January 13, 2006
Securities and Exchange Commission TODD J. EMMERMAN
100 F Street, N.E. 212-940-8873
Washington, D.C. 20549 E-MAIL ADDRESS
todd.emmerman@kattenlaw.com
Attention: Mr. John Zitko Direct Fax Number
(212) 894-5873
Re: Rand Acquisition Corporation
File No. 0-50908
Preliminary Proxy Statement on Schedule 14A
Ladies and Gentlemen:
Set forth below is the response on behalf of Rand Acquisition Corporation
(the "Company" or "Rand") to the comments of the staff (the "Staff") of the
Securities and Exchange Commission (the "Commission") contained in the letter,
dated January 5, 2006, concerning the revised Preliminary Proxy Statement on
Schedule 14A filed by Rand on December 20, 2005. We have set forth herein each
comment of the Staff contained in the comment letter followed by our response.
For your convenience and to facilitate your review, a marked copy of the
Schedule 14A, which has been revised in accordance with our responses below and
otherwise updated, is also enclosed herewith.
1. We reissue comment one from our letter of December 2, 2005. Please provide
an analysis as to the materiality of the decrease in conversion limits
from 20% (as disclosed in the Company's S-1) to 5% (as disclosed in the
Company's Preliminary Proxy Statement). It still appears to the Staff that
an investor could have rested his or her investment decision on disclosure
asserting that Rand would be able to effect a business combination with
four times as many shareholders electing conversion than is currently
provided in the plans currently set forth by company's management. Stated
differently, an investor could have purchased shares in Rand's IPO with
the understanding that every one in five IPO shareholders would have to
elect conversion in order for the business combination to fail, whereas
the Company's pre-effective proxy statement now states that only one
holder in twenty electing conversion would cause a business combination to
fail.
We note the statement contained in your response letter that you "do not
view the disclosure contained in the Company's Form S-1 and cited by the
Staff in comment No. 1 as a guarantee, assurance or suggestion that every
business combination would be structured to accommodate conversions of up
to 19.99%." However, we continue to note the unequivocal statement
contained on page F-8 of Rand's S-1 (unaddressed in your response letter)
as well as the presentation of Rand's pro forma net tangible book value
upon the conversion of 19.99% of the shares sold in its IPO.
Securities and Exchange Commission
January 13, 2006
Page 2
Accordingly, we can not agree with your position that the disclosure
contained in Rand's S-1 is not "a guarantee, assurance or suggestion that
every business combination would be structured to accommodate conversions
of up to 19.99%."
For your convenience, we again note the following disclosure contained in
the Company's S-1 (we have underlined the portions selectively addressed
in your response and added the disclosure immediately preceding the
passage already cited on page F-8 in order to place it in better context).
o "We will not proceed with a business combination if public
stockholders owning 20% or more of the shares sold in this
offering vote against the business combination and exercise
their conversion rights. Accordingly, we may effect a business
combination if public stockholders owning up to approximately
19.99% of the shares sold in this offering exercise their
conversion rights. If this occurred, we would be required to
convert to cash up to approximately 19.99% of the 4,000,000
shares sold in this offering, or 799,600 shares of common
stock, at an initial per-share conversion price of $5.16,
without taking into account interest earned on the trust
fund." (p. 7)
o "For purposes of presentation, our pro forma net tangible book
value after this offering is approximately $4,125,936 less
than it otherwise would have been because if we effect a
business combination, the conversion rights to the public
stockholders may result in the conversion into cash of up to
approximately 19.99% of the aggregate number of the shares
sold in this offering..." (p. 20)
o "With respect to the first Business Combination which is
approved and consummated, any Public Stockholder who voted
against the Business Combination may demand that the Company
convert his or her shares. The per share conversion price will
equal the amount in the Trust Fund as of the record date for
determination of stockholders entitled to vote on the Business
Combination divided by the number of shares of common stock
held by Public Stockholders at the consummation of the
Proposed Offering. Accordingly, Public Stockholders holding
19.99% of the aggregate number of shares owned by all Public
Stockholders may seek conversion of their shares in the event
of a Business Combination." (F-8)
With a view towards disclosure, please specifically address each of the
passages reproduced in the three bullet points above with respect to why
no reasonable investor would have purchased shares in Rand's IPO with the
understanding that every one in five IPO shareholders would have to elect
conversion in order for the business combination to fail. Additionally,
please address why, if an investor did purchase in Rand's IPO with the
understanding just noted, the change to a conversion ratio whereby one
holder in twenty electing conversion would cause a business combination to
fail would not be material to such investor.
RESPONSE:
We have revised and enhanced the disclosure relating to the 5% effective
limit on conversions throughout the document, including in the sections
entitled "SUMMARY - Conversion Rights," "THE RAND SPECIAL MEETING -
Conversion Rights" and "INFORMATION ABOUT RAND - Conversion Rights."
Securities and Exchange Commission
January 13, 2006
Page 3
2. We reissue comment two from our letter of December 2, 2005. Please
disclose the manner and priority of payments by which funds will be
disbursed from the trust account. We note your response that you "have
added disclosure as to the manner and priority by which funds will be
distributed from the trust account in the sections [beginning on pages 8,
11, and 110]" but we are unable to locate any such added disclosure.
RESPONSE:
The disclosure added in response to comment two from your letter of
December 2, 2005 remains in the sections entitled "QUESTIONS AND ANSWERS
ABOUT THE ACQUISITION - How is Rand paying for the acquisition?", "SUMMARY
- Acquisition Proposal - The Acquisition" and "INFORMATION ABOUT RAND -
Business of Rand - Offering Proceeds Held in Trust," however we have
further revised the disclosure to clarify the manner and priority of
payments from the trust account.
3. Provide additional disclosure in appropriate places to clarify as to the
ability of a stockholder to exercise his/her conversion rights in
accordance with the company's treatment of broker non-votes and
abstentions. Such disclosure should include, but not be limited to, the
means required in order to exercise such rights as well as any timing
considerations and/or requirements involved.
RESPONSE:
We have added disclosure under "QUESTIONS AND ANSWERS ABOUT THE
ACQUISITION - What will happen if I abstain from voting or fail to vote?",
"QUESTIONS AND ANSWERS ABOUT THE ACQUISITION - If my shares are held in
"street name" by my broker, will my broker vote my shares for me?", "THE
RAND SPECIAL MEETING - Voting Your Shares" and "THE RAND SPECIAL MEETING
-Broker Non-Votes" to clarify the ability of a stockholder to exercise
conversion rights and the requirements of exercising such rights.
4. With respect to our previous comment 24, we note the analysis you provided
us. You state that the preferred stock is perpetual with no maturity and
thus resembles equity. However, you also duly address the cumulative
dividends on the stock and the liquidation preferences that are consistent
with debt contracts. Based on these facts and the other features discussed
in your response letter to us, it is not clear to us why you determined
that the preferred stock is more closely related to equity as opposed to
debt. Please provide us with further clarification as to how you arrived
at your conclusion.
RESPONSE:
In response to the Staff and for ease of review, we have resubmitted the
original analysis with additional clarification on how the Company
rendered its conclusion that the convertible preferred stock is more akin
to an equity instrument.
Securities and Exchange Commission
January 13, 2006
Page 4
In determining whether the convertible preferred security should be
treated as an equity or debt instrument, the Company considered guidance
in SFAS 133 paragraph 61(l) in evaluating relevant characteristics of the
security. The summary of this analysis and the features of the convertible
preferred stock is as follows:
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Convertible Feature is
Preferred Stock "Debt" or
Attribute "Equity" related? Company Rationale
--------------------------------------------------------------------------
Perpetual preferred Equity The preferred stock provides for
stock (no maturity) a residual interest in the
Company which is an attribute of
an equity instrument.
--------------------------------------------------------------------------
Cumulative Dividends Debt The obligation to provide
dividend payments based on a
stated rate is an attribute of a
debt instrument.
--------------------------------------------------------------------------
Redemption at the Equity The redemption feature is a call
option of Rand option exercisable by the issuer
on the occurrence of certain
contingent events. Under SFAS
133.61(e), a call option
exercisable by the issuer of an
equity security is considered to
be clearly and closely related
to an equity instrument whereas
an option exercisable by the
holder is not clearly and
closely related to the equity
instrument. Making an analogy to
this guidance, a redemption
feature that is not exercisable
by the holder is an attribute
consistent with an equity
instrument.
--------------------------------------------------------------------------
Voting rights Equity The preferred stockholders will
vote on an as-converted basis
with common shareholders. The
presence of certain additional
voting rights is not indicative
of any debt attributes.
--------------------------------------------------------------------------
Securities and Exchange Commission
January 13, 2006
Page 5
--------------------------------------------------------------------------
Liquidation Debt The seniority of the Series A
preference convertible preferred shares on
liquidation is consistent with a
debt contract; however, it is
also consistent with the
liquidation preference
associated with other types of
preferred stock that are
classified as equity. Thus,
little weight is given to the
liquidation preference in
determining the nature of the
host instrument.
--------------------------------------------------------------------------
Based on the analysis of the above factors, the Company believes the
convertible preferred stock is more akin to an equity instrument than a
debt instrument. This view appears to be supported by FAS 133.61(1) which
states (emphasis added):
Convertible preferred stock. Because the changes in fair value of an
equity interest and interest rates on a debt instrument are not clearly
and closely related, the terms of the preferred stock (other than the
conversion option) must be analyzed to determine whether the preferred
stock (and thus the potential host contract) is more akin to an equity
instrument or a debt instrument. A typical cumulative fixed-rate preferred
stock that has a mandatory redemption feature is more akin to debt,
whereas cumulative participating perpetual preferred stock is more akin to
an equity instrument."
The Rand convertible preferred stock is very similar to the example
referred to in the above guidance.
In making the classification determination, the Company considered the
attributes of the convertible preferred stock having "debt-like"
characteristics to have little weight in rendering an overall conclusion.
As stated above, the liquidation preference was not assigned any weighting
as the liquidation feature is consistent with other preferred stocks that
are classified as equity. Further, while the cumulative dividend attribute
is similar to interest terms on a debt contract, this was the only
substantive "debt-like" attribute in the convertible preferred stock
agreement. Consequently, on a simple weighting analysis, the equity
features out weighed the debt factors by 3:1, leading the Company to an
equity classification conclusion for the convertible preferred security.
5. We reissue our previous comment 35 as the amount of cash flows from
operations as of September 30, 2005, disclosed on this page, does not
agree with the balance per the statement of cash flows.
Securities and Exchange Commission
January 13, 2006
Page 6
RESPONSE:
The cash flow from operations disclosed in the referenced section
contained a typographical error which has been corrected to be consistent
with the September 30, 2005 statement of cash flows.
6. On the table on page 108, we note the $10,600,000 in long term obligations
due after 2010. Please update "Liquidity and Capital Resources" to
disclose the material terms and conditions of this long term obligation.
Also, if this amount relates to the convertible preferred notes, provide a
footnote to the table disclosing this fact and explain the variance from
the amount of $10,060,000 reported on the September 30, 2005 balance
sheet.
RESPONSE:
The table on the referenced page has been corrected to state the amount of
$10,060,000 relating to the convertible notes. A footnote similar to
disclosures included in the consolidated financial statements will be
added to the referenced table to describe the terms of the convertible
notes as follows:
"In the year ended March 31, 2001, the Company issued 19,524 unsecured,
non-interest bearing CDN$ notes convertible into common shares for total
proceeds of CDN $11,696,900. As of September 30, 2005, the notes have a
stated value of USD $10,060,124. The notes are convertible at the option
of the holder any time at varying times, the latest being March 28, 2011
at a conversion price of $495 (CDN $599) per common share. The Company is
obligated to pay the principal balance of the notes, if not converted, on
March 28, 2011. The notes were assigned to certain of the Company's debt
holders in September 2004."
7. We note the independent auditor's report no longer includes a signature
from Deloitte and Touche LLP. Please revise to file the audit report with
a signature in accordance with Rule 302 of Regulation S-T.
RESPONSE:
The revised proxy statement contains an independent auditor's report
including the required signature of Deloitte and Touche LLP.
8. With respect to our previous comment 43, we note your revisions. In
accordance with Article 5-02.19 of Regulation S-X, we reiterate our
request for you to separately state accrued interest on the face of the
balance sheet.
Securities and Exchange Commission
January 13, 2006
Page 7
RESPONSE:
The Company respectfully submits that upon review of Article 5-02.19 and
5-02.20 of Regulation S-X and the terms of the Company's various financial
obligations, no amount for accrued interest should be separately stated on
the face of the balance sheet.
Interest accrues on the following of the Company's financial obligations:
1. Operating credit facilities;
2. Senior debt; and
3. Subordinated debt.
With respect to the Company's operating credit facilities, interest is
paid monthly. Consequently, no amount of interest is accrued at the
balance sheet date.
For senior debt obligations, interest is paid monthly with principal
payments. Consequently, no amount of interest is accrued at the balance
sheet date.
Regarding subordinated debt, historically a portion of interest was paid
monthly and a portion of interest was unpaid and added to the principal of
the subordinated debt instrument in accordance with the contractual
arrangements with the lenders. As of April 1, 2004, all interest is unpaid
and added to the principal balance of the subordinated debt obligations,
in accordance with the contractual arrangements with the lenders. All
principal amounts, including principal amounts representing unpaid
interest contractually added to the principal amounts owing are due in
March 2008.
The Company's accounting and presentation of the debt obligations is
consistent with the legal form and substance of the contractual
arrangements with the subordinated lenders. Consequently, the Company's
position is that there is no accrued interest to present separately under
GAAP or Regulation S-X as there is no accrued interest owing at the
balance sheet date.
9. In your response to our previous comment 46, you discuss the various
factors you considered in determining the vessels' depreciable lives. In
your response to us and on page 89, you state that management's view was
affected by the fact that the vessels will not be contributing positively
to revenues and cash flows because of the future costs associated with
aging vessels. However, depreciation of the cost of an asset should be
allocated over the period services are obtained from the use of the asset
(paragraph 5 of ARB 43, Chapter 9C). Please explain to us in further
detail how your use of 10 to 15 years complies with authoritative
guidance. Since the cost of major repairs is apparently included in
drydocking costs and amortized over the period until the next expected
drydocking, it is not clear how expected repair costs relates to the
depreciation period for the cost of the asset.
Securities and Exchange Commission
January 13, 2006
Page 8
RESPONSE:
In response to the Staff's comment, the Company acknowledges the
authoritative reference and respectfully submits the following as a
clarification and elaboration on its previous response.
In accordance with authoritative accounting literature, the period of
depreciation selected for each vessel is a management estimate made at the
time of acquisition to depreciate the cost of the vessel over the
estimated economic life of the vessel acquired. ARB 43, Chapter 9C,
paragraph states "The cost of a productive facility is one of the costs of
the services it renders during its useful economic life. Generally
accepted accounting principles require that this cost be spread over the
expected useful life of the facility in such a way as to allocate it as
equitably as possible to the periods during which services are obtained
from the use of the facility."
Every vessel that has been purchased by the Company has been purchased
"used" and is usually in the last 10 to 25 years of the "industry
standard" estimated original 75 year life for freshwater vessels. At the
time of acquisition, each vessel is assigned an estimated useful economic
life that takes into account the vessels age, repair history and intended
use. This estimation process often results in a vessel's estimated useful
economic life being shorter than its independently surveyed useful life.
With respect to capital expenditures for the Company's vessels, there are
two programs of maintenance and repair that each vessel undergoes.
Drydocking occurs every five years and the cost of such repairs is
approximately $750,000 on average. In addition, annually, each vessel
undergoes a Company inspection and repair process. The average cost of
this annual program is approximately $600,000 per vessel, a portion of
which is capitalized and amortized over the remaining life of the vessel.
It is management's view and experience that as a vessel approaches the end
of its life, expenditures for dry docking and the internal repair programs
become greater and so the economic rewards of maintaining that vessel
become uncertain, thereby effectively reducing its economic life of the
vessel in question. Consequently, while a vessel may still be functional
if maintained, there is a cost/benefit factor that in many cases will
reduce a vessel's useful economic life to a period that is shorter than
its original surveyed life.
The Staff correctly notes that the accounting for expenditures for drydock
and repair programs of the vessels should not have a bearing on the
estimated useful life assumption for a vessel. However, it is the
anticipated cash cost of such expenditures that management believes will
occur after 10-15 years of use that will outweigh the benefit of
continuing to maintain and operate a vessel.
Securities and Exchange Commission
January 13, 2006
Page 9
The Company believes it has appropriately estimated reasonable useful
economic lives for its vessels. Further disclosure has been added to page
90 of the Schedule 14A to highlight to the reader the fact that the
surveyed remaining lives of a vessel should be read with the understanding
that the estimated economic life assumption used in the consolidated
financial statements is shorter.
10. Expand Note 2 to disclose the specific nature of the various components of
capitalized drydock expenditures.
RESPONSE:
The accounting policy note for Note 2 to the consolidated financial
statements has been revised to reflect the comment of the Staff. The
policy for drydock expenditures now includes the text "Drydock costs
include costs of work performed by third party shipyards, subcontractors
and other direct expenses to complete the mandatory certification
process."
11. With respect to our previous comment 60, we note your revision to the
Management's Discussion and Analysis in the Schedule 14A and your detailed
response to us. Please continue your revisions to page 114 to discuss all
significant terms of the underwriter purchase options, including but not
limited to the composition of the units underlying the options, the
exercise prices of the options and underlying warrants, the terms of any
net settlement features, the timing of issuance, and the expiration dates
of the options and underlying warrants. Also discuss any future effect the
issuance of the options is expected to have on your financial condition
and results of operations.
RESPONSE:
We have added the requested disclosure in the referenced section.
12. We reiterate our request for you to revise the Form 10-KSB to include all
of the disclosures requested in our previous comment 60.
RESPONSE:
On January 10, 2006, Rand filed a Form 10-KSB/A for the year ended
December 31, 2004 which includes all of the disclosures requested in your
previous comment 60 and this comment.
13. In your response to our previous comment 59, you state the financial
statements in this Form were in accordance with Canadian GAAP, whereas the
financial statements in the Schedule 14A are in accordance with U.S. GAAP.
We note your explanation that the most significant differences in revenues
were due to two income statement classification issues. Please clarify why
the revenue reported in the Canadian GAAP financial statements is $7.2
million less than U.S. GAAP revenue while the operating expenses in
Canadian GAAP are only $0.678 million less than U.S. GAAP operating
expenses. Explain to us why these differences exist and provide us with a
schedule reconciling the differences as necessary.
Securities and Exchange Commission
January 13, 2006
Page 10
RESPONSE:
To clarify our response to previous comment 59, the financial information
presented in the Form 8-K was unaudited and prepared by Lower Lakes'
management by combining the historical audited Canadian GAAP financial
statements for Lower Lakes, its subsidiary, Lower Lakes Transportation
Company and its investee, Grand River Navigation Company, Inc. We refer
the Staff to Exhibit 1 to this response letter which provides a
reconciliation of the financial information presented in the Form 8-K to
the audited financial statements included in the Schedule 14A.
14. For each of the three significant accounting differences discussed in your
response to comment 59, please clarify whether you believe the treatment
in the historical financial statements provided in the Form 8-K is
consistent with Canadian GAAP or whether it is considered an error.
RESPONSE:
The three material accounting differences discussed in our response to
previous comment 59 result from management's combination of the historical
financial statements and do not result from the historical financial
statements being prepared under Canadian GAAP. We refer the staff to
Exhibit 1 to this response letter for a detailed reconciliation of the
financial information presented in the Form 8-K to the figures reported in
the audited financial statements included in Schedule 14A.
15. Your response to our previous comment 59 provides three explanations for
differences in historical financial information considered "the most
significant." Please provide us with explanations for all material
differences between the information presented in the Form 8-K and the
financial statements in the Schedule 14A. Quantify and explain the nature
of each difference. Explain whether each material difference is due to the
use of Canadian GAAP or represents a mistake in the financial statements
in the Form 8-K.
RESPONSE:
The differences described in our response to the Staff's previous comment
59 represent all material differences between the information presented in
the Form 8-K and the financial statements in the Schedule 14A.
Reconciliation of such material differences is included in Exhibit 1 to
this response letter. The immaterial differences represent adjustments
resulting from the audited consolidation process, certain presentation
reclassifications and other adjustments relating to the production of US
dollar reporting currency consolidated financial statements.
16. The financial statements included in Exhibit 99.1 do not disclose the use
of Canadian GAAP or that they are unaudited. Please tell us why you
believe an amended Form 8-K is not required to provide these disclosures
and to reconcile the amounts in the presentation.
Securities and Exchange Commission
January 13, 2006
Page 11
RESPONSE:
Concurrently herewith Rand is filing a Form 8-K/A with respect to the Form
8-K filed September 7, 2005 to disclose the basis on which the financial
statements therein were prepared and to provide a reconciliation of the
material differences therein as compared to the financial statements
included in the proxy statement. We have added similar disclosure, as well
as disclosure of the availability of the reconciliation, to the proxy
statement as the second introductory paragraph of the section entitled
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF LOWER LAKES."
17. We note your response to comment 61 from our letter of December 2, 2005.
It would appear to the Staff that the materials covered by your request
for confidential treatment under Rule 83 should have been filed as
exhibits evidencing material agreements in your Form 10-QSB for the period
ending September 30, 2005. Additionally, we note that Rule 83(b) states:
"The provisions of this section shall apply only where no other statute or
Commission rule provides procedures for requesting confidential treatment
respecting particular categories of information (see, e.g., 17 CFR
240.24b-2)..." Accordingly, it appears that confidential treatment should
have been requested under the procedures outlined in Rule 24b-2
(substantively different from Rule 83). Please amend your Form 10-QSB for
the period ending September 30, 2005 to include such materials as exhibits
or provide an analysis as to why such materials should not have been
included as exhibits to the above-referenced Form 10-QSB and why
confidential treatment should not have been requested pursuant to Rule
24b-2.
RESPONSE:
We agree that the Stock Purchase Agreement relating to the Lower Lakes
acquisition and the Preferred Stock Purchase Agreement relating to the
issuance of Rand's Series A preferred stock should have been filed as
exhibits to Rand's Form 10-QSB for the period ending September 30, 2005
pursuant to Item 601(b)(2) and 601(b)(10) of Regulation S-B, respectively,
and we would propose to file a Form 10-QSB/A with respect to such Form
10-QSB to file such agreements, as well as the GE commitment letter
entered into in connection with the Lower Lakes Stock Purchase Agreement
(irrespective of its materiality), therewith as exhibits. We do not
believe, however, that the annexes and schedules to such agreements
contain information that is material to an understanding of such
agreements, or that has not already been disclosed in the Form 10-QSB,
and, accordingly, we do not believe that such annexes and schedules are
required to be included with the stock purchase agreements to be filed
with the Form 10-QSB/A. We would not request confidential treatment in
connection with the Form 10-QSB/A if such annexes and schedules are not
included in the exhibits.
Securities and Exchange Commission
January 13, 2006
Page 12
We note that while we have based our determination of whether the annexes
and schedules are required to be included in the exhibits filed in the
Form 10-QSB/A on an analysis of whether the information contained therein
is material to an understanding of the document to be filed or to the
substance of the transaction contemplated by such document, Item 601(b)(2)
of Regulation S-B is instructive as to the necessity of including exhibits
and schedules to documents filed pursuant to said Item.
More particularly, we have concluded as to the materiality of the
information in the Sellers' Disclosure Schedule (Appendix B to the Stock
Purchase Agreement) as follows:
A. Schedules 2.2-3.8, 3.11-3.16, 3.18-3.24 and 3.26-3.28 contain
information only of a legal or ministerial nature. We do not believe that
any of such information is material to an understanding of the transaction
contemplated by the Stock Purchase Agreement.
B. Schedules 3.9 and 3.17 contain disclosures of labor relations and
litigations, not based on their materiality to Lower Lakes, but in
response to standard representations in the Stock Purchase Agreement
requiring disclosure of all such matters irrespective of their materiality
to Lower Lakes. The Canadian union matter disclosed on Schedule 3.9, if
ever material to Lower Lakes, has been mitigated and is no longer
material, and the litigations disclosed on Schedule 3.17 are either
immaterial in amount or covered by insurance, or both, and are therefore
immaterial to Lower Lakes and, in our view, to an understanding of the
related representations in the Stock Purchase Agreement.
C. Schedule 3.10 provides a list of contracts to which Lower Lakes is a
party that are the subject of substantive representations and warranties
contained in the Stock Purchase Agreement. We do not believe that the mere
identification of a contract by date and name of the parties is
information that is material to an understanding of the related
substantive representation, and no disclosures are made in Schedule 3.10
with respect to the listed contracts that are material to an understanding
of the related substantive representation or the transaction contemplated
by the Stock Purchase Agreement. We note that, upon consummation of the
Lower Lakes acquisition, Rand will need to analyze the materiality of the
contracts to Lower Lakes (rather than to an understanding of the Stock
Purchase Agreement) in order to ensure compliance with Item 601(b)(10) of
Regulation S-B in future filings.
Securities and Exchange Commission
January 13, 2006
Page 13
D. We do not believe that the information contained in Schedule 3.25 is
material to an understanding of the transaction contemplated by the Stock
Purchase Agreement, and moreover has the potential of being misleading as
to what it represents. The substance of this section of the Stock Purchase
Agreement is not to identify Lower Lakes' top ten customers or the amount
of revenue derived from such customers, but to ascertain an understanding
of the status of Lower Lakes' relationship with its top ten customers.
Disclosure of the information on this schedule is not necessary for such
an understanding. Moreover, information that is included in the schedule
could be misleading to shareholders as it does not indicate the basis on
which it is presented or that it is presented in Canadian dollars and
inclusive of revenues derived from subcontracting. In addition, we note
that Item 101(b)(6) of Regulation S-B does not require the identification
of customers, even if significant, as compared to the requirement of Item
101(c)(vii) of Regulation S-K to identify customers representing 10% or
more of sales or otherwise material.
18. In connection with the preceding comment, Staff comments, if any, on the
related application for confidential treatment will be provided by
separate letter. Please be aware that the clearance of the proxy statement
is dependent on, among other things, the successful resolution of any
issues relating to the confidential treatment application.
RESPONSE:
Please see our response to comment 17.
**************************
Please contact Todd Emmerman (212-940-8873) should you have any question.
Sincerely yours,
/s/ Todd J. Emmerman
Todd J. Emmerman
Exhibit 1
Reconciliation of financial information included in Form 8-K filed September 7,
2005 to audited financial statements included in Schedule 14A filed January 13,
2006
The following is a reconciliation of selected financial information of Lower
Lakes Towing Ltd. contained in Exhibit 99.1 to Rand Acquisition Corporation's
Form 8-K filed September 7, 2005 to the audited financial statements of Lower
Lakes for the years ended March 31, 2005, 2004 and 2003 included in the Schedule
14A filed by Rand Acquisition Corp. on January 13, 2006. All amounts are
presented in thousands of US dollars.
The selected financial information in Exhibit 99.1 to the Form 8-K was derived
from unaudited, combined, Lower Lakes' management-prepared, Canadian GAAP
financial statement of Lower Lakes and its subsidiary, Lower Lakes
Transportation Company, and equity investee, Grand River Navigation Company,
Inc. Rand's Schedule 14A contains US GAAP audited consolidated financial
statements of Lower Lakes. The differences between the two sets of financial
data are reconciled below. The reconciliation below reconciles the financial
information contained on Form 8-K to the GAAP equivalent in the audited
financial statements contained in Schedule 14A if a GAAP equivalent exists.
Income statement information adjustments
Year ended March 31,
Description 2005 2004 2003 Notes
- ----------------------------------------------------------------------------------------------------------------------
1 "Net Revenue" as presented in 8-K 44,872 35,383 27,100
1,057 714 127 (i)
6,258 2,384 - (ii)
(77) 69 - (iii)
---------------------------------------
"Revenue" as presented in the audited financial statements 52,110 38,550 27,227
=======================================
2 "Operating expenses" as presented in 8-K 31,533 26,667 19,099
1,057 714 127 (i)
(350) - - (iv)
(30) 97 - (iii)
---------------------------------------
"Vessel operating expenses" as presented in the audited
financial statements 32,210 27,478 19,226
=======================================
3 Outside vessel charter fees (not presented separately in 8-K but - - -
netted against outside vessel revenue in 8-K) 6,180 2,363 - (ii)
---------------------------------------
6,180 2,363 -
=======================================
Year ended March 31,
Description 2005 2004 2003 Notes
- ----------------------------------------------------------------------------------------------------------------------
4 "Operating Margin" as presented in 8-K (non-GAAP measure) 13,339 8,716 8,001
Total above adjustments (i) to (iv) 381 (7) -
---------------------------------------
Not shown in the audited financial statements (for
comparative purposes only) 13,720 8,709 8,001
=======================================
5 "Winter Work" as presented in 8-K 1,638 1,430 1,027
30 - - (iii)
---------------------------------------
"Repairs and maintenance" as presented in the audited
financial statements 1,668 1,430 1,027
=======================================
6 "Administration" as presented in 8-K 2,277 2,396 1,594
144 - - (iii)
---------------------------------------
"Administration" as presented in the audited financial
statements 2,421 2,396 1,594
=======================================
7 "EBITDA" as presented in 8-K (non-GAAP measure) 9,424 4,890 5,381
Total of adjustments (i) to (iv) 207 (7) -
---------------------------------------
Not shown in audited financial statements (for comparative
purposes only) 9,631 4,883 5,381
=======================================
8 "Adjusted EBITDA" as presented in 8-K (non-GAAP measure) 9,673 6,946 5,168
Total of adjustments (i) to (iv)
207 (7) -
---------------------------------------
Not shown in audited financial statements (for comparative
purposes only) 9,880 6,939 5,168
=======================================
9 "Depreciation and amortization" 4,816 4,390 3,074
150 50 - (iv)
(259) - -(viii)
47 67 60(iii)
---------------------------------------
Total of "depreciation" and "amortization" lines in the
audited financial statements 4,754 4,507 3,134
=======================================
10 "Capital Expenditures" 3,626 3,330 2,250
(739) (1,154) (x)
- - 520 (xi)
- 1,550 - (xii)
- 2,200 - (iv)
---------------------------------------
"Purchase of capital assets" presented in Statements of Cash
flows" in the audited financial statements 3,626 6,341 1,616
=======================================
Balance sheet adjustments - assets
Description March 31, 2005 Note
- --------------------------------------------------------------------------------------------------------------------
1 Cash (netted against long-term debt and not presented separately
in 8-K) -
644 (v)
----------------
"Cash" as presented in the audited financial statements 644
==============
2 Cash reserved for repairs and drydock (netted against bank indebtedness and
long-term debt and not presented separately in 8-K) -
2,191 (v)
--------------
"Cash reserved for repairs and drydock" as presented in the
audited financial statements 2,191
==============
3 "Accounts Receivable" as presented in 8-K 1,475
156(vi)
55(iii)
--------------
"Accounts receivable" as presented in the audited financial
statements 1,686
==============
4 "Prepaid Expenses & Other Current Assets" as presented in 8-K 1,863
(16) (iii)
--------------
"Prepaid expenses and other current assets" as presented in the
audited financial statements 1,847
==============
5 Current deferred income taxes (not presented separately in 8-K) -
69(vii)
--------------
"Deferred income taxes" (current) as presented in the audited
financial statements 69
==============
6 "Total Current Assets" as presented in 8-K 3,338
Total of adjustments in balance sheet items 1 to 5 3,099
--------------
Total of current assets as presented in the audited financial
statements 6,437
==============
7 Capital Assets as presented in 8-K 34,177
2,000(iv)
--------------
"Capital Assets" as presented in the audited financial statements 36,177
==============
8 "Deferred Charges" as presented in 8-K 5,768
(438)(viii)
--------------
"Deferred drydock and financing costs" as presented in the
audited financial statements 5,330
==============
9 "Deferred Income Taxes and Other Assets" as presented in 8-K 3,524
2,160(vii)
--------------
"Deferred Income Taxes" (long-term) as presented in the
audited financial statements 5,684
==============
10 "Total Assets" as presented in 8-K 46,807
Total of adjustments to balance sheet items 1 to 9 6,821
--------------
Total assets as presented in the audited financial statements 53,628
==============
Balance sheet adjustments - liabilities and shareholders' deficiency
Description March 31, 2005 Notes
- ---------------------------------------------------------------------------------------------------------------------
11 Bank indebtedness (included with long-term debt in 8-K and not
presented separately) -
512 (v)
--------------
"Bank indebtedness" as presented in the audited financial
statements 512
==============
12 "Accounts Payable & Accrued Liabilities" as presented in 8-K 6,213
156 (vi)
25 (iii)
--------------
Total of "Accounts payable" and "Accrued liabilities" lines as
presented in the audited financial statements 6,394
==============
13 Deferred income taxes (current - not presented separately in 8-K) -
475 (vii)
--------------
"Deferred income taxes" (current) as presented in the audited
financial statements 475
==============
14 "Current Portion of Long-Term Debt" as presented in 8-K 2,035
350 (iv)
--------------
Total of "Current portion of long-term debt" and "Current portion
of long-term obligations - vessel lease" lines as presented in
the audited financial statements 2,385
==============
15 "Long-Term Debt, Net of Cash" as presented in 8-K 36,976
2,325 (v)
1,786 (iv)
--------------
Total of "Long-term debt - Senior" and "Long-term debt -
subordinated" lines as presented in the audited financial
statements 41,087
==============
16 "Deferred Income Taxes" (long-term) as presented in 8-K 988
2,347 (vii)
--------------
"Deferred income taxes" as presented in the audited financial
statements 3,335
==============
17 Convertible notes (classified with equity in 8-K) -
9,670 (ix)
--------------
"Convertible notes" (classified as a liability in the audited
financial statements) 9,670
==============
18 "Total Liabilities" as presented in 8-K 37,964
Total of adjustments to balance sheet items 15 to 17 16,128
--------------
Total liabilities as presented in the audited financial statements
54,092
==============
19 "Shareholders' Equity" as presented in 8-K 595
(9,670) (ix)
(438) (viii)
(593) (vii)
(124) (iii)
--------------
Total Shareholder's deficiency presented in the audited financial
statements (10,230)
==============
Description of reconciling adjustments
(i) Fuel surcharges are included in the gross revenue line item in the
audited financial statements. Form 8-K did not include all fuel
surcharges in revenue, but rather presented the surcharge revenue as a
reduction in fuel expenses.
(ii) Outside voyage charter revenue and expenses were shown on a net revenue
basis in the Form 8-K. The expense associated with the chartering of
other fleet's vessels is shown as a separate line item in operating
expenses for the US GAAP audited financial statements.
(iii) Immaterial consolidation, presentation, reclassifications and final
adjustments to present US GAAP consolidated financial statements.
(iv) Reclassification of the Manistee lease from an operating to a capital
lease for US GAAP reporting. Depreciation expenses for capital lease
classification not previously recorded were $150,000 and $50,000 in 2005
and 2004 respectively. Lease payments for the Manistee commenced in the
first quarter of 2005. The Form 8-K included $350,000 in operating lease
payments that have been reversed as a result of the reclassification to a
capital lease.
(v) Reclassification of cash and bank indebtedness netted with long-term debt
in the Form 8-K.
(vi) Reclassification of a Canadian Goods and Service Tax rebate to accounts
receivable.
(vii) Reclassification of deferred income taxes and final tax adjustments for
2005.
(viii) Write-down of deferred financing costs on debt extinguishments and
resulting effect on amortization expense associated with deferred
financing costs.
(ix) To classify convertible notes previously included in equity in Form 8-K
to liabilities for conformity with US GAAP.
(x) Drydocking expenditures reclassified to the operating section of the cash
flow statement
(xi) Reclassify asset held for disposal
(xii) Asset addition for the Michipicoten vessel that was excluded from the
calculation presented on Form 8-K.