AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1997
REGISTRATION NO.333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NAVIGATOR GAS TRANSPORT PLC,
NAVIGATOR GAS (IOM I-A) LIMITED,
NAVIGATOR GAS (IOM I-B) LIMITED,
NAVIGATOR GAS (IOM I-C) LIMITED,
NAVIGATOR GAS (IOM I-D) LIMITED AND
NAVIGATOR GAS (IOM I-E) LIMITED,
(Exact Name of Registrant as Specified in its Charter)
ISLE OF MAN 8611 N/A
ISLE OF MAN 8611 N/A
ISLE OF MAN 8611 N/A
ISLE OF MAN 8611 N/A
ISLE OF MAN 8611 N/A
ISLE OF MAN 8611 N/A
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number) (I.R.S. Employer Identification Nos.)
C/O 15-19 ATHOL STREET
DOUGLAS, ISLE OF MAN IM1 1LB
011-44-1-62-4628575
(Address, including zip code, and
telephone number, including area code,
of principal executive offices of
Navigator Gas Transport PLC
CT CORPORATION SYSTEM
1623 BROADWAY
NEW YORK, NEW YORK 10019
212-246-5070
(Name, address, including zip code, and
telephone number, including area code,
of agent for service of Navigator Gas Transport PLC
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COPIES TO:
LAURIS G. L. RALL
CHARLES A. DIETZGEN JOSEPH AVANTARIO
THACHER PROFFITT & WOOD CAMBRIDGE FUND MANAGEMENT LLC
TWO WORLD TRADE CENTER 535 MADISON AVENUE
NEW YORK, NEW YORK 10048 NEW YORK, NEW YORK 10022
212-912-7400 212-508-6500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate offering Amount of
securities to be registered be registered per unit(1) price(1) Registration Fee
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10 1/2% First Priority Exchange Ship Mortgage Notes $217,000,000 100% $217,000,000 $65,757.58
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12% Second Priority Exchange Ship Mortgage Notes $87,000,000 100% $87,000,000 $26,363.64
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Total $304,000,000 100% $304,000,000 $92,121.22
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CROSS REFERENCE SHEET FURNISHED PURSUANT TO RULE 404(a)
Items And Captions In Form F-4 Location in Prospectuses
------------------------------ ------------------------
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus......................................... Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus*
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................................... Inside Front Cover Page of
Prospectus and Outside Back
Cover Page of Prospectus*
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other Information............................. Prospectus Summary; Risk
Factors
4. Terms of the Transaction ........................................ Prospectus Summary;
Description of the Exchange
Notes
5. Pro Forma Financial Information ................................. Capitalization, Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Consolidated Balance Sheet.
6. Material Contacts with Company Being Acquired.................... *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters........................................ Prospectus Summary; the
Exchange Offer; Plan of
Distribution
8. Interests of Named Experts and Counsel........................... *
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities................... See page II
10 Information with Respect to S-3 Registrants......................
. *
11 Incorporation of Certain Information by
. Reference........................................................ *
12 Information With Respect to S-2 or S-3
. Registrants...................................................... *
13 Incorporation of Certain Information by
. Reference........................................................ *
14 Information With Respect to Registrants Other
. than S-3 or S-2 Registrants
(a) Description of Business................................. Prospectus Summary, Gas
Carrier Industry, Business,
Management's Discussion and
Analysis of Financial
Condition
(b) Description of Property................................. Prospectus Summary, Business
(c) Legal Proceedings....................................... *
(d) Market Price of and Dividends on the
Registrants' Common Equity and Related
Stockholder Matters..................................... *
(e) Financial Information................................... *
(f) Selected Financial Data................................. Consolidated Balance Sheet
(g) Supplementary Financial Information..................... Consolidated Balance Sheet
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
(i) Change in and Disagreements With Accountants
on Accounting and Financial Disclosures................. *
(j) Quantitative and Qualitative Disclosures About
Market Desk............................................. *
15 Information With Respect to S-3 Companies........................
. *
16 Information With Respect to S-2 or S-3
. Companies........................................................ *
17 Information if Proxies, Consents or
. Authorizations are to be Solicited............................... *
18 Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
. or in an Exchange Offer.......................................... Summary of Prospectus; The
Exchange Offer; Description of
the Exchange Notes
- -------------------
* Answer negative or item inapplicable.
PROSPECTUS
_________, 1997
SUBJECT TO COMPLETION
SEPTEMBER 22, 1997
OFFER FOR ALL OUTSTANDING
10 1/2% FIRST PRIORITY SHIP MORTGAGE NOTES DUE 2007
($217,000,000 PRINCIPAL AMOUNT OUTSTANDING)
IN EXCHANGE FOR
10 1/2% FIRST PRIORITY EXCHANGE SHIP MORTGAGE NOTES DUE 2007
and
12% SECOND PRIORITY SHIP MORTGAGE NOTES DUE 2007
($87,000,000 PRINCIPAL AMOUNT OUTSTANDING)
IN EXCHANGE FOR
12% SECOND PRIORITY EXCHANGE SHIP MORTGAGE NOTES DUE 2007
of
Navigator Gas Transport PLC
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ____________, 1997, UNLESS EXTENDED.
Navigator Gas Transport PLC, (the "Issuer" or "Navigator Gas
Transport"), an Isle of Man company, hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal," which together with this Prospectus
constitute the "Exchange Offer"), to exchange (i) up to $217,000,000 in
aggregate principal amount of its registered 10 1/2% First Priority Exchange
Ship Mortgage Notes Due 2007 (the "First Priority Exchange Notes"), for a like
principal amount of its unregistered 10 1/2% First Priority Ship Mortgage Notes
Due 2007 (the "Existing First Priority Notes"), of which an aggregate principal
amount of $217,000,000 is outstanding, and (ii) up to $87,000,000 in aggregate
principal amount of its registered 12% Second Priority Exchange Ship Mortgage
Notes Due 2007 (the "Second Priority Exchange Notes" and, together with the
First Priority Exchange Notes, the "Exchange Notes"), for a like principal
amount of its unregistered 12% Second Priority Ship Mortgage Notes Due 2007 (the
"Existing Second Priority Notes" and, together with the Existing First Priority
Notes, the "Existing Notes"), of which an aggregate principal amount of
$87,000,000 is outstanding. The form and terms of the First Priority Exchange
Notes are identical to the form and terms of the Existing First Priority Notes,
and the form and terms of the Second Priority Exchange Notes are identical to
the form and terms of the Existing Second Priority Notes, except that (i) the
offer of the Exchange Notes will be registered under the Securities Act of 1933,
as amended (the "Securities Act"), and therefore the Exchange Notes will not be
subject to certain transfer restrictions, and (ii) Holders of Exchange Notes
will not be entitled to certain rights of Holders of Existing Notes under the
Registration Rights Agreement relating to the Existing Notes. The Exchange Offer
is being made in order to satisfy certain contractual undertakings of the
Issuer. See "THE EXCHANGE OFFER" and "DESCRIPTION OF THE EXCHANGE NOTES."
The Exchange Notes mature on June 30, 2007 (the "Maturity Date").
Interest on the Exchange Notes will be deemed to accrue from August 7, 1997 or
from the date of the last periodic payment of interest on the Existing Notes,
whichever is later, at a rate of 10 1/2% per annum (with respect to the First
Priority Exchange Notes) and 12% (with respect to the Second Priority Exchange
Notes). Interest on the Exchange Notes is payable on June 30 and December 31 of
each year, commencing December 31, 1997 (each, a "Payment Date"), except that at
the option of the Issuer, on any Interest Payment Date (as defined) following
the delivery of the first Vessel, to the extent cash available for distribution
to Holders of Second Priority Exchange Notes on such date is insufficient to pay
all accrued and unpaid interest on the Second Priority Exchange Notes due on
such date, the Issuer may pay such interest by issuing additional Second
Priority Notes having an aggregate principal amount equal to the amount of such
deficiency.
The Issuer may not issue more than $20.9 million aggregate principal
amount of such additional Second Priority Notes. The First Exchange Priority
Notes are not redeemable at the option of the Issuer prior to June 30, 2002,
except that (i) until June 30, 2000, the Issuer may redeem, at its option, in
the aggregate up to 35% of the aggregate principal amount of each series of
Notes, on a PRO RATA basis, at the redemption prices set forth herein with the
proceeds of one or more Public Equity Offerings (as defined) if at least $100.0
million aggregate principal amount of the First Exchange Priority Notes and
untendered First Priority Existing Notes and $45.0 million aggregate principal
amount of the Second Priority Exchange Notes and untendered Second Priority
Exchange Notes remain outstanding after any such redemption and (ii) the Issuer
may redeem each series of Notes at any time if the Issuer or any Owner (as
defined) becomes subject to withholding taxes on any amounts payable under the
Notes or on any Guarantee (as defined) as a result of certain changes in law in
respect of withholding taxes. On and after June 30, 2002, the First Priority
Exchange Notes are redeemable at the option of the Issuer, in whole or in part,
at the redemption prices set forth herein. Commencing on June 30, 2001, and
semi-annually thereafter, the Issuer will be required, to the extent of any
Available Cash (as defined) on each such date, to make an offer to each Holder
(as defined) of First Priority Exchange Notes to purchase such Holder's First
Priority Exchange Notes (or at such Holder's option, any part thereof) at a
purchase price equal to 102% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase.
The Second Priority Exchange Notes are not redeemable at the option of
the Issuer prior to June 30, 2002, except as set forth in clauses (i) and (ii)
of the preceding paragraph. On and after June 30, 2002, the Second Priority
Exchange Notes are redeemable at the option of the Issuer, in whole or in part,
at the redemption prices set forth herein. Commencing on the first Interest
Payment Date following the payment in full of the First Priority Exchange Notes
and the untendered First Priority Existing Notes, if any, and semi-annually
thereafter, the Issuer is required, to the extent of any Available Cash on such
date, to make an offer to each Holder of Second Priority Exchange Notes to
purchase such Holder's Second Priority Exchange Notes (or at such Holder's
option, any part thereof) at a purchase price equal to 102% of the principal
amount thereof plus accrued and unpaid interest to the date of purchase.
The Exchange Notes and the untendered Existing Notes (collectively, the
"Notes"), if any, will be obligations of the Issuer, secured (subject to the
priority of payment described herein) by the Collateral (as defined). The Notes
will be guaranteed, jointly and severally (the "Guarantees"), by Navigator Gas
(IOM I-A) Limited, Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C)
Limited, Navigator Gas (IOM I-D) Limited and Navigator Gas (IOM I-E) Limited,
each an Isle of Man private limited company and a wholly owned subsidiary of the
Issuer (each, an "Owner" and, collectively, the "Owners" and, together with
Navigator Holdings PLC and the Issuer, the "Company"). See "PROSPECTUS SUMMARY--
SECURITY." See "DESCRIPTION OF THE EXCHANGE NOTES--TRUST ACCOUNTS" and
"--APPLICATION OF PROCEEDS."
The Issuer will accept for exchange any and all Existing Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on
______________, 1997, unless extended (as so extended, the "Expiration Date").
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. See "THE EXCHANGE OFFER."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by a
Holder who is not an "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, PROVIDED that the Holder
is acquiring the Exchange Notes in its ordinary course of business and has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes. However, the
staff of the Commission has not considered the Exchange Offer in the context of
a no-action letter addressed to the Company, and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as it has in its prior interpretations. Persons who desire to
exchange Existing Notes in the Exchange Offer must represent to the Company,
among other things, that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal accompanying this Prospectus states that by so acknowledging and by
delivering a Prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Existing Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, it will make this
Prospectus, as supplemented or amended, available to any broker-dealer for use
in connection with any resale. See "PLAN OF DISTRIBUTION."
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SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN
FACTORS THAT PROSPECTIVE INVESTORS IN EXCHANGE NOTES SHOULD CONSIDER.
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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.
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The date of this Prospectus is _____________, __, 1997
No public market has existed for the Exchange Notes before the Exchange
Offer. The Company currently does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system, and no active public market for the Exchange Notes is
currently anticipated. There will be no proceeds to the Issuer from this
Exchange Offer. The Company will pay all expenses incident to the Exchange
Offer.
The Exchange Offer is not conditioned upon any minimum principal amount
of Existing Notes being tendered for exchange pursuant to the Exchange Offer.
The Existing Notes were sold by the Issuer, on August 7, 1997, in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Existing Notes
were subsequently placed with qualified institutional buyers
(ii)
in reliance upon Rule 144A under the Securities Act. Accordingly, the Existing
Notes may not be reoffered, resold or otherwise transferred in the United States
unless so registered or unless an applicable exemption from the registration
requirements of the Securities Act is
available.
Any Existing Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Existing Notes are tendered and
accepted in the Exchange Offer, a Holder's ability to sell untendered Existing
Notes could be adversely affected. Following consummation of the Exchange Offer,
the Holders of Existing Notes will continue to be subject to the existing
restrictions upon transfer thereof and the Issuer generally will have no further
obligations to such Holders to provide for the registration under the Securities
Act of the Existing Notes held by them. See "THE EXCHANGE OFFER--CONSEQUENCES OF
FAILURE TO EXCHANGE."
The Exchange Notes issued pursuant to this Exchange Offer initially
will be issued in the form of two global Exchange Notes (one representing the
First Priority Exchange Notes and the second representing the Second Priority
Exchange Notes), which will be deposited with, or on behalf of, The Depository
Trust Company ("DTC") and registered in its name or in the name of Cede & Co.,
its nominee. Beneficial interests in the global Exchange Notes representing the
Exchange Notes will be shown on, and transfers thereof will be effected through,
records maintained by DTC and its participants. After the initial issuance of
the global Exchange Notes, Exchange Notes in certificated form may be issued in
exchange for the global Exchange Notes on the terms set forth in the Indenture.
See "BOOK ENTRY, DELIVERY AND FORM."
THE EXCHANGE OFFER DESCRIBED IN THIS PROSPECTUS (THE "PROSPECTUS") IS
NOT DIRECTED TO, NOR WILL THE ISSUER ACCEPT ANY TENDER FOR EXCHANGE FROM, ANY
PERSON IN ANY JURISDICTION IN WHICH PARTICIPATION IN SUCH EXCHANGE OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY EXCHANGE MADE
PURSUANT HERETO SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE ISSUER OR THAT THE INFORMATION SET FORTH HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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A copy of this document, together with certain other documents, has
been delivered to the Registrar of Companies in the Isle of Man for registration
as a prospectus in accordance with Section 38 of the Isle of Man Companies Act
1931.
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The principal executive office of the Issuer is located at c/o 15-19
Athol Street, Douglas, Isle of Man, 1M1 1LB, and the telephone
number at that address is 011-44-1-62-4628575.
ENFORCEABILITY OF CIVIL LIABILITIES
The Issuer and each of the Owners is organized under the laws of the
Isle of Man. A substantial portion of the assets of their respective assets is
or may be located outside the United States. As a result, it may be difficult
for investors to enforce outside the United States judgments against the Issuer
or the Owners obtained in the United States in any actions, including actions
predicated on the civil liability provisions of the federal securities laws of
the United States. Certain directors of the Issuer and the Owners are residents
of jurisdictions other than the United States, and all or a significant portion
of the assets of such persons are or may be located outside the United States.
As a result, it may be difficult for investors to effect service of process
within the United States upon such persons or to enforce against them in United
States courts judgments predicated upon the civil liability provisions of the
federal securities laws of the United States. There is currently no treaty
between the United States and the Isle of Man providing for reciprocal
recognition and enforcement of judgments in civil and commercial matters, and
therefore a final judgment for the payment of money rendered by any federal or
state court in the United States based on civil liability, whether or not
predicated solely upon the federal securities laws, would not be automatically
enforceable in the Isle of Man. Each of the Issuer and the Owners has
irrevocably submitted to the non-exclusive jurisdiction of the federal and state
courts in The City of New York for the purpose of any legal suit, action or
proceeding against it in connection with the offering and sale of the Notes.
The foregoing discussion is based on the advice of Cains, counsel to
the Company, with respect to matters of Isle of Man law.
AVAILABLE INFORMATION
The Issuer and the Owners are not currently subject to the
periodic reporting and other informational requirements of the Exchange Act.
Each of the Issuer and the Owners has agreed that, whether or not it is required
to do so by the rules and regulations of the Commission, for so long as any of
the Notes remain outstanding, it will furnish to the Trustees (as defined) and
the Holders of the Notes and file with the Commission, or cause to be so filed
as part of the financial statements of the Company (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuer and the Owners were required
to file such forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and,
(iii)
with respect to the annual information only, a report thereon by independent
public accountants and (ii) all reports that would be required to be filed with
the Commission on Form 8-K if the Issuer and the Owners were required to file
such reports.
Copies of the Indentures, the Registration Rights Agreement, the
Security Documents and any other document referred to herein can be obtained
without charge by any recipient of this Prospectus by contacting Navigator Gas
Transport PLC c/o 15-19 Athol Street, Douglas, Isle of Man, 1M1 1LB.
DEFINED TERMS
All capitalized terms used in this Prospectus and not otherwise defined
have the meanings assigned in "CERTAIN DEFINITIONS," beginning on page A-100 of
this Prospectus.
(iv)
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING THE RELATED NOTES, APPEARING ELSEWHERE IN THIS PROSPECTUS.
SEE THE SECOND PARAGRAPH UNDER "RISK FACTORS." UNLESS OTHERWISE INDICATED, ALL
CURRENCY AMOUNTS SET FORTH IN THIS PROSPECTUS ARE STATED IN UNITED STATES
DOLLARS. REFERENCE IS MADE TO THE GLOSSARY OF CERTAIN TERMS IN APPENDIX A FOR
DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.
THE COMPANY
The Company was formed in 1997 for the purpose of building and
operating a fleet of five state-of-the-art 22,000 cubic meter ("cbm")
semi-refrigerated ethylene-capable gas carriers. The Vessels are designed to
transport the entire range of petrochemical gases, including ethylene,
propylene, vinyl chloride monomer ("VCM"), butadiene and crude C4, as well as
liquified petroleum gases ("LPG"), such as ethane, propane and butane. There are
no ethylene-capable semi-refrigerated gas carriers currently operating or under
construction that will be larger than the Vessels. Each Vessel will have four
separate gas cargo tanks, segregated pumping and piping systems and a separate
deck tank, allowing each Vessel to carry up to three separate cargoes
simultaneously.
Upon their construction, the Vessels will be among the most versatile
gas carriers in the world in terms of cargo options, ease and speed of loading
and discharging cargoes and adaptability for route scheduling. The foregoing
capabilities will permit the Company to minimize operating costs, reduce voyage
times and maximize Vessel utilization. In addition, the Vessels' larger cargo
capacities, compared to the existing ethylene-capable fleet, offer significant
economies of scale, especially for long-haul transport.
Navigator Gas Transport issued the Existing Notes, the proceeds of
which have and will be loaned to the Owners to fund the construction of their
Vessels, to pay certain expenses and to pay interest on the Notes during the
scheduled construction period of the Vessels. The Vessels will be constructed by
Jiangnan Shipyard ("Jiangnan") and China Shipbuilding Trading Company, Limited
("CST" and, together with Jiangnan, the "Builders") under the technical
supervision of MARTIME-Gesellschaft fur maritime Dienstleistung mbH "Martime" or
the "Technical Advisor"), an affiliate of Gesellschaft fur Konzeption, Beratung,
Vermittlung und Betreuung privater Investitionen mbH ("GEBAG"), in coordination
with Germanischer Lloyd, an independent vessel classification society (the
"Classification Society").
THE PETROCHEMICAL MARKET AND SEABORNE TRADE
The Company believes that the gas freight market represents one of the
most attractive sectors of the shipping industry in terms of its robust
underlying demand growth dynamics and the outlook for limited expansion in
freight capacity. The Vessels will address increasing customer demand for larger
semi-refrigerated gas carriers designed for long-haul trade in petrochemical
gases. The transportation of petrochemical gases is a rapidly-growing market
with a few large participants. The Company intends to become a leading
participant in this market to service the major producers, refiners, traders and
end-users of petrochemical gases. The Company believes that the following
factors create an attractive opportunity for the construction of the Vessels:
DEMAND FOR GAS TRANSPORTATION. Demand for the seaborne transportation
of ethylene and other petrochemical gases is driven by growth in gross domestic
product and increased standards of living, particularly in net importing regions
such as the Far East, the Mediterranean and the Indian subcontinent.
Petrochemical gases are used in the production of a vast array of chemicals and
finished products, including plastics and synthetic-based materials. New
production technologies are
allowing plastic and synthetic-based materials to displace metal, cotton, wood
and other materials in an increasing number of end-products. From 1990 to 1996,
global production of major petrochemical gases increased at a compound annual
growth rate of 4.4%. Import growth in Asia of such major petrochemical gases,
over this same period, increased at a compound annual growth rate of 9.4%.
By-products of petroleum refining, ethylene and other petrochemical gases are
primarily produced in major petroleum-processing regions such as the Middle
East, North America, South America and northwestern Europe. The Company believes
that large and growing net exports from these regions to meet the increasing
global demand for petrochemical gases will continue to generate strong growth in
seaborne trade.
Cross-trading of petrochemical gases between and among producing and
consuming regions to satisfy supply and demand imbalances will also contribute
to growth in demand for deep sea transport. Cross-trading will be influenced by
price imbalances among regions, mismatches in domestic production capabilities
and consumption requirements, and planned and unplanned outages in production
and manufacturing facilities. The Company believes that worldwide growth in
consumption of end-products produced from petrochemicals will result in growth
in cross-trading of petrochemical gases.
Furthermore, because many gas carriers trade in both petrochemical
gases and alternate cargoes such as LPG and ammonia, growth in the demand for
seaborne transport of LPG and ammonia will tend to reduce the vessel capacity
available to transport petrochemical gases and may positively affect freight
rates for ethylene and other petrochemical gases.
CONSTRUCTION OF MAJOR PETROCHEMICAL PRODUCTION AND TERMINAL FACILITIES.
As a result of the expansion of existing facilities and the construction of
major new petrochemical production facilities and associated large-scale
terminals, the amount of petrochemical gases transported by sea has increased.
New petrochemical production capacity of 46.8 million tonnes is expected to be
on line by the beginning of the next decade, representing a 28.7% increase over
global capacity at the end of 1996. Examples of such large-scale modern
facilities include a 3.3 million tonne petrochemical plant, which includes a 1.4
million tonne ethylene plant, currently under construction in Taiwan; an 830,000
tonne ethylene plant planned to be built by a Mobil Corporation venture in
Venezuela; and Exxon Chemical Company's planned 800,000 tonne ethylene and
400,000 tonne propylene facility in Singapore. These expanded and new facilities
are typically incorporating large-scale storage terminals which include multiple
tanks capable of handling many different petrochemical products. The Company
believes that the Vessels' large capacity as well as their ability to carry a
full range of petrochemical gas cargoes will make them attractive to major
participants in the petrochemical industry.
AN ATTRACTIVE MARKET FOR SEABORNE TRADE OF ETHYLENE. The Company
believes that the market for seaborne transportation of ethylene, the key
building block for plastics and a feedstock to other petrochemicals, is
particularly attractive. World ethylene production capacity has doubled over the
past 15 years to a total capacity of approximately 81 million tonnes in 1996,
with production capacity increasing by 5.5% during 1996. This trend is expected
to continue with additional production capacity of approximately 27 million
tonnes expected by the beginning of the next decade. Due to its low temperature
requirement (-104(degree)C), ethylene is the most demanding gas cargo to
transport and is carried primarily by smaller, more specialized vessels. As a
result, ethylene has typically commanded higher charter rates than other
petrochemical gases. There are no ethylene-capable vessels which are currently
operating or under construction that are over 12,500 cbm. In addition, the
Vessels will be capable of carrying ethane, a feedstock for ethylene which also
has a low
-2-
temperature requirement (-82(degree)C). The Company believes the market for the
transportation of ethane will become a premium-rate market.
BARRIERS TO ENTRY. Over the past several years, the gas carrier
industry has experienced an increased emphasis on higher quality vessels and
enhanced operating efficiencies as both customers and regulatory authorities
have increasingly focused on safety issues and environmental
protection.
As the industry faces more stringent operating standards, including
International Safety Management ("ISM") code certification, Chemical
Distribution Industry ("CDI") certification and inspection certification by
major customers, the Company believes that the existing fleet will find it
increasingly difficult to compete without major capital investment for upgrades.
Whereas in the oil carrier industry the entrance of new owners is commonplace,
few vessel owners have the resources and the access to commercial and technical
expertise necessary to build and operate an efficient-size fleet of
petrochemical gas carriers and to attract major customers. In addition, few
shipyards have the capabilities and experience required to build gas carriers,
which incorporate sophisticated gas plant systems. Existing shipyard capacity is
also currently constrained by the strong demand for less technically-demanding
vessels such as oil tankers, drybulk vessels and container carriers. Given these
entry barriers and the unique capabilities of the Vessels, the Company believes
that it will have a competitive advantage over other industry participants. See
"Business--The Vessels."
STRONG SECONDHAND VESSEL VALUES. Producers, refiners, traders and
end-users of petrochemical gases do not typically own or control their own
vessels. Instead, vessels are owned by a limited number of experienced
operators, each with a relatively large fleet. This market structure, combined
with the complexity of building and operating vessels capable of carrying
petrochemical gases, has resulted in these vessels maintaining strong secondhand
values over time. For example, a 15,000 cbm semi-refrigerated gas carrier built
in 1990 was sold in the secondary market in early 1997 at a price equal to 93%
of its delivered cost, reflecting the high expected return and the high
replacement cost of these vessels.
BUSINESS STRATEGY
The Company's business strategy is to take advantage of the strong
demand for seaborne transportation of petrochemical gases and LPG resulting from
the worldwide expansion in the production, use and trade of petroleum
by-products. The Company's fleet is expected to supply transportation services
to existing customers of certain entities that will become shareholders of
Holdings (the "Shareholders") through the Equity Financing (as defined),
including major oil, chemical and trading companies. The key elements of this
strategy include:
INTEGRATED CHARTERING STRATEGY. Charterers of gas carriers such as the
Vessels rely on short and long-term contracts of affreightment and, to a lesser
extent, time and spot charters, allowing them to respond quickly and efficiently
to the changing trading patterns of the petrochemical gas market. The Company
intends to take advantage of these market dynamics by building a portfolio of
contracts of affreightment with major customers. Such contracts are expected to
be from three to five years in length and would provide the Vessels with a high
level of continuous employment. The Company also intends to use the spot market
and, to a lesser extent, time charters of the Vessels to achieve maximum
capacity utilization and minimize ballast trips and idle time. This strategy
will be implemented by MarLink Schiffahrtskontor GmbH ("MarLink"), an affiliate
of GEBAB, the commercial manager of the Vessels. MarLink is a leading commercial
manager of vessels in the petrochemical gas market.
-3-
The Manager is currently negotiating two contracts of affreightment for
the employment of the Vessels in the ethylene and propylene trades. One contract
would guarantee a minimum of 10 voyages and a maximum of 20 voyages per annum
for a full cargo of propylene from the Americas to the Mediterranean region. The
second contract would ensure a minimum of 18 voyages and a maximum of 28 voyages
per annum for a full cargo of ethylene from various loading ports to the
Mediterranean region. Each contract would be for a five-year period with freight
rates for each voyage to be based on then-prevailing market rates. If
consummated, these contracts could provide a base-load of continuous employment
for the Vessels during the terms thereof. However, there can be no assurance
that these contracts will be consummated.
MAXIMIZE ETHYLENE BUSINESS. Historically, ethylene has generally
achieved an approximate 10-15% premium over charter rates for other
petrochemical gas cargoes. As ethylene frequently trades along the same routes
as other petrochemical gases, the Vessels' multiple tank configuration should
enable the Company to maximize the proportion of its freight mix accounted for
by ethylene, without sacrificing cargo capacity utilization or route efficiency.
Based on historical trends, as well as the increasing size of production
facilities, the Company also believes that the average size of ethylene freights
will increase, thereby enhancing the competitiveness of the Vessels.
BUILD VERSATILE VESSELS WITH MULTI-CARGO CAPABILITY. The Vessels will
be among the most versatile petrochemical gas carriers in the world given their
ability to carry the full range of petrochemical gases and transport up to three
segregated cargoes simultaneously. The Company believes that these larger,
multiple-tank vessels will provide a competitive advantage over other operators
in the petrochemical gas freight market. In addition, the Vessels will offer
improved operating efficiencies due to their higher speed and shorter loading
and discharge times as compared to many less sophisticated vessels. The Company
has chosen the Builders because of their previous experience in the building of
gas carriers with Tractebel Gas Engineering GmbH ("TGE"), a leading engineering
firm in the production of gas plants. See "Business--The Vessels" and "--The
Builders and TGE."
MAXIMIZE VESSEL UTILIZATION. The Company believes that its fleet size
of five Vessels, each with four tanks and the ability to carry up to three fully
segregated cargoes, will allow it to adopt triangular trade patterns which
minimize ballast trips. In addition, the Vessels' ability to carry up to three
cargoes simultaneously will give the Company the potential to service up to 15
charterers at any one time. The Company believes that the size of the Vessels
will also be attractive to charterers with substantial long-haul transport
requirements. The Company's fleet size and configuration should provide the
operational flexibility necessary to meet the logistical demands of managing
complex trading patterns.
THE VESSELS
The Vessels will be state-of-the-art gas carriers. The Company believes
that the size and configuration of the Vessels, as well as the features
incorporated therein, will make them more attractive to charterers than other
vessels. As a result, the Company expects the Vessels to realize
higher-than-average levels of utilization in the transport of high value
petrochemical gas cargoes as compared to other gas carriers, significantly
enhancing the earnings potential of each Vessel.
The Vessels will be semi-refrigerated, combining refrigeration and
pressurization to maintain their cargoes in a liquified state. This will allow
the Vessels to load products at varying temperatures from different terminals.
In addition to pre-cooled cargoes, the Vessels will have the
-4-
ability to load cargoes that cannot maintain their required liquid temperatures
prior to loading, due to distances traveled by pipeline from production
facilities to vessels, by accepting these cargoes under pressure and cooling
them on board the Vessels during the voyage. The load time of these cargoes is
thereby reduced since the cargoes do not need to be cooled prior to loading.
Unlike semi-refrigerated vessels, fully-refrigerated vessels are only able to
load cargoes in a cooled state, requiring those vessels to cool products prior
to loading. This requirement slows product loading and limits the number of
terminals which can be efficiently serviced by such vessels.
The nitrogen generator and deck tank on the Vessels will allow them to
prepare their tanks for the next cargo while en route to the next load port.
This will result in time savings of as much as three days on some voyages, as
tank preparation would otherwise have to be carried out in port. These features
provide a significant benefit to charterers and terminal operators by improving
their terminal utilization. The 22,000 cbm carrying capacity of the Vessels will
also be beneficial to charterers and terminal operators by reducing the number
of loading and discharging operations, the duration of such operations and the
associated costs.
The contractual delivery dates (each, a "Contractual Delivery Date") of
the Vessels will be staggered as follows (assuming the absence of delays caused
by changes in the rules or regulations
of the Classification Society):
Vessel 1--August 1, 1999
Vessel 2--November 1, 1999
Vessel 3--March 1, 2000
Vessel 4--June 1, 2000
Vessel 5--September 1, 2000
-5-
The purchase price (the "Purchase Price") for each Vessel will be
approximately $50.0 million. The following table sets forth the scheduled
amounts and timing of the payments to the Builders under the Building Contract,
except that the Builders have directed the Owners to make the
payment due on September 1, 1997 directly to TGE.
DATE VESSEL 1 VESSEL 2 VESSEL 3 VESSEL 4 VESSEL 5 TOTAL(C)
- ---- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
Issue Date...................... $6.6 $6.6 $6.6 $6.6 $6.6 $33.1
Sept. 1, 1997................... 2.4 2.4 2.4 2.4 2.4 12.2
Feb. 1, 1998.................... 6.8 -- -- -- -- 6.8
July 1, 1998.................... -- 6.8 -- -- -- 6.8
Nov. 1, 1998.................... 6.8 -- 6.8 -- -- 13.7
Feb. 1, 1999.................... -- -- -- 6.8 -- 6.8
Mar. 1, 1999.................... 4.6 -- -- -- -- 4.6
Apr. 1, 1999.................... -- 6.8 -- -- -- 6.8
June 1, 1999.................... -- -- -- -- 6.8 6.8
July 1, 1999.................... -- -- 6.8 -- -- 6.8
Aug. 1, 1999.................... 22.8(a) 4.6(b) -- -- -- 27.3
Oct. 1, 1999.................... -- -- -- 6.8 -- 6.8
Nov. 1, 1999.................... -- 22.8(a) 4.6(b) -- -- 27.3
Feb. 1, 2000.................... -- -- -- -- 6.8 6.8
Mar. 1, 2000.................... -- -- 22.8(a) 4.6(b) -- 27.3
June 1, 2000.................... -- -- -- 22.8(a) 4.6(b) 27.3
Sept. 1, 2000................... -- -- -- -- 22.8(a) 22.8
----- ----- ----- ----- ----- ------
Total (c).............. $50.0 $50.0 $50.0 $50.0 $50.0 $250.1
===== ===== ===== ===== ===== ======
- ---------------
(a) Assuming delivery of the Vessel occurs on its Contractual Delivery Date.
(b) This payment shall be payable to the Builders with respect to a Vessel only
if and when the Collateral Agent has received evidence of delivery pursuant
to the Building Contract with respect to each other Vessel having a
Contractual Delivery Date prior to or on the Contractual Delivery Date of
such Vessel.
(c) May not total due to rounding.
THE SHAREHOLDERS OF HOLDINGS
The Shareholders include entities that, severally but not jointly, will
provide all the critical services during the required construction period, and
entities (other than TGE) which have been or will be responsible for the
establishment of contract specifications and the future employment and ongoing
operations of the Vessels.
These entities include:
o CAMBRIDGE GAS TRANSPORT CORPORATION ("CGTC"). CGTC is an
affiliate of Cambridge Partners, L.L.C. ("Cambridge").
Cambridge, together with its affiliates (collectively, the
"Cambridge Group"), is engaged in the business of providing
investment and advisory services to major shipping, energy
service and oil companies worldwide, as well as acquiring,
owning, financing and managing vessels for its own account and
offering these vessels for use by third party
-6-
charterers. Cambridge enjoys strong relationships with ship
brokers located in London, Tokyo, Oslo and the United States,
with major oil companies, with Far Eastern shipyards and with
leading international maritime transportation companies. In
addition, Cambridge has expertise in related areas such as
vessel design and construction, commercial arrangements
including contracts of affreightment and pooling arrangements,
time and bareboat charters, as well as in financial management
and operations. Currently, the Cambridge Group controls a
fleet of vessels and tankers with an asset value in excess of
$400 million, comprised of four existing suezmax tankers
(150,000 deadweight tonnes ("dwt")) and two very large crude
carriers (308,000 dwt) currently under construction. These
vessels are currently under long-term charter commitments
arranged with Chevron Transport Corporation. Cambridge is
headquartered in New York.
o GEBAB. GEBAB is a privately-owned German investment house
specializing in ship finance, shipowning and other shipping
services through its affiliates. GEBAB and the major German
shipbuilder, Thyssen Nordseewerke GmbH ("Thyssen"), together
own 70% of Martime, one of the leading German ship-management
and shipowning companies. Martime will be responsible for the
technical supervision of the construction of the Vessels,
pre-delivery technical management and the ongoing technical
management of the Vessels after delivery from the Builders.
Martime's staff has over 20 years of experience in the
ship-management business and currently operates nine container
ships, three gas carriers and two chemical carriers. Martime
will receive accreditation for ISO 9002 and ISM certification
during 1997 providing independent confirmation of the strength
of its technical management expertise. GEBAB, through its
affiliate MarLink, will seek to negotiate, on behalf of the
Owners, contracts of affreightments, spot charters and
occasional time charters to provide a balanced mix of
employment for the Vessels. GEBAB, together with a German
shipowner, Hartmann Schiffarts GmbH ("Hartmann"), also owns a
major stake in GasChem Services GmbH and Co., KG ("GasChem").
GasChem is a well-established commercial management company
that currently manages for various owners a pool of 18 gas
carriers ranging in size from 4,000 cbm to 8,000 cbm capacity,
of which thirteen have ethylene capacity. See
"Business--Marketing and Commercial Management--Commercial
Management Agreement" and "Operations--Technical Management
Agreement."
o TGE. TGE is an indirect subsidiary of Tractebel S.A., a major
Belgian public company engaged in the utility and engineering
industries. TGE is a world leader in the engineering, design
and construction of gas storage and transportation plants and
equipment. In addition, it manufactures port facilities for
the off-loading and receiving of liquified gases, gas
liquification and handling systems, chemical and gas plants
for installation on carriers, storage facilities for liquified
gases and chemicals, gas bottling plants, gas terminals and
metering stations, vaporization, transmission lines and
compressor stations and package plants for recovery of
products from associated gases. TGE is a leading provider of
turnkey operations. TGE will design the complex gas plants to
be utilized on the Vessels. TGE will also supervise the
construction and erection of the Vessels' gas plants through
its permanent office in Shanghai. Since 1980, TGE has been
involved in the installation of gas plants for 36 gas
carriers, 18 of which are ethylene-capable.
-7-
TGE will act as a subcontractor to Jiangnan under each
Building Contract and as such will be responsible for
supplying materials for construction of the gas plant and
supervising its installation. TGE has acquired or is acquiring
shares of capital stock of Holdings solely because of its role
as a subcontractor.
o ARCTIC GAS S.A. ("ARCTIC"). Arctic is part of the Cryofin
Group ("Cryofin"). Cryofin is a shipbuilding group responsible
for the original design and engineering specifications for the
Vessels. Over the last 50 years, Cryofin has designed, built
and partly operated more than 40 gas carriers of various
types, including the first vessel designed to carry LPG.
o XENON SHIPPING INC. ("XENON SHIPPING"). Xenon Shipping is an
affiliate of Xenon Shipping AS ("Xenon"). Xenon is a leading
Norwegian shipbroker, specializing in the petrochemical gas
and LPG market. Xenon provides a full range of chartering,
sale and purchase and related services to a worldwide
clientele. Established in 1991, Xenon has extensive experience
in the gas carrier industry.
-8-
THE EXCHANGE OFFER
SUMMARY OF TERMS OF THE EXCHANGE OFFER
The Exchange Offer.................. Up to $217,000,000 aggregate principal
amount of 10 1/2% First Priority Exchange
Ship Mortgage Notes Due 2007 (the "First
Priority Exchange Notes") will be issued
in minimum denominations of $100,000 and
integral multiples of $1,000 in excess
thereof. Subject to such minimum
denominations, $1,000 principal amount of
First Priority Exchange Notes is offered
in exchange for each $1,000 principal
amount of First Priority Ship Mortgage
Notes Due 2007 (the "Existing First
Priority Notes"). As of the date hereof,
Existing First Priority Notes representing
$217,000,000 aggregate principal amount
are outstanding. The form and terms of the
First Priority Exchange Notes and the
Existing First Priority Notes are
identical, except that (i) the offer of
the First Priority Exchange Notes will be
registered under the Securities Act and
therefore the First Priority Exchange
Notes will not be subject to certain
transfer restrictions and (ii) Holders of
First Priority Exchange Notes will not be
entitled to certain rights of Holders of
the Existing Notes under the Registration
Rights Agreement.
Up to $87,000,000 aggregate principal
amount of 12% Second Priority Exchange
Ship Mortgage Notes Due 2019 (the "Second
Priority Exchange Notes") will be issued
in minimum denominations of $100,000 and
integral multiples of $1,000 in excess
thereof. Subject to such minimum
denominations, $1,000 principal amount of
Second Priority Exchange Notes is offered
in exchange for each $1,000 principal
amount of Second Priority Ship Mortgage
Notes Due 2007 (the "Existing Second
Priority Notes"). As of the date hereof,
Existing Second Priority Notes
representing $87,000,000 aggregate
principal amount are outstanding. The form
and terms of the Second Priority Exchange
Notes and the Existing Second Priority
Notes are identical, except that (i) the
offer of the Second Priority Exchange
Notes will be registered under the
Securities Act and therefore the Second
Priority Exchange Notes will not be
subject to certain transfer restrictions
and (ii) Holders of Second Priority
Exchange Notes will not be entitled to
certain rights of Holders of the Existing
Second Priority Notes under the
Registration Rights Agreement.
Based on interpretations by the
Commission's staff set forth in no-action
letters issued to third parties unrelated
to the Company, the Company believes that
the First Priority Exchange Notes and the
Second Priority Exchange Notes
(collectively, the "Exchange Notes")
issued pursuant to the
-9-
Exchange Offer in exchange for the
respective Existing First Priority Notes
or Existing Second Priority Notes
(collectively, the "Existing Notes") may
be offered for resale, resold or otherwise
transferred by any Holder (other than any
such Holder or such other person (i) that
is an "affiliate" of the Company within
the meaning of Rule 405 under the
Securities Act or (ii) that is a
broker-dealer who acquired such Existing
Notes directly from the Issuer (or any
affiliate thereof)), without compliance
with the registration and prospectus
delivery provisions of the Securities Act,
PROVIDED that (i) the Exchange Notes are
acquired in the ordinary course of
business of the Holder and (ii) the Holder
is not engaged in and does not intend to
engage in a distribution of the Exchange
Notes and has no arrangement or
understanding with any person to
participate in the distribution of the
Exchange Notes. The Commission, however,
has not considered the Exchange Offer in
the context of a no-action letter, and
there can be no assurance that the staff
of the Commission would make a similar
determination with respect to the Exchange
Offer as in such other circumstances. See
"THE EXCHANGE OFFER--PURPOSE AND EFFECT OF
THE EXCHANGE OFFER." Each broker-dealer
that receives Exchange Notes for its own
account in exchange for Existing Notes,
where those Existing Notes were acquired
by the broker-dealer as a result of its
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with
any resale of those Exchange Notes. See
"PLAN OF DISTRIBUTION."
Registration Rights Agreement........ The Existing Notes were sold by the Issuer
on August 7, 1997 in a private placement.
In connection with the sale of the
Existing Notes, the Company entered into a
Registration Rights Agreement for the
benefit of the purchasers thereof (the
"Registration Rights Agreement"), under
which the Company agreed to use their
respective reasonable best efforts to
effect the Exchange Offer. See "THE
EXCHANGE OFFER--PURPOSE AND EFFECT OF THE
EXCHANGE OFFER" and "DESCRIPTION OF THE
EXCHANGE NOTES--REGISTRATION RIGHTS."
Pursuant to the Registration Rights
Agreement, the Company is required to file
a Registration Statement for a continuous
offering pursuant to Rule 415 under the
Securities Act in respect of the Existing
Notes under certain circumstances,
including if existing Commission
interpretations are changed such that the
Exchange Notes received by Holders in the
Exchange Offer are not or would not be,
upon receipt, transferable by each such
Holder (other than an affiliate of the
Company) without restriction under the
Securities Act. This Prospectus is
prepared in connection with the Company's
compliance with such registration
-10-
requirement. See "THE EXCHANGE
OFFER--PURPOSE AND EFFECT OF THE EXCHANGE
OFFER" and "DESCRIPTION OF THE EXCHANGE
NOTES--REGISTRATION RIGHTS."
Expiration Date..................... The Exchange Offer will expire at 5:00
p.m., New York City time, on ___________,
1997 (or longer if required by applicable
law). Any Existing Notes not accepted for
exchange for any reason will be returned
without expense to the tendering Holder
thereof as promptly as practicable after
the expiration or termination of the
Exchange Offer.
Withdrawal.......................... The tender of Existing Notes pursuant to
the Exchange Offer may be withdrawn at any
time prior to 5:00 p.m., New York City
time, on the Expiration Date.
Interest on the Exchange Notes...... Interest on each Exchange Note will be
deemed to accrue from August 7, 1997 (the
date of issuance of the Existing Notes) or
from the date of the last periodic payment
of interest on the Existing Notes,
whichever is later.
Conditions to the Exchange Offer.... The Exchange Offer is subject to certain
customary conditions, certain of which may
be waived by the Company. See "THE
EXCHANGE OFFER--CONDITIONS." The Exchange
Offer is not conditioned upon any minimum
aggregate principal amount of Existing
Notes being tendered for exchange.
Procedures for Tendering Existing
Notes............................. Each Holder of Existing Notes who desires
to accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a copy thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver the Letter of Transmittal or the
copy, together with the Existing Notes and
any other required documentation, to the
Exchange Agent at the address set forth
herein. Persons holding Existing Notes
through DTC and wishing to accept the
Exchange Offer must do so pursuant to
DTC's Automated Tender Offer Program
("ATOP"), by which each tendering
participant will agree to be bound by the
Letter of Transmittal. By executing or
agreeing to be bound by the Letter of
Transmittal, each Holder will represent to
the Issuer that, among other things, (i)
the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in
the ordinary course of business of the
Holder of the Existing Notes, (ii) the
Holder is not engaging in and does not
intend to engage in a distribution of such
Exchange Notes, (iii) the Holder has no
arrangement or understanding with any
person to participate in the distribution
of such Exchange Notes, (iv) the Holder is
not
-11-
an "affiliate," as defined under Rule 405
promulgated under the Securities Act, of
the Company and (v) if such Holder is a
broker-dealer, that it acquired the
Existing Notes as a result of market
making activities or other trading
activities.
Acceptance of Existing Notes and
Delivery of Exchange Notes......... The Company will accept for exchange any
and all Existing Notes which are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the
Expiration Date. See "THE EXCHANGE
OFFER--TERMS OF THE EXCHANGE OFFER."
Exchange Agent...................... United States Trust Company of New York is
serving as Exchange Agent in connection
with the Exchange Offer.
U.S. Tax Considerations............. The exchange pursuant to the Exchange
Offer will not be a taxable event for U.S.
federal income tax purposes. See "CERTAIN
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES."
Effect of Not Tendering............. Existing Notes that are not tendered or
that are not properly tendered will,
following the completion of the Exchange
Offer, continue to be subject to the
existing restrictions upon transfer
thereof. Upon completion of the Exchange
Offer, the Company generally will have no
further obligation to provide for the
registration under the Securities Act of
such Existing Notes.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Securities Offered.................. $217,000,000 aggregate principal amount of
10 1/2% First Priority Exchange Ship
Mortgage Notes Due 2007 (the "First
Priority Exchange Notes"), and $87,000,000
aggregate principal amount of 12% Second
Priority Exchange Ship Mortgage Notes (the
"Second Priority Exchange Notes").
Issuer.............................. Navigator Gas Transport PLC, an Isle of
Man public limited company.
First Priority Trustee.............. United States Trust Company of New York.
Second Priority Trustee............. The Chase Manhattan Bank
Maturity Date....................... June 30, 2007.
-12-
Denominations....................... The Exchange Notes will be issued in
minimum denominations of $100,000 and
multiples of $1,000 in excess thereof.
Interest Payment Dates.............. June 30 and December 31, commencing
December 31, 1997. At the option of the
Issuer, on any Interest Payment Date
following the delivery of the first
Vessel, to the extent cash available for
distribution to Holders of Second Priority
Exchange Notes on such date is
insufficient to pay all accrued and unpaid
interest on the Second Priority Exchange
Notes due on such date, the Issuer may pay
such interest by issuing additional Second
Priority Exchange Notes having an
aggregate principal amount equal to the
amount of such deficiency. The Issuer may
not issue more than $20.9 million
aggregate principal amount of such
additional Second Priority Exchange Notes.
See "Description of the Exchange
Notes--Terms of the Exchange Notes--Second
Priority Exchange Notes."
Mandatory Offer to Purchase
Notes With Available Cash......... Commencing on June 30, 2001 and
semi-annually thereafter so long as the
First Priority Exchange Notes and the
untendered Existing First Priority Notes,
if any, remain outstanding (each, an
"Available Cash Payment Date"), the Issuer
will be required, to the extent of
Available Cash (as defined), to make an
offer (each, an "Available Cash Offer") to
each Holder of the First Priority Exchange
Notes to purchase such Holder's First
Priority Exchange Notes (or at such
Holder's option, any part thereof) or in
part, at a price equal to 102% of the
principal amount thereof plus accrued and
unpaid interest to the date of purchase;
PROVIDED, HOWEVER, that the Issuer will
not be required to make an Available Cash
Offer if Available Cash is less than $1.0
million.
Commencing on the first Available Cash
Payment Date following the payment in full
of the First Priority Exchange Notes and
on each Available Cash Payment Date
thereafter, the Issuer is required, to the
extent of Available Cash, to make an
Available Cash Offer to each Holder of the
Second Priority Exchange Notes to purchase
such Holder's Second Priority Exchange
Notes (or at such Holder's option, any
part thereof) at a purchase price equal to
102% of the principal amount thereof plus
-13-
accrued and unpaid interest to the date of
purchase; provided, however, that the
Issuer will not be required to make an
Available Cash offer if Available Cash is
less than $1.0 million. See "Description
of the Exchange Notes--Mandatory Offers to
Purchase Exchange Notes--Offer to Purchase
with Available Cash."
Mandatory Redemption Upon the
Occurrence of Certain Events ...... In the event a Vessel is subject to a
Total Loss, the Exchange Notes will be
subject to mandatory redemption in part in
an aggregate principal amount equal to the
Allocated Principal Amount of the Notes
for such Vessel at the redemption prices
set forth herein. In addition, in the
event an Owner elects to terminate a
Building Contract because of a material
breach thereof by the Builders, the
Exchange Notes will be subject to
mandatory redemption in part in an
aggregate principal amount equal to the
Allocated Principal Amount of the Notes
for such Vessel, together with the
Allocated Principal Amount of the Notes
for all other Vessels that have not been
accepted as of such date, at the
redemption prices set forth herein. See
"Description of the Exchange
Notes--Redemptions--Mandatory Redemption
Upon the Occurrence of Certain Events."
Optional Redemption................. The Exchange Notes are not redeemable at
the option of the Issuer prior to June 30,
2002, except that (i) until June 30, 2000,
the Issuer may redeem, at its option, in
the aggregate up to 35% of the original
principal amount of each series of Notes,
on a PRO RATA basis, at the redemption
prices set forth herein with the net
proceeds of one or more Public Equity
Offerings if at least $100.0 million
aggregate principal amount of the First
Priority Exchange Notes and the untendered
Existing First Priority Notes, if any, and
$45.0 million aggregate principal amount
of the Second Priority Exchange Notes and
the untendered Existing Second Priority
Notes, if any, remain outstanding after
each such redemption, and (ii) the Issuer
may redeem the Exchange Notes and the
untendered Existing Notes, if any, at the
redemption price set forth herein at any
time if the Issuer becomes subject to
withholding taxes on any amounts payable
under the Exchange Notes and the
untendered Existing Notes, if any, or any
Guarantee as a result of certain changes
in law in respect of withholding taxes. On
and after June 30,
-14-
2002, the Exchange Notes may be redeemed
at the option of the Issuer, in whole or
in part, at the redemption prices set
forth herein, plus accrued and unpaid
interest to the date of redemption. Except
as set forth in the previous sentence, the
First Priority Indenture will prohibit the
Issuer from redeeming at the option of the
Issuer any Second Priority Exchange Notes
while the First Priority Exchange Notes
are outstanding. See "Description of the
Exchange Notes--Redemption-- Optional
Redemption" and "--Tax Redemption."
Change of Control................... Upon a Change of Control, each Holder
shall have the right to require the Issuer
to purchase such Holder's Exchange Notes,
in whole or in part, at a purchase price
equal to 101% of the principal amount
thereof, plus accrued and unpaid interest
to the date of purchase. See "Description
of the Exchange Notes--Mandatory Offers to
Purchase Exchange Notes--Offer to Purchase
Upon Change of Control."
Ranking............................. The First Priority Exchange Notes and the
untendered Existing First Priority Notes,
if any, and the Second Priority Exchange
Notes and the untendered Existing Second
Priority Notes, if any, will be secured
obligations of the Issuer. With respect to
claims against the Collateral securing the
Exchange Notes, the Holders of the
Exchange Notes will have a claim thereto
which is subordinate in right of payment
to any claim held by the Letter of Credit
Issuer with respect to any unreimbursed
Draws under the Letter of Credit. The
priority of payment of the principal of,
premium (if any) and interest on the
Exchange Notes is as described under
"Description of the Exchange
Notes--Priority of Payment--Revenue
Account,"--"Priority of Payment--
Termination Account" and "--Application of
Proceeds Following an Event of Default."
Neither the Issuer nor the Owners are
permitted by the Indentures to incur any
additional Indebtedness, with certain
limited exceptions. See "Description of
the Exchange Notes--Ranking."
Guarantees.......................... Payment of the principal of, premium, if
any, and interest on the Exchange Notes
and the untendered Existing Notes, if any,
payment to the Letter of Credit Issuer of
the Issuer's reimbursement obligations in
respect thereof, the Issuer's obligations
under the Security Agreements (as
-15-
defined) and performance of all other
obligations contained in the Indentures
and the Security Agreements is guaranteed
on a joint and several basis by the
Owners. See "Description of the Exchange
Notes--Security." The Guarantees of the
Owners are irrevocable and unconditional,
but limited in amount to the extent
required by laws relating to fraudulent
transfer or similar laws. See "Description
of the Exchange Notes--Guarantees."
Security............................ As collateral for their respective
obligations under the Exchange Notes and
the untendered Existing Notes, if any, the
Guarantees, the Security Agreements and
the Letter of Credit Reimbursement
Agreement, as the case may be, on the date
the Existing Notes were issued (the
"Original Closing Date") (i) Holdings has
pledged to United States Trust Company of
New York, as Collateral Agent (the
"Collateral Agent"), for the benefit of
the Holders of the Exchange Notes, the
Letter of Credit Issuer and the Trustees
(as defined), all the shares of capital
stock of the Issuer, (ii) the Issuer has
pledged to the Collateral Agent for the
benefit of the Holders of the Exchange
Notes and the untendered Existing Notes,
if any, the Letter of Credit Issuer and
the Trustees, all the shares of capital
stock of the Owners and the promissory
note (the "Intercompany Note") of the
Owners in favor of the Issuer to evidence
advances made by the Issuer to the Owners
from time to time, and a security interest
in all the Trust Accounts (as defined) and
(iii) the Owners have granted to the
Collateral Agent, for the benefit of the
Holders of the Exchange Notes, the Letter
of Credit Issuer and the Trustees, a
security interest in, among other things,
(a) all Trust Accounts, including amounts
held in the Capitalized Interest Account
and the Pre-Funding Account, (b) the
Building Contracts, (c) the Technical
Supervision Agreement, (d) the Building
Contract Guarantees, (e) the Performance
Bonds, (f) the Technical Management
Agreement, (g) the Commercial Management
Agreement, (h) the Management Agreement,
(i) certain other related collateral and
(j) all income, payments, proceeds, rights
and claims, resulting from or arising out
of the foregoing. See "Description of the
Exchange Notes--Security."
-16-
On the Delivery Date of each Vessel, the
Owner of such Vessel will grant to the
Collateral Agent, for the benefit of the
Holders of the Exchange Notes and the
untendered Existing Notes, if any, the
Letter of Credit Issuer and the Trustees,
a security interest in (i) such Vessel,
pursuant to the terms of the related
Mortgage, (ii) amounts held in all other
Trust Accounts established or funded after
the Delivery Date of such Vessel, (iii)
earnings and insurances in relation to
such Vessel, (iv) any and all revenue
earned from employment of such Vessel, to
be held in the Revenue Account or in any
other applicable Trust Account, (v)
requisition proceeds and the Insurance
Policies in relation to such Vessel, (vi)
certain other related collateral and (vii)
all income, payments, proceeds, rights and
claims, resulting from or arising out of
the foregoing. See "Description of the
Exchange Notes--Security."
Letter of Credit.................... On the Original Closing Date, Credit
Suisse First Boston, as funding bank and
as administrating bank for the
participating banks party to the Letter of
Credit Reimbursement Agreement (the
"Letter of Credit Issuer") issued an
irrevocable letter of credit (the "Letter
of Credit") in the maximum amount of $50.0
million in favor of the Collateral Agent
for the benefit of the Holders of the
Exchange Notes and the untendered Existing
Notes, if any. Prior to each Interest
Payment Date, the Collateral Agent will
determine if a Note Interest Shortfall (as
defined) exists. To the extent a Note
Interest Shortfalls exist, the Collateral
Agent will make Interest Draws in an
aggregate amount outstanding up to $45.5
million on the Letter of Credit in an
amount (the "Draw Amount") equal to the
lesser of (a) the Note Interest Shortfall
(less any portion of such Note Interest
Shortfall attributable to interest payable
pursuant to a Registration Default) and
(b) the Maximum Amount Available (as
defined) under the Letter of Credit and
will deposit such amount into the Letter
of Credit Account (as defined). The
Collateral Agent is required to make
additional Interest Draws to (i) repay any
outstanding Interest Draws and accrued
interest thereon and (ii) pay any fees due
under the Letter of Credit Reimbursement
Agreement that have not been paid from
funds available in the Revenue Account (as
defined). Working Capital Draws may be
made by the Issuer from time to time in an
-17-
aggregate amount outstanding up to $4.5
million to cover the working capital
requirements of the Issuer and the Owners
to the extent amounts available in the
Revenue Account are insufficient to fund
operating expenses. The proceeds of such
Working Capital Draws shall be deposited
in the Operating Account (as defined). In
addition, the Collateral Agent will make
Working Capital Draws in an amount equal
to any additional interest paid or payable
on the Allocated Principal Amount of the
Notes for each Vessel pursuant to a
Registration Default as provided under
"Description of the Exchange
Notes--Registered Exchange Offer;
Registration Exchange," to the extent that
amounts available in the Capitalized
Interest Account on an Interest Payment
Date prior to the acceptance of such
Vessel are insufficient to pay such
additional interest. The proceeds of a
Working Capital Draw described in the
previous sentence will be deposited in the
Revenue Account. The Collateral Agent will
be required to make additional Working
Capital Draws to repay any outstanding
Working Capital Draws and accrued interest
thereon that have not been repaid from
funds available in the Revenue Account.
See "Description of the Letter Credit
Reimbursement Agreement."
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Building Contract
Guarantees and
Performance Bonds................. The obligation of the Builders to pay the
Refund Amount (as defined) upon the
termination of a Building Contract is
severally and not jointly guaranteed by
The Export-Import Bank of China ("EXIM")
and by Generale de Banque S.A.
("Generale"). EXIM is owned by the
government of the People's Republic of
China and its long-term debt is rated A3
by Moody's Investor Service Inc.
("Moody's"). The long-term debt of
Generale is rated A1 by Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Company, Inc. ("S&P") and Aa3
by Moody's. See "Business--Building
Contract Guarantees and Performance
Bonds".
Certain Covenants................... The Indentures (as defined) contain
certain covenants that, among other
things, limit the ability of the Issuer
and the Owners to (i) incur any additional
Indebtedness, (ii) pay dividends or make
certain other Restricted Payments, (iii)
restrict distributions from Owners, (iv)
sell assets, (v) enter into transactions
with affiliates, (vi) sell or issue
capital stock of the Owners, (vii) incur
liens other than permitted liens, (viii)
enter into sale/leaseback transactions,
(ix) enter into certain mergers and
consolidations, (x) conduct certain
business activities, (xi) impair the
security interests in the Collateral and
(xii) amend any of the Security
Agreements. In addition, the Indentures
limit the business activities of Holdings,
including its ability to incur
Indebtedness. See "Description of the
Exchange Notes--Certain Covenants."
-19-
RISK FACTORS
Prospective investors should carefully consider the risk factors
described below, in addition to the other information set forth in this
Prospectus, in connection with an investment in the
Exchange Notes.
All statements, other than statements of historical facts, included in
this Prospectus that address activities, events or developments that a party
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures and investments in multi-client data
(including the amount and nature thereof), backlog, repayment of debt, expansion
and other development trends of the petroleum industry, business strategies,
expansion and growth of operations and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by such party in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes are appropriate in the circumstances. Such statements are subject to a
number of assumptions, risks and uncertainties, including the risk factors
discussed below, general economic and business conditions, the business
opportunities (or lack thereof) that may be presented to and pursued by such
party, changes in laws or regulations and other factors, many of which are
beyond the control of such party. Prospective investors are cautioned that any
such statements are not guarantees of future performance and that actual results
or developments may differ materially from those projected in the
forward-looking statements.
LIMITED PURPOSE NATURE OF THE ISSUER, THE OWNERS AND HOLDINGS; LACK OF OPERATING
HISTORY OF OWNERS
The Exchange Notes and the untendered Existing Notes, if any, represent
obligations of the Issuer guaranteed by the Owners. The activity of the Issuer
is limited to issuing the Notes, entering into the Letter of Credit
Reimbursement Agreement, owning the Owners and lending the net proceeds of the
Offerings and making other advances to the Owners. See "Description of the
Exchange Notes--Certain Covenants." The Issuer has no source of payment for the
Exchange Notes and the untendered Existing Notes, if any, other than payments it
receives from the Owners under the Intercompany Notes and through dividends. The
Issuer has no operating history or financial statements for any period prior to
the Offerings.
The Exchange Notes and the untendered Existing Notes, if any, are
guaranteed by the Owners, which guarantees are secured by certain of the
Collateral. See "Description of the Exchange Notes--Guarantees" and
"--Security." The activity of the Owners is limited to guaranteeing the Exchange
Notes and the untendered Existing Notes, if any, guaranteeing the Issuer's
obligations under the Letter of Credit Reimbursement Agreement, owning,
operating and maintaining the Vessels and fulfilling its obligations under the
Indentures, the Security Agreements and the Letter of Credit Reimbursement
Agreement. See "Description of the Exchange Notes--Certain Covenants." On and
after the Delivery Date of a Vessel, the Owners' sources of funds will be
earnings on the Vessels, earnings on Temporary Cash Investments (as defined) and
the proceeds from any loss with respect to the Vessels. None of the Owners has
any operating history or financial statements for any period prior to the
Offerings.
-20-
The Exchange Notes and the untendered Existing Notes, if any, are not
obligations of, and are not guaranteed by, any of the Shareholders. See
"Description of the Exchange Notes--Guarantees" and "--Security." Holdings has
no operating history or financial statements for any period prior to the
Offerings. The activity of Holdings is limited to owning the Issuer and
making the Holdings Pledge.
RISKINESS OF REVENUES RELATING TO THE VESSELS
Historically, the revenues generated by gas carriers have been
cyclical, with attendant volatility in their profitability resulting from
changes in supply and demand. The transportation rates received by the Company
will be primarily dependent upon the supply of vessels capable of transporting
cargoes such as those the Company intends to transport and the level of demand
for the seaborne trade of such cargoes. These variables will be influenced by
global and regional economic conditions, increases and decreases in the
industrial production of and demand for the cargoes to be transported by such
vessels and the products that are made therefrom, political changes and armed
conflicts, developments in international trade, changes in seaborne and other
transportation patterns and geopolitical events which interrupt production,
trade routes or consumption. Because many of the factors influencing the supply
of, demand and trade patterns for tonnage and cargo are unforeseeable and beyond
the control of the Company, the Company cannot predict the nature, direction,
timing or degree of changes in the revenues generated by the Vessels. In
addition to transportation rates, the revenues generated by the Vessels will
depend on the level of utilization of the Vessels and the mix of cargoes
transported thereon.
NON-PERFORMANCE BY BUILDERS AND PROVIDERS OF THE BUILDING CONTRACT GUARANTEES
AND THE PERFORMANCE BONDS; UNCERTAINTY OF OUTCOME OF ARBITRATION
Under each Building Contract, the Owner may rescind such Building
Contract upon the occurrence of an event of default by the Builders, including
the failure by the Builders to (i) make timely payment of liquidated damages to
such Owner for delays in the delivery of the Vessel beyond 210 days after the
Contractual Delivery Date, (ii) deliver the Vessel by March 31, 2001 or (iii)
construct the Vessel in conformity with certain specifications. In addition,
each Building Contract provides for the automatic termination of such Building
Contract if, prior to the Delivery Date, (A)(i) a Vessel is seized by the
Chinese government, (ii) the Builders fail to obtain the necessary licenses,
permits and other authorizations from the Chinese government for the
construction, delivery and export from China of such Vessel or (iii) a total
loss occurs with respect to a Vessel and (B) the Builders do not elect to
continue performing under such Building Contract. In addition, if any Building
Contract is rescinded by the Owner or automatically terminated, each other Owner
that has not accepted delivery of its Vessel will be deemed to have also
rescinded its Building Contract through the cross-default provisions. See
"Business--Building Contracts."
In the event that an Owner rescinds a Building Contract pursuant to its
terms or a Building Contract is automatically terminated, the Owner is entitled
to receive the Refund Amount under such Building Contract from the Builders. If
the Builders default on their obligations to pay the Owner the Refund Amount,
the Building Contract Guarantor and the Performance Bond Guarantors (each, as
defined) have severally and not jointly guaranteed the payment of amounts which
in the aggregate will equal the Refund Amount payable by the Builders. The
Refund Amount together with the amounts held in the Pre-Funding Account and the
Capitalized Interest Account will be used to pay the Allocated Principal Amount
of the Notes, subject to the mandatory redemption plus any accrued
-21-
and unpaid interest thereon, and certain fees and expenses incurred in
connection with such redemption. To the extent the Builders fail to pay the
Owners the Refund Amount and the Owners do not receive the amounts payable under
the Building Contract Guarantee and the Performance Bonds, there will not be
sufficient funds to redeem the Allocated Principal Amount of such Notes. See
"Business--Building Contracts; Building Contract Guarantees and Performance
Bonds."
Should a dispute arise under a Building Contract, the related Owner and
the Builders have agreed, pursuant to such Building Contract, to submit such
dispute to arbitration by either the Classification Society or the London
Maritime Arbitrators Association Inc. (each, an "Arbitrator"), as may be
mutually agreed to by the parties involved. The applicable Arbitrator may in any
particular dispute decide in favor of the Builders and as a result, delay or
eliminate such Owner's right to receive the payment of (i) any liquidated
damages, whether by an adjustment in the Purchase Price of the related Vessel or
a cash payment, or (ii) the Refund Amount. In such an event, to the extent that
such liquidated damages or the Refund Amount is necessary for the Issuer to make
interest payments on, or to redeem, any series of Exchange Notes and the
untendered Existing Notes, if any, as the case may be, the Issuer may not have
sufficient funds to satisfy its obligations under one or both of the Indentures.
See "Business--Building Contracts."
VOLATILITY OF VESSEL VALUES; POTENTIAL INSUFFICIENCY OF COLLATERAL
Upon the acceptance of the Vessels by the Owners under the Building
Contracts, the Guarantees will be secured by a Mortgage on each Vessel granted
to the Collateral Agent. There can be no assurance that the value of each Vessel
will at any time equal or exceed the Allocated Principal Amount of the Notes for
such Vessel. The fair market value of the Vessels can be expected to fluctuate,
depending upon general economic and market conditions affecting the shipping
industry, competition from other shipping companies, demand for various types
and sizes of vessels, and other modes of transportation. There can be no
assurance that the proceeds from the sale of any Vessel in connection with the
Collateral Agent's exercise of remedies following an Event of Default would be
sufficient to redeem the Allocated Principal Amount of the Notes for such Vessel
or that any buyers would be available under the circumstances in which such sale
would occur. The Company is not required under the Indentures to maintain any
minimum value of any Vessel and there can be no assurance that the future value
of a Vessel will not be considerably less than its acquisition cost or the
Allocated Principal Amount of the Notes for such Vessel. If and to the extent
that amounts are owing under the Letter of Credit Reimbursement Agreement, then
the Letter of Credit Issuer shall have a claim to the proceeds of any sale of a
Vessel prior to the claim of the Holders of the Exchange Notes and the
untendered Existing Notes, if any. Furthermore, in certain circumstances the
extent to which the Mortgages may be enforced and the extent to which the
Mortgages will have priority over the claims of other creditors is limited. If
the proceeds from a sale of the Vessels are not sufficient to satisfy payments
due on the Exchange Notes and the untendered Existing Notes, if any, the Holders
of the Exchange Notes and the untendered Existing Notes, if any (to the extent
not repaid from the proceeds of the sale of the Vessels and other Collateral)
will have only unsecured claims against the remaining assets, if any, of the
Issuer and the Owners. See "The Mortgages."
DEPENDENCE ON KEY PERSONNEL OF THE MANAGER AND GEBAB
The Company believes that its operations are dependent to some degree
upon the efforts of a small number of key management and operating personnel at
Navigator Gas Management Limited (the "Manager") and at GEBAB and its
affiliates, the loss of whom could adversely affect the Company. While the
success of the Company depends in part upon the Manager and upon GEBAB
-22-
and its affiliates and their personnel, the Company believes that there are
other qualified managers in the industry of seaborne transport of petrochemical
gases and LPG. However, there can be no assurance that the Company will be able
to engage such qualified managers or on what terms. See "Management."
COMPETITION
The number of participants in the seaborne trade of petrochemical gases
is small and consists of a few large and experienced operators with greater
financial resources than the Company. Since the Company will be a new
participant in this field and has no operating history, it may not be able to
participate successfully in the gas carrier industry. See "Gas Carrier
Industry." TGE and its affiliates are not restricted from engineering, designing
and constructing gas storage and transportation plants and equipment for
competitors of the Company.
RISKS IN INTERNATIONAL OPERATIONS
The majority of the revenues from operation of the Vessels is expected
to be derived from foreign operations and is subject, in varying degrees, to
risks inherent in doing business abroad. Future hostilities or other political
instability in the regions in which the Company conducts its operations could
affect the Company's trade patterns and could adversely affect the Company's
business and results of operations. See "Gas Carrier Industry--Demand for Gas
Carriers" and "The Mortgages--Insurance."
ENVIRONMENTAL AND OTHER REGULATIONS
The Vessels and the operation of the Vessels must comply with extensive
and changing environmental protection laws and regulations. Compliance with
these laws and regulations may entail significant expenses, including expenses
for ship modifications and changes in operating procedures. These laws and
regulations could have a material adverse effect on the business and the
operations of the Owners. In particular, the United States Comprehensive
Environmental Response, Compensation, and Liability Act, as amended ("CERCLA"),
imposes strict liability on owners, operators, and demise charterers of vessels
for releases of hazardous substances (other than oil) from their vessels. In
addition, the United States Oil Pollution Act of 1990, as amended ("OPA 90"),
provides for strict liability for owners, operators and demise charterers of any
vessel for certain oil pollution incidents in the waters of the United States or
adjoining shorelines or in the exclusive economic zone. OPA 90 applies to all
vessels that trade in the United States or its territories or possessions or
operate in United States waters, even if such vessels do not carry oil as cargo.
Furthermore, certain states have enacted legislation that provides for liability
under circumstances comparable to those governed by CERCLA and OPA 90, without
the limitations on the amount of liability contained in the federal statutes.
CERCLA and OPA 90 each require vessel owners and operators to furnish
the United States Coast Guard (the "Coast Guard") evidence of financial
responsibility sufficient to meet their potential liability. Insurance has been
one of the principal methods used to satisfy such requirements. Although certain
newly-formed insurance companies, which have been deemed acceptable guarantors
by the Coast Guard, have furnished the guarantees pursuant to the terms outlined
in the rule issued by the Coast Guard on March 7, 1996 relating to financial
assurance (the "Final Rule"), most of the protection and indemnity organizations
that traditionally provided insurance to ship owners and operators have refused
to furnish evidence of insurance to owners and operators of vessels entering
United States ports under the Final Rule. If an Owner intends to employ its
Vessel
-23-
within the territorial waters of the United States, such Owner must furnish
evidence of financial responsibility with respect to the Vessels to the Coast
Guard as required by the Final Rule. If such Owner is unable to comply with the
Final Rule, such Vessel will not be permitted to enter United States territorial
waters.
In addition, the International Maritime Organization (the "IMO"), an
agency of the United Nations, recently adopted regulations designed to reduce
oil pollution in international waters. In complying with the IMO regulations,
the Owners and any charterer of the Vessels may be forced to incur additional
costs in meeting new maintenance and inspection requirements, in developing
contingency arrangements for potential spills and in obtaining insurance
coverage.
Certain states in the United States and other countries have adopted or
are considering adopting stricter technical and operational requirements for
tankers. Additional laws and regulations may be adopted which would have a
material adverse effect on the business and the operations of
the Owners.
RISK OF LOSS AND LIABILITY; INSURANCE
The operation of any ocean-going vessel carries an inherent risk of
catastrophic marine disasters, environmental mishaps, cargo and property losses
or damage and business interruptions caused by adverse weather and ocean
conditions, mechanical failures, human error, political action in various
countries, war, terrorism, piracy, labor strikes and other circumstances or
events. The Vessels will be operated throughout the world in any lawful trade
for which the Vessels are suitable, PROVIDED that, pursuant to the terms of the
Mortgages, the Vessels may not be employed in any manner or for any purpose
excepted by the insurance thereon. In the past, political conflicts have
disrupted shipping in the surrounding regions. Vessels trading in such regions
have also been subject to acts of terrorism and piracy. Any such event may
result in increased costs or the loss of revenues or assets, including a Vessel.
The Company intends to maintain insurance consistent with industry
standards against these risks. However, there can be no assurance that all risks
will be adequately insured against, that any particular claim will be paid out
of such insurance or that the Company will be able to procure adequate insurance
coverage at commercially reasonable rates in the future. More stringent
environmental and other regulations may result in increased costs for, or the
lack of availability of, insurance against risks of environmental damage,
pollution, damages asserted against the Company or the loss of income resulting
from a vessel being removed from operations. Moreover, even if insurance
proceeds are paid to the Company to cover the financial losses incurred
following the occurrence of one of these events, there can be no assurance that
the Company's business reputation, and therefore its ability to obtain future
charters, will not be materially adversely affected by such event. Such an
impact on the Company's business reputation could have a material adverse effect
on the Company's business and results of operations. See "Mortgages--Insurance."
ENFORCEMENT OF MORTGAGES
Each of the Vessels will be registered under the laws of the Republic
of Liberia. The Mortgages will be recorded pursuant to the laws of the Republic
of Liberia and the Isle of Man and will create preferred ship mortgage liens
under the maritime law thereof. In addition, in order to perfect the Mortgages
granted by the Owners, the Mortgages will also be filed in the Isle of Man.
Historically, Liberian ship mortgages have been enforced in major commercial
ports throughout the world. However, the priority that such mortgages will have
against the claims of other lien creditors
-24-
in an enforcement proceeding is generally determined by, and will vary in
accordance with, the laws of the country where a proceeding is brought.
Generally, such a preferred ship mortgage lien will rank prior to all subsequent
maritime liens other than certain other preferred maritime liens, including
liens for damages arising out of tort (including claims for oil pollution),
liens for crew's wages, liens for general average and salvage. Under Liberian
law, a preferred ship mortgage lien will also rank after certain other maritime
liens, including maritime liens for failure to pay tonnage taxes and annual
fees. Under United States law, a foreign preferred ship mortgage lien will also
rank after certain other maritime liens, including those for repairs, supplies,
towage, use of drydock or marine railways or other necessaries, performed or
supplied in the United States. Since each Vessel will trade throughout the world
and since a mortgage generally will be enforceable against a Vessel only in the
jurisdiction in which it is physically present, there can be no assurance that
if enforcement proceedings are commenced against a Vessel, the Vessel will be
located in a jurisdiction having the same mortgage enforcement procedures and
lien priorities as, for example, Liberia or the United States. However, upon the
occurrence of an event of default under a Mortgage, the Collateral Agent may be
able to effect control over the related Vessel to direct it to a desirable
jurisdiction for arrest of the Vessel pursuant to judicial foreclosure
proceedings. See "Mortgages--Remedies."
FRAUDULENT CONVEYANCE STATUTES
The granting of the security interest in and to the Collateral could be
subject to review under relevant fraudulent conveyance statutes and other
applicable insolvency laws (the "Fraudulent Conveyance Laws") in a bankruptcy or
other proceeding involving one or more of the Owners and Holdings. Due to the
nature of the business of the Owners and Holdings and uncertainty as to where a
bankruptcy, vessel foreclosure or other relevant proceeding might be commenced,
it is not possible to predict where any such proceeding or attack might be
brought or made or the law that the court might apply.
Under the Fraudulent Conveyance Law of the Isle of Man (the
jurisdiction in which each of the Owners and Holdings is incorporated), if a
court were to find that, with respect to any Owner or Holdings, at the time the
interests in the Collateral were granted (the "Transfer"), it (a) made such
Transfer with actual intent to prefer or defraud any present or future creditor,
(b) received less than a reasonably equivalent value or fair consideration for
the Transfer or (c) intended to incur, or believed that it would incur, debts
beyond its ability to pay as they matured (as the foregoing terms are defined in
or interpreted under the relevant Fraudulent Conveyance Laws), such court could
avoid the Transfer in whole or in part. To the extent that a Transfer by any
Owner or Holdings exceeds the consideration received by it, the determination of
whether the Transfer in question is a fraudulent conveyance depends on (1)
whether the Transfer so exceeds the value and benefit received by such Owner or
Holdings that, at least to the extent of such excess, the Owner or Holdings did
not receive reasonably equivalent value or fair consideration for the Transfer;
and, if so, then (2) whether following the valuation of the assets and
liabilities of such Owner or Holdings, it is determined that such Owner or
Holdings is or has been rendered insolvent. While there can be no assurance that
a court, viewing the transaction in hindsight, would determine that a particular
Owner or Holdings received fair value for its Transfer, or was not rendered
insolvent by such Transfer, to the extent it exceeded the value of the
consideration received by that Owner or Holdings, each Owner and Holdings
believes that it will receive proper consideration for its respective Transfer
and that no such Owner or Holdings will be rendered insolvent by the
contemplated Transfers. No assurance, however, can be given that a court would
concur with such belief.
-25-
RISKS RELATING TO ENFORCEMENT OF JUDGMENTS AGAINST HOLDINGS, THE ISSUER AND THE
OWNERS
Holdings, the Issuer and each of the Owners are incorporated in the
Isle of Man. As a result, it may be difficult to obtain a judgment in the Isle
of Man in an original action or to enforce in the Isle of Man judgments obtained
in the United States courts and predicated upon United States securities laws.
LIMITATION ON CHANGE OF CONTROL
Pursuant to the Indentures, in the event of a Change of Control, the
Issuer will be required to offer to purchase the Exchange Notes and the
untendered Existing Notes, if any, in whole or in part, at a price equal to 101%
of the principal amount thereof (determined on the date of purchase), as
described under "Description of the Exchange Notes--Mandatory Offers to Purchase
Exchange Notes--Offer to Purchase Upon Change of Control." As the Issuer has not
provided for any credit support to fund a Change of Control Offer, there can be
no assurance that sufficient funds will be available for the Issuer to fulfill
its mandatory purchase obligation.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Existing Notes are currently owned by a relatively small number of
beneficial owners. The Existing Notes have not been registered under the
Securities Act and will continue to be subject to restrictions on
transferability to the extent that they are not exchanged for the Exchange
Notes. The Exchange Notes will constitute a new issue of securities with no
established trading market. Although the Exchange Notes will be permitted to be
resold or otherwise transferred by Holders who have met the conditions of the
Exchange Offer without compliance with the registration requirements under the
Securities Act, Navigator Gas Transport and the Owners do not intend to list the
Exchange Notes on any national securities exchange or to seek the admission
thereof to trading on the Nasdaq National Market. Accordingly, no assurance can
be given that an active public or other market will develop for the Exchange
Notes or as to the existence of or liquidity of the trading market for the
Exchange Notes. See "PLAN OF DISTRIBUTION."
EXCHANGE OFFER PROCEDURE
The issuance of the Exchange Notes pursuant to the Exchange Offer will
be made only after a timely receipt by the Company or its agent of a properly
completed and duly executed Letter of Transmittal, or an agreement to be bound
thereby, and all other required documents. Therefore, Holders of Existing Notes
desiring to tender such Existing Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to tenders of
Existing Notes for exchange. Existing Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions on transfer thereof,
and upon consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any Holder
of Existing Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge
-26-
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Existing Notes are tendered and accepted in the
Exchange Offer, the liquidity of untendered and tendered but unaccepted Existing
Notes could be adversely affected. See "THE EXCHANGE OFFER."
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were issued by the Issuer on August 7, 1997, to
Credit Suisse First Boston Corporation and Cambridge Partners, L.L.C.
(collectively, the "Initial Purchasers"). The Initial Purchasers subsequently
placed the Existing Notes with qualified institutional buyers in reliance on
Rule 144A under the Securities Act. As a condition to the purchase of the
Existing Notes by the Initial Purchasers, the Company entered into the
Registration Rights Agreement with the Initial Purchasers, which requires, among
other things, that promptly following the sale of the Existing Notes to the
Initial Purchasers, the Company would (i) file with the Commission a
Registration Statement under the Securities Act with respect to a registered
offer to exchange the Existing Notes for the Exchange Notes identical in all
material respects to the Existing Notes, (ii) use its respective reasonable best
efforts to cause such Registration Statement to become effective under the
Securities Act and (iii) use its reasonable best efforts to cause the Exchange
Offer to be consummated on the earliest practical date after such Registration
Statement becomes effective. The Company has agreed to keep the Exchange Offer
open for not less than 30 days. A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Following the consummation of the Exchange Offer, Holders of the
Existing Notes who did not tender their Existing Notes generally will not have
any further registration rights under the Registration Rights Agreement, and
such Existing Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Existing Notes could
be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Issuer will accept for exchange
any and all Existing Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Issuer, will issue up to
$217,000,000 principal amount of First Priority Exchange Notes in exchange for a
like principal amount of outstanding Existing First Priority Notes accepted in
the Exchange Offer, and up to $87,000,000 principal amount of Second Priority
Exchange Notes in exchange for a like principal amount of Existing Second
Priority Notes pursuant to the Exchange Offer. Holders may tender all or a
portion of their Existing Notes pursuant to the Exchange Offer. However,
Existing Notes may be tendered only in minimum denominations of $100,000 and
integral multiples of $1,000 in excess thereof.
The form and terms of the Exchange Notes will be identical to the form
and terms of the Existing Notes except that (i) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (ii) the Holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will
-27-
evidence the same debt as the Existing Notes tendered in exchange therefor and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $217,000,000 aggregate principal
amount of the Existing First Priority Notes and $87,000,000 aggregate principal
amount of the Existing Second Priority Notes were outstanding and registered in
the name of Cede & Co., as nominee for DTC. The Company has fixed the close of
business on ________, 1997, as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, the Letter of
Transmittal, the Notice of Guaranteed Delivery and the Isle of Man Information
will be mailed initially.
Holders of Existing Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the Isle of Man or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, including Rule 14e-1
thereunder.
The Issuer shall be deemed to have accepted validly tendered Existing
Notes when, as and if the Issuer has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the Exchange Notes from the Issuer.
If any tendered Existing Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Existing Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Notes
pursuant to the Exchange Offer. The Company has agreed to pay all charges and
expenses in connection with the Exchange Offer. See "--FEES AND EXPENSES" and
"--TRANSFER TAXES."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
___________, 1997 (or longer if required by applicable law).
If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the amendment and
the manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for by the number of days equal to the period between the giving
of such notice to the delivery of a prospectus supplement.
Without limiting the manner in which the Company may choose to make
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
-28-
Holders of Existing Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will be deemed to accrue interest from August 7,
1997 (the date of original issuance of the Existing Notes) or from the date of
the last periodic payment of interest on such Existing Notes, whichever is
later. Interest on the Exchange Notes will be payable semi-annually on each June
30 and December 31, commencing on December 31, 1997.
PROCEDURES FOR TENDERING
Only a Holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, a Holder must either (i)
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed (if required by the Letter of Transmittal) and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Existing Notes and any other required documents, to the Exchange Agent
or (ii) in the case of a book-entry transfer, confirm book-entry transfer of the
Existing Notes into an equal principal amount of Exchange Notes into the
Exchange Agent's account at DTC, in either case prior to 5:00 p.m., New York
City time, on the Expiration Date. To be tendered effectively, the Existing
Notes, Letter of Transmittal and other required documents must be received by
the Exchange Agent at the address set forth below under "--EXCHANGE AGENT" or,
if book-entry transfer is used, electronic instructions with regard to the
Existing Notes, the Letter of Transmittal and all other required documents must
be received by DTC, in each case prior to 5:00 p.m., New York City time, on the
Expiration Date. A Holder of Existing Notes may also tender in the Exchange
Offer by complying with the procedure set forth under "--GUARANTEED DELIVERY
PROCEDURES."
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Existing Notes at DTC for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of the Existing Notes
by causing DTC to transfer such Existing Notes into the Exchange Agent's account
with respect to the Existing Notes in accordance with DTC's procedures for such
transfer.
DTC's Automated Tender Offer Program is the only method of processing
exchange offers through DTC. To accept the Exchange Offer through ATOP,
participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Existing Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of, and
agrees to be bound by, the Letter of Transmittal.
By executing or electronically confirming the Letter of Transmittal,
each Holder will make to the Company the representations set forth below in the
second paragraph under "--RESALE OF EXCHANGE NOTES."
-29-
The tender by a Holder and the acceptance thereof by the Issuer will
constitute agreement between such Holder and the Issuer in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT
IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR EXISTING NOTES
SHOULD BE SENT TO ANY OF THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
below) unless the Existing Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Existing Notes listed therein, such Existing Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Existing
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders not holding through DTC or Cede & Co. who wish to tender their
Existing Notes and (i) whose Existing Notes are not immediately available, (ii)
who cannot deliver their Existing Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer, prior to the Expiration Date, may effect a
tender if:
-30-
(a) the tender is made through an
Eligible Institution;
(b) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address
of the Holder, the certificate number(s) of such Existing Notes and the
principal amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date or the execution of the
Notice of Guaranteed Delivery, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Existing
Notes (or a confirmation of book-entry transfer of such Existing Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility)
and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and
executed Letter of Transmittal (or facsimile thereof), as well as the
certificate(s) representing all tendered Existing Notes in proper form
for transfer (or a confirmation of book-entry transfer of such Existing
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five New York
Stock Exchange trading days after the Expiration Date.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Existing Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal (or a written or electronic ATOP
transmission notice of withdrawal for DTC participants) must be received by the
Exchange Agent at its address set forth herein (or received into the Exchange
Agent's account at DTC) prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn, (iii) be signed or confirmed
by the Holder in the same manner as the original signature on or confirmation of
the Letter of Transmittal by which such Existing Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Existing Notes register the
transfer of such Existing Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Existing Notes are to be
registered, if different from that of the Depositor. If Existing Notes have been
delivered pursuant to the procedures for book-entry transfer described above,
any notice of withdrawal must also specify the name and number of the account at
DTC, and must otherwise comply with DTC's procedures. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Existing Notes so withdrawn are
validly retendered. Any Existing Notes which have been tendered but which are
not accepted for exchange, will be returned to the Holder thereof without cost
to such Holder as soon as
-31-
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Existing Notes may be retendered by following one of
the procedures described above under "--PROCEDURES FOR TENDERING" at any time
prior to the Expiration Date.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance or for
additional copies of this Prospectus, the Letter of Transmittal or the Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
BY REGISTERED OR CERTIFIED MAIL:
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, NY 10276-0844
BY HAND:
United States Trust Company of New York
111 Broadway
Lower Level
Corporate Trust Window
New York, NY 10006
BY OVERNIGHT MAIL OR COURIER:
United States Trust Company of New York
770 Broadway
13th Floor
New York, NY 10003
Attn: Corporate Trust Services
BY FACSIMILE:
United States Trust Company of New York
(212) 420-6152; confirm by telephone (800) 548-6565
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates. No additional compensation
will be paid to any such officers and employees who engage in soliciting
tenders. The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and
-32-
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith and pay other registration
expenses, including fees and expenses of the Trustee, filing fees, blue sky fees
and printing and distribution expenses.
The estimated cash expenses to be incurred in connection with the
Exchange Offer will be paid or reimbursed by the Company and are estimated in
the aggregate to be in excess of
$_______.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Existing Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Existing Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be issued in the name of, any person other than the registered Holder of the
Existing Notes tendered, or if tendered Existing Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of the Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Existing Notes, which is face value, as reflected in the accounting records of
the Company on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Existing Notes
may be offered for resale, resold or otherwise transferred by any Holder of such
Exchange Notes (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holder's business and such Holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any Holder who is an affiliate of the
Company, who acquires the Exchange Notes outside the ordinary course of its
business or who tenders in the Exchange Offer with the intention to participate,
or for the purpose of participating, in a distribution of the Exchange Notes may
not rely on the position of the staff of the Commission enunciated in EXXON
CAPITAL HOLDINGS CORPORATION (available May 13, 1988) and MORGAN STANLEY & CO.
INCORPORATED (available June 5, 1991), or similar no-action letters, but rather
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. In addition,
any such resale transaction should be covered by an effective Registration
Statement containing the selling security holders information required by the
-33-
applicable provisions of Item 507 or 508, as appropriate, of Regulation S-K of
the Securities Act. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Existing Notes, where such Existing Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"PLAN OF DISTRIBUTION."
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "PLAN OF DISTRIBUTION."
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, (ii) the Holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder acknowledges that if it participates in the
Exchange Offer for the purpose of distributing the Exchange Notes (a) it must,
in the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on the no-action letters referenced
above and (b) failure to comply with such requirements in such instance could
result in such Holder incurring liability under the Securities Act for which
such Holder is not indemnified by the Company. Further, by tendering in the
Exchange Offer, each Holder represents to the Company either that it is not an
"affiliate" (as defined under Rule 405 of the Securities Act) of the Company or,
if it may be deemed an "affiliate" of the Company that such Holder understands
and acknowledges that the Exchange Notes may not be offered for resale, resold
or otherwise transferred by that Holder without complying with the applicable
registration and prospectus delivery requirements of the Securities Act. A
Holder who is a broker-dealer must also acknowledge to the Company that it
acquired the Existing Notes as a result of market-making activities or other
trading activities.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company generally
will have fulfilled its obligations under the Registration Rights Agreement, and
Holders of Existing Notes who do not tender their Existing Notes generally will
not have any further registration rights under the Registration Rights Agreement
or otherwise. Accordingly, any Holder of Existing Notes that does not exchange
such Existing Notes for Exchange Notes will continue to hold such Existing Notes
and will be entitled to all the rights, and subject to all the limitations,
applicable thereto under the Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease to have further effectiveness as
a result of the Exchange Offer.
Existing Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective Registration
-34-
Statement under the Securities Act, (iii) so long as the Existing Notes are
eligible for resale pursuant to Rule 144A, to a qualified institutional buyer
within the meaning of Rule 144A under the Securities Act in a transaction
meeting the requirements of Rule 144A, (iv) outside the United States to a
foreign person pursuant to the exemption from the registration requirements of
the Securities Act provided by Regulation S thereunder or (v) pursuant to
another available exemption from the registration requirements of the Securities
Act, in each case in accordance with any applicable securities laws of any state
of the United States.
Because the Exchange Offer is for any and all Existing Notes, the
number of Existing Notes tendered and exchanged in the Exchange Offer will
reduce the principal amount of Existing Notes outstanding. As a result, the
liquidity of any remaining Existing Notes may be substantially reduced.
OTHER
Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Thacher Proffitt & Wood, New York, New
York, as counsel for the Company, has passed upon the legality of the Exchange
Notes. None of the Company, the Owners or any of their respective
representatives is making any representation to any offeree of the Exchange
Notes offered hereby regarding the legality of an investment by such offeree or
purchaser under appropriate legal investment or similar laws (which regulate the
nature and extent of permitted investments in certain securities for certain
institutional investors). Each Holder of the Existing Notes should consult with
its own advisors as to legal, tax, business, financial and related aspects of
participation in the Exchange Offer.
The Company, may in the future seek to acquire untendered Existing
Notes in open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company, has no present plans to acquire any
Existing Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any untendered Existing Notes.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive in exchange Existing Notes in like
principal amount, the form and terms of which are substantially the same as the
form and terms of the Exchange Notes, except as otherwise described herein. The
Existing Notes surrendered in exchange for the Exchange Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of the Company.
-35-
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of Holdings as of June 12, 1997, and as adjusted to give effect
to the Offerings and the Equity Financing and the application of the estimated
net proceeds therefrom. The information presented below should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" included elsewhere herein.
JUNE 12, 1997
-------------
ACTUAL AS ADJUSTED
------ -----------
(in thousands)
Debt:
10 1/2% First Priority Ship Mortgage Notes Due 2007....................... $-- $217,000
12% Second Priority Ship Mortgage Notes Due 2007, net of discount of -- 79,263
$7,737..................................................................
-------- --------
Total debt............................................................ $-- $296,263
-------- --------
Shareholders' equity:
Common Stock, par value $.01 per share (3,000,000 shares authorized; 2 $-- $20
shares issued and outstanding as of June 12, 1997 and 2,000,000 shares
expected to be issued and outstanding as of the Issue Date)(a)..........
Additional paid-in capital--Common Stock(a)................................. 10 30,940
Additional paid-in capital--Warrants........................................ -- 7,737
-------- --------
Total shareholders' equity............................................ 10 38,697
-------- --------
Total capitalization............................................... $10 $334,960
======== ========
- ------
(a) See "Consolidated Balance Sheet."
CONSOLIDATED BALANCE SHEET
The following table sets forth the unaudited consolidated balance sheet
of Holdings as of June 12, 1997, and as adjusted to give effect to the Offerings
and the Equity Financing and the application of the net proceeds therefrom as if
they had accrued on such date:
JUNE 12, 1997
-------------
ACTUAL AS ADJUSTED
------ -----------
(in thousands)
Assets
Current assets:
Restricted cash(a)............................................................ $10 $272,666
Construction in progress:
Vessels under construction.................................................... -- 33,079
Other capitalized costs(b).................................................... -- 13,950
------
Total construction in progress........................................... -- 47,029
------
Pre-paid marketing expenses(c)................................................... -- 2,000
Deferred financing costs(d)...................................................... -- 13,265
-------- --------
Total assets............................................................. $ 10 $334,960
======== ========
Liabilities
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Current liabilities:
Interest payable and other liabilities........................................ $ -- $ --
-------- --------
Long-term liabilities and debt:
Letter of Credit(e)........................................................... -- --
101/2% First Priority Ship Mortgage Notes Due 2007......................... -- 217,000
12% Second Priority Ship Mortgage Notes Due 2007, net of discount of --
$7,737................................................................... 79,263
Total long-term debt..................................................... -- 296,263
-------- --------
Shareholders' Equity
Common Stock, par value $.01 per share (3,000,000 shares authorized; 2 shares --
issued and outstanding as of June 12, 1997 and 2,000,000 shares expected to
be issued and outstanding as of the Issue Date)(f)............................ 20
Additional paid-in capital--Common Stock(f)....................................... 10 30,940
Additional paid-in capital--Warrants(g)........................................... -- 7,737
--------
Total shareholders' equity............................................... 10 38,697
-------- --------
Total liabilities and shareholders' equity......................... $ 10 $334,960
-------- --------
- ------
(a) Restricted cash consists of $225.4 million to be deposited in the
Pre-Funding Account and $47.3 million to be deposited in the Capitalized
Interest Account, which together with interest earned thereon will be used to
pay interest, Purchase Price installment payments, Letter of Credit fees and
Manager's Fees and to purchase Vessel supplies during the pre-delivery period.
(b) The following equity contributions to Holdings under the Equity Financing
will be made in the form of services rendered:
(IN THOUSANDS)
Vessel design.................................................................... $10,000
Technical supervision............................................................ 1,000
TGE Performance Bond............................................................. 650
--------
$11,650
The $10.0 million cost of Vessel design services rendered by Arctic
will be capitalized to the cost of the Vessels on the Original Closing
Date and carried on the accounts of Holdings as an equity contribution.
The $1.0 million cost of technical supervision services rendered by
GEBAB will be capitalized to the cost of the Vessels on the Original
Closing Date and carried on the accounts of Holdings as an equity
contribution. As future technical supervision services are performed,
they will also be capitalized to the cost of the Vessels and carried on
the accounts of Holdings as an equity contribution.
The $650,000 cost to TGE of acquiring the TGE Performance Bond will be
capitalized to the cost of the Vessels on the Issue Date and carried on
the accounts of Holdings as an equity contribution.
In addition, the $2.3 million structuring fee payable to CGTC by the
Company on the Original Closing Date will be capitalized to the cost of
the Vessels. See "PRINCIPAL SHAREHOLDERS--THE EQUITY FINANCING" and
"CERTAIN TRANSACTIONS--SHAREHOLDERS."
(c) Represents $2.0 million of pre-paid marketing services paid by Holdings
on the Original Closing Date to certain shareholders for their services
in developing charter contracts for the Vessels during the pre-delivery
period.
(d) Represents estimates of the Initial Purchasers' discounts and
commissions, as well as estimates of legal, rating agency and other
expenses associated with the Offerings together with initial Letter of
Credit fees payable by the Issuer. Deferred financing costs are to be
amortized on a straight line basis over the ten-year term of the Notes.
(e) Represents the reimbursement obligation in respect of the Letter of
Credit on the Original Closing Date.
(f) Represents the following amounts:
(IN THOUSANDS)
Equity contributions treated as capitalized costs (see note (b) above)........... $11,650
Cash contributions............................................................... 19,300
-37-
--------
$30,950
========
(g) Warrants are to be issued in connection with a unit offering which will
be valued upon a determination of the terms of the Units Offering, and
have not been valued in the table above or elsewhere in this
Prospectus.
-38-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Issuer was formed by Holdings as an Isle of Man public limited
company for the purpose of establishing, owning and financing the Owners. Each
Owner was formed as an Isle of Man private limited company for the purpose of
building and operating one of the Vessels. As of the Original Closing Date,
neither the Issuer nor any of the Owners had any operating history and each had
nominal capitalization.
Holdings has entered into the Building Contracts, the Technical
Supervision Agreement, the Technical Management Agreement and the Commercial
Management Agreement. Holdings has assigned to each Owner the Building Contract
for such Owner's Vessel and has assigned to the Manager the Technical
Supervision Agreement, the Technical Management Agreement and the Commercial
Management Agreement. In addition, each Owner has entered into the Management
Agreement with the Manager.
On or before the Original Closing Date, the Issuer (i) received the
proceeds, net of the Initial Purchasers' discounts and commissions and financial
advisory fees, from the Offerings and lent a portion of such net proceeds to the
Owners on a joint and several basis pursuant to a promissory note, dated the
Original Closing Date (the "Intercompany Note"), (ii) paid certain fees and
expenses in connection with the Offerings, (iii) deposited $225.4 million into
the Pre-Funding Account and $47.3 million into the Capitalized Interest Account
and (iv) entered into the Letter of Credit Reimbursement Agreement.
OPERATIONS
The operations of the Issuer will be limited to (i) owning the Owners,
(ii) receiving payments under the Intercompany Note, (iii) making payments of
interest and principal on the Notes, and (iv) fulfilling its obligations under
the Indentures, the Intercreditor Agreement, the Letter of Credit
Reimbursement Agreement and the Registration Rights Agreement.
Between the Original Closing Date and the Delivery Date of each Vessel,
the operations of each Owner will consist solely of (i) entering into commercial
arrangements in relation to the future operations of the Vessels, (ii) managing
the construction of the Vessels, (iii) making payments of Management Fees, (iv)
paying installments under the Building Contracts, (v) fulfilling its obligations
under the Management Agreement and (vi) fulfilling its obligations under its
Guarantee.
On and after the Delivery Date of each Vessel, the operations of each
Owner will consist solely of (i) operating, maintaining, insuring and using the
Vessel and conducting activities related thereto, (ii) receiving payments under
charters, contracts of affreightment and other contracts relating to the
employment of its Vessel, (iii) receiving proceeds from the sale, if any, of its
Vessel, (iv) making payments of interest and principal on the Intercompany Note
and any other permitted indebtedness, (v) making payments of Management Fees,
(vi) fulfilling its obligations under the Management Agreement and (vii)
fulfilling its obligation under its Guarantee.
-39-
CAPITAL RESOURCES AND LIQUIDITY
Through the Contractual Delivery Date of each Vessel, interest on the
Allocated Principal Amount of the Notes for such Vessel that has not been
accepted by the related Owner will be payable from amounts on deposit in the
Capitalized Interest Account. To the extent the Delivery Date for a Vessel is
delayed, either the Builders will pay liquidated damages which will be deposited
into the Pre-Funding Account or the final installment due under such Building
Contract will be decreased, or both. See "BUSINESS--BUILDING CONTRACTS." In
either event, the amount available in the Pre-Funding Account will be sufficient
to pay interest accrued on the Allocated Principal Amount of the Notes for such
Vessel during the period of delay. After the Delivery Date of a Vessel, each
Owner's sources of funds will be earnings on its Vessel, earnings on Temporary
Cash Investments (as defined) and the proceeds from the sale, if any, of its
Vessel. In addition, the Issuer has obtained a Letter of Credit in a total
amount of $50.0 million of which $45.5 million is available as a liquidity
support, available to fund payments of interest to the Noteholders under certain
circumstances, and $4.5 million of which will be available as a working capital
facility for certain amounts payable by the Owners. Under certain circumstances,
interest on the Second Priority Exchange Notes and the untendered Existing
Second Priority Notes, if any, may be paid through the issuances of additional
Second Priority Exchange Notes. See "DESCRIPTION OF THE EXCHANGE NOTES--TERMS OF
THE EXCHANGE NOTES--SECOND PRIORITY EXCHANGE NOTES." The Company does not have,
nor does it expect to have in the future, any other source of capital for
payment of its debt service obligations under the Notes. See "RISK
FACTORS--LIMITED PURPOSE NATURE OF THE ISSUER, OWNERS AND HOLDINGS."
RESULTS OF OPERATIONS
The Company's results of operations will depend on the earnings from
the Vessels and from Permitted Investments and its level of operating expenses.
-40-
GAS CARRIER INDUSTRY
OVERVIEW
Gas carriers transport three main types of liquified gases: (i)
petrochemical gases such as ethylene, propylene, VCM, butadiene and crude C4,
(ii) LPG products such as ethane, propane and butane and (iii) ammonia.
Petrochemical gases, LPG and ammonia, under normal ambient temperatures, are
found in a gaseous state. In order to reduce their volume and facilitate
handling, these products are liquified for seaborne transportation in gas
carriers.
There are several types of gas carriers which use different techniques
to liquify and transport cargoes, including (i) fully- pressurized vessels that
rely solely upon high pressure to liquify gases, (ii) fully-refrigerated vessels
that have the ability to maintain cargo in a liquified state by cooling gases to
a temperature of -48(degree)C and (iii) semi-refrigerated vessels which employ a
combination of refrigeration and pressurization techniques. Generally, LPG and
ammonia gases are transported in fully-refrigerated vessels ranging in size from
20,000 to 80,000 cbm for long-haul, large volume transportation. Petrochemical
gases are generally carried in semi-refrigerated or fully- pressurized vessels
under 20,000 cbm. A limited number of semi-refrigerated vessels have the
capability of carrying ethylene, which requires cooling temperatures to
- -104(degree)C, and ethane, which requires cooling temperatures to -82(degree)C.
To a lesser extent, these smaller vessels are also used to transport LPG and
ammonia over short-haul routes.
Charter rates and vessel values for gas carriers are influenced by the
supply of and demand for seaborne gas cargo carrying capacity. The demand for
gas carrier capacity is primarily determined by industrial and consumer demand
for petrochemical gases and derivative products and the distance that such gases
must be transported. Industrial and consumer demand for petrochemical gases and
derivative products is, in turn, affected by general economic conditions, trends
in personal consumption and manufacturing, exports and imports and the capacity
of chemical plants, crackers and refineries worldwide. The supply of gas carrier
capacity is a function of the size of the existing fleet, the number of
newbuildings being delivered and the scrapping of older vessels.
SUPPLY OF GAS CARRIERS
EXISTING WORLD GAS CARRIER FLEET
The following table sets forth the composition of the world gas carrier
fleet which includes vessels which transport petrochemical gases, LPG and
ammonia as of June 1997:
-41-
WORLD GAS CARRIER FLEET
EXISTING FLEET NEWBUILDS ON ORDER
-------------- ------------------
% OF
TOTAL % OLDER % OF
AGGREGATE EXISTING AVERAGE AGE THAN 20 AGGREGATE TOTAL EXISTING
SIZE IN CBM VESSELS CBM FLEET(A) IN YEARS YEARS(A) VESSELS CBM FLEET(A)
----------- ------- --- -------- -------- -------- ------- --- --------
0-5,000 563 1,180,218 9.8% 15 24.0% 14 53,100 0.4%
5,001-10,000 100 671,429 5.6 13 15.0 14 85,800 0.7
10,001-25,000 81 1,284,645 10.7 15 31.0 17(b) 334,700(b) 2.8
25,001-50,000 28 942,127 7.8 13 27.0 4 140,000 1.2
50,001-60,000 23 1,265,913 10.5 17 29.0 -- -- --
over 60,000 87 6,676,636 55.5 13 12.0 2 157,000 1.3
----- ------------ -------- ----- ------- ------
Total 882 12,020,968 100.0 51 770,600 6.4
----- ------------ ------- ----- ------- ------
- ------
Source: ViaMar
(a) Measured in cbm.
(b) Includes the Vessels.
0--5,000 CBM. The smallest class of vessels is comprised primarily of
fully-pressurized vessels which carry petrochemical gases and LPG. There are
also some semi-refrigerated vessels in the 2,000--5,000 cbm range including
several 4,000 cbm ethylene-capable carriers. The trading patterns of these
vessels generally consist of short-haul "cross-trading" routes, which include
hauls throughout the Far East, the Mediterranean, northwestern Europe and the
Caribbean.
5,001--10,000 CBM. The vessels in this class are primarily
semi-refrigerated vessels and carry petrochemical gases. There are also some
fully- pressurized vessels in this class. The trading patterns of these vessels
are mainly short cross-trades with some longer hauls. These vessels usually
trade Transatlantic, between the Mediterranean and northern Europe, and between
the Arabian Gulf and Southeast Asia/Far East. The majority of the existing
ethylene carriers are in this size class.
10,001--25,000 CBM. In this class there are both semi-refrigerated and
fully-refrigerated vessels. The majority of vessels under 20,000 cbm are
semi-refrigerated while the majority of vessels over 20,000 cbm are
fully-refrigerated. Petrochemical gases, including ethylene for ethylene-capable
carriers, are the primary cargoes traded on semi-refrigerated vessels. The
semi-refrigerated vessels under 12,500 cbm participate primarily in short-haul
trading while the vessels over 12,500 cbm also operate in the long-haul markets.
LPG and ammonia are the major products traded in the fully-refrigerated vessels,
mostly on long-haul routes.
25,001--50,000 CBM. The vessels in this class are all modern
fully-refrigerated vessels which carry LPG and ammonia on both long-haul and
cross-trade routes, except for one non-ethylene-capable 30,000 cbm
semi-refrigerated vessel.
50,001--60,000 CBM. The vessels in this class are all
fully-refrigerated and transport LPG and ammonia. LPG trading routes include
both long-haul trades between the Arabian Gulf and the Mediterranean and
cross-trades in the North Sea and Europe. Ammonia trading routes are typically
shorter cross-trades.
-42-
LARGER THAN 60,000 CBM. These vessels are fully-refrigerated and carry
LPG on long-hauls worldwide.
EXISTING WORLD ETHYLENE-CAPABLE FLEET
The following table sets forth the current composition of the world
fleet of ethylene-capable carriers, which is a sub-set of the world gas carrier
fleet:
WORLD ETHYLENE-CAPABLE FLEET
EXISTING FLEET NEWBUILDS ON ORDER
-------------- ------------------
% OF
TOTAL % OLDER % OF
AGGREGATE EXISTING AVERAGE AGE THAN 20 AGGREGATE TOTAL EXISTING
SIZE IN CBM VESSELS CBM FLEET(A) IN YEARS YEARS(A) VESSELS CBM FLEET(A)
----------- ------- --- -------- -------- -------- ------- --- --------
0-5,000 40 126,722 24.5% 13.0 25.0% -- -- --%
5,001-10,000 33 236,722 45.8 12.8 9.0 -- -- --
10,001-25,000 14 153,450 29.7 10.4 8.0 7(B) 135,000(B) 26.1
------ ---------- -------- ------- ------------ -------
Total 87 516,894 100.0 7 135,000 26.1
===== ========== ======= ====== ============ =======
- ------
Source: ViaMar
(a) Measured in cbm.
(b) Includes the Vessels.
The seven newbuilds in the world ethylene-capable fleet include the
Vessels as well as two vessels being built by Skibsaksjeselskapet Solvang, which
at 12,500 cbm are each 56.8% of the capacity of one of the Vessels.
Several factors in the gas carrier industry limit supply growth: (i)
the importance of having a sufficient size fleet to engage in efficient
triangular trading; (ii) the operational and technical expertise required to
operate gas carriers; (iii) the limited number of shipyards which have the
expertise required to build gas carriers, which incorporate sophisticated gas
plant systems; and (iv) the strong demand for the construction of less
technically-demanding vessels, such as oil tankers, drybulk carriers and
container carriers, which currently limit shipyard availability.
TRENDS IN PETROCHEMICAL GAS PRODUCTION AND SEABORNE TRADE
World production and seaborne trade of petrochemical gases have shown a
strong and stable growth trend over the past several years, and this trend is
expected to continue. The following table sets forth historical and forecast
production and seaborne trade data for the principal petrochemical gases and
LPG, demonstrating both the rate and stability of global production growth and
the stable percentage of production which is transported by sea. Although the
LPG market is not the primary targeted market, the Company believes that the
projected strong growth in seaborne LPG trading will absorb a significant
portion of overall gas carrier capacity.
-43-
TOTAL WORLD PRODUCTION OF PETROCHEMICAL GASES AND LPG
(TONNES IN THOUSANDS)
YEAR ETHYLENE PROPYLENE BUTADIENE VCM LPG TOTAL
- ---- -------- --------- --------- --- --- -----
1990...................................... 56,121 30,131 6,223 18,325 139,600 250,386
1991...................................... 57,631 31,097 5,962 18,269 144,000 256,959
1992...................................... 60,369 32,792 6,103 19,090 151,500 269,854
1993...................................... 61,836 33,208 5,999 19,549 154,700 275,294
1994...................................... 66,948 37,008 6,188 20,776 161,500 292,420
1995...................................... 70,474 39,468 6,662 21,157 167,200 304,961
1996...................................... 73,131 40,793 6,848 22,283 173,700 316,755
Compound Annual
Growth Rate 1990-1996: 4.5% 5.2% 1.6% 3.3% 3.7% 4.0%
1997...................................... 77,942 43,396 7,210 23,548 179,400 331,496
1998...................................... 82,986 46,109 7,546 25,032 188,400 350,073
1999...................................... 86,161 48,225 7,812 26,162 195,700 364,085
2000...................................... 90,914 51,054 8,089 27,691 203,200 380,948
Forecast Compound Annual
Growth Rate 1997-2000: 5.3% 5.6% 3.9% 5.6% 4.2% 4.7%
- ------
Source: CMAI (other than with respect to LPG)
-44-
SEABORNE TRADE OF PETROCHEMICAL GASES AND LPG
(TONNES IN THOUSANDS)
TOTAL
SEABORNE
TRADE AS A
% OF TOTAL
YEAR ETHYLENE PROPYLENE BUTADIENE VCM LPG TOTAL PRODUCTION
- ---- -------- --------- --------- --- --- ----- ----------
1990....................................... 1,997 1,547 555 1,002 31,506 36,607 14.6%
1991....................................... 2,138 1,752 554 1,300 32,094 37,848 14.7
1992....................................... 1,998 1,831 662 1,285 34,474 40,250 14.9
1993....................................... 2,183 1,839 654 1,410 35,953 42,039 15.3
1994....................................... 2,683 1,859 666 1,465 38,008 44,681 15.3
1995....................................... 2,609 1,902 662 1,400 39,439 46,012 15.1
1996....................................... 2,483 1,820 628 1,072 42,140 48,143 15.2
Compound Annual 3.7% 2.8% 2.1% 1.1% 5.0% 4.7%
Growth Rate 1990-1996:
1997....................................... 2,562 1,857 634 1,210 44,718 50,981 15.4
1998....................................... 2,663 1,995 606 1,246 48,272 54,782 15.6
1999....................................... 2,982 2,133 578 1,242 50,542 57,477 15.8
2000....................................... 2,855 2,271 550 1,238 51,191 58,105 15.3
Forecast Compound Annual Growth Rate
1997-2000: 3.7% 6.9% NM 0.8% 4.6% 4.5%
- ------
Source: ViaMar
DEMAND FOR GAS CARRIERS
The transportation of petrochemical gases is a rapidly-developing
market fueled by industrial and consumer demand for products derived from
petrochemical gases and the planned new construction and expansion of existing
petrochemical production facilities worldwide. The petrochemical gases and LPG
described below are used in many products, including plastics, synthetic-based
products, chemicals and rubber, and as feedstocks.
CARGOES AND TRADING PATTERNS
The following is a brief description of the principal targeted cargoes
and their trading patterns:
ETHYLENE. Ethylene is derived from the cracking of petroleum
feedstocks. It is the key building block in the production of a wide range of
materials used in industrial and consumer items including plastics, polyester
fibers and resins, large-volume thermoplastic resins, organic chemicals, kitchen
equipment, anti-freeze and various products used in insulation and packing.
Seventy percent of global ethylene production is used in the production of
various plastics and automobile parts and the balance is used in the production
of antifreeze, resins and fibers. Worldwide seaborne trade of ethylene rose at a
compound annual growth rate of 3.7% from 2.0 million tonnes in 1990 to 2.5
million tonnes in 1996. Historically, the exporting regions of ethylene have
been the Middle East, Europe and Latin America. The growth in imports of
ethylene over this period was driven primarily by economic development in India,
which resulted in an increase in ethylene imports from 0 tonnes
-45-
to 397,000 tonnes. European exports rose by 195,000 tonnes during this time
period. In the next five years India, recently an importer of ethylene, is
expected to become a producer of ethylene, along with Malaysia, Thailand and
Singapore while the Mediterranean region and China are anticipated to increase
their imports. By the beginning of the next decade, world ethylene capacity is
expected to exceed 100.0 million tonnes, representing a 7.4% compound annual
growth rate over the estimated 1996 capacity of 81.0 million tonnes. World
ethylene demand is expected to grow at a similar rate during this period.
PROPYLENE. Propylene is produced as a by-product in the making of
ethylene and gasoline and is utilized in the production of consumer goods such
as car components, carpets, plastic pipes and household articles for which there
is typically strong demand in fast-growing economies. Polypropylene, a
derivative of propylene, accounts for 52.0% of propylene usage and is used as a
feedstock for plastics. Propylene is also used in the manufacture of acrylic
fiber, styrofoam, pharmaceuticals, cumene and glue. Between 1990 and 1996,
worldwide seaborne trade in propylene increased at a compound annual growth rate
of 2.8% from 1.5 to 1.8 million tonnes. The Far East showed the most significant
increase in imports during this time period, from 121,000 tonnes in 1990 to
355,000 tonnes in 1996, with exports serviced principally from the United States
and Europe. In the future, Middle Eastern exports are expected to increase as
new production facilities are introduced in the region. Imports of propylene,
especially by the growing Far Eastern plastic industry, should ensure continued
growth of the seaborne trade.
VINYL CHLORIDE MONOMER (VCM). VCM is produced by the cracking of
ethylene dichloride and requires the input of chloride and ethylene. VCM is
primarily used in the manufacturing of PVC articles. Major end-user markets
include residential construction and irrigation systems. The manufacture of PVC
piping accounts for 35.0% of the VCM produced. The balance of VCM production is
used in the manufacture of such items as window frames and wire and cable. The
United States is the primary exporter of VCM and Southeast Asia and Latin
America are the principal importers. VCM exports from the United States are
expected to increase and the Far East is expected to become a larger importer.
BUTADIENE. Butadiene is produced in the cracking of ethylene. Butadiene
is primarily used in the making of plastic products for building construction
and rubber for the automobile manufacturing industry. Rubber accounts for 80.0%
of butadiene consumption. South Korea and Europe have traditionally been large
exporters of butadiene, while the United States and the Far East have
traditionally been the largest importers. Far Eastern exports of butadiene are
expected to decrease as domestic demand grows. Worldwide seaborne trade of
butadiene rose at a compound annual growth rate of 2.1% from 555,000 tonnes in
1990 to 628,000 tonnes in 1996. North America was the primary importer of
butadiene accounting for 258,000 tonnes in 1996. Exports from Europe are
expected to be maintained in the future, but are unlikely to increase
significantly. Inter-Latin American butadiene trade is expected to increase.
LIQUIFIED PETROLEUM GAS (LPG). LPG is produced as a by-product either
from the production of natural gas or refining of crude oil. The primary uses of
LPG are as fuel for transportation, residential and commercial heating, and as a
feedstock for the production of petrochemicals. LPG is produced primarily in the
North Sea, as a result of natural gas production, and the Middle East, as a
refining by-product. Exports of LPG are expected to grow significantly over the
next several
-46-
years. Japan is the world's single largest importer of LPG. Europe and the
United States are expected to see increased imports of LPG. The seaborne trade
of LPG was 42.1 million tonnes in 1996, which represents 5.0% compound annual
growth from 1990. The North Pacific (including Japan) imported 18.7 million
tonnes of LPG in 1996, while Europe and the Middle East were the largest
exporters of LPG during the period, transporting 9.8 million tonnes in 1996. The
Company views the transportation of ethane, a feedstock for petrochemical
products that requires cooling to -82(degree)C for liquification, as an emerging
opportunity for the Vessels.
PLANNED NEW CONSTRUCTION AND EXPANSION OF PETROCHEMICAL PRODUCTION
FACILITIES
Petrochemical gases are used in the production of a vast array of
chemicals and new production technologies are allowing plastic to displace
metal, cotton, wood and other materials in an increasing number of end-user
products. As a result, the use of petrochemical gases is expanding worldwide.
The following table summarizes the expected new construction and expansion of
petrochemical production facilities over the period from 1997 to 2001:
NEW PETROCHEMICAL PRODUCTION CAPACITY(A)
BY REGION FOR THE PERIOD 1997-2001
(TONNES IN THOUSANDS)
REGION ETHYLENE PROPYLENE VCM BUTADIENE
- ------ -------- --------- --- ---------
Western Europe........................................................ 1,850 200 230 --
Eastern Europe........................................................ 600 -- -- --
Latin America......................................................... 2,230 132 260 --
North America......................................................... 6,100 1,510 1,250 640
Middle East........................................................... 3,510 275 200 --
Asia/Pacific.......................................................... 15,747 8,400 3,270 415
--------- -------- ------- --------
Total Capacity Additions.............................................. 30,037 10,517 5,210 1,055
========= ======= ======= =======
Existing Capacity..................................................... 81,000 47,845 25,465 8,581
Capacity Additions as % of Existing Capacity.......................... 37.1% 22.0% 20.5% 12.3%
- -----
Source: ViaMar
(a) New production capacity is compiled from announced firm and planned
projects, as well as projects in the study phase, and includes both the
construction of new plants and the expansion of existing facilities.
NEW PETROCHEMICAL PRODUCTION CAPACITY(A)
FOR YEARS 1997-2001
(TONNES IN THOUSANDS)
YEAR ETHYLENE PROPYLENE VCM BUTADIENE
- ---- -------- --------- --- ---------
1997........................................................ 5,087 1,770 1,300 --
1998........................................................ 4,620 1,407 2,890 215
1999........................................................ 5,125 2,375 130 65
2000........................................................ 12,095 1,970 890 50
2001........................................................ 3,110 2,995 -- 725
--------- --------- --------- --------
Total Capacity Additions.................................... 30,037 10,517 5,210 1,055
======== ======== ======== =======
Existing Capacity........................................... 81,000 47,845 25,465 8,581
Capacity Additions as % of Existing Capacity................ 37.1% 22.0% 20.5% 12.3%
- ------
Source: ViaMar
(a) New production capacity is compiled from announced firm and planned
projects, as well as projects in the study phase and includes both the
construction of new plants and the expansion of existing facilities.
-47-
Since the seaborne trade of petrochemical gases began in the early
1980's, terminal storage facilities have grown steadily, providing access to
larger, more efficient vessels with increased economies of scale. For example,
the first generation of ethylene terminals had a storage capacity of
8,000-15,000 cbm. By the late 1980's the maximum storage capacity had reached
30,000 cbm. New production facilities are currently planned and under
construction with storage capabilities of up to 60,000 cbm. The Company believes
that this trend will support the transport of larger parcels of petrochemical
gases resulting in greater demand for the Vessels.
THE CHARTER MARKET
THE CHARTERING PROCESS
The chartering of vessels for a specified period of time or to carry a
specific cargo is an integral part of the market for seaborne transportation of
liquified gases. The charter market, consisting of a worldwide network of
brokers specializing in the gas industry, is well established and efficient. The
chartering process begins when a producer, user or trader of petrochemical gases
identifies the need to transport a cargo or cargoes from one port to another.
The charterer typically contacts a broker or group of brokers to determine the
availability of suitable vessels to transport the specified cargo. The charterer
then chooses from an array of available vessels and seeks to negotiate the most
favorable economic terms for its transportation requirements. Typically, the
agreed terms are based on standard industry charterparties prepared to
streamline the negotiation and documentation processes.
TYPES OF CHARTERS
Charters may be arranged on a spot basis for the immediate hiring of a
vessel, usually for a single voyage, or through longer term arrangements, such
as contracts of affreightment and time or bareboat charters. Contracts of
affreightment are agreements by vessel owners to transport a specified cargo on
a specified route on a regular basis. Contracts of affreightment function as a
long-term series of spot charters, except that the owner is not required to use
a specific vessel to transport the cargo, but instead may use any vessel in its
fleet. Contracts of affreightment benefit vessel owners by providing a
guaranteed level of employment over a standard trading route. An owner with an
efficient fleet configuration can schedule its vessels in a triangular trading
pattern in order to minimize ballast trips and idle time, thereby achieving high
capacity utilization and enhancing revenues.
A time charter is a contract for the hire of a vessel for a certain
period of time, with the vessel owner being responsible for providing the crew
and paying operating costs, while the charterer is responsible for fuel and
other voyage costs. As with a time charter, a bareboat charter is a contract to
hire a vessel for a period of time with the exception that under a bareboat
charter the charterer is responsible for operating the vessel and pays all
associated operating costs of the vessel during the charter.
-48-
COMPARISON TO OTHER SHIPPING MARKETS
Unlike other shipping markets, such as the crude oil tanker market,
producers, users and traders of petrochemical gases generally do not own or
charter on a long-term basis their own fleet of vessels to transport their
cargoes. Instead, cargo owners rely on a small group of large vessel operators
to provide all freight services. This market structure provides cargo owners
with the flexibility to respond quickly and efficiently to changes in trading
patterns, while providing vessel owners with limited competition from captive
fleets.
INDUSTRY PARTICIPANTS
The number of participants involved in the seaborne trade of
petrochemical gases is small and consists of few large and experienced
operators. There are currently two significant participants in the ethylene
carrier segment with vessels over 10,000 cbm. The largest owner is Sig. Bergesen
ASA ("Bergesen"). Bergesen controls the Igloo Pool (a cooperative marketing
venture among several owners) of 16 vessels ranging in size from 8,000 cbm to
12,000 cbm, most of which were built in the 1980's. Exmar NV has a small fleet
of three 10,500 cbm ethylene-capable vessels.
In the semi-refrigerated, non-ethylene carrier market, Handygas,
controlled by Bergesen, and A.P. M0ller are the major participants. Handygas has
a fleet of 10 semi-refrigerated vessels, the majority of which were built in the
1970's. The average size of these vessels is 12,000 cbm. M0ller's fleet of 12
semi-refrigerated vessels is newer and ranges in size from 15,000 cbm to 20,000
cbm.
-49-
BUSINESS
GENERAL
The Company was formed in 1997 for the purpose of building and
operating a fleet of five state-of-the-art 22,000 cbm semi-refrigerated
ethylene-capable gas carriers. The Vessels are designed to transport the entire
range of petrochemical gases, including ethylene, propylene, VCM, butadiene and
crude C4, as well as LPG, such as ethane, propane and butane. There are no
ethylene-capable semi-refrigerated gas carriers currently operating or under
construction that will be larger than the Vessels. Each Vessel will have four
separate gas cargo tanks, segregated pumping and piping systems and a separate
deck tank, allowing each Vessel to carry up to three separate cargoes
simultaneously.
Upon their construction, the Vessels will be among the most versatile
gas carriers in the world in terms of cargo options, ease and speed of loading
and discharging cargoes and adaptability for route scheduling. The foregoing
capabilities will permit the Company to minimize operating costs, reduce voyage
times and maximize vessel utilization. In addition, the Vessels' larger cargo
capacities, compared to the existing ethylene-capable fleet, offer significant
economies of scale, especially for long-haul transport.
BUSINESS STRATEGY
The Company's business strategy is to take advantage of the strong
demand for seaborne transportation of petrochemical gases and LPG resulting from
the worldwide expansion in the production, use and trade of petroleum
by-products. The Company's fleet will supply transportation services to existing
customers of certain of the Shareholders of Holdings including major oil,
chemical and trading companies. The key elements of this strategy include:
INTEGRATED CHARTERING STRATEGY. Charterers of gas carriers rely on
short and long-term contracts of affreightment and, to a lesser extent, time and
spot charters, allowing them to respond quickly and efficiently to the changing
trading patterns of the petrochemical gas market. The Company intends to take
advantage of these market dynamics by building a portfolio of contracts of
affreightment with major customers. Such contracts are expected to be from three
to five years in length and would provide the Vessels with a high level of
continuous employment. The Company also intends to use the spot market and, to a
lesser extent, time charters of the Vessels to achieve maximum capacity
utilization and minimize ballast trips and idle time. This strategy will be
implemented by MarLink, the commercial manager of the Vessels. MarLink is a
leading commercial manager of vessels in the petrochemical gas market.
The Manager is currently negotiating contracts of affreightment for the
employment of the Vessels in the ethylene and propylene trades. One contract
would guarantee a minimum of 10 voyages and a maximum of 20 voyages per annum
for a full cargo of propylene from the Americas to the Mediterranean region. The
second contract would ensure a minimum of 18 voyages and a maximum of 28 voyages
per annum for a full cargo of ethylene from various loading ports to the
Mediterranean region. Each contract would be for a five-year period with freight
rates for each voyage to be based on market rates. If consummated, these
contracts could provide a base-load of
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continuous employment for the Vessels during the terms thereof. However, there
can be no assurance that these contracts will be entered into.
MAXIMIZE ETHYLENE BUSINESS. Historically, ethylene has generally
achieved an approximate 10-15% premium over charter rates for other
petrochemical gas cargoes. As ethylene frequently trades along the same routes
as other petrochemical gases, the Vessels' multiple tank configuration should
enable the Company to maximize the proportion of its freight mix accounted for
by ethylene, without sacrificing cargo capacity utilization or route efficiency.
Based on historical trends, as well as the increasing size of production
facilities, the Company also believes that the average size of ethylene freights
will increase, thereby enhancing the competitiveness of the Vessels.
BUILD VERSATILE VESSELS WITH MULTI-CARGO CAPABILITY. The Vessels will
be among the most versatile petrochemical gas carriers in the world given their
ability to carry the full range of petrochemical gases and transport up to three
segregated cargoes simultaneously. The Company believes that these larger,
multiple-tank vessels will provide a competitive advantage over other operators
in the petrochemical gas freight market. In addition, the Vessels will offer
improved operating efficiencies due to their higher speed and shorter loading
and discharge times as compared to many less sophisticated vessels. The Company
has chosen the Builders because of their previous experience in the building of
gas carriers with TGE, a leading engineering firm in the production of gas
plants. See "BUSINESS -- THE VESSELS" and "--THE BUILDERS AND TGE."
MAXIMIZE VESSEL UTILIZATION. The Company believes that its fleet size
of five Vessels, each with four tanks and the ability to carry up to three fully
segregated cargoes, will allow it to adopt triangular trade patterns which
minimize ballast trips. In addition, the Vessels' ability to carry up to three
cargoes simultaneously will give the Company the potential to service up to 15
charterers at any one time. The Company believes that the size of the Vessels
will also be attractive to charterers with substantial long-haul transport
requirements. The Company's fleet size and configuration will provide the
operational flexibility necessary to meet the logistical demands of managing
complex trading patterns.
THE VESSELS
The Vessels will be state-of-the-art gas carriers. The Company believes
that the size and configuration of the Vessels, as well as the features
incorporated therein, will make them more attractive to charterers than other
vessels. As a result, the Company expects the Vessels to realize
higher-than-average levels of utilization in the transport of high value
petrochemical gas cargoes as compared to other gas carriers, significantly
enhancing the earnings potential of each Vessel.
The Vessels will be semi-refrigerated, combining refrigeration and
pressurization to maintain their cargoes in a liquified state. This will allow
the Vessels to load products at varying temperatures from different terminals.
In addition to pre-cooled cargoes, the Vessels will have the ability to load
cargoes that cannot maintain their required liquid temperatures prior to
loading, due to distances traveled by pipeline from production facilities to
vessels, by accepting these cargoes under pressure and cooling them onboard the
Vessels during the voyage. The load time of these cargoes is thereby reduced
since the cargoes do not need to be cooled prior to loading. Unlike
semi-refrigerated vessels, fully-refrigerated vessels are only able to load
cargoes in a cooled state, requiring those vessels to
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cool products prior to loading. This requirement slows product loading and
limits the number of terminals which can be efficiently serviced by such
vessels.
The nitrogen generator and deck tank on each of the Vessels will allow
it to prepare its tanks for the next cargo while en route to the next load port.
This will result in time savings of as much as three days on some voyages, as
tank preparation would otherwise have to be carried out in port. These features
provide a significant benefit to charterers and terminal operators by improving
their terminal utilization. The 22,000 cbm carrying capacity of the Vessels will
also be beneficial to charterers and terminal operators by reducing the number
of loading and discharging operations, the duration of such operations and the
associated costs.
The Vessels will sail under the Liberian flag, with a certification
from the Classification Society. The crew for each Vessel will be trained in
accordance with the highest standards. Each crew will consist of 6 to 7 officers
and 12 to 13 seamen. Upon delivery, each Vessel, including its machinery,
equipment and outfitting, is required to be classed with the Classification
Society and shall be distinguished in the record by the symbol of +100 A5 E
"Liquified Gas Carrier Type 2G" +MC E, AUT INERT. In order for a Vessel to be
accepted by the Owner, it is required to comply with the laws, rules,
regulations, recommendations and requirements as set out in the specifications
attached to the related Building Contract (the "Specifications").
VESSEL OWNER, REGISTRATION AND CONTRACTUAL DELIVERY DATE
HULL CONTRACTUAL
NUMBER OWNER REGISTRATION DELIVERY DATE
------ ----- ------------ -------------
Vessel 1........... 2245 Navigator Gas (IOM I-A) Limited Liberia August 1, 1999
Vessel 2........... 2246 Navigator Gas (IOM I-B) Limited Liberia November 1, 1999
Vessel 3........... 2247 Navigator Gas (IOM I-C) Limited Liberia March 1, 2000
Vessel 4........... 2248 Navigator Gas (IOM I-D) Limited Liberia June 1, 2000
Vessel 5........... 2249 Navigator Gas (IOM I-E) Limited Liberia September 1, 2000
VESSEL TECHNICAL INFORMATION
(ALL VESSELS)
Length (meters)....................................... 171.5
Breadth (meters)...................................... 24.2
Maximum Draft (meters)................................ 10.9
Maximum Deadweight (tonnes)........................... 22,800
Speed (knots)......................................... 16.5
Cargo Tank Volume (cbm)............................... 22,000
Range (nautical miles)................................ 15,000
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CONSTRUCTION PERIOD
The Manager, as agent of CGTC, has agreed to oversee the construction
of the Vessels.
TECHNICAL SUPERVISION AGREEMENT
The Owners have engaged GEBAB to supervise the construction of the
Vessels during the pre-delivery period. GEBAB, the Manager on behalf of the
Owners and the Builders are parties to an Agreement on Contract for Technical
Matters (the "Technical Supervision Agreement"), dated as of February 28, 1997,
pursuant to which each Owner has appointed GEBAB to act as such Owner's
technical representative with respect to technical matters related to the
construction of its Vessel. GEBAB intends to assign by novation its
responsibilities under the Technical Supervision Agreement to its affiliate,
Martime. GEBAB, in coordination with the Classification Society, will monitor
the construction of each Vessel.
Pursuant to the Technical Supervision Agreement, Martime will, among
other things, examine all hull and engineering plans submitted by the Builders
to ensure that they comply with the terms of the Building Contracts, monitor the
construction of the Vessels to ensure compliance with the terms of the Building
Contracts and the requirements of the Classification Society, render monthly
progress reports, advise the Owners of any modifications or improvements which
may enhance the Vessels or reduce operating costs and oversee any work performed
in drydock prior to the delivery of each Vessel.
THE BUILDERS AND TGE
Located in Shanghai, Jiangnan was founded in 1865 and is a modern,
fully-equipped shipyard that is among the largest shipyards under the
supervision and control of China State Shipbuilding Corporation, which also
controls CSTC, its trading and export subsidiary. Jiangnan designs, builds,
repairs and converts many kinds of vessels including gas carriers. It also
designs, manufactures and erects various specialized machinery and electrical
equipment, non-standardized equipment, pressure vessels, port machinery and
steel structures in accordance with the regulations and requirements of the
world's major classification societies and shipping and building safety
treaties.
China's first generation of submarines and the first self-designed
10,000 dwt ocean-going ship were built by Jiangnan in the 1950's and 1960's,
respectively. A fleet of oceanographic and scientific survey vessels was built
in the 1970's to support the launching of a rocket and man-made satellite in
China. Since 1980 many vessels built by Jiangnan have entered the international
market, including various types of merchant ship cargo vessels and LPG vessels
built for companies located in Germany, the United States, Italy, Norway,
Singapore, Hong Kong and other countries. Some of Jiangnan's recent export
clients include Mitsubishi Corporation, Neptune Orient Lines Ltd., World Wide
Shipping Agency Ltd., Lasco Shipping Co., Canada Steamship Lines and B. Skaugen
Shipping AS.
Jiangnan has previous experience with TGE and is currently completing
the construction of two 16,500 cbm LPG/ammonia gas carriers for Bernard Schulte
GmbH, a large German shipowner. Jiangnan has also built the following types of
vessels and major components: 4,200 cbm
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semi-refrigerated ethylene carriers; 3,000 cbm fully-pressurized LPG carrier;
floating production storage units; 68,500 dwt panamax oil tankers;
65,000/70,000/73,000 dwt panamax bulk carriers; 50,000 dwt open-hatch bulk
carriers; 28,000/34,000 dwt lakes-fitted bulk carriers; 20,000 dwt bulk
carriers; 4,000 roll-on/roll-off car carriers and UT714 anchor
handling-tug-supply vessels. Jiangnan is also currently constructing other
sophisticated types of vessels including a 70,800 dwt self-unloader, a 1,021 TEU
fast-speed feeder and a 13,700 dwt chemical carrier.
TGE is an indirect subsidiary of Tractebel, S.A., a major Belgian
public company engaged in the utility and engineering industries. TGE is a world
leader in the engineering, design and construction of gas storage and
transportation plants and equipment. In addition, it manufactures port
facilities for the off-loading and receiving of liquified gases, gas
liquification and handling systems, chemical and gas plants for installation on
carriers, storage facilities for liquified gases and chemicals, gas bottling
plants, gas terminals and metering stations, vaporization, transmission lines
and compressor stations and package plants for recovery of products from
associated gases. TGE is a leading provider of turnkey operations. TGE will
design the complex gas plants utilized on the Vessels. TGE will also supervise
the construction and erection of the Vessels' gas plants through its permanent
office in Shanghai. Since 1980, TGE has been involved in the installation of gas
plants for 36 gas carriers, 18 of which are ethylene-capable. TGE will act as a
subcontractor to Jiangnan under each Building Contract and as such will be
responsible for supplying materials for construction of the gas plant and
supervising its installation.
Jiangnan and TGE have worked together on the construction of the
following gas carriers and components:
JIANGNAN SHIPYARD AND TGE
JOINT GAS CARRIER/COMPONENT BUILDING EXPERIENCE
CAPACITY VESSEL TYPE Year Ethylene-
(CBM) DELIVERED CAPABLE
----- --------- -------
3,000 Fully-Pressurized 1990 No
4,200 Semi-Refrigerated 1992 Yes
4,200 Semi-Refrigerated 1993 Yes
3,750 Gas Tank(a) 1995 No
4,200 Gas Tank(a) 1996 No
4,200 Gas Tank(a) 1996 No
16,500 Semi-Refrigerated 1997(b) No
16,500 Semi-Refrigerated 1998(b) No
- --------------------
(a) Tanks built by Jiangnan and delivered to Shanghai Edward Shipbuilding,
China for installation in vessel construction at Shanghai Edward
shipyard.
(b) Scheduled delivery date.
BUILDING CONTRACTS
SPECIFICATIONS
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Each Vessel will be constructed pursuant to the terms and
specifications of the Building Contracts. See "--THE VESSELS."
CONTRACTUAL DELIVERY DATE
The Contractual Delivery Dates of the Vessels will be staggered as
follows:
Vessel 1 -- August 1, 1999
Vessel 2 -- November 1, 1999
Vessel 3 -- March 1, 2000
Vessel 4 -- June 1, 2000
Vessel 5 -- September 1, 2000
PROVIDED, that if a change in the rules or regulations of the Classification
Society causes a period of delay of up to 12 days in the delivery of a Vessel,
the Contractual Delivery Date will be extended
by such period.
PURCHASE PRICE
The Purchase Price for each Vessel will be approximately $50.0 million.
The following table sets forth the scheduled amounts and timing of the payments
to the Builders under the Building Contracts, except that the Builders have
directed the Owners to make the payment due on September
1, 1997 directly to TGE and such payment has been made.
DATE VESSEL 1 VESSEL 2 VESSEL 3 VESSEL 4 VESSEL 5 TOTAL(C)
- ---- -------- -------- -------- -------- -------- --------
(in millions)
Issue Date............................ $6.6 $6.6 $6.6 $6.6 $6.6 $33.1
Sept. 1, 1997......................... 2.4 2.4 2.4 2.4 2.4 12.2
Feb. 1, 1998.......................... 6.8 -- -- -- -- 6.8
July 1, 1998......................... -- 6.8 -- -- -- 6.8
Nov. 1, 1998.......................... 6.8 -- 6.8 -- -- 13.7
Feb. 1, 1999......................... -- -- -- 6.8 -- 6.8
Mar. 1, 1999.......................... 4.6 -- -- -- -- 4.6
Apr. 1, 1999.......................... -- 6.8 -- -- -- 6.8
June 1, 1999.......................... -- -- -- -- 6.8 6.8
July 1, 1999.......................... -- -- 6.8 -- -- 6.8
Aug. 1, 1999.......................... 22.8(a) 4.6(b) -- -- -- 27.3
Oct. 1, 1999.......................... -- -- -- 6.8 -- 6.8
Nov. 1, 1999.......................... -- 22.8(a) 4.6(b) -- -- 27.3
Feb. 1, 2000.......................... -- -- -- -- 6.8 6.8
Mar. 1, 2000.......................... -- -- 22.8(a) 4.6(b) -- 27.3
June 1, 2000.......................... -- -- -- 22.8(a) 4.6(b) 27.3
Sept. 1, 2000......................... -- -- -- -- 22.8(A) 22.8
----- ----- ----- ----- ----- ------
Total(c)........................ $50.0 $50.0 $50.0 $50.0 $50.0 $250.1
===== ===== ===== ===== ===== ======
- ------
(a) Assuming delivery of the Vessel occurs on its Contractual Delivery
Date.
(b) This payment shall be payable to the Builders with respect to a Vessel
only if and when Collateral Agent has received evidence of delivery
pursuant to the Building Contract with respect to each other Vessel
having a Contractual Delivery Date prior to the Contractual Delivery
Date of such Vessel.
(c) May not total due to rounding.
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Each Building Contract provides for upward and downward adjustments to
the Purchase Price of a Vessel, which adjustments are made through increases or
decreases in the final installment of the Purchase Price. The Purchase Price of
a Vessel may be increased by $13,000 per day for each day that such Vessel is
delivered earlier than its Contractual Delivery Date. In addition, in the event
of certain delays in the delivery of such Vessel or the failure of such Vessel
to comply with certain specifications, the Builders are required to pay
liquidated damages to its Owner.
Under each Building Contract, the Builders may postpone the delivery of
a Vessel to a certain number of days beyond its Contractual Delivery Date
without incurring liability for liquidated damages (the "Permissible Delay
Period"). The Permissible Delay Period for each of the Vessels is as follows:
(i) 60 days for Vessel 1, (ii) 45 days for Vessel 2 and (iii) 30 days for each
of Vessels 3, 4 and 5. The aggregate Permissible Delay Period for all five
Vessels, however, is limited to 150 days. Therefore, for example, if the
Builders utilize the full Permissible Delay Period for each of Vessels 1, 2 and
3, then an aggregate Permissible Delay Period of 15 days is available for the
remaining Vessels before the Builders are required to pay liquidated damages to
the respective Owner of Vessels 4 or 5, or both.
During the period of delay following the Permissible Delay Period up to
and including 210 days beyond the Contractual Delivery Date of a Vessel (the
"First Delay Period"), the Builders must pay liquidated damages to the related
Owner in the form of a reduction in the final installment of the Purchase Price
of such Vessel in an amount equal to $11,000 per day for the first 90 days of
delay beyond the Extended Delivery Date and $14,500 per day for each day of
delay thereafter.
The Builders have the option to extend the Delivery Date of a Vessel
beyond the First Delay Period until March 31, 2001 (the "Second Delay Period")
by paying liquidated damages monthly in advance at a rate of $18,000 per day for
the first six-month period, $20,000 per day for the second six-month period and
$22,000 per day thereafter up to and including March 31, 2001, which liquidated
damages are expected to be sufficient to pay the interest on the Allocated
Principal Amount of the Notes for such Vessel. In the event the Builders fail to
make timely payment of such liquidated damages, the Owner may (i) waive its
right to such payment and elect instead to receive a further reduction in the
final installment of the Purchase Price (in addition to any such reduction
during the First Delay Period) equal to the amount of the liquidated damages
waived or (ii) rescind the related Building Contract and demand payment of the
Refund Amount. An Owner's waiver of the advance payment of liquidated damages
for any given month will not constitute a waiver by the Owner of its right to
demand the payment at any later date of such liquidated damages or to demand the
advance payment of monthly liquidated damages for any subsequent months of
delay.
The Purchase Price of a Vessel may also be reduced, as a result of
liquidated damages payable by the Builders, because of the Builders' failure to
construct such Vessel in compliance with specifications relating to guaranteed
speed, fuel consumption, deadweight and cargo tank
capacity.
RESCISSION AND TERMINATION OF THE BUILDING CONTRACTS
An Owner may rescind a Building Contract upon the occurrence of certain
events of default by the Builders, which arise from the non-delivery of a Vessel
or the failure of a Vessel to meet minimum requirements relating to speed, fuel
consumption, deadweight and cargo tank capacity. The
-56-
events of default relating to non-delivery of a Vessel are (i) the failure by
the Builders to make payments of liquidated damages monthly in advance during
the Second Delay Period and the Owner does not waive its right to receive the
payment of such liquidated damages and (ii) the failure to deliver the Vessel by
March 31, 2001. The Owner may also rescind a Building Contract if any of the
following deficiencies exists with respect to a Vessel: (i) its speed is one
knot or more below the guaranteed speed of 16.5 knots; (ii) its fuel consumption
is 8.0% or greater than the guaranteed fuel consumption set forth in the
Specifications; (iii) its deadweight is more than 800 tonnes below the
guaranteed deadweight of 22,800 tonnes; and (iv) its cargo tank capacity is more
than 400 cbm below the guaranteed cargo tank capacity of 22,000 cbm.
In addition, a Building Contract will be automatically terminated if,
prior to the Delivery Date, (A)(i) a Vessel is seized by the Chinese government,
(ii) the Builders fail to obtain the necessary licenses, permits and other
authorizations from the Chinese government for the construction, delivery and
export from China of such Vessel or (iii) a total loss occurs with respect to a
Vessel and (B) the Builders do not elect to continue performing under such
Building Contract.
Under the cross-default provisions of the Building Contracts, in the
event a Building Contract is rescinded by an Owner or automatically terminated,
the other Owners that have not accepted delivery of their Vessel will be deemed
to have also rescinded their respective Building
Contracts.
MANDATORY REDEMPTION OF THE NOTES AND THE REFUND AMOUNT
In the event a Building Contract is rescinded or automatically
terminated, the Issuer is required, under the terms of the Indentures, to redeem
the Allocated Principal Amount of the Notes for the relevant Vessel and the
Builders must, under such Building Contract, pay the Owner a scheduled amount
(the "Refund Amount"). The Refund Amount together with the amounts held in the
Pre-Funding Account and the Capitalized Interest Account with respect to such
Building Contract are expected to be sufficient to pay the Rescission Amount
calculated as of the date on which the Notes are scheduled for redemption.
The Refund Amount is due and payable upon the delivery by an Owner to
the Builders of its notice of rescission of a Building Contract or upon the
automatic termination of the Building Contract, as the case may be. If the
Builders delay the payment of the Refund Amount, interest (the "Refund
Interest") will accrue on the Refund Amount at a rate of 10% per annum for each
day of delay from and including the date on which the Owner's notice of
rescission is delivered or on which the Building Contract is automatically
terminated, as the case may be, until but not including the date on which
Builder makes payment in full of the Refund Amount plus any Refund Interest.
GAS TRIALS
Prior to the Delivery Date, the Vessel's gas plant will be mechanically
completed by the Builders and a running test of the equipment of the gas plant
and a function test of its system utilizing either inert gas or dry air shall be
made by the Builders. The tests will be repeated until the results are deemed by
the Classification Society to be in conformity with the Building Contract and
the Specifications.
-57-
After the Delivery Date, the Owner shall, at its own cost and expense,
carry out an additional gas trial in accordance with the trial program furnished
by TGE. The gas trial is required to be made no later than 45 days after the
Delivery Date subject to certain exceptions and shall be certified by the
Classification Society. If the gas plant is not in conformity with the Building
Contract and the Specifications, the Builders must remedy any such
non-conformity to the satisfaction of the Owner, the Classification Society and
any other relevant authority. If such non-conformity delays the use of a Vessel,
the Owner's only contractual remedy is to receive payment of liquidated damages
of up to $200,000 from the Builders, which payment is not supported by either
the related Building Contract Guarantee or the Performance Bonds.
WARRANTY OF QUALITY
The Builders, for a period of 12 months following the Delivery Date of
a Vessel, guarantee the Vessel, its hull and machinery and all parts and
equipment thereof that are manufactured or furnished or supplied by the Builders
and/or their sub-contractors under the Building Contract including material and
equipment (excluding any parts for the Vessel which have been supplied by or on
behalf of the Owner) against all defects which are due to defective materials,
and/or poor workmanship or failure to construct in conformity with the
Specifications.
BUILDING CONTRACT GUARANTEES AND PERFORMANCE BONDS
The Export-Import Bank of China (the "Building Contract Guarantor" or
"EXIM") has delivered an Irrevocable Letter of Guarantee with respect to each
Vessel (collectively, the "Building Contract Guarantees") and an Irrevocable
Performance Bond relating to all five Vessels (the "Builders Performance Bond"),
each on behalf of the Builders, and Generale de Banque S.A. ("Generale" and,
together with EXIM, the "Performance Bond Guarantors") has delivered an
Irrevocable Performance Bond (the "TGE Performance Bond" and, together with the
Builders Performance Bond, the "Performance Bonds"), on behalf of TGE, relating
to all five Vessels. The Building Contract Guarantees and the Performance Bonds
severally and in the aggregate unconditionally guarantee payment to the Owners
of the Refund Amount and any Refund Interest. Each Building Contract Guarantee
guarantees the payment to the relevant Owner of the portion of the Refund Amount
relating to all installment payments that have been made on or prior to the date
on which such Building Contract is rescinded by such Owner or automatically
terminated. The Builders Performance Bond covers an aggregate amount of up to
$32.5 million for all five Vessels and the TGE Performance Bond covers an
aggregate amount of up to $16.2 million for all five Vessels. The availability
of the TGE Performance Bond, however, is conditioned upon the payment by EXIM to
the Owners of the maximum amount of $32.5 million guaranteed under the Builders
Performance Bond.
Pursuant to the terms and conditions of the Intercreditor Agreement,
the Collateral Agent shall draw under the Performance Bonds an amount equal to
the Rescission Amount (as defined) (calculated as of the date on which the
Exchange Notes and the untendered Existing Notes, if any, are scheduled for
redemption) less the sum of (i) the amounts held in the Pre-Funding Account and
in the Capitalized Interest Account and (ii) the amount payable under the
applicable Building Contract Guarantee or Guarantees, as the case may be.
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Each of the Building Contract Guarantees and the Performance Bonds
became effective upon the payment of the first installment of the Purchase Price
under the Building Contracts, which payment was made on the Original Closing
Date with the net proceeds of the Offerings. Each Building Contract Guarantee
will expire with respect to the related Building Contract upon the earliest of
(i) the receipt by the Owner of the amount guaranteed thereunder, (ii) the
confirmation to the Building Contract Guarantor of acceptance of the related
Vessel and (iii) May 1, 2001. Each of the Performance Bonds will expire upon the
earliest of (i) the receipt by any of the Owners of any payment thereunder, (ii)
the confirmation to the applicable Performance Bond Guarantor of the acceptance
of all remaining Vessels and (iii) May 1, 2001.
EXIM is owned by the government of the People's Republic of China and
its long-term debt is rated A3 by Moody's Investor Service Inc. ("Moody's"). The
long-term debt of Generale is rated A1 by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Company, Inc. ("S&P") and Aa3 by Moody's.
MARKETING AND COMMERCIAL MANAGEMENT
MARKETING STRATEGY
The marketing strategy of the Owners is to build a portfolio of
contracts of affreightment for petrochemical gas cargoes in order to maximize
the revenue potential of the Vessels. The Owners intend to concentrate on
transporting primarily petrochemical gases, particularly ethylene, and
secondarily LPG. The Owners do not intend to transport ammonia cargoes but may
pursue such employment as dictated by the overall market for gas transport. On
or prior to the Original Closing Date, the Issuer, Holdings and each of the
Owners have engaged the Manager to manage their daily commercial and technical
operations pursuant to a management agreement (the "Management Agreement"),
including providing administrative services, causing the compliance of the
Owner's covenants in the Indentures and monitoring GEBAB's performance under the
Technical Supervision Agreement, Technical Management Agreement and the
Commercial Management Agreement. The Manager, through the expertise of its
principal employees, is implementing and will implement the Owners' marketing
strategy.
The Manager believes that contracts of affreightment will offer the
advantages of longer-term employment and the exploitation of the triangular
trading capabilities of the Vessels. Triangular trading in this context refers
to the ability of the Vessels to trade multiple cargoes on a trade route in
which cargoes are discharged and new cargoes are loaded in a single geographic
region. Such triangular trading can be distinguishable from the "A to B" trade
characteristic of crude transport in which the vessel carries a cargo from the
loading port to the discharge port and returns ballast to the loading port. The
Manager may supplement the employment of the Vessels with spot charters and
timecharters as opportunities arise in the market. The Manager does not intend
to pursue bareboat charters with respect to the Vessels.
The Manager is currently negotiating two contracts of affreightment for
the employment of the Vessels in the ethylene and propylene trade. One contract
would guarantee a minimum of 10 voyages and a maximum of 20 voyages per annum
for a full cargo of propylene from the Americas to the Mediterranean Region. The
second contract would ensure a minimum of 18 voyages and a
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maximum of 28 voyages per annum for a full cargo of ethylene from various
loading ports to the Mediterranean Region. Each contract would be for a
five-year period with freight rates for each voyage to be based on market rates.
The Management of the Company believes that if consummated, these contracts
could provide a base-load of continuous employment for the Vessels during the
terms thereof. However, there can be no assurance that these contracts will be
entered into.
The Manager is implementing and will implement a marketing strategy on
behalf of the Owners through the marketing efforts of its principal employees
and through the Commercial Management Agreement with GEBAB. The Owners intend to
supplement the marketing efforts of the Manager and GEBAB by maintaining a
non-exclusive brokerage relationship with Xenon.
The Company has preliminarily identified Chevron Products Company,
Pequiven, Norsk Hydro, Enichem, PMI, Dow Chemicals, Mitsui USA, and Sunkyong
America, Inc., among others, as potential customers in the petrochemical market.
It has identified Exxon Chemical Company, Shell Chemicals, Texaco Chemical
Company, Statoil, Yukong, Dow Chemicals and Mitsubishi International
Corporation, among others, as potential customers in the LPG market. There is
currently no contractual arrangement between the Company and any of these
customers for the transportation of cargoes by the Vessels, and there can be no
assurance that any of these potential customers will employ the Vessels upon
their acceptance by the Owners under each Building Contract.
COMMERCIAL MANAGEMENT AGREEMENT
The Manager on behalf of the Owners is party to a Master Commercial
Marketing and Services Agreement (the "Commercial Management Agreement"), dated
as of February 28, 1997, with GEBAB whereunder GEBAB has agreed to commercially
manage the Vessels. Upon the completion and delivery to the Owners of each
Vessel, GEBAB will solicit cargo to be transported by such Vessels. GEBAB's
responsibilities include the marketing of each Vessel, the preparation and
negotiation of all contracts of affreightment or other types of charters for
each Vessel, operation of all agreements entered into, including invoicing and
accounting for and handling of employment-related expenses, calculation of
demurrage and laytime expenses and the coordination of all claims with each
Owner's P&I Clubs.
GEBAB, through its affiliate MarLink, will arrange for all income
earned with respect to each Vessel to be paid directly into a lock-box account
(the Revenue Account) to be held by the Collateral Agent. Pursuant to the
Commercial Management Agreement, a management fee of 2.0% of net revenues from
operations received in a given Calendar Quarter (as defined) is payable
quarterly by the Manager from the Operating Account (as defined) on the 16th day
following the end of each calendar quarter which shall end on the last day of
March, June, September and December (each, a "Calendar Quarter"). GEBAB, through
its affiliate MarLink, will deliver a quarterly statement (a "Quarterly
Statement") reflecting the net operating revenues of the Vessels received in the
Revenue Account, all actual employment related expenses incurred duly supported
by the relevant documents and vouchers, resulting net time charter earnings
during the elapsed period, days employed as well as idle days and reasons
therefor. Each Quarterly Statement shall be due within 15 days after the end of
each Calendar Quarter. Each month, the Owners will be provided with an
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estimate of employment-related expenses. Actual expenses will be paid to the
Collateral Agent upon the presentation of invoices therefor to the Manager from
amounts held in the Operating Account.
The term of the Commercial Management Agreement with respect to each
Vessel shall be a period of three years commencing on the delivery to the
related Owner of such Vessel, and the Commercial Management Agreement will
continue after the end of the three-year term indefinitely until terminated by
GEBAB or any Owner pursuant to the Commercial Management Agreement. The
obligations of GEBAB under the Commercial Management Agreement will be assigned
to MarLink by novation. As a condition to such novation, GEBAB shall deliver a
guarantee.
OPERATIONS
The Manager intends to implement the Owners' operating strategy by
administering a technical management agreement between GEBAB and the Owners.
GEBAB intends to assign its responsibilities under the technical management
agreement to its affiliate Martime.
TECHNICAL MANAGEMENT AGREEMENT
GEBAB and the Manager on behalf of the Owners are parties to the Baltic
and International Maritime Council (BIMCO) Standard Ship Management Agreement
(the "Technical Management Agreement"), dated as of February 28, 1997,
whereunder Holdings, as predecessor to the Owners, appointed GEBAB to act as
technical manager of the Vessels. Pursuant to the Technical Management
Agreement, GEBAB, through its affiliate Martime, will provide for and supervise
the crew for each Vessel, supervise and maintain the technical management of
each Vessel, arrange for all insurances for each Vessel, provide accounting
services for each Vessel, arrange for the supply of provisions for each Vessel,
including bunker fuel, and provide for the operation of each Vessel.
GEBAB, through its affiliate Martime, will present an annual budget
three months before the end of each calendar year. The projected budget for
1999, the first year a Vessel is expected to be delivered and become
operational, is $190,000 per month, which amount is expected to be sufficient to
cover crew cost and basic operating expenses (includes insurance cover, deck
equipment, cargo plant, engine up-keep, luboils and chemicals, and provision for
dry docking). Following the agreement on the operating budget for the Vessels,
on the first Business Day of each month in such budgeted year, GEBAB, through
its affiliate Martime, shall prepare and present to the Manager its estimate of
the working capital requirement for each Vessel and shall request the Manager to
disburse the funds required to run the Vessel against invoices presented by it.
In addition, GEBAB, through its affiliate Martime, will present invoices
representing occasional or extraordinary items of expense such as emergency
repair costs, additional insurance premiums, bunkers or provisions.
Pursuant to the Technical Management Agreement, a management fee of
2.0% of net operating revenues for the first six years of operation and 2.5%
thereafter will be payable by the Manager from the Operating Account quarterly
in advance on the first day of the calendar quarter based on a pre-approved
budget (the "Budgeted Management Fee") submitted by GEBAB, through its affiliate
Martime. The Budgeted Management Fee shall be adjusted quarterly in arrears for
each Calendar Quarter and the difference between the actual management fee
earned for a Calendar Quarter and the aggregate Budgeted Management Fee paid for
such Calendar Quarter shall be
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reflected in the Budgeted Management Fee payable on the next day immediately
following the end of any Calendar Quarter.
The term of the Technical Management Agreement with respect to each
Vessel shall be for a period of three years commencing on the delivery to each
Owner of such Vessel, and the Technical Management Agreement will continue after
the end of the three-year term indefinitely until termination by either GEBAB or
any Owner pursuant to 90 days' written notice. The obligations of GEBAB under
the Technical Management Agreement will be assigned to Martime by novation. As a
condition to such novation, GEBAB shall deliver a guarantee.
INSPECTION
CHEMICAL DISTRIBUTION INSTITUTE
CDI was founded by the major participants in the liquid and gas
transportation market and is controlled by the oil majors, including Exxon
Chemical Company, Chevron Products Company, British Petroleum (BP) Chemicals,
Shell Chemicals and Mobil Chemical Company. CDI has set common vessel inspection
criteria for the safe transportation of hazardous cargo at sea, according to the
standards of all individual member companies. CDI has also implemented
standardized vessel inspections to replace the need for each particular member
to inspect and rate each vessel on a regular basis. These inspections are
generally more thorough and extensive than the inspections carried out by the
individual members. CDI is fully-implemented in Europe and the Americas and is
in the process of being implemented in Asia. The Company intends to fully meet
all CDI code requirements and receive certification.
INTERNATIONAL SAFETY MANAGEMENT
ISM publishes a code (the "ISM Code") which sets forth standards
applicable for internationally acceptable procedures in safe contemporary ship
management. The ISM Code has been endorsed by the IMO and plays an important
role in international ship management. Entities that do not obtain certification
under the ISM Code have increasing difficulties in marketing their services. The
certification under the ISM Code are carried out by classification societies
acting as auditors and must be complied with by 1999. The provisions of ISO 9002
are not mandatory. The Company intends to fully meet all ISM Code requirements
and receive certification.
ENVIRONMENTAL REGULATIONS
The business and operations of the Company and any charterer of the
Vessels are materially affected by governmental regulation in the form of
international conventions and national, state, and local laws and regulations in
force in the jurisdictions in which the Vessels operate, as well as in the
country or countries of registration. Because such conventions, laws and
regulations are often revised, and have become increasingly stringent, the
Company cannot predict the ultimate costs of compliance with such revised
conventions, laws and regulations or the impact thereof on the resale price or
useful life of the Vessels.
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COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT
OF 1980 ("CERCLA")
CERCLA was enacted to respond to environmental contamination caused by
the release of hazardous substances from facilities and vessels. CERCLA provides
that an owner, operator or demise charterer of a vessel, from which there is a
release or threatened release of certain defined hazardous substances, not
including crude oil or its fractions, is liable for the following: (i) removal
costs or remedial action taken by the United States or a local government; (ii)
other necessary costs of response incurred by any other person consistent with
the National Contingency Plan (the primary guidance document for CERCLA response
actions); (iii) damages for injury to, destruction of, or loss of natural
resources, including the cost of assessing such injury, destruction, or loss;
and (iv) the costs of any health assessment or studies permitted under CERCLA.
Since the Vessels may carry substances as cargo which are hazardous substances
under CERCLA, a discharge or threat of discharge of such cargo could result in
CERCLA liability and have a materially adverse effect on the Owners and the
operation of the Vessels.
Total liability under CERCLA for each release from a vessel is limited
to the greater of $300 per gross tonne or $5,000,000 for vessels that carry
hazardous substances as cargoes. However, these limits will not apply if: (i)
the release or threat of release of a hazardous substance was the result of
willful misconduct or willful negligence within the privity or knowledge of an
owner or operator, or the primary cause or the release was a violation of
applicable safety, construction or operating standards or regulations; or (ii)
the owner or operator fails or refuses to provide all reasonable cooperation and
assistance requested by a responsible public official in connection with
response activities. In addition, a responsible party under CERCLA could face
punitive damages equal to three times the government's cost of response and
remediation if the responsible party fails, without sufficient cause, to
undertake a removal or remediation action ordered by the government.
CERCLA requires that owners and operators of vessels establish and
maintain with the Coast Guard evidence of insurance or of qualification as a
self-insurer or other evidence of financial responsibility sufficient to meet
their potential strict liability limit under CERCLA. The Coast Guard adopted the
Final Rule, which requires evidence of financial responsibility equal to the
aggregate of the CERCLA strict liability limit and the OPA 90 liability limit
demonstrated by insurance, surety bond, self-insurance or guarantee. Without
such certificates, vessels are prohibited from trading to United States ports or
in United States waters. The Owners have agreed to furnish evidence of financial
responsibility with respect to the Vessels to the Coast Guard as required by the
Final Rule. Certain newly-formed insurance companies, which have been deemed
acceptable guarantors by the Coast Guard, have furnished the guarantees pursuant
to the Final Rule.
The Final Rule may also be satisfied by evidence of a surety bond or
guarantee. However, the financial credit of some owners and operators may make
the furnishing of surety bonds or guarantees economically infeasible.
Additionally, vessel owners and operators may give evidence of self-insurance to
satisfy the Coast Guard's regulations. Under these provisions, the shipowner or
operator must have net worth and working capital, measured in assets located in
the United States against liabilities located anywhere in the world, that each
exceed the applicable amount of financial responsibility. If the Owners of the
Vessels fail to comply with the Final Rule, it would have a material adverse
effect on the Owners and holders of the Securities.
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OIL POLLUTION ACT OF 1990
OPA 90 imposes liability on responsible parties, as defined by OPA 90,
for clean-up expenses and damages caused by oil spills. Such responsible parties
could include owners, operators and demise charterers of vessels. OPA 90 applies
to all vessels that trade in the United States or its territories or possessions
or operate in United States waters, even if such vessels do not carry oil as
cargo, as is the case with the Vessels.
Liability imposed under OPA 90 is joint and several for all spill
containment expenses, clean-up costs, and other damages arising from actual and
threatened oil spills from their vessels. Such a spill could include the
discharge of bunkers from the Vessels. Subject to statutory qualifications, a
sole fault third party may be also be a responsible party under OPA 90. For
example, a Vessel could cause another vessel to suffer a discharge of oil. Other
damages recoverable under OPA 90 include: (i) natural resource damages and the
costs of assessment thereof; (ii) real and personal property damage; (iii) net
loss of taxes, royalties, rent, fees, and other lost government revenues; (iv)
lost profits or impairment of earning capacity due to property or natural
resource damage; (v) net cost of public services necessitated by a spill
response, such as protection from fire, safety or health hazards; and (vi) loss
of subsistence use of natural resources.
A responsible party's limit of liability under OPA 90 is the greater of
$1,200 per gross tonne of the discharging vessel or $10 million per vessel
(subject to possible adjustment for inflation); however, this limit would not
apply if the incident were proximately caused by violation of applicable United
States federal safety, construction or operating regulations or by the
responsible party's gross negligence or willful misconduct, or if the
responsible party fails or refuses to report an incident which the responsible
party knows or has reason to know of, or to provide all reasonable cooperation
and assistance requested by a responsible official in connection with oil
removal activities. OPA 90 does not by its terms impose liability on lenders or
the holders of mortgages on vessels; however, there is no specific exclusion for
such entities under OPA 90. In addition, if the Collateral Agent or any holder
of the Notes participates so substantially in the overall management of the
Vessels so as to be considered their "operator" or exercises remedies and
becomes an "owner" or "operator" or "demise charterer" of a Vessel following a
Mortgage Event of Default, such persons or entities may be subject to liability
under OPA 90. A catastrophic spill could exceed the liability limits of any
insurance coverage available, in which event there could be a material adverse
effect on the owner and the operator of the vessel involved in the spill.
OPA 90, like CERCLA, requires owners and operators of all vessels,
whether or not such vessels carry oil as cargo, to establish and maintain with
the Coast Guard evidence of insurance or of qualification as a self-insurer or
other evidence of financial responsibility sufficient to meet their potential
strict liability limit under OPA 90. Owners or operators of tankers operating in
United States waters must file vessel response plans with the Coast Guard, and
their tankers must operate in compliance with their Coast Guard approved plans.
Such response plans must, among other things (i) identify and ensure, through
contract or other approved means, the availability of necessary private response
resources to respond to a "worst case" discharge; (ii) describe crew training
and drills; (iii) identify a qualified individual with full authority to
implement removal actions; and (iv) describe mitigation and response actions.
The Owners will ensure that the Vessels have response plans approved by the
Coast Guard.
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OPA 90 specifically permits individual states to impose their own
liability regimes with regard to oil pollution incidents occurring within their
boundaries, and many states have enacted legislation providing for unlimited
liability for oil spills. In some cases, states which have enacted such
legislation have not yet issued implementing regulations defining tanker owners'
responsibilities under these laws. Additionally, under OPA 90 the liability of
responsible parties, United States or foreign, with regard to oil pollution
damage in the United States is not preempted by any international convention.
OPA 90 expressly provides that individual states are entitled to
enforce their own pollution liability laws, even if inconsistent with or
imposing greater liability than OPA 90. There is no uniform scheme among the
states. Some states have OPA 90-like schemes for limiting liability to various
amounts, other states rely on fault-based remedies under common law, while still
other states impose strict and unlimited liability on an owner or operator. In
addition, some states also have established their own requirements for financial
responsibility. Compliance with and violation of such state regulations, and the
liabilities imposed thereunder, may have a material adverse effect on the
business and the operations of the Owners and any charterer of the Vessels.
INTERNATIONAL MARITIME ORGANIZATION
The IMO, an agency organized in 1958 by the United Nations in which
over 100 national governments are members, provides international regulations
and practices affecting shipping and international trade and encourages the
adoption of standards of safety and navigation. During the last 35 years, the
IMO has initiated over 700 resolutions and 30 major conventions and protocols.
All IMO agreements must be ratified by the individual government constituents.
In May 1996, the IMO adopted a draft International Convention on
Liability and Compensation for Damage in Connection with the Carriage of
Hazardous and Noxious Substances by Sea (the "HNS Convention"). The HNS
Convention is open for signature until October 1,
1997.
It is unknown at this time which countries, if any, will become signatories to
the HNS Convention. The HNS Convention establishes a uniform international legal
regime to ensure prompt and adequate compensation to victims of spills and
release of hazardous and noxious substances ("HNS") from vessels. HNS are
defined broadly by reference to various IMO codes and lists and include
approximately 6,000 bulk and packaged substances.
Damages recoverable under the HNS Convention include personal injury
and death, property damage outside the ship, environmental damage, and
preventive measures. The HNS Convention excludes damage for oil that is covered
by the CLC, as defined below. There are two tiers of liability under the HNS
Convention. Tier one is strict shipowner liability that must be guaranteed by
compulsory insurance or some other financial guarantee. Limits of liability
under the first tier are based on tonnage: for (i) vessels less than 2,000 gross
tonnes, the limit of liability is 10 million Special Drawing Rights ("SDRs"). An
SDR is defined by the International Monetary Fund on the basis of a basket of
currencies. The exchange rate in effect on June 30, 1997 for the dollar
equivalent of the SDR was approximately 1.39; (ii) vessels greater than 2,000
gross tonnes but less than 50,000 gross tonnes have an additional limit of 1,500
SDRs per tonne above 2,000; and (iii) vessels with a gross tonnage in excess of
50,000 will have a limit of an additional 360 SDRs per tonne up to a maximum of
100 million SDRs (E.G., at $1.39 per SDR, a 100,000 gross tonne vessel would
have
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a limit of liability under the HNS Convention of approximately $139,000,000).
The second tier of liability under the HNS Convention is an international fund
(the "HNS Fund"), which will pay compensation for damages that exceed the vessel
owner's liability limit or if the vessel owner is not liable or is otherwise
unable to meet its first tier liability obligations. Total liability under the
first and second tiers is limited to 250 million SDRs. A vessel owner loses its
right to limit liability under the HNS Convention if it is proved that the
damage resulted from the personal act or omission of the owner, committed with
the intent to cause such damage, or recklessly and with knowledge that such
damage would probably result.
The HNS Fund will be composed of several accounts. There will be a
separate account for (i) liquified natural gas ("LNG"); (ii) LPG; and (iii) oil.
These industries will contribute to the HNS Fund by receivers and importers of
HNS in a contracting state (with the exception of the LNG account). In the case
of LNG industry, the cargo titleholder will pay contributions to the LNG account
immediately prior to discharge in a contracting state. Collections and payments
from contributors will be managed by the HNS Fund, and contributors will be
invoiced annually. The amount of the levy will be determined primarily by the
claims submitted to the HNS Fund the preceding year and the volume of HNS the
contributor imported. Initial contributions will also be required to capitalize
the HNS Fund and cover administrative costs. In addition to the special HNS Fund
accounts, there will be a general account to provide compensation for damage
from any HNS not falling within the HNS separate accounts.
Outside the United States, many countries have ratified and follow the
liability scheme adopted by the IMO and set out in the International Convention
on Civil Liability for Oil Pollution Damage of 1969 ("CLC"), as amended by the
1992 Protocol, which entered into force May 30, 1996. Under the CLC, an oil
tanker's registered owner is strictly liable for pollution damage caused on the
territorial waters of a contracting state by a discharge of oil, subject to
certain defenses and limits. The current limit for a ship not exceeding 5,000
gross tonnes is 3.0 million SDRs and, for each additional tonne on a larger
vessel, an additional 420 SDRs, up to a maximum of 59.7 million SDRs (E.G., at
$1.39 per SDR, the maximum liability is approximately $83 million). Vessels
trading to contracting states must establish evidence of insurance covering the
limit of liability of the owner. In jurisdictions where the CLC has not been
adopted, various legislative schemes or common law govern, and liability is
imposed either on the basis of fault or in a manner similar to the CLC. On March
6, 1992, the IMO adopted regulations which set forth new and upgraded
requirements for pollution prevention for tankers. These regulations went into
effect on July 6, 1995. Each Vessel will be required to comply with such IMO
regulations.
The IMO continues to review and introduce new regulations on a regular
basis. It is impossible to predict what additional regulations, if any, may be
passed by the IMO, whether those regulations will be adopted by member countries
and what effect, if any, such regulations might have
on the operation of the Vessels.
THE COMPANY AND THE MANAGER
Holdings is an Isle of Man public limited company which beneficially
owns 100% of the Issuer. The Issuer is an Isle of Man public limited company
that has been recently organized solely for the purpose of issuing the Notes,
lending the net proceeds thereof to the Owners and entering into
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and performing its obligations under the Letter of Credit Reimbursement
Agreement. The Issuer owns 100% of each Owner. Each of the Owners has been
recently organized as an Isle of Man private limited company. The Manager, an
affiliate of CGTC through common ownership, is an Isle of Man private limited
company, 50% of which is owned by Cambridge Holdings, L.L.C.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
THE MANAGER
The following table sets forth the name, age and principal position
with the Manager of each of its executive officers and directors:
NAME AGE POSITION WITH THE MANAGER
Bjorn Q. Aaserod............. 40 Director and Chairman
Richard M. Klapow............ 39 Director and Chief Financial Officer
John F. DeSantis............. 58 Director
Rolf Hansen.................. 57 Director
Kenneth L. Columbia.......... 39 Vice President, Operations and Secretary
All directors and executive officers of the Manager were appointed in
July 1997. Each director will serve until he resigns or is removed by a
resolution of the Shareholders. Officers are appointed by the Board of Directors
and will serve until they resign or are removed by the Board of Directors.
BJORN Q. AASEROD has broad experience in the shipping, finance and
industrial sectors. Mr. Aaserod joined Cambridge in 1995. Prior to that he acted
as a consultant to major investment banking firms. Among his other positions, he
has been chairman and chief executive officer of publicly-quoted MG Industries
and has held several directorships in other public corporations. Mr. Aaserod has
close relationships with the major oil companies, first-class shippers and Far
Eastern shipyards.
RICHARD M. KLAPOW has extensive experience in the shipping and
investment banking industries. Mr. Klapow joined Cambridge after serving as vice
president of finance for Overseas Shipholding Group, Inc., a major international
owner and operator of oil tankers and dry bulk vessels. Mr. Klapow's investment
banking experience includes positions with Citibank, N.A. and Salomon Brothers
Inc. Mr. Klapow has been associated with Cambridge since January 1996. From
September 1990 to September 1995 he held senior positions with Overseas
Shipholding Group, Inc.
JOHN F. DESANTIS has broad experience in the shipping industry. Mr.
DeSantis is currently the Chief Executive Officer and Chairman of the Board of
Directors of McQuilling Brokerage Partners, Inc., a leading international ship
brokerage firm based in New York and is the Chairman of the Board of Directors
of the "Worldscale Association" (NYC), whose freight scale is universally used
in the tanker industry. Mr. DeSantis has been a broker with McQuilling Brokerage
Partners, Inc.
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for over twenty years. Mr. DeSantis is also a former President of the
Association of Ship Brokers and Agents (USA), Inc.
ROLF HANSEN has extensive experience in the gas industry. Mr. Hansen
has been the Terminal Manager of the Antwerp Gas Terminal since 1983 and has
been the Panel Chairman of the Society
International Gas Tanker and Terminal Operators since 1988.
KENNETH L. COLUMBIA has a background as a tanker broker trading gases,
petrochemicals, and other products, and as a vessel operations specialist with
tankers, gas carriers and dry cargo
vessels.
Mr. Columbia has 20 years experience in transportation-related positions and
extensive administrative and managerial experience in shipping. Mr. Columbia's
prior positions include working at Xenon Shipping AS; JLM Industries, Inc.;
Nederkoorn (USA) Inc.; and Colonial Marine
Inc.
GEBAB
The following table sets forth the name, age and principal position
with GEBAB of each of its executive officers and directors:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Stefan-Mathias Pahl......................... 38 Director
D. Jeffrey Phillips......................... 44 Director
STEFAN-MATHIAS PAHL has worked with various shipping companies. In
1986, Mr. Pahl joined the shipbroker, Interfrete Afretamentos Ltda., in Brazil
as managing director and shareholder. In 1990, Mr. Pahl joined Tankreederei
Ahrenkiel GmbH, Hamburg as managing director in charge of all tanker activities.
At Ahrenkiel, Mr. Pahl arranged a pool of 15 gas carriers ranging from
approximately 4,000 to 8,000 cbm that was managed by GasChem. GEBAB is a major
shareholder of GasChem.
D. JEFFREY PHILLIPS has twenty-one years of marine management
experience in Europe, Canada, the United States and Asia. He spent two years as
managing director of Ahrenkiel Shipping (HK) Ltd., responsible for the technical
and commercial management and newbuilding of 18 vessels. Between 1969 and 1981,
Mr. Phillips worked for various companies including Turnbull Scott Shipping
Company, Ltd., United States Lines, London, Furness Withy Chartering Limited,
London, and Van Ommeren B.V., London. From 1981 to 1990 Mr. Phillips worked as
general manager for Canadian Pacific Ships. In 1990 he became vice president at
Turecamo Maritime.
HOLDINGS
Holdings has no and will have no employees involved in the management
of the Vessels. The following table sets forth the name, age and principal
position with Holdings of each of its executive
officers and directors:
NAME AGE POSITION WITH HOLDINGS
- ---- --- ----------------------
Richard M. Klapow............... 39 Director and President
David M. Moore.................. 36 Director, Vice President and Treasurer
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Edward Cain..................... 29 Director
Joseph Avantario................ 31 Director and Assistant Secretary
Andrew Baker.................... 38 Secretary
The directors and executive officers of Holdings were appointed in May
and July 1997. Officers are appointed by the Board of Directors and will serve
until they resign or are removed by
the Board of Directors.
THE ISSUER
The Issuer has no and will have no employees involved in the management
of the Vessels. The following table sets forth the name, age and principal
position with the Issuer of each of its executive officers and directors:
NAME AGE POSITION WITH THE ISSUER
- ---- --- ------------------------
Richard M. Klapow............... 39 Director and President
David M. Moore.................. 36 Director, Vice President and Treasurer
Edward Cain..................... 29 Director
Joseph Avantario................ 31 Director and Assistant Secretary
Andrew Baker.................... 38 Secretary
All directors and executive officers of the Issuer were appointed in
July 1997. Officers are appointed by the Board of Directors and will serve until
they resign or are removed by the Board of
Directors.
THE OWNERS
No Owner has or will have any employees involved in the management of
the Vessels. The following table sets forth the name, age and principal position
with each Owner of each of its
executive officers and directors:
NAME AGE POSITION WITH THE OWNERS
- ---- --- ------------------------
Richard M. Klapow............... 39 Director and President
David M. Moore.................. 36 Director, Vice President and Treasurer
Edward Cain..................... 29 Director
Joseph Avantario................ 31 Director and Assistant Secretary
Andrew Baker.................... 38 Secretary
All directors and executive officers of the Owners were appointed in
July 1997. Officers are appointed by the Board of Directors and will serve until
they resign or are removed by the Board of
Directors.
JOSEPH AVANTARIO is a comptroller with Cambridge Holdings, L.L.C., New
York. He has been comptroller with Cambridge Partners, L.L.C. since April of
1995. From May 1992 to April 1995 he was with Credit Suisse First Boston, first
as a staff auditor and then as a trader of municipal reinvestment.
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DAVID M. MOORE is a member of Cambridge Holdings, L.L.C., New York. He
has been associated with Cambridge Partners, L.L.C. since 1995. Prior to that he
was an investment banker with Credit Suisse First Boston since 1991.
ANDREW BAKER is an English solicitor with Cains, Isle of Man, who are
legal advisers to Holdings, the Issuer and the Owners and as such are entitled
to charge for professional advice and services. He has been a solicitor with
Cains since March 1994. Prior to that he was a partner with the law firm
Pennington's since 1987.
EDWARD CAIN is an English and Hong Kong solicitor with Cains, Isle of
Man, who are legal advisors to Holdings, the Issuer and the Owners and as such
are entitled to charge for professional advice and services. He has been a
solicitor with Cains since December 1996. Prior to that he was
a solicitor with the law firm Simmons & Simmons since 1992.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The executive officers and directors of the Company have not entered
into any arrangement to receive compensation for services rendered in their
respective capacities.
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PRINCIPAL SHAREHOLDERS
All issued and outstanding capital stock of the Issuer is beneficially
owned by Holdings. The following table sets forth information as of the date
hereof, concerning the beneficial ownership of Holdings Common Stock by (i) the
only persons known by Holdings' management to own beneficially more than 5% of
the outstanding shares of Holdings Common Stock, (ii) each of Holdings'
directors and executive officers, and (iii) all directors and executive officers
of Holdings as a group. The Shareholders will obtain equity interests in
Holdings through the Equity Financing, which will be consummated concurrently
with the closing of the Offerings.
Percent of
Number of COMMON
NAME OF BENEFICIAL OWNER SHARES STOCK(A)
- ------------------------ ------ --------
Cambridge Gas Transport Corporation............................................. 1,200,000 60.0%
GEBAB........................................................................... 200,000 10.0
Arctic Gas S.A.................................................................. 200,000 10.0
Tractebel Gas Engineering GmbH.................................................. 200,000 10.0
Xenon Shipping Inc. ............................................................ 200,000 10.0
All executive officers and directors as a group (5 persons)..................... -- --
- ------
(a) As used herein, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Exchange Act as consisting
of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition) with respect to the security
through any contract, arrangement, understanding, relationship, or
otherwise, including a right to acquire such power(s) during the next
60 days. Unless otherwise noted, beneficial ownership consists of sole
ownership, voting and investment power with respect to all Holdings
Common Stock (being ordinary shares) shown as beneficially owned by
them.
THE EQUITY FINANCING
On the Original Closing Date, the following occurred:
(a) CGTC was issued 1,000,000 shares of Holdings Common Stock in
exchange for acting as arranger for the Company and 200,000 shares of Holdings
Common Stock in exchange for management services to be performed by the Manager
as agent of CGTC prior to the Delivery Date of each Vessel pursuant to the
Management Agreement. The services to be performed by the Manager as agent of
CGTC were treated by Holdings as an equity contribution with a cost basis of
$3.0 million, and will be recognized for financial reporting purposes as such
future services are provided. On June 12, 1997, CGTC made a cash contribution to
Holdings of $10,000.
(b) Arctic was issued 200,000 shares of Holdings Common Stock in
exchange for Vessel design services contributed. The design services of Arctic
was accounted for by Holdings as an equity contribution with a cost basis of
$10.0 million.
(c) GEBAB was issued 200,000 shares of Holdings Common Stock in
exchange for services contributed during the pre-delivery period pursuant to the
Technical Supervision Agreement
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and for services contributed during the first six years of operation under the
Technical Management Agreement. The supervision services to be performed by
GEBAB was accounted for by Holdings as an equity contribution with a cost basis
of $4.0 million. For financial reporting purposes, $1.0 million of this amount
was recognized on the Original Closing Date reflecting services provided prior
to such date, and the remaining $3.0 million was recognized as future services
are provided during the pre-delivery period. The technical management services
was contributed in the form of reduced compensation for those services during
the first six years of operation of the Vessels as set forth under the Technical
Management Agreement.
(d) Xenon Shipping was issued 200,000 shares of Holdings Common Stock
in exchange for a cash contribution in the amount of $9.3 million, which
represents an amount equal to the brokerage commission owed by the Builders to
Xenon Shipping. See "CERTAIN
TRANSACTIONS--SHAREHOLDERS."
(e) TGE was issued 200,000 shares of Holdings Common Stock in exchange
for a cash contribution in the amount of $10.0 million and the payment by TGE to
acquire the TGE Performance Bond. The cost to TGE of acquiring the TGE
Performance Bond was accounted for by Holdings as an equity contribution with a
cost basis of $650,000. On the Original Closing Date, TGE delivered $10.0
million in cash for deposit by the Collateral Agent into the Pre-Funding Account
and directed Generale to deliver the TGE Performance Bond to the Collateral
Agent, as assignee of the Owners.
The value assigned to the components of the Equity Financing may not
accurately reflect the true value thereof for the purpose of valuing Holdings.
The Designated Owners (as defined) have agreed not to dispose of their
respective stock in Holdings if any Notes are outstanding; PROVIDED that such
Designated Owners may sell a portion of their respective stock, if after such
sale, the stock held by such Designated Owners, either directly or indirectly,
represents more than 50% of the total voting power of the Voting Stock (as
defined) of Holdings and more than 50% of the equity interests in Holdings.
STOCKHOLDERS AGREEMENT
Holdings and its stockholders of record are parties to a Stockholders
Agreement, dated as of August 1, 1997, which contains various restrictions on
the transfer of stock owned by the stockholders. CGTC has a right of first
refusal to purchase any shares which one or more of the other stockholders
propose to sell. The agreement provides that certain stockholders continue to
hold a specified minimum number of shares for a certain period of time. Except
to an affiliate of TGE, TGE has agreed not to dispose of its stock in Holdings
prior to the expiration of the warranty period of the last Vessel to be
delivered. The stockholders have the right, in the event CGTC sells all or any
portion of its stock, to require CGTC to purchase an amount of stock from each
such other stockholder which is equal to that fraction (expressed as a
percentage, the numerator of which is the number of shares owned by such other
stockholder and the denominator of which is the aggregate number of shares owned
by all shareholders) of the shares of stock owned by such other stockholder,
times the number of shares of stock sold by CGTC. The agreement contains
provisions which
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prevent the Designated Owners from reducing their aggregate interest in Holdings
to less than a majority interest.
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CERTAIN TRANSACTIONS
THE MANAGER
Each of the Owners has entered into the Management Agreement whereby
the Manager will manage each Owner's commercial and technical operations,
including providing administrative services, causing the compliance of the
Owners' covenants in the Indentures and monitoring GEBAB's performance under the
Technical Supervision Agreement, Technical Management Agreement and Commercial
Management Agreement. The Manager will receive a fee of $30,000 per annum for
each Vessel prior to the Delivery Date for such Vessel and $120,000 per Vessel
per annum from and after the Delivery Date for such Vessel. Prior to the
Delivery Date for the first Vessel, the Manager will be responsible for the
payment of the fees and expenses of the Trustees and the Collateral Agent. See
"BUSINESS--MARKETING AND COMMERCIAL MANAGEMENT." In addition, the Manager, as
agent of CGTC, will oversee during the pre-delivery period all aspects of the
Vessels' construction on behalf of the Owners. The cost of these services, which
will be $4.0 million, will be contributed to Holdings as and when performed.
GEBAB
On or before the Original Closing Date, Holdings assigned to the
Manager, acting on behalf of each Owner, the Technical Supervision Agreement,
the Technical Management Agreement and the Commercial Management Agreement.
Pursuant to the Technical Supervision Agreement, GEBAB (through Martime) will
supervise the construction of the Vessels. See "BUSINESS--CONSTRUCTION
PERIOD--TECHNICAL SUPERVISION AGREEMENT." Under the Technical Management
Agreement, GEBAB (through Martime) will provide and supervise the crew for each
Vessel, supervise and maintain the technical management of each Vessel, arrange
for all insurances for each Vessel, provide accounting services for each Vessel,
arrange for the supply of provisions for each Vessel, including bunker fuel and
provide for the operation of each Vessel. See "BUSINESS--MARKETING AND
COMMERCIAL MANAGEMENT--COMMERCIAL MANAGEMENT AGREEMENT" and
"--OPERATIONS--TECHNICAL MANAGEMENT AGREEMENT." Pursuant to the Commercial
Management Agreement, GEBAB (through MarLink) will advertise and promote each
Vessel, engage each Vessel in the preparation and negotiation of all contracts
of affreightment and/or charters for each vessel, administer all agreements,
calculating demurrage and laytime expenses and coordinating claims with the P&I
clubs. See "BUSINESS--MARKETING AND COMMERCIAL MANAGEMENT AGREEMENT--COMMERCIAL
MANAGEMENT AGREEMENT."
SHAREHOLDERS
On the Original Closing Date, (i) GEBAB received $1.0 million to market
the Vessels during the construction period thereof, (ii) Xenon Shipping received
$1.0 million to market the Vessels during the construction period thereof and
(iii) Xenon Shipping received a brokerage commission from the Builders in the
amount of $9.3 million; and on September 1, 1997, TGE received the second
installment of the Purchase Price in the amount of $2.4 million per Vessel
payable under the Building Contracts.
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UK LEASE
As a component of a UK Lease (as defined), the Owners (or lessees under
full payout leases) may enter into either hire purchase agreements (each, an
"HPA") or conditional sale contracts (each, a "CSC") with UK Lessors (as
defined) under which such UK Lessors will initially pay an amount equal to
substantially all of the Purchase Price for each of the related Vessels and
which grants such UK Lessors a right of possession in respect of such Vessels.
Each HPA or CSC will provide that the related Owner will (unless the related UK
Lessor fails to exercise its option in the case of an HPA or otherwise elects in
the case of CSC) pass title to the related Vessel to the related UK Lessor after
the passage of an agreed upon period of time after the delivery of such Vessel
or following any early termination of the related Bareboat Lease (as defined) at
which time the nominal remainder of the Purchase Price for such Vessel will be
paid. Other than as described above, a UK Lessor will have no right to acquire
title to the related Vessel.
Each UK Lessor will be required to acknowledge the rights of the
Collateral Agent to the related Vessel and any income and proceeds therefrom as
provided in the related Mortgage and in the Intercreditor Agreement or otherwise
agree to respect such rights (pursuant to an inter-creditor or co-ordination
agreement). The Owners and the Collateral Agent will acknowledge to the related
UK Lessors that they will (i) not vary provisions of the related Mortgages
relating to certain rights as to the disposition of insurance proceeds and (ii)
give such UK Lessors notice of any defaults under such Mortgages and the right
to cure such defaults, PROVIDED that such rights of cure will not be available
if the related Owners are subject to bankruptcy or insolvency proceedings and
will be available for only a single period of 90 days.
As a further component of a UK Lease, each UK Lessor will in turn lease
the related Vessel back to the related Owner under a separate, full payout
bareboat lease (each, a "Bareboat Lease") for such Vessel. It is anticipated
that each Owner will pay to a subsidiary of another major UK Bank (each, a
"Defeasance Bank") a sum of money, and that such Defeasance Bank will, in
consideration of such payment, assume, up to certain limits of liability, the
payment obligations of such Owner under the related Bareboat Lease. To the
extent such payment obligations under a Bareboat Lease are assumed by such
Defeasance Bank, the related Owner will be released from those obligations;
PROVIDED, HOWEVER, that each Owner will remain liable under its Bareboat Lease
for payment obligations in excess of the obligations thus defeased.
It is anticipated that the Vessels will be chartered by the Owners to a
shipping company or a subsidiary of Holdings pursuant to either bareboat or time
charters. It is a requirement of the UK tax legislation that while the Vessels
are leased by UK Lessors such leasing arrangements must continue for a period of
10 years and each lessee must be a company which (i) is liable for UK corporate
tax in respect of its profits from the related Vessel and (ii) uses such Vessel
for the purposes of that company's non-leasing trade or charters such Vessel in
such manner as to satisfy the UK legislation relating to the availability of
depreciation allowances for the UK Lessors.
As a precondition to any Owner entering into a UK Lease, any nationally
recognized statistical rating agency then rating the Notes (the "Rating
Agencies"), must confirm to the Trustees in writing that entering into such UK
Lease will not result in a ratings decline with respect to the
Notes.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The First Priority Exchange Notes will be issued, and the Existing
First Priority Notes were issued, pursuant to an Indenture, dated as of August
1, 1997 (the "First Priority Indenture"), among the Issuer, the Owners and
United States Trust Company of New York, as First Priority Trustee. The Second
Priority Exchange Notes will be issued, and the Existing Second Priority Notes
were issued, pursuant to an Indenture, dated as of August 1, 1997 (the "Second
Priority"), among the Issuer, the Owners and The Chase Manhattan Bank, as Second
Priority Trustee. The First Priority Indenture and the Second Priority Indenture
are collectively referred to herein as the "Indentures," and the First Priority
Trustee and the Second Priority Trustee are collectively referred to herein as
the "Trustees." The Issuer, the Owners, Holdings, the Trustees, the Letter of
Credit Issuer and United States Trust Company of New York, as Collateral Agent,
are all parties to a Collateral Agency and Intercreditor Agreement, dated as of
August 1, 1997 (the "Intercreditor Agreement"). Copies of the Indentures, the
Intercreditor Agreement and the other Security Agreements (as defined) will be
available as set forth herein under "Available Information." The following
summary of certain provisions of the Notes, the Indentures and the Security
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all provisions of the Notes, the Indentures and
the Security Agreements, including the definitions of certain terms used therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended.
EXCHANGE
The Exchange Notes have been registered under the Securities Act and,
accordingly, will not be subject to certain restrictions on transfer applicable
to the Existing Notes. Except (i) as provided in the previous sentence and (ii)
that the Existing Notes are entitled to the benefit of the Registration Rights
Agreement, the First Priority Exchange Notes have terms and conditions identical
in all material respects to those of the Existing First Priority Notes, and the
Second Priority Exchange Notes have terms and conditions identical in all
material respects to those of the Existing Second Priority Notes. Accordingly,
unless specifically stated to the contrary, the following description of the
Exchange Notes applies equally to the Existing Notes and the Exchange Notes, and
the First Priority Exchange Notes and the Existing First Priority Notes will be
treated as one series for purposes of the First Priority Indenture, and the
Second Priority Exchange Notes and the Existing Second Priority Notes will be
treated as one series for purposes of the Second Priority Indenture. The
statements under this section relating to the Existing Notes, the Exchange Notes
and the Indentures are summaries of the material terms, but do not purport to be
a complete description, of the Indentures, the Existing Notes or the Exchange
Notes.
TERMS OF THE EXCHANGE NOTES
Interest on the Exchange Notes will be computed on the basis of a
360-day year comprised of twelve 30-day months. Interest on overdue principal,
and (to the extent permitted by law) on overdue installments of interest will
accrue at 1% per annum in excess of the stated rate for each series of Notes.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000 in excess
thereof. The Exchange Notes
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may be presented for registration of transfer and exchange at the offices of the
applicable Registrar (as defined). Initially, the applicable Trustee will act as
paying agent and registrar with respect to the Exchange Notes of a series.
FIRST PRIORITY EXCHANGE NOTES
The First Priority Exchange Notes and the untendered Existing First
Priority Notes, if any, will be secured obligations of the Issuer, limited to an
aggregate principal amount of $217.0 million and will mature on June 30, 2007.
The First Priority Exchange Notes and the untendered Existing First Priority
Notes, if any, are guaranteed jointly and severally by the Owners. See
"--GUARANTEES." The First Priority Exchange Notes and the untendered Existing
First Priority Notes, if any, and the Guarantees will be secured by the
Collateral and will have the benefit of the Letter of Credit. The Issuer's
reimbursement obligation in respect of the Letter of Credit and the Second
Priority Exchange Notes and the untendered Existing Second Priority Notes, if
any, will also be secured by the Collateral. The Second Priority Exchange Notes
and the untendered Existing Second Priority Notes, if any, will also have the
benefit of the Letter of Credit under certain circumstances. See "--SECURITY."
The First Priority Exchange Notes and the untendered Existing First
Priority Notes, if any, will bear interest at a rate of 10 1/2% per annum from
the Original Closing Date until the principal thereof is paid or made available
for payment. Such interest will be payable semi-annually on June 30 and December
31 of each year, commencing December 31, 1997, to the person in whose name the
relevant First Priority Exchange Note or the untendered Existing First Priority
Note, if any, is registered at the close of business on the preceding June 15 or
December 15, as the case may be.
SECOND PRIORITY EXCHANGE NOTES
The Second Priority Exchange Notes and the untendered Existing Second
Priority Notes, if any, will be secured obligations of the Issuer, limited to an
aggregate principal amount of $87.0 million (plus up to $20.9 million of
additional Second Priority Notes that may be issued in lieu of paying cash
interest as described below) and will mature on June 30, 2007. The Second
Priority Exchange Notes and the untendered Existing Second Priority Notes, if
any, are guaranteed jointly and severally by the Owners. See "--GUARANTEES." The
Second Priority Exchange Notes and the untendered Existing Second Priority
Notes, if any, and the Guarantees will be secured by the Collateral and, under
certain circumstances, the Second Priority Exchange Notes and the untendered
Existing Second Priority Notes, if any, will have the benefit of the Letter of
Credit. See "--SECURITY."
The Second Priority Exchange Notes and the untendered Existing Second
Priority Notes, if any, will bear interest at a rate of 12% per annum from the
Original Closing Date until the principal thereof is paid or made available for
payment. Such interest will be payable in cash semi-annually on June 30 and
December 31 of each year, commencing December 31, 1997, to the person in whose
name the relevant Second Priority Exchange Note or the untendered Existing
Second Priority Notes, if any, is registered at the close of business on the
preceding June 15 or December 15, as the case may be; PROVIDED, HOWEVER, that at
the election of the Issuer, on any Interest Payment Date following the delivery
of the first Vessel if cash available for distribution in the Revenue Account
(as defined) to the Holders on such date is insufficient to pay all accrued and
unpaid interest on the Second
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Priority Exchange Notes and the untendered Existing Second Priority Notes, if
any, such interest may be paid through the issuance to the Holders of the Second
Priority Exchange Notes and the untendered Existing Second Priority Notes, if
any, by the Issuer of additional Second Priority Exchange Notes having an
aggregate principal amount equal to the deficiency in such available cash;
PROVIDED FURTHER, HOWEVER, that the Issuer may not issue more than $20.9 million
in aggregate principal amount of such additional Second Priority Exchange Notes.
REDEMPTIONS
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Notes are not redeemable at the
option of the Issuer prior to June 30, 2002. On and after such date, the First
Priority Exchange Notes and the Second Priority Exchange Notes may be redeemed
at the option of the Issuer, in whole or in part, at any time or from time to
time, upon not less than 30 days' nor more than 60 days' prior notice mailed by
first-class mail to each Holder's registered address, at the redemption prices
set forth in the table below (expressed as a percentage of the principal amount
thereof), plus accrued and unpaid interest to the date of redemption (subject to
the right of a Holder of record on the relevant record date to receive interest
due on the relevant Interest Payment Date):
IF REDEEMED DURING THE 12-MONTH PERIOD REDEMPTION PRICE
COMMENCING ON JUNE 30 OF THE YEARS SET FORTH FIRST PRIORITY EXCHANGE SECOND PRIORITY
BELOW: NOTES EXCHANGE NOTES
- ------ ----- --------------
2002................................................................. 105.75% 106.00%
2003................................................................. 103.50 104.00
2004................................................................. 101.75 102.00
2005 and thereafter.................................................. 100.00 100.00
In addition, at any time and from time to time prior to June 30, 2000,
the Issuer may redeem in the aggregate up to 35% of the original principal
amount of each series of Notes, on a PRO RATA basis, with the proceeds of one or
more Public Equity Offerings (with the cash proceeds thereof to the extent
actually contributed to the Issuer) following which there exists a Public
Market, at a redemption price (expressed as a percentage of principal amount) of
110.5% (in the case of the First Priority Exchange Notes) and 112% (in the case
of the Second Priority Exchange Notes), plus in each case accrued interest to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date);
PROVIDED, HOWEVER, that at least $100 million aggregate principal amount of
First Priority Exchange Notes and the untendered Existing First Priority Notes,
if any, and $45 million aggregate principal amount of Second Priority Exchange
Notes and the untendered Existing Second Priority Notes, if any, must remain
outstanding after each such redemption.
Other than as set forth in the previous paragraph, the First Priority
Indenture will prohibit the Issuer from redeeming at the option of the Issuer
any Second Priority Notes while the First Priority
Notes are outstanding.
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MANDATORY REDEMPTION UPON THE OCCURRENCE OF CERTAIN EVENTS
In the event an Owner elects to terminate its Building Contract because
of a material breach thereof by the Builders (including a failure to pay
liquidated damages for any delay in the delivery of the related Vessel), the
Exchange Notes of each series will be subject to mandatory redemption in part,
on a PRO RATA basis, in an aggregate principal amount equal to the Allocated
Principal Amount of the Notes for such Vessel and for each other Vessel that has
not been accepted by its related Owner as of the date of such termination, at a
redemption price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest to and including the date of redemption (subject to the right of
a Holder of record on the relevant record date to receive interest due on the
relevant Interest Payment Date), upon the earlier to occur of (a) the receipt of
the Refund Amount with respect to the related Building Contract(s) and (b) 60
days after the termination of such Building Contract(s) by the related Owner(s).
If a Vessel is subject to Total Loss (as defined), the Exchange Notes
of each series will be subject to mandatory redemption in part, on a PRO RATA
basis, in an aggregate principal amount equal to the Allocated Principal Amount
of the Notes for such Vessel, at a redemption price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption (subject to the right of a Holder of record on the relevant record
date to receive interest due on the relevant Interest Payment Date), upon the
earlier to occur of (a) the receipt of the Insurance Proceeds (as defined) with
respect to such Total Loss and (b) 60 days after such Total Loss was deemed to
have occurred.
SELECTION AND NOTICE
Unless otherwise expressly stated, if the Exchange Notes are to be
redeemed in part, the selection of the Exchange Notes to be redeemed will be
made by the applicable Trustee on a PRO RATA basis, by lot or by such other
method as such Trustee in its sole discretion shall deem to be fair and
appropriate; PROVIDED that, in all cases the Exchange Notes may be redeemed in
multiples of $1,000 only, and subject always to the provisions described above.
Any notice of redemption will specify (i) the Exchange Notes subject to
redemption; (ii) whether the Exchange Notes are to be redeemed in whole or in
part, and the aggregate principal amount of the Exchange Notes to be redeemed;
and (iii) the date of such redemption. Once an Exchange Note or portion thereof
has been redeemed, interest will cease to accrue thereon as of the redemption
date.
ADDITIONAL AMOUNTS
All payments of, or in respect of, principal of and any premium and
interest on the Exchange Notes, and all payments pursuant to the Guarantees,
shall be made without withholding or deduction for, or on account of, any
present or future taxes, duties, assessments or governmental charges of whatever
nature (or interest on any taxes, duties, assessments or other governmental
charges of whatever nature) imposed or levied by or on behalf of, or within, the
Isle of Man (or the jurisdiction of incorporation of any successor of the Issuer
or any of the Owners) or any political subdivision or taxing authority thereof
or therein ("Taxes"), unless such Taxes are required by the Isle of Man or the
jurisdiction of incorporation of any successor to the Issuer or any of the
Owners (each a
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"Successor Jurisdiction"), as the case may be, or any such authority to be
withheld or deducted. In that event, the Issuer, the relevant Owners or any
successor, as the case may be, will pay such additional amounts of, or in
respect of, principal and any premium and interest or with respect to payments
pursuant to the Guarantees ("Additional Amounts") as may be necessary so that
the net amount received by each Holder (including Additional Amounts) after such
withholding or deduction will not be less than the amounts that the Holder would
have received if such Taxes had not been withheld or deducted, except that no
Additional Amounts shall be so payable for or on account of:
(1) Taxes that would not have been imposed but for
(a) the existence of any present or former connection between
such Holder (or between a fiduciary, settlor, beneficiary, member or
shareholder of, or possessor of a power over, such Holder, if such
Holder is an estate, trust, partnership or corporation) and the Isle of
Man or any Successor Jurisdiction (including any territory or political
subdivision of the foregoing), as the case may be, including such
Holder (or such fiduciary, settlor, beneficiary, member, shareholder or
possessor) being or having been a national, domiciliary or resident of
or treated as a resident thereof or being or having been present or
engaged in a trade or business therein or having or having had a
permanent establishment therein;
(b) the presentation of such Exchange Note for payment in the
Isle of Man or any Successor Jurisdiction, as the case may be, or any
of their respective territories or political subdivisions, unless such
Exchange Note could not have been presented for payment elsewhere; or
(c) the presentation of such Exchange Note more than 30 days
after the date on which the payment in respect of such Exchange Note
became due and payable or provided for, whichever is later, except to
the extent that the Holder would have been entitled to such Additional
Amounts if it had presented such Exchange Note for payment on any day
within such period of 30 days;
(2) any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge;
(3) any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure of the Holder or beneficial owner of an
Exchange Note to comply with a request of the Issuer or any of the Owners, as
the case may be, addressed to the Holder (a) to provide reasonable information
concerning the nationality, residence or identity of the Holder or such
beneficial owner or (b) to make any reasonable declaration or other similar
claim or satisfy any reasonable information or reporting requirement, which, in
the case of (a) or (b), is required or imposed by a statute, treaty, regulation
or administrative practice of the taxing jurisdiction as a precondition to
exemption from all or part of such tax, assessment or governmental charge; or
(4) any combination of items (1), (2) and (3);
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nor shall Additional Amounts be paid with respect to any payment of the
principal of or any premium or interest on any such Exchange Note, or payment
pursuant to the Guarantees, to any Holder (including a fiduciary or partnership)
to the extent that the beneficial owner would not have been entitled to such
Additional Amounts had it been the Holder of the Exchange Note. The Issuer or
the relevant Owners, as the case may be, will also (i) make such withholding or
deduction and (ii) remit the full amount deducted or withheld to the relevant
authority in accordance with applicable law. The Issuer or the relevant Owners,
as the case may be, will furnish to Holders of Exchange Notes that are
outstanding on the date of the withholding or deduction for or on account of
Taxes, within 30 days after the date of the payment of any Taxes due pursuant to
applicable law, certified copies of tax receipts evidencing such payment by the
Issuer or the relevant Owners, as the case may be.
Whenever there is mentioned, in any context, the payment of the
principal of or any premium or interest on, or in respect of, any Exchange Note,
any payment pursuant to the Guarantees or the net proceeds received from the
Issuer or the Owners on the sale or exchange of any Exchange Note, such mention
shall be deemed to include mention of the payment of Additional Amounts provided
for in the Indentures to the extent that, in such context, Additional Amounts
are, were or would be payable in respect thereof pursuant to the Indentures.
The Issuer or the relevant Owners, as the case may be, will pay any
present or future stamp, court or documentary taxes or any other excise or
property taxes, charges or similar levies that arise in any jurisdiction from
the execution, delivery, enforcement or registration of the Exchange Notes or
the Guarantees or any other document or instrument in relation thereto, or the
receipt of any payments with respect to the Exchange Notes or Guarantees,
excluding such taxes, charges or similar levies imposed by any jurisdiction
outside of the Isle of Man, any Successor Jurisdiction or any jurisdiction in
which a paying agent is located (except those resulting from or required to be
paid in connection with, the enforcement of the Exchange Notes or the Guarantees
or any other such document or instrument following the occurrence of any Event
of Default with respect to the Exchange Notes), and has agreed to indemnify the
Holders for any such taxes paid by such Holders.
TAX REDEMPTION
If, as a result of any change in or any amendment to the laws,
regulations or published tax rulings of the Isle of Man or any Successor
Jurisdiction, or of any political subdivision or taxing authority thereof or
therein, or any change in the official administration, application or
interpretation of such laws, regulations or published tax rulings either
generally or in relation to any particular Exchange Notes, which change or
amendment becomes effective on or after the Original Closing Date or which
change in official administration, application or interpretation shall not have
been available to the public prior to the Original Closing Date and is notified
to the Issuer or the relevant Owners, as the case may be, on or after the
Original Closing Date, it is determined by the Issuer or the relevant Owners, as
the case may be, that the Issuer or the relevant Owners, as the case may be,
would be required to pay, or that the Issuer or the relevant Owners, as the case
may be, would be substantially likely to be required to pay, any Additional
Amounts (as defined in "Additional Amounts" above) pursuant to the Indentures or
the terms of any Exchange Note in respect of interest on the next succeeding
Interest Payment Date (assuming, in the case of the Owners, that a payment in
respect of such interest were required to be made by the relevant Owners under
the Guarantees
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on such Interest Payment Date), and that such obligation cannot be avoided by
the Issuer or the relevant Owners taking reasonable measures available to it,
the Issuer may, at its option, redeem all (but not less than all) the Exchange
Notes in respect of which such Additional Amounts would be so payable at any
time, upon not less than 30 nor more than 60 days' written notice as provided in
the Indentures, at a redemption price equal to 100% of the principal amount
thereof plus accrued interest to the date fixed for redemption (subject to the
right of a Holder of record on the relevant record date to receive interest due
on the relevant Interest Payment Date); PROVIDED, HOWEVER, that (a) no such
notice of redemption may be given earlier than 60 days prior to the earliest
date on which the Issuer or the relevant Owners, as the case may be, would be
obligated, or is substantially likely to be obligated, to pay such Additional
Amounts were a payment in respect of the Exchange Notes or the Guarantees, as
the case may be, then due, and (b) at the time any such redemption notice is
given, such obligation, or substantial likelihood, to pay such Additional
Amounts must remain in effect.
GUARANTEES
Payment of the principal of, and premium, if any, and interest on the
Exchange Notes, payment to the Letter of Credit Issuer of the Issuer's
obligations under the Letter of Credit Reimbursement Agreement, and the Issuer's
obligations for payment of all sums of money payable under the Security
Agreements and performance of all other obligations contained in the Indentures
and the Security Agreements (collectively, the "Obligations") is guaranteed
(each, a "Guarantee," and, collectively, the "Guarantees"), jointly and
severally, on a secured basis by each of the Owners. Each Guarantee is
irrevocable and unconditional but limited to an amount not to exceed the maximum
amount that can be guaranteed by the applicable Owner without rendering such
Guarantee voidable under applicable laws relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
If a Guarantee were to be rendered voidable, it could be subordinated by a court
to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Owner, and, depending on the amount of such
indebtedness, an Owner's liability on its Guarantee could be reduced to zero.
See "RISK FACTORS--RANKING OF THE EXCHANGE NOTES AND GUARANTEES" and
"--FRAUDULENT CONVEYANCE STATUTES."
SECURITY
Pursuant to the Intercreditor Agreement, the Collateral Agent is
holding and will hold the Collateral (defined below) in trust for the benefit of
the Holders of the Exchange Notes, as well as for the benefit of the Letter of
Credit Issuer and the Trustees. In addition, pursuant to the Intercreditor
Agreement, the Collateral Agent has or will establish the Trust Accounts for the
deposit and application of funds, as described below under "--TRUST ACCOUNTS"
and "--PRIORITIES OF PAYMENT."
On the Original Closing Date, (a) to secure the Issuer's obligations
under the Indentures, the Security Agreements, the Letter of Credit
Reimbursement Agreement and in respect of the Notes, Holdings pledged to the
Collateral Agent, for the benefit of the Holders of the Exchange Notes, the
Letter of Credit Issuer and the Trustees, all the Capital Stock of the Issuer
(the "Holdings Pledge") and the Issuer pledged to the Collateral Agent, for the
benefit of the Holders of the Exchange Notes, the Letter of Credit Issuer and
the Trustees, all the Capital Stock of the Owners and the Intercompany
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Note, and granted a security interest in all of its rights, titles and interests
in the Trust Accounts and all cash, securities, instruments or other property
credited thereto or deposited therein, and (b) to secure its obligations under
its Guarantee and under the Security Agreements, each Owner granted to the
Collateral Agent, for the benefit of the Holders of the Exchange Notes, the
Letter of Credit Issuer and the Trustees, a security interest in all its right,
title and interest in the following assets and documents: (i) the Building
Contract for the applicable Vessel; (ii) the Technical Supervision Agreement;
(iii) the Building Contract Guarantee for such Vessel and the Performance Bonds;
(iv) the Technical Management Agreement; (v) the Commercial Management
Agreement; (vi) the Trust Accounts and all cash, securities, instruments or
other property credited thereto or deposited therein; (vii) all monies and
securities, including Temporary Cash Investments, paid to or deposited with, or
required to be paid to or deposited with, the Collateral Agent by or for the
account of the Issuer or such Owner, or otherwise pursuant to the terms of any
Security Agreement; (viii) the Management Agreement; (ix) all rights of such
Owner to receive payments of any kind, to execute any election or option or to
give or receive any notice, consent, waiver or approval under or in respect of
any of the foregoing documents or instruments; (x) any and all assets of such
Owner whether now owned or hereafter acquired; and (xi) all income, payments,
proceeds, rights and claims, resulting from or arising out of the foregoing. The
foregoing collateral pledged by Holdings, the Issuer and the Owners is herein
collectively referred to as the "Original Closing Date Collateral."
On the Delivery Date of each Vessel, the related Owner will grant to
the Collateral Agent, for the benefit of the Holders of the Exchange Notes, the
Letters of Credit Issuer and the Trustees, a security interest in all of such
Owner's right, title and interest in the following assets and documents acquired
by such Owner after the Original Closing Date (the "Delivery Date Collateral"
and, together with the Original Closing Date Collateral, the "Collateral"): (i)
such Vessel in accordance with the terms and conditions of the related Mortgage;
(ii) all earnings and insurances in respect of such Vessel; (iii) all the
charterhire, tolls, rents, issues, profits, products, revenues and other income
(including insurance and warranty proceeds) from the property subject to, or
required to be subject to, the Lien under the Mortgage, and all the estate,
right, title and interest of such Owner in and to the same and every part of
said property; (iv) all requisition proceeds and Insurance Proceeds with respect
to such Vessel or any part thereof (to the extent of the Collateral Agent's
interest therein as mortgagee of such Vessel pursuant to the related Mortgage);
and (v) all income, payments, proceeds, rights and claims, resulting from or
arising out of the foregoing.
The Holders of the Exchange Notes, the Letter of Credit Issuer and the
Trustees will have an equal and ratable interest in the Collateral, subject to
the priority of payment described below under "--APPLICATION OF PROCEEDS
FOLLOWING AN EVENT OF DEFAULT." If Insurance Proceeds are payable in respect of
a Total Loss of any Vessel, the Trustees will instruct the Collateral Agent to
release the Lien on such Vessel and the related Collateral and the related Owner
from all of its obligations under its Guarantee upon receipt by the Collateral
Agent of the Total Loss Payment with respect to such Vessel. In connection with
the termination by an Owner of the related Building Contract because of a
material breach thereof by the Builder and the termination of the Building
Contracts for each other Vessel that has not been accepted by its Owner as of
the date of such termination, the Trustees will instruct the Collateral Agent to
release the Liens on such Building Contracts and the related Collateral and the
related Owners from their obligations under their Guarantees upon receipt by the
Collateral Agent of the Rescission Amounts for such Vessels.
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INTEREST DRAWS ON THE LETTER OF CREDIT
On the Original Closing Date, the Letter of Credit was issued by the
Letter of Credit Issuer in favor of the Collateral Agent for the benefit of the
Holders of the Exchange Notes and the Trustees. The Collateral Agent is not and
will not be eligible by the terms of the Letter of Credit to make an Interest
Draw (as defined below) thereunder until after the Delivery Date of the first
Vessel. Three Business Days prior to each Interest Payment Date thereafter, the
Collateral Agent shall determine if a Note Interest Shortfall exists. If a Note
Interest Shortfall exists, no later than the day which is two Business Days
prior to such Interest Payment Date, the Collateral Agent shall make a draw
(each, an "Interest Draw") on the Letter of Credit in a Draw Amount (as defined)
equal to the lesser of (a) the Note Interest Shortfall (less any portion of such
Note Interest Shortfall attributable to interest payable pursuant to a
Registration Default) and (b) the Maximum Amount Available under the Letter of
Credit. No later than the Business Day prior to such Interest Payment Date, the
Letter of Credit Issuer shall remit such Draw Amount to the Collateral Agent and
the Collateral Agent shall deposit such amount into the Letter of Credit
Account.
Under the terms of the Letter of Credit Reimbursement Agreement and the
Intercreditor Agreement, the Collateral Agent is not and will not be permitted
to make an Interest Draw to pay interest on the Second Priority Exchange Notes
until and unless the Issuer shall have, prior to or on the date of such Interest
Draw, issued additional Second Priority Exchange Notes in an aggregate principal
amount of $20.9 million to cover previous or concurrent shortfalls in cash
available in the Revenue Account to pay interest on the Second Priority Exchange
Notes. On the first Business Day of each calendar month, (i) subject to the
prior distribution of any required (a) Monthly Operating Deposit and (b)
Manager's Fee (if such date shall also be a Management Fee Payment Date (as
defined)), cash available for distribution in the Revenue Account on such date
will be applied to the payment of unpaid fees in respect of the Letter of Credit
and all accrued and unpaid interest on all outstanding Draws under the Letter of
Credit and to the repayment, to the extent of funds remaining therein, of all
Working Capital Draws outstanding on such date and then all Interest Draws
outstanding; and (ii) if such date shall also be an Interest Payment Date after
the Delivery Date of the first Vessel, the repayment of all Draws outstanding on
such date shall be subject to the prior distribution of any required fees and
expenses payable to the Trustees and the Collateral Agent in respect of the
Indentures and the Intercreditor Agreement. See "--PRIORITIES OF
PAYMENT--REVENUE ACCOUNT."
RANKING
The First Priority Exchange Notes and the untendered Existing First
Priority Notes, if any, and the Second Priority Exchange Notes and the
untendered Existing Second Priority Notes, if any, will be secured obligations
of the Issuer. With respect to claims against the Collateral securing the
Exchange Notes, the Holders of the Exchange Notes will have a claim thereto
which is subordinate in right of payment to any claim held by the Letter of
Credit Issuer with respect to any unreimbursed Draws under the Letter of Credit.
The priority of payment of the principal of, premium (if any) and interest on
the Exchange Notes is as described under "Description of the Exchange
Notes--Priority of Payment--Revenue Account,"-- "Priority of Payment--
Termination Account" and "-- Application of Proceeds Following an Event of
Default." Neither the Issuer nor
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the Owners are permitted by the Indentures to incur any additional Indebtedness,
with certain limited exceptions. See "Description of the Exchange
Notes--Ranking."
MANDATORY OFFERS TO PURCHASE EXCHANGE NOTES
OFFER TO PURCHASE WITH AVAILABLE CASH. Commencing on June 30, 2001 and
semi-annually thereafter so long as the First Priority Exchange Notes and the
untendered Existing First Priority Notes, if any, remain outstanding (each, an
"Available Cash Payment Date"), the Issuer will be required, to the extent of
Available Cash (as defined), to make an offer (each, an "Available Cash Offer")
to each Holder of the First Priority Exchange Notes and the untendered Existing
First Priority Notes, if any, to purchase such Holder's First Priority Exchange
Notes and the untendered Existing First Priority Notes, if any,(or at such
Holder's option, any part thereof) or in part, at a price equal to 102% of the
principal amount thereof plus accrued and unpaid interest to the date of
purchase; PROVIDED, HOWEVER, that the Issuer will not be required to make an
Available Cash Offer if Available Cash is less than $1.0 million.
Commencing on the first Available Cash Payment Date on or after the
date the First Priority Exchange Notes and the untendered Existing First
Priority Notes, if any, are repaid in full and on each Available Cash Payment
Date thereafter, the Issuer will be required, to the extent of Available Cash,
to make an Available Cash Offer to each Holder of the Second Priority Exchange
Notes and the untendered Existing Second Priority Notes, if any, to repurchase
such Holder's Second Priority Exchange Notes and untendered Existing Second
Priority Notes, if any, (or at such Holder's option, any part thereof) at a
price equal to 102% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase; PROVIDED, HOWEVER, that the Issuer will not be
required to make an Available Cash Offer if Available Cash is less than $1.0
million.
Pursuant to the terms of the Intercreditor Agreement, the Issuer will
have the ability from time to time to withdraw, to the extent of Available Cash,
cash from the Revenue Account in connection with purchases by the Issuer of
Exchange Notes in open market transactions. To the extent the Issuer in fact
purchases Exchange Notes in open market transactions, the amount of Available
Cash, if any, in the Revenue Account on subsequent Available Cash Payment Dates
will be reduced.
OFFER TO PURCHASE UPON CHANGE OF CONTROL. Upon the occurrence of a
Change of Control (as defined), the Issuer will be required to make an offer (a
"Change of Control Offer"), to each Holder of the First Priority Exchange Notes
and to each Holder of the Second Priority Exchange Notes, to purchase such
Holder's Exchange Notes (subject to the limitation described below under
"--SOURCE OF FUNDS TO PURCHASE NOTES"), at a price equal to 101% of the
outstanding principal amount of such Exchange Notes, plus accrued and unpaid
interest to the date of purchase (the "Change of Control Payment"); PROVIDED,
HOWEVER, that the Issuer will not be required to make a Change of Control Offer
following a Change of Control if a third party makes an offer which, if it had
been made by the Issuer, would constitute a Change of Control Offer; PROVIDED
FURTHER, that the Issuer shall purchase any and all First Priority Exchange
Notes validly tendered pursuant to a Change of Control Offer prior to purchasing
any Second Priority Exchange Notes validly tendered pursuant to such Change of
Control Offer.
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A "CHANGE OF CONTROL" is defined to mean the occurrence of any of the
following events:
(i) prior to the first public offering of common stock of
Holdings, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of
the Voting Stock of the Issuer, whether as a result of issuance of
securities of Holdings or the Issuer, any merger, consolidation,
liquidation or dissolution of Holdings or the Issuer, any direct or
indirect transfer of securities by Holdings or otherwise (for purposes
of this clause (i) and clause (ii) below, the Permitted Holders shall
be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent corporation);
(ii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in clause (i) above,
except that for purposes of this clause (ii) such person shall be
deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 35% of the total voting power of the Voting Stock of the
Issuer; PROVIDED, HOWEVER, that the Permitted Holders beneficially own
(as defined in clause (i) above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting
Stock of the Issuer than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate
for election a majority of the Board of Directors (for the purposes of
this clause (ii), such other person shall be deemed to beneficially own
any Voting Stock of a specified corporation held by a parent
corporation, if such other person is the beneficial owner (as defined
in this clause (ii)), directly or indirectly, of more than 35% of the
voting power of the Voting Stock of such parent corporation and the
Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of
such parent corporation);
(iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the board of directors
of Holdings or the Issuer (together with any new directors whose
election by such board of directors or whose nomination for election by
the shareholders of Holdings or the Issuer, respectively, was approved
by a vote of 662/3% of the directors of Holdings or the Issuer, as the
case may be, then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the board of directors of Holdings or the Issuer,
respectively, then in office;
(iv) either CGTC or GEBAB ceases to be a shareholder of
Holdings; or
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(v) prior to the expiration of the warranty period of the last
Vessel, TGE (including its Affiliates) disposes of any of its shares in
Holdings other than to an Affiliate of TGE.
PROCEDURE FOR PURCHASE OF NOTES. On the next succeeding Business Day
after the Available Cash Determination Date with respect to an Available Cash
Offer and within 30 days after the occurrence of a Change of Control, the Issuer
will be required to provide, by mail (first class, prepaid) written notice to
the Trustees and each Holder stating that: (i) Available Cash is expected to be
available on the next succeeding Available Cash Payment Date or a Change of
Control has occurred, as applicable; (ii) an Available Cash Offer is being made
and Exchange Notes of the applicable series having an aggregate principal amount
equal to Available Cash divided by 1.02 (the "Maximum Principal Amount") will be
accepted for payment (provided that no Second Priority Exchange Note or
untendered Existing Secured Priority Note, if any, will be accepted for payment
unless and until all First Priority Exchange Notes and untendered Existing First
Priority Notes, if any, have been repaid in full) or a Change of Control Offer
is being made and all Exchange Notes validly tendered will be accepted for
payment, as applicable; (iii) the purchase price and date of purchase (which
shall be the Available Cash Payment Date, in the case of an Available Cash
Offer, or which shall be a Business Day not less than 30 days nor more than 60
days from the date on which such Change of Control notice is mailed in the case
of a Change of Control Offer); (iv) any Exchange Note not tendered will continue
to accrue interest pursuant to its terms; (v) any Exchange Note accepted for
payment pursuant to the Available Cash Offer or the Change of Control Offer, as
applicable, shall cease to accrue interest on and after the purchase payment
date therefor (in the case of a Change of Control Offer, the "Change of Control
Payment Date" and, together with the Available Cash Payment Date, the "Purchase
Payment Date"), unless the Issuer defaults on such payment; (vi) Holders of
Exchange Notes electing to have any Exchange Note or portion thereof purchased
pursuant to an Available Cash Offer or Change of Control Offer will be required,
prior to the close of business on the Business Day immediately preceding the
applicable Purchase Payment Date, to surrender such Exchange Note to the
applicable Trustee at the address specified in the notice, together with a
completed form entitled "Option of the Holder to Elect Purchase" on the reverse
side of such Note; (vii) Holders of Exchange Notes will be entitled to withdraw
their election if the applicable Trustee receives, not later than the close of
business on the third Business Day immediately preceding the applicable Purchase
Payment Date, a telegraph, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Exchange Notes delivered for
purchase, and a statement that such Holder is withdrawing his election to have
such Exchange Notes purchased; and (viii) Holders whose Exchange Notes are being
purchased in part will receive new Exchange Notes of the same series and in
principal amount equal to the unpurchased portion of the Exchange Notes
surrendered; PROVIDED, HOWEVER, that each Exchange Note purchased and each new
Exchange Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
On the applicable Purchase Payment Date, the Issuer will be required
to: (i) accept for payment all Exchange Notes or portions thereof tendered
pursuant to the Available Cash Offer (provided that no Second Priority Exchange
Note will be accepted for payment unless and until all First Priority Exchange
Notes and untendered Existing First Priority Notes, if any, have been repaid in
full) or Change of Control Offer (provided that the Issuer shall purchase any
and all First Priority Exchange Notes and untendered Existing First Priority
Notes, if any, validly tendered pursuant to a Change of Control Offer prior to
purchasing any Second Priority Exchange Notes and untendered
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Existing Second Priority Notes, if any, validly tendered pursuant to such Change
of Control Offer), as applicable; (ii) deposit with the applicable Trustee funds
sufficient to pay the purchase price of all Exchange Notes of the applicable
series or portions thereof so accepted; and (iii) deliver or cause to be
delivered to the applicable Trustee, all Exchange Notes or portions thereof so
accepted together with an officers' certificate specifying the Exchange Notes or
portions thereof accepted for payment. The applicable Trustee shall promptly
mail, to the Holders of Exchange Notes so accepted, payment in an amount equal
to the purchase price, and the applicable Trustee shall promptly authenticate
and mail to such Holders a new Exchange Note of such series equal in principal
amount to any unpurchased portion of the Exchange Notes of such series
surrendered; PROVIDED, HOWEVER, that each Exchange Note purchased and each new
Exchange Note issued shall be in a principal amount of $1,000 or integral
multiples thereof; PROVIDED FURTHER, HOWEVER, that with respect to an Available
Cash Offer, if the aggregate amount of Exchange Notes of a series tendered
exceeds the Maximum Principal Amount, then the applicable Trustee shall select
Exchange Notes of such series to be purchased ratably from each Holder that
tendered Exchange Notes of such series such that the ratio of the principal
amount of the Exchange Notes of such series to be purchased from each Holder
that tendered Exchange Notes of such series to the aggregate principal amount of
Exchange Notes of such series tendered by such Holder shall, as nearly as
practicable and subject to rounding, equal the ratio of the Maximum Principal
Amount to the aggregate principal amount of the Exchange Notes of such series
tendered with respect to such Available Cash Offer. The Issuer will notify the
Holders of the results of an Available Cash Offer or Change of Control Offer on
or as soon as practicable after the applicable Purchase Payment Date.
The Issuer will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, to the extent such laws and
regulations are applicable to an Available Cash Offer or a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described hereunder, the Issuer
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
SOURCE OF FUNDS TO PURCHASE NOTES. In the event of an Available Cash
Offer, the payment for the tendered Exchange Notes shall be taken from amounts
held as Available Cash in the Revenue Account.
In the event of a Change of Control Offer, the Change of Control
Payment shall be taken from the Revenue Account to the extent of funds available
therein. As discussed under "RISK FACTORS--LIMITATION ON CHANGE OF CONTROL,"
there can be no assurance that, on the Change of Control Payment Date, amounts
in the Revenue Account will be sufficient to pay for all the Exchange Notes
tendered pursuant to the Change of Control Offer.
REGISTRATION RIGHTS
In connection with the issuance of the Existing Notes, the Company
entered into a Registration Rights Agreement with the Initial Purchasers
pursuant to which the Company agreed, for the benefit of the Holders of the
Existing Notes, at the Company's expense, to use its reasonable best efforts to
cause the Registration Statement of which this Prospectus forms a part to be
declared effective under the Securities Act.
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Promptly after the Registration Statement of which this Prospectus
forms a part is declared effective, the Company has agreed to commence the
Exchange Offer and to keep the Exchange Offer open not less than 30 days (or
longer if required by applicable law).
In the event that any changes in law or applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer or in certain other circumstances, the Company has agreed, at the
Manager's expense, to (i) as promptly as practicable, and in any event on or
prior to 30 days after such filing obligation arises, file or cause to be filed
with the Commission the Shelf Registration Statement covering resales of the
Existing Notes, (ii) use reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (iii) use
reasonable best efforts to keep effective the Shelf Registration Statement for
up to two years after its effective date (or such shorter period that will
terminate when all the Existing Notes covered thereby have been sold pursuant
thereto or in certain other circumstances). The Company has agreed to use
reasonable best efforts in the event of the filing of a Shelf Registration
Statement, to provide to each Holder of the Existing Notes covered by the Shelf
Registration Statement copies of the prospectus that is a part of the Shelf
Registration Statement, notify each such Holder when the Shelf Registration
Statement for the Existing Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Existing Notes. A
Holder of Existing Notes that sells such Existing Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
Holder (including certain indemnification obligations). In addition, each Holder
of the Existing Notes will be required to deliver certain information to be used
in connection with the Shelf Registration Statement in order to have its
Existing Notes included thereunder.
If the Exchange Offer is not consummated by February 3, 1998,
Additional Interest will accrue on the Existing Notes from such date to the date
the Exchange Offer is consummated, at a rate of 0.50% of the principal amount
thereof per annum, which Additional Interest is payable semiannually in arrears
on each Payment Date. Interest on the First Priority Exchange Notes will accrue
at a rate of 11% and interest on the Second Priority Exchange Notes will accrue
at a rate of 12 1/2% per annum to reflect the 0.50% of additional Additional
Interest until the earlier of consummation of the Exchange Offer or such time as
the Exchange Notes may be freely resold pursuant to Rule 144(k). Additional
charter hire payments are or will be payable under the Charters in an aggregate
amount, in each case, equal to such Additional Interest.
Upon consummation of the Exchange Offer, the Company generally will
have satisfied its obligations under the Registration Rights Agreement with
respect to registration of the Existing Notes and generally will have no further
obligation to register the Existing Notes.
A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
TRUST ACCOUNTS
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Pursuant to the Intercreditor Agreement, the Collateral Agent has
established and is maintaining the Pre-Funding Account, Capitalized Interest
Account, Revenue Account, Letter of Credit Account, Operating Account, Casualty
Account, Termination Account and Collateral Account (collectively, the "Trust
Accounts") each of which was established in the name of the Collateral Agent for
the benefit of the Holders of the Exchange Notes, the Letter of Credit Issuer
and the Trustees. The Manager has and will have the right to withdraw amounts
held in the Operating Account. See "--OPERATING ACCOUNT."
PRE-FUNDING ACCOUNT. The Issuer has deposited or will deposit, as
applicable, into an account (the "Pre-Funding Account"): (i) on the Original
Closing Date, (A) an amount sufficient to pay the Purchase Price of each Vessel;
and (B) an amount sufficient to pay (1) all fees allocable to each Vessel and
due and payable prior to the Delivery Date of such Vessel, including the
Manager's Fees and those payable to the Letter of Credit Issuer and (2) all
amounts in respect of the cost of Vessels' supplies and (ii) from time to time
income earned on Temporary Cash Investments from amounts on deposit in the
Pre-Funding Account. In connection with the foregoing deposits, the Issuer has
delivered on the Original Closing Date to the Trustees and the Collateral Agent
a verification report of a nationally recognized firm of independent accountants
to the effect that funds deposited pursuant to clause (i)(A) above will provide
cash at such times and in such amounts as will be sufficient to pay, when due,
each installment payment for the Purchase Price of each Vessel. Notwithstanding
the delivery of the aforementioned report, there can be no assurance that the
funds deposited pursuant to clause (i)(A) above, will provide cash at such times
and in such amounts as will be sufficient to pay, when due, each installment
payment for the Purchase Price of each Vessel.
The Collateral Agent has made or will make, as applicable payments from
the Pre-Funding Account as follows: (i) on each Vessel Purchase Installment Date
(as defined) for each Vessel, an amount equal to the installment then due with
respect to such Vessel to be remitted to the Builders as an installment payment
of the Purchase Price of such Vessel, PROVIDED that each of the Trustees and the
Collateral Agent has received written notice of such Vessel Purchase Installment
Date at least three Business Days prior to such date, and PROVIDED FURTHER, that
no material default exists under the related Building Contract; (ii) at any time
and from time to time, PROVIDED that the Collateral Agent and the Trustees have
received a written request for such payment at least three Business Days prior
to such date of withdrawal, an amount equal to that portion of any fee allocable
to a Vessel and then due and payable prior to the Delivery Date of such Vessel
pursuant to the terms of the Management Agreement or the Letter of Credit
Reimbursement Agreement, to be remitted to the Manager or the Letter of Credit
Issuer, as the case may be; PROVIDED, HOWEVER, that amounts withdrawn from the
Pre-Funding Account to make payments as described in this clause (ii) shall not
in the aggregate exceed the sum of all amounts deposited into the Pre-Funding
Account pursuant to clause (i)(B)(1) of the preceding paragraph; (iii) on the
Delivery Date for each Vessel, PROVIDED that the conditions precedent set forth
in the Indentures and the Intercreditor Agreement have been satisfied, an amount
equal to (A) the final installment of the Purchase Price for such Vessel, to be
remitted to the Builders, plus (B) fees and expenses incurred in connection with
the recordation and filing of the related Security Agreements in the
Registration Jurisdiction related to such Vessel, to be remitted to the Manager;
(iv) on each Interest Payment Date occurring after the Contractual Delivery Date
of a Vessel and before the Delivery Date of such Vessel, an amount equal to the
interest accrued on the Allocated Principal Amount of the Notes for such Vessel
to be deposited in the Revenue Account; (v) if an Owner elects to terminate the
Building Contract for its Vessel due
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to a material breach of such Building Contract by the Builders, an amount equal
to the remaining funds in the Pre-Funding Account to be deposited into the
Termination Account for application in redemption of such portion of the First
Priority Exchange Notes and untendered Existing First Priority Notes, if any, or
the Second Priority Exchange Notes and untendered Existing Second Priority
Notes, if any, as the case may be, as described above under
"--REDEMPTION--MANDATORY REDEMPTION UPON THE OCCURRENCE OF CERTAIN EVENTS;" (vi)
on the Delivery Date of the last Vessel, the amounts remaining in the
Pre-Funding Account after the payment of the final installment of the Purchase
Price to the Builders and the remittance of the fees and expenses incurred in
connection with the recordation and filing of the related Security Agreements in
the Registration Jurisdiction related to such Vessel to the Manager, to be
deposited into the Revenue Account; and (vii) any and all investment income
earned from Temporary Cash Investments held therein, for deposit in the
Capitalized Interest Account.
CAPITALIZED INTEREST ACCOUNT. On the Original Closing Date, the
Collateral Agent, pursuant to the Intercreditor Agreement, deposited into an
account (the "Capitalized Interest Account") an amount which, together with the
investment income estimated to be earned thereon from Temporary Cash Investments
as well as any investment income from Temporary Cash Investments deposited
therein from the Pre-Funding Account, will be sufficient to pay interest
(excluding additional interest payable on such Exchange Notes pursuant to a
Registration Default) on the Allocated Principal Amount of the Notes for each
Vessel during the period prior to the Contractual Delivery Date of the related
Vessel. In connection with the foregoing deposit, the Issuer delivered on the
Original Closing Date to the Trustees and the Collateral Agent a verification
report of a nationally recognized firm of independent accountants to the effect
that the payments scheduled to be received, without reinvestment, on the
Temporary Cash Investments made with funds deposited in the Capitalized Interest
Account pursuant to this paragraph, together with amounts deposited in the
Capitalized Interest Account from the Pre-Funding Account as set forth above and
together with any cash, without reinvestment, deposited pursuant to this
paragraph, that was not invested on the Original Closing Date, will provide cash
at such times and in such amounts as will be sufficient to pay, when due,
interest on the Allocated Principal Amount of the Notes for each Vessel during
the period prior to the Contractual Delivery Date of such Vessel (excluding
additional interest payable on such Exchange Notes pursuant to a Registration
Default). Notwithstanding the delivery of the aforementioned report, there can
be no assurance that the funds deposited pursuant to this paragraph will provide
cash at such times and in such amounts as will be sufficient to pay, when due,
interest on the Allocated Principal Amount of the Notes for each Vessel during
the period prior to the Contractual Delivery Date of such Vessel.
On each Interest Payment Date prior to the Contractual Delivery Date of
a Vessel, the Collateral Agent will withdraw from the Capitalized Interest
Account in respect of each such Vessel an amount equal to the interest accrued
on the Allocated Principal Amount of the Notes for such Vessel and shall deposit
such amount into the Revenue Account. In addition, if an Owner elects to
terminate the Building Contract for its Vessel due to a material breach of such
Building Contract by the Builders, then the remaining funds in the Capitalized
Interest Account shall be withdrawn from the Capitalized Interest Account and
deposited into the Termination Account for application in redemption of such
portion of the First Priority Exchange Notes and untendered Existing First
Priority Notes, if any, or the Second Priority Exchange Notes and untendered
Existing Second
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Priority Notes, if any, as the case may be, as described above under
"--REDEMPTIONS--MANDATORY REDEMPTION UPON THE OCCURRENCE OF CERTAIN EVENTS."
REVENUE ACCOUNT. The following amounts will be deposited into an
account (the "Revenue Account"): (i) on a daily basis, any and all revenue
(including charterhire) received by the Owners or the Manager in connection with
the employment of the Vessels; (ii) on the first Business Day of each month
following the Delivery Date of the first Vessel, income earned during the
preceding calendar month on Temporary Cash Investments from amounts on deposit
in the Revenue Account; (iii) Interest Draws; (iv) Working Capital Draws in an
amount equal to additional interest being paid or payable on the Allocated
Principal Amount of the Notes for each Vessel pursuant to a Registration Default
to the extent the balance remaining in the Capitalized Interest Account on an
Interest Payment Date prior to the acceptance of such Vessel is insufficient to
pay such additional interest; and (v) on the Delivery Date of the last Vessel,
any amounts remaining in the Pre-Funding Account after the payment of the final
installment of the Purchase Price to the Builders and the remittance of the fees
and expenses incurred in connection with the recordation and filing of the
related Security Agreements in the Registration Jurisdiction related to such
Vessel to the Manager. Deposits will also be made into the Revenue Account from
time to time (i) from certain withdrawals of funds from the Pre-Funding Account,
the Capitalized Interest Account and the Casualty Account, as described herein;
and (ii) from amounts held in the Termination Account to the extent Insurance
Proceeds exceed the related Total Loss Payment. The Collateral Agent will
disburse funds on deposit in the Revenue Account from time to time as described
below under "--PRIORITIES OF PAYMENTS--REVENUE ACCOUNT."
LETTER OF CREDIT ACCOUNT. No later than the Business Day prior to each
Interest Payment Date with respect to which the Collateral Agent has made an
Interest Draw under the Letter of Credit, the Collateral Agent will, pursuant to
the Intercreditor Agreement, deposit the Draw Amount into an account (the
"Letter of Credit Account"). On each Interest Payment Date after the Delivery
Date of the first Vessel as described under "--PRIORITIES OF PAYMENT--LETTER OF
CREDIT ACCOUNT," the Collateral Agent will be required to withdraw from the
Letter of Credit Account such Draw Amount and shall deposit such amount into the
Revenue Account.
OPERATING ACCOUNT. On the first Business Day of each calendar month,
commencing after the Delivery Date of the first Vessel, the Collateral Agent
will, from amounts withdrawn from the Revenue Account as described under
"--PRIORITIES OF PAYMENT--REVENUE ACCOUNT," deposit into an account (the
"Operating Account") an amount (the "Monthly Operating Deposit") by which the
Budgeted Monthly Operating Balance then in effect exceeds the balance of funds
in the Operating Account as of the opening of business on such first Business
Day, as certified by the Manager to the Trustees and the Collateral Agent as of
such first Business Day. In addition, on and after any Business Day commencing
90 days prior to the Delivery Date of the first Vessel, as reasonably expected
by the Issuer and evidenced by an Officer's Certificate, upon receipt by the
Collateral Agent of a written request from the Manager that a Working Capital
Draw be made under the Letter of Credit to the extent the funds in the Operating
Account are insufficient to meet actual operating expenses (including the
Manager's Fees and the fees of GEBAB under the Technical Supervision Agreement
and the Commercial Management Agreement) for which the Manager has received an
invoice, the Collateral Agent will make a Working Capital Draw in the amount
requested by the
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Manager (but not to exceed the maximum amount then available under the Letter of
Credit for Working Capital Draws) and deposit the Draw Amount into the Operating
Account.
CASUALTY ACCOUNT. The Collateral Agent will deposit into an account
(the "Casualty Account") (i) any cash proceeds (other than amounts representing
the Refund Amount or the proceeds of the Performance Bonds or any Building
Contract Guarantee) from the exercise of remedies against a Builder in respect
of any Vessel; and (ii) any Insurance Proceeds (other than with respect to a
Total Loss) payable to the Collateral Agent as assignee of the Owners and the
Manager, pursuant to the terms of the Insurance Policies, as described herein
under "THE MORTGAGES--INSURANCE."
In accordance with the terms of the Intercreditor Agreement, the
Collateral Agent will apply amounts deposited into the Casualty Account to pay
for the repair or salvage of any of the Vessels, if, in each case, the following
conditions have been met: (i) if no Event of Default has occurred or is
continuing, the Manager has certified to the Trustees and the Collateral Agent
that such repairs are necessary or desirable for the use, operation and
maintenance of such Vessel; and (ii) if an Event of Default has occurred and is
continuing, the Collateral Agent, in its sole discretion, has determined to
apply such amounts to pay for the repair or salvage of such Vessel. If repair of
such Vessel is deemed not to be desirable by the Manager or the Collateral
Agent, pursuant to either clause (i) or (ii) above, such amounts will be held
(x) in the Casualty Account if no Event of Default has occurred or is
continuing, and (y) in the Collateral Account if an Event of Default has
occurred and is continuing.
The Collateral Agent may withdraw funds from the Casualty Account on
any Interest Payment Date, to cover any deficiency which may arise if funds
available in the Revenue Account are insufficient to pay amounts required to be
paid from the Revenue Account on such Interest Payment Date as described under
"--PRIORITIES OF PAYMENTS--REVENUE ACCOUNT," but only to the extent that funds
on deposit in the Casualty Account are not designated for payment of the repair
or salvage of the related Vessel giving rise to the deposit of such funds.
TERMINATION ACCOUNT. In the event of a Total Loss of a Vessel or in the
event of a termination by an Owner of its Building Contract, the Collateral
Agent will deposit into an account (the "Termination Account") any Insurance
Proceeds or the Refund Amounts with respect to the related Vessel and any other
Vessel that has not been accepted as of such date of termination, if any, and
any amounts collected in respect of the related Building Contract Guarantees and
Performance Bonds, as the case may be. See "--REDEMPTIONS--MANDATORY REDEMPTION
UPON THE OCCURRENCE OF CERTAIN EVENTS." The Refund Amounts and any amounts
collected in respect of the related Building Contract Guarantees and the
Performance Bonds, together with the amounts withdrawn from the Pre- Funding
Account and the Capitalized Interest Account shall be withdrawn from the
Termination Account to be applied first, to the Letter of Credit Issuer in an
aggregate amount equal to the sum of (i) any accrued and unpaid fees owing under
the Letter of Credit Reimbursement Agreement, (ii) all Working Capital Draws
made with respect to such Vessels which remain unreimbursed, together with
accrued and unpaid interest thereon and (iii) the Allocated Portion of Interest
Draws for such Vessels which remain unreimbursed, together with accrued and
unpaid interest thereon and then, for the redemption of the First Priority
Exchange Notes and untendered Existing First Priority Notes, if any, or the
Second Priority Exchange Notes and untendered Existing Second Priority Notes, if
any,
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as the case may be, as required by the terms of the Indentures. The Insurance
Proceeds in the event of a Total Loss will be withdrawn from the Termination
Account and disbursed by the Collateral Agent, in the following order of
priority:
FIRST: to the Letter of Credit Issuer, the Trustees and the Collateral
Agent, an amount equal to any accrued and unpaid Letter of Credit Fees and
Trustee and Collateral Agent fees and all reasonable expenses and charges
incurred by or on behalf of the Letter of Credit Issuer, the Trustees and the
Collateral Agent in connection with the ascertainment or protection of their
respective rights and the pursuance of their respective remedies under the
Indentures, the Letter of Credit Reimbursement Agreement or any of the Security
Agreements (including the reasonable fees and expenses of counsel);
SECOND: to the Letter of Credit Issuer, an amount equal to all Working
Capital Draws made with respect to such Vessel which remain unreimbursed,
together with interest thereon payable pursuant to the Letter of Credit
Reimbursement Agreement;
THIRD: to the Letter of Credit Issuer, an amount equal to the Allocated
Portion of Interest Draws for a Vessel which remain unreimbursed, together with
interest thereon payable pursuant to the Letter of Credit Reimbursement
Agreement;
FOURTH: to the First Priority Trustee for the benefit of the Holders of
the First Priority Exchange Notes and untendered Existing First Priority
Exchange Notes, if any, an amount equal to any accrued and unpaid interest in
respect of the First Priority Exchange Notes and untendered
Existing First Priority Exchange Notes, if any, then outstanding;
FIFTH: to the Second Priority Trustee for the benefit of the Holders of
the Second Priority Exchange Notes and untendered Existing Second Priority
Exchange Notes, if any, an amount equal to any accrued and unpaid interest in
respect of the Second Priority Exchange Notes and untendered
Existing Second Priority Exchange Notes, if any, then outstanding;
SIXTH: to the First Priority Trustee for the benefit of the Holders of
the First Priority Exchange Notes and untendered Existing First Priority
Exchange Notes, if any, an amount equal to the outstanding principal of the
First Priority Exchange Notes and untendered Existing First Priority
Exchange Notes, if any;
SEVENTH: to the Second Priority Trustee for the benefit of the Holders
of the Second Priority Exchange Notes and untendered Existing Second Priority
Exchange Notes, if any, an amount equal to the outstanding principal of the
Second Priority Exchange Notes and untendered Existing Second Priority Exchange
Notes, if any; and
EIGHTH: to the Revenue Account, any remaining amounts.
COLLATERAL ACCOUNT. The Collateral Agent will deposit into an account
(the "Collateral Account"): (i) the cash proceeds of any sale of, or other
realization upon, all or any part of the Collateral upon exercise by the
Collateral Agent of any rights and remedies under the Intercreditor Agreement
and the Indentures, as described below under "--DEFAULTS;" (ii) any other
amounts
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received by the Collateral Agent upon the occurrence and continuation of an
Event of Default, if such amounts are not otherwise applied as indicated below
under "--PRIORITIES OF PAYMENT--REVENUE ACCOUNT;" (iii) any other amounts
received by the Collateral Agent pursuant to any of the Security Agreements for
which the Intercreditor Agreement does not specify a Trust Account into which
such amount is to be deposited; and (iv) upon the occurrence and continuance of
an Event of Default, at the instruction of the Trustees and the Letter of Credit
Issuer, funds from any other Trust Account. Funds on deposit in the Collateral
Account will be distributed in accordance with "--APPLICATION OF PROCEEDS
FOLLOWING AN EVENT OF DEFAULT" below.
PRIORITIES OF PAYMENT
The Collateral Agent will disburse amounts from the Revenue Account,
the Letter of Credit Account and the Operating Account in the manner, and in the
order of priority, described below.
REVENUE ACCOUNT. On the first Business Day of each calendar month, the
Collateral Agent will withdraw funds from the Revenue Account and apply such
funds in the following order of priority:
(i) first, for deposit into the Operating Account, an amount
equal to the Monthly Operating Deposit (as certified by the Manager);
(ii) second, to the Letter of Credit Issuer, an amount, as
certified to the Collateral Agent by the Letter of Credit Issuer, equal
to all accrued and unpaid interest on all outstanding Draws under the
Letter of Credit, to such date and, after the Delivery Date of the last
Vessel, the sum of all accrued and unpaid fees payable in respect of
the Letter of Credit to such date;
(iii) third, to the Letter of Credit Issuer, an amount as
certified to the Collateral Agent by the Letter of Credit Issuer, equal
to the aggregate amount of Working Capital Draws outstanding on such
date; and
(iv) fourth, to the Letter of Credit Issuer, an amount, as
certified to the Collateral Agent by the Letter of Credit Issuer, equal
to the aggregate amount of Interest Draws outstanding on such date;
PROVIDED, HOWEVER, that, in the event that the first Business Day of any
calendar month is a Management Fee Payment Date, the application of funds
pursuant to subparagraphs (ii), (iii) and (iv) above shall be subordinate to the
payment of the Manager's Fee as set forth in the following paragraph; PROVIDED
FURTHER, that in the event that the first Business Day of any calendar month is
an Interest Payment Date, the application of funds pursuant to subparagraphs
(iii) and (iv) above shall also be subordinate to the payments set forth in
subparagraph (A) below.
On each the first Business Day of each calendar quarter (each a
"Management Fee Payment Date") after the Delivery Date of the first Vessel, upon
its receipt from the Manager of a written statement describing the amounts then
due and payable, the Collateral Agent will withdraw from the Revenue Account, to
the extent of funds available therein, an amount equal to the aggregate
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Manager's Fee then payable pursuant to the Management Agreement, the Commercial
Management Agreement and the Technical Management Agreement, and shall remit
such amount to the
Manager.
Subject to the priorities set forth in the preceding two paragraphs, on
each Interest Payment Date the Collateral Agent shall withdraw funds from the
Revenue Account, to the extent of funds available therein, and apply such funds
in the following order of priority:
(A) prior to the Delivery Date of the last Vessel, to the
Letter of Credit Issuer, the sum of all accrued and unpaid fees payable
in respect of the Letter of Credit to such date;
(B) after the Delivery Date of the first Vessel, to the
Trustees and the Collateral Agent, on a PRO RATA basis in accordance
with amounts owed, an amount, as certified by the respective Trustee or
the Collateral Agent, equal to the accrued and unpaid fees and expenses
payable in respect of the Indentures and the Intercreditor Agreement;
(C) to the First Priority Trustee for the benefit of the
Holders of First Priority Exchange Notes and untendered Existing First
Priority Notes, if any, an amount, as certified to the Collateral Agent
by the First Priority Trustee, equal to all accrued and unpaid interest
to such Interest Payment Date on the First Priority Exchange Notes and
untendered Existing First Priority Notes, if any; and
(D) to the Second Priority Trustee for the benefit of the
Holders of Second Priority Exchange Notes and untendered Existing
Second Priority Notes, if any, an amount, as certified to the
Collateral Agent by the Second Priority Trustee, equal to the accrued
and unpaid interest to such Interest Payment Date on the Second
Priority Notes and untendered Existing Second Priority Notes, if any.
Any amounts that remain in the Revenue Account on an Interest Payment
Date after application in accordance with the foregoing priorities will be
treated as Available Cash.
From time to time after the Delivery Date of the first Vessel, in the
event of an extraordinary expense incurred in order to maintain and operate a
Vessel in accordance with the related Mortgage, as certified by the Manager to
the Trustees and the Collateral Agent, which expense is immediately due and
payable, the Collateral Agent will be required to withdraw (each, an
"Extraordinary Remittance") from amounts on deposit in the Revenue Account an
amount sufficient to meet such extraordinary expense and deposit such amount
into the Operating Account.
LETTER OF CREDIT ACCOUNT. On each Interest Payment Date after the
Delivery Date for the first Vessel, any amounts on deposit in the Letter of
Credit Account will be withdrawn by the Collateral Agent and transferred into
the Revenue Account and applied on such Interest Payment Date solely to amounts
payable as described in clauses (B) and (C) of the third paragraph under
"--Revenue Account;" PROVIDED, HOWEVER, that such amounts shall not be applied
to pay amounts owed as described in such clause (C) unless the Issuer shall
have, prior to or on such Interest Payment Date, issued additional Second
Priority Notes in an aggregate principal amount of $20.9 million as described
under "--TERMS OF THE EXCHANGE NOTES--SECOND PRIORITY EXCHANGE NOTES."
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OPERATING ACCOUNT. The Manager shall have the right to withdraw amounts
on deposit in the Operating Account, from time to time, to pay the operating
expenses of (i) Vessels as to which the Delivery Date has occurred and (ii) to
the extent of Working Capital Draws deposited therein, Vessels the Delivery Date
of which is reasonably expected by the Issuer, as evidenced to the Collateral
Agent by an Officer's Certificate, to occur within 90 days of the date of such
withdrawal date. On the fifteenth day of each January, April, July and October,
the Manager shall provide to the Trustees and the Collateral Agent a reasonably
detailed statement setting forth, on an aggregate and per Vessel basis, how the
amounts withdrawn from the Operating Account were applied during the previous
calendar quarter.
APPLICATION OF PROCEEDS FOLLOWING AN EVENT OF DEFAULT
Upon the occurrence of (i) an Event of Default under either of the
Indentures or (ii) an Event of Default under the Letter of Credit Reimbursement
Agreement, the related Trustee or the Letter of Credit Issuer, as the case may
be, may, subject to the terms and provisions of the Intercreditor Agreement,
declare all amounts owing under the applicable Indenture or the Letter of Credit
Reimbursement Agreement, as the case may be, to be immediately due and payable
and, subject to the terms of the Intercreditor Agreement, direct the Collateral
Agent to take action to enforce the remedies contained in the applicable
Indenture or the Letter of Credit Reimbursement Agreement, as the case may be.
Pursuant to the Intercreditor Agreement, all amounts on deposit in the
Trust Accounts which may be distributed in the event of an Event of Default,
will be distributed on a distribution date selected by the Collateral Agent or
at the request of the Letter of Credit Issuer or the Holders (in the aggregate)
of a majority of the then outstanding Exchange Notes of both series, in the
following order of priority, to the extent of funds available therein:
FIRST: to the Letter of Credit Issuer, the Trustees and the Collateral
Agent, an amount equal to any accrued and unpaid Trustee and Collateral Agent
fees and all reasonable expenses and charges incurred by or on behalf of the
Letter of Credit Issuer, the Trustees and the Collateral Agent in connection
with the ascertainment or protection of their respective rights and the
pursuance of their respective remedies under the Indentures, the Letter of
Credit Reimbursement Agreement or any of the Security Agreements (including the
reasonable fees and expenses of counsel);
SECOND: to the Letter of Credit Issuer, an amount equal to any amounts
owing pursuant to the Letter of Credit Reimbursement Agreement with respect to
Working Capital Draws;
THIRD: to the Letter of Credit Issuer, an amount equal to any amounts
pursuant to the Letter of Credit Reimbursement Agreement with respect to
Interest Draws;
FOURTH: to the First Priority Trustee for the benefit of the Holders of
the First Priority Exchange Notes and untendered Existing First Priority Notes,
if any, an amount equal to any accrued and unpaid interest in respect of the
First Priority Exchange Notes and untendered Existing First
Priority Notes, if any, then outstanding;
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FIFTH: to the Second Priority Trustee for the benefit of the Holders of
the Second Priority Exchange Notes and the untendered Existing Second Priority
Notes, if any, an amount equal to any accrued and unpaid interest in respect of
the Second Priority Exchange Notes and untendered Existing Second Priority
Notes, if any, then outstanding;
SIXTH: to the First Priority Trustee for the benefit of the Holders of
the First Priority Exchange Notes and untendered Existing First Priority Notes,
if any, an amount equal to the outstanding principal of the First Priority
Exchange Notes and untendered Existing First Priority Notes, if any;
SEVENTH: to the Second Priority Trustee for the benefit of the Holders
of the Second Priority Exchange Notes and the untendered Existing Second
Priority Notes, if any, an amount equal to the outstanding principal of the
Second Exchange Priority Notes and untendered Existing First Priority Notes, if
any; and
EIGHTH: to the Issuer, its successors or assigns, or to whomsoever may
be lawfully entitled to receive the same, the excess, if any.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. The Issuer shall not Incur, directly or
indirectly, any Indebtedness, except that the Issuer may Incur any or all of the
following Indebtedness:
(1) the Existing First Priority Notes, the First Priority
Exchange Notes, the Existing Second Priority Notes and the Second
Priority Exchange Notes; and
(2) Indebtedness incurred under the Letter of Credit
Reimbursement Agreement and under the Security Agreements.
LIMITATION ON INDEBTEDNESS OF OWNERS. (a) The Issuer shall not permit
any Owner to Incur, directly or indirectly, any Indebtedness except that an
Owner may Incur the following Indebtedness:
(1) Guarantees of the Existing First Priority Notes, the First
Priority Exchange Notes, the Existing Second Priority Notes and the
Second Priority Exchange Notes, the Issuer's obligations under the
Letter of Credit Reimbursement Agreement and any Indebtedness Incurred
under the Security Agreements;
(2) the Intercompany Note; and
(3) Attributable Debt in respect of a UK Lease; PROVIDED,
HOWEVER, that prior to such Incurrence, the Issuer shall have delivered
to the Trustees written confirmation from the Rating Agencies that the
entry into such UK Lease will not result in a downgrading (or
possible downgrading) of the Notes.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Issuer shall not, and shall
not permit any Owner, directly or indirectly, to make a Restricted Payment.
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(b) The provisions of the foregoing paragraph (a) shall not prohibit,
with respect to the First Priority Indenture, the redemption of Second Priority
Exchange Notes and untendered Existing Second Priority Notes, if any, pursuant
to the provisions described under "--REDEMPTIONS--MANDATORY REDEMPTION UPON THE
OCCURRENCE OF CERTAIN EVENTS," or "--TAX REDEMPTION" or the purchase of Second
Priority Exchange Notes and untendered Existing Second Priority Notes, if any,
pursuant to the provisions described under "--MANDATORY OFFERS TO PURCHASE
NOTES," in each case only to the extent that the corresponding provisions in the
First Priority Indenture have been complied with prior to or on the date of such
redemption or purchase.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM OWNERS. The Issuer
shall not, and shall not permit any Owner to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Owner to (a) pay dividends or make any other distributions on
its Capital Stock to the Issuer or another Owner or pay any Indebtedness owed to
the Issuer, (b) make any loans or advances to the Issuer or (c) transfer any of
its property or assets to the Issuer, except any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the Original Closing
Date.
LIMITATION ON ASSET SALES. The Issuer shall not, and shall not permit
any Owner to, sell, assign, convey, transfer or otherwise dispose of a Vessel or
any other portion of the Collateral, except pursuant to the Security Agreements
or a UK Lease and except sales of Incidental Assets.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) Except for payments under the
Building Contracts which the Builders pay to TGE or which the Builders have
directed be paid directly to TGE, the Issuer shall not, and shall not permit any
Owner to, enter into or permit to exist any transaction or series of related
transactions (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Issuer (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Issuer or such Owner than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate, (2) if such Affiliate Transaction involves an
amount in excess of $1.0 million, (i) are set forth in writing; and (ii) have
been approved by a majority of the members of the Board of Directors having no
personal stake in such Affiliate Transaction and (3) if such Affiliate
Transaction involves an amount in excess of $5.0 million, have been determined
by a reasonably appropriate independent qualified appraiser given the size and
nature of the transaction to be fair, from a financial standpoint, to the Issuer
and the Owners.
(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--LIMITATION ON RESTRICTED PAYMENTS;" (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options, stock
ownership and other employee benefit plans approved by the Board of Directors;
(iii) the grant of stock options or similar rights to employees and directors of
Holdings or the Issuer pursuant to plans approved by the Board of Directors;
(iv) fees paid to directors who are not employees of the Issuer or the Owners;
(v) any Affiliate Transaction between the Issuer and an Owner or between Owners;
(vi) the performance by the Issuer and the Owners of their obligations under the
Management Agreement and, in the case of the Owners, the Technical Supervision
Agreement, the Technical Management Agreement and the Commercial Management
Agreement, in each case in the form in effect on the
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Issue Date; and (vii) the payments made to the Shareholders on the Original
Closing Date as described in this Offering Circular under "Certain
Transactions."
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF OWNERS. The
Issuer shall not sell or otherwise dispose of any Capital Stock of an Owner, and
shall not permit any such Owner directly, or indirectly, to issue or sell or
otherwise dispose of any of its Capital Stock except (i) to the Issuer or
another Owner or (ii) directors' qualifying shares.
LIMITATION ON LIENS. The Issuer shall not, and shall not permit any
Owner to, directly or indirectly, Incur or permit to exist any Lien of any
nature whatsoever on any of its properties (including Capital Stock of an
Owner), whether owned at the Original Closing Date or thereafter acquired, other
than Permitted Liens.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Issuer shall not, and
shall not permit any Owner to, enter into any Sale/Leaseback Transaction, except
for a UK Lease.
MERGER AND CONSOLIDATION. The Issuer shall not consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all its assets to, any Person, except in
connection with the imposition of Additional Amounts and unless: (i) the
resulting, surviving or transferee Person (the "Successor Issuer") shall be a
Person organized and existing under (a) the laws of the United States of
America, any State thereof or the District of Columbia, (b) the laws of the
Republic of Liberia, (c) the laws of the Isle of Man or (d) any other
jurisdiction which at the time is generally deemed acceptable by institutional
lenders to the shipping industry, as determined in good faith by the Board of
Directors, and the Successor Issuer (if not the Issuer) shall expressly assume,
by an indenture supplemental thereto, executed and delivered to the applicable
Trustee, in form satisfactory to such Trustee, all the obligations of the Issuer
under the Exchange Notes and the applicable Indenture; (ii) the Successor Issuer
(if not the Issuer) shall expressly assume all the obligations of the Issuer
under the Security Agreements and the Letter of Credit Reimbursement Agreement;
(iii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Issuer or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Issuer or such Subsidiary at the time of such transaction), no Default
shall have occurred and be continuing; (iv) immediately after giving effect to
such transaction, the Successor Issuer shall have a Consolidated Net Worth in an
amount that is not less than the Consolidated Net Worth of the Issuer
immediately prior to such transaction; (v) the Issuer shall have delivered to
the applicable Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the applicable Indenture and (vi) an opinion of
counsel in the jurisdiction where the Successor Issuer is domiciled (the
"Applicable Jurisdiction") to the effect that (A) any payment of interest,
principal or premiums (if any) on the Exchange Notes by the Successor Issuer to
a Holder will, after the consolidation, merger, conveyance, transfer or lease of
assets be exempt from withholding tax in the Applicable Jurisdiction and (B) no
other taxes on income (including taxable capital gains) will be payable under
any tax law of the Applicable Jurisdiction by a Holder of the Exchange Notes,
who is or who is deemed to be a non-resident of the Applicable Jurisdiction in
respect of the acquisition, ownership or disposition of the Exchange Notes
including the receipt of interest, principal or premiums thereon, provided that
such Holder does not
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use or hold, and is not deemed to use or hold the Exchange Notes in carrying on
a business in the Applicable Jurisdiction.
The Successor Issuer shall be the successor to the Issuer and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under the Indentures, but the predecessor Issuer in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Exchange Notes.
The Issuer shall not permit any Owner to consolidate with or merge with
or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to any Person, except in
connection with the imposition of Additional Amounts and unless: (i) the
resulting, surviving or transferee Person (the "Successor Owner") shall be a
Person organized and existing under the laws of the jurisdiction under which
such Subsidiary was organized or under (a) the laws of the United States of
America, or any State thereof or the District of Columbia, (b) the laws of the
Republic of Liberia, (c) the Isle of Man or (d) any other jurisdiction which at
the time is generally deemed acceptable by institutional lenders to the shipping
industry, as determined in good faith by the Board of Directors, and the
Successor Owner (if not the Owner) shall expressly assume, by a Guarantee
Agreement, all the obligations of such Owner, if any, under its Guarantee; (ii)
the Successor Owner (if not the Owner) shall expressly assume, by the Guarantee
Agreement, all the obligations of such Owner, if any, under its Guarantee of the
Issuer's obligations under the Security Agreements and the Letter of Credit
Reimbursement Agreement; (iii) immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the Successor Owner as a result of such
transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; (iv) the Issuer
delivers to the applicable Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
Guarantee Agreement, if any, complies with the applicable Indenture; and (v) an
opinion of counsel in the jurisdiction where the Successor Owner is domiciled
(the "Applicable Jurisdiction") to the effect that (A) any payment of interest,
principal or premiums (if any) on the Guarantee by the Successor Owner to a
Holder will, after the consolidation, merger, conveyance, transfer or lease of
assets be exempt from withholding tax in the Applicable Jurisdiction and (B) no
other taxes or income (including taxable capital gains) will be payable under
any tax law of the Applicable Jurisdiction by a Holder of the Securities who is
or who is deemed to be a non-resident of the Applicable Jurisdiction in respect
to the acquisition, ownership or disposition of the Securities, including the
receipt of interest, principal or premiums thereon, PROVIDED that such Holder
does not use or hold, and is not deemed to use or hold the Securities in
carrying on a business in the Applicable Jurisdiction.
LIMITATION ON BUSINESS ACTIVITIES. The Issuer shall not conduct any
trade or business other than holding Investments in the Owners. The Issuer shall
not permit any Owner to conduct any trade or business other than the ownership
and operation of its respective Vessel and holding Investments in the Issuer or
one or more other Owners.
IMPAIRMENT OF SECURITY INTEREST. The Issuer shall not, and shall not
permit any Owner to, take or knowingly or negligently omit to take, any action
which action or omission might or would have the result of materially impairing
the security interest with respect to the Collateral for the benefit of the
Trustees and the Holders of the Exchange Notes, and the Issuer shall not, and
shall not permit
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any Owner to, grant to any Person other than the Collateral Agent, for the
benefit of the Trustees, the Letter of Credit Issuer and the Holders of the
Exchange Notes, any interest whatsoever in any of the Collateral.
AMENDMENTS TO SECURITY AGREEMENTS. The Issuer shall not, and shall not
permit any Owner to, amend, modify or supplement, or permit or consent to any
amendment, modification or supplement of, the Security Agreements in any way
that would be adverse to the Holders of the
Exchange Notes.
SEC REPORTS. Whether or not required by the rules and regulations of
the Commission, Holdings shall furnish to the Noteholders (i) all annual and
quarterly financial information that would be required to be contained in a
filing with the Commission on Forms 20-F and 10-Q if Holdings were required to
file such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual financial
information, a report thereon by Holdings' certified independent accountants and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if Holdings were required to file such reports; PROVIDED, HOWEVER,
that (x) such quarterly financial information shall be furnished within 60 days
following the end of each such fiscal quarter of Holdings (provided that the
initial quarterly information shall be furnished within 75 days following the
end of the most recently completed fiscal quarter ending prior to the Original
Closing Date) and (y) such annual financial information shall be furnished
within 120 days following the end of the fiscal year of Holdings. In addition,
whether or not required by the rules and regulations of the Commission, Holdings
will file a copy of all such information and reports with the Commission for
public availability (unless the Commission will not accept such filing). In
addition, Holdings shall furnish to the Noteholders and to prospective
investors, upon the requests of such Noteholders, any information required to be
delivered pursuant to Rule 144A (d) (4) under the Securities Act so long as the
Exchange Notes are not freely transferable under the Securities Act.
LIMITATION ON ACTIVITIES OF HOLDINGS. (a) Holdings shall not Incur,
directly or indirectly, any Indebtedness other than the Holdings Pledge.
(b) Holdings shall at all times be the holder of record of, and shall
be the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of, 100% of the outstanding Capital
Stock of the Issuer.
(c) Holdings shall not engage in any trade or business or hold any
assets or make any Investments (other than, in each case, the ownership of the
Capital Stock of the Issuer).
(d) Holdings shall not, directly or indirectly, Incur or permit to
exist any Lien of any nature whatsoever on any of its properties, other than the
Holdings Pledge.
(e) Holdings shall not consolidate with or merge with or into any
Person.
DEFAULTS
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An Event of Default is defined in the Indentures as (i) a default in
the payment of interest on the Notes when due, continued for 30 days; (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon optional or mandatory redemption, required purchase, declaration or
otherwise; (iii) the failure by the Issuer to comply with its obligations under
"--CERTAIN COVENANTS--MERGER AND CONSOLIDATION" above; (iv) the failure by the
Issuer to comply for 30 days after notice with any of its obligations in the
covenants described above under "--CHANGE OF CONTROL" (other than a failure to
purchase Exchange Notes), "--LIMITATION ON INDEBTEDNESS," "--LIMITATION ON
INDEBTEDNESS AND PREFERRED STOCK OF OWNERS," "--LIMITATION ON RESTRICTED
PAYMENTS," "--LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM OWNERS,"
"--LIMITATION ON ASSET SALES," "--LIMITATION ON AFFILIATE TRANSACTIONS,"
"--LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF OWNERS," "--LIMITATION
ON LIENS," "--LIMITATION ON SALE/LEASEBACK TRANSACTIONS," "--LIMITATION ON
BUSINESS ACTIVITIES," "--IMPAIRMENT OF SECURITY INTEREST," "--AMENDMENT TO
SECURITY AGREEMENTS" or "--SEC REPORTS" or the failure by Holdings to comply for
10 Business Days after notice with any of its obligations in the covenant
described above under "--CERTAIN COVENANTS--LIMITATION ON ACTIVITIES OF
HOLDINGS;" (v) the failure by the Issuer to comply with its other agreements
contained in the Indentures or in the Security Agreements, or the occurrence of
an event of default under a Mortgage, and such failure or event of default
continues for 60 days after notice; (vi) Indebtedness of Holdings, the Issuer or
any Owner is not paid within any applicable grace period after final maturity or
is accelerated by the Holders thereof because of a default and the total amount
of such Indebtedness unpaid or accelerated exceeds $5.0 million (the "cross
acceleration provision"); (vii) certain events of bankruptcy, insolvency or
reorganization of Holdings, the Issuer or an Owner (the "bankruptcy
provisions"); (viii) any judgment or decree for the payment of money in excess
of $5.0 million is entered against Holdings, the Issuer or an Owner, remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days after notice (the "judgment default
provision"); (ix) a Guarantee ceases to be in full force and effect (other than
in accordance with the terms of such Guarantee) or an Owner denies or disaffirms
its obligations under its Guarantee (the "guarantee default provision"); (x) the
security interest under the Indentures or the Security Agreements shall, at any
time, cease to be in full force and effect for any reason (other than by
operation of the provisions of the applicable Indenture and the Security
Agreements) other than the satisfaction in full of all obligations under the
applicable Indenture and discharge of the applicable Indenture, or any security
interest created thereunder or in the Security Agreements shall be declared
invalid or unenforceable or the Issuer, Holdings or any Owner shall assert, in
any pleading in any court of competent jurisdiction, that any such security
interest is invalid or unenforceable (the "security default provision"); or (xi)
the Designated Owners cease to own (and vote at their discretion) Voting Stock
of Holdings representing at least a majority of the Voting Stock of Holdings and
cease to own Capital Stock of Holdings entitling them to at least a majority of
the equity interests in Holdings. However, a default under clauses (iv), (v) and
(viii) will not constitute an Event of Default under an Indenture with respect
to a series of Exchange Notes, until the applicable Trustee or the Holders of
25% in principal amount of the outstanding Exchange Notes of such series notify
the Issuer of the default and the Issuer does not cure such default within the
time specified after receipt of such notice.
If an Event of Default occurs with respect to a series of Exchange
Notes and is continuing, the applicable Trustee or the Holders of at least 25%
in principal amount of the outstanding Exchange Notes of such series may declare
the principal of and accrued but unpaid interest on all the Exchange Notes, of
such series to be due and payable. Upon such a declaration, such principal
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and interest shall be due and payable immediately. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of the
Issuer occurs and is continuing, the principal of and interest on all the
Exchange Notes will IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of the Trustees or any Holders of the
Exchange Notes. Under certain circumstances, the Holders of a majority in
principal amount of the outstanding Exchange Notes of a series may rescind any
such acceleration with respect to the Exchange Notes of such series and its
consequences. Subject to the provisions of the Indentures relating to the duties
of the Trustees, in case an Event of Default occurs with respect to a series of
Notes and is continuing, the applicable Trustee will be under no obligation to
exercise any of the rights or powers under the applicable Indenture at the
request or direction of any of the Holders of the Exchange Notes of such series
unless such Holders have offered to such Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no Holder
of an Exchange Note, of a series may pursue any remedy with respect to the
applicable Indenture or the Exchange Notes of such series unless (i) such Holder
has previously given the applicable Trustee notice that an Event of Default is
continuing; (ii) Holders of at least 25% in principal amount of the outstanding
Exchange Notes of such series have requested such Trustee to pursue the remedy;
(iii) such Holders have offered such Trustee reasonable security or indemnity
against any loss, liability or expense; (iv) such Trustee has not complied with
such request within 60 days after the receipt thereof and the offer of security
or indemnity; and (v) the Holders of a majority in principal amount of the
outstanding Exchange Notes of such series have not given such Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Notes of a series are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
Trustee or of exercising any trust or power conferred on the applicable Trustee.
Such Trustee, however, may refuse to follow any direction that conflicts with
law or the applicable Indenture or that such Trustee determines is unduly
prejudicial to the rights of any other Holder of an Exchange Note of such series
or that would involve such Trustee in personal liability.
Each Indenture provides that if a Default occurs and is continuing and
is known to the Trustee, such Trustee must mail to each Holder of the Exchange
Notes of the applicable series notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of principal of or
interest on an Exchange Note of a series, the applicable Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the Holders of the Exchange
Notes of such series. In addition, the Issuer is required to deliver to each
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Issuer also is required to deliver to each Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Issuer is
taking or proposes to take in respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
A director, officer or employee, as such, of the Issuer or Holdings
shall not have any liability for any obligations of the Issuer or Holdings, as
the case may be, under the Indentures, the Security Agreements or the
Intercreditor Agreement. In addition, a director, officer, employee or
stockholder, as such, of the Owners shall not have any liability for any
obligations of the Owners under the
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Guarantees or for any claim based on, in respect of or by reason of such
obligations or their creation.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, each Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Exchange Notes
of the applicable series then outstanding (including consents obtained in
connection with a tender offer or exchange for the Exchange Notes of such
series) and any past Default or Event of Default or compliance with any
provisions may also be waived with the consent of the Holders of a majority in
principal amount of the Exchange Notes of such series then outstanding. However,
without the consent of each Holder of an outstanding Exchange Note of a series
affected thereby, no amendment may, among other things, (i) reduce the amount of
Exchange Notes of such series whose Holders must consent to an amendment; (ii)
reduce the rate of or extend the time for payment of interest on any Exchange
Note of such series; (iii) reduce the principal of or extend the Stated Maturity
of any Exchange Note of such series; (iv) reduce the premium payable upon the
redemption of any Note of such series or change the time at which any Exchange
Note of such series may be redeemed as described under "--REDEMPTIONS" above;
(v) make any Exchange Note of such series payable in money other than that
stated in the Exchange Note of such series; (vi) impair the right of any Holder
of the Exchange Notes of such series to receive payment of principal of and
interest on such Holder's Exchange Notes or untendered Existing Notes, if any,
of such series on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Exchange Notes of
such series; (vii) make any change in the amendment provisions which require
each Holder's consent or in the waiver provisions; (viii) make any change in any
Guarantee or Security Agreements that would adversely affect the Holders of such
series or terminate the Lien of the Indenture or any Security Agreement on any
property at any time subject thereto or deprive the Holder of the security
afforded by the Lien of such Indenture or the Security Agreements; or (ix) make
any change in the covenants described under "--CERTAIN COVENANTS" that would
adversely affect the Holders of such series.
Without the consent of any Holder of the Exchange Notes of a series,
the Issuer and related Trustee may amend the applicable Indenture or any
Security Agreement to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Issuer under such Indenture, to provide for uncertificated Exchange Notes of
such series in addition to or in place of certificated Exchange Notes of such
series (PROVIDED that such uncertificated Exchange Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that such uncertificated Exchange Notes are described in Section 163(f)(2)(B) of
the Code), to add guarantees with respect to the Exchange Notes of such series,
to secure the Exchange Notes of such series, to add to the covenants of the
Issuer for the benefit of the Holders of the Exchange Notes or untendered
Existing Notes, if any, of such series or to surrender any right or power
conferred upon the Issuer, to make any change that does not adversely affect the
rights of any Holder of the Exchange Notes of such series or to comply with any
requirement of the SEC in connection with the qualification of the applicable
Indenture under the Trust Indenture Act.
The consent of the Holders of the Exchange Notes of a series is not
necessary under the applicable Indenture to approve the particular form of any
proposed amendment. It is sufficient if such consent approves the substance of
the proposed amendment.
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After an amendment under an Indenture becomes effective, the Issuer is
required to mail to Holders of the Exchange Notes of the applicable series a
notice briefly describing such amendment. However, the failure to give such
notice to all Holders of the Exchange Notes of such series, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER
The Exchange Notes will be issued in registered form and will be
transferable (subject to applicable federal and state securities laws) only upon
the surrender of the Exchange Notes being transferred for registration of
transfer. The Issuer may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and
exchanges.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the
Exchange Notes of a series and the applicable Indenture ("legal defeasance"),
except for certain obligations, including those respecting the defeasance trust
and obligations to register the transfer or exchange of the Exchange Notes of
such series, to replace mutilated, destroyed, lost or stolen Exchange Notes of
such series and to maintain a registrar and paying agent in respect of the
Exchange Notes of such series. The Issuer at any time may terminate its
obligations under the Exchange Notes of a series and the applicable Indenture
under "--MANDATORY OFFERS TO PURCHASE EXCHANGE NOTES--OFFER TO PURCHASE UPON
CHANGE OF CONTROL" and under the covenants described under "--CERTAIN COVENANTS"
(other than the covenant described under "--MERGER AND CONSOLIDATION"), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Owners, the judgment default provision, the guarantee default
provision and the security default provision described under "--Defaults" above
and the limitations contained in clause (iv) of the first paragraph under, and
in the third paragraph under, "--CERTAIN COVENANTS--MERGER AND CONSOLIDATION"
above ("COVENANT DEFEASANCE").
The Issuer may exercise its legal defeasance option with respect to a
series of Exchange Notes notwithstanding its prior exercise of its covenant
defeasance option with respect to such series. If the Issuer exercises its legal
defeasance option with respect to a series of Exchange Notes, payment of the
Exchange Notes of such series may not be accelerated because of an Event of
Default with respect thereto. If the Issuer exercises its covenant defeasance
option with respect to a series of Exchange Notes, payment of the Exchange Notes
of such series may not be accelerated because of an Event of Default specified
in clause (iv), (vi), (vii) (with respect only to Owners), (viii), (ix), (x) or
(xi) under "--DEFAULTS" above or because of the failure of the Issuer to comply
with clause (iv) of the first paragraph, or with the third paragraph, under
"--CERTAIN COVENANTS--MERGER AND CONSOLIDATION" above. If the Issuer exercises
its legal defeasance option or its covenant defeasance option with respect to a
series of Exchange Notes, each Owner will be released from all its obligations
with respect to its Guarantee and the Security Agreements with respect to such
series, as applicable.
In order to exercise either defeasance option with respect to a series
of Exchange Notes, the Issuer must irrevocably deposit in trust (the "Defeasance
Trust") with the applicable Trustee money
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or U.S. Government Obligations for the payment of principal and interest on the
Exchange Notes of such series to redemption or maturity, as the case may be, and
must comply with certain other conditions, including delivery to the applicable
Trustee of an Opinion of Counsel to the effect that Holders of the Exchange
Notes of such series will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
Notwithstanding the foregoing, the exercise of either defeasance option
by the Issuer may not be enforceable if such defeasance improves the position of
Noteholders of either series of Exchange Notes as against any other creditor of
the Issuer, whether actual, contingent or otherwise. Furthermore, the Issuer may
not exercise its legal defeasance or covenant defeasance options unless the
Rating Agencies confirm to the applicable Trustee in writing that such exercise
will not result in a ratings decline with respect to either series of Exchange
Notes.
CONCERNING THE TRUSTEES
United States Trust Company of New York is the Trustee under the First
Priority Indenture and has been appointed by the Issuer as Registrar and Paying
Agent with regard to the First Priority Exchange Notes and untendered Existing
First Priority Notes, if any.
The Chase Manhattan Bank is the Trustee under the Second Priority
Indenture and has been appointed by the Issuer as Registrar and Paying Agent
with regard to the Second Priority Exchange
Notes and untendered Existing Second Priority Notes, if any.
United States Trust Company of New York is the Collateral Agent under
the Intercreditor Agreement.
The Holders of a majority in principal amount of the outstanding
Exchange Notes of a series have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the
applicable Trustee, subject to certain exceptions. Each Indenture provides that
if an Event of Default occurs (and is not cured) thereunder, the applicable
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of his own affairs. Subject to such
provisions, such Trustee is under no obligation to exercise any of its rights or
powers under such Indenture at the request of any Holder of Exchange Notes of
the applicable series, unless such Holder shall have offered to such Trustee
security and indemnity satisfactory to it against any loss, liability or expense
and then only to the extent required by the terms of such Indenture.
Prior to the Delivery Date of the first Vessel, the Manager is
responsible for the payment of the fees and expenses of the Trustees and the
Collateral Agent. Thereafter, the fees and expenses of the Trustees and the
Collateral Agent shall be payable from amounts held in the Revenue Account. See
"--PRIORITIES OF PAYMENTS--REVENUE ACCOUNT."
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GOVERNING LAW
Each of the Indentures and the Intercreditor Agreement provides that
the Indentures, the Intercreditor Agreement, the Exchange Notes and each of the
Security Agreements, other than the Mortgages and the Issue of One Debenture,
are governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby. The Building Contract Guarantees and the Performance Bonds are governed
by the laws of England.
ENFORCEABILITY OF JUDGMENTS
Since most of the operating assets of Holdings and its Subsidiaries are
located outside the United States, any judgment obtained in the United States
against Holdings or a Subsidiary, including judgments with respect to the
payment of principal of and interest on the Exchange Notes, may not be
collectible within the United States. See "ENFORCEMENT OF CIVIL LIABILITIES."
CONSENT TO JURISDICTION AND SERVICE
Each Indenture provides that Holdings, the Issuer and each Guarantor
will appoint Cambridge Partners, L.L.C., 535 Madison Avenue, New York, New York
10022 as its agent for actions brought under Federal or state securities laws
brought in any Federal or state court located in the Borough of Manhattan in The
City of New York and will submit to such jurisdiction. See "ENFORCEMENT OF CIVIL
LIABILITIES."
CERTAIN DEFINITIONS
"AFFILIATE" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--CERTAIN COVENANTS--LIMITATION ON
RESTRICTED PAYMENTS" and "--CERTAIN COVENANTS--LIMITATION ON AFFILIATE
TRANSACTIONS" only, "Affiliate" shall also mean any beneficial owner of Capital
Stock representing 5% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of the Issuer or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"ALLOCATED PORTION OF INTEREST DRAW" means, with respect to an Interest
Draw and a Vessel that has been accepted by the related Owner under the related
Building Contract, an amount equal to the product of (a) the amount of such
Interest Draw and (b) a fraction the numerator of which is one and the
denominator of which is the number of Vessels that have been accepted by the
related Owners as of the date of such Interest Draw.
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"ALLOCATED PORTION OF INTEREST DRAWS FOR A VESSEL" means, as of any
date of determination and with respect to a Vessel, an amount equal to the
aggregate principal amount of all Allocated Portion of Interest Draws for such
Vessel as of such date of determination.
"ALLOCATED PRINCIPAL AMOUNT" means at any time, when used with
reference to the Exchange Notes and untendered Existing Notes and any Vessel,
the following amounts: The quotient of (a) the difference between (i) the sum of
the initial principal amount of the First Priority Exchange Notes and untendered
Existing First Priority Notes, if any, and the initial principal amount of the
Second Priority Exchange Notes and untendered Existing Second Priority Notes, if
any, and (ii) all amounts applied to the payment of principal thereof as of such
time and (b) the difference between (i) five and (ii) the sum of (A) the number
of Vessels that have been rejected as of such time by the Owners pursuant to the
terms of the Building Contracts and (B) the number of Vessels released as of
such time by the Collateral Agent from the Lien of the related Mortgage.
"ASSIGNMENT OF EARNINGS AND ISSUANCES" means, for each Vessel, the
Assignment of Earnings and Insurances, dated on or before the Delivery Date for
such Vessel, between the related
Owner and the Collateral Agent.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the First Priority Exchange Notes, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"AVAILABLE CASH" means, as of any Available Cash Determination Date, an
amount equal to the excess, if any, of (a) the amounts available in the Revenue
Account after giving effect to the payments made therefrom on the related
Interest Payment Date over (b) the Manager's Fee for the Vessels payable on the
Management Fee Payment Date next succeeding such Interest Payment Date.
"AVAILABLE CASH DETERMINATION DATE" means, with respect to an Available
Cash Payment Date, the close of business on the first Business Day of the month
immediately preceding such Available Cash Payment Date.
"BOARD OF DIRECTORS" means the Board of Directors of Holdings (or, if
Holdings no longer controls the Issuer, the Issuer) or any committee thereof
duly authorized to act on behalf of such
Board.
"BUDGETED MONTHLY OPERATING BALANCE" means as of any date of
determination the product of (i) $500,000 and (ii) the number of Vessels as to
which the Delivery Date has occurred.
"BUILDERS" means Jiangnan Shipyard and China Shipbuilding Trading
Company, Limited.
"BUILDING CONTRACT" means any of the shipbuilding contracts for the
Vessels between the Builders and Holdings, each dated as of February 4, 1997, as
amended and restated as of June 26, 1997 and as further amended as of August 1,
1997, and assigned by Holdings to the Owners on or
before the Original Closing Date.
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"BUILDING CONTRACT GUARANTEE" means, with respect to each Building
Contract, the guarantee on behalf of the Builders, issued or to be issued by The
Export-Import Bank of China.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in The City of New York, or in the city of the
corporate trust office of the Collateral Agent, are authorized by law to close.
"CAPITAL LEASE OBLIGATIONS" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into
such equity.
"CGTC" means Cambridge Gas Transport Corporation, a Cayman Islands
corporation, and its successors.
"CHARTERS" is defined to mean each charter party and contract of
affreightment between an Owner, or the Manager on behalf of an Owner, and any
third party with respect to a Vessel, and as
the same may be amended from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMERCIAL MANAGEMENT AGREEMENT" means the Master Commercial Marketing
and Services Agreement between Holdings and GEBAB dated as of February 28, 1997,
assigned by Holdings to the Manager on behalf of the Owners on or before the
Original Closing Date.
"COMPULSORY ACQUISITION" means requisition for title or other
compulsory acquisition of any Vessel (otherwise than by requisition for hire),
capture, seizure, condemnation, destruction, detention or confiscation of such
Vessel by any Governmental Authority or by persons acting or purporting
to act on behalf of any Governmental Authority.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the total
of the amounts shown on the balance sheet of such Person and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of such Person ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (i) the par or stated value of all outstanding Capital Stock of
such Person plus (ii) paid-in capital or capital surplus relating to such
Capital Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
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"CONTRACTUAL DELIVERY DATE" means, with respect to a Vessel, the date
specified in the related Building Contract for the delivery of such Vessel.
"DCR" means Duff & Phelps Credit Rating Co. and its successors.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"DELIVERY DATE" means, with respect to a Vessel, the date such Vessel
is accepted by the related Owner pursuant to the terms of the related Building
Contract.
"DESIGNATED OWNERS" means CGTC, GEBAB, Xenon Shipping, Inc., a
Norwegian corporation, and any Person actually controlled (as defined in the
definition of "Affiliate") by any of the foregoing.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable or subject to required purchase at the
option of the holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the Stated Maturity of the Exchange Notes.
"DRAW AMOUNT" means the amount drawn under an Interest Draw or a
Working Capital Draw, as the case may be.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE NOTES" means the First Priority Exchange Notes and the Second
Priority Exchange Notes.
"EXISTING FIRST PRIORITY NOTES" means First Priority Notes which are
not First Priority Exchange Notes.
"EXISTING NOTES" means the Existing First Priority Notes and the
Existing Second Priority Notes.
"EXISTING SECOND PRIORITY NOTES" means Second Priority Notes which are
not Second Priority Exchange Notes.
"FIRST PRIORITY EXCHANGE NOTES" means the notes of the Issuer exchanged
hereunder for Existing First Priority Notes pursuant to the Registered Exchange
Offer in connection with which this Prospectus is prepared, or in a private
exchange.
"FIRST PRIORITY NOTE INTEREST AMOUNT" means, as of any Interest Payment
Date, the amount of interest, determined by the First Priority Trustee, that is
accrued and unpaid on the Allocated Principal Amount of the First Priority Notes
as of such Interest Payment Date in respect of each
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Vessel as to which the Delivery Date has occurred as of such Interest Payment
Date; PROVIDED that the First Priority Note Interest Amount on the Allocated
Principal Amount of First Priority Notes in respect of a Vessel for the period
prior to the Delivery Date of such Vessel shall be zero.
"FIRST PRIORITY NOTE INTEREST SHORTFALL" means, with respect to each
Interest Payment Date, the excess of (i) the First Priority Note Interest Amount
in respect of such Interest Payment Date over (ii) the amount available in the
Revenue Account (after giving effect to the distributions described in (i) and
(ii) under "--Priorities of Payments--Revenue Account" to be made on such
Interest Payment Date) as of the opening of business on the third Business Day
prior to such Interest Payment Date.
"FIRST PRIORITY NOTES" means the Existing First Priority Notes and the
First Priority Exchange Notes.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Original Closing Date, including those
set forth in (i) the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) statements
and pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Sections 13 or 15(d) of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"GEBAB" means Gesellschaft fur Konzeption, Beratung, Vermittlung und
Betreuung privater Investitionen mbH, a German corporation.
"GOVERNMENTAL APPROVAL" means any authorization, consent, approval,
license, franchise, lease, ruling, permit, tariff, rate, certification,
exemption, filing or registration by or with any Governmental Authority relating
to the ownership of the Collateral or to the execution, delivery or
performance of the Indentures or any Security Agreement.
"GOVERNMENTAL AUTHORITY" means the United States federal or any foreign
government, any state or other political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any other governmental entity with
authority over an Owner or the operation of a Vessel.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "guarantee" shall not include endorsements for
collection or deposit
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in the ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning.
"GUARANTEE AGREEMENT" means a supplemental indenture, in a form
satisfactory to the applicable Trustee, pursuant to which a successor Owner
becomes subject to the applicable terms and conditions of the applicable
Indenture.
"HOLDER" OR "NOTEHOLDER" means the Person in whose name a Note is
registered on the Registrar's books.
"INCIDENTAL ASSET" means any equipment, outfit, furniture, furnishings,
appliances, spare or replacement parts or stores owned by the Issuer or an Owner
that has become obsolete or unfit for use or no longer useful, necessary or
profitable in the conduct of the business of the Issuer or such Owner, as the
case may be. In no event shall the term "Incidental Asset" include a Vessel.
"INCUR" means issue, assume, guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for
the payment of which such Person is responsible or liable (other than a
written commitment made on or prior to the Original Closing Date);
(ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered
into by such Person;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations
of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in
the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar
credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in
clauses (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on
the letter of credit);
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(v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, the
liquidation preference with respect to, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including
by means of any guarantee; and
(vii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of
the value of such property or assets or the amount of the obligation so
secured.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"INITIAL LETTER OF CREDIT AMOUNT FOR INTEREST DRAWS" means $45.5
million.
"INSURANCE POLICIES" means with respect to a Vessel, those policies of
insurance required to be maintained pursuant to the terms of the related
Mortgage.
"INSURANCE PROCEEDS" means the proceeds of the Insurance Policies.
"INTERCOMPANY NOTE" means the revolving credit promissory note, dated
the Original Closing Date, from the Owners evidencing the loans made by the
Issuer to the Owners on the Original Closing Date as well as any amounts loaned
from time to time by the Issuer to the Owners for
working capital requirements of the Owners.
"INTEREST" with respect to a Note, means the interest thereon plus any
Additional Amount with respect to such Note.
"INTEREST PAYMENT DATE" means any date on which interest is payable on
the First Priority Exchange Notes or the Second Priority Exchange Notes.
"INVESTMENT" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. The payments of the Purchase Price
shall not be deemed to be an Investment.
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"ISSUE OF ONE DEBENTURE" means, with respect to each Owner, the issue
of one debenture, dated as of the Original Closing Date, between each Owner and
the Collateral Agent wherein such Owner grants to the Collateral Agent a
security interest in and to all of such Owner's now owned and hereafter acquired
property.
"LETTER OF CREDIT" means the letter of credit issued pursuant to the
Letter of Credit Reimbursement Agreement.
"LETTER OF CREDIT ISSUER" means Credit Suisse First Boston acting
through its London branch, as funding bank and as administrating bank for the
participating banks party to the Letter of Credit
Reimbursement Agreement.
"LETTER OF CREDIT REIMBURSEMENT AGREEMENT" means the Letter of Credit
Reimbursement Agreement and Guaranty dated as of the Original Closing Date among
the Letter of Credit Issuer, the participating banks from time to time party
thereto, the Issuer, Holdings and each of the Owners.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"MANAGEMENT AGREEMENT" means the management agreement to be entered
into among Navigator Gas Management Limited, the Issuer, Holdings and each of
the Owners.
"MANAGER" means the company that manages the Vessels, which initially
shall be Navigator Gas Management Limited.
"MANAGER'S FEE" means, with respect to each Vessel, (a) prior to the
Delivery Date thereof, an amount equal to $30,000 per annum, and (b) from and
after the Delivery Date thereof, an amount
equal to $120,000 per annum.
"MAXIMUM AMOUNT AVAILABLE UNDER THE LETTER OF CREDIT" means, as of each
date of determination, (1) the Initial Letter of Credit Amount for Interest
Draws less (2) all Interest Draws made on the Letter of Credit to such date of
determination plus (3) all amounts reimbursed to the Letter of Credit Issuer in
repayment of Interest Draws, other than in respect of interest on outstanding
Interest Draws, to such date of determination.
"MOODY'S" means Moody's Investor Service, Inc. and its successors.
"MORTGAGE" means the mortgage granted to the Collateral Agent by each
Owner on its related Vessel to secure the obligations of such Owner under its
Guarantee and the Letter of Credit
Reimbursement Agreement.
"NOTE INTEREST SHORTFALL" means, with respect to each Interest Payment
Date, the sum of (a) the First Priority Note Interest Shortfall and (b) the
Second Priority Note Interest Shortfall.
"NOTES" means the Existing Notes and the Exchange Notes.
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"OFFERINGS" means the offerings of the Existing First Priority Notes
and the Existing Second Priority Notes.
"ORIGINAL CLOSING DATE" means August 7, 1997.
"OWNERS" means: Navigator Gas (IOM I-A) Limited, Navigator Gas (IOM
I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas (IOM I-D) Limited,
and Navigator Gas (IOM I-E) Limited, each an Isle of Man private limited
company, and their respective successors.
"PERFORMANCE BOND" means, with respect to the Building Contracts, the
performance bonds issued by The Export Import Bank of China, on behalf of the
Builders, and Generale de Banque, on
behalf of TGE.
"PERMITTED HOLDER" means CGTC, Xenon and GEBAB and their Related
Parties.
"PERMITTED INVESTMENT" means an Investment by the Issuer or any Owner
in (i) the Issuer or an Owner; (ii) Temporary Cash Investments; (iii)
receivables owing to the Issuer or any Owner if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such
concessionary trade terms as the Issuer or any such Owner deems reasonable under
the circumstances; (iv) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; and (v) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Issuer or any
Owner or in satisfaction of judgments.
"PERMITTED LIENS" means, with respect to any Person, the following: (a)
Liens securing obligations under the Indentures, the Existing Notes, the Letter
of Credit Reimbursement Agreement and the Security Agreements; (b) other Liens
existing or securing Indebtedness existing (or for which a written commitment
has been made on or prior to the Original Closing Date) on the Original Closing
Date; (c) Liens granted after the Original Closing Date in favor of the Holders;
and in the case of an Owner, the following additional Liens: (d) Liens for
crews' wages and pledges or deposits by such Person under worker's compensation
laws, unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or United
States government bonds to secure surety or appeal bonds to which such Person is
a party, or deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business; (e)
Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens, in
each case for sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising out of judgments or awards against such
Person with respect to which such Person shall then be proceeding with an appeal
or other proceedings for review; (f) Liens for property taxes not yet subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings; (g) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of such
Person in the ordinary course of its business; PROVIDED, HOWEVER, that such
letters of credit do not constitute Indebtedness; (h) minor survey exceptions,
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minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use of
real property or Liens incidental to the conduct of the business of such Person
or to the ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (i) Liens on property at the time such Person or any of
its Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such Person;
PROVIDED, HOWEVER, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; PROVIDED FURTHER,
HOWEVER, that the Liens may not extend to any other property owned by such
Person or any of its Subsidiaries; (j) any Lien which arises in favor of an
unpaid seller in respect of goods, plant or equipment sold and delivered to such
Person in the ordinary course of business until payment of the purchase price
for such goods or plant or equipment or any other goods, plant or equipment
previously sold and delivered by that seller (except to the extent that such
Lien secures Indebtedness or arises otherwise than due to deferment of payment
of purchase price); (k) any Lien or pledge created or subsisting in the ordinary
course of business over documents of title, insurance policies or sale contracts
in relation to commercial goods to secure the purchase price thereof; (l)
charters, leases or subleases granted to others in the ordinary course of
business that are subject to the relevant Mortgage and that do not materially
interfere with the ordinary course of business of the Issuer and the Owners,
taken as a whole; (m) (A) Liens in favor of the Issuer or any Owner, (B) Liens
arising from the rendering of a final judgment or order against the Issuer or
any Owner that does not give rise to an Event of Default and (C) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and products and
proceeds thereof; (n) Liens in favor of customers and revenue authorities
arising as a matter of law to secure payment of custom duties in connection with
the importation of goods; and (o) Liens for salvage. For purposes of this
definition, the term "Indebtedness" shall be deemed to include interest on such
Indebtedness.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock or any other class of such Person.
"PRINCIPAL" of a Note means the principal of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering
of common stock of Holdings pursuant to an effective registration statement
under the Securities Act.
"PUBLIC MARKET" means any time after (x) a Public Equity Offering has
been consummated and (y) at least 15% of the total issued and outstanding common
stock (being ordinary shares) of
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Holdings has been distributed by means of an effective registration statement
under the Securities Act or is eligible for distribution pursuant to Rule 144(k)
under the Securities Act.
"PURCHASE PRICE" means, with respect to a Vessel, the amount specified
under the related Building Contract as the total purchase price to be paid to
the Builders for such Vessel.
"RATING AGENCIES" means S&P, DCR and Moody's, or if S&P, DCR or Moody's
or all of them shall not make a rating on the Notes publicly available, a
nationally recognized statistical rating agency or agencies, as the case may be,
selected by the Issuer (as certified by a resolution of the Board of Directors)
which shall be substituted for S&P, DCR or Moody's or all of them, as the case
may be.
"REFUND AMOUNT" means, with respect to a Vessel and the related
Building Contract, the amount payable by the Builders in the event such Building
Contract is rescinded by the related Owner because of a material breach thereof
by the Builders (including a failure to pay liquidated damages for any delay in
the delivery of the related Vessel) or is otherwise terminated.
"REGISTRAR" means, initially, The United States Trust Company of New
York with respect to the First Priority Exchange Notes and untendered Existing
First Priority Notes, if any, and The Chase Manhattan Bank with respect to the
Second Priority Exchange Notes and untendered Existing
First Priority Notes, if any.
"REGISTRATION JURISDICTION" means the Republic of Liberia or such other
jurisdiction under whose laws a Vessel is permitted to be registered under the
terms and subject to the conditions of the Indentures and the related Mortgage.
"RELATED BUSINESS" means any business related, ancillary or
complementary to the businesses of the Issuer and the Owners on the Original
Closing Date.
"RELATED PARTY" with respect to a Permitted Holder means (A) any
controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate
family member (in the case of an individual) of the foregoing or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such other persons referred to in the immediately
preceding clause (A).
"RESCISSION AMOUNT" means, as of any date of determination and with
respect to a Vessel and the termination of its related Building Contract, the
sum of (a) the Allocated Principal Amount of the Notes for such Vessel as of
such date, (b) all accrued and unpaid interest thereon to the date of the
required redemption of the Notes as a result of such termination, (c) any and
all Manager's Fees owing to the Manager in respect of such Vessel, (d) an amount
equal to the amounts of all Working Capital Draws made with respect to such
Vessel, together with all amounts owing to the Letter of Credit Issuer with
respect thereto and (e) any cost incurred by the Collateral Agent in connection
with the related redemption.
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"RESTRICTED PAYMENT" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the direct
or indirect holders of its Capital Stock, (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Issuer held by
any Person or of any Capital Stock of an Owner held by any Affiliate of the
Issuer (other than an Owner), including the exercise of any option to exchange
any Capital Stock, (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment in any
Person (other than a Permitted Investment).
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Company, Inc. and its successors.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property
now owned or hereafter acquired whereby the Issuer or an Owner transfers such
property to a Person and the Issuer
or an Owner leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"SECOND PRIORITY EXCHANGE NOTES" means the Exchange Notes of the Issuer
exchanged hereunder for Existing Second Priority Notes pursuant to the
Registered Exchange Offer in connection with which this Prospectus is filed, or
in a private exchange, or otherwise issued after the
Original Closing Date.
"SECOND PRIORITY NOTE INTEREST AMOUNT" means, as of any Interest
Payment Date, the amount of interest, determined by the Second Priority Trustee,
that is accrued and unpaid on the Allocated Principal Amount of the Second
Priority Notes as of such Interest Payment Date in respect of each Vessel as to
which the Delivery Date has occurred as of such Interest Payment Date; PROVIDED,
HOWEVER, that the Second Priority Note Interest Amount on the Allocated
Principal Amount of Second Priority Notes in respect of a Vessel for the period
prior to the Delivery Date of such Vessel shall be zero.
"SECOND PRIORITY NOTE INTEREST SHORTFALL" means, with respect to each
Interest Payment Date, the excess of (i) the Second Priority Note Interest
Amount in respect of such Interest Payment Date over (ii) the amount available
in the Revenue Account (after giving effect to distribution of amounts pursuant
to clauses (i)--(iii) described under "--PRIORITY OF PAYMENTS --REVENUE ACCOUNT"
on such Interest Payment Date as of the opening of business on the third
Business Day prior to such Interest Payment Date; PROVIDED, HOWEVER, that the
Second Priority Note Interest Shortfall will be deemed to be zero unless and
until the Issuer shall have issued after the Original Closing Date $20.9 million
in aggregate principal amount of additional Second Priority Exchange Notes in
lieu of paying accrued and unpaid interest on the Second Priority Notes in cash.
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"SECOND PRIORITY NOTES" means the Existing Second Priority Notes and
the Second Priority Exchange Notes.
"SECURITY AGREEMENTS" means the Intercreditor Agreement, the Mortgages,
the Assignments of Earnings and Insurances, each Original Closing of One
Debenture and any other similar instruments or documents entered into or
delivered in connection with any of the foregoing, as such agreements,
instruments or documents may from time to time be amended in accordance with
their respective terms and the terms of the Indentures and the Letter of Credit
Reimbursement Agreement.
"SUBORDINATED OBLIGATION" with respect to a series of Notes means any
Indebtedness of the Issuer (whether outstanding on the Original Closing or
thereafter Incurred) which is subordinate or junior in right of payment to the
Notes of such series pursuant to a written agreement to that effect; PROVIDED,
HOWEVER, that the Second Priority Notes shall constitute Subordinated
Obligations under the First Priority Indenture.
"SUBSIDIARY" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"TECHNICAL MANAGEMENT AGREEMENT" means the Baltic and International
Maritime Council (BIMCO) Standard Ship Management Agreement between GEBAB and
Holdings, on behalf of the Owners, dated as of February 28, 1997, assigned by
Holdings to the Manager on behalf of the
Owners on or before the Original Closing Date.
"TECHNICAL SUPERVISION AGREEMENT" means the Agreement on Contract for
Technical Matters among GEBAB, Holdings, on behalf of the Owners, and the
Builders dated as of February 28, 1997, assigned by Holdings to the Manager on
behalf of the Owners on or before the
Original Closing Date.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof; (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust issuer which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust issuer has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor; (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above; (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
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Affiliate of the Issuer) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's "A-1" (or higher) according to S&P or
"D-1" (or higher) according to DCR; (v) investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P, Moody's or DCR and (vi) guaranteed investment contracts,
investment agreements or similar agreements initially rated "A" by S&P or
Moody's that are treated as Indebtedness for United States federal income tax
purposes. For purposes of determining whether a Temporary Cash Investment
matures on or before the next succeeding Interest Payment Date, each payment
received under a Temporary Cash Investment described in clause (vi) above will
be considered to be the maturity of such Temporary Cash Investment. A guaranteed
investment contract, investment agreement or similar agreement that constitutes
a senior unsecured long-term debt obligation of a Person shall be deemed to have
the same rating as such Person's other senior unsecured long-term debt
obligations, if any, that are rated by a Rating Agency.
"TGE" means Tractebel Gas Engineering GmbH, and its successors and
assigns.
"TOTAL LOSS" means, with respect to a Vessel that has been accepted by
an Owner pursuant to the related Building Contract, either (a) the actual or
constructive or compromised or arranged total loss of the Vessel, (b) the
Compulsory Acquisition of the Vessel or (c) a requisition by a Governmental
Authority for hire of the Vessel for a period in excess of 180 days. Any actual
loss of the Vessel shall be deemed to have occurred at 1200 hours Greenwich Mean
Time ("GMT") on the actual date on which the Vessel was lost or in the event of
the date of the loss being unknown then the actual total loss shall be deemed to
have occurred at 1200 hours GMT on the day next following the day on which the
Vessel was last heard from. A constructive total loss shall be deemed to have
occurred at 1200 hours GMT on the earliest of: (1) the date that notice of
abandonment of the Vessel is given to the insurers, provided a claim for total
loss is admitted by the insurers, (2) if the insurers do not admit such a claim,
at the date and time GMT at which a total loss is subsequently adjudged by a
competent court of law or arbitration tribunal to have occurred, or (3) the date
that a report is rendered by one or more experts in marine surveying and vessel
valuation concluding that salvage, repair and associated costs in restoring the
Vessel to the condition specified in each Mortgage exceed the Vessel's fair
market value in sound condition.
"TOTAL LOSS PAYMENT" means, as of any date of determination and with
respect to a Total Loss of a Vessel, the sum of (a) the Allocated Principal
Amount of the Notes for such Vessel as of such date, (b) all accrued and unpaid
interest thereon to the date of the required redemption of the Notes as a result
of such Total Loss, (c) any and all premiums payable with respect to such
redemption, (d) any and all Manager's Fees owing to the Manager in respect of
such Vessel, (e) an amount equal to the amounts of all Working Capital Draws
made with respect to such Vessel, together with all amounts owing to the Letter
of Credit Issuer with respect thereto and (f) an amount equal to the Allocated
Portion of all Interest Draws for such Vessel, together with all amounts owing
to the Letter of Credit Issuer with respect thereto.
"UK LEASE" means an arrangement pursuant to which (i) an Owner enters
into either a hire purchase agreement or a conditional sale contract with a UK
Lessor providing for such UK Lessor
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to pay a purchase price for the related Vessel and granting such UK Lessor a
right of possession in respect of such Vessel, (ii) such UK Lessor charters such
Vessel to such Owner under a bareboat charter for a term ending after the
maturity date of the Notes and (iii) such Owner's monetary obligations with
respect to such charter are effectively satisfied by depositing such purchase
price in a defeasance trust; PROVIDED, HOWEVER, that the creation of any such UK
Lease shall not result in the lowering of any ratings then in effect with
respect to the Notes.
"UK LESSOR" means a leasing subsidiary of a United Kingdom clearing
bank.
"VESSEL" means a vessel built pursuant to a Building Contract.
"VESSEL PURCHASE INSTALLMENT DATE" means, with respect to a Building
Contract, each date on which an installment of the Purchase Price is payable by
the related Owner pursuant to the terms
of such Building Contract.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
DESCRIPTION OF THE UNITS AND THE WARRANTS
Pursuant to the Offerings, the Second Priority Notes have been issued
in units ("Units"). Each Unit consists of one Second Priority Note in a
principal amount of $1,000 and 7.66 Warrants, each Warrant entitling the holder
thereof to purchase one share of Holdings Common Stock at an exercise price of
$.01 per share, subject to adjustment. The Second Priority Notes and the
Warrants will not trade separately until the earlier to occur of (i) the
commencement of the Exchange Offer or the effectiveness of a shelf registration
statement with respect to the Second Priority Notes and (ii) such date as the
Initial Purchasers may in their discretion deem appropriate. See "DESCRIPTION OF
THE NOTES--REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS." See "DESCRIPTION OF
THE EXCHANGE NOTES" and "DESCRIPTION OF WARRANTS" for further information
concerning the Second Priority Notes and the Warrants, respectively. In
addition, see "DESCRIPTION OF CAPITAL STOCK" for additional information relating
to the Holdings Common Stock issuable upon exercise of the Warrants.
The Warrants were issued under the Warrant Agreement dated as of August
7, 1997, between Holdings and United States Trust Company of New York, as
warrant agent (the "Warrant Agent"). Each Warrant, when exercised, will entitle
the holder thereof to receive one share of Holdings Common Stock. The exercise
price of $.01 per share with respect to all the shares of Holdings Common Stock
purchasable under the Warrants was paid by each initial purchaser from the
Initial Purchaser thereof as part of the purchase price of the Units.
Thereafter, no additional amounts shall be required to be paid upon exercise of
the Warrants. The Warrants will entitle the holders thereof to purchase in the
aggregate 25% of Holdings Common Stock on a fully diluted basis as of the date
of issuance of the Warrants. The number of shares of Holdings Common Stock is
subject to adjustment in certain cases referred to below. Unless exercised, the
Warrants will automatically expire on June 30, 2007.
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DESCRIPTION OF CAPITAL STOCK
HOLDINGS
As of the date hereof, there are 2,000,000 shares of Holdings Common
Stock outstanding and registered in the names of five shareholders in the
Register of Members of Holdings. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by, the Certificate
of Incorporation and the Memorandum and Articles of Association of Holdings,
copies of which may be obtained from Holdings or the Initial Purchasers upon
request, and by provisions of applicable law.
HOLDINGS COMMON STOCK
As of the date hereof, Holdings will be authorized to issue up to
3,000,000 shares of Holdings Common Stock. In relation to all matters submitted
to a vote of stockholders, every holder of Holdings Common Stock who (being an
individual) is present in person or by proxy or (being a corporation) is present
by a duly authorized representative, not being himself a stockholder, shall, on
a show of hands, have one vote and, on a poll, every holder of Holdings Common
Stock entitled to vote shall have one vote for every share held. Accordingly,
the holders of Holdings Common Stock may from time to time in general meeting
increase or reduce the number of directors and may, by special resolution,
remove any director or by ordinary resolution appoint any person to be a
director. Holders of Holdings Common Stock may by ordinary resolution declare
dividends, but no dividend may exceed the amount recommended by the directors
out of funds legally available for the purpose. On a winding-up of Holdings, a
liquidator may divide among the holders of Holdings Common Stock rateably the
net assets of Holdings available after the payment of all debts and other
liabilities in accordance with applicable law and may, with the sanction of an
extraordinary resolution of the stockholders and any other sanction required by
applicable law, divide among the holders of Holdings Common Stock rateably in
specie the whole or any part of the assets of Holdings and may, for that
purpose, value any assets and determine how the division shall be carried out as
between them.
There is included in the Articles of Association of Holdings a
provision, subject to Section 151 of the Companies Acts 1931 of the Isle of Man,
indemnifying every director or other officer of Holdings out of the assets of
Holdings against losses or liabilities which such director or officer may
sustain or incur in or about the execution of the duties of his office or
otherwise in relation thereto and confirming that no such director or other
officer shall be liable for any loss, damage or misfortune which may happen to
or be incurred by Holdings in the execution of the duties of his office or in
relation thereto.
BOOK-ENTRY REGISTRATION
The Existing Notes sold to Qualified Institutional Buyers were, and the
Exchange Notes will be, originally issued in fully registered book-entry form,
and each of the Existing Notes and the Exchange Notes will be represented by a
global note (each a "Global Note") registered in the name of Cede & Co. ("Cede")
as the nominee of the Depository Trust Company ("DTC"). All references to
actions by holders shall, in respect of the applicable Global Note, refer to
actions
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taken by DTC upon instruction from DTC Participants (as defined below), and all
references herein to distributions, notices, reports and statements to holders
shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Exchange Notes or to
DTC Participants for distribution to Beneficial Owners in accordance with DTC
procedures. DTC has advised the Company that DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC accepts securities for
deposit from its participating organizations ("Participants") and facilitates
the clearance and settlement of securities transactions between Participants in
such securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
The Company expects that pursuant to procedures established by the DTC,
(i) upon deposit of the applicable Global Note, DTC will credit the accounts of
Participants designated by the Exchange Agent with portions of the principal
amount of the applicable Global Note and (ii) ownership of the Exchange Notes
evidenced by the applicable Global Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the interests of DTC's Participants), DTC's Participants and DTC's
Indirect Participants. Consequently, the ability to transfer Existing Notes or
Exchange Notes evidenced by the applicable Global Note will be limited to such
extent.
So long as Cede is the registered owner of any Exchange Notes, Cede
will be considered the sole holder under the Indentures of any Exchange Notes
evidenced by the applicable Global Note. Beneficial owners of Exchange Notes
evidenced by the applicable Global Note will not be considered the owners or
holders thereof under the Indentures for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Indenture
Trustees thereunder. Neither the Company nor the Indenture Trustee will have any
responsibility or liability for any aspect of the records of the DTC or for
maintaining, supervising or reviewing any records of the DTC relating to the
Exchange Notes. Payments in respect of the principal of, premium, if any, and
interest, on any Exchange Notes registered in the name of Cede on the applicable
record date will be payable by the Indenture Trustees to or at the direction of
Cede in its capacity as the registered holder under the Indentures. Under the
terms of the Indentures, the Issuer, and the Indenture Trustee may treat the
persons in whose names Exchange Notes including the applicable Global Note, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Issuer or the Indenture Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Exchange Notes. The Company believes, however, that it is currently the
policy of the DTC to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the DTC. Payments by DTC's Participants and DTC's Indirect
Participants to the beneficial owners of
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Exchange Notes will be governed by standing instructions and customary practice
and will be the responsibility of DTC's Participants or DTC's Indirect
Participants. Subject to certain conditions, any beneficial owner of the
applicable Global Note may obtain, through the Direct Participant through which
such beneficial owner directly or indirectly holds beneficial interest, a
certificated Exchange Note or Exchange Notes, in exchange for all or part of
such beneficial interest. In addition, the Exchange Notes will be issued in
fully registered, certificated form to beneficial owners, or their nominees,
rather than to DTC or its nominee, if DTC advises the Indenture Trustees in
writing that it is no longer willing or able or qualified to discharge properly
its responsibilities as depository with respect to the Exchange Notes and the
Issuer, is unable to locate a qualified successor or if the Issuer elects to
terminate the book-entry system through DTC. In such event, the Indenture
Trustees will notify all beneficial owners through DTC Participants of the
availability of such certificated Exchange Notes. Upon surrender by DTC of the
registered global certificates representing the Exchange Notes and receipt of
instructions for re-registration, the Indenture Trustees will re-issue the
Exchange Notes in certificated form to beneficial owners or their nominees. Such
certificated Exchange Notes will be transferable and exchangeable at the office
of the Indenture Trustees upon compliance with the requirements set forth in the
Indentures.
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DESCRIPTION OF LETTER OF CREDIT REIMBURSEMENT AGREEMENT
The Letter of Credit was issued pursuant to a Letter of Credit
Reimbursement Agreement and Guaranty dated as of the Original Closing Date among
the Letter of Credit Issuer, the participating banks from time to time party
thereto (together with the Letter of Credit Issuer, the "Letter of Credit
Banks"), the Issuer, Holdings and the Owners (the "Letter of Credit
Reimbursement Agreement"). The Letter of Credit Reimbursement Agreement shall
provide that Interest Draws and Working Capital Draws shall be repaid by the
Issuer, together with interest accrued thereon, on the first Business Day of
each calendar month to the extent of amounts available in the Revenue Account as
described under "DESCRIPTION OF THE EXCHANGE NOTES--PRIORITIES OF PAYMENT
- --REVENUE ACCOUNT." The Issuer has agreed to instruct the Collateral Agent to
make (i) additional Interest Draws to repay any portion of any Interest Draw and
accrued interest thereon that remains unpaid 35 days from the date of such
Interest Draw and (ii) additional Working Capital Draws to repay any portion of
any Working Capital Draw and accrued interest thereon that remains unpaid 35
days from the date of such Working Capital Draw. The Issuer further agreed to
instruct the Collateral Agent to make additional Interest Draws to the extent
funds are not available in the Revenue Account on the first Business Day of each
calendar month to pay any fees due under the Letter of Credit Reimbursement
Agreement. Any outstanding principal amount of Draws not repaid from amounts in
the Revenue Account shall be payable from proceeds of Collateral. Unreimbursed
amounts drawn under the Letter of Credit bear interest at the Letter of Credit
Issuer's cost of funds from time to time plus 1.25% per annum. The Issuer is
required to pay to the Letter of Credit Issuer (a) a fronting fee equal to 0.25%
per annum on the aggregate outstanding face amount of the Letter of Credit, (b)
a participation fee equal to 1.00% per annum on the aggregate outstanding face
amount of the Letter of Credit and (c) an underwriting fee prior to the issuance
of the Letter of Credit equal to 1.25% of the maximum face amount of the Letter
of Credit. The reimbursement obligations of the Issuer under the Letter of
Credit Reimbursement Agreement are guaranteed by each of the Owners and are
secured by the Collateral. To the extent such obligations are not repaid from
the Revenue Account or from additional Draws, proceeds of Collateral will be
applied to repayment of the reimbursement obligations prior to the repayment of
obligations in respect of the Notes.
The Letter of Credit Reimbursement Agreement contains representations
and warranties similar to those contained in the Purchase Agreement, and
incorporates by reference, for the benefit of the Letter of Credit Issuer, each
of the covenants contained in the Indentures. The following events, among
others, constitute events of default under the Letter of Credit Reimbursement
Agreement unless waived by the required Letter of Credit Banks: (i) the Issuer
shall fail to pay the Letter of Credit Issuer when due any amounts drawn under
the Letter of Credit, any interest thereon or any fees due under the Letter of
Credit Reimbursement Agreement, (ii) the Issuer, Holdings or any of the Owners
shall fail to observe or perform any other covenant, agreement or restriction
contained or incorporated by reference in the Letter of Credit Reimbursement
Agreement, and, in certain cases, applicable grace periods have expired, (iii)
any representation, warranty, certification or statement made by the Issuer,
Holdings or any of the Owners in the Letter of Credit Reimbursement Agreement or
in any certificate, financial statement or other document delivered pursuant
thereto shall prove to have been incorrect in any material respect when made and
(iv) certain events of bankruptcy or insolvency of the Issuer, Holdings or any
of the Owners. Upon the occurrence of an event of default under the Letter of
Credit Reimbursement Agreement, the Letter of Credit Issuer shall have the right
to notify the Collateral Agent that the Letter of Credit will be terminated
within five days, which
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notice would enable the Trustees to accelerate the maturity of the Notes and to
instruct the Collateral Agent to make an Interest Draw on the Letter of Credit.
The Letter of Credit Reimbursement Agreement provides that amounts
available under the Letter of Credit shall be reduced on a PRO RATA basis upon
the occurrence of a redemption of the Notes as described under "DESCRIPTION OF
THE EXCHANGE NOTES--OPTIONAL REDEMPTION" and "--MANDATORY REDEMPTION UPON THE
OCCURRENCE OF CERTAIN EVENTS."
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THE MORTGAGES
GENERAL
Contemporaneously with the delivery of a Vessel, the Owner of such
Vessel will grant to the Collateral Agent a Mortgage on such Vessel to secure
the payment of all sums of money (whether for principal, premium, if any,
interest, fees, expenses or otherwise) from time to time payable by such Owner
under its Guarantee, the payment of the principal of (and premium, if any) and
interest on the Notes, the payment of all other sums payable by the Issuer under
the Indentures and the payment of all other sums payable under the Security
Agreements and the Letter of Credit Reimbursement Agreement. On the Delivery
Date of a Vessel, the related Mortgage will be executed by the related Owner and
the Collateral Agent and will be recorded in accordance with the provisions of
Liberian and Isle of Man law. The maximum liability of each Owner under its
Mortgage is limited to the same extent as such Owner's maximum liability under
its Owner Guarantee. See "DESCRIPTION OF THE EXCHANGE NOTES--GUARANTEES."
CERTAIN REPRESENTATIONS AND WARRANTIES
Each Mortgage contains, among other things, the following
representations and warranties:
OWNERSHIP OF VESSEL. Each Owner will represent and warrant that it is
the sole and lawful owner of the whole of its Vessel, free from all liens,
security interests, mortgages, charges or encumbrances (other than the related
Mortgage and Permitted Liens);
PRIORITY OF LIEN. Each Owner will represent and warrant that it is
constituting in favor of the Collateral Agent a first preferred ship mortgage on
its Vessel to secure the punctual payment of each of the amounts due under its
Guarantee and the performance and observance of and compliance with all the
covenants, terms, conditions and provisions of its Guarantee, the Indentures,
the Letter of Credit Reimbursement Agreement and the other Security Agreements
and the transactions contemplated thereby;
LITIGATION. Each Owner will represent and warrant that no actions or
legal proceedings exist or are threatened against such Owner which will
materially adversely affect the condition, financial or otherwise, of its Vessel
or will enjoin or restrain the transactions contemplated hereby; and
CUSTOMARY REPRESENTATIONS AND WARRANTIES. Each Owner will make
additional customary representations and warranties regarding such Owner and its
Vessel.
CERTAIN COVENANTS
Each Mortgage contains, among other things, the following covenants:
OPERATION OF VESSEL. No Owner will cause or permit its Vessel to be
operated in any manner contrary to law, will engage in unlawful trade, violate
any applicable law or carry any cargo that would expose the Vessel to penalty,
confiscation, forfeiture, capture or condemnation or do, suffer or permit to be
done anything which can or may injuriously affect the registration or enrollment
of
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its Vessel under the laws and regulations of the Republic of Liberia, or any
jurisdiction of registration which at the time is generally deemed acceptable by
institutional lenders to the shipping industry, as determined in good faith by
such Owner, and will at all times keep its Vessel duly
documented thereunder.
LIMITATION ON EMPLOYMENT OF VESSELS IN WAR ZONES. Each Owner will be
required to ensure that, in the event of hostilities in any part of the world,
its Vessel is not employed in carrying any goods which are declared contraband,
nor allowed in any zone in respect of which the war risks insurers have
withdrawn coverage for such Vessel, nor allowed to trade in any zone which is
declared a war zone by the war risks insurers, unless such Owner has made
arrangements with such insurers for the payment of additional premiums required
to maintain the relevant insurances in force.
LIMITATION ON ACTIVITIES OUTSIDE INSURANCE POLICIES. Each Owner will be
required to ensure that its Vessel is not employed in any manner or for any
purpose excepted from any of the Insurance Policies, or for the purpose of
carriage of goods of any description excepted from the Insurance Policies and
shall not do or permit to be done anything which could reasonably be expected to
invalidate any Insurance Policies.
MAINTENANCE OF INSURANCE. Each Owner will be required to maintain
insurance with respect to its Vessel, as described below under "--Insurance,"
and will assign the Insurance Policies to the Collateral Agent to be held for
the benefit of the Holders, the Trustees and the Letter of Credit
Issuer.
LIMITATION ON LIENS. Except for the lien of the Mortgage and certain
other Permitted Liens, no Owner will have any right, power or authority to
create, incur or permit to be placed or imposed or continued any lien,
encumbrance or charge on its Vessel for longer than 30 days after the same
becomes due and payable and will pay or cause to be discharged or make adequate
provision for the satisfaction or discharge of all claims or demands, or will
cause its Vessel to be released or discharged from any lien, encumbrance or
charge therefor.
MAINTENANCE OF VESSEL. Each Owner will at all times and without cost or
expense to the Collateral Agent maintain and preserve, or cause to be maintained
and preserved, its Vessel in good running order and repair, so that such Vessel
shall be, in so far as due diligence can make her so, tight, staunch, strong and
well and sufficiently tackled, apparelled, furnished, equipped and in every
respect seaworthy and in at least as good operating condition as when originally
delivered by the Builders, ordinary wear and tear excepted; and will keep the
Vessel, or cause her to be kept in such condition, as will entitle her to the
highest classification of the Classification Society, and annually will furnish
the Collateral Agent a certificate by the Classification Society that such
classification is maintained.
TRANSFER OF FLAG OR SALE OF VESSEL. No Owner will transfer or change
the flag or port or documentation of its Vessel, except to the United States or
any jurisdiction when at the time is generally deemed acceptable by
institutional lenders to the shipping industry, as determined in good faith by
the Owners, as permitted by the terms of the Indentures. Except as permitted by
the terms of the Indentures, no Owner will sell, mortgage, demise, charter or
transfer its Vessel.
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INSURANCE
Each Owner, at its own expense, will be required to insure its Vessel
against all risks, whether marine or war, and all risks of navigation, operation
and maintenance. In addition, each Owner will be required to keep its Vessel
insured against all protection and indemnity risks in the name of the Owner. The
protection and indemnity insurance shall include cover against liabilities to
persons who have suffered any loss, damage or injury whatsoever in connection
with anything done or not done by the Vessel and/or the related Owner in
connection with the Vessel or the employment or use thereof (including in
connection with any oil or other substance emanating from the Vessel or any
other vessel with which the Vessel may be involved in collision) and against
liability under OPA 90. Pursuant to each Mortgage, each Owner will also obtain
loss of hire hull and machinery insurance, loss of hire war risks insurance,
drug seizure insurance and confiscation, expropriation, nationalization and
detainment insurance in a form which is substantially equivalent to the coverage
carried by other responsible and experienced companies engaged in the operation
of vessels similar to its Vessel and with insurance companies, underwriters,
funds, mutual insurance associations or clubs of recognized standing. No
insurance will provide for a deductible amount in excess of $1,000,000 per
occurrence. Under each such insurance policy, each Owner will cause the
Collateral Agent to be named an additional insured and will cause the insurers
under such policies to waive any liability of the Collateral Agent for premiums
or calls payable under such policies.
For purposes of insurance against total loss, each Vessel is to be
insured for an amount not less than the greater of (a) its fair value and (b)
the Total Loss Payment with respect to such Vessel. Unless the Collateral Agent
shall have otherwise directed, any loss involving damage to a Vessel which is
not in excess of $1,000,000 may be deposited into the Operating Account. No
policy is to be cancellable or subject to lapse without at least 7 Business Days
prior notice to the Trustees and the Collateral Agent.
In the event of an actual, constructive or compromised total loss of
its Vessel, any adjustment or compromise of such loss by the Owner will be at
the highest amount reasonably obtainable, and all insurance or other payments
for such loss will be applied as set forth above under "DESCRIPTION OF THE
EXCHANGE NOTES -- REDEMPTIONS -- MANDATORY REDEMPTION UPON THE OCCURRENCE OF
CERTAIN EVENTS." Unless the Collateral Agent shall have given its prior consent,
each insurance policy shall include a provision stating that no breach of
warranty or condition or want of due diligence on the part of the Owner or any
agent of the Owner shall defeat recovery of any claim by the Collateral Agent;
PROVIDED, HOWEVER, in the event such provision conflicts with the available
reinsurance arrangements of the issuers of such policy, such provision shall not
be included in the related insurance policy. Each Owner will be required to
ensure, inter alia, that 7 Business Days prior written notice be given to the
Trustees and to the Collateral Agent prior to the cancellation or modification
of any insurance.
INSURANCE PROCEEDS
The proceeds of any insurances or entries referred to in the Mortgage
will be applied as follows:
until the occurrence of an Event of Default:
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(i) any claim under any such insurance will be deposited in the
Casualty Account and will be applied by the Collateral Agent pursuant to the
terms of the Intercreditor Agreement; and
(ii) any claim in respect of protection and indemnity insurance shall
be paid directly to the person, firm or company to which the liability covered
by such insurance was incurred, or to the applicable Owner in reimbursement of
moneys expended by it in satisfaction of such liability.
Upon the occurrence of an Event of Default, except as provided above,
any claim under any such insurance and entry (other than in respect of actual,
constructive, arranged or compromised total loss) will be deposited in the
Termination Account, and will be applied by the Collateral Agent
pursuant to the terms of the Intercreditor Agreement.
No Owner will alter so as to in any way restrict the cover of any
insurances or entries referred to in its Mortgage, except to the extent
expressly permitted by the Collateral Agent.
EVENTS OF DEFAULT UNDER THE MORTGAGE
The following constitute Events of Default under the Mortgages:
(i) an Event of Default under the Indentures or the Letter of Credit
Reimbursement Agreement;
(ii) default by the applicable Owner in the payment of any sums payable
under its Mortgage to the Collateral Agent (other than payments due under the
Indentures) continuing for two Business
Days after the receipt of notice of such failure to pay;
(iii) default by the applicable Owner in any material respect in the
performance, or breach in any material respect of any covenant of its Owner
under its Mortgage or if any representation or warranty of such Owner made in
such Mortgage or in any certificate or other writing delivered pursuant thereto
or in connection therewith with respect to or affecting the related Vessel
proves to have been inaccurate in any material respect as of the time when the
same shall have been made, and, if such breach or default or inaccuracy is
curable, continuance of such default or breach or inaccuracy for a period of 10
days after receipt of written notice thereof from the Collateral Agent or any
Trustee or the Letter of Credit Issuer;
(iv) entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the applicable Owner in any
involuntary case under any applicable federal or state bankruptcy, insolvency,
or other similar law now or hereafter in effect, or appointment of a receiver,
liquidator, assignee, custodian, trustee, or sequestrator (or other similar
official) for such Owner or for any substantial part of its property, or the
ordering, winding up or liquidation of its respective affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
90 consecutive days;
(v) commencement by the applicable Owner of a voluntary case under any
applicable federal or state bankruptcy, insolvency, or other similar law now or
hereafter in effect in any jurisdiction, or the consent by such Owner to the
appointment of or taking possession by a receiver, liquidator,
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assignee, custodian, trustee or sequestrator (or other similar official) of such
Owner or any substantial part of its property, or the making by such Owner of
any general assignment for the benefit of creditors, or the failure by such
Owner generally to pay its debts as they become due, or the taking of action by
the Owner in furtherance of any such action;
(vi) any Vessel is deemed a Total Loss and the Insurance Proceeds
thereof have not been received by the Collateral Agent within 90 days after the
date on which such Vessel was deemed a Total Loss; or
(vii) a Lien other than a Permitted Lien is placed on any Vessel.
REMEDIES
In the event that any one or more Events of Default has occurred and is
continuing, then, in each and every such case the Collateral Agent, will have
the right to:
(i) in the event the related Trustee or the Letter of Credit Issuer has
declared immediately due and payable all amounts owing under the Notes and the
Letter of Credit Reimbursement Agreement (in which case all of the same shall be
immediately due), bring suit at law, in equity or in admiralty, as it may be
advised, to recover judgment for such amounts and collect the same out of any
and all property of the applicable Owner whether covered by the related Mortgage
or otherwise;
(ii) exercise all of the rights and remedies in foreclosure and
otherwise given to mortgagees by provisions of applicable law;
(iii) take and enter into possession of the applicable Vessel, at any
time, wherever the same may be, without court decision or other legal process
and without being responsible for loss or damage and the Collateral Agent may,
without being responsible for loss or damage, hold, lay-up, lease, charter,
operate or otherwise use such Vessel for such time and upon such terms as it may
deem to be for its best advantage, and demand, collect and retain all hire,
freights, earnings, issues, revenues, income, profits, return premiums, salvage
awards or recoveries, recoveries in general average, and all other sums due or
to become due in respect of such Vessel or in respect of any insurance thereon
from any person whomsoever, accounting only for the net profits, if any, arising
from such use of such Vessel and charging upon all receipts from use of the
Vessel or from the sale thereof by court proceedings or by private sale all
costs, expenses, charges, damages or losses by reason of such use, and if at any
time the Collateral Agent avails itself of the right given to it to take the
Vessel: (i) the Collateral Agent will have the right to dock the Vessel for a
reasonable time at any dock, pier or other premises of the Owner without charge,
or to dock her at any other place at the cost and expense of the Owner; and (ii)
the Collateral Agent will have the right to require the Owner to deliver, and
the Owner will on demand, at its own cost and expense, deliver to the Collateral
Agent the Vessel as demanded; and (iii) the Owner will irrevocably instruct the
master of the Vessel so long as the Mortgage is outstanding to deliver the
Vessel to the Collateral Agent as demanded; and
(iv) sell the applicable Vessel or any share therein with or without
the benefit of any charterparty or other engagement by public auction or private
contract without legal process at any
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place in the world and upon such terms as the Collateral Agent in its absolute
discretion may determine with power to postpone any such sale and without being
answerable for any loss occasioned by such sale or resulting from the
postponement thereof and at any such public auction the Collateral Agent may
become the purchaser and shall have the right to set off the purchase price
against the Notes. Any sale of such Vessel or any shares therein made by the
Collateral Agent in pursuance of the applicable Mortgage will operate to divest
all title, right and interest of any nature whatsoever of the applicable Owner
therein and thereto and shall bar such Owner, its successors and assigns, and
all persons claiming by, through or under them. Upon any such sale, the
purchaser will not be bound to see or inquire whether the Collateral Agent's
power of sale has risen in the manner provided by such Mortgage and the sale
will be within the power of the Collateral Agent and the receipt of the
Collateral Agent of the purchase money will effectively discharge the purchaser,
who will not be concerned with the manner of application of the proceeds of sale
or be in any way answerable or otherwise liable therefor.
Each of the Vessels will be registered under the laws of the Republic
of Liberia. The Mortgages on the Vessels will be preferred mortgage liens under
Liberian maritime law. Liberian law provides that such mortgages may be enforced
by the mortgagee in a proceeding substantially identical to a suit in rem in
admiralty in a proceeding against a vessel covered by such mortgage.
The priority with respect to sale proceeds that such a mortgage would
have vis-a-vis the claims of other lien creditors in an enforcement proceeding
is generally determined by, and will vary in accordance with, the law of the
country where the proceeding is brought. Liberian maritime law provides that a
"preferred mortgage lien" is prior to all claims, other than the following:
(i) liens against the vessel arising prior in time to the
recording of the preferred mortgage;
(ii) liens for damages arising out of tort;
(iii) liens for unpaid vessel tonnage taxes and annual fees
and penalties payable under the Liberian Maritime Regulations;
(iv) liens for crew wages;
(v) liens for general average;
(vi) liens for salvage; and
(vii) liens for expenses and fees allowed and costs imposed by
courts of competent jurisdiction.
Liberian ship mortgages may be enforced against a vessel that is
physically present in the United States, but the claim under the mortgage would
rank below certain preferred maritime liens as defined under the laws of the
United States, including those for supplies and necessaries provided in the
United States. Since the Vessels will be trading throughout the world, there can
be no assurance that, if enforcement proceedings are commenced against a Vessel,
such Vessel will be
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located in a jurisdiction having the same procedures and lien priorities as
Liberia or the United States. Other jurisdictions may provide no legal remedy at
all for the enforcement of the Mortgages, or may provide a remedy that is
dependent on court proceedings so expensive and time consuming as to be
impractical. Furthermore, certain jurisdictions, unlike Liberia or the United
States, may not permit a Vessel to be sold prior to entry of a judgment,
entailing a long waiting time that could result in increased custodial costs,
deterioration in the condition of the Vessel and substantial reduction in her
value.
Since the Notes are also secured by a pledge by the Issuer of all the
stock of the Owners, enforcement of this pledge, including foreclosure, may
provide in effect an alternative method to transfer control over a Vessel and
mitigate against a substantial reduction in her value.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THE EXCHANGE OFFER
The following disclosure summarizes the material federal income tax
consequences under the Internal Revenue Code of 1986 (the "Code") expected to
result to Holders whose Existing Notes are exchanged for Exchange Notes in the
Exchange Offer. This discussion has been prepared with the advice of Thacher
Proffitt & Wood, counsel to the Company, and is based upon the provisions of the
Code, the Treasury regulations thereunder, and published rulings and court
decisions in effect as of the date hereof, all of which authorities are subject
to change or differing interpretations, which could apply retroactively. The
disclosure below does not purport to deal with federal income tax consequences
applicable to all categories of investors and is directed solely to holders that
hold the Notes as capital assets within the meaning of Section 1221 of the Code,
and acquire such Notes for investment and not as a dealer or for resale. This
disclosure is not intended to address every aspect of the federal income tax
laws that may be relevant to holders in light of their particular investment
circumstances or to certain types of holders subject to special treatment under
the federal income tax laws such as banks, insurance Companies, holders that
will hold the Notes as a position in a "straddle" for tax purposes or as a part
of a "synthetic security" or "conversion transaction" or other integrated
investment comprised of the Notes and one or more other investments, holders who
own or will own directly, indirectly or by attribution including stock
attribution resulting from ownership of the Warrants) 10.0% or more (by voting
power) of Holdings Common Stock or holders that have a functional currency other
than the U.S. dollar. Prospective investors should note that no rulings have
been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given that the IRS will not take contrary positions. Holders
and preparers of tax returns should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice is (i) given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) directly relevant
to the determination of an entry on a tax return. Accordingly, holders should
consult their own tax advisors and tax return preparers regarding the
preparation of any item on a tax return.
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All investors also should consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of an
investment in the Notes and the purchase, ownership and disposition thereof.
The exchange of Existing Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Existing Notes. As
a result, no material federal income tax consequences will result to Holders
exchanging Existing Notes for Exchange Notes.
UNITS, NOTES AND WARRANTS
The following disclosure summarizes the material federal income tax
consequences under the Internal Revenue Code of 1986 (the "Code") of the
purchase, ownership and disposition of the Notes, Units, Warrants and Holdings
Common Stock obtained upon exercise of the Warrants offered on the Original
Closing Date to initial purchasers of Notes or Units that, except as noted
below, are United States persons (as defined below). This disclosure has been
prepared with the advice of Thacher Proffitt & Wood, counsel to the Company, and
is based upon the provisions of the Code, the Treasury regulations thereunder,
and published rulings and court decisions in effect as of the date hereof, all
of which authorities are subject to change or differing interpretations, which
could apply retroactively. The disclosure below does not purport to deal with
federal income tax consequences applicable to all categories of investors and is
directed solely to holders that hold the Notes, Units, Warrants or shares of
Holdings Common Stock as capital assets within the meaning of Section 1221 of
the Code, and acquire such Notes, Units, Warrants or shares of Holdings Common
Stock for investment and not as a dealer or for resale. This disclosure is not
intended to address every aspect of the federal income tax laws that may be
relevant to holders in light of their particular investment circumstances or to
certain types of holders subject to special treatment under the federal income
tax laws such as banks, insurance companies, holders that will hold the Notes,
Units, Warrants or shares of Holdings Common Stock as a position in a "straddle"
for tax purposes or as a part of a "synthetic security" or "conversion
transaction" or other integrated investment comprised of the Notes and one or
more other investments, holders who own or will own directly, indirectly or by
attribution (including stock attribution resulting from ownership of the
Warrants) 10.0% or more (by voting power) of Holdings Common Stock or holders
that have a functional currency other than the U.S. dollar. Prospective
investors should note that no rulings have been or will be sought from the
Internal Revenue Service (the "IRS") with respect to any of the federal income
tax consequences discussed below, and no assurance can be given that the IRS
will not take contrary positions. Holders and preparers of tax returns should be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice is (i) given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) directly relevant to the determination of an
entry on a tax return. Accordingly, holders should consult their own tax
advisors and tax return preparers regarding the preparation of any item on a tax
return, even where the anticipated tax treatment has been discussed herein.
All investors also should consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of an
investment in the Notes, Units, Warrants or shares of Holdings Common Stock and
the purchase, ownership and disposition thereof.
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Upon the issuance of the Existing Notes, Thacher Proffitt & Wood,
counsel to the Issuer, delivered its opinion generally to the effect that, based
upon the application of existing law, and assuming compliance with all
provisions of the Indentures and other relevant documents, and the facts set
forth in the Confidential Offering Circular, dated July 31, 1997 related to the
Existing Notes and Warrants, the First Priority Notes will, and the Second
Priority Notes should, be characterized as indebtedness of the Issuer for
federal income tax purposes. Holders of Notes should recognize, however, that
there is some uncertainty regarding the appropriate characterization of
instruments such as the Notes. It is possible that the IRS might contend that
the First Priority Notes and/or the Second Priority Notes should be treated not
as debt of the Issuer but as equity interests in the Issuer. Any such
recharacterization might result in material adverse consequences to United
States persons holding such Notes, including those described below under
"--HOLDINGS COMMON STOCK." The balance of this discussion assumes that the Notes
are treated as indebtedness for federal income tax purposes.
UNITS
Because the original purchasers of the Second Priority Notes also will
acquire Warrants, each Second Priority Note likely will be treated for federal
income tax purposes as having been issued as part of an "investment unit"
consisting of the Second Priority Note and associated Warrant. The issue price
of an investment unit consisting of the Second Priority Note and associated
Warrant will be the first price at which a substantial amount of Units are sold
to the public for money (excluding sales to bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement
agents or wholesalers). The issue price of an investment unit is allocated
between its component parts based on their relative fair market values. The
Issuer and Holdings have allocated the issue price of a Unit between the Second
Priority Note and the associated Warrant in accordance with the Issuer's
determination of their relative fair market values on the Original Closing Date.
The Issuer will use that allocation to determine the issue price of the Second
Priority Notes and the holder's tax basis in the Warrants. Although the Issuer's
allocation is not binding on the IRS, a holder of a Unit must use the Issuer's
allocation unless the holder discloses on its federal income tax return for the
year in which the Unit was acquired that it plans to use an allocation that is
inconsistent with the Issuer's allocation.
UNITED STATES PERSONS
The following discussion is limited to the United States federal income
tax consequences relevant to a holder of Notes, Units, Warrants and Holdings
Common Stock that is a United States person. For those purposes, a "United
States person" means a citizen or resident of the United
States,
a corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof (except, in the
case of a partnership, to the extent provided in regulations), an estate whose
income is subject to United States federal income tax regardless of its source,
or a trust other than a foreign trust within the meaning of Section 7701(a)(31)
of the Code. Holders who are not United States persons should consult their own
tax advisors regarding the tax consequences of purchasing, owning or disposing
of a Note, Unit, Warrant or share of Holdings Common Stock.
NOTES
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ORIGINAL ISSUE DISCOUNT
The Existing Notes were issued with "original issue discount" for
federal income tax purposes. A Holder of a Note generally is required to include
original issue discount in gross income as it accrues, regardless of the
holder's method of accounting for federal income tax purposes. Accordingly, each
holder will be required to include amounts in gross income without regard to
when the cash to which such income is attributable is received.
Because the Issuer is required, to the extent of Available Cash, to
offer to purchase Notes on each Available Cash Payment Date at a price equal to
102% of a Note's principal amount, although the matter is not free from doubt,
Treasury regulations regarding contingent payment debt instruments likely will
apply to the Notes. It is not altogether clear how the contingent payment rules
apply to a debt instrument the payments on which may be received at the option
of a holder. The Issuer will assume for purposes of those rules that an option
that increases a holder's yield (such as the Available Cash Offer) will be
deemed exercised, and that a non-exercise of such option will result in
adjustments as described below.
In general, under the contingent payment rules, the Issuer is required
to construct a projected payment schedule for the Notes. A holder generally will
recognize all interest income with respect to a Note on a constant yield basis
based on that projected payment schedule (but would not recognize ordinary
income upon receipt of cash payments denominated as interest), subject to
certain adjustments if actual contingent payments differ from those projected.
Such interest is treated as "original issue discount."
The projected payment schedule includes each noncontingent payment and
a projection of the amount and timing of each contingent payment on the Notes as
of the Original Closing Date, assuming exercise of options by a holder that
increase such holder's yield (such as the Available Cash Offer). The projected
payment schedule must produce the "comparable yield," which is the yield at
which the Issuer would issue a fixed rate debt instrument with terms and
conditions similar to those of the Notes. The amount of interest that accrues in
each accrual period is the product of the "comparable yield" (adjusted for the
length of the accrual period) and the Note's "adjusted issue price" at the
beginning of each accrual period. The adjusted issue price of a Note is equal to
its issue price, increased by interest previously accrued on the Note
(determined without adjustments), and decreased by the amount of any
noncontingent payments and the projected amount of any contingent payments
previously made on the Note. The issue price of a First Priority Note is the
first price at which a substantial amount of such Notes was sold to the public
for money (excluding sales to bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). The issue price of a Second Priority Note is equal to that portion
of the issue price of the Unit allocable to the Second Priority Note as
described above.
Except for adjustments made for differences between actual and
projected payments, the amount of interest included in income by a holder of a
Note is the sum of the "daily portions" of interest income with respect to the
Note for each day during the taxable year (or portion thereof) on which such
holder held such Note. The "daily portions" of interest income are determined by
allocating to each day in an accrual period the ratable portion of the interest
that accrues in that accrual period. If the total actual payments exceed the
total projected payment in a tax year (a "net
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positive adjustment"), a holder generally will be required to treat such excess
as additional interest includible in gross income for such tax year. If the
total actual payments are less than the total projected payments in a tax year
(a "net negative adjustment"), a holder will be required to reduce the amount of
interest income that it would otherwise account for by the amount of such
difference.
If the net negative adjustment exceeds the amount of interest income that the
holder would otherwise account for, such excess will be treated as an ordinary
loss to the extent that the holder's total interest inclusions with respect to
the Note exceed the total net negative adjustments treated as ordinary loss on
the Note in prior taxable years. Any remaining excess will be a "negative
adjustment carryforward" and treated as a negative adjustment in the succeeding
tax year. If a Note is sold, retired or otherwise disposed of in a taxable
transaction, any negative adjustment carryforward from the prior year will
reduce the holder's amount realized on the sale, retirement or disposition.
Thus, because the yield to maturity of the Notes will be determined for federal
income tax purposes by assuming that the projected payments will be made on
specific dates, a holder of Notes may be required to include amounts in income
prior to the receipt of cash payments attributable to such income.
The Issuer will provide to holders the projected payment schedule for
the Notes. The payment amounts, timing thereof, and yield set forth on the
projected payment schedule are for federal income tax purposes only and are not
assurances by the Issuer with respect to any aspect of the Notes. A holder
generally will be bound by the projected payment schedule. The IRS, however,
will not respect the projected payment schedule if it determines such schedule
to be unreasonable.
Holders are strongly urged to consult their tax advisors with respect
to the application of the contingent payment rules described above to the Notes.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION
In general, a holder of a Note will recognize gain or loss upon the
sale, retirement or other taxable disposition of such Note in an amount equal to
the difference between (a) the amount of cash and the fair market value of other
property received in exchange therefor and (b) the holder's adjusted
tax basis in such Note.
A holder's tax basis in a Note generally will be equal to the price
paid for such Note, increased by the amount of interest previously accrued on
the Note (determined without adjustments), and decreased by the amount of any
noncontingent payments and the projected amount
of any contingent payments previously made on the Note.
If a Note is sold or otherwise disposed of when there are remaining
contingent payments due under the projected payment schedule, then any gain
recognized upon such sale or other disposition will be ordinary interest income,
while any loss recognized will be ordinary loss to the extent that the holder's
total interest inclusions on a Note exceed the total net negative adjustments on
the Note that the holder took into account as ordinary loss under the rules
described above, and any additional loss will generally be a capital loss. If,
however, a Note is sold or otherwise disposed of after there are no remaining
contingent payments due on the Notes under the projected payment schedule, the
resulting gain or loss generally will be capital gain or loss and will be
long-term capital gain or loss if the Note had been held for more than one year.
Any such capital gain realized by an individual,
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estate or trust will qualify for the 20% maximum tax (10% in the case of such a
taxpayer in the 15% ordinary income tax bracket) on capital gains if the Note
sold or otherwise disposed of was held for at least 18 months, and for the 28%
maximum tax on capital gains if such Note was held for more than one year and
less than 18 months.
Holders should be aware that the resale of a Note may be affected by
the market discount rules of the Code under which a subsequent purchaser of a
Note acquiring such Note at a market discount generally would be required to
include as ordinary income a portion of the gain realized upon the disposition
or retirement of such Note, to the extent of the market discount that has
accrued while the debt instrument was held by such holder.
FOREIGN TAX CREDIT CONSIDERATIONS--EFFECT OF ISLE OF MAN WITHHOLDING TAXES
For purposes of the U.S. foreign tax credit limitations, original issue
discount with respect to the Notes will be foreign source income. In addition,
in the event that cash interest payments on the Notes become subject to Isle of
Man withholding taxes and the Issuer accordingly is required to pay Additional
Amounts, a holder of a Note will be treated as actually receiving any amount
withheld by the Issuer from a cash interest payment with respect to a Note and
then as having paid over such amount to the Isle of Man taxing authorities. As a
result, the amount includible in the income of a holder for U.S. federal income
tax purposes may be greater than the amount actually received by such holder
from the Issuer with respect to such payment. Subject to certain limitations, a
holder of a Note generally will be entitled to a credit against its U.S. federal
income tax liability, or deduction in computing its U.S. federal taxable income,
in respect of Isle of Man income taxes withheld by the Issuer. A holder of Notes
should consult his own tax advisor as to the consequences of Isle of Man
withholding taxes and the availability of a foreign tax credit or deduction.
WARRANTS
The exercise of a Warrant will not result in a taxable event to the
holder of the Warrant. Upon such exercise, the holder's adjusted tax basis in
the Holdings Common Stock obtained will be equal to the sum of such holder's
adjusted tax basis in the Warrant (described above) and the exercise price of
the Warrant; the holder's holding period with respect to such Holdings Common
Stock will commence on the day after the date of exercise.
If a Warrant expires without being exercised, the holder will recognize
a loss in an amount equal to its tax basis in the Warrant. Such loss will be a
capital loss if the Holdings Common Stock to which the Warrants relate would
have been a capital asset in the hands of the Warrant holder, and such capital
loss will be a long-term capital loss if the Warrant was held for more than one
year at the time of the lapse.
Upon the sale or other taxable disposition of a Warrant, a holder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (a) the amount of cash and the fair market value of property
received therefor and (b) the holder's adjusted tax basis in the Warrant. A
holder's initial tax basis in a Warrant will be that portion of the issue price
of the Units allocable to the Warrant, as described above, and subject to
adjustment in the events described above. Such gain or loss will be capital gain
or loss if the Holdings Common Stock to which the
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Warrants relate would be a capital asset in the hands of the Warrant holder. Any
such capital gain or loss will be long-term capital gain or loss if the Warrant
was held for more than one year at the time of the sale or exchange and
otherwise will be a short-term capital gain or loss. Any such capital gain
realized by an individual, estate or trust will qualify for the 20% maximum tax
(10% in the case of such a taxpayer in the 15% ordinary income tax bracket) on
capital gains if the Warrant sold or otherwise disposed of was held for at least
18 months, and for the 28% maximum tax on capital gains if such Warrant was held
for more than one year and less than 18 months.
It is possible that the Warrants may be deemed to have been exercised
for tax purposes on the date on which they first become exercisable or possibly
on the date issued, regardless of whether they are actually exercised on the
date on which they are first exercisable. As a result, it is possible that the
holding period of a share of Holdings Common Stock may be deemed to have begun
on the date on which the Warrants first become exercisable or possibly on the
date issued.
Under current provisions of the Code relating to holders of stock in a
"passive foreign investment company," holders of options to acquire such stock
are considered to own such stock for purposes of certain of those provisions.
Accordingly, the consequences described in "Passive Foreign Income Company
Status" below generally apply to the holder of a Warrant upon receipt of such
Warrant, except to the extent described below.
Adjustments to the number of shares of Holdings Common Stock
purchasable upon exercise of the Warrants, or the failure to make adjustments,
may in certain circumstances result in the receipt of taxable constructive
dividends by the holder resulting in ordinary income to the extent of Holdings'
current and accumulated earnings and profits (as determined for U.S. federal
income tax purposes). In such event the holder's tax basis in the Warrants would
be increased by an amount equal to the constructive dividend.
HOLDINGS COMMON STOCK
DISTRIBUTIONS
Distributions of cash or property with respect to the Holdings Common
Stock will constitute ordinary dividend income to the extent of Holdings'
current and accumulated earnings and profits (as determined for U.S. federal
income tax purposes) and will be treated as foreign source dividend income. Any
distributions in excess of such earnings and profits will constitute a
nontaxable return of capital and reduce the holder's tax basis in such Holdings
Common Stock. To the extent such distributions exceed a holder's tax basis in
Holdings Common Stock, such excess will constitute capital gain. The dividend
will not be eligible for the dividends received deduction allowed to United
States corporations. Special rules apply for purposes of determining the foreign
tax credit available to a United States corporation which controls 10% or more
of the voting shares of Holdings.
SALE OR OTHER TAXABLE DISPOSITION
A holder will, upon the sale, redemption or other taxable disposition
of Holdings Common Stock, recognize gain or loss for federal income tax purposes
in an amount equal to the difference between (a) the amount of cash and the fair
market value of property received therefor and (b) the
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holder's tax basis in the Holdings Common Stock. Except as described below under
"Passive Foreign Investment Company Status," such gain or loss will be capital
gain or loss if the Holdings Common Stock were a capital asset in the hands of
the holder. Any such capital gain realized by an individual, estate or trust
will qualify for the 20% maximum tax (10% in the case of such a taxpayer in the
15% ordinary income tax bracket) on capital gains if the Holdings Common Stock
sold or otherwise disposed of was held for at least 18 months, and for the 28%
maximum tax on capital gains if such share of Holdings Common Stock was held for
more than one year and less than 18 months and will be long-term if the Holdings
Common Stock were held for more than one year. Any such gain generally will not
be treated as foreign source income.
If a holder receives any foreign currency on the sale or other taxable
disposition of Holdings Common Stock, the holder may recognize ordinary gain or
loss as a result of currency fluctuations between the date of the sale and the
date the sale proceeds are converted into U.S. dollars.
PASSIVE FOREIGN INVESTMENT COMPANY STATUS
Because Holdings will receive (or be deemed to receive) rental income
and other passive income, Holdings may be a passive foreign investment company
("PFIC") for federal income tax purposes. Holdings will be a PFIC if either 75%
or more of its gross income in a tax year is passive income or the average
percentage of its assets (by value) which produce or are held for the
production of passive income is at least 50%.
A determination as to PFIC status is made annually (although an initial
determination that Holdings is a PFIC generally will apply for subsequent years
(whether or not Holdings meets the PFIC test in those years)) with respect to a
holder owning Holdings stock who does not make the qualified electing fund
("QEF") election with respect to the first year it holds or is deemed to hold
Holdings stock and for which Holdings is determined to be a PFIC.
Whether Holdings is a PFIC in any year and the tax consequences
relating to PFIC status will depend on the composition of the income and assets
of Holdings, which may vary each year. Holdings will monitor its status and
will, promptly following the end of any taxable year for which it determines it
was a PFIC, notify holders of such status and comply with the reporting and
other requirements necessary for holders to make a QEF election (described
below).
If Holdings is a PFIC, the direct and certain indirect holders holding
Holdings Common Stock must either (i) make a QEF election and report currently
their pro rata share of Holdings' ordinary earnings and net capital gain even if
they do not receive distributions from Holdings, or (ii) upon disposition of
Holdings Common Stock or Warrants or receipt of an "excess distribution" (as
defined in the Code), be subject to tax generally as if the gain or distribution
were ordinary income earned ratably over the period in which the Holdings Common
Stock or Warrant was held (including payment of an interest charge on the
deferred tax), and face other adverse tax consequences. While it is unclear,
holders of Warrants should be aware that it is likely that the QEF election will
be unavailable to Warrant holders.
If Holdings determines that it is a PFIC at any time and so notifies
holders, it is strongly urged that each holder of Holdings Common Stock or
Warrants make a QEF election in accordance
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with the procedure described in the following paragraph. Any such notification
from Holdings also would include a detailed explanation as to how to make a QEF
election. If such election is made, the holder would be required to include in
income the holder's pro rata share of Holdings' ordinary earnings and net
capital gain during the PFIC year. As stated above, it is not entirely clear if
a QEF election is available to holders of Warrants. If the IRS successfully
claims that a holder of Warrants could not make a QEF election, or if a holder
of Holdings Common Stock or Warrants fails to make a QEF election after
receiving a notification from Holdings that it is or was a PFIC, the holder will
face severe adverse tax consequences described under (ii) of the preceding
paragraph.
The QEF election is made on a shareholder-by-shareholder basis. Each
holder should consult with its own tax adviser to decide whether to make the QEF
election. This election is made by attaching the shareholder election statement,
the PFIC annual information statement and Form 8621 to such holder's timely
filed United States federal income tax return with a copy of the shareholder
election statement being sent to the Internal Revenue Service Center, P.O. Box
21088, Philadelphia, Pennsylvania 19114. If Holdings is (or under the
circumstances described above, was) a PFIC, copies of the Form 8621 must also be
filed every year, both with such tax return and with the IRS Center in
Philadelphia, whether or not the QEF election is made. Holdings will supply the
PFIC annual information statement to any holder of Holdings Common Stock or
Warrant or former holder of Holdings Common Stock or Warrant who requests it and
to all shareholders of record who are holders at any time in any PFIC year.
LIQUIDATED DAMAGES
The Issuer intends to take the position that the additional payments
described above under "Description of the Exchange Notes--Registered Exchange
Offer; Registration Rights" will be taxable to a holder as ordinary income in
accordance with such Holder's method of accounting for tax purposes. The IRS,
however, may take a different position, which could affect the timing of both a
Holder's income and the timing of the Issuer's deduction with respect to such
additional payments.
NON-U.S. PERSONS
The following discussion is limited to the United States federal income
tax consequences relevant to a holder of a Unit, Note, Warrant or share of
Holdings Common Stock that is not a United States person (a "non-U.S. person").
NOTES
In general, payments of principal, premium (if any) and interest
(including original issue discount) on the Notes will not be subject to federal
income tax, including withholding tax, if paid to a non-U.S. person, unless, in
the case of interest (including original issue discount) the non-U.S. person is
(i) a corporation that is an insurance company carrying on a U.S. trade or
business to which the interest (including original issue discount) is
attributable within the meaning of the Code, or (ii) the individual or
corporation has an office or other fixed place of business in the United States
to which the interest is attributable, and the interest either is derived in the
active conduct of a banking, financing or similar business within the United
States or is received by a corporation, the
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principal business of which is trading in stock or securities for its own
account. Even if (i) or (ii) of the preceding sentence applies to a non-U.S.
person, the exchange of Existing Notes for Exchange Notes pursuant to the
Registered Exchange Offer will not constitute a taxable exchange. See
"--EXCHANGE OFFER" above.
Gain realized on the sale or retirement of Notes by a non-U.S. person
will not be subject to federal income tax, including withholding tax, unless (i)
the gain is effectively connected with the conduct of a trade or business within
the United States or (ii) in the case of an individual, the holder has been
present in the United States for 183 days or more during the taxable year of the
sale or retirement and certain other conditions are satisfied.
WARRANTS AND HOLDINGS COMMON STOCK
Distributions by Holdings to a non-U.S. person of a Warrant or share of
Holdings Common Stock would be subject to withholding of federal income tax only
if 25% or more of the gross income of Holdings (from all sources of the
three-year period ending with the taxable year preceding the declaration of the
dividend (the "Testing Period")) was effectively connected with the conduct of a
trade or business in the United States by Holdings. Holdings does not anticipate
that 25% or more of its gross income will be effectively connected with the
conduct of a trade or business in the United States by Holdings, and
accordingly, Holdings anticipates that dividends paid to non-U.S. persons will
not be subject to withholding of federal income tax.
Gain realized on the sale or other disposition of Warrants or Holdings
Common Stock by a non-U.S. person will not be subject to federal income tax,
including withholding tax, unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States or (ii) in the case of
an individual, the holder has been present in the United States for 183 days or
more during the taxable year of the sale or retirement and certain other
conditions are satisfied.
STATE, LOCAL, FOREIGN AND OTHER TAXES
Investors should consult their own tax advisors regarding whether the
purchase of the Exchange Notes, Units, Warrants or shares of Holdings Common
Stock, either alone or in conjunction with an investor's other activities, may
subject an investor to any state or local taxes, or to taxes imposed by any
taxing jurisdiction outside the United States, based on an assertion that the
investor is either "doing business" in, or deriving income from a source located
in, any state, local or foreign jurisdiction, including any such assertion
arising from the presence, use, trading or operation of any of the Vessels in
such jurisdiction or any activities in such jurisdiction of an Owner or any
other person. Additionally, potential investors should consider the state,
local, foreign and other tax consequences of purchasing, owning or disposing of
an Exchange Note, Unit, Warrant or share of Holdings Common Stock. State, local
and foreign tax law may differ substantially from the corresponding federal tax
law, and the foregoing discussion does not purport to describe any aspect of the
tax laws of any state or other jurisdiction. Accordingly, potential investors
should consult their own tax advisors with regard to such matters.
INFORMATION REPORTING AND BACKUP WITHHOLDING
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The Issuer will provide annual information statements to holders of the
Exchange Notes and information returns to the IRS regarding the amount of
original issue discount that accrued on the
Exchange Notes during the past year.
A holder of an Exchange Note or share of Holdings Common Stock may be
subject to backup withholding at the rate of 31.0% with respect to original
issue discount and proceeds from the sale, exchange, redemption or retirement of
the Exchange Note or share of Holdings Common Stock unless such holder (i) is a
corporation or falls within certain other exempt categories and, when required,
demonstrates such fact, or (ii) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
Any amount paid as backup withholding would be creditable against such holder's
United States federal income tax liability. A holder who does not provide a
correct taxpayer identification number may be subject to penalties imposed by
the Code.
UNITED STATES TAXATION OF THE COMPANY
U.S. TAXATION OF OPERATING INCOME. Unless exempt from U.S. taxation
under the rules discussed below, a non-U.S. corporation is subject to U.S.
federal income taxation in respect of any income that is derived from the use of
vessels, from the hiring or leasing of vessels for use on a time, voyage or
bareboat charter basis, or from the performance of services directly related to
such use ("Shipping Income"), to the extent that such Shipping Income is derived
from sources within the United States. For these purposes, 50% of Shipping
Income that is attributable to transportation that begins or ends (but that does
not both begin and end) in the United States constitutes income from sources
within the United States ("50% U.S.-source Shipping Income"). The tax on
non-exempt 50% U.S.-source Shipping Income is 4% of the amount of such income
not reduced by any deductions.
A foreign corporation, such as the Company, which does not maintain an
office or other fixed place of business within the United States is not subject
to United States taxation with respect to Shipping Income that is not considered
to be from sources within the United States (such as income attributable to
transportation that begins and ends outside of the United States and 50% of the
Shipping Income that is attributable to transportation that begins or ends (but
that does not both begin and end) in the United States).
The Vessels will be operated in various parts of the world and, in
part, may be involved in transportation of cargoes that begins or ends (but that
does not both begin and end) in U.S.
ports.
EXEMPTION OF OPERATING INCOME FROM U.S. TAXATION. Pursuant to Section
883 of the Code, the Company will be exempt from U.S. taxation of its 50%
U.S.-source Shipping Income, if both (i) the Company is organized in a foreign
country that grants an equivalent exemption to corporations organized in the
United States (the "Equivalent Exemption Requirement"), and (ii) either (A) more
than 50% of the value of the Company's shares is owned, directly or indirectly,
by individuals who are "residents" of such country or of another foreign country
that grants an equivalent exemption to corporations organized in the United
States (the "50% Ownership Test") or (B) stock of the Company is "primarily and
regularly traded on an established securities market" in such country, in
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another country that grants an "equivalent exemption" to U.S. corporations, or
in the United States (the "Publicly-Traded Test").
The Isle of Man, the country in which the Company is incorporated,
grants an "equivalent exemption" to U.S. corporations. Therefore, the Company
will be exempt from U.S. federal income taxation with respect to its 50%
U.S.-source Shipping Income if either the 50% Ownership Test or the
Publicly-Traded Test is met. As of the Original Closing Date, the Company met
the 50% Ownership Test. However, no assurance can be given that the Company will
qualify for the exemption in any future year.
U.S. TAXATION OF GAIN ON SALE OF VESSELS. Regardless of whether the
Company qualifies for exemption under Section 883 of the Code, the Company will
not be subject to United States taxation with respect to gain realized on sale
of a Vessel, provided that the sale is considered to occur outside of the United
States under United States tax principles. In general, a sale of a Vessel will
be considered to occur outside of the United States for this purpose if title to
the Vessel, and risk of loss with respect to the Vessel, pass to the buyer
outside of the United States. It is expected that any sale of a Vessel will be
considered to occur outside of the United States.
FIXED PLACE OF BUSINESS WITHIN THE UNITED STATES. In the event that the
Company were considered to maintain an office or other fixed place of business
within the United States, the Company could become subject to the net-basis U.S.
federal corporate income tax, which currently is imposed at rates of up to 35%
on taxable income, and to the 30% "branch profits tax" regime of Section 884 of
the Code with respect to any U.S.-source Shipping Income and gain not in excess
of the "depreciation adjustments," as defined in Section 865 of the Code, on the
sale of a Vessel that has produced such "effectively connected" income. As noted
above, the Company does not expect to have an office or other fixed place of
business within the United States.
ERISA CONSIDERATIONS
Sections 404 and 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the Code impose restrictions on
the activities of employee benefit plans (as defined in Section 3(3) of ERISA)
and certain other retirement plans and arrangements described in Section
4975(e)(l) of the Code, including individual retirement accounts, individual
retirement annuities and Keogh plans and insurance company separate accounts and
bank collective investment funds, in which such plans, accounts, annuities or
arrangements are invested (each a "Plan").
Section 404 of ERISA imposes general fiduciary requirements on the
fiduciaries of Plans to which it applies, including requirements of investment
prudence and diversification in managing such a Plan's assets. In addition,
Section 406 of ERISA prohibits Plans to which it applies from engaging in
transactions described in Section 406 of ERISA, and Section 4975 of the Code
imposes excise taxes with respect to transactions described in Section
4975(c)(l) of the Code. The transactions described in Section 406 of ERISA and
Section 4975(c)(l) of the Code are transactions which involve the assets of a
Plan and to which a person related to the Plan is a party. Statutory and
administrative exemptions from such restrictions and taxes are available in
certain cases.
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The purchase of Securities by a Plan may be deemed to constitute a
sales transaction between the Plan and the seller of Securities, as well as an
extension of credit by the Plan to the Issuer or the Owners. Either of such
transactions could constitute a prohibited transaction if Holdings, the Issuer
or any of the Owners is a "party in interest" with respect to the Plan for
purposes of Section 406 of ERISA or a "disqualified person" with respect to the
Plan under Section 4975 of the Code. In such a case, the Plan should not
purchase or hold the Securities unless there is in effect a statutory or
administrative prohibited transaction exemption making Section 406 of ERISA and
Section 4975 of the Code inapplicable to such purchase and holding.
Additional ERISA considerations may apply if the Securities cause the
holders thereof to be deemed to have an equity interest in Holdings, the Issuer
or the Owners for purposes of ERISA. In that event, a Plan's investment in the
Securities may cause the assets of Holdings, the Issuer or the Owners to be
deemed to be assets of the Plan for purposes of Sections 404 and 406 of ERISA
and Section 4975 of the Code. In such event, ERISA's fiduciary standards might
apply to actions involving Holdings, the Issuer's or the Owners' assets, and any
transactions involving Holdings, the Issuer or the Owners, or their respective
assets could be deemed to be transactions to which the restrictions of Section
406 or ERISA and the taxes imposed under Section 4975 of the Code might apply.
Under Section 2510.3-101 of regulations issued by the United States Department
of Labor (the "Regulations"), when a Plan to which the Regulations apply
acquires an equity interest in an entity, the Plan's assets include the
investment in the entity and, with certain exceptions, an undivided interest in
each asset of the entity in which the investment is made. Exceptions contained
in the Regulations provide that a Plan's assets will not include an undivided
interest in each asset of an entity in which it makes an equity investment if:
(1) the entity is an operating company; (2) the equity investment made by the
Plan is either a "publicly-offered security" as defined in the Regulations or a
security issued by an investment company registered under the Investment Company
Act of 1940, as amended; or (3) Benefit Plan Investors do not own 25% or more in
value of any class of equity securities issued by the entity. For this purpose,
"Benefit Plan Investors" include Plans, as well as any "employee benefit plan"
as defined in Section 3(3) of ERISA which is not subject to Title I of ERISA,
such as governmental plans (as defined in Section 3(32) of ERISA) and church
plans (as defined in Section 3(33) of ERISA) which have not made an election
under Section 410(d) of the Code, and any entity whose underlying assets include
Plan assets by reason of a Plan's investment in the entity.
If the purchase of the Securities results in holders thereof having an
equity interest in Holdings, the Issuer or the Owners for purposes of ERISA,
there is no assurance that any of the exceptions set forth in the Regulations
will apply to the purchase of the Securities offered hereby. Under the terms of
the Regulations, if any person were deemed to hold Plan assets by reason of a
Plan's investment in the Securities, such Plan assets may include an undivided
interest in the Vessels and other property of such person. In such an event, the
Owners, the Trustees, the Collateral Agent, the Manager, GEBAB, other persons
providing services with respect to the Vessels and other property of the Owners,
may be subject to the fiduciary responsibility provisions of Title I of ERISA.
The prohibited transaction provisions of Section 4975 of the Code and Section
406 of ERISA would apply with respect to transactions involving Holdings, the
Issuer or the Owners or the Vessels and a related party to a Plan unless such
transactions are subject to a statutory or administrative exemption.
Additionally, if Holdings, the Issuer, the Owners or the Collateral Agent were
deemed to hold Plan assets, each holder of a Security may be subject to the
fiduciary responsibility provisions
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of Title I of ERISA with respect to its right to consent or withhold consent to
amendments to any of the Indentures or the Warrant Agreement and with respect to
its right to vote on actions to be taken or not taken if an Event of Default
occurs. As of the date hereof, the Company believes that each of the Owners will
qualify as an operating company within the meaning of the Regulations. However,
Plans considering the purchase of the Securities should consult with their own
independent legal counsel concerning the status of the Owners under the
Regulations and any ERISA considerations relevant thereto.
In addition, certain affiliates of Holdings, the Issuer, the Owners,
the Manager, GEBAB, the Collateral Agent and the Trustees may be considered to
be parties in interest or fiduciaries with respect to many Plans. An investment
by such a Plan in Securities may be a prohibited transaction under ERISA and the
Code unless such investment is subject to a statutory or administrative
exemption.
As a result, each prospective initial holder of the Securities, each
prospective transferee acquiring any of the Securities and each prospective
owner (or transferee thereof) of a beneficial interest in any of the Securities
(each a "Prospective Owner") is or will be deemed to have represented and
warranted to Holdings, the Owners, the Issuer, the Trustees, the Collateral
Agent, the Manager and GEBAB that either (1) the Prospective Owner is not a Plan
and the Prospective Owner is not directly or indirectly acquiring the relevant
Securities on behalf of, as investment manager of, as named fiduciary of, as
trustee of, or with assets of a Plan, (2) to the extent such purchase is made by
or on behalf of a bank collective investment fund maintained by the purchaser in
which no plan (together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total assets in
such collective investment fund, and the other applicable conditions of
Prohibited Transaction Class Exemption 91-38 issued by the Department of Labor
are satisfied, (3) to the extent such purchase is made by or on behalf of an
insurance company pooled separate account maintained by the purchaser in which,
at any time while the Securities are outstanding, no plan (together with any
other plans maintained by the same employer or employee organization) has an
interest in excess of 10% of the total of all assets in such pooled separate
account, and the other applicable conditions of Prohibited Transaction Class
Exemption 90-1 issued by the Department of Labor are satisfied, (4) to the
extent such purchase is made on behalf of a plan by (A) an investment adviser
registered under the Investment Advisers Act of 1940, as amended (the "1940
Act"), that had as of the last day of its most recent fiscal year total assets
under its management and control in excess of $50.0 million and had
stockholders' or partners' equity in excess of $750,000, as shown in its most
recent balance sheet prepared in accordance with GAAP, or (B) a bank as defined
in Section 202(a)(2) of the 1940 Act, with equity capital in excess of $1.0
million as of the last day of its most recent fiscal year, or (C) an insurance
company which is qualified under the laws of more than one state to manage,
acquire or dispose of any assets of a pension or welfare plan, which insurance
company has as of the last day of its most recent fiscal year, net worth in
excess of $1.0 million and which is subject to supervision and examination by a
state authority having supervision over insurance companies and, in any case,
such investment adviser, bank or insurance company is otherwise a qualified
professional asset manager, as such term is used in Prohibited Transaction Class
Exemption 84-14 issued by the Department of Labor, and the assets of such plan
when combined with the assets of other plans established or maintained by the
same employer (or affiliate thereof) or employee organization and managed by
such investment adviser, bank or insurance company, do not represent more than
20% of the total client assets
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managed by such investment adviser, bank or insurance company at the time of the
transaction, and the other applicable conditions of such exemption are otherwise
satisfied, (5) to the extent such plan is a governmental plan (as defined in
Section 3 of ERISA) which is not subject to the provisions of Title I of ERISA
or Section 401 of the Code, (6) to the extent such purchase is made by or on
behalf of an insurance company using the assets of its general account, the
reserves and liabilities for the general account contracts held by or on behalf
of any plan, together with any other plans maintained to the same employer (or
its affiliate) or employee organization, do not exceed 10% of the total reserves
and liabilities of the insurance company general account (exclusive of separate
account liabilities), plus surplus as set forth in the National Association of
Insurance Commissioners Annual Statement filed with the state of domicile of the
insurer, in accordance with Prohibited Transaction Class Exemption 95-60, and
the other applicable conditions of such exemption are otherwise satisfied, (7)
to the extent such purchase is made by an in-house asset manager within the
meaning of Part IV(a) of Prohibited Transaction Class Exemption 96-23, such
manager has made or properly authorized the decision for such plan to purchase
Securities, under circumstances such that Prohibited Transaction Class Exemption
96-23 is applicable to the purchase and holding of such Securities or (8) the
proposed acquisition or transfer will qualify for a statutory or administrative
prohibited transaction exemption under ERISA and the Code or will not give rise
to a transaction described in Section 406 of ERISA or Section 4975(c)(l) of the
Code for which a statutory or administrative exemption is unavailable.
Any Plan fiduciary that proposes to cause a Plan to purchase Securities
should consider whether such purchase would be appropriate under the general
fiduciary standards of prudence and diversification, taking into account the
overall investment policy of the Plan and its existing portfolio and should
consult with its counsel with respect to the potential applicability of ERISA
and the Code.
PROSPECTIVE PLAN INVESTORS SHOULD CONSULT WITH THEIR LEGAL AND OTHER
ADVISORS CONCERNING THE IMPACT OF ERISA AND THE CODE (AND, PARTICULARLY IN THE
CASE OF NON-ERISA PLANS AND ARRANGEMENTS, ANY ADDITIONAL STATE LAW
CONSIDERATIONS), AND THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES
OF AN INVESTMENT IN THE SECURITIES, PRIOR TO MAKING AN INVESTMENT IN THE
SECURITIES.
CERTAIN ISLE OF MAN TAX CONSEQUENCES
The Issuer is prohibited from making, and accordingly shall not make,
any offer or invitation to any resident of the Isle of Man to subscribe for
Exchange Notes.
Holdings is prohibited from making, and accordingly shall not make, any
offer or invitation to any resident of the Isle of Man to subscribe for
Warrants.
By acquiring and holding any Exchange Notes or Warrants, the holder
will be deemed to warrant as a continuing warranty that the holder is not
resident for taxation purposes in the Isle of Man unless the holder is acting as
a trustee or nominee for a person not resident for taxation purposes, in the
Isle of Man or is a Manx exempt or international company, and accordingly the
entry of a Manx address on the Register of Members of the Issuer or Holdings, as
the case may be, will
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not be permitted unless evidence is produced to the Registrar that the holder is
a trustee or nominee for a person not resident for taxation purposes in the Isle
of Man or is a Manx exempt or
international company.
Special Isle of Man counsel has advised the Issuer that no withholding
taxes will be imposed on payments of principal, interest or premium (if any)
thereon with respect to the Exchange Notes and that the Holders will not be
subject to any income taxes imposed by the Isle of Man solely as a result of
owning the Exchange Notes. Investors should consult their own tax advisors
regarding whether the purchase of the Exchange Notes in conjunction with an
investor's other activities in the Isle of Man, may subject an investor to any
taxes imposed by the Isle of Man.
To the extent the Isle of Man in the future does impose a withholding
tax with respect to payments of principal, interest or premium (if any) on the
Exchange Notes, the Issuer will make the required withholding and is required to
gross-up or indemnify Holders for amounts withheld. Pursuant to the Indentures,
in the event the Isle of Man does impose a withholding tax with respect to such
payments, the Issuer is obligated to take any lawful action to the extent
necessary to prevent or avoid the imposition of any withholding taxes, including
changing its jurisdiction of incorporation or residence; PROVIDED, HOWEVER, that
the Issuer will not be required to take, or fail to take, any action (x) if in
the opinion of counsel such act or failure to act would violate applicable law
or (y) if in the reasonable opinion of the Issuer the actions necessary to avoid
or prevent imposition of such taxes would be unduly burdensome. For purposes of
clause (y) of the immediately preceding sentence, a requirement to change the
jurisdiction of the Issuer's incorporation or residence will not be treated as
unduly burdensome unless changing the Issuer's jurisdiction of incorporation or
residence to such other jurisdiction or location would subject the Issuer to
charges in such other jurisdiction, including but not limited to taxes imposed
on or measured by its income, receipts, property, assets, capital, sales or
value-added.
Furthermore, special Isle of Man counsel has advised Holdings that the
Holders of the Warrants will not be subject to any income or withholding taxes
imposed by the Isle of Man solely as a result of owning the Warrants, exercising
the Warrants to purchase Holdings Common Stock or owning Holdings Common Stock.
Investors should consult their own tax advisors regarding whether the same, in
conjunction with an investor's other activities in the Isle of Man, may subject
an investor to any taxes imposed by the Isle of Man.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all dealers
effecting transactions in the Exchange Securities may be required to deliver a
prospectus.
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The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to a Registered Exchange Offer may be sold from time
to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Securities Act and any profit on any such resale of Exchange Securities and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incidental to the Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilites, including liabilities under the
Securities Act.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Securities in Canada is being made only on a
private placement basis exempt from the requirement that Navigator Gas Transport
and Holdings prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Securities are effected.
Accordingly, any resale of the Securities in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Securities in Canada who receives a purchase
confirmation will be deemed to represent to Navigator Gas Transport, Holdings
and the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Securities without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent and (iii) such purchaser has reviewed the text
below under "TRANSFER RESTRICTIONS."
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RIGHTS OF ACTION (ONTARIO PURCHASERS)
The Securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the directors and officers of Navigator Gas Transport, Holdings
and the Owners as well as the experts named herein may be located outside of
Canada and, as a result, it may not be possible for Canadian purchasers to
effect service of process within Canada upon Navigator Gas Transport, Holdings,
the Owners or such persons. All or a substantial portion of the assets of
Navigator Gas Transport, Holdings, the Owners and such persons may be located
outside of Canada and, as a result, it may not be possible to satisfy a judgment
against Navigator Gas Transport, Holdings, the Owners or such persons in Canada
or to enforce a judgment obtained in Canadian courts against Navigator Gas
Transport, Holdings, the Owners or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Securities to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Securities acquired by such purchaser pursuant to the Offerings. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Navigator Gas Transport.
Only one such report must be filed in respect of Securities acquired on the same
date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Securities should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the
Securities in their particular circumstance and with respect to the eligibility
of the Securities for investment by the purchaser under the relevant
Canadian legislation.
-151-
RATING
Moody's has rated the First Priority Existing Notes B1 and the Second
Priority Existing Notes B3, Standard & Poor's has rated the First Priority
Existing Notes B and the Second Priority Existing Notes B and Duff & Phelps has
rated the First Priority Existing Notes BB- and the Second Priority Existing
Notes B. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. The ratings
of the Rating Agencies assigned to the Notes address the likelihood of the
receipt by Holders of the Existing Notes of all distributions to which such
Holders are entitled. The ratings assigned to the Notes do not represent any
assessment of the likelihood that principal prepayments might differ from those
originally anticipated or address the possibility that Holders might suffer a
lower than anticipated yield. In the event that the rating initially assigned to
any of the Notes is subsequently lowered for any reason, no person or entity is
obligated to provide any additional support or credit enhancement with respect
to such Note. The ratings do not address the possibility that Holders of the
Existing Notes may suffer a lower than anticipated yield.
The Issuer has not requested a rating on the Notes by any rating
agencies other than the Rating Agencies. However, there can be no assurance as
to whether any other rating agency will rate the Notes, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the Notes
by another rating agency, if assigned at all, may be lower than the ratings
assigned to the Note by the Rating Agencies.
LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby
will be passed upon for the Company and the Manager by Thacher Proffitt & Wood,
New York, New York and Cains, Douglas, Isle of Man.
GLOSSARY OF SHIPPING TERMS
The following shipping terms are used in this Prospectus:
"BALLAST" means the time during which a vessel is not employed while en
route to load a cargo.
"BAREBOAT CHARTER" means a contract to hire a vessel for a period of
time under which the charterer is responsible for operating the vessel,
providing and paying the captain and crew and paying all associated operating
costs of the vessel during the charter. Also known as a "demise charter."
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, as amended.
"CHARTER" means the hire of a ship for a specified period of time or to
carry a cargo for a fixed fee from a loading port to a discharging port.
"CHARTERPARTY" means a contract for a charter.
-152-
"CLASSIFICATION SOCIETY" means a private organization which has as its
purpose the supervision of vessels during their construction and afterward, in
respect to their seaworthiness and upkeep, and the placing of vessels in
"classes" according to the classification society's rules for each type of
vessel.
"CONFISCATION, EXPROPRIATION, NATIONALIZATION AND DETAINMENT INSURANCE"
provides insurance for the occurrence of such event due to the carrying of
contraband items on a vessel.
"CONTRACT OF AFFREIGHTMENT" means a contract for a series of voyages
involving bulk cargoes.
"DEADWEIGHT TONNE" ("dwt") is a unit of a vessel's capacity for cargo,
fuel oil, stores and crew, measured in tonnes. A vessel's dwt or total
deadweight is the maximum weight the vessel can carry when fully loaded.
"DRUG SEIZURE INSURANCE" provides cover for the seizure of a vessel by
a national authority.
"FREIGHT" means the compensation for carriage of cargo.
"GENERAL AVERAGE" is related to the deliberate sacrifice of property to
save the whole venture.
"HULL AND MACHINERY INSURANCE" provides cover against total loss of a
vessel, particular average (including partial loss and collision damage),
general average and collision liability.
"IMO" means International Maritime Organization, a United Nations
agency that issues, INTER ALIA, international trade standards for shipping.
"LAY-UP" means mooring a ship at a protected anchorage, shutting down
substantially all of its operating systems and taking measures to protect
against corrosion and other deterioration.
"LOSS OF HIRE HULL AND MACHINERY INSURANCE" provides cover for the loss
of earnings on a vessel after an accident under the hull and machinery policy.
This is a daily indemnity based on the earnings of a vessel.
"LOSS OF HIRE WAR RISKS INSURANCE" provides cover for the loss of
earnings on a vessel after a insurable incident under the war risks policy. This
is a daily indemnity based on the earnings of a vessel.
"NEWBUILDING" means a new vessel under construction.
"OPA 90" means the United States Oil Pollution Act of 1990, as amended.
"P&I CLUBS" means protection and indemnity clubs, whereby shipowners
jointly pay to receive coverage for third party liability.
"PARTICULAR AVERAGE" means a fortuitous partial loss to the property
insured which is not a general average loss.
-153-
"PROTECTION AND INDEMNITY INSURANCE" and "FREIGHT DEMURRAGE AND DEFENSE
INSURANCE" provide cover for loss of life, personal injury, damage to vessels
and property of third parties and indemnity for legal and contractual liability
as carriers of cargo. These forms of insurance are generally provided to
shipowners by P&I Clubs. P&I Clubs are mutual non-profit associations. As mutual
insurers, P&I Club members are both assured and the providers of the capital
necessary to support their P&I Club's underwriting.
"SPECIAL SURVEY" means the inspection of a vessel by a classification
society surveyor which takes place at a minimum every four years and at a
maximum every five years.
"SPOT MARKET" means the market for immediate chartering of a vessel.
"TIME CHARTER" means the hire of a ship for a specified period of time.
The owner provides the ship with crew, stores and provisions, ready in all
aspects to load cargo and proceed on a voyage. The charterer pays for bunkering
and all voyage related expenses including canal tolls and port charges.
"TONNE" means a metric tonne of 1,000 kilograms.
"VOYAGE CHARTER" means a contract of carriage in which the charterer
pays for the use of a ship's cargo capacity for one, or sometimes more than one,
voyage. Under this type of charter, the shipowner pays all the operating costs
of the ship (including bunkers, canal and port changes, pilotage, towage and
ship's agency) while payment for cargo handling charges is subject to agreement
between the parties. Freight is generally paid per unit of cargo, such as a
tonne, based on an agreed quantity, or as a lump sum irrespective of the
quantity loaded.
"WAR RISKS POLICY" provides cover against the blocking and trapping of
a vessel, confiscation and damage resulting from hostilities, mines, strikes,
riots and civil commotions. However, a vessel subject to this form of insurance
cannot trade in a high risk area without the specific agreement of the insurer
and the payment of additional premiums. Pursuant to this insurance, a total loss
will be declared to have occurred after six months of arrest by a government,
civil war, sabotage, acts of terrorists and mines.
Shipping terms supplied by the Dictionary of Shipping Serials and other
sources.
-154-
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
-------
TABLE OF CONTENTS
PAGE
ENFORCEABILITY OF CIVIL LIABILITIES.......................................iii
AVAILABLE INFORMATION.....................................................iii
DEFINED TERMS.............................................................iii
PROSPECTUS SUMMARY..........................................................1
RISK FACTORS...............................................................18
THE EXCHANGE OFFER.........................................................25
USE OF PROCEEDS............................................................34
CAPITALIZATION.............................................................35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................35
CONSOLIDATED BALANCE SHEET.................................................35
GAS CARRIER INDUSTRY.......................................................40
BUSINESS...................................................................47
MANAGEMENT.................................................................63
PRINCIPAL SHAREHOLDERS.....................................................67
TRANSACTIONS...............................................................69
DESCRIPTION OF THE EXCHANGE NOTES..........................................71
DESCRIPTION OF THE UNITS..................................................113
DESCRIPTION OF THE WARRANTS...............................................113
THE MORTGAGES.............................................................124
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.........................................................129
ERISA CONSIDERATIONS......................................................139
CERTAIN ISLE OF MAN TAX CONSEQUENCES.....................................142
PLAN OF DISTRIBUTION......................................................142
NOTICE TO CANADIAN RESIDENTS..............................................143
LEGAL MATTERS.............................................................145
GLOSSARY OF SHIPPING TERMS................................................145
- --------------------------------------------------------------------------------
COVER CHART
$304,000,000
NAVIGATOR GAS TRANSPORT PLC
$217,000,000 10 1/2% First Priority
Exchange Ship Mortgage Notes
Due 2007
and
$87,000,000 12% Second Priority
Exchange Ship Mortgage Notes
Due 2007
PROSPECTUS
- --------------------------------------------------------------------------------
-155-
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
NAVIGATOR GAS TRANSPORT PLC ("NAVIGATOR GAS TRANSPORT"), NAVIGATOR GAS (IOM I-A)
LIMITED, NAVIGATOR GAS (IOM I-B) LIMITED, NAVIGATOR GAS (IOM I-C) LIMITED,
NAVIGATOR GAS (IOM I-D) LIMITED AND NAVIGATOR GAS (IOM I-E) LIMITED (EACH, AN
"OWNER" AND TOGETHER WITH NAVIGATOR GAS TRANSPORT, THE "COMPANIES")
Each of the Companies is a corporation incorporated under the laws of
the Isle of Man. Section 151 of the Isle of Man Companies Act 1931 provides that
any provision (whether contained in the articles of association of the
corporation or elsewhere) exempting any director, officer or auditor
(collectively, "Officer") or indemnifying him or her against any liability which
would attach to him or her in relation to any negligence, default, breach of
duty or breach of trust is void. However, Section 151 also provides that an Isle
of Man corporation may indemnify any Officer against any liability incurred by
him or her in defending any proceedings, whether civil or criminal, in which
judgment is given in his or her favor or in which he or she is acquitted or in
connection with any application under Section 337 of the Isle of Man Companies
Act 1931 in which relief is granted by a court. Section 337 provides that, if in
any proceedings for negligence, default, breach of duty or breach of trust
against any Officer it appears to the court hearing the case that the person is
or may be liable in respect of the negligence, default, breach of duty or breach
of trust, but that he or she has acted honestly and reasonably and that, having
regard to all the circumstances of the case, including those connected with his
appointment, he or she ought fairly be excused, that court may relieve him or
her either wholly or partly his or her liability on such terms as the court
thinks fit. Additionally, under Section 337, where any Officer has reason to
believe that any claim will or might be made against him or her, he or she may
apply to court for relief as if an action had already been brought against him.
An Isle of Man corporation has the power to purchase and maintain
insurance on behalf of an Officer against any liability alleged against him or
her for negligence, default, breach of duty or breach of trust.
Article 126 of the Articles of Association of each of the Companies
provides for indemnification of directors and officers as follows:
Every director or other officer of the Company shall be entitled to be
indemnified out of the assets of the Company against all losses or
liabilities (including any such liability as is mentioned in paragraph
(c) of the proviso to Section 151 of the Companies Act [1931]), which
he may sustain or incur in or about the execution of the duties of his
office or otherwise in relation thereto, and no director or other
officer shall be liable for any loss, damage or misfortune which may
happen to or be incurred by the Company in the execution of the duties
of his office or in relation thereto. But this Article shall only have
effect insofar as its provisions are not avoided by the said section.
The effectiveness of such article is subject to the provisions of
Section 151 of the Isle of Man Companies Act 1931 as discussed above.
1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
* 3.1 - Memorandum and Articles of Association of Navigator Gas Transport PLC.
3.2 - Memorandum and Articles of Association of Navigator Gas (IOM I-A) Limited.
* 3.3 - Memorandum and Articles of Association of Navigator Gas (IOM I-B) Limited.
* 3.4 - Memorandum and Articles of Association of Navigator Gas (IOM I-C) Limited.
* 3.5 - Memorandum and Articles of Association of Navigator Gas (IOM I-D) Limited.
* 3.6 - Memorandum and Articles of Association of Navigator Gas (IOM I-E) Limited.
4.1 - Indenture, dated as of August 1, 1997, among Navigator Gas Transport, Navigator
Holdings PLC ("Holdings"), the Owners and United States Trust Company of New York
(the "First Priority Trustee"), in respect of the 10 1/2% First Priority Ship Mortgage Notes
due 2007.
4.2 - Indenture, dated as of August 1, 1997, among Navigator Gas Transport, Holdings, the
Owners and The Chase Manhattan Bank of New York (the "Second Priority Trustee"), in
respect of the 12% Second Priority Ship Mortgage Notes due 2007.
4.3 - Issue of One Debenture, dated as of August 1, 1997, between
Navigator Gas (IOM I-A) Limited and the Collateral Agent,
United States Trust Company of New York.
* 4.4 - Issue of One Debenture, dated as of August 1, 1997, between Navigator Gas (IOM I-B)
Limited and the Collateral Agent.
* 4.5 - Issue of One Debenture, dated as of August 1, 1997, between Navigator Gas (IOM I-C)
Limited and the Collateral Agent.
* 4.6 - Issue of One Debenture, dated as of August 1, 1997, between Navigator Gas (IOM I-D)
Limited and the Collateral Agent.
* 4.7 - Issue of One Debenture, dated as of August 1, 1997, between Navigator Gas (IOM I-E)
Limited and the Collateral Agent.
4.8 - Form of First Priority Exchange Note.
4.9 - Form of Second Priority Exchange Note.
4.10 - Intercreditor Agreement, dated as of August 1, 1997 between
the First Priority Trustee, the Second Priority Trustee,
Navigator Gas Transport, the Owners and Holdings.
4.11 - Letter of Credit Reimbursement Agreement, dated as of August 7,
1997 among Navigator Gas Transport, Holdings, the Owners, Credit
Swisse First Boston and certain banks named therein.
4.12 - Intercompany Note dated as of August 7, 1997, made by the Owners to
Navigation Gas Transport.
4.13 - Letter of Credit dated as of August 7, 1997, issued by Credit
Suisse First Boston in favor of the Collateral Agent.
4.14 - Triparty Agreement dated as of August 1, 1997 among Holdings, China
Shipbuilding Trading Company, Limited Jiagnan Shipyard and Tractebel.
5.1 - Opinion of Thacher Proffitt & Wood, counsel to the Issuer and the Owners, as to the
validity of the Exchange Notes.
8.1 - Opinion of Thacher Proffitt & Wood, counsel to the Owners, as to Certain United States
Income Tax Consequences (contained in Exhibit 5.1).
8.2 - Opinion of Cains, special counsel to the Owners, as to Certain Isle of Man Tax
Consequences.
2
10.1 - Amended and Restated Shipbuilding Contract, dated as of June 26,
1997, between Navigator Holdings PLC and China Shipbuilding Trading
Company, Limited and Jiangnan Shipyard.
* 10.2 - Amended and Restated Shipbuilding Contract, dated as of June 26, 1997, between
Navigator Holdings PLC and China Shipbuilding Trading Company, Limited and Jiangnan
Shipyard.
* 10.3 - Amended and Restated Shipbuilding Contract, dated as of June
26, 1997, among Navigator Holdings PLC and China Shipbuilding Trading
Company, Limited and Jiangnan Shipyard.
* 10.4 - Amended and Restated Shipbuilding Contract, dated as of June
26, 1997, among Navigator Holdings PLC and China Shipbuilding Trading
Company, Limited and Jiangnan Shipyard.
* 10.5 - Amended and Restated Shipbuilding Contract, dated as of June
26, 1997, among Navigator Holdings PLC and China Shipbuilding Trading
Company, Limited and Jiangnan Shipyard.
10.6 - Amendment No. 1 to Amended and Restated Shipbuilding Contract,
dated as of August 1, 1997, among Navigator Gas (IOM I-A) Limited and
China Shipbuilding Trading Company, Limited and Jiangnan Shipyard.
* 10.7 - Amendment No. 1 Amended and Restated Shipbuilding Contract, dated as of August 1,
1997, among Navigator Gas (IOM-I-B) Limited and China Shipbuilding Trading
Company, Limited and Jiangnan Shipyard.
* 10.8 - Amendment No. 1 to Amended and Restated Shipbuilding Contract,
dated as of August 1, 1997, among Navigator Gas (IOM I-C) Limited and
China Shipbuilding Trading Company, Limited and Jiangnan Shipyard.
* 10.9 - Amendment No. 1 to Amended and Restated Shipbuilding Contract,
dated as of August 1, 1997, among Navigator Gas (IOM-I-D) Limited and
China Shipbuilding Trading Company, Limited and Jiangnan Shipyard.
* 10.10 - Amendment No. 1 to Amended and Restated Shipbuilding Contract, dated as of August
1, 1997, among Navigator Gas (IOM-I-E) Limited and China Shipbuilding Trading
Company, Limited and Jiangnan Shipyard.
10.11 - Management Agreement, dated as of August 1, 1997, between Navigator Gas Management
Limited, the Owners, Navigator Gas Transport and Holdings.
10.12 - Technical Supervision Agreement dated February 28, 1997 between Holdings on behalf
of each Owner and GEBAB.
10.13 - Agreement on Contract for Technical Matters dated February 28, 1997 between Holdings
on behalf of each Owner and GEBAB.
10.14 - Master Marketing and Services Agreement dated as of February 28, 1997 between
Holdings on behalf of each Owner and GEBAB.
10.15 - Purchase Agreement, dated July 31, 1997, among Credit Suisse First Boston Corporation,
Cambridge Partners, L.L.C. and Navigator Gas Transport.
10.16 - Registration Rights Agreement, dated as of July 31, 1997 among Credit Suisse First
Boston Corporation, Cambridge Partners, L.L.C. and Navigator Gas Transport.
10.17 - Assignment and Assumption Agreement dated as of July 31, 1997 between Holdings and
Navigator Gas (IOM I-A) Limited.
* 10.18 - Assignment and Assumption Agreement dated as of July 31, 1997 between Holdings and
Navigator Gas (IOM I-B) Limited.
* 10.19 - Assignment and Assumption Agreement dated as of July 31, 1997 between Holdings and
Navigator Gas (IOM I-C) Limited.
* 10.20 - Assignment and Assumption Agreement dated as of July 31, 1997 between Holdings and
3
Navigator Gas (IOM I-D) Limited.
* 10.21 - Assignment and Assumption Agreement dated as of July 31, 1997 between Holdings and
Navigator Gas (IOM I-E) Limited.
10.22 - Global First Priority Note dated August 7, 1997 in the amount of $75,000,000.
10.23 - Global First Priority Note dated August 7, 1997 in the amount of $75,000,000.
10.24 - Global First Priority Note dated August 7, 1997 in the amount of $67,000,000.
10.25 - Global Second Priority Note in the amount of $87,000,000.
+ 23.1 - Consent of Coopers & Lybrand L.L.P. (New York).
+ 23.2 - Consent of Coopers & Lybrand LLP (Isle of Man).
23.3 - Consent of Thacher Proffitt & Wood (contained in Exhibit 5.1).
23.4 - Consent of Cains.
25.1 - Statement of eligibility of First Priority Trustee on Form T-1.
25.2 - Statement of eligibility of Second Priority Trustee on Form T-1.
99.1 - Letter of Transmittal (with regard to the First Priority Notes).
99.2 - Letter of Transmittal (with regard to the Second Priority Notes).
99.3 - Notice of Guaranteed Delivery with regard to the First Priority Notes.
99.4 - Notice of Guaranteed Delivery with regard to the Second Priority Notes.
- --------------------
* Substantially identical to corresponding document of Navigator Gas (IOM
I-A) Limited, except as to the parties thereto.
- --------------------
+ To be provided by amendment.
4
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes to respond to requests for information that is
incorporated by reference into the Prospectus pursuant to Items 4, 10(b), 11 or
13 of Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes: (i) to respond to requests for information that
is incorporated by reference into the Prospectus pursuant to Items 4, 10(b), 11
or 13 of Form F-4, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means; and (ii) to arrange or provide for a facility in the U.S. for the purpose
of responding to such requests. The undertaking in subparagraph (i) above
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes: to file, during any period in which offers or
sales are being made, a post-effective amendment to this registration statement
(i) to include any prospectus required by Section 10(a)(3) of Securities Act of
1933; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes: that, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new
5
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes: to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes: if the registrant is a foreign private issuer, to
file a post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, PROVIDED, that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes that every prospectus: that prior to any public or
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145 (c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
Each of Navigator Gas Transport PLC, Navigator Gas (IOM I-A) Limited,
Navigator Gas (IOM I-B) Limited, Navigator Gas (IOM I-C) Limited, Navigator Gas
(IOM I-D) Limited, and Navigator Gas (IOM I-E) Limited, each an undersigned
registrant, hereby undertakes: (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on September 22, 1997
NAVIGATOR GAS TRANSPORT PLC
By: /s/ Richard M. Klapow
---------------------------------
Richard M. Klapow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated on September 22, 1997
Name Title
/s/ Richard M. Klapow Director and President
---------------------
Richard M. Klapow
/s/ David M. Moore Director, Vice President & Treasurer
---------------------
David M. Moore
/s/ Edward Cain Director
---------------------
Edward Cain
/s/ Joseph Avantario Director and Assistant Secretary
---------------------
Joseph Avantario
/s/ Andrew Baker Secretary
---------------------
Andrew Baker
7
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on September 22, 1997
NAVIGATOR GAS (IOM I-A) LIMITED
By: /s/ Richard M. Klapow
---------------------------------
Richard M. Klapow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated on September 22, 1997
Name Title
/s/ Richard M. Klapow Director and President
---------------------
Richard M. Klapow
/s/ David M. Moore Director, Vice President & Treasurer
---------------------
David M. Moore
/s/ Edward Cain Director
---------------------
Edward Cain
/s/ Joseph Avantario Director and Assistant Secretary
---------------------
Joseph Avantario
/s/ Andrew Baker Secretary
---------------------
Andrew Baker
8
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on September 22, 1997
NAVIGATOR GAS (IOM I-B) LIMITED
By: /s/ Richard M. Klapow
---------------------------------
Richard M. Klapow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated on September 22, 1997
Name Title
/s/ Richard M. Klapow Director and President
---------------------
Richard M. Klapow
/s/ David M. Moore Director, Vice President & Treasurer
---------------------
David M. Moore
/s/ Edward Cain Director
---------------------
Edward Cain
/s/ Joseph Avantario Director and Assistant Secretary
---------------------
Joseph Avantario
/s/ Andrew Baker Secretary
---------------------
Andrew Baker
9
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on September 22, 1997
NAVIGATOR GAS (IOM I-C) LIMITED
By: /s/ Richard M. Klapow
---------------------------------
Richard M. Klapow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated on September 22, 1997
Name Title
/s/ Richard M. Klapow Director and President
---------------------
Richard M. Klapow
/s/ David M. Moore Director, Vice President & Treasurer
---------------------
David M. Moore
/s/ Edward Cain Director
---------------------
Edward Cain
/s/ Joseph Avantario Director and Assistant Secretary
---------------------
Joseph Avantario
/s/ Andrew Baker Secretary
---------------------
Andrew Baker
10
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on September 22, 1997
NAVIGATOR GAS (IOM I-D) LIMITED
By: /s/ Richard M. Klapow
---------------------------------
Richard M. Klapow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated on September 22, 1997
Name Title
/s/ Richard M. Klapow Director and President
---------------------
Richard M. Klapow
/s/ David M. Moore Director, Vice President & Treasurer
---------------------
David M. Moore
/s/ Edward Cain Director
---------------------
Edward Cain
/s/ Joseph Avantario Director and Assistant Secretary
---------------------
Joseph Avantario
/s/ Andrew Baker Secretary
---------------------
Andrew Baker
11
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on September 22, 1997
NAVIGATOR GAS (IOM I-E) LIMITED
By: /s/ Richard M. Klapow
---------------------------------
Richard M. Klapow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities indicated on September 22, 1997
Name Title
/s/ Richard M. Klapow Director and President
---------------------
Richard M. Klapow
/s/ David M. Moore Director, Vice President & Treasurer
---------------------
David M. Moore
/s/ Edward Cain Director
---------------------
Edward Cain
/s/ Joseph Avantario Director and Assistant Secretary
---------------------
Joseph Avantario
/s/ Andrew Baker Secretary
---------------------
Andrew Baker
12