PROSPECTUS
Offer for all Outstanding 7 3/4% Series A Senior Notes Due 2007
in exchange for 7 3/4% Series B Senior Notes Due 2007
of
International Shipholding Corporation
The Exchange Offer will expire at 5:00 p.m., New York City time
on March 27, 1998 unless extended.
International Shipholding Corporation (the "Company" or "ISC"),
hereby offers (the "Exchange Offer") to exchange an aggregate
principal amount of up to $110,000,000 of its 7 3/4% Series B Senior
Notes due 2007 (the "New Notes") for a like principal amount of its
7 3/4% Series A Senior Notes due 2007 (the "Old Notes") outstanding on
the date hereof upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of
Transmittal (the "Letter of Transmittal"). The New Notes and the Old
Notes are collectively referred to hereinafter as the "Notes." The
terms of the New Notes are identical in all material respects to
those of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes. The New Notes will be
issued pursuant to, and entitled to the benefits of the indenture
governing the Old Notes (the "Indenture"). Interest on the New Notes
will accrue from the last interest payment date on which interest was
paid on the Old Notes surrendered in exchange therefor or, if no
interest has been paid on the Old Notes, from the date of original
issue of the Old Notes (the "Issue Date"). Interest on the New Notes
will be payable semi-annually on April 15 and October 15 of each
year, commencing on April 15, 1998 at the rate of 7 3/4% per annum.
The New Notes will mature on October 15, 2007. The New Notes will
not be redeemable prior to maturity.
Upon a Change of Control (as defined herein), the Company is
required to make an offer to purchase all of the outstanding New
Notes at a redemption price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, through the
redemption date. See "Description of the Notes - Certain Covenants -
- - Purchase of Notes Upon Change of Control." In addition, the
Company is obligated in certain instances to offer to purchase the
New Notes at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, with the net cash
proceeds of certain asset sales or other dispositions. See
"Description of the Notes - Certain Covenants -- Disposition of
Proceeds of Asset Sales."
The New Notes will be general unsecured senior obligations of
the Company ranking pari passu in right of payment with all other
senior indebtedness of the Company (including any Old Notes not
exchanged) and senior in right of payment to all subordinated
indebtedness of the Company. The Company is a holding company with
limited assets and conducts substantially all of its business through
subsidiaries. The New Notes will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries. As of
September 30, 1997, after giving pro forma effect to the offering of
the Old Notes (the "Offering") and the New Credit Facility (as
defined herein), and the application of the proceeds therefrom, the
Company would have had approximately $108.6 million of senior
indebtedness outstanding other than the Notes (not including
guarantees of $77.1 million of indebtedness of the Company's
subsidiaries), and the Company's subsidiaries would have had
approximately $113.3 million of indebtedness outstanding (other than
intercompany indebtedness).
The New Notes are being offered hereunder in order to satisfy
certain obligations of the Company contained in the Registration
Rights Agreement dated as of January 22, 1998 (the "Registration
Rights Agreement"), among the Company, Citicorp Securities, Inc.,
Citibank Canada Securities Limited and Citibank International plc
(the "Initial Purchasers"), with respect to the Offering.
The Company will not receive any proceeds from the Exchange
Offer. The Company will pay all the expenses incident to the
Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date (as defined
herein) for the Exchange Offer. In the event the company terminates
the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, the Company will promptly return
such Old Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivery
of a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading
activities. The Company has agreed that for a period of 180 days
after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for
the Old Notes. The Company currently intends to apply for listing of
the New Notes on the New York Stock Exchange. There can be no
assurance that any public market for the New Notes will develop;
however, if a market for the New Notes should develop, such New Notes
could trade at a discount from their principal amount.
The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange pursuant to the
Exchange Offer.
See "Risk Factors" beginning on page 8 for a description of
certain factors that should be considered carefully by prospective
purchasers in evaluating an investment in the New Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 25, 1998.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder, and in accordance therewith
files periodic reports, proxy statements and other documents with
the Securities and Exchange Commission (the "Commission" or
"SEC"). All documents filed by the Company with the Commission
may be inspected at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a Web
site (http://www.sec.gov) that contains information regarding
registrants, such as the Company, that file electronically with
the Commission. The Company's Common Stock is traded on the New
York Stock Exchange and its reports, proxy statements and other
information can also be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Company's Quarterly Reports on Form 10-
Q for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997 and the Company's Current Report on Form 8-K
dated January 22, 1998, each of which was filed by the Company
with the Commission under the Exchange Act, are incorporated into
this Prospectus by reference.
All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the Exchange
Offer shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing of such
documents. Information appearing herein or in any particular
document incorporated herein by reference is not necessarily
complete and is qualified in its entirety by the information
appearing in all of the documents incorporated herein by
reference and should be read together therewith. Any statement
contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement
contained herein or in any other document subsequently filed or
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute
a part of this Prospectus.
The Company will provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the
written or oral request of such person, a copy of any and all of
the documents that have been or may be incorporated by reference
in this Prospectus, except that exhibits to such documents will
not be provided unless they are specifically incorporated by
reference into such documents. Requests for copies of any such
document should be directed to International Shipholding
Corporation, 650 Poydras Street, New Orleans, Louisiana 70130,
Attention: Gary L. Ferguson, Vice President and Chief Financial
Officer, Telephone: (504) 529-5461.
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions
"Summary," "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and
elsewhere in this Prospectus and incorporated by reference in
this Prospectus may constitute "forward-looking" statements, and
as such may involve known and unknown risks, uncertainties and
other factors that may cause the Company's actual results to be
materially different from the anticipated future results
expressed or implied by such forward-looking statements. Such
forward-looking statements may include, without limitation,
statements with respect to the Company's anticipated future
performance, financial position and liquidity, growth
opportunities, business and competitive outlook, demand for
services, business strategies, and other similar statements of
expectations or objectives that are highlighted by words such as
"expects," "anticipates," "intends," "plans," "believes,"
"projects," "seeks," "estimates," "should" and "may," and
variations thereof and similar expressions. Important factors
that could cause the actual results of the Company to differ
materially from the Company's expectations may include, without
limitation: (i) the Company's ability to identify customers with
marine transportation needs requiring specialized vessels or
operating techniques; (ii) the Company's ability to secure
financing on satisfactory terms to acquire, modify, or construct
vessels if such financing is necessary to service the potential
needs of current or future customers; (iii) the Company's ability
to obtain new contracts or renew existing contracts that would
employ certain of its vessels or other assets upon the expiration
of contracts currently in place; (iv) the Company's ability to
manage the amount and rate of growth of its general and
administrative expenses and costs associated with crewing certain
of its vessels; (v) the Company's ability to manage its growth
in terms of implementing internal controls and information
systems and hiring or retaining key personnel, among other
things; (vi) changes in cargo rates and fuel prices that could
increase or decrease the Company's gross voyage profit from its
liner services; (vii) the rate at which competitors add or scrap
vessels in the markets in which the Company operates;
(viii) changes in interest rates that could increase or decrease
the amount of interest the Company incurs on borrowings with
variable rates of interest, (ix) the impact on the Company's
financial statements of nonrecurring accounting charges that may
result from the Company's ongoing evaluation of business
strategies, asset valuations and organizational structures;
(x) changes in accounting policies and practices adopted
voluntarily or as required by generally accepted accounting
principles; (xi) changes in laws and regulations such as those
related to government assistance programs and tax rates, among
other things, (xii) unanticipated outcomes of current or possible
future legal proceedings; and (xiii) other economic, competitive,
governmental and technological factors that may affect the
Company's operations. See "Risk Factors" and "Business." Due
to these uncertainties, each prospective investor is cautioned
not to place undue reliance upon the Company's forward-looking
statements, which speak only as of the date hereof. The Company
undertakes no obligation to update or revise any of its forward-
looking statements.
SUMMARY
The following is a summary of certain information contained
elsewhere in this Prospectus or incorporated by reference herein
and does not purport to be complete. Reference is made to, and
this Summary is qualified in its entirety by and should be read
in conjunction with, the more detailed information contained
elsewhere herein or incorporated by reference in this Prospectus.
See "Glossary" for the definition of certain terms used in this
Prospectus. Unless the context requires otherwise, all
references to the Company in this Prospectus shall include
International Shipholding Corporation and its subsidiaries.
The Company
The Company, through its subsidiaries, operates a
diversified fleet of U.S. and foreign flag vessels that provide
international and domestic maritime transportation services to
commercial and governmental customers primarily under medium- to
long-term charters or contracts. Substantially all of these
charters or contracts are either renewals or extensions of
previous agreements. The Company's fleet consists of 31 ocean-
going vessels, 15 towboats, 129 river barges, 26 special purpose
barges, approximately 1,850 LASH (Lighter Aboard Ship) barges and
related shoreside handling facilities. For the twelve months
ended September 30, 1997, the Company generated revenues of
$388.3 million and EBITDA (as defined herein) of $92.7 million.
The Company is the only significant operator of the LASH
transportation system, which it pioneered in 1969. The Company's
fleet includes 12 large LASH vessels, four LASH feeder vessels
and approximately 1,850 LASH barges. The LASH transportation
system uses specially designed barges of uniform size which are
loaded with cargo at various locations, towed to a centralized
fleeting area, loaded aboard a large ocean-going LASH vessel by a
500-ton capacity shipboard crane and transported overseas, where
another set of previously loaded LASH barges awaits pick-up. In
its transoceanic liner services, the Company uses the LASH system
primarily to gather cargo on rivers, in island chains and in
harbors that are too shallow for traditional vessels. The 400-
ton capacity LASH barges are ideally suited to transport large
unit size items such as forest products, natural rubber and steel
that cannot be transported efficiently to and from such areas in
container ships. The LASH vessel's shipboard crane permits rapid
loading and unloading of LASH barges either dockside or at
anchor. This rapid loading and unloading capability provides
quick vessel turnaround and minimizes port time, cargo handling
and reliance upon shoreside support facilities.
In addition to LASH vessels, the Company's fleet consists of
(i) two foreign flag and two U.S. flag pure car carriers that are
specially designed to transport fully assembled automobiles; (ii)
two U.S. flag ice-strengthened multi-purpose vessels, one of
which supports scientific and defense operations in the polar
regions and the other of which is used by the Military Sealift
Command ("MSC"), a branch of the U.S. Department of Defense, to
carry the components of a 500-bed U.S. Marine Corps field
hospital in the Indian Ocean; (iii) one foreign flag cape-size
bulk carrier; (iv) one U.S. flag molten sulphur carrier, which is
used to carry molten sulphur from Louisiana and Texas to a
processing plant on the Florida Gulf Coast; (v) two foreign flag
Float-On/Float-Off special purpose vessels ("FLO-FLO SPVs" or
"SPVs") and one 5,000-ton container vessel, which, together with
ancillary vessels, are used to transport supplies for the
Indonesian operations of a major mining company; (vi) one U.S.
flag conveyer-equipped self-unloading coal carrier which carries
coal in the coastwise and near-sea trade; (vii) three Roll-
On/Roll-Off vessels (ARO/ROs") that permit rapid deployment of
rolling stock, munitions and other military cargoes requiring
special handling; and (viii) 14 inland waterway towboats and 111
super-jumbo river barges that transport coal from Indiana to
Florida for an electric utility and unload via shoreside
facilities owned and operated by the Company.
The Company's fleet is deployed by its principal operating
subsidiaries, Central Gulf Lines, Inc. ("Central Gulf"), LCI
Shipholdings, Inc. ("LCI"), Forest Lines Inc. ("Forest Lines")
and Waterman Steamship Corporation ("Waterman"). The Company
provides five types of services:
- Domestic Transportation Services - the Company provides
domestic transportation services, primarily involving
its long-term coal and sulphur transportation contracts
and its ownership of an intermodal transfer and
warehouse facility in Memphis, Tennessee and a coal
transfer facility in Gulf County, Florida;
- Liner Services - the Company operates a foreign flag LASH
liner service between U.S. Gulf and East Coast ports and
ports in Northern Europe, and a U.S. flag LASH liner
service between U.S. Gulf and East Coast ports and ports
in South Asia, the Middle East and Northern Africa;
- Military Sealift Command Charters - the Company time
charters vessels to the MSC for use in the MSC's military
prepositioning program and its scientific and defense
operations in the Arctic and Antarctic;
- Pure Car Carriers - the Company transports fully
assembled Toyota and Honda automobiles from Japan to the
United States and fully assembled Hyundai automobiles
from South Korea primarily to the United States and
Europe; and
- Special Purpose Vessels - the Company provides ocean
transportation services under a long-term contract with a
major mining company for its Indonesian operations.
Business Strategy
The Company's strategy is to (i) identify customers with
high credit quality and marine transportation needs requiring
specialized vessels or operating techniques, (ii) seek medium- to
long-term charters or contracts with those customers and, if
necessary, modify, acquire or construct vessels to meet the
requirements of those charters or contracts and (iii) provide its
customers with reliable, high quality service at a reasonable
cost. The Company believes that its strategy has produced stable
operating cash flows and valuable long-term relationships with
its customers. The Company plans to continue this strategy by
expanding its relationships with existing customers, seeking new
customers and selectively pursuing acquisitions.
Competitive Strengths
Largest LASH Transportation System Provider. The Company is
the only significant commercial operator of the LASH
transportation system, which it pioneered in 1969. The Company
owns all 12 of the LASH vessels that are currently used worldwide
for commercial services. A key advantage of the LASH
transportation system is that it minimizes port and cargo
handling time. While a LASH vessel is transporting one set of
LASH barges overseas, another set of LASH barges is being loaded
with cargo and gathered at the destination staging area. Other
advantages of the Company's LASH transportation system include
the ability to access areas that lack traditional port facilities
and to carry larger than container sized cargo.
The Company believes that the cost of replicating its LASH
transportation system is a significant barrier to entry for a
potential competitor. Management believes that a new competitor
would have to acquire not only a LASH vessel (estimated to cost
$80 million to build), but also three sets of approximately 90
barges each (estimated to cost $100,000 per barge to build) to
achieve similar operating efficiencies.
Stable Cash Flow. The Company's historical cash flows have
been relatively stable because of the length and structure of the
Company's contracts with creditworthy customers, as well as the
Company's diversified customer and cargo bases. Approximately
75% of the Company's EBITDA for the twelve months ended September
30, 1997, was generated from its medium- to long-term contracts.
Primarily as a result of such contracts, as of September 30,
1997, 67% of the Company's aggregate vessel capacity was firmly
committed for fiscal year 1998, and approximately 45% of its
aggregate vessel capacity was firmly committed for all periods
through 2004. The Company's medium- to long-term charters
provide for a daily charter rate that is payable whether or not
the charterer utilizes the vessel. These charters generally
require the charterer to pay certain voyage operating costs,
including fuel, port and stevedoring expenses, and often include
cost escalation features covering certain of the Company's
expenses. In addition, the Company's medium- to long-term
contracts of affreightment guarantee a minimum amount of cargo
for transportation. Furthermore, the Company's diversified cargo
and customer bases have contributed to the stability of the
Company's operating cash flow. Over the last five years, no
single customer, other than the MSC, has accounted for more than
12% of the Company's gross voyage profits (total revenues less
voyage expenses and vessel and barge depreciation). The Company
also believes that the high credit quality of its customers and
the length of its contracts help reduce the effects of cyclical
market conditions. See "Business - Customers and Cargo."
Long-standing Customer Relationships. The Company currently
has medium- to long-term time charters with, or contracts to
carry cargo for, high credit quality commercial customers that
include International Paper Company, Freeport-McMoRan Resource
Partners, Limited Partnership, P.T. Freeport Indonesia Company,
The Goodyear Tire and Rubber Company, Toyota Motor Corporation,
Honda Motor Co. Ltd., Hyundai Motor Company, Seminole Electric
Cooperative and New England Power Co. Most of these companies
have been customers of the Company for over ten years.
Substantially all of the Company's current cargo contracts and
charter agreements are renewals or extensions of previous
agreements. In recent years the Company has been successful in
winning extensions or renewals of substantially all of the
contracts rebid by its commercial customers. Additionally, for
over 30 years the Company has been operating vessels for the MSC
under charters or contracts that typically contain extension
options for one or more periods. Historically, the MSC has
exercised substantially all of its renewal options. The Company
believes that its long-standing customer relationships are in
part due to the Company's excellent reputation for providing
quality specialized maritime service in terms of on-time
performance, low cargo loss, minimal damage claims and reasonable
rates. See "Business - Customers and Cargo."
Cost Containment. In 1993, the Company implemented a cost
reduction program designed to reduce administrative and general
expenses. In the first quarter of 1997, the Company effected a
7.0% reduction of shoreside personnel. As a result of the
Company's general cost reduction efforts since 1993,
administrative and general expenses for 1996 were $1.95 million
lower (6.9%) than in 1993, notwithstanding a 9.6% increase in
revenue during such period.
Experienced Management Team. The Company's management team
has substantial experience in the shipping industry. The
Company's Chairman and President have each served the Company in
various management capacities since its founding in 1947. In
addition, the Company's two Executive Vice Presidents and the
Chief Financial Officer have over 72 years of collective
experience with ISC. The Company believes that the experience of
its management team is important to maintaining long-term
relationships with its customers.
____________________
The Company is a Delaware corporation headquartered in New
Orleans, Louisiana, with administrative and sales offices in New
York, Houston, Chicago, Washington, D.C. and Singapore, and a
network of marketing agents in other major cities around the
world. The Company's principal office is located at 650 Poydras
Street, New Orleans, Louisiana 70130, telephone number (504) 529-
5461.
The Original Offering and Use of Proceeds
The Old Notes were sold by the Company on January 22, 1998
to the Initial Purchasers and were thereupon offered and sold by
the Initial Purchasers only to certain qualified institutional
buyers. The Company will use substantially all of the net
proceeds from the Offering to refinance approximately $103.0
million in principal amount of secured indebtedness of certain of
the Company's subsidiaries, including prepayment penalties of
$427,000 payable in connection therewith, and to repay
approximately $1.3 million of the Company's existing revolving
credit facilities. The Company will not receive any proceeds
from the Exchange Offer.
The Exchange Offer
Securities Offered....Up to $110,000,000 aggregate principal
amount of 7 3/4% Series B Senior Notes due
2007. The terms of the New Notes and Old
Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights
relating to the Old Notes.
The Exchange Offer....The New Notes are being offered in
exchange for a like principal amount of
Old Notes. Old Notes may be exchanged
only in integral multiples of $1,000. The
issuance of the New Notes is intended to
satisfy obligations of the Company
contained in the Registration Rights
Agreement.
Expiration Date;
Withdrawal of Tender..The Exchange Offer will expire at 5:00
p.m., New York City time, on March 27,
1998, or such later date and time to which
it is extended by the Company. The tender
of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior
to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will
be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions to
the Exchange Offer....The Company's obligation to accept for
exchange, or to issue New Notes in
exchange for, any Old Notes is subject to
certain customary conditions relating to
compliance with any applicable law, or any
applicable interpretation by the staff of
the Commission, or any order of any
governmental agency or court of law, which
may be waived by the Company in its
reasonable discretion. The Company
currently expects that each of the
conditions will be satisfied and that no
waivers will be necessary. See "The
Exchange Offer - Certain Conditions to the
Exchange Offer."
Procedures for
Tendering Old Notes...Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile,
together with such Old Notes and any other
required documentation, to the Exchange
Agent (as hereinafter defined) at the
address set forth herein. Persons holding
Old Notes through a book-entry transfer
facility and wishing to accept the
Exchange Offer must do so in accordance
with such book-entry transfer facility's
procedures for transfer. See "The
Exchange Offer - Procedures for Tendering
Old Notes" and "- Book-Entry Transfer."
Guaranteed Delivery
Procedures............Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration
Date, or who cannot complete the
procedures for book-entry transfer on a
timely basis, must tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer - Guaranteed Delivery Procedures."
Use of Proceeds.......There will be no proceeds to the Company
from the exchange of Notes pursuant to the
Exchange Offer.
Exchange Agent........The Bank of New York is serving as the
Exchange Agent in connection with the
Exchange Offer.
United States Federal
Income Tax
Consequences..........The exchange of Notes pursuant to the
Exchange Offer will not be a taxable event
for United States federal income tax
purposes. See "The Exchange Offer -
United States Federal Income Tax
Consequences of the Exchange of Notes."
Consequences of Exchanging Old Notes
Pursuant to the Exchange Offer
If a holder of Old Notes does not exchange such Old Notes
for New Notes pursuant to the Exchange Offer, such Old Notes will
continue to be subject to the restrictions on transfer contained
in the legend thereon. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will
register Old Notes under the Securities Act. See "Description of
the Notes - Registration Rights."
Based on certain interpretive letters issued by the staff of
the Commission to third parties in unrelated transactions, the
Company believes that holders of Old Notes (other than any holder
who is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchange their Old Notes for
New Notes pursuant to the Exchange Offer generally may offer such
New Notes for resale, resell such New Notes and otherwise
transfer such New Notes without compliance with the registration
and prospectus delivery provisions of the Securities Act,
provided such New Notes are acquired in the ordinary course of
the holders' business and such holders have no arrangement with
any person to participate in a distribution of such New Notes.
However, the Company does not intend to request the SEC to
consider, and the SEC has not considered, the Exchange Offer in
the context of a no-action letter and there can be no assurance
that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in such other circumstances.
Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in a
distribution of New Notes and has no arrangement or understanding
to participate in a distribution of New Notes. Each broker-
dealer that receives New Notes for its own account in exchange
for Old Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of
Distribution." In addition, to comply with state securities
laws, the New Notes may not be offered or sold unless they have
been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is
complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified
limitations therein, to register or qualify the Notes for offer
or sale under the securities or blue sky laws of such states as
any holder of the Notes reasonably requests in writing. Holders
of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. See "The Exchange Offer -
Consequences of Failure to Exchange; Resales of New Notes."
The Old Notes are currently eligible for trading in the
Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") market. Following commencement of the
Exchange Offer but prior to its consummation, the Old Notes may
continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be
eligible for PORTAL trading.
The New Notes
Issuer................International Shipholding Corporation
Securities Offered....$110,000,000 principal amount of 7 3/4%
Senior Notes due 2007.
Interest..............The Notes will bear interest at a rate of
7 3/4% per annum. Interest on the New Notes
will accrue from the last interest payment
date on which interest was paid on the Old
Notes surrendered in exchange therefor or,
if no interest has been paid on the Old
Notes, from the date of original issue of
the Old Notes. Interest on the New Notes
will be payable semi-annually on each
April 15 and October 15 commencing on
April 15, 1998.
Maturity Date.........October 15, 2007.
Redemption............The New Notes will not be redeemable prior
to maturity, nor will the Company be
required to make any mandatory sinking
fund payments in respect of the New Notes.
Ranking...............The New Notes will be (as the Old Notes
are) general unsecured senior obligations
of the Company and will rank pari passu in
right of payment with all other senior
indebtedness of the Company and senior in
right of payment to all subordinated
indebtedness of the Company. The Company
is a holding company with limited assets
and conducts substantially all of its
business through subsidiaries. The New
Notes will be effectively subordinated to
all existing and future liabilities of the
Company's subsidiaries. As of September
30, 1997, after giving pro forma effect to
the Offering and the application of the
proceeds therefrom, the Company would have
had approximately $108.6 million of senior
indebtedness outstanding other than the
Notes (not including guarantees of $77.1
million of indebtedness of the Company's
subsidiaries), and the Company's
subsidiaries would have had approximately
$113.3 million of indebtedness outstanding
(other than intercompany indebtedness).
Change of Control.....In the event of a Change of Control (as
defined herein), the Company will be
obligated to make an offer to purchase all
of the outstanding New Notes (and any
outstanding Old Notes) at a redemption
price of 101% of the principal amount
thereof, plus accrued and unpaid interest,
if any, to the redemption date. See
"Description of the Notes - Certain
Covenants--Purchase of Notes upon Change
of Control."
Asset Sale Proceeds...The Company will be obligated in certain
circumstances to offer to purchase the New
Notes (and any outstanding Old Notes) at a
redemption price of 100% of the principal
amount thereof, plus accrued and unpaid
interest, if any, with the net cash
proceeds of certain sales or other
dispositions of assets. See "Description
of the Notes - Certain Covenants --
Disposition of Proceeds of Asset Sales."
Certain Covenants.....The Indenture contains covenants with
respect to the following matters: (i)
limitations on additional indebtedness;
(ii) limitations on restricted payments;
(iii) limitations on transactions with
affiliates; (iv) limitations on liens; (v)
limitations on guarantees of subsidiaries;
(vi) restrictions on preferred stock
issuances by subsidiaries; (vii)
limitations on dividends and other payment
restrictions affecting subsidiaries;
(viii) limitations on unrestricted
subsidiaries; (ix) limitations on sale and
leaseback transactions; and (x)
restrictions on mergers, consolidations
and transfers of all or substantially all
of the assets of the Company to another
person.
Registration Rights...Holders of New Notes are not entitled to
any registration rights with respect to
the New Notes. Pursuant to the
Registration Rights Agreement, the Company
agreed to file, at its cost, the
registration statement of which this
Prospectus is a part with respect to the
Exchange Offer (the "Exchange Offer
Registration Statement"). See "Description
of the Notes - Registration Rights."
Risk Factors
Prospective purchasers of the Notes should consider
carefully all of the information contained in this Prospectus
and, in particular, should evaluate the specific factors set
forth herein under "Risk Factors" regarding certain risks
involved in an investment in the Notes.
RISK FACTORS
Holders of Old Notes should carefully consider the following
risk factors in addition to the other information set forth in
this Prospectus.
Substantial Leverage
At September 30, 1997, after giving pro forma effect to the
Offering and the New Credit Facility, and the application of the
net proceeds therefrom, the Company and its subsidiaries would
have had outstanding aggregate long-term indebtedness, including
the current portion thereof (other than intercompany
indebtedness), of $331.3 million and a debt-to-equity ratio of
1.9 to 1. See "Capitalization." Upon consummation of the
Offering and the application of the proceeds therefrom, the
Company will continue to be highly leveraged and to devote a
substantial portion of its operating income to debt service. To
date, the Company has been able to generate sufficient cash from
operations to meet annual interest and principal payments on its
indebtedness. The Company's ability to pay interest on the New
Notes and to satisfy its other debt obligations will depend upon
its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. If the
Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to
reduce or delay capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. There can be
no assurance that the Company will be able to generate sufficient
cash flow to cover required interest and principal payments. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Subject to compliance with various financial and other covenants
imposed by the Indenture and other debt instruments governing the
existing indebtedness of the Company and its subsidiaries, the
Company and its subsidiaries may incur additional indebtedness
from time to time. See "Description of the Notes."
The degree to which the Company is leveraged could have
important consequences to holders of the New Notes. Among other
things, high leverage may: (i) impair the Company's ability to
obtain additional financing for working capital, capital
expenditures, vessel and other acquisitions, and general
corporate purposes; (ii) require the Company to dedicate a
substantial portion of its cash flow from operations to the
payment of principal and interest; (iii) place the Company at a
competitive disadvantage to less highly-leveraged competitors;
and (iv) make the Company more vulnerable to economic downturns
and limit its ability to withstand competitive pressures.
Ranking of the New Notes; Holding Company Structure
The New Notes (as the Old Notes are) will be general
unsecured senior obligations of the Company and, as such, will
rank pari passu in right of payment with all other existing and
future senior indebtedness of the Company and senior in right of
payment to all subordinated indebtedness of the Company. As of
September 30, 1997, after giving pro forma effect to the Offering
and the New Credit Facility, and the application of the proceeds
therefrom, the Company would have had approximately $108.6
million of senior indebtedness outstanding other than the Notes
(not including guarantees of $77.1 million of indebtedness of the
Company's subsidiaries), and the Company's subsidiaries would
have had approximately $113.3 million of indebtedness outstanding
(other than intercompany indebtedness).
The Company is a holding company with limited assets and
conducts substantially all of its business through subsidiaries.
Accordingly, the New Notes (as the Old Notes are) will
effectively be subordinated to all existing and future
liabilities of the Company's subsidiaries. Any right of the
Company to participate in any distribution of the assets of any
of the Company's subsidiaries upon the liquidation,
reorganization or insolvency of such subsidiary (and the
consequent right of the holders of the New Notes to participate
in the distribution of those assets) will be subject to the prior
claims of the subsidiary's creditors, except to the extent that
the Company otherwise has a claim against such subsidiary as a
creditor of such subsidiary. The debt obligations of the
Company's subsidiaries are generally secured, and, collectively,
these obligations are secured by substantially all of the
subsidiaries' assets, including vessels, charter agreements and
certain other contracts. As of September 30, 1997, after giving
pro forma effect to the Offering, the New Credit Facility and the
application of proceeds therefrom, the Company would have had
approximately $113.3 million of consolidated secured
indebtedness. A substantial portion of these obligations is
guaranteed by the Company.
The Company's ability to make required principal and
interest payments on its indebtedness, including the New Notes,
depends on the earnings of its subsidiaries and on its ability to
receive funds from such subsidiaries through dividends or other
payments. Certain of the subsidiaries' loan agreements restrict
the ability of the subsidiaries to pay dividends to the Company.
Currently, under the terms of such agreements, certain of the
Company's principal subsidiaries are able to pay as dividends to
the Company only 40% of their net income (as defined) but may
make loans or advances to the Company provided that such
subsidiaries continue to comply with certain financial tests.
Because the ability to make such dividend payments or loans and
advances is dependent upon such subsidiaries' continued
compliance with certain financial tests, there is no assurance
that in the future any such dividends or loans and advances will
be permitted. The Company anticipates that it will be able to
make required interest and principal payments on the Notes
whether or not such subsidiaries are able to make maximum
permissible dividend payments of 40% of their respective net
incomes. See "Description of Certain Indebtedness" and
"Description of the Notes."
Restrictions Imposed by Terms of the Company's Indebtedness
The Indenture restricts, among other things, the ability of
the Company and its subsidiaries to incur additional
indebtedness, pay dividends or make certain other restricted
payments, incur liens to secure indebtedness, apply net proceeds
from certain asset sales, merge or consolidate with any other
person, sell, lease, or otherwise dispose of substantially all of
the assets of the Company, or enter into certain transactions
with affiliates. In addition, various other agreements under
which the Company and its subsidiaries have borrowed money
contain other more restrictive covenants. Under the most
restrictive of such covenants, the Company or its subsidiaries or
both are required to maintain (i) positive working capital
positions, (ii) minimum levels of net worth, (iii) maximum debt
to net worth ratios and (iv) minimum levels of liquidity. See
"Description of Certain Indebtedness." As a result of these
covenants, the ability of the Company to respond to changes in
business and economic conditions and to secure additional
financing, if needed, may be significantly restricted, and the
Company may be prevented from engaging in transactions that
otherwise might be considered beneficial to the Company. See
"Description of the Notes - Certain Covenants." Certain of these
other agreements also require the Company to satisfy certain
financial tests. The breach of any of these covenants could
result in a default under several other of these agreements.
Upon the occurrence of an event of default under any such
agreement, the lenders thereunder could elect to declare all
amounts outstanding thereunder to be immediately due and payable.
If the Company were unable to repay those amounts, such lenders
could proceed against the collateral securing that indebtedness.
If amounts outstanding under such agreements were to be
accelerated, there can be no assurance that the assets of the
Company would be sufficient to generate sufficient cash flow to
repay in full the New Notes or any other indebtedness of the
Company and its subsidiaries.
Regulation
The Company's business is materially affected by government
regulation in the form of international conventions, national,
state and local laws and regulations, and laws and regulations of
the flag nations of the Company's vessels, including laws
relating to the discharge of materials into the environment.
Because such conventions, laws and regulations are often revised,
the Company is unable to predict the ultimate costs of
compliance. In addition, the Company is required by various
governmental and quasi-governmental agencies to obtain and
maintain certain permits, licenses and certificates with respect
to its operations. In certain instances, the failure to obtain
or maintain such permits, licenses or certificates could have a
material adverse effect on the Company's business. In the event
of war or national emergency, the Company's U.S. flag vessels are
subject to requisition by the United States without any guarantee
of compensation for lost profits, although the United States
government has traditionally paid fair compensation in such
circumstances. See "Business - Regulation."
Reduction of Subsidy Payments
Until early 1997, the Company received operating
differential subsidy payments with respect to four of its LASH
vessels under a federal program designed to allow U.S. ships to
compete with lower-cost foreign competitors. For the years ended
December 31, 1994, 1995 and 1996, the Company received aggregate
subsidy payments under this program of $21.7 million, $22.7
million and $25.6 million, respectively. Although the Company's
operating differential subsidy ("ODS") agreement has lapsed, all
four of the Company's LASH vessels that previously received such
subsidies, and three of its other vessels, have qualified to
participate in a new subsidy program created under the Maritime
Security Act of 1996 (the "MSA"). Under this new program, each
participating vessel is eligible to receive annual subsidy
payments of $2.1 million through fiscal 2005. Also, this program
eliminates the trade route restrictions imposed by the ODS
program and provides flexibility to operate freely in the
competitive market. Payments under this program are subject to
annual appropriation by Congress and are not guaranteed. If
sufficient appropriations are not made by Congress in any fiscal
year with respect to this program, the Company would be permitted
to reflag its vessels under foreign registry. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - General" and "Business - Regulation."
Dependence on Government Charters and Contracts
The Company is materially dependent on various charters or
contracts with agencies of the United States government.
Companies engaged in government contracting are subject to
certain unique business risks. Among these risks are dependence
on congressional appropriations and administrative allotment of
funds, and changing policies and regulations. Because the
government contracts held by the Company are usually awarded for
relatively short periods of time and are subject to renewal
options in favor of the government, the stability and continuity
of that portion of the Company's business depends on the periodic
exercise by the government of contract renewal options. Further,
the government contracting laws provide that the United States
government is to do business only with responsible contractors.
In this regard, federal agencies have the authority under certain
circumstances to suspend or debar a contractor from further
government contracting for a certain period of time in order to
protect the government's interest. The Company has never been
suspended or debarred from government contracting, nor has it
ever been the subject of any proceeding for such a purpose.
Revenues from charters and contracts with the MSC were $69.6
million and $54.1 million (or 18.4% and 18.5% of total revenues)
for the fiscal year ended December 31, 1996 and the nine-month
period ended September 30, 1997, respectively. The Company
currently has nine vessels under time charter or contract to the
MSC. During any extension period under each MSC charter or
contract, the MSC has the right to terminate the charter or
contract upon 30 days' notice. Historically, the MSC has
exercised substantially all of its renewal options on the
Company's charters or contracts, and the Company generally has
been successful in winning charter or contract renewals when they
are rebid. See "Business - Military Sealift Command" and "-
Regulation."
Competition
The shipping industry is intensely competitive and can be
influenced by economic and political events that are outside the
control of shipping companies. There can be no assurance that
the Company will be able to renew expiring charters on
economically attractive terms, maintain attractive freight rates
or otherwise successfully compete against its competitors. See
"Business - Competition."
Control by Principal Stockholders
Niels W. Johnsen, the Chairman of the Board and Chief
Executive Officer of the Company, Erik F. Johnsen, the President
and Chief Operating Officer of the Company (and the brother of
Niels W. Johnsen) and their spouses, children and grandchildren
(collectively, the "Johnsen Family"), beneficially owned an
aggregate of 29.0% of the common stock of the Company as of
November 30, 1997. By virtue of such ownership, the Johnsen
Family may continue to have the power to determine many of the
policies of the Company and its subsidiaries, the election of the
Company's directors and officers and the outcome of various
corporate actions requiring shareholder approval.
Year 2000 Compliance
The Company uses a significant number of computer systems,
including applications used in sales, shipping, communications,
finance and various administrative functions. To the extent that
the Company's software applications contain source code that is
unable to appropriately interpret calendar year 2000 and
subsequent years, some level of modification or replacement of
such applications will be necessary. The Company has reviewed
all of its systems in order to verify that they are "year 2000
compliant" and has concluded that they are, with limited
exceptions that will require only minor modification.
Accordingly, management does not expect year 2000 compliance
costs to have a material adverse impact on the Company. No
assurance can be given, however, that all of the Company's
systems will be year 2000 compliant or that compliance costs or
the impact of the Company's failure to achieve full year 2000
compliance will not have a material adverse effect on the
Company. Additionally, the Company could be adversely affected
by the failure of one or more of its customers, lenders, supplies
or other organizations with which it conducts business to become
fully year 2000 compliant.
Change of Control
Upon a "Change of Control" each holder of New Notes (and of
any outstanding Old Notes) will have the right to require the
Company to purchase all or a portion of such holder's Notes at a
price equal to 101% of the principal amount thereof, together
with accrued and unpaid interest through the date of purchase.
There can be no assurance that sufficient funds will be available
to the Company at the time of any Change of Control to make any
required repurchase of Notes tendered. Certain of the other debt
instruments of the Company and its subsidiaries have change of
control provisions that, if triggered, would result in an event
of default under such other indebtedness. The definition of
change of control in these instruments varies and, in several
instances, includes a material change in the management of the
Company. See "Description of the Notes - Certain Covenants --
Purchase of Notes Upon Change of Control" and "Description of
Certain Indebtedness."
Consequences of Failure to Exchange and Requirements for Transfer
of New Notes
Holders of Old Notes who do not exchange their Old Notes for
New Notes pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of the issuance of
the Old Notes pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate
that it will register Old Notes under the Securities Act.
Based on interpretations by the staff of the SEC, as set
forth in no-action letters issued to third parties, the Company
believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of
such New Notes. However, the Company does not intend to request
the SEC to consider, and the SEC has not considered, the Exchange
Offer in the context of a no-action letter and there can be no
assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to
engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If
any holder is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder (i) cannot rely on
the applicable interpretations of the staff of the SEC and (ii)
must comply with registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its
own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period
of 180 calendar days following the consummation of the Exchange
Offer, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See "Plan of
Distribution."
In addition, to comply with the state securities laws, the
New Notes may not be offered or sold in any state unless they
have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is
complied with. The company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified
limitations therein, to register or qualify the New Notes for
offer or sale under the securities or blue sky laws of such
states as any holder of the Notes reasonably requests in writing.
See "The Exchange Offer - Consequences of Failure to Exchange;
Resales of New Notes."
Absence of Public Market for the New Notes
The New Notes are new securities for which there is
currently no market. Although Citicorp Securities, Inc. has
informed the Company that it currently intends to make a market
in the New Notes, it is not obligated to do so and any such
market making may be discontinued at any time without notice. In
addition, such market making activity may be limited during the
pendency of the Exchange Offer or the effectiveness of a shelf
registration statement in lieu thereof. Accordingly, there can
be no assurance as to the development or liquidity of any market
for the New Notes. The Old Notes currently are eligible for
trading by qualified buyers in the PORTAL market. The Company
intends to apply for listing of the New Notes on the New York
Stock Exchange ("NYSE").
The Exchange Offer is not conditioned upon any minimum or
maximum aggregate principal amount of Old Notes being tendered
for exchange. No assurance can be given as to the liquidity of
the trading market for the New Notes (or any Old Notes not
exchanged) following the Exchange Offer.
The liquidity of, and trading market for, the New Notes (and
any outstanding Old Notes) may also be adversely affected by a
general decline in the market or by a decline in the market for
similar securities. Such declines may adversely affect such
liquidity and trading markets independent of the financial
performance of, and prospects for, the Company.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange
of Notes pursuant to the Exchange Offer.
CAPITALIZATION
The following table sets forth the cash and cash
equivalents, current maturities of long-term debt and
consolidated capitalization of the Company as of September 30,
1997 and as adjusted to give effect to the Offering and the New
Credit Facility, and the application of the net proceeds
therefrom. This information should be read in conjunction with
the Company's Consolidated Financial Statements and the related
notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
September 30, 1997
-----------------------
Actual As Adjusted
-------- -------------
(in thousands)
Cash and cash equivalents(1)................$ 25,208 $ 22,608
========== ============
Current maturities of long-term debt(2).....$ 37,400 $ 13,269
---------- ------------
Long-term debt:
9% Senior Notes Due 2003 $ 93,891 $ 93,891
Title XI guaranteed ship financing bonds 36,676 33,214
Notes payable to banks and other 147,415 51,785
financial institutions
New Credit Facility --- 14,670
Old Notes(3) --- 109,435
Capitalized lease obligations 14,994 14,994
---------- -----------
Total long-term debt 292,976 317,989
---------- -----------
Total debt $ 330,376 $ 331,258
========== ===========
Stockholders' investment $ 172,853 $ 171,827(4)
========== ===========
Total capitalization(5) $ 465,829 $ 489,816
========== ===========
_______________
(1) Includes approximately $12.2 million of cash and cash
equivalents that the Company is required to maintain
pursuant to restrictive covenants contained in various of
its financing agreements, $8.7 million of which the Company
is required to maintain for the account of its insurance
subsidiary. These restrictive covenants prohibit the
Company from using such cash and cash equivalents to repay
any of the Company's outstanding indebtedness.
(2) Includes current maturities of capitalized lease
obligations of $2.6 million.
(3) Net of unamortized discount of $564,960.
(4) Includes the payment of $427,000 in make-whole premium
on one of the Company's loans as well as the write-off of
approximately $1.2 million of unamortized costs on the
retired indebtedness, net of tax effects.
(5) Includes long-term debt and stockholders' investment.
Excludes current maturities of long-term debt.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information is
qualified by reference to, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein
and the Company's Consolidated Financial Statements and the
related notes thereto incorporated by reference into this
Prospectus. The financial information as of and for each of the
years in the five-year period ended December 31, 1996, are
derived from the Company's audited Consolidated Financial
Statements. The financial information as of and for the nine-
month periods ended September 30, 1996 and 1997, are derived from
unaudited consolidated financial statements of the Company, which
in the opinion of management reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations
as of such dates and for such periods. The results of operations
for the first nine months of 1997 are not necessarily indicative
of the results of operations that might be expected for the
entire year.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<C> <S> <S> <S> <S> <S> <S> <S>
(dollars in thousands, except per share amounts)
Income Statement Data:
Revenue............ $304,872 $322,313 $320,585 $319,084 $353,346 $263,773 $280,434
Operating
differential
subsidy........... 19,736 19,338 21,748 22,705 25,581 19,655 12,389
-------- -------- -------- -------- -------- -------- --------
Total revenue...... 324,608 341,651 342,333 341,789 378,927 283,428 292,823
Voyage expenses
including vessel
and barge
depreciation...... 267,027 277,333 277,018 277,253 311,979 232,689 250,636
-------- -------- -------- -------- -------- -------- --------
Gross voyage
profit............ 57,581 64,318 65,315 64,536 66,948 50,739 42,187
Administrative and
general expenses.. 26,540 28,206 27,454 26,615 26,256 19,723 19,422
Gain (loss) on
sales of equipment
and investments... (106) 374 --- 17,409 --- --- ---
-------- -------- -------- -------- -------- -------- --------
Operating income... 30,935 36,486 37,861 37,921 40,692 31,016 22,765
Interest expense... 21,679 21,245 21,650 25,561 28,528 21,478 20,879
Investment income.. 1,135 1,748 2,826 2,676 1,935 1,516 1,081
Other income....... 2,059 --- --- --- --- --- ---
Equity in net income
(loss) of unconsol-
idated entities (net
of applicable
taxes............. (1,421) (2,289) 776 331 --- --- ---
-------- -------- -------- -------- -------- -------- --------
Income before
provision for
income taxes,
extraordinary
item and cumu-
lative effect
of accounting
change............ 11,029 14,700 19,813 32,776 14,099 11,054 2,967
Provision for income
taxes............. 4,530 7,055 6,762 11,796 5,463 4,068 1,292
-------- -------- -------- -------- -------- -------- --------
Income before
cumulative effect of
accounting change or
extraordinary item 6,499 7,645 13,051 20,980 8,636 6,986 1,675
Cumulative effect of
accounting change. (3,218) --- --- --- --- --- ---
Extraordinary loss on
early retirement of
debt............. --- (1,716) --- --- (813) --- ---
-------- -------- -------- -------- -------- -------- --------
Net income $ 3,281 $ 5,929 $ 13,051 $ 20,980 $ 7,823 $ 6,986 $ 1,675
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
EBITDA(1)........ $ 75,209 $ 81,166 $ 79,482 $ 81,877 $ 94,929 $ 71,021 $ 68,770
Depreciation and
amortization
expense......... 42,215 44,680 41,621 43,963 54,248 40,005 46,005
Capital expenditures:
Vessel acquisition
costs........... 12,074 1,700 52,200 121,600 57,900 50,600 13,112
Barge acquisition and
refurbishment and
vessel life extension
costs(2)........ 44,989 7,844 1,877 3,342 4,504 1,000 2,573
Drydocking,
positioning and
other costs(2).. 27,514 22,112 9,088 14,682 30,871 28,593 16,385
Cash dividends per
common share (3).. 0.16 0.16 0.16 0.18 0.25 0.19 0.19
Ratio of earnings to
fixed charges(4) 1.6x 1.8x 1.9x 2.2x 1.5x 1.5x 1.1x
Cash flow from:
Operating
activities...... 54,259 63,219 58,834 53,978 48,954 35,782 45,555
Investing
activities...... (84,717) (48,962) (56,809) (79,166) (76,569) (62,707) (39,956)
Financing
activities...... 23,500 (23,510) 5,960 49,858 16,354 15,345 (23,411)
Principal payments on
long-term debt and
capital lease
obligations(5).... (87,612)(154,224) (83,121) (53,930)(126,704) (86,302) (95,147)
Balance Sheet Data (at end of period):
Working capital.... $ 7,920 $ 17,649 $ 16,819 $ 13,407 $ 26,928 $ 21,848 $ 16,301
Vessels, property and
other equipment... 461,360 465,785 522,857 678,810 722,020 709,089 734,988
Total assets....... 519,963 531,372 547,091 647,580 661,596 648,486 627,743
Total debt (6) 277,037 271,011 280,028 331,749 352,527 349,823 330,376
Redeemable preferred
stock(7)........... 12,000 --- --- --- --- --- ---
Stockholders'
investment......... 124,004 134,497 146,316 166,261 172,407 172,003 172,853
_______________
(1) EBITDA represents operating income plus depreciation
and amortization expense. EBITDA is not presented as an
alternative to net income or cash flows, but rather to
provide additional information related to debt service
capacity and because it is a widely accepted indicator of
funds available to service debt. While the Company
believes that EBITDA provides useful information, it should
not be considered in isolation or as an alternative to net
income and cash flows as determined under generally accepted
accounting principles. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
for a discussion of liquidity and operating results.
(2) Refurbishment and life extension costs are limited to
major, non-recurring expenditures that materially extend the
estimated useful life of the vessel or barge, whereas
drydocking and positioning costs are recurring in nature.
(3) Per share data have been restated to reflect a 25%
stock dividend declared in the fourth quarter of 1995.
(4) For purposes of computing the ratio of earnings to
fixed charges (a) earnings consist of income before
extraordinary items, income taxes and equity in net income
(loss) of unconsolidated entities plus fixed charges and
distributed dividends from unconsolidated entities and (b)
fixed charges consist of (i) interest expense, (ii)
amortization of debt expense, and (iii) the portion
(approximately 1/3) of rental expense that management
believes is representative of the interest component of
rental expense.
(5) Includes repayment of amounts drawn on revolving credit
facilities of $48,600,000 $45,000,000 $0, $24,500,000 and
$63,700,000 for the years ended December 31, 1992, 1993,
1994, 1995, and 1996, respectively, and $55,500,000 and
$69,500,000 for the nine month periods ended September 30,
1996 and 1997.
(6) Total debt includes short-term borrowings, long-term
debt (including the current portion thereof) and long-term
capital lease obligations (including the current portion
thereof).
(7) Represents the redemption value of the Company's
cumulative redeemable preferred stock, which was redeemed in
1993.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's vessels are operated under a variety of
charters and contracts. The nature of these arrangements is such
that, without a material variation in gross voyage profits (total
revenues less voyage expenses and vessel and barge depreciation),
the revenues and expenses attributable to a vessel deployed under
one type of charter or contract can differ substantially from
those attributable to the same vessel if deployed under a
different type of charter or contract. Accordingly, depending on
the mix of charters or contracts in place during a particular
accounting period, the Company's revenues and expenses can
fluctuate substantially from one period to another even though
the number of vessels deployed, the number of voyages completed,
the amount of cargo carried and the gross voyage profit derived
from the vessel remain relatively constant. As a result,
fluctuations in voyage revenues and expenses are not necessarily
indicative of trends in profitability, and management believes
that gross voyage profit is a more appropriate measure of
operating performance than revenues. Accordingly, the discussion
below addresses variations in gross voyage profits rather than
variations in revenues.
In 1993 the Company implemented a cost reduction program
designed to reduce administrative and general expenses. In the
first quarter of 1997 the Company effected a 7.0% reduction of
shoreside personnel. As a result of the Company's general cost
reduction efforts since 1993, administrative and general expenses
for 1996 were $1.95 million lower (6.9%) than in 1993,
notwithstanding a 9.6% increase in revenue during such period.
For the years ended December 31, 1994, 1995, and 1996, the
Company received aggregate ODS payments of $21.7 million, $22.7
million, and $25.6 million, respectively. The Company's ODS
agreement for the four LASH vessels currently employed in its
Waterman liner service on Trade Routes 18 and 17 terminated on
December 31, 1996, although ODS payments continued for voyages in
progress on that date until such vessels returned to the United
States in early 1997. The Maritime Security Act of 1996 (the
"MSA"), which provides for a new subsidy program for up to 47
U.S. flag vessels owned by several U.S. companies, was signed
into law on October 8, 1996. The Company's four LASH vessels
that received subsidy payments under the ODS, two of the
Company's pure car carriers ("PCC"), and one of the Company's
LASH vessels currently on contract with MSC have qualified to
participate in this program. The two PCCs began receiving MSA
payments in late 1996, and the four LASH vessels operating under
ODS began receiving MSA payments upon the termination of their
ODS payments in early 1997. The LASH vessel under contract to
MSC will be eligible to receive payments upon the expiration of
that contract in 2000, or the Company may substitute another
vessel and receive payments earlier. Under this new MSA program,
each participating vessel is eligible to receive annual subsidy
payments of $2.1 million through fiscal year 2005. Also, this
program eliminates the trade route restrictions imposed by the
ODS program and provides flexibility to operate freely in the
competitive market. Payments under the MSA are subject to
appropriation each year by Congress and are not guaranteed.
Under the Company's previous ODS agreement, subsidy payments for
the four LASH vessels employed on Trade Routes 18 and 17 were
approximately $5.8 million per year per vessel. In an effort to
partially offset the decrease in the amount of subsidy payments
to be provided under the MSA, as compared to ODS, the Company has
implemented initiatives to reduce crew costs and other expenses.
See "Business - Regulation."
Results of Operations
Nine Months Ended September 30, 1997 Compared to Nine Months
Ended September 30, 1996
Gross Voyage Profit. Gross voyage profit decreased 16.9% to
$42.2 million in the first nine months of 1997 as compared to
$50.7 million in the same period of 1996. The primary reasons
for this decline were lower profitability from operating a three-
vessel transatlantic liner service in lieu of a two-vessel
service, the reduction of ODS payments, and expensing of certain
previously deferred costs. In the first quarter of 1997, the
Company added a newly-acquired and refurbished LASH vessel, the
Atlantic Forest, to its transatlantic liner service with the
objective of phasing out one of the older vessels in that
service, the Acadia Forest. Because opportunities to acquire
LASH vessels are very limited, the Company purchased the Atlantic
Forest and placed it in service earlier than the optimal time in
order to take advantage of the opportunity to purchase the
vessel, which might not have been available at a later date.
While there was an overlap of service with the two other vessels,
putting her in service in 1997 enabled the Company to shake down
the new vessel before retiring the old vessel. However, the
Company was unable to economically fill the additional cargo
space of the three vessels primarily due to a strengthened U.S.
dollar, which contributed to a decline in U.S. exports and
softened demand for shipping services. This situation
contributed to lower gross voyage profit for the first nine
months in 1997 as compared to the same period in 1996. The
Acadia Forest is now scheduled to be retired from the service in
1998, thereby returning the service to a two-vessel operation.
As market conditions improve, the Company believes that it should
return to profitability levels historically experienced with a
two-vessel operation.
The Company's ODS agreements for its four LASH vessels in
Waterman's liner service expired for each of the vessels during
the first and second quarters of 1997. Upon the expiration of
the ODS agreements, these vessels and two others began
participation in the Maritime Security Program ("MSP") which
provides for subsidy payments of approximately $2.1 million per
vessel per year, as compared to approximately $5.8 million per
vessel per year under the ODS agreements. As a result, subsidy
payments were $7.3 million less for the first nine months in 1997
as compared to the same period in 1996. This loss of revenue was
substantially offset by the Company's cost reduction programs
that reduced shipboard and shoreside expenses. Going forward,
the Company believes that it will be able to further offset the
loss of subsidy payments with additional cost reduction programs
and increased revenue that may be derived from the operating
flexibility permitted under the new subsidy program.
The Company's gross voyage profit was also negatively
affected when the Company decided to forego development of a new
LASH service between the U.S. Gulf and Brazil. During the second
quarter of 1997, previously deferred costs of approximately $1.3
million were charged to operating expense for termination costs
and the repositioning of equipment related to this service.
Additionally, gross voyage profit on the Company's U.S. flag
coal carrier, the Energy Enterprise, was lower in the first nine
months of 1997, as compared to the same period in 1996, due to
the vessel being out of service for 28 additional days in 1997 to
complete refurbishment work initially started in September 1995.
The work was not completed at that time because the vessel was
required to meet cargo requirements in early February 1996.
Furthermore, scheduled charter hire rate reductions
effective January 1, 1997 for the Company's three RO/ROs employed
in the MSC's military prepositioning program further contributed
to the decrease in gross voyage profit during this period.
Decreases in the Company's gross voyage profit during the
first nine months of 1997, as compared to the first nine months
of 1996, were partially offset by increased demand for
transportation services under the Company's long-term contract
with P.T. Freeport Indonesia Company. Additionally, the first
nine months of 1996 were negatively affected by a damage claim
made against the Company's insurance subsidiary, which resulted
in a comparative increase in gross profit for this subsidiary for
the first nine months of 1997.
Vessel and barge depreciation for the first nine months of
1997 increased 6.2% to $25.8 million as compared to $24.3 million
in the same period of 1996 due to the commencement of operations
of the Energy Enterprise, Java Sea, Atlantic Forest and
associated LASH barges, in February of 1996, September of 1996,
and January of 1997, respectively. These increases were
partially offset by a decrease resulting from the sale, in mid-
1996, of the Company's semi-submersible barge, the Caps Express.
Administrative and General Expenses. Cost savings from the
Company's 1997 reduction in shoreside personnel were the primary
reason for the decrease in administrative and general expenses
from $19.7 million for the first nine months of 1996 to $19.4
million for the same period in 1997.
Other Income and Expenses. Interest expense decreased 2.8%
from $21.5 million in the first nine months of 1996 to $20.9
million in the same period of 1997 primarily due to regularly
scheduled payments on outstanding debt, the expiration in 1996 of
an interest rate swap agreement on which the Company had incurred
interest during the first half of 1996, and the early repayment
of $9.5 million of long-term debt at the end of the first quarter
of 1996. These decreases were partially offset by increases
resulting from interest incurred on higher outstanding balances
drawn on lines of credit, additional draws on the long-term
financing of the SPVs, the financing of the Atlantic Forest and
associated barges, and the financing of the Java Sea.
Investment income decreased from $1.5 million in the first
nine months of 1996 to $1.1 million in the same period of 1997
reflecting a reduction in the balance of invested funds.
Income Taxes. The Company provided $1.0 million for federal
income taxes in the first nine months of 1997 as compared to $3.8
million in the first nine months of 1996. The statutory rate was
35% for both periods.
Year Ended December 31, 1996 Compared to Year Ended December
31, 1995
Gross Voyage Profit. Gross voyage profit increased 3.7% to
$66.9 million in 1996 as compared to $64.5 million in 1995.
Gross voyage profit was favorably impacted by the commencement,
in February of 1996, of operations of the Energy Enterprise, a
U.S. flag coal carrier under contract to a major U.S. utility
company, and the full commencement of operations, in early 1996,
of two SPVs under contract to provide transportation services to
a major mining company conducting operations in Indonesia.
Improved freight rates for the Company's LASH vessels employed in
liner service between ports on the U.S. Gulf/U.S. Atlantic Coast
and South Asia (Trade Routes 18 and 17) and increased charter
hire rates for two of the Company's LASH vessels under contract
with the MSC also positively impacted gross voyage profit.
These increases in gross voyage profit were partially offset
by increased fuel prices for the Company's liner services, lower
charter hire rates on the Company's cape-size bulk carrier, and
the redelivery of one of the Company's vessels at the end of its
MSC contract in late 1995. This vessel was operated in the spot
market until it commenced a new contract with the MSC in July
1997.
Additionally, the Company's fleet experienced increased out-
of-service days in 1996 compared to 1995 primarily due to
regularly scheduled drydockings, shipyard work required to
prepare two LASH vessels for their MSC contract with the MSC, and
a propeller shaft casualty sustained by one of the vessels
operating in the Waterman service which required an unscheduled
drydock of approximately two months duration. This vessel was
fully repaired and returned to service during July 1996. Results
of the Company's insurance subsidiary were also negatively
impacted by this casualty.
The Company currently charters nine vessels to the MSC
including three RO/RO vessels employed in the MSC's military
prepositioning program, four LASH vessels, and two
ice-strengthened multi-purpose vessels. The contracts for the
RO/ROs are fixed through the years 2009 and 2010. During 1996,
the ice-strengthened multi-purpose vessel, the Green Wave, began
the second of two seventeen month option periods which will
terminate at the end of 1997. In July 1997, the Company's other
ice-strengthened multi-purpose vessel, the Green Ridge, commenced
operating under a seventeen month contract with MSC which
includes two seventeen month option periods. In mid-1996, the
MSC contracts for two of the Company's LASH vessels were each
renewed for 17 months, with two 17-month option periods extending
through 2000. In May 1997, a third LASH vessel commenced
operating under a new contract that expires in 2001. The fourth
LASH vessel chartered to MSC is operating under a contract that
expires in 1999.
Vessel and barge depreciation increased to $32.6 million
during 1996 as compared to $24.7 million in 1995 primarily due to
the addition of the Energy Enterprise and the two SPVs and
related barges.
Administrative and General Expenses. Administrative and
general expenses decreased slightly to $26.3 million during 1996
as compared to $26.6 million in 1995 stemming from a continuing
cost reduction program.
Other Income and Expenses. Interest expense increased 11.6%
to $28.5 million in 1996 as compared to $25.6 million in 1995
primarily due to interest incurred on the financing of the Energy
Enterprise and the two SPVs and related barges. These increases
were partially offset by reductions resulting from regularly
scheduled payments on other outstanding debt.
Investment income decreased from $2.7 million in 1995 to
$1.9 million in 1996 reflecting reductions in interest rates and
the average balance of invested funds.
During 1995, the Company sold its 7.7% interest in a
Norwegian shipowning company for approximately $48.0 million
resulting in a before-tax gain of approximately $17.0 million.
For a description of this sale, see a discussion of results of
operations for the year ended December 31, 1995 compared to the
year ended December 31, 1994, presented later in this report.
Income Taxes. The Company provided $4.8 million and $11.4
million for federal income taxes at the statutory rate of 35% for
1996 and 1995, respectively. Income of unconsolidated entities
is shown net of applicable taxes.
Extraordinary Loss on the Early Extinguishment of Debt.
During 1996, the Company recognized an extraordinary loss of $0.8
million, net of taxes, resulting from a make-whole premium
required when the Company refinanced certain debt in the fourth
quarter to reduce interest costs.
Year Ended December 31, 1995 Compared to Year Ended December
31, 1994
Gross Voyage Profit. Gross voyage profit decreased 1.2% to
$64.5 million in 1995 as compared to $65.3 million in 1994.
Gross voyage profit was negatively impacted by lower freight
rates and higher operating costs for the Company's LASH vessels
employed in liner service on Trade Routes 18 and 17. A scheduled
rate reduction on one of the Company's vessels chartered to the
MSC also contributed to the slight decrease in gross voyage
profit. These reductions were partially offset by the addition
of a molten sulphur carrier in early fourth quarter of 1994.
Vessel and barge depreciation increased by 6.3% to $24.7
million during 1995 as compared to $23.3 million in 1994
primarily due to the addition of the molten sulphur carrier in
early fourth quarter of 1994. This increase was partially offset
by the life extension of two LASH vessels which were purchased in
1994 upon the termination of the capital lease of these vessels.
Administrative and General Expenses. Administrative and
general expenses decreased 3.1% to $26.6 million during 1995 as
compared to $27.5 million in 1994 stemming from a continuing cost
reduction program.
Other Income and Expenses. Interest expense increased 18.1%
to $25.6 million in 1995, as compared to $21.7 million in 1994,
primarily due to interest incurred on the financing of the molten
sulphur carrier, interest rate conversion agreements, and
financing received in early 1995 for general corporate purposes.
These increases were partially offset by regularly scheduled debt
payments of $28.5 million.
Investment income decreased slightly from $2.8 million in
1994 to $2.7 million in 1995 reflecting a reduction in the
average balance of invested funds.
The Company's equity in net income of unconsolidated
entities was $0.3 million in 1995 as compared to equity in losses
of $0.1 million in 1994. The Company's interest in these entities
was liquidated in 1995.
As of December 31, 1994, the Company held an approximate
12.6% interest, including both direct and indirect interests, in
Havtor AS, a publicly traded Norwegian company listed on the Oslo
Stock Exchange. The Company also held a 14.2% interest in A/S
Havtor Management, a privately held Norwegian ship management
company affiliated with Havtor AS. As of December 31, 1994, the
Company held a 50% interest in a foreign entity, Bulk-owners
1984, which was formed to own and operate two combination dry
cargo/petroleum products, PROBO vessels. The Company also held a
10% interest in a limited partnership with certain Norwegian
interests to construct and own a Liquified Petroleum Gas carrier
which was delivered in 1993.
During the first half of 1995, A/S Havtor Management and the
gas carrier activities of Kvaerner, an unrelated Norwegian
company, merged into Havtor AS. In addition, Havtor AS agreed to
acquire other vessels and vessel interests, including the 50%
interest held by the Company in two PROBO vessels and the 10%
interest held in a Liquified Petroleum Gas carrier. Subsequent
to the merger, the Company's interest, including both direct and
indirect interests, in Havtor AS approximated 7.7%. During
November 1995, the Company sold this 7.7% interest in Havtor AS
for approximately $48.0 million. The sale resulted in a before
tax gain of approximately $17.0 million.
Income Taxes. The Company provided $11.4 million and $6.6
million for federal income taxes at the statutory rate of 35% for
1995 and 1994, respectively. Income of unconsolidated entities is
shown net of applicable taxes.
Liquidity and Capital Resources
The Company's working capital decreased from $26.9 million
at December 31, 1996, to $16.3 million at September 30, 1997.
Cash and cash equivalents decreased during the first nine months
of 1997 by $17.8 million to a total of $25.2 million, because
cash used for investing and financing activities of $40.0 million
and $23.4 million, respectively, substantially exceeded operating
cash flows of $45.6 million.
Positive cash flows were achieved from operating activities
in the first nine months of 1997 in the amount of $45.6 million.
The major sources of cash from operations were collections on
accounts receivable and net income, adjusted for non-cash
provisions such as depreciation, amortization and adjustments to
self-retention insurance reserves. These sources of cash were
partially offset by decreases in accrued liabilities resulting
from payments of accrued interest expense and accrued vessel
refurbishment costs related to the Atlantic Forest.
Net cash used for investing activities amounted to $40.0
million during the first nine months of 1997. Major investments
included the purchase for $3.1 million of a LASH vessel built in
1987, the Willow, and capital improvements on the following: the
Energy Enterprise; the Atlantic Forest and associated LASH
barges; and one of the LASH vessels operating in the Waterman
liner service which amounted to $5.7 million, $4.4 million, and
$1.8 million, respectively. Other uses of cash included $14.8
million for drydocking charges, which were charged to deferred
charges on the Company's balance sheet, and $8.0 million invested
in short-term marketable securities.
Net cash used by financing activities during the first nine
months of 1997 totaled $23.4 million. Proceeds from the issuance
of debt obligations of $73.1 million included $55.5 million drawn
under the Company's lines of credit, of which $16.0 million was
outstanding as of September 30, 1997, $6.5 million from the
refinancing of balloon notes due on certain of the Company's debt
early this year, $6.1 million associated with the refurbishment
of the Atlantic Forest and associated LASH barges, and $5.0
million borrowed in early third quarter for general corporate
purposes. Cash used for financing activities included $69.5
million to repay amounts drawn under lines of credit in late 1996
and in 1997, $25.6 million for regularly scheduled payments on
other outstanding debt and capital lease obligations, and $1.3
million to meet common stock dividend requirements.
In June 1997, the Company purchased a LASH vessel renamed
Willow for $3.1 million. This vessel will be refurbished and
added to the Company's LASH fleet or will replace one of the
Company's older LASH vessels. The purchase was financed with
draws on the Company's lines of credit.
On January 23, 1998, the Company entered into the New Credit
Facility, which will replace the Company's existing revolving
credit facilities aggregating $35.0 million with certain of the
Company's subsidiaries, of which approximately $16.0 million was
outstanding as of September 30, 1997. The existing facilities
are scheduled to expire at various times during 1998 and 1999.
Upon completion of the Offering and the New Credit Facility,
the Company will have replaced a substantial portion of its
subsidiaries' debt, most of which is secured and relatively short-
term, with longer-term unsecured debt at the Company level. As a
result, the Company will substantially reduce its debt
amortization obligations over the next several years and increase
the amount of cash flow available for further debt retirement,
fleet expansion and other corporate purposes. In addition, the
Company believes that the terms of the Notes are less restrictive
than those of the indebtedness to be retired, and will afford the
Company greater flexibility to operate its business.
Recent Developments
On December 18, 1997, the Company announced that fourth
quarter 1997 net earnings are expected to be flat or below the
average of the previous three quarters of 1997. Additionally,
the Company expects EBITDA for the fourth quarter of 1997 to be
less than the comparable quarter of 1996. As the Company stated
in its previous reports for these three quarters, its Trans-
Atlantic LASH service has been unable to economically fill the
cargo space made available during the year while the Company
phased-in a newly acquired, 1984 built, LASH vessel to this
service. At year end, as planned, the Company will retire the
older LASH vessel that the newer vessel will replace. The older
vessel will be disposed of shortly thereafter at an amount which,
when compared to book value, should have no material financial
impact. Therefore, beginning in January 1998, the Trans-Atlantic
LASH service will return to a two-vessel operation as was the
case before 1997.
In January 1998, the Company acquired a 1989-built LASH
vessel. This vessel is intended as a replacement for an older
LASH vessel in the Company's fleet and will be used temporarily
to perform auxiliary service in one of the Company's liner
services.
THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Old Notes were issued and sold by the Company to the
Initial Purchasers on January 22, 1998 pursuant to the Purchase
Agreement dated January 14, 1998 by and among the Company and the
Initial Purchasers (the "Purchase Agreement"). The Initial
Purchasers subsequently resold the Old Notes in reliance on Rule
144A and other exemptions from registration under the Securities
Act. The Company and the Initial Purchasers also entered into
the Registration Rights Agreement pursuant to which the Company
agreed, with respect to the Old Notes, to (i) cause to be filed,
by March 23, 1998, the Exchange Offer Registration Statement with
the SEC under the Securities Act concerning the Exchange Offer,
and (ii) (a) to cause such registration statement to be declared
effective by the SEC by June 21, 1998 and (b) to cause the
Exchange Offer to remain open for a period of not less than 30
days (or longer if required by applicable law). The Exchange
Offer is intended to satisfy the Company's exchange offer
obligations under the Registration Rights Agreement.
Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. See "Plan of Distribution."
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal
(which together constitute the Exchange Offer), the Company will
accept for exchange Old Notes that are properly tendered on or
prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means 5:00
p.m., New York City time, on March 27, 1998; provided, however,
that if the Company has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the
latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $110 million aggregate
principal amount of the Old Notes are outstanding. This
Prospectus, together with the Letter of Transmittal, is first
being sent on or about February 25, 1998, to all holders of Old
Notes known to the Company. The Company's obligation to accept
the Old Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions a set forth under "- Certain
Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or
from time to time, to extend the period of time during which the
Exchange Offer is open, and thereby delay acceptance for exchange
of any Old Notes, by giving notice of such extension to the
holders thereof known to the Company. During any such extension,
all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company.
Any Old Notes not accepted for exchange for any reason will be
returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the Exchange
Offer.
The Company expressly reserves the right to amend or
terminate the Exchange Offer, and not to accept for exchange any
Old Notes not theretofore accepted for exchange, upon the
occurrence of any of the conditions of the Exchange Offer
specified below under "- Certain Conditions to the Exchange
Offer." The Company will give notice of any extension,
amendment, non-acceptance or termination to the holders of the
Old Notes as promptly as practicable, such notice in the case of
any extension to be issued no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled
Expiration Date.
Procedures for Tendering Old Notes
The tender to the Company of Old Notes by a holder thereof
as set forth below and the acceptance thereof by the Company will
constitute a binding agreement between the tendering holder and
the Company upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of
Transmittal, including all other documents required by such
Letter of Transmittal, to The Bank of New York (the "Exchange
Agent") at one of the addresses set forth below under "- Exchange
Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or the holder must
comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED,
BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old
Notes surrendered for exchange pursuant thereto are tendered (i)
by a registered holder of the Old Notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed,
such guarantees must be by a firm that is a member or participant
in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange
Medallion Program, or by an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the
Letter of Transmittal, the Old Notes surrendered for exchange
must be endorsed by, or accompanied by a written instrument or
instruments of transfer or exchange in satisfactory form as
determined by the Company in its sole discretion and duly
executed by, the registered holder with the signature thereon
guaranteed by an Eligible Institution.
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company, or
other nominee and who wishes to tender should contact the
registered holder promptly and instruct the registered holder to
tender on the beneficial owner's behalf. If the beneficial owner
wishes to tender on the owner's own behalf, the owner must, prior
to completing and executing the Letter of Transmittal and
delivering the owner's Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in the
beneficial owner's name or obtain a properly completed and
executed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of Old
Notes tendered for exchange will be determined by the Company, in
its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any
or all tenders not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of
the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who
seeks to tender Old Notes in the Exchange Offer). The Company's
interpretation of the terms and conditions of the Exchange Offer
as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the
instructions thereto) shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with
tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for
exchange; nor shall any of them incur any liability for failure
to give such notification. Tenders of Old Notes will not be
deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the
defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
If any Letters of Transmittal, Old Notes, bond powers or
powers of attorney are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the
Company of their authority to so act must be submitted.
By tendering, each holder will represent to the Company
that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not
such person is the holder, that neither the holder nor such other
person has any arrangement or understanding with any person to
participate in the distribution of the New Notes and that such
holder is not an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, or if it is an affiliate, that
it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. In
the case of a holder that is not a broker-dealer, such holder, by
tendering, will also represent to the Company that such holder is
not engaged in and does not intend to engage in, a distribution
of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. See "Plan of Distribution." The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
Acceptance of Old Notes for Exchange, Delivery of New Notes
For each Old Note accepted for exchange, the holder of such
Old Note will receive a New Note having a principal amount equal
to that of the surrendered Old Note. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange
Agent, with written confirmation of any oral notice to be given
thereafter.
In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of certificates
for such Old Notes or a timely Book-Entry Confirmation of such
Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than the holder desires
to exchange, such accepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below,
such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration of the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an
account with respect to the Old Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business
days after the date of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by
causing the Book-Entry Transfer Facility to transfer such Old
Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery
of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and
received by the Exchange Agent at one of the addresses set forth
below under "- Exchange Agent" on or prior to the Expiration
Date, or the guaranteed delivery procedures described below must
be complied with.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender
such Old Notes and the Old Notes are not immediately available,
or time will not permit such holder's Old Notes or other required
documents to reach the Exchange Agent before the Expiration Date,
or the procedure for book-entry transfer cannot be completed on a
timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution; (ii) prior to the Expiration
Date, the Exchange Agent receives from such Eligible Institution
a properly completed and duly executed Letter of Transmittal (or
a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram,
telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Notes and the
amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and (iii)
the certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the business day prior to the
Expiration Date. For a withdrawal to be effective, a written
notice of withdrawal must be received by the Exchange Agent at
one of the addresses set forth below under "- Exchange Agent."
Any such notice of withdrawal must specify the name of the person
having tendered the Old Notes to be withdrawn, identify the Old
Notes to be withdrawn, including the principal amount of such Old
Notes, and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of
such certificates, the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and
a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible
Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn
Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes that have been tendered for
exchange but are not exchanged for any reason will be returned to
the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to
the book-entry transfer described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of the tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered
by following one of the procedures described under "- Procedures
for Tendering Old Notes" above at any time on or prior to the
Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer,
the Company shall not be required to accept for exchange, or to
issue New Notes in exchange for, any Old Notes and may terminate
or amend the Exchange Offer if at any time before the Expiration
Date, the Company determines that the Exchange Offer violates
applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of
competent jurisdiction.
If the Company determines that it may terminate the Exchange
Offer, as set forth above, the Company may (i) refuse to accept
any Old Notes and return any Old Notes that have been tendered to
the holders thereof, (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange
Offer, subject to the rights of such holders of tendered Old
Notes to withdraw their tendered Old Notes or (iii) waive such
termination event with respect to the Exchange Offer and accept
all properly tendered Old Notes that have not been withdrawn. If
such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to
this Prospectus that will be distributed to each registered
holder of Old Notes, and the Company will extend the Exchange
Offer for a period of time, depending upon the significance of
the waiver and the manner of disclosure to the registered holders
of the Old Notes, if the Exchange Offer would otherwise expire
during such period. Holders of Old Notes will have certain
rights under the Registration Rights Agreement should the Company
fail to consummate the Exchange Offer. See "Description of the
Notes - Registration Rights."
The foregoing conditions are for the sole benefit of the
Company and may be asserted by the Company regardless of the
circumstances giving rise to any such condition or may be waived
by the Company in whole or in part at any time and from time to
time in its reasonable discretion. The failure by the Company
at any time to exercise any of the foregoing rights shall not be
deemed a waiver of such right and each such right shall be deemed
an ongoing right that may be asserted at any time and from time
to time.
In addition, the Company will not accept for exchange any
Old Notes tendered, and no New Notes will be issued in exchange
for any such Old Notes if, prior to the Expiration Date, any stop
order shall be threatened or in effect with respect to the
registration statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "TIA"). In any such
event, the Company is required to use every reasonable effort to
obtain the withdrawal of any stop order at the earliest possible
time.
Exchange Agent
The Bank of New York has been appointed as the Exchange
Agent of the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses
set forth below. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
By Mail/Hand Delivery/
Overnight Delivery: By Registered or Certified Mail:
The Bank of New York
Corporate Trust Services Window, The Bank of New York
Ground Level 101 Barclay Street, 7E
101 Barclay Street New York, NY 10286
New York, NY 10286 Attn: Ayikwei Aryeetey
Attn: Ayikwei Aryeetey
Via Facsimile:
(212) 815-6339
Confirm by telephone:
(212) 815-3687
For Information Call:
(212) 815-3687
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
Fees and Expenses
The Company will not make any payments to brokers, dealers
or others soliciting acceptances of the Exchange Offer. The
principal solicitation is being made by mail; however, additional
solicitations may be made in person or by telephone by officers
and employees of the Company.
The expenses to be incurred in connection with the Exchange
Offer will be paid by the Company. Such expenses include fees
and expenses of the Exchange Agent and Trustee, accounting and
legal fees and printing costs, among others.
Accounting Treatment
The New Notes will be recorded at the same carrying value as
the Old Notes, which is the principal amount as reflected in the
Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be
capitalized for accounting purposes.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith,
except that holders who instruct the Company to register New
Notes in the name of, or request that Old Notes not tendered or
not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
Consequences of Failure to Exchange; Resales of New Notes
Holders of Old Notes who do not exchange their Old Notes for
New Notes pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of the issuance of
the Old Notes pursuant to the exemptions from, or in transactions
not subject to, the registration requirements of the Securities
Act and applicable state securities law. Old Notes not exchanged
pursuant to the Exchange Offer will continue to accrue interest
at 7 3/4% per annum and otherwise will remain outstanding in
accordance with their terms. Holders of Old Notes do not have
any appraisal or dissenters' rights in connection with the
Exchange Offer. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company
does not currently anticipate that it will register the Old Notes
under the Securities Act. However, in certain circumstances the
Company will be obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Old
Notes. See "Description of the Notes - Registration Rights."
Based on certain interpretive letters issued by the staff of
the Commission to third parties in unrelated transactions, the
Company is of the view that New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise
transferred by holders thereof (other than (i) any such holder
which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act or (ii) any broker-dealer that
purchases Notes from the Company for resale pursuant to Rule 144A
or any other available exemption) without compliance with the
registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no
intention, or any arrangement or understanding with any person,
to participate in the distribution of such New Notes. However,
the Company does not intend to request the SEC to consider, and
the SEC has not considered, the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff
of the SEC would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each holder,
other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of
New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. If any holder is an affiliate of
the Company, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such
holder (i) cannot rely on the applicable interpretations of the
staff of the SEC and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal
states that, by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales
of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has
agreed that, for a period of 180 calendar days following the
consummation of the Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or
sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or
qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject
to certain specified limitations therein, to register or qualify
the New Notes for offer or sale under the securities or blue sky
laws of such jurisdictions as any holder of the Notes reasonably
requests in writing.
United States Federal Income Tax Consequences of the Exchange of
Notes
The Company believes that the following summary fairly
describes the material United States federal income tax
consequences expected to apply to the exchange of Old Notes for
New Notes and the ownership of New Notes under currently
applicable federal income tax law. The following summary of the
material anticipated federal income tax consequences of the
issuance of New Notes and the Exchange Offer is based upon the
provisions of the Internal Revenue Code of 1986, as amended, the
final, temporary and proposed regulations promulgated thereunder,
and administrative rulings and judicial decisions now in effect,
all of which are subject to change (possibly with retroactive
effect) or different interpretations. The following summary is
not binding on the Internal Revenue Service ("IRS") and there can
be no assurance that the IRS will take a similar view with
respect to the tax consequences described below. No ruling has
been or will be requested by the Company from the IRS on any tax
matters relating to the New Notes or the Exchange Offer. This
discussion is for general information only and does not purport
to address all of the possible federal income tax consequences or
any state, local or foreign tax consequences of the acquisition,
ownership and disposition of the Old Notes, the New Notes or the
Exchange Offer. It is limited to investors who will hold the Old
Notes and the New Notes as capital assets and does not address
the federal income tax consequences that may be relevant to
particular investors in light of their unique circumstances or to
certain types of investors (such as dealers in securities,
insurance companies, financial institutions, foreign
corporations, partnerships, trusts, nonresident individuals, and
tax-exempt entities) who may be subject to special treatment
under federal income tax laws. PERSONS CONSIDERING THE PURCHASE,
OWNERSHIP OR DISPOSITION OF NEW NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES
IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
INTERNATIONAL TAXING JURISDICTION.
The exchange of the Old Notes for the New Notes pursuant to
the Exchange Offer will not be treated as an exchange or other
taxable event to holders for United States federal income tax
purposes because the terms of the New Note are not materially
different from the terms of the Old Notes. The New Notes should
be treated as a continuation of the Old Notes. Consequently, for
United States federal income tax purposes, no gain or loss will
be realized by a holder upon receipt of a New Note; the holding
period of the New Note will include the holding period of the Old
Note exchanged therefor, and the adjusted tax basis of the New
Note will be the same as the adjusted tax basis of the Old Note
exchanged therefor immediately before the exchange.
A holder of a New Note will be required to report stated
interest on the New Note as interest income in accordance with
the holder's method of accounting for tax purposes.
The foregoing does not discuss special rules that may affect
the treatment of holders that acquired the Old Notes other than
at par. Any such holders should consult their tax advisors
regarding the consequences of the Exchange Offer.
BUSINESS
Company Overview
The Company was originally founded as Central Gulf Steamship
Corporation in 1947 by the late Niels F. Johnsen and his sons,
Niels W. Johnsen, the Company's current Chairman, and Erik F.
Johnsen, its current President. Central Gulf was privately held
until 1971 when it merged with Trans Union Corporation. In 1978,
ISC was formed to act as a holding company for Central Gulf, LCI
and certain other affiliated companies in connection with the
1979 spin-off by Trans Union of the Company's common stock to
Trans Union's stockholders. In 1986, the Company acquired the
assets of Forest Lines, and in 1989, the Company acquired the
ownership of Waterman. Since its spin-off from Trans Union, the
Company has continued to act solely as a holding company, and its
only significant assets consist of the capital stock of its
subsidiaries.
The Company, through its subsidiaries, operates a
diversified fleet of U.S. and foreign flag vessels that provide
international and domestic maritime transportation services to
commercial and governmental customers primarily under medium- to
long-term charters or contracts. Substantially all of these
charters or contracts are either renewals or extensions of
previous agreements. The Company's fleet consists of 31 ocean-
going vessels, 15 towboats, 129 river barges, 26 special purpose
barges, approximately 1,850 LASH barges and related shoreside
handling facilities. For the twelve months ended September 30,
1997, the Company generated revenues of $388.3 million and EBITDA
of $92.7 million.
The Company is the only significant operator of the LASH
transportation system, which it pioneered in 1969. The Company's
fleet includes 12 large LASH vessels, four LASH feeder vessels
and approximately 1,850 LASH barges. The LASH transportation
system uses specially designed barges of uniform size which are
loaded with cargo at various locations, towed to a centralized
fleeting area, loaded aboard a large ocean-going LASH vessel by a
500-ton capacity shipboard crane and transported overseas, where
another set of previously loaded LASH barges awaits pick-up. In
its transoceanic liner services, the Company uses the LASH system
primarily to gather cargo on rivers, in island chains and in
harbors that are too shallow for traditional vessels. The 400-
ton capacity LASH barges are ideally suited to transport large
unit size items such as forest products, natural rubber and steel
that cannot be transported efficiently to and from such areas in
container ships. The LASH vessel's shipboard crane permits rapid
loading and unloading of LASH barges either dockside or at
anchor. This rapid loading and unloading capability provides
quick vessel turnaround and minimizes port time, cargo handling
and reliance upon shoreside support facilities.
In addition to LASH vessels, the Company's fleet consists of
(i) two foreign flag and two U.S. flag pure car carriers that are
specially designed to transport fully assembled automobiles; (ii)
two U.S. flag ice-strengthened multi-purpose vessels, one of
which supports scientific and defense operations in the polar
regions and the other of which is used by the MSC to carry the
components of a 500-bed U.S. Marine Corps field hospital in the
Indian Ocean; (iii) one foreign flag cape-size bulk carrier; (iv)
one U.S. flag molten sulphur carrier, which is used to carry
molten sulphur from Louisiana and Texas to a processing plant on
the Florida Gulf Coast; (v) two FLO-FLO SPVs and one 5,000-ton
container vessel, which, together with ancillary vessels, are
used to transport supplies for the Indonesian operations of a
major mining company; (vi) one U.S. flag conveyer-equipped self-
unloading coal carrier which carries coal in the coastwise and
near-sea trade; (vii) three RO/ROs that permit rapid deployment
of rolling stock, munitions and other military cargoes requiring
special handling; and (viii) 14 inland waterway towboats and 111
super-jumbo river barges that transport coal from Indiana to
Florida for an electric utility and unload via shoreside
facilities owned and operated by the Company.
The Company's fleet is deployed by its principal operating
subsidiaries, Central Gulf, LCI, Forest Lines and Waterman. The
Company provides five types of services:
- Domestic Transportation Services - the Company provides
domestic transportation services, primarily through its
long-term coal and sulphur transportation contracts and
its ownership of an intermodal transfer and warehouse
facility in Memphis, Tennessee and a coal transfer
terminal in Gulf County, Florida;
- Liner Services - the Company operates a foreign flag LASH
liner service between U.S. Gulf and East Coast ports and
ports in Northern Europe, and a U.S. flag LASH liner
service between U.S. Gulf and East Coast ports and ports
in south Asia, the Middle East and Northern Africa;
- Military Sealift Command Charters - the Company time
charters vessels to the MSC for use in the MSC's military
prepositioning program and its scientific and defense
operations in the Arctic and Antarctic;
- Pure Car Carriers - the Company transports fully
assembled Toyota and Honda automobiles from Japan to the
United States and fully assembled Hyundai automobiles
from South Korea primarily to the United States and
Europe; and
- Special Purpose Vessels - the Company provides ocean
transportation services under a long-term contract with a
major mining company for its Indonesian operations.
Business Strategy
The Company's strategy is to (i) identify customers with
high credit quality and marine transportation needs requiring
specialized vessels or operating techniques, (ii) seek medium- to
long-term charters or contracts with those customers and, if
necessary, modify, acquire or construct vessels to meet the
requirements of those charters or contracts and (iii) provide its
customers with reliable, high quality service at a reasonable
cost. The Company believes that its strategy has produced stable
operating cash flows and valuable long-term relationships with
its customers. The Company plans to continue this strategy by
expanding its relationships with existing customers, seeking new
customers and selectively pursuing acquisitions.
Competitive Strengths
Largest LASH Transportation System Provider. The Company is
the only significant commercial operator of the LASH
transportation system, which it pioneered in 1969. The Company
owns all 12 of the LASH vessels that are currently used worldwide
for commercial services. A key advantage of the LASH
transportation system is that it minimizes port and cargo
handling time. While a LASH vessel is transporting one set of
LASH barges overseas, another set of LASH barges is being loaded
with cargo and gathered at the destination staging area. Other
advantages of the Company's LASH transportation system include
the ability to access areas that lack traditional port facilities
and to carry larger than container sized cargo.
The Company believes that the cost of replicating its LASH
transportation system is a significant barrier to entry for a
potential competitor. Management believes that a new competitor
would have to acquire not only a LASH vessel (estimated to cost
$80 million to build), but also three sets of approximately 90
barges each (estimated to cost $100,000 per barge to build) to
achieve similar operating efficiencies.
Stable Cash Flow. The Company's historical cash flows have
been relatively stable because of the length and structure of the
Company's contracts with creditworthy customers, as well as the
Company's diversified customer and cargo bases. Approximately
75% of the Company's EBITDA for the twelve months ended September
30, 1997, was generated from its medium- to long-term contracts.
Primarily as a result of such contracts, as of September 30,
1997, 67% of the Company's aggregate vessel capacity was firmly
committed for fiscal year 1998, and approximately 45% of its
aggregate vessel capacity was firmly committed for all periods
through 2004. The Company's medium- to long-term charters
provide for a daily charter rate that is payable whether or not
the charterer utilizes the vessel. These charters generally
require the charterer to pay certain voyage operating costs,
including fuel, port and stevedoring expenses, and often include
cost escalation features covering certain of the Company's
expenses. In addition, the Company's medium- to long-term
contracts of affreightment guarantee a minimum amount of cargo
for transportation. Furthermore, the Company's diversified cargo
and customer bases have contributed to the stability of the
Company's operating cash flow. Over the last five years, no
single customer, other than the MSC, has accounted for more than
12% of the Company's gross voyage profits. The Company also
believes that the high credit quality of its customers and the
length of its contracts help reduce the effects of cyclical
market conditions. See "- Customers and Cargo."
Long-standing Customer Relationships. The Company currently
has medium- to long-term time charters with, or contracts to
carry cargo for, high credit quality commercial customers that
include International Paper Company, Freeport-McMoRan Resource
Partners, Limited Partnership, P.T. Freeport Indonesia Company,
The Goodyear Tire and Rubber Company, Toyota Motor Corporation,
Honda Motor Co. Ltd., Hyundai Motor Company, Seminole Electric
Cooperative and New England Power Co. Most of these companies
have been customers of the Company for over ten years.
Substantially all of the Company's current cargo contracts and
charter agreements are renewals or extensions of previous
agreements. In recent years the Company has been successful in
winning extensions or renewals of substantially all of the
contracts rebid by its commercial customers. Additionally, for
over 30 years the Company has been operating vessels for the MSC
under charters or contracts that typically contain extension
options for one or more periods. Historically, the MSC has
exercised substantially all of its renewal options. The Company
believes that its long-standing customer relationships are in
part due to the Company's excellent reputation for providing
quality specialized maritime service in terms of on-time
performance, low cargo loss, minimal damage claims and reasonable
rates. See "- Customers and Cargo."
Cost Containment. In 1993 the Company implemented a cost
reduction program designed to reduce administrative and general
expenses. In the first quarter of 1997 the Company effected a
7.0% reduction of shoreside personnel. As a result of the
Company's general cost reduction efforts since 1993,
administrative and general expenses for 1996 were $1.95 million
lower (6.9%) than in 1993, notwithstanding a 9.6% increase in
revenue during such period.
Experienced Management Team. The Company's management team
has substantial experience in the shipping industry. The
Company's Chairman and President have each served the Company in
various management capacities since its founding in 1947. In
addition, the Company's two Executive Vice Presidents and the
Chief Financial Officer have over 72 years of collective
experience with ISC. The Company believes that the experience of
its management team is important to maintaining long-term
relationships with its customers.
Types of Service
The Company through its principal operating subsidiaries,
provides five types of service: Domestic Transportation
Services, Liner Services, Military Sealift Command Charters, Pure
Car Carriers and Special Purpose Vessels. The Company provides
specialized maritime transportation services to its customers
primarily under medium- to long-term contracts. Approximately
75% of the Company's EBITDA for the twelve months ended September
30, 1997 was generated from its medium- to long-term contracts.
Domestic Transportation Services
Coal. In 1981, the Company entered into a 22-year contract
expiring in 2004 with Seminole Electric Cooperative, Inc., a
Florida based rural electric generation and transmission
cooperative for the transportation of coal from Mt. Vernon,
Indiana to Gulf County, Florida. Under this contract, which was
awarded pursuant to competitive bidding, the Company is
guaranteed annually a minimum of 2.7 million tons of coal to be
transported by inland waterways through its operation of 14
chartered towboats, 108 chartered super-jumbo river barges and
three such barges that it owns. Under this contract, the Company
typically has transported approximately 3.0 million tons of coal
per year. To protect both parties against cost variations, the
contract contains escalation and de-escalation clauses designed
to adjust the contract price for fluctuations in fuel costs,
wages and other operating expenses. The Company is also
responsible for unloading the barges at the discharge point in
Gulf County, Florida, and transferring the coal into railcars.
To facilitate this process, the Company owns and operates an
automated terminal facility which can be operated by relatively
few employees and is capable of loading and unloading three times
the amount of coal currently transported through the facility
under the contract.
In late 1995, the Company purchased an existing U.S. flag
conveyor-equipped, self-unloading coal carrier which it
concurrently chartered to a New England Power Company under a
15-year contract of affreightment to carry coal in the coastwise
and near-sea trade. The ship will also be used, from time to
time during this charter period, to carry coal and other bulk
commodities for the account of other major charterers.
Molten Sulphur. In 1994, the Company entered into a 15-year
transportation contract with Freeport McMoRan Resource Partners,
Limited Partnership, a major sulphur producer for which it had
built a 24,000 DWT molten sulphur carrier that carries molten
sulphur from Louisiana and Texas to a fertilizer plant on the
Florida Gulf Coast. Under the terms of this contract, the
Company is guaranteed the transportation of a minimum of 1.8
million tons of sulphur per year. The contract also gives the
charterer three five-year renewal options. The vessel was
delivered and began service during late 1994. For 1995 and 1996,
the Company transported an average of 2.16 million tons of
sulphur per year.
LITCO Facility. During 1991, the Company entered into an
agreement with Cooper/T. Smith Stevedoring pursuant to which the
Company acquired a 50% interest in a newly constructed, all
weather rapid cargo transfer facility at the river port of
Memphis, Tennessee, for handling LASH barges transported by
subsidiaries of the Company in its LASH liner services. LITCO
(LASH Intermodal Terminal Company) began operations in May of
1992 and provides 287,500 square feet of enclosed warehouse and
loading/discharging stations for LASH barge, rail, truck and
heavy-lift operations. In June of 1993, the Company purchased
the remaining 50% interest from Cooper/T. Smith Stevedoring,
which continues to manage the facility under a management
agreement with the Company.
Liner Services
Foreign Flag. Under the name "Forest Lines," the Company
operates three foreign flag LASH vessels, the Acadia Forest, the
Rhine Forest and the Atlantic Forest, and a self-propelled,
semi-submersible feeder vessel, the Spruce, on a scheduled
transatlantic liner service. The Atlantic Forest was purchased
and refurbished in 1996 and entered this service in early 1997.
The oldest of these three vessels, the Acadia Forest, will be
retired from this service in 1998 and sold shortly thereafter.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Each Forest Lines LASH vessel normally makes 10 round trip
sailings per year between U.S. Gulf and East Coast ports and
ports in Northern Europe. Until early 1997, approximately
one-half of the aggregate eastbound cargo space was historically
reserved for International Paper Company under a long-term
contract of affreightment. The remaining space was provided on a
voyage affreightment basis to commercial shippers. In recent
years, approximately 10% was used by other forest products
exporters, and the remaining 40% was used by various commercial
shippers to carry a variety of general cargo. While the third
ship was in this service in 1997, the total eastbound cargo space
reserved for International Paper was approximately 33%.
The Company has had ocean transportation contracts with
International Paper since 1969 when the Company had two LASH
ships built to accommodate International Paper's trade. The
Company's contract of affreightment with International Paper is
for the carriage of wood pulp, liner board and other forest
products, the characteristics of which are well suited for
transportation by LASH vessels. The LASH system minimizes damage
to such cargo by reducing the number of times that the cargo is
handled and permits the Company to load and unload these products
at the shipper's and the receiver's facilities, which are
generally located on river systems that container ships and break
bulk vessels do not serve. The Company's current contract with
International Paper is for a ten-year term ending in 2002.
Over the years, the Company has established a base of
commercial shippers to which it provides space on the westbound
Forest Lines service. The principal westbound cargoes are steel
and other metal products, high-grade paper and wood products, and
other general cargo. Over the last five years, the westbound
utilization rate for these vessels averaged approximately 85% per
year.
U.S. Flag. Waterman operates a U.S. flag liner service
between U.S. Gulf and East Coast ports and ports in South Asia
(Trade Routes 17 and 18). In connection with this service,
Waterman operates four U.S. flag LASH vessels, the Green Island,
Sam Houston, Robert E. Lee, and Stonewall Jackson, as well as
three FLASH vessels, the Pine Forest, FLASH I and FLASH II, which
are used as feeder vessels in Southeast Asia.
Until early 1997, Waterman received ODS payments from the
U.S. government with respect to each of the four LASH vessels
used in this service. The subsidy payments were in amounts
approximating the excess of certain vessel expenses, primarily
wages, over comparable costs of the Company's principal foreign
flag competitors on the same trade routes. In 1996, the Company
received approximately $25.6 million of ODS payments. The MSA
established a new subsidy program for certain U.S. flag vessels.
This program eliminates the trade route restrictions imposed by
the ODS program and provides flexibility to operate freely in the
competitive market. Under this new program, each participating
vessel is eligible to receive an annual subsidy payment of $2.1
million, subject to annual appropriations. Seven of the
Company's vessels have qualified for participation, including the
four LASH vessels deployed in Waterman's U.S. flag liner service.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - General" and "- Regulation."
On the eastbound portion of Waterman's U.S. flag liner
service, a significant part of each vessel's cargo traditionally
has been shipped to lesser developed countries under the Public
Law-480 program, pursuant to which the United States government
sells or donates surplus food products for export to developing
countries. Seventy-five percent of this cargo is reserved for
carriage by U.S. flag vessels, if they are available at
reasonable rates. Awards under the Public Law-480 program are
made on a voyage-to-voyage basis through periodic competitive
bidding. The remaining eastbound cargo consists of general
cargo, including some military equipment. Over the last five
years, these vessels generally have been fully utilized on their
eastbound voyages.
On the westbound portion of this service, Waterman provides
a significant portion of its cargo space to Goodyear for the
transportation of natural rubber under a contract of
affreightment expiring in December 1998. Space is also provided
on a voyage-to-voyage basis to other importers of natural rubber,
including Uniroyal Goodrich Tire Co., Bridgestone/Firestone, Inc.
and certain other importers of natural rubber. The Company has
had a continuing relationship with such companies since the early
1970s. The Company's LASH barges are ideally suited for large
shipments of natural rubber because compression damage is minimal
as compared to the damage that can occur when shipments are made
in traditional break bulk vessels. Waterman is the largest U.S.
flag carrier of natural rubber from Southeast Asia to the United
States. The remaining westbound cargo generally consists of
coffee, jute, guar, piece goods and other general cargo. Over
the last five years, these vessels generally have been fully
utilized on their westbound voyages.
Bulk Carrier. In 1990, the Company acquired a 148,000 DWT-
cape-size drybulk carrier, the Amazon. The vessel has since been
fully employed in the commercial market under various time
charters in specific trading areas where bulk cargoes move on a
regular basis.
Military Sealift Command Charters
General. The Company has had contracts with the MSC (or its
predecessor) almost continuously for over 30 years. Currently,
the Company's subsidiaries have nine vessels under contract to
the MSC. These vessels are employed in the MSC's prepositioning
programs, which strategically place military equipment and
supplies throughout the world, or are chartered to the MSC mainly
to service military and scientific operations in the Arctic and
Antarctic. The Company believes that the demand for military
prepositioning vessels will remain steady during the near term,
notwithstanding planned reductions in overall military spending,
because prepositioning military cargo is a key component of the
military's established plans to respond quickly to international
incidents without incurring the significant costs of operating
foreign bases, some of which have been closed in recent years.
MSC charters and contracts are awarded through competitive
bidding for fixed terms with options allowing the MSC to extend
the charters or contracts for additional periods. During the
initial contract period, the MSC typically pays higher charter
rates to cover significant expenses incurred in preparing the
vessels for deployment, and therefore generally has an economic
incentive to extend or renew a charter or contract if the vessel
is still needed rather than paying a new shipowner to reconfigure
a different vessel. Except in two cases, the MSC has always
exercised its extension options, and the Company generally has
been successful in winning renewals when the charters and
contracts are rebid. All charters and contracts require the MSC
to pay certain voyage operating costs such as fuel, port and
stevedoring expenses, and certain charters and contracts include
cost escalation features covering certain of the expenses paid by
the Company. For a discussion of the MSC's rights to cancel
charters or contracts during option periods, see "- Regulation."
LASH Vessels. The Company currently time charters to the
MSC four U.S. flag LASH vessels, the Green Valley, Green Harbour,
Jeb Stuart and Austral Rainbow, which are used in the military's
Afloat Prepositioning Force in the Indian Ocean. Three of these
charters expire in May 1999, September 2000 and November 2000,
and the fourth expires in October 1998, subject to one 17-month
renewal option.
Ice-Strengthened Multi-Purpose Vessels. The Company owns
and operates the only two U.S. flag ice-strengthened
multi-purpose vessels, the Green Wave and the Green Ridge. These
vessels are capable of transporting containerized and break bulk
cargo. The Green Wave is being operated under a charter with the
MSC that will expire in January of 1998. The vessel is being
used by the MSC to resupply Pacific rim military bases and to
supply scientific projects in the Arctic and Antarctic. The
Green Ridge began operations under a new charter with the MSC in
July 1997 under which it will be used by the MSC to carry the
components of a 500-bed U.S. Marine Corps field hospital in the
Indian Ocean through December 1998 with renewal options through
October 2000.
Roll-On/Roll-Off Vessels. In 1983, Waterman was awarded a
contract to operate three U.S. flag roll-on/roll-off vessels
under time charters to the MSC for use by the United States Navy
in its maritime prepositioning ship ("MPS") program. These
vessels represent three of the four MPS vessels currently in the
MSC's Atlantic fleet, which provides support for the U.S. Marine
Corps. These ships, the Sgt. Matej Kocak, Pfc. Eugene A. Obregon
and Maj. Stephen W. Pless, are designed primarily to carry
rolling stock and containers, and each can carry support
equipment for 17,000 military personnel. Waterman sold the three
vessels to unaffiliated corporations shortly after being awarded
the contract but retained the right to operate the vessels under
operating agreements. The MSC time charters commenced in late
1984 and early 1985 for initial five-year periods and were
renewable at the MSC's option for additional five-year periods up
to a maximum of twenty-five years. In 1993, the Company reached
an agreement with the MSC to make certain reductions in future
charter hire payments in consideration of fixing the period of
these charters for the full 25 years. The charters and related
operating agreements will terminate in 2009 and 2010.
Pure Car Carriers
U.S. Flag. In 1986, the Company entered into multi-year
charters to carry Toyota and Honda automobiles from Japan to the
United States. To service these charters, the Company had
constructed two pure car carriers, the Green Bay and the Green
Lake, which are specially designed to carry 4,000 and 4,660 fully
assembled automobiles, respectively. Both vessels were built in
Japan, but are registered under the U.S. flag, making them two of
only three U.S. flag pure car carriers in the Japanese trade. To
be competitive with foreign flag vessels operated by foreign
crews, the Company worked in close cooperation with the unions
representing the Company's U.S. citizen shipboard personnel.
Service under these charters commenced in the fourth quarter of
1987. These charters were initially renewed in 1992, each for a
five-year period, and the Honda charter was recently renewed
through November 2003. The Toyota charter is scheduled for
renewal by the second quarter of 1998. Based on the Company's
preliminary negotiations with Toyota, the Company anticipates
that the Toyota charter will be renewed, although no assurances
to that effect can be given.
Foreign Flag. Since 1988, the Company has transported
Hyundai automobiles from South Korea primarily to the United
States and Europe under two long-term charters that expire in
2000. To service these charters, the Company had two new pure
car carriers, the Cypress Pass and the Cypress Trail, constructed
by a shipyard affiliated with Hyundai. Each of the vessels has a
carrying capacity of 4,800 fully assembled automobiles.
Under each of the Company's car carrier charters, the
charterers are responsible for voyage operating costs such as
fuel, port and stevedoring expenses, while the Company is
responsible for other operating expenses including crew wages,
repairs and insurance. The Hyundai charters also include
escalation features covering certain of the expenses paid by the
Company. During the terms of these charters, the Company is
entitled to its full fee irrespective of the number of voyages
completed or the number of cars carried per voyage.
Special Purpose Vessels
During 1994, the Company entered into a long-term contract
to provide ocean transportation services to P.T. Freeport
Indonesia Company, a major mining company producing copper and
gold concentrates at its mine in West Irian Jaya, Indonesia. The
Company acquired two SPVs, the Bali Sea and the Banda Sea, and
one container/break bulk vessel, the Java Sea, and had 26 cargo
barges constructed for use with those vessels. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." The Company's
contract is through 2006 with seven three-year renewal options.
Ancillary Services
The Company has several subsidiaries providing ship charter
brokerage, agency, barge fleeting and other specialized services
to the Company's subsidiaries and, in the case of ship charter
brokerage and agency services, to unaffiliated companies. The
income produced by these services substantially covers the
related overhead expenses. These services facilitate the
Company's operations by allowing it to avoid reliance on third
parties to provide these essential shipping services.
Marketing
The Company maintains marketing staffs in Washington, D.C.,
New York, New Orleans, Houston, Chicago and Singapore and
maintains a network of marketing agents in major cities around
the world who market the Company's liner, charter and contract
services. The Company markets its Trans-Atlantic LASH liner
service under the trade name AForest Lines," and its L"SH liner
service between the U.S. Gulf and Atlantic coast ports and South
Asia ports under the Waterman house flag. The Company advertises
its services in trade publications in the United States and
abroad.
Customers and Cargo
The Company's historical cash flow has been relatively
stable principally due to the structure and length of its medium-
to long-term contracts with creditworthy customers, as well as
the Company's diversified customer and cargo bases. The Company
defines contracts or charters with a duration of three to five
years as medium-term contracts and those with a duration in
excess of five years as long-term contracts. Approximately 75%
of the Company's EBITDA for the twelve months ended September 30,
1997, was generated from its medium- to long-term contracts.
Most of the Company's medium- to long-term charters provide for a
daily charter rate that is payable whether or not the charterer
utilizes the vessel. In addition, most of these medium- to long-
term contracts guarantee a minimum amount of cargo for
transportation and require the charterer to pay certain voyage
operating costs, including fuel, port and stevedoring expenses,
and often include cost escalation features covering certain of
the Company's expenses.
Substantially all of the current cargo contracts and charter
agreements with commercial customers are renewals or extensions
of previous agreements. In recent years the Company has been
successful in winning extensions or renewals of substantially all
of the contracts rebid by its commercial customers.
Additionally, for over 30 years the Company has been operating
vessels for the MSC under charters or contracts that typically
contain extension options for one or more periods. Historically,
the MSC has exercised nearly all of these extension options.
As a result of the length of the Company's contracts and
charter agreements, at September 30, 1997, 67% of the Company's
aggregate vessel capacity was firmly committed for fiscal year
1998, and approximately 45% of its aggregate vessel capacity was
firmly committed for all periods through 2004. The Company's
capacity utilization rate for the period from 2005 through 2009
will be approximately 16% if none of the Company's contracts
expiring before 2005 are renewed.
The Company's diversified customer base and its long-
standing customer relationships have contributed to its
historically stable cash flow. Over the last five years, no
single customer other than the MSC has accounted for more than
12% of the Company's gross voyage profits. Furthermore, the
Company believes that the high credit quality of its customers
and the length of its contracts help reduce competitive pressures
and the effects of cyclical market conditions. The Company
believes that its long-standing customer relationships are in
part due to the Company's reputation for providing specialized
quality service in terms of ontime performance, low cargo loss,
minimal damage claims and reasonable rates.
The following table sets forth (i) the Company's top ten
customers, which collectively accounted for 70% of the Company's
1996 gross voyage profit, (ii) the type of cargo generally
transported for each customer, and (iii) the year in which each
company became a customer of the Company.
Customer Cargo Type Customer Since
-------------------------- ----------- --------------
Military Sealift Command Military 1949
(U.S. Navy)
New England Power Company Coal 1995
Freeport McMoRan Resource
Partners, Limited Sulphur 1992
Partnership
Seminole Electric Coal 1982
Cooperative, Inc.
P. T. Freeport Indonesia General 1995
Company
Hyundai Motor Company Automobiles 1988
International Paper Company Forest 1969
Products
Toyota Motor Company Automobiles 1986
Honda Motor Company Automobiles 1986
The Goodyear Tire and Rubber Rubber 1970
Company
In addition to its diversified customer base, the Company
believes its customers' diversified cargo base has further
insulated the Company from cyclical market conditions and further
contributed to its relatively stable historical cash flow. The
following table sets forth the percentage of the Company's total
revenues by cargo type for the nine months ended September 30,
1997.
% of Total Revenues
for the
Nine Months Ended
Cargo Type September 30, 1997
------------------------------ ---------------------
General cargo 21.3%
Military cargo 21.0%
Coal 12.7%
Iron and steel products 12.0%
Agricultural products 10.8%
Forest products 8.4%
Automobiles 5.2%
Natural rubber 4.6%
Sulphur 4.0%
Total 100.0%
Vessel Deployment
The following table sets forth information about each of the
ocean-going vessels owned (or bareboat chartered) and operated by
the Company. All vessels are owned by the Company unless
otherwise indicated. Except as otherwise indicated, appraised
values are based on appraisals conducted by Jacq. Pierot Jr. &
Sons Co., Inc. during the third quarter of 1997.
Service Construction/
Type Life
and Extension Appraised Current
Vessel Vessel Completion Value Carrying Devel-
Name Type Flag Date(1) (Millions) Capacity opment
------- ------ ---- --------- --------- -------- --------
Liner Services/Contracts of Affreightment
Green LASH U.S. 1974/1991 $11.0 89 LASH * Operating
Island barges * under
* Waterman's
* transoceanic
* liner
* Service
* between U.S.
* Gulf and
* Atlantic
* Coast ports
* and ports in
* south Asia
* on trade
* routes 17
* and 18.
*
Sam LASH U.S. 1974 11.0 89 LASH *
Houston barges *
*
Robert LASH U.S. 1974 11.0 89 LASH *
E. Lee barges *
*
Stonewall LASH U.S. 1974 11.0 89 LASH *
Jackson barges *
Acadia LASH Liberia 1969/1990 7.0 83 LASH * Operating in
Forest /1996 barges * Forest
* Lines'
* transatlantic
* liner
* service
* between U.S.
* Gulf and
* East Coast
* ports and
* ports in
* Northern
* Europe.
*
Rhine LASH Liberia 1972/1990 7.5 83 LASH *
Forest /1996 barges *
*
*
Atlantic LASH Liberia 1984 20.0 82 LASH *
Forest barges *
*
Willow LASH Liberia 1987 20.0(2) 82 LASH Idle,
barges pending
refurbishment
FLASH I FLASH Liberia 1974 0.9 8 LASH * Operating as
barges * feeder
* vessels in
* Waterman's
* U.S. flag
* liner
* service
* between
* Southeast
* Asia ports.
*
FLASH FLASH Liberia 1975 1.0 8 LASH *
II barges *
*
Pine FLASH Liberia 1975 1.0 8 LASH *
Forest barges *
Spruce Dock- Liberia 1975 3.5 15 LASH Operating as
ship barges a feeder
vessel
between
Northern
Europe ports
in Forest
Lines'
transatlanti
c liner
service.
Amazon Cape- Singa- 1981 13.5 148,600 Operating
Size pore DWT under time
Bulk charter
Carrier contracts in
the
commercial
market.
Military Sealift Command
Green LASH U.S. 1974/1992 9.0 89 LASH Time
Harbour barges chartered to
the MSC
through
November
2000.
Green LASH U.S. 1975/1991 9.0 89 LASH Time
Valley barges chartered to
the MSC
through
September
2000.
Austral LASH U.S. 1972 5.25 73 LASH Time
Rainbow barges chartered to
the MSC
through May
1999.
Jeb LASH U.S. 1970/ 12.5(3) 83 LASH Time
Stuart 1989 barges chartered to
the MSC
through
October 1998
with renewal
options
exercisable
by the MSC
through
August 2001.
Green Multi- U.S. 1979 6.5 12,487 Time
Ridge(4) purpose DWT chartered to
the MSC
through
December
1998 with
renewal
options
exercisable
by the MSC
through
October
2000.
Green Multi- U.S. 1980 6.5 10,364 Time
Wave(4) purpose DWT chartered to
the MSC
through
January
1998.
Pfc. Roll- U.S. 1985 --(5) 25,476 Time
E.A. On/ DWT chartered to
Obregon Roll- the MSC with
Off options
exercisable
by the MSC
through
January
2010.
Sgt. Roll- U.S. 1984 --(5) 25,476 Time
Matej On/ DWT chartered to
Kocak Roll- the MSC with
Off options
exercisable
by the MSC
through
October
2009.
Maj. Roll- U.S. 1985 --(5) 25,476 Time
Stephen On/ DWT chartered to
W. Pless Roll- the MSC with
Off options
exercisable
by the MSC
through
April 2010.
Pure Car Carriers
Green Pure U.S. 1987 20.0 4,000 Time
Bay Car autos chartered to
Carrier transport
Honda
automobiles
through
November
2003.
Green Pure U.S. 1987 26.0 4,660 Time
Lake Car autos chartered to
Carrier transport
Toyota
automobiles
through
April 1998.
Cypress Pure Liberia 1988 25.0 4,800 * Time
Pass Car autos * chartered to
Carrier * transport
* Hyundai
* automobiles
* through
* March and
* June of
* 2000.
*
Cypress Pure Liberia 1988 25.0 4,800 *
Trail Car autos *
Carrier *
Special Purpose Vessels
Bali Float- Singa 1982/1995 35.0 22,000 * Operating
Sea On/ pore DWT * under a long-
Float- * term
Off * contract
* with P.T.
* Freeport
* Indonesia
* Company
* through 2000
* with seven
* three-year
* renewal
* options.
*
Banda Float- Singa 1982/1996 35.0 22,000 *
Sea On/ pore DWT *
Float- *
Off *
*
Java Container/ Singa- 1988 6.5 5,000 *
Sea break pore contain *
bulk ers *
*
Domestic Services
Sulphur Molten U.S. 1994 55.0(3) 24,000 Under
Enterprise Sulphur DWT contract of
Carrier affreightment
with
Freeport-
McMoRan
Resource
Partners,
Limited
Partnership
through 2009
with renewal
options
through
2024.
Energy Coal U.S. 1983 71.0(3) 38,000 Time
Enterprise Carrier DWT chartered to
New England
Power
Company
through
2010.
_________________________
(1) Indicates year construction was completed and, where
applicable, year of completion of life extension refurbishment
work.
(2) The appraised value for this vessel assumes a $10 million
refurbishment.
(3) The appraised value for these vessels includes the
appraised value of the vessel and the charter or contract
under which it is currently operating.
(4) Ice-strengthened vessels.
(5) No appraisal obtained. These vessels are owned by third
parties but are operated by the Company under operating
agreements that, subject to certain exceptions, cannot be
canceled by the MSC without the payment of cancellation
penalties.
Properties
Vessels and Barges. Of the 31 ocean-going vessels in the
Company's fleet, 28 are owned by the Company and three are
operated under operating contracts. Of approximately 1,850 LASH
barges in the Company's fleet, approximately 1,763 are operated
in conjunction with the Company's LASH and FLASH vessels. Of
these, the Company owns approximately 1,443 barges and leases 320
barges under capital leases with 12-year terms expiring in late
2003 and early 2004. The remaining 87 LASH barges owned by the
Company are not required for current vessel operations. All of
the Company's barges are registered under the U.S. flag. The
Company bareboat charters in 108 super-jumbo river barges (and
owns three such barges) and 14 towboats specially built to meet
the requirements of one of the Company's coal transportation
contracts. The Company also owns 18 standard river barges, which
are chartered to unaffiliated companies on a short-term basis and
one towboat, which is currently operated in the spot market.
All of the vessels owned, operated or leased by the Company
are in good condition except for the 87 LASH barges not required
for current vessel operations. Since 1988, the Company has
completed life extension work on eight LASH vessels and completed
the refurbishment of the LASH barges operated with those vessels.
Under governmental regulations, insurance policies and certain of
the Company's financing agreements and charters, the Company is
required to maintain its vessels in accordance with standards of
seaworthiness, safety and health prescribed by governmental
regulations or promulgated by certain vessel classification
societies. The Company is also in the process of implementing
the quality and safety management program mandated by the
International Maritime Organization and plans to obtain timely
certification of all vessels by the end of 1999. Vessels in the
fleet are maintained in accordance with governmental regulations
and the highest classification standards of the American Bureau
of Shipping or, for certain vessels registered overseas, of
Norwegian Veritas or Lloyd's Register classification societies.
Certain of the vessels and barges owned by the Company's
subsidiaries are mortgaged to various lenders to secure such
subsidiaries' long-term debt. See Note B - Long-Term Debts of
the Notes to the Consolidated Financial Statements incorporated
by reference into this Prospectus.
Other Properties. The Company leases its corporate
headquarters in New Orleans, its administrative and sales office
in New York and office space in Houston, Chicago, Washington,
D.C. and Singapore. The Company also leases space in St. Charles
and Orleans Parishes, Louisiana, for the fleeting of barges.
Additionally, the Company leases a totally enclosed multi-modal
cargo transfer terminal in Memphis, Tennessee, under a lease that
expires in June 2003, with one five-year renewal option. In
1996, the aggregate annual rental payments under these operating
leases totaled approximately $2.4 million.
The Company owns two separate facilities in St. Charles
Parish, Louisiana, and one facility in Jefferson Parish,
Louisiana, that are used primarily for the storage and fleeting
of barges. The Company also owns a bulk coal transfer terminal
in Gulf County, Florida, that is used in its coal transportation
contract referred to above.
Insurance
The Company maintains protection and indemnity ("P&I")
insurance to cover liabilities arising out of the ownership or
operation of vessels with Assurance affreightment GARD and the
Standard Steamship Owners' Protection & Indemnity Association
(Bermuda) Ltd., which are mutual shipowners' insurance
organizations commonly referred to as P&I clubs. Both clubs are
participants in and subject to the rules of their respective
international group of P&I associations. The premium terms and
conditions of the P&I coverage provided to the Company are
governed by the rules of each club.
The Company maintains hull and machinery insurance policies
on each of its vessels in amounts related to the value of each
vessel. This insurance coverage, which includes increased value,
freight and time charter hire, is maintained with a syndicate of
hull underwriters from the United States, British, French and
Scandinavian insurance markets. The Company maintains war risk
insurance on each of the Company's vessels in an amount equal to
each vessel's total insured hull value. War risk insurance is
placed through U.S., British, French and Scandinavian insurance
markets and covers physical damage to the vessels and P&I risks
for which coverage would be excluded by reason of war exclusions
under either the hull policies or the rules of the applicable P&I
club.
The Company also maintains loss of hire insurance with U.S.,
British, French and Scandinavian markets to cover its loss of
revenue in the event that a vessel is unable to operate for a
certain period of time due to loss or damage arising from the
perils covered by the hull and machinery policy.
Insurance coverage for shoreside property, shipboard
consumables and inventory, spare parts, workers' compensation,
office contents, and general liability risks are maintained with
underwriters in the United States and British markets. The
Company also carries insurance to meet certain liabilities that
could arise from the discharge of oil or hazardous substances in
U.S. or international foreign waters.
Insurance premiums for the coverage described above vary
from year to year depending upon the Company's loss record and
market conditions. In order to reduce premiums, the Company
maintains certain deductible and co-insurance provisions that it
believes are prudent and generally consistent with those
maintained by other shipping companies and in recent years has
increased the self-retention portion under its insurance program
while capping its self-retention exposure under stop-loss
insurance coverage.
Regulation
The Company's operations between the United States and
foreign countries are subject to the Shipping Act of 1984 (the
"Shipping Act"), which is administered by the Federal Maritime
Commission, and certain provisions of the Federal Water Pollution
Control Act, the Oil Pollution Act of 1990 and the Comprehensive
Environmental Response Compensation and Liability Act, all of
which are administered by the U.S. Coast Guard and other federal
agencies, and certain other international, federal, state and
local laws and regulations, including international conventions
and laws and regulations of the flag nations of its vessels.
Pursuant to the requirements of the Shipping Act, the Company has
on file with the Federal Maritime Commission tariffs reflecting
the outbound and inbound rates currently charged by the Company
to transport cargo between the United States and foreign
countries as a common carrier in connection with its liner
services. These tariffs are filed by the Company either
individually or in connection with its participation as a member
of rate or conference agreements, which are agreements that (upon
becoming effective following filing with the Federal Maritime
Commission) permit the members to agree concertedly upon rates
and practices relating to the carriage of goods in U.S. and
foreign ocean commerce. Tariffs filed by a company unilaterally
or collectively under rate or conference agreements are subject
to Federal Maritime Commission approval. Once a rate or
conference agreement is filed, rates may be changed in response
to market conditions on 30 days' notice, with respect to a rate
increase, and one day's notice, with respect to a rate decrease.
Legislation is pending in the U.S. Senate that would amend the
Shipping Act in certain material respects, including reducing the
publication requirements for all service contracts, eliminating
requirements that all similarly situated shippers receive the
same service contract terms, and prohibiting ocean common
carriers from requiring their members to disclose their
negotiations on service contracts. It is unclear at this time
when or if this legislation will be enacted into law. The
Majority Leader of the U.S. Senate recently announced that he
intends to bring this legislation to the floor of the Senate in
early 1998.
The Merchant Marine Act of 1936, as amended (the "Merchant
Marine Act"), authorizes the federal government to pay an
operating differential subsidy to U.S. flag vessels employed in
the foreign trade of the United States. The operating
differential subsidy program is designed to allow U.S. ships to
compete on an equal footing with their lower-cost foreign
competitors. Under the program, the U.S. Maritime Administration
("MarAd") is authorized to pay qualified U.S. flag operators (i)
the differential between U.S. and foreign crew wage costs and
(ii) the differential between U.S. and foreign costs of
protection and indemnity insurance, hull and machinery insurance,
and maintenance and repairs not compensated by insurance.
Waterman's operating differential subsidy payments terminated in
early 1997. Currently, two other liner operators and five bulk
carrier operators hold operating differential subsidy contracts
for a total of six liner and nine bulk ships. One of the
remaining ODS contracts for liner vessels will expire on
December 31, 1997, and the final ODS contract for liner vessels
will expire by December 31, 1998. The ODS contracts for the bulk
ships will all expire by September 18, 2001.
The federal government has entered into no New ODS contracts
since 1981 and recent administrations have indicated that
existing ODS agreements will be allowed to lapse. However, on
October 8, 1996, Congress adopted the Maritime Security Act of
1996 which created the Maritime Security Program and authorized
the payment of $2.1 million per year per ship for 47 U.S. flag
ships through fiscal year 2005. Congress has appropriated a
total of $135.5 million to date for the MSP. This program
eliminates the trade route restrictions imposed by the ODS
program and provides flexibility to operate freely in the
competitive market. On December 20, 1996, Waterman entered into
MSP contracts with MarAd for each of its four LASH vessels that
operated under ODS contracts until early 1997, and Central Gulf
entered into MSP contracts with MarAd for each of its two car
carriers and one of its LASH vessels currently on charter to the
MSC. Waterman's vessels began receiving payments under the MSP
in early 1997 upon the lapse of Waterman's ODS payments. Central
Gulf's two car carriers commenced immediate operation in the MSP
on December 20, 1996 and its LASH vessel is eligible to begin
receiving MSP payments upon the termination of its MSC charter,
or the Company may substitute another vessel and receive payments
earlier. By law, the MSP is subject to annual appropriations.
In the event that sufficient appropriations are not made for the
MSP by Congress in any fiscal year, the Maritime Security Act of
1996 permits MSP contractors, such as Waterman and Central Gulf,
to re-flag their vessels under foreign registry expeditiously.
Seven of the Company's U.S. flag LASH vessels were
constructed with the aid of construction differential subsidies
and Title XI loan guarantees administered by MarAd, the receipt
of which obligates the Company to comply with various dividend
and other financial restrictions. Vessels constructed with the
aid of construction differential subsidies may not be operated in
domestic coastwise trade or domestic trade with Hawaii, Puerto
Rico or Alaska without the permission of MarAd and without
repayment of the construction differential subsidy under a
formula established by law. Recipients of Title XI loan
guarantees must pay an annual fee of up to 1% of the loan amount.
Under the Merchant Marine Act, U.S. flag vessels are subject
to requisition or charter by the United States whenever the
President declares that the national security requires such
action. The owners of any such vessels must receive just
compensation as provided in the Merchant Marine Act, but there is
no assurance that lost profits, if any, will be fully recovered.
In addition, during any extension period under each MSC charter
or contract, the MSC has the right to terminate the charter or
contract on 30 days' notice. However, the MSC has never
exercised such termination right with respect to the Company.
Certain of the Company's operations, including its carriage
of U.S. foreign aid cargoes, as well as the Company's coal and
molten sulphur transportation contracts and its Title XI
financing arrangements, require the Company to be as much as 75%
owned by U.S. citizens. The Company monitors its stock ownership
to verify its continuing compliance with these requirements and
has never had more than 1% of its common stock held of record by
non-U.S. citizens. In April 1996, the Company's shareholders
amended the Company's charter and stock transfer procedures to
limit the acquisition of its common stock by non-U.S. citizens.
Under the amendment, any transfer of the Company's common stock
that would result in non-U.S. citizens owning more than 23% (the
"permitted amount") of the total voting power of the Company
would be void and ineffective against the Company. With respect
to any shares owned by non-U.S. citizens in excess of the
permitted amount, the voting rights will be denied and the
dividends will be withheld. Furthermore, the Company is
authorized to redeem shares of common stock owned by non-U.S.
citizens in excess of the permitted amount to reduce ownership by
non-U.S. citizens to the permitted amount.
The Company is required by various governmental and
quasi-governmental agencies to obtain permits, licenses and
certificates with respect to its vessels. The kinds of permits,
licenses and certificates required depend upon such factors as
the country of registry, the commodity transported, the waters in
which the vessel operates, the nationality of the vessel's crew,
the age of the vessel and the status of the Company as owner or
charterer. The Company believes that it has, or can readily
obtain, all permits, licenses and certificates necessary to
permit its vessels to operate.
The International Maritime Organization (IMO) has mandated
that vessels documented under the laws of its member countries,
including the United States, develop and implement quality and
safety programs by July 1, 1998 or July 1, 2002, depending on the
type of vessels. Vessels operating without the required
compliance certificates could either be fined or denied entry
into or detained in the ports of those countries that are members
of the International Maritime Organization. The Company is in
the process of implementing a comprehensive program to obtain
timely IMO certification for all of its vessels and plans to
obtain IMO certification for three of its vessels, which require
certification prior to July 1, 1998, by January, February and
March 1998, respectively. The Company plans to obtain
certification for the remainder of its fleet subject to the
certification requirements by the end of 1999, although no
assurances to this effect can be given.
Competition
The shipping industry is intensely competitive and is
influenced by events largely outside the control of shipping
companies. Varying economic factors can cause wide swings in
freight rates and sudden shifts in traffic patterns. Vessel
redeployments and new vessel construction can lead to an
overcapacity of vessels offering the same service or operating in
the same market. Changes in the political or regulatory
environment can also create competition that is not necessarily
based on normal considerations of profit and loss. The Company's
strategy is to reduce competitive pressures and the effects of
cyclical market conditions by operating specialized vessels in
niche market segments and deploying a substantial number of its
vessels under medium- to long-term charters or contracts with
creditworthy customers and on trade routes where it has
established market shares. The Company also seeks to compete
effectively in the traditional areas of price, reliability and
timeliness of service.
Competition principally comes from numerous break bulk
vessels and, occasionally, container ships.
Much of the Company's revenue is generated by contracts with
the MSC and contracts to transport Public Law-480 U.S.
government-sponsored cargo, a cargo preference program requiring
that 75% of all foreign aid "Food for Peace" cargo must be
transported on U.S. flag vessels, if they are available at
reasonable rates. The Company competes with all U.S. flag
companies, including Overseas Shipholding Group, Inc., OMI
Corporation, Marine Transport Lines, Inc., Farrell Lines, Inc.,
Lykes Lines, Inc., Sea-Land Service, Inc. and American President
Lines, Inc. for the MSC work and the Public Law-480 cargo.
Additionally, the Company's principal foreign competitors include
Hoegh Lines, Star Shipping, Wilhelmsen Lines and the Shipping
Corporation of India.
The Company's LASH liner services face competition from
foreign flag liner operators and, to a lesser degree, from U.S.
flag liner operators, including those who will continue to
receive operating differential subsidies through December 31,
1998. In addition, during periods in which the Company
participates in conference agreements or rate agreements,
competition includes other participants with whom the Company may
agree to charge the same rates and non-participants charging
lower rates.
Because the Company's LASH barges are used primarily to
transport large unit size items, such as forest products, natural
rubber and steel, that cannot be transported as efficiently in
container ships, the Company's LASH fleet often has a competitive
advantage over these vessels for this type of cargo. In
addition, the Company believes that the ability of its LASH
system to operate in shallow harbors and river systems and its
specialized knowledge of these harbors and river systems give it
a competitive advantage over operators of container ships and
break bulk vessels, which are too large to operate in these
areas.
The Company's pure car carriers operate worldwide in markets
where foreign flag vessels with foreign crews predominate. The
Company believes that its U.S. flag pure car carriers can
continue to compete effectively if it continues to receive the
cooperation of its seamen's unions in controlling costs.
Employees
As of September 30, 1997, the Company employed approximately
400 shipboard personnel and 350 shoreside personnel. The Company
considers relations with its employees to be excellent.
All of the Company's U.S. shipboard personnel and certain
shoreside personnel are covered by collective bargaining
agreements. Central Gulf, Waterman and other U.S. shipping
companies are subject to collective bargaining agreements for
shipboard personnel in which the shipping companies servicing
U.S. Gulf and East coast ports also must make contributions to
pension plans for dockside workers. Waterman's collective
bargaining agreements covering its liner service are scheduled to
expire in September 1998, while Central Gulf's collective
bargaining agreements are scheduled to expire in December 1997
and are currently under negotiation. However, pursuant to
memoranda of understanding relating to each of Central Gulf's
U.S. flag vessels and Waterman's four U.S. flag vessels time
chartered to or operated for the MSC, the terms and conditions of
the respective collective bargaining agreements will continue for
the duration of the charters under which the vessels are being
operated. The Company has experienced no strikes or other
significant labor problems during the last ten years.
Legal Proceedings
In the normal course of its operations, the Company becomes
involved in various litigation matters including, among other
things, claims by third parties for alleged property damages,
personal injuries and other matters. While the outcome of such
claims cannot be predicted with certainty, the Company believes
that its insurance coverage and reserves with respect to such
claims are adequate and that such claims will not have a material
adverse effect on the Company's business or financial condition.
See Note F of the Notes to the Company's Consolidated Financial
Statements incorporated by reference into this Prospectus.
MANAGEMENT
Set forth below is information concerning the directors and
executive officers of the Company as of December 15, 1997.
Name Current Position
---- ----------------
Niels W. Johnsen Chairman and Chief Executive Officer
Erik F. Johnsen President, Chief Operating
Officer and Director
Niels M. Johnsen Executive Vice President and Director
Erik L. Johnsen Executive Vice President and Director
Harold S. Grehan, Jr. Vice President and Director
Gary L. Ferguson Vice President and Chief
Financial Officer
David B. Drake Vice President and Treasurer
Manuel G. Estrada Vice President and Controller
Laurance Eustis Director
Raymond V. O'Brien, Jr. Director
Edwin Lupberger Director
Edward K. Trowbridge Director
Niels W. Johnsen, 75, has been the Chairman and Chief
Executive Officer of the Company since its commencement of
operations in 1979 and served as Chairman and Chief Executive
Officer of each of the Company's principal subsidiaries until
April 1997. He previously served as Chairman of Trans Union
Corporation's ocean shipping group of companies from December of
1971 through May of 1979. He was one of the founders of Central
Gulf in 1947 and held various positions with Central Gulf until
Trans Union acquired Central Gulf in 1971. He is also a former
director of Reserve Fund, Inc., a money market fund, and a former
Trustee of Atlantic Mutual Companies, an insurance company. He
is the brother of Erik F. Johnsen.
Erik F. Johnsen, 72, has been the President, Chief Operating
Officer and Director of the Company since its commencement of
operations in 1979. Until April 1997, Mr. Johnsen served as the
President and Chief Operating Officer of each of the Company's
principal subsidiaries, except Waterman, which he served as
Chairman of the Executive Committee. Along with his brother,
Niels W. Johnsen, he was one of the founders of Central Gulf in
1947 and served as its President from 1966 to April 1997. Mr.
Johnsen is also a director of First Commerce Corporation, a bank
holding company. Mr. Johnsen has served as the Chairman of the
Board of Assurance foreningen GARD, a P&I insurance club since
1994 and has been a member since 1982. He is the brother of
Niels W. Johnsen.
Niels M. Johnsen, 52, is Executive Vice President of the
Company. Mr. Johnsen has served as a Director of the Company
since April of 1988. He joined Central Gulf on a full time basis
in 1970 and held various positions with the Company before being
named Executive Vice President in April 1997. He has also served
as the Chairman of each of the Company's principal subsidiaries,
except Waterman, since April 1997. He is also President of
Waterman and N. W. Johnsen & Co., Inc., subsidiaries of the
Company engaged in LASH liner service and ship and cargo charter
brokerage, respectively. He is the son of Niels W. Johnsen.
Erik L. Johnsen, 40, is Executive Vice President of the
Company. He joined Central Gulf in 1979 and held various
positions with the Company before being named Executive Vice
President in April 1997. He has served as a Director of the
Company since 1994. He has also served as the President of each
of the Company's principal subsidiaries, except Waterman, since
April 1997, and as Executive Vice President of Waterman since
September 1989. He is responsible for all operations of the
Company's vessel fleet and leads the Company's Ship Management
Group. He is the son of Erik F. Johnsen.
Harold S. Grehan, Jr., 69, is Vice President of the Company.
He joined Central Gulf in 1958 and became Vice President in 1959,
Senior Vice President in 1973 and Executive Vice President and
Director in 1979. He participated in the development of the
Company's LASH program and has direct responsibility for
conventional and LASH vessel traffic movements.
Gary L. Ferguson, 57, is Vice President and Chief Financial
Officer of the Company. He joined Central Gulf in 1968 where he
held various positions with the Company prior to being named
Controller in 1977, and Vice President and Chief Financial
Officer in 1989.
David B. Drake, 42, is Vice President and Treasurer of the
Company. He joined Central Gulf in 1979 and held various
positions prior to being named Vice President and Treasurer in
1996.
Manuel G. Estrada, 43, is Vice President and Controller of
the Company. He joined Central Gulf in 1978 and held various
positions prior to being named Vice President and Controller in
1996.
Laurance Eustis, 84, has served as a Director of the Company
since 1979. He is the Chairman of the Board of Eustis Insurance,
Inc., a mortgage banking and general insurance company, located
in New Orleans, Louisiana. Mr. Eustis is also a director of
First Commerce Corporation, a bank holding company, and Pan
American Life Insurance Company.
Raymond V. O'Brien, Jr., 70, has served as a Director of the
Company since 1979. He is also a director of Emigrant Savings
Bank. He served as Chairman of the Board and Chief Executive
Officer of the Emigrant Savings Bank from January of 1978 through
December of 1992.
Edwin Lupberger, 61, has served as a Director of the Company
since April of 1988. Mr. Lupberger is the Chairman of the Board
and Chief Executive Officer of Entergy Corporation, an electric
utility holding company and its principal operating subsidiaries,
Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy
Louisiana, Inc., Entergy Mississippi, Inc. and Entergy New
Orleans, Inc. He is also a director of First Commerce
Corporation, a bank holding company.
Edward K. Trowbridge, 69, has served as a Director of the
Company since April of 1994. He served as Chairman of the Board
and Chief Executive Officer of the Atlantic Mutual Companies from
July of 1988 through November of 1993.
PRINCIPAL STOCKHOLDERS
The following persons were known by the Company to own
beneficially more than five percent of its Common Stock (the only
outstanding voting security of the Company) as of September 30,
1997 unless otherwise indicated. The information set forth below
has been determined in accordance with Rule 13d-3 under the
Exchange Act based upon information furnished by the persons
listed. Unless otherwise indicated, all shares shown as
beneficially owned are held with sole voting and investment
power.
As of September 30, 1997, Niels W. Johnsen and Erik F.
Johnsen were the beneficial owners of a total of 1,783,842 shares
(26.69%) of the Company's Common Stock, and, to the extent they
act together, they may be deemed to be in control of the Company.
Amount
Beneficially Percent
Name and Address Owned of Class
---------------- ------------ --------
Niels W. Johnsen 1,021,082(1) 15.28%
(Chairman of the Board of the Company)
One Whitehall Street
New York, New York 10004
Erik F. Johnsen 762,760(2) 11.41%
(President and Director of the Company)
650 Poydras Street
New Orleans, Louisiana
T. Rowe Price Associates, Inc. 727,562(3) 10.89%
100 E. Pratt Street
Baltimore, Maryland 21202
Sanford C. Bernstein & Co., Inc. 445,879(4) 6.67%
767 Fifth Avenue
New York, New York 10153
Dimensional Fund Advisors, Inc. 440,579(5) 6.59%
1299 Ocean Avenue
Santa Monica, California 90401
David L. Babson and Company, 437,281(6) 6.54%
Incorporated
One Memorial Drive
Cambridge, Massachusetts 02142-1300
Franklin Resource, Inc. 348,100(7) 5.21%
777 Mariners Island Blvd.
San Mateo, California 94404
___________________
(1) Includes 224,622 shares owned by a corporation of which Mr.
Johnsen is a controlling shareholder. Also includes 24,387
shares held in a Grantor Retained Annuity Trust of which
Niels W. Johnsen is income and principal beneficiary.
(2) Includes 232,319 shares held as Agent and Attorney-in-Fact
with full rights of voting, disposition, or otherwise for
the benefit of Erik F. Johnsen's children. Also includes
7,875 shares owned by Mr. Johnsen's wife.
(3) Based on information contained in Schedule 13G as of
December 31, 1996. These securities are owned by various
individual and institutional investors including T. Rowe
Price Small Cap Value Fund, Inc. (which owns 580,000 shares,
representing 8.6% of the shares outstanding), for which T.
Rowe Price Associates, Inc. ("Price "ssociates") serves as
investment adviser with power to direct investments and/or
sole power to vote the securities. Sole voting power is
held only with respect to 26,000 of the shares reported.
Sole dispositive power is reported with respect to all
727,562 shares. For purposes of the reporting requirements
of the Securities Exchange Act of 1934, Price Associates is
deemed to be a beneficial owner of such securities; however
Price Associates expressly disclaims that it is, in fact,
the beneficial owner of such shares.
(4) Based on information contained in Schedule 13G as of
December 31, 1996. Includes 260,712 shares beneficially
owned with sole voting power and 13,802 shares beneficially
owned with shared power to vote. Sole dispositive power
reported with respect to all 445,879 shares.
(5) Based on information contained in Schedule 13G as of
December 31, 1996. Includes 333,779 shares beneficially
owned with sole voting power. Sole dispositive power
reported with respect to all 440,579 shares. Dimensional
Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 440,579
shares, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimensional
Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(6) Based on information contained in Schedule 13G as of
December 31, 1996. Includes 296,950 shares beneficially
owned with sole voting power and 140,331 shares beneficially
owned with shared power to vote. Sole dispositive power
reported with respect to all 437,281 shares.
(7) Based on information contained in a joint filing on Schedule
13G as of December 31, 1996 by Franklin Resources, Inc.
("FRI"), Charles B. Johnson, Rupert H. Johnson, Jr. , and
Franklin Advisory Services, Inc. Franklin Advisory Services,
Inc. has sole voting and dispositive power with respect to
all 348,100 shares. FRI is the parent holding company of
Franklin Advisory Services, Inc., an investment advisor.
Charles B. Johnson and Rupert H. Johnson are principal
shareholders of FRI. FRI, Charles B. Johnson, Rupert H.
Johnson and Franklin Advisory Services, Inc. disclaim any
economic interest or beneficial ownership in any of the
shares.
DESCRIPTION OF CERTAIN INDEBTEDNESS
At September 30, 1997, the Company's consolidated
outstanding indebtedness aggregated $296.8 million (excluding
capital leases and amounts drawn under lines of credit). Such
amount included (i) $41.8 million in Title XI loans guaranteed by
the U.S. government bearing interest at fixed rates ranging from
7.08% to 9.05% per annum; (ii) $148.2 million in loans bearing
interest at fixed rates ranging from 6.70% to 9.97% per annum;
and (iii) $106.8 million in loans bearing interest at variable
rates ranging from 6.63% to 7.56% per annum. This indebtedness
is represented by 19 loan agreements entered into by the Company
and various of its subsidiaries and is secured by a variety of
first, and in some cases second, preferred ship mortgages on
vessels of the Company, assignments of charters and contracts,
assignments of retention accounts and earnings, assignments of
insurance, pledges of stock of certain of the Company's
subsidiaries, collateral mortgages of certain properties of the
Company's subsidiaries and by guarantees of the Company.
Many of the loan agreements described above contain
restrictive covenants requiring minimum levels of working
capital, minimum levels of net worth, maintenance of specified
financial ratios, minimum levels of liquidity and restrictions
on the ability of the Company's subsidiaries to pay dividends to
the Company. The loan agreements also contain various provisions
restricting the right of the Company and its subsidiaries to make
certain investments, to place additional liens on the property of
the Company and its subsidiaries, to incur additional long-term
debt, to make certain payments (including in certain instances,
dividends), to merge or to undergo a similar corporate
reorganization, and to enter into transactions with affiliated
companies. Additionally, many of the loan agreements contain
provisions for prepayment penalties. See "Risk Factors -
Ranking of the Notes; Holding Company Structure" and "-
Restrictions Imposed by Terms of the Company's Indebtedness."
Absent waivers, consents or modifications with respect to
certain of the Company's loan agreements, the sale of the Notes
would cause the Company to be in non-compliance with some of the
foregoing restrictions. Accordingly, the Company has reached
agreements in principle with its lenders regarding waivers,
consents and modifications to such restrictions and is in the
process of documenting such agreements.
The Company and three of its subsidiaries maintain three
revolving lines of credit that are available for working capital
purposes. These lines are for $5.0 million, $10.0 million and
$20.0 million, and expire on July 31, 1999, December 31, 1998 and
July 1, 1999, respectively. At December 15, 1997, an aggregate
of $8.0 million was drawn under such lines.
DESCRIPTION OF NEW CREDIT FACILITY
On January 23, 1998, the Company entered into a two-year
unsecured $25.0 million revolving credit facility (the "New
Credit Facility") with Citibank, N.A., an affiliate of the
Initial Purchasers, as agent (the "Agent"). The New Credit
Facility replaced three prior revolving credit facilities
aggregating $35.0 million, of which $16.0 million was outstanding
as of September 30, 1997. The borrower under the New Credit
Facility is the Company, whereas the borrowers under the replaced
facilities were certain subsidiaries of the Company. The New
Credit Facility is unsecured. Subject to certain terms and
conditions, the New Credit Facility provides for a two-year,
$25.0 million revolving credit facility. The New Credit Facility
requires the Company to make mandatory prepayments and commitment
reductions under certain circumstances. In addition, the Company
may make optional prepayments and commitment reductions. It is
anticipated that borrowings under the New Credit Facility will
accrue interest, at the option of the Company, at either the
Agent's base rate or a eurodollar rate plus 1.0%. The New Credit
Facility contains customary covenants and requires the Company to
comply with certain financial ratios and maintenance tests. The
New Credit Facility has been filed as an exhibit to the
registration statement of which this Prospectus forms a part and
will be made available upon request to the Company.
DESCRIPTION OF THE NEW NOTES
The form and terms of the New Notes are the same as the form
and terms of the Old Notes except that (i) the New Notes will
have been registered under the Securities Act and thus will not
bear restrictive legends restricting their transfer pursuant to
the Securities Act and (ii) holders of New Notes will not be
entitled to certain rights of holders of the Old Notes under the
Registration Rights Agreement which will terminate upon the
consummation of the Exchange Offer. The Old Notes have been, and
the New Notes will be, issued under an Indenture dated as of
January 22, 1998 (the "Indenture") between the Company and The
Bank of New York, as trustee (the "Trustee"). Unless the context
requires otherwise, all references to the "Notes" in this section
shall mean the "New Notes."
The following is a summary of the material provisions of the
Indenture. This summary is not a complete description of the
Notes, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of
certain terms, are qualified in their entirety by reference to
all of the provisions of the Indenture and those terms made a
part of the Indenture by the Trust Indenture Act of 1939, as
amended. A copy of the Indenture may be obtained from the
Company and the Initial Purchasers. The definitions of certain
capitalized terms used in the following summary are set forth
below under "- Certain Definitions." For purposes of this
section, references to the "Company" include only the Company and
not its subsidiaries.
General
The Notes will mature on October 15, 2007 and are limited to
$160,000,000 in aggregate principal amount, of which $110,000,000
was issued in the Offering. Additional amounts of Notes may be
issued in one or more series from time to time subject to the
limitations set forth under "- Certain Covenants -- Limitation on
Indebtedness." Each Note will bear interest at a rate of 7 3/4%,
payable semi-annually on April 15 and October 15 of each year,
commencing April 15, 1998, to the Person in whose name the Note
is registered at the close of business on the April 1 or October
1 next preceding such interest payment date. Interest accrues
from the most recent Interest Payment Date to which interest has
been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes are
payable, and the Notes are transferable, at the office or agency
of the Company in the City of New York maintained for such
purposes, which initially will be the Trustee or an agent
thereof; provided, however, that payment of interest may be made
at the option of the Company by check mailed to the Person
entitled thereto as shown on the security register. The Notes
may be issued only in fully registered form without coupons, in
denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer,
exchange or redemption of Notes, except in certain circumstances
for any tax or other governmental charge that may be imposed in
connection therewith.
Ranking
The Notes are senior unsecured obligations of the Company,
ranking pari passu in right of payment with all other existing
and future senior indebtedness of the Company and senior to all
existing and future subordinated obligations of the Company.
Upon completion of the Offering and the New Credit Facility, and
after giving effect to the application of the net proceeds
therefrom, the Company would have had outstanding approximately
$108.6 million of senior Indebtedness other than the Notes (not
including guarantees of $77.1 million of Indebtedness of
Subsidiaries). Since all of the Company's operations are
conducted, and substantially all of the Company's assets are
owned, by Subsidiaries, the Notes are effectively subordinated to
all existing and future liabilities (including trade payables) of
Subsidiaries. At September 30, 1997 and after giving effect to
the application of the net proceeds of the sale of the Notes
offered in the Offering, Subsidiaries of the Company would have
had outstanding approximately $113.3 million of Indebtedness
(other than intercompany indebtedness).
Redemption
The Notes will not be redeemable prior to maturity nor will
the Company be required to make any mandatory sinking fund
payments in respect of the Notes.
Certain Covenants
The Indenture contains, among others, the following
covenants:
Limitation on Indebtedness. The Company will not, and will
not permit any Subsidiaries to, create, incur, assume or,
directly or indirectly, guarantee the payment of (collectively,
"incur") any Indebtedness (including any Acquired Indebtedness
but excluding Permitted Indebtedness) unless (a) at the time of
such event and after giving effect thereto on a pro forma basis
the Company's Fixed Charge Coverage Ratio for the four full
fiscal quarters immediately preceding such event, taken as one
period calculated on the assumption that such Indebtedness had
been incurred on the first day of such four-quarter period and,
in the case of Acquired Indebtedness, on the assumption that the
related acquisition (whether by means of purchase, merger,
consolidation or otherwise) also had occurred on such date with
the appropriate adjustments with respect to such acquisition
being included in such pro forma calculation, would have been at
least equal to 2.0:1.0 and (b) in the case of any Indebtedness of
the Company, the Indebtedness is pari passu in right of payment
to the Notes or is Subordinated Indebtedness provided that such
Subordinated Indebtedness has a Stated Maturity (including any
scheduled repayments or sinking fund payments) subsequent to one
year after the maturity of the Notes.
Limitation on Restricted Payments. The Company will not,
and will not permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any
distribution to holders of, any Capital Stock of the Company
(other than dividends or distributions payable in shares of
Qualified Capital Stock of the Company or in options, warrants or
other rights to purchase Qualified Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any Affiliate thereof
(other than any Wholly Owned Subsidiary of the Company) or any
option, warrant or other right to acquire such Capital Stock;
(iii) make any principal payment on, or redeem,
repurchase, decease or otherwise acquire or retire for value,
prior to any scheduled repayment, sinking fund payment or
maturity any Subordinated Indebtedness of the Company;
(iv) declare or pay any dividend or distribution on any
Capital Stock of any Subsidiary to any Person other than the
Company or any Wholly Owned Subsidiaries or purchase, redeem or
otherwise acquire or retire for value any Capital Stock of any
Subsidiary held by any Person (other than the Company or any
Wholly Owned Subsidiaries);
(v) incur, create or assume any guarantee of Indebtedness
of any Affiliate (other than with respect to (i) guarantees of
Indebtedness of any Wholly Owned Subsidiary of the Company by the
Company or by any Subsidiary or (ii) guarantees of Indebtedness
of the Company by any Subsidiary, in each case in accordance with
the terms of the Indenture); or
(vi) make any Investment (other than any Permitted
Investment) in any Person (such payments described in (i) through
(vi) collectively, "Restricted Payments");
unless at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if
other than cash, as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board
Resolution), (1) no Default or Event of Default shall have
occurred and be continuing, (2) immediately before and
immediately after giving effect to such transaction on a pro
forma basis, the Company could incur $1.00 of additional
Indebtedness under the provisions of "-- Limitation on
Indebtedness" (other than Permitted Indebtedness), and (3) the
aggregate amount of all Restricted Payments declared or made
after the date of the Indenture shall not exceed the sum of:
(A) 50% of the Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on
the first day of the fiscal quarter in which the Notes are
initially issued and ending on the last day of the Company's
last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus
100% of such loss);
(B) the aggregate net proceeds, including the Fair
Market Value of property other than cash (as determined by
the Board of Directors of the Company, whose good faith
determination shall be conclusive) received after the date
of the Indenture by the Company as capital contributions to
the Company;
(C) the aggregate net proceeds, including the Fair
Market Value of property other than cash (as determined by
the Board of Directors of the Company, whose good faith
determination shall be conclusive) received after the date
of the Indenture by the Company from the issuance or sale
(other than to any Subsidiaries) of shares of Capital Stock
of the Company or any options or warrants to purchase such
shares (other than issuances in respect of clause (ii) of
the next paragraph) of Capital Stock of the Company;
(D) the aggregate net proceeds, including the Fair
Market Value of property other than cash (as determined by
the Board of Directors of the Company, whose good faith
determination shall be conclusive) received after the date
of the Indenture by the Company (other than from any
Subsidiaries) upon the exercise of any options or warrants
to purchase shares of Capital Stock of the Company;
(E) the aggregate net proceeds, including the Fair
Market Value of property other than cash (as determined by
the Board of Directors of the Company, whose good faith
determination shall be conclusive) received after the date
of the Indenture, by the Company for debt securities that
have been converted into or exchanged for Qualified Capital
Stock of the Company; and
(F) $10 million.
Notwithstanding the foregoing, and in the case of clause
(iii) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not take into account
and shall not prohibit:
(i) the payment of any dividend within 60 days after the
date of declaration if at the date of declaration, such payment
would be permitted by the provisions of the preceding paragraph
and such payment shall be deemed to have been paid on such date
of declaration for purposes of the calculation required by the
provisions of the preceding paragraph;
(ii) any redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock of the
Company or any Subordinated Indebtedness in exchange for, or out
of the net proceeds of, a substantially concurrent issue and sale
(other than to a Subsidiary) of other shares of Qualified Capital
Stock of the Company, provided that the net proceeds from the
issuance of such shares of Qualified Capital Stock are excluded
from clause (C) of the preceding paragraph; or
(iii) any redemption, repurchase, or other acquisition
or retirement of Subordinated Indebtedness of the Company (other
than Redeemable Capital Stock) made by exchange for, or out of
the proceeds of the substantially concurrent sale of,
Subordinated Indebtedness of the Company so long as (A) the
principal amount of such new Indebtedness does not exceed the
principal amount of the Indebtedness being so redeemed,
repurchased, acquired or retired (plus the amount of any premium
required to be paid under the terms of the instrument governing
the Indebtedness being so redeemed, repurchased, acquired or
retired), (B) such Indebtedness is subordinated to Senior
Indebtedness and the Notes to the same extent as such
Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired, (C) such Indebtedness has a
Stated Maturity for its final scheduled principal payment later
than the Stated Maturity for the final scheduled principal
payment of the Notes and (D) such Indebtedness has an Average
Life to Stated Maturity equal to or greater than the remaining
Average Life to Stated Maturity of the Notes.
Purchase of Notes upon Change of Control. If a Change of
Control occurs at any time, each holder of Notes will have the
right to require that the Company repurchase such holder's Notes
at a purchase price in cash equal to 101% of the principal amount
of such Notes plus accrued and unpaid interest, if any, to the
date of purchase, as provided in and subject to the terms of the
Indenture. Within 30 days following any Change of Control, the
Company will mail a notice to each holder of Notes stating (a)
that a Change of Control has occurred and that such holder has
the right to require the Company to repurchase such holder's
Notes in cash; (b) the date of purchase (which shall be no
earlier than 30 days nor later than 60 days from the date such
notice is mailed); (c) the purchase price of the repurchase; (d)
the circumstances and relevant facts regarding such Change of
Control; and (e) the instructions determined by the Company,
consistent with this covenant, that a holder must follow in order
to have its Notes repurchased.
There can be no assurance that the Company will have
adequate resources to repurchase or refinance all Indebtedness
owing under the Notes in the event of a Change of Control. The
failure of the Company following a Change of Control to make or
consummate an offer or pay the purchase price with respect to
such offer when due will give the Trustee and the holders of the
Notes the rights described under "- Events of Default."
The Company shall comply, to the extent applicable, with the
requirements of Rule 14e-1 under the Exchange Act and other
securities laws or regulations in connection with the repurchase
of the Notes as described above.
The existence of a holder's right to require the Company to
repurchase its Notes in respect of a Change of Control may deter
a third party from acquiring the Company in a transaction which
constitutes a Change of Control.
Limitation on Transactions with Affiliates. The Company
will not, and will not permit any Subsidiary to, directly or
indirectly (other than pursuant to contractual arrangements in
effect on the date of the Indenture), conduct any business or
enter into any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate of the
Company (other than a Wholly Owned Subsidiary or a Joint Venture
Entity) unless (i) the terms of such business transaction or
series of transactions are (A) set forth in writing and (B) no
less favorable to the Company or such Subsidiary, as the case may
be, than would be obtainable in a comparable transaction or
series of related transactions in arm's-length dealings with an
unrelated third party, and (ii) with respect to a transaction or
series of transactions involving aggregate payments in excess of
$1 million, such transaction or series of transactions has been
approved by a majority of the Independent Directors.
Disposition of Proceeds of Asset Sales. (a) The Company
will not, and will not permit any Subsidiary to, make any Asset
Sale unless (i) at least 85% of the proceeds from such Asset Sale
are received in cash (or, in lieu of cash, (x) a promissory note
issued by the purchaser of the Asset covered by the Asset Sale
and secured by a first perfected security interest in such Asset
provided such security interest remains in full force and
perfected until all obligations arising under such promissory
note are paid in full or (y) property or assets to be used by the
Company in a substantially similar manner as the property or
asset which was disposed of in such Asset Sale, as determined by
the Board of Directors of the Company, whose good faith
determination shall be conclusive) and (ii) the Company or such
Subsidiary receives consideration at the time of such Asset Sale
at least equal to the Fair Market Value of the shares or assets
subject to such Asset Sale as determined by the Board of
Directors and evidenced in a Board Resolution, whose
determination shall be conclusive (including valuation of all
non-cash consideration).
(b) If all or a portion of the Net Cash Proceeds of any
Asset Sale are not required to be applied to repay permanently
any outstanding Pari Passu Indebtedness or any Indebtedness of
any Subsidiary as required by the terms thereof, the Company
determines not to apply such Net Cash Proceeds to the prepayment
of Pari Passu Indebtedness or any Indebtedness of any Subsidiary
or if no such Pari Passu Indebtedness or such Indebtedness of any
Subsidiary is outstanding, then the Company may, within one year
of the Asset Sale, invest (or enter into a legally binding
agreement to invest) the Net Cash Proceeds in assets that (as
determined by the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution) will be used
by the Company and Wholly Owned Subsidiaries in their marine
transportation businesses or in businesses reasonably related
thereto. If any legally binding agreement to invest any Net Cash
Proceeds is terminated, then the Company may invest such Net Cash
Proceeds, prior to the end of such one-year period or six months
from such termination, whichever is later, in the business of the
Company and Wholly Owned Subsidiaries as provided above. The
amount of such Net Cash Proceeds neither used to repay or prepay
Indebtedness nor used or invested as set forth in the preceding
sentences constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $50
million or more, the Company shall apply the Excess Proceeds to
the repayment of the Notes as provided in this paragraph (c).
The Company shall make an offer to purchase (an "Offer") from all
Holders of the Notes in accordance with the procedures set forth
in the Indenture in the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of the
Excess Proceeds (the "Note Amount"). The offer price shall be
payable in cash in an amount equal to 100% of the principal
amount of the Notes plus accrued and unpaid interest, if any, to
the date such Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the
extent that the aggregate Offered Price tendered pursuant to an
Offer is less than the Note Amount (the amount by which the
aggregate Offered Price is less than the Note "mount constitutes
a "Deficiency"), the Company may use such Deficiency, or a
portion thereof, in the business of the Company and Wholly Owned
Subsidiaries. Upon completion of the purchase of all the Notes
tendered pursuant to an Offer, the amount of Excess Proceeds
shall be reset at zero.
(d) If the Company becomes obligated to make an offer
pursuant to clause (c) above, Notes shall be purchased by the
Company, at the option of the holder thereof, in whole or in part
in integral multiples of $1,000, on a date that is not earlier
than 45 days nor later than 60 days from the date the notice is
given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act.
(e) Whenever Excess Proceeds received by the Company equals
$50 million or more, such Excess Proceeds shall, prior to the
purchase of Notes described in paragraph (c) above, be set aside
by the Company in a separate account pending (i) deposit with the
depositary of the amount required to purchase the Notes tendered
in an Offer or (ii) delivery by the Company of the Offered Price
to the holders of the Notes tendered in an Offer. Such Excess
Proceeds may be invested in Temporary Cash Investments the
maturity date of which is not later than the Offer Date. The
Company shall be entitled to any interest or dividends accrued,
earned or paid on such Temporary Cash Investments.
(f) In the event that the Company shall be unable to
purchase Notes from holders thereof in an Offer because of
provisions of applicable law, the Company need not make an Offer.
The Company shall then be obligated to (i) invest the Excess
Proceeds in properties and assets to replace the properties and
assets that were the subject of the Asset Sale or in properties
and assets that (as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board
Resolution) will be used in the businesses of the Company and
Wholly Owned Subsidiaries existing on the date of the Indenture
or in businesses reasonably related thereto and/or (ii) apply the
Excess Proceeds to repay Pari Passu Indebtedness or Indebtedness
of Subsidiaries.
(g) The Company shall comply, to the extent applicable,
with the requirements of Rule 14e-1 under the Exchange Act and
other securities laws or regulations in connection with the
repurchase of the Notes.
Limitation of Liens. The Company will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to
exist any Liens of any kind upon any of their respective assets
or properties having an aggregate book value in excess of
$500,000 now owned or acquired after the date of the Indenture or
any income or profits therefrom to secure any Indebtedness of the
Company unless contemporaneously therewith or prior thereto the
Notes are equally and ratably secured with the obligation or
liability secured by such Lien, except for the Liens set forth on
Schedule I thereto and any extension, renewal, refinancing or
replacement, in whole or in part, of any Lien set forth on
Schedule I thereto, so long as (1) the amount of security is not
increased thereby, (2) the aggregate amount of Indebtedness or
other obligations secured by the Lien after such extension,
renewal, refinancing or replacement does not exceed the aggregate
amount of the Indebtedness or other obligations secured by the
existing Lien prior to such extension, renewal, refinancing or
replacement and (3) the Indebtedness secured by such Lien (other
than Permitted Indebtedness), if any, is permitted under the
provisions of the Indenture.
Limitation of Guarantees by Subsidiaries. (a) The Company
will not permit any Subsidiary, directly or indirectly, to
assume, guarantee or in any other manner become liable with
respect to any Indebtedness of the Company unless (i) such
Subsidiary simultaneously executes and delivers a supplemental
indenture evidencing its guarantee of payment of the Notes, on a
ranking in right of payment at least equal to such assumption,
guarantee or liability (unless such other indebtedness of the
Company being guaranteed is subordinated indebtedness, in which
case on a ranking in right of payment prior to such assumption,
guarantee or liability) and (ii) such Subsidiary waives, and will
not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other
Subsidiary as a result of any payment by such Subsidiary under
its guarantee.
(b) Each guarantee of the Notes created pursuant to the
provisions described in the foregoing paragraph is referred to as
a "Guarantee" and the issuer of each such Guarantee is referred
to as a "Guarantor." Notwithstanding the foregoing, any
Guarantee by a Subsidiary of the Notes shall provide by its terms
that it shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer, to any Person not
an Affiliate of the Company, of all of the Capital Stock owned by
the Company (directly or indirectly) in, or all or substantially
all the assets of, such Subsidiary, which is in compliance with
the Indenture.
Restrictions on Preferred Stock of Subsidiaries. The
Company will not permit any Subsidiary to issue any Preferred
Stock (other than to the Company or a Wholly Owned Subsidiary),
or permit any Person (other than the Company or a Wholly Owned
Subsidiary) to own any Preferred Stock of any Subsidiary.
Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Company will not, and will not
permit any Subsidiary to, create or otherwise cause to become
effective any consensual encumbrance or restriction of any kind,
on the ability of any Subsidiary to (a) pay dividends or make any
other distribution on its Capital Stock, (b) pay any Indebtedness
owed to the Company or any other Subsidiary, (c) make any
Investment in the Company or any other Subsidiary or (d) transfer
any of its property or assets to the Company or any other
Subsidiary, except (i) any encumbrance or restriction pursuant to
an agreement in effect at or entered into on the date of the
Indenture; (ii) any encumbrance or restriction pursuant to Title
XI Financing provided that such encumbrance or restriction is no
more onerous to the Company or such Subsidiary than any provision
contained in any agreement or other document pertaining to a
Title XI Financing to which the Company or such Subsidiary is a
party or subject which is outstanding on the date of the
Indenture; (iii) any encumbrance or restriction, with respect to
a Subsidiary that is not a Subsidiary on the date of the
Indenture, in existence at the time such Person becomes a
Subsidiary or created on the date it becomes a Subsidiary and not
incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary; and (iv) any encumbrance or restriction
existing under any agreement that extends, renews, refinances or
replaces the agreements containing the restrictions in the
foregoing clauses (i), (ii), and (iii) provided, that the terms
and conditions of any such restrictions are not materially less
favorable to the holders of the Notes than those under or
pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced (in the opinion of the
Board of Directors of the Company and evidenced in a Board
Resolution whose determination shall be conclusive).
Limitations on Unrestricted Subsidiaries. The Company will
not make, and will not permit any Subsidiaries to make, any
Investments in Unrestricted Subsidiaries if, at the time thereof,
(i) the aggregate amount of such Investments would exceed the sum
of (x) 10% of the Company's Consolidated Net Tangible Assets at
the time of determination and (y) the amount of Restricted
Payments then permitted to be made pursuant to "-- Limitation on
Restricted Payments" and (ii) after giving effect to such
Investment, the Company could not incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness). Any
Investments in Unrestricted Subsidiaries permitted to be made
pursuant to this covenant may be made in cash or property.
Limitation on Sale and Leaseback Transactions. The Company
shall not, and shall not permit any Subsidiary to, enter into any
sale and leaseback transaction unless (i) the Company or such
Subsidiary could have incurred Indebtedness in an amount equal to
the Attributable Debt relating to such sale and leaseback
transaction pursuant to "-- Limitation on Indebtedness" or (ii)
the proceeds of such sale and leaseback transaction are at least
equal to the fair value (as determined in good faith by the Board
of Directors and evidenced by a Board Resolution) of the property
and the Company or such Subsidiary applies or causes to be
applied an amount in cash equal to the Net Cash Proceeds from
such sale to (A) purchase Notes or prepay Pari Passu Indebtedness
or any Indebtedness of any Subsidiary or (B) be used by the
Company and Wholly Owned Subsidiaries in their marine
transportation businesses or in businesses reasonably related
thereto, in each case within 90 days of the effective date of any
such sale and leaseback transaction.
Merger and Sale of Assets, etc.
The Company shall not, in a single transaction or through a
series of related transactions, consolidate or merge with or into
any other Person or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties
and assets as an entirety to any other Person or group of
affiliated Persons or permit any Subsidiaries to enter into any
such transaction or transactions if such transaction or
transactions, in the aggregate, would result in a sale,
assignment, transfer, lease or disposal of all or substantially
all of the properties and assets of the Company and Subsidiaries
on a Consolidated basis to any other Person or group of
affiliated Persons, or permit any Person to consolidate or merge
with or into the Company unless at the time and after giving
effect thereto (i) either (a) the Company shall be the continuing
Person, or (b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or to
which all or substantially all of the properties and assets of
the Company, substantially as an entirety, are transferred (the
"Surviving Entity") shall be a corporation, partnership or trust
organized and validly existing under the laws of the United
States of America, or any state thereof or the District of
Columbia, and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, the due and punctual
payment of the principal of, premium, if any, and interest on all
of the Notes and the performance and observance of every covenant
of the Indenture on the part of the Company to be performed or
observed, and the Indenture shall remain in full force and
effect; (ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or a
Subsidiary which becomes the obligation of the Company or any
Subsidiary in connection with or as a result of such transaction
as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing
and the Company (or the Surviving Entity if the Company is not
the continuing obligor under the Indenture), after giving effect
to such transaction, could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the "-- Limitation on
Indebtedness" covenant; (iii) immediately after giving effect to
such transaction on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or a
Subsidiary which becomes the obligation of the Company or any
Subsidiary in connection with or as a result of such transaction
as having been incurred at the time of such transaction), the
Consolidated Net Worth of the Company (or the Surviving Entity if
the Company is not the continuing obligor under the Indenture) is
at least equal to the Consolidated Net Worth of the Company
immediately before such transaction; and (iv) each Guarantor, if
any, unless it is the other party to the transactions described
above, shall have by supplemental indenture or guarantee
confirmed that its Guarantee shall apply to such Person's
obligations under the Indenture and the Notes.
In connection with any consolidation, merger, transfer or
lease contemplated hereby, the Company or such Person shall
deliver, or cause to be delivered, to the Trustee, in the form
and substance reasonably satisfactory to the Trustee, an
officer's certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer,
lease or disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture.
A Guarantor, if any (other than any Subsidiary whose
Guarantee is being released as described under "-- Limitation of
Guarantees by Subsidiaries" as a result of such transaction),
shall not, and the Company will not permit a Guarantor, in a
single transaction or through a series of related transactions,
to consolidate with or merge with or into any other Person, or
sell, assign, convey, transfer, lease or otherwise dispose of all
or substantially all of its properties and assets on a
Consolidated basis substantially as an entirety to any other
Person or group of affiliated Persons unless (i) either (1) such
Guarantor shall be the continuing corporation, partnership or
trust or (2) the entity (if other than such Guarantor) formed by
such consolidation or into which such Guarantor is merged or the
Person which acquires by sale, assignment, conveyance, transfer,
lease or disposition the properties and assets of such Guarantor
substantially as an entirety (the "Transaction Survivor") shall
be a corporation, partnership or trust organized and validly
existing under (x) the laws of the United States, any state
thereof or the District of Columbia or (y) the laws of any other
country recognized by the United States of America and, in either
case, shall expressly assume by a supplemental indenture or
guarantee, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of
such Guarantor under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating
any Indebtedness not previously an obligation of such Guarantor
or a subsidiary thereof which becomes the obligation of such
Guarantor or any of its subsidiaries in connection with or as a
result of the transaction as having been incurred at the time of
the transaction), no Default or Event of Default shall have
occurred and be continuing; (iii) the Transaction Survivor shall
have delivered to the Trustee opinions of independent counsel to
the effect that (a) the holders of the outstanding Notes will not
recognize United States federal income, gain or loss for income
tax or other tax purposes as a result of such transaction, and
will be subject to United States federal income tax and other tax
on the same amounts, in the same manner and at the same times as
would be the case if such transaction had not occurred and (b)
there will be no withholding tax imposed on any payments made
pursuant to the Notes or the Guarantees by the jurisdiction in
which the Transaction Survivor is domiciled or incorporated;
provided that the holders of Notes file any forms with the
relevant governments which the Company reasonably requests such
holders to file, which filings will have no other material
economic or legal consequences to such holders; and (iv) such
Guarantor shall have delivered to the Trustee an officer's
certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer,
lease or disposition and such supplemental indenture comply with
the Indenture, and that all conditions precedent therein relating
to such transaction have been complied with.
Notwithstanding the foregoing, any Subsidiary may (x) merge
or consolidate with or into any other Wholly Owned Subsidiary or
the Company or (y) sell, assign, convey, transfer, lease, or
otherwise dispose of all or substantially all of its properties
and assets to any other Wholly Owned Subsidiary or the Company;
provided that (A) any Person surviving any such merger or
consolidation with a Guarantor or which acquires substantially
all of the assets of any Guarantor (the "Acquisition Survivor")
shall expressly assume by a supplemental indenture or guarantee
executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, any obligations of such
Subsidiary to guarantee the obligations owing under this
Indenture; and (B) the Acquisition Survivor shall have delivered
to the Trustee an officers' certificate and an opinion of
counsel, each stating that the transaction and the supplemental
guarantee or indenture executed in connection therewith comply
with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied
with.
In the event of any transaction (other than a lease)
described in and complying with the conditions listed in the
immediately preceding paragraphs in which the Company or any
Guarantor is not the continuing corporation, the successor Person
formed or remaining shall succeed to, and be substituted for, and
may exercise every right and power of, the Company or such
Guarantor, as the case may be, with the same effect as if such
successor Person had been named as the Company under the
Indenture or such Guarantor under the Guarantee, as the case may
be.
Events of Default
An Event of Default will occur under the Indenture if:
(i) there shall be a failure to pay an installment of
interest on any of the Notes when it becomes due and payable and
continuance of such default for a period of 30 days after the
date when due;
(ii) there shall be a failure to pay when due the principal
of (at its Stated Maturity, required repurchase or otherwise) or
premium, if any, on any of the Notes;
(iii) the Company or any Guarantor, if any, shall fail
to comply with its obligations under "- Merger and Sale of
Assets, etc." above;
(iv) (A) the Company shall fail to perform or observe any
other covenant, warranty or agreement contained in the Notes or
the Indenture (other than a default in the performance or breach
of a covenant, warranty or agreement which is expressly dealt
with elsewhere herein) for a period of 30 days after written
notice of such failure, requiring the Company to remedy the same,
shall have been given (x) to the Company by the Trustee or (y) to
the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes then outstanding; or (B)
the Company shall have failed to make or consummate an offer in
accordance with the provisions of "- Certain Covenants --
Purchase of Notes upon Change of Control" or "- Certain Covenants
- -- Disposition of Proceeds of Asset Sales";
(v) (A) a default in the payment of the principal,
premium, if any, or interest on any Indebtedness shall have
occurred under any agreements, indentures or instruments under
which the Company or any Significant Subsidiary then has
outstanding Indebtedness in excess of $5 million when the same
shall become due and payable and continuation of such default
after any applicable grace period or (B) an event of default as
defined in any of the foregoing agreements, indentures or
instruments shall have occurred and the Indebtedness thereunder,
if not already matured at its final maturity in accordance with
its terms, shall have been accelerated;
(vi) any Guarantee, if any, is determined by a court of
competent jurisdiction to be null and void or the Guarantor, if
any, denies that it has any further liability under the
Guarantee, or gives notice to such effect (other than by reason
of the release of any such Guarantee in accordance with "-
Certain Covenants -- Limitation of Guarantees by Subsidiaries");
(vii) one or more judgments, orders or decrees for the
payment of money in excess of $5 million, either individually or
in the aggregate, shall be entered against the Company or any
Significant Subsidiary or any of their respective properties
which is not fully covered by insurance, bond or surety or
similar instrument and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such
judgment, order or decree or (b) there shall have been a period
of 60 days during which a stay of enforcement of such judgment,
order or decree, by reason of an appeal or otherwise, shall not
be in effect; or
(viii) certain events of bankruptcy, insolvency or
reorganization with respect to the Company, any Guarantor, if
any, or any Significant Subsidiary shall have occurred.
If an Event of Default (other than as specified in clause
(viii)) shall occur and be continuing, the Trustee or the holders
of not less than 25% in aggregate principal amount of the Notes
then outstanding may declare the principal of all the Notes to be
due and payable immediately at their principal amount together
with accrued and unpaid interest to the date the Notes become due
and payable and thereupon the Trustee may, at its discretion,
proceed to protect and enforce the rights of the holders of Notes
by appropriate judicial proceeding. If an Event of Default
specified in clause (viii) above occurs and is continuing, then
the principal of all the Notes shall ipso facto become and be
immediately due and payable without any declaration or other act
on the part of the Trustee or any holder.
Notwithstanding the provisions of the next paragraph, after
a declaration of acceleration, but before a judgment or decree
for payment of the money due has been obtained by the Trustee,
the holders of a majority in aggregate principal amount of Notes
outstanding, by written notice to the Company and the Trustee,
may rescind and annul such declaration if (a) the Company has
paid or deposited with the Trustee a sum sufficient to pay (i)
all sums paid or advanced by the Trustee under the Indenture and
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest
on all Notes, (iii) the principal of and premium, if any, on any
Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes,
and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes;
and (b) all Events of Default, other than the nonpayment of
principal of the Notes which have become due solely by such
declaration of acceleration, have been cured or waived.
The holders of not less than a majority in aggregate
principal amount of the Notes outstanding may on behalf of the
holders of all the Notes waive any past defaults under the
Indenture and its consequences, except a default in the payment
of the principal of, premium, if any, or interest on any Note, or
in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder
of each Note outstanding.
The Company is also required to notify the Trustee within
five business days of the occurrence of any Default.
The Trust Indenture Act of 1939 contains limitations on the
rights of the Trustee, should it become a creditor of the Company
or any Guarantor, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided that if it acquires any
conflicting interest it must eliminate such conflict upon the
occurrence of an Event of Default or else resign.
Defeasance or Covenant Defeasance of Indenture
The Company may, at its option and at any time, elect to
have the obligations of the Company discharged with respect to
the outstanding Notes ("defeasance"). Such defeasance means that
the Company shall be deemed to have paid and discharged the
entire indebtedness represented by the outstanding Notes, except
for (i) the rights of the holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and
interest of such Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office
or agency for payment and money for security payments held in
trust, (iii) the rights, powers, trusts, duties and immunities of
the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option at any time, elect to
have the obligations of the Company and any Guarantor, if any,
released with respect to certain covenants that are described in
the Indenture ("covenant defeasance") and any omission to comply
with such obligations shall not constitute a Default or an Event
of Default with respect to the Notes. In the event covenant
defeasance occurs, certain events (not including non-payment,
bankruptcy and insolvency events) described under "- Events of
Defaults" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either defeasance or covenant
defeasance, (i) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the holders of the Notes,
cash in United States dollars, U.S. Government Obligations (as
defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding
Notes on the Stated Maturity of such principal or installment of
principal or interest; (ii) in the case of defeasance, the
Company shall have delivered to the Trustee an opinion of
independent counsel in the United States stating that (A) the
Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal
income tax law or the judicial interpretation thereof, in either
case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had
not occurred; (iii) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an opinion of
independent counsel in the United States to the effect that the
holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit; (v) such
defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default under, the Indenture or any
other material agreement or instrument to which the Company or
any Guarantor, if any, is a party or by which it is bound; (vi)
in the case of defeasance or covenant defeasance, the Company
shall have delivered to the Trustee an opinion of independent
counsel to the effect that (A) the trust funds will not be
subject to any rights of holders of any Indebtedness of the
Company, including, without limitation, those arising under the
Indenture (other than the rights of the holders of the Notes to
receive the principal of, and interest on, the Notes) and (B)
after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors
rights generally; (vii) no event or condition shall exist that
would prevent the Company from making payments of the principal
of, premium, if any, and interest on the Notes on the date of
such deposit or at any time ending on the 91st day after the date
of such deposit; (viii) the Company shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to
either the defeasance or the covenant defeasance, as the case may
be, have been complied with; and (ix) certain other reasonable
customary conditions precedent are satisfied.
Satisfaction and Discharge
The Indenture will cease to be of further effect (except as
to surviving rights of registration of transfer or exchange of
the Notes, as expressly provided for in the Indenture) as to all
outstanding Notes when (i) either (a) all the Notes theretofore
authenticated and delivered (except lost, stolen or destroyed
Notes which have been replaced or paid) have been delivered to
the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay
and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for the
principal of, premium, if any, and interest to the date of such
deposit; (ii) the Company has paid all other sums payable under
the Indenture by the Company; and (iii) the Company and each of
the Guarantor, if any, have delivered to the Trustee an officers'
certificate and an opinion of counsel each stating that all
conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied
with.
Provision of Financial Statements
The Indenture provides that, whether or not the Company is
subject to Section 13(a) or 15(d) of the Exchange Act, the
Company will, to the extent permitted under the Exchange Act,
file with the Commission the annual reports, quarterly reports
and other documents which the Company would have been required to
file with the Commission pursuant to such Sections 13(a) or 15(d)
if the Company were so subject, such documents to be filed with
the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required so
to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each
Required Filing Date file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Company
would have been required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act if the Company were
subject to such Sections, (y) promptly upon written request
supply copies of such documents to any holder of the Notes at the
Company's expense and (z) if filing such documents by the Company
with the Commission is not permitted under the Exchange Act,
promptly upon written request, supply copies of such documents to
any prospective Holder at the Company's cost.
Modifications and Amendments
Modifications and amendments of the Indenture may be made by
the Company and the Trustee with the consent of the holders of
not less than a majority in aggregate principal amount of the
outstanding Notes; provided, however, that no such modification,
amendment or instrument may, without the consent of the holder of
each outstanding Note affected thereby: (i) change the Stated
Maturity of the principal of, or any installment of interest on,
any Note or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption
thereof, or change the currency in which any Note or any premium
or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the
Stated Maturity thereof; (ii) amend, change or modify the
definition of "Change of Control" or the obligation of the
Company to make and consummate an offer to purchase the Notes
upon a Change of Control on the terms described under "- Certain
Covenants -- Purchase of Notes upon Change of Control"; (iii)
reduce the percentage in principal amount of the outstanding
Notes, the consent of whose holders is required for any such
supplemental indenture or the consent of whose holders is
required for any waiver of compliance with certain provisions of
the Indenture or certain Defaults thereunder and their
consequences provided for in the Indenture or with respect to any
Guarantee; (iv) modify any of the provisions relating to
supplemental indentures requiring the consent of holders or
relating to the waiver of past defaults or relating to the waiver
of certain covenants, except to increase any such percentage of
outstanding Notes required for such actions or to provide that
certain other provisions of the Indenture cannot be modified or
waived without the consent of the holder of each Note affected
thereby; or (v) except as otherwise permitted under "- Merger and
Sale of Assets, etc.," consent to the assignment or transfer by
the Company or any Guarantor of any of its rights and obligations
under the Indenture.
The holders of a majority in aggregate principal amount of
the Notes outstanding may waive compliance with certain
restrictive covenants and provisions of the Indenture.
Governing Law
The Indenture, the Notes and any Guarantees, if any, will be
governed by, and construed in accordance with, the laws of the
State of New York, without giving effect to the conflicts of law
principles thereof.
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person (i)
assumed in connection with the acquisition of assets or secured
by the assets so acquired from such Person or (ii) existing at
the time such Person becomes a Subsidiary (other than any
Indebtedness incurred in connection with, or in contemplation of,
such asset acquisition of such Person becoming a Subsidiary).
Acquired Indebtedness shall be deemed to be incurred on the date
of the related acquisition of assets from any Person or the date
the acquired Person becomes a Subsidiary.
"Affiliate" means, with respect to any specified Person, (i)
any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified
Person or (ii) any other Person that beneficially owns, directly
or indirectly, 5% or more of such specified Person's outstanding
Capital Stock or (iii) any officer or director of any such
specified Person or any such 5% stockholder of such specified
Person, and shall not include any employee or consultant of such
Person who is not otherwise an Affiliate of such Person. For the
purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and
policies of such Person directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to
the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer,
capital lease or other disposition (including, without
limitation, by way of merger, consolidation or sale and leaseback
transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of any of
the following (each an "Asset"): (i) Capital Stock of any
Subsidiary (other than Directors Qualifying Shares); (ii) all or
substantially all of the properties and assets of any division or
line of business of the Company and Subsidiaries (other than to a
Wholly Owned Subsidiary); or (iii) other properties or assets of
the Company or any Subsidiary (other than to the Company or a
Wholly Owned Subsidiary), other than in the ordinary course of
business. For the purposes of this definition, the term "Asset
Sale" shall not include (i) any transfer of properties and assets
that is governed by the provisions described under "- Merger,
Sale of Assets, etc."; (ii) any transfer of properties or assets
the gross proceeds of which in the aggregate do not exceed $5
million in any year; or (iii) any transfer of properties or
assets to an Unrestricted Subsidiary permitted to be made under
the provisions described under "- Certain Covenants --
Limitations on Unrestricted Subsidiaries."
"Attributable Debt" means, with respect to a sale and
leaseback transaction, as at the time of determination, the
greater of (a) the fair market value of the property subject to
such sale and leaseback transaction (as set forth in a Board
Resolution) and (b) the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the
remaining term of the lease included in such sale and leaseback
transaction (including any period for which such lease has been
extended).
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient
obtained by dividing (i) the sum of the products of (a) the
number of years from the date of determination to the date or
dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal
payment by (ii) the sum of all such principal payments.
"Capital Lease Obligations" means any obligations of the
Company on a Consolidated basis incurred or assumed in the
ordinary course of business under or in connection with any
capital lease of real or personal property which, in accordance
with GAAP, has been recorded as a capitalized lease.
"Capital Stock" of any Person means any and all shares,
interests, participations, or other equivalents (however
designated) of such Person's capital stock, whether now
outstanding or issued after the date of the Indenture.
"Change of Control" means the occurrence of one or more of
the following events: (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d) of the Exchange Act), other
than the Johnsen Family, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of the greater of
(A) forty percent (40%) of the total voting power of the then
outstanding Voting Stock of the Company and (B) the total voting
power of the then outstanding Voting Stock of the Company
beneficially owned in the aggregate by the Johnsen Family; (ii)
the individuals who, as of the date of the Indenture, are members
of the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the
Board of Directors of the Company; provided, however, that if
either the election of any new director or the nomination for
election of any new director by the Company's stockholders was
approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall be considered as a member of the
Incumbent Board; (iii) (A) the Company consolidates with or
merges into any other Person or conveys, transfers or leases all
or substantially all of its assets to any Person or (B) any
Person merges into the Company, in either event pursuant to a
transaction in which any Voting Stock of the Company outstanding
immediately prior to the effectiveness thereof is reclassified or
changed into or exchanged for cash, securities or other property
(other than any such transactions where (x) the outstanding
Voting Stock of the Company is converted into or exchanged for
(I) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation, or (II) cash, securities
and/or other property in an amount which could be paid as a
Restricted Payment under the Indenture (and is treated as such)
and (y) immediately after the consummation of such transaction,
no "person" or "group" other than the Johnsen Family is or
becomes the "beneficial owner," directly or indirectly of more
than 35% of the total Voting Stock of such surviving or
transferee corporation); or (iv) the Company is not in material
compliance with the citizenship requirements imposed under the
Merchant Marine Act of 1920, as amended, the Merchant Marine Act
of 1936, as amended, or any other applicable United States laws
for entities engaged in coastwise trade or eligible to receive
operating differential subsidies.
"Commission" means the United States Securities and Exchange
Commission.
"Company" means International Shipholding Corporation, a
Delaware corporation, until a successor Person shall have become
such pursuant to the applicable provisions of the Indenture, and
thereafter "Company" shall mean such successor Person.
"Consolidated Income Tax Expense" means, for any period, as
applied to any Person, the provision for federal, state, local or
foreign income taxes of such Person and its Consolidated
Subsidiaries for such period as determined in accordance with
GAAP consistently applied.
"Consolidated Interest Expense" means, without duplication,
for any period, as applied to any Person, the sum of (a) the
interest expense of such Person and its Consolidated Subsidiaries
for such period as determined in accordance with GAAP
consistently applied including, without limitation, (i)
amortization of debt discount and debt issuance cost, (ii) the
net cost under interest rate contracts (including amortization of
discounts), (iii) the interest portion of any deferred payment
obligation, (iv) accrued interest, (v) noncash interest payments
and (vi) commissions, discounts, and other fees and charges owed
with respect to letters of credit and bankers' acceptance
financing, plus (b) the interest portion of Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued
by such Person and its Consolidated Subsidiaries, plus (c)
capitalized interest, plus (d) Preferred Stock dividends in
respect of Preferred Stock of the Company or any Subsidiary held
by Persons other than the Company or a Wholly Owned Subsidiary.
"Consolidated Net Income (Loss)" means, for any period, the
Consolidated net income (or loss) of the Company and its
Consolidated Subsidiaries for such period as determined in
accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding (i) all extraordinary
gains or losses (less all fees and expenses relating thereto);
(ii) the portion of net income (or loss) of the Company and its
Consolidated Subsidiaries allocable to minority interests in
unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or
one of its Consolidated Subsidiaries; (iii) net income (or loss)
of any Person combined with the Company or any of its
Subsidiaries in a "pooling of interests" basis attributable to
any period prior to the date of combination; (iv) any gain or
loss, net of taxes, realized upon the termination of any employee
pension benefit plan; (v) net gains or losses (less all fees and
expenses relating thereto) in respect of dispositions of assets
other than in the ordinary course of business; and (vi) the net
income of any Subsidiary to the extent that the declaration of
dividends or similar distributions by that Subsidiary of that
income is not at the end of the fiscal quarter in which such net
income was earned permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental
regulations applicable to that Subsidiary or its shareholders
unless, and to the extent, such net income can be paid to the
Company in the form of advances or principal repayments on
intercompany indebtedness, accounts or other obligations.
"Consolidated Net Tangible Assets" means, with respect to
the Company, the total assets shown on the balance sheet of the
Company and its Consolidated Subsidiaries, as determined on a
Consolidated basis in accordance with GAAP consistently applied,
as of the Company's latest fiscal quarter for which financial
information is then required to be available, less goodwill and
other intangibles.
"Consolidated Net Worth" means, with respect to the Company,
the Consolidated shareholders' equity of the Company and its
Subsidiaries, as determined in accordance with GAAP consistently
applied.
"Consolidation" means, with respect to any Person, the
consolidation of the accounts of such Person and each of its
Subsidiaries if and to the extent the accounts of such Person and
each of its Subsidiaries would normally be consolidated with
those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
ADefault" means any event which is, or after notice or
passage of time or both would be, an Event of Default.
"Directors Qualifying Shares" means shares of Capital Stock
of a Person held by nominees, directors or trustees pursuant to
the requirements of the law of the jurisdiction in which such
Person is organized.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an
arm's-length transaction between an informed and willing seller
under no compulsion to sell and an informed and willing buyer.
"Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) the sum of Consolidated Net Income, Consolidated
Interest Expense and Consolidated Income Tax Expense plus,
without duplication, all depreciation, amortization and all other
non-cash charges (excluding any such non-cash charge constituting
an extraordinary item of loss or any non-cash charge which
requires an accrual of or a reserve for cash charges for any
future period), in each case, for such period, of the Company and
its Subsidiaries on a Consolidated basis, all determined in
accordance with GAAP to (b) Consolidated Interest Expense for
such period; provided that in making such computation, the
Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and bearing a floating
interest rate shall be computed as if the rate in effect on the
date of computation had been the applicable rate for the entire
period.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States,
consistently applied, which are in effect on the date of the
Indenture.
"Indebtedness" with respect to any Person is defined as,
without duplication, (i) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or
services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of
credit issued under letter of credit facilities, acceptance
facilities or other similar facilities, now or hereafter
outstanding; (ii) all obligations (other than interest, premium
and additional payments, if any) of such Person evidenced by
bonds, notes, debentures or other similar instruments; (iii) all
indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired
by such Person (even if the rights and remedies of the seller or
lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade
accounts payable arising in the ordinary course of business; (iv)
all Capital Lease Obligations of such Person; (v) all
Indebtedness referred to in clause (i), (ii), (iii), or (iv)
above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien, upon or in property (including, without
limitation, accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the
payment of such Indebtedness; (vi) all guarantees of Indebtedness
by such Person; (vii) all Redeemable Capital Stock valued at the
greater of its voluntary or involuntary maximum fixed repurchase
price, exclusive of accrued and unpaid dividends; (viii) all
obligations under interest rate swap or similar agreements or
currency hedge, exchange or similar agreements of such Person;
and (ix) any amendment, supplement, modification, deferral,
renewal, extension or refunding of any liability of the types
referred to in clauses (i) through (viii) above. For purposes
hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased
on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based
upon, or measured by, the fair market value of such Redeemable
Capital Stock, such fair market value shall be determined in good
faith by the Board of Directors of the issuer of such Redeemable
Capital Stock.
"Indenture Obligations" means, the obligations of the
Company and any other obligor under the Indenture or under the
Notes, including any Guarantor, if any, to pay principal of,
premium, if any, and interest on the Notes when due and payable,
and all other amounts due or to become due under or in connection
with the Indenture or the Notes and the performance of all other
obligations to the Trustee and the holders of the Notes under the
Indenture and the Notes, according to the terms thereof.
"Independent Director" means a director of the Company other
than a director (i) who (apart from being a director of the
Company or any Subsidiaries) is an employee, insider, associate
or Affiliate of the Company or a Subsidiary, or has held any such
position during the previous five years or (ii) who is a
director, an employee, insider, associate or Affiliate of another
party to the transaction in question.
"Investments" means, with respect to any Person, directly or
indirectly, any advance, loan or other extension of credit or
capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services
for the account or use of others), or any purchase or acquisition
by such Person of any Capital Stock, bonds, notes, debentures or
other securities or assets issued or owed by any other Person.
Investments shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade
practices. For the purpose of making any calculations under the
Indenture (i) Investment shall include the amount of Investment
attributed to any Subsidiary at the time that such Subsidiary is
designated an Unrestricted Subsidiary and shall exclude the
amount of Investment attributed to any Unrestricted Subsidiary
that is designated a Subsidiary (which exclusion shall be
effective upon such designation) and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued
at Fair Market Value at the time of such transfer; provided that
in each case, the Fair Market Value of an asset or property shall
be as determined by the Board of Directors of the Company in good
faith.
"Johnsen Family" means (i) Niels W. Johnsen and Erik F.
Johnsen, (ii) the wives and issue of Niels W. Johnsen and Erik F.
Johnsen and (iii) any Affiliate of any of the foregoing.
"Joint Venture Entity" means any Person in which the Company
(directly or indirectly) owns at least a 50% interest and the
remaining interest is owned by Persons who are not Affiliates of
the Company or of any Affiliate of the Company.
"Lien" means any lien, mortgage, charge, pledge, security
interest, or other encumbrance of any kind (including any
conditional sale or other title retention agreement and any lease
in the nature thereof).
"Medium or Long Term Contract" means a contract with a
duration of more than three years (without taking into account
any extension options).
"Net Cash Proceeds" means, with respect to any Asset Sale,
the proceeds thereof in the form of cash or cash equivalents
including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when
disposed of for, cash or cash equivalents (except to the extent
that such obligations are financed or sold with recourse to the
Company or any Subsidiary) net of (i) brokerage commissions and
other reasonable fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where the holder
of such Indebtedness has a security interest in the asset sold in
the Asset Sale, (iv) amounts required to be paid to any Person
(other than the Company or any Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by
the Company or any Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in
an officers' certificate delivered to the Trustee.
"Pari Passu Indebtedness" means Indebtedness of the Company
ranking pari passu in right of payment with the Notes.
"Permitted Indebtedness" means (i) Indebtedness of the
Company or any of its Subsidiaries outstanding on the date of the
Indenture and not repaid out of the proceeds of the Offering;
(ii) Indebtedness of the Company pursuant to the Notes originally
issued on the Issue Date; (iii) Indebtedness of the Company under
one or more Bank Credit Agreements in an aggregate principal
amount at any one time outstanding not to exceed $50,000,000;
(iv) Indebtedness incurred in relation to the provision of bonds,
guarantees, letters of credit or similar obligations required by
the United States Federal Maritime Commission or other
governmental or regulatory agencies in connection with Vessels
owned or business conducted by the Company or any Subsidiary; (v)
Indebtedness of the Company or any Subsidiary to finance the
replacement of a Vessel upon a total loss, destruction,
condemnation, confiscation, requisition, seizure, forfeiture or
other taking of title to or use of such Vessel (provided that
such condemnation, confiscation, requisition, seizure, forfeiture
or other taking of title to or use of such Vessel does not arise
out of any misconduct or negligent omission by the Company or any
of its Subsidiaries) (collectively, a "Total Loss") in an
aggregate amount up to the contract price for such replacement
Vessel less all compensation, damages and other payments
(including insurance proceeds other than in respect of business
interruption insurance) received by the Company or any Subsidiary
from any Person in connection with the Total Loss in excess of
amounts actually used to repay Indebtedness secured by the Vessel
subject to the Total Loss; (vi) Indebtedness of the Company or
any Subsidiary incurred to finance the construction or
acquisition of one or more Vessels in the aggregate principal
amount outstanding at any time (including any renewals,
extensions, substitutions, refundings, refinancings or
replacements thereof pursuant to clause (viii) below) of up to
$100,000,000 (in addition to any such Indebtedness that was not
incurred as Permitted Indebtedness as determined at the time of
incurrence by the Board of Directors and evidenced by a Board
Resolution); provided that (x) with respect to Indebtedness
incurred to finance the construction of any such Vessel, such
Indebtedness does not exceed 80% of the contract price for such
Vessel, (y) with respect to Indebtedness incurred to finance the
acquisition of any such Vessel, such Indebtedness does not exceed
the lesser of (i) the contract price for the acquisition of such
Vessel or (ii) the fair market value of such Vessel at the time
of acquisition and (z) each such Vessel is to be initially
employed (after giving effect to any intermediary intercompany
transactions) pursuant to a then existing binding Medium or
Long-Term Contract with a third party who is not an Affiliate of
the Company or a then existing binding contract with the United
States Military Sealift Command that has a term (including any
extensions at the option of the United States Military Sealift
Command) of at least three years; (vii) any guarantees of
Indebtedness of the Company by a Subsidiary entered into in
accordance with "- Certain Covenants -- Limitations of Guarantees
by Subsidiaries"; (viii) any renewals, extensions, substitutions,
refundings, refinancings or replacements of an Indebtedness
described in clauses (i), (ii), (v) and (vi) of this definition,
including any successive renewals, extensions, substitutions,
refundings, refinancings or replacements so long as such renewal,
extension, substitution, refunding, refinancing or replacement
does not result in an increase in the aggregate principal amount
of the outstanding Indebtedness represented thereby (plus the
amount of any premium required to be paid under the terms of the
instrument governing the Indebtedness being so renewed, extended,
substituted, refunded, refinanced or replaced) and, in the case
of the Notes or any extension, renewal, refunding, refinancing,
or replacement thereof, does not change the Stated Maturity of
any payment of principal thereof to a date earlier than the
Stated Maturity existing at the time of such extension, renewal,
refunding, refinancing or replacement; (ix) Indebtedness of the
Company owing to and held by any Subsidiary of the Company or
Indebtedness of a Subsidiary owing to and held by the Company or
any other Subsidiary of the Company; provided, however, that any
subsequent transfer or any other event which results in any such
Subsidiary ceasing to be a Subsidiary of the Company or any
subsequent transfer of any such Indebtedness (except to the
Company or another Subsidiary) would be deemed, in each case, to
constitute the incurrence of such Indebtedness by the issuer
thereof; (x) any guarantee of Indebtedness permitted to be
incurred under the Indenture; provided, that any Guarantor
complies with "- Certain Covenants -- Limitations of Guarantees
by Subsidiaries" and (xi) Indebtedness of the Company or a
Subsidiary not covered by any other clause of this definition not
to exceed an aggregate principal amount at any time outstanding
of $50,000,000 (as determined at the time of issuance by the
Board of Directors and evidenced by a Board Resolution).
"Permitted Investment" means (i) Investments in any of the
Notes or any Guarantees; (ii) Temporary Cash Investments; (iii)
Investments by the Company in or to any Subsidiary of the Company
and Investments by a Subsidiary of the Company in or to the
Company or a Subsidiary of the Company (or a person who becomes a
Subsidiary as a result of such Investment or who merges or
consolidates into the Company or a Subsidiary of the Company);
(iv) loans or advances not in excess of $1 million outstanding in
the aggregate at any time to employees in the ordinary course of
business; (v) Investments acquired or retained from another
Person in connection with any Asset Sale or other disposition of
assets to such Person; (vi) Investments by any Subsidiary or any
Unrestricted Subsidiary in the Company; (vii) Investments in an
Unrestricted Subsidiary to the extent permitted under clauses
(i)(x) and (ii) of "- Certain Covenants -- Limitations on
Unrestricted Subsidiaries" (it being understood that any
Investment in an Unrestricted Subsidiary made in reliance upon
clause (i)(y) thereunder shall not be deemed to be a Permitted
Investment); and (viii) Investments not to exceed 5% of the
Company's Consolidated Net Tangible Assets at the time of
determination.
"Person" means any individual, corporation, limited or
general partnership, joint venture, association, joint stock
company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents
(however designated) of such Person's preferred stock whether now
outstanding, or issued after the date of the Indenture, and
including, without limitation, all classes and series of
preferred stock.
"Qualified Capital Stock" of any Person means any and all
Capital Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that,
either by its terms, by the terms of any security into which it
is convertible or exchangeable or otherwise, is, or upon the
happening of an event or passage of time would be, required to be
redeemed prior to the final Stated Maturity of the Notes or is
redeemable at the option of the holder thereof at any time prior
to such final Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to such final
Stated Maturity.
"Securities Act" means the Securities Act of 1933, as
amended.
"Significant Subsidiary" means any Subsidiary (including its
subsidiaries) of the Company which at the time of determination
meets any of the following conditions: (1) the Company's and its
other Subsidiaries' investments in the Subsidiary exceeds 10% of
the total assets of the Company and its Subsidiaries Consolidated
as of the end of the most recently completed fiscal year; (2) the
Company's and its other Subsidiaries' proportionate share of the
total assets (after intercompany eliminations) of the Subsidiary
exceeds 10% of the total assets of the Company and its
Subsidiaries Consolidated as of the end of the most recently
completed fiscal year; or (3) the Company's and its other
Subsidiaries' equity in the income from continuing operations
before income taxes, extraordinary items and cumulative effect of
a change in accounting principle of the Subsidiary exceeds 10% of
such income of the Company and its Subsidiaries Consolidated for
the most recently completed fiscal year.
"Stated Maturity" when used with respect to any Note or any
installment of interest thereon, means the dates specified in
such Note as the fixed date on which the principal of such Note
or such installment of interest is due and payable, and when used
with respect to any other Indebtedness, means the date specified
in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or any installment of
interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the
Company which is subordinated in right of payment to the Notes.
"Subsidiary," with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election
of directors under ordinary circumstances shall at the time be
owned, directly or indirectly, by such Person or (ii) any other
Person (other than a corporation) including a partnership in
which the Company, a Subsidiary of the Company or the Company and
a Subsidiary of the Company, directly or indirectly, at the date
of determination thereof, has at least a majority ownership
interest. For the purposes of the Indenture, an Unrestricted
Subsidiary shall not be deemed a Subsidiary of the Company.
"Temporary Cash Investments" means any of the following: (i)
any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the
United States of America or any agency thereof, in each case,
maturing within 360 days of the date of acquisition thereof, (ii)
investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United
States having capital, surplus and undivided profits aggregating
in excess of $300,000,000 and whose debt is rated "A" (or such
similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule
436 under the Securities "ct), (iii) repurchase obligations with
a term of not more than 30 days for underlying securities of the
types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above and
(iv) investments in commercial paper, maturing not more than 90
days after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of the Company) organized
in existence under the laws of the United States of America or
any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is
made of AP-2" (or higher) according to Moody's Investors Service,
Inc. or "A-2" (or higher) according to Standard & Poor's
Corporation.
"Title XI Financing" means any Indebtedness incurred by the
Company or any Subsidiary which is guaranteed by the United
States (or any agency thereof) pursuant to Title XI of the
Merchant Marine Act of 1936, as amended.
"Unrestricted Subsidiary" means (1) any subsidiary of the
Company that at the time of determination shall be an
Unrestricted Subsidiary (as designated by the Board of Directors
of the Company, as provided below) and (2) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Company
may designate any subsidiary of the Company (including any newly
acquired or newly formed subsidiary) to be an Unrestricted
Subsidiary if all of the following conditions apply: (a) such
subsidiary is not liable, directly or indirectly, with respect to
any Indebtedness other than Unrestricted Subsidiary Indebtedness
and (b) any Investment in such subsidiary (which shall be deemed
to be made as a result of designating such subsidiary an
Unrestricted Subsidiary) shall not violate the provisions of "-
Certain Covenants -- Limitation on Unrestricted Subsidiaries."
Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing with the Trustee a
board resolution giving effect to such designation and an
officers' certificate certifying that such designation complies
with the foregoing conditions. The Board of Directors of the
Company may designate any Unrestricted Subsidiary as a
Subsidiary; provided that immediately after giving effect to such
designation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
restrictions under "- Certain Covenants -- Limitation on
Indebtedness."
"Unrestricted Subsidiary Indebtedness" of any Unrestricted
Subsidiary means Indebtedness of such Unrestricted Subsidiary (a)
as to which neither the Company nor any Subsidiary is directly or
indirectly liable (by virtue of the Company or any such
Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), except to
the extent the Company or any Subsidiary is permitted to incur,
create or assume any guarantee of Indebtedness of any Affiliate
pursuant to the provisions under "- Certain Covenants --
Limitation on Restricted Payments", in which case the Company
shall be deemed to have made a Restricted Payment equal to the
principal amount of any such Indebtedness to the extent
guaranteed and (b) which, upon the occurrence of a default with
respect thereto, does not result in, or permit any holder of any
Indebtedness of the Company or any Subsidiary to declare, a
default on such Indebtedness of the Company or any Subsidiary or
cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Vessels" means the shipping vessels owned by and registered
in the name of the Company or any of its Subsidiaries or operated
by the Company pursuant to a lease or other operating agreement
constituting a Capital Lease Obligation.
"Voting Stock" means stock of the class or classes pursuant
to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board
of directors, managers or trustees of a corporation (irrespective
of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening
of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital
Stock of which (other than Directors Qualifying Shares) is owned
by the Company or another Wholly Owned Subsidiary of the Company.
Registration Rights
Pursuant to the Registration Rights Agreement, the Company
agreed to (i) file the Exchange Offer Registration Statement with
the Commission with respect to the Exchange Offer and (ii) within
150 calendar days after the Issue Date, use its best efforts to
cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act. Upon the Exchange Offer
Registration Statement being declared effective, the Company will
offer the New Notes in exchange for surrender of the Old Notes.
The Company will keep the Exchange Offer open for not less than
30 calendar days (or longer if required by applicable law) after
the date the Exchange Offer Registration Statement is declared
effective. For each Old Note surrendered to the Company pursuant
to the Exchange Offer, the Holder of such Old Note will receive a
New Note having a principal amount equal to that of the
surrendered Old Note. Interest on the New Notes will accrue from
the last Interest Payment Date on which interest was paid on the
Old Notes surrendered in exchange therefor or, if no interest has
been paid on such Old Notes, from the date of original issuance
of the Old Notes.
Under existing Commission interpretations, the New Notes
would in general be freely transferable after the Exchange Offer
without further registration under the Securities Act; provided,
that broker-dealers receiving New Notes in the Exchange Offer
will have a prospectus delivery requirement with respect to
resales of such New Notes. The Commission has taken the position
that broker-dealers may fulfill their prospectus delivery
requirements with respect to the New Notes (other than a resale
of an unsold allotment from the original sale of the Old Notes)
with the prospectus contained in this Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company
is required to allow broker-dealers and other Persons, if any,
with similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement
in connection with the resale of such New Notes for a period of
180 calendar days following the consummation of the Exchange
Offer.
Each Holder of Old Notes who wishes to exchange such Notes
for New Notes in the Exchange Offer will be required to represent
that any New Notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no intent or
arrangement with any Person to participate in the distribution
(within the meaning of the Securities Act) of the New Notes and
it is not an "affiliate" as defined in Rule 405 of the Securities
Act of the Company, or if it is an affiliate it will comply with
the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the Holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to
engage in, the distribution of the New Notes. If the Holder is a
broker-dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
In the event that (i) changes in law or in currently
applicable interpretations of the staff of the Commission do not
permit the Company to effect such an Exchange Offer, (ii) the
Exchange Offer is not consummated within 30 Business Days
following the 150th calendar day after the Issue Date, (iii) any
Holder of Notes notifies the Company on or by the 20th Business
Day following consummation of the Exchange Offer that (a) it is
prohibited by law or Commission policy from participating in the
Exchange Offer, (b) it may not resell the New Notes acquired by
it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such
resales or (c) it is a broker-dealer and owns Notes acquired
directly from the Company or an affiliate of the Company or
(iv) any Holder does not otherwise receive freely tradeable New
Notes in the Exchange Offer, the Company will, at its cost,
(a) as promptly as practicable, file a shelf registration
statement (the "Shelf Registration Statement") covering resales
of the Notes, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the
Securities Act and (c) use its best efforts to keep continuously
effective the Shelf Registration Statement until two years after
the Issue Date or such shorter period that will terminate when
all the Notes covered by such Shelf Registration Statement have
been sold pursuant thereto. The Company will, in the event the
Shelf Registration Statement is filed, provide to each Holder of
the Notes copies of the prospectus, which is a part of the Shelf
Registration Statement, notify each such Holder when the Shelf
Registration Statement for the Notes has become effective and
take certain other actions as are required to permit unrestricted
resales of the Notes. Holders of Notes will be required to make
certain representations to the Company (as described above) in
order to participate in the Exchange Offer and will be required
to deliver information to be used in connection with the Shelf
Registration Statement in order to have their Notes included in
the Shelf Registration Statement. A Holder of Notes that sells
such Notes pursuant to the Shelf Registration Statement generally
would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will
be bound by the provisions of the Registration Rights Agreement
which are applicable to such a Holder (including certain
indemnification obligations).
In the event that (i)(A) neither the Exchange Offer
Registration Statement nor Shelf Registration Statement is filed
with the Commission on or prior to the 60th calendar day
following the Issue Date, or (B) notwithstanding that the Company
has consummated or will consummate an Exchange Offer, the Company
is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not filed on or prior to the date
required by the Registration Rights Agreement, (ii)(A) neither
the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective on or prior to the
150th calendar day following the Issue Date, or
(B) notwithstanding that the Company has consummated or will
consummate an Exchange Offer, the Company is required to file a
Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or prior
to the 90th calendar day following the date such Shelf
Registration Statement was filed, then commencing on the day
after the 90th calendar day following the applicable filing date,
(iii) the Exchange Offer is not consummated within 30 Business
Days of the date when the Exchange Offer Registration Statement
was declared effective by the Commission, (iv) the Commission
shall have issued a stop order suspending the effectiveness of
the Exchange Offer Registration Statement or any Shelf
Registration Statement with respect to the Notes at a time when
such Exchange Offer Registration Statement or Shelf Registration
Statement, as the case may be, is required to be kept effective
by the Company or (v) the prospectus contained in any such
Exchange Offer Registration Statement or Shelf Registration
Statement, as amended or supplemented, during any time when any
Person may be required to deliver such prospectus under the
Securities Act, shall not contain current information required by
the Securities Act and the rules and regulations promulgated
thereunder or if during such time any such Exchange Offer
Registration Statement or Shelf Registration Statement contains
an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, then the Company agrees to
pay, or cause to be paid, as liquidated damages and not as a
penalty to each Holder of Transfer Restricted Senior Notes (as
defined below), additional amounts ("Liquidated Damages") equal
to 0.25% per annum of the outstanding principal amount of the
Transfer Restricted Notes for the first 90-day period beginning
on such 60th calendar day or as otherwise required by the
Registration Rights Agreement in case of the foregoing clause
(i), such 150th or 90th calendar day, as the case may be, in the
case of the foregoing clause (ii), such 30th Business Day in the
case of the foregoing clause (iii), from the date of the order
suspending effectiveness in the case of clause (iv), or from the
date on which such prospectus shall not contain such current
information or the date on which the Exchange Offer Registration
Statement or Shelf Registration Statement contains an untrue
statement of a material fact or omits to state a material fact in
the case of the foregoing clause (v). Liquidated Damages shall
be increased by an additional 0.25% per annum of the outstanding
principal amount of the Transfer Restricted Notes for each
subsequent 90-day period up to a maximum aggregate rate of
Liquidated Damages of 1.0% per annum of the outstanding principal
amount of the Transfer Restricted Notes. In each case, such
Liquidated Damages will be payable in cash semi-annually in
arrears on each Interest Payment Date. Upon (1) the filing of
the Exchange Offer Registration Statement or a Shelf Registration
Statement in the case of the foregoing clause (i), (2) the
effectiveness of the Exchange Offer Registration Statement or a
Shelf Registration Statement in the case of the foregoing clause
(ii), (3) the consummation of the Exchange Offer with respect to
the Notes in the case of the foregoing clause (iii), (4) the
Exchange Offer Registration Statement or Shelf Registration
Statement with respect to the Notes, as the case may be, not
being subject to an order suspending the effectiveness thereof in
the case of the foregoing clause (iv), or (5) the prospectus
contained in any such Exchange Offer Registration Statement or
Shelf Registration Statement containing the current information
required by the Securities Act and the rules and regulations
promulgated thereunder and the Exchange Offer Registration
Statement or Shelf Registration Statement not containing an
untrue statement of a material fact or omitting to state a
material fact, as the case may be, in the case of the foregoing
clause (v), Liquidated Damages will cease to accrue. "Transfer
Restricted Notes" means each outstanding Note until (i) the date
on which such Note has been exchanged for a freely transferable
New Note in the Exchange Offer, (ii) the date on which such Note
has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement
or (iii) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is salable
pursuant to Rule 144(k) under the Securities Act. The Company
will not be required to pay liquidated damages to the holder of
Transfer Restricted Notes if such holder failed to comply with
its obligation to make certain representations set forth in the
Registration Rights Agreement or failed to provide the
information required by it, if any, under the Registration Rights
Agreement.
The summary herein of certain provisions of the Registration
Rights Agreement does not purport to be complete and is subject
to, and is qualified in its entirety by reference to all the
provisions of the Registration Rights Agreement, a copy of which
is available upon request to the Trustee. The information set
forth above concerning certain interpretations of and positions
taken by the Commission is not intended to constitute legal
advice, and prospective investors should consult their own legal
advisors with respect to such matters.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, Notes originally
purchased by (i) "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) ("QIBs") will be represented
by a single permanent global certificate in definitive, fully
registered form (the "QIB Global Certificate"), and (ii) foreign
purchasers will be represented by a single global certificate in
definitive, fully registered form (the "Regulation S Global
Certificate" and, together with the QIB Global Certificate, the
"Global Certificates"). Each Global Certificate will be
deposited on the Issue Date with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the name of a nominee of
DTC. The Global Certificates will be subject to certain
restrictions on transfer set forth herein and will bear a legend
regarding such restrictions. Until the expiration of the "40-day
restricted period within the meaning of Regulation S," transfers
of interests in the Regulation S Global Certificate will not be
permitted to be made to a U.S. person or for the account or
benefit of a U.S. person within the meaning of Regulation S.
QIBs, at any time, and purchasers of an interest in the
Regulation S Global Certificate at any time after the expiration
of the 40-day restricted period, may elect to take physical
delivery of Notes issued in certificated form ("Certificated
Securities") instead of holding their interest through a Global
Certificate. In addition, following the initial distribution of
the Notes by the Initial Purchasers, holders of interests in the
QIB Global Certificate may transfer such interests to, among
other permitted investors, institutional accredited investors.
Such institutional accredited investors who do not qualify as
QIBs entitled to hold an interest in the QIB Global Certificate
or as foreign purchasers entitled to hold an interest in the
Regulation S Global Certificate must take physical delivery of
Certificated Securities. All Certificated Securities will bear
appropriate legends and be subject to restrictions on transfers
as set forth herein. Transfers by an owner of a beneficial
interest in the QIB Global Certificate to such institutional
accredited investors will be made only upon receipt by the
Trustee of a certification to the effect that the transferee is
an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act, and that it is acquiring such Notes for
investment purposes and not for distribution in violation of the
Securities Act.
Upon the transfer of an Certificated Security to a QIB or a
foreign purchaser, such Certificated Security, unless the
transferee requests Certificated Securities or the Global
Certificates have previously been exchanged in whole for
Certificated Securities, will be exchanged for an interest in the
QIB Global Certificate or the Regulation S Global Certificate, as
the case may be. Upon the transfer of an interest in a Global
Certificate, such interest will, unless the transferee requests
Certificated Securities or must receive Certificated Securities
as set forth above, be represented by an interest in the
applicable Global Certificate.
The Company expects that pursuant to procedures established
by DTC (i) upon deposit of the Global Certificates, DTC or its
custodian will credit, on its internal system, portions of the
Global Certificates in the respective accounts of persons who
have accounts with such depositary and (ii) ownership of the
Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons
other than participants). Such accounts initially will be
designated by or on behalf of the Initial Purchasers and
ownership of beneficial interests in the Global Certificates will
be limited to persons who have accounts with DTC ("participants")
or persons who hold interests through participants. Holders may
hold their interests in the Global Certificates directly through
DTC if they are participants in such system, or indirectly
through organizations which are participants in the system.
Investors may hold their interests in a Regulation S Global
Security directly through Euroclear System ("Euroclear") or Cedel
Bank, societe anonyme ("Cedel"), if they are participants in such
systems, or indirectly through organizations which are
participants in such systems. Beginning 40 days after the later
of the commencement of the Offering and the Issue Date (but not
earlier), investors may also hold such interests through
organizations other than Cedel or Euroclear that are participants
in the DTC system. Cedel and Euroclear will hold such interests
in a Regulation S Global Security on behalf of their participants
through customers' securities accounts in their respective names
on the books of their respective depositories, which in turn will
hold such interest in a Regulation S Global Security in
customers' securities accounts in the depositories' names on the
books of DTC.
So long as DTC, or its nominee, is the registered owner or
holder of the Global Certificates, DTC or such nominee will be
considered the sole owner or holder of the Notes represented by
the Global Certificates for all purposes under the Indenture and
for any other purposes with respect to the Notes. No beneficial
Certificate owner of an interest in the Global Certificates will
be able to transfer such interest except in accordance with the
DTC's applicable procedures, in addition to those provided for
under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) and interest
on, the Global Certificates will be made to DTC or its nominee,
as the case may be, as the registered owner thereof. Neither the
Company nor the Trustee will have any responsibility for
liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests in the Global
Certificates or for maintaining, supervising or reviewing any
records relating to such beneficial interest.
The Company expects that DTC or its nominee, upon receipt of
any payment of the principal of, premium (if any) and interest
on, the Global Certificates, will credit participants' accounts
with payments in amounts proportionate to their respective
beneficial interests in the principal amount of such Global
Certificates, as the case may be, as shown on the records of DTC
or its nominees. The Company also expects that payments by par
ticipants to owners of beneficial interests in such Global Cer
tificates held through such participants will be governed by sta
nding instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in
the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in
the ordinary way in accordance with DTC rules and will be settled
in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to
persons in states which require physical delivery of such
securities or to pledge such securities, such holder must
transfer its interest in the Global Certificates in accordance
with the normal procedures of DTC and including, with respect to
the Notes, with the procedures set forth in the Indenture.
Before the 40th day after the later of the commencement of
the Offering and the Issue Date, transfers by an owner of a
beneficial interest in the Regulation S Global Certificate to a
transferee who takes delivery of such interest through the QIB
Global Certificate will be made only in accordance with the
applicable procedures and upon receipt by the Trustee of a
written certification from the transferor in the form provided in
the Indenture to the effect that such transfer is being made to a
person whom the transferor reasonably believes in a QIB within
the meaning of Rule 144A in a transaction meeting the
requirements of Rule 144A.
Transfers by an owner of a beneficial interest in a Global
Certificate to a transferee who takes delivery of such interest
through the Regulation S Global Certificate, whether before, on
or after the 40th day after the later of the commencement of the
Offering and the Issue Date, will be made only upon receipt by
the Trustee and the Company of a certification to the effect that
such transfer is being made in accordance with Regulation S.
Any beneficial interest in one of the Global Certificates
that is transferred to a person who takes delivery in the form of
an interest in the other Global Certificate will, upon transfer,
cease to be an interest in such Global Certificate and,
accordingly, will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Certificate with
respect to the applicable notes for as long as it remains such an
interest.
DTC has advised the Company that DTC will take any action
permitted to be taken by a holder of Notes (including the
presentation of Notes for exchange as described below) only at
the direction of one or more participants to whose accounts the
DTC interests in the Global Certificates is credited and only in
respect of the aggregate principal amount of Notes, as the case
may be, as to which such participant or participants has or have
given such direction. However, if there is an Event of Default
under the Indenture, DTC will exchange the Global Certificates
for Certificated Securities, which it will distribute to its
participants and which, if applicable, will be legended.
DTC has advised the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code
and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and
settlement of securities transactions between participants
through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system
is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly.
Although DTC, Euroclear and Cedel are expected to follow the
foregoing procedures in order to facilitate transfers of
interests in the Global Certificates among participants of DTC,
Euroclear and Cedel, they are under no obligation to perform such
procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee will have any responsibility
for the performance by DTC, Euroclear or Cedel or their
respective direct or indirect participants of their respective
obligations under the rules and procedures governing their
operations.
Interests in the Global Certificates will be exchanged for
Certificated Securities if (i) DTC notifies the Company that it
is unwilling or unable to continue as depositary for the Global
Certificates, or DTC ceases to be a "Clearing Agency" registered
under the Exchange Act, and a successor depositary is not
appointed by the Company within 40 days, or (ii) an Event of
Default has occurred and is continuing with respect to the Notes.
Upon the occurrence of any of the events described in the
preceding sentence, the Company will cause the appropriate
Certificated Securities to be delivered.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In
addition, until May 26, 1998 (90 days after the date of this
Prospectus), all dealers effecting transactions in the New Notes
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of
New Notes by broker-dealers. New Notes received by broker-
dealers for their own account pursuant to the Exchange Offer may
be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the
writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of
resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such New Notes may
be deemed to be an Aunderwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and
any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging
that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the
Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-
dealer that requests such documents in the Letter of Transmittal.
The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Old
Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed
upon for the Company by Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P., New Orleans, Louisiana ("Jones,
Walker"). 89,788 shares of the Company's outstanding Common
Stock are beneficially owned by a partner of Jones, Walker who is
a son of the President of the Company, and 90,633 shares are
beneficially owned by a partner of the firm who is the Secretary
of the Company and serves as Secretary and a director of certain
of the Company's subsidiaries.
EXPERTS
The consolidated balance sheets of the Company as of
December 31, 1995 and 1996 and the related statements of income,
changes in stockholders' investment and cash flows for each of
the three years in the period ended December 31, 1996
incorporated by reference in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as stated in
their report with respect thereto and have been incorporated by
reference herein in reliance upon the authority of said firm as
experts in accounting and auditing.
GLOSSARY
Aggregate Vessel Capacity: The aggregate gross tonnage
carrying capacity of the Company's fleet, excluding its LASH
barges and its towboats.
Bareboat charter: " Anet lease" in which the charterer
takes full operational control over the vessel for a specified
period of time (usually medium- to long-term) for a specified
daily rate that is generally paid monthly to the vessel owner.
The bareboat charterer is solely responsible for the operation
and management of the vessel and must provide its own crew and
pay all operating and voyage expenses.
Breakbulk vessel: An ocean-going vessel that transports
general cargo in its hold without first loading such cargo in
separate containers. Loading and unloading of a breakbulk vessel
requires shoreside assistance.
Bulk cargo: Cargo stowed unpackaged in a vessel's hold, not
enclosed in any container such as a box, bale, bag or cask and
not subject to mark or count.
Container ships: Vessels that are designed to transport
multi-purpose standard sized cargo containers that can also be
transported by trucks or rail cars.
Contract of affreightment: A contract by which the vessel
owner undertakes to provide space on a vessel for the carriage of
specified goods or a specified quantity of goods on a single
voyage or series of voyages over a given period of time between
named ports (or within certain geographical areas) in return for
the payment of an agreed amount per unit of cargo carried.
Generally, the vessel owner is responsible for all operating and
voyage expenses.
Drydock: A large, submersible dock in the form of a basin
from which the water can be emptied, into which a ship is taken
for cleaning and repair of underwater surfaces.
DWT: Deadweight tons; the aggregate weight of the cargo,
fuel and ballast that a vessel may legally carry.
FLASH vessel: A non-self propelled LASH vessel used to move
LASH barges between a large LASH vessel and locations other than
the main loading and unloading ports.
FLO-FLO SPVs: Float-On/Float-Off special purpose vessels.
Gross voyage profit: Total revenues less voyage expenses
and vessel and barge depreciation.
LASH vessel: An ocean-going vessel that can pick up and
drop off barges (or lighters) with its own gantry crane and
without assistance from shoreside facilities.
Liner service: Operation of a vessel on an established
trade route with regularly scheduled sailing dates. The vessel
owner receives revenue for the carriage of cargo within the
established trading area and pays the operating and voyage
expenses incurred.
Long-term contract: A contract with a duration of more than
five years.
MarAd: U.S. Maritime Administration, an agency of the U.S.
Department of Transportation.
Medium-term contract: A contract with a duration of three
to five years.
MSC: Military Sealift Command, a branch of the U.S.
Department of Defense that awards contracts for the
transportation of military supplies.
Multi-purpose vessel: A vessel capable of transporting both
containerized and bulk cargo.
PROBO vessel: An ocean-going vessel with holds or tanks
that are rapidly self-cleaning so as to permit the transportation
of bulk and liquid products on back-to-back voyages.
Roll-on/Roll-off vessel (or RO/ROs): An ocean-going vessel
designed to load and unload vehicles by driving them on and off
the vessel. Generally a roll-on/roll-off vessel can also carry
containers.
Short-term contract: A contract with a duration of less
than three years.
SPVs: Special purpose vessels.
Time charter: A contract in which the charterer obtains the
right for a specified period to direct the movements and
utilization of the vessel in exchange for payment of a specified
daily rate, generally paid semi-monthly, but the vessel owner
retains operational control over the vessel. Typically, the
owner fully equips the vessel and is responsible for normal
operating expenses, repairs, wages and insurance, while the
charterer is responsible for voyage expenses, such as fuel, port
and stevedoring expenses.
Title XI guaranteed loan: A loan for the purchase or
construction of marine equipment, the repayment of which is
guaranteed by the United States government in return for a small
fee. Such guarantee is secured by vessel mortgages in favor of
the government. Because of the government guarantee, such loans
are issued at lower interest rates than would otherwise be
available.
============================== ==============================
No person has been
authorized to give any
information or to make any
representations in connection
with the Exchange Offer other
than those contained in this $ 110,000,000
Prospectus and, if given or
made, such other information
and representations must not
be relied upon as having been
authorized by the Company or 7 3/4% Senior Notes
any other person. Neither the due 2007
delivery of this Prospectus
nor any sale made hereunder
shall, under any
circumstances, create any
implication that there has
been no change in the affairs
of the Company since the date INTERNATIONAL
hereof or that the information SHIPHOLDING
contained herein or CORPORATION
incorporated by reference
herein is correct as of any
time subsequent to its date.
This Prospectus does not
constitute an offer to sell, __________________
or a solicitation of an offer
to buy, any securities other PROSPECTUS
than the securities to which __________________
it relates. This Prospectus
does not constitute an offer
to buy such securities in any
circumstances in which such
offer or solicitation is
unlawful.
______________
TABLE OF CONTENTS
Page
Available Information i
Incorporation of Certain Offer to Exchange 7 3/4% Series B
Documents by Reference i Senior Notes
Summary 1 due 2007 for
Risk Factors 8 7 3/4% Series A Senior
Use of Proceeds 13 Notes due 2007
Capitalization 13
Selected Consolidated
Financial Data 14
Management's Discussion
and Analysis
of Financial Condition and
Results of Operations 16
The Exchange Offer 22
Business 29
Management 44
Principal Stockholders 46
Description of
Certain Indebtedness 48
Description of New Credit
Facility 48
Description of the New
Notes 49 Dated February 25, 1998
Book-Entry; Delivery and
Form 69
Plan of Distribution 72
Legal Matters 72
Experts 72
Glossary G-1
Until May 26, 1998 (90 days
after the date of this
Prospectus), all dealers
effecting transactions in the
registered securities whether
or not participating in this
distribution, may be required
to deliver a Prospectus. This
is in addition to the
obligation of dealers to
deliver a Prospectus when
activity as underwriters and
with respect to their unsold
allotments or subscriptions.
============================== ===============================
