AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1997
REGISTRATION STATEMENT NO. 333-________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST AMERICAN RAILWAYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<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 OF FIRST AMERICAN
FIRST AMERICAN RAILWAYS, INC. RAILWAYS, INC.
3700 N. 29TH AVENUE, STE. 202 3700 N. 29TH AVENUE, STE. 202
HOLLYWOOD, FLORIDA 33020 HOLLYWOOD, FLORIDA 33020
(954) 920-0606 (954) 920-0606
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE
OF REGISTRANT'S PRINCIPAL EXECUTIVE NUMBER OF AGENT FOR SERVICE)
OFFICES)
COPIES TO:
DENNIS J. OLLE, ESQ.
ADORNO & ZEDER, P.A.
2601 SOUTH BAYSHORE DRIVE
SUITE 1600
MIAMI, FLORIDA 33133
(305) 858-5555
(305) 858-4777 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
<PAGE>
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CALCULATION OF REGISTRATION FEE
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
- ------------------------------ ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value(1).................... 214,563 $.375 $80,461 $24.38(2)(3)
Total Registration Fee.............................. $24.38(3)
======
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(1) Represents shares owned by selling shareholders.
(2) Based on $.375 per share at December 26, 1997.
(3) Filing fee
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.
<PAGE>
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FIRST AMERICAN RAILWAYS, INC.
(CROSS REFERENCE SHEET)
FORM S-3
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- ----------------------- ---------------------
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1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus................. Facing Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus................ Inside Front Cover Page; Available Information;
Outside Back Cover Page
3. Summary of Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... First American Railways, Inc.
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... *
6. Dilution................................. *
7. Selling Security Holders................. Selling Shareholders
8. Plan of Distribution..................... Plan of Distribution
9. Description of Securities to be
Registered............................... Description of Common Stock
10. Interests of Named Experts and Counsel... Legal Matters; Experts
11. Material Changes......................... Recent Developments
12. Incorporation of Certain Information
by Reference............................. Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification of Securities Act
Liabilities.............................. *
</TABLE>
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* Not applicable or answer in negative.
<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, DECEMBER 30, 1997
214,563 SHARES OF COMMON STOCK
[LOGO]
This Prospectus relates to the offering of 214,563 shares of Common
Stock, $.001 par value (the "Shares"), of First American Railways, Inc. (the
"Company"), by certain securityholders of the Company (collectively, the
"Selling Shareholders"). A total of 214,563 Shares offered hereby are owned of
record by the Selling Shareholders. The Company will not receive any proceeds
from the sale of Shares by the Selling Shareholders.
The Company is unaware of any specific plan of distribution of the
Selling Shareholders with respect to the Shares; 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 pursuant to
this Prospectus will be the sale price of such Shares 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. The Shares offered hereby may be
sold in the state of New Jersey only through a dealer or broker registered or
licensed in New Jersey, or in reliance upon an exemption from registration.
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 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.
SEE "RISKS 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.
DECEMBER ____, 1997.
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TABLE OF CONTENTS
ADDITIONAL INFORMATION 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 3
THE COMPANY 4
RISK FACTORS 5
USE OF PROCEEDS 11
RECENT DEVELOPMENTS 12
PRINCIPAL AND SELLING SHAREHOLDERS 15
DESCRIPTION OF COMMON STOCK 18
PLAN OF DISTRIBUTION 18
LEGAL MATTERS 19
EXPERTS 19
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information 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 Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission at "www.sec.gov".
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.
2
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are hereby incorporated by reference into this
Prospectus:
(1) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996, as filed March 28, 1997;
(2) The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997, as filed May 15, 1997;
(3) The Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997, as filed on August 14, 1997;
(4) The Company's Form 10-QSB for the quarter ended September 30,
1997, as filed November 14, 1997;
(5) The Company's Current Report on Form 8-K, dated March 13,
1997, as filed March 28, 1997, and as amended by Form 8-K/A as
filed May 13, 1997;
(6) The Company's Notice of Annual Meeting and Proxy Statement
dated May 5, 1997, as filed May 9, 1997.
(7) The Company's Current Report on Form 8-K, dated June 2, 1997,
as filed June 17, 1997;
(8) The Company's Current Report on Form 8-K, dated June 11, 1997,
as filed June 18, 1997;
(9) The Company's Current Report on Form 8-K, dated June 30, 1997,
as filed July 10, 1997;
(10) The Company's Current Report on Form 8-K, dated December 23,
1997, as filed December 29, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the Offering of the Shares shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on written or oral request of such person, a copy
(without exhibits other than exhibits specifically incorporated by reference) of
any documents incorporated by reference into this Prospectus. Requests for such
copies should be directed to Michael J. Acierno at telephone number (954)
920-0606, or by writing him at First American Railways, Inc., 3700 North 29th
Avenue, Suite 202, Hollywood, Florida 33020.
3
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INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE
HEADING "RISK FACTORS."
THE COMPANY
First American Railways, Inc., a Nevada corporation (the "Company") was
organized in the State of Nevada in 1987. On April 26, 1996, the Company merged
with First American Railways, Inc., a Florida corporation (First
American-Florida) 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.
The Company is currently pursuing its strategy of becoming the
recognized leader in providing innovative, quality entertainment-based passenger
rail service through the development of "Fun Trains" and the acquisition of
"Scenic Destination Railroads." On October 15, 1997, the Company commenced
operations of its first Fun Train (the "Florida Fun-Train"), an
entertainment-based rail service between South and Central Florida. Earlier this
year, the Company acquired its first Scenic Destination Railroad, The Durango &
Silverton Narrow Gauge Railroad Company (the "D&SNG"), described below.
The Florida Fun-Train provides an enjoyable and entertaining
alternative to other means of transportation between South and Central Florida
by maximizing the entertainment value of its passengers' travel time while
providing an efficient, safe and reliable form of transportation at a reasonable
price. A one-way trip on the Florida Fun-Train covers approximately 200 miles
and takes approximately four hours. The Company provides passengers with an
exciting, unique, fun-filled overland leisure excursion through the use of a
variety of entertainment-based services, including video and virtual reality
games, as well as dining, dancing and lounge cars offering different types of
live entertainment. Most of the passengers on the Florida Fun-Train are tourists
and the Company markets, in part, the Company's service as an extension of its
passengers' vacations.
In March 1997, the Company purchased D&SNG, the owner and operator of a
privately held, scenic railroad which the Company believes is among the
country's largest and best-known Scenic Destination Railroads. D&SNG operates an
historic railroad which was built between 1881-82 by the Denver & Rio Grande
Railway Company. D&SNG has been carrying passengers for more than 114 years, has
been declared a registered National Historic Landmark. The antique,
steam-operated locomotives that power the trains are coal-fired. These
locomotives were manufactured between 1923 and 1925. In addition, many of the
coaches used by the railroad are the railroad's original coaches dating back to
the 1880s. D&SNG's operations have combined strict adherence to historical
authenticity and exacting standards of replication to provide a historically
authentic railroad service. The railroad operates between Durango and Silverton,
Colorado, a 90-mile round trip, which takes approximately nine hours. Since
1993, the D&SNG railroad has carried approximately 200,000 passengers annually.
The railroad is located entirely within Colorado near the "Four Corners" region,
where the borders of Colorado, Utah, New Mexico and Arizona meet.
* * * *
The Company maintains offices at 3700 North 29th Avenue, Hollywood,
Florida 33020. Its telephone number is (954) 920-0606. All references to the
Company herein include its predecessor by merger, First American Railways, Inc.,
a Florida corporation.
4
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE THESE
SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION,
SHOULD CAREFULLY READ THIS OFFERING DOCUMENT AND CONSIDER, ALONG WITH OTHER
MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:
IMMEDIATE CASH SHORTAGE AND SEVERE WORKING CAPITAL DEFICIENCY;
REQUIREMENTS FOR ADDITIONAL FINANCING. The Company has an immediate cash
shortage and a severe working capital deficiency. The Company believes that its
current funds, and any revenue from operations, will be sufficient to allow the
Company to continue full service operations of the Florida Fun-Train until
December 31, 1997, but continued Florida Fun-Train operations thereafter will
require substantial immediate financings. Further, the Company does not have
sufficient funds to pay its obligations beginning December 31, 1997, including
its obligation to make the semi-annual interest payment in connection with its
8% Convertible Subordinated Notes on December 31, 1997. The Company only has
sufficient funds to operate D&SNG; however, use of any of D&SNG funds is
restricted by the terms of an existing bank loan. See "Risk Factors - Bank Loan
Restrictions." The Company currently has no commitment for any financings other
than in connection with this Offering, which is a "best efforts no minimum"
offering, and it estimates that it needs approximately $9 million in working
capital to fund its current and anticipated obligations, operating expenses and
capital expenditures through September 30, 1998. Further, additional
financing(s) will be required to cover future operating and capital
expenditures. Also, additional funds will be required to complete the balance of
the Florida Fun-Train consist (four railcars) which are anticipated to be
completed by RRI, or obtained from a third-party. See "Recent Developments."
There can be no assurance that any such financings will be available on terms
acceptable to the Company or at all. Any additional equity financing could
result in substantial dilution to existing shareholders.
LOSSES; ACCUMULATED DEFICIT. The Company experienced an approximate
loss of $2.6 million for fiscal 1996 and an approximate $1.1 million loss for
the nine months ended September 30, 1997. The Company expects losses for the
current fiscal year end and thereafter. The Company anticipates that its net
loss for the fourth quarter of 1997 will be in excess of $5 million. The Company
had an accumulated deficit at September 30, 1997, in excess of $5 million.
NEED FOR ADDITIONAL SENIOR MANAGEMENT. The Company's President and
Chief Operating Officer recently resigned and the Company's Chairman is
currently acting as its interim President. In addition, the Company's Vice
President of Sales and Marketing has tendered his resignation effective December
12, 1997. Although the Company is seeking replacements for various senior
management positions, there can be no assurance that the Company will be
successful in retaining qualified individuals. As disclosed elsewhere herein,
the Company is experiencing a severe cash shortage which, in addition to the
competitive marketplace for qualified management candidates, will significantly
impede the Company's ability to recruit executive talent. See "Risk Factors -
Immediate Cash Shortage and Severe Working Capital Deficiency; Requirement for
Additional Financing" and "Recent Developments."
HIGH OPERATING COSTS. In the passenger rail industry 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 "on-board" 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,
5
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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. The Company does not have sufficient
funds to pay these operating expenses beginning December 31, 1997. Further,
there is no assurance that the Company will ever be able to operate profitably.
NEW BUSINESS; SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF
PROFITABILITY; UNCERTAINTY OF MARKET. The Florida Fun-Train began passenger rail
operations in October 1997, but to date such operations have not been
profitable. The Company has incurred and will continue to incur substantial
expenses in connection with the commencement and development of passenger rail
operations. The Company is subject to substantially all of the risks inherent in
the creation of a new business. The Company's ability to deliver its new rail
service with a level of quality acceptable in its market at reasonable prices
cannot be assured; there can be no assurance, therefore, that the Company's
efforts will result in the development of a commercially viable business or that
the Company will ever operate at a profit.
Further, there can be no assurance that the Company will be able to
continue to operate D&SNG on a profitable basis. The level of acceptance of the
Company's services by consumers and the travel/tourism industry cannot be
predicted; to date the Company has experienced only limited ridership on the
Florida Fun-Train. As a result of its limited cash position, limited
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 economic circumstances, the Company
may be forced to dramatically curtail, or even terminate, its current Fun-Train
operations.
BANK LOAN RESTRICTIONS. There are a number of affirmative and negative
covenants in the term loan agreement between the Company's subsidiary, D&SNG,
and its principal institutional lender, one of which restricts D&SNG's ability
to "up-stream" profits to its corporate parent. As a result, despite profitable
operations of D&SNG, funds may not be available to the Company to repay the
Company's financial obligations, from time to time, as they come due.
PLEDGE OF REVENUE-PRODUCING ASSETS. All of the assets of D&SNG
(presently operated as a subsidiary of the Company) are subject to a "first"
position pledge to D&SNG's institutional lender and a "second" position pledge
(subordinate to the pledge to the institutional lender) to the seller of D&SNG.
In addition, certain of the Fun-Train's assets are pledged to the holders of the
Company's 10% Convertible Secured Notes. These assets represent substantially
all of the revenue-producing assets of the Company. [A second position in the
non-D&SNG assets has been given to another lending institution .] A default in
either obligation, which results in a default of both obligations, could result
in the loss of the major assets of the Company to the Company's creditors. If
such assets are lost, there would be significant material adverse consequences
to the operations of the Company, including the loss of the operations of D&SNG
and the Fun-Train.
MARKETING/DEPENDENCE ON WHOLESALE TOUR OPERATORS. The Company's
passenger railroad operations, particularly the Florida Fun-Train service,
depend on the Company's ability to successfully implement a marketing program.
Initially, the Company has relied on wholesale tour operators and travel agents
to sell tickets for its Florida Fun-Train service as part of a travel package.
The Company's present internal marketing and sales capabilities are limited due
to limited financial resources for advertising and the resignation of its Vice
President of Sales and Marketing. As a result, the Company is dependent, in
large part, upon independent representatives of tour operators in the wholesale
and retail travel industry for the marketing and sales of its Florida Fun-Train
services; to date, the Company has experienced only limited marketing success in
this regard. Failure of
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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 results of operations and its
financial condition.
CONSTRUCTION RISKS ASSOCIATED WITH THE FUN-TRAIN. The remaining
railcars for the Florida Fun-Train are anticipated to be constructed in Denver,
Colorado, by Rader Railcar II, Inc. ("RRI"), pursuant to a railcar construction
agreement between the Company and RRI. RRI is controlled by Thomas G. Rader, a
director and a shareholder of the Company. Due to delays in the delivery of
various railcars, the railcar construction agreement was amended in August 1997
to reprioritize the delivery schedule for certain railcars; however, RRI has
failed to meet the amended delivery schedule. See "Recent Developments."
Presently, eight railcars have been delivered by RRI, all of which are
subject to acceptance by the Company. Four additional railcars, including the
prototype railcar, were scheduled to be delivered prior to the shutdown of RRI.
RRI has, however, temporarily suspended operations due to a lack of sufficient
working capital. There can be no assurance that the remaining railcars will be
completed, or that the Company will have sufficient funds to pay for such
railcars. In the event of a lengthy delay, the further expansion of the
Company's Florida Fun-Train, and its profitability, could subsequently be
delayed or operation of the Florida Fun-Train could be terminated. Any such
delay could have a material adverse effect on the Company's financial condition.
INDUSTRY RISKS ASSOCIATED WITH THE FUN-TRAIN. 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, or
delaying train service, 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.
RELIANCE ON FLORIDA AND COLORADO TOURISM MARKETS. The Company's Florida
service, the Florida Fun-Train, targets tourists visiting central and
southeastern Florida. Tourists visiting the "Four Corners" area of the United
States, particularly southwestern Colorado, compose the principal market for
D&SNG. These planned operations may be materially adversely affected by
declining growth or absolute declines in the number of tourists visiting Florida
or Colorado. From time to time these tourism markets have experienced slowdowns
(declines in growth or absolute declines). There can be no assurance that any
such declines in Florida or Colorado tourism will not occur in the future, or
that such declines would not have a direct and adverse impact on the Company's
business.
SEASONALITY. The Company's Florida Fun-Train business may be subject to
certain seasonal fluctuations, depending on the tourist seasons in Florida,
particularly in South Florida (Miami/Ft. Lauderdale) and the Orlando area.
D&SNG's business is also highly seasonal; historically, at least 60% of the
total annual number of passengers who ride on D&SNG's railroad do so during the
months of June, July and August.
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.
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There can be no assurance that the Company will not be faced with exposure to
material liability claims. The track rights agreements with respect to the
Florida Fun-Train require substantial general comprehensive liability insurance
(up to $300,000,000 in coverage) and the premiums for such insurance are
significant. The Company does not presently have sufficient funds to pay this
insurance premium which is due January 1, 1998. There can be no assurance that
such insurance will continue to be available to the Company at reasonable rates.
Failure to maintain adequate insurance could place the Company at great
financial risk in the event of accidents and adversely affect the Company's
ability to do business. Further, even if the Company were to maintain adequate
insurance, adverse publicity from accidents could have a material adverse effect
on the Company's business.
COMPETITION. 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 operate 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.
With regard to the Company's Fun-Train operations, 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 operates. 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.
With respect to D&SNG, there is one other narrow gauge railroad which
offers train trips in southern Colorado. Further, since Durango and Silverton
are almost exclusively tourist destinations, the Company competes with
non-transportation oriented attractions for tourists. The automobile is the
principal mode of transportation in the Durango/Silverton corridor.
GOVERNMENTAL REGULATION. The Company's present and 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.
The operations of the Florida Fun-Train will be regulated by the
Florida Department of Transportation's application of federal safety rules. The
Florida Fun-Train was 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 commenced (and periodically
thereafter). The failure to "pass" such safety inspections would result in the
railroad operations ceasing until such time as the reason(s) for failure are
remedied.
The Company's operations are 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. In addition to administrative,
environmental and safety regulation, D&SNG's operations are subject to rate
regulation by the Colorado Public Utilities Commission.
Delay or cessation of the operations of either the Florida Fun-Train or
D&SNG due to non-compliance with applicable governmental regulations would
materially, adversely affect the Company.
8
<PAGE>
POTENTIAL CONFLICTS OF INTEREST. 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
the existing 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 complicated by Mr. Rader's
status with the Company.
The Company's agreement with CSXT for track rights usage in Florida
allows CSXT to designate a member of the Board of Directors of the Company
(currently Mr. Albert B. Aftoora). This could give rise to a conflict of
interest between the Company and CSXT.
In connection with the Company's purchase of D&SNG, Mr. Charles E.
Bradshaw, Jr. became a director, shareholder and principal warrantholder and
creditor of the Company. Mr. Bradshaw's interest as a creditor may put him in
conflict with the interests of the Company and its Board of Directors on which
he serves.
EXERCISE OF THE OUTSTANDING WARRANTS AND/OR THE CONVERSION OF THE
OUTSTANDING NOTES INTO COMMON STOCK WILL HAVE DILUTIVE EFFECT. The Company's
outstanding common stock purchase 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
outstanding warrants or the convertible notes most likely would exercise such
warrants or convert such 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.
DILUTION; FUTURE SALES OF STOCK BY THE COMPANY. After reserving Common
Stock for issuance upon the exercise of the outstanding common stock purchase
warrants and stock options, and the conversion of the outstanding convertible
notes, the Company will have in excess of 60,000,000 Shares of authorized, but
unissued Common Stock available for issuance without further shareholder
approval. 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.
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 his/her Shares
may be dependent directly upon the number of shares of Common Stock that are
sold in this Offering. 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.
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 continued listing of a security on Nasdaq and has, with the
approval of the SEC, recently modified the maintenance standards to make them
more stringent. The modified maintenance standards require, among other things,
that an issuer have net tangible assets of at least $2,000,000 (or $35 million
in total market capitalization of its securities or at least $500,000 in net
income for the latest fiscal year or in at least two of the last three fiscal
years); that the minimum bid price for the listed securities be $1.00 per share;
that the minimum market value of the "public float" of 500,000 shares with an
aggregate value of 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
9
<PAGE>
"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. Currently the Company's bid price is below the minimum maintenance
standards. 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; ADVERSE EFFECT OF STAGGERED BOARD ON ANY CHANGE IN
CONTROL. The Company's Articles of Incorporation authorize the issuance of
500,000 shares of "blank 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.
The Company has a "staggered" Board of Directors which consists of
seven directors, and each director is elected to a three-year term in one of
three separate classes. The existence of a staggered Board may perpetuate
existing management and adversely affect any attempt to effectuate a change in
control of the Company.
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
10
<PAGE>
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 RISKS. THIS MEMORANDUM,
INCLUDING EXHIBITS HERETO, CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE ACT AND SECTION 21E OF THE EXCHANGE ACT WHICH
REPRESENTS THE COMPANY'S EXPECTATION OR BELIEFS, INCLUDING STATEMENTS REGARDING,
AMONG OTHER THINGS, (I) THE COMPANY'S PROFITABILITY AND PROJECTED FINANCIAL
CONDITION, (II) ANTICIPATED TRENDS IN THE COMPANY'S BUSINESS, (III) THE
COMPANY'S ABILITY TO COMPETE WITH ITS COMPETITORS, AND (IV) THE COMPANY'S GROWTH
STRATEGY OR POTENTIAL. ANY STATEMENTS CONTAINED IN THIS MEMORANDUM THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "PLAN",
"BELIEVE", "ANTICIPATE", "INTEND", "ESTIMATE" OR "CONTINUE", THE NEGATIVE OR
OTHER VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE BASED UPON MANAGEMENT'S BELIEFS
AT THE TIME THEY ARE MADE AS WELL AS ASSUMPTIONS MADE BY MANAGEMENT BASED UPON
INFORMATION AVAILABLE TO IT. THE ASSUMPTIONS REGARDING THE COMPANY'S OPERATIONS,
PERFORMANCE, DEVELOPMENT AND RESULTS OF THE ITS BUSINESS INCLUDE:
THE SUCCESSFUL COMPLETION OF THIS OFFERING, THE ABILITY OF THE
COMPANY TO OBTAIN, FROM EXTERNAL SOURCES, SUFFICIENT WORKING
CAPITAL FOR ITS OPERATIONS, THE ABILITY OF THE COMPANY TO
OBTAIN AND RETAIN QUALIFIED MANAGEMENT, THE SUCCESSFUL
MARKETING OF THE COMPANY'S RAIL SERVICES PARTICULARLY IN
FLORIDA, THE CONTINUING FORBEARANCE OF CERTAIN CREDITORS OF
AND SUPPLIERS TO THE COMPANY, AND NATIONAL AND REGIONAL
ECONOMIC CONDITIONS AS WELL AS REGIONAL WEATHER CONDITIONS
WHICH IMPACT THE COLORADO AND FLORIDA TOURISM MARKETS.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY SUBJECT TO VARIOUS RISKS AND
UNCERTAINTIES, INCLUDING THOSE DESCRIBED ABOVE, AS WELL AS POTENTIAL CHANGES IN
ECONOMIC OR REGULATORY CONDITIONS THAT ARE LARGELY BEYOND THE COMPANY'S CONTROL.
SHOULD ONE OR MORE OF THESE RISKS MATERIALIZE OR CHANGES OCCUR, OR SHOULD
MANAGEMENT'S ASSUMPTIONS PROVE TO BE INCORRECT, THE COMPANY'S ACTUAL RESULTS MAY
MATERIALLY VARY FROM THOSE ANTICIPATED OR PROJECTED.
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 $12,500, all of which will be
borne by the Company.
11
<PAGE>
RECENT DEVELOPMENTS
The Company recently announced that it was experiencing a significant
cash shortfall due, in part, to the delay in the delivery of the railcars which
delayed the promotional period for marketing of the Florida Fun-Train. Also,
while full service of the Florida Fun-Train commenced on October 15, 1997, to
date, ridership thereon the Florida Fun-Train has been significantly below
expectations. The Company is presently unable to determine when ridership on the
Florida Fun-Train will be such that its operations will be profitable, if at
all.
On November 26, 1997, Rader Railcar II, Inc. ("RRI") announced that it
was temporarily suspending its operations due to a lack of sufficient working
capital. The Company and RRI have agreed to temporarily postpone delivery of
these remaining railcars and the Company expects that they will be completed and
ready for delivery in the Spring of 1998; however, there can be no assurance
that such railcars will be delivered at that time, or at all. If RRI cannot
complete and deliver some or all of these cars the Company believes it can
obtain railcars from alternative sources, including the National Railroad
Passenger Corporation (Amtrak).
On August 22, 1997, the railcar construction agreement (the "Railcar
Agreement") between Fun Trains, Inc., a subsidiary of the Company and RRI was
amended to prioritize the delivery schedule for various railcars; the delivery
of some of the railcars which was to have been in the Summer of 1997 was delayed
until the Fall of 1997, and the delivery of the final three railcars, which was
scheduled for March 1998, was accelerated to October, November and December
1997. RRI has been delayed in delivering the railcars under this revised
schedule and four cars remain undelivered (as described below). In consideration
of the aforementioned amendment, Mr. Rader furnished a limited financial
guarantee of RRI's performance under the Railcar Agreement, and pledged his
stock in the Company and the proceeds of the sale thereof to the Company to
secure RRI's performance under the Railcar Agreement, as amended. During the
period August through October 1997, Mr. Rader sold a significant portion of his
holdings of the Company's Common Stock and substantially all of the proceeds
therefrom were used to satisfy RRI's obligations relating to the construction of
railcars for the Florida Fun-Train. The remaining shares owned by Mr. Rader and
the proceeds therefrom continue to be pledged as security for RRI's performance
under the Railcar Agreement, as amended.
Currently, eight railcars have been received, seven of which are
currently in operation. Subject to the temporary suspension of operations of RRI
(described above), the remaining four railcars (including the prototype car) are
under construction or refurbishment by RRI.
To date, the Company has expended approximately $8.0 million to RRI
(exclusive of approximately $850,000 paid to an affiliate of RRI for the
prototype railcar) in connection with the construction of the Florida Fun-Train.
The construction agreement calls for a holdback of $806,000 pending "acceptance"
of the railcars by the Company. This acceptance has not occurred; nevertheless,
the Company has advanced $125,000 of this holdback to fund the completion of
certain railcars which were recently delivered. The remaining "holdback" is
approximately $681,000, which amount will be paid to RRI after the delivery and
acceptance of all of the railcars constructed by RRI.
The Company has completed the two boarding sites for the Florida
Fun-Train. The South Florida site is in Hollywood, Florida, where the Company is
leasing property from the Florida Department of Transportation. The Company is
leasing from a third party a temporary Central Florida site in Poinciana,
Florida. The Company has also signed a letter of intent to lease property from
Amtrak to serve as a permanent site in Central Florida for the
12
<PAGE>
Company's northern terminal for a period of fifteen years with an option to
renew for an additional fifteen years. The permanent facility is expected to be
completed by September 30, 1998.
Effective November 1, 1997, Ronald J. Hartman became an Executive Vice
President of the Company. Mr. Hartman has 22 years of experience in the transit
industry. For the last three years he has been an executive with Amtrak serving
in several capacities, most recently as its Vice President of Business
Development and Administration. Prior to his service with Amtrak, Mr. Hartman
worked for the Mass Transit Administration of Baltimore, MD.
On November 20, 1997, Raymond Monteleone resigned as a director and as
President and Chief Operating Officer of the Company. Allen C. Harper, Chairman
of the Board and Chief Executive Officer, became interim President.
On November 24, 1997, Kevin Sheehan joined the Company's management
team as a senior advisor and consultant. Mr. Sheehan is expected to advise the
Company on issues relating to marketing, sales and strategic planning. Since
1995, Mr. Sheehan served as President and as a director of Vacation Break
U.S.A., Inc. (a vacation interval ownership company); Mr. Sheehan has been
affiliated with Vacation Break U.S.A., Inc. since 1987.
Gordon Downing, Vice President of Sales and Marketing for the Company,
resigned effective December 12, 1997, to pursue other interests. The Company is
seeking to hire a new head of marketing, but there can be no assurance that such
position will be timely filled. See "Risk Factors - Need for Additional Senior
Management."
On December 10, 1997, Pointe Bank (the "Bank") sent a letter (the
"Letter") to the Company stating that there were various non-monetary defaults
outstanding under a $1,000,000 unsecured line of credit (the "Loan") given by
the Bank to the Company. The Company has disputed the fact that any default
existed in the Loan. In exchange for a letter waiving the purported defaults
contained in the Letter, the Company has agreed (i) to allow the Bank to apply
the outstanding balance in the Company's account with the Bank (approximately
$109,000) towards the balance under the Loan, (ii) to grant to the Bank a
"blanket" second lien on "non-D&SNG" assets, and (iii) that it will pay to the
Bank on the Loan 10% of a future financing anticipated to be concluded by the
end of April 1998. The Company has also agreed that there will be no further
borrowing under the Loan and that the Loan will not be renewed upon its
maturity. Effectively, this makes the balance of the Loan due on or about
October 10, 1998.
As a result of its working capital needs, the Company has offered to
the holders of its Series A Redeemable Warrants (the "Warrants") the right to
exercise such warrants at a reduced price of $.50 per share of common stock
until the close of business on January 16, 1998, unless such date is extended,
at which time the exercise price of the Warrants will revert to their
pre-offering price ($3.22 per share). The Warrants expire in April or May, 1998,
as the case may be. In connection with the exercise of all or a portion of a
warrantholder's Warrants at this reduced price, the warrantholder (i) is also
required to purchase another share of Common Stock at $.50 per share for each
exercised Warrant, and (ii) will have the option at the time of such exercise to
purchase an additional share of Common Stock at $.50 per share. The Company is
also offering up to 7,000,000 Shares to investors at $.50 per share. In
addition, the Company is offering shares of Common Stock to the holders of its
8% Convertible Subordinated Notes (the "Notes") in lieu of the semi-annual cash
interest payment thereon due on December 31, 1997, based on the average of the
closing bid and ask prices of the Company's Common Stock for the last five
trading days of calendar 1997. A total of 19,905,169 shares of common stock,
$.001 par value, may be sold in the offering; up to approximately $8.9 million
in net proceeds may be raised on the offering (including $508,425 in interest
payments due on the Notes which may be paid in common stock as described above).
The shares to be sold
13
<PAGE>
in the offering will not be nor have they been registered under the Securities
Act of 1933, as amended, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
14
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
COMMON STOCK:
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 26, 1997, with
respect to (i) each of the Company's executive officers and directors, and (ii)
all executive officers and directors as a group. This table also sets forth
certain information with respect to beneficial ownership of the Company's Common
Stock of each Selling Shareholder including each person known to the Company to
be the beneficial owner of more than 5% of the Common Stock (excluding officers
and directors), each of whom is a Selling Shareholder. 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 those Selling Shareholders who are not individuals, no officer or
general partner of any such shareholder has any position, office or other
material relationship with the Company or its corporate predecessors during the
last three years. It has been assumed that all of the shares of the Selling
Shareholders 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>
EXECUTIVE OFFICERS AND
DIRECTORS:(3)
Charles E. Bradshaw, Jr. Director 1,810,000(4) 14.156 0
Allen C. Harper Chairman of the 1,347,017(5) 12.052 0
Board of Directors
and Chief Executive Officer
Thomas G. Rader Director 486,296(6) 4.344 0
Luigi Salvaneschi Director 103,654(6)(8) * 0
David H. Rush Director 79,414(6) * 0
Glenn P. Michael Director 23,000(6) * 0
Albert B. Aftoora Director 4,500(6) * 0
Donald P. Cumming Vice President, 19,362(7) * 0
Secretary, Treasurer and
Acting Chief Financial Officer
Thomas E. Blayney Vice President of 17,375(7) * 0
Operations
15
<PAGE>
Pamela S. Petcash Vice President, Customer 14,457(7) * 0
Care and Entertainment
Ronald J. Hartman Executive Vice President 3,333(7) * 0
All Executive Officers and Directors 3,908,414(4)(6)(7) 30.264 0
as a Group (11 persons)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BEFORE OFFERING(1) OFFERED AFTER OFFERING
------------------ ------- --------------
SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C> <C>
SELLING SHAREHOLDERS:
Emanon Partners, L.P. 382,380 3.421% 175,000 207,380 1.856%
c/o Schaenen Fox Capital
Management
200 Park Avenue, Suite 3900
New York, NY 10166
Ryder & Schild Inc. 36,363 .325% 36,363 0 0
2100 Coral Way
Penthouse
Miami, Florida 33145
John VanOrdstrand 15,700 .140% 3,200 12,500 .112%
2370 Bayview Lane
Miami, Florida 33181
</TABLE>
- ----------
(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) outstanding stock options (ii) the exercise of
outstanding Warrants and (iii) 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 to be issued to CSXT.
(3) Unless otherwise indicated, the address for each director is c/o First
American Railways, Inc., 3700 North 29th Avenue, Hollywood, Florida 33020.
(4) Includes 1,610,000 shares which may be issued upon the exercise of a
six-year warrant.
(5) Includes 1,345,732 shares which are owned of record by Harper Family
Partnership L.P., for which Mr. Harper and his wife, Carol E. Harper, are the
sole limited partners, and 1,285 shares which are owned of record by Harper
Partners of Miami, Ltd., a Florida limited partnership, for which Carol E.
Harper, serves as trustee.
(6) Includes 18,000 shares which are issuable upon the exercise of currently
exercisable stock options to each of Messrs. Rader, Salvaneschi and Rush,
respectively, and 23,000 and 3,000 shares which are issuable upon the exercise
of currently exercisable stock options to each of Messrs. Michael and Aftoora,
respectively. In August, September and October 1997, Mr. Rader disposed of
946,285 shares (see "Recent Developments").
(7) Includes 16,332 shares, 14,999 shares, 13,332 shares and 3,333 shares which
are issuable to Messrs. Cumming, Blayney, Miss Petcash and Mr. Hartman,
respectively, upon the exercise of currently-exercisable stock options.
(8) 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 dispositive power.
17
<PAGE>
DESCRIPTION OF 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 after distribution of assets
to creditors and holders of securities with priority over the holders of the
Common Stock. The ability to pay dividends on the Common Stock is restricted,
however, by the terms of the Company's outstanding Convertible Secured Notes.
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.
PLAN OF DISTRIBUTION
This Prospectus covers the sale of Shares 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
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 been 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
18
<PAGE>
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.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Adorno & Zeder, 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 incorporated by reference in this
Prospectus for the year ended December 31, 1996, eight months ended December 31,
1995, and for the cumulative period from February 14, 1994 (incorporation)
through December 31, 1996, which are incorporated by reference in this
Prospectus, have been audited by BDO Seidman LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
relating thereto and have been so incorporated in reliance upon such reports
given upon the authority of said firm as experts in accounting and auditing.
The financial statements of D&SNG for the years ended December 31, 1996
and 1995, which are incorporated by reference in this Prospectus, have been
audited by BDO Seidman LLP, independent certified public accountants, to the
extent and for the periods set forth in their report relating thereto and have
been so incorporated 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 prior to
their termination 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.
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses to be incurred by the
Company in connection with the sale of the securities offered hereby, other than
underwriting discounts and commissions. Except for the Securities and Exchange
Commission registration fee, all of the amounts set forth in the table are
estimates.
Securities and Exchange Commission Registration fee.............$ 25.00
Legal fees and expenses......................................... 7,500.00
Blue Sky fees and expenses...................................... 500.00
Accounting fees and expenses.................................... 2,500.00
Printing........................................................ 1,500.00
Miscellaneous................................................... 475.00
--------
Total........................................................... $12,500
========
ITEM 15. 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 Company 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.
II-1
<PAGE>
Article XII of the Company's Articles of Incorporation, as amended,
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.
II-2
<PAGE>
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- --- -----------
3.1 Articles of Incorporation, as amended, are hereby incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form 8-A filed with the SEC on May 30, 1996.
3.2 Plan and Articles of Merger are hereby incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form 8-A filed
with the SEC on May 30, 1996.
3.3 Amended Bylaws.*
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
with the SEC on May 30, 1996.
4.2 Form of Series A Redeemable Warrant Agreement.**
4.3 Series A Redeemable Warrant Agreement.**
4.4 Form of Financial Advisory Warrant Certificate.**
4.5 Financial Advisory Warrant Agreement.**
4.6 Common Stock Purchase Warrant Certificate held by Charles E. Bradshaw,
Jr., dated March 13, 1997.*
5 Opinion of Adorno & Zeder, 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 First American-
Florida and Allen C. Harper.**
10.3 Employment Agreement dated September 10, 1997, between the Company and
Ronald J. Hartman.****
10.4 Employment Agreement dated July 1, 1994, between First American-Florida
and Michael J. Acierno, as amended on June 30, 1997.**
II-3
<PAGE>
10.5 Settlement Agreement and General Release dated November 20, 1997,
between the Company and Raymond Monteleone. ****
10.6 Agreement dated February 28, 1995, between First American-Florida and
Florida East Coast Railway Company.**
10.7 Form of Non-Competition Agreement between Thomas G. Rader and First
American-Florida.**
10.8 Railcar Construction Agreement (without appendices) between Rader
Railcar II, Inc. and Fun Trains, Inc. dated October 23, 1996.**
10.9 Financial Advisory and Consulting Agreement between the Company and
International Capital Growth, LLC, dated April 26, 1996**, as amended
December 5, 1996.*
10.10 Note Escrow Agreement between the Company, 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 Letter Agreement, dated December 19, 1997, waiving defaults under the
Loan Agreement dated March 10, 1997 between the Company and Pointe
Bank, is incorporated by reference to Exhibit 1 of the Company's
Current Report on Form 8- K dated December 23, 1997, as filed with the
SEC on December 29, 1997.
10.13 Employment Agreement dated October 9, 1996, between the Company and
Donald 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 Non-competition Agreement between the
Company's executive employees and the Company.**
10.17 Consulting Agreement between Management 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.**
II-4
<PAGE>
10.20 Business Lease between Mandel Development, a Florida general
partnership, and the Company, dated January 15, 1997.*
10.21 Operating Agreement between the Florida Department of Transportation
and the Company, dated January 6, 1997.*
10.22 Form of the Company's 1996 Non-Qualified Stock Option Plan.*
10.23 Loan Agreement (without exhibits) between NationsBank, N.A. (South) and
the Durango & Silverton Narrow Gauge Railroad Company, dated March 13,
1997.*
10.24 Share Purchase Agreement between The Durango & Silverton Narrow Gauge
Railroad Company and the Company, dated December 10, 1996, and Addendum
to Share Purchase Agreement, dated February 28, 1997.*
10.25 Promissory Note in the amount of $4,200,000 from the Company in favor
of Charles E. Bradshaw, Jr., dated March 13, 1997.*
10.26 Promissory Note in the amount of $5,850,000 from the Company in favor
of Charles E. Bradshaw, Jr., dated March 13, 1997.*
10.27 Registration Rights and Price Guaranty Agreement between Charles E.
Bradshaw, Jr. and the Company, dated March 13, 1997.*
10.28 Transportation, Maintenance and Lease Agreement between Fun Trains,
Inc. and Amtrak, dated April 28, 1997, is incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-QSB, for the
period ended March 31, 1997, filed with the SEC on May 15, 1997.
10.29 Amendment to Operating Agreement between Florida Department of
Transportation and the Company, dated June 6, 1997, is incorporated by
reference to Exhibit 10.29 of the Company's Post Effective Amendment
No. 1 to the Form SB-2, filed with the SEC on June 24, 1997
10.30 First American Railways, Inc. Employee Stock Purchase Plan is
incorporated by reference to Exhibit 10.30 of the Company's Amendment
No. 1 to Form S-3, filed with the SEC on September 19, 1997.
10.31 Separation Agreement and Release between the Company and Eugene K.
Garfield, dated November 11, 1996, is incorporated by reference to
Exhibit 10.31 of the Company's Amendment No. 1 to Form S-3, filed with
the SEC on September 19, 1997.
10.32 Form of Convertible Subordinated Note, is hereby incorporated by
reference to Exhibit 4 of the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1997, as filed with the SEC on August
14, 1997.
II-5
<PAGE>
10.33 Amendment No. 3 to Railcar Construction Agreement between Rader Railcar
II, Inc. And Fun Trains, Inc., dated August 22, 1997.***
10.34 Limited Guaranty of Payment and Performance given by Thomas G. Rader to
Fun Trains, Inc., dated August 22, 1997.***
10.35 Amendment Number 3 to Operating Agreement between the Florida
Department of Transportation and the Company, dated August 18, 1997.***
10.36 Amendment No.4 to Railcar Construction Agreement between the Rader
Railcar II, Inc., Fun Trains, Inc. and Thomas G. Rader, dated November
12, 1997.****
16 Letter dated May 10, 1996, from the Company's former accountants,
Hansen, Barnett & Maxwell, to the Company is hereby incorporated by
reference to Exhibit 16 to the Company's Current Report on Form 8-K
dated May 6, 1996.
21 Subsidiaries of the Company.*
23.1 Consent of BDO Seidman LLP.****
23.2 Consent of Adorno & Zeder, P.A., included as part of Exhibit 5.****
24 Power of Attorney
27 Financial Data Schedule, is hereby incorporated by reference to Exhibit
27 of the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997, as filed with the SEC on November 14, 1997.
* Incorporated by reference to the comparable exhibit numbers as
contained in the Company's Annual Report on Form 10-KSB, as filed with
the Securities and Exchange Commission on March 28, 1997.
** Incorporated by reference to the comparable exhibit numbers as
contained in the Company's Registration Statement on Form SB-2, as
filed with the Securities and Exchange Commission on August 6, 1996.
*** Incorporated by reference to the comparable exhibit numbers as
contained in the Company's Registration Statement on Form S-3, as filed
with the Securities and Exchange Commission on September 18, 1997.
**** Filed herewith.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The Company 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 arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) 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 with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in
the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a) (1) (ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Company pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(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) The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating to
securities offered therein, and the offering of such securities at that time
hall be deemed to be the initial bona fide offering thereof.
(c) 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.
II-7
<PAGE>
(d) 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-8
<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 of filing on Form S-3 and authorized this Registration Statement to
be signed on its behalf by the undersigned, in the City of Hollywood, State of
Florida, on December 30, 1997.
FIRST AMERICAN RAILWAYS, INC.
By:/S/ ALLEN C. HARPER
----------------------------------------
Allen C. Harper, Chairman of
the Board, President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT FIRST AMERICAN RAILWAYS, INC., AND
EACH PERSON WHOSE SIGNATURE APPEARS BELOW, CONSTITUTES AND APPOINTS ALLEN C.
HARPER, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME OR IN THE NAME OF THE
COMPANY AND IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE
FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO
EACH SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES AS FULL TO ALL ITEMS AND PURPOSES AS THEY MIGHT OR COULD DO IN PERSON,
HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID ATTORNEY-IN-FACT AND AGENT OR
HIS SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
THEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Allen C. Harper
- ----------------------------------- CHAIRMAN OF THE BOARD, DECEMBER 30, 1997
ALLEN C. HARPER PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
DIRECTOR DECEMBER , 1997
- -----------------------------------
THOMAS G. RADER
/s/ David H. Rush DIRECTOR DECEMBER 30, 1997
- ----------------------------------
DAVID H. RUSH
/s/ Luigi Salvaneschi DIRECTOR DECEMBER 30, 1997
- -----------------------------------
LUIGI SALVANESCHI
/s/ Glenn P. Michael DIRECTOR DECEMBER 30, 1997
- -----------------------------------
GLENN P. MICHAEL
/s/ Albert B. Aftoora DIRECTOR DECEMBER 30, 1997
- -----------------------------------
ALBERT B. AFTOORA
DIRECTOR DECEMBER , 1997
- ---------------------------------
CHARLES E. BRADSHAW, JR.
/s/ Donald P. Cumming VICE PRESIDENT, DECEMBER 30, 1997
- --------------------------------- SECRETARY,TREASURER AND
DONALD P. CUMMING ACTING CHIEF
FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER)
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
5 Opinion of Adorno & Zeder, P.A.
10.3 Employment Agreement dated September 10, 1997, between the Company and
Ronald J. Hartman.
10.5 Settlement Agreement and General Release dated November 20, 1997,
between the Company and Raymond Monteleone.
10.36 Amendment No.4 to Railcar Construction Agreement between Rader Railcar
II, Inc. Fun Trains, Inc. and Thomas G. Rader, dated November 12, 1997.
23.1 Consent of BDO Seidman LLP.
EXHIBIT 5
ADORNO & ZEDER, P.A.
2601 SOUTH BAYSHORE DRIVE
SUITE 1600
MIAMI, FLORIDA 33133
(305) 858-5555
(305) 848-4777 FAX
December 30, 1997
First American Railways, Inc.
3700 North 29th Avenue
Suite 202
Hollywood, Florida 33020
Re: First American Railways, Inc.
Registration Statement on Form S-3
Gentlemen:
We have acted as counsel to First American Railways, Inc. (the "Company"),
in connection with the preparation of its Registration Statement on Form S-3
(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 214,563 shares of the Company's Common Stock, par
value $.001 per share, as more fully described in the Registration Statement
(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 herein 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.
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 duly issued and
<PAGE>
First American Railways, Inc.
Page 2
December 30, 1997
delivered as described in the Registration Statement, as amended, 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.
Very truly yours,
ADORNO & ZEDER, P.A.
By: /s/ Dennis J. Olle
-----------------------------------
Dennis J. Olle
DJO:lk
cc: Donald P. Cumming
EXHIBIT 10.3
September 10, 1997
Mr. Ronald J. Hartman
6408 Summer Sunrise Drive
Columbia, Maryland 21044
RE: EMPLOYMENT AGREEMENT WITH FIRST AMERICAN RAILWAYS,
INC. (THE "COMPANY")
Dear Ron:
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 November 1, 1997 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, Business
Development and Administration 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:
<PAGE>
Ronald J. Hartman
Page 2
September 10, 1997
1997: (Commencement - 12/31/97)
$18,333 base compensation (which represents an annual
rate of $110,000) along with a target bonus of 25% of
base compensation (pro-rated) for the subject
employment period, to be paid in January 1998. The
criteria for determining bonus compensation shall be
developed and agreed to by you and the President of
the Company.
Calendar 1998: $115,000 per annum base compensation along
with a target bonus of 25% of base compensation, but
not less than 5% of base compensation. The criteria
for determining bonus compensation shall be developed
and agreed to by you and the President of the
Company. (If your employment is not renewed as
provided herein effective any time during 1998, you
will only be entitled to receive a bonus based on 5%
of the pro-rated amount of your base compensation for
calendar year 1998, for the period of your actual
employment.)
Calendar 1999: Base compensation, bonus, vacation time 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, each of 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 first anniversary of the
date of grant, the second 3,333-share increment vesting on the second
anniversary of the date of grant, and the remaining 3,334-share increment
vesting on the third 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 addition, you will be granted 5,000 stock options on the first and second
anniversary dates of your Agreement (assuming you are still employed by the
Company). Each grant will be a ten-year, non-qualified stock option to purchase
5,000 shares of common
<PAGE>
Ronald J. Hartman
Page 3
September 10, 1997
stock at an exercise price which is equal to the then current market price of
the Company's common stock. Each option will vest in one-third annual increments
(approximately 1,666 shares) with the initial vesting beginning on the first
anniversary of the date of grant. These options will be subject to the same
anti-dilution provisions and the accelerated vesting as provided for the stock
option initially granted to you.
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 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
<PAGE>
Ronald J. Hartman
Page 4
September 10, 1997
employment, with no more than two weeks of which to be consecutive.
The Company shall provide you with "standard officer" 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. The Company will pay you a car allowance of $300
per month. In addition, you will be covered under the Company's Directors and
Officers liability insurance policy.
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
thereof.
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 of
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 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.
<PAGE>
Ronald J. Hartman
Page 5
September 10, 1997
For the sixty-day period commencing November 1, 1997, the Company agrees to sell
to you up to 10,000 shares of its common stock for a per share price equal to
the public market price of the Company's common stock on the date you begin
employment.
It is further understood and a part of this Agreement that you and your
immediate family will not relocate permanently to southeastern Florida within
the year. During the year, the Company agrees to reimburse you 50% of your
actual commuting expense not to exceed your total budget of $16,000. You will be
reimbursed (up to $8,000) by the Company by submitting receipts to document your
expenditure for such coverage.
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
of 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: _____________________________
Raymond Monteleone, President
Agreed to and Accepted this
___ day of _________, 1997
- -----------------------
Ronald J. Hartman
EXHIBIT 10.5
November 20, 1997
VIA TELEFAX
Juan C. Enjamio
Holland & Knight LLP
701 Brickell Avenue, Suite 3000
Miami, Florida 33131
RE: RAYMOND MONTELEONE
Dear Juan:
Pursuant to the various oral and written communications between our
respective firms yesterday and today, it is my understanding, and the purpose of
this letter is to confirm that, Ray Monteleone ("Monteleone") and First American
Railways, Inc. ("First American" or "the Company") have agreed to resolve all
issues between them regarding Monteleone's employment on the following terms:
1. Monteleone shall be paid his full base salary by First American for
six (6) months (December, 1997 through May 1998) following his resignation.
2. First American shall continue to provide and shall pay for
Monteleone's medical, life and disability insurance for the same six (6) months
following his resignation, during which period said insurance coverages shall
remain in full force and effect on exactly the same terms and conditions as the
insurance that Monteleone presently has through the Company.
3. First American confirms that it maintains a directors & officers
insurance policy in full force and effect, and that said policy has been and is
in effect through the date of Monteleone's resignation. A copy of that policy
will be provided to you so that you can determine the extent to which Monteleone
is afforded coverage thereunder.
4. The parties shall agree to maintain in full and complete
confidentiality the terms and conditions of this settlement, any allegations
that have come before the board of directors concerning Monteleone, and any
other issue relating to the investigation for sexual harassment or Mr.
Monteleone's resignation, except as otherwise required by law and except to the
extent such information may have been disclosed prior to the execution of this
letter agreement.
<PAGE>
Mr. Juan C. Enjamio
November 20, 1997
Page 2
5. First American and Monteleone shall execute and exchange general
mutual releases releasing each other from any and all claims that have arisen,
will arise or could arise relating in any way to Monteleone's employment with or
his capacity as a stockholder of the Company, including but not limited to any
claims relating to sexual harassment, breach of fiduciary duties,
discrimination, misrepresentation, failure to advise the Board of Directors,
etc. This release in no way waives either parties' right to assert any defense
against any party, including each other, in any lawsuit filed by any third
party, and does not waive either parties' right to assert indemnity or
contribution against any party, including each other, in any such lawsuit.
6. First American shall insure that Monteleone is released immediately
from any and all personal guarantees executed by him as a result of his
association with First American, including the personal guarantee given in
connection with the acquisition of the Durango Silverton Narrow Gauge Railroad
and the personal guarantee given in connection with the lease of a GMC Yukon for
use in Durango. It is explicitly understood by the parties that obtaining a
release from the guarantees, as set forth in this paragraph, is a condition
subsequent of this agreement. First American shall provide within a reasonable
time written confirmation that the personal guarantees have been released.
7. To the extent allowed by law, Monteleone shall receive a copy of any
investigative files and reports generated by Susan Norton or her firm in
connection with the investigation of the allegations against him.
8. The parties agree that they shall not disparage each other in any
way.
9. Monteleone shall be released from any and all non-compete
obligations set forth in his Amended and Restated Employment Agreement or in any
other employment agreement that he has or may have had with First American or
its subsidiaries.
10. Monteleone shall resign as an officer, director and employee of
First American and all of its subsidiaries effective November 20, 1997, except
that, at First American's option, Monteleone may be retained as an employee (but
without any responsibilities or authority) in order to provide the insurance
coverages described in paragraph 2 above.
11. First American shall issue a press release announcing Monteleone's
resignation in language substantially and materially the same as the release
submitted to Monteleone's attorneys on Wednesday, November 19, 1997.
12. Monteleone shall be permitted to send a courier to take immediate
possession of his personal files and belongings.
<PAGE>
Mr. Juan C. Enjamio
November 20, 1997
Page 3
13. Monteleone shall be provided full reimbursement of all expenses
incurred on behalf of the Company or in the scope of his employment with the
Company, and not yet paid to him, including expenses that Monteleone has
incurred already for future travel to the extent such expenses cannot be
recovered by canceling such future travel arrangements.
14. This letter also confirms that Mr. Monteleone has 168,333 options
on shares already vested in the Company.
This letter constitutes the settlement agreement between First
American and Mr. Monteleone. Please have Monteleone execute this letter and
return a copy to me by fax. Monteleone's resignation from the Company as set
forth above is conditioned upon and will effective upon his execution of this
letter. I hereby represent to you that I have authority to execute this letter
on behalf of First American.
Very truly yours,
Brian K. Goodkind
Agreed:
/S/ RAYMOND MONTELEONE
- ---------------------------------
Raymond Monteleone
DATED: NOVEMBER 20, 1997
EXHIBIT 10.36
AMENDMENT NO. 4 TO RAILCAR CONSTRUCTION AGREEMENT
BY AND AMONG
RADER RAILCAR II, INC., FUN TRAINS, INC. AND THOMAS G. RADER
DATED NOVEMBER 12, 1997
<PAGE>
AMENDMENT NO. 4 TO
RAILCAR CONSTRUCTION AGREEMENT
THIS AMENDMENT NO. 4 TO RAILCAR CONSTRUCTION AGREEMENT ("Amendment") is
made and entered into on this 12th day of November, 1997, by and among RADER
RAILCAR II, INC. ("Rader"), FUN TRAINS, INC. ("FTI") and THOMAS G. RADER
("TGR").
WHEREAS, on October 23, 1996, Rader and FTI entered into that certain
Railcar Construction Agreement; and
WHEREAS, on December 17, 1996, Rader and FTI entered into that certain
Amendment No. 1 to the Railcar Construction Agreement ("Amendment No. 1"); and
WHEREAS, on December 17, 1996, Rader and FTI entered into that certain
Amendment No. 2 to the Railcar Construction Agreement ("Amendment No. 2"); and
WHEREAS, as of August 22, 1997, Rader and FTI entered into that certain
Amendment No. 3 to the Railcar Construction Agreement ("Amendment No. 3")(the
Railcar Construction Agreement, Amendment No. 1, Amendment No. 2 and Amendment
No. 3 shall hereafter collectively be referred to as the "Agreement"); and
WHEREAS, Rader has not yet completed construction of the Railcars; and
WHEREAS, Rader and TGR have requested that a portion of the amounts
(the "Escrow Fund") being held pursuant to the Securities Pledge and Escrow
Agreement, dated August 22, 1997, between FTI and TGR and the Supplement to the
Securities Pledge and Escrow Agreement, dated September 24, 1997, between FTI
and TGR, be disbursed to Rader to finance construction of the Railcars; and
WHEREAS, FTI has indicated that it would only release a portion of the
Escrow Fund to Rader to finance construction of the Railcars if title to the
Railcars, together with all parts thereof and therefore were immediately
delivered to FTI.
NOW THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. RECITALS. The above recitals are true and correct.
2. DEFINITIONS. In addition to the other defined terms contained in
this Amendment, the definitions set forth in the
- 1 -
<PAGE>
Agreement shall apply to this Amendment and shall be substantive provisions of
the Agreement and this Amendment.
3. DELIVERY DATE. Some of the Railcars have not been delivered as
scheduled, and Rader has advised FTI of its present inability to timely deliver
and maintain the Delivery Dates provided for in the Agreement, as modified.
Rader acknowledges and agrees that it is essential for FTI to timely and
expeditiously receive delivery of the Railcars provided for by this Agreement,
as modified.
Rader's first priority shall be to finish the Railcars that
have been shipped to Florida. Rader's next priority shall be to finish
construction and ship Railcars C4 and E4. Within three days after the execution
of this Amendment, Rader shall deliver to FTI a time and materials report (the
"Time and Materials Report")for Railcar E4 listing the materials that remain to
be purchased for the Railcars, the status of construction of these Railcars, an
estimate of the remaining time it will take to complete and ship these Railcars,
and the status of any other matters pertaining to the Railcars that FTI may
reasonably request. Within seven business days after execution of this
Amendment, Rader shall deliver to FTI a Time and Materials Report for the
remaining Railcars. The remaining Railcars shall be supplied in accordance with
the schedule set forth in Amendment No. 3.
The shipment of the Railcars pursuant to the Agreement, as
amended hereby, or the transfer of title thereto (as provided in Section 4,
below) shall not constitute acceptance by FTI of any Railcar. This Amendment is
not intended to modify or waive any other provision of the Agreement (including
those concerning payment for the Railcars) or Section 9 regarding the delivery
and acceptance of the Railcars or the Agreement relating to P-1.
4. DELIVERY OF TITLE. Rader and FTI agree that full and Final Payment
has been received from FTI for Railcars C-1, E-1, E- 2, C-2, C-3, C-4, E-3 and
E-4 (the "FTI Railcars") and Rader hereby delivers to FTI title to the FTI
Railcars free from all mortgages, liens, charges, encumbrances and pledges of
all kinds, and releases its security interest in the FTI Railcars. Rader shall
execute the Bill of Sale attached hereto as Exhibit "A" to further evidence the
transfer of title to the FTI Railcars to FTI. Rader agrees to execute any and
all instruments necessary to release its security interest in the Railcars. In
addition, Rader agrees to obtain releases from any parties who may have a lien
on or any other interest in the FTI Railcars.
- 2 -
<PAGE>
Rader and FTI further agree that the remaining $681,000 to be paid by
FTI to Rader under the Agreement shall be paid in accordance with the following
schedule:
$143,666.67 shall be paid as the Final Payment for Railcar C-5
$268,666.67 shall be paid as the Final Payment for Railcar C-6
$268,666.66 shall be paid as the Final Payment for Railcar C-7
5. AMENDED WARRANTY PERIOD. FTI and Rader agree to negotiate, in good
faith, an extension of the warranty period; such negotiations to begin no later
than November 17, 1997 and concluded by December 1, 1997.
6. NON-WAIVER OF DEFAULT. Neither Rader nor FTI waive any of their
existing rights or remedies pursuant to the Agreement, or the Agreement relating
to P-1. FTI specifically does not, by virtue of this Amendment, extend the
Delivery Dates for the Railcars, nor waive any aspect of Rader's performance to
date. Similarly, Rader, by virtue of entering into this Amendment, does not
waive any of its claims or defenses arising pursuant to this Agreement, all such
rights of Rader and FTI being hereby expressly preserved.
7. Except as expressly modified by this Amendment No. 4, all of the
other terms and conditions of the Agreement as heretofore amended remain in full
force and effect.
8. FTI will wire transfer the sum of $200,000 to Rader on November 12,
1997.
9. Notwithstanding anything in the Agreement or its Amendments to the
contrary, the proceeds from the Escrow Fund shall be disbursed to Rader provided
Rader certifies that such cash proceeds will be used solely for the completion
of the FTI Railcars. FTI will, upon receipt of the certification, give notice to
the Escrow Agent within 24 hours to release funds. Such notice or authorization
shall not be unreasonably withheld by FTI.
10. Copies of the titles referenced in Paragraph 4 hereof shall be sent
by fax to FTI on November 12, 1997, to be followed by evidence of transfer to
FTI and original title documents to be sent no later than November 14, 1997.
RADER RAILCAR II, INC.,
a Colorado corporation
By:_____________________________________
John L. Wright, Senior Vice President
- 3 -
<PAGE>
FUN TRAINS, INC., a Florida corporation
By:_________________________________
Donald P. Cumming, Vice President
_________________________________
Thomas G. Rader, individually
- 4 -
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
First American Railways, Inc.
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 of First American Railways, Inc. (the "Company"), of our
report dated January 14, 1997, except for Note 9 which is as of March 13, 1997,
relating to the financial statements of the Company, appearing in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996.
Miami, Florida BDO SEIDMAN, LLP
December 30, 1997
