Auto-Train Corp. yesterday failed to attract enough shareholder votes to win approval of a plan to issue more stock.The company was forced to recess its annual stockholders' meeting for two weeks to give it more time to seek support for the proposal.
Owners of about 44 percent of the railroad stock voted in favor of increasing the number of shares and only about 4 percent voted against it, but majority approval was required.
By recessing the meeting, Auto-Train prevented the measure from dying and won additional time to see if it can get the needed votes.
Calling the lack of a majority vote, "a technical problem," Auto-Train President Eugene Derik Garfield said, "I don't see it as any problem so far as our underwriting is concerned."
The railroad is asking stockholders to authorize the issuance of up to 1 million new shares. Garfield said an underwriter has agreed to help the company try to raise $8 million in new capital by issuing 800,000 new shares of convertible preferred stock at $10 a share.
Failure to win stockholder approval for authorizing more shares was the latest in a series of recent setbacks for Auto-Train's efforts to find new financing.
Last Wednesday the Interstate Commerce Commission said it would let Auto-Train issue new securities only if the railroad paid back more than $800,000 in refunds due its passengers. The ICC criticized the railroad for withholding the money and using it to pay operating expenses.
On Friday it was disclosed that the Economic Development Authority of the Department of Commerce was having second thoughts about giving a $3 million government guaranteed loan to Auto-Train. EDA cited Auto-Train's troubles with the ICC and an investigation of the company now being made by the Securities and Exchange Commission.
Answering a question from former board member Arthur Gilbert, Garfield yesterday denied the company had lied to the EDA about the SEC investigation.
In a letter released to The Washington Post, EDA officials complained that Auto-Train executives said the SEC probe had been closed. But SEC officials notified EDA the investigation is still under way.
"We have never lied to anybody," Garfield said. Garfield said that because the company is planning a new stock offering he could not answer several questions about the company's operations and financial problems.
He said the report on second-quarter earnings, due later this week, will show "a great improvement over last year's loss." But he declined to specify article. whether the company made money during the three month period.
Crediting gas lines with sending Florida-bound passengers to Auto-Train, Garfield said that as of last Friday the railroad has about 30,000 advance reservations, more than twice as many as it had at this time a year ago.
Because its passengers-plus-cars transportation business has not been consistently profitabe for more than three years, Auto-Train is seeking to diversify into rail car repair and construction, shareholders were told.
The company has agree to lease shops from the Seaboard Coast Line Railroad at Portsmouth, Va. to assemble covered hopper cars, Garfield said, but beginning operations there will require additional financing.
Two long-promised Auto-Train expansions - extending the northern terminal of thr railroad from Lorton, Va., north to the New York area and setting up an Auto-Train service in Mesico - are both still being pursued, Garfield said. He made no promises about when either will begin operations. CAPTION: Picture, ARTHUR GILBERT...asks question