EXHIBIT 10.33
AMENDMENT NO. 3 TO RAILCAR CONSTRUCTION AGREEMENT
BY AND BETWEEN
▇▇▇▇▇ RAILCAR II, INC.
AND
FUN TRAINS, INC.
DATED OCTOBER 23, 1996
AS JOINED BY
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
AUGUST 22, 1997
RAILCAR CONSTRUCTION AGREEMENT MODIFICATION
THIS AMENDMENT NO. 3 TO THE RAILCAR CONSTRUCTION AGREEMENT ("Agreement") by
and between ▇▇▇▇▇ RAILCAR II, INC. ("▇▇▇▇▇") and FUN TRAINS, INC. ("FTI") dated
October 23, 1996 as amended by Amendment No. 1 dated December 17, 1996 and as
further amended by Amendment No. 2 dated December 17, 1996 is dated the 22nd day
of August 1997, and joined in by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇.
RECITALS
▇. ▇▇▇▇▇ and FTI have previous entered into the Agreement as modified as
set forth above.
B. Differences have arisen between ▇▇▇▇▇ and FTI concerning ▇▇▇▇▇'▇ timely
completion of the Railcars to be constructed pursuant to the Agreement, timely
payment by FTI for the Railcars in accordance with the Agreement, use of the
payments made on the Railcars by FTI, ▇▇▇▇▇'▇ financial ability to perform its
obligations pursuant to the Agreement, and the need for additional security to
be provided to FTI to ensure ▇▇▇▇▇'▇ performance pursuant to the Agreement as
previously amended and as amended hereby.
C. The parties to the Agreement and this Amendment agree to modify their
existing Agreement without waiver of their legal rights as they may presently
exist, and without an admission by any party as to any default pursuant to the
Agreement, as amended.
D. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ is the sole owner of ▇▇▇▇▇, and has a direct interest in
▇▇▇▇▇'▇ successful completion of the Agreement.
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇ owns or is the beneficial owner of 1,614,581 shares of
stock in First American Railways, Inc., the parent corporation of Fun Trains,
Inc., and is a member of the Board of Directors of First American Railways, Inc.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ agrees to a limited guaranty of the obligations of ▇▇▇▇▇
provided for pursuant to the Agreement, as amended.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. RECITALS
The above recitals are true and correct.
2. DEFINITIONS
In addition to the other defined terms contained in this Amendment,
the definitions set forth in Section 1 to the Agreement shall apply to this
Amendment and shall be substantive provisions of the Agreement and this
Amendment.
3. DELIVERY DATE: SCHEDULES
3.1 Section 2.1, Delivery Date, provides that Railcars C-1, E-1, and E-2
had Delivery Dates of June 1, 1997. Additionally, Railcars ▇-▇, ▇-▇, ▇-▇, ▇-▇,
and E-4 have Delivery Dates of September 1, 1997, and Railcars C-5, C-6, C-7
have Delivery Dates of March 1, 1998. By separate Agreement (the "P-1
Agreement") dated April 17, 1997 ▇▇▇▇▇ and FTI contracted for the refurbishment
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of Railcar Number FFTX001 (hereinafter P-1). P-1 has a delivery date of
September 15, 1997. As used in this Amendment, the term "Railcars" shall include
P-1. FTI elected to delete the power/baggage car and the locomotive
modifications from the Agreement. Some of the Railcars have not been delivered
as scheduled, and ▇▇▇▇▇ has advised FTI of its present inability to timely
deliver P-1 and maintain the Delivery Dates provided for in the Agreement, as
modified, for all the Railcars except for Railcars C-5, C-6 and C-7. ▇▇▇▇▇
acknowledges and agrees that it is essential for FTI to timely and expeditiously
receive delivery of the Railcars provided for by this Agreement, as modified.
▇▇▇▇▇ also acknowledges and agrees that it will also materially benefit ▇▇▇▇▇ to
advance the construction of Railcars C-5, C-6, and C-7.
3.2 ▇▇▇▇▇ shall ship to (arrange for towage) FTI Railcars according to the
following schedule:
C-2 9/5/97
C-3 9/5/97
E-3 9/18/97
C-4 10/3/97
E-4 10/7/97
P-1 10/31/97(in accordance
with the P-1 Agreement)
C-5 10/13/97
C-6 11/3/97
C-7 12/13/97
Payments under Schedule D of the Agreement will accelerate only to the
extent Railcars C-5, C-6 and C-7 are shipped early in accordance with the terms
of this Section 3.2.
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3.3 ▇▇▇▇▇ shall ship the Railcars as set forth above after conducting the
Operating Trials as set forth in Section 9 of the Agreement. The shipment of the
Railcars pursuant to the Agreement as amended hereby shall not constitute
acceptance by FTI of any Railcar; and this Amendment is not intended to modify
or waive any other provision of the Agreement (including those concerning
payment for the Railcars) or Section 9 regarding the delivery and acceptance of
the Railcars or the Agreement relating to P-1. ▇▇▇▇▇ and FTI are not altering or
amending the obligation of ▇▇▇▇▇ to have delivered the Railcars as set forth in
the Agreement as heretofore modified, or the timing of the payment for the
Railcars or any aspect of the Agreement relating to P-1. ▇▇▇▇▇ shall use best
efforts to ship in accordance with this Amendment. In the event the Railcars
cannot be shipped for any reason in accordance with the schedule set forth in
section 3.2 hereof, ▇▇▇▇▇ shall prioritize its work to give priority to the
shipment of the Railcars in the following order:
▇-▇
▇-▇
▇-▇
▇-▇
▇-▇
▇-▇
C-5
C-6
C-7
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4. ▇▇▇▇▇'▇ ARRANGEMENT WITH ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ FOR ADDITIONAL WORKING CAPITAL
4.1 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ owns 1,614,581 shares (the "▇▇▇▇▇ Shares") of stock in
First American Railways, Inc. ("First American"). The ▇▇▇▇▇ Shares are being
pledged to FTI pursuant to the terms of the Pledge Agreement. First American has
agreed subject hereto to register for resale the ▇▇▇▇▇ Shares on behalf of
▇▇▇▇▇'▇ investors, pursuant to the registration agreement attached hereto and
incorporated herein by reference as Exhibit "A" to the Limited Guaranty. ▇▇▇▇▇▇
▇. ▇▇▇▇▇ is in the process of offering for sale 750,000 of his shares of the
common stock of First American to third parties. (The first 750,000 ▇▇▇▇▇ Shares
shall be referred to as the "Initial Shares" and the remaining 864,561 ▇▇▇▇▇
Shares shall be referred to as the "Remaining Shares".) The proceeds of the sale
of the Initial Shares shall be delivered to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ free of the terms
and conditions of the Pledge Agreement for use as Additional Capital (as
hereafter defined) in accordance with the terms and conditions of this
Agreement. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ may also effectuate the orderly sale (within eight
weeks after the date hereof) of the Remaining Shares subject to the terms and
provisions of the Pledge Agreement. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ may request from time to
time that the proceeds of the sale of the Remaining Shares be used as Additional
Capital, provided that (i) no Event of Default has occurred under the terms of
the Agreement, (ii) no event has occurred which with the giving of notice or the
passage of time would result in a default under the Agreement, and (iii) ▇▇▇▇▇▇
▇. ▇▇▇▇▇ delivers to FTI an affidavit (the
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"Affidavit") (A) certifying that all amounts released to ▇▇▇▇▇ by the Escrow
Agent (as defined in the "Pledge Agreement") to date and paid to ▇▇▇▇▇ by FTI
have been expended solely for the purposes set forth in this Agreement and (B)
identifying the purpose for which the funds proposed to be released will be
used. FTI may approve such request, in its sole discretion, and upon request by
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and approval by FTI, the Escrow Agent shall release the amounts
so requested from the terms of the Pledge Agreement to ▇▇▇▇▇, in trust for the
benefit of FTI, as Additional Capital for use solely in accordance with the
Agreement. All funds to be used as Additional Capital, and all payments made by
FTI pursuant to the Agreement, shall be held in trust by ▇▇▇▇▇ for the benefit
of FTI, and such amounts shall be used to complete ▇▇▇▇▇'▇ obligations under the
Agreement as herein modified, and for no other purpose. ▇▇▇▇▇ agrees to utilize
the Additional Capital and the payments made by FTI pursuant to this Agreement
solely for the intended purpose of the timely and expedited completion of the
Railcars pursuant to the Agreement and this Amendment.
4.2 ▇▇▇▇▇ will notify FTI if ▇▇▇▇▇ undertakes new construction projects or
work unrelated to the Agreement. ▇▇▇▇▇ agrees not to undertake any new work
which results in a negative cash flow during the term of this Agreement.
4.3 ▇▇▇▇▇ shall keep segregated from its other funds the Additional Capital
and all funds paid to it by FTI under the Agreement. ▇▇▇▇▇ shall not commingle
funds paid to it by FTI and the Additional Capital with any other funds.
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4.4 If ▇▇▇▇▇ undertakes new construction projects or work unrelated to this
Agreement, then ▇▇▇▇▇ shall allocate an equitable portion of its overhead and
physical plant expenses to such work.
4.5 PROVIDED that (i) there is no Event of Default existing and that no
event has occurred which with notice or the passage of time would constitute an
Event of Default under the Agreement, (ii) the then current market value of the
▇▇▇▇▇ Shares then pledged, plus the cash being held by the Escrow Agent pursuant
to the Pledge Agreement, is not less than $1,000,000, and (iii) ▇▇▇▇▇ delivers
to FTI an affidavit executed by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ which includes (A) a
certification that the essential vendors listed in the schedule to this
Agreement have been paid in accordance with the terms of this Agreement, and (B)
a certification providing that all proceeds released to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ as of
the then current date have been expended solely for the purposes set forth in
the Agreement, then the Escrow Agent, upon the request of ▇▇▇▇▇ and approval by
FTI, shall release $350,000 to ▇▇▇▇▇, which amount may be used by ▇▇▇▇▇ to pay
those vendors, suppliers, subcontractors, materialmen, laborers, employees and
other potential lienors of ▇▇▇▇▇ who have not supplied labor or materials
pursuant to the Agreement.
5. CASH FLOW REVIEW AND PROCEDURES
5.1 Every week FTI will receive from ▇▇▇▇▇ a Projected Cash Flow Report
which details ▇▇▇▇▇'▇ projected expenditures pursuant to the Agreement from
August 1, 1997 until acceptance of the Railcars by FTI. ▇▇▇▇▇ will provide to
FTI for review all supporting assumptions and back-up detail contained within
the
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Projected Cash Flow Report. The Projected Cash Flow Report will, among other
things, describe all projected disbursements, and break the same into three
major categories: direct materials, direct labor and overhead and other
expenses. The Cash Flow Report will also provide for an equitable allocation of
overhead and physical plant expenses to the various projects being undertaken on
behalf of FTI and other customers. ▇▇▇▇▇ shall remain solely responsible to see
to it that its work under the Agreement is timely performed and that it timely
pays its vendors. Each week, ▇▇▇▇▇ will provide to FTI an Exception Report
comparing actual disbursements against those projected by the Projected Cash
Flow Report. ▇▇▇▇▇ will provide with the Exception Report an explanation of any
variance from the Projected Cash Flow Report. ▇▇▇▇▇ will immediately advise FTI
of any matter which has or may impact on its ability to deliver the Railcars as
provided for in this Agreement. FTI may at any time inquire of ▇▇▇▇▇ about the
Projected Cash Flow Report and Exception Report, and ▇▇▇▇▇ shall immediately
respond to such inquiries. Every two weeks FTI shall have the right, but not the
obligation, to have a representative go to the offices of ▇▇▇▇▇ to perform an
audit of actual disbursements made by ▇▇▇▇▇ and incurred payables to assure that
funds paid by FTI and Additional Capital are being used solely for the purpose
of completion of the Railcars. FTI shall not control ▇▇▇▇▇'▇ work under the
Agreement. Nor, shall FTI's right to observe and monitor ▇▇▇▇▇'▇ performance be
interfered with by ▇▇▇▇▇.
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5.2 Within three (3) days of the execution of this Amendment ▇▇▇▇▇ and FTI
shall agree upon a schedule of essential vendors who are owed payment. From the
Additional Capital, ▇▇▇▇▇ shall immediately pay the vendors listed on the
Schedule contemplated by this Amendment and obtain and deliver to FTI lien
waivers from each such vendor; however, to the extent lien waivers cannot be
obtained from such vendors, then evidence of the payment(s) made to such vendors
(copy of checks) and receipt thereof (copy of cancelled checks) shall be
promptly furnished by ▇▇▇▇▇ to FTI. ▇▇▇▇▇ agrees and acknowledges that the
vendors listed on Schedule to be agreed upon are essential to its timely
performance under the Agreement and that they are due payment.
5.3 ▇▇▇▇▇ shall provide FTI with its most current Balance Sheet and Income
Statement, with footnotes, for ▇▇▇▇▇ within 10 days of the execution of this
Amendment. ▇▇▇▇▇ shall also supply to FTI on the 10th day of September and on
the 10th day of each month thereafter a monthly update of its most recent
Balance Sheet and Financial Statement.
5.4 ▇▇▇▇▇ shall use the Additional Capital and payments made by FTI for the
purpose of completing the Railcars, funding the items listed in the Projected
Cash Flow Report, and for no other purpose. Any other use of the Additional
Capital and payments made by FTI under the Agreement shall constitute an
immediate default by ▇▇▇▇▇ under the Agreement, and FTI shall be entitled to
pursue all remedies provided by the Agreement without any further notice or
demand; provided, however, it shall not be a default hereunder if
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▇▇▇▇▇ should make payments to the contrary so long as such payments (i) are
inadvertent and for which notice is promptly given to FTI, (ii) do not exceed
$1,000 per event, and (iii) are cured within three days of any such event.
6. FURTHER CONSIDERATION ADDITIONAL SECURITY
6.1 To further secure ▇▇▇▇▇'▇ continued performance pursuant to the
Agreement as amended hereby, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇'▇ performance under the
Agreement, the Limited Guaranty and the Securities Pledge and Escrow Agreement,
and as further consideration to FTI, ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ agree to (i)
grant to FTI a security interest in those patents identified on Appendix L to
the Agreement, along with all related drawings and other related intellectual
property, and grant FTI a royalty-free license for the use of all such
intellectual property in order to complete the Railcars which license shall be
operative upon (x) ▇▇▇▇▇'▇ or ▇▇▇▇▇▇ ▇. ▇▇▇▇▇'▇ default under this Agreement (or
the related agreements), or (y) should ▇▇▇▇▇ cease to do business for a period
of 15 days or declare bankruptcy (either voluntarily or involuntarily); (ii)
collaterally assign to FTI its interests in any patents(or other intellectual
property) resulting from the design and construction of the Railcars being
produced pursuant to the Agreement (exclusive of that described on Appendix L),
all of which is intended by the Agreement to be the joint intellectual property
of both parties, and fully cooperate with FTI and its agents in the preparation
of any intellectual property rights application (patent, copyright, trademark,
etc.); (iii)
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negotiate, in good faith, with FTI a license agreement whereby FTI may develop
and/or construct future railcars which are not part of this Agreement using the
intellectual property described in subparagraphs (i) and (ii), above, which
license agreement will provide for royalties to ▇▇▇▇▇ (or its designee) so long
as ▇▇▇▇▇ (or an affiliate thereof) is not the constructing party; and (iv)
execute a Rolling Stock Agreement substantially in the form attached hereto as
Exhibit "C", and hereby grant a security interest to FTI in all assets
identified therein. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ will use their best efforts to
promptly provide a fully executed collateral assignment and to perfect the
various security interests granted to FTI as described above, including all
state filings (UCC-1 financing statements, etc.) and filings with the U.S.
Patent and Trademark Office, and each hereby irrevocably appoint FTI its/his
attorney-in-fact to execute such documents as may be necessary to effect the
intent of this provision of this Amendment.
7. GUARANTY OF ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ AND GRANT OF SECURITY INTEREST
7.1 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ agrees to execute the limited guaranty (the "Limited
Guaranty") of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇. The Limited Guaranty of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ is
attached hereto and made a part of this Agreement as Exhibit "A". ▇▇▇▇▇▇ ▇.
▇▇▇▇▇ also pledges to FTI all of his stock in First American Railways, Inc.,
pursuant to the Securities Pledge and Escrow Agreement (the "Pledge Agreement")
attached to the Limited Guaranty as Exhibit "B." ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ hereby appoints
FTI as its attorney-in-fact to execute such
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documents to effect the intent of this Amendment to provide security for ▇▇▇▇▇▇
▇. ▇▇▇▇▇'▇ Limited Guaranty.
8. FTI'S PAYMENT OF $438,810
8.1 FTI shall, upon execution of this Amendment, cause to be delivered to
▇▇▇▇▇ $438,810 in partial payment of amounts owed pursuant to the Agreement.
This payment has previously been withheld on the basis that the Railcars, for
which payment had been sought, had not met the Specifications contained in the
Agreement. FTI releases the $438,810 in payment to ▇▇▇▇▇ without prejudice to
its claim that the Railcars contain defects or otherwise do not meet the
Agreement's Specifications. ▇▇▇▇▇ acknowledges that FTI's release and payment of
the $438,810 shall not constitute a waiver or release of any of FTI's claims
with respect to the work performed to date by ▇▇▇▇▇ or the late delivery of the
Railcars, as alleged by FTI.
9. NONWAIVER OF DEFAULT; PRIMACY OF AGREEMENT
9.1 Neither ▇▇▇▇▇ nor FTI waive any of their existing rights or remedies
pursuant to the Agreement, or the Agreement relating to P-1. FTI specifically
does not, by virtue of this Amendment, extend the Delivery Dates for the
Railcars, nor waives any aspect of ▇▇▇▇▇'▇ performance to date. Similarly,
▇▇▇▇▇, by virtue of entering into this Amendment, does not waive any of its
claims or defenses arising pursuant to this Agreement, all such rights of ▇▇▇▇▇
and FTI being hereby expressly preserved.
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8.2 Except as expressly modified by this Amendment No. 3, all of the other
terms and conditions of the Agreement as heretofore amended remain in full force
and effect.
10. NO PARTNERSHIP OR JOINT VENTURE
10.1 It is the specific intent of the parties hereto that they not be joint
venturers or partners. ▇▇▇▇▇ remains an independent contractor for all purposes.
10.2 ▇▇▇▇▇ shall remain in control of the means and manner by which it
shall perform its obligations under the Agreement and this Amendment.
11. MODIFICATION OF SECTION 13 AND SECTION 25
11.1 Section 13.1 of the Agreement is modified as follows:
13.1 DEFAULT BY ▇▇▇▇▇. During the term of this Agreement, the
occurrence of one or more of the following events (and if
applicable, after applicable notice and cure has expired) shall
be deemed an "EVENT OF DEFAULT" by ▇▇▇▇▇:
(a) MATERIAL DEFAULT. Except with respect to a default by ▇▇▇▇▇
in its shipments of the Railcars in accordance with the
timeframes contained in Amendment No. 3 or its use of funds in
violation of Section 5.4 of Amendment No. 3, ▇▇▇▇▇ shall default
in any material respect in the observance or performance of any
covenant, condition or obligation of ▇▇▇▇▇ contained herein
(including any Appendix to this Agreement) including: ▇▇▇▇▇'▇
failure to perform the Work in a skilled and expeditious manner;
the failure of the Railcars to meet any warranty obligation
provided herein;; and if such Event of Default continues for
thirty (30) days after written notice to ▇▇▇▇▇ specifying the
Event of Default and demanding that the
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same be remedied; provided, however, that such thirty (30) day
period shall be extended provided ▇▇▇▇▇ has commenced and is
diligently pursuing such cure;
(b) FAILURE TO SHIP RAILCARS. The failure of ▇▇▇▇▇ to ship the
Railcars pursuant to the schedule contained in Amendment No. 3.
(c) FAILURE TO USE ADDITIONAL CAPITAL AND FTI PAYMENTS. Any
violation of Section 5.4 of Amendment No. 3;
(d) BANKRUPTCY. ▇▇▇▇▇ shall: (i) file a petition commencing a
voluntary bankruptcy or similar proceeding under any applicable
bankruptcy or similar law, (ii) be declared bankrupt or insolvent
under any law relating to bankruptcy, or (iii) admit in writing
its inability to pay its debts as they become due; or
(e) RECEIVER. A custodian, receiver, trustee or liquidator shall
be appointed in any proceeding brought against ▇▇▇▇▇ and shall
not be discharged within ninety (90) days after such appointment.
11.2 Section 25 of the Agreement is modified to substitute the correct
address for Fun Trains, Inc.: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇.
▇▇▇▇▇ RAILCAR, II, INC., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, AN INDIVIDUAL
A COLORADO CORPORATION
BY:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇, PRESIDENT
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FUN TRAINS, INC., A FLORIDA CORPORATION
BY:
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
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