses or damages
suffered by FAR as a result of any such suspension of service.
18. FAR SOLELY RESPONSIBLE FOR TERMINAL FACILITIES -
FAR shall be solely responsible for constructing or causing to be
constructed, maintaining, repairing, and if necessary, replacing,
<PAGE>
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the terminal facilities required for the FFT operation. FAR plans to locate the
FFT's terminal facilities in the Miami/Fort Lauderdale, Florida area, and the
Orlando/Kissimmee, Florida area. The sites for the FFT's terminals will not be
contiguous to the CSXT Trackage Rights Segment and will not be on property
owned by CSXT.
19. CAPITAL IMPROVEMENTS INVOLVING CSXT TRACKAGE - In
order to facilitate the FFT operation, the parties anticipate
that certain capital improvements may be necessary at either
Mission Spur or Northwood in the West Palm Beach area and at the
Stanton Spur in the vicinity of Orlando International Airport.
Upon receipt of an acceptable letter of credit from FAR, CSXT
will make such capital improvements as requested by FAR, and FAR
will reimburse CSXT for all costs associated with those
improvements through equal or approximately equal annual payments
over the term of this Agreement. Said annual payments shall
include interest at the prime rate.
20. FAR SOLELY RESPONSIBLE FOR FFT TAXES - FAR shall be solely
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, terminals and their furnishings, facilities, property,
and materials or supplies owned or leased by FAR and used in conjunction with
the FFT operation as well as upon any revenues generated by the FFT operation.
FAR shall likewise be solely responsible for all payroll taxes, social security
contributions and railroad retirement contributions required for FAR employees
<PAGE>
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engaged in the FFT operation over the CSXT Trackage Rights Segment. CSXT shall
remain solely responsible for taxes, assessments, and similar charges assessed
or levied by any government or governmental agency on the tracks, bridges,
structures, or appurtenances comprising the CSXT Trackage Rights Segment.
21. COMPENSATION FOR TRACKAGE RIGHTS - In consideration for
CSXT's grant of trackage rights over its unique rail corridor between West Palm
Beach and a location to be selected by FAR in the Orlando/Kissimmee area, FAR
shall compensate CSXT at an initial rate of $20.00 per train mile for each train
mile generated by the FFT over the CSXT Trackage Rights Segment (hereinafter
referred to as the "Train Mile Rate"). On January 1, 1999, and on each
subsequent January 1 of FFT operations during the term of this Agreement, the
Train Mile Rate shall be increased by the Association of American Railroads'
inflation index (the "Inflation Index"). Through December 31, 1999, the Train
Mile Rate, increased as applicable by the Inflation Index, shall be reduced by
$50,000 per month.
As additional compensation for these rates, FAR shall grant
CSXT 475,000 warrants to purchase 475,000 common shares of FAR for $4.50 per
share beginning with a grant of 75,000 warrants upon commencement of FFT's
operations, continuing with a grant of 100,000 warrants on January 1, 1998 and
further continuing with annual grants of 100,000 warrants on each January 1
through and including January 1, 2001.
Beginning January 1, 2000, the above compensation shall
<PAGE>
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be subject to a "minimum compensation level" of 16% of FFT's adjusted net ticket
revenues. Said "minimum compensation level" shall be computed by taking the
amount equivalent to FFT's gross ticket revenue less discounts used to promote
ticket sales ("net ticket revenue"), times 0.16. However, the "minimum
compensation level" shall not be greater than the "Train Mile Rate" plus
$250,000 during the year 2000, the "Train Mile Rate" plus $400,000 during the
year 2001, and the "Train Mile Rate" plus $600,000 during the year 2002 and
thereafter. FAR will present annually to CSXT a report signed by FAR's
nationally recognized auditing firm which will verify the calculation of net
ticket revenue in accordance with the above definition.
Also beginning on January 1, 2000, the above calculation of
track fees, either based on the "Train Mile Rate" or "minimum compensation
level", whichever is greater, will be increased by an additional amount equal to
$2.20 per train mile for each train mile generated by the FFT over the CSXT
Trackage Rights Segment.
Effective with the monthly payment for January, 2000, and upon
thirty (30) days' advance written notice to CSXT, FAR may request a reduction in
the then applicable track fees if it determines that financial circumstances at
the time justify such a reduction. CSXT shall have sole discretion to grant, in
whole or in part, or to deny such requests by FAR.
FAR's failure to operate an average of 14 FFT's per week after
the first year of FFT operations will be deemed a default of its obligations
under this Agreement. This average
<PAGE>
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shall be computed on a semi-annual basis. When computing that average, no
penalty shall be imposed for trains not operated due to emergencies.
All amounts due CSXT pursuant to this Agreement shall be paid
to CSXT on a monthly basis within 30 days of the invoice dates for the CSXT
monthly invoices to FAR. If FAR does not make a payment due CSXT in timely
fashion, CSXT may send FAR a written notice of late payment. If CSXT does not
receive FAR's late payment within 15 days of FAR's receipt of such notice, FAR
shall be deemed in default, and CSXT then may suspend FFT operations at its sole
discretion. CSXT shall retain for at least one year from the date of each
monthly invoice all books, records and other supporting documents for each
invoice (collectively referred to as the "Supporting Documents"), and FAR and
its representatives will be entitled to inspect the Supporting Documents during
the one year preservation period upon reasonable advance notice. Such
inspections will be performed during normal business days and hours at CSXT's
headquarters in Jacksonville, Florida unless otherwise agreed by the parties.
For a period of at least one year following each month of
FFT's operations over the CSXT Trackage Rights Segment, FAR shall retain all
Supporting Documents pertaining to the train miles generated by the FFT on the
CSXT Trackage Rights Segment and the "net ticket revenue" generated by FFT's
operation. CSXT and its representatives will be entitled to inspect the
Supporting Documents during the one year preservation period, and such
inspection shall be subject to reasonable advance notice to
<PAGE>
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FAR. These inspections will be performed during normal business
days and hours at FAR's headquarters unless otherwise agreed by
the parties.
22. ARBITRATION OF DISPUTES -
(a) Except as otherwise provided in Section 22(b) below,
any controversy under this Agreement shall be settled in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. Arbitration shall be held at a mutually
convenient location, and in the event the parties cannot agree, then at a
location specified by the arbitrator(s). It is the intent of the parties that
the agreement to arbitrate contained in this Section shall be valid and
irrevocable, shall extend to disputes as to whether particular disagreements are
arbitrable, and shall be specifically enforceable by either of the parties from
and after the date of this Agreement. In interpreting this Agreement and
resolving any dispute hereunder, the arbitrator(s) shall apply the laws of the
State of Florida. In the event of arbitration, each party shall pay the
compensation, costs, fees and expenses of its own witnesses, exhibits and
counsel. The compensation, costs, fees and expenses of the arbitrator(s) and the
American Arbitration Association shall be paid equally by CSXT and FAR.
(b) The provisions of this Section are not applicable to
and shall not be used for the following purposes: first, to
alter, amend, change, modify, add to or subtract from any of the
provisions of this Agreement, except to the extent mutually
<PAGE>
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agreed by CSXT and FAR in the submission of any matter to arbitration; second,
to resolve any matter subject to the judgment or discretion of one party to this
Agreement; and, third, except as is otherwise expressly provided herein, to
resolve any matter reserved for mutual agreement of CSXT and FAR.
23. AGREEMENT CONTINGENT UPON CSXT'S CONTINUED OPERATION OF
TRACKAGE RIGHTS SEGMENT - This Agreement is contingent upon CSXT's continued
operation of the Trackage Rights Segment, and FAR will not oppose any
application or petition by CSXT for authority to abandon that line of railroad.
In the event CSXT obtains authority to abandon the Trackage Rights Segment, it
will give FAR the right of first refusal to purchase that line of railroad,
subject to applicable statutes and regulations. In the event CSXT undertakes to
sell the Trackage Rights Segment, it will provide FAR with ninety (90) days'
advance written notice prior to soliciting proposals from others for purchase of
the Trackage Rights Segment.
24. TERM OF AGREEMENT - The term of this Agreement shall
commence on the day first above written and shall continue for five years after
the date FAR commences regularly scheduled FFT operations on the CSXT Trackage
Rights Segment. FAR shall have the option of extending the term of the agreement
for an additional five years, and it may exercise that option by giving CSXT
written notice of its intent to do so at least 6 months prior to the expiration
of the Agreement's initial term. FAR's option to extend the term of this
Agreement shall be subject to the parties' renegotiation of its compensation
provisions. If
<PAGE>
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the parties cannot agree to appropriate compensation provisions for the extended
term, the issue will be submitted to final and binding arbitration subject to
the provisions of ss. 22 above.
25. EXCLUSIVE ACCESS RIGHTS - During the initial five year
term of this Agreement and all subsequent renewals, CSXT will not grant similar
access rights to any other private rail passenger operator or contractor
proposing comparable conventional rail passenger service operating over CSXT's
rail line between West Palm Beach and the Orlando/Kissimmee, Florida area. This
section does not preclude CSXT from providing access for Amtrak or Florida
Department of Transportation, organizations providing services on their behalf,
or other publicly funded authorities with statutory or contractual rights of
access to CSXT lines, or for high speed rail operations, whether publicly or
privately funded. This exclusivity provision will be voidable at CSXT's sole
discretion if FAR operates less than the regularly-scheduled number of FFT's per
week after the first year of FFT operations, with the understanding that there
shall be no penalty for trains not operated on account of emergencies.
26. POTENTIAL FOR HIGH SPEED RAIL SERVICE - Both parties
recognize that the CSXT Trackage Rights Segment may become a preferred route for
high speed rail passenger operations. The parties do not intend for the
provisions of this agreement to in any way hinder CSXT's ability to negotiate
and enter into an agreement with an entity wishing to operate high speed
passenger trains over this line of railroad. If CSXT has an opportunity to enter
into an agreement providing for high
<PAGE>
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speed rail passenger operations on or adjacent to the Trackage Rights Segment,
it will endeavor to negotiate an operating arrangement which addresses the needs
of the high speed train operator, Amtrak, FAR, and CSXT for safe, efficient, and
timely service. If such negotiations result in CSXT acquiring an alternate route
for its freight operations, CSXT will offer FAR trackage rights over said
alternate route, pursuant to the same terms, conditions, and compensation set
forth in this Agreement, for the balance of this Agreement's term.
27. NONDISCLOSURE OF CONFIDENTIAL INFORMATION - Both parties
agree that they will refrain from making known to third parties proprietary
information concerning the other party's business and operations if such
information is not generally known by the general public or persons within the
railroad industry. Such proprietary information includes but is not limited to
cost data pertaining to either CSXT or FFT operations, FAR's business and
marketing plans, details concerning the design and operation of FFT's existing
or proposed Equipment, information concerning FAR's actual or proposed
suppliers, contracts, customers, ticket sales and reservation systems, and
confidential CSXT or FAR financial data.
28. BOARD OF DIRECTORS - FAR will nominate one (1) CSXT
representative to serve on its Board of Directors.
29. FORCE MAJEURE - Either party shall be excused from the
performance of its obligations to the other party where such nonperformance is
occasioned by any event beyond its control. Such events shall include but not be
limited to orders,
<PAGE>
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rules, or regulations of any federal, state, or local governmental body, agency,
or instrumentality; work stoppages; accidents; natural disasters; or civil
disorders. The party so excused shall use all reasonable efforts to minimize its
nonperformance and to overcome, remedy, cure, or remove such event as soon as
reasonably practicable. Nonperformance shall be excused only to the extent and
for the duration of the force or circumstance which dictates nonperformance.
30. 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, nor as supporting any particular construction of any provision of
this Agreement. This instrument contains the entire agreement of the parties
with respect to the subject matter and said parties have not made any agreements
relating to such subject matter 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.
31. GENERAL PROCEDURES FOR DEFAULT - If FAR defaults on its
obligations under this Agreement, CSXT shall promptly provide FAR with a
reasonably detailed written notice of the default via facsimile, overnight
courier, or certified mail. If the involved default involves failure to obtain
or maintain the required insurance as provided in Section 4, failure to provide
motive power or equipment capable of operating reasonably close to the agreed
schedule as provided in Section 9, or failure to
<PAGE>
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pay amounts due CSXT in timely fashion as provided in Section 21, CSXT may also
suspend FFT operations at its sole discretion and will advise FAR of such
suspension in the notice of default.
FAR shall have sixty days from its receipt of such
notification to cure the involved default or defaults, and if it fails to cure
the involved default or defaults within that time period, CSXT may elect to
terminate this Agreement at its sole discretion. FAR hereby grants CSXT its
limited power of attorney to apply on behalf of both parties for Surface
Transportation Board authority to cancel this Trackage Rights Agreement, to the
extent such authorization is necessary, in the event CSXT elects to terminate
this agreement by virtue of FAR's uncured default.
32. NO INTENT TO CREATE JOINT BUSINESS RELATIONSHIP -
By entering into this Trackage Rights Agreement which,
among other things, provides for CSXT representation on FAR's Board of Directors
and a CSXT compensation package which includes warrants to purchase FAR's common
shares, the parties do not intend to create a partnership, joint venture, or any
other form of joint business relationship.
33. FIRST AMERICAN AND FUN TRAINS JOINTLY AND SEVERALLY ASSUME
OBLIGATIONS - First American and its subsidiary Fun Trains jointly and severally
assume any and all obligations assumed by either or both of them in this
Agreement.
34. SECTION HEADINGS USED FOR CONVENIENCE ONLY Section
headings are used in this Agreement for convenience only and the parties do not
intend for those headings to be construed as having substantive content.
<PAGE>
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35. ASSIGNMENT RESTRICTED - Neither this Agreement, nor any
right hereunder, may be assigned by either party without the prior written
consent of the other party, other than to a wholly-owned subsidiary of FAR or to
a corporate entity created by a merger of CSXT and another railroad or
railroads.
36. NOTICES - All notices, demands, requests, and other
communications permitted or required under this Agreement shall be deemed
properly served if delivered by hand (personally, by courier service such as
Federal Express, or by other messenger) or deposited in the United States mail,
with first class postage prepaid and addressed as set forth below:
If intended for FAR: President
Fun Train, Inc. and First American
Railways, Inc.
2445 Hollywood Boulevard
Hollywood, FL 33020
If intended for CSXT: Ass't. Vice President-Passenger Services
CSX Transportation, Inc.
500 Water Street - (J315)
Jacksonville, Florida 32202
Either party may designate a substitute party or a new address
by sending a written notice to the other party. From time to time, by written
notice to the other party, each party shall designate its representative for
operating matters relating to this Agreement. With respect to discussions with
such representative on operating matters relating to this Agreement, each party
shall be entitled to rely on the responses and decisions made by the other
party's designated representative.
37. GOVERNING LAW - This Agreement shall be governed
by and construed in accordance with the laws of the State of
<PAGE>
-26-
Florida.
38. 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 to 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 have caused their duly
authorized officers to execute this Agreement as of the day and year first above
written.
Attest: FUN TRAIN, INC. AND FIRST
AMERICAN RAILWAYS, INC.
By:/s/ Thomas E. Blayney By:/s/ Raymond Monteleone
----------------------------------- -------------------------------
Printed Name: Thomas E. Blayney Printed Name: Raymond Monteleone
Title: Vice President-Operations Title: President
Attest: CSX TRANSPORTATION, INC.
By:/s/ R.L. Key, Jr. By:/s/ Albert B. Aftoora
--------------------------- ------------------------------
Printed Name: R. L. Key, Jr. Printed Name: Albert B. Aftoora
Title: Assistant Secretary Title: Vice President-Corridor
Development
<PAGE>
APPENDICES
<PAGE>
APPENDIX A
PROPOSED SCHEDULE
for
FLORIDA FUN TRAIN
-----------------------------------------------------------------
MONDAY THROUGH THURSDAY:
Depart Fort Lauderdale 10:00 a.m.
Arrive Orlando Int'l. Airport 2:20 p.m.
Depart Orlando Int'l. Airport 4:00 p.m.
Arrive Fort Lauderdale 8:20 p.m.
FRIDAY:
Depart Fort Lauderdale 8:00 a.m.
Arrive Orlando Int'l. Airport 12:20 p.m.
Depart Orlando Int'l. Airport 1:50 p.m.
Arrive Fort Lauderdale 6:10 p.m.
Depart Fort Lauderdale 7:40 p.m.
Arrive Orlando Int'l. Airport 12 midnight
SATURDAY:
Depart Orlando Int'l. Airport 9:00 a.m.
Arrive Fort Lauderdale 1:20 p.m.
Depart Fort Lauderdale 3:00 p.m.
Arrive Orlando Int'l. Airport 7:20 p.m.
SUNDAY:
Depart Orlando Int'l. Airport 8:00 a.m.
Arrive Fort Lauderdale 12:20 p.m.
Depart Fort Lauderdale 1:50 p.m.
Arrive Orlando Int'l. Airport 6:10 p.m.
Depart Orlando Int'l. Airport 7:40 p.m.
Arrive Fort Lauderdale 12 midnight
<PAGE>
APPENDIX B
FFT INITIAL CONSIST
a. Two leased diesel locomotives, with one unit positioned on each
end of the train;
b. Five full length dome passenger cars each with an 80-passenger
capacity and food service facilities;
c. One bilevel adult cocktail lounge car with live entertainment;
d. One bilevel youth lounge car with entertainment;
e. One bilevel space station video game car with virtual reality
games;
f. One bilevel education-oriented video game car with a gift shop.
g. One baggage car with or without power.
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, except for Notes 8
(i),(j),(k) and (l) which are as of October 29, 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
November 1, 1996
