SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission file number 0-15087
TRAILER BRIDGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3617986
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10405 New Berlin Road E., Jacksonville, FL 32226
(904) 751-7100
(Address and telephone number of Principal executive offices)
-------------------------
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act:
$0.01 Par Value
Common Stock
Indicate by check mark whether the registrant (1) has filed all report required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the registrant's definitive proxy statement
incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the shares of the registrant's $0.01 par value
common stock held by non-affiliates of the registrant as of March 23, 2000 was
$4,657,500 (based upon $1.50 per share being the average of the closing bid and
asked price on that date as reported by NASDAQ). In making this calculation the
issuer has assumed, without admitting for any purpose, that all executive
officers and directors of the registrant are affiliates.
As of March 30, 2000, 9,777,500 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 2000 annual meeting of
stockholders that will be filed no later than 120 days after the end of the year
to which this report relates.
PART I
Item 1. Business
BUSINESS OVERVIEW
Trailer Bridge, headquartered in Jacksonville, Florida, is an
integrated trucking and marine freight carrier that provides truckload freight
transportation primarily between the continental U.S. and Puerto Rico. Founded
in 1991 as a Delaware corporation by transportation pioneer Malcom P. McLean,
the Company combines an efficient and dedicated motor carrier with a low cost
barge and tug marine transportation system. Trailer Bridge is the only company
serving markets governed by the Jones Act that exclusively operates marine
vessels fully configured to carry 48' and 53' long, 102" wide, "high-cube"
equipment. This configuration enables the Company to achieve equipment
utilization rates and other operating efficiencies not readily available to
traditional ocean carriers that primarily use smaller capacity equipment, such
as 40' containers.
Trailer Bridge's differentiated service quickly gained the acceptance
of U.S. to Puerto Rico shippers, leading to rapid growth and high equipment
utilization. In 1993, the Company's first full year of operation, Trailer Bridge
achieved a 93% outbound (continental U.S. to Puerto Rico) vessel utilization
rate and captured 5% of the continental U.S. to Puerto Rico marine freight
market. In response to the rapid market share gains experienced by Trailer
Bridge, in 1996 the Company increased its vessel capacity by 56% by inserting
midsections ("mid-bodies") into its two existing barges, increasing the capacity
of each barge from 266 to 416 48' equivalent truckload units.
Trailer Bridge increased its vessel capacity again in 1998 when it took
delivery of four 403' long container carrying barges designed specifically for
the Company's integrated truckload marine transportation system and bearing the
Company's Triplestack Box Carrier(TM) trade name. The first Triplestack Box
Carrier(TM) was delivered to the Company in January 1998. A fifth vessel was
delivered in February 1999. The Triplestack Box Carriers(TM) are versatile,
low-draft vessels that have a capacity of 213 53' containers, stacked three-high
on a single deck. The first three vessels are currently deployed in the
Company's Puerto Rico freight operation. During the first nine months of 1999
three vessels were utilized in a Newark, New Jersey - Jacksonville, Florida -
San Juan service. As two vessels can provide weekly service between
Jacksonville, Florida and San Juan, Puerto Rico, the addition of the third
vessel permits the addition of a Newark, New Jersey/Jacksonville, Florida leg.
At the beginning of the fourth quarter of 1999 this deployment was realigned
with two of the vessels providing direct service between Jacksonville, Florida
and San Juan, Puerto Rico. The third Triplestack Box Carrier was utilized to
provide a sailing on alternate weeks directly between Newark, New Jersey and San
Juan, Puerto Rico. During 1999 the fourth and fifth Triplestack Box Carriers
were not in service. In the first quarter of 2000 both the fourth and fifth
Triplestack Box Carriers were chartered for a portion of the quarter under
short-term charters.
OPERATIONS
At December 31, 1999, Trailer Bridge operated a fleet of 140 tractors,
1,355 high-cube trailers, 2,499 53' high cube containers and 1,998 53' chassis
which transport truckload freight between the Company's Jacksonville and Newark
port facilities and inland points in the U.S. The Company also provides full
truckload service between interior points within the continental U.S., primarily
to increase equipment utilization, minimize empty miles and maximize revenue
while repositioning equipment to carry Puerto Rico bound freight. The Company
maintains a centralized dispatch and customer service center at its Jacksonville
headquarters to coordinate the movement of customer freight throughout our
system. The operations center features a fully integrated computerized dispatch
and customer service network. Customer service representatives solicit and
accept freight, quote freight rates and serve as the primary contact with
customers. Dispatch and customer
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service personnel work together to coordinate Puerto Rico and non-Puerto Rico
freight to achieve the most optimum load balance and minimize empty miles within
the Company's truckload operation.
At December 31, 1999, Trailer Bridge operated two 736' triple-deck,
roll-on/roll-off (ro/ro) ocean-going barges and three 408' Triplestack Box
Carriers. Loading of the ro/ro barges is performed with small maneuverable yard
tractors operated by stevedores hired by an outside contractor. Each ro/ro
vessel is towed at approximately 9 knots by one 7,200 horsepower diesel-powered
tug. Each Triplestack Box Carrier is towed at approximately 9 knots by one 4,000
horsepower diesel-powered tug. The tugs are time-chartered and are manned by
employees of two unaffiliated tug owners. Compared to a self-propelled vessel, a
towed barge has reduced Coast Guard manning requirements and higher fuel
efficiency. Similarly, the large number of U.S. tugs available for charter
provides the Company with a reliable source for towing services.
MARKETING AND CUSTOMERS
The Company's sales and marketing function is led by senior management
and sales professionals based in Jacksonville, San Juan and other key strategic
U.S. cities. These sales personnel aggressively market Trailer Bridge to
shippers as a customer-oriented provider of value-priced and dependable service.
The Company targets major shippers with high volume, repetitive shipments whose
freight lends itself to integrated trucking and marine service.
The Company believes that price is the primary determinant in the
freight lanes in which it is involved. Nonetheless, the Company also believes
that it provides enhanced service that results from its single company control
of the entire freight movement over land and water. This service frees the
customer from the operational complexities of coordinating the interface between
over-the-road and marine service. The Company's customer service philosophy has
generated increased demand from existing customers for additional equipment and
sailings and has led to ongoing relationships with customers such as
DaimlerChrysler, General Motors, K Mart, WalMart, Hanes/Sara Lee, Georgia
Pacific, Baxter Healthcare, General Electric and DuPont.
The Company has a diversified customer base. Typical shipments to
Puerto Rico include furniture, consumer goods, toys, new and used cars and
apparel. Typical shipments from Puerto Rico include health products,
electronics, shoes and scrap aluminum. Management intends to continue the
Company's efforts both to increase business with existing customers and add new
core carrier relationships.
The Company has written contracts with the majority of its customers.
These contracts generally specify service standards and rates, eliminating the
need for negotiating the rate for individual shipments. A contract typically
requires a minimum tender of cargo during a specified term in return for a set
rate during the period.
VESSELS
At December 31, 1999, the Company operated two 736' by 104' triple-deck
roll-on/roll-off barges. Each deck has ten lanes that are accessed from the
stern of the vessel via ramp structures in Jacksonville and San Juan that have
been built specifically for the Company. Four lanes on each vessel have been
converted to carry new and used automobiles on car decks that allow
approximately 11 cars to fit in the space previously used for one 48' unit. The
trailers are secured on the vessel by attachment to pullman stands that are
engaged and disengaged with specially configured yard tractors used to pull the
trailers into position on the vessel.
At December 31, 1999 the Company operated three Triplestack Box
Carriers(TM) that are single deck barges designed to carry 53' containers. The
first of the Triplestack Box Carriers was delivered to the Company in January
1998 and the fifth and final Triplestack Box Carrier was delivered in February
1999. These vessels utilize the same port facilities as the ro/ro barge vessels
in Jacksonville and San Juan. Wheeled vehicles known as reach-stackers carry and
load the containers. These highly maneuverable vehicles are also used by
railroads to load containers on rail cars for intermodal transportation. The
reach-stackers are significantly less expensive than the cranes typically
required for loading and unloading containers
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from the holds of large cargo ships and instead directly access the deck of the
vessel via simple and movable linear planks. The Company has filed for patent
protection for its unique system consisting of the vessels and their related
loading and unloading method.
RAMP STRUCTURES
The loading and unloading of the Company's two 736' by 104' triple-deck
roll-on/roll-off barges is accomplished through the use of separate ramp
structures. The Company has the exclusive right to use a floating ramp structure
in San Juan under the charter agreement, with an affiliate, for the two 736' by
104' triple-deck roll-on/roll-off barges. In Jacksonville, the Company has the
preferential right to use a land-base ramp structure built and owned by the
Jacksonville Port Authority. In the first two quarters of 1998 the Company
utilized a floating ramp structure in Jacksonville under the charter agreement,
with an affiliate, for the two 736' by 104' triple-deck roll-on/roll-off barges.
Following the completion of the land-based ramp the Company retained the unused
floating ramp structure in Jacksonville, Florida to be used as an alternative
and to explore its use at other ports. Each of the floating ramps experienced
operational difficulties in 1998 and 1999 resulting in significant additional
operating expenses for the Company. Certain of these additional operating
expenses have been reimbursed by the affiliate that owns the ramp structures.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SAN JUAN
In September 1998, Hurricane Georges struck Puerto Rico causing
extensive damage on the island. During this storm, the floating loading ramp
used by the Company was damaged. The Company contracted for the ramp to be
re-floated and repaired. The top section of the structure was partially removed.
In January 1999 the ramp was successfully re-floated. The ramp was repaired and
returned to active cargo operations for the first two decks in March 1999. The
top section was reinstalled in early April 1999 at which time full operations
resumed on all three decks. Repairs on the ramp structure continued through July
1999 leading to increased operating cost. The actual cost of re-floating the
ramp structure and its repair was insured and the Company received reimbursement
of these expenses, less a $50,000 deductible.
JACKSONVILLE
In May 1998, the Company ceased using the floating ramp structure in
Jacksonville when it was replaced by a land-based ramp structure built by the
Jacksonville Port Authority. The Company retained the unused floating ramp
structure in Jacksonville, Florida to be used as an alternative and to explore
its use at other ports. In December 1998 the Jacksonville floating ramp
structure suffered a casualty and became submerged in Jacksonville. The
Company's naval engineers and the representatives of the insurer insuring the
ramp structure determined that the structure had suffered irreparable damage.
The owner of the ramp structure, an affiliate of the Company, with the consent
of the Company, contracted for the removal of the ramp structure as a wreck. The
Company believes the cost of such removal is covered by the Company's liability
insurance and will be reimbursed to the owner of the ramp structure. The ramp
structure was insured for insured perils of the sea. The Company filed a claim
under this policy for the $3.7 million insured value of the ramp structure,
because the ramp structure was struck by an unidentified vessel leading to it's
sinking. The proceeds of this claim, if any, were assigned to the Company by the
owner of the ramp structure, an affiliate of the Company, in August 1999. As of
December 10, 1999, the insurer had not offered to pay the claim in a manner
acceptable to the Company. In December 1999, the Company recovered, from an
affiliate, $3.7 million of excess operating and maintenance expenses incurred
during the period that the Company had limited use of the floating ramp system.
In return, the Company waived any right to any insurance proceeds from the
casualty to the floating ramp system. The affiliate has an additional claim
under the same policy.
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REVENUE EQUIPMENT
Trailer Bridge's equipment strategy is to operate modern tractors and
trailers in order to (i) reduce fuel, maintenance and parts costs, (ii) increase
reliability, and (iii) help attract and retain drivers. At December 31, 1999,
the Company had 135 line haul tractors and 5 day cabs. The line haul power units
are conventional tractors that, among other amenities preferred by drivers,
include the pro sleeper package. The day cabs are used for local city work in
Jacksonville. The Company's practice is to trade or replace its tractors on a
450,000-mile cycle that generally occurs during the fourth year.
The Company has designed and built units to transport automobiles on
its vessels. These units, designated by the Company as Vehicle Transport
Modules(TM), or VTM's(TM), can hold up to three vehicles and provide an
efficient unit for loading and unloading. The Company built 303 of these units
and has applied for patent protection on the design of the units.
At December 31, 1999, the Company operated 1,355 dry van trailers, 991
of which were 48' x 102" models and 364 of which were 53' x 102" models. At
December 31, 1999 the Company operated 2,499 53' containers and 1,998 chassis.
At December 31, 1999 the Company operated 303 Vehicle Transport Modules. The
Company's current practice is to trade or replace owned trailers on a seven-year
cycle and replace leased trailers with owned trailers as leases expire.
The Company performs preventative maintenance on equipment at its
Jacksonville operations center, with major maintenance and repairs handled by
outside contractors.
DRIVER RECRUITING AND RETENTION
The Company offers competitive compensation and full health care
benefits differentiating it from many truckload operators. Management also
promotes driver retention by assigning drivers a tractor for the life of the
unit. Drivers are assigned a single dispatcher, regardless of geographic area,
awarding dedicated routes and regional positions to support operations, while
providing more predictable home time for its drivers. The Company believes its
driver turnover of 35% in 1999 is well below that typically reported by other
truckload carriers despite an industry-wide driver shortage and vigorous
competition for drivers.
FUEL AVAILABILITY AND COST
The Company actively manages its fuel costs by requiring drivers to
fuel in Jacksonville at an offsite fuel facility where the Company has
established a bulk purchasing arrangement. Whenever possible in route, drivers
are required to fuel at truck stops and service centers with which the Company
has established volume purchasing arrangements. The Company offers
fuel-conservation bonuses to its drivers based on achieving miles per gallon
goals.
Although the Company pays for the marine fuel used by the large tugs it
charters, the actual fuel loading is controlled by tug crew personnel employed
by the tug owner. The fuel is purchased and loaded in each of the ports served
by the Company, primarily Jacksonville, Florida, at nearby fuel facilities
during cargo loading operations. By negotiating directly with fuel vendors for
its marine fuel needs, the Company has obtained better prices than it would have
otherwise been able to attain.
Trailer Bridge does not engage in any fuel hedging activities.
In the fourth quarter of 1999 and the first quarter of 2000 due to the
increased cost of fuel, the Company instituted fuel surcharges to its customers,
pursuant to its tariff. The fuel surcharges for domestic truck movements are
charged on a per mile basis while the fuel surcharges on movements to and from
Puerto Rico are assessed on a per move basis.
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SAFETY AND INSURANCE
Trailer Bridge emphasizes safety in all aspects of its operations. The
Company maintains its own strict standards for recruiting drivers, including a
minimum of three years of verifiable commercial driving experience, a safe
driving history and a successful physical examination, including drug and
alcohol testing. Its ongoing driver safety program includes an initial
orientation for all new drivers, 100% log monitoring and strong adherence to all
speed and weight regulations.
The Company bids annually for both marine and land insurance policies.
Major coverages include hull and protection indemnity, pollution, excess
liability, marine cargo, truckers' liability, workers' compensation and
commercial property.
TECHNOLOGY
The Company utilizes an IBM AS-400 computer system to handle its
accounting and operations requirements. The computer system links Company
headquarters, the truck operations center, the San Juan office and the marine
terminals in Jacksonville, San Juan and Newark. The system enhances the
Company's operating efficiency by providing cost effective access to detailed
information concerning available equipment, loads, shipment status and specific
customer requirements, and permits the Company to respond promptly and
accurately to customer requests.
The Company's electronic data interchange ("EDI") capability allows
customers to tender loads, receive load confirmation, check load status and
receive billing information via computer. The Company's EDI system also is
designed to accelerate receivables collection. The Company's largest customers
require EDI service from their core carriers. Management believes that advanced
technology will be required by an increasing number of large shippers as they
reduce the number of carriers they use in favor of core carriers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000".
COMPETITION
The Company currently competes with four carriers for freight moving
between the U.S. and Puerto Rico where its market share during 1999 was
approximately 11%. The current operators in the Puerto Rico trade are Navieras
de Puerto Rico ("NPR"), CSX Lines, Inc., Crowley Liner Services, Sea Star Line
and Trailer Bridge. Based on available industry data for 1999, NPR has
approximately 29% of the market and operates three container vessels configured
to carry primarily 40' marine containers. CSX Lines, Inc., a subsidiary of CSX
Corporation, has approximately 24% of the market and operates four container
vessels that also carry mainly 40' containers. Crowley Liner Services, a
subsidiary of privately held Crowley Maritime Corp., has approximately 26% of
the market and operates roll-on/roll-off barges in various services between the
U.S. and Puerto Rico. Although Crowley now uses some 48' and 53' trailers, its
main equipment size is 45' trailers. Sea Star Line, owned primarily by Matson
Navigation Company, Inc. and Saltchuk Resources, Inc., parent of Totem Ocean
Trailer Express, Inc. has approximately 10% of the market with two combination
ro/ro container vessels.
Puerto Rico shippers select carriers based primarily upon price. To a
lesser extent, criteria such as frequency, transit time, consistency, billing
accuracy and claims experience are considered. The Company faces vigorous price
competition from competitors in the Puerto Rico market, two of which are part of
larger transportation organizations that possess greater financial resources
than the Company. While the Company believes it is the lowest cost per unit
operator in the Puerto Rico traffic lane, it does not always offer the lowest
effective price as certain operators at times engage in a practice of freight
rate discounting.
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the market. The
Company's non-Puerto Rico domestic truckload operations, which are used
primarily to balance its core Puerto Rico service, compete with a number of
trucking companies as well as private truck fleets used by shippers to transport
their own products. Truckload carriers compete primarily on the basis of price.
The Company's truck freight service also competes to a limited extent with rail
and rail-truck intermodal service, but the Company attempts to limit this
competition by seeking more time and
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service-sensitive freight. There are other trucking companies, including
diversified carriers with larger fleets and possessing substantially greater
financial resources than the Company.
REGULATION
As a common and contract motor carrier, the Company is regulated by the
Surface Transportation Board (the successor federal agency to the Interstate
Commerce Commission) and various state agencies. The Company's drivers,
including owner-operators, also must comply with the safety and fitness
regulations promulgated by the Department of Transportation, including those
relating to drug testing and hours of service.
The Company's operations are subject to various federal, state and
local environmental laws and regulations, implemented principally by the
Environmental Protection Agency and similar state regulatory agencies. These
regulations govern the management of hazardous wastes, discharge of pollutants
into the air, surface and underground waters, and the disposal of certain
substances. Management is not aware of any water or land fuel spills or
hazardous substance contamination on its properties and believes that its
operations are in material compliance with current environmental laws and
regulations.
The Company's marine operations are conducted in the U.S. domestic
trade. A set of federal laws known as the Jones Act requires that only U.S.
built, owned and crewed vessels move freight between ports in the U.S.,
including the noncontiguous areas of Puerto Rico, Alaska, Hawaii and Guam. These
marine operations are subject to regulation by various federal agencies,
including the Surface Transportation Board, the U.S. Maritime Administration and
the U.S. Coast Guard. These regulatory authorities have broad powers governing
activities such as operational safety, tariff filings of freight rates, certain
mergers, contraband, environmental contamination and financial reporting.
Management believes that its operations are in material compliance with current
marine laws and regulations, but there can be no assurance that current
regulatory requirements will not change.
EMPLOYEES
At December 31, 1999, Trailer Bridge had 282 employees, 141 of whom
were drivers.
Item 2. Properties
Trailer Bridge is headquartered in Jacksonville, Florida, where it owns
a 16,000 square foot office building adjacent to its truck operations center.
This facility allows 75 Jacksonville personnel to be centralized in one
location. The office building has also been designed so that additions can be
constructed to serve the Company's future needs. The truck operations center
property consists of 17.8 acres near Interstate 95, approximately 2 miles from
the Company's marine terminal on Blount Island. In addition to the office
building, the property includes an 11,400 square foot tractor maintenance shop
where oil changes and light preventative maintenance are performed, a trailer
washing facility, a drivers' lounge and parking space for tractors and trailers.
The Company also owns a contiguous parcel of undeveloped property consisting of
approximately 9.2 acres.
The Company maintains small sales office facilities in Georgia, North
Carolina, Illinois, Ohio and New Jersey that are utilized by sales personnel.
The Company also rents a 2,600 square foot office in San Juan where 11 Puerto
Rico administrative and sales personnel are based.
PORT FACILITIES
The Company utilizes port facilities in Jacksonville, San Juan and Port
Newark, New Jersey where its vessels are loaded and freight is stored awaiting
further movement by either vessel or truck. Trailer Bridge's terminal in
Jacksonville is located on Blount Island and consists of a berthing area and
approximately 25 acres leased from the Jacksonville Port Authority. The lease,
which expires in 2013, allows the Company to use the berthing area on a
preferential, although non-exclusive, basis and the land area on an exclusive
basis. Included in the lease is a $3.6 million triple deck loading ramp funded
by the Jacksonville Port Authority
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that the Company uses to load and unload its triple-deck roll-on/roll-off
barges. The Company pays the Jacksonville Port Authority a monthly rental
payment plus a wharfage payment based upon total cargo volume with a minimum
guarantee of $1.5 million per year. The Company's marine terminal in San Juan
consists of two berthing areas and 35 acres that the Company utilizes on a
preferential basis under a stevedoring services agreement with the contractor
who provides cargo-handling services. This agreement, which expires in 2006,
calls for the Company to make fixed payments as well as payments based upon
total cargo volume and the prevailing wharfage rates of the Puerto Rico Ports
Authority. The Company's marine operations in Newark, New Jersey consist of five
acres utilized pursuant to a service agreement with a third party and a berthing
agreement with the Port Authority of New York and New Jersey that expires in
2002. The Company believes its present port facilities are sufficient for its
current operations.
Item 3. Legal Proceedings
The Company commenced an action against one of its competitors at the
Surface Transportation Board ("STB") in July 1999. The complaint alleges that
Sea Star Line, LLC, a competitor of the Company in the Puerto Rico trade is
being operated in a manner inconsistent with a profit, constituting an unfair
practice under the ICC Termination Act, 49 U.S.C. Section 14701. Sea Star filed
a motion to dismiss the complaint in August 1999. In December 1999 the STB
denied the motion to dismiss the complaint and permitted the suit to proceed.
The Company is currently in the discovery process and will present its evidence
that Sea Star is operating in violation of the ICC Termination Act in Fall 2000.
The Company is seeking unspecified money damages and injunctive relief. There is
no counterclaim against the Company.
The Company commenced a joint action at the Federal Maritime Commission
("FMC") against the Puerto Rico Ports Authority ("PRPA") with Crowley Liner
Services, a competitor in the Puerto Rico trade, in January 2000. The complaint
alleged that the PRPA is improperly charging the Company dockage and wharfage
charges based upon a new tonnage measurement that effectively triples the
Company's tonnage from historical amounts. The Complaint alleges that the PRPA,
in violation of the Shipping Act of 1984, 46 U.S.C. app. 1710 (the "Shipping
Act"), is engaging in unjust and unreasonable charges; engaging in unjust and
unreasonable application of a tariff schedule; and engaging in unjust and
unreasonable practices. Additionally, the complaint alleges that the PRPA has
breached a settlement agreement entered into by the parties, among others, in
1996. The complaint seeks an order of the FMC to the PRPA to cease and desist
assessment of such excessive charges; establish a just and reasonable charge and
an award of unspecified monetary damages to the Company. The Company has
continued to pay the historical dockage and wharfage charges to date.
The Municipality of Guaynabo, Puerto Rico is asserting that Trailer
Bridge, Inc. has failed to pay tax based on the revenue that the Company
generated in such municipality. This matter has been in dispute for a number of
years but in late 1998 the municipality asserted a deficiency for approximately
$280,000 against the Company. The Company believes that this amount is incorrect
in a number of respects, including claims for certain years that have been
extinguished by the statute of limitations. Applicable case law has found that
the tax in question is violative of the Constitution of the United States since
it does not provide a mechanism for apportioning the tax among different
jurisdictions. Since that decision, the law in question has remained unchanged
and in the Company's opinion remains unconstitutional. The Company has commenced
litigation in Puerto Rico against the municipality to lift the notice of
deficiency. As part of the litigation the Company has posted a bond for the full
amount of the deficiency. While the Company believes that the tax in question is
unconstitutional, it nonetheless is pursuing a settlement to avoid undue
expense. The Company believes that the matter will be settled for substantially
less than the $280,000 deficiency.
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
The Company presently is not a party to any legal proceeding other than
litigation arising from vehicle accidents or cargo damage, and management is not
aware of any claims or threatened claims that reasonably would be expected to
exceed insurance limits or have a material adverse effect upon the Company's
operations or financial position.
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Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1999.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock began trading on the Nasdaq National Market
tier of The Nasdaq Stock Market on July 29, 1997 under the symbol: TRBR.
The following table represents the high and low sales price since its
initial trading date.
1997 High Low
---- ---- ---
Third Quarter (from July 29) 14 10 1/4
Fourth Quarter 13 3/4 8 3/8
1998
----
First Quarter 10 7/8 6 3/4
Second Quarter 10 3/8 3 1/2
Third Quarter 5 1/8 1 25/32
Fourth Quarter 2 7/8 1 1/2
1999
----
First Quarter 4 15/32 1 15/32
Second Quarter 3 3/8 1 5/8
Third Quarter 2 3/32 1 7/16
Fourth Quarter 1 15/16 1 5/32
The Company has never paid cash dividends on its Common Stock and does
not anticipate doing so in the foreseeable future. Certain of the Company's loan
documents prevent the payment of cash dividends under certain circumstances.
As of March 19, 2000 there were 40 stockholders of record in addition
to approximately 1,100 stockholders whose shares were held in nominee name.
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Item 6. Selected Financial Data
The selected financial data set forth below has been derived from the
financial statements of the Company. The selected financial information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and notes thereto appearing elsewhere in this report.
<TABLE>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues ..................................... $ 62,531 $ 63,148 $ 66,389 $ 77,241 $ 88,552
Operating income (loss) ............................... $ 8,778 $ 44,425 ($ 1,816) ($ 3,046) ($ 120)
Net income (loss) (pro forma for
1995 to 1997)(1) ...................................... $ 4,360 $ 2,073 ($ 2,416) ($ 2,516) ($ 2,136)
Net income (loss) (pro forma for 1995
to 1997) per common share ............................. $ .65 $ .31 ($ .30) ($ .26) ($ .22)
BALANCE SHEET DATA:
Working capital (deficit) ............................. ($ 4,697) ($ 1,719) $ 13,980 $ 3,963 $ 613
Total assets .......................................... $ 20,226 $ 24,764 $ 76,894 $ 89,229 $ 88,063
Long-term debt, capitalized leases and
due to affiliate(2) ................................... $ 13,461 $ 13,879 $ 37,335 $ 44,056 $ 47,101
Stockholders' equity (deficit) .......................... $ 2,673 $ 6,045 $ 33,860 $ 31,344 $ 29,208
</TABLE>
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(1) Until the Company's initial public offering the Company operated as an
S Corporation under the Internal Revenue Code and the laws of the
states that recognize S Corporation status. As a result, the Company's
taxable earnings were taxed directly to the Company's then-existing
stockholders. Pro forma net income assumes that the Company was subject
to federal and state income taxes and was taxed as a C Corporation at
the effective tax rates that would have applied for all periods. See
Notes to the Financial Statements. Effective July 29, 1997, the Company
became subject to federal and state income taxes.
(2) Includes current maturities.
10
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
RESULTS OF OPERATIONS
Year ended December 31, 1999 Compared to Year ended December 31, 1998
Operating revenues increased $11.4 million, or 14.6%, to $88.6 million
during 1999 from $77.2 million during 1998. This increase was due to a $10.7
million or 14.8% increase in total Puerto Rico revenue to $83.5 million through
the utilization of additional capacity in the Puerto Rico market. Non-Puerto
Rico revenue increased $575,627 or 12.9% compared to 1998. Core trailer volume
to Puerto Rico increased 25.9% in 1999 compared to 1998, and total car and other
volume increased 47.5% compared to 1998. As a result, core trailer revenue to
Puerto Rico increased $9.3 million or 21.3% and car and other revenue increased
$6.3 million or 40.7% compared to 1998. Revenue from shipper owned or leased
equipment moving to Puerto Rico decreased $411,776 or 8.4% from 1998. Revenue
from northbound shipments from Puerto Rico increased $853,386 or 10.2% from
1998.
While overall volume to and from Puerto Rico increased 16.4% in 1999,
related revenue increased only $10.7 million or 14.8% compared to 1998 implying,
an overall yield reduction of 1.4%. Vessel capacity deployed on the core
continental U.S. to Puerto Rico traffic lane increased 7.6% during 1999 compared
to 1998. Vessel capacity utilization on the core continental U.S. to Puerto Rico
traffic lane was 83.3% during 1999, compared to 77.4% during 1998.
In September 1998, Hurricane Georges struck Puerto Rico causing
extensive damage on the island. During this storm, the Company's floating
loading ramp was damaged. The Company contracted for the ramp to be re-floated
and repaired. The top section of the structure was partially removed. In January
1999 the ramp was successfully re-floated. The ramp was repaired and returned to
active cargo operations for the first two decks in March 1999 and the third deck
in May 1999 at which time normal operations resumed. The cost of re-floating the
ramp structure and its repair was insured and the Company received reimbursement
of these expenses, less a $50,000 deductible.
The inability to utilize the San Juan ramp necessitated alternative
methods of discharging and re-loading the two roll-on, roll-off vessels that
nearly quadrupled cargo operations time while at the same time reducing
available vessel space. The resulting schedule tightness and uncertainty
exacerbated costs beyond those directly related to San Juan cargo operations,
including trucking costs on the mainland. The Company's goal during this period
of disruption was to continue to provide a high level of service to customers
despite certain adverse cost consequences. Such additional operating cost in the
first quarter of 1999 was $2.4 million and in the second quarter of 1999
$700,000. The $3.1 million of estimated additional costs related to the
hurricane situation included $1.6 million in operating and maintenance costs
(comprised primarily of stevedoring and port related items), $1.3 million in
rent and purchased transportation (comprised primarily of terminal equipment
rental, trucking expense in San Juan and the U.S. and revenue equipment rental),
$150,852 in salaries and wages, $17,449 in insurance and claims and $61,885 in
communications and other operating expenses.
During the third quarter of 1999 the Company had one less voyage than
scheduled of its large roll-on, roll-off vessels due to Hurricane Floyd. The
tugboat that was towing the Company's vessel the week of the storm suffered a
casualty and needed to be replaced. While neither the Company's vessel nor its
cargo was damaged by this marine casualty, the time and recovery efforts of
substituting a new tug caused a major schedule disruption that resulted in one
less roll-on, roll-off voyage.
During the fourth quarter of 1999 the Company recognized a recovery of
certain operating and maintenance expenses from an affiliate in the amount of
$3,710,000 related to non-recurring excess costs associated with the
unavailability of the floating ramp system that the Company utilizes pursuant to
the charter of its large roll-on, roll-off vessels from that affiliate.
11
<PAGE>
During the first nine months of 1999 three of the Company's
Triplestack Box Carrier (TM) vessels were utilized in a Newark, New Jersey -
Jacksonville, Florida - San Juan service. As two vessels can provide weekly
service between Jacksonville, Florida and San Juan, Puerto Rico, the addition of
the third vessel permitted the addition of a Newark, New Jersey/Jacksonville,
Florida leg. At the beginning of the fourth quarter of 1999 this deployment was
realigned with two of the vessels providing direct service between Jacksonville,
Florida and San Juan, Puerto Rico. The third Triplestack Box Carrier(TM) was
utilized to provide a sailing on alternate weeks directly between Newark, New
Jersey and San Juan, Puerto Rico.
Operating expenses for 1999 increased $8.4 million or 10.4% from 1998
to $88.7 million. This increase was due to an increase in expenses associated
with an overall 21.8% increase in Puerto Rico volume, and the $3.1 million in
additional costs related to the inefficiency of servicing the ro/ro vessels
while the San Juan ramp structure was out of service and/or being repaired,
partially offset by the $3.7 million non-recurring reimbursement of floating
ramp system expenses. As a result, the Company's operating ratio decreased to
100.1% during 1999 from 103.9% during 1998.
Interest expense (net) increased $2.3 million or 222.4% in 1999 to
$3.3 million in 1998 from $1.0 million in 1998 due to increased average long-
term debt outstanding, increased amounts outstanding under the Company's revolv-
ing line of credit, a reduction of capitalized interest related to Title XI
debt, higher interest rates and less interest income earned on short-term
investments.
As a result of the factors described above and after application of
income taxes, the Company reported a net loss of $2.1 million for 1999 compared
to net loss of $2.5 million in 1998.
Year ended December 31, 1998 Compared to Year ended December 31, 1997
Operating revenues increased $10.8 million, or 16.3%, to $77.2 million
during 1998 from $66.4 million during 1997. This increase was due to an $11.8
million or 19.4% increase in total Puerto Rico revenue to $72.8 million through
the utilization of additional capacity in the Puerto Rico market, offset by a
$1.0 million or 18.5% decrease in non-Puerto Rico revenue. Core trailer volume
to Puerto Rico increased 38.8% in 1998 compared to 1997, and total car and other
volume increased 20.6% compared to 1997. As a result, core trailer revenue to
Puerto Rico increased $9.5 million or 27.6% and car and other revenue increased
$1.5 million or 10.6% compared to 1997. Revenue from shipper owned or leased
equipment moving to Puerto Rico increased $796,187 or 19.3% from 1997. Revenue
from northbound shipments from Puerto Rico increased $65,591 or .8% from 1997.
While trailer volume to and from Puerto Rico increased 30.0% in 1998,
related revenue increased only $11.8 million or 19.4% compared to 1997 implying,
an overall yield reduction of 8.1%. Vessel capacity deployed on the core
continental U.S. to Puerto Rico traffic lane increased 47.3% during 1998
compared to 1997. Vessel capacity utilization on the core continental U.S. to
Puerto Rico traffic lane was 75.1% during 1998, compared to 84.1% during 1997.
In September 1998, Hurricane Georges struck Puerto Rico causing
extensive damage on the island. During this storm, the Company's floating
loading ramp was damaged. The Company contracted for the ramp to be re-floated
and repaired. The top section of the structure was partially removed. In January
1999 the ramp was successfully re-floated. The ramp was repaired and returned to
active cargo operations for the first two decks in March 1999 and the third deck
in May 1999 at which time normal operations resumed. The cost of re-floating the
ramp structure and its repair was insured and the Company received reimbursement
of these expenses, less a $50,000 deductible.
The owner of the San Juan ramp structure waived $600,000 in charter
hire payments in the third quarter of 1998 to partially offset the expected
additional costs incurred by the Company due to the unavailability of the San
Juan ramp structure.
The Company reported an operating loss of $3.0 million for 1998
compared to operating income, excluding the nonrecurring, non-cash charge for
compensation, of $6.7 million for 1997. The Company
12
<PAGE>
recorded a nonrecurring, non-cash charge for compensation and a credit to paid-
in capital of $8.5 million during 1997. This charge represented the difference
between the exercise price of the option and the initial public offering price
of $10.00 per share.
Operating income was negatively impacted by $3.4 million of additional
costs related to the disruption caused by the loss of use of the San Juan ramp
structure resulting from Hurricane Georges. The $3.4 million of estimated
additional costs included $1,622,613 in additional operating and maintenance
costs (comprised primarily of stevedoring and port related items), $1,450,427 in
additional rent and purchased transportation expense (comprised primarily of
terminal equipment rental, trucking expense in San Juan and the U.S. and revenue
equipment rental), $117,954 in salaries and wages, $102,374 in insurance and
claims and $67,715 in communications and other operating expenses.
The inability to utilize the San Juan ramp structure necessitated
alternative methods of discharging and re-loading the two ro/ro vessels. Instead
of typical cargo operations of between 14 and 16 hours at the Company's San Juan
terminal, the two ro/ro vessels utilized other terminals where total cargo
operations required between 48 and 50 hours. While the ramp was out of service,
the middle deck of the ro/ro vessels remained inaccessible to trailers and could
be used only for vehicles, which resulted in sub-optimum utilization of
one-third of vessel space.
The additional time required to service the ro/ro vessels in San Juan
resulted in schedule tightness that required most cargo operations to be
performed during weekends where higher overtime rates applied. This schedule
tightness and the resultant uncertainty affected costs in addition to those
directly related to San Juan cargo operations, including trucking costs on the
mainland. The Company's goal during this period of disruption, which lasted
longer than expected, was to continue to provide a high level of service to
customers despite certain adverse cost consequences. The Triplestack Box
Carriers(TM) do not utilize the floating ramp structure and were not adversely
affected by Hurricane Georges.
Operating expenses for 1998 increased $20.6 million or 34.5% from 1997
exclusive of the charge for compensation in 1997 discussed above. This increase
was due to an increase in expenses associated with an overall 30.0% increase in
Puerto Rico volume, and the $3.4 million in additional costs related to the
inefficiency of servicing the ro/ro vessels while the San Juan ramp structure
was out of service and the impact of the commencement of the new coastwise
service. As a result, the Company's operating ratio increased to 103.9% during
1998 from 89.9% during 1997 exclusive of the charge for compensation in 1997.
Interest expense (net) increased $487,138 or 88.8% to $1.1 million in
1998 from $548,631 in 1997 due to increased average long-term debt outstanding,
increased amounts outstanding under the Company's revolving line of credit and
less interest income earned on short-term investments.
As a result of the factors described above including the charge for
compensation in 1997 and after application of income taxes, the Company reported
a net loss of $2.5 million for 1998 compared to pro forma net loss of $2.4
million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations was $1.0 million in 1999 compared to net
cash provided by operations of $40,447 in 1998. This represented a decrease of
$1.1 million from 1998. Net cash used in investing activities of $5.0 million in
1999 reflects $6.5 million of capital expenditures, which were primarily
attributable to payments for the purchase of containers and chassis, partially
offset by $1.0 million in proceeds from the sale of older equipment. Net cash
provided from financing activities was $2.9 million compared to $6.6 million in
1998 representing a decrease of $3.7 million. Net cash provided from financing
activities of $2.9 million consisted of $7.0 million in borrowing under a
revolving line of credit, partially offset by payments of $4.0 million of notes
payable. The Company received a waiver of certain financial ratios related to
its revolving line of credit at December 31, 1999. New financial covenants have
been established based upon the Company's 2000 business plan. The Company is
current on all payments related to all of its financial obligations and
anticipates remaining so in the future without any extension of scheduled
payments necessary. The Company will make no further draws under the revolving
line of credit.
13
<PAGE>
At December 31, 1999 cash amounted to $2.4 million, working capital was
$613,246, and stockholders' equity amounted to $29.2 million. Management
believes that cash flow generated from operations and transactions with an
affiliate will allow the Company to meet its working capital requirements,
anticipated capital expenditures and other obligations at least through calendar
2000.
YEAR 2000
Management recognized the potential effect Year 2000 could have on the
Company's operations and, as a result, implemented a Year 2000 Compliance
Project.
The Company's computer hardware, operating systems, dispatch
applications, PC network and other desktop applications are Year 2000 compliant
as certified by the various vendors and application consultants. Year 2000
compliance for general accounting applications were implemented throughout the
year. Total costs incurred with the Company's Year 2000 compliance project have
been reflected in the Company's income statement throughout 1998 and 1999, and
were approximately $75,000 in 1998 and $15,000 in 1999. Additional costs of the
Company's Year 2000 are not expected to be significant.
The Company has not experienced Year 2000 problems with any of its
information systems, or with any of its customers, suppliers or other third
parties. Business is continuing as usual, and the Company will continue to
monitor its information systems and third parties for any possible disruption.
The Company does not anticipate any problems, although there can be no
assurance that the Company will continue to be successful in avoiding all
possible problems. In particular, there can be no assurance that the Company
will not be affected adversely by the failure of a vendor, customer, or other
third party that is affected by Year 2000 issues arising later. However, in
dealing with the remaining Year 2000 issues, the Company believes, based on the
absence of any Year 2000 problems to date, that the impact of the Year 2000
issue and its associated costs will not have a material impact on the Company's
results of operations, liquidity and financial condition.
INFLATION
Inflation has had a minimal effect upon the Company's profitability in
recent years. Most of the Company's operating expenses are inflation-sensitive,
with inflation generally producing increased costs of operation. The Company
expects that inflation will affect its costs no more than it affects those of
other truckload and marine carriers.
SEASONALITY
The Company's marine operations are subject to the seasonality of the
Puerto Rico freight market where shipments are generally reduced during the
first calendar quarter and increased during the fourth calendar quarter of each
year in anticipation of Christmas. This seasonality was not as pronounced in
1999 as it had been in previous years.
14
<PAGE>
The following table sets forth certain unaudited financial information
for the Company for each of the last eight quarters (in thousands except per
share amounts):
<TABLE>
<CAPTION>
1998 1999
---- ----
By Quarter
First Second Third Fourth First Second Third Fourth
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $16,347 $18,408 $18,852 $23,633 $22,751 $22,686 $20,626 $22,489
Operating income (loss) 286 411 (398) (3,345) (2,078) 140 (2,246) 4,063(1)
Net income (loss) 69 149 (436) (2,299) (1,684) (399) (1,955) 1,901
</TABLE>
(1) See Notes 4 and 15 to the Financial Statements.
This 10-K contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The matters discussed in this Report include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to the future operating performance of the Company.
Investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward looking
statements as a result of various factors. Without limitation, these risks and
uncertainties include the risks of economic recessions, severe weather, changes
in demand for transportation services offered by the Company, and changes in
rate levels for transportation services offered by the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates.
For certain debt instruments, a change in interest rates affects the amount of
interest expense incurred. The debt instruments subject to changes in interest
rates are the $15,550,000 revolving line of credit with a weighted average
interest rate of 8.3%
Item 8. Financial Statements and Supplementary Data
TRAILER BRIDGE, INC.
Financial Statements for the Three Years in the Period Ended December
31, 1999 and Independent Auditors' Report
* * * * * *
15
<PAGE>
TRAILER BRIDGE, INC.
Financial Statements for the Three Years
in the Period Ended December 31, 1999
and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Trailer Bridge, Inc.
Jacksonville, Florida
We have audited the accompanying balance sheets of Trailer Bridge, Inc. (the
"Company") as of December 31, 1999 and 1998, and the related statements of
operations, changes in stockholders' equity, and cash flows for the three years
in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Trailer Bridge, Inc. as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche, LLP
Certified Public Accountants
Jacksonville, Florida
March 30, 2000
<PAGE>
TRAILER BRIDGE, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,445,750 $ 5,561,996
Trade receivables, less allowance for doubtful
accounts of $1,368,514 and $1,093,403 12,535,138 13,491,451
Other receivables 76,498 1,376,576
Due from affiliate 2,750,200 552,134
Prepaid expenses 1,202,443 840,887
----------- -----------
Total current assets 19,010,029 21,823,044
PROPERTY AND EQUIPMENT, net 63,086,924 62,054,638
GOODWILL, less accumulated amortization of
$358,101 and $311,322 810,841 857,620
RESTRICTED CASH AND INVESTMENTS 691,419 1,190,918
OTHER ASSETS 4,463,425 3,302,869
----------- -----------
TOTAL ASSETS $ 88,062,638 $ 89,229,089
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,460,770 $ 7,341,141
Accrued liabilities 3,793,885 6,017,108
Current portion of notes payable 4,615,862 3,988,067
Current Portion of Revolving Line of Credit 1,942,750 -
Current portion of capital lease obligations 83,010 42,945
Unearned revenue 499,506 470,684
----------- -----------
Total current liabilities 16,453,033 17,859,945
NOTES PAYABLE, less current portion 26,762,440 31,399,115
REVOLVING LINE OF CREDIT, less current portion 13,606,250 8,550,000
CAPITAL LEASE OBLIGATIONS, less current portion 89,657 76,102
----------- -----------
TOTAL LIABILITIES 18,396,783 57,885,162
----------- -----------
COMMITMENTS (Notes 4, 7 and 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 20,000,000 authorized
shares; 9,777,500 shares outstanding 97,775 97,775
Additional paid-in capital 37,982,818 37,982,818
Accumulated deficit (8,873,085) (6,736,666)
----------- -----------
Total stockholders' equity 29,207,508 31,343,927
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 88,062,638 $ 89,229,089
=========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
TRAILER BRIDGE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
OPERATING REVENUES $ 88,552,088 $ 77,240,644 $ 66,388,577
OPERATING EXPENSES:
Salaries, wages, and benefits 16,171,939 16,284,073 14,722,568
Compensation expense recognized
for stock option 8,528,670
Rent and purchased transportation:
Related party 7,336,500 6,736,500 7,500,000
Other 27,449,734 20,305,185 10,019,705
Fuel 6,645,479 5,701,701 5,617,199
Operating and maintenance (exclusive of
depreciation shown separately below) 18,541,337 19,849,857 12,869,034
Taxes and licenses 610,669 558,866 452,275
Insurance and claims 1,962,541 2,061,199 1,900,334
Communications and utilities 820,735 825,309 587,655
Depreciation and amortization 4,731,153 3,527,662 2,597,887
Other operating expenses 4,402,351 4,435,941 3,409,127
----------- ----------- -----------
88,672,438 80,286,293 68,204,454
----------- ----------- -----------
OPERATING LOSS (120,350) (3,045,649) (1,815,877)
NONOPERATING INCOME (EXPENSE):
Interest expense, net:
Related party (278,641)
Other (3,339,382) (1,035,769) (269,990)
Gain (loss) on sale of equipment, net 81,499 207,255 (80,851)
----------- ----------- ------------
(3,257,883) (828,514) (629,482)
----------- ----------- ------------
LOSS BEFORE PROVISION AND PRO FORMA
PROVISION FOR INCOME TAXES (3,378,233) (3,874,163) (2,445,359)
BENEFIT FOR INCOME TAXES 1,241,814 1,358,133 426,566
----------- ----------- -----------
NET LOSS BEFORE PRO FORMA PROVISION
FOR INCOME TAXES (2,136,419) (2,516,030) (2,018,793)
PRO FORMA PROVISION FOR INCOME TAXES (NOTE 2) (397,329)
----------- ----------- -----------
PRO FORMA NET LOSS (NOTE 2) $ (2,136,419) $ (2,516,030) $ (2,416,122)
=========== =========== ===========
PRO FORMA NET LOSS
PER COMMON SHARE
Basic $ (0.22) $ (0.26) $ (0.30)
=========== =========== ===========
Diluted $ (0.22) $ (0.26) $ (0.30)
=========== =========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
TRAILER BRIDGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
---------------------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
-------------- ------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 6,672,500 $ 66,725 $ (66,300) $ 6,044,119 $ 6,044,544
Compensation expense recognized
for stock options 8,528,670 8,528,670
Distributions to stockholders 1,060,212 (8,245,962) (7,185,750)
Net proceeds from initial public
offering of common stock 3,105,000 31,050 28,460,236 28,491,286
Net loss (2,018,793) (2,018,793)
---------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 9,777,500 97,775 37,982,818 (4,220,636) 33,859,957
Net loss (2,516,030) (2,516,030)
---------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 9,777,500 97,775 37,982,818 (6,736,666) 31,343,927
Net loss (2,136,419) (2,136,419)
---------- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 9,777,500 $ 97,775 $ 37,982,818 $ (8,873,085) $ 29,207,508
========== ======= =========== =========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
TRAILER BRIDGE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,136,419) $ (2,516,030) $ (2,018,793)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 4,731,153 3,574,132 2,597,887
Provision for uncollectible accounts 2,001,439 1,040,721 381,691
(Gain) loss on sale of equipment (81,499) (207,255) 80,851
Compensation expense recognized for stock options 8,528,670
Deferred income taxes (1,241,814) (1,332,642) (652,876)
Change in assets and liabilities:
(Increase) decrease in:
Trade receivables (1,045,126) (6,784,572) 176,581
Other receivables 1,300,078 (1,235,237) (141,339)
Due from affiliate (2,198,066) (612,434)
Prepaid expenses (361,556) (75,912) 199,996
Other assets 81,258 59,936 67,014
Increase (decrease) in:
Accounts payable 119,629 5,203,890 155,830
Accrued liabilities (2,223,223) 2,618,250 763,759
Unearned revenue 28,822 307,600 (60,543)
------------ ------------ ------------
Net cash (used in) provided by operating activities (1,025,324) 40,447 10,078,728
------------ ------------ ------------
INVESTING ACTIVITIES:
Due to affiliate (4,592,892)
Purchases and construction of property and equipment (6,548,900) (36,172,044 (20,434,204)
Proceeds from the sale of equipment 1,039,370 1,126,390 31,764
Decrease (increase) in restricted cash and investments 499,499 19,718,986 (20,909,904)
------------ ------------ ------------
Net cash used in investing activities (5,010,031) (15,326,668) (45,905,236)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings on notes payables 1,746,591 31,740,797
Proceeds from borrowings on revolving line of credit 7,000,000 8,550,000
Proceeds from sale of common stock 28,491,286
Payments on notes payable (4,008,880) (3,476,069) (3,650,278)
Payments of dividends (7,185,750)
Debt issue costs (210,450) (909,729)
Payments on capital lease obligations (72,011) (39,300) (41,294)
------------ ------------ ------------
Net cash provided by financing activities 2,919,109 6,570,772 48,445,032
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,116,246) (8,715,449) 12,618,524
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,561,996 14,277,445 1,658,921
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,445,750 $ 5,561,996 $ 14,277,445
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid for state income taxes $ 25,673 $ 134,127 $ 46,145
============ ============ ============
Cash paid for interest, net of amount capitalized:
Related party $ 283,653
Other $ 2,982,349 $ 2,249,445 419,739
------------ ------------ ------------
$ 2,982,349 $ 2,249,445 $ 703,392
============ ============ ============
Book value of like kind assets exchanged $ 610,041
============
Equipment acquired under capital lease agreements $ 125,631
============
</TABLE>
See notes to financial statements.
5
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND
1997
- - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Trailer Bridge, Inc. (the "Company") is a domestic trucking
and marine transportation company with contract and common carrier
authority. Highway transportation services are offered in the continental
United States, while marine transportation is offered primarily between
Newark, New Jersey, Jacksonville, Florida and San Juan, Puerto Rico.
Cash and Cash Equivalents - The Company considers cash on hand and amounts
on deposit with financial institutions with original maturities of three
months or less to be cash equivalents.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Allowance for Doubtful Accounts - The Company provides an allowance for
doubtful accounts on trade receivables based upon estimated collectibility
and collection experience.
Property and Equipment - Property and equipment are stated at cost and the
capitalized interest costs associated with significant capital additions
less accumulated depreciation. Property and equipment are depreciated on a
straight-line method based on the following estimated useful lives:
Years
Buildings and structures 40
Office furniture and equipment 6-10
Freight equipment 4-25
Leasehold improvements 2-5
Equipment under capital leases 5
Tires on revenue equipment purchased are capitalized as part of the equipment
cost and depreciated over the life of the vehicle. Replacement tires are
expensed when placed in service.
Leasehold improvements and equipment under capital leases are amortized over the
lesser of the estimated lives of the asset or the lease terms. Maintenance and
repairs which do not materially extend useful life and minor replacements are
charged to earnings as incurred.
The Company periodically reviews property and equipment for potential impair-
ment. If this review indicates that the carrying amount of these assets may not
be recoverable, the Company estimates the future cash flows expected with
regards to the asset and its eventual disposition. If the sum of these future
cash flows (undiscounted and without interest charges) is less than the carrying
amounts of the assets, the Company records an impairment loss based on the fair
value of the asset.
Goodwill - Goodwill is being amortized on a straight-line basis over twenty-five
years.
6
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
Restricted Cash and Investments Restricted cash and investments consist of
cash and investments held in trust and committed for the construction of
the Company's Triplestack Box Carrier(TM) vessels and investments held by a
letter of credit for the continued use of a land-based ramp. These funds
have been invested in highly liquid interest bearing deposits, U.S.
Treasury bills and money market accounts and are carried at cost which
approximates market.
Insurance - The Company is self-insured for employee medical coverage above
deductible amounts. Reinsurance is obtained to cover losses in excess of
certain limits. Provisions for losses are determined on the basis of claims
reported and an estimate of claims incurred but not reported.
Revenue Recognition - Common carrier operations revenue is recorded on the
percentage-of-completion basis and direct costs are expensed as incurred.
Income Taxes - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
The Company was organized under Subchapter S of the Internal Revenue Code
until this election was terminated effective with the Company's initial
public offering in July 1997. Under Subchapter S, the Company was not
subject to federal income taxes.
Earnings Per Share - Basic earnings per share ("EPS") is computed by
dividing earnings available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution of securities that could share in the earnings.
Stock-Based Compensation - In accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," ("SFAS No. 123") the Company has elected to
continue to account for its employee stock compensation plans under APB
Opinion No. 25 with pro-forma disclosures of net earnings and earnings per
share, as if the fair value based method of accounting defined in SFAS No.
123 had been applied. Under the intrinsic value based method, compensation
cost is the excess, if any, of the quoted market price of the stock at the
grant date or other measurement date over the amount an employee must pay
to acquire the stock. Under the fair value based method, compensation cost
is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
New Accounting Standards - In June 1998, the Financial Accounting Standards
Board (the "FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative instruments
and hedging activities. In June 1999, the FASB issued SFAS No. 137, which
deferred the effective date of adoption of SFAS No. 133 for one year. SFAS
No. 133 will be effective for the first quarter of the year ending December
31, 2001. Retroactive application to financial statements of prior periods
is not required. The Company has determined that the implementation of this
statement will not have a material impact on the financial statements.
7
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
2. PRO FORMA INCOME TAXES
For informational purposes, the statement of operations for year ended
December 31, 1997 contains a pro forma adjustment for income tax expense which
would have been recorded if the Company had not been an S Corporation and had
been subject to corporate income taxes based on the tax laws in effect during
the period.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 917,885 $ 917,885
Construction in progress 182,993 6,739,792
Buildings and structures 2,575,070 2,542,581
Office furniture and equipment 2,842,401 2,396,311
Freight equipment 65,515,215 54,677,780
Leasehold improvements 1,939,969 1,355,871
Equipment under capital leases 388,736 263,105
Less accumulated depreciation and amortization (11,275,345) (6,838,687)
----------- -----------
Fixed assets, net $ 63,086,924 $ 62,054,638
=========== ===========
</TABLE>
Depreciation and amortization expense on property and equipment and
equipment under capital leases was $4,684,374, $3,480,882 and $2,551,108 in
1999, 1998 and 1997, respectively. Interest cost of $108,866 and $918,838 was
capitalized during 1999 and 1998, respectively.
4. TRANSACTIONS WITH AFFILIATED COMPANY
The Company leases two roll-on/roll-off barge vessels and the use of a ramp
system from an affiliate under operating lease agreements. The lease
payments are $10,050 per day for each vessel. The leases expire at the
later of September 1, 2010 or the repayment of all obligations under an
affiliate's construction loan related to the vessel renovations. Such
construction loan is scheduled to be repaid in quarterly installments with
a final maturity of April 1, 2001. The leases provide the Company the
option to extend the leases through September 1, 2018 for total payments of
$11,000 per vessel per day or, alternatively, the Company may purchase the
vessels at their then fair market values. Total lease expense under these
leases from affiliate totaled $7,336,500, $6,736,500 and $7,500,000 in
1999, 1998 and 1997, respectively. In the third quarter of 1998, the lease
payments to affiliate were reduced by a $600,000 non-recurring forgiveness
in recognition of the impact of Hurricane Georges and in consideration of
the efforts of the Company to recover and repair the San Juan triple-deck
ramp structure utilized by the two triple-deck barges.
In December 1999, the Company recovered from the affiliate $3,710,000 of
excess operating and maintenance expenses incurred during the period that
the Company had limited use of the floating ramp system. In return, the
Company waived any right to any insurance proceeds from the casualty to the
floating ramp system. The Company received $1,000,000 in December 1999 and
the balance was received in February and March 2000. Additional
8
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
amounts included in due from affiliate in 1999 and 1998 include prepaid
barge charter hire lease rent and reimbursable miscellaneous repair
payments made by the Company related to assets of the affiliate.
5. CAPITALIZED LEASE OBLIGATIONS
Future minimum lease payments under capitalized computer equipment leases
as of December 31, 1999 are as follows:
2000 $ 96,540
2001 94,496
--------
Total minimum lease payments 191,036
Interest portion (18,369)
--------
Present value of minimum lease payments 172,667
Less current portion (83,010)
--------
$ 89,657
========
6. NOTES PAYABLE
Following is a summary of notes payable at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Ship-financing bonds and notes (Title XI) totaling
$16,918,000 maturing on March 30, 2023; payable in
50 semi-annual installments of principal and interest;
interest is fixed at 6.52%; collateralized by vessels
with a carrying value of $19,197,049 at December 31, 1999;
amount is guaranteed by The United States of America
under the Title XI Federal Ship Financing Program $ 15,902,920 $ 16,579,640
Ship-financing bonds and notes (Title XI) totaling
$10,515,000 maturing on September 30, 2022; payable
in 50 semi-annual installments of principal and interest;
interest is fixed at 7.07%; collateralized by vessels with
a carrying value of $12,475,601 at December 31, 1999;
amount is guaranteed by The United States of America
under the Title XI Federal Ship Financing Program 9,673,800 10,094,400
Borrowings under a $25 million revolving credit and term
loan agreement maturing between April 1, 2000 and April 1,
2001; payable in monthly installments of principal and
interest; interest at fixed rates ranging from 7.38% to
8.08%; collateralized by tractors with a carrying value of
$4,765,791 at December 31, 1999 2,757,975 4,292,729
</TABLE>
9
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Notes payable to finance company totaling $4,957,569
maturing from June to October 2001; payable in 60
monthly installments of principal and interest;
interest at fixed rates ranging from 8.867% to 9.290%;
collateralized by trailers with a carrying value of
$3,456,843 at December 31, 1999 1,810,383 2,814,648
Note payable to bank totaling $1,680,000 maturing
October 2006; payable in 120 monthly installments
of principal and interest; interest is fixed at 7.95%;
collateralized by land and buildings and structures
with a carrying value of $2,272,049 at
December 31, 1999 1,148,000 1,316,000
Notes payable to finance company totaling
$1,032,500 maturing June 2000; payable in 60
monthly installments of principal and interest;
interest at a rate of 3.5% above LIBOR
(9.32% at December 31, 1999); collateralized
by trailers with a carrying value of $353,675 at
December 31, 1999 85,224 289,765
----------- -----------
31,378,302 35,387,182
Less current portion (4,615,862) (3,988,067)
----------- -----------
$ 26,762,440 $ 31,399,115
=========== ===========
</TABLE>
The revolving line of credit requires principal payments of $971,875
quarterly beginning in September 2000 and matures on April 1, 2001. In
August 1998, the Company entered into a revolving credit and term loan
agreement. At the election of the Company, interest on each borrowing under
the line of credit will accrue at (a) a variable interest rate of the
financial institution's Base Rate plus the Applicable Margin then
applicable to Base Rate Loans, or (b) the Eurodollar Rate determined for
such Interest Period plus the Applicable Margin then applicable to
Eurodollar Rate Loans. The following is a summary of borrowings outstanding
under the agreement at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revolving credit $ 15,550,000 $ 8,550,000
Term loan 2,757,975 4,292,729
----------- -----------
$ 18,307,975 $ 12,842,729
=========== ===========
</TABLE>
The debt agreements contain certain restrictive covenants, including
requirements to maintain tangible net worth (as defined), a debt ratio,
interest coverage and debt service coverage at certain levels.
At December 31, 1999, the Company was in non-compliance with certain
restrictive financial covenants related to the revolving credit and term
loan agreement. Effective March 30, 2000, the Company entered into a
limited waiver and amendment to the revolving credit and term loan
agreement (the "Amendment"). The Amendment provides for a waiver of
compliance with such covenants for the December 31, 1999 and earlier
measurement periods and revises each of the financial covenants for
future periods. The Amendment removes any additional borrowing capacity
under the revolving credit and term loan agreement, increases the interest
rate by .50% on June 30, 2000 and an additional .50% on September 30, 2000,
converts the oustanding revolving line of credit to a term loan on
August 31, 2000 and resets the maturity date of the agreement to April 1,
2001. The Company expects to be in compliance with the restrictive
covenants for 2000.
10
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
Following are maturities of long-term debt for each of the next five years:
2000 $ 6,559,612
2001 16,164,435
2002 1,265,320
2003 1,265,320
2004 1,265,320
Thereafter 20,408,295
-----------
$ 46,928,302
===========
7. OPERATING LEASES
The Company has various operating lease agreements, principally for its
office facilities, terminals and equipment. Certain of the leases contain
provisions calling for additional contingent rentals based on volume of
transportation activity.
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 1999 are as follows:
2000 $ 25,485,000
2001 25,829,000
2002 25,287,000
2003 36,249,000
2004 14,363,000
Thereafter 60,049,000
------------
Total minimum payments required $ 187,262,000
------------
Lease expense for all operating leases, including leases with terms of less
than one year, was $23,484,809, $19,027,272 and $16,879,647 for 1999, 1998 and
1997.
8. ACCRUED LIABILITIES
1999 1998
Fringe benefits $ 903,661 $ 901,573
Marine expense 689,293 3,149,861
Salaries and wages 324,372 336,510
Other 1,876,559 1,629,164
---------- ----------
$ 3,793,885 $ 6,017,108
---------- ----------
11
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
9. INCOME TAXES
The components of the benefit (expense) for income taxes is comprised of
the following as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $ 22,808 $ (201,164)
State 2,683 (25,146)
---------- ----------
25,491 (226,310)
---------- ----------
Deferred:
Federal $ 1,111,051 1,192,364 580,334
State 130,763 140,278 72,542
---------- ---------- ----------
1,241,814 1,332,642 652,876
---------- ---------- ----------
$ 1,241,814 $ 1,358,133 $ 426,566
========== ========== ==========
</TABLE>
Income taxes for the year ended December 31, 1999, 1998 and 1997 differ
from the amount computed by applying the statutory Federal corporate rate to
income before income taxes. The differences are reconciled as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Tax benefit at statutory Federal rate $ 1,148,599 $ 1,317,216 $ 831,422
Valuation allowance (900,000)
Nondeductible expenses (41,914) (51,136) (68,693)
State income taxes, net of federal benefit 135,129 154,966 39,334
Pro rata income allocated to S Corporation year (428,382)
Recognition of deferred tax liability 994,060
Other (62,913) (41,175)
---------- ---------- ----------
Total income tax benefit $ 1,241,814 $ 1,358,133 $ 426,566
========== ========== ==========
</TABLE>
12
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
The components of the Company's net deferred tax asset at December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Employee stock option $ 3,240,895 $ 3,240,895
Net operating loss 8,347,920 4,297,455
Accrued expense 165,091 189,475
Allowance for bad debts 520,035 415,493
----------- ----------
Gross deferred assets 12,273,941 8,143,318
Deferred tax liabilities:
Fixed asset basis 8,055,753 5,178,795
Other 90,856 79,005
----------- ----------
Gross deferred tax liabilities 8,146,609 5,257,800
Deferred tax asset valuation allowance 900,000 900,000
----------- ----------
Net deferred tax asset $ 3,227,332 $ 1,985,518
=========== ==========
</TABLE>
Prior to July 23, 1997, the Company was organized under Subchapter S of the
Internal Revenue Code for income tax purposes and therefore, all Federal
and certain state income taxes were the responsibility of the Company's
stockholders. The Company was subject to state income taxes in those
states that do not recognize Subchapter S elections. State income tax
expense for 1999, 1998 and 1997 was not significant.
At December 31, 1999, the Company had available net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $21,968,000,
of which $489,000 will expire beginning in the year 2004. Under Internal
Revenue code Section 382, the $489,000 of NOL's become available in equal
amounts through the year of expiration. The remaining NOL's expire
beginning in 2018.
10. COMMON STOCKHOLDERS' EQUITY
Common Stock:
In July 1997, the Company completed an underwritten initial public offering
("IPO") of 3,105,000 shares of its common stock at an initial offering
price of $10.00 per share, yielding gross proceeds of $31,050,000. Net
proceeds to the Company as a result of the IPO were $28,491,286 after
deduction of underwriting, legal, accounting and other offering related
expenses totaling $2,558,714.
Also in July 1997, the Company's Board of Directors and stockholders
authorized the following which became effective in connection with the
Company's initial public offering: (i) a 15,700-for-1 stock split, (ii) an
increase in the authorized number of common shares from 2,000 to
20,000,000, (iii) a change in the par value of common stock from $1.00 to
$.01 and (iv) 1,000,000 shares of preferred stock with a par value of $.01
per share. Stockholder's equity has been restated to give retroactive
recognition to the stock split and change in par value in prior periods. In
addition, all references in the financial statements to the number of
shares and per share amounts have been restated.
13
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
Earnings Per Share:
For the years ended December 31, 1999, 1998 and 1997, outstanding options
to purchase shares of common stock at an exercise price of $2.25, $10.00
and $10.00 per share, respectively, were not included in the computation to
arrive at diluted EPS because the options' exercise price exceeded the
average market price of the common shares.
Stock Options:
In May 1997, the majority stockholder of the Company granted to the
Company's Chairman and Chief Executive Officer, an option to purchase up to
942,000 shares of common stock (adjusted for the 15,700-for-1 stock split)
owned by him at an exercise price of $.95 per share. The option was
immediately exercisable with a term of 10 years. In connection with this
option, the Company recorded a non-recurring, non-cash charge to
compensation expense of $8,528,670 during the year ended December 31, 1997.
This option does not involve the issuance of additional shares of common
stock by the Company and therefore, any purchase of shares under the option
will not have a dilutive effect on the Company's book value or earnings
per share amounts.
The Company's Board of Directors and stockholders authorized the
establishment of an Incentive Stock Plan (the "Plan"). The purpose of the
Plan is to promote the interests of the Company and its shareholders by
retaining the services of outstanding key management members and employees
and encouraging them to have a greater financial investment in the
Company and increase their personal interest in its continued success. The
Company has reserved 785,000 shares of common stock for issuance pursuant
to the Plan to eligible employees under the Plan. Awarded options that
expire unexercised or are forfeited become available again for issuance
under the Plan. The options vest equally over a period of five years.
A summary of the status of options under the Company's stock-based
compensation plans as of December 31, 1999, 1998 and 1997 is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 521,182 $ 10.00 468,126 $ 10.00
Granted 212,600 2.25 130,000 10.00 471,000 $ 10.00
Forfeited (22,524) 9.60 (76,944) 10.00 (2,874) 10.00
Outstanding at end of year 711,258 7.70 521,182 10.00 468,126 10.00
Grants exercisable at year-end 178,923 93,262
Weighted-average fair value of
options granted during the year $ 1.87 $ 7.36 $ 7.13
</TABLE>
14
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
The following table summarizes information about the outstanding grants at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted-Average
Exercise Options Remaining Options
Price Outstanding Contractual Life Exercisable
-------- ----------- ---------------- ------------
<S> <C> <C> <C>
$ 10.00 499,808 7.8 years 178,923
2.25 211,450 9.2 years
</TABLE>
Remaining non-exercisable options as of December 31, 1999 become
exercisable as follows:
2000 142,252
2001 142,252
2002 142,252
2003 63,290
2004 42,289
-------
532,335
=======
Had compensation expense for stock options been determined based upon the
fair value at the grant date, consistent with the methodology prescribed
under SFAS No. 123, the Company's net earnings and net earnings per share
would have changed to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
As reported
Pro forma net loss $ (2,136,419) $ (2,516,030) $ (2,416,122)
Net loss per share - basic and diluted (0.22) (0.26) (0.30)
Pro forma for SFAS No. 123
Net loss $ (2,649,307) $ (2,930,148) $ (2,588,671)
Net loss per share - basic and diluted (0.27) (0.30) (0.32)
</TABLE>
The Company used the Black-Scholes option-pricing model to determine the
fair value of grants made. The following assumptions were applied in
determining the pro forma compensation cost:
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997
<S> <C> <C> <C>
Risk-free interest rate 5.34% 5.76% 6.16%
Expected dividend yield 0% 0% 0%
Expected option life 7 years 7 years 7 years
Expected stock price volatility 96.17% 81.93% 69.32%
</TABLE>
15
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan which covers substantially all employees in
he United States. Participants are allowed to make contributions of up to
15% of their compensation not to exceed certain limits. The Company makes
matching contributions to the Plan at a rate not in excess of 3.0% of
compensation. The Company contributed approximately $175,000, $214,000 and
$176,000 to the Plan during 1999, 1998 and 1997. The Company made an
optional contribution of $0, $0 and $39,000 in December 1999, 1998 and
1997.
In addition, the Company has a 165(e) Plan that covers substantially all
employees in Puerto Rico. The Company made contributions of approximately
$18,000, $15,000 and $13,000 to the Plan during 1999, 1998, and 1997.
In March 1998, the Board of Directors authorized an Employee Stock Purchase
Plan which covers substantially all employees. The Plan allows employees to
invest up to 10% of their base compensation through payroll deductions. The
purchase price will be 15% less than the fair market value on the last day
of the purchase period. The Company made contributions of approximately
$15,000 and $6,000 to the Plan during 1999 and 1998.
The Company has a Profit Sharing Plan in which they contributed
approximately $0, $24,000 and $688,000 to the Plan during 1999, 1998, and
1997.
12. CONTINGENCIES
The Company is involved in litigation on a number of matters and is subject
to certain claims which arise in the normal course of business, none of
which, in the opinion of management, are expected to have a materially
adverse effect on the Company's financial statements.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Restricted Cash and Investments - For those interest bearing deposits and
short-term investments, the carrying amount is a reasonable estimate of
fair value.
Notes Payable - Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used
to estimate fair value for debt instruments. The Company believes the
carrying amount is a reasonable estimate of such fair value.
16
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
- - --------------------------------------------------------------------------------
In the normal course of business, the Company uses an interest rate collar
agreement, to manage its interest rate risk for purposes other than
trading. The Company does not use derivative financial instruments for
speculative purposes. As is customary for these types of instruments, the
Company does not require collateral or other security from other parties to
these instruments. By their nature all such instruments involve risk,
including the credit risk of nonperformance by counterparties. However, at
December 31, 1999, in management's opinion there was no significant risk of
loss in the event of nonperformance of the counterparties to these
financial instruments.
Interest Rate Collar Agreement - The Company enters into an interest rate
contract to manage its exposure to changes in interest rates and to fix the
overall cost of one of its variable rate financings. The contract has no
carrying value with gains and losses recognized as a component of interest
expense.
The contract/notional amount and estimated fair value of the Company's off-
balance-sheet financial instrument are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ -------------------------------------
Contact/Notional Fair Contact/Notional Fair
Amount Value Amount Value
------------------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Interest rate collar agreement $ 1,148,000 $ 26,737 $ 1,316,000 $(38,760)
</TABLE>
14. SEGMENTS
The Company's primary business is to transport freight from its origination
point in the continental United States to San Juan, Puerto Rico and from
San Juan, Puerto Rico to its destination point in the continental United
States. The Company provides a domestic trucking system and a barge vessel
system, which work in conjunction with each other to service its customers.
The Company would not employ either system separately; therefore segment
reporting was not necessary.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Quarter Ended 1999 1999 1999 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Operating revenues $ 22,750,604 $ 22,686,417 $ 20,625,799 $ 22,489,268
Operating (loss) income (2,078,435) 140,417 (2,245,826) 4,063,494 (1)
Net (loss) income before
income tax (2,700,811) (627,412) (3,131,241) 3,081,231
Net (loss) income (1,683,679) (399,377) (1,954,583) 1,901,220
Net (loss) income
per share - basic (0.17) (0.04) (0.20) 0.19
</TABLE>
17
<PAGE>
TRAILER BRIDGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Concluded)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Quarter Ended 1998 1998 1998 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Operating revenues $ 16,347,403 $ 18,408,322 $ 18,851,977 $ 23,632,942
Operating income (loss) 286,042 410,872 (397,792) (3,344,771)(2)
Net income (loss) before
income tax 128,995 308,227 (641,217) (3,670,168)
Net income (loss) 69,156 149,098 (435,605) (2,298,679)
Net income
(loss) per share - basic 0.01 0.02 (0.04) (0.24)
</TABLE>
(1) Operating income was favorably impacted by a $3.71 million recovery
from an affiliate of excess operating and maintenance costs incurred
and expensed during the period that the Company had limited use of the
floating ramp system.
(2) Operating income was negatively impacted by $3.4 million of
additional costs related to the disruption caused by the loss of use
of the San Juan ramp structure resulting from Hurricane Georges. The
$3.4 million of estimated additional costs included $1,622,613 in
additional operating and maintenance costs (comprised primarily of
stevedoring and port related items), $1,450,427 in additional rent
and purchased transportation expense (comprised primarily of terminal
equipment rental, trucking expense in San Juan and the U.S. and
revenue equipment rental), $117,954 in salaries and wages, $102,374
in insurance and claims and $67,715 in communications and other
operating expenses.
* * * * * *
18
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
BALANCE AT CHARGED TO
BEGINNING COSTS AND DEDUCTIONS BALANCE AT
YEAR OF YEAR EXPENSES (CHARGEOFFS) END OF YEAR
---- ---------- --------- ------------ -----------
Allowance for Doubtful Accounts
-------------------------------
1997 905,581 381,691 (121,398) 1,165,874
1998 1,165,874 1,040,721 (1,113,192) 1,093,403
1999 1,093,403 2,001,439 (1,726,328) 1,368,514
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
Incorporated by Reference
The information called for by Item 10 -- "Directors and Executive
Officers of the Registrant", Item 11 -- "Executive Compensation", Item 12 --
"Security Ownership of Certain Beneficial Owners and Management" and Item 13 --
"Certain Relationships and Related Transactions" is incorporated herein by this
reference to the Company's definitive proxy statement for its annual meeting of
stockholders scheduled to be held in May 2000, which definitive proxy statement
is expected to be filed with the Commission not later than 120 days after the
end of the fiscal year to which this report relates.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) Documents Filed as Part of this Report
Page
----
1. Financial Statements:
Independent Auditors' Report ...............................15
Balance Sheets .............................................16
Statements of Operation.....................................17
Statements of Changes in Stockholders' Equity ..............18
Statements of Cash Flows ...................................19
Notes to Financial Statements ..............................20
2. Financial Statement Schedules:
II - Valuation And Qualifying Accounts
Three Years Ended December 31, 1999
All other financial statement schedules have been omitted either
because they are not applicable or because the information that would be
included in such schedules is included elsewhere in the financial statements or
notes thereto.
19
<PAGE>
3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- - ------- -----------------------
*3.1 -- Form of Amended and Restated Certificate of
Incorporation of the Registrant
*3.2 -- Form of Amended and Restated Bylaws of the
Registrant
*4. -- See Exhibits 3A and 3B for provisions of the
Certificate of Incorporation and Bylaws of the
Registrant defining the rights of holders of the
Registrant's Common Stock
#*10.1 -- Form of Indemnification Agreement with Directors
and Executive Officers
*10.2 -- Bareboat Charter Party dated February 1992
*10.2.1 -- Amendment to Bareboat Charter Party dated December
31, 1994
*10.2.2 -- Second Amendment to Bareboat Charter Party dated
October 1995
*10.2.3 -- Third Amendment to Bareboat Charter Party dated
March 1, 1997
*10.2.4 -- Form of Fourth Amendment to Bareboat Charter Party
**10.2.5 -- Fourth Amendment to Bareboat Charter Party dated
June 30, 1997
*10.3 -- Promissory Note dated January 1, 1997 payable to
Kadampanattu Corp. in the principal amount of
$4,569,131
*10.4 -- Construction and Term Loan Agreement dated as of
October 13, 1995 between the Registrant,
Kadampanattu Corp. and The First National Bank of
Boston, as Agent
*10.4.1 -- First Amendment to Construction and Term Loan
Agreement dated as of May 9, 1996
*10.4.2 -- Second Amendment to Construction and Term Loan
Agreement dated as of July 10, 1996
*10.4.3 -- Third Amendment to Construction and Term Loan
Agreement and Consent and Limited Waiver dated as
of January 1, 1997
*10.5 -- Chattel Mortgage Line of Credit Agreement dated as
of February 28, 1997
20
<PAGE>
*10.6 -- Vessel Construction Contract dated as of December
30, 1996 between Coastal Ship, Inc. and Halter
Marine, Inc.
*10.6.1 -- Assignment of Vessel Construction Contract dated
March 24, 1997 between Coastal Ship, Inc. and the
Registrant
*10.6.2 -- Amendment No. 1 to Vessel Construction Contract
dated as of April 1997
*10.7 -- Real Estate Promissory Note dated April 18, 1996
between the Registrant and First Union National
Bank of Florida
*10.8 -- Commitment to Guarantee Obligations
*10.8.1 -- Trust Indenture
*10.8.2 -- United States Government Ship Financing Bond, 1997
Series in the amount of $10,515,000
*10.8.3 -- Title XI Reserve Fund and Financial Agreement
****10.8.4 -- Commitment to Guarantee Obligations
****10.8.5 -- Trust Indenture
****10.8.6 -- United States Government Ship Financing Bond, 1997
Series in the amount of $16,918,000
****10.8.7 -- Title XI Reserve Fund and Financial Agreement
*10.9 -- Agreement and Lease dated as of August 1, 1991
between the Registrant and the Jacksonville Port
Authority
*10.9.1 -- Amendment #5 to Exhibit B, Schedule of Fees and
Charges
#*10.11 -- Incentive Stock Plan
#*10.11.1 -- Form of Stock Option Award Agreement
***10.12 -- Trailer Bridge, Inc. Employee Stock Purchase Plan
****10.13 -- Revolving Credit and Term Loan Agreement dated as
of August 28, 1998 among Trailer Bridge, Inc.,
BankBoston, N.A. and BankBoston, N.A. as agent
*****10.13.1 -- First Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 30, 1999
21
<PAGE>
*****10.13.2 -- Second Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 29, 2000
*****10.14 -- Agreement with Kadampanattu Corp. re ramp expenses
*****27.1 -- Financial Data Schedule
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) that became
effective on July 23, 1997.
** Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
*** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1997.
**** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1998.
***** Filed herewith
# Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year covered by this report.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on this 30th day of March 2000.
TRAILER BRIDGE, INC.
By: /s/ John D. McCown
--------------------------------------
John D. McCown
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John D. McCown Chairman of the Board and
- - ------------------------ Chief Executive Officer
John D. McCown and Director (Principal
Executive Officer) March 30, 2000
/s/ Mark A. Tanner Vice President --
- - ------------------------ Administration and Chief
Mark A. Tanner Financial Officer
(Principal Financial and
Accounting Officer) March 30, 2000
/s/ Malcom P. McLean Director
- - ------------------------
Malcom P. McLean March 30, 2000
________________________ Director March 30, 2000
Kenneth G. Younger
/s/ Artis E. James Director
- - ------------------------
Artis E. James March 30, 2000
________________________ Director March 30, 2000
Charles R. Cushing
</TABLE>
23
<PAGE>
EXHIBIT INDEX
(Exhibits being filed with this Form 10-K)
*3.1 -- Form of Amended and Restated Certificate of
Incorporation of the Registrant
*3.2 -- Form of Amended and Restated Bylaws of the
Registrant
*4. -- See Exhibits 3A and 3B for provisions of the
Certificate of Incorporation and Bylaws of the
Registrant defining the rights of holders of the
Registrant's Common Stock
#*10.1 -- Form of Indemnification Agreement with Directors
and Executive Officers
*10.2 -- Bareboat Charter Party dated February 1992
*10.2.1 -- Amendment to Bareboat Charter Party dated December
31, 1994
*10.2.2 -- Second Amendment to Bareboat Charter Party dated
October 1995
*10.2.3 -- Third Amendment to Bareboat Charter Party dated
March 1, 1997
*10.2.4 -- Form of Fourth Amendment to Bareboat Charter Party
**10.2.5 -- Fourth Amendment to Bareboat Charter Party dated
June 30, 1997
*10.3 -- Promissory Note dated January 1, 1997 payable to
Kadampanattu Corp. in the principal amount of
$4,569,131
*10.4 -- Construction and Term Loan Agreement dated as of
October 13, 1995 between the Registrant,
Kadampanattu Corp. and The First National Bank of
Boston, as Agent
*10.4.1 -- First Amendment to Construction and Term Loan
Agreement dated as of May 9, 1996
*10.4.2 -- Second Amendment to Construction and Term Loan
Agreement dated as of July 10, 1996
*10.4.3 -- Third Amendment to Construction and Term Loan
Agreement and Consent and Limited Waiver dated as
of January 1, 1997
*10.5 -- Chattel Mortgage Line of Credit Agreement dated as
of February 28, 1997
24
<PAGE>
*10.6 -- Vessel Construction Contract dated as of December
30, 1996 between Coastal Ship, Inc. and Halter
Marine, Inc.
*10.6.1 -- Assignment of Vessel Construction Contract dated
March 24, 1997 between Coastal Ship, Inc. and the
Registrant
*10.6.2 -- Amendment No. 1 to Vessel Construction Contract
dated as of April 1997
*10.7 -- Real Estate Promissory Note dated April 18, 1996
between the Registrant and First Union National
Bank of Florida
*10.8 -- Commitment to Guarantee Obligations
*10.8.1 -- Trust Indenture
*10.8.2 -- United States Government Ship Financing Bond, 1997
Series in the amount of $10,515,000
*10.8.3 -- Title XI Reserve Fund and Financial Agreement
****10.8.4 -- Commitment to Guarantee Obligations
****10.8.5 -- Trust Indenture
****10.8.6 -- United States Government Ship Financing Bond, 1997
Series in the amount of $16,918,000
****10.8.7 -- Title XI Reserve Fund and Financial Agreement
*10.9 -- Agreement and Lease dated as of August 1, 1991
between the Registrant and the Jacksonville Port
Authority
*10.9.1 -- Amendment #5 to Exhibit B, Schedule of Fees and
Charges
#*10.11 -- Incentive Stock Plan
#*10.11.1 -- Form of Stock Option Award Agreement
***10.12 -- Trailer Bridge, Inc. Employee Stock Purchase Plan
****10.13 -- Revolving Credit and Term Loan Agreement dated as
of August 28, 1998 among Trailer Bridge, Inc.,
BankBoston, N.A. and BankBoston, N.A. as agent
*****10.13.1 -- First Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 30, 1999
25
<PAGE>
*****10.13.2 -- Second Amendment and Limited Waiver to Revolving
Credit and Term Loan Agreement dated as of August
28, 1998 among Trailer Bridge, Inc., BankBoston,
N.A. and BankBoston, N.A. as agent dated as of
March 29, 2000
*****10.14 -- Agreement with Kadampanattu Corp. re ramp expenses
*****27.1 -- Financial Data Schedule
* Incorporated by reference to the indicated exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-28221) that became
effective on July 23, 1997.
** Incorporated by reference to the indicated exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
*** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1997.
**** Incorporated by reference to the indicated exhibit to the Company's
Form 10-K for the year ended December 31, 1998.
***** Filed herewith
# Management contract or compensatory plan or arrangement.
EXHIBIT 10.13.1
FIRST AMENDMENT AND LIMITED WAIVER
This FIRST AMENDMENT AND LIMITED WAIVER (this "Amendment"), dated as of
March 30, 1999, is by and among TRAILER BRIDGE, INC. (the "Borrower"), the
lenders listed on the signature pages hereto (the "Banks"), and BANKBOSTON,
N.A., as agent for the Banks (the "Agent").
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit and Term Loan Agreement, dated as of August 28, 1998
(as amended and in effect from time to time, the "Credit Agreement"); and
WHEREAS, the Borrower has requested, and the Banks and the Agent have
agreed, subject to the terms and conditions set forth herein, to waive certain
provisions of the Credit Agreement and to amend certain provisions of the Credit
Agreement as set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. CERTAIN DEFINED TERMS. Capitalized terms which are used
herein without definition and which are defined in the Credit Agreement shall
have the same meanings herein as in the Credit Agreement.
Section 2. LIMITED WAIVER. Sections 10.2, 10.3 and 10.4 of the Credit
Agreement require the Borrower to comply with certain financial covenants. The
Borrower has requested that the Majority Banks waive compliance, as at December
31, 1998 and for the applicable periods then ended, with the covenants contained
in Section Section 10.2, 10.3 and 10.4 of the Credit Agreement. Upon
satisfaction of the conditions precedent contained in Section 6 hereof, the
Majority Banks hereby waive compliance, as at December 31, 1998 and for the
applicable periods then ended only, with each of the covenants contained in
Section Section 10.2, 10.3 and 10.4 of the Credit Agreement. This waiver is
limited to its express terms and shall not extend to any matters not
specifically addressed hereby.
Section 3. AMENDMENTS TO CREDIT AGREEMENT. (a) Section 1.1 of the
Credit Agreement is hereby amended by (i) deleting the definition of
<PAGE>
"Applicable Margin" in its entirety in Section 1.1 of the Credit Agreement and
inserting the following new definition in lieu thereof:
"Applicable Margin. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a "Rate
Adjustment Period"), the Applicable Margin shall be the applicable margin set
forth below with respect to the Leverage Ratio, as determined for the period
ending on the fiscal quarter ended immediately preceding the applicable Rate
Adjustment Period.
<TABLE>
<CAPTION>
Eurodollar Rate
Leverage Base Rate Loans Loans Commitment
Level Ratio Applicable Margin Applicable Margin Fee Rate
<S> <C> <C> <C> <C>
V > 3.25:1.00 0.75% 2.00% 0.500%
IV > 2.75:1.00 and 0.50% 1.75% 0.500%
< 3.25:1.00
III > 2.25:1.00 and 0.25% 1.50% 0.500%
< 2.75:1.00
II > 1.75:1.00 and 0.00% 1.25% 0.375%
< 2.25:1.00
I < 1.75:1.00 0.00% 1.00% 0.250%
</TABLE>
For the purposes of this definition of Applicable Margin, the symbol "<" shall
mean "less than" and the symbol ">" shall mean "greater than or equal to".
Notwithstanding the foregoing, (a) if the Borrower fails to deliver any
Compliance Certificate in accordance with Section 8.4(d) hereof, then, for the
period commencing on the next Adjustment Date to occur subsequent to such
failure through the date immediately following the date on which such Compliance
Certificate is delivered, the Applicable Margin shall be the highest Applicable
Margin set forth above and (b) during the period beginning on the Term Out Date
and ending on the Maturity Date, the Applicable Margin shall be increased by
0.25% above the amounts set forth in the table above."
(ii) deleting the definition of "Debt Service Coverage Ratio" in its
entirety in Section 1.1 of the Credit Agreement and inserting the following new
definition in lieu thereof:
"Debt Service Coverage Ratio. (a) As of June 30, 1999, the ratio of (i)
Consolidated Operating Cash Flow for the fiscal quarter ending on such
2
<PAGE>
date to (ii) Consolidated Total Debt Service of the Borrower and its
Subsidiaries for such fiscal quarter; (b) as of September 30, 1999, the ratio of
(i) Consolidated Operating Cash Flow for the period of two (2) consecutive
fiscal quarters ending on such date to (ii) Consolidated Total Debt Service of
the Borrower and its Subsidiaries for such period of two (2) fiscal quarters;
(c) as of December 31, 1999, the ratio of (i) Consolidated Operating Cash Flow
for the period of three (3) consecutive fiscal quarters ending on such date to
(ii) Consolidated Total Debt Service of the Borrower and its Subsidiaries for
such period of three (3) fiscal quarters; and (d) as of March 31, 2000 and as of
the end of each fiscal quarter ending at any time thereafter, as applicable, the
ratio of (i) Consolidated Operating Cash Flow for the period of four (4)
consecutive fiscal quarters ending on such date to (ii) Consolidated Total Debt
Service of the Borrower and its Subsidiaries for such period of four (4) fiscal
quarters."
(iii) deleting the definition of "Interest Coverage Ratio" in its
entirety in Section 1.1 of the Credit Agreement and inserting the following new
definition in lieu thereof:
"Interest Coverage Ratio. (a) As of June 30, 1999, the ratio of (i)
Earnings Before Interest and Taxes for the fiscal quarter ending on such date to
(ii) Consolidated Total Interest Expense of the Borrower and its Subsidiaries
payable in cash for such fiscal quarter; (b) as of September 30, 1999, the ratio
of (i) Earnings Before Interest and Taxes for the period of two (2) consecutive
fiscal quarters ending on such date to (ii) Consolidated Total Interest Expense
of the Borrower and its Subsidiaries payable in cash for such period of two (2)
fiscal quarters; (c) as of December 31, 1999, the ratio of (i) Earnings Before
Interest and Taxes for the period of three (3) consecutive fiscal quarters
ending on such date to (ii) Consolidated Total Interest Expense of the Borrower
and its Subsidiaries payable in cash for such period of three (3) fiscal
quarters; and (d) as of March 31, 2000 and as of the end of each fiscal quarter
ending at any time thereafter, as applicable, the ratio of (i) Earnings Before
Interest and Taxes for the period of four (4) consecutive fiscal quarters ending
on such date to (ii) Consolidated Total Interest Expense of the Borrower and its
Subsidiaries payable in cash for such period of four (4) fiscal quarters."
(b) Section 10.2 of the Credit Agreement is hereby deleted in
its entirety and the following new Section 10.2 is hereby inserted in lieu
thereof:
"10.2 Interest Coverage Ratio. The Borrower will not permit the
Interest Coverage Ratio as determined at the end of each fiscal quarter
of the Borrower commencing with the fiscal quarter ending June 30, 1999
to be less than 2.50:1.00."
3
<PAGE>
(c) Section 10.3 of the Credit Agreement is hereby deleted in its
entirety and the following new Section 10.3 is hereby inserted in lieu thereof:
"10.3 Debt Service Coverage Ratio. The Borrower will not permit
the Debt Service Coverage Ratio as determined at the end of each fiscal
quarter of the Borrower commencing with the fiscal quarter ending June
30, 1999 to be less than 1.30:1.00."
(d) Section 10.4 of the Credit Agreement is hereby deleted in its
entirety and the following new Section 10.4 is hereby inserted in lieu thereof:
"10.4 Consolidated Tangible Net Worth. The Borrower will not,
at any time, permit Consolidated Tangible Net Worth to be less than the
sum of $28,000,000 plus, on a cumulative basis, 50% of positive
Consolidated Net Income for each fiscal year commencing with the fiscal
year ending December 31, 1999 and prior to such date of determination
(with no deduction for any year in which there is a net loss)."
Section 4. AFFIRMATION BY THE BORROWER. The Borrower hereby ratifies
and confirms all of the Obligations, including, without limitation, the Loans.
The Borrower hereby confirms that the Obligations are and remain secured
pursuant to the Security Documents to which the Borrower is a party.
Section 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent as follows:
(a) Representations and Warranties. The representations and warranties
contained in the Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection therewith were true and
correct as of the date as of which they were made and are true and correct on
the date hereof (except to the extent of changes resulting from transactions
contemplated or permitted by the Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date).
(b) Enforceability. The execution and delivery by the Borrower of this
Amendment, and the performance by the Borrower of this Amendment and the Credit
Agreement, as amended hereby, are within the corporate powers of the Borrower
and have been duly authorized by all necessary corporate action on the part of
the Borrower. Each of this Amendment and
4
<PAGE>
the Credit Agreement, as amended hereby, are valid and legally binding obliga-
tions of the Borrower, enforceable in accordance with their terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforcement of creditors' rights in general.
(c) No Default. No Default or Event of Default has occurred and is
continuing and no Default or Event of Default will exist as a result of the
execution and delivery of this Amendment or after the consummation of the
transactions contemplated hereby.
Section 6. EFFECTIVENESS. This Amendment shall become effective upon
satisfaction of each of the following conditions precedent:
(a) Delivery. The Borrower and the Majority Banks shall have executed
and delivered this Amendment.
(b) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident hereto
shall be satisfactory in form and substance to the Agent and the Banks, and the
Agent shall have received all information and such counterpart originals or
certified or other copies of all such documents as the Agent may reasonably
request.
Section 7. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement and the other Loan Documents shall remain the same. It is
declared and agreed by each of the parties hereto that the Credit Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Credit Agreement shall be read and construed as one instrument. Each of
the Notes and the other Loan Documents are hereby deemed to be amended to
reflect the amendments to the Credit Agreement contained herein.
(b) Except as otherwise expressly provided by this Amendment, the
waiver contained in Section 2 hereof shall not, by implication or otherwise,
limit, impair, constitute a waiver of or otherwise affect any rights or remedies
of the Agent or the Banks under the Credit Agreement or the other Loan
Documents, nor alter, modify, amend or in any way affect any of the terms,
obligations or covenants contained in the Credit Agreement or the other Loan
Documents.
5
<PAGE>
(c) This Amendment is intended to take effect as an agreement under
seal and shall be construed according to and governed by the laws of The
Commonwealth of Massachusetts.
(d) This Amendment may be executed in any number of counterparts, and
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.
(e) The Borrower hereby agrees to pay to the Agent, on demand by the
Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by
the Agent in connection with the preparation of this Amendment (including
reasonable legal fees).
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
TRAILER BRIDGE, INC.
By: /s/ John D. McCown
--------------------------------------
Title: Chairman & CEO
BANKBOSTON, N.A.,
individually and as Agent
By: /s/ Lisa W. Pattinson
--------------------------------------
Title: Director
EXHIBIT 10.13.2
SECOND AMENDMENT AND LIMITED WAIVER
This SECOND AMENDMENT AND LIMITED WAIVER TO REVOLVING CREDIT AND TERM
LOAN AGREEMENT (this "Amendment"), dated as of March 30, 2000, is made and
entered into by and among TRAILER BRIDGE, INC., a Delaware corporation (the
"Borrower"), FLEET NATIONAL BANK (f/k/a BANKBOSTON, N.A.), a national banking
association (acting in its individual capacity, "Fleet"), and the other lending
institutions which become parties to the Credit Agreement defined below
(collectively, the Banks"), and BANKBOSTON, N.A., as agent for the Banks (acting
in such capacity, the "Agent"). Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.
WHEREAS, the Borrower, the Banks and the Agent have entered into that
certain Revolving Credit and Term Loan Agreement, dated as of August 28, 1998
(as amended and in effect from time to time, the "Credit Agreement"), pursuant
to which the Banks have made the Loans to the Borrower on the terms set forth
therein;
WHEREAS, the Borrower has informed the Banks and the Agent that Events
of Default exist under the Credit Agreement as a result of failure to comply
with (i) the covenants contained in Section 10.4 of the Credit Agreement for the
period ending on March 31, 1999 and (ii) each of the covenants contained in
Section 10 of the Credit Agreement for the periods ending on June 30, 1999,
September 30, 1999 and December 31, 1999;
WHEREAS, the Borrower has requested the Banks and the Agent to waive
certain provisions of the Credit Agreement and to amend certain provisions of
the Credit Agreement, subject to the terms and conditions contained herein; and
WHEREAS, the Banks and the Agent have agreed to honor such request upon
the terms and subject to the conditions contained herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. LIMITED WAIVER. (a) Upon satisfaction of the conditions
precedent contained in Section 5 hereof, the Majority Banks hereby waive
compliance, for (i) the period ending on March 31, 1999 with the covenant
contained in Section 10.4 of the Credit Agreement, and (ii) the periods ending
on June 30, 1999, September 30, 1999 and December 31, 1999 with each of the
covenants contained in Section 10 of the Credit Agreement. This waiver is
limited to its express terms and shall not extend to any matters not
specifically addressed hereby.
<PAGE>
(b) In consideration of waiver set forth in this Section 1, the
Borrower hereby agrees (i) that all default interest previously paid to the
Agent for the account of the Banks shall be fully earned and nonrefundable, (ii)
to pay all default interest accrued and unpaid for periods through the Second
Amendment Effective Date on March 31, 2000, and (iii) that when such accrued and
unpaid default interest is paid, it shall be fully earned and nonrefundable.
Section 2. AMENDMENTS TO CREDIT AGREEMENT.
Section 2.1 Definitions.
(a) The definition of Applicable Margin shall be amended by inserting
the following clause at the end of such definition immediately preceding the
period: " and (d) during the period commencing on June 30, 2000 through
September 29, 2000, the Applicable Margin shall be increased by an additional
0.5%, and commencing on September 30, 2000 until all Loans are repaid in full,
the Applicable Margin shall be increased by an additional 1.00%.
(b) The definition of "Total Commitment" in Section 1.1 is hereby
amended by inserting the following sentences at the end of such definition:
"The Total Commitment shall be automatically reduced on each date a
payment on the BkB Existing Debt is due, as referred to on Schedule 2.11 hereof,
in an aggregate amount equal to the principal amount of BkB Existing Debt due on
such date. The Commitments shall be further automatically reduced on the date
following receipt by the Borrower of the net proceeds of insurance recoveries in
respect of the Jacksonville, Florida ramps, by an amount equal to such net
proceeds, including any assets related or attached to the Jacksonville, Florida
ramps, such as barges used for floatation of the ramps."
(c) The definition of "Debt Service Coverage Ratio" in Section 1.1. is
hereby amended by deleting the entire definition and replacing with the
following definition:
"Debt Service Coverage Ratio. As at the end of any fiscal quarter,
except as otherwise expressly provided herein, the ratio of (a) Consolidated
Operating Cash Flow for the period of four (4) fiscal quarters then ended, plus
the Outstanding K Corp. Investment to (b) Consolidated Total Debt Service of the
Borrower and its Subsidiaries for such period. Notwithstanding the foregoing, as
of March 31, 2000, the ratio of (x) Consolidated Operating Cash Flow for the
period of two (2) consecutive fiscal quarters ending on such date, plus the
Outstanding K Corp. Investment to (y) Consolidated Total Debt Service of the
Borrower and its Subsidiaries for such period of two (2) fiscal quarters; and as
of June 30, 2000, the ratio of (A) Consolidated Operating Cash Flow for the
period of three (3) consecutive fiscal quarters ending on such date, plus the
Outstanding K Corp. Investment to (B) Consolidated Total Debt Service of the
Borrower and its Subsidiaries for such period of three fiscal quarters."
2
<PAGE>
(d) The definition of "Interest Coverage Ratio" in Section 1.1. is
hereby amended by deleting the entire definition and replacing it with the
following definition:
"Interest Coverage Ratio. As at the end of any fiscal quarter ending on
or before September 30, 1999, the ratio of (a) Earnings Before Interest and
Taxes for the period of four (4) fiscal quarters then ended, to (b) Consolidated
Total Interest Expense of the Borrower and its Subsidiaries for such period. As
at the end of any fiscal quarter ending on or after December 31, 1999, except as
otherwise expressly provided herein, the ratio of (a) EBITDA for the period of
four (4) fiscal quarters then ended to (b) Consolidated Total Interest Expense
of the Borrower and its Subsidiaries for such period. Notwithstanding the
foregoing, as of December 31, 1999, the ratio of (i) EBITDA for the fiscal
quarter ending on such date to (ii) Consolidated Total Interest Expense of the
Borrower and its Subsidiaries payable in cash for such fiscal quarter; as of
March 31, 2000, the ratio of (x) EBITDA for the period of two (2) consecutive
fiscal quarters ending on such date to (y) Consolidated Total Interest Expense
of the Borrower and its Subsidiaries payable in cash for such period of two (2)
fiscal quarters; and as of June 30, 2000 the ratio of (A) EBITDA for the period
of three (3) fiscal quarters ending on such date to (B) Consolidated Total
Interest Expense of the Borrower and its Subsidiaries payable in cash for such
period of three (3) fiscal quarters."
(e) The definition of Interest Payment Date is hereby amended by
deleting the word "quarter" in clause (a) thereof, and replacing it with the
word "month."
(f) The definition of "Maturity Date" in Section 1.1. is hereby
amended by deleting the entire definition and replacing it with the following
definition:
"Maturity Date. April 1, 2001."
(g) The following new definitions are hereby inserted in Section 1.1 of
the Credit Agreement in their respective alphabetical order:
"EBITDA. For any period, an amount equal to the sum of (i) Earnings
before Interest and Taxes for such period plus (ii) depreciation and
amortization for such period, in each case to the extent deducted in accordance
with generally accepted accounting principles in calculating Earnings Before
Interest and Taxes and without duplication.
"Outstanding K Corp. Investment." The then outstanding principal amount
of the investment made by K Corp. in the Borrower in the form of subordinated
loan(s) in an aggregate amount of up to $3,000,000 evidenced by a subordinated
promissory note in form and substance reasonably acceptable to the Banks.
3
<PAGE>
"Second Amendment. The Second Amendment to Revolving Credit and Term
Loan Agreement dated as of March 30, 2000, among the Borrower, the Banks and the
Agent."
"Second Amendment Effective Date. The date as of which this Amendment
shall become effective, And on which the conditions set forth in Section 5 of
the Second Amendment are satisfied."
Section 2.2 Amendment to Section 2.10 of the Credit Agreement.
Section 2.10 of the Credit Agreement is hereby deleted in its entirety.
Section 2.3 Amendment to Section 4.3 of the Credit Agreement. Section
4.3 of the Credit Agreement is hereby amended by replacing the number "sixteen
(16)" with the number "three (3)" in the third line of said Section 4.3 and by
inserting the phrase "each in the amount of $971,875" immediately following the
word "payments" in the fourth line of said Section 4.3..
Section 2.4 Amendment to Section 9.1 of the Credit Agreement. Section
9.1 of the Credit Agreement is hereby amended by deleting the word "and" at the
end of clause (i), replacing the period at the end of clause (j) with ";and",
and by inserting the following new clause (k):
(k) Indebtedness of the Borrower in aggregate amount not to exceed
$3,000,000 owing to K Corp. under a subordinated promissory note in
form and substance reasonably satisfactory to the Banks.
Section 2.5 Amendment to Section 10 of the Credit Agreement.
(a) Section 10.2 of the Credit Agreement is hereby deleted in its
entirety and replaced with the following section:
"10.2 Interest Coverage Ratio. The Borrower will not permit the
Interest Coverage Ratio as determined at the end of each fiscal quarter of the
Borrower ending during any period described in the table set forth below to be
less than the ratio set forth opposite such period in such table:
Fiscal Quarters Ending Minimum Ratio
---------------------- -------------
Closing Date - March 31, 1999 2.0:1
June 30, 1999 and September 30, 1999 2.5:1
December 31, 1999 1.9:1
4
<PAGE>
March 31, 2000 1.4:1
June 30, 2000 -September 30, 2000 1.7:1
December 31, 2000 and thereafter 2.30:1"
(b) Section 10.3 of the Credit Agreement is hereby deleted in its
entirety and replaced with the following section:
"10.3 Debt Service Coverage Ratio. The Borrower will not permit the
Debt Service Coverage Ratio as determined at the end of each fiscal quarter of
the Borrower ending during any period described in the table set forth below to
be less than the ratio set forth opposite such period in such table:
Fiscal Quarters Ending Minimum Ratio
---------------------- -------------
Closing Date - December 31, 1998 1.0:1.0
March 31, 1999 1.10:1.0
June 30, 1999 and September 30, 1999 1.30:1.0
December 31, 1999 1.0:1.0
March 31, 2000 1.0:1.0
June 30, 2000 and thereafter 1.0:1.0"
(c) Section 10.4 of the Credit Agreement is hereby amended in its
entirety and replaced with the following new section:
"10.4 Consolidated Tangible Net Worth. The Borrower will not permit the
Consolidated Tangible Net Worth as determined at the end of each fiscal quarter
of the Borrower, commencing with the fiscal quarter ending December 31, 1999, to
be less than $27,000,000.
Section 2.6 Schedule 1. Schedule 1 to the Credit Agreement is hereby
replaced in its entirety by Schedule 1 attached hereto.
Section 3. AFFIRMATION BY THE BORROWER. The Borrower hereby ratifies
and confirms all of the Obligations, including, without limitation, the Loans.
The Borrower hereby confirms that the Obligations are and remain secured
pursuant to the Security Documents to which the Borrower is a party.
Section 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent as follows:
5
<PAGE>
(a) Representations and Warranties. The representations and warranties
contained in the Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection therewith were true and
correct as of the date as of which they were made and are true and correct on
the date hereof (except to the extent of changes resulting from transactions
contemplated or permitted by the Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date).
(b) Enforceability. The execution and delivery by the Borrower of this
Amendment, and the performance by the Borrower of this Amendment and the Credit
Agreement, as amended hereby, are within the corporate powers of the Borrower
and have been duly authorized by all necessary corporate action on the part of
the Borrower. Each of this Amendment and the Credit Agreement, as amended
hereby, are valid and legally binding obligations of the Borrower, enforceable
in accordance with their terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights in general.
(c) No Default. No Default or Event of Default has occurred and is
continuing and no Default or Event of Default will exist as a result of the
execution and delivery of this Amendment or after the consummation of the
transactions contemplated hereby.
Section 5. EFFECTIVENESS. This Amendment shall become effective as
of March 30, 2000, subject to satisfaction of each of the following conditions
on or prior to such date:
(a) Amendment. This Amendment shall have been duly executed and
delivered by the Borrower, the Banks and the Agent.
(b) K Corp. Amendment. The Second Amendment and Limited Waiver to the
Amended and Restated Term Loan Agreement dated as of July 23, 1997 among
Kadampanattu Corp., Fleet National Bank (f/k/a BankBoston, N.A.), for itself and
as Agent, and Bank One Louisiana, N.A., in the form attached hereto shall have
become effective.
(c) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident hereto
shall be satisfactory in form and substance to the Agent and the Banks, and the
Agent shall have received all information and such counterpart originals or
certified or other copies of all such documents as the Agent may reasonably
request.
(d) Fees. (i) The Borrower shall have paid the Agent an amendment fee
in the amount of $25,000, and (ii) the Borrower hereby agrees to pay to the
6
<PAGE>
Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses
incurred or sustained by the Agent in connection with the preparation of this
Amendment (including reasonable legal fees) and payment or arrangements
satisfactory to the Agent for payment of such fees shall have been made
(including, without limitation, all previously invoiced and unpaid amounts).
Section 6. No Present Claims. In order to induce the Agent and the
Banks to enter into this Amendment, the Borrower hereby acknowledges and agrees
that: (i) the Borrower has no claim or cause of action against any Bank or the
Agent (or any of their respective directors, officers, employees, agents or
Affiliates); (ii) the Borrower has no offset right, counterclaim or defense of
any kind against any of the Borrower's obligations, indebtedness or liabilities
to any Bank or the Agent; and (iii) each of the Agent and the Banks has
heretofore properly informed and satisfied in a timely manner all of its
obligations to the Borrower. The Borrower wishes to eliminate any possibility
that any past conditions, acts, omissions, events, circumstances or matters
would impair or otherwise adversely affect any of the Banks' and the Agent's
rights, interests, contracts, collateral security or remedies. Therefore, the
Borrower unconditionally releases, waives, and forever discharges (A) any and
all liabilities, obligations, duties, promises or indebtedness of any kind of
any Bank or the Agent to the Borrower, (except the obligations to be performed
on or after the date hereof by any Bank or the Agent for the Borrower as
expressly stated in this Amendment and the other Loan Documents), and (B) all
claims, offsets, causes of action, suits or defenses of any kind whatsoever (if
any), whether known or unknown, which the Borrower might otherwise have against
any Bank or the Agent or of the directors, officers, employees, the agents or
Affiliates, in either case (A) or (B), on account of any condition, act,
omission, event, contract, liability, obligation, indebtedness, claim, cause of
action, defense, circumstance or matter of any kind whatsoever which existed,
arose or occurred at any time prior to the date hereof or which could thereafter
arise as the result of the execution of (or the satisfaction of any condition
precedent or subsequent to) this Amendment or any of the other Loan Documents.
Section 7. WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES ANY RIGHTS
THAT THE BORROWER MAY HAVE TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AMENDMENT OR ANY OF THE LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS. Except as prohibited by law, the Borrower hereby
waives any right that the Borrower may have to claim or recover in any
litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. The Borrower hereby (i) certifies that no representative, agent
or attorney of any Bank or the Agent has represented, expressly or otherwise,
that it would not, in the event of litigation, seek to enforce the foregoing
waivers and
7
<PAGE>
(ii) acknowledge that each other party is entering into this Amendment by, among
other things, the waivers and certifications herein.
Section 8. MISCELLANEOUS PROVISIONS.
(a) Except as otherwise expressly provided by this Amendment, all of
the terms, conditions and provisions of the Credit Agreement and the other Loan
Documents shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument. Each of the Notes and the other Loan
Documents are hereby deemed to be amended to reflect the amendments to the
Credit Agreement contained herein. This Amendment is a Loan Document.
(b) Except as otherwise expressly provided by this Amendment, the
waiver contained in Section 1 hereof shall not, by implication or otherwise,
limit, impair, constitute a waiver of or otherwise affect any rights or remedies
of the Agent or the Banks under the Credit Agreement or the other Loan
Documents, nor alter, modify, amend or in any way affect any of the terms,
obligations or covenants contained in the Credit Agreement or the other Loan
Documents.
(c) This Amendment is intended to take effect as an agreement under
seal and shall be construed according to and governed by the laws of The
Commonwealth of Massachusetts.
(d) This Amendment may be executed in any number of counterparts, and
all such counterparts shall together constitute but one instrument.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
TRAILER BRIDGE, INC.
By: /s/ John D. McCown
--------------------------------------
Name: John D. McCown
Title: President
FLEET NATIONAL BANK (f/k/a BankBoston,
N.A.),
individually and as Agent
By: /s/ Peggy Peckham
--------------------------------------
Name: Peggy Peckham
Title: Senior Vice President
9
<PAGE>
Schedule 1
COMMITMENT
BANKS COMMITMENT PERCENTAGE
----- ---------- ----------
FLEET NATIONAL BANK
(f/k/a BankBoston, N.A.)
Domestic Lending Office:
100 Federal Street
Boston, Massachusetts 02110
Attn: Transportation Division $18,052,197.99 100.00%
Eurodollar Lending Office:
100 Federal Street
Boston, Massachusetts 02110
Attn: Transportation Division
TOTAL $18,052,197.99 100.00%
EXHIBIT 10.14
AGREEMENT
THIS AGREEMENT, made as of this day of December 1999, (the "Agreement")
between Kadampanattu Corp. (hereinafter referred to as "K Corp.") and Trailer
Bridge, Inc., ("hereinafter referred to as "Trailer Bridge").
WHEREAS, in August, 1999 K Corp. and Trailer Bridge entered into an
agreement regarding the reimbursement by K Corp. of approximately $3.7 million
in additional expenses incurred by Trailer Bridge as a result of the failure of
the loading ramp system provided by K Corp.; and
WHEREAS, the parties sought to accomplish this reimbursement through
the assignment of insurance proceeds related to the loading ramp structure
formerly used in Jacksonville, Florida; and
WHEREAS, payment under that insurance policy has been delayed;
NOW THEREFORE, in consideration of the mutual covenants and agreements
to be kept and performed on the part of said parties hereto, respectively as
herein stated, hereby agree as follows:
1. K Corp. agrees to fully pay the reimbursement of expenses agreed
to in August, 1999 directly to Trailer Bridge prior to March 30,
2000.
2. Upon such full payment Trailer Bridge agrees to rescind or return
the assignment of the insurance policy related to the ramp
formerly used in Jacksonville and waive for the benefit of K
Corp., any amounts due under such policy.
IN WITNESS WHEREOF, K Corp. and Trailer Bridge have caused this
Agreement to be executed as of the date and year first above written.
KADAMPANATTU CORP.
/s/ John D. McCown
------------------------------------------------
By: John D. McCown
Title: President
TRAILER BRIDGE, INC.
/s/ John D. McCown
------------------------------------------------
By: John D. McCown
Title: Chairman of the Board and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF TRAILER BRIDGE, INC. AS OF AND FOR THE
ONE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001039184
<NAME> Trailer Bridge, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,445,750
<SECURITIES> 0
<RECEIVABLES> 13,903,652
<ALLOWANCES> 1,368,514
<INVENTORY> 0
<CURRENT-ASSETS> 19,010,029
<PP&E> 74,362,269
<DEPRECIATION> 11,275,345
<TOTAL-ASSETS> 88,062,638
<CURRENT-LIABILITIES> 18,396,783
<BONDS> 31,378,302
0
0
<COMMON> 97,775
<OTHER-SE> 29,109,733
<TOTAL-LIABILITY-AND-EQUITY> 88,062,638
<SALES> 0
<TOTAL-REVENUES> 88,552,088
<CGS> 0
<TOTAL-COSTS> 88,672,438
<OTHER-EXPENSES> 3,257,883
<LOSS-PROVISION> 2,001,439
<INTEREST-EXPENSE> 3,339,182
<INCOME-PRETAX> (3,378,230)
<INCOME-TAX> (1,241,814)
<INCOME-CONTINUING> (2,136,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,136,416)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
