SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
FIRST AMERICAN RAILWAYS,INC.
(Name of Registrant as Specified in Its Charter)
FIRST AMERICAN RAILWAYS,INC.
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
3700 NORTH 29TH AVENUE
SUITE 202
HOLLYWOOD, FLORIDA 33020
(954) 920-0606
April ___, 1997
TO: THE SHAREHOLDERS OF FIRST
AMERICAN RAILWAYS, INC.
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of FIRST AMERICAN RAILWAYS, INC. (the "Company") to be held at _______________,
Durango, Colorado 81201, on Saturday, June 7, 1997, at 10:00 A.M., local time.
Matters to be acted on at the meeting include: (a) a proposal to amend
the Company's Articles of Incorporation; (b) the election of directors; and (c)
the appointment of independent public accountants. Detailed information
concerning these matters is set forth in the attached Notice of Annual Meeting
of Shareholders and Proxy Statement.
Your Board of Directors recommends that you vote your shares in favor
of the proposed Amendment to the Articles of Incorporation, the election of
directors and the appointment of independent public accountants.
Whether or not you plan to attend the meeting, please promptly sign and
return your proxy card in the enclosed envelope. If you then attend the meeting
and wish to vote your shares in person, you may still do so. Also, if you plan
to attend the meeting, please mark the appropriate box on the proxy card. If you
plan to have anyone accompany you, please enclose a note indicating the name of
that person. Admission cards for the meeting will then be sent to you.
At the conclusion of the meeting, you will have the opportunity to tour
[D&SNG'S OPERATIONS?].
I look forward to seeing you at the meeting.
Sincerely yours,
--------------------------
ALLEN C. HARPER, Chairman
of the Board of Directors
and Chief Executive Officer
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
3700 NORTH 29TH AVENUE
SUITE 202
HOLLYWOOD, FLORIDA 33020
(954) 920-0606
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of FIRST
AMERICAN RAILWAYS, INC., a Nevada corporation (the "Company"), will be held on
June 7, 1997, at 10:00 A.M., local time, at________________________, Durango,
Colorado 81201, for the following purposes, all of which are set forth more
completely in the accompanying Proxy Statement:
(1) To amend the Articles of Incorporation of the Company to provide
for a classified Board of Directors;
(2) the election of eight persons to the Board of Directors; three
persons each to hold office for a term of three years, three
persons each for a term of two years and two persons each for a
term of one year;
(3) the appointment of independent public accountants; and
(4) to transact such other business as may properly come before the
meeting.
Pursuant to the Company's Bylaws, the Board of Directors has fixed the
close of business on April 21, 1997, as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting.
A FORM OF PROXY AND THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996 ARE ENCLOSED. IT IS IMPORTANT THAT PROXIES BE
RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT
THE ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE WHICH DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF
DIRECTORS
ALLEN C. HARPER, CHAIRMAN OF
THE BOARD AND CHIEF EXECUTIVE
OFFICER
HOLLYWOOD, FLORIDA
APRIL ___, 1997
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
3700 NORTH 29TH AVENUE
SUITE 202
HOLLYWOOD, FLORIDA 33020
(954) 920-0606
------------------------
PROXY STATEMENT
------------------------
The enclosed proxy is solicited by the Board of Directors of FIRST
AMERICAN RAILWAYS, INC., a Nevada corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held on June 7, 1997, and the approximate
date on which this statement and the enclosed proxy will be sent to shareholders
will be April 24, 1997. The form of proxy provides a space for you to withhold
your vote for any proposal. You are urged to indicate your vote on each matter
in the space provided; if no space is marked, it will be voted by the persons
therein named at the meeting (i) for the proposed amendment to the Articles of
Incorporation to create a classified Board of Directors; (ii) for the election
of eight persons to the Board of Directors as set forth below; (iii) approval of
selection of independent accountants; and (iv) in their discretion, upon such
other business as may properly come before the meeting. Whether or not you plan
to attend the meeting, please fill in, sign and return your proxy card to the
Company's transfer agent in the enclosed envelope, which requires no postage if
mailed in the United States.
The cost of the Board of Directors' proxy solicitation will be borne by
the Company. In addition to solicitation by mail, officers and employees of the
Company may solicit proxies personally and by telephone and telegraph, all
without extra compensation.
At the record date for the meeting, the close of business on April 21,
1997, the Company had outstanding ____________ shares of $.001 par value common
stock ("Common Stock"). Each share of Common Stock entitles the holder thereof
on the record date to one vote on each matter submitted to a vote of
shareholders. Only shareholders of record at the close of business on April 21,
1997 are entitled to notice of and to vote at the Annual Meeting. In the event
that there are not sufficient votes for approval of any of the matters to be
voted upon at the Annual Meeting, the Annual Meeting may be adjourned in order
to permit further solicitation of proxies. The quorum necessary to conduct
business at the Annual Meeting consists of a majority of the outstanding shares
of Common Stock. The approval of the proposals covered by the Proxy Statement
will require an affirmative vote of the holders of a majority of the shares of
Common Stock voting in person or by proxy at the Annual Meeting.
All shares of Common Stock that are represented at the Annual Meeting
by properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such proxies will
be voted for approval of each matter voted upon. Abstentions or broker non-votes
are counted as shares present in the determination of whether shares of Common
Stock represented at the meeting constitute a quorum. Abstentions or broker
non-votes are tabulated separately. As to other matters to be acted upon at the
Annual Meeting, abstentions are treated as AGAINST votes, whereas broker
non-votes are counted for the purpose of determining whether the proposal has
been approved.
A SHAREHOLDER WHO SUBMITS A PROXY ON THE ACCOMPANYING FORM HAS THE POWER TO
REVOKE IT AT ANY TIME PRIOR TO ITS USE BY DELIVERING A WRITTEN NOTICE TO THE
SECRETARY OF THE COMPANY, BY EXECUTING A LATER-DATED PROXY OR BY ATTENDING THE
MEETING AND VOTING IN PERSON. UNLESS AUTHORITY IS WITHHELD, PROXIES WHICH ARE
PROPERLY EXECUTED WILL BE VOTED FOR THE PURPOSES SET FORTH THEREON.
<PAGE>
The following table sets forth the shares of the Company's Common Stock
beneficially owned at April 21, 1997, by (i) each person known to management of
the Company to be the beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock, (ii) each Director of the Company, (iii) each
executive officer of the Company named under "Executive Remuneration," and (iv)
all executive officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
NUMBER(2) PERCENT(2)
--------- ----------
NAME POSITION WITH COMPANY
- ---- ---------------------
EXECUTIVE OFFICERS AND
DIRECTORS:(3)
<S> <C> <C> <C>
Thomas G. Rader Director 1,632,581(4) 17.42
Charles E. Bradshaw, Jr. Director 1,810,000(5) 16.51
Allen C. Harper Chairman of the 1,380,317(6) 14.75
Board of Directors
and Chief Executive Officer
Raymond Monteleone President, Chief 179,133(7)(9) 1.88
Operating Officer
and Director
Luigi Salvaneschi Director 103,654(4)(8) 1.11
David H. Rush Director 39,414(4) *
Glenn P. Michael Director 23,000(4) *
Albert B. Aftoora Director 3,000(4) *
William T. Nanovsky Vice President, Secretary, 15,000(9) *
Treasurer and Chief Financial
Officer
2
<PAGE>
Donald P. Cumming Vice President, Controller 10,666(9) *
and Chief Accounting Officer
Thomas E. Blayney Vice President of 10,333(9) *
Operations
Pamela S. Petcash Vice President of 7,666(9) *
Customer Care and
Entertainment
Gordon L. Downing Vice President of Marketing 3,333(9) *
and Sales
All Directors and executive
officers as a group (13 persons) 5,218,097 46.47
</TABLE>
3
<PAGE>
BENEFICIAL OWNERS OF MORE
THAN 5%
- -------
SHARES BENEFICIALLY OWNED(1)
NUMBER(2) PERCENT(2)
--------- ----------
Auric Investments Limited
24 St. Georges Street, Douglas
Isle of Man IM1 1AH 823,274(10) 8.56
Lancer Partners L.P.
237 Park Ave., 8th Fl.
New York, NY 10017 814,286(11) 8.25
EFO Fund, Ltd.
1111 W. Mockingbird Lane, #1400
Dallas, TX 75247 732,857(12) 7.46
Fairnoon Management Ltd.
11 Queenstreet Mayfair
London W1X 7PD, England 570,000(13) 5.87
Eugene K. Garfield 529,343 5.66
1360 Ocean Blvd., #1905
Pompano Beach, FL 33062
Rush & Co.
c/o Swiss American Securities, Inc.
100 Wall Street, 4th Fl.
New York, NY 10005 548,177(14) 5.64
Emanon Partners, L.P.
237 Park Avenue
Suite 901
New York, NY 10017 515,714(15) 5.32
Rosebud Capital Growth Fund Ltd.
c/o Euro-Dutch Trust Co. (Bahamas)
Charlotte House, Charlotte St.
Nassau, Bahamas 512,747(16) 5.31
- ---------------------
* Less than 1%
4
<PAGE>
(1) Unless otherwise indicated, each shareholder has sole voting and
investment power with respect to the Common Stock indicated as
beneficially owned thereby.
(2) In accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), shares that are not outstanding, but
that are subject to warrants, options or conversion privileges
exercisable or convertible within 60 days of the date of the Offering,
have been deemed to be outstanding for the purpose of computing the
percentage of outstanding shares owned by the individual having such
right, but have not been deemed outstanding for the purpose of
computing the percentage for any other person. Where applicable, these
amounts include shares which are issuable to the holders of the
Company's Series A Redeemable Warrants, the Financial Advisory Warrants
(both referred to as "Warrants") and the 10% Convertible Secured Notes
(the "Notes"). These amounts do not include the exercise of certain
warrants to purchase an aggregate of 475,000 shares of Common Stock.
(3) Unless otherwise indicated, the address for each Director is c/o First
American Railways, Inc., 3700 North 29th Avenue, Suite 202, Hollywood,
Florida 33020.
(4) Includes 18,000 shares which are issuable upon the exercise of
currently exercisable stock options to each of Messrs. Rader,
Salvaneschi and Rush, respectively, and 23,000 and 3,000 shares which
are issuable upon the exercise of currently exercisable stock options
to each of Messrs. Michael and Aftoora, respectively.
(5) Includes 1,610,000 shares which may be issued upon the exercise of a
six- year warrant.
(6) Includes 1,379,032 shares which are owned of record by Harper Family
Partnership L.P., for which Mr. Harper and his wife, Carol E. Harper,
are the sole limited partners, and 1,285 shares which are owned of
record by Harper Partners of Miami, Ltd., a Florida limited
partnership, for which Carol E. Harper, serves as trustee.
(7) Includes 35,800 shares owned of record by Mr. Monteleone, and the
balance represents currently exercisable stock options.
(8) Mr. Salvaneschi serves as the trustee for a trust under an agreement
dated October 19, 1993, in which name these shares are held, and for
which Mr. Salvaneschi has sole voting and dispositive power.
(9) Includes 143,333 shares, 12,000 shares, 9,666 shares, 8,333 shares,
3,333 shares and 6,666 shares which are issuable to Messrs. Monteleone,
Nanovsky, Cumming, Blayney, Downing and Miss Petcash, respectively,
upon the exercise of currently-exercisable stock options.
(10) Includes an aggregate of 260,774 shares which may be issued either upon
the conversion of the Notes or upon the exercise of Warrants which may
be issued, in certain circumstances, upon the prepayment of the Notes.
(11) Includes an aggregate of 514,286 shares which may be issued either upon
the conversion of the Notes or upon the exercise of Warrants which may
be issued, in certain circumstances, upon the prepayment of the Notes.
(12) Includes an aggregate of 462,857 shares which may be issued either upon
the conversion of the Notes or upon the exercise of Warrants which may
be issued, in certain circumstances, upon the prepayment of the Notes.
5
<PAGE>
(13) Includes an aggregate of 360,000 shares which may be issued either upon
the conversion of the Notes or upon the exercise of Warrants which may
be issued, in certain circumstances, upon the prepayment of the Notes.
(14) Includes an aggregate of 363,440 shares which may be issued either upon
the conversion of the Notes or upon the exercise of Warrants which may
be issued, in certain circumstances, upon the prepayment of the Notes.
(15) Includes an aggregate of 328,834 shares which may be issued either upon
the conversion of the Notes or upon the exercise of Warrants which may
be issued, in certain circumstances, upon the prepayment of the Notes.
(16) Includes an aggregate of 303,116 shares which may be issued either upon
the conversion of the Notes or upon the exercise of Warrants which may
be issued, in certain circumstances, upon the prepayment of the Notes.
ITEM 1 - AMENDMENT TO ARTICLES OF INCORPORATION TO PROVIDE FOR
CLASSIFIED BOARD OF DIRECTORS
The Board of Directors recommends that the Company's Articles of
Incorporation be amended to provide for a classified Board of Directors
consisting of up to nine Directors. The text of the proposed amendment is set
forth in attached Exhibit A at Page ___. This amendment provides for the
classification of the Directors of the Company into three classes whose terms of
office will expire at one-year intervals. The term of office of the first class
of Directors elected at the Annual Meeting in 1997 will expire at the Annual
Meeting in 1998; the second class of Directors in 1999; and the third class of
Directors in 2000. Presently the Company's Directors are elected at each annual
meeting to serve for one year. Directors elected by the Board to fill vacancies
will continue to hold office for the remainder of the term to which the previous
Director was elected.
When the classified Board of Directors is fully implemented, a portion
of the Directors will be elected at each annual meeting for three-year terms.
Although the Board of Directors has not in the past experienced problems as to
stability or continuity, staggering the election of the Board in such a fashion
increases the potential for corporate stability through the prospect of
increased continuity of Board membership by insuring that a number of the
Directors on the Board have been associated with the Company over a period of
years and, therefore, are experienced in the affairs of the Company. The
proposed amendment, however, will make it more difficult for the shareholders to
replace the entire Board of Directors at one annual meeting even where this may
be considered desirable by the shareholders.
In addition to increasing the potential for the continuity of Board
membership, the classification system will make it more difficult to acquire or
take over the Company by merger, acquisition of its assets or other means to
gain control of the
6
<PAGE>
Company's Board of Directors prior to effecting the takeover transaction, if
such transaction is opposed by the Board of Directors. This proposal may
accordingly be deemed to be an anti-takeover proposal. Management is not aware
of any specific effort to accumulate the Company's securities or to obtain
control of the Company through a merger, tender offer, solicitation in
opposition to Management or otherwise and this proposal is not being made in
response to any such effort. In the event a takeover group were able to control
the Board of Directors, Management would be forced to negotiate the terms of any
proposed takeover bid with a corporation or group which had its own
representatives on the Company's Board of Directors. The interests of the
shareholders conceivably may be represented by groups other than Management; a
takeover transaction could also conceivably be viewed as beneficial by a
majority of shareholders.
The Articles of Incorporation and By-Laws of the Company currently
contain no anti-takeover provisions. In addition, it should be noted that Nevada
and federal law provides certain protections for shareholders' interests in
certain takeover situations, including a state law which restricts the ability
of the Company to engage in any business combination with certain "interested"
shareholders for three years, along with minority shareholder appraisal rights
in cases of mergers and acquisitions, as well as disclosure requirements under
the federal securities laws. The content of the proposed amendment to the
Articles of Incorporation and By-Laws has not been subject to specific, formal
Board action.
Management believes that representation on the Company's Board of
Directors, however, by persons seeking to take over the Company would inhibit
management's ability to negotiate at arm's length for the best interest of all
shareholders. Therefore the Board of Directors believes this proposal is in the
best interest of the shareholders.
The adoption of this proposal requires authorization by the holders of
a majority of the Company's common stock present, either in person or by proxy,
and voting at the Annual Meeting. The proposed amendment will also provide that
this proposed amendment to the Articles of Incorporation, classification of the
Board of Directors, may not be repealed without the approval of the holders of
three-fourths of the outstanding voting stock of the Company at the time a
determination is made.
This proposal will make it more difficult to remove the current Board
of Directors or effect a merger or takeover opposed by the current Board of
Directors. Classification of the Board of Directors will result in the election
of a fraction of the Directors each year which will make it more difficult for
shareholders to change Directors and may require two or more successive annual
meetings to replace the majority of the Directors
7
<PAGE>
in order to effect a change in management policies. The proposed amendment may
also discourage any group from attempting to acquire the Company, even where
this may be considered desirable by a simple majority of the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS AMENDMENT TO
THE ARTICLES OF INCORPORATION.
ITEM 2 - ELECTION OF DIRECTORS OF THE COMPANY
NOMINEES
As provided for in Article IX of its Articles of Incorporation, as
amended by Item 1, above, the Company is to have a classified Board of
Directors consisting of Classes I, II and III, with one class to be elected at
each Annual Meeting of Shareholders. If any nominee for Director is unable or
declines to serve for any reason not now foreseen, the discretionary authority
provided in the proxy will be exercised to vote for a substitute. All nominees
have consented to serve as Directors. The following persons are Management's
nominees, by class, to serve as Directors of the Company:
CLASS I CLASS II CLASS III
(EXPIRES 1998) (EXPIRES 1999) (EXPIRES 2000)
- -------------- -------------- --------------
Charles E. Bradshaw, Jr. Albert B. Aftoora(1) Raymond Monteleone
Thomas G. Rader(2) Allen C. Harper David H. Rush(1),(2)
Glenn P. Michael(1) Luigi Salvaneschi1,(2)
- --------------
(1) Member of the Audit Committee, the Chairman of which is Mr. Aftoora.
(2) Member of the Compensation Committee, the Chairman of which is Mr.
Rush.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF EACH OF THE FOREGOING NOMINEES FOR
ELECTION TO THE BOARD.
The following information is set forth below for each nominee:
principal occupations during the past five years, the period of service as a
Director of the Company or its predecessor, or other directorships and business
affiliations (including public company directorships), and age:
MR. HARPER, age 52, has been the Chairman of the Board of Directors and
Chief Executive Officer of the Company since April 1996, and prior thereto he
served in similar capacities with the Company's predecessor by merger, First
American Railways, Inc., a Florida corporation ("First American-Florida") since
its incorporation (February 1994). He has over 30 years of business experience,
principally in the areas of real estate management and
8
<PAGE>
development and rail transportation. Since 1984, he has been principally
employed as the Chairman, President and principal shareholder of First Reserve,
Inc., the holding company for Esslinger-Wooten-Maxwell, Inc., a residential and
commercial real estate brokerage and management firm based in Coral Gables, FL.
Since September 1989, Mr. Harper has been a Director, and from October 1992 to
October 1993, and from July 1995 to June 1996, he served as Chairman of the
Board of the Tri-County Rail Authority. Since May 1994, he has served as a
Director of Florida East Coast Railway Co. (a railroad company based in St.
Augustine, FL) and Vacation Break U.S.A., Inc. (a travel and time-share
corporation based in Fort Lauderdale, FL).
MR. AFTOORA, age 57, became a Director of the Company in December 1996.
Mr. Aftoora has extensive experience in the railroad industry and is currently
Vice President of Corridor Development for CSX Transportation, Inc. ("CSXT").
Mr. Aftoora is being appointed to the Board of the Company as CSXT's
representative pursuant to the terms of the CSXT Agreement. Mr. Aftoora joined a
predecessor of CSXT in 1966 as an internal audit officer, and he has held a
variety of financial management and planning positions during his 30-year career
with the firm, including director of regulatory economics from 1977 to 1980 and
director of financial planning from 1980 to 1984. He served as CSXT's treasurer
from 1984 to 1995, when he was named to his current position.
MR. BRADSHAW, age 66, has been a Director of the Company since March
1997. He has extensive experience in the citrus industry in Florida and in the
scenic railroad business in Colorado. He began work in the citrus industry in
1952 and rose to become General Manager and then President of Hi-Acres, Inc. (a
Florida citrus company) in which latter capacity he continues to serve. In 1981,
Mr. Bradshaw formed The Durango & Silverton Narrow Gauge Railroad Company which
purchased from the Denver and Rio Grande Western Railroad the operation of a
narrow gauge mining railroad, which Mr. Bradshaw converted to a scenic railroad.
He is the Chairman of the Board of Trustees of Lake Highland Preparatory School
(Orlando, FL) and a former member of the Board of Trustees of the Darlington
School (Rome, GA). He is a member of the Board of Directors of the Pine Hills
Office (Orlando, FL) of SunTrust Bank.
MR. MICHAEL, age 52, has been a Director of the Company since September
1996. He has had extensive experience in the railroad and transportation
industries since 1966. In 1996, he became President and Chief Executive Officer
of Novoeste Railways, Brazil's first privatized railroad. In 1995, Mr. Michael
formed G.P.M. Associates, a railroad consulting company. Also during 1995, he
served as the railways consultant specialist for the Bosnia and Hezergovina
World Bank Mission. Mr. Michael was the Vice President of Operations of Southern
Pacific Rail Company (Denver, CO) from 1992 to 1994. Prior to that, he served as
Vice President/Chief Transportation Officer
9
<PAGE>
for CSX Transportation, Inc. from 1986 to 1992. Mr. Michael served as Vice
President Labor Relations of Chessie System (a rail transportation company
headquartered in Baltimore, MD) from 1982 to 1986. Mr Michael has served on the
Board of Directors of several rail companies.
MR. MONTELEONE, age 49, became President, Chief Operating Officer, and
a Director of the Company in July 1996. Most recently (1988-1996) Mr. Monteleone
served as the Vice President of Corporate Development, Planning, Administration,
and Acting Chief Financial Officer of Sensormatic Electronics Company (an
electronics security company). In addition, from May 1988 until January 1995 he
served as a consultant to and board member of various businesses. From 1973
until May 1988, he was a staff accountant and later a partner, and then the
Director of Taxes (three South Florida offices) of Arthur Young & Company, an
international accounting firm. Mr. Monteleone is a Certified Public Accountant
licensed in Florida, as well as other states. He graduated cum laude from the
New York Institute of Technology in 1969, and received his Masters in Business
Administration from Florida Atlantic University (Boca Raton, FL) in 1992. He
serves on the Boards of Directors of Loren Industries, Inc. (a jewelry casting
company), Pointe Financial Company (a federal savings and commercial bank
holding company) and Rexall Sundown, Inc. (a pharmaceutical company).
MR. RADER, age 50, has been a Director of the Company since the Merger,
and prior to that he served in a similar capacity with First American-Florida
since its incorporation. Since 1982, Mr. Rader has been the President and sole
shareholder of Rader Railcar, Inc., Denver, CO, which designs, builds and
operates unique rail cars. He has more than 20 years experience in both the
tourism and railroad industries. From 1970 to 1975, he served as Vice President
and director with Sheraton Hawaii (a subsidiary of ITT-Sheraton Company) and
from 1978 to 1982, he served as Vice President and General Manager of Holland
America (a division of Holland America Line, Inc.). In 1982, he founded Tour
Alaska, a privately-held Alaskan tour company which offered the first private
railcar tour through Alaska.
MR. RUSH, age 76, has been a Director of the Company since the Merger,
and prior to that he served in a similar capacity with First American-Florida
since June 1994. He has extensive experience in the private and public sectors,
principally in the areas of high tech industry, economic development and rail
transportation. Mr. Rush has served as a member and chairman of the Florida High
Speed Rail Commission, and he is also a member of the Tri-County Commuter Rail
Authority. Mr. Rush was formerly Chairman of the National High Tech Council and
is a past member of the Defense Conversion and Transition Commission. Mr. Rush
was the President and Chief Executive Officer of Aptek Technologies, Inc.,
Deerfield Beach, FL, from 1982 to April 1995, and has been President of Rush
Holdings,
10
<PAGE>
Inc., in Deerfield Beach since 1958. He has also been President of RTX Telecom
and Electro Data Corp. since 1982.
MR. SALVANESCHI, age 67, has been a Director of the Company since the
Merger, and prior to that he served in a similar capacity with First
American-Florida since June 1994. His career has been in "mass-marketing
service" businesses which are oriented toward consumers' discretionary dollars.
In 1969, he became Vice President/Real Estate Administration of McDonald's
Company, and in that position, he was instrumental in setting national standards
and policies for market development and store locations. In 1971, he was made an
advisory member of McDonald's Board of Directors. From 1983 to 1987, Mr.
Salvaneschi was employed by Kentucky Fried Chicken as senior Vice President. In
January 1988, he joined Blockbuster Entertainment Company as Executive Vice
President of Development, and in June 1988 he became President, Chief Operating
Officer and a Director of Blockbuster. He retired from Blockbuster in February
1991.
* * * *
Pursuant to a financial advisory agreement (described below) with
International Capital Growth, Ltd. (the "Placement Agent"), the Company has
agreed to use its best efforts to cause a designee of the Placement Agent to be
elected to the Company's Board of Directors. In the event that the Placement
Agent does not designate such Director, or if the Placement Agent's designee
shall not be elected or is unavailable to serve if elected, an individual
selected by the Placement Agent shall be permitted to attend all meetings of the
Board of Directors. To date no designee has been named by the Placement Agent to
serve on the Company's Board of Directors. Separately, pursuant to the Agreement
between the Company and CSX Transportation, Inc. dated November 1, 1996 (the
"CSXT Agreement"), Albert B. Aftoora, the designee of CSXT, has been elected to
the Company's Board of Directors.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
MEETINGS - All of the Company's Directors attended more than 75% of the
meetings of the Board of Directors during the fiscal year ended December 31,
1996. There were a total of 8 Board meetings held during such year.
COMPENSATION OF DIRECTORS - Employee Directors of the Company are not
compensated for their services as Directors. In June 1996, the Company
instituted a policy whereby each "non-management" Director would receive a
$5,000 annual retainer along with a per- meeting stipend ($500 for "in person"
and $300 for "telephonic" attendance). In June 1996, the Company agreed to award
each of the-
11
<PAGE>
then "non-management" Directors with a one-time grant of stock options covering
15,000 shares; this grant was made on January 1, 1997 at an exercise price of
$2.375 per share, the-then current market price. Further, commencing January 1,
1997, each non-management Director receives an annual stock option grant
covering 3,000 shares, all of which options are to be awarded under a
non-qualified stock option plan.
COMMITTEES OF THE BOARD OF DIRECTORS - The Company's Audit Committee
consists of four non-employee Directors: Messrs. Aftoora (Chairman), Michael,
Rush and Salvaneschi. The Audit Committee is responsible for meeting with
representatives of the Company's independent accountants and with
representatives of senior management to review the general scope of the
Company's annual audit, matters relating to internal audit control systems and
the fee charged by the independent accountants. In addition, the Audit Committee
is responsible for reviewing and monitoring the performance of non-audit
services by the Company's independent accountants and for recommending the
engagement or discharge of the Company's independent accountants. The Audit
Committee did not meet in 1996.
The Company's Compensation Committee consists of three non-employee
Directors: Messrs. Rader, Rush (Chairman) and Salvaneschi. The Compensation
Committee is responsible for approving and reporting to the Board on the annual
compensation of all officers, including salaries, stock options and stock. The
Compensation Committee is also responsible for the granting of stock awards,
stock options and other awards made under the Company's existing plans. The
Compensation Committee met once in 1996.
The Company does not have a Nominating Committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 -
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and persons who beneficially own more than 10% of
a registered class of the Company's equity securities ("Reporting Persons") to
file certain reports concerning their beneficial ownership of the Company's
equity securities. The Company believes that during fiscal 1996 all Reporting
Persons complied with their Section 16(a) filing obligations, except as follows:
Glenn P. Michael, Pamela S. Petcash and Luigi Salvaneschi each were late in
filing their initial statements of beneficial ownership of securities (Form 3s).
The Company is not aware of any continuing failure to file a required Form, as
all known delinquencies were cured.
12
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets for the position and term of office (with the
Company or its predecessor) of each executive officer of the Company:
EXECUTIVE OFFICER
NAME POSITION(S) SINCE
- ---- ----------- -----------------
Allen C. Harper Chief Executive Officer February 1994
Raymond Monteleone President and Chief July 1996
Operating Officer
William T. Nanovsky Vice President, Secretary, August 1996
Treasurer and Chief Finan-
cial Officer
Thomas E. Blayney Vice President of August 1996
Operations
Donald P. Cumming Vice President, Controller August 1996
and Chief Accounting Officer
Gordon L. Downing Vice President of Marketing December 1996
and Sales
Pamela S. Petcash Vice President, Customer September 1996
Care and Entertainment
See information concerning MESSRS. HARPER AND MONTELEONE under
"Election of Directors of the Company," above.
MR. NANOVSKY became Vice President, Treasurer and Chief Financial
Officer of the Company in August 1996, and Secretary in October 1996. From 1993
to 1995, Mr. Nanovsky served as Vice President, Chief Financial Officer and
Secretary of GameTek, Inc. (an interactive entertainment software company).
Since his resignation from GameTek, he has been a consultant within the
interactive software industry focusing on mergers and acquisitions; planning
equity offerings; and restructuring debt facilities. From 1991 to 1993, he
served as Senior Vice President, Chief Financial Officer and Treasurer of
Marietta Company (a unit-of-use packaged goods company). From 1986 to 1991, Mr.
Nanovsky was a member of the Board of Directors, Senior Vice President, Chief
Financial Officer and Secretary of Seneca Foods Company (an international
consumer goods company).
MR. BLAYNEY became Vice President of Operations in August 1996. From
1989 to 1995 Mr. Blayney served as Executive Vice President and General Manager
of Southland Greyhound Park (an Arkansas parimutuel attraction). Mr. Blayney
served as Special Assistant from 1971 to 1976 to Governor Reubin O'D Askew
during two terms as Governor of Florida. From 1977 to 1979, Mr. Blayney served
as a Vice President of Marketing for Auto-Train Corporation in Washington, D.C.
13
<PAGE>
MR. CUMMING became Vice President, Controller and Chief Accounting
Officer of the Company in August 1996. Mr. Cumming served as Division Controller
of Export Sales and Corporate Finance Manager for Sensormatic Electronics
Company (an electronic security corporation) from 1992 to 1996. Prior to that he
served as Staff Auditor--Senior Manager for Ernst & Young (an international
accounting firm) from 1982 to 1992.
MR. DOWNING became Vice President of Marketing and Sales of the Company
in December 1996. Mr. Downing has senior level executive experience in general
management, marketing and sales. His most recent experience was as a consultant
in the areas of manufacturing, home building and trucking for the Tahitian
Government (1995-Present), and before that (1994-1995) he worked in executive
management, consulting and investment banking for Churchill and Associates Inc.,
a financial consulting and management company. Mr. Downing also served as Vice
President of Sales and Marketing for General Rent-A-Car (1991-1993) and for
National Car Rental (1987-1991). Prior to 1987, Mr. Downing held a variety of
executive positions with National Car Rental. Mr. Downing is active in the
American Society of Travel Agents and the National Passenger Traffic
Association.
MISS PETCASH, Vice President, Customer Care and Entertainment,
commenced her employment with the Company in September 1996. Miss Petcash was
Cruise Director and Senior Officer for Princess Cruises from 1995 to 1996, and
Entertainment and Cruise Director for Gold Star Cruises, LLP from 1994 to 1995.
Miss Petcash was affiliated with Kloster Cruises beginning in 1982 through 1994
working with Norwegian Cruise Line and Royal Viking Line. She held the position
of Cruise Director between 1989 and 1994 onboard various ships operated by
Kloster Cruises.
* * * *
Officers are elected by the Board of Directors and their terms of
office are at the discretion of the Board, subject to the Company's obligation
to pay any compensation required under applicable employment agreements. All of
the Company's executive officers except Mr. Harper are full-time employees of
the Company. See "Executive Remuneration - Employment Contracts." There are no
family relationships among any of the officers or Directors of the Company.
EXECUTIVE REMUNERATION
The following table provides information with respect to the
compensation paid to Allen C. Harper, the Chairman of the Board and Chief
Executive Officer of the Company and the named executive officers. There was no
executive officer whose salary was in excess of $100,000 for any period prior to
1996. The Company did
14
<PAGE>
not pay any form of compensation to any officer or Director during 1995 and
1994; however, the Company's predecessor by merger (First American-Florida) paid
salaries for those years (as described below). As a result of the April 1996
merger between First American-Florida and Asia-America Company, a Nevada
corporation, with the latter being the surviving entity, the Company's fiscal
year changed from April 30 to December 31. Therefore, for purposes of the
following table, the year 1995 represents the eight-month period ended December
31, 1995 and the year 1994 represents the twelve-month period ended April 30,
1995.
15
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term
Compensation
Awards
- -------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Other Restricted
Name and Annual Stock
Principal Compen- Award(s)
Position Year Salary($) Bonus($) sation($) ($)
- -------------------------------------------------------------------------------
Allen C. 1996 $100,962 - -(1) -
Harper,
Chairman 1995 $ 39,461 - - -
and CEO
1994 $ 79,775 - - -
- -------------------------------------------------------------------------------
Raymond 1996 $ 75,000 $51,174.35 -(2) $37,800
Monteleone,
President 1995 - -
and Chief
Operating 1994 - -
Officer
16
<PAGE>
Eugene K. 1996 $113,956 $ 25,000 $50,000 -
Garfield,
President 1995 $ 85,525
and Vice-
Chairman(3) 1994 $ 76,801 - - -
- -------------------------------------------------------------------------------
Michael 1996 $ 99,645 $ 25,000 - -
Acierno,
Vice- 1995 $ 64,778 - - -
President-
Financial 1994 $ 51,383 - - -
Relations
and
Corporate
Development
- -------------------------------------------------------------------------------
- --------------
(1) Commencing September 1996, the Company has agreed to pay a corporate
affiliate of Mr. Harper $5,700 per month to cover Mr. Harper's monthly
expenses, e.g. car, office rental and office expenses.
(2) Mr. Monteleone received a car allowance of $3,000 and earned a
retirement allowance of $5,000 for fiscal 1996.
(3) Effective June 12, 1996, Mr. Garfield resigned as President of the
Company and on November 7, 1996, Mr. Garfield resigned as a Director
and Vice-Chairman of the Board. Mr. Garfield received a severance
package which includes among other things the payment of $50,000,
representing the remaining salary due pursuant to the terms of his
employment agreement through February 16, 1997.
17
<PAGE>
STOCK OPTIONS PLANS
The following table provides information regarding option grants
during fiscal 1996 to Mr. Harper, the Company's Chief Executive
Officer, Mr. Monteleone, the Company's President and Chief Operating
Officer, Eugene K. Garfield, the Company's former President and Vice
Chairman, and Michael J. Acierno, a Vice President of the Company.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
INDIVIDUAL GRANTS
-----------------
% OF TOTAL
OPTIONS/SARS
NUMBER OF GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE
- ---- ------- ----------- --------- ----------
Allen C. Harper - - - -
Raymond Monteleone 30,000 28.99% $ 3.50 July 2006
Eugene K. Garfield - - - -
Michael J. Acierno 10,000 9.66% $4.4375 October 2006
No stock options were exercised during the fiscal year ended
December 31, 1996.
The following table sets forth certain information regarding
unexercised options held by the above-named executives.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
--------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END(#) AT FY-END ($)
------------------------- -------------------------------
NUMBER OF
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allen
C. Harper - - - - - -
Raymond
Monteleone - - 10,000 20,000 - -
Eugene K.
Garfield - - - - - -
Michael J.
Acierno - - 3,333 6,667 - -
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
------------------------------------------
CASH COMPENSATION SECURITY GRANTS
----------------- ---------------
NUMBER OF
ANNUAL CONSULTING NUMBER SECURITIES
RETAINER MEETING FEES/OTHER OF UNDERLYING
FEES ($) FEES ($) FEES ($) SHARES(#) OPTIONS/SARS
NAME (A) (B) (C) (D) (E) (#) (F)
- -------- -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Thomas G. Rader 5,000 600 - - -
David H. Rush 5,000 800 - - -
Luigi Salvaneschi 5,000 800 - - -
Glenn P. Michael 1,330 300 15,436(2) - 20,000(2)
Albert B. Aftoora(1) - - - - -
<FN>
- ----------------
(1) Mr. Aftoora was elected to the Board of Directors in December 1996.
(2) Represents consulting fees paid to GPM Associates prior to Mr.
Michael's election to the Board of Directors.
</FN>
</TABLE>
19
<PAGE>
As of July 1, 1996, the Board of Directors adopted a non-qualified
stock option plan for its employees, officers, Directors and certain consultants
(the "Plan"). The purpose of the Plan is to provide certain Directors, officers
and employees of the Company with a greater personal interest in the success of
the Company and to enhance the ability of the Company to attract and maintain
the services of qualified personnel.
The Plan provides for the issuance of up to 717,500 shares of Common
Stock upon exercise of options which do not qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended. The Plan is administered by the Compensation Committee of the Board of
Directors, which determines, among other things, the persons to be granted
options under the Plan, the number of shares subject to each option and the
option price.
Under the Plan, the exercise price of any stock option may not be less
than the fair market value of the shares subject to the option on the date of
grant. Options are not transferable, except upon the death of the optionee. The
term of each option granted under the Plan and the manner in which it may be
exercised is determined by the Compensation Committee, provided that no option
may be exercisable more than ten years after the date of grant. The terms of the
Plan, including the number of shares covered by the Plan, may be amended by the
Compensation Committee or the Board of Directors from time to time.
Of the 717,500 shares available for issuance under the Plan, at April
7, 1997, options had been granted, which had not expired, with respect to
474,700 shares. The exercise prices of these options, when granted, were equal
to the market value of the shares on the award dates, except for certain stock
option grants made to Mr. Monteleone (in July 1996) and to six consultants, all
of which were at $3.50 per share. Exercise prices for options granted under the
Plan range from $1.906 to $4.75 per share.
EMPLOYMENT CONTRACTS
In February 1994, the Company and Mr. Harper entered into an employment
agreement for a three-year term (which automatically renewed for a one-year term
in February 1997), which provides for a base salary of $125,000 (along with
cost-of-living adjustments based on the appropriate consumer price index). In
addition, the agreement provides for certain standard employment benefits. This
agreement also contains customary non-competition provisions prohibiting
competition with the Company during the term of employment and for two years
thereafter. The agreement with Mr. Harper requires that he devote at least 30
hours per week to Company business. While the Company believes that the extent
of Mr. Harper's efforts will be sufficient, there is no assurance that an
additional time commitment will not prove necessary or that
20
<PAGE>
additional management personnel will not be needed as a result of Mr. Harper's
limited availability.
In addition to his employment agreement, Mr. Harper also receives a
guaranty fee as described elsewhere. See "Liability and Indemnification of
Directors and Officers of the Company," below.
Mr. Monteleone has been employed by the Company to be its President and
Chief Operating Officer, pursuant to an employment agreement dated July 10,
1996, the initial term of which is three years with automatic one-year renewals
(cancelable by either party) thereafter. The agreement provides for an initial
base salary of $150,000 per annum which increased to $175,000 per annum on
January 1, 1997. He received a bonus of $51,174 in December 1996. There will be
a minimum increase in his base salary to $189,000 on January 1, 1998, and
$204,120 on January 1, 1999. In addition, he will receive an annual bonus of at
least $25,000 on January 1, 1998, January 1, 1999 and June 1, 1999. The
agreement also provides for standard life and health care insurance benefits,
which began in January 1997, along with other standard employment benefits.
Pursuant to the agreement, Mr. Monteleone received a stock grant of 10,800
shares, effective July 1, 1996, and he will be granted a minimum of 30,000
non-qualified stock options annually during the three-year employment term and
any subsequent renewal term; the first of these 30,000-share options was granted
on July 1, 1996. Mr. Monteleone receives a $500 per month car allowance, plus an
automobile mileage reimbursement for business travel of $.20 per mile. During
the initial three-year term the Company will fund an individual retirement plan
on behalf of Mr. Monteleone in the aggregate of $35,000.
In addition to these terms, at January 1, 1997, Mr. Monteleone received
a stock award of 25,000 shares and a stock option grant covering 100,000 shares.
The agreement with Mr. Monteleone provides that he may receive, in
certain circumstances, a severance package consisting of twice his current base
salary and all of the stock options which were to be granted to him during the
remaining term of his employment will become fully granted and vested. This
severance package shall be payable upon the termination of the agreement and the
occurrence of any of the following events, (i) "change in control" of the
Company (where more than 50% of the Company's stock is sold to a third party),
(ii) should someone other than Mr. Monteleone or Mr. Harper (the current Chief
Executive Officer) be the Company's Chief Executive Officer, or (iii) should
there be a substantial reduction in Mr. Monteleone's duties under the agreement.
The agreement also contains a non-competition provision which prohibits Mr.
Monteleone from competing with the Company for two years following the
termination of the agreement.
21
<PAGE>
On March 13, 1997, Mr. Monteleone personally guaranteed $5.85 million
of the Company's indebtedness to the seller (Charles E. Bradshaw, Jr.) in
connection with the Company's purchase of The Durango & Silverton Narrow Gauge
Railroad Company ("D&SNG"). In anticipation thereof, on February 26, 1997, the
Board of Directors voted (with Mr. Monteleone abstaining) to modify Mr.
Monteleone's employment agreement to (i) extend the term of the agreement to
match the five-year term of his personal guaranty (subject to certain
performance standards for the extended period which are to be further determined
between Mr. Monteleone and the Company), (ii) increase Mr. Monteleone's
severance package to three times his then-current annualized compensation in
certain circumstances, i.e., in the event of a "change in control" of the
Company and termination of the agreement by the Company, or the material
reduction or change in his duties), (iii) grant additional stock options
covering 100,000 shares, exercisable at $1.906 per share (the then-current
market price). In addition, the Company has agreed to pay Mr. Monteleone an
annual guarantee fee of $20,000 (net of taxes).
Michael J. Acierno presently serves as Vice President Financial
Relations and Corporate Development. Mr. Acierno entered into a full-time
employment agreement with the Company on July 1, 1994, which was amended on
October 15, 1996. This agreement is for a three-year term with annual renewals
thereafter, and it provides for an annual base salary of $75,000 (which was
increased to $100,000 effective June 1, 1996), along with cost-of-living
adjustments based on the appropriate consumer price index. Pursuant to his
agreement, Mr. Acierno was granted a stock option covering 10,000 shares. In
addition, the agreement provides for health care insurance and other standard
employment benefits, as well as a $300 per month car allowance beginning on
January 1, 1997. The agreement also contains customary non-competition
provisions prohibiting competition with the Company during the term of
employment and for two years thereafter.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
Pursuant to the Company's Bylaws, the Company is obligated to indemnify
each of its officers and Directors to the fullest extent permitted by law with
respect to all liability and loss suffered, and reasonable expense incurred, by
such person in any action, suit or proceeding in which such person was or is
made or threatened to be made a party or is otherwise involved by reason of the
fact that such person is or was a Director or officer of the Company. The
Company is also obligated to pay the reasonable expenses of indemnified
Directors or officers in defending such proceedings if the indemnified party
agrees to repay all amounts advanced should it be ultimately determined that
such person is not entitled to indemnification.
22
<PAGE>
The Company maintains a policy of insurance under which the Directors
and officers of the Company are insured, subject to the limits of the policy,
against certain losses arising from claims made against such Directors and
officers, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to Directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In December 1996, the Board of Directors voted (with Mr. Harper
abstaining) to indemnify Mr. Harper in connection with his agreement to guaranty
up to $4.2 million in Company obligations to the Seller of D&SNG. The amount of
this personal guarantee was increased to $10.05 million and delivered at the
closing of the purchase of D&SNG on March 13, 1997. In connection with this
guaranty, the Company also agreed to pay Mr. Harper an annual guarantee fee of
$35,000 (net of taxes) for so long as his personal guarantee remains
outstanding. In addition, the Company has agreed to indemnify Mr. Monteleone in
connection with his personal guaranty of certain obligations of the Company as
described under "Executive Remuneration - Employment Contracts," above.
CERTAIN TRANSACTIONS
The Company requires that transactions with affiliates be made on terms
that the Company believes are at least as favorable as those obtainable from
unaffiliated third parties, and such transactions will be approved by a majority
of the independent, disinterested Directors.
1994 PRIVATE OFFERING
In October 1994, the Company completed a private offering of 420,570
shares of its Common Stock for gross proceeds of $982,000. A total of 26
investors purchased Common Stock in that private offering which began in July
1994, and the two largest investors therein were Company Directors Thomas Rader
(256,774 shares; $350,000) and Luigi Salvaneschi (146,728 shares; $200,000).
David Rush, one of the Company's Directors, also invested in that private
offering (36,683 shares; $50,000).
ACQUISITION OF RAILCARS
Rader Railcar II, Inc., a Colorado corporation, ("RRI") will be the
Company's primary source of railcars for the Florida Fun-Train. RRI is owned by
Thomas G. Rader, a Director and
23
<PAGE>
currently the largest shareholder of the Company. The Company entered into an
agreement with Rader Railcar, Inc., a Colorado corporation owned by Mr. Rader,
as of June 28, 1994, whereby such company produced the initial railcar for the
Company. The total purchase price was $850,000. Title was transferred to the
Company on July 2, 1996. The Company believes the transaction for the purchase
of the railcar was no less favorable to the Company than a similar transaction
conducted with an unaffiliated third party.
On October 23, 1996 the Company contracted with RRI for the design and
production of up to 11 additional railroad cars all of which will be used for
the Florida Fun-Train. The total cost of this equipment, including applicable
sales taxes, is approximately $8.8 million. Pursuant to the RRI contract the
Company has made payments to RRI of approximately $4.35 million. The RRI
contract provides for the delivery of various railcars over a period of several
months beginning June 1, 1997.
The terms of the transactions between the Company and RRI have been
determined by negotiations between RRI and the Company's disinterested
Directors. Because of Mr. Rader's involvement, there is an inherent conflict of
interest in this process; further, competitive bidding was not used for any of
these railcar purchase agreements. The Company's Board of Directors believes
that the terms of the agreements with RRI for the construction of the Fun-Train
railcars are commercially reasonable.
Mr. Rader and RRI have agreed that for a five-year period they will
not, directly or indirectly, engage in the design, marketing sale or lease of
passenger railcars for the purpose of operating passenger entertainment, tourism
or excursion trains in Florida.
RUSH AGREEMENTS
In June and July 1995, David Rush, a Director and shareholder of the
Company, loaned an aggregate of $125,000 to the Company. The promissory note
associated with this loan provided for simple interest at 18% and the obligation
was personally guaranteed as to collection by Allen C. Harper, the Company's
Chairman of the Board of Directors. At the time of the transaction, the Board of
Directors (with Mr. Rush abstaining) concluded that the interest rate paid on
this loan was reasonable and customary, given the financial condition of the
Company and the current business environment, and that the terms of such loan
were no less favorable than those for a similar transaction with a third party.
The loan was repaid with the proceeds from the 1996 Private Placements.
In December 1996 David Rush agreed to remove from the market a certain
parcel of real property located in Broward County, Florida, while the Company
evaluated such property as a potential headquarters site. Pursuant to an
understanding with Mr. Rush, the Company agreed to pay "carrying costs" mortgage
expense as well as
24
<PAGE>
related insurance costs and real property taxes of the subject property for
three and one-half months, which aggregate $32,922, beginning January 7, 1997.
Separately, the Company has entered into a consulting arrangement with
Mr. Rush whereby the Company will pay him a consulting fee of $1,000 per month
(plus pre-approved travel and entertainment expenses) for consulting services
which include, (i) assisting the Company in obtaining third party financing or
other forms of financial support for the construction of the Florida Fun-
Train's northern terminal on the GOAA property (Greater Orlando), and (ii)
monitoring and facilitating appropriate contacts within the Florida state
legislature with respect to any proposed legislation which may materially affect
the Company's operations in Florida.
PURCHASE OF D&SNG FROM CHARLES E. BRADSHAW, JR.
On March 13, 1997, the Company purchased all of the capital stock of
The Durango & Silverton Narrow Gauge Railroad Company ("D&SNG") from Charles E.
Bradshaw, Jr. In connection with that transaction Mr. Bradshaw became a Director
of the Company. The Company paid Mr. Bradshaw the following: (i) approximately
$5 million in cash; (ii) $10.05 million in seller financing consisting of two
promissory notes: a one-year note (subject to extension as described below) for
$4.2 million which bears annual interest (payable monthly) at the 30-day
commercial paper rate as published by THE WALL STREET JOURNAL plus 650 basis
points per annum; and a five-year note for $5.85 million which bears interest at
an annual rate of 9.25% which increases to 10%; (iii) 200,000 shares of common
stock of the Company; and (iv) a common stock purchase warrant covering
1,610,000 shares exercisable at $3.50 per share. The Company has agreed to
register for resale the 200,000 shares and the 1,610,000 shares underlying the
aforementioned warrant. The term of the $4.2 million note may be extended by the
Company, at its option, for an additional six months upon the occurrence of
certain circumstances; at maturity this note is convertible by the holder
thereof into common stock of the Company at a conversion rate equal to the
then-closing sales price of the Company's common stock (not to exceed $5.00 per
share); at the maturity date, should the noteholder elect to receive cash in
full payment of the $4.2 million note (in lieu of conversion into common stock),
then the Company may extend the maturity date for an additional eighteen months.
The obligations represented by the Notes are secured by a second position on
substantially all of the assets of D&SNG. The purchase price for the acquisition
of D&SNG was determined in arms-length negotiations between the Company and Mr.
Bradshaw.
25
<PAGE>
TEMPORARY LEASE
During fiscal 1995, the Company leased approximately 250 square feet of
office space from the Company's former Director and Vice Chairman of the Board
of Directors for a total annual rental of $6,500.
ITEM 3 - APPROVAL OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected BDO Seidman, LLP as its independent
accountants to audit the consolidated financial statements of the Company for
the fiscal year ending December 31, 1997. This selection is being submitted for
approval by shareholders at the Annual Meeting. Representatives of BDO Seidman,
LLP will be at the Annual Meeting and will be afforded the opportunity to make a
statement if they desire to do so and to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares voted
is required for the approval of the foregoing proposal. The holders of the
enclosed proxy will vote to ratify the action of the Board of Directors, unless
otherwise directed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS ITEM 3.
OTHER MATTERS
The Board of Directors is not aware of any other business that may come
before the meeting. However, if additional matters properly come before the
meeting, proxies will be voted at the discretion of the proxy holders.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the Company's 1998
Annual Meeting of Shareholders must be received by the Company not later than
December 1, 1997, at its principal executive offices, 3700 North 29th Avenue,
Suite 202, Hollywood, Florida 33020, Attention: Secretary, for inclusion in the
Proxy Statement and proxy relating to the 1998 Annual Meeting of Shareholders.
26
<PAGE>
ADDITIONAL INFORMATION
Accompanying this Proxy Statement is a copy of the Company's annual
report. A copy of the Company's Annual Report on Form 10- KSB may be obtained
from the Company upon written request.
BY ORDER OF THE BOARD OF
DIRECTORS
ALLEN C. HARPER, CHAIRMAN
OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
APRIL ____, 1997
HOLLYWOOD, FLORIDA
27
<PAGE>
EXHIBIT "A"
ARTICLE IX
(a) The number of directors constituting the whole Board shall be as fixed
from time to time by vote of a majority of the whole Board; provided,
however, that the number of directors shall not be less than three and that
number shall not be reduced so as to shorten the term of any director at
the time in office. The number of directors constituting the whole Board
shall not be greater than nine until otherwise fixed by a majority of the
whole Board in accordance with the preceding sentence.
(b) The Board shall be divided into three classes, designated Class I,
Class II and Class III, as nearly equal in number as the then total number
of directors constituting the whole Board permits, with the term of office
of one class expiring each year. At the annual meeting of shareholders in
1997, directors of Class I shall be elected to hold office for a term
expiring at the next succeeding annual meeting, directors of Class II shall
be elected to hold office for a term expiring at the second succeeding
annual meeting, and directors of Class III shall be elected to hold office
for a term expiring at the third succeeding annual meeting. At each annual
meeting of shareholders the successors to the class of directors whose term
shall then expire shall be elected to hold office for a term expiring at
the third succeeding annual meeting. Any vacancies in the Board of
Directors for any reason, and any increase in the directors, may be filled
by the Board of Directors, acting by a majority of the directors then in
office, or by a sole remaining director. Any directors so chosen shall hold
office until the next election of the class for which such directors shall
have been chosen and until their successors shall be elected and qualified,
subject, however, to prior death, resignation, retirement, disqualification
or removal from office. Any newly created or eliminated directorships
resulting from an increase or decrease in the authorized number of
directors shall be apportioned by the Board of Directors among the three
classes of directors so as to maintain such classes as nearly equal as
possible.
(c) The provisions of this section with respect to the sole power of the
Board of Directors to determine the number of Directors which will
constitute the entire Board of Directors and with respect to the classified
Board of Directors shall not be amended, altered, repealed or otherwise
changed without the approval of three-fourths of the outstanding voting
stock of the Corporation.
<PAGE>
FIRST AMERICAN RAILWAYS, INC.
3700 NORTH 29TH AVENUE
SUITE 202
HOLLYWOOD, FLORIDA 33020
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 7, 1997
The undersigned shareholder of FIRST AMERICAN RAILWAYS, INC. (the
"Company") hereby appoints Messrs. Allen C. Harper and Raymond Monteleone and
each of them, true and lawful proxy or proxies, with full power of substitution
in each, for and in the name of the undersigned to vote all shares of common
stock, $.001 par value, of the Company outstanding in the name of the
undersigned at the Annual Meeting of Shareholders of the Company to be held at
___________________________________ , Durango, Colorado, on June 7, 1997, at
10:00 A.M., local time, and at any and all adjournments thereof, with all the
powers the undersigned would possess if personally present, hereby revoking all
previous proxies. This proxy is revocable. The undersigned reserves the right to
attend and vote in person. The undersigned hereby acknowledges receipt of the
Notice of Meeting of Shareholders dated April , 1997, the Proxy Statement
accompanying the Notice, and the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.
Said proxies are directed to vote as indicated in the following
proposals:
1. ITEM 1: AMENDMENT TO THE ARTICLES OF INCORPORATION TO PROVIDE
FOR A CLASSIFIED BOARD OF DIRECTORS.
________ FOR ________ AGAINST ________ ABSTAIN
2. ITEM 2: ELECTION OF DIRECTORS OF THE COMPANY:
(i) Election of Class I Directors:
Nominees: Charles E. Bradshaw, Jr.
and Thomas G. Rader
(ii) Election of Class II Directors:
Nominees: Albert B. Aftoora, Allen
C. Harper and Glenn P. Michael
(iii) Election of Class III Directors:
Nominees: Raymond Monteleone, David
H. Rush and Luigi Salvaneschi
________ FOR ALL NOMINEES LISTED ABOVE
________ WITHHOLD AUTHORITY TO VOTE FOR ALL
NOMINEES LISTED ABOVE
________ FOR ALL NOMINEES
LISTED ABOVE
EXCEPT THAT
AUTHORITY IS
WITHHELD TO VOTE
FOR ANY NOMINEE(S)
WHOSE NAME(S) IS
(ARE) WRITTEN ON
THE LINE IMMEDIATELY BELOW:
__________________________________
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
<PAGE>
3. ITEM 3: TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 1997:
________ FOR ________ AGAINST ________ ABSTAIN
4. OTHER MATTERS:
TO VOTE WITH DISCRETIONARY AUTHORITY UPON ANY OTHER MATTERS
WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
Each shareholder should specify by a mark in the appropriate box above
how they wish their shares voted. Shares will be voted as specified. IF NO
SPECIFICATION IS MADE ABOVE, SHARES WILL BE VOTED FOR ITEMS 1, 2 AND 3 ABOVE.
Please date, sign and promptly return this proxy in the reply envelope;
in addition, please check the box below if you are planning to attend the
meeting in person.
________ I am planning to attend the Annual Meeting in person.
DATED: ___________________, 1997
________________________________
________________________________
________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
(PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. IF THE
STOCK IS REGISTERED IN THE NAMES OF TWO OR MORE
PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS, ATTORNEYS AND CORPORATE OFFICERS
SHOULD INCLUDE THEIR TITLES.)
