AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1996
REGISTRATION NO. 333-06205
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERPOOL LIMITED
(Exact name of registrant as specified in its charter)
BARBADOS 7359, 6159 13-2622821
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification
number)
211 COLLEGE ROAD EAST
PRINCETON, NEW JERSEY 08540
(609) 452-8900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------
ARTHUR L. BURNS, ESQ.
GENERAL COUNSEL AND SECRETARY
INTERPOOL LIMITED
211 COLLEGE ROAD EAST
PRINCETON, NEW JERSEY 08540
(609) 452-8900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------
Copies to:
STROOCK & STROOCK & LAVAN SKADDEN, ARPS, SLATE, MEAGHER & FLOM
SEVEN HANOVER SQUARE 919 THIRD AVENUE
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10022
ATTN: JEFFREY S. LOWENTHAL, ESQ. ATTN: MARK C. SMITH, ESQ.
(212) 806-5400 (212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Share(1) Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 8,797,500 shares(2) $16.00 $140,760,000 $48,539(3)
- -----------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) Includes 1,147,500 shares of Common Stock subject to an over-allotment
option granted to the Underwriters.
(3) The registration fee was paid upon filing of the initial registration
statement on June 18, 1996.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
<TABLE>
<CAPTION>
INTERPOOL LIMITED
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
Item Number
In Form S-1 Item Caption In Form S-1 Location Of Caption In Prospectus
- ----------- -------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover
Pages of Prospectus; Comparison of
United States and Barbados Corporate
Laws
3. Summary Information and Risk Factors ............... Outside Front Cover Page of Prospectus;
Prospectus Summary; Investment
Considerations
4. Use of Proceeds .................................... Use of Proceeds
5. Determination of Offering Price..................... Underwriting
6. Dilution ........................................... Dilution
7. Selling Security Holders............................ Not Applicable
8. Plan of Distribution................................ Outside and Inside Front Cover Pages of
Prospectus; Underwriting
9. Description of Securities to be Registered.......... Prospectus Summary; Description of
Capital Stock
10. Interests of Named Experts and Counsel.............. Legal Matters
11. Information with Respect to the Registrant ......... Outside Front Cover Page; Prospectus
Summary; Investment Considerations; The
Company; Recent Developments;
Recapitalization; Dividend Policy;
Capitalization; Selected Consolidated
Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Certain U.S. Income Tax
Considerations; Certain Barbados Income
Tax Considerations; Business; Management;
Principal Stockholder; Certain
Relationships and Related Transactions;
Description of Capital Stock; Shares
Eligible For Future Sale; Additional
Information; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ...................................... Not Applicable
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 2, 1996
PROSPECTUS
_______, 1996
7,650,000 SHARES
INTERPOOL LIMITED
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
Interpool Limited, a corporation organized under the laws of Barbados (the
"Company"). Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $14 and $16 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
Following the offering, the Company will continue to be controlled by
Interpool, Inc. (the "Parent"), which will control approximately 86.7% of the
voting power of the Company's voting securities.
The Company intends to apply for listing on the New York Stock Exchange
(the "NYSE") under the symbol "___."
See "Investment Considerations" beginning on page 7 for information
that should be considered by prospective investors.
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.
- -------------------------------------------------------------------------------
Price Underwriting Proceeds
to the Discounts and to the
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share.............. $ $ $
- -------------------------------------------------------------------------------
Total(3)............... $ $ $
- -------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $_______, payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to 1,147,500 additional shares of Common Stock, on the same terms and
conditions as set forth above, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company will
be $________, $________ and $_______, respectively. See "Underwriting."
<PAGE>
The shares are being offered by the Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of share certificates will be made in New York, New York
on or about ___________, 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
FURMAN SELZ
<PAGE>
The Company intends to distribute to its shareholders annual reports
containing financial statements audited by its independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A COPY OF THIS PROSPECTUS HAS BEEN LODGED WITH THE REGISTRAR OF
COMPANIES OF BARBADOS AND THE REGISTRAR TAKES NO RESPONSIBILITY AS TO THE
VALIDITY OR VERACITY OF ITS CONTENTS.
NO SHARES ARE TO BE ALLOTTED ON THE BASIS OF THIS PROSPECTUS LATER
THAN THREE (3) MONTHS AFTER THE DATE OF ISSUE OF THIS PROSPECTUS.
THE SECURITIES EXCHANGE OF BARBADOS TAKES NO RESPONSIBILITY FOR THE
VALIDITY OR THE VERACITY OF THE CONTENTS OF THIS DOCUMENT AND HAS NEITHER
APPROVED NOR DISAPPROVED OF THE ISSUE OF ANY SECURITIES MENTIONED IN THIS
DOCUMENT.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, (I) ALL REFERENCES IN THIS PROSPECTUS TO SHARE AND PER SHARE AMOUNTS
GIVE EFFECT TO A RECAPITALIZATION (THE "RECAPITALIZATION") OF THE COMPANY TO BE
EFFECTED PRIOR TO CONSUMMATION OF THE OFFERING MADE HEREBY AND (II) INFORMATION
IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED.
THE COMPANY
Interpool Limited (the "Company") is one of the world's leading
providers of shipping containers for use in international trade, with a
container fleet totalling approximately 253,000 twenty-foot equivalent units
("TEUs"). The Company's containers are leased to over 100 customers throughout
the world, including most of the world's 20 largest shipping lines, with
particular emphasis on customers serving the Pacific Rim, where industry sources
estimate that container shipping has increased by approximately 12% annually
between 1990 and 1994. From 1991 through 1995, the Company's container fleet has
grown by more than 166,000 TEUs and its net income has increased at a 46%
compound annual growth rate.
The Company's business strategy is to lease shipping containers to
customers primarily under long-term lease arrangements, working with its
customers and manufacturers to design and build containers that meet each
customer's particular equipment requirements. As part of its strategy to provide
customized equipment, the Company develops creative logistical solutions to
enable it to deliver containers at a low cost to locations where its customers
can most efficiently add new equipment to their container fleets. Other key
elements of the Company's business strategy include the Company's efficiently
run organization and hands-on management style, its emphasis on access to
low-cost capital, its close working relationships with container manufacturers
and its high quality and young container fleet. The Company's business strategy
has resulted in significant revenue and earnings growth over the past five
years.
Since 1991, virtually all of the Company's new container acquisitions
have been leased to customers under long-term (generally 5 to 8 year) lease
arrangements, enabling the Company to achieve high utilization of its equipment
(in excess of 95% as of December 31, 1995) and predictable revenues. As an
element of its long-term leasing strategy, the Company has instituted a program
of working closely with its customers to find cost-effective ways to meet each
customer's individual requirements for container design or delivery. In many
cases, customers have collaborated with the Company to develop a set of
specifications meeting their particular requirements. The Company purchases
containers it leases to customers primarily through manufacturing programs it
has established with more than 15 manufacturing facilities located in Asia that
satisfy the Company's quality standards. Similarly, in cases where a customer
has special delivery requirements for containers being leased (such as a need
for containers on specified dates in a location where containers are in short
supply), the Company handles the logistics of matching the customer's needs with
the various manufacturing programs it has arranged, utilizing its extensive
relationships with shipping agents, freight forwarders and regional shipping
lines around the world to meet the customer's delivery schedule in a
cost-effective manner. Moreover, the Company's willingness to provide financing
to its customers by leasing containers under a direct finance lease arrangement
has helped to make it an attractive source of containers for its customers. The
Company believes that these special services have distinguished the Company from
most other container leasing companies.
In financing its equipment acquisitions, the Company generally matches
its own equipment financing to the length of the related long-term lease and
anticipated renewals. In addition to its long-term leasing activities, the
Company also operates a small short-term master lease fleet made up of older
units previously leased on a long-term basis and for which the Company's related
acquisition indebtedness was largely amortized during the original lease term.
The Company was founded in 1968 by members of its senior management who
were involved in the development of containerization in the early 1960s. Since
then, the Company has continued to be an innovator in container design and
container logistics. The Company is a subsidiary of Interpool, Inc. (the
"Parent"), which will control approximately 86.7% (85.0% if the Underwriters'
over-allotment option is exercised in full) of the voting power of the Company's
voting securities after this offering. The Company believes that among the key
factors in its success have been the long-standing relationships management has
established with most of the world's major shipping lines, its worldwide network
of approximately 40 offices, agents and sales representatives who maintain
contact with its customers, and its record of providing innovative logistical
solutions to these customers.
<PAGE>
THE OFFERING
Common Stock Offered:............ 7,650,000 shares
Common Stock to be outstanding
after the Offering:.............. 34,150,000 shares
Use of Proceeds:................ To repay borrowings aggregating approximately
$85.0 million, of which approximately $41.4
million is owed to the Parent, and for working
capital and general corporate purposes,
including the purchase of equipment.
Proposed NYSE Symbol:.......... ___
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary historical and pro forma
consolidated financial and operating information for the Company for the periods
and at the dates indicated. The historical financial information for each of the
five years in the period ended December 31, 1995 has been derived from the
Company's historical consolidated financial statements, which have been audited
and reported upon by Arthur Andersen LLP, independent public accountants, whose
report with respect to the three years ended December 31, 1995 appears elsewhere
in this Prospectus. The historical information for the three months ended March
31, 1995 and 1996 and at March 31, 1996 has been derived from the unaudited
financial statements of the Company. The historical information for the three
months ended March 31, 1995 and 1996 and at March 31, 1996 reflects, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the results for the interim periods.
This information should be read in conjunction with the historical consolidated
financial statements of the Company and the notes thereto and the other
financial information appearing elsewhere in this Prospectus. The historical
information for the three months ended March 31, 1996 is not necessarily
indicative of results to be expected for the full year. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Non-related parties........................... $ 25,299 $ 28,895 $32,648 $40,595 $60,942 $12,942 $18,093
Related parties............................... 5,223 3,620 4,239 3,945 3,228 821 793
--------- --------- ------- ------- ------- ------- ------
Total revenues................................ 30,522 32,515 36,887 44,540 64,170 13,763 18,886
Lease operating and administrative expenses:
Non-related parties........................... 7,111 6,952 6,439 5,067 4,429 1,013 1,399
Related parties............................... (494) (419) (410) 607 266 77 326
Depreciation and amortization of leasing
equipment....................................... 9,510 8,748 8,121 9,349 14,778 3,219 4,268
(Gain) loss on sale of leasing equipment........ 1,386 (103) (855) (611) (614) (403) (146)
--------- ------- ------ ------- ------- ------ -----
Earnings before interest and taxes.............. 13,009 17,337 23,592 30,128 45,311 9,857 13,039
Interest expense, net........................... 7,279 6,928 7,636 11,137 21,596 4,560 6,138
--------- ------- ----- ------ ------ ----- -----
Income before taxes............................. 5,730 10,409 15,956 18,991 23,715 5,297 6,901
Provision for income taxes...................... 700 750 871 959 1,159 275 321
--------- ------- ------ ------ -------- -------- --------
Net income...................................... $5,030 $9,659 $15,085 $18,032 $22,556 $5,022 $6,580
======= ======== ======= ======= ======= ====== ======
Net income per share............................ $0.19 $0.36 $ 0.57 $ 0.68 $ 0.85 $ 0.19 $ 0.25
======== ======== ========== ======== ======== ======== ========
Weighted average number of shares outstanding... 26,600 26,600 26,600 26,600 26,600 26,600 26,600
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996
------ -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA DATA:1
<S> <C> <C>
Net income..................................................... $27,100 $7,749
Net income per share........................................... $ 0.84 $ 0.24
Weighted average number of shares outstanding.................. 32,384 32,777
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
Fleet size (TEUs)...........................68,000 80,000 100,000 161,000 234,000 253,000
Percentage of fleet on long-term lease......58% 67% 80% 90% 95% 95%
Fleet utilization percentage................90% 92% 93% 98% 98% 98%
<CAPTION>
AT MARCH 31,
1996
----
AS
ACTUAL ADJUSTED2
(In thousands)
BALANCE SHEET DATA:
<S> <C> <C>
Cash, short-term
investments and marketable securities.. $ 26,104 $ 46,704
Total assets............................. 533,612 554,212
Debt and capital lease obligations....... 411,726 326,726
Stockholders' equity..................... 108,325 213,925
</TABLE>
- -----------------------
1 The pro forma net income gives effect to the elimination of interest
expense of $4.5 million for the year ended December 31, 1995 and $1.2
million for the three months ended March 31, 1996, net of the related
income tax effect, resulting from the application of a portion of the net
proceeds from this offering to repay indebtedness, as if it had occurred at
the beginning of the periods shown. The pro forma weighted average number
of shares outstanding is adjusted for the issuance of 5,784,000 shares in
this offering for the year ended December 31, 1995 and 6,177,000 for the
three months ended March 31, 1996, which represents the number of shares
the sale of which is required to generate the net proceeds required to
repay debt. Pro forma net income does not reflect the extraordinary loss of
$1.4 million on the early repayment of such debt net of applicable taxes.
See "Use of Proceeds."
2 Adjusted to give effect to this offering and the application of the entire
net proceeds therefrom. See "Use of Proceeds."
<PAGE>
INVESTMENT CONSIDERATIONS
Prior to making an investment decision, prospective purchasers of the
Common Stock should carefully consider all of the information set forth in this
Prospectus and, in particular, should evaluate the following investment
considerations:
Cyclicality of World Trade. The demand for the Company's containers
primarily depends upon levels of world trade of finished goods and component
parts. Recessionary business cycles, as well as political conditions, the status
of trade agreements and international conflicts, can have an impact on the
operating results of the Company. In addition, operating costs such as storage
and repair and maintenance costs increase as utilization decreases. When the
volume of world trade decreases, the Company's business of leasing containers
may be adversely affected as the demand for such equipment is reduced. Suppliers
of leased containers, such as the Company, are dependent upon decisions by
shipping lines and other transportation companies to lease rather than buy their
equipment. Most of these factors are outside the control of the Company. A
substantial decline in world trade may also adversely affect the Company's
customers, leading to possible defaults and the return of equipment prior to the
end of a lease term. The Company expects that the maritime container industry
would be adversely affected during an economic downturn. See "Business."
Competition. The container leasing industry is highly competitive. The
Company competes with numerous domestic and foreign container leasing companies,
some of which are much larger than the Company, or are divisions of much larger
companies, and have larger container fleets and greater financial resources than
the Company. In addition, if the available supply of containers were to increase
significantly as a result of, among other factors, new companies entering the
business of leasing and selling such equipment, the Company's competitive
position could be adversely affected. See "Business--Competition."
Tax Considerations. The Company currently receives certain tax benefits
under an income tax convention (the "Treaty") between the United States and
Barbados, the jurisdiction in which the Company is incorporated. See "Certain
U.S. Federal Income Tax Considerations." Under the Treaty, the Company is
generally subject to United States net federal income tax on business profits
only to the extent attributable to the Company's United States permanent
establishment. Income from the leasing of containers used in international
trade, however, is exempt from both United States federal income tax and the
withholding tax under the Treaty, whether or not such income is attributable to
the Company's United States permanent establishment. The Company is entitled to
the benefits of the Treaty, including the U.S. tax exemption for container
leasing income, only if it satisfies the requirements of the Treaty that
prohibit "treaty shopping." Under the treaty shopping provision of the Treaty,
the Company will be eligible for Treaty benefits if its principal class of
shares is substantially and regularly traded on a recognized stock exchange. The
Company believes that its shares of Common Stock will meet this test in the
current year and for all future foreseeable years and that the treaty shopping
provision will not apply. Even if the shares of Common Stock were not considered
to be substantially and regularly traded on a recognized stock exchange, the
Company believes that it would likely satisfy alternative tests contained within
the treaty shopping article of the Treaty so that it would be entitled to the
benefits of the Treaty. If the treaty shopping provision were to apply, however,
the Company's effective U.S. tax rate would be significantly higher than it
currently is. There can be no assurance that the Company will continue to be
eligible for such tax benefits.
For U.S. federal income tax purposes, the shareholders of a foreign
corporation that is treated as a "foreign personal holding company" or a
"passive foreign investment company" are generally taxed in a manner that, in
effect, treats such shareholders as if they received the income of such foreign
corporation each year, whether or not such corporation actually distributed its
income. The Company does not anticipate that it or any subsidiary will become a
foreign personal holding company or a passive foreign investment company in any
future foreseeable year, although no assurance can be given in this regard. See
"Certain U.S. Federal Income Tax Considerations."
No Assurance of Continued Success of the Company's Business Strategy.
While the Company has been successful to date in implementing the various
components of its business strategy, there can be no assurance that economic or
other conditions will not change in a manner which would adversely affect the
viability of such strategy. For example, any significant decrease in customer
demand for long-term leases would adversely affect the continued success of the
Company's current business strategy. In addition, the Company's ability to
procure containers where least expensive and deliver such containers in a
cost-effective manner to the locations requested by customers is substantially
dependent on its success in finding logistical solutions to move equipment at
low cost from manufacturing facilities to customers by utilizing the network of
freight forwarders, agents and regional shipping lines with whom the Company has
relationships. There can be no assurance that such network will continue to be
available to the Company or that it will remain an efficient and inexpensive
method to deliver containers to locations where they are needed. If the
availability or efficiency of such network were to be impaired and the Company
were unable to make comparable alternative arrangements, or if the demand for
customized containers were to decrease, the viability of the Company's current
business strategy would be adversely affected.
Risks of Manufacturing in China. China is currently the largest
container producing nation in the world and the Company currently purchases a
substantial majority of its containers from manufacturers in China. In the event
it were to become more expensive for the Company to procure containers in China
or to transport these containers at a low cost from China to the locations where
needed by customers, either because of increased tariffs imposed by the United
States or other governments or for any other reason, the Company would have to
seek alternative sources of supply. Although the Company believes it has strong
relationships with many manufacturers throughout the world, there can be no
assurance that upon the occurrence of such an event the Company would be able to
make alternative arrangements quickly to meet its equipment needs, nor can there
be any assurance that such alternative arrangements would not increase the costs
to the Company.
Control of the Company; Conflicts of Interest. To date, the Company has
been a wholly-owned subsidiary of the Parent. Upon completion of this offering,
approximately 77.6% (75.1% if the Underwriters' over-allotment option is
exercised in full) of the Company's outstanding Common Stock will be owned by
the Parent. In addition, the Parent will own 100,000 shares of the Company's
Special Voting Preferred Stock. The Parent's ownership of Common Stock and
Special Voting Preferred Stock will give it control of approximately 86.7%
(85% if the Underwriters' over-allotment option is exercised in full) of the
voting power of the Company's voting securities. As a result, the Parent, acting
through its executive officers, will continue to be able to elect the entire
Board of Directors of the Company and to control the direction and future
operations of the Company, including decisions regarding the issuance of
additional shares of Common Stock and other securities. Future transactions by
the Company involving the issuance of Common Stock could reduce the Parent's
ownership of the Company's Common Stock to less than 50%. As long as the Parent
continues to be the majority stockholder of the Company, third parties will not
be able to obtain control of the Company through purchases of Common Stock on
the open market, but the Parent could, subject to compliance with the terms of
the Company's outstanding indebtedness, transfer control of the Company to a
third party. See "Description of Capital Stock."
The Company currently has, and after the offering will continue to have,
certain significant contractual and other relationships with the Parent and its
affiliates. These relationships include the Management Services Agreement
between the Company and the Parent (the "Management Services Agreement"),
pursuant to which the Parent provides the Company with the services of numerous
senior management personnel, including Martin Tuchman, Chairman and Chief
Executive Officer of the Company and the Parent, and Raoul J. Witteveen,
President, Chief Operating Officer and Chief Financial Officer of the Company
and the Parent, as well as various other administrative, technical and other
services that are necessary in connection with the Company's operations. Under
the terms of the Management Services Agreement, which extends until June 30,
2001 and may be renewed by the parties on the same terms for additional 5-year
periods, the Company pays the Parent a fixed fee for all services provided to
the Company in the amount of $1,150,000 for the 12-month period ending June 30,
1997, and increasing each year based on the Consumer Price Index for the New
York City Metropolitan area. Directors and officers of the Company and the
Parent may have conflicts of interest with respect to questions that may arise
in connection with the Management Services Agreement and such other
relationships. See "Management" and "Certain Relationships and Related
Transactions."
A majority of the executive officers of the Company are also executive
officers of the Parent. These individuals spend only that portion of their
business time as officers of the Company as they believe to be required to
oversee the operations of the Company and to direct or implement the Company's
business strategies. They spend and will continue to spend a substantial amount
of their business time as directors and officers of the Parent and its other
subsidiaries. The Parent is a publicly traded company of which approximately
70.2% of the outstanding Common Stock is owned directly or indirectly by Warren
L. Serenbetz, Mr. Tuchman, Mr. Witteveen and Arthur L. Burns, a director and
General Counsel and Secretary of the Parent and General Counsel and Secretary of
the Company, and certain members of their immediate families. Accordingly, such
individuals, through their ownership of the Parent, will continue to have the
ability to elect a majority of the members of the Board of Directors of the
Parent and the Company and to control the outcome of matters submitted to a vote
of the Parent's and the Company's stockholders.
Dependence Upon Management. The Company's growth and continued
profitability are dependent upon, among other things, the abilities, experience
and continued service of certain members of its senior management, particularly
Mr. Tuchman, its Chairman and Chief Executive Officer, and Mr. Witteveen, its
President, Chief Operating Officer and Chief Financial Officer. Each of Messrs.
Tuchman and Witteveen holds, either directly or indirectly, a substantial equity
interest in the Parent and is a director of the Company and the Parent. The
Parent has arranged for Messrs. Tuchman and Witteveen to provide services to the
Company through the Management Services Agreement. There can be no assurance,
however, that the Parent and the Company will be able to retain the services of
either of Messrs. Tuchman or Witteveen. The loss of either such individual could
adversely affect the Company's business and prospects. See "Management" and
"Certain Relationships and Related Transactions."
Volatility of Residual Value of Equipment. Although the Company's
operating results primarily depend upon equipment leasing, the Company's
profitability is also affected by the residual values (either for sale or
continued operation) of its containers upon expiration of its leases. These
values, which can vary substantially, depend upon, among other factors, the
maintenance standards observed by lessees, the need for refurbishment, the
ability of the Company to remarket equipment, the cost of comparable new
equipment, the availability of used equipment, rates of inflation, market
conditions, the costs of materials and labor and the obsolescence of the
equipment. Most of these factors are outside the control of the Company. See
"Business--Operations--Disposition of Containers and Residual Values."
Future Sales of Common Stock. Immediately after the offering made
hereby, the Parent will own 26,500,000 shares of the Company's Common Stock,
representing 77.6% (75.1% if the Underwriters' over-allotment option is
exercised in full) of the issued and outstanding Common Stock. Commencing 90
days after the date of this Prospectus, the Parent will be permitted to sell a
portion of the Parent's shares of the Company's Common Stock pursuant to Rule
144 promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). The Company has entered into a registration rights agreement with the
Parent under which the Parent will have demand registration rights with respect
to the Parent's shares of the Company's Common Stock. The Parent, however, has
agreed, subject to certain exceptions, not to exercise such registration rights
or to sell or otherwise dispose of any shares of the Company's Common Stock for
a period of 180 days after the date of this Prospectus without the consent of
the Representatives of the Underwriters. The sale by the Parent of a significant
number of shares of the Company's Common Stock could have an adverse impact on
the price of the Company's Common Stock or on any trading market that may
develop. See "Shares Eligible For Future Sale."
Limitations on Ownership; Certain Barbados Tax Benefits. In order to
maintain the Company's status as a Barbados International Business Company, not
more than 10% of the Common Stock of the Company may be held by persons who are
residents of the Caricom region, which includes Barbados and 11 other island
nations in the Caribbean. In the event that more than 10% of the Company's
Common Stock is held by such persons, the Company would cease to be eligible for
certain special tax benefits provided under the Barbados International Business
Companies Act, 1991. Loss of such tax benefits would have a material adverse
effect on the Company's earnings. The Company's By-Laws provide that no
allotment of shares shall be made and no transfer of shares shall be registered,
if such allotment or transfer would disqualify the Company from being an
International Business Company, and any such allotment or registration is deemed
to be null and void. However, there can be no assurance that such By-Law
provisions will be effective to maintain the Company's status as a Barbados
International Business Company. See "Description of Capital Stock--Certain
Provisions of the Articles of Continuance and By-Laws."
Absence of Public Market; Possible Volatility of Stock Price; Dilution.
Prior to the offering made hereby, there has been no market for the Common
Stock. Although the Company intends to apply for listing on the New York Stock
Exchange, there can be no assurance that an active trading market for the Common
Stock will develop or, if one does develop, that it will be sustained following
the offering made hereby or that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price will be determined by negotiations between the Company and the
Representatives of the Underwriters. For a description of the factors to be
considered in determining the initial public offering price, see "Underwriting."
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share of
Common Stock from the initial public offering price. See "Dilution."
<PAGE>
THE COMPANY
The Company is one of the world's leading providers of shipping
containers for use in international trade, with a container fleet totalling
approximately 253,000 TEUs. The Company's containers are leased to over 100
customers throughout the world, including most of the world's 20 largest
shipping lines, with particular emphasis on customers serving the Pacific Rim
where container shipping is estimated by industry sources to have increased by
approximately 12% annually between 1990 and 1994. From 1991 through 1995, the
Company's container fleet has grown by more than 166,000 TEUs and its net income
has increased at a 46% compound annual growth rate.
Members of the Company's management team participated in the development
of containerization. In the early 1960's, these individuals began operation of
the first intermodal trans-continental 20-foot containers, and during the late
1960's, they were involved in the creation of container standards through the
International Standards Organization ("ISO") and the American National Standards
Institute.
The Company was formed in 1968 when Warren L. Serenbetz, currently a
director of the Company, Martin Tuchman, currently Chairman of the Board and
Chief Executive Officer of the Company, and two other individuals organized the
Company, through which they conducted a container and chassis leasing business.
The Company sold shares in a public offering in 1972, and by 1976 the Company
was the world's fourth largest container lessor. In 1978, the Company was
acquired by Thyssen-Bornemisza, N.V. ("Thyssen"). As part of Thyssen, the
Company continued to be managed by Messrs. Serenbetz and Tuchman. In 1988,
Messrs. Serenbetz, Tuchman and Witteveen formed the Parent and purchased the
Company from Thyssen.
The Company was originally incorporated in the Commonwealth of the
Bahamas under the name "Pemba Investment Company Limited" in 1968, and changed
its name to "Interpool Limited" in 1970. Under the corporate mobility provisions
of Part VIII of the International Business Companies Act 1989 of the Bahamas and
under similar provisions of the Companies Act, 1982, as amended, of the Laws of
Barbados (the "Companies Act of Barbados"), in May 1990, the Company became a
Barbados International Business Company subject to the Companies Act of Barbados
and International Business Companies Act, 1991 of the laws of Barbados.
The Company has offices in New York, Princeton, Aberdeen, Antwerp,
Barbados, Basel, Hong Kong and Singapore. Except where the context otherwise
requires, references to the Company in this Prospectus include its subsidiaries.
The Company's principal executive offices in the United States are
located at 211 College Road East, Princeton, New Jersey 08540; its telephone
number at that location is (609) 452-8900. The Company's international executive
offices are located in Barbados at Suite 101 Stevmar House, Rockley, Christ
Church, Barbados; its telephone number at that location is (809) 435-8955.
<PAGE>
RECENT DEVELOPMENTS
In April 1996, the Company and the Parent established a Term Loan
Facility (the "Facility") with various banks in the aggregate principal amount
of $80.0 million, under which the Company borrowed $68.0 million. The Company's
obligations under the Facility are secured by containers, operating leases and
direct finance leases and are guaranteed by the Parent. Amounts borrowed under
the Facility are payable over a five year period at a floating interest rate
based on LIBOR. In order to provide the Company with a net fixed interest rate
obligation, the Company has entered into a "swap" transaction.
RECAPITALIZATION
Prior to the offering made hereby the Company had three classes of
stock. In order to simplify its equity structure, the Company will be
recapitalized (the "Recapitalization) prior to consummation of the offering.
Following the Recapitalization, the Company will have an authorized
capitalization consisting of 100,000,000 shares of common stock, no par value
(the "Common Stock"), of which 34,150,000 shares will be outstanding, and
2,000,000 shares of undesignated preferred stock, no par value, of which 100,000
shares of Special Voting Preferred Stock, having a minimum liquidation
preference of $2.0 million, will be outstanding. The Parent will own 26,500,000
shares of Common Stock and 100,000 shares of Special Voting Preferred Stock.
All share information in this Prospectus gives effect to the Recapitalization.
See "Description of Capital Stock."
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated expenses of the offering, are estimated to be $107.0
million ($123.2 million if the Underwriters exercise their over-allotment option
in full). Of such net proceeds, the Company intends to use approximately $85.0
million to repay certain indebtedness, of which $41.4 million is owed to the
Parent and approximately $43.6 million is owed to third-party financial
institutions. The $41.4 million to be repaid to the Parent bears interest at a
rate of 3.0% and matures in 1997. Of the approximately $43.6 million to be
repaid to third party financial institutions, the interest rates range between
7.9% and 8.7% and the maturity dates range from 1997 to 2002. The balance of the
net proceeds, if any, will be used for working capital and general corporate
purposes, including, but not limited to, the purchase of equipment.
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common
Stock or preferred stock in the foreseeable future. It is the present intention
of the Company's Board of Directors to retain all earnings in the Company to
finance its operations and the expansion of its business. Any determination in
the future to pay dividends will depend upon the Company's earnings, financial
condition, cash requirements, future prospects and such other factors as the
Board of Directors deems appropriate at the time.
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of March 31, 1996 (as adjusted to give effect to the
Recapitalization), and (ii) as further adjusted to give effect to the sale by
the Company of the 7,650,000 shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." The table should be read in conjunction with the historical
consolidated financial statements of the Company and the notes thereto, and the
other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As Of March 31, 1996
-----------------------
Actual As Adjusted
---------- ----------
(Dollars In Thousands)
$
<S> <C> <C>
Short-term debt (including current portion of long-term
debt and capital lease obligations).............................................. $ 52,972 $ 46,466
Long-term debt and capital lease obligations....................................... $358,754 $280,260
-------- --------
Total debt and capital lease obligations......................................... 411,726 326,726
-------- --------
Stockholders' equity:
Preferred Stock, no par value:
Shares authorized -- 2,000,000
Shares outstanding -- 100,000 with a minimum liquidation
preference of $2.0 million ................................................... - -
Common Stock, no par value:
Shares authorized -- 100,000,000
Shares outstanding -- 26,500,000, as adjusted 34,150,000...................... - -
Additional paid-in capital....................................................... 28,621 135,621
Retained earnings................................................................ 79,666 78,266
Net unrealized gain on marketable securities..................................... 38 38
-------- ----------
Total stockholders' equity.................................................... 108,325 213,925
-------- ----------
Total capitalization.......................................................... $520,051 $540,651
======== ==========
</TABLE>
<PAGE>
DILUTION
As of March 31, 1996, the Company's pro forma net tangible book value per
share of Common Stock was $4.01. The pro forma net tangible book value per share
of Common Stock has been determined by dividing the net tangible book value of
the Company (tangible assets less liabilities and preferred stock liquidation
preference) by the number of shares of Common Stock as of March 31, 1996 (as
adjusted for the Recapitalization). Dilution represents the difference between
the amount per share of Common Stock paid by new investors and the pro forma net
tangible book value per share of Common Stock after the offering made hereby.
Without taking into account the extraordinary loss of $1.4 million on early
repayment of debt in connection with this offering or any other changes in such
pro forma net tangible book value after March 31, 1996, other than to give
effect to the sale by the Company of 7,650,000 shares of Common Stock in the
offering made hereby at an assumed price of $15.00 per share, the pro forma net
tangible book value of the Company at March 31, 1996 would have been $213.3
million, or $6.25 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.24 per share of Common Stock held by
the Parent, the Company's existing stockholder, and an immediate dilution in net
tangible book value of $8.75 per share of Common Stock to new investors
purchasing in the offering made hereby. This dilution is illustrated in the
following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock............................ $15.00
Pro forma net tangible book value per share of Common Stock before the
offering made hereby .................................................................... $4.01
Increase in pro forma net tangible book value per share of
Common Stock attributable to purchase of Common Stock by new investors................... $2.24
-----
Pro forma net tangible book value per share of Common Stock
after the offering made hereby........................................................... 6.25
-----
Dilution per share to new investors........................................................ $8.75
=====
</TABLE>
The following table summarizes the differences between the Parent and
the new investors, giving effect to the offering made hereby at an assumed price
of $15.00 per share, with respect to the number of shares of Common Stock
purchased, the total consideration paid and the average price per share of
Common Stock paid (before deducting underwriting discounts and commissions and
estimated offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Parent..................... 26,500,000 77.6% $ 38,978,000 25.4% $ 1.47
New investors.............. 7,650,000 22.4% $114,750,000 74.6% $15.00
---------- ----- ------------ ------ ------
Total.................... 34,150,000 100.0% $153,728,000 100.0% $ 4.50
========== ====== ============ ====== ====
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical and pro forma
consolidated financial and operating data for the Company for the periods and at
the dates indicated. The historical financial data for each of the five years in
the period ended December 31, 1995, and at December 31, 1991, 1992, 1993, 1994
and 1995, have been derived from the Company's historical consolidated financial
statements, which have been audited and reported upon by Arthur Andersen LLP,
independent public accountants, whose report with respect to the three years
ended December 31, 1995 appears elsewhere in this Prospectus. The historical
information for the three months ended March 31, 1995 and 1996 and at March 31,
1996 have been derived from the unaudited financial statements of the Company.
The historical information for the three months ended March 31, 1995 and 1996
and at March 31, 1996 reflects, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for the interim periods. This information should be read in
conjunction with the historical consolidated financial statements of the Company
and the notes thereto and the other financial information appearing elsewhere in
this Prospectus. The historical information for the three months ended March 31,
1996 is not necessarily indicative of results to be expected for the full year.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Non-related parties.......................... $ 25,299 $ 28,895 $32,648 $40,595 $60,942 $12,942 $18,093
Related parties.............................. 5,223 3,620 4,239 3,945 3,228 821 793
--------- --------- ------- ------- ------- ------- ------
Total revenues............................... 30,522 32,515 36,887 44,540 64,170 13,763 18,886
Lease operating and administrative expenses:
Non-related parties.......................... 7,111 6,952 6,439 5,067 4,429 1,013 1,399
Related parties.............................. (494) (419) (410) 607 266 77 326
Depreciation and amortization of leasing
equipment...................................... 9,510 8,748 8,121 9,349 14,778 3,219 4,268
(Gain) loss on sale of leasing equipment....... 1,386 (103) (855) (611) (614) (403) (146)
-------- ------- ------- ------- ------- ------- -----
Earnings before interest and taxes............. 13,009 17,337 23,592 30,128 45,311 9,857 13,039
Interest expense, net.......................... 7,279 6,928 7,636 11,137 21,596 4,560 6,138
-------- ------- ------ ------ ------ ----- -----
Income before taxes............................ 5,730 10,409 15,956 18,991 23,715 5,297 6,901
Provision for income taxes..................... 700 750 871 959 1,159 275 321
--------- ------- ------ ------ -------- -------- --------
Net income..................................... $5,030 $9,659 $15,085 $18,032 $22,556 $5,022 $6,580
========= ======== ======= ======= ======= ====== ======
Net income per share........................... $0.19 $0.36 $ 0.57 $ 0.68 $ 0.85 $ 0.19 $ 0.25
======== ========= ======= ======= ======= ======= ========
Weighted average number of shares outstanding.. 26,600 26,600 26,600 26,600 26,600 26,600 26,600
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996
------ -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
PRO FORMA DATA:1
<S> <C> <C>
Net income..................................................... $27,100 $ 7,749
Net income per share........................................... $ 0.84 $ 0.24
Weighted average number of shares outstanding.................. 32,384 32,777
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------------- ------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
Fleet size (TEUs)...........................68,000 80,000 100,000 161,000 234,000 253,000
Percentage of fleet on long-term lease......58% 67% 80% 90% 95% 95%
Fleet utilization percentage................90% 92% 93% 98% 98% 98%
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- -----
ACTUAL ADJUSTED(2)
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash, short-term
investments and
marketable securities..... $ 34,125 $ 32,796 $ 28,509 $ 23,303 $23,222 $ 26,104 $ 46,704
Total assets................ 161,180 182,020 223,780 356,670 496,481 533,612 554,212
Debt and capital lease
obligations............... 108,232 121,809 150,566 266,883 384,282 411,726 326,726
Stockholders' equity........ 38,358 46,035 61,120 78,567 101,725 108,325 213,925
</TABLE>
- ------------------------
1 The pro forma net income gives effect to the elimination of interest
expense of $4.5 million for the year ended December 31, 1995, and $1.2
million for the three months ended March 31, 1996, net of the related
income tax effect, resulting from the application of a portion of the net
proceeds from this offering to repay indebtedness, as if it had occurred at
the beginning of the periods shown. The pro forma weighted average number
of shares outstanding is adjusted for the issuance of 5,784,000 shares in
this offering for the year ended December 31, 1995, and 6,177,000 for the
three months ended March 31, 1996, which represents the number of shares
the sale of which is required to generate the net proceeds required to
repay debt. Pro forma net income does not reflect the extraordinary loss of
$1.4 million on the early repayment of such debt, net of applicable taxes.
See "Use of Proceeds."
2 Adjusted to give effect to this offering and the application of the entire
net proceeds therefrom. See "Use of Proceeds."
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's historical financial
condition and results of operations should be read in conjunction with the
historical consolidated financial statements and the notes thereto and the other
financial information appearing elsewhere in this Prospectus.
GENERAL
The Company generates revenues through leasing transportation
equipment, primarily dry cargo containers. Most of the Company's revenues are
derived from payments under operating leases, and payments under direct finance
leases, pursuant to which the lessee has the right to purchase the equipment at
the end of the lease term.
Revenue derived from an operating lease generally consists of the
total lease payment from the customer. In the three months ended March 31, 1996
and 1995, revenues from operating leases were $13.0 million (69% of revenues)
and $10.3 million (74% of revenues), respectively. In 1995, 1994 and 1993,
revenues derived from operating leases were $47.0 million (73% of revenues),
$35.6 million (80% of revenues) and $30.6 million (83% of revenues),
respectively.
Revenue derived from a direct finance lease consists only of income
recognized over the term of the lease using the effective interest method. The
principal component of the direct finance payment is reflected as a reduction to
the net investment in the direct finance lease. In the three months ended March
31, 1996 and 1995, total payments from direct finance leases were $15.2 million
and $8.9 million, respectively. The revenue component of the total lease payment
totalled $5.9 million (31% of revenues) and $3.5 million (26% of revenues) in
the first three months of 1996 and 1995, respectively. In 1995, 1994 and 1993,
total payments from direct finance leases were $42.5 million, $25.4 million and
$15.4 million, respectively. The revenue component of total lease payments
totalled $17.2 million (27% of revenues), $8.9 million (20% of revenues) and
$6.3 million (17% of revenues) in 1995, 1994 and 1993, respectively.
The Company's effective tax rate benefits substantially from the
application of an income tax convention, pursuant to which the profits of the
Company from container leasing operations are exempt from federal taxation in
the United States. Such profits are subject to Barbados tax at rates which are
significantly lower than the applicable rates in the United States. See "Certain
Barbados Income Tax Considerations" and "Investment Considerations-Tax
Considerations."
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires adoption no later than fiscal 1996.
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill to be held and used, and
for long-lived assets and certain identifiable intangibles to be disposed of.
The Company adopted this Statement as of January 1, 1996. Adoption of this
Statement did not have an effect on results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation," which requires
adoption no later than fiscal 1996. The Statement provides a choice of
accounting methods, the fair value method or the intrinsic value method, with
disclosure of the fair value impact. Both methods require the Company to
estimate, using an option pricing model, the fair value of equity instruments
issued to employees at the date of grant. The fair value method requires
recognition of compensation cost ratably over the vesting period of the
underlying equity instruments. The intrinsic value method requires disclosure of
pro forma net income and earnings per share as if the fair value method had been
applied. The Company adopted this Statement as of January 1, 1996, using the
intrinsic value method. Therefore, there is no impact on results of operations.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
REVENUES. The Company's consolidated revenues increased to $18.9
million in the three months ended March 31, 1996 from $13.8 million in the
three months ended March 31, 1995, an increase of $5.1 million or 37%. This
increase was attributable to increased container revenue resulting from an
increased container fleet size which had grown by approximately 73,000 TEUs, or
46%, from the previous year.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES. The Company's lease
operating and administrative expenses increased to $1.7 million in the three
months ended March 31, 1996 from $1.1 million in the three months ended March
31, 1995, an increase of $.6 million, or 55%. The increase was primarily
attributable to higher lease operating expenses of $.5 million primarily
resulting from increased maintenance and repair costs and increased
administrative expenses of $.1 million resulting primarily from inflation.
DEPRECIATION AND AMORTIZATION. The Company's depreciation and
amortization expenses increased to $4.3 million in the three months ended March
31, 1996 from $3.2 million in the three months ended March 31, 1995, an increase
of $1.1 million or 33%. The increase was due to the expanded operating lease
fleet size.
GAIN ON SALE OF LEASING EQUIPMENT. The Company's gain on sale of leasing
equipment decreased to $.1 million in the three months ended March 31, 1996 from
$.4 million in the three months ended March 31, 1995. This decrease was due to a
lower sales activity as a result of lower margins on sales in 1996.
INTEREST EXPENSE, NET. The Company's net interest expense increased to
$6.1 million in the three months ended March 31, 1996 from $4.6 million in the
three months ended March 31, 1995, an increase of $1.5 million, or 33%. The
issuance of additional debt and lease financing necessary for capital
expenditures resulted in additional interest expense.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes in
both the three months ended March 31, 1996 and the three months ended March 31,
1995 was $.3 million, reflecting the Company's effective tax rate of
approximately 5% in both periods.
NET INCOME. As a result of the factors described above, the Company's
net income increased to $6.6 million in the three months ended March 31, 1996
from $5.0 million in the three months ended March 31, 1995, an increase of $1.6
million or 31%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. The Company's consolidated revenues increased to $64.2 million
in the year ended December 31, 1995 from $44.5 million in the year ended
December 31, 1994, an increase of $19.7 million, or 44%. This increase was
attributable to increased leasing revenue resulting from an increased container
fleet size which by year-end 1995 had grown by approximately 73,000 TEUs from
the previous year.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES. The Company's lease
operating and administrative expenses decreased to $4.7 million in the year
ended December 31, 1995 from $5.7 million in the year ended December 31, 1994, a
decrease of $1.0 million, or 18%. The decrease was primarily attributable to
lower lease operating expenses of $.9 million, resulting from lower storage
costs due to high utilization and lower lease commissions resulting from the
capitalization of lease commissions.
DEPRECIATION AND AMORTIZATION. The Company's depreciation and
amortization expenses increased to $14.8 million in the year ended December 31,
1995 from $9.3 million in the year ended December 31, 1994, an increase of $5.5
million, or 58%. The increase was due to the expanded operating lease fleet
size.
GAIN ON SALE OF LEASING EQUIPMENT. The Company's gain on sale of
leasing equipment remained at $.6 million for both the year ended December 31,
1995 and 1994.
INTEREST EXPENSE, NET. The Company's net interest expense increased to
$21.6 million in the year ended December 31, 1995 from $11.1 million in the year
ended December 31, 1994, an increase of $10.5 million, or 95%. The issuance of
additional debt and lease financing necessary for capital expenditures resulted
in additional $9.9 million interest expense, and decreased investment income of
$.6 million accounted for the remaining increase in interest expense, net.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased to $1.2 million in the year ended December 31, 1995 from $1.0 million
in the year ended December 31, 1994, an increase of $.2 million due to higher
pre-tax earnings. The Company's effective tax rate approximated 5% in both
years.
NET INCOME. As a result of the factors described above, the Company's
net income increased to $22.6 million in the year ended December 31, 1995 from
$18.0 million in the year ended December 31, 1994, an increase of $4.6 million,
or 25%.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. The Company's consolidated revenues increased to $44.5 million
in the year ended December 31, 1994 from $36.9 million in the year ended
December 31, 1993, an increase of $7.6 million, or 21%. This increase was
attributable to increased leasing revenue resulting from a 61,000 TEU increase
in container fleet size from December 31, 1993 to December 31, 1994.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES. The Company's lease
operating and administrative expenses decreased to $5.7 million in the year
ended December 31, 1994 from $6.0 million in the year ended December 31, 1993, a
decrease of $.3 million, or 6%. The decrease was primarily attributable to lower
lease operating expenses of $.5 million primarily resulting from lower handling,
positioning and storage costs, offset by increased administrative expenses of
$.2 million resulting primarily from inflation.
DEPRECIATION AND AMORTIZATION. The Company's depreciation and
amortization expenses increased to $9.3 million in the year ended December 31,
1994 from $8.1 million in the year ended December 31, 1993, an increase of $1.2
million, or 15%. The increase was due to the expanded operating lease
fleet size.
GAIN (LOSS) ON SALE OF LEASING EQUIPMENT. The Company's gain on sale of
leasing equipment decreased to $.6 million in the year ended December 31, 1994
from $.9 million in the year ended December 31, 1993 due to lower sales activity
in disposal of equipment.
INTEREST EXPENSE, NET. The Company's net interest expense increased to
$11.1 million in the year ended December 31, 1994 from $7.6 million in the year
ended December 31, 1993, an increase of $3.5 million. The issuance of additional
debt and lease financing necessary for capital expenditures resulted in an
additional $4.0 million interest expense. Offsetting this was an increase in
investment income of $.5 million.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased to $1.0 million in the year ended December 31, 1994 from $.9 million
in the year ended December 31, 1993, an increase of $.1 million due to higher
pre-tax earnings. The Company's effective tax rate approximated 5% in both
years.
NET INCOME. As a result of the factors described above, the Company's
net income increased to $18.0 million in the year ended December 31, 1994 from
$15.1 million in the year ended December 31, 1993, an increase of $2.9 million,
or 20%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity needs are to meet debt service
payments and to fund acquisitions of leasing equipment. To date, the Company has
funded its acquisitions of leasing equipment and investments in direct finance
leases from internally generated funds, including proceeds received from the
sale of leasing equipment, the issuance of long-term debt and capital lease
obligations and borrowings under existing credit facilities, as well as
borrowings from the Parent. Since 1993 the Parent has guaranteed all significant
borrowings of the Company. See "Recent Developments."
The Company uses funds from various sources to finance the acquisition
of equipment for lease to customers. The primary funding sources are cash
provided by operations and borrowings, generally from banks, the issuance of
capital lease obligations and the sale of the Company's debt securities. In
addition, the Company generates cash from the sale of equipment being retired
from the Company's fleet. In general, the Company seeks to meet debt service
requirements from the leasing revenue generated by its equipment. Since 1990,
the Company has been steadily increasing its fleet of containers and adding to
its portfolio of finance leases. The Company generated cash flow from operations
of $21.3 million and $21.0 million in the first three months of 1996 and 1995,
respectively. In the first three months of 1996 and 1995, net cash provided by
financing activities was $28.1 million and $22.3 million, respectively,
resulting from the proceeds from the issuance of debt in excess of debt
repayment. The Company purchased equipment costing $47.4 million and $41.9
million in the first three months of 1996 and 1995, respectively. The Company
generated cash flow from operations of $56.1 million, $38.2 and $31.6 million in
1995, 1994 and 1993, respectively. In 1995, 1994 and 1993, net cash provided by
financing activities was $117.4 million, $116.3 million and $21.9 million, the
result of the proceeds from the issuance of debt in excess of debt repayment.
The Company purchased equipment costing: $177.3 million in 1995, $164.0
million in 1994, and $67.7 million in 1993.
At December 31, 1995, the Company had $41.4 million in outstanding
loans payable to the Parent, which the Company did not anticipate would be
repaid until the maturity date of December 31, 1997. In addition, the Company
borrowed approximately $14.0 million from the Parent, as a bridge financing in
connection with a long-term bank financing which the Company concluded in April
1996. At that time, the Company repaid the bridge financing to the Parent. As a
result of the offering contemplated hereby, all loans to the Company from the
Parent are expected to be repaid.
The Company, the Parent and an affiliate are participants in a $150.0
million revolving credit facility from a group of commercial banks. Any of the
participants may borrow up to the total unused amount of the facility and all
obligations are guaranteed by the Parent. At March 31, 1996, $40.0 million in
loans to the Company were outstanding and $10.0 million in loans to the Parent
were outstanding. The term of this facility extends until May 31, 1997 (unless
the lenders elect to renew the facility), at which time 25% of the amount then
outstanding becomes due, with the remaining 75% of the facility becoming payable
in equal monthly installments over a five year period. In addition, as of March
31, 1996 the Company had operational lines of credit with banks totaling $63.0
million. As of March 31, 1996, $18.9 million was outstanding under these lines,
all of which was guaranteed by the Parent. At March 31, 1996, the Company had
total debt and capital lease obligations outstanding of $411.7 million.
Subsequent to March 31, 1996, the Company has continued to incur and repay debt
obligations in connection with financing its equipment leasing activities. In
April 1996, the Company borrowed $68.0 million pursuant to a term loan agreement
with a group of banks. See "Recent Developments." Following consummation of the
offering made hereby and the use of proceeds thereof, the Company intends to
repay $41.4 million to the Parent and approximately $43.6 million of outstanding
third party borrowings. See "Use of Proceeds."
As of March 31, 1996, commitments for capital expenditures for
containers totalled approximately $40.0 million. The Company expects to fund
such capital expenditures from the Company's operations and borrowings under its
available credit facilities and new lease financings, as well as from additional
funds raised through the issuance of debt securities in private and/or public
markets.
The Company believes that cash generated by continuing operations,
together with existing credit facilities, the issuance of additional debt
securities and the portion of the proceeds remaining from this offering after
repayment of debt, will be sufficient to finance the Company's working capital
needs for its existing business, planned capital expenditures and expected debt
repayments over the next twelve months. The Company anticipates that long-term
financing will continue to be available for the purchase of equipment to expand
its business in the future.
The following table sets forth certain historical cash flow information
for the three months ended March 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- ------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities............. $31.6 $38.2 $56.1 $21.0 $21.3
Proceeds from disposition of
leasing equipment................................... 9.9 5.0 3.1 0.9 0.9
Acquisition of leasing equipment...................... (52.8) (103.2) (94.8) (20.4) (13.1)
Investment in direct financing leases................. (14.9) (60.8) (82.5) (21.5) (34.3)
Net proceeds of issuance of long-term debt and capital lease obligations in
excess of payment of long-term debt and capital
lease obligations................................... 21.9 116.3 117.4 22.3 28.1
</TABLE>
INFLATION
Management believes that inflation has not had a material adverse effect
on the Company's results of operations. In the past, the effects of inflation on
salaries and operating expenses have been largely offset through economies of
scale achieved through expansion of the business and by the Company's ability to
increase the lease rates for its equipment.
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Baker & McKenzie, United States tax counsel to the
Company, the following correctly describes the material U.S. federal income tax
consequences to the Company and to a U.S. person (i.e., a U.S. citizen or
resident, a U.S. corporation, a U.S. partnership, or an estate or trust subject
to U.S. tax on all of its income regardless of source (a "U.S. Investor")) who
invests in the shares of Common Stock and holds such shares as a capital asset.
The following discussion does not generally address the tax consequences to a
person who holds (or will hold), directly or indirectly, shares of Common Stock
in the Company giving the holder the right to exercise 10% or more of the total
voting power of the Company's outstanding shares of Common Stock (a "10%
Shareholder"). Non-U.S. persons and 10% shareholders are advised to consult
their own tax advisors regarding the tax considerations incident to an
investment in the shares of Common Stock. In addition, this discussion does not
address the U.S. tax treatment of certain types of U.S. Investors (e.g.,
individual retirement and other tax-deferred accounts, life insurance companies
and tax-exempt organizations) or of persons other than U.S. Investors, all of
whom may be subject to tax rules that differ significantly from those summarized
below. The discussion below as it relates to U.S. tax consequences is based upon
the provisions of the U.S.-Barbados Income Tax Convention (the "Treaty") and
the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
U.S. federal income tax consequences different from those discussed below.
Prospective investors are advised to consult their own tax advisors with respect
to their particular circumstances and with respect to the effect of state, local
or foreign tax laws to which they may be subject.
TAXATION OF THE COMPANY
The Company is managed and controlled in Barbados and thus should be
considered to be a resident of Barbados under the Treaty. Under the Treaty, the
Company is generally subject to United States net federal income tax on business
profits only to the extent attributable to the Company's United States permanent
establishment. Income from the leasing of containers used in international
trade, however, is exempt from both United States net federal income tax and the
withholding tax under the Treaty, whether or not such income is attributable to
the Company's United States permanent establishment. The Company is entitled to
the benefits of the Treaty, including the U.S. tax exemption for container
leasing income, only if it satisfies the requirements of the Treaty that
prohibit "treaty shopping." Under the treaty shopping provision of the Treaty,
the Company will be eligible for Treaty benefits if its principal class of
shares is substantially and regularly traded on a recognized stock exchange. The
Company believes that its shares of Common Stock will meet this test in the
current year and for all future foreseeable years and that the treaty shopping
provision would not apply. Even if the shares of Common Stock were not
considered to be substantially and regularly traded on a recognized stock
exchange, the Company believes that it would likely satisfy alternative tests
contained within the treaty shopping article of the Treaty so that it would be
entitled to the benefits of the Treaty. If the treaty shopping provision were to
apply, however, the Company's effective U.S. tax rate would be significantly
higher than it currently is.
If the Company or any of its subsidiaries were treated as a personal
holding company ("PHC"), such corporation would be subject to a U.S. federal
income tax of 39.6% of its taxable income (as determinded after certain
adjustments) to the extent amounts at least equal to such income are not
distributed to its stockholders ("undistributed PHC income"). A PHC is a
corporation (i) more than 50% in value of the stock of which is owned, directly
or indirectly, by five or fewer individuals (without regard to their citizenship
or residence) (the "PHC ownership test") and (ii) which receives 60% or more of
its gross income, as specifically adjusted, from certain passive sources (the
"PHC income test"). For purposes of the PHC income test, income of a foreign
corporation means generally only gross income derived from United States sources
or income that is effectively connected with a U.S. trade or business.
It is likely that, in a given year, the Company or a subsidiary of the
Company will satisfy the PHC ownership test. In addition, it is possible that,
in a given year, the Company or a subsidiary of the Company will satisfy the PHC
income test, thus resulting in treatment as a PHC. Even if the Company or a
subsidiary were to be considered to be a PHC in a future year, however, the
Company does not anticipate that it or any subsidiary would generate any
material amount of undistributed PHC income that would be subject to the PHC tax
(although no assurance can be given that this would continue to be the case). No
benefits under the Treaty would exist with respect to the PHC tax, if
applicable.
TAXATION OF U.S. INVESTORS
Taxation of Distributions
Subject to the discussion under "Foreign Personal Holding Company
Status" and "Passive Foreign Investment Company Status" below, distributions in
respect of Common Stock to U.S. Investors will constitute ordinary dividend
income for United States federal income tax purposes to the extent such
distributions are made from the current or accumulated earnings and profits of
the Company, as determined in accordance with U.S. federal income tax
principles. Such dividends, which will constitute foreign source income for U.S.
foreign tax credit purposes, will not be eligible for the dividends received
deduction otherwise allowed to corporations. To the extent, if any, that the
amount of any such distribution exceeds the Company's current and accumulated
earnings and profits as so computed, it will be treated first as a tax-free
return of the U.S. Investor's tax basis in its Common Stock to the extent
thereof, and then, to the extent in excess of such tax basis, as capital gain.
The amount of any distribution of property other than cash will be the fair
market value of such property on the date of the distribution.
Dispositions of Common Stock
Subject to the discussion under "Passive Foreign Investment Company
Status" below, a U.S. Investor will recognize capital gain or loss for U.S.
federal income tax purposes on a sale or other disposition of Common Stock in an
amount equal to the difference between such U.S. Investor's tax basis in the
Common Stock and the amount realized on the disposition. Such capital gain or
loss will be long-term capital gain or loss if the U.S. Investor has held the
Common Stock for more than one year at the time of the sale or exchange. Gain,
if any, will generally be U.S. source gain for U.S. foreign tax credit
purposes. There is a risk, however, that any loss will be allocated against
non-United States source income for such purposes.
Foreign Personal Holding Company Status
The foregoing discussion assumes that the Company is not currently, and
will not in the future, be classified as, a foreign personal holding company.
Generally, if the Company (or any non-U.S. subsidiary of the Company) were
treated as a foreign personal holding company for any year, a U.S. Investor
would be taxed on the amount it would have received if the Company (or such
subsidiary) had distributed all its undistributed foreign personal holding
company income to U.S. Investors as a dividend. This would mean that a U.S.
Investor would have income without necessarily receiving a corresponding amount
of cash. A foreign personal holding company is a corporation (i) more than 50%
of the stock of which (measured by vote or value) is owned, directly or
indirectly, by five or fewer U.S. individuals (the "ownership test") and (ii)
60% or more of whose gross income, as specifically adjusted, consists of foreign
personal holding company income (the "income test"). Foreign personal holding
company income includes most types of passive income (such as interest,
dividends and rent), but does not include rental income if such rental income
constitutes at least 50% of the foreign corporation's gross income. It is likely
that, in a given year, the Company will satisfy the ownership test. However,
because the Company expects that, on an ongoing basis, rental income will
constitute at least 50% of its gross income, the Company does not anticipate
that it will satisfy the income test and thus should not be considered to be a
foreign personal holding company in the current year or in any future
foreseeable year. In addition, with respect to the Company's non-U.S.
subsidiaries, the Company does not anticipate that any U.S. Investor will be
adversely affected by these rules in the current year or in any future year.
Although no assurance can be given that neither the Company nor any of its
subsidiaries will be a foreign personal holding company, the Company intends to
manage its business and the business of its subsidiaries so as to avoid foreign
personal holding company status for itself and such companies, to the extent
consistent with other business objectives.
Passive Foreign Investment Company Status
The foregoing discussion also assumes that the Company is not
currently, and will not in the future be, classified as a "passive foreign
investment company" ("PFIC"). If, during any taxable year of a non-U.S.
corporation, either (i) 75% or more of such non-U.S. corporation's gross income
consists of certain types of "passive" income (e.g., rents not derived in the
active conduct of a trade or business and not received from related persons) or
(ii) the average value (or, if the non-U.S. corporation so elects, the average
adjusted basis) of such non-U.S. corporation's passive assets is 50% or more of
the average value (or average bases) of all of such assets, then such non-U.S.
corporation will be classified as a PFIC for such year and in succeeding
years. If the Company were to be classified as a PFIC, a U.S. Investor holding
Common Stock may be subject to increased tax liability in respect of gain
realized on the sale of the Common Stock or upon the receipt of certain
distributions, unless such person makes an election to be taxed currently on its
pro rata portion of the Company's income, whether or not such income is
distributed in the form of dividends or otherwise. In addition, if the Company
were to become a PFIC and the election described above were not made for all
years in which the Company was a PFIC, Common Stock acquired from a decedent
would be denied a tax basis step-up to fair market value for U.S. federal tax
purposes.
Based on its current and projected income, assets and activities, the
Company believes that its rental income is derived in the active conduct of a
trade or business and that, therefore, it will not be classified as a PFIC for
its current or any succeeding foreseeable taxable year. In addition, although no
assurance can be given that the Company will not become a PFIC, the Company
intends to manage its business so as to avoid PFIC status to the extent
consistent with its other business objectives.
Backup Withholding
A U.S. Investor may, under certain circumstances, be subject to "backup
withholding" at the rate of 31% with respect to the dividends paid on the Common
Stock or the proceeds of sale, exchange or redemption of Common Stock unless
such U.S. Investor (i) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies that such holder is not
subject to backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Any amount withheld under these
rules will be creditable against the U.S. Investor's United States federal
income tax liability. A U.S. Investor who does not provide a correct taxpayer
identification number may be subject to penalties.
CERTAIN BARBADOS INCOME TAX CONSIDERATIONS
As a company licensed under the Barbados International Business
Company Act, the Company pays corporation income tax at rates between 1% and
2-1/2% of its worldwide net income. No other taxes are imposed on the Company
under the laws of Barbados.
<PAGE>
BUSINESS
The Company is one of the world's leading providers of shipping
containers for use in international trade, with a container fleet totalling
approximately 253,000 TEUs. The Company's containers are leased to over 100
customers throughout the world, including most of the world's 20 largest
shipping lines, with particular emphasis on customers serving the Pacific Rim,
where container shipping is estimated by industry sources to have increased by
approximately 12% annually between 1990 and 1994. From 1991 through 1995, the
Company's container fleet has grown by more than 166,000 TEUs and its net income
has increased at a 46% compound annual growth rate.
Since 1991, virtually all of the Company's new container acquisitions
have been leased to customers under long-term (generally 5 to 8 year) lease
arrangements, enabling the Company to achieve high utilization of its equipment
(in excess of 95% as of December 31, 1995) and predictable revenues. As an
element of its long-term leasing strategy, the Company has instituted a program
of working closely with its customers to find cost-effective ways to meet each
customer's individual requirements for container design or delivery. In many
cases, customers have collaborated with the Company to develop a set of
specifications meeting their customer's particular requirements. The Company
purchases containers it leases to customers primarily through
manufacturing programs it has established with more than 15 manufacturing
facilities located in Asia that satisfy the Company's quality standards.
Similarly, in cases where a customer has special delivery requirements for
containers being leased (such as a need for containers on specified dates in a
location where containers are in short supply), the Company handles the
logistics of matching the customer's needs with the various manufacturing
programs it has arranged, utilizing its extensive relationships with shipping
agents, freight forwarders and regional shipping lines around the world to meet
the customer's delivery schedule in a cost-effective manner. Moreover, the
Company's willingness to provide financing to its customers by leasing
containers under a direct finance lease arrangement has helped to make it an
attractive source of containers for its customers. The Company believes that
these special services it offers its customers have distinguished the Company
from most other container leasing companies.
In financing its equipment acquisitions, the Company generally matches
its own equipment financing to the length of the related long-term lease. In
addition to its long-term leasing activities, the Company also operates a small
short-term master lease fleet made up of older units previously leased to
customers and on which the Company's indebtedness was largely amortized during
the initial lease term.
The Company was founded in 1968 by members of its senior management
who were involved in the development of containerization in the early 1960s.
Since then, the Company has continued to be an innovator in container design and
container logistics. The Company believes that among the key factors in its
success have been the long-standing relationships management has established
with most of the world's major shipping lines, its worldwide network of over 40
offices, agents and sales representatives who maintain contact with its
customers, and its record of offering innovative logistical solutions to these
customers.
INDUSTRY BACKGROUND
Development of Container Usage
The container shipping industry developed in the 1950s when ships were
first specifically designed to carry freight in containers. The adoption of
uniform standards for containers in 1968 by the ISO precipitated a rapid growth
of the container industry, reflecting shipping companies' recognition of the
advantages of containerization over traditional "break bulk" transportation of
cargo in which the goods are unpacked and repacked at various intermediate
points en route to their final destination. This growth resulted in substantial
investments in containers, container ships, port facilities, chassis,
specialized railcars and handling equipment.
The container shipping industry is an important component of global
trade. The industry includes a wide range of participants, including
international shipping lines, freight forwarders, container leasing companies,
manufacturers, port operators, and a variety of financial institutions.
Container leasing companies such as the Company operate fleets of containers
which are leased primarily to shipping lines for use in world trade. Although
the demand for containers is influenced primarily by the volume of international
and domestic trade, in recent years the market share of containerized cargo has
grown at a faster rate than world trade as a whole. The rapid growth in
the container industry has been due to several factors, including the existence
of geographical trade imbalances, the expansion of shipping lines, and changes
in manufacturing practices, such as growing reliance on "just-in-time" inventory
methods and increased exports by certain technologically advanced countries of
component parts for assembly in other countries and the subsequent
re-importation of finished products.
Intermodal Transportation
The fundamental component of intermodal transportation, a container
provides a secure and cost-effective method of transporting finished goods and
component parts because it is generally freely interchangeable between different
modes of transport, making it possible to move cargo from a point of origin to a
final destination without the repeated unpacking and repacking of the goods
required by traditional shipping methods. The same container may be carried
successively on a ship, railcar and by truck and across international borders
with minimal customs formalities. Containerization is more efficient, more
economical and safer in the transportation of cargo than break bulk transport.
By eliminating manual repacking operations when differing modes of
transportation are used, containerization reduces freight and labor costs. In
addition, automated handling of containers permits faster loading and unloading
and more efficient utilization of transportation equipment, thereby reducing
transit time. The protection provided by sealed containers also reduces damage
to goods and loss and theft of goods during shipment. Containers may also be
picked up, dropped off, stored and repaired at independent common user depots
located throughout the world.
Most containers are constructed of steel in accordance with
recommendations of the ISO, although they can be constructed with other
materials such as aluminum, which is lighter but more expensive than steel. The
TEU is the standard measure of dimension for containers used in international
trade, using the standard 20-foot dry cargo container as the unit of
measurement. The basic container type is the general purpose dry cargo container
(accounting for approximately 85% of the world's container fleet), which
measures 20 or 40 feet long, 8 feet wide and 8 1/2 or 9 1/2 feet high. In
general, 20-foot containers are used to carry heavy, dense cargo loads (such as
industrial parts and certain food products) and in areas where transport
facilities are less developed, while 40-foot containers are used for lighter
weight finished goods (such as apparel, electronic appliances and other consumer
goods) in areas with better developed transport facilities. Standards adopted by
the International Convention for Safe Containers and the Institute of
International Container Lessors govern the operation and maintenance of
containers.
Industry Size, Trends, Dynamics
The following graph demonstrates the growth of worldwide container
shipments over the five year period ended December 31, 1995.
[INSERT GRAPH]
[Graph demonstrates growth of worldwide container shipments]
In response to the increase in the volume of international and
domestic trade, the world's largest shipping lines have expanded their capacity
for handling containers. According to industry sources, in 1990, there were a
total of 5,978 container ships in service and on order with total carrying
capacity of 4.4 million TEUs. During 1995 alone, new orders were placed for a
total of 233 vessels with an overall loading capacity of 486,000 TEUs. Moreover,
due to the advantages of intermodal containerization and the increased
globalization of the world economy, the use of containers for domestic
intermodal transportation has also grown over the last few years. Greater use of
containers on cargo ships has led railroad and trucking companies to develop the
capacity to transport containers domestically by chassis and railcar. In
addition, shipping companies have begun soliciting domestic freight in order to
mitigate the cost of moving empty containers back to the port areas for use
again in international trade. The introduction in the mid-1980's of the double
stack railroad car, specially designed to carry containers stacked one on top of
another, accelerated the growth of domestic intermodal transportation by
reducing shipping costs still further. Due to these trends, an increasing
portion of domestic cargo is now being shipped by container instead of by a
conventional highway trailer.
COMPANY STRATEGY
The Company's business strategy consists of several key elements
which, taken together, have enabled the Company to expand its container leasing
business and increase its net income over the last few years. The Company
believes that these strategies have served to differentiate the Company from
most other container leasing companies and have established the Company as one
of the world's leading suppliers of newly manufactured containers to the
shipping industry. The principal aspects of the Company's business strategy are
summarized below.
Emphasis on long-term leases. Currently, over 90% of the Company's
container fleet is leased to customers under long-term agreements. The Company
has found that long-term leases tend to minimize the impact of economic cycles
on the Company's revenues and enable the Company to achieve high utilization,
which produces predictable cash flow and revenues. In addition, the lower rate
of container turnover inherent in long-term leases enables the Company to
concentrate on the expansion of its asset base through the purchase and lease of
new equipment, rather than expending resources on the repeated re-marketing of
its existing container fleet. Long-term leases also reduce the potential for
conflicts with customers over responsibility for damage to returned equipment
and facilitate the Company's efforts to maintain long-standing relationships
with a solid base of core customers. In connection with its long-term leasing
strategy, the Company also seeks to eliminate interest rate risks by matching
its financing with the lease terms of the related long-term leases and
anticipated renewals.
Attention to customer relationships and customization of equipment. In
addition to maintaining close relationships with its large customer base through
its extensive network of local agents, the Company continuously involves its
senior management directly in its customer relationships. An important element
in the Company's customer relationships is its policy of working closely with
customers to find cost-effective ways to meet each customer's individual needs.
In situations where a customer has special equipment requirements, such as a
need for a specific type of flooring or a desire to have containers painted with
the customer's distinctive colors and logo, the Company encourages the customer
to work with the Company's commercial staff to design the container that best
suits the customer's objectives. The Company's relationships with various
manufacturers, where the Company arranges for on-site inspectors to insure
quality of production, have enabled it to meet these special needs efficiently
and cost-effectively. Similarly, in many instances, customers will request
delivery of containers in a location where containers are in short supply. The
Company is able to rely on its extensive container logistics network of freight
forwarders, shipping agents and regional shipping lines to fulfill such requests
by finding innovative ways of efficiently and cost-effectively transporting new
containers from the manufacturing facilities to the locations worldwide where
they may be needed. For example, containers manufactured in China may be loaded
with cargo for Surabaja, Indonesia by the Company's Chinese agent. Upon arrival
in Surabaja, the Company's Indonesian agent will deliver containers in
Indonesia, where needed by a customer, and upon delivery the Company would enter
into a long-term lease with its customer.
Efficient organization and hands-on management. The Company currently
operates its business without a cumbersome corporate bureaucracy and without
numerous levels of middle and senior management, relying on its experienced
personnel and use of state-of-the-art information systems to achieve maximum
productivity. Moreover, the Company continually seeks to improve its operating
structure. Accordingly, as of March 31, 1996, the Company directly employed 26
persons. The Company efficiently uses the services of the Parent provided under
the existing management services agreement. See "Certain Relationships and
Related Transactions--Management Services Agreement." Because of this
philosophy, the Company's field personnel, agents and sales representatives have
direct access to senior management, all of whom are involved in the daily
operations of the business. This enables the Company to respond quickly to
customer requests, and management believes the resulting flexibility provides a
competitive advantage in managing the Company's business. Members of the
Company's senior management have an average of more than 15 years in the
container leasing business. As a result of this extensive experience in the
industry, senior management has an in-depth understanding of the leasing
business and its dynamics as well as the needs of shipping lines. In addition,
because members of the Company's senior management own a controlling interest in
the Parent, which will continue to be the Company's principal stockholder
following this offering, senior management is highly motivated to take actions
that will increase the Company's revenues and profitability.
Expanded access to low-cost capital. The Company's financial condition,
together with the investment grade rating of the Parent, have enabled the
Company to borrow funds to expand its container fleet on a long-term basis on
favorable terms. This has enhanced the Company's profitability and has allowed
it to offer competitive rates to its customers. The Company believes that the
expansion of its capital base through the proceeds of this offering will
position the Company to arrange improved terms for future financings.
Close working relationships with container manufacturers. For its
container purchases, the Company primarily relies on approximately 15
manufacturing facilities located in China and elsewhere in Asia which have
consistently met the Company's quality standards and accommodated the special
container design or other specifications which many of the Company's customers
request. At the same time, because the Company purchases containers on a regular
and consistent basis and in large quantities, it normally does not pay a premium
price to procure containers.
Due to the nature of international trade, geographic areas of peak
demand for containers are frequently subject to change. As a result, the Company
continuously searches for new partners to establish manufacturing facilities in
emerging markets. Such strategic locations form an important base to distribute
containers to ports worldwide.
Maintenance of high quality and young container fleet. Management
believes that the Company's container fleet, which averages approximately 2 1/2
years old, is one of the youngest container fleets among the world's large
container lessors. This, coupled with its high quality standards for containers,
as well as the ability to deliver containers conforming to particular customer
specifications, serves to make the Company's equipment especially attractive to
customers and often results in a container remaining in a shipping company's
fleet for a longer period than may typically be the case with some of the
Company's competitors who offer a more generic product.
BENEFITS OF LEASING
Leasing companies own approximately half of the world's container
fleet, with the balance owned predominantly by shipping lines. Leasing companies
have maintained this market position because container shipping lines receive
both financial and operational benefits by leasing a portion of their equipment.
The principal benefits to shipping lines of leasing are:
o to provide shipping lines with an alternative source of off-balance
sheet financing in a traditionally capital-intensive industry;
o to enable shipping lines to expand their routes and market
shares at a relatively inexpensive cost without making a
permanent commitment to support their new structure;
o to enable shipping lines to benefit from leasing companies'
anticipatory buying and volume purchases, thereby offering
them attractive pricing and prompt delivery schedules;
o to enable shipping lines to accommodate seasonal and/or
directional trade route demand, thereby limiting their capital
investment and storage costs; and
o to enable shipping lines at all times to maintain the optimal mix of
equipment types in their fleets.
Because of these benefits, container shipping lines generally obtain a
significant portion of their container fleets from leasing companies, either on
short-term or long-term leases. Short term leases provide a considerable degree
of operational flexibility in allowing a customer to pick up and drop off
containers at various locations worldwide at any time. However, customers pay
for this flexibility in the form of substantially higher lease rates for
short-term leases and drop-off charges for the privilege of returning equipment
to certain locations. Most short-term leases are "master leases," under which a
customer reserves the right to lease a certain number of containers as needed
under a general agreement between the lessor and the lessee. Long-term leases
provide the lessee with advantageous pricing structures, but usually contain an
early termination provision allowing the lessee to return equipment prior to
expiration of the lease only upon payment of an early termination fee. Since
1991, the Company has experienced minimal early returns under its long-term
leases, primarily because of the penalties involved and because customers must
immediately return all containers covered by the particular long-term lease
being terminated, generally totalling at least several hundred units, and bear
substantial costs related to their repositioning and repair. Frequently, a
lessee will retain long-term leased equipment well beyond the initial lease
term. In these cases, long-term leases will be renewed at the then prevailing
market rate, either for additional one year periods or as part of a short-term
agreement. In some cases, the customer has the right to purchase the equipment
at the end of a long-term lease. The Company's long-term leases generally have
five to eight year terms.
The Company often enters into long-term "direct finance" leases. Under
a direct finance lease, the customer owns the container at the expiration of the
lease term. Although customers pay a higher per diem rate under a direct finance
lease than under a long-term operating lease, a direct finance lease enables the
Company to provide customers with access to financing on terms generally
comparable to those available from financial institutions which provide this
type of financing. The percentage of the Company's revenues provided by direct
finance leases has increased from 12% in 1991 to 27% in 1995.
Shipping lines generally spread their business over a number of
leasing companies in order to avoid dependence on a single supplier.
MARKETING AND CUSTOMERS
The Company leases its containers to over 100 shipping and
transportation companies throughout the world, including most of the world's 20
largest international container shipping lines. With a network of offices and
agents covering all major ports in the United States, Europe and the Far East,
the Company is able to supply containers in nearly all locations requested by
its customers. In 1995, the Company's top 25 customers represented approximately
85% of its revenues, with no single customer accounting for more than 10%. The
customer accounting for the largest portion of the Company's revenues can
change from year to year.
Recognizing the importance of its network of offices and agents, which
provides the Company with a system enabling it to quickly respond to clients'
needs, as well as immediate information concerning shifts in volume and
geographic demand for containers, the Company has invested substantial resources
in establishing and maintaining its network and continually looks to improve it.
OPERATIONS
Lease Terms
Lease rentals are typically calculated on a per diem basis, regardless
of the term of the lease. The Company's operating leases generally provide for
monthly or quarterly billing and require payment by the lessee within 30 to 60
days after presentation of an invoice, while direct finance leases generally
require payments monthly in advance. Generally, the lessee is responsible for
payment of all taxes and other charges arising out of use of the equipment and
must carry specified amounts of insurance to cover physical damage to and loss
of equipment, as well as bodily injury and property damage to third parties. In
addition, the Company's leases usually require lessees to repair any damage to
the containers, although in certain circumstances the Company relieves lessees
of the responsibility of paying repair costs in return for higher lease
payments. Lessees are also required to indemnify the Company against losses to
the Company arising from accidents or similar occurrences involving the leased
equipment. The Company's leases generally provide for pick-up, drop-off and
other charges and set forth a list of locations where lessees may pick up or
return equipment.
Sources of Supply
Because of the rising demand for containers and the availability of
relatively inexpensive labor in the Pacific Rim, approximately 50% of world
container production now occurs in China. Containers are also produced in other
Asian countries, such as Korea, Malaysia, Indonesia, Taiwan and, to a lesser
extent, Thailand and India, and in Europe, South America and South Africa.
Although the Company does not own any manufacturing facilities, it has strong
relationships with numerous manufacturers throughout the world, providing the
Company with access to adequate manufacturing capacity. See "Investment
Considerations--Risks of Manufacturing in China."
Upon completion of manufacture, new containers are inspected to insure
that they conform to applicable standards of the ISO and other international
self-regulatory bodies. The Company also retains an independent contractor as an
inspector at each of the manufacturing facilities it utilizes to insure that
containers produced conform to the Company's manufacturing standards.
Maintenance, Repairs and Refurbishment
Maintenance for new containers has generally been minor in nature.
However, as containers age, the need for maintenance increases, and they may
eventually require extensive maintenance.
The Company's customers are generally responsible for maintenance and
repair of equipment. However, when wear and tear to equipment is excessive, the
equipment may have to be refurbished or remanufactured. Refurbishing and
remanufacturing involve substantial cost. Because facilities for this purpose
are not available at all depots or branches, equipment requiring refurbishment
or remanufacture may have to be repositioned, at additional expense, to the
nearest suitable facility. Alternatively, the Company may elect to sell
equipment requiring refurbishment.
Equipment Tracking and Billing
The Company uses a computer system with proprietary software for
equipment tracking and billing to provide a central operating data base showing
the Company's container leasing activities. The system processes information
received electronically from the Company's regional offices. The system records
the movement and status of each container and links that information with the
complex data comprising the specific lease terms in order to generate billings
to lessees. More than 14,000 movement transactions per month are routinely
processed through the system, which is capable of tracking revenue on the basis
of individual containers. The system also generates a wide range of management
reports containing information on all aspects of the Company's leasing
activities.
Depots
The Company operates out of approximately 40 depots throughout the world.
Depots are facilities owned by third parties at which containers and other items
of transportation equipment are picked up and returned by customers, and stored,
maintained and repaired. The Company retains independent agents at these depots
to handle and inspect equipment delivered to or returned by lessees, store
equipment that is not leased and handle maintenance and repairs of containers.
Some agents are paid a fixed monthly retainer to defray recurring operating
expenses and some are guaranteed a minimum level of commission income. In
addition, the Company generally reimburses its agents for incidental expenses.
Repositioning and Related Expenses
If lessees in large numbers return equipment to a location which has a
larger supply than demand, the Company may incur expenses in repositioning the
equipment to a location with higher demand. Such repositioning expenses
generally range between $50 and $500 per item of equipment, depending on
geographic location, distance and other factors, and may not be fully covered by
the drop-off charge collected from the lessee. In connection with necessary
repositioning, the Company may also incur storage costs, which generally range
between $.20 and $2.50 per TEU per day. In addition, the Company bears certain
operating expenses associated with its containers, such as the costs of
maintenance and repairs not performed by lessees, agent fees, depot expenses for
handling, inspection and storage and any insurance coverage in excess of that
maintained by lessees. The Company's insurance coverage provides protection
against various risks but generally excludes war-related and other political
risks.
Disposition of Containers and Residual Values
From time to time, the Company sells equipment that was previously
leased. The decision whether to sell depends on the equipment's condition,
remaining useful life and suitability for continued leasing or for other uses,
as well as prevailing local market resale prices and an assessment of the
economic benefits of repairing and continuing to lease the equipment compared to
the benefits of selling. Containers are usually sold to shipping or
transportation companies for continued use in the intermodal transportation
industry or to secondary market buyers, such as wholesalers, depot operators,
mini storage operators, construction companies and others, for use as storage
sheds and similar structures.
At the time of sale, the residual value of a container will depend,
among other factors, upon mechanical or economic obsolescence, as well as its
physical condition. While there have been no major technological advances in the
short history of containerization that have made active equipment obsolete,
several changes in standards have decreased the demand for older equipment, such
as the increase in the standard height of containers from 8 feet to 8 1/2 feet
in the early 1970's.
COMPETITION
There are many companies leasing containers with which the Company
competes. Some of the Company's competitors have greater financial resources
than the Company or are subsidiaries or divisions of much larger companies.
Management believes that the Company is currently one of the world's largest dry
cargo container leasing companies.
In addition, the containerized shipping industry which the Company
services competes with providers of alternative methods of transporting goods,
such as by air, truck and rail. The Company believes that in most instances such
alternative methods are not as cost-effective as shipping of containerized
cargo.
Because rental rates for containers are not subject to regulation by
any government authority but are determined principally by the demand for and
supply of equipment in each geographical area, price is one of the principal
methods by which the Company competes. In times of low demand and excess supply,
leasing companies tend to grant price concessions, such as free days or pick-up
credits, in order to keep their equipment on lease and to avoid storage charges.
The Company attempts to design lease packages tailored to the requirements of
individual customers and considers its long-term relationships with customers to
be important to its ability to compete effectively. The Company also competes on
the basis of its ability to deliver equipment in a timely manner in accordance
with customer requirements.
CREDIT RISK
The Company maintains close relationships with a large customer base
and maintains detailed credit records in connection therewith. The Company's
credit policy sets maximum exposure limits for various customers. Credit
criteria may include, but are not limited to, customer trade routes, country,
social and political climate, assessments of net worth, asset ownership, bank
and trade credit references, credit bureau reports, and operational history.
Since 1991, the Company's uninsured losses from defaults by customers
have averaged less than 1% of revenues.
The Company seeks to reduce credit risk by maintaining insurance coverage
against defaults and equipment losses. Although there can be no assurance that
such coverage will be available in the future, the Company currently maintains
contingent physical damage, recovery/repatriation and loss of revenue insurance
which provides coverage in the event of a customer's default. The policy covers
the cost of recovering the Company's containers from the customer, including
repositioning costs, the cost of repairing the containers and the value of
containers which cannot be located or are uneconomical to recover. It also
covers a portion of the lease revenues the Company may lose as a result of the
customer's default (i.e., six months of lease payments following default). The
Company has the option to renew the current policy through August 1999, subject
to premium adjustment.
REAL PROPERTIES
The Company does not own any real estate. All of the Company's
commercial office space, aggregating approximately 14,500 square feet, is
leased. The Company's executive offices in the United States are located at the
Parent's headquarters at 211 College Road East, Princeton, New Jersey 08540 and
its international executive offices are located at Suite 101, Stevmar House,
Rockley, Christ Church, Barbados. The Company also leases office facilities in
New York City, Aberdeen, Antwerp, Basel, Hong Kong and Singapore.
EMPLOYEES
As of May 31, 1996, the Company directly employed 26 employees, 5 of
whom are based in the United States. None of the Company's employees is covered
by a collective bargaining agreement. The Company believes its relations with
its employees are good. See "Management-- Management Services Agreement."
LEGAL PROCEEDINGS
The Company is engaged in various legal proceedings from time to time
incidental to the conduct of its business. In the opinion of management, the
Company is adequately insured against the claims relating to such proceedings,
and any ultimate liability arising out of such proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES
<S> <C> <C>
Martin Tuchman.............................55 Chairman of the Board of Directors and
Chief Executive Officer
Raoul J. Witteveen ........................41 President, Chief Operating Officer, Chief
Financial Officer and Director
Warren L. Serenbetz........................72 Director
Frank Sellier..............................53 Managing Director (Barbados) and Director
Ernst Baenziger............................61 Director
Eric Beerlandt.............................49 Director
David N. King..............................53 Director
Eddie Wang.................................46 Alternate Director to Eric Beerlandt
Arthur L. Burns............................51 General Counsel and Secretary
William Geoghan............................46 Vice President and Controller
James Tan Seng Chwee.......................50 General Manager - Interpool (PTS) Ltd.
Gerald J. Roof.............................61 Vice President, North America Sales and
Marketing
</TABLE>
Martin Tuchman, Chairman of the Board of Directors and Chief Executive
Officer of the Company since February 1988, has also served as Chairman of the
Board of Directors and Chief Executive Officer of the Parent since February
1988. Mr. Tuchman co-founded the Company in 1968. He also has served as a
director of Trac Lease, Inc. ("Trac Lease"), a subsidiary of the Parent, since
June 1987 and as Chief Executive Officer of Trac Lease since January 1988. Mr.
Tuchman has served on the board of directors of Microtech Leasing Corp., a
subsidiary of the Parent, since May 1987. He has also been Chairman of the Board
of Directors of Princeton International Properties, Inc., a family-owned real
estate company. Princeton International Properties owns and has interests in
properties located in Princeton, New Jersey. Mr. Tuchman was previously a member
of the Society of Automotive Engineers as well as the American National
Standards Institute, Currently, Mr. Tuchman is a member of the United Nations
Business Council, a Council comprised of leading international executives,
organized to promote understanding and cooperation between business and
government and a member of the Board of Trustees of the New Jersey Institute of
Technology. Mr. Tuchman holds a bachelor's degree in mechanical engineering from
the New Jersey Institute of Technology (Newark College of Engineering) and a
master's degree in business administration from Seton Hall University.
Raoul J. Witteveen has been President, Chief Operating Officer, Chief
Financial Officer and a director of the Company since April 1988 and has been
President, Chief Operating Officer, Chief Financial Officer and a director of
the Parent since March 1993. He is a co-founder of Trac Lease, a subsidiary of
the Parent, and has been Chief Financial Officer, Vice President and a director
of Trac Lease since June 1987. He is also a director of Microtech Leasing Corp.,
a subsidiary of the Parent. From 1982 to 1986, he served in a variety of
management capacities at Thyssen, the former parent of the Company. Mr.
Witteveen holds a bachelor's degree in economics and business administration and
a master's degree in economics from the Erasmus University in Rotterdam, The
Netherlands.
Warren L. Serenbetz, after co-founding the Company in 1968, served as
the Company's President and Chief Executive Officer and as a director until
1975, after which he was director, Chairman of the Executive Committee and Chief
Executive Officer until his retirement in 1986. Mr. Serenbetz rejoined the Board
of Directors of the Company in 1988. He has been a director of the Parent since
February 1988 and served as Executive Consultant to the Parent from 1992 to
1995. He has also been a director of Trac Lease since its founding in June 1987.
He is also a director of Microtech Leasing Corp. Mr. Serenbetz is currently
president of Radcliff Group Inc. He has been active in industry affairs, serving
as an officer, director and member of various world trade and shipping
<PAGE>
associations. Mr. Serenbetz holds a bachelor's degree in engineering from
Columbia University and a master's degree in industrial engineering from
Columbia University.
Frank Sellier, has been the Managing Director and a director of the
Company since May 1992. He joined the Company in 1978 in the customer service
department and has held various positions including Collections Manager and
Manager of Contract Administration. Mr. Sellier holds a bachelor's degree in
business from Baruch College.
Ernst Baenziger has been an employee of the Company since 1977,
serving as Senior Vice President and a director of the Company since 1991
responsible for the Company's Europe, Far East, Australia and New Zealand
operations. He is also Managing Director of its Basel, Switzerland branch,
handling sales and operations, and a managing director of CTC Equipment A.G. Mr.
Baenziger holds a bachelor's degree in economics and business administration
from Handelshochschule, St. Gallen.
David N. King has been a director of the Company since 1990. Mr. King
is a Barrister and Attorney-at-Law engaging in the practice of law in Barbados.
From 1982 to 1986 he acted as the first in-house Legal Counsel to the Central
Bank of Barbados. Mr. King holds an L.L.B. from London School of Economics and
Barrister's qualification.
Eric Beerlandt, a director of the Company since 1993, joined the
Company in 1973. Mr. Beerlandt serves as General Manager of the Company's
Antwerp office, heads the Company's sales and operational interests in the
Benelux countries, France, Germany, Portugal, Scandinavia, Spain, the United
Kingdom, the Middle East and Africa. Mr. Beerlandt holds a bachelor's degree in
Linguistics from Antwerp State University in Belgium.
Eddie Wang serves as an alternate director to Eric Beerlandt. Mr. Wang
is the Regional Manager for the Far East and Manager of the Company's activities
in Taiwan. Mr. Wang holds a bachelor's degree in Navigation from the National
Maritime University of Taiwan.
Arthur L. Burns, formerly Senior Vice President of Law and
Administration and Secretary of the Company since 1986, has served as General
Counsel and Secretary to the Company since June 1, 1996. Since that date Mr.
Burns has also served as General Counsel and Secretary to the Parent. Prior to
joining the Company, Mr. Burns served as assistant general counsel to GATX
Leasing Corp. between 1975 and 1980, and as an associate attorney at the New
York law firm of Cahill, Gordon & Reindel from 1969 to 1975. Mr. Burns holds a
bachelor's degree in economics from Holy Cross College and a law degree from
Fordham University School of Law.
William Geoghan, Vice President and Controller of the Company since
January 1989, is a certified public accountant and has served as Controller of
the Parent since April 1992. He joined the Company in 1981 and served as
assistant controller for the Company from 1985 to 1989. Mr. Geoghan holds a
bachelor's degree in commerce from Rider University.
James Tan Seng Chwee, who joined the Company in 1977, is General
Manager of Interpool Pte Ltd., a Singapore-based subsidiary of the Company and
its Far East regional office. With over 25 years experience in the shipping and
cargo transportation industry, Mr. Tan handles sales and marketing, operations
and general administration for Eastern Russia, Korea, Japan, South-east Asia,
the Indian Sub-Continent, Australia and New Zealand. His responsibilities also
include inventory reporting for South-east Asia, Japan and Korea.
Gerald J. Roof, with over 30 years experience in the container and
chassis leasing business, is responsible for sales and marketing. He joined the
Company in 1975. Previously, Mr. Roof was vice president of Uniflex Corporation
from 1973 to 1975, general manager (North/South America) of Integrated Container
Service from 1966 to 1973, and a senior sales representative of Railway Express
Agency from 1957 to 1966.
There are no family relationships between members of the Board or any
executive officers of the Company.
Prior to consummation of the offering made hereby, the Company intends to
create a Compensation Committee and an Audit Committee. A majority of the
members of the Compensation Committee will be independent directors. All of the
Audit Committee members will be independent directors in order to comply with
NYSE requirements. It is contemplated that, following the completion of the
offering made hereby, at least one additional director who is not an officer or
director of the Company or the Parent will be elected to the Company's Board of
Directors.
EXECUTIVE COMPENSATION
The Company does not directly pay any compensation to its Chief
Executive Officer and certain of its other executive officers who are also
executive officers of the Parent. Instead, such individuals are compensated by
the Parent. The Company pays fees to the Parent pursuant to the Management
Services Agreement as consideration for such services. See "Management Services
Agreement."
The following table sets forth the portion of the compensation paid or
accrued by the Parent during 1995 to or on behalf of each of its executive
officers who earned over $100,000 from the Parent which was attributable to
services rendered to the Company:
<TABLE>
<CAPTION>
Summary Compensation Table
SALARY BONUS COMMISSIONS
<S> <C> <C> <C>
Martin Tuchman $200,000 (1) $ 0 $ 0
Raoul J. Witteveen $200,000 (1) $ 0 $ 0
Ernst Baenziger $177,600 $ 0 $480,000
Eric Beerlandt $101,800 $105,000 $ 0
Gerald J. Roof $103,000 $ 25,000 $ 0
- -------------------
(1) This amount represents the portion of such officer's compensation allocated
to the Company pursuant to the Management Services Agreement.
</TABLE>
<PAGE>
COMPENSATION OF DIRECTORS
Beginning upon the consummation of the offering made hereby, each
member of the Board who is not an officer or executive consultant of the Company
or the Parent will receive an annual fee of $5,000 for serving on the Board plus
$500 and reimbursement of expenses for each Board or committee meeting attended.
Directors of the Company received no compensation, as directors, during the
Company's last fiscal year.
MANAGEMENT SERVICES AGREEMENT
In ___________ 1996, the Company entered into the Management Services
Agreement with the Parent pursuant to which the Company is furnished with the
services of certain senior management and other personnel who are employees of
the Parent, and certain administrative, support and other services, including
financial reporting, data processing, customer services, collections, payroll,
accounting and computerized equipment tracking, for a fixed annual fee. The
amount of such fee for the 12-month period ending June 30, 1997 will be
$1,150,000, and such fee will increase each subsequent year based on the
increase in the Consumer Price Index for the New York City metropolitan area.
The Management Services Agreement extends until June 30, 2001 and may be renewed
by the parties on the same terms for additional five-year periods. The Company
believes that the fees payable under the Management Services Agreement are
commensurate with those that would be available from non-affiliated entities.
Prior to the Management Services Agreement, the Company and the Parent were
party to a similar management services agreement effective January 1, 1994. For
1995, the Company paid an aggregate of approximately $934,000 to the Parent for
services rendered to it and for reimbursement of expenses incurred on the
Company's behalf by the Parent pursuant thereto.
EMPLOYMENT CONTRACTS
The Company assumed an employment agreement from its Belgian
subsidiary with Eric Beerlandt dated as of May 1, 1981, as
amended on February 16, 1996. Pursuant to the employment agreement, Mr.
Beerlandt receives a base salary in 1996 of $122,569. Mr. Beerlandt is entitled
to an annual vacation and vacation pay pursuant to the laws of Belgium.
Certain members of the Company's management, including Messrs. Tuchman
and Witteveen, have employment agreements with the Parent.
STOCK OPTION PLAN FOR EXECUTIVE OFFICERS AND DIRECTORS
The Company's 1996 Stock Option Plan for Executive Officers and Directors
(the "Stock Option Plan") was adopted by the Company's Board of Directors and
approved by its sole shareholder in ________, 1996. A total of __________ shares
of Common Stock have been reserved for issuance under the Stock Option Plan.
Options may be granted under the Stock Option Plan to executive officers and/or
directors of the Company or a subsidiary (including any executive consultant of
the Company and its subsidiaries), whether or not they are employees. To date,
no options have been granted under the Stock Option Plan.
The Stock Option Plan is administered by a committee of the Board of
Directors (the "Stock Option Committee") consisting of at least two directors.
The Stock Option Plan does not require that the members of the Stock Option
Committee be "disinterested persons" within the meaning of Rule 16b-3, as from
time to time amended, under the Securities Exchange Act of 1934. The Stock
Option Committee has the authority, within limitations as set forth in the Stock
Option Plan, to establish rules and regulations concerning the Stock Option
Plan, to determine the persons to whom options may be granted, the number of
shares of Common Stock to be covered by each option, and the terms and
provisions of the option to be granted. The Stock Option Committee has the right
to cancel any outstanding options and to issue new options on such terms and
upon such conditions as may be consented to by the optionee affected. In
addition, the Stock Option Committee has the authority, subject to the terms of
the Stock Option Plan, to determine the appropriate adjustments in the terms of
each outstanding option in the event of a change in the Common Stock or the
Company's capital structure.
Options granted under the Stock Option Plan may be either incentive
stock options ("ISO's") within the meaning of Section 422 of the Code, or
non-qualified stock options ("NQSO's"), as the Stock Option Committee may
determine. No option intended to qualify as an ISO may be granted to any
individual who, at the time of grant, is not an employee of the Company or a
subsidiary. The exercise price of an option will be fixed by the Stock Option
Committee on the date of grant, except that (i) the exercise price of an ISO
granted to any individual who owns (directly or by attribution) shares of Common
Stock possessing more than 10% of the total combined voting power of all classes
of outstanding stock of the Company (a "10% Owner") must be at least equal to
110% of the fair market value of the Common Stock on the date of grant and (ii)
the exercise price of an ISO granted to any individual other than a 10% Owner
must be at least equal to the fair market value of the Common Stock on the date
of the grant. Any options granted must expire within ten years from the date of
grant (five years in the case of an ISO granted to a 10% Owner). Shares subject
to options granted under the Stock Option Plan which expire, terminate or are
canceled without having been exercised in full become available again for option
grants. No options shall be granted under the Stock Option Plan more than ten
years after the adoption of the Stock Option Plan.
Options are exercisable by the holder subject to terms fixed by the
Stock Option Committee. No option can be exercised until at least six months
after the date of grant. However, an option will be exercisable immediately upon
the happening of any of the following (but in no event during the six-month
period following the date of grant or subsequent to the expiration of the term
of an option): (i) the holder's retirement on or after attainment of age 65;
(ii) the holder's disability or death; or (iii) the occurrence of such special
circumstances or events as the Committee determines merits special
consideration. Under the Stock Option Plan, a holder may pay the exercise price
in cash, by check, by delivery to the Company of shares of Common Stock already
owned by the holder, or, with respect to NQSO's and subject to approval by the
Stock Option Committee, in shares issuable in connection with the option, or by
such other method as the Stock Option Committee may permit from time to time.
Options granted under the Stock Option Plan will be non-transferable
and non-assignable; provided, however, that the estate of a deceased holder may
exercise any options held by the decedent. If an option holder terminates
employment with the Company and all subsidiaries or service as a director of the
Company or a subsidiary while holding an unexercised option, the option will
terminate immediately, but the option holder will have until the end of the
tenth business day following his termination of employment or service to
exercise the option. However, all options held by an option holder will
terminate immediately if the termination is for cause, including but not limited
to a result of a violation of such holder's duties. If cessation of employment
or service is due to retirement on or after attainment of age 65, disability or
death, the option holder or such holder's successor-in-interest, as the case may
be, is permitted to exercise any option within three months of retirement or
disability or within six months of death.
The Stock Option Plan may be terminated and may be modified or amended
by the Committee or the Board of Directors at any time; provided, however, that
(i) no modification or amendment either increasing the aggregate number of
shares which may be issued under options, increasing materially the benefits
accruing to participants under the Stock Option Plan, or materially modifying
the requirements as to eligibility to receive options will be effective without
stockholder approval within one year of the adoption of such amendment and (ii)
no such termination, modification or amendment of the Stock Option Plan will
alter or affect the terms of any then outstanding options without the consent of
the holders thereof. The Stock Option Committee may cancel or terminate an
outstanding option with the consent of the holder and grant an option for the
same number of shares to the individual based on the then fair market value of
the Common Stock, which may be higher or lower than the exercise price of the
canceled option.
DIRECTORS' PLAN
The Company's Non-Qualified Stock Option Plan for Non-Employee,
Non-Officer Directors (the "Directors' Plan") was adopted by the Board of
Directors and approved by the sole stockholder in ________ 1996. The Directors'
Plan provides for the automatic grant of non-qualified options to directors who
are not employees or officers of the Company or the Parent. Under the Directors'
Plan, a non-qualified stock option to purchase 2,000 shares of Common Stock is
automatically granted to each eligible director of the Company, in a single
grant effective upon the offering made hereby or, if later, the time the
director first joins the Board of Directors. The Directors' Plan authorizes
grants of options up to an aggregate of 100,000 shares of Common Stock. The
exercise price per share is the fair market value of the Company's Common Stock
on the date on which the option is granted (the "Grant Date"). The options
granted pursuant to the Directors' Plan may be exercised at the rate of
one-third of the shares on the first anniversary of the director's Grant Date,
one-third of the shares on the second anniversary of the director's Grant Date
and one-third of the shares on the third anniversary of the director's Grant
Date, subject to certain holding periods required under rules of the Securities
and Exchange Commission. Options granted pursuant to the Directors' Plan expire
ten years from their Grant Date. The Directors' Plan is administered by the
Stock Option Committee of the Board of Directors. The Stock Option Committee has
the authority, subject to the terms of the Directors' Plan, to determine the
appropriate adjustments in the event of a change in the Common Stock or the
Company's capital structure, and to perform other administrative functions. The
Directors' Plan permits the exercise of options upon the occurrence of certain
events and upon termination of a director's service as a director (other than
for cause), without regard to the three year schedule described above, under
circumstances similar to those provided in the Stock Option Plan. The Directors'
Plan may be terminated, amended or modified, and any options granted thereunder
may be canceled or terminated, under circumstances similar to those provided in
the Stock Option Plan. Pursuant to the Directors' Plan, in _______ 1996 options
to purchase 2,000 shares of Common Stock at the public offering price of the
shares offered hereby were granted, effective upon the offering made hereby, to
the Company's independent directors. The Director's Plan specifically excludes
each of Messrs. Tuchman, Witteveen, Serenbetz, Burns, Beerlandt, Baenziger and
Wang from receiving grants of options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year of the Company, Messrs. Tuchman and
Witteveen participated in deliberations of the Company's Board of Directors
concerning executive officer compensation.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the Companies Act of Barbados, the Company has adopted
provisions in its By-Laws which eliminate, subject to certain conditions, the
personal liability of directors to the Company and its stockholders for monetary
damages for breach of the directors' fiduciary duties. The By-Laws also provide
for the indemnification of directors and officers of the Company. The Company
also has entered into agreements to indemnify its directors which are intended
to provide the maximum indemnification permitted by Barbados law. These
agreements, among other things, indemnify each of the Company's directors for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by such director in any action or proceeding, including any
action by or in the right of the Company, on account of such director's service
as a director of the Company. The Company intends to obtain insurance for the
benefit of the directors and officers of the Company and its subsidiaries
insuring such persons against certain liabilities, including liabilities under
federal and state securities laws. See "Description of Capital Stock--Barbados
Law and Certain Charter Provisions."
<PAGE>
PRINCIPAL STOCKHOLDER
To date, the Parent has been the sole stockholder of the Company. The
Parent owns 26,500,000 shares of Common Stock, representing all of the shares of
Common Stock outstanding prior to this offering. Upon consummation of the
offering, the Parent will also own 100,000 shares of Special Voting Preferred
Stock. Currently, the Company's Board of Directors is comprised entirely of
designees of the Parent. Following the offering, the Parent will beneficially
own approximately 77.6% of the outstanding Common Stock of the Company
(approximately 75.1% if the Underwriters' over-allotment option is exercised in
full) and will control approximately 85.0% of the voting power of the Company's
voting securities. As a result, the Parent will continue to be able, acting
alone, to cause to be elected the entire Board of Directors of the Company and
to control the vote on all matters submitted to a vote of the Company's
shareholders, including extraordinary corporate transactions. See "Management"
and "Certain Relationships and Related Transactions."
OWNERSHIP OF THE PARENT'S COMMON STOCK
The following table sets forth at May 31, 1996, the percentage
ownership of the Parent's common stock by directors and executive officers of
the Company and all directors and executive officers of the Company as a group,
and by certain other stockholders.
Percentage
OF CLASS(1)
NAME OF BENEFICIAL OWNER
Directors and Officers:
Martin Tuchman................................. 30.6%
Raoul J. Witteveen............................. 15.6
Warren L. Serenbetz............................ 5.3
Arthur L. Burns................................ 1.5
Ernst Baenziger................................ *
David N. King.................................. *
Frank Sellier.................................. *
Eric Beerlandt................................. *
Eddie Wang..................................... *
William Geoghan................................ *
James Tan Seng Chwee........................... *
Gerald J. Roof................................. *
---
Other Stockholders:
Hickory Enterprises, L.P. (2) ................. 19.6%
Warren L. Serenbetz Jr. (3) ................... 1.1%
Paul H. Serenbetz (3) ......................... 1.1%
Stuart W. Serenbetz (3) ....................... 1.1%
Clay R. Serenbetz (3) ......................... 1.1%
The Chartres Limited Partnership (4) .......... *
All directors and executive officers
as a group (12 persons)...................... 76.9%
====
- -------------
(1) The shares "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include shares owned by or for, among others, the wife, minor children
or certain other relatives of such individual, as well as other shares as
to which the individual has or shares voting or investment power or has the
right to acquire within 60 days after May 31, 1996.
(2) On November 30, 1994, Hickory Enterprises, L.P., a Delaware limited
partnership ("Hickory") was formed. Warren L. Serenbetz contributed
1,492,607 shares of the Parent's common stock in exchange for a 44%
interest as a limited partner in Hickory. One half of that interest was
assigned to the Warren L. Serenbetz Retained Annuity Trust, Warren L.
Serenbetz, Jr., Trustee. Each of Warren L. Serenbetz, Jr.,
Stuart W. Serenbetz, Paul H. Serenbetz and Clay R. Serenbetz contributed
427,500 shares of the Company's common stock in exchange for a 12.6%
interest as a limited partner and 47,500 shares for a 1.4% interest as a
general partner in Hickory. Each of the four general partners in Hickory
has one vote on matters before Hickory. Limited partners do not have any
voting rights or rights to participate in management or operations of
Hickory.
(3) Each of Warren L. Serenbetz, Jr., Paul H. Serenbetz, Stuart W. Serenbetz
and Clay R. Serenbetz is a son of Warren L. Serenbetz.
(4) On February 1, 1995, Arthur L. Burns entered into an Agreement of Limited
Partnership pursuant to which Mr. Burns contributed 60,000 shares of
Parent's common stock to The Chartres Limited Partnership ("Chartres"),
in exchange for a 98% limited partnership interest in Chartres. Each
of Meredith K. Burns and Kristin M. Burns, daughters of Arthur L. Burns,
are the other limited partners and the general partners of Chartres.
Limited partners do not have any voting rights or rights to participate in
the management or operation of Chartres.
* Less than one percent of the outstanding shares.
STOCKHOLDERS AGREEMENT FOR THE PARENT
Mr. Tuchman, Mr. Serenbetz, Mr. Witteveen, Mr. Burns, Hickory
Enterprises, L.P., the Serenbetz Trust and Mr. Serenbetz' sons, who collectively
own approximately 70.2% of the Parent's common stock, are parties to an Amended
and Restated Stockholders Agreement, effective as of May 4, 1993 (the
"Stockholders Agreement"), pursuant to which they have agreed not to sell or
transfer any shares of the Parent's common stock beneficially owned by them to
any person other than the Parent or the other parties to the Stockholders
Agreement without the consent of the other parties to the Stockholders
Agreement, unless (i) such shares are first offered to the Parent for purchase
at a per share price equal to the price offered by any third party making a bona
fide offer to buy such shares for cash, cash equivalents or marketable
securities (or if no such bona fide offer has been received, at a price equal to
the average closing price of a share of the Parent's common stock on the New
York Stock Exchange over a period of 20 trading days), and the Parent does not
elect to purchase such shares, and (ii) such shares are then offered to the
other parties to the Stockholders Agreement for purchase by them at the same per
share price described in clause (i) and the other stockholders do not elect to
purchase such shares. Notwithstanding the foregoing, the parties to the
Stockholders Agreement may transfer shares of the Parent's common stock to one
or more of certain members of their immediate families (or trusts for the
benefit of such family members) so long as each transferee agrees to be bound by
the terms of the Stockholders Agreement. The Stockholders Agreement further
provides that if the Parent (which is not a party to the Stockholders Agreement)
elects to purchase any shares offered to it by a party to the Stockholders
Agreement and the shares offered represent greater than 10% of the shares of the
Parent held by the offeror, the Parent shall have the right to pay the purchase
price of such shares by delivery of a promissory note, payable in equal monthly
installments (with interest at the prime rate) over the following year. Pursuant
to the Stockholders Agreement, each of the parties thereto has agreed to vote
for the re-election of Messrs. Tuchman, Serenbetz, Witteveen and Burns as
directors of the Parent. The Stockholders Agreement continues in effect until
2003.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company may be subject to various conflicts of interest arising
out of the relationship between it and the Parent. The Company's Audit Committee
will be responsible for the review and approval of all future agreements between
the Company and its subsidiaries and the Parent, including amendments to, and
any renewal of, the Management Services Agreement between the Parent and the
Company. The Audit Committee will be composed solely of directors who are not
otherwise affiliated with the Company or Parent. See "Management-- Management
Services Agreement."
The Company and the Parent are parties to a Registration Rights
Agreement pursuant to which the Parent may demand registration under the
Securities Act of shares of the Company's Common Stock held by it at any time,
subject to its agreement with the Underwriters not to demand such registration
prior to the expiration of 180 days from the date of this Prospectus. The
Company may postpone compliance with such a demand under certain circumstances.
In addition, the Parent may request the Company to include shares of the
Company's Common Stock held by it in any registration proposed by the Company of
its Common Stock under the Securities Act.
As of December 31, 1995, 1994, and 1993, the Company had outstanding
loans payable to the Parent with an aggregate principal balance of $41,409,000,
$3,846,000 and $7,767,000, respectively. The purpose of the loans was to provide
the Company with interim financing for the purchase of new equipment until
long-term financing could be obtained by the Company. The interest rate charged
to the Company is 3.0% per annum on the average monthly balance, which is below
market rate. For the years ended December 31, 1995, 1994 and 1993, interest was
paid on the loans in the amounts of $964,440, $708,469 and $228,960,
respectively. As a result of the offering contemplated hereby, such loans are
expected to be repaid in full.
The Company supplies containers to the U.S. military through Military
Transport, Inc., a wholly-owned subsidiary of the Parent. Revenues earned by the
Company from this activity for 1995 and 1994 were $138,072 and $90,428
respectively.
As part of a corporate restructuring in March 1993, the Company
assumed the obligations of Trac Lease, Inc., a subsidiary of the Parent ("Trac
Lease"), under a ten-year lease of 3,334 chassis expiring in September 1998 owed
to CIT Group/Equipment Financing, Inc. ("CIT"), and simultaneously sub-leased
such chassis at the same rental rate over the remaining term to the Parent's
subsidiary, Trac Lease. The debt obligation to CIT as of December 31, 1995 was
$10,615,528. In the event that Trac Lease were to default under the sublease,
the Company would be entitled to recover the equipment.
For the years ended December 31, 1995, 1994 and 1993, the Company
charged Trac $804,000, $657,000 and $660,000, respectively, as reimbursement of
allocated insurance expenses and other minor administrative expenses incurred on
Trac's behalf.
Messrs. Tuchman, Witteveen and Serenbetz are members of The Ivy Group, a
partnership. In August 1990, the Company participated in a lease transaction
with an unrelated third party, as lessor, and The Ivy Group, as lessee, pursuant
to which the Company is obligated to purchase 1,400 dry cargo container chassis
at a price of approximately $5.0 million in the event that The Ivy Group
defaults on its obligations under the lease or a price of approximately $4.1
million in the event that The Ivy Group declines to repurchase the equipment
upon the expiration of the lease term in August 1997. The Ivy Group has
undertaken to purchase the chassis upon the expiration of the lease.
David N. King, a director of the Company, practices law in Barbados
through the law firm of David King & Co. In 1995, 1994 and 1993, the Company
paid legal fees to David King & Co. of $30,552, $12,160 and $22,600,
respectively.
In 1995, the Parent allocated to the Company a share of bankruptcy, all
risk and liability insurance coverage premiums based upon relative fleet size
and equipment value, which totalled approximately $362,000.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is
subject to the Companies Act, 1982, as amended of the laws of Barbados (the
"Companies Act of Barbados") and to provisions contained in the Company's
Restated Articles of Continuance (the "Articles") and Restated Bylaws (the
"Bylaws"), as each of which will be amended prior to consummation of the
Offering and copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. Reference is made to such
exhibits for a detailed description of the provisions thereof summarized below.
Upon consummation of the offering made hereby, the authorized capital
stock of the Company will consist of one million shares of preferred stock, no
par value, without designation (the "Preferred Stock"), none of which will be
issued and outstanding, and 100 million shares of Common Stock, no par value, of
which 34,150,000 of which shares will be issued and outstanding. See
"Recapitalization."
COMMON STOCK
Dividends
After any requirements with respect to dividends on any Preferred
Stock have been met, the holders of Common Stock will be entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors on the Common Stock, which dividends will be paid out of assets
legally available therefor and will be distributed pro rata in accordance with
the number of shares of Common Stock held by each such holder. See "Dividend
Policy."
Voting Rights
Each holder of Common Stock is entitled to one vote per share on each
matter to be voted on by stockholders. Because there is no cumulative voting of
shares, the holders of a majority of the voting power of the shares voting for
the election of directors can elect all of the directors if they choose to do
so. See "Investment Considerations--Control of the Company; Conflicts of
Interest."
Liquidation Rights
In the event of any liquidation, distribution or sale of assets,
dissolution or winding-up of the Company, holders of Common Stock will be
entitled to share equally and ratably in all assets available for distribution
to stockholders after payment of creditors and distribution in full to the
holders of any series of Preferred Stock outstanding at the time of any
preferential amount to which they may be entitled.
Restrictions on Transfer of Shares.
In order to maintain its status as a Barbados International Business
Company, not more than 10% of the shares of Common Stock of the Company may be
held by persons who are residents of the Caricom region, which includes Barbados
and 11 other island nations in the Caribbean. In the event that more than 10% of
the Company's Common Stock is held by such persons, the Company would cease to
be eligible for certain special tax benefits provided under the Barbados
International Business Companies Act, 1991. The Company's By-Laws provide that
no allotment of shares shall be made and no transfer of shares shall be
registered, if such allotment or transfer would disqualify the Company from
being an International Business Company, and any such allotment or registration
is deemed to be null and void.
SPECIAL VOTING PREFERRED STOCK
The summary contained herein of certain provisions of the Special
Voting Preferred Stock to be issued by the Company prior to consummation of the
offering made hereby does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Certificate of Continuance
relating thereto.
Dividends. The holders of Special Voting Preferred Stock will be
entitled to receive such dividends, in the same amount per share, as may be
declared from time to time by the Board of Directors on the Common Stock.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the
holders of shares of Special Voting Preferred Stock then outstanding shall be
entitled to be paid, out of the assets of the Company available for distribution
to its shareholders before any payment shall be made or any assets distributed
to the holders of any of the shares of Common Stock, for each share of Special
Voting Preferred Stock outstanding, the greater of: (i) an amount in cash equal
to $20.00 plus an amount in cash equal to all unpaid dividends thereon to the
date of such event and (ii) the cash or other property distributable upon such
event with respect to each share of Common Stock.
Voting Rights. Holders of shares of Special Voting Preferred Common
Stock and Common Stock will vote as a single class on all matters submitted to a
vote of shareholders of the Company, with each share of Special Voting Preferred
Stock entitled to 235 votes and each share of Common Stock entitled to one vote,
except as otherwise provided by law.
PREFERRED STOCK
In addition to the Special Voting Preferred Stock, the Certificate of
Continuance authorizes the Board of Directors, without shareholder approval, to
issue preferred stock from time to time in one or more series, and with respect
to each series to determine, subject to limitations prescribed by law, (i) the
number of shares constituting such series, (ii) the dividend rate on the shares
of each series, whether such dividends shall be cumulative and the relation of
such dividends to the dividends payable on any other class of stock, (iii)
whether the shares of each series shall be redeemable and the terms thereof,
(iv) whether the shares shall be convertible into Common Stock and the terms
thereof, (v) the amount per share payable on each series or other rights of
holders of such shares on liquidation or dissolution of the Company, (vi) the
voting rights, if any, of shares of each series, and (vii) generally any other
rights and privileges not in conflict with the Certificate of Continuance or the
laws of Barbados for each series and any qualifications, limitations or
restrictions thereof. To date, other than the Special Voting Preferred Stock, no
series of preferred stock has been authorized and no shares of preferred stock
have been issued.
The issuance of preferred stock (including the Special Voting
Preferred Stock) by action of the Board of Directors could adversely affect the
voting power, dividend rights and other rights of holders of the Common Stock.
Issuance of a series of preferred stock also could, depending on the terms of
such series, either impede or facilitate the completion of a merger, tender
offer or other takeover attempt. Although the Board of Directors is required to
make a determination as to the best interests of the shareholders of the Company
when issuing preferred stock, the Board of Directors could act in a manner that
would discourage an acquisition attempt or other transaction that some, or a
majority, of the shareholders might believe to be in the best interests of the
Company or in which shareholders might receive a premium for their stock over
the then prevailing market price. Although there are currently no plans to issue
shares of preferred stock or rights to purchase such shares (other than the
Special Voting Preferred Stock), management believes that the availability of
the preferred stock will provide the Company with increased flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. The authorized shares of preferred stock are
available for issuance without further action by the Company's shareholders,
unless such action is required by applicable law or the rules of any stock
exchange on which the Common Stock may then be listed.
CERTAIN ARTICLES AND BYLAW PROVISIONS
The Company's Articles and Bylaws contain certain provisions that may
have an effect of delaying or deterring a change in control of the Company. Such
provisions require, among other things, (i) a classified Board of Directors,
with each class containing as nearly as possible one-third of the total number
of members of the Board and the members of each class serving for staggered
three-year terms, (ii) a vote of at least 75% of the Company's voting securities
to amend certain provisions of the Articles and Bylaws, (iii) advance notice
procedures with respect to nominations of directors or other matters to be voted
on by stockholders other than by or at the direction of the Board of Directors,
(iv) the filling of vacancies on the Board of Directors only by a vote of a
quorum of the directors then in office, (v) the taking of any action by the
Company's stockholders only at a duly called annual or special meeting, which
may only be called by the Chairman of the Board or a majority of the directors
and (vi) removal of a director upon the vote of the holders of a majority of the
Company's outstanding voting securities.
BARBADOS LAW AND CERTAIN PROVISIONS OF THE BYLAWS
The Company has included in its Bylaws provisions to eliminate the
personal liability of its directors for monetary damages resulting from breaches
of their fiduciary duty to the extent permitted by the Companies Act of Barbados
and to indemnify its directors and officers to the fullest extent permitted by
the Companies Act of Barbados.
Comparison of United States and Barbados Corporate Laws
Under the laws of many jurisdictions in the U.S., majority and
controlling shareholders generally have certain "fiduciary" responsibilities to
the minority shareholders. Shareholder action must be taken in good faith and
actions by controlling shareholders which are obviously unreasonable may be
declared null and void. Barbados law protecting the interests of minority
shareholders may not be as protective in all circumstances as the law protecting
minority shareholders in U.S. jurisdictions.
While Barbados law does permit a shareholder of a Barbados corporation
to sue its directors derivatively (i.e., in the name of and for the benefit of
the corporation) and to sue the corporation and its directors for the
shareholder's benefit and for the benefit of others similarly situated, the
circumstances in which any such action may be brought, and the procedures and
defenses that may be available in respect of any such action, may result in the
rights of shareholders of a Barbados corporation being more limited than those
of shareholders of a corporation organized in the U.S.
As noted above under "Description of Capital Stock," directors of the
Company have the power to take certain actions without shareholder approval,
which would require shareholder approval under the laws of most U.S.
jurisdictions.
Enforceability of Certain Civil Liabilities
The Company is incorporated under and governed by the laws of
Barbados. Certain of the Company's directors and officers, and certain experts
named herein, are residents of Barbados and all or a portion of the assets of
such persons, as well as a portion of the Company's assets, are located outside
of the United States. Consequently, it may be difficult or impossible for
holders of Common Stock (i) to effect service in the United States upon those
directors and officers and experts who are not residents of the United States
and (ii) to realize in the United States upon judgments of courts of the United
States predicated upon the civil liability of such persons under the Securities
Act of 1933, as amended (the "Securities Act"), or the Exchange Act, to the
extent such judgments exceed their respective United States assets. The Company
has been advised that there is uncertainty as to the enforceability in Barbados
against any of these persons and the Company, in original actions or in actions
for enforcement of judgments of United States courts, of liabilities predicated
solely on the United States federal securities laws.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the offering made hereby, the Company will have
34,150,000 shares of Common Stock outstanding (35,297,500 if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 7,650,000
shares sold in the offering made hereby (8,797,500 if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable in the
public market without restriction under the Securities Act, except that any
shares of Common Stock purchased by "affiliates" of the Company, as that term is
defined in Rule 144 adopted under the Securities Act ("Affiliates"), may
generally be sold only in compliance with the applicable provisions of Rule 144.
The other 26,500,000 shares of Common Stock outstanding following consummation
of the offering made hereby, all of which are owned by the Parent, any shares of
Common Stock issued pursuant to the exercise of stock options and shares of
Common Stock that may be purchased by Affiliates, are deemed "restricted
securities" under Rule 144 and may be sold by the respective holders thereof
only pursuant to an effective registration statement under the Securities Act,
pursuant to Rule 144 under the Securities Act or in accordance with an exemption
from registration under the Securities Act.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares of Common Stock that are deemed to be restricted
securities (as defined in Rule 144) for at least two years from the date such
restricted securities were acquired from the Company or from an Affiliate of the
Company is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of 1% of the Company's shares of Common
Stock then outstanding or the average weekly trading volume in the Company's
shares in the over-the-counter market during the four calendar weeks preceding
the date on which notice of such sale was filed under Rule 144. Sales under Rule
144 are also subject to certain provisions relating to the manner and notice of
sale and the availability of current public information about the Company.
Further, under Rule 144(k), if a period of at least three years has
elapsed since the later of the date on which restricted securities were acquired
from the Company or from an Affiliate of the Company, a holder of such
restricted securities who is not an Affiliate of the Company at the time of the
sale and has not been an Affiliate of the Company for at least three months
prior to the sale would be entitled to sell the restricted securities
immediately without regard to the volume limitations and other conditions
described above.
The Company and the Parent are parties to a Registration Rights
Agreement pursuant to which the Parent may demand registration under the
Securities Act of shares of the Company's Common Stock held by it at any time,
subject to its agreement with the Underwriters not to exercise such demand right
prior to the expiration of 180 days from the date of this Prospectus.
The Company may postpone compliance with such a demand under certain
circumstances. In addition, the Parent may request the Company to include shares
of the Company's Common Stock held by it in any registration proposed by the
Company of its Common Stock under the Securities Act.
The Parent, which will hold 26,500,000 shares of Common
Stock upon completion of the offering made hereby, has agreed, subject to
certain exceptions, that without the prior consent of the Representatives of the
Underwriters it will not offer, sell, contract to sell or otherwise dispose of
any of its shares of Common Stock (or any securities convertible into or
exchangeable for, or any rights or options to purchase or acquire, any Common
Stock) for a period of 180 days from the date of this Prospectus. In addition,
the Company has agreed that it will not file any registration statement under
the Securities Act, except for one or more registration statements on Form S-8
or any successor form with respect to shares of Common Stock issuable upon the
exercise of options granted under any stock option plans, during the 180 day
period following the date of this Prospectus without the prior written consent
of the Representatives of the Underwriters.
Prior to the offering made hereby, there has been no public market for
the Company's shares of Common Stock. No prediction can be made as to the
effect, if any, that market sales of the Company's shares of Common Stock or the
availability of such shares for sale will have on the market price of such
shares prevailing from time to time. Nevertheless, sales of substantial amounts
of the Company's shares of Common Stock in the public market could adversely
affect prevailing market prices and could impair the Company's ability to raise
capital in the future through the sale of its equity securities.
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, a syndicate of underwriters named below (the "Underwriters"), for
whom Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Smith Barney
Inc. and Furman Selz LLC are acting as representatives (the "Representatives"),
have severally agreed to purchase from the Company an aggregate of 7,650,000
shares of Common Stock. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:
NUMBER
UNDERWRITERS OF SHARES
Donaldson, Lufkin & Jenrette Securities
Corporation.....................................
Smith Barney Inc. ...............................
Furman Selz LLC .................................. _____
Total ...................................
.......................................... 7,650,000
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. If any of the shares of Common Stock are purchased
by the Underwriters pursuant to the Underwriting Agreement, all such shares
(other than shares covered by the over-allotment option described below) must be
purchased. The Underwriters have advised the Company that they do not intend to
sell any shares to any discretionary accounts.
Prior to the Offering, there has been no established trading market for
the Common Stock. The initial price to the public for the shares of Common Stock
offered hereby will be determined by negotiation between the Company and the
Representatives. The factors considered in determining the initial price to the
public include the history of and the prospects for the industry in which the
Company competes, the past and present operations of the Company, the historical
results of operations of the Company, the prospects for future earnings of the
Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
Offering.
The Representatives have advised the Company that the Underwriters
propose to offer the shares of Common Stock directly to the public initially at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess $____ per share.
Any Underwriter may allow, and such dealers may reallow, a discount not in
excess of $__ per share to any other Underwriter and to certain other dealers.
After the shares are initially offered to the public, the offering price and
such concessions may be changed by the Representatives.
The Company has granted to the Underwriters an option to purchase up to
1,147,500 additional shares of Common Stock, at the initial public offering
price net of underwriting discounts and commissions, solely to cover
over-allotments. Such option may be exercised at any time within 30 days after
the date of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated on the preceding table.
The Company and the Parent have agreed with the Underwriters not to
offer, sell, grant any option to purchase or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for or warrants, rights or options to acquire Common
Stock or enter into any agreement to do any of the foregoing for a period of 180
days after the date of this Prospectus without the prior written consent of DLJ.
The Company and the Parent have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the Underwriters may be required to make in
respect thereof.
The Company intends to apply for listing of the Common Stock on the
NYSE under the symbol "____." In order to meet the requirements for listing of
the Common Stock on the NYSE, the Underwriters will undertake to sell lots of
100 or more shares to a minimum of 2,000 beneficial owners.
Smith Barney Inc. and Furman Selz LLC have provided, from time to
time, investment banking services to the Parent, for which, in each case, they
received normal and customary fees.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Stroock &
Stroock & Lavan, New York, New York, with respect to matters of United States
law, and David King & Co., Christ Church, Barbados, with respect to matters of
Barbados law. Stroock & Stroock & Lavan will rely as to all matters of Barbados
law on the opinion of David King & Co. The matters set forth under the caption
"Certain U.S. Federal Income Tax Considerations" will be passed upon by Baker &
McKenzie, United States tax counsel to the Company. Certain legal matters will
be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New
York, New York, with respect to matters of United States law. Certain legal
matters concerning the laws of Barbados will be passed upon for the Underwriters
by Clarke & Co.
<PAGE>
EXPERTS
The audited financial statements and schedules included in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus is a part
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act,
for the registration of the Common Stock offered by this Prospectus. Certain of
the information contained in the Registration Statement is omitted from this
Prospectus, and reference is hereby made to the Registration Statement and
exhibits relating thereto for further information concerning the Company and the
Common Stock. Statements contained herein concerning the provisions of any
document are not necessarily complete and in each instance reference is made to
the copy of the document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by this reference.
The Registration Statement and the exhibits thereto are available for
inspection in the principal office of the Commission in Washington, D.C. and
photostatic copies of such material may be obtained from the Commission upon
payment of the fees prescribed by the Commission. Such material may also be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov.
<PAGE>
INTERPOOL LIMITED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-2
Consolidated Balance Sheets -- At December 31, 1994
and 1995, and March 31, 1996 (unaudited) F-3
Consolidated Statements of Income for the Years Ended December 31,
1993, 1994 and 1995 and the three months
ended March 31, 1995 and 1996 (unaudited) F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995, and the three months
ended March 31, 1995 and 1996 (unaudited) F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
After the recapitalization described in Note 10 to the Company's consolidated
financial statements is effected, we expect to be in a position to render the
following audit report which would appear in the final prospectus.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 29, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interpool Limited:
We have audited the accompanying consolidated balance sheets of Interpool
Limited (a Barbados corporation and a wholly-owned subsidiary of Interpool,
Inc.) and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interpool Limited and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Roseland, New Jersey
______________, 1996
<PAGE>
INTERPOOL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
ASSETS 1994 1995 1996
----------------- ------------------ -------------
<S> <C> <C> <C>
Cash and short-term investments $5,655 $7,935 $13,139
Marketable securities 17,648 15,287 12,965
Accounts and notes receivable, less allowance of $1,000,
$885 and $650 in 1994, 1995 and 1996, respectively 7,035 9,544 10,435
Net investment in direct financing leases
Non-related parties 105,091 171,778 198,627
Related parties 984 - -
Other receivables, net 1,539 2,257 2,167
Leasing equipment, at cost 257,958 332,384 340,822
Less - accumulated depreciation and amortization 45,387 50,696 52,869
------------- ----------------- -----------
212,571 281,688 287,953
Other assets 6,147 7,992 8,326
------------- ----------------- -----------
Total assets $356,670 $496,481 $533,612
============== ================= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses:
Non-related parties $6,310 $4,765 $4,848
Related parties 1,832 3,097 2,875
Income taxes:
Current 554 272 526
Deferred 689 1,264 1,264
-------------- ----------------- ------------
Total income taxes 1,243 1,536 1,790
-------------- ----------------- ------------
Due to parent 3,846 41,409 55,700
Deferred income 1,835 1,076 4,048
Debt and capital lease obligations:
Due within one year 88,629 52,317 38,681
Due after one year 174,408 290,556 317,345
------------- ----------------- ------------
263,037 342,873 356,026
------------- ----------------- ------------
Stockholder's equity:
Preferred Stock, no par value; 2,000,000 shares authorized,
100,000 shares Special Voting Preferred Stock, designated,
with a minimum liquidation preference of $2,000 outstanding - - -
Common stock, no par value; 100,000,000 shares
authorized, 26,500,000 outstanding - - -
Additional paid-in capital 28,621 28,621 28,621
Retained earnings 50,531 73,087 79,666
Net unrealized gain (loss) on marketable securities (585) 17 38
------------- ----------------- ------------
Total stockholder's equity 78,567 101,725 108,325
------------- ----------------- ------------
Total liabilities and stockholder's equity $356,670 $496,481 $533,612
============== ================= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
INTERPOOL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
---------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
---------------- ------------- --------- ---------------- ----------------
Revenues:
<S> <C> <C> <C> <C> <C>
Non-related parties $32,648 $40,595 $60,942 $12,942 $18,093
Related parties 4,239 3,945 3,228 821 793
--------- ---------- --------- ------------ ----------------
36,887 44,540 64,170 13,763 18,886
Costs and expenses:
Lease operating expenses:
Non-related parties 2,404 1,886 701 206 535
Related parties (513) (513) (267) (128) 91
Administrative expenses:
Non-related parties 4,035 3,181 3,728 807 864
Related parties-
Reimbursable administrative
expenses from affiliate (147) (144) (401) (33) (49)
Administrative services charge - 1,014 934 238 284
Rent expense 250 250 - - -
Depreciation and amortization of
leasing equipment 8,121 9,349 14,778 3,219 4,268
Gain on sale of leasing equipment (855) (611) (614) (403) (146)
Interest expense--
Non-related parties 9,300 12,780 22,458 4,798 6,079
Related parties 228 708 964 160 450
Interest (income) (1,892) (2,351) (1,826) (398) (391)
---------- ---------------- ------------- ----------- ------------
20,931 25,549 40,455 8,466 11,985
----------- ---------------- -------------- -------------- --------------
Income before provision for
income taxes 15,956 18,991 23,715 5,297 6,901
Provision for income taxes 871 959 1,159 275 321
----------- ---------------- ---------------- ----------- ----------------
Net income $15,085 $18,032 $22,556 $5,022 $6,580
=========== ================ ================ ========== ================
Net income per share $.57 $.68 $.85 $.19 $.25
Weighted average number of
shares outstanding 26,600 26,600 26,600 26,600 26,600
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
INTERPOOL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
December 31, March 31,
-------------------------------------- --------------------------------
1993 1994 1995 1995 1996
--------- --------- ---------- ----------- -------------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income $15,085 $18,032 $22,556 $5,022 $6,580
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 9,049 9,599 15,159 3,310 4,417
Gain on sale of leasing equipment (855) (611) (614) (403) (146)
Collections on net investment in direct
financing leases 15,443 25,453 42,530 8,852 15,218
Income recognized on direct financing
leases (6,274) (8,850) 17,206) (3,518) (5,898)
Provision for uncollectible accounts 123 109 244 16 75
Changes in assets and liabilities-
Accounts and notes receivable 1,762 (2,579) (2,753) 1,895 (966)
Other receivables 868 (524) (718) 686 (22)
Other assets (211) (1,603) (2,322) (971) (492)
Accounts payable and accrued
expenses (2,351) (1,314) (280) 4,639 (711)
Income taxes payable (544) 28 282 1,669 252
Deferred income (526) 424 759) (201) 2,972
---------- ----------- --------- ----------- -----------------
Net cash provided by operating
activities 31,569 38,164 56,119 20,996 21,279
--------- ----------- ------------ --------- -----------------
Cash flows from investing activities:
Acquisition of leasing equipment (52,761) (103,217) (94,830) (20,356) (13,149)
Proceeds from dispositions of leasing
equipment 9,906 4,964 3,077 939 942
Investment in direct financing lease (14,949) (60,838) (82,459) (21,466) (34,341)
Proceeds from marketable securities 3,350 1,147 2,974 25 2,345
---------- ------------ ---------- ----------- -----------------
Net cash used for investing activities (54,454) (157,944) (171,238) (40,858) (44,203)
---------- ----------- ----------- ----------- -----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 34,987 148,279 103,822 5,763 18,553
Proceeds from borrowings from parent 7,767 (3,921) 37,563 25,286 4,975
Payment of long-term debt and capital
lease obligations (20,806) (28,040) (23,986) (8,771) (5,400)
----------- ----------- ----------- ---------- -----------------
Net cash provided by financing
activities 21,948 116,318 117,399 22,278 28,128
----------- ---------- ------------ ----------- -----------------
Net increase (decrease) in cash and
short-term investments (937) (3,462) 2,280 2,416 5,204
Cash and short-term investments,
beginning of year 10,054 9,117 5,655 5,655 7,935
----------- ----------- ------------ ------------ -----------------
Cash and short-term investments,
end of year $9,117 $5,655 $7,935 $8,071 $13,139
========= ========== ============ ============ =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
INTERPOOL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED
MARCH 31, 1995 AND 1996 ARE UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
NOTE 1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
The nature of operations and the significant accounting policies used by
Interpool Limited (a Barbados corporation) and subsidiaries (the "Company") in
the preparation of the accompanying consolidated financial statements are
summarized below. The Company is a wholly-owned subsidiary of Interpool, Inc.
(Parent).
A. Nature of operations:
The Company conducts business principally in a single industry segment,
the leasing of intermodal dry cargo containers, chassis, and other
transportation related equipment. The Company leases its containers principally
to international container shipping lines located throughout the world. The
customer for the Company's chassis is an affiliate. Equipment is purchased
directly or acquired through conditional sales contracts and lease agreements,
many of which qualify as capital leases.
The Company's accounting records are maintained in United States dollars
and the consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States.
B. Basis of consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions have been eliminated.
C. Translation of foreign currencies:
The Company considers the U. S. dollars as its functional currency and
therefore, translates foreign currency statements using an average exchange rate
for revenue and expense accounts and the rate of exchange in effect at the
balance sheet date for monetary assets and monetary liabilities. Non-monetary
items, capital stock and retained earnings that are recorded at historical cost
are translated at the exchange rate that existed when the relevant transactions
occurred. Substantially all transactions are U.S. dollar denominated.
D. Revenues:
Equipment leasing revenues include revenue from operating leases, which
is recognized straight-line over the lease term, and income on direct financing
leases, which is recognized over the term of the lease using the effective
interest method.
E. Leasing equipment:
Depreciation and amortization of leasing equipment are provided under the
straight-line method based on the following estimated useful lives-
Dry cargo containers 12-1/2 to 15 years
Chassis 20 years
Other 5 to 15 years
Gains or losses from the disposition of leasing equipment are recorded in
the year of disposition.
During 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (SFAS 121), was issued. SFAS 121 is effective for fiscal years
beginning after December 15, 1995 and is not expected to have a material impact
on the Company's financial statements.
F. Concentration of credit risk:
At December 31, 1994, approximately 85% of accounts receivable and notes
receivable and 96% of the net investment in direct financing leases were from
customers outside of the United States, with no significant concentration in any
one country. At December 31, 1995, approximately 82% of accounts receivable and
notes receivable and all of the net investment in direct financing leases were
from customers outside of the United States, with no significant concentration
in any one country. At March 31, 1996, approximately 84% of accounts receivable
and notes receivable and all of the net investment in direct financing leases
were from customers outside of the United States, with no significant
concentration in any one country. The Company extends credit to its customers
after extensive credit evaluation.
In 1993, 1994, 1995 and 1996, the Company's top 25 customers represented
approximately 85%, 82%, 85% and 84%, respectively, of its consolidated revenues,
with no single customer accounting for more than 10%, with the exception of
1993, where one customer accounted for 14%.
G. Net income per share
Net income per share is based on the weighted average number of shares
outstanding, including the 100,000 shares of Special Voting Preferred Stock
which shares participate in earnings of the Company on an equal basis with
common shares.
H. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
I. Marketable securities:
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). Management has determined that all securities are to be
held for an indefinite period of time and classified as securities available for
sale carried at market value. Unrealized holding gains and losses for available
for sale securities are credited (charged) to a component of stockholder's
equity, net of related income taxes. Management determines the appropriate
classifications of securities at the time of purchase and reassesses the
appropriateness of the classification at each reporting date.
Premium and discount on securities are included in interest income over
the period from acquisition to maturity using the level-yield method. The
specific identification method is used to record gains and losses on security
transactions.
There were no sales of available for sale securities or transfers of
available for sale securities to another category during 1994, 1995 or 1996. No
net unrealized holding gains or losses have been included in income for the
periods ended December 31, 1994 and 1995 and March 31, 1996. For the 12 months
ended December 31, 1994 and 1995, the change in gross unrealized (loss) gain on
available for sale securities was ($597) and $614 with a corresponding tax
reduction and benefit of ($12) and $12 resulting in a net unrealized holding
(loss) gain of ($585) and $602. For the three months ended March 31, 1996 and
1995, the change in gross unrealized gain (loss) on available for sale
securities was $22 and ($19) with corresponding tax reduction and benefit of
($1) and ($2) resulting in a net unrealized holding gain (loss) of $21 and
($17).
The amortized cost and estimated fair value of securities as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
-----------------------------------
Amortized Cost Holding Gains Holding Losses Estimated Fair
Value
-------------------- ------------------ ------------------ ------------------
Available for sale:
<S> <C> <C> <C> <C>
U. S. Treasury $12,195 $28 ($7) $12,216
Government bonds 3,050 0 (27) 3,023
Equity securities 25 23 0 48
---------------- ------------ ------------- --------------
$15,270 $51 ($34) $15,287
================ ============ ============= ==============
The amortized cost and estimated fair value of U. S. Treasury and U. S. Government bonds, by contractual
maturity, are shown below:
<CAPTION>
Amortized Cost Estimated Fair
Value
-------------------- --------------------
<S> <C> <C>
Due in one year $14,271 $14,266
Due after one year through five years 838 814
Due after five years 136 159
</TABLE>
The amortized cost and estimated fair value of securities as of March 31,
1996 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
-----------------------------------
Amortized Cost Holding Gains Holding Losses Estimated Fair
Value
-------------------- ------------------ ------------------ ------------------
Available for sale:
<S> <C> <C> <C> <C>
U. S. Treasury $11,604 $30 $ - $11,634
Government bonds 1,293 - (13) 1,280
Equity securities 29 22 - 51
---------------- ------------ ------------- ------------
$12,926 $52 ($13) $12,965
================ ============ ============= ==============
The amortized cost and estimated fair value of U. S. Treasury and U. S. Government bonds, by contractual
maturity, are shown below:
<CAPTION>
Amortized Cost Estimated Fair
Value
-------------------- --------------------
<S> <C> <C>
Due in one year $11,903 $11,957
Due after one year through five years 856 805
Due after five years 138 152
</TABLE>
J. Fair value of financial instruments-
The carrying amount of the following financial instruments of the Company
approximate fair value, as follows:
Cash and short-term investments, trade receivables and payables,
accrued interest receivable and payable and the current portion of
long-term debt are based on the short-term nature of the financial
instruments.
There are no quoted market prices for the Company's direct finance
lease receivables and long-term debt, and a reasonable estimate could not be
made without incurring excessive costs.
K. Reclassifications-
Certain reclassifications have been made to prior year amounts to
conform with current year presentation.
<PAGE>
NOTE 2 -- INCOME TAXES:
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Statement No. 109 requires, among other things, recognition of future
tax benefits, measured by enacted tax rates, attributable to deductible
temporary differences between financial statement and income tax bases of assets
and liabilities. These differences result primarily from the use of accelerated
depreciation methods for tax purposes and the differences in the treatment of
capital leases for tax reporting purposes. The impact of this statement was not
material to the financial statements.
Under the terms of a protocol between the United States and Barbados, the
Company's container leasing income is fully taxable by Barbados, but exempt from
U. S. Federal taxation. The Barbados tax rate was a maximum of 2 1/2% of income
earned in Barbados. No significant differences exist between the Company's book
and taxable income for Barbados tax purposes. The Company's leasing income from
sources other than containers is considered effectively connected income and is
subject to U. S. Federal taxation. Deferred taxes represent the temporary
differences between effectively connected income for book and tax purposes
(primarily accelerated depreciation).
A reconciliation of the U. S. statutory tax rate to the effective tax
rate follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31 March 31
----------------------------------------------------- ----------------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
U. S. statutory rate 35.0% 35.0% 35.0% 35.0% 35.0%
Difference due to
operation in Barbados (33.0) (33.2) (33.5) (33.4) (33.5)
Federal taxes on
foreign income 2.0 1.3 2.4 2.4 1.6
State taxes 2.1 2.0 2.3 2.2 1.6
Reversal of tax reserves (.6) (.7) (1.3) (1.0) -
Other - .7 - - -
--------------- --------------- --------------- --------------- ---------------
Effective tax rate 5.5% 5.1% 4.9% 5.2% 4.7%
=============== =============== =============== =============== ===============
The tax provision reflects the reversal of certain tax reserves that are
no longer deemed necessary. The provision for income taxes reflected in the
accompanying consolidated statements of income is as follows:
<CAPTION>
(Unaudited)
December 31 March 31
----------------------------------------- ---------------------------
1993 1994 1995 1995 1996
-------------- -------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
U. S. $100 $109 $350 $80 $100
Barbados 318 337 351 80 100
State and other 453 513 458 115 121
-------------- -------------- ---------------- -------------- --------------
$871 $959 $1,159 $275 $321
============== ============== ================ ============== ==============
Current $871 $768 $809 $190 $221
Deferred - 191 350 85 100
-------------- -------------- ---------------- -------------- --------------
-------------- -------------- ---------------- -------------- --------------
$871 $959 $1,159 $275 $321
============== ============== ================ ============== ==============
</TABLE>
For further information regarding the Company's tax structure,
reference is made to the Certain U.S. Income Tax Considerations section of this
Prospectus.
NOTE 3 -- LEASING ACTIVITIES:
A. As Lessee:
The net book value of assets acquired through capital leases was $37,397
and $37,106 at December 31, 1995 and March 31, 1996, respectively. The aggregate
capital lease obligations, secured by equipment, with installments payable in
varying amounts through 2002, were $50,339 and $47,998 at December 31, 1995 and
March 31, 1996, respectively.
As of December 31, 1995 and March 31, 1996, the annual maturities of
capital leases and related interest due to unrelated parties were as follows:
December 31, 1995
----------------------------------------------------------
Capital Lease
Obligatons Interest Principal
---------------- ---------------- ------------------
1996 $18,271 $2,461 $15,810
1997 9,593 1,635 7,958
1998 12,916 1,049 11,867
1999 5,548 414 5,134
2000 4,967 209 4,758
Thereafter 4,842 30 4,812
-------------- ---------------- ------------------
$56,137 $5,798 $50,339
============== ================ ==================
March 31, 1996
-------------------------------------------------
Capital Lease
Obligations Interest Principal
-------------- --------- ---------
1997 $15,809 $2,345 $13,464
1998 10,063 1,642 8,421
1999 13,643 911 12,732
2000 5,327 362 4,965
2001 5,007 160 4,847
Thereafter 3,578 9 3,569
--------------- ---------------- ----------
--------------- ---------------- ----------
$53,427 $5,429 $47,998
=============== ================ ==========
The Company leases office space under operating leases expiring at
various dates through 1998. Rental expense under operating leases aggregated
$1,068, $990, $605, $914 and $522 for the periods ended December 31, 1993, 1994
and 1995 and March 31, 1995 and 1996, respectively.
As of December 31, 1995 and March 31, 1996, the aggregate minimum rental
commitment under operating leases having initial or remaining noncancellable
lease terms in excess of one year was as follows:
December 31, 1995
----------------------
1996 $299
1997 176
1998 130
----------------------
$605
======================
March 31, 1996
----------------------
1997 $263
1998 176
1999 86
----------------------
$525
======================
B. As Lessor:
The Company has entered into various leases of equipment that qualify as
direct financing leases. Receivables under these direct financing leases, net of
unearned income, are collectible through 2004 as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------
Unearned Lease
Total Lease Income Net Lease
Receivables Receivables
--------------------- -------------------- ---------------------
<C> <C> <C> <C>
1996 $53,788 $19,316 $34,472
1997 48,268 14,941 33,327
1998 45,093 10,826 34,267
1999 37,109 6,922 30,187
2000 22,608 3,794 18,814
Thereafter 23,628 2,917 20,711
------------------ ----------------- ------------------
$230,494 $58,716 $171,778
================== ================= ==================
<CAPTION>
March 31, 1996
-----------------------------------------------------------
Unearned Lease
Total Lease Income Net Lease
Receivables Receivables
--------------------- -------------------- ---------------------
<C> <C> <C> <C>
1997 $61,489 $21,742 $39,747
1998 55,946 16,645 39,301
1999 50,204 11,751 38,453
2000 39,904 7,360 32,544
2001 26,793 4,061 22,732
Thereafter 28,394 2,544 25,850
------------------ ----------------- ------------------
$262,730 $64,103 $198,627
================== ================= ==================
</TABLE>
As of December 31, 1995 and March 31, 1996, the company also had
noncancellable operating leases, under which it will receive future minimum
rental payments as follows:
December 31, 1995
-----------------------
1996 $38,267
1997 23,804
1998 11,736
1999 4,304
2000 1,518
-----------------------
$79,629
=======================
March 31, 1996
-----------------------
1997 $42,496
1998 19,729
1999 7,621
2000 3,472
2001 1,097
-----------------------
$74,415
=======================
Effective January 1, 1995, the company began capitalizing lease initial
direct costs such as commissions and amortizing these costs over the average
life of the related lease contract. At December 31, 1995 and March 31, 1996,
$1,432 and $1,736, respectively of these commissions were included in other
assets.
NOTE 4 -- DEBT:
Since 1993 substantially all debt and capital lease obligations and
lines of credit of the Company have been guaranteed by Interpool Inc.
Debt consists of notes and loans secured by leasing equipment, with
installments payable in varing amounts through 2004, and with effective
interest rates ranging from 5.8% to 9.5% and a weighted average interest rate of
7.14% in 1995 and 7.07% in 1996. The agreements contain certain covenants which,
among other things, provide for the maintenance of specified levels of tangible
net worth of $28,000 (as defined) and a maximum debt to net worth ratio of 4 to
1.
As of December 31, 1995 and March 31, 1996, the annual maturities of
notes and loans and interest thereon, were as follows:
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------
Total Payment Interest Principal
------------------- ------------------ -------------------
<C> <C> <C> <C>
1996 $50,672 $14,165 $36,507
1997 69,604 13,404 56,200
1998 47,080 11,839 35,241
1999 52,295 8,981 43,314
2000 50,613 6,324 44,289
Thereafter 81,599 4,616 76,983
------------------- ------------------ -------------------
$351,863 $59,329 $292,534
=================== ================== ===================
<CAPTION>
March 31, 1996
----------------------------------------------------
Total Payment Interest Principal
------------------- ------------------ -------------------
<C> <C> <C> <C>
1997 $39,757 $14,540 $25,217
1998 66,458 13,657 52,801
1999 66,182 11,657 54,525
2000 55,143 8,576 46,567
2001 57,870 5,887 51,983
Thereafter 80,706 3,771 76,935
------------------- ------------------ -------------------
$366,116 $58,088 $308,028
=================== ================== ===================
</TABLE>
In connection with the acquisition, financing and leasing of certain
equipment the Company entered into an agreement related to nonrecourse
obligations. Under the terms of the agreement, the creditor does not have
general recourse to the Company but rather has recourse only to the equipment
used as collateral and the lessee payments. Nonrecourse debt totaled $7,503 and
$6,750 at December 31, 1995 and March 31, 1996, respectively. The current
portion of nonrecourse debt totaled $3,113 and $3,184 at December 31, 1995 and
March 31, 1996, respectively. Nonrecourse debt is included in the above table of
maturities.
As of December 31, 1995, the Company had operational lines of credit with
banks of $63,000. Interest rates under these facilities ranged from 6.50% to
7.75%. As of December 31, 1995, $47,280 was outstanding under these lines,
$12,837 is reflected above as due in 1996 with the remaining $34,443 due in
1997.
As of March 31, 1996, the Company had operational lines of credit with
banks of $63,000. Interest rates under these facilities ranged from 6.17% to
6.78%. As of March 31, 1996, $18,916 was outstanding under these lines, $3,249
is reflected above as due in 1997 with the remaining $15,667 due in 1998.
The Company, along with Interpool, Inc., and an affiliate are
participants in a $150,000 credit facility from a group of commercial banks. As
of December 31, 1995, no loans were outstanding. Any of the participants may
borrow up to the total unused amount of the facility, and all obligations are
guaranteed by Interpool, Inc.. This facility extends until May 31, 1997, (unless
the lenders elect to renew the facility) at which time 25% of the amount then
outstanding becomes due, with the remaining 75% of the facility becoming payable
in equal monthly installments over a five year period. As of March 31, 1996
$40,000 was outstanding under this facility by the Company and $10,000 by the
parent.
NOTE 5 -- OTHER CONTINGENCIES AND COMMITMENTS:
At December 31, 1995 and March 31, 1996, the Company had outstanding
purchase commitments for equipment of approximately $68,000 and $40,000,
respectively.
Under certain of the Company's leasing agreements, the Company as lessee
may be obligated to indemnify the lessor for loss, recapture or disallowance of
certain tax benefits arising from their ownership of the equipment.
The Company has a number of claims pending against it, has filed claims
against others and has been named as a defendant in a number of lawsuits
incidental to its business. The Company believes that such proceedings will not
have a material effect on its consolidated financial statements.
NOTE 6 -- CASH FLOW INFORMATION:
For purposes of the consolidated statements of cash flows, the Company
includes all highly liquid short-term investments with an original maturity of
three months or less in cash and short-term investments.
For the periods ended December 31, 1993, 1994 and 1995 and March 31, 1995
and 1996, cash paid for interest was approximately $9,528, $13,503, $23,955,
$5,490 and $6,622 respectively, and cash paid for income taxes was approximately
$525, $870, $932, $256 and $53, respectively.
NOTE 7 -- SIGNIFICANT RELATED PARTY TRANSACTIONS:
In the opinion of management, the terms of related party transactions,
as described below are comparable to terms that the Company would have obtained
in an arm's length transaction with an unrelated third party.
(a) In __________, 1996, the Company entered into the Management
Services Agreement (the "Management Services Agreement"), with Interpool
Inc., pursuant to which the Company is furnished with the services of
senior management and other personnel, who are employees of Interpool Inc.,
and certain administrative and support services including data processing,
customer services, collections, payroll, accounting and computerized
equipment tracking, for a fixed annual fee. Prior to the Management
Services Agreement, the Company and Interpool Inc. were party to a similar
management services agreement effective January 1, 1994. The terms upon
which these services will be provided to the Company and the compensation
therefore were not determined in arms' length negotiations. However, the
Company believes that the charges for these services are commensurate with
those that would be available from nonaffiliated entities. Pursuant to the
January 1, 1994 Management Services Agreement, Interpool Inc. charged the
Company a management fee for administrative and consulting services
provided which amounted to $0, $1,014 and $934 in 1993, 1994 and 1995,
respectively. The management fee amounted to $238 and $284 in the first
three months of 1995 and 1996, respectively.
(b) The Company and Interpool Inc. are parties to a Registration
Rights Agreement pursuant to which Interpool Inc. may demand registration
under the Securities Act of shares of the Company's Common Stock held by it
at any time, subject to its agreement with the Underwriters not to demand
registration prior to the expiration of 180 days from the date of this
Prospectus. The Company may postpone compliance with such a demand under
certain circumstances. In addition, Interpool Inc. may request the Company
to include shares of the Company's Common Stock held by it in any
registration proposed by the Company of its Common Stock under the
Securities Act.
(c) As of December 31, 1994 and 1995 and March 31, 1996, the Company
had a loan payable to Parent of $3,846, $41,409 and $55,700, respectively.
The loan bears interest at 3%. Interest expense totaled $228, $708, $964,
$160 and $450 for the years ended December 31, 1993, 1994 and 1995 and for
the three months ended March 31, 1995 and 1996, respectively.
(d) An affiliate rents chassis from the Company. The rentals paid by
the affiliate to the Company for these chassis were $3,940, $3,755, $3,079,
$770 and $770 in 1993, 1994 and 1995 and for the three months ended March
31, 1995 and 1996, respectively. The net carrying value of this equipment
was $17,848, $13,449 and $13,273 at December 31, 1994, 1995 and at March
31, 1996, respectively. The related capital lease obligations for this
equipment was $15,624, $11,704 and $11,144 at December 31, 1994, 1995 and
at March 31, 1996, respectively.
The Company also charged this affiliate a fee of $660, $657, $804,
$161 and $49 in 1993, 1994 and 1995 and for the three months ended March
31, 1995 and 1996, respectively, for allocated insurance expense and
certain administrative services and as of December 31, 1994 and 1995 and
March 31, 1996, respectively, the Company had accounts payable of $1,832,
$3,097 and $2,875, respectively, to this affiliate.
(e) Revenues include $299, $190, $149, $51 and $23 from other related
parties for the years ended December 31, 1993, 1994 and 1995 and for the
three months ended March 31, 1995 and 1996, respectively.
(f) Prior to 1995, the Company leased office space from a partnership
in which one officer and one director of the Company have equity interests.
The annual base rental for the property was approximately $250.
(g) The Company has guaranteed certain lease obligations of an
affiliated partnership. Principal outstanding under these obligations as of
December 31, 1994 and 1995 and at March 31, 1996 was $5,194, $4,803 and
$4,698, respectively.
(h) Certain officers and directors of the Company are members of The
Ivy Group, a partnership. In August 1990, the Company participated in a
lease transaction with an unrelated third party, as lessor, and The Ivy
Group, as lessee, pursuant to which the Company is obligated to purchase
1,400 dry cargo container chassis at a price of approximately $5.0 million
in the event that the IvyGroup defaults on its obligations under the lease
or at a price of approximately $4.1 million in the event that The Ivy Group
declines to repurchase the equipment upon the expiration of the lease term
in August 1997. The Ivy Group has undertaken to purchase the chassis upon
the expiration of the lease.
(i) The Parent is a general partner of Interpool Income Fund (the
"Fund"), which is a limited partnership, and which owned 5,733 containers
at December 31, 1995. The leasing of such containers is managed by the
Company on behalf of the Fund. (The Parent intends to make an offer in 1996
to acquire all of the investors' interest of the limited partners of the
Fund.) All revenues from managing the containers currently is paid to the
Company.
(j) In 1995, the Parent allocated to the Company a share of
bankruptcy, all risks and liability insurance coverage premiums based upon
relative fleet size and equipment value, which totaled approximately $136
in the year ended December 31, 1995 and $91 for the three months ended
March 31, 1996.
The effect of the above related party transactions included in the
accompanying statement of income are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
Year Ended
------------------------------------------------------- -----------------------------------
1993 1994 1995 1995 1996
---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue $4,239 $3,945 $3,228 $821 $793
================ =============== ================ =============== ================
Lease operating expense ($513) ($513) ($267) ($128) 91
================ =============== ================ =============== ================
Administrative expense $103 $1,120 $533 $205 $235
================ =============== ================ =============== ================
Interest expense $228 $708 $964 $160 $450
================ =============== ================ =============== ================
</TABLE>
NOTE 8 -- RETIREMENT PLANS:
The Company and its subsidiaries have defined contribution plans covering
substantially all full-time employees. No contributions were made and no
liabilities were accrued by the Company or its subsidiaries to these plans
during the years ended December 31, 1993, 1994 and 1995, and the three months
ended March 31, 1996.
NOTE 9 -- SEGMENT AND GEOGRAPHIC DATA:
The Company is engaged in one line of business, the leasing of intermodal
dry cargo containers and intermodal container chassis. Information about the
business of the Company by geographic area is presented in the table below:
<TABLE>
<CAPTION>
December 31 March 31,
------------------------------------------------------
1993 1994 1995 1996
------------------- ------------------ ------------------ -------------------
Revenues--
<S> <C> <C> <C> <C>
United States (a) $4,261 $3,949 $3,590 $835
International 32,626 40,591 60,580 18,051
------------------- ------------------ ------------------ -------------------
$36,887 $44,540 $64,170 $18,886
=================== ================== ================== ===================
Income before taxes--
United States $1,140 $724 $1,582 $340
International 14,816 18,267 22,133 6,561
------------------- ------------------ ------------------ -------------------
$15,956 $18,991 $23,715 $6,901
=================== ================== ================== ===================
Capital expenditures-
United States $0 $0 $0 $0
International 67,710 164,055 177,289 47,490
------------------- ------------------ ------------------ -------------------
$67,710 $164,055 $177,289 $47,490
=================== ================== ================== ===================
Depreciation--
United States $585 $826 $760 $187
International 7,536 8,523 14,018 4,081
------------------- ------------------ ------------------ -------------------
$8,121 $9,349 $14,778 $4,268
=================== ================== ================== ===================
Assets--
United States $20,151 $17,099 $16,072 $14,545
International 203,629 339,571 $480,409 519,067
------------------- ------------------ ------------------ -------------------
$223,780 $356,670 $496,481 $533,612
=================== ================== ================== ===================
</TABLE>
(a) Includes revenues from related parties of $4,239, $3,945, $3,228 and
$793 in 1993, 1994, 1995 and 1996, respectively.
NOTE 10 -- CAPITAL STOCK:
The Company will recapitalize effective prior to the Company's initial
public offering, increasing the total outstanding common shares to 26,500,000
for all periods prior to the effective date of the initial public offering.
Upon consummation of the Company's initial public offering, the authorized
capital stock of the Company will consist of 2,000,000 shares of undesignated
preferred stock, no par value, of which 100,000 shares of Special Voting
Preferred Stock, with a minimum liquidation preference of $2.0 million will be
outstanding, and 100,000,000 shares of common stock, no par value, 34,150,000 of
which will be issued and outstanding.
The Company's 1996 Stock Option Plan for Executive Officers and Directors
(the "Stock Option Plan") was adopted by the Company's Board of Directors and
approved by its sole shareholder in _______, 1996. A total of _____ shares of
Common Stock have been reserved for issuance under the Stock Option Plan.
Options may be granted under the Stock Option Plan to executive officers and
directors of the Company or a subsidiary (including any executive consultant of
the Company and its subsidiaries), whether or not they are employees. To date,
no options have been granted under the Stock Option Plan.
The Company's Non-Qualified Stock Option Plan for Non-Employee,
Non-Consultant Directors (the "Directors' Plan") was adopted by the Board of
Directors and approved by the sole stockholder in ______________, 1996. The
Directors' Plan provides for the automatic grant of non-qualified options to
directors who are not employees of, or executive consultants to, the Company or
Interpool. Under the Directors' Plan, a non-qualified stock option to purchase
2,000 shares of Common Stock is automatically granted to each eligible director
of the Company, in a single grant effective upon the offering made hereby or, if
later, the time the director first joins the Board of Directors. The Directors'
Plan authorizes grants of options up to an aggregate of 100,000 shares of Common
Stock. The exercise price per share is the fair market value of the Company's
Common Stock on the date on which the option is granted (the "Grant Date"). The
options granted pursuant to the Directors' Plan may be exercised at the rate of
one- third of the shares on the first anniversary of the director's Grant Date,
one-third of the shares on the second anniversary of the director's Grant Date
and on one-third of the shares on the third anniversary of the director's Grant
Date, subject to certain holding periods required under rules of the Securities
and Exchange Commission. Options granted pursuant to the Director's Plan expire
ten years from their Grant Date. The Directors' Plan is administered by the
Stock Option Committee of the Board of Directors. The Directors' Plan may be
terminated, amended or modified, and any options granted thereunder may be
canceled or terminated, under circumstances similar to those provided in the
Stock Option Plan. Pursuant to the Directors' Plan, in ________ 1996 options to
purchase 2,000 shares of Common Stock at the public offering price of the shares
offered hereby were granted, effective upon the offering made hereby, to each
eligible director.
During 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued. SFAS No. 123 is effective for fiscal years beginning after December 15,
1995. The Company plans to adopt the intrinsic value method, therefore adoption
will have no impact on the Company's financial statements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT 7,650,000 Shares
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A [logo]
SOLICITATION OF ANY OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO Interpool Limited
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS Common Stock
DATE.
TABLE OF CONTENTS
PAGE -----------------
PROSPECTUS SUMMARY................................... 3 PROSPECTUS
INVESTMENT CONSIDERATIONS............................ 7 -----------------
THE COMPANY.......................................... 10
RECENT DEVELOPMENTS.................................. 11
RECAPITALIZATION..................................... 11
USE OF PROCEEDS...................................... 12
DIVIDEND POLICY...................................... 12 Donaldson, Lufkin & Jenrette
CAPITALIZATION....................................... 13 Securities Corporation
DILUTION ............................................ 14
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA... 15
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................... 17
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS....... 22
CERTAIN BARBADOS INCOME TAX CONSIDERATIONS........... 24
BUSINESS............................................. 25 Smith Barney Inc.
MANAGEMENT........................................... 31
PRINCIPAL STOCKHOLDER................................ 37
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................................ 39
DESCRIPTION OF CAPITAL STOCK......................... 40
SHARES ELIGIBLE FOR FUTURE SALE...................... 41 Furman Selz
UNDERWRITING......................................... 42
LEGAL MATTERS........................................ 43
EXPERTS ............................................. 44
ADDITIONAL INFORMATION .............................. 44
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................................... F-1
UNTIL ____________, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL ___________ _____, 1996
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
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
</TABLE>
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the estimated fees and expenses in connection
with the issuance and distribution of the Registrant's securities being
registered hereby, other than underwriting discounts and commissions, all of
which will be borne by the Registrant:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee..................... $48,539
National Association of Securities Dealers, Inc. filing fee............. 14,576
New York Stock Exchange listing fee..................................... *
Printing and engraving expenses......................................... *
Legal fees and expenses................................................. *
Accounting fees and expenses............................................ *
Blue Sky fees and expenses.............................................. *
Transfer Agent's fees................................................... *
Miscellaneous expenses.................................................. *
---------
Total ...................................................... $ *
==========
</TABLE>
* To be completed by Amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subject to the limitations provided by the laws of Barbados, the
Company's bylaws provide that the Company shall indemnify a director or officer
of the Company, a former director or officer of the Company or a person who acts
or acted at the Company's request as a director or officer of an entity of which
the Company is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, losses, changes and expenses, including any
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceedings to
which he is made a party by reason of being or having been a director or officer
of the Company or such entity, if: (i) he acted honestly and in good faith with
a view to the best interests of the Company; and (ii) in the case of a criminal
or administrative action or proceeding that is enforced by a monetary penalty,
he had reasonable grounds for believing that his conduct was lawful.
The Registrant maintains directors' and officers' liability insurance
with policy amounts of $________.
The Company has entered into agreements to indemnify its outside
directors which are intended to provide the maximum indemnification permitted by
Barbados law. These agreements, among other things, indemnify each of the
Company's outside directors for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by such director in any action
or proceeding, including any action by or in the right of the Company, on
account of such director's service as a director of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
1.1* --Underwriting Agreement among the Company and the Underwriters.
3.1* --Amended and Restated Articles of Continuance of the Company.
3.2* --Amended and Restated By-Laws of the Company.
4.1* --Form of Certificate representing Common Stock.
5.1* --Opinion of David King & Co. as to the validity of the securities
being registered.
8.1* --Opinion of Baker & McKenzie regarding federal income tax
considerations.
10.1* --Management Services Agreement between Interpool, Inc. and the Company.
10.2* --Registration Rights Agreement between Interpool, Inc. and the Company.
10.3* --Form of Stock Option Plan for Executive Officers and Directors.
10.4* --Form of Non-Qualified Stock Option Plan for Non-Employee Directors.
10.5* --Employment Agreement between Eric Beerlandt and the Company.
10.6* --Debt Instruments.
21.1** --Subsidiaries of the Company.
23.1 --Consent of Arthur Andersen LLP with respect to consolidated financial
statements of the Company.
23.2* --Consent of David King & Co. (included in Exhibit 5.1).
23.3* --Consent of Baker & McKenzie (included in Exhibit 8.1).
24.1** --Power of attorney (included on signature page of this Registration
Statement).
27.1* --Financial Data Schedule.
- ---------------
* To be filed by Amendment.
** Previously filed.
(b) Financial Statement Schedules.
Financial Statement Schedule for the years ended December 31, 1993,
1994 and 1995:
II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on July 2, 1996.
INTERPOOL LIMITED
By:/s/ Raoul J. Wittenveen
Raoul J. Witteveen
President, Chief Operating Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ * Chairman of the Board of July 2, 1996
Martin Tuchman Directors and Chief Executive
Officer (Principal Executive
Officer)
/s/ * President, Chief Operating July 2, 1996
Raoul J. Witteveen Officer, Chief Financial Officer
and Director (Principal
Financial Officer)
/s/ * Vice President and Controller July 2, 1996
William Geoghan (Principal Accounting Officer)
/s/ * Director July 2, 1996
Warren L. Serenbetz
/s/ * Director July 2, 1996
Ernst Baenziger
/s/ * Managing Director (Barbados) July 2, 1996
Frank Sellier and Director
/s/ * Director July 2, 1996
David N. King
/s/ * Director July 2, 1996
Eric Beerlandt
<PAGE>
/s/ * United States Authorized July 2, 1996
Arthur L. Burns Representative
- -----------
* Raoul J. Witteveen hereby signs this Amendment No. 1 to the Registration
Statement on July 2, 1996 on his own behalf and on behalf of each of the
indicated persons for whom he is attorney-in-fact pursuant to a power of
attorney filed herewith.
July 2, 1996 /s/ Raoul J. Witteveen
---------------------------
Attorney-in-fact
<PAGE>
After the recapitalization described in Note 10 to the Company's consolidated
financial statements is effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 29, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interpool Limited:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Interpool Limited and subsidiaries included
in this registration statement and have issued our report thereon dated February
29, 1996. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule II is the
responsibility of the management of Interpool Limited and subsidiaries and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
Schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Roseland, New Jersey
__________, 1996
<PAGE>
INTERPOOL LIMITED AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Costs Write-Offs, Net Balance at End
Beginning of and Expenses of Recoveries of Year
Year
-------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993 $1,510 $123 $495 $1,138
Year ended December 31, 1994 1,138 109 247 1,000
Year ended December 31, 1995 1,000 244 359 885
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
- ----------
1.1* --Underwriting Agreement among the Company and the Underwriters.
3.1* --Amended and Restated Articles of Continuance of the Company.
3.2* --Amended and Restated By-Laws of the Company.
4.1* --Form of Certificate representing Common Stock.
5.1* --Opinion of David King & Co. as to the validity of the securities
being registered.
8.1* --Opinion of Baker & McKenzie regarding federal income tax
considerations.
10.1* --Management Services Agreement between Interpool, Inc. and the Company.
10.2* --Registration Rights Agreement between Interpool, Inc. and the Company.
10.3* --Form of Stock Option Plan for Executive Officers and Directors.
10.4* --Form of Non-Qualified Stock Option Plan for Non-Employee Directors.
10.5* --Employment Agreement between Eric Beerlandt and the Company.
10.6* --Debt Instruments.
21.1** --Subsidiaries of the Company.
23.1 --Consent of Arthur Andersen LLP with respect to consolidated financial
statements of the Company.
23.2* --Consent of David King & Co. (included in Exhibit 5.1).
23.3* --Consent of Baker & McKenzie (included in Exhibit 8.1).
24.1** --Power of attorney (included on signature page of this Registration
Statement).
27.1* --Financial Data Schedule.
- --------------------------------
* To be filed by amendment.
** Previously filed.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the recapitalization described in Note 10 to the Company's consolidated
financial statements is effected, we expect to be in a position to render the
following consent.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
July 2, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interpool Limited:
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
Registration Statement.
Roseland, New Jersey
___________, 1996
