UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 33-14751-D
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FIRST AMERICAN RAILWAYS, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEVADA 87-0443800
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3700 NORTH 29TH AVENUE, SUITE 202, HOLLYWOOD, FLORIDA 33020
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (954) 920-0606
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SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to
Items 405 of Regulation S-B in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended December 31, 1996, its most
recent fiscal year, were $ -0- .
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The aggregate market value of the voting stock held by non-affiliates
computed using $2.0625 per share, the closing price of the Common Stock on March
5, 1997, was approximately $12,377,706.
As of March 20, 1997, 9,355,778 shares of the issuer's common stock
were issued and outstanding.
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PART I
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ITEM 1
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DESCRIPTION OF BUSINESS
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OVERVIEW
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). The Company is currently
pursuing its strategy of becoming the recognized leader in providing innovative,
quality entertainment passenger rail service through the development of "Fun
Trains" and the acquisition of "Scenic Destination Railroads." The Company is
currently developing its first Fun Train, an entertainment-based train operating
between two tourist destinations. This train, the Florida Fun-Train, is
anticipated to commence operations in the fall of 1997 and operate between South
and Central Florida. In March 1997 the Company acquired its first "Scenic
Destination Railroad," - the Durango & Silverton Narrow Gauge Railroad (the
"Railroad").
The Florida Fun-Train concept is to provide an enjoyable, high quality
entertainment alternative to other means of transportation between South and
Central Florida. The Company's goal is to maximize the entertainment value of
the travel time while providing an efficient, safe and reliable form of
transportation at a reasonable price.
The Florida Fun-Train is being designed to provide passengers with an
exciting, unique, fun-filled overland leisure excursion. The Company expects
that this will be accomplished through the use of a variety of entertainment
features, including video games, as well as dining, dancing and lounge cars
offering a variety of live entertainment. The Company expects that most of its
passengers will be tourists, and that the Company's service will be offered as
an "extension" of the passenger's vacation.
Over the last several years Florida has had an annual tourist base of
approximately 40 million tourists. Florida attracts tourists from across the
world and was the top tourist destination in the United States in 1995. South
Florida, including the Florida Keys, offers a number of well-known tourist
destinations and a climate that allows year-round outdoor activities, and is
also a key entry point into the state for cruise ships entering and leaving the
Port of Miami and Port Everglades (Fort Lauderdale), as well as tourists
utilizing Miami International and Hollywood-Fort Lauderdale Airports. Central
Florida (Greater Orlando) plays host to world renowned tourist destinations such
as Universal Studios
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Florida, Walt Disney World, Sea World, Kennedy Space Center and Port Canaveral.
In 1994, approximately 14 million people traveled between South and Central
Florida.
The Company is actively pursuing its strategy of acquiring scenic
railroads. On March 13, 1997, the Company purchased all of the capital stock of
The Durango & Silverton Narrow Gauge Railroad Company, a Colorado corporation
("D&SNG"), a privately-held, scenic railroad, from Charles E. Bradshaw, Jr. (the
"Durango Acquisition").
D&SNG operates an antique, narrow gauge tourist railroad over a 45-mile
route between Durango and Silverton, Colorado along the Animas River. D&SNG
provides a scenic railroad excursion which is unique within the industry, and it
has been operated principally as a tourist railroad since 1968. The railroad was
built between 1881 and 1882 by the Denver & Rio Grande Railway Company to
service the mining regions of the San Juan Mountains in southwestern Colorado.
The coal-fired, steam-driven locomotives were manufactured between 1923 and
1925, and the coaches, many of which are original, are of 1880s vintage. The
railroad is a registered National Historic Landmark and has exclusive rights for
passage through the San Juan National Forest. D&SNG's operations are seasonal
with peak months in June, July and August, and with up to four daily trains
except during the winter. The 90-mile round trip takes nine hours including a
two-hour layover in Silverton. From November through April, one train is
operated daily from Durango to Cascade Canyon (a 52-mile round trip of
approximately five hours). See "Plan of Operations."
During 1996, the Company was in its development stage, and during
fiscal 1996 it had no material operations; however, the Company has taken
significant steps to commence operations of the Florida Fun-Train. Further, the
acquisition of D&SNG will provide revenues and cash flow to the Company prior to
the operation of the Florida Fun-Train. The Company anticipates constructing
additional Fun Trains in the future and acquiring additional Scenic Railroads.
See "Business -- Florida Fun-Train." The Company's ability to meet its planned
commencement date (Fall 1997) depends on, among other things, successful and
prompt completion of the Company's pre-opening development activities.
Presently, the Company believes it has or will have access to sufficient funds
to commence operations of the Florida Fun-Train. See "Plan of Operations."
The Company maintains offices at 3700 North 29th Avenue, Hollywood,
Florida 33020. Its telephone number is (954) 920-0606.
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THE DURANGO & SILVERTON NARROW
GAUGE RAILROAD COMPANY
D&SNG operates a historic railroad (the "Railroad") which was built
between 1881-82 by the Denver & Rio Grande Railway Company, and is now owned by
D&SNG. The Railroad is a registered National Historic Landmark and has been
carrying passengers for more than 114 years. The Railroad operates between
Durango and Silverton, Colorado, a 90-mile round trip, which takes approximately
nine hours. The Railroad is located entirely within the State of Colorado, near
the "Four Corners" region of the United States (where the borders of Colorado,
Utah, New Mexico and Arizona come together).
The steam-operated locomotives used to pull the trains are coal-fired.
These antique locomotives were manufactured between 1923 and 1925. In addition,
many of the coaches used by the Railroad are the original coaches dating back to
the 1880s.
The Railroad has combined strict adherence to historical authenticity
and exacting standards of replication to provide a historically authentic
railroad service. Because of its historic authenticity, the Railroad has been
used as the location for the shooting of several films, including BUTCH CASSIDY
AND THE SUNDANCE KID.
The Railroad operates as a tourist railroad, carrying tourists on an
unparalleled scenic and historic excursion along the Animas River and through
the San Juan National Forest. D&SNG's business is seasonal in nature with the
peak season being in the months of June, July and August when D&SNG operates
four trains daily. In 1995, D&SNG resumed year-round operations, offering one
train during the months of November through April (the "Winter Train"). The
Winter Train consists of a 52-mile round trip to Cascade Canyon (approximately
halfway between Durango and Silverton).
The operating rolling stock of D&SNG consists of six 1920s vintage
steam locomotives, 45 passenger coaches (enclosed, open gondola and parlor
cars), and one caboose. In addition to such rolling stock used in the passenger
consists, the D&SNG owns approximately 175 additional flat cars, box cars, side
dump and hopper cars, stock cars, cabooses, maintenance equipment, etc. for use
on the line for maintenance, storage or other purposes.
The locomotives and cars are maintained at company-owned facilities
located in a state-of-the-art roundhouse and car shop. Both shops are capable of
totally rebuilding a locomotive or car. In 1989, the roundhouse was rebuilt
after a fire destroyed the building; it has 15 stalls which can house all the
locomotives. Attached to the roundhouse is a fully equipped machine shop which
can fabricate any locomotive part.
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PROPERTIES
The real property used by D&SNG consists of approximately 975 acres and
includes two terminals. Of the total acreage, D&SNG uses approximately 735 acres
pursuant to easements and rights-of-way, and the remainder is held in fee simple
ownership. One terminal is in Durango (La Plata County), Colorado, and is
located on approximately 40 acres of D&SNG-owned land, along with other
improvements, including various buildings and a parking lot. The second terminal
is in Silverton (San Juan County), Colorado, where D&SNG owns approximately 50
acres of land including the depot. The D&SNG terminals are connected by an
approximate 45-mile railroad right-of-way, which ranges between 100 to 200 feet
in width, approximately 30 miles of which are located on public lands within the
San Juan National Forest. The right-of-way has railroad track and various other
improvements located thereon.
The real estate improvements consist primarily of the following
buildings:
SQUARE
DESCRIPTION FOOTAGE
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Depot (Durango) 4,952
Roundhouse (Durango) 39,089
Car Shops (Durango) 9,956
Security Building (Durango) 207
Freight Depot (Durango) 2,684
Warehouse (Durango) 2,232
Garage (Rockwood) 1,100
Depot (Silverton) 2,480
In addition, the D&SNG owns other small buildings that are used for
miscellaneous storage. The condition of all of the buildings listed above would
be categorized as average to good. The administrative offices of D&SNG occupy
the second floor of the depot at Durango and are believed to be adequate for the
present operation of D&SNG.
PRODUCTS AND SERVICES
D&SNG offers a variety of train excursions to its customers with
different departure times. Covering a total of 90 miles, the round trip from
Durango to Silverton is by far the most popular expedition and takes
approximately nine hours to complete. During the peak season, D&SNG offers four
round-trip trains, with departure times ranging from 7:30 AM to 10:10 AM. During
the winter, D&SNG offers a five-hour excursion from Durango to Cascade Canyon
which is a 52-mile round-trip.
D&SNG also offers one-way trips, with return from Silverton via motor
coach. Additionally, any round-trip (with the exception of the parlor car) can
consist of a layover in Silverton for up to
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15 days. To accommodate hikers desiring transportation, D&SNG offers trains that
stop at several popular hiking trails.
Passengers may choose to ride in enclosed coaches, open gondola cars,
authentic parlor cars or the caboose with round-trip prices ranging from
approximately $43 to approximately $75.
Refreshments and snacks are available on all trains with the parlor
cars offering a full bar.
MARKETING
D&SNG's principal source of ticket sales is the consumer- direct market
which is served by its Durango-based reservation office. Approximately 86% of
D&SNG's business passengers come from the direct "sales" to consumers, with the
balance handled through travel agents and group tours. The Company compensates
travel agents through the use of commissions. Historically, the operations of
D&SNG have been the subject of limited marketing efforts. The great majority of
D&SNG's passengers come from "word- of-mouth" as well as other "indirect" forms
of contact with the public, e.g., billboards and newsprint articles. According
to a 1994 passenger survey, commissioned by D&SNG, the five major states of
origin of D&SNG passengers were Colorado, Texas, California, Arizona and New
Mexico, which account for nearly 60% of D&SNG's passenger totals.
D&SNG currently markets its services on a regional basis. Marketing
efforts consist principally of advertising in regional and local travel
publications, as well as the limited use of billboards, directories and
advertising on local radio programs. In addition, D&SNG is the subject of
repeated, unsolicited articles which appear in local and national newspapers and
magazines. A promotional brochure describing D&SNG's program and services is
used to promote ridership. The brochure is distributed by a third-party service
to brochure "racks" located in hotels, restaurants, airports and other
tourist-related sites in selected cities that have been good "feeder markets"
for D&SNG ridership.
In an attempt to broaden the passenger base in the future, D&SNG
intends to concentrate its marketing efforts on the broad-based, travel-related
industry. The Company expects to establish relationships, in coordination with
the Florida Fun-Train's marketing efforts, in international and domestic areas
through direct contact with distributors and general sales agents having
knowledge and experience in the development of contractual arrangements.
EMPLOYEES
D&SNG employs approximately 65 people in the off-season (November-
April), and more than 200 people during the peak season
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(June-August). Seasonal employees are added during the peak season primarily in
the concession, operations and reservation departments. The full-time staff is
concentrated in the administrative and maintenance departments where turnover is
very low. The D&SNG has no labor unions and management believes that the
company's relationship with its employees is satisfactory.
THE FLORIDA FUN-TRAIN
The Company's predecessor by merger, First American-Florida, was
specifically organized in February 1994 by persons who have experience in the
passenger rail and tourism industries in order to offer a unique passenger train
service in the Florida tourist market. The Company intends to capitalize upon
the Florida tourist base by developing and operating an entertainment-based
passenger rail service, the "Florida Fun-Train", between South and Central
Florida.
Florida attracts tourists from across the world and was the top tourist
destination in the United States in 1995. Over the last several years Florida
has had an annual tourist base of approximately 40 million persons. South
Florida not only contains a number of well-known tourist destinations, but is
also a key entry point into the state for cruise ships entering and leaving the
Port of Miami and Port Everglades (Fort Lauderdale), as well as tourists
utilizing Miami International and Hollywood-Fort Lauderdale Airports. Central
Florida (Greater Orlando) plays host to world renowned tourist destinations such
as Universal Studios Florida, Walt Disney World, Sea World, Kennedy Space Center
and Port Canaveral. In 1994, approximately 14 million people traveled between
South and Central Florida.
The Fun-Train concept is to provide an enjoyable, high-quality
entertainment alternative to other means of transportation between South and
Central Florida. The Company's goal is to maximize the entertainment value of
the travel time while providing an efficient, safe and reliable form of
transportation at a reasonable price. The Florida Fun-Train is being designed to
provide passengers with a unique overland leisure excursion and the Company
expects to accomplish this through the use of various entertainment features,
including "virtual reality" and a variety of "high-tech" video games, as well as
dining, dancing and lounge cars offering a variety of live entertainment. It is
anticipated that the exterior of the Florida Fun-Train will be designed to have
the appearance of a colorful, ultra-modern train. The train's colors will be
vibrant unlike the typical passenger train in the United States. The Company
intends to provide a high level of service ("customer care") in order to
accommodate its passengers; to facilitate this the Company has hired an employee
(vice president) who is specifically charged with these duties.
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The Company expects that most of its passengers will be tourists, and
that the Company's service will be offered as an "extension" of the passenger's
vacation. As such, management of the Company believes it will be able to capture
both a portion of the tourist market intent on travelling between South and
Central Florida while also encouraging travel on the Florida Fun-Train by
tourists and residents who would not otherwise make the trip. Currently, travel
is made between South and Central Florida primarily by either automobile or
airplane. The Company believes the Florida Fun-Train will generally offer price
advantages to travelling by airplane. Travelling by automobile or airplane does
not offer the entertainment value provided on the Florida Fun-Train.
The Company has taken significant steps to commence the operation of
the Florida Fun-Train. In that regard, the Company has: purchased its first
passenger car; entered into an agreement with Rader Railcar II, Inc. ("RRI") to
manufacture the remaining railcars for the Florida Fun-Train; entered into an
agreement with CSX Transportation, Inc. ("CSXT") for track use; entered into an
agreement with the Florida Department of Transportation ("FDOT") for certain
track usage in South Florida ; selected a prospective terminal site on the
Orlando International Airport property and entered into a letter of intent with
the Greater Orlando Aviation Authority ("GOAA") and is currently negotiating
with the Orlando Utilities Commission ("OUC") in connection with that site and
for the rights to use OUC tracks leading into the proposed site in the Greater
Orlando area; is finalizing negotiations with National Railroad Passenger
Corporation ("Amtrak") for certain technical services in connection with the
Florida Fun-Train; has received a market study by an outside consultant; entered
into an agreement with Universal Studios for joint marketing and sales efforts
in connection with Florida Fun-Train services; and entered into a track rights
agreement with Florida East Coast Railway Company ("FEC") for future use.
FLORIDA FUN-TRAIN EQUIPMENT AND TRACK RIGHTS
The Company plans to commence operations of the Florida Fun-Train
during the Fall 1997.
8 Dome Passenger Cars Each car will provide comfortable,
spacious seating and meal service
for approximately 75 passengers
(which includes the initial
prototype car already owned by the
Company).
4 Bilevel Entertain-
ment Cars* These cars will consist of (i) one
"tropical-themed bar/lounge car"
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which will sell cocktails,
beverages and high-end
appetizers and offer live
entertainment including
music for listening and/or
dancing (to be provided by
musicians or a disc
jockey), (ii) one "video
game and kidzone car" which
will offer a variety of
high-tech video games and
virtual reality, as well as
a separate children's play
area (including a roving,
close-up magician and/or
clowns, etc.), (iii) one
multi-media car which will
include a custom designed,
audio-visual presentation
(the waiting area will have
a concession and video
facilities) and (iv) one
"lounge car" to include an
ice cream/pizza parlor, a
gift shop, photo area, wine
bar and pub and lounge
area.
1 Baggage Car This car will provide storage space
for the passengers' luggage.
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* The Fun-Train's operation will commence with less than eight
passenger cars and/or less than four entertainment cars.
The Company intends to have all of these railcars (except the baggage
car which may be leased) constructed by Rader Railcar II, Inc.
In addition, each Fun-Train intends to utilize three leased diesel
locomotives, which will be repainted and may be remodeled to give the appearance
of a sleek, high-speed locomotive. It is currently contemplated that one
locomotive will be positioned on each end of the train, allowing the train to be
operated in either direction without the need to turn the train around.
The Company plans to initially operate the Florida Fun-Train between
Fort Lauderdale and Orlando on currently existing FDOT and CSXT tracks.
The tracks between Ft. Lauderdale and West Palm Beach which comprise
part of the proposed route of the Florida Fun-Train are controlled by FDOT. The
Company has entered into an agreement dated January 6, 1997 (the "FDOT
Agreement"), with FDOT to obtain the use of this track. Pursuant to the FDOT
Agreement, the Company will have access to and the use of that portion of the
track between mile marker ("MM") 1034 located in Hialeah, Florida, and MM
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965 located in West Palm Beach, Florida. In addition, the parties have agreed in
principle (subject to further negotiation) to allow the Company the use of the
Hialeah railroad maintenance facility and the Broward Boulevard Station (MM
1012.2) to be used as the southern terminal for the Florida Fun-Train. The FDOT
Agreement is for a five-year term beginning upon the commencement of the Florida
Fun-Train operations. The Company is required to pay the FDOT $500 for each
one-way trip over the foregoing route which amount increases by $50 after each
anniversary of the FDOT Agreement. Compensation for access to the Hialeah
railroad maintenance facility and the Broward Boulevard Station is still to be
negotiated by the parties.
Pursuant to the FDOT Agreement, the Company has agreed to waive certain
future claims, if any, against FDOT for losses or costs arising out of the use
of FDOT's track, including those arising from the negligence or omissions of the
FDOT. Further, the Company has agreed to indemnify FDOT from third-party claims,
including but not limited to, personal injury claims, made against FDOT and
arising from the Company's operations pursuant to the FDOT Agreement. The
Company has also agreed to maintain at least $125 million in comprehensive
general liability insurance with a $100,000 deductible (or self-insurance
amount).
The FDOT Agreement may be terminated if (i) the Florida Fun- Train does
not commence operations within two years from the date of the FDOT Agreement,
(ii) the Company's operations are suspended for more than 90 days, (iii) there
are more than ten independent suspensions in such operations, (iv) there is a
material violation in the Company's obligations under the FDOT Agreement which
is not cured upon 45 days' written notice, and (v) future high-speed rail
operations are such that the route cannot be shared (in the FDOT's sole opinion,
but with three year's notice to the Company).
The CSXT Agreement dated October 31, 1996, provides for the use of
CSXT's tracks between West Palm Beach and Orlando to be used for the operation
of the Florida Fun-Train. The CSXT provides, in part, that the Company will
initially pay CSXT the greater of $20 per train-mile, or 16% of the Company's
gross ticket revenue (less discounts) from the Florida Fun-Train operations. The
Company's payment requirements under the CSXT Agreement are as follows: the per
train-mile amount is subject to various increases for inflation and other price
adjustments including, (i) an annual increase, beginning January 1, 1999, in the
per train-mile charge equal to the inflation index of the Association of
American Railroads, (ii) a $50,000 per month reduction for the aggregate
train-mile charge in 1997, 1998 and 1999, and (iii) a $2.20 increase in the per
train-mile charge along with a limit in certain circumstances on the total
annual compensation to CSXT beginning in the year 2000 and thereafter. In
addition, the Company is required to maintain at least $300 million in
comprehensive general liability insurance with a $100,000 deductible (or
self-insurance).
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Pursuant to the CSXT Agreement, CSXT has agreed not to grant similar
access rights to the subject rail corridor (between West Palm Beach and Orlando)
to any other private rail passenger operator or contractor which would provide
comparable conventional rail passenger service for the cruise ship market. The
exclusivity provision specifically excepts the provision of access to the
subject CSXT route by Amtrak and the Tri-County Commuter Rail Authority, as well
as other publicly-funded authorities with statutory and/or contractual rights
with respect thereto. The exclusivity also does not apply to high-speed rail
activities. In addition, the exclusivity clause will be voidable at CSXT's
option if (i) after the first year of operation, the Company does not operate at
least 16 Florida Fun-Trains a week, or (ii) management of the Company changes
significantly. The term of the agreement will be five years. In addition to the
foregoing, the Company has agreed to sell up to 475,000 warrants to CSXT,
exercisable at $4.50 per warrant with the initial installment of 75,000 warrants
being exercisable upon the commencement of operations of the Florida Fun-Train
and thereafter in four equal annual installments of 100,000 warrants each
commencing January 1, 1998; no provision has been made herein for the effect of
the issuance or exercise of these warrants when and if issued. Pursuant to the
CSXT Agreement, the Company has appointed a CSXT representative, Albert B.
Aftoora, to its Board of Directors.
The track rights agreements that the Company has or is expected to have
with track owners, will require the substantial amounts of general comprehensive
liability insurance (up to $300 million in coverage). The Company has received
proposals from various insurance brokers to assist it in obtaining the coverage.
In this regard, the Company has selected an internationally- recognized
insurance brokerage firm which has advised the Company that this type and amount
of insurance is generally available, at reasonable rates, and it believes the
Company will be able to secure a commitment for such insurance prior to the
commencement of the Florida Fun-Train's operations.
The initial terminal locations are planned to be in Fort Lauderdale
(which is located in the center of the metropolitan area comprising Dade,
Broward and Palm Beach Counties) and in the Greater Orlando area, the home of
Walt Disney World, Universal Studios Florida, Sea World and numerous other
attractions.
As part of the FDOT Agreement, the Company and the FDOT have agreed in
principle to negotiate a formal agreement to provide for the Company's use of an
existing railroad terminal (which is currently used by Tri-Rail and Amtrak)
located on a rail corridor in Broward County and which is proximate to the
intersection of I-95 and Broward Boulevard. This site will serve as the southern
terminal for the Florida Fun-Train. The Company is also negotiating with
Tri-Rail for the right to use various sidings along this section of the route,
including those near the aforementioned
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terminal site and with Amtrak for the use of the rail maintenance facility in
Hialeah, FL. The proposed northern terminal location is on Orlando International
Airport property controlled by GOAA and OUC. The Company has commenced
negotiations with OUC and GOAA in this regard. OUC has advised the Company that
it may construct a rail terminal and platform on its main line near Boggy Creek
Road (which is proximate to the Orlando International Airport), and for the
rights to use OUC tracks leading to the proposed site. Further, the Company is
negotiating with OUC for rights to temporarily "store" the Florida Fun-Train on
this property. Although the Company is attempting to obtain funding for the
northern terminal from state and/or local governments, final terms regarding the
construction of these facilities have not been negotiated, and there can be no
assurance that any such negotiations will be successful.
The estimated travel time for the Florida Fun-Train between Central
Florida and South Florida is just in excess of four hours. To serve the general
domestic and international tourist market, the Company plans to offer daily
weekday service origination in South Florida in the morning and in Central
Florida in the afternoon. To serve the South Florida weekend cruise market (Port
Everglades and Port of Miami) the Company plans to offer special inbound and
outbound service for cruise passengers.
The Company is currently negotiating with Amtrak for the provision of
technical services by the latter in connection with the operation of the Florida
Fun-Train. These technical services may include the provision of train and
engine crews, maintenance of equipment, fuel and leasing of locomotives and a
baggage car. The Company expects to reach an agreement with Amtrak in this
regard in the near future. As part of these negotiations, the Company has
requested Amtrak's consent to the Company's use of the CSXT track, as required
by the CSXT Agreement.
MARKET
The Florida Fun-Train's principal market is approximately 40 million
persons who visit Florida each year. The Company also intends to rely for
passengers on the more than 1.4 million residents of the Central Florida
(principally the Greater Orlando metropolitan area) and the more than 3.3
million residents of the South Florida (Miami/Ft. Lauderdale) metropolitan area,
as well as on the rest of the more than 13.4 million residents of Florida.
According to a recent study, Florida's population and tourist base are expected
to continue to grow significantly during the next decade; however, the rates of
growth are expected to slow some during the 1990's, the growth in portions of
Florida's tourism industry slowed, with some areas and attractions experiencing
declines. According to the same study, in 1994 approximately 14 million persons
traveled between Central and South Florida. Of these trips, 55% were for
tourism/recreation, 24% were for
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family/personal reasons, and 21% were for business. SOURCE: "1994 Florida
Visitor Study," Florida Department of Commerce, Bureau of Economic Analysis,
Tallahassee, FL (1995).
From 1980 to 1995 the number of annual visitors to Florida increased by
105%, from 20 million to 41.3 million. According to the Florida Department of
Transportation, approximately half of these visitors arrived without an
automobile. From 1980 to 1995, the resident population of Florida increased from
9.7 million to 14.4 million, a 49% increase. During that period, the population
of Central Florida increased by 75%, from 800,000 to 1.4 million, and the South
Florida population grew from 2.6 million to 3.5 million, a 35% increase. SOURCE:
Florida Department of Commerce, Division of Economic Development, Bureau of
Economic Analysis. The recent slowdown has been attributed, in part, to
highly-publicized criminal attacks on tourists, and increasing competition from
other tourist destinations in the U.S. and the Caribbean region as well as
economic problems in some of Florida's overseas tourism markets.
The Company's planned operations may be materially adversely affected
by declining growth or an absolute decline in the number of tourists visiting
Florida; however, the Company believes that, by offering a unique and safe
tourist attraction and service, it can attract the passenger base needed for
profitability, notwithstanding possible adverse trends in the growth of the
Florida tourist market as a whole.
Given the status of both Central Florida and South Florida as major
tourist destinations, as well as the size of the underlying metropolitan areas,
the Company sees great potential in the market for transportation between the
two areas. The Company plans to target the tourists and residents already
traveling between the two destinations, but it also plans to stimulate, through
a marketing effort, travel between the areas to be serviced by the Florida
Fun-Train by persons who otherwise would not have made the trip. By providing a
convenient, entertaining and reasonably priced service between South Florida and
Central Florida, the Company's Fun-Train will be marketed as an inducement to
South Florida visitors and residents to travel to Central Florida, and vice
versa. Given the significant size of the potential market, the Company believes
that it needs to capture only a small portion in order to be successful.
According to the 1995 Department of Commerce Study, the greater Orlando
area was the fastest growing metropolitan statistical area in Florida in the
early 1990's. The greater Orlando area added nearly 172,000 residents between
1990 and 1995 for an estimated population of 1.4 million. The Orlando area's
rate of growth during this period was 2.5 times the United States average.
Approximately 22.5 million passengers enplaned and deplaned at the
Orlando International Airport in 1994, up from approximately
13
<PAGE>
22.4 million in 1993 and 21.5 million in 1992. Of these passengers,
approximately 11% were international visitors, primarily from Europe, Canada
and, to a lesser extent, Latin America.
Central Florida is filled with a number of attractions including Walt
Disney World's Magic Kingdom, Epcot Center, Disney-MGM Studios, Universal
Studios (Florida), Sea World of Florida, as well as Church Street Station,
Seminole Greyhound Park (Turf Club) and Splendid China.
Walt Disney World (and its related attractions) is one of the dominant
components of the Central Florida economy; the relative influence of the Disney
attractions has lessened with the significant development of other major tourist
facilities. Walt Disney World's 1995 attendance was approximately 35.3 million,
which was an amount over four times that for Central Florida's next most popular
attraction (Universal Studios).
One of the fastest growing components of the Central Florida economy is
the convention industry. Orlando is one of the largest convention markets (in
terms of number of delegates) in the United States. Reasons cited for the
increasing popularity of Orlando as a location for conventions and conferences
include the continuing development of area attractions, the addition of hotel
rooms, and the increased availability of transportation.
The Miami/Fort Lauderdale metropolitan area contains approximately 3.3
million residents and is also a major tourist destination, with numerous
attractions, two major cruise ports, four major-league professional sports teams
and miles of beaches. The area attracts millions of domestic and international
visitors each year, who come for tourism, shopping, business and family visits.
Miami is the financial and trade capital of Latin America, and Miami Beach,
famous for its night life, is internationally known as a center for the fashion,
music and movie industries. Fort Lauderdale, Miami and Miami Beach are also
major convention destinations. Miami International Airport is the primary travel
connection linking the Americas, the Caribbean, Europe and Africa. Served by
approximately 135 airlines, more than any other airport in the world, Miami
International Airport logs approximately 1,400 daily departures and arrivals. In
1995, over 33.5 million (14.5 million international) passengers flew to or from
Miami.
South Florida has expanded from its traditional role as a wintertime
destination for North Americans to become a year-round destination for domestic
and international visitors. South Americans now comprise 35% of annual
international visitors, European visitors make up 27% of the annual total,
visitors from Central America and the Caribbean account for 23%, and North
Americans account for 15%.
14
<PAGE>
The Port of Miami is the home port to a world-leading fleet of 17
luxury cruise ships, including five of the world's largest passenger ships,
which are expressly outfitted for pleasure cruise vacations. The Port of Miami
handles approximately 3.2 million passengers per year from its 12 passenger
terminals - more than any other cruise port.
Port Everglades, located approximately 30 miles north of Miami in Fort
Lauderdale, received in excess of 2.3 million cruise passengers during 1995.
There are 32 cruise ships based at Port Everglades, with four cruise terminals
just a short walk from the Broward County Convention Center.
The Fort Lauderdale/Hollywood International Airport is another major
transportation destination for tourists going to South Florida. In 1995 the
airport handled approximately 8.6 million domestic passengers and 1.2 million
international passengers. There are approximately 35 major airlines serving the
Fort Lauderdale/Hollywood International Airport with 362 daily arrivals and
departures. The airport is located just one and one-half miles from Port
Everglades and the Broward County Convention Center.
MARKETING
The initial one-way ticket price for the Florida Fun-Train is expected
to be in the range of $65-$75, and the per-passenger en route revenue (for food,
beverages, entertainment and souvenirs) is expected to be in the range of
$20-$25.
On July 23, 1996, the Company engaged a third party to conduct a market
study for the Company for the purpose of providing recommendations with respect
to targeting market segments most likely to use the Florida Fun-Train, traffic
volume (including seasonal fluctuations), schedules that would generate the
highest volume of ridership, fare structure, types of entertainment, and key
product attributes such as classes of service, language or other special
requirements. This study includes conclusions based on discussions with
wholesale travel and tour companies, rental car companies, airline and cruise
lines. The total cost of this market study which was completed in late November
1996 (including reimbursement for professional fees and out-of-pocket expenses)
was $176,800.
Over the next 12 months the Company plans to develop and implement its
sales and marketing efforts. The Company plans to hire approximately four
employees who will begin marketing the Company to the travel and tour
industries. Among other things these employees will market and sell tickets
(passenger seats) through wholesale travel and tour operators and retail travel
agents. Wholesale tour operators have historically represented a material source
of business for the travel industry in South and Central Florida, particularly
in the cruise and lodging businesses.
15
<PAGE>
While the Company cannot anticipate what percentage of its future business will
be with wholesale tour operators it is expected that wholesalers will represent
approximately one-half of its business.
In addition, marketing efforts which feature the Company's services are
presently planned through various channels such as trade shows and conferences,
as well as advertising in various tour industry publications as well as to the
general public. During this stage, the Company plans to sell Fun-Train tickets
through an internal reservation system which must be developed. The Company also
may negotiate computer time-sharing or other arrangements with third parties
which operate systems for or similar to those used by the travel and tour
industries. In addition, the Company intends to attempt to market its services
and sell tickets by means of joint arrangements with cruise lines, airlines and
hotels. General advertising on radio and television and in periodicals,
newspapers and other media, is also planned as an important component of the
Company's marketing program. The Company anticipates that national and
international marketing and sales efforts will enhance business, while the
implementation and execution of a yield management system and reservations
program will increase incremental revenues.
On October 30, 1996, the Company entered into an agreement with
Universal Studios Florida (a major Central Florida tourist attraction) for joint
advertising, promotion and publicity programs in order to form a "strategic
alliance" for on-going joint activities from November 4, 1996 to December 31,
1998.
FUTURE ENTERTAINMENT TRAINS
After the introduction of the Florida Fun-Train, and assuming the
Company has sufficient capital available, it expects to provide "Fun-Train"
passenger service between South Florida and the Florida Space Coast (near the
Kennedy Space Center). The Space Coast Fun-Train is expected to provide daily
round-trip service at a fixed price which will include a full tour of the
Kennedy Space Center. The Kennedy Space Center is one of Florida's most popular
tourist attractions, receiving over 2.1 million visitors in 1994 and is
especially popular with international tourists. The Company expects to market
the Space Coast Fun-Train as a convenient and entertaining travel opportunity to
see the Kennedy Space Center. The Space Coast Fun-Train will operate over
existing tracks owned and operated by FEC.
On February 28, 1995, the Company entered into an agreement with FEC
for the use of certain track rights in the Miami-Fort Lauderdale-West Palm
Beach-Titusville corridor. The ten-year term of the FEC agreement starts when
the Space Coast Fun-Train is operational and the agreement provides for a
standard, per-car mileage charge of $1.20 per car-mile (which is equivalent to
$18 per train-mile based on the minimum FEC 15-car train requirement),
16
<PAGE>
payable monthly, with a minimum guaranteed annual amount of $500,000 per route
to be paid by the Company to FEC. When the Space Coast Fun-Train is operable,
the minimum payment will be $500,000 per annum. The Company will operate the
Space Coast Fun-Train with locomotives it provides subject to dispatching (and
related controls) by FEC. The agreement provides for limited exclusivity to the
Company to operate "Fun-Train" type train services and/or services to cruise
lines over the prescribed route, with certain exceptions. Further, the Company
is obliged to indemnify FEC for claims under actions arising from the operation
of the Space Coast Fun-Train, and the Company is obliged to obtain a minimum of
$200 million in comprehensive general liability insurance coverage in favor of
FEC, with a $100,000 deductible.
GENERAL
COMPETITION
Generally, the Company faces extensive competition for the spending of
leisure time and dollars from numerous attractions in the tourist entertainment
sector. The success of its proposed operations will depend primarily on its
ability to quickly develop an entertaining, high-quality, efficient, safe and
reliable service, as well as its ability to market such service and secure
consumer acceptance. It is uncertain whether the Company will be successful in
these efforts.
With regard to the proposed operations of the Florida Fun- Train,
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 proposed Florida Fun-Train route. In addition to the
extensive competition in the transportation sector, the Company faces extensive
competition for the spending of leisure time and dollars from numerous
attractions in the tourist entertainment sector. These alternative modes of
transportation, offer transportation that is less expensive and/or faster than
the Company's proposed rail service. Most of these competitors already enjoy an
established presence in the Florida transportation and tourism markets. The
Company expects to compete on the basis of what will be its unique product,
which will provide a combined package of transportation and entertainment.
The Company believes that the principal transportation competition for
the Florida Fun-Train will be from airlines, automobiles and inter-city buses.
While air travel is a faster means of transportation, it is generally more
expensive than the Company's proposed fares; however, there are certain low-fare
air carriers operating in the South Florida/Orlando corridor. Further the
Company believes that airline travel does not provide significantly greater
convenience within the scope of the Florida Fun-Train's projected routes.
Automobile travel is, on the other
17
<PAGE>
hand, less expensive, but lacks the convenience and ease of transport expected
to be provided by the Florida Fun-Train. The Company is not aware of any other
person or entity currently planning to provide a service directly competitive
with the Florida Fun-Train; however, the Company is generally aware of the fact
that Walt Disney Company has indicated from time to time its interest in
establishing a rail link between its operations in greater Orlando and one or
more cruise ports in Florida. There can be no assurance that such a competitor
will not appear before or after the Company commences Florida Fun-Train
operations. In addition, Amtrak currently operates passenger train service
between Miami/Fort Lauderdale and Orlando, Florida with numerous stops in
between. The cost of a round-trip ticket on Amtrak between Miami/Fort Lauderdale
and Orlando is currently $123 (first class service) and $55 (coach service).
Presently Amtrak service does not include the "entertainment-type" service which
the Company proposes to provide on the Florida Fun-Train; however, there can be
no assurance that Amtrak will not improve its service and offer amenities
similar to those proposed to be offered by the Company. The Company is currently
negotiating with Amtrak for the latter to provide certain "technical services"
for the Florida Fun-Train.
With regard to the operation of D&SNG, two other popular railroads
exist in Colorado: the Georgetown Loop and the Cumbres & Toltec Railroad.
Located west of Denver, the Georgetown Loop is a seven-mile 70-minute excursion.
The trains are pulled mainly by steam locomotives with the remainder being
pulled by diesel locomotives. The Cumbres & Toltec, like D&SNG and the
Georgetown Loop, is a narrow gauge scenic railroad. Its trains are pulled mainly
by steam locomotives, with the remainder being pulled by diesel locomotives. The
Cumbres & Toltec runs from Chama, New Mexico to Antonito, Colorado, a distance
of 64 miles. Its closest boarding point to the D&SNG is located in Chama,
approximately 100 miles from Durango. Although the Cumbres & Toltec is scenic,
it does not travel through a national forest nor is it a registered National
Historic Landmark. Owned by the States of New Mexico and Colorado, the Cumbres &
Toltec is maintained primarily by volunteers. The termini of the Cumbres &
Toltec are not "tourist towns" and do not have the same atmosphere or appeal as
D&SNG.
Competition could come from others entering the industry but is
unlikely due to barriers to entry. There are few authentic steam locomotives in
existence today making it very difficult to enter into competition with D&SNG.
In addition, it would be nearly impossible for anyone to obtain right-of-way
through the San Juan National Forest.
GOVERNMENTAL REGULATION
The Company's operations are (or will be) subject to safety regulation
by the Federal Railroad Administration (which are administered in Florida by the
Department of Transportation), as
18
<PAGE>
well as environmental regulation by federal and state agencies. The Company's
operations are also required to maintain a state liquor license and a Special
Tax Stamp issued by the Federal Bureau of Alcohol, Tobacco and Firearms, and it
is subject to health and other regulations promulgated by federal, state and
local authorities. D&SNG's operations are subject to rate, administrative and
safety regulation by the Colorado Public Utilities Commission, as well as
environmental regulation by federal and state agencies.
The Company believes that its proposed operations as well as the
operations of D&SNG are, and will be, in material compliance with all
environmental laws and regulations, and it estimates that such compliance will
not have any material adverse effect on its profitability or capital
expenditures.
EMPLOYEES
At March 21, 1997, the Company employed 17 persons, eight of whom are
senior management and the remaining nine are staff members. Over the next 12
months, the Company expects to hire approximately 70 persons. See "Plan of
Operations." The Company also intends to rely extensively on independent
contractors and the outsourcing of certain functions, e.g. marketing and rail
operations. For a description of D&SNG's employees, see "-- The Durango &
Silverton Narrow Gauge Railroad," above.
Traditionally, railroad operating crews have been unionized, and with
respect to the Florida Fun-Train operations the Company may have no alternative
but to use a unionized crew. Further, while unionization among railroad
passenger service workers is less prevalent than among crew members, there can
be no assurance that the Company will not have to use unionized personnel in
passenger service positions as well. While the Company does not anticipate
material labor relations problems and believes that it can reach mutually
beneficial collective bargaining agreements with any unionized employees, there
can be no assurance that these problems will be avoided. The Company is
considering outsourcing its Florida Fun-Train rail operations.
ITEM 2
------
DESCRIPTION OF PROPERTY
-----------------------
The Company leases approximately 14,800 square feet of space in a
facility located at 3700 North 29th Avenue, Suite 202, Hollywood, Florida 33020,
pursuant to a ten-year lease at a monthly rental rate of $7,625. For a
description of the properties of D&SNG see "Business -- The Durango & Silverton
Narrow Gauge Railroad Company."
19
<PAGE>
ITEM 3
------
LEGAL PROCEEDINGS
-----------------
Neither the Company nor D&SNG is a party to any material legal
proceedings or arbitration proceedings, and to the best of the Company's
knowledge and belief, none is contemplated or threatened.
ITEM 4
------
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 1996.
20
<PAGE>
PART II
-------
ITEM 5
------
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
-------------------------------------------------------
The Company's Common Stock is quoted on the Nasdaq SmallCap Market
under the symbol "FTRN"; however, there was no active trading market for the
Common Stock until the Second Quarter of 1996, to the best knowledge of the
company's management. The following table sets forth the high and low sale
prices of the Common Stock for the periods indicated in 1996 and 1997.
HIGH LOW
---- ---
1995:
First Quarter - -
Second Quarter - -
Third Quarter - -
Fourth Quarter - -
1996:
First Quarter - -
Second Quarter 6.375 3.00
Third Quarter 6.25 3.00
Fourth Quarter 4.75 2.00
1997:
First Quarter (through
March 20, 1997) 2.75 1.75
On March 20, 1997, the last reported sale price of the Common Stock was
$2.375 per share. As of March 5, 1997, there were 379 holders of record of the
Common Stock.
The Company has not paid any dividends on its Common Stock. The Company
intends to retain all earnings for use in its operations and to finance the
development and the expansion of its business, and does not anticipate paying
any dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors. Any
future decision with respect to dividends will depend on future earnings, future
capital needs and the Company's operating and financial condition, among other
factors. See "Plan of Operations."
21
<PAGE>
ITEM 6
------
PLAN OF OPERATIONS
------------------
GENERAL
The Company intends to provide its customers with innovative, quality,
entertainment-based passenger rail service. The Company has been in the
developmental stage and in 1996 it had no material operations; however, the
Company has taken significant steps to commence operations of the Florida
Fun-Train. In that regard, the Company has done the following: purchased its
first passenger car; entered into an agreement with Rader Railcar II, Inc.
("RRI"), a company owned by a director and shareholder, to manufacture the
remaining railcars for the Florida Fun-Train; entered into an agreement with CSX
Transportation, Inc. for track use; entered into an agreement with the Florida
Department of Transportation for certain track usage in South Florida; selected
a prospective terminal site on the Orlando International Airport property and
entered into a letter of intent with the Greater Orlando Aviation Authority and
is currently negotiating with the Orlando Utilities Commission ("OUC")in
connection with that site and for the rights to use OUC tracks leading thereto;
commenced discussions with others regarding an alternative terminal location in
the Greater Orlando area; negotiated with the National Railroad Passenger
Corporation ("Amtrak") for certain technical services in connection with the
Florida Fun-Train; completed a marketing study by an outside consultant (which
included discussions with wholesale travel and tour companies, rental car
companies, airlines and cruise lines); entered into an agreement with Universal
Studios Florida for joint marketing and sales efforts in connection with the
Florida Fun-Train services; and entered into a track rights agreement with
Florida East Coast Railway Company (FEC) for future use. The Company anticipates
commencing promotional rail service for the Florida Fun-Train in the Summer
1997, and full rail service in the Fall 1997. During the next twelve months the
Company expects to have significant capital expenditures for railcar
construction, terminal leasing and/or construction, track and leasehold
improvements, and significant operating expenses for salaries, marketing and,
when Fun-Train service commences, track use.
The Company plans to use its currently available funds to pay the
expenses and capital expenditures in connection with the commencement of the
operations of the Florida Fun-Train and provide working capital from prospective
leasing and financing opportunities to support the Florida Fun-Train's initial
operations to the extent that cash flow from such operations is insufficient.
The Company has agreed to purchase additional Fun-Train railcars
pursuant to a construction agreement with RRI. The
22
<PAGE>
Company has contracted to spend a maximum of approximately $8.8 million
(including applicable sales taxes) to purchase up to 11 additional railcars. The
Company expects to lease three diesel locomotives and a baggage car prior to
commencing operations, and it estimates, based on currently available
information, that three diesel locomotives and a baggage car are generally
available for lease for approximately $53,000 per month.
The railcar construction agreement with RRI required a significant down
payment with the balance of the contract price to be paid in installments;
however, this payment schedule will vary depending on the number and delivery
schedules of the cars actually purchased. The Company expects certain of the
railcars to be completed and delivery to begin in the Summer 1997 and it expects
staggered delivery of additional railcars to continue during the Summer 1997 so
that it can begin offering promotional rail service of the Florida Fun-Train at
that time. Service is expected to begin with five passenger railcars in the Fall
1997 and it is anticipated to expand to eight passenger railcars by the Spring
1998.
Before the Florida Fun-Train rail operations can commence, the Company
must construct or otherwise obtain the use of terminals at each end of the
proposed route. The Company is currently in negotiations in this regard and it
is in the process of finalizing its cost estimates and determining the extent of
governmental support for these activities, if any. During the next 12 months the
Company expects to increase its work force from the seventeen persons currently
employed by the Company (eight of whom are senior management). The Company will
be required to hire approximately 70 additional employees; however, the exact
number of employees is dependent on the Company's decision with respect to
outsourcing its marketing and rail operations functions, etc.
ACQUISITION
The Company has pursued its strategy of acquiring tourist destination
railroads. In March 1997, the Company purchased all of the common stock of The
Durango & Silverton Narrow Gauge Railroad Company ("D&SNG"). The purchase price
consisted of the following: (i) two promissory notes aggregating $10.05 million
which are subordinate to a purchase money loan provided by a third-party lender;
(ii) 200,000 shares of the common stock of the Company; (iii) a six-year warrant
to purchase 1,610,000 shares of the Company at an exercise price of $3.50 per
share; and (iv) cash of approximately $5 million. Portions of the seller
financing are personally guaranteed by two of the Company's officers for which
the Company will pay guaranty fees to the officers.
23
<PAGE>
DEVELOPMENT STAGE ACTIVITIES AND LIQUIDITY
- ------------------------------------------
GENERAL: During 1996, neither the Company nor its predecessor by
merger, First American Railways, Inc., a Florida corporation, had any revenue
from operations.The Company has had accumulated losses of approximately $3.9
million for the period from February 14, 1994 (incorporation) through December
31, 1996. The Company expects such losses to continue at least through
commencement of its full rail operations in the Fall 1997 and perhaps
thereafter. Since inception through December 31, 1996, the Company's (and its
predecessor's) activities have been funded by the private placement of its
securities and by borrowings, the net cash proceeds from which have totaled
approximately $15.2 million.
EIGHT MONTHS ENDED DECEMBER 31, 1995: The Company explored various
financing alternatives; however, no additional capital was raised during this
period. Instead, it borrowed an additional $270,000 in order to support its
operations. During this period, the Company had a net loss of $720,413 of which
approximately $282,000 were expenses of offerings not completed. In addition, a
significant amount of other expenses, principally the salaries of officers and
employees, were expended in connection with capital raising activities.
YEAR ENDED DECEMBER 31, 1996: In March 1996, the Company completed a
private placement of securities in which it sold an aggregate 375,004 shares of
common stock and issued $500,000 in convertible secured notes, bearing interest
at 10% per annum, for aggregate net proceeds of approximately $394,000. In
April, May 1996, the Company completed a private placement of securities in
which it sold 4,050,274 shares of Common Stock valued at approximately $8.25
million, 3,950,271 Series A Redeemable Warrants exercisable at $3.50 per share,
and issued approximately $8.25 million (principal amount) in convertible secured
notes, bearing interest at 10% per annum, for aggregate net proceeds of
approximately $14.2 million (of which approximately $416,000 was not cash
consideration, but represented the conversion of the principal and accrued
interest on certain secured promissory notes issued in the March 1996 private
placement into securities sold in the April, May 1996 private placement).
The Company used approximately $778,000 of the proceeds to repay
approximately $333,000 in notes payable to related parties and others, and
$445,000 to repay notes payable from the financing completed in March 1996. In
addition, in June 1996 the Company made a payment of $536,000 representing the
final payment (plus interest) due on the first railcar purchased. A material
portion of the proceeds of the May 1996 private placement (approximately
$830,000) were escrowed to pay the first year's interest on the convertible
secured notes sold in that private placement. In October 1996, the Company made
its initial interest payment. In
24
<PAGE>
September and October 1996, the Company advanced $1.4 million to RRI for the
commencement of construction of additional railcars.
During the year ended December 31, 1996, the Company had a net loss of
approximately $2.6 million. The major components of the loss were salary and
payroll tax expense of approximately $947,000 resulting from the hiring of nine
people (including five executives) during the year and the incurrence of
approximately $452,000 of legal, accounting, professional and consulting fees
for initial and ongoing railroad and marketing agreements, executive recruitment
and general corporate purposes. The loss for the year ended December 31, 1996,
was also impacted by net interest expense of approximately $167,000 resulting
from the April - May private placement and the amortization of approximately
$221,000 of deferred loan costs related to notes payable that were replaced in
May 1996 and the convertible notes payable resulting from the April - May
private placement.
To date the Company has not generated any revenue and, as of December
31, 1996, it had accumulated losses of approximately $3.9 million. At December
31, 1996, the Company had working capital approximately of $7.2 million and
stockholders' equity of approximately $4.3 million.
LIQUIDITY: The Company's future cash requirements will be significant.
The Company expects that the proceeds from the private placements, along with
prospective leasing and financing opportunities which management believes are
available on commercially reasonable terms, will be sufficient to enable the
Company to commence operations of the Florida Fun-Train in the Fall 1997. There
can be no assurance, however, that operations will in fact commence as
scheduled, or that unanticipated problems will not arise which necessitate the
need for additional financing. Additionally, there can be no assurance that the
Company will be able to obtain or generate the required capital to commence
operations of the Florida Fun-Train in the Fall 1997.
In connection with the acquisition of D&SNG by the Company, D&SNG
borrowed, and the Company guaranteed $8.5 million from a commercial lending
institution pursuant to a five-year term loan, portions of which were used to
pay a pre-existing lender to fund a portion of the cash required to close the
acquisition. The balance was used for working capital for D&SNG's operations
(approximately $1 million). This working capital and the funds generated from
D&SNG's operations are expected to be adequate to meet D&SNG's cash requirements
(including capital expenditures and debt service) for 1997. There are no
material short-term or long-term commitments for capital expenditures; however,
the Company anticipates expenditures in 1997 for property and equipment, but has
not yet finalized its plan in this regard, and does not expect such expenditures
to be material. Additionally, D&SNG is expected to incur in excess of $2 million
of interest and principal payments in 1997 resulting from the $8.5 million term
loan and the $10.05 million seller financing. Although D&SNG's business and cash
flow are historically seasonal in nature with the peak season being the months
of June, July and August, the seasonality is not expected to have a material
adverse impact on the Company's ability to meet cash requirements from existing
cash sources.
Capital expenditures and debt service in 1998 and subsequent years are
expected to be funded from the working capital generated from D&SNG's
operations. In the event that the working capital from D&SNG is not adequate to
fund D&SNG's cash requirements in 1998 and subsequent years, D&SNG will seek to
obtain unsecured lines of credit, or will borrow funds from the Company, if
available; however, there can be no assurance that these sources of funds will
be available to D&SNG in the future.
25
<PAGE>
Further, there can be no assurance that the Company will not experience
adverse changes in its business prospects, its proposed operations, in the
transportation or tourism industries, or the U.S. economy generally.
26
<PAGE>
ITEM 7
------
FINANCIAL STATEMENTS
--------------------
The financial statements are included herein beginning at page F-1.
ITEM 8
------
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
---------------------------------------------------
On May 6, 1996, the Registrant's Board of Directors voted to engage BDO
Seidman, LLP to act as the Registrant's independent certified public
accountants, thereby dismissing and replacing Hansen, Barnett & Maxwell, P.C.
The former accountants' reports for the Registrant's last two fiscal years did
not contain any adverse opinion, or disclaimer of opinion, nor were any such
reports modified as to uncertainty, audit scope or accounting principles. There
have been no disagreements between the Registrant 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.
PART III
--------
ITEM 9
------
DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
The information required by this item with respect to the executive
officers and directors of the Company is incorporated herein by reference to the
section entitled "Compensation of Directors and Executive Officers" and
"Election of Directors" in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders (the "1997 Proxy Statement").
ITEM 10
-------
EXECUTIVE COMPENSATION
----------------------
The information required by this item with respect to the executive
compensation is incorporated herein by reference to the section entitled
"Compensation of Directors and Executive Officers" in the Company's 1997 Proxy
Statement.
27
<PAGE>
ITEM 11
-------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
---------------------
The information required by this item with respect to security
ownership is incorporated herein by reference to the section entitled "Voting
Securities and Principal Holders Thereof" in the Company's 1997 Proxy Statement.
ITEM 12
-------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item with respect to security
ownership is incorporated herein by reference to the section entitled "Certain
Transactions" in the Company's 1997 Proxy Statement.
ITEM 13
-------
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its
subsidiaries filed as part of this Annual Report on Form 10-KSB are listed in
Item 7 of this Annual Report on Form 10-KSB, which listing is hereby
incorporated by reference.
EXHIBITS
--------
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Articles of Incorporation, as
amended, are hereby incorporated by
reference to Exhibit 3.1 of the
Registrant'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 Registrant's
Registration Statement on Form 8-A
filed with the SEC on May 30, 1996.
3.3 Amended Bylaws.**
28
<PAGE>
4.1 Form of Common Stock Certificate is
hereby incorporated by reference to
Exhibit 4.1 of the Registrant'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.**
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 December
2, 1996, between the Registrant and
Gordon L. Downing.**
10.4 Employment Agreement dated July 1,
1994, between First American-
Florida and Michael J. Acierno,
as amended.*
10.5 Employment Agreement dated July 1,
1996, between the Registrant and
Raymond Monteleone, as amended.*
10.6 Agreement dated February 28, 1995,
between First American-Florida and
Florida East Coast Railway Company.*
29
<PAGE>
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 Registrant and
International Capital Growth, LLC,
dated April 26, 1996*, as amended
December 5, 1996.**
10.10 Note Escrow Agreement between the
Registrant, Capital Growth Interna-
tional, LLC, and Sterling National
Bank and Trust Company of New York
dated April 26, 1996.*
10.11 Form of Convertible Secured Note.*
10.12 Employment Agreement dated October
15, 1996, between the Registrant and
William T. Nanovsky.*
10.13 Employment Agreement dated October
9, 1996, between the Registrant and
Donald P. Cumming.*
10.14 Employment Agreement dated August
23, 1996, between the Registrant and
Thomas E. Blayney.*
10.15 Employment Agreement dated September
30, 1996, between the Registrant and
Pamela S. Petcash.*
10.16 Form of Confidentiality and Non-
competition Agreement between the
Registrant's executive employees and
the Registrant.*
10.17 Consulting Agreement between
Management Resource Group, Inc. and
the Registrant dated July 23, 1996.*
10.18 Agreement between Universal Studios
Florida and the Registrant, dated
October 30, 1996.*
30
<PAGE>
10.19 Agreement between CSX Transporta-
tion, Inc. and the Registrant, dated
October 31, 1996.*
10.20 Business Lease between Mandel
Development, a Florida general
partnership, and the Registrant,
dated January 15, 1997.**
10.21 Operating Agreement between the
Florida Department of Transportation
and the Registrant, dated January 6,
1997.**
10.22 Form of the Registrant'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 Registrant,
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 Registrant in
favor of Charles E. Bradshaw, Jr.,
dated March 13, 1997.**
10.26 Promissory Note in the amount of
$5,850,000 from the Registrant 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 Registrant,
dated March 13, 1997.**
16 Letter dated May 10, 1996, from the
Company's former accountants,
Hansen, Barnett & Maxwell, to the
Registrant is hereby incorporated by
reference to Exhibit 16 to the
Registrant's Current Report on Form
8-K dated May 6, 1996.
31
<PAGE>
21 Subsidiaries of the Registrant.**
23.1 Consent of BDO Seidman LLP.**
27 Financial Data Schedule.**
- ----------
* Incorporated by reference to the comparable exhibit numbers as
contained in the Registrant's Registration Statement on Form SB-2, as
filed with the Securities and Exchange Commission on August 6, 1996.
** Filed herewith.
(b) REPORTS ON FORM 8-K FILED DURING THE
THREE MONTHS ENDED DECEMBER 31, 1996
There were no reports on Form 8-K filed during the three
months ended December 31, 1996.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATED: MARCH 28, 1997 FIRST AMERICAN RAILWAYS, INC.
BY: /s/ ALLEN C. HARPER
-----------------------------
ALLEN C. HARPER, CHAIRMAN OF THE
BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
SIGNATURES TITLE DATE
/s/ ALLEN C. HARPER CHAIRMAN OF THE BOARD March 27, 1997
- ------------------------- AND CHIEF EXECUTIVE
ALLEN C. HARPER OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
/s/ RAYMOND MONTELEONE PRESIDENT, CHIEF OPERATING March 27, 1997
- ------------------------- OFFICER AND DIRECTOR
RAYMOND MONTELEONE
/s/ WILLIAM T. NANOVSKY VICE PRESIDENT, SECRETARY, March 27, 1997
- ------------------------- TREASURER AND CHIEF FINANCIAL
WILLIAM T. NANOVSKY OFFICER (PRINCIPAL FINANCIAL
OFFICER)
/s/ DONALD P. CUMMING VICE PRESIDENT AND CONTROLLER March 27, 1997
- ------------------------- AND CHIEF ACCOUNTING OFFICER
DONALD P. CUMMING (PRINCIPAL ACCOUNTING OFFICER)
/s/ THOMAS G. RADER DIRECTOR March 27, 1997
- -------------------------
THOMAS G. RADER
/s/ DAVID RUSH DIRECTOR March 27, 1997
- -------------------------
DAVID RUSH
/s/ LUIGI SALVANESCHI DIRECTOR March 27, 1997
- -------------------------
LUIGI SALVANESCHI
/s/ GLENN P. MICHAEL DIRECTOR March 27, 1997
- -------------------------
GLENN P. MICHAEL
/s/ ALBERT B. AFTOORA DIRECTOR March 27, 1997
- -------------------------
ALBERT B. AFTOORA
DIRECTOR , 1997
- -------------------------
CHARLES E. BRADSHAW, JR.
33
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F - 2
BALANCE SHEET F - 3
STATEMENTS OF OPERATIONS F - 4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) F - 5
STATEMENTS OF CASH FLOWS F - 6
NOTES TO FINANCIAL STATEMENTS F - 7
F-1
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
First American Railways, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of First American Railways, Inc.
(a development stage company) as of December 31, 1996 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the year then
ended, the eight months ended December 31, 1995 and the cumulative period from
February 14, 1994 (incorporation) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First American Railways, Inc.,
(a development stage company) as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended, the eight months ended
December 31, 1995 and the cumulative period from February 14, 1994
(incorporation) through December 31, 1996 in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Miami, Florida
January 14, 1997, except for Note 9
which is as of March 13, 1997
F-2
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1996
-----------------
ASSETS
CURRENT
Cash $ 7,174,020
Restricted cash (Note 7) 430,834
------------
Cash and cash items 7,604,854
Prepaids and other 255,372
------------
Total current assets 7,860,226
Fixed assets, net (Note 2) 2,413,320
Deposit for acquisition (Note 9) 2,000,000
Deferred loan costs, net (Note 7) 867,107
------------
$ 13,140,653
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable $ 166,722
Accrued liabilities 459,561
------------
Total current liabilities 626,283
Convertible notes payable, net (Note 7) 8,250,682
------------
8,876,965
------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY (NOTES 5 AND 7)
Preferred stock, $.001 par value,
500,000 shares authorized --
Common stock, $.001 par value,
100,000,000 shares authorized,
9,061,078 shares issued and outstanding 9,061
Additional paid-in capital 8,189,798
Deficit accumulated during the development stage (3,935,171)
------------
TOTAL STOCKHOLDERS' EQUITY 4,263,688
------------
$ 13,140,653
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
<TABLE>
<CAPTION>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
CUMULATIVE FROM
FEBRUARY 14, 1994 FOR THE
(INCORPORATION) EIGHT MONTHS
THROUGH FOR THE YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31, DECEMBER 31,
1996 1996 1995
----------------- ------------------ -------------
<S> <C> <C> <C>
EXPENSES:
Salaries and payroll taxes $ 1,551,549 $ 946,750 $ 242,007
General and administrative 723,567 522,237 125,723
Interest, net (Note 2) 185,990 166,911 19,079
Legal and accounting fees 221,648 217,733 3,464
Professional and consulting fees 293,873 234,501 46,802
Marketing study 176,800 176,800 --
Trackage rights expenses 46,107 46,107 --
Amortization of deferred loan costs
(Note 7) 220,722 220,722 --
Depreciation 8,352 6,172 1,088
Expenses from offerings
not completed 506,563 57,829 282,250
----------- ----------- -----------
Total expenses 3,935,171 2,595,762 (720,413)
=========== =========== ===========
Net loss, representing deficit
accumulated during the
development stage $(3,935,171) $(2,595,762) $ (720,413)
=========== =========== ===========
Weighted average number of
common shares outstanding
(Note 1) 7,623,050 4,275,000
=========== ===========
Net loss per common share $ (.34) $ (.17)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
DEFICIT
COMMON STOCK ADDITIONAL ACCUMULATED
---------------------- PAID-IN DURING THE
SHARES AMOUNT APITAL DEVELOPMENT STAGE
-------- -------- ------------ -----------------
<S> <C> <C> <C> <C>
Balance at February 14, 1994 and
April 30, 1994 -- $ -- $ -- $ --
Initial capitalization for cash at $0.0046
per share (Note 5(b)) 3,854,430 3,854 14,146 --
Issuance of common stock for cash
at $2.29 per share, net of offering
costs of $20,965 (Note 5(c)) 420,570 421 960,614 --
Capital contribution - forgiven salaries -- -- 136,000 --
Net loss -- -- -- (618,996)
--------- -------- ----------- -----------
Balance at April 30, 1995 4,275,000 4,275 1,110,760 (618,996)
Net loss -- -- -- (720,413)
--------- -------- ----------- -----------
Balance at December 31, 1995 4,275,000 4,275 1,110,760 (1,339,409)
Issuance of common stock in connection
with Stage I offering, net of
offering costs of $11,692 (Note 7) 375,004 375 42,933 --
Issuance of common stock in connection
with Stage II offering, net of offering
costs of $1,247,967 (Note 7) 4,050,274 4,050 6,998,666 --
Merger with Asia-America Corporation
(Note 5(a)) 350,000 350 (350) --
Issuance of common stock to officer (Note 4(a)) 10,800 11 37,789 --
Net loss -- -- -- (2,595,762)
--------- -------- ----------- -----------
Balance at December 31, 1996 9,061,078 $ 9,061 $ 8,189,798 $(3,935,171)
========= ======== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
CUMULATIVE FROM
FEBRUARY 14, 1994 FOR THE EIGHT
(INCORPORATION) FOR THE YEAR ENDED MONTHS ENDED
THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 1996 1995
----------------- ------------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,935,171) $ (2,595,762) $(720,413)
Adjustments to reconcile net loss to
net cash used by operating activities:
Salaries forgiven 136,000 -- --
Depreciation 8,352 6,172 1,088
Amortization of deferred loan costs 220,722 220,722 --
Salaries paid with common stock 37,800 37,800 --
Write-off of deferred offering costs 25,000 -- 25,000
Increase in restricted cash (430,834) (430,834) --
Increase in prepaids and other (255,372) (253,692) --
Increase (decrease) in accounts payable 166,722 (29,354) 173,954
Increase in accrued liabilities 459,561 338,591 120,970
------------ ------------ ---------
Total adjustments 367,951 (110,595) 321,012
------------ ------------ ---------
Net cash used by operating activities (3,567,220) (2,706,357) (399,401)
------------ ------------ ---------
INVESTING ACTIVITIES:
Capital expenditures (2,421,672) (2,063,500) --
Deposit for acquisition (2,000,000) (2,000,000) --
------------ ------------ ---------
Net cash used in investing activities (4,421,672) (4,063,500) --
------------ ------------ ---------
FINANCING ACTIVITIES:
Borrowings from related parties 338,388 68,388 270,000
Repayments of notes payable to related
parties and others (338,388) (333,388) (5,000)
Net proceeds from issuance of notes payable 8,695,682 8,695,682 --
Repayment of notes payable (445,000) (445,000) --
Payment of loan costs (1,087,829) (1,087,829) --
Net proceeds from issuance of common stock 8,025,059 7,046,024 --
Payment of offering costs (25,000) -- --
------------ ------------ ---------
Net cash provided by financing activities 15,162,912 13,943,877 265,000
------------ ------------ ---------
Net increase (decrease) in cash 7,174,020 7,174,020 (134,401)
Cash at beginning of period -- -- 134,401
------------ ------------ ---------
Cash at end of period $ 7,174,020 $ 7,174,020 $ --
============ ============ =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 542,731 $ 542,731 $ --
============ ============ =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ORGANIZATION AND BUSINESS
SIGNIFICANT
ACCOUNTING
First American Railways, Inc. ("the Company") was
incorporated on February 14, 1994, in the state of
Florida. The Company is a development stage entity,
organized for the purpose of constructing, acquiring
and marketing entertainment based passenger trains.
Initially the Company intends to initiate service
between Ft. Lauderdale and Orlando and subsequently
to other parts of the United States and
internationally. In March 1997 the Company acquired a
tourist destination train ("scenic railroad") (Note 9)
and subsequently will not be a development stage
entity.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost less accumulated
depreciation. Office and computer equipment are
depreciated on the straight line basis over 3 to 5
years. Assets held for future use will be depreciated
beginning at the time they are placed into service.
F-7
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
OFFERING COSTS
Costs incurred in connection with the Company's efforts
to obtain additional financing through a public
offering or private placement of securities are
deferred and offset against the proceeds in
stockholders' equity or charged to operations if an
offering or placement is unsuccessful.
IMPAIRMENT
On January 1, 1996, the Company adopted Summary of
Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No.
121 requires, among other things, impairment loss of
assets to be held and gains or losses from assets that
are expected to be disposed of be included as a
component of income from continuing operations before
taxes on income. During 1996 there have been no
write-downs required in the accompanying financial
statements.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for by using the
intrinsic value based method in accordance with
Accounting Principles Board Opinion No 25, "Accounting
for Stock Issued to Employees" ("APB 25"). The Company
has adopted Statements of Financial Accounting
Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") which allows companies
to either continue to account for stock-based
compensation using APB 25, or to adopt a fair value
based method of accounting. The Company intends to
continue with its current method of accounting in
accordance with APB 25 for employees, but has made the
required proforma disclosures in accordance with SFAS
No. 123.
FINANCIAL INSTRUMENTS
The carrying value of financial instruments including
accounts and notes payable approximate their fair value
at December 31, 1996.
F-8
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
INTEREST
Interest is capitalized to constructed assets during
their construction period and is depreciated over their
useful lives.
INCOME TAXES
The Company has no income since inception and
accordingly has not provided for income taxes.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted
average number of shares of common stock outstanding,
as adjusted for the effects of the application of
Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 83. Pursuant to SAB No. 83, common
stock issued by the Company at a price less than the
contemplated public offering price is treated as
outstanding for all periods presented. Stock options
and warrants outstanding are not included since the
effects of such inclusion would be anti-dilutive.
2. FIXED ASSETS, NET The Company's fixed assets at December 31, 1996 are
summarized as follows:
Railcar held for future use $ 810,000
Construction in process (Note 4 (b)) 1,567,203
Office and computer equipment 44,469
----------
2,421,672
Less accumulated depreciation (8,352)
----------
$2,413,320
==========
Pursuant to an agreement with Rader Railcar, Inc., a
company owned by a director and shareholder, the
Company had a railcar constructed at a
F-9
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
cost of $850,000. The Company took delivery of the
railcar on April 28, 1995 and at that time assumed the
full risk of loss of such car. The balance was paid in
June 1996 at which time title passed to the Company. In
April 1996, Rader Railcar, Inc. entered into a lease
agreement with Great Canadian Railtour Co. to lease the
railcar for a period of seven months for $10,000 per
month. In June 1996, the remaining proceeds of the
lease were assigned to the Company and therefore, the
Company received monthly lease payments of $10,000
through September 1996. Since this leasing activity is
not the intended use of the railcar, the rental
payments aggregating $40,000 were recorded as a
reduction in the cost of the railcar. During 1996,
interest of approximately $92,000 was capitalized as
part of the cost of construction of the railcars (Note
4(b)).
3. INCOME TAXES At December 31, 1996, the Company had an accumulated
net loss of approximately $4,000,000 for financial
reporting purposes. In general, expenses incurred
during the development stage are capitalized for tax
purposes as pre-operating expenses and are amortizable
over a 60 month period commencing with the month in
which active business begins.
The use of the losses is limited to future taxable
earnings of the Company. For financial reporting
purposes, the deferred tax asset of approximately
$1,500,000 resulting from the future amortization of
capitalized pre-operating expenses has been entirely
offset by a valuation allowance.
4. COMMITMENTS a) In 1996, the Company entered into one year
AND employment agreements with seven of the officers of the
CONTINGENCIES Company to provide for annual aggregate initial base
compensation of $705,000 and payments in certain
circumstances following a "change in control" of the
Company. In addition, non-qualified stock options were
granted to purchase 71,000 shares of common stock at
the market price at the date of grant (ranging from
$3.06 to $4.75 per share) of which
F-10
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
25,665 vest immediately with the remaining 45,335
vesting equally in two annual increments. Additionally,
in July 1996, the Company entered into a three year
employment agreement with its President and Chief
Operating Officer. The agreement provides for an
initial annual base salary of $150,000 and a minimum
annual bonus of $25,000 with minimum increases in the
base salary to $175,000 on January 1, 1997, $189,000 on
January 1, 1998 and $204,120 on January 1, 1999. In
addition, nonqualified stock options will be granted
annually to purchase a minimum of 30,000 shares of
common stock. In connection with this agreement, in
July 1996 the Company issued 10,800 shares of common
stock and granted options to purchase 30,000 shares at
$3.50 per share. In February 1997 the Board of
Directors voted to amend this agreement. (Note 9)
b) In October 1996, the Company entered into an
agreement with Rader Railcar II, Inc. ("RRI"), a
company owned by a director and shareholder, for design
and production of up to eleven additional railcars for
a total cost of approximately $8,800,000. Pursuant to
the agreement the Company made a down payment of
$1,400,000 to RRI. The agreement provides for delivery
of various railcars over a period of several months
beginning June 1997.
c) In October 1996, the Company signed an agreement
with CSX Transportation, Inc. ("CSXT") for use of its
tracks between West Palm Beach and Orlando to be used
for the operation of the Florida Fun-Train. The
agreement with CSXT provides, in part, that the Company
will pay CSXT the greater of $20 per train mile, or 16%
of the Company's gross ticket revenue (less discounts)
from the Florida Fun-Train operations. The per-train
mile is subject to various increases for inflation and
other price adjustments. In addition, the Company is
required to maintain a minimum of $300 million in
comprehensive general liability insurance with a
minimum deductible (or self-insured). The agreement
also provides for a certain degree of exclusivity of
the Company's proposed rail operations. Specifically,
CSXT has agreed not to grant similar access rights to
the subject rail corridor (between West Palm Beach and
Orlando) to any other private rail passenger operator
or contractor which would provide comparable
conventional rail passenger service (primarily
servicing the cruise ship market). This exclusivity
clause is voidable
F-11
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
by CSXT upon the occurrence of certain conditions. The
term of the agreement is five years. In addition, the
Company has agreed to sell up to 475,000 warrants to
CSXT, exercisable at $4.50 per warrant, with 75,000
warrants being exercisable upon commencement of
operations of the Florida Fun-Train and thereafter in
four equal annual installments of 100,000 warrants each
commencing January 1, 1998. The Company has also
appointed a CSXT representative to its Board of
Directors.
d) In January 1997, the Company entered into a five
year agreement with Florida Department of
Transportation ("FDOT") for the right to use the tracks
between Ft. Lauderdale and West Palm Beach which
comprise part of the proposed route of the Florida
Fun-Train. The track usage fee will begin at $500 per
one way trip and increase by $50 per one way trip
annually. The Company and FDOT have agreed in principle
(subject to ongoing negotiations) to allow the Company
the right to use a railroad terminal in Broward County
and the track rights to an existing railroad
maintenance facility in Dade County.
e) In February 1995, the Company entered into an
agreement with the Florida East Coast Railway Company
("FEC") for the use of FEC track in connection with the
Company's proposed rail operations. Under the
agreement, the Company will pay a fee to the FEC upon
commencement of operations of no less than either
$500,000 per train, per year, or $18 per train mile
(with a stipulated train size of 15 cars). Effective
January 1 of the year in which the third anniversary of
the commencement service occurs, and January 1 in every
third year thereafter, the car mile rate and the
minimum amount payable shall, upon the request of
either party, be adjusted based on the "Consumer Price
Index For Urban Wage Earners and Clerical Workers"
unadjusted, as published by the Bureau of Labor
Statistics, U.S. Department of Labor. The agreement
will expire ten years from the date of commencement of
service. At the conclusion of the initial ten year
term, the company will have the right to extend the
agreement for an additional ten year period upon twelve
months advance notice to the FEC.
f) In January 1997, the Company entered into a ten year
lease for
F-12
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
office and warehouse space requiring monthly payments
of approximately $7,200 (subject to annual adjustment
for inflation not to exceed 4%.) The lease may be
terminated after five years upon the occurrence of
certain conditions.
5. STOCKHOLDERS'
EQUITY (DEFICIT) a) In May 1995, the Company executed a stock split and
exchanged the 1,996,400 then outstanding shares of its
common stock for 2,495,500 shares of common stock and
changed the par value of its common stock from $.01 to
no par. In February 1996, the Company executed a second
stock split and exchanged the 2,495,500 shares of its
common stock for 4,275,000 shares of common stock with
no par value, 10,000,000 shares authorized to be
issued. On April 26, 1996, the Company merged into
Asia-America Corporation, a public company, and
accounted for the transaction as a reverse acquisition
for financial statement purposes, and was recapitalized
with 9,050,278 shares of $.001 par value stock,
100,000,000 shares authorized to be issued. In
connection with this transaction, there was no impact
on the operating results of the Company and it resulted
only in an adjustment to stockholders' equity. The
components of stockholders' equity and all per share
amounts in the accompanying financial statements have
been adjusted retroactively to reflect the stock splits
and changes in par value.
b) In 1994, the Company issued 3,854,430 shares of
common stock to its initial shareholders for cash of
$18,000.
c) In connection with a private placement, the Company
issued 420,570 shares of common stock for cash of
$961,035 net of offering costs of $20,965.
d) In 1996, the Company granted two-year warrants to
purchase 12,500 shares of common stock at $3.50 per
share to a shareholder, in consideration for extending
the repayment terms of a loan made to the Company.
F-13
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
e) During 1996, the Company granted three year warrants
to purchase 100,000 shares of common stock at $2.50 per
share (the market value at the date of grant) pursuant
to a consulting agreement.
f) In May 1996, the Company entered into a two year
agreement with an underwriter to provide financial
advising and consulting services. The agreement was
amended in January 1997 to extend the agreement an
additional eighteen months to October 1999 and to allow
all fees through October 1999 to be paid in full by the
issuance of 52,500 shares of common stock of the
Company in January 1999. The agreement also provides
for additional fees comprising of 3% to 5% of
consideration paid for acquisitions or mergers with
other companies, joint ventures, license and royalty
agreements, etc., that the consultant arranges and 1.5%
to 8% of the gross proceeds resulting from the sale of
any securities issued by the Company.
6. NOTES PAYABLE In June 1995, the Company entered into a loan
TO RELATED agreement with a shareholder and director for up to
PARTIES $125,000, with simple interest of 18%. As of December
AND OTHERS 31, 1995, the Company had borrowed $125,000. In
addition, the Company entered into loan agreements with
two other shareholders for a total of $140,000 with
simple interest of 18%. Subsequent to December 31,
1995, an additional $68,388 was borrowed from related
parties bearing interest of 18% per annum. All loans
were repaid with the proceeds of the private offering
that closed in May 1996 (Note 7).
7. STAGE I AND II In March 1996, the Company completed its Stage I
FINANCING financing. The Company received gross proceeds from
this private offering of $500,000 in exchange for
$500,000 in notes payable bearing interest at 10% per
annum, with a $55,000 original issue discount, and
375,004 shares of common stock valued at $55,000. Costs
associated with the offering were $106,291.
In May 1996, the Company completed its Stage II
financing. Total consideration of $16,501,365 from this
private offering was received consisting of $16,085,000
in cash and the conversion of $412,500 in
F14
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
notes payable and $3,865 in accrued interest from Stage
I financing. In connection with this transaction,
$8,250,682 in five-year convertible notes bearing
interest at 10% per annum were issued. Interest is
payable semi-annually in April and October and the
notes are convertible at $3.50 per share. In addition,
3,950,271 redeemable common stock purchase warrants and
4,050,274 shares of common stock valued at $8,250,683
were issued. Costs associated with the offering were
$1,986,460. The Company used $778,388 of the net
proceed to paydown $333,388 in notes payable to related
parties and others and $445,000 in notes payable from
the Stage I financing. In connection with the
retirement of the Stage I debt, $94,599 of deferred
loan costs was charged to operations as amortization of
deferred loan costs. In addition, $55,000 of original
issue discount was charged to operations as interest
expense.
Prepaid interest of $829,924 representing the first
year's interest on the Stage II debt was placed in
escrow and was included as restricted cash in the
accompanying balance sheet. The first interest payment
was made in October 1996.
8. STOCK-BASED The Company has elected to follow Accounting Principles
COMPENSATION Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its employee
stock options. Under APB 25, because the exercise price
of the Company's employee stock options issued equaled
the market price of the underlying stock or the close
of grant, no compensation expense was recognized.
Under the Company's 1996 Non-Qualified Stock Option
Plan, the Company may grant options to its employees,
directors and external consultants up to 717,500 shares
of the Company's common stock. All options granted to
employees have 10 year terms and become fully
exercisable at the end of the second year. All options
granted to directors and external consultants have ten
year terms and vest immediately. Statement of Financial
Accounting Standards No. 123
F-15
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
"Accounting for Stock-Based Compensation," ("SFAS No.
123") requires the Company to provide proforma
information regarding net loss and loss per common
share as if compensation cost for the Company's Stock
Option plan had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. The
Company estimates the fair value of each stock option
on the date of grant by using the Black Scholes
option-pricing model with the following
weighted-average assumptions for 1996: risk-free
interest rates of 6.5%; dividend yield of 0; volatility
factors of the expected market price of the Company's
common stock of .10; and weighted-average expected life
of the option of 10 years.
Under the accounting provisions of SFAS No. 123, the
Company's net loss and loss per common share for the
year ended December 31, 1996 would have been $2,633,644
and $.35, respectively. A summary of the Company's
stock option activity, and related information for the
year ended December 31, 1996, is as follows:
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
Outstanding, January 1, 1996 -- --
Granted 138,700 $3.88
Exercised -- --
Forfeited -- --
------- -----
Outstanding, December 31, 1996 138,700 $3.88
------- -----
Exercisable at December 31, 1996 71,698 $3.77
------- -----
Weighted-average fair value of
options granted during 1996 $1.85
-----
F-16
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
(A DEVELOPMENTY STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Exercise prices for options outstanding and exercisable
as of December 31, 1996 ranged from $3.06 to $4.75. The
weighted average remaining contractual life of these
options is approximately 9.8 years.
Subsequent to December 31, 1996, the Company granted an
additional 332,000 ten year options at prices ranging
form $2.375 to $3.50
9. SUBSEQUENT EVENTS
In March 1997, the Company purchased all of the common
stock of The Durango & Silverton Narrow Gauge Railroad
Company. The purchase price consisted of the following:
(i) two promissory notes aggregating $10.05 million
which are subordinate to a purchase money loan to be
provided by a third-party lender in the amount of $8.5
million; (ii) 200,000 shares of the common stock of the
Company; (iii) a six-year warrant to purchase 1,610,000
shares of the Company at an exercise price of $3.50 per
share; and (iv) cash of approximately $5 million,
including a $2 million deposit which was paid in
December 1996. Portions of the seller financing are
personally guaranteed by two of the Company's officers
for which the Company will pay annual guarantee fees
aggregating $55,000 to the officers. In addition, in
February 1997, the Board of Directors voted to amend
the employment agreement of one of the officers (the
President and Chief Operating Officer) to (i) extend
the term of such agreement five years from the
effective date of the personal guaranty, (ii) increase
in certain circumstances, such employment severance
package to three times his then - current compensation;
and (iii) grant additional ten-year stock options
covering 100,000 shares of common stock exercisable at
the market price on the date of grant upon such
officer's delivery of the aforementioned personal
guaranty. This guaranty was provided in March 1997.
In March 1997, the Company entered into a two year
unsecured line of credit agreement with a bank. Under
the agreement the Company is able to borrow up to
$1,000,000 at an interest rate of prime plus 2%. The
agreement contains covenants that require certain
operating and equity criteria to be met as well as
other requirements customary to loan facilities of this
nature.
F-17
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Articles of Incorporation, as
amended, are hereby incorporated by
reference to Exhibit 3.1 of the
Registrant'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 Registrant'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 Registrant'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.**
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 December
2, 1996, between the Registrant and
Gordon L. Downing.**
10.4 Employment Agreement dated July 1,
1994, between First American-
Florida and Michael J. Acierno,
as amended.*
10.5 Employment Agreement dated July 1,
1996, between the Registrant and
Raymond Monteleone, as amended.*
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 Registrant and
International Capital Growth, LLC,
dated April 26, 1996*, as amended
December 5, 1996.**
10.10 Note Escrow Agreement between the
Registrant, Capital Growth Interna-
tional, LLC, and Sterling National
Bank and Trust Company of New York
dated April 26, 1996.*
10.11 Form of Convertible Secured Note.*
10.12 Employment Agreement dated October
15, 1996, between the Registrant and
William T. Nanovsky.*
10.13 Employment Agreement dated October
9, 1996, between the Registrant and
Donald P. Cumming.*
10.14 Employment Agreement dated August
23, 1996, between the Registrant and
Thomas E. Blayney.*
10.15 Employment Agreement dated September
30, 1996, between the Registrant and
Pamela S. Petcash.*
10.16 Form of Confidentiality and Non-
competition Agreement between the
Registrant's executive employees and
the Registrant.*
10.17 Consulting Agreement between
Management Resource Group, Inc. and
the Registrant dated July 23, 1996.*
10.18 Agreement between Universal Studios
Florida and the Registrant, dated
October 30, 1996.*
10.19 Agreement between CSX Transporta-
tion, Inc. and the Registrant, dated
October 31, 1996.*
10.20 Business Lease between Mandel
Development, a Florida general
partnership, and the Registrant,
dated January 15, 1997.**
10.21 Operating Agreement between the
Florida Department of Transportation
and the Registrant, dated January 6,
1997.**
10.22 Form of the Registrant'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 Registrant,
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 Registrant in
favor of Charles E. Bradshaw, Jr.,
dated March 13, 1997.**
10.26 Promissory Note in the amount of
$5,850,000 from the Registrant 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 Registrant,
dated March 13, 1997.**
16 Letter dated May 10, 1996, from the
Company's former accountants,
Hansen, Barnett & Maxwell, to the
Registrant is hereby incorporated by
reference to Exhibit 16 to the
Registrant's Current Report on Form
8-K dated May 6, 1996.
21 Subsidiaries of the Registrant.**
23.1 Consent of BDO Seidman LLP.**
27 Financial Data Schedule.**
- ----------
* Incorporated by reference to the comparable exhibit numbers as
contained in the Registrant's Registration Statement on Form SB-2, as
filed with the Securities and Exchange Commission on August 6, 1996.
** Filed herewith.
EXHIBIT 3.3
AMENDED BYLAWS
OF
FIRST AMERICAN RAILWAYS, INC.
ARTICLE I
IDENTIFICATION
SECTION 1. SEAL. The seal of the Corporation shall be circular
in form and mounted upon a metal die, suitable for impressing upon paper, and
shall bear the name of the Corporation and the words and number "Nevada,
Corporate Seal, 1987.
SECTION 2. FISCAL YEAR. The fiscal year of the
Corporation shall be determined by appropriate resolution of the
Board of Directors and may be changed from time to time by the
Board of Directors.
SECTION 3. PLACE OF BUSINESS. The Corporation may have
offices and do business at any place in any of the states,
districts or territories of the United States and in any and all
foreign countries.
ARTICLE II
STOCK CERTIFICATES, TRANSFER AND RECORDS
SECTION 1. FORM OF SHARES CERTIFICATES. The shares of the
Corporation shall be represented by certificates, in such forms as the Board of
Directors may prescribe, signed by the Chairman of the Board or the President or
a Vice President and the Secretary or an Assistant Secretary or a Treasurer and
sealed with the seal of the Corporation or a facsimile thereof. The signatures
of the Officers upon a certificate may be facsimiles if the certificate is
manually signed on behalf of a Transfer Agent or a Registrar other than the
Corporation or its employee. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
issue.
<PAGE>
Each certificate representing shares shall state upon the face
thereof:
(1) The name of the Corporation;
(2) That the Corporation is formed under the laws of the
State of Nevada;
(3) The name of the person or persons to whom issued;
(4) The number and class of shares, and the designation
of the series, if any, which such certificate represents; and
(5) The par value, if any, of each share represented by
such certificate; and
Should the Articles of Incorporation presently authorize, or
be amended to authorize, the issuance of shares of more than one class or more
than one series, in that event each certificate representing shares issued by
the Corporation shall set forth or fairly summarize upon the face or back of the
certificate, or shall state that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of:
(1) The designations, preferences, limitations, and relative
rights of each class or series of authorized shares to be issued.
(2) The variations in the relative rights and preferences
between the shares of each such series so far as the same have been fixed and
determined and the authority of the Board of Directors to fix and determine the
relative rights and preferences of subsequent series.
Each certificate representing shares which are restricted as
to sale, disposition or other transfer of such shares shall state that such
shares are restricted as to transfer and shall set forth or fairly summarize
upon the certificate or shall state that the Corporation will furnish to any
shareholder upon request and without charge a full statement of such
restrictions.
SECTION 2. TRANSFER OF SHARES. The rights against the
Corporation inherent in the shares represented by any stock certificate of this
Corporation are transferable only by registration of such shares in the name of
the assignee as the registered holder on the Stock Transfer Books of the
Corporation. The Board of Directors may appoint one or more Transfer Agents
and/or Registrars, jointly or severally, of the certificates representing the
shares of the stock of the Corporation and the Board of Directors may adopt such
rules and regulations concerning the issue, transfer and registration of the
stock of the Corporation as it may deem expedient and consistent with law, and
2
<PAGE>
may delegate the maintenance of the Stock Transfer Books and Record of
Shareholders and Shareholders Meeting Ledger derived therefrom to any duly
appointed Transfer Agent of the Corporation.
SECTION 3. RECORD OF SHAREHOLDERS. The Corporation shall keep
at its registered office or principal place of business or at the office of its
Transfer Agent or Registrar, among other records, a Record of Shareholders,
setting forth, among other things, the names and addresses of the holders of all
issued shares of the Corporation, the number, class and series, if any, of
shares and the date of issue of the certificates representing such shares and a
Stock Register, setting forth the total number of shares which the Corporation
is authorized to issue, and the total number of shares actually issued.
The officer or agent having charge of the Stock Transfer Books
for shares of the Corporation shall make, at least ten days before each meeting
of shareholders, a Shareholders Meeting Ledger which shall be a complete list of
the shareholders entitled to vote at such meeting or any adjournment thereof,
with the address of and the number and class and series, if any, of shares held
by each. Such list shall be kept on file at the registered office of the
Corporation, at the principal place of business of the Corporation or at the
office of the Transfer Agent for a period of ten days prior to such meeting and
shall be subject to inspection by any shareholder at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
at any time during the meeting. Shareholders shall be responsible for notifying
the Corporation or a Transfer Agent, in writing, of any changes in their names
or addresses from time to time, and failure to do so will relieve the
Corporation, its other shareholders, directors, officers, agents and attorneys,
of liability for failure to direct notices or other documents, or to pay over or
transfer dividends or other property or rights to a name or address other than
the name and address appearing in the Stock Transfer Books or Record of
Shareholders.
The original Stock Transfer Books shall be PRIMA FACIE
evidence as to the shareholders entitled to examine such list or transfer books
or to vote at any meeting of shareholders.
Any person who is a holder of record of shares or voting
trust certificates therefore shall, upon written demand under oath stating the
purpose thereof, have the right to examine, in person or by agent or attorney,
at any reasonable times, for any proper purpose, its relevant books and records
of accounts, minutes and record of shareholders of the Corporation, and may make
extracts therefrom at the shareholder's expense. This right of inspection shall
not extend to any person who has within two years sold or offered for sale any
list of shareholders of the Corporation or any other corporation, has aided or
abetted any person in procuring any
3
<PAGE>
list of shareholders or holders of voting trust certificates for any such
purpose, has improperly used any information secured through any prior
examination of the books and records of account, minutes or record of
shareholders or of holders of voting trust certificates for shares of the
Corporation or any other corporation, or was not acting in good faith or for a
proper purpose in making his demand.
SECTION 4. LOSS OF CERTIFICATE. In case of loss or destruction
of any certificate of stock, the Board of Directors may authorize the issuance
of another certificate in its place upon proof, satisfactory to the Board, of
such loss or destruction. If the directors deem it advisable they may require
the giving of a satisfactory bond of indemnity to the Corporation in such sum as
they may provide before issuing such duplicate certificate.
ARTICLE III
MEETING OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the shareholders
of the Corporation shall be held either at the principal office of the
Corporation or at such other place in the United States as shall be designated
by the Board of Directors.
SECTION 2. ANNUAL MEETING AND MEETINGS FOR THE ELECTION OF
DIRECTORS. An annual meeting of the shareholders for the election of directors
and transaction of other business shall be held on such date and at such place
in such city as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the
shareholders may be called by the Board of Directors, or the
holder(s) of not less that ten percent of all of the shares
entitled to vote at the meeting.
SECTION 4. NOTICE OF MEETINGS - WAIVER. Written notice stating
the place, day and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered to
each shareholder of record entitled to vote at such meeting not less than ten
nor more than sixty days before the date of the meeting, either personally or by
first class mail, by or at the direction of the President, the Secretary or the
officer or persons calling the meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the Stock Transfer Books of the
Corporation, with postage thereon prepaid. A shareholder may waive notice in
writing of a
4
<PAGE>
shareholders' meeting either before or after the time of such meeting, and the
business or purpose of such meeting need not be specified in the waiver.
Attendance by a shareholder at a shareholders' meeting shall also constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully convened.
SECTION 5. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD
DATE. For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the Stock Transfer Books shall be closed for a
stated period not to exceed sixty days in any case. If the Stock Transfer Books
shall be closed for the purpose of determining shareholders entitled to notice
of or to vote at a meeting of shareholders, such books shall be closed for at
least ten days immediately preceding such meeting.
In lieu of closing the Stock Transfer Books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken.
If the Stock Transfer Books are not closed and no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date under this section for the adjourned meeting.
SECTION 6. VOTING AT MEETINGS.
(A) VOTING RIGHTS. At each election or directors, every
shareholder entitled to vote at such meeting shall have the right to vote, in
person or by proxy, the number of shares owned by him on the record date for as
many persons as there are directors to be elected. At each shareholders'
meeting, every shareholder
5
<PAGE>
entitled to vote at such meeting shall have the right to vote, in person or by
proxy, the number of shares owned by him on the record date upon each proposal
duly presented at the meeting.
Shares held by an administrator, executor, guardian,
conservator, committee, or other fiduciary, except a trustee, may be voted by
him, either in person or by proxy, without transfer of such shares into his
name. Shares held by a trustee may be voted by him, either in person or by
proxy, only after the shares have been transferred into his name as trustee, or
into the name of his nominee. The Corporation shall not be entitled to vote
Treasury Shares. In all cases a resolution shall be considered to be adopted by
the shareholders if approved by the affirmative vote of a majority of the shares
represented and entitled to vote on the question at a meeting duly held at which
a quorum is present. For purposes of determining the affirmative vote of a
majority of the shares represented and entitled to vote on any question at a
meeting held at which a quorum is present, abstentions shall not be included in
the total number of votes cast and shall not count for purposes of calculating
whether or not a majority has been obtained.
(B) QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. When a specified item of business is required to be voted on by a
class or series of stock, a majority of the shares of such class or series
entitled to vote shall constitute a quorum for the transaction of such item of
business by that class or series. After a quorum has been established at a
shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting below the number
required for a quorum, shall not affect the validity of any action taken at the
meeting or any adjournment thereof. For purposed of establishing a quorum only,
"shares entitled to vote, represented in person or by proxy," as used in this
subsection, shall include shares present at a meeting in person or by proxy but
not voted and shares present at a meeting in person or by proxy and cast as
abstentions.
(C) PROXIES. A shareholder may vote either in person or
by proxy executed in writing by the shareholder, or his duly
authorized attorney-in-fact.
(D) INSPECTORS OF PROXIES, VOTES AND ELECTIONS. The Board of
Directors at its annual meeting may appoint two or more Inspectors of Proxies,
Votes and Elections to serve until the final adjournment of the next annual
shareholders' meeting. If they fail to make such appointment, or if their
appointees, or any of them, fail to appear at any meeting of shareholders, the
Chairman of the meeting of the shareholders may appoint other Inspectors to
serve for the meeting.
6
<PAGE>
Each Inspector, before entering upon the discharge of his
duties, shall execute a certificate faithfully to perform the duties of an
Inspector at such meeting with strict impartiality and according to the best of
his ability.
The Inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all shareholders. On request of
the person presiding at the meeting or any shareholder entitled to vote thereat,
the Inspectors shall make a report in writing of any challenge, question or
matter determined by them and execute a certificate of any fact found by them.
Any report or certificate made by them shall be PRIMA FACIE evidence of the
facts stated and of the vote as certified by them.
SECTION 7. ADJOURNMENT OF MEETINGS. If a meeting is adjourned
to another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and any business may
be transacted at the adjourned meeting that might have been transacted on the
original date of the meeting. If, however, after the adjournment, the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given to each shareholder of record on the new record
date who is entitled to vote at such meeting.
SECTION 8. ACTION WITHOUT A MEETING. When shareholders holding
not less than a majority of the voting shares entitled to vote on or authorize
any action shall determine to take such action without a meeting, they shall
sign a written consent on the record of the action taken and such action shall
be as valid as if a meeting had been legally called and notified.
SECTION 9. MINUTES. Minutes shall be made of all
shareholder proceedings, which minutes shall be taken and kept by
the Secretary of the Corporation.
7
<PAGE>
ARTICLE IV
THE BOARD OF DIRECTORS
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The business and
affairs of the Corporation shall be managed under the direction of the Board of
Directors. The Board of Directors of the Corporation shall consist of not less
than one nor more than nine members, with the precise number to be set, from
time to time, by the Board of Directors. Each director shall hold office until
the next annual meeting of shareholders and until his successor shall have been
elected and qualified, or until his earlier resignation, removal from office, or
death. Directors need not be residents of the State of Nevada or shareholders of
the Corporation.
SECTION 2. ELECTION. At the annual meeting of shareholders,
the shareholders shall elect directors to hold office until the next succeeding
annual meeting or until their successors have been elected and qualified. If
directors are not elected at the annual meeting, or the incumbent directors are
not elected at the annual meeting, the incumbent directors shall continue in
office until their successors are elected and qualified.
SECTION 3. VACANCIES. Whenever any vacancies shall occur in
the Board of Directors by death, resignation, removal, increase in the number of
directors or otherwise, the same may be filled by the affirmative vote of a
majority of the remaining directors even if less than a quorum of the Board of
Directors, and the director so elected shall hold office only until the next
election of directors by shareholders.
SECTION 4. PLACE, CALL AND ADJOURNMENT OF DIRECTORS' MEETINGS.
Meetings of the Board of Directors may be held either within or without the
state. Meetings of the Board of Directors may be called by the Chairman of the
Board, by the President of the Corporation or by any two directors. The Chairman
of the Board shall preside at all directors' meetings.
A majority of the directors present at a meeting, whether or
not a quorum is present, may adjourn any meeting to another time and place.
Notice of any adjournment of a meeting to another time or place shall be given,
in the manner described above, to the directors who were not present at the time
of the adjournment and, unless such time and place are announced at the meeting,
to the other directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall
meet each year immediately after the annual meeting of shareholders
for the purpose of organization, election of officers and
consideration of any other business that may properly be brought
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before the meeting. No notice of any kind to either old or new members of the
Board of Directors for such annual meeting shall be necessary.
SECTION 6. OTHER MEETINGS. Other meetings of the Board of
Directors may be held upon written notice by mail, telegram or cablegram at
least two days prior to the day for such meeting. Notice of any meeting of the
Board of Directors may be waived in writing signed by the person or persons
entitled to such notice, whether before or after the time of such meeting.
Attendance of a director at such meeting shall constitute a waiver of notice
thereof. The purpose or purposes of such meeting of the Board of Directors need
not be specified in the notice, or waiver of notice of such meeting.
SECTION 7. QUORUM AND ACTS. A majority of the members of the
Board of Directors then in office shall constitute a quorum for the transaction
of business. The act of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors, except
that any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting if a consent in writing, setting forth
the action so to be taken, signed by all of the directors, is filed in the
minutes of the proceedings of the Board.
Members of the Board of Directors or any committee thereof
shall be deemed present at any meeting of the Board or the committee if a
conference telephone or other similar communications equipment by means of which
all persons participating in the meeting can hear each other is used.
SECTION 8. REMOVAL. At a meeting of shareholders called
expressly for that purpose, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holder(s) of a majority of the
shares then entitled to vote at an election of directors.
SECTION 9. RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice to the Board of Directors or to the
President or Secretary of the Corporation. Such resignation shall take effect at
the time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. COMMITTEES. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
an executive committee and other committees, each of which, to the extent
provided in the resolution, shall have all the authority of the Board, except
that no such committee shall have authority to:
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(1) Approve or recommend to the shareholders actions or
proposals required to be approved by shareholders.
(2) Designate candidates for the office of director, for
purposes of proxy solicitation by shareholders.
(3) Fill vacancies on the Board of Directors or any
committee thereof.
(4) Amend the bylaws.
(5) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board
of Directors.
(6) Authorize or approve the issuance or sale of, or any
contract to issue or sell, shares, or designate the terms of a
series of a class of shares, except that the Board of
Directors, having acted regarding general authorization for
the issuance or sale of shares, or any contract therefor, and,
in the case of a series, the designation thereof, may,
pursuant to a general formula or method specified by the Board
by resolution or by adoption of a stock option or other plan,
authorize a committee to fix the terms of any contract under
which shares may be issued or sold, including, without
limitation, the price, the rate or manner of payment of
dividends, provisions for redemption, sinking funds,
conversion, and voting or preferential rights, and provisions
for other features of a class of shares, or a series of a
class of shares, with full power in such committee to adopt
any final resolution setting forth all the terms thereof and
to authorize the statement of the terms of a series for filing
with the Nevada Department of State.
The Board of Directors may designate one or more directors as
alternate members of any such committee, who may replace any absent member or
members at any meeting of such committee.
Unless a greater proportion is required by the resolution
designating a committee, a majority of the entire authorized number of members
of such committee shall constitute a quorum for the transaction of business, and
the vote of a majority of the members present at a meeting at the time of such
vote, if a quorum is then present, shall be the act of such committee, except
that any action which may be taken at a meeting of such committee may be taken
without a meeting if consent in writing, setting forth the action so to be
taken, signed by all of the members of the committee, is filed in the minutes of
the proceedings of the committee.
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Each such committee shall serve at the pleasure of the Board
of Directors.
SECTION 11. COMPENSATION. The Board of Directors shall
have authority to fix the compensation of directors for services in
any capacity.
SECTION 12. INTEREST OF A DIRECTOR IN TRANSACTIONS. No
contract or other transaction between the Corporation and one or
more of its directors or any other corporation, firm, association
or entity in which one or more of its directors are directors or
officers or are financially interested, shall be either void or
voidable because of such relationship or interest or because such
director or directors are present at the meeting of the Board of
Directors or a committee thereof which authorizes, approves or
ratifies such contract or transaction or because his or their votes
are counted for such purposes, if:
(1) The fact of such relationship or interest is disclosed or
known to the Board of Directors or committee which authorizes,
approves or ratifies the contract or transaction by a vote or
consent sufficient for the purpose without counting the votes
or consents of such interested directors; or
(2) The fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize,
approve or ratify such contract or transaction by vote or
written consent; or
(3) The contract or transaction is fair and reasonable as to
the Corporation at the time it is authorized by the Board, a
committee, or the shareholders.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
ARTICLE V
THE OFFICERS
SECTION 1. OFFICERS. The Board of Directors at their
annual meeting each year shall elect a Chairman of the Board,
President, Secretary and a Treasurer, and such other officers and
assistant officers and agents as may be deemed necessary by the
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Board of Directors. Any two or more offices may be held by the same person. All
officers shall serve until the next annual meeting of the Board of Directors or
until their respective successors are elected and qualified.
SECTION 2. VACANCIES. Whenever any vacancies shall occur in
any office by death, resignation, removal, increase in the number of officers of
the Corporation, or otherwise, the same shall be filled by the Board of
Directors, and the officer so elected shall hold office until his successor is
elected and qualified.
SECTION 3. DUTIES. The Chairman of the Board shall preside at
all shareholders' meetings and meetings of the Board of Directors. The
President, in the absence of the Chairman of the Board, shall preside at all
shareholders' meetings or meetings of the Board of Directors. The Secretary and
the Treasurer shall perform such duties as are from time to time assigned to
them by the Board of Directors. The Secretary shall have custody of and maintain
all of the corporate records, except the financial records. The Treasurer shall
have custody of all corporate funds and financial records, shall keep full and
accurate accounts of receipts and disbursements and render account thereof at
the annual meeting of shareholders and whenever else required by the Board of
Directors or President. It shall be the responsibility of the Treasurer to
prepare the following not later than four months after the close of each fiscal
year and to maintain such in the registered office of the Corporation:
(a) A balance sheet showing in reasonable detail the financial
condition of the Corporation as of the close of its fiscal
year.
(b) A profit and loss statement showing the result of
its operation during its fiscal year.
SECTION 4. COMPENSATION. The compensation of the
officers shall be fixed, from time to time, by the Board of
Directors.
SECTION 5. REMOVAL. Any officer elected or appointed by the
Board of Directors may be removed by the Board whenever in its judgment the best
interests of the Corporation will be served thereby. Removal shall be without
prejudice to the contract rights, if any, of the person removed. Election or
appointment of an officer shall not of itself create contract rights.
SECTION 6. RESIGNATION. Any officer of the Corporation
may resign at any time by giving written notice to the Board of
Directors or to the President or Secretary of the Corporation.
Such resignation shall take effect at the time specified therein;
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and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 7. CORPORATE INSTRUMENTS. All checks and drafts on,
and withdrawals from, the Corporation's accounts with banks or other financial
institutions, and all bills of exchange, notes and other instruments for the
payment of money, drawn, made, endorsed, or accepted by the Corporation, shall
be signed on its behalf by the person or persons thereunto authorized by, or
pursuant to resolution of, the Board of Directors.
ARTICLE VI
AMENDMENTS
The Board of Directors of the Corporation shall have the power
to alter, amend or repeal the Bylaws or adopt new Bylaws; provided, however, any
Bylaw may be repealed or changed by the shareholders, and new Bylaws may be
adopted by the shareholders. The shareholders may prescribe in any Bylaws made
by them that such Bylaw shall not be altered, amended or repealed by the Board
of Directors.
ARTICLES VII
INDEMNIFICATION
Any person who was or is a party, or is threatened to be made
a party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, and whether or not
brought by or in the right of the Corporation, by reason of the fact that he or
she is or was a director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, shall be indemnified by the Corporation (unless the conduct of
such person is finally adjudged to have been grossly negligent or to constitute
willful misconduct) against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit, or proceeding, including any appeal
thereof. Any such expenses, including attorney's fees, incurred in defending a
civil or criminal action, suit, or proceeding shall be paid by the
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Corporation in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee, or agent to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the Corporation as
authorized in this Bylaw. Indemnification hereunder shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
inure to the benefit of the heirs, executors, and administrators of such person.
The foregoing rights of indemnification shall not be deemed exclusive of any
other right to which any such person may otherwise be entitled apart from this
Bylaw.
The Board of Directors may authorize the purchase and
maintenance of insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Bylaw.
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EXHIBIT 4.6
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, HYPOTHECATED, PLEDGED, OR OTHERWISE DISPOSED OF IN THE UNITED
STATES OR TO U.S. PERSONS EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE
HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR
THIS CORPORATION, IS AVAILABLE.
March 13, 1997
FIRST AMERICAN RAILWAYS, INC.
SERIES A REDEEMABLE COMMON STOCK
PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3 hereof.
Warrant to Purchase 1,610,000
Shares of Common Stock
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by FIRST AMERICAN RAILWAYS, INC., a Nevada
corporation (the "Company"), CHARLES E. BRADSHAW, JR., is hereby granted the
right to purchase, subject to redemption hereof in accordance with Section 7
hereof, at the initial exercise price of Three and One-Half Dollars ($3.50) per
share (subject to adjustment as set forth herein), 1,610,000 shares of common
stock of the Company (the "Shares"). Each Common Stock Purchase Warrant
("Warrant") may be exercised from the date hereof until March 13, 2003. The
Shares and the Warrants are sometimes collectively referred to herein as the
"Securities."
Each Warrant initially is exercisable at a price of Three and One-Half
Dollars ($3.50) per Share payable in cash or by certified or official bank check
in New York Clearing House funds, subject to adjustments as provided in Section
6 hereof. Upon surrender of this Warrant, with the annexed Subscription Form
duly executed, together with payment of the Purchase Price (as hereinafter
defined) for the Shares purchased at the offices of the Company, the registered
holder of this Warrant (the "Holder") shall be entitled to receive a certificate
or certificates for the Shares so purchased.
1. EXERCISE OF WARRANT.
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The purchase rights represented by this Warrant are exercisable at the
option of the Holder, in whole or in part (but not as to fractional Shares
underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
Shares purchasable under this Warrant, the Company shall cancel this Warrant
upon the surrender hereof and shall execute and deliver a new Warrant of like
tenor for the balance of the Shares purchasable hereunder.
2. ISSUANCE OF CERTIFICATES.
Upon the exercise of this Warrant and payment in full for the Shares,
the issuance of certificates for Shares underlying this Warrant shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder, including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Section 3 hereof) be issued in the name of, or in such
names as may be directed by, the Holder; PROVIDED, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The certificates representing the Shares underlying this
Warrant shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future President or Vice President and Secretary
or Assistant Secretary of the Company who shall be duly authorized to execute
such certificates.
3. RESTRICTION ON TRANSFER.
Neither this Warrant nor any Share issuable upon exercise hereof has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Securities Act which has become effective and is current with respect to
such securities, or, (ii) pursuant to a specific exemption from registration
under the Securities Act but only upon the Holder hereof first having obtained
the written opinion of counsel to the Company, or other counsel reasonably
acceptable to the Company, that the proposed disposition is consistent with all
applicable provisions of the Securities Act as well as any applicable "Blue Sky"
or similar state securities law. Upon exercise, in part or in whole, of this
Warrant, each certificate issued representing the Shares underlying this Warrant
shall bear a legend to the foregoing effect.
4. REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
4.1 THE COMPANY'S REGISTRATION. Within 24 months following the
issuance of this Warrant, and upon receipt of written request from the
Holder thereof, the Company shall prepare and file, and use its "best
efforts" to obtain the effectiveness of, with the Securities and
Exchange Commission (the "Commission"), a registration statement along
with such other documents, including a prospectus, as may be necessary
in the opinion of counsel for
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the Company in order to comply with the provisions of the Securities
Act, so as to permit a public offering and sale of the Shares for a
consecutive period ending 60 months after effectiveness of the
registration statement described above. The costs and expenses
associated with the preparation, filing and prosecution of such
registration statements shall be borne by the Company.
4.2 DEMAND REGISTRATION.
(a) The Company covenants and agrees to give written notice of
any registration request under this Section 4.2 by any Holder to all
other Holders within ten (10) days from the date of the receipt of any
such registration request.
(b) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor and to have any registration statement declared effective at
the earliest possible time. The Company shall furnish each Holder
desiring to sell the Shares such number of prospectuses as shall
reasonably be requested.
4.3 COVENANTS WITH RESPECT TO REGISTRATION.
In connection with any registration under either Section 4.1 or
4.2 hereof, the Company covenants and agrees as follows:
(a) The Company shall pay all costs (excluding fees and expenses
of Holder(s)' counsel and any underwriting or selling commissions or
other charges of any broker-dealer acting on behalf of Holder(s)), fees
and expenses in connection with all registration statements filed
pursuant to either Section 4.1 or 4.2 hereof including, without
limitation, the Company's legal and accounting fees, printing expenses
and blue sky fees and expenses, and similar types of fees.
(b) The Company will take all necessary action which may be
required in qualifying or registering the securities included in a
registration statement for offering and sale under the securities or
blue sky laws of such states as reasonably are requested by the Holder,
provided that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any such
jurisdiction.
(c) The Company shall indemnify the Holder, each of their
directors and officers and each person, if any, who controls such
Holder within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Securities and Exchange Act of 1934 (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become
subject under the Securities Act, the Exchange Act or any other
statute, common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in such registration statement executed by the Company or
based upon written information furnished by the Company filed in any
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jurisdiction in order to qualify the Securities under the securities
laws thereof or filed with the Commission, any state securities
commission or agency, the National Association of Securities Dealers,
Inc., The Nasdaq Stock Market or any securities exchange, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements contained therein
not misleading, unless such statement or omission was made in reliance
upon and in strict conformity with written information furnished to the
Company by the Holder expressly for use in such registration statement,
any amendment or supplement thereto or any application, as the case may
be. If any action is brought against the Holder or any controlling
person of the Holder in respect of which indemnity may be sought
against the Company pursuant to this Section 4.3(c), the Holder or such
controlling person shall, within thirty (30) days after the receipt of
a summons or complaint, notify the Company in writing of the
institution of such action and the Company shall assume the defense of
such action, including the employment and payment of reasonable fees
and expenses of counsel (which counsel shall be reasonably satisfactory
to the Holder or such controlling person), but the failure to give such
notice shall not affect such indemnified person's right to
indemnification hereunder except to the extent that the Company's
defense of such action was materially adversely affected thereby. The
Holder or such controlling person shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Holder or such controlling
person unless the employment of such counsel shall have been authorized
in writing by the Company in connection with the defense of such
action, or the Company shall not have employed counsel to have charge
of the defense of such action or such indemnified party or parties
shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to
the Company (in which case the Company shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than
one additional firm of attorneys for all of the Holder and/or such
controlling person shall be borne by the Company. Except as expressly
provided in the previous sentence, in the event that the Company shall
have assumed the defense of any such action or claim, the Company shall
not thereafter be liable to the Holder or such controlling person in
investigating, preparing or defending any such action or claim. The
Company agrees to notify promptly the Holder of the commencement of any
litigation or proceedings against the Company or any of its officers,
directors or controlling persons in connection with the resale of any
of the Securities in connection with such registration statement. The
Company further agrees that upon demand by an indemnified person, at
any time or from time to time, it will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or
expense actually and reasonably paid by the indemnified person as to
which the Company has indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 4.3(c), any
such payment or reimbursement by the Company of fees, expenses or
disbursements incurred by an indemnified person in any proceeding in
which a final judgment by a court of competent jurisdiction (after all
appeals or the expiration of time to appeal) is entered against any
Holder or such indemnified person as a direct result of any Holder or
such person's gross negligence or willful misfeasance will be promptly
repaid to the Company.
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5. PURCHASE PRICE. The "Purchase Price" shall mean the initial purchase
price or the adjusted purchase price, depending upon the context. The initial
Purchase Price shall be Three and One-Half Dollars ($3.50) per Share. The
adjusted purchase price shall be the price which shall result from time to time
from any and all adjustments of the Purchase Price in accordance with the
provisions of Section 6 hereof.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK
DELIVERABLE.
(a)(i) Except as hereinafter provided, in the event the Company
shall, at any time or from time to time after the date hereof, sell any
shares of Common Stock for a consideration per share less than the
Purchase Price or issue any shares of Common Stock as a stock dividend
to the holders of Common Stock, or subdivide or combine the outstanding
shares of Common Stock into a greater or lesser number of shares (any
such sale, issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price for the Warrants in effect immediately prior
to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent to the nearest cent) determined by
dividing (A) the sum of (x) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by
the Purchase Price in effect immediately prior to such Change of
Shares, and (y) the consideration, if any, received by the Company upon
such sale, issuance, subdivision or combination by (B) the total number
of shares of Common Stock outstanding immediately after such Change of
Shares; PROVIDED, HOWEVER, that in no event shall the Purchase Price be
adjusted pursuant to this computation to an amount in excess of the
Purchase Price in effect immediately prior to such computation, except
in the case of a combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance with
this Section 6(a)(i) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the
issuance or sale of shares of Common Stock) for a consideration
part or all of which shall be cash, the amount of the cash
portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price, if
shares of Common Stock are offered by the Company for
subscription, or (ii) the public offering price (before
deducting therefrom any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services, or any expenses
incurred in connection therewith), if such securities are sold
to underwriters or dealers for public offering without a
subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any
other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and
otherwise than on the exercise of options, rights or warrants or
the conversion or exchange of convertible or
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exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which
shall be other than cash, the amount of the consideration
therefor other than cash deemed to have been received by the
Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company on the
basis of a record of values of similar property or services.
(C) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed
to have been issued immediately after the opening of business on
the day following the record date for the determination of
shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including
shares of Common Stock shall be deemed to involve the issuance
of such shares of Common Stock for a consideration other than
cash immediately prior to the close of business on the date
fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration
allocable to such shares of Common Stock shall be determined as
provided in subsection (B) of this Section 6(a)(i).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum
number of shares issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant
to this Section 6, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by
multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment by the Purchase Price in effect
prior to such adjustment and dividing the product so obtained by the
applicable adjusted Purchase Price.
(b) In case the Company shall at any time after the date hereof
issue options, rights or warrants to subscribe for shares of Common
Stock [other than warrants that may be issued pursuant to the
Conversion in certain circumstances of the Company's outstanding 10%
Convertible Secured Notes issued in 1996], or issue any securities
convertible into or exchangeable for shares of Common Stock, for a
consideration per share (determined as provided in Section 6(a)(i)
hereof and as provided below) less than the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way of
dividend or other distribution), the Purchase Price for the Warrants
(whether or not the same shall be issued and outstanding) in effect
immediately prior to the
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issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a
price determined by making the computation in accordance with the
provisions of Section 6(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable
under such options, rights or warrants (assuming exercise in
full even if not then currently exercisable or currently
exercisable in full) shall be deemed to be issued and
outstanding at the time such options, rights or warrants were
issued, for a consideration equal to the minimum purchase price
per share provided for in such options, rights or warrants at
the time of issuance, plus the consideration, if any, received
by the Company for such options, rights or warrants; PROVIDED,
however, that upon the expiration or other termination of such
options, rights or warrants, if any thereof shall not have been
exercised, the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this subsection (A) (and for
the purposes of subsection (E) of Section 6(a)(i) hereof) shall
be reduced by the number of shares as to which options, warrants
and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and
thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares
actually issued plus the shares remaining issuable upon the
exercise of those options, rights or warrants as to which the
exercise rights shall not have expired or terminated
unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange
of any convertible or exchangeable securities (assuming
conversion or exchange in full even if not then currently
convertible or exchangeable in full) shall be deemed to be
issued and outstanding at the time of issuance of such
securities, for a consideration equal to the consideration
received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the
conversion or exchange thereof; PROVIDED, HOWEVER, that upon the
termination of the right to convert or exchange such convertible
or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this subsection (B) (and for
the purposes of subsection (E) of SECTION 6(a)(i) hereof) shall
be reduced by the number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued
and outstanding, and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price that it
would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or
terminated unexercised.
7
<PAGE>
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred
to in subsection (A) of this SECTION 6(b), or in the price per
share or ratio at which the securities referred to in subsection
(B) of this SECTION 6(b) are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as
the case may be, to the extent not theretofore exercised, shall
be deemed to have expired or terminated on the date when such
price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or
exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or
exchangeable securities.
(c) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or
combination), or in case of any consolidation or merger of the Company
with or into another corporation (other than a merger with a Subsidiary
in which merger the Company is the continuing corporation and which
does not result in any reclassification or change of the then
outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants), or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale or conveyance,
the Company, or such successor or purchasing corporation, as the case
may be, shall make lawful and adequate provision whereby the Holder of
each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of securities
and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to
such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the corporate office of the
Company, a statement signed by its Chairman of the Board, President or
a Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary evidencing such provision. Such
provisions shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for
in Sections 6(a) and 6(b) hereof. The above provisions of this Section
6(c) shall similarly apply to successive reclassifications and changes
of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new
Warrant Certificates pursuant to the terms hereof, continue to express
the Purchase Price per share and the number of shares purchasable
thereunder as the Purchase Price per share and the number of shares
purchasable thereunder were expressed in the Warrant Certificates when
the same were originally issued.
8
<PAGE>
(e) After each adjustment of the Purchase Price pursuant to this
Section 6, the Company will promptly prepare a certificate signed by
the Chairman of the Board, President, or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon
exercise of each Warrant, after such adjustment, and (iii) a brief
statement of the facts accounting for such adjustment and will promptly
cause such officer's certificate to be sent by ordinary first class
mail to the Holder. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof
except as to the Holder to whom the Company failed to mail such notice,
or except as to the Holder whose notice was defective. The affidavit of
the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(f) No adjustment of the Purchase Price shall be made as a
result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, convertible notes, stock
purchase agreements and convertible or exchangeable securities
outstanding or in effect on the date hereof, (B) the issuance or sale
of shares of Common Stock upon the exercise of any "incentive stock
options" (as such term is defined in the Internal Revenue Code of 1986,
as amended), so long as such options were outstanding on the date
hereof or were subsequently granted with the consent of the Holder,
which consent sahll not be unreasonably withheld, or (C) the issuance
or sale of shares of Common Stock if the amount of said adjustment
shall be less than ten cents ($.10). In addition, the Holder shall not
be entitled to cash dividends paid by the Company prior to, and only to
the extent of, the exercise of this Warrant.
7. REDEMPTION OF THE WARRANT.
(a) Commencing six months from the issue date of the Warrant,
the Company may, on 30 days' prior written notice redeem all the
Warrants at ten cents ($.10) per Warrant, provided, however, that
before any such call for redemption of Warrants can take place, (i) the
Securities are registered under the Securities Act and applicable "Blue
Sky" laws, (ii) a current prospectus is then available for the resale
of the Securities and (iii) the closing bid price of the Common Stock
as reported by Nasdaq, or such other market on which the Common Stock
is then traded, exceeds $6.50 per share for the 20 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption contemplated by (b) and (c) below is given (subject to
adjustment in the event of any stock splits or other similar events as
provided herein).
(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the
Holders of the Warrants, by mailing to such Holders a notice of
redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Company. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly
given whether or not the Holder receives such notice.
9
<PAGE>
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be
less than thirty (30) days after the date of mailing of such notice,
(iii) the place where the Warrant Certificate shall be delivered and
the redemption price shall be paid, and (iv) that the right to exercise
the Warrant shall terminate at 5:00 p.m. (Eastern time) on the business
day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such
redemption except as to a holder (a) to whom notice was not mailed or
(b) whose notice was defective. An affidavit of the Secretary or
Assistant Secretary of the Company that notice of redemption has been
mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m.
(Eastern time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Holders shall be mailed to
such person at his/her address of record.
8. MERGER OR CONSOLIDATION.
In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding common stock of the Company), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of his Warrant,
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger by a holder of the number of shares
of common stock of the Company for which his Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 6. The above provisions of this
Section 8 shall similarly apply to successive consolidations or mergers.
9. EXCHANGE AND REPLACEMENT OF WARRANT.
This Warrant is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company for a
new Warrant of like tenor and date representing in the aggregate the right to
purchase the same number of Shares as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
10
<PAGE>
10. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated.
11. RESERVATION OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized common stock, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price therefor, all Shares issuable upon such exercise
shall be duly and validly issued, fully paid and nonassessable.
12. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company.
13. NOTICES.
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally, telegraphed or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
(a) If to the Company, to:
First American Railways, Inc.
2445 Hollywood Boulevard
Hollywood, Florida 33020
Facsimile: (954) 920-0602
Attn: Raymond Monteleone, President
(b) If to the Holder, to the address of such Holder as shown
on the books of the Company.
14. SUCCESSORS.
11
<PAGE>
All the covenants, agreements, representations and warranties contained
in this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
15. HEADINGS.
The headings in this Warrant are inserted for purposes of convenience
only and shall have no substantive effect.
16. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of Florida, without giving effect to
conflicts of law, rules or principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its corporate name by, and such signature to be attested to by, a duly
authorized officer on the date first above written.
FIRST AMERICAN RAIILWAYS, INC.
By:/s/ RAYMOND MONTELEONE
------------------------------
Raymond Monteleone, President
ATTEST:
- -----------------------------------
SIGN HERE
12
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the
right to purchase Shares represented by this Warrant in accordance to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
- -----------------------------------
Signature
Address
- -----------------------------------
- -----------------------------------
- -----------------------------------
Social Security Number or Taxpayer's
Identification Number
EXHIBIT 10.3
[LETTERHEAD OF FIRST AMERICAN RAILWAYS, INC.]
December 4, 1996
Gordon L. Downing
8807 Hidden Oaks Drive
Eden Prairie, Minnesota 55344
RE: EMPLOYMENT AGREEMENT WITH FIRST AMERICAN
RAILWAYS, INC. (THE "COMPANY")
Dear Gordon:
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 December 2, 1996 and continuing for a period of one year. The term of
your employment shall be automatically renewed for two consecutive additional
one-year periods unless and until you or the Company give the other party
written notice, received not later than 90 days prior to the then current
expiration date of your employment, of your or the Company's intention to
terminate your employment hereunder.
During the period of your employment you will serve as Vice President
of Marketing and Sales. 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>
Gordon L. Downing
December 4, 1996
1996-'97:
(Commencement-1/31/97) Base compensation at an annual rate
of $95,000.
1997:
(2/1/97 - 12/31/97) $100,000 per annum base compensation
along with a target bonus of 25% of
base compensation as determined by
the President of the Company
consistent with your attainment of
pre-determined individual and
corporate objectives; provided,
however, if the Company achieves its
"revenue goals" as previously
determined by the President of the
Company then you shall be entitled
to (i) receive as an additional
bonus an amount equal to 5% of your
applicable base compensation, and
(ii) the grant of ten-year,
non-qualified options covering 3,000
shares of common stock exercisable
at the then current market price and
all of which shall be fully vested
upon grant. (If your employment is
not renewed as provided herein
effective December 2, 1997, you will
only be entitled to receive the
prorated amount of your base
compensation for Calendar Year 1997,
for the period of your actual
employment.)
Calendar 1998:
(1/1/98 - 12/31/98) Base compensation, target bonus,
and future stock options to be
evaluated and determined by the
President.
The Company agrees to grant you on December 2, 1996 and thereafter on
each of the first and second anniversaries of that date (so long as this
agreement has not otherwise been terminated except as otherwise provided herein)
non-qualified, ten-year stock options to purchase 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 options shall
vest in one-third increments (3,333 shares) annually, with the initial vesting
beginning on the date granted; provided, however, that any such options which
remain to be granted and/or vested hereunder shall be immediately and fully
granted and vested in their entirety upon your election to terminate this
Agreement by reason of a "change in control" of the Company as hereafter
defined.
2
<PAGE>
Gordon L. Downing
December 4, 1996
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
delivering or telecopying written notice of such termination to you or to your
legal representative, as the case may be. Upon such termination or in the event
of your death, the Company shall be relieved of any further obligations under
this Agreement with the exception of the obligation to pay to you or your
estate, as the case may be, any accrued and unpaid salary earned by you, and all
granted but unvested options shall become fully vested. Further, in the event of
termination pursuant to this paragraph, the Company will pay the health and life
insurance premiums in connection with the coverage contemplated hereby for the
six-month period following such termination.
The Company shall have the right to terminate your employment for
"cause" at any time by reason of one or more of the following occurrences: (i)
your conviction, by a court of competent and final jurisdiction, of any crime
(but only in the event such crime involves the Company or directly relates to
your duties thereto) which constitutes a felony in such jurisdiction; or (ii)
your commission of a material act of malfeasance, fraud, dishonesty or breach of
trust against the Company; or (iii) your material violation of the terms of this
Agreement; or (iv) your failure to devote sufficient time, e.g., averaging 40
hours per week (taking into account vacation and holiday time) to the Company's
business. In the event the Company elects to terminate your employment for
"cause," the Company shall deliver or telecopy written notice to you informing
you of such election and setting forth the action or omission constituting the
reason for terminating your employment for "cause."
You shall be entitled to paid sick days and paid vacation days
commensurate with that due to an executive at your level of employment, with no
more than two weeks of which to be consecutive.
Until the establishment by the Company of a health insurance plan for
its executives, which is contemplated to be done on or before January 15, 1997,
the Company will pay you $300 per month to reimburse you for maintaining your
own health insurance coverage; you will provide the Company with receipts to
document your expenditure for such coverage. Thereafter, it is anticipated that
beginning on January 15, 1997, the Company shall provide you with "standard"
medical insurance. You shall also be entitled to
3
<PAGE>
Gordon L. Downing
December 4, 1996
participate to the same extent as other employees of the Company of a like
capacity and position in any profit sharing plan, executive non-qualified
deferred compensation plan or incentive compensation plan that the Board of
Directors of the Company shall determine to make available to such employees.
Beginning on December 2, 1996, the Company will pay you a car allowance of $300
per month.
Subject to the provisions of the subsequent paragraph, in the event
your employment with the Company is terminated (i) for "cause" (as defined
above), you will be entitled to receive 60 days' worth of your then current base
compensation along with any applicable bonus, or (ii) other than for "cause" you
will be entitled to the full benefits hereunder through the existing term
hereof.
In the event there is a "change in control" of the Company (as defined
below) and (i) within 12 months of such "change in control" you terminate your
employment hereunder, or (ii) your employment hereunder is terminated by the
Company for any reason or no reason within 12 months of such "change in
control", then in either case you shall, within fifteen days of such
termination, receive as severance pay a payment in cash of an amount equal to
one year's worth of your then current base compensation plus applicable bonus
(if any), along with the above-described acceleration of the granting and
vesting of your stock options (the "Termination Benefits"). For purposes of this
Agreement, a "change in control" of the Company shall occur when more than 50%
of the Company's voting capital stock is acquired by any "individual," "entity"
or "group" as those terms are defined in the Securities Exchange Act of 1934.
It is expressly understood and agreed that your employment must
terminate in order for the provisions of the preceding paragraph (which provides
for the payment of Termination Benefits to you in certain circumstances) to be
operative.
You agree that you will execute the Company's standard confidentiality
and noncompetition agreement upon your acceptance of employment with the
Company.
For the sixty-day period commencing December 2, 1996, the Company
agrees to sell to you up to 10,000 shares of its common stock for a per share
price equal to the current public market price of the Company's common stock.
It is further understood and a part of this Agreement that you and your
immediate family will relocate permanently to southeastern Florida within one
year.
4
<PAGE>
Gordon L. Downing
December 4, 1996
This Agreement represents the entire understanding and agreement
between us with respect to your employment by the Company and supersedes all
prior negotiations, representations and agreements made by and between us. No
alteration, amendment or modification of any of the terms or provisions of this
Agreement shall be valid unless made pursuant to an instrument in writing and
signed by each of us. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
Kindly indicate below that the foregoing represents our mutual
agreement with respect to the matters described in this Agreement by signing and
returning a copy of this Agreement, whereupon this Agreement shall constitute an
agreement between us.
Very truly yours,
FIRST AMERICAN RAILWAYS, INC.
By: /s/ RAYMOND MONTELEONE
- -------------------------------------
Raymond Monteleone, President
and Chief Operating Officer
Agreed to and Accepted this
6 day of December, 1996
/s/ GORDON L. DOWNING
- ------------------------------
Gordon L. Downing
5
EXHIBIT 10.9
AMENDMENT TO
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
THIS AMENDMENT TO THE FINANCIAL ADVISORY AND CONSULTING AGREEMENT
is made and entered into as of this 5th day of December, 1996 by and between
First American Railways, Inc. (the "Company") and International Capital Growth,
Ltd., formerly known as Capital Growth International, L.L.C., (the
"Consultant").
In consideration of and for the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
The parties desire to amend the Financial Advisory and Consulting
Agreement between the parties dated April 26, 1996 (the "Agreement") as follows:
1. Section 2 of the Agreement shall be amended to provide for an
extension of the term of the Agreement for eighteen (18) months beyond its
existing twenty-four (24) month term, such that the Agreement will expire on
October 26, 1999.
2. Notwithstanding the provisions of Section 7 of the Agreement, the
compensation due to Consultant for the period commencing July 31, 1996 through
the extended term as provided above shall be paid in full by the issuance of
52,500 shares of common stock of the Company (the "Shares") in January 1997. The
Company further agrees to use its "best efforts" to register for resale within
six (6) months the Shares in a post-effective amendment to the pending Form SB-2
Registration Statement No. 333-9601 which has been previously declared
effective.
3. The two year periods referenced in Sections 8 and 9 of the Agreement
shall be extended for eighteen (18) months and shall expire upon the expiration
of the term of the Agreement.
4. Except as provided above, the remaining terms of the Agreement are
hereby ratified and remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Financial Advisory and Consulting Agreement as of the date hereof.
FIRST AMERICAN RAILWAYS, INC.
By: /S/ WILLIAM T. NANOVSKY
---------------------------------------
William T. Nanovsky
Vice President and
Chief Financial Officer
INTERNATIONAL CAPITAL GROWTH, LTD.
By: /S/ ALAN L. JACOBS
--------------------------------------
Name: Alan L. Jacobs
Title: Senior Managing Director
EXHIBIT 10.20
BUSINESS LEASE
THIS LEASE entered into this 15th day of January, 1997, between MANDEL
DEVELOPMENT, a Florida general partnership, consisting of MARVIN MANDEL, general
partner, and PHILIP MANDEL, general partner, hereinafter called "LESSOR", and
whose address is 13205 Keystone Terrace, North Miami, Florida 33181 and FIRST
AMERICAN RAILWAYS, INC., a Nevada corporation, hereinafter called "LESSEE", and
whose address is
.
W I T N E S S E T H:
WHEREAS, the LESSOR wishes to lease to LESSEE certain warehouse/office
space at 3700 N. 29th Avenue, Suite 202, Hollywood, Florida 33020, located in
Broward County, Florida being a part of the warehouse/office development known
as Mandel Development I; and
WHEREAS, LESSEE is desirous of leasing said space under the terms and
conditions stated herein.
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and the rentals to be paid hereunder, the parties agree as follows:
1. LEASED PREMISES: The LESSOR does hereby lease, let and demise unto
the LESSEE and the LESSEE does hereby lease from and become tenant under this
Lease, the following described real property and improvements (hereinafter
referred to as "the Space" or "the Leased Premises"), approximately 14,800
square feet of building consisting of both "office" and "warehouse" area, as
more fully described on Exhibit A attached hereto. The improvements described in
Exhibit "A" shall be made, unless otherwise noted on Exhibit "A", by LESSOR at
LESSOR'S expense. Exhibit "A" also includes a site plan of the Leased Premises.
If, during the term of the Lease, the three tenants presently occupying
the spaces immediately adjacent to the Leased Premises in LESSOR'S building
known as Mandel Development I vacate those spaces and as they become available
for lease, the LESSEE, if it is in good standing under the Lease, shall have the
first right of refusal to lease those spaces from LESSOR at a rental rate to be
negotiated between LESSOR and LESSEE. LESSEE must notify LESSOR in writing of
its exercise of this first right of refusal within five (5) business days of
notice from LESSOR of the availability of the space. In the event that LESSEE
exercises this first right of refusal, the Lease shall be amended to reflect the
additional space, rental rate and any other terms agreed upon between the
parties.
2. TERM: This Lease is for an initial term of ten (10) years,
commencing on the date that the improvements to be effected by LESSOR described
in Paragraph 1 hereof are Certified for Occupancy (C-O) by all applicable
authorities. LESSOR shall use its best efforts to complete its work and have the
Leased Premises ready for C-O inspection by March 15, 1997.
<PAGE>
By occupying the space, LESSEE shall be conclusively deemed to have
accepted the same as complying fully with LESSOR'S covenants and obligations to
deliver the Space as required hereby; otherwise, the term of this Lease shall
begin upon LESSOR'S receipt of a C-O for the Leased Premises.
LESSEE shall have the right to terminate this Lease after the first
five years of the term provided that LESSEE gives written notice to LESSOR no
later than four (4) years from the date of commencement of the term of the Lease
and LESSEE pays LESSOR the sum of $23,000.00. If notice is not given by LESSEE
to LESSOR in the manner and within the time specified herein, this right to
early termination shall be considered to have been waived by LESSEE.
3. RENTAL: The LESSEE agrees to pay to the LESSOR the rent described as
follows:
A. BASE RENT ("INITIAL BASE ANNUAL RENTAL"): That total annual
sum equal to the square footage of the Space to wit: 14,800 square feet
multiplied by $5.89, payable at the rate of one-twelfth (1/12) of the annual sum
per month in advance on the 1st day of each month. Said payments shall be made
to LESSOR in such a way as to be received by LESSOR on the date due. The rent
for the first month of the Lease shall be paid prior to occupancy as provided
for below. On each anniversary date of the commencement date of the term of this
Lease, Base Annual Rent for the approaching Lease year shall increase over the
previous year's Base Annual Rental Rate. All annual adjustments to be made in
rent shall be based upon the previous year's Base Annual Rental Rate per square
foot.
It is agreed by the parties hereto that the Initial Base
Annual Rental shall be increased annually as set forth herein during the term
(including any renewal term) of this Lease. The first of said adjustments shall
be made one year from the date of the commencement of the term as stated in
Paragraph 2 of this Lease. Subsequent adjustments shall be made on the
anniversary date of the commencement of the term of this Lease and each year
thereafter on the basis of changes, if any, in the Consumer Price Index for All
Urban Consumers, U.S. City Average All Items (1982 - 84 = 100)(Index), as
published by the Bureau of Labor Statistics, U. S. Department of Labor, or, if
there shall be no such Index, then by the successor or the most nearly
comparable successor index thereto.
(1) The base period index for the purpose of determining any
increase in the Base Annual Rental shall be the average index for the three
months immediately preceding the month in which the term of this Lease
commences. If the average index for the three months preceding each anniversary
date of the commencement of the term of this Lease shall exceed the base period
index, then the Base Annual Rental for the coming Lease Year shall be arrived at
by multiplying the previous year's Base Annual Rent by a fraction, the numerator
of which shall be the average Index for the three month period preceding the
anniversary date of this Lease, and the denominator of which shall be the base
period index.
(2) The increased annual rental so obtained
(by multiplying the fraction
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aforesaid against the initial or previous year's Base Annual Rental as provided
herein) shall be payable by the LESSEE to the LESSOR in the same manner and at
the same time as the Initial Base Annual Rental payments.
(3) Notwithstanding any provisions to the contrary contained
herein, it is agreed by the parties hereto that the Base Annual Rental payable
hereunder for any Lease year during the term hereof shall not be less than the
previous year's Base Annual Rental rate as herein provided. It is further agreed
that the annual cost-of-living increases computed in accordance with this Lease
shall be limited to, and capped at, an annual increase of 4% of the previous
year's Base Annual Rental rate. Lease Year is defined as a 12 month consecutive
period, the first Lease Year commencing on the commencement date of the term
hereof and each subsequent Lease Year commencing on the succeeding anniversaries
thereof.
(4) The Base Annual Rent shall not include electric, gas,
telephone, garbage removal, trash removal, water or any other utilities which
serve the Space or accommodate the use of the Space by LESSEE. Telephone
service, janitorial service to the interior of the Leased Premises and interior
maintenance shall be LESSEE's responsibility in addition to the Base Annual Rent
and other expenses and services specified in this Lease to be paid by LESSEE.
B. COMMON AREAS AND SHARED EXPENSES: LESSEE shall pay for its
share of water, sewer, trash removal and garbage removal and outside
maintenance, including but not limited to landscaping and sprinkler system
repair for the common areas which are adjacent to or serve the Leased Premises.
Hazard insurance and extended coverage including plate glass coverage, liability
coverage in the amount of at least $1,000,000, flood insurance and rent
insurance for the Leased Premises shall be carried by the LESSOR but reimbursed
by the LESSEE. The payment for the aforesaid expenses shall be a reimbursement
to the LESSOR for LESSEE'S prorata share (based upon relative square footage) of
the total expense to LESSOR for such expenses for the building of which the
Leased Premises are a part. The Leased Premises constitute approximately (See
Exhibit 2)% of the building of which they are a part. Common area expenses shall
not include interest or penalties to LESSOR for overdue payments of taxes or
payments for expenses of any other building other than the building of which the
Leased Premises are a part. (Note: real estate taxes are assessed against a
parcel which contains more than one building but shall be prorated by LESSOR
between the buildings). All other payments required to be made under this Lease
by LESSEE to LESSOR in addition to the Base Annual Rent shall be deemed rent and
as such shall be subject to the LESSOR's right and recourse under the
circumstances of a nonpayment of rent. The LESSOR shall notify LESSEE each
January 1, April 1, July 1, and October 1, of its share of the expenses required
to be paid or reimbursed to LESSOR. Payment by LESSEE of its share shall be
received by LESSOR within ten (10) days of the date such notice is delivered by
LESSOR to LESSEE. LESSOR shall have sole and exclusive control over the common
areas adjacent to or serving the Leased Premises. LESSOR may from time to time
promulgate, change, or establish rules and regulations regarding the common
areas including the use thereof by LESSEE. Common areas shall include but not
necessarily be limited to the following: all access areas, all vehicular or
pedestrian roads or paths or ways for the Leased Premises, all parking areas,
all ingress and egress areas.
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C. TAXES: The LESSEE shall pay all applicable sales
and use taxes imposed by any governmental entity with respect to the renting
or leasing of the Space.
D. PAYMENT OF RENT: All payments of monies due under this
Lease shall be made and paid by LESSEE to LESSOR at the aforesaid address or at
such other place as LESSOR may, from time to time, designate in writing without
notice or demand and without offset, deduction or abatement to the sums stated
to be due in this Lease. All monies due hereunder shall be payable in current
legal tender of the United States and shall be subject to interest of 18% per
annum if not received within ten (10) days from the date due.
E. REAL ESTATE TAXES: As of the date of the commencement of
the Term of this Lease, the LESSEE shall be responsible for the payment of its
prorata share of real estate taxes and special assessments, if any, assessed by
any state, county or municipal authority against the property of which the
Leased Premises is a part, including LESSEE's prorata share of parking areas.
Taxes shall be prorated if this Lease is in effect for a portion of a tax year.
F. PAYMENT FOR TAXES AND INSURANCE: The total annual sums due
for real estate taxes and insurance (based upon relative square footage)
required to be paid or reimbursed to the LESSOR by the LESSEE under this Lease
shall be estimated for each Lease year by the LESSOR based upon the last
available actual amount for such taxes and/or insurance. The number of months in
the Lease year shall be divided into such total taxes and insurance estimate and
the resultant amount paid as rent to LESSOR each month. When the actual bill for
taxes and/or insurance is available, then an adjustment, up or down, to cover
over/under payments shall be made by the LESSOR to LESSEE or by LESSEE to LESSOR
as the case may be within thirty (30) days after notice of such adjustment by
LESSOR.
LESSEE shall have the right to contest the assessed value of the
Building for real estate tax purposes through the employment of a reputable
commercial service on a maximum thirty five (35%) percent contingent fee basis.
LESSOR agrees to reasonably cooperate with LESSEE if requested and to execute
such documents as LESSEE may reasonably request pursuant to LESSEE'S application
for tax adjustment. LESSOR'S liability for any costs, expenses or fees incurred
in connection with such contest shall be limited to a maximum of thirty five
(35%) percent of any resulting tax savings to LESSOR.
G. EVIDENCE OF EXPENSES: Upon request, LESSEE may review
copies of LESSOR'S bills for real estate taxes, insurance, gardening, water and
sewer and electricity related to the building of which the Leased Premises are a
part.
4. POSSESSION; OBLIGATIONS TO MAINTAIN/REPAIR: LESSEE shall maintain
the Leased Premises and shall keep in repair the Leased Premises including
doors, moldings, trim, window frames, door frames, closure devices, door
hardware, door hinges, and/or windows, plumbing, electrical and
air-conditioning. LESSEE shall give LESSOR written notice of the necessity of
structural and/or exterior repairs or maintenance. LESSEE shall maintain the
exterior of the Leased Premises in a clean and orderly condition, free of dirt,
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rubbish and unlawful obstructions. LESSEE shall maintain and repair the air
conditioning system; however, LESSOR shall assign all of its warranty rights
relating to the air conditioning system to LESSEE. LESSOR shall be responsible
to maintain the common areas including landscaping, parking areas and other
areas and facilities intended for the common use of the occupants of the
Building, subject to LESSEE's obligation to pay its share for certain common
area expenses as stated in this Lease. Further, LESSOR shall maintain the roof,
outer walls, foundation and structure of the Leased Premises in good repair.
In the event that LESSOR shall fail, neglect or refuse, for a period of
30 days following written notice from LESSEE (provided, however, that prior
written notice shall not be required in connection with emergency situations
which are defined to be those situations that pose an immediate threat of
personal injury or substantial property damage) to perform any repairs,
maintenance or other obligations required of LESSOR under the terms of the
Lease, then, in such event, LESSEE shall have the right to perform such repairs,
etc. for and on behalf of LESSOR and LESSOR shall pay to LESSEE LESSEE'S actual
costs of performing such repairs. Such sums shall be due and payable by Lessor
to Lessee within 45 days of the request therefor. If the repair is nonemergency,
LESSEE agrees to obtain at least two (2) competing bids. In the event such
payment is not made by the LESSOR to LESSEE, then LESSEE shall have the right to
deduct from the next ensuing installment or installments of Rent the amount due
LESSEE under this paragraph. Notwithstanding the foregoing, LESSEE shall have no
right to perform any repairs, maintenance or other obligation required of LESSOR
under the terms of this Lease if LESSOR commences such performance within such
30-day period and diligently prosecutes the cure thereafter until completion.
5. SECURITY DEPOSIT; CONDITION OF PREMISES ON
TERMINATION: Except as stated above, the LESSEE shall be responsible for the
condition of the Leased Premises upon termination of this Lease. The LESSEE
shall pay to the LESSOR $14,528.67 as a security deposit due upon the execution
of this Lease. It shall be the obligation of the LESSEE to return possession of
the Leased Premises to the LESSOR without damage or disrepair, except as to
normal wear and tear and free from any hazardous waste (as defined in paragraph
7 of this Lease) caused by, or incidental to, LESSEE's use of the Leased
Premises or abandoned by LESSEE at any time upon the Leased Premises or any
adjacent property of the LESSOR or anywhere that gives rise to an obligation by
LESSOR to remove, clear or clean such waste or its contamination. The LESSOR,
during the life of this Lease may commingle the security deposit with its own
funds. The security deposit sums shall not bear interest. The LESSEE shall not
attempt to apply the security deposit to rent. Any attempt to hold back rent
payments or any other payments due to LESSOR under this Lease by directing the
LESSOR to apply all or part of the security deposit to rent shall be deemed, at
the option of LESSOR, a default in this Lease. The security deposit shall be
refunded only after the LESSEE has completely surrendered possession of the
leased premises to LESSOR including a return of the keys to the Space and LESSOR
has had the time allowed by Florida law to inspect and give notice of any claims
to LESSEE. Any damage or disrepair that is not attributable to normal wear and
tear shall be paid for by the LESSOR from the security deposit with the balance,
if any, refunded to LESSEE without interest at such time as the security
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deposit would be required to be paid to the party entitled thereto. Any sums in
excess of the security deposit due for damage or disrepair shall be paid by
LESSEE to LESSOR within ten (10) days of LESSOR'S demand therefor. LESSEE shall
remain responsible, even after termination of this Lease and after the LESSOR's
inspection of the Leased Premises after termination, for the removal, clean up
and disposal of any hazardous waste or contamination therefrom (as defined in
paragraph 7 of the Lease) left on or affecting the Leased Premises.
6. INSPECTION OF PREMISES:
A. Prior to the LESSEE'S taking possession of the Leased
Premises, the LESSEE shall have fully inspected the Leased Premises and accepted
the Leased Premises in its then existing condition. Such inspection shall
encompass all physical facts which are deemed by the LESSEE to be relevant and
material, and the taking of possession shall, subject to any agreements in
writing to the contrary to be executed by the parties as an addendum hereto, be
an acceptance of the Leased Premises.
B. The LESSEE has made an independent survey and exploration
of all economic factors, both present, future and potential, which the LESSEE
deems material and important relative to matters contained in this Lease and the
business of LESSEE.
7. INDEMNITY AND DISCLAIMER: LESSOR shall not be liable for and LESSEE
hereby agrees to defend the LESSOR and indemnifies and holds LESSOR harmless
from, all fines, suits, actions, damages, claims, demands, losses and causes of
action brought by others against LESSOR based on LESSEE's use of the Leased
Premises or based upon LESSEE's negligence, intentional tort, or omissions
arising during the term of this Lease or any personal injury, loss of life, and
damage to any property or to any person that occurs on or about the Space or the
buildings and improvements of the LESSOR, or the appurtenances thereto, or upon
the adjacent sidewalks or streets caused by the negligence, misconduct, error or
omission or breach of this Lease by LESSEE, its employees, subtenants, invitees
or by any other person entering the Space under express or implied invitation of
LESSEE, or arising out of LESSEE'S use of the Space, including any use which may
cause the existence of any "Hazardous Waste" as that term may, from time to
time, be defined by the Florida Department of Environmental Regulation or any
subdivision thereof or the laws of the United States. The indemnities herein
provided by LESSEE to LESSOR shall include an indemnity against all costs,
counsel fees, expenses and liabilities incurred in and about any such claim, the
investigation thereof, or the defense of any action, or proceeding, brought
thereon, and from and against any orders, judgments and decrees, which may be
entered therein, which is caused by the acts or neglect of the LESSEE, its
agents employees, subcontractors, or servants. LESSOR shall not be liable or
responsible for any loss or damage to property or death or injury to any person
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition of other governmental body or
authority, by other tenants of the building or of any matter beyond the control
of LESSOR, or for any injury or damage or inconvenience which may arise through
repair or alteration of any part of the Leased Premises, or failure to make
repairs, or from any cause whatever except LESSOR'S negligence. LESSOR shall
have
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no obligation to make an investigation of any tenant, employee or proprietor
thereof, or of any guest or any other person entering the Leased Premises.
Notwithstanding the foregoing, LESSEE shall in no event be obligated to
indemnify, defend or save or hold LESSOR harmless of, from or against any loss,
cost, expense or liability arising (either directly or indirectly) from any
intentional tort, grossly negligent act or omission, of LESSOR and/or LESSOR'S
agents, employees and/or independent contractors.
8. LESSOR'S INSPECTION: The LESSOR or its agents shall have the right
to enter the Leased Premises with LESSEE or its agent present for the purpose of
inspecting the same or, for any other purposes not inconsistent with the terms
or spirit of this Lease, which inspections shall not unreasonably interfere with
or harass the LESSEE. All inspections except for those required by an emergency
shall be subject to reasonable prior notice and conducted during normal business
hours of LESSEE.
9. DEFAULT:
A. LESSOR at its election may exercise any one or more
of the options referred to below upon the happening or at any time after the
happening of any one or more of the following events of default, to- wit:
(1) LESSEE'S failure to pay the rent, or any other sums
payable hereunder for a period of three (3) days after written notice by LESSOR
served after a five (5) day grace period;
(2) LESSEE'S failure to abide by the nonmonetary terms of this
Lease and failing to commence to cure any action noticed by LESSOR which
specifies the LESSEE'S failure to observe, keep, or perform any of the
nonmonetary covenants, agreements or conditions of this Lease. With regard to
any curative action that is required to be performed by LESSEE in order for
LESSEE to comply with its obligations under this Lease, LESSEE shall "commence
to cure" within ten (10) days from LESSOR'S notice and diligently pursue such
curative action until completion or final disposition as the case may be.
"Commence to cure" shall mean that the LESSEE has filed any court actions or
applied in writing with required fees to any administrative or quasi-judicial
agency empowered to decide the matters complained of, or applied for, as the
case may be and all filing fees or application fees or bonds that are required
to file or pursue such action have been paid. In the case of any other curative
action, the LESSEE shall initiate the action required by whatever reasonable and
appropriate means which would reasonably result in the matters noticed being
cured.
(3) Should the LESSEE, at any time during the term of this
Lease, suffer or permit an involuntary or voluntary petition in bankruptcy to be
filed against it, or institute a composition or an arrangement proceeding under
Chapter X or XI of the Chandler Act, or make any assignment for the benefit of
its creditors, or should a receiver or trustee be appointed for the LESSEE'S
property because of LESSEE'S insolvency, and the said appointment is not
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vacated within thirty (30) days thereafter, or should the LESSEE'S leasehold
interest be levied on and the lien thereof not discharged within thirty (30)
days after said levy has been made, or should the LESSEE fail to promptly make
the necessary returns and reports required of it by the State and Federal law,
or should the LESSEE fail to promptly comply with all governmental regulations,
local, State and Federal, and such failure shall in any manner jeopardize the
rights of the LESSOR, then in such event, and upon the happening of either or
any of said events, the LESSOR shall have the right, at its election, to
consider the same a material default on the part of the LESSEE of the terms and
provisions hereof, and, in the event of such default not being cured by the
LESSEE within a period of thirty days from the date of the giving by the LESSOR
of written notice to the LESSEE of the existence of such default, the LESSOR
shall have the option of declaring this Lease terminated and the interest of the
LESSEE forfeited, or the LESSOR may exercise any other options herein conferred
upon it. The pendency of bankruptcy proceedings, or arrangement proceeding, to
which the LESSEE shall be a party, shall not preclude the LESSOR from exercising
the option herein conferred upon it. In the event that LESSEE, or the trustee or
receiver of the LESSEE'S property, shall seek an injunction against the LESSOR'S
exercise of the option herein conferred, such action on the part of the LESSEE,
its trustees or receiver shall automatically terminate this Lease as of the date
of the making of such application. In the event the Court shall enjoin the
LESSOR from exercising the option herein conferred, such injunction shall
automatically terminate this Lease.
(4) LESSEE making an assignment for the benefit of creditors;
(5) A receiver or trustee being appointed for LESSEE or a
substantial portion of LESSEE'S assets;
(6) LESSEE'S attempting to mortgage or pledge its interest
hereunder;
(7) LESSEE'S vacating or abandoning the Space;
(8) LESSEE'S interest under this Lease being sold without
LESSOR's consent under execution or other legal process;
(9) LESSEE'S interest under this Lease being assigned by
attempted subletting or by operation of law without LESSOR'S consent;
(10) Should the LESSEE, at any time, fail to abide by the
provisions of this Lease and should the LESSEE suffer by way of legal remedy or
equitable remedy an injunction, either of a civil or criminal nature, or should
the LESSEE fail to comply with safety regulations or fail to comply with any
governmental regulations so that it is necessary by process of law to terminate
or shut down LESSEE'S activities, then, subject to the provision of subparagraph
(2) above, the LESSEE shall be in default of this Lease.
B. In the event of any of the foregoing happenings, or other
default by LESSEE, the LESSOR, at its election, may exercise any one or more of
the following options,
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the exercise of any of which shall not be deemed to preclude the exercise of any
others herein listed or otherwise provided by statute or general law at the same
time or in subsequent times or actions.
(1) Terminate LESSEE'S right to possession under the Lease and
after due process re-enter and retake possession of the Space and relet or
attempt to relet the Space on behalf of LESSEE at such rental rate and under
such terms and conditions as LESSOR may deem best under the circumstances for
the purpose of reducing LESSEE'S liability. LESSOR shall not be deemed to have
thereby accepted a surrender of the Space and LESSEE shall remain liable for all
sums due under this Lease and for all damages suffered or costs incurred
including agents or brokers fees to find a new tenant, attorney's fees and costs
in advising and protecting LESSOR's interests under the circumstances;
(2) Declare this Lease to be terminated, ended and null and
void, and after due process re-enter upon and take possession of the Space
whereupon all right, title and interest of the LESSEE in the Space shall end;
(3) Declare all remaining sums due for rent under this Lease
through the end of the term of this Lease to be immediately due and payable.
LESSOR may collect the remaining sums due by distress or otherwise. In the event
LESSOR re-lets the Leased Premises for any portion of the term of this Lease,
then LESSEE shall be credited with the amount of any rent received against the
sums owed by LESSEE to LESSOR.
C. No re-entry or retaking of the Space by LESSOR shall be
construed as an election on its part to terminate this Lease, unless a written
notice of such intention be given to LESSEE. Nor shall pursuit of any remedy
herein provided constitute a forfeiture or waiver of sums due to LESSOR
hereunder or any damages accruing to LESSOR by reason of the violations of any
of the terms, provisions and covenants herein contained. LESSOR'S acceptance of
any other sums following any event of default hereunder shall not be construed
as LESSOR'S waiver of such event of default. No forbearance by LESSOR of action
upon any violation or breach of any of the terms, provisions, and covenants
herein contained shall be deemed or construed to constitute a waiver of the
terms, provisions, and covenants herein contained. Forbearance by LESSOR to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of any other violation
or default. Legal actions to recover for loss or damage that LESSOR may suffer
by reason of termination of this Lease or the deficiency from any reletting as
provided for above shall include the expense of repossession and any repairs or
remodeling undertaken by LESSOR following repossession.
D. The parties hereto agree that any and all suits for any and
every breach of this Lease shall be instituted and maintained only in State
Courts for Broward County, Florida and LESSEE, whether or not a resident or
doing business in the State of Florida hereby submits itself to the jurisdiction
of the State of Florida and the courts of Broward County where venue shall lie,
and LESSOR may effect service of process by any lawful means in order to confer
in
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personam jurisdiction in the courts of this state over LESSEE. LESSEE waives its
right to a jury trial in any litigation arising from or in connection with this
Lease.
E. Time is of the essence in this Lease and in case LESSEE
shall fail to perform the covenants on its part to be performed at the time
fixed for the performance of such respective covenants by the provisions of this
Lease, LESSOR may declare LESSEE to be in default of such Lease. In the event of
any alleged nonmonetary default by LESSOR hereunder, LESSEE shall give LESSOR
written notice thereof, specifying the exact nature of such default, and LESSOR
shall have a reasonable time, but not less than ten (10) business days, to cure
same. Monetary defaults by LESSEE shall be cured within three (3) days of a
written notice given by LESSOR to LESSEE.
10. NO LIENS CREATED: The LESSEE covenants and agrees that it has no
power to incur any indebtedness giving a right to a lien of any kind or
character upon the right, title and interest of the LESSOR in and to the
property covered by this Lease, and that no person shall ever be entitled to any
lien, directly or indirectly derived through or under the LESSEE, or its agents
or servants, or on account of any act or omission of said LESSEE. All persons
contracting with the LESSEE or furnishing materials and labor to said LESSEE, or
to its agents or servants, as well as all persons whomsoever, shall be bound by
this provision of this Lease. Should any such lien be filed, the LESSEE shall
discharge the same within thirty (30) days thereafter, by paying the same or by
filing bond or otherwise, as permitted by law. The LESSEE shall not be deemed to
be the agent of the LESSOR, so as to confer upon a laborer bestowing labor upon
the Leased Premises, or upon a materialman who furnishes material incorporated
in the construction of improvements upon the Leased Premises, a mechanics' lien
upon the LESSOR'S estate under the provisions of Chapter 713, Florida Statutes,
and subsequent revisions thereof. If requested by LESSOR, LESSEE agrees to
execute a short form Memorandum of Lease which LESSOR may record in the Public
Records of Broward County, Florida, which shall state, in accordance with
Chapter 713, Laws of the State of Florida, that LESSEE has no power to incur any
liens whatsoever.
11. NON-RECORDING OF LEASE: Subject to the terms of paragraph 10
hereof, this Lease may not be recorded by either the LESSOR or the LESSEE in the
Public Records of Broward County, Florida, and should the same be recorded by
the LESSEE it shall constitute an irrevocable and immediate default in the terms
of this Lease permitting the LESSOR to pursue all of the remedies contained in
this Lease or provided by statute. In addition thereto, the LESSOR shall be
entitled to all consequential damages which may occur as a result of having to
remove the Lease from the public records of Broward County, Florida, together
with any and all consequential damages which may occur to the title of the fee
owner of the property. These expenses shall include, but shall not be limited
to, attorneys fees, accountants' fees, surveying fees, recording fees, and any
and all damages which may occur to LESSOR or the fee simple owner as a result of
any cloud cast upon title to the property affected by the recording of this
Lease.
12. NON-WAIVER: Failure of the LESSOR to insist upon the strict
performance
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of any of the covenants, conditions and agreements of this Lease in any one or
more instances, shall not be construed as a waiver or relinquishment in the
future of any such covenants, conditions and agreements. The LESSEE covenants
that no surrender or abandonment of the Leased Premises or of the remainder of
the term of this Lease shall be valid unless accepted by the LESSOR in writing.
The LESSOR shall be under no duty to relet the Leased Premises in the event of
an abandonment or surrender or attempted abandonment or attempted surrender of
the Leased Premises. The LESSOR shall have the right to retake possession of the
Leased Premises or any part thereof, and such retaking of possession shall not
constitute an acceptance of the LESSEE'S abandonment or surrender thereof.
13. CONDEMNATION:
A. If at any time during the term of this Lease, the whole or
substantially all of the Leased Premises shall be taken for any public or
quasi-public purpose by any lawful power or authority by the exercise of the
right of condemnation or eminent domain or by agreement between LESSOR, LESSEE
and those authorized to exercise such right, this Lease and the terms hereof
shall terminate and expire on the date of such taking and the sums of money
provided to be paid by LESSEE shall be apportioned and paid to the date of such
taking.
B. In the event of any partial taking of the Leased Premises,
the rent shall abate based upon the application of a fraction, the numerator of
which shall be the amount of square footage actually taken from the LESSEE'S
premises and the denominator of which shall be the total amount of square
footage leased to LESSEE.
C. In the event of any condemnation wherein the whole or
substantially all of the Leased Premises shall be taken for any public or
quasi-public purpose by any lawful power or authority by the exercise of the
right of condemnation or eminent domain, this Lease shall terminate as provided
in subparagraph (a) above and upon proration of the rental or any other charges
required between the LESSOR and the LESSEE, this Lease shall terminate. The
LESSEE shall have the right to claim from the condemning authorities the value
of any of its property which is condemned. The LESSEE shall have no right to the
LESSOR's recovery for any condemnation of LESSOR's property.
14. LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS:
If LESSEE shall at any time fail to pay any sums due under this Lease in
accordance with the provisions of this Lease, or to take out, pay for or
maintain any insurance required by this Lease to be maintained, or shall fail to
make any other payment or perform any other act on its part to be made or
performed, then, LESSOR, after ten (10) days written notice to LESSEE (or
without notice in case of an emergency) and without waiving or releasing LESSEE
from any obligation of LESSEE contained in this Lease, may (but shall be under
no obligation to):
A. Pay any sum payable by LESSEE pursuant to the provisions
of this Lease; or
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B. Take out, pay for and maintain any insurance policy
required to be maintained by LESSEE under this Lease; or
C. Make any other payment or perform any other act on LESSEE'S
part to be made or performed as provided for in this Lease. LESSOR may enter
upon the Leased Premises for such purpose and take all such action thereon as
may be reasonably necessary therefor without notice to the LESSEE.
All sums so paid by LESSOR and all costs and expenses incurred by
LESSOR in connection with the performance of any such act, together with
interest thereon at the rate of eighteen (18%) percent per annum from the date
of LESSOR'S making of such payment shall constitute additional rent payable by
LESSEE under this Lease and shall be paid by LESSEE to LESSOR on demand. LESSOR
shall not be limited in the proof of any damages which LESSOR may claim against
LESSEE arising out of, or by reason of, LESSEE'S failure to provide and keep in
force insurance as aforesaid to the amount of the insurance premium or premiums
not paid or incurred by LESSEE and which would have been payable upon such
insurance, but LESSOR shall also be entitled to recover as damages for such
breach, the uninsured amount of any loss.
15. DESTRUCTION OF LEASED PREMISES: In the event that the Leased
Premises should be totally destroyed by fire, tornado or other casualty or in
the event the Leased Premises should be so damaged that rebuilding or repairs
cannot be completed within one hundred eighty (180) days after the date of such
damage, either LESSOR or LESSEE may at its option, by written notice to the
other given not more than one hundred eighty (180) days after the date of such
fire or other casualty, terminate this Lease. ln such event, the rent shall be
abated during the unexpired portion of this Lease effective with the date of
such fire or other casualty. ln the event the Space should be damaged by fire,
tornado, or other casualty covered by LESSOR'S insurance but only to such extent
that rebuilding or repairs can be completed within one hundred eighty (180) days
after the date of such damage, or if the damage should be more serious but
neither LESSOR nor LESSEE elects to terminate this Lease, then LESSOR shall
within thirty (30) days after the date of such damage commence to rebuild or
repair the Space and shall proceed with reasonable diligence to restore the
Space to substantially the same condition in which it was immediately prior to
the happening of the casualty, except that LESSOR shall not be required to
rebuild, repair or replace any part of the furniture, equipment, fixtures, and
other improvements which may have been placed by LESSEE or other tenants within
the Space. LESSOR shall, unless such damage is the result of the negligence or
willful misconduct of LESSEE or LESSEE'S employees or invitees, allow LESSEE a
fair diminution of rent during the time that the Space is unfit for occupancy.
ln the event any mortgagee, under a deed-of-trust, security agreement or
mortgage on the Space should require that the insurance proceeds be used to
retire the mortgage debt, LESSOR shall have no obligation to rebuild and if the
LESSOR chooses not to rebuild the Leased Premises, then this Lease shall
terminate upon notice to LESSEE. Any insurance which may be carried by LESSOR or
LESSEE against loss or damage to the space shall be for the sole benefit of the
party carrying such insurance and under its sole control.
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16. INSURANCE TO BE CARRIED BY LESSEE: It is agreed by and between the
LESSOR and LESSEE that during the times when the LESSEE shall have the
possession of the Leased Premises that they are exclusively within the control
of the LESSEE. LESSEE, therefore agrees, at its sole cost and expense for the
mutual benefit of the LESSOR and LESSEE to maintain personal injury and property
damage liability insurance with respect to the Leased Premises, insuring both
the LESSOR and the LESSEE against claims for bodily injury, death or property
damage occurring thereon, or caused by any of the negligence of the LESSEE, its
officers, agents or employees, in or about the Leased Premises, or the buildings
or property upon which said buildings are located. The LESSEE agrees to have
LESSOR named as a co-insured on said policies of insurance. Said insurance shall
have limits of not less than One Million ($1,000,000.00) Dollars in respect to
bodily injury or death to any one person; and not less than One Million
($1,000,000.00) Dollars in respect to any one accident; and not less than Fifty
Thousand ($50,000.00) Dollars property damage arising out of any one accident.
The LESSEE shall deliver to the LESSOR an insurance certificate showing
the LESSOR as a named insured prior to its entry onto the Leased Premises and
shall, on each anniversary date of this Lease, give evidence of the existence of
the insurance required by this Lease and in effect. During the periods in which
the Leased Premises are in the sole possession of the LESSEE, the LESSEE shall
observe all safety precautions prescribed by the applicable governmental
agencies, State and/or Federal, and shall follow all safety precautions for
prevention of fire as prescribed by the Southeastern Underwriters Association.
In addition to the personal injury and property damage liability
insurance required above, it shall be the obligation of the LESSEE to carry it's
own fire and extended coverage insurance, workmen's compensation insurance, and
such other insurance as the LESSEE may desire in order to protect the LESSEE
against risks which in its sole discretion it deems appropriate to be protected
against. The premiums on such insurance policies shall be paid for by the LESSEE
and it shall not be an obligation of the LESSOR to provide any such insurance or
protection for the LESSEE.
Each of the LESSOR and LESSEE hereby releases the other to the
extent of its insurance coverage, from any and all liability for any loss or
damage caused by fire or any of the extended coverage casualties or any other
casualty insured against, even if such fire or other casualty shall be brought
about by the fault or negligence of the other party, or any persons claiming
under such other party, provided, however, this release shall be in force and
effect only with respect to loss or damage occurring during such time as the
releasor's policies of fire and extended coverage insurance shall contain a
clause to the effect that this release shall not affect such policies or the
right of the releasor to recover thereunder. Each of the LESSOR and LESSEE
agrees that its fire and extended coverage insurance policies shall include such
a clause so long as the same is obtainable without extra cost, or if such extra
cost is chargeable therefor, so long as the other party pays such extra cost. If
extra cost is chargeable therefor, each party will advise the other thereof and
of the amount thereof, and the other party, at its election, may pay the same
but shall not be obligated to do so. Except as provided in this paragraph,
nothing in the Lease contained shall be deemed to release either party hereto
from liability for damages
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resulting from the fault or negligence of said party or its agents or from
responsibility for repairs necessitated thereby or by any default thereof
hereunder.
17. ALTERATIONS AND IMPROVEMENTS: The LESSOR shall be responsible for
the erection and construction of that portion of the Leased Premises described
in Paragraph 1 hereof. The LESSOR'S obligation for such improvements shall be
limited to the initial improvements effected as of the beginning of this Lease.
LESSOR shall not be responsible for any costs or allowances towards the cost of
any improvements that LESSEE makes to the Leased Premises after initial
possession of the Leased Premises by the LESSEE unless specifically provided for
in this Lease.
LESSEE shall obtain LESSOR'S prior written consent to any improvements,
modifications or alterations which affect the interior of the Leased Premises
and LESSEE shall furnish copies of the plans to LESSOR for LESSOR'S
consideration prior to doing any work for any improvements.
LESSEE shall conduct any work done to the Leased Premises in such a
manner as to maintain harmonious labor relations and not to adversely affect any
warranties pertaining to the existing premises. Prior to commencement of any
structural work, LESSEE shall submit to LESSOR copies of all necessary permits
and approved plans accompanied by a performance bond in form satisfactory to
LESSOR sufficient to protect the Leased Premises from claims of lien of any
sort. LESSOR reserves the right to have final approval of the contractors and
plans used by LESSEE to effect any structural modifications, alterations or
improvements to the Leased Premises. All alterations, additions or improvements,
whether temporary or permanent in character, made in or upon the Space by LESSOR
shall be LESSOR'S property and at the end of the term hereof shall remain in or
upon the Space without compensation to LESSEE. All of LESSEE'S furniture,
movable trade fixtures, and equipment not attached to the Space may be removed
by LESSEE at the termination of this Lease, if LESSEE so elects, and shall be so
removed, if required by LESSOR, and, if not so removed, shall, at the option of
LESSOR, become the property of LESSOR.
18. INSPECTION OF PLANS FOR ALTERATIONS OR IMPROVEMENTS: The Lessor
reserves unto itself the absolute right to approve, which approval shall not be
unreasonably withheld, any and all plans for improvements, modifications or
alterations to the Leased Premises. All plans for structural or non-structural
improvements, modifications or alterations must be signed by an architect,
engineer, or general contractor possessing necessary licenses. All plans and
work accomplished shall comply with all governmental rules and regulations and
the rules, orders and regulations of the Southeastern Underwriters Association
for the prevention of fires, at LESSEE'S own cost and expense.
19. USE OF SPACE: The Space shall be used by LESSEE only for the
purpose of general offices, warehouse and commissary. In the event LESSEE wishes
to cook on the Leased Premises, LESSEE shall first obtain all required permits
and licensing and shall comply with all applicable codes, ordinances, statutes
and regulations. In addition, If required by
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applicable authority, LESSEE shall install in the Leased Premises, at its own
expense, an appropriate and adequate grease trap and exhaust system. LESSOR
shall furnish LESSEE with a minimum of 32 parking spaces for LESSEE'S exclusive
use. Under no circumstances shall LESSOR be obligated to furnish any additional
parking to serve the Leased Premises and the LESSOR does not warrant that the
Leased Premises are suitable to conduct any retail sales uses. LESSEE shall not
do or permit to be done in or about the Space, nor bring or keep or permit to be
brought or kept therein, anything which is prohibited by or will in any way
conflict with any law, statute, ordinance or governmental rule or regulation now
in force or which may hereafter be enacted or promulgated, or which is
prohibited by any standard form of fire insurance policy. LESSEE shall not do or
permit anything to be done in or about the Space which will, in any way,
obstruct or interfere with the rights of other tenants of the LESSOR in the
warehouse/office rental complex known as Hollywood Park, or injure or annoy them
or use or allow the Space to be used for any improper, immoral, unlawful or
objectionable purpose; nor shall LESSEE cause, maintain, or permit any nuisance
in, on, or about the Space or commit or suffer to be committed any waste in, on,
or about the Space.
LESSEE shall promptly execute and comply with all statutes, ordinances,
rules, orders, regulations and requirements of the federal, state, county and
city governments, and of any and all their departments, bureaus or agencies
applicable to the Leased Premises for the correction, prevention and abatement
of nuisance or other grievances, in, upon or connected with said premises,
during the Term. Lessee shall comply with all applicable fire regulations
enforced by the City of Hollywood or any other governmental agency having
jurisdiction over the Leased Premises or Lessee's use thereof.
LESSEE covenants that no nuisance or hazardous trade or occupation,
except as provided for in this Lease, shall be permitted or carried on, in or
upon the Leased Premises; no act or thing shall be done or permitted; and
nothing shall be kept in or about the Leased Premises which will cause
cancellation of the risk or hazard insurance in effect for the Leased Premises,
and no waste shall be permitted or committed upon, or any damage done to, the
Leased Premises. The LESSEE covenants to pay to the LESSOR upon demand, damages
for injury to the Leased Premises or to the building of which the Leased
Premises are a part, which injury shall be caused or suffered by the LESSEE or
its agents, servants or employees. The LESSEE further covenants not to conduct
any business or permit any act or thing contrary to or in violation of the laws
of the United States of America, or the State of Florida, or of the Ordinances
of the County of Broward, in or about said Leased Premises, or the building of
which the Leased Premises are a part. The LESSEE shall promptly after discovery
of any such unlawful, disreputable, or extra-hazardous use, take all necessary
steps, legal and equitable, to compel the discontinuance of such use and to oust
and remove any subtenants, occupants or other persons guilty of such unlawful
disreputable, or extra-hazardous use. The LESSEE shall indemnify the LESSOR
against all costs, expenses, liabilities, losses, damages, injunctions, suits,
fines, penalties, claims and demands, including reasonable attorney's fees,
arising out of any violation of, or default in, these covenants.
The LESSEE shall not use or allow the Leased Premises or any part
thereof, to be used
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or occupied for any unlawful purpose or in violation of any certificate of
occupancy or certificates of compliance covering or affecting the use of the
Leased Premises, and will not permit any act to be done or any condition to
exist on the Leased Premises or any article to be brought thereon, which may in
law constitute a nuisance, public or private, or which may make void or voidable
any insurance then in force with respect to the Leased Premises to be used by
the public, as such, without restriction or in such manner as might reasonably
tend to impair the LESSOR's title to the Leased Premises or might reasonably
make possible a claim of adverse possession by the public, as such, or of
implied dedication of the Leased Premises.
The LESSEE, at its sole expense, shall comply with all laws, orders,
and regulations of federal, state and municipal authorities, and with any
direction of any public officer, pursuant to law, which shall impose any duty
upon the LESSOR or the LESSEE with respect to the Leased Premises. The LESSEE,
at its sole expense, shall obtain all licenses or permits which may be required
for the conduct of its business within the terms of this Lease, or for the
making of repairs, alterations, improvements, or additions, and the LESSOR,
where necessary, will join with the LESSEE in applying for all such permits or
licenses.
LESSOR represents that, to the best of its knowledge, the above
designated use of the Leased Premises is not in contravention to the current
zoning for the Leased Premises.
20. ACCESS TO PREMISES: Subject to the provisions of paragraph 8 of
this Lease, LESSOR or its authorized agent or agents shall have the right to
enter upon the Space at all reasonable times for the purposes of inspecting the
same, preventing waste, and making such repairs as LESSOR may consider necessary
(but without any obligation to do so except as expressly provided for herein),
and showing the Space to prospective tenants. If, during the last month of the
term, LESSEE shall have removed all or substantially all of LESSEE'S property
therefrom, LESSOR may immediately enter and alter, renovate and redecorate the
Space without elimination or abatement of rent or incurring liability to the
LESSEE for any compensation or offsets of rent and charges owed and such acts
shall have no effect upon this Lease.
21. SIGNS AND ADVERTISING: The LESSOR shall provide LESSEE, at LESSOR'S
expense, with two signs in accordance with Exhibit"A" hereto. No other signs
shall be permitted.
22. NOTICES: All notices required by law and this Lease to be given by
one party to the other shall be in writing and the same shall be deemed to have
been served on the day given, if personally delivered; or upon receipt if by
overnight express mail delivery or certified, first class, postage prepaid,
return receipt requested mail; or on the third day after which such notice is
deposited, if mailed by first class mail, postage prepaid. The parties have at
the beginning hereof affixed their addresses. The parties may, upon written
notice to the other, designate such other address for notices.
23. INTEREST ON PAST DUE SUMS: All sums of money required to be paid
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by the LESSEE to the LESSOR shall bear interest from due date, or maturity
thereof, at the rate of eighteen (18%) percent per annum until paid, which
interest shall be due and payable to the LESSOR upon its written demand.
24. MORTGAGE, TRANSFER, ETC. BY LESSOR: The LESSOR reserves the right
to sell, purchase, mortgage, hypothecate and convey in any form the Leased
Premises and the real property within which said Leased Premises are situate
without the permission of the LESSEE. It is further agreed that the LESSOR shall
have the right to assign this Lease and all rentals accruing hereunder without
the permission of said LESSEE.
LESSEE agrees that LESSEE'S rights shall be subordinated to any
bonafide mortgage which now encumbers the Leased Premises or lands in which the
Leased Premises are located, or any mortgage which hereafter may be placed on
the Leased Premises by the LESSOR or LESSOR'S assignees. The LESSOR shall have
the right to require the LESSEE to execute any subordination agreement which may
be required by any mortgagee subordinating its leasehold interest to any future
mortgage which may be executed by the LESSOR or LESSOR'S assignees.
The LESSEE further agrees to execute any required estoppel statement
recognizing LESSOR'S Lease and confirming that the same is in existence and in
good standing. LESSEE further agrees that it will attorn and accept as its new
landlord herein the assignee of this Lease, should the same occur. LESSOR shall
use its best efforts to obtain a non-disturbance agreement for LESSEE from the
mortgagee(s).
25. MORTGAGE PROTECTION CLAUSE: LESSEE agrees to give any mortgage
and/or trust deed holders of LESSOR'S by Registered Mail, a copy of any notice
of default served upon the LESSOR by LESSEE, provided that prior to such notice
LESSEE has been notified, in writing, (by way of notice of assignment of rents
and leases, or otherwise) of the address of such mortgagees and/or trust deed
holders. LESSEE further agrees that if LESSOR shall have failed to "Commence to
cure" the matters stated in any notice of default within ten (10) days from date
of LESSEE'S notice, then the mortgage and/or trust deed holders shall have an
additional ten (10) days within which to "Commence to cure" such default.
26. ASSIGNMENT AND SUBLETTING: LESSEE shall not assign the right of
occupancy under this Lease or any other interest therein, or sublet the Space,
or any portion thereof, without the prior written consent of LESSOR, which the
parties agree may not be unreasonably withheld. LESSEE absolutely shall have no
right of assignment or subletting if it is in default of this Lease.
Notwithstanding any assignment of the Lease, or the subletting of the Space, or
any portion thereof, LESSEE shall continue to be liable for the performance of
the terms, conditions and covenants of this Lease including, but not limited to,
the payment of rent and any other charges imposed hereunder. Consent by LESSOR
to one or more assignments or sublettings shall not operate as a waiver of
LESSOR'S rights as to any subsequent assignments and sublettings. LESSOR shall
have the sole option, which shall be exercised by providing LESSEE with written
notice, of terminating LESSEE'S rights and obligations under this Lease rather
than permitting any assignment or subletting by LESSEE. Should LESSOR permit any
assignment or subletting by LESSEE and should the monies to be
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received by LESSEE from such assignee or sublessee for all or part of the Space
as a result of such assignment or subletting (when compared to the rental rate
payable by LESSEE to LESSOR) be greater than the rental due under this Lease,
then the excess over the rental rate provided for in that sublease or assignment
shall be payable by LESSEE to LESSOR. It being the parties intention that LESSOR
and not LESSEE shall be the party to have the option to receive any profit from
any assignment or subletting. If there are one or more assignments or
sublettings by LESSEE to which LESSOR consents, the parties understand and
agree, anything to the contrary notwithstanding that any and all renewal options
to be exercised subsequent to the date of such assignment or subletting are
absolutely waived and terminated at LESSOR'S sole option. Any request by LESSEE
to LESSOR to permit a subletting or assignment shall contain or be accompanied
by a financial statement of the sublessee or assignee and such other information
and references as LESSOR deems necessary to reasonably evaluate the
acceptability of such prospective sublessee or assignee.
Notwithstanding the foregoing, this Lease may be assigned, or the
Demised Premises may be sublet, in whole or in part, to any corporation which
shall be an affiliate or subsidiary of LESSEE.
LESSOR will not unreasonably withhold or delay its consent to an
assignment or sublease to a party other than one mentioned in the preceding
paragraph.
For the purpose of this paragraph a "subsidiary" or "affiliate" of
LESSEE shall mean the following:
(a) An "affiliate" shall mean any corporation which, directly or
indirectly, controls or is controlled by or is under common
control with LESSEE. For this purpose, "control" shall mean
the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such
corporation, whether through the ownership of voting
securities or by contract or otherwise;
(b) A "subsidiary" shall mean any corporation not less than 50% of
whose outstanding stock shall, at the time, be owned directly
or indirectly by LESSEE;
In the event of the transfer and assignment by LESSOR of its interest
in this Lease and/or sale of the Leased Premises containing the Space, LESSOR
shall thereby be released from any further obligations hereunder, and LESSEE
agrees to look solely to such successor in interest of the LESSOR for
performance of such obligations.
27. LITIGATION VENUE: All litigation between the parties hereto
relating to this Lease shall be instituted, maintained and prosecuted in the
State Courts of Broward County, Florida, having jurisdiction over the subject
matter.
28. ATTORNEYS' FEES: In the event it shall become necessary for LESSOR
or LESSEE at any time to institute any legal action or proceedings of any nature
for the
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enforcement of this Lease, or any of the provisions hereof, or to employ an
attorney therefor the non-prevailing party in such action agrees to pay all
court costs and reasonable attorney's fees incurred by the prevailing party
including costs and fees for any appeals.
29. LESSOR'S LIEN: In addition to the statutory LESSOR'S Lien, LESSOR
shall have, at all times, a valid security interest to secure payment of all
sums of money becoming due hereunder from LESSEE, and to secure payment of any
damages or loss which LESSOR may suffer by reason of the breach by LESSEE of any
covenant, agreement or condition herein, upon all goods, wares, equipment,
fixtures, furniture, improvements and other personal property of LESSEE
presently, or which may hereinafter be, situated in the Space. Such property
shall not be removed therefrom without the consent of LESSOR until all
arrearages in the sums of money then due to LESSOR hereunder shall first have
been paid and discharged and all obligations to LESSOR hereunder shall first
have been fully complied with and performed by LESSEE. In consideration of this
Lease, upon the occurrence of any event of default by LESSEE, LESSOR may, in
addition to any other remedies provided herein, enter upon the Space and take
possession of any and all goods, wares, equipment, fixtures, furniture,
improvements, and other personal property of LESSEE situated on or in the Space,
without liability for trespass or conversion, and sell the same at public or
private sale, with or without having such property at the sale, after giving
LESSEE reasonable notice of the time and place of any public sale or of the time
after which any private sale is to be made, at which sale the LESSOR or its
assigns may purchase unless otherwise prohibited by law. Unless otherwise
provided by law, and without intending to exclude any other manner of giving
LESSEE reasonable notice, the requirement of reasonable notice shall be met if
such notice is given in the manner prescribed in this Lease at least five (5)
days before the time of sale. The proceeds from any such disposition, less any
and all expenses connected with the taking of possession, holding and selling of
the property (including reasonable attorneys' fees and other expenses), shall be
applied as a credit against the indebtedness secured by the security interest
granted in this Section. Any surplus shall be paid to LESSEE or as otherwise
required by law; and LESSEE shall pay any deficiencies forthwith. Upon request
of the LESSOR, LESSEE agrees to execute and deliver to LESSOR a financing
statement in form sufficient to perfect the security interest of LESSOR in the
aforementioned property and proceeds thereof under the provisions of the Uniform
Commercial Code in force in the State of Florida. The statutory lien for rent is
not hereby waived, the security interest herein granted being in addition and
supplementary thereto.
Notwithstanding the foregoing, LESSOR shall subordinate its statutory
landlord's lien of any institutional financing on LESSEE'S merchandise,
furnishings, equipment and personal property.
30. FORCE MAJEURE: Whenever a period of time is herein prescribed for
action to be taken by LESSOR, LESSOR shall not be liable or responsible for and
there shall be excluded from the computation for any such period of time any
delays due to strikes, riots, acts of God, shortages of labor or materials,
theft, fire, public enemy, injunction, insurrection, court order, requisition of
other governmental body or authority, war, governmental laws,
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regulations or restrictions or any other causes of any kind whatsoever which are
beyond the control of LESSOR.
31. SEPARABILITY: If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during the term
of this Lease, then and in that event, it is the intention of the parties hereto
that the remainder of this Lease shall not be affected thereby.
32. HOLDING OVER: The failure of LESSEE to surrender the Space on the
date provided herein for the termination of the term of this Lease (or at the
time the Lease may be terminated otherwise by LESSOR), and the subsequent
holding over by LESSEE with or without the consent of LESSOR, shall result in
the creation of a tenancy at will at double the rent including all sums payable
as of the date provided herein for the termination of this Lease. This provision
does not give LESSEE any right to hold over at the expiration of the term of
this Lease, and shall not be deemed, the parties agree, to be a renewal of the
Lease term, either by operation of law of otherwise.
33. RENT A SEPARATE COVENANT: LESSEE shall not for any reason withhold
or reduce LESSEE'S required payment of rent and provided in this Lease, it being
agreed that the obligations of LESSOR hereunder are independent of LESSEE'S
obligations.
34. CORPORATE TENANCY: If LESSEE is a corporation, the undersigned
officer of LESSEE hereby warrants and certifies to LESSOR that LESSEE is a
corporation in good standing and is authorized to do business in the State of
Florida. The undersigned officer of LESSEE hereby further warrants and certifies
to LESSOR that he or she, as such officer, is authorized and empowered to bind
the corporation to the terms of this Lease by his or her signature thereto.
LESSOR and LESSEE hereby represent and warrant to the other party
hereto that each has the authority to enter into this Lease and the persons
executing this Lease are the only persons required to do so in order to bind
LESSOR and LESSEE, as the case may be.
35. NO BROKERS; INDEMNITY: Both parties represent and agree that
neither has employed any realtor, broker or other agent in any matters involving
this Lease. Should any claim for any fee, commission or other compensation
arise, then each indemnifies and holds the other harmless from the claims of the
other's broker, agent or representative making such claim.
36. CONSTRUCTION: This Lease shall be construed and enforced according
to the laws of the State of Florida.
37. AMENDMENTS: This Lease contains the entire agreement between the
parties hereto and may not be altered, changed, or amended, except by instrument
in writing signed by both parties hereto. No provision of this Lease shall be
deemed to have been waived by
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LESSOR unless such waiver be in writing signed by LESSOR and addressed to
LESSEE, nor shall any custom or practice which may grow up between the parties
in the administration of the provisions hereof be construed to waive or lessen
the right of LESSOR to insist upon the performance by LESSEE in strict
accordance with the terms hereof. The terms, provisions, covenants, and
conditions contained in this Lease shall apply to, inure to the benefit of, and
be binding upon the parties hereto, and upon their respective successors in
interest and legal representatives, except as otherwise herein expressly
provided.
38. RADON GAS DISCLOSURE: Radon is a naturally occurring radioactive
gas that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time. Levels of radon
that exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your local county public health unit.
39. FINAL REPOSITORY: It is agreed between the LESSOR and the LESSEE
that this Lease shall be the final repository of all agreements between the
parties hereto and that no representations or claims of representations,
promises, discussions and communications, oral or in writing, shall be binding
upon the LESSOR unless the same are fully set forth herein.
40. LESSOR'S CERTIFICATION: (a) LESSOR agrees at any time, and from
time to time, upon not less than twenty (20) days prior notice by LESSEE, to
execute, acknowledge and deliver to LESSEE, a statement in writing addressed to
LESSEE certifying the following: (i) that this Lease or any sublease is
unmodified and in full force and effect (or, if there have been modifications,
that they are in full force and effect as modified and stating the
modifications), stating the dates to which the minimum base rent, additional
rent and other charges have been paid; (ii) stating whether or not to the best
knowledge of the signer of such certificate, there exists any default by LESSEE
in the performance of any covenant, agreement, term, provision or condition
contained in this Lease, and if so, specifying each such default, it being
intended that any such statement may be relied upon by LESSEE; and (iii) any
other information reasonably requested by a prospective assignee or subtenant of
the Premises. LESSOR'S failure to respond to LESSEE'S request for a written
statement within the twenty (20) day period mentioned in this Article shall be
interpreted as LESSOR appointing LESSEE attorney-in-fact to provide the written
statement requested under this Article.
(b) To LESSOR'S current actual knowledge, LESSOR has not received any
written notice from any governmental authority alleging any violation of Toxic
Waste Regulations or requiring the clean up or remediation of hazardous or toxic
materials or medical waste relating to the Property or the Premises.
41. QUIET ENJOYMENT: Upon payment by LESSEE of the amounts provided in
this Lease to be paid, and upon the observance and performance by LESSEE of all
terms, provisions, covenants and conditions on LESSEE'S part to be observed and
performed by it, LESSEE shall be entitled to peaceably and quietly enjoy and use
the Premises for the Lease term, subject to all the terms, provisions, covenants
and conditions of this Lease.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written or caused these presents on their
behalf to be executed.
LESSOR:
MANDEL DEVELOPMENT,
a Florida general partnership
/s/ Ayaconora Moedie-Person
- --------------------------- By: /s/ Marvin Mandel
Witness --------------------------------
Marvin Mandel, General Partner
/s/ Ayaconora Moedie-Person By: /s/ Philip Mandel
- --------------------------- --------------------------------
Witness Philip Mandel, General Partner
LESSEE:
FIRST AMERICAN RAILWAYS, INC.,
a Nevada corporation
Attest: /s/ Frank H. Foote By: /s/ Thomas E. Blayney
------------------- -------------------------------
Vice President of Operations
22
<PAGE>
Exhibit 1
First American Railways, Inc.
3700 29th Avenue
Suite 202
Hollywood, Florida 33020
WORK TO BE COMPLETED RESPONSIBILITY OF
- --------------------------------------------------------------------------------
Close windows at Executive offices. Mandel Properties
- --------------------------------------------------------------------------------
New carpet in all areas. (FAR will select carpeting
with other tenants) Mandel Properties
- --------------------------------------------------------------------------------
Patch and paint all walls, including warehouse. Mandel Properties
- --------------------------------------------------------------------------------
Change Lorenzo Glass in the existing boardroom. Mandel Properties
- --------------------------------------------------------------------------------
Remove sectional unit in open showroom area. Mandel Properties
- --------------------------------------------------------------------------------
Install concrete slab to railroad. (Subject to FAR
getting permission from CSX) Mandel Properties
- --------------------------------------------------------------------------------
Label all but 6 parking spaces as reserved
First American Railways, Inc. Mandel Properties
- --------------------------------------------------------------------------------
Label all 6 parking spaces as visitor
First American Railways, Inc. Mandel Properties
- --------------------------------------------------------------------------------
Strip and refinish floor in warehouse. Mandel Properties
- --------------------------------------------------------------------------------
Air Condition installed in warehouse. Mandel Properties
- --------------------------------------------------------------------------------
New walls and ceiling in showroom area; see drawing. Mandel Properties
- --------------------------------------------------------------------------------
Close doors in executive office areas per drawing. Mandel Properties
- --------------------------------------------------------------------------------
Sign on building consistent with other tenants. Mandel Properties
- --------------------------------------------------------------------------------
Sign on 29th Avenue consistent with other tenants. Mandel Properties
- --------------------------------------------------------------------------------
Move Kitchen area. (see plan) Mandel Properties
- --------------------------------------------------------------------------------
Tear out existing wall between the boardroom and the Mandel Properties
telephone area and build a new wall room larger
per the drawing.
- --------------------------------------------------------------------------------
Install partition at eating area. Mandel Properties
- --------------------------------------------------------------------------------
Close wall at area that was a kitchen, and open doorway Mandel Properties
as per the drawing.
- --------------------------------------------------------------------------------
Repairs to all interior and exterior doors that may Mandel Properties
be necessary.
- --------------------------------------------------------------------------------
Cleanup along side of the property, to the rear of the Mandel Properties
property by the railroad.
- --------------------------------------------------------------------------------
Thorough cleaning of the entire inside area. Mandel Properties
- --------------------------------------------------------------------------------
Construct a fire wall halfway through the warehouse. Mandel Properties
(See drawing)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 2
FIRST AMERICAN RAILWAYS, INC.
3700 North 29th Avenue--Suite 202
Hollywood, FL 33020
EXPENSES
Real Estate Taxes .......................... 32.5% of Entire Complex, 2 Bldgs.
Insurance .................................. 32.5% of Entire Complex, 2 Bldgs.
Gardener for Common Area ................... 32.5% of Entire Complex, 2 Bldgs.
Lawn Sprinkler for Common Area ............. 32.5% of Entire Complex, 2 Bldgs.
Water Meter for Common Area ................ 32.5% of Entire Complex, 2 Bldgs.
Water/Sewer Meter for Common Area .......... 60.5% of One Bldg.
FPL Outside spotlights Only ................ 60.5% of One Bldg.
EXHIBIT 10.21
OPERATING AGREEMENT
by and between
FIRST AMERICAN RAILWAYS, INC.
AND
FUN TRAIN, INC.
2445 Hollywood Boulevard
Hollywood, FL 33020
and
FLORIDA DEPARTMENT OF TRANSPORTATION
3400 W. Commercial Boulevard
Fort Lauderdale, FL 33309
<PAGE>
TABLE OF CONTENTS
Page
1. FFT/SCET CONSIST.......................................................2
2. EQUIPMENT SPECIFICATIONS...............................................2
3. SUBSTITUTION OF EQUIPMENT..............................................2
4. UNAVAILABILITY OF EQUIPMENT............................................2
5. ACCIDENTS OR EMERGENCIES...............................................2
6. FDOT SERVICES..........................................................3
7. DISPATCHING AND CONTROL................................................3
8. LABOR PROTECTION.......................................................4
9. EQUIPMENT..............................................................4
10. EQUIPMENT INSPECTION, MAINTENANCE AND REPAIR...........................4
11. FAR EMPLOYEES..........................................................4
12. RESERVATIONS AND TICKET SALES..........................................5
13. TAXES, PENALTIES, FINES AND CHARGES....................................5
14. TERMS OF COMPENSATION..................................................5
15. INDEMNIFICATION........................................................6
16. WAIVER.................................................................6
17. INSURANCE..............................................................7
18. CERTIFICATION BY FAR...................................................7
19. TERM OF AGREEMENT......................................................8
20. COMPLIANCE WITH LAWS, REGULATIONS AND RULES............................8
21. RELATIONSHIP OF PARTIES................................................9
22. FORCE MAJEURE..........................................................9
23. WAIVER AND MODIFICATION................................................9
24. ASSIGNMENT RESTRICTED..................................................9
25. NOTICES................................................................9
26. GOVERNING LAW.........................................................10
27. SEVERABILITY..........................................................10
28. PREREQUISITE CONSENT..................................................10
29. FURTHER AGREEMENTS....................................................10
EXHIBITS
Exhibit No. 1 Proposed Schedule for the Florida Fun Train
Exhibit No. 2 Proposed Schedule for the Space Center Excursion Train
-i-
<PAGE>
AGREEMENT
THIS AGREEMENT dated Jan 6th, 1997, is entered into between FIRST
AMERICAN RAILWAYS, INC., a corporation incorporated in the State of Nevada, and
FUN TRAINS, INC., a corporation incorporated in the State of Florida
(hereinafter referred to collectively as "FAR"),with offices at 2445 Hollywood
Boulevard, Hollywood, FL 33020 and the STATE OF FLORIDA DEPARTMENT OF
TRANSPORTATION (hereinafter referred to as "FDOT"), an agency of the State of
Florida which owns the South Florida Rail Corridor, with offices at 3400 W.
Commercial Boulevard, Fort Lauderdale, FL 33309.
FAR is desirous of obtaining the right to provide entertainment type
rail passenger service over FDOT's rail lines and FAR is willing to compensate
FDOT for such rights on a mutually agreed upon basis.
FAR desires to operate rail passenger service over FDOT rail lines
including sidings, passing track, and spur lines from the Mile Marker 1034 in
Hialeah, FL to the northern most point of the South Florida Rail Corridor
located approximately at Mile Marker 965 in West Palm Beach, FL (hereinafter
referred to as the "FLORIDA FUN" and "SPACE COAST EXCURSION TRAINS"). For
purposes of this Agreement, the Service operated by FAR will be referred to
collectively as "FFT/SCET".
Subject to the terms and conditions set forth herein, FDOT grants to FAR
trackage rights on and over and continued access to and use of FDOT tracks
required to provide FFT/SCET service from Mile Marker 1034 to the northern most
point of the South Florida Rail Corridor located approximately at Mile Marker
965 (hereinafter referred to as "Route"). It is the intent of the parties that
FAR shall have access to and use of the Hialeah Yard and the Broward Boulevard
Station, or other station(s) agreed upon by the parties subject to the timely
completion of the provisions of Paragraph 28, below. FAR, its agents, servants,
employees, consultants and contractors, shall also have the right to enter upon
the Route and operate equipment in accordance with the terms of this Agreement,
and subject to the provisions of Section 11, below.
GENERAL
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter contained, the parties do hereby mutually
agree as follows:
<PAGE>
1. FFT/SCET CONSIST: FAR proposes to operate the FFT/SCET with the following
equipment
(hereinafter referred to as "Consist"):
a. Two leased diesel locomotives, with one unit positioned on each
end of the train,
b. Five full length dome passenger cars each with an 80-passenger
capacity and food service
facilities,
c. one bilevel adult cocktail lounge car with live entertainment,
d. one bilevel lounge car with entertainment,
e. one bilevel space station video game car with virtual reality
games,
f. one bilevel education-oriented video game car with a gift shop,
and
g. one power and baggage car to provide electricity needed for
operation of the train's facilities and storage space for passenger baggage.
2. EQUIPMENT SPECIFICATIONS: All locomotives and equipment utilized by FAR in
connection with its operation of the FFT/SCET shall be designed and constructed
in conformity with standards prescribed by the Federal Railroad Administration
(hereinafter referred to as "FRA") and shall meet all requirements of FDOT and
CSX for operation over the rail lines. FAR will equip all of its locomotives in
service over FDOT's trackage with Automatic Train Control devices.
3. SUBSTITUTION OF EQUIPMENT: FAR reserves the right to substitute such other
combination of locomotives, passenger and service cars as it deems necessary for
the efficient operation of its business, provided the equipment meets the
requirements of Section 2 of this Agreement and does not exceed the approved
FFT/SCET Consist length.
4. UNAVAILABILITY OF EQUIPMENT: In the event locomotives or equipment utilized
by FAR is temporarily out of service or unavailable for any reason, FAR may
operate FFT/SCET without such equipment for such period of time as it is
unavailable for service. However, FAR shall always operate with two locomotives
unless it obtains prior FDOT approval.
5. ACCIDENTS OR EMERGENCIES: If an accident or emergency occurs while the
FFT/SCET Train is in transit over the Route, FDOT or its designee will
immediately notify FAR of the situation who will make its own arrangements for
FFT/SCET to continue to its final destination in an expeditious manner to allow
the
- 2 -
<PAGE>
use of the Route by other traffic. In the event of a breakdown or accident
involving an FFT/SCET train, FAR will make whatever arrangements are necessary
to move and/or remove its train to allow the use of the Route by other traffic.
SERVICES TO BE PROVIDED BY FDOT
6. FDOT SERVICES: FDOT or designee shall undertake reasonable actions reasonably
necessary to insure the on time operation of the FFT/SCET Consist over the Route
consistent with a schedule agreed to by FAR and FDOT and in conformity with the
following terms:
a. TRIPS: A "Trip" in the case of a FAR/FFT Train over FDOT's lines
shall be a complete transit from approximately Mile Marker 1012.2 at Broward
Station, approximately to Mile Marker 965 in the West Palm Beach, FL area
regardless of direction. Incidental movements relating to a particular trip to
maintain facilities or storage shall not be separately charged. The number of
FFT/SCET Trips shall be in accordance with the schedule agreed upon between FAR
and FDOT as set forth in Exhibits No. 1 and 2 to this Agreement. FAR may, by
providing FDOT thirty (30) days' advance written notice, request additional
trains be added. FDOT, has the sole discretion to consent to such additional
trains.
b. SCHEDULES: A proposed schedule for the FLORIDA FUN TRAIN is
attached hereto as Exhibit No. 1 and the proposed schedule for the SPACE CENTER
EXCURSION TRAIN is attached hereto as Exhibit No. 2. Requests for a change in
FAR rail passenger service over the Route shall take into account Tri-County
Commuter Rail Authority (hereinafter referred to as "TCRA") commuter service,
National Railroad Passenger Corporation (hereinafter referred to as "Amtrak")
intercity passenger service and CSX freight service as well as high speed rail
operations. The operation of the FFT/SCET Consist over the Route shall be
subordinate to the existing users. FDOT has the sole discretion to approve
schedules and changes.
7. DISPATCHING AND CONTROL: The following terms and conditions will apply with
regard to the dispatching and control of FFT/SCET Trains on the Route: the
movement of FFT/SCET Consists over the Route shall be under the direction and
control of CSX's dispatching headquarters in Jacksonville, FL. or FDOT's
designee.
8. LABOR PROTECTION: FAR shall be responsible for labor protection payments or
benefits in the event FDOT becomes obligated for such payments as a direct
result of FAR's operations over FDOT rail lines.
- 3 -
<PAGE>
TO BE PROVIDED BY FAR
9. EQUIPMENT: It shall be the responsibility of FAR to provide the equipment
specified in Section 1 of this Agreement at it its own expense in connection
with its operation of FFT/SCET service over the Route.
10. EQUIPMENT INSPECTION, MAINTENANCE AND REPAIR: FAR shall be responsible for
all mechanical repairs that may be required for safe and timely operations.
11. FAR EMPLOYEES: Except as otherwise provided herein, FAR or its designated
representatives shall provide sufficient employees to perform the following
duties required for the efficient operation of FFT/SCET Trains over the Route:
a. locomotive engineers;
b. conductors;
c. locomotive, inspection, repair and maintenance;
d. passenger coach repair, inspection and maintenance;
e. on-board mechanical repairs;
f. customer service;
g. ticketing and reservations;
h. baggage handling;
i. security.
The employees who are designated by FAR to perform the services
identified in this Section shall be employed under the control of by FAR,
whether employed directly by FAR or provided by an independent contractor. FDOT
shall be notified by FAR of all consultants or contractors who shall have access
to the Route. All consultants or contractors having access to the Route shall
have insurance coverages acceptable to FDOT. FAR employees, consultants or
contractors will be required to meet all FDOT, FRA, CSX and regulatory agency
requirements as to certification and qualifications, where applicable, before
being allowed to perform service. FDOT shall have the right for cause to direct
or to remove any FAR employees, consultants or contractors from the Route.
12. RESERVATIONS AND TICKET SALES: All reservations and sales of tickets for
passage on FFT/SCET Trains shall be entirely FAR's responsibility.
- 4 -
<PAGE>
13. TAXES, PENALTIES, FINES AND CHARGES: FAR shall during the term of this
Agreement be responsible for the prompt payment of all taxes, permit fees,
assessments, penalties or fines and similar charges assessed or levied by any
government or governmental agency upon any interest in equipment or facilities
owned or leased by FAR and used in connection with operating the FFT/SCET or
incurred as a result of FAR activities on or use of the Route. This shall not
include taxes, assessments and similar charges assessed or levied by any
governmental agency on the tracks, bridges, buildings or appurtenances
comprising the Route which are owned or leased by FDOT, nor shall this include
any penalties, fines or permit fees for which FDOT is responsible.
14. TERMS OF COMPENSATION: Pursuant to the terms of this Agreement, and in
consideration for permitting FAR's operation of FFT/SCET on the rail lines
comprising the Route, FAR shall compensate FDOT at the rate of $500.00 per Trip
for each one-way FFT/SCET trip generated by FFT/SCET over the Route (hereinafter
referred to as the "Trip Rate"). The Trip Rate shall be increased by $50.00 per
trip for each year this contract is in effect. For the second year of operation,
the cost will increase to $550.00 per one way trip. Then in the third, forth and
fifth years, the trip rate shall increase to $600.00, $650.00 and $700.00,
respectively.
The parties shall negotiate a separate agreement specifying the terms,
conditions and compensation relative to FAR's use of Broward Station and Hialeah
Yard.
In the event FAR secures authorization from FDOT to operate special,
nonscheduled promotional trains in addition to those regularly-scheduled trains
reflected in Exhibit Nos. 1 and 2, as amended from time to time, FAR shall
compensate FDOT at the rate of $4.00 per train mile traveled over the Route. FAR
shall be limited to three (3) additional nonscheduled promotional trains prior
to commencement of operations pursuant to this Agreement, although the parties
may agree to operate more nonscheduled promotional trains after commencement of
operations.
15. INDEMNIFICATION: FAR agrees to assume all risks of, and to indemnify FDOT,
CSX and Amtrak against and save them harmless from all loss, cost, expense,
reasonable attorneys' fees, claims, suits and judgements whatsoever incurred,
made, instituted or sought to be enforced by any party or parties other than FAR
incident to the operation of FFT/SCET service pursuant hereto, including, but
not limited to,
- 5 -
<PAGE>
environmental claims, injury to, or death of, any person or persons, including
employees of FAR and of FDOT, CSX or Amtrak, or any loss of, or damage to,
property, including property of FDOT, CSX and Amtrak caused by, or in any way
connected with, the operation of FAR's equipment or the performance of FAR's
services, regardless of whether such injury, death, loss or damage results from
any cause whatsoever or whether such injury, death, loss or damage results from
the negligent acts or omissions of FDOT, CSX or Amtrak, their agents, servants
or employees.
16. WAIVER: FAR waives any and all claims that it may have against FDOT for any
loss, cost, expense, attorneys' fees, claims, suits or judgements whatsoever
incurred by it incident to the operation of FFT/SCET service pursuant hereto,
including, but not limited to, any such claims relating to injury to, or death
of, any person or persons, including employees of FAR and FDOT, or any loss of,
or damage to, property, including property of FAR, caused by, or in any way
connected with, the operation of FAR's equipment or the performance of FAR's
services, regardless of whether such injury, death, loss or damage results from
any cause whatsoever or whether such injury, death, loss or damage results from
the negligent acts or omissions of FDOT, its agents, servants or employees. It
is understood and agreed, however, that by the foregoing provisions of this
Section FAR neither waives any claim or claims that it may have, whether
embodied in an arbitrators' award otherwise, based upon its right to have FDOT
perform the terms and conditions of this Agreement on their part to be
performed, nor does it waive any claim or claims that it may have for any
conversion or other misappropriation by FDOT, whether temporary or otherwise, of
any FAR Consist, locomotive or passenger coach.
17. INSURANCE: FAR shall procure and maintain at its expense no less than $125
Million in comprehensive general liability insurance coverage to protect FDOT
and Tri-Rail under any and all conditions relating to its use of the Route and
Corridor facilities. Said insurance coverage shall contain a maximum deductible
not in excess of $100,000.00, unless modified by agreement of the parties. The
terms and form of the policy, the carrier providing the coverage, the amounts of
such coverage, and proof of the continuous availability of cash or security to
cover the insurance policy deductible shall be subject to the prior approval of
FDOT. FAR shall also procure and maintain, at its expense, insurance coverage
for CSX and Amtrak in
- 6 -
<PAGE>
form and substance satisfactory to CSX and Amtrak. FAR shall afford the same
limits of coverage afforded to others relating to its use of the route and
Corridor Facilities.
A Certificate of Insurance specifying such coverage and proof of the
continuous availability of cash or security to cover the insurance policy
deductible will be furnished to FDOT and kept in force at the cost and expense
of FAR until such time as this Agreement is terminated, or FAR shall have been
specifically released therefrom by a written instrument signed and sealed by an
authorized officer of FDOT.
The insurance coverage shall provide that the insurance company will
give FDOT and FAR 30 days' advance written notice of any change in coverage
under said liability policy together with certificate of such revised coverage,
which shall be subject to FDOT's approval. The insurance shall also provide that
the insurance company will give FDOT and FAR 30 days' written notice in advance
of cancellation of such policy. All of these notices shall be stated on the
Certificate of Insurance. FAR trains will not be permitted to operate on the
Corridor should the insurance provided for in this Agreement lapse.
18. CERTIFICATION BY FAR: Each payment by FAR to FDOT shall be accompanied by a
statement certified by and officer of FAR showing the calculation of Trip Rate
Charges and other charges covered by the statement. FDOT shall have the right
for a period of three years commencing with the date on which it is provided a
certified statement to inspect FAR's books and records pertaining to such
certified statements at its own expense upon reasonable notice to FAR. Such
records shall be subject to inspection at FAR's headquarters during normal
business hours, unless otherwise agreed to by the parties.
OTHER
19. TERM OF AGREEMENT: This Agreement shall commence on the first day above
written and shall continue, unless terminated sooner, until the end of the 5th
year from the date FAR commences scheduled FFT/SCET service on the Route. FAR
shall commence operations within 2 years from the date of this Agreement. At the
conclusion of said 5-year term, FAR shall have the right to request an extension
of this Agreement for an additional 5-year period which may be granted in FDOT's
sole discretion upon 90 days' advance written notice to FDOT of FAR's intent to
do so. This Agreement shall also terminate, unless the parties agree otherwise;
a. if operation of the FFT does not commence within 2 years of the
date of this Agreement;
- 7 -
<PAGE>
b. if FFT and SCET operations are suspended or cease to operate for
more than ninety (90) days;
c. If there are 10 independent suspensions of FFT and SCET
operations within the term of the Agreement;
d. if, subject to Paragraph 22, below, FFT and SCET operations are
suspended for more than 6 consecutive months;
e. if FDOT determines that FAR's FFT or SCET operations are in
material violation of the terms of this Agreement, and FAR fails to cure any
violation within forty-five (45) days of receiving written notice of the
violation; or
f. if the Route is deemed necessary for high speed rail and FDOT
determines within its sole discretion that the Route cannot be shared with FAR,
and FDOT provides 3-year written notice to FAR of the need for the Route.
With regard to any suspensions in operations, FAR shall inform FDOT of
the reasons for its suspension of Service and when operations are expected to
resume.
20. COMPLIANCE WITH LAWS, REGULATIONS AND RULES: FAR and FDOT shall comply with
all applicable laws and state and federal regulations, CSX Operating Rules,
general orders and timetables in the dispatching, operation, maintenance,
inspection and testing related to the operation of FFT/SCET Trains over the
Route. Where compliance with the foregoing requires FAR to obtain any regulatory
approval for the operation of FFT/SCET or the changing of any equipment,
fixture, or appliance on any FAR equipment, thereby necessitating the
expenditure of funds, such compliance shall be accomplished at FAR's expense.
20. RELATIONSHIP OF PARTIES: Under the terms of this Agreement, the relationship
of FDOT to FAR is that of a licensor. This Agreement shall not be deemed to
create a joint venture or partnership between FAR and FDOT.
21. FORCE MAJEURE: Each party shall be excused from the performance of any of
its obligations hereunder to the other party where such nonperformance is
occasioned by any event beyond its control, which shall include without
limitations, any order, rule or regulations of any federal, state, or local
governmental body, agency, or instrumentality, work stoppage, accident, natural
disaster, or civil disorder,
- 8 -
<PAGE>
provided the party so excused hereunder shall use all reasonable efforts to
minimize its nonperformance and to overcome, remedy, cure, or remove such event
as soon as reasonably practicable. Nonperformance shall be excused only to the
extent that, and for so long as, in any given case the force or circumstance
making performance impossible shall exist. However, in no event shall this
Agreement be extended beyond its Term as defined in Paragraph 19, above.
22. WAIVER AND MODIFICATION: The waiver by any party hereto of a breach of any
provision hereof shall not be construed to operate as a waiver of any subsequent
breach of the same, or any other provision of this Agreement. This instrument
contains the entire agreement of the parties with respect to the subject matter
hereof and said parties have not made any agreements relating to such subject
matter which are not set forth herein. No modification of this Agreement shall
be effective unless in writing and signed by the party against which it is
sought to be enforced.
23. ASSIGNMENT RESTRICTED: Neither this Agreement, nor any right thereunder, may
be assigned by FAR without the written consent of FDOT. FDOT may, in its sole
discretion, withhold its consent to assignment of this Agreement.
24. NOTICES: All notices, demands, requests, and other communications under this
Agreement shall be deemed properly served if delivered by hand (personally, by
courier service such as Federal Express, or by other messenger) to the party to
whose attention it is directed, or same shall be deemed to have been properly
served and delivered when deposited in the United States Mails, registered or
certified mail, postage prepaid, return receipt requested, addressed as set
forth below:
If intended for FAR: First American Railways,Inc. and
Fun Train, Inc.
2445 Hollywood Boulevard
Hollywood, FL 33020
If intended for FDOT: District Secretary
Florida Department of Transportation
3400 W. Commercial Boulevard
Fort Lauderdale, FL 33309
Copy to: Florida Department of Transportation
Manager, South Florida Rail Corridor
3400 W. Commercial Boulevard
Fort Lauderdale, FL 33309
- 9 -
<PAGE>
Each party may designate by notice in writing substitute parties and/or
a new address to which any notice, demand request or communication shall
thereafter be served. Each party shall designate by written notice its
representative for operations matters under this Agreement. With respect to
discussions with such representative on matters of operations under this
Agreement, each party shall be entitled to rely on the responses and decisions
made by the other party's representative so designated.
25. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
26. SEVERABILITY: Each provision of this Agreement shall be interpreted so as to
be effective and valid under applicable law to the fullest extent possible. If
any provision contained herein shall for any reason be held invalid, illegal or
unenforceable in any respect, then, in order to effect the purposes of this
Agreement, it shall be construed as if such provision had never been contained
herein.
27. PREREQUISITE CONSENT: As a condition precedent to the commencement of
FFT/SCET service under this Agreement, FAR shall provide FDOT with copies of
TCRA's, CSX's and Amtrak's written consent to FAR's planned operation of
passenger trains over the Route.
28. FURTHER AGREEMENTS: FDOT and FAR shall use their best efforts to
expeditiously enter into such other and further agreements with terms and
conditions agreeable to both parties as may be necessary to implement this
Agreement, including, but not limited to, agreements concerning the use of
stations along the Route, the Hialeah Yard and parking.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
as of the day and year first above written.
FLORIDA DEPARTMENT OF FIRST AMERICAN RAILWAYS, INC.
TRANSPORTATION
By: /s/ RICK CHESSER By: /s/ THOMAS E. BLAYNEY
------------------------ --------------------------
Printed Name: Rick Chesser Printed Name: Thomas E. Blayney
Title: District Secretary Title: Vice President Operations
- 10 -
<PAGE>
FUN TRAIN, INC,
By: /s/ WILLIAM T. NANOVSKY
-----------------------------
Printed Name: William T. Nanovsky
Title: Vice President
- 11 -
<PAGE>
EXHIBIT NO. 1
PROPOSED SCHEDULE
FOR
FLORIDA FUN TRAIN
- -------------------------------------------------------------------------------
Monday through Thursday:
Depart - Miami/Fort Lauderdale
Arrive - Orlando Int'l. Airport
Depart - Orlando Int'l. Airport
Arrive - Miami/Fort Lauderdale
FRIDAY:
Depart - Miami/Fort Lauderdale
Arrive - Orlando Int'l. Airport
Depart - Orlando Int'l Airport
Arrive - Miami/Fort Lauderdale
Depart - Miami/Fort Lauderdale
Arrive - Orlando Int'l. Airport
SATURDAY:
Depart - Orlando Int'l. Airport
Arrive - Miami/Fort Lauderdale
Depart - Miami/Fort Lauderdale
Arrive - Orlando Int'l. Airport
SUNDAY:
Depart - Orlando Int'l. Airport
Arrive - Miami/Fort Lauderdale
Depart - Miami/Fort Lauderdale
Arrive - Orlando Int'. Airport
Depart - Orlando Int'l. Airport
Arrive - Miami/Fort Lauderdale
<PAGE>
EXHIBIT NO. 2
PROPOSED SCHEDULE
FOR
SPACE COAST EXCURSION TRAIN
- -------------------------------------------------------------------------------
DAILY SERVICE:
Depart - Miami/Fort Lauderdale
Arrive - Space Coast Center
Depart - Space Coast Center
Arrive - Miami/Fort Lauderdale
2
EXHIBIT 10.22
FIRST AMERICAN RAILWAYS, INC.
1996 NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of
FIRST AMERICAN RAILWAYS, INC., a Nevada corporation (the "Company"), and its
Subsidiaries by providing an additional incentive to attract and retain
qualified and competent persons who provide management, consulting and other key
services and upon whose efforts and judgment the success of the Company and its
Subsidiaries is largely dependent, through the encouragement of stock ownership
in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall
have the meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the stock option committee
appointed by the Board pursuant to Section 12 hereof or, if not
appointed, the Board.
(c) "Common Stock" shall mean the common stock, par value
$.001 per share, of the Company.
(d) "Director" shall mean a member of the Board.
(e) "Employee" and "employment" shall, except where the
context otherwise requires, mean or refer to a Director and his
Directorship or to a consultant and his consultancy, as well as to a
regular employee and his employment.
(f) "Fair Market Value" of a Share on any date of reference
shall be the Closing Price of the Common Stock on such date, unless the
Committee in its sole discretion shall determine otherwise in a fair
and uniform manner. For this purpose, the Closing Price of the Common
Stock on any business day shall be (i) if the Common Stock is listed or
admitted for trading on any United States national securities exchange,
the last reported sale price of Common Stock on such exchange , as
reported in any newspaper of general circulation, (ii) if the Common
Stock is not listed or admitted for trading on any United States
national securities exchange, the average of the high and low sale
prices of the Common Stock for such day reported on The Nasdaq SmallCap
Market or a comparable consolidated transaction reporting system, or if
no sales are reported for such day, such average for the most recent
business day within five business days before such day for which sales
are reported, or (iii) if neither clause (i) nor (ii) is applicable,
the average between
<PAGE>
the lowest bid and highest asked quotations for Common Stock on such
day as reported by The Nasdaq SmallCap Market or the National Quotation
Bureau, Incorporated, if at least two securities dealers have inserted
both bid and asked quotations for Common Stock on at least 5 of
the 10 preceding business days.
(g) "Grantee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of
such person under this Plan by reason of the death of such person.
(h) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(i) "Non-Employee Director" shall have the meaning given to
that term in Rule 16b-3(b)(3)(i) promulgated under the Securities
Exchange Act of 1934, as amended.
(j) "Non-Qualified Stock Option" means an option to purchase
shares of Common Stock which is intended not to qualify as an incentive
stock option as defined in Section 422 of the Internal Revenue Code.
(k) "Option" (when capitalized) shall mean any option granted
under this Plan.
(l) "Plan" shall mean this 1996 Non-Qualified Stock Option
Plan for FIRST AMERICAN RAILWAYS, INC.
(m) "Share(s)" shall mean a share or shares of the Common
Stock.
(n) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the
Company if, at the time of the granting of the Option, each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing 50 percent or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
3. SHARES AND OPTIONS. The Company may grant to Grantees from time
to time Options to purchase an aggregate of up to 717,500 Shares from Shares
held in the Company's treasury or from authorized and unissued Shares. All
Options granted under this Plan shall be Non-qualified Stock Options. If any
Option granted under this Plan shall terminate, expire, or be cancelled or
surrendered as to any Shares, new Options may thereafter be granted covering
such Shares.
2
<PAGE>
4. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an Option agreement that
may contain any terms deemed necessary or desirable by the Committee,
including, but not limited to, a requirement that the Grantee agree
that, for a specified period after termination of his employment, he
will not enter into any employment with, or participate directly or
indirectly in, any entity which is directly or indirectly competitive
with the Company, provided such terms are not inconsistent with this
Plan or any applicable law. Grantees shall be selected by the Committee
in its discretion and shall be employees and Directors and consultants
who are not employees.
(b) In granting Options, the Committee shall take into
consideration the contribution the person has made to the success of
the Company or its Subsidiaries and such other factors as the Committee
shall determine. The Committee shall also have the authority to consult
with and receive recommendations from officers and other personnel of
the Company and its Subsidiaries with regard to these matters. The
Committee may from time to time in granting Options under the Plan
prescribe such other terms and conditions concerning such Options as it
deems appropriate, including, without limitation, (i) prescribing the
date or dates on which the Option becomes exercisable, (ii) providing
that the Option rights accrue or become exercisable in installments
over a period of years, or upon the attainment of stated goals or both,
or (iii) relating an Option to the continued employment of the Grantee
for a specified period of time, provided that such terms and conditions
are not more favorable to the Grantee than those expressly permitted
herein.
(c) The Options granted to Grantees under this Plan shall be
in addition to regular salaries, Directors' fees, consulting fees,
pension, life insurance or other benefits related to their employment,
consultancies or Directorships with the Company or its Subsidiaries.
Neither the Plan nor any Option granted under the Plan shall confer
upon any person any right to employment, consultancy or Directorship or
continuation of employment, consultancy or Directorship by the Company
or its Subsidiaries.
(d) The Committee in its sole discretion shall determine in
each case whether periods of military or government service shall
constitute a continuation of employment for the purposes of this Plan
or any Option.
3
<PAGE>
5. OPTION PRICE. The option price per Share of any Option shall
be any price determined by the Committee; provided, however, that in no event
shall the option price per Share of any Option be less than 100% of the Fair
Market Value of the Shares underlying such Option on the business day
immediately preceding the date such Option is granted; and provided further,
however, that the option price of any Option granted to a consultant shall be no
less than the greater of (i) the minimum price determined as set forth above in
this Section 5, and (ii) the minimum price required to avoid the applicability
of any purchase price, exercise price or conversion price adjustment provision
pursuant to any then-effective agreement binding the Company in connection with
the issuance of options, warrants and/or convertible securities.
6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when
(i) the Company has received written notice of such exercise in accordance with
the terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Grantee's payment to the Company of the amount, if any, that is necessary
for the Company or Subsidiary employing the Grantee to withhold in accordance
with applicable federal or state tax withholding requirements. Unless further
limited by the Committee in any Option agreement, the option price of any Shares
purchased shall be paid in cash, by certified or official bank check, by money
order, with Shares or by a combination of the above; provided further, however,
that the Committee in its sole discretion may accept a personal check in full or
partial payment of any Shares. If the exercise price is paid in whole or in part
with Shares, the value of the Shares surrendered shall be their Fair Market
Value on the business day immediately preceding the date the Option is
exercised. No Grantee or permitted transferee(s) thereof shall be deemed to be a
holder of any Shares subject to an Option unless and until exercise has been
completed pursuant to clauses (i-iii) above. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date of exercise, except as expressly provided in Section 9 hereof.
7. EXERCISABILITY OF OPTIONS. Any Option shall become
exercisable in such amounts, at such intervals and upon such terms as the
Committee shall provide in the corresponding Option agreement, except as
otherwise provided in this Section 7.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of
the Option.
4
<PAGE>
(b) Except to the extent otherwise provided in any Option
agreement or any then-effective employment agreement between the
Grantee and the Company (an "Employment Agreement"), each outstanding
Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall
include a series of transactions occurring within 60 days or
occurring pursuant to a plan) that has the result that any
"individual," "entity" or "group" (as those terms are defined
in the Securities Exchange Act of 1934, as amended) owns more
than 50% of the voting capital stock of the Company or of any
entity that results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any
other form of corporate transaction;
(ii) if the stockholders of the Company shall approve a
plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the
approved merger, consolidation, reorganization, liquidation or
dissolution is subsequently abandoned); or
(iii) if the stockholders of the Company shall approve a
plan for the sale, lease, exchange or other disposition of all
or substantially all of the property and assets of the Company
(unless such approved plan is subsequently abandoned).
(c) The Committee may in its sole discretion accelerate
the date on which any Option may be exercised.
8. TERMINATION OF OPTION PERIOD.
(a) The unexercised portion of any Option shall automatically
and without notice terminate and become null and void at the time of
the earliest to occur of the following:
(i) three months after the date on which the
Grantee's employment is terminated for any reason other than
by reason of (A) Cause (which, for purposes of this Plan,
shall have the meaning contained in the applicable terms of
any then-effective Employment Agreement or, in the absence of
such applicable terms, shall mean the Grantee's willful
misconduct or gross
5
<PAGE>
negligence), (B) a mental or physical disability as determined
pursuant to the applicable terms of any then-effective
Employment Agreement or, in the absence of such applicable
terms, by a medical doctor satisfactory to the Committee, (C)
death, or (D) voluntary termination by the Grantee before the
Grantee reaches age 65 or completes 30 years of employment by
the Company (a "Voluntary Termination"); provided, however,
that the three-month period may be extended by the Committee
in its discretion to up to 18 months;
(ii) immediately upon a Voluntary Termination or the
termination of the Grantee's employment for Cause;
(iii) six months after the date on which the
Grantee's employment is terminated by reason of a mental or
physical disability as determined in accordance with
Subsection 8(a)(i)(B) above, except in the event that a
then-effective Employment Agreement provides for full vesting
upon termination for disability, in which case the Option
shall terminate on its expiration date determined pursuant to
Subsection 7(a);
(iv) (A) 12 months after the date of termination of
the Grantee's employment by reason of death of the Grantee, or
(B) six months after the date on which the Grantee shall die
if such death shall occur during the six-month period
specified in Subsection 8(a)(iii) hereof, except in the event
that a then-effective Employment Agreement provides for full
vesting upon death, in which case the Option shall terminate
on its expiration date determined pursuant to Subsection 7(a);
or
(v) the expiration date of the Option determined
pursuant to Subsection 7(a).
(b) The Committee in its sole discretion may by giving written
notice ("cancellation notice") cancel, effective upon the date of the
consummation of any corporate transaction described in Subsections
7(b)(ii) or (iii) hereof, any Option that remains unexercised on such
date. Such cancellation notice shall be given a reasonable period of
time prior to the proposed date of
6
<PAGE>
such cancellation and may be given either before or after stockholder
approval of such corporate transaction.
9. ADJUSTMENT OF SHARES.
(a) If, at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the
number of issued and outstanding Shares through the declaration of a
stock dividend or through any recapitalization resulting in a stock
split, combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan,
so that the same percentage of the Company's issued and
outstanding Shares shall continue to be subject to being so
optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the option price per Share thereof then
subject to any outstanding Option, so that the same percentage
of the Company's issued and outstanding Shares shall remain
subject to purchase at the same aggregate option price.
(b) Subject to the specific terms of any Option agreement, the
Committee may change the terms of Options outstanding under this Plan
with respect to the option price or the number of Shares subject to the
Options, or both, when, in the Committee's sole discretion, such
adjustments become appropriate by reason of a corporate transaction
described in Subsections 7(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class,
either in connection with direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to the number of or option price of Shares then
subject to outstanding Options granted under the Plan.
(d) Without limiting the generality of the foregoing,
the existence of outstanding Options granted under the Plan shall not
affect in any manner the right
7
<PAGE>
or power of the Company to make, authorize or consummate (i) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issuance by the Company of debt
securities or preferred or preference stock that would rank above the
Shares subject to outstanding Options; (iv) the dissolution or
liquidation of the Company; (v) any sale, transfer or assignment of all
or any part of the assets or business of the Company; or (vi) any other
corporate act or proceeding, whether of a similar character or
otherwise.
10. TRANSFERABILITY OF OPTIONS. No Option shall be transferable by the
Grantee otherwise than by will or the laws of descent and distribution, nor
shall any Option be subject to levy or execution or disposition under the
Bankruptcy Code of 1978, as amended, or any other state or federal law granting
relief to creditors, whether now or hereafter in effect.
11. ISSUANCE OF SHARES. As a condition of any sale or issuance of Shares
upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to ensure
compliance with any applicable federal or state securities law or regulation
including, but not limited to, the following:
(i) a representation and warranty by the Grantee to
the Company, at the time any Option is exercised, that he is
acquiring the Shares to be issued to him for investment and
not with a view to, or for sale in connection with, the
distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to
be bound by any legends that are, in the opinion of the
Committee, necessary or appropriate to comply with the
provisions of any securities law deemed by the Committee to be
applicable to the issuance of the Shares and are endorsed upon
the Share certificates.
12. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by a Committee consisting
of not less than three Directors, all of whom shall be Non-Employee
Directors; provided, however, that if no Committee is appointed, the
Board may administer the Plan. The Committee shall have all of the
powers of the Board with respect to the Plan. Any member of the
Committee may be removed at any time, with or without cause, by
resolution of the Board, and any vacancy
8
<PAGE>
occurring in the membership of the Committee may be filled by
appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The
determinations and the interpretation and construction of any provision
of the Plan by the Committee shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the
Committee at a meeting (which may occur by telephone) or (ii) without a
meeting by the unanimous written approval of the members of the
Committee.
13. INTERPRETATION.
(a) If any provision of the Plan should be held invalid for
any reason, such holding shall not affect the remaining provisions
hereof, but instead the Plan shall be construed and enforced as if such
provision had never been included in the Plan.
(b) This Plan shall be governed by the laws of the
State of Nevada.
(c) Headings contained in this Plan are for
convenience only and shall in no manner be construed as part of this
Plan.
(d) Any reference to the masculine, feminine, or neuter
gender shall be a reference to such other gender as is appropriate.
(e) This Plan is intended to meet the requirements of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") in order to provide Directors and executive officers of
the Company with certain exemptions from the application of Section
16(b) of the Exchange Act.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Committee may from
time to time amend the Plan or any Option consistent with the Plan and the
Committee may at any time terminate the Plan; provided, however, that no
amendment or termination of the Plan or any Option issued hereunder shall
substantially impair any Option previously granted to any Grantee without the
consent of such Grantee.
15. EFFECTIVE DATE AND TERMINATION DATE. The effective date of
this Plan shall be June 1, 1996, and the Plan shall terminate on
9
<PAGE>
the 10th anniversary of the effective date. After such termination date, no
Options may be granted hereunder; provided, however, that Options outstanding at
such date may be exercised pursuant to their terms.
Dated as of the 1st FIRST AMERICAN RAILWAYS, INC.
day of June, 1996
By:
-----------------------------
Allen C. Harper,
Chairman and Chief
Executive Officer
10
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
1996 NON-QUALIFIED STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement") is
made as of _______________ between FIRST AMERICAN RAILWAYS, INC., a Nevada
corporation (the "Company"), and _________________________________ (the
"Grantee"). The Company desires, by affording Grantee an opportunity to purchase
__________ shares of the Company's $.001 per share par value common stock (the
"Common Stock"), to carry out the purposes of the Company's 1996 Non-Qualified
Stock Option Plan dated as of June 1, 1996 (the "Plan"). In consideration of the
mutual covenants herein set forth, the parties agree as follows:
1. GRANT OF OPTION.
(a) The Company grants to the Grantee the right (the "Option")
to purchase an aggregate of __________ shares of the Common Stock on the terms
and conditions herein set forth, which Option shall vest and become exercisable
in _____ equal annual installments, the first annual installment vesting on the
date of this Option Agreement, provided that the Option shall vest and become
fully exercisable in accordance with the applicable terms of any then-effective
employment agreement between the Grantee and the Company (the "Employment
Agreement") or, in the absence of such applicable terms, immediately if:
(i) there occurs any transaction (which shall include
a series of transactions occurring within 60 days or occurring
pursuant
<PAGE>
to a plan) that has the result that any "individual," "entity"
or "group" (as those terms are defined in the Securities
Exchange Act of 1934, as amended) owns more than 50% of the
voting capital stock of the Company or of any entity that
results from the participation of the Company in a
reorganization, consolidation, merger, liquidation or any
other form of corporate transaction;
(ii) the stockholders of the Company shall approve a
plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the
approved merger, consolidation, reorganization, liquidation or
dissolution is subsequently abandoned); or
(iii) the stockholders of the Company shall approve a
plan for the sale, lease, exchange or other disposition of all
or substantially all the property and assets of the Company
(unless such plan is subsequently abandoned).
(b) All terms and conditions of the Plan, a copy of which is
attached hereto, are incorporated herein by reference.
2. PURCHASE PRICE. The purchase price of each share of the
Common Stock covered by this Option shall be $__________ per share.
2
<PAGE>
3. TERM OF OPTION. The term of the Option shall be __ years
from the date hereof, subject to earlier termination as provided in
paragraph 6 hereof.
4. NONTRANSFERABILITY. The Option shall not be transferable
otherwise than by will or the laws of descent and distribution. More
particularly (but without limiting the generality of the foregoing), the Option
may not be assigned, transferred (except as provided above), pledged, or
hypothecated in any way, shall not be assignable by operation of law, and shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of the Option
contrary to the provisions hereof, and the levy of any execution, attachment, or
similar process upon the Option shall be without effect.
5. EMPLOYMENT.
(a) In consideration of the granting of the Option and
regardless of whether or not the Option shall be exercised, the Grantee will,
during his employment, devote time, energy and skill to the service of the
Company. For purposes of this Option Agreement, "employee" and "employment"
shall, where appropriate, mean or refer to a Director and his Directorship and
to a consultant and his consultancy.
(b) Nothing in this Option Agreement shall confer upon the
Grantee any right to or claim for employment, consultancy or a directorship with
the Company or any of its subsidiaries.
3
<PAGE>
6. TERMINATION OF OPTION.
(a) The unexercised portion of this Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the
Grantee's employment is terminated for any reason other than
by reason of (A) Cause (which, for purposes hereof, shall have
the meaning contained in the applicable terms of any
then-effective Employment Agreement or, in the absence of such
applicable terms, shall mean the Grantee's willful misconduct
or gross negligence), (B) a mental or physical disability as
determined pursuant to the applicable terms of any
then-effective Employment Agreement or, in the absence of such
applicable terms, by a medical doctor satisfactory to the
Committee, (C) death, or (D) voluntary termination by the
Grantee before the Grantee reaches age 65 or completes 30
years of employment by the Company (a "Voluntary
Termination");
(ii) immediately upon a Voluntary Termination or the
termination of the Grantee's employment for Cause;
4
<PAGE>
(iii) six months after the date on which the
Grantee's employment is terminated by reason of a mental or
physical ability as determined in accordance with Subsection
6(a)(i)(B) above, except in the event that a then-effective
Employment Agreement provides for full vesting upon
termination for disability, in which case this Option shall
terminate on the expiration date set forth in Section 3
hereof;
(iv) (A) 12 months after the date of termination of the
Grantee's employment by reason of death of the Grantee, or (B)
six months after the date on which the Grantee shall die if
such death shall occur during the six-month period specified
in Subsection 6(a)(iii) hereof, except in the event that a
then-effective Employment Agreement provides for full vesting
upon death, in which case this Option shall terminate on the
expiration date set forth in Section 3; or (v) the expiration
date of the Option set forth in Section 3.
( b) The Company in its sole discretion may by giving written
notice ("cancellation notice") cancel, effective upon the date of the
consummation of any corporate transaction described in
5
<PAGE>
Subsections 1(a)(ii) or (iii) hereof, the Option to the extent that it remains
unexercised on such date. Such cancellation notice shall be given a reasonable
period of time prior to the proposed date of such cancellation and may be given
either before or after stockholder approval of such corporate transaction.
(c) Any termination of the Option by reason of cessation of
employment shall be without prejudice to any rights or remedies which the
Company or any of its subsidiaries may have against the holder of the Option
under this Option Agreement or otherwise.
(d) For purposes of this Agreement, the Grantee's employment
relationship with the Company will be deemed to have terminated on the 91st day
of any authorized leave of absence unless the Grantee is guaranteed, by contract
or statute, re-employment with the Company or a subsidiary corporation.
7. NON-QUALIFICATION OF OPTION. The Option is not an "incentive
stock option" as defined in the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). The federal income tax consequences which result from
exercise of the Option have been fully explained to and understood by Grantee.
8. METHOD OF EXERCISING OPTION.
(a) Subject to the terms and conditions of this Agreement, the
Option may be exercised by written notice actually transmitted and received by
the Company at its headquarters office. Such notice shall state that the Grantee
elects to purchase shares under the Option and the number of shares for which
the Option is being exercised, and it shall be signed by the person so
exercising
6
<PAGE>
the Option. Such notice shall be accompanied by payment of the full purchase
price of the shares (i) in cash, (ii) by check, or (iii) by tender of shares of
Common Stock with a Fair Market Value (as defined in the Plan) equal to the full
purchase price of the shares being acquired.
(b) If the Option is exercised by a person other than the
Grantee, payment shall be accompanied by appropriate proof of the authority of
such person to exercise the Option.
(c) The Company shall cause a certificate or certificates
representing the shares purchased under the Option to be issued as soon as
practicable after receipt of the notice of exercise and full payment. The
certificate or certificates for such shares shall be registered in the name of
the person exercising the Option or, at his request, in joint name with his
spouse. All share certificates shall be delivered to or upon the written order
of the person exercising the Option.
(d) All shares purchased through the exercise of the Option
shall be fully paid and nonassessable.
(e) Notwithstanding the foregoing, the Company shall not be
required to issue any shares in connection with a proposed Option exercise
unless and until arrangements satisfactory to the Company in its sole discretion
have been made for payment of the amount, if any, that is necessary to be
withheld in accordance with applicable federal or state withholding tax
requirements.
9. REGISTRATION. If in the opinion of the Company any shares
covered by the Option as to which Grantee gives valid notice
7
<PAGE>
of exercise may not be issued to Grantee without registration under the
Securities Act of 1933, as amended (the "1933 Act"), the Company may so notify
Grantee and return to him any consideration tendered to exercise this Option
until such time as the shares are registered under the 1933 Act or in the
opinion of the Company an exemption from such registration is applicable.
Grantee represents and warrants to the Company as a condition of the granting of
the Option, and for the continued validity thereof, that Grantee (and his
estate, heirs or legatees, as the case may be) will not sell or offer for sale
any shares of stock obtained hereunder in the absence of an effective
registration statement as to such stock under the 1933 Act, unless the Company
shall have received an opinion of counsel satisfactory to it that such
registration is not required, and that no stock will be sold or offered for sale
in violation of any applicable state securities laws. Grantee agrees that the
Company may place a legend on any shares issued on exercise of the Option to
reflect this provision.
10. GENERAL. The Company shall at all times during the term of
the Option reserve and keep available such number of shares of Common Stock as
will be sufficient to satisfy the requirements of this Agreement, shall pay all
original issue and transfer taxes with respect to the issue and transfer of
shares pursuant hereto and all other fees and expenses necessarily incurred by
the Company in connection therewith, and will from time to time use its best
8
<PAGE>
efforts to comply with all laws and regulations which, in the opinion of counsel
for the Company, shall be applicable thereto.
FIRST AMERICAN RAILWAYS, INC.
BY:
----------------------------
DATE:
--------------------------
-------------------------------
GRANTEE
DATE:
--------------------------
9
EXHIBIT 10.23
LOAN AGREEMENT
BY AND BETWEEN
NATIONSBANK, N.A. (SOUTH)
AND
THE DURANGO & SILVERTON
NARROW GAUGE RAILROAD COMPANY
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 DEFINITIONS AND REFERENCE TERMS..........................................................1
ARTICLE 2 LOANS....................................................................................7
2.01 LOAN....................................................................7
2.02 TERM FACILITY...........................................................8
2.03 CONDITIONS PRECEDENT....................................................8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES..........................................................10
3.01 GOOD STANDING..........................................................10
3.02 AUTHORITY AND COMPLIANCE...............................................10
3.03 BINDING AGREEMENT......................................................10
3.04 LITIGATION.............................................................10
3.05 NO CONFLICTING AGREEMENTS..............................................10
3.06 OWNERSHIP OF ASSETS....................................................10
3.07 TAXES..................................................................10
3.08 FINANCIAL STATEMENTS...................................................11
3.09 PLACE OF BUSINESS......................................................11
3.10 ENVIRONMENTAL MATTERS..................................................11
3.11 RECEIVABLES............................................................11
3.12 INVENTORY..............................................................13
3.13 FEDERAL RESERVE REGULATIONS............................................13
3.14 CONSENTS, ETC..........................................................13
3.15 GOVERNMENTAL AUTHORIZATIONS............................................14
3.16 TITLE TO PROPERTIES....................................................14
3.17 SOLVENT................................................................14
3.18 SUBSIDIARIES...........................................................14
3.19 SHAREHOLDERS...........................................................14
3.20 INDEBTEDNESS...........................................................14
3.21 CONTINGENT LIABILITIES.................................................15
3.22 MATERIAL CONTRACTS.....................................................15
3.23 USE OF PROCEEDS........................................................15
3.24 PENSION AND WELFARE PLANS..............................................15
3.25 TAX RETURNS AND PAYMENT................................................15
3.26 LABOR MATTERS..........................................................16
3.27 MULTI-EMPLOYER PENSION PLAN AMENDMENTS ACT OF 1980.....................16
3.28 INVESTMENT COMPANY ACT OF 1940; PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935....................................................16
3.29 EMPLOYMENT AND OTHER AGREEMENTS........................................16
3.30 CONTINUATION OF REPRESENTATION AND WARRANTIES..........................16
i
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ARTICLE 4 AFFIRMATIVE COVENANTS...................................................................16
4.01 FINANCIAL CONDITION....................................................17
4.02 FINANCIAL STATEMENTS AND OTHER INFORMATION.............................17
4.03 INSURANCE..............................................................19
4.04 EXISTENCE AND COMPLIANCE...............................................19
4.05 ADVERSE CONDITIONS OR EVENTS...........................................19
4.06 TAXES AND OTHER OBLIGATIONS............................................20
4.07 MAINTENANCE............................................................20
4.08 NOTIFICATION...........................................................20
4.09 POTENTIAL CONTINGENT LIABILITIES.......................................20
4.10 SUBSIDIARIES...........................................................20
4.11 COMPLIANCE WITH LAWS...................................................21
4.12 VISITATION RIGHTS......................................................21
4.13 ERISA..................................................................21
4.14 PAYMENT OF INDEBTEDNESS................................................22
ARTICLE 5 NEGATIVE COVENANTS......................................................................22
5.01 LIENS..................................................................22
5.02 BORROWINGS.............................................................22
5.03 CHARACTER OF BUSINESS..................................................22
5.04 ADDITIONAL NEGATIVE COVENANTS..........................................22
ARTICLE 6 DEFAULT.................................................................................24
6.01 .......................................................................24
6.02 .......................................................................24
6.03 .......................................................................24
6.04 .......................................................................24
6.05 .......................................................................24
6.06 .......................................................................24
6.07 .......................................................................25
6.08 .......................................................................25
6.09 .......................................................................25
6.10 .......................................................................25
6.11 .......................................................................25
6.12 .......................................................................25
6.13 .......................................................................25
6.14 .......................................................................25
6.15 .......................................................................25
6.16 .......................................................................26
6.17 .......................................................................26
ARTICLE 7 REMEDIES UPON DEFAULT...................................................................26
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ARTICLE 8 NOTICES................................................................................27
ARTICLE 9 COSTS, EXPENSES AND ATTORNEY'S FEES....................................................28
ARTICLE 10 MISCELLANEOUS.........................................................................28
10.01 CUMULATIVE RIGHTS AND NO WAIVER........................................28
10.02 APPLICABLE LAW.........................................................29
10.03 AMENDMENT..............................................................29
10.04 DOCUMENTS..............................................................29
10.05 PARTIAL INVALIDITY.....................................................29
10.06 INDEMNIFICATION........................................................29
10.07 SURVIVABILITY..........................................................29
10.08 FIELD AUDIT............................................................30
10.09 JURISDICTION, SERVICE OF PROCESS.......................................30
10.10 COURSE OF DEALING......................................................30
10.11 SUCCESSORS AND ASSIGNS.................................................30
10.12 NET PAYMENTS...........................................................30
10.13 FURTHER ASSURANCES.....................................................31
10.14 COUNTERPARTS...........................................................31
10.15 RESURRECTION OF BORROWER'S OBLIGATIONS.................................31
10.16 EQUITABLE RELIEF.......................................................31
ARTICLE 11 AMBIGUITY OR CONFLICT................................................................32
ARTICLE 12 ARBITRATION...........................................................................32
12.01 SPECIAL RULES..........................................................32
12.02 RESERVATION OF RIGHTS..................................................33
ARTICLE 13 NO ORAL AGREEMENT.....................................................................33
ARTICLE 14 CROSS-DEFAULT/CROSS-COLLATERAL........................................................33
EXHIBIT 2.03(d)..................................................................................35
EXHIBIT 2.03(f)..................................................................................38
EXHIBIT 3.06.....................................................................................39
EXHIBIT 3.06-A...................................................................................41
EXHIBIT 3.08.....................................................................................42
EXHIBIT 3.18.....................................................................................43
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EXHIBIT 3.19.....................................................................................44
EXHIBIT 3.20.....................................................................................45
EXHIBIT 3.21.....................................................................................46
EXHIBIT 3.29.....................................................................................47
AFFIDAVIT FOR EXECUTION OF LOAN AGREEMENT WITHOUT THE STATE OF
FLORIDA ...............................................................................48
</TABLE>
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NATIONSBANK, N.A. (SOUTH)
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of the day of , 1997, by
and between NATIONSBANK, N.A. (SOUTH), a national banking association, and the
Borrower described below:
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
ARTICLE 1
DEFINITIONS AND REFERENCE TERMS
In addition to any other terms defined herein, the following terms
shall have the meaning set forth with respect thereto:
ACCOUNTING TERMS. All accounting terms not specifically
defined or specified herein shall have the meanings generally attributed to such
terms under generally accepted accounting principles ("GAAP"), as in effect from
time to time, consistently applied.
ACCOUNTS. Accounts shall mean all "accounts" (as defined in
the UCC) now owned or hereafter acquired by Borrower, and shall also mean and
include all accounts receivable, contract rights, book debts, notes, drafts and
other obligations or indebtedness owing to Borrower arising from the sale, lease
or exchange of goods or other property by it and/or the performance of services
by it (including any such obligation which might be characterized as an account,
contract right or general intangible under the Uniform Commercial Code in effect
in any jurisdiction) and all of Borrower's rights in, to and under all purchase
orders for goods, services or other property, and all of Borrower's rights to
any goods, services or other property represented by any of the foregoing
(including returned or repossessed goods and unpaid sellers' rights of
rescission, replevin, reclamation and rights to stoppage in transit) and all
monies due to or to become due to Borrower under all contracts for the sale,
lease or exchange of goods or other property and/or the performance of services
by it (whether or not yet earned by performance on the part of Borrower), in
each case whether now in existence or hereafter arising or acquired, including,
without limitation, the right to receive the proceeds of said purchase orders
and contracts and all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.
ADVANCE. Advance means the principal amount of sums advanced
by Bank to or for the benefit of Borrower.
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AFFILIATE. Affiliate means any Person (other than a
Subsidiary) which directly or indirectly through one or more intermediaries
controls, or is controlled by or is under common control with, Borrower, or five
percent (5%) or more of the equity interest of which is held beneficially or of
record by, Borrower. The term "control" means the possession, directly or
indirectly, of the power to cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by contract or
otherwise.
AUTHORIZED SIGNATORY. Authorized Signatory means any one of
Raymond Monteleone, William T. Nanovsky or Donald P. Cumming.
BANK. NATIONSBANK, N.A. (SOUTH), its successors, assigns and
affiliates.
BORROWER. THE DURANGO & SILVERTON NARROW GAUGE RAILROAD
COMPANY, a Colorado corporation.
BORROWER'S ADDRESS. 3700 North 29th Avenue, Suite 202,
Hollywood, Florida 33020.
BORROWING DATE. Borrowing Date means the day as of which an
Advance is made.
BUSINESS DAY. Business Day means a day on which banks are not
authorized or required to be closed in Fort Lauderdale, Florida.
CAPITAL EXPENDITURE. Capital Expenditure shall mean any
expenditure by a Person which is or is required to be capitalized on its balance
sheet for financial reporting purposes in accordance with GAAP including,
without limitation, the incurring by such Person of any Capitalized Lease
Obligations.
CHATTEL PAPER. Chattel Paper shall have the meaning ascribed
to said term in Section 679.105 of the Florida Statutes.
CODE. Code shall mean the Internal Revenue Code of 1986, as
the same may be from time to time hereafter modified or amended.
COLLATERAL. Collateral means all present and future: Accounts,
Inventory and all Products thereof, reserves, balances, deposits, property of
Borrower and each Subsidiary coming into the possession of Bank, General
Intangibles, Instruments, Chattel Paper, Documents, Equipment, Items and Money
and all Proceeds thereof in which Borrower and each Subsidiary now has and
hereafter acquires any rights of any kind and nature whatsoever, wherever
located and regardless of in whose possession. In addition, the Collateral shall
also include the real and personal property which is the subject of the Deed of
Trust.
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COMMITMENT. Commitment shall mean the agreement of Bank to
make Advances hereunder during the term of the commitment pursuant to the terms
and subject to the conditions herein expressed.
COMMITMENT AMOUNT. Commitment Amount shall mean the aggregate
principal amount of Advances which Bank agrees to make available and are
permitted to be outstanding at any one time hereunder, up to the amount set
forth in Section .
CONTINGENT LIABILITY. Contingent Liability shall mean, without
duplication, as to any Person: (a) any guaranty Obligation of that Person; and
(b) any direct or indirect recourse obligation or liability, contingent or
otherwise, of that Person: (i) in respect of any letter of credit, bond or
similar instrument issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings, (ii) to purchase any
materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made if delivery of such materials, supplies or other
property is not made or tendered, or such services are never performed or
tendered, or (iii) incurred pursuant to any interest rate swap or similar
agreement. The amount of any Contingent Liability shall be deemed equal to the
maximum reasonably anticipated liability in respect thereof.
CURRENT ASSETS. Current Assets means the aggregate amount of
all of its assets which would, in accordance with GAAP, properly be defined as
current assets, but excluding the following items: real property.
CURRENT LIABILITIES. Current Liabilities means the aggregate
amount of all current liabilities as determined in accordance with GAAP, but in
any event shall include all liabilities except those having a maturity date
which is more than one year from the date as of which such computation is being
made.
DEED OF TRUST. Deed of Trust means the Deed of Trust executed
by Borrower dated even date herewith in favor of the Bank.
DEFAULT. Default means any event or condition which, with the
giving of notice or the passage of time, or both, would become an Event of
Default.
DEFAULT RATE. Default Rate means that certain rate of interest
described in the Note as applicable upon a Default.
DOCUMENTS. Documents shall have the meaning ascribed to said
term in Section 679.015 of the Florida Statutes and shall include all bills of
lading, airway bills, dock warrants, dock receipts, warehouse receipts or orders
for the delivery of goods, and also any other document which in the regular
course of business or financing is treated as adequately evidencing that the
person in possession of it is entitled to receive, hold and dispose of the
document and the goods it covers.
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DOLLARS. Dollars and the symbol $ means lawful money of the
United States of America.
EQUIPMENT. Equipment shall have the meaning ascribed to said
term in Section 678.109 of the Florida Statutes and shall include all of the
Borrower's goods, machinery, equipment, fixed assets, rolling stock, fixtures,
furniture, office equipment, tools, parts and other items of personal property
of every kind and description, now owned or hereafter acquired by the Borrower,
wheresoever located, together with all additions, attachments, accessions,
parts, replacements and substitutions thereof.
ERISA. ERISA means the Employment Retirement Income Security
Act of 1974, as same may be amended from time to time, together with the
regulations thereunder.
EVENT OF DEFAULT. Event of Default shall have the meaning set
forth in Article 6 hereof.
GENERAL INTANGIBLES. General Intangibles shall have the
meaning ascribed to said term in Section 679.106 of the Florida Statutes and
shall include, without limitation, any personal property other than goods,
Accounts, Inventory, Equipment, Chattel Paper and Instruments, including all
franchises, licenses, leases and subleases whereby Borrower leases to another
any of Borrower's Inventory or Equipment, contracts, permits and authorizations
of governmental agencies and others, tradenames, trademarks, service marks,
patents, copyrights, intellectual property and all other intangible property of
the Borrower.
GUARANTORS. FIRST AMERICAN RAILWAYS, INC., a Nevada
corporation.
GUARANTY. Guaranty shall mean the Guaranty dated even date
herewith executed by the Guarantor in favor of the Bank.
HAZARDOUS MATERIALS. Hazardous Materials include all materials
defined as hazardous or biohazardous wastes or substances under any local, state
or federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
INDEBTEDNESS. Indebtedness of any Person shall mean (a) all
indebtedness for borrowed money or for the deferred purchase price of any asset
(other than accounts payable to trade creditors under customary trade credit
terms) or services for which the Person is liable as principal, (b) all
indebtedness (excluding unaccrued finance charges) secured by a lien on property
owned or being purchased by the Person, whether or not such indebtedness shall
have been assumed by the Person, (c) all capitalized lease obligations
(excluding unaccrued finance charges) of the Person, (d) any arrangement
(commonly described as a sale-and-leaseback transaction) with any financial
institution or other lender or investor providing for the leasing to the Person
of property which at the time has been or is to be sold or transferred by the
Person to the lender or investor, or which has been or is being acquired from
another Person by the lender or investor for the purpose of leasing the
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property to the Person, (e) all obligations of partnerships or joint ventures in
respect of which the Person is primarily or secondarily liable as a partner or
joint venturer (provided that in any event for purposes of determining the
amount of the Indebtedness, the full amount of such obligations, without giving
effect to the contingent liability or contributions of other participants in the
partnership or joint venture, shall be included), (f) any arrangement commonly
known as a take or pay contract, (g) all redeemable preferred stock of such
Person valued at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, and (h) any contingent obligation
of the Borrower or a Subsidiary.
INSTRUMENTS. Instruments shall have the meaning ascribed to
said term in Section 679.105 of the Florida Statutes.
INTEREST PAYMENT DATE. Interest Payment Date means monthly on
the fifth (5th) day of each month.
INVENTORY. Inventory means all inventory of whatsoever name,
nature, kind or description now owned and hereafter acquired, present and
future, by Borrower and any Subsidiary, wherever located, including, without
limitation, all contract rights with respect thereto and documents representing
the same, all goods held for sale or lease or to be furnished under contracts of
service, finished goods, work in process, raw materials, materials used or
consumed by Borrower and any Subsidiary and including such inventory as is
temporarily out of the Borrower's or any Subsidiary's custody or possession,
including inventory on the premises of others and items in transit and including
any returns and repossessions upon any accounts, documents, instruments or
chattel paper relating to replacements therefor, and all additions and
accessions thereto, and all ledgers, books of account, records, computer
printouts, computer runs and other computer-prepared information relating to any
of the foregoing.
LOAN(S). Loan(s) means collectively any and all loans
heretofore or hereafter made by Bank to the Borrower.
LOAN DOCUMENTS. Loan Documents means this Loan Agreement and
any and all promissory notes executed by Borrower in favor of Bank and all other
documents, deeds of trust, security agreements, rolling stock security
agreements, financing statements, instruments, guarantees, certificates and
agreements executed and/or delivered by Borrower, any Subsidiary, any guarantor
or third party in connection with any Loan.
MATERIAL ADVERSE EFFECT. Material Adverse Effect means a
material adverse effect (as determined in Bank's sole but reasonable discretion)
upon: (i) the business, assets, operating ability or condition (financial or
otherwise) of Borrower and any Subsidiary taken as a whole; or (ii) the ability
of Borrower and any Subsidiary to repay the Obligation or other Indebtedness or
otherwise perform their obligations under the Loan Documents.
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MATURITY DATE. Maturity Date means five (5) years following
the date hereof or a sooner Default.
NOTE. Note means the Promissory Note executed by the Borrower
in favor of Bank dated even date herewith in the original principal amount of
Eight Million Five Hundred Thousand Dollars ($8,500,000), together with all
modifications, renewals or substitutions thereof.
OBLIGATION. Obligation means the aggregate of outstanding
indebtedness under the Note, and any outstanding principal indebtedness of
Borrower to Bank arising in connection with any agreement not evidenced by the
Note, however arising, including any outstanding amounts due Bank under any
security agreement executed by Borrower in connection with this Agreement, any
outstanding amount advanced or incurred by Bank to enforce, protect, preserve or
maintain its rights with respect to, or by reason of Borrower's failure to
comply with any agreement contained in the Note or this Agreement, and all of
Bank's expenses, as described in this Agreement, together with all accrued and
unpaid interest on all of the foregoing, all computed and payable in Dollars.
Obligations shall also include, without limitation, obligations of the Borrower
in favor of the Bank (or Bank's affiliate) now or hereafter existing under any
interest rate or commodity swap, cap, floor, collar, or any combination thereof,
or option with respect to these or similar transactions, for the purpose of
hedging Borrower's exposure to fluctuations in interest rates or commodity
prices.
PBGC. PBGC means the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
PERSON. Person means any natural person, entity, corporation,
limited liability partnership or company, unincorporated organization, trust,
joint-stock company, joint venture, association, company, partnership, or
government, or any agency or political subdivision of any government.
RECEIVABLES. Receivables means all Accounts and all other
obligations for the payment of money under General Intangibles, whether or not
such Receivables are specifically assigned.
REPORTABLE EVENT. Reportable Event shall have the meaning
given to such term in ERISA.
SOLVENT. Solvent means, with respect to any Person on a
particular date, that on such date (i) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (ii) the present fair
saleable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such
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debts and liabilities mature, and (v) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability.
SUBSIDIARY. Subsidiary means any Person in which Borrower or a
wholly-owned Subsidiary may own, directly or indirectly, an equity interest of
more than fifty percent (50%), during the term of this Agreement, as well as all
Subsidiaries and other Persons from time to time included in the consolidated
financial statements of Borrower.
TERM. Term shall mean the period during which the Loan is
scheduled to be outstanding hereunder, commencing on the date hereof and ending
on the Maturity Date.
TERMINATION EVENT. Termination Event shall have the meaning
set forth in ERISA.
ARTICLE 2
LOANS
2.1 LOAN.
(a) Bank hereby agrees to make (or has made) a loan or loans
to Borrower in the aggregate principal amount of Eight Million Five Hundred
Thousand Dollars ($8,500,000). The obligation to repay the loan is evidenced by
the Note.
(b) Provided all of the conditions for Advances are met, Bank
shall make the Loan to Borrower or disburse to third parties as Borrower may
direct, commencing on the date hereof, until the Maturity Date.
(c) The terms of and the principal payments on the Note shall
be as follows:
(i) Principal and interest outstanding under each
Note shall be payable in accordance with such Note.
(ii) All other notes which may subsequently become a
part of the Obligation shall be paid in accordance with the terms thereof.
(iii) If any payment of principal of, or interest on,
the Loan shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day; provided, however, that
interest shall continue to accrue until payment is actually received.
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(iv) The business records of Bank shall be conclusive
as to the date and amount of any Advance hereunder and any payment or prepayment
of interest or principal thereof, absent manifest error.
(d) The Commitment shall end upon the close of business (5:00
p.m.) on the day prior to the Maturity Date, unless there shall have sooner
occurred an Event of Default under this Agreement, in which event, Bank may
immediately accelerate the Loan without prior notice to Borrower; provided,
however, that, notwithstanding the foregoing, this Agreement shall continue in
full force and effect until the Obligation is paid in full and the Commitment
has been terminated.
(e) The outstanding principal balance under the Note as of any
day shall be the outstanding principal balance as of the beginning of the day,
plus any Advances made pursuant hereto charged to the account on that day
(exclusive of interest) and less any payments of principal credited to the
account on that day. Each Advance shall therefore bear interest commencing on
the date it is made and continuing until but not including the date it is paid,
if timely paid as provided herein.
(f) Any payment of principal or interest or both not made when
due shall itself bear interest on the principal and interest amount of the
payment at the Default Rate, commencing on the due date, until payment,
maturity, or the occurrence of an Event of Default. After maturity of a Note or
the occurrence of an Event of Default hereunder or thereunder, interest shall
accrue on the entire outstanding balance of principal and interest at the
Default Rate.
2.2 TERM FACILITY. Notwithstanding any provision of this Agreement
to the contrary, Borrower acknowledges that the Loan is a term facility and is
not the subject of being readvanced.
2.3 CONDITIONS PRECEDENT. The obligation of Bank to make the
Advances under Loan is subject to the following additional conditions precedent:
(a) NO DEFAULT. On the effective date of this Agreement, and
at the date of the Advance after giving effect to the Advance hereunder,
Borrower shall have observed and performed all the terms, conditions, agreements
and provisions set forth herein, on its part to be observed or performed, the
warranties of Borrower contained herein or in any instrument or certificate
executed by Borrower and delivered in connection herewith shall be true and
correct in all material respects, and no Default or Event of Default shall have
occurred and be continuing.
(b) OPINIONS OF COUNSEL. On the date of the Closing, Bank
shall have received from counsel for the Borrower, a favorable opinion (in form
and substance satisfactory to Bank), dated the closing date.
(c) LOAN DOCUMENTS. On the date of Closing, all of the Loan
Documents shall have been executed by the Borrower and the Guarantor and
delivered to Bank.
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(d) SUPPORTING DOCUMENTS AND OTHER CONDITIONS. Bank shall have
received a certificate from Borrower in the form attached hereto as EXHIBIT
2.03(d) as of the date of each Advance.
(e) LITIGATION. There shall be no order, injunction, decree,
judgment or verdict prohibiting or restraining Bank from making the Loan, or
Borrower or any Subsidiary from performing its obligations hereunder as of the
date of each Advance.
(f) REQUEST FOR ADVANCE. At the time of the requested Advance
hereunder, Borrower shall have timely delivered to Bank prior to the Borrowing
Date the Request for Advance in the form attached as EXHIBIT 2.03(f), signed by
an Authorized Signatory of Borrower. There shall be no exceptions for material
litigation reflected therein in connection with the Advance.
(g) CLOSING. Closing, execution and delivery of the Loan
Documents shall have been held no later than March 31, 1997.
(h) DOCUMENTS. This Agreement, all exhibits hereto, and the
other Loan Documents must be simultaneously executed and delivered to Bank at
Closing together with the Collateral.
(i) COMMITMENT LETTER. On the date of Closing, all the
conditions set forth in the commitment letter from Bank to Borrower dated
February 13, 1997, shall have been satisfied or waived in writing by the Bank.
(j) GUARANTY. The Guarantor(s) shall execute and deliver to
Bank the Guaranty, a stock pledge agreement, a stock power, a proxy and all
stock certificates, all with respect to the issued and outstanding shares of
Borrower.
(k) FEE. Borrower shall have paid to Bank the non-refundable
structuring fee in the amount of One Hundred Thousand Dollars ($100,000), for
which Borrower shall receive a credit for the existing deposit. In addition,
Bank shall receive Twenty Thousand Dollars ($20,000) worth of stock in the
Guarantor based upon the fair market value at the time of closing ("Commitment
Fee Stock"). Borrower and Guarantor warrant and represent that the Commitment
Fee Stock shall be freely tradable by the Bank within six (6) months of issuance
and that, so long as the Bank holds the Commitment Fee Stock, the Guarantor
shall maintain a registration statement in place whereby the Commitment Fee
Stock shall be freely tradable by the Bank.
(l) INSURANCE. Borrower shall have delivered to Bank evidence
of the insurance required pursuant to this Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Borrower and Guarantor hereby represent and warrant to Bank as follows:
3.1 GOOD STANDING. Borrower, each Guarantor and each Subsidiary
are corporations, duly organized, validly existing and in good standing under
the laws of their respective states of incorporation and have the power and
authority to own their respective property and to carry on their respective
business in each jurisdiction in which each does business.
3.2 AUTHORITY AND COMPLIANCE. Borrower, each Guarantor and each
Subsidiary have full power and authority to execute and deliver the Loan
Documents and to incur and perform the obligations provided for therein, all of
which have been duly authorized by all proper and necessary action of the
appropriate governing body of Borrower, each Guarantor and each Subsidiary. No
consent or approval of any public authority or other third party is required as
a condition to the validity of any Loan Document, and Borrower and each
Subsidiary are in compliance with all laws and regulatory requirements to which
they are subject.
3.3 BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower, each Guarantor and each Subsidiary constitute valid and
legally binding obligations of Borrower, each Guarantor and each Subsidiary,
enforceable in accordance with their terms.
3.4 LITIGATION. There is no proceeding involving Borrower, any
Guarantor or any Subsidiary pending or, to the knowledge of Borrower, threatened
before any court or governmental authority, agency or arbitration authority,
except as disclosed to Bank in writing and acknowledged by Bank prior to the
date of this Agreement.
3.5 NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, shareholder agreement or other document pertaining to the
organization, power or authority of Borrower, any Guarantor or any Subsidiary
and no provision of any existing agreement, mortgage, indenture or contract
binding on Borrower, any Guarantor or any Subsidiary or affecting any of their
respective properties, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the other
Loan Documents.
3.6 OWNERSHIP OF ASSETS. Borrower, each Guarantor and each
Subsidiary have good title to their assets, and their assets are free and clear
of liens, except those granted to Bank and except as set forth on EXHIBIT 3.06
attached hereto.
3.7 TAXES. All taxes and assessments due and payable by Borrower,
each Guarantor and each Subsidiary have been paid or are being contested in good
faith by appropriate proceedings and the Borrower, each Guarantor and each
Subsidiary have filed all tax returns which it is required to file.
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3.8 FINANCIAL STATEMENTS. Except as set forth on EXHIBIT 3.08
attached hereto, the financial statements of Borrower, each Guarantor and each
Subsidiary heretofore delivered to Bank have been prepared in accordance with
GAAP applied on a consistent basis throughout the period involved and fairly
present Borrower's, each Guarantor's and each Subsidiary's financial condition
as of the date or dates thereof, and there has been no material adverse change
in Borrower's, any Guarantor's or any Subsidiary's financial condition or
operations since the most recent financial statement of the Borrower, each
Guarantor and each Subsidiary furnished to Bank. To the best of Borrower's
knowledge, all factual information furnished by Borrower, each Guarantor and
each Subsidiary to Bank in connection with this Agreement and the other Loan
Documents is and will be accurate and complete on the date as of which such
information is delivered to Bank and is not and will not be incomplete by the
omission of any material fact necessary to make such information not misleading.
All financial projections represent the Borrower's best estimate of Borrower's
future financial performance and such assumptions are reasonable and believed by
Borrower to be fair in light of current business conditions.
3.9 PLACE OF BUSINESS. Borrower's chief executive office is
located at: 479 Main Avenue, Durango, Colorado 81301.
3.10 ENVIRONMENTAL MATTERS. The conduct of Borrower's, each
Guarantor's and each Subsidiary's business operations do not and will not
violate any federal laws, rules or ordinances for environmental protection,
regulations of the Environmental Protection Agency and any applicable local or
state law, rule, regulation or rule of common law and any judicial
interpretation thereof relating primarily to the environment or Hazardous
Materials and Borrower will not use or permit any other party to use any
Hazardous Materials at any of Borrower's, any Guarantor's and/or any
Subsidiary's places of business or at any other property owned by Borrower, any
Guarantor and/or any Subsidiary except such materials as are incidental to
Borrower's, any Guarantor's or any Subsidiary's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Borrower agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's and each Subsidiary's places of
business or any other property of Borrower and/or each Subsidiary at any
reasonable times upon three (3) days prior notice for the purposes of conducting
an environmental investigation and audit (including taking physical samples) to
insure that Borrower and each Subsidiary is complying with this covenant and
Borrower shall reimburse Bank on demand for the costs of any such environmental
investigation and audit (not to exceed one [1] in each twelve [12] month period
unless Bank has reason to believe that an adverse environmental condition exists
or a Default exists). Borrower shall provide Bank, its agents, contractors,
employees and representatives with access to and copies of any and all data and
documents relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by Borrower's and each Subsidiary's business
operations within five (5) days of the request therefore.
3.11 RECEIVABLES. Borrower and each Subsidiary shall take any and
all steps as Bank may request to create and maintain in Bank's favor a valid and
first security interest in and pledge of, all
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Receivables, whether now existing or created from time to time hereafter. With
respect to all Receivables:
(a) Borrower and each Subsidiary shall, at Bank's request,
execute and deliver to Bank an assignment or assignments of any or all of
Borrower's and each Subsidiary's Receivables accompanied by copies of invoices
and evidences of shipment or delivery and any other documents in Borrower's
possession concerning same as Bank may reasonably require for purposes of
assisting Bank in the realization upon such Receivables;
(b) Borrower shall, at Bank's request, deliver to Bank all
copies of invoices and evidences of shipment or delivery and any other documents
in Borrower's and each Subsidiary's possession concerning accounts receivable
that are reflected upon any schedule or borrowing base certificate or the like,
furnished to the Bank, as Bank may reasonably request for purposes of assisting
Bank in the conduct of any audit of accounts receivable;
(c) Except as set forth on EXHIBIT 3.06 attached hereto,
absolute title to the Collateral, free and clear of all liens, encumbrances and
security interests shall be vested in Borrower and each Subsidiary;
(d) Neither Borrower nor any Subsidiary shall enter into or
allow any other agreements, notices, financing statements, or other matters
which will in any way impair or affect Bank's first lien upon, security interest
in and pledge of such Collateral; and
(e) each Receivable represented to Bank:
(i) shall represent a valid and legally enforceable
indebtedness, according to its terms and as represented by the assigned invoice;
(ii) to the best of Borrower's knowledge, shall be a
Receivable as to what the account debtor shall be liable for and shall make
payment of the amount expressed in such invoice and according to its terms;
(iii) to the best of Borrower's knowledge, shall be
subject to no dispute or claim by the account debtor as to price, terms,
quality, quantity, delay in shipment, offsets, counterclaims, contra-accounts or
any other defense of any other kind and character;
(iv) to the best of Borrower's knowledge, shall not
be subject to discounts, deductions, allowances, offsets, returns, or special
terms of payment, except such as are shown on the face of the invoice;
(v) shall not represent a delivery of goods upon
"consignment", "guaranteed sale", "sale or return", "payment on reorder" or
similar terms;
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(vi) shall not be subject to any prohibition or
limitation upon assignment; and
(vii) except as set forth on EXHIBIT 3.06 attached
hereto, shall be free and clear of all claims, demands, liens and encumbrances
of any kind whatsoever.
3.12 INVENTORY. With respect to Inventory, Borrower warrants and
represents:
(a) except as set forth on EXHIBIT 3.06 attached hereto, the
same shall be free and clear of all liens and encumbrances and Borrower and each
Subsidiary shall be the absolute owner thereof;
(b) such Inventory shall be kept at the Borrower's Address or
at an address where the Bank maintains a perfected security interest in such
Inventory (or with respect to a Subsidiary, the address of the Subsidiary
disclosed in writing to the Bank), and Borrower shall promptly notify Bank of
any change thereof;
(c) Borrower shall defend Bank's security interest in the
Inventory against any claims or demands of third parties and will promptly pay,
when due, all taxes or assessments levied on account of the Inventory; and
(d) Bank shall have a perfected security interest at times
during the Term.
3.13 FEDERAL RESERVE REGULATIONS.
(a) Neither Borrower nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States);
(b) no part of the Advances shall be used to purchase or carry
any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock; and
(c) no part of the Advances shall be used for any purpose that
violates, or which is inconsistent with, the provisions of Regulation T, G, U or
X of said Board of Governors.
3.14 CONSENTS, ETC. Other than filing the Rolling Stock Security
Agreement with the Surface Transportation Board, no consent, approval,
authorization of, or registration (other than the filing of a UCC-1 with the
Secretary of State), declaration or filing with any governmental authority
(federal, state or local, domestic or foreign) is required in connection with
the execution or delivery by Borrower, any Guarantor or any Subsidiary of the
Loan Documents or the performance of or
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compliance with the terms, provisions and conditions hereof or thereof or the
perfection of the Bank's security interest in the Collateral.
3.15 GOVERNMENTAL AUTHORIZATIONS. All authorizations, consents,
approvals, licenses, and permits required under applicable law or regulation for
the ownership or operation of the property owned or operated by Borrower and the
Subsidiaries or for the conduct of the business in which Borrower and the
Subsidiaries are engaged have been duly issued (or if not issued, the failure to
have obtained same are of an immaterial nature and would not have a material
adverse effect on Borrower or the Subsidiaries) and are in full force and effect
and neither Borrower nor any of the Subsidiaries is in default under any order,
decree, rule and regulation, closing agreement or other decision or instrument
of any Governmental Authority, which default could reasonably be expected to
have a Material Adverse Effect.
3.16 TITLE TO PROPERTIES. Except as set forth on EXHIBIT 3.06
attached hereto, Borrower, each Guarantor and each Subsidiary have good and
marketable fee title to all real property, and good and marketable title to all
other property (including leases) and assets reflected in the financial
statements delivered to the Bank or purported to have been acquired by Borrower,
each Guarantor and each Subsidiary subsequent to such date, except the property
or assets sold or otherwise disposed of by Borrower subsequent to such date in
the ordinary course of business. All of the property and assets of any kind of
Borrower, each Guarantor and each Subsidiary are free from any liens, except as
otherwise set forth on EXHIBIT 3.06 attached hereto. Borrower, each Guarantor
and each Subsidiary enjoy peaceful and undisturbed possession under all of the
leases under which it is operating, none of which contains any unusual or
burdensome provisions that could reasonably be expected to have a Material
Adverse Effect. All of such leases are valid, subsisting and in full force and
effect and none of such leases is in default and no event has occurred which
with the passage of time or the giving of notice or both would constitute a
default under any thereof. Borrower, each Guarantor and each Subsidiary possess
all material patents, patent rights, licenses, trademarks, trademark rights,
trade name, trade name rights, and copyrights that may be required to conduct
its business as now conducted, all without known conflict with the rights of
others.
3.17 SOLVENT. Borrower is, on a consolidated basis, and after the
consummation of the loans contemplated in this Agreement, and after having given
effect to all indebtedness incurred and liens created by Borrower and each
Subsidiary in connection herewith, will be Solvent.
3.18 SUBSIDIARIES. The Subsidiaries of Borrower are all as
reflected on EXHIBIT 3.18 hereto.
3.19 SHAREHOLDERS. All classes of shareholders of the Borrower and
each Subsidiary are reflected on EXHIBIT 3.19 hereto.
3.20 INDEBTEDNESS. All Indebtedness of the Borrower and each
Subsidiary (other than trade payables in the ordinary course of business) are
reflected on EXHIBIT 3.20 hereto.
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3.21 CONTINGENT LIABILITIES. All contingent liabilities of the
Borrower and each Subsidiary are reflected on EXHIBIT 3.21 hereto.
3.22 MATERIAL CONTRACTS. Neither the execution and delivery of the
Loan Documents nor the consummation of the transaction contemplated by the
Indebtedness identified on EXHIBIT 3.20 shall constitute a default or right of
termination under any agreement to which the Borrower, any Guarantor or any
Subsidiary is a party.
3.23 USE OF PROCEEDS. The proceeds of the Loan shall be used
solely to acquire The Durango & Silverton Narrow Gauge Railroad Company.
3.24 PENSION AND WELFARE PLANS. Each Pension Plan and Welfare Plan
complies with ERISA and all other applicable statutes and governmental rules and
regulations; no Reportable Event has occurred and is continuing with respect to
any Pension Plan; neither Borrower nor any Subsidiary of Borrower nor any ERISA
Affiliate has withdrawn from any Multi-Employer Plan in a "complete withdrawal"
or a "partial withdrawal" as defined in Sections 4203 or 4205 of ERISA,
respectively; neither Borrower nor any Subsidiary nor any ERISA Affiliate has
entered into an agreement pursuant to Section 4204 of ERISA; neither Borrower
nor any Subsidiary nor any ERISA Affiliate has in the past contributed to or
currently contributes to a Multi-Employer Plan; neither Borrower nor any
Subsidiary nor any ERISA Affiliate has any withdrawal liability with respect to
a Multi-Employer Plan; no steps have been instituted by Borrower or any
Subsidiary or any ERISA Affiliate to terminate any Pension Plan; no condition
exists or event or transaction has occurred in connection with any Pension Plan,
Multi-Employer Plan or Welfare Plan which could result in the incurrence by
Borrower or any Subsidiary or any ERISA Affiliate of any liability, fine or
penalty; and neither Borrower nor any Subsidiary nor any ERISA Affiliate is a
"contributing sponsor" as defined in Section 4001(a)(13) of ERISA of a
"single-employer plan" as defined in Section 4001(a)(15) of ERISA which has two
(2) or more contributing sponsors at least two (2) of whom are not under common
control. Neither Borrower nor any Subsidiary nor any ERISA Affiliate has any
liability with respect to any Welfare Plan.
3.25 TAX RETURNS AND PAYMENT. Borrower and its Subsidiaries have
filed all federal, state, local and other tax returns which are required to be
filed and have paid all taxes which have become due pursuant to such returns and
all other taxes, assessments, fees and other governmental charges upon Borrower
and its Subsidiaries and upon their respective properties, assets, income and
franchises which have become due and payable by Borrower or any of its
Subsidiaries, except those wherein the amount, applicability or validity are
being contested by Borrower or any such Subsidiary by appropriate proceedings
being diligently conducted in good faith and in respect of which adequate
reserves in accordance with GAAP have been established. All material tax
liabilities of Borrower and its Subsidiaries were adequately provided for as of
December 31, 1996, and are now so provided for on the books of Borrower and its
Subsidiaries. There is no known proposed, asserted or assessed tax deficiency
against Borrower or any of its Subsidiaries which, if adversely determined,
could reasonably be expected to have a Material Adverse Effect.
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3.26 LABOR MATTERS. Neither Borrower nor any Subsidiary is a party
to any pending or threatened labor dispute. There are no pending or threatened
strikes or walkouts relating to any labor contract to which Borrower or any
Subsidiary is subject. Hours worked and payments made to the employees of
Borrower and its Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable law dealing with such matters. All
payments due from Borrower or any Subsidiary, or for which any claim may be made
against any of them, in respect of wages, employee health and welfare insurance
and/or other benefits have been paid or accrued as a liability on their
respective books. The consummation of the transactions contemplated by the Loan
Documents will not give rise to a right of termination or right of renegotiation
on the part of any union under any collective bargaining agreement to which
Borrower or any Subsidiary is a party or by which Borrower or any Subsidiary is
bound.
3.27 MULTI-EMPLOYER PENSION PLAN AMENDMENTS ACT OF 1980. Borrower
and each Subsidiary is in compliance with the Multi-Employer Pension Plan
Amendments Act of 1980, as amended ("MEPPAA"), and neither Borrower nor any
Subsidiary has any liability for pension contributions pursuant to MEPPAA.
3.28 INVESTMENT COMPANY ACT OF 1940; PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935. Borrower is not an "investment company" as that term is
defined in, and is not otherwise subject to regulation under, the Investment
Company Act of 1940, as amended. Borrower is not a "holding company" as that
term is defined in, and is not otherwise subject to regulation under, the Public
Utility Holding Company Act of 1935, as amended.
3.29 EMPLOYMENT AND OTHER AGREEMENTS. Except for the employment
agreements and the other agreements described in EXHIBIT 3.29 attached hereto,
true, complete and accurate copies of which have been delivered to Bank, there
are no: (a) employment agreements covering the management of Borrower or any
Subsidiary; (b) collective bargaining agreements or other labor agreements
covering any employees of Borrower or any Subsidiary; or (c) agreements for
managerial, consulting or similar services to which Borrower or any Subsidiary
is a party or by which Borrower or any Subsidiary is bound.
3.30 CONTINUATION OF REPRESENTATION AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of delivery of any
Compliance Certificate.
ARTICLE 4
AFFIRMATIVE COVENANTS
Until full payment and performance of all Obligations of Borrower under
the Loan Documents, Borrower, each Subsidiary and Guarantor shall maintain the
following covenants, conditions and restrictions:
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4.1 FINANCIAL CONDITION. Maintain at all times Borrower's and each
Subsidiary's financial condition as follows, determined in accordance with GAAP
applied on a consistent basis throughout the period involved except to the
extent modified by the following definitions:
(a) A maximum Total Liabilities/Tangible Net Worth ratio as
follows:
(i) 1.2:1 as of September 30 and December 31 of each
year; provided, however, the 1.2:1 ratio shall be amended to read 1.3:1 as of
September 30, 1997 and December 31, 1997; and
(ii) 1.5:1 as of March 31 and June 30 of each year.
The foregoing covenant shall be first tested as of
June 30, 1997.
Total Liabilities shall mean total liabilities less
subordinated debt. Tangible Net Worth shall mean equity plus subordinated debt.
(b) Maintain a net worth plus subordinated debt of not less
than:
(i) Fifteen Million Dollars ($15,000,000.00) as of
September 30 and December 31 of each year; and
(ii) Twelve Million Five Hundred Thousand Dollars
($12,500,000.00) as of March 31 and June 30 of each year.
The foregoing covenant shall be first tested as of
June 30, 1997.
(c) Maintain a debt service coverage of 1.1:1 on all principal
and interest payments and capital expenditures. Debt service coverage will be
calculated as: (i) net profit after taxes plus depreciation plus amortization
plus income taxes expensed but never to be paid less any dividends to the
Guarantor; divided by (ii) principal payments plus capital expenditures. This
covenant will be tested quarterly on a rolling four (4) quarter basis. The
payment of principal on the seller notes will not be included in the denominator
calculation of the debt service coverage. The foregoing covenant shall be first
tested as of June 30, 1997.
4.2 FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system
of accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's and each Subsidiary's
books of account and other records at such reasonable times and as often as Bank
may desire, and pay the reasonable fees and disbursements of any accountants or
other agents of Bank selected by Bank for the foregoing purposes. The foregoing
shall include, without limitation, the Bank's performing a field audit of
Borrower's and each Subsidiary's assets and systems. Unless written notice of
another location is given to Bank, Borrower's books and records
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will be located at Borrower's chief executive office set forth above (and with
respect to each Subsidiary, the address provided by the Borrower to the Bank in
writing). All financial statements called for below shall be prepared in form
and content acceptable to Bank and by independent certified public accountants
acceptable to Bank.
In addition, Borrower shall comply with the following:
(a) ANNUAL STATEMENTS. Borrower shall provide Bank with annual
audited financial statements on a consolidated and consolidating basis for the
Borrower and each of its wholly-owned Subsidiaries (together with any management
letter provided to the Borrower by the Borrower's principal accounting firm), in
conformity with generally accepted accounting principles applied on a consistent
basis, within one hundred fifty (150) days of fiscal year end, to be prepared by
and bear the unqualified opinion of a Certified Public Accountant acceptable to
Bank (any national or regional accounting firm shall be deemed acceptable to the
Bank) without any impermissible qualification. As used herein, "impermissible
qualification" means relative to the opinion of any independent public
accountant as to any financial statement of Borrower that said opinion contains
no qualification or exception to any such opinion or certification: (i) which is
of a "going concern" or similar nature; (ii) which relates to the limitation on
the scope of examination of matters relevant to such financial statements; (iii)
which relates to the treatment or classification of any item in such financial
statement in which, as a condition to its removal, would require an adjustment
to such item, the effect of which would be to cause the Borrower (or any
Subsidiary) to be in default of any of the financial covenants under any of the
Loan Documents; or (iv) which is otherwise unacceptable to the Bank in the
Bank's reasonable discretion.
(b) QUARTERLY STATEMENTS. Borrower shall provide Bank (on an
accrual basis) with company prepared quarterly financial statements (on a
consolidated and consolidating basis for the Borrower and each of its
Subsidiaries) in conformity with generally accepted accounting principles
applied on a consistent basis, within sixty (60) days of the end of each
quarter.
(c) 10-Q. Borrower shall deliver to Bank the 10-Q of the
Guarantor with the quarterly statement required under subparagraph above.
(d) COMPLIANCE CERTIFICATE. All required financial statements
must be accompanied by a Certificate of Compliance in the form attached hereto
as EXHIBIT 2.03(d), signed by an officer of the Borrower. The foregoing
Certificate of Compliance shall also include the Borrower's calculation of all
financial covenants.
(e) GUARANTOR AND SUBSIDIARY STATEMENTS AND TAX RETURNS. Cause
each Guarantor and each Subsidiary which is not consolidated with the Borrower
to deliver to Bank: (1) updated financial statements on or prior to one hundred
fifty (150) days following the Borrower's fiscal year end; and (2) a copy of
their annual federal income tax return within ten (10) days following filing.
Tax returns must be filed within the time established by federal law, including
the provisions of federal law regarding extensions of time for filing.
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(f) SEC FILINGS. Borrower shall provide to Bank a copy of all
Securities and Exchange Commission filings (if applicable) with respect to
Borrower and the Guarantor within ten (10) days following filing.
(g) ADDITIONAL INFORMATION. Furnish to Bank promptly such
additional information, reports and statements respecting the business
operations and financial condition of Borrower, each Guarantor and each
Subsidiary, respectively, from time to time, as Bank may reasonably request.
4.3 INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance (if
available under applicable law) and liability insurance, all to be with such
companies and in such amounts as are satisfactory to Bank and with respect to
insurance on the Collateral, to contain a mortgagee clause naming Bank as a loss
payee or an additional insured (as applicable) as its interest may appear and
providing for at least 30 days prior notice to Bank of any cancellation,
nonrenewal or modification thereof. Satisfactory evidence of such insurance will
be supplied to Bank prior to funding under the Loan(s) and 30 days prior to each
policy renewal. Coinsurance provisions are not permitted in any insurance
policies. Further, each insurance policy provided to Bank by the Borrower shall
be written by an insurer having not less than "A-X" Best's Rating according to
the most current edition of Best's Key Rating Guide. The address for notices to
Bank shall be set forth in each policy as follows:
NationsBank of Texas
TX1-609-03-01
P.O. Box 830632
Dallas, TX 75283
Re: Obligor Number
4.4 EXISTENCE AND COMPLIANCE. Maintain its existence, good
standing and qualification to do business, where required and comply with all
laws, regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
4.5 ADVERSE CONDITIONS OR EVENTS. Advise Bank in writing within
ten (10) days of: (a) any condition, event or act which comes to its attention
that would or might materially adversely affect Borrower's, any Guarantor's or
any Subsidiary's financial condition or operations, the Collateral, or Bank's
rights under the Loan Documents; (b) any litigation filed by or against
Borrower, any Guarantor or any Subsidiary in excess of One Hundred Thousand
Dollars ($100,000) in the aggregate; (c) any event that has occurred that would
constitute an Event of Default under any
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Loan Documents; and (d) any uninsured or partially uninsured loss through fire,
theft, liability or property damage in excess of an aggregate of One Hundred
Thousand Dollars ($100,000).
4.6 TAXES AND OTHER OBLIGATIONS. Pay all of their respective
taxes, assessments and other obligations, including, but not limited to taxes,
costs or other expenses arising out of this transaction, as the same become due
and payable, except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.
4.7 MAINTENANCE. Maintain all of their respective tangible
property in good condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, trademarks, privileges,
permits, franchises, certificates and the like necessary for the operation of
their respective business.
4.8 NOTIFICATION. Borrower shall immediately advise Bank in
writing of: (a) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Borrower's and/or any Subsidiary's
business operations; (b) all claims made or threatened by any third party
against Borrower or any Subsidiary relating to damages, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Materials.
Borrower shall immediately notify Bank of any remedial action taken by Borrower
or any Subsidiary with respect to Borrower's or any Subsidiary's business
operations; and (c) the occurrence of any Default or Event of Default of which
the Borrower or any Subsidiary has knowledge.
Without limiting the generality of the foregoing, Borrower shall
cause, except with respect to the slag pile, which property is no longer owned
by Borrower, all the recommendations in the Phase I Environmental Site
Assessment Report prepared by Terranext dated December 8, 1996, under Job No.
06104973 to be completed to Bank's satisfaction within one hundred fifty (150)
days following the date hereof and provide evidence of compliance thereof to the
Bank.
4.9 POTENTIAL CONTINGENT LIABILITIES. Borrower shall inform Bank
within ten (10) days of any actual or potential contingent liabilities in excess
of One Hundred Fifty Thousand Dollars ($150,000) in the aggregate with respect
to either Borrower or any Subsidiary.
4.10 SUBSIDIARIES. The following shall be applicable to each
Subsidiary (whether or not acquired with the proceeds of the Loan):
(a) The Borrower shall cause each Subsidiary to guarantee the
Obligation upon terms and conditions acceptable to Bank;
(b) The Borrower shall collaterally assign (or cause a
Subsidiary to collaterally assign, if applicable) to the Bank the Borrower's (or
Subsidiary's) interest in each Subsidiary upon terms and conditions acceptable
to the Bank; and
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(c) Borrower shall cause each Subsidiary to pledge all of such
Subsidiary's assets to the Bank upon terms and conditions acceptable to the Bank
which may include, without limitation, an opinion of counsel acceptable to the
Bank.
4.11 COMPLIANCE WITH LAWS. Borrower and each Subsidiary shall duly
observe, conform and comply with all laws, decisions, judgments, rules,
regulations and orders of all governmental authorities relative to the conduct
of its business, its properties, and assets, except those being contested in
good faith by appropriate proceedings diligently pursued; and obtain, maintain
and keep in full force and effect all governmental licenses, authorizations,
consents and permits necessary to the proper conduct of the business of the
Borrower and each Subsidiary.
4.12 VISITATION RIGHTS. Permit any authorized representative of
the Bank from time to time, upon reasonable notice to the Borrower or the
Guarantor, as applicable, and during normal business hours, to examine and copy
the records and books of, and visit and inspect the properties of, the Borrower
or any of its Subsidiaries, or the Guarantor, and to discuss the affairs and
finances of the Borrower or any of its Subsidiaries, or the Guarantor, with any
of their respective officers, directors or employees, and at the expense of the
Bank so long as no Default exists, independent public accountants.
4.13 ERISA. Borrower and Guarantor shall furnish to Bank:
(a) As soon as available and in any event within fifteen (15)
days after Borrower knows or has reason to know that any Termination Event has
occurred, a statement of a senior officer of the Borrower describing the
Termination Event and the action which the Borrower proposes to take so that the
Termination Event shall not be continuing;
(b) Promptly after receipt of request therefor by the Bank,
copies of each annual report filed by the Borrower or any of its Subsidiaries
pursuant to Section 104 of ERISA with respect to each Plan (including, to the
extent required by Section 103 of ERISA, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information referred to in said Section 103) and each annual
report, if any, required to be filed with respect to each Plan under Section
4065 of ERISA;
(c) Promptly and after receipt thereof by the Borrower or any
of its Subsidiaries from the Pension Benefit Guaranty Corporation, copies of
each notice received by such party of the Pension Benefit Guaranty Corporation's
intent to terminate any Plan or to have a Trustee appointed to administer any
Plan; and
(d) Promptly after such request, any other documents and
information relating to any Plan that the Bank may reasonably request from time
to time.
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4.14 PAYMENT OF INDEBTEDNESS. Borrower and Guarantor shall pay all
of its Indebtedness and obligations promptly and in accordance with normal terms
and comply in all respects with all agreements, indentures, mortgages or
documents binding on it; and pay and discharge (or bond if being contested) or
cause to be paid and discharged (or bonded if being contested) promptly all
taxes, assessments and governmental charges or levies imposed upon it or upon
its property or upon any part thereof, before the same shall become in default,
as well as all claims for labor, materials and supplies or otherwise which, if
unpaid, might become a Lien upon such properties or any part thereof.
ARTICLE 5
NEGATIVE COVENANTS
Until full payment and performance of all Obligations of Borrower under
the Loan Documents and the termination of any obligation of the Bank to make any
Advances, neither Borrower nor any Subsidiary will, without the prior written
consent of Bank (and without limiting any requirement of any other Loan
Documents):
5.1 LIENS. Other than a purchase money security interest which is
fully subordinated to the Bank with respect to the guaranty of the promissory
notes indicated as Paragraphs 1 and 2 on EXHIBIT 3.20 attached hereto, incur,
create or permit to exist any pledge, security interest, lien, charge or other
encumbrance of any nature whatsoever on any of Borrower's or any Subsidiary's
property (including the Collateral), whether now owned or hereafter acquired.
5.2 BORROWINGS. Other than the Indebtedness identified on EXHIBIT
3.20 attached hereto, create, incur, assume or become liable in any manner for
any indebtedness, direct or indirect (for borrowed money, deferred payment for
the purchase of assets, lease payments, as surety or guarantor for the debt for
another, or otherwise), in excess of Seventy-Five Thousand Dollars ($75,000) in
the aggregate other than to Bank, except for normal trade debts incurred in the
ordinary course of Borrower's business.
5.3 CHARACTER OF BUSINESS. Change the general character of
business as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
5.4 ADDITIONAL NEGATIVE COVENANTS. During the Term of the Loan,
neither the Borrower nor any Subsidiary shall:
(a) repurchase, redeem or retire any of its stock;
(b) (i) make investments or acquisitions with or in any
affiliate, third party, Subsidiary, joint venture, persons or securities,
without the written consent of the Bank;
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(ii) enter into transactions with any affiliate, third
party, Subsidiary or joint venture without the written consent of the Bank,
except those: (A) which will not diminish the value of the collateral; and (B)
which are on no less favorable terms than an arms-length transaction;
(c) make loans, advances or investments other than U.S.
Government and Federal Agency Obligations, Certificates of Deposit from
federally insured banks and commercial paper rated A1-P1, all with maturities
not to exceed six (6) months;
(d) guarantee, endorse or assume debt, except in the normal
course of business;
(e) merge with or acquire the assets, stock or ownership
interest of another entity;
(f) sell, lease, assign, or otherwise dispose of or transfer
any assets, except in the ordinary course of business;
(g) make, permit or suffer any change in the ownership of: (i)
Borrower; and/or (ii) any Subsidiary whereby the Borrower does not own and
control at least fifty-one percent (51%) of all ownership and voting stock of
the Subsidiary;
(h) make, permit or suffer any change in the ownership,
control or management of Borrower and/or any Subsidiary whether by agreements,
shareholder agreements or otherwise or enter into any agreement of merger, sale
of assets or other agreement which would be in violation of any applicable law
or regulation;
(i) make any payment with regard to minority interest in the
Borrower or any Subsidiary;
(j) except as contemplated by Paragraph above, grant, suffer
or permit any contractual or non-contractual lien or security interest in its
assets, or fail to promptly pay when due all lawful claims, whether for labor,
materials or otherwise;
(k) permit any change in the senior management of the
Guarantor whereby Allen C. Harper does not remain active in the senior
management of the Guarantor; or
(l) co-mingle the Borrower's assets with those of the
Guarantor, any Subsidiary or any of the Guarantor's subsidiaries. The foregoing
shall, among other things, be deemed to prohibit the upstreaming of funds
(including profits but excluding the amount necessary to make interest payments
on the Four Million Two Hundred Thousand Dollar [$4,200,000] and the Five
Million Eight Hundred Fifty Thousand Dollar [$5,850,000] promissory notes from
Guarantor to Charles E. Bradshaw, Jr. provided no Event of Default exists
hereunder and provided the payment thereof would not violate the terms of the
General Subordination and Assignment between Borrower, Guarantor and Bank dated
even date herewith) of Borrower to Borrower's parent unless the upstreaming of
such profits would not violate the following:
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Sixty (60) days prior to any cash payment from Borrower to Guarantor,
the Borrower must supply the Bank a proforma balance sheet acceptable
to the Bank that shows the Borrower meeting the following balance sheet
tests post payment: (a) net worth plus subordinated debt of not less
than Fifteen Million Dollars ($15,000,000.00); (b) total liabilities
less subordinated debt to equity plus subordinated debt at a ratio not
to exceed 1.2:1; and (c) Borrower must be in compliance with all terms,
conditions and covenants in the Loan Documents as evidenced by a
compliance certificate executed by an authorized officer of Borrower
(in form and substance acceptable to the Bank) and countersigned as
being acknowledged and agreed to by the Bank. In conjunction with the
foregoing, prior to any payment from Borrower to Guarantor, Borrower
must deliver to Bank audited or reviewed financial statements
acceptable to the Bank with respect to the quarter ending no less than
seventy-five (75) days prior to the proposed payment. In the event the
Borrower is not in compliance with the foregoing, no payments may be
made from Borrower to Guarantor.
ARTICLE 6
DEFAULT
The occurrence of any of the following as they relate to the Borrower
or any Subsidiary or any of the Guarantors shall constitute an Event of Default:
6.1 Failure to pay principal or interest or any other payment due
to Bank under any note or collateral security document executed in connection
with the Loan, whether parent or subsidiary, within ten (10) days following the
due date, or to other creditors, within any applicable grace period.
6.2 Failure to perform any covenant or agreement of the Borrower,
any Subsidiary or any Guarantor contained in this Agreement within ten (10) days
following notice thereof from Bank.
6.3 Failure to perform any other obligation imposed upon Borrower,
any Subsidiary or the Guarantor by the Loan Documents within any applicable cure
period.
6.4 Any representation, warranty, statement or certificate made by
Borrower, any Subsidiary or Guarantor determined by Bank to be untrue in any
material respect.
6.5 Violation, termination or default following any applicable
cure period of any agreement or contract with Bank (or its affiliates) or other
lenders or under any other material agreement involving Borrower.
6.6 Filing of any petition for adjudication as a bankrupt or for
reorganization, whether voluntary or involuntary which is not dismissed within
ninety (90) days following filing; the appointment of a receiver or trustee or
other similar officer with respect to any substantial part of their property
which is not dismissed within ninety (90) days following filing; a general
assignment
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for the benefit of creditors; any other insolvency proceeding, any dissolution
or liquidation or winding up of the affairs of the Borrower, any Subsidiary or
any Guarantor.
6.7 A default under any agreement Borrower, any Subsidiary or any
Guarantor may have with the Bank (or its affiliates) shall constitute a default
under the Loan and a default under the Loan shall constitute a default under any
other agreement between Bank (or its affiliates) and Borrower, any Subsidiary or
any Guarantor.
6.8 A final judgment is entered against Borrower or any
Subsidiary, other than a final judgment in connection with any condemnation, and
Borrower does not discharge the same or provide for its discharge in accordance
with its terms, or procure a stay of execution therein, in any event within
thirty (30) days of entry.
6.9 Any federal, state or local tax lien or any claim of lien for
labor, materials or any other lien or encumbrance of any nature whatsoever is
recorded against the Borrower, any Subsidiary or any Guarantor or against the
Borrower's, any Subsidiary's, or any Guarantor's assets and is not removed by
payment or transferred to substitute security in the manner provided by law
within ten (10) days after it is recorded in accordance with applicable law, or
is not contested by Borrower, any Subsidiary or any Guarantor.
6.10 Borrower, any Subsidiary or any Guarantor shall cease to
exist or to be qualified to do or transact business in the State in which the
Borrower's, any Subsidiary's or any Guarantor's assets are located, or shall be
dissolved or shall be a party to a merger or consolidation, or shall sell all or
substantially all of its assets.
6.11 Any sale, conveyance, transfer, assignment or other
disposition of all or any part of the Borrower's assets, any Subsidiary's assets
or any Guarantor's assets, other than in the ordinary course of business, or any
ownership interest in Borrower or any Subsidiary.
6.12 Borrower, any Subsidiary or any Guarantor shall default under
any obligation imposed by any indemnity whether contained within any of the Loan
Documents, the Hazardous Waste Certification, or otherwise.
6.13 If at any time the Bank shall reasonably deem itself insecure
or shall determine that there has been an adverse material change in the
financial condition or prospects of Borrower, any Subsidiary or any Guarantor.
6.14 The results of any field audit performed by Bank are not
satisfactory to the Bank, as determined in the Bank's sole discretion, acting
reasonably.
6.15 Borrower or Guarantor shall be in default under any of the
Indebtedness identified on EXHIBIT 3.20 attached hereto and/or under any
agreement securing same.
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6.16 A proceeding being filed or commenced against Borrower or
Guarantor for dissolution or liquidation, or Borrower or Guarantor voluntarily
or involuntarily terminating or dissolving or being terminated or dissolved, and
has not been dismissed within ninety (90) days.
6.17 A Termination Event has occurred; or a trustee shall be
appointed to administer any Plan or Plans under Section 4042 of ERISA; or the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate or
to have a trustee appointed to administer, any Plan or Plans, and the proceeding
shall not be dismissed within ninety (90) days; or a voluntary notice of intent
to terminate is filed under Section 4041 of ERISA which would, in the opinion of
Bank, have a material adverse effect on the financial condition of the Borrower
and its Subsidiaries taken as a whole; or, with respect to any Plan as to which
the Borrower or any Subsidiary may have any liability, there shall exist a
deficiency in the Plan assets available to satisfy the benefits guaranteeable
under ERISA with respect to the Plan which is material to the financial
condition of the Borrower and such Subsidiary taken as a whole, and (a) steps
are undertaken to terminate the Plan, or (b) the Plan is terminated, or (c) any
Reportable Event which presents a material risk of termination with respect to
the Plan shall occur.
ARTICLE 7
REMEDIES UPON DEFAULT
If an Event of Default shall occur Bank may declare this Agreement in
default and all amounts owing under this Agreement and all other Obligations
owing by Borrower to Bank shall upon demand by Bank immediately become due and
payable (notwithstanding that the maturity date or dates expressed in any
evidence of such indebtedness may be otherwise) and Bank may foreclose Bank's
lien or security interest in the Collateral in any way permitted by law, and
Bank shall have, without limitation, the remedies of a secured party under the
Uniform Commercial Code as enacted in Florida as of the date hereof. Bank may
thereupon enter Borrower's and each Subsidiary's premises without legal process,
but in accordance with applicable laws and without incurring liability other
than liability to Borrower arising out of Bank's gross negligence or willful
misconduct, and remove the Collateral to such place as Bank may deem advisable,
or Bank may require Borrower and each Subsidiary to make the Collateral
available to Bank at Borrower's and each Subsidiary's place of business and,
with or without having the Collateral at the time or place of sale, Bank may
sell or otherwise dispose of all or any part of the Collateral whether in its
then condition or after further preparation or processing, either at public or
private sale or at any broker's board, with or without notice and with or
without advertisement, in lots or in bulk, for cash or for credit, at any time
or place, in one or more sales, and upon such terms and conditions as Bank may
elect but in all events in accordance with applicable laws. At any such sale
Bank may be the purchaser. If any Inventory shall require rebuilding, repairing,
maintenance, preparation, or is in process or other unfinished state, Bank shall
have the right, at Bank's option, to do such rebuilding, repairing, preparation,
processing or completing of manufacturing, for the purpose of putting the
Inventory in such saleable form as Bank shall deem appropriate.
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If after receipt of any payment of or any part of the Obligation, the
Bank is for any reason compelled to surrender such payment to any person because
such payment is determined to be void or voidable as a preference, impermissible
setoff, or a diversion of trust funds, or for any other reason, this Agreement
shall continue in full force and the Borrower shall remain liable to Bank for
the amount of such payment surrendered. The provisions of this Section shall be
and remain effective notwithstanding any contrary action which may have been
taken by the Bank in reliance upon such payment, and any such contrary action so
taken shall be without prejudice to the Bank's rights under this Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable. The provisions of this Section shall survive the termination of
this Agreement until all periods for such surrender have ended without such
action having been instituted.
Borrower hereby makes, constitutes and appoints Bank (and all persons
designated by Bank) the true and lawful agent and attorney-in-fact of Borrower
with full power of substitution: (a) if an Event of Default has occurred, to
receive, open and dispose of all mail addressed to Borrower relating to the
Collateral; (b) if an Event of Default has occurred, to notify and direct the
United States Post Office authorities by notice given in the name of Borrower
and to sign on behalf of Borrower, to change the address for delivery of all
mail addressed to Borrower relating to the Collateral to an address to be
designated by Bank, and to cause such mail to be delivered to such designated
address where Bank may open all such mail and remove therefrom any notes,
checks, acceptances, drafts money orders or other instruments included in the
Collateral in which Bank has a security interest under the terms of this
Agreement, with full power to endorse the name of Borrower upon any such notes,
checks, acceptances, drafts, money orders, instruments or other documents
relating to the Collateral or security of any kind and to effect the deposit and
collection thereof, and Bank shall have the further right and power to endorse
the name of Borrower on any documents relating to the Collateral; (c) to sign
the name of Borrower to drafts against its lessees or other debtors, to notices
to such lessees or other debtors, to assignments and notices of assignments,
financing statements or other public records or notices and all other
instruments and documents; (d) to do any and all things necessary and take such
actions in the name and on behalf of Borrower to carry out the intent of this
Agreement, including, without limitation, the grant of the security interest
granted under this Agreement and to perfect and protect the security interest
granted to Bank in respect of the Collateral and the Bank's rights created under
this Agreement. Borrower agrees that neither Bank nor any of its agents,
designees or attorneys-in-fact will be liable for any acts of commission or
omission (other than for acts of commission or omission which constitute gross
negligence or willful misconduct as determined by a court of competent
jurisdiction in a final, nonappealable order), or for any error of judgment or
mistake of fact or law in respect to the exercise of the power of attorney
granted under this Article. The power of attorney granted under this Article
shall be irrevocable during the Term of this Agreement.
ARTICLE 8
NOTICES
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All notices, requests or demands which any party is required or may
desire to give to any other party under any provision of this Agreement must be
in writing delivered to the other party at the following address:
Borrower: The Durango & Silverton Narrow Gauge Railroad Company
3700 North 29th Avenue, Suite 202
Hollywood, Florida 33020
Attention: Chief Financial Officer
Bank: NationsBank, N.A. (South)
One Financial Plaza, 10th Floor
Fort Lauderdale, Florida 33394
Attention: Allen Brown
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
8.1 If sent by hand delivery, upon delivery.
8.2 If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage prepaid.
8.3 If sent by overnight delivery service, one (1) business day
following mailing, postage prepaid.
ARTICLE 9
COSTS, EXPENSES AND ATTORNEY'S FEES
Borrower shall pay to Bank immediately upon demand the full amount of
all costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel if permitted by
applicable law), incurred by Bank in connection with (a) negotiation and
preparation of this Agreement and each of the Loan Documents (not to exceed
Eighteen Thousand Dollars [$18,000] plus expenses with respect to fees), and (b)
Bank's continued administration thereof.
ARTICLE 10
MISCELLANEOUS
Borrower and Bank further covenant and agree as follows, without
limiting any requirement of any other Loan Document:
10.1 CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted
to Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be
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exercised in addition to any and all other rights of Bank, and no delay in
exercising any right shall operate as a waiver thereof, nor shall any single or
partial exercise by Bank of any right preclude any other or future exercise
thereof or the exercise of any other right. Borrower expressly waives any
presentment, demand, protest or other notice of any kind, including but not
limited to notice of intent to accelerate and notice of acceleration. No notice
to or demand on Borrower in any case shall, of itself, entitle Borrower to any
other or future notice or demand in similar or other circumstances.
10.2 APPLICABLE LAW. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Florida and applicable United States federal law.
10.3 AMENDMENT. No modification, consent, amendment or waiver of
any provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Bank, and then shall be effective only in the specified instance
and for the purpose for which given. This Loan Agreement is binding upon
Borrower, its successors and assigns, and inures to the benefit of Bank, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Bank's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
10.4 DOCUMENTS. All documents, certificates and other items
required under this Loan Agreement to be executed and/or delivered to Bank shall
be in form and content satisfactory to Bank and its counsel.
10.5 PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
10.6 INDEMNIFICATION. Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties, costs or
other expenses (including reasonable attorneys' fees and court costs) arising
from or in any way related to any of the transactions contemplated hereby and
the operation of the Borrower's business including, but not limited to, the
payment of "Taxes" (as hereinafter defined). The Borrower's obligations under
this paragraph shall survive the repayment of the Loan and any deed in lieu of
foreclosure or foreclosure of any Deed to Secure Debt, Deed of Trust, Security
Agreement or Mortgage securing the Loan.
10.7 SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Bank to make any advances under the Loan
shall not have expired.
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10.8 FIELD AUDIT. The Bank shall be permitted to perform (for the
benefit of the Bank) inventory and accounts receivable field audits which must
be satisfactory to the Bank. Such audits shall be at the Borrower's expense
provided Borrower shall not be responsible for the expense more than once in any
twelve (12) month period unless the Borrower shall be in default.
10.9 JURISDICTION, SERVICE OF PROCESS.
(a) Any suit, action or proceeding against Borrower with
respect to this Agreement, the Note, the Loan Documents or any judgment entered
by any court in respect of any thereof shall be brought in the courts of Broward
County in the State of Florida or in the U.S. District Court for the Southern
District of Florida as Bank (in its sole discretion) may elect, and Borrower
hereby accepts the nonexclusive jurisdiction of those courts for the purpose of
any suit, action or proceeding.
(b) In addition, Borrower hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement, the Note, the Loan Documents or any judgment entered
by any court in respect of any thereof brought in the State of Florida, and
hereby further irrevocably waives any claim that any suit, action or proceeding
brought in the State of Florida has been brought in an inconvenient forum.
Borrower hereby further agrees that if any such suit, action or proceeding is
pending in more than one jurisdiction, Bank's selection of the forum shall be
binding upon the parties hereto.
10.10 COURSE OF DEALING. No course of dealing between Bank and
Borrower or any Subsidiary shall be effective to amend, modify or change any
provision of this Agreement.
10.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon Borrower, each Subsidiary and Guarantor and shall inure to the benefit of
the Bank, and their respective heirs, personal representatives, trustees,
estates, successors and assigns; provided, that the Borrower may not assign any
of its rights hereunder without the prior written consent of the Bank, which
consent may be withheld in the Bank's sole discretion. The Bank may, without the
consent of the Borrower, Guarantor, or any other Person, assign, negotiate,
hypothecate, or grant participations in this Agreement or in any of its rights
and security under this Agreement and each of the other documents contemplated
to be executed in conjunction herewith. The Borrower and each Guarantor shall
accord full recognition to any such assignment, and all rights and remedies of
the Bank in connection with the interest so assigned shall be as fully
enforceable by such assignee as they were by the Bank before such assignment. In
connection with any proposed assignment, the Bank may disclose to the proposed
assignee any information that the Borrower or any Guarantor is required to
deliver to the Bank pursuant to this Agreement.
10.12 NET PAYMENTS. All payments by the Borrower under this
Agreement and the Note shall be made without set-off or counterclaim and in such
amounts as may be necessary in order that
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all payments, after deduction or withholding for or on account of any present or
future taxes, levies, imposts, duties, or other charges of whatsoever nature
imposed by any government or any political subdivision or taxing authority
thereof including, without limitation, documentary and intangible taxes
(collectively, the "Taxes") shall not be less than the amounts otherwise
specified to be paid under this Agreement and the Note. Notwithstanding anything
to the contrary contained in this Paragraph , the Borrower shall not be liable
for the payment of any tax on or measured by net income imposed on the Bank
pursuant to the income tax laws of the United States or any of the United States
or any political subdivision thereof. The Borrower shall pay all Taxes when due
(and indemnify the Bank against any liability therefor) and shall promptly (and
in any event not later than thirty [30] days thereafter) furnish to the Bank any
certificates, receipts and other documents which may be required (in the
judgment of Bank) to establish any tax credit to which the Bank may be entitled.
The obligations of the Borrower under this Paragraph shall survive the
termination of this Agreement and the repayment of the Loan, but such
obligations shall terminate as to any claim or liability for Taxes for which the
Borrower is responsible pursuant to this Paragraph on the same date that any
such claim or liability for Taxes is barred by any applicable statute of
limitations.
10.13 FURTHER ASSURANCES. Borrower will at its own cost and
expense execute and deliver to Bank, at any time and from time to time, any and
all further agreements, documents and instruments, and take any and all further
actions which may be required under applicable law, or which Bank may from time
to time reasonably request, in order to effectuate the intent of the
transactions contemplated by this Agreement and the other Loan Documents,
including all such actions to establish, preserve, protect and perfect the
estate, right, title and interest of the Bank to the Collateral including that
which is not Collateral on the date hereof.
10.14 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and same instrument.
10.15 RESURRECTION OF BORROWER'S OBLIGATIONS. To the extent that
Bank receives any payment on account of any of Borrower's Obligations, and any
such payment(s) or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver or any other Person under any bankruptcy act, state or
Federal law, common law or equitable cause, then, to the extent of such
payment(s) received, Borrower's Obligations or part thereof intended to be
satisfied and any and all Liens upon or pertaining to any property or assets of
Borrower and theretofore created and/or existing in favor of Bank as security
for the payment of such Borrower's Obligations shall be revived and continue in
full force and effect, as if such payment(s) had not been received by Bank and
applied on account of Borrower's Obligations.
10.16 EQUITABLE RELIEF. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of Borrower's Obligations
under this Agreement, any remedy at law may prove to be inadequate relief to
Bank; the Borrower agrees that Bank, if Bank so requests, shall be
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entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
ARTICLE 11
AMBIGUITY OR CONFLICT
In the event of an ambiguity or conflict of terms between any of the
provisions of the Note, the Deed of Trust, the Security Agreement, any Loan
Document and this Agreement, the terms of this Agreement shall be deemed to
amend and control all of the other agreements; and, to the extent that any of
the agreements are silent, each shall supplement the others; provided, however,
in the event of any conflict between the terms of this Agreement, the Deed of
Trust, the Security Agreement, any Loan Document, the Note and any of them, the
terms which, in Bank's sole discretion, grant Bank the greater protection with
respect to the prospect of payment of the Note, or in any other manner are of
greater benefit to Bank, shall control. All other provisions of contemporaneous
or previous agreements and understandings between Borrower, and Bank relating to
the commitment of Bank and the Note in conflict with any expressed provision
hereof shall be merged into this Agreement and be extinguished and of no further
force and effect.
ARTICLE 12
ARBITRATION
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING,
BUT NOT LIMITED TO, THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM
AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH
THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW),
THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES
OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
12.1 SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF FORT LAUDERDALE, FLORIDA, AND ADMINISTERED BY ENDISPUTE, INC., D/B/A
ENDISPUTE/J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF ENDISPUTE/J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION.
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12.2 RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED TO: (A) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (B) BE A
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (C) LIMIT THE RIGHT OF THE BANK HERETO
(I) TO EXERCISE SELF-HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (II)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (III) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE
SUCH SELF-HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL
OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT BANK'S OPTION, FORECLOSURE
UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING:
THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY
JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE.
NEITHER THIS EXERCISE OF SELF-HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
ARTICLE 13
NO ORAL AGREEMENT
THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
ARTICLE 14
CROSS-DEFAULT/CROSS-COLLATERAL
An Event of Default hereunder or under any of the documents evidencing
or securing the Loan shall constitute an Event of Default under any other
indebtedness (now or hereafter existing) of the Borrower, any Guarantor or any
Subsidiary to Bank. Further, all collateral for the Loan shall also secure any
other indebtedness (now or hereafter existing) of the Borrower, any Guarantor or
any Subsidiary to Bank, and any collateral pledged by the Borrower, any
Guarantor or any Subsidiary to Bank to secure such other indebtedness shall also
secure the Loan. Any default under any
33
<PAGE>
document evidencing or securing such other indebtedness, whether by the
Borrower, any Guarantor or any Subsidiary, shall constitute an Event of Default
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
<TABLE>
<CAPTION>
WITNESS: BORROWER:
<S> <C>
THE DURANGO & SILVERTON NARROW
GAUGE RAILROAD COMPANY
By: SEAL)
- -------------------------------- -----------------------------------
Name:
--------------------------------
Title:
- -------------------------------- --------------------------------
BANK:
NATIONSBANK, N.A. (SOUTH), a national banking
association
By: SEAL)
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
JOINDER AND CONSENT
THE UNDERSIGNED GUARANTOR hereby joins into this Agreement to consent
to this Agreement and agree to be bound by all of the terms, representations,
warranties, indemnities and conditions of this Agreement applicable to the
Guarantor. The undersigned acknowledges the receipt of good and sufficient
consideration for its joinder herein.
FIRST AMERICAN RAILWAYS, INC.
By: SEAL)
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
</TABLE>
34
<PAGE>
EXHIBIT 2.03(d)
CERTIFICATE OF COMPLIANCE
I, ___________________ , Authorized Signatory for THE DURANGO &
SILVERTON NARROW GAUGE RAILROAD COMPANY ("Borrower") under the Loan Agreement
(as amended, modified, or supplemented from time to time, the "Loan Agreement")
between Borrower and NATIONSBANK, N.A. (SOUTH) ("Bank"), dated effective as of ,
1997, do hereby certify that:
1. This Compliance Certificate is furnished pursuant to the Loan
Agreement and is made as of _______________, 19__ ; unless otherwise defined
herein, terms used in this Compliance Certificate have the meanings assigned to
such terms in the Loan Agreement.
2. As of the date of this Compliance Certificate, no Default or Event
of Default has occurred and is continuing.
3. Borrower and each Guarantor is in compliance with all requirements,
covenants and agreements of Borrower and each Guarantor contained in the Loan
Agreement. Borrower warrants and represents that the calculations set forth on
EXHIBIT A hereto accurately represent the financial condition of the Borrower as
of the dates set forth therein (and as of the date hereof if not otherwise
specified) and the calculations are computed in compliance with the financial
covenants required pursuant to the Loan Agreement.
4. The most recent financial statements furnished by Borrower and each
Guarantor pursuant to the Loan Agreement fairly present the financial condition
of Borrower and each Guarantor as of the respective dates thereof.
5. There has not been any material adverse change in the financial
condition of Borrower from that reflected on, and as of the date of, the
financial statement most recently furnished to Bank.
6. There is no pending or, to the best of Borrower's knowledge,
threatened material litigation against Borrower or any Guarantor which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
7. Neither Borrower nor any Guarantor is a party to any agreement or
instrument or subject to any other order, rule, regulation or other restriction
materially and adversely affecting Borrower's or any Guarantor's properties,
assets or financial condition, or Borrower's or any Guarantor's ability to
perform the agreements contained in the Loan Agreement.
35
<PAGE>
Done and executed on the day of , 199 .
------ ------------------ -----
----------------------------------------------
Authorized Signatory under the Loan Agreement
36
<PAGE>
EXHIBIT A
TO COMPLIANCE CERTIFICATE
37
<PAGE>
EXHIBIT 2.03(f)
REQUEST FOR ADVANCE
I, ______________, Authorized Signatory for THE DURANGO & SILVERTON
NARROW GAUGE RAILROAD COMPANY ("Borrower"), pursuant to the provisions of that
certain Loan Agreement dated effective as of even date herewith, (as amended,
modified, or supplemented from time to time, the "Loan Agreement") between
Borrower and NATIONSBANK, N.A. (SOUTH) ("Bank"), hereby certify that:
1. Borrower hereby requests an Advance in the aggregate principal
amount of Eight Million Five Hundred Thousand Dollars ($8,500,000) to be made on
_________________, 1997.
The proceeds of the Advance shall be disbursed into the
Borrower's account with Bank. The foregoing instructions shall be irrevocable as
provided in the Loan Agreement.
2. All representations and warranties of the Borrower made in the Loan
Agreement are true and correct in all material respects as of the date hereof as
if made on the date hereof, with and after giving effect to the application of
the proceeds of the Advance in connection with which this Request for Advance is
given.
3. There does not exist and will not exist on the date of the requested
Advance, both before and after giving effect to the requested Advance, a Default
or an Event of Default.
4. All conditions precedent in the Loan Agreement to the funding of the
requested Advance have been met.
5. The proceeds of the requested advance will be used for the purposes
set forth in the Loan Agreement.
6. Terms used in this Request for Advance, not otherwise defined or
limited herein, are used as defined in the Loan Agreement.
Done and executed on the ____ day of ______________________, 1997.
---------------------------------------------
Authorized Signatory under the Loan Agreement
38
<PAGE>
EXHIBIT 3.06
EXCEPTION(S) TO PARAGRAPH 3.06, OWNERSHIP OF ASSETS
1. Junior lien in favor of Charles E. Bradshaw, Jr. securing the
guaranty of Borrower of notes in the amount of $4,200,000 and
$5,850,000.
2. An assignment from Borrower to Charles E. Bradshaw, Jr. of all
rights to receive the pending refund of federal unemployment
tax of approximately $237,000.
3. An assignment from Borrower to Charles E. Bradshaw, Jr. of all
rights to receive the pending refund of Colorado State Tourism
Tax in the approximate amount of $167,000.
4. Lease #27540 between Borrower and Dennis Begrow.
5. Lease #501 between Borrower and Cooper Properties.
6. Lease #27568 between Borrower and San Miguel Power Assoc. Inc.
7. Lease #26849 between Borrower and City of Durango.
8. Lease between Borrower and S. Randall Walker.
9. Lease #20191 between Borrower and Greeley Gas Co.
10. Lease #20128 between Borrower and Greeley Gas Co.
11. Lease #27457 between Borrower and La Plata Electric Assoc.
Inc.
12. Lease #DS16623A between Borrower and Public Service Co. of
Colorado.
13. Lease #16609 between Borrower and Jack Ferrell.
14. Lease #16868 between Borrower and Dennis Begrow.
15. Lease #17031 between Borrower and City of Durango.
16. Lease #317674 between Borrower and Bruce and Paula Berg.
17. Lease #27702 between Borrower and Department of Natural
Resource.
39
<PAGE>
18. Lease # 16773 between Borrower and Division of Wildlife.
19. Lease #16897 between Borrower and City of Durango.
20. Lease #20282 between Borrower and State of Colorado.
21. Equipment lease for Xerox machine.
22. Terms of right of repurchase contained in Agreement For Sale
of Railroad Cars between Cinco Animas Corporation and Borrower
(a copy of which is attached hereto as EXHIBIT 3.06-A).
40
<PAGE>
EXHIBIT 3.06-A
AGREEMENT FOR SALE OF RAILROAD CARS
BETWEEN CINCO ANIMAS CORPORATION AND
THE DURANGO & SILVERTON NARROW GAUGE RAILROAD COMPANY
41
<PAGE>
EXHIBIT 3.08
EXCEPTION(S) TO PARAGRAPH 3.08, FINANCIAL STATEMENTS
1. Financials prepared by Borrower for period 10/01/96 -
01/31/97.
42
<PAGE>
EXHIBIT 3.18
SUBSIDIARIES
NONE
43
<PAGE>
EXHIBIT 3.19
SHAREHOLDERS
First American Railways, Inc. is the sole owner of all classes
of shares of the Borrower which constitutes one hundred
thousand (100,000) shares.
44
<PAGE>
EXHIBIT 3.20
INDEBTEDNESS
1. Guaranty of $4,200,000 purchase money note to Charles E.
Bradshaw, Jr.
2. Guaranty of $5,850,000 purchase money note to Charles E.
Bradshaw, Jr.
3. Pension Plan obligations in the amount of $207,089.
4. RRTA Employee payable in the amount of $338,076.
5. Unsecured loans from First American Railways, Inc. to
Borrower.
6. Lease between Borrower and Xerox Corporation dated February 5,
1996, with an obligation not to exceed $16,500.
45
<PAGE>
EXHIBIT 3.21
CONTINGENT LIABILITIES
1. Pension Plan obligation in the amount of $142,381.
2. Corporate guaranty of GECC airplane loan to Charles E.
Bradshaw, Jr. not to exceed $500,000.
46
<PAGE>
EXHIBIT 3.29
EMPLOYMENT AGREEMENTS
NONE
47
<PAGE>
AFFIDAVIT FOR EXECUTION OF LOAN AGREEMENT
WITHOUT THE STATE OF FLORIDA
COMMONWEALTH OF THE BAHAMAS )
) SS:
CITY OF NASSAU )
BEFORE ME, the undersigned Notary Public, duly authorized in the
Commonwealth and City aforesaid to administer oaths and take acknowledgments,
personally appeared the undersigned, to me well known and to me known to be the
persons described as witnesses to the foregoing Loan Agreement and who witnessed
the execution and delivery of the foregoing Loan Agreement, and who, first being
duly sworn by me did each depose, say and acknowledge before me that they were
present at the time that the said Loan Agreement was executed, that they saw the
same executed and delivered by __________________, and that the other
subscribing witness was likewise present and witnessed the execution and
delivery of the foregoing Loan Agreement, to a representative of NationsBank,
N.A. (South) at the City of _____________, County of ______________, State of
___________, on the date written below via Federal Express by delivery to
Federal Express in the State and County above written in accordance with the
Sender's copy/receipt of a Federal Express airbill attached as "Exhibit A".
-----------------------------------------
Subscribing Witness
Print Name:
------------------------------
Address:
---------------------------------
-----------------------------------------
-----------------------------------------
Subscribing Witness
Print Name:
------------------------------
Address:
---------------------------------
-----------------------------------------
SWORN TO AND SUBSCRIBED before me and acknowledged to me this day
of______________, 1997.
(SEAL)
--------------------------------------------
Notary Public, Commonwealth of the Bahamas
Printed Name:
------------------------------
Address:
------------------------------------
--------------------------------------------
My Commission Expires:
My Commission No. is:
48
SHARE PURCHASE AGREEMENT
INTRODUCTION
THIS SHARE PURCHASE AGREEMENT is dated as of December 10, 1996. The
parties are CHARLES E. BRADSHAW, JR. (the "Shareholder"), being the owner of all
of the issued and outstanding shares of capital stock of THE DURANGO & SILVERTON
NARROW GAUGE RAILROAD COMPANY, a Colorado corporation (the "Company"), the
COMPANY and FIRST AMERICAN RAILWAYS, INC., a Nevada corporation (the "Buyer").
BACKGROUND
The Shareholder owns 100,000 shares of the common stock of the Company
representing all of the issued and outstanding shares of capital stock thereof
(the "Shares"). The Buyer desires to purchase from the Shareholder, and the
Shareholder desires to sell to the Buyer, all of the Shares in exchange for the
Purchase Price in accordance with the terms and conditions set forth in this
Agreement.
Buyer has agreed to furnish upon execution hereof a nonrefundable
deposit of $2 million to Shareholder pursuant to the terms hereof in reliance
upon, among other things, the representations and warranties made by the
Shareholder.
NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
TERMS AND CONDITIONS
1. DEFINITIONS.
For convenience and brevity, certain terms used in various
parts of this Agreement are listed in alphabetical order and defined or referred
to below (such terms to be equally applicable to both singular and plural forms
of the terms defined).
"ACQUISITION" means the acquisition of all of the Shares by
the Buyer and all related transactions provided for in or contemplated by this
Agreement or any Exhibit hereto.
"AGREEMENT" means this Share Purchase Agreement.
"ANCILLARY DOCUMENTS" means the documents to be delivered at
Closing, as described in Sections 3.3, 9 and 10 hereof.
"APPLICABLE LAW(S)" shall include, but shall not be limited
to, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of 1986
("SARA"), 42 U.S.C. section 9601, ET SEQ. (hereinafter collectively "CERCLA");
the Solid Waste Disposal Act,
<PAGE>
as amended by the Resource Conservation and Recovery Act of 1976 ("RCRA") and
subsequent Hazardous and Solid Waste Amendments of 1984, also known as the 1984
"RCRA" amendments, 42 U.S.C. section 6901 ET SEQ.; the Hazardous Material
Transportation Act, 49 U.S.C. section 1801, ET SEQ.; the Clean Water Act, as
amended, 33 U.S.C. section 1311, ET SEQ.; the Clean Air Act, as amended, 42
U.S.C. section 7401-7642; the Toxic Substance Control Act, as amended, 15 U.S.C.
section 2601 ET SEQ.; thE Federal Insecticide, Fungicide, and Rodenticide Act
("FIFRA"), as amended, 7 U.S.C. section 136-136y; the Emergency Planning and
CommunitY Right-to-Know Act of 1986 ("EPCRTKA" or "EPCRA"), as amended, 42
U.S.C. section 11001, ET SEQ. (Title III of SARA); the Occupational Safety and
Health Act of 1970 ("OSHA"), as amended, 29 U.S.C. section 651, ET SEQ.; any
similar state statute; and the regulations promulgated thereunder; any state or
local "Superfund" or "SuperLien" laws; and any other federal, state and/or local
laws or regulations, whether currently in existence, enacted or promulgated
prior to Closing, that govern or relate to:
(i) The existence, cleanup and/or remedy of
contamination of property;
(ii) The protection of the environment from
spilled, deposited or otherwise emplaced
contamination;
(iii) The control of hazardous or toxic substances
or wastes; or
(iv) The use, generation, discharge,
transportation, treatment, removal or
recovery of hazardous or toxic substances or
wastes, including building materials such as
asbestos.
"ASSETS" means all of the Company's assets, properties,
business, goodwill and rights of every kind and description, real and personal,
tangible and intangible, wherever situated and whether or not reflected on the
Latest Year-End Balance Sheet or the Interim Balance Sheet.
"BDO FINANCIALS" means those certain 1994 and 1995 unqualified
audited financial statements of the Company being prepared by BDO Seidman LLP to
be delivered by the Shareholder and/or the Company to the Buyer.
"BUSINESS" means the existing and prospective business,
operations, facilities and other Assets, financial condition, results of
operations, finances, markets, products, competitive position, customers and
customer relations and personnel of the Company.
"BUSINESS DAY" means any calendar day which is not a Saturday,
Sunday or public holiday under the laws of Florida.
2
<PAGE>
"BUYER" means First American Railways, Inc., a Nevada
corporation.
"BUYER NOTE" has the meaning set forth in paragraph 2.1,
below.
"BUYER SHARES" means 200,000 shares of the common stock of
Buyer, par value $.001 per share.
"CLAIM NOTICE" is defined in Section 8.2(a).
"CLOSING" and "CLOSING DATE" are defined in Section 3.1.
"CLOSING PAYMENT" means the aggregate amount of $13,800,000,
less (i) the amount outstanding under the Loan, along with any prepayment
penalties (if applicable), (ii) the Escrow Fund, if any, and (iii) Deficiencies
as defined in Section 3.2.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means The Durango & Silverton Narrow Gauge
Railroad Company, a Colorado corporation.
"CONTRACT" means any written or oral contract, agreement,
lease, plan, instrument or other document, commitment, arrangement, undertaking,
practice or authorization that is binding on any person or its property under
applicable law.
"COPYRIGHTS" means registered copyrights, copyright
applications and readily identifiable unregistered copyrights.
"COURT ORDER" means any judgment, decree, injunction, order or
ruling of any federal, state or local court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
"DEFAULT" means (1) a breach of or default under any Contract,
(2) the occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any Contract, or
(3) the occurrence of an event that with or without the passage of time or the
giving of notice or both would give rise to a right of termination,
renegotiation or acceleration under any Contract.
"DEPOSIT" shall mean the non-refundable (except as provided in
Sections 2.2 and 9.6) sum of $2 million paid to Shareholder upon execution
hereof, which amount shall be credited to the Purchase Price at Closing.
"EFFECTIVE DATE" means the date this Agreement is executed by
the last one of Buyer and the Shareholder.
3
<PAGE>
"EMPLOYEE BENEFIT PLANS" means "employee benefit plans" as
defined in Section 3(3) of ERISA and any other plan, policy, program, practice
or arrangement providing compensation or other benefits to any current or former
officer or employee of the Company, or any dependent or beneficiary thereof,
which are now or have been maintained by the Company, or any affiliate or under
which the Company or any affiliate has any obligation or liability, whether
actual or contingent, including, without limitation, all incentive, bonus,
deferred compensation, vacation, holiday, medical, disability, share purchase or
other similar plans, policies, programs, practices or arrangements.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"ESCROW AGENT" means Olle, Macaulay & Zorrilla, P.A.
"ESCROW AGREEMENT" means a written escrow agreement among the
Shareholder, the Buyer and the Escrow Agent substantially in the form of Exhibit
"A."
"ESCROW FUND" means $250,000 if deposited with the Escrow
Agent pursuant to Section 2.6(b), together with interest earned thereon, which
funds shall be held and disbursed by the Escrow Agent in accordance with this
Agreement and the Escrow Agreement.
"FEASIBILITY PERIOD" means the period beginning as of the date
hereof and terminating on December 16, 1996, at 7:00 P.M.
"GAAP" means generally accepted accounting principles as in
effect in the United States, consistently applied.
"HAZARDOUS SUBSTANCE(S)" shall be construed to include any
toxic or hazardous substance, material, or waste, and any other contaminant,
pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge
and/or gaseous, including without limitation, chemicals, compounds, pesticides,
petroleum products including crude oil and any fraction thereof, asbestos
containing materials or other similar substances or materials which are
regulated or controlled by, under or pursuant to any federal, state or local
statutes, laws, ordinances, codes, rules, regulations, orders or decrees, not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of
1986 ("SARA"), 42 U.S.C. section 9601, ET SEQ. (hereinafter collectively
"CERCLA"); the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 ("RCRA") and subsequent Hazardous and Solid Waste
Amendments of 1984, also known as the 1984 "RCRA" amendments, 42 U.S.C. section
6901 ET SEQ.; the Hazardous Material Transportation Act, 49 U.S.C. section 1801,
ET SEQ.; the Clean Water Act, as amended, 33 U.S.C. section 1311, ET SEQ.; the
Clean Air Act, as amended, 42 U.S.C. section 7401-7642; the Toxic Substance
Control Act, as
4
<PAGE>
amended, 15 U.S.C. section 2601 ET SEQ.; the Federal Insecticide, Fungicide, and
Rodenticide Act ("FIFRA"), as amended, 7 U.S.C. section 136-136y; the Emergency
Planning and Community Right-to-Know Act of 1986 ("EPCRTKA" or "EPCRA"), as
amended, 42 U.S.C. section 11001, ET SEQ. (Title III of SARA); the Occupational
Safety and Health Act of 1970 ("OSHA"), as amended, 29 U.S.C. section 651, ET
SEQ.; any similar state statute; or in the regulations implementing such
statutes, or which has been or shall be determined prior to Closing by an agency
or a court to be a hazardous or toxic substance regulated under any other
Applicable Laws; or any substance or material that is or becomes regulated prior
to Closing by any federal, state, or local governmental authority.
"INSURANCE POLICY" shall mean a life insurance policy issued
by an insurer reasonably approved by Shareholder, and with terms reasonably
acceptable to him, insuring the life of Allen C. Harper in the amount of Four
Million Dollars ($4,000,000.00), with premiums to be paid by Buyer, showing the
Buyer as the owner of the policy.
"INTELLECTUAL PROPERTY" means Copyrights, Patents, Trademarks,
technology rights and licenses, computer software (including without limitation
any source or object codes therefor or documentation relating thereto), trade
secrets, franchises, know-how, inventions and intellectual property rights.
"INTEREST RATE" means the rate equal to the rate published in
the "Money Rates" column of THE WALL STREET JOURNAL (or if such rate or THE WALL
STREET JOURNAL is no longer published, then any publicly available source of
similar market data) and described as "High-grade unsecured notes sold through
dealers by major corporations" and with a stated maturity date of 30 days (the
"Commercial Paper Rate") adjusted monthly, plus 650 basis points.
"INTERIM FINANCIAL STATEMENTS," "INTERIM BALANCE SHEET" and
"INTERIM BALANCE SHEET DATE" are defined in Section 4.7.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means (a) when applied to the Company, the actual
knowledge (after reasonable investigation) of Charles E. Bradshaw, Jr.
("Bradshaw") or L. Cleveland Hightower, or any Vice President of the Company,
and (b) when applied to the Shareholder, the actual knowledge (after reasonable
investigation) of Bradshaw.
"LATEST YEAR-END BALANCE SHEET" and "LATEST YEAR-END BALANCE
SHEET DATE" are defined in Section 4.7.
"LIABILITY" means any direct or indirect liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
or by any person (other than endorsements of notes, bills and checks presented
to banks for collection or deposit in
5
<PAGE>
the ordinary course of business) of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"LICENSES" means licenses, franchises, permits, easements,
rights and other authorizations.
"LIEN" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or claim of
any nature whatsoever on any property or property interest.
"LIENHOLDER" means the holder of or other person entitled to
any benefits arising under any Lien.
"LITIGATION" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or governmental
investigation or inquiry involving or affecting the Company, the Business, the
Assets or any Contracts to which the Company is a party or by which it or any of
the Assets or the Business may be bound or affected.
"LOAN" means that certain term loan given by Nations Financial
Capital Corporation ("Nations Financial") to the Company evidenced by a
promissory note (the "Note"), dated August 30, 1994, in the original principal
amount of $7 million, which Note has an outstanding principal balance as of the
date hereof of approximately $4.4 million. The Loan will be reduced prior to
closing through the payment of regular monthly payments.
"NONCOMPETE PERIOD" is defined in Section 11.1.
"NOTICE PERIOD" is defined in Section 8.2(a).
"PATENTS" means all patents and patent applications.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLANS" means "employee pension benefit plans" as
defined in Section 3(2) of ERISA.
"PERMITTED LIENS" means liens for taxes not yet due and
payable and the security interests of Nations Financial.
"PURCHASE PRICE" has the meaning set forth in paragraph 2.1,
below.
"RAILROAD" means that certain narrow gauge railroad situated
entirely in the State of Colorado and extending generally from Durango, Colorado
to Silverton, Colorado.
"REGISTRATION RIGHTS AGREEMENT" means a Registration Rights
and Price Guaranty Agreement between Buyer and the
6
<PAGE>
Shareholder to be executed at Closing in the form attached as Exhibit "B."
"REGULATION" means any statute, law, ordinance, regulation,
order or rule of any federal, state, local or other governmental agency or body
or of any other type of regulatory body, including, without limitation, those
covering environmental, energy, safety, health, transportation, bribery,
recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, price and
wage control matters, tax, and security matters.
"SHAREHOLDER" means Charles E. Bradshaw, Jr.
"SHARES" means 100,000 shares of the common stock of the
Company, no par value, which constitutes all of the issued and outstanding
capital stock of the Company.
"TRADEMARKS" means registered trademarks, registered service
marks, trademark and service mark applications and readily identifiable
unregistered trademarks and service marks.
"WARRANT" means a five-year warrant to purchase 600,000 shares
of Buyer's common stock at an exercise price of $5.00 per share issued in favor
of the Shareholder at Closing in the form attached hereto as Exhibit "C."
"WARRANT SHARES" means the shares of Buyer's common stock
underlying the Warrant.
2. SALE AND PURCHASE OF THE SHARES.
2.1 PURCHASE PRICE. The Buyer agrees to pay the Shareholder at
the Closing the purchase price by: (a) delivery of (i) its promissory note (the
"Buyer Note") in the form of Exhibit "D" attached hereto in the principal amount
of $4.2 million, which shall be subordinate to a purchase money loan to be
provided by a third party lender (the "Purchase Money Lender") in an amount not
to exceed $5.5 million, net of liquid collateral, (ii) the Buyer Shares, (iii)
the Warrant, (iv) the Closing Payment and (b) the Deposit previously delivered
to the Shareholder shall be credited to the Shareholder on the Closing Statement
(collectively, the "Purchase Price"). The Buyer Note shall be secured by
security interests in all of the assets of the Company and the Shares, which
security interests shall be subordinate to the lien of the Purchase Money
Lender.
Allen C. Harper shall personally guarantee to Shareholder the
payment, performance and collection of the Buyer Note. In the event of Allen C.
Harper's death or mental incapacity prior to Closing, a sufficient amount of his
Common Stock of the Buyer shall be pledged as collateral for the Buyer Note.
7
<PAGE>
2.2 DEPOSIT. The Buyer must deliver the Deposit by wire
transfer to Shareholder's account within one Business Day after the Effective
Date. The Deposit shall be non-refundable, except that Buyer may obtain a refund
of its Deposit, together with interest thereon from the date delivered to
Shareholder, at the Interest Rate, (a) if within three Business Days after
delivery by Shareholder to the Buyer of the BDO Financials: (i) Buyer learns
that such financial statements make it impossible for the Buyer to obtain its
required financing before the Extended Closing Date provided for in Section 3.2
below; or (ii) review of due diligence documents recently made available to
Buyer located in the offices of the Company's Colorado counsel reveals any
material adverse matter affecting the Company or its operations, or (b) pursuant
to Section 9.6 hereof. The Deposit shall be nonrefundable under any other
circumstances, anything in this Agreement to the contrary notwithstanding.
Unless the Buyer gives the Shareholder notice of its intent to
terminate this Agreement on or before two Business Days after the last day of
the Feasibility Period, Buyer and Shareholder shall close the Agreement in
accordance with the terms and conditions hereof. In the event Buyer elects to
terminate this Agreement pursuant to the provisions hereof, the parties will be
relieved of any liability to each other, other than such liabilities as may
specifically survive hereunder.
2.3 SALE AND PURCHASE OF THE SHARES. Subject to the
post-Closing adjustment set forth in Section 2.7 hereof and subject to the terms
and conditions hereinafter set forth and on the basis of and in reliance upon
the representations, warranties, obligations and agreements set forth herein, at
the Closing the Shareholder shall sell to the Buyer and the Buyer shall purchase
from the Shareholder all of the Shares owned by the Shareholder in exchange for
the payment to the Shareholder of the Purchase Price.
2.4 DEFAULT BY THE SHAREHOLDER OR THE BUYER.
(a) DEFAULT BY SHAREHOLDER. Notwithstanding the
provisions of Section 2.3 and subject to the provisions of 3.2, if the
Shareholder breaches any of his covenants, representations or warranties under
this Agreement, or the Shareholder shall fail or refuse to deliver any of the
Shares as provided in Section 2.3, or if the Shareholder shall fail or refuse to
consummate the transactions described in this Agreement prior to or on the
Closing Date and if Buyer has performed all of its material obligations under
this Agreement, the Buyer, at its option, may refuse to make such acquisition
and thereby terminate all of its obligations hereunder and/or exercise all
available legal remedies, subject to the limitations of subparagraph 8.1(c). The
Shareholder acknowledges that the Shares are unique and otherwise not available
and agrees that in addition to any other remedies, the Buyer may invoke any
equitable remedies to enforce delivery of the Shares
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hereunder, including, without limitation, an action or suit for specific
performance.
(b) DEFAULT BY BUYER. If the Buyer fails to
perform its material obligations pursuant to the terms of this Agreement within
the time specified, and Shareholder has performed his obligations under this
Agreement, such event will constitute a default. In such event the Deposit will
be deemed to be full liquidated damages in consideration for the execution of
this Agreement. The Shareholder and the Buyer acknowledge that it would be
difficult, if not impossible, to ascertain the actual damages suffered by the
Shareholder as a result of any material default by the Buyer and agree that such
liquidated damages are a reasonable estimate of such damages. The Shareholder
further acknowledges and agrees that the Buyer was materially induced to enter
into this Agreement in reliance upon the Shareholder's agreement to receive the
Deposit as liquidated damages, as the Shareholder's sole and exclusive remedy,
and the Buyer would not have entered into this Agreement but for the
Shareholder's agreement to so limit the Shareholder's remedies.
2.5 ACCESS TO PROPERTY. The Shareholder has caused the Company
to deliver to the Buyer copies of all title information, including all
abstracts, title insurance policies, legal opinions and surveys relating to the
Real Property. The Buyer, its counsel, accountants, agents and other
representatives shall have full and reasonable access to the Real Property,
personal property, files, documents, records, permits, equipment, and all Assets
of the Company (the "Records"). The Shareholder will make the Records
immediately available to the Buyer at their current locations in Shareholder's
or the Company's offices for its complete examination and otherwise reasonably
cooperate with Buyer in connection with this paragraph. The Buyer's licensed
inspectors and professionals will also have the right to enter upon the Real
Property during business hours after reasonable notice for the purpose of
inspecting, at the sole cost and expense of the Buyer, the Real Property with
respect to soil conditions, environmental matters, roof, structure, HVAC,
electrical systems, plumbing, machinery, surveying matters and performing other
similar investigatory work as the Buyer considers appropriate, including,
without limitation, a Phase I and/or Phase II environmental audit (as
appropriate)of the Real Property. The Buyer will have the right to make
reasonable inquiries of tenants, governmental authorities, utility companies,
Shareholder-designated representatives of the Company and other like parties and
to make such feasibility studies and analyses as it considers appropriate. The
Buyer hereby covenants and agrees to use all reasonable efforts so that neither
the Buyer nor any of Buyer's representatives will interfere with the Company's
Businesection Any entry made on the Real Property by the Buyer and its
representatives will be at the sole risk of the Buyer. The right of inspection
will terminate when and if this Agreement is terminated. The Buyer hereby
covenants and agrees to
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indemnify and hold harmless the Company and the Shareholder from any and all
loss, liability, costs (inclusive of reasonable attorneys' fees and
disbursements), claims, demands, damages, actions, causes of action, and suits
actually and directly arising out of or in any manner related to the exercise by
the Buyer of the Buyer's rights under this paragraph. The Buyer will pay for all
work and inspections performed on or in connection with the Real Property and
will not permit the creation of any lien in favor of any contractor,
subcontractor, materialman, mechanic, surveyor, architect or laborer. The Buyer
further covenants and agrees that if this transaction does not close it will
repair any damage caused by Buyer.
2.6 ENVIRONMENTAL CLEAN-UP. If prior to Closing (i) the Real
Property is found to be contaminated such that Hazardous Substances located upon
or beneath the Real Property exceed concentrations permitted under Applicable
Law, or (ii) Buyer finds that Hazardous Substances were used, discharged,
generated, transported, treated, removed or disposed of by the Company other
than in accordance with Applicable Law, then the Buyer and Shareholder shall
close the transaction subject to Buyer's general right of termination set forth
in Section 2.2 and subject to the following terms and conditions:
(a) Buyer may perform any remedial or other
activities (a) required to clean up the Real Property so that the
amounts of Hazardous Substances present upon or beneath the Real
Property do not exceed amounts permitted under Applicable Law, (b)
necessary to bring the Company into compliance with Applicable Law
and/or (c) required to be performed by any appropriate agency or
governmental official to clean up or prevent the spread of Hazardous
Substances (the "Remedial Work"). The Shareholder shall pay for 50% of
the cost of such Remedial Work and any fines, penalties, preparation of
reports, attorneys' fees and any other cost or expense required to be
paid by Buyer arising out of the presence of Hazardous Substances on
the Real Property or failure of the Shareholder to comply with
Applicable Law (collectively, the "Expenses"); provided, however, that
Shareholder's maximum liability for the Remedial Work and the Expenses
shall not exceed $250,000;
(b) Up to $250,000 of the Closing Payment shall be
delivered to Escrow Agent as necessary to pay for the Shareholder's
proportionate share of the cost of the Remedial Work and Expenses as
reasonably estimated by Buyer. This amount shall be disbursed to Buyer
or Shareholder pursuant to the terms of the Escrow Agreement; and
(c) If, at any time prior to the Closing Date, Buyer
learns that the total cost of the Remedial Work, plus the Expenses,
will exceed $500,000, Buyer may elect to
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terminate this Agreement by delivering written notice to Shareholder of
such election, and the parties shall be relieved of any further
obligation under the Agreement except for indemnities surviving
hereunder.
2.7 POST-CLOSING ADJUSTMENT.
(a) PREPARATION OF CLOSING DATE BALANCE SHEET. Within
120 days after the Closing Date, (1) the Buyer shall cause the Company
to prepare a balance sheet for the Company as of the Closing Date (the
"Closing Date Balance Sheet"). The Closing Date Balance Sheet shall be
prepared in accordance with GAAP, using the same methods and criteria
employed by the Company in connection with its preparation of its
Latest Year-End Balance Sheet to the extent such methods are consistent
with GAAP and the BDO Financials, and shall present fairly the
Company's financial position as of the Closing Date. Upon completion of
the Closing Date Balance Sheet, copies thereof shall promptly be
provided to the Shareholder.
(b) RESOLUTION OF DISPUTES. Shareholder shall be
deemed to have accepted the Closing Date Balance Sheet unless within 15
days after delivery thereof to Shareholder, Shareholder gives notice to
the Buyer that he disputes any matter with respect to such Closing Date
Balance Sheet, then any such matters (the "Disputed Matters") shall be
submitted to arbitration at a neutral site in Florida, within 30 days
after such notice unless the parties agree in writing to extend such
30-day period in an attempt to negotiate a settlement of such Disputed
Matters. The arbitrator (the "Arbitrator") shall be any one of the
nationally recognized independent accounting firms which is on the date
hereof among the six largest such firms (the "Big Six accounting
firms") mutually agreed to by the Shareholder and the Buyer. Any
reference herein to the Big Six accounting firms shall be deemed to
include a reference to any member or employee thereof (who is a
certified public accountant) which any such firm may designate as the
Arbitrator on its behalf. If within 20 days following the expiration of
the 30-day period referred to above or any extension thereof the
Shareholder and the Buyer shall have failed to agree upon the selection
of the Arbitrator or any Arbitrator selected by them shall not have
agreed to perform the services called for hereunder, the Arbitrator
shall thereupon be selected in accordance with the rules of the
American Arbitration Association, with preference being given to any
one of the Big Six accounting firms or any member or employee thereof
(who is a certified public accountant) which or who may be willing to
perform such services, other than any such firm which is then employed
by the Company or the Buyer or any affiliate thereof. The Arbitrator
shall consider only the Disputed Matters and the arbitration shall be
conducted in accordance with the
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commercial arbitration rules of the American Arbitration Association
then in effect. The Arbitrator shall act promptly to resolve all
Disputed Matters and its decision with respect to all Disputed Matters
shall be final and binding upon the parties hereto and shall not be
appealable to any court. The costs and expenses of the Arbitrator shall
be shared equally by the Shareholder and the Buyer.
(c) DETERMINATION OF REQUIREMENTS. The Purchase Price
has been determined on the assumption, and the parties have entered
into this Agreement with the reasonable expectation that at Closing,
based on GAAP, (i) total shareholder's equity of the Company is at
least $2 million; (ii) current liabilities, excluding the current
portion of notes payable, do not exceed $600,000; (iii) fixed assets
are not less than $6.4 million; (iv) notes payable are not greater than
those amounts payable to Nations Financial; and (v) cash is not less
than contingent (recorded and/or unrecorded) liabilities, all as set
forth on the Disclosure Schedule attached hereto (collectively, the
"Balance Sheet Criteria"). The financial obligations of Shareholder to
the Company shall not be an Asset of the Company.
(d) ADJUSTMENT OF PURCHASE PRICE; PAYMENT. If the
Balance Sheet Criteria are not fully satisfied, then the Purchase Price
shall be reduced by that amount necessary to satisfy any asset
deficiency or reduce any excess liability, so that all of the Balance
Sheet Criteria are satisfied (which amount shall include interest at
the Interest Rate from the Closing Date to the date such amount is
paid); Shareholder shall pay to Buyer such amount within fifteen (15)
days after delivery of the Closing Date Balance Sheet to Shareholder
pursuant to subsection 2.7(a) hereof, or, if disputed, within ten (10)
days of the final resolution of such dispute.
3. CLOSING.
3.1 CLOSING DATE. The closing (the "Closing") of the sale and
purchase of the Shares shall take place at the offices of Olle, Macaulay &
Zorrilla, P.A., 201 South Biscayne Boulevard, Suite 1402, Miami, Florida 33131,
at 10:00 A.M. local time, 47 calendar days after 3 business days following
delivery of the BDO Financials by Shareholder to Buyer pursuant to subparagraph
4.7, or at such other time or place or on such other date as the Buyer and the
Shareholder may agree to in writing. The date of the Closing is hereinafter
sometimes referred to as the "Closing Date".
3.2 EXTENDED CLOSING DATE/ADJUSTMENT TO CLOSING PAYMENT. The
Buyer shall have the right to extend the Closing Date for 14 calendar days;
provided that on or before the date which is three Business Days prior to the
scheduled Closing Date, the Buyer delivers to the Shareholder written notice of
its election to so
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extend the Closing Date. In addition, in the event Buyer has given written
notice to Shareholder prior to the Closing Date of any Deficiencies as defined
below, Buyer shall extend the Closing Date to allow Shareholder an opportunity
to: (i) remedy any inaccuracies contained in his representations or warranties
or those of the Company (whether such inaccuracies were based on intentional
misrepresentations or merely a lack of knowledge), (ii) to perform any agreement
or covenant hereunder, or (iii) to remedy or pay for any damage, loss,
deficiency, liability, cost, claim or expense resulting from, relating to or
arising out of clauses (i) or (ii) above (collectively, the "Deficiencies").
Shareholder shall use its "best efforts" to cure such Deficiencies after Buyer
has provided to Shareholder written notice thereof. Shareholder shall have 30
days after receipt of Buyer's written notice to cure such Deficiencies. To the
extent Shareholder fails to cure the Deficiencies, Buyer may in such instance
elect to either (x) cure the Deficiencies and receive a credit against the
Closing Payment for the amount necessary to cure the Deficiencies or (y) reduce
the Closing Payment by the amounts reasonably necessary to cure the
Deficiencies. Deficiencies shall include, without limitation, any unfunded or
underfunded pension obligations of the Company.
3.3 DELIVERIES. At the Closing, subject to the provisions of
this Agreement, the Shareholder shall deliver to the Buyer, free and clear of
all Liens, except for the lien of Nations Financial (the "Nations Lien"), the
certificate for the Shares in negotiable form, duly endorsed in blank, or with
separate notarized stock transfer power(s) attached thereto and signed in blank,
and with all applicable transfer taxes paid, in exchange for the delivery by the
Buyer to the Shareholder of
(a) a wire transfer in the amount of the Closing
Payment;
(b) a certificate for the Buyer Shares in negotiable
form, duly endorsed in blank, or with separate notarized stock transfer
power(s) attached thereto and signed in blank, and with all applicable
issuance taxes paid;
(c) the Warrant;
(d) a Second Deed of Trust in reasonable and
customary form, subordinated to the loan provided by the Purchase Money
Lender in an amount not to exceed $5.5 million, net of liquid
collateral (the "Bank Loan");
(e) a UCC-1 Financing Statement in reasonable and
customary form, subordinated to the Bank Loan;
(f) a personal guaranty of the Buyer Note executed
by Allen C. Harper in reasonable and customary form;
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(g) a collateral assignment of the proceeds of the
Insurance Policy (if, and only if, the Insurance Policy can be obtained
after using due diligence to obtain such policy, and if such Insurance
Policy cannot be obtained, then a pledge of Allen C. Harper's Common
Stock of the Buyer equal in value to the Buyer Note). Any proceeds from
the Insurance Policy shall be paid to the Buyer. To the extent amounts
remain outstanding under the Buyer Note, the necessary proceeds of the
Insurance Policy shall be paid to Shareholder to satisfy said amount.
Upon repayment of the Buyer Note, the Insurance Policy will be
cancelled;
(h) the Buyer Note;
(i) a security agreement in the "rolling stock" of
the Company, subordinated to the Bank Loan, in reasonable and
customary form;
(j) a stock pledge agreement for the Shares, subject
to the Bank Loan, in reasonable and customary form;
(k) an assignment from the Company to the Shareholder
of all rights to receive the pending refund of federal unemployment tax
of approximately $237,000 and the obligation under such assignment
shall be included as a payable to the Shareholder on the Closing Date
Balance Sheet; and
(l) an assignment from the Company to the Shareholder
of all rights to receive the pending refund of Colorado State Tourism
Tax in the approximate amount of $167,000. The obligation under such
assignment shall be included as a payable to the Shareholder on the
Closing Date Balance Sheet.
At the Closing, the Shareholder will deliver to the Buyer a
release of the guaranty given by the Company to General Electric Credit
Corporation ("GECC") guaranteeing a loan given by GECC to D&S Services, Inc.,
the written resignations of all the directors and officers of the Company
effective as of the Closing Date except for such directors and officers as the
Buyer shall designate in writing, and shall cause to be delivered to the
successor directors and officers all original minute books, stock record books,
books of account, corporate seals, Contracts and other documents, instruments
and papers belonging to the Company, 401K plans and plan documents,
environmental reports, appraisals, notices from welfare beneficiaries, actuarial
reports, personnel files and records, regulatory actions, original leases,
deeds, surveys, patents, patent applications, prints, schematics, drawings of
original trains, and shall cause full possession and control of all of the
Assets and of all other things and matters pertaining to the operation of the
Business to be transferred and delivered to
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the directors and officers elected to succeed the resigned directors and
officers of the Company. At the Closing, the Shareholder shall also deliver to
the Buyer, and the Buyer shall deliver to the Shareholder, the certificates,
opinions and other instruments and documents referred to in Sections 9 and 10
and the Registration Rights Agreement.
3.4 TERMINATION. In the event that the Closing
shall not have taken place on or before March 31, 1997, all of the rights and
obligations of the parties under this Agreement shall terminate. In the event
that neither Buyer nor Shareholder has cured any Deficiencies under Section 3.2
or any matter under Section 9.6(ii), if any, by such date, Seller may elect at
any time thereafter to return the Deposit or extend the Closing Date as provided
in Sections 3.2 and 9.6 to effect such cure.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The Shareholder
represents and warrants to the Buyer, except as set forth on the Disclosure
Schedule attached hereto, or otherwise known to Buyer, its officers, attorneys,
accountants or Dallas D. Adkins or Quinn V. Kilty or James T. Salmon, that:
4.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Colorado, having full power and authority to carry on the Business as it has
been and is now being conducted and to own, lease and operate the Assets. Except
as set forth on the Disclosure Schedules, the Company has no subsidiaries and no
stock or other equity or ownership interest (whether controlling or not) in any
corporation, association, partnership, joint venture or other entity.
4.2 CAPITALIZATION AND SHARE OWNERSHIP. The Company's
authorized capital stock consists of 500,000 shares of Common Stock. There are
100,000 shares of the Company's Common Stock presently issued and outstanding
(previously defined as the "Shares"), all of which Shares are owned by the
Shareholder, free and clear of any Liens other than the Nations Lien. All of the
Shares have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of the terms of any Contract binding
upon the Company, and were issued in compliance with all applicable charter
documents of the Company and all applicable federal and state securities or
"blue sky" laws and regulations. No equity securities of the Company, other than
the Shares, are issued or outstanding. There are, and have been, no preemptive
rights with respect to the issuance of the Shares. There are: (a) no existing
Contracts, subscriptions, options, warrants, calls, commitments or rights of any
character to purchase or otherwise acquire any capital shares or other
securities of the Company, whether or not presently issued or outstanding, from
any shareholder or the Company, at any time, or upon the happening of any stated
event; and (b) no Contracts, subscriptions, options,
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warrants, calls, commitments or rights to purchase or otherwise acquire from the
Shareholder or the Company any such convertible or exchangeable securities.
4.3 AUTHORITY AND BINDING EFFECT. The Shareholder has the full
power and authority to execute, deliver and perform this Agreement and has taken
all actions necessary to secure all approvals required in connection therewith.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated will not contravene or violate the Articles of
Incorporation or By-Laws of the Company. This Agreement constitutes the legal,
valid and binding obligation of the Shareholder, enforceable against the
Shareholder in accordance with its terms.
4.4 VALIDITY OF CONTEMPLATED TRANSACTIONS. To the best of
Shareholder's Knowledge, other than the Nations Lien, neither the execution and
delivery of this Agreement by the Shareholder nor the consummation of the
transactions contemplated hereby will contravene or violate any Regulation or
Court Order which is applicable to the Company or the Shareholder, or will
result in a Default under, or require the consent or approval of any party to,
any Contract or License relating to the Business or the Assets or to or by which
the Company or the Shareholder is a party or otherwise bound or affected, or
require the Company, Buyer or the Shareholder to notify or obtain any License
from any federal, state, local or other court or governmental agency or body or
from any other regulatory authority.
4.5 RESTRICTIONS. Neither the Company, nor the Shareholder is a
party to any Contract or subject to any restriction or any Court Order or
Regulation, not otherwise generally applicable to businesses similar to the
Business, which materially and adversely affects the Company, the Assets or the
Business or affects or restricts the ability of the Company or the Shareholder
to consummate the Acquisition.
4.6 THIRD-PARTY OPTIONS. There are no existing Contracts,
options, commitments or rights with, to or in any third party to acquire the
Company, any of the Assets or any interest therein or in the Businesection
4.7 FINANCIAL STATEMENTS. The Company and the Shareholder have
delivered to the Buyer (1) the Company's unqualified audited year-end balance
sheets at December 31, 1995, 1994 and 1993, (2) its related unqualified audited
statements of income and cash flows for the fiscal years then ended, and (3) all
related notes and schedules, each of which have been prepared by Charles
Lansing, CPA ("Lansing"). All Liabilities of the Company at December 31, 1995,
required to be reflected or reserved for by GAAP are fully reflected or reserved
for in the Company's consolidated balance sheet at December 31, 1995, prepared
by
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Lansing (the "Latest Year-End Balance Sheet"). December 31, 1995, is referred to
as the "Latest Year-End Balance Sheet Date" in other parts of this Agreement.
The Company and the Shareholder have also delivered to the Buyer a copy of the
unaudited balance sheet of the Company at September 30, 1996, and the related
unaudited statements of income and cash flows for the period from the Latest
Year-End Balance Sheet Date to September 30, 1996, prepared by the Company (the
"Interim Financial Statements"). September 30, 1996, is referred to as the
"Interim Balance Sheet Date" in other parts of this Agreement. All Liabilities
of the Company as of the Interim Balance Sheet Date required to be reflected or
reserved for by GAAP are fully reflected or reserved for in the Company's
consolidated balance sheet prepared by the Company at the Interim Balance Sheet
Date (the "Interim Balance Sheet"). All of the financial statements prepared by
Lansing and the Company referred to in this Section 4.7 were prepared in
accordance with GAAP and fairly present the financial position and results of
operations of the Company at the dates and for the periods covered and include
all adjustments that are necessary for a fair presentation of the information
shown. Within 30 days after the date hereof, the Company and the Shareholder
shall deliver to the Buyer (1) the Company's unqualified audited year-end
balance sheets at December 31, 1994 and 1995, (2) its related unqualified
audited statements of income and cash flows for the fiscal years then ended, and
(3) all related notes and schedules, each of which shall be prepared by BDO
Seidman, LLP.
4.8 BOOKS OF ACCOUNT; RETURNS AND REPORTS; TAXES. The books of
account of the Company fairly reflect, in accordance with GAAP, (1) all
transactions relating to the Company and (2) all items of income and expense,
assets and liabilities and accruals relating to the Company. The Company has not
engaged in any transaction, maintained any bank account or used any corporate
funds except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Company. The
Company has duly filed all federal, state and local tax reports and returns and
all other reports and returns required to be filed by it pursuant to any
Regulation. The Company has duly made all deposits required by law to be made
with respect to employees' withholding taxes. The Company has duly paid or
accrued on its books of account all taxes, duties and charges (including
penalties and interest thereon) payable by it, and the amounts established as
provisions for taxes on the Latest Year-End Balance Sheet and the Interim
Balance Sheet are sufficient for the payment of all taxes (including penalties
and interest thereon) due as a result of activities which occurred during
periods covered by the Latest Year-End Balance Sheet and the Interim Balance
Sheet, respectively. The Company has not received any notice of assessment or
deficiency or proposed assessment from or by the IRS or any other taxing
authority in connection with its tax returns or reports and there is no pending
tax examination of or tax claim asserted against the Company or any of the
Assets. There is no tax
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lien on any of the Assets except for liens for real estate taxes not yet due and
payable. All federal income tax returns filed by the Company have been audited
and/or settled through 1992, and no agreement for the extension of time or
waiver of the statute of limitations for the assessment of any deficiency or
adjustment for any year is in effect. True and correct copies of all federal and
state income tax returns filed by the Company for 1993 and 1994 have been
delivered to Buyer, and the Company has filed federal income tax returns for an
"S corporation" for 1993, 1994 and 1995, and further, any tax liability assessed
against the Shareholder or the Company thereunder or for subsequent periods up
to and including the Closing Date is or will be a personal liability of the
Shareholder.
4.9 UNDISCLOSED LIABILITIES. The Company does not have any
Liabilities except for:
(a) those Liabilities adequately and specifically
set forth or reserved for on the Interim Balance Sheet and not
heretofore paid or discharged;
(b) those Liabilities arising in the ordinary course
of its business consistent with past practice under any Contract
specifically disclosed on the Disclosure Schedule (or not required to
be disclosed because of the term or amount involved); and
(c) those Liabilities incurred, consistent with past
business practice in the ordinary course of its business since the
Interim Balance Sheet Date and not heretofore paid or discharged.
4.10 ACCOUNTS RECEIVABLE. All accounts receivable as set forth
on the Interim Balance Sheet or arising since the Interim Balance Sheet Date (1)
have arisen only in the ordinary course of business consistent with past
practice for goods sold and delivered or services performed and (2) are
collectible in full at the recorded amounts thereof (free of any, and subject to
no, defenses, setoffs, counterclaims, or costs of collection) in the ordinary
course of business (without resort to Litigation or assignment to a collection
agency), but in no event later than 90 days after the Closing Date, net of any
allowance for doubtful accounts reflected in the Interim Balance Sheet.
4.11 INVENTORY. The inventory as set forth on the Interim
Balance Sheet or arising since the Interim Balance Sheet Date was acquired and
has been maintained in accordance with the regular business practices of the
Company, consists of new and used, and unused items of a quality and quantity
usable or saleable in the ordinary course of business of the Company consistent
with past practice, and is valued at reasonable amounts based on the ordinary
course of business of the Company within the past six
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months at prices equal to the lower of cost or market value on a
first-in-first-out basis. To the best of the Company's Knowledge, none of such
inventory is obsolete, unusable, slow moving, damaged or unsalable in the
ordinary course of the Company's business consistent with past practice.
4.12 TITLE TO ASSETS. Except as set forth on the Disclosure
Schedule, the Company owns outright and has good and marketable title to all of
the Assets, including without limitation the assets and properties set forth on
the Interim Balance Sheet (except for such as may have been disposed of in the
ordinary course of business since the Interim Balance Sheet Date), free and
clear of all Liens except Permitted Liens.
4.13 ALL TANGIBLE ASSETS. The Disclosure Schedule sets forth
accurate lists and summary descriptions of all tangible Assets where the value
of an individual item exceeds $500 or where an aggregate of similar items
exceeds $500, and of all leases, Licenses and other Contracts to which the
Company is a party or is otherwise bound which relate in whole or in part to
such Assets. In the Disclosure Schedule, such Assets listed have been grouped by
type and assigned location. The Assets listed on the Disclosure Schedule
constitute substantially all of the tangible assets used in or necessary to the
conduct of the Businesection
4.14 CONDITION OF ASSETS. All tangible assets and properties
which are part of the Assets and presently used and/or necessary to conduct the
Business are in good operating condition and repair subject to normal wear, and
are usable in the ordinary course of the Business consistent with past practice
and, to the best of the Company's Knowledge, conform in all material respects to
all applicable Regulations relating to their construction, use and operation. To
the best of the Company's Knowledge, there are no developments materially
affecting any such Asset which might curtail the present or future use thereof
for the purpose for which it was acquired. Except pursuant to leases described
on the Disclosure Schedule, no person other than the Company owns any vehicles,
equipment or other tangible Assets situated on the facilities used by the
Company in the Business (other than immaterial items of personal property owned
by the Company's employees) or necessary to the operation of the Businesection
4.15 REAL PROPERTY.
(a) TITLE. All real property (including, without
limitation, all interests in and rights to real property) and
improvements located thereon which are owned or leased by the Company
are listed on the Disclosure Schedule (the "Real Property"). The
Company owns outright, and has good and marketable title to, all of the
Real Property, free and clear of all Liens, except the defects, Liens,
adverse claims and other matters affecting the Company's title to or
possession
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of the Real Property, expressly set forth in Schedule B to Title
Insurance Policy No. 063056611881 dated September 13, 1994 ("Title
Report") prepared by Ticor Title Insurance Co. attached as part of the
Disclosure Schedule.
(b) OPERATION OF RAILROAD. The Company owns all
right, title and interest in the Real Property and has all permits
necessary to operate the Railroad.
(c) ZONING. To the best of the Company's Knowledge,
there are no existing violations of zoning regulations.
(d) UTILITY SERVICES. To the best of the Company's
Knowledge, the water, electric, gas and sewer utility services and the
septic tank and storm drainage facilities currently available to the
Real Property are adequate for the present use of the Real Property by
the Company in conducting the Business, and there is no condition which
will result in the termination of the present access from the Real
Property to such utility services and other facilities.
(e) ACCESS. To the best of the Company's Knowledge:
(i) the Company has obtained all Licenses and rights-of-way, including
proof-of-dedication, over the Real Property or from private parties,
necessary to ensure vehicular and pedestrian ingress and egress to and
from the Real Property and, (ii) there are no restrictions on entrance
to or exit from the Real Property to adjacent public streets and no
conditions which will result in the termination of the present access
from the Real Property to existing highways and roads.
(f) ASSESSMENTS OR HAZARDS. The Company has received
no written notices, from any governmental body that the assessed value
of the Real Property has been determined to be greater than that upon
which county, township or school tax was paid for the 1995 tax year
applicable to each such tax, or from any insurance carrier of the
Company of fire hazards with respect to the Real Property.
(g) EMINENT DOMAIN. The Company has received no
notices, oral or written, and has no reason to believe, that any
governmental body having jurisdiction over the Real Property intends to
exercise the power of eminent domain or a similar power with respect to
all or any part of the Real Property.
(h) NO VIOLATIONS. The Company has received no
notices, oral or written, from any governmental body, and has no reason
to believe, that the Real Property or any improvements erected or
situate thereon, or the uses conducted
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thereon or therein, violate any Regulations of any governmental body
having jurisdiction over the Real Property.
(i) IMPROVEMENTS. To the best of the Company's
Knowledge, the improvements located on the Real Property are in good
condition and are structurally sound, and all mechanical and other
systems located therein and presently used in the Business are in good
operating condition, subject to normal wear, and no condition exists
requiring material repairs, alterations or corrections.
(j) ENVIRONMENTAL MATTERS. To the best of the
Company's Knowledge, no Hazardous Substances or materials subject to
governmental regulation have been disposed of or otherwise come to be
located upon or beneath the Real Property. Except as provided in the
Disclosure Schedules and to the best of the Company's Knowledge, the
Real Property has not been investigated by any governmental
environmental agency, Board of Health or the public media for, and the
Company has received no inquiry from any governmental environmental
agency, Board of Health or the public media with respect to, possible
storage or disposal of any such Hazardous Substances or any such
materials subject to regulation by the Nuclear Regulatory Commission.
4.16 CONTRACTS.
(a) The Disclosure Schedule sets forth complete and
accurate lists or descriptions of:
(1) all Employee Benefit Plans; and
(2) all consents or approvals required
under any Contracts that are
necessary for the Shareholder to
complete the Acquisition or to avoid
a Default under such Contracts
arising from the Acquisition.
(b) Except as set forth on the Disclosure Schedule,
none of the Assets is leased by the Company from any third party,
whether affiliated or unaffiliated with the Company.
(c) Except as set forth on the Disclosure Schedule,
the Company is not a party to any:
(1) Contract with any present or former
employee or consultant;
(2) Contract for the future purchase of,
or payment for, supplies or products
or services;
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(3) Contract to sell or supply products
or to perform services;
(4) Representative or sales agency
contract;
(5) Contract limiting or restraining it
from engaging or competing in any
lines of business with any person,
firm, corporation or other entity;
(6) license, franchise, distributorship
or other agreement, including those
which relate in whole or in part to
any ideas, technical assistance or
other know-how of or used by the
Company; or
(7) material Contract not otherwise
disclosed herein.
(d) All of the Contracts (including all customer
Contracts) to which the Company is a party or by which it or any of the
Assets is bound or affected are valid, binding and enforceable in
accordance with their terms. The Company has fulfilled, or taken all
action necessary to enable it to fulfill when due, all of its
obligations under each of such Contracts. All parties to such Contracts
have complied in all material respects with the provisions thereof, no
party is in Default thereunder and no notice of any claim of Default
has been given to the Company. There are, to the best of the Company's
Knowledge, no provisions of, or developments materially affecting, any
such Contract which might prevent the Company from realizing the
benefits thereof whether before or after the completion of the
Acquisition. With respect to any of such Contracts that are leases, the
Company has not received any notice of cancellation or termination
under any option or right reserved to the lessor, or any notice of
Default, thereunder.
4.17 EMPLOYEES. The Disclosure Schedule sets forth the names
and current annual salary rates or current hourly wages of all present employees
of the Company, together with the average number of hours worked per week, the
date of the last salary increase, the date of commencement of employment of each
employee with the Company, or its predecessor, and a summary of salary, bonuses
and other compensation, if any, paid or payable to each of such persons for or
in respect of that portion of the 1996 calendar year ending on the Interim
Balance Sheet Date. The Disclosure Schedule also sets forth the earnings for
each of such employees as reflected on Form W-2 for the 1995 calendar year.
4.18 LICENSES. The Disclosure Schedule sets forth a complete
list of all Licenses used in the operation of the Business
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or otherwise held by the Company. The Company owns, possesses or lawfully uses
in the operation of its Business all Licenses which are necessary to conduct the
Business as now or previously conducted or to the ownership of the Assets, free
and clear of all Liens. The Company is not in Default, nor has it received any
notice of any claim of Default, with respect to any such License. Except as
otherwise governed by law, all such Licenses are renewable by their terms or in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine and nominal
filing fees and will not be adversely affected by the completion of the
Acquisition. No present or former shareholder, director, officer or employee of
the Company or any affiliates of the Company, owns or has any material
proprietary, financial or other interest (direct or indirect) in any License
which the Company owns, possesses or uses to conduct its businesection
4.19 INTELLECTUAL PROPERTY.
(a) To the best of the Company's Knowledge, no
employee of the Company is, or is now expected to be, in default under
any term of any employment contract, agreement or arrangement relating
to any Intellectual Property or noncompetition arrangement, or any
other Contract or any restrictive covenant relating to the right of any
such officer or employee to be employed by the Company because of the
nature of the business conducted or to be conducted by the Company or
relating to the use of any Intellectual Property of others, and the
continued employment of the Company's officers and employees does not
subject the Company to any liability resulting from such a violation.
To the best of the Company's Knowledge, the Intellectual Property of
the Company was developed entirely by its employees during the time
they were employees only of the Company and such Intellectual Property
does not include any inventions of the employees made prior to the time
such employees became employees of the Company nor any Intellectual
Property of any previous employers of such employees.
(b) The Company owns or has a valid right to use the
Intellectual Property being used by the Company to conduct the
Business; and the conduct of the Business as now operated does not, and
to the best of the Company's Knowledge, will not conflict with valid
Intellectual Property rights of others. The Company has not received
any communication alleging that the Company has violated or, by
conducting its business as proposed would violate any of the
Intellectual Property rights of any other person or entity. The Company
does not have any obligation to compensate any person for the use of
any such Intellectual Property rights nor has the Company granted to
any person any license, option or other rights to use in any
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manner any of the Intellectual Property of the Company, whether
requiring the payment of royalties or not.
(c) All Patents, Copyrights, Trademarks and computer
software used in the Business or owned by the Company are listed in the
Disclosure Schedule.
(d) The computer software of the Company included in
the Intellectual Property functions sufficiently for current operation
of the Business, and is the only software used by the Company in the
conduct of its businesection
4.20 COMPLIANCE WITH REGULATIONS AND COURT ORDERS. The Company
is not in violation of any Court Order or Regulation, and the Assets have not
been used or operated by the Company in violation of any Regulation or Court
Order. All Court Orders to which the Company is a party or subject are described
in the Disclosure Schedule. The Company has made all filings or notifications
required to be made by it under any Regulations applicable to the Company, the
Business or the Assets. Neither the Company, nor, to the best of the Company's
Knowledge, any officer, employee or agent of, nor any consultant to, the
Company, has unlawfully offered, paid, or agreed to pay, directly or indirectly,
any money or anything of value to, or for the benefit of, any individual who is
or was a candidate for public office, or an official or employee of any
governmental or regulatory body or authority or an officer or employee of any
client, customer or supplier of the Company.
4.21 CLAIMS. Except as listed in the Disclosure Schedule, there
is no Litigation pending or threatened against the Company, the Business or the
Assets. To the best of the Company's Knowledge, no claim has been asserted and
no event has occurred that might result in Litigation against the Company, the
Business or the Assets. To the best of the Company's Knowledge, there is no
reasonable basis for any such claim.
4.22 INSURANCE. The Company has provided Buyer with complete
copies (including endorsements) of all applicable insurance policies. The
Disclosure Schedule contains a true and complete description of the insurance
coverage applicable to the Company, the Business and the Assets for the past
five years, including amounts and lines of coverage, loss experience history by
line of coverage for the past five years, and a description of all claims in
excess of $5,000 for the past five years. All insurance coverage applicable to
the Company, the Business and/or the Assets is in full force and effect, is
valid, binding and enforceable in accordance with its terms against the
respective insurers, insures the Company in reasonably sufficient amounts
against all risks usually insured against by persons operating similar
businesses or properties in the localities where such businesses or properties
are located and has been issued by insurers of recognized
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responsibility. There is no Default under any such coverage nor has there been
any failure to give notice or present any claim under any such coverage in a due
and timely fashion. There are no outstanding unpaid premiums except in the
ordinary course of business and no notice of cancellation or nonrenewal of any
such coverage has been received. To the best of the Company's Knowledge, there
are no provisions in such insurance policies for retrospective premium
adjustments. Neither the Company nor the Shareholder knows or has reason to know
of the occurrence of any event which reasonably might form the basis of any
claim against the Company, the Business or the Assets or which might materially
increase the insurance premiums payable for any such coverage. All liability
policies since May 2, 1992 have been claims made policies and with retroactive
dates of May 2, 1992 except the employers liability policy which has a
retroactive date of May 2, 1995. To the extent there are any occurrences, as
such term is defined in any claims-made policies, the Company shall notify its
insurance carrier(s) of such occurrences prior to the Closing. Except as
disclosed in the Disclosure Schedule, there are no outstanding performance bonds
covering or issued for the benefit of the Company.
4.23 LABOR MATTERS. There are no collective bargaining
agreements between the Company and any labor union or other representative of
employees. No strike, slowdown, picketing or work stoppage by any union or other
group of employees against the Company, or the Assets wherever located, and no
secondary boycott with respect to the Company's products or services, lockout by
the Company of any of its employees or any other labor trouble or other
occurrence, event or condition of a similar character, has occurred or been
threatened.
4.24 PENSION PLANS; EMPLOYEE BENEFIT PLANS.
(a) DISCLOSURE. Except as set forth on the Disclosure
Schedule, there are no Employee Benefit Plans.
(b) DISCLOSED PLANS. With respect to any such
Employee Benefit Plans disclosed, the Company has made all
contributions thereto which have accrued on its financial statements
and other books and records as a liability and the Company has
delivered to the Buyer copies of (1) all documents governing such
Plans, and all amendments thereto, (2) all reports filed by the Company
or Plan officials with respect to such Plans with the United States
Department of Labor, the IRS and any other federal or state regulatory
agency, (3) all summary plan descriptions, notices and other reporting
and disclosure material furnished to participants in any of such Plans,
(4) all actuarial, accounting and financial reports prepared with
respect to any of such Plans, and (5) all currently effective IRS
ruling or determination letters on any of such Plans; however, the
Company has not made a
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<PAGE>
contribution to the Durango & Silverton Narrow Gauge Railroad Company
Pension Plan for the plan year that began January 1, 1995, or the
current plan year that began January 1, 1996. To the extent required
contributions, along with accrued interest and penalties thereon are
payable in connection with such plan, such amounts shall be paid by the
Shareholder.
(c) COMPLIANCE WITH LAW. The provisions of each
Employee Benefit Plan and the administration of each Employee Benefit
Plan are and have been in all material respects in compliance with all
applicable Regulations, and neither the Company nor the Shareholder has
received or is aware of any claim or notice alleging to the contrary
with respect to any Employee Benefit Plan.
(d) TAX OR CIVIL LIABILITY. Neither the Company nor
the Shareholder has participated in any conduct, and neither the
Company nor the Shareholder will participate in any conduct to the
Closing Date or thereafter, that could result in the imposition upon
the Company, the Shareholder or the Buyer of either excise tax under
Section 4975 (relating to prohibited transactions) of the Code, or
civil liability under Section 502(i) of ERISA (also relating to
prohibited transactions).
(e) CLAIMS LIABILITY. There is no action, claim or
demand of any kind (other than routine claims for benefits) which has
been brought or, to the Company's Knowledge, threatened, against any
Employee Benefit Plan or the assets thereof, or against any fiduciary
of any such Plan.
(f) FIDUCIARY APPOINTMENTS AND CONDUCT. There have
not occurred any circumstances by reason of which the Company, the
Shareholder or the Buyer may be liable for:
(1) Appointment by the Company of any
person or entity as a fiduciary with
respect to any Employee Benefit Plan
where such person or entity was
legally disqualified from serving in
such capacity;
(2) Failure by the Company to monitor
the performance of its appointees as
fiduciaries with respect to any
Employee Benefit Plan or failure of
the Company to timely replace any
such fiduciary whose performance
failed to meet the standards imposed
by ERISA with respect to fiduciary
duties; or
(3) Action taken by a fiduciary with
respect to any Employee Benefit Plan
upon the
26
<PAGE>
direction of, or with the
acquiescence of, the Company.
(g) MULTI-EMPLOYER PLANS. The Company does not
maintain or participate in, nor has it ever maintained or participated
in, any "multi-employer plans" as defined in Section 3(37) of ERISA.
(h) CONTROLLED GROUPS. The Company is not presently
or potentially liable with respect to any employee benefit plan
sponsored by any entity which, together with the Company, is a member
of a controlled group of corporations within the meaning of Section
414(b) of the Code, a group of trades or businesses under common
control within the meaning of Section 4(c) of the Code, or an
affiliated service group within the meaning of Section 414(m) of the
Code, whether such plan is a single employer plan, a multiple employer
plan or a multi-employer plan. Liability to which reference is made
herein includes, but is not limited to, liability for the underfunding
of such plan, whether or not such plan is terminated; liability for
unamortized funding deficiencies (whether or not waived); liability to
or on account of any multi-employer plan under any circumstances;
penalties, late payment fees or taxes with respect to any plan or the
administration of any plan; or liability with respect to fiduciary
conduct in connection with any such plan.
(i) REPORTING AND DISCLOSURE. The Company has filed
or caused to be filed on a timely basis each and every return, report,
statement, notice, declaration and other documents required by any
governmental agency with respect to each Employee Benefit Plan;
however, the Company has not filed the IRS form 5500 for the Durango &
Silverton Narrow Gauge Railroad Company Pension Plan for the plan year
that began January 1, 1995, or the PBGC Form 1 for that plan for that
plan year. Shareholder shall be obligated to pay any amounts due,
including, without limitation, penalties due related to its failure to
file such statements.
(j) PARTICIPANT AND BENEFICIARY NOTIFICATIONS. The
Company has delivered or caused to be delivered to every participant,
beneficiary and other party entitled to such material, all plan
descriptions, returns, reports, schedules, notices, statements and
similar materials.
4.25 TRANSACTIONS WITH AFFILIATES. No shareholder or director
or officer of the Company, or any member of his or her immediate family or any
other of its, his or her affiliates, owns or has an ownership interest in any
corporation or other entity other than Hi-Acres, Inc., or its affiliates or
subsidiaries that is or was during the last three years a party to, or in any
property which is or was during the last three years the subject
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<PAGE>
of, Contracts, business arrangements or relationships of any kind with the
Company. No transaction between the Company and the Shareholder or any other
person or affiliate described in this Section 4.25 will continue after Closing
except as disclosed on the Disclosure Schedule.
4.26 DELIVERY OF DOCUMENTS. The Company and the Shareholder
have delivered to the Buyer true, correct and complete copies of the Company's
charter documents and By-Laws and all written Contracts and other documents and
summaries of any material oral Contracts (including all amendments, supplements,
modifications or waivers currently in effect) described in this Agreement or in
the Disclosure Schedule.
4.27 NO MATERIAL ADVERSE DEVELOPMENTS. Other than the
retirement of the Shareholder's financial obligations to the Company, since the
Interim Balance Sheet Date, there has been no actual or threatened change in the
Business or, to the best of the Company's Knowledge, any event, condition or
state of facts, that is or might be material and adverse to the Company, the
Business or the Assets.
4.28 MATERIAL TRANSACTIONS. Other than retirement of the
Shareholder's financial obligations to the Company, since the Interim Balance
Sheet Date, the Business has been operated in the manner described in Section 6
and the Company has not taken any action that would have been prohibited by
Section 6 had that Section been effective since the Interim Balance Sheet Date.
4.29 HAZARDOUS WASTE. The Company does not now, nor has it
ever, generated, transported, stored, disposed of or treated solid wastes, or
Hazardous Substances within the meaning of any applicable Regulation in
violation of Applicable Law. The Company has provided to the Buyer true and
correct copies of all permits, filings and related correspondence with, to or
from any environmental or safety agency.
4.30 ADDITIONAL INFORMATION. The Disclosure Schedule contains
accurate lists and summary descriptions of the following:
(a) other than the loan to the Shareholder from the
Company, all accounts receivable of the Company reflected on the
Interim Balance Sheet, specifying in each case the account debtor and
the face amount of each receivable and reconciling the aggregate value
of all accounts receivable as of the Interim Balance Sheet Date to the
amount of such category set forth on the Interim Balance Sheet;
(b) all accounts payable and accrued expenses of the
Company reflected on the Interim Balance Sheet, specifying in each case
the payee, the face amount of each payable, the age of each payable
regardless of classification on the
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balance sheet account, any defenses, setoffs or counterclaims that may
exist with respect thereto, and reconciling the aggregate value of all
accounts payable as of the Interim Balance Sheet Date to the amount of
such category set forth on the Interim Balance Sheet;
(c) the names of all present officers and directors
of the Company;
(d) the names and addresses of every bank and other
financial institution in which the Company maintains an account
(whether checking, savings or otherwise), lock box or safe deposit box,
and the account numbers and names of persons having signing authority
or other access thereto;
(e) the names of all persons authorized to borrow
money or incur or guarantee indebtedness on behalf of the
Company; and
(f) the names of all persons holding powers of
attorney from the Company and a summary statement of the terms thereof.
4.31 CORPORATE RECORDS. The minute books of the Company are
current and contain correct and complete copies of all charter documents of the
Company, including all amendments thereto and restatements thereof, and of all
minutes of meetings, resolutions and other actions and proceedings of its
shareholders and board of directors and all committees thereof, duly signed by
the Secretary or an Assistant Secretary, and the stock record book of the
Company is also current, correct and complete and reflects the issuance of all
of the Shares to the Shareholder.
4.32 LIMITED MANUFACTURING/PRODUCT WARRANTIES. The Company
does not manufacture and has not manufactured any product for sale, except in
the ordinary course of its business, and there are no warranties, express or
implied, written or oral, with respect to the products of the Business, and
there are no pending or threatened claims with respect to any such warranty, and
the Company has no liability with respect to any such warranty, whether known or
unknown, absolute, accrued, contingent or otherwise, and whether due or to
become due.
4.33 NO GOVERNMENTAL APPROVALS REQUIRED. The transactions
contemplated by this Agreement will not require the approval of the Interstate
Commerce Commission.
4.34 PARTICULATE AIR EMISSIONS. To the best of the Company's
Knowledge, the amount of particulate air emissions and volatile organic
compounds generated by the Company do not violate Colorado clean air standards
and do not require that the Company obtain a permit to generate such emissions.
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4.35 ON THE JOB CLAIMS. To the best of the Company's
Knowledge, there are no pending or contingent employee on-the-job injury claims
regardless of the basis under which such a claim may be asserted.
4.36 MITCHELL LAKE FIRE. There is no contingent or actual
liability to the Company based on the Mitchell Lake Fire.
4.37 RAILROAD CARS. The purchase by Buyer of the Shares will
not trigger the repurchase option for the Cinco Animas and Nomad railroad cars
contained in that certain Agreement for Sale of Railroad Cars dated August 4,
1982 between the Cinco Animas Corporation and the Company.
4.38 FULL DISCLOSURE. There are and will be no materially
misleading misstatements in any of the representations and warranties made by
the Shareholder in this Agreement or in any of the certificates and instruments
delivered or to be delivered by the Company or the Shareholder pursuant to this
Agreement, including (without limitation) in the Disclosure Schedule, and the
Shareholder has not omitted to state any fact necessary to make such
representations and warranties not materially misleading.
4.39 ROADBED AND BRIDGE. To the best of Company's Knowledge,
nothing has come to the attention of the Company that would materially adversely
impact the findings of the inspection report of Martin & Martin of May 30, 1996,
regarding the structural soundness and sufficiency of the railroad bed and
bridges.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer hereby
represents and warrants to the Company and the Shareholder as follows:
5.1 ORGANIZATION AND STANDING. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Nevada,
having all requisite corporate power and authority to perform its obligations
under this Agreement.
5.2 AUTHORITY AND BINDING EFFECT. The Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and has taken
all actions necessary to secure all approvals required in connection therewith.
The execution, delivery and performance of this Agreement by the Buyer has been
duly authorized by all necessary corporation action. This Agreement constitutes
the legal, valid and binding obligation of the Buyer, enforceable against it in
accordance with its terms.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by the Buyer nor the consummation of
the transactions contemplated hereby by the Buyer will contravene or violate any
Regulation or Court Order which is applicable to the Buyer, or the Articles of
Incorporation or
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<PAGE>
By-Laws of the Buyer, or will result in a Default under any Contract to which
the Buyer is a party or by which it is otherwise bound.
5.4 CAPITALIZATION AND SHARE OWNERSHIP. The Buyer's authorized
capital stock consists of 100,000,000 shares of common stock, par value $.001
per share. There are 9,061,078 shares of the Buyer's common stock presently
issued and outstanding (subject to (i) the further issuance of shares in
connection with the proposed capital financing to raise funds to consummate this
transaction and (ii) the exercise of stock options, warrants and convertible
notes). All of the shares of Buyer's common stock to be issued to the
Shareholder in accordance with this Agreement have been duly authorized and,
when issued, will be validly issued, fully paid and nonassessable, will not be
issued in violation of the terms of any Contract binding upon the Buyer, and
will be issued in compliance with all applicable charter documents of the Buyer
and all applicable federal and state securities or "blue sky" laws and
regulations.
5.5 COMPLIANCE WITH REGULATIONS. Buyer is validly formed and is
in good standing in the State of Nevada, is operating in accordance with
applicable Regulations, and has made or will make all filings, disclosures and
notifications required by such Regulations to consummate this transaction.
6. CONDUCT OF BUSINESS PENDING CLOSING. Until the Closing or earlier
termination of this Agreement, except as may be approved by the Buyer in writing
or as otherwise expressly provided in this Agreement, the Shareholder shall
cause the Company to:
(a) operate the Business only in the ordinary course and in
substantially the same manner as it has been operated in the past and
not sell any of the Assets except for sales from inventory in the
ordinary course of business;
(b) not issue, repurchase or redeem or commit to issue,
repurchase or redeem, any shares of its capital stock, or other rights
to acquire such stock or any securities convertible into or
exchangeable for such stock;
(c) not declare or pay any dividend on, or make any other
distribution with respect to, the Shares other than for purposes of
retirement of Shareholder obligations to the Company, or distributions
no greater than the amount allocable to a shareholder of an S
corporation under Section 1366(a) of the Code for calendar year 1996
and the days of calendar year 1997 that precede the Closing Date;
provided, however, that (i) cash shall not be distributed unless a
sufficient amount of cash remains to satisfy the contingent liabilities
of the Company, in full, and (ii) no assets, other than cash, shall be
liquidated, paid or distributed;
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(d) not (1) incur any additional amount of long or short-term
debt for money borrowed, (2) guarantee or agree to guarantee the
obligations of others, (3) indemnify or agree to indemnify others, or
(4) incur any other Liabilities other than those incurred in the
ordinary course of business consistent with past practice;
(e) keep in full force and effect insurance covering the
Company, the Assets and the Business comparable in amount and scope of
coverage to that now maintained;
(f) maintain the tangible Assets in their current condition
and working order, ordinary wear and tear excepted;
(g) use its reasonable efforts to retain the Company's
employees and maintain the Business so that such employees will remain
available to the Company on and after the Closing Date and to maintain
existing relationships with suppliers, customers and others having
business dealings with the Company and otherwise to preserve the
goodwill of the Business so that such relationships and goodwill will
be preserved on and after the Closing Date;
(h) not amend its Articles of Incorporation or By-Laws;
(i) not merge with or into any other corporation or sell,
assign, transfer, pledge or encumber any part of the Assets or agree to
do any of the foregoing;
(j) not enter into any Contract that is material, nor permit
any amendment or termination of any material Contract;
(k) not waive any rights of value or rights that would
otherwise accrue to the Company after the Closing Date;
(l) not increase the salaries of, or make any bonus or similar
payments to or establish or modify any Employee Benefit Plans for, any
of the Company's directors, officers or employees or enter into or
modify any employment, consulting or similar Contracts with any such
persons or agree to do any of the foregoing;
(m) continue to maintain all Employee Benefit Plans in
accordance with applicable Regulations, and ensure that no Employee
Benefit Plan, nor any trust related thereto, shall be amended or
terminated prior to the Closing Date, except for any such amendment as
may be required to comply with applicable Regulations;
(n) collect its accounts receivable in the ordinary course of
business consistent with past practice;
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(o) pay its accounts payable in the ordinary course of
business consistent with past practice and not fail to pay or discharge
when due any Liabilities;
(p) use its best efforts to help the Shareholder complete the
Acquisition and obtain the satisfaction of the conditions specified in
Section 9;
(q) promptly notify the Buyer of any Default, the threat or
commencement of any Litigation, or any development that occurs before
the Closing that could in any way materially affect the Company, the
Assets or the Business;
(r) use its best efforts to obtain any consents or approvals
required under any Contracts (including customer Contracts) or
otherwise that are necessary to complete the Acquisition to avoid a
Default under any such Contracts;
(s) comply with all Regulations applicable to it and to the
conduct of its business;
(t) provide the Buyer with such financial and other reports of
the Business as may be reasonably requested;
(u) not make any capital expenditures in excess of $500;
(v) (1) give to the Buyer's officers, employees, counsel,
accountants and other representatives free and full access to and the
right to inspect, during normal business hours and upon reasonable
notice, all of the Assets, records, Contracts (including customer
Contracts) and other documents relating to the Business, (2) permit
them to consult with the officers, employees, accountants, counsel and
agents of the Company for the purpose of making such investigation of
the Company, the Business and the Assets and the Buyer shall desire to
make, provided that such investigation shall not unreasonably interfere
with the Company's business operations, and (3) make available to the
Buyer all such documents and copies of documents and records and
information with respect to the Company's affairs and copies of any
working papers relating thereto as the Buyer shall from time to time
reasonably request; and
(w) promptly disclose to the Buyer in writing any information
set forth in the Disclosure Schedule hereto which no longer is correct
and any information of the nature of that set forth in the Disclosure
Schedule which arises after the date hereof and which would have been
required to be included in the Disclosure Schedule if such information
had been obtained on the date hereof.
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7. SURVIVAL OF REPRESENTATION AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, exhibit, the Disclosure Schedule, certificate,
document or list delivered by any such party pursuant hereto or in connection
with the Acquisition shall survive the Closing and each party hereto shall be
entitled to rely upon the representations and warranties of the other party set
forth in this Agreement for a period of one year following Closing.
8. INDEMNIFICATION.
8.1 INDEMNIFICATION OBLIGATIONS.
(a) The Shareholder (an "indemnifying party") shall
indemnify and hold harmless the Buyer, and the Buyer (another
"indemnifying party") shall indemnify and hold harmless the Shareholder
from, against and in respect of any and all damages, losses,
deficiencies, liabilities, costs, claims and expenses resulting from,
relating to or arising out of any (1) misrepresentation, (2) breach of
warranty or (3) non-fulfillment of any agreement or covenant on the
part of such indemnifying party or parties hereunder.
(b) Notwithstanding anything herein to the contrary,
the Shareholder shall also indemnify and hold harmless the Buyer and
each person who "controls" the Buyer within the meaning of the
Securities Act of 1933, as amended, and each officer and director of
the Buyer and any such controlling person, at all times after the date
hereof from and against:
(1) any claim by any former shareholder
of the Company involving the
transactions contemplated hereby or
any prior transaction involving any
shares of capital stock of the
Company or any predecessor
corporation;
(2) without limiting the generality of
anything contained in this Section
8.1, any and all damages, losses,
deficiencies, liabilities, costs and
expenses of, or claims against, the
Buyer, or the Company, resulting
from, relating to or arising out of
the business, operations or assets
of the Company prior to the Closing
Date or the actions or omissions of
the Company's officers, directors,
shareholders, employees or agents
prior to the Closing Date
(including, without limitation, any
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liability relating to, and any claim
which arises out of or is based
upon, negligence, strict liability,
or any express or implied
representation, warranty, agreement
or guarantee made by or on behalf of
the Company, or alleged to have been
made by or on behalf of the Company,
or which is imposed or asserted to
be imposed on the Company by
operation of law, in connection with
any product designed, used, rented,
sold, manufactured, shipped or
installed by or on behalf of the
Company, or for any service
performed by or on behalf of the
Company, in any case prior to the
Closing Date and irrespective of the
date that any claim, suit or other
cause of action related to any of
the foregoing is filed or otherwise
instituted against the Company;
provided, however, that the
foregoing shall not apply to the
Liabilities of the Company disclosed
on the Disclosure Schedule or
referred to in Section 4.9(a)
through (c)); and
(3) any and all costs, judgments,
claims, actions at law or in equity,
interest charges and reasonable
attorneys' fees with respect to any
cause of action or proceeding, by
any participant or dependent or
beneficiary of any participant,
arising out of or by reason of the
sponsorship by the Company of any
Employee Benefit Plan or Pension
Plan prior to the Closing Date.
(c) The maximum aggregate liability of Shareholder
under subsections (a) and (b) above shall be $4,000,000.
(d) Notwithstanding anything herein to the contrary,
Buyer shall indemnify and hold harmless the Shareholder, at all times
after the Closing Date from and against:
(1) any and all damages, losses,
deficiencies, liabilities, costs and
expenses of, or claims against, the
Shareholder, resulting from,
relating to or arising out of the
business, operations or assets of
the Company after the Closing Date
or the actions or omissions
occurring after the Closing
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Date of the Company's officers,
directors, shareholders, employees
or agents; and
(2) any and all costs, judgments,
claims, actions at law or in equity,
interest charges and reasonable
attorneys' fees with respect to any
cause of action or proceeding, by
any participant or dependent or
beneficiary of any participant,
arising out of or by reason of the
sponsorship by the Company of any
Employee Benefit Plan or Pension
Plan after the Closing Date.
(d) Each indemnifying party or parties hereto will
indemnify and hold harmless the indemnified party or parties hereto
from, against and in respect of any and all actions, suits,
proceedings, demands, assessments, judgments, costs (including
attorneys' fees at the arbitration, pre-trial, trial and appellate
levels) and legal and other expenses incident to any of the foregoing
or to the enforcement of this Section 8.
8.2 METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification under this Section 8 shall be asserted and resolved as
follows:
(a) In the event that any claim or demand for which
the Shareholder would be liable to the Buyer hereunder is asserted
against or sought to be collected by a third party, the Buyer shall
promptly notify the Shareholder of such claim or demand, specifying the
nature of such claim or demand and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) (the "Claim
Notice"). The Shareholder shall have twenty days from its receipt of
the Claim Notice (the "Notice Period") to notify the Buyer (1) whether
or not the Shareholder disputes his liability to the Buyer hereunder
with respect to such claim or demand, and (2) if he does not dispute
such liability, whether or not he desires, at his sole cost and
expense, to defend the Buyer against such claim or demand; provided,
however, that the Buyer is hereby authorized prior to and during the
Notice Period to file any motion, answer or other pleading which it
shall deem necessary or appropriate to protect its interests. In the
event that the Shareholder notifies the Buyer within the Notice Period
that he does not dispute such liability and desires to defend against
such claim or demand, then except as hereinafter provided, the
Shareholder shall have the right to defend by appropriate proceedings,
which proceedings shall be timely settled or prosecuted to a final
conclusion in such a
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manner as to reasonably avoid any risk of the Buyer becoming subject to
liability for any other matter. If the Buyer desires to participate in,
but not control, any such defense or settlement it may do so at its
sole cost and expense. If, in the reasonable opinion of the Buyer, any
such claim or demand involves an issue or matter which could have a
materially adverse effect on the business, operations, assets,
properties or prospects of the Business or any division of the Buyer or
an affiliate of the Buyer, the Buyer shall have the right to control
the defense or settlement of any such claim or demand, and its
reasonable costs and expenses thereof shall be included as part of the
potential indemnification obligations of the Shareholder hereunder. If
the Shareholder disputes his liability with respect to such claim or
demand or elects not to defend against such claim or demand, whether by
not giving timely notice as provided above or otherwise, then the
amount of any such claim or demand, or, if the same be contested by the
Buyer (but the Buyer shall not have any obligation to contest any such
claim or demand), then that portion thereof as to which such defense is
unsuccessful, shall be conclusively deemed to be a liability of the
Shareholder hereunder (subject, if the Shareholder has timely disputed
liability, to a determination that the disputed liability is covered by
these indemnification provisions).
(b) In the event that the Buyer should have a claim
against the Shareholder hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a
third party, the Buyer shall promptly send a Claim Notice with respect
to such claim to the Shareholder. If the Shareholder does not notify
the Buyer within the Notice Period that he disputes such claim, the
amount of such claim shall be conclusively deemed a liability of the
Shareholder hereunder.
(c) All claims for indemnification made by the
Shareholder under this Section 8 shall be asserted and resolved under
the procedures set forth above in this Section 8.2 by substituting, as
appropriate, "the Buyer" for "Shareholder" and "Shareholder," as
appropriate, for "the Buyer."
8.3 PAYMENT.
(a) In the event that any party is required to make
any payment under this Section 8, such party shall promptly pay the
indemnified party the amount so determined. If there should be a
dispute as to the amount or manner of determination of any indemnity
obligation owed under this Section 8, the party from which
indemnification is due shall nevertheless pay when due such portion, if
any, of the obligation as shall not be subject to dispute. The
difference,
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if any, between the amount of the obligation ultimately determined as
properly payable under this Section 8 and the portion, if any,
theretofore paid shall bear interest as provided in Section 8.3(c).
Upon the payment in full of any claim, either by setoff or otherwise,
the party or entity making payment shall be subrogated to the rights of
the indemnified party against any person, firm, corporation or other
entity with respect to the subject matter of such claim.
(b) The payment of such item as to which the Buyer is
entitled to payment under this Section 8 shall be the obligation of the
Shareholder and the Shareholder shall make full and prompt payment of
any and all such items to the Buyer.
(c) If all or part of any indemnification obligation
under this Agreement is not paid when due, then the indemnifying party
or parties shall pay the indemnified party or parties Interest at the
Interest Rate on the unpaid amount of the obligation for each day from
the date the amount became due until payment in full, payable on
demand.
8.4 SERVICE OF PROCESS, CONSENT TO JURISDICTION, ETC.
The Shareholder irrevocably and unconditionally (a) agrees that
any suit, action or other legal proceeding arising out of this Agreement may be
brought in the United States District Court for Colorado or if such court does
not have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Denver County, Colorado, (b) consents to the jurisdiction of any
such court in any suit, action or proceeding; and (c) waives any objection which
the Shareholder may have to the laying of venue of any such suit, action or
proceeding in any such court.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER. Subject to waiver
as set forth in Section 11.10, the obligations of the Buyer under this Agreement
are subject to the fulfillment prior to or at the Closing of each of the
following conditions:
9.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Shareholder set forth in Section 4 shall be true and correct
on the Closing Date with the same effect as if made at that time.
9.2 PERFORMANCE BY THE SHAREHOLDER. The Shareholder shall have
performed and satisfied all agreements and conditions that they are required by
this Agreement to perform or satisfy prior to or on the Closing Date.
9.3 CERTIFICATE(S). The Buyer shall have received
certificate(s) from the Shareholder dated the Closing Date certifying in such
detail as the Buyer may reasonably request that
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each of the conditions described in Sections 9.1 and 9.2 has been fulfilled.
9.4 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Shareholder
shall be reasonably satisfactory to the Buyer.
9.5 OPINION OF COUNSEL. The Buyer shall have received the
written opinion dated the Closing Date of Zimmerman, Shuffield, Kiser &
Sutcliffe, P.A., counsel for the Shareholder, in form and substance reasonably
satisfactory to both said firm and the Buyer.
9.6 LITIGATION AND OTHER MATTERS AFFECTING CLOSING. No Court
Order shall have been issued or entered which would be violated by the
completion of the Acquisition. No person who or which is not a party to this
Agreement shall have commenced or threatened to commence any Litigation seeking
to restrain or prohibit, or to obtain substantial damages in connection with,
this Agreement or the transactions contemplated by this Agreement, no Litigation
shall be pending against the Company and the PUC Approval, if required, shall
have been obtained; if any injunction, cease and desist order or other
restraining order or decree has been issued by any court or governmental body
against the Company and/or the Shareholder which seeks to prevent the transfer
contemplated by the Agreement, or attempts to seize the Assets of the Company or
materially restricts the day-to-day business operations of the Company, or PUC
Approval has not been obtained, if required, then, Buyer shall extend the
Closing Date for a reasonable period of time (not to exceed 90 days) to allow
Shareholder an opportunity to dissolve such injunction or order, and/or to allow
Buyer to obtain such PUC Approval. Shareholder and/or Buyer shall each use its
best efforts, including the bringing of any lawsuit, to dissolve such injunction
or order, or obtain such PUC Approval. If the injunction or order or PUC
Approval have not been resolved in a manner satisfactory to Buyer, in its sole
discretion, within such 90-day period, Buyer may terminate this Agreement. If
this Agreement is terminated pursuant to the provisions hereof, the Deposit,
together with interest thereon at the Interest Rate from the date paid to
Shareholder shall be immediately delivered by Shareholder to Buyer.
9.7 MATERIAL ADVERSE CHANGES. From the date hereof to the
Closing Date, neither the Company, the Business nor the Assets shall have been
materially adversely affected in any way, including, without limitation, by
fire, casualty, act of God or otherwise. There shall be no conditions existing
or threatened with respect to the Company, the Business or the Assets that might
be expected to have a material adverse effect on any of them.
9.8 REGULATORY COMPLIANCE AND APPROVALS. Except for PUC
Approval, the Buyer shall be satisfied that all approvals required
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<PAGE>
under any Regulations to carry out the Acquisition shall have been obtained and
that the parties shall have complied with all Regulations applicable to the
Acquisition.
9.9 CONSENTS. Except for PUC Approval, the Shareholder, or the
Company shall have delivered to the Buyer all consents required to be obtained
in connection with the Acquisition in order to avoid a Default under any
Contract (including any customer Contract) to or by which the Company is a party
or may be bound. The Company shall be free from burdensome restrictions and
conditions not applicable to the Company prior to the date of this Agreement.
9.10 BUYER REVIEW. The Buyer shall have completed and be
satisfied with its confidential review of the business, management, finances and
accounts receivable of the Company.
9.11 ESCROW AGREEMENT. The Buyer, the Shareholder and the
Escrow Agent shall have entered into the Escrow Agreement.
9.12 REGISTRATION RIGHTS AGREEMENT. The Buyer and the
Shareholder shall have entered into the Registration Rights Agreement.
9.13 CONSENTS AND APPROVALS. The Company shall have obtained
all consents and approvals necessary to complete the Acquisition and related
transactions.
9.14 LICENSES. All Licenses applicable to the Company and the
Business shall be in full force and effect and the consummation of the
transactions contemplated hereunder shall not constitute a default thereunder or
affect the operation of the Company or the Businesection
9.15 ENVIRONMENTAL LIABILITY. The total cost of the Remedial
Work, plus the Expenses (as defined in Section 2.6 hereof) will not exceed
$500,000.
9.16 SATISFACTION. The Loan shall be satisfied by Buyer at
Closing as provided in the Closing Payment as defined in Section 1.
9.17 ANCILLARY DOCUMENTS. Each entity other than the Buyer
which is a party to any of the Ancillary Documents shall have executed and
delivered such of the Ancillary Documents as it is a party thereto.
If the conditions precedent to the obligations of the Buyer to
close have not been satisfied on or before the Closing Date or the Extended
Closing Date, as applicable, Buyer may either (i) waive such condition(s)
precedent and proceed to close or (ii) terminate the Agreement.
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10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDER. Subject to
waiver as set forth in Section 11.10, the obligations of the Shareholder under
this Agreement are subject to the fulfillment prior to or at the Closing of each
of the following conditions:
10.1 BUYER REPRESENTATIONS TRUE AT CLOSING. The representations
and warranties of the Buyer set forth in Section 5 shall be true and correct on
the Closing Date with the same effect as if made at that time.
10.2 PERFORMANCE BY THE BUYER. The Buyer shall have performed
and satisfied all agreements and conditions which it is required by this
Agreement to perform or satisfy prior to or on the Closing Date.
10.3 OFFICER'S CERTIFICATE. The Shareholder shall have received
a certificate from an appropriate officer of the Buyer dated the Closing Date
certifying in such detail as the Shareholder may reasonably request that each of
the conditions described in Sections 10.1 and 10.2 has been fulfilled.
10.4 INCUMBENCY CERTIFICATE. The Shareholder shall have received
a certificate of the Secretary or an Assistant Secretary of the Buyer dated the
Closing Date certifying as to the incumbency of the officers of the Buyer
signing for it and as to the authenticity of their signatures.
10.5 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Buyer shall
be reasonably satisfactory to the Shareholder.
10.6 OPINION OF COUNSEL. The Shareholder shall have received the
written opinion of Olle, Macaulay & Zorrilla, P.A., counsel for the Buyer, dated
the Closing Date, in form and substance reasonably satisfactory to both said
firm and the Shareholder.
10.7 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Acquisition. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement.
10.8 REGULATORY COMPLIANCE AND APPROVAL. The Shareholder shall
be satisfied that all approvals required under any Regulations to carry out the
acquisition shall have been obtained and that the parties have complied with all
Regulations applicable to the Acquisition.
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10.9 ANCILLARY DOCUMENTS. The Buyer and any other applicable
person or entity shall have executed and delivered each of the Ancillary
Documents to which it is a party.
10.10 MATERIAL ADVERSE CHANGES. From the date hereof to the
Closing Date, the Buyer has not been materially adversely affected in any way.
There shall be no conditions existing or threatened with respect to the Buyer
that might be expected to have a material adverse effect upon the Buyer.
10.11 ESCROW AGREEMENT. The Buyer, the Shareholder and the
Escrow Agent shall have entered into the Escrow Agreement.
10.12 REGISTRATION RIGHTS AGREEMENT. The Buyer and the
Shareholder shall have entered into the Registration Rights Agreement.
10.13 SATISFACTION. The Loan shall be satisfied by Buyer at
Closing as provided in the Closing Payment as defined in Section 1.
11. MISCELLANEOUS.
11.1 NONCOMPETITION. From the Closing Date until the end of the
third year following the Closing Date (the "Noncompete Period"), the
Shareholder, unless acting in accordance with the Buyer's prior written consent,
will not (directly or indirectly), own, manage, operate, join, control, finance
or participate in the ownership, management, operation, control or financing of,
or be connected as an officer, director, employee, principal, agent,
representative, consultant, investor, owner, partner, manager, joint venturer or
otherwise with, or permit his name to be used by or in connection with, or
lease, sell or permit to use any real property or interest therein owned by the
Shareholder, for use in, any competing business or enterprise engaged in the
railroad business in the United States; provided, however, that the provisions
of this Section 11.1 shall not be deemed to prohibit the ownership by the
Shareholder, of not more than five percent of any class of securities of any
corporation having a class of securities registered pursuant to the Securities
Exchange Act of 1934. the Shareholder acknowledges that (1) the provisions of
this Section 11.1 are reasonable and necessary to protect the legitimate
interests of the Buyer, (2) any violation of this Section 11.1 will result in
irreparable injury to the Buyer and the Company and that damages at law would
not be reasonable or adequate compensation to the Buyer and the Company for a
violation of this Section 11.1, and (3) the Buyer and the Company shall be
entitled to have the provisions of this Section 11.1 specifically enforced by
preliminary and permanent injunctive relief without the necessity of proving
actual damages and without posting bond or other security. In the event that the
provisions of this Section 11.1 should ever be deemed to exceed the time,
geographic, product or
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any other limitations permitted by applicable law, then such provisions shall be
deemed reformed to the maximum permitted by applicable law.
11.2 NONSOLICITATION. the Shareholder agrees that, for the
Noncompete Period, he will not (directly or indirectly) call on or solicit for
the purpose of operating a company involved in the railroad business, or divert
or take away from the Company the business of (including, without limitation, by
divulging to any competitor or potential competitor of the Company or the Buyer
the name of), any person, firm, corporation or other entity who or which at the
Closing Date was, or at any time during the three years preceding the Closing
Date had been, a customer of the Company whose identity is known to the
Shareholder at the Closing Date as one whom the Company intends to solicit
within the succeeding year. Nothing contained in this Section 11.2 shall be
deemed to limit or impair, or be limited or impaired by, the provisions of
Section 11.1.
11.3 HIRING OF THE COMPANY'S EMPLOYEES. During the Noncompete
Period, the Shareholder will not (directly or indirectly) hire, offer or solicit
employment to any employee of the Company whose employment is continued by the
Company or the Buyer after the Closing Date, unless the Company or the Buyer
first terminates the employment of such employee. Nothing contained in this
Section 11.3 shall be deemed to affect in any manner any other provision of this
Agreement.
11.4 PAYMENT OF EXPENSES. The Shareholder and the Buyer will
each pay all legal, accounting and other fees and expenses which such party
incurs in connection with this Agreement and the transactions contemplated
hereby, and none of the expenses of the Shareholder shall be paid by the Company
or out of any of the Assets; provided, however, that if this Agreement is
legitimately terminated by Buyer pursuant to Section 11.6 or if the failure to
satisfy a condition of Closing arises out of the breach, existing at the time of
the execution of this Agreement, of a representation or warranty contained in
this Agreement, the Buyer shall be entitled to receive from the Shareholder
reimbursement of all third party expenses of the Buyer incurred between the date
of this Agreement and the date of termination.
11.5 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time on or prior to the Closing Date by mutual consent of the
Shareholder and the Buyer.
11.6 TERMINATION FOR BREACH. The Buyer may terminate its
obligations under this Agreement at any time prior to the Closing Date if the
Shareholder shall have breached any of its representations, warranties or other
obligations under this Agreement in any material respect. The Shareholder may
likewise terminate his obligations under this Agreement at any time prior to
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the Closing Date if the Buyer shall have breached any of its representations,
warranties or other obligations under this Agreement in any material respect.
Such termination may be effected by written notice from either the Buyer or the
Shareholder, as appropriate, citing the reasons for termination and shall not
subject the terminating party to any liability for any valid termination.
11.7 BROKERS' AND FINDERS' FEES. The Shareholder and the Buyer
each to the other represents and warrants that all negotiations relative to this
Agreement have been carried on by them directly without the intervention of any
person, firm, corporation or other entity who or which may be entitled to any
brokerage fee or other commission in respect of the execution of this Agreement
or the consummation of the transactions contemplated hereby, and each of them
shall indemnify and hold the other or any affiliate of them harmless against any
and all claims, losses, liabilities or expenses which may be asserted against
any of them as a result of any dealings, arrangements or agreements by the
indemnifying party with any such person, firm, corporation or other entity.
11.8 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned prior to the Closing by either party hereto without the prior written
consent of the other party. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the heirs, executors, legal representatives, successors
and assigns of the Shareholder and by the successors and assigns of the Buyer.
11.9 WAIVER. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
11.10 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally, or by a
nationally recognized overnight courier service (e.g., Federal Express or United
Parcel Service) to the address set forth below (to the attention of the person
identified below), as follows:
If to Buyer: First American Railways, Inc.
2445 Hollywood Boulevard
Hollywood, Florida 33020
Attn: Chief Financial Officer
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With required
copies to: Olle, Macaulay & Zorrilla, P.A.
1402 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
Attention: Dennis J. Olle, Esq.
If to the Shareholder Charles E. Bradshaw, Jr.
or Charles E. Bradshaw, 22900 N. O'Brien Road
Jr.: Howey-In-The-Hills, FL 32737
With required
copies to: Zimmerman Shuffield Kiser &
Sutcliffe, P.A.
315 E. Robinson, Suite 600
Orlando, Florida 32802
Attn: Stephen B. Hatcher, Esq.
If to the Escrow Agent: Olle, Macaulay & Zorrilla, P.A.
1402 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
Attn: Dennis J. Olle
or to such other address as the addressee may have specified in a notice duly
given to the sender and to counsel as provided herein. Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to have
been given as of the date so delivered or faxed or, if mailed, three business
days after the date so mailed.
11.11 DUTIES OF THE ESCROW AGENT WITH RESPECT TO THE DEPOSIT. In
the event the Escrow Agent is in doubt as to its duties and liabilities under
the provisions of this Agreement, in its sole discretion, the Escrow Agent may
continue to hold the Deposit until the parties mutually agree in writing to
disbursement thereof, or until a judgment of a court of competent jurisdiction
determines the rights of the parties thereto or it may interplead the Deposit
with the Clerk of the Circuit Court of Dade County, Florida. Upon notifying all
parties concerning such action, all liability on the part of the Escrow Agent
will fully cease and terminate, except to account for the Escrow Fund. All
parties agree that the Escrow Agent will not be liable to any party or person
whomsoever for misdelivery to the Buyer or the Shareholder of the Escrow Fund,
unless such misdelivery is due to willful breach of this Agreement or gross
negligence on the part of the Escrow Agent, nor will the Escrow Agent be liable
for the failure of any financial institution in which the Escrow Fund is placed.
The Shareholder and the Buyer agree that the status of the Buyer's counsel as
the Escrow Agent under this Contract does not disqualify such law firm from
representing the Buyer in connection with this transaction and in any dispute
that may arise between the Buyer and
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the Shareholder concerning this transaction, including any dispute or
controversy with respect to the Escrow Fund.
11.12 FLORIDA LAW TO GOVERN. This Agreement shall be governed
by and interpreted and enforced in accordance with the substantive laws of
Florida.
11.13 NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Company and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed as
conferring and are not intended to confer, any rights on any other persons.
11.14 CONTENTS OF AGREEMENT. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the parties
hereto with respect to the transactions contemplated hereby. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto,
and no claimed amendment, modification, termination or waiver shall be binding
unless in writing and signed by the party against whom such claimed amendment,
modification, termination or waiver is sought to be enforced.
11.15 SECTION HEADINGS AND GENDER. All section headings and the
use of a particular gender are for convenience only and shall in no way modify
or restrict any of the terms or provisions hereof. Any reference in this
Agreement to a Section, Exhibit or Disclosure Schedule shall be deemed to be a
reference to a Section, Exhibit or Disclosure Schedule of this Agreement unless
the context otherwise expressly requires.
11.16 DISCLOSURE SCHEDULES AND EXHIBITS. All attachments,
Exhibits and the Disclosure Schedule referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
11.17 COOPERATION. Subject to the provisions hereof, the parties
hereto shall use their best efforts to take, or cause to be taken, such action,
to execute and deliver, or cause to be executed and delivered, such additional
documents and instruments and to do, or cause to be done, all things necessary,
proper or advisable under the provisions of this Agreement and under applicable
law to consummate and make effective the transactions contemplated by this
Agreement. Buyer shall consent to the filing of a Code section 1362(e)(3)
election by the Company for the year in which the Closing occurs.
11.18 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in
46
<PAGE>
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
11.19 LITIGATION; PREVAILING PARTY. In the event that any party
hereto brings suit for any matter arising out of or in connection with a breach
of any of the terms or provisions of this Agreement, then the prevailing party
shall be entitled to recover from the non-prevailing party all reasonable court
costs and attorneys' fees and expenses incurred by the prevailing party in
connection with such litigation at the arbitration, pre-trail, trial and
appellate levels.
11.20 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which is an original and all of which together shall
be deemed to be one and the same instrument. This Agreement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by all of the parties. It shall not be necessary in making proof of
this Agreement or any counterpart hereof to produce or account for any of the
other counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
WITNESSES: THE SHAREHOLDER:
[ILLEGIBLE] /s/ CHARLES E. BRADSHAW, JR.
- ------------------------------ -------------------------------
Charles E. Bradshaw, Jr.
[ILLEGIBLE]
- ------------------------------
THE COMPANY:
[ILLEGIBLE] /s/ CHARLES E. BRADSHAW, JR.
- ------------------------------ By: ----------------------------
Charles E. Bradshaw, Jr.
[ILLEGIBLE] President
- ------------------------------
BUYER:
FIRST AMERICAN RAILWAYS, INC.,
a Nevada corporation
[ILLEGIBLE] /s/ WILLIAM T. NANOVSKY
- ------------------------------ By: ----------------------------
William T. Nanovsky, Chief
[ILLEGIBLE] Financial Officer
- ------------------------------
47
<PAGE>
ESCROW AGENT:
OLLE, MACAULAY & ZORRILLA, P.A.
[ILLEGIBLE] /s/ DENNIS J. OLLE
- ------------------------------ By: ---------------------------
Dennis J. Olle, President
[ILLEGIBLE]
- ------------------------------
JOINING IN FOR PURPOSES OF
AGREEING TO GUARANTEE AND
COLLATERALIZE (SET FORTH IN
SECTIONS 2.1 AND 3.3G):
/s/ ALLEN C. HARPER
--------------------------------
Allen C. Harper
48
<PAGE>
ADDENDUM TO SHARE PURCHASE AGREEMENT
THIS ADDENDUM TO SHARE PURCHASE AGREEMENT, (the "Addendum") is to that
certain Share Purchase Agreement dated as of December 10, 1996, by and between
CHARLES E. BRADSHAW, JR., as Shareholder and FIRST AMERICAN RAILWAYS, INC., a
Nevada corporation, as Buyer (the "Contract").
W I T N E S S E T H:
WHEREAS, the Shareholder and the Buyer entered into the Contract for
the purpose of Buyer's purchase of all of the issued and outstanding shares of
capital stock of The Durango & Silverton Narrow Gauge Railroad Company (the
"Company"); and
WHEREAS, Buyer has requested that Shareholder modify the Contract as
further described hereinbelow; and
WHEREAS, the Shareholder has agreed to modify the Contract and accept
Buyer's revised terms of purchase but only upon certain conditions which are
also set forth hereinbelow.
NOW, THEREFORE, the Buyer and Shareholder, in consideration of the sum
of $10.00 and other good and valuable consideration, the receipt and sufficiency
of which is acknowledged by both parties hereto, further agree to modify the
terms of the Contract as follows:
AGREEMENTS
1. The above recitals are incorporated herein as true and correct and
are made a part hereof by this reference as are the existing terms of the
Contract, if not otherwise in conflict with this Addendum. In the event of any
conflict between this Addendum and the terms of the Contract, the terms of this
Addendum shall control, and the terms of the Contract shall be modified
accordingly.
2. Buyer shall acquire the Shares by delivery of the Buyer Note (as
modified and attached hereto as Exhibit "A") and the additional two Promissory
Notes attached hereto as Exhibits "B" and "C", respectively (all three
collectively referred to as the "Notes"). The terms of the Notes shall be as
shown in the attached Exhibits "A", "B" and "C". The Notes shall be subordinate
to the Loan as described in the Contract and any loan replacing the Loan secured
by Buyer but only to a limit of $8.5 million net of liquid collateral. Upon
closing of any such replacement loan, the Buyer must satisfy the promissory note
attached as Exhibit "B". In lieu of delivering the promissory note shown as
Exhibit "B", Buyer may pay Shareholder the principal amount thereof at Closing
by cashier's check or wire transfer. The Notes shall be secured in the same
fashion as described in the Contract concerning the Buyer Note. Allen C. Harper
shall personally guaranty the payment, performance and
<PAGE>
collection of the promissory notes attached as Exibits "A" and "C". Raymond
Monteleone shall personally guaranty the payment, performance and collection of
the promissory note attached as Exhibit "C" hereto. The terms of any
documentation (other than the current documentation already in place for the
Loan) to which the Notes are subordinated shall be reasonable and customary and
must be approved in writing by the Shareholder, which approval shall not be
unreasonably withheld.
3. As part of the Purchase Price, the Shareholder shall receive an
additional 1,010,000.00 warrants in addition to the 600,000.00 warrants already
shown in the Contract. The exercise price for the original warrants and the
additional warrants shall be $3.50 per share. The time period for exercising the
warrants is extended to six (6) years from Closing. The terms of the Warrant
shall be modified accordingly.
4. The amount of the Promissory Note shown at Exhibit "B" attached
hereto shall be the amount of $13,800,000.00 less (i) the principal amount
outstanding under the Loan as of Closing and (ii) the amount of $6.4 million.
5. The provisions of the Contract relating to the Escrow Agreement, the
Escrow Fund and the Escrow Agent are deleted. Buyer shall provide Shareholder
with copies of paid invoices for any Remedial Work and Shareholder shall
reimburse Buyer as required in the Contract. Before authorizing Remedial Work,
Buyer shall provide Shareholder written notice of the nature of such work and
the expected cost thereof. If Shareholder does not reasonably object to same
within seven (7) days of receipt, Buyer may authorize the Remedial Work and,
after completion of same, shall provide Shareholder with a paid invoice for
same. Shareholder shall pay to Buyer fifty percent (50%) of such invoice,
subject to the limitation of Shareholder's liability found in the Contract,
within seven (7) days of receipt of such invoice. If such payment is not made to
Buyer, Buyer may offset such sum against the next following interest payment
under the Notes.
6. The provisions of Section 2.7 of the Contract requiring a
Post-Closing Adjustment are deleted. The balance sheet for the Company as of
January 31, 1997 is attached as Exhibit "D" hereto and is represented by
Shareholder to be correct in all material respects; further, the accounts
payable of $398,590 due as of January 31, 1997 have been reduced by $128,000 and
the accrued wages and payroll taxes due as of that date have been paid in full,
all from sources outside of D&SNG. Buyer shall be responsible for directly
funding the cash flow requirements of the Company between the execution hereof
and the Closing pursuant to the agreement attached as Exhibit "E" hereto. A
portion of the $338,076 RRTA liability shown on the January 31, 1997 balance
sheet is being advanced, including an interest factor, and is being paid by
Shareholder to employees prior to Closing. At Closing, Buyer shall repay such
sum to Shareholder.
7. The requirement under Section 3.3 of the Contract that Shareholder
deliver to the Buyer a release of the GECC guaranty are modified so that the
Shareholder can make such delivery within thirty (30) days following Closing.
Shareholder shall use his best efforts to obtain such release and shall fully
indemnify Buyer for same in the event the release cannot be obtained.
2
<PAGE>
8. Due to the increase in the amount of purchase money financing being
held by the Shareholder, both parties recognize the Shareholder's potential
liability for payments under Section 453A of the Code. Buyer has agreed to
compensate Shareholder for any impact of the potential Section 453A liability as
a contingent increase in the Purchase Price for the Shares. On or before
December 31st of each year following the date of the Closing, including the year
of Closing, Buyer shall pay to Shareholder the amount due under Section 453A(c)
for such year (the "Deferred Tax Liability") plus an additional amount resulting
from an interrelated computation intended to "gross-up" any payments by the
individual capital gains rate then applicable to Shareholder in order to
compensate the Shareholder for the additional income tax ramifications of his
receipt of any payments under this provision (in total the "Deferred Tax
Liability Payment"). Buyer shall then receive a corresponding credit for the
income tax savings to Shareholder resulting from the allowance of the Deferred
Tax Liability as an interest deduction under Section 453A(c)(5), which credit
may be applied by Buyer against the next following interest payment required
under the Notes.
9. In the event of the assessment of a prepayment penalty in connection
with the Loan, either at the Closing or upon a later repayment of the Loan, each
party shall pay one-half (1/2) of such penalty at the time of such payment.
10. Following Closing, Buyer shall allow Shareholder the personal
privilege of continuing his past practice of issuing Ambassador Cards and
complimentary fare tickets to third parties solely for the benefit of Company
and its marketing efforts, in his reasonable discretion so long as such action
by Shareholder is consistent with past practice.
11. Buyer and Shareholder contemplate that the manner of execution,
delivery and acceptance of the Notes shall occur in such a fashion that the
Notes will not be subject to documentary stamp taxes under the Florida Statutes.
Notwithstanding this expectation, Buyer shall be liable for payment of any such
taxes and any costs, fines, or penalties imposed thereon, regardless of when
same are imposed or against whom same are imposed, and shall fully indemnify
Shareholder for same. Buyer further waives any defenses to enforcement or
collection of the Notes due to non-payment of documentary stamp taxes as
provided in Florida Statutes section 201.08.
IN WITNESS WHEREOF, the parties hereto have duly executed this Addendum
as of the day and year first above written.
Witnesses: "SHAREHOLDER"
[ILLEGIBLE] /s/ CHARLES E. BRADSHAW, JR.
- ------------------------------ --------------------------------------
Print Name:___________________ Charles E. Bradshaw, Jr.
/s/ DENNIS A. OLLE
- ------------------------------
Print Name: Dennis J. Olle
3
<PAGE>
"THE COMPANY"
/s/ [ILLEGIBLE] /s/ CHARLES E. BRADSHAW, JR.
- ------------------------------ By: -----------------------------------
Print Name:___________________ Charles E. Bradshaw, Jr.
as its President
/s/ DENNIS J. OLLE
- ------------------------------
Print Name: Dennis J. Olle
"BUYER"
FIRST AMERICAN RAILWAYS, INC.
a Nevada corporation
/s/ DENNIS J. OLLE /s/ RAYMOND MONTELEONE
- ------------------------------ By: -----------------------------------
Print Name: Dennis J. Olle Name: Raymond Monteleone
as its President & Chief Operating
Officer
[ILLEGIBLE]
- ------------------------------
Print Name: __________________
JOINING IN FOR THE PURPOSE OF AGREEING TO
ADDITIONALLY GUARANTY AS SET FORTH HEREIN:
- ------------------------------ ---------------------------------------
Print Name:___________________ Allen C. Harper
- ------------------------------
Print Name:___________________
/s/ DENNIS J. OLLE /s/ RAYMOND MONTELEONE
- ------------------------------ ---------------------------------------
Print Name: Dennis J. Olle Raymond Monteleone
[ILLEGIBLE]
- ------------------------------
Print Name:___________________
4
SUBORDINATE TO NATIONSBANK, N.A. (SOUTH) PURSUANT TO
INTERCREDITOR AGREEMENT DATED MARCH 13, 1997
PROMISSORY NOTE
$4,200,000.00 (U.S.) Nassau, Bahamas
March 13, 1997
FOR VALUE RECEIVED, the undersigned, FIRST AMERICAN RAILWAYS, INC., a
Nevada corporation, having an address at 2445 Hollywood Boulevard, Hollywood
33020 (hereinafter, the "MAKER"), promises to pay to the order of Charles E.
Bradshaw, Jr., his successors or assigns (collectively hereinafter referred to
as the "HOLDER") at Post Office Box 3508, Orlando, Florida 32802, or such other
place as the Holder may from time to time designate in writing, the principal
sum of FOUR MILLION TWO HUNDRED THOUSAND DOLLARS ($4,200,000.00), with interest
thereon from the above date, to be paid in lawful money of the United States of
America, which shall be legal tender in payment of all debts and dues, public
and private, at the time of payment, as follows:
From the date of this Promissory Note (the "Note") through the first
anniversary hereof (the "Maturity Date"), as may be extended pursuant to the
provisions hereof, interest only shall be paid on this Note at a rate equal to
the rate published in the "Money Rates" column of The WALL STREET JOURNAL (or if
such rate or The WALL STREET JOURNAL is no longer published, then any publicly
available source of similar market data designated by Holder) and described as
"High-grade unsecured notes sold through dealers by major corporations" and with
a stated maturity date of 30 days (the "Commercial Paper Rate") which Commercial
Paper Rate shall be determined on the closing date and adjusted monthly on the
15th day of each month during the term of the Note, plus 650 basis points, with
such interest to be paid in installments commencing on the fifteenth day of the
first month following the date hereof and on the fifteenth day of each
succeeding month thereafter.
The outstanding principal balance of this Note, together with all
accrued and unpaid interest thereon, shall be due and payable on the Maturity
Date, as may be extended pursuant to the provisions hereof. Maker shall have a
right to extend the Maturity Date to a date eighteen months from the date
hereof, provided that on or before the Maturity Date, Maker delivers to Holder
(i) written notice of its election to so extend the Maturity Date, and (ii) a
wire transfer in the amount of one percent of the then outstanding principal
balance of this Note as an extension fee and not as a payment under this Note.
Holder may elect to receive repayment of this Note in one of two ways:
either (a) by cash, wire transfer or bank check; or (b) by delivery of
freely-tradeable shares of common stock of Maker (the "First American Shares"),
by delivering written notice to Maker of its election on or before 10 business
days before the Maturity Date. If no such notice is given by Maker, Maker shall
be deemed
1
<PAGE>
to have elected (a). If Holder elects to receive First American Shares as
payment for the Note, the number of First American Shares to be delivered to
Holder shall be determined as follows: (x) if the closing sales price of First
American Shares as of the date of the payoff of the Note is equal to or exceeds
five dollars per share, then Maker shall deliver to Holder the number of First
American Shares equal to the amount being paid off (the "Pay Off Amount")
divided by five, or (y) if the market price of the First American Shares is less
than five dollars per share, then Maker shall deliver to Holder the number of
First American Shares equal to the Pay Off Amount divided by the closing sales
price of a share of First American common stock as reported on the marketplace
for the Company's common stock on the date of the payoff of the Note. Maker will
assist Holder in selling the First American Shares. To the extent Holder
disposes of some or all of such First American Shares during the 60-day period
following receipt thereof in a public sale at a price (net of commissions) which
results in Holder receiving less on a per share basis than would be necessary
for Holder to realize the Pay Off Amount if all the First American Shares
delivered to Holder pursuant to x or y above were sold within such 60-day
period, then Maker shall pay to Holder within ten days after said sixty day
period the shortfall for such First American Shares actually sold by cash,
wire-transfer or bank check; provided, however, if Holder is unable by reason of
being a director or "control person" of First American Railways, Inc., or by
virtue of some similar statutory or regulatory restriction beyond Maker's
control, to publicly sell the subject shares during such 60-day period, such
period shall be tolled until the First American Shares may be sold by Holder. If
Holder elects to receive payment pursuant to (a) above, the Maturity Date may be
extended, at Maker's option, to a date thirty-six months from the date hereof by
Maker delivering written notice of such election to Holder at least two business
days prior to the Maturity Date.
All payments made hereunder shall be applied first to accrued and
unpaid interest, and the balance, if any, to the principal amount outstanding.
This Note is secured by a Second Deed of Trust dated as of even date
herewith given by The Durango & Silverton Narrow Gauge Railroad Company (the
"Company"), a wholly-owned subsidiary of Maker, to Holder (the "Mortgage") , and
Uniform Commercial Code Financing Statements dated as of even date herewith
given by the Company to Holder (the "UCCs") , and certain other documents
executed in conjunction herewith, all as amended from time to time (the Note,
the Mortgage, the UCCs and the other documents shall collectively hereafter be
referred to as the "Loan Documents").
This Note and the Loan Documents are subordinate to the lien of that
certain loan given to the Company by NationBank, N.A. (South), executed
contemporaneously herewith, pursuant to an Intercreditor Agreement between such
lender and HOLDER (the "Replacement Loan"). The covenants, conditions and
requirements imposed upon the borrower under either the Loan Documents or the
Replacement Loan are incorporated herein by this reference and are affirmed by
MAKER as an integral part of this Note and shall continue to be binding upon
MAKER (as to the Loan Documents) and upon the Company (as to the Loan Documents
and the Replacement Loan) even after repayment or other termination of the
Replacement Loan so long as this Note remains outstanding; provided, however,
that those conditions existing for the Company prior to the date
2
<PAGE>
hereof which may be a default under the Replacement Loan shall not constitute a
cross- default hereunder.
MAKER may make prepayment(s) hereunder in whole or in part at any time
and from time to time without premium or penalty.
It is agreed hereby that if any payment of the outstanding principal
balance, or any installment thereof, or any interest thereon, is not made as
above provided; or if default be made in the performance of or compliance with
any of the covenants and conditions of the aforesaid Loan Documents or of the
Replacement Loan, or of any other obligation of MAKER to HOLDER; or upon the
insolvency, bankruptcy or dissolution of the Maker hereof; then, in any or all
such events, the entire amount of principal of this Note with all interest then
accrued, shall, at the option of the Holder and without notice (the Maker hereby
expressly waives notice of such default) become and be due and collectible, time
being of the essence of this Note. If this Note shall not be paid at maturity or
according to the tenor thereof and strictly as above provided, it may be placed
in the hands of an attorney at law for collection, and in that event, each party
liable for the payment hereof, as Maker, endorser, guarantor, or otherwise,
hereby agrees to pay the Holder hereof in addition to the sums above stated, all
of Holder's reasonable costs of collection and attorneys' fees, which shall
include attorneys' fees at prelitigation, pretrial, trial and appellate levels.
After maturity or default, and continuing until repayment of this Note
in full, whether pre or post judgement, or the default is cured, as applicable,
this Note shall bear interest at the highest rate permitted under then
applicable law; provided, however, in the event there is then no such highest
rate applicable, or in the event said highest rate is otherwise indeterminable,
the parties agree that the applicable rate shall be eighteen percent (18%) per
annum; provided, however, in no event shall such rate exceed the highest rate
permissible under the applicable law in effect from time to time.
Whether or not Holder has exercised its right to accelerate this Note
as hereinabove provided, in the event any required payment hereunder is not
received by Holder within fifteen (15) days after said payment is due, Maker
shall pay Holder a late charge of two and one-half percent (2 1/2%) of the
overdue payment the parties agreeing that said charge is a fair and reasonable
charge for the late payment and shall not be deemed a penalty. As to this Note
and any other instruments securing the indebtedness evidenced hereby, to the
fullest extent allowable by law, Maker, endorsers and guarantors severally: (i)
waive all applicable exemption rights, whether under the Florida Constitution,
Florida or United States laws or otherwise; (ii) waive valuation and
appraisement, presentment, protest and demand, notice of protest, demand and
dishonor and nonpayment of this Note; and (iii) expressly agree to any
substitution, exchange, addition or release of any of the security for the
indebtedness evidenced by this Note or the addition or release of any party or
person primarily or secondarily liable hereon.
Nothing contained herein, nor in any instrument or transaction related
hereto, shall be construed or so operate as to require the Maker, or any person
liable for the payment of the indebtedness evidenced by this Note, to pay
interest in an amount or at a rate greater than the highest rate permissible
under applicable law in effect from time to time. Should any interest or other
charges
3
<PAGE>
paid by the Maker, or any parties liable for the payment of the indebtedness
evidenced by this Note, result in the computation or earning of interest in
excess of the highest rate permissible under applicable law in effect from time
to time, then any and all such excess shall be and the same is hereby waived by
the Holder hereof, and all such excess shall be automatically credited against
and in reduction of the principal balance, and any portion of said excess which
exceeds the principal balance shall be paid by the Holder hereof to the Maker
and any parties liable for the payment of the indebtedness evidenced by this
Note, it being the intent of the parties hereto that under no circumstances
shall the Maker be required to pay interest in excess of the highest rate
permissible under applicable law in effect from time to time. The Holder may, in
determining the maximum rate permitted under applicable law in effect from time
to time, take advantage of any law, rule or regulation in effect from time to
time available to Holder which exempts Holder from any limits upon the rate of
interest it may charge and grants to Holder the right to charge a higher rate of
interest than that otherwise permitted by law.
This Note is to be construed according to the laws of the State of
Florida and the United States of America. Venue for any action involving this
Note shall be in the United States District Court for Colorado or any court of
general jurisdiction in Colorado.
FIRST AMERICAN RAILWAYS, INC.,
a Nevada corporation
(Corporate Seal)
By: /S/ RAYMOND MONTELEONE
---------------------------------
Raymond Monteleone, President
THE COMMONWEALTH OF
THE BAHAMAS
The foregoing instrument was executed and acknowledged before me this
13th day of March, 1997, by RAYMOND MONTELEONE, President of FIRST AMERICAN
RAILWAYS, INC., a Nevada corporation, on its behalf.
/S/ CHERISE F. V. COX
---------------------------------
Signature of Notary Public
/S/ CHERISE F. V. COX
---------------------------------
Type, Print or Stamp name of
Notary Public
Personally Known _________________ OR Produced Identification U.S. PASSPORT
Type of identification produced: _____________________________________________
4
<PAGE>
RECEIPT
Received the original of the attached Promissory Note on March 13, 1997.
/S/ L. CLEVELAND HIGHTOWER
------------------------------------
L. CLEVELAND HIGHTOWER, as agent for
CHARLES E. BRADSHAW, JR.
THE COMMONWEALTH OF
THE BAHAMAS
I HEREBY CERTIFY THAT on this day, before me, an officer duly
authorized in the State and County aforesaid to take acknowledgements,
personally appeared L. Cleveland Hightower, to me known to be the person
described in and who executed the foregoing instrument and acknowledged before
me that he executed the same.
WITNESS my hand and official seal in the State and County aforesaid this 13th
day of March, 1997.
/S/ CHERISE F. V. COX
---------------------------------
Notary Public
My commission expires:
<PAGE>
AFFIDAVIT FOR EXECUTION OF PROMISSORY NOTE
WITHOUT THE STATE OF FLORIDA
THE COMMONWEALTH OF
THE BAHAMAS
BEFORE ME, the undersigned Notary Public, duly authorized in the County
and State aforesaid to administer oaths and take acknowledgements, personally
appeared the undersigned, to me well known and to me known to be the persons set
forth below who witnessed the execution and delivery of the attached Promissory
Note, and who, first being duly sworn by me did each depose, say and acknowledge
before me that they were present at the time that the said Promissory Note was
executed, that they saw the same executed and delivered by Raymond Monteleone,
and that the other subscribing witness was likewise present and witnessed the
execution and delivery of the foregoing Promissory Note, to a representative of
Charles E. Bradshaw, Jr. at the city of Nassau, Commonwealth of the Bahamas, on
the date written below.
/S/ STEVEN B. HATCHER
-----------------------------------
Subscribing Witness
Print Name: STEPHEN B. HATCHER
Address: 1131 Banburg Trail
Maitland, Florida 32257
/S/ ILLEGIBLE
-----------------------------------
Subscribing Witness
Print Name: ILLEGIBLE
Address: 1 Financial Plaza
Ft. Lauderdale, Fl 33304
SWORN TO AND SUBSCRIBED before me and acknowledged to me this 13th day
of March, 1997.
/S/ CHERISE F. V. COX
---------------------------------
Notary Public, COMMONWEALTH OF
THE BAHAMAS
Print Name: CHERISE F. V. COX
Address: 83 Shady Street
Nassau, Bahamas
My Commission Expires: Dec. 31 1997
My Commission No. is: N/A
SUBORDINATE TO NATIONSBANK, N.A. (SOUTH) PURSUANT TO
INTERCREDITOR AGREEMENT DATED MARCH 13, 1997
PROMISSORY NOTE
$5,850,000.00 (U.S.) Nassau, Bahamas
March 13, 1997
FOR VALUE RECEIVED, the undersigned, FIRST AMERICAN RAILWAYS, INC., a
Nevada corporation, having an address at 2445 Hollywood Boulevard, Hollywood
33020 (hereinafter, the "MAKER"), promises to pay to the order of Charles E.
Bradshaw, Jr., his successors or assigns (collectively hereinafter referred to
as the "HOLDER") at Post Office Box 3508, Orlando, Florida 32802, or such other
place as the Holder may from time to time designate in writing, the principal
sum of FIVE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS ($5,850,000.00), with
interest thereon from the above date, to be paid in lawful money of the United
States of America, which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, as follows:
From the date of this Promissory Note (the "Note") through the fifth
anniversary hereof (the "Maturity Date"), interest only shall be paid on this
Note at a rate equal to the following schedule:
Year 1 9.25% per annum
Year 2 9.25% per annum
Year 3 9.75% per annum
Year 4 10.00% per annum
Year 5 10.00% per annum
Such interest is to be paid in quarterly installments commencing on the
fifteenth day of the third month following the date hereof and on the fifteenth
day of each third succeeding month thereafter.
The outstanding principal balance of this Note, together with all
accrued and unpaid interest thereon, shall be due and payable on the Maturity
Date. Additionally, MAKER shall also pay to HOLDER on or before December 31st of
each year, as applicable, the Deferred Tax Liability Payment as described in
that Addendum to Share Purchase Agreement between MAKER as Buyer and HOLDER as
Shareholder , the applicable terms of which are incorporated herein by this
reference.
All payments made hereunder, other than the aforementioned Deferred Tax
Liability Payment, shall be applied first to accrued and unpaid interest, and
the balance, if any, to the principal amount outstanding.
1
<PAGE>
This Note is secured by a Second Deed of Trust dated as of even date
herewith given by The Durango & Silverton Narrow Gauge Railroad Company (the
"Company"), a wholly-owned subsidiary of Maker, to Holder (the "Mortgage") , and
Uniform Commercial Code Financing Statements dated as of even date herewith
given by the Company to Holder (the "UCCs") , and certain other documents
executed in conjunction herewith, all as amended from time to time (the Note,
the Mortgage, the UCCs and the other documents shall collectively hereafter be
referred to as the "Loan Documents").
This Note and the Loan Documents are subordinate to the lien of that
certain loan given to the Company by NationsBank, N.A. (South), executed
contemporaneously herewith, pursuant to an Intercreditor Agreement between such
lender and HOLDER (the "Replacement Loan"). The covenants, conditions and
requirements imposed upon the borrower under either the Loan Documents or the
Replacement Loan are incorporated herein by this reference and are affirmed by
MAKER as an integral part of this Note and shall continue to be binding upon
MAKER (as to the Loan Documents) and upon the Company (as to the Loan Documents
and the Replacement Loan) even after repayment of the Replacement Loan so long
as this Note remains outstanding; provided, however, that those conditions
existing for the Company prior to the date hereof which may be a default under
the Replacement Loan shall not constitute a cross- default hereunder.
MAKER may make prepayment(s) hereunder in whole or in part at any time
and from time to time without premium or penalty.
It is agreed hereby that if any payment of the outstanding principal
balance, or any installment thereof, or any interest thereon, is not made as
above provided; or if default be made in the performance of or compliance with
any of the covenants and conditions of the aforesaid Loan Documents or of the
Replacement Loan, or of any other obligation of MAKER to HOLDER; or upon the
insolvency, bankruptcy or dissolution of the Maker hereof; then, in any or all
such events, the entire amount of principal of this Note with all interest then
accrued, shall, at the option of the Holder and without notice (the Maker hereby
expressly waives notice of such default) become and be due and collectible, time
being of the essence of this Note. If this Note shall not be paid at maturity or
according to the tenor thereof and strictly as above provided, it may be placed
in the hands of an attorney at law for collection, and in that event, each party
liable for the payment hereof, as Maker, endorser, guarantor, or otherwise,
hereby agrees to pay the Holder hereof in addition to the sums above stated, all
of Holder's reasonable costs of collection and attorneys' fees, which shall
include attorneys' fees at prelitigation, pretrial, trial and appellate levels.
After maturity or default, and continuing until repayment of this Note
in full, whether pre or post judgement, or the default is cured, as applicable,
this Note shall bear interest at the highest rate permitted under then
applicable law; provided, however, in the event there is then no such highest
rate applicable, or in the event said highest rate is otherwise indeterminable,
the parties agree that the applicable rate shall be eighteen percent (18%) per
annum; provided, however, in no event shall such rate exceed the highest rate
permissible under the applicable law in effect from time to time.
2
<PAGE>
Whether or not Holder has exercised its right to accelerate this Note
as hereinabove provided, in the event any required payment hereunder is not
received by Holder within fifteen (15) days after said payment is due, Maker
shall pay Holder a late charge of two and one-half percent (2 1/2%) of the
overdue payment the parties agreeing that said charge is a fair and reasonable
charge for the late payment and shall not be deemed a penalty. As to this Note
and any other instruments securing the indebtedness evidenced hereby, to the
fullest extent allowable by law, Maker, endorsers and guarantors severally: (i)
waive all applicable exemption rights, whether under the Florida Constitution,
Florida or United States laws or otherwise; (ii) waive valuation and
appraisement, presentment, protest and demand, notice of protest, demand and
dishonor and nonpayment of this Note; and (iii) expressly agree to any
substitution, exchange, addition or release of any of the security for the
indebtedness evidenced by this Note or the addition or release of any party or
person primarily or secondarily liable hereon.
Nothing contained herein, nor in any instrument or transaction related
hereto, shall be construed or so operate as to require the Maker, or any person
liable for the payment of the indebtedness evidenced by this Note, to pay
interest in an amount or at a rate greater than the highest rate permissible
under applicable law in effect from time to time. Should any interest or other
charges paid by the Maker, or any parties liable for the payment of the
indebtedness evidenced by this Note, result in the computation or earning of
interest in excess of the highest rate permissible under applicable law in
effect from time to time, then any and all such excess shall be and the same is
hereby waived by the Holder hereof, and all such excess shall be automatically
credited against and in reduction of the principal balance, and any portion of
said excess which exceeds the principal balance shall be paid by the Holder
hereof to the Maker and any parties liable for the payment of the indebtedness
evidenced by this Note, it being the intent of the parties hereto that under no
circumstances shall the Maker be required to pay interest in excess of the
highest rate permissible under applicable law in effect from time to time. The
Holder may, in determining the maximum rate permitted under applicable law in
effect from time to time, take advantage of any law, rule or regulation in
effect from time to time available to Holder which exempts Holder from any
limits upon the rate of interest it may charge and grants to Holder the right to
charge a higher rate of interest than that otherwise permitted by law.
This Note is to be construed according to the laws of the State of
Florida and the United States of America. Venue for any action involving this
Note shall be in the United States District Court for Colorado or any court of
general jurisdiction in Colorado.
FIRST AMERICAN RAILWAYS, INC.,
a Nevada corporation
(Corporate Seal)
By: /S/RAYMOND MONTELEONE
-----------------------------
Raymond Monteleone, President
3
<PAGE>
COMMONWEALTH OF THE BAHAMAS
The foregoing instrument was executed and acknowledged before me this
13th day of March, 1997, by RAYMOND MONTELEONE, as President of
FIRST AMERICAN RAILWAYS, INC., a Nevada corporation, on its behalf.
/S/ CHERISE F. V. COX
----------------------------------
Signature of Notary Public
/S/ CHERISE F. V. COX
----------------------------------
Type, Print or Stamp name of Notary
Public
Personally Known _______________ OR Produced Identification U.S. PASSPORT
Type of identification produced:_______________________________________________
4
<PAGE>
RECEIPT
Received the original of the attached Promissory Note on March 13, 1997.
/S/ L. CLEVELAND HIGHTOWER
------------------------------------
L. CLEVELAND HIGHTOWER, as agent for
CHARLES E. BRADSHAW, JR.
THE COMMONWEALTH OF
THE BAHAMAS
I HEREBY CERTIFY THAT on this day, before me, an officer duly
authorized in the State and County aforesaid to take acknowledgements,
personally appeared L. Cleveland Hightower, to me known to be the person
described in and who executed the foregoing instrument and acknowledged before
me that he executed the same.
WITNESS my hand and official seal in the COMMONWEALTH aforesaid this 13th
day of March, 1997.
/S/ CHERISE F. V. COX
---------------------------------
Notary Public
My commission expires: Dec. 31, 1997
<PAGE>
AFFIDAVIT FOR EXECUION OF PROMISSORY NOTE
WITHOUT THE STATE OF FLORIDA
THE COMMONWEALTH OF
THE BAHAMAS
BEFORE ME, the undersigned Notary Public, duly authorized in the County
and State aforesaid to administer oaths and take acknowledgements, personally
appeared the undersigned, to me well known and to me known to be the persons set
forth below who witnessed the execution and delivery of the attached Promissory
Note, and who, first being duly sworn by me did each depose, say and acknowledge
before me that they were present at the time that the said Promissory Note was
executed, that they saw the same executed and delivered by Raymond Monteleone,
and that the other subscribing witness was likewise present and witnessed the
execution and delivery of the foregoing Promissory Note, to a representative of
Charles E. Bradshaw, Jr. at the City of Nassau, Commonwealth of the Bahamas, on
the date written below.
/S/ STEVEN B. HATCHER
-----------------------------------
Subscribing Witness
Print Name: STEPHEN B. HATCHER
Address: 1131 Banburg Trail
Maitland, Florida 32751
/S/ ILLEGIBLE
-----------------------------------
Subscribing Witness
Print Name: ILLEGIBLE
Address: 1 Financial Plaza
Ft. Lauderdale, Fl 33304
SWORN TO AND SUBSCRIBED before me and acknowledged to me this 13th day
of March, 1997.
/S/ CHERISE F. V. COX
---------------------------------
Notary Public, COMMONWEALTH OF
THE BAHAMAS
Print Name: CHERISE F. V. COX
Address: 83 Shirly Street
Nassau, Bahamas
My Commission Expires: Dec. 31, 1997
My Commission No. is: N/A
REGISTRATION RIGHTS AND PRICE GUARANTY AGREEMENT
AGREEMENT dated as of March 13, 1997, between CHARLES E. BRADSHAW,
JR., (the "Shareholder"), and FIRST AMERICAN RAILWAYS, INC., a Nevada
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, upon consummation of the transactions contemplated in a
certain Share Purchase Agreement dated as of December, 1996 (the "Share Purchase
Agreement"), the Shareholder will become the owner of 200,000 shares of the
Company's common stock, par value $.001 (the "Initial Shares") and a six-year
warrant (the "Warrant") to purchase 1,610,000 shares of the Company's common
stock at an exercise price of $3.50 per share (the Initial Shares and the common
stock underlying the Warrant shall hereafter collectively be referred to as the
"Common Stock"); and
WHEREAS, it is a condition of the Share Purchase Agreement that the
Company enter into a registration rights agreement with the Shareholder; and
WHEREAS, the Company wishes to grant to the Shareholder certain
registration rights with respect to the Common Stock upon the terms and
conditions set forth herein; and
WHEREAS, the parties have agreed that during the period beginning two
years after the date hereof and ending three years after the date hereof the
Company shall be obligated to guaranty, pursuant to the terms hereof, that the
Shareholder will receive a minimum of $5.00 per share for each of the Initial
Shares sold.
NOW THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties hereto agree as follows:
1. REGISTRATION.
1.1 DEFINITIONS. As used in this Agreement, unless the context
otherwise requires, the following terms have the following respective meanings:
COMMISSION: the Securities and Exchange Commission or any
other governmental authority at the time administering the Securities Act.
REGISTRATION EXPENSES: all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation, all registration and filing fees, all fees and expenses of complying
with securities or blue sky laws, all printing expenses, the fees and
disbursements of counsel for the Company and of independent public accountants,
the reasonable fees
1
<PAGE>
and disbursements of counsel retained by Shareholder (which shall not exceed
$15,000), and the expense of any special audits required by or incident to such
performance and compliance (but excluding underwriting discounts and
commissions, underwriter expense allowance (or reimbursement therefor) and
transfer taxes, if any).
SECURITIES:
(a) the Common Stock acquired by the Shareholder pursuant to
the Share Purchase Agreement; and
(b) any securities issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of,
such Common Stock.
SECURITIES ACT: the Securities Act of 1933, as amended
("Securities Act"), or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time or shall have been issued in exchange for or in replacement thereof.
SHAREHOLDER: Charles E. Bradshaw, Jr., and his successors to
whom the Common Stock is transferred by way of gift, bequest, devise and/or
pledge.
TRANSFER: any sale, assignment, pledge or other disposition of
any security or of any interest therein, whether or not such disposition would
constitute a sale as that term is defined in section 2(3) of the Securities Act.
1.2 REGISTRATION.
(a) The Company will use its best efforts to register for
resale: (i) within 24 months after the date hereof with respect to the
Initial Shares and (ii) within 24 months after the exercise by the
Shareholder of the Warrant, with the Securities and Exchange Commission
the Common Stock on Form SB-2 or any similar long-form registration (a
"Long-Form Registration"), or, if the Company qualifies for use of Form
S-3 under the Securities Act, or any similar short-form registration,
on such short form registration statement (a "Short Form Registration,"
which, together with a Long Form Registration is sometimes collectively
referred to as a "Registration").
(b) The Company will pay all Registration Expenses in
connection with the registration.
(c) Subject to the approval of the Company, which consent
shall not be unreasonably withheld, the Shareholder will select the
investment banker(s) and manager(s) to administer the offering.
(d) Notwithstanding anything contained in this Agreement
to the contrary, the Company shall not be required to effect a
registration to the extent that, in the unqualified
2
<PAGE>
opinion of counsel for the Company and issued in favor of the
Shareholder, the Shareholder may sell the Common Stock under the
provisions of the Act without registration under the Act.
1.3 REGISTRATION PROCEDURES. The Company will use its best
efforts to cause the Common Stock to be registered for sale with the Securities
and Exchange Commission in accordance with the intended method of disposition
thereof and pursuant thereto the Company will promptly:
(a) Prepare and file with the Commission a registration
statement with respect to such Common Stock and use its best efforts to
cause such registration statement to become effective;
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 12 months and to
comply with the provisions of the Securities Act with respect to the
disposition of all Common Stock covered by such registration statement
during such period in accordance with the intended methods of
disposition by the Shareholder thereof set forth in such registration
statement; provided, however, that, notwithstanding any other provision
of this Agreement to the contrary, in the event of changes in
circumstances after the effectiveness of such registration statement
such that, in the opinion of the Company, the registration statement
may not be used without supplementary disclosure which would not be
appropriate or would be inopportune in the good faith business judgment
of the Company, then the Company may by notice to the Shareholder
suspend use of the registration statement until such time as the
necessary disclosure can be made, in which case the foregoing 12-month
period shall be extended for a period equal to the length of the period
in which use of the registration statement was so suspended;
(c) Furnish to the Shareholder and underwriter, if any, of
the Common Stock such number of copies of such registration statement
and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary
prospectus), in conformity with the requirements of the Securities Act,
and such other documents, as the Shareholder may reasonably request in
order to facilitate the disposition of the Common Stock;
(d) Use its best efforts to register or qualify the Common
Stock covered by such registration statement under the securities laws
and/or blue sky laws of the State of Florida, and such other
jurisdictions within the United States (including territories and
commonwealths thereof) as the Shareholder shall reasonably request;
PROVIDED, HOWEVER, that the Company shall not be required to (i)
qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but
3
<PAGE>
for this clause (d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any
such jurisdiction;
(e) Notify Shareholder with respect to Common Stock
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
(and upon receipt of such notice and until a supplemented or amended
prospectus as set forth below is available, Shareholder will not offer
or sell any of the Common Stock covered by the registration statement
and will return all copies of the prospectus to the Company if
requested to do so by it), and at the request of the Shareholder
prepare and furnish to the Shareholder a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Common
Stock, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
(f) Use its best efforts to cause all such Common Stock to be
listed on any securities exchange or quotation system on which any of
the common stock of the Company is then listed or otherwise traded;
(g) Furnish to the Shareholder and underwriter, if any, upon
their reasonable request, all information and documentation necessary
to enable the Shareholder to determine whether the registration
statement and any prospectus relating thereto includes an untrue
statement of a material fact or may omit to state any material fact
required to be stated therein or necessary to make statements therein
not misleading in the light of the circumstances then existing; and
(h) Furnish to the Shareholder and underwriter, if any, an
opinion of counsel in a form reasonably satisfactory to the Shareholder
of the scope reasonably required in connection with similar
transactions, including opinions concerning due execution and
authorization of all documents delivered in connection with the
registration, the effectiveness of the registration statement,
compliance of the registration statement and any prospectus relating
thereto with the requirements of the Securities Act, and absence of
information that would lead such attorneys to believe that the
prospectus may include an untrue statement of a material fact or may
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing.
4
<PAGE>
The Shareholder will furnish to the Company such information as the Company may
reasonably require from the Shareholder in connection with the registration
statement (and the prospectus included therein).
The Shareholder will not (until further notice) effect sales of Common
Stock included in the registration statement after receipt of telegraphic or
written notice from the Company to suspend sales to permit the Company to
correct or update a registration statement or prospectus; but the obligations of
the Company with respect to maintaining any registration statement current and
effective shall be extended by a period of days equal to the period such
suspension is in effect unless (i) such extension would result in the Company's
inability to use the financial statements in the registration statement
initially filed pursuant to the holders' request and (ii) such correction or
update did not result from the Company's act or failure to act. At the end of
the period during which the Company is obligated to keep the registration
statement current and effective (and any extensions thereof), the Shareholder
shall discontinue sales of Common Stock pursuant to such registration statement
upon receipt of notice from the Company of its intention to remove from
registration the Common Stock covered by such registration statement which
remain unsold, and the Shareholder shall notify the Company of the number of
shares of the Common Stock included in the registration statement which remain
unsold immediately upon receipt of such notice from the Company.
1.4 INDEMNIFICATION.
(a) In the event of any registration of any Common Stock
under the Securities Act pursuant to paragraph 1.2, the Company will
indemnify and hold harmless the Shareholder and each underwriter of the
Common Stock, against any losses, claims, damages or liabilities, joint
or several, to which the Shareholder or underwriter may become subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which
such Common Stock is registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and the
Company will reimburse the Shareholder and each such underwriter for
any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim damage,
liability or action, provided that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or
omission made in such registration statement, any such preliminary
prospectus, final prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company
through an instrument executed by the Shareholder, or underwriter
specifically for use in the preparation thereof.
(b) The Company may require, as a condition to including
any of the Common Stock in any registration statement filed pursuant to
paragraph 1.2, that the Company shall have received an undertaking
satisfactory to it from the Shareholder or underwriter of the
5
<PAGE>
Common Stock, to indemnify and hold harmless (in the same manner and to
the same extent as set forth in subdivision (a) of this paragraph 1.4)
the Company, each director of the Company, each officer of the Company
who shall sign such registration statement, any person who controls the
Company within the meaning of the Securities Act and any underwriter
designated by the Company (or the Shareholder) to manage the sale of
the Common Stock, with respect to any statement in or omission from
such registration statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto,
if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument executed by the Shareholder or underwriter specifically for
use in the preparation of such registration statement, preliminary
prospectus, final prospectus, amendment or supplement.
(c) Promptly after receipt by an indemnified party of
notice of the commencement of any action involving a claim referred to
in the preceding subdivisions of this paragraph 1.4, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any
indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under the preceding
subdivisions of this paragraph 1.4, except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice. In case any such action is brought against an indemnified
party, the indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish and, after notice
from the indemnifying party to such indemnified party of its election
to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense
thereof. No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by
claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
2. PRICE GUARANTY. If during the period beginning two years after the
date hereof and ending three years after the date hereof, the Shareholder sells
all or any portion of the Initial Shares in a bona fide open market transaction,
the Company will pay to the Shareholder for each of the Initial Shares sold the
excess, if any, of $5.00 per share over the net amount (after commissions) the
Shareholder actually received for the Initial Shares (the "Price Guaranty"). The
Price Guaranty shall terminate and be of no further force or effect at the close
of business three years after the date hereof.
3. NOTICES. Any notices, requests, demands and other
communications required or permitted to be given hereunder or under any
agreement or other document executed in connection herewith must be in writing
and, except as otherwise specified in writing, will be deemed to have been duly
given when personally delivered, or delivered by a
6
<PAGE>
nationally recognized overnight courier service, e.g. United Parcel Service or
Federal Express, to the address set forth below , as follows:
If to the Shareholder:
Charles E. Bradshaw, Jr.
P.O. Box 3508
Orlando, Florida 32802
-- with a copy to --
Zimmerman, Shuffield, Kiser
& Sutcliffe, P.A.
Suite 600, Landmark Center One
315 East Robinson Street
Orlando, Florida 32802-3000
Attention: Stephen B. Hatcher, Esq.
If to the Company:
First American Railways, Inc.
2445 Hollywood Boulevard
Hollywood, Florida 33010
Attention: Chief Financial Officer
Facsimile: (954) 920-0602
-- with a copy to --
Olle, Macaulay & Zorrilla, P.A.
1402 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
Attention: Dennis J. Olle, Esq.
or to such other addresses or facsimile numbers as either party hereto may from
time to time give notice of (complying as to delivery with the terms of this
Section 3) to the other.
4. ENTIRE AGREEMENT. This Agreement represents the entire understanding
and agreement between the parties hereto with respect to the subject matter
hereof and can be amended, supplemented or changed, and any provision hereof can
be waived, only by written instrument making specific reference to this
Agreement signed by the party against whom enforcement of any such amendment,
supplement, modification or waiver is sought.
7
<PAGE>
5. SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
6. APPLICABLE LAW. This Agreement shall be governed by, construed
and enforced in accordance with the internal laws of the State of Florida.
7. SEVERABILITY. If at any time subsequent to the date hereof, any
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other provision of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
WITNESSES: THE SHAREHOLDER:
/s/ STEPHEN B. HATCHER /s/ CHARLES E. BRADSHAW, JR.,
- ------------------------------ -------------------------
Charles E. Bradshaw, Jr.,
STEPHEN B. HATCHER
- ------------------------------
THE COMPANY:
FIRST AMERICAN RAILWAYS, INC.,
a Nevada corporation
/s/ SUSAN R. GEIGER
- ------------------------------ By: /S/RAYMOND MONTELEONE
---------------------
Name:RAYMOND MONTELEONE
Title:PRESIDENT
/s/ STEPHEN B. HATCHER
- ------------------------------
8
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT:
1. ALL ABOARD SERVICES, INC., A FLORIDA CORPORATION
2. FUN TRAINS, INC., A FLORIDA CORPORATION
3. DESTINATION RAILWAYS, INC., A FLORIDA CORPORATION
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 No. 333-19407 on Form S-8 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.
BDO Seidman, LLP
--------------------------------
Miami, Florida BDO SEIDMAN, LLP
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,604,854
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,860,226
<PP&E> 2,421,672
<DEPRECIATION> (8,352)
<TOTAL-ASSETS> 13,140,653
<CURRENT-LIABILITIES> 626,283
<BONDS> 8,250,682
0
0
<COMMON> 9,061
<OTHER-SE> 4,254,627
<TOTAL-LIABILITY-AND-EQUITY> 13,140,653
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,428,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,911
<INCOME-PRETAX> (2,595,762)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,595,762)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,595,762)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
