This prospectus supplement relates to an effective registration statement under
the Securities Act of 1933, but is not complete and may be changed. This
prospectus supplement is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Filed pursuant to Rule 424(B)(5)
Registration No. 333-73026
SUBJECT TO COMPLETION, DATED DECEMBER 6, 2001
PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 29, 2001
2,200,000 Shares
[LOGO]
Class A Common Stock
-------------
We are selling 2,000,000 shares of Class A Common Stock and the Selling
Stockholders are selling 200,000 shares of Class A Common Stock.
Our Class A Common Stock is traded on The Nasdaq National Market under the
symbol "GNWR." The last reported sale price on December 5, 2001, was $29.79 per
share.
The underwriters have an option to purchase a maximum of 330,000 additional
shares to cover over-allotments of shares.
Investing in our Class A Common Stock involves risks. See "Risks Related To
Our Class A Common Stock" on page S-10 of this prospectus supplement and "Risk
Factors" on page 2 of the attached prospectus to which it relates.
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Issuer Stockholders
` --------- ----------- ----------- ------------
Per Share................................. $ $ $ $
Total..................................... $ $ $ $
Delivery of the shares of Class A Common Stock will be made on or about
December , 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
Credit Suisse First Boston ABN AMRO Rothschild LLC Bear, Stearns & Co. Inc.
BB&T Capital Markets Morgan Keegan & Company, Inc.
The date of this prospectus supplement is , 2001.
Outside Front Gate
[Picture of Train Traveling Through the Snow]
Inside Front Gate
[Map - Identifying Regions in Which Genesee & Wyoming Operates]
Inside Front Cover
[Map - Identifying Regions in Which Genesee & Wyoming Operates]
-------------
TABLE OF CONTENTS
Page
Prospectus Supplement ----
ABOUT THIS PROSPECTUS SUPPLEMENT................................ S-i
WHERE YOU CAN FIND MORE INFORMATION ABOUT US.................... S-i
PROSPECTUS SUPPLEMENT SUMMARY................................... S-1
RISKS RELATED TO OUR CLASS A COMMON STOCK....................... S-10
FORWARD-LOOKING STATEMENTS...................................... S-11
USE OF PROCEEDS................................................. S-12
DIVIDEND POLICY................................................. S-12
CAPITALIZATION.................................................. S-13
BUSINESS........................................................ S-14
MANAGEMENT...................................................... S-23
PRINCIPAL AND SELLING STOCKHOLDERS.............................. S-26
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS............... S-29
UNDERWRITING.................................................... S-31
NOTICE TO CANADIAN RESIDENTS.................................... S-34
LEGAL MATTERS................................................... S-35
EXPERTS......................................................... S-35
Page
Prospectus ----
FORWARD-LOOKING STATEMENTS...................................... i
WHERE YOU CAN FIND MORE INFORMATION ABOUT US.................... ii
SUMMARY......................................................... 1
RISK FACTORS.................................................... 2
ABOUT GENESEE & WYOMING INC..................................... 9
RECENT DEVELOPMENTS............................................. 9
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS................... 10
USE OF PROCEEDS................................................. 10
DIVIDEND POLICY................................................. 10
DESCRIPTION OF OUR DEBT SECURITIES.............................. 11
DESCRIPTION OF OUR CAPITAL STOCK................................ 18
SELLING STOCKHOLDERS............................................ 22
PLAN OF DISTRIBUTION............................................ 23
VALIDITY OF OUR SECURITIES...................................... 24
EXPERTS......................................................... 24
-------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
-------------
ABOUT THIS PROSPECTUS SUPPLEMENT
This document consists of two parts. The first part is the prospectus
supplement, which describes the specific terms of this offering and certain
other matters relating to Genesee & Wyoming Inc. The second part, the attached
prospectus, gives more general information about securities we may offer from
time to time, some of which does not apply to this offering. Generally, when we
refer to the prospectus, we are referring to both parts of this document
combined. If the description in the prospectus supplement differs from the
description in the attached prospectus, the description in the prospectus
supplement supersedes the description in the attached prospectus.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. These filings are
available to the public over the Internet at the Securities and Exchange
Commission's web site at http://www.sec.gov. You may also read and copy any
document we file at the Securities and Exchange Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference room.
S-i
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. Information furnished
under Item 9 of our Current Report on Form 8-K is not incorporated by reference
in this prospectus. We furnished information under Item 9 of our Current Report
on Form 8-K on March 20, 2001.
We incorporate by reference the documents listed below, any filings that we
make after the date of this prospectus supplement and any future filings made
by us with the Securities and Exchange Commission under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until this offering is
completed.
. The Annual Report on Form 10-K for the year ended December 31, 2000, as
amended by Form 10-K/A filed on December 6, 2001;
. The Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001,
June 30, 2001, and September 30, 2001; and
. The Current Reports on Form 8-K filed on March 2, 2001, May 1, 2001,
October 3, 2001, as amended by Form 8-K/A filed on December 6, 2001, and
December 4, 2001.
You may request a copy of these filings at no cost by writing or telephoning
us at the following address or telephone number:
Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, CT 06830
Attention: John C. Hellmann
Telephone: (203) 629-3722
S-ii
PROSPECTUS SUPPLEMENT SUMMARY
The following information supplements, and should be read together with, the
information contained or incorporated by reference in other parts of the
prospectus. This summary highlights selected information from the prospectus.
As a result, it does not contain all of the information you should consider
before investing in our Class A Common Stock. You should carefully read the
prospectus, including the documents incorporated by reference in it, which are
described under "Where You Can Find More Information About Us."
Unless the context otherwise requires, when used in this prospectus, the
terms "Genesee & Wyoming," "we," "our" and "us" refer to Genesee & Wyoming Inc.
and its consolidated subsidiaries and unconsolidated subsidiaries, including
Australian Railroad Group Pty. Ltd. and its subsidiaries, referred to as ARG.
ARG is our recently formed 50/50 joint venture in Australia with Wesfarmers
Limited.
Genesee & Wyoming
We are a leading owner and operator of regional freight railroads in the
United States, Australia, Canada, Mexico and Bolivia. In addition, we provide
freight car switching and rail-related services to industrial companies in the
United States. Genesee & Wyoming was founded in 1899 as a 14-mile rail line
serving a single salt mine in upstate New York. Since 1977, when Mortimer B.
Fuller, III purchased a controlling interest in Genesee & Wyoming Railroad
Company and became our Chief Executive Officer, we have completed 19
acquisitions and now operate over approximately 7,700 miles of owned, jointly
owned or leased track as well as over 2,700 additional miles under track access
arrangements. We believe that based on track miles:
. we are the second-largest operator of regional railroads in the United
States and Canada;
. ARG, our recently formed 50/50 joint venture in Australia with Wesfarmers
Limited, owns and operates the largest privately owned rail system in
Australia;
. we own and operate Mexico's fourth-largest railroad; and
. we are a strategic investor in, and operator of, the second largest
railroad in Bolivia.
From 1996 through December 31, 2000, we increased our operating revenues at
a compounded annual growth rate of approximately 27.6%, from $77.8 million to
$206.5 million. During the same period we increased our net income at a
compounded annual growth rate of approximately 23.8%, from $5.9 million to
$13.9 million, and our diluted earnings per share at a compounded annual growth
rate of approximately 20.3%, from $0.99 to $2.07.
As a result of the formation of ARG in December 2000, we deconsolidated our
Australian operations from our financial statements and now report ARG using
the equity method of accounting. Due to ARG's material impact on our net
income, we also present its financial statement information on a stand-alone
basis. For the nine months ended September 30, 2001, our operating revenues for
North America were $129.2 million and operating revenues for ARG were $135.8
million. For the nine months ended September 30, 2001, we had net income of
$16.2 million and diluted earnings per share of $1.92 compared to $9.9 million
and $1.50, respectively, for the comparable period in 2000.
Growth Strategy. We intend to continue to increase our net income and
earnings per share by:
. acquiring rail lines that are close to or contiguous with our existing
regional rail systems to improve our asset utilization and reduce our
operating costs;
. broadening our geographic presence by acquiring significant rail lines in
new regions where we believe there are additional business development and
acquisition opportunities;
S-1
. expanding our revenue base within each region we serve through focused
marketing efforts and a high level of customer service; and
. improving our operating performance through the more efficient use of
equipment and facilities and the reduction of overhead and operating
expenses.
We have a disciplined acquisition and investment-driven strategy that
focuses on both domestic and international opportunities. From 1985 to 1997, we
acquired and integrated 12 acquisitions in the United States. From 1997 to
2000, we acquired or made investments in seven railroads internationally,
including in South Australia (1997), Canada (1997), Mexico (1999), Western
Australia (2000) and Bolivia (2000). On October 1, 2001, we acquired the South
Buffalo Railway Company from Bethlehem Steel Corporation and, on December 3,
2001, we entered into an agreement to purchase all of the outstanding shares of
Emons Transportation Group, Inc., a publicly traded short-line railroad
company. See "--Recent Developments."
Our recent acquisitions and investments include:
. branch lines of U.S. and Canadian Class I railroads;
. rail lines of industrial companies, such as Bethlehem Steel and Broken
Hill Proprietary Co. Ltd.;
. other regional railroads or short-line railroads; and
. the privatization of foreign government-owned rail systems, such as
Australia Southern Railroad in South Australia.
We believe that the market for acquisitions in the United States includes
546 short-line and regional railroads operating approximately 50,000 miles of
track, as well as additional lines expected to be sold by Class I railroads.
Internationally, there are additional acquisition or privatization candidates
in Australia, Canada, South America and other markets. Furthermore, we believe
that there is a relatively small number of well capitalized operators currently
bidding for properties in the international and U.S. rail markets. As a result,
we believe that we are well positioned to capitalize on additional acquisition
opportunities.
In evaluating potential acquisitions and investments, the criteria we
consider, among others, include:
. projected risk adjusted return on investment;
. potential for additional revenue and service improvements;
. identifiable cost savings and synergies, such as productivity and asset
utilization improvements, consolidation of equipment maintenance and
operational improvements; and
. diversification of our overall commodity and geographic mix.
Our strategy of building regional rail systems by acquisition and investment
is illustrated by our original U.S. region, the New York-Pennsylvania Region,
and ARG, our recently formed joint venture in Australia.
. New York-Pennsylvania Region. Starting with our original rail line, the
Genesee & Wyoming, we have completed seven contiguous acquisitions since
1985, creating a regional railroad linking Western New York with Western
Pennsylvania. After giving effect to our recent acquisition of South
Buffalo, the region now has approximately $50.0 million in annual revenue
and a diverse commodity base including petroleum, auto parts, chemicals,
pulp and paper and steel.
. Australian Railroad Group. Over the past four years, we have been
sequentially building a regional rail system that covers more than half of
the Australian continent. In Australia, we (1) entered the market through
the privatization of the rail system of South Australia in 1997; (2)
acquired the right to operate Broken Hill's iron ore supply rail-lines and
in-plant rail operations within its steel mill in Whyalla, South
S-2
Australia in 1999; (3) combined our South Australian railroad business
with previously state-owned rail assets of Western Australia, which we
acquired with our 50/50 joint venture partner, Wesfarmers, for $334.4
million in December 2000; and (4) acquired a 2.6% equity interest in a
consortium that obtained the necessary financing to build, own and operate
an 885-mile rail line from Alice Springs to Darwin in the Northern
Territory of Australia in April 2001.
Marketing Strategy. We build each regional railroad business on a base of
industrial customers, grow that base business through marketing efforts
directed at our major customers, and create additional revenues by attracting
new customers and providing ancillary rail services. Wherever possible, we seek
to divert freight traffic from trucking companies to our railroads.
At our newly privatized railroads, we have generated new business through
improved marketing efforts and improved service levels. For example, in
Australia, ARG recently introduced a new interstate intermodal service from
Sydney, New South Wales to Adelaide, South Australia.
Operating Strategy. We focus on lowering operating costs and improving
asset efficiency to maximize our return on invested capital. We have been able
to operate acquired rail lines more efficiently than the Class I railroads and
governments from whom we acquired these properties. We typically achieve
efficiencies through lowering administrative overhead, consolidating equipment
and track maintenance contracts and selling unutilized assets. For example, in
Australia, we improved the financial results of Australia Southern Railroad
from an operating loss at the time of purchase in 1997 to an operating ratio of
81.1% in 1998, the first full year of our ownership.
Company Information
Genesee & Wyoming is a Delaware corporation incorporated in 1977. Our
executive offices are located at 66 Field Point Road, Greenwich, CT 06830. Our
telephone number is (203) 629-3722.
S-3
Recent Developments
South Buffalo Acquisition. On October 1, 2001, we acquired all of the issued
and outstanding shares of common stock of South Buffalo from Bethlehem Steel
for $33.1 million in cash and the assumption of certain liabilities. At the
closing, we acquired beneficial ownership of the shares and, having received
the necessary approvals from The Surface Transportation Board on November 21,
2001, assumed actual ownership on December 6, 2001. South Buffalo operates over
52 miles of owned track in Buffalo, New York.
We expect to achieve annual cost savings at South Buffalo of approximately
$2.5 million by eliminating approximately $1.2 million of overhead costs that
were previously charged by Bethlehem Steel to South Buffalo and approximately
$1.3 million through an early retirement program that took effect on December
6, 2001. The cost of the early retirement program will be accounted for as an
adjustment to the purchase price of South Buffalo.
The acquisition of South Buffalo triggered the right of The 1818 Fund III,
L.P., a fund managed by Brown Brothers Harriman & Co., to acquire an additional
$5.0 million of our Series A Preferred Stock. The 1818 Fund has notified us of
its intent to exercise that option on or about December 11, 2001.
Emons Acquisition. On December 3, 2001, we entered into an agreement to
acquire Emons Transportation Group, Inc. for $18.5 million in cash and the
assumption of approximately $10.9 million of debt, net of cash. The cash
payment is to purchase the outstanding shares of Emons at $2.50 per share and
we will fund the acquisition under our primary bank credit facilities.
Emons is a short-line railroad holding company with operations in Maine, New
Hampshire, Vermont, Quebec and Pennsylvania. Emons' principal subsidiaries, the
St. Lawrence and Atlantic Railroad Company, referred to as SLR, and the St.
Lawrence and Atlantic Railroad (Quebec) Inc., referred to as SLQ, operate over
260 miles of track that runs from Portland, Maine to Ste. Rosalie, Quebec,
where SLQ interchanges with the Canadian National Railway Company. Primary
traffic for SLR and SLQ includes pulp and paper, chemicals, forest products and
intermodal. SLR and SLQ also transport overhead traffic between Guilford Rail
System and Canadian National Railway. Emons operates a 35-acre intermodal
terminal in Auburn, Maine that is served by SLR. In coordination with Canadian
National Railway, SLR offers intermodal rail service to shippers in New England
and Canada and provides shippers with access to international markets through
five deep-water ports served by Canadian National Railway.
Emons' Pennsylvania operations include the York Railway Company, which
operates over 40 miles of track, and Penn Eastern Rail Lines, which also
operates over 40 miles of track. York Railway connects with Norfolk Southern
Corporation, CSX Corporation and Canadian Pacific Limited and also serves
Emons' logistics operation, located in York, Pennsylvania, that provides
cross-dock, warehousing and bulk transload services. Penn Eastern Rail Lines
connects with Norfolk Southern Corporation.
For the twelve months ended June 30, 2001, Emons reported $25.4 million in
operating revenue, $5.7 million in earnings before interest, taxes,
depreciation and amortization, often referred to as EBITDA, and $3.7 million of
operating income. For the three months ended September 30, 2001, Emons reported
$5.8 million in operating revenue, $1.1 million in EBITDA and $0.6 million of
operating income. Total assets as of September 30, 2001 were $36.1 million and
debt outstanding was $12.6 million, including approximately $2.6 million of
long-term low-interest rate loans from various public entities. In the quarter
ended September 30, 2001, a significant customer of SLR, Pulp & Paper of
America, filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.
Pulp & Paper of America accounted for approximately 9% of Emons' fiscal 2001
revenues of $25.4 million, or approximately $2.3 million. Pulp & Paper of
America's revenue contribution in the quarter ended September 30, 2001 was not
material.
S-4
In the first year of our operation, we expect to reduce Emons' operating
expenses by approximately $1.0 million primarily by absorbing its costs related
to being a public company as well as other administrative functions. We also
believe that additional operational savings will be achieved by coordinating
SLR's and SLQ's operations with our existing rail operations in the Province of
Quebec. We project that the Emons acquisition will be accretive to our earnings
per share. We believe that the net effect of the expected accretion relating to
the Emons acquisition and the dilution associated with the offering will result
in a decrease to earnings per share of approximately $0.20.
The acquisition of Emons is subject to approval by Emons' stockholders,
regulatory and other consents, and other customary closing conditions. The
acquisition is expected to be completed in the first quarter of 2002.
Adjustment to Gain on 50% Sale of Australian Operations. In the fourth
quarter of 2000 and the first quarter of 2001, we recorded pre-tax gains
totaling $13.8 million related to the formation of ARG. The gains represented
the difference between the recorded balance of our previously wholly owned
investment in Australia, less investment amounts that we estimated would be
reimbursed by ARG, and the value of those Australian operations when ARG was
formed. In the fourth quarter of 2001, we, ARG and Wesfarmers reached agreement
as to the level of acquisition-related costs to be reimbursed to both venture
partners. Accordingly, in the fourth quarter of 2001, we will record a $0.7
million pre-tax decrease to our previously recorded gains to reflect the lower
than estimated reimbursed amount for acquisition-related costs.
ARG Restructuring. On October 11, 2001, ARG announced a restructuring of the
formerly state-owned assets of Westrail Freight that is expected to result in a
work force reduction of 80 employees by the end of March 2002. ARG expects that
this restructuring will result in approximately $2.3 million in annual cost
savings. The estimated restructuring costs will be accounted for as an
adjustment to the purchase price of Westrail Freight.
Conforming Capitalization Policies of Former Westrail Freight with Those of
Australia Southern Railroad. On November 21, 2001, the board of ARG approved a
change in the capital expenditure policies of its Western Australia railroad
system, which was acquired from the Western Australian government in December
2000, to conform to the capital expenditure policies used at its South
Australian railroad. This change will require ARG to expense $2.1 million of
previously capitalized costs in the fourth quarter of 2001. Most of these costs
were approved as capital projects prior to the acquisition of Westrail Freight
by ARG on December 16, 2000. This fourth quarter 2001 charge will result in an
estimated $0.7 million after-tax decrease in our equity earnings from ARG.
S-5
The Offering
Class A Common Stock offered by us.... 2,000,000 shares
Class A Common Stock offered by the
Selling Stockholders................ 200,000 shares
Class A Common stock to be outstanding
immediately after this offering..... 7,826,996 shares
Use of proceeds....................... The net proceeds from this offering will be used to repay
outstanding indebtedness. We will not receive any proceeds from
the sale of shares of our Class A Common Stock offered by the
selling stockholders. See "Use of Proceeds."
Nasdaq National Market Symbol......... GNWR
The number of shares to be outstanding after this offering is based on
5,757,981 shares of our Class A Common Stock issued and outstanding as of
December 3, 2001, before giving effect to this offering, and excludes:
. 1,152,669 shares of our Class A Common Stock that may be issued under our
1996 Stock Option Plan, Deferred Stock Plan for Non-Employee Directors and
Stock Option Plan for Outside Directors, including 920,867 shares issuable
upon exercise of outstanding stock options as of December 3, 2001,
assuming the exercise of options to purchase 69,015 shares of Class A
Common Stock by Mortimer B. Fuller, III in connection with the offering,
with a weighted average exercise price of approximately $12.82 per share;
. 1,268,169 shares of our Class A Common Stock issuable upon conversion of
our outstanding Class B Common Stock; and
. 1,630,436 shares of our Class A Common Stock issuable upon conversion of
our 25,000 shares of Series A Preferred Stock, including 5,000 shares of
our Series A Preferred Stock that we expect to issue to The 1818 Fund on
or about December 11, 2001.
-------------
Unless we indicate otherwise, the share information in this prospectus
supplement assumes that the underwriters' option to cover over-allotments is
not exercised. See "Underwriting."
S-6
Summary Consolidated Financial Information
(in thousands, except per share amounts)
The following table sets forth summary consolidated financial information
for each of the five years ended December 31, 1996, 1997, 1998, 1999 and 2000
derived from our audited consolidated financial statements and as of September
30, 2001 and for the nine months ended September 30, 2000 and 2001 derived from
our unaudited consolidated financial statements. All share and per share
amounts have been restated to reflect the 3-for-2 stock split of our Class A
Common Stock and Class B Common Stock on June 15, 2001.
In the opinion of our management, the unaudited information reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for those periods. Interim results are not
necessarily indicative of full year results. In addition, we have grown
significantly through acquisitions and investments over the periods covered by
this summary consolidated financial information. As such, the statements of
income data reflect results for varying numbers of operations which affect
comparability of the periods presented.
The following table also sets forth summary unaudited pro forma financial
information for the year ended December 31, 2000 and as of and for the nine
months ended September 30, 2001 and unaudited pro forma as adjusted financial
information as of September 30, 2001. This pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred had the
related transactions been completed at earlier dates, nor is it necessarily
indicative of future operating results.
You should read the information in this table together with our consolidated
financial statements and the related notes and the information contained in the
documents incorporated by reference in this prospectus.
Pro
Actual Forma(5)
----------------------------------------------- --------
Year Ended December 31,
---------------------------------------------------------
1996(1) 1997(2) 1998 1999(3) 2000(4) 2000
------- -------- -------- -------- -------- --------
Statements of Income Data:
Operating revenues.......................... $77,795 $103,643 $147,472 $175,586 $206,530 $187,122
Operating expenses.......................... 63,801 87,200 127,904 153,218 182,777 159,121
------- -------- -------- -------- -------- --------
Income from operations................... 13,994 16,443 19,568 22,368 23,753 28,001
Interest expense............................ (4,720) (3,349) (7,071) (8,462) (11,233) (11,560)
Gain on sale of 50% equity in Australian
operations(6).............................. -- -- -- -- 10,062 --
Other income, net........................... 651 345 7,290 1,682 1,508 968
Provision for income taxes.................. (4,020) (5,441) (7,708) (2,175) (10,569) (6,270)
Equity earnings (losses)(6)................. -- -- (645) (618) 411 9,540
------- -------- -------- -------- -------- --------
Income before extraordinary item......... 5,905 7,998 11,434 12,795 13,932 20,679
Extraordinary item from early extinguishment
of debt, net of related income taxes....... -- -- -- (262) -- --
------- -------- -------- -------- -------- --------
Net Income............................... 5,905 7,998 11,434 12,533 13,932 20,679
Impact of preferred stock outstanding(6).... -- -- -- -- 52 1,192
------- -------- -------- -------- -------- --------
Net income available to common
stockholders............................ $ 5,905 $ 7,998 $ 11,434 $ 12,533 $ 13,880 $ 19,487
======= ======== ======== ======== ======== ========
Pro
Actual Forma(5)
------------------ --------
Nine Months Ended
September 30,
----------------------------
2000 2001 2001
-------- -------- --------
Statements of Income Data:
Operating revenues.......................... $157,860 $129,164 $142,276
Operating expenses.......................... 135,075 112,915 122,411
-------- -------- --------
Income from operations................... 22,785 16,249 19,865
Interest expense............................ (7,985) (7,537) (8,591)
Gain on sale of 50% equity in Australian
operations(6).............................. -- 3,713 --
Other income, net........................... 1,113 671 812
Provision for income taxes.................. (6,031) (4,738) (4,736)
Equity earnings (losses)(6)................. -- 7,838 7,838
-------- -------- --------
Income before extraordinary item......... 9,882 16,196 15,188
Extraordinary item from early extinguishment
of debt, net of related income taxes....... -- -- --
-------- -------- --------
Net Income............................... 9,882 16,196 15,188
Impact of preferred stock outstanding(6).... -- 708 884
-------- -------- --------
Net income available to common
stockholders............................ $ 9,882 $ 15,488 $ 14,304
======== ======== ========
S-7
Pro Pro
Actual Forma(5) Actual Forma(5)
-------------------------------------- -------- ------------- --------
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------- ----------------------
1996(1) 1997(2) 1998 1999(3) 2000(4) 2000 2000 2001 2001
------- ------- ------ ------- ------- -------- ------ ------ --------
Basic Earnings Per Share:
Net income available to common stockholders before
extraordinary item.................................. $ 1.03 $ 1.01 $ 1.47 $ 1.90 $ 2.13 $ 2.99 $ 1.52 $ 2.25 $ 2.07
Extraordinary item................................... -- -- -- (0.04) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings per common share............................ $ 1.03 $ 1.01 $ 1.47 $ 1.86 $ 2.13 $ 2.99 $ 1.52 $ 2.25 $ 2.07
====== ====== ====== ====== ====== ====== ====== ====== ======
Weighted average basic shares........................ 5,744 7,875 7,781 6,737 6,519 6,519 6,497 6,897 6,897
====== ====== ====== ====== ====== ====== ====== ====== ======
Diluted Earnings Per Share:
Net income before extraordinary item................. $ 0.99 $ 0.98 $ 1.46 $ 1.88 $ 2.07 $ 2.49 $ 1.50 $ 1.92 $ 1.73
Extraordinary item................................... -- -- -- (0.04) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings per common share............................ $ 0.99 $ 0.98 $ 1.46 $ 1.84 $ 2.07 $ 2.49 $ 1.50 $ 1.92 $ 1.73
====== ====== ====== ====== ====== ====== ====== ====== ======
Weighted average diluted shares...................... 5,949 8,171 7,844 6,810 6,729 8,289 6,606 8,457 8,783
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per common share excluding gain on sale of
50% equity in Australian operations................. $ 2.36 $ 2.49 $ 1.61 $ 1.73
====== ====== ====== ======
As of September 30, 2001
--------------------------------
Pro Pro Forma
Actual Forma(5) As Adjusted(7)
-------- -------- --------------
Balance Sheet Data:
Cash and cash equivalents................. $ 11,387 $ 11,397 $ 11,397
Working capital........................... 8,074 7,585 7,585
Total assets.............................. 342,961 382,252 382,252
Long-term debt, net of current portion.... 85,882 114,705 57,610
Series A Preferred Stock.................. 18,957 23,717 23,717
Stockholders' equity...................... 108,605 108,605 165,700
---------------------
(1) The results for 1996 reflect our acquisitions of Illinois & Midland
Railroad, Inc., Pittsburg & Shawmut Railroad, Inc. and Rail Link, Inc.
(2) The results for 1997 reflect our acquisitions of Australia Southern Railroad
and a 47.5% equity interest in Genesee Rail-One Inc. (Canada).
(3) The results for 1999 reflect our acquisitions of an additional 47.5%
interest in Genesee Rail-One Inc., increasing our interest to 95% and
consolidating it into our financial statements, and Compania de
Ferrocarriles Chiapas-Mayab, S.A. de C.V. (Mexico).
(4) The results for 2000 reflect our acquisitions of:
. Westrail Freight through our 50/50 joint venture in Australia, ARG
(See Note 6 below);
. the remaining 5% interest in Genesee Rail-One Inc.; and
. an indirect 21.9% interest in Empressa Ferroviara Oriental, S.A.
(Bolivia).
(5) The pro forma financial information reflects the purchase method of
accounting by giving effect to our acquisition of South Buffalo and the
related borrowings under our primary bank credit facilities of $33.1 million
and the related issuance of 5,000 shares of our Series A Preferred Stock to
The 1818 Fund as if those transactions had occurred on January 1, 2000 for
the statements of income, and as of September 30, 2001 for the balance
sheet. The total purchase costs of the acquisition were allocated to the
assets acquired and the liabilities assumed, based on their respective
estimated fair values. The pro forma statements of income also give effect
to our December 2000 issuance of ARG's stock to Wesfarmers and ARG's
concurrent acquisition of Westrail Freight and related transactions as if
they had occurred on January 1, 2000. The one-time gains and income tax
impacts described below in note 6 that relate to our partial sale of ARG
have been excluded from the pro forma statements of income. Those net gains
of $3.6 million for the year ended December 31, 2000 and $2.6 million for
the nine months ended September 30, 2001, increased our actual diluted
earnings per share for those actual historical periods by $0.52 and $0.31,
respectively. Additionally, the pro forma statements do not include the
approximately $2.5 million of annual cost savings that we expect to achieve
at South Buffalo by eliminating approximately $1.2 million of overhead costs
that were previously charged by Bethlehem Steel to South Buffalo and
approximately $1.3 million through an early retirement program that took
effect on December 6, 2001.
(6) In December 2000, we issued shares of our Australian subsidiary, Australia
Southern Railroad, at a price per share in excess of our book value
investment in that subsidiary resulting in a fourth quarter 2000 gain of
$10.1 million and a first quarter 2001 gain of $3.7 million. Immediately
prior to the issuance, we purchased certain stock options held by that
subsidiary's management and recorded a related $4.0
S-8
million pre-tax charge included in operating expenses. Concurrent with that
issuance, we deconsolidated our Australian subsidiary and began reflecting
our resulting 50% interest in that subsidiary as equity earnings. In
addition, concurrent with that issuance, we issued 20,000 shares of our
Series A Preferred Stock to The 1818 Fund.
(7)The pro forma as adjusted balance sheet gives effect to the transactions
described in note 5, the sale of 2,000,000 shares of our Class A Common
Stock in this offering at an assumed public offering price of $30.00 per
share,our receipt of $0.9 million upon the exercise of options to purchase
69,015 shares by a selling stockholder and the application of the estimated
net proceeds therefrom, estimated to be $56.2 million, to reduce our
outstanding indebtedness under our primary bank credit facilities as if
those transactions had occurred on September 30, 2001. The reduction of our
outstanding indebtedness, if it occurred on January 1, 2001, would have
reduced after-tax interest expense by $1.7 million for the year ended
December 31, 2000.
S-9
RISKS RELATED TO OUR CLASS A COMMON STOCK
Investing in our Class A Common Stock involves risks. You should carefully
consider the following risk factors relating to our Class A Common Stock and
the risk factors described on page 2 of the attached prospectus relating to our
business in addition to the other information contained in this prospectus
supplement and the attached prospectus, and in any other documents to which we
refer you in this prospectus supplement or the attached prospectus, in deciding
whether to invest in our Class A Common Stock.
Our directors and executive officers have the ability to significantly
influence the vote of our stockholders on significant corporate actions.
As of December 3, 2001, our directors and executive officers beneficially
owned approximately 15.7% of the outstanding shares of our Class A Common Stock
and approximately 96.7% of the outstanding shares of our Class B Common Stock,
which has ten votes per share, representing approximately 65.6% of our voting
power, including approximately 51.0% of the voting power controlled by Mortimer
B. Fuller, III, our Chairman of the Board and Chief Executive Officer. As a
result, Mr. Fuller and the other directors and executive officers will have the
ability to significantly influence the vote of our stockholders on important
corporate actions requiring stockholder approval, including mergers, share
exchanges or sales of all or substantially all of our assets. With this voting
power, Mr. Fuller and the other directors and executive officers may also have
the ability to delay or prevent a change in control.
Shares eligible for future sale could have adverse consequences for the market
price of our Class A Common Stock.
As of December 3, 2001, our outstanding shares of Class B Common Stock were
freely convertible on a one-for-one basis into 1,268,169 shares of Class A
Common Stock and, if so converted, will be eligible for sale subject to the
volume and other limitations of Rule 144. In addition, the shares of Series A
Preferred Stock beneficially owned by The 1818 Fund are convertible into
1,630,436 shares of Class A Common Stock, and the holders of Series A Preferred
Stock are entitled to registration rights. We cannot predict the effect, if
any, that the availability of shares of Class A Common Stock for future sales
will have on the market price of our Class A Common Stock prevailing from time
to time. Sales of substantial amounts of Class A Common Stock, including shares
issued upon the conversion of our Class B Common Stock or Series A Preferred
Stock, or under our 1996 Stock Option Plan, or the perception that these sales
could occur, could adversely affect prevailing market prices for our Class A
Common Stock.
Our certificate of incorporation and by-laws and employment agreements with our
executive officers as well as Delaware corporate law contain provisions that
may discourage a takeover attempt.
Certain provisions of our certificate of incorporation and by-laws may have
the effect of discouraging a third party from making an acquisition proposal
and may inhibit a change in control under circumstances that could give the
stockholders the opportunity to realize a premium over the then-prevailing
market prices. Specifically, mergers and certain other corporate actions
require the approval of two-thirds of the total votes represented by all Class
A Common Stock and Class B Common Stock unless Genesee & Wyoming is the
survivor of the merger or consolidation and no change of control has occurred
as a result of the merger or consolidation. Our Board of Directors is divided
into three classes, with the members of each class serving staggered three-year
terms, and is expressly authorized to consider a variety of factors and
constituencies in determining our best interests. In addition, under certain
circumstances Section 203 of the Delaware General Corporation Law makes it more
difficult for an "interested stockholder," generally a 15% stockholder, to
effect certain business combinations with a corporation for a three-year period.
We have entered into and may in the future enter into change of control
agreements with some of our senior officers. These agreements provide that upon
termination of the officer's employment with us within three years after a
defined change in control of Genesee & Wyoming, the officer will receive a cash
amount equal to three times the average annual compensation payable to him by
Genesee & Wyoming during the immediately preceding five years.
S-10
The market price of our Class A Common Stock may be volatile, which could cause
the value of your investment to decline.
Securities markets experience significant price and volume fluctuations.
This market volatility, as well as general economic, market or political
conditions, could reduce the market price of our Class A Common Stock in spite
of our operating performance. In addition, our operating results could be below
the expectations of public market analysts and investors, and in response, the
market price of our Class A Common Stock could decrease significantly.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in this prospectus by
reference may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that state our current
expectations, estimates and projections about our industry and our management's
beliefs and assumptions regarding anticipated cost savings and other matters.
Words such as "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," variations of these words and similar expressions are intended to
identify these forward-looking statements. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to forecast. Therefore, actual results may
differ materially from those expressed or forecast in these forward-looking
statements. These risks and uncertainties include those noted in this
prospectus and in the documents incorporated in this prospectus by reference.
We undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Factors
that could cause our actual results to differ materially include those
described under "Risks Related To Our Class A Common Stock" on page S-10 of
this prospectus supplement and "Risk Factors" on page 2 of the attached
prospectus as well as:
. the inability to successfully execute our growth strategy;
. changes to Australia's open access regime;
. the risks of doing business in foreign countries, including exchange rate
fluctuations;
. the unexpected loss of any long-term concession or lease agreement;
. the unexpected loss of one or more of our largest customers;
. adverse weather conditions;
. changes in environmental and other laws and regulations to which we and
our subsidiaries are subject;
. the inability to successfully integrate our acquisitions; and
. general economic and business conditions.
Other factors besides those listed here could also adversely affect us. This
discussion is provided as permitted by the Private Securities Litigation Reform
Act of 1995.
S-11
USE OF PROCEEDS
We will reduce our outstanding indebtedness under our primary bank credit
facilities, with the net proceeds from this offering, estimated to be $56.2
million, assuming an offering price of $30.00 per share. Approximately $33.1
million of those loans were used to fund our acquisition of South Buffalo,
approximately $7.0 million was used to fund our investment in Empresa
Ferroviaria Oriental, S.A. and the remainder was used for general corporate
purposes. Those facilities consist of up to $135.0 million of available
borrowings in the form of revolving loans and term loans in both the United
States and in Canada. The facilities mature in August 2004 and, as of September
30, 2001, bore interest at a weighted average rate of 5.857%. Immediately
following this offering and the application of the proceeds therefrom as
described above, we will be able to borrow $93.7 million of revolving loans
under our primary bank facilities.
We will not receive any proceeds from the sale of shares of our Class A
Common Stock offered by the selling stockholders.
DIVIDEND POLICY
We have not paid cash dividends on our Class A Common Stock or Class B
Common Stock since our initial public offering in 1996. Other than dividends to
be paid on outstanding shares of Series A Preferred Stock or shares of
preferred stock issued after the date of this prospectus supplement, if so
designated, we do not intend to pay cash dividends for the foreseeable future
and intend to retain earnings, if any, for the operation and expansion of our
business. Any determination to pay dividends in the future will be at the
discretion of our Board of Directors and will be dependent upon our results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by our Board of Directors.
S-12
CAPITALIZATION
(Dollars in thousands, except share amounts)
The following table sets forth our unaudited capitalization as of September
30, 2001:
. on an actual basis;
. on a pro forma basis to give effect to the acquisition of South Buffalo
and the related issuance of 5,000 shares of our Series A Preferred Stock
to The 1818 Fund net of expenses; and
. on a pro forma as adjusted basis to also give effect to our sale of
2,000,000 shares of our Class A Common Stock in this offering at an
assumed public offering price of $30.00 per share, our receipt of
approximately $0.9 million upon the exercise of options to purchase 69,015
shares by a selling stockholder and the application of the estimated net
proceeds as set forth in "Use of Proceeds," in each case, assuming those
transactions had occurred on September 30, 2001.
In addition to our long-term debt and our stockholders' equity, we also
consider the current portion of our long-term debt and our outstanding shares
of Series A Preferred Stock, but not minority interest, as part of our
capitalization.
You should read the information in this table together with our consolidated
financial statements and the related notes and the information contained in the
documents incorporated by reference in this prospectus.
As of September 30, 2001
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
Cash and cash equivalents:.......................................... $ 11,387 $ 11,397 $ 11,397
======== ======== ========
Debt:
Current portion of long-term debt................................ $ 4,319 $ 4,319 $ 4,319
Long-term debt, less current portion............................. 85,882 114,705 57,610
-------- -------- --------
Total debt................................................... 90,201 119,024 61,929
-------- -------- --------
Series A Preferred Stock (1)........................................ 18,957 23,717 23,717
-------- -------- --------
Stockholders' Equity:
Class A Common Stock, $0.01 par value, one vote per share;
12,000,000 shares authorized; 7,262,045 shares issued and
5,738,638 shares outstanding; (9,331,060 shares issued and
7,807,653 shares outstanding on a pro forma as adjusted basis)
(2)(3)......................................................... 73 73 93
Class B Common Stock, $0.01 par value, 10 votes per share;
1,500,000 shares authorized; 1,268,169 issued and
outstanding(3)................................................. 13 13 13
Additional paid-in-capital....................................... 54,181 54,181 111,256
Retained earnings................................................ 76,392 76,392 76,392
Accumulated other comprehensive loss............................. (10,591) (10,591) (10,591)
Treasury stock (1,523,407 shares), at cost....................... (11,463) (11,463) (11,463)
-------- -------- --------
Total stockholders' equity....................................... 108,605 108,605 165,700
-------- -------- --------
Total capitalization......................................... $217,763 $251,346 $251,346
======== ======== ========
---------------------
(1)Represents, on an actual basis, 20,000 shares of Series A Preferred Stock
held by The 1818 Fund. These shares earn dividends at a rate of 4%, can be
redeemed after December 2004 and must be redeemed by December 2008. These
shares of Series A Preferred Stock are convertible into 1,304,348 shares of
our Class A Common Stock at any time. The 1818 Fund has notified us that it
will exercise its option to acquire 5,000 additional shares of Series A
Preferred Stock on or about December 11, 2001. These new shares are included
in the pro forma column and will also be redeemable after December 2004 and
will be convertible into 326,088 shares of our Class A Common Stock.
(2)These balances do not include shares of our Class A Common Stock subject to
outstanding stock options or shares of Class A Common Stock issuable in
connection with the conversion of our outstanding Class B Common Stock or
Series A Preferred Stock except for the pro forma as adjusted balances which
include the 69,015 shares to be issued to a selling stockholder upon
exercise of some of his stock options.
(3)On November 26, 2001, we filed a definitive information statement on Form
14C with the Securities and Exchange Commission disclosing our intent to
file an amendment to our Restated Certificate of Incorporation increasing
our authorized shares of Class A Common Stock to 30,000,000 and our
authorized shares of Class B Common Stock to 5,000,000. We intend to file
that amendment with the Secretary of State of the State of Delaware on
December 17, 2001.
S-13
BUSINESS
We are a holding company whose subsidiaries and unconsolidated affiliates
own and operate short-line and regional freight railroads and provide related
rail services in North America, South America and Australia. We, through our
U.S. industrial switching subsidiary, also provide railroad switching and
related services to U.S. industrial companies with extensive railroad
facilities within their complexes. Our predecessor, Genesee & Wyoming Railroad
Company, was founded in 1899 by E.L. Fuller and his partners.
In 1977, when Mortimer B. Fuller, III purchased a controlling interest in
Genesee & Wyoming Railroad Company and became our Chief Executive Officer, we
were dependent on a single commodity, salt, produced by a single customer. At
that time, we generated $3.9 million in operating revenues over our 14 miles of
track. In 1978, under the leadership of Mr. Fuller, we began a strategy of
growth by acquisition that broadened our sources of rail and rail-related
revenues. We initially expanded into the railcar leasing business and
subsequently completed 12 acquisitions in the United States. Significant U.S.
acquisitions have included the Rochester & Southern Railroad, Inc. (1986),
Louisiana & Delta Railroad, Inc. (1987), Buffalo & Pittsburgh Railroad, Inc.
(1988), Allegheny & Eastern Railroad, Inc. (1992), Willamette & Pacific
Railroad, Inc. (1993), Portland & Western Railroad, Inc. (1995), Illinois &
Midland Railroad, Inc. (1996), Pittsburg & Shawmut Railroad, Inc. (1996), Rail
Link, Inc. (1996) and South Buffalo Railway Company (2001).
Our domestic growth has been complemented by expansion into deregulating
rail markets worldwide. For example, in Australia:
. we were awarded a concession by the South Australian government to operate
a railroad that provides freight services in South Australia and formed a
wholly owned subsidiary, Australia Southern Railroad, or ASR, to operate
that concession in 1997;
. we acquired the right to operate Broken Hill's iron ore supply rail-lines
and in-plant rail operations in Whyalla, South Australia in 1999;
. we, through our recently formed joint venture, ARG, completed the
acquisition of Westrail Freight from the government of Western Australia
in December 2000. ARG is a joint venture owned 50% by us and 50% by
Wesfarmers Limited, a public corporation based in Perth, Western
Australia. Westrail Freight was composed of the freight operations of the
formerly state-owned railroad of Western Australia.
In 1997, we formed Genesee Rail-One Inc., a joint-venture for Canadian rail
acquisitions, which operates two railroads in Canada. In April 1999, we
increased our ownership interest in Genesee Rail-One to 95% and began
consolidating its operating results, and during the second quarter of 2000, we
purchased the remaining 5% interest.
In July 1998, we began serving as the operator of a mineral railroad in
northern Mexico. The railroad, known as Linea Coahuila Durango, is a concession
awarded by the Mexican government to two Mexican industrial firms. Late in
1999, we changed our relationship with Linea Coahuila to that of being a
provider of technical assistance so that our management could focus on our new
Mexican operation, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V.,
referred to in this prospectus as FCCM. In August 1999, FCCM, our wholly owned
subsidiary, was awarded a concession to operate two railways, the Chiapas line
and the Mayab line, which are connected by trackage rights on the transisthmus
rail line, previously owned by the state-owned Mexican rail company,
Ferronales. FCCM began operations on September 1, 1999. On December 7, 2000, in
conjunction with the refinancing of FCCM and its parent company, GW Servicios,
S.A. de C.V. (Servicios), the International Finance Corporation invested $1.9
million of equity for a 12.7% indirect interest in FCCM, through its parent
company, Servicios. We contributed an additional $13.1 million and maintain an
87.3% indirect ownership in FCCM.
In November 2000, we acquired an indirect 21.9% equity interest in Empresa
Ferroviaria Oriental, S.A. increasing our stake in Oriental to 22.6%. Oriental
is a railroad serving eastern Bolivia and connecting to
S-14
railroads in Argentina and Brazil. We previously acquired a 0.7% indirect
interest in Oriental on September 30, 1999 through our 47.5% ownership interest
in Latin American Rail LLC. On July 24, 2001, we increased our indirect equity
interest in Oriental to 22.9% with an additional investment of $246,000.
On October 1, 2001, we beneficially acquired all of the issued and
outstanding shares of common stock of South Buffalo from Bethlehem Steel. South
Buffalo currently owns and operates over 52 miles of owned track in Buffalo,
New York. On November 21, 2001, we received all the necessary approvals from
The Surface Transportation Board and, on December 6, 2001, assumed actual
ownership of South Buffalo Railway.
Most recently, on December 3, 2001, we entered into an agreement to acquire
Emons Transportation Group, Inc. Emons is a short-line railroad holding company
with operations in Maine, New Hampshire, Vermont, Quebec, and Pennsylvania. The
acquisition of Emons is subject to approval by Emons' stockholders, regulatory
and other consents, and other customary closing conditions. See "Prospectus
Supplement Summary-- Recent Developments."
Industry Overview
According to the Association of American Railroads Railroad Facts 2000
Edition, we believe that there are 555 railroads in the United States operating
roughly 170,000 miles of track. U.S. railroads are segmented into one of three
categories based on the amount of their revenues. Class I railroads, those with
over $258.5 million in revenues, represent over 90% of total rail revenues.
Regional and short-line railroads operate approximately 50,000 miles of track
in the United States. The primary function of these smaller railroads is to
provide feeder traffic to the Class I carriers. In terms of revenue, regional
and short-line railroads combined account for approximately 9% of total
railroad revenue.
The following table shows the breakdown of railroads by classification.
Classification of Railroads Number Miles Operated Revenues
--------------------------- ------ -------------- -----------------------
Class I................ 9 120,986 over $258.5 million
Regional (Class II).... 36 21,250 $20.7 to $258.4 million
Local (Class III)...... 510 28,422 less than $20.7 million
--- -------
Total................. 555 170,658
---------------------
Source: Association of American Railroads Railroad Facts 2000 Edition.
The railroad industry in the United States has undergone significant change
since the passage of the Staggers Rail Act of 1980, which deregulated the
pricing and types of services provided by railroads. Following the Staggers
Act, Class I railroads in the United States and Canada took steps to improve
profitability and recapture market share. In furtherance of that goal, Class I
railroads focused their management and capital resources on their long-haul
core systems, and some of them sold branch lines to smaller and more
cost-efficient rail operators willing to commit the resources necessary to meet
the needs of the shippers located on these lines. Divestment of branch lines
enables Class I carriers to minimize incremental capital expenditures,
concentrate traffic density, improve operating efficiency, and avoid traffic
losses associated with rail line abandonment.
The efforts of Class I carriers to increase efficiency also led to an
increase in merger activity among long-haul railroads, such as, the acquisition
of Consolidated Rail Corporation by Norfolk Southern Corp. and CSX
Transportation, Inc., in 1999. Such consolidations present both risk and
opportunity for us. On one hand, service failures resulting from poor system
integration negatively impact our revenues and operating expenses. On the other
hand, as efficiencies are achieved by the mergers, we benefit from a more fluid
and efficient rail system. The Surface Transportation Board issued a 15-month
moratorium on Class I rail mergers on March 17, 2000. On June 7, 2001, The
Surface Transportation Board issued a new set of regulations governing Class I
rail mergers that took effect on July 11, 2001.
S-15
Although the acquisition market is competitive, we believe that there will
continue to be opportunities to acquire rail properties in the United States
and Canada from Class I railroads and short-line and regional railroads. We
also believe there may be additional acquisition opportunities in Australia,
Canada, South America and other markets.
Growth Strategy
We intend to continue to increase our net income and earnings per share by:
. acquiring rail lines that are close to or contiguous with our existing
regional rail systems to improve our asset utilization and reduce our
operating costs;
. broadening our geographic presence by acquiring rail lines in new regions
where we believe there are additional business development and acquisition
opportunities;
. expanding our revenue base within each region we serve through focused
marketing efforts and a high level of customer service; and
. improving our operating performance through the more efficient use of
equipment and facilities and the reduction of overhead and operating
expenses.
Acquisition of and Investment in Rail Properties. We seek to expand our
international and U.S. business through the selective acquisition of and
investment in rail properties, both in new regions and in regions in which we
currently operate. Our fundamental acquisition strategy is to identify
properties that have large industrial customers which will provide us with a
stable revenue base and the potential to generate incremental revenues and
additional customers upon implementation of a focused marketing plan. In new
regions, we target rail properties that have adequate size to establish a
presence in the region, provide a platform for growth in the region, and
attract qualified management. When acquiring rail properties in our existing
regions, in addition to seeking properties with large industrial customers, we
target contiguous rail properties where we believe there are significant
opportunities to realize operating efficiencies.
In evaluating potential acquisitions and investments, the criteria we
consider, among others, include:
. projected risk-adjusted return on investment;
. potential for additional revenue and service improvements;
. identifiable cost savings and synergies, such as productivity and asset
utilization improvements, consolidation of equipment maintenance and
operational improvements;
. diversification of our overall commodity and geographic mix;
. the size of the rail operations;
. opportunities for expansion;
. revenue stability; and
. connecting carriers.
We also consider acquisition opportunities that have the potential to enable
our railroads to provide better or more cost-effective service to major
shippers or to increase and diversify the overall customer base of our
railroads. We develop acquisition prospects through our relationships with
Class I carriers and our reputation in the industry. In addition, we use
consultants to assist in the identification and development of acquisition
S-16
opportunities. We have acquired and integrated 19 acquisitions of varying sizes
and operating characteristics, including short-lines, Class I divestitures,
government owned railroads, rail lines of industrial companies and an
industrial switching company.
We generally acquire rail properties through the purchase of stock or the
purchase or lease of assets. Typically, we bid against other short-line and
regional operators for available properties. The structure of each transaction
is determined based upon economic and strategic considerations. In addition to
the financial terms of the transaction, sellers consider more subjective
criteria such as a prospective acquiror's operating experience, its reputation
among shippers and its ability to close a transaction and commence operations
smoothly. We believe we have established an excellent record in each of these
areas. In addition, by growing revenues on our acquired lines and providing
improved service to shippers, we are often able to provide increased revenue to
the Class I carriers that connect with our North American lines. Furthermore,
we believe that there is a relatively small number of well capitalized
operators currently bidding for properties in the international and U.S. rail
markets. As a result, we believe that we are well positioned to capitalize on
additional acquisition opportunities.
Marketing Strategy
We build each regional railroad business on a base of major industrial
customers, grow that base business through marketing efforts directed at our
major customers, and create additional revenues outside the base of major
customers by attracting new customers and providing ancillary rail services. We
believe that over the long term, the strategy of building our regions around a
core of major industrial customers provides a stable revenue base and allows us
to focus our efforts on additional growth opportunities within a region.
Through implementation of our marketing strategy, we have increased the number
of our customers so that, over time, our reliance on any one customer or
commodity has been declining. Our marketing strategy also seeks, whenever
possible, to divert freight traffic from trucking companies to our railroads,
as illustrated by our local stone shipments for a major customer in the State
of Oregon where we moved traffic from road to rail to circumvent the congested
I-5 corridor around Portland.
Consistent with our decentralized management structure, our sales and
marketing activity is coordinated in each region by a marketing manager. The
marketing manager works closely with personnel of each of our railroads and
with other department heads to develop marketing plans to increase shipments
from existing customers and develop new business. We consider all of our
employees to be customer service representatives and encourage them to initiate
and maintain regular contact with shippers.
Because most of the traffic transported by our railroads in the United
States and Canada is interchanged with Class I carriers, our marketing efforts
in these areas are often aimed at enhancing our railroads' relationships with
these Class I carriers as well as shippers. We provide related rail services
such as railcar leasing, railcar repair, switching, storage, weighing and
blocking and bulk transfer, which enable Class I carriers and customers to move
freight more easily and cost-effectively. For example, we supply cars to our
customers or our railroads when, among other things, a customer has a need
which cannot be filled by cars supplied by Class I railroads or we have an
opportunity to provide cars on a cost basis that both meets customer needs and
improves the economics of a freight move to us. We actively manage our railcar
and locomotive portfolio, buying, selling and leasing equipment to take
advantage of changes in market value in conjunction with changes in our
customers' needs.
Operating Strategy
We strive to increase efficiency and profitability in each region in which
we operate. When acquiring new rail properties within an existing region, we
capitalize on operating efficiencies created by the presence of our other
railroads within that region. In addition, consolidation of revenue and
accounting functions often allows us to operate new railroads with fewer
employees.
We intend to continue to improve the operating efficiency of our railroads
by track rehabilitation, especially where maintenance has been deferred by the
prior owner. Because of the importance of certain of our shippers to the
economic stability and/or development of the regions where they are located,
and because of the importance
S-17
of certain of our railroads to the economic infrastructure of those regions,
approximately $46.6 million in state, federal and third party grants for track
rehabilitation and service improvements has been invested in our U.S. rail
properties since 1987.
Railroad Operations--North America
Customers. Our North American railroads currently serve over 660 customers.
A large portion of our North American railroad operating revenue is
attributable to customers operating in the electric utility, paper, petroleum
products, lumber and forest products, farm and food products, chemicals and
metals industries. As we acquire new North American railroad operations, the
base of customers served continues to grow and diversify. Our largest 10 North
American customers accounted for approximately 30%, 34% and 38% of our total
North American railroad revenues in 2000, 1999 and 1998, respectively, and
approximately 32% for the nine months ended September 30, 2001. Our largest
North American customer is a coal-fired electricity generating plant owned by
Dominion Resources that accounted for 6% of our total North American railroad
revenues in 2000 and 7% of our total North American railroad revenues for the
nine months ended September 30, 2001. We typically ship freight under
transportation contracts among us, our connecting carriers and the shipper, and
the terms of these contracts vary from customer to customer.
Railroad Commodities. Our North American railroads transport a wide variety
of commodities for our customers. Some of our railroads have a diversified
commodity mix while others transport one or two principal commodities. In 2000,
coal, coke and ores; and pulp and paper products were the two largest commodity
groups transported by our North American railroads, constituting 20.6% and
15.6%, respectively, of total North American freight revenues, and 31.2% and
13.8%, respectively, of total North American carloads. For the nine months
ended September 30, 2001, coal, coke and ores; and minerals and stone were the
two largest commodity groups transported by our North American railroads,
constituting 22.2% and 15.3%, respectively, of total North American freight
revenues, and 33.4% and 11.5%, respectively, of total North American carloads.
The following table provides freight revenues, carloads and average freight
revenues per carload for the nine months ended September 30, 2001:
North American Freight Revenues and Carloads Comparison by Commodity Group
For the Nine Months Ended September 30, 2001
(dollars in thousands, except average per carload)
Average
Freight
Revenues
Freight % of % of Per
Commodity Group Revenues Total Carloads Total Carload
--------------- -------- ----- -------- ----- --------
Coal, coke and ores....... $21,553 22.2% 94,765 33.4% $ 227
Minerals and stone........ 14,824 15.3% 32,507 11.5% 456
Pulp and paper............ 14,227 14.7% 37,521 13.2% 379
Petroleum products........ 13,364 13.8% 21,522 7.6% 621
Metals.................... 7,688 7.9% 27,806 9.8% 276
Farm and food products.... 7,382 7.6% 20,439 7.2% 361
Lumber and forest products 6,597 6.8% 19,666 6.9% 335
Chemicals and plastics.... 6,389 6.6% 12,424 4.4% 514
Autos and auto parts...... 976 1.0% 1,557 0.5% 627
Other..................... 4,100 4.1% 15,608 5.5% 263
------- ----- ------- -----
Total.................... $97,100 100.0% 283,815 100.0% 342
======= ===== ======= =====
S-18
. Coal, coke and ores consist primarily of shipments of coal to utilities
and industrial customers;
. Minerals and stone consist primarily of cement, gravel and stone used in
construction;
. Pulp and paper consist primarily of inbound shipments of pulp and outbound
shipments of kraft and fine papers;
. Petroleum products consist primarily of fuel oil and crude oil;
. Metals consist primarily of scrap metal, finished steel products and
coated pipe;
. Farm and food products consist primarily of sugar, molasses, rice and
other grains and fertilizer;
. Lumber and forest products consists primarily of finished lumber used in
construction, particleboard used in furniture manufacturing, and wood
chips and pulpwood used in paper manufacturing;
. Chemicals and plastics consist primarily of various chemicals used in
manufacturing; and
. Autos and auto parts consists primarily of finished automobiles.
Railroad Employees. As of September 30, 2001, our North American railroads
had approximately 1,352 full-time employees. Of this total, approximately 42.2%
of our employees were members of national labor organizations. Our U.S.
railroads have 14 contracts with these national labor organizations, none of
which are currently being renegotiated. In Mexico, we are party to one
collective bargaining agreement which is currently in negotiations. We believe
that our relationship with our employees is good.
U.S. Industrial Switching Operations
U.S. industrial switching operations generate non-freight revenues primarily
by providing freight car switching and related rail services such as equipment
leasing, railcar repair and storage to industrial companies with extensive
railroad facilities within their complexes. Our U.S. industrial switching
operation serves 26 customers in 10 states. These customers are primarily in
the chemicals, paper, grain, mining and power generation industries. The
provision of the service generally involves locating a work force and
locomotives at the customer's facility and tailoring the service level to the
switching requirements of the site. As of September 30, 2001, our U.S.
industrial switching operations had approximately 233 full-time employees.
Railroad Operations--Australia
On December 16, 2000, we, through our recently formed joint venture, ARG,
completed the acquisition of Westrail Freight from the government of Western
Australia. ARG is a joint venture owned 50% by us and 50% by Wesfarmers
Limited, a public corporation based in Perth, Western Australia. Westrail
Freight is composed of the freight operations of the formerly state-owned
railroad of Western Australia.
To complete the acquisition, we contributed to ARG: (1) our formerly wholly
owned subsidiary, Australia Southern Railroad; (2) our 2.6% interest in the
Asia Pacific Transport Consortium, a consortium selected to construct and
operate the Alice Springs to Darwin railway line in the Northern Territory of
Australia; and (3) $21.4 million in cash. We account for our 50% ownership in
ARG under the equity method of accounting and therefore deconsolidated ASR from
our consolidated financial statements as of December 17, 2000.
Customers. ARG currently serves over 50 customers. A large portion of ARG's
railroad operating revenue is attributable to customers operating in the grain,
alumina and iron ore industries. ARG's largest ten customers accounted for
approximately 67.8% of its revenues for the nine months ended September 30,
2001. ARG's largest contract, which provides rail service to Western
Australia's grain industry, accounted for 18.2% of its revenue for the nine
months ended September 30, 2001. ARG typically ships freight under
transportation contracts between ARG and the shipper, and the terms of these
contracts vary from customer to customer.
S-19
Railroad Commodities. ARG's railroads transport a wide variety of
commodities for its customers. For the nine months ended September 30, 2001,
grain, other ores and minerals, iron ore, alumina and hook and pull (haulage)
represented 30.3%, 22.8%, 12.0%, 9.8% and 6.0% of freight revenues,
respectively, and 19.7%, 11.9%, 18.7%, 17.4% and 5.0% of ARG's total carloads,
respectively.
The following table provides ARG's freight revenues, carloads and average
freight revenues per carload for the nine months ended September 30, 2001.
Australian Railroad Group Freight Revenues and Carloads Comparison by Commodity
Group For the Nine Months Ended September 30, 2001
(dollars in thousands, except average per carload)
Average
Freight
Revenues
Freight % of % of Per
Commodity Group Revenues Total Carloads Total Carload
--------------- -------- ----- -------- ----- --------
Grain........................ $ 37,301 30.3% 123,881 19.7% $ 301
Other ores and minerals...... 28,011 22.8% 74,801 11.9% 374
Iron ore..................... 14,778 12.0% 117,287 18.7% 126
Alumina...................... 12,062 9.8% 109,361 17.4% 110
Hook and pull (haulage)...... 7,316 6.0% 31,167 5.0% 235
Bauxite...................... 6,974 5.7% 95,277 15.2% 73
Gypsum....................... 1,531 1.2% 28,603 4.6% 54
Other........................ 14,939 12.2% 47,190 7.5% 317
-------- ----- ------- -----
Total..................... $122,912 100.0% 627,567 100.0% 196
======== ===== ======= =====
Railroad Employees. As of September 30, 2001, ARG had approximately 1,063
full-time employees. Of this total, approximately 35% are members of labor
unions. In South Australia, we have one collective bargaining agreement that
expires in September 2004. In Western Australia, we are currently negotiating
with our employees and union representatives to reach new agreements.
Competition
We compete with other acquirors of rail lines. Competition for rail
properties is based primarily upon price, operating experience, reputation,
ability to close a transaction and commence operations smoothly, and financing
capability. We believe our established reputation as a successful acquiror and
operator of short line rail properties, in combination with our managerial and
financial resources, effectively positions us to take advantage of acquisition
opportunities.
Each of our railroads is typically the only rail carrier directly serving
our customers; however, our railroads compete directly with other modes of
transportation, principally motor carriers and, to a lesser extent, ship, barge
and pipeline operators. The extent of this competition varies significantly
among our railroads. Competition is based primarily upon the rate charged and
the transit time required, as well as the quality and reliability of the
service provided, for an origin-to-destination transportation service. To the
extent other carriers are involved in transporting a shipment, we cannot
control the cost and quality of the service.
In Australia, where a significant portion of our operations is located, the
applicable legislative and regulatory framework enables third party rail
operators to gain access to our railway infrastructure in Western Australia and
South Australia for access fees. The open access regime gives our competitors
the ability to compete for our customers by allowing them to service our
customers using our railway infrastructure.
S-20
Regulation
United States. Our U.S. railroads are subject to regulation by:
. The Surface Transportation Board;
. the Federal Railroad Administration;
. state departments of transportation; and
. some state and local regulatory agencies.
The Surface Transportation Board is the successor to certain regulatory
functions previously administered by the Interstate Commerce Commission.
Established by the ICC Termination Act of 1995, The Surface Transportation
Board has jurisdiction over, among other things, service levels and
compensation of carriers for use of their railcars by other carriers. It also
must authorize extension or abandonment of rail lines, the acquisition of rail
lines, and consolidation, merger or acquisition of control of rail common
carriers; in limited circumstances, it may condition such authorization upon
the payment of severance benefits to affected employees. The Surface
Transportation Board may review rail carrier pricing only in response to a
complaint concerning rates charged for transportation where there is an absence
of effective competition. The Federal Railroad Administration has jurisdiction
over safety and railroad equipment standards and also assists in coordinating
projects for railroad route simplification.
In 1980, the Staggers Rail Act fundamentally changed U.S. federal regulatory
policy by emphasizing the promotion of revenue adequacy, the opportunity to
earn revenues sufficient to cover costs and attract capital and allowing
competition to determine to a greater extent rail prices and route and service
options. The ICC Termination Act of 1995 continues the trend towards limiting
regulation of rail prices. As a result of these changes in legislative policy,
the railroad industry's rate structure has evolved from a system of
interrelated prices that applied over different routes between the same points
to a combination of market based prices that are now subject to limited
regulatory constraints. While U.S. federal regulation of rail prices has been
significantly curtailed, U.S. federal regulation of services continues to
affect cost and competitiveness in the railroad industry.
Australia. In Australia, regulation of rail is generally governed by State
legislation and administered by State regulatory agencies. ARG's assets are
therefore subject to the regulatory regimes governing safety and access in each
of Western Australia, South Australia, the Northern Territory, Victoria and New
South Wales. In addition, with respect to access to rail infrastructure, ARG's
Australian assets, except our interest in the Alice Springs to Darwin railway
line, which is subject only to an individual access regime, are subject to the
national access regime under Part IIIA of the Trade Practices Act 1974 (Cwth),
which is administered by the Australian Competition and Consumer Commission.
There are a number of regulators who are responsible for the regulation of
rail safety and accreditation. Similarly, there are a number of regulators who
are responsible for administering the access regimes of each State. In
addition, as noted above, the Australian Competition and Consumer Commission
administers the national access regime under Part IIIA of the Trade Practices
Act 1974 (Cwth). The State and the national access regimes operate concurrently
until such time as a State regime is certified under Part IIIA of the Trade
Practices Act 1974 (Cwth) as being "effective". Such certification precludes
the operation of Part IIIA with respect to the services provided via the
infrastructure to which the relevant certified regime relates. Currently, the
only regime which has been certified as effective is the access regime
governing the Alice Springs to Darwin track.
The State access regimes cover the intrastate rail network of the relevant
State. The interstate network is governed by Part IIIA of the Trade Practices
Act 1974 (Cwth). The Australian Rail Track Corporation, a corporation owned by
the Commonwealth Government of Australia formed as a result of an agreement
among the States and the Commonwealth, has submitted an undertaking to the
Australian Competition and Consumer Commission which is intended to operate as
the exclusive access regime for the interstate network while it is in
S-21
force. On November 22, 2001, the Australian Competition and Consumer Commission
issued a draft determination accepting the undertaking. A final decision is
anticipated in March 2002, when it is expected that the undertaking will become
effective as the governing access regime for the interstate network. We note
that the interstate network covered by the undertaking is the standard gauge
tracks linking Wodonga (in Victoria), Melbourne (in Victoria), Adelaide (in
South Australia), Broken Hill (in New South Wales), Tarcoola (in South
Australia) and Kalgoorlie (in Western Australia). The interstate network is
part of the larger standard gauge network linking all capital cities in
Australia from Brisbane to Perth, as well as Broken Hill in New South Wales and
Alice Springs in the Northern Territory. Those parts of this larger standard
gauge network which are not covered by the interstate network are governed by
the various State access regimes and the national access regime.
The State rail access regimes and the interstate rail access regime are
similar in that terms and conditions of access are in all cases determined
through a process of negotiation and arbitration. However, there is variation
across jurisdictions as to the independence of the arbitrator and the scope to
appeal the arbitrator's decisions. The regimes also differ in the pricing
principles underpinning the negotiate-arbitrate approach to access charges. The
Western Australian, South Australian, Victorian, New South Wales and interstate
rail access regimes each adopt "floor/ceiling" limits to access pricing,
although the cost and valuation basis for calculation of the limits can vary
between jurisdictions. The access regime governing the Alice Springs to Darwin
track adopts a benchmark approach against competing non-rail freight as well as
a "floor/ceiling" limit for the determination of access charges.
Mexico. In Mexico, railways are considered to be a priority area for the
national economy, thus, they are considered to be national assets that may only
be operated by private individuals or entities by means of a concession or
authorization, depending on the activity, granted by the Federal Government
through the Ministry of Communications and Transport. Since it is a priority
area for the national economy, railroad services and their providers are
subject to regulation by different branches of the executive branch of
government. With respect to the rendering of the service itself, railroads are
subject to Regulatory Law for Railroad Service and its Regulations, and the
Ministry of Communications and Transport is the federal authority in charge of
overseeing their compliance by all railroad service providers. The Minstry of
Communications and Transport has jurisdiction over, among others:
. the preparation and enforcement of policies and programs related to the
railroad system;
. the granting of the corresponding concessions;
. regulating the concessions and resolving any issues regarding amendments
or terminations to the concessions;
. regulation of tariff application; and
. if applicable, applying the corresponding sanctions when operators have
not complied with the regulations or the terms of the corresponding
concession.
With respect to the service provider itself, it is subject to, in addition
to the Regulatory Law for Railroad Service and its Regulations mentioned above,
the Mexican Foreign Investments Law and the Federal Law of Economic Competition
or Antitrust Law. The Mexican Foreign Investments Law regulates the percentage
of foreign investment an entity may have when engaged in specific activities.
For railroads, the Mexican Foreign Investments Law states that only Mexican
nationals and entities incorporated under Mexican law may operate railroads in
Mexico. However, with prior authorization by the Foreign Investments
Commission, a foreign entity may operate railroads in Mexico even if its
ownership of the railroads equity capital exceeds 49.0%. Since the concession
is an exclusive right to use and operate railways, the Federal Law of Economic
Competition and the National Commission for Economic Competition ascertain that
in the process of rendering the railroad service, the service provider by means
of predatory practices does not violate any of the fair competition practices
and principles established within the Federal Law of Economic Competition, and
thus competes fairly with its indirect competitors.
S-22
MANAGEMENT
The following table presents information about our directors and executive
officers as of December 3, 2001:
Name Age Position
---- --- --------
Mortimer B. Fuller, III.... 59 Chairman of the Board and Chief Executive Officer
Charles N. Marshall........ 59 President and Chief Operating Officer
Mark W. Hastings........... 52 Executive Vice President, Corporate Development and
Secretary
John C. Hellmann........... 31 Chief Financial Officer
James W. Benz.............. 53 Senior Vice President--GWI Railroad Switching Services
Charles W. Chabot.......... 55 Senior Vice President--Australia
David J. Collins........... 44 Senior Vice President--New York and Pennsylvania
Alan R. Harris............. 53 Senior Vice President and Chief Accounting Officer
Martin D. Lacombe.......... 60 Senior Vice President
Thomas P. Loftus........... 43 Senior Vice President--Finance
Paul M. Victor............. 52 Senior Vice President--Mexico
Spencer D. White........... 41 Senior Vice President--Illinois
C. Sean Day................ 52 Director
Louis S. Fuller............ 60 Director
James M. Fuller............ 61 Director
T. Michael Long............ 58 Director
Robert M. Melzer........... 60 Director
John M. Randolph........... 75 Director
Philip J. Ringo............ 59 Director
Hon. M. Douglas Young, P.C. 61 Director
Mortimer B. Fuller, III has been our Chairman of the Board and Chief
Executive Officer since September 1977. He also served as President from
September 1977 until October 1997. Mr. Fuller is a graduate of Princeton
University, Boston University School of Law and Harvard Business School. He
also serves as Chairman of the Board of ARG. Mr. Fuller is a first cousin of
James M. Fuller and Louis S. Fuller.
Charles N. Marshall has been our President and Chief Operating Officer since
October 1997. He has 40 years of railroad industry experience with Consolidated
Rail Corporation (Conrail), Southern Railway and the Chessie System Railroad
(now part of CSX Corporation). He was Senior Vice President-Development when he
left Conrail in 1995 and also served as Senior Vice President-Marketing & Sales
and in positions in legal, public and government affairs. Immediately prior to
joining Genesee & Wyoming in 1997, Mr. Marshall worked as a consultant to short
line and regional railroads, including Genesee & Wyoming, specializing in
developing acquisition opportunities within and outside the United States. Mr.
Marshall served as one of our directors from July to October 1997, when he
resigned in accordance with our policy that all directors other than the
Chairman and Chief Executive Officer be non-employees.
Mark W. Hastings has been our Executive Vice President, Corporate
Development since January 2000 and Secretary since April 2000. Prior to that,
he served as Senior Vice President, Chief Financial Officer and Treasurer, and
had been our chief financial officer, since he joined us in 1978. Prior to
joining us, Mr. Hastings was a credit analyst for Marine Midland Bank, now
known as HSBC Bank USA. He currently represents the short line industry on the
Board of the Railroad Clearing House, which has been established to create the
administrative systems and banking functions for the electronic settlement of
all rail industry interline freight payments.
S-23
John C. Hellmann has been our Chief Financial Officer since he joined us in
January 2000. From 1999 until January 2000, Mr. Hellmann was an investment
banker at Lehman Brothers Inc. in the Emerging Communications Group, and from
1997 to 1999, he was an investment banker at Schroder & Co. Inc. in the
Transportation Group. From 1992 to 1994, Mr. Hellmann worked for Weyerhaeuser
Company in Japan and the People's Republic of China. Mr. Hellmann received an
A.B. from Princeton University, an M.B.A. at The Wharton School of the
University of Pennsylvania and an M.A. in China Studies from Johns Hopkins
School of Advanced International Studies.
James W. Benz became Senior Vice President-GWI Railroad Switching Services
in March 1997. Mr. Benz is President of Rail Link, Inc., which he started in
1987 and which we acquired in November 1996. A graduate of the University of
Tennessee, Mr. Benz worked in various transportation supervisory capacities on
the Seaboard Coastline Railroad and CSX Transportation from 1972 to 1987.
Charles W. Chabot has been our Senior Vice President--Australia since
October 1997. In addition, since December 2000, he has been Chief Executive
Officer of ARG. From 1992 to 1997, Mr. Chabot served as Senior Vice
President--New York and Pennsylvania. He joined us as Senior Vice
President--Marketing and Sales in 1991 and was President of Buffalo &
Pittsburgh Railroad, Inc. from 1992 to 1997. Prior to joining us, Mr. Chabot
was employed for over ten years by the Chessie System Railroad (now part of CSX
Transportation, Inc.), where he served in various capacities in marketing and
freight equipment planning. He also served as a management consultant with
Booz, Allen and Hamilton.
David J. Collins has been our Senior Vice President--New York and
Pennsylvania since October 1997, after having served as Senior Vice
President-Marketing and Development since January 1997. From 1992 to 1997, he
was Vice President of Marketing for the New York and Pennsylvania railroads,
responsible for marketing, safety, information systems and special projects.
From 1990 to 1992, he was General Manager of Genesee & Wyoming Railroad Company
and Rochester & Southern Railroad, Inc. Mr. Collins joined us in 1979.
Alan R. Harris has been our Senior Vice President and Chief Accounting
Officer since he joined us in 1990 as our Chief Accounting Officer. Mr. Harris
is a certified public accountant and from 1985 to 1990, he was Director of
Accounting, and subsequently Secretary and Treasurer, of Preston Trucking
Company, Inc., an interstate carrier.
Martin D. Lacombe was appointed Deputy Chief Executive Officer of ARG in
September 2001. He joined us in April 1999 as Senior Vice President-Canada.
Prior to that, he was Senior Vice President of Rail-Term Inc., an affiliate of
our then joint venture partner in Canada, which he joined in 1998. From 1995 to
1997, Mr. Lacombe worked as a consultant to short-line and rail services
companies. Mr. Lacombe has extensive operating experience in various facets of
the industry, having worked for CN Rail, the Canadian Transport Commission, VIA
Rail and the Railway Association of Canada in a variety of positions from
frontline supervision to Vice President.
Thomas P. Loftus has been our Senior Vice President--Finance since May 2000.
He joined us in 1996 as Vice President--Finance. From 1993 to 1996, Mr. Loftus
worked for RailTex, Inc., where he held various financial management positions,
including Manager--Acquisitions.
Paul M. Victor has been our Senior Vice President--Mexico since May 1999. He
joined us in 1997 as Vice President--Mexico. During 1997, he acted as an
independent consultant to Ferrovia Sur Atlantico in Southern Brazil, Placer
Dome Latin America, Mina Zadevar and various projects in northern Chile. From
1994 to 1997, he served as Chief Operating Officer for Ferrocarril del
Pacifico, S.A. in Chile. Mr. Victor has over 31 years of experience in the
railroad industry in the United States and South America.
Spencer D. White has been our Senior Vice President-Illinois and President
and General Manager of Illinois & Midland Railroad, Inc. since 1996. He joined
us in 1988 as Chief Engineer of Buffalo & Pittsburgh Railroad, Inc. after
serving in progressive engineering positions with CSX Transportation, Inc.
since 1982. He has served Genesee & Wyoming as Vice President-Operations of
Buffalo & Pittsburgh Railroad, Inc. and Chief Engineer of the New York and
Pennsylvania railroads.
S-24
C. Sean Day has been Chairman of Teekay Shipping Corporation, a provider of
international crude oil and petroleum transportation services since 1999 and a
director of Teekay Shipping Corporation since 1998. Mr. Day was President and
Chief Executive Officer of Navios Corporation, a shipping company, from 1989 to
1999. He has also been Chairman of Seagin International, LLC, a consulting
company, since 1999. Mr. Day also serves on the Boards of Directors of Kirby
Corporation and the Sparkling Spring Water Group.
Louis S. Fuller retired in 1999 from Courtright and Associates, an executive
search firm, of which he had been a member since 1992. Mr. Fuller also serves
on the Board of Directors of Cherry Ridge Corp. He is a first cousin of
Mortimer B. Fuller, III and James M. Fuller.
James M. Fuller is a Regional Product Manager for OCENS, Inc., a marketer of
weather enhancement software for the commercial and recreational marine
markets. Mr. Fuller retired in 1999 as Regional Sales Manager of the Harvey
Salt Co., a distributor of salt and water purification chemicals, a position he
had held since 1995. From 1983 until 1993, Mr. Fuller was National Account
Manager--Export for Akzo Nobel Salt, Inc., where he served for more than 25
years. Mr. Fuller is a first cousin to Mortimer B. Fuller, III and Louis S.
Fuller.
T. Michael Long is a Co-Manager of The 1818 Fund III, L.P. and has been with
Brown Brothers Harriman & Co. since 1971. Mr. Long is currently a Partner in
Brown Brothers Harriman & Co., where he shares management and investment
responsibility for The 1818 Fund II, L.P. and The 1818 Fund III, L.P. Prior to
assuming his current responsibilities, Mr. Long was Department Head of the
Corporate Finance Department and advised Brown Brothers Harriman & Co. clients
on mergers and acquisitions. Mr. Long also serves as a director of HCA The
Healthcare Company, VAALCO Energy Corporation, CMS Incorporated, Gulf Canada
Resources Limited, Gulf Indonesia Resources Limited, Nobel Biocare, A.B.,
MedSource Technologies and Picis, Inc.
Robert M. Melzer was President and Chief Executive Officer of Property
Capital Trust, a real estate investment trust, from 1992 to 1999, when he
retired. Through November 1996, he was also the Chief Financial Officer of
Property Capital Trust. Mr. Melzer serves as a trustee of MGI Properties
Liquidating Trust, and a director of Beacon Capital Partners, Inc., The Cronos
Group, and Lawson Products, Inc. He is also Chair of the Board of Trustees of
Beth Israel Deaconess Medical Center in Boston and Interim Chief Executive
Officer.
John M. Randolph has been a financial consultant and private investor for
more than the past five years. In 1965 he founded and became Chief Executive
Officer of Randolph Computer Corporation, one of the first computer leasing
companies. He subsequently served as Chairman and Chief Executive Officer of
J.M. Randolph and Associates, a company created to manage certain computer
leasing assets acquired by the Bank of Boston.
Phillip J. Ringo is the CEO of the RubberNetwork.com LLC, a global
electronic purchasing and procurement marketplace created by nine leading
companies in the tire and rubber industry. From March 1999 to January 2001, Mr.
Ringo was President and Chief Operating Officer of ChemConnect, Inc., an
electronic commerce company. He was President and Chief Executive Officer of
Chemical Leaman Tank Lines Inc., a trucking firm, from 1995 to 1998. Mr. Ringo
also serves on the Boards of Directors of Quality Distribution Inc.,
ChemConnect, Inc. and ARG.
Hon. M. Douglas Young, P.C. has been Chairman of Summa Strategies Canada
Inc., a firm that provides strategic counsel and business advice in matters
relating to international trade and investment, public policy and relationships
with government, since 1997. Between 1993 and 1997, he served as Canada's
Minister of Transport, Minister of Human Resources Development and Minister of
National Defense. Mr. Young is counsel to the law firm of Patterson Palmer Hunt
Murphy, and also serves on the Boards of Directors of Magellan Aerospace
Corporation, CPCS Transcom Ltd. and ARG.
S-25
PRINCIPAL AND SELLING STOCKHOLDERS
The following table presents information with respect to the beneficial
ownership of our Class A Common Stock and Class B Common Stock as of December
3, 2001, before and after giving effect to this offering, held by:
. each of our selling stockholders selling shares of our Class A Common
Stock in this offering;
. each of our directors;
. our chief executive officer and each of the other four most highly
compensated executive officers at the end of fiscal 2000; and
. all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The percentage of beneficial ownership set
forth below is based upon 5,757,981 shares of Class A Common Stock and
1,268,169 shares of Class B Common Stock issued and outstanding as of December
3, 2001. The percentage of beneficial ownership after the offering gives effect
to the issuance of the 2,000,000 shares offered by us and 200,000 shares by the
selling stockholders. In computing the number of shares of Class A Common Stock
or Class B Common Stock beneficially owned by a person and the percentage
ownership of that person, shares of Class A Common Stock that are subject to
options held by that person that are currently exercisable or exercisable
within 60 days of December 3, 2001 are deemed outstanding. These shares are
not, however, deemed outstanding for the purpose of computing the percentage
ownership of any other person.
Unless otherwise indicated, each stockholder shown on the table has sole
voting and investment power with respect to the shares beneficially owned by
him or it. The shares of Class B Common Stock are convertible on a one-for-one
basis at any time into shares of Class A Common Stock. However, we include the
shares of Class B Common Stock under the headings "Common Stock Beneficially
Owned--Class B" and "Common Stock Beneficially Owned After Offering--Class B",
but not under the headings "Common Stock Beneficially Owned--Class A" and
"Common Stock Beneficially Owned After Offering--Class A." Unless otherwise
indicated, the address of all individuals listed in the table is c/o Genesee &
Wyoming Inc., 66 Field Point Road, Greenwich, Connecticut 06830.
S-26
Common Stock Beneficially Owned
Common Stock Beneficially Owned After Offering
------------------------------------- ---------------------------------
Class A Class B Class A Class B
------------------ ------------------ Number of Shares of ---------------- ----------------
No. of Percent No. of Percent Class A Common Stock No. of Percent No. of Percent
Name and Address Shares of Class Shares of Class Offered Hereby Shares of Class Shares of Class
------------------------------- --------- -------- --------- -------- -------------------- ------- -------- ------- --------
Mortimer B. Fuller, III (1)(2). 243,216 4.1% 987,424 77.9% 170,000 58,216 0.7% 987,424 77.9%
Louis S. Fuller (3)............ 164,216 2.8% 199,716 15.7% 30,000 134,216 1.7% 199,716 15.7%
Charles N. Marshall (4)........ 161,250 2.8% -- --
Mark W. Hastings (5)........... 54,637 0.9% 11,100 0.9%
John C. Hellmann (6)........... 20,062 0.3% 555 --
Charles W. Chabot (7).......... 13,448 0.2% -- --
C. Sean Day (8)................ 6,601 0.1% -- --
James M. Fuller (9)............ 34,898 0.6% 16,650 1.3%
T. Michael Long (2)(10)........ 2,103 -- -- --
Robert M. Melzer (11).......... 15,038 0.3% -- --
John M. Randolph (12)
8626 North 84th Place
Scottsdale, AZ 85258.......... 46,400 0.8% 11,100 0.9%
Philip J. Ringo (13)........... 22,248 0.4% -- --
M. Douglas Young (14).......... 10,041 0.2% -- --
The 1818 Fund III, L.P. (2)(10)
59 Wall Street
New York, New York 10005...... 1,632,539 22.1% -- --
FMR Corp. (15)
82 Devonshire Street
Boston, Massachusetts 02109... 619,500 10.8% -- --
All Directors and Executive
Officers as a Group
(20 persons) (16)............. 970,219 15.7% 1,226,545 96.7%
---------------------
(1) The amounts shown include: (1) 115,985 shares of Class A Common Stock and
722,710 shares of Class B Common Stock owned by Mr. Fuller individually;
(2) 2,775 shares of Class A Common Stock held by Mr. Fuller's wife, as to
which shares Mr. Fuller disclaims beneficial ownership; (3) 21,332 shares
of Class A Common Stock held by Overlook Estate Foundation, Inc., of which
Mr. Fuller is President; (4) presently exercisable options to purchase
103,124 shares of Class A Common Stock; and (5) presently exercisable
third-party options to purchase 264,714 shares of Class B Common Stock,
which shares are subject to a Voting Agreement under which Mr. Fuller has
been granted an irrevocable proxy through March 20, 2008. The amounts shown
under the heading "Common Stock Beneficially Owned After Offering" assume
that Mortimer B. Fuller, III sells 100,985 shares of Class A Common Stock
owned by him individually and exercises 69,015 options to purchase shares
of Class A Common Stock enabling those shares of Class A Common Stock to be
sold under this prospectus supplement.
(2) By reason of a voting agreement, under Rule 13d-5(b)(1) under the
Securities Exchange Act of 1934, as amended, a group comprised of Mortimer
B. Fuller, III, The 1818 Fund and T. Michael Long may be deemed to
beneficially own substantially all of the shares of our stock beneficially
owned by the members of the group. As of December 3, 2001, Mr. Long
beneficially owned 2,103 shares of Class A Common Stock, consisting of
units under the Company's Deferred Stock Plan for Non-Employee Directors
held by Mr. Long and a presently exercisable option to purchase 1,000
shares of Class A Common Stock, and The 1818 Fund beneficially owned 25,000
shares of Series A Preferred Stock, convertible into 1,630,436 shares of
Class A Common Stock. Mr. Fuller, on the one hand, and The 1818 Fund and
Mr. Long, on the other, disclaim beneficial ownership of the shares owned
by the other, and they are not reflected in the respective amounts shown on
the table. The amount shown on the table for Mr. Long does not include
those shares beneficially owned by The 1818 Fund.
(3) The amounts shown include: (1) 199,716 shares of Class B Common Stock owned
by Mr. Fuller individually; (2) 61,716 shares of Class A Common Stock owned
jointly by Mr. Fuller and his wife; (3) 90,000 shares of Class A Common
Stock owned by Mr. Fuller's wife, as to which shares Mr. Fuller disclaims
beneficial ownership; and (4) presently exercisable options to purchase
12,500 shares of Class A Common Stock.
(4) The amount shown includes: (1) 105,000 shares of Class A Common Stock owned
by Mr. Marshall individually; and (2) presently exercisable options to
purchase 56,250 shares of Class A Common Stock.
(5) The amounts shown include: (1) 23,100 shares of Class A Common Stock and
11,100 shares of Class B Common Stock owned jointly by Mr. Hastings and his
wife; (2) 600 shares of Class A Common Stock beneficially owned by Mr.
Hastings' minor children, as to which shares he disclaims beneficial
ownership; and (3) presently exercisable options to purchase 30,937 shares
of Class A Common Stock.
(6) The amounts shown include: (1) 2,250 shares of Class A Common Stock and 555
shares of Class B Common Stock owned by Mr. Hellmann individually; and (2)
presently exercisable options to purchase 17,812 shares of Class A Common
Stock.
(7) The amount shown includes: (1) 4,073 shares of Class A Common Stock owned
by Mr. Chabot individually; and (2) presently exercisable options to
purchase 9,375 shares of Class A Common Stock.
S-27
(8)The amount shown includes: 3,750 shares of Class A Common Stock owned by Mr.
Day individually; (2) units under our Deferred Stock Plan for Non-Employee
Directors (the "Deferred Stock Plan") representing 1,851 shares of our Class
A Common Stock; and (3) presently exercisable options to purchase 1,000
shares of Class A Common Stock.
(9)The amounts shown include: (1) 13,650 shares of Class A Common Stock and
16,650 shares of Class B Common Stock owned by Mr. Fuller individually; (2)
7,998 shares of Class A Common Stock held by family trusts for the benefit
of Mr. Fuller and others, of which Mr. Fuller is co-trustee; (3) 750 shares
of Class A Common Stock owned by Mr. Fuller's wife, as to which shares he
disclaims beneficial ownership; and (4) presently exercisable options to
purchase 12,500 shares of Class A Common Stock.
(10)The shares of Series A Preferred Stock owned by The 1818 Fund consist of
(1) 20,000 shares owned of record and (2) a presently exercisable option to
purchase 5,000 shares. These shares are convertible, subject to certain
exceptions, at any time into 1,630,436 shares of Class A Common Stock. Mr.
Long is a general partner of Brown Brothers Harriman & Co. ("BBH"), the
general partner of The 1818 Fund and, as such, his pecuniary interest in
the Series A Preferred Stock is limited to his percentage interest in BBH's
interest in such shares. Voting and investment power with respect to the
Series A Preferred Stock owned by The 1818 Fund is shared equally by Mr.
Long and Lawrence C. Tucker, in their respective capacities as partners of
BBH. The Class A Common Stock shown on the table consists of units under
the Deferred Stock Plan held by Mr. Long, a presently exercisable option
held by Mr. Long and the number of shares of Class A Common Stock into
which the 25,000 shares of Series A Preferred Stock are convertible.
(11)The amount shown includes: (1) 4,500 shares of Class A Common Stock owned
by Mr. Melzer individually; (2) presently exercisable options to purchase
6,000 shares of Class A Common Stock; and (3) units under the Deferred
Stock Plan representing 4,538 shares of Class A Common Stock.
(12)The amounts shown include: (1) 17,400 shares of Class A Common Stock and
11,100 shares of Class B Common Stock held by a trust for the benefit of
Mr. Randolph, of which he is co-trustee; (2) 15,000 shares of Class A
Common Stock held by a charitable trust, of which he is co-trustee; (3)
1,500 shares of Class A Common Stock held by a trust for the benefit of Mr.
Randolph's wife, of which he is co-trustee and as to which shares he
disclaims beneficial ownership; and (4) presently exercisable options to
purchase 12,500 shares of Class A Common Stock.
(13)The amount shown includes: (1) 5,550 shares of Class A Common Stock owned
by Mr. Ringo's wife, as to which shares he disclaims beneficial ownership;
(2) presently exercisable options to purchase 12,500 shares of Class A
Common Stock; and (3) units under the Deferred Stock Plan representing
4,198 shares of Class A Common Stock.
(14)The amount shown includes: (1) presently exercisable options to purchase
3,000 shares of Class A Common Stock; and (2) units under the Deferred
Stock Plan representing 7,041 shares of Class A Common Stock.
(15)The amount shown and the following information is derived from Amendment
No. 2 to Schedule 13G dated February 14, 2001. All of the shares are
beneficially owned by Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp., as a result of its acting as
investment advisor to various investment companies (the "Funds") registered
under Section 8 of the Investment Company Act of 1940 (including Fidelity
Low-Priced Stock Fund, which owns 349,650 shares). Edward C. Johnson 3d,
Chairman of FMR Corp., FMR Corp., through its control of Fidelity
Management & Research Company, and the Funds, each has sole dispositive
power with respect to the shares owned by the Funds. Sole power to vote or
direct the voting of these shares resides with the Funds' Boards of
Trustees.
(16)See footnotes (1) through (14) to this table. The amounts shown include:
(1) presently exercisable options to purchase an aggregate of 415,934
shares of Class A Common Stock; (2) presently exercisable third-party
options to purchase an aggregate of 264,714 shares of Class B Common Stock;
and (3) units under the Deferred Stock Plan representing an aggregate of
18,731 shares of Class A Common Stock.
S-28
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following summary describes the material U.S. federal income and estate
tax consequences of the ownership of Class A Common Stock by a non-U.S. holder
(as defined below) as of the date of this prospectus supplement.
This discussion does not address all aspects of U.S. federal income and
estate taxes and does not deal with foreign, state and local consequences that
may be relevant to non-U.S. holders in light of their personal circumstances.
Special rules may apply to certain non-U.S. holders, such as certain U.S.
expatriates, "controlled foreign corporations," "passive foreign investment
companies," "foreign personal holding companies" and corporations that
accumulate earnings to avoid U.S. federal income tax, that are subject to
special treatment under the Internal Revenue Code of 1986, as amended, or the
Code. Those entities should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that may be relevant to
them. Furthermore, the discussion below is based upon the provisions of the
Code, and regulations, rulings and judicial decisions under the Code as of the
date of this prospectus supplement, and such authorities may be repealed,
revoked or modified so as to result in U.S. federal income tax consequences
different from those discussed below. Persons considering the purchase,
ownership or disposition of Class A Common Stock should consult their own tax
advisors concerning the U.S. federal income tax consequences in light of their
particular situations as well as any consequences arising under the laws of any
other taxing jurisdiction.
If a partnership holds the Class A Common Stock, the tax treatment of a
partner will generally depend on the status of the partner and the activities
of the partnership. Persons who are partners of partnerships holding the Class
A Common Stock should consult their tax advisors.
As used in this prospectus supplement, a non-U.S. holder is a holder that is
not a U.S. holder and a U.S. holder of Class A Common Stock means a holder that
is:
. a citizen or resident of the United States,
. a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof,
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source, and
. a trust if it (i) is subject to the supervision of a court within the
United States and one or more U.S. persons have the ability to control all
substantial decisions of the trust or (ii) has a valid election in effect
under applicable U.S. Treasury regulations to be treated as a U.S. person.
Dividends
Dividends paid to a non-U.S. holder of Class A Common Stock generally will
be subject to withholding of U.S. federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. However,
dividends that are effectively connected with the conduct of a trade or
business by the non-U.S. holder within the United States and, where a tax
treaty applies, are attributable to a U.S. permanent establishment of the
non-U.S. holder, are not subject to the withholding tax, but instead are
subject to U.S. federal income tax on a net income basis at applicable
graduated individual or corporate rates. Certain certification and disclosure
requirements must be complied with in order for effectively connected income to
be exempt from withholding. Any such effectively connected dividends received
by a foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
A non-U.S. holder of Class A Common Stock who wishes to claim the benefit of
an applicable treaty rate, and avoid back-up withholding as discussed below,
for dividends, will be required to (a) complete Internal Revenue Service
("IRS") Form W-8BEN, or successor form, and certify under penalty of perjury,
that the holder is not a U.S. person or (b) if the Class A Common Stock is held
through certain foreign intermediaries, satisfy the relevant certification
requirements of applicable Treasury regulations. Special certification and
other requirements apply to certain non-U.S. holders that are entities rather
than individuals.
S-29
A non-U.S. holder of Class A Common Stock eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
Gain on Disposition of Class A Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of Class A
Common Stock unless
. the gain is effectively connected with a trade or business of the non-U.S.
holder in the United States, and, where a tax treaty applies, is
attributable to a U.S. permanent establishment of the non-U.S. holder,
. in the case of a non-U.S. holder who is an individual and holds the Class
A Common Stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions are met, or
. we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes.
An individual non-U.S. holder described in the first bullet point above will
be subject to tax on the net gain derived from the sale under regular graduated
U.S. federal income tax rates. An individual non-U.S. holder described in the
second bullet point above will be subject to a flat 30% tax on the gain derived
from the sale, which may be offset by U.S. source capital losses (even though
the individual is not considered a resident of the United States). If a
non-U.S. holder that is a foreign corporation falls under the first bullet
point above, it will be subject to tax on its gain under regular graduated U.S.
federal income tax rates and, in addition, may be subject to the branch profits
tax equal to 30% of its effectively connected earnings and profits or at such
lower rate as may be specified by an applicable income tax treaty.
We have not determined whether we are a U.S. real property holding
corporation, and it is possible that we may be a U.S. real property holding
corporation currently or will become a U.S real property holding corporation in
the future. If we are or become a U.S. real property holding corporation, so
long as the Class A Common Stock continues to be regularly traded on an
established securities market, only a non-U.S. holder who holds or held (at any
time during the shorter of the five year period preceding the date of
disposition or the holder's holding period) more than five percent of the Class
A Common Stock will be subject to U.S. federal income tax on the disposition of
the Class A Common Stock.
Federal Estate Tax
Class A Common Stock held by an individual non-U.S. holder at the time of
death will be included in that holder's gross estate for U.S. federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
We must report annually to the IRS and to each non-U.S. holder the amount of
dividends paid to such holder and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A non-U.S. holder will be subject to backup withholding unless applicable
certification requirements are met.
Payment of the proceeds of a sale of Class A Common Stock within the United
States or conducted through certain U.S. related financial intermediaries is
subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that it is a non-U.S.
holder (and the payor does not have actual knowledge that the beneficial owner
is a U.S. person) or the holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
S-30
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated December , 2001, we and the selling stockholders have agreed
to sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, ABN AMRO Rothschild LLC, Bear, Stearns & Co Inc., BB&T Capital
Markets, a division of Scott & Stringfellow, Inc and Morgan Keegan & Company,
Inc. are acting as representatives, the following respective numbers of shares
of our Class A Common Stock:
Number
Underwriter of Shares
----------- ---------
Credit Suisse First Boston Corporation.............................
ABN AMRO Rothschild LLC............................................
Bear, Stearns & Co. Inc............................................
BB&T Capital Markets, a division of Scott & Stringfellow, Inc......
Morgan Keegan & Company, Inc.......................................
---------
Total........................................................... 2,200,000
=========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of Class A Common Stock in the offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or the offering may be terminated.
We and the selling stockholders have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to 230,000 additional shares from us
and up to an aggregate of 100,000 additional outstanding shares from the
selling stockholders at the initial public offering price less the underwriting
discounts and commissions. If the underwriters choose to exercise less than the
entire over-allotment option, their option will first be exercised with respect
to the 100,000 shares to be sold by the selling stockholders. The option may be
exercised only to cover any over-allotments of Class A Common Stock.
The underwriters propose to offer the shares of Class A Common Stock
initially at the public offering price on the cover page of this prospectus
supplement and to selling group members at that price less a selling concession
of $ per share. The underwriters and selling group members may allow a
discount of $ per share on sales to other broker/dealers. After the initial
public offering the representatives may change the public offering price and
concession and discount to broker/dealers.
The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay:
Per Share Total
------------------------ ------------------------
Without Over- With Over- Without Over- With Over-
allotment allotment allotment allotment
------------- ---------- ------------- ----------
Underwriting Discounts and
Commissions paid by us..... $ $
Expenses payable by us...... $ $
Underwriting Discounts and
Commissions paid by selling
stockholders............... $ $
Expenses payable by selling
stockholders............... $ $
We intend to use the net proceeds from the sale of our Class A Common Stock
to repay indebtedness owed under our primary bank credit facilities. As a
result, LaSalle National Bank, an affiliate of ABN AMRO Rothschild LLC and one
of the lenders under our primary bank credit facility, will receive more than
10% of the net proceeds from this offering. Accordingly, the offering is being
made in compliance with the requirements of Rule 2710(c)(8) of the National
Association of Securities Dealers, Inc.
S-31
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended (the "Securities Act") relating to, any shares of our Class A Common
Stock or securities convertible into or exchangeable or exercisable for any
shares of our Class A Common Stock, or publicly disclose the intention to make
any offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 90 days after
the date of this prospectus supplement, except issuances pursuant to (1) the
conversion of shares of our Class B Common Stock or Series A Preferred Stock,
(2) the exercise of stock options under our 1996 Stock Option Plan or our Stock
Option Plan for Outside Directors or (3) our Employee Stock Purchase Plan or
Deferred Stock Plan for Non-Employee Directors, in each case outstanding on the
date hereof.
Our officers, directors and the selling stockholders have, subject to
certain exceptions, agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of our Class
A Common Stock or securities convertible into or exchangeable or exercisable
for any shares of our Class A Common Stock, enter into a transaction that would
have the same effect, or enter into any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic consequences of ownership
of our Class A Common Stock, whether any of these transactions are to be
settled by delivery of our Class A Common Stock or other securities, in cash or
otherwise, or publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 90 days after the date of this
prospectus supplement. Mortimer B. Fuller, III may transfer up to an aggregate
of 15,000 shares of our Class A Common Stock to one or more charities during
the 90 day "lock-up" period.
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments that
the underwriters may be required to make in that respect.
We have applied to list the shares of Class A Common Stock on The Nasdaq
National Market.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions,
penalty bids and passive market making in accordance with Regulation M under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any covered short position by
either exercising their over-allotment option and/or purchasing shares in
the open market.
. Syndicate covering transactions involve purchases of the Class A Common
Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. In determining the source of
shares to close out the short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares than could
be covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors who
purchase in the offering.
S-32
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the Class A Common Stock originally sold by
the syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
. In passive market making, market makers in the Class A Common Stock who
are underwriters or prospective underwriters may, subject to limitations,
make bids for or purchases of our Class A Common Stock until the time, if
any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
Class A Common Stock or preventing or retarding a decline in the market price
of the Class A Common Stock. As a result, the price of our Class A Common Stock
may be higher than the price that might otherwise exist in the open market.
These transactions may be effected on The Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
The decision of ABN AMRO Rothschild LLC to distribute the shares of our
Class A Common Stock in this offering was made independent of the lender with
which it is affiliated. That lender had no involvement in determining whether
or when to distribute the shares of Class A Common Stock under this offering or
the terms of this offering. The underwriters will not receive any benefit from
this offering other than the underwriting discounts and commissions described
in this prospectus supplement.
A prospectus supplement in electronic format may be made available on the
web sites maintained by one or more of the underwriters participating in this
offering. The representatives may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters that will make internet
distributions on the same basis as other allocations. Credit Suisse First
Boston Corporation may effect an on-line distribution through its affiliate,
CSFBdirect Inc., an on-line broker dealer, as a selling group member.
S-33
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of our Class A Common Stock in Canada is being made only on
a private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Class A Common Stock are made. Any
resale of our Class A Common Stock in Canada must be made under applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made under available statutory exemptions or
under a discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of our Class A Common Stock.
Representations of Purchasers
By purchasing Class A Common Stock in Canada and accepting a purchase
confirmation, a purchaser is representing to us, the selling stockholders and
the dealer from whom the purchase confirmation is received that
. the purchaser is entitled under applicable provincial securities laws to
purchase the Class A Common Stock without the benefit of a prospectus
qualified under those securities laws,
. where required by law, that the purchaser is purchasing as principal and
not as agent, and
. the purchaser has reviewed the text above under Resale Restrictions.
Rights of Action--Ontario Purchasers Only
Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus during the period of distribution will have a
statutory right of action for damages, or while still the owner of shares of
our Class A Common Stock, for rescission against us and the selling
stockholders in the event that this prospectus contains a misrepresentation.
Such a purchaser will be deemed to have relied on the misrepresentation. The
right of action for damages is exercisable not later than the earlier of 180
days from the date the purchaser first had knowledge of the facts giving rise
to the cause of action and three years from the date on which payment is made
for the shares of our Class A Common Stock. The right of action for rescission
is exercisable not later than 180 days from the date on which payment is made
for the shares of our Class A Common Stock. If such a purchaser elects to
exercise the right of action for rescission, the purchaser will have no right
of action for damages against us or the selling stockholders. In no case will
the amount recoverable in any action exceed the price at which the shares of
our Class A Common Stock was offered to the purchaser and if the purchaser is
shown to have purchased the securities with knowledge of the misrepresentation,
we and the selling stockholders will have no liability. In the case of an
action for damages, we and the selling stockholders will not be liable for all
or any portion of the damages that are proven to not represent the depreciation
in value of our Class A Common Stock as a result of the misrepresentation
relied upon. These rights are in addition to, and without derogation from, any
other rights or remedies available at law to an Ontario purchaser. The
foregoing is a summary of the rights available to an Ontario purchaser. Ontario
purchasers should refer to the complete text of the relevant statutory
provisions.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named in this
prospectus supplement and the selling stockholders may be located outside of
Canada and, as a result, it may not be possible for Canadian purchasers to
effect service of process within Canada upon us or those persons. All or a
substantial portion of our assets and the assets of those persons may be
located outside of Canada and, as a result, it may not be possible to satisfy a
judgment against us or those persons in Canada or to enforce a judgment
obtained in Canadian courts against us or those persons outside of Canada.
S-34
Taxation and Eligibility for Investment
Canadian purchasers of Class A Common Stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Class A Common Stock in their particular circumstances and about the
eligibility of the Class A Common Stock for investment by the purchaser under
relevant Canadian legislation.
LEGAL MATTERS
The validity of the shares of our Class A Common Stock will be passed upon
for us by Simpson Thacher & Bartlett, New York, New York, and for the
underwriters by Mayer, Brown & Platt, Chicago, Illinois. As of December 5,
2001, lawyers of Simpson Thacher & Bartlett who have participated in the
preparation of this prospectus supplement and the attached prospectus
beneficially owned 9,675 shares of our Class A Common Stock.
EXPERTS
The financial statements of Genesee & Wyoming Inc. incorporated in this
prospectus by reference to the Annual Report on Form 10-K, as amended, for the
year ended December 31, 2000 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto. In that report, Arthur Andersen LLP states that with respect to
certain information regarding ARG, its opinion is based on the report of other
independent public accountants, namely Ernst & Young. The financial statements
referred to above are incorporated by reference in this prospectus in reliance
upon the authority of those firms as experts in auditing and accounting in
giving said reports.
The financial statements of Westrail Freight Division as of 30 June 2000 and
1999 and for each of the three years in the period ended 30 June 2000,
appearing in the Current Report on Form 8-K dated March 2, 2001, have been
audited by Ernst & Young, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The financial statements of the South Buffalo Railway Company incorporated
herein by reference to the Current Report on Form 8-K dated December 6, 2001,
for the year ended December 31, 2000 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of that firm as experts in auditing and accounting in giving said
report.
S-35
[LOGO]
$200,000,000
Genesee & Wyoming Inc.
Debt Securities
Preferred Stock
Class A Common Stock
Genesee & Wyoming Inc.
348,298 Shares of Class A Common Stock
-----------------
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest in any of our securities.
See "Risk Factors" beginning on page 2 to read about risks you should
consider before you invest in any of our securities.
-----------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------------
Prospectus dated November 29, 2001.
TABLE OF CONTENTS
Page
----
Forward-Looking Statements.................................................................... i
Where You Can Find More Information About Us.................................................. ii
Summary....................................................................................... 1
Risk Factors.................................................................................. 2
About Genesee & Wyoming Inc................................................................... 9
Recent Developments........................................................................... 9
Ratios of Earnings To Fixed Charges and Earnings To Combined Fixed Charges and Preferred Stock
Dividends................................................................................... 10
Use of Proceeds............................................................................... 10
Dividend Policy............................................................................... 10
Description of Our Debt Securities............................................................ 11
Description of Our Capital Stock.............................................................. 18
Selling Stockholders.......................................................................... 22
Plan of Distribution.......................................................................... 23
Validity of Our Securities.................................................................... 24
Experts....................................................................................... 24
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference may
contain forward-looking statements based on current expectations, estimates and
projections about our industry, management's beliefs, and assumptions made by
management. Words such as "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," variations of these words and similar expressions are
intended to identify such forward-looking statements. These statements are no
guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to forecast. Therefore, actual
results may differ materially from those expressed or forecast in these
forward-looking statements. These risks and uncertainties include those noted
in the documents incorporated herein by reference. We undertake no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Factors that could cause our actual
results to differ materially include those discussed under "Risk Factors" as
well as:
. the inability to successfully execute our growth strategy;
. changes to Australia's open access regime;
. the risks of doing business in foreign countries, including exchange rate
fluctuations;
. the unexpected loss of any long-term concession or lease agreement;
. the unexpected loss of a number of our largest customers;
. adverse weather conditions;
. changes in environmental and other laws and regulations to which we and
our subsidiaries are subject; and
. general economic and business conditions.
i
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. These filings are
available to the public over the Internet at the Securities and Exchange
Commission's web site at http://www.sec.gov. You may also read and copy any
document we file at the Securities and Exchange Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference room.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. Information furnished
under Item 9 of our Current Report on Form 8-K is not incorporated by reference
in this prospectus and registration statement. We furnished information under
Item 9 of our Current Report on Form 8-K on March 20, 2001.
We incorporate by reference the documents listed below, any filings that we
make after the date of filing the initial registration statement and prior to
the effectiveness of that registration statement, and any future filings made
by us with the Securities and Exchange Commission under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until we sell all of the
securities that we have registered under the registration statement of which
this prospectus forms a part.
. The Annual Report on Form 10-K for the year ended December 31, 2000;
. The Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30 and September 30, 2001; and
. The Current Reports on Form 8-K filed on March 2, May 1 and October 3,
2001.
You may request a copy of these filings at no cost by writing or telephoning
us at the following address or telephone number:
Genesee & Wyoming Inc.
66 Field Point Road
Greenwich, CT 06830
Attention: John C. Hellmann
Telephone: (203) 629-3722
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to
sell or buy any securities in any jurisdiction where it is unlawful.
ii
SUMMARY
This summary highlights selected information from this prospectus and does
not contain all of the information that may be important to you. This
prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide you with a prospectus
supplement that will describe the specific amounts, prices and other terms of
the securities being offered. The prospectus supplement may also add, update or
change information contained in this prospectus. To understand the terms of our
securities, you should carefully read this document with the applicable
prospectus supplement. Together, these documents will give the specific terms
of the securities we are offering. You should also read the documents we have
incorporated by reference in this prospectus described above under "Where You
Can Find More Information About Us." Unless the context otherwise indicates,
the terms "Genesee & Wyoming Inc.," "we," "us" or "our" mean Genesee & Wyoming
Inc. and its consolidated and unconsolidated subsidiaries, including Australian
Railroad Group Pty. Ltd. (ARG) and its subsidiaries. When we refer to ARG, that
reference is a reference to ARG and its subsidiaries. ARG is our recently
formed 50/50 joint venture with Wesfarmers Limited.
The Securities We May Offer
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
the shelf registration process, we may offer from time to time up to an
aggregate of $200,000,000 of any of the following securities:
. debt securities;
. preferred stock; and
. Class A Common Stock.
In addition, certain selling stockholders may offer and sell from time to
time an aggregate of 348,298 shares of our Class A Common Stock. See "Selling
Stockholders."
Debt Securities
We may offer unsecured general obligations, which may be either senior or
subordinated, and may be convertible into shares of our Class A Common Stock or
shares of our preferred stock. In this prospectus, we refer to our senior debt
securities and subordinated debt securities together as "our debt securities."
The senior debt securities will have the same rank as all of our other
unsecured and unsubordinated debt. The subordinated debt securities will be
entitled to payment only after payment of our senior debt, including amounts
under our current or future senior credit facilities.
Our debt securities will be issued under one of two indentures between us
and a trustee. We have summarized general features of our debt securities under
"Description of Our Debt Securities." We encourage you to read the indentures,
the form of each of which is an exhibit to the registration statement of which
this prospectus forms a part.
Preferred Stock
We may issue shares of our preferred stock, $.01 par value per share, in one
or more series. Our Board of Directors will determine the dividend, voting,
conversion and other rights of the series of preferred stock being offered.
Class A Common Stock
We may issue shares of our Class A Common Stock, par value $.01 per share.
Holders of shares of our Class A Common Stock are entitled to receive dividends
when declared by our Board of Directors, subject to the rights of holders of
our preferred stock. Each holder of our Class A Common Stock is entitled to one
vote per share. Except as described herein, the holders of our Class A Common
Stock have no preemptive rights or cumulative voting rights. See "Description
of Our Capital Stock" for a more complete discussion of dividend, voting and
conversion rights with respect to our outstanding shares of Class A Common
Stock, Class B Common Stock and Series A Preferred Stock.
In addition, certain selling stockholders may offer and sell from time to
time an aggregate of 348,298 shares of our Class A Common Stock. See "Selling
Stockholders."
1
RISK FACTORS
Investing in our securities involves risks, including the risks described in
this prospectus and in the other documents which are incorporated herein by
reference. Additional risks, including those that relate to any particular
securities that we will offer, will be included in the applicable prospectus
supplement. You should carefully consider the risk factors before investing in
any of our securities.
If we are unable to consummate additional acquisitions or investments, we may
not be able to successfully implement our growth strategy.
The successful implementation of our growth strategy contemplates us
expanding through selective acquisitions of and investments in rail properties,
both in new regions and in regions in which we currently operate. The success
of our acquisition and investment program will depend on, among other things:
. the availability of suitable candidates;
. competition from other companies for the purchase of available candidates;
. our ability to value those candidates accurately and negotiate favorable
terms for those acquisitions and investments;
. our ability to obtain the necessary funds to finance additional
acquisitions and investments in accordance with the restrictions contained
in our senior credit facilities;
. our ability to identify and enter into mutually beneficial relationships
with venture partners; and
. the availability of management resources to oversee the integration and
operation of the acquired businesses.
If our acquisition and investment program is not successful, we may not be
able to expand our business at the rate contemplated by our current growth
strategy. As a result, the market price for our Class A Common Stock may be
adversely affected.
Our inability to integrate acquired businesses successfully or to realize the
anticipated cost savings and other benefits could have adverse consequences to
our business.
We have experienced significant growth through acquisitions and we expect to
continue to grow through additional acquisitions. Acquisitions can result in
higher than anticipated operating and administrative costs and, to the extent
financed with debt, additional interest costs. We cannot assure you that we
will be able to manage or integrate the acquired companies or businesses
successfully. The process of combining acquired businesses may be disruptive to
our business and may cause an interruption of, or a loss of momentum in, our
business as a result of the following factors, among others:
. loss of key employees or customers;
. possible inconsistencies in or conflicts between standards, controls,
procedures and policies among the combined companies and the need to
implement company-wide financial, accounting, information technology and
other systems;
. failure to maintain the quality of services that the companies have
historically provided;
. integrating employees of rail lines acquired from Class I railroads,
governments or other entities into our regional railroad culture;
. the need to coordinate geographically diverse organizations; and
. the diversion of management's attention from our day-to-day business as a
result of the need to manage any disruptions and difficulties and the need
to add management resources to do so.
These disruptions and difficulties, if they occur, may cause us to fail to
realize the cost savings, revenue enhancements and other benefits that we
normally expect to result from integrating acquired companies, including our
most recent acquisition of South Buffalo Railway Company, and may cause
material adverse short- and long-term effects on our operating results and
financial condition.
2
Even if we are able to integrate the operations of our acquired businesses
into our operations, we may not realize the full benefits of the cost savings,
revenue enhancements or other benefits that we may have expected at the time of
acquisition. The expected revenue enhancements and cost savings are based on
analyses completed by members of our management. These analyses necessarily
involve assumptions as to future events, including general business and
industry conditions, operating costs and competitive factors, many of which are
beyond our control and may not materialize. While we believe these analyses and
their underlying assumptions to be reasonable, they are estimates which are
necessarily speculative in nature. In addition, even if we achieve the expected
benefits, we may not be able to achieve them within the anticipated time frame.
Also, the cost savings and other synergies from these acquisitions may be
offset by costs incurred in integrating the companies, increases in other
expenses, operating losses or problems in the business unrelated to these
acquisitions.
We may need additional capital to fund our acquisitions. If we are unable to
obtain additional capital, we may be required to forego potential acquisitions,
which would harm our business, financial condition and results of operations.
Since 1996, we have acquired 19 railroads, the majority of which were for
cash. We intend to continue to review acquisition candidates and potential
purchases of railroad assets, and to attempt to acquire companies and assets
that meet our investment criteria. We expect that, as in the past, we will pay
cash for some or all of the purchase price of any acquisitions or purchases
that we make. Depending on the number of acquisitions or purchases and the
prices of the acquisitions, we may not generate enough cash from operations to
pay for the acquisitions or purchases. We may, therefore, need to raise
substantial additional capital. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, the issuance of such
securities could result in dilution of our existing stockholders. If we raise
additional funds through the issuance of debt securities, the terms of such
debt could impose additional restrictions on our operations. Additional
capital, if required, may not be available on acceptable terms, or at all. If
we are unable to obtain additional capital, we may be required to forego
potential acquisitions, which would harm our business, financial condition and
results of operations.
Australia's open access regime could lead to additional competition for our
business and decreased revenues and profit margins.
In Australia, where a significant portion of our operations is located, the
applicable legislative and regulatory framework enables third party rail
operators to gain access to our railway infrastructure in Western Australia and
South Australia for access fees and governs our access to the
Commonwealth-owned interstate network and State-owned railway infrastructure in
New South Wales, Victoria and Queensland as well as track owned by the Northern
Territory. ARG currently operates on the Commonwealth-owned interstate network
from Sydney, New South Wales and Melbourne, Victoria to Kalgoorlie, Western
Australia and on State-owned track in New South Wales.
Because privatization of railways in Australia is recent, access charges
under state and federal regimes may still be subject to challenge. If the
federal government or respective state regulators determine that the access
fees charged to current or prospective third party rail freight operators by
ARG in Western Australia or South Australia do not meet competitive standards,
then ARG's income from those fees could be negatively affected. Likewise, where
ARG pays access fees to others, if those fees are increased, ARG's operating
margins could be negatively affected.
In certain parts of Australia we operate over track networks owned by
others, including Commonwealth-owned and State-owned networks. The owners of
the network rather than the operators are responsible for scheduling the use of
the tracks as well as for determining the amount and timing of the expenditures
necessary to maintain the network in satisfactory condition. Therefore, in
areas where we operate over tracks owned by others, we are subject to any train
scheduling errors made by the owners as well as the risk that the network is
not adequately maintained. If either risk were to materialize, our results of
operation and financial condition could be adversely affected.
3
ARG, our 50/50 Australian joint venture, may be subject to significant
additional expenditures in order to comply with Commonwealth and/or state
regulations.
In addition to the open access requirements described above, other aspects
of rail operation are regulated, safety in particular, on both a Commonwealth
and a state-by-state basis. ARG has received safety regulatory approval to
operate on Commonwealth-owned track, in the Northern Territory and in all
states except Queensland and Tasmania. Changes in safety regulations or other
regulations or the imposition of new regulations or conflicts among state
and/or Commonwealth regulations could require us to make significant
expenditures and to incur significant expenses in order to comply with these
regulations.
Because some of our significant subsidiaries transact business in foreign
currencies, and because a significant portion of our net income comes from the
operations of our foreign subsidiaries, future exchange rate fluctuations may
adversely affect our results of operations and may affect the comparability of
our results between financial periods.
Some of our significant subsidiaries transact business in foreign
currencies, including the Australian dollar, the Canadian dollar and the
Mexican peso. For the nine months ended September 30, 2001, approximately 45.8%
of our net income came from the operations of ARG, our 50/50 Australian joint
venture. The results of our foreign operations are reported in the local
currency and then translated into U.S. dollars at the applicable exchange rates
for inclusion in our consolidated financial statements. The exchange rates
between some of these currencies and the U.S. dollar in recent years have
fluctuated significantly and may continue to do so in the future. In addition,
because our financial statements are stated in U.S. dollars, the translation
effect of such fluctuations may have a material adverse effect on our results
of operations and financial position and may affect the comparability of our
results between financial periods. Furthermore, because a portion of our
Mexican subsidiary's debt is denominated in U.S. dollars, we are subject to
fluctuation in the exchange rate between the U.S. dollar and the Mexican peso,
which may have an adverse effect on our financial position and may also affect
the comparability of our results between financial periods.
We cannot assure you that we will be able to effectively manage our exchange
rate and/or translation risks or that any volatility in currency exchange rates
will not have a material adverse effect on our financial condition or results
of operations.
We are subject to the risks of doing business in foreign countries.
We have railroad operations in Australia, Canada, Mexico and Bolivia. In
addition, we may also consider acquisitions in other foreign countries. The
risks of doing business in foreign countries include:
. adverse changes or greater volatility in the economies of those countries;
. adverse effects of currency exchange controls;
. adverse changes to the regulatory environment of those countries;
. adverse changes to the tax laws and regulations of those countries;
. restrictions on the withdrawal of foreign investment and earnings;
. the nationalization of the businesses that we operate;
. the potential instability of foreign governments, including from domestic
insurgency movements; and
. the challenge of managing a culturally and geographically diverse
operation.
Our operations in foreign countries are also subject to economic
uncertainties, including among others, risk of renegotiation or modification of
existing agreements or arrangements with governmental authorities, exportation
and transportation tariffs, foreign exchange restrictions and changes in
taxation structure.
4
Failure to meet concession commitments with respect to operations of our
foreign rail lines could result in the loss of our investment and a related
loss of revenues.
We have entered into long-term concession and/or lease agreements with
governmental authorities in Mexico, Bolivia, South Australia, Western
Australia, Northern Territory and the Commonwealth of Australia. These
concession and lease agreements are subject to a number of conditions,
including those relating to the maintenance of certain standards with respect
to safety, service, price and the environment. These concession and lease
agreements also typically carry with them a commitment to maintain the
condition of the railroad and to make a certain level of capital expenditures.
Failure to meet our commitments under the long-term concession and lease
agreements could result in the loss of those concession or lease agreements.
The loss of any concession or lease agreement could result in the loss of our
entire investment relating to that concession or lease agreement and the
related revenues and income.
The loss of important customers or contracts may adversely affect our business.
For the nine months ended September 30, 2001, our ten largest North American
customers accounted for approximately 31.5% of our North American revenues, and
ARG's ten largest customers and contracts accounted for approximately 67.8% of
its revenues. ARG's largest contract, which provides rail service to Western
Australia's grain industry, accounted for 18.2% of ARG's revenues for the nine
months ended September 30, 2001. The loss of one or more of our or ARG's
largest customers and contracts could have a material adverse effect on our
operating results and financial condition.
Our results of operations are susceptible to downturns in the general economy
as well as to severe weather conditions.
In any given year, we, like other railroads, are susceptible to changes in
the economic conditions of the industries and geographic areas that produce and
consume the freight we transport. In addition, many of the goods and
commodities carried by us experience cyclicality in their demand. Our results
of operations can be expected to reflect this cyclicality because of the
significant fixed costs inherent in railroad operations. Should an economic
slowdown or recession occur or worsen in North America or in the other
countries in which we operate, the volume of rail shipments carried by us is
likely to be affected.
In addition to the inherent risks of the business cycle, we are occasionally
susceptible to adverse weather conditions. For example:
. our grain revenue may be reduced by drought;
. our coal revenue may be reduced by cold summers and warm winters, which
lessen electricity demand; and
. our salt revenue may be reduced by snow-free and ice-free winters in the
Northeast U.S., which lessens demand for road salt.
Bad weather and natural disasters, such as blizzards in the Northeast region of
the U.S. and earthquakes in Mexico, could also cause a shutdown or substantial
disruption of operations which, in turn, could have a material adverse effect
on our operating results and financial condition. Furthermore, our expenses
could be adversely impacted by weather, including as a result of higher track
maintenance costs in the winter in New York, Pennsylvania and Canada as well as
by possible track washouts in Mexico during the autumn rainy season.
Our business may be adversely affected by unfavorable conditions in the
Australian agricultural industry because a substantial portion of our railroad
traffic consists of agricultural commodities.
A significant portion of our rail freight revenues in South Australia and
Western Australia comes from shipments of agricultural commodities. For
example, for the nine months ended September 30, 2001, grain shipments in South
Australia and Western Australia generated approximately 27.5% of the revenues
for ARG, our 50/50 Australian joint
5
venture. A decrease in grain shipments as a result of adverse weather or other
negative agricultural conditions could have a material adverse effect on our
operating results, financial condition and existing business.
Because we depend on Class I railroads and other connecting carriers for our
North American operations, our business and financial results may be adversely
affected if our relationships with these carriers deteriorate.
The railroad industry in the U.S. and Canada is dominated by a small number
of large Class I carriers that have substantial market control and negotiating
leverage. Almost all of the traffic on our U.S. and Canadian railroads is
interchanged with Class I carriers. A decision by any of these Class I carriers
to discontinue transporting commodities or to use alternate modes of
transportation, such as motor carriers, could have a material adverse effect on
our business and results of operations.
Our ability to provide rail service to customers in the U.S. and Canada
depends in large part upon our ability to maintain cooperative relationships
with connecting carriers with respect to, among other matters, freight rates,
revenue divisions, car supply, reciprocal switching, interchange and trackage
rights. A deterioration in the operations of, or service provided by, those
connecting carriers, or in our relationship with those connecting carriers,
would adversely affect our business. In addition, much of the freight
transported by our U.S. and Canadian railroads moves on railcars supplied by
Class I carriers. If the number of railcars supplied by Class I carriers is
insufficient, we might not be able to obtain replacement railcars on favorable
terms or at all and shippers may seek alternate forms of transportation.
Portions of our U.S. and Canadian rail properties are operated under leases,
operating agreements or trackage rights agreements with Class I carriers.
Failure of our railroads to comply with these leases and agreements in all
material respects could result in the loss of operating rights with respect to
those rail properties, which would adversely affect our results of operations
and financial condition. Class I carriers also have traditionally been
significant sources of business for us, as well as sources of potential
acquisition candidates as they continue to divest themselves of branch lines to
smaller rail operators. Because we depend on Class I carriers for our U.S. and
Canadian operations, our business and financial results may be adversely
affected if our relationships with those carriers deteriorate.
While the majority of our Mexican revenue originates and terminates on our
railroad, we are dependent on our relationship with a connecting carrier for
the remainder of our revenue. To the extent that we experience service
disruptions with that connecting carrier, our ability to serve existing
customers and expand our business will suffer.
We face competition from numerous sources, including those relating to
geography, substitutable products, other types of transportation and other rail
operators.
Each of our railroads is typically the only rail carrier directly serving
our customers. Our railroads, however, compete directly with other modes of
transportation, principally motor carriers and, to a lesser extent, ship, barge
and pipeline operators. We are also subject to geographic and product
competition. For example, a customer could shift production to a region where
we do not have operations or could substitute one commodity for another
commodity that is not transported by rail. In either case, we would lose a
source of revenue, hurting our results of operations.
The extent of this competition varies significantly among our railroads.
Competition is based primarily upon the rate charged, the relative costs of
substitutable products and the transit time required. In addition, competition
is based on the quality and reliability of the service provided. Because the
large majority of our freight moves involve interchange with another carrier,
we have only limited control over the price, transit time or quality of such
service. Any future improvements or expenditures materially increasing the
quality of these alternative modes of transportation in the locations in which
we operate, or legislation granting materially greater latitude for motor
carriers with respect to size or weight limitations, could have a material
adverse effect on our results of operations and financial condition.
In competing for the acquisition of rail properties, we face other acquirors
that may have greater financial resources than we do. Competition for rail
properties is based primarily upon price, operating history and financing
capability. Our inability to successfully complete additional acquisitions will
adversely affect the implementation of an important part of our growth strategy.
6
We are subject to significant governmental regulation of our railroad
operations. The failure to comply with governmental regulations could have a
material adverse effect on our business.
We are subject to governmental regulation in the U.S. by a significant
number of federal, state and local regulatory authorities, including The
Surface Transportation Board, The Federal Railroad Administration and state
departments of transportation, with respect to our railroad operations and a
variety of health, safety, labor, environmental and other matters. We are also
subject to regulatory authorities in the other countries in which we operate.
Our failure to comply with applicable laws and regulations could have a
material adverse effect on us. In addition, governments may change the
legislative framework within which we operate without providing us with any
recourse for any adverse effects that the change may have on our business.
Also, some of the regulations require us to obtain and maintain various
licenses, permits and other authorizations and we cannot assure you that we
will continue to be able to do so.
We could incur significant costs for violations of applicable environmental
laws and regulations.
Our railroad operations and real estate ownership are subject to extensive
foreign, federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters, and
the handling, storage, transportation and disposal of waste and other materials
and cleanup of hazardous material or petroleum releases. Environmental
liability can extend to previously owned or operated properties, leased
properties and properties owned by third parties, as well as to properties
currently owned and used by us. Environmental liabilities may also arise from
claims asserted by adjacent landowners or other third parties in toxic tort
litigation. We may be subject to allegations or findings to the effect that we
have violated, or are strictly liable under, these laws or regulations. As a
result, we could incur significant costs, including significant expenses to
investigate and remediate environmental contamination, which could have a
material adverse effect on our results of operations and on our financial
condition.
An adverse outcome of the lawsuit against us by Commonwealth Edison Company
could have a material adverse effect on our financial condition.
On August 6, 1998, a lawsuit was commenced against us and our subsidiary,
Illinois & Midland Railroad, Inc. (IMRR), by Commonwealth Edison Company
(ComEd) in the Circuit Court of Cook County, Illinois. The suit alleges that
IMRR breached certain provisions of a stock purchase agreement entered into by
a prior unrelated owner of the IMRR rail line. The provisions allegedly pertain
to limitations on rates received by IMRR and the unrelated predecessor for
freight hauled for ComEd's previously owned Powerton Plant. The suit seeks
unspecified compensatory damages for alleged past rate overcharges. We believe
the suit is without merit and intend to vigorously defend against the suit.
However, an adverse outcome of this lawsuit could have a material adverse
effect on our financial condition.
Bethlehem Steel's bankruptcy could have a negative impact on our results of
operations and financial condition.
On October 1, 2001, we acquired all of the outstanding shares of South
Buffalo Railway Company from Bethlehem Steel Corporation. In connection with
that acquisition, we entered into a number of agreements with Bethlehem Steel.
On October 5, 2001, Bethlehem announced that it had filed for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. Although at this time
Bethlehem and we are continuing to perform under those agreements in the
ordinary course of business, notwithstanding Bethlehem's chapter 11 filing, it
is possible that Bethlehem or other parties in interest in the Bethlehem
bankruptcy cases may take positions adverse to us. In the event that Bethlehem
or the other parties are successful in arguing those positions, our financial
condition and results of operations could be materially adversely affected.
Some of our employees belong to labor unions, and strikes or work stoppages
could adversely affect our operations.
We are a party to collective bargaining agreements with various labor unions
in the United States, Mexico, Australia, Canada, and Bolivia. In North America,
we are party to fifteen contracts with national labor organizations which have
expiration dates ranging to 2005. We are currently engaged in negotiations with
respect to five of those
7
agreements, including four related to our recent acquisition of the South
Buffalo Railway Company. We are also in the process of negotiating one new
contract with a labor organization in North America. In South Australia, we are
party to one collective bargaining agreement that expires in September 2004. In
Western Australia, we are currently negotiating with our employees and union
representatives to reach new agreements. Our inability to negotiate acceptable
contracts with these unions could result in, among other things, strikes, work
stoppages or other slowdowns by the affected workers. If the unionized workers
were to engage in a strike, work stoppage or other slowdown, or other employees
were to become unionized or the terms and conditions in future labor agreements
were renegotiated, we could experience a significant disruption of our
operations and/or higher ongoing labor costs, which in either case could
materially adversely affect our results of operations and financial condition.
We are also subject to the risk of the unionization of our non-unionized
employees which could result in higher employee compensation and working
condition demands that could increase our operating costs or constrain our
operating flexibility. In addition, work interruptions may be threatened which
could cause cessation of operations with a corresponding adverse financial
impact.
We may face liability for casualty losses which are not covered by insurance.
We have obtained for each of our railroads insurance coverage for losses
arising from personal injury and for property damage in the event of
derailments or other accidents or occurrences. Unexpected or catastrophic
circumstances such as accidents involving passenger trains or spillage of
hazardous materials could cause our liability to exceed our insurance limits.
Insurance is available from only a very limited number of insurers and we
cannot assure you that insurance protection at our current levels will continue
to be available or, if available, will be obtainable on terms acceptable to us.
In addition, the terrorist attacks on September 11, 2001, and subsequent
events, may result in additional increases in our insurance premiums and/or our
self insured retentions and could result in limitations to the coverage under
our existing policies. The occurrence of losses or other liabilities which are
not covered by insurance or which exceed our insurance limits could materially
adversely affect our financial condition.
Rising fuel costs could materially adversely affect our business.
Fuel costs constitute a significant portion of our total operating expenses.
Fuel costs were approximately 8.3% of our operating expenses for the nine
months ended September 30, 2001 and 11.2% for the nine months ended September
30, 2000. If diesel fuel prices increase dramatically, the increase could have
a material adverse effect on our results of operations and financial condition.
Fuel prices and supplies are influenced significantly by international
political and economic circumstances. If a fuel supply shortage were to arise
from Organization of the Petroleum Exporting Countries (OPEC) production
curtailments, a disruption of oil imports or otherwise, higher fuel prices and
any price increases would materially affect our operating results.
Historically, we have not engaged in fuel hedge contracts.
8
ABOUT GENESEE & WYOMING INC.
Genesee & Wyoming Inc., incorporated in Delaware in 1977, is a holding
company whose subsidiaries and unconsolidated affiliates own/and or operate
short line and regional freight railroads and provide related rail services in
North America, South America and Australia. We, through our U.S. industrial
switching subsidiary, also provide freight car switching and related services
to industrial companies located in the United States with extensive railroad
facilities within their complexes. We generate revenues primarily from the
movement of freight over track owned or operated by our railroads. We also
generate non-freight revenues primarily by providing freight car switching and
related rail services such as railcar leasing, railcar repair and storage to
the aforementioned industrial companies, to shippers along our lines, and to
the Class I railroads that connect with our North American lines.
Our executive offices are located at 66 Field Point Road, Greenwich, CT
06830, and our telephone number is (203) 629-3722.
RECENT DEVELOPMENTS
On October 1, 2001, we beneficially acquired all of the issued and
outstanding shares of common stock of South Buffalo Railway Company from
Bethlehem Steel Corporation. South Buffalo currently owns and operates
locomotives and rolling stock over 52 miles of owned track in Buffalo, New
York. Following the acquisition, we intend to continue to use the assets of
South Buffalo for the same purposes to which they were previously devoted.
The acquisition was consummated under the terms of a Stock Purchase and Sale
Agreement dated September 28, 2001 between us and Bethlehem. Under the Stock
Purchase Agreement, we paid Bethlehem $33,133,067 in cash and assumed
$3,337,547 of liabilities as the total purchase price. The cash portion of the
purchase price is subject to adjustment based on the amount of retained
earnings of South Buffalo as of the closing date.
We funded the acquisition under our $103,000,000 revolving credit facility
with Fleet National Bank, formerly known as BankBoston, N.A. On October 1,
2001, we acquired beneficial ownership of the South Buffalo shares and will
assume actual ownership of the shares upon approval of the transaction by The
Surface Transportation Board. We have requested this approval and expect to
receive the decision of The Surface Transportation Board on or about December
1, 2001.
The South Buffalo acquisition gave rise to the right of The 1818 Fund III,
L.P. to purchase from us an additional 5,000 shares of our 4% Redeemable
Convertible Preferred Stock, Series A, under the terms of a Stock Purchase
Agreement dated October 19, 2000 between us and The 1818 Fund III, L.P. The
1818 Fund III, L.P. has notified us that it intends to exercise its option to
purchase 5,000 shares of our Series A Preferred Stock for a total purchase
price of $5,000,000, and we expect that this transaction will close on or prior
to December 11, 2001.
9
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table shows our consolidated ratios of earnings to fixed
charges and of earnings to combined fixed charges and preferred stock dividends
for each of the five most recent fiscal years ended on December 31 and the most
recent interim period.
Nine months
ended
September 30,
1996 1997 1998(a) 1999 2000(a) 2001(a)
---- ---- ------- ---- ------- -------------
Ratio of earnings to fixed charges......... 2.9 3.8 2.9 2.3 2.6 2.2
Ratio of earnings to combined fixed charges
and preferred stock dividends (b)........ -- -- -- -- 2.6 2.1
--------
(a) In 1998, we recorded a $6.0 million gain from insurance proceeds and, in
2000 and during the nine months ended September 30, 2001, we recorded gains
related to the sale of a 50% equity interest in our Australian operations
of $10.1 million and $3.7 million, respectively. The 2000 gain was
partially offset by a $4.0 million charge for the buyout of Australian
stock options from employees of our Australian subsidiary, Australian
Southern Railroad, prior to the sale of the 50% interest in our Australian
operations.
(b) Our initial issuance of preferred stock was in December 2000.
For the purposes of the table above, earnings are defined as earnings before
income taxes, equity earnings, minority interest and extraordinary items, plus
fixed charges and distributed income of equity investees. Fixed charges include
interest expense on all debt, amortization of deferred debt issuance costs and
the portion of rental expense on operating leases attributable to interest.
Preferred stock dividends are the pre-tax equivalent, at our effective tax
rate, of dividends earned on our outstanding preferred stock.
USE OF PROCEEDS
Unless otherwise indicated in the prospectus supplement, we will use all or
a portion of the net proceeds from the sale of our securities offered by this
prospectus and the prospectus supplement for general working capital purposes.
General working capital purposes may include repayment of other debt, capital
expenditures, possible acquisitions and any other purposes that may be stated
in any prospectus supplement. The net proceeds may be invested temporarily or
applied to repay short-term or revolving debt until they are used for their
stated purpose.
We will not receive any proceeds from the sale of any shares of our Class A
Common Stock offered by the selling stockholders.
DIVIDEND POLICY
We did not pay cash dividends on our Class A Common Stock or Class B Common
Stock in 1998, 1999 or 2000. Other than dividends to be paid on outstanding
shares of Series A Preferred Stock or shares of preferred stock issued after
the date of this prospectus, if so designated, we do not intend to pay cash
dividends for the foreseeable future and intend to retain earnings, if any, for
the operation and expansion of our business. Any determination to pay dividends
in the future will be at the discretion of our Board of Directors and will be
dependent upon our results of operations, financial condition, contractual
restrictions and other factors deemed relevant by our Board of Directors.
10
DESCRIPTION OF OUR DEBT SECURITIES
Any of our debt securities issued under this prospectus will be our direct,
unsecured general obligations. Our debt securities will be either senior debt
securities ("Senior Debt Securities") or subordinated debt securities
("Subordinated Debt Securities").
The Senior Debt Securities and the Subordinated Debt Securities will be
issued under separate indentures between us and U.S. banking institutions
(each, a "Trustee"). The Trustee for each series of our debt securities will be
identified in the applicable prospectus supplement. Senior Debt Securities will
be issued under a "Senior Indenture" and Subordinated Debt Securities will be
issued under a "Subordinated Indenture." Together the Senior Indenture and the
Subordinated Indenture are called "Indentures."
Our debt securities may be issued from time to time in one or more series.
The particular terms of each series that is offered by a prospectus supplement
will be described in the applicable prospectus supplement.
We have summarized selected provisions of the Indentures below. The summary
is not complete. The forms of the Indentures have been filed as exhibits to the
registration statement and you should read the Indentures for provisions that
may be important to you. Whenever we refer to this prospectus or in the
prospectus supplement to defined terms of the Indentures, those defined terms
are incorporated by reference herein or therein, as applicable. Capitalized
terms used in this summary have the meanings specified in the Indentures.
General
The debt securities will be our direct, unsecured general obligations. The
Senior Debt Securities will rank equally with all of our other unsecured and
unsubordinated indebtedness. The Subordinated Debt securities will be
subordinated in right of payment to the prior payment in full of our Senior
Indebtedness (including the Senior Debt Securities) as described under
"Subordination" below and in the prospectus supplement applicable to any
Subordinated Debt Securities.
The Indentures provide that our debt securities may be issued without limit
as to aggregate principal amount, in one or more series, and in any currency or
currency units, in each case as established from time to time in or under the
authority granted by a resolution of our Board of Directors or as established
in one or more supplemental indentures. All debt securities of one series need
not be issued at the same time, and may vary as to interest rate, maturity and
other provisions and, unless otherwise provided, a series may be reopened,
without the consent of the holders of the debt securities of that series, for
issuances of additional debt securities of that series.
A prospectus supplement will include the terms of any debt securities being
offered ("Offered Debt Securities"). These terms will include some or all of
the following:
. the title of the Offered Debt Securities;
. whether the Offered Debt Securities are Senior Debt Securities or
Subordinated Debt Securities;
. the total principal amount of the Offered Debt Securities;
. the dates on which the principal of the Offered Debt Securities will be
payable;
. the interest rate, which may be fixed or variable, of the Offered Debt
Securities and the interest payment dates for the Offered Debt Securities;
. the places where payments on the Offered Debt Securities will be payable;
. any terms upon which the Offered Debt Securities may be redeemed at our
option;
. any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the Offered Debt Securities;
. whether the Offered Debt Securities are defeasible;
. any addition to or change in the Events of Default;
11
. if convertible into shares of our Class A Common Stock or any of our other
securities, the terms on which such Offered Debt Securities are
convertible;
. any addition to or change in the covenants in the applicable Indenture; and
. any other terms of the Offered Debt Securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable prospectus supplement, we may issue our
debt securities at a discount below their principal amount and pay less than
the entire principal amount of our debt securities upon declaration of
acceleration of their maturity ("Original Issue Discount Securities"). The
applicable prospectus supplement will describe all material U.S. federal income
tax, accounting and other considerations applicable to Original Issue Discount
Securities.
The general provisions of the Indentures do not contain any provisions that
would limit our ability or the ability of our subsidiaries to incur
indebtedness or that would afford holders of our debt securities protection in
the event of a highly leveraged or similar transaction involving us or any of
our subsidiaries. Please refer to the applicable prospectus supplement for
information with respect to any deletions from, modifications of or additions,
if any, to the Events of Default described below that are applicable to the
Offered Debt Securities or any covenants or other provisions providing event
risk or similar protection.
Form, Exchange and Transfer
The debt securities of each series will be issuable only in fully registered
form, without coupons. Unless otherwise indicated in the applicable prospectus
supplement, the securities will be issued in denominations of $1,000 each or
multiples thereof.
Subject to the terms of the applicable Indenture and the limitations
applicable to global securities, debt securities may be transferred or
exchanged at the corporate trust office of the Trustee or at any other office
or agency maintained by us for that purpose, without the payment of any service
charge except for any tax or governmental charge.
Global Securities
The debt securities of any series may be issued, in whole or in part, by one
or more global certificates that will be deposited with the depositary
identified in the applicable prospectus supplement.
No global security may be exchanged in whole or in part for the debt
securities registered in the name of any person other than the depositary for
that global security or any nominee of that depositary unless:
. the depositary is unwilling or unable to continue as depositary;
. an Event of Default has occurred and is continuing; or
. as otherwise provided in the applicable prospectus supplement.
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company ("DTC") will act as depository. Beneficial interests in global
certificates will be shown on, and transfers of global certificates will be
affected only through records maintained by DTC and its participants.
Payment
Unless otherwise indicated in the applicable prospectus supplement, payment
of interest on a debt security on any interest payment date will be made to the
person in whose name that debt security is registered at the close of business
on the regular record date for that interest payment.
12
Unless otherwise indicated in the applicable prospectus supplement,
principal, interest and any premium on our debt securities will be paid at
designated places. However, at our option, payment may be made by check mailed
to the persons in whose names our debt securities are registered on days
specified in the applicable Indenture or any prospectus supplement.
Events of Default
Unless otherwise specified in the applicable prospectus supplement, each of
the following will constitute an event of default ("Event of Default") under
the Indentures with respect to our debt securities of any series:
. default in the payment of any interest upon any debt security of that
series when it becomes due and payable, and continuance of that default
for a period of 30 days;
. default in the payment of the principal of and premium, if any, on any
debt security of that series at its Maturity;
. default in the deposit of any sinking fund payment, when and as due by the
terms of a debt security of that series;
. default in the performance, or breach, of any covenant or warranty in the
applicable Indenture, other than a covenant or warranty a default in whose
performance or whose breach is elsewhere specifically dealt with or which
expressly has been included in the applicable Indenture solely for the
benefit of debt securities of a series other than that series, and
continuance of such default or breach for a period of 30 days after there
has been given by registered or certified mail, to us by the applicable
Trustee or to us and the applicable Trustee by the Holders of at least 25%
in principal amount of the outstanding debt securities of that series, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default";
. failure by us to pay final judgments aggregating in excess of $2,000,000,
which judgments are not paid, discharged or stayed for a period of 60 days;
. certain events of bankruptcy, insolvency or reorganization with respect to
us; or
. any other Event of Default provided with respect to debt securities of
that series.
Each Indenture requires us to file with the applicable Trustee, annually, an
officers' certificate as to our compliance with all conditions and covenants
under the applicable Indenture. Each Indenture provides that the applicable
Trustee may withhold notice to the Holders of a series of debt securities of
any default, except payment defaults on those debt securities, if it considers
such withholding to be in the interest of the Holders of that series of debt
securities.
If an Event of Default with respect to our debt securities of any series at
the time outstanding occurs and is continuing, then in every case the
applicable Trustee or the Holders of not less than 25% in principal amount of
our outstanding debt securities of that series may declare the principal
amount, or, if any debt securities of that series are Original Issue Discount
Securities, that portion of the principal amount of those Original Issue
Discount Securities as may be specified in the terms of those Original Issue
Discount Securities, of all our debt securities of that series to be due and
payable immediately, by a notice in writing to us, and to the applicable
Trustee if given by Holders, and upon any such declaration that principal
amount, or specified amount, plus accrued and unpaid interest, and premium, if
any, will become immediately due and payable. Upon payment of that amount in
the currency in which such debt securities are denominated (except as otherwise
provided in the applicable Indenture or specified in the prospectus
supplement), all of our obligations in respect of the payment of principal of
the debt securities of that series will terminate.
If an Event of Default results from bankruptcy, insolvency or
reorganization, the principal amount of all the debt securities of a series, or
that portion of the principal amount of such debt securities as may be
specified in a prospectus supplement, will automatically become immediately due
and payable.
Subject to the provisions of each Indenture relating to the duties of the
applicable Trustee, in case an Event of Default with respect to our debt
securities of a particular series occurs and is continuing, the applicable
Trustee will be under no obligation to exercise any of its rights or powers
under that Indenture at the request,
13
order or direction of any of the Holders of Debt securities of that series,
unless the Holders have offered to the applicable Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might be
incurred by it in complying with such request or direction. Subject to the
provisions for the indemnification of the applicable Trustee, the Holders of a
majority in principal amount of our outstanding debt securities of that series
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee under the
applicable Indenture, or exercising any trust or power conferred on the
applicable Trustee with respect to our debt securities of that series.
At any time after a declaration of acceleration with respect to our debt
securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee as
provided in the Indentures, the Holders of a majority in principal amount of
our outstanding debt securities of that series, by written notice to us and the
applicable Trustee, may rescind and annul such declaration and its
consequences, subject to any terms or conditions specified in the applicable
prospectus supplement.
Merger or Consolidation
Each Indenture provides that we may not consolidate with or merge with or
into or wind up into, whether or not we are the surviving corporation, or sell,
assign, convey, transfer or lease our properties and assets substantially as an
entirety to any Person, unless:
. the corporation formed by the consolidation or into which we are merged or
the Person which acquires by conveyance or transfer, or which leases our
properties and assets substantially as an entirety (the "successor
corporation") is a corporation organized and existing under the laws of
the United States or any State or territory thereof or the District of
Columbia and expressly assumes by a supplemental indenture the due and
punctual payment of the principal of, and premium, if any, and interest on
all our debt securities issued under the applicable Indenture and the
performance of every covenant in the applicable Indenture on our part to
be performed or observed;
. immediately after giving effect to such transaction, no Event of Default
under the applicable Indenture, and no event which, after notice or lapse
of time, or both, would become an Event of Default, has happened and is
continuing; and
. the other conditions as may be specified in the applicable prospectus
supplement.
Modification or Waiver
Without prior notice to or consent of any Holders, we and the applicable
Trustee, at any time and from time to time, may modify the applicable Indenture
for any of the following purposes:
. to evidence the succession of another corporation to our rights and the
assumption by that successor of our covenants and obligations under the
applicable Indenture and under our debt securities issued thereunder in
accordance with the terms of the applicable Indenture;
. to add to our covenants for the benefit of the Holders of all or any
series of our debt securities, and if those covenants are to be for the
benefit of less than all series, stating that those covenants are
expressly being included solely for the benefit of that series, or to
surrender any of our rights or powers under the applicable Indenture;
. to add any additional Events of Default, and if those Events of Default
are to be applicable to less than all series, stating that those Events of
Default are expressly being included solely to be applicable to that
series;
. to change or eliminate any of the provisions of the applicable Indenture,
provided that any such change or elimination will become effective only
when there is no outstanding debt security issued thereunder of any series
created prior to such modification which is entitled to the benefit of
such provision and as to which such modification would apply;
. to secure the debt securities issued thereunder or to provide that any of
our obligations under the debt securities or the applicable Indenture
shall be guaranteed and the terms and conditions for the release or
substitution of the security or guarantee;
14
. to supplement any of the provisions of the applicable Indenture to the
extent necessary to permit or facilitate the defeasance and discharge of
any series of debt securities, provided that any such action will not
adversely affect the interests of the Holders of debt securities of that
series or any other series of debt securities issued under the applicable
Indenture in any material respect;
. to establish the form or terms of debt securities as permitted by the
applicable Indenture;
. to evidence and provide for the acceptance of appointment thereunder by a
successor Trustee with respect to one or more series of debt securities
and to add to or change any of the provisions of the applicable Indenture
as is necessary to provide for or facilitate the administration of the
trusts thereunder by more than one Trustee; or
. to cure any ambiguity, to correct or supplement any provision in the
applicable Indenture which may be defective or inconsistent with any other
provision therein, to eliminate any conflict between the terms of the
applicable Indenture and the debt securities issued thereunder and the
Trust Indenture Act (the "TIA") or to make any other provisions with
respect to matters or questions arising under the applicable Indenture
which will not be inconsistent with any provision of the applicable
Indenture; provided those other provisions do not adversely affect the
interests of the Holders of our outstanding debt securities of any series
created thereunder prior to such modification in any material respect.
With the written consent of the Holders of not less than a majority in
principal amount of the outstanding debt securities of each series affected by
such modification voting separately, we and the applicable Trustee may modify
the applicable Indenture for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the applicable
Indenture or of modifying in any manner the rights of the Holders of debt
securities under the applicable Indenture; provided, however, that such
modifications may not, without the consent of the Holder of each outstanding
debt security of each series affected, modify the principal or interest terms,
reduce the percentage required for modifications or otherwise conflict with the
required provisions of the TIA or make those changes or modifications specified
in the applicable prospectus supplement as requiring the consent of the Holder
of each outstanding debt security for each series affected.
A modification which changes or eliminates any covenant or other provision
of the applicable Indenture with respect to one or more particular series of
debt securities or which modifies the rights of the Holders of debt securities
of that series with respect to that covenant or other provision, will be deemed
not to affect the rights under the applicable Indenture of the Holders of debt
securities of any other series.
Each of the Indentures provides that the Holders of not less than a majority
in aggregate principal amount of the then outstanding debt securities of any
series, by notice to the relevant Trustee, may on behalf of the Holders of the
debt securities of that series waive any Default or Event of Default and its
consequences under the applicable Indenture, except:
. a continuing Default or Event of Default in the payment of interest on,
premium, if any, or the principal of, any such debt security held by a
non-consenting Holder; or
. a default in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each outstanding
debt security of each series affected.
Senior Debt Securities
The Senior Debt Securities will be unsecured senior obligations and will
rank equally with all other senior unsecured and unsubordinated debt. The
Senior Debt Securities will, however, be subordinated in right of payment to
all of our secured indebtedness to the extent of the value of the assets
securing that indebtedness. Except as provided in the Senior Indenture or
specified in any authorizing resolution or supplemental indenture relating to a
series of Senior Debt Securities to be issued, no Senior Indenture will limit
the amount of additional indebtedness that may rank equally with the Senior
Debt Securities or the amount of indebtedness, secured or otherwise, that may
be incurred or preferred stock that may be issued by any of our subsidiaries.
15
Subordination
Upon any distribution of our assets upon our dissolution, winding up,
liquidation or reorganization, the payment of the principal of, and premium, if
any, and interest on the Subordinated Debt Securities will be subordinated to
the extent provided in the Subordinated Indenture or as described in the
applicable prospectus supplement in right of payment to the prior payment in
full of all Senior Indebtedness, including Senior Debt Securities, but our
obligation to make payment of principal (and premium, if any) or interest on
the Subordinated Debt Securities will not otherwise be affected.
Unless otherwise indicated in a prospectus supplement, no payment on account
of principal (and premium, if any), sinking funds or interest may be made on
the Subordinated Debt Securities at any time when there is a default in the
payment of principal (and premium, if any), interest or certain other
obligations on Senior Indebtedness. In addition, the prospectus supplement for
each series of Subordinated Debt Securities may provide that payments on
account of principal, any premium, if any, or interest in respect of such
Subordinated Debt Securities may be delayed or not paid under the circumstances
and for the periods specified in that prospectus supplement. Unless otherwise
indicated in a prospectus supplement, in the event that, notwithstanding the
foregoing, any payment by us described in the foregoing sentence is received by
the Trustee under the Subordinated Indenture or the Holders of any of the
Subordinated Debt Securities before all Senior Indebtedness is paid in full,
that payment or distribution will be paid over to the Holders of such Senior
Indebtedness or on their behalf for application to the payment of all such
Senior Indebtedness remaining unpaid until all such Senior Indebtedness have
been paid in full, after giving effect to any concurrent payment or
distribution to the Holders of such Senior Indebtedness. Subject to payment in
full of Senior Indebtedness, the Holders of the Subordinated Debt Securities
will be subrogated to the rights of the Holders of the Senior Indebtedness to
the extent of payments made to the Holders of such Senior Indebtedness out of
the distributive share of the Subordinated Debt Securities.
By reason of this subordination, in the event of a distribution of assets
upon insolvency, certain of our general creditors may recover more, ratably,
than holders of the Subordinated Debt Securities. The Subordinated Indenture
provides that the subordination provisions will not apply to money and
securities held in trust under the satisfaction and discharge and the legal
defeasance provisions of the Subordinated Indenture.
If this prospectus is being delivered in connection with the offering of a
series of Subordinated Debt Securities, the accompanying prospectus supplement
or the information incorporated by reference therein will set forth the
approximate amount of Senior Indebtedness outstanding as of a recent date.
"Senior Indebtedness" with respect to any series of Subordinated Debt
Securities will have the meaning specified in the applicable prospectus
supplement for that series.
Discharge, Legal Defeasance and Covenant Defeasance
The applicable Indenture with respect to the debt securities of any series
may be discharged, subject to the terms and conditions as specified in the
applicable prospectus supplement when either:
. all debt securities, with the exceptions provided for in the Indenture, of
that series have been delivered to the applicable Trustee for cancellation;
. all debt securities of that series not theretofore delivered to the
applicable Trustee for cancellation:
. have become due and payable;
. will become due and payable at their Stated Maturity within one year; or
. are to be called for redemption within one year; or
. certain events or conditions occur as specified in the applicable
prospectus supplement.
In addition, each series of debt securities may provide additional or
different terms or conditions for the discharge or defeasance of some or all of
our obligations as may be specified in the applicable prospectus supplement.
16
If provision is made for the defeasance of debt securities of a series, and
if the debt securities of that series are registered securities and denominated
and payable only in U.S. dollars, then the provisions of each Indenture
relating to defeasance will be applicable except as otherwise specified in the
applicable prospectus supplement for debt securities of that series. Defeasance
provisions, if any, for debt securities denominated in a foreign currency or
currencies may be specified in the applicable prospectus supplement.
At our option, either (1) we will be deemed to have been discharged from our
obligations with respect to debt securities of any series, i.e. the "legal
defeasance option," or (2) we will cease to be under any obligation to comply
with certain provisions of the applicable Indenture with respect to certain
covenants, if any, specified in the applicable prospectus supplement with
respect to debt securities of any series, i.e. the "covenant defeasance
option," at any time after the conditions set forth in the applicable
prospectus supplement have been satisfied.
Conversion Rights
The terms and conditions, if any, upon which Offered Debt Securities are
convertible into shares of our Class A Common Stock will be set forth in the
prospectus supplement relating thereto. These terms will include the conversion
price, the conversion period, provisions as to whether conversion will be at
the option of the Holder or us, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of those Offered Debt Securities.
Corporate Existence
Subject to the terms of the applicable Indenture, we will do or cause to be
done all things necessary to preserve and keep in full force and effect our
corporate existence, charter and statutory rights and franchises; provided,
however, that we will not be required to preserve any right or franchise if we
determine that the preservation thereof is no longer desirable in the conduct
of our business.
Governing Law
The Indentures and our debt securities will be governed by, and construed in
accordance with, the law of the State of New York.
17
DESCRIPTION OF OUR CAPITAL STOCK
In this section, we describe the material features and rights of our capital
stock. This summary does not purport to be exhaustive and is qualified in its
entirety by reference to applicable Delaware law and our restated certificate
of incorporation and by-laws, each of which is filed as an exhibit to the
registration statement of which this prospectus forms a part. See "Where You
Can Find More Information About Us" on page ii.
In General
Our authorized capital stock consists of 12,000,000 shares of Class A Common
Stock, par value $.01 per share, 1,500,000 shares of Class B Common Stock, par
value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01
per share. As of October 31, 2001, there were: (1) 5,746,786 shares of Class A
Common Stock issued and outstanding, held by approximately 113 holders of
record; (2) 1,268,169 shares of Class B Common Stock issued and outstanding,
held by approximately 10 holders of record and (3) 20,000 shares, with a
liquidation preference of $20,000,000, of 4% Series A Senior Redeemable
Convertible Preferred Stock issued and outstanding, held by The 1818 Fund III
L.P. In addition, The 1818 Fund III L.P. has the option to purchase 5,000
additional shares of Preferred stock on or before December 12, 2001 and has
notified us that it expects to exercise its option on or prior to December 11,
2001 at a price of $1,000 per share.
Class A Common Stock and Class B Common Stock
Voting. Holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to ten votes per share. In
addition, as described below, each holder of Series A Preferred Stock is
entitled to the number of votes per share equal to the number of votes that the
holder would be entitled to cast had the holder converted all of her shares of
Series A Preferred Stock into Class A Common Stock. Except with respect to the
class voting rights of the Class A Common Stock and Class B Common Stock
described below and the class voting rights of the Series A Preferred Stock
described below under "Description of Our Capital Stock--Outstanding Series A
Preferred Stock" or as otherwise required by law, all actions submitted to a
vote of stockholders are voted on by the holders of Class A Common Stock, Class
B Common Stock and Series A Preferred Stock voting together as a single class.
Generally, actions requiring stockholder approval must be approved by a
majority of the voting power of the Class A Common Stock, Class B Common Stock
and Series A Preferred Stock. Subject to certain exceptions, the affirmative
vote of 66 2/3% of the voting power of the Class A Common Stock and Class B
Common Stock, voting as a single class, is necessary for the approval of a
merger, consolidation or sale of substantially all of our assets. Holders of
our capital stock are not entitled to cumulative voting in the election of
directors.
Conversion. Class A Common Stock has no conversion rights. Each share of
Class B Common Stock is convertible into one share of Class A Common Stock (1)
at any time at the option of the holder of the Class B Common Stock and (2)
automatically upon any transfer by the holder thereof other than (a) a transfer
to a spouse, child or grandchild or the transferor by gift or upon the
transferor's death, or (b) a transfer to an individual or entity that is, at
the time of transfer, a holder of record of Class B Common Stock or an
executive officer of our company.
Dividends. Dividends are payable on the outstanding shares of (1) only Class
A Common Stock or (2) both Class A Common Stock and Class B Common Stock, in
each case, when, as and if declared by our Board of Directors. If there is any
arrearage in the payment of dividends on shares of our preferred stock, we may
not pay dividends upon, repurchase or redeem shares of our Class A or Class B
Common Stock.
If our Board of Directors determines to pay a dividend on Class B Common
Stock, each share of Class A Common Stock will receive a dividend in an amount
10% greater than the amount of the dividend per share paid on the Class B
Common Stock.
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Liquidation. In the event of liquidation, holders of Class A Common Stock
and Class B Common Stock will share with each other on a ratable basis as a
single class in the net assets of our company available for distribution after
payment or provision for our liabilities and after satisfaction of any
liquidation preference on any series of our preferred stock.
Other Terms. Neither the Class A Common Stock nor the Class B Common Stock
may be subdivided (whether in the form of a stock dividend or otherwise),
consolidated, reclassified or otherwise changed unless contemporaneously
therewith the other class of shares is subdivided (whether in the form of a
stock dividend or otherwise), consolidated, reclassified or otherwise changed
in the same proportion and in the same manner. In any merger, consolidation,
reorganization or other business combination, the consideration to be received
per share by holders of either Class A Common Stock or Class B Common Stock
must be identical to that received by the holders of the other class. Neither
the holders of Class A Common Stock nor the holders of Class B Common Stock are
entitled to preemptive rights, and neither the Class A Common Stock nor the
Class B Common Stock is subject to redemption.
Listing. Our Class A Common Stock is quoted on the Nasdaq National Market
under the symbol "GNWR."
Preferred Stock
General. Our Board of Directors, without action by stockholders, is
authorized to:
. authorize the issuance of shares of preferred stock in one or more series;
. establish the number of shares in each series; and
. fix the designations, powers, preferences and rights of each series and
the qualifications, limitations or restrictions of each series.
Each time that we issue a new series of preferred stock, we will file with
the Securities and Exchange Commission a definitive certificate of
designations. In addition, the prospectus supplement relating to that new
series of preferred stock will specify the particular amount, price and other
terms of that new series. These terms will include:
. the designation of the title of the series;
. dividend rates;
. redemption provisions, if any;
. special or relative rights in the event of liquidation, dissolution,
distribution or winding up of our company;
. sinking fund provisions, if any;
. whether the preferred stock will be convertible into our Class A Common
Stock or any other of our securities or exchangeable for securities of any
other person;
. voting rights; and
. any other preferences, privileges, powers, rights, qualifications,
limitations and restrictions, not inconsistent with our by-laws.
The shares of any series of preferred stock will be, when issued, fully paid
and non-assessable.
Ranking. Each new series of our preferred stock will rank with respect to
each other series of our preferred stock as specified in the prospectus
supplement relating to that new series of preferred stock.
Dividends. Holders of each new series of preferred stock will be entitled to
receive cash dividends or dividends in kind, if declared by our Board of
Directors, out of funds legally available for dividends. For each series of
preferred stock, we will specify in the prospectus supplement:
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. the dividend rates;
. whether the rates will be fixed or variable or both;
. the dates of distribution of the cash dividends; and
. whether the dividends on any series of preferred stock will be cumulative
or non-cumulative.
We will pay dividends to holders of record of preferred stock as they appear
on our records, on the record dates fixed by our Board of Directors.
We cannot declare or pay full dividends on funds set apart for the payment
of dividends on any series of preferred stock unless dividends have been paid
or set apart for payment on a proportionate basis with other equity securities
which rank equally with the preferred stock regarding the distribution of
dividends. If we do not pay full dividends on all equity securities which rank
equally, then each series of preferred stock will share dividends in proportion
with our other equity securities that rank equally with that series.
Conversion and Exchange. The prospectus supplement for any new series of
preferred stock will state the terms and other provisions, if any, on which
shares of the new series of preferred stock are convertible into shares of our
Class A Common Stock or exchangeable for securities of a third party.
Redemption. We will specify in the prospectus supplement relating to each
new series of preferred stock:
. whether that new series will be redeemable at any time, in whole or in
part, at our option or at the option of the holder of the shares of
preferred stock;
. whether that new series will be subject to mandatory redemption under a
sinking fund or on other terms; and
. the redemption prices.
In the event that preferred stock is partially redeemed, the shares to be
redeemed will be determined by lot, on a proportionate basis or any other
method determined to be equitable by our Board of Directors.
Dividends will cease to accrue on shares of preferred stock called for
redemption, and all rights of holders of redeemed shares will terminate, on or
after a redemption date, except for the right to receive the redemption price,
unless we default in the payment of the redemption price.
Liquidation Preference. Upon our voluntary or involuntary liquidation,
dissolution or winding up, holders of each series of preferred stock will be
entitled to receive:
. distributions upon liquidation in the amount provided in the prospectus
supplement of that series of preferred stock; plus
. any accrued and unpaid dividends.
These payments will be made to holders of preferred stock out of our assets
available for distribution to stockholders before any distribution is made on
any securities ranking junior to the preferred stock regarding liquidation
rights.
In the event that holders of preferred stock are not paid in full upon our
liquidation, dissolution or winding up, then these holders will share, on a
proportionate basis, any future distribution of our assets with holders of our
other securities that rank equally with them.
Voting Rights. The holders of shares of any series of preferred stock will
have no voting rights except as indicated in the certificate of designations
relating to the series, the applicable prospectus supplement or as required by
law.
20
Our Outstanding Series A Preferred Stock
Voting. Holders of Series A Preferred Stock are entitled to a number of
votes per share of Series A Preferred Stock equal to the number of shares of
Class A Common Stock that such share of Series A Preferred Stock is then
convertible into. Other than the class voting rights of the Class A and Class B
Common Stock described above and except as described in the last sentence of
this paragraph or as required by law, all actions submitted to a vote of
stockholders are voted on by the holders of Series A Preferred Stock, Class A
Common Stock and Class B Common Stock voting together as a single class.
Generally, actions requiring stockholder approval must be approved by a
majority of the voting power of the Class A Common Stock, Class B Common Stock
and Series A Preferred Stock. The affirmative vote of the holders of at least
66% of the outstanding shares of Series A Preferred Stock, voting separately as
a single class, is necessary for certain actions, including the authorization
and issuance of:
. any class of senior stock, parity stock or Class B Common Stock;
. any class of capital stock having an optional or mandatory redemption
earlier than December 12, 2008; and
. any security convertible into, exchangeable for or evidencing the right to
purchase or otherwise receive any shares of any class of senior stock or
parity stock.
Conversion/Redemption. Each share of Series A Preferred Stock is convertible
at any time into our shares of Class A Common Stock at a conversion price of
$15.33, subject to certain adjustments. As of the date of this prospectus, no
shares of Series A Preferred Stock have been converted into shares of Class A
Common Stock. At the current conversion price, and assuming that The 1818 Fund
III L.P. has exercised its option to purchase an additional 5,000 shares of our
Series A Preferred Stock, the outstanding shares of our Series A Preferred
Stock would be convertible into approximately 1.6 million shares of Class A
Common Stock. The Series A Preferred Stock is callable by us after December 12,
2004 and is mandatorily redeemable, to the extent permitted by law, on December
12, 2008.
Dividends. Dividends on Series A Preferred Stock are cumulative and payable
in quarterly arrears in an amount equal to an annual rate of 4% of the issue
price, or $10.00 per share per quarter. In addition, in the event that we
declare a dividend, other than a regular dividend, or make any other
distributions to holders of Class A or Class B Common Stock, each holder of
Series A Preferred Stock will be entitled to receive a dividend distribution in
an amount equal to the amount that holder would have received had she converted
her shares of Series A Preferred Stock into shares of Class A Common Stock
prior to the record date for that dividend distribution.
Liquidation. In the event of liquidation, holders of Series A Preferred
Stock will share with each other and with other holders of parity stock on a
ratable basis as a single class in our net assets available for distribution
after payment or provision for our liabilities and of all amounts owing with
respect to senior stock.
Change of Control. If on or prior to December 12, 2004 a change of control
occurs, a holder of Series A Preferred Stock will have the option to require us
to redeem all of her shares of Series A Preferred Stock at a price equal to
101% of the liquidation preference plus accrued and unpaid interest.
Classes of Directors
Our Board of Directors is currently classified into three classes. One class
of directors is elected each year and the members of that class hold office for
a three-year term or until their successors are duly elected and qualified. The
classification of directors will have the effect of making it more difficult
for a third party to change the composition of our Board of Directors without
the support of the incumbent directors. At least two annual stockholder
meetings, instead of one, will be required to effect a change in the control of
our Board, unless stockholders remove directors for cause.
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SELLING STOCKHOLDERS
348,298 of the shares of our Class A Common Stock being offered under this
prospectus may be offered by certain selling stockholders. The potential
selling stockholders include Mortimer B. Fuller, III, Louis S. Fuller, John M.
Randolph and Unirail, LLC.
The table below contains information regarding the number of shares of our
Class A Common Stock that may be sold hereunder and the beneficial ownership of
our Class A Common Stock and Class B Common Stock as of October 31, 2001 by
each potential selling stockholder. The actual amount, if any, of our Class A
Common Stock and Class B Common Stock to be offered by each selling stockholder
and the amount and percentage of our Class A Common Stock and Class B Common
Stock to be owned by that selling stockholder following that offering will be
disclosed in the applicable prospectus supplement.
Number of Shares
of Class A Common Number of Shares
Stock Beneficially of Class B Common
Owned After the Stock Beneficially Owned
Class A Class B Sale of Maximum After the Sale of
Common Stock Common Stock Number of Shares Maximum Number
Beneficially Beneficially of Class A of Shares of Class B
Owned (1) Owned (1) Maximum Number Common Stock Common Stock
- ---------------- ------------------ of Shares of Class ------------------- ------------------------
No. of Percent No. of Percent of A Common Stock to Percent Percent
Name and Address Shares of Class Shares Class be Sold Hereunder Number of Class Number of Class
---------------- ------- -------- ------- ---------- ------------------ ------- -------- ------- --------
Mortimer B. Fuller,
III(2)(3)(4)....... 224,466 3.8% 987,424 77.9% 250,000 108,481(5) 1.8% 853,409(5) 75.2%
Louis S. Fuller (6). 164,216 2.9% 199,716 15.7% 50,000 114,216 1.9% 199,716 17.6%
John M. Randolph (7) 46,400 0.8% 11,100 0.9% 10,000 36,400 0.6% 11,100 10.0%
Unirail, LLC(8)..... 38,298 0.7% -- -- 38,298 -- -- -- --
------- ---- ------- ----- ------- ------- ---- ------- -----
Total............ 348,298
--------
(1) Unless otherwise indicated, each stockholder shown on the table has sole
voting and investment power with respect to the shares beneficially owned
by him or it.
(2) Mortimer B. Fuller, III is our Chairman of the Board and Chief Executive
Officer. The address of Mortimer B. Fuller, III is c/o Genesee & Wyoming
Inc., 66 Field Point Road, Greenwich, CT 06830.
(3) The amounts shown include: (1) 115,985 shares of Class A Common Stock and
722,710 shares of Class B Common Stock owned by Mr. Fuller individually;
(2) 2,775 shares of Class A Common Stock held by Mr. Fuller's wife, as to
which shares Mr. Fuller disclaims beneficial ownership; (3) 21,332 shares
of Class A Common Stock held by Overlook Estate Foundation, Inc., of which
Mr. Fuller is President; (4) presently exercisable options to purchase
84,374 shares of Class A Common Stock; and (5) presently exercisable
third-party options to purchase 264,714 shares of Class B Common Stock,
which shares are subject to a Voting Agreement under which Mr. Fuller has
been granted an irrevocable proxy through March 20, 2008.
(4) By reason of a voting agreement, under Rule 13d-5(b)(1) under the
Securities Exchange Act of 1934, as amended, a group comprised of Mortimer
B. Fuller, III, The 1818 Fund III, L.P. ("The 1818 Fund") and T. Michael
Long may be deemed to beneficially own substantially all of the shares of
our stock beneficially owned by the members of the group. At the date of
this prospectus, Mr. Long beneficially owned 1,103 shares of Class A Common
Stock, consisting of units under the Company's Deferred Stock Plan for
Non-Employee Directors held by Mr. Long, and The 1818 Fund beneficially
owned 25,000 shares of Series A Preferred Stock, convertible into
approximately 1.6 million shares of Class A Common Stock. Mr. Fuller, on
the one hand, and The 1818 Fund and Mr. Long, on the other, disclaim
beneficial ownership of the shares owned by the other, and they are not
reflected in the amounts shown on the table.
(5) For purposes of this table only, we have assumed that Mortimer B. Fuller,
III will convert 134,015 shares of Class B Common Stock into shares of
Class A Common Stock enabling those shares of Class A Common Stock to be
sold under this prospectus. However, the actual decision of whether the
source of shares of Class A Common Stock to be sold by Mr. Fuller under
this prospectus will come from the conversion of shares of Class B Common
Stock or the exercise of options to purchase shares of Class A Common Stock
will be made, and depend on the circumstances, at the time of any sale and
will be set forth in the applicable prospectus supplement.
(6) The amounts shown include: (1) 199,716 shares of Class B Common Stock owned
by Mr. Louis Fuller individually; (2) 61,716 shares of Class A Common Stock
owned jointly by Mr. Louis Fuller and his wife; (3) 90,000 shares of Class
A Common Stock owned by Mr. Louis Fuller's wife, as to which shares Mr.
Louis Fuller disclaims beneficial ownership; and (4) presently exercisable
options to purchase 12,500 shares of Class A Common Stock. The address of
Mr. Louis Fuller is c/o Genesee & Wyoming Inc., 66 Field Point Road,
Greenwich, CT 06830.
(7) The amounts shown include: (1) 17,400 shares of Class A Common Stock and
11,100 shares of Class B Common Stock held by a trust for the benefit of
Mr. Randolph, of which he is co-trustee; (2) 15,000 shares of Class A
Common Stock held by a charitable trust, of which he is co-trustee; (3)
1,500 shares of Class A Common Stock held by a trust for the benefit of Mr.
Randolph's wife, of which he is co-trustee and as to which shares he
disclaims beneficial ownership; and (4) presently exercisable options to
purchase 12,500 shares of Class A Common Stock. The address of Mr. Randolph
is 8626 North 84th Place, Scottsdale, AZ 85258.
(8) The shares of Class A Common Stock owned by Unirail, LLC are being included
in this prospectus under the Registration Rights Agreement dated as of
September 30, 1999 entered into by and between Unirail, LLC and us. The
address of Unirail, LLC is 509 Madison Avenue, New York, New York 10022.
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PLAN OF DISTRIBUTION
The debt securities, preferred stock and Class A Common Stock may be sold:
. to or through underwriting syndicates represented by managing underwriters;
. through one or more underwriters without a syndicate for them to offer and
sell to the public;
. through dealers or agents; or
. to investors directly in negotiated sales or in competitively bid
transactions.
The prospectus supplement for each series of securities we or the selling
stockholders sell will describe that offering, including:
. the name or names of any underwriters;
. the purchase price and the proceeds to us or the selling stockholders from
that sale;
. any underwriting discounts and other items constituting underwriters'
compensation;
. any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers; and
. any securities exchanges on which the securities may be listed.
Underwriters
If underwriters are used in the sale, we and the selling stockholders, as
applicable, will execute an underwriting agreement with those underwriters
relating to the securities that we or the selling stockholders will offer.
Unless otherwise set forth in the prospectus supplement, the obligations of the
underwriters to purchase these securities will be subject to conditions. The
underwriters will be obligated to purchase all of these securities if any are
purchased.
The securities subject to the underwriting agreement will be acquired by the
underwriters for their own account and may be resold by them from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
Underwriters may be deemed to have received compensation from us or the selling
stockholders, as the case may be, in the form of underwriting discounts or
commissions and may also receive commissions from the purchasers of these
securities for whom they may act as agent. Underwriters may sell these
securities to or through dealers. These dealers may receive compensation in the
form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
We also may sell the securities in connection with a remarketing upon their
purchase, in connection with a redemption or repayment, by a remarketing firm
acting as principal for its own account or as our agent. Remarketing firms may
be deemed to be underwriters in connection with the securities that they
remarket.
We may authorize underwriters to solicit offers by institutions to purchase
the securities subject to the underwriting agreement from us, at the public
offering price stated in the prospectus supplement under delayed delivery
contracts providing for payment and delivery on a specified date in the future.
If we sell securities under these delayed delivery contracts, the prospectus
supplement will state that as well as the conditions to which these delayed
delivery contracts will be subject and the commissions payable for that
solicitation.
Agents
We and the selling stockholders may also sell any of the securities through
agents designated by us and/or the selling stockholders, as the case may be,
from time to time. We and/or the selling stockholders, as the case may be, will
name any agent involved in the offer or sale of these securities and will list
commissions payable by
23
us and/or the selling stockholders, as the case may be, to these agents in the
prospectus supplement. These agents will be acting on a best efforts basis to
solicit purchases for the period of its appointment, unless we and/or the
selling stockholders, as the case may be, state otherwise in the prospectus
supplement.
Direct Sales
We and the selling stockholders may sell any of the securities directly to
purchasers. In this case, we and/or the selling stockholders, as the case may
be, will not engage underwriters or agents in the offer and sale of these
securities.
Indemnification
We and the selling stockholders may indemnify underwriters, dealers or
agents who participate in the distribution of securities against certain
liabilities, including liabilities under the Securities Act of 1933 and agree
to contribute to payments which these underwriters, dealers or agents may be
required to make.
No Assurance of Liquidity
The securities offered hereby may be a new issue of securities with no
established trading market. Any underwriters that purchase securities from us
may make a market in these securities. The underwriters will not be obligated,
however, to make a market and may discontinue market-making at any time without
notice to holders of the securities. We cannot assure you that there will be
liquidity in the trading market for any securities of any series.
VALIDITY OF OUR SECURITIES
Simpson Thacher & Bartlett, New York, New York, will pass upon the legality
of each of the securities for us. As of November 8, 2001, lawyers of Simpson
Thacher & Bartlett who have participated in the preparation of the registration
statement of which this prospectus forms a part beneficially owned 9,675 shares
of our Class A Common Stock.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 2000 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in auditing and accounting in giving said
report.
The financial statements of Westrail Freight Division as of June 30, 2000
and 1999 and for each of the three years in the period ended June 30, 2000,
appearing in the Current Report on Form 8-K dated March 2, 2001, have been
audited by Ernst & Young, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
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Inside Back Cover
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Genesee & Wyoming Inc.