SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
FIRST AMERICAN RAILWAYS,INC.
(Name of Registrant as Specified in Its Charter)
FIRST AMERICAN RAILWAYS,INC.
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
3700 NORTH 29TH AVENUE
SUITE 202
HOLLYWOOD, FLORIDA 33020
(954) 920-0606
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of FIRST
AMERICAN RAILWAYS, INC., a Nevada corporation (the "Company"), will be held on
June 7, 1997, at 9:00 A.M., local time, at the Red Lion Hotel, 501 Camino Del
Rio, Durango, Colorado 81301, for the following purposes, all of which are set
forth more completely in the accompanying Proxy Statement:
(1) To amend the Articles of Incorporation of the Company to provide for a
classified Board of Directors;
(2) the election of eight persons to the Board of Directors; three persons
each to hold office for a term of three years, three persons each for a
term of two years and two persons each for a term of one year;
(3) the appointment of independent public accountants; and
(4) to transact such other business as may properly come before the
meeting.
Pursuant to the Company's Bylaws, the Board of Directors has fixed the
close of business on April 21, 1997, as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting.
A FORM OF PROXY AND THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996 ARE ENCLOSED. IT IS IMPORTANT THAT PROXIES BE RETURNED
PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE
ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE WHICH DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
Allen C. Harper,
Chairman of the Board and
ChiefExecutive Officer
Hollywood, Florida
May 5, 1997
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
3700 NORTH 29TH AVENUE
SUITE 202
HOLLYWOOD, FLORIDA 33020
(954) 920-0606
---------------
PROXY STATEMENT
---------------
The enclosed proxy is solicited by the Board of Directors of FIRST AMERICAN
RAILWAYS, INC., a Nevada corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held on June 7, 1997, and the approximate date on
which this statement and the enclosed proxy will be sent to shareholders will be
May 5, 1997. The form of proxy provides a space for you to withhold your vote
for any proposal. You are urged to indicate your vote on each matter in the
space provided; if no space is marked, it will be voted by the persons therein
named at the meeting (i) for the proposed amendment to the Articles of
Incorporation to create a classified Board of Directors; (ii) for the election
of eight persons to the Board of Directors as set forth below; (iii) approval of
selection of independent accountants; and (iv) in their discretion, upon such
other business as may properly come before the meeting. Whether or not you plan
to attend the meeting, please fill in, sign and return your proxy card to the
Company's transfer agent in the enclosed envelope, which requires no postage if
mailed in the United States.
The cost of the Board of Directors' proxy solicitation will be borne by the
Company. In addition to solicitation by mail, officers and employees of the
Company may solicit proxies personally and by telephone and telegraph, all
without extra compensation.
At the record date for the meeting, the close of business on April 21,
1997, the Company had outstanding 9,355,778 shares of $.001 par value common
stock ("Common Stock"). Each share of Common Stock entitles the holder thereof
on the record date to one vote on each matter submitted to a vote of
shareholders. Only shareholders of record at the close of business on April 21,
1997 are entitled to notice of and to vote at the Annual Meeting. In the event
that there are not sufficient votes for approval of any of the matters to be
voted upon at the Annual Meeting, the Annual Meeting may be adjourned in order
to permit further solicitation of proxies. The quorum necessary to conduct
business at the Annual Meeting consists of a majority of the outstanding shares
of Common Stock. The approval of the proposals covered by the Proxy Statement
will require an affirmative vote of the holders of a majority of the shares of
Common Stock voting in person or by proxy at the Annual Meeting.
All shares of Common Stock that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such proxies will
be voted for approval of each matter voted upon. Abstentions or broker non-votes
are counted as shares present in the determination of whether shares of Common
Stock represented at the meeting constitute a quorum. Abstentions or broker
non-votes are tabulated separately. As to other matters to be acted upon at the
Annual Meeting, abstentions are treated as AGAINST votes, whereas broker
non-votes are counted for the purpose of determining whether the proposal has
been approved.
A SHAREHOLDER WHO SUBMITS A PROXY ON THE ACCOMPANYING FORM HAS THE POWER TO
REVOKE IT AT ANY TIME PRIOR TO ITS USE BY DELIVERING A WRITTEN NOTICE TO THE
SECRETARY OF THE COMPANY, BY EXECUTING A LATER-DATED PROXY OR BY ATTENDING THE
MEETING AND VOTING IN PERSON. UNLESS AUTHORITY IS WITHHELD, PROXIES WHICH ARE
PROPERLY EXECUTED WILL BE VOTED FOR THE PURPOSES SET FORTH THEREON.
<PAGE>
The following table sets forth the shares of the Company's Common Stock
beneficially owned at April 21, 1997, by (i) each person known to management of
the Company to be the beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock, (ii) each Director of the Company, (iii) each
executive officer of the Company named under "Executive Remuneration," and (iv)
all executive officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
--------------------------------------
NAME POSITION WITH COMPANY NUMBER(2) PERCENT(2)
- ---- --------------------- ----------------------- ------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:(3)
Thomas G. Rader Director 1,632,581(4) 17.42
Charles E. Bradshaw, Jr. Director 1,810,000(5) 16.51
Allen C. Harper Chairman of the Board of Directors and Chief
Executive Officer 1,380,317(6) 14.75
Raymond Monteleone President, Chief Operating Officer and Director 179,133(7)(8) 1.89
Luigi Salvaneschi Director 103,654(4)(9) 1.11
David H. Rush Director 39,414(4) *
Glenn P. Michael Director 23,000(4) *
Albert B. Aftoora Director 3,000(4) *
William T. Nanovsky Vice President, Secretary, Treasurer and Chief
Financial Officer 15,000(8) *
Donald P. Cumming Vice President, Controller and Chief
Accounting Officer 10,666(8) *
Thomas E. Blayney Vice President of Operations 10,333(8) *
Pamela S. Petcash Vice President of Customer Care and
Entertainment 7,666(8) *
Gordon L. Downing Vice President of Marketing and Sales 3,333(8) *
All Directors and executive officers as a group (13 persons) 5,218,097 46.47
BENEFICIAL OWNERS OF MORE THAN 5%
Lancer Partners L.P.
237 Park Ave., 8th Fl.
New York, NY 10017 814,286(10) 8.25
EFO Fund, Ltd.
1111 W. Mockingbird Lane, #1400
Dallas, TX 75247 732,857(11) 7.46
International Capital Growth, Ltd
666 Steamboat Road
Greenwich, CT 06830 605,000 6.47
Fairnoon Management Ltd.
11 Queenstreet Mayfair
London W1X 7PD, England 570,000(12) 5.87
Eugene K. Garfield
1360 Ocean Blvd., #1905
Pompano Beach, FL 33062 529,343 5.66
Rush & Co.
c/o Swiss American Securities, Inc.
100 Wall Street, 4th Fl.
New York, NY 10005 548,177(13) 5.64
Emanon Partners, L.P.
237 Park Avenue
Suite 901
New York, NY 10017 515,714(14) 5.33
Rosebud Capital Growth Fund Ltd.
c/o Euro-Dutch Trust Co. (Bahamas)
Charlotte House, Charlotte St.
Nassau, Bahamas 512,747(15) 5.31
</TABLE>
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* Less than 1%
(1) Unless otherwise indicated, each shareholder has sole voting and investment
power with respect to the Common Stock indicated as beneficially owned
thereby.
(2) In accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), shares that are not outstanding, but that are
subject to warrants, options or conversion privileges exercisable or
convertible within 60 days of the date of the Offering, 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. Where applicable, these amounts include shares which are issuable
to the holders of the Company's Series A Redeemable Warrants, the Financial
Advisory Warrants (both referred to as "Warrants") and the 10% Convertible
Secured Notes (the "Notes"). These amounts do not include the exercise of
certain warrants to purchase an aggregate of 475,000 shares of Common
Stock.
(3) Unless otherwise indicated, the address for each Director is c/o First
American Railways, Inc., 3700 North 29th Avenue, Suite 202, Hollywood,
Florida 33020.
(4) 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.
(5) Includes 1,610,000 shares which may be issued upon the exercise of a
six-year warrant.
(6) Includes 1,379,032 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.
(7) Includes 35,800 shares owned of record by Mr. Monteleone, and the balance
represents currently exercisable stock options.
(8) Includes 143,333 shares, 12,000 shares, 9,666 shares, 8,333 shares, 3,333
shares and 6,666 shares which are issuable to Messrs. Monteleone, Nanovsky,
Cumming, Blayney, Downing and Miss Petcash, respectively, upon the exercise
of currently-
exercisable stock options.
(9) 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.
(10) Includes an aggregate of 514,286 shares which may be issued upon the
exercise of outstanding Warrants, and either upon the conversion of the
Notes or upon the exercise of Warrants which may be issued, in certain
circumstances, upon the prepayment of the Notes.
(11) Includes an aggregate of 462,857 shares which may be issued upon the
exercise of outstanding Warrants, and either upon the conversion of the
Notes or upon the exercise of Warrants which may be issued, in certain
circumstances, upon the prepayment of the Notes.
(12) Includes an aggregate of 360,000 shares which may be issued upon the
exercise of outstanding Warrants, and either upon the conversion of the
Notes or upon the exercise of Warrants which may be issued, in certain
circumstances, upon the prepayment of the Notes.
(13) Includes an aggregate of 363,440 shares which may be issued upon the
exercise of outstanding Warrants, and either upon the conversion of the
Notes or upon the exercise of Warrants which may be issued, in certain
circumstances, upon the prepayment of the Notes.
(14) Includes an aggregate of 328,834 shares which may be issued upon the
exercise of outstanding Warrants, and either upon the conversion of the
Notes or upon the exercise of Warrants which may be issued, in certain
circumstances, upon the prepayment of the Notes.
(15) Includes an aggregate of 303,116 shares which may be issued upon the
exercise of outstanding Warrants, and either upon the conversion of the
Notes or upon the exercise of Warrants which may be issued, in certain
circumstances, upon the prepayment of the Notes.
ITEM 1-AMENDMENT TO ARTICLES OF INCORPORATION TO PROVIDE FOR
CLASSIFIED BOARD OF DIRECTORS
The Board of Directors recommends that the Company's Articles of
Incorporation be amended to provide for a classified Board of Directors
consisting of up to nine Directors. The text of the proposed amendment is set
forth in attached Exhibit A at Page A-1. This amendment provides for the
classification of the Directors of the Company into three classes whose terms of
office will expire at one-year intervals. The term of office of the first class
of Directors elected at the Annual Meeting in 1997 will expire at the Annual
Meeting in 1998; the second class of Directors in 1999; and the third class of
Directors in 2000. Presently the Company's Directors are elected at each annual
meeting to serve for one year. Directors elected by the Board to fill vacancies
will continue to hold office for the remainder of the term to which the previous
Director was elected.
When the classified Board of Directors is fully implemented, a portion of
the Directors will be elected at each annual meeting for three-year terms.
Although the Board of Directors has not in the past experienced problems as to
stability or continuity, staggering the election of the Board in such a fashion
increases the potential for corporate stability through the prospect of
increased continuity of
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<PAGE>
Board membership by insuring that a number of the Directors on the Board have
been associated with the Company over a period of years and, therefore, are
experienced in the affairs of the Company. The proposed amendment, however, will
make it more difficult for the shareholders to replace the entire Board of
Directors at one annual meeting even where this may be considered desirable by
the shareholders.
In addition to increasing the potential for the continuity of Board
membership, the classification system will make it more difficult to acquire or
take over the Company by merger, acquisition of its assets or other means to
gain control of the Company's Board of Directors prior to effecting the takeover
transaction, if such transaction is opposed by the Board of Directors. This
proposal may accordingly be deemed to be an anti-takeover proposal. Management
is not aware of any specific effort to accumulate the Company's securities or to
obtain control of the Company through a merger, tender offer, solicitation in
opposition to Management or otherwise and this proposal is not being made in
response to any such effort. In the event a takeover group were able to control
the Board of Directors, Management would be forced to negotiate the terms of any
proposed takeover bid with a corporation or group which had its own
representatives on the Company's Board of Directors. The interests of the
shareholders conceivably may be represented by groups other than Management; a
takeover transaction could also conceivably be viewed as beneficial by a
majority of shareholders.
The Articles of Incorporation and By-Laws of the Company currently contain
no anti-takeover provisions. In addition, it should be noted that Nevada and
federal law provides certain protections for shareholders' interests in certain
takeover situations, including a state law which restricts the ability of the
Company to engage in any business combination with certain "interested"
shareholders for three years, along with minority shareholder appraisal rights
in cases of mergers and acquisitions, as well as disclosure requirements under
the federal securities laws. The content of the proposed amendment to the
Articles of Incorporation and By-Laws has not been subject to specific, formal
Board action.
Management believes that representation on the Company's Board of
Directors, however, by persons seeking to take over the Company would inhibit
management's ability to negotiate at arm's length for the best interest of all
shareholders. Therefore the Board of Directors believes this proposal is in the
best interest of the shareholders.
The adoption of this proposal requires authorization by the holders of a
majority of the Company's common stock present, either in person or by proxy,
and voting at the Annual Meeting. In the event this proposal is not approved
by the Shareholders, the nominees, if elected, will serve until the annual
meeting 1998 or until their successors are elected and duly qualified.
This proposal will make it more difficult to remove the current Board of
Directors or effect a merger or takeover opposed by the current Board of
Directors. Classification of the Board of Directors will result in the election
of a fraction of the Directors each year which will make it more difficult for
shareholders to change Directors and may require two or more successive annual
meetings to replace the majority of the Directors in order to effect a change in
management policies. The proposed amendment may also discourage any group from
attempting to acquire the Company, even where this may be considered desirable
by a simple majority of the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS AMENDMENT TO THE
ARTICLES OF INCORPORATION.
ITEM 2-ELECTION OF DIRECTORS OF THE COMPANY
NOMINEES
As provided for in Article IX of its Articles of Incorporation, as amended
by Item 1, above, the Company is to have a classified Board of Directors
consisting of Classes I, II and III, with one class to be elected at each Annual
Meeting of Shareholders. If any nominee for Director is unable or declines to
4
<PAGE>
serve for any reason not now foreseen, the discretionary authority provided in
the proxy will be exercised to vote for a substitute. All nominees have
consented to serve as Directors. The following persons are Management's
nominees, by class, to serve as Directors of the Company:
<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
(EXPIRES 1998) (EXPIRES 1999) (EXPIRES 2000)
- -------------------------- ----------------------- -------------------------
<S> <C> <C>
Charles E. Bradshaw, Jr. Albert B. Aftoora(1) Raymond Monteleone
Thomas G. Rader(2) Allen C. Harper David H. Rush(1)(2)
Glenn P. Michael(1) Luigi Salvaneschi(1)(2)
</TABLE>
- ----------------
(1) Member of the Audit Committee, the Chairman of which is Mr. Aftoora.
(2) Member of the Compensation Committee, the Chairman of which is Mr. Rush.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF EACH OF THE FOREGOING NOMINEES FOR
ELECTION TO THE BOARD.
The following information is set forth below for each nominee: principal
occupations during the past five years, the period of service as a Director of
the Company or its predecessor, or other directorships and business affiliations
(including public company directorships), and age:
MR. HARPER, age 52, has been the Chairman of the Board of Directors and
Chief Executive Officer of the Company since April 1996, and prior thereto he
served in similar capacities with the Company's predecessor by merger, First
American Railways, Inc., a Florida corporation ("First American-Florida") since
its incorporation (February 1994). He has over 30 years of business experience,
principally in the areas of real estate management and development and rail
transportation. Since 1984, he has been principally employed as the Chairman,
President and principal shareholder of First Reserve, Inc., the holding company
for Esslinger-Wooten-Maxwell, Inc., a residential and commercial real estate
brokerage and management firm based in Coral Gables, FL. Since September 1989,
Mr. Harper has been a Director, and from October 1992 to October 1993, and from
July 1995 to June 1996, he served as Chairman of the Board of the Tri-County
Rail Authority. Since May 1994, he has served as a Director of Florida East
Coast Railway Co. (a railroad company based in St. Augustine, FL) and Vacation
Break U.S.A., Inc. (a travel and time-share corporation based in Fort
Lauderdale, FL).
MR. AFTOORA, age 57, became a Director of the Company in December 1996. Mr.
Aftoora has extensive experience in the railroad industry and is currently Vice
President of Corridor Development for CSX Transportation, Inc. ("CSXT"). Mr.
Aftoora is being appointed to the Board of the Company as CSXT's representative
pursuant to the terms of the CSXT Agreement (defined below). Mr. Aftoora joined
a predecessor of CSXT in 1966 as an internal audit officer, and he has held a
variety of financial management and planning positions during his 30-year career
with the firm, including director of regulatory economics from 1977 to 1980 and
director of financial planning from 1980 to 1984. He served as CSXT's treasurer
from 1984 to 1995, when he was named to his current position.
MR. BRADSHAW, age 66, has been a Director of the Company since March 1997.
He has extensive experience in the citrus industry in Florida and in the scenic
railroad business in Colorado. He began work in the citrus industry in 1952 and
rose to become General Manager and then President of Hi-Acres, Inc. (a Florida
citrus company) in which latter capacity he continues to serve. In 1981, Mr.
Bradshaw formed The Durango & Silverton Narrow Gauge Railroad Company which
purchased from the Denver and Rio Grande Western Railroad the operation of a
narrow gauge mining railroad, which Mr. Bradshaw converted to a scenic railroad.
He is the Chairman of the Board of Trustees of Lake Highland Preparatory School
(Orlando, FL) and a former member of the Board of Trustees of the Darlington
School (Rome, GA). He is a member of the Board of Directors of the Pine Hills
Office (Orlando, FL) of SunTrust Bank.
MR. MICHAEL, age 52, has been a Director of the Company since September
1996. He has had extensive experience in the railroad and transportation
industries since 1966. In 1996, he became
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<PAGE>
President and Chief Executive Officer of Novoeste Railways, Brazil's first
privatized railroad. In 1995, Mr. Michael formed G.P.M. Associates, a railroad
consulting company. Also during 1995, he served as the railways consultant
specialist for the Bosnia and Hezergovina World Bank Mission. Mr. Michael was
the Vice President of Operations of Southern Pacific Rail Company (Denver, CO)
from 1992 to 1994. Prior to that, he served as Vice President/Chief
Transportation Officer for CSX Transportation, Inc. from 1986 to 1992. Mr.
Michael served as Vice President Labor Relations of Chessie System (a rail
transportation company headquartered in Baltimore, MD) from 1982 to 1986. Mr.
Michael has served on the Board of Directors of several rail companies.
MR. MONTELEONE, age 49, became President, Chief Operating Officer, and a
Director of the Company in July 1996. Most recently (1988-1996) Mr. Monteleone
served as the Vice President of Corporate Development, Planning, Administration,
and Acting Chief Financial Officer of Sensormatic Electronics Company (an
electronics security company). In addition, from May 1988 until January 1995 he
served as a consultant to and board member of various businesses. From 1973
until May 1988, he was a staff accountant and later a partner, and then the
Director of Taxes (three South Florida offices) of Arthur Young & Company, an
international accounting firm. Mr. Monteleone is a Certified Public Accountant
licensed in Florida, as well as other states. He graduated cum laude from the
New York Institute of Technology in 1969, and received his Masters in Business
Administration from Florida Atlantic University (Boca Raton, FL) in 1992. He
serves on the Boards of Directors of Loren Industries, Inc. (a jewelry casting
company), Pointe Financial Company (a federal savings and commercial bank
holding company) and Rexall Sundown, Inc. (a pharmaceutical company).
MR. RADER, age 50, has been a Director of the Company since the Merger, and
prior to that he served in a similar capacity with First American-Florida since
its incorporation. Since 1982, Mr. Rader has been the President and sole
shareholder of Rader Railcar, Inc., Denver, CO, which designs, builds and
operates unique rail cars. He has more than 20 years experience in both the
tourism and railroad industries. From 1970 to 1975, he served as Vice President
and director with Sheraton Hawaii (a subsidiary of ITT-Sheraton Company) and
from 1978 to 1982, he served as Vice President and General Manager of Holland
America (a division of Holland America Line, Inc.). In 1982, he founded Tour
Alaska, a privately-held Alaskan tour company which offered the first private
railcar tour through Alaska.
MR. RUSH, age 76, has been a Director of the Company since the Merger, and
prior to that he served in a similar capacity with First American-Florida since
June 1994. He has extensive experience in the private and public sectors,
principally in the areas of high tech industry, economic development and rail
transportation. Mr. Rush has served as a member and chairman of the Florida High
Speed Rail Commission, and he is also a member of the Tri-County Commuter Rail
Authority. Mr. Rush was formerly Chairman of the National High Tech Council and
is a past member of the Defense Conversion and Transition Commission. Mr. Rush
was the President and Chief Executive Officer of Aptek Technologies, Inc.,
Deerfield Beach, FL, from 1982 to April 1995, and has been President of Rush
Holdings, Inc., in Deerfield Beach since 1958. He has also been President of RTX
Telecom and Electro Data Corp. since 1982.
MR. SALVANESCHI, age 67, has been a Director of the Company since the
Merger, and prior to that he served in a similar capacity with First
American-Florida since June 1994. His career has been in "mass-marketing
service" businesses which are oriented toward consumers' discretionary dollars.
In 1969, he became Vice President/Real Estate Administration of McDonald's
Company, and in that position, he was instrumental in setting national standards
and policies for market development and store locations. In 1971, he was made an
advisory member of McDonald's Board of Directors. From 1983 to 1987, Mr.
Salvaneschi was employed by Kentucky Fried Chicken as senior Vice President. In
January 1988, he joined Blockbuster Entertainment Company as Executive Vice
President of Development, and in June 1988 he became President, Chief Operating
Officer and a Director of Blockbuster. He retired from Blockbuster in February
1991.
* * * *
6
<PAGE>
Pursuant to a financial advisory agreement (described below) with
International Capital Growth, Ltd. (the "Placement Agent"), the Company has
agreed to use its best efforts to cause a designee of the Placement Agent to be
elected to the Company's Board of Directors. In the event that the Placement
Agent does not designate such Director, or if the Placement Agent's designee
shall not be elected or is unavailable to serve if elected, an individual
selected by the Placement Agent shall be permitted to attend all meetings of the
Board of Directors. To date no designee has been named by the Placement Agent to
serve on the Company's Board of Directors. Separately, pursuant to the Agreement
between the Company and CSX Transportation, Inc. dated November 1, 1996 (the
"CSXT Agreement"), Albert B. Aftoora, the designee of CSXT, has been elected to
the Company's Board of Directors.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
MEETINGS-All of the Company's Directors attended more than 75% of the
meetings of the Board of Directors during the fiscal year ended December 31,
1996. There were a total of 8 Board meetings held during such year.
COMPENSATION OF DIRECTORS-Employee Directors of the Company are not
compensated for their services as Directors. In June 1996, the Company
instituted a policy whereby each "non-management" Director would receive a
$5,000 annual retainer along with a per-meeting stipend ($500 for "in person"
and $300 for "telephonic" attendance). In June 1996, the Company agreed to award
each of the-then "non-management" Directors with a one-time grant of stock
options covering 15,000 shares; this grant was made on January 1, 1997 at an
exercise price of $2.375 per share, the-then current market price. Further,
commencing January 1, 1997, each non-management Director receives an annual
stock option grant covering 3,000 shares, all of which options are to be awarded
under a non-qualified stock option plan.
COMMITTEES OF THE BOARD OF DIRECTORS-The Company's Audit Committee consists
of four non- employee Directors: Messrs. Aftoora (Chairman), Michael, Rush and
Salvaneschi. The Audit Committee is responsible for meeting with representatives
of the Company's independent accountants and with representatives of senior
management to review the general scope of the Company's annual audit, matters
relating to internal audit control systems and the fee charged by the
independent accountants. In addition, the Audit Committee is responsible for
reviewing and monitoring the performance of non-audit services by the Company's
independent accountants and for recommending the engagement or discharge of the
Company's independent accountants. The Audit Committee did not meet in 1996.
The Company's Compensation Committee consists of three non-employee
Directors: Messrs. Rader, Rush (Chairman) and Salvaneschi. The Compensation
Committee is responsible for approving and reporting to the Board on the annual
compensation of all officers, including salaries, stock options and stock. The
Compensation Committee is also responsible for the granting of stock awards,
stock options and other awards made under the Company's existing plans. The
Compensation Committee met once in 1996.
The Company does not have a Nominating Committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF
1934-Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and persons who beneficially own more than 10% of
a registered class of the Company's equity securities ("Reporting Persons") to
file certain reports concerning their beneficial ownership of the Company's
equity securities. The Company believes that during fiscal 1996 all Reporting
Persons complied with their Section 16(a) filing obligations, except as follows:
Glenn P. Michael, Pamela S. Petcash and Luigi Salvaneschi each were late in
filing their initial statements of beneficial ownership of securities (Form 3s).
The Company is not aware of any continuing failure to file a required Form, as
all known delinquencies were cured.
7
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets for the position and term of office (with the
Company or its predecessor) of each executive officer of the Company:
<TABLE>
<CAPTION>
EXECUTIVE
NAME POSITION(S) OFFICER SINCE
- ---- ----------- ----------------
<S> <C> <C>
Allen C. Harper Chief Executive Officer February 1994
Raymond Monteleone President and Chief Operating Officer July 1996
William T. Nanovsky Vice President, Secretary, Treasurer and Chief Financial August 1996
Officer
Thomas E. Blayney Vice President of Operations August 1996
Donald P. Cumming Vice President, Controller and Chief Accounting Officer August 1996
Gordon L. Downing Vice President of Marketing and Sales December 1996
Pamela S. Petcash Vice President, Customer Care and Entertainment September 1996
</TABLE>
See information concerning MESSRS. HARPER and MONTELEONE under "Election of
Directors of the Company," above.
MR. NANOVSKY became Vice President, Treasurer and Chief Financial Officer
of the Company in August 1996, and Secretary in October 1996. From 1993 to 1995,
Mr. Nanovsky served as Vice President, Chief Financial Officer and Secretary of
GameTek, Inc. (an interactive entertainment software company). Since his
resignation from GameTek, he has been a consultant within the interactive
software industry focusing on mergers and acquisitions; planning equity
offerings; and restructuring debt facilities. From 1991 to 1993, he served as
Senior Vice President, Chief Financial Officer and Treasurer of Marietta Company
(a unit-of-use packaged goods company). From 1986 to 1991, Mr. Nanovsky was a
member of the Board of Directors, Senior Vice President, Chief Financial Officer
and Secretary of Seneca Foods Company (an international consumer goods company).
MR. BLAYNEY became Vice President of Operations in August 1996. From 1989
to 1995 Mr. Blayney served as Executive Vice President and General Manager of
Southland Greyhound Park (an Arkansas parimutuel attraction). From 1981 to 1988
he was the President of Seminole Greyhound Park in Casselberry, Florida. From
1978 to 1980 Mr. Blayney served as Vice President of Harcar Aluminum Products, a
Florida window manufacturing firm. From 1977 to 1979, Mr. Blayney served as a
Vice President of Marketing for Auto-Train Corporation in Washington, D.C. Mr.
Blayney served as Special Assistant from 1970 to 1976 to Governor Reubin O'D
Askew during two terms as Governor of Florida.
MR. CUMMING became Vice President, Controller and Chief Accounting Officer
of the Company in August 1996. Mr. Cumming served as Division Controller of
Export Sales and Corporate Finance Manager for Sensormatic Electronics Company
(an electronic security corporation) from 1992 to 1996. Prior to that he served
as Staff Auditor-Senior Manager for Ernst & Young (an international accounting
firm) from 1982 to 1992.
MR. DOWNING became Vice President of Marketing and Sales of the Company in
December 1996. Mr. Downing has senior level executive experience in general
management, marketing and sales. His most recent experience was as a consultant
in the areas of manufacturing, home building and trucking for the Tahitian
Government (1995-Present), and before that (1994-1995) he worked in executive
management, consulting and investment banking for Churchill and Associates Inc.,
a financial consulting and management company. Mr. Downing also served as Vice
President of Sales and Marketing for General Rent-A-Car (1991-1993) and for
National Car Rental (1987-1991). Prior to 1987, Mr. Downing held a variety of
executive positions with National Car Rental. Mr. Downing is active in the
American Society of Travel Agents and the National Passenger Traffic
Association.
MISS PETCASH, Vice President, Customer Care and Entertainment, commenced
her employment with the Company in September 1996. Miss Petcash was Cruise
Director and Senior Officer for Princess
8
<PAGE>
Cruises from 1995 to 1996, and Entertainment and Cruise Director for Gold Star
Cruises, LLP from 1994 to 1995. Miss Petcash was affiliated with Kloster Cruises
beginning in 1982 through 1994 working with Norwegian Cruise Line and Royal
Viking Line. She held the position of Cruise Director between 1989 and 1994
onboard various ships operated by Kloster Cruises.
* * * *
Officers are elected by the Board of Directors and their terms of office
are at the discretion of the Board, subject to the Company's obligation to pay
any compensation required under applicable employment agreements. All of the
Company's executive officers except Mr. Harper are full-time employees of the
Company. See "Executive Remuneration-Employment Contracts." There are no family
relationships among any of the officers or Directors of the Company.
EXECUTIVE REMUNERATION
The following table provides information with respect to the compensation
paid to Allen C. Harper, the Chairman of the Board and Chief Executive Officer
of the Company and the named executive officers. There was no executive officer
whose salary was in excess of $100,000 for any period prior to 1996. The Company
did not pay any form of compensation to any officer or Director during 1995 and
1994; however, the Company's predecessor by merger (First American-Florida) paid
salaries for those years (as described below). As a result of the April 1996
merger between First American- Florida and Asia-America Company, a Nevada
corporation, with the latter being the surviving entity, the Company's fiscal
year changed from April 30 to December 31. Therefore, for purposes of the
following table, the year 1995 represents the eight-month period ended December
31, 1995 and the year 1994 represents the twelve-month period ended April 30,
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------------------- ---------------------
(A) (B) (C) (D) (E) (F)
NAME AND OTHER ANNUAL RESTRICTED
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) STOCK AWARD(S)($)
- -------------------------- ------- ------------ ----------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Allen C. Harper, 1996 100,962 - -(1) -
Chairman and CEO 1995 38,461 - - -
1994 79,775 - - -
Raymond Monteleone, 1996 75,000 51,174 -(2) 37,800
President and Chief 1995 - -
Operating Officer 1994 - -
Eugene K. Garfield, 1996 113,956 25,000 50,000 -
President and 1995 55,756
Vice-Chairman(3) 1994 74,789 - - -
Michael Acierno, 1996 99,645 25,000 - -
Vice-President-Financial 1995 41,701 - - -
Relations and Corporate 1994 49,940 - - -
Development
</TABLE>
- ----------------
(1) Commencing September 1996, the Company has agreed to pay a corporate
affiliate of Mr. Harper $5,700 per month to cover Mr. Harper's monthly
expenses, e.g. car, office rental and office expenses.
(2) Mr. Monteleone received a car allowance of $3,000 and earned a retirement
allowance of $5,000 for fiscal 1996.
(3) Effective June 12, 1996, Mr. Garfield resigned as President of the Company
and on November 7, 1996, Mr. Garfield resigned as a Director and
Vice-Chairman of the Board. Mr. Garfield received a severance package which
includes among other things the payment of $50,000, representing the
remaining salary due pursuant to the terms of his employment agreement
through February 16, 1997.
9
<PAGE>
STOCK OPTIONS PLANS
The following table provides information regarding option grants during
fiscal 1996 to Mr. Harper, the Company's Chief Executive Officer, Mr.
Monteleone, the Company's President and Chief Operating Officer, Eugene K.
Garfield, the Company's former President and Vice Chairman, and Michael J.
Acierno, a Vice President of the Company.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
% OF TOTAL
OPTIONS/SARS
NUMBER OF GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE
- ---- ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
Allen C. Harper ......... - - - -
Raymond Monteleone ...... 30,000 28.99 3.50 July 2006
Eugene K. Garfield ...... - - - -
Michael J. Acierno ...... 10,000 9.66 4.4375 October 2006
</TABLE>
No stock options were exercised during the fiscal year ended December 31,
1996.
The following table sets forth certain information regarding unexercised
options held by the above-
named executives.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END(#) AT FY-END($)
NUMBER OF -------------------------------- -------------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allen C. Harper ...... - - - - - -
Raymond Monteleone ... - - 10,000 20,000 - -
Eugene K. Garfield ... - - - - - -
Michael J. Acierno ... - - 3,333 6,667 - -
</TABLE>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
CASH COMPENSATION SECURITY GRANTS
-------------------------------------- -----------------------------
(A) (B) (C) (D) (E) (F)
NUMBER OF
ANNUAL CONSULTING SECURITIES
RETAINER MEETING FEES/OTHER NUMBER OF UNDERLYING
NAME FEES($) FEES($) FEES($) SHARES(#) OPTIONS/SARS(#)
- ---- -------- ------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas G. Rader ......... 5,000 600 - - -
David H. Rush ............ 5,000 800 - - -
Luigi Salvaneschi ......... 5,000 800 - - -
Glenn P. Michael ......... 1,330 300 15,436(2) - 20,000(2)
Albert B. Aftoora(1) ...... - - - - -
</TABLE>
- ----------------
(1) Mr. Aftoora was elected to the Board of Directors in December 1996.
(2) Represents consulting fees paid to GPM Associates prior to Mr. Michael's
election to the Board of Directors.
10
<PAGE>
As of July 1, 1996, the Board of Directors adopted a non-qualified stock
option plan for its employees, officers, Directors and certain consultants (the
"Plan"). The purpose of the Plan is to provide certain Directors, officers and
employees of the Company with a greater personal interest in the success of the
Company and to enhance the ability of the Company to attract and maintain the
services of qualified personnel.
The Plan provides for the issuance of up to 717,500 shares of Common Stock
upon exercise of options which do not qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended. The Plan is administered by the Compensation Committee of the Board of
Directors, which determines, among other things, the persons to be granted
options under the Plan, the number of shares subject to each option and the
option price.
Under the Plan, the exercise price of any stock option may not be less than
the fair market value of the shares subject to the option on the date of grant.
Options are not transferable, except upon the death of the optionee. The term of
each option granted under the Plan and the manner in which it may be exercised
is determined by the Compensation Committee, provided that no option may be
exercisable more than ten years after the date of grant. The terms of the Plan,
including the number of shares covered by the Plan, may be amended by the
Compensation Committee or the Board of Directors from time to time.
Of the 717,500 shares available for issuance under the Plan, at April 7,
1997, options had been granted, which had not expired, with respect to 474,700
shares. The exercise prices of these options, when granted, were equal to the
market value of the shares on the award dates, except for certain stock option
grants made to Mr. Monteleone (in July 1996) and to six consultants, all of
which were at $3.50 per share. Exercise prices for options granted under the
Plan range from $1.906 to $4.75 per share.
EMPLOYMENT CONTRACTS
In February 1994, the Company and Mr. Harper entered into an employment
agreement for a three-year term (which automatically renewed for a one-year term
in February 1997), which provides for a base salary of $125,000 (along with
cost-of-living adjustments based on the appropriate consumer price index). In
addition, the agreement provides for certain standard employment benefits. This
agreement also contains customary non-competition provisions prohibiting
competition with the Company during the term of employment and for two years
thereafter. The agreement with Mr. Harper requires that he devote at least 30
hours per week to Company business. While the Company believes that the extent
of Mr. Harper's efforts will be sufficient, there is no assurance that an
additional time commitment will not prove necessary or that additional
management personnel will not be needed as a result of Mr. Harper's limited
availability.
In addition to his employment agreement, Mr. Harper also receives a
guaranty fee as described elsewhere. See "Liability and Indemnification of
Directors and Officers of the Company," below.
Mr. Monteleone has been employed by the Company to be its President and
Chief Operating Officer, pursuant to an employment agreement dated July 10,
1996, the initial term of which is three years with automatic one-year renewals
(cancelable by either party) thereafter. The agreement provides for an initial
base salary of $150,000 per annum which increased to $175,000 per annum on
January 1, 1997. He received a bonus of $51,174 in December 1996. There will be
a minimum increase in his base salary to $189,000 on January 1, 1998, and
$204,120 on January 1, 1999. In addition, he will receive an annual bonus of at
least $25,000 on January 1, 1998, January 1, 1999 and June 1, 1999. The
agreement also provides for standard life and health care insurance benefits,
which began in January 1997, along with other standard employment benefits.
Pursuant to the agreement, Mr. Monteleone received a stock grant of 10,800
shares, effective July 1, 1996, and he will be granted a minimum of 30,000
non-qualified stock options annually during the three-year employment term and
any subsequent renewal term; the first of these 30,000-share options was granted
on July 1, 1996. Mr. Monteleone receives a $500 per month car allowance, plus an
automobile mileage reimbursement for business travel of $.20 per mile.
11
<PAGE>
During the initial three-year term the Company will fund an individual
retirement plan on behalf of Mr. Monteleone in the aggregate of $35,000.
In addition to these terms, at January 1, 1997, Mr. Monteleone received a
stock award of 25,000 shares and a stock option grant covering 100,000 shares.
The agreement with Mr. Monteleone provides that he may receive, in certain
circumstances, a severance package consisting of twice his current base salary
and all of the stock options which were to be granted to him during the
remaining term of his employment will become fully granted and vested. This
severance package shall be payable upon the termination of the agreement and the
occurrence of any of the following events, (i) "change in control" of the
Company (where more than 50% of the Company's stock is sold to a third party),
(ii) should someone other than Mr. Monteleone or Mr. Harper (the current Chief
Executive Officer) be the Company's Chief Executive Officer, or (iii) should
there be a substantial reduction in Mr. Monteleone's duties under the agreement.
The agreement also contains a non-competition provision which prohibits Mr.
Monteleone from competing with the Company for two years following the
termination of the agreement.
On March 13, 1997, Mr. Monteleone personally guaranteed $5.85 million of
the Company's indebtedness to the seller (Charles E. Bradshaw, Jr.) in
connection with the Company's purchase of The Durango & Silverton Narrow Gauge
Railroad Company ("D&SNG"). In anticipation thereof, on February 26, 1997, the
Board of Directors voted (with Mr. Monteleone abstaining) to modify Mr.
Monteleone's employment agreement to (i) extend the term of the agreement to
match the five-year term of his personal guaranty (subject to certain
performance standards for the extended period which are to be further determined
between Mr. Monteleone and the Company), (ii) increase Mr. Monteleone's
severance package to three times his then-current annualized compensation in
certain circumstances, i.e., in the event of a "change in control" of the
Company and termination of the agreement by the Company, or the material
reduction or change in his duties), (iii) grant additional stock options
covering 100,000 shares, exercisable at $1.906 per share (the then-current
market price). In addition, the Company has agreed to pay Mr. Monteleone an
annual guarantee fee of $20,000 (net of taxes).
Michael J. Acierno presently serves as Vice President-Financial Relations
and Corporate Development. Mr. Acierno entered into a full-time employment
agreement with the Company on July 1, 1994, which was amended on October 15,
1996. This agreement is for a three-year term with annual renewals thereafter,
and it provides for an annual base salary of $75,000 (which was increased to
$100,000 effective June 1, 1996), along with cost-of-living adjustments based on
the appropriate consumer price index. Pursuant to his agreement, Mr. Acierno was
granted a stock option covering 10,000 shares. In addition, the agreement
provides for health care insurance and other standard employment benefits, as
well as a $300 per month car allowance beginning on January 1, 1997. The
agreement also contains customary non-competition provisions prohibiting
competition with the Company during the term of employment and for two years
thereafter.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
Pursuant to the Company's Bylaws, the Company is obligated to indemnify
each of its officers and Directors to the fullest extent permitted by law with
respect to all liability and loss suffered, and reasonable expense incurred, by
such person in any action, suit or proceeding in which such person was or is
made or threatened to be made a party or is otherwise involved by reason of the
fact that such person is or was a Director or officer of the Company. The
Company is also obligated to pay the reasonable expenses of indemnified
Directors or officers in defending such proceedings if the indemnified party
agrees to repay all amounts advanced should it be ultimately determined that
such person is not entitled to indemnification.
The Company maintains a policy of insurance under which the Directors and
officers of the Company are insured, subject to the limits of the policy,
against certain losses arising from claims made
12
<PAGE>
against such Directors and officers, including liabilities under the Securities
Act. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In December 1996, the Board of Directors voted (with Mr. Harper abstaining)
to indemnify Mr. Harper in connection with his agreement to guaranty up to $4.2
million in Company obligations to the Seller of D&SNG. The amount of this
personal guarantee was increased to $10.05 million and delivered at the closing
of the purchase of D&SNG on March 13, 1997. In connection with this guaranty,
the Company also agreed to pay Mr. Harper an annual guarantee fee of $35,000
(net of taxes) for so long as his personal guarantee remains outstanding. In
addition, the Company has agreed to indemnify Mr. Monteleone in connection with
his personal guaranty of certain obligations of the Company as described under
"Executive Remuneration-Employment Contracts," above.
CERTAIN TRANSACTIONS
The Company requires that transactions with affiliates be made on terms
that the Company believes are at least as favorable as those obtainable from
unaffiliated third parties, and such transactions will be approved by a majority
of the independent, disinterested Directors.
1994 PRIVATE OFFERING
In October 1994, the Company completed a private offering of 420,570 shares
of its Common Stock for gross proceeds of $982,000. A total of 26 investors
purchased Common Stock in that private offering which began in July 1994, and
the two largest investors therein were Company Directors Thomas G. Rader
(256,774 shares; $350,000) and Luigi Salvaneschi (146,728 shares; $200,000).
David Rush, one of the Company's Directors, also invested in that private
offering (36,683 shares; $50,000).
ACQUISITION OF RAILCARS
Rader Railcar II, Inc., a Colorado corporation, ("RRI") will be the
Company's primary source of railcars for the Florida Fun-Train. RRI is owned by
Thomas G. Rader, a Director and currently the largest shareholder of the
Company. The Company entered into an agreement with Rader Railcar, Inc., a
Colorado corporation owned by Mr. Rader, as of June 28, 1994, whereby such
company produced the initial railcar for the Company. The total purchase price
was $850,000. Title was transferred to the Company on July 2, 1996. The Company
believes the transaction for the purchase of the railcar was no less favorable
to the Company than a similar transaction conducted with an unaffiliated third
party.
On October 23, 1996 the Company contracted with RRI for the design and
production of up to 11 additional railroad cars all of which will be used for
the Florida Fun-Train. The total cost of this equipment, including applicable
sales taxes, is approximately $8.8 million. Pursuant to the RRI contract the
Company has made payments to RRI of approximately $4.35 million. The RRI
contract provides for the delivery of various railcars over a period of several
months beginning June 1, 1997.
The terms of the transactions between the Company and RRI have been
determined by negotiations between RRI and the Company's disinterested
Directors. Because of Mr. Rader's involvement, there is an inherent conflict of
interest in this process; further, competitive bidding was not used for any of
these railcar purchase agreements. The Company's Board of Directors believes
that the terms of the agreements with RRI for the construction of the Fun-Train
railcars are commercially reasonable.
Mr. Rader and RRI have agreed that for a five-year period they will not,
directly or indirectly, engage in the design, marketing sale or lease of
passenger railcars for the purpose of operating passenger entertainment, tourism
or excursion trains in Florida.
13
<PAGE>
RUSH AGREEMENTS
In June and July 1995, David Rush, a Director and shareholder of the
Company, loaned an aggregate of $125,000 to the Company. The promissory note
associated with this loan provided for simple interest at 18% and the obligation
was personally guaranteed as to collection by Allen C. Harper, the Company's
Chairman of the Board of Directors. At the time of the transaction, the Board of
Directors (with Mr. Rush abstaining) concluded that the interest rate paid on
this loan was reasonable and customary, given the financial condition of the
Company and the current business environment, and that the terms of such loan
were no less favorable than those for a similar transaction with a third party.
The loan was repaid with the proceeds from the 1996 Private Placements.
In December 1996 David Rush agreed to remove from the market a certain
parcel of real property located in Broward County, Florida, while the Company
evaluated such property as a potential headquarters site. Pursuant to an
understanding with Mr. Rush, the Company agreed to pay "carrying costs" mortgage
expense as well as related insurance costs and real property taxes of the
subject property for three and one-half months, which aggregate $32,922,
beginning January 7, 1997.
Separately, the Company has entered into a consulting arrangement with Mr.
Rush whereby the Company will pay him a consulting fee of $1,000 per month (plus
pre-approved travel and entertainment expenses) for consulting services which
include, (i) assisting the Company in obtaining third party financing or other
forms of financial support for the construction of the Florida Fun-Train's
northern terminal on the GOAA property (Greater Orlando), and (ii) monitoring
and facilitating appropriate contacts within the Florida state legislature with
respect to any proposed legislation which may materially affect the Company's
operations in Florida.
PURCHASE OF D&SNG FROM CHARLES E. BRADSHAW, JR.
On March 13, 1997, the Company purchased all of the capital stock of The
Durango & Silverton Narrow Gauge Railroad Company ("D&SNG") from Charles E.
Bradshaw, Jr. In connection with that transaction Mr. Bradshaw became a Director
of the Company. The Company paid Mr. Bradshaw the following: (i) approximately
$5 million in cash; (ii) $10.05 million in seller financing consisting of two
promissory notes: a one-year note (subject to extension as described below) for
$4.2 million which bears annual interest (payable monthly) at the 30-day
commercial paper rate as published by THE WALL STREET JOURNAL plus 650 basis
points per annum; and a five-year note for $5.85 million which bears interest at
an annual rate of 9.25% which increases to 10%; (iii) 200,000 shares of common
stock of the Company; and (iv) a common stock purchase warrant covering
1,610,000 shares exercisable at $3.50 per share. The Company has agreed to
register for resale the 200,000 shares and the 1,610,000 shares underlying the
aforementioned warrant. The term of the $4.2 million note may be extended by the
Company, at its option, for an additional six months upon the occurrence of
certain circumstances; at maturity this note is convertible by the holder
thereof into common stock of the Company at a conversion rate equal to the
then-closing sales price of the Company's common stock (not to exceed $5.00 per
share); at the maturity date, should the noteholder elect to receive cash in
full payment of the $4.2 million note (in lieu of conversion into common stock),
then the Company may extend the maturity date for an additional eighteen months.
The obligations represented by the Notes are secured by a second position on
substantially all of the assets of D&SNG. The purchase price for the acquisition
of D&SNG was determined in arms-length negotiations between the Company and Mr.
Bradshaw.
GARFIELD AGREEMENTS
On November 7, 1996, Eugene K. Garfield resigned as a Director and Vice
Chairman of the Board. On November 11, 1996, the Company negotiated a severance
package with Mr. Garfield which includes, among other things, (i) the payment of
$50,000 to Mr. Garfield which represents the balance of his employment agreement
(which expired February 16, 1997) along with applicable vacation pay, (ii)
mutual releases, and (iii) the modification and continuation of certain
non-disclosure and non- competition provisions of Mr. Garfield's terminated
employment agreement.
14
<PAGE>
During fiscal 1995, the Company leased approximately 250 square feet of
office space from Mr. Garfield for a total annual rental of $6,500.
ITEM 3-APPROVAL OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected BDO Seidman, LLP as its independent
accountants to audit the consolidated financial statements of the Company for
the fiscal year ending December 31, 1997. This selection is being submitted for
approval by shareholders at the Annual Meeting. Representatives of BDO Seidman,
LLP will be at the Annual Meeting and will be afforded the opportunity to make a
statement if they desire to do so and to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares voted is
required for the approval of the foregoing proposal. The holders of the enclosed
proxy will vote to ratify the action of the Board of Directors, unless otherwise
directed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS ITEM 3.
OTHER MATTERS
The Board of Directors is not aware of any other business that may come
before the meeting. However, if additional matters properly come before the
meeting, proxies will be voted at the discretion of the proxy holders.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the Company's 1998 Annual
Meeting of Shareholders must be received by the Company not later than December
1, 1997, at its principal executive offices, 3700 North 29th Avenue, Suite 202,
Hollywood, Florida 33020, Attention: Secretary, for inclusion in the Proxy
Statement and proxy relating to the 1998 Annual Meeting of Shareholders.
ADDITIONAL INFORMATION
Accompanying this Proxy Statement is a copy of the Company's annual report.
A copy of the Company's Annual Report on Form 10-KSB may be obtained from the
Company upon written request.
BY ORDER OF THE BOARD OF DIRECTORS
Allen C. Harper,
Chairman of the Board of Directors
and Chief Executive Officer
May 5, 1997
Hollywood, Florida
15
<PAGE>
EXHIBIT "A"
ARTICLE IX
(a) The number of directors constituting the whole Board shall be as fixed
from time to time by vote of a majority of the whole Board; provided, however,
that the number of directors shall not be less than three and that number shall
not be reduced so as to shorten the term of any director at the time in office.
The number of directors constituting the whole Board shall not be greater than
nine until otherwise fixed by a majority of the whole Board in accordance with
the preceding sentence.
(b) The Board shall be divided into three classes, designated Class I,
Class II and Class III, as nearly equal in number as the then total number of
directors constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of shareholders in 1997,
directors of Class I shall be elected to hold office for a term expiring at the
next succeeding annual meeting, directors of Class II shall be elected to hold
office for a term expiring at the second succeeding annual meeting, and
directors of Class III shall be elected to hold office for a term expiring at
the third succeeding annual meeting. At each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting. Any vacancies in the Board of Directors for any reason, and any
increase in the directors, may be filled by the Board of Directors, acting by a
majority of the directors then in office, or by a sole remaining director. Any
directors so chosen shall hold office until the next election of the class for
which such directors shall have been chosen and until their successors shall be
elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any newly created or
eliminated directorships resulting from an increase or decrease in the
authorized number of directors shall be apportioned by the Board of Directors
among the three classes of directors so as to maintain such classes as nearly
equal as possible.
A-1
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
3700 NORTH 29TH AVENUE, SUITE 202
HOLLYWOOD, FLORIDA 33020
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 7, 1997
The undersigned shareholder of FIRST AMERICAN RAILWAYS, INC. (the
"Company") hereby appoints Messrs. Allen C. Harper and Raymond Monteleone, and
each of them, true and lawful proxy or proxies, with full power of substitution
in each, for and in the name of the undersigned to vote all shares of common
stock, $.001 par value, of the Company outstanding in the name of the
undersigned at the Annual Meeting of Shareholders of the Company to be held at
the Red Lion Hotel, 501 Camino Del Rio, Durango, Colorado 81301 on June 7, 1997,
at 9:00 A.M., local time, and at any and all adjournments thereof, with all the
powers the undersigned would possess if personally present, hereby revoking all
previous proxies. This proxy is revocable. The undersigned reserves the right to
attend and vote in person. The undersigned hereby acknowledges receipt of the
Notice of Meeting of Shareholders dated May 5, 1997, the Proxy Statement
accompanying the Notice, and the Company's Annual Report for the fiscal year
ended December 31, 1996.
Said proxies are directed to vote as indicated in the following proposals:
1. Amendment to the Articles of Incorporation to provide for a Classified Board
of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of Directors of the Company:
(i) Election of Class I Directors: Nominees: Charles E. Bradshaw, Jr. and
Thomas G. Rader
(ii) Election of Class II Directors: Nominees: Albert B. Aftoora, Allen C.
Harper and Glenn P. Michael
(iii) Election of Class III Directors: Nominees: Raymond Monteleone, David
H. Rush and Luigi Salvaneschi
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote for all
nominees listed above
[ ] FOR all nominees listed above EXCEPT that authority is withheld to vote for
any nominee(s) whose name(s) is (are) written on the line immediately below:
------------------------------------------------------------------ -
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
3. To ratify the appointment of BDO Seidman, LLP as the Company's Independent
Accountants for the year ending December 31, 1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To vote with discretionary authority upon any other matters which may
properly come before the meeting or any adjournment thereof.
Each shareholder should specify by a mark in the appropriate box above how
they wish their shares voted. Shares will be voted as specified. IF NO
SPECIFICATION IS MADE ABOVE, SHARES WILL BE VOTED FOR ITEMS 1, 2 AND 3 ABOVE.
Please date, sign and promptly return this proxy in the reply envelope; in
addition, please check the box below if you are planning to attend the meeting
in person.
[ ] I am planning to attend the Annual Meeting in person.
Dated:________________________________________, 1997
_____________________________________________________
_____________________________________________________
Signature(s) of Shareholder(s)
(Please sign exactly as name appears hereon. If the
stock is registered in the names of two or more
persons, each should sign. Executors, administrators,
guardians, attorneys and corporate officers should
include their titles.)
