AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1997
REGISTRATION STATEMENT NO. 333-_____
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST AMERICAN RAILWAYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 4011 87-0443800
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ALLEN C. HARPER, CHAIRMAN OF
THE BOARD AND CHIEF EXECUTIVE
OFFICER OF FIRST AMERICAN
FIRST AMERICAN RAILWAYS, INC. RAILWAYS, INC.
3700 N. 29TH AVENUE, STE. 202 3700 N. 29TH AVENUE, STE. 202
HOLLYWOOD, FLORIDA 33020 HOLLYWOOD, FLORIDA 33020
(954) 920-0606 (954) 920-0606
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE
OF REGISTRANT'S PRINCIPAL EXECUTIVE NUMBER OF AGENT FOR SERVICE)
OFFICES)
COPIES TO:
DENNIS J. OLLE, ESQ.
OLLE, MACAULAY & ZORRILLA, P.A.
1402 MIAMI CENTER
201 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
(305) 358-9200
(305) 358-9617 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
CALCULATION OF REGISTRATION FEE
AMOUNT PROPOSED PROPOSED
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- - ------------------------------ ---------- -------------- -------------- ----------------
Common Stock, $.001 par value(1).................... 6,519,069 $3.25 $21,186,974.25 $6,420.30(2)(3)
--------- ----- -------------- ---------
Series A Warrants................................... 3,962,773 -- -- --
--------- ----- -------------- ---------
Financial Advisory Warrants......................... 100,000 -- -- --
--------- ----- -------------- ---------
Common Stock, $.001 Par Value, Underlying
Outstanding Series A Warrants(4).................... 3,962,773 $3.50 $13,869,705.50 $4,782.66(3)
--------- ----- -------------- ---------
Common Stock, $.001 Par Value, Underlying
Outstanding Financial Advisory Warrants(4).......... 100,000 $2.50 $ 250,000.00 $ 86.21(3)
------- ----- -------------- ---------
Common Stock, $.001 Par Value, Underlying
Outstanding Bradshaw Warrants(4).................... 1,610,000 $3.50 $ 5,635,000.00 $1,707.58
--------- ----- -------------- ---------
Common Stock, $.001 par value, Underlying
Outstanding Convertible Secured Notes
("Secured Notes") . . . . . . . . . . . . . . . . . .3,295,987 $3.50 $11,535,954.50 $3,495.74(3)
--------- ----- -------------- ---------
Common Stock, $.001 par value, Underlying
Outstanding Convertible Subordinated Notes
("Subordinated Notes").. . . . . . . . . . . . . . . .3,186,429 $3.50 $11,152,500.00 $3,379.55
--------- ----- -------------- ---------
Series A Warrants to be Issued in Connection with
Prepayment of the Secured Notes..................... 2,353,052 -- -- --
--------- ----- -------------- ---------
Common Stock, $.001 par value, Underlying Series
A Warrants to be Issued in Connection with
Prepayment of the Secured Notes(4).................. 2,353,052 $3.50 $ 8,235,682.00 $2,495.66
--------- ----- -------------- ---------
Total Registration Fee(4)........................... $22,367.70(3)
- - ------------
(1) Represents shares owned by selling shareholders.
(2) Based on $3.25 per share at August 13, 1997. See footnote 3 below.
(3) Filing fee previously paid (see Rule 429(b) discussion below), except
with respect to (i) an aggregate 2,093,794 shares of common stock being
sold by various selling shareholders, (ii) 1,610,000 shares which may
be sold by Charles E. Bradshaw, Jr., pursuant to his exercise of the
Bradshaw Warrants, and (iii) the 3,186,429 shares of common stock
underlying the outstanding Subordinated Notes. An aggregate filing fee
of $7,149.20 is being paid herewith.
(4) Pursuant to Rule 416, this Registration Statement also covers such
indeterminate number of shares of Common Stock as may be issuable
pursuant to the anti-dilution provisions of the various warrants.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429(B), THIS REGISTRATION STATEMENT RELATES TO A PREVIOUSLY
FILED REGISTRATION STATEMENT, NO. 333-9601, WHICH WAS DECLARED EFFECTIVE ON
NOVEMBER 8, 1996. IN CONNECTION THEREWITH, A $19,517.55 FILING FEE WAS
PREVIOUSLY PAID WITH RESPECT TO ALL OF THE COMMON STOCK AND WARRANTS DESCRIBED
ABOVE, EXCEPT AS PROVIDED IN FOOTNOTE 3, ABOVE.
FIRST AMERICAN RAILWAYS, INC.
(CROSS REFERENCE SHEET)
FORM S-3
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- - ----------------------- ---------------------
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus.................. Facing Page of Registration Statement; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus................ Inside Front Cover Page; Available Information; Outside Back
Cover Page
3. Summary of Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... First American Railways, Inc.
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... *
6. Dilution................................. *
7. Selling Security Holders................. Selling Shareholders
8. Plan of Distribution..................... Plan of Distribution
9. Description of Securities to be
Registered............................... Description of Common Stock
10. Interests of Named Experts and Counsel... Legal Matters; Experts
11. Material Changes......................... Recent Developments
12. Incorporation of Certain Information
by Reference............................. Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification of Securities Act
Liabilities.............................. *
- - ----------------
* Not applicable or answer in negative.
18,674,258 SHARES OF COMMON STOCK
6,315,825 SERIES A REDEEMABLE WARRANTS
100,000 FINANCIAL ADVISORY WARRANTS
[LOGO]
This Prospectus relates to the offering of 18,674,258 shares of Common Stock,
$.001 par value (the "Shares"), along with 6,315,825 Series A Redeemable
Warrants ("Series A Warrants") and 100,000 financial advisory warrants
("Advisory Warrants"), (collectively the "Warrants") of First American Railways,
Inc. (the "Company"), by certain securityholders of the Company (collectively,
the "Selling Shareholders"). A total of 6,529,069 Shares offered hereby are
owned of record by the Selling Shareholders, including 200,000 shares owned by
Charles E. Bradshaw, Jr., a director and the principal warrantholder of the
Company, 52,500 shares owned by International Capital Growth Ltd. ("Capital
Growth"), the Company's financial advisor and its placement agent in certain
prior private placements made by the Company, 10,800 shares owned by Raymond
Monteleone, the President and Chief Operating Officer and a director of the
Company and 9,700 shares owned by Atlantic Equity Corporation. In addition,
12,155,189 shares offered hereby represent Common Stock underlying various
outstanding warrants and outstanding convertible notes (the "Notes"), which
securities were issued in connection with several private placements by the
Company in 1996 and 1997 (collectively, the "Private Placements"). Also included
in the Common Stock offered hereby are 2,353,052 Shares underlying certain
additional Series A Warrants which may be issued in the future, as described
below, and 100,000 Shares underlying the Financial Advisory Warrants, described
below.
The outstanding Series A Warrants are held as follows: (i) warrants to purchase
an aggregate of 650,000 Shares that expire in April 1998 and have an exercise
price of $3.50 per share are held by Capital Growth; (ii) warrants to purchase
3,312,773 Shares which are exercisable until April or May 1998 at an exercise
price of $3.50 per share are held by the Selling Shareholders who participated
in the Private Placements; and (iii) 2,353,052 warrants (which may be issued to
the holders of the Notes in certain circumstances in connection with the
prepayment of the Notes) will expire in April and May 1998 and have an exercise
price of $3.50 per share. The Series A Warrants may be redeemed under certain
circumstances. The remaining warrants offered hereby consist of 100,000 Advisory
Warrants that expire in February 2001, which are not redeemable and are
exercisable at $2.50 per share. See "Description of Securities."
The Company will not receive any proceeds from this offering; however, the
maximum gross proceeds payable to the Company from the exercise of all of the
outstanding Warrants would be $19,754,705, and an additional $8,235,683 would be
payable to the Company if the Warrants that may be issued in certain
circumstances in repayment of the Notes are exercised in full.
The Company's Common Stock is quoted on The Nasdaq SmallCap Market ("Nasdaq")
under the symbol FTRN. On August 13, 1997, the last reported sales price of the
Common Stock was $3.25 per share. See "Price Range of Common Stock." Currently
there is no public market for the Warrants, nor is one expected to develop.
The Company is unaware of any specific plan of distribution of the Selling
Shareholders with respect to the Shares or the Warrants; however, it believes
that the Shares will be sold from time to time by such Selling Shareholders or
by their pledgees, donees, transferees or other successors in interest, to or
through underwriters or directly to other purchasers or through brokers or
agents in one or more transactions at varying prices determined at the time of
sale or at a fixed or negotiated price. See "Plan of Distribution." The
aggregate net proceeds to the Selling Shareholders from the sale of the Shares
or Warrants pursuant to this Prospectus will be the sale price of such Shares or
Warrants less any commissions. The Company is paying all of the expenses in
connection with the preparation of this Prospectus and the related registration
statement and the qualification of the shares under applicable state securities
laws. The Shares and Warrants offered hereby may be sold in the state of New
Jersey only through a dealer or broker registered or licensed in New Jersey, or
in reliance upon an exemption from registration.
This offering is being made without using the services of an underwriter. The
Selling Shareholders and any broker-dealers, agents or underwriters that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in which event any commission received by
such broker-dealers, agents or underwriters and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE THESE
SECURITIES.
SEE "RISKS FACTORS" BEGINNING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS AUGUST ____, 1997.
1
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information can be inspected at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's Regional Offices at Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661; and 13th
Floor, Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission at "www.sec.gov".
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act with respect to the
securities offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and this offering, reference is
made to the Registration Statement, including the exhibits filed therewith,
which may be inspected without charge at the Commission's public reference
facility at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
upon request at its above-described Regional Offices. Copies of the Registration
Statement may be obtained from the Commission at its public reference facility
upon payment of prescribed fees. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
where the contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to the applicable documents filed with the Commission.
In addition, reports and other information concerning the Company may be
inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are hereby incorporated by reference into this
Prospectus:
(1) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996, as filed March 28, 1997;
(2) The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997, as filed May 15, 1997;
(3) The Company's Current Report on Form 8-K, dated March 13,
1997, as filed March 28, 1997, and as amended by Form 8-K/A as
filed May 13, 1997;
(4) The Company's Notice of Annual Meeting and Proxy Statement
dated May 5, 1997, as filed May 9, 1997.
(5) The Company's Current Report on Form 8-K, dated June 2, 1997,
as filed June 17, 1997;
(6) The Company's Current Report on Form 8-K, dated June 11, 1997,
as filed June 18, 1997;
(7) The Company's Current Report on Form 8-K, dated June 30, 1997,
as filed July 10, 1997; and
(8) The Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997, as filed on August 14, 1997;
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the Offering of the Shares shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this Prospectus
is delivered, on written or oral request of such person, a copy (without
exhibits other than exhibits specifically incorporated by reference) of any
documents incorporated by reference into this Prospectus. Requests for such
copies should be directed to Michael J. Acierno at telephone number (954)
920-0606, or by writing him at First American Railways, Inc., 3700 North 29th
Avenue, Suite 202, Hollywood, Florida 33020.
2
PROSPECTUS SUMMARY
THEFOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING IN ELSEWHERE IN
THIS PROSPECTUS.
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING
"RISK FACTORS."
THE COMPANY
First American Railways, Inc., a Nevada corporation (the "Company") was
organized in the State of Nevada in 1987. On April 26, 1996, the Company merged
with First American Railways, Inc., a Florida corporation (First
American-Florida) and the Company was the surviving entity. As a result of the
Merger the Company assumed all of the contractual rights, privileges and duties
of First American-Florida. In connection with the Merger the Company amended its
Articles of Incorporation to, among other things, change its name and create a
series of "blank check" preferred stock.
The Company is currently pursuing its strategy of becoming the recognized leader
in providing innovative, quality entertainment-based passenger rail service
through the development of "Fun Trains" and the acquisition of "Scenic
Destination Railroads." The Company is currently developing its first Fun Train
(the "Florida Fun-Train"), an entertainment-based rail service which is
anticipated to commence operations in the fall of 1997 between South and Central
Florida. In March 1997, the Company acquired its first Scenic Destination
Railroad, The Durango & Silverton Narrow Gauge Railroad Company (the "D&SNG"),
described below.
The Florida Fun-Train's goal is to provide an enjoyable and entertaining
alternative to other means of transportation between South and Central Florida
by maximizing the entertainment value of its passengers' travel time while
providing an efficient, safe and reliable form of transportation at a reasonable
price. A one-way trip on the Florida Fun-Train covers approximately 200 miles
and is expected to take approximately four hours. The Company intends to provide
passengers with an exciting, unique, fun-filled overland leisure excursion
through the use of a variety of entertainment-based services, including video
and virtual reality games, as well as dining, dancing and lounge cars offering
different types of live entertainment. The Company expects that most of its
passengers will be tourists and plans to market, in part, the Company's service
as an extension of its passengers' vacations.
The Company has taken significant steps to commence the operation of the Florida
Fun-Train. The Company has: purchased its first passenger car and entered into
an agreement for the manufacture of the remaining railcars (three of which have
been delivered, subject to acceptance by the Company and are being utilized for
limited promotional activities); entered into the requisite track rights
agreements; selected and obtained terminal sites in the Orlando area and in
Broward County (South Florida) and, arranged for the construction of a rail spur
next to the site of the southern terminal; is negotiating for the construction
of the northern terminal; entered into an agreement with the National Railroad
Passenger Corporation ("Amtrak") for the operation of the Florida Fun-Train; and
entered into an agreement with Universal Studios for joint marketing efforts in
connection with Florida Fun-Train services.
The Company is also actively pursuing its strategy of acquiring Scenic
Destination Railroads. In March 1997, the Company purchased D&SNG, the owner and
operator of a privately held, scenic railroad which the Company believes is
among the country's largest and best-known Scenic Destination Railroads (the
"Durango Acquisition"). D&SNG operates an historic railroad which was built
between 1881-82 by the Denver & Rio Grande Railway Company. D&SNG has been
carrying passengers for more than 114 years, has been declared a registered
National Historic Landmark. The antique, steam-operated locomotives that power
the trains are coal-fired. These locomotives were manufactured between 1923 and
1925. In addition, many of the coaches used by the railroad are the railroad's
original coaches dating back to the 1880s. D&SNG's operations have combined
strict adherence to historical authenticity and exacting standards of
replication to provide a historically authentic railroad service. The railroad
operates between Durango and Silverton, Colorado, a 90-mile round trip, which
takes approximately nine hours. Since 1993, the D&SNG railroad has carried
approximately 200,000 passengers annually. The railroad is located entirely
within Colorado near the "Four Corners" region, where the borders of Colorado,
Utah, New Mexico and Arizona meet.
For the fiscal year ended December 31, 1996, the D&SNG generated revenues,
operating cash flow and pre-tax income of approximately $9 million, $3 million,
and $2 million, respectively. As a result, the operations of D&SNG are currently
generating cash flow in advance of the launch of the Florida Fun-Train. Further,
the Company believes that there are potential opportunities to increase the
revenues and earnings of the D&SNG by (i) initiating a formal marketing plan in
conjunction with marketing efforts on behalf of the Florida Fun-Train designed
to increase ridership; (ii) potentially realizing revenue gains from the
implementation of a 15% fare increase (which has been approved by the Colorado
authorities); (iii) potentially realizing revenue gains from price increases in
the prices for and sale of "on-board" products; and (iv) reducing expenses
resulting from the elimination of various corporate expenses related to the
operation of a corporate jet, third party management fees and the lease of an
apartment totaling approximately $900,000, the operating costs for which are
included in the financial results.
3
The Company intends to develop other Fun-Trains and acquire additional Scenic
Destination Railroads to further diversify its operations by capitalizing on
potential economies of scale that may result from consolidations in this
highly-fragmented industry.
* * * *
The Company maintains offices at 3700 North 29th Avenue, Hollywood, Florida
33020. Its telephone number is (954) 920-0606. All references to the Company
herein include its predecessor by merger, First American Railways, Inc., a
Florida corporation.
4
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE THESE
SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION,
SHOULD CAREFULLY READ THIS OFFERING DOCUMENT AND CONSIDER, ALONG WITH OTHER
MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:
NO MATERIAL REVENUE; ACCUMULATED DEFICIT. The Company (excluding its D&SNG
subsidiary) has not had any material revenue from operations, and it had an
accumulated deficit at June 30, 1997, of approximately $5.6 million. The Company
expects such losses to continue at least through the commencement of the
operations of the Florida Fun-Train which is anticipated to be in the fall of
1997, and perhaps thereafter.
NEW BUSINESS; SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF MARKET. The
Company acquired D&SNG in March 1997 and it has no experience or history in
managing D&SNG's operations. The Company's Florida Fun-Train is in development.
The Florida Fun-Train has not begun actual passenger rail operations, has
generated no revenues to date and will not generate any revenues until it is
placed into service. Nevertheless, the Company has incurred and will continue to
incur substantial expenses prior to the commencement of passenger rail
operations for the Florida Fun-Train, which is scheduled to begin in the fall of
1997. As a result, the Company is also subject to substantially all of the risks
inherent in the creation of a new business. The Company's ability to deliver its
new service with good quality at a reasonable price cannot be assured; and as a
result, there can be no assurance that the Company's efforts will result in a
commercially viable business or that the Company will ever operate at a profit.
Further, there can be no assurance that the Company will be able to continue to
operate D&SNG on a profitable basis. Further, even if D&SNG generates revenues,
operating cash flow and pre-tax income for the Company in advance of the launch
of the Florida Fun-Train, there are significant restrictions on the upstreaming
of any such cash flow or income to the corporate parent. The level of acceptance
of the Company's services by consumers and the travel/tourism industry cannot be
predicted. As a result of its small size and capitalization and lack of
operating history, the Company is particularly susceptible to adverse effects of
changing economic conditions and consumer tastes, competition, technological
developments and other contingencies beyond the control of the Company. Due to
changing circumstances, the Company may be forced to change dramatically, or
even terminate, its planned operations.
CERTAIN ASSUMPTIONS WITH RESPECT TO THE COMPANY'S EXISTING AND PROPOSED
OPERATIONS. The Company's existing and proposed rail operations are based on
assumptions that are inherently subject to significant economic and competitive
uncertainties, all of which are difficult to predict and many of which are
beyond the control of the Company. These assumptions are also based on
information about circumstances and conditions existing at the time the
prospective information was prepared. There can be no assurance that any of the
prospective information can be realized or that the actual results will not be
materially higher or lower than assumed herein.
REQUIREMENTS FOR ADDITIONAL FINANCING. The Company believes that its current
funds, and the interest earned thereon, will be sufficient to allow the Company
to operate D&SNG and commence full revenue service of the Florida Fun-Train in
the fall of 1997; however, additional financing(s) may be required to cover
future operating and capital expenditures if the Company's revenues do not
materially exceed anticipated operating and capital expenditures. Moreover,
expansion of the Company's present and currently proposed passenger rail
operations will require substantial additional financing, and the Company has
made no arrangements in this regard; there can be no assurance that such
financings will be available on acceptable terms, or at all. Any additional
equity financings could result in substantial dilution to existing shareholders.
BANK LOAN RESTRICTIONS. There are a number of affirmative and negative covenants
in the term loan agreement between the Company's subsidiary, D&SNG, and its
principal institutional lender, one of which restricts D&SNG's ability to
"up-stream" profits to its corporate parent. As a result, despite profitable
operations of D&SNG, funds may not be available to the Company to repay the
Company's financial obligations, from time to time, as they come due. See
"Recent Developments."
PLEDGE OF REVENUE-PRODUCING ASSETS. All of the assets of D&SNG (presently
operated as a subsidiary of the Company) are subject to a "first" position
pledge to D&SNG's institutional lender and a "second" position pledge
(subordinate to the pledge to the institutional lender) to the seller of D&SNG.
These assets represent substantially all of the revenue-producing assets of the
Company. A default in either obligation, which results in a default of both
obligations, could result in the loss of the major assets of the Company to the
Company's creditors. If such assets are lost, there would be significant
material adverse consequences to the operations of the Company, including the
loss of the operations of D&SNG.
LIMITED AND CONTINGENT TRACK RIGHTS FOR THE FLORIDA FUN-TRAIN. With regard to
the Florida Fun-Train, the Company has negotiated an agreement with CSX
Transportation, Inc. ("CSXT") for the use of the track between West Palm Beach
and Orlando, Florida. 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). This agreement also contemplates the requirement of
comprehensive general liability insurance with available limits of not less than
$300 million insuring the
5
Company and CSXT. Failure to comply with these and other obligations under the
agreement with CSXT could result in loss of such track rights without which the
Company could not operate the Florida Fun-Train.
The Company has entered into a letter of intent with the Florida Department of
Transportation ("FDOT") for use of track rights in Dade, Broward and Palm Beach
Counties, Florida, and use of a terminal in Broward County for the Florida
Fun-Train. The agreement with FDOT requires payments of $500 for each one-way
trip and increasing in $50 increments over the next four years. The letter of
intent with FDOT requires that the Florida Fun-Train provide and maintain $125
million in comprehensive general liability insurance.
The contractual payments by the Company to the track owners as contemplated by
the above-described agreements and understandings are significant, and such
payments are based on the use of track and/or certain Florida Fun-Train revenue
(whichever is greater), and not on the Company's profitability. Further, there
can be no assurance that these contractual arrangements will be renewed after
the expiration of the applicable terms and the failure to renew any such
agreement could materially adversely affect the financial prospects of the
Company.
CONSTRUCTION AND INDUSTRY RISKS ASSOCIATED WITH THE FLORIDA FUN-TRAIN. The
railcars for the Florida Fun-Train must be constructed. This construction is
being done in Denver, Colorado, by Rader Railcar II, Inc. ("RRI"), a company
controlled by Thomas G. Rader, a director and the largest shareholder of the
Company. The Company expects substantially all of the Florida Fun-Train railcars
to be delivered by the end of 1997. There can be no assurance, however, that
construction and remodeling of the railcars will be completed on a timely basis.
Delays may be caused by technical difficulties, strikes, financial wherewithal
and many other factors which RRI may experience and are beyond the Company's
control. In the event of a delay, the Company's Florida Fun-Train operations
could subsequently be delayed which could have a material adverse effect on the
Company's financial condition.
Presently, three railcars have been delivered, subject to acceptance by the
Company, and are being utilized for limited promotional activities. Five of the
railcars are expected to arrive at the Company in September and October 1997,
the arrival time of the original railcar has not yet been finalized, and the
final three passenger railcars are expected to arrive in November and December
1997.
Further, the Company has made its terminal site selections for the Florida
Fun-Train and has made the final arrangements regarding its ownership interests
in such terminals in Central Florida. The Company has signed a letter of intent
to lease approximately 25.8 acres of land from Amtrak as a permanent site for
the northern terminal for a period of fifteen years with two ten-year renewal
options. The Company will place a temporary building on this site until such
time as a permanent terminal is completed. The Company has entered into a lease
through September 1998 for a railroad spur track and related land in Poinciana,
Florida until the permanent site is available for use. The Company is still
negotiating final arrangements regarding its ownership interests in South
Florida. One or more terminal buildings may have to be constructed on the
terminal sites once final selections have been made. The Company is currently
negotiating with various third parties in this regard; however, there can be no
assurance that these negotiations will be successful, and there can be no
assurance that the terminals will be timely constructed. If such delays occur,
there can be no assurance that the Florida Fun-Train service will commence in
the fall of 1997.
The Company's operations may be adversely affected by general economic
conditions and by numerous other factors, some of which are common to all
businesses and some of which are unique to the passenger rail industry. Such
factors include, among others: labor disturbances or strikes, either by
"on-board" employees or land-based personnel, which could delay trains or force
their cancellation; government regulatory orders or rules which could adversely
affect the Company's operations; accidents causing damage to or resulting in the
impounding of the Company's railcars or delaying train service, which could
result from a variety of natural or man-made causes and could temporarily or
permanently prevent the Company's train(s) from operating; and insurance, which
may be insufficient to cover losses from the cessation of operations or the
replacement or repair of lost or damaged property.
RELIANCE ON FLORIDA AND COLORADO TOURISM MARKETS. The Company's initial Florida
service, the Florida Fun-Train, will target tourists visiting central and
southeastern Florida. Tourists visiting the "Four Corners" area of the United
States, particularly southwestern Colorado, compose the principal market for
D&SNG. These planned operations may be materially adversely affected by
declining growth or absolute declines in the number of tourists visiting Florida
or Colorado. From time to time these tourism markets have experienced slowdowns
(declines in growth or absolute declines). There can be no assurance that any
such declines in Florida or Colorado tourism will not occur in the future, or
that such declines would not have a direct and adverse impact on the Company's
business.
The Company 's Florida Fun-Train business may also be subject to certain
seasonal fluctuations, depending on the tourist seasons in Florida, particularly
in South Florida (Miami/Ft. Lauderdale) and the Orlando area. D&SNG's business
is highly seasonal; historically, at least 60% of the total annual number of
passengers who ride on D&SNG's railroad do so during the months of June, July
and August.
MARKETING/DEPENDENCE ON WHOLESALE TOUR OPERATORS. The Company's passenger
railroad operations, particularly the introduction of the Florida Fun-Train
service, will depend on the Company's ability to successfully implement a
marketing program. Initially, the Company expects to rely on wholesale tour
operators and travel agents to sell tickets for its passenger train service as
part of a travel package. The Company's present internal marketing and sales
capabilities are limited due to financial resources allocated for advertising,
and the Company will be dependent, in large part, upon independent
representatives of tour operators in the wholesale and retail travel trade for
the marketing and sales of its services. Such persons also market competing
tourist services and entertainment attractions. Failure of the Company to
establish the necessary
6
marketing and distribution network or to generate profitable sales of tickets
for the Company's new railway service will have a material adverse effect on the
Company's results of operations and its financial condition.
HIGH OPERATING COSTS; RISKS ASSOCIATED WITH FUEL PRICES AND MAINTENANCE OF
RAILROAD EQUIPMENT. The passenger rail industry is characterized by a high
degree of operating leverage. Specifically, fixed costs represent the major
portion of a railroad's operating expenses and cannot be significantly reduced
when competition or any of various other factors causes a reduction in load
factors (passenger occupancy as a percentage of capacity) or passenger fares or
"on-board" revenues. Since railcar purchase or lease installment payments, train
operating expenses (including fuel, insurance, track usage charges and wages)
and corporate overhead will represent the vast majority of the Company's
expenses, the Company may not be able to reduce or decrease these costs on a
timely basis in the event that passenger levels drop or fares or en route prices
must be lowered because of competitive pressures. Accordingly, there is no
assurance that the Company will be able to operate profitably. Future increases
in the cost of diesel fuel, a major anticipated expense of train operations, are
difficult to predict given the continued economic and political uncertainties in
certain areas of the world. There can be no assurance that a significant amount
of maintenance will not be required on the Company's rail equipment; this is
particularly true for the operations of D&SNG which uses steam locomotives.
RISK OF OPERATING A RAILWAY SERVICE; POTENTIAL FOR LIABILITY CLAIMS. The Company
faces an inherent risk of exposure to liability claims in the event that the
operation of its trains results in accidents or other adverse effects. Further,
the Company's track usage agreements with the track owners require (or are
expected to require) that the Company maintain certain levels of liability
insurance protecting the track owners. There can be no assurance that the
Company will not be faced with exposure to material liability claims. The track
rights agreements with respect to the Florida Fun-Train require substantial
general comprehensive liability insurance (up to $300,000,000 in coverage) and
the premiums for such insurance will be significant. The Company has not
obtained any commitment for liability insurance for the operation of the Florida
Fun-Train. There can be no assurance that such assurance will be available to
the Company, or that the Company will be able to maintain such insurance at
reasonable rates. Failure to maintain adequate insurance could place the Company
at great financial risk in the event of accidents and adversely affect the
Company's ability to do business. Further, even if the Company were to maintain
adequate insurance, adverse publicity from accidents could have a material
adverse effect on the Company's business.
COMPETITION. Generally, the Company faces extensive competition for the spending
of leisure time and dollars from numerous attractions in the tourist
entertainment sector. The Company's success will depend primarily on its ability
to operate an entertaining, high-quality, efficient, safe and reliable service,
as well as its ability to market the service and secure consumer acceptance. It
is highly uncertain whether the Company will be successful in these efforts.
With regard to the Company's proposed Fun-Train operations, numerous companies,
most of which are substantially larger than the Company and have much greater
financial and other resources, offer alternative modes of transportation over
the routes where the Company intends to operate. These alternative modes of
transportation, principally private motor vehicles, bus service and passenger
air service, offer transportation that is less expensive and/or faster than the
Company's proposed rail service. Most of these competitors already enjoy an
established presence in the Florida and United States transportation and tourism
markets. The Company expects to compete on the basis of what it believes to be
its unique combination package of transportation and entertainment.
With respect to D&SNG, there is at least one other narrow gauge railroad which
offers train trips in southern Colorado. Further, since Durango and Silverton
are almost exclusively tourist destinations, the Company competes with
non-transportation oriented attractions for tourists. The automobile is the
principal mode of transportation in the Durango/Silverton corridor.
GOVERNMENTAL REGULATION. The Company's present and contemplated railroad
operations are strictly intrastate and therefore not regulated by the federal
government except for various safety regulations promulgated by the Federal
Railroad Administration.
The operations of the Florida Fun-Train will be regulated by the Florida
Department of Transportation's application of federal safety rules. The Florida
Fun-Train will be required to have a safety inspection by the U.S. Department of
Transportation, Federal Railroad Administration and the Florida Department of
Transportation before rail operations commence (and periodically thereafter).
The failure to "pass" safety inspections both before operations commence and
periodically thereafter would result in the railroad operations ceasing until
such time as the reason(s) for failure are remedied.
D&SNG's operations are subject to rate, administrative, environmental and safety
regulation by the Colorado Public Utilities Commission. D&SNG's operations are
required to maintain a state liquor license and a special alcohol tax stamp
issued by the Federal Bureau of Alcohol, Tobacco and Firearms, and are subject
to health and other regulations promulgated by federal, state and local
authorities. When the Florida Fun-Train commences operations it will be required
to have various state and federal liquor licenses and approvals similar to those
required of D&SNG.
The Company's operations will also be subject to environmental regulation by
federal and state agencies, as well as liquor licensing, health regulations and
other regulations promulgated by state and local authorities. There can be no
assurance that future regulatory compliance will not materially adversely affect
the Company's operations and profitability.
Delay in the commencement or cessation of the operations of either the Florida
Fun-Train or D&SNG due to non-compliance with applicable governmental
regulations would materially, adversely affect the Company.
7
CONTROL OF THE COMPANY. The executive officers and directors of the Company
(twelve persons) jointly own an aggregate of 30.36% of the issued and
outstanding Common Stock of the Company (excluding Shares to be issued upon
exercise of stock options, warrants or conversion of outstanding convertible
notes), which is the only outstanding class of capital stock of the Company and
which has one vote per share. Thomas Rader, a director of the Company, is the
single largest shareholder of the Company with 14.49% of the Common Stock.
Therefore, management of the Company should be able to control virtually all
matters requiring approval of the shareholders of the Company, including the
election of all of the directors.
In addition, the Company has a "staggered" board consisting of eight directors
each elected to three year terms in three separate classes.
POTENTIAL CONFLICTS OF INTEREST. A significant portion of the Company's
available cash (approximately $1.7 million exclusive of applicable sales taxes)
is expected to be used to purchase the remaining railcars for the Florida
Fun-Train from a company (RRI) which is controlled by one of the Company's
Directors, and the largest shareholder of the Company, Thomas G. Rader. The
Company also expects to satisfy its future needs for railcars through agreements
with RRI. There can be no assurance that there will not be material adverse
consequences to the Company from the inherent conflict of interest and lack of
arm's-length negotiations in connection with any agreement with RRI. Further, in
the event that disputes arise between Mr. Rader or RRI and the Company,
resolution of such disputes, whether through legal action or otherwise, could be
severely complicated by Mr. Rader's status with the Company.
The Company's agreement with CSXT for track rights usage allows CSXT to
designate a member of the Board of Directors of the Company (currently, Mr.
Albert B. Aftoora). This could give rise to a conflict of interest between the
Company and CSXT.
In connection with the Company's purchase of D&SNG, Mr. Charles E. Bradshaw, Jr.
became a director, shareholder and the principal warrantholder and creditor of
the Company. Mr. Bradshaw's interest as a creditor may put him in conflict with
the interests of the Company and its Board of Directors on which he serves.
OFFICER AND DIRECTOR INDEMNIFICATION. Pursuant to the Company's Bylaws, the
Company is obligated to indemnify each of its officers and directors to the
fullest extent permitted by law with respect to all liability and loss suffered,
and reasonable expense incurred, by such person in any action, suit or
proceeding in which such person was or is made or threatened to be made a party
or is otherwise involved by reason of the fact that such person is or was a
director or officer of the Company. The Company is also obligated to pay the
reasonable expenses of indemnified directors or officers in defending such
proceedings if the indemnified party agrees to repay all amounts advanced should
it be ultimately determined that such person is not entitled to indemnification.
Further, Article XII of the Company's Articles of Incorporation, as amended,
provides that the Company's officers and directors shall not be personally
liable to the Company for monetary damages for any breach of their fiduciary
duty by such person as an officer or director, except officers and directors
shall be liable for (i) their intentional misconduct, breach or knowing
violation of law, or (ii) the payment of dividends in violation of applicable
state law.
NO PAYMENT OF CASH DIVIDENDS. The Company has not paid any cash dividends to
holders of its Common Stock nor does it intend to declare any cash dividends
with respect thereto in the near future. Instead, the Company intends to retain
future earnings, if any, for use in its business operations. Further, the
Company's outstanding convertible secured notes prohibit the payment of any
dividends on the Common Stock.
EXERCISE OF THE OUTSTANDING WARRANTS AND/OR THE CONVERSION OF THE OUTSTANDING
NOTES INTO COMMON STOCK WILL HAVE DILUTIVE EFFECT. The Company's outstanding
common stock purchase warrants will provide an opportunity for the holders
thereof to profit from a rise in the market price of the Common Stock, of which
there is no assurance, with resulting dilution in the ownership interest in the
Company held by the then present shareholders. Holders of the outstanding
warrants or the outstanding Notes most likely would exercise such warrants or
convert such notes and purchase the Common Stock underlying such securities at a
time when the Company may be able to obtain capital by a new offering of
securities on terms more favorable than those provided by such warrants or
notes, in which event the terms on which the Company may be able to obtain
additional capital would be affected adversely.
SHARES ELIGIBLE FOR FUTURE SALE. All but 350,000 of the Company's current
outstanding shares of Common Stock (11,144,072 Shares) are "restricted
securities." These "restricted securities" may be sold upon compliance with Rule
144, adopted under the Act. Rule 144 provides, in essence, that a person holding
"restricted securities" for a period of one year may sell only an amount every
three months equal to the greater of (a) one percent of the Company's issued and
outstanding Common Stock, or (b) the average weekly volume of sales during the
four calendar weeks preceding the sale. The amount of "restricted securities"
which a person who is not an affiliate of the Company may sell is not so
limited, since generally non-affiliates may sell without volume limitation their
Shares held for two years. During each three-month period, beginning April 29,
1997, a holder of "restricted securities" who has held them for at least the
one-year period may sell under Rule 144 a number of Shares up to approximately
111,440 Shares (assuming no exercise of outstanding common stock purchase
warrants or conversion of convertible notes). Non-affiliated persons who hold
for the two-year period as described above may sell an unlimited number of
Shares once their holding period is met.
DILUTION; FUTURE SALES OF STOCK BY THE COMPANY. The Company currently has
11,144,072 shares of Common Stock outstanding. Additionally, the Company has
warrants, convertible notes payable and stock options outstanding that can be
converted to 5,672,773, 6,482,416 and 553,200 shares of Common Stock,
respectively. The Company has authorized an additional 164,300 stock options
that have not yet been granted.
8
After reserving Common Stock for issuance upon the exercise of the outstanding
common stock purchase warrants and stock options, and the conversion of the
outstanding Notes, the Company will have in excess of 75,000,000 Shares of
authorized but unissued Common Stock available for issuance without further
shareholder approval. As a result, any issuance of additional Shares of Common
Stock may cause current shareholders of the Company to suffer significant
dilution which may adversely affect the market for the securities of the
Company.
Prospective investors should be aware that the possibility of sales may, in the
future, depress the price of the Common Stock in any market which may develop
and, therefore, the ability of any investor to market his/her Shares may be
dependent directly upon the number of Shares that are offered and sold.
Affiliates of the Company may sell their Shares during a favorable movement in
the market price of the Common Stock which may have a negative effect on its
price per share.
NO ASSURANCE OF CONTINUED NASDAQ LISTING AND "PENNY STOCK" REGULATIONS MAY
IMPOSE CERTAIN RESTRICTIONS. The Company's Common Stock began trading on the
Nasdaq SmallCap Market on September 12, 1996. The Board of Governors of the
National Association of Securities Dealers, Inc., has established certain
standards for the continued listing of a security on Nasdaq and has proposed the
modifications of the existing standards to make them more stringent. The current
maintenance standards require, among other things, that an issuer have total
assets of at least $2,000,000 and capital and surplus of at least $1,000,000;
that the minimum bid price for the listed securities be $1.00 per share; that
the minimum market value of the "public float" be at least $1,000,000; and that
there be at least two market makers for the issuer's securities. A deficiency in
either the market value of the public float or the bid price maintenance
standard will be deemed to exist if the issuer fails the individual stated
requirement for ten consecutive trading days. If an issuer falls below the bid
price maintenance standard, it may remain on Nasdaq if the market value of the
public float is at least $1,000,000 and the issuer has $2,000,000 in equity. The
Company satisfies all current and proposed maintenance standards for Nasdaq
SmallCap listing of its Common Stock. There can be no assurance that the Company
will continue to satisfy the current, or, if approved, the more stringent
requirements for maintaining the Nasdaq listing. If the Company's securities
were to be excluded from Nasdaq, it would adversely affect the prices of such
securities and the ability of holders to sell them, and the Company would be
required to comply with the initial listing requirements to be relisted on
Nasdaq. Should the Company's Common Stock be delisted by Nasdaq then the only
likely public market for the Company's Common Stock would be the OTC Bulletin
Board.
If the Company is unable to satisfy Nasdaq's maintenance requirements and the
price per share were to be below $5.00, then unless the Company satisfied
certain net asset tests, the Company's securities would become subject to
certain penny stock rules promulgated by the Securities and Exchange Commission.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from such rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's Common Stock becomes subject to the penny stock
rules, investors in the Offering may find it more difficult to sell their
shares.
POSSIBLE ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK. The Company's Articles
of Incorporation authorize the issuance of 500,000 shares of "blank check"
preferred stock ("Preferred Stock") with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of the Common Stock. The issuance of any series of Preferred Stock
having rights superior to those of the Common Stock may result in a decrease in
the value or market price of the Common Stock. Holders of Preferred Stock to be
issued in the future may have the right to receive dividends and certain
preferences in liquidation and conversion rights. The issuance of such Preferred
Stock could make the possible takeover of the Company or the removal of
management of the Company more difficult, discourage hostile bids for control of
the Company in which shareholders may receive premiums for their Common Stock
and adversely affect the voting and other rights of the holders of the Common
Stock. The Company may in the future issue additional shares of its Preferred
Stock.
ADVERSE EFFECT OF POSSIBLE REDEMPTION OF SERIES A WARRANTS. Upon redemption of
the outstanding Series A Warrants, the holders thereof would be required to (i)
exercise such warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, or (ii) accept the redemption price which is
likely to be substantially less than the market value of such warrants at the
time of redemption. See "Description of Securities."
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION
WITH THE EXERCISE OF THE WARRANTS. The Company will be able to issue the Shares
issuable upon the exercise of the Warrants only if (i) there is a current
Prospectus relating to the securities offered under an effective Registration
Statement filed with the Commission, and (ii) such Common Stock is then
qualified for sale or exempt therefrom under applicable state securities laws of
the jurisdictions in which the various holders of such Warrants reside. While
this Prospectus relates to a current, effective registration statement, there
can be no assurance, that the Company will be successful in maintaining a
current Registration Statement. After a Registration Statement becomes
effective, it may require updating by the filing of post-effective amendments.
9
FORWARD-LOOKING STATEMENTS. This Registration Statement, and more specifically,
"Management's Discussion and Analysis," contains "FORWARD-LOOKING STATEMENTS"
within the meaning of the federal securities laws. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for "FORWARD-LOOKING
STATEMENTS". In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's "FORWARD-LOOKING STATEMENTS". Such
factors include, among other things, the following: the timely manufacture and
delivery of the railcars comprising the Florida Fun-Train, the prompt
construction of the northern and southern terminals of the Florida Fun-Train and
the timely institution of the Florida Fun-Train's operations, the successful
integration of the operations of The Durango & Silverton Narrow Gauge Railroad
into the Company's overall operations, the successful marketing of the Company's
rail services in Florida and Colorado, the ability of the Company to obtain,
from internal and external sources, sufficient working capital to fund its
operations and unscheduled repairs to the Company's railroad equipment. In
addition, the Company's business prospects are generally susceptible to national
economic conditions as well as those affecting the Colorado and Florida tourism
markets, specifically. Actual results could differ materially from the
"FORWARD-LOOKING STATEMENTS" as a result of the foregoing factors.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares offered by
the Selling Shareholders. Management estimates that the aggregate expense of
this offering will be approximately $65,000, all of which will be borne by the
Company.
The gross proceeds from the exercise of the outstanding Warrants which are being
offered hereby would be $19,754,705. The Company intends to use the proceeds
from the exercise of the Warrants, if any, for working capital and general
corporate purposes. Proceeds not immediately required for such purposes will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
SELECTED FINANCIAL DATA
The following selected financial data as of and for the year ended December 31,
1996, and for the eight months ended December 31, 1995, are derived from the
Company's audited financial statements included elsewhere herein. The financial
data at June 30, 1997, and for the six months ended June 30, 1997 and 1996, have
not been audited by independent auditors; however, in the opinion of management
such financial data includes all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the information set forth therein.
Interim results are not necessarily indicative of results for the entire year.
The following data should be read in conjunction with the financial statements
of the Company, including notes thereto, and other financial information
included elsewhere herein.
STATEMENT OF OPERATIONS DATA
FOR THE SIX MONTHS FOR THE YEAR ENDED FOR THE EIGHT MONTHS
ENDED JUNE 30 DECEMBER 31, 1996 ENDED DECEMBER 31, 1995
------------------ ------------------ -----------------------
1997 1996
Net loss $(1,695,957) $(759,207) $(2,595,762) $(720,413)
Net loss per
share $ (.18) $ (.12) $ (.34) $ (.17)
BALANCE SHEET DATA
JUNE 30, 1997* DECEMBER 31, 1996
-------------- -----------------
Working capital $ 8,127,309 $ 7,233,943
Fixed assets 37,638,095 2,413,320
Total assets 53,166,174 13,140,653
Total long-term debt 33,611,501 8,250,682
Total liabilities 46,567,701 8,876,965
Total shareholders' equity 6,598,473 4,263,688
- - ------------
* The balance sheet data as of June 30, 1997 reflect the acquisition of
The Durango & Silverton Narrow Gauge Railroad Company ("D&SNG") and is
materially different from the balance sheet data as of December 31,
1996. This information should be read in conjunction with the
discussion of D&SNG on page 11 and proforma combined financial
information beginning on page 12.
10
THE DURANGO & SILVERTON NARROW GAUGE RAILROAD COMPANY
The following selected financial data as of December 31, 1996 and for each of
the two years in the period ended December 31, 1996, are derived from the
audited financial statement of D&SNG included elsewhere herein. The financial
data for the three months ended March 31, 1997 and 1996, has not been audited by
independent auditors; however, in the opinion of management such financial data
includes all adjustments (consisting of normal recurring adjustments) necessary
to present fairly the information set forth therein. Interim results are not
necessarily indicative of results for the entire year. The following data should
be read in conjunction with the financial statements of D&SNG, including notes
thereto, and other financial information included elsewhere herein.
STATEMENT OF OPERATIONS DATA
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31 DECEMBER 31,
------------------------- -----------------------------------
1997 1996 1996 1995
---------- ---------- ------------ ------------
Revenues $ 291,740 $ 284,260 $ 8,946,462 $ 8,468,463
Gross profit (loss) (413,509) (415,434) 3,802,660 3,640,256
Operating income (loss) (704,786) (710,155) 1,755,294 1,582,188
Net income (loss) $ (826,527) $ (834,007) $ 1,703,056 $ 1,221,844
BALANCE SHEET DATA
DECEMBER 31, 1996
-----------------
Working capital (deficiency) $ (944,741)
Current assets 857,071
Property and equipment, net 6,519,201
Accounts receivable from stockholder 8,689,745
Total assets 16,318,751
Total long-term debt less current maturities 3,792,295
Total liabilities 5,660,388
Total stockholder's equity 10,658,363
11
PRO FORMA COMBINED FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following tables set forth certain unaudited condensed pro forma
combined financial information for the Company after giving effect to the
Durango Acquisition using the purchase method of accounting as if such
transaction had been consummated on January 1, 1996 for the year ended December
31, 1996 and on January 1, 1997 for the six months ended June 30, 1997. The
proforma statement of operations for the six months ended June 30, 1997 was
prepared by combining the results of operations for the Company for the six
months ended June 30, 1997 (which include the operations of D&SNG for the three
months ended June 30, 1977) with the results of operations for D&SNG for the
three months ended March 31, 1997. The information contained in the following
tables does not purport to be indicative of the results of operations of the
Company which may have been obtained had the acquisition of D&SNG been
consummated on the dates assumed.
The unaudited condensed pro forma combined financial information
reflects a preliminary allocation of the purchase price of D&SNG and,
accordingly, is subject to change upon, among other things, a final
determination of required purchase accounting adjustments including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective fair values has not yet been made. Accordingly, the
purchase accounting adjustments made in connection with the development of the
unaudited condensed pro forma combined financial information appearing in this
Prospectus are preliminary and have been made solely for purposes of developing
such pro forma combined financial information.
The pro forma information with respect to the acquisition of D&SNG
assumes the issuance of 200,000 shares of the Company's Common Stock to the
seller of D&SNG as partial consideration for the purchase thereof. The balance
of the consideration paid to the seller included: (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) 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 in steps to 10% by year four; and (iii) 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 (valued at $2.00 per share)
and the 1,610,000 shares (valued at $.09 per share) underlying the
aforementioned six-year 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 sale price of the Company's common stock (not to exceed $5.00
per share); at the maturity date should the noteholder elect to receive each 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 Durango
Acquisition was determined in arms' length negotiations between the Company and
the seller.
This information should be read in conjunction with the historical
financial statements and accompanying notes of the Company contained in its Form
10-KSB for the year ended December 31, 1996, its Form 10-QSB for the six
months ended June 30, 1997, and the historical financial statements and
accompanying notes of D&SNG for the years ended December 31, 1996 and 1995,
which appear in the Company's Form 8-K/A, dated May 13, 1997.
12
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
PROFORMA
FAR D&SNG ADJUSTMENTS COMBINED
----------- ---------- ---------- -----------
Revenue $ $8,946,462 $ $ 8,946,462
Cost of Revenue 5,143,802 18,720 (2) 5,162,522
----------- ---------- ---------- -----------
3,802,660 (18,720) 3,783,940
Selling, General and
Administrative 2,208,129 1,992,224 (906,000)(3) 3,294,353
----------- ---------- ---------- -----------
Operating Income (Loss) (2,208,129) 1,810,436 887,280 489,587
Interest Expense, Net 166,911 52,238 1,722,735 (1) 1,941,884
Amortization of
Loan Costs 220,722 55,142 (16,547)(1) 259,317
----------- ---------- ---------- -----------
Income (Loss) Before
Taxes (2,595,762) 1,703,056 (818,908) (1,711,614)
Income Taxes
----------- ---------- ---------- -----------
Net Income (Loss) $(2,595,762) $1,703,056 $ (818,908) $(1,711,614)
=========== ========== ========== ===========
Weighted Shares
Outstanding 7,623,050 200,000 7,823,050
Earnings (Loss) Per
Share $ (0.34) $ (0.22)
=========== ===========
SEE NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION.
13
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
PRO FORMA
FAR D&SNG ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
Revenue $ 2,633,585 $ 291,740 $ $ 2,925,325
Cost of Revenue 1,186,004 705,249 4,680(2) 1,895,933
----------- ----------- ----------- -----------
1,447,581 (413,509) (4,680) 1,029,392
Selling General
and Administrative 525,153 277,491 802,644
Developmental of
Florida Fun-Train 1,883,276 -- 1,883,276
----------- ----------- ----------- -----------
Operating Loss (960,848) (691,000) (4,680) (1,656,528)
Interest Expense, Net 593,019 121,741 304,484(1) 1,019,244
Amortization of Loan
Costs 142,090 13,786 (4,137)(1) 151,739
----------- ----------- ----------- -----------
Loss Before
Taxes (1,695,957) (826,527) (305,027) (2,827,511)
Income Taxes
----------- ----------- ----------- -----------
Net Loss $(1,695,957) $ (826,527) $ (305,027) $(2,827,511)
=========== =========== =========== ===========
Weighted Shares O/S 9,405,875 100,000 9,505,875
Loss Per Share $ (0.18) $ (0.30)
=========== ===========
SEE NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
14
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following pro forma adjustments have been made:
(1) To record additional interest expense (approximately $1.2 million and
$300,000 for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively) and reduce amortization of loan costs
(approximately $17,000 and $4,000 for the year ended December 31, 1996
and the six months ended June 30, 1997, respectively) arising from
incremental debt as a result of financing the acquisition, net of
interest income available from excess cash (approximately $13,000 and
$4,000 for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively). To eliminate interest income on loans to
affiliates (approximately $528,000 and $6,000 for the year ended
December 31, 1996 and the six months ended June 30, 1997,
respectively).
(2) To record additional depreciation expense resulting from the write-up
of depreciable fixed assets (approximately $280,000) to fair value.
This expense adjustment was approximately $19,000 and $5,000 for the
year ended December 31, 1996 and the six months ended June 30, 1997,
respectively.
(3) To record savings from the reduction or elimination of certain expenses
by the Company following the Durango Acquisition. This adjustment
consisted primarily of approximately $600,000 for the year ended
December 31, 1996 for a corporate airplane which the Company will no
longer use, approximately $274,000 for the year ended December 31, 1996
of corporate management fees which will no longer be charged to the
Company, and approximately $32,000 for the year ended December 31,
1996, of lease payments (net of termination costs) for an apartment
which the Company has discontinued leasing.
15
RECENT DEVELOPMENTS
On June 30, 1997, the Company completed a private offering of up to 223.05 units
of its securities at $50,000 per unit, pursuant to Regulations D and S as
promulgated under the Securities Act. Each unit consists of (i) an 8%
convertible subordinated note in the principal amount of $50,000 and (ii) 5,000
shares of Common Stock of the Company. Investors purchasing at least 40 units
($2,000,000) received an additional 2,500 shares (for a total of 7,500 shares)
for each unit purchased; however, the subordinated note(s) issued to these
investors contain(s) a mandatory conversion feature which may be exercised by
the Company in certain circumstances.
The purpose of the private offering was to raise additional working capital for
the Company, and $11,152,500 (gross proceeds) and $9,560,000 (net proceeds) was
raised under the offering. This financing along with a $ one million line of
credit is expected to satisfy the Company's capital requirements for the next
twelve months.
In connection with the acquisition of D&SNG by the Company in March 1997, the
acquisition was accounted for under the purchase method for accounting purposes
and based upon a preliminary allocation of the purchase price resulted in the
following significant assets acquired and liabilities assumed and/or incurred:
Fixed assets $29,956,572
Inventories and other assets 1,689,087
Deferred income tax liability 8,167,159
Long-term debt 17,650,000
Other liabilities 2,868,094
The purchase price, which aggregated approximately $16.2 million and did not
result in an allocation to goodwill, consisted of the following consideration:
(i) approximately $5 million in cash; (ii) $10.05 million in seller financing
consisting of two promissory notes; (iii) 200,000 shares of the Company's Common
Stock; and (iv) a Common Stock purchase warrant covering 1,610,000 shares
exercisable at $3.50 per share.
Additionally, 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. There is a
restriction in the $8.5 million term loan agreement which limits the Company's
ability to "receive" the profits of D&SNG. This restriction requires compliance
by D&SNG with covenants regarding the maintenance of equity plus subordinated
debt and the ratio of senior debt to equity and subordinated debt, and that
D&SNG certifies that there are no existing defaults by D&SNG under the term loan
agreement. The term loan agreement also provides for notification and the
provision to the lender of certain current financial statements regarding D&SNG
before an "upstreaming" of profits. D&SNG currently complies with all of these
covenants.
16
PRINCIPAL AND SELLING SHAREHOLDERS
COMMON STOCK:
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 13, 1997, with
respect to (i) each of the Company's executive officers and directors (including
Messrs. Monteleone and Bradshaw as Selling Shareholders), and (ii) all executive
officers and directors as a group. This table also sets forth certain
information with respect to beneficial ownership of the Company's Common Stock
of each Selling Shareholder (as of October 30, 1996, except for certain Selling
Shareholders who purchased their shares in the 1997 Private Placement) including
each person known to the Company to be the beneficial owner of more than 5% of
the Common Stock (excluding officers and directors), each of whom is a Selling
Shareholder. Unless otherwise indicated, all shares of Common Stock are owned
directly and of record and the persons so indicated have voting and investment
power with respect thereto. With respect to those Selling Shareholders who are
not individuals, no officer or general partner of any such shareholder has any
position, office or other material relationship with the Company or its
corporate predecessors during the last three years. It has been assumed that all
of the shares of the Selling Shareholders so offered will be sold.
SHARES BENEFICIALLY OWNED
BEFORE AND AFTER OFFERING(1)
----------------------------
SHARES
NAME POSITION WITH COMPANY SHARES PERCENT(2) OFFERED
- - ---- --------------------- ------ ---------- -------
EXECUTIVE OFFICERS AND DIRECTORS:(3)
Thomas G. Rader Director 1,632,581(4) 14.63 0
Charles E. Bradshaw, Jr. Director 1,810,000(5) 14.19 200,000
Allen C. Harper Chairman of the 1,347,017(6) 12.09 0
Board of Directors
and Chief Executive Officer
Raymond Monteleone President, Chief 204,133(7)(8) 1.80 10,800(7)
Operating Officer
and Director
Luigi Salvaneschi Director 103,654(4)(9) * 0
David H. Rush Director 79,414(4) * 0
Glenn P. Michael Director 23,000(4) * 0
Albert B. Aftoora Director 4,500(4) * 0
Donald P. Cumming Vice President, 13,999(8) * 0
Secretary, Treasurer and
Acting Chief Financial Officer
Thomas E. Blayney Vice President of 13,666(8) * 0
Operations
Pamela S. Petcash Vice President, Customer 10,999(8) * 0
Care and Entertainment
Gordon L. Downing Vice President of Marketing 3,333(8) * 0
and Sales
All Executive Officers and Directors 5,246,296 40.19 0
as a Group (12 persons)
17
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
------------------
SHARES
NAME SHARES(10) PERCENT(2) OFFERED(11)
- - ---- ---------- ---------- -----------
SELLING SHAREHOLDERS:
Haldrun Eckes-Chanire 2,178,571(12) 17.33 2,178,571
11 Queen Street
Mayfair, London, UK
W1X 7PD
Lancer Partners L.P.
237 Park Ave., 8th Fl
New York, NY 10017 1,010,357(13) 8.57 1,096,071
International Capital Growth Ltd.
666 Steamboat Road
Greenwich, Ct. 06830 826,550(14) 7.42 826,550
EFO Fund, Ltd.
1111 W. Mockingbird Lane, #1400
Dallas, TX 75247 732,857(15) 6.31 810,000
Emanon Partners, L.P.
237 Park Avenue
Suite 901
New York, NY 10017 631,428(16) 5.46 685,714
Lancer Offshore, Inc. 588,214(17) 5.10 588,214
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Fairnoon Management Ltd.
11 Queenstreet Mayfair
London W1X 7PD, England 570,000 4.95 630,000
Rush & Co.
c/o Swiss American Securities, Inc.
100 Wall Street, 4th Fl
New York, NY 10005 548,177 4.76 628,834
Rosebud Capital Growth Fund Ltd.
c/o Euro-Dutch Trust Co. (Bahamas)
Charlotte House, Charlotte St.
Nassau, Bahamas 512,747 4.48 563,267
Edgeport Nominees, Ltd. 401,888 3.53 439,625
Corner Bank, Ltd. 369,000 3.24 389,571
Caxton International Limited 385,714 3.37 385,714
Demachy Worms & Co. International, Ltd. 325,714 2.87 360,000
Alan L. Jacobs 299,426 2.66 299,426
BFI Banque De Financement & D'Investissement 162,857 1.45 180,000
18
Geneve
Republic National Bank of New York (Suisse) SA 162,785 1.45 178,933
Faisal Finance (Switzerland) SA 155,286 1.38 169,000
Volksbank Kufstein 154,286 1.37 154,286
Republic National Bank of New York
(Luxemburg SA) 146,571 1.30 162,000
David M. Hallman, Sr. 116,286 1.04 118,000
Bank Sarasin & Co. 115,714 1.03 115,714
Bostar A.S. 103,714 * 110,571
James F. Ellis Trust DTD 4/11/89 97,281 * 101,600
Stanley Hollander IRA Cowen & Co. Custodian 89,495 * 96,942
58-03120
Lancer Voyager 87,143 * 87,143
Cameo Trust Corporation Limited 81,429 * 90,000
The Gifford Fund Ltd. 81,429 * 90,000
Charles L. and Donna Greenberg, JTWROS 81,429 * 90,000
Napier Brown Holdings Ltd. 81,429 * 90,000
Veritas Films SA 81,429 * 90,000
Heptagon Investments Ltd. 81,356 * 88,933
Cass & Co.-Magnum Capital Growth Fund 77,142 * 77,142
Lago Wernstedt 71,142 * 74,571
Stolzoff Family Trust of 2/05/95, Martin S.
Stolzoff and Barbara R. Stolzoff, Trustees 68,123 * 74,468
Ronald Koenig 67,406 * 73,422
Phillip Bibicoff 65,143 * 72,000
C.M. Investment Nominees Limited 65,143 * 72,000
19
David A. Rees 65,143 * 72,000
P.G. Ridgwell 65,071 * 70,933
Banque Privee Edmond De Rothschild S.A. 56,964 * 62,467
Vital Miljo AS 56,017 * 59,308
Bauer Family Limited Partnership 48,857 * 54,000
Falcon Management Ltd. 48,857 * 54,000
Fixtar Holdings, Inc. 48,857 * 54,000
Richard B. Liroff 48,857 * 54,000
Saracen International 48,857 * 54,000
Tradeco Limited 48,857 * 54,000
UOB Luxembourg S.A. 48,857 * 54,000
Gibesgelt 46,250 * 46,250
Euro Capital 45,000 * 45,000
Lawrence Burstein 40,695 * 44,485
Cass & Co.-Magnum US Equity Fund 38,571 * 38,571
The Rogoff Family Trust dated 6/18/96 38,571 * 38,571
Fritas A/S 38,571 * 38,571
Kewa Invest A/S 38,571 * 38,571
Michael S. Jacobs 37,500 * 37,500
20
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
------------------
SHARES
NAME SHARES(10) PERCENT(2) OFFERED(11)
- - ---- ---------- ---------- -----------
Michael Schaenen 35,625 * 35,625
Christopher Fox 35,625 * 35,625
Intergalactic Growth Fund, Inc. 35,571 * 37,285
Brookbank Holdings, Ltd. 33,300 * 33,300
Gary Barnett, IRA Standard/Rollover 32,571 * 36,000
Harvey R. Brice BSSC Master Defined Contribution M/P Pension
Plan 32,571 * 36,000
Compass Investment Management Limited 32,571 * 36,000
Coutts & Co. S.A. 32,571 * 36,000
Barrie M. Damson 32,571 * 36,000
Ernest Dorner GST Non-Exempt Trust A U/T/A 5/26/94 32,571 * 36,000
Elmtree Corporation 32,571 * 36,000
Milton and Irene Geller 1985 Trust 32,571 * 36,000
Susan Greenberg 32,571 * 36,000
Alan D. Jacobson, IRA 32,571 * 36,000
Robert Katz 32,571 * 36,000
Peter Barrington Kirk 32,571 * 36,000
Morgan Steel Limited 32,571 * 36,000
John D. Murphy 32,571 * 36,000
Nicator S.A., Zurich 32,571 * 36,000
Pictet & Cie 32,571 * 36,000
Robinson Gear (Nominees) Limited A/CJ-10 32,571 * 36,000
Stoneman Investor Partnership 32,571 * 36,000
Terrier Finance, Inc. 32,571 * 36,000
Ghazi Allawi 32,499 * 34,933
Helix Investments, Ltd. 31,497 * 32,220
Dan Purjes 30,010 * 30,010
Kimberly A. Goguen 25,000 * 25,000
Christopher D. Jennings 24,409 * 26,485
Rigel AS 23,700 * 25,414
21
Gary H. Stolzoff 22,768 * 25,003
Pyramid Partners, LP 21,714 * 24,000
Prime, Grieb & Co. Limited 19,286 * 21,000
Aeron Marine Shipping Co. 19,285 * 19,285
Bank Austria Sparkasse der Stadt 19,285 * 19,285
Chase Manhattan Bank & Louise Mallory 19,285 * 19,285
as Trustees for U/A Philip R. Mallory dated 11/16/75
C. W. Spelke 19,285 * 19,285
Fruit of the Loom, Inc. Senior Executive 19,285 * 19,285
Officer Deferred Compensation Trust
Delaware Charter Cust. Robert Zelinka, IRA 19,285 * 19,285
Ruth Zelinka 19,285 * 19,285
Leonard Gordon 19,285 * 19,285
Edward Haymes 19,285 * 19,285
Thomas P. Schmidt 19,285 * 19,285
Strear Foods Company 19,285 * 19,285
Ekistics Corp. 19,285 * 19,285
Lombard Odier & Cie 19,285 * 19,285
Skips A/S Canopus 19,285 * 19,285
Gerald Rosen 19,000 * 21,000
Sachem Corporate Finance Ltd. 16,875 * 16,875
Philip Altheim 16,286 * 18,000
Gary Barnett 16,286 * 18,000
Denis Baylin 16,286 * 18,000
I. Bibicoff, Inc., Pension Trust Fund 16,286 * 18,000
Boel AS 16,286 * 18,000
Credit Lyonnais (Suisse) SA Geneva 16,286 * 18,000
Credit Suisse Zurich 16,286 * 18,000
Owen H. Gassaway 16,286 * 18,000
David Greenberg, IRA 16,286 * 18,000
David Greenberg and Susan Greenberg,
Trustees FBO Greenberg and Panish,
a Prof. Corp. Def. Bene. Pension Plan 2/01/88 16,286 * 18,000
Haaco AS 16,286 * 18,000
Hapoalim Mayo Casa Bancaria 16,286 * 18,000
Allan B. Hechtman, Inc., Pension Plan & Trust 16,286 * 18,000
22
Allan B. and Linda S. Hechtman, JTWROS 16,286 * 18,000
Trustees of the Hill Oldridge Ltd. Pension Fund 16,286 * 18,000
Nils Otto Holmen 16,286 * 18,000
P.B. Hubbard/J.D. Boden as Trustees of the Vector Trust 16,286 * 18,000
Svein Huse 16,286 * 18,000
Lenard E. Jacobson, MD, PC Profit Sharing Trust 16,286 * 18,000
Robert Jones 16,286 * 18,000
Mazin Kamouna 16,286 * 18,000
23
SHARES
BENEFICIALLY OWNED
BEFORE OFFERING(1)
------------------
SHARES
NAME SHARES(10) PERCENT(2) OFFERED(11)
- - ---- --------- ---------- ----------
William A. Kamke and Dorothy S. Kamke, JTWROS 16,286 * 18,000
A/S Kapitalutvikling 16,286 * 18,000
Ronald Korn, IRA 16,286 * 18,000
Pierre and Francoise Lambert 16,286 * 18,000
Metropolitan Finance Limited 16,286 * 18,000
John Bell Moran, Jr. 16,286 * 18,000
Anne P. Newman and Harry Newman, Jr. JTWROS 16,286 * 18,000
Scott Notowitz 16,286 * 18,000
Oistein Nyberg 16,286 * 18,000
RNB (France) Monaco 16,286 * 18,000
Allan Rudnick, IRA 16,286 * 18,000
J.R.L. Smith 16,286 * 18,000
K.E. Smith 16,286 * 18,000
Ivor Spiro 16,286 * 18,000
Craig Taines 16,286 * 18,000
Taines Family Limited Partnership 16,286 * 18,000
Abraxas Partners, Ltd. 16,286 * 18,000
Michael Morris 16,247 * 16,971
Walter Prime 16,247 * 16,971
Peter R. McMullin 16,213 * 16,933
Rudnick Living Trust DTD 7/22/91 16,213 * 16,933
John VanOrdstrand 12,500 * 12,500
Sid Paterson 9,642 * 9,642
Caribou Bridge Fund, LLC 9,642 * 9,642
Thomas P. Schmidt 9,642 * 9,642
Joseph and Lillian Matulich JTWROS 9,375 * 9,375
Trafina Privatebank AG 9,375 * 9,375
Magne F. Aaby 8,143 * 9,000
Birger Dalen 8,143 * 9,000
John Heckler 8,143 * 9,000
24
Norman Leben 8,143 * 9,000
Svein A. Loken 8,143 * 9,000
Steven Millner 8,143 * 9,000
Asher Plaut and Evelyn Plaut, JTWROS 8,143 * 9,000
Svein-Erik Stiansen 8,143 * 9,000
Bank Julius Baer & Co. 8,107 * 8,467
Ivar Tangen Consulting AS 7,414 * 7,414
Craig A. Blumberg 5,429 * 6,000
Steven H. Marvin 5,429 * 6,000
Daniel J. Marx 5,428 * 6,000
Peter Sheib 5,010 * 5,010
Lori Shepps 5,000 * 5,000
Lawrence Rice 4,990 * 4,990
The Eli S. Franco and Carol A. Franco 4,821 * 4,821
Revocable Family Living Trust
Richard M. Weiss & Gail L. Weiss JTWROS 4,821 * 4,821
Thomas A. Weiss & Ellen Weiss JTWROS 4,821 * 4,821
Southeast Research Partners 4,500 * 4,500
Matthew Balk 3,880 * 3,880
John T. Clarke 3,750 * 3,750
Charles Roden 3,530 * 3,530
Nancy Tarlow Barrett 3,500 * 3,500
First National Fund 2,250 * 2,250
Giant Trading Company 1,500 * 1,500
Michael Loew 1,325 * 1,325
Capital Growth International, LLC 1,000 * 1,000
Cheviot Capital 750 * 750
Value Investing Partners 750 * 750
Joelle Jacobs 750 * 750
Pellet Investments 500 * 500
Scott A. Weisman 445 * 445
Brill Securities 375 * 375
Paul Fitzgerald 365 * 365
Sherwood P. Larkin 290 * 290
25
Richard Sichenzio 155 * 155
- - ------------
* Less than 1%
26
(1) Unless otherwise indicated, each shareholder has sole voting and investment
power with respect to the Common Stock indicated as beneficially owned thereby.
(2) In accordance with Rule 13d-2 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), shares that are not outstanding, but that are
issuable pursuant to (i) outstanding stock options (ii) the exercise of
outstanding Warrants and (iii) the conversion of the Notes, all of which are
exercisable or convertible within 60 days of the date of this Prospectus, have
been deemed to be outstanding for the purpose of computing the percentage of
outstanding shares owned by the individual having such right, but have not been
deemed outstanding for the purpose of computing the percentage for any other
person. These amounts do not include the exercise of certain warrants to
purchase an aggregate of 475,000 shares of Common Stock to be issued to CSXT.
(3) Unless otherwise indicated, the address for each director is c/o First
American Railways, Inc., 3700 North 29th Avenue, Hollywood, Florida 33020.
(4) Includes 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 1,345,732 shares which are owned of record by Harper Family
Partnership L.P., for which Mr. Harper and his wife, Carol E. Harper, are the
sole limited partners, and 1,285 shares which are owned of record by Harper
Partners of Miami, Ltd., a Florida limited partnership, for which Carol E.
Harper, serves as trustee.
(7) Includes 35,800 shares owned of record by Mr. Monteleone, (the balance
represents currently exercisable stock options); a total of 10,800 of these
shares are being offered hereby.
(8) Includes 168,333 shares, 12,999 shares, 11,666 shares, 3,333 shares and
9,999 shares which are issuable to Messrs. Monteleone, Cumming, Blayney, Downing
and Miss Petcash, respectively, upon the exercise of currently-exercisable stock
options.
(9) Mr. Salvaneschi serves as the trustee for a trust under an agreement dated
October 19, 1993, in which name these shares are held, and for which Mr.
Salvaneschi has sole voting and dispositive power.
(10) With respect to all of the Selling Shareholders, their share amounts
include an aggregate of 3,295,987 shares which may be issued either upon the
conversion of the Notes (or upon the exercise of the Series A Warrants which may
be issued, in certain circumstances, upon the prepayment of such Notes), and an
aggregate of 3,186,429 shares which may be issued upon the conversion of the
Subordinated Notes.
(11) With respect to the Selling Shareholders, it has been assumed that all
their Shares so offered will be sold. Further, these amounts include shares
which may be issued to certain Selling Shareholders upon conversion of accrued
interest payable upon their Notes.
(12) Includes an aggregate of 1,428,571 shares which may be issued upon the
conversion of the Subordinated Notes.
(13) Includes an aggregate of 642,857 shares which may be issued upon the
exercise of outstanding Warrants, 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) and upon the conversion of the Subordinated Notes..
(14) International Capital Growth is the Placement Agent for the Company.
(15) Includes an aggregate of 462,857 shares which may be issued upon the
exercise of outstanding Warrants, and 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 411,428 shares which may be issued upon the
exercise of outstanding Warrants, 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), and upon the conversion of the Subordinated Notes.
(17) Includes an aggregate of 385,714 shares which may be issued upon the
conversion of the Subordinated Notes.
27
SERIES A WARRANTS:
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Series A Warrants as of
October 1, 1996, and as adjusted to reflect the sale of such Warrants offered by
the holders thereof, none of whom hold any position with the Company and six of
whom own more than 5% thereof. With respect to those selling warrantholders who
are not individuals, no officer or general partner of any such warrantholder has
any position, office or other material relationship with the Company or its
corporate predecessors during the last three years.
BEFORE OFFERING
--------------- WARRANTS
NAME WARRANTS PERCENT* OFFERED
- - ---- -------- ------- -------
Lancer Partner L.P.
237 Park Ave., 8th Fl.
New York, NY 10017 300,000 7.57 300,000
Egger & Co.
c/o The Chase Manhattan Bank N.A.
P.O. Box 1508 Church Street Station
New York, NY 10008 290,519 7.33 290,519
EFO Fund, Ltd.
1111 W. Mockingbird Lane, #1400
Dallas, TX 75247 270,000 6.81 270,000
Auric Investments Limited
24 St. Georges Street, Douglas
Isle of Man IM1 1AH 260,774 6.58 260,774
Fairnoon Management Ltd.
11 Queenstreet Mayfair
London W1X 7PD, England 210,000 5.30 210,000
Rush & Co.
c/o Swiss American Securities, Inc.
100 Wall Street, 4th Fl.
New York, NY 10005 208,799 5.27 208,799
Emanon Partners, L.P. 190,000 4.79 190,000
Rosebud Capital Growth Fund Ltd. 176,818 4.46 176,818
Edgeport Nominees, Ltd. 147,333 3.72 147,333
Demachy Worms & Co. International, Ltd. 120,000 3.03 120,000
Alan L. Jacobs 86,926 2.19 86,926
Faisal Finance (Switzerland) SA 73,000 1.84 73,000
Corner Bank, Ltd. 72,000 1.82 72,000
BFI Banque De Financement & D'Investissement, Geneve 60,000 1.51 60,000
Republic National Bank of New York (Suisse) SA 56,519 1.43 56,519
Republic National Bank of New York (Luxemburg) SA 54,000 1.36 54,000
Gibesgelt 46,250 1.17 46,250
Eurocapital 45,000 1.14 45,000
Michael Schaenen 35,625 * 35,625
28
Christopher Fox 35,625 * 35,625
Bookbank Holdings, Ltd. 33,300 * 33,300
Cameo Trust Corporation Limited 30,000 * 30,000
The Gifford Fund Ltd. 30,000 * 30,000
Charles L. and Donna Greenberg, JTWROS 30,000 * 30,000
Napier Brown Holdings Ltd. 30,000 * 30,000
Veritas Films SA 30,000 * 30,000
Vital Miljo AS 26,894 * 26,894
Heptagon Investments Ltd. 26,519 * 26,519
Stanley Hollander IRA Cowen & Co. Custodian 258-03120 26,064 * 26,064
Phillip Bibicoff 24,000 * 24,000
Bostar A.S. 24,000 * 24,000
C.M. Investment Nominees Limited 24,000 * 24,000
David A. Rees 24,000 * 24,000
Stolzoff Family Trust of 2/05/95, Martin S. Stolzoff and Barbara R.
Stolzoff, Trustees 23,023 * 23,023
Ronald Koenig 21,058 * 21,058
P.G. Ridgwell 20,519 * 20,519
Banque Privee Edmond De Rothschild S.A. 19,260 * 19,260
Bauer Family Limited Partnership 18,000 * 18,000
Falcon Management Ltd. 18,000 * 18,000
Fixtar Holdings, Inc. 18,000 * 18,000
Richard B. Liroff 18,000 * 18,000
Saracen International 18,000 * 18,000
Tradeco Limited 18,000 * 18,000
UOB Luxembourg S.A. 18,000 * 18,000
Helix Investments, Ltd. 17,782 * 17,782
James F. Ellis Trust DTD 4/11/89 15,117 * 15,117
Lawrence Burstein 13,266 * 13,266
John VanOrdstrand 12,500 * 12,500
Dean Witter Reynolds Custodian for Gary Barnett, IRA Standard/Rollover 12,000 * 12,000
29
Harvey R. Brice BSSC Master Defined Contribution M/P Pension Plan 12,000 * 12,000
Compass Investment Management Limited 12,000 * 12,000
Coutts & Co. S.A. 12,000 * 12,000
Barrie M. Damson 12,000 * 12,000
Ernest Dorner GST Non-Exempt Trust A U/T/A 5/26/94 12,000 * 12,000
Elmtree Corporation 12,000 * 12,000
Milton and Irene Geller 1985 Trust 12,000 * 12,000
Susan Greenberg 12,000 * 12,000
Jacobson, Alan D., IRA 12,000 * 12,000
Robert Katz 12,000 * 12,000
Peter Barrington Kirk 12,000 * 12,000
Lago Wernstedt 12,000 * 12,000
Morgan Steel Limited 12,000 * 12,000
John D. Murphy 12,000 * 12,000
Nicator S.A., Zurich 12,000 * 12,000
Pictet & Cie 12,000 * 12,000
Robinson Gear (Nominees) Limited A/CJ-10 12,000 * 12,000
Stoneman Investor Partnership 12,000 * 12,000
Terrier Finance, Inc. 12,000 * 12,000
Prime Grieb 9,000 * 9,000
Ghazi Allawi 8,519 * 8,519
Pyramid Partners, LP 8,000 * 8,000
Sachem Corporate Finance, Ltd. 7,500 * 7,500
Christopher D. Jennings 7,266 * 7,266
Gary H. Stolzoff 7,009 * 7,009
Gerald Rosen 7,000 * 7,000
Abraxas Partners, Ltd. 6,000 * 6,000
Philip Altheim 6,000 * 6,000
Gary Barnett 6,000 * 6,000
Denis Baylin 6,000 * 6,000
I. Bibicoff, Inc., Pension Trust Fund 6,000 * 6,000
30
Boel AS 6,000 * 6,000
Credit Lyonnais (Suisse) SA Geneva 6,000 * 6,000
Credit Suisse Zurich 6,000 * 6,000
Owen H. Gassaway Trustee, FBO Owen H. Gassaway Trust 6,000 * 6,000
David Greenberg, IRA 6,000 * 6,000
David Greenberg and Susan Greenberg, Trustees FBO Greenberg and Panish,
a Prof. Corp. Def. Bene. Pension Plan 2/01/88 6,000 * 6,000
Haaco AS 6,000 * 6,000
David M. Hallman, Sr. 6,000 * 6,000
Hapoalim Mayo Casa Bancaria 6,000 * 6,000
Allan B. Hechtman, Inc., Pension Plan & Trust 6,000 * 6,000
Allan B. and Linda S. Hechtman, JTWROS 6,000 * 6,000
Trustees of the Hill Oldridge Ltd. Pension Fund 6,000 * 6,000
Nils Otto Holmen 6,000 * 6,000
P.B. Hubbard/J.D. Boden as Trustees of the Vector Trust 6,000 * 6,000
Svein Huse 6,000 * 6,000
Intergalactic Growth Fund, Inc. 6,000 * 6,000
Lenard E. Jacobson, MD, PC Profit Sharing Trust 6,000 * 6,000
Robert Jones 6,000 * 6,000
Mazin Kamouna 6,000 * 6,000
William A. Kamke and Dorothy S. Kamke, JTWROS 6,000 * 6,000
A/S Kapitalutvikling 6,000 * 6,000
Ronald Korn, IRA 6,000 * 6,000
Pierre and Francoise Lambert 6,000 * 6,000
Metropolitan Finance Limited 6,000 * 6,000
John Bell Moran, Jr. 6,000 * 6,000
Anne P. Newman and Harry Newman, Jr. JTWROS 6,000 * 6,000
Scott Notowitz 6,000 * 6,000
Oistein Nyberg 6,000 * 6,000
Prime, Grieb & Co. Limited 6,000 * 6,000
RNB (France) Monaco 6,000 * 6,000
31
Rigel AS 6,000 * 6,000
Allan Rudnick, IRA 6,000 * 6,000
J.R.L. Smith 6,000 * 6,000
K.E. Smith 6,000 * 6,000
Ivor Spiro 6,000 * 6,000
Craig Taines 6,000 * 6,000
Taines Family Limited Partnership 6,000 * 6,000
Southeast Research Partners 4,500 * 4,500
John T. Clarke 3,750 * 3,750
Magne F. Aaby 3,000 * 3,000
Birger Dalen 3,000 * 3,000
John Heckler 3,000 * 3,000
Norman Leben 3,000 * 3,000
Svein A. Loken 3,000 * 3,000
Steven Millner 3,000 * 3,000
Asher Plaut and Evelyn Plaut, JTWROS 3,000 * 3,000
Svein-Erik Stiansen 3,000 * 3,000
First National Fund 2,250 * 2,250
Michael Morris 2,532 * 2,532
Walter Prime 2,532 * 2,532
Peter R. McMullin 2,519 * 2,519
Rudnick Living Trust DTD 7/22/91 2,519 * 2,519
Craig A. Blumberg 2,000 * 2,000
Steven H. Marvin 2,000 * 2,000
Daniel J. Marx 2,000 * 2,000
Giant Trading Company 1,500 * 1,500
Bank Julius Baer & Co. 1,260 * 1,260
Cheviot Capital 750 * 750
Value Investing Partners 750 * 750
Joelle Jacobs 750 * 750
Brill Securities 375 * 375
32
- - ------------
* Less than 1%
33
FINANCIAL ADVISORY WARRANTS:
The following table sets forth certain information with respect to the
beneficial ownership of the Advisory Warrants as of October 1, 1996, and as
adjusted to reflect the sale of such Warrants offered by the holders thereof,
none of whom hold any position with the Company nor own more than 5% of such
warrants.
BEFORE OFFERING
--------------- WARRANTS
NAME WARRANTS PERCENT OFFERED
- - ---- -------- ------- -------
Dan Purjes 30,010 * 30,010
Alan Jacobs 25,000 * 25,000
Kimberly A. Goguen 25,000 * 25,000
Peter Sheib 5,010 * 5,010
Lawrence Rice 4,990 * 4,990
Mathew Balk 3,880 * 3,880
Charles Roden 3,530 * 3,530
Michael Loew 1,325 * 1,325
Scott A. Weisman 445 * 445
Paul Fitzgerald 365 * 365
Sherwood P. Larkin 290 * 290
Richard Sichenzio 155 * 155
- - ------------
* Less than 1%
34
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized common stock of the Company consists of 100,000,000 shares of
Common Stock, $.001 par value. Each holder of Common Stock is entitled to one
vote per share on all matters on which shareholders are entitled to vote, and
the holders of the Common Stock do not have preemptive rights to purchase
additional shares of Common Stock or other subscription rights. The Common Stock
carries no conversion rights and is not subject to redemption or to any sinking
fund provisions. All shares of Common Stock are entitled to share equally in
dividends from sources legally available therefor when, as and if declared by
the Board of Directors and, upon liquidation or dissolution of the Company,
whether voluntary or involuntary, to share equally in the assets of the Company
available for distribution to shareholders after distribution of assets to
creditors and holders of securities with priority over the holders of the Common
Stock. The ability to pay dividends on the Common Stock is restricted, however,
by the terms of the Convertible Secured Notes of the Company (described below)
and the Notes offered hereby. All outstanding shares of Common Stock are validly
authorized and issued, fully paid and nonassessable, and all shares to be sold
and issued as contemplated hereby will be validly authorized and issued, fully
paid and nonassessable.
SERIES A REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Series A
Redeemable Warrants ("Series A Warrants"), but such summary does not purport to
be complete and is qualified in all respects by reference to the actual text of
the subject warrant certificates, a specimen of which is available at the
Company's offices. There are 3,962,773 Series A Warrants currently outstanding.
Each Series A Warrant entitles the registered holder to purchase one share of
Common Stock at an initial exercise price of $3.50 per share (subject to
adjustment for stock splits, combinations and reclassifications) at any time
prior to redemption from the date of issuance (April 26 or May 9, 1996) until
two years thereafter. The exercise price of each Series A Warrant bears no
relationship to any objective criteria of value and should in no event be
regarded as an indication of any future market price of the securities offered
hereby. Provided that the applicable Circumstances exist (described below), all,
but not less than all, of the Series A Warrants may be redeemed by the Company
at $.10 per share on thirty days' notice at any time, but only after October 26,
1996 and if the market price (as described below) for the Common Stock exceeds
$5.00 per share. The "Circumstances" shall exist if (i) the subject securities
underlying the Series A Warrants are registered under the Securities Act and
applicable state "blue sky" laws, (ii) a current Prospectus is then available
for the sale of the securities, and (iii) the closing bid price of the Common
Stock as reported by Nasdaq, the OTC Bulletin Board, or such other market on
which the Common Stock is then traded, exceeds $5.00 per share for the twenty
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption or prepayment, as the case may be.
Each Series A Warrant may be exercised by surrendering the warrant certificate,
with the subscription form attached to the warrant certificate properly
completed and executed, together with payment of the exercise price. The Series
A Warrants may be exercised in whole or from time to time in part. If less than
all of the Warrants evidenced by a warrant certificate are exercised, a new
warrant certificate will be issued for the remaining number of Series A
Warrants.
The Series A Warrants do not confer upon the holders thereof any voting,
dividend or other rights as shareholders of the Company.
The Series A Warrants are not exercisable unless, at the time of the exercise,
(i) the Company has a current Prospectus covering the shares of Common Stock
issuable upon the exercise of such warrants, and such shares have been
registered, or qualified under the securities laws of the state of residence of
the exercising holder of such warrants, unless such exercise is deemed to be
exempt under federal and applicable state securities laws.
FINANCIAL ADVISORY WARRANTS
The following is a brief summary of certain provisions of the Financial Advisory
Warrants ("Advisory Warrants"), but such summary does not purport to be complete
and is qualified in all respects by reference to the actual text of the warrant
certificates, a specimen of which is available at the Company's offices.
There are 100,000 Advisory Warrants currently outstanding.
Each Advisory Warrant entitles the registered holder to purchase one share of
Common Stock at an initial exercise price of $2.50 per share (subject to
adjustment for stock splits, combinations and reclassifications) at any time for
a period of five years from the date of issuance (February 1996). The exercise
price of each Advisory Warrant bears no relationship to any objective criteria
of value and should in no event be regarded as an indication of any future
market price of the securities offered hereby.
Each Advisory Warrant may be exercised by surrendering the warrant certificate,
with the subscription form attached to the warrant certificate properly
completed and executed, together with payment of the exercise price. The
Advisory Warrants may be exercised in whole or from time to time in part. If
less than all of the Warrants evidenced by a warrant certificate are exercised,
a new warrant certificate will be issued for the remaining number of Advisory
Warrants.
The Advisory Warrants do not confer upon the holders thereof any voting,
dividend or other rights as shareholders of the Company.
35
The Advisory Warrants are not exercisable unless, at the time of the exercise,
the Company has a current Prospectus covering the shares of Common Stock
issuable upon the exercise of such warrants, and such shares have been
registered, or qualified under the securities laws of the state of residence of
the exercising holder of such warrants, unless such exercise is deemed to be
exempt under federal and applicable state securities laws.
36
PLAN OF DISTRIBUTION
This Prospectus covers the sale of Shares and Warrants by the Selling
Shareholders. See "Principal and Selling Shareholders." Any distribution of the
Shares by the Selling Shareholders, or by their pledgees, donees, transferees or
other successors in interest, may be effected from time to time in one or more
of the following transactions: (a) to underwriters who will acquire securities
for their own account and resell them in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale (any public offering price and any discount or
concessions allowed or reallowed or paid to dealers may change from time to
time); (b) through brokers, acting as principal or agent, in transactions (which
may involve block transactions) on the Nasdaq SmallCap Market or on one or more
exchanges on which the securities are then listed, in special offerings,
exchange distributions pursuant to the rules of the applicable exchanges or in
the over-the-counter market, or otherwise, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices; (c) directly or through brokers or agents in private
sales at negotiated prices; or (d) by any other legally available means.
The Company will not receive any proceeds from the sale of the Shares and
Warrants offered hereby. The aggregate proceeds to the Selling Shareholders from
the securities offered hereby will be the offering price less applicable
commissions or discounts, if any. There is no assurance that the Selling
Shareholders will sell any of the securities offered hereby.
The Selling Shareholders and such underwriters, brokers, dealers or agents, upon
effecting a sale of securities, may be considered "underwriters" as that term is
defined in the Securities Act. Sales effected through agents, brokers or dealers
will ordinarily involve payment of customary brokerage commissions although some
brokers or dealers may purchase such shares as agents for others or as
principals for their own account. The Selling Shareholders will pay any sales
commissions or other sellers' compensation applicable to such transactions. A
portion of any proceeds of sales and discounts, commissions or other sellers'
compensation may be deemed to be underwriting compensation for purposes of the
Securities Act.
Pursuant to applicable rules and regulations under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), any person engaged in the distribution
of the securities offered hereby may not simultaneously engage in market making
activities for the Common Stock for a period of two business days prior to the
commencement of such distribution. In addition, each Selling Shareholder and any
other person who participates in a distribution of the securities will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Rules 10b-2, 10b-6 and 10b-7, which provisions
may limit the timing of purchases and may affect the marketability of the
securities and the ability of any person to engage in market making activities
for the Common Stock.
At the time a particular offering of securities is made, to the extent required,
a Prospectus supplement will be distributed which will set forth the number of
securities being offered and the terms of the offering, including the purchase
price or the public offering price, the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriters for securities
purchased from the Selling Shareholders, any discounts, commissions and other
items constituting compensation from the Selling Shareholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if applicable,
the securities will be sold in such jurisdictions, if required, only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless the securities have ben registered or
qualified for sale in such state or an exemption from registration or
qualification is available and the conditions of such exemption have been
satisfied. The Company has agreed that it will bear all costs, expenses and fees
in connection with the registration or qualification of the securities under
federal and state securities laws. The Company and each Selling Shareholder have
agreed to indemnify each other and certain other persons against certain
liabilities in connection with the offering of the securities, including
liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for the
Company by Olle, Macaulay & Zorrilla, P.A., Miami, Florida, which is the
beneficial owner of 6,440 shares of Common Stock of the Company. Dennis J. Olle,
a shareholder of that firm, is the beneficial owner of 1,714 shares of the
Common Stock of the Company.
EXPERTS
The financial statements of the Company included in this Prospectus for the year
ended December 31, 1996, eight months ended December 31, 1995, and for the
cumulative period from February 14, 1994 (incorporation) through December 31,
1996, has been audited by BDO Seidman LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein and is included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
The financial statements of D&SNG included in this Prospectus for the years
ended December 31, 1996 and 1995, have been audited by BDO Seidman LLP,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein and is included in reliance
upon such report given upon the authority of said firm as experts in accounting
and auditing.
37
On May 6, 1996, the Company's Board of Directors voted to engage BDO Seidman,
LLP to act as the Company's independent certified public accountants, thereby
discharging Hansen, Barnett & Maxwell, P.C. (Salt Lake City, UT). The former
accountants' reports for the Company's last two fiscal years prior to their
termination did not contain any adverse opinion, or disclaimer of opinion, nor
were any such reports modified as to uncertainty, audit scope or accounting
principles. There have been no disagreements between the Company and the former
accountants with regard to any matters which would have caused such accountants
to make reference to the subject matter thereof with their report.
38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses to be incurred by the Company in
connection with the sale of the securities offered hereby, other than
underwriting discounts and commissions. Except for the Securities and Exchange
Commission registration fee, all of the amounts set forth in the table are
estimates.
Securities and Exchange Commission Registration fee.............. $ 7,150
Legal fees and expenses.......................................... 30,000
Blue Sky fees and expenses....................................... 10,000
Accounting fees and expenses..................................... 10,000
Printing and engraving........................................... 7,000
Miscellaneous.................................................... 850
-------
Total............................................................ $65,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law empowers a Nevada
corporation to indemnify any person who was or is, or is threatened to be made,
a party to any threatened, pending or contemplated action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of such corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding such person had no reasonable cause
to believe his conduct was unlawful. A Nevada corporation may indemnify such
person against expenses including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by such person in connection with actions
brought by or in the right of the corporation to procure a judgment in its favor
under the same conditions, except that no indemnification is permitted in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and to the extent the court in
which such action or suit was brought or other court of competent jurisdiction,
shall determine upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. To the extent such person has been
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify such person against expenses, including attorneys' fees, actually and
reasonably incurred by such person in connection therewith. The indemnification
and advancement of expenses provided for in, or granted pursuant to, Section
78.751 is not exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation of the Company or any by-law, agreement, vote of shareholders or
disinterested directors or otherwise. Section 78.751 also provides that a
corporation may maintain insurance against liabilities for which indemnification
is not expressly provided by the statute.
Article XII of the Company's Articles of Incorporation, as amended, provides for
indemnification of the directors, officers, employees and agents of the Company
(including the advancement of expenses) to the extent permitted by Nevada law.
In addition, the Company has contractually agreed to indemnify its directors and
officers to the fullest extent permitted by law.
II-1
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
3.1 Articles of Incorporation, as amended, are hereby incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form 8-A filed with the SEC on May 30, 1996.
3.2 Plan and Articles of Merger are hereby incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form 8-A filed
with the SEC on May 30, 1996.
3.3 Amended Bylaws.*
4.1 Form of Common Stock Certificate is hereby incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form 8-A filed
with the SEC on May 30, 1996.
4.2 Form of Series A Redeemable Warrant Agreement.**
4.3 Series A Redeemable Warrant Agreement.**
4.4 Form of Financial Advisory Warrant Certificate.**
4.5 Financial Advisory Warrant Agreement.**
4.6 Common Stock Purchase Warrant Certificate held by Charles E. Bradshaw,
Jr., dated March 13, 1997.*
5 Opinion of Olle, Macaulay & Zorrilla, P.A.***
10.1 Agreement effective as of June 28, 1994, between First American-Florida
and Rader Railcar, Inc., as amended.**
10.2 Employment Agreement dated February 16, 1994, between First American-
Florida and Allen C. Harper.**
10.3 Employment Agreement dated December 2, 1996, between the Company and
Gordon L. Downing.*
10.4 Employment Agreement dated July 1, 1994, between First American-Florida
and Michael J. Acierno, as amended on June 30, 1997.***
10.5 Employment Agreement dated July 1, 1996, between the Company and
Raymond Monteleone, as amended on July 9, 1997.***
10.6 Agreement dated February 28, 1995, between First American-Florida and
Florida East Coast Railway Company.**
10.7 Form of Non-Competition Agreement between Thomas G. Rader and First
American-Florida.**
10.8 Railcar Construction Agreement (without appendices) between Rader
Railcar II, Inc. and Fun Trains, Inc. dated October 23, 1996.**
10.9 Financial Advisory and Consulting Agreement between the Company and
International Capital Growth, LLC, dated April 26, 1996**, as amended
December 5, 1996.*
10.10 Note Escrow Agreement between the Company, Capital Growth
International, LLC, and Sterling National Bank and Trust Company of New
York dated April 26, 1996.**
10.11 Form of Convertible Secured Note.**
10.12 Employment Agreement dated October 15, 1996, between the Company and
William T. Nanovsky.**
II-2
10.13 Employment Agreement dated October 9, 1996, between the Company and
Donald P. Cumming.**
10.14 Employment Agreement dated August 23, 1996, between the Company and
Thomas E. Blayney.**
10.15 Employment Agreement dated September 30, 1996, between the Company and
Pamela S. Petcash.**
10.16 Form of Confidentiality and Non-competition Agreement between the
Company's executive employees and the Company.**
10.17 Consulting Agreement between Management Resource Group, Inc. and the
Company dated July 23, 1996.**
10.18 Agreement between Universal Studios Florida and the Company, dated
October 30, 1996.**
10.19 Agreement between CSX Transportation, Inc. and the Company, dated
October 31, 1996.**
10.20 Business Lease between Mandel Development, a Florida general
partnership, and the Company, dated January 15, 1997.*
10.21 Operating Agreement between the Florida Department of Transportation
and the Company, dated January 6, 1997.*
10.22 Form of the Company's 1996 Non-Qualified Stock Option Plan.*
10.23 Loan Agreement (without exhibits) between NationsBank, N.A. (South) and
the Durango & Silverton Narrow Gauge Railroad Company, dated March 13,
1997.*
10.24 Share Purchase Agreement between The Durango & Silverton Narrow Gauge
Railroad Company and the Company, dated December 10, 1996, and Addendum
to Share Purchase Agreement, dated February 28, 1997.*
10.25 Promissory Note in the amount of $4,200,000 from the Company in favor
of Charles E. Bradshaw, Jr., dated March 13, 1997.*
10.26 Promissory Note in the amount of $5,850,000 from the Company in favor
of Charles E. Bradshaw, Jr., dated March 13, 1997.*
10.27 Registration Rights and Price Guaranty Agreement between Charles E.
Bradshaw, Jr. and the Company, dated March 13, 1997.*
10.28 Transportation, Maintenance and Lease Agreement between Fun Trains,
Inc. and Amtrak, dated April 28, 1997, is incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-QSB, for the
period ended March 31, 1997, filed with the SEC on May 15, 1997.
10.29 Amendment to Operating Agreement between Florida Department of
Transportation and the Company, dated June 6, 1997.***
10.30 First American Railways, Inc. Employee Stock Purchase Plan.***
10.31 Separation Agreement and Release between the Company and Eugene K.
Garfield, dated November 11, 1996.***
10.32 Form of Convertible Subordinated Note, is hereby incorporated by
reference to Exhibit 4 of the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1997, as filed with the SEC on August
14, 1997.
16 Letter dated May 10, 1996, from the Company's former accountants,
Hansen, Barnett & Maxwell, to the Company is hereby incorporated by
reference to Exhibit 16 to the Company's Current Report on Form 8-K
dated May 6, 1996.
II-3
21 Subsidiaries of the Company.*
23.1 Consent of BDO Seidman LLP.***
23.2 Consent of Olle, Macaulay & Zorrilla, P.A., included as part of Exhibit
5.***
24 Power of Attorney (included on Page II-6 hereof)
27 Financial Data Schedule, is hereby incorporated by reference to Exhibit
27 of the Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997, as filed with the SEC on August 14, 1997
- - ------------
* Incorporated by reference to the comparable exhibit numbers as
contained in the Company's Annual Report on Form 10-KSB, as filed with
the Securities and Exchange Commission on March 28, 1997.
** Incorporated by reference to the comparable exhibit numbers as
contained in the Company's Registration Statement on Form SB-2, as
filed with the Securities and Exchange Commission on August 6, 1996.
*** Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) The Company hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
together, represent a fundamental change in the information set
forth in the registration statement; and
(iii) To include any additional or changed material information
with respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a) (1) (ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Company pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(2) That it will, for determining any liability under the Securities
Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of such
securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the
offering.
(b) The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating to
securities offered therein, and the offering of such securities at that time
hall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
(the "Commission") such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities ( other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
(d) The undersigned registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
requirements of filing on Form S-3 and authorized this Registration Statement to
be signed on its behalf by the undersigned, in the City of Hollywood, State of
Florida, on August 20, 1997.
FIRST AMERICAN RAILWAYS, INC.
By:/S/ ALLEN C. HARPER
-------------------------
Allen C. Harper, Chairman of
the Board and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT FIRST AMERICAN RAILWAYS, INC., AND
EACH PERSON WHOSE SIGNATURE APPEARS BELOW, CONSTITUTES AND APPOINTS ALLEN C.
HARPER, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME OR IN THE NAME OF THE
COMPANY AND IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THE
FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO
EACH SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES AS FULL TO ALL ITEMS AND PURPOSES AS THEY MIGHT OR COULD DO IN PERSON,
HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID ATTORNEY-IN-FACT AND AGENT OR
HIS SUBSTITUTE OR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
THEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED.
SIGNATURES TITLE DATE
- - ---------- ----- ----
/S/ ALLEN C. HARPER CHAIRMAN OF THE BOARD AUGUST 20, 1997
- - ------------------------- AND CHIEF EXECUTIVE
ALLEN C. HARPER OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
/S/ RAYMOND MONTELEONE PRESIDENT, CHIEF OPERATING AUGUST 20, 1997
- - ------------------------- OFFICER AND DIRECTOR
RAYMOND MONTELEONE
DIRECTOR AUGUST , 1997
- - -------------------------
THOMAS G. RADER
/S/ DAVID H. RUSH DIRECTOR AUGUST 20, 1997
- - -------------------------
DAVID H. RUSH
DIRECTOR AUGUST , 1997
- - -------------------------
LUIGI SALVANESCHI
DIRECTOR AUGUST , 1997
- - --------------------------
GLENN P. MICHAEL
/S/ ALBERT B. AFTOORA DIRECTOR AUGUST 20, 1997
- - -------------------------
ALBERT B. AFTOORA
II-6
/S/ CHARLES E. BRADSHAW, JR. DIRECTOR AUGUST 20, 1997
- - ----------------------------
CHARLES E. BRADSHAW, JR.
/S/ DONALD P. CUMMING VICE PRESIDENT, SECRETARY, AUGUST 20, 1997
- - ---------------------------- TREASURER AND ACTING CHIEF
DONALD P. CUMMING FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER)
/S/ ALLEN C. HARPER
- - -----------------------------
ALLEN C. HARPER
ATTORNEY-IN-FACT
II-7
EXHIBIT INDEX
EXHIBIT
- - -------
5 Opinion of Olle, Macaulay & Zorrilla, P.A.
10.4 Employment Agreement dated July 1, 1994, between First American-Florida
and Michael J. Acierno, as amended on June 30, 1997.
10.5 Employment Agreement dated July 1, 1996, between the Company and
Raymond Monteleone, as amended on July 9, 1997.
10.29 Amendment to Operating Agreement between Florida Department of
Transportation and the Company, dated June 6, 1997.
10.30 First American Railways, Inc. Employee Stock Purchase Plan.
10.31 Separation Agreement and Release between the Company and Eugene K.
Garfield, dated November 11, 1996.
23.1 Consent of BDO Seidman LLP.