As filed with the Securities and Exchange Commission on September 16, 1996
Registration No. 33-90862
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------
SHIPHOLDING INTERNATIONAL, INC.
(Exact name of Company as specified in its charter)
DELAWARE 4412 76-0468195
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
4550 Post Oak Place, Suite 140
Houston, Texas 77027
(713) 963-9889
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Mr. David E. Harrington, Jr.
Shipholding International, Inc.
4550 Post Oak Place, Suite 140
Houston, Texas 77027
(713) 963-9889
(Name, Address, including zip code, and telephone
number, including area code, of agent for service)
--------------
Copies to:
Jack H. Halperin, Esq. Lester Morse, Esq.
711 Third Avenue, Suite 1505 Lester Morse, P.C.
New York, New York 10017 111 Great Neck Road
Great Neck, New York 11021
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: as soon as
practicable after the effective date of this Registration Statement.
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. [ ]
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================
Proposed Proposed Amount
Title of each Amount to offering aggregate of regis-
class of securities be price offering tration
to be registered registered per share price fee
- ------------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Units, each
consisting of one
share of Common
Stock, par value .001
per share, one Series
A Common Stock,
Purchase Warrant and
one Series B Common
Stock Purchase
Warrant ............... 1,180,000 $ 8.50 $10,030,000 $3,458.34
Common Stock, par value
$.001 per share ....... 1,180,000
Series A, Common Stock
Purchase Warrants(1) .. 1,180,000
Series B, Common Stock
Purchase Warrants(2) .. 1,180,000
Common Stock,
par value .001
per share ............. 590,000(3) $ 10.00 $ 5,900,000 $2,034.32
Shares of Common
Stock, par value
.001 per share ........ 295,000(4) $ 12.00 $ 3,540,000 $1,220.59
Unit Purchase
Warrants .............. 118,000 $ 14.025 $ 14.025 $ 0.00
Unit Purchase
Warrant Units(5);
consisting of
one share of
ii
Common Stock,
one Series A
Warrant and
one Series B
Warrant ............... 118,000 $ 14.025 $ 1,654,950 $ 570.62
Common Stock,
par value $.001
per share ............. 59,000(6) $ 10.00 $ 590,000 $ 203.42
Common Stock,
par value $.001
per share ............. 29,500(7) $ 12.00 $ 354,000 $ 122.05
Common Stock,
par value $.001
per share ............. 96,000(8) $ 8.50 $ 816,000 $ 281.35
---------
$7,890.69
</TABLE>
(1) Two of these warrants entitle the holder to purchase one share of Common
Stock for $10.00.
(2) Four of these warrants entitle the holder to purchase one share of Common
Stock for $12.00.
(3) These shares are issuable upon the exercise of the Series A Warrants
included in the Units, including those issuable from the Underwriters
over-allotment option.
(4) These shares are issuable upon the exercise of the Series B Warrants
included in the Units, including those issuable from the Underwriters
over-allotment option.
(5) These Units will be issued to the Underwriter upon completion of the
offering.
(6) These shares are issuable upon the exercise of the Series A Warrants
included in the Units described in note (5).
(7) These shares are issuable upon the exercise of the Series B Warrants
included in the Units described in note (5).
(8) These shares are held by Chemitank, S.A. and may be sold at the rate of
11,000 per month, cumulative, commencing three months after the effective
date of this registration statement.
================================================================================
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
iii
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
iv
SHIPHOLDING INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Referencing Items in Part I of Form S-1 to the Prospectus
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION PROSPECTUS CAPTION OR PAGE
----------------------- --------------------------
<S> <C> <C>
1. Forepart of the Registration State- Facing Page of Registration Statement;
ment and Outside Front Cover Page Outside Front Cover Page of Prospectus
of Prospectus.......................
2. Inside Front and Outside Back Inside Front
Cover Pages of Prospectus...........
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings to Fixed
Charges.............................
4. Use of Proceeds..................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price..... Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution............................ Dilution; Risk Factors
7. Selling Security Holders............ N/A
8. Plan of Distribution................ Outside Front Cover Page of Prospectus;
9. Description of Securities to be Outside Front Cover Page of Prospectus;
Registered.......................... Prospectus Summary; Description of Capi-
tal Stock; Underwriting
10. Interests of Named Experts and
Counsel............................. Legal Matters; Experts
11. Information with respect to the
Registrant.......................... Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
ProspectusSummary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Selected Financial Data;Business;
Management; Principal Stockholders;
Description of Capital Stock;
Financial Statements
12. Disclosure of Commission Position N/A
on Indemnification for Securities
Act Liabilities.....................
</TABLE>
1
<PAGE>
******************************************************************************
* *
* 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. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1996
1,180,000 UNITS
EACH UNIT CONSISTS OF ONE SHARE OF COMMON STOCK, ONE SERIES A COMMON STOCK
PURCHASE WARRANT AND ONE SERIES B COMMON STOCK PURCHASE WARRANT.
SHIPHOLDING INTERNATIONAL, INC.
COMMON STOCK
--------------------
Shipholding International, Inc. ("SII") is offering a maximum of 1,180,000
Units (the "Units") on a "best efforts, all or none" basis as to the first
706,000 Units and on a "best efforts" basis as to the remaining 474,000 Units.
This prospectus also relates to 96,000 shares of SII Common Stock (the
"Shares") owned by Chemitank, S.A. (the "Selling Stockholder"). The Shares may
be sold in market transactions or in negotiated sales by the Selling Stockholder
at the rate of 11,000 shares per month, cumulative, commencing three months
after the date of this prospectus. The proceeds of such sales will go to the
Selling Stockholder.
For each two Series A Common Stock Purchase Warrants the holder may
purchase one share of the Company's Common Stock for $10.00. For each four
series B Common Stock Purchase Warrants the holder may purchase one share of the
Company's Common Stock for $12.00. Series A Warrants expire three years from the
date of the prospectus. Series B Warrants expire five years from the date of the
prospectus. There are no provisions for extending the exercise period of the
Warrants.
The initial public offering price of the Units will be $8.50 per Unit.
Prior to this Offering, there has been no public market for the Company's
securities and the Company was not subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The offering
price of the Units has been determined by negotiation between the Company and R
M Stark & Co. Inc., (the "Underwriter") and will not necessarily be related to
the Company's asset value, net worth, earnings potential or other established
criteria of value. See "UNDERWRITING" AND "RISK FACTORS" for information
relating to the factors considered in determining the initial public offering
price.
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 to Public Underwriting Proceeds to
Discount(1) Company(2)
- --------------------------------------------------------------------------------
Per Unit $8.50 $0.85 $7.65
- --------------------------------------------------------------------------------
Total (Minimum) $6,001,000 $6,001,000 $5,400,400
- --------------------------------------------------------------------------------
Total (Maximum) $10,030,000 $1,003,000 $9,027,000
================================================================================
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $180,030 if the
minimum offering is completed and $300,900 if the maximum offering is
completed; and (ii) a warrant to purchase up to 118,000 Units at $14.02
per Unit, exercisable over a period of five years commencing from the date
of this Prospectus (the "Underwriter's Warrant"). In addition, the Company
has agreed to indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act of 1933. See
"UNDERWRITING."
(2) Before deducting estimated expenses of the Offering of approximately
$480,000 (approximately $0.68 per Unit) if the minimum Offering is
completed and (ii) approximately $601,000 (approximately $0.51 per Unit)
if the maximum Offering is completed, including legal and accounting fees,
printing expenses and the Underwriter's non-accountable expense allowance,
all of which will be payable by the Company.
-----------------
The Units are offered on a "best efforts, 706,000 Units or none basis" by
the Underwriter when, as and if delivered to and accepted by the Underwriter,
subject to prior sale, withdrawal or cancellation of the offer without notice,
and subject to the right of the Underwriter to reject any order in whole or in
part. Payments for the Units should be made to Continental Stock Transfer &
Trust Company, Escrow Agent for Shipholding International, Inc. The offering
period is 60 days from the effective date, subject to extension for an
additional period of sixty days.
-----------------
R.M. Stark & Co., Inc.
THE DATE OF THIS PROSPECTUS IS __________, 1996
2
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 any 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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK, OR WARRANTS CONTAINED THEREIN AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
------------
The Company will become subject to the reporting requirements of the
Exchange Act with the effectiveness of the registration statement on Form S-1 of
which this Prospectus is a part. Pursuant to such requirements, the Company
intends to distribute to its shareholders annual reports containing financial
statements audited by an independent public accounting firm and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial information.
3
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD BE READ
IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, "COMPANY" REFERS TO SHIPHOLDING INTERNATIONAL, INC.
SHARE NUMBERS HAVE BEEN ADJUSTED TO REFLECT A 1,275 FOR 1 STOCK SPLIT AUTHORIZED
IN FEBRUARY 1996. AN INVESTMENT IN THE UNITS OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS."
THE COMPANY
Shipholding International, Inc. ("SII" or the "Company"), a Delaware
corporation headquartered in Houston, Texas, intends to engage in the ownership
and charter of ocean-going vessels. SII will acquire various type vessels
through direct purchase and subsequently charter these vessels. Alternatively,
SII may charter vessels with the proceeds of the Offering in order to commence
operations.
Management forecasts an initial fleet investment of up to 2 vessels within
the first year of operations. The preferred schedule of purchase is expected to
commence with an "en-bloc" acquisition of two ships complemented by a
mid-operating year addition of a single vessel. Management considers the type of
vessel most suitable to accommodate this schedule to be the medium or
"handysize" (16,000 up to 50,000 Dead Weight Tonnage ("DWT")) "Dry Bulk
Carrier". Dry Bulk Carrier is an industry term referring to a general cargo type
vessel. This versatile class of carrier possesses the capability of handling,
transporting and discharging a wide assortment of general cargo. That cargo may
include dry bulk and bagged cargo, refrigerated or "reefer" cargo, containers,
autos, equipment or machinery.
For initial market entry purposes, Management has targeted the "handy
size" Dry Bulk class of carrier built between 1975 and 1985. This type and age
vessel is considered to provide the most stable earnings potential and related
asset value over the next three to five years based on current market activity
and vessel flexibility for the market conditions (which dictate earning
capability, value and potential future asset appreciation) as forecast by
Management. Other type vessels, including Liquid Bulk Carriers, may be targeted
by Management if market conditions support such a purchase and the scenario for
investment reflects that of the present "handy size" dry bulk market.
The Company has not targeted any specific vessel for acquisition and no
letters of commitment have been executed. No financing arrangements have been
made by the Company for vessel acquisitions. No contracts have been entered into
by the Company for chartering, crew management, or maintenance of vessels.
4
THE OFFERING
Securities Offered................ 706,000 Units on a best efforts, all or none
basis, consisting of 706,000 shares of
Common Stock, 706,000 Series A Common Stock
Purchase Warrants and 706,000 Series B
Common Stock Purchase Warrants. An
additional 474,000 Units, consisting of
474,000 shares of Common Stock, 474,000
Series A Common Stock Purchase Warrants
Common Stock outstanding prior to
the Offering.................... 1,400,000 shares(1)
Common Stock to be outstanding
after the minimum Offering...... 2,106,000 shares(1)(2)
Common Stock to be outstanding
after the maximum offering...... 2,580,000 shares(1)(2)
Net proceeds of the minimum
Offering........................ $4,945,000(3)
Net proceeds of the maximum
Offering........................ $8,451,000(3)
Use of proceeds................... To fund acquisition of vessels and working
capital. See "USE OF PROCEEDS."
Proposed NASDAQ trading
symbols of Common Stock......... (4)
- --------------------
(1) Does not include 200,000 shares of Common Stock reserved for issuance upon
the exercise of employee stock options which may be granted. See
"EXECUTIVE COMPENSATION."
(2) Does not give effect to (i) 653,050 shares of common stock issuable upon
exercise of the Series A and Series B Warrants, Underwriter's Warrant, and
the underlying Warrants if the minimum offering is completed and (ii)
1,091,500 shares of common stock issuable upon exercise of the Series A
and Series B Warrants, Underwriter's Warrant, and the underlying Warrants
if the maximum offering is completed. See "UNDERWRITING."
(3) Assumes an initial public offering price of $8.50 per Unit and an
underwriting discount and other estimated Offering expenses of
approximately $1,056,000 assuming the minimum offering is completed and
$1,579,000 if the maximum offering is completed, including the
Underwriter's non-accountable expense allowance.
(4) The use of a trading symbol does not imply that an active market will
exist or develop for the Company's securities subsequent to this Offering.
The Company intends to file an application for listing on NASDAQ prior to
the effective date of the registration
5
statement of which this prospectus is part.
RISK FACTORS
INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION
PRESENTED UNDER THE CAPTIONS "RISK FACTORS" AND "DILUTION" IN THIS PROSPECTUS,
INCLUDING AMONG OTHERS, RISK RELATED TO THE COMPANY'S LACK OF OPERATING HISTORY,
THE TYPE OF BUSINESS IN WHICH THE COMPANY IS INVOLVED, COMPETITION, DEPENDENCE
ON KEY PERSONNEL AND THE UNDERWRITER'S INFLUENCE ON THE MARKET.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following sets forth summary consolidated financial data as of the
date indicated. The following summary consolidated financial data were derived
from and should be read in conjunction with the Company's consolidated financial
statements, including the notes thereto, included elsewhere in this Prospectus.
AS OF JUNE 30, 1996
================================================================================
ACTUAL AS ADJUSTED AS ADJUSTED
MIMIMUM(1) MAXIMUM(2)
================================================================================
BALANCE SHEET DATA:
- --------------------------------------------------------------------------------
Total Assets $308,779 $5,403,986 $8,909,216
- --------------------------------------------------------------------------------
Working Capital ($132,827) $4,498,043 $8,003,273
- --------------------------------------------------------------------------------
Current Liabilities,
including current
portion of long term $278,949 $743,949 $743,949
debt
- --------------------------------------------------------------------------------
Long-term debt,
less current portion ----- ----- -----
- --------------------------------------------------------------------------------
Shareholders' equity $29,830 $4,660,037 $8,165,267
================================================================================
- ----------------
(1) Adjusted to reflect the net proceeds of 706,000 shares offered hereby at a
price of $8.50 per share. See "USE OF PROCEEDS".
6
(2) Adjusted to reflect the net proceeds from the sale of 1,180,000 shares
offered hereby at a price of $8.50 per share. See "USE OF PROCEEDS".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During the period from inception, March 6, 1995 to June 30, 1996, the
activities of the Company consisted of general and administrative type
activities related to the anticipated offering of the Company's securities to
the public. The loss from operations and deficit accumulated during the
development stage for this period of $837,202 relates to the management
expenses, interest on borowed funds and depreciation expense on office furniture
and equipment during this period. Since the Company has yet to commence
operations, there were no operating revenues generated to offset these
administrative costs.
Since the Company's inception, its capital requirements have been advanced
by related entities. As of June 30, 1996, a substantial portion of the amounts
so advanced, approximately $837,200, have been converted to equity by such
related parties. It is anticipated that any additional funds required by the
Company until the time it successfully completes its public offering, will be
provided by such related parties and will be repayable out of offering proceeds
or future revenues to be generated.
7
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK AND SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER INFORMATION CONCERNING
THE COMPANY AND ITS BUSINESS CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.
START-UP COMPANY
The Company is a start-up enterprise which has experienced losses. As a
new company the Company is more susceptible to all the risks discussed below.
While management of the Company does have experience in the business to be
conducted, there is no assurance that the Company will be successful or
profitable. There may be a delay in finalizing the purchase of the vessels that
the Company intends to purchase.
HIGHLY CYCLICAL NATURE OF THE SHIPPING INDUSTRY
The Company intends to be an independent shipping company specializing in
the acquisition, operation, employment and sale of ocean going vessels. The
shipping industry has been highly cyclical, experiencing volatility in
profitability and vessel values resulting from changes in the supply of and
demand for shipping capacity. The demand for ships is influenced by global and
regional economic conditions, developments in international trade, changes in
seaborne and other transportation patterns, weather patterns, crop yields, armed
conflicts, port congestion, canal closures, embargoes and strikes, among other
factors. Demand for dry bulk commodities, crude oil and oil products is affected
by, among other things, general economic conditions, commodity prices,
environmental concerns, weather and competition from alternatives to coal and
oil. The supply of shipping capacity is a function of the delivery of new
vessels and the number of older vessels scrapped, in lay-up, converted to other
uses, reactivated or lost. Such supply may be affected by regulation of maritime
transportation practices by governmental and international authorities. Many of
the factors influencing the supply of and demand for vessel capacity are outside
the control of the Company, and the nature, timing and degree of changes in
industry conditions are unpredictable.
POSSIBLE UNAVAILABILITY OF PERIOD TIME CHARTERS AT ATTRACTIVE RATES
The Company intends to book two to five year time period charters for the
vessels that it acquires. There can be no assurance that the Company will be
able to enter into period time charters for periods and at rates of hire that
are advantageous. In the event that period time charters on terms acceptable to
the Company are not available for the Company's vessels, the Company may employ
the vessels on the spot market. Charter rates on the spot market are subject to
greater fluctuation than period time charter rates.
FLUCTUATIONS IN VESSEL VALUES
The market value of the Company's vessels can be expected to fluctuate
largely in relation to existing and anticipated charter rates as well as general
economic and market conditions. See "Business--The Dry Bulk Shipping Market."
Furthermore, as vessels grow
8
older they can generally be expected to suffer significant declines in value. If
the value of the Company's vessels were to decline, it might be more costly for
the Company to refinance debt relating to such vessels, which could have an
adverse effect on the Company's liquidity.
RISKS ASSOCIATED WITH THE PURCHASE OF VESSELS
Sellers of secondhand vessels typically provide limited warranties with
respect to the condition of the vessel in comparison to the warranties available
for a newly built vessel. In addition, the Company's inspections of secondhand
vessels prior to purchase would not normally provide the Company with the same
knowledge about the condition of the vessel that the Company would have if the
vessel had been built for or operated by the Company. There can be no assurance
that the purchase of secondhand vessels will not result in higher than
anticipated operating expenditures, including repair costs.
The Company's initial business strategy is based primarily upon the
acquisition of a handysize dry bulk carrier fleet. There can be no assurance
that vessels meeting the Company's size and quality requirements will be
available at prices acceptable to the Company.
POSSIBLE UNAVAILABILITY OF FINANCING
Implementation of the Company's business plan requires that the Company be
able to obtain debt financing for a portion of the purchase price of the vessels
that it intends to acquire. If that financing is unavailable the Company will
have to seek other sources of financing. There is no assurance that any such
financing will be available to the Company. The unavailability of such financing
would have a material adverse effect upon the Company and prevent implementation
of the Company's Business Plan.
SUBSTANTIAL DEBT SERVICE REQUIREMENTS
The Company will have substantial debt service requirements arising from
the ship's mortgages that will provide a portion of the financing for its
vessels. During the first year of operations, assuming the completion of the
mimimum Offering and the application of the proceeds therefrom, the Company
expects to have outstanding debt obligations in the amount of approximately $
9.4 million, due over an expected period of 5 years. This assumes the
acquisition of two vessels for a total purchase price of $ 14.4 million. If the
Company does not generate sufficient cash flow to make payments of interest and
principal on its indebtedness, it will be required to refinance all or a portion
of its indebtedness, dispose of assets or seek additional financing. Since
substantially all of the Company's assets will be pledged to secure its
indebtedness, the Company's ability to refinance or seek additional financing
could be impaired, and there can be no assurance that the Company will be able
to obtain such financing at all or on terms acceptable to the Company. Such
financing may result in additional dilution to investors in this offering.
9
RISKS ASSOCIATED WITH DEBT FINANCING
The Company intends to use a substantial portion of the net proceeds of
the Offering to fund initial down payments on the purchase of secondhand
vessels. The purchase of secondhand vessels and the Company's other capital
requirements will require funds substantially exceeding the net proceeds of the
Offering. The Company intends to satisfy such requirements with bank financing;
however, there can be no assurance that the Company will be successful in
obtaining such financing. The Company estimates that a total of $ 23.4 million
in debt financing will be incurred by the Company in the period ending five
years after the effective date of the registration statement of which this
prospectus is part if the minimum offering is completed.
As a result of its reliance on debt financing, the Company is subject to
the risks normally associated with debt financing, including the risks that the
Company's cash flow from operations will be insufficient to meet required
payments of principal and interest, that such debt will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
initial terms and that the Company's capital requirements, principally for
vessel acquisitions, will not be able to be financed on favorable terms or at
all. In recent years, lending institutions generally have tightened credit
requirements for ship financing. In addition, since some or all of the new debt
to be incurred by the Company may bear interest at floating rates, the Company
is subject to the risk that its interest expense may increase if interest rates
rise, which could adversely affect its results of operations.
ENVIRONMENTAL AND OTHER REGULATIONS
The operations of the Company are affected by extensive and changing
environmental protection laws and other regulations, compliance with which may
entail significant expenses, including expenses for ship modifications and
changes in operating procedures. The United States and certain other
jurisdictions have adopted or proposed new regulatory requirements that could
have an adverse effect on the Company. In particular, various legislation has
been proposed that would, among other things, impose minimum wage requirements
for foreign crew, impose restrictions on the use of foreign flagged vessels
(such as those intended to be used by the Company) in United States trade and
impose additional costs on operators of foreign-built vessels. The Company
cannot predict whether any of such legislation will be enacted into law or the
ultimate cost of complying with any legislation that is enacted. The United
States Oil Pollution Act of 1990, as amended ("OPA 90"), provides for virtually
unlimited liability for owners, operators and charterers of any vessel for
certain oil pollution accidents in the United States.
RISK OF LOSS AND LIABILITY; INSURANCE
The operation of any ocean-going vessel has an inherent risk of marine
disaster, environmental mishaps, cargo and property losses or damage and
business interruptions caused by mechanical failure, human error, political
action in various countries, labor strikes, adverse weather conditions, loss of
revenue during vessel off-hire periods and other circumstances or events. Any
such circumstance or event could result in loss of revenues or increased costs.
The Company expects to arrange for customary insurance against certain of
these risks. However, there can be no assurance that all risks are adequately
insured against, that any particular claim will be paid or that the Company will
be able to procure adequate insurance
10
coverage at commercially reasonable rates in the future. In particular, stricter
environmental regulations may result in increased costs for, or the lack of
availability of, insurance against the risks of environmental damage or
pollution. See "Business--Environmental Regulation and Liability." Recently,
insurance companies have increased premiums for most participants in the
shipping industry. The Company's insurance will contain certain standard
deductibles, limitations and exclusions, inlcuding limitations and exclusions
with respect to certain losses arising from acts of war, terrorism, malicious
acts, nuclear forces and willful misconduct or fraud. In addition, in the event
that claims were asserted against the Company, its vessels could be subjected to
arrest or other judicial process.
OPERATIONS OUTSIDE THE UNITED STATES; FOREIGN CURRENCY FLUCTUATION
The Company's operations will be conducted worldwide, and may be affected
by changing economic, political and social conditions in the countries where the
Company is engaged in business or where the Company's vessels are registered or
flagged. The Company's operations may be affected by war, expropriation of
vessels, the imposition of taxes, increased regulation or other circumstances,
and as a consequence of the Company's assets may be impaired or its operations
may be curtailed.
Although the Company's activities will be conducted worldwide, the
international shipping industry's functional currency is the United States
Dollar and virtually all of the Company's revenues and most of its operating
expenses are expected to continue to be denominated in United States Dollars.
However, a portion of the Company's total expenditures will be denominated in
other currencies. In addition, demand for shipping services may be affected by
the ability of shippers to pay United States Dollar denominated freight rates.
Accordingly, the Company's operating results could be adversely affected by
movements in currency exchange rates or the imposition of currency controls in
the jurisdictions in which its vessels operate.
FUTURE CAPITAL NEEDS
The Company expects that the net proceeds of this Offering and funds
available to the Company from anticipated credit facilities, will be adequate to
satisfy its currently projected capital requirements for at least 12 months
after the Offering. The Company's future capital requirements will depend on
many factors, including cash flow from operations, competing market developments
and future expansion plans. To the extent that the funds generated by this
Offering are insufficient to fund the Company's proposed activities, it may be
necessary to raise additional funds through equity or debt financings. Any
equity financings could result in dilution to the Company's then existing
shareholders, and any financing, if available at all, may be on terms
unfavorable to the Company. If adequate funds are not available, the Company may
be required to curtail its activities significantly. See "USE OF PROCEEDS",
"BUSINESS".
DISPUTE RESOLUTION
Under the terms of the Hague Convention, many disputes between signatories
to the Convention in the maritime industry are subject to international
arbitration. Arbitration generally tends to reduce the cost of determining
certain liabilities particularly between multiple international parties.
Whenever feasible, Management intends to use arbitration for the settlement of
disputes. Because precedent plays a less significant role in arbitration than in
11
litigation, the outcome of arbitration is less predictable than in litigation or
some other means of dispute settlement.
COMPETITION
The business of owning and chartering vessels is highly competitive. The
Company is in competition with local, regional, national and international
firms. The Company will compete primarily on the basis of price. Many of the
Company's competitors are larger and have greater financial, marketing and human
resources and geographic coverage than the Company. There can be no assurance
that the Company will be able to compete successfully against existing companies
or new entrants to the marketplace. See "BUSINESS--Competition."
DEPENDENCE ON DAVID E. HARRINGTON, JR.
The success of the Company is largely dependent on the skills, experience
and efforts of its founder and Chief Executive Officer, David E. Harrington, Jr.
The loss of the services of Mr. Harrington could have a material adverse effect
on the Company's business and prospects. The Company will seek to obtain a key
man life insurance policy on Mr. Harrington in which the Company will be named
the beneficiary in the amount of $5,000,000. See "MANAGEMENT."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the Units offered hereby will incur an immediate and
substantial dilution in the value of their Common Stock. If the minimum Offering
is completed the net tangible book value of the Common Stock after the Offering
will be $ 2.21 per share as compared to the initial public offering price of
$8.50. This dilution of $ 6.29 per share represents a percentage dilution of
74%. If the maximum Offering is completed the net tangible book value of the
Common Stock after the Offering will be $3.16 per share compared to the initial
public offering price of $8.50. This dilution of $5.34 per share represents a
percentage dilution of 63%.
Additional dilution to public investors may result to the extent that
outstanding options, and the Underwriter's Warrant are exercised at a time when
the net tangible book value per share of Common Stock exceeds the exercise price
of such warrants and options or when the Company could receive a higher price
for the sale of its Common Stock than the exercise price of such warrants and
options. For a description of the number and exercise price of such warrants and
options, see "DILUTION" and "DESCRIPTION OF SECURITIES."
CONTROL OF THE COMPANY
Following this Offering, the Company's Chief Executive Officer will
beneficially own approximately 66% of the outstanding shares of Common Stock if
the mimimum Offering is completed and 54% if the maximum offering is completed.
Since there are no cumulative voting rights provided for in the Company's
Certificate of Incorporation, this person will likely be in a position to
effectively control the election of the members of the Board of Directors and
control most corporate actions, including the merger or sale of the Company,
without the approval of the other shareholders. See "PRINCIPAL SHAREHOLDERS."
DETERMINATION OF OFFERING PRICE AND EXERCISE PRICES
12
The initial public offering price of the Units and the exercise prices of
the Series A Warrants and the Series B Warrants have been determined by
negotiations between the Company and the Underwriter and are not necessarily
related to the Company's asset value, net worth, earnings potential or other
established criteria of value. The initial public offering price should not,
therefore, be considered to be an indication of the actual value of the Company.
See "UNDERWRITING."
BEST EFFORTS OFFERING
This Offering is being made on a best efforts, 706,000 Units all or none
basis by the Underwriter. The Underwriter has no obligation to purchase any
Units and there is no assurance that the minimum Offering will be completed.
Also, investor's funds may be in escrow for an extended period before the
Offering either expires or a closing is held.
LACK OF EXPERIENCE OF UNDERWRITER
This is the first public offering in which the Underwriter is serving as
Underwtier. The Underwriter's lack of experience may be detrimental to the
Offering.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to this Offering, there has been no public market for the Company's
securities. Although the Company intends to apply to have the Common Stock
approved for listing on the NASDAQ and the Underwriter has indicated that it
intends to make a market in the Company's securities following this Offering
after seeking approval from the NASD to do so, the Underwriter is not required
to make such a market and there can be no assurance that an active public
trading market for such securities will be developed or sustained. Accordingly,
purchasers of the Units may experience substantial difficulty selling such
securities and the price of such securities may be subject to volatility.
Additionally, if the Underwriter should exercise its registration rights to
effect the distribution of the Underwriter's Warrant or securities underlying
the Underwriter's Warrant, the Underwriter, prior to and during such
distribution, will be unable to make a market in the Company's securities. If
the Underwriter ceases making a market, the market and market prices for such
securities may be adversely affected and holders thereof may be unable to sell
such securities. See "UNDERWRITING."
SALES PURSUANT TO RULE 144
Upon the closing of this Offering, all of the shares of Common Stock
outstanding prior to this Offering will be "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Act"). The holder of 1,275,000 of the shares of Common Stock now
outstanding has agreed not to sell any of his shares of Common Stock for a
period of two years after the date of this Prospectus without the prior written
consent of the Underwriter. Chemitank, S.A., the holder of 125,000 shares, is
registering 96,000 shares which may be sold at the rate of 11,000 shares per
month, cumulative, commencing three months after the date of this Prospectus. At
the end of that two-year period (or prior thereto with the consent of the
Underwriter), these shares will be eligible for sale, subject to the holding
period, volume limitations and other conditions imposed by Rule 144. Ordinarily,
under Rule 144, a person holding restricted securities may sell in the market or
directly with a market
13
maker an amount equal to the greater of one percent of the Company's then
outstanding Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. Future sales of such shares and sales of
shares underlying outstanding options could have an adverse effect on the market
price of the Common Stock. See "DESCRIPTION OF SECURITIES, "SHARES ELIGIBLE FOR
FUTURE SALE," and "UNDERWRITING."
NO ANTICIPATED DIVIDENDS
The Company has not paid any dividends on its Common Stock and for the
foreseeable future intends to continue its policy of retaining any earnings to
finance the development and expansion of its business.
UNDERWRITER'S INFLUENCE ON THE MARKET
A significant amount of securities offered hereby may be sold to customers
of the Underwriter. Such customers subsequently may engage in transactions for
the sale or purchase of such securities through or with the Underwriter.
Although it has no obligation to do so, the Underwriter intends to make a market
in the Company's securities and may otherwise effect transactions in such
securities. If it participates in the market, the Underwriter may exert a
dominating influence on the market, if one develops for the securities described
in this Prospectus. Such market-making activity may be discontinued at any time.
The price and liquidity of the Common Stock and the Company's Series A Warrants
and Series B Warrants may be significantly affected by the degree, if any, of
the Underwriter's participation in such market. Such restrictions may adversely
affect the price and liquidity of the Units, the Common Stock and the Warrants.
Additionally, if the Underwriter should exercise its registration rights to
effect the distribution of the securities underlying the Underwriter's Warrant,
the Underwriter, prior to and during such distribution, will be unable to make a
market in the Company's securities. If the Underwriter ceases making a market,
the market and market prices for such securities may be adversely affected and
holders thereof may be unable to sell such securities.
See "UNDERWRITING."
14
USE OF PROCEEDS
The net proceeds of the minimum Offering (after deducting underwriting
discounts and related expenses to be paid from the proceeds) are estimated to be
approximately $ 4.9 million and the net proceeds of the maximum Offering are
estimated to be approximately $ 8.4 million.
The Company intends to use a substantial portion of the net proceeds to
acquire ocean going vessels in the manner described below. If the mimimum
Offering is completed, it is anticipated that approximately 51% ($2.5 million)
of the net proceeds will be used as required down payments on the vessels. It is
Management's intent, however, to acquire one additional vessel during the first
year of operations. If the maximum Offering is completed, it is anticipated that
approximately 90% ($7.6 million) of the net proceeds will be used as required
down payments on the vessels. The remaining net proceeds will be retained as
cash reserves in support of future project financing and to defray initial
operating costs until vessel revenues are earned.
The net proceeds of the offering are expected to be expended substantially
as follows:
MINIMUM OFFERING MAXIMUM OFFERING
---------------------- -----------------------
$ % $ %
--------- --- --------- ----
Purchase of Inital
Vessels 2,520,000 51% 7,560,000 90%
Reserve for
Officers' Salaries
and Benefits
for One Year 375,000 8% 375,000 4%
Working Capital 2,050,870 41% 516,100 6%
-------------------------------------------------------------
TOTAL 4,945,870 100% 8,451,100 100%
=============================================================
15
The Company believes, based on its current plans, that the net proceeds of
this Offering, combined with anticipated revenues from operations and funds
available to the Company from ship's mortgages to be obtained, will be
sufficient to enable the Company to continue to pursue its proposed business
activities for at least the 12-month period following the date of this
Prospectus. Any additional proceeds received upon the exercise of the
Underwriter's OverAllotment Option, or the Underwriter's Warrants, as well as
income from investments, will be added to working capital.
Pending application of the proceeds of this Offering, the Company may make
temporary investments in interest-bearing savings accounts, certificates of
deposits, United States government obligations, money market accounts,
interest-bearing securities or other insured short-term, interest-bearing
investments.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its capital stock.
The Company currently anticipates that all of its earnings will be retained for
development of the Company's business, and does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends, if any, will be at
the discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's future earnings, operations, capital requirements
and surplus, general financial condition, contractual restrictions, and such
other factors as the Board of Directors may deem relevant.
16
CAPITALIZATION
The following tables sets forth the short-term debt, long-term debt and
the shareholders' equity of the Company (i) as of June 30, 1996 and (ii) as
adjusted to give effect to the sale by the Company of the Units offered hereby
at an initial public offering price of $8.50 per Unit and after deduction of
underwriting discounts and estimated expenses payable by the Company and the
application of the estimated net proceeds therefrom as set forth under "USE OF
PROCEEDS." The following table should be read in conjunction with the Balance
Sheet and notes thereto included elsewhere in this Prospectus.
AS ADJUSTED
--------------------
ACTUAL MINIMUM MAXIMUM
-------- ------- -------
Short-term debt $278,949(1) $743,949 $743,949
Long-term debt
(less current portion) 0 0 0
---------------------------------------------
Total 278,949 743,949 743,949
=============================================
SHAREHOLDERS' EQUITY:
Common stock: 10,000,000
shares authorized, $.001
par value; 1,400,000 shares
issued and outstanding;
2,106,000 shares issued and
outstanding, as adjusted
minimum and 2,580,000
shares issued and
outstanding, as
adjusted maximum. 1,400 2,106 2,580
Additional paid-in capital 885,802 5,980,966 9,485,722
Deficit accumulated during
development stage (857,372) (1,323,035) (1,323,035)
----------------------------------- ----------
Total shareholder's equity $29,830 $4,660,037 $8,165,267
==============================================
(1) Represents amounts payable to original shareholder for deferred offering
and organizational costs and for management services provided prior to the
closing of the offering.
17
DILUTION
As of June 30, 1996, the net tangible book value of the Company (tangible
assets less liabilities) was $29,830 or $0.02 per share of Common Stock. After
giving effect to the sale by the Company of 706,000 Units offered hereby,
assuming the minimum Offering is completed at an initial public offering price
of $8.50 per Unit and the application of the net proceeds as set forth under
"USE OF PROCEEDS," the net tangible book value at June 30, 1996 would have been
approximately $4,660,000 or $2.21 per share of Common Stock. This represents an
immediate increase in net tangible book value of $2.19 per share to existing
shareholders and an immediate dilution in net tangible book value of $6.29 per
share to purchasers of Units in this Offering. The following table illustrates
this per share dilution:
Initial public offering price per share.......................... $ 8.50
Net tangible book value per share
prior to the Offering $ 0.02
Increase in net tangible book value
per share attributable to this Offering $ 2.19
Pro forma net tangible book value per share
after the Offering.............................................. $ 2.21
Dilution per share to new investors.............................. $ 6.29
Assuming the maximum offering is completed, as of June 30, 1996 the pro
forma net tangible book value upon completion of the Offering would be $3.16 per
share, the immediate increase in net tangible book value of shares owned by the
existing shareholders would be $3.14 per share and the immediate dilution to new
investors would be $5.34 per share.
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid, and the average price
per share paid by the existing shareholders (based on assumed total shares to be
outstanding immediately prior to the offering) and to be paid by new
shareholders for the shares of Common Stock offered by the Company hereby before
deduction of the underwriting discount, the Underwriter's non-accountable
expense allowance and estimated expenses of this Offering:
18
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
-------------------- ------------------- ---------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------- ------- ---------
Existing shareholders 1,400,000 66% $887,202 13% $0.63
New investors - minimum 706,000 34% $6,001,000 87% $8.50
----------------------------------------------
Total 2,106,000 100% $6,888,202 100% $3.27
==============================================
Existing shareholders 1,400,000 54% $887,202 8% $0.63
New investors - maximum 1,180,000 46% 10,030,000 92% $8.50
----------------------------------------------
Total 2,580,000 100% $10,917,202 100% $4.23
==============================================
- -------------
(1) Does not give effect to possible further dilution resulting from the
issuance of (i) 200,000 shares of Common Stock reserved for issuance upon
exercise of employee stock options which may be granted; (ii) shares of
Common Stock included in the Units issuable upon exercise of the
Underwriter's Warrant and the underlying Warrants (iii) shares of Common
Stock issuable upon exercise of the Series A Common Stock Purchase
Warrants, and (iv) shares of Common Stock issuable upon exercise of the
Series B Common Stock Purchase Warrants. See "EXECUTIVE COMPENSATION',
"DESCRIPTION OF SECURITIES' AND "UNDERWRITING".
19
BUSINESS
OVERVIEW
Shipholding International, Inc., a Delaware corporation, incorporated in
March, 1995, headquartered in Houston, Texas, intends to engage in the ownership
and charter of ocean-going vessels. Alternatively, the Company may charter
vessels with the proceeds of the Offering in order to commence operations
immediately. Management believes that ships of this size are readily available.
Management forecasts an initial fleet investment of from two to four
vessels during the first year of operations. Management considers the type of
vessel most suitable to accommodate this schedule to be the medium or
"handy-size" (16,000 up to 50,000 DWT) "Dry Bulk Carrier". Dry Bulk Carrier is
an industry term referring to a general cargo type vessel. This versatile class
of carrier possesses the capability of handling, transporting and discharging a
wide assortment of general cargo. That cargo may include dry bulk and bagged
cargo, refrigerated or "reefer" cargo, containers, autos, equipment or
machinery.
For initial market entry purposes, Management has targeted the "handy
size" Dry Bulk class of carrier built between 1975 and 1985. This type and age
vessel is considered suitable for the market conditions (which dictate earning
capability, value and future asset appreciation) as forecast by Management.
Other type vessels, including Liquid Bulk Carriers may be targeted by Management
if market conditions support such a purchase and the scenario for investment
reflects that of the present "handy size" drybulk market.
VESSEL OWNERSHIP AND CHARTERS
Within the maritime shipping industry, frequent vessel sales, purchases
and chartering for the transport of cargo is commonplace. Depending on the
general condition and type of vessel, the average commercial life for a vessel
is in excess of twenty-two years. Within this period, a single vessel may be
sold and purchased numerous times. It is not uncommon for a shipowner to
purchase or charter the same vessel more than once. This activity in vessel
sales and purchases creates a market that allows a vessel owner to recoup equity
in older vessels with the option to retain the use of that vessel by charter for
an additional period of time. This sale and lease back arrangement permits the
acquisition of an older vessel with a significant remaining life with the
guarantee of income from term employment of the vessel over one to three years.
Upon completion of the lease-back period, a renewal charter may be obtainable or
the vessel may be chartered out to an unrelated party. It is probable that the
Company will engage in such transactions.
SII in the capacity of "Shipowner" shall look to realize equity and
generate income from the vessels. Income will result from vessel employment or
"charter". There are two
20
types of general charters of interest to SII. These charters (or leases) are
generally referred to as a "Bareboat Charter" and a "Time Charter". While these
contracts provide term employment and generate income for the owner, they also
determine the obligations, participation, risk and liabilities between the
vessel owner and the charterer.
A Bareboat Charter obligates the owner to produce the vessel unencumbered
to the charterer. The owner in return receives a hire rate for the vessel with
no obligation or direct participation in the employment of the vessel or any
trading.
A Time Charter shall obligate the owner to produce the vessel to the
charterer ready to sail. The owner is required to maintain the operation of the
vessel in all respects as to maintenance, crew and insurance. In return the
owner receives a hire or rate for the vessel. The hire or rate will depend upon
the type of contract. Generally an owner will receive a lesser amount of hire
for his vessel under a Bareboat Charter than a Time Charter. The actual amount
of hire is determined by many factors which include the owner's obligations as
required by the type of charter and the specific charter terms.
THE GLOBAL MARKET PLACE
The shipping industry supports a global market for water borne freight and
transportation. The need to import and export various goods or general freight
exists for every country in the world. An increasing developing world market is
serviced by the shipping industry.
Within the industry itself, there exists two markets that are affected by
the values and rates in respect to the world market economy. These are known as
the Term and Spot markets. In general, the Term market refers to the
availability for a shipowner to employ his vessel for a period of time. This
term may vary from a minimum of one year to a period equal to the life of the
vessel. The Spot market usually refers to single voyage charters and successful
trading in this market depends on an owner's ability to employ his ship on a
regular basis by competing for freight opportunities available on a recurring
frequency in the world freight market.
Short and long term charters are available on a daily basis and present
numerous and changing opportunities for parties that maintain a presence or
interest in the various markets.
Much like large scale commercial real estate, the maritime industry uses a
worldwide ship broker network. This network maintains up-to-date reviews, sales
and purchase reports. The types of vessels identified and acquired by SII will
most likely be obtained through various brokers which offer the desired revenue
and price meeting SII's return on equity and income criteria at that time.
MARKET STRUCTURE AND COMPETITION
21
Much of the dry bulk or non-petroleum freight transported by ocean going
vessels is handled by relatively small fleet owners (independents) who rarely
have a financial interest in the cargo. Historically, competition is relatively
constant and charter rates are fairly stable over time with cycles usually
spanning a ten year period between high and low rates.
The ideal market entry condition is when ship purchases or sales prices are
depressed as a result of supply and demand being out of balance. Usually the
Term and Spot market, guided by demand, determine the value of any ship at any
given time, especially during weak or depressed market conditions.
When demand increases by an international event or as a result of a market
required adjustment in the worldwide vessel supply, Spot rates rise, ship prices
appreciate rapidly and values usually begin to exceed then present market
revenue. This results from the market's anticipation of higher future revenues
of the delays and expense of vessel replacement. Delay and expense associated
with the procurement of new vessels is the result of the time required for new
building and construction of these vessels during periods of high demand.
Management believes that the dry cargo freight market has been severely
depressed and is presently ideal for entry with regard to cost, revenue,
competition and need. During weak market conditions, competition for the
purchase and employment of vessels is minimal due to the increased volume in
ship sales. The need becomes greater for existing owners to recoup equity and
maintain market presence with a restructured operating cost relative to existing
or current freight market conditions. These periods create competition between
the sellers in the same manner that higher or increased asset values enhance
competition among the buyers when vessel values have improved.
Entry into the dry bulk shipping market during weak conditions required
significantly less capital than other shipping markets such as tankers due to
the lower purchase price of the smaller and less environmentally sensitive
vessels required by the non-petroleum freight market.
Competition is usually governed by supply and demand factors, not size,
strength or capitalization of companies, however, SII may be initially excluded
during its infancy state from some business opportunities that may be otherwise
profitable and historically secure. These market opportunities may become
available in the future if the company maintains growth and presence, both in
the size of its fleet and the spectrum of tonnage offered to the market.
The market consists primarily of over 100 small independent ship owners.
In order to avoid undue risk and market exposure to its revenue stream, SII
intends to fully employ all initial acquisitions as soon as practicable after
purchase. Employment is intended under Bareboat terms of three to five years.
This type of employment appears to be available in current market conditions as
supplied to SII by brokers.
22
In general, SII's formula for income is not necessarily governed by daily
fluctuations in supply and demand market factors such as occur in the Spot
market, rather income generation will concentrate on the more conservative fixed
return on investment through contractual term employment. At the time of the
offering, the Company has no charter contracts and no vessels on charter.
USE OF OFFERING PROCEEDS
The net proceeds of the offering will be used primarily to fund the
acquisition of a vessel. It is estimated that the initial acquisition will cost
approximately $7,200,000 per vessel. It is possible that the actual cost will
vary materially from this estimate. It is expected that offering proceeds of
approximately $2,520,000 ($7,560,000 if the maximum Offering is completed) will
be used as a down payment and mortgages of $4,680,000 ($14,040,000 if the
maximum Offering is completed) obtained through maritime lending banks. No
commitments have been received for the financing of these vessels and there is
no assurance that financing on similar terms can be achieved.
The balance of net offering proceeds, estimated at about $2.0 million
($0.5 million if the maximum Offering is completed) are expected to pay initial
salaries and to be used as working capital.
It is anticipated that all vessels acquired will ultimately be employed
under charter contracts for a period of not less than one year and not more than
five years.
The revenue generated by the term charter contracts is estimated to be
sufficient to produce positive cash flow after deducting ship mortgage payments,
overhead, and various operating expenses. However, there is no assurance that
such positive cash flow will be realized.
Depending on the then-existing market conditions, sale of the vessels may
not be exercised, rather some or all of the vessel mortgages may be refinanced,
and the vessel charters renewed. The proceeds from the sale or refinance of
vessels will be used in part for additional vessel acquisition with similar term
employment conditions equivalent to those of the initial vessels acquired.
OPERATIONS
Historically, based upon management's experience in the industry, vessels
have been purchased with approximately 30% - 40% down payment of the purchase
price and the procurement of first mortgage financing of the balance. Mortgage
terms have historically been determined by the vessel's age and its remaining
commercial trading life. Financing of this nature will be pursued by the Company
but there is no assurance that it will be obtained.
23
It is estimated that the initial vessels purchased will cost approximately
$7,200,000 per vessel. The Company intends to maintain a cash reserve floor of
$500,000. Therefore, if the minimum Offering is completed, it is forecast that
the offering proceeds will be sufficient to initially purchase one vessel at a
cost of $7,200,000 and that the proceeds of operations together with debt
financing will enable the Company to purchase a second vessel by mid year of the
first year's operations. If the maximum Offering is completed three vessels will
be purchased at a total cost of $21,600,000. Management anticipates the purchase
of a fourth vessel by mid year of the first year's operations. The first
mortgage financing is expected to be approximately $4,680,000 per vessel,
repayable over a period of five years with market related interest rates.
The Company expects to enter into term employment charter contracts, being
either Bareboat or Time charters, though Bareboat charters will be preferred.
For the purpose of forecasting charter revenue it is estimated that each vessel
charter will earn between $2,000,000 per year (Bareboat charter) and $3,285,000
per year (Time charter). These estimated revenues are based on current market
levels of charter or lease rates. Management intends to purchase and either
quickly or simultaneously employ each vessel at the time of delivery. Based on
this assumption, no delays in earning charter revenues are anticipated once the
vessels are acquired.
Vessels will be depreciated over a ten year life expectancy, even though
it is assumed that the mortgages will be for five years (or 1/2 the useful
commercial life of the ships acquired). The major guideline for evaluating
vessel investment is the targeted return on equity of about 20% per year
resulting from and secured by Bareboat or Time Charter revenues. Management
believes its plan can be implemented repeatedly using this calculation.
Management intends to pursue similar scenarios for investment and believes
these scenarios to be available based on the return on investment equity secured
by revenues and believes that such return is not necessarily market related or
market sensitive. Market revenues are anticipated to escalate and vessel values
appreciate as the general conditions in world economics improve. There have been
no calculations based on this improvement. Management assumes that the vessels
acquired and employed can and will be sold in their fifth year of operation at
no more than their original purchase price.
Further acquisitions may cost more than the initial acquisitions, however
management believes that the revenue base through charter employment will also
increase to support the higher vessel prices and maintain the forecasted rate of
return on investment.
TECHNICAL SUPPORT
SII intends to enter into one or more contracts for the technical
maintenance and support of its acquisitions and ongoing operations. These
contracts ("Technical Management Contracts") will be with reputable management
companies that specialize in the operation of
24
the types of vessels to be acquired. The contracts will encompass such items as
initial inspection of the vessel prior to purchase, ongoing survey inspections
during ownership, maintenance and repairs to the vessels, crewing,
communications and various international compliance, all of which govern the
operation and safety of the vessel, its cargo and crew, in port and at sea.
The technical managers will assist SII in procuring insurance, ensuring
safety and the maintenance of vessel value by means of safe and consistent
operations.
SII does not desire to maintain the extensive overhead cost of in-house
technical management, and it is customary in the business for this type of
technical expertise to be under contract, versus maintaining in-house personnel
and the relative support functions required. No contracts or commitments have
been entered into for such services to date. Such arrangements will be pursued
after the closing of the public offering. No affiliated entities currently
provide these services and it is expected that these services will be provided
by unaffiliated third parties although management retains the right to retain
affiliated entities to provide such services.
FACILITIES, EQUIPMENT AND STAFFING
The business of SII will be conducted from an office of approximately 3000
square feet in the Houston, Texas area. The Company's initial executive offices
are located at 4550 Post Oak Place, Suite 140, Houston, Texas 77027 in space
leased from Chemitank, S.A., an affiliate of David E. Harrington, Jr. and its
telephone number is (713) 963-9889. It is estimated that the annual lease cost
of such space will be approximately $13-15/sq. ft., inclusive of buildout and
utilities, and that the term of the lease will be between three and five years
with various renewal and expansion options. If the fleet expands significantly
in the fifth year it is anticipated that additional space will be required.
Initial staffing will include management and a secretary/receptionist with
future additions to support personnel to be made as needed. General office
equipment such as computers, facsimile, telex, telephones, copiers and the like
have been acquired at a cost of approximately $24,000. Custom software for
vessel activities may be required but the anticipated cost is less than $30,000.
THE DRY BULK SHIPPING MARKET
OVERVIEW
The dry bulk carrier industry is highly fragmented with many owners and
operators of shipping tonnage. International dry bulk cargo transportation
services are provided by proprietary owners (large shippers of dry bulk cargo),
state controlled shipping companies and various types of independent operators.
The majority of dry bulk carrier tonnage (including the handysize segment) is
owned by independent operators, while state-controlled shipping companies own
approximately 20% of the available tonnage. The Company
25
believes that, with the exception of state-controlled shipping groups, no single
owner group controls more than 5% of the world dry bulk carrier fleet.
Dry bulk cargo consists of the major bulks, which are iron ore, coal and
grain, and a wide variety of minor bulks, such as forest products, iron and
steel products, agricultural products, ores, minerals and petcoke, fertilizers,
bauxite and alumina, cement and other construction materials and salt. Dry bulk
carriers are generally single deck ships which transport unpacked cargo which is
poured, tipped or placed through hatchways into the holds of the ship.
The dry bulk cargo fleet is generally divided into three major vessel
types based on carrying capacity. Handysize dry bulk carriers have a carrying
capacity of approximately 10,000 to 50,000 dwt, while Panamax dry bulk carriers
have a carrying capacity of approximately 50,000 to 80,000 dwt and Capesize dry
bulk carriers have a carrying capacity of over 80,000 dwt. The total world dry
bulk shipping capacity is approximately 216.5 million dwt. Handysize dry bulk
carriers comprise approximately 47% of such tonnage and vessels in the 15,000 to
35,000 dwt segment comprise approximately 27% of such tonnage.
Charter rates are determined by a highly competitive global shipping
market. Historically, charter rates have been influenced by shifts in the supply
of, and demand for, vessel tonnage. The demand for vessel tonnage is largely a
function of the level of worldwide economic activity, and follows a similar
cyclical pattern. Charter rates for handysize vessels, however, tend to be
relatively more stable than Panamax and Capesize charter rates. This is because
handysize vessels carry a wider range of cargo, including cargo for which demand
is generally more stable, while the larger ships have been more dependent on the
transportation of iron ore and coal for steel mills in Japan and Germany.
During the period from 1974 to 1978, demand for tonnage decreased due to a
global recession. The rate of building of new tonnage also slowed during the
same period. When the global economy improved, the combination of high demand
for, and low supply of, tonnage led to high charter rates in the period
following 1978. Large numbers of new ships were then ordered based on
expectations of continued growth in demand. Such vessels were delivered in the
depressed transport market following 1982, resulting in significant overcapacity
during the following five years. In 1987, economic conditions improved and
declines in supply due principally to scrapping resulted in substantially
improved charter rates until mid-1990 when charter rates fell sharply due to
adverse economic and political conditions. Charter rates then recovered
temporarily but declined again in early 1992. Charter rates again recovered in
the first half of 1993 but weakened in the second half of the year due to slow
economic growth in North America, Europe and Japan. Charter rates gradually
improved in 1994.
VESSEL TYPES
HANDYSIZE. The total world handysize fleet represents approximately 47% of
the
26
total world dry bulk carrier tonnage of 216.5 million dwt at June 30, 1994;
within this class, the 15,000 to 35,000 dwt segment represents about 27% of the
world dry bulk carrier tonnage. Handysize vessels, which are the most versatile
of the dry bulk carriers, carry almost all types of bulk commodities and operate
in almost all ports throughout the world. Typically, handysize dry bulk
carriers, unlike most larger dry bulk carriers, are equipped with cargo loading
gear such as cranes and derricks on deck. These vessels are particularly
well-suited for transporting the minor bulks which often are not traded in cargo
sizes that are big enough to justify the use of larger ships. Use of larger
ships may also be limited by the size of storage and cargo facilities in the
loading and discharging ports, limited access to many ports due to the depth of
water (draft), width of channels and rivers, length of berthing facilities,
height of bridges and the operating height of shore cranes. For example, the
typical working maximum draft for berths in ports in many developing countries
in Asia is 9 to 10 meters, compared to drafts of 12.5 meters and 16 meters,
respectively, for typical Panamax and Capesize vessels.
PANAMAX. The total world Panamax fleet represents approximately 24% of the
total world dry bulk carrier tonnage in dwt. A Panamax vessel has a maximum
length, breadth and draft capable of permitting it to pass fully loaded through
the Panama Canal. The larger size of these vessels is better suited for the
transportation of the major bulk commodities as well as certain minor bulk
commodities such as bauxite and phosphate. These vessels are the most frequently
used cargo vessel for grain.
CAPESIZE. The total Capesize fleet represents approximately 29% of the
total world dry bulk carrier tonnage in dwt. Capesize vessels are typically used
for long voyages and in the coal and iron ore trades.
In addition to the dry bulk carriers referred to above, the world fleet
also includes a small number of combination carriers. These ships can carry
either crude oil or dry bulk cargoes. Combination carriers are typically large
in size and compete principally against Capesize and Panamax vessels. With very
few vessels worldwide under 45,000 dwt, combination carriers represent an
insignificant part of the handysize fleet.
CARGO TYPES
Many different types of primary and finished goods are transported
worldwide as cargo. Seaborne transport consists of bulk carriers and container
ships. Bulk cargo in turn may be either wet or dry. Dry bulk cargo consists of
the major bulks, which are iron ore, coal and grain, and a wide variety of minor
bulk cargoes such as fresh products, iron and steel products, agricultural
products, ores, minerals and petcoke, fertilizers, bauxite and alumina, cement
and other construction materials and salt. Dry bulk carriers are generally
single deck ships which transport unpacked cargo which is poured, tipped or
placed into the holds of the ship.
The major bulk cargoes together accounted for approximately 57% of the
bulk carrier
27
trade by volume in 1992. Capesize and Panamax bulk carriers accounted for most
of the iron ore and coal trade, while handysize and Panamax bulk carriers
accounted for approximately 48% and 48% of the grain trade, respectively. The
minor bulk cargoes accounted for approximately 43% of the dry bulk carrier trade
by volume in 1992 and approximately 78% of this trade was handled by handysize
dry bulk carriers in such period. Set forth below are some of the
characteristics of the principal cargoes carried by bulk carriers.
MAJOR BULKS
IRON ORE. Iron ore shipments were estimated at approximately 340 million
tons in 1993. The principal exporters are located in Brazil and Australia while
the principal importers are located in the European Union and Japan. Over 75% of
iron ore shipments is carried by Capesize vessels.
COAL. The two categories comprising this segment are steam (or thermal)
coal, which is used by power utilities, and coking (or metallurgical) coal,
which is used by steelmakers. The volume of steam coal was estimated at
approximately 200 million tons in 1993, while the volume of coking coal was
approximately 160 million tons in the same period. The principal exporters of
steam coal are Australia, South Africa and the United States while the principal
exporters of coking coal are Australia and the United States. The principal
importers of both steam coal and coking coal are located in the European Union
and Japan. Capesize vessels account for over 45% of combined coal shipments
while Panamaxes account for approximately 35%.
GRAIN. The grain trade includes wheat, flour, coarse grains (corn and
barley), soybeans and soybean meal. Although the annual volume of the grain
trade is subject to political factors and weather conditions, shipments have
averaged 200 million tons per year in the past two years. The principal
exporters are located in the United States. Canada, the European Union and
Australia while the principal importers are located in the Far East and the
former Soviet Union. Although there are many ports capable of handling large dry
bulk shipments of grain, almost half the international seaborne trade is carried
by vessels of less than 50,000 dwt. Panamax and Capesize vessels carry the
remainder.
MINOR BULK
There are also minor bulk cargoes which may be transported by the vessels
that the Company intends to acquire. These include forest products, iron and
steel products, agricultural products, fertilizers, ores, minerals and petcoke,
bauxite and alumina, cement and salt.
DEMAND FOR AND SUPPLY OF DRY BULK CARRIERS.
DEMAND FACTORS. Due to the variety of cargo carried by dry bulk carriers,
demand
28
for the services of dry bulk carriers is dependent on a number of factors.
Demand is affected by world and regional economic and political conditions,
developments in international trade, changes in seaborne and other
transportation patterns, weather patterns, crop yields, armed conflicts, port
congestion, canal closures and other diversions of trade. Generally, demand for
larger vessels is affected by trade patterns, crop yields, armed conflicts, port
congestion, canal closures and other diversions of trade. Generally, demand for
larger vessels is affected by trade patterns in a small number of commodities
while demand for smaller vessels is more diversified and is determined by trade
in a larger number of commodities, since larger ships carry fewer types of
cargoes, follow more clearly defined routes and are prevented by draft
restrictions from entering many ports.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND PROSPECTIVE DIRECTORS
The following table sets forth information regarding directors, executive
officers and prospective directors of the Company:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
David E. Harrington, Jr. 38 Chairman of the Board, President and Chief
Executive Officer
David R. Wheeler 43 Chief Financial Officer and Secretary
and Director
DAVID E. HARRINGTON, JR., has almost 20 years of experience in the
shipping industry with primary focus on the marketing of vessels, the
identification and securing of favorable terms for trade routes, vessel charters
and the sale and purchase of vessels.
In the 1980's, Mr. Harrington, then affiliated with Gulf Oil Corporation,
managed a fleet of 9 million deadweight tons and created the chartering
department of the subsidiary company Gulf Oil Trading Company (GOTCO). To
service this company's needs, he developed a fleet of 17 ships and chartered
vessels voyage-to-voyage.
Mr. Harrington continued with the GOTCO organization, managing their
shipping business until 1987 when he, together with a joint venture partner, a
predecessor company of Norex America, Inc., formed Norgulf Shipping, Limited
("Norgulf").
As a minority owner and Chief Executive Officer of Norgulf, Mr. Harrington
directed the company's growth from its inception of 4 vessels and as many
employees, to its peak in 1991 when it boasted 13 vessels and over 30 employees.
During only a 3 year period under
29
Mr. Harrington's direction, Norgulf's revenues rose from its first year level of
just over $4 million to almost $60 million while shareholders' equity rose from
$800,000 to $10,500,000,
During the three year period since the hostile takeover of Norgulf, Mr.
Harrington has devoted substantially all of his time to the direction of the
activities of two Liberian shipping companies, Chemibulk, S.A. and Chemitank,
S.A. In this role, Mr. Harrington purchased two modern, highly sophisticated
chemical carriers which are presently trading on a profitable basis in the
chemical tanker market.
At the closing of this offering Mr. Harrington will enter into a five-year
employment agreement with the Company providing for his full-time services to
the Company for a salary of $150,000 per year.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
In 1992 Norex America, Inc. ("Norex") brought suit against Mr. Harrington
seeking recovery under guarantees executed by Mr. Harrington guaranteeing
certain indebtedness of Norgulf to Norex. Norex also caused Norgulf to file for
bankruptcy petition under Chapter 11 of the United States Bankruptcy Code in
1992.
Mr. Harrington filed affirmative defenses and counter-claims against Norex
alleging, among other things, usury, illegality of the notes, and wrongful
foreclosure. Norex was granted summary judgment on the Harrington guarantees on
August 25, 1993. An appellate decision was issued on October 6, 1994 reversing
the grant of summary judgment. A second decision on January 19, 1995 reinstated
the grant of summary judgment. Norex currently has a judgment against Mr.
Harrington in the amount of $2,500,000 plus interest, which Mr. Harrington has
not satisfied. The Company does not believe that Mr. Harrington's ability to
satisfy the judgment or lack thereof will have a detrimental effect on the
Company's operations or financial situation.
DAVID R. WHEELER graduated from Texas A&M University in 1975 with a B.A.
degree in Economics and a minor in Accounting. He began his professional career
with Haskins & Sells (now Deloitte & Touche) in Houston, Texas. He became a
Certified Public Accountant in 1977. During his eleven years in public
accounting, Mr. Wheeler was involved with various public companies and gained
experience in initial registrations and periodic reporting to the Securities and
Exchange Commission including multiple program registrations under Form S-1 and
auditing and reporting of registered broker/dealer entities.
During the past five years, Mr. Wheeler has been involved in the crude
oil/refined products trading, international shipping and lubricants marketing
industries. During 1990 and 1991, he served as the Chief Financial Officer of
Norgulf Shipping Limited. During 1990, he simultaneously served as Chief
Financial Officer of Norex America, Inc. which, at that time, was the majority
shareholder of Norgulf Shipping Limited. During 1992, Mr. Wheeler was an
independent financial consultant working primarily on projects in South
30
America, Russia and Europe. During 1993 and 1994, Mr. Wheeler was employed by
Gulf Oil International, initially as Internal Auditor and subsequently as
Regional Manager in charge of that enterprises activities in Central America and
the Caribbean. His experiences have included such areas as recruitment of
executive and non-executive personnel, preparing business plans and budgets,
performing economic evaluations of international business opportunities and
developing overall corporate strategies. Mr. Wheeler has also been involved in
arranging international financing, negotiating company purchases and
restructuring corporate organizations.
EXECUTIVE COMPENSATION
The Company has not paid any executive compensation to date. Following the
offering Mr. Harrington will be paid a salary of $150,000 per year and Mr.
Wheeler a salary of $125,000 per year. In addition to their salaries, Messrs.
Harrington and Wheeler may be granted options to purchase common stock of the
Company under its stock option plan as determined by the Board of Directors.
Directors are elected annually and hold office until their successors are
elected and qualified. Officers serve at the pleasure of the Board of Directors.
The Company's Certificate of Incorporation and By-laws provide for the
elimination of certain liabilities of directors and for the indemnification of
officers and directors under certain circumstances. See "DESCRIPTION OF
SECURITIES -- Certain Provisions of Articles of Certificate and By-laws."
DIRECTORS FEES
The Company does not presently pay any directors fees.
CERTAIN TRANSACTIONS
In March 1995 a trust of which David E. Harrington, Jr. is the beneficiary
subscribed to 1,275,000 shares of the Company's common stock for the
consideration of $50,000.
On May 1, 1995, the Company entered into a management services
compensation agreement with Chemitank, S.A., a company controlled by David E.
Harrington, Jr. The agreement provides for the payment of $365,000 for resources
and efforts in the development of the Company's public offering through May 1,
1995. On May 1, 1995, the Company entered into a management services agreement
with Chemitank, S.A. to provide office space and administrative services, as
needed and at cost, from May 1, 1995 until such time as the Company's public
offering is completed. The latter agreement may be terminated by either party
with five days written notice.
Effective September 30, 1995, the Company issued 60,000 shares of its
stock to
31
Chemitank, S.A. for the total consideration of $401,702. This amount represents
the Company's indebtedness to Chemitank, S.A., as recorded on its balance sheet,
as of September 30, 1995 in the total amount of $275,810 and a stock
subscription receivable of $125,892. The stock subscription receivable was
liquidated by Chemitank, S.A. paying for additional offering costs and by
providing management services for the Company during the three months ended
December 31, 1995.
On January 15, 1996, the Company issued 65,000 shares of Common Stock to
Chemitank, S.A. pursuant to a technical services agreement. In return,
Chemitank, S.A. agrees to provide technical market information from January 1,
1996 through the date of the public stock offering.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus, and as adjusted
to reflect the sale of the shares of Common Stock offered in connection with the
Prospectus, by each person known by the Company to beneficially own more than 5%
of the outstanding shares of Common Stock, each of the Company's directors, each
of the Named Officers and all directors as a group. The address for each person
named below is the Company's address.
The Shipholding International Management Trust (the "Trust"), a trust for
the benefit of David E. Harrington, Jr. owns 1,275,000 shares of the Company's
Common Stock.
Chemitank, S.A., an entity controlled by David E. Harrington, Jr., owns
125,000 shares of the Company's Common Stock. Chemitank, S.A., is registering in
the registration statement of which this prospectus is a part 96,000 shares of
the Company's Common Stock. The shares may be sold commencing three months after
the date of this prospectus at the rate of 11,000 shares per month, cumulative.
Such sales may be made in market transactions or in negotiated sales.
PERCENT OF TOTAL
NAME NUMBER OF SHARES BEFORE OFFERING AFTER OFFERING
---------------- --------------- -----------------------
MINIMUM(1) MAXIMUM(2)
Trust for
David E. Harrington, Jr. 1,275,000 91% 60% 49%
Chemitank, S.A. 125,000 9% 6% 5%
All directors and
executive officers 1,400,000 100% 66% 54%
as a group (2 persons)
- -------------------
32
(1) The number of shares deemed outstanding for purposes of determining the
percentages includes 706,000 shares of Common Stock included in the Units
which are being offered for sale by the Company in this Offering but does
not include an aggregate of up to 853,050 shares of Common Stock issuable
upon the exercise of: (i) the Series A and Series B Warrants included in
the Units; (ii) the options to be granted under the Company's 1995 Stock
Option Plan; (iii) the Underwriter's Warrant, and (iv) the Warrants
included in the Units issuable upon exercise of the Underwriter's Warrant.
See "DILUTION."
(2) The number of shares deemed outstanding for purposes of determining the
percentages includes 1,180,000 shares of Common Stock included in the
Units which are being offered for sale by the Company in this Offering but
does not include an aggregate of up to 1,291,500 shares of Common Stock
issuable upon the exercise of: (i) the Series A and Series B Warrants
included in the Units; (ii) the options to be granted under the Company's
1995 Stock Option Plan; (iii) the Underwriter's Warrant, and (iv) the
Warrants included in the Units issuable upon exercise of the Underwriter's
Warrant. See "DILUTION."
DESCRIPTION OF SECURITIES
The following statements with respect to the Company's securities are
subject to the detailed provisions of the Company's Certificate of Incorporation
and By-laws which are filed as exhibits to the Registration Statement of which
this Prospectus is a part. See "ADDITIONAL INFORMATION."
UNITS
Each Unit consists of (i) one share of Common Stock (ii) one Series A
Common Stock Purchase Warrant and (iii) one Series B Common Stock Purchase
Warrant.
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common
Stock, par value $.001 per share. As of the date of the offering, 1,400,000
shares of Common Stock are expected to be issued and outstanding, held by two
shareholders of record. Each holder of Common Stock is entitled to one vote per
share for the election of directors as well as on other matters, to dividends as
and when declared by the Company's Board of Directors, and upon liquidation to
share in the net assets of the Company pro rata in accordance with his holdings.
The Common Stock has no preemptive, redemption, conversion or subscription
rights, and all outstanding shares of Common Stock are, and the shares of Common
Stock offered by the Company hereby will be, fully paid and nonassessable. For a
period of one year following the completion of this Offering, the prior consent
of the Underwriter is required for any issuances of Common Stock other than
pursuant to exercises of warrants or options.
REDEEMABLE WARRANTS
33
GENERAL
The Series A Warrants and Series B Warrants are to be issued in fully
registrable form under a Warrant Agreement (the "Warrant Agreement"). These
Warrants may be exercised upon surrender of the Warrant certificate on or prior
to the respective expiration dates (or earlier redemption dates) of such
Warrants at the offices of the Warrant Agent, with the Subscription Form on the
reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Warrants are being exercised. Shares issued upon exercise of these
Warrants and payment in accordance with the terms thereof will be fully paid and
nonassessable.
The Series A Warrants and Series B Warrants do not confer upon the
Warrantholders any voting or other rights of a shareholder of the Company. Upon
notice to the Warrantholders, the Company has the right to unilaterally reduce
the exercise price or extend the expiration date of the Warrants. Although this
right is intended to benefit Warrantholders, to the extent that the Company
exercises this right when the Warrants would otherwise be exercisable at a price
higher than the prevailing market price of the Common Stock, the likelihood of
exercise, and the resultant increase in the number of shares outstanding, may
impede or make more costly a change of control of the Company.
SERIES A WARRANTS
The Series A Warrants entitle the registered holder to purchase one share
of Common Stock for each two warrants held for $10.00 per share at any time
prior to 5:00 p.m. New York City time on the third anniversary of the date of
the closing of the Offering pursuant to this Prospectus.
The Company has a right to redeem all of the Series A Warrants at a price
of $.05 per Series A Warrant upon not less than 30 days' prior written notice at
any time after eighteen months from the date of this Prospectus, provided that
before any such redemption can take place, the closing bid price of the
Company's Common Stock in the over-the-counter market (or the last sale price
should the Common Stock be listed in an exchange) shall have averaged in excess
of $12 per share for 30 consecutive business days ending within 15 days of the
date of the notice of redemption. During the 30-day notice period, a holder
shall have the right to exercise his Series A Warrants.
The Series A Warrants provide for adjustment of the exercise price and for
a change in the number of shares issuable upon exercise to protect holders
against dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock or upon issuance of shares of Common Stock
at prices lower than the market price then in effect other than issuances upon
exercise of options granted to employees, directors and consultants to the
Company, or options to be granted under any Company stock option plan.
34
The Company has authorized the issuance of Series A Warrants. The Company
has reserved sufficient shares of Common Stock for issuance upon exercise of
such Series A Warrants. When delivered, such shares of stock will be fully paid
and nonassessable.
SERIES B WARRANTS
The Series B Warrants entitle the registered holder to purchase one share
of Common Stock for every four Warrants held at an exercise price of $12.00 per
share at any time after the date hereof and prior to 5:00 p.m. New York City
time on the fifth anniversary of the date of this Prospectus.
The Company has a right to redeem all of the Series B Warrants at a price
of $.05 per Class B Warrant upon not less than 30 days' prior written notice at
any time after eighteen months from the date of this Prospectus, provided that
before any such redemption can take place, the closing bid price of the
Company's Common Stock in the over-the-counter market (or the last sale price
should the Common Stock be listed on an exchange) shall have averaged in excess
of $14.40 per share for 30 consecutive business days ending within 15 days prior
to the date of the notice of redemption. During the 30-day notice period, a
holder shall have the right to exercise his Series B Warrants.
The Series B Warrants provide for adjustment of the exercise price and for
a change in the number of shares issuable upon exercise to protect holders
against dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock or upon issuance of shares of Common Stock
at prices lower than the market price then in effect other than issuances upon
exercise of options granted to employees, directors and consultants to the
Company, or option to be granted under any Company stock option plan.
The Company has authorized the issuance of Series B Warrants. The Company
has reserved sufficient shares of Common Stock for issuance upon exercise of
such Series B Warrants. When delivered, such shares of stock will be fully paid
and nonassessable.
CERTAIN MARKET INFORMATION
The Company intends to apply for listing of the Common Stock and Warrants
on the NASDAQ (the Automated Quotation System of the National Association of
Security Dealers, Inc.). There can be no assurance that such application will be
accepted.
The Offering is the initial public offering of the Company's securities,
and, accordingly, there is no public trading market for its securities at the
present time. There can be no assurance that a public trading market will ever
develop or, if one develops, that it will be maintained. Although it has no
legal obligation to do so, the Underwriter from time to time may become a market
maker and otherwise effect transactions in the Company's securities (and the
Underwriter has indicated to the Company that it intends to do so). The
Underwriter, if it participates in the market, may be a dominating influence in
any market
35
that might develop for any of the Company's securities. The price and liquidity
of the Company's securities may be significantly affected by the degree, if any,
of the Underwriter's participation in the market. Such activities, if commenced,
may be discontinued at any time or from time to time. For further information
with respect to the Underwriter, see "RISK FACTORS--Underwriter's Influence on
the Market."
UNDERWRITING
THE OFFERING
R.M. Stark & Co., Inc. (the "Underwriter") has agreed to offer the Units
on a "best efforts, all or none basis" as to the first 706,00 Units and on a
"best efforts" basis as to the remaining 474,000 Units.
The Underwriter has advised the Company that it proposes to offer the
Units to the public at an offering price of $8.50 per Unit, and at such price
less a concession not in excess of $0.85 per Unit to certain dealers who are
members of the National Association of Securities Dealers, Inc., of which the
Underwriter may allow and such dealers may reallow concessions not in excess of
$ per Unit to certain other dealers. The public offering price and concession
and discount may be changed by the Underwriter after the initial public
offering.
No Units are reserved for sale to specific individuals designated by the
Company and neither the Underwriter nor the Company intends to enter into such
an arrangement at this time. The Company, however, may provide the names of
persons who may be interested in purchasing shares and the Underwriter will, in
all likelihood, contact those persons in the course of its normal sales
activities.
The Company has agreed to pay to the Underwriter a nonaccountable expense
allowance equal to 3% of the total proceeds of this Offering, or $180,030 if the
minimum offering is completed and $300,900 if the maximum offering is completed,
of which $25,000 has already been paid.
The Company has agreed with the Underwriter that for a period of one year
after the effective date the Company will not issue any shares of Common Stock
not contemplated by the registration statement of which this prospectus is part
without the consent of the
Representative.
The Underwriting Agreement provides for indemnification between the
Company and the Underwriter against certain liabilities in connection with the
Registration Statement, including liabilities under the Act.
Prior to this Offering, there has been no public market for the Company's
Common
36
Stock, Series A Warrants, or Series B Warrants. The Offering or exercise prices
of such securities being offered hereby was determined by negotiation between
the Company and the Underwriter. Factors considered in determining such prices
include the history of and the prospects for the industry in which the Company
competes, the future prospects of the Company, the ability of the Company's
management, the projected earnings, net worth and financial condition of the
Company, the general condition of the securities market at the time of this
Offering, and the prices of similar securities of comparable companies.
CERTAIN ARRANGEMENTS WITH THE UNDERWRITER
At the closing of this Offering, the Company will issue to or as directed
by the Underwriter, for nominal consideration, a warrant (the "Underwriter's
Warrant") to purchase a number of Units equal to 10% of the number of Units sold
in the Offering. The Underwriter's Warrant will be exercisable for a five-year
period commencing from the date of this Prospectus, at an exercise price of 165%
of the initial public offering price per Unit or $14.02. The Underwriter's
Warrant will not be transferable prior to one year after its issuance except
that they may be transfered to the Underwriters, selling group members, and
their officers and/or partners.
The Underwriter's Warrant will contain anti-dilution provision providing
for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Underwriter's Warrant does not entitle the Underwriter to any rights as a
shareholder of the Company until the Underwriter's Warrant is exercised and
shares of Common Stock are purchased thereunder.
The Underwriter's Warrant and the securities issuable thereunder may not
be offered for sale to the public except in compliance with the applicable
provisions of the Act. The Company has agreed that, if it shall cause a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, or a new registration statement or offering statement under
Regulation A, to be filed with the Commission, the holder(s) of the
Underwriter's Warrant shall have the right during the life of the Underwriter's
Warrant and for an additional two years to include therein for registration the
securities issuable upon exercise of the Underwriter's Warrant at no expense to
the holder(s). Additionally, the Company has agreed that, upon demand by the
holder(s) of at least 50% of the Underwriter's Warrant, made on no more than two
separate occasions during the exercise period of the Underwriter's Warrant, the
Company shall register the Underwriter's Warrant and any of the securities
issuable upon exercise thereof, the first such registration to be at the
Company's expense and the second at the expense of the holder(s).
For the period during which the Underwriter's Warrant is exercisable, the
holder or holders will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other shareholders of the Company. The holder or holders of the
Underwriter's Warrant can be expected to exercise it at a time when the Company
would, in all likelihood, be able to obtain any needed capital
37
from an offering of its unissued Common Stock on terms more favorable to the
Company than those provided for in the Underwriter's Warrant. Such facts may
adversely affect the terms on which the Company can obtain additional financing.
To the extent that the Underwriter realizes any gain from the resale of the
Underwriter's Warrant or the securities issuable thereunder, such gain may be
deemed additional underwriting compensation under the Act.
The Company and the Underwriter will enter into a consulting agreement on
or about the date of this Prospectus pursuant to which the Underwriter will
agree to perform consulting services relating to managerial, financial service
and shareholder relations matters upon the request of the Company's President
for a period of one year for a fee equal to 1% of the gross proceeds of the
offering.
For a period of 36 months after the date of this Prospectus, the Company
will allow an observer designated by the Underwriter to attend all meetings of
the Company's Board of Directors. The observer will be paid the same annual
retainer and meeting fees as the Company's non-employee directors and will be
entitled to indemnification against any claims arising out of his or her
participation in such meetings.
The Company and the holders of all of the Common Stock currently
outstanding have agreed that for a period of 24 months from the date of this
Prospectus each such holder will not sell, assign, hypothecate or pledge any
shares of Common Stock owned by him or purchasable under any option, warrant or
convertible debt owned by it without the prior written consent of the
Representative, except that Chemitank, S.A. is registering 96,000 shares which,
commencing 3 months after the date of this prospectus, may be sold at the rate
of 11,000 shares per month, cumulative.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock included
in the Units offered hereby will be passed upon for the Company by Jack H.
Halperin, Esq., New York, New York. The firm of Lester Morse, P.C. has served as
counsel to the Underwriters in this offering.
EXPERTS
The Company's financial statements as of December 31, 1995 included in
this Prospectus has been audited by Jack Sisk & Co., independent auditors, as
stated in their report appearing herein and elsewhere in the Registration
Statement, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing. The June 30,
1996 financial statements included in this Prospectus are unaudited.
38
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected, without charge, at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, upon payment of prescribed fees.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
39
SHIPHOLDING INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS - DECEMBER 31, 1995
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ........ F2
BALANCE SHEET ............................................. F3
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT ........... F4
STATEMENT OF STOCKHOLDER'S EQUITY ......................... F5
STATEMENT OF CASH FLOWS ................................... F6
NOTES TO FINANCIAL STATEMENTS ............................. F7 - F14
UNAUDITED FINANCIAL STATEMENTS - JUNE 30, 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......... F15
BALANCE SHEET ............................................. F16
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT ........... F17
STATEMENT OF STOCKHOLDER'S EQUITY ......................... F18
STATEMENT OF CASH FLOWS ................................... F19
NOTES TO FINANCIAL STATEMENTS ............................. F20 - F26
F1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
THE BOARD OF DIRECTORS
SHIPHOLDING INTERNATIONAL, INC.
We have audited the balance sheet of Shipholding International, Inc. as
of December 31, 1995, and the related statements of operations and accumulated
deficit, stockholders' equity, and cash flows for the period then ended. 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 audit.
We conducted our audit 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 audit provides 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 Shipholding
International, Inc. at December 31, 1995, and the results of its operations and
its cash flows for the period then ended, in conformity with generally accepted
accounting
principles.
JACK SISK & CO.
HOUSTON, TEXAS
FEBRUARY 29, 1996
F2
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS:
CASH ................................................... $ 994
FURNITURE AND EQUIPMENT, AT COST
(NOTES 1 AND 3):
OFFICE FURNITURE AND EQUIPMENT ......................... $ 23,828
LESS ACCUMULATED DEPRECIATION .......................... 2,120 21,708
--------
OTHER ASSETS:
DEFERRED OFFERING COSTS
(NOTES 1 AND 3) ....................................... $103,782
ORGANIZATIONAL COSTS (NOTES 1 AND 3) ................... 531 104,313
-------- --------
TOTAL ASSETS .............................. $127,015
========
LIABILITIES AND STOCKHOLDERS' EQUITY
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY (NOTES 3, 4, AND 8):
COMMON STOCK - $.001 PAR, 10,000,000
SHARES AUTHORIZED; 1,335,000 SHARES
ISSUED AND OUTSTANDING
(CONSIDERATION
RECEIVED MARCH 30 AND
SEPTEMBER 30, 1995) .................................. $ 1,335
CAPITAL IN EXCESS OF PAR VALUE ......................... 450,367
DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE .................................... (324,687) $ 127,015
-------- ---------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY ................ $127,015
========
See Accompanying Notes And Accountant's Report
F3
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For The Period From Inception (March 6, 1995)
Through December 31, 1995
EXPENSES:
MANAGEMENT EXPENSES $ 318,317
INTEREST EXPENSE 4,250
DEPRECIATION 2,120
---------
LOSS FROM OPERATIONS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE $(324,687)
PER SHARE (NOTE 1):
LOSS FROM OPERATIONS DURING
THE DEVELOPMENT STAGE $ (0.24)
==========
See Accompanying Notes And Accountant's Report
F4
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For The Period From Inception (March 6, 1995)
Through December 31, 1995
COMMON STOCK
--------------------- CAPITAL
NUMBER IN EXCESS
OF PAR OF PAR ACCUMULATED
SHARES VALUE VALUE DEFICIT
--------- --------- --------- ---------
Issuance of 1,000 shares of
$ .001 par common stock
in exchange for $ 50,000
of organizational and
deferred offering costs
(Notes 3 and 4) ............. 1,000 $ 1 $ 49,999 $ 0
Deficit accumulated
during the
development stage .......... 0 0 0 (324,687)
Issuance of 47 shares of
$ .001 par common stock
in exchange for a related
entity account payable,
note payable, and stock
subscription as of
September 30, 1995
(Notes 3 and 8) ............. 47 0 401,702 0
Stock split of 1,333,953
shares of $ .001 par
common stock on
February 29, 1996
after increase in
authorized shares
to 10,000,000
(Note 8) .................... 1,333,953 1,334 (1,334) 0
--------- --------- --------- ---------
Totals ....................... 1,335,000 $ 1,335 $ 450,367 $(324,687)
========= ========= ========= =========
See Accompanying Notes And Accountant's Report
F5
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For The Period From Inception (March 6, 1995)
Through December 31, 1995
Cash flows from operating activities:
Loss from operations ................................. $(324,687)
Adjustments to reconcile loss from
operations to net cash:
Depreciation .................................. 2,120
Increase in paid in capital
attributable to operations ................... 322,561
Net cash used by operating activities ................ $ (6)
Cash flows from financing activities:
Cash advance from stockholder ........................ 1,000
Net increase in cash and ending cash balance ................. $ 994
=========
See Accompanying Notes And Accountant's Report
F6
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS
The Company intends to engage in the ownership and charter of
ocean-going vessels for the transport of dry cargo freight. The proceeds of the
pending public offering will be used primarily to fund the acquisition of an
initial fleet of two to three vessels.
FURNITURE AND EQUIPMENT
Office furniture and equipment are recorded at cost to the
Company which was determined by independent appraisal of furniture and equipment
previously purchased by a related company. Assets are depreciated on a
straight-line basis over their estimated useful lives of 5 to 10 years.
DEFERRED OFFERING COSTS
These costs are carried as an asset until the closing of the
related initial public stock offering. At that time these, and subsequent costs
of the offering, will be deducted from the offering proceeds. The composition of
these costs as of December 31, 1995 are as follows:
Underwriting costs ......................................... $ 25,000
Legal and accounting fees .................................. 65,146
Filing fees and related expense ............................ 13,636
--------
$103,782
========
AMORTIZATION
Organizational costs will be amortized over sixty months
beginning at the end of development stage activities.
Annual amortization will be $ 106.
F7
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Net income per share is computed by dividing (a) the net loss
from operations by (b) the number of common shares outstanding.
2 - DEVELOPMENT STAGE OPERATIONS
The Company was incorporated on March 6, 1995. Its activities
through December 31, 1995 have consisted primarily of raising capital, obtaining
financing for preliminary expenditures, and administrative activities.
3 - CONVERSION OF DEBT TO EQUITY
ACCOUNT PAYABLE - RELATED ENTITY. As of September 30, 1995, the
Company had accumulated an open account payable to a related entity. This
payable was converted to equity as described in the last paragraph of Note 3.
The composition of the converted account payable is summarized as follows:
Deferred offering costs ...................................... $103,137
Organization costs ........................................... 531
Management fees .............................................. 193,064
Interest on management fees .................................. 3,258
Cash advanced to the company ................................. 1,000
--------
Balance of advances to date .................................. $300,990
Less portion allocated to
stock and capital as of March 30, 1995 ..................... 50,000
--------
Total account payable before
sale of stock and conversion
of debt described below ............................... $250,990
========
F8
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
3 - CONVERSION OF DEBT TO EQUITY (CONTINUED)
NOTE PAYABLE - RELATED ENTITY. On May 1, 1995, the Company
entered into an asset purchase agreement with a related company. It provides for
the acquisition of $ 23,828 of furniture and office equipment. The amount bears
interest at the rate of ten (10%) percent per annum and is payable upon the
completion of the public offering or the expiration of six months, whichever
occurs first. The note balance and accrued interest totaled $24,820 as of
September 30, 1995.
On January 15, 1996 and effective as of September 30, 1995, the
Company issued 47 (60,000 after stock split) shares of common stock for the
following consideration:
Account payable - related entity ........................... $250,990
Note payable - related entity .............................. 24,820
Stock subscription receivable .............................. 125,892
--------
Total consideration ........................................ $401,702
========
The stock subscription receivable was liquidated by the subscriber paying for
additional offering costs and by providing management services for the Company
during the three months ended December 31, 1995.
4 - STOCKHOLDERS' EQUITY
On January 1, 1995, a related company transferred and delivered
its right and title to certain deferred offering costs, in the total amount of $
50,000, to a trust, of which the Company's President is the beneficiary. The
trustee was directed to invest the corpus of the trust in the purchase of 1,000
shares of common stock of Shipholding International, Inc. and for no other
purpose. Upon incorporation and ratification by the board of directors on March
30, 1995, the trust acquired 1,000 (1,275,000 after stock split) shares of the
Company's common stock.
F9
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
4 - STOCKHOLDERS' EQUITY (CONTINUED)
On January 15, 1996, the Company issued an additional 47 (60,000
after stock split) shares of stock to a related entity in exchange for
consideration described in Note 3.
5 - CONTINGENCIES AND COMMITMENTS
On July 23, 1994, a related company entered into an agreement
with a registered broker-dealer to undertake a public offering of securities for
the Company. Among other things, the agreement provides for payments in the
event the offering does not occur. In the event the underwriter elects not to
proceed with the offering, the underwriter is to be reimbursed for its
out-of-pocket expenses up to an aggregate of $ 75,000, less amounts previously
paid. If the Company elects not to proceed with the offering, the underwriter
shall be paid $ 150,000, less amounts previously paid. As of December 31, 1995,
$ 25,000 of the deferred offering costs paid by the related company would apply
to either of these events. This agreement is to be superseded by a subsequent
underwriting agreement described more fully in Note 8.
On September 13, 1994, the Company's President engaged an
attorney to provide certain legal services incident to the public offering of
the Company's securities. The engagement provided for the payment of an initial
retainer of $ 22,500, a fee of $ 15,000 upon registration, and a fee of $ 50,000
upon closing of the offering. An expense advance of $ 3,000 was provided for at
the onset of the engagement. As of December 31, 1995, payments totaling $ 40,500
have been made and are included in the total of deferred offering costs. Upon
closing of the offering, the Company will be obligated to pay the remaining fee
of $50,000.
F10
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
5 - CONTINGENCIES AND COMMITMENTS (CONTINUED)
On May 1, 1995, the Company entered into a management services
compensation agreement with a related company. The agreement provides for the
payment of $ 365,000 for resources and efforts in the development of the
Company's public offering through May 1, 1995. This amount is payable only if
the public offering of the Company's shares is successful. Advances are to bear
interest at the rate of ten (10%) percent per annum from May 1, 1995. All
principal and interest to be paid under this agreement are to be paid from
operating revenues and not from the proceeds of any present or future offering
or paid in capital. The amount of contingent accrued interest as of December 31,
1995 is $ 24,333.
On May 1, 1995, the Company entered into a management services
agreement with a related company to provide office space and administrative
services, as needed and at cost, from May 1, 1995 until such time as the
Company's public offering is completed. The agreement may be terminated by
either party with five days written notice. Amounts payable under this agreement
bear interest at the rate of ten (10%) percent per annum and are to be paid from
operating revenues. Amounts payable under this contract through the period
ending December 31, 1995, have been converted to consideration in exchange for
stock as described in Note 3.
F11
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
6 - RELATED PARTY TRANSACTIONS
The related company referred to in the preceding notes to
financial statements is a company which is controlled by the Company's
President. As indicated in Notes 3, 4, 5, and 8, the related entity has advanced
cash, paid expenses, provided management and technical services for the benefit
of the Company and converted this debt to equity.
In addition, the Company is contingently liable, as described in
Note 5, paragraph 3, to the related entity in the amount of $ 389,333 as of
December 31, 1995.
7 - NONCASH INVESTING AND FINANCING TRANSACTIONS
Noncash investing and financing transactions consist of the
acquisition of all the assets of the Company in the amount of $ 128,141 and the
total cost of management services in the amount of $ 322,561.
8 - SUBSEQUENT EVENTS
On January 15, 1996, and effective as of September 30, 1995, the
Company issued 47 (60,000 after stock split) shares of common stock incident to
the sale of stock and conversion of debt described more fully in Note 3.
On January 15, 1996, the Company issued 51 (65,000 after stock
split) shares of common stock to a related entity pursuant to a technical
services agreement. In return, the related entity agreed to provide technical
market information from January 1, 1996 through the date of the public stock
offering.
F12
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
8 - SUBSEQUENT EVENTS (CONTINUED)
On February 29, 1996, by amending its articles of incorporation,
the Company authorized a 1,275 for one stock split and increased the number of
its authorized shares to 10 million. The stock split has been given retroactive
treatment in the accompanying financial statements and all amounts disclosed
have taken this stock split into consideration.
During February, 1996, the Company and the underwriter verbally
agreed to a draft of a new underwriting agreement. The agreement is to become
effective upon closing or the initial offering of stock to the public, whichever
occurs first. The major financial tenets of the agreement, excluding the
offering itself, are summarized as follows:
The Company is to pay all expenses incident to the offering.
At closing, the Company will pay the underwriter 3% of the gross
proceeds of the offering, $ 25,000 of which has been paid in advance,
for general expenses of the underwriter related to the offering.
On the effective date, the Company is to retain the underwriter as a
management and financial consultant for a one-year period. The fee for
these services is $ 150,000 payable in advance on the closing date.
The underwriter may terminate the agreement before the effective date.
Upon such termination, the Company would be liable for the payment of
expenses incurred to date by the underwriter, after giving credit for
the $ 25,000 paid.
F13
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
8 - Subsequent Events (continued)
The Company has granted a 10% discount to the underwriter from
the public offering price. In addition, the underwriter has been granted
warrants to purchase 100,000 units. Each unit is comprised of one share of
common stock and two common stock purchase warrants.
F14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Shipholding International, Inc.
We have compiled the accompanying balance sheet of Shipholding
International, Inc. as of June 30, 1996, and the related statements of
operations and accumulated deficit, stockholders' equity, and cash flows for the
period then ended and for the period from March 6, 1995 (inception), to June 30,
1996, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Jack Sisk & Co.
Houston, Texas
August 7, 1996
F15
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEET
June 30, 1996
ASSETS
Current assets:
Cash .............................................. $ 956
Prepaid expenses (Note 4) ......................... 145,166
---------
Total current assets ................. $ 146,122
Furniture and equipment, at cost (Notes 1 and 3):
Office furniture and equipment .................... $ 23,828
Less accumulated depreciation ..................... 3,710 20,118
---------
Other assets:
Deferred offering costs
(Notes 1 and 3) .................................. $ 142,008
Organizational costs (Notes 1 and 3) .............. 531 142,539
--------- ---------
Total assets ......................... $ 308,779
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - related party
(Notes 5 and 6) .................................. $ 273,067
Accrued interest (Note 5) ......................... 5,882
---------
Total current liabilities ............ $ 278,949
Contingencies and Commitments (Note 5)
Stockholders' equity (Notes 3 and 4):
Common stock - $.001 par, 10,000,000
shares authorized; 1,400,000 shares
issued and outstanding .......................... $ 1,400
Capital in excess of par value .................... 885,802
Deficit accumulated during the
development stage ............................... (857,372) 29,830
--------- ---------
Total liabilities
and stockholders' equity ........... $ 308,779
=========
See accompanying notes and accountant's report
F16
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For the Six Months Ending June 30, 1996 and
For the Period from Inception (March 6, 1995)
Through June 30, 1996
Year Inception
To Date To Date
--------- ---------
Expenses:
Management expenses ...................... $ 525,213 $ 843,530
Interest expense ......................... 5,882 10,132
Depreciation ............................. 1,590 3,710
Loss from operations and deficit
accumulated during the development
stage .................................... $(532,685) $(857,372)
========= =========
Per share (Note 1):
Loss from operations during
the development stage ............. $ (0.38) $ (0.61)
========= =========
See accompanying notes and accountant's report
F17
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from Inception (March 6, 1995)
Through June 30, 1996
COMMON STOCK
--------------------- Capital
Number In Excess
of Par Of Par Accumulated
SHARES VALUE VALUE DEFICIT
--------- --------- --------- ---------
Issuance of 1,000
shares of $ .001
par common stock
(Notes 3 and 4) ............ 1,000 $ 1 $ 49,999 $ 0
Issuance of 47
shares of $ .001
par common stock
(Notes 3 and 4) ............ 47 0 401,702 0
Stock split (Note 4) ......... 1,333,953 1,334 (1,334) 0
Deficit for the
period ending
December 31, 1995 .......... 0 0 0 (324,687)
--------- --------- --------- ---------
Balance at
December 31, 1995 ........ 1,335,000 $ 1,335 $ 450,367 $(324,687)
Issuance of 65,000
shares of $ .001
par common stock
(Note 4) ................... 65,000 65 435,435 0
Deficit for the
period ending
June 30, 1996 .............. 0 0 0 (532,685)
--------- --------- --------- ---------
Balance at
June 30, 1996 ............ 1,400,000 $ 1,400 $ 885,802 $(857,372)
========= ========= ========= =========
See accompanying notes and accountant's report
F18
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Six Months Ending June 30, 1996 and
For the Period from Inception (March 6, 1995)
Through June 30, 1996
Year Inception
To Date To Date
--------- ---------
Cash flows from operating activities:
Loss from operations ..................... $(532,685) $(857,372)
Adjustments to reconcile loss from
operations to net cash:
Depreciation ...................... 1,590 3,710
Increase in accounts payable ...... 273,067 273,067
Increase in accrued interest ...... 5,882 5,882
Increase in paid in capital
attributable to operations ...... 252,108 574,669
Net cash used by operating
activities ............................. $ (38) $ (44)
Cash flows from financing activities:
Cash advance from stockholder ............ -- 1,000
Net increase (decrease) in cash .................. $ (38) $ 956
Beginning cash balance ........................... 994 0
--------- ---------
Ending cash balance .............................. $ 956 $ 956
========= =========
See accompanying notes and accountant's report
F19
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS
The Company intends to engage in the ownership and charter of
ocean-going vessels for the transport of dry cargo freight. The proceeds of the
pending public offering will be used primarily to fund the acquisition of an
initial fleet of two to four vessels.
FURNITURE AND EQUIPMENT
Office furniture and equipment are recorded at cost to the
Company which was determined by independent appraisal of furniture and equipment
previously purchased by a related company. Assets are depreciated on a
straight-line basis over their estimated useful lives of 5 to 10 years.
DEFERRED OFFERING COSTS
These costs are carried as an asset until the closing of the
related initial public stock offering. At that time these, and subsequent costs
of the offering, will be deducted from the offering proceeds. The composition of
these costs as of June 30, 1996 is as follows:
Underwriting costs .......................................... $ 25,000
Legal and accounting fees ................................... 94,125
Filing fees and related expense ............................. 22,883
--------
Total deferred offering costs .......................... $142,008
========
AMORTIZATION
Organizational costs will be amortized over sixty months
beginning at the end of development stage activities. Annual
amortization will be $ 106.
F20
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Net income per share is computed by dividing (a) the net loss
from operations by (b) the number of common shares outstanding.
2 - DEVELOPMENT STAGE OPERATIONS
The Company was incorporated on March 6, 1995. Its activities
through June 30, 1996 have consisted primarily of raising capital, obtaining
financing for preliminary expenditures, and administrative activities.
3 - CONVERSION OF DEBT TO EQUITY
ACCOUNT PAYABLE - RELATED ENTITY. As of September 30, 1995, the
Company had accumulated an open account payable to a related entity. This
payable was converted to equity as described in the last paragraph of Note 3.
The composition of the converted account payable is summarized as follows:
Deferred offering costs ..................................... $103,137
Organization costs .......................................... 531
Management fees ............................................. 193,064
Interest on management fees ................................. 3,258
Cash advanced to the company ................................ 1,000
--------
Balance of advances to date ................................. $300,990
Less portion allocated to stock and
capital as of March 30, 1995 .............................. 50,000
--------
Total account payable before
sale of stock and conversion
of debt described below .............................. $250,990
========
F21
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
3 - CONVERSION OF DEBT TO EQUITY (CONTINUED)
NOTE PAYABLE - RELATED ENTITY. On May 1, 1995, the Company
entered into an asset purchase agreement with a related company. It provides for
the acquisition of $ 23,828 of furniture and office equipment. The amount bears
interest at the rate of ten (10%) percent per annum and is payable upon the
completion of the public offering or the expiration of six months, whichever
occurs first. The note balance and accrued interest totaled $24,820 as of
September 30, 1995. This note, together with interest, was converted to equity
as described in the last paragraph of Note 3.
On January 15, 1996 and effective as of September 30, 1995, the
Company issued 47 (60,000 after subsequent stock split) shares of common stock
for the following consideration:
Account payable - related entity ........................... $250,990
Note payable - related entity .............................. 24,820
Stock subscription receivable .............................. 125,892
--------
Total consideration ................................... $401,702
========
The stock subscription receivable was liquidated by the subscriber paying for
additional offering costs and by providing management services for the Company
during the three months ended December 31, 1995.
4 - STOCKHOLDERS' EQUITY
On January 1, 1995, a related company transferred and delivered
its right and title to certain deferred offering costs, in the total amount of $
50,000, to a trust, of which the Company's President is the beneficiary. The
trustee was directed to invest the corpus of the trust in the purchase of 1,000
shares of common stock of Shipholding International, Inc. and for no other
purpose. Upon incorporation and ratification by the board of directors on March
30, 1995, the trust acquired 1,000 (1,275,000 after stock split) shares of the
Company's common stock.
F22
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
4 - STOCKHOLDERS' EQUITY (CONTINUED)
On January 15, 1996, and effective as of September 30, 1995, the
Company issued 47 (60,000 after subsequent stock split) shares of common stock
incident to the sale of stock and conversion of debt described more fully in
Note 3. The total consideration received was $ 401,702.
On January 15, 1996, the Company issued 51 (65,000 after
subsequent stock split) shares of common stock to a related entity pursuant to a
technical services agreement. In return, the related entity agreed to provide
technical market information from January 1, 1996 through the date of the public
stock offering. The valuation of the shares issued was based on the value per
share of the debt conversion in the preceding paragraph. Total consideration for
the stock was calculated to be $ 435,500. The unamortized prepaid technical
services at June 30, 1996 totalled $ 145,166.
On February 29, 1996, by amending its articles of incorporation,
the Company authorized a 1,275 for one stock split and increased the number of
its authorized shares to 10 million.
5 - CONTINGENCIES AND COMMITMENTS
On September 13, 1994, the Company's President engaged an
attorney to provide certain legal services incident to the public offering of
the Company's securities. The engagement provided for the payment of an initial
retainer of $ 22,500, a fee of $ 15,000 upon registration, and a fee of $ 50,000
upon closing of the offering. As of June 30, 1996, payments totaling $ 37,500
have been made in accordance with this agreement and that amount is included in
the total of deferred offering costs.
F23
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
5 - CONTINGENCIES AND COMMITMENTS (CONTINUED)
On May 1, 1995, the Company entered into a management services
compensation agreement with a related company. The agreement provides for the
payment of $ 365,000 for resources and efforts in the development of the
Company's public offering through May 1, 1995. This amount is payable only if
the public offering of the Company's shares is successful. Advances are to bear
interest at the rate of ten (10%) percent per annum from May 1, 1995. All
principal and interest to be paid under this agreement are to be paid from
operating revenues and not from the proceeds of any present or future offering
or paid in capital. The amount of contingent accrued interest as of June 30,
1996 is $ 42,583.
On May 1, 1995, the Company entered into a management services
agreement with a related company to provide office space and administrative
services, as needed and at cost, from May 1, 1995 until such time as the
Company's public offering is completed. The agreement may be terminated by
either party with five days written notice. Amounts payable under this agreement
bear interest at the rate of ten (10%) percent per annum and are to be paid from
operating revenues. Amounts payable under this contract through the period
ending December 31, 1995, have been converted to consideration in exchange for
stock as described in Note 3. Amounts payable under this contract for the six
months ending June 30, 1996 include $ 234,841 in accounts payable and $ 4,958 in
accrued interest.
On June 24, 1996, the Company entered into an agreement
with a related company to repay additional deferred offering costs and related
expenses paid on its behalf. Amounts payable under this agreement bear interest
at the rate of ten (10%) percent per annum and are to be paid upon the
consummation of the offering. Amounts payable under this contract for the six
months ending June 30, 1996 include $ 38,226 in accounts payable and $ 924 in
accrued interest.
F24
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
5 - CONTINGENCIES AND COMMITMENTS (CONTINUED)
On June 24, 1996, the Company and the underwriter executed an
amended letter of intent which superseded all previous agreements between the
Company, the underwriter, and a related company regarding the public offering of
securities for the Company. The major financial tenets of the agreement,
excluding the offering itself, are summarized as follows:
At closing, the Company will pay the underwriter 3% of the gross
proceeds of the offering, $ 25,000 of which has been paid in advance,
for general expenses of the underwriter related to the offering. On the
effective date, the Company is to retain the underwriter as a management
and financial consultant for a one-year period. The fee for these
services is $ 150,000 payable in advance on the closing date.
Each party releases the other, and the party related to the Company,
from all claims of any prior agreements, whether written or oral.
In the event that the offering is not completed, the Company shall
reimburse the underwriter's expenses on an accountable basis.
6 - RELATED PARTY TRANSACTIONS
The related company referred to in the preceding notes to
financial statements is a company which is controlled by the Company's
President. As indicated in Notes 3, 4, and 5, the related entity has advanced
cash, paid expenses, provided management and technical services for the benefit
of the Company and converted most of the debt related to these transactions to
equity.
In addition, the Company is contingently liable, as described in
Note 5, paragraph 2, to the related entity in the amount of $ 407,583 as of June
30, 1996.
F25
SHIPHOLDING INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
7 - NONCASH INVESTING AND FINANCING TRANSACTIONS
Noncash investing and financing transactions from date of
inception to June 30, 1996 are summarized as follows:
Acquisition of furniture and fixtures ......................... $ 23,828
Payment of deferred offering costs through
December 31, 1995 ........................................... 103,782
Payment of organization costs ................................. 531
Management services provided for the period
May 1, 1995 through December 31, 1995 ....................... 322,561
Technical services to be provided from
January 1, 1996 through the date of the
public stock offering ......................................... 435,500
--------
Total noncash acquisitions
and transactions ............................................ $886,202
========
Total value of common stock issued ............................ $ 1,400
Total capital in excess of par value .......................... 885,802
--------
$887,202
Less cash received ............................................ 1,000
--------
Net financing of noncash transactions ......................... $886,202
========
F26
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed as a part of this Amendment No. 2 to
Registration Statement:
Exhibit Number Description
- -------------- -----------
1.1 Revised Form of Underwriting Agreement
1.2 Revised Form of Agreement Among Underwriters
1.3 Revised Form of Selected Dealer Agreement
1.7 Form of Escrow Agreement with Continental Stock Transfer
& Trust Company
II-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on the 16th day September, 1996.
SHIPHOLDING INTERNATIONAL, INC.
By: David E. Harrington, Jr.
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
David E. Harrington, Jr. Chairman of the Board September 16, 1996
of Directors and Chief
Executive Officer
David R. Wheeler Chief Financial Officer, September 16, 1996
Secretary and Director
II-2
CONSENT AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Shipholding International, Inc.
We hereby consent to the use in this Registration Statement of Shipholding
International, Inc. on Form S-1 of our reports dated February 29 and August 7,
1996, relating to the financial statements of Shipholding International, Inc.
and to the reference to our firm under the capiton "EXPERTS" in the Prospectus.
/s/ JACK SISK
Jack Sisk & Co.
Houston, Texas
August 7, 1996
II-3
EXHIBIT 1.1
SHIPHOLDING INTERNATIONAL, INC.
4550 POST OAK PLACE, SUITE 140
HOUSTON, TEXAS 77027
UNDERWRITING AGREEMENT
R. M. Stark & Co., Inc. _________, 1996
701 S. E. 6th Avenue
Suite 100
Delray Beach, Florida 33483
Gentlemen:
The undersigned, Shipholding International, Inc.., a Delaware
corporation (hereinafter called the "Company"), proposes to issue and sell an
aggregate of 1,180,000 Units, each Unit consisting of one share of Common Stock,
par value $.001 per share ("Common Stock"), one Series A Common Stock Purchase
Warrant (the "Series A Warrants") and one Series B Common Stock Purchase Warrant
(the "Series B Warrants") at a public offering price of $8.50 per Unit (the
"Units"). Two Series A Warrants shall entitle the holder to purchase one share
of Common Stock at a price of $10.00 per share and four Series B Warrants shall
entitle the holder to purchase one share of Common Stock at a price of $12.00
per share. The Series A Warrants and Series B Warrants are exercisable for
periods of three years and five years, respectively, from the effective date of
the Prospectus. The Series A Warrants may be called by the Company upon at least
thirty days prior written notice at a price of $.05 per Warrant, at any time
after eighteen months from the date of the Prospectus, provided the closing
price as quoted on the NASDAQ system for the Common Stock is at least $12 per
share (or 120% of the exercise price of the Series A Warrants in the event that
there is a reduction in the exercise price of the Series A Warrants) during each
day of the 30 trading day period ending 15 days preceding the date of the
written notice. The Series B Warrants may be called by the Company upon at least
thirty days prior written notice at a price of $.05 per Warrant, at any time
after eighteen months from the date of the Prospectus, provided the closing
price as quoted on the NASDAQ system for the Common Stock is at least $14.40 per
share (or 120% of the exercise price of the Series B Warrants in the event that
there is a reduction in the exercise price of the Series B Warrants) during each
day of the 30 trading day period ending 15 days preceding the date of the
written notice. The Series A Warrants and Series B Warrants are sometimes
collectively referred to herein as the "Warrants. All of the securities which
are the subject of this Agreement are more fully described in the Prospectus of
the Company described below.
The purpose of this agreement (the "Agreement") is to confirm the
arrangements with both you as "Underwriter" and any Co- Underwriter chosen by
you who may later join in this Agreement (collectively called the
"Underwriters"), with respect to the sale of 1,180,000 Units by the Underwriter
as exclusive agent for the Company on a "best efforts, all-or-none" basis as to
706,000 Units and on a "best efforts" basis as to the remaining 474,000 Units.
1
The Registration Statement shall also cover the sale of up to 96,000
shares by a selling security holder. However, no sales may take place within the
first three months following the Initial Closing Date. Except as provided in
Section 18 of this Agreement, this Agreement shall not cover the shares to be
sold by the Selling Security Holder.
SECTION 1. DESCRIPTION OF SECURITIES. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants will be as set forth in the Prospectus (hereinafter defined).
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to, and agrees with, the Underwriter as follows:
(a) A Registration Statement on Form S-1 (No.33-90862) and
Amendments thereto, with respect to among other things to the Units and a form
of Prospectus relating thereto, copies of which have been previously delivered
to you, has been prepared by the Company in conformity with the Securities Act
of 1933, as amended (hereinafter called the "Act"), and the rules and
regulations (hereinafter called the "Rules and Regulations") of the Securities
and Exchange Commission (hereinafter called the "Commission") thereunder, and
was filed with the Commission under the Act. The Company, subject to the
provisions of Section 6(a) hereof, may file one or more additional Post
Effective Amendments to such Registration Statement and Prospectus. The
Underwriter will receive copies of each such amendment.
The date on which the offering of securities contemplated by this
Agreement is authorized to commence pursuant to the Act, is herein called the
"Effective Date". The Registration Statement and Prospectus, as finally amended
and revised immediately prior to the Effective Date, are herein called
respectively the "Registration Statement" and the "Prospectus". If, however, a
prospectus is filed by the Company pursuant to Rule 424(b) or Rule 424(c) of the
Rules and Regulations which differs from the Prospectus, the term "Prospectus"
shall also include the prospectus filed pursuant to such Rule. The times and
dates of delivery and payment hereunder are herein called the "Closing(s) or
Closing Dates."
(b) On the Effective Date, the Registration Statement and the
Prospectus, and on each Closing Date the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission an amendment
thereof or supplement thereto), will comply with the provisions of the Act, and
the Rules and Regulations, and will contain all statements which are required to
be stated therein in accordance with the Act and the Rules and Regulations and
will not contain an untrue statement of a material fact and will not
2
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, provided, however, that none of the
representations and warranties contained in this subsection (b) shall extend to
the Underwriters in respect of any statements in or omissions from the
Registration Statement and/or the Prospectus, based upon information furnished
in writing to the Company by or on behalf of the Underwriter specifically for
use in connection with the preparation thereof.
(c) The Company has been duly incorporated and is now and at each
Closing Date will be validly existing as a corporation in good standing under
the laws of the State of its incorporation and location, having power and
authority (corporate and other) to own its properties and conduct its business
as described in the Prospectus. The Company is now and at each Closing Date will
be duly qualified to do business as a foreign corporation in good standing in
all of the jurisdictions in which it owns or leases property or in which the
conduct of its business requires such qualification and where the failure to so
qualify would have a material adverse effect on the business and operation of
the Company. The Company has no subsidiaries, except as are set forth in the
Prospectus.
(d) The financial statements of the Company included in the
Registration Statement and Prospectus fairly present the financial position,
results of operations and other information purported to be shown therein, of
the Company at the respective dates and for the respective periods to which they
apply; and such financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied throughout the
periods involved, and are in accordance with the books and records of the
Company.
(e) Jack Sisk & Co., who has certified the financial statements
which were included as a part of the Registration Statement and the Prospectus
is, with respect to the Company, an independent public accountant as required
under the Act and the Rules and Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Prospectus and prior to each Closing Date, and except as may
otherwise be stated in or contemplated by the Registration Statement and the
Prospectus (i) the Company has not incurred, nor will it incur, any material
liabilities or obligations, direct or contingent, nor has it, nor will it have
entered into any material transactions not in the ordinary course of business
and (ii) there has not been, and will not have been, any material adverse change
in the condition (financial or otherwise) of the Company whether or not arising
from transactions in the ordinary course of business.
3
(g) Except as described in the Prospectus, the real and personal
properties of the Company as shown in the Prospectus, are either (i) owned by
the Company by good marketable title in fee simple, free and clear of all liens,
encumbrances and equities of record, or otherwise, and except those which do not
materially adversely affect the use or value of such assets and except the lien
of current taxes not now due, or (ii) are held by the Company by valid leases,
none of which is in default. Except as described in the Prospectus, the Company
in all material respects has full right to maintain and operate its business and
properties as the same are now operated or proposed to be operated and is
complying with all laws, ordinances and regulations applicable thereto.
(h) The Company has no material contingent obligations, nor are
its properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as described in the Prospectus, there are no actions,
suits or proceedings at law or in equity pending or to the Company's knowledge
threatened against the Company and there are no proceedings pending, or to the
knowledge of the Company threatened, against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, franchise, licenses, permits,
operations or financial condition or income of the Company.
(j) The outstanding capital stock, consisting of Common Stock and
Preferred Stock, of the Company has been duly and validly issued and is
fully-paid and non-assessable; the outstanding capital stock of the Company and
the Units shall conform to all statements with regard thereto contained in the
Prospectus. The Units have been duly and validly authorized by proper corporate
authority; and the Units when issued and paid for in accordance with the terms
hereof will be duly and validly issued, fully-paid and non-assessable, and shall
not be subject to any pre-emptive rights of any stockholder of the Company.
(k) The Unit Purchase Warrants (the "Under-writer's Warrants") to
be issued to the Underwriter hereunder will be, when issued, duly and validly
authorized and executed by the Company and will constitute valid and binding
obligations of the Company, legally enforceable in accordance with their terms,
and the Company will have duly authorized, reserved and set aside the shares of
its Common Stock issuable upon exercise, and such stock, when issued and paid
for upon exercise of the Underwriter's Warrants in accordance with the
provisions thereof, will be duly and validly authorized and issued, fully-paid
and non-assessable.
4
(l) The certificates required to be furnished to the Underwriter
pursuant to the provisions of Section 11(g) (h) (i) and (j) hereof will be true
and correct.
(m) The execution and delivery by the Company of this
Underwriting Agreement has been duly authorized by all necessary corporate
action and this Underwriting Agreement is a valid, binding, and legally
enforceable obligation of the Company.
(n) The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, and compliance with the
terms of this Agreement will not conflict with, or constitute a default under
any material indenture, mortgage, deed of trust, or other agreement or
instrument to which the Company is now a party or the Certificate of
Incorporation and any amendments thereto, or by-laws of the Company, or any law,
order, rule or regulation, writ, injunction or decree of any government,
governmental instrumentality, or court, domestic or foreign, having jurisdiction
over the Company.
(o) The Company will apply the proceeds from the sale of the
Units to the purposes set forth in the Prospectus.
(p) All of the aforesaid representations, Agreements, and
warranties shall survive delivery of and payment for all or any part of the
securities covered by this Agreement.
SECTION 3. ISSUANCE, SALE AND DELIVERY OF THE UNITS AND THE
UNDERWRITER'S UNIT PURCHASE WARRANTS.
(a) The Company hereby appoints the Underwriter as its exclusive
agent, for a period of sixty (60) days from the Initial Closing Date, to sell
the Units and the Underwriter, on the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, accepts such appointment and agrees to use its best efforts to find
purchasers for the Units. The selling period, by mutual agreement, may be
extended for an additional sixty (60) days (the selling period, as it may be
extended is referred to as the "Offering Period"). An additional period for
collection purposes only beyond the aforesaid sixty (60) days from the Effective
Date (plus an additional sixty (60) days if agreed upon) shall be permitted for
a period not to exceed ten (10) business days. In the event the last day of the
offering period occurs on a Saturday, Sunday or holiday, then the offering
period will remain open until the next business day. The price at which the
Underwriter shall sell the Units to the public, as agent for the Company, shall
be $8.50 per Unit and subject to the sale of at least 706,000 shares, the escrow
agent on behalf of the Company shall pay the Underwriter a selling commission
equal to ten (10%) percent of the public offering price for each Unit sold.
Neither you nor any person acting on your behalf, including any co- Underwriter
or Selected Dealer shall have any authority to give any
5
information or make any representations in connection with any offer or sale of
the Units other than as contained in the Prospectus and as is otherwise
expressly authorized in writing by the Company.
(b) It is mutually agreed that the Company shall not issue and
sell any of the Units to any of the purchasers found by the Underwriters unless
and until the escrow agent on behalf of the purchasers of Units makes payment to
the Company for at least 706,000 Units within the period of time specified
above, and no commission or expense allowance shall be payable by the escrow
agent on behalf of the Company hereunder, unless and until such payment shall
have been received by the Company.
(c) The Underwriter shall deposit all funds received by it from
the sale of up to 1,180,000 Units in an escrow account, at Continental Stock
Transfer & Trust Co. with a mailing address of 2 Broadway, New York, New York
10004 by 12:00 noon of the next business day in compliance with NASD Notice to
Members 84-7, dated January 30, 1984, and shall so instruct any co-underwriters
or selected dealers to do likewise. Such deposits shall continue to be made
until either (a) such funds are turned over to the Company for the Units or (b)
such funds are returned directly to the persons who subscribe for the Units
without interest thereon or deduction therefrom; all in accordance with the
terms of an appropriate escrow agreement to be entered into with such Trust
Company.
The Underwriters shall instruct all subscribers to make checks
payable only to "Continental Stock Transfer & Trust Company as escrow agent
f/b/o Shipholding International, Inc." and shall instruct any co-underwriters or
selected dealers to do likewise. In the event that customer checks are made out
to the order of the co-underwriters or selected dealers, then the
co-underwriters and selected dealers agree to promptly forward their own checks
or wire funds to said escrow account or to endorse the check to the order of the
escrow account. It is acknowledged that only unaffiliated $100,000 net capital
broker/dealers may endorse checks to the order of the escrow account or forward
their own checks or wired funds.
(d) On or before the fifth business day following the Company's
and the Underwriter's receipt of notification from the escrow agent that it has
received cash or cleared funds for 706,000 units during the Offering Period, the
initial closing ("Initial Closing"), on the sale of such 706,000 Units shall
occur at the time and place agreed upon by the Company and the Underwriter,
provided that the other conditions to Closing set forth in Section 6 hereof have
been satisfied. The escrow agent's notification will be deemed received by both
the Company and the Underwriter on the date the Company actually receives it,
provided that the Company promptly notifies the Underwriter on such date by
telecopy, telegram or telex of such receipt. At the Initial Closing, the Company
will deliver to the Underwriter the Certificates for the
6
Units (in such denominations and in such names as the Underwriter shall request
upon at least 48 hours prior written notice) against payment to the Company by
the escrow agent, on behalf of the purchasers of such 706,000 Units (by
certified or bank cashier's check, payable to the order of the Company, in New
York Clearing House Funds), of the public offering price of such 706,000 Units
less the commissions and expense allowance payable to the Underwriter as to said
Units as provided in subsection 3(e) below.
Following the Initial Closing, the Company and the Underwriter
shall mutually agree upon the time and place for additional Closings on Units
sold during the balance of the Offering Period and shall instruct the escrow
agent, in writing signed by both the Company and the Underwriter, to make
payment for any Units as to which a Closing shall occur to the Company less the
commissions and expense allowance payable to the Underwriter for such Units (as
provided in Subsection 3(f) below) against delivery to the Underwriter by the
Company of Certificates for the Units sold at such Closing.
The Certificates so delivered for the Units shall be registered
with the transfer agent in the names of the purchasers thereof for the number of
Units purchased by each, as requested by the Underwriter in the notices.
(e) At the Initial Closing, the escrow agent shall deduct from
the Company's proceeds for the Units sold at such Closing, the Underwriter's
commission equal to ten (10%) percent of the public offering price and its
expense allowance equal to three (3%) percent of the public offering price
attributable to the Units sold at such Closing after making an appropriate
adjustment for the $25,000 advanced by the Company to the Underwriter towards
the Underwriter's non-accountable expense allowance. The escrow agent shall be
permitted to deduct from the proceeds to the Company any expenses to be paid by
the Company under Sections 7(a) and (b).
(f) At any Closing after the Initial Closing, the escrow agent
shall deduct from the Company's proceeds, the Underwriter's commission equal to
ten (10%) of the public offering price of such Units and its expense allowance
equal to three (3%)of the public offering price of such Units (after giving
credit to the Company for the $25,000 advance) so that the net amount to be paid
to the Company by the escrow agent for the Units sold at such Closing shall be
equal to eighty-seven (87%) of the public offering price of such Units plus the
$25,000 advance paid toward the non-accountable expense allowance.
(g) The Parties hereto represent that at each Closing, the
representations and warranties herein contained and the statements contained in
all certificates theretofore or simultaneously delivered by any party to another
pursuant to this Agreement, shall in all respects be true and correct.
7
(h) The Company will give irrevocable instructions to its
Transfer Agent (which it agrees to appoint) to deliver to the Underwriter (at
the Company's expense) for a period of five years from the first sale of the
Units, daily advice sheets showing any transfers of Units and from time to time
during the aforesaid period a complete Stockholders' list will be furnished by
the Company when requested by the Underwriter.
(i) At each Closing, the Company will deliver to the Underwriter,
Warrants to purchase one Unit for each ten Units sold in the offering (the
"Underwriter's Warrants") for an aggregate purchase price of $100. Each Warrant
shall entitle the owner thereof to purchase one Unit of Common Stock of the
Company at an exercise price equal to 165% above the offering price of the Units
sold in the public offering. Such Warrants are to become exercisable upon the
expiration of one year from the effective date of the Registration Statement,
and to remain exercisable for four years thereafter. From the effective date of
the Registration Statement and until one (1) year thereafter, such Warrants may
be transferred only to officers or partners of the Underwriter(s) and selling
group members.
The Warrants shall contain customary clauses
protecting Warrant holders in the event the Company pays stock dividends,
effects stock splits, or effects a sale of assets, merger or consolidation.
Further, the exercise price of the Warrants to be issued as part of the
Underwriter's Warrants shall contain a clause reducing the exercise price
thereof pro rata in the event of a reduction in the exercise price of the
Warrants issued to the public as part of the Units.
SECTION 4. OFFERING OF THE UNITS ON BEHALF OF THE COMPANY. In offering
the Units for sale the Underwriter shall offer it solely as agent for the
Company and such offer shall be made upon the terms and subject to the
conditions set forth in the Registration Statement and Prospectus. The
Underwriter shall commence making such offer as agent for the Company as soon
after the Effective Date as it may deem advisable, provided, however, that if
the Underwriter does not commence such offering within three business days after
the Effective Date it shall so advise the Company and the Commission.
The Underwriter shall have the right to engage the services of
Co-Underwriter(s) with regard to the offering contemplated hereby pursuant to
separate written agreement. Such separate agreement, executed copies of which
shall be delivered to the Company prior to the Closing Date, shall provide in
part (i) R.M. Stark & Co., Inc. ("Stark") shall act as Managing Underwriter
hereunder, (ii) the rights of the Co-Underwriter(s) shall not exceed the rights
of the Managing Underwriter, (iii) the liabilities of the Co-Underwriter(s)
shall not be less than the liabilities of the Managing Underwriter, (iv) the
Managing Underwriter shall have the right to allot any portion of the
8
Underwriter's compensation to the Co-Underwriter(s) and (v) the Managing
Underwriter shall have the right to reject orders from such Co-Underwriter(s),
in whole or in part, for any of the Units to be offered in contemplation of this
Agreement.
The Underwriter may engage registered dealers selected by it
("Selected Dealers") to solicit sales of Units and such solicitations shall be
made pursuant to a Selected Dealer Agreement substantially in the form annexed
hereto and pursuant to which it may allow such concession (out of its
underwriting commission) as it may determine within the limits set forth in the
Registration Statement and Prospectus.
The Selected Dealer Agreement shall require the Selected Dealer
to agree to offer the Units on the terms and conditions of offering set forth in
the Prospectus and in accordance with such covenants, commitments and
undertakings as are submitted by the Company and the Underwriter to the
Commission.
SECTION 5. REGISTRATION STATEMENT AND PROSPECTUS. The Company will
furnish the Underwriter, without charge, two signed copies of the Registration
Statement and of each amendment thereto, including all exhibits thereto and such
amount of conformed copies of the Registration Statement and Amendments as may
be reasonably requested by the Underwriter for distribution to each of the Co-
Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many
printed copies of a Preliminary Prospectus and of the Prospectus as the
Underwriter may request for the purposes contemplated by this Agreement. If,
while the Prospectus is required to be delivered under the Act or the Rules and
Regulations, any event known to the Company relating to or affecting the Company
shall occur which should be set forth in a supplement to or an amendment of the
Prospectus in order to comply with the Act (or other applicable law) or with the
Rules and Regulations, the Company will forthwith prepare, furnish and deliver
to the Underwriter and to each of the other Underwriters and to others whose
names and addresses are designated by the Underwriter, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriter, Co-Underwriters and the
selected dealers, if any, in connection with the distribution of the Units and
all dealers to whom any of the Units may be sold by the Underwriter,
Co-Underwriters, or by any Selected Dealer, to use the Prospectus, as from time
to time amended or supplemented, in connection with the offering and sale of the
Units and in accordance with the applicable provisions of the Act and the
applicable Rules and Regulations and applicable State Securities Laws.
9
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
with each Underwriter that:
(a) After the date hereof, the Company will not at any time,
whether before or after the Effective Date, file any amendment to the
Registration Statement or the Prospectus, or any supplement to the Prospectus,
of which the Underwriter shall not previously have been advised and furnished
with a copy, or to which the Underwriter or the Underwriter's counsel shall have
reasonably objected in writing on the ground that it is not in compliance with
the Act or the Rules and Regulations.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective (provided, however, the Company shall
not cause the Registration Statement to become effective without the written
consent of Stark) and will advise the Underwriter, (i) when the Registration
Statement shall have become effective and when any amendment thereto shall have
become effective, and when any amendment of or supplement to the Prospectus
shall be filed with the Commission, (ii) when the Commission shall make request
or suggestion for any amendment to the Registration Statement or the Prospectus
or for additional information and the nature and substance thereof, and (iii) of
the issuance by the Commission of an order suspending the effectiveness of the
Registration Statement or of the initiation of any proceedings for that purpose,
and will use its best efforts to prevent the issuance of such an order, or if
such an order shall be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Underwriter, such amendments, or supplements to
the Registration Statement or Prospectus, in form and substance satisfactory to
counsel to the Company, as in the reasonable opinion of Lester Morse P.C., as
counsel to the Underwriter, may be necessary or advisable in connection with the
offering or distribution of the Units, and will diligently use its best efforts
to cause the same to become effective.
(d) The Company will, at its expense, when and as requested by
the Underwriter, supply all necessary documents, exhibits and information, and
execute all such applications, instruments and papers as may be required, in the
opinion of the Underwriter's counsel, to qualify the Units or such part thereof
as the Underwriter may determine, for sale under the so-called "Blue Sky" Laws
of such states as the Underwriter shall designate, and to continue such
qualification in effect so long as required for the purposes of the distribution
of the Units, provided, however, that the Company shall not be required to
qualify as a foreign corporation or dealer in securities or to file a consent to
service of process in any state in any action other than one arising out of the
offering or sale of the Units.
10
(e) The Company will, at its own expense, file and provide, and
continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the States in which the Units may be qualified for sale, for so long as required
by applicable law, rule or regulation and will provide the Underwriter with
copies of all such registrations, filings and reports on a timely basis.
(f) During the period of five years from the Effective Date, the
Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 60 days after the end of
each of the Company's first three quarter-yearly fiscal periods, a balance sheet
of the Company as at the end of such quarter-yearly period, together with a
statement of its income and a statement of changes in its cash flow for such
period (Form 10-Q), all in reasonable detail, signed by its principal financial
or accounting officer, (ii) within 110 days after the end of each fiscal year, a
balance sheet of the Company as at the end of such fiscal year, together with a
statement of its income and statement of cash flow for such fiscal year (Form
10-K), such balance sheet and statement of cash flow for such fiscal year to be
in reasonable detail and to be accompanied by a certificate or report of
independent public accountants, (who may be the regular accountants for the
Company), (iii) as soon as available a copy of every other report (financial or
other) mailed to the stockholders, and (iv) as soon as available a copy of every
non- confidential report and financial statement furnished to or filed with the
Commission or with any securities exchange pursuant to requirements by or
agreement with such exchange or the Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or any regulations of the
Commission thereunder. If and for so long as the Company has one or more active
subsidiaries, the financial statements required by (i) and (ii) above shall be
furnished on a consolidated basis in respect of the Company and all of the
Company's subsidiaries. Separate financial statements shall be furnished for
each subsidiary, the accounts of which are not so consolidated. The financial
statements referred to in (ii) shall also be furnished to all of the
stockholders of the Company as soon as practicable after the 110 days referred
to therein.
(g) The Company represents that with respect to the Warrants and
the shares of Common Stock, it will prepare and file a Registration Statement
with the Commission pursuant to Section 12(g) of the 1934 Act, prior to the
Effective Date with a request that such Registration Statement will become
effective on the first day following the Effective Date. The Company understands
that, to register, it must prepare and file with the Securities and Exchange
Commission a General Form of Registration of Securities (Form 8-A or Form 10).
In addition, the Company agrees to qualify its Units, Common Stock and the
Warrants for listing on the NASDAQ system on the Effective Date and will take
all reasonable and necessary and appropriate action so that the securities
continue to be listed for
11
trading in the NASDAQ system for at least ten years from the Effective Date
provided the Company otherwise complies with the prevailing maintenance
requirements of NASDAQ. In addition, at such time as the Company qualifies for
listing its securities on the National Market System of NASDAQ, the Company will
use its best efforts to have the Company's Units and components thereof listed
on the National Market System of NASDAQ in lieu of listing as Small-Cap Issues.
For so long as the Company is a reporting company under the 1934 Act, the
Company shall comply with all periodic reporting and proxy solicitation
requirements imposed by the Commission pursuant to the 1934 Act.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) On or before the Effective Date, the Company will apply for
listing in Standard & Poor's Corporation Records Manual. The Company agrees to
keep such listing current for a period of not less than ten years from the
Closing Date.
(j) For a period of five years from the Effective Date, the
Company shall furnish unaudited quarterly financial statements including both a
balance sheet and statement of income to the Underwriter on a timely basis in
addition to other reports which may be issued. The Company shall cause the Board
of Directors to meet, at least quarterly, upon proper notice; and, the
Underwriter shall receive notice of any regular or special meetings of the
Company's Board of Directors concurrently with the sending of such notice to the
Company's directors and shall have the right to have a representative attend
such meeting as an observer, but this right shall be suspended at any time a
designee of the Underwriter is a member of or advisor to the Company's Board of
Directors as more fully set forth in Section 17 below.
(k) The Company shall employ the services of an auditing firm
acceptable to the Underwriter in connection with the preparation of the
financial statements required to be included in the Registration Statement and
shall continue to appoint such auditors or such other auditors as are reasonably
acceptable to the Underwriter for a period of five (5) years following the
Effective Date of the Registration Statement. The firm of Jack Sisk & Co. is an
auditing firm acceptable to the Underwriter. Said financial statements shall be
prepared in accordance with Regulation S-X under the Rules and Regulations. The
Company shall appoint Continental Stock Transfer & Trust Company as transfer
agent for the Common Stock (the "Transfer Agent") and as warrant agent for the
Warrants.
12
(l) Prior to the Effective Date, the Company will enter into
employment contracts with its key employees as mutually agreed upon by the
parties thereto, with the terms thereof including the term and the compensation
of each person subject to the approval of the Underwriter.
(m) Within ninety (90) days subsequent to the Initial Closing
Date, the Company will furnish "Key Man" Life Insurance in the amount of
$5,000,000 on the life of David Harrington and the Company shall pay the annual
premiums, therefore, for a period of not less than five years from the Initial
Closing Date assuming insurability and reasonable costs.
(n) The Company will for a period of five years:
(i) Furnish to the Underwriter and to the Company's
shareholders an annual report containing audited financial statements and
quarterly report for the first three quarters containing audited financial
information.
(ii) Furnish the Underwriter with a duplicate copy
of the daily transfer sheets prepared by the Transfer Agent and a list of
stockholders as required by Section 3(f).
(iii) Designate an Audit Committee (the members of
which shall be subject to the Underwriter's reasonable approval) which will
generally supervise the financial affairs of the Company (an initial function of
the Committee will be to monitor the application of funds provided by the public
offering which is the subject of this Agreement).
(iv) At its expense, shall cause its regularly
engaged independent certified public accountants to examine (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's 10-Q quarterly report and the mailing of quarterly financial
information to security holders.
(o) Until such time as the securities of the Company are listed
on the New York Stock Exchange, the American Stock Exchange, or the NASDAQ/NMS;
the Company shall cause its legal counsel or an independent firm acceptable to
the Underwriter to provide the Underwriter with a survey, to be updated at least
semi-annually, of those states in which the securities of the Company may be
traded in non-issuer transactions under the Blue Sky laws of the states and the
basis for such authority. The first such survey shall be delivered by Company's
counsel or such independent firm at closing; the second such survey shall be
delivered by Company's counsel or such independent firm within five business
days of publication of the Company in Standard & Poor's Corporation Records and,
thereafter, on a semi-annual basis on April 30 and October 31 of each year.
13
(p) As soon as practicable after the Closing Date, the Company
will deliver to the Underwriter and its counsel a total of two bound volumes of
copies of all documents relating to the public offering which is the subject of
this Agreement.
(q) For a period of two years, the Company will not file a
Registration Statement on Form S-8 or other Registration Statement for the
benefit of the Company's officers, directors and affiliates without our prior
written consent.
(r) For a period of one year from the Effective Date, the Company
will not issue any Common Stock not contemplated by nor disclosed in the
Registration Statement without the prior written consent of the Underwriter.
SECTION 7. EXPENSES OF THE COMPANY.
(a) The Company will pay its own costs and expenses incurred in
connection with the public offering contemplated hereby, including, without
limitation: (i) expenses incident to the issuance and delivery of the Units,
including fees of any transfer or registration agent; (ii) Federal, State,
National Association of Securities Dealers, Inc. ("NASD") and other
qualification or registration fees regarding the Units and the component parts
thereof; (iii) costs of preparing, printing and filing all copies of the
Registration Statement and related Prospectus (including preliminary and final
copies thereof), all subsequent amendments or supplements thereto, and all
exhibits and other instruments relating to the sale of the Units, including the
costs of syndication material; (iv) costs of qualifying the Company's Units,
shares and Warrants for listing on NASDAQ; (v) costs of printing all copies of
the Underwriting Agreement, the Agreement Among Underwriters, the Selling Group
(Selected Dealers) Agreement, Underwriters' Questionnaire, Power of Attorney,
"Blue Sky" Memorandum, it being understood that in the event Stark acts as sole
Underwriter, it will not print these documents other than the Selling Group
Agreement and Blue Sky Memorandum; (vi) costs of engraving and supplying the
certificates for the Units and component parts thereof; and (vii) fees and
expenses of legal counsel, accountants and other experts of the Company. In
addition, the Company shall (i) bear the cost of investigative reports of the
Company's principal executive officers, directors and substantial shareholders
which cost shall not exceed $5,000, and (ii) costs of otherwise unreimbursed
postage, including mailing to customers of preliminary and final prospectuses
incurred by or on behalf of the Underwriter in preparation for, or in connection
with the offering and sale and distribution of the Units on an accountable
basis.
(b) The Company will also pay all expenses relating to qualifying
or registering the securities which are the subject of this Agreement under the
securities or "Blue Sky" laws of such states and jurisdictions as shall be
designated by the Underwriter. Such qualification or registration shall be
performed by the Underwriter's counsel and its counsel fees relating thereto, in
the
14
sum of $1,000 per jurisdiction plus state filing fees and disbursements relating
thereto, but not limited to, long-distance telephone calls, photocopying, excess
postage, messengers, overnight mail and courier services which shall be paid by
the Company upon demand. The aforesaid payment shall not include fees of special
counsel, if the same is required to be incurred and agreed upon by the Company
and the Underwriter in connection with a listing on a national stock exchange or
filing in a merit review state. The first $10,000 of the "Blue Sky" fees and
state filing fees are due upon the Company's receipt of "Blue Sky" papers for
filing. Disbursements are payable upon receipt of invoice. The balance of blue
sky fees are due at Closing.
SECTION 8. PAYMENT OF UNDERWRITER'S EXPENSES.
(a) On the Closing Date and Additional Closing Date(s) (if any)
the Company will pay to Stark an expense allowance equal to three (3%) percent
of the total gross proceeds derived from the public offering contemplated by
this Agreement, $25,000 of which has been paid in advance to Stark, for the fees
and disbursements of counsel to the Underwriter and for costs of otherwise
unreimbursed advertising, traveling, postage, telephone and telegraph expenses
and other miscellaneous expenses incurred by or on behalf of the Underwriter and
the Underwriter in preparation for, or in connection with the offering and sale
and distribution of the Units; and Stark shall not be obligated to account to
the Company for such disbursements and expenses. In the event, however, that the
Underwriter terminates this Agreement pursuant to the provisions of Section 12
hereof, the Underwriter shall be obligated to account for expenditures of any
advance payment to Stark and to refund to the Company any portion of the advance
not expended. In the event that the Underwriter terminates this agreement
pursuant to the provisions of Section 12(b), the Underwriter shall be entitled
to reimbursement of expenses on an accountable basis after giving credit for the
$25,000 paid.
(b) On the Effective Date, the Company will enter into an
agreement retaining Stark, as a management and financial consultant for a
one-year period, commencing as of the Effective Date for a fee equal to 1% of
the gross amount of the moneys raised in this offering. This sum shall be
payable in full, in advance on the Closing Date.
SECTION 9. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, and each person who controls each of the Underwriters within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses, or liabilities, joint or several, to which they or any of
them may become subject under the Act or any other statute or at common law or
otherwise, and to reimburse persons indemnified as above for any reasonable
legal or other expense (including the cost of any investigation and preparation)
incurred by them (as incurred), or any of them, in connection with
investigating, defending against or
15
appearing as a third party witness in connection with any claim or litigation,
whether or not resulting in any liability, but only insofar as such losses,
claims, liabilities, expenses or litigation arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented, if amended
or supplemented), or in any "Blue Sky" application, or arising out of or based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading;
provided, however, that the indemnity agreement contained in this subsection (a)
shall not apply to amounts paid in settlement of any such claims or litigation
if such settlement is effected without the consent of the Company, nor shall it
apply to the Underwriters or any person controlling the Underwriters in respect
of any such losses, claims, damages, expenses, liabilities or litigation arising
out of, or based upon, any such untrue statement or alleged untrue statement, or
any such omission or alleged omission, if such statement or omission was made in
reliance upon and in conformity with written information furnished in writing to
the Company by such Underwriter, or on its behalf, specifically for use in
connection with the preparation of the Registration Statement or the Prospectus
or any such amendment thereof or supplement thereto or any such blue sky
application.
(b) Each of the Underwriters severally agrees, in the same manner
and to the same extent as set forth in subsection (a) above, to indemnify and
hold harmless the Company, each of the directors and officers who have signed
the Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement, or the Prospectus (as amended or as
supplemented, if amended or supplemented), or in any "Blue Sky" application, if
such statement or omission was made in reliance upon and in conformity with
written information furnished in writing to the Company by such Underwriter, or
on its behalf, specifically for use in connection with the preparation of the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, or any such application. An Underwriter shall not be liable
for amounts paid in settlement of any such claim or litigation if such
settlement was effected without its consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the
16
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the defendants in any such action include both the indemnified and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party or parties), it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party which firm shall be
designated in writing by the indemnified party.
(d) The respective indemnity agreements between the Underwriters
and the Company contained in subsections (a) and (b) above, and the
representations and warranties of the Company set forth in Section 2 hereof or
elsewhere in this Agreement, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of the Underwriters
or by or on behalf of any controlling person of the Underwriters or the Company
or any such officer or director or any controlling person of the Company, and
shall survive the delivery of the Units. Any successor of the Company, or of the
Underwriters, or of any controlling person of the Underwriters or the Company,
as the case may be, shall be entitled to the benefit of such respective
indemnity agreements.
(e) In order to provide for just and equitable contribution under
the Act in any case in which (i) any person entitled to indemnification under
this Section 9 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent
17
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or labilities represented by the
percentage that the underwriting discounts and commissions appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon, and the Company is responsible for the remaining portion; provided,
that, in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within twenty days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party (the "contributing party"),
notify the contributing party, in writing, of the commencement thereof, but the
omission so to notify the contributing party will not relieve it from any
liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against any
party, and such party so notifies a contributing party or his or its
representative of the commencement thereof within the aforesaid twenty days, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified. Any such contributing
party shall not be liable to any party seeking contribution on account of any
settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such contributing party. The
contribution provisions contained in this Section 9 are in addition to any other
rights or remedies which either party hereto may have with respect to the other
or hereunder.
SECTION 10. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriter of the Units, whichever shall first occur. The time of the initial
public offering by the Underwriter of the Units for the purposes of this Section
10, shall mean the time, after the Registration Statement becomes effective, of
the release by the Underwriter for publication of the first newspaper
advertisement which is subsequently published relating to the Units, or the
time, after the Registration Statement becomes effective, when the Units are
first released by the Underwriter for offering by the Underwriter
18
or dealers by letter or telegram, whichever shall first occur. The Underwriter
agrees to notify the Company immediately after it shall have taken any action,
by release or otherwise, whereby this Agreement shall have become effective.
This Agreement shall, nevertheless, become effective at such time earlier than
the time specified above, after the Effective Date, as the Underwriter may
determine by notice to the Company.
SECTION 11. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations
of the Underwriter are subject to: the accuracy, as of the date hereof and as of
the Closing Dates; of all of the representations and warranties of the Company
contained in this Agreement; the Company's compliance with, or performance of,
all of its covenants, undertakings and agreements contained in this Agreement
that are required to be complied with or performed on or prior to each of the
Closing Dates and to the following additional conditions:
(a) On or prior to the Initial Closing Date and each Additional
Closing Date, no order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or be pending or, to the knowledge of the Company, shall be
threatened by the Commission; any request for additional information on the part
of the Commission (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
the Commission; and neither the Registration Statement nor any amendment thereto
shall have been filed to which counsel to the Underwriters shall have reasonably
objected, in writing.
(b) The Underwriter shall not have disclosed in writing to the
Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel to the Underwriters, is material, or omits to state a fact which, in
the opinion of such counsel, is material and is required to be stated therein,
or is necessary to make the statements therein not misleading.
(c) Between the date hereof, the Initial Closing Date and any
Additional Closing Date(s), the Company shall not have sustained any loss on
account of fire, explosion, flood, accident, calamity or other cause, of such
character as materially adversely affects its business or property, whether or
not such loss is covered by insurance.
(d) Between the date hereof, the Initial Closing Date and any
Additional Closing Date(s), there shall be no litigation instituted or
threatened against the Company, and there shall be no proceeding instituted or
threatened against the Company before or by any federal or state commission,
regulatory body or administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would materially
adversely affect the business, licenses, permits, operations or financial
condition or income of the Company.
19
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Initial Closing Date and each Additional Closing
Date(s), (A) the Company shall have conducted its business in the usual and
ordinary manner as the same was being conducted on the date of the filing of the
initial Registration Statement and (B) except in the ordinary course of its
business, the Company shall not have incurred any material liabilities or
obligations (direct or contingent), or disposed of any of its assets, or entered
into any material transaction, and (C) the Company shall not have suffered or
experienced any material adverse change in its business, affairs or in its
condition, financial or otherwise. On each Closing Date, the capital stock and
surplus accounts of the Company shall be substantially as great as at its last
financial report without considering the proceeds from the sale of the Units
except to the extent that any decrease is disclosed in or contemplated by the
Prospectus.
(f) The authorization of the Units, the Common Stock and the
Warrants, the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement,
shall be reasonably satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Underwriter the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, from Jack H. Halperin, counsel for the Company, that:
(i) The Company has been duly incorporated and is
a validly existing corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; it has authorized and outstanding capital as set forth
in the Registration Statement and Prospectus; and the Company is duly licensed
or qualified as a foreign corporation in all jurisdictions in which the
ownership or leasing of its properties requires such qualification or license,
except where failure to be so qualified or licensed would have no material
adverse effect on the business of the Company.
(ii) All of the outstanding shares of Common Stock are duly
authorized, validly issued, fully paid, and non-assessable, and do not have any
preemptive rights. The Company will have duly authorized, reserved and set aside
shares of Common Stock issuable upon exercise of the Warrants and any other
outstanding options or warrants or stock option plans and when issued in
accordance with the terms contained therein against payment therefor, will be
duly and validly issued, fully paid and non-assessable.
(iii) The Common Stock, Warrants and the Underwriter's Unit
Purchase Warrant conform to descriptions thereof under "Description of
Securities" contained in the Prospectus.
20
(iv) The Underwriters will receive good and marketable title
to the Units purchased by them from the Company in accordance with the terms and
provisions of this Agreement, to the best of such counsel's knowledge, free and
clear of all liens, encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever.
(v) Except as set forth in the Prospectus, there are no
outstanding options, warrants, or other rights, providing for the issuance of,
and, to the best of the knowledge of such counsel, no commitments, plans or
arrangements to issue, any shares of any class of capital stock of the Company,
or any security convertible into, or exchangeable for, any shares of any class
of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or other regulatory
authorities are necessary for the valid authorization, issue or sale of the
Units hereunder, except such as may be required under the Act or state
securities or Blue Sky Laws.
(vii) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no order suspending
the effectiveness of the Registration Statement is in effect and no proceedings
for that purpose have been instituted or are pending before or threatened by,
the Commission; the Registration Statement and Prospectus, and each amendment
thereof and supplement thereto, comply as to form in all material respects with
the applicable requirements of the Act and the Rules and Regulations (except
that no opinion need be expressed as to financial statements, notes thereto, and
financial data contained in the Registration Statement or Prospectus); such
counsel has participated in conferences with officers and representatives of the
Company and with its certified public accountants in the preparation of the
Registration Statement and the Prospectus. At such conferences counsel has made
inquiries of such officers, representatives and accountants, and discussed the
contents of the Registration Statement and the Prospectus. Such counsel has not
independently verified, and, accordingly, does not assume any responsibility
for, the accuracy, completeness or fairness of the information contained in the
Registration Statement or the Prospectus, other than as set forth in paragraph
(viii) below, insofar as such statements relate to the contents of particular
documents or laws therein described. On the basis of the foregoing, nothing has
come to the attention of such counsel to cause such counsel to believe that the
Registration Statement, the Prospectus or any amendment or supplement thereto
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial and statistical data and schedules contained therein, as to which such
counsel need express no opinion); and such counsel is familiar with
21
all contracts referred to in the Registration Statement or in the Prospectus and
such contracts are sufficiently summarized or disclosed therein, or filed as
exhibits thereto, as required, and such counsel does not know of any other
contracts required to be summarized or disclosed or filed; and such counsel does
not know of any legal or governmental proceedings to which the Company is a
party, or in which property of the Company is the subject, of a character
required to be disclosed in the Registration Statement or the Prospectus which
are not so disclosed therein.
(viii) The statements in the Registration Statement under the
caption "Business" have been reviewed by such counsel and insofar as they refer
to descriptions of agreements, statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects.
(ix) This Agreement has been duly authorized and executed by
the Company and is a valid and binding agreement of the Company enforceable in
accordance with its terms subject to bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors rights generally and except that
no opinion need be given with regard to the enforceability of Section 9 hereof
or the availability of equitable relief.
(x) To the best knowledge of such counsel: (a) no default
exists, and no event has occurred which, with notice or lapse of time, or both,
would constitute a default in the due performance and observance of any material
term, covenant or condition by the Company, of any indenture, mortgage, deed of
trust, note or any other agreement or instrument to which the Company is a party
or by which it or its business or its properties may be bound or affected,
except where such default would not have a material adverse effect on the
business of the Company and except as disclosed in the Prospectus; (b) the
Company has full power and lawful authority to authorize, issue and sell the
Units on the terms and conditions set forth herein and in the Registration
Statement and in the Prospectus; (c) no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or State securities laws,
clearance with the NASD and such other consent, approval, authorization or order
as has been obtained and is in full force and effect; and (d) the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated, and compliance with the terms hereof will not conflict with, or
constitute a default under, any material indenture, mortgage, deed of trust,
note or any other agreement or instrument to which the Company is now a party or
by which it or its business or its properties may be bound or affected, the
Certificate of Incorporation and any amendments thereto, the by-laws of the
Company, or any order, rule or regulation, writ, injunction or decree of any
government, governmental instrumentality, or court, domestic or foreign, having
jurisdiction over the Company or its business or properties.
22
(xi) Except as disclosed in the Registration Statement and
Prospectus, to the best knowledge of such counsel, there are no material
actions, suits or proceedings at law or in equity of a material nature pending,
or to such counsel's knowledge, threatened against the Company which are not
adequately covered by insurance and there are no proceedings pending or, to the
knowledge of such counsel, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially and adversely affect the business, operation or condition (financial
or otherwise) of the Company, which are not disclosed in the Prospectus.
(xii) The Underwriter's Warrants to be issued to the
Underwriter hereunder will be, when issued, duly and validly authorized and
executed by the Company and will constitute valid and binding obligations of the
Company, legally enforceable in accordance with their terms except as
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws pertaining to creditors rights generally and the
Company will have duly authorized, reserved and set aside the shares of its
Common Stock issuable upon exercise of the Underwriter's Warrants and underlying
Warrants, and such stock, when issued and paid for upon exercise of the
Underwriters' Warrants and underlying Warrants in accordance with the provisions
thereof, will be duly and validly issued, fully-paid and non-assessable.
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Underwriter shall reasonably
request. In rendering such opinion, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of fact.
(h) The Company shall have furnished to the Underwriter
certificates of the President or Chairman of the Board and the
Vice-President-Finance and Administration of the Company, dated as of the
Closing Date, and Additional Closing Date(s), to the effect that:
(i) Each of the representations and warranties of
the Company contained in Section 2 hereof are true and correct in all material
respects at and as of such Closing Date, and the Company has performed or
complied with all of its agreements, covenants and undertakings contained in
this Agreement and has performed or satisfied all the conditions contained in
this Agreement on its part to be performed or satisfied at such Closing Date;
(ii) The Registration Statement has become effective
and no order suspending the effectiveness of the Registration Statement has been
issued, and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
23
(iii) The respective signers have each carefully
examined the Registration Statement and the Prospectus and any amendments and
supplements thereto, and to the best of their knowledge the Registration
Statement and the Prospectus and any amendments and supplements thereto and all
statements contained therein are true and correct in all material respects, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth except
changes which the Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the
Registration Statement and Prospectus, since the respective dates as of which,
or periods for which, information is given in the Registration Statement and
Prospectus and prior to the date of such certificate (A) there has not been any
material adverse change, financial or otherwise, in the business, business
prospects, earnings, general affairs or condition (financial or otherwise), of
the Company (in each case whether or not arising in the ordinary course of
business), and (B) the Company has not incurred any liabilities, direct or
contingent, or entered into any transactions, otherwise than in the ordinary
course of business other than as referred to in the Registration Statement or
Prospectus and except changes which the Registration Statement and Prospectus
indicate might occur.
(i) The Company shall have furnished to the Underwriter on each
Closing Date, such other certificates, additional to those specifically
mentioned herein, as the Underwriter may have reasonably requested, as to: the
accuracy and completeness of any statement in the Registration Statement or the
Prospectus, or in any amendment or supplement thereto; the representations and
warranties of the Company herein; the performance by the Company of its
obligations hereunder; or the fulfillment of the conditions concurrent and
precedent to the obligations of the Underwriters hereunder, which are required
to be performed or fulfilled on or prior to each Closing Date.
(j) At the time this Agreement is executed, and on the Initial
Closing Date you shall have received a letter from Jack Sisk & Co., addressed to
the Underwriter, and dated, respectively, as of the date of this Agreement and
as of the Initial Closing Date and Additional Closing Date(s) as the case may
be, in form and substance reasonably satisfactory to the Underwriter, to the
effect that:
(i) They are independent public accountants within
the meaning of the Act and the applicable published Rules and
Regulations of the Commission;
24
(ii) In their opinion, the financial statements and
related schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
(iii) On the basis of LIMITED PROCEDURES in
accordance with standards established by the American Institute of Certified
Public Accountants, including (1) a reading of the latest available financial
statements of the Company (a copy of which shall be attached to such letter),
(2) a reading of the latest available minutes of the meetings of the
stockholders and the Board of Directors of the Company as set forth in the
minute books of the Company, officials of the Company having advised you and
them that the minutes of all such meetings through that date were set forth
therein, (3) consultations with officials of the Company responsible for
financial and accounting matters of the Company, which procedures do not
constitute an examination in accordance with generally accepted accounting
standards, and would not necessarily reveal material adverse changes in the
financial position or results of operations or inconsistencies in the
application of generally accepted accounting principles, nothing has come to
their attention which in their judgment would lead them to believe that (a) the
unaudited financial statements and related schedules of the Company included in
the Registration Statement and Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder, or were not
prepared in accordance with generally accepted accounting principles and
practices consistent in all material respects with those followed in the
preparation of the comparable financial statements and schedules covered by
their reports included in the Registration Statement and Prospectus, or would
require any material adjustments for a fair presentation of the information
purported to be shown thereby or (b) during the period from the date of the
Capitalization table included in the Prospectus to a specified date not more
than four business days prior to the date of such letter, there has been any
material change in the capital stock or debt of the Company, or (c) during the
period from the date of the latest balance sheet and related statements of
operations, changes in stockholders' equity and changes in financial position
included in the Prospectus and covered by their reports contained therein to the
date of the letter, there has been any material adverse change in the financial
condition, or results of operations, of the Company; and
(iv) In addition to the examination referred to in
their reports included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company which appear in the Prospectus under
the captions "Management's Discussion and Analysis of
25
Financial Condition and Results of Operations", "Executive Compensation",
"Certain Transactions", "Selected Financial Data," "Dilution," and "Risk
Factors," as well as such other financial information as may be specified by the
Underwriter, and that they have compared such amounts, percentages and financial
information with the accounting records of the Company and have found them to be
in agreement.
All the opinions, letters, certificates and evidence
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel to the Underwriters, whose approval shall not
be unreasonably withheld, conditioned or delayed.
If any of the conditions specified in this Section
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, this Agreement and all obligations of the Underwriters hereunder may
be terminated and cancelled by the Underwriter by notifying the Company of such
termination and cancellation in writing or by telegram at any time prior to, or
on, the Initial Closing Date or any Additional Closing Date(s) and any such
termination and cancellation shall be without liability of any party hereto to
any other party, except with respect to the provisions of Sections 7 and 8
hereof. The Underwriter may, of course, waive, in writing, any conditions which
have not been fulfilled or extend the time for their fulfillment.
SECTION 12. TERMINATION.
(a) This Agreement may be terminated by the Underwriter by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
(b) This Agreement may be terminated by the Underwriter by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company, after notice from the Underwriter and
an opportunity to cure, shall have failed or been unable to comply with any of
the terms, conditions or provisions of this Agreement on the part of the Company
to be performed, complied with or fulfilled within the respective times herein
provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Underwriter in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either difficulties
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the securities
contemplated or as to corporate proceedings or other matters or (ii) there is
any action, suit or proceeding, threatened or pending, at law or equity against
the Company, or by any Federal, State or other commission, board or agency
wherein any unfavorable result or decision could
26
materially adversely affect the business, property, or financial condition of
the Company which was not disclosed in the Prospectus.
(c) This Agreement may be terminated by the Underwriter by
written or telegraphic notice to the Company at any time after it becomes
effective, if the offering of, or the sale of, or the payment for, or the
delivery of, the Units is rendered impracticable or inadvisable because (i)
additional material governmental restriction, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or trading in securities generally on such exchange shall have
been suspended or a general banking moratorium shall have been established by
Federal or New York State authorities or (ii) a war or other national calamity
shall have occurred or (iii) the condition of the market for securities in
general shall have materially and adversely changed, or (iv) the condition of
any matter materially affecting the Company or its business or business
prospects, is such that it would be undesirable, impractical or inadvisable to
proceed with, or consummate, this Agreement or the public offering of the Units.
(d) Any termination of this Agreement pursuant to this Section 12
shall be without liability of any character (including, but not limited to, loss
of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided. In addition, the Underwriter shall account to the
Company for any advance and shall reimburse the Company for any portion of the
advance not expended for actual out-of-pocket expenses. In the event that the
Underwriter terminates this agreement pursuant to the provisions of Section
12(b), the Underwriter shall be entitled to reimbursement of expenses on an
accountable basis after giving credit for the $25,000 paid.
SECTION 13. FINDER. The Company and the Underwriters mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Left Blank Intentionally.
SECTION 15. REGISTRATION OF THE WARRANTS AND/OR SECURITIES UNDERLYING
THE UNDERWRITERS' WARRANTS. The Company agrees that it will, upon request by the
holders of at least 50% of the Underwriter's Warrants within the period
commencing twelve (12) months from the Effective Date, and for a period of four
years thereafter, on one occasion only at the Company's sole expense,
27
cause the Underwriters' Warrants and/or the underlying securities issuable upon
exercise of the Underwriters' Warrants, to be the subject of a post-effective
amendment, or a new Registration Statement, if appropriate (hereinafter referred
to as the "demand Registration Statement"), so as to enable the Underwriter
and/or its assigns to offer publicly the Underwriters' Warrants and/or the
underlying securities. The Company agrees to register such securities
expeditiously and, where possible, within forty-five (45) business days after
receipt of such requests. The Company agrees to use its "best efforts" to cause
the post-effective amendment, or new Registration Statement to become effective
and for a period of nine (9) months thereafter to reflect in the post-effective
amendment, new Registration Statement, financial statements which are prepared
in accordance with Section 10(a)(3) of the Act and any facts or events arising
which, individually or in the aggregate, represent a fundamental and/or material
change in the information set forth in such post-effective amendment or new
Registration Statement. The holders of the Underwriter's Warrants may demand
registration without exercising such Warrants and, in fact, are never required
to exercise same.
The Company understands and agrees that if, at any
time within the period commencing one year and ending seven years after the
Effective Date, it should file a registration statement with the Commission
pursuant to the Act, regardless of whether some of the holders of the
Underwriter's Warrants and underlying securities shall have therefore availed
themselves of the right above provided, the Company, at its own expense, will
offer to said holders the opportunity to register securities. This paragraph is
not applicable to a Registration Statement filed by the Company with the
Commission on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the
Company will cooperate with the then holders of the Underwriter's Warrants and
underlying securities in preparing and signing a Registration Statement, on one
occasion only in addition to the Registration Statements discussed above,
required in order to sell or transfer the aforesaid Underwriter's Warrants and
underlying securities and will supply all information required therefor, but
such additional Registration Statement shall be at the then holders' cost and
expense unless the Company elects to register additional shares of the Company's
Common Stock in which case the cost and expense of such Registration Statement
will be prorated between the Company and the holders of the Underwriter's
Warrants and underlying securities according to the aggregate sales price of the
securities being issued. The holders of the Underwriters' Warrants may include
such Warrants in any such filing without exercising the Underwriters' Warrants,
and in fact, are never required to exercise same. The Company can, at any time
for any reason, withdraw any such registration except in connection with a
Registration Statement filed pursuant to the Company's demand Registration
Statement.
SECTION 16. WARRANT EXERCISE FEE AGREEMENT. Commencing twelve months
after the Effective Date, the Company will pay Stark
28
an amount equal to five percent (5%) of the aggregate exercise price of each
Warrant exercised of which a portion may be allowed to the dealer who solicited
the exercise (which may also be Stark); provided: (1) the market price of the
Common Stock on the date the Warrant was exercised was greater than the Warrant
exercise price on that date; (2) exercise of the Warrant was solicited by a
member of the NASD; (3) the Warrant was not held in a discretionary account; (4)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (5) the solicitation of
the exercise of the Warrant was not in violation of Rule 10b-6 promulgated under
the Securities Exchange Act of 1934. The Warrant Exercise Fee shall be paid in
accordance with the provisions of this paragraph and the Warrant Exercise Fee
Agreement filed as an exhibit to the Registration Statement (the "Warrant
Exercise Fee Agreement"). The Company also agrees to execute and deliver the
Warrant Exercise Fee Agreement to Stark on the Initial Closing Date.
SECTION 17. DESIGNATION OF A NON-VOTING ADVISOR TO THE BOARD. Unless
waived by you, Stark shall have the right to designate a non-voting advisor to
the Board of Directors of the Company for a period of five years after the
Effective Date. Said designee shall receive not less than five business days
notice and shall have the right to attend meetings of the Board and receive no
more or less compensation than is paid to other non-management directors of the
Company and shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings, including but not limited to, food, lodging
and transportation. Moreover,to the extent permitted by law, the Company will
agree to indemnify Stark and its designee for the actions of such designee as an
advisor of the Company. In the event the Company maintains a liability insurance
policy affording coverage for the acts of its officers and/or directors, it will
agree, if possible, to include each of the Underwriter and its designee as an
insured under such policy.
SECTION 18. RESTRICTION ON SECURITIES All officers, directors and
present stockholders (including any persons who become officers and/or directors
of the Company subsequent to the Effective Date) have agreed not to sell,
transfer, hypothecate or convey any of such stock (including shares of Common
Stock issuable upon exercise or conversion of notes, warrants and/or options) by
registration or otherwise for a period of two years from the Effective Date
without the prior written consent of the Underwriter or any greater period
required by any state in which the offering of the Units is to be registered
(except that, subject to compliance with applicable securities laws, any such
officer, director or stockholder may transfer his or her stock to a member of
his family or in the event of death, by will or operation of law, provided that
any such transferee shall agree, as a condition to such transfer, to be bound by
the restrictions set forth herein. Notwithstanding anything herein to the
contrary, Chemitank S.A. may sell, commencing three months after the Initial
Closing Date, an amount equal to 11,000 shares in any consecutive 30-day period
on a cumulative basis up to a maximum of 96,000 shares. An
29
appropriate legend shall be marked on the face of stock certificates
representing all of such securities.
SECTION 19. OTHER AGREEMENTS . The Company agrees to file with the NASD
all post-effective amendments or prospectus supplements disclosing actual price
and selling terms by the selling security holders at the same time they are
filed with the SEC and in the event a portion of the securities being registered
on behalf of selling security holders become underwritten, that prior to
commencement of the distribution (i) copies of all underwriting documents
proposed for use will be submitted to the NASD for review and (ii) the maximum
compensation to be paid will be approved by the Department. The Company also
agrees to notify the NASD and the Underwriter if subsequent to the filing of
this offering any 5% or greater shareholder of the Company is or becomes an
affiliate or associated person of an NASD member participating in the
distribution in this offering.
SECTION 20. NOTICE. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at 4550 Post Oak Place, Suite 140,
Houston, TX 77027; copy to Jack H. Halperin, Esq., 711 Third Avenue, Suite 1505,
New York, NY 10017; and (B) whenever notice is required by the provisions hereof
to be given to the Underwriters, such notice shall be in writing addressed to
the Underwriter at 701 S.E. Sixth Avenue, Suite 100, Delray Beach, FL 33483;
copy to Lester Morse P.C., 111 Great Neck Road, Suite 420, Great Neck, NY
11021. Any party may change the address for notices to be sent by
giving written notice to the other persons.
SECTION 21. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except
as the context otherwise requires, all representations, warranties, covenants,
and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants, and agreements as at the date hereof and
as at the Closing Date and the Additional Closing Date(s), and all
representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or the Company or any of their respective controlling persons, and
shall survive any termination of this Agreement (whensoever made) and/or
delivery of the Units and the Optional Units to the several Underwriters.
SECTION 22. MISCELLANEOUS. This Agreement is made solely for the
benefit of the Underwriters and the Company and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchaser, as such, of any of the
Units.
30
This Agreement shall not be assignable by any party without the
other party's prior written consent. This Agreement shall be binding upon, and
shall inure to the benefit of, our respective successors and permitted assigns.
The foregoing represents the sole and entire agreement between us with respect
to the subject matter hereof and supersedes any prior agreements between us with
respect thereto. This Agreement may not be modified, amended or waived except by
a written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall be
deemed to be one and the same instrument.
If a party signs this Agreement and transmits an electronic
facsimile of the signature page to the other party, the party who receives the
transmission may rely upon the electronic facsimile as a signed original of this
Agreement.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
the Company and the Underwriters in accordance with its terms.
Very truly yours,
SHIPHOLDING INTERNATIONAL, INC.
By:_____________________________________
David E. Harrington, Jr., President
CONFIRMED AND ACCEPTED, as of
the date first above written:
R.M. STARK & CO., INC.
By:__________________________
Gary Stark, President
31
EXHIBIT 1.2
R. M. STARK & CO., INC.
701 S. E. 6th Avenue
Suite 100
Delray Beach, Florida 33483
___________________, 1996
_____________ Securities Corp.
(Address)
____________ Securities Corp.
(Address)
Gentlemen:
R. M. Stark & Co., Inc., as Managing Underwriter and you as
Co-Underwriters, have entered into an agreement with Shipholding
International, Inc. (the "Company") with regard to their
Registration Statement on Form S-18, File No. 33-90862. This
Agreement is to clarify our duties, responsibilities and
compensation for acting as Managing Underwriter.
1. You hereby each authorize us to do the following on your behalf:
a. To make any changes in the Underwriters' compensation as may
be required by the National Association of Securities Dealers, Inc.;
b. To extend the offering period, if needed, for an additional 60
days;
c. To open an escrow account for the benefit of the subscribers
to the Issuer's offering of Units, each Unit consisting of one share of Common
Stock, par value $.001 per share ("Common Stock"), one Series A Common Stock
Purchase Warrant (the "Series A Warrants") and one Series B Common Stock
Purchase Warrant (the "Series B Warrants") at a public offering price of $8.50
per Unit (the "Units").
d. To request acceleration of an effective date for the
Registration Statement.
2. You agree to remit all purchasers checks to us immediately upon
receipt, together with a list of, or copies of, the confirmations relating
thereto. Checks should be made payable to the order of "Continental Stock
Transfer & Trust Company, as Escrow Agent for the benefit of Shipholding
International, Inc." in an amount equal to the public offering price of the
Units subscribed for.
<PAGE>
3. As compensation for our services as Managing Underwriter, it is
agreed that we shall receive an aggregate amount equal to $._________ per Unit
for such Units sold pursuant to the Underwriting Agreement. The non-accountable
expense allowance shall be divided among us as follows: attorney's fees,
disbursements and due diligence expenses shall first be deducted and paid; as
Managing Underwriter, we shall be entitled to receive _____% of the remaining
sum as our fee for acting in such capacity; and the balance shall be divided on
a pro-rata basis among the Managing Underwriter and Co-Underwriters in
accordance with the number of Units sold by each. The Common Stock Purchase
Warrants shall be divided as follows: as Managing Underwriter, we shall be
entitled to receive _____% of the Warrants as our fee for acting in such
capacity; and the balance shall be divided on a pro-rata basis among the
Managing Underwriter and Co-Underwriters in accordance with the number of Units
sold by each.
4. As compensation, you shall be entitled to a commission of $,________
per Unit for each Unit sold by you or any selling group member which you bring
in to participate in the offering. However, you shall pay from such commission
the amount due to your selling group member.
5. We shall advise each Underwriter as to the states or jurisdictions
under the securities or Blue Sky laws of which we believe the Units are eligible
for sale, but we assume no responsibility as to such eligibility or the right of
any Underwriter to sell any Units in any state or jurisdiction. We have caused
to be filed a Further State Notice respecting the Units to be offered to the
public in New York in the form required by, and pursuant to the provisions of
Article 23A of the General Business Law of the State of New York.
6. Each Underwriter, severally, agrees to indemnify and hold harmless
each other Underwriter and any person who may be deemed to control any other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, to the extent and upon the terms set forth in the Underwriting
Agreement. Such indemnity shall survive the termination of this Agreement and
shall remain in force and effect regardless of any investigation made by, or on
behalf of, such other Underwriter or controlling person.
7. This Agreement shall terminate on the last closing date of the public
offering or should no closing occur, then upon the termination of the offering
period.
8. Accounts will be closed and settled under this Agreement as soon as
practicable after termination. Notwithstanding any distribution or settlement on
the termination of accounts, each Underwriter shall remain liable for its proper
proportion of any tax or other liability which may be asserted against any one
or more of the Underwriters in respect of this Agreement or the Underwriting
Agreement based upon the claim that the Underwriters constitute a partnership,
an association, an unincorporated
<PAGE>
business or other separate entity, and each Underwriter agrees to pay its proper
proportion of the expenses of resisting any such claim. The provision of this
paragraph shall survive the termination of this Agreement.
9. Each Underwriter agrees to comply with any applicable provisions of
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission. Each Underwriter
represents that it is a member in good standing of the Association, and agrees
to comply with all applicable provisions of the Rules of Fair Practice of the
Association.
10. Each Underwriter confirms: (a) that it has examined each preliminary
Prospectus, the Registration Statement and the form of Prospectus (and any
amendments or supplements thereto), as referred to in the Underwriting
Agreement, (b) that the information therein is correct and not misleading
insofar as such information relates to such Underwriter, (c) that copies of the
definitive Prospectus complying with Rule 424(b) will be expeditiously
distributed to all persons to whom it is then expected to mail confirmations of
sale not less than 48 hours prior to the time it is expected to mail such
confirmations of sale not less than 48 hours prior to the time it is expected to
mail such confirmations, and (d) that it is willing to accept the
responsibilities under the Securities Act of 1933, as amended, of an Underwriter
named in the Registration Statement and is willing to proceed with the
Underwriting in the manner contemplated thereby. Each Underwriter authorizes us,
with approval of counsel for the Underwriters, on behalf of each Underwriter, to
consent to the filing of any further amendments or supplements to any
preliminary Prospectus, the Registration Statement or the Prospectus.
11. In any action taken hereunder, except in the sale of the Units
underwritten by us and in the performance of our own obligations hereunder,
under the Underwriting Agreement and the Selected Dealers Agreement, we shall
act only as the Managing Underwriter of the several Underwriters. Nothing
contained herein shall constitute the Underwriters partners or render any of
them liable to make payments otherwise than as herein provided, or impair the
several nature of their obligations under this Agreement and the Underwriting
Agreement.
12. Except as expressly stated herein, or as may arise under the
Securities Act of 1933, as amended, the Managing Underwriter shall not be under
any liability for, or in respect of, the validity of the Units, the form of, or
the statements contained in, the Registration Statement, any preliminary
Prospectus, the Prospectus (or any amendments or supplements thereto), or any
supplemental sales data or other letters or instruments executed by, or obtained
from, the Company, the form or validity of the Underwriting Agreement, the
Selected Dealers Agreement or this Agreement, the eligibility of the Units for
sale under the laws of any state or jurisdiction, the delivery of the Units or
the
<PAGE>
performance by the Company or others, of any agreement on its or their part, or
any matter in connection with any of the foregoing, except our own lack of good
faith.
13. Any notice to any Underwriter shall be deemed to have been duly
given if mailed, sent via facsimile transmission (fax) or delivered in person to
such Underwriter at the address set forth herein.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
15. This Agreement may be signed in any number of counterparts, which
taken together, shall constitute one and the same instrument. If a party signs
this Agreement and transmits an electronic facsimile of the signature page to
the other party, the party who receives the transmission may rely upon the
electronic facsimile as a signed original of this Agreement.
If the foregoing meets with your approval, please sign and return to us
one counterpart of this Agreement. Upon your confirmation hereof and upon
confirmation of identical agreements by each of the other Underwriters, covering
in the aggregate all the Units, this Agreement shall constitute a valid and
binding contract between you and us.
Very truly yours,
R. M. STARK & CO., INC.
By:_______________________
Confirmed as of the date first above written.
______________Securities Corp.
By_________________________________
_____________Securities Corp.
By_________________________________
EXHIBIT 1.3
R. M. Stark & Co., Inc.
701 S. E. 6th Avenue
Suite 100
Delray Beach, Florida 33483
SHIPHOLDING INTERNATIONAL, INC..
1,180,000 UNITS
Each Unit consists of one share of
Common Stock, one Series A Common Stock
Purchase Warrant and one Series B Common Stock
Purchase Warrant.
SELECTED DEALER AGREEMENT
_______________, 1996
Dear Sirs:
Subject to the terms and conditions of the Underwriting Agreement with
Shipholding International, Inc. (the "Company"), we have been employed to find
purchasers for an aggregate of 1,180,000 units (the "Units") as more fully
described in and subject to the conditions set forth in the Prospectus contained
in the Registration Statement with respect to the Units, which has become
effective.
As Underwriter, we are offering to certain selected dealers, who are
$100,000 net capital broker/dealers and members in good standing of the National
Association of Securities Dealers, Inc. or foreign dealers who are not eligible
for membership in said Association and who will agree to be bound by the Rules
of Fair Practice of said Association and agree not to sell such Units to any
purchaser in the United States of America or to persons who they have any reason
to believe are residents of the United States of America (herein collectively
called the Selected Dealers), the right as set forth herein to obtain
subscriptions to a portion of these Units at the public offering price of $_____
per Unit, as set forth below and on the following terms and conditions.
1. TERMS AND CONCESSIONS: We expressly reserve the right to accept or
reject subscriptions in our discretion, either in whole or in part, and to
allot.
Except as may be otherwise expressly agreed, we agree to allow a
concession of $_____ per Unit on all Units confirmed by us. We reserve the right
to modify or change, but not decrease, the foregoing concession, and shall be
under no obligation to allow the same concession to all Selected Dealers.
1
2. DELIVERY AND PAYMENT: You will notify us in writing when you have
obtained subscriptions to the Units allotted to you and have received the
purchase price therefor. You agree and covenant to transmit subscriptions in
full and without deduction for concessions promptly upon the receipt thereof,
directly to, and for deposit in the escrow account with Continental Stock
Transfer & Trust Company, with a mailing address of 2 Broadway, New York, NY
10004 being maintained for the benefit of the subscribers, where they will be
held until paid to the Company on the closing date, hereinafter specified or
until returned to the respective subscribers. In the event that subscriptions
for at least 706,000 Units are obtained, you will receive a notice from us to
that effect specifying a closing date (which shall be at least three full
business days subsequent to such notice) on which delivery will be made to you
of Units for which you have found subscribers. The closing shall be held at the
offices of Continental Stock Transfer & Trust Company, 2 Broadway, New York, NY
10004 or at such other place as we shall notify you, at 12:00 noon, on such
closing date. In the event that at least 706,000 Units are not sold within 90
days from the date of the Prospectus (extendable at the mutual agreement of the
Company and us for an additional 60 days plus an additional 10 business days
which may be required for collection of checks), you will be so notified, and
you covenant and agree, in such event, that the proceeds of all subscriptions
received by you (other than those subscriptions returned directly by the Escrow
Agent) shall be returned without any deduction whatsoever and without interest
to the respective subscribers promptly upon receipt of notice from us. Delivery
of certificates for Units subscribed for by purchasers found by you and
confirmed by us hereunder will take place at the closing or as soon thereafter
as practicable.
You shall instruct customers to make payment for subscriptions to
the order of "Continental Stock Transfer & Trust Co. f/b/o "Shipholding
International, Inc." You acknowledge that you are familiar with NASD Notice to
Members 84-7, dated January 30, 1984, and that in accordance therewith, you will
forward all customers' checks received as payment for subscriptions directly to
the Continental Stock Transfer & Trust Co. at the address above stated by 12:00
Noon of the next business day. All checks shall be in good funds in an amount
equal to the public offering price of the Units subscribed for. Copies of all
transmittal letters to the Continental Stock Transfer & Trust Co. shall be
contemporaneously sent to our office. In the event that customers' checks are
made out to your order then you agree to promptly forward your own check or wire
funds to said escrow account or to endorse the check to the order of the
Continental Stock Transfer & Trust Co. Please be advised that: (i) only
non-affiliated $100,000 net capital broker/dealers may forward their own check
or wire funds or endorse checks to the order of the escrow account; and (ii) in
the event customers inadvertently make checks payable to a broker/dealer who is
not a non-affiliated $100,000 net capital broker/dealer, such
2
checks must be returned to such customers so that they can be made payable to
"Continental Stock Transfer & Trust Co. f/b/o Shipholding International, Inc."
Certificates delivered will be in customers' names where
practicable and the balance in street name. Settlement for concessions payable
will be made as promptly as practicable after delivery of certificates. In the
event that payment is not made on a check for an accepted subscription as above
provided, we may, in addition to any other remedies provided by law, cancel such
subscription by letter, telephone or telegraph notice to you.
3. OFFERING: Selected Dealers may immediately offer Units for sale and
take orders therefor, but only subject to confirmation. We, in turn, are
prepared to receive subscriptions and orders, subject, as set forth above, to
acceptance and allotment by us in whole or in part. Orders transmitted to us by
telephone should be confirmed by you by letter or telegram.
You agree to make a bona fide public offering of said Units but
you will not offer or sell any of such shares below the public offering price
before the termination of this Agreement. You also agree to abide by all
applicable provisions of the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, the Rules and Regulations under such acts and the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., and, in
particular Section 24 of such Rules of Fair Practice.
No expenses shall be charged to Selected Dealers; however, you
shall pay any transfer tax on sales of the Units by you and you shall pay your
proportionate share of any transfer tax or other tax in the event that any such
tax shall from time to time be assessed against you and other Selected Dealers
as a group or otherwise.
You further agree not to sell any of the Units offered hereunder
to any officer, director, controlling stockholder, partner, employee or agent of
your organization, or member of the immediate family of any such person, except
as permitted under the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and the interpretations thereof.
4. TERMINATION: This Agreement shall terminate 90 days after the
effective date of the Registration Statement, unless extended at the mutual
agreement of the Company and us for an additional 90 days.
You understand that the offering is being made on a "best efforts
all or none" basis with respect to 706,000 Units, and on a "best efforts" basis
with respect to the remaining 474,000 Units in accordance with the terms of the
Underwriting Agreement and will be terminated in the event at least 706,000
Units are not sold in
3
accordance with the terms thereof. In such event, none of the Units to be sold
hereunder shall be issued or sold; and you agree that in such case you will
promptly return all funds received by you and which you may still be holding on
account of proposed purchases of the Units by the persons who tendered the same,
without any deduction whatsoever. In the event of any such termination, we shall
have no responsibility to you.
Notwithstanding such termination, you may remain liable to the
extent provided by law for your proportionate amount of any claim, demand or
liability which may be asserted against you alone or against you together with
other Selected Dealers and/or us, based upon the claim that the Selected Dealers
or any of them and/or we constitute an association, an unincorporated business,
or any other separate entity.
5. USE OF PROSPECTUS: Neither you nor any other person is authorized by
the Company or by us to give any information or make any representation other
than those contained in the Prospectus in connection with the sale of the Units
and if given or made, such information or representation must not be relied upon
as having been authorized by the Company or by us. You also agree to deliver a
copy of the Prospectus to each prospective purchaser as required by the
Securities Act of 1933, as amended, and by the Rules and Regulations thereunder.
Additional copies of the Prospectus will be supplied in reasonable quantity upon
request.
You are not authorized to act as our agent or as agent for the
Company in offering the Units to the public or otherwise. Nothing contained
herein or otherwise shall constitute Selected Dealers partners with us or with
one another.
6. UNDERWRITER'S AUTHORITY: We shall have authority to take such action
as we deem advisable in respect of all matters pertaining to the offering or
arising hereunder. We and our agents shall be under no liability to you for or
in respect of the authorization, issue, full payment and validity of the Units;
for or in respect of the form of, or the statements contained in or omitted from
the Prospectus, the Underwriting Agreement, or other instruments executed by the
Company or by others; for or in respect of the delivery of the Units or the
performance by the Company or by others of any agreement on its or their part;
for or in respect of the qualification of the Units for sale under the laws of
any jurisdiction; or for or in respect of any other matter connected with this
Agreement, except agreements expressly assumed by us herein and for lack of good
faith. No obligation not expressly assumed herein shall be implied; provided
that nothing herein contained shall be deemed to deny, exclude or impair any
liability imposed upon us or our agents as an underwriter by the Securities Act
of 1933, as amended, and the Rules and Regulations thereunder.
4
7. APPLICABLE SECURITIES LAWS: This offer to you to enter into this
Agreement and thereby become a Selected Dealer is conditioned upon your being
qualified under applicable securities laws, if any, to act as a dealer or broker
in securities and upon your being a member in good standing of the National
Association of Securities Dealers, Inc. This offer is also being made to foreign
dealers who are not eligible for membership in said association and who will
agree to be bound by the Rules of Fair Practice of said Association, including
but not limited to Sections 8, 24, 25 and 36 of Article III thereof, and who
further agree not to sell such Units to any purchaser within the United States
of America or to persons who they have any reason to believe are residents of
the United States of America.
Upon application, we will inform you as to the states in which we
are advised the Units have been qualified for sale or are exempt from
qualification under applicable securities laws; but we assume no responsibility
or obligation by reason of such information as to the right of the Company or
any Selected Dealer to offer or sell such Units in any state. Pursuant to the
provisions of Article 23-A of the General Business Law of the State of New York,
we have filed a Further State Notice in respect to the offering and sale of the
Units in the State of New York.
8. COMMUNICATIONS: All communications from you to us should be addressed
to R. M. Stark & Co., Inc., 701 S. E. 6th Avenue Suite 100, Delray Beach,
Florida 33483. All communications from us and/or the Company to you shall be
deemed to have been duly given if mailed, telegraphed or telephoned to you at
the address to which this letter is mailed, unless written notification shall be
received from you of a change in address.
If you desire to become a Selected Dealer, please advise us immediately
by signing and returning to us the form of acceptance attached hereto.
Very truly yours,
R.M. STARK & CO., INC.
By:
5
R. M. Stark & Co., Inc.
701 S. E. 6th Avenue
Suite 100
Delray Beach, Florida 33483
We agree to become a Selected Dealer with respect to the offering of
1,180,000 Units (the "Units") of Shipholding International, Inc. at the public
offering price of $6.00 per Unit as outlined in this Agreement, and we
acknowledge receipt of the Prospectus, dated _________________, 1996 relating to
such Units.
We agree to obtain subscriptions, on the terms set forth in this
Agreement, for _________________ Units of Shipholding International, Inc. and,
upon receipt of payment from subscribers, to remit payment directly to the
escrow agent before noon of the next business day following receipt thereof.
We confirm that we are a member in good standing of the National
Association of Securities Dealers, Inc. and we agree to abide by the "Rules of
Fair Practice" of the Association and the interpretations thereof. We also
confirm that in connection herewith, we have relied solely on the Prospectus and
upon no other representations or statements whatsoever.
Dated: _____________, 1996
_________________________
Name of Selected Dealer
_________________________
Address
_________________________
Telephone Number
By_________________________
(Title)1
6
Exhibit 1.7
ESCROW AGREEMENT (PUBLIC OFFERING)
AGREEMENT made this day of , 19 by and among the Issuer and the
Underwriter whose names and addresses appear on the Information Sheet (as
defined herein) attached to this Agreement and Continental Stock Transfer &
Trust Company (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Issuer has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Registration
Statement") covering a proposed public offering of its securities as described
on the Information Sheet;
WHEREAS, the Underwriter proposes to offer the Securities, as agent for
the Issuer, for sale to the public on a "best efforts, all or none" basis with
respect to the Minimum Securities Amount and Minimum Dollar Amount and at the
price per share or other unit all as set forth on the Information Sheet;
WHEREAS the Issuer and the Underwriter propose to establish an escrow
account (the "Escrow Account"), to which subscription monies which are received
by the Escrow Agent from the Underwriter in connection with such public offering
are to be credited, and the Escrow Agent is willing to establish the Escrow
Account on the terms and subject to the conditions hereinafter set forth; and
WHEREAS, the Escrow Agent has an agreement with Chemical Bank to
establish a special bank account (the "Bank Account") into which the
subscription monies, which are received by the Escrow Agent from the Underwriter
and credited to the Escrow Account, are to be deposited;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. INFORMATION SHEET. Each capitalized term not otherwise defined in
this Agreement shall have the meaning set forth for such term on the information
sheet which is attached to this Agreement and is incorporated by reference
herein and made a part hereof (the "Information Sheet").
2. ESTABLISHMENT OF THE BANK ACCOUNT
2.1 The Escrow Agent shall establish a non-interest-bearing bank account
at the branch of Chemical Bank selected by the Escrow Agent, and bearing the
designation set forth on the Information Sheet (heretofore defined as the "Bank
Account"). The purpose of the Bank Account is for (a) the deposit of all
subscription monies (checks, cash or wire transfers) which are received by the
Underwriter from prospective purchasers of the Securities and are delivered by
the Underwriter to the Escrow Agent, (b) the holding of amounts of subscription
monies which are collected through the banking system, and (c) the disbursement
of collected funds, all as described herein.
2.2 On or before the date of the initial deposit in the Bank Account
pursuant to this Agreement, the Underwriter shall notify the Escrow Agent in
writing of the effective date of the Registration Statement (the "Effective
Date"), and the Escrow Agent shall not be required to accept any amounts for
credit to the Escrow Account or for deposit in the Bank Account prior to its
receipt of such notification.
2.3 The Offering Period, which shall be deemed to commence on the
Effective Date, shall consist of the number of calendar days or business days
set forth on the Information Sheet. The Offering Period shall be extended by an
Extension Period only if the Escrow Agent shall have received written notice
thereof at least five (5) business days prior to the expiration of the Offering
Period. The Extension Period, which shall be deemed to commence on the next
calendar day following the expiration of the Offering Period, shall consist of
the number of calendar days or business days set forth on the Information Sheet.
The last day of the Offering Period, or the last day of the Extension Period (if
the Escrow Agent has received written notice thereof as hereinabove provided),
is referred to as the "Termination Date". Except as provided in Section 4.3
hereof, after the Termination Date the Underwriter shall not deposit, and the
Escrow Agent shall not accept, any additional amounts representing payments by
prospective purchasers.
3. DEPOSITS TO THE BANK ACCOUNT.
3.1 The Underwriter shall promptly deliver to the Escrow Agent all
monies which it receives from prospective purchasers of the Securities, which
monies shall be in the form of checks, cash, or wire transfers. Upon the Escrow
Agent's receipt of such monies, they shall be credited to the Escrow Account.
All checks delivered to the Escrow Agent shall be made payable to "Continental
Stock Transfer & Trust Company, as Escrow Agent for the offering by [the
Issuer]". Any check payable other than to the Escrow Agent as required hereby
shall be returned to the prospective purchaser, or if the Escrow Agent has
insufficient information to do so, then to the Underwriter (together with any
Subscription Information, as defined below or other documents delivered
therewith) by noon of the next business day following receipt of such check by
the Escrow Agent, and such check shall be deemed not to have been delivered to
the Escrow Agent pursuant to the terms of this Agreement.
3.2 Promptly after receiving subscription monies as described in Section
3.1, the Escrow Agent shall deposit the same into the Bank Account. Amounts of
monies so deposited are herein-after referred to as "Escrow Amounts". The Escrow
Agent shall cause Chemical Bank to process all Escrow Amounts for collection
through the banking system. Simultaneously with each deposit to the Escrow
Account, the Underwriter (or the Issuer, if such deposit is made by the Issuer)
shall inform the Escrow Agent in writing of the name and address of the
prospective purchaser, the amount of Securities subscribed for by such
purchaser, and the aggregate dollar amount of such subscription (collectively,
the "Subscription Information").
3.3 The Escrow Agent shall not be required to accept for credit to the
Escrow Account or for deposit into the Bank Account checks which are not
accompanied by the appropriate Subscription Information. Wire transfers and cash
representing payments by prospective purchasers shall not be deemed deposited in
the Escrow Account until the Escrow Agent has received in writing the
Subscription Information required with respect to such payments.
3.4 The Escrow Agent shall not be required to accept in the Escrow
Account any amounts representing payments by prospective purchasers, whether by
check, cash or wire, except during the Escrow Agent's regular business hours.
3.5 Only those Escrow Amounts, which have been deposited in the Bank
Account and which have cleared the banking system and have been collected by the
Escrow Agent, are herein referred to as the "Fund".
3.6 If the proposed offering is terminated before the Termination Date,
the Escrow Agent shall refund any portion of the Fund prior to disbursement of
the Fund in accordance with Article 4 hereof upon instructions in writing signed
by both the Issuer and the Underwriter.
4. DISBURSEMENT FROM THE BANK ACCOUNT.
4.1 Subject to Section 4.3 below, if by the close of regular banking
hours on the Termination Date the Escrow Agent determines that the amount in the
Fund is less than the Minimum Dollar Amount or the Minimum Securities Amount, as
indicated by the Subscription Information submitted to the Escrow Agent, then in
either such case, the Escrow Agent shall promptly refund to each prospective
purchaser the amount of payment received from such purchaser which is then held
in the Fund or which thereafter clears the banking system, without interest
thereon or deduction therefrom, by drawing checks on the Bank Account for the
amounts of such payments and transmitting them to the purchasers. In such event,
the Escrow Agent shall promptly notify the Issuer and the Underwriter of its
distribution of the Fund.
4.2 Subject to Section 4.3 below, if at any time up to the close of
regular banking hours on the Termination Date, the Escrow Agent determines that
the amount in the Fund is at least equal to the Minimum Dollar Amount and
represents the sale of not less than the Minimum Securities Amount, the Escrow
Agent shall promptly notify the Issuer and the Underwriter of such fact in
writing. The Escrow Agent shall promptly disburse the Fund, by drawing checks on
the Bank Account in accordance with instructions in writing signed by both the
Issuer and the Underwriter as to the disbursement of the Fund, promptly after it
receives such instructions.
4.3 [This provision applies only if a collection Period has been
provided for by the appropriate indication on the Information Sheet.] If the
Escrow Agent or the Underwriter has on hand at the close of business on the
Termination Date any uncollected amounts which when added to the Fund would
raise the amount in the Fund to the Minimum Dollar Amount, and result in the
Fund representing the sale of the Minimum Securities Amount, the Collection
Period (consisting of the number of business days set forth on the Information
Sheet) shall be utilized to allow such uncollected amounts to clear the banking
system. During the Collection Period, the Underwriter (and the Issuer) shall not
deposit, and the Escrow Agent shall not accept, any additional amounts;
provided, however, that such amounts as were received by the Underwriter (or the
Issuer) by the close of business on the Termination Date may be deposited with
the Escrow Agent by noon of the next business day following the Termination
Date. If at the close of business on the last day of the Collection Period an
amount sufficient to raise the amount in the Fund to the Minimum Dollar Amount
and which would result in the Fund representing the sale of the Minimum
Securities Amount shall not have cleared the banking system, the Escrow Agent
shall promptly notify the Issuer and the Underwriter in writing of such fact and
shall promptly return all amounts then in the Fund, and any amounts which
thereafter clear the banking system, to the prospective purchasers as provided
in Section 4.2 hereof.
4.4 Upon disbursement of the Fund pursuant to the terms of this Article
4, the Escrow Agent shall be relieved of all further obligations and released
from all liability under this Agreement. It is expressly agreed and understood
that in no event shall the aggregate amount of payments made by the Escrow Agent
exceed the amount of the Fund.
5. RIGHTS, DUTIES AND RESPONSIBILITIES OF ESCROW AGENT. It is
understood and agreed that the duties of the Escrow Agent are purely
ministerial in nature, and that:
5.1 The Escrow Agent shall notify the Underwriter, on a daily basis, of
the Escrow Amounts which have been deposited in the Bank Account and of the
amounts, constituting the Fund, which have cleared the banking system and have
been collected by the Escrow Agent.
5.2 The Escrow Agent shall not be responsible for or be required to
enforce any of the terms or conditions of the underwriting agreement or any
other agreement between the Underwriter and the Issuer nor shall the Escrow
Agent be responsible for the performance by the Underwriter or the Issuer of
their respective obligations under this Agreement.
5.3 The Escrow Agent shall not be required to accept from the
Underwriter (or the Issuer) any Subscription Information pertaining to
prospective purchasers unless such Subscription Information is accompanied by
checks, cash, or wire transfers meeting the requirements of Section 3.1, nor
shall the Escrow Agent be required to keep records of any information with
respect to payments deposited by the Underwriter (or the Issuer) except as to
the amount of such payments; however, the Escrow Agent shall notify the
Underwriter within a reasonable time of any discrepancy between the amount set
forth in any Subscription Information and the amount delivered to the Escrow
Agent therewith. Such amount need not be accepted for deposit in the Escrow
Account until such discrepancy has been resolved.
5.4 The Escrow Agent shall be under no duty or responsibility to enforce
collection of any check delivered to it hereunder. The Escrow Agent, within a
reasonable time, shall return to the Underwriter any check received which is
dishonored, together with the Subscription Information, if any, which
accompanied such check.
5.5 The Escrow Agent shall be entitled to rely upon the accuracy, act in
reliance upon the contents, and assume the genuineness of any notice,
instruction, certificate, signature, instrument or other document which is given
to the Escrow Agent pursuant to this Agreement without the necessity of the
Escrow Agent verifying the truth or accuracy thereof. The Escrow agent shall not
be obligated to make any inquiry as to the authority, capacity, existence or
identity of any person purporting to give any such notice or instructions or to
execute any such certificate, instrument or other document.
5.6 If the Escrow Agent is uncertain as to its duties or rights
hereunder or shall receive instructions with respect to the Bank Account, the
Escrow Amounts or the Fund which, in its sole determination, are in conflict
either with other instructions received by it or with any provision of this
Agreement, it shall be entitled to hold the Escrow Amounts, the Fund, or a
portion thereof, in the Bank Account pending the resolution of such uncertainty
to the Escrow Agent's sole satisfaction, by final judgment of a court or courts
of competent jurisdiction or otherwise; or the Escrow Agent, at its sole option,
may deposit the Fund (and any other Escrow Amounts that thereafter become part
of the Fund) with the Clerk of a court of competent jursidiction in a proceeding
to which all parties in interest are joined. Upon the deposit by the Escrow
Agent of the Fund with the Clerk of any court, the Escrow Agent shall be
relieved of all further obligations and released from all liability hereunder.
5.7 The Escrow Agent shall not be liable for any action taken or omitted
hereunder, or for the misconduct of any employee, agent or attorney appointed by
it, except in the case of willful misconduct or gross negligence. The Escrow
Agent shall be entitled to consult with counsel of its own choosing and shall
not be liable for any action taken, suffered or omitted by it in accordance with
the advice of such counsel.
5.8 The Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the Escrow Amounts, the
Fund or any part thereof or to file any financing statement under the Uniform
Commercial Code with respect to the Fund or any part thereof.
6. AMENDMENT; RESIGNATION. This Agreement may be altered or amended only
with the written consent of the Issuer, the Underwriter and the Escrow Agent.
The Escrow Agent may resign for any reason upon three (3) business days' written
notice to the Issuer and the Underwriter. Should the Escrow Agent resign as
herein provided, it shall not be required to accept any deposit, make any
disbursement or otherwise dispose of the Escrow Amounts or the Fund, but its
only duty shall be to hold the Escrow Amounts until they clear the banking
system and the Fund for a period of not more than five (5) business days
following the effective date of such resignation, at which time (a) if a
successor escrow agent shall have been appointed and written notice thereof
(including the name and address of such successor escrow agent) shall have been
given to the resigning Escrow Agent by the Issuer, the Underwriter and such
successor escrow agent, then the resigning Escrow Agent shall pay over to the
successor escrow agent the Fund, less any portion thereof previously paid out in
accordance with this Agreement; or (b) if the resigning Escrow Agent shall not
have received written notice signed by the Issuer, the Underwriter and a
successor escrow agent, then the resigning Escrow Agent shall promptly refund
the amount in the Fund to each prospective purchaser, without interest thereon
or deduction therefrom, and the resigning Escrow Agent shall promptly notify the
Issuer and the Underwriter in writing of its liquidation and distribution of the
Fund; whereupon, in either case, the Escrow Agent shall be relieved of all
further obligations and released from all liability under this Agreement.
Without limiting the provisions of Section 8 hereof, the resigning Escrow Agent
shall be entitled to be reimbursed by the Issuer and the Underwriter for any
expenses incurred in connection with its resignation, transfer of the Fund to a
successor escrow agent or distribution of the Fund pursuant to this Section 6.
7. REPRESENTATIONS AND WARRANTIES. The Issuer and the Underwriter
hereby jointly and severally represent and warrant to the Escrow Agent that:
7.1 No party other than the parties hereto and the prospective
purchasers have, or shall have, any lien, claim or security interest in the
Escrow Amounts or the Fund or any part thereof.
7.2 No financing statement under the Uniform Commercial Code is on file
in any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Amounts or the Fund or any part thereof.
7.3 The Subscription Information submitted with each deposit shall, at
the time of submission and at the time of the disbursement of the Fund, be
deemed a representation and warranty that such deposit represents a bona fide
payment by the purchaser described therein for the amount of Securities set
forth in such Subscription Information.
7.4 All of the information contained in the Information Sheet is, as of
the date hereof, and will be, at the time of any disbursement of the Fund, true
and correct.
8. FEES AND EXPENSES. The Escrow Agent shall be entitled to the Escrow
Agent Fees set forth on the Information Sheet, payable as and when stated
therein. In addition, the Issuer and the Underwriter jointly and severally agree
to reimburse the Escrow Agent for any reasonable expenses incurred in connection
with this Agreement, including, but not limited to, reasonable counsel fees.
Upon receipt of the Minimum Dollar Amount, the Escrow Agent shall have a lien
upon the Fund to the extent of its fees for services as Escrow Agent.
9. INDEMNIFICATION AND CONTRIBUTION.
9.1 The Issuer and the Underwriter (collectively referred to as the
"Indemnitors") jointly and severally agree to indemnify the Escrow Agent and its
officers, directors, employees, agents and shareholders (collectively referred
to as the "Indemnitees") against, and hold them harmless of and from, any and
all loss, liability, cost, damage and expense, including without limitation,
reasonable counsel fees, which the Indemnitees may suffer or incur by reason of
any action, claim or proceeding brought against the Indemnitees arising out of
or relating in any way to this Agreement or any transaction to which this
Agreement relates, unless such action, claim or proceeding is the result of the
willful misconduct or gross negligence of the Indemnitees.
9.2 If the indemnification provided for in Section 9.1 is applicable,
but for any reason is held to be unavailable, the Indemnitors shall contribute
such amounts as are just and equitable to pay, or to reimburse the Indemnities
for, the aggregate of any and all losses, liabilities, costs, damages and
expenses, including counsel fees, actually incurred by the Indemnitees as a
result of or in connection with, and any amount paid in settlement of, any
action, claims or proceeding arising out of or relating in any way to any
actions or omissions of the Indemnitors.
9.3 The provisions of this Article 9 shall survive any termination of
this Agreement, whether by disbursement of the Fund, resignation of the Escrow
Agent or otherwise.
10. GOVERNING LAW AND ASSIGNMENT. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that any assignment or transfer by any party of its rights
under this Agreement or with respect to the Escrow Amounts or the Fund shall be
void as against the Escrow Agent unless (a) written notice thereof shall be
given to the Escrow Agent; and (b) the Escrow Agent shall have consented in
writing to such assignment or transfer.
11. NOTICES. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt acknowledged, or by the Express Mail
service offered by the United States Post Office, and addressed, if to the
Issuer or the Underwriter, at their respective addresses set forth on the
Information Sheet, and if to the Escrow Agent, at its address set forth above,
to the attention of the Trust Department.
12. SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstances shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
13. EXECUTION IN SEVERAL COUNTERPARTS. This Agreement may be executed
in several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection therewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
THE ISSUER-SHIPHOLDING INTERNATIONAL, INC.
By: _____________________________________
THE UNDERWRITER-R.M. STARK & CO., INC.
By: _____________________________________
CONTINENTAL STOCK
TRANSFER & TRUST COMPANY
By: _____________________________________
ESCROW AGREEMENT INFORMATION SHEET
1. THE ISSUER
Name SHIPHOLDING INTERNATIONAL, INC.
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Address 4550 Post Oak Place, Suite 140, Houston, TX 77027
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State of incorporation of organization Delaware
--------------------------------
2. THE UNDERWRITER
Name R. M. Stark & Co., Inc.
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Address 701 S.E. 6th Avenue, Suite 100, Delray Beach, Florida 33483
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State of incorporation or organization Florida
---------------------------------
3. THE SECURITIES
Description of the Securities to be offered (e.g., shares of or warrants
for common stock, debentures, units consisting shares and warrants,
etc.) Each Unit consists of one share of Common Stock
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Par value, if any (par value $.001) One Series A Common Stock Purchase
------------------------------------------------------
Offering price per share/unit/other Warrant and one Series B Common
------------------------------------
Stock Purchase Warrant.
4. MINIMUM AMOUNTS REQUIRED FOR DISBURSEMENT OF THE ESCROW ACCOUNT
Aggregate dollar amount which must be collected before the Escrow
Account may be disbursed to the Issuer ("Minimum Dollar Amount")
$6,460,000
---------------------------------------------
Total amount of securities which must be subscribed for before the
Escrow Account may be disbursed to the Issuer ("Minimum Securities
Amount") $6,460,000
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5. PLAN OF DISTRIBUTION OF THE SECURITIES
Offering Period: Ninety calendar/business days
-----------
Extension Period, if any Sixty calendasr/business days
----------
Collection Period, if any Ten business days
-------
6. Title of Escrow Account: Continental Stock Transfer & Trust
Company, Escrow Agent for the offering by Shipholding International
-----------------------------
7. ESCROW AGENT FEES
Amount due on execution of the Escrow Agreement $2,000
-----------------------
and upon completion of the escrow
-------------
Fee for each check disbursed pursuant to the terms of the Escrow
Agreement $
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Fee for each check returned pursuant to the terms of the Escrow
Agreement $
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