UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-12
Rand Acquisition Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.0001 per share
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(2) Aggregate number of securities to which transaction applies:
5,600,000
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
Calculated based on the purchase price of $53,730,000
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(4) Proposed maximum aggregate value of transaction:
$53,730,000
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(5) Total fee paid:
$10,746
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|X| Fee paid previously with preliminary materials:
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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RAND ACQUISITION CORPORATION
450 Park Avenue, 10th Floor
New York, New York 10022
To the Stockholders of Rand Acquisition Corporation:
You are cordially invited to attend a special meeting of the stockholders
of Rand Acquisition Corporation, or Rand, relating to the proposed acquisition
of Lower Lakes Towing Ltd., or Lower Lakes, which will be held at 10:00 a.m.,
eastern time, on February 28, 2006, at the offices of Katten Muchin Rosenman
LLP, 575 Madison Avenue, New York, New York 10022.
At this important meeting, you will be asked to consider and vote upon the
following proposals:
o to adopt, and approve the transactions contemplated by, the Stock
Purchase Agreement, dated as of September 2, 2005, among Rand, LL
Acquisition Corp., an indirect wholly-owned subsidiary of Rand, and
the stockholders of Lower Lakes, as amended, and to adopt amendments
to the certificate of incorporation of Rand designed to ensure
Rand's compliance with the citizenship requirements of U.S. maritime
laws after completion of the acquisition - we call this proposal the
acquisition proposal;
o to adopt amendments to the certificate of incorporation of Rand to
increase the number of shares of common stock which Rand is
authorized to issue from 20,000,000 shares to 50,000,000 shares and
to change the name of Rand to Rand Logistics Inc. - we call this
proposal the amendment proposal; and
o to adopt a proposal to adjourn the special meeting to a later date
or dates, if necessary, to permit further solicitation and vote of
proxies in the event there are not sufficient votes at the time of
the special meeting to adopt the acquisition proposal or the
amendment proposal - we call this proposal the adjournment proposal.
The affirmative vote of a majority of the issued and outstanding shares of
Rand's common stock is required to adopt each of the acquisition proposal, the
amendment proposal and the adjournment proposal. Adoption of the acquisition
proposal also requires the affirmative vote of a majority of the shares of
Rand's common stock issued in its initial public offering.
Adoption by Rand stockholders of the acquisition proposal is not
conditioned on the adoption of the amendment proposal or the adjournment
proposal. However, the adoption of the amendment proposal is conditioned upon
the adoption of the acquisition proposal.
As provided in Rand's certificate of incorporation, each Rand stockholder
which holds shares of common stock issued in Rand's initial public offering,
which we sometimes call IPO shares, has the right to vote against the
acquisition proposal and at the same time demand that Rand convert such
stockholder's shares into cash equal to such stockholder's pro rata portion of
the trust account which contains a substantial portion of the net proceeds of
Rand's initial public offering. These IPO shares will be converted into cash
only if the acquisition is completed. If holders of more than 230,000 IPO
shares, or more than 5% of the total number of IPO shares, vote against the
acquisition and demand conversion of their shares into their pro rata portion of
the trust account, then Rand will not consummate the acquisition because
conversions in excess of such amount could result in Rand's cash balances being
insufficient to enable Rand to make the equity contribution required under the
loan facility obtained by Rand to finance the acquisition. Prior to exercising
conversion rights, Rand stockholders should verify the market price of Rand's
common stock as they may receive higher proceeds from the sale of their common
stock in the public market than from exercising their conversion rights. Rand's
shares of common stock are listed on the Over-the-Counter Bulletin Board under
the symbol RAQC.
Rand's initial stockholders have agreed to vote their 1,000,000 shares of
Rand common stock acquired prior to Rand's initial public offering, representing
an aggregate of approximately 17.9% of the outstanding shares of Rand common
stock, in accordance with the vote of the majority of the IPO shares. In
addition, one of Rand's initial stockholders who owns 250,000 shares of common
stock issued in Rand's initial public offering, representing approximately 4.5%
of the outstanding shares of Rand common stock, and approximately 5.4% of the
outstanding IPO shares, intends to vote such shares "FOR" the adoption of the
acquisition proposal. The initial stockholders intend to vote all of their
shares of Rand common stock, representing an aggregate of approximately 22.3% of
the outstanding shares of Rand common stock, "FOR" the amendment proposal and
the adjournment proposal.
After careful consideration, Rand's Board of Directors has determined that
the acquisition proposal is fair to and in the best interests of Rand and its
stockholders. Rand's Board of Directors has also determined that the amendment
proposal and adjournment proposal are in the best interests of Rand's
stockholders. Rand's Board of Directors unanimously recommends that you vote or
give instruction to vote "FOR" the adoption of the acquisition proposal, the
amendment proposal and the adjournment proposal.
Enclosed is a notice of special meeting and proxy statement containing
detailed information concerning the acquisition proposal and the transactions
contemplated thereby as well as detailed information concerning the amendment
proposal and the adjournment proposal. Whether or not you plan to attend the
special meeting, we urge you to read this material carefully.
I look forward to seeing you at the meeting.
Sincerely,
/s/ Laurence S. Levy
Laurence S. Levy
Chairman of the Board and
Chief Executive Officer
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENVELOPE PROVIDED.
Neither the Securities and Exchange Commission nor any state securities
commission has determined if this proxy statement is truthful or complete. Any
representation to the contrary is a criminal offense.
SEE "RISK FACTORS" BEGINNING ON PAGE 25 FOR A DISCUSSION OF VARIOUS
FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE ACQUISITION.
This proxy statement is dated February 1, 2006 and is first being mailed
to Rand stockholders on or about February 3, 2006.
RAND ACQUISITION CORPORATION
450 Park Avenue, 10th Floor
New York, New York 10022
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 2006
TO THE STOCKHOLDERS OF RAND ACQUISITION CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders, including
any adjournments or postponements thereof, of Rand Acquisition Corporation, or
Rand, a Delaware corporation, will be held at 10:00 a.m., eastern time, on
February 28, 2006, at the offices of Katten Muchin Rosenman LLP, 575 Madison
Avenue, New York, New York 10022:
o to consider and vote upon a proposal to adopt, and approve the
transactions contemplated by, the Stock Purchase Agreement, dated as
of September 2, 2005, among Rand, LL Acquisition Corp., an indirect
wholly-owned subsidiary of Rand, and the stockholders of Lower Lakes
Towing Ltd., as amended, and to adopt amendments to the certificate
of incorporation of Rand designed to ensure Rand's compliance with
the citizenship requirements of U.S. maritime laws after completion
of the acquisition;
o to consider and vote upon a proposal to adopt amendments to the
certificate of incorporation of Rand to increase the number of
shares of common stock which Rand is authorized to issue from
20,000,000 shares to 50,000,000 shares and to change the name of
Rand to Rand Logistics Inc.; and
o to consider and vote upon a proposal to adjourn the special meeting
to a later date or dates, if necessary, to permit further
solicitation and vote of proxies in the event there are not
sufficient votes at the time of the special meeting to adopt the
acquisition proposal or the amendment proposal.
Adoption by Rand stockholders of the first proposal listed above, the
acquisition proposal, is not conditioned on the adoption of the second and third
proposals listed above. However, adoption of the second proposal listed above,
the amendment proposal, is conditioned upon the adoption of the acquisition
proposal.
Rand stockholders of record at the close of business on January 31, 2006
will be entitled to receive notice of, and to vote at, the Rand special meeting
and any and all adjournments thereof.
Your vote is important. Please sign, date and return your proxy card as
soon as possible to make sure that your shares are represented at the special
meeting. If you are a stockholder of record of Rand common stock, you may also
cast your vote in person at the special meeting. If your shares are held in an
account at a brokerage firm or bank, you must instruct your broker or bank on
how to vote your shares. If you do not vote or do not instruct your broker or
bank how to vote, it will have the same effect as voting against the acquisition
proposal, the amendment proposal and the adjournment proposal.
Rand's Board of Directors unanimously recommends that you vote "FOR" the
adoption of each proposal listed above.
By Order of the Board of Directors,
/s/ Laurence S. Levy
Laurence S. Levy
Chairman of the Board and
Chief Executive Officer
February 1, 2006
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION....................................5
SUMMARY.......................................................................12
The Acquisition Proposal..................................................12
Amendment Proposal........................................................14
Adjournment Proposal......................................................14
Special Meeting of Rand's Stockholders....................................14
Voting Power; Record Date.................................................14
Vote Required to Adopt the Acquisition Proposal...........................14
Conversion Rights.........................................................15
Vote Required to Adopt the Amendment Proposal.............................15
Vote Required to Adopt the Adjournment Proposal...........................16
Appraisal or Dissenters Rights............................................16
Proxies...................................................................16
Stock Ownership...........................................................16
Rand's Board of Directors' Recommendation.................................16
Interests of Rand Directors and Officers in the Acquisition...............17
Interests of Lower Lakes Directors and Officers in the Acquisition........17
Conditions to the Completion of the Acquisition...........................18
Termination...............................................................18
Termination Fee...........................................................19
Acquisition Financing.....................................................19
Comparison of Stockholders Rights.........................................20
United States Federal Income Tax Consequences of the Acquisition..........20
Regulatory Matters........................................................20
SELECTED HISTORICAL FINANCIAL INFORMATION.....................................21
LOWER LAKES HISTORICAL FINANCIAL INFORMATION..................................21
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.........22
COMPARATIVE PER SHARE INFORMATION.............................................23
PER SHARE MARKET PRICE INFORMATION............................................24
RISK FACTORS..................................................................25
FORWARD-LOOKING STATEMENTS....................................................36
THE RAND SPECIAL MEETING......................................................37
Rand Special Meeting......................................................37
Date, Time and Place......................................................37
Purpose of the Special Meeting............................................37
Record Date; Who is Entitled to Vote......................................37
Voting Your Shares........................................................38
Who Can Answer Your Questions About Voting Your Shares....................38
No Additional Matters May Be Presented at the Special Meeting.............38
Revoking Your Proxy.......................................................38
Vote Required to Adopt the Acquisition Proposal...........................39
Conversion Rights.........................................................39
Vote Required to Adopt the Amendment Proposal.............................40
Vote Required to Adopt the Adjournment Proposal...........................40
Broker Non-Votes..........................................................41
Solicitation Costs........................................................41
Stock Ownership...........................................................41
THE ACQUISITION PROPOSAL......................................................42
General Description of the Acquisition....................................42
Background of the Acquisition.............................................42
Factors Considered by the Rand Board in Approving the Acquisition.........44
Fairness Opinion..........................................................46
Amendment to Rand's Certificate of Incorporation..........................53
i
Appraisal or Dissenters Rights............................................57
United States Federal Income Tax Consequences of the Acquisition..........57
Fiscal Year...............................................................58
Regulatory Matters........................................................58
Consequences if Acquisition Proposal is Not Approved......................58
Required Vote.............................................................58
Recommendation............................................................59
Interest of Rand Directors and Officers in the Acquisition................59
Interests of Lower Lakes Directors and Officers in the Acquisition........59
THE AMENDMENT PROPOSAL........................................................61
General Description of the Amendment......................................61
Rand's Reasons for the Amendment and Recommendation of Rand's
Board of Directors........................................................61
Consequences if Amendment Proposal is Not Approved........................61
Required Vote.............................................................61
Recommendation............................................................61
THE ADJOURNMENT PROPOSAL......................................................62
General Description of the Adjournment Proposal...........................62
Consequences if Adjournment Proposal is Not Approved......................62
Required Vote.............................................................62
Recommendation............................................................62
THE LOWER LAKES STOCK PURCHASE AGREEMENT......................................63
Structure of the Acquisition..............................................63
Purchase Price - Payment..................................................63
Escrow Amount.............................................................63
Working Capital - Purchase Price Adjustment...............................63
Closing of the Acquisition................................................63
Repayment of Loans........................................................63
Representations and Warranties............................................63
Materiality and Material Adverse Effect...................................65
Interim Operations Relating to Lower Lakes................................66
No Solicitation by the Lower Lakes Stockholders...........................68
Rand Stockholders' Meeting................................................68
Access to Information; Confidentiality....................................68
Reasonable Efforts; Notification..........................................68
Reorganization............................................................69
Indemnification...........................................................69
Fees and Expenses.........................................................70
Public Announcements......................................................70
Transfer Taxes............................................................70
Conditions to the Completion of the Acquisition...........................70
Termination, Amendment and Waiver.........................................72
Effect of Termination.....................................................72
Assignment................................................................72
Amendment.................................................................72
Further Assurances........................................................72
ESCROW AGREEMENT..............................................................72
Creation of Escrow........................................................73
Distribution of Escrowed Funds............................................73
SECTION 116 ESCROW AGREEMENT..................................................73
Creation of Escrow........................................................73
Distribution of the Withheld Amount.......................................73
EMPLOYMENT AGREEMENTS.........................................................73
Scope of Employment.......................................................74
Compensation..............................................................74
Fringe Benefits, Reimbursement of Expenses................................74
Termination Benefits......................................................74
Non-Competition and Non-Solicitation......................................75
ii
MANAGEMENT BONUS PROGRAM......................................................76
Purpose...................................................................76
Participants..............................................................76
Awards....................................................................76
Vesting...................................................................76
Registration Rights.......................................................76
Separation from Service...................................................76
REDEMPTION AGREEMENT..........................................................77
Structure of the Redemption...............................................77
Purchase Price - Payment..................................................77
Closing of the Redemption.................................................78
Representations and Warranties............................................78
Non-Solicitation by Grand River...........................................78
Confidentiality...........................................................78
Indemnification...........................................................79
Fees and Expenses.........................................................79
Public Announcements......................................................79
Conditions to the Completion of the Redemption............................79
Termination...............................................................80
Effect of Termination.....................................................81
Assignment................................................................81
Amendment.................................................................81
Further Assurances........................................................81
ACQUISITION FINANCING.........................................................81
Series A Convertible Preferred Stock......................................81
Senior Debt Facility......................................................86
INFORMATION ABOUT LOWER LAKES.................................................86
Business of Lower Lakes...................................................86
Business Strategy.........................................................89
Shipping Operations.......................................................89
Historical and Projected Dry Docking Schedule.............................91
Customers.................................................................91
Competition...............................................................91
Government and Other Regulations..........................................92
Risk of Loss and Liability Insurance......................................94
Legal Proceedings.........................................................96
Employees.................................................................96
Facilities................................................................96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF LOWER LAKES..........................................97
INFORMATION ABOUT RAND.......................................................110
Business of Rand.........................................................110
Competition..............................................................112
Facilities...............................................................113
Employees................................................................113
Periodic Reporting and Audited Financial Statements......................113
Legal Proceedings........................................................113
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF RAND................................................113
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..............114
BENEFICIAL OWNERSHIP OF SECURITIES...........................................122
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................124
PRICE RANGE OF SECURITIES AND DIVIDENDS......................................126
Rand.....................................................................126
Holders of Common Equity.................................................126
iii
Dividends................................................................126
Lower Lakes..............................................................127
DESCRIPTION OF RAND'S SECURITIES FOLLOWING THE ACQUISITION...................127
General..................................................................127
Units....................................................................127
Common Stock.............................................................127
Preferred Stock..........................................................127
Unissued Shares of Capital Stock.........................................128
Classified Board of Directors; Vacancies.................................128
Limitation of Liability of Directors.....................................128
Warrants.................................................................129
Quotation or Listing.....................................................130
Registration Rights Agreement............................................130
Transfer Agent and Registrar.............................................130
COMPARISON OF STOCKHOLDER RIGHTS.............................................131
STOCKHOLDER PROPOSALS........................................................133
INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS.................................133
WHERE YOU CAN FIND MORE INFORMATION..........................................133
FINANCIAL STATEMENTS.........................................................F-1
ANNEXES
A--Stock Purchase Agreement and amendments thereto
B--Form of Amended and Restated Certificate of Incorporation
C--Escrow Agreement
D--Employment Agreement
E--Preferred Stock Purchase Agreement
F--Certificate of Designations
G--Registration Rights Agreement
H--Fairness Opinion
I--Section 116 Escrow Agreement
J--Management Bonus Program
K--Redemption Agreement
iv
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
Q. What is being voted A. There are three proposals that you are being
on? asked to vote on. The first proposal is to
adopt, and approve the transactions
contemplated by, the Stock Purchase Agreement
providing for the acquisition of Lower Lakes
Towing Ltd., which we refer to as Lower
Lakes, and to adopt the amendments to Rand's
certificate of incorporation designed to
ensure Rand's compliance with the citizenship
requirements of U.S. maritime laws after
completion of the acquisition. Without
adoption of these amendments, Rand will not
be able to acquire Lower Lakes. We refer to
this first proposal as the acquisition
proposal. See page 42.
The second proposal is to adopt amendments to
Rand's certificate of incorporation to
increase the number of shares of common stock
that Rand is authorized to issue from
20,000,000 shares to 50,000,000 shares and to
change the name of Rand to Rand Logistics Inc.
We refer to this second proposal as the
amendment proposal. See page 61.
The third proposal allows the adjournment of
the special meeting to a later date if
necessary to permit further solicitation of
proxies in the event that there are not
sufficient votes at the time of the special
meeting to approve the acquisition proposal.
We refer to this third proposal as the
adjournment proposal. See page 62.
Q. Why is Rand proposing A. Rand was organized to effect a business
the acquisition combination with an operating business.
proposal? Under the terms of its certificate of
incorporation, prior to completing a business
combination, Rand must submit the transaction
to its stockholders for approval. Having
negotiated the terms of a business combination
with Lower Lakes, Rand is now submitting the
transaction to its stockholders for their
approval.
Upon completion of the acquisition of Lower
Lakes, Rand would become subject to certain
United States maritime laws, such as the
Shipping Act, 1916, and the Merchant Marine
Act, 1920, commonly referred to as the Jones
Act. In an effort to ensure Rand's continuing
compliance with U.S. maritime laws, as part of
the acquisition proposal, Rand is proposing
that its certificate of incorporation be
amended to adopt certain limitations on the
ownership of Rand's common stock and other
securities by persons who are not citizens of
the United States. Rand could not complete the
Lower Lakes acquisition without adoption of
these share ownership limitations.
5
Q. Why is Rand proposing A. Following the acquisition of Lower Lakes and
the amendment proposal? the related financing transactions, Rand will
have only 1,880,646 of its 20,000,000 shares
of common stock available for issuance. Rand
believes it is prudent to have a greater
number of shares of its common stock available
for a variety of corporate purposes, including
financing potential acquisitions and
compensating its officers, directors and
employees. Rand does not have any agreements
or plans to issue any of the shares which
would be authorized upon adoption of the
amendment proposal. See page 61.
Rand believes that the name Rand Logistics
Inc. more accurately reflects the business it
will conduct after the acquisition, and will
enable industry and financial market
participants to more closely associate Rand
with its operating business.
Q. What vote is required A. Adoption of the acquisition proposal requires
in order to adopt the the affirmative vote of a majority of the
acquisition proposal? issued and outstanding shares of Rand's
common stock. Adoption of the acquisition
proposal also requires the affirmative vote
of a majority of the shares of Rand's common
stock issued in its initial public offering.
However, notwithstanding adoption of the
acquisition proposal, the acquisition will
not proceed if holders of more than 5% of
Rand's common stock issued in its initial
public offering exercise their conversion
rights. See page 39. No vote of the warrant
holders is necessary to adopt the acquisition
proposal, and Rand is not asking the warrant
holders to vote on the acquisition proposal.
Adoption of the acquisition proposal is not
conditioned upon the adoption of the
amendment proposal or the adjournment
proposal. See page 58.
Q. Do I have the right to A. If you hold shares of common stock issued in
convert my shares into Rand's initial public offering, which we
cash? sometimes call IPO shares, then you have the
right to vote against the acquisition proposal
and demand that Rand convert your shares into
your pro rata portion of the trust account in
which a substantial portion of the net
proceeds of Rand's initial public offering are
held if the acquisition is consummated. We
sometimes refer to the right to vote against
the acquisition and demand conversion of your
shares into your pro rata portion of the trust
account as conversion rights. However, if the
holders of more than 230,000 IPO shares, or
more than 5% of the total number of IPO
shares, demand conversion of their shares into
their pro rata portion of the trust account,
then Rand will not consummate the acquisition
because conversions in excess of such amount
could result in Rand's cash balances being
insufficient to enable Rand to make the equity
contribution required under the loan facility
obtained by Rand to finance the acquisition.
See page 111.
6
Q. If I have conversion A. If you wish to exercise your conversion
rights, how do I rights, you must vote against the acquisition
exercise them? and at the same time demand that Rand convert
your shares into cash. If, notwithstanding
your vote, the acquisition is completed, then
you will be entitled to receive your pro rata
share of the trust account in which a
substantial portion of the net proceeds of
Rand's initial public offering are held,
including your pro rata share of any interest
earned thereon through the date of the special
meeting. Based on the amount of cash held in
the trust account at January 9, 2006, you will
be entitled to convert each share that you
hold into approximately $5.33. If you exercise
your conversion rights, then you will be
exchanging your shares for cash and will no
longer own these shares. You will only be
entitled to receive cash for these shares if
you continue to hold these shares through the
closing date of the acquisition and then
tender your stock certificate to Rand. If the
acquisition is not completed, then your shares
will not be converted to cash at this time.
See page 111.
Prior to exercising conversion rights, Rand
stockholders should verify the market price of
Rand's common stock as they may receive higher
proceeds from the sale of their common stock
in the public market than from exercising
their conversion rights. Rand's shares of
common stock are listed on the
Over-the-Counter Bulletin Board under the
symbol RAQC.
Q. What vote is required A. Adoption of the amendment proposal requires
to adopt the amendment the affirmative vote of a majority of the
proposal? issued and outstanding shares of Rand's
common stock. No vote of the warrant holders
is necessary to adopt the amendment proposal,
and Rand is not asking the warrant holders to
vote on the amendment proposal. Adoption of
the amendment proposal is conditioned upon the
adoption of the acquisition proposal, but is
not conditioned on adoption of the adjournment
proposal. See page 61.
Q. What vote is required A. Adoption of the adjournment proposal requires
to adopt the the affirmative vote of a majority of the
adjournment proposal? issued and outstanding shares of Rand's
common stock. No vote of the warrant holders
is necessary to adopt the adjournment
proposal, and Rand is not asking the warrant
holders to vote on the adjournment proposal.
Adoption of the adjournment proposal is not
conditioned upon the adoption of the
acquisition proposal or the amendment
proposal. See page 62.
Q. What is Rand acquiring A. Rand, through wholly-owned subsidiaries
in the acquisition? formed by it for purposes of the acquisition,
will acquire all of the issued and outstanding
capital stock of Lower Lakes, which is
organized and operates in Canada. Lower Lakes
is a dry bulk shipping company specializing in
River Class bulk freight services throughout
the Great Lakes. With its subsidiaries, Lower
Lakes operates a fleet of seven self-unloading
bulk carriers as well as a tug and a
self-unloading barge. See page 42.
7
By virtue of its acquisition of Lower Lakes,
Rand will also be acquiring Lower Lakes' U.S.
operating subsidiary, Lower Lakes
Transportation Company, which we refer to as
Lower Lakes Transportation, as well as Lower
Lakes' 25% stock interest in Grand River
Navigation Company, Inc., which we refer to as
Grand River. In addition, as a result of
related transactions on the closing date of
the acquisition, which we call the closing or
completion date, Rand, through its
subsidiaries, will also acquire the remaining
75% stock interest in Grand River. Grand River
owns or charters the vessels used in Lower
Lakes Transportation's business operations.
See page 87.
Q. What is Rand paying A. Rand has agreed to buy all of Lower Lakes'
for Lower Lakes? issued and outstanding stock for $53,730,000,
less the amount required to retire the
indebtedness of Lower Lakes, Lower Lakes
Transportation and Grand River outstanding as
of the closing date, and less the $750,000
necessary to acquire the remaining shares of
Grand River. The indebtedness to be retired,
which is expected to total approximately
$44,300,000, will be retired with cash
provided by Rand and the proceeds of new loans
to Lower Lakes, Lower Lakes Transportation and
Grand River. Rand will also fund the $750,000
required to acquire the remaining shares of
Grand River. See page 63.
Q. How is Rand paying for A. Rand will use the proceeds of its initial
the acquisition? public offering currently held in the trust
account, approximately $24,500,000 as of
January 25, 2006, including interest, and the
$15,000,000 of proceeds of the closing date
issuance of Rand's newly created series A
convertible preferred stock, to acquire the
shares of Lower Lakes, to pay transaction
expenses and, together with the proceeds of
loans to be obtained at the closing, to retire
the indebtedness of Lower Lakes, Lower Lakes
Transportation and Grand River outstanding as
of the closing date.
The approximately $24,500,000 held in the
trust account as of January 25, 2006 together
with any additional interest earned thereon as
of the closing date will be used in the
following manner and priority: up to
approximately $1,226,000 will be paid to
holders of IPO shares who elect to convert
their shares; approximately $8,680,000 will be
used to fund the acquisition of the Lower
Lakes shares; and $750,000 will be used to
fund the redemption of the Grand River shares.
The balance of the trust account will be
contributed to Lower Lakes and used together
with the proceeds of Rand's closing date sale
of preferred stock and new senior loan
financing to fund the retirement of Lower
Lakes' closing date indebtedness, pay
transaction expenses and fund working capital
and winter work expenses and reserves. Rand
will have sufficient availability under the
new loan facility to permit application of the
trust account funds in the manner and priority
described above. See page 81.
8
Q. What will I receive in A. You will not receive any cash or other
the acquisition? property in the acquisition, but instead you
will continue to hold your shares of Rand
common stock. As a result of the acquisition
and related transactions, Rand will own all of
the outstanding stock of Lower Lakes, Lower
Lakes Transportation and Grand River.
Q. Is Rand issuing any A. No. However, Rand will issue shares of
shares of common stock series A convertible preferred stock on the
in the acquisition? closing date of the acquisition. The preferred
shares will be convertible at any time by the
holders of such preferred shares, and after
three years by Rand (depending on the market
performance of its common stock), into shares
of common stock at a conversion price of
$6.20. See page 81.
Q. What happens to the A. Upon consummation of the acquisition, any
funds deposited in the funds remaining in the trust account after
trust account after payment of amounts, if any, to stockholders
consummation of the exercising their conversion rights, will be
acquisition? used to fund the acquisition and the trust
account will cease to exist.
Q. What will the structure A. As a result of the acquisition and related
of the company be after transactions, Lower Lakes, Lower Lakes
the acquisition? Transportation and Grand River will each
become an indirect wholly-owned subsidiary of
Rand. See page 51.
Q. Who will manage the A. Lower Lakes, Lower Lakes Transportation and
acquired company? Grand River will, following the acquisition,
each continue to be managed by their existing
management. See page 51.
Q. What happens if the A. If the acquisition is not consummated, Rand
acquisition is not will continue to search for an operating
consummated? company to acquire. However, the trust
account in which a substantial portion of the
net proceeds of Rand's initial public offering
are held will be liquidated if Rand does not
consummate a business combination by April 27,
2006, or by October 27, 2006 if a letter of
intent, agreement in principle or definitive
agreement is executed but not consummated by
April 27, 2006. In any liquidation, the net
proceeds of Rand's initial public offering
held in the trust account, plus any interest
earned thereon, will be distributed pro rata
to Rand's common stockholders holding IPO
shares.
9
Q. When do you expect the A. It is currently anticipated that the
acquisition to be acquisition will be completed, or closed,
completed? promptly following the Rand special meeting
on Feruary 28, 2006.
Q. If I am not going to A. Yes. After carefully reading and considering
attend the Rand special the information contained in this document,
meeting in person, please fill out and sign your proxy card.
should I return my Then return the enclosed proxy card in the
proxy card instead? return envelope as soon as possible, so that
your shares may be represented at the Rand
special meeting. See page 38.
Q. What will happen if I A. An abstention or failure to vote will have
abstain from voting or the same effect as a vote against the
fail to vote? acquisition proposal, but will not have the
effect of converting your shares into your pro
rata portion of the trust account in which a
substantial portion of the net proceeds of
Rand's initial public offering are held,
unless an affirmative election to convert
shares of common stock is made on the proxy
card. An abstention or failure to vote will
also have the same effect as a vote against
the amendment proposal and the adjournment
proposal. To exercise you conversion rights,
you must affirmatively elect to convert your
shares by checking the appropriate box, or
directing your broker to check the appropriate
box, on the proxy card and ensure that the
proxy card is delivered prior to the Rand
special meeting. See page 38.
Q. What do I do if I want A. Send a later-dated, signed proxy card to
to change my vote? Rand's secretary prior to the date of the
special meeting or attend the special meeting
in person, revoke your proxy and vote. You
also may revoke your proxy by sending a notice
of revocation to Rand's Chief Executive
Officer at the address of Rand's corporate
headquarters. See page 38.
Q. If my shares are held A. No. Your broker can vote your shares only if
in "street name" by my you provide instructions on how to vote. You
broker, will my broker should instruct your broker to vote your
vote my shares for me? shares, following the directions provided by
your broker. To exercise you conversion
rights, you must affirmatively elect to
convert your shares by directing your broker
to check the appropriate box on the proxy card
and ensure that the proxy card is delivered
prior to the Rand special meeting. See page
41.
Q. Who will pay for this A. Rand has retained Morrow & Co., Inc. to aid
proxy solicitation? in the solicitation of proxies. Morrow &
Co., Inc. will receive a fee of approximately
$5,000, as well as reimbursement for certain
costs and out of pocket expenses incurred by
them in connection with their services, all of
which will be paid by Rand. In addition,
officers and directors may solicit proxies by
mail, telephone, telegraph and personal
interview, for which no additional
compensation will be paid, though they may be
reimbursed for their out-of-pocket expenses.
Rand will bear the cost of preparing,
assembling and mailing the enclosed form of
proxy, this Proxy Statement and other material
which may be sent to stockholders in
connection with this solicitation. Rand may
reimburse brokerage firms and other nominee
holders for their reasonable expenses in
sending proxies and proxy material to the
beneficial owners of our shares. See page 41.
10
Q. Who can help answer my A. If you have questions about the solicitation
questions? of proxies, you may write, e-mail or call
Morrow & Co., Inc., 470 West Avenue - 3rd
Floor, Stamford, CT 06902, E-mail:
Rand.info@morrowco.com. Banks and Brokerage
Firms, please call (203) 658-9400.
Stockholders, please call (800) 607-0088.
11
SUMMARY
The following discusses in summary form the material terms of the
acquisition proposal, the amendment proposal and the adjournment proposal. The
proposals are described in greater detail elsewhere in this document. You should
carefully read this entire document and the other documents to which this
document refers you. See "Where You Can Find More Information."
The Acquisition Proposal
The Acquisition
The acquisition proposal seeks your approval of the Stock Purchase
Agreement entered into on September 2, 2005 by Rand and Rand's indirect
wholly-owned subsidiary, LL Acquisition Corp., with the stockholders of Lower
Lakes, as amended. The Stock Purchase Agreement provides for the acquisition of
all of the outstanding shares of capital stock of Lower Lakes by LL Acquisition
Corp., or LL Acquisition, for an aggregate cash purchase price of $53,730,000
less an amount necessary to retire all of the indebtedness of Lower Lakes, Lower
Lakes Transportation and Grand River outstanding as of the closing date of the
acquisition, and less the $750,000 necessary to redeem the shares of Grand River
not held by Lower Lakes. The indebtedness of Lower Lakes, Lower Lakes
Transportation and Grand River outstanding at the closing of the acquisition is
anticipated to total approximately $44,300,000. Rand will also fund the $750,000
necessary to redeem the remaining shares of Grand River. The purchase price is
subject to a post-closing adjustment based on Lower Lakes' net working capital
as of January 15, 2006. See "The Lower Lakes Stock Purchase Agreement" on page
63.
Rand will use the proceeds of its initial public offering currently held
in the trust account, approximately $24,500,000 as of January 25, 2006,
including interest, and the $15,000,000 of proceeds to be received by Rand from
the issuance on the closing date of its newly-created series A convertible
preferred stock, to fund the purchase price, redemption price and transaction
expenses and, together with the proceeds of a $22,500,000 loan to be obtained on
the closing date, to retire the indebtedness of Lower Lakes, Lower Lakes
Transportation and Grand River outstanding as of the closing date. See "The
Lower Lakes Stock Purchase Agreement - Repayment of Loans" on page 63.
The approximately $24,500,000 held in the trust account as of January 25,
2006 together with any additional interest earned thereon as of the closing date
will be used in the following manner and priority: up to approximately
$1,220,000 will be paid to holders of IPO shares who elect to convert their
shares; approximately $8,680,000 will be used to fund the acquisition of the
Lower Lakes shares; and $750,000 will be used to fund the redemption of the
Grand River shares. The balance of the trust account will be contributed to
Lower Lakes and used together with the proceeds of Rand's closing date sale of
preferred stock and new senior loan financing to fund the retirement of Lower
Lakes' closing date indebtedness, pay transaction expenses and fund working
capital and winter work expenses and reserves. Rand will have sufficient
availability under the new loan facility to permit application of the trust
account funds in the manner and priority described above.
Immediately following completion of the acquisition, Lower Lakes and LL
Acquisition will be amalgamated in accordance with Canadian law, and the
amalgamated entity, which will retain the name Lower Lakes Towing Ltd., will
continue to operate the business and assets of Lower Lakes. Immediately
following the amalgamation, the shares of Lower Lakes Transportation and Grand
River owned by Lower Lakes will be transferred to Rand LL Holdings Corp., a
wholly-owned subsidiary of Rand. As a result of the foregoing and the
immediately subsequent redemption of the shares of Grand River not owned by
Lower Lakes, each of Lower Lakes, Lower Lakes Transportation and Grand River
will become wholly-owned subsidiaries of Rand LL Holdings Corp. For ease of
reference, we refer to the combined business of Lower Lakes, Lower Lakes
Transportation and Grand River as the business of Lower Lakes.
Rand, LL Acquisition and the stockholders of Lower Lakes plan to complete
the acquisition promptly after the Rand special meeting, provided that:
12
o Rand's stockholders have approved the acquisition proposal;
o holders of not more than 5% of the shares of common stock issued in
Rand's initial public offering, or IPO shares, properly elect to
exercise their right to convert their shares into cash; and
o the other conditions specified in the Stock Purchase Agreement have
been satisfied or waived.
The Stock Purchase Agreement is included as Annex A to this document. We
encourage you to read the Stock Purchase Agreement in its entirety. It is the
legal document that governs the acquisition. See "The Lower Lakes Stock Purchase
Agreement" on page 63.
A Rand stockholder who votes in favor of the acquisition proposal is also
voting to adopt the amendments to Rand's certificate of incorporation designed
to ensure Rand's compliance with the citizenship requirements of U.S. maritime
laws, including the Shipping Act, 1916, and the Merchant Marine Act, 1920,
commonly referred to as the Jones Act, after completion of the acquisition.
These amendments will not become effective unless the acquisition is completed.
The effect of these amendments will be to limit the aggregate percentage
ownership of Rand's capital stock, including common stock, by non-U.S. citizens
to 23% of the outstanding shares of Rand's capital stock and no more than 23% of
the voting power of Rand. In addition, these amendments give Rand's Board of
Directors the authority to make such determinations as may reasonably be
necessary to ascertain such ownership and to implement such limitations,
including limiting transfers of shares and redeeming shares held by anyone whose
ownership of such shares would cause Rand to be in violation of U.S. maritime
laws.
The form of Amended and Restated Certificate of Incorporation of Rand,
which reflects the amendments included in the acquisition proposal, is included
as Annex B to this document. We encourage you to read the form of Amended and
Restated Certificate of Incorporation in its entirety. It is the legal document
that will govern Rand following the acquisition. See "Comparison of Stockholder
Rights" on page 131.
Rand and its Subsidiaries
Rand is a blank check company organized as a corporation under the laws of
the State of Delaware on June 2, 2004. It was formed to effect a business
combination with an unidentified operating business. On November 2, 2004, Rand
successfully consummated an initial public offering of its equity securities
from which it derived net proceeds of approximately $24,605,000. Rand's common
stock, warrants to purchase common stock and units consisting of one share of
common stock and two warrants to purchase common stock are listed on the
Over-the-Counter Bulletin Board under the symbols RAQC, RAQCW and RAQCU,
respectively. $23,736,000 of the net proceeds of the initial public offering was
placed in a trust account and will be released to Rand upon consummation of the
acquisition. The balance of the net proceeds of $869,000 has been used and will
be used by Rand to pay the expenses incurred in its pursuit of a business
combination. Other than its initial public offering and the pursuit of a
business combination, Rand has not engaged in any business to date. If Rand does
not consummate a business combination by the later of April 27, 2006, or October
27, 2006 in the event that a letter of intent, an agreement in principle or a
definitive agreement to complete a business combination was executed but not
consummated by April 27, 2006, then, pursuant to article sixth of its
certificate of incorporation, as amended, Rand's officers must take all actions
necessary to dissolve and liquidate Rand within 60 days.
LL Acquisition is a Canadian corporation and a wholly-owned subsidiary of
Rand LL Holdings Corp. formed solely for purposes of the acquisition. Rand LL
Holdings Corp., or Rand LL Holdings, is a Delaware corporation and a
wholly-owned subsidiary of Rand formed solely for purposes of the acquisition.
The mailing address of the principal executive office of Rand, Rand LL
Holdings and LL Acquisition is c/o Hyde Park Holdings LLC, 450 Park Avenue, 10th
Floor, New York, New York 10022, and their telephone number is (212) 644-3450.
See "Information about Rand" on page 110.
13
Lower Lakes and its Subsidiaries
Lower Lakes, a Canadian corporation, provides bulk freight shipping
services throughout the Great Lakes region. Lower Lakes provides shipping
services to the construction aggregates, integrated steel, salt, agriculture and
electric utility industries.
Rand's management believes that Lower Lakes is the only company providing
significant domestic port-to-port services in both Canada and the United States
in the Great Lakes region. Lower Lakes' operating fleet consists of four
self-unloading bulk carriers in Canada and three self-unloading bulk carriers as
well as a tug and a self-unloading barge in the U.S. Lower Lakes owns three of
the Canadian flagged vessels and its wholly-owned subsidiary, Port Dover
Steamship Company Inc., owns the fourth. Lower Lakes Transportation time
charters the U.S. flagged vessels from Grand River.
Grand River is a Delaware corporation which is 25% owned by Lower Lakes.
The other outstanding shares of Grand River's common stock are owned by Grand
River Holdings, Inc., a Delaware corporation that is not affiliated with Lower
Lakes. Grand River owns two of the U.S. flagged vessels and a tug, and bareboat
charters two U.S. flagged vessels. The four vessels owned or chartered by Grand
River are used exclusively in Lower Lakes Transportation's business.
Consequently, in the preparation of its financial statements, Lower Lakes
consolidates Grand River under variable interest entity accounting rules.
The mailing address of Lower Lakes' principal executive offices is 625
Main Street, Port Dover, Ontario, Canada NOA 1NO, and its telephone number is
(519) 583-0982. See "Information about Lower Lakes" on page 86.
Amendment Proposal
Rand is proposing an amendment to Rand's certificate of incorporation to
increase the number of shares of common stock that Rand is authorized to issue
from 20,000,000 shares to 50,000,000 shares and to change the name of Rand to
Rand Logistics Inc. Rand believes it is prudent to have a greater number of
shares of its common stock available for a variety of corporate purposes,
including financing potential acquisitions and compensating its officers,
directors and employees. Rand does not have any agreements or plans to issue any
of the shares which would be authorized upon adoption of the amendment proposal.
Rand believes that the name Rand Logistics Inc. more accurately reflects the
business it will conduct after the acquisition, and will enable industry and
financial market participants to more closely associate Rand with its operating
business. See "The Amendment Proposal" on page 61.
Adjournment Proposal
In the event there are not sufficient votes at the time of the special
meeting to approve the acquisition proposal, Rand's Board of Directors may
submit a proposal to adjourn the special meeting to a later date or dates, if
necessary, to permit further solicitation of proxies. See "The Adjournment
Proposal" on page 62.
Special Meeting of Rand's Stockholders
The special meeting of the stockholders of Rand will be held at 10:00
a.m., eastern time, on February 28, 2006, at the offices of Katten Muchin
Rosenman LLP, 575 Madison Avenue, New York, New York 10022.
Voting Power; Record Date
You will be entitled to vote or direct votes to be cast at the special
meeting if you owned shares of Rand common stock at the close of business on
January 31, 2006, which is the record date for the special meeting. You will
have one vote for each share of Rand common stock you owned at the close of
business on the record date. Rand warrants do not have voting rights.
Vote Required to Adopt the Acquisition Proposal
14
The affirmative vote of a majority of the issued and outstanding shares of
Rand's common stock is required to adopt the acquisition proposal. Adoption of
the acquisition proposal also requires the affirmative vote of a majority of the
shares of Rand's common stock issued in its initial public offering. No vote of
the warrant holders is necessary to adopt the acquisition proposal, and Rand is
not asking the warrant holders to vote on the acquisition proposal. Adoption of
the acquisition proposal is not conditioned upon the adoption of the amendment
proposal or adjournment proposal. However, if the holders of more than 230,000
IPO shares, or more than 5% of the total number of IPO shares, demand conversion
of their shares into their pro rata portion of the trust account, then Rand will
not consummate the acquisition because conversions in excess of such amount
could result in Rand's cash balances being insufficient to enable Rand to make
the equity contribution required under the loan facility obtained by Rand to
finance the acquisition. See "The Rand Special Meeting - Conversion Rights" on
page 39.
A Rand stockholder who votes in favor of the acquisition proposal is also
voting to adopt amendments to Rand's certificate of incorporation designed to
ensure Rand's compliance with the citizenship requirements of U.S. maritime
laws, including the Shipping Act, 1916, and the Merchant Marine Act, 1920,
commonly referred to as the Jones Act, after completion of the acquisition.
At the close of business on February 1, 2006, there were 5,600,000 shares
of Rand common stock outstanding, 4,600,000 of which were issued in Rand's
initial public offering.
Rand's initial stockholders have agreed to vote their 1,000,000 shares of
Rand common stock acquired prior to Rand's initial public offering, representing
an aggregate of approximately 17.9% of the outstanding shares of Rand common
stock, in accordance with the vote of the majority of the shares of Rand common
stock issued in its initial public offering. In addition, one of Rand's initial
stockholders who owns 250,000 shares of common stock issued in Rand's initial
public offering, representing approximately 4.5% of the outstanding shares of
Rand common stock, and approximately 5.4% of the shares issued in Rand's initial
public offering, intends to vote such shares "FOR" the adoption of the
acquisition proposal.
Conversion Rights
As provided in Rand's certificate of incorporation, holders of IPO shares
may, if the stockholder votes against the acquisition proposal, demand that Rand
convert their shares into cash. This demand must be made on the proxy card at
the same time that the stockholder votes against the acquisition proposal. If so
demanded, Rand will convert each share of common stock into a pro rata portion
of the trust account in which a substantial portion of the net proceeds of
Rand's initial public offering are held, plus interest earned thereon. Based on
the amount of cash held in the trust account at January 25, 2006, you will be
entitled to convert each share of common stock that you hold into approximately
$5.33. If you exercise your conversion rights, then you will be exchanging your
shares of Rand's common stock for cash and will no longer own these shares. You
will only be entitled to receive cash for these shares if you continue to hold
these shares through the closing date of the acquisition and then tender your
stock certificate to Rand. If the acquisition is not completed, then these
shares will not be converted into cash. A stockholder who exercises conversion
rights will continue to own any warrants to acquire Rand common stock owned by
such stockholder as such warrants will remain outstanding and unaffected by the
exercise of conversion rights.
The acquisition will not be consummated if the holders of more than
230,000 IPO shares, or more than 5% of the total number of IPO shares, exercise
their conversion rights. Although Rand's certificate of incorporation would
permit Rand to complete the acquisition so long as holders of less than 20% of
the IPO shares were to demand conversion of their shares into cash, Rand will
not be able to complete the acquisition if holders of more than 5% of the IPO
shares demand conversion of their shares because conversions in excess of such
amount could result in Rand's cash balances being insufficient to enable Rand to
make the equity contribution required under the loan facility obtained by Rand
to finance the acquisition.
The reduced limit on conversions arises out of the determination of Rand's
Board of Directors to obtain only enough financing as is minimally necessary to
consummate the Lower Lakes acquisition, while basing how much financing would
minimally be necessary on the assumption that holders of only a negligible
number of IPO shares would exercise their conversion rights. Moreover, the Board
determined to limit conversions to 5% even though after application of the
amounts estimated by the Board to be required to consummate the acquisition,
Rand would have cash balances capable of satisfying conversions of over 9% of
the IPO shares. Rand's Board made these determinations based on their belief
that holders of only a negligible number of IPO shares would exercise their
conversion rights and in order to ensure that sufficient cash would be available
to consummate the acquisition in the event that the Board underestimated the
amount that would be so required. See "The Rand Special Meeting - Conversion
Rights" on page 39.
Prior to exercising conversion rights, Rand stockholders should verify the
market price of Rand's common stock as they may receive higher proceeds from the
sale of their common stock in the public market than from exercising their
conversion rights. Rand's shares of common stock are listed on the
Over-the-Counter Bulletin Board under the symbol RAQC.
Vote Required to Adopt the Amendment Proposal
15
Adoption of the amendment proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Rand's common stock. No vote of
the warrant holders is necessary to adopt the amendment proposal, and Rand is
not asking the warrant holders to vote on the amendment proposal. Adoption of
the amendment proposal is conditioned upon the adoption of the acquisition
proposal but is not conditioned on adoption of the adjournment proposal.
Rand's initial stockholders intend to vote their shares of Rand common
stock, representing an aggregate of approximately 22.3% of the outstanding
shares of Rand common stock, "FOR" the amendment proposal.
Vote Required to Adopt the Adjournment Proposal
Adoption of the adjournment proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Rand's common stock. No vote of
the warrant holders is necessary to adopt the adjournment proposal, and Rand is
not asking the warrant holders to vote on the adjournment proposal. Adoption of
the adjournment proposal is not conditioned upon the adoption of the acquisition
proposal or the amendment proposal.
Rand's initial stockholders have agreed to vote their shares of Rand
common stock, representing an aggregate of approximately 22.3% of the
outstanding shares of Rand common stock, "FOR" the adoption of the adjournment
proposal.
Appraisal or Dissenters Rights
No appraisal or dissenters rights are available under the Delaware General
Corporation Law for the stockholders of Rand in connection with the acquisition
proposal.
Proxies
Proxies may be solicited by mail, telephone or in person.
If you grant a proxy, you may still vote your shares in person if you
revoke your proxy before the special meeting. See page 38.
Stock Ownership
At the close of business on the record date, Laurence S. Levy, Isaac Kier
and Sandeep D. Alva, who together comprise all of Rand's directors and executive
officers, together with their affiliates, beneficially owned 1,250,000 shares of
Rand common stock, or approximately 22.3% of the outstanding shares of Rand
common stock. Such number does not include 1,407,000 shares of common stock
issuable upon exercise of warrants held by Rand's executive officers and
directors. These 1,250,000 shares have a market value of approximately
$7,000,000 based on Rand's common stock price of $5.60 per share as of January
27, 2006. Those persons have agreed to vote their 1,000,000 shares of common
stock acquired by them prior to the initial public offering in accordance with
the vote of the majority of the shares issued in connection with Rand's initial
public offering. Mr. Levy is currently Chairman of Rand's Board of Directors and
Chief Executive Officer of Rand. Messrs. Kier and Alva are directors of Rand.
For more information on beneficial ownership of Rand's common stock by executive
officers, directors and 5% stockholders, see page 122.
Rand's Board of Directors' Recommendation
After careful consideration, the Board of Directors of Rand has determined
that the acquisition proposal is fair to and in the best interests of Rand and
its stockholders. The Board of Directors of Rand has also determined that the
amendment proposal and the adjournment proposal are in the best interests of
Rand's stockholders. Rand's Board of Directors unanimously recommends that you
vote or give instruction to vote "FOR" the adoption of the acquisition proposal,
the amendment proposal and the adjournment proposal.
16
Interests of Rand Directors and Officers in the Acquisition
When you consider the recommendation of Rand's Board of Directors that you
vote in favor of adoption of the acquisition proposal, you should keep in mind
that certain of Rand's executive officers and members of Rand's Board, and
certain of their affiliates and associates, have interests in the acquisition
that are different from, or in addition to, your interest as a stockholder.
These interests include, among other things:
o if the acquisition is not approved and Rand fails to consummate an
alternative transaction within the time allotted pursuant to its
certificate of incorporation and Rand is therefore required to
liquidate, the shares of common stock beneficially owned by Rand's
executive officers and directors and their affiliates and associates
that were acquired prior to Rand's initial public offering may be
worthless because no portion of the net proceeds of Rand's initial
public offering that may be distributed upon liquidation of Rand
will be allocated to such shares. Similarly, the warrants to
purchase Rand common stock held by Rand's executive officers and
directors and their affiliates and associates may become worthless
if the acquisition is not approved and Rand fails to consummate an
alternative transaction within the time allotted pursuant to its
certificate of incorporation;
o Rand's executive officers and directors, together with their
affiliates and associates, were issued a total 1,000,000 shares of
Rand common stock prior to Rand's initial public offering, and one
of Rand's directors has acquired an additional 250,000 shares. These
shares collectively have a market value of approximately $7,000,000
based on Rand's share price of $5.60 as of January 27, 2006.
However, the 1,000,000 shares acquired prior to Rand's initial
public offering by these individuals cannot be sold prior to October
27, 2007 during which time the value of the shares may increase or
decrease; and
o after the completion of the acquisition, it is expected that the
directors will continue to serve on Rand's Board of Directors and
Laurence S. Levy will continue to serve as Rand's Chief Executive
Officer and as Chairman of Rand's Board. Mr. Levy, as Rand's Chief
Executive Officer, and each director of Rand, will, following the
acquisition, be compensated in such manner, and in such amounts, as
Rand's Board of Directors may determine to be appropriate. No
agreements or plans with respect to such compensation have been
entered into, adopted or otherwise agreed upon by Rand.
Interests of Lower Lakes Directors and Officers in the Acquisition
You should understand that some of the current directors and officers of
Lower Lakes have interests in the acquisition that are different from, or in
addition to, your interest as a stockholder. In particular:
o Scott Bravener, Lower Lakes' President, is expected to remain the
President of Lower Lakes and James Siddall, a Vice President of
Lower Lakes, is expected to remain a Vice President of Lower Lakes
and each such individual is expected to enter into an employment
agreement with Lower Lakes in connection with the acquisition; and
o Lower Lakes is party to a month-to-month lease under which it leases
real estate in Port Dover, Ontario from Scott Bravener, James
Siddall, Franklin Bravener and Robert Pierson, each of whom is an
employee of Lower Lakes, and Grand River is party to a lease under
which it leases real estate in Rogers City, Michigan from Robert P.
Noffze, who is an employee of Grand River, and Rand currently
intends to continue to lease these properties after completion of
the acquisition. Rand's management believes that these leases are at
rates consistent with leases negotiated at arm's length.
17
Conditions to the Completion of the Acquisition
Completion of the acquisition is subject to the satisfaction or waiver of
specified conditions, including the following:
Conditions to Rand's and LL Acquisition's obligations
o the representations and warranties of the stockholders of Lower
Lakes must be true and correct;
o the stockholders of Lower Lakes must have performed in all material
respects all obligations required to be performed by them under the
terms of the Stock Purchase Agreement;
o there must not have occurred any material adverse effect with
respect to Lower Lakes since the date of the Stock Purchase
Agreement;
o the parties must have received the governmental approvals necessary
to consummate the transaction, including, without limitation, the
necessary notifications or approvals required under the Investment
Canada Act and the Competition Act (Canada);
o Rand must have received the proceeds of its closing date issuance of
series A convertible preferred stock and the senior debt financing
must have been completed;
o Scott Bravener must have entered into an employment agreement with
Lower Lakes; and
o Rand's stockholders must have approved the transaction.
Conditions to Lower Lakes' stockholders' obligations
o the representations and warranties of Rand must be true and correct;
o Rand and LL Acquisition must have performed in all material respects
all obligations required to be performed by them under the Stock
Purchase Agreement;
o the parties must have received the governmental approvals necessary
to consummate the transaction, including, without limitation, the
necessary notifications or approvals required under the Investment
Canada Act and the Competition Act (Canada); and
o Lower Lakes must have entered into an employment agreement with
Scott Bravener.
Termination
The Stock Purchase Agreement may be terminated at any time prior to the
closing of the acquisition, as follows:
o by mutual consent of LL Acquisition and the stockholders of Lower
Lakes;
o by Rand or LL Acquisition, on the one hand, or the Lower Lakes'
stockholders, on the other hand, if the other party has breached any
of its covenants or representations and warranties in any material
respect;
18
o by the stockholders of Lower Lakes if Rand's Board of Directors
withdraws or modifies the Board's recommendation to the stockholders
of Rand in any manner adverse to Lower Lakes or fails to issue its
recommendation to Rand's stockholders in a reasonably timely manner;
or
o by either party if the closing has not occurred by February 28,
2006.
If permitted under applicable law, either Rand or the stockholders of
Lower Lakes may waive conditions for their own respective benefit, and
consummate the acquisition even though one or more of these conditions have not
been met. We cannot assure you that all of the conditions will be satisfied or
waived or that the acquisition will occur.
Termination Fee
Rand has conditionally agreed to pay Lower Lakes a termination fee of
$2,000,000 if the Stock Purchase Agreement of Lower Lakes is terminated in the
circumstances described under the "The Lower Lakes Stock Purchase Agreement -
Effect of Termination" on page 72.
Acquisition Financing
In connection with entering into the Stock Purchase Agreement, Rand
entered into a Preferred Stock Purchase Agreement with Knott Partners LP and
certain of its affiliates, and Bay Resource Partners L.P. and certain of its
affiliates. Under the Preferred Stock Purchase Agreement, subject to the
concurrent closing of the acquisition, Rand agreed to issue 300,000 shares of
its newly created series A convertible preferred stock to the investors for an
aggregate purchase price of $15,000,000. As of November 30, 2005, Knott Partners
LP and its affiliates beneficially owned 752,000 shares of Rand's common stock,
representing approximately 13.4% of Rand's outstanding common stock and
approximately 16.4% of the IPO shares, and warrants to purchase an additional
1,504,000 shares of Rand common stock. See "Risk Factors -- Shares of our common
stock issuable upon conversion of series A convertible preferred stock will
result in certain stockholders having significant influence over Rand." on page
29.
The series A convertible preferred stock will not be registered under the
Securities Act of 1933, but the investors will have registration rights
(including an obligation by Rand to file a "shelf" registration statement within
six months of the issuance of the shares of series A convertible preferred
stock) with respect to shares of Rand's common stock issuable upon conversion of
the shares of series A convertible preferred stock, which we call the conversion
shares. However, the investors will not be permitted to sell any conversion
shares under a registration statement prior to the six month anniversary of the
acquisition or more than one half of all conversion shares held by them as a
group prior to the twelve month anniversary of the acquisition.
The terms of the series A convertible preferred stock will be set forth in
a certificate of designations which will be filed with the State of Delaware on
or prior to the closing date of the acquisition. The shares of series A
convertible preferred stock:
o will rank senior to all outstanding classes of Rand's stock with
respect to liquidation and dividends;
o will be entitled to receive a cash dividend at the annual rate of
7.75%, payable quarterly (subject to increases of 0.5% for each six
month period in respect of which the dividend is not timely paid, up
to a maximum of 12%, subject to reversion to 7.75% upon payment of
all accrued and unpaid dividends);
o will be convertible into shares of Rand's common stock at any time
at the option of the investors based on a conversion price of $6.20
per share (subject to adjustment);
o will be convertible into shares of Rand's common stock (based on a
conversion price of $6.20 per share, subject to adjustment) at the
option of Rand if, after the third anniversary of the acquisition,
the trading price of Rand's common stock for 20 trading days within
any 30 trading day period equals or exceeds $8.50 per share (subject
to adjustment);
19
o may be redeemed by Rand in connection with certain change of control
or acquisition transactions;
o will vote on an as-converted basis with Rand's common stock; and
o will have a separate vote over certain material transactions or
changes involving Rand.
In addition, Rand received a commitment from GE Commercial & Industrial
Finance, Inc. with respect to a $28 million senior debt facility to be used by
Rand at the closing of the acquisition to refinance existing indebtedness of
Lower Lakes, Grand River and Lower Lakes Transportation and to provide working
capital for Lower Lakes and Lower Lakes Transportation following the
acquisition. This debt facility is to be comprised of a $5.5 million senior
secured revolving credit facility and a $22.5 million senior secured term loan.
The borrowers under the senior debt facility will be Lower Lakes, Grand River
and Lower Lakes Transportation. The senior debt facility has a five year term.
The interest rate for Canada-based borrowings will be the Canadian prime rate or
the Canadian 30-day banker's acceptance rate (or the equivalent thereof) and the
interest rate for U.S.-based borrowings will be, at Rand's option, the U.S.
prime rate or the 1-, 2-, or 3-month reserve-adjusted LIBOR, plus a margin of
300 basis points for banker's acceptance rate (or the equivalent thereof) or
LIBOR based loans and 200 basis points for U.S. or Canadian prime rate loans.
GE's obligation to make the senior debt facility available is subject to
certain conditions, including execution and delivery of final loan documents and
satisfactory completion of GE's legal due diligence. See "The Acquisition
Financing" on page 81.
Comparison of Stockholders Rights
In connection with the completion of the acquisition, Rand's certificate
of incorporation will be amended and restated to incorporate those amendments
approved at the special meeting. The rights of Rand stockholders will change
accordingly. See the section "Comparison of Stockholders Rights" starting on
page 131.
United States Federal Income Tax Consequences of the Acquisition
The U.S. Federal income tax consequences of the acquisition of Lower Lakes
are discussed in the section entitled "U.S. Federal Income Tax Consequences of
the Acquisition" on page 57.
Regulatory Matters
The acquisition and the transactions contemplated by the Stock Purchase
Agreement are not subject to any Federal, state or provincial regulatory
requirement or approval, except for the necessary notifications or approvals
required under the Investment Canada Act and the Competition Act (Canada). The
requisite approval under the Competition Act (Canada) was received on September
26, 2005 and the requisite approval under the Investment Canada Act was received
on October 14, 2005.
20
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following financial information to assist you in your
analysis of the financial aspects of the acquisition. We derived the Lower Lakes
historical information from the audited consolidated financial statements of
Lower Lakes as of and for each of the years ended March 31, 2005, 2004 and 2003,
and from the unaudited financial statements as of and for the six months ended
September 30, 2005 and 2004 and the years ended March 31, 2002 and 2001. The
information is only a summary and should be read in conjunction with Lower
Lakes' historical consolidated financial statements and related notes contained
elsewhere herein. The historical results included below and elsewhere in this
document are not indicative of the future performance of Lower Lakes or Rand.
Lower Lakes uses the U.S. Dollar as its reporting currency. The functional
currency of Lower Lakes is the Canadian dollar, while the functional currency of
Lower Lakes Transportation and Grand River is the U.S. Dollar. In accordance
with applicable accounting standards, assets and liabilities denominated in
foreign currencies are translated into U.S. Dollars at the rate of exchange at
the balance sheet date, while revenue and expenses are translated at the
weighted average rates prevailing during the respective years. The applicable
rates of exchange are included in the table below.
LOWER LAKES HISTORICAL FINANCIAL INFORMATION
(000's, except share data, per Six Months Ended
share data and exchanges rates) September 30 Year Ended March 31
-------------------- -----------------------------------------------------------
2005 2004 2005 2004 2003 2002 2001
-------- -------- -------- -------- -------- -------- --------
Revenue $ 36,370 $ 30,856 $ 52,110 $ 38,550 $ 27,227 $ 24,746 $ 11,318
Net income (loss) 1,893 2,890 1,298 (4,466) (1,137) (850) (103)
Shares issued and outstanding 7,969 7,969 7,969 7,969 5,751 5,114 5,114
Net income (loss) per share 237.60 362.66 162.88 (560.42) (197.70) (166.21) (20.14)
Fully diluted shares 27,493 27,493 27,493 27,493 27,493 26,856 26,856
Net income (loss) per fully 68.87 105.12 47.21 (162.44) (41.36) (31.65) (3.84)
diluted share
March 31
September ------------------------------------------------------------
30, 2005 2005 2004 2003 2002 2001
--------- -------- -------- -------- -------- --------
Total assets $ 59,532 $ 53,628 $ 45,275 $ 31,498 $ 29,560 $ 31,852
Long-term obligations * 53,393 50,757 31,593 23,468 25,709 26,876
Shareholders' (deficiency) (8,876) (10,230) (10,131) (3,612) (2,438) (683)
Average exchange rate 1.2227 1.2786 1.3500 1.5500 1.5655 1.5040
Closing exchange rate 1.1627 1.2096 1.3113 1.4751 1.5994 1.5774
*Excludes deferred taxes
21
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma condensed combined financial
information is intended to provide you with a picture of what Rand's business
might have looked like had the Lower Lakes acquisition been completed. The
combined financial information may have been different had the acquisition
actually been completed. You should not rely on the selected unaudited pro forma
condensed combined financial information as being indicative of the historical
results that would have occurred had the acquisition occurred or the future
results that may be achieved after the acquisition. The following selected
unaudited pro forma condensed combined financial information has been derived
from, and should be read in conjunction with, the unaudited pro forma condensed
consolidated financial statements and related notes thereto starting on page
114.
Nine Months Ended
September 30, 2005 June 2, 2004
(Rand) and Six (inception) to Dec 31,
Months Ended 2004 (Rand) and April
September 30, 2005 1, 2004 to March 31,
(000's, except per share data) (Lower Lakes) 2005 (Lower Lakes)
------------------ ----------------------
Revenue $36,370 $ 52,110
Net income $ 2,020 $ 961
Weighted average shares outstanding 5,600 2,585
Net income (loss) per share - basic $ 0.26 $ (0.08)
Net income (loss) per share - fully
diluted $ 0.12 $ (0.08)
September 30, 2005
------------------
Total assets $76,570
Long-term debt * 26,866
Shareholders' equity 33,797
*Excludes deferred taxes
22
COMPARATIVE PER SHARE INFORMATION
The following table sets forth selected historical per share information
of Lower Lakes and Rand and unaudited pro forma consolidated per share
information as of March 31, 2005, giving effect to the transactions described in
the Stock Purchase Agreement as if they had occurred on April 1, 2004. We are
providing this information to aid you in your analysis of the financial aspects
of the acquisition. The unaudited pro forma consolidated share information
should be read in conjunction with the historical financial statements of Lower
Lakes and Rand and the related notes thereto included elsewhere in this proxy
statement. The historical per share information is derived from financial
statements as of and for the nine months ended September 30, 2005, and for the
period June 2 to December 31, 2004 for Rand, and for the six months ended
September 30, 2005 and twelve months ended March 31, 2005 for Lower Lakes.
The unaudited pro forma consolidated per share information does not
purport to represent what the actual results of operations of Lower Lakes and
Rand would have been had the acquisition taken place on the dates noted or to
project Lower Lakes or Rand's results of operations that may be achieved after
the acquisition.
Lower Lakes Rand Pro Forma
------------- ----------- -----------
Net income per share - historical:
Period from June 2 (inception) to December
31, 2004 $ $ (0.01) $
Period from April 1, 2004 to March 31, 2005 162.88
Nine months ended September 30, 2005 0.02
Six months ended September 30, 2005 237.60
Book value per share - historical - September
30, 2005 (1,113.83) 3.56
Net income (loss) per share - pro forma:
Year ended December 31, 2004 (0.08)
Nine months ended September 30, 2005 0.26
Book value per share - pro forma - September
30, 2005 6.04
23
PER SHARE MARKET PRICE INFORMATION
The shares of Rand common stock, warrants and units are currently quoted
on the Over-the-Counter Bulletin Board under the symbols "RAQC," "RAQCW" and
"RAQCU," respectively. On August 31, 2005, the last day for which information
was available prior to the date of the public announcement of the signing of the
Stock Purchase Agreement, the last quoted sale prices of RAQC, RAQCW and RAQCU
were $5.24, $0.82 and $7.25, respectively. On January 27, 2006, the last quoted
sale prices of RAQC, RAQCW and RAQCU were $5.60, $1.23 and $8.20, respectively.
Each unit of Rand consists of one share of Rand common stock and two redeemable
common stock purchase warrants.
There is no established public trading market for the shares of common
stock of Lower Lakes because it is a private company.
The following table sets forth, for the calendar quarter indicated, the
quarterly high and low bid information of Rand's common stock, warrants and
units as reported on the OTC Bulletin Board. The quotations listed below reflect
interdealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions:
Common Stock Warrants Units
--------------------- --------------------- ---------------------
Quarter Ended High Low High Low High Low
- ----------------- -------- -------- -------- -------- -------- --------
December 31, 2004 $ 5.50 $ 4.50 $ 0.85 $ 0.60 $ 6.70 $ 5.95
March 31, 2005 $ 5.70 $ 5.07 $ 1.03 $ 0.69 $ 7.36 $ 6.50
June 30, 2005 $ 5.43 $ 5.10 $ 0.85 $ 0.68 $ 6.90 $ 6.32
September 30, 2005 $ 5.70 $ 5.55 $ 1.10 $ 1.05 $ 7.65 $ 7.65
24
RISK FACTORS
You should carefully consider the following risk factors, together with
all of the other information included in this document, before you decide
whether to vote or instruct your vote to be cast to adopt the acquisition
proposal. As Rand's operations will be those of Lower Lakes upon completion of
the acquisition, the following risk factors relating to the business and
operations of Lower Lakes also apply to Rand as the successor to Lower Lakes'
business. For ease of reference, we refer to the combined business of Lower
Lakes, Lower Lakes Transportation and Grand River as the business of Lower
Lakes.
Risks Associated with the Acquisition and Lower Lakes' Business
If the acquisition's benefits do not meet the expectations of financial or
industry analysts, the market price of Rand's common stock may decline.
The market price of Rand's common stock may decline as a result of the
acquisition if:
o Rand does not achieve the perceived benefits of the acquisition as rapidly
as, or to the extent anticipated by, financial or industry analysts; or
o the effect of the acquisition on Rand's financial results is not
consistent with the expectations of financial or industry analysts.
Accordingly, investors may experience a loss as a result of a decreasing
stock price and Rand may not be able to raise future capital, if necessary, in
the equity markets.
Rand's directors may have certain conflicts in determining to recommend the
acquisition proposal since certain of their interests, and certain interests of
their affiliates and associates, are different from, or in addition to, your
interests as a stockholder.
Members of Rand's Board of Directors have interests in the acquisition
that are different from, or in addition to, your interests as a stockholder,
including the fact that the shares of common stock owned by them, or their
affiliates and associates, would become worthless if the acquisition is not
approved and Rand otherwise fails to consummate a business combination prior to
its liquidation date. Such shares, as of January 27, 2006, had a market value of
approximately $7,000,000. Similarly, the warrants owned by such directors,
affiliates and associates to purchase 1,470,000 shares of common stock would
expire worthless. Moreover, if the acquisition is approved, it is expected that
Rand's directors, including Laurence Levy, who serves as Rand's chief executive
officer, will continue to serve as such, and be compensated in such capacity.
You should take these potential conflicts into account when considering the
recommendation of Rand's Board of Directors to vote in favor of the acquisition
proposal.
Capital expenditures and other costs necessary to operate and maintain Lower
Lakes' vessels tend to increase with the age of the vessel and may also increase
due to changes in governmental regulations, safety or other equipment standards.
Capital expenditures and other costs necessary to operate and maintain
Lower Lakes' vessels tend to increase with the age of each vessel. Accordingly,
it is likely that the operating costs of Lower Lakes' older vessels will
increase. In addition, changes in governmental regulations, safety or other
equipment standards, as well as compliance with standards imposed by maritime
self-regulatory organizations and customer requirements or competition, may
require Lower Lakes to make additional expenditures. For example, if the U.S.
Coast Guard, Transport Canada or the American Bureau of Shipping (an independent
classification society that inspects the hull and machinery of commercial ships
to assess compliance with minimum criteria as set by U.S., Canadian and
international regulations) enact new standards, Lower Lakes may be required to
incur significant costs for alterations to its fleet or the addition of new
equipment. In order to satisfy any such requirement, Lower Lakes may be required
to take its vessels out of service for extended periods of time, with
corresponding losses of revenues. In the future, market conditions may not
justify these expenditures or enable Lower Lakes to operate its older vessels
profitably during the remainder of their anticipated economic lives.
25
If Lower Lakes is unable to fund its capital expenditures, Lower Lakes may not
be able to continue to operate some of its vessels, which would have a material
adverse effect on Rand's business.
In order to fund Lower Lakes' capital expenditures, Rand may be required
to incur borrowings or raise capital through the sale of debt or equity
securities. Rand's ability to access the capital markets for future offerings
may be limited by Rand's and Lower Lakes' financial condition at the time of any
such offering as well as by adverse market conditions resulting from, among
other things, general economic conditions and contingencies and uncertainties
that are beyond its control. Rand's failure to obtain the funds for necessary
future capital expenditures would limit its ability to continue to operate some
of its vessels and could have a material adverse effect on Rand's business,
results of operations and financial condition.
The climate in the Great Lakes region limits Lower Lakes' vessel operations to
approximately nine months per year.
Lower Lakes' operating business is seasonal, meaning that it experiences
higher levels of activity in some periods of the year than in others.
Ordinarily, Lower Lakes is able to operate its vessels on the Great Lakes for
approximately nine months per year beginning in late March and continuing
through December or mid-January. However, weather conditions and customer demand
cause increases and decreases in the number of days Lower Lakes actually
operates.
Lower Lakes is dependent upon key personnel whose loss may adversely impact
Lower Lakes' business.
Lower Lakes depends on the expertise, experience and continued services of
its senior management employees, especially Scott Bravener, its President.
Bravener has acquired specialized knowledge and skills with respect to Lower
Lakes and its operations and most decisions concerning the business of Lower
Lakes will be made or significantly influenced by him. Although Lower Lakes
maintains life insurance with respect to Bravener, the proceeds of such
insurance may not be adequate to compensate Lower Lakes in the event of
Bravener's death. The loss of Bravener or other senior management employees, or
an inability to attract or retain other key individuals, could materially
adversely affect Rand. Rand and Lower Lakes seek to compensate and incentivize
their key executives, as well as other employees, through competitive salaries
and bonus plans, but there can be no assurance that these programs will allow
Lower Lakes to retain key employees or hire new key employees. As a result, if
Bravener were to leave Lower Lakes following the acquisition, Rand and Lower
Lakes could face substantial difficulty in hiring a qualified successor and
could experience a loss in productivity while any such successor obtains the
necessary training and experience.
The shipping industry has inherent operational risks that may not be adequately
covered by Lower Lakes' insurance.
Lower Lakes maintains insurance on its fleet for risks commonly insured
against by vessel owners and operators, including hull and machinery insurance,
war risks insurance and protection and indemnity insurance (which includes
environmental damage and pollution insurance). Rand can give no assurance that
Lower Lakes will be adequately insured against all risks or that its insurers
will pay a particular claim. Even if its insurance coverage is adequate to cover
its losses, Lower Lakes may not be able to timely obtain a replacement vessel in
the event of a loss. Furthermore, in the future, Lower Lakes may not be able to
obtain adequate insurance coverage at reasonable rates for Lower Lakes' fleet.
Lower Lakes may also be subject to calls, or premiums, in amounts based not only
on its own claim record but also the claims record of all other members of the
protection and indemnity associations through which Lower Lakes may receive
indemnity insurance coverage. Lower Lakes' insurance policies will also contain
deductibles, limitations and exclusions which, although Rand believes are
standard in the shipping industry, may nevertheless increase its costs.
26
Lower Lakes is subject to certain credit risks with respect to its
counterparties on contracts and failure of such counterparties to meet their
obligations could cause Rand to suffer losses on such contracts decreasing
revenues and earnings.
Lower Lakes enters into Contracts of Affreightment (COAs) pursuant to
which Lower Lakes agrees to carry cargoes, typically for industrial customers,
who export or import dry bulk cargoes. Lower Lakes also enters into spot market
voyage contracts, where Lower Lakes is paid a rate per ton to carry a specified
cargo from point A to point B. All of these contracts subject Lower Lakes to
counterparty credit risk. As a result, after the acquisition, Rand will be
subject to credit risks at various levels, including with charterers, cargo
interests, or terminal customers. If the counterparties fail to meet their
obligations, Rand could suffer losses on such contracts which would decrease
revenues and earnings.
Lower Lakes may not be able to generate sufficient cash flows to meet its debt
service obligations.
Lower Lakes' ability to make payments on its indebtedness will depend on
its ability to generate cash from its future operations. Lower Lakes business
may not generate sufficient cash flow from operations or from other sources
sufficient to enable it to repay its indebtedness and to fund its other
liquidity needs, including capital expenditure requirements. The indebtedness to
be incurred by Lower Lakes under the new senior credit facility will bear
interest at floating rates, and therefore if interest rates increase, Lower
Lakes' debt service requirements will increase. Lower Lakes may need to
refinance or restructure all or a portion of its indebtedness on or before
maturity. Lower Lakes may not be able to refinance any of its indebtedness,
including the new senior credit facility, on commercially reasonable terms, or
at all. If Lower Lakes cannot service or refinance its indebtedness, it may have
to take actions such as selling assets, seeking additional equity or reducing or
delaying capital expenditures, any of which could have a material adverse effect
on our operations. Additionally, Lower Lakes may not be able to effect such
actions, if necessary, on commercially reasonable terms, or at all.
A default under Lower Lakes' indebtedness may have a material adverse effect on
Rand's financial condition.
In the event of a default under Lower Lakes' indebtedness, including the
indebtedness under its new senior credit facility, the holders of the
indebtedness generally would be able to declare all of such indebtedness,
together with accrued interest, to be due and payable. In addition, borrowings
under the new senior credit facility are secured by a first priority lien on all
of the assets of Lower Lakes, Lower Lakes Transportation and Grand River and, in
the event of a default under that facility, the lenders generally would be
entitled to seize the collateral. In addition, default under one debt instrument
could in turn permit lenders under other debt instruments to declare borrowings
outstanding under those other instruments to be due and payable pursuant to
cross default clauses. Moreover, upon the occurrence of an event of default
under the new senior credit facility, the commitment of the lenders to make any
further loans to us would be terminated. Accordingly, the occurrence of a
default under any debt instrument, unless cured or waived, would likely have a
material adverse effect on Lower Lakes' business and Rand's results of
operations.
Servicing debt could limit funds available for other purposes, such as the
payment of dividends.
Following the acquisition, Lower Lakes will use cash to pay the principal
and interest on its debt as well as to fund required sinking funds for future
capital expenditures. These payments limit funds otherwise available for other
purposes, including distributing cash to Rand's stockholders.
Lower Lakes' loan agreements will contain restrictive covenants that will limit
its liquidity and corporate activities.
Lower Lakes' loan agreements will impose operating and financial
restrictions that will limit Lower Lakes' ability to:
o incur additional indebtedness;
o create additional liens on its assets;
27
o make investments;
o engage in mergers or acquisitions;
o pay dividends; and
o sell any of Lower Lakes' vessels or any other assets outside the ordinary
course of business.
Therefore, Lower Lakes will need to seek permission from its lender in
order for Lower Lakes to engage in some corporate actions. Lower Lakes' lender's
interests may be different from those of Lower Lakes, and no assurance can be
given that Lower Lakes will be able to obtain its lender's permission when
needed. This may prevent Lower Lakes from taking actions that are in its best
interest.
Because Lower Lakes generates approximately 60% of its revenues, and incurs
approximately 60% of its expenses, in Canadian dollars, exchange rate
fluctuations could cause Rand to suffer exchange rate losses thereby increasing
expenses and reducing income.
Lower Lakes generates a portion of its revenues in Canadian dollars.
Similarly, Lower Lakes incurs a portion of its expenses in Canadian dollars.
This could lead to fluctuations in Rand's net income due to changes in the value
of the U.S. Dollar relative to the Canadian Dollar.
Lower Lakes depends upon unionized labor for its U.S. operations. Any work
stoppages or labor disturbances could disrupt its business.
Substantially all of Grand River's employees are unionized with the
International Organization of Masters, Mates and Pilots, AFL-CIO. The existing
labor agreement has been recently extended through March 2007. Any work
stoppages or other labor disturbances could have a material adverse effect on
Lower Lakes' business, results of operations and financial condition.
A labor union has attempted to unionize Lower Lakes' Canadian employees.
The Seafarers International Union of Canada, or SIU, has attempted without
success to organize Lower Lakes' unlicensed employees in each of the past
several years, and is attempting to do so again. SIU and Lower Lakes recently
completed a proceeding before the Canada Industrial Relations Board, or CIRB.
One outcome of the proceeding was a settlement to the effect that in exchange
for union organizers ceasing attempts to access Lower Lakes vessels, the union
would be granted access to each vessel for a one hour information session in the
presence of a labor board officer and that employee attendance would be strictly
voluntary. The process would be repeated in approximately one calendar year, and
the union would not be allowed access to the vessels or customer facilities at
any other time. Although Lower Lakes' management believes that support for this
union is low, if SIU is successful in organizing a union among Lower Lakes'
Canadian employees, it could result in increased labor costs for Lower Lakes,
which could have a material adverse effect on Rand's results of operations.
Lower Lakes employees are covered by U.S. Federal laws that may subject it to
job-related claims in addition to those provided by state laws.
All of Lower Lakes' U.S. seagoing employees are covered by provisions of
the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to
as the Jones Act, and general maritime law. These laws typically operate to make
liability limits established by state workers' compensation laws inapplicable to
these employees and to permit these employees and their representatives to
pursue actions against employers for job-related injuries in Federal courts.
Because Lower Lakes is not generally protected by the limits imposed by state
workers' compensation statutes, Lower Lakes has greater exposure for claims made
by these employees as compared to employers whose employees are not covered by
these provisions.
28
Restriction on foreign ownership and possible required divestiture of stock.
Under U.S. maritime laws, in order for Rand to maintain the eligibility to
own and operate vessels in the U.S. domestic trade, 75% of the outstanding
capital stock and voting power of Rand is required to be held by U.S. citizens.
Although Rand's amended and restated certificate of incorporation will contain
provisions limiting non-citizenship ownership of its capital stock, Rand could
lose its ability to conduct operations in the U.S. domestic trade if such
provisions prove unsuccessful in maintaining the required level of citizen
ownership. Such loss would have a material adverse effect on Rand. If Rand
determines that persons who are not citizens of the U.S. own more than 23% of
Rand's outstanding capital stock or more than 23% of the voting power of Rand,
Rand may redeem such stock or, if redemption is not permitted by applicable law
or Rand's Board of Directors, in its discretion, elects not to make such
redemption, Rand may require the non-citizens who most recently acquired shares
to divest such excess shares to persons who are U.S. citizens in such manner as
Rand's Board of Directors directs. The required redemption would be at a price
equal to the average closing price during the preceding 30 trading days, which
price could be materially different from the current price of the common stock
or the price at which the non-citizen acquired the common stock. If a
non-citizen purchases the common stock, there can be no assurance that he will
not be required to divest the shares and such divestiture could result in a
material loss. Such restrictions and redemption rights may make Rand's equity
securities less attractive to potential investors, which may result in Rand's
publicly traded common stock having a lower market price than it might have in
the absence of such restrictions and redemption rights.
Shares of our common stock issuable upon conversion of series A convertible
preferred stock will result in certain stockholders having significant influence
over Rand.
150,000 of the shares of series A convertible preferred stock to be issued
in connection with the acquisition are being purchased by entities beneficially
owned by David Knott, who, according to publicly filed documents, as of November
30, 2005 was the beneficial owner of approximately 13.4% of our outstanding
common stock. The shares of series A convertible preferred stock being issued to
entities beneficially owned by Mr. Knott are convertible into approximately
1,209,677 shares of Rand common stock. Accordingly, if the shares of series A
convertible preferred stock held by entities beneficially owned by Mr. Knott
were converted into shares of Rand's common stock, Mr. Knott would be the
beneficial owner of approximately 28.8% of our outstanding common stock, without
giving effect to his right to purchase an additional 1,504,000 shares upon
exercise of warrants issued in connection with our initial public offering. In
the event that Mr. Knott were to cause the exercise of such warrants, and
assuming no other warrants to purchase Rand's common stock were exercised by any
other party, Mr. Knott would be the beneficial owner of approximately 41.7% of
Rand's outstanding common stock. In addition, the price of the series A
convertible preferred stock is subject to adjustment upon the occurrence of
certain events which are dilutive to the shares of series A convertible
preferred stock. In the event of such adjustment, an even greater number of
shares of common stock may be issuable to holders of such securities upon
conversion. Accordingly, Mr. Knott will have substantial influence over the
outcome of all matters requiring shareholder approval, including the election of
members of Rand's Board of Directors. In addition, the certificate of
designations of the series A convertible preferred stock grants to the holders
of series A convertible preferred stock the right to approve certain material
actions which Rand's Board of Directors may wish to implement, including any
merger, consolidation or sale of all or substantially all of Rand's assets. This
concentrated control could discourage others from initiating any potential
merger or other change of control transaction that may otherwise be beneficial
to Rand's businesses. As a result, the market price of Rand's publicly traded
securities could be adversely affected.
The conversion of our series A convertible preferred stock will result in
significant and immediate dilution of our existing stockholders and the book
value of their common stock.
The shares of series A convertible preferred stock to be issued in
connection with the acquisition are convertible into 2,419,354 shares of our
common stock, which, on an "as converted" basis, represents approximately 30.2%
of our aggregate outstanding common stock. The conversion price of our series A
convertible preferred stock is subject to weighted average anti-dilution
provisions whereby, if Rand issues shares in the future for consideration below
the existing conversion price of $6.20, then the conversion price of the series
A convertible preferred stock would automatically be decreased, allowing the
holders of the series A convertible preferred stock to receive additional shares
of common stock upon conversion. Upon any conversion of the series A convertible
preferred stock, the equity interests of our existing common stockholders, as a
percentage of the total number of the outstanding shares of our common stock,
and the net book value of the shares of our common stock will be significantly
diluted.
29
Future acquisitions of vessels or businesses by Rand or Lower Lakes would
subject Rand and Lower Lakes to additional business, operating and industry
risks, the impact of which cannot presently be evaluated, and could adversely
impact Rand's or Lower Lakes' capital structure.
Rand intends to pursue other acquisition opportunities following the
closing of the Lower Lakes acquisition in an effort to diversify its investments
and/or grow Lower Lakes' business. While neither Rand nor Lower Lakes is
presently committed to any additional acquisition, Rand is currently actively
pursuing one or more potential acquisition opportunities. Acquisitions may be of
individual or groups of vessels or of businesses operating in the shipping or
other industries. Following the acquisition of Lower Lakes, Rand will not be
limited to any particular industry or type of business that it may acquire.
Accordingly, there is no current basis for you to evaluate the possible merits
or risks of the particular business or assets that Rand may acquire, or of the
industry in which such business operates. To the extent Rand acquires a
financially unstable business, we may be affected by numerous risks inherent in
the acquired business's operations. If Rand acquires a business in an industry
characterized by a high level of risk, we may be affected by the currently
unascertainable risks of that industry. Although Rand's management will endeavor
to evaluate the risks inherent in a particular industry or target business, we
cannot assure you that we will properly ascertain or assess all of the
significant risk factors.
In addition, the financing of any acquisition completed by Rand after the
Lower Lakes acquisition could adversely impact Rand's capital structure as any
such financing would likely include the issuance of additional equity securities
and/or the borrowing of additional funds. The issuance of additional equity
securities may significantly reduce the equity interest of existing stockholders
and/or adversely affect prevailing market prices for Rand's common stock.
Increasing Rand's indebtedness could increase the risk of a default that would
entitle the holder to declare all of such indebtedness due and payable and/or to
seize any collateral securing the indebtedness. In addition, default under one
debt instrument could in turn permit lenders under other debt instruments to
declare borrowings outstanding under those other instruments to be due and
payable pursuant to cross default clauses. Accordingly, the financing of future
acquisitions could adversely impact our capital structure and your equity
interest in Rand.
Except as required by law or the rules of any securities exchange on which
our securities might be listed at the time we seek to consummate an acquisition,
you will not be asked to vote on any proposed acquisition and you will not be
entitled to exercise conversion rights in connection with any such acquisition.
Risks Associated with the Shipping Industry
The cyclical nature of the Great Lakes dry bulk shipping industry may lead to
decreases in shipping rates, which may reduce Lower Lakes' revenue and earnings.
The shipping business, including the dry cargo market, has been cyclical
in varying degrees, experiencing fluctuations in charter rates, profitability
and, consequently, vessel values. Rand anticipates that the future demand for
Lower Lakes' dry bulk carriers and dry bulk charter rates will be dependent upon
continued demand for imported commodities, economic growth in the United States
and Canada, seasonal and regional changes in demand, and changes to the capacity
of the Great Lakes fleet which cannot be predicted. Adverse economic, political,
social or other developments could decrease demand and growth in the shipping
industry and thereby reduce revenue and earnings. Fluctuations, and the demand
for vessels, in general, have been influenced by, among other factors:
o global and regional economic conditions;
o developments in international and Great Lakes trade;
30
o changes in seaborne and other transportation patterns, such as port
congestion and canal closures;
o weather and crop yields;
o political developments; and
o embargoes and strikes.
The market values of Lower Lakes' vessels may decrease, which could cause Lower
Lakes to breach covenants in its credit facility and which could reduce earnings
and revenues as a result of potential foreclosures.
Vessel values are influenced by several factors, including:
o changes in environmental and other regulations that may limit the useful
life of vessels;
o changes in Great Lakes dry bulk commodity supply and demand;
o types and sizes of vessels;
o development of and increase in use of other modes of transportation;
o governmental or other regulations; and
o prevailing level of charter rates.
If the market values of Lower Lakes' owned vessels decrease, Lower Lakes
may breach some of the covenants contained in its new credit facility. If Lower
Lakes does breach such covenants and Lower Lakes is unable to remedy the
relevant breach, its lenders could accelerate its debt and foreclose on the
collateral, including Lower Lakes' vessels. Any loss of vessels would
significantly decrease the ability of Rand to generate revenue and income. In
addition, if the book value of a vessel is impaired due to unfavorable market
conditions, or a vessel is sold at a price below its book value, Rand would
incur a loss that would reduce earnings.
A failure to pass inspection by classification societies and regulators could
result in one or more vessels being unemployable unless and until they pass
inspection, resulting in a loss of revenues from such vessels for that period
and a corresponding decrease in earnings, which may be material.
The hull and machinery of every commercial vessel must be classed by a
classification society authorized by its country of registry, as well as being
subject to inspection by shipping regulatory bodies such as Transport Canada.
The classification society certifies that a vessel is safe and seaworthy in
accordance with the applicable rules and regulations of the country of registry
of the vessel and the United Nations Safety of Life at Sea Convention. Lower
Lakes' owned fleet is currently enrolled with the American Bureau of Shipping.
A vessel must undergo Annual Surveys, Intermediate Surveys, and Special
Surveys by its classification society, as well as periodic inspections by
shipping regulators. As regards classification surveys, in lieu of a Special
Survey, a vessel's machinery may be on a continuous survey cycle, under which
the machinery would be surveyed periodically over a five-year period. Lower
Lakes' vessels are on Special Survey cycles for hull inspection and continuous
survey cycles for machinery inspection. Every vessel is also required to be
drydocked every four to five years for inspection of the underwater parts of
such vessel.
Due to the age of several of the vessels, the repairs and remediations
required in connection with such classification society surveys and other
inspections may be extensive and require significant expenditures. Additionally,
until such time as certain repairs and remediations required in connection with
such surveys and inspections are completed (or if any vessel fails such a survey
or inspection), the vessel may be unable to trade between ports and, therefore,
would be unemployable. Any such loss of the use of a vessel could have an
adverse impact on Rand's revenues, results of operations and liquidity, and any
such impact may be material.
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Lower Lakes' business would be adversely affected if Lower Lakes failed to
comply with U.S. maritime laws or the Coasting Trade Act (Canada) provisions on
coastwise trade, or if those provisions were modified or repealed.
Upon the closing of the acquisition, Rand will be subject to the Shipping
Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones
Act, and other U.S. laws and the Coasting Trade Act (Canada) that restrict
domestic maritime transportation to vessels operating under the flag of the
subject state. In the case of the United States, in addition, the vessels must
have been built in the United States, be at least 75% owned and operated by U.S.
citizens and manned by U.S. crews. Compliance with the foregoing legislation
increase the operating costs of the vessels. With respect to its U.S. flag
vessels, Rand will be responsible for monitoring the ownership of its capital
stock to ensure compliance with U.S. maritime laws. If Rand does not comply with
these restrictions, Rand would be prohibited from operating its vessels in U.S.
coastwise trade, and under certain circumstances Rand would be deemed to have
undertaken an unapproved foreign transfer, resulting in severe penalties,
including permanent loss of U.S. coastwise trading rights for its vessels, and
fines or forfeiture of the vessels.
Over the past decade, interest groups have lobbied Congress to modify or
repeal U.S. maritime laws so as to facilitate foreign flag competition. Foreign
vessels generally have lower construction costs and generally operate at
significantly lower costs than vessels in the U.S. markets, which would likely
result in reduced charter rates. Rand believes that continued efforts will be
made to modify or repeal these laws. If these efforts are successful, it could
result in significantly increased competition and have a material adverse effect
on our business, results of operations and financial condition.
We may be unable to maintain or replace our vessels as they age.
As of December 31, 2004, the average age of the vessels operated by Lower
Lakes was approximately 59 years. The expense of maintaining, repairing and
upgrading Lower Lakes' vessels typically increases with age, and after a period
of time the cost necessary to satisfy required marine certification standards
may not be economically justifiable. There can be no assurance that Lower Lakes
will be able to maintain its fleet by extending the economic life of existing
vessels, or that our financial resources will be sufficient to enable us to make
expenditures necessary for these purposes. In addition, the supply of
replacement vessels is very limited and the costs associated with acquiring a
newly constructed vessel are prohibitively high. In the event that Lower Lakes
were to lose the use of any its vessels, our financial performance would be
adversely affected.
Lower Lakes is subject to environmental laws that could require significant
expenditures both to maintain compliance with such laws and to pay for any
uninsured environmental liabilities resulting from a spill or other
environmental disaster.
The shipping business and vessel operation are materially affected by
government regulation in the form of international conventions, United States
and Canadian treaties, national, state, provincial, and local laws, and
regulations in force in the jurisdictions in which vessels operate. Because such
conventions, treaties, laws and regulations are often revised, Rand cannot
predict the ultimate cost of compliance or its impact on the resale price or
useful life of Lower Lakes' vessels. Additional conventions, treaties, laws and
regulations may be adopted which could limit Rand's ability to do business or
increase the cost of its doing business, which may materially adversely affect
its operations, as well as the shipping industry generally. Lower Lakes is
required by various governmental and quasi-governmental agencies to obtain
certain permits, licenses, and certificates with respect to its operations and
any increased cost in connection with obtaining such permits, licenses and
certificates, or the imposition on Lower Lakes of the obligation to obtain
additional permits, licenses and certificates, could adversely affect Rand's
results of operations.
Canada has adopted a regime of strict liability for oil pollution damage
coming out of ships (Part 6 of the Marine Liability Act). In case of non-tanker
vessels, such as Lower Lakes' vessels, a vessel's registered owner is strictly
liable for pollution damage caused on the Canadian territory, in Canadian
territorial waters or in Canada's exclusive economic zone by oil of any kind or
in any form including petroleum, fuel oil, sludge, oil refuse and oil mixed with
wastes, subject to certain defenses. The liability of the shipowner is, however,
limited in accordance with the provisions of the Convention on Limitation of
Liability for Maritime Claims, 1976, as amended by the Protocol of 1996.
Pursuant to this Convention, the shipowner can limit its liability to (i) 1
million Special Drawing Right, or SDR, as defined by the International Monetary
Fund for the first 2,000 tons of tonnage, (ii) 400 SDR for each additional ton
up to 30,000 tons of tonnage, (iii) 300 SDR for each additional ton up to 70,000
32
tons of tonnage and (iv) 200 SDR for each additional ton of tonnage. In addition
to the Marine Liability Act, Lower Lakes' vessels are also subject to other
Canadian laws and regulations that contain significant fine and penalty
provisions relating to the marine environment, pollution and discharges of
hazardous substances, including the Migratory Birds Convention Act, the Canadian
Environmental Protection Act, 1999, and the Fisheries Act.
The United States Oil Pollution Act of 1990, or OPA, established an
extensive regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in United States waters, which includes the Great Lakes and their
connecting and tributary waterways. Under OPA, vessel owners, operators and
bareboat charterers are "responsible parties" and are jointly, severally and
strictly liable (unless the spill results solely from the act or omission of a
third party, an act of God or an act of war) for all containment and clean-up
costs and other damages arising from vessel discharges of oil of any kind or in
any form.
Lower Lakes currently maintains pollution liability coverage insurance.
However, if the damages from a catastrophic incident exceed this insurance
coverage, it could have a significant adverse impact on Rand's cash flow,
profitability and financial position.
Lower Lakes is subject to vessel security regulations and will incur costs to
comply with recently adopted regulations and may be subject to costs to comply
with similar regulations which may be adopted in the future in response to
terrorism.
Since the terrorist attacks of September 11, 2001, there have been a
variety of initiatives intended to enhance vessel security. On November 25,
2002, the Maritime Transportation Security Act of 2002, or MTSA, came into
effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast
Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of
the United States. Similarly, in December 2002, amendments to the International
Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the
convention dealing specifically with maritime security. The new chapter went
into effect in July 2004, and imposes various detailed security obligations on
vessels and port authorities, most of which are contained in the newly created
ISPS Code. Among the various requirements are:
o on-board installation of automatic information systems, or AIS, to enhance
vessel-to-vessel and vessel-to-shore communications;
o the development of vessel security plans; and
o compliance with flag state security certification requirements.
The U.S. Coast Guard regulations are intended to be aligned with these
international maritime security standards. Although Rand does not believe these
additional requirements will have a material financial impact on Lower Lakes'
operations, Rand cannot assure you that there will be no interruption in
operations to bring vessels into compliance with the applicable requirements and
any such interruption could cause a decrease in revenues.
The operation of Lower Lakes' vessels is dependent on the price and availability
of fuel. Continued periods of historically high fuel costs may materially
adversely affect Rand's operating results.
Rand's operating results may be significantly impacted by changes in the
availability or price of fuel for Lower Lakes' vessels. Fuel prices have
increased substantially since 2004. Although price escalation clauses form part
of substantially all of Lower Lakes' contracts of affreightment, which enable
Lower Lakes to pass the majority of its increased fuel costs on to its
customers, these measures may not be sufficient to enable Lower Lakes to fully
recoup increased fuel costs or assure the continued availability of its fuel
supplies. Although we are currently able to obtain adequate supplies of fuel, it
is impossible to predict the price of fuel. Political disruptions or wars
involving oil-producing countries, changes in government policy, changes in fuel
production capacity, environmental concerns and other unpredictable events may
33
result in fuel supply shortages and additional fuel price increases in the
future. There can be no assurance that Lower Lakes will be able to fully recover
its increased fuel costs by passing these costs on to its customers. In the
event that Lower Lakes is unable to do so, Rand's operating results will be
adversely affected.
Governments could requisition Lower Lakes' vessels during a period of war or
emergency, resulting in loss of revenues and earnings from such requisitioned
vessels.
The United States or Canada could requisition title or seize Lower Lakes'
vessels during a war or national emergency. Requisition of title occurs when a
government takes a vessel and becomes the owner. A government could also
requisition Lower Lakes vessels for hire, which would result in the government's
taking control of a vessel and effectively becoming the charterer at a dictated
charter rate. Requisition of one or more of Lower Lakes' vessels would have a
substantial negative effect on Rand, as Rand would potentially lose all or
substantially all revenues and earnings from the requisitioned vessels and
permanently lose the vessels. Such losses might be partially offset if the
requisitioning government compensated Rand for the requisition.
The operation of Great Lakes-going vessels entails the possibility of marine
disasters including damage or destruction of the vessel due to accident, the
loss of a vessel due to piracy or terrorism, damage or destruction of cargo and
similar events that may cause a loss of revenue from affected vessels and damage
Lower Lakes' business reputation, which may in turn, lead to loss of business.
The operation of Great Lakes-going vessels entails certain inherent risks
that may adversely affect Lower Lakes' business and reputation, including:
o damage or destruction of vessel due to marine disaster such as a
collision;
o the loss of a vessel due to piracy and terrorism;
o cargo and property losses or damage as a result of the foregoing or less
drastic causes such as human error, mechanical failure and bad weather;
o environmental accidents as a result of the foregoing; and
o business interruptions and delivery delays caused by mechanical failure,
human error, war, terrorism, political action in various countries, labor
strikes or adverse weather conditions.
Any of these circumstances or events could substantially increase Lower
Lakes' costs, as for example, the costs of replacing a vessel or cleaning up a
spill, or lower its revenues by taking vessels out of operation permanently or
for periods of time. The involvement of Lower Lakes' vessels in a disaster or
delays in delivery or damages or loss of cargo may harm its reputation as a safe
and reliable vessel operator and cause it to lose business.
If Lower Lakes' vessels suffer damage, they may need to be repaired at
Lower Lakes' cost at a drydocking facility. The costs of drydock repairs are
unpredictable and can be substantial. Lower Lakes may have to pay drydocking
costs that insurance does not cover. The loss of earnings while these vessels
are being repaired and repositioned, as well as the actual cost of these
repairs, could decrease its revenues and earnings substantially, particularly if
a number of vessels are damaged or drydocked at the same time.
Maritime claimants could arrest Lower Lakes' vessels, which could interrupt its
cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of
cargo, and other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages against such vessel. In many jurisdictions,
a maritime lienholder may enforce its lien by arresting a vessel through
foreclosure proceedings. The arrest or attachment of one or more of Lower Lakes'
vessels could interrupt its cash flow and require it to pay large sums of funds
to have the arrest lifted.
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Risks Associated with Increasing Authorized Shares
Rand may issue shares of its common stock and preferred stock to complete a
future business combination, which would reduce the equity interest of Rand's
stockholders.
Rand's certificate of incorporation authorizes the issuance of up to
20,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
shares of preferred stock, par value $.0001 per share. Rand currently has
4,300,000 authorized but unissued shares of Rand's common stock available for
issuance (after appropriate reservation for the issuance of shares upon full
exercise of Rand's outstanding warrants) and all of the 1,000,000 shares of
preferred stock available for issuance. After giving effect to the issuance of
the series A convertible preferred stock contemplated by Rand in connection with
the acquisition, Rand will have 1,880,645 authorized but unissued shares of
Rand's common stock available for issuance (after appropriate reservation for
the issuance of shares upon full exercise of Rand's outstanding warrants and
conversion of the series A convertible preferred stock) and 700,000 shares of
preferred stock available for issuance. Although Rand currently has no other
commitments to issue any additional shares of its common or preferred stock,
Rand may in the future determine to issue additional shares of its common or
preferred stock to complete a business combination. The issuance of additional
shares of Rand's common stock or preferred stock may significantly reduce the
equity interest of stockholders and may adversely affect prevailing market
prices for Rand's common stock.
Risks if the Adjournment Proposal is not Approved
If the adjournment proposal is not approved, and an insufficient number of votes
have been obtained to approve the acquisition proposal and amendment proposal,
Rand's Board of Directors will not have the ability to adjourn the special
meeting to a later date in order to solicit further votes, and, therefore, the
acquisition proposal and amendment proposal will not be approved.
Rand's Board of Directors is seeking approval to adjourn the special
meeting to a later date if, at the special meeting, there are insufficient votes
to approve the acquisition proposal and amendment proposal. If the adjournment
proposal is not approved, Rand's Board of Directors will not have the ability to
adjourn the special meeting to a later date and, therefore, will not have more
time to solicit votes to approve the acquisition proposal and amendment
proposal. In such case, the acquisition proposal and the amendment proposal will
not be approved. Since approval of the acquisition by Rand's stockholders is a
condition to completion of the acquisition, the acquisition would not be
completed.
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FORWARD-LOOKING STATEMENTS
We believe that some of the information in this document constitutes
forward-looking statements within the definition of the Private Securities
Litigation Reform Act of 1995. You can identify these statements by
forward-looking words such as "may," "expect," "anticipate," "contemplate,"
"believe," "estimate," "intends," and "continue" or similar words. You should
read statements that contain these words carefully because they:
o discuss future expectations;
o contain information which could impact future results of operations
or financial condition; or
o state other "forward-looking" information.
We believe it is important to communicate our expectations to the Rand
stockholders. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors and
cautionary language discussed in this document provide examples of risks,
uncertainties and events that may cause actual results to differ materially from
the expectations described by Rand or Lower Lakes in its forward-looking
statements, including among other things:
o continued compliance with government regulations;
o legislation or regulatory environments, requirements or changes
affecting the businesses in which Lower Lakes is engaged;
o shipping industry trends, including charter hire rates and factors
affecting supply and demand;
o the age of, and need to provide repairs and upgrades to, Lower
Lakes' vessels;
o Lower Lakes' dependence on its key management personnel;
o credit or currency risks affecting Lower Lakes' revenue and
profitability; and
o general economic conditions.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this document.
All forward-looking statements included herein attributable to each of
Rand, Lower Lakes or any person acting on either party's behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Except to the extent required by applicable laws and
regulations, Rand and Lower Lakes undertake no obligations to update these
forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events.
Before you grant your proxy or instruct how your vote should be cast you
should be aware that the occurrence of the events described in the "Risk
Factors" section and elsewhere in this document could have a material adverse
effect on Rand or Lower Lakes.
36
THE RAND SPECIAL MEETING
Rand Special Meeting
We are furnishing this document to you as part of the solicitation of
proxies by Rand's Board of Directors for use at the special meeting called to
consider and vote upon the acquisition proposal, the amendment proposal and the
adjournment proposal. This document provides you with the information you need
to know to be able to vote or instruct your vote to be cast at the special
meeting.
Date, Time and Place
We will hold the special meeting at 10:00 a.m., eastern time, on February
28, 2006, at the offices of Katten Muchin Rosenman LLP, 575 Madison Avenue, New
York, New York, to vote on the adoption of the acquisition proposal, the
amendment proposal and the adjournment proposal.
Purpose of the Special Meeting
At the special meeting, we are asking holders of Rand common stock to:
o adopt the acquisition proposal and the amendments to Rand's
certificate of incorporation designed to ensure Rand's compliance
with the citizenship requirements of U.S. maritime laws after
completion of the acquisition;
o adopt the amendment proposal; and
o adopt the adjournment proposal.
Rand's Board of Directors:
o unanimously recommends that Rand common stockholders vote "FOR" the
acquisition proposal;
o unanimously recommends that Rand common stockholders vote "FOR" the
amendment proposal; and
o unanimously recommends that Rand common stockholders vote "FOR" the
adjournment proposal.
Adoption by Rand stockholders of the acquisition proposal is not
conditioned on the adoption of the amendment proposal or the adjournment
proposal. However, the adoption of the amendment proposal is conditioned upon
the adoption of the acquisition proposal.
Record Date; Who is Entitled to Vote
The record date for the special meeting is January 31, 2006. Record
holders of Rand common stock at the close of business on the record date are
entitled to vote or have their votes cast at the special meeting. On the record
date, there were 5,600,000 outstanding shares of Rand common stock.
Each share of Rand common stock is entitled to one vote at the special
meeting.
Rand's initial stockholders have agreed to vote their 1,000,000 shares of
Rand common stock acquired prior to Rand's initial public offering, representing
an aggregate of approximately 17.9% of the outstanding shares of Rand common
stock, in accordance with the vote of the majority of the shares of Rand common
stock issued in its initial public offering. In addition, one of Rand's initial
stockholders who owns 250,000 of common stock issued in Rand's initial public
offering, representing approximately 4.5% of the outstanding shares of Rand
common stock, and approximately 5.4% of the shares issued in Rand's initial
public offering, intends to vote such shares "FOR" the adoption of the
acquisition proposal. The initial stockholders intend to vote all of their
shares of Rand common stock, representing an aggregate of approximately 22.3% of
the outstanding shares of Rand common stock, "FOR" the amendment proposal and
the adjournment proposal.
37
Rand's issued and outstanding warrants do not have voting rights and
record holders of Rand warrants will not be entitled to vote at the special
meeting.
Voting Your Shares
Each share of Rand common stock that you own in your name entitles you to
one vote. Your proxy card shows the number of shares of Rand common stock that
you own.
There are two ways to vote your shares of Rand common stock at the special
meeting:
o You can vote by signing and returning the enclosed proxy card. If
you vote by proxy card, your "proxy," whose name is listed on the
proxy card, will vote your shares as you instruct on the proxy card.
If you sign and return the proxy card but do not give instructions
on how to vote your shares, your shares will be voted as recommended
by Rand's Board "FOR" the adoption of the acquisition proposal, the
amendment proposal and the adjournment proposal.
o You can attend the special meeting and vote in person. We will give
you a ballot when you arrive. However, if your shares are held in
the name of your broker, bank or another nominee, you must get a
proxy from the broker, bank or other nominee. That is the only way
we can be sure that the broker, bank or nominee has not already
voted your shares.
IF YOU DO NOT VOTE YOUR SHARES OF RAND COMMON STOCK IN ANY OF THE WAYS
DESCRIBED ABOVE, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE ADOPTION OF
THE ACQUISITION PROPOSAL, THE AMENDMENT PROPOSAL AND THE ADJOURNMENT PROPOSAL
BUT WILL NOT HAVE THE EFFECT OF A DEMAND OF CONVERSION OF YOUR SHARES INTO A PRO
RATA SHARE OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF THE PROCEEDS
OF RAND'S INITIAL PUBLIC OFFERING ARE HELD. TO EXERCISE YOUR CONVERSION RIGHTS,
YOU MUST AFFIRMATIVELY ELECT TO CONVERT YOUR SHARES BY CHECKING THE APPROPRIATE
BOX, OR DIRECTING YOUR BROKER TO CHECK THE APPROPRIATE BOX, ON THE PROXY CARD
AND ENSURE THAT THE PROXY CARD IS DELIVERED PRIOR TO THE RAND SPECIAL MEETING.
Who Can Answer Your Questions About Voting Your Shares
If you have questions, you may write, e-mail or call Morrow & Co., Inc.,
470 West Avenue - 3rd Floor, Stamford, CT 06902, E-mail: Rand.info@morrowco.com.
Banks and Brokerage Firms, please call (203) 658-9400. Stockholders, please call
(800) 607-0088.
No Additional Matters May Be Presented at the Special Meeting
This special meeting has been called only to consider the adoption of the
acquisition proposal, the amendment proposal and the adjournment proposal. Under
Rand's by-laws, other than procedural matters incident to the conduct of the
meeting, no other matters may be considered at the special meeting, if they are
not included in the notice of the meeting.
In addition, representatives of Rand's accountants are not expected to be
present at the special meeting and accordingly will not make any statement or be
available to respond to any questions.
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before it is exercised
by doing any one of the following:
38
o You may send another proxy card with a later date;
o You may notify Laurence S. Levy, Rand's chairman and chief executive
officer, in writing before the special meeting that you have revoked
your proxy; and
o You may attend the special meeting, revoke your proxy, and vote in
person.
Vote Required to Adopt the Acquisition Proposal
The affirmative vote of a majority of the issued and outstanding shares of
Rand's common stock is required to adopt the acquisition proposal. Adoption of
the acquisition proposal also requires the affirmative vote of a majority of the
shares of Rand's common stock issued in its initial public offering, which we
sometimes refer to as the IPO shares. No vote of the warrant holders is
necessary to adopt the acquisition proposal, and Rand is not asking the warrant
holders to vote on the acquisition proposal. Adoption of the acquisition
proposal is not conditioned upon the adoption of the amendment proposal or
adjournment proposal. However, if the holders of more than 230,000 IPO shares,
or more than 5% of the total number of IPO shares, demand conversion of their
shares into their pro rata portion of the trust account, then Rand will not
consummate the acquisition because conversions in excess of such amount could
result in Rand's cash balances being insufficient to enable Rand to make the
equity contribution required under the loan facility obtained by Rand to finance
the acquisition. See "Conversion Rights" below.
A Rand stockholder who votes in favor of the acquisition proposal is also
voting to adopt amendments to Rand's certificate of incorporation designed to
ensure Rand's compliance with the citizenship requirements of U.S. maritime
laws, including the Shipping Act, 1916, and the Merchant Marine Act, 1920,
commonly referred to as the Jones Act, after completion of the acquisition.
At the close of business on February 1, 2006, there were 5,600,000 shares
of Rand common stock outstanding, 4,600,000 of which were issued in Rand's
initial public offering.
Rand's initial stockholders have agreed to vote their 1,000,000 shares of
Rand common stock acquired prior to Rand's initial public offering, representing
an aggregate of approximately 17.9% of the outstanding shares of Rand common
stock, in accordance with the vote of the majority of the shares of Rand common
stock issued in its initial public offering. In addition, one of Rand's initial
stockholders who owns 250,000 of common stock issued in Rand's initial public
offering, representing approximately 4.5% of the outstanding shares of Rand
common stock, and approximately 5.4% of the shares issued in Rand's initial
public offering, intends to vote such shares "FOR" the adoption of the
acquisition proposal.
Conversion Rights
As provided in Rand's certificate of incorporation, holders of IPO shares
may, if the stockholder votes against the acquisition, demand that Rand convert
their shares into cash. This demand must be made on the proxy card at the same
time that the stockholder votes against the acquisition proposal. If so
demanded, Rand will convert each share of common stock into a pro rata portion
of the trust account in which $23,736,000 of the net proceeds of Rand's initial
public offering are held, plus interest earned thereon. Based on the amount of
cash held in the trust account at January 25, 2006, you will be entitled to
convert each share of common stock that you hold into approximately $5.33. If
you exercise your conversion rights, then you will be exchanging your shares of
Rand's common stock for cash and will no longer own these shares. You will only
be entitled to receive cash for these shares if you continue to hold these
shares through the closing date of the acquisition and then tender your stock
certificate to Rand. If the acquisition is not completed, then these shares will
not be converted into cash.
The acquisition will not be consummated if the holders of more than
230,000 IPO shares, or more than 5% of the total number of IPO shares, exercise
their conversion rights. Although Rand's certificate of incorporation would
permit Rand to complete the acquisition so long as holders of less than 20% of
the IPO shares of common stock issued in Rand's initial public offering were to
demand conversion of their shares into cash, Rand will not be able to complete
the acquisition if holders of more than 5% of the IPO shares demand conversion
39
of their shares because conversions in excess of such amount could result in
Rand's cash balances being insufficient to enable Rand to make the equity
contribution required under the loan facility obtained by Rand to finance the
acquisition.
The reduced limit on conversions arises out of the determination of Rand's
Board of Directors to obtain only enough financing as is minimally necessary to
consummate the Lower Lakes acquisition, while basing how much financing would
minimally be necessary on the assumption that holders of only a negligible
number of IPO shares would exercise their conversion rights. Moreover, the Board
determined to limit conversions to 5% even though after application of the
amounts set forth below estimated by the Board to be required to consummate the
acquisition, Rand would have cash balances capable of satisfying conversions of
over 9% of the IPO shares. Rand's Board made these determinations based on their
belief that holders of only a negligible number of IPO shares would exercise
their conversion rights and in order to ensure that sufficient cash would be
available to consummate the acquisition in the event that the Board
underestimated the amount that would be so required.
Under the new senior loan facility obtained by Rand in connection with the
Lower Lakes acquisition, Rand will be required to make a closing date equity
contribution to LL Acquisition Corp. of an amount necessary to fund the
following: the approximately $8,680,000 purchase price for the shares of Lower
Lakes, the $750,000 redemption price for the shares of Grand River,
approximately $3,500,000 of transaction expenses, approximately $2,500,000 of
working capital and winter work reserves and approximately $21,800,000 towards
the retirement of Lower Lakes' closing date indebtedness. After making payments
in respect of IPO share conversions, Rand will fund the required equity
contribution with the amount held in the trust account as of the closing date of
the acquisition (approximately $24,500,000 as of January 25, 2006) and the
$15,000,000 of proceeds of the closing date issuance of its series A convertible
preferred stock. Based on the foregoing estimates of the components of the
required equity contribution, approximately $2,225,000 of the foregoing sources
of capital to Rand will not be needed to satisfy the equity contribution. Based
on the amount of cash held in the trust account at January 25, 2006, each IPO
share with respect to which conversion rights are exercised would be entitled to
receive approximately $5.33, resulting in aggregate payments of approximately
$1,226,000 if holders of 5% of the IPO shares elect to convert their shares. In
light of the anticipated amount of the closing date equity contribution required
by the new senior loan facility, Rand's Board of Directors determined that
conversions in excess of 5% of the IPO shares would put at risk Rand's ability
to complete the acquisition.
Rand's Board of Directors believes that proposing a business combination
with an effective limit on the number of IPO shares that may be converted is
consistent with the terms of Rand's certificate of incorporation as well as the
terms of Rand's initial public offering. Rand's Board believes that Rand's
certificate of incorporation permits Rand to complete an initial business
combination that has been approved by the requisite vote of shareholders as long
as holders of not more than 19.99% of the IPO shares exercise their conversion
rights, and that such maximum level of permissible conversions does not afford
stockholders the right to demand conversions of 19.99%. Rand's Board of
Directors also believes that the disclosure pertaining to the 20% conversion
limit contained in the prospectus relating to Rand's initial public offering is
consistent with the prohibition contained in the certificate of incorporation.
In that regard, the Board views statements included in the prospectus such as
"... 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." (page F-8 of the prospectus), and the fact that the pro
forma net tangible book value of Rand's shares included in the prospectus
assumes conversion of 19.99% of the IPO shares, not as a requirement or
implication that conversions of up to 19.99% would in all cases be accommodated,
but as descriptions and illustrations of the maximum level of conversions that
under any circumstances could be permitted in the context of Rand's initial
business combination.
Prior to exercising conversion rights, Rand stockholders should verify the
market price of Rand's common stock as they may receive higher proceeds from the
sale of their common stock in the public market than from exercising their
conversion rights. Rand's shares of common stock are listed on the
Over-the-Counter Bulletin Board under the symbol RAQC.
Vote Required to Adopt the Amendment Proposal
Adoption of the amendment proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Rand's common stock. No vote of
the warrant holders is necessary to adopt the amendment proposal, and Rand is
not asking the warrant holders to vote on the amendment proposal. Adoption of
the amendment proposal is conditioned upon the adoption of the acquisition
proposal but is not conditioned on adoption of the adjournment proposal.
Rand's initial stockholders intend to vote their shares of Rand common
stock, representing an aggregate of approximately 22.3% of the outstanding
shares of Rand common stock, "FOR" the amendment proposal.
Vote Required to Adopt the Adjournment Proposal
40
Adoption of the adjournment proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Rand's common stock. No vote of
the warrant holders is necessary to adopt the adjournment proposal, and Rand is
not asking the warrant holders to vote on the adjournment proposal. Adoption of
the adjournment proposal is not conditioned upon the adoption of the acquisition
proposal or the amendment proposal.
Rand's initial stockholders have agreed to vote their shares of Rand
common stock, representing an aggregate of approximately 22.3% of the
outstanding shares of Rand common stock, "FOR" the adoption of the adjournment
proposal.
If you abstain from voting or do not vote, either in person or by proxy or by
voting instruction, it will have the same effect as a vote against the adoption
of the acquisition proposal, the amendment proposal and the adjournment
proposal, but not as a demand of conversion of your shares into a pro rata
portion of the trust account in which the proceeds of Rand's initial public
offering are held. To exercise you conversion rights, you must affirmatively
elect to convert your shares by checking the appropriate box, or directing your
broker to check the appropriate box, on the proxy card and ensure that the proxy
card is delivered prior to the Rand special meeting.
Broker Non-Votes
If your broker holds your shares in its name and you do not give the
broker voting instructions, under the rules of the NASD, your broker may not
vote your shares on the acquisition proposal, the amendment proposal or the
adjournment proposal. If you do not give your broker voting instructions and the
broker does not vote your shares, this is referred to as a "broker non-vote."
Abstentions or broker non-votes have the same effect as a vote "against" the
acquisition proposal, the amendment proposal and the adjournment proposal, but
will not have the effect of electing to exercise your conversion rights. To
exercise you conversion rights, you must affirmatively elect to convert your
shares by checking the appropriate box, or directing your broker to check the
appropriate box, on the proxy card and ensure that the proxy card is delivered
prior to the Rand special meeting.
Solicitation Costs
Rand will bear all expenses incurred in connection with the solicitation
of proxies. Rand will, upon request, reimburse brokerage firms and other nominee
holders for their reasonable expenses incurred in forwarding the proxy
solicitation materials to the beneficial owners of our shares. Our officers and
directors may solicit proxies by mail, personal contact, letter, telephone,
telegram, facsimile or other electronic means. They will not receive any
additional compensation for those activities, but they may be reimbursed for
their out-pocket-expenses. In addition, we have hired Morrow & Co., Inc. to
solicit proxies on our behalf. The cost of soliciting proxies on our behalf will
be approximately $5,000 plus costs and expenses.
Stock Ownership
At the close of business on the record date, Laurence S. Levy, Isaac Kier
and Sandeep D. Alva, who together comprise all of Rand's directors and executive
officers, together with their affiliates, beneficially owned and were entitled
to vote 1,250,000 shares of Rand common stock, or approximately 22.3% of the
outstanding shares of Rand common stock. Such number does not include 1,407,000
shares of common stock issuable upon exercise of warrants held by Rand's
executive officers and directors. These shares have a market value of
approximately $7,000,000 based on Rand's common stock price of $5.60 per share
as of January 27, 2006. Those persons have agreed to vote their 1,000,000 shares
of common stock acquired by them prior to the initial public offering in
accordance with the vote of the majority of the shares issued in connection with
Rand's initial public offering. Mr. Levy is currently chairman of the Board of
Directors and Chief Executive Officer of Rand. Messrs. Kier and Alva are
directors of Rand. For more information on beneficial ownership of Rand's common
stock by executive officers, directors and 5% stockholders, see "Beneficial
Ownership of Securities."
41
THE ACQUISITION PROPOSAL
The discussion in this document of the acquisition and the principal terms
of the Stock Purchase Agreement, dated as of September 2, 2005, by and among
Rand, Rand LL Acquisition Corp., an indirect wholly-owned subsidiary of Rand,
and the stockholders of Lower Lakes, as amended, is subject to, and is qualified
in its entirety by reference to, the Stock Purchase Agreement, as amended
December 29, 2005. A copy of the Stock Purchase Agreement and amendment thereto
is attached as Annex A to this document and is incorporated in this document by
reference.
General Description of the Acquisition
The acquisition involves the purchase all of the outstanding shares of
capital stock of Lower Lakes by LL Acquisition Corp.
Background of the Acquisition
The terms of the Stock Purchase Agreement are the result of arm's-length
negotiations between representatives of Rand and Lower Lakes. The following is a
brief discussion of the background of these negotiations, the acquisition and
related transactions.
Rand is a blank check company organized as a corporation under the laws of
the State of Delaware on June 2, 2004. On November 2, 2004, Rand successfully
consummated an initial public offering of its equity securities from which it
derived net proceeds of approximately $24,605,000. Rand's common stock, warrants
to purchase common stock and units consisting of one share of common stock and
two warrants to purchase common stock are listed on the Over-the-Counter
Bulletin Board under the symbols RAQC, RAQCW and RAQCU, respectively.
$23,736,000 of the net proceeds of the initial public offering was placed in a
trust account and will be released to Rand upon consummation of the acquisition
or upon the liquidation of Rand. Subsequent to its initial public offering,
Rand's officers and directors commenced an active search for a prospective
operating business. Other than its initial public offering and the pursuit of a
business combination, Rand has not engaged in any business to date. If Rand does
not consummate a business combination by the later of April 27, 2006, or October
27, 2006 in the event that a letter of intent, an agreement in principle or a
definitive agreement to complete a business combination was executed but not
consummated by April 27, 2006, then, pursuant to article sixth of its
certificate of incorporation, as amended, Rand's officers must take all actions
necessary to dissolve and liquidate Rand within 60 days. As of January 25, 2006,
approximately $24,500,000, including interest, was held on deposit in the trust
account.
LL Acquisition Corp. is a Canadian corporation and a wholly-owned
subsidiary of Rand LL Holdings Corp. formed solely for purposes of the
acquisition. Rand LL Holdings Corp. is a Delaware corporation and a wholly-owned
subsidiary of Rand formed solely for purposes of the acquisition.
Lower Lakes, a Canadian corporation, provides bulk freight shipping
services throughout the Great Lakes region. Lower Lakes Transportation Company,
a Delaware corporation, is a wholly-owned operating subsidiary of Lower Lakes.
Grand River Navigation Company, Inc., a Delaware corporation, is 25% owned by
Lower Lakes and owns or charters the vessels used in Lower Lakes
Transportation's business operations.
Following its initial public offering in November 2004, Rand contacted
several investment banks, private equity firms and business brokers in an effort
to identify a suitable target company for an acquisition. One such institution,
NatCity Investments, Inc., located in Cleveland, Ohio, was contacted by
telephone on or about February 1, 2005 by Laurence Levy, Rand's Chief Executive
Officer. Mr. Levy was introduced to NatCity Investments by NatCity Investment's
commercial lending affiliates with whom Mr. Levy, through his affiliates, has
engaged in commercial loan transactions with respect to unrelated investments.
Neither Mr. Levy nor any other officer or director of Rand has ever had any
association with NatCity Investments.
During the fourth quarter of 2004, Lower Lakes decided to engage NatCity
Investments to conduct a managed sale process to identify a buyer for Lower
Lakes' business and close a transaction that would be acceptable to Lower Lakes'
stockholders. NatCity Investments identified potential strategic and financial
buyers, foreign and domestic, and, during the first and second quarters of 2005,
contacted 248 potential buyers. 106 potential buyers that expressed interest in
a potential transaction with Lower Lakes executed confidentiality agreements
before receiving additional materials on Lower Lakes.
42
Rand was contacted by NatCity Investments on February 18, 2005 and, having
expressed interest in a possible transaction, signed a confidentiality agreement
on February 22, 2005. Prior to being contacted by NatCity Investments on
February 18, 2005, no officer or director of Rand was aware of Lower Lakes or
the fact that the owners of Lower Lakes desired to sell their interests in Lower
Lakes. NatCity Investments provided Rand with additional materials on Lower
Lakes and its business, including an executive summary containing historical
operating and financial performance for Lower Lakes and audited and unaudited
financial statements for Lower Lakes. Rand also made general inquiries of
industry consultants with respect to the business environment in which Lower
Lakes operates, Lower Lakes' competitive position within its market and Lower
Lakes' management and operational capabilities.
On March 11, 2005, based on the materials provided by NatCity Investments
and other preliminary due diligence conducted by Rand, Rand submitted a
non-binding proposal to acquire Lower Lakes. The proposal contemplated the
acquisition of Lower Lakes business and assets for $60 million, payable $56
million in cash and $4 million in Rand common stock. NatCity indicated to Rand
that the Rand proposal would be considered together with proposals from other
potential buyers of Lower Lakes.
On April 6, 2005, Laurence Levy, Rand's Chairman and Chief Executive
Officer, Isaac Kier, a member of Rand's Board of Directors and Edward Levy,
special advisor to Rand's Board of Directors, together with representatives of
Macquarie Securities (USA) Inc., Rand's financial advisor, traveled to
Cleveland, Ohio to meet with Lower Lakes' management team, ownership
representatives and NatCity Investments. At the April 6 meeting, Scott Bravener
and other representatives of Lower Lakes' management made a presentation on
Lower Lakes business, operational metrics and financial performance. Following
the meeting, Rand continued to correspond with NatCity Investments in order to
gain additional insight into the operations and financial performance of Lower
Lakes' business. In addition to Rand, NatCity and Lower Lakes' management made
presentations to three other entities.
Having gained a better understanding of Lower Lakes business, Rand revised
its proposal to provide for the acquisition of the business and assets of Lower
Lakes for $57 million, payable $53 million in cash and $4 million in Rand common
stock. On April 14, 2005, Rand and Lower Lakes signed a non-binding letter of
intent setting forth the basic terms of a possible business combination and
providing Rand with a thirty day exclusivity period during which Lower Lakes
would not consider other acquisition offers and during which Rand would continue
its due diligence investigation of Lower Lakes. The terms of a possible business
combination contained in the letter of intent were based on certain assumptions
concerning the business, financial condition, and ownership of Lower Lakes. The
acquisition terms ultimately provided in the Stock Purchase Agreement are not
materially different than the terms contained in the letter of intent except:
o The $57,000,000 purchase price contained in the letter of intent was
reduced to $53,730,000 in the Stock Purchase Agreement;
o Rand agreed to adopt a $3 million management bonus program (payable
in cash or stock at the option of Rand) for the benefit of certain
members of Lower Lakes' management after the acquisition;
o The $4 million component of the purchase price contemplated by the
letter of intent to be paid in Rand common stock was eliminated in
the Stock Purchase Agreement and Rand agreed to pay the full
purchase price in cash; and
o The "roll-over" by Lower Lakes' management of their equity position
in Lower Lakes into common stock of Rand, as contemplated by the
letter of intent, was eliminated in the Stock Purchase Agreement due
to tax and other considerations, and replaced with the management
bonus program noted above.
43
Following the signing of the letter of intent, NatCity and Lower Lakes
provided Rand access to a significant amount of due diligence information. On
April 22, 2005 members of the Lower Lakes' management and a representative from
NatCity Investments met with Rand at its offices in New York to further discuss
Lower Lakes and formally begin due diligence review of Lower Lakes by Rand and
its advisors. Between April 22 and September 2, 2005, Rand and its advisors
engaged in extensive due diligence of Lower Lakes, including a thorough
financial, tax, legal and operational review of Lower Lakes' business,
facilities and vessels.
The exclusivity period contained in the letter of intent was extended on
successive occasions through September 2, 2005, the date on which the Stock
Purchase Agreement was signed by the parties.
Between June 7 and September 2, 2005, Rand and Lower Lakes and their
respective legal and financial advisors conducted extensive negotiations of the
principal business and legal terms and conditions contained in the Stock
Purchase Agreement, including at a meeting at Lower Lakes' counsel's offices in
Toronto on July 25, 2005 attended by Laurence Levy and Rand's legal counsel,
Scott Bravener and representatives of Lower Lakes' stockholders, their legal
counsel and representatives of NatCity Investments.
On August 12, 2005, Rand's Board of Directors met by conference telephone
call to discuss the terms of the prospective acquisition and related financing
transactions.
On August 29, 2005, Rand's Board of Directors met by conference telephone
call to again discuss the terms of the prospective acquisition and related
financing transactions. At this telephonic meeting, representatives of Houlihan
Smith & Company Inc., Rand's financial advisor retained to render its opinion as
to the fairness of the acquisition and related preferred stock issuance and
other matters, presented a summary of their analyses and findings and orally
rendered its opinion that the purchase price to be paid in the acquisition and
the issuance price of the series A convertible preferred stock were each fair,
from a financial point of view, to Rand's stockholders (other than, in the case
of the series A convertible preferred stock issuance price, to the purchaser of
the series A convertible preferred stock), and that the fair market value of
Lower Lakes is at least equal to 80% of Rand's net assets. Based on its review
of the terms of the acquisition and related financing transactions, and based on
the Houlihan opinion and other matters discussed below, Rand's Board of
Directors unanimously approved the acquisition and related financing
transactions and authorized the execution of the Stock Purchase Agreement, the
Preferred Stock Purchase Agreement and the other documents related to the
acquisition.
On September 2, 2005, after the close of business, Rand and the
stockholders of Lower Lakes entered into the Stock Purchase Agreement and
related agreements, and on September 6, 2005 publicly announced their agreement
through a joint press release. On December 29, 2005, the parties to the Stock
Purchase Agreement amended the agreement to extend the date after which a party
may terminate the agreement from January 15, 2006 to January 31, 2006, and to
amend the working capital purchase price adjustment therein to provide for an
effective closing date of January 15, 2006. On January 30, 2006, the parties to
the Stock Purchase Agreement further amended the agreement to extend the date
after which a party may terminate the agreement from January 31, 2006 to
February 28, 2006.
Following the April 6, 2005 Lower Lakes' management presentation to Rand
and its advisors, Rand retained Macquarie Securities (USA) Inc. to advise Rand
on sourcing capital to consummate the Lower Lakes acquisition. Rand and
Macquarie conducted discussions, meetings and presentations with numerous
potential lenders including banks, corporate finance groups, hedge funds, and
institutional lenders. Rand received numerous proposals to fund the acquisition,
and after negotiating the terms of such proposals to improve their terms and
flexibility, Rand's management determined with Macquarie's assistance that the
most attractive financing proposals were the senior debt proposal from GE
Commercial & Industrial Finance, Inc. and the series A convertible preferred
stock proposal from Knott Partners L.P. and Bay Resource Partners L.P. Rand
management's determination was based on cost, terms, certainty of closing,
ability to grow with Rand and other factors. The terms of the senior debt
facility and series A convertible preferred stock issuance are described below
under "Acquisition Financing" on page 81.
Factors Considered by the Rand Board in Approving the Acquisition
In approving the Stock Purchase Agreement, Rand's Board of Directors
relied on financial and other information relating to Lower Lakes, the
regulatory environment and the industry fundamentals. Rand's Board of Directors
considered a wide variety of factors in connection with its evaluation of the
acquisition. In light of the complexity of those factors, the Rand Board did not
44
consider it practical to, nor did it attempt to, quantify or otherwise assign
relative weights to the specific factors it considered in reaching its decision.
In addition, individual members of the Rand Board may have given different
weight to different factors.
Rand's Board of Directors considered the factors below, in addition to the
Risk Factors described starting on page 25 above, in reaching its conclusion to
adopt the Stock Purchase Agreement and approve the acquisition.
Competitive Position in Market with Significant Barriers to Entry
An important criteria to Rand's Board of Directors was its belief that
Lower Lakes has positioned itself as a leader in the River Class market segment.
River Class vessels, which are smaller than most commercial ships on the Great
Lakes, allow access to many ports that are not accessible by the majority of
shipping vessels. Rand's Board believes that Lower Lakes operates more than
one-third of all River Class vessels serving the Great Lakes and the majority of
boom-forward River Class vessels.
In addition, Rand's Board believes that Lower Lakes' market position is
protected by a combination of formidable regulatory requirements - the Shipping
Act, 1916, the Merchant Marine Act, 1920, commonly referred to as the Jones Act,
and the Coasting Trade Act (Canada) - as well as the costs associated with
building or acquiring new vessels.
Efficient Operations
Another important criteria to Rand's Board of Directors was its belief
that Lower Lakes is able to operate more efficiently than other industry
participants, principally as a result of the versatility of the Lower Lakes'
fleet and Lower Lakes' cargo mix, which provide Lower Lakes the opportunity to
match production with customer inventory needs through flexible scheduling.
Rand's Board also believes that Lower Lakes is more efficient than its
competitors with regard to the speed at which it loads and unloads cargo.
Moreover, Rand's Board believes that Lower Lakes' ability to schedule outbound
and backhaul segments of voyages serves to improve capacity utilization of the
fleet. For instance, Lower Lakes may ship stone aggregates from Lake Huron to
Lake Erie and return to Lake Huron with a backhaul shipment of coal, salt, or
another bulk commodity.
Long-Term Relationships with Customers in Diverse End Markets
Another important criteria to Rand's Board of Directors was its belief
that Lower Lakes has built long-term relationships with a diverse customer base.
Lower Lakes services approximately 50 customers in a diverse array of end
markets by shipping a wide range of dry bulk commodities such as construction
aggregates, coal, grain, iron ore, and salt. Lower Lakes is the sole-source
shipping provider to several of its significant customers. Lower Lakes enjoys a
recurring revenue stream through long-term contracts with many of its key
customers.
Strong Financial Performance Characterized by Predictable Cash Flows
Another important criteria to Rand's Board of Directors was the
consistently strong financial performance of Lower Lakes. Rand's Board believes
that Lower Lakes' cash flow generation is expected to continue for the
foreseeable future. In fiscal year 2005, approximately 88% of Lower Lakes'
annual capacity will be utilized under long term customer contracts. In fiscal
year 2006, Lower Lakes anticipates that this utilization will increase to
approximately 92%. Based on Lower Lakes' historical operations, Rand's Board
also believes that remaining fleet capacity could be filled with tonnage on the
spot market.
Lower Lakes' Record of Growth and Expansion and Potential for Future
Growth
Another important criteria to Rand's Board of Directors was Lower Lakes
history of growth through acquisitions of additional vessels. Since 1999, Lower
Lakes has added seven cargo-carrying vessels to its fleet, resulting in dramatic
increases in revenue and net income. Rand's Board believes that Lower Lakes is
positioned to continue its growth through acquisition of additional market share
within the dry bulk shipping industry, including through the acquisition of
additional vessels.
45
The Experience of Lower Lakes' Management
Another important criteria to Rand's Board of Directors was its belief in
the strength and experience of Lower Lakes' management team and its ability to
develop strong customer relationships and operate the business on an efficient
basis.
Rand's Board of Directors believes that each of the above factors strongly
supported its determination and recommendation to approve the acquisition.
Rand's Board of Directors did, however, consider the Risk Factors, among others,
in its deliberations concerning the acquisition. See "Risk Factors" on page 25.
Rand's Board of Directors, in determining to recommend the acquisition,
concluded that these potentially negative factors were outweighed by the
potential benefits of the acquisition, including the opportunity for Rand
stockholders to share in Lower Lakes' future possible growth and anticipated
profitability.
Fairness Opinion
In addition to the factors listed above and the Risk Factors described
starting on page 25 above, Rand's Board of Directors considered the Fairness
Opinion described below in reaching its conclusion to approve the acquisition.
Houlihan Smith & Company Inc. acted as financial advisor to Rand in
connection with the Lower Lakes acquisition. Houlihan delivered its written
opinion to Rand's Board of Directors on August 30, 2005, which stated that, as
of such date, and based upon and subject to the assumptions made, matters
considered, and limitations on its review as set forth in the opinion, the
consideration to be paid in the acquisition is fair, from a financial point of
view, to Rand's stockholders. The full text of the written opinion of Houlihan
is attached as Annex H and is incorporated by reference into this document.
o You are urged to read the Houlihan opinion carefully and in its
entirety for a description of the assumptions made, matters
considered, procedures followed and limitations on the review
undertaken by Houlihan in rendering its opinion.
o The Houlihan opinion is not intended to be and does not constitute a
recommendation to you as to how you should vote with respect to the
acquisition. Houlihan was not requested to opine as to, and its
opinion does not address, Rand's underlying business decision to
proceed with or effect the acquisition.
In arriving at its opinion, Houlihan took into account an assessment of general
economic, market and financial conditions, as well as its experience in
connection with similar transactions and securities valuations generally. In so
doing, among other things, Houlihan:
o reviewed the draft Stock Purchase Agreement among Rand, LL
Acquisition Corp., and the stockholders of Lower Lakes, and a draft
Redemption Agreement among Grand River Holdings, Inc. and Grand
River Navigation Company, Inc.;
o reviewed Lower Lakes' (and Lower Lakes Transportation Company's)
audited financial statements prepared by Deloitte & Touche LLP for
the three fiscal years ending March 31, 2003, March 31, 2004, and
March 31, 2005;
o reviewed unaudited financial statements prepared by Lower Lakes'
management for the interim three-month period ending June 30, 2005.
Houlihan also reviewed Lower Lakes' trailing twelve-month income
statements for the period ending June 30, 2005;
o reviewed certain of Rand's public filings with the United States
Securities and Exchange Commission, including Rand's registration
statement on Form S-1 and its most recent filings on Form 10-KSB and
Form 10-QSB;
46
o reviewed the terms and issuance of the Rand's series A convertible
preferred stock as provided in the draft Preferred Stock Purchase
Agreement and the Certificate of Designations in respect of the
series A convertible preferred stock;
o reviewed various publications and research reports relating to the
bulk freight shipping and marine transportation industries;
o held discussions with members of Lower Lakes' executive management
with respect to the historical and current financial condition and
operating results of Lower Lakes, as well as the historical business
and future prospects of Lower Lakes following the acquisition;
o compared Lower Lakes from a financial point of view with certain
other guideline public companies in the bulk freight and
transportation industries that Houlihan deemed to be relevant;
o conducted due diligence discussions with third parties, including
investment bankers familiar with marine towing and transportation
industries and the public and private debt/equity markets;
o compared the proposed financial terms of the issuance of Rand's
series A convertible preferred stock, with the financial terms of
certain financial restructurings and equity and subordinated debt
issuances that Houlihan deemed relevant; and
o conducted such other studies, analyses, inquires and investigations
as Houlihan deemed relevant and appropriate.
In arriving at its opinion, Houlihan relied upon and assumed the accuracy,
completeness and reasonableness of all of the financial and other information
that was used without assuming any responsibility for any independent
verification of any such information. Houlihan also relied upon the assurances
of Rand's management that it is not aware of any facts or circumstances that
would make any such information incomplete or misleading. Houlihan assumed that
any financial model reviewed by them was reasonably prepared on a basis
reflecting the best currently available estimates and information as of August
30, 2005. Houlihan also assumed that any draft acquisition or redemption
documents which it reviewed contained all material economic terms of the final
agreements to be executed.
In connection with rendering its opinion, Houlihan performed certain
financial, comparative and other analyses as summarized below. In arriving at
its opinion, Houlihan did not ascribe a specific range of values to Lower Lakes,
but rather made its determination as to the fairness on the basis of financial
and comparative analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial and
comparative analysis and the application of those methods to the particular
circumstances. Therefore, such an opinion is not readily susceptible to summary
description. Accordingly, Houlihan believes that its analyses must be considered
as a whole and that considering any portion of such analyses and factors,
without considering all analyses and factors as a whole, could create a
misleading or incomplete view of the process underlying its opinion. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
Houlihan's opinion is necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, August 30, 2005.
Accordingly, although subsequent developments may affect its opinion, Houlihan
has not assumed any obligation to update, review or reaffirm its opinion.
Each of the analyses conducted by Houlihan was carried out to provide a
different perspective on the transaction, and to enhance the total mix of
information available. Houlihan did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support its
opinion. Further, the summary of Houlihan's analyses described below is not a
complete description of the analyses underlying Houlihan's opinion.
The analyses performed were prepared solely as part of Houlihan's analysis
of the fairness, and were provided to Rand's Board of Directors in connection
with the delivery of Houlihan's opinion. The opinion of Houlihan was just one of
the many factors taken into account by Rand's Board in making its determination
to approve the transaction, including those described elsewhere in this
document.
47
The financial review and analyses include information presented in tabular
format. To fully understand Houlihan's financial review and analyses, the tables
must be read together with the text presented. The tables alone are not a
complete description of the financial review and analyses and considering the
tables alone could create a misleading or incomplete view of Houlihan's
financial review and analyses.
Valuation Overview
Based upon a review of the historical and projected financial data and
certain other qualitative data for Lower Lakes, Houlihan utilized the income
approach - discounted cash flow method and the market approach - public
guideline company method to determine a range of values for Lower Lakes, which
were then weighted 50% each to determine an overall indicated enterprise value
for Lower Lakes. The high, low and midpoint value derived through these analyses
is set forth below.
- ----------------------------------------------------------------------------------------------------
Lower Lakes Fair Market Value (in 000's) Low High Midpoint
- ---------------------------------------- ------------ ----------- -----------
Income Approach - Discounted Cash Flow Method $ 50,400 $ 64,600 $ 57,500
Market Approach - Public Guideline Company Method $ 51,200 $ 63,000 $ 57,100
------------ ----------- -----------
Average Indicated Enterprise Value $ 50,800 $ 63,800 $ 57,300
- ----------------------------------------------------------------------------------------------------
Income Approach: Discounted Cash Flow Analysis
Utilizing financial projections for Lower Lakes through Lower Lakes' 2010
fiscal year, Houlihan determined the net present value of the net cash flow of
Lower Lakes to determine the enterprise value for Lower Lakes.
To arrive at a present value, Houlihan applied a 12% discount rate to the
net cash flow for each of the five years in the projection period as well as to
a terminal net cash flow value. Houlihan used this discount rate based on the
weighted average cost of capital for Lower Lakes, which was determined by
Houlihan by taking into consideration an optimal equity and debt capital
structure, the risk-free rate of return for long-term United States Treasury
securities, rates of return for relevant corporate debt securities, and specific
industry risks and company risks as they relate to Lower Lakes.
Based on such assumptions and methodology, and after performing a series
of sensitivity analyses to measure the impact of changes in the underlying
assumptions and discount rate, Houlihan calculated an enterprise value range of
between $50,400,000 and $64,600,000.
The projections utilized by Houlihan in its discounted cash flow analysis
are set forth below. These projections were based on original projections
provided by Lower Lakes to interested parties, including Rand, during the course
of the sale process. Rand's financial advisor, Macquarie Securities (USA) Inc.,
in consultation with Lower Lakes' management, modified the original projections
to reduce projected annual earnings on account of vessel incidents, such as
accidents or equipment or mechanical failures, and to increase annual earnings
on account of fuel surcharges to customers. These adjusted projections were
adopted by Lower Lakes' management.
The projections were not prepared with a view towards public disclosure or
compliance with published guidelines of the Securities and Exchange Commission,
the guidelines established by the American Institute of Certified Public
Accountants for Prospective Financial Information or United States generally
accepted accounting principles, and are included in this proxy statement only
because they were provided to Rand and used by Houlihan in rendering its
opinion.
48
Except as required by applicable securities laws, Rand undertakes no
obligation to, and does not intend to, update or otherwise revise the
projections to reflect circumstances existing after the date when made or to
reflect the occurrences of future events even in the event that any or all of
the assumptions are shown to be in error.
The projections are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those statements, including the risks described under the "Risk Factors" section
of this document.
Projections utilized in Discounted Cash Flow Analysis
-----------------------------------------------------------------------------------------
Year Ended March 31 (000's)
--------------------------------------------------------------
2006 2007 2008 2009 2010
------- ------- ------- ------- -------
Revenues $46,284 $47,561 $48,512 $49,482 $50,472
Operating Expenses 31,949 32,774 33,429 34,098 34,780
Gross Profit 14,335 14,787 15,083 15,384 15,692
Non-Operating Expenses 4,425 4,310 4,396 4,484 4,574
Capital Expenditure 4,800 2,625 3,600 3,600 3,600
-----------------------------------------------------------------------------------------
The projections were prepared on the assumption that Lower Lakes would
continue its business and operations as currently conducted. Other significant
assumptions include:
o Revenue for the 2006 fiscal year will increase from revenue in the 2005
fiscal year as a result of:
o the launch of the Maumee, which was recently refurbished and
commenced sailing on May 16, 2005 and will contribute approximately
$4.4 million to revenue in the 2006 fiscal year;
o the basis on which Lower Lakes bills customers for distillate fuel
surcharges was amended in early 2005 which will increase revenue in
the 2006 fiscal year by over $500,000 as compared to the 2005 fiscal
year; and
o customer contracts, which are in effect and will represent over 90%
of net revenue in the 2006 fiscal year, include escalations which
average from 2% to 3% per annum.
o Operating expense in the 2006 fiscal year will increase from operating
expense in the 2005 fiscal year as a result of:
o expenses for operating the Maumee in the 2006 fiscal year, which
were not incurred in the 2005 fiscal year, will approximate
$3,200,000;
o administration expenses are projected to increase by 1.5% to 2% from
the 2005 fiscal year to the 2006 fiscal year, which is consistent
with the percentage increases of prior years;
o winter work expense, after amounts capitalized, is projected to
increase by 11% from the 2005 fiscal year to the 2006 fiscal year,
primarily due to the reactivation of the Maumee; and
o a $250,000 reserve has been set aside for unexpected vessel
incidents or breakdowns.
49
o Following the 2006 fiscal year, revenue is projected to grow at the 2% to
3% per annum escalation rate included in customer contracts. Operating
expenses are projected to grow at 1% to 2% per annum, which is consistent
with prior years.
Market Approach: Public Guideline Company Methods
Houlihan utilized the public guideline company method, a market valuation
approach, for the purposes of compiling guidelines or comparable company
statistics and developing valuation metrics based on the prices at which stocks
of similar companies are trading in a public market.
The public guideline company method analysis is based on a review and
comparison of the trading multiples of publicly traded companies that are
similar with respect to business model, operating sector, size or target market.
All six of the companies utilized by Houlihan in its analysis are involved in
the marine transportation and shipping industry; however, Houlihan noted that
only four of the companies have dry bulk marine operations.
Houlihan reviewed certain financial information relating to Lower Lakes in
the context of the corresponding financial information, ratios and public market
multiples for the utilized companies. No company utilized in Houlihan's analysis
was deemed to be identical or directly comparable to Lower Lakes. Accordingly,
Houlihan considered the multiples for the utilized companies, taken as a whole,
to be more relevant than the multiples of any single utilized company. Due to
the smaller size, higher leverage and lower liquidity of Lower Lakes as compared
to the utilized companies, Houlihan reduced the median valuation multiples
derived through this analysis by 10% before applying them to Lower Lakes. The
adjusted median multiples derived from this analysis were enterprise value to
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of 5.5
times and enterprise value to EBIT (Earnings Before Interest and Taxes) of 11.5
times.
Applying these adjusted median multiples to the Lower Lakes 2005 fiscal
year EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and
EBIT (Earnings Before Interest and Taxes) resulted in a range of implied
enterprise values of approximately $51,200,000 to $63,000,000.
As noted above, none of the utilized companies is identical or directly
comparable to Lower Lakes. Accordingly, Houlihan considered the multiples for
the utilized companies, taken as a whole, to be more relevant than the multiples
of any single utilized company. Further, an analysis of publicly traded
companies is not mathematical. Rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading of such
companies.
Houlihan delivered its written opinion to Rand's Board of Directors on
August 30, 2005, which stated that, as of such date, based upon and subject to
the assumptions made, matters considered, and limitations on its review as set
forth in the opinion the purchase price to be paid in the acquisition is fair,
from a financial point of view, to Rand's stockholders. Houlihan is an
investment banking firm that, as part of its investment banking business,
regularly is engaged in the evaluation of businesses and their securities in
connection with mergers, acquisitions, corporate restructurings, private
placements, and for other purposes. Rand's Board of Directors determined to use
the services of Houlihan because it is a recognized investment banking firm that
has substantial experience in similar matters.
Houlihan does not beneficially own any interest in Rand or Lower Lakes and
has not provided services to either party other than rendering the opinion
described above, an opinion that the preferred stock issuance price is fair to
Rand's stockholders other than the purchaser of the series A convertible
preferred stock and an opinion that the fair market value of Lower Lakes is at
least equal to 80% of Rand's net assets. In connection with its engagement by
Rand and the issuance of its written opinions, Rand paid Houlihan a
non-contingent fee and agreed to indemnify Houlihan for certain liabilities that
may arise out of the rendering of the opinion.
The foregoing discussion of the information and factors considered by
Rand's Board of Directors is not meant to be exhaustive, but includes the
material information and factors considered by Rand's Board of Directors.
50
Structure Following Completion of the Acquisition
Immediately following completion of the acquisition, Lower Lakes and LL
Acquisition will be amalgamated in accordance with Canadian law, and the
amalgamated entity, which will retain the name Lower Lakes Towing Ltd., will
continue to operate the business and assets of Lower Lakes. Immediately
following the amalgamation, the shares of Lower Lakes Transportation and Grand
River owned by Lower Lakes will be transferred to Rand LL Holdings Corp., a
wholly-owned subsidiary of Rand. As a result of the foregoing and the redemption
of the shares of Grand River not owned by Lower Lakes, Lower Lakes, Lower Lakes
Transportation and Grand River will each become wholly-owned subsidiaries of
Rand LL Holdings Corp. As a result of the amalgamation and transfer, the
structure of Rand, Lower Lakes and their respective subsidiaries will be as
depicted in the following diagram:
----------------
Rand Acquisition
Corporation
----------------
|
100% |
v
--------------
Rand LL
------------------------- Holdings Corp. --------------------
--------------
| | |
100% | 100% | | 100%
v v v
------------ -------------------------- -----------------------
Lower Lakes Lower Lakes Transportation Grand River
Towing Ltd. Company Navigation Company Inc.
------------ -------------------------- -----------------------
|
| 100%
v
------------
Port Dover
Steamship
Company Inc.
------------
Directors and Executive Officers Following Completion of the Acquisition
If the acquisition of Lower Lakes is completed, the directors and
executive officers of Rand and Lower Lakes will be as follows:
Name Age Position
- --------------------------------------------------------------------------------
Laurence S. Levy 49 Chairman of the Board and Chief
Executive Officer, Rand; Director,
Lower Lakes, Lower Lakes Transportation
and Grand River
Scott Bravener 41 President, Lower Lakes and Lower Lakes
Transportation; Director, Rand and
Lower Lakes
51
James Siddall 41 Vice President - Marine Operations,
Lower Lakes and Lower Lakes
Transportation
Jeffrey Botham 39 Chief Financial Officer, Rand, Lower
Lakes and Lower Lakes Transportation
Mark Rohn 48 President, Grand River
Isaac Kier 51 Director, Rand
Sandeep D. Alva 43 Director, Rand
Laurence S. Levy has been Chairman of our Board of Directors and our Chief
Executive Officer since our inception. Mr. Levy founded the predecessor to Hyde
Park Holdings, LLC in July 1986 and has since served as its Chairman. Hyde Park
Holdings, LLC is an investor in middle market businesses. Mr. Levy serves as an
officer or director of many companies in which Hyde Park Holdings, LLC or its
affiliates invests. Presently, these companies include: Ozburn-Hessey Logistics
LLC, a national logistics services company, of which Mr. Levy is a director;
Derby Industries LLC, a sub-assembly business to the appliance, food and
transportation industries, of which Mr. Levy is Chairman; PFI Resource
Management LP, an investor in the Private Funding Initiative program in the
United Kingdom, of which Mr. Levy is general partner; Parking Company of America
Airports LLC, an owner and operator of airport parking garages, of which Mr.
Levy is a director; Regency Affiliates, Inc., a diversified publicly listed
company, of which Mr. Levy is Chairman, Chief Executive Officer and President;
Warehouse Associates L.P., a provider of warehouse and logistics services, of
which Mr. Levy is Chairman. In addition, from March 1997 to January 2001, Mr.
Levy served as Chairman of Detroit and Canada Tunnel Corporation, a company
which operates the toll tunnel between Detroit, Michigan and Windsor, Ontario,
and from August 1993 until May 1999, Mr. Levy served as Chief Executive Officer
of High Voltage Engineering Corporation, a diversified industrial and
manufacturing company. Mr. Levy received a Bachelor of Commerce degree and a
Bachelor of Accountancy degree from the University of Witwatersrand in
Johannesburg, South Africa. He is qualified as a Chartered Accountant (South
Africa). Mr. Levy received a Master of Business Administration degree from
Harvard University and graduated as a Baker Scholar.
Captain Scott Bravener has served as Lower Lakes' President and Chief
Executive Officer since its inception in 1994, and until 2001 also served as the
captain of the Cuyahoga, a vessel owned by Lower Lakes. Captain Bravener has
worked in the Great Lakes shipping industry since 1982, serving in various
capacities for Canada Steamship Lines Inc. and P & H Shipping prior to the
formation of Lower Lakes. Captain Bravener is a director of the Canadian
Shipowners Mutual Assurance Association, is a certified Ships Master and is a
member of the American Bureau of Shipping. Captain Bravener is a graduate of
Marine Navigation Technology, Georgian College, Owen Sound, Ontario.
Captain James Siddall joined Lower Lakes in 1994 and currently serves as
its Vice President of Marine Operations. Until 2001, Captain Siddall also served
as the relief captain of the Cuyahoga, a vessel owned by Lower Lakes. Captain
Siddall has worked in the Great Lakes Shipping industry since 1981, serving in
various capacities with Algoma Central Marine prior to the formation of Lower
Lakes. Captain Siddall sits on the Georgian College Marine Advisory Council. He
is a certified Ships Master as well as a graduate of Marine Navigation
Technology, Georgian College, Owen Sound, Ontario.
Jeffrey Botham has served as the Chief Financial Officer of Lower Lakes
since 2003. Between 2002 and 2003, Mr. Botham served as Chief Financial Officer
of GolfNorth Properties, Inc., a privately held golf course consolidator. From
2000 to 2002, Mr. Botham served as Chief Financial Officer of EDJ Packaging,
Inc., an international equipment broker, based in Southwestern Ontario. During
2000, Mr. Botham served as Vice President of Finance and Chief Financial Officer
for Hip Interactive Corp., a publicly listed group of companies in the video
game distribution business. From 1995 to 2000, Mr. Botham served in roles of
increasing responsibilities including Vice President, Finance, Chief Financial
Officer and Secretary for Brick Brewing Co. Limited, a publicly listed regional
brewery. From 1989 to 1995, Mr. Botham served as Manager of Accounting and
Controller for privately held Algonquin Brewing Company. Mr. Botham earned his
B.A. at the University of Waterloo and is a Certified Management Accountant
(Canada).
52
Mark Rohn has served as President of Grand River since 2001. Mr. Rohn has
worked in the Great Lakes shipping industry since 1978, serving in various
capacities with Oglebay Norton, Hanna Mining, Great Lakes Towing and N.M.
Paterson and Sons. Mr. Rohn earned a bachelor's degree in Business Management
from Cleveland State University.
Isaac Kier has been a member of our Board of Directors since our
inception. Since February 2000, Mr. Kier has served as a general partner of
Coqui Capital Partners L.P., a venture capital firm which invests primarily in
early stage companies. Since October 1997, he has been a principal and managing
partner of First Americas Partners, LLC, an investment partnership focusing on
investments in North and South America. Since February 2004, he has also been
the secretary and treasurer and a member of the board of directors of Tremisis
Energy Acquisition Corporation, an OTC Bulletin Board-listed company formed for
the purpose of acquiring an operating business in either the energy or
environmental industry and their related infrastructures. Since June 2005, Mr.
Kier has also been a director of Paramount Acquisition Corporation, a company
formed for the purpose of acquiring an operating business in either the
biotechnology or specialty pharmaceuticals industry. Since April 2005, Mr. Kier
has also been Chief Executive Officer and director of MPLC, Inc., a
publicly-traded company which currently does not have any business operations
but is pursuing business combination opportunities. Since October 2004, Mr. Kier
has served as a member of the board of directors of Hana Biosciences Inc., an
OTC Bulletin Board-listed biopharmaceutical company that aims to acquire,
develop and commercialize innovative products for the treatment of important
unmet medical needs in cancer and immunological diseases. From 1987 to 1997, he
served as the managing partner of the Alabama 8 market, a non-wireline cellular
licensee. From 1982 until its sale in 1995, Mr. Kier served as chairman of the
board and chief executive officer of Lida, Inc., a Nasdaq-listed company engaged
in textile production and printing. Mr. Kier received a B.A. in Economics from
Cornell University and a J.D. from George Washington University Law School.
Sandeep D. Alva has been a member of our Board of Directors since our
inception. In July 2000, Mr. Alva founded Falcon Investment Advisors, LLC, a
private equity investment firm providing subordinated debt and equity capital to
middle market companies, and has been its managing director since its formation.
From March 1991 to July 2000, Mr. Alva served as senior managing director and
Mezzanine and Private Equity Team Leader of the John Hancock Bond & Corporate
Finance Group, an affiliate of John Hancock Financial Services, Inc. Prior to
that, he was a principal at Joseph, Littlejohn & Levy, a private equity
investment firm, from December 1989 to March 1991. Mr. Alva received a Bachelor
of Commerce degree from Bombay University, India, and an M.B.A. from Cornell
University.
Special Advisor
Edward Levy has been a managing director of CIBC World Markets Corp. since
August 1995, and was co-head of CIBC World Markets Corp.'s Leveraged Finance
Group from June 2001 until April 2005. From February 1990 to August 1995, Mr.
Levy was a managing director of Argosy Group L.P., a private investment banking
firm. Since June 1998, Mr. Levy has been a member of the board of managers of
Norcross Safety Products LLC, a reporting company under the Securities Exchange
Act of 1934 engaged in the design, manufacture and marketing of branded products
in the fragmented personal protection equipment industry. From July 1999 until
March 2005, he has was also a director of Booth Creek Ski Holdings, Inc., a
reporting company under the Securities Exchange Act of 1934 that owns and
operates six ski resort complexes encompassing nine separate resorts. Mr. Levy
is a member of the board of directors of a number of privately-held companies.
Mr. Levy received a B.A. from Connecticut College. Mr. Levy is not related to
Laurence S. Levy, our Chairman and Chief Executive Officer.
Amendment to Rand's Certificate of Incorporation
A Rand stockholder who votes in favor of the acquisition proposal is also
voting to adopt amendments to Rand's certificate of incorporation designed to
enable Rand to regulate the ownership of its capital stock by persons who are
53
not citizens of the United States. The proposed amendment, which is included in
the form of Amended and Restated Certificate of Incorporation attached as Annex
B, is intended to ensure that Rand will continue to satisfy the domestic stock
ownership requirements of the Shipping Act, 1916, and the Merchant Marine Act,
1920, commonly referred to as the Jones Act, after completion of the
acquisition. These amendments of Rand's certificate of incorporation will:
o contain provisions limiting the aggregate percentage ownership by
non-citizens of Rand's capital stock (including the common stock) to
23% of the outstanding shares, and no more than 23% of the voting
power of Rand, to ensure that such foreign ownership will not exceed
the maximum percentage (presently 25%) permitted by applicable
Federal law;
o require institution of a dual stock certificate or similar system to
help determine such ownership; and
o permit Rand's Board of Directors to make such determinations as may
reasonably be necessary to ascertain such ownership and implement
such limitations.
Rand must comply with the domestic stock ownership requirements set forth
in U.S. maritime laws to ensure that it will continue to be permitted to engage
in United States Great Lakes trading and be entitled to participate in several
maritime assistance programs administered by the United States Maritime
Administration. Under U.S. maritime laws, Rand must be a U.S. citizen of the
United States in order for its vessels to lawfully transport passengers and
merchandise between locations on the Great Lakes in the United States. In order
to be a U.S. citizen, not less than 75% of each class and series of Rand's
capital stock must be beneficially owned by U.S. citizens. Under regulations
issued by the United States Maritime Administration, a corporation may use the
"fair inference test" in proving its status as a U.S. citizen. Under the fair
inference test, the United States Maritime Administration will infer that the
75% ownership requirement has been satisfied if 95% of the mailing addresses of
Rand's stockholders are within the United States. If the fair inference test is
not satisfied, the regulations require a corporation to prove that the ultimate
owners of at least 75% of its capital stock are U.S. citizens. Moreover, the
regulations also require a corporation to supply citizenship information
regarding any stockholder owning 5% or more of its issued and outstanding
capital stock. In view of the potentially serious consequences of Rand's failure
to prove that it meets the citizenship requirements of U.S. maritime laws,
Rand's Board of Directors believes that implementation of the proposed amendment
to Rand's Certificate of Incorporation is highly desirable.
If the proposed amendment to Rand's Certificate of Incorporation is
adopted, Rand's Board of Directors would be able to implement certain measures
described below in the event the Board believes that a transfer or purported
transfer of shares of Rand's capital stock would result in the ownership of more
than 23% of any class of Rand's capital stock by persons or entities that are
not U.S. citizens (other than any class or classes of Rand's stock that the
United States Maritime Administration permits to be excluded from the
determination of whether Rand is in compliance with the citizenship requirements
of U.S. maritime laws). We will refer to persons or entities that are U.S
citizens as U.S. citizens and persons or entities that are not U.S. citizens as
non-citizens. U.S. maritime laws specify when a person or entity is considered a
U.S. citizen for purposes of U.S. maritime laws, which is discussed in detail
below.
The proposed amendment would give Rand's Board of Directors the power to
effect any and all measures necessary and desirable to implement the following
provisions designed to ensure compliance with the domestic stock ownership
requirements of U.S. maritime laws: (1) restrictions on transfer of Rand's
stock, (2) dual stock certificate or similar system, (3) suspension of voting,
dividend and distribution rights with respect to any shares owned by
non-citizens in excess of the 23% limitation and (4) if necessary, mandatory
redemption of shares owned by non-citizens in excess of the 23% limitation. To
implement these measures, the Board may amend the bylaws of Rand. The effect of
each of these measures is described below.
As discussed above, a non-citizen is a person or entity that is not a U.S.
citizen. U.S. maritime laws define U.S. citizen to include all of the following:
54
o any individual who is a citizen of the United States, by birth,
naturalization, as a derivative citizen or as otherwise authorized
by law and who is (i) free and clear of any trust or fiduciary
obligation in favor of, or control, directly or indirectly, by,
non-citizens and (ii) not employed by or financially dependent on a
non-citizen which is affiliated or associated in any manner with
Rand;
o any corporation (i) that is organized or incorporated under the laws
of the United States, or of a state of the United States or a
political subdivision of the United States, Guam, Puerto Rico, the
Virgin Islands, American Samoa, the District of Columbia, the
Northern Mariana Islands, or any other territory or possession of
the United States, (ii) of which not less than 75% of its stock is
beneficially owned by and vested in persons who are U.S. citizens,
free and clear of any trust or fiduciary obligation of any
non-citizens, (iii) of which not less than 75% of the voting power
of the stock of such corporation entitled to vote is beneficially
owned by and vested in U.S. citizens, free from any contract or
understanding through which it is arranged that such voting power
may be exercised directly or indirectly on behalf of non-citizens,
(iv) of which there are no other means by which direct or indirect
control is conferred upon or permitted to be exercised by
non-citizens, (v) whose chief executive officer (by whatever title),
chairman of the board of directors and all officers authorized to
act in the absence or disability of such persons or otherwise
dispose of or control any vessel are U.S. citizens, and (vi) of
which not more than a minority of the number of directors necessary
to constitute a quorum are non-citizens;
o any partnership (i) that is organized under the laws of the United
States or of a state of the United States or a political subdivision
of the United States, Guam, Puerto Rico, the Virgin Islands,
American Samoa, the District of Columbia, the Northern Mariana
Islands, or any other territory or possession of the United States,
(ii) all general partners of which are U.S. citizens, (iii) of which
not less than a 75% equity interest and voting power is beneficially
owned by persons who are U.S. citizens, free and clear of any trust
or fiduciary obligation in favor of any non-citizens and free from
any contract or understanding through which it is arranged that such
voting power may be exercised directly or indirectly on behalf of
non-citizens, and (iv) of which there are no other means by which
direct or indirect control is conferred upon or permitted to be
exercised by non-citizens;
o any association (i) that is organized under the laws of the United
States or of a state of the United States or a political subdivision
of the United States, Guam, Puerto Rico, the Virgin Islands,
American Samoa, the District of Columbia, the Northern Mariana
Islands, or any other territory or possession of the United States,
(ii) of which 100% of the members are U.S. citizens, (iii) whose
chief executive officer (by whatever title), chairman of the board
of directors (or equivalent committee or body) and all persons
authorized to act in the absence or disability of such persons or
otherwise dispose of or control any vessel are citizens of the
United States, (iv) of which not less than 75% of the interest and
voting power of such association is beneficially owned by U.S.
citizens, free and clear of any trust or fiduciary obligation in
favor of any non-citizens, and free from any contract or
understanding through which it is arranged that such voting power
may be exercised directly or indirectly on behalf of non-citizens,
(v) of which not more than a minority of the number of directors
necessary to constitute a quorum are non-citizens, and (vi) of which
there are no other means by which direct or indirect control is
conferred upon or permitted to be exercised by non-citizens;
o any limited liability company (i) that is organized under the laws
of the United States or of a state of the United States or a
political subdivision of the United States, Guam, Puerto Rico, the
Virgin Islands, American Samoa, the District of Columbia, the
Northern Mariana Islands, or any other territory or possession of
the United States, (ii) of which not less than 75% of the members
are U.S. citizens, (iii) of which not less than 75% of the
membership interest is beneficially owned by persons who are U.S.
citizens, (iv) whose chief executive officer (by whatever title),
chairman of the board of directors (or equivalent committee or body)
and all persons authorized to act in the absence or disability of
such persons or otherwise dispose of or control any vessel are
citizens of the United States, (v) of which not less than 75% of the
voting power of such company entitled to vote is vested in U.S.
citizens, free and clear of any trust or fiduciary obligation, in
favor of or on behalf of any non-citizens, and free from any
contract or understanding through which it is arranged that such
voting power may be exercised directly or indirectly on behalf of
non-citizens, (vi) of which the managing member or manager (or
equivalent person), if such company's management is delegated to a
single manager or managing member pursuant to its organizational
agreement, is a citizen of the United States, or, if such company's
management is conferred by its organizational agreement on several
managers, a management committee or board of directors (or
equivalent governing body), each manager having general management
55
authority is a citizen of the United States and not more than a
minority of the number of management committee members or directors
(or equivalent persons) necessary to constitute a quorum of such
governing body are non-citizens, (vii) of which there are no other
means by which direct or indirect control is conferred upon or
permitted to be exercised by non-citizens; and (viii) of which
non-citizens do not have authority within a management group,
whether through veto power, combined voting, or otherwise, to
exercise control over the limited liability company;
o any joint venture (if not an association or a partnership) (i) that
is organized under the laws of the United States or of a state of
the United States or a political subdivision of the United States,
Guam, Puerto Rico, the Virgin Islands, American Samoa, the District
of Columbia, the Northern Mariana Islands, or any other territory or
possession of the United States, (ii) of which 100% of the members
are, or 100% of the equity is beneficially owned by U.S. citizens,
free and clear of any trust or fiduciary obligation in favor of any
non-citizens, and (iii) of which there are no other means by which
direct or indirect control is conferred upon or permitted to be
exercised by non-citizens; and
o any trust (i) that is domiciled in and existing under the laws of
the United States or a state of the United States or a political
subdivision of the United States, Guam, Puerto Rico, the Virgin
Islands, American Samoa, the District of Columbia, the Northern
Mariana Islands, or any other territory or possession of the United
States, (ii) all of the trustees of which are U.S. citizens, (iii)
of which not less than 75% of the equity interest is owned by U.S.
citizens, (iv) of which each beneficiary with an enforceable
interest in the trust is a U.S. citizen, and (v) of which there are
no other means by which direct or indirect control is conferred upon
or permitted to be exercised by non-citizens.
The proposed amendment to the Certificate of Incorporation authorizes
Rand's Board of Directors to implement measures to the effect that any transfer,
or attempted or purported transfer, that would result in more than 23% of the
shares of a class of shares of Rand being owned by non-citizens will be
ineffective as against Rand until the excess no longer exists. With respect to
such shares, Rand's Board of Directors may implement measures that would cause
Rand to not recognize the purported transferee of the shares as a stockholder of
Rand for any purpose other than the transfer by the purported transferee of such
excess to a person who is a U.S. citizen, or to the extent necessary to effect
any other remedy available to Rand under the proposed amendment to the
Certificate of Incorporation.
The proposed amendment to the Certificate of Incorporation would also
authorize Rand's Board of Directors to implement measures to ensure that it can
monitor effectively the citizenship of the holders of its capital stock. To that
end, the Board would have the authority to require proof of citizenship of
existing or prospective stockholders and as well as to implement and maintain a
dual stock certificate or similar system under which outstanding shares of
Rand's capital stock owned by U.S. citizens or non-citizens would be recorded
separately. If the Board implements a dual stock certificate or similar system,
any stock surrendered for transfer thereafter will have to be accompanied by a
citizenship certificate signed by the transferee and any additional proof of
citizenship requested by Rand or its transfer agent, with the transfer agent
then registering the transfer and issuance of a new stock certificate designated
as U.S. citizen or non-citizen depending upon the citizenship of the new owner.
In addition, to the extent necessary to enable Rand to determine the number of
shares owned by non-citizens for purposes of submitting the proof of United
States citizenship required under U.S. maritime laws, the Board could implement
changes to Rand's bylaws that would require record holders and beneficial owners
from time to time to confirm their citizenship status and, in the discretion of
Rand's Board of Directors, to temporarily withhold dividends and deny voting
rights to the shares of capital stock held by any such record holder and
beneficial owner until confirmation of its citizenship status is received.
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Under the proposed amendment to the Certificate of Incorporation, the
Board would be authorized to implement changes to the bylaws to deny voting
rights to shares held by non-citizens in excess of the 23% limitation, and to
withhold dividends with respect to such shares, pending transfer of the shares
to a U.S. citizen or a reduction in the aggregate number of shares owned by
non-citizens to or below the 23% limitation, at which time voting rights would
be restored and dividends that had been withheld would be paid. Rand's Board of
Directors will have the power to make a conclusive determination as to the
shares of Rand's capital stock held by non-citizens in excess of the 23%
limitation. This determination will be made by reference to the most recent
acquisitions of shares of capital stock of Rand by non-citizens.
In addition, the proposed amendment to the Certificate of Incorporation
would authorize, but not require, Rand to redeem shares of its capital stock
owned by non-citizens in excess of the 23% limitation in order to reduce
ownership by non-citizens. The redemption price would be equal to (i) the
average of the closing price of the capital stock on a national securities
exchange on which the stock is traded or listed during the 10 trading days
immediately prior to the date the notice of redemption is given, except that, if
the capital stock is not so traded or quoted, the average closing price would be
determined in good faith by Rand's Board of Directors and (ii) any dividend or
other distribution declared with respect to such shares prior to the date such
shares are called for redemption but which has been withheld by Rand. Rand would
have the option to pay the redemption price for any shares owned by non-citizens
in excess of the 23% limitation in cash or by delivery of a promissory note
having a maturity of not more than ten years from the date of issuance and
bearing interest at a rate equal to the then current coupon rate of a 10-year
Treasury note.
Rand's Board of Directors has determined that it is necessary to implement
a dual stock certificate or similar system as of the closing date of the
acquisition. If the acquisition proposal is adopted, a dual stock certificate or
similar system will be implemented and instructions with respect to the
implemented system will be mailed to the stockholders of Rand at that time.
Although the implementation of the proposed amendment to the Certificate
of Incorporation will not affect the rights of Rand's stockholders who are U.S.
citizens to hold its outstanding capital stock, if the number of shares of any
class of Rand's capital stock held by non-citizens approaches 23%, the ability
of stockholders of Rand who are U.S. citizens to sell capital stock to
non-citizens may be curtailed, which could have an adverse effect on the
liquidity of their holdings of capital stock. Because sales of capital stock of
Rand by U.S. citizens and non-citizens to U.S. citizens will not be affected by
the implementation of the proposed amendment to the Certificate of
Incorporation, the effect of the proposed amendment to the Certificate of
Incorporation on such sales is not expected to be material.
Appraisal or Dissenters Rights
No appraisal or dissenters rights are available under the Delaware General
Corporation Law for the stockholders of Rand in connection with the acquisition
proposal.
United States Federal Income Tax Consequences of the Acquisition
The following discusses the U.S. Federal income tax consequences of the
acquisition of Lower Lakes by Rand. This discussion is based on the United
States Internal Revenue Code of 1986, as amended. The statements set forth in
this section as to tax consequences of the transaction to Rand common
stockholders are those of Rand. Rand does not intend to obtain an opinion of
counsel with respect to such matters. Accordingly, you should consult your
personal tax advisor as to the tax consequences of the transaction.
Rand common stock holders who do not exercise their conversion rights will
continue to hold their Rand common stock and as a result will not recognize any
gain or loss from the acquisition.
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Rand common stock holders who exercise their conversion rights will
recognize gain or loss to the extent that the amount received by such common
stock holders upon conversion is greater than or less than, respectively, such
holder's tax basis in their shares. A holder's tax basis in the shares generally
will equal the cost of the shares. A stockholder that purchased Rand's units
will have to allocate the cost between the shares and the warrants of the units
based on their fair market values at the time of the purchase. Assuming the
shares are held as a capital asset, the gain or loss will be capital gain or
loss and will be long-term capital gain or loss if such holder's holding period
in the shares is longer than one year.
Fiscal Year
Following the closing of the acquisition, Rand anticipates that it will
change its fiscal and tax year end from December 31 to March 31.
Regulatory Matters
The acquisition and the transactions contemplated by the Stock Purchase
Agreement are not subject to any Federal, state or provincial regulatory
requirement or approval, except for the necessary notifications or approvals
required under the Investment Canada Act and the Competition Act (Canada). The
requisite approval under the Competition Act (Canada) was received on September
26, 2005 and the requisite approval under the Investment Canada Act was received
on October 14, 2005.
Consequences if Acquisition Proposal is Not Approved
If the acquisition proposal is not approved by the stockholders, Rand will
not acquire Lower Lakes and Rand will continue to seek other potential business
combinations.
Required Vote
The affirmative vote of a majority of the issued and outstanding shares of
Rand's common stock is required to adopt the acquisition proposal. Adoption of
the acquisition proposal also requires the affirmative vote of a majority of the
shares of Rand's common stock issued in its initial public offering. However,
Rand will not be able to complete the acquisition if the holders of more than
230,000 shares of common stock issued in Rand's initial public offering, an
amount equal to more than 5% of the IPO shares, vote against the acquisition and
demand that Rand convert their shares into their pro rata portion of the trust
account in which a substantial portion of the net proceeds of Rand's initial
public offering are held because conversions in excess of such amount could
result in Rand's cash balances being insufficient to enable Rand to make the
equity contribution required under the loan facility obtained by Rand to finance
the acquisition. See "Conversion Rights" on page 111 for a discussion of the
reasons for the limitation on IPO share conversions. A Rand stockholder who
votes of favor of the acquisition proposal is also voting to adopt amendments to
Rand's certificate of incorporation designed to ensure Rand's compliance with
the citizenship requirements of U.S. maritime laws after completion of the
acquisition.
Rand's initial stockholders have agreed to vote their shares of Rand
common stock acquired prior to Rand's initial public offering, representing an
aggregate of approximately 17.9% of the outstanding shares of Rand common stock,
in accordance with the vote of the majority of the shares of Rand common stock
issued in its initial public offering. In addition, one of Rand's initial
stockholders who owns 250,000 shares of common stock issued in Rand's initial
public offering, representing approximately 4.5% of the outstanding shares of
Rand common stock, and approximately 5.4% of the shares issued in Rand's initial
public offering, intends to vote such shares "FOR" the adoption of the
acquisition proposal.
Adoption of the acquisition proposal is not conditioned upon the adoption
of the amendment proposal or adjournment proposal.
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Recommendation
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS VOTE "FOR" THE ACQUISITION PROPOSAL.
Interest of Rand Directors and Officers in the Acquisition
In considering the recommendation of the Board of Directors of Rand to
vote for the proposal to adopt the acquisition, you should be aware that certain
members of the Rand's Board, and their affiliates and associates, have
agreements or arrangements that provide them with interests in the acquisition
that differ from, or are in addition to, those of Rand stockholders generally.
In particular:
o if the acquisition is not approved and Rand fails to consummate an
alternative transaction within the time allotted pursuant to its
certificate of incorporation and Rand is therefore required to
liquidate, the shares of common stock beneficially owned by Rand's
executive officers and directors, and their affiliates and
associates, that were acquired prior to Rand's initial public
offering may be worthless because no portion of the net proceeds of
Rand's initial public offering that may be distributed upon
liquidation of Rand will be allocated to such shares. Similarly, the
warrants to purchase Rand common stock held by Rand's executive
officers and directors, and their affiliates and associates, may
become worthless if the acquisition is not approved and Rand fails
to consummate an alternative transaction within the time allotted
pursuant to its certificate of incorporation;
o Rand's executive officers and directors, together with their
affiliates and associates, were issued a total of 1,000,000 shares
of Rand common stock prior to Rand's initial public offering, and
one of Rand's directors has acquired an additional 250,000 shares.
These shares collectively have a market value of $7,000,000 based on
Rand's share price of $5.60 as of January 27, 2006. However, the
1,000,000 shares acquired prior to Rand's initial public offering by
these individuals cannot be sold prior to October 27, 2007 during
which time the value of the shares may increase or decrease; and
o after the completion of the acquisition, it is expected that the
directors will continue to serve on Rand's Board of Directors and
Laurence S. Levy will continue to serve as Rand's Chief Executive
Officer and as Chairman of Rand's Board of Directors. Mr. Levy, as
Rand's Chief Executive Officer, and each director of Rand, will,
following the acquisition, be compensated in such manner, and in
such amounts, as Rand's Board of Directors may determine to be
appropriate. No agreements or plans with respect to such
compensation have been entered into, adopted or otherwise agreed
upon by Rand.
Rand's Board of Directors was aware of these agreements and arrangements
during its deliberations on the merits of the acquisition and in determining to
recommend to the stockholders of Rand that they vote for the adoption of the
acquisition proposal.
Interests of Lower Lakes Directors and Officers in the Acquisition
You should understand that some of the current directors and officers of
Lower Lakes have interests in the acquisition that are different from, or in
addition to, your interest as a stockholder. In particular:
o Scott Bravener, Lower Lakes' President, is expected to remain the
President of Lower Lakes and James Siddall, a Vice President of
Lower Lakes, is expected to remain a Vice President of Lower Lakes,
and each such individual is expected to enter into an employment
agreement with Lower Lakes in connection with the acquisition; and
o Lower Lakes is party to a month-to-month lease under which it leases
real estate in Port Dover, Ontario from Scott Bravener, James
Siddall, Franklin Bravener and Robert Pierson, each of whom is an
employee of Lower Lakes, and Grand River is party to a lease under
which it leases real estate in Rogers City, Michigan from Robert P.
Noffze, who is an employee of Grand River, and Rand currently
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intends to continue to lease these properties after completion of
the acquisition. Rand's management believes that these leases are at
rates consistent with leases negotiated at arm's length.
Rand's Board of Directors was aware of these agreements and arrangements
during its deliberations on the merits of the acquisition and in determining to
recommend to the stockholders of Rand that they vote for the adoption of the
acquisition proposal.
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THE AMENDMENT PROPOSAL
General Description of the Amendment
The amendment involves an increase of number of shares of common stock
that Rand is authorized to issue from 20,000,000 shares to 50,000,000 shares and
to change the name of Rand to Rand Logistics Inc.
Rand's Reasons for the Amendment and Recommendation of Rand's Board of Directors
Rand's Board of Directors has concluded that the amendments to its
certificate of incorporation are in the best interests of Rand's stockholders.
Rand believes it is prudent to have a greater number of shares of its
common stock available for a variety of corporate purposes, including financing
potential acquisitions and compensating its officers, directors and employees.
Rand does not presently have any agreements or plans to issue any of the shares
which would be authorized upon adoption of the amendment proposal. There are no
preemptive rights with respect to these securities.
Rand believes that the name Rand Logistics Inc. more accurately reflects
the business Rand will conduct after the acquisition, and will enable industry
and financial market participants to more closely associate Rand with its
operating business.
Consequences if Amendment Proposal is Not Approved
If the amendment proposal is not approved by the stockholders, Rand will
not increase the number of its authorized capital stock and Rand's name will
remain "Rand Acquisition Corporation."
Required Vote
Adoption of the amendment proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Rand's common stock. No vote of
the warrant holders is necessary to adopt the amendment proposal, and Rand is
not asking the warrant holders to vote on the amendment proposal. Adoption of
the amendment proposal is conditioned upon the adoption of the acquisition
proposal but is not conditioned on adoption of the adjournment proposal.
Rand's initial stockholders intend to vote their shares of Rand common stock,
representing an aggregate of approximately 22.3% of the outstanding shares of
Rand common stock, "FOR" the amendment proposal.
Recommendation
After careful consideration, Rand's Board of Directors has determined
unanimously that the amendment proposal is in the best interests of Rand and its
stockholders. Rand's Board of Directors has approved and declared advisable the
amendment proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE AMENDMENT PROPOSAL.
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THE ADJOURNMENT PROPOSAL
General Description of the Adjournment Proposal
The adjournment proposal allows Rand's Board of Directors to submit a
proposal to adjourn the special meeting to a later date or dates, if necessary,
to permit further solicitation of proxies in the event there are not sufficient
votes at the time of the special meeting to approve the acquisition proposal.
Consequences if Adjournment Proposal is Not Approved
If the adjournment proposal is not approved by the stockholders, Rand's
Board of Directors may not be able to adjourn the special meeting to a later
date in the event there are not sufficient votes at the time of the special
meeting to approve the acquisition and amendment proposal.
Required Vote
Adoption of the adjournment proposal requires the affirmative vote of a
majority of all issued and outstanding shares of Rand's common stock, including
shares issued to Rand's initial stockholders prior to Rand's initial public
offering. No vote of the warrant holders is necessary to adopt the adjournment
proposal, and Rand is not asking the warrant holders to vote on the adjournment
proposal. Adoption of the adjournment proposal is not conditioned upon the
adoption of the acquisition proposal or the amendment proposal.
Rand's initial stockholders have agreed to vote their shares of Rand
common stock, representing an aggregate of approximately 22.3% of the
outstanding shares of Rand common stock, "FOR" the adoption of the adjournment
proposal.
Recommendation
After careful consideration, Rand's Board of Directors has determined
unanimously that the adjournment proposal is in the best interest of Rand and
its stockholders. Rand's Board of Directors has approved and declared advisable
the adjournment proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ADJOURNMENT PROPOSAL.
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THE LOWER LAKES STOCK PURCHASE AGREEMENT
The following summary of the material provisions of the Stock Purchase
Agreement for Lower Lakes is qualified by reference to the complete text of the
Stock Purchase Agreement for Lower Lakes, a copy of which is attached as Annex A
to this document. All stockholders are encouraged to read the Stock Purchase
Agreement in its entirety for a more complete description of the terms and
conditions of the acquisition.
Structure of the Acquisition
Upon completion of the acquisition, Rand's wholly-owned subsidiary, Rand
LL Holdings, will own all of the outstanding stock of Lower Lakes. Lower Lakes
will continue to operate its business in the same manner as before the
acquisition. As a result of related transactions on the closing date, Rand,
through Rand LL Holdings, will also own all of the outstanding stock of Lower
Lakes Transportation and Grand River, each of which will continue to operate
their respective businesses in the same manner as before the acquisition.
Purchase Price - Payment
The purchase price for the shares of Lower Lakes is $53,730,000, less the
amount used to pay and retire all of the indebtedness of Lower Lakes, Lower
Lakes Transportation and Grand River outstanding on the closing date and less
the $750,000 redemption price for the remaining shares of Grand River. The
purchase price is payable in cash and subject to a working capital purchase
price adjustment.
Escrow Amount
At the closing of the acquisition, $2,000,000 of the purchase price will
be transferred to an escrow agent to secure any post-closing adjustment in the
purchase price in favor of Rand and to secure the indemnification obligations of
the stockholders of Lower Lakes for breaches of their representations,
warranties and covenants to Rand and LL Acquisition contained in the Stock
Purchase Agreement. See "Escrow Agreement" on page 72.
Working Capital - Purchase Price Adjustment
At the closing of the acquisition, the purchase price will be increased to
the extent that, as of January 15, 2006, specified current assets of Lower Lakes
exceed specified current liabilities of Lower Lakes by more than $3,659,099, and
will be decreased to the extent that, as of such date, such specified current
assets do not exceed such specified current liabilities by more than $3,659,099.
Any adjustment to the purchase price made at the closing will be subject to
confirmation or further adjustment through an audit of Lower Lakes to be
conducted after the closing.
Closing of the Acquisition
The closing of the acquisition will take place on the second business day
following the satisfaction or waiver of the conditions described below under
"The Lower Lakes Stock Purchase Agreement--Conditions to the Completion of the
Acquisition," unless Rand and Lower Lakes agree in writing to another time.
Repayment of Loans
At the closing of the acquisition, Rand shall repay and retire all of the
indebtedness of Lower Lakes, Lower Lakes Transportation and Grand River to
General Electric Capital Corporation (and certain of its U.S. and Canadian
affiliates), Royal Bank of Canada, Canadian Imperial Bank of Commerce, Universal
Insulations Holdings Limited and Norvest Mezzanine Fund Limited Partnership. The
total amount of indebtedness to be repaid at closing is estimated to be
$44,300,000.
Representations and Warranties
The Stock Purchase Agreement contains a number of representations and
warranties that each of the stockholders of Lower Lakes made to Rand and LL
Acquisition as to themselves and as to Lower Lakes and its subsidiaries, and
which Rand and LL Acquisition made to the stockholders of Lower Lakes. The
representations and warranties made by the Lower Lakes stockholders as to
themselves relate to:
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o authority; execution and delivery; enforceability of the Stock
Purchase Agreement;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees;
o title to the shares of Lower Lakes;
o litigation and claims;
o absence of brokers or finders; and
o residency of the stockholders of Lower Lakes.
The representations and warranties made by the Lower Lakes stockholders as
to Lower Lakes and its subsidiaries relate to:
o organization, power and authority;
o subsidiaries, equity interests;
o authorization; execution and delivery;
o enforceability of the Stock Purchase Agreement;
o capital stock; ownership of the shares;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees; receipt of all
required consents and approvals;
o litigation;
o corporate documents;
o capitalization; options;
o title to assets;
o real property and leasehold interests;
o employment and labor related agreements and actions;
o contracts;
o intellectual property;
o insurance;
o accuracy of books and records;
o accuracy of the information contained in the financial statements;
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o absence of undisclosed liabilities;
o taxes;
o absence of certain changes or events since March 31, 2005;
o governmental permits;
o compliance with applicable laws;
o environmental matters;
o employee benefit plans;
o maritime matters;
o absence of brokers or finders;
o absence of certain business practices;
o accounts receivable;
o major customers;
o related party transactions;
o sufficiency of assets;
o bank accounts; and
o completeness and truthfulness of the information disclosed in the
Stock Purchase Agreement.
The representations and warranties made by Rand and LL Acquisition as to
themselves relate to:
o organization; good standing;
o authority; execution and delivery; enforceability of the Stock
Purchase Agreement;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees;
o consents and approvals;
o litigation;
o absence of brokers or finders; and
o completeness and truthfulness of the information disclosed in the
Stock Purchase Agreement.
Materiality and Material Adverse Effect
Several of the representations and warranties of the Lower Lakes
stockholders are qualified by materiality or material adverse effect. For the
purposes of the Stock Purchase Agreement, a material adverse effect means any
65
event, condition or contingency that has had, or is reasonably likely to have, a
material adverse effect on the business, assets, liabilities, results of
operations, prospects or financial condition of Lower Lakes and its
subsidiaries, taken as a whole, provided, however, that a material adverse
effect shall not include any such effect or change resulting from or arising in
connection with the following:
o changes or conditions generally affecting the industries or segments
in which Lower Lakes operates;
o changes in general economic, market or political conditions; or
o the announcement, other disclosure or completion of the acquisition.
Interim Operations Relating to Lower Lakes
Under the Stock Purchase Agreement, the Lower Lakes stockholders have
agreed to cause Lower Lakes and its subsidiaries, prior to completion of the
acquisition, to conduct their business in the ordinary course consistent with
past practice, except as expressly permitted by the Stock Purchase Agreement. In
addition to this agreement regarding the conduct of the business generally,
subject to specific exceptions, the Lower Lakes stockholders have agreed that
Lower Lakes and its subsidiaries:
o will take such action as may be necessary to maintain, preserve and
renew their existence and keep their books of accounts, records and
files in a manner consistent with past practice; preserve their
respective business organizations intact; keep available their
present employees; and preserve the goodwill of their suppliers and
customers and others;
o will pay and perform all of their debts, obligations and liabilities
and maintain and manage working capital, in each case in a manner
consistent with past practice;
o will maintain and repair all of the owned vessels and all other
material assets in a manner consistent with past practice and will
not take any action adverse to the preservation of such material
assets;
o will fully satisfy all obligations under each employee benefit plan;
o will not take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of
Lower Lakes' stockholders becoming untrue;
o will report to Rand all material matters relating to their business
on a periodic basis;
o will take all actions necessary to comply in all material respects
with all applicable laws;
o will insure and keep fully insured all their properties, including
the vessels, at least to the extent as were in place prior to the
execution of the Stock Purchase Agreement;
o will comply with environmental laws and use their reasonable best
efforts to notify Rand of any release or discovery of any hazardous
substance or contaminant at any of their properties or any related
environmental matters;
o will defend the title to and possession of their owned vessels, free
and clear of all claims and demands of all other persons (other than
permitted liens) and will promptly notify Rand of any legal
proceeding filed against any of the vessels or if any vessel has
been requisitioned by the Canadian or United States government;
o will not make any material change in their businesses or operations;
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o will not incur or discharge any liability or sell or acquire any
property or assets except in the ordinary course of business;
o will not guarantee or assume any obligation of, or make any loans or
advances to, any third party;
o will not cancel any debt owed to Lower Lakes or its subsidiaries
except in the ordinary course of business;
o will not settle or compromise any dispute which would have a
continuing adverse impact on their business after the closing of the
acquisition;
o will not make or change any tax election or file for any change in
any material respect of any method of accounting with the relevant
tax authority, except as required by any change in law;
o will not make any change in its accounting methods, principles or
practices, except as required by a change in law or general accepted
accounting principles;
o will not, except as required by law, adopt, amend or terminate any
benefit plan, profit sharing, compensation or other plan or grant
any general increase in compensation to their employees or any
increase (other than increases required under a contract) in the
compensation payable to any of their officers or directors or
completely or partially withdraw from any multiemployer plan;
o will not amend, modify or enter into any material contract except in
the ordinary course of business and in no event which calls for
annual payments by or to Lower Lakes or its subsidiaries in excess
of $50,000 individually or $100,000 in the aggregate, other than any
amendments and modifications pursuant to grace periods customary in
the industry;
o will not enter into, amend or modify any collective bargaining
agreements;
o will not make capital expenditures in excess of $50,000 individually
or $100,000 in the aggregate for any signal item or project, except
within contemplated budgeted amounts;
o will not amend its organizational documents;
o will not issue, deliver or grant any shares of its capital stock, or
any option, warrant or right to purchase any shares of its capital
stock, or any security convertible into or exchangeable for, any
shares of such capital stock, or issue any bonds, notes or other
securities;
o will not conduct any capital reorganization of Lower Lakes or its
subsidiaries or redeem or acquire any of their securities, or
declare, set aside or make any dividends or distributions of
property in respect of Lower Lakes' capital stock;
o will maintain the insurance coverage in effect on the date of
execution of the Stock Purchase Agreement;
o will not issue any communication to their employees with respect to
compensation, benefits or employment continuation, except as
required by law;
o will not enter into any partnership or joint venture agreement or
arrangement or any similar arrangement;
o will not enter into any contract which would require consent with
respect to the consummation of the acquisition;
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o will not change the registry of their vessels or cause said registry
to be forfeited or imperiled;
o will not grant, create or assume any lien affecting any of their
property or assets, including their vessels, or assign or
hypothecate any freight or hire monies or any insurance policies or
claims;
o will not abandon their vessels in a foreign port;
o will not allow or permit, during any voyage, any vessel to make any
unlawful deviation or allow anything to, at any time, be done
whereby any insurance would become void or voidable in whole or in
part;
o will not enter into a voluntary recognition agreement or other
contract with any employee association, labor union or other similar
organization with respect to its Canadian employees;
o will not, in the event Lower Lakes is certified by an employee
association, labor union or other similar organization pursuant to
the Canada Labour Code, engage in any discussions, negotiations or
bargaining in respect of a collective bargaining agreement or other
contract without providing notice in advance to Rand; and
o authorize or enter into an agreement in violation of the foregoing.
No Solicitation by the Lower Lakes Stockholders
The Lower Lakes stockholders have agreed, from the date of the Stock
Purchase Agreement and until the termination of the Stock Purchase Agreement,
that it will cause Lower Lakes and its subsidiaries, and their respective
directors, officers, affiliates, employees, representatives and other agents to
agree to immediately cease any existing discussions or negotiations with any
person or entity other than Rand with respect to a business combination
involving Lower Lakes or any of its subsidiaries, and will not take any action
to solicit, initiate, encourage or facilitate any proposal or offer from, or
furnish any information to, any person other than Rand or LL Acquisition
relating to any business combination involving Lower Lakes or any of its
subsidiaries.
Rand Stockholders' Meeting
Rand has agreed to call and hold a meeting of its stockholders, as
promptly and as reasonably practicable, for the purpose of seeking the adoption
of the acquisition proposal by its stockholders. Rand has also agreed that it
will, through its Board of Directors, recommend to its stockholders that they
approve and adopt the acquisition proposal, subject to applicable law and the
fiduciary duties (exercised in good faith and or on the advice of independent
legal counsel) of Rand's Board of Directors.
Access to Information; Confidentiality
The stockholders of Lower Lakes will afford to Rand and its
representatives prior to completion of the acquisition reasonable access during
normal business hours to all of Lower Lakes' and its subsidiaries' properties,
assets, liabilities, books and records, operations and businesses and access to
their directors, officers, employees, customers and business partners for the
purposes of such meetings and communications as Rand and the stockholders of
Lower Lakes reasonably agree.
The stockholders of Lower Lakes agree to hold in confidence all
information of Lower Lakes which is non-public, confidential or proprietary in
nature, other than disclosures that are required by law or by Lower Lakes'
senior management or representatives.
Reasonable Efforts; Notification
Rand, LL Acquisition and the stockholders of Lower Lakes have agreed that
they will use their commercially reasonable efforts to take all actions, and to
do all things necessary, proper or advisable to consummate the acquisition and
the transactions contemplated by the Stock Purchase Agreement in the most
expeditious manner practicable. This includes:
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o obtaining all necessary waivers, consents and approvals from
governmental entities and making all necessary registrations and
filings, including filings with governmental entities;
o obtaining all necessary consents, approvals or waivers from third
parties; and
o executing and delivering any additional instruments necessary to
consummate the acquisition or other transactions contemplated by the
Stock Purchase Agreement and to fully carry out the purposes of the
Stock Purchase Agreement and the transaction agreements contemplated
by the Stock Purchase Agreement.
The Lower Lakes stockholders will give prompt notice to Rand and LL
Acquisition, and Rand and LL Acquisition will give prompt notice to the Lower
Lakes stockholders, of the occurrence of any event or condition which would
result in such party's inability to satisfy any of the other party's conditions
to the closing of the acquisition. However, no notification will affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligation of the parties under the Stock Purchase Agreement
or the related agreements.
Reorganization
Immediately following completion of the acquisition, Lower Lakes and LL
Acquisition will be amalgamated in accordance with Canadian law, and the
amalgamated entity, which will retain the name Lower Lakes Towing Ltd., will
continue to operate the business and assets of Lower Lakes. Immediately
following the amalgamation, the shares of Lower Lakes Transportation and Grand
River owned by Lower Lakes will be transferred to Rand LL Holdings Corp., a
wholly-owned subsidiary of Rand. As a result of the foregoing and the redemption
of the shares of Grand River not owned by Lower Lakes, Lower Lakes, Lower Lakes
Transportation and Grand River will each become wholly-owned subsidiaries of
Rand LL Holdings Corp.
Indemnification
The Lower Lakes stockholders have agreed to hold harmless Rand, LL
Acquisition and their respective representatives, successors and permitted
assigns for any damages, whether as a result of any third party or otherwise,
and which arise from or in connection with a breach of representations,
warranties and covenants of the stockholders of Lower Lakes, in connection with
a prior accident involving the M/V Mississagi, the breach of any representations
and warranties of any party to the Redemption Agreement, or the failure of Grand
River to have title to the shares of its capital stock held by Grand River
Holdings upon consummation of the Redemption Agreement. Each of Rand and LL
Acquisition have agreed to hold harmless the stockholders of Lower Lakes and its
representatives, successors and permitted assigns, for any damages, whether as a
result of any third party or otherwise, and which arise from or in connection
with a breach of representations, warranties and covenants of Rand or LL
Acquisition. Subject to certain exceptions, claims made by Rand, LL Acquisition
and their respective representatives, successors and permitted assigns for
breaches of the representations and warranties of the Lower Lakes stockholders
may be asserted only once the individual item exceeds $50,000 per claim, or an
aggregate of $250,000 for all such claims. Additionally, subject to certain
exceptions, the aggregate indemnification liability of Lower Lakes' stockholders
for breaches of their representations and warranties under the Stock Purchase
Agreement shall not exceed $9,000,000. The representations and warranties of the
Lower Lakes stockholders will survive the closing for a period of 15 months,
however certain of their representations and warranties will survive for a
longer period.
LL Acquisition agrees to cause Lower Lakes and its subsidiaries not to
change, for three years after the closing, the provisions of its certificate of
incorporation and bylaws relating to indemnification of each present and former
director of Lower Lakes and any of its subsidiaries in a manner that adversely
affects the rights of such director.
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Fees and Expenses
Except as provided in the Stock Purchase Agreement, each of the Lower
Lakes' stockholders, on the one hand, and Rand and LL Acquisition, on the other,
shall be responsible for their own fees and expenses (including, without
limitation, legal and accounting fees and expenses) in connection with the Stock
Purchase Agreement and the transactions contemplated thereby. The stockholders
of Lower Lakes on the one hand and Rand on the other hand will split equally the
fees and expenses in connection with the escrow agreements.
Public Announcements
Rand and the stockholders of Lower Lakes have agreed that any
announcements concerning the transactions provided for in the Stock Purchase
Agreement by Rand or the stockholders of Lower Lakes shall be subject to the
prior approval of both parties, except that approval shall not be required as to
any statements and other information which any party may be required to make
pursuant to any applicable rule or regulation of the SEC, any United States or
foreign securities exchange or otherwise required by law.
Transfer Taxes
All stock transfer, real property transfer, recording, deed, stamp and
other similar taxes (including interest, penalties and additions to any such
taxes) incurred in connection with the transfer of shares of stock of Lower
Lakes will be paid equally by LL Acquisition on the one hand and the
stockholders of Lower Lakes on the other. Rand and LL Acquisition will cooperate
with the stockholders of Lower Lakes in preparing, executing and filing any tax
returns with respect to these transfer taxes.
Conditions to the Completion of the Acquisition
Each of Rand's, LL Acquisition's and Lower Lakes' stockholders'
obligations to effect the acquisition is subject to the satisfaction or waiver
of specified conditions before completion of the acquisition, including the
following:
Conditions to Rand's obligations
The obligations of Rand and LL Acquisition to effect the acquisition are
further subject to the following conditions:
o the representations and warranties of the stockholders of Lower
Lakes that are qualified as to materiality must be true and correct
and those not qualified as to materiality must be true and correct
in all material respects, as of the date of completion of the
acquisition, except representations and warranties that address
matters as of another date, which must be true and correct as of
that other date;
o the stockholders of Lower Lakes must have performed in all material
respects all covenants and agreements that are to be performed by
them;
o there must not have occurred any material adverse effect on Lower
Lakes since the date of the Stock Purchase Agreement;
o the absence of any order or injunction preventing consummation of
the acquisition or the right of Lower Lakes or any of its
subsidiaries to operate their respective businesses after the
completion of the acquisition;
o the stockholders of Lower Lakes shall have obtained all written
consents, approvals, waivers or similar authorizations necessary to
consummate the acquisition and the transactions contemplated by the
Stock Purchase Agreement;
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o each of the stockholders of Lower Lakes, LL Acquisition and McMillan
Binch Mendelsohn LLP (an escrow agent) shall have executed and
delivered the Escrow Agreement;
o Scott Bravener shall have entered into his employment agreement with
Lower Lakes;
o the parties must have received the necessary governmental approvals
necessary to consummate the transaction, including, without
limitation, the necessary notifications or approvals required under
the Investment Canada Act and the Competition Act (Canada);
o the Lower Lakes' stockholders shall have delivered stock
certificates representing all of the outstanding capital stock of
Lower Lakes;
o all liens on the stock certificates of Lower Lakes shall have been
released;
o the receipt of the Rand stockholder approval;
o each Lower Lakes stockholder shall have executed and delivered a
general release, releasing any claims it has or had against Lower
Lakes or any of its subsidiaries;
o Rand must have received signed opinions, dated as of the closing
date, from counsel to Lower Lakes;
o the stockholders of Lower Lakes, LL Acquisition and Ogilvy Renault
LLP (as escrow agent) shall have executed the Section 116 Escrow
Agreement;
o the bonus program participant agreement must have been executed by
Rand and each signatory thereto;
o Rand must have received the financing proceeds contemplated by the
financing commitments; and
o all conditions precedent to the consummation of the Redemption
Agreement between Grand River Navigation and Grand River Holdings,
Inc. shall have been satisfied.
Conditions to Lower Lakes' obligations
The obligation of Lower Lakes to effect the acquisition is further subject
to the following conditions:
o the representations and warranties of Rand and LL Acquisition that
are qualified as to materiality must be true and correct and those
not qualified as to materiality must be true and correct in all
material respects, as of the date of completion of the acquisition,
except representations and warranties that address matters as of
another date, which must be true and correct as of that other date;
o Rand and LL Acquisition must have performed in all material respects
all covenants and agreements that are to be performed by them;
o the absence of any order or injunction preventing consummation of
the acquisition;
o the parties must have received the necessary governmental approvals
necessary to consummate the transaction, including, without
limitation, the necessary notifications or approvals required under
the Investment Canada Act and the Competition Act (Canada);
o Rand and LL Acquisition shall have obtained all written consents to
consummate the acquisition and the transactions contemplated by the
Stock Purchase Agreement;
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o the stockholders of Lower Lakes must have received a written
opinion, dated as of the closing date, from Rand's counsel; and
o Rand must have adopted the Management Bonus Program.
Termination, Amendment and Waiver
The Stock Purchase Agreement may be terminated at any time prior to the
closing of the acquisition, as follows:
o by mutual consent of LL Acquisition and the stockholders of Lower
Lakes;
o by either party if the other party has breached any of its covenants
or representations and warranties in any material respect;
o by the stockholders of Lower Lakes if Rand's Board of Directors
withdraws or modifies its recommendation to the stockholders of Rand
in any manner adverse to Lower Lakes or fails to issue its
recommendation to Rand's stockholders in a reasonably timely manner;
or
o by either party if the closing has not occurred by February 28,
2006.
Effect of Termination
In the event of termination by either the Lower Lakes' stockholders or
Rand, all further obligations and rights of the parties under Stock Purchase
Agreement will terminate, with each party responsible for its own costs and
expenses except that a party will remain liable for any material breach prior of
the Stock Purchase Agreement that occurred prior to the date of termination.
In the event of termination resulting from Rand's Board of Directors
withdrawing or modifying its recommendation to Rand's stockholders in a manner
that is adverse to Lower Lakes or failing to issue such recommendation in a
reasonably timely manner and if Rand consummates a business combination with an
entity other than Lower Lakes, the stockholders of Lower Lakes will be entitled
to a termination fee of $2,000,000.
Assignment
The Stock Purchase Agreement may not be assigned by any party without
prior written consent of the counterparty.
Amendment
The Stock Purchase Agreement may not be amended or modified except by an
instrument in writing signed on behalf of the party to be affected by such
change.
Further Assurances
Each of Rand and the Lower Lakes stockholders agreed that it will execute
and deliver, or cause to be executed and delivered, on or after the close of the
acquisition, all such other documents and instruments and will take all
reasonable actions as may be necessary to effectuate the transactions
contemplated by the Stock Purchase Agreement.
ESCROW AGREEMENT
Pursuant to the Stock Purchase Agreement, on the closing date of the
acquisition Rand, the stockholders of Lower Lakes and McMillan Binch Mendelsohn
LLP, as escrow agent, will enter into an escrow agreement in the form of Annex
C. The following description of the escrow agreement describes the material
terms of the escrow agreement but does not purport to describe all the terms of
the agreement. The complete text of the escrow agreement is attached as Annex C
to this document and is incorporated by reference into this document. We
encourage all stockholders to read the escrow agreement in its entirety.
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Creation of Escrow
At the closing of the acquisition, $2,000,000 of the purchase price will
not be paid presently to the stockholders of Lower Lakes but will instead be
transferred to the escrow agent.
Distribution of Escrowed Funds
If any post-closing adjustment in the purchase price in favor of Rand is
required (see "The Lower Lakes Stock Purchase Agreement--Working Capital -
Purchase Price Adjustment" on page 63) or if the stockholders of Lower Lakes
breach any representation, warranty or covenant, the escrow agent will pay to
either LL Acquisition or the stockholders of Lower Lakes (as applicable) the
amount directed by either written direction from the stockholders of Lower Lakes
and LL Acquisition, by final order, decree or judgment of a court of competent
jurisdiction or as may be demanded by either party without timely objection by
the other. The escrowed funds will only be available to satisfy claims that are
made within 15 months after the completion of the acquisition. On the 15th day
after the date which is 15 months after completion of the acquisition, any
remaining escrowed funds that have not been used to satisfy claims, or which are
not then in dispute, will be released to the stockholders of Lower Lakes that
were stockholders prior to the acquisition.
SECTION 116 ESCROW AGREEMENT
Pursuant to the Stock Purchase Agreement, on the closing date of the
acquisition, LL Acquisition Corp., Judy Kehoe, Mark Rohn, Tim Ryan and Ogilvy
Renault LLP, as Section 116 escrow agent, will enter into the Section 116 Escrow
Agreement in the form of Annex I. The following description of the Section 116
Escrow Agreement describes the material terms of the Section 116 Escrow
Agreement but does not purport to describe all the terms of the agreement. The
complete text of the Section 116 Escrow Agreement is attached as Annex I to this
document and is incorporated by reference into this document. We encourage all
stockholders to read the Section 116 Escrow Agreement in its entirety.
Creation of Escrow
At the closing of the acquisition, 1.64% of the portion of the purchase
price actually payable to Lower Lakes' stockholders will not be paid to the
stockholders of Lower Lakes but will instead be transferred to the Section 116
escrow agent.
Distribution of the Withheld Amount
If prior to the 29th day after the last day of the month in which the
closing of the acquisition occurs, Judy Kehoe, Mark Rohn and/or Tim Ryan (which
we will call the non-resident sellers) deliver to the Section 116 escrow agent
certain certificates pursuant to the Income Tax Act (Canada), the escrow agent
will pay to the non-resident sellers the withheld amount, which may be adjusted
in accordance with the Section 116 Escrow Agreement. If no certificate is
delivered by a non-resident seller to the Section 116 escrow agent by the end of
this period, the withheld amount in respect to such non-resident seller will be
remitted by the Section 116 escrow agent to the Receiver General for Canada as
contemplated by subsection 116(5) of the Income Tax Act (Canada), and such
amount shall be credited to LL Acquisition in respect of the purchase price paid
under the Stock Purchase Agreement.
EMPLOYMENT AGREEMENTS
On the closing date of the acquisition, each of Scott Bravener and James
Siddall will enter into an employment agreement. The following description
describes the material terms of the employment agreements but does not purport
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to describe all of the terms of the employment agreements. The complete text of
the form of employment agreement for each of Messrs. Bravener and Siddall is
attached as Annex D to this document and is incorporated by reference into this
document. We encourage all stockholders to read the form of each employment
agreement in its entirety.
Scope of Employment
The employment agreements provide that, after the acquisition, Scott
Bravener will be employed as the President and James Siddall as the Vice
President - Operations of Lower Lakes. Messrs. Bravener and Siddall are
collectively sometimes referred to as the employees. Other than these
differences in offices (and other requirements under applicable laws), the
employment agreements are substantially identical. The employment agreements of
Bravener and Siddall are for a period of two years.
Compensation
o Mr. Bravener is entitled to an annual salary in the amount of CDN
$190,000 and Mr. Siddall is entitled to an annual salary in the
amount of CDN $163,000;
o Messers. Bravener and Siddall are each entitled an annual
performance bonus pursuant to the performance bonus plan as adopted
by Lower Lakes. Any such bonus will be calculated based on criteria
to be established and determined by Lower Lakes and reasonably
satisfactory to Mr. Bravener; and
o Messers. Bravener and Siddall are eligible to participate in the
Management Bonus Program.
Fringe Benefits, Reimbursement of Expenses
Each employee is entitled, among other things, to:
o participate in all benefit programs, including the registered
retirement savings plan, established and made available to its
management employees;
o lease an automobile at a maximum monthly cost of not more than CDN
$860 and to reimbursement of all related expenses related to the
business use of such automobile; and
o reimbursement for any reasonable out-of-pocket expenses incurred in
the course of employment.
Termination Benefits
If the agreement is terminated by Lower Lakes for cause or by the employee
voluntarily without notice, Lower Lakes shall have no further obligations other
than to pay to employee the compensation and benefits through the last day of
his actual employment.
If the agreement is terminated by Lower Lakes without cause or by the
executive for good reason or for disability, then the employee is entitled to:
o any then accrued but unpaid base salary and performance bonus as of
the date of termination;
o payment of the base salary in effect at the time of termination for
a period of 24 months; and
o continuation of all benefit programs, including the registered
retirement savings plan, established and made available to Lower
Lakes' management employees for a period of 24 months.
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Cause means:
o employee's conviction of a criminal offence involving fraud,
larceny, misappropriation of funds, embezzlement or dishonesty;
o receipt by or on behalf of employee or any member of employee's
immediate family of any personal profit arising out of in connection
with a transaction to which Lower Lakes, Lower Lakes Transportation
or Grand River is party without making full prior disclosure to
Lower Lakes or Grand River;
o any misfeasance, nonfeasance or malfeasance by employee which causes
material harm to Lower Lakes or Grand River;
o the employee's material breach of the employment agreement, or
failure of the employee to follow and carry out the lawful
instructions of the Board of Directors of Lower Lakes or Grand
River, in each case after notice and reasonable opportunity for the
employee to cure such breach or failure;
o the employee having been under the influence of drugs (other than
prescription medicine or other medically-related drugs to the extent
that they are taken in accordance with their directions) or alcohol
during the performance of his duties; or
o the employee's engagement in behavior that would constitute grounds
for liability for sexual harassment or discrimination.
Good reason means:
o Lower Lakes assigning to the employee duties or responsibilities
inconsistent with or inappropriate for his position, provided Lower
Lakes has an opportunity to cure such assignment;
o failure by Lower Lakes to continue the Management Bonus Program in
effect in accordance with its terms or to provide the employee with
benefits and other pension or retirement plans substantially
consistent with those plans in which the employee has participated
in periods immediately prior to the acquisition;
o Lower Lakes relocating the employee's principal office outside of
Port Dover;
o a sale to a person or group of persons not affiliated with Lower
Lakes of all or substantially all of the assets of Lower Lakes;
o any person or group of persons acting in concert not affiliated with
Lower Lakes, becomes the beneficial owner, directly or indirectly,
of voting securities of Lower Lakes and/or securities convertible
into or exchangeable for voting securities of Lower Lakes, in the
aggregate representing directly, or following conversion or exchange
thereof, 50% or more of the combined voting power of Lower Lakes or
of any successor to Lower Lakes (in each case on a fully-diluted
basis) in any manner whatsoever; and
o any breach by Lower Lakes of any material term of the employment
agreement after notice to Lower Lakes of such breach and reasonable
opportunity to cure such breach.
Non-Competition and Non-Solicitation
Each employee is subject to restrictions during the term of each
respective employment agreement and for 24 months after the termination thereof,
including;
o the employee may not be employed by or an advisor to any competitor
to Lower Lakes or Grand River, or otherwise engage in a competitive
business in the U.S. or Canada; and
o the employee may not directly or indirectly solicit any customer,
employee or service provider away from Lower Lakes or Grand River.
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MANAGEMENT BONUS PROGRAM
Pursuant to the Stock Purchase Agreement, on the closing date of the
acquisition, Rand will adopt the Management Bonus Program in the form of Annex
J. The following description describes the material terms of the Management
Bonus Program but does not purport to describe all of the terms of the
Management Bonus Program. The complete text of the Management Bonus Program is
attached as Annex J to this document and is incorporated by reference into this
document. We encourage all stockholders to read the Management Bonus Program in
its entirety.
Purpose
The purpose of the Management Bonus Program is to retain persons eligible
to participate in the plan; motivate the participants to achieve long-term
company goals; and further align the participants' interests with those of
Rand's stockholders.
Participants
Participation in the Management Bonus Program is limited to Scott
Bravener, James Siddall, Mark Rohn, Jeffrey Botham, Anthony Walker, Robert
Pierson, Frank Bravener, Dave Scruton and John Carlson.
Awards
Participants are eligible to receive awards based on a formula that
adjusts an aggregate initial plan account balance of $3,000,000 by audited
earnings before interest, taxes, depreciation and amortization for fiscal years
2007 and 2008. Awards will be settled on July 31, 2008 and may be settled in
cash and/or shares of Rand's common stock, or any combination thereof, all in
the discretion of the plan administrator, and shall be subject to a cap which
limits appreciation of the initial plan account balance to the percentage
increase in the market price of Rand's common stock between the closing date and
the award settlement date.
Vesting
Subject to a participant's separation from service of Rand, on each of
March 31, 2006, 2007 and 2008, each participant then employed by Rand or one of
its affiliates shall vest into one-third of such participant's plan account
balance.
Registration Rights
Rand shall grant registration rights to any participant that is issued
shares of Rand's common stock in settlement of an award under the Management
Bonus Program.
Separation from Service
If a participant's service with Rand or its affiliates is terminated by
Rand for cause or by the participant voluntarily without notice (other than for
good reason, as defined in the participant's employment agreement, if
applicable), then such participant's rights to his plan account balance,
including any vested amounts, shall be forfeited, and such participant shall no
longer have any rights in or to its plan account balance or under the Management
Bonus Program.
If a participant incurs a voluntary separation from service with Rand or
its affiliate (other than for good reason) and who does provide appropriate
notice to Rand of such separation, the participant shall retain his rights in
his plan account balance to the extent such has vested as of the effective date
of separation, but shall, as of such effective date, cease to further vest in
such participant's plan account balance. Any unvested portion of a participant's
plan account balance resulting from such a separation from service shall be
added to the plan account balances of each then remaining participant in
proportion to the respective plan account balance of each such remaining
participant, and with respect to each such remaining participant, in proportion
to each such participant's vested and unvested plan account balance.
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If a participant's service with Rand or its affiliate is terminated by
Rand without cause or by the participant for good reason or for death or
disability, then the participant is entitled to:
o be considered fully vested with respect to the participant's plan
account balance; and
o have the option to elect to freeze the amount of such participant's
award as of the date of such separation from service, but with
payment of such amount not being made until July 31, 2008.
Cause means:
o participant's conviction of a criminal offence involving fraud,
larceny, misappropriation of funds, embezzlement or dishonesty;
o receipt by or on behalf of participant or any member of
participant's immediate family of any personal profit arising out of
in connection with a transaction to which Rand or its affiliate is
party without making full prior disclosure to Rand or such
affiliate;
o any misfeasance, nonfeasance or malfeasance by participant which
causes material harm to Rand or its affiliate;
o failure of participant to follow and carry out the lawful
instructions of his superior after notice and reasonable opportunity
for participant to cure such failure;
o the participant having been under the influence of drugs (other than
prescription medicine or other medically-related drugs to the extent
that they are taken in accordance with their directions) or alcohol
during the performance of his duties; or
o the participant's engagement in behavior that would constitute
grounds for liability for sexual harassment or discrimination.
REDEMPTION AGREEMENT
The following summary of the material provisions of the Redemption
Agreement, dated September 2, 2005, between Grand River Navigation Company, Inc.
and Grand River Holdings, Inc., is qualified by reference to the complete text
of the Redemption Agreement, a copy of which is attached as Annex K to this
document. All stockholders are encouraged to read the Redemption Agreement in
its entirety for a more complete description of the terms and conditions of the
redemption.
Structure of the Redemption
Immediately following the closing of the acquisition of Lower Lakes and
the transfer of the shares of Grand River owned by Lower Lakes to Rand LL
Holdings, Grand River will redeem those shares of its common stock held by Grand
River Holdings (which is not affiliated with Lower Lakes) and will therefore
become a wholly-owned subsidiary of Lower Lakes. As part of the reorganization
of Lower Lakes and its subsidiaries immediately following the closing, the
shares of Grand River held by Lower Lakes will be transferred to Rand LL
Holdings, a wholly-owned subsidiary of Rand.
Purchase Price - Payment
At the closing of the redemption, Grand River Holdings will be paid an
aggregate of $750,000 in cash for the shares of Grand River.
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Closing of the Redemption
The closing of the redemption will occur immediately following the closing
of Rand's acquisition of Lower Lakes and the transfer of the shares of Grand
River owned by Lower Lakes to Rand LL Holdings, unless Grand River and Grand
River Holdings agree in writing to another time.
Representations and Warranties
The Redemption Agreement contains a number of representations and
warranties that Grand River made to Grand River Holdings, and which Grand River
Holdings made to Grand River. The representations and warranties made by Grand
River Holdings to Grand River are as follows:
o authorization; execution and delivery; enforceability of the
Redemption Agreement;
o ownership of the shares;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees, as a result of
the contemplated transaction;
o receipt of all required consents and approvals;
o litigation; and
o absence of brokers or finders.
The representations and warranties made by Grand River to Grand River
Holdings are as follows:
o organization;
o authorization; execution and delivery; enforceability of the
Redemption Agreement;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees, as a result of
the contemplated transaction;
o receipt of all required consents and approvals;
o litigation; and
o absence of brokers or finders.
Non-Solicitation by Grand River
Grand River Holdings has agreed, from the date of the Redemption Agreement
and until the effective termination of the Redemption Agreement, that it will
immediately cease any existing discussions or negotiations with any person or
entity with respect to a business combination involving Grand River Navigation,
will not take any action to solicit, initiate, encourage or facilitate any
proposal or offer from, or furnish any information to, any person relating to
any business combination involving Grand River, and will not participate in any
discussions or negotiations regarding, or furnish any information to any person
in connection with, any proposed business combination involving Grand River.
Confidentiality
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Grand River Holdings agrees to hold in confidence all information of Grand
River which is non-public, confidential or proprietary in nature, other than
disclosures that are required by law or by Grand River Holdings' senior
management or representatives.
Indemnification
Grand River Holdings and Grand River agreed to hold harmless the other and
their respective representatives, successors and permitted assigns, for any
damages, whether as a result of any third party or otherwise, and which arise
from or in connection with a breach of representations, warranties and covenants
of Grand River Holdings or Grand River, respectively, in the Redemption
Agreement. Claims for indemnification by Grand River or representatives,
successors and permitted assigns shall not exceed $750,000 in damages. The
representations and warranties of the parties will survive the closing.
Grand River agrees not to change, for three years after the closing, the
provisions of its certificate of incorporation and bylaws relating to
indemnification of each present and former director of Grand River and any of
its subsidiaries in a manner that adversely affects the rights of such director.
Fees and Expenses
Each of Grand River Holdings, on the one hand, and Grand River, on the
other, shall be responsible for their own fees and expenses (including, without
limitation, legal and accounting fees and expenses) in connection with the
Redemption Agreement and the transactions contemplated thereby.
Public Announcements
Grand River and Grand River Holdings have agreed that any announcements
concerning the transactions provided for in the Redemption Agreement by Grand
River or Grand River Holdings shall be subject to the prior approval of all
parties, except that approval shall not be required as to any statements and
other information which any party may be required to make pursuant to any
applicable rule or regulation of the SEC, any United States or foreign
securities exchange or otherwise required by law.
Conditions to the Completion of the Redemption
Each of Grand River's and Grand River Holdings' obligations to effect the
redemption is subject to the satisfaction or waiver of specified conditions
before completion of the redemption, including the following:
Conditions to Grand River's obligations
The obligations of Grand River to effect the redemption are subject to the
following conditions:
o the representations and warranties of Grand River Holdings must be
true and correct;
o Grand River Holdings must have performed in all material respects
all covenants and agreements that are to be performed by it;
o the absence of any order or injunction preventing consummation of
the redemption;
o Grand River Holdings shall have obtained all written consents,
approvals, waivers or similar authorizations necessary to consummate
the acquisition and the transactions contemplated by the Redemption
Agreement;
o Grand River must have received an executed opinion from Grand River
Holdings' legal counsel, dated as of the closing of the redemption;
o the option agreement must have been executed and delivered by Sand
Products Corporation;
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o Grand River Holdings must have executed and delivered the
shareholder agreement termination;
o Grand River Holdings must, concurrently with the closing, have
changed its name to a name which does not include the words "Grand
River" or any component thereof;
o Grand River shall have received releases and resignations executed
by Grand River Holdings and each of its nominated board members,
respectively;
o Lake Service Shipping Company must have executed and delivered the
charter party agreement;
o Sand Products Corporation must have executed and delivered the
contracts of affreightment with each of Lower Lakes and Lower Lakes
Transportation;
o General Electric Capital Corporation must have released its lien on
the shares being purchased by Grand River;
o Lake Service Shipping Company must have executed and delivered the
set off rights agreement; and
o the transactions contemplated by the Stock Purchase Agreement must
have been completed concurrently with the transactions under the
Redemption Agreement.
Conditions to Grand River Holdings' obligations
The obligation of Grand River Holdings to effect the redemption is subject
to the following conditions:
o the representations and warranties of Grand River must be true and
correct;
o the transactions contemplated by the Stock Purchase Agreement must
have been completed concurrently with the transactions under the
Redemption Agreement;
o Grand River must have performed in all material respects all
covenants and agreements that are to be performed by them;
o the absence of any order or injunction preventing consummation of
the acquisition;
o Lower Lakes shall have consented to the transfer of purchased shares
under the Redemption Agreement;
o Grand River and Lower Lakes shall have executed the charter party
agreement;
o Lower Lakes and Lower Lakes Transportation shall have executed and
delivered the contracts of affreightment; and
o General Electric Capital Corporation must have released its lien on
the shares being purchased by Grand River.
Termination
The Redemption Agreement may be terminated at any time prior to the
closing of the redemption, as follows:
o by mutual consent of Grand River and Grand River Holdings; or
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o if the Stock Purchase Agreement is terminated.
Effect of Termination
In the event of termination, all further obligations and rights of the
parties under the Redemption Agreement will terminate, with each party
responsible for its own costs and expenses.
Assignment
The Redemption Agreement may not be assigned by any party without prior
written consent.
Amendment
The Redemption Agreement may not be amended or modified except by an
instrument in writing signed on behalf of the party to be affected by such
change.
Further Assurances
Each of Grand River and Grand River Holdings agreed that it will execute
and deliver, or cause to be executed and delivered, on or after the close of the
redemption, all such other documents and instruments and will take all
reasonable actions as may be necessary to effectuate the transactions
contemplated by the Redemption Agreement.
ACQUISITION FINANCING
Series A Convertible Preferred Stock
In connection with the acquisition of Lower Lakes, Rand entered into a
Preferred Stock Purchase Agreement, dated September 2, 2005 with Knott Partners
LP, Matterhorn Offshore Fund Ltd., Anno LP and Good Steward Fund Ltd., Bay II
Resource Partners, Bay Resource Partners L.P., Bay Resource Partners Offshore
Fund Ltd. and Thomas E. Claugus, whom we sometimes refer to as the investors. As
of November 30, 2005, Knott Partners LP and its affiliates beneficially owned
752,000 shares of Rand's common stock, representing approximately 13.4% of
Rand's outstanding common stock and approximately 16.4% of the IPO shares, and
warrants to purchase an additional 1,504,000 shares of Rand common stock.
Preferred Stock Purchase Agreement
The following description of the Preferred Stock Purchase Agreement
describes the material terms of the Preferred Stock Purchase Agreement but does
not purport to describe all the terms of the Preferred Stock Purchase Agreement.
The complete text of the Preferred Stock Purchase Agreement is attached as Annex
E to this document and is incorporated by reference into this document. We
encourage all stockholders to read the Preferred Stock Purchase Agreement in its
entirety.
Under the Preferred Stock Purchase Agreement, subject to the concurrent
closing of the acquisition, Rand agreed to issue 300,000 shares of its
newly-created series A convertible preferred stock to the investors for an
aggregate purchase price of $15,000,000. The purchase price is to be used by
Rand to fund the acquisition and for working capital purposes following the
acquisition.
The Preferred Stock Purchase Agreement contains a number of
representations and warranties that Rand and the investors made to each other.
The representations and warranties of Rand relate to:
o organization; good standing;
o subsidiaries;
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o authority; execution and delivery; enforceability of the Preferred
Stock Purchase Agreement;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees; receipt of all
required consents and approvals;
o corporate documents;
o capitalization; options;
o consents and approvals;
o SEC reports; financial statements;
o litigation;
o absence of brokers or finders;
o exemption of offering from the Securities Act of 1933;
o agreements;
o related party transactions;
o title to assets;
o employee benefits;
o taxes;
o insurance; and
o full disclosure.
The representations made to the investors by Rand relate to:
o organization; good standing;
o authority; execution and delivery; enforceability of the Preferred
Stock Purchase Agreement;
o absence of conflicts or violations under organizational documents,
certain agreements and applicable laws or decrees; receipt of all
required consents and approvals;
o litigation;
o absence of brokers or finders; and
o investment intent and accredited investor status.
The shares of series A convertible preferred stock purchased by the
investors will not be registered under the Securities Act of 1933, and will bear
restrictive legends that reflect this status. The securities will be issued in a
private placement in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended. Rand did not engage in
any general solicitation or advertisement for the issuance of these securities.
These securities will be purchased by a total of seven investors, which are
comprised of two groups of affiliated entities of which one is controlled by a
holder of a significant portion of Rand's outstanding securities. The investors
received copies of the documents related to Rand's acquisition of Lower Lakes
and had access to additional related due diligence materials. In connection with
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this issuance, each of these investors represented that (i) it is an accredited
investor as this term is defined in Regulation D under the Securities Act, (ii)
the securities it is acquiring cannot be resold except pursuant to a effective
registration under the Securities Act or in reliance on an exemption from the
registration requirements of the Securities Act, and that the certificates
representing such securities will bear a restrictive legend to that effect and
(iii) it intends to acquire the securities for investment only and not with a
view to the resale thereof.
The investors have agreed that, until the 18-month anniversary of the
closing of the acquisition, Rand may not engage in any "business combination"
(as defined in Section 203 of the Delaware General Corporation Law) with any of
these investors unless such business combination is approved by the holders of a
majority of shares of Rand's common stock (other than shares held by the
investors) entitled to vote at a meeting with respect to such business
combination.
The obligations of the investors under the Preferred Stock Purchase
Agreement are subject to satisfaction or waiver of specified conditions before
completion of the investment, including the following:
o the representations and warranties of Rand must be true and correct;
o Rand must have performed in all material respects all covenants and
agreements that are to be performed by it;
o the absence of any order or injunction preventing consummation of
the investment;
o Rand shall have obtained all written consents, approvals, waivers or
similar authorizations necessary to consummate the investment;
o Rand shall have filed the Certificate of Designations with the State
of Delaware;
o Rand shall have executed and delivered the Registration Rights
Agreement;
o the investors must have received a signed opinion, dated as of the
closing date, from legal counsel to Rand; and
o the transactions contemplated by the Stock Purchase Agreement shall
have been consummated.
The obligations of Rand under the Preferred Stock Purchase Agreement are
subject to satisfaction or waiver of specified conditions before completion of
the investment, including the following:
o the representations and warranties of the investors must be true and
correct;
o the investors must have performed in all material respects all
covenants and agreements that are to be performed by them;
o the absence of any order or injunction preventing consummation of
the investment;
o the investors shall have provided evidence to Rand that issuance of
the series A convertible preferred stock will not result in the
failure of Rand to be in continuous compliance with the U.S.
citizenship requirements of U.S. maritime laws and any provisions of
the certificate of incorporation or by-laws of Rand adopted from
time to time to ensure such compliance; and
o the transactions contemplated by the Stock Purchase Agreement shall
have been consummated.
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The representations and warranties in the Preferred Stock Purchase
Agreement will (with certain exceptions) survive for a period of 2 years. The
investors and Rand agreed to indemnify the other for breaches.
Certificate of Designations
The terms of the series A convertible preferred stock will be set forth in
a Certificate of Designations which will be filed with the State of Delaware on
or prior to the closing date of the acquisition. The following description of
the Certificate of Designations describes the material terms of the Certificate
of Designations but does not purport to describe all the terms of the
Certificate of Designations. The complete text of the Certificate of
Designations is attached as Annex F to this document and is incorporated by
reference into this document. We encourage all stockholders to read the
Certificate of Designations in its entirety.
Under the Certificate of Designations, the shares of series A convertible
preferred stock:
o will rank senior to all currently outstanding classes of stock of
Rand with respect to liquidation and dividends;
o will be entitled to receive a cash dividend at the annual rate of
7.75%, payable quarterly (subject to increases of 0.5% for each six
month period in respect of which the dividend is not timely paid, up
to a maximum of 12%, provided, and subject to reversion to 7.75%
upon payment of all accrued but unpaid dividends);
o will be convertible into shares of Rand's common stock at any time
at the option of the investors based on a conversion price of $6.20
per share (subject to adjustment as described below);
o will be convertible into shares of Rand's common stock (based on a
conversion price of $6.20 per share, subject to adjustment as
described below) at the option of Rand if, after the third
anniversary of the acquisition of Lower Lakes, the trading price of
Rand's common stock for 20 trading days within any 30 trading day
period equals or exceeds $8.50 per share (subject to adjustment in
the event of stock splits, reverse stock splits, stock dividends,
recapitalizations and similar events);
o may be redeemed by Rand in connection with a merger or acquisition
transaction which results in a change of control, or a sale of all
or substantially all of Rand's assets. Such a redemption shall be at
a price per share equal to $50.00 (subject to proportionate
adjustment in the event of any combinations, divisions or similar
recapitalizations affecting the series A convertible preferred
stock), plus 105% of accrued and unpaid dividends on such shares;
o will vote on an as-converted basis with Rand's common stock; and
o will have a separate vote over certain material transactions or
changes which Rand may wish to effect including: the creation of any
new class of preferred stock which would have a preference over, or
be on parity with, the series A convertible preferred stock with
respect to dividends or upon liquidation of Rand; the repurchasing
or redemption of shares of common stock or junior preferred stock
(or securities convertible into or exchangeable for shares of common
stock or junior preferred stock), other than the warrants issued in
connection with Rand's initial public offering and certain shares
held by employees; any increase in the number of authorized shares
of series A convertible preferred stock; any merger or consolidation
where Rand is not the surviving entity or where Rand's stockholders
do not own a majority of the surviving entity; and any sale of all
or substantially all of Rand's assets.
The conversion price of the series A convertible preferred stock will be
subject to adjustment as follows:
o in the event of a recapitalization, merger or other transaction in
which Rand's stockholders are entitled to receive securities or
other property with respect to their common stock, Rand or a
successor entity must agree that the shares of series A convertible
preferred stock will be convertible into such securities or other
property;
84
o the conversion price will be adjusted proportionately in the event
of stock splits, stock dividends, reverse stock splits and similar
events; and
o the exercise price will be adjusted based on a weighted-average
formula if, subject to certain exceptions, Rand issues shares of its
common stock at prices lower than the conversion price of the series
A convertible preferred stock, or issues other securities
exercisable for or convertible into its common stock at exercise or
conversion prices lower than the conversion price of the series A
convertible preferred stock.
There is no upper limit on the number of shares of Rand's common stock
into which the series A convertible preferred stock may be converted. This means
that if Rand needs to raise equity financing at a time when the market price for
Rand's common stock is lower than the conversion price of the series A
convertible preferred stock, or if Rand needs to provide a new equity investor
with a discount from the then prevailing market price, then the conversion price
of the series A convertible preferred stock will be reduced and the dilution to
shareholders increased.
In the event of a conversion of shares of series A convertible preferred
stock into common stock, the investors shall receive a subordinated promissory
note (in the form attached to the Certificate of Designations) for an amount
equal to any accrued and unpaid dividends through the date of such conversion.
Registration Rights Agreement
At the closing of the acquisition, Rand and the investors in the series A
convertible preferred stock will have entered into a Registration Rights
Agreement. The following description of the Registration Rights Agreement
describes the material terms of the Registration Rights Agreement but does not
purport to describe all the terms of the Registration Rights Agreement. The
complete text of the Registration Rights Agreement is attached as Annex G to
this document and is incorporated by reference into this document. We encourage
all stockholders to read the Registration Rights Agreement in its entirety.
o Demand Registration Rights
At any time commencing three months after the issuance of the series A
convertible preferred stock, the holders of a majority of the series A
convertible preferred stock may require on up to two occasions that Rand
register under the Securities Act of 1933 the shares of Rand's common stock that
are issuable upon conversion of their shares of series A convertible preferred
stock (which we refer to as the conversion shares). The securities covered by
any such demand must have an aggregate price to the public of at least
$7,500,000. Any such registration may be made on Form S-3 if Rand is then
eligible to use such form.
o Form S-3 Registration Rights
Rand is obligated to file a "shelf" registration statement within six
months of the issuance of the shares of the series A convertible preferred stock
(provided, that if Rand is eligible to file a registration statement of Form
S-3, then such filing shall be made no later than three months of the
acquisition) with respect to the conversion shares.
o Piggy-Back Registration Rights
If at any time after the issuance of the series A convertible preferred
stock, Rand proposes to file a registration statement under the Securities Act
of 1933 with respect to an offering of equity securities then the series A
convertible preferred stock investors will have the right to include their
conversion shares in the registration statement, subject to specific limitations
set forth in the Registration Rights Agreement.
85
o Limit on Sale of Securities
No conversion shares may be sold under any registration statement filed
under the Securities Act of 1933 prior to the six month anniversary of the
acquisition, and no more than one half of all conversion shares held by all of
the holders of series A convertible preferred stock (as a group) may be sold
under any registration statement filed under the Securities Act of 1933 prior to
the twelve month anniversary of the acquisition.
o Damages
In the event that Rand fails to comply with its registration obligations
under the Registration Rights Agreement, Rand could be liable for damages,
including damages based on the number of shares for which registration has been
requested and the then-current market price for Rand's common stock. The
Registration Rights Agreement does not provide for any penalties or other
specified damages amounts in the event of breach.
Senior Debt Facility
In addition to the issuance of the series A convertible preferred stock,
Rand received a commitment letter from GE Commercial & Industrial Finance, Inc.
with respect to a $28 million senior debt facility to be used by Rand at the
closing of the acquisition to refinance existing indebtedness of Lower Lakes,
Grand River and Lower Lakes Transportation and thereafter to provide working
capital for Lower Lakes and Lower Lakes Transportation. This senior debt
facility is to be comprised of a $5.5 million senior secured revolving credit
facility and a $22.5 million senior secured term loan. The terms of the senior
debt facility are as follows:
o The borrowers under the senior debt facility will be Lower Lakes,
Grand River and Lower Lakes Transportation.
o The senior debt facility has a five year term.
o The interest rate for Canada-based borrowings will be the Canadian
prime rate or the Canadian 30-day banker's acceptance rate (or the
equivalent thereof) and the interest rate for U.S.-based borrowings
will be, at Rand's option, the U.S. prime rate or the 1-, 2-, or
3-month reserve-adjusted LIBOR, plus a margin of 300 basis points
for banker's acceptance rate (or the equivalent thereof) or LIBOR
based loans and 200 basis points for U.S. or Canadian prime rate
loans.
o GE will receive a first priority security interest in all of the
current and future assets of each borrower, their parents (including
Rand) and their subsidiaries, if any, and all proceeds from the
disposition of such assets, as well as a pledge of stock of Lower
Lakes, Lower Lakes Transportation and Grand River.
GE's obligation to make the senior debt facility available is subject to certain
conditions, including the following:
o execution and delivery of final loan documents;
o satisfactory completion of GE's legal due diligence;
o all collateral securing the senior debt facility must be free and
clear of all other liens, claims and encumbrances;
o the borrowers must have acceptable cash management systems in place,
including the establishment of lockbox accounts with daily cash
sweeps;
o the borrowers must not be in violation of applicable laws, decrees
or material agreements;
o the corporate structure, capital structure, other debt instruments,
material contracts and governing documents of Rand, each borrower
and their affiliates, and all documents relating to the acquisition
and all tax effects of the acquisition, must be acceptable to GE;
o the borrowers must have paid all applicable fees, transaction
expenses and other amounts due to GE in connection with
establishment of the senior debt facility;
o the management structure, membership of the board of directors and
board selection procedures of the borrowers must be reasonably
acceptable to GE, and GE must be reasonably satisfied regarding the
status of the borrowers' continuing management;
o the borrowers shall have subordinated and postponed any debt owed to
any related party, and all liens related to such debt shall have
been waived or terminated;
o satisfactory verification of the borrowers' accounts receivable and
related liquidity factors;
o the legal documents related to the acquisition shall be acceptable
to GE, and the total purchase price, including the amount necessary
to retire the current indebtedness of Lower Lakes, Lower Lakes
Transportation and Grand River, shall not exceed $54,000,000 plus a
working capital adjustment, and Rand's total fees and closing costs,
including amounts payable to GE, shall not exceed $3,000,000;
o the aggregate purchase price payable in connection with the
acquisition, including the amount necessary to retire the current
indebtedness of Lower Lakes, Lower Lakes Transportation and Grand
River, shall be funded with the proceeds of Rand's trust account,
$15,000,000 from Rand's offering of its series A convertible
preferred stock and the proceeds of the senior debt facility;
o at least $2,000,000 will be deposited in a sinking fund from the
proceeds from Rand's trust account and Rand's offering of its series
A convertible preferred stock;
o the total indebtedness of the borrowers at closing will not exceed
$24,000,000;
o GE must be satisfied with the terms of the Management Bonus Program
to be adopted by Lower Lakes on the closing date of the acquisition;
o the ratio of senior funded debt to the combined EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization) of the
borrowers on the closing date shall not exceed 2.75;
o Deloitte and Touche LLP shall have provided GE with satisfactory
financial statements of the borrowers, prepared in accordance with
U.S. generally accepted accounting principles;
o receipt of a satisfactory appraiser's report with confirmation of
projected dry-dock and winter work schedule and expenses of the
borrowers;
o receipt of satisfactory updated desktop appraisals of the borrowers'
vessels;
o receipt of satisfactory legal opinions from the borrowers' outside
legal counsel;
o receipt of satisfactory evidence of the solvency of the borrowers;
o delivery by borrowers of necessary or appropriate waivers or
consents of applicable governmental entities and third parties;
o the borrowers shall have insurance coverage acceptable to GE,
including provision for GE to be an additional insured and loss
payee; and
o on the closing date, no fact, event or circumstance shall have
occurred, alone or in combination with others, which has or is
reasonably likely to have a material adverse effect on any borrower,
the collateral for the senior debt facility or related liens, or the
validity or enforceability of any of the loan documents, or which
materially impairs or is reasonably likely to materially impair the
borrowers' ability to perform their obligations or GE's ability to
enforce the loan documents.
INFORMATION ABOUT LOWER LAKES
Business of Lower Lakes
Lower Lakes' shipping business is operated in Canada by Lower Lakes Towing
Ltd. and in the United States by Lower Lakes Towing's wholly-owned subsidiary,
Lower Lakes Transportation Company. For ease of reference, we refer to the
combined business of Lower Lakes and Lower Lakes Transportation as the business
of Lower Lakes.
Lower Lakes was organized in March 1994 under the laws of Canada to
provide marine transportation services to dry bulk goods suppliers and
purchasers operating in ports in the Great Lakes that were restricted in their
ability to receive larger vessels. Lower Lakes has grown from its origin as a
small tug and barge operator to a full service shipping company with a fleet of
eight cargo-carrying vessels. From its exclusively Canadian beginnings, Lower
Lakes has also grown to offer domestic services to both Canadian and U.S.
customers as well as cross-border routes.
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Lower Lakes is a leader in the provision of River Class bulk freight
shipping services throughout the Great Lakes, operating more than one-third of
all River Class vessels servicing the Great Lakes and the majority of
boom-forward equipped vessels in this category. Lower Lakes services the
construction, electric utility and integrated steel industries through the
transportation of limestone, coal, iron ore, salt, grain and other dry bulk
commodities.
Lower Lakes' management believes that Lower Lakes is the only company
providing significant domestic port-to-port services to both Canada and the
United States in the Great Lakes region. Lower Lakes maintains this operating
flexibility by operating both U.S. and Canadian flagged vessels in compliance
with the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly
referred to as the Jones Act, in the U.S. and the Coasting Trade Act (Canada) in
Canada. Lower Lakes' fleet consists of four self-unloading bulk carriers in
Canada and three self-unloading bulk carriers as well as a tug and a
self-unloading barge in the U.S. Lower Lakes owns three of the four Canadian
vessels and its wholly-owned subsidiary, Port Dover Steamship Company Inc., owns
the fourth and charters it to Lower Lakes. Lower Lakes Transportation time
charters the five vessels in the U.S. from Grand River, which owns three of the
U.S. flagged vessels and charters the fourth and the barge from a third party
under long term charter arrangements.
Current Corporate Structure
The following diagram depicts the current corporate structure of Lower
Lakes and its subsidiaries, as well as ownership of each vessel in the Lower
Lakes fleet.
------------------
Lower Lakes Towing ----------------
Ltd. (Owns and Lake Services
operates Cuyahoga, Shipping Company
Saginaw and -------- -------------- (owns McKee Sons
Mississagi, and \ Grand River (barge) and
operates \ Holdings, Inc. Manistee)
Michipicoten) \ -------------- ----------------
------------------ 25% \ | | Bareboat
^ | | \ | 75% | charter
Charter | | 100% | 100% \ | |
| v v \ v v
------------- ----------------- \ ---------------------
Port Dover Lower Lakes \ Grand River
Steamship Transportation ------> Navigation Co. Inc.
Company Inc. Company (Time (Owns and operates
(owns charters Calumet, <---------------- Calumet, Maumee and
Michipicoten) Maumee, McKee Time charter Invincible (tug) and
------------- Sons, Manistee bare boat charters
and Invincible McKee Sons and
(tug)) Manistee)
----------------- ---------------------
The Great Lakes Dry Bulk Shipping Industry
According to the 2004 Lake Carriers' Association Annual Report, major dry
bulk cargo shipped on the Great Lakes totaled approximately 169.9 million net
tons in 2004. In 2004, iron ore comprised approximately 37% of all dry bulk
commodities transported on the Great Lakes, coal comprised approximately 24% of
all dry bulk commodities transported and limestone comprised approximately 24%
of all dry bulk commodities transported. The balance of dry bulk freight
includes grain, salt, cement, and potash.
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Lower Lakes' management believes that the demand for shipping on the Great
Lakes is generally related to the state of the economy as it supports a variety
of industries including construction, agriculture, steel and other industrial
manufacturing segments. The shipping season generally runs from the end of March
through December or mid-January. The length of the season is affected by weather
conditions, port access, the mandated closing of the locks, as well as customer
demand.
=================================================================================================================================
Major Great Lakes Dry
Bulk Commerce
(in thousands of net tons) Year Ended December 31,
-------------------------------------------------------------------------------------------
Commodity 2000 2001 2002 2003 2004 5-Year Avg.
- ---------------------------------------------------------------------------------------------------------------------------------
Iron Ore 69,565 55,674 58,917 55,341 62,614 60,422
Coal 41,989 44,355 41,912 39,754 39,937 41,589
Limestone 38,119 37,905 37,537 34,183 40,222 37,593
Grain 15,099 14,011 12,095 11,625 11,668 12,900
Salt 6,093 7,671 7,288 8,507 9,240 7,760
Cement 5,579 5,470 5,342 5,390 5,508 5,458
Potash 689 564 587 579 729 630
-------------------------------------------------------------------------------------------
Total 177,133 165,650 163,678 155,379 169,918 166,352
-------------------------------------------------------------------------------------------
Source: 2004 Statistical
Annual Report of the Lake
Carriers' Association
=================================================================================================================================
Compared to these figures, limestone represents a significantly greater
percentage, and iron ore a significantly lower percentage, of the dry bulk
commodities shipped by Lower Lakes. Based on relative historic volatility, Lower
Lakes' management believes that this balance of shipped cargo results in lower
risk to Lower Lakes.
Because of the restrictions imposed by U.S. and Canadian maritime laws,
the Great Lakes shipping industry has been dominated by Canadian and U.S. owned
fleets. According to Greenwood's Guide to Great Lakes Shipping (April 2005
edition), in 2005 there are approximately 113 dry bulk carriers in the combined
American and Canadian Great Lakes fleets. Lower Lakes' management believes that
approximately 86 of these vessels are self-unloaders, with 49 vessels being U.S.
flagged and 37 vessels being Canadian flagged. Self-unloaders generally utilize
tunnel belt systems, which are contained within the vessel cargo holds, to carry
commodities to elevating conveyors for discharge by long unloading booms. They
are capable of transporting and unloading almost any free-flowing, dry bulk
commodity, including stone aggregates, iron ore, coal, limestone, sand, gypsum,
and grain. Self-unloaders can fully discharge their cargoes in as little as four
hours at an unimproved dock and without assistance from any shore-side equipment
or shore-side personnel. By contrast, unloading a conventional bulk carrier can
take up to thirty-six hours and requires ports to own, operate, and maintain
costly and labor-intensive shore-based unloading facilities.
There are two kinds of self-unloading vessels: boom forward - those with
their booms located in front of the cargo holds - and boom aft. Boom forward
self-unloaders offer greater accessibility for delivery of cargo to locations
where only forward access is possible. Seven of the vessels used in Lower Lakes'
operations are boom forward self-unloaders and one vessel is a boom aft
self-unloader.
River Class vessels represent the smaller end of Great Lakes vessels with
maximum dimensions of approximately 650 feet in length and 72 feet in beam, with
carrying capacities of 15,000 to 20,000 tons. Lower Lakes' management believes
that River Class vessels are ideal for customers seeking to move significant
quantities of dry bulk product to ports which restrict non-River Class vessels
due to size and capacity constraints. Of the 37 Canadian self-unloading vessels
currently in operation, seven are River Class, each of which is boom forward.
Lower Lakes operates three of these vessels. The U.S. Great Lakes fleet includes
12 River Class vessels, four boom forward, eight boom aft. Lower Lakes
Transportation operates four of the boom forward vessels, one of which is the
barge.
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Business Strategy
Lower Lakes' strategy and business model includes the following:
o Selected acquisitions. Since October 1999, Lower Lakes has added
seven cargo-carrying vessels to its fleet, making Lower Lakes one of
the most acquisitive shipping companies in the Great Lakes region.
Lower Lakes' management believes that the acquisition of additional
vessels would provide Lower Lakes with a larger share of the
available River Class capacity, provide additional operating
flexibility and extend the longevity of the Lower Lakes' fleet.
Lower Lakes' management is actively pursuing acquisition
opportunities but is not committed to any acquisitions at the
present time;
o New customer relationships and long-term contracts. Lower Lakes'
management believes that opportunities exists to enter into
additional long-term contracts with new customers. Lower Lakes'
management believes that Lower Lakes has historically built strong
relationships with its customers, who Lower Lakes' management
believes view Lower Lakes as a strategic supplier offering lower
costs and greater flexibility than the larger shipping companies;
and
o Expand existing customer relationships. In addition to gaining new
customers, Lower Lakes' management believes opportunities exist for
Lower Lakes to increase its business with existing customers.
Shipping Operations
Lower Lakes' fleet consists of four self unloading bulk carriers in
Canada, owned by Lower Lakes and its wholly-owned subsidiary, Port Dover
Steamship Company Inc., and operated by Lower Lakes, and three self-unloading
bulk carriers as well as a tug and a self-unloading barge in the U.S., which are
time chartered by Lower Lakes Transportation Company. These figures include the
reactivation of the Maumee, which is owned by Grand River and which sat idle
during fiscal 2005 pending completion of a refit necessary to complete its
five-year survey. Seven of the vessels are River Class self-unloading bulk
carriers.
Fleet Overview
Lower Lakes Towing
--------------------------------------------------------------------------
Vessel Name Vessel Type Estimated Remaining
Vessel Life*
M/V Cuyahoga Boom forward, self-unloading 30 years
S/S Michipicoten Boom aft, self-unloading 43 years
M/V Mississagi Boom forward, self-unloading 31 years
S/S Saginaw Boom forward, self-unloading 16 years
Grand River Navigation
--------------------------------------------------------------------------
M/V Calumet Boom forward, self-unloading 9 years
M/V Invincible Tug 25 years
M/V Maumee Boom forward, self-unloading 11 years
McKee Sons Boom forward, self-unloading 13 years
M/V Manistee Boom forward, self-unloading 30 years
* Based on surveys conducted during 2002-2005 by DuFour, Laskey &
Strouse, Inc. Not necessarily indicative of useful economic life.
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Based on surveys conducted during 2002-2005, despite their ages, all of
Lower Lakes' vessels have significant remaining surveyed lives. This, in part,
is due to the fact that the vessels generally have not been operated in the
corrosive salt water environment of the lower St. Lawrence River and generally
have not been subjected to the rigors of the seaway system.
Notwithstanding the surveyed lives above, Lower Lakes' management has
selected an estimated useful economic life of 10-15 years for accounting
purposes. This depreciation policy is consistent with management's estimate that
after a 10-15 year period, the average vessel will not be contributing positive
cash flows due to the increasing maintenance costs and capital investments
required as the vessels age.
In addition, Lower Lakes' management has pursued a program of continuous
upgrading and modernization of equipment in order to ensure that the vessels
remain operable on an efficient basis. Notwithstanding the surveyed lives above,
Lower Lakes' management has selected a vessel depreciation policy of 10-15 years
for accounting purposes. This depreciation policy is consistent with
management's estimate that after a 10-15 year period, the average vessel will
not be contributing positive cash flows due to the increasing maintenance costs
and capital investments required as the vessels age. Lower Lakes' Canadian
operations are managed from leased offices in Port Dover, Ontario. Lower Lakes'
U.S. operations are based in Buffalo, New York (Lower Lakes Transportation) and
Cleveland, Ohio (Grand River Navigation).
Each of the vessels except for the Michipicoten belongs to the River Class
category and is a self-unloader with boom forward, providing the ability to
discharge its own cargo without the need for onshore equipment or personnel. The
fleet operates for approximately nine months of the year. The winter shutdown
from January through March of each year is utilized for dry docking and
maintenance.
Vessel Maintenance
Lower Lakes' vessels do not operate in salt water. As a result, the level
of hull corrosion suffered by the fleet is significantly lower than that which
would have been experienced by vessels operating in salt water of a similar age.
Through a regular cycle of winter maintenance and dry-docking, Lower Lakes seeks
to maintain a high standard of repair and reliability.
Winter Repairs and Dry Docking
Lower Lakes' vessels require general maintenance and capital upgrades each
year to ensure the fleet operates efficiently during the shipping season and to
minimize downtime during the operating season. This work is completed during
January, February, and March each year when the vessels are not active. The age
of the vessels, combined with the prohibitive replacement cost of a vessel,
increases the importance of having an appropriate maintenance program.
Historically, the cost of winter work averages approximately $500,000 per
vessel. Between 40% and 60% of the winter work projects have been expensed as
maintenance expenditures, with the balance of winter work expenditures
capitalized. Capitalized winter work expenditures include items such as steel
replacement and engine overhauls.
Every vessel on the Great Lakes must be dry docked, inspected, and
certified every four years in Canada and five years in the U.S., although
one-year extensions are frequently granted. This certification in the U.S. is
known as the five-year survey. Dry docking certification entails the visual
inspection and measurement of all parts of the vessel that are located
underwater. Certification also requires the inspection of the internal structure
of the vessel, all fuel tanks, the main deck, cargo holds, and several other
parts of the vessel. Any required repairs are made at this time. In addition, it
is normal to paint the underwater portion of the vessel's hull and make repairs
as required to any bow or stern thrusters during the certification process. Dry
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docking expenses are capitalized when incurred and amortized over the benefit
period, which is either four to five years for Canadian vessels or five to six
years for U.S. vessels. Historically, the cost of the certification process for
each vessel has averaged approximately $625,000. Such costs could be
dramatically higher in the future depending on the nature of repairs required.
The following table sets forth the historical and currently anticipated
drydocking schedule for each vessel in the Lower Lakes fleet.
Historical and Projected Dry Docking Schedule
Lower Lakes Towing
Vessel Name F2001 F2002 F2003 F2004 F2005 F2006 F2007 F2008
M/V Cuyahoga Mar. 31, Mar. 31,
2001 2006
S/S Michipicoten June 30, Mar. 31,
2003 2008
M/V Mississagi Mar. 31, Mar. 31,
2003 2008
S/S Saginaw Aug. 31, Aug. 31,
2001 2006
Grand River Navigation
Vessel Name F2001 F2002 F2003 F2004 F2005 F2006 F2007 F2008
M/V Calumet Mar. 31,
2003
M/V Invincible Mar. 31, Mar. 31,
2001 2006
M/V Maumee Apr. 30,
2005
McKee Sons Aug. 31, Aug. 31,
2001 2007
M/V Manistee Dec. 17,
2004
Value of Vessels
Appraisals of the vessels performed in 2004 indicate the fair market value
of Lower Lakes' owned fleet to be in excess of $36 million. Lower Lakes'
management estimates that the cost of replacing a River Class self-unloader with
a new vessel would be in excess of $35 million and that the cost of converting a
conventional bulk carrier to a self-unloader is estimated to be in excess of $15
million. Lower Lakes' management also believes that, if properly maintained,
older Great Lakes vessels could have very long economic lives. The life of a
vessel depends on the condition of the hull, as the mechanical parts can be
replaced during a vessel's life. Vessels of older vintage were built with very
heavy scantlings (i.e., thick steel). Modern vessels are built with lighter,
thinner steel, which has less tolerance for corrosion. The Mississagi, Manistee
and Cuyahoga, in particular, were built with exceptionally thick steel hulls for
the U.S. government during WWII and therefore have longer useful lives than
vessels built with lighter scantlings.
Customers
Lower Lakes services approximately 50 customers in a diverse array of end
markets by shipping dry bulk commodities such as construction aggregates, coal,
grain, iron ore and salt. Lower Lakes' top ten customers accounted for
approximately 71% of its revenue in fiscal 2005, although Lower Lakes has
relatively low customer concentration with no customer accounting for more than
26% of revenue in fiscal 2005. Lower Lakes is the sole-source shipping provider
to several of its customers. Many of Lower Lakes' customers are under long-term
contracts with Lower Lakes, which typically average three to five years in
duration and provide for minimum and maximum tonnage, annual price escalation
features, and fuel surcharges.
Competition
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Lower Lakes faces competition from other marine and land-based
transporters of dry bulk commodities in and around the Great Lakes area. In the
River Class market segment, Lower Lakes generally faces two primary competitors:
Seaway Marine Transport and United Shipping Alliance. Seaway Marine Transport is
a Canadian traffic and marketing partnership, which owns 22 self-unloading
vessels, 4 of which are River Class boom forward vessels. United Shipping
Alliance operates in the U.S. and maintains a fleet of 22 vessels, 7 of which
are River Class.
Lower Lakes' management believes that industry participants compete on the
basis of customer relationships, price, and service, and that the ability to
meet a customer's schedule and offer shipping flexibility is a key competitive
factor. Lower Lakes' management believes that customers are generally willing to
continue to use the same carrier assuming such carrier provides satisfactory
service with competitive pricing.
Government and Other Regulations
While foreign import and export traffic is open to free market competition
within the Great Lakes, water-borne domestic carriage between U.S. ports or
Canadian ports on the Great Lakes is currently governed by either the Shipping
Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones
Act, in the U.S., which we sometimes refer to as the U.S. maritime laws, or the
Coasting Trade Act (Canada). These Acts provide that only vessels owned and
flagged in their respective countries can move cargo between domestic ports,
unless, in the case of Canada, there is not Canadian-flagged vessel available to
perform the required service.
The U.S. maritime laws restrict the carriage of cargo between U.S. ports
to U.S-flagged vessels that are built, crewed and owned by U.S. citizens. Under
U.S. maritime law, U.S. shipping companies in the domestic trade must be at
least 75% owned and controlled by U.S. citizens. Although the owner of a U.S.
vessel must meet the citizenship requirements in order to participate in
domestic trade, a time charterer who does not control the vessel, except to
obtain cargo and direct its movements, is not required to meet those
requirements.
Under the Canada Shipping Act, Canadian companies operating
Canadian-flagged vessels can be entirely foreign-owned and operated, provided
the entity is domiciled in Canada. Neither U.S. maritime law nor the Coasting
Trade Act (Canada) has been affected by NAFTA, and Lower Lakes' management
believes they are not likely to be materially amended in the foreseeable future
despite ongoing lobbying efforts.
Environmental Regulation
The United States Oil Pollution Act of 1990, or OPA, established an
extensive regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or whose vessels
operate in United States waters, which includes the Great Lakes and their
connecting and tributary waterways.
Under OPA, vessel owners, operators and bareboat charterers are
"responsible parties" and are jointly, severally and strictly liable (unless the
spill results solely from the act or omission of a third party, an act of God or
an act of war) for all containment and clean-up costs and other damages arising
from discharges or threatened discharges of oil from their vessels, including
bunkers (fuel).
OPA limits the liability of responsible parties to the greater of $600 per
gross ton or $0.5 million per dry bulk vessel that is over 300 gross tons
(subject to possible adjustment for inflation). These limits of liability do not
apply if an incident was directly caused by violation of applicable United
States Federal safety, construction or operating regulations or by a responsible
party's gross negligence or willful misconduct, or if the responsible party
fails or refuses to report the incident or to cooperate and assist in connection
with oil removal activities.
OPA specifically permits individual states to impose their own liability
regimes with regard to oil pollution incidents occurring within their
boundaries, and some 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 vessels
owners' responsibilities under these laws. Lower Lakes materially complies with
all applicable state regulations in the ports where its vessels call.
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Lower Lakes is also subject to potential liability arising under the U.S.
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
which applies to the discharge of hazardous substances, whether on land or at
sea. Specifically, CERCLA provides for liability of owners and operators of
vessels for cleanup and removal of hazardous substances and provides for
additional penalties in connection with environmental damage. Liability under
CERCLA for releases of hazardous substances from vessels is limited to the
greater of $300 per gross ton or $5 million per incident unless attributable to
willful misconduct or neglect, a violation of applicable standards or rules, or
upon failure to provide reasonable cooperation and assistance. CERCLA liability
for releases from facilities other than vessels is generally unlimited. Lower
Lakes is required to show proof of insurance, surety bond, self insurance or
other evidence of financial responsibility to pay damages under OPA and CERCLA
in the amount of $1,500 per gross ton for vessels, consisting of the sum of the
OPA liability limit of $1,200 per gross ton or $10 million per discharge and the
CERCLA liability limit of $300 per gross ton or $5 million per discharge. Lower
Lakes has satisfied these requirements and obtained a U.S. Coast Guard
Certificate of Financial Responsibility. OPA and CERCLA each preserve the right
to recover damages under other existing laws, including maritime tort law.
The U.S. Federal Water Pollution Control Act, also referred to as the
Clean Water Act, or CWA, imposes restrictions and strict controls on the
discharge of pollutants into navigable waters, and such discharges generally
require permits. The CWA provides for civil, criminal and administrative
penalties for any unauthorized discharges and imposes substantial liability for
the costs of removal, remediation and damages. State laws for the control of
water pollution also provide varying civil, criminal and administrative
penalties and liabilities in the case of a discharge of petroleum, its
derivatives, hazardous substances, wastes and pollutants into state waters. In
addition, the Coastal Zone Management Act authorizes state implementation and
development of programs of management measures for non-point source pollution to
restore and protect coastal waters.
The U.S. Federal Clean Air Act of 1970, as amended by the Clean Air Act
Amendments of 1977 and 1990, or CAA, requires the EPA to promulgate standards
applicable to emissions of volatile organic compounds and other air
contaminants. Lower Lakes' vessels are subject to vapor control and recovery
requirements for certain cargoes when loading, unloading, ballasting, cleaning
and conducting other operations in regulated port areas. In addition, in
December 1999, the EPA issued a final rule regarding emissions standards for
marine diesel engines. The final rule applies emissions standards to new engines
beginning with the 2004 model year. In the preamble to the final rule, the EPA
noted that it may revisit the application of emissions standards to rebuilt or
remanufactured engines, if the industry does not take steps to introduce new
pollution control technologies. As of 2004, U.S. EPA was considering standards
for new marine diesel engines with per cylinder displacement below 30 liters
that would apply to marine diesel engines used in commercial applications,
except for oceangoing vessels. Finally, the EPA recently entered into a
settlement that will expand this rulemaking to include certain large diesel
engines not previously addressed in the final rule. Adoption of such standards
could require modifications to some existing marine diesel engines and may
result in material expenditures. The CAA also requires states to draft State
Implementation Plans, or SIPs, designed to attain national health-based air
quality standards in primarily major metropolitan and/or industrial areas. Where
states fail to present approvable SIPs or SIP revisions by certain statutory
deadlines, the U.S. Federal government is required to draft a Federal
Implementation Plan. Several SIPs regulate emissions resulting from barge
loading and degassing operations by requiring the installation of vapor control
equipment.
In Canada, a number of laws and regulations aimed at preventing and
penalizing marine pollution are applicable to Lower Lakes' shipping activities.
For instance, the Canada Shipping Act and the regulations thereunder contain
provisions prohibiting the discharge of pollutants from ships, requiring the
reporting of any such discharges, as well as construction and equipment
standards, and labeling and handling requirements for dangerous substances and
materials in transport. In addition, Canada's Migratory Birds Convention Act
(1994), the Canadian Environmental Protection Act, 1999, and the Fisheries Act
also contain provisions relating to the marine environment and water pollution.
The penalties for violations of the Migratory Birds Convention Act were amended
in 2005, bringing them into alignment with penalties applicable in the United
States, and, as a result, the maximum fine has been increased to $1,000,000.
Security Regulations
In the United States, since the terrorist attacks of September 11, 2001,
there have been a variety of initiatives intended to enhance vessel security. On
November 25, 2002, the Maritime Transportation Security Act of 2002, or MTSA,
came into effect. To implement certain portions of the MTSA, in July 2003, the
United States Coast Guard issued regulations requiring the implementation of
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certain security requirements aboard vessels operating in waters subject to the
jurisdiction of the United States. Similarly, in December 2002, amendments to
the International Convention for the Safety of Life at Sea, or SOLAS, created a
new chapter of the convention dealing specifically with maritime security. The
new chapter went into effect on July 1, 2004, and imposes various detailed
security obligations on vessels and port authorities, most of which are
contained in the newly created International Ship and Port Facilities Security,
or ISPS Code. In Canada, similar legislation and regulations have been adopted
and are in force. Among the various requirements of these laws and regulations
are:
o on-board installation of automatic information systems, or AIS, to
enhance vessel-to-vessel and vessel-to-shore communications;
o the development of vessel security plans; and
o compliance with flag state security certification requirements.
Inspection by Classification Societies
Every seagoing vessel must be "classed" by a classification society. The
classification society certifies that the vessel is "in class," signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.
The classification society also undertakes, on request, other surveys and
checks that are required by regulations and requirements of the flag state.
These surveys are subject to agreements made in each individual case or to the
regulations of the country concerned. For maintenance of the class, regular and
extraordinary surveys of hull, machinery, including the electrical plant, and
any special equipment classed are required to be performed as follows:
o Annual Surveys: For seagoing ships, annual surveys are conducted for
the hull and the machinery (including the electrical plant) and
where applicable, for special equipment classed, at intervals of 12
months from the date of commencement of the class period indicated
in the certificate.
o Intermediate Surveys: Extended annual surveys are referred to as
intermediate surveys and typically are conducted two and one-half
years after commissioning and each class renewal. Intermediate
surveys may be carried out on the occasion of the second and third
annual survey.
o Class Renewal Surveys: Class renewal surveys, also known as special
surveys, are carried out for the ship's hull, machinery (including
the electrical plant), and for any special equipment classed, at the
intervals indicated by the character of classification for the hull.
At the special survey, the vessel is thoroughly examined, including
audio-gauging to determine the thickness of the steel structures.
Should the thickness be found to be less than class requirements,
the classification society would prescribe steel renewals. The
classification society may grant a one-year grace period for
completion of the special survey. Substantial amounts of money may
have to be spent for steel renewals to pass a special survey if the
vessel experiences excessive wear and tear. In lieu of the special
survey every four or five years, depending on whether a grace period
was granted, a shop owner has the option of arranging with the
classification society for the vessel's integrated hull or machinery
to be on a continuous survey cycle, in which every part of the
vessel would be surveyed within a five-year cycle.
Risk of Loss and Liability Insurance
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The operation of any cargo vessel includes risks such as mechanical
failure, physical damage, collision, property loss, cargo loss or damage and
business interruption due to political circumstances in foreign countries,
hostilities, and labor strikes. In addition, there is always an inherent
possibility of marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating vessels in
international trade. OPA, which imposes virtually unlimited liability upon
owners, operators and demise charterers of any vessel trading in the United
States exclusive economic zone for certain oil pollution accidents in the United
States, has made liability insurance more expensive for ship owners and
operators trading in the United States market. While we believe that Lower
Lakes' present insurance coverage is adequate, not all risks can be insured, and
there can be no guarantee that any specific claim will be paid, or that Lower
Lakes will always be able to obtain adequate insurance coverage at reasonable
rates.
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Legal Proceedings
Lower Lakes is not involved in any legal proceedings which may have a
significant effect on its business, financial position, results of operations or
liquidity, nor is Rand aware of any proceedings that are pending or threatened
which may have a significant effect on its business, financial position, results
of operations or liquidity. From time to time, Lower Lakes may be subject to
legal proceedings and claims in the ordinary course of business, involving
principally commercial charter party disputes. It is expected that these claims
would be covered by insurance if they involve liabilities such as arise from
collision, other marine casualty, damage to cargoes, oil pollution, death or
personal injuries to crew, subject to customary deductibles. Those claims, even
if lacking merit, could result in the expenditure of significant financial and
managerial resources.
Employees
As of December 31, 2004, Lower Lakes had approximately 230 full-time
employees, 18 of whom were management and 212 were operational. Approximately
42% of Lower Lakes' employees (all U.S. based Grand River Navigation crew) are
unionized with the International Organization of Masters, Mates and Pilots,
AFL-CIO. The existing labor agreement has been recently extended through March
2007. Lower Lakes has never experienced a work stoppage as a result of labor
issues, and Lower Lakes' management believes that its employee relations are
good.
The Seafarers International Union of Canada, or SIU, has attempted without
success to organize Lower Lakes' unlicensed employees in each of the past
several years, and is attempting to do so again. SIU and Lower Lakes recently
completed a proceeding before the Canada Industrial Relations Board, or CIRB. It
was recommended by the CIRB to attempt to mediate a settlement of the complaint
rather than carry through the hearing in an effort to establish more manageable
terms of relations with the union in future organizing attempts. To that end,
one outcome of the settlement was that in exchange for union organizers ceasing
attempts to access Lower Lakes' vessels, the union would be granted access to
each vessel for a one hour information session in the presence of a labor board
officer and that employee attendance would be strictly voluntary. The process
would be repeated in approximately one calendar year, and the union would not be
allowed access to the vessels or customer facilities at any other time. Although
Lower Lakes' management believes that support for this union is low, if SIU is
successful in organizing a union among Lower Lakes' Canadian employees, it could
result in increased labor costs for Lower Lakes, which could have a material
adverse effect on Rand's results of operations.
Facilities
Lower Lakes' currently leases the following properties:
o Lower Lakes Towing has leased approximately 4,500 square feet of
warehouse space in 207 Greenock Street, Port Dover, Ontario under a
lease that expires October 2007.
o Lower Lakes Towing has leased approximately 1,000 square feet of
office space in 625 Main Street, Port Dover, Ontario under a lease
that is month to month.
o Lower Lakes Transportation has leased approximately 100 square feet
of office space at 1207 Delaware Avenue, Suite 217, Buffalo, New
under a lease that expires March 31, 2007.
o Grand River Navigation has leased approximately 440 square feet of
office space at 197 West Erie Street, Rogers City, Michigan under a
lease that expires on November 30, 2005.
o Grand River Navigation has leased approximately 1,000 square feet of
space at 515 Moore Road, Suite 2, Avon Lake, Ohio under a lease that
expires July 31, 2008.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF LOWER LAKES
This discussion summarizes the significant factors affecting the
consolidated operating results, financial conditions, liquidity and cash flows
of Lower Lakes, Lower Lakes Transportation and Grand River for the year ended
March 31, 2005 and the six month period ending September 30, 2005. This
discussion should be read in conjunction with Lower Lakes' fiscal 2005 audited
consolidated financial statements and September 30, 2005 unaudited consolidated
financial statements, each included elsewhere in this proxy statement, and the
notes thereto.
On September 7, 2005, we included as an exhibit to a Form 8-K filed with
the Securities and Exchange Commission selected financial information for Lower
Lakes as of March 31, 2005 and for its 2005, 2004, 2003 and 2002 fiscal years.
That selected financial information was not audited and did not comply with
either U.S. or Canadian generally accepted accounting principles. This proxy
statement contains audited financial statements for Lower Lakes that comply with
U.S. generally accepted accounting principles. You should refer to the audited
financial statements included in this proxy statement in determining whether or
not to vote in favor of the proposed acquisition of Lower Lakes rather than the
selected financial information included in Form 8-K.
The selected financial information included in Form 8-K was prepared by
Lower Lakes' management in connection with the marketing of Lower Lakes for
sale, and was intended to serve only as a general financial overview of Lower
Lakes. The financial information was derived by Lower Lakes' management by
combining the separate historical financial statements for Lower Lakes, its
subsidiary, Lower Lakes Transportation Company, and its investee, Grand River
Navigation Company, Inc. The product of this combination exercise and other
accounting and presentation methodologies employed by Lower Lakes' management
did not result in financial information that complied with generally accepted
accounting principles. Accordingly, there can be no assurance that the selected
financial information included in Form 8-K is reflective of the financial
position or results of operations of Lower Lakes determined in accordance with
generally accepted accounting principles.
We included the selected financial information in Form 8-K in order to
assist shareholders with obtaining a preliminary understanding of the proposed
Lower Lakes acquisition. We included the shareholder presentation material as an
exhibit to Form 8-K to comply with regulations under federal securities laws
applicable to selective disclosure of information and solicitation of
shareholders before furnishing of a proxy statement.
Overview
Business
Lower Lakes' shipping business is operated in Canada by Lower Lakes Towing
Ltd. and in the United States by Lower Lakes' wholly-owned subsidiary, Lower
Lakes Transportation Company. For ease of reference, we refer to the combined
business of Lower Lakes and Lower Lakes Transportation as the business of Lower
Lakes.
Lower Lakes was organized in March 1994 under the laws of Canada to
provide marine transportation services to dry bulk goods suppliers and
purchasers operating in ports in the Great Lakes that were restricted in their
ability to receive larger vessels. Lower Lakes has grown from its origin as a
small tug and barge operator to a full service shipping company with a fleet of
eight cargo-carrying vessels. From its exclusively Canadian beginnings, Lower
Lakes has also grown to offer domestic services to both Canadian and U.S.
customers as well as cross-border routes.
Lower Lakes is a leader in the provision of River Class bulk freight
shipping services throughout the Great Lakes, operating more than one-third of
all River Class vessels servicing the Great Lakes and the majority of
boom-forward equipped vessels in this category. Lower Lakes services the
construction, electric utility and integrated steel industries through the
transportation of limestone, coal, iron ore and other dry bulk commodities.
Lower Lakes' management believes that Lower Lakes is the only company
providing significant domestic port-to-port services to both Canada and the
United States in the Great Lakes region. Lower Lakes maintains this operating
flexibility by operating both U.S. and Canadian flagged vessels in compliance
with the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly
referred to as the Jones Act, in the U.S. and the Coasting Trade Act (Canada) in
Canada. Lower Lakes' fleet consists of four self-unloading bulk carriers in
Canada and three self-unloading bulk carriers as well as a tug and a
self-unloading barge in the U.S. Lower Lakes owns three of the four Canadian
vessels and its wholly-owned subsidiary, Port Dover Steamship Company Inc., owns
the fourth and charters it to Lower Lakes. Lower Lakes Transportation time
charters the five vessels in the U.S. from Grand River, which owns three of the
U.S. flagged vessels and charters the fourth and the barge from a third party
under long term charter arrangements.
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Critical Accounting Policies
Lower Lakes' discussion and analysis of its financial condition and
results of operations for the purposes of this document are based upon its
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Lower Lakes' significant accounting policies are presented in Note 2 to
its fiscal 2005 audited consolidated financial statements, and the following
summaries should be read in conjunction with the financial statements and the
related notes included in this proxy statement. While all accounting policies
affect the financial statements, certain policies may be viewed as critical.
Critical accounting policies are those that are both most important to the
portrayal of the financial statements and results of operations and that require
Lower Lakes' management's most subjective or complex judgments and estimates.
Lower Lakes' management believes the policies that fall within this category are
the policies related to variable interest entities, revenue recognition, capital
assets, repairs and maintenance, deferred drydock expenditures, impairment of
long-lived assets, and income taxes.
Variable interest entities. In January 2003, FASB issued Interpretation
No. 46R "Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51" and revised this interpretation in December 2003 (these are sometimes
referred to collectively as the Interpretations). These Interpretations outline
the consolidation principles for certain entities in which equity investors do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. As a result of
this pronouncement, Lower Lakes has determined that Grand River is a variable
interest entity primarily because Grand River does not have sufficient equity at
risk. Accordingly, since Lower Lakes is the primary beneficiary, Lower Lakes has
consolidated the accounts of Grand River on a retroactive basis.
Revenue recognition. Lower Lakes services over 50 customers in a diverse
range of industries providing dry bulk commodities such as coal, construction
aggregate, grain, iron ore and salt. Lower Lakes generates revenues from freight
billings under contracts of affreightment (voyage charters) on a rate per ton
basis. Voyage charter revenues are recognized when services under the contracts
are rendered, Lower Lakes has a signed contract of affreightment, the contract
price is fixed or determinable and collection is reasonably assured. Voyage
charter revenue is recognized ratably over the period from the departure of a
vessel from its original shipping point to its destination. Included in freight
billings are other fees such as fuel surcharges and other freight surcharges,
which represent pass-through charges to customers for toll fees, lockage fees
and ice breaking fees paid to other parties. Fuel surcharges are recognized
ratably over the voyage, while freight surcharges are recognized when the
associated costs are incurred. Fuel surcharge revenues totaled $1,916,137 for
the year ended March 31, 2005, an increase from $1,185,721 in the year ended
March 31, 2004 and $271,202 in the year ended March 31, 2003. Freight surcharges
are insignificant and amount to less than 1% of total revenues for the years
presented.
Lower Lakes subcontracts excess customer demand to other freight
providers. Service to customers under such arrangements is transparent to the
customer and no additional services are being provided to customers.
Consequently, revenues are presented on a gross basis in accordance with the
guidance in EITF 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent." Revenues recognized for customers serviced by freight subcontractors are
recognized on the same basis as described above.
Capital assets. Capital assets are recorded at cost. Lower Lakes' primary
capital assets are the vessels which operate in the trades. Lower Lakes has
relied on outside expertise that indicates that bulk cargo vessels engaged in
trade in fresh water can enjoy a life of up to 75 years. Lower Lakes' historical
vessel acquisition strategy has been to purchase used vessels on the market and
refurbish them. Lower Lakes' fleet has an average age of 59 years, and vessels
are depreciated over a period of 10 - 15 years depending on Lower Lakes'
management's judgment regarding the useful life of the vessel at acquisition
date. Lower Lakes reviews the estimates of vessel's useful lives annually.
Repairs and maintenance. The vessels require general maintenance and
capital upgrades each year to ensure the fleet operates efficiently during the
shipping season and to minimize downtime during the operating season. This work
is completed during January, February, and March each year, when the vessels are
not active. Historically, the cost of winter repairs averages approximately
$500,000 per vessel. Lower Lakes' management reviews repairs expenditures and
capitalizes major projects expected to extend or enhance the useful life of the
vessels, such as steel replacement and major engine overhauls. Major repairs are
depreciated over the remaining useful life of the asset being repaired, whether
it is a vessel, engine equipment, or a leasehold improvement. All other repairs
are expensed as maintenance.
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Deferred charges. Deferred charges include capitalized drydock
expenditures. Consistent with industry practice for such expenditures, drydock
expenditures incurred during statutory Canadian and United States certification
processes are capitalized and amortized on a straight-line basis over the
benefit period, which is 60 months. Alternative methods to account for drydock
expenditures include the accrual method, in which the estimated cost of the next
scheduled drydock is accrued over the period preceding such drydock, and the
expense method whereby drydocking costs are expensed in the period it is
incurred. Lower Lakes' management believes the capitalization method better
matches costs with revenue and eliminates significant changes in estimates
required with the accrual method.
Impairment of Long-Lived Assets. Lower Lakes accounts for the impairment
of long-lived assets under the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the estimated undiscounted cash flows to be generated
by those assets are less than the assets' carrying value. If the carrying value
of the assets will not be recoverable, as determined by the estimated
undiscounted cash flows, the carrying value of the assets is reduced to fair
value. Generally, fair value will be determined using valuation techniques such
as expected discounted cash flows or appraisals, as appropriate. This process
involves subjective assumptions about future events, and discount factors to be
applied to projected cash flows when it is determined that an impairment exits.
Estimated values can be affected by many factors beyond the Lower Lakes' control
such as the overall market and economic trends, new regulations, and other
changes. Lower Lakes' management believes that the assumptions made to evaluate
the vessels for impairment are appropriate and reasonable. However, changes in
circumstances or conditions affecting these assumptions could result in
impairment charges in future periods that may be material.
As disclosed in Note 9 of the consolidated financial statements, an
impairment charge of $1,224,000 was recorded in fiscal 2004. Lower Lakes
monitors the fair market value of its vessels and ensures there is no impairment
on an annual basis.
Income taxes. Lower Lakes accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," or SFAS 109. SFAS 109 requires the determination of deferred tax assets
and liabilities based on the differences between the financial statement and
income tax bases of tax assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse. The
measurement of a deferred tax asset is adjusted by a valuation allowance, if
necessary, to recognize tax benefits only to the extent that, based on available
evidence, it is more likely than not that they will be realized. This process
involves subjective assumptions used to predict taxable income in the
jurisdictions where Lower Lakes is taxed. Lower Lakes' management believes that
the assumptions made to determine the valuation allowance for deferred income
taxes are appropriate and reasonable. However, changes in circumstances or
future events could result in changes to the assumptions used, which would
impact the measurement of the deferred tax asset valuation allowance in future
periods.
Recently Issued Pronouncements
Stock-Based Compensation. On December 16, 2004, FASB issued amended SFAS
123, "Accounting for Share-Based Payment," or SFAS 123(R). SFAS 123(R) requires
all companies to use the fair-value based method of accounting for stock-based
compensation, and is in effect for Lower Lakes for its fiscal period beginning
on April 1, 2006. SFAS 123(R) requires that all companies adopt either the
modified prospective transition, or MPT, or modified retrospective transition,
or MRT, method. Stock compensation expense calculated using the MPT approach
would be recognized on a prospective basis in the financial statements over the
requisite service period, while the MRT method allows a restatement of prior
periods for amounts previously recorded as pro forma expense. On April 14, 2005,
the U.S. Securities and Exchange Commission announced the adoption of a rule
that amended the compliance date for SFAS 123(R). Based on this announcement,
FAS 123(R) will be effective for Lower Lakes' fiscal year beginning April 1,
2006. Lower Lakes does not expect that the adoption of this standard will have a
significant impact on its consolidated financial statements.
99
Exchanges of Non-Monetary Assets. In December 2004, FASB issued SFAS 153,
"Exchanges of Non-Monetary Assets." SFAS 153 amends APB Opinion 29 to eliminate
the exception for non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of non-monetary assets that
do not have commercial substance. This standard is in effect for exchanges
occurring in fiscal years beginning after June 15, 2005. Lower Lakes does not
expect that the adoption of this standard will have a significant impact on its
consolidated financial statements.
Results of Operations
Six months ended September 30, 2005 compared to the six months ended
September 30, 2004. Total revenues for the six months ended September 30, 2005
increased by 17.9% to $36,370,000 from $30,856,000 in the six months ended
September 30, 2004. $2,841,000 of this increase resulted from Lower Lakes
sailing an additional vessel, the Maumee, on May 16, 2005, which had been idle
during fiscal 2005 as a result of a refit.
The Canadian fleet accounted for $21,287,000 of revenues in the six months
ended September 30, 2005, an increase of 11.2% from $19,147,000 in the six
months ended September 30, 2004, and the U.S. fleet accounted for revenue of
$15,083,000 in the six months ended September 30, 2005, an increase of 28.8%
from $11,709,000 generated in the six months ended September 30, 2004. Of the
increased U.S. revenues, the activation of the Maumee accounted for $2,841,000
or 84%.
Fuel surcharge revenue rose 253.4% from $1,117,000 in the six months ended
September 30, 2004 to $2,831,000 for the six months ended September 30, 2005,
based on rising fuel costs. Lower Lakes recovers a majority of these fuel price
increases through contracted fuel surcharges with many of its customers.
Operating expenses for the six months ended September 30, 2005 were
$23,677,000, compared to $18,512,000 for the six months ended September 30,
2004, an increase of 27.9%. The largest three components in operating expenses
are wages, fuel and insurance, which accounted for a total of $19,921,000 (84.1%
of operating expenses) for the six months ended September 30, 2005, an increase
of 30.6% over the six months ended September 30, 2004 when wages, fuel and
insurance costs accounted for a total of $15,252,000 (82.4% of operating
expenses). Wages rose to $9,904,000 in the six months ended September 30, 2005
from $8,198,000 (an increase of 20.8%) in the six months ended September 30,
2004, primarily as a result of the activation of the Maumee, the strengthening
Canadian dollar and general wage increases. Fuel for the six months ended
September 30, 2005 was $8,029,000, an increase from $5,573,000 (an increase of
44.0%) for the six months ended September 30, 2004. The increase in fuel-related
expenses resulted from both the rise in fuel prices and additional consumption
from the addition of another vessel to the Lower Lakes' fleet in the six months
ended September 30, 2005. This additional vessel accounted for $651,000 of the
increase in the six months ended September 30, 2005 compared to the six months
ended September 30, 2004. The rise in fuel prices was largely offset by an
increase in customer fuel surcharges revenues of $1,714,000 during the period.
Insurance, including incidents under deductibles, was $1,988,000 for the six
months ended September 30, 2005, up from $1,481,000 in the six months ended
September 30, 2004 (a 34.2% increase), primarily as a result of the cost of an
unloading elevator repair on the Cuyahoga, of which Lower Lakes paid $227,000,
increased insurance for Lower Lakes' U.S. business resulting from the
reactivation of the Maumee and the Mississagi grounding in August, which
incurred an expense of $200,000 for insurance deductibles. Lower Lakes expenses
insurance deductibles and any incidents under deductible in the insurance
category.
In addition to the operation of its own fleet, Lower Lakes strategically
utilizes other fleets to supplement shipments to its customer docks. Outside
charter fees paid by Lower Lakes increased 25.2% to $3,005,000 in the six months
ended September 30, 2005, compared to $2,401,000 for the six months ended
September 30, 2004.
Administration expenses were $1,320,000 for the six months ended September
30, 2005 and $1,017,000 for the six months ended September 30, 2004,
representing an increase of 29.8%. This increase resulted primarily from
increased legal and professional fees and salaries for additional U.S.-based
administrative employees. Winter repairs expenses increased to $89,000 for the
six months ended September 30, 2005 from $22,000 for the six months ended
September 30, 2004 because of expenses incurred in the six months ended
September 30, 2005 to complete winter work on the Saginaw and the Maumee.
100
Income from operations was $5,823,000 for the six months ended September
30, 2005, a decrease from $7,069,000 for the six months ended September 30,
2004. As a percentage of revenues, operating income represented 16.0% of
revenues in the six months ended September 30, 2005 as compared to 22.9% in the
six months ended September 30, 2004. Primary reasons for this decrease in
operating margin were the late sailing of the Saginaw on April 15, 2005,
increased winter work expense, the elevator incident on the Cuyahoga and the
Mississagi grounding. Operating margins were also negatively affected by
scheduling inefficiencies, which arose from altering schedules and routes to
compensate for Lower Lakes' inability to use the Saginaw and Maumee during the
course of their winter work, the Cuyahoga during the course of the repairs on
its elevator, and the Mississagi during the course of the repairs following the
August grounding. Lower Lakes' management believes that these inefficiencies
were isolated and are not reflective of an overall trend in its business. Other
reasons for the decrease were a 25.2% increase in depreciation to $1,874,000 in
the six months ended September 30, 2005 from $1,497,000 in the six months ended
September 30, 2004, and an 85.6% increase in amortization of deferred drydock
charges to $553,000 from $298,000 in the six months ended September 30, 2004 as
a result of the drydocking of the Manistee and Maumee that would not have been
reflected in expenses for the six months ended September 30, 2004.
Total other income and expense was $2,337,000 for the six months ended
September 30, 2005, as compared to $2,477,000 for the six months ended September
30, 2004, a decrease of 5.7%, due primarily to an increase in interest expense,
and a loss on long-term debt extinguishments of $646,000 in 2004 incurred in
September 2004, in conjunction with the refinancing.
Interest expense increased by $294,000, or 17.8%, to $1,945,000 for the
six months ended September 30, 2005 from $1,651,000 in the six months ended
September 30, 2004 due to increased senior debt and a general increase in
interest rates affecting Lower Lakes' senior loan facility and revolving credit
facility.
Lower Lakes' income tax provision was $1,508,000 for the six months ended
September 30, 2005 compared to $1,747,000 for the six months ended September 30,
2004. Lower Lakes, Lower Lakes Transportation and Grand River file tax returns
in separate jurisdictions, so provisions are accounted for on a
company-by-company basis due to the different taxation rates in each
jurisdiction and the varying performance of each company.
Net income for the six months ended September 30, 2005 was $1,893,000
compared to $2,890,000 for the six months ended September 30, 2004. This was
largely the result of increased operating expenses.
Year ended March 31, 2005 compared to year ended March 31, 2004. Revenues
for the year ended March 31, 2005 were $52,110,000, an increase of 35.2% from
$38,550,000 the year ended March 31, 2004. This increase was primarily the
result of the first full year of sailing of the Michipicoten, which accounted
for 60% of this increase, plus the other three vessels in Lower Lakes' Canadian
fleet averaged 11% increases over fiscal 2004 due to an increased number of
operating days. The number of operating days is in any given year is based on
climatic conditions of the Great Lakes region and the related access to customer
docks serviced by our vessels.
The operating days on the Canadian fleet averaged 294 days in fiscal 2005
compared to 281 days in fiscal 2004, an increase of 4.6%. The U.S. fleet
averaged 300 operating days in fiscal 2005, an increase of 7.5% from 279
operating days in fiscal 2004. The increased operating days allowed additional
cargo to be carried, and result in additional variable costs. Lower Lakes'
management does not believe that there is an overall trend with respect to an
increase in the annual number of operating days experienced by Lower Lakes.
Revenue generated by Lower Lakes' U.S. fleet increased 24.3% in the fiscal
year ended March 31, 2005 to $18,986,000 from $15,274,000 in the year ended
March 31, 2004, largely as a result of increased operating days and the sailing
of the Richard Reiss (currently sailing as the Manistee), a larger and more
efficient vessel, in lieu of the Maumee while the Maumee was inactive for the
fiscal year ended March 31, 2005. Revenues from the Manistee represented an
increase of 24% on the revenue from the Maumee the prior year. The two other
U.S. fleet vessels, the Calumet and the McKee Sons/Invincible, also achieved
increases of 19% and 28% in their revenues, respectively, primarily due to the
extended operating season. Fuel surcharge revenue for the year rose 61.6% from
$1,186,000 to $1,916,000, based on the overall trend of higher fuel costs. Lower
Lakes recovers a majority of these fuel price increases through contracted fuel
surcharges with many of its customers.
101
Operating expenses for the year ended March 31, 2005 were 17.2% higher
than in the year ended March 31, 2004, with total expenses of $32,211,000
compared to $27,478,000. The largest three components in operating expenses were
wages, fuel and insurance, which accounted for a total of $26,663,000 (82.8% of
fiscal 2005 operating expenses) in the year ended March 31, 2005, an increase of
19.4% over the year ended March 31, 2004 when wages, fuel and insurance costs
accounted for a total of $22,330,000 (81.3% of fiscal 2004 operating expenses).
Wages accounted for $14,469,000 in the year ended March 31, 2005, an increase of
9.5% from $13,214,000 in the year ended March 31, 2004, because of a full year's
sailing of the Michipicoten and an increased number of overall sailing days.
Fuel costs in fiscal 2005 were $9,988,000, a 43.8% increase from $6,946,000 in
fiscal 2004, driven by higher fuel prices, the full year's sailing of the
Michipicoten and the longer operating season. This increase of $3,042,000 was
partially offset by an increase in customer fuel surcharges of $730,000.
Insurance costs were $2,205,000 in fiscal 2005, a 1.6% increase over fiscal
2004. Lower Lakes expenses insurance deductibles and any incidents under
deductible in the insurance category. In the year ended March 31, 2005,
incidents under deductible represented $209,000, a reduction of 34.3%, from
$318,000 in the year ended March 31, 2004 due to fewer accidents and other
incidents involving Lower Lakes' vessels in the year ended March 31, 2005.
Administration expenses remained stable at $2,421,000 in fiscal 2005 and
$2,396,000 in fiscal 2004. Administrative wages accounted for 55.3% of
administrative expense in fiscal 2005. On a percentage basis, administrative
expenses represented 4.6% of revenues in fiscal 2005, a reduction from 6.2% of
revenues in fiscal 2004. Winter repairs and maintenance expenses were $1,668,000
compared to $1,430,000 in fiscal 2004, an increase of 16.7%. This was due
primarily to the expansion of Lower Lakes' fleet. As a percentage of revenues,
winter repairs and maintenance expenses fell to 3.2% in fiscal 2005 from 3.7% in
fiscal 2004.
In addition to the operation of its own fleet, Lower Lakes strategically
utilizes fleets of other freight providers to supplement shipments to its
customer docks. Outside voyage charter fees grew 261.6% to $6,180,000 in fiscal
2005, as a result of increased activity to fulfill remaining customer demand at
the end of the 2005 shipping season. The use of outside fleets is marginally
profitable overall to Lower Lakes, compared to greater margins from the
operation of its own fleet.
Income from operations was $6,065,000 in the year ended March 31, 2005, an
increase of 1505.0% from $403,000 in the year ended March 31, 2004. As a
percentage of revenues, operating income represented 11.6% of revenues in the
year ended March 31, 2005 compared to 1.0% in the year ended March 31, 2004.
Primary reasons for the increase in operating margin were the increased revenues
from operations, a greater number of operating days and the reduction in the
number and impact of accidents and unforeseeable incidents, including two
insurable claims totaling $556,000, weather damage of $301,000 and mechanical
failures of $534,000, in the year ended March 31, 2004. These incidents, in
addition to legal costs of $265,000 and additional wage and insurance accruals
of $357,000, directly impacted operating income by $2,013,000. Lost days due to
unforeseeable incidents was reduced by 53% in the year ended March 31, 2005
compared to the year ended March 31, 2004, resulting in increased operating
margin. In addition, Lower Lakes corrected certain inefficiencies in scheduling
which occurred in the year ended March 31, 2004, resulting in increased
operating margins in the year ended March 31, 2005. Other reasons for the
increase included the absence of impairment on capital assets in fiscal 2005.
Lower Lakes recorded a write down of its vessels to fair market of $1,200,000 in
the year ended March 31, 2004. There was no corresponding entry in the year
ended March 31, 2005. In addition, depreciation increased marginally to
$3,232,000 in the year ended March 31, 2005 from $3,109,000 in the year ended
March 31, 2004, representing 6.2% and 8.1% of revenues respectively.
Amortization of deferred drydock charges was $655,000 in the year ended March
31, 2005, up from $551,000 in the year ended March 31, 2004. Lower Lakes sold an
engine for net proceeds of $217,000, incurring a loss on disposal in the year
ended March 31, 2005 of $113,000. This engine had been previously written down
by $190,000 in the year ended March 31, 2004. The sale of the engine occurred
after Lower Lakes determined the engine to be unsuitable as a potential
replacement for an engine in an existing vessel.
Total other income and expense was $4,779,000 in the year ended March 31,
2005 compared to $5,494,000 in the year ended March 31, 2004, primarily due to
reductions in interest expense. This reduction is offset by a loss on the
extinguishment of debt in the year ended March 31, 2005. Interest expense
decreased by $1,473,000 in fiscal 2005 because Lower Lakes refinanced its
existing long-term debt and a vessel mortgage by entering into two separate
credit agreements with GE Canada Equipment financing for CDN $22,100,000 (with
Lower Lakes Towing) and General Electric Capital Corporation for $4,200,000
(with Grand River) on September 23, 2004. Contemporaneously, Lower Lakes entered
into an agreement with its subordinated lenders to reduce the interest rate on
their notes from 20% to 8% retroactive to April 1, 2004.
102
Income before Income Tax and Minority Interest was $1,287,000 in the year
ended March 31, 2005 compared to a loss of ($5,091,000) in the year ended March
31, 2004 and representing 2.5% of revenues and (13.2%) of revenues,
respectively.
Lower Lakes' provision and (recovery from) income tax represented a
provision of $179,000 in the year ended March 31, 2005 and ($228,000) in the
year ended March 31, 2004. This change resulted from the improvement in Lower
Lakes' financial performance.
The minority interest in the income of Grand River Navigation Company,
Ltd. was a recovery of $190,000 in fiscal 2005 and $397,000 in fiscal 2004. This
figure represents a deduction related to Lower Lakes' minority interest in Grand
River as modified based on the amount of Lower Lakes' accumulated losses.
Net Income improved to $1,298,000 in the year ended March 31, 2005 from a
loss of ($4,466,000) in the year ended March 31, 2004. This improvement resulted
from increased operating margins, a reduction in interest expense and the
absence of asset write-downs in the year ended March 31, 2005 compared to the
year ended March 31, 2004.
Lower Lakes had 267 full-time employees at March 31, 2005. Full-time
employees numbered 263 at March 31, 2004.
Year ended March 31, 2004 compared to year ended March 31, 2003. Revenues
for the year ended March 31, 2004 were $38,550,000, an increase of 41.6% from
$27,227,000 in the year ended March 31, 2003. This resulted primarily from the
first partial year of sailing of the Michipicoten, which accounted for
$4,000,000 of the increase. The three vessels which sailed during both years in
Lower Lakes' Canadian fleet had an average increase in sales of 9.6%, or a total
of $1,000,000. The strengthening Canadian dollar between the periods accounting
for an additional $1,866,000 of the increase, as the average exchange rate of
CDN $1.55 per U.S. Dollar in the year ended March 31, 2003 increased to an
average rate $1.35 per U.S. Dollar for the year ended March 31, 2004.
The operating days on the Canadian fleet averaged 281 days in fiscal 2004
compared to 272 days in fiscal 2003, an increase of 3.3%. The U.S. fleet
averaged 279 operating days in fiscal 2004, an increase of 4.5% from 267
operating days in fiscal 2003. The increased operating days allowed additional
cargo to be carried, and also resulted in additional variable costs. The number
of operating days in any given year is based on the climatic conditions of the
Great Lakes region and the related access to customer docks serviced by our
vessels. Lower Lakes' management does not believe that there is an overall trend
with respect to an increase in the annual number of operating days experienced
by Lower Lakes.
Revenue generated by Lower Lakes' U.S. fleet increased 6.8% in the fiscal
year ended March 31, 2004 to $15,274,000 from $14,303,000 in the year ended
March 31, 2003, largely as a result of increased operating days. Fuel surcharge
revenue for the year rose 437.6% from $271,000 to $1,186,000, based on the
overall trend of higher fuel costs. Lower Lakes recovers a majority of these
fuel price increases through contracted fuel surcharges with its customers.
Operating expenses for the year ended March 31, 2004 were 42.9% higher
than in the year ended March 31, 2003, with total expenses of $27,478,000
compared to $19,226,000. The largest three components in operating expenses were
wages, fuel and insurance, which accounted for a total of $22,330,000 (81.3% of
fiscal 2004 operating expenses) in the year ended March 31, 2004, an increase of
45.2% over the year ended March 31, 2003 when wages, fuel and insurance costs
accounted for a total of $15,379,000 (80.0% of fiscal 2003 operating expenses).
Wages accounted for $13,214,000 in the year ended March 31, 2004, an increase of
33.4% from $9,903,000 in the year ended March 31, 2003, because of a the first
partial year's sailing of the Michipicoten, an increased number of overall
103
sailing days and the strengthened Canadian dollar. Fuel costs in fiscal 2004
were $6,946,000, a 65.7% increase from $4,192,000 in fiscal 2003, driven by
higher fuel prices and the longer operating season. This increase of $2,754,000
was partially offset by an increase in customer fuel surcharges of $915,000.
Insurance costs were $2,170,000 in fiscal 2004, a 69.1% increase over fiscal
2003 insurance costs of $1,283,000. Lower Lakes expenses insurance deductibles
and any incidents under deductible in the insurance category. In the year ended
March 31, 2004, incidents under deductible represented $318,000, an increase of
338.3% from $94,000 in the year ended March 31, 2003, primarily due to the cost
of a dock strike related to the Cuyahoga and repairs to the Michipicoten
following an accident in the year ended March 31, 2004.
Administrative expenses rose 50.3% from $1,594,000 in fiscal 2003 to
$2,396,000 in fiscal 2004, with the Canadian dollar exchange rate accounting for
$100,000 of the increase, as most administrative expenses are incurred in
Canada. In addition to the exchange difference, legal costs increased by
$300,000 in the year ending March 31, 2004. Legal accruals totaling $215,000
were made in connection with an employee injury claim and a claim for repairs to
a railroad bridge. Legal and professional expenses also increased by $85,000 in
Canada and in the U.S. for general and corporate purposes. Administrative wages
increased $300,000 in the year ending March 31, 2004 as a result of the addition
of one administrative position in the U.S. and another administrative position
in Canada during 2004, with the remainder attributable to general wage increases
of 2.5%, an increase in the benefit plan of $12,000 and bonus accruals of
$20,000. Lower Lakes also incurred executive search and transition period
expenses totaling $36,000 following a change in the its chief financial officer.
Hourly wages for crew change and supply drivers to handle the increasing size of
both the U.S. and Canadian fleets are also classified to administrative wages
and accounted for an increase of $51,000 during the period. Administrative wages
accounted for 53.9% of administrative expense in fiscal 2004 and 57.9% in 2003.
On a percentage basis, administrative expenses represented 6.2% of revenues in
fiscal 2004, an increase from 5.9% in fiscal 2003.
Winter repairs and maintenance expenses were $1,430,000 compared to
$1,027,000 in fiscal 2003, an increase of 39.2%. This was due primarily to the
expansion of Lower Lakes' fleet. As a percentage of revenues, winter repairs and
maintenance expenses fell to 3.7% in fiscal 2004 from 3.8% in fiscal 2003.
In addition to the operation of its own fleet, in the year ended March 31,
2004 Lower Lakes began to strategically utilize fleets of other freight
providers on an extensive basis to supplement shipments to its customers' docks
to fulfill customer demand. Outside voyage charter fees were $2,363,000 in the
inaugural season in fiscal 2004. The use of outside fleets is marginally
profitable overall to Lower Lakes, compared to greater margins from the
operation of its own fleet.
Income from operations was $403,000 in the year ended March 31, 2004, a
decrease of 87.7% from $3,289,000 in the year ended March 31, 2003. As a
percentage of revenues, operating income represented 1.0% of revenues in the
year ended March 31, 2004 compared to 12.1% in the year ended March 31, 2003.
Primary reasons for the decrease in operating margin were an increase in the
number and impact of accidents and unforeseeable incidents, including two
insurable claims, weather damage and mechanical failures in the year ended March
31, 2004, which Lower Lakes' management believes directly impacted operating
income by approximately $2,000,000. Lost days due to unforeseeable incidents was
increased by 305% in the year ended March 31, 2004 compared to the year ended
March 31, 2003. In addition, due to these incidents, Lower Lakes had certain
inefficiencies in scheduling during the year ended March 31, 2004, which
contributed to the decrease in operating margin as a percentage of revenue. The
foreign exchange rate also accounted for $450,000 of the decrease, as much of
the debt was denominated in Canadian dollars. Lower Lakes recorded a write down
of its vessels to fair market of $1,224,000 in the year ended March 31, 2004.
There was no corresponding entry in the year ended March 31, 2003. In addition,
depreciation increased from $2,208,000 in fiscal 2003 to $3,109,000 in the year
ended March 31, 2004, largely due to the addition of the Michipicoten.
Depreciation represented 8.1% of revenues in both the year ended March 31, 2004
and the year ended March 31, 2003. Amortization of deferred drydock charges was
$551,000 in the year ended March 31, 2004, an increase from $169,000 in the year
ended March 31, 2003. Lower Lakes also recorded a write down of an engine by
$190,000 in the year ended March 31, 2004.
Total other income and expense was $5,494,000 in the year ended March 31,
2004 compared to $3,862,000 in the year ended March 31, 2003, an increase of
42.3%, primarily due to an increase in interest expense. Interest expense
increased by $1,533,000, or 48.5%, in fiscal 2004 to $4,693,000 from $3,160,000
in fiscal 2003 because Lower Lakes financed the purchase of the Michipicoten in
fiscal 2004, and increased utilization of its revolving credit facility. Loss
before Income Tax and Minority Interest was $5,091,000 in the year ended March
31, 2004 compared to a loss of $573,000 in the year ended March 31, 2003 and
representing (13.2%) of revenues and (2.1%) of revenues, respectively.
104
Lower Lakes' recovery of income tax represented $228,000 in the year ended
March 31, 2004 and $18,000 in the year ended March 31, 2003. This change
resulted from the reduction in Lower Lakes' earnings during fiscal 2004.
The minority interest in the income of Grand River Navigation Company,
Ltd. was an allocation of ($397,000) in fiscal 2004 and an allocation of
$582,000 in fiscal 2003. This figure represents a deduction in fiscal 2004 and
an increase in 2003, related to Lower Lakes' minority interest in Grand River as
modified based on the amount of Lower Lakes' accumulated losses.
Net Income decreased to a loss of ($4,466,000) in the year ended March 31,
2004 from a loss of ($1,137,000) in the year ended March 31, 2003. This decrease
resulted from decreased operating margins, an increase in interest expense and
the asset write-downs in the year ended March 31, 2004 compared to the year
ended March 31, 2003.
Lower Lakes had 263 full-time employees at March 31, 2004. Full-time
employees numbered 247 at March 31, 2003.
Selected Consolidated Quarterly Financial Information (Unaudited)
US $000's (except #
of shares and per June 30, September 30,
share data) 2005 2005 YTD
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 17,064 $ 19,307 $ $ 36,371
Income from
operations 2,163 3,661 5,824
- ----------------------------------------------------------------------------------------------------------------------
Net income 312 1,581 1,893
# shares
outstanding 7,969 7,969 7,969
- ----------------------------------------------------------------------------------------------------------------------
Net income per 39.15 198.39 237.55
share
June 30, September 30, December 31, March 31,
2004 2004 2004 2005 Year
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 14,399 $ 16,457 $ 14,258 $ 6,996 52,110
Income from
operations 2,784 4,285 1,744 (2,748) 6,065
- ----------------------------------------------------------------------------------------------------------------------
Net income 1,083 1,807 446 (2,038) 1,298
# shares
outstanding 7,969 7,969 7,969 7,969 7,969
- ----------------------------------------------------------------------------------------------------------------------
Net income per 135.90 226.75 55.97 (255.74) 162.88
share
June 30, September 30, December 31, March 31,
2003 2003 2003 2004 Year
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 10,672 $ 12,769 $ 12,192 $ 2,917 38,550
Income from
operations 2,073 1,804 1,229 (4,703) 403
- ----------------------------------------------------------------------------------------------------------------------
Net income 882 510 (46) (5,812) (4,466)
# shares
outstanding 7,628 7,969 7,969 7,969 7,884
- ----------------------------------------------------------------------------------------------------------------------
Net income per 115.58 64.01 (5.78) (729.29) (566.46)
share
105
Impact of Inflation and Changing Prices
For the three most recent fiscal years ending March 31, 2005, 2004 and
2003, the annual inflation rates in Canada were 1.9%, 1.3% and 2.9%,
respectively, based on the "Core CPI" rate calculated by the Bank of Canada.
During the same three years, the U.S. key inflation rates were 2.3%, 1.6% and
1.7%, respectively, based on the "CPI-U" rate calculated by the U.S. Department
of Labor. During these periods, Lower Lakes sought and achieved revenue
increases ranging from 2% to 6% in connection with renewing customer contracts.
These contracts are typically 3 to 5 years in length, and therefore not all
contracts are renewed each year. Lower Lakes estimates that revenue growth grew
by 1.5% to 2% per year during these periods as a result of inflation. During
these three years, the impact of inflation on income from continuing operations
is estimated by Lower Lakes to be approximately 1.5% to 2% per year, as both
revenues and costs increased proportionately during the three year period.
Liquidity And Capital Resources
Lower Lakes' primary source of liquidity is cash provided by operations.
Principal uses of cash are capital expenditures and operations. Information on
Lower Lakes' consolidated cash flow is presented in the consolidated statement
of cash flows (categorized by operating, financing and investing activities)
which is included in Lower Lakes' audited consolidated financial statements for
the years ended March 31, 2004 and 2005 and the unaudited consolidated financial
statements for the six months ended September 30, 2005, each of which are
incorporated into this proxy statement. Cash generated by the business has been
sufficient to maintain working capital to meet Lower Lakes' present
requirements.
In the six months ended September 30, 2005 and the years ended March 31,
2005 and 2004, respectively, Lower Lakes generated (used) ($1,916,000),
$7,463,000 and $3,480,000 of net cash in operating activities. The decrease in
cash between the year ended March 31, 2005 and the six months ended September
30, 2005 was principally the result of the seasonality of Lower Lakes' business,
costs related to repairs on the Maumee and the seasonal accumulation of accounts
receivable. The increase between the years ended March 31, 2004 and March 31,
2005 resulted primarily from the increase in income from operations, as
discussed in "Results of Operations" above.
In the six months ended September 30, 2005 and the years ended March 31,
2005 and 2004, respectively, Lower Lakes generated (used) $1,734,000,
($5,600,000) and ($6,341,000) of net cash in investing activities. The increase
in net cash used for investing activities was primarily due to acquisition of
the additional vessels, drydocking and capital investment to support the growth
of the business. The shipping industry is a capital-intensive business and Lower
Lakes reinvests in its vessels, its primary assets, to ensure ongoing financial
viability. In the six months ended September 30, 2005, Lower Lakes utilized
$2,191,000 of cash reserves to fund repairs and drydock expenditures.
In the six months ended September 30, 2005 and the years ended March 31,
2005 and 2004, respectively, Lower Lakes generated (used) $732,000, ($1,222,000)
and $3,528,000 of net cash in financing activities, in order to fund vessel
acquisitions.
During the year ended March 31, 2005, Lower Lakes completed a refinancing
of the credit lines used by Lower Lakes and Grand River, which included
agreements with a senior lender providing $21,490,000 (CDN $22,000,000 and U.S.
$4,200,000) to Lower Lakes and Grand River. These funds were applied to
refinance all senior debt and the note payable and to provide operating funds.
In conjunction with the refinancing of the senior debt, Lower Lakes restructured
the terms of its subordinated debt, including a reduction of the interest rate
to 8%, compounded monthly. This subordinated debt remained subordinated to the
incoming senior lender. At the closing of the acquisition, each of these credit
facilities will be replaced by new credit facilities on terms more favorable to
Lower Lakes. See "Acquisition Financing" on page 81.
106
The new senior lender also provided a revolving credit facility replacing
all previous facilities. The senior revolver is $5,780,000 (CDN $7,000,000) and
is secured by substantially all of Lower Lakes' assets, including a first
mortgage on its owned vessels and assignments of material contracts. The
revolving facility is supported by a percentage of eligible receivables up to a
maximum of $5,780,000 (CDN $7,000,000). In addition to the revolving facility,
Lower Lakes established a seasonal operating facility to assist with the
seasonal nature of its business that provides $1,700,000 (CDN $2,000,000) during
the startup months of April and May while receivables begin to accumulate for
the new shipping season. Lower Lakes' revolving credit facility currently bears
interest at the rate of U.S. LIBOR 30 day rate plus 4%, or the Canadian 30 day
Banker's Acceptance rate plus 4%. As of September 30, 2005, $1,222,000 of the
amounts available under the revolving credit facility were utilized, an increase
from $512,000 utilized as of March 31, 2005. This increase in borrowings in the
six months ended September 30, 2005 was primarily the result of Lower Lakes'
need to fund the cost of vessel repairs and drydocking.
Lower Lakes' current senior credit facility is $21,500,000 and is limited
by a borrowing base formula based on earnings before interest, taxes,
depreciation and amortization (EBITDA), as defined. There are also covenants
that limit the maximum senior funded debt to EBITDA ratio, and the minimum Fixed
Charge Coverage ratio, as defined. Lower Lakes has complied with these covenants
since the inception of the new credit facility. Lower Lakes' senior credit
facility currently bears interest at the rate of U.S. LIBOR 30 day rate plus 4%,
or the Canadian 30 day Banker's Acceptance rate plus 4%. Amounts outstanding
under the senior credit facility are due for repayment on September 22, 2009.
In fiscal 2004, Lower Lakes entered into a sale-and-leaseback transaction
with Lake Service Shipping Company with respect to the Manistee and maintained
its long-term lease with respect to the McKee Sons. The sale-and-leaseback for
the Manistee requires Lower Lakes to make annual payments of $350,000 through
fiscal 2009, a $500,000 payment in fiscal 2010 and $5,000,000 in payments
thereafter. Lower Lakes has an option to purchase the vessel for $2,200,000
during the period from December 31, 2006 to March 31, 2007. Under the terms of
the McKee Sons lease, Lower Lakes is obligated to make annual lease payments of
$675,000 through fiscal 2008, $775,000 for the fiscal years ending March 2009
and 2010 and $2,325,000 in payments thereafter.
As of March 31, 2005, Lower Lakes' only material commitment for capital
resources was the completion of the refit of the M/V Maumee. The total cost of
the Maumee refit and drydock project was approximately $3,300,000 and was funded
by an additional indebtedness of $1,600,000 from Lower Lakes' existing senior
lender, which was obtained after the end of the 2005 fiscal year and disclosed
as a subsequent event note in the annual financial statements (Note 24), with
the balance of such cost funded from working capital.
Lower Lakes is subject to a cyclical industry, primarily due to the
typical weather patterns on the Great Lakes, and the availability of customer
docks during the winter months January through March. Lower Lakes also
experiences a cyclical pattern for its capital spending cycle, typically
off-season from the shipping revenues, to permit annual maintenance on the
vessels. This places additional adverse pressures on Lower Lakes' liquidity and
capital resources. To counter these negative effects, Lower Lakes has agreed
with its senior lender to set aside certain amounts in a seasonal sinking fund,
which amounts are contributed to with excess cash during the shipping season to
fund winter work capital obligations in current and future years. Lower Lakes
requires approval of its senior lender in order to access the amounts held in
the sinking fund.
During the year ended March 31, 2005, certain lenders held warrants to
exercise for shares at $.001 per share as a term of prior financings. On April
14, 2004, 2,218 warrants, representing all outstanding warrants, were exercised
for total proceeds of $2.
Included in prepaid expenses and other assets in the unaudited
consolidated balance sheet of Lower Lakes as of September 30, 2005 is an amount
receivable from shareholders and debtholders of approximately $400,000 related
to costs Lower Lakes incurred to negotiate an agreement to sell Lower Lakes to
Rand. Such costs will be reimbursed to Lower Lakes upon closing of the
transaction with Rand which is expected to occur in the quarter ending March 31,
2006.
Neither Lower Lakes nor any of its subsidiaries has historically issued a
dividend.
107
Lower Lakes has various contractual obligations that affect its liquidity.
The follow table represents Lower Lakes' line of credit obligation, long-term
debt obligations, capital lease obligations, operating lease obligations,
purchase obligations and other long-term obligations:
Lower Lakes has various contractual obligations that affect its liquidity.
The following table represents Lower Lakes' line of credit obligations,
long-term debt obligations and contractual obligations, each as of September 30,
2005.
Obligations Long-Term
(In U.S. Long-Term Debt Obligations Operating
currency)(1) Line of Credit (2) Obligations (6) Vessel Lease (3) Other (4) Leases (5)
- ------------ ------------------ --------------- ---------------- --------- ----------
2006 $ 6,020,000 $ 2,503,000 $ 350,000 $ 109,000 $ 675,000
2007 2,852,000 350,000 96,000 675,000
2008 25,046,000 350,000 76,000 675,000
2009 3,696,000 350,000 41,000 775,000
2010 9,971,000 500,000 -- 775,000
After 2010 10,060,000 4,883,000 -- 2,100,000
------------ ------------ ----------- --------- ------------
Total minimum $ 6,020,000 $ 54,128,000 $ 6,783,000 $ 322,000 $ 5,675,000
payments ============ ============ =========== ========= ============
- ----------
(1) Amounts shown in table are not necessarily representative of, and may vary
substantially from, amounts that will actually be paid in future years as
Lower Lakes may incur additional or different obligations subsequent to
the date of this proxy statement.
(2) Assumes maximum utilization of Lower Lakes' revolving line of credit in
effect on September 30, 2005. Concurrently with the closing of the
acquisition, Lower Lakes will replace this revolving line of credit with a
new credit facility. See "Acquisition Financing."
(3) Amounts shown under "Long-Term Obligation Vessel Lease" represent bareboat
charter payments due under the purchase, sale and leaseback of the
Manistee. For financial reporting purposes, the lease is shown as a
long-term obligation and financing. Lower Lakes has the option to purchase
the vessel for $2.2 million in the period from Dec 31, 2006 to March 31,
2007. See note 14 in the audited consolidated financial statements for the
year ended March 31, 2005 for a detailed explanation of the accounting
policy relating to this lease.
(4) Amounts shown under "Other" represent auto and office equipment leases.
(5) The amounts shown for "Operating Leases" represent the outstanding balance
under the McKee Sons bareboat charter. The Manistee lease of $350,000 is
not indicated on the above table as it is included in the long-term debt
section of the audited consolidated financial statements for the year
ended March 31, 2005 due to the treatment of purchase, sale and leaseback
under U.S. GAAP.
(6) In the year ended March 31, 2001, the Company issued 19,524 unsecured,
non-interest bearing CDN$ notes convertible into common shares for total
proceeds of CDN $11,696,900. As of September 30, 2004, 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.
108
Quantitative and Qualitative Disclosures about Market Risk
Lower Lakes is exposed to various market risks, including changes in
foreign exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as interest rates
and foreign currency exchange rates. Lower Lakes does not enter into derivatives
or other financial instruments for trading or speculative purposes. Lower Lakes
has also not entered into financial instruments to manage and reduce the impact
of changes in interest rates and foreign currency exchange rates, although Lower
Lakes may enter into such transactions in the future. The following analyses
provide quantitative information regarding Lower Lakes' exposure to foreign
currency exchange rate risk and interest rate risk.
Foreign Exchange Rate Risk.
Lower Lakes has foreign currency exposure related to the currency related
remeasurements of its various financial instruments denominated in the Canadian
dollar (fair value risk) and operating cash flows denominated in the Canadian
dollar (cash flow risk). These exposures are associated with period to period
changes in the exchange rate between the U.S. Dollar and the Canadian dollar. At
March 31, 2005, Lower Lakes' liability for financial instruments with exposure
to foreign currency risk was approximately $37,326,000, compared to a liability
of $18,378,000 at March 31, 2004. Two major reasons for this increase are the
refinancing of Lower Lakes' long term debt in 2005, which included the
conversion of $5,000,000 of debt denominated in U.S. Dollars into debt
denominated in Canadian dollars and the refinancing of approximately $6,000,000
in other current liabilities, and a $2,500,000 increase resulting from the
strengthening Canadian dollar. The potential loss in fair value for such
financial instruments from a 10% adverse change in quoted foreign currency
exchange rates would be approximately $4,100,000 and $2,000,000 for fiscal 2005
and 2004, respectively, based on Lower Lakes' long term debt outstanding and
currency exchange rates at March 31, 2005 and 2004, respectively.
From a cash flow perspective, Lower Lakes' operations are insulated
against changes in currency rates as operations in Canada and the United States
have revenues and expenditures denominated in local currencies and the
operations are cash flow positive. However, as stated above, the majority of the
Lower Lakes' financial liabilities are denominated in Canadian dollars which
exposes Lower Lakes to currency risks related to principal payments and interest
payments on such financial liability instruments.
Interest Rate Risk
Lower Lakes is subject to market risk from exposure to changes in interest
rates associated with its long-term debt. Lower Lakes' senior credit facility
carries interest rates which vary with the U.S. LIBOR and Canadian Bankers'
Acceptance rates. At March 31, 2005 and 2004, the liability of financial
instruments with exposure to interest rate risk was approximately $17,443,000
and $6,504,000, respectively. As of March 31, 2005, approximately 46% of Lower
Lakes' long-term indebtedness is at a fixed level of interest, compared to 61%
as of March 31, 2004.
Off-Balance Sheet Arrangements
Lower Lakes has no off-balance-sheet obligations nor guarantees and has
not historically used special purpose entities for any transactions.
109
INFORMATION ABOUT RAND
Business of Rand
General
Rand Acquisition Corporation was formed on June 2, 2004, to serve as a
vehicle to effect an acquisition merger, capital stock exchange, asset
acquisition or other similar business combination with an unidentified operating
business. To date, Rand's efforts have been limited to organizational
activities, completion of its initial public offering and the evaluation of
possible business combinations.
On November 2, 2004, Rand closed its initial public offering of 4,600,000
units with each unit consisting of one share of our common stock and two
warrants, each to purchase one share of our common stock at an exercise price of
$5.00 per share.
Offering Proceeds Held in Trust
The net proceeds of Rand's initial public offering consummated on November
2, 2004, after payment of underwriting discounts and commissions and the
offering expenses were $24,605,000. $23,736,000, or approximately ninety six
percent (96%) of such amount, was placed in the trust account. The remaining
proceeds have been used by Rand in its pursuit of a business combination. The
trust account will not be released until the earlier of the consummation of a
business combination or the liquidation of Rand. The trust account contained
approximately $24,500,000 (including interest) as of January 25, 2006. If the
acquisition of Lower Lakes is consummated, the trust account, less amounts paid
to stockholders of Rand who do not approve the acquisition and elect to convert
their shares of common stock into their pro-rata share of the trust account,
will be released to Rand for use in the acquisition.
The approximately $24,500,000 held in the trust account as of January 25,
2006 together with any additional interest earned thereon as of the closing date
will be used in the following manner and priority: up to approximately
$1,226,000 will be paid to holders of IPO shares who elect to convert their
shares; approximately $8,680,000 will be used to fund the acquisition of the
Lower Lakes shares; and $750,000 will be used to fund the redemption of the
Grand River shares. The balance of the trust account will be contributed to
Lower Lakes and used together with the proceeds of Rand's closing date sale of
preferred stock and new senior loan financing to fund the retirement of Lower
Lakes' closing date indebtedness, pay transaction expenses and fund working
capital and winter work expenses and reserves. Rand will have sufficient
availability under the new loan facility to permit application of the trust
account funds in the manner and priority described above.
Fair Market Value of Target Business
The initial target business that Rand acquires must have a fair market
value equal to at least 80% of Rand's net assets at the time of such
acquisition. The fair market value of such business will be determined by Rand's
Board of Directors based upon standards generally accepted by the financial
community, such as actual and potential sales, earnings and cash flow and book
value. If Rand's Board is not able to independently determine that the target
business has a sufficient fair market value, Rand will obtain an opinion from an
unaffiliated, independent investment banking firm with respect to the
satisfaction of such criteria. Rand will not be required to obtain an opinion
from an investment banking firm as to the fair market value if Rand's Board of
Directors independently determines that the target business has sufficient fair
market value. Rand's Board has obtained such an opinion in connection with the
execution of the Stock Purchase Agreement.
110
Stockholder Approval of Business Combination
Prior to the completion of a business combination, Rand will submit the
transaction to its stockholders for approval, even if the nature of the
acquisition is such as would not ordinarily require stockholder approval under
applicable state law.
Rand's initial stockholders have agreed to vote their shares of Rand
common stock acquired prior to Rand's initial public offering, representing an
aggregate of approximately 17.9% of the outstanding shares of Rand common stock,
in accordance with the vote of the majority of the shares of Rand common stock
issued in its initial public offering. This voting arrangement does not apply to
any shares of common stock purchased by Rand's initial officers, directors or
stockholders in Rand's initial public offering or purchased by them after such
offering in the open market. If the holders of more than 230,000 shares of
common stock issued in Rand's initial public offering, an amount equal to more
than 5% of these shares, vote against the acquisition and demand conversion of
their shares into a pro rata portion of the trust account in which a substantial
portion of the net proceeds of Rand's initial public offering are held, Rand
will not consummate the acquisition because conversions in excess of such amount
could result in Rand's cash balances being insufficient to enable Rand to make
the equity contribution required under the loan facility obtained by Rand to
finance the acquisition.
Conversion rights
Any stockholder of Rand holding shares of common stock issued in Rand's
initial public offering who votes against the acquisition proposal may, at the
same time, demand that Rand convert such stockholder's shares into such
stockholder's pro rata portion of the trust account. If so demanded, Rand will
convert these shares into a pro rata portion of funds held in a trust account,
which consist of $23,736,000 of net proceeds from the initial public offering
deposited into the trust account plus interest earned thereon, only if the
acquisition is consummated. If the holders of more than 230,000 shares of common
stock issued in Rand's initial public offering, an amount equal to more than 5%
of these shares, vote against the acquisition and demand conversion of their
shares into their pro rata portion of the trust account in which a substantial
portion of the net proceeds of Rand's initial public offering are held, Rand
will not consummate the acquisition. Although Rand's certificate of
incorporation would permit Rand to complete the acquisition if holders of less
than 20% of the shares of common stock issued in Rand's initial public offering
were to demand conversion of their shares into cash, Rand will not be able to
complete the acquisition if holders of more than 5% of Rand's outstanding shares
demand conversion of their shares because conversions in excess of such amounts
could result in Rand's cash balances being insufficient to enable Rand to make
the equity contribution required under the loan facility obtained by Rand to
finance the acquisition.
The reduced limit on conversions arises out of the determination of Rand's
Board of Directors to obtain only enough financing as is minimally necessary to
consummate the Lower Lakes acquisition, while basing how much financing would
minimally be necessary on the assumption that holders of only a negligible
number of IPO shares would exercise their conversion rights. Moreover, the Board
determined to limit conversions to 5% even though after application of the
amounts set forth below estimated by the Board to be required to consummate the
acquisition, Rand would have cash balances capable of satisfying conversions of
over 9% of the IPO shares. Rand's Board made these determinations based on their
belief that holders of only a negligible number of IPO shares would exercise
their conversion rights and in order to ensure that sufficient cash would be
available to consummate the acquisition in the event that the Board
underestimated the amount that would be so required.
Under the new senior loan facility obtained by Rand in connection with the
Lower Lakes acquisition, Rand will be required to make a closing date equity
contribution to LL Acquisition Corp. of an amount necessary to fund the
following: the approximately $8,680,000 purchase price for the shares of Lower
Lakes, the $750,000 redemption price for the shares of Grand River,
approximately $3,500,000 of transaction expenses, approximately $2,500,000 of
working capital and winter work reserves and approximately $21,800,000 towards
the retirement of Lower Lakes' closing date indebtedness. After making payments
in respect of IPO share conversions, Rand will fund the required equity
contribution with the amount held in the trust account as of the closing date of
the acquisition (approximately $24,500,000 as of January 25, 2006) and the
$15,000,000 of proceeds of the closing date issuance of its series A convertible
preferred stock. Based on the foregoing estimates of the components of the
required equity contribution, approximately $2,225,000 of the foregoing sources
of capital to Rand will not be needed to satisfy the equity contribution. Based
on the amount of cash held in the trust account at January 25, 2006, each IPO
share with respect to which conversion rights are exercised would be entitled to
receive approximately $5.33, resulting in aggregate payments of approximately
$1,226,000 if holders of 5% of the IPO shares elect to convert their shares. In
light of the anticipated amount of the closing date equity contribution required
by the new senior loan facility, Rand's Board of Directors determined that
conversions in excess of 5% of the IPO shares would put at risk Rand's ability
to complete the acquisition.
Rand's Board of Directors believes that proposing a business combination
with an effective limit on the number of IPO shares that may be converted is
consistent with the terms of Rand's certificate of incorporation as well as the
terms of Rand's initial public offering. Rand's Board believes that Rand's
certificate of incorporation permits Rand to complete an initial business
combination that has been approved by the requisite vote of shareholders as long
as holders of not more than 19.99% of the IPO shares exercise their conversion
111
rights, and that such maximum level of permissible conversions does not afford
stockholders the right to demand conversions of 19.99%. Rand's Board of
Directors also believes that the disclosure pertaining to the 20% conversion
limit contained in the prospectus relating to Rand's initial public offering is
consistent with the prohibition contained in the certificate of incorporation.
In that regard, the Board views statements included in the prospectus such as
"... 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." (page F-8 of the prospectus), and the fact that the pro
forma net tangible book value of Rand's shares included in the prospectus
assumes conversion of 19.99% of the IPO shares, not as a requirement or
implication that conversions of up to 19.99% would in all cases be accommodated,
but as descriptions and illustrations of the maximum level of conversions that
under any circumstances could be permitted in the context of Rand's initial
business combination.
If you exercise your conversion rights, then you will be exchanging your
shares of Rand common stock for cash and will no longer own these shares. You
will only be entitled to receive cash for these shares if you continue to hold
these shares through the closing time of the acquisition and then tender your
stock certificate to Rand. The closing price of Rand's common stock on January
27, 2006 was $5.60 and the amount of cash held in the trust account as of
January 25, 2006 was approximately $24,500,000. If a Rand stockholder would have
elected to exercise his conversion rights on such date then he would have been
entitled to receive approximately $5.33 per share. Prior to exercising
conversion rights, Rand stockholders should verify the market price of Rand's
common stock as they may receive higher proceeds from the sale of their common
stock in the public market than from exercising their conversion rights if the
market price per share is higher than the conversion price. Rand's shares of
common stock are listed on the Over-the-Counter Bulletin Board under the symbol
RAQC.
A stockholder who exercises conversion rights will continue to own any
warrants to acquire Rand common stock owned by such stockholder as such warrants
will remain outstanding and unaffected by the exercise of conversion rights.
Liquidation if no Business Combination
If Rand does not complete a business combination by April 27, 2006, or by
October 27, 2006 if the extension criteria described below have been satisfied,
Rand will be liquidated and Rand will distribute to all holders of shares of
Rand's common stock sold in its initial public offering, in proportion to the
number of such shares held by them, an aggregate sum equal to the amount in the
trust fund, inclusive of any interest, plus any remaining net assets. Rand's
initial officers, directors or stockholders have waived their rights to
participate in any liquidation distribution with respect to their shares of
common stock sold in such offering. There will be no distribution from the trust
fund with respect to Rand's warrants.
If Rand enters into either a letter of intent, an agreement in principle
or a definitive agreement to complete a business combination prior to April 27,
2006, but is unable to complete the business combination prior to this date,
then Rand will have an additional six months in which to complete the business
combination contemplated by the letter of intent, agreement in principle or
definitive agreement. If Rand is unable to do so by October 27, 2006, Rand will
then liquidate the trust account. Upon notice from Rand, the trustee of the
trust account will commence liquidating the investments constituting the trust
fund and will turn over the proceeds to the transfer agent for distribution to
the stockholders. Rand anticipates that the instruction to the trustee would be
given promptly after the expiration of the applicable time periods.
If Rand were to expend all of the net proceeds of the initial public
offering, other than the proceeds deposited in the trust account, the per-share
liquidation price as of January 25, 2006 would have been approximately $5.33.
The proceeds deposited in the trust account could, however, become subject to
the claims of Rand's creditors that could be prior to the claims of Rand's
public stockholders. Rand's directors have agreed that, if Rand liquidates prior
to the consummation of a business combination, they will be personally liable to
pay debts and obligations to vendors or other entities that are owed money by
Rand for services rendered or products sold to Rand, or to any target business,
in excess of the net proceeds of Rand's initial public offering not held in the
trust account.
Competition
112
If the acquisition is completed, Rand will become subject to competition
from competitors of Lower Lakes. See "Business of Lower Lakes--Competition."
Facilities
Rand maintains its executive offices at 450 Park Avenue, 10th Floor, New
York, New York 10022.
Employees
Rand has three directors and one officer. These individuals are not
obligated to contribute any specific number of hours per week and intend to
devote only as much time as they deem necessary to Rand's affairs. Rand has no
employees.
Periodic Reporting and Audited Financial Statements
Rand has registered its securities under the Securities Exchange Act of
1934 and has reporting obligations, including the requirement to file annual and
quarterly reports with the Securities and Exchange Commission. In accordance
with the requirements of the Securities Exchange Act of 1934, Rand's annual
reports will contain financial statements audited and reported on by its
independent accountants. Rand has filed a form 10-KSB with the Securities and
Exchange Commission covering the fiscal year ended December 31, 2004 and a form
10-QSB covering the quarterly period ended September 30, 2005.
Legal Proceedings
Rand is not involved in any legal proceeding which may have, or have had a
significant effect on its business, financial positions, results of operations
or liquidity, nor is Rand aware of any proceedings that are pending or
threatened which may have a significant effect on such business, financial
position, results of operations or liquidity.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF RAND
Plan of Operations
The following discussion should be read in conjunction with Rand's
Financial Statements and related Notes thereto included elsewhere in this proxy
statement.
Rand was formed on June 2, 2004 to serve as a vehicle to effect an
acquisition, merger, capital stock exchange, asset acquisition or other similar
business combination with an unidentified operating business. Rand intends to
utilize the proceeds of its initial public offering, its capital stock, debt or
a combination of cash, capital stock and debt, in effecting a business
combination.
Rand consummated its initial public offering on November 2, 2004. Net loss
of $25,175 reported for the fiscal year ended December 31, 2004 consisted of
$34,357 for franchise and capital-based taxes, $16,293 for professional fees,
$16,209 for rent and office, $9,500 for officer liability insurance and $5,384
for other formation and operating expenses net of interest income on the trust
fund investment for the fiscal year ended December 31, 2004 of $56,568.
Rand received net proceeds of $24,605,000 in its initial public offering.
After depositing $23,736,000 in the trust fund, as of January 25, 2006, Rand has
used the balance of the net proceeds totaling $869,000 as follows:
113
Directors and officers insurance policy $127,981
Professional fees (attorneys, accountants, consultants) 91,783
Franchise and capital-based taxes 78,604
Rent and office 106,209
Other information and operating costs 159,897
Income taxes 128,709
Remaining cash at December 7, 2005 $175,817
Through January 25, 2006, Rand has paid $693,183 of costs relating to the
acquisition. As of January 25, 2006, Rand had approximately $175,817 in cash and
cash equivalents, excluding the trust fund. Rand believes that it has sufficient
available funds outside of the trust fund to operate through October 27, 2006,
assuming that a business combination is not consummated during that time.
Anticipating closure of the acquisition within one month, Rand estimates costs
of approximately $7,500 for the administrative fee payable to ProChannel
Management LLC ($7,500 per month), $2,500 of expenses in legal and accounting
fees relating to quarterly SEC reporting obligations and $100,000 for
acquisition related costs and general corporate working capital. Rand has
incurred significant acquisition-related expenses which, by their terms, are
contingent upon completion of the acquisition. If the acquisition is completed,
these expenses will be funded from all sources available to Rand, including from
amounts held in and outside of the trust fund and from working capital of Lower
Lakes.
Rand is obligated, commencing October 27, 2004 and ending upon the
acquisition of a target business, to pay to ProChannel Management LLC a monthly
fee of $7,500 for general and administrative services. In addition, in June
2004, Laurence S. Levy advanced an aggregate of $70,000 to Rand, on a
non-interest bearing basis, for payment of offering expenses on Rand's behalf.
This loan was repaid in November 2004 out of proceeds of Rand's initial public
offering.
In connection with Rand's initial public offering, Rand issued to the
representative of the underwriters in the initial public offering, for $100, an
option to purchase up to a total of 300,000 units, with each unit consisting of
one share of common stock and two warrants. The units issuable upon exercise of
the option are identical to those issued in Rand's initial public offering
except that the warrants included in the units underlying the option have an
exercise price of $6.25 per share. The option will be exercisable by the holder
at $9.90 per unit commencing upon the consummation of a business combination by
Rand and will expire on October 26, 2009. Rand accounted for the fair value of
the option, inclusive of the receipt of the $100 cash payment, as an expense of
Rand's initial public offering resulting in a charge directly to stockholders'
equity. Rand has estimated that the fair value of this option is approximately
$558,000 ($1.86 per Unit) using a Black-Scholes option-pricing model. The fair
value of the option has been estimated as of the date of grant using the
following assumptions: (1) expected volatility of 47.79%, (2) risk-free interest
rate of 3.34% and (3) expected life of 5 years. The option may be exercised by
the holder for cash or on a "cashless" basis, at the holder's option, such that
the holder may use the appreciated value of the option (the difference between
the exercise prices of the underlying warrants and the market price of the units
and underlying securities) to exercise the option without the payment of any
cash.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
combines the historical balance sheets of Lower Lakes and Rand as of September
30, 2005, giving effect to the transactions described in the Stock Purchase
Agreement as if they had occurred on September 30, 2005.
The following unaudited pro forma condensed consolidated statements of
operations combine (i) the historical statement of operations of Rand for the
nine months ended September 30, 2005 and the historical statement of operations
of Lower Lakes for the six months ended September 30, 2005 and (ii) the
historical statement of operations of Rand for the period beginning June 2,
2004, the date of Rand's inception, to December 31, 2004 and the historical
statement of operations of Lower Lakes for its fiscal year ended March 31, 2005,
in each case giving effect to the acquisition as if it had occurred on April 1,
2004.
114
We are providing this information to aid you in your analysis of the
financial aspects of the acquisition. The unaudited pro forma condensed
consolidated financial statements described above should be read in conjunction
with the historical financial statements of Lower Lakes and Rand and the related
notes thereto. The Pro Forma adjustments are preliminary and the unaudited pro
forma information is not necessarily indicative of the financial position or
results of operations that may have actually occurred had the acquisition taken
place on the dates noted, or the future financial position or operating results
of Rand.
115
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2005
Pro Forma Pro Forma
Lower Lakes Rand Adjustments Combined
------------ ------------- -------------- ----------------
ASSETS
CURRENT
Cash $ 1,437,686 $ 324,162 $ 15,000,000 (a) $ 5,621,857
21,940,000 (b)
24,296,149 (c)
(44,067,644) (d)
(3,000,000) (f)
(750,000) (i)
(9,662,356) (h)
103,860 (j)
Accounts receivable, net 8,565,755 8,565,755
Prepaid expenses and
other current assets 1,707,809 5,667 1,713,476
Investments held in
trust 24,296,149 (24,296,149) (c) --
Deferred income taxes 10,266 10,266
- -----------------------------------------------------------------------------------------------------------------------------------
11,721,516 24,625,978 (20,436,140) 15,911,354
CAPITAL ASSETS, NET 35,764,720 2,700,000 (h) 38,464,720
DEFERRED INCOME TAXES 5,247,742 5,247,742
DEFERRED DRYDOCK AND FINANCING
COSTS, NET 6,798,116 359,310 560,000 (b) 7,667,426
(2,550,000) (h)
2,500,000 (f)
INTANGIBLE ASSETS 9,278,331 (h) 9,278,331
- -----------------------------------------------------------------------------------------------------------------------------------
$ 59,532,094 $ 24,985,288 $ (7,947,809) $ 76,569,573
===================================================================================================================================
LIABILITIES
CURRENT $ 10,853,912 $ 277,419 $ 2,250,000 (b) $ 10,879,559
(2,501,772) (d)
- -----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT
Long-term debt - senior
and subordinated 41,565,872 20,250,000 (b) 20,353,860
(20,037,282) (d)
(21,528,590) (d)
103,860 (j)
Long-term obligation -
vessel lease 1,767,466 1,767,466
Deferred income taxes 4,076,436 950,000 (h) 5,026,436
Common stock subject to
conversion 4,744,826 4,744,826
Convertible notes 10,060,124 (10,060,124) (e) --
- -----------------------------------------------------------------------------------------------------------------------------------
57,469,898 4,744,826 (30,322,136) 31,892,588
- -----------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST 84,383 (84,383) (i) --
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Convertible preferred
shares 15,000,000 (a) 15,000,000
Common stock par value 560 560
Share capital 1,383,575 10,060,124 (e) --
(1,720,016) (g)
(9,723,683) (h)
Due from shareholder (1,720,016) 1,720,016 (g) --
Additional paid in
capital 1,482,353 19,884,465 (1,482,353) (h)
(500,000) (f) 19,384,465
Accumulated deficit (4,979,500) 78,018 4,979,500 (h)
(665,617) (i) (587,599)
Other comprehensive loss (5,042,511) 5,042,511 (h) --
- -----------------------------------------------------------------------------------------------------------------------------------
(8,876,099) 19,963,043 22,710,482 33,797,426
- -----------------------------------------------------------------------------------------------------------------------------------
$ 59,532,094 $ 24,985,288 $ (7,947,809) $ 76,569,573
===================================================================================================================================
See notes to unaudited pro forma condensed consolidated financial statements.
116
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine months ended September 30, 2005 (Rand)
Six months ended September 30, 2005 (Lower Lakes)
Pro Forma Pro Forma
Lower Lakes Rand Adjustments Combined
------------ ------------- -------------- ----------------
REVENUE $ 36,370,243 $ $ $ 36,370,243
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Outside voyage charter fees 3,005,313 3,005,313
Vessel operating expenses 23,677,275 23,677,275
Winter costs 88,629 88,629
Administration 1,320,007 212,080 1,532,087
Depreciation 1,874,212 100,000 (k) 1,974,212
Amortization of deferred
drydock costs 553,393 553,393
Foreign exchange loss 28,039 28,039
- -----------------------------------------------------------------------------------------------------------------------------------
30,546,868 212,080 100,000 30,858,948
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 5,823,375 (212,080) (100,000) 5,511,295
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest 1,945,103 1,945,103
Other income (9,591) (406,581) (416,172)
Amortization of deferred
financing costs 401,253 401,253
- -----------------------------------------------------------------------------------------------------------------------------------
2,336,765 (406,581) 1,930,184
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 3,486,610 194,501 (100,000) 3,581,111
- -----------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 1,508,804 91,308 (39,000) (k) 1,561,112
MINORITY INTEREST 84,383 (84,383) (h) 0
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,893,423 $ 103,193 $ 23,383 $ 2,019,999
- -----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income per share:
Pro forma weighted average outstanding shares - basic 5,600,000
----------------
Pro forma net income per share - basic $ 0.26
----------------
----------------
Pro forma weighted average outstanding shares - diluted 16,739,904
----------------
Pro forma net income per share - diluted $ 0.12
----------------
See notes to unaudited pro forma condensed consolidated financial statements.
117
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
June 2, 2004 - December 31, 2004 (Rand)
April 1, 2004 - March 31, 2005 (Lower Lakes)
Pro Forma Pro Forma
Lower Lakes Rand Adjustments Combined
------------ ------------- -------------- ----------------
REVENUE $ 52,110,040 $ $ $ 52,110,040
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Outside voyage charter fees 6,180,452 6,180,452
Vessel operating expenses 32,210,813 32,210,813
Winter costs 1,668,315 1,668,315
Administration 2,420,777 81,743 2,502,520
Depreciation 3,231,774 200,000 (k) 3,431,774
Amortization of deferred drydock 654,911 654,911
Gain on foreign exchange (435,655) (435,655)
Loss on asset disposal 113,405 113,405
- -----------------------------------------------------------------------------------------------------------------------------------
46,044,792 81,743 200,000 46,326,535
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 6,065,248 (81,743) (200,000) 5,783,505
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest 3,220,177 3,220,177
Loss on long-term debt 698,200 698,200
extinguishments Other income (6,831) (56,568) (63,399)
Amortization of deferred financing
costs 866,835 866,835
- -----------------------------------------------------------------------------------------------------------------------------------
4,778,381 (56,568) -- 4,721,813
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST 1,286,867 (25,175) (200,000) 1,061,692
- -----------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 178,672 (78,000) (k) 100,672
MINORITY INTEREST (189,556) 189,556 (h) --
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,297,751 $ (25,175) $ (311,556) $ 961,020
===================================================================================================================================
Pro Forma Net Income Per Share:
Pro Forma Weighted average outstanding shares 2,584,634
----------------
Pro Forma Basic and Diluted Net Income (loss) per share $ (0.08)
----------------
See notes to unaudited pro forma condensed consolidated financial statements.
118
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
The Stock Purchase Agreement provides for the acquisition of all of the
outstanding shares of capital stock of Lower Lakes by LL Acquisition for an
aggregate cash purchase price of $53,730,000 less an amount necessary to retire
all of the indebtedness of Lower Lakes, Lower Lakes Transportation and Grand
River outstanding as of the closing date of the acquisition, and less the
redemption price of the shares of Grand River not held by Lower Lakes, which
redemption price will be funded by Rand. The purchase price is subject to a
post-closing adjustment based on Lower Lakes' net working capital as of January
15, 2006.
Rand, LL Acquisition and the stockholders of Lower Lakes plan to complete
the acquisition promptly after the Rand special meeting, provided that:
o Rand's stockholders have approved the acquisition proposal;
o holders of not more than 5% of the IPO shares properly elect to
exercise their right to convert their shares into cash; and
o the other conditions specified in the Stock Purchase Agreement have
been satisfied or waived.
All amounts and balances have been rounded and presented to the nearest
thousands.
NOTE 2. PRO FORMA ADJUSTMENTS
Adjustments included in the column under the heading "Pro Forma
Adjustments" include the following, which assume currency conversions at the
rate of CDN $1.2096 = U.S. $1.00.
(a) To reflect the issuance of $15,000,000 of series A convertible
preferred stock.
(b) To reflect the new $22,500,000 debt facility to be entered into in
replacement of Lower Lakes' existing debt facility.
(c) The funds held in trust by Rand will be released in connection with
the acquisition.
(d) The existing long-term and subordinated debt of Lower Lakes will be
extinguished for approximately $44,067,644.
(e) The outstanding Lower Lakes convertible notes will be converted to
common shares of Lower Lakes immediately prior to the acquisition.
(f) Closing costs of approximately $3,000,000 will be paid from the
amount available to Rand.
(g) P&B Ships Limited will return the shares of Lower Lakes it currently
owns in exchange for extinguishment of the note payable to Lower
Lakes, as the proceeds from the sale exceed the amount of the debt.
119
(h) The purchase price allocation to the fair values of assets and
liabilities acquired after the existing long-term debt of Lower
Lakes is extinguished is as follows:
Purchase price $ 53,730,000
---------------
Current assets 11,721,516
Capital assets 38,464,720
Intangible assets (goodwill) 9,278,331
Deferred drydock and financing costs 9,495,858
Current liabilities (10,853,912)
Long-term liabilities (4,376,513)
---------------
$ 53,730,000
===============
This purchase price allocation is preliminary and will be subject to
a final determination upon closing of the acquisition of Lower Lakes
by Rand. The final determination of the purchase price allocation
may result in material allocation differences when compared to this
preliminary allocation and the impact of the revised allocation may
have a material effect on the actual results of operation and
financial position of the merged entities. As a result of the
application of purchase accounting, the accounts in the minority
interest and shareholders' deficiency section of the balance sheet
of Lower Lakes were eliminated.
(i) Immediately following the purchase of Lower Lakes shares by LL
Acquisition, Grand River will redeem 75% of its outstanding shares
for $750,000.
(j) Reflects principal payment savings on new debt during the quarter of
$103,860.
(k) Increased depreciation of $200,000 per year ($50,000 per quarter)
results from a fair value increment of $3,100,000 assigned to
vessels with an assumed average remaining life of 15 years. The tax
effect of this adjustment has been calculated based on an assumed
combined effective tax rate of 39%.
120
(l) Pro forma net income per share. The following table provides details
regarding the calculation of basic and diluted pro forma net income
per share for the pro forma statements of operations.
Income Shares Per Share Amount
------------ ------------- ----------------
Period ended December 31, 2004
Net income $ 961,020
Less: convertible preferred stock dividends (1,162,500)
-----------
Pro forma basic net income (loss) per share
Income available to common stockholders (201,480) 2,584,634 $ (0.08)
===============
Effect of dilutive securities:
Convertible preferred stock 1,162,500 2,419,355
------------ -------------
Pro forma diluted net income per share 961,020 5,003,989 $ 0.19
============ ============= ===============
Period ended September 30, 2005
Net income $ 2,019,999
Less: convertible preferred stock dividends (562,500)
------------
Pro forma basic net income per share
Income available to common stockholders 1,438,749 5,600,000 $ 0.26
===============
Effect of dilutive securities:
Warrants -- 8,720,549
Convertible preferred stock 562,500 2,419,355
------------ -------------
Pro forma diluted net income per share 2,019,999 16,739,904 $ 0.12
============ ============= ===============
The pro forma diluted net income (loss) per share including the
effect of the convertible preferred stock is antidilutive for the
period ended December 31, 2004. Consequently pro forma diluted net
income (loss) per share is presented using the amount for pro forma
basic net income (loss) per share.
121
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the beneficial
ownership of Rand's common stock as of November 30, 2005 by:
o each person known by Rand to be the beneficial owner of more than 5%
of Rand's outstanding shares of common stock;
o each of Rand's officers and directors; and
o all of Rand's officers and directors as a group.
Unless otherwise indicated, Rand believes that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
- --------------------------------------------------------------- -------------------- ----------
Laurence S. Levy 794,286 (1) 14.2%
450 Park Avenue, 10th Floor
New York, New York 10022
Rand Management LLC 794,286 (1) 14.2%
450 Park Avenue, 10th Floor
New York, New York 10022
David M. Knott 752,000 (2) 13.4%
485 Underhill Boulevard, Suite 205
Syosett, New York 11791
MHR Capital Partners LP 420,900 (3) 7.5%
40 West 57th Street, 24th Floor
New York, New York, 10019
Hummingbird Management, LLC 509,100 (4) 9.0%
460 Park Avenue, 12th Floor
New York, New York 10022
Isaac Kier 350,000 (5) 6.3%
Coqui Capital Partners, L.P.
1775 Broadway, Suite 604
New York, New York 10019
Sapling, LLC 335,000 (6) 6.0%
535 Fifth Avenue, 31st Floor
New York, New York 10017
Sandeep D. Alva 100,000 (7) 1.8%
Falcon Investment Advisors, LLC
60 Kendrick Street
Needham, Massachusetts 02494
All directors and executive officers as a group (3 individuals) 1,244,286 (8) 22.2%
122
(1) Represents 794,286 shares of common stock held by Rand Management
LLC of which the sole member is the Laurence Levy Irrevocable Trust,
a trust established for the benefit of Mr. Levy's three minor
children. Jane Levy, Mr. Levy's sister, is the trustee for the
trust. Does not include 800,000 shares of common stock issuable upon
exercise of warrants held by Mr. Levy that are not currently
exercisable and will become exercisable upon the completion of the
acquisition.
(2) Represents shares of common stock held by Knott Partners, L.P.,
Matterhorn Offshore Limited Fund, Shoshone Partners L.P. and Mr.
Knott's spouse. The foregoing information was derived from a
Schedule 13G/A filed with the Securities and Exchange Commission on
February 11, 2005.
(3) Represents shares of common stock held by MHR Capital Partners (500)
LP (f/k/a MHR Capital Partners LP), MHR Capital Partners (100) LP,
MHR Advisors LLC and Mark H. Rachesky, M.D. MHR Advisors LLC is the
general partner of MHR Capital Partners (500) LP and MHR Capital
Partners (100) LP and Dr. Rachesky is the managing member of MHR
Advisors LLC. The foregoing information was derived from a Schedule
13G filed with the Securities and Exchange Commission on September
26, 2005.
(4) Represents shares of common stock held by The Hummingbird Value
Fund, L.P., The Hummingbird Microcap Value Fund, L.P., and The
Hummingbird Concentrated Fund, L.P. Hummingbird exercises sole
investment discretion and voting authority with respect to such
shares. Does not include 9,080 shares of common stock issuable upon
exercise of warrants held by these entities that are not currently
exercisable and will become exercisable upon the completion of the
acquisition. The foregoing information was derived from a Schedule
13D/A filed with the Securities and Exchange Commission on November
3, 2005.
(5) Includes 17,000 shares of common stock held by Mr. Kier's wife and
100,000 shares of common stock held through a family limited
partnership. Does not include 607,000 shares of common stock
issuable upon exercise of warrants that are currently not
exercisable and will become exercisable upon the completion of the
acquisition.
(6) Represents shares of common stock held by Sapling, LLC. The
foregoing information was derived from a Schedule 13G filed with the
Securities and Exchange Commission on March 31, 2005.
(7) These shares are held by Falcon Partners Holdings, LLC of which Mr.
Alva is managing member.
(8) Does not include 1,407,000 shares of common stock issuable upon
exercise of warrants held by Rand's officers and directors that are
not currently exercisable and will become exercisable upon the
completion of the acquisition.
All of the shares of Rand's outstanding common stock owned by its founders
prior to Rand's initial public offering have been placed in escrow with
Continental Stock Transfer & Trust Company, as escrow agent, pursuant to an
escrow agreement described below.
Laurence S. Levy, Rand Management LLC, Isaac Kier and Falcon Partners
Holdings, LLC may be deemed to be Rand's "parents" and "promoters," as these
terms are defined under the Federal securities laws.
123
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 2004, Rand issued 875,000 shares of its common stock to the
following individuals for $25,000 in cash, at an average purchase price of
approximately $0.029 per share as set forth below:
Name Number of Shares Relationship to Us
- ----------------------------- ---------------- -----------------------------------------
Laurence S. Levy 395,000 Chairman of the Board and Chief Executive
Officer
Natalie Lynn Levy 100,000 Stockholder
Irrevocable Trust
Michael Benjamin Levy 100,000 Stockholder
Irrevocable Trust
Jessica Rose Levy 100,000 Stockholder
Irrevocable Trust
Isaac Kier 87,500 Director
Falcon Partners Holdings, LLC 87,500 Director
Jane Levy 5,000 Stockholder
Each of Laurence S. Levy, the Natalie Lynn Levy Irrevocable Trust, Michael
Benjamin Levy Irrevocable Trust and Jessica Rose Levy Irrevocable Trust
subsequently transferred their shares to Rand Management LLC, an entity of which
the sole member is the Laurence Levy Irrevocable Trust, a trust established for
the benefit of Laurence Levy's three minor children. In October 2004, Rand's
Board of Directors authorized a stock dividend of 0.1428571 shares of common
stock for each outstanding share of common stock, effectively lowering the
purchase price to approximately $0.025 per share.
Pursuant to an escrow agreement between Rand, Rand's initial stockholders
and Continental Stock Transfer & Trust Company, all of the shares owned by
Rand's initial stockholders were placed in escrow, with Continental acting as
escrow agent, pursuant to an escrow agreement, until the earliest of:
o October 27, 2007;
o Rand's liquidation; or
o the consummation of a liquidation, merger, stock exchange or other
similar transaction which results in all of Rand's stockholders
having the right to exchange their shares of common stock for cash,
securities or other property subsequent to Rand's consummating a
business combination with a target business.
During the escrow period, these shares cannot be sold, but the initial
stockholders will retain all other rights as stockholders, including, without
limitation, the right to vote their shares of common stock and the right to
receive cash dividends, if declared. If dividends are declared and payable in
shares of common stock, such dividends will also be placed in escrow. If Rand is
unable to effect a business combination and liquidate, none of Rand's initial
stockholders will receive any portion of the liquidation proceeds with respect
to common stock owned by them prior to Rand's initial public offering.
Rand also entered into a registration rights agreement with the initial
stockholders pursuant to which the holders of the majority of the initial
stockholders' shares will be entitled to make up to two demands that Rand
register these shares. The holders of the majority of these shares may elect to
exercise these registration rights at any time after the date on which these
shares of common stock are released from escrow. In addition, these stockholders
have certain "piggy-back" registration rights on registration statements filed
subsequent to the date on which these shares of common stock are released from
escrow. Rand will bear the expenses incurred in connection with the filing of
any such registration statements.
124
Each of Rand's initial stockholders also entered into a letter agreement
with Rand and EarlyBirdCapital pursuant to which, among other things:
o each agreed to vote all of his Shares owned in accordance with the
majority of the shares issued in Rand's initial public offering if
Rand solicits approval of its stockholders for a business
combination;
o if Rand fails to consummate a business combination by April 27, 2006
(or by October 27, 2006 under certain limited circumstances), each
agreed to take all reasonable actions within his power to cause Rand
to liquidate as soon as reasonably practicable;
o each waived any and all rights he may have to receive any
distribution of cash, property or other assets as a result of such
liquidation with respect to his shares acquired prior to Rand's
initial public offering;
o each agreed to present to Rand for Rand's consideration, prior to
presentation to any other person or entity, any suitable opportunity
to acquire an operating business, until the earlier of Rand's
consummation of a business combination, Rand's liquidation or until
such time as he ceases to be an officer or director of ours, subject
to any pre-existing fiduciary obligations he might have;
o each agreed that Rand could not consummate any business combination
which involves a company which is affiliated with any of the initial
stockholders unless Rand obtains an opinion from an independent
investment banking firm reasonably acceptable to EarlyBirdCapital
that the business combination is fair to Rand's stockholders from a
financial perspective;
o each agreed that he and his affiliates will not be entitled to
receive and will not accept any compensation for services rendered
to Rand prior to the consummation of Rand's business combination;
and
o each agreed that he and his affiliates will not be entitled to
receive or accept a finder's fee or any other compensation in the
event he or his affiliates originate a business combination.
ProChannel Management LLC, an affiliate of Laurence S. Levy, Chairman of
Rand's Board and Chief Executive Officer, has agreed that, through the
acquisition of a target business, it will make available to Rand a small amount
of office space and certain office and secretarial services, as Rand may require
from time to time. Rand has agreed to pay ProChannel Management $7,500 per month
for these services.
During 2004, Laurence S. Levy advanced $70,000 to Rand to cover expenses
related to Rand's initial public offering. The loan was payable without interest
on the earlier of June 10, 2005 or the consummation of Rand's initial public
offering. This loan was repaid in November 2004.
Rand will reimburse its officers and directors for any reasonable
out-of-pocket business expenses incurred by them in connection with certain
activities on Rand's behalf such as identifying and investigating possible
target businesses and business combinations.
Other than the $7,500 per-month administrative fee and reimbursable
out-of-pocket expenses payable to Rand's officers and directors, no compensation
or fees of any kind, including finders and consulting fees, will be paid to any
of Rand's initial stockholders or to any of their respective affiliates for
services rendered to Rand prior to or with respect to the business combination.
All ongoing and future transactions between Rand and any of its officers
and directors or their respective affiliates, will be on terms believed by Rand
to be no less favorable than are available from unaffiliated third parties and
will require prior approval in each instance by a majority of the members of
Rand's Board who do not have an interest in the transaction.
125
PRICE RANGE OF SECURITIES AND DIVIDENDS
Rand
The shares of Rand common stock, warrants and units are currently quoted
on the Over-the-Counter Bulletin Board under the symbols "RAQC," "RAQCW" and
"RAQCU," respectively. On August 31, 2005, the last day for which information
was available prior to the date of the public announcement of the signing of the
Stock Purchase Agreement, the last quoted sale prices of RAQC, RAQCW and RAQCU
were $5.24, $0.82 and $7.25, respectively. On January 27, 2006, the last quoted
sale prices of RAQC, RAQCW and RAQCU were $5.60, $1.23 and $8.20, respectively.
Each unit of Rand consists of one share of Rand common stock and two redeemable
common stock purchase warrants. Rand warrants became separable from Rand common
stock on November 10, 2004. Each warrant entitles the holder to purchase from
Rand one share of common stock at an exercise price of $5.00 commencing the
later of the completion of the Lower Lakes acquisition or October 27, 2005. The
Rand warrants will expire at 5:00 p.m., New York City time, on October 26, 2008,
or earlier upon redemption. Prior to November 2, 2004, there was no established
public trading market for our common stock.
Rand does not currently have any authorized or outstanding equity
compensation plans.
The following table sets forth, for the calendar quarter indicated, the
quarterly high and low bid information of Rand's common stock as reported on the
OTC Bulletin Board. The quotations listed below reflect interdealer prices,
without retail markup, markdown or commission, and may not necessarily represent
actual transactions:
Common Stock Warrants Units
-------------------- -------------------- --------------------
Quarter Ended High Low High Low High Low
-------- -------- -------- -------- -------- --------
December 31, 2004 $ 5.50 $ 4.50 $ 0.85 $ 0.60 $ 6.70 $ 5.95
March 31, 2005 $ 5.70 $ 5.07 $ 1.03 $ 0.69 $ 7.36 $ 6.50
June 30, 2005 $ 5.43 $ 5.10 $ 0.85 $ 0.68 $ 6.90 $ 6.32
September 30, 2005 $ 5.70 $ 5.55 $ 1.10 $ 1.05 $ 7.65 $ 7.65
Holders of Rand common stock, warrants and units should obtain current
market quotations for their securities. The market price of Rand common stock,
warrants and units could vary at any time before the acquisition.
Holders of Common Equity
As of February 1, 2006, there were five holders of record of our common
stock.
Dividends
Rand has not paid any dividends on its common stock to date and does not
intend to pay dividends prior to the completion of the acquisition.
Upon completion of the acquisition of Lower Lakes, Rand intends to pay
dividends to the extent it has available cash. However, the terms of Lower
Lakes' new senior debt facility require the establishment of significant
reserves for capital expenditures and only permit the distribution of available
cash to the extent certain financial covenants are satisfied. In addition, Rand
intends to pay dividends to the holders of its series A convertible preferred
stock with any available cash prior to payment of dividends or other
distributions to holders of its common stock. As a result of the foregoing,
there can be no assurance that Rand will have sufficient cash with which to pay
dividends to his common stockholders.
126
Lower Lakes
There is no established public trading market for the shares of common
stock of Lower Lakes because it is a private company. There are currently 10
holders of the shares of Lower Lakes common stock (subject to the conditional
purchase by Lower Lakes for cancellation of 3,925 common shares of Lower Lakes
held by P&B Ships Limited, which will be completed concurrently with the
acquisition). Lower Lakes does not have any authorized or outstanding equity
compensation plans.
DESCRIPTION OF RAND'S SECURITIES FOLLOWING THE ACQUISITION
The following description of the material terms of the capital stock and
warrants of Rand following the acquisition includes a summary of specified
provisions of the proposed amendments to Rand's certificate of incorporation
which will be in effect upon completion of the acquisition and upon adoption of
the amendment proposal. This description is subject to the relevant provisions
of Delaware General Corporation Law. If both the acquisition proposal and the
amendment proposal are adopted at the special meeting, the resulting changes to
Rand's certificate of incorporation will be reflected in an amended and restated
certificate of incorporation in the form of Annex B to this document, which is
incorporated in this document by reference. If the amendment proposal is not
adopted, the amendments providing for the change of Rand's capitalization and
Rand's corporate name will not be included in its amended and restated
certificate of incorporation.
General
Rand's authorized capital stock will consist of 51 million shares of all
classes of capital stock, of which 50 million will be shares of common stock,
par value, $0.0001 per share, and 1 million will be shares of preferred stock,
par value of $0.0001 per share.
Units
Each unit consists of one share of common stock and two warrants, which
started trading separately as of the opening of trading on November 10, 2004.
Each warrant entitles the holder to purchase one share of common stock at an
exercise price of $5.00 per share.
Common Stock
The holders of shares of Rand's common stock are entitled to one vote for
each share on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Subject to the preferences and rights, if any,
applicable to the shares of preferred stock, the holders of the shares of common
stock of Rand are entitled to receive dividends if and when declared by the
Board of Directors of Rand. Subject to the prior rights of the holders, if any,
of the preferred shares, the holders of Rand's shares of common stock are
entitled to share ratably in any distribution of the assets of Rand upon
liquidation, dissolution or winding-up, after satisfaction of all debts and
other liabilities.
Rand's amended and restated certificate of incorporation will not include
the provisions of Rand's current certificate of incorporation regarding the
liquidation of Rand in the event that Rand does not consummate a business
combination within 18 months from the date of the consummation of its initial
public offering, or 24 months from the consummation of the initial public
offering if specified extension criteria have been satisfied, and the
corresponding distribution of assets to its stockholders.
Preferred Stock
Shares of preferred stock may be issued from time to time in one or more
series and Rand's Board of Directors, without approval of the stockholders, is
authorized to designate series of preferred stock and to fix the rights,
privileges, restrictions and conditions to be attached to each such series of
shares of preferred stock. The issuance of shares of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting power
of holders of Rand's shares of common stock.
127
As of the date of this document, there are no outstanding shares of
preferred stock of any series. However, in order to finance the acquisition,
Rand will be issuing 300,000 shares of its series A convertible preferred stock
in a private transaction. See "Acquisition Financing."
Unissued Shares of Capital Stock
Common Stock. After the acquisition, Rand will have outstanding 5,600,000
shares of common stock assuming that none of the public stockholders elect to
exercise their conversion rights. In addition, 12,519,354 shares will have been
reserved on Rand's books and records for issuance upon the exercise of
outstanding warrants, issuance of the securities underlying the option held by
EarlyBirdCapital, Inc., if exercised, and the conversion of outstanding shares
of Rand's series A convertible preferred stock. The remaining shares of
authorized and unissued common stock will be available for future issuance
without additional stockholder approval (subject to applicable securities laws
and the rules of any securities market or exchange on which Rand's common stock
is quoted at the time). While the additional shares are not designed to deter or
prevent a change of control, under some circumstances Rand could use the
additional shares to create voting impediments or to frustrate persons seeking
to effect a takeover or otherwise gain control by, for example, issuing those
shares in private placements to purchasers who might side with Rand's Board of
Directors in opposing a hostile takeover bid.
Preferred Stock. After the acquisition, Rand will have outstanding 300,000
shares of series A convertible preferred stock. The amended and restated
certificate of incorporation will continue to grant Rand's Board of Directors
the authority, without any further vote or action by Rand's stockholders, to
issue preferred stock in one or more series and to fix the number of shares
constituting any such series and the preferences, limitations and relative
rights, including dividend rights, dividend rate, voting rights, terms of
redemption, redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series. The existence of authorized
but unissued preferred stock could reduce Rand's attractiveness as a target for
an unsolicited takeover bid since Rand could, for example, issue shares of
preferred stock to parties who might oppose such a takeover bid or shares that
contain terms the potential acquirer may find unattractive. This may have the
effect of delaying or preventing a change in control, may discourage bids for
the common stock at a premium over the market price of the common stock, and may
adversely affect the market price of, and the voting and other rights of the
holders of, common stock.
Classified Board of Directors; Vacancies
The amended and restated certificate of incorporation will continue to
provide that Rand's Board of Directors will be divided into three classes of
even number or nearly even number, with each class elected for staggered
three-year terms expiring in successive years. Any effort to obtain control of
Rand's Board of Directors by causing the election of a majority of the Board of
Directors may require more time than would be required without a staggered
election structure. Any director elected to fill a vacancy, including a vacancy
created by increasing the size of the Board, will hold office for the remainder
of the full term of the class of directors in which the vacancy occurred and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of directors will shorten the term of any incumbent
director. These provisions may have the effect of slowing or impeding a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting a change in the membership of Rand's Board of Directors that would
effect a change of control.
Limitation of Liability of Directors
The amended and restated certificate of incorporation will continue to
provide that no director will be personally liable to Rand or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that this limitation on or exemption from liability is not permitted by
the Delaware General Corporation Law and any amendments to that law. As
currently enacted, the Delaware General Corporation Law permits a corporation to
provide in its certificate of incorporation that a director of the corporation
will not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability for:
o any breach of the director's duty of loyalty to the corporation or
its stockholders;
128
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o payments of unlawful dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper personal
benefit.
The principal effect of this limitation on liability provision is that a
stockholder will be unable to recover monetary damages against a director for
breach of fiduciary duty unless the stockholder can demonstrate that one of the
exceptions listed in the Delaware General Corporation Law applies. This
provision, however, will not eliminate or limit director liability arising in
connection with causes of action brought under the Federal securities laws.
Rand's certificate of incorporation will not eliminate its directors' fiduciary
duties. The inclusion of this provision in the certificate of incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited Rand and its stockholders.
This provision should not affect the availability of equitable remedies such as
injunction or rescission based upon a director's breach of his or her fiduciary
duties.
The Delaware General Corporation Law provides that a corporation may
indemnify its directors and officers as well as its other employees and agents
against judgments, fines, amounts paid in settlement and expenses, including
attorneys' fees, in connection with various proceedings, other than an action
brought by or in the right of the corporation, if such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, if he or she had no reasonable cause to believe his or her
conduct was unlawful. A similar standard is applicable in the case of an action
brought by or in the right of the corporation, except that indemnification in
such a case may only extend to expenses, including attorneys' fees, incurred in
connection with the defense or settlement of such actions, and the statute
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the corporation. Rand's amended
and restated certificate of incorporation will continue to provide that Rand
will indemnify its directors to the fullest extent permitted by Delaware law.
Under these provisions and subject to the Delaware General Corporation Law, Rand
will be required to indemnify its directors for all judgments, fines,
settlements, legal fees and other expenses incurred in connection with pending
or threatened legal proceedings because of the director's position with Rand or
another entity that the director serves as a director, officer, employee or
agent at Rand's request, subject to various conditions, and to advance funds to
Rand's directors before final disposition of such proceedings to enable them to
defend against such proceedings. To receive indemnification, the director must
have been successful in the legal proceeding or have acted in good faith and in
what was reasonably believed to be a lawful manner in the best interest of Rand.
Warrants
Rand currently has warrants outstanding to purchase 9,800,000 shares of
Rand common stock, 9,200,000 of which entitle the registered holder to purchase
one share of Rand's common stock at a price of $5.00 per share and 600,000 of
which entitle the registered holder to purchase one share of Rand's common stock
at a price of $6.25 per share, in each case subject to adjustment as discussed
below, at any time commencing on the later of:
o the completion of a business combination; or
o October 27, 2005.
The warrants will expire on October 26, 2008, at 5:00 p.m., New York City
time. Rand may call the warrants for redemption in whole and not in part, at a
price of $.01 per warrant at any time after the warrants become exercisable,
upon not less than 30 days' prior written notice of redemption to each warrant
holder, if, and only if, the last reported sale price of the common stock equals
or exceeds $8.50 per share for any 20 trading days within a 30 trading day
period ending on the third business day prior to the notice of redemption to
warrant holders.
The warrants are issued in registered form under a warrant agreement
between Continental Stock Transfer & Trust Company, as warrant agent, and Rand.
129
The exercise price and number of shares of common stock issuable on
exercise of the warrants may be adjusted in certain circumstances including in
the event of a stock dividend, or Rand's recapitalization, reorganization,
merger or consolidation. However, the warrants will not be adjusted for
issuances of common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price, by
certified check payable to Rand, for the number of warrants being exercised. The
warrant holders do not have the rights or privileges of holders of common stock
or any voting rights until they exercise their warrants and receive shares of
common stock. After the issuance of shares of common stock upon exercise of the
warrants, each holder will be entitled to one vote for each share held of record
on all matters to be voted on by stockholders.
No fractional shares will be issued upon exercise of the warrants. If,
upon exercise of the warrants, a holder would be entitled to receive a
fractional interest in a share, Rand will, upon exercise, round up to the
nearest whole number the number of shares of common stock to be issued to the
warrant holder.
In addition, an option to purchase 300,000 units at an exercise price of
$9.90 per unit (with each unit consisting of one share of Rand's common stock
and two warrants, each to purchase one share of Rand's common stock at an
exercise price of $6.25 per share) was sold to EarlyBirdCapital, Inc. in
connection with its underwriting of Rand's initial public offering.
Quotation or Listing
Rand's outstanding common stock and warrants currently are quoted on the
Over-the-Counter Bulletin Board. Following the completion of the acquisition (if
approved at the special meeting), Rand intends to seek to have its shares of
common stock and warrants listed on a national securities exchange or market.
Registration Rights Agreement
Rand has entered into a Registration Rights Agreement providing for the
registration of the shares of common stock issuable upon conversion of the
series A convertible preferred stock issued in the acquisition, as described in
"Acquisition Finance."
Transfer Agent and Registrar
The Transfer Agent and Registrar for the shares of Rand common stock,
warrants and units is Continental Stock Transfer & Trust Company.
130
COMPARISON OF STOCKHOLDER RIGHTS
Rand is incorporated under the laws of the State of Delaware. The
following is a comparison of the material rights of the current stockholders of
Rand, and the stockholders of Rand after the acquisition, under Rand's amended
and restated of incorporation and the statutory framework in Delaware assuming
adoption of the acquisition proposal and the amendment proposal. If both the
acquisition proposal and the amendment proposal are adopted at the special
meeting, the resulting changes to Rand's certificate of incorporation will be
reflected in an amended and restated certificate of incorporation in the form of
Annex B to this document, which is incorporated in this document by reference.
The following description does not purport to be complete and is qualified
by reference to Delaware General Corporation Law and Rand's amended and restated
certificate of incorporation.
Comparison of Certain Certificate of Incorporation Provisions of Rand
before and after the acquisition.
Current Certificate of Amended and Restated
Provision Incorporation Certificate of Incorporation
Name of corporation Rand Acquisition Corporation Rand Logistics Inc.
Authorized capital stock 21 million, of which: 51 million, of which:
o 20 million are shares of common 50 million, are shares of common
stock, par value $0.0001 per share; stock, par value $0.0001 per share;
and and
o 1 million are shares of preferred 1 million are shares of preferred
stock, par value $0.0001 per share. stock, par value $0.0001 per share.
Board of Directors The Board of Directors must have not Same.
less than 1 and not more than 9
directors. The exact number is
determined from time to time by
resolution adopted by a majority of
the entire Board of Directors. Rand
currently has 3 directors.
Qualification of Directors Directors need not be stockholders. Same.
Foreign ownership None. The aggregate percentage ownership
restrictions by non-citizens of Rand's capital
stock (including the common stock)
is limited to 22.99% of the
outstanding shares and no more than
22.99% of the voting power of
Rand.
Rand's Board of Directors will be
permitted to make such
determinations as may reasonably be
necessary to ascertain such
ownership and implement such
limitations, including limiting the
transfers of shares and redeeming
shares.
Cumulative voting None. None.
131
Classes of directors The Board of Directors is classified Same.
into 3 classes of directors,
designated Class A, Class B, and
Class C. The number of directors in
each class must be as nearly equal as
possible. Each director serves for
three succeeding annual meetings of
stockholders, except for the first
year of election, in which Class A,
class B and Class C directors will
hold office until the first, second,
and third annual meeting,
respectively, following the
completion of the acquisition.
Vacancies on the Board Vacancies (unless they are the result Same.
of the action of stockholders) and
newly-created directorships are
filled by the majority vote of the
remaining directors in office, even
though less than a quorum, or by a
sole remaining director. Vacancies
that result from the action of
stockholders are filled by the
stockholders.
Board quorum and vote A majority of the entire Board of Same.
Directors constitutes a quorum.
Stockholder approval of "Business combination" is subject to Holders of Rand's common stock will
"Business Combinations" approval of a majority of the shares not have special approval rights
issued in Rand's initial public over any transactions (subject to
offering. If Rand does not the Delaware General Corporation
consummate a business combination by Law, applicable securities laws and
the later of April 27, 2006 or regulations of any national market
October 27, 2006 in the event that a on which Rand's common stock may be
letter of intent, an agreement in traded in the future). Holders of
principle or a definitive agreement the Rand's series A convertible
to complete a business combination preferred stock have approvals over
was executed but not consummated by certain material transactions. See
April 27, 2006, then Rand's officers "Acquisition Finance."
must take all actions necessary to No automatic liquidation provisions.
dissolve and liquidate Rand within 60
days.
Annual stockholder meetings Date, time and place of the annual Same.
meeting is determined by the Board of
Directors.
Amendments to organization Amendments to Rand's certificate of Same.
documents incorporation generally must be
approved by the Board of Directors
and by a majority of the outstanding
stock entitled to vote on the
amendment, and, if applicable, by a
majority of the outstanding stock of
each class or series entitled to vote
on the amendment as a class or
series.
132
Exculpation and A director may not be personally Same.
Indemnification of liable for monetary damages for
directors, officers and breach of fiduciary duty as a
employees director, except for liability:
o for any breach of the director's
duty of loyalty;
o for acts or omissions not in good
faith or which involve intentional
misconduct or a knowing violation
of law;
o under Section 174 of the Delaware
General Corporation Law; or
o for any transaction from which the
director derived an improper
personal benefit.
If the Delaware General Corporation
Law is amended to authorize
corporate action further eliminating
or limiting the personal liability
of directors, then the liability of
directors must be eliminated or
limited to the fullest extent
permitted by the Delaware General
Corporation Law, as so amended.
STOCKHOLDER PROPOSALS
If the acquisition is not consummated, Rand's 2006 annual meeting of
stockholders will be held on or about April 18, 2006 unless the date is changed
by the Board of Directors. If you are a stockholder and you want to include a
proposal in the proxy statement for the year 2006 annual meeting, under Rand's
by-laws you must give timely notice of the proposal, in writing, along with any
supporting materials to our secretary at Rand's principal office in New York,
New York. To be timely, the notice has to be given between January 18, 2006 and
February 17, 2006.
INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
The consolidated financial statements of Lower Lakes Towing Ltd. as of and
for the years ended March 31, 2003, 2004 and 2005 included in this proxy
statement have been audited by Deloitte & Touche LLP, independent registered
chartered accountants. Deloitte & Touche LLP has acted as the independent
auditor for Lower Lakes since 2001.
WHERE YOU CAN FIND MORE INFORMATION
Rand files reports, proxy statements and other information with the
Securities and Exchange Commission as required by the Securities Exchange Act of
1934, as amended.
You may read and copy reports, proxy statements and other information
filed by Rand with the Securities and Exchange Commission at the Securities and
Exchange Commission public reference room located at Headquarters Office, 100 F
Street, N.E., Room 1580 Washington, DC 20549.
133
You may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may
also obtain copies of the materials described above at prescribed rates by
writing to the Securities and Exchange Commission, Public Reference Section,
Headquarters Office, 100 F Street, N.E., Room 1580 Washington, DC 20549.
Rand files its reports, proxy statements and other information
electronically with the Securities and Exchange Commission. You may access
information on Rand at the Securities and Exchange Commission web site
containing reports, proxy statements and other information at:
http://www.sec.gov.
Information and statements contained in this document, or any annex to
this document, are qualified in all respects by reference to the copy of the
relevant contract or other annex filed as an exhibit to this document.
All information contained in this document relating to Rand has been
supplied by Rand, and all such information relating to Lower Lakes has been
supplied by Lower Lakes. Information provided by either of us does not
constitute any representation, estimate or projection of the other.
If you would like additional copies of this document, or if you have
questions about the acquisition, you should contact:
Morrow & Co., Inc.
470 West Avenue
3rd Floor
Stamford, CT 06902
134
INDEX TO FINANCIAL STATEMENTS
Page
LOWER LAKES INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Interim Consolidated Balance Sheets - Unaudited F-2
Interim Consolidated Statements of Operations - Unaudited F-3
Interim Consolidated Statements of Cash Flows - Unaudited F-4
Notes to the Interim Consolidated Financial Statements - Unaudited F-5-9
LOWER LAKES CONSOLIDATED FINANCIAL STATEMENTS
LOWER LAKES REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS F-10
Consolidated Balance Sheets F-11
Consolidated Statements of Operations F-12
Consolidated Statements of Shareholders' Deficiency and
Comprehensive Income (loss) F-13
Consolidated Statements of Cash Flows F-14
Notes to the Consolidated Financial Statements F-15-29
F-1
LOWER LAKES TOWING LTD.
Interim Consolidated Balance Sheets - Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
September 30, March 31,
2005 2005
------------ ------------
ASSETS
CURRENT
Cash $ 1,437,686 $ 644,122
Cash reserved for repairs and drydock expenditures -- 2,190,647
Accounts receivable, net (Note 2) 8,565,755 1,685,766
Prepaid expenses and other current assets (Note 8) 2,207,809 1,847,480
Deferred income taxes 10,266 69,290
- ----------------------------------------------------------------------------------------------
12,221,516 6,437,305
CAPITAL ASSETS, NET (Note 3) 35,764,720 36,177,363
DEFERRED INCOME TAXES 5,247,742 5,683,578
DEFERRED DRYDOCK AND FINANCING COSTS (Note 4) 6,298,116 5,329,751
- ----------------------------------------------------------------------------------------------
$ 59,532,094 $ 53,627,997
==============================================================================================
LIABILITIES
CURRENT
Bank indebtedness (Note 5) $ 1,222,170 $ 511,565
Trade accounts payable 4,506,868 5,020,199
Accrued liabilities 1,523,106 1,373,461
Income taxes payable 225,764 --
Deferred income taxes 524,232 475,243
Current portion of long-term debt - senior (Note 6) 2,501,772 2,035,016
Current portion of long-term obligation - vessel lease 350,000 350,000
- ----------------------------------------------------------------------------------------------
10,853,912 9,765,484
- ----------------------------------------------------------------------------------------------
LONG-TERM DEBT - SENIOR (Note 6) 20,037,282 19,417,983
LONG-TERM DEBT - SUBORDINATED (Note 6) 21,528,590 19,882,793
LONG-TERM OBLIGATION - VESSEL LEASE 1,767,466 1,786,134
DEFERRED INCOME TAXES 4,076,436 3,335,088
CONVERTIBLE NOTES 10,060,124 9,670,061
- ----------------------------------------------------------------------------------------------
57,469,898 54,092,059
- ----------------------------------------------------------------------------------------------
MINORITY INTEREST (Note 1) 84,383 --
- ----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' DEFICIENCY
Share capital 1,383,575 1,383,575
Due from shareholder (1,720,016) (1,720,016)
Additional paid-in capital 1,482,353 1,482,353
Accumulated deficit (4,979,500) (6,872,923)
Accumulated other comprehensive loss (5,042,511) (4,502,535)
- ----------------------------------------------------------------------------------------------
(8,876,099) (10,229,546)
- ----------------------------------------------------------------------------------------------
$ 59,532,094 $ 53,627,997
==============================================================================================
F-2
LOWER LAKES TOWING LTD.
Interim Consolidated Statements of Operations- Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
Six Months Ended September 30,
2005 2004
------------ ------------
REVENUE $ 36,370,243 $ 30,856,483
- ------------------------------------------------------------------------------------
EXPENSES
Outside voyage charter fees 3,005,313 2,400,593
Vessel operating expenses 23,677,275 18,512,394
Repairs and maintenance 88,629 21,558
Administration 1,320,007 1,017,470
Depreciation 1,874,212 1,496,961
Amortization of deferred drydock costs (Note 4) 553,393 297,753
Foreign exchange gain 28,039 40,639
- ------------------------------------------------------------------------------------
30,546,868 23,787,368
- ------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 5,823,375 7,069,115
- ------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest (Note 9) 1,945,103 1,651,815
Other income (9,591) --
Loss on long-term debt extinguishments -- 646,070
Amortization of deferred financing costs (Note 4) 401,253 178,777
- ------------------------------------------------------------------------------------
2,336,765 2,476,662
- ------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 3,486,610 4,592,453
- ------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 1,508,804 1,747,000
MINORITY INTEREST 84,383 (44,593)
- ------------------------------------------------------------------------------------
NET INCOME $ 1,893,423 $ 2,890,046
====================================================================================
- ------------------------------------------------------------------------------------
====================================================================================
Translation adjustments (539,976) 207,423
- ------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 1,353,447 $ 3,097,569
====================================================================================
F-3
LOWER LAKES TOWING LTD.
Interim Consolidated Statements of Cash Flows - Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
Six Months Ended September 30,
-----------------------------
2005 2004
------------ ------------
Operating activities
Net income $ 1,893,423 $ 2,890,046
Adjustments to reconcile net income to net cash used
by operating activities
Depreciation 1,874,212 1,496,961
Amortization of deferred drydock and financing costs
(Note 4) 954,646 476,530
Interest accrued to debt principal (Note 6) 792,325 703,924
Deferred income taxes 1,347,850 1,137,000
Loss on long-term debt extinguishments -- 646,070
Minority interest (Note 1) 84,383 (44,593)
Changes in assets and liabilities:
Increase in income taxes payable 141,751 610,000
Accounts receivable (6,687,489) (5,489,224)
Prepaid expenses and other current assets (315,687) 37,039
Accounts payable and accrued liabilities (470,533) (383,743)
Drydock expenditures (Note 4) (1,530,584) --
- ---------------------------------------------------------------------------------------------------
(1,915,703) 2,080,010
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net proceeds on sale of asset held for disposal -- 400,000
Purchase of capital assets (457,108) (29,129)
Change in cash reserved for repairs and drydock expenditures 2,190,647 --
- ---------------------------------------------------------------------------------------------------
1,733,539 370,871
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Debt financing costs (Note 4) (199,762) (2,628,413)
Proceeds from long-term debt - senior 1,600,000 21,489,939
Repayment of long-term debt - senior (1,175,586) (12,670,576)
Repayment of long-term obligation vessel lease (18,668) --
Increase (decrease) in bank indebtedness 528,093 (4,984,022)
- ---------------------------------------------------------------------------------------------------
734,077 1,206,928
- ---------------------------------------------------------------------------------------------------
EFFECT OF FOREIGN EXCHANGE RATES ON CASH 241,651 360,068
- ---------------------------------------------------------------------------------------------------
NET CASH FLOW 793,564 4,017,877
CASH, BEGINNING OF PERIOD 644,122 348
- ---------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 1,437,686 $ 4,018,225
===================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE
Payments for interest $ 1,152,777 $ 831,224
- ---------------------------------------------------------------------------------------------------
Payments for income taxes $ 122,745 $ 101,397
- ---------------------------------------------------------------------------------------------------
F-4
LOWER LAKES TOWING LTD.
Notes to the Interim Consolidated Financial Statements - Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements are
prepared in accordance with generally accepted accounting principles in
the United States of America for interim financial statements. The
consolidated balance sheet at March 31, 2005 has been derived from the
audited financial statements at that date. The unaudited consolidated
interim financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. All
adjustments which, in the opinion of management, are considered necessary
for a fair presentation of the results of operations for the periods shown
are of a normal recurring nature and have been reflected in the unaudited
consolidated financial statements. The accounting policies used in the
preparation of these unaudited consolidated interim financial statements
are the same as those used in the most recent annual consolidated
financial statements for the year ended March 31, 2005. These unaudited
consolidated interim statements should be read in conjunction with the
most recent annual consolidated financial statements of the Company.
Quarterly fluctuations and seasonality
The nature of the Company's business is such that the earnings in the
first two quarters of each fiscal year are not typically indicative of the
results for the full fiscal year. Revenues and earnings for the first
three quarters are significantly greater than the last quarter in the year
as there are relatively few shipping days during the winter season.
Minority interest
As at September 30, 2005, the minority interest liability associated with
Grand River Navigation Company, Inc. ("Grand River"), a variable interest
entity consolidated under generally accepted accounting principles was
$84,383 (March 31, 2005 - $Nil).
2. ACCOUNTS RECEIVABLE
Trade receivables are presented net of an allowance for doubtful accounts.
The allowance was nil for the second quarter ended September 30, 2005 and
as at March 31, 2005. The allowance for doubtful accounts reflects
estimates of probable losses in trade receivables. The Company evaluates
the collectibility of its trade receivables balances on a weekly basis and
management takes action as required. The increase in the accounts
receivable balance was due to the normal seasonality at the beginning of
the fiscal 2006 shipping season.
3. CAPITAL ASSETS
September 30, March 31,
2005 2005
------------- -----------
Cost
Vessels $47,644,460 $45,791,048
Vessel under capital lease 2,200,000 2,200,000
Leasehold improvements 1,632,881 1,631,596
Engine equipment 998,752 910,653
Furniture and equipment 26,671 23,187
Computer equipment 111,142 100,106
--------------------------------------------------------------------------
$52,613,906 $50,656,590
--------------------------------------------------------------------------
Accumulated depreciation
Vessels 15,203,102 13,069,507
Vessel under capital lease 300,000 200,000
Leasehold improvements 609,892 544,624
Engine equipment 623,923 561,352
Furniture and equipment 18,407 16,968
Computer equipment 93,862 86,776
--------------------------------------------------------------------------
16,849,186 14,479,227
--------------------------------------------------------------------------
$35,764,720 $36,177,363
==========================================================================
F-5
LOWER LAKES TOWING LTD.
Notes to the Interim Consolidated Financial Statements - Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
4. DEFERRED DRYDOCK AND FINANCING COSTS
September 30, March 31,
2005 2005
------------- -----------
Cost
Drydock expenditures $ 5,651,615 $ 4,021,984
Deferred finance costs 4,051,427 3,749,787
--------------------------------------------------------------------------
9,703,042 7,771,771
==========================================================================
Accumulated amortization
Drydock expenditures 2,104,004 1,492,185
Deferred finance costs 1,300,922 949,835
--------------------------------------------------------------------------
3,404,926 2,442,020
--------------------------------------------------------------------------
$6,298,116 $ 5,329,751
==========================================================================
During the six months ended September 30, 2005 the Company incurred
drydock expenditures of $1,530,584 (September 30, 2004 - nil) and
financing costs in the amount of $199,762 (September 30, 2004 -
$2,628,413).
Amortization on drydock expenditures and financing costs for the six
months ended September 30, 2005 were $553,393 (September 30, 2004 -
$297,753) and $401,253 (September 30, 2004 - $178,777), respectively.
5. BANK INDEBTEDNESS
As at September 30, 2005, the Company had an authorized operating line of
credit of $6,020,470 (CDN $7,000,000) (March 31, 2005 - $5,787,037) with
its senior lender and had utilized $1,222,170 (March 31, 2005 - $511,565).
The line of credit bears interest at Canadian Bankers Acceptance rate plus
4% on Canadian dollar borrowings and U.S. Index Rate rate plus 2.5% on
U.S. dollar borrowings and is secured under the same terms and has same
covenants as described in Note 6.
6. LONG-TERM DEBT
Senior debt
September 30, March 31,
2005 2005
------------ ------------
a) Term loan bearing interest at a rate of Canadian Bankers Acceptance
rate plus 4%. The loan is repayable over a five year term with current
monthly installments of $138,852 (CDN $166,817) plus interest. $ 17,285,797 $ 17,443,037
b) Term loan bearing interest at U.S. Index rate plus 2.5% basis points.
The loan is repayable over a five year term with current monthly
payments of $65,006. The term loan is secured by assets of Grand River.
During the quarter ended June 30, 2005, Grand River increased the
original term loan by $1.6 million to $5.8 million to partially finance
the refit and drydocking of the M/V Maumee. 5,253,257 4,009,962
------------------------------------------------------------------------------------------------------------------
22,539,054 21,452,999
Less amounts due within 12 months 2,501,772 2,035,016
------------------------------------------------------------------------------------------------------------------
$ 20,037,282 $ 19,417,983
==================================================================================================================
Senior debt instrument a) is secured by a first charge against all
property, a general security agreement over inventory and equipment,
marine mortgages on all vessels owned by the Company and its affiliates as
well as assignment of contracts of affreightment and insurance. Senior
debt instrument b) is secured by assets of the Grand River; a marine
mortgage and collateral marine agreement covering all vessels owned by
Grand River.
F-6
LOWER LAKES TOWING LTD.
Notes to the Interim Consolidated Financial Statements - Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
The Company is required to comply with certain financial covenants under
the senior and subordinated debt agreements. The Company was in compliance
with these covenants as at September 30, 2005.
Subordinated debt
September 30, March 31,
2005 2005
------------ ------------
a) Term loans maturing March 2008 bearing interest at a rate of 8% per
annum (effective April 1, 2004) compounded monthly which was not paid
but added to the principal amount owed. $ 6,063,035 $ 5,599,441
b) Term loan bearing interest at a rate of 8% per annum (effective April
1, 2004) which was not paid but added to the principal amount owed with
no payments of principal until maturity in March 2008. 15,465,555 14,283,352
------------------------------------------------------------------------------------------------------------------
$ 21,528,590 $ 19,882,793
==================================================================================================================
Subordinated debt is denominated in Canadian dollars, is secured by a
second charge against all property, and a second marine mortgage on all
vessels owned by the Company as well as assignments of contracts of
affreightment and insurance. Subordinated debt is based in Canadian funds.
During the year ended March 31, 2004, the Company agreed with the
subordinated lenders that no cash interest payments will be made effective
December 31, 2003. Non-cash interest of $792,325 was recorded during the
six months ended September 30, 2005 (September 30, 2004 - $703,924).
Principal payments are due as follows (excluding future interest charges
which are added to principal balances):
2006 $ 2,501,762
2007 2,852,060
2008 25,046,208
2009 3,696,151
2010 9,971,462
-----------------------------------------------------------
$44,067,644
===========================================================
In the year ended March 31, 2001, the Company issued 19,524 unsecured,
non-interest bearing CDN$ notes convertible into common shares for total
proceeds of CDN $11,696,900. The notes currently 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. COMMITMENTS AND CONTINGENCIES
There were no significant commitments entered into during the quarter.
Several legal claims have been filed against the Company. Most of these
claims are for insignificant amounts. Given management's assessment that
losses were probable and reasonably estimable, and advice from the
Company's solicitor, a provision of $73,000 has been provided for claims
filed. Management does not anticipate material variations in actual losses
from the amounts accrued related to these claims. In the opinion of
management and the Company's solicitor, all other claims are not likely to
be successful and are insignificant to the Company.
F-7
LOWER LAKES TOWING LTD.
Notes to the Interim Consolidated Financial Statements - Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
The Company has entered into a bareboat charter agreement for the McKee
Sons barge which expires in 2013. Total charter commitments for the McKee
vessel for the next five fiscal years are given below. Rent expense for
this vessel for the six months periods ended September 30, 2005 and 2004
was $337,500.
2006 $ 675,000
2007 675,000
2008 675,000
2009 775,000
2010 775,000
-----------------------------------------------------------
$3,575,000
===========================================================
8. RELATED PARTY TRANSACTIONS
During the six months ended September 30, 2005, the Company had sales of
$1,516,877 (September 30, 2004 - $1,282,492) and made lease payments of
$683,334 (September 30, 2004 - $683,334) to a related company of the
shareholder representing the minority interest in Grand River Navigation
Company, Inc.
Included in prepaid expenses and other assets is an amount receivable from
shareholders and debtholders of approximately $400,000 related to costs
incurred by the Company to negotiate an agreement to sell the Company (see
Note 11). Such costs will be reimbursed to the Company upon closing of the
transaction with the purchaser which is expected to occur in the quarter
ending March 31, 2006.
9. INTEREST EXPENSE
Interest expense is comprised of the following:
Six months ended
------------------------------------
September 30, September 30,
2005 2004
------------------------------------
Bank indebtedness $ 247,183 $ 281,792
Long-term debt - senior 690,928 431,274
Long-term debt - subordinated 792,325 703,924
Long-term obligation - vessel lease 214,667 233,333
Other -- 1,492
--------------------------------------------------------------------------
$ 1,945,103 $1,651,815
==========================================================================
10. ECONOMIC DEPENDENCE
During the six months ended September 30, 2005, the Company derived
$18,550,640 (September 30, 2004 - $14,182,864) of its revenue from three
customers and purchased $5,762,847 (September 30, 2004 - $3,646,297) of
its fuel from one vendor.
11. MATERIAL AGREEMENT
The Company's shareholders entered into a Stock Purchase Agreement dated
September 2, 2005 to transfer all of their shares in the Company to Rand
Acquisition Corporation ("Rand"), a Delaware corporation and LL
Acquisition Corp., an indirect wholly owned subsidiary of Rand. The shares
currently held by P&B Ships Limited have been conditionally sold to the
Company for cancellation in exchange for the cancellation of the
outstanding note in the amount of $1,720,016 due from P&B Ships Limited
upon completion of the transaction. Subsequent to the Stock Purchase
Agreement, Grand River would repurchase the remaining 75% of the issued
and outstanding shares presently held by Grand River Holdings, Inc.
F-8
LOWER LAKES TOWING LTD.
Notes to the Interim Consolidated Financial Statements - Unaudited
(U.S. Dollars)
- --------------------------------------------------------------------------------
12. SEGMENT INFORMATION
The Company has identified only one reportable segment under Statement of
Financial Accounting Standards No.131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131").
Information about geographic operations is as follows:
Six months ended
------------------------------------
September 30, September 30,
2005 2004
------------------------------------
Revenues from external customers
Canada $ 21,286,816 $19,147,209
United States 15,083,427 11,709,274
--------------------------------------------------------------------------
$ 36,370,243 $30,856,483
==========================================================================
Revenues from external customers are allocated based on the country of the
legal entity of the Company in which the revenues were recognized
September 30, 2005 March 31, 2005
-------------------------------------
Capital assets
Canada $ 26,176,470 $26,302,917
United States 9,588,250 9,874,446
--------------------------------------------------------------------------
$ 35,764,720 $36,177,317
==========================================================================
F-9
Report of Independent Registered Chartered Accountants
To the Board of Directors and Shareholders of Lower Lakes Towing Ltd.
We have audited the consolidated balance sheets of Lower Lakes Towing Ltd. (the
"Company") as of March 31, 2005 and 2004 and the related consolidated statements
of operations, cash flows, and shareholders' deficiency and comprehensive income
(loss) for each of the years in the three year period ended March 31, 2005.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada and the United States of America. These standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lower Lakes Towing Ltd. as of March
31, 2005 and 2004 and the consolidated results of its operations and its cash
flows for each of the years in the three year period ended March 31, 2005 in
conformity with accounting principles generally accepted in the United States of
America.
The Company is not required to have, nor were we engaged to perform, an audit of
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no opinion.
These consolidated financial statements are not prepared in accordance with
Canadian generally accepted accounting principles and may not satisfy the
reporting requirements of Canadian statutes and regulations. In addition, since
these consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, the
financial position, results of operations and cash flows might be significantly
different than if the financial statements had been prepared in accordance with
Canadian generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Kitchener, Ontario
October 12, 2005
F-10
LOWER LAKES TOWING LTD.
Consolidated Balance Sheets
(U.S. Dollars)
- --------------------------------------------------------------------------------
March 31,
2005 2004
------------ ------------
ASSETS
CURRENT
Cash (Note 4) $ 644,122 $ 348
Cash reserved for repairs and drydock expenditures
(Note 4) 2,190,647 --
Accounts receivable, net (Note 5) 1,685,766 1,000,392
Prepaid expenses and other current assets (Note 6) 1,847,480 1,603,811
Assets held for disposal (Note 7) -- 400,000
Deferred income taxes (Note 8) 69,290 56,794
- --------------------------------------------------------------------------------------------------------
6,437,305 3,061,345
CAPITAL ASSETS, NET (Note 9) 36,177,363 33,798,697
DEFERRED INCOME TAXES (Note 8) 5,683,578 4,697,425
DEFERRED DRYDOCK AND FINANCING COSTS, NET (Note 10) 5,329,751 3,717,833
- --------------------------------------------------------------------------------------------------------
$ 53,627,997 $ 45,275,300
========================================================================================================
LIABILITIES
CURRENT
Bank indebtedness (Note 11) $ 511,565 $ 6,689,918
Accounts payable 4,928,684 3,018,562
Accrued liabilities 1,464,976 2,089,830
Deferred income taxes (Note 8) 475,243 144,894
Current portion of long-term debt - senior (Note 12) 2,035,016 7,753,810
Current portion of note payable (Note 13) -- 658,303
Current portion of long-term obligation - vessel lease (Note 14) 350,000 350,000
- --------------------------------------------------------------------------------------------------------
9,765,484 20,705,317
- --------------------------------------------------------------------------------------------------------
LONG-TERM DEBT - SENIOR (Note 12) 19,417,983 --
LONG-TERM DEBT - SUBORDINATED (Note 12) 19,882,793 17,594,965
LONG-TERM OBLIGATION - VESSEL LEASE (Note 14) 1,786,134 1,850,000
DEFERRED INCOME TAXES (Note 8) 3,335,088 2,917,944
CONVERTIBLE NOTES (Note 12) 9,670,061 8,920,084
NOTE PAYABLE (Note 13) -- 3,228,363
- --------------------------------------------------------------------------------------------------------
54,092,059 34,511,356
- --------------------------------------------------------------------------------------------------------
MINORITY INTEREST (Note 2) -- 189,556
- --------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 15 and 16)
SHAREHOLDERS' DEFICIENCY
Share capital - unlimited common shares authorized;
Shares issued and outstanding totaled 7,969 (2004 -
5,751) (Note 17) 1,383,575 1,068,573
Due from shareholder (Note 18) (1,720,016) (1,720,016)
Additional paid-in capital 1,482,353 1,797,353
Accumulated deficit (6,872,923) (8,170,674)
Accumulated other comprehensive loss (4,502,535) (3,106,165)
- --------------------------------------------------------------------------------------------------------
(10,229,546) (10,130,929)
- --------------------------------------------------------------------------------------------------------
$ 53,627,997 $ 45,275,300
========================================================================================================
F-11
LOWER LAKES TOWING LTD.
Consolidated Statements of Operations
(U.S. Dollars)
- --------------------------------------------------------------------------------
Year Ended March 31,
2005 2004 2003
------------ ------------ ------------
- ---------------------------------------------------------------------------------------------------------
REVENUE (Note 2) 52,110,040 38,549,544 27,227,115
- ---------------------------------------------------------------------------------------------------------
EXPENSES
Outside voyage charter fees (Note 19) 6,180,452 2,362,549 --
Vessel operating expenses 32,210,813 27,477,864 19,225,618
Repairs and maintenance 1,668,315 1,430,120 1,026,647
Administration 2,420,777 2,396,214 1,593,545
Depreciation 3,231,774 3,109,098 2,207,513
Amortization of deferred drydock costs (Note 10) 654,911 550,628 169,478
Gain on foreign exchange (435,655) (594,275) (284,232)
Loss on asset disposal (Note 7) 113,405 190,155 --
Impairment of capital assets (Note 9) -- 1,224,221 --
- ---------------------------------------------------------------------------------------------------------
46,044,792 38,146,574 23,938,569
- ---------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 6,065,248 402,970 3,288,546
- ---------------------------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest (Note 20) 3,220,177 4,693,282 3,160,308
Loss on long-term debt extinguishment (Note 10 and 12) 698,200 -- --
Other income (6,831) (46,489) (55,848)
Amortization of deferred financing costs (Note 10) 866,835 846,977 757,088
- ---------------------------------------------------------------------------------------------------------
4,778,381 5,493,770 3,861,548
- ---------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 1,286,867 (5,090,800) (573,002)
- ---------------------------------------------------------------------------------------------------------
PROVISION FOR (RECOVERY) OF INCOME TAXES (Note 8) 178,672 (228,180) (18,126)
MINORITY INTEREST (Note 2) (189,556) (396,848) 582,391
- ---------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,297,751 $ (4,465,772) $ (1,137,267)
=========================================================================================================
F-12
LOWER LAKES TOWING LTD.
Consolidated Statements of Shareholders' Deficiency and Comprehensive Income
(Loss)
(U.S. Dollars)
- --------------------------------------------------------------------------------
Accumulated
Additional Other
Common Shares Paid-In Due from Accumulated Comprehensive
Shares Amount Capital Shareholder Deficit Loss
----------------------------------------------------------------------------------------------
Balances, April 1, 2002 5,114 $ 832,110 $ 1,797,353 $ (1,720,016) $ (2,567,635) $ (238,508)
Shares issued 637 236,463 -- -- -- --
Net loss -- -- -- -- (1,137,267) --
Translation
adjustments -- -- -- -- -- (1,157,427)
- -------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 2003 5,751 $ 1,068,573 $ 1,797,353 $ (1,720,016) $ (3,704,902) $ (1,395,935)
Net loss -- -- -- -- (4,465,772) --
Translation
adjustments -- -- -- -- (1,710,230) (1,710,230)
- -------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 2004 5,751 1,068,573 $ 1,797,353 $ (1,720,016) $ (8,170,674) $ (3,106,165)
Net income -- -- -- -- 1,297,751 --
Exercise of warrants
(Note 17) 2,218 315,002 (315,000) -- -- --
Translation
adjustments -- -- -- -- -- (1,396,370)
- -------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 2005 7,969 $ 1,383,575 $ 1,482,353 $ (1,720,016) $ (6,872,923) $ (4,502,535)
===============================================================================================================================
Total Total
Shareholders' Comprehensive
Deficiency Income (Loss)
------------------------------
Balances, April 1, 2002 $ (1,896,696)
Shares issued 236,463
Net loss (1,137,267) $ (1,137,267)
Translation
adjustments (1,157,427) (1,157,427)
- --------------------------------------------------------------
Balances, March 31, 2003 $ (3,954,927) $ (2,294,694)
============
Net loss (4,465,772) $ (4,465,772)
Translation
adjustments (1,710,230) (1,710,230)
- --------------------------------------------------------------
Balances, March 31, 2004 $(10,130,929) $ (6,176,002)
============
Net income 1,297,751 $ 1,297,751
Exercise of warrants
(Note 17) 2
Translation
adjustments (1,396,370) (1,396,370)
- --------------------------------------------------------------
Balances, March 31, 2005 $(10,229,546) $ (98,619)
==============================================================
F-13
LOWER LAKES TOWING LTD.
Consolidated Statements of Cash Flows
(U.S. Dollars)
- --------------------------------------------------------------------------------
Year Ended March 31,
2005 2004 2003
------------ ------------ ------------
Operating activities
Net income (loss) $ 1,297,751 $ (4,465,772) $ (1,137,267)
Adjustments to reconcile net income (loss) to net cash
used by operating activities
Depreciation 3,231,774 3,109,098 2,207,513
Amortization of deferred drydock and financing
costs (Note 10) 1,521,746 1,397,605 926,566
Loss on long-term debt extinguishment (Note 12) 698,200 -- --
Interest accrued to debt principal (Note 12) 1,468,755 2,269,929 1,027,495
Impairment of capital assets (Note 9) -- 1,224,221 --
Loss of sale of asset held for sale (Note 7) 113,405 190,155 --
Deferred income taxes 68,248 (283,550) (82,381)
Minority interest (189,556) (396,848) 582,391
Changes in assets and liabilities:
Accounts receivable (616,282) (511,936) 250,627
Prepaid expenses and other current assets (160,824) (759,320) (111,372)
Accounts payable and accrued liabilities 850,030 2,445,242 (644,885)
Drydock expenditures (819,889) (738,639) (1,153,826)
- --------------------------------------------------------------------------------------------------------------
7,463,358 3,480,185 1,864,861
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (3,626,447) (6,340,701) (1,616,346)
Proceeds on sale of asset held for sale (Note 7) 217,130 -- --
Cash reserved for repairs and drydock expenditures
(Note 4) (2,190,647) -- --
- --------------------------------------------------------------------------------------------------------------
(5,599,964) (6,340,701) (1,616,346)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Debt financing costs (2,716,620) (415,982) (177,642)
Proceeds from long-term debt - senior 21,489,939 1,071,429 --
Repayment of long-term debt - senior (8,891,279) (1,341,759) (1,643,985)
Repayment of long-term obligation - vessel lease (63,866) -- --
Proceeds from long-term debt - subordinated 469,410 -- --
Repayment of long-term debt - subordinated (1,173,525) -- --
Proceeds from long-term debt - vessel (Note 14) -- 2,200,000 --
Repayment of note payable (3,987,315) (875,630) --
(Decrease) increase in bank indebtedness (6,348,695) 2,889,481 1,767,224
Proceeds from share issuance -- -- 242,993
Share issuance costs -- -- (6,530)
Proceeds from redemption of warrants (Note 17) 2 -- --
- --------------------------------------------------------------------------------------------------------------
(1,221,949) 3,527,539 182,060
- --------------------------------------------------------------------------------------------------------------
EFFECT OF FOREIGN EXCHANGE RATES ON CASH 2,329 (666,675) (430,757)
NET CASH FLOW 643,774 348 (182)
CASH, BEGINNING OF YEAR 348 -- 182
- --------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 644,122 $ 348 $ --
==============================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE
Payments for interest $ 1,751,422 $ 2,423,353 $ 2,115,856
- --------------------------------------------------------------------------------------------------------------
Payments for income taxes $ 174,343 $ -- $ --
- --------------------------------------------------------------------------------------------------------------
Capital asset purchases financed
(Note 13) $ -- $ 4,516,129 $ --
- --------------------------------------------------------------------------------------------------------------
F-14
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Lower Lakes Towing Ltd. (the "Company") is a shipping company engaged in
the operation of bulk carriers on the Great Lakes and was federally
incorporated in Canada on March 24, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
Change in Accounting Policy
In January 2003, the FASB issued Interpretation No. 46R, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51" and revised
this interpretation in December 2003 ("FIN 46R"). FIN 46R outlines the
application of consolidation guidance to certain entities in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support.
Reporting entities which have a variable interest in such an entity and
are deemed to be the primary beneficiary must consolidate the variable
interest entity. For nonpublic enterprises, FIN 46R was applicable
immediately to entities created after December 31, 2003, and to all other
entities beginning on the first annual reporting period after December 15,
2004. The Company has elected early application of the provisions of FIN
46R effective April 1, 2004.
Upon implementation of FIN 46R, the Company identified Grand River
Navigation Company, Inc ("Grand River" a 25% equity investee) as a
significant variable interest entity. The Company through its wholly owned
subsidiary Lower Lakes Transportation Company ("Transportation") has
entered into time charter agreements with Grand River for the charter and
use of vessels operated by Grand River for the purposes of fulfilling bulk
carrying activities on the Great Lakes.
Grand River provides all operational, crewing and maintenance control over
all the US Flag vessels within the Company's shipping operations. Grand
River owns two vessels and a tug and charters two other vessels for use
exclusively for time charter by Transportation. Grand River operates from
two leased office locations in Michigan and Ohio which house the various
senior management and administrative staff for US vessel operations. Grand
River provides strategic locations as a base for crew changes, recruiting
activities and are convenient to the vessel patterns employed by the US
vessels. Grand River operations generated approximately 36% (2004 - 40%)
of the Company's total revenues.
Although the Company has a 25% minority equity interest in Grand River,
the Company has determined that Grand River is a variable interest entity
and that the Company is the primary beneficiary due primarily to the terms
of the time charter agreements between the Company and Grand River. As a
result of the adoption of FIN 46R effective April 1, 2004, the Company has
included the results of Grand River in these consolidated financial
statements on a retroactive basis and has restated prior period financial
statements accordingly.
The impact of the adoption of FIN 46R is as follows:
2005 2004 2003
----------- ---------- -----------
Year Ended March 31,
Increase in revenue -- -- --
Increase (decrease) in expenses $ 1,203,540 $ 529,131 $ (776,521)
Minority interest 189,556 396,848 (582,391)
Change in net earnings $(1,013,984) $ (132,283) $ 194,130
At March 31,
Increase in assets $11,500,810 $6,087,906
Increase in liabilities 10,544,661 5,840,515
Change in minority interest -- 189,556
Change in shareholders' equity $ (956,149) $ 57,835
Capital assets that are collateral for the variable interest entity's
obligations are $7,874,446 (2004 - $6,492,282).
As at March 31, 2005, the minority interest liability resulting from the
consolidation of Grand River was $Nil (2004 - $189,556). The loss of
$902,655 for the year ended March 31, 2005 applicable to the minority
interest exceeded the minority interest in the equity capital of Grand
River of $189,556. As a result, in accordance with ARB No. 51,
F-15
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
"Consolidated Financial Statements", $189,556 of the current year loss was
applied against the minority interest with the excess loss of $713,099
reflected in the Company's consolidated net income. To the extent that
Grand River reports future income, the minority interest therein will be
reduced to the extent of excess losses previously absorbed by the Company.
Basis of presentation
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
and include the accounts of Lower Lakes Towing Ltd., Lower Lakes
Transportation Company ("Transportation", a wholly-owned subsidiary) and
Grand River Navigation Company, Inc. ("Grand River", a 25% equity investee
consolidated as described above). All significant intercompany
transactions and balances have been eliminated.
Revenue recognition
The Company generates revenues from freight billings under contracts of
affreightment (voyage charters) on a rate per ton basis. Voyage charter
revenues are recognized when services under the contracts are rendered,
the Company has a signed contract of affreightment, the contract price is
fixed or determinable and collection is reasonably assured. Voyage charter
revenue is recognized ratably over the period from the departure of a
vessel from its original shipping point to its destination. Included in
freight billings are other fees such as fuel surcharges and other freight
surcharges, which represent pass-through charges to customers for toll
fees, lockage fees and ice breaking fees paid to other parties. Fuel
surcharges are recognized ratably over the voyage, while freight
surcharges are recognized when the associated costs are incurred. Fuel
surcharge revenues totaled $1,916,137 for the year ended March 31, 2005
(2004 - $1,185,721, 2003 - $271,202). Freight surcharges are insignificant
and amount to less than 1% of total revenues for the years presented.
The Company subcontracts excess customer demand to other freight
providers. Service to customers under such arrangements is transparent to
the customer and no additional services are being provided to customers.
Consequently, revenues recognized for customers serviced by freight
subcontractors are recognized on the same basis as described above. In
addition, revenues are presented on a gross basis in accordance with the
guidance in EITF 99-19, "Reporting Revenue Gross as a Principal versus Net
as an Agent." Costs for subcontracted freight providers, presented as
"Outside voyage charter fees" on the statement of operations are
recognized ratably over the voyage.
Capital assets
Capital assets are recorded at cost. Depreciation methods for capital
assets are as follows:
Vessels 10 - 15 years straight-line
Leasehold improvements 5 - 13 years straight-line
Furniture and equipment 20% declining-balance
Engine equipment 30% declining-balance
Computer equipment 30% declining-balance
Deferred charges
Deferred charges include capitalized drydock expenditures and deferred
financing costs. Drydock costs incurred during statutory Canadian and
United States certification processes are capitalized and amortized on a
straight-line basis over the benefit period, which is 60 months. Drydock
costs include costs of work performed by third party shipyards,
subcontractors and other direct expenses to complete the mandatory
certification process. The Company incurred financing costs in connection
with obtaining senior and subordinated debt to purchase vessels. Such
costs are amortized on a straight-line basis over the term of the related
debt, which approximates the effective interest method.
Impairment of long-lived assets
The Company accounts for the impairment of long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
the estimated undiscounted cash flows to be generated by those assets are
less than the assets' carrying value. If the carrying value of the assets
will not be recoverable, as determined by the estimated undiscounted cash
flows, the carrying value of the assets is reduced to fair value. Fair
value will be determined using valuation techniques such as expected
discounted cash flows or appraisals. As disclosed in Note 9, an impairment
of $1,224,221 was recorded in 2004.
F-16
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
Repairs and maintenance
The Company's vessels require repairs and maintenance each year to ensure
the fleet is operating efficiently during the shipping season. The vast
majority of repairs and maintenance are completed in January, February and
March of each year when the vessels are not active. The Company expenses
repairs and maintenance costs which are routine. Significant repairs to
the Company's vessels, whether owned or available to the Company under a
time charter, such as major engine overhauls and hull repairs, are
capitalized and amortized over the remaining life of the asset repaired,
whether it is engine equipment, the vessel or leasehold improvements to a
vessel leased under time charter agreement.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the determination of deferred tax
assets and liabilities based on the differences between the financial
statement and income tax bases of tax assets and liabilities, using
enacted tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is recognized, if necessary, to
measure tax benefits to the extent that, based on available evidence, it
is more likely than not that they will be realized.
Foreign currency translation
The Company uses the U.S. Dollar as its reporting currency. The functional
currency of Lower Lakes Towing Ltd. is the Canadian dollar. The functional
currency of the Company's U.S. subsidiaries is the U.S. Dollar. In
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation" ("SFAS 52"), assets and liabilities
denominated in foreign currencies are translated into U.S. Dollars at the
rate of exchange at the balance sheet date, while revenue and expenses are
translated at the weighted average rates prevailing during the respective
periods. Components of shareholders' deficiency are translated at
historical rates.
Advertising costs
The Company expenses all advertising costs as incurred. These costs are
included in administration costs and were insignificant during the years
presented.
Pension plans
The Company contributes to employee Registered Retirement Savings Plans in
Canada and 401K plans in the United States. Contributions are expensed in
operating expenses when incurred. The Company made contributions of
$479,673, $394,356 and $356,993 in 2005, 2004 and 2003 respectively.
Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period.
Significant estimates included in the preparation of these financial
statements include the assumptions used in determining whether assets are
impaired and the assumptions used in determining the valuation allowance
for deferred income tax assets. Actual results could differ from those
estimates.
F-17
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
3. RECENTLY ISSUED PRONOUNCEMENTS
Stock-based compensation
On December 16, 2004, the FASB issued amended SFAS No. 123, "Accounting
for Share-Based Payment" ("SFAS 123R"). SFAS 123(R) requires all companies
to use the fair-value based method of accounting for stock-based
compensation, and is in effect for the Company for its fiscal period
beginning on April 1, 2006. SFAS 123(R) requires that all companies adopt
either the modified prospective transition ("MPT") or modified
retrospective transition ("MRT") method. Stock compensation expense
calculated using the MPT approach would be recognized on a prospective
basis in the financial statements over the requisite service period, while
the MRT method allows a restatement of prior periods for amounts
previously recorded as pro forma expense. On April 14, 2005, the U.S.
Securities and Exchange Commission announced the adoption of a rule that
amended the compliance date of SFAS 123(R). Based on this announcement,
FAS 123(R) will be effective for Lower Lakes' fiscal year beginning on
April 1, 2006. The Company does not expect that the adoption of this
standard will have a significant impact on its consolidated financial
statements.
Exchanges of non-monetary assets
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-Monetary
Assets" ("SFAS 153"). SFAS 153 amends Accounting Principle Board Opinion
No. 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. This
standard is in effect for exchanges occurring in fiscal years beginning
after June 15, 2005. The Company does not expect that the adoption of this
standard will have a significant impact on its consolidated financial
statements.
4. CASH AND CASH RESERVED FOR REPAIRS AND DRY DOCK EXPENDITURES
In compliance with the credit agreement governing the Company's authorized
line of credit disclosed in Note 11, the Company maintains cash accounts
that are swept daily to minimize balances on the revolving credit line. A
minimal amount is kept in the accounts to cover outstanding cheques and
automatic withdrawals. As of March 31, 2005, as required by its credit
arrangements, the Company had accumulated a cash balance of $2,190,647
presented separately on the balance sheet to be utilized to fund a portion
of repair and drydock expenditures expected to be incurred in the quarter
ended June 30, 2005.
5. ACCOUNTS RECEIVABLE
Trade receivables are presented net of an allowance for doubtful accounts.
The allowance was nil for 2005 and 2004. The allowance for doubtful
accounts reflects estimates of probable losses in trade receivables. The
Company manages and evaluates the collectibility of its trade receivables
as follows. Senior management review an aged accounts receivable listing
on a weekly basis. Contact is made with customers that have extended
beyond agreed upon credit terms. Senior management and operations are
notified that when they are contacted by such customers for a future
delivery to ensure any past due amounts are paid before any future cargo
is booked for shipment. Customer credit risk is also managed by reviewing
the history of payments of the customer, the size of the customer, the
period of time within the shipping season and demand for future cargos.
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are comprised of the following:
2005 2004
---------- -----------
Prepaid expenses $ 694,182 $ 720,798
Fuel and lubricants 649,484 601,765
Fuel deposits 62,004 --
Spare parts 441,810 281,248
--------------------------------------------------------------------------
$1,847,480 $ 1,603,811
==========================================================================
F-18
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
7. ASSETS HELD FOR DISPOSAL
During the current year, the Company disposed of engine equipment for
proceeds of $217,130 and recorded a loss on disposal of $113,405. The
Company recorded an impairment charge of $190,155 in 2004 as a result of
classifying the equipment as held for disposal.
8. INCOME TAXES
The components of the provision for (recovery of) income taxes are as
follows:
2005 2004 2003
---------- ----------- -----------
Current income taxes $ 110,424 $ 55,370 $ 64,255
Deferred income taxes 68,248 (283,550) (82,381)
-------------------------------------------------------------------------
$ 178,672 $ (228,180) $ (18,126)
=========================================================================
The provision for income taxes varies from the expected provision at the
statutory rates for the reasons detailed in the table below:
March 31, 2005 March 31, 2004 March 31, 2003
-------------- -------------- --------------
Combined basic Canadian statutory rates 36.1% 36.5% 38.1%
Income taxes based on the above rates $ 468,488 $ (1,858,142) $ (218,314)
Increase (decrease) in income taxes resulting
from:
Permanent differences including non-deductible
portion of capital loss 347,655 10,069 1,348
Effect of differences between Canadian and
foreign tax rates 18,557 (176,278) 158,223
Other including expiration of losses 219,468 (117,197) 40,617
Valuation allowance (875,496) 1,913,368 --
--------------------------------------------------------------------------------------------------------------
$ 178,672 $ (228,180) $ (18,126)
==============================================================================================================
The components of current deferred tax assets and liabilities are as
follows:
2005 2004
------------ ----------
Deferred current tax assets
Accrued expenses not currently deductible $ 69,290 $ 56,794
==========================================================================
Deferred current tax liabilities
Drydock expenses $ 475,243 $ 144,894
==========================================================================
F-19
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
8. INCOME TAXES (continued)
The significant components of long-term deferred tax assets and
liabilities as at March 31, 2005 are as follows:
2005 2004
------------ ------------
Long-term deferred tax assets
Operating loss carryforwards $ 4,635,859 $ 4,590,937
Compound interest 1,898,807 1,612,781
Unrealized foreign exchange 347,655 407,075
-------------------------------------------------------------------------
6,882,321 6,610,793
Valuation allowance (1,198,743) (1,913,368)
-------------------------------------------------------------------------
Net long-term deferred tax asset $ 5,683,578 $ 4,697,425
=========================================================================
Long-term deferred tax
liabilities
Depreciation and drydock expenses $ 3,335,088 $ 2,917,944
=========================================================================
The measurement of the aggregate deferred tax assets is adjusted by a
valuation allowance to recognize tax benefits to the extent that, based on
available evidence, it is more likely than not that they will be realized.
Based on the weight of evidence regarding recoverability of the Company's
tax assets, a valuation allowance of $1,198,743 (2004 - $1,913,368) (2003
- $Nil) has been recorded to reduce the net long-term deferred tax assets
to the estimated amount realizable.
The Company has combined income tax loss carryforwards of approximately
$12,304,000, which expire as follows:
----------------------------------------------
Expiry year Canada United States Total
----------------------------------------------
2009 $ 2,658,000 $ -- $ 2,658,000
2010 4,661,000 -- 4,661,000
2011 3,703,000 -- 3,703,000
2021 -- 216,000 216,000
2024 -- 319,000 319,000
2025 -- 747,000 747,000
----------------------------------------------
$ 11,022,000 $ 1,282,000 $ 12,304,000
----------------------------------------------
F-20
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
9. CAPITAL ASSETS
Capital assets are comprised of the following:
2005 2004
------------ ------------
Cost
Vessels $ 45,791,048 $ 39,537,842
Vessels under capital lease (Note 14) 2,200,000 2,200,000
Leasehold improvements 1,631,596 1,629,124
Engine equipment 910,653 813,174
Furniture and equipment 23,187 20,184
Computer equipment 100,106 70,950
--------------------------------------------------------------------------
$ 50,656,590 $ 44,271,274
==========================================================================
Accumulated depreciation
Vessels $ 13,069,507 $ 9,568,591
Vessels under capital lease (Note 14) 200,000 50,000
Leasehold improvements 544,624 425,334
Engine equipment 561,352 360,633
Furniture and equipment 16,968 13,366
Computer equipment 86,776 54,653
--------------------------------------------------------------------------
14,479,227 10,472,577
--------------------------------------------------------------------------
$ 36,177,363 $ 33,798,697
==========================================================================
During 2004, the Company recorded an impairment charge in the amount of
$1,224,221 to write down the carrying value of two of its vessels to fair
market value.
10. DEFERRED DRYDOCK AND FINANCING COSTS
Deferred charges are comprised of the following:
2005 2004
----------- ------------
Cost
Drydock expenditures $ 4,021,984 $ 3,011,659
Deferred financing
costs 3,749,787 4,332,142
--------------------------------------------------------------------------
7,771,771 7,343,801
==========================================================================
Accumulated amortization
Drydock expenditures 1,492,185 760,466
Deferred financing
costs 949,835 2,865,502
--------------------------------------------------------------------------
2,442,020 3,625,968
--------------------------------------------------------------------------
$ 5,329,751 $ 3,717,833
==========================================================================
F-21
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
10. DEFERRED DRYDOCK AND FINANCING COSTS (continued)
As a result of the refinancing disclosed in Note 12, the Company incurred
financing costs in the amount of $2,716,620 (2004 - $415,982). During the
year, the Company wrote off deferred financing costs of $698,200 as a
result of the extinguishment of the senior and subordinated debt disclosed
in Note 12.
Amortization on drydock expenditures and financing costs was $654,911
(2004 - $550,628) and $866,835 (2004 - $846,977), respectively.
11. BANK INDEBTEDNESS
At March 31, 2005, the Company had an authorized operating line of credit
in the amount of $5,787,037 (CDN $7,000,000) (2004 - $6,482,117) with its
senior lender and utilized $511,565 (2004 - $6,689,918). The line of
credit bears interest at Canadian Bankers Acceptance rate plus 4% on
Canadian dollar borrowings and U.S. LIBOR rate plus 4% on U.S. Dollar
borrowings and is secured under the same terms and has the same financial
covenants as described in Note 12.
12. LONG-TERM DEBT
During the year, the Company completed a group refinancing, which included
agreements with a senior lender providing USD $21,489,939 (CDN $22,100,000
and U.S. $4,200,000) to the Company. These funds were applied to refinance
all senior debt and the note payable and to provide operating funds. The
existing subordinated debt remains subordinated to the new senior lender.
In conjunction with the refinancing of the senior debt, the Company also
restructured its subordinated debt. The Company's terms with subordinated
lenders are effective as of April 1, 2004 and provide for a non-cash
interest rate of 8% effective from that date forward, replacing various
existing rates. The subordinated debt is denominated in Canadian dollars.
The existing senior debt and subordinated debt was considered to be
extinguished in accordance with Emerging Issues Task Force Issue No.
96-19, "Debtor's Accounting for a Modification or Exchange of Debt
Instruments," ("EITF 96-19"). Consequently, unamortized deferred financing
costs of $698,200 were expensed and presented as a loss on debt
extinguishment on the consolidated statement of operations.
F-22
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
Senior debt
2005 2004
------------ --------------
a) Term loan bearing interest at Canadian Bankers Acceptance rate plus 4%.
The loan is repayable over a five year term with current monthly
installments of $137,912 plus interest until September 2009. $ 17,443,037 $ --
b) Term loan bearing interest at a rate of prime plus 3% per annum and
repayable in quarterly installments of principal of $168,365 plus
interest until July 2007. -- 2,329,601
c) Term loan bearing interest at a rate of prime plus 3.1% per annum and
repayable in quarterly installments of principal of $158,110 plus
interest until July 2007. -- 2,187,714
d) Term loan bearing interest at a rate of prime plus 3% per annum and
repayable in quarterly installments of principal of $82,672 plus
interest until July 2007. -- 686,342
e) Term loan bearing interest at a rate of prime plus 3% per annum and
repayable on demand. -- 1,143,903
f) Term loan bearing interest at U.S. LIBOR plus 4%. The loan is repayable
over a five year term with current monthly payments of $31,673. The
term loan is secured by assets of Grand River. Subsequent to the year
end, Grand River increased the original term debt by $1.6 million to
$5.8 million in principal financing, to partially finance the refit and
drydocking of the M/V Maumee (Note 25). 4,009,962 --
g) Term loan bearing interest at a U.S. base rate plus 2% (4.00% at March
31, 2004 (4.25% at March 31, 2003)). The loan is repayable over a six
year period in quarterly installments of $93,750. -- 1,406,250
---------------------------------------------------------------------------------------------------------
21,452,999 7,753,810
Less amounts due within 12 months 2,035,016 7,753,810
---------------------------------------------------------------------------------------------------------
$ 19,417,983 $ --
=========================================================================================================
Senior debt instrument (a) is secured by a first charge against all
property, a general security agreement over inventory and equipment,
marine mortgages on all vessels owned by the Company and its affiliates as
well as assignment of contracts of affreightment and insurance. Senior
debt instrument (f) is secured by assets of Grand River, a marine mortgage
and collateral marine agreement covering the vessels owned by Grand River.
The Company is required to comply with certain financial covenants under
the senior and subordinated debt agreements. The Company was in compliance
with these covenants as of March 31, 2005. As at March 31, 2004 the
Company was not in compliance with covenants relating to senior debt
lending agreements effective at that date. Consequently senior debt was
classified as current.
F-23
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
Subordinated debt
2005 2004
------------ --------------
a) Term loans maturing March 2008 originally bearing interest at a rate of
11.5% per annum. Monthly payments of interest are payable until October
2002. After October 2002 and until April 1, 2004, loans bore interest
rate of 20%.
i) 8.5% per annum on the aggregate outstanding amount from time to
time, shall be calculated daily and payable monthly, added to the
outstanding principal amount on the last day of each month and paid on
prepayment date or any date on which the prepayment occurs.
ii) 11.5% per annum on the aggregate outstanding amount from time to
time, shall be calculated daily and payable monthly in arrears, on the
last banking day of each month. After October 2002, payments of
principal have to be made that are equal to the lenders' pro rata share
of 25% of the excess cash flow in each financial year. Excess cash flow
is defined as net income for the period plus the aggregate of 1) all
amounts deducted in the calculation thereof on account of depreciation
and amortization, deferred taxes, drydock provision and non cash
interest expenses less the aggregate of 2) all unfunded capital
expenditures during such period as permitted under the loan agreement
3) all scheduled repayments during such period pursuant to the CIBC
senior Credit Agreement and 4) any repayments at March 31, 2004 on the
loans.
As of April 1, 2004, the total interest related to this instrument
accrues at a rate of 8% per annum compounded monthly and is added to
the principal amount owing. $ 5,599,441 $ 4,617,144
b) Term loan originally bearing interest at a rate of 20% per annum with
no payments of principal until maturity in March 2008. Prior to April
1, 2004, interest accrued as follows:
i) 10% per annum on the aggregate outstanding amount from time to time
shall be calculated daily and payable monthly, added to the outstanding
amount on the last day of each month and paid on the prepayment date or
any date on which prepayment occurs.
ii) 10% per annum on the aggregate outstanding amount from time to time
shall be calculated daily and payable quarterly, in arrears, on the
last banking day of each calendar quarter.
As of April 1, 2004, the total interest related to this instrument
accrues at a rate of 8% per annum compounded monthly and is added to
the principal amount owing. 14,283,352 12,977,821
---------------------------------------------------------------------------------------------------------
$ 19,882,793 $ 17,594,965
=========================================================================================================
Subordinated debt is denominated in Canadian dollars, secured by a second
charge against all property, and a second marine mortgage on all vessels
owned by the Company as well as assignments of contracts of affreightment
and insurance.
During the prior year, the Company agreed with the subordinated lenders
that no cash interest payments would be made effective December 31, 2003.
Non-cash interest expense of $1,468,755 was recorded during the year (2004
- $2,269,929).
F-24
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
Principal payments are due as follows (excluding future interest charges
which are added to principal balances):
2006 $ 2,035,016
2007 2,374,178
2008 22,901,391
2009 3,256,000
2010 10,769,207
-----------------------------------------------------------
$ 41,335,792
===========================================================
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. The notes currently have a stated value of
USD $9,670,061 (2004 - USD $8,920,084). 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) (2004 - $457) per common
share. The Company is obligated to pay the principal balance of the notes,
if not converted, on March 28, 2011. In addition, the Company is obligated
to redeem the notes, at the holder's option, if the Company is sold or
completes a distribution of shares subject to securities regulation. In
2005, the balance of the convertible notes increased by $749,977 due to
the foreign exchange impact of translation using the year end exchange
rate. The notes were assigned to certain of the Company's debt holders in
September 2004.
13. NOTE PAYABLE
During the year ended March 31, 2004, the Company purchased a vessel for
$4,516,129 using a vendor mortgage as consideration. The mortgage carried
an interest rate of 10% per annum. The principal along with interest was
to be paid at $1,000,000 per annum for six years. This transaction was not
reflected in the accompanying statement of cash flows. During 2005, the
Company repaid the note payable in full from proceeds of the financing
disclosed in Note 12.
14. LONG-TERM OBLIGATION - VESSEL LEASE
In 2004, Grand River entered into a sale and bareboat charter arrangement
(sale leaseback) transaction involving the M/V Manistee vessel. As the
agreement includes an option by the Company to repurchase the M/V Manistee
vessel and a put option by the purchaser described in Note 15, the
leaseback has been classified as a capital lease under Statement of
Financial Accounting Standards 13, "Accounting for Leases," ("SFAS 13").
Consistent with the requirements of Statement of Financial Accounting
Standards 28, "Accounting for Sales with Leasebacks, an amendment of FASB
Statement No. 13," no gain was recorded on the transaction. The leased
vessel is recorded in capital assets and is being depreciated over its
remaining estimated useful life (Note 9).
The following is a schedule of the future minimum obligation payments
under the terms of the leaseback determined using the implicit borrowing
rate in the lease as of March 31, 2005 and assuming that the repurchases
outlined in Note 15 are not completed and the vessel remains on charter
hire:
2006 $ 350,000
2007 350,000
2008 350,000
2009 350,000
2010 500,000
Thereafter 5,000,000
----------
Total minimum payments 6,900,000
Less: Amount representing imputed interest 4,913,866
----------
Present value of net minimum payments
(see a) note below) $2,136,134
==========
(a) At the inception of the transaction in 2004, the present value of the
minimum lease payments exceeded the fair value of the vessel asset. In
accordance with SFAS 13, the amount recorded in 2004 as the asset and the
obligation was determined to be the fair value of the vessel asset in the
amount of $2,200,000. The balance of the obligation as at March 31, 2005
was $2,136,134.
F-25
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
15. COMMITMENTS
As disclosed in Note 14, the Company entered into a sale and bareboat
charter arrangement (sale leaseback) expiring December 31, 2014 relating
to the M/V Manistee (formerly Richard Reiss) vessel.
The Company has an option to repurchase the M/V Manistee vessel anytime
after December 31, 2006 but before March 31, 2007 for the amount of
$2,200,000. The owner of the M/V Manistee vessel has a put option to
require the Company to repurchase the vessel at any time after December
31, 2007 for $2,200,000. In the event the put was exercised, the Company
would be required to repurchase the vessel within 60 days. If the
repurchase were not completed within 60 days of the put being exercised,
the annual charter hire payments would increase immediately to $500,000
from the current annual amount of $350,000 and the term of the charter
would be extended an additional 5 years through December 31, 2019.
The Company has also entered into a bareboat charter agreement for the
McKee Sons barge which expires in 2013. Rental payments in the amount of
$675,000 (2004 - $675,000) (2003 - $600,000) have been recorded in vessel
operating expenses.
Total charter commitments for the McKee vessel for the next five years are
given below.
2006 $ 675,000
2007 675,000
2008 675,000
2009 775,000
2010 775,000
-----------------------------------------------------------
$3,575,000
===========================================================
The Company has not entered into any other significant operating leases.
16. CONTINGENCIES
Several legal claims have been filed against the Company. Most of these
claims are for insignificant amounts. Given management's assessment that
losses were probable and reasonably estimable, and based on advice from
the Company's solicitors, a provision of $150,000 has been provided for
claims filed by a railroad company for damage to a bridge ($90,000) and a
former employee for injury ($60,000). Management does not anticipate
material variations in actual losses from the amounts accrued related to
these claims. In the opinion of management and the Company's solicitor,
all other claims are not likely to be successful and are insignificant to
the Company.
17. SHARE CAPITAL
The Company is authorized to issue an unlimited number of common shares.
The following details the changes in issued and outstanding common shares
for the two years ended March 31, 2005:
Number
Outstanding Stated amount
---------------------------
Balance as at March 31, 2003 and 2004 5,751 $ 1,068,573
Exercise of warrants 2,218 315,002
--------------------------------------------------------------------------
Balance as at March 31, 2005 7,969 $ 1,383,575
==========================================================================
In connection with the issuance of subordinated debt during the year ended
March 31, 2000, the Company issued warrants which allowed the debt holders
to purchase an aggregate of 2,218 common shares of the Company. The
estimated fair value of the warrants was recorded as deferred financing
F-26
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
costs and amortized over the term of the related debt. During the year
ended March 31, 2005, all outstanding warrants were exercised for net
proceeds of $2. The original fair value of the warrants at the grant date
of $315,000 has been reclassified from additional paid in capital to share
capital as a result of the warrants being exercised.
18. RELATED PARTY TRANSACTIONS
Prior to 2002, the Company advanced an amount of $1,720,016 to P&B Ships
Limited (a shareholder) for the purchase of the Company's shares. In
accordance with the Emerging Issues Task Force Issue 85-1, "Classifying
Notes Received for Capital Stock" ("EITF 85-1"), the note has been
presented in shareholders' deficiency.
The note due from shareholder is non-interest bearing and has no fixed
repayment terms. The parties have agreed that none of the balance
outstanding will be repaid by March 31, 2006 (See Note 24).
During the year, the Company had sales of $1,935,267 (2004 - $1,411,398)
(2003 - $1,263,353) and made lease payments of $1,025,000 (2004 -
$675,000) (2003 - $600,000) to a related company of the current 75% equity
shareholder of Grand River.
19. OUTSIDE VOYAGE CHARTER FEES
Outside voyage charter fees relate to the subcontracting of external
vessels chartered to service the Company's customers to supplement the
existing shipments.
20. INTEREST EXPENSE
Interest expense is comprised of the following:
2005 2004 2003
----------- ---------- ----------
Bank indebtedness $ 325,445 $ 473,506 $ 250,500
Long-term debt - senior 1,198,318 815,350 581,071
Long-term debt - subordinated 1,468,755 3,321,841 2,318,902
Long-term obligation - vessel 226,134 60,000 --
Other 1,525 22,585 9,835
---------------------------------------------------------------------------------------
$ 3,220,177 $4,693,282 $3,160,308
=======================================================================================
F-27
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
21. SEGMENT INFORMATION
The Company has identified only one reportable segment under Statement of
Financial Accounting Standards No.131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131").
Information about geographic operations is as follows:
2005 2004 2003
------------ ------------ -----------
Revenues from external customers
Canada $ 33,123,908 $ 23,275,608 $12,924,437
United States 18,986,132 15,273,936 14,302,678
----------------------------------------------------------------------------------------
$ 52,110,040 $ 38,549,544 $27,227,115
========================================================================================
Revenues from external customers are allocated based on the country of the
legal entity of the Company in which the revenues were recognized.
2005 2004
------------ -----------
Capital assets
Canada $ 26,302,917 $25,156,415
United States 9,874,446 8,642,282
--------------------------------------------------------------------------
$ 36,177,163 $33,798,697
==========================================================================
22. FINANCIAL INSTRUMENTS
Fair value of financial instruments
Financial instruments are comprised of cash, accounts receivable, accounts
payable and accrued liabilities and bank indebtedness. The estimated fair
values of cash, accounts receivable, accounts payable and accrued
liabilities approximate book values because of the short-term maturities
of these instruments.
The estimated fair value of senior debt approximates the carrying value as
the debt bears interest at variable interest rates. The estimated fair
value of convertible notes and subordinated debt instruments has not been
calculated due to the lack of comparable instruments and the constraints
of timeliness and cost in preparing a valuation.
Foreign exchange risk
Foreign currency exchange risk to the Company results primarily from
changes in exchange rates between the Company's reporting currency, the
U.S. Dollar, and the Canadian dollar. The Company is exposed to
fluctuations in foreign exchange as a significant portion of revenue and
operating expenses are denominated in Canadian dollars.
Interest rate risk
The Company is exposed to fluctuations in interest rates as a result of
its banking facilities and senior debt bearing variable interest rates.
Credit risk
Accounts receivable credit risk is mitigated by the dispersion of the
Company's customers among industries and the short shipping season.
F-28
LOWER LAKES TOWING LTD.
Notes to the Consolidated Financial Statements
(U.S. Dollars)
- --------------------------------------------------------------------------------
23. ECONOMIC DEPENDENCE
The Company derived $21,489,284 (2004 - $17,250,482) (2003 - $7,178,424)
of its revenue from two customers. The Company purchased $6,613,767 (2004
- $5,319,991) (2003 - $3,123,046) of its fuel from one vendor.
24. OTHER COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", establishes standards for the reporting and display
of comprehensive income (loss), which is defined as the change in equity
arising from non-owner sources. Comprehensive loss is reflected in the
consolidated statement of changes in shareholders' deficiency. The
components of, and changes in, comprehensive loss and accumulated other
comprehensive loss consist of translation adjustments arising from the
translation of the parent Company accounts from Canadian dollar functional
currency to U.S. Dollar reporting currency. Included in comprehensive loss
and accumulated other comprehensive loss are tax effects of foreign
currency translation adjustments of $161,093 (2004 - $259,450, 2003 -
$nil)
25. SUBSEQUENT EVENTS
On April 25, 2005, the Company signed an agreement with its senior lender
to increase the existing debt of $4.2 million by $1.6 million to $5.8
million of original principal (Note 12). The proceeds were used to
partially fund the refit and drydock of the M/V Maumee.
In August 2005, a vessel incurred damages after coming in contact with a
dock. The total cost of the incident is expected to be $450,000 total with
a net payable by the Company of $205,000 corresponding with the insurance
deductible.
The Company's shareholders entered into a Stock Purchase Agreement dated
September 2, 2005 to transfer all of their shares in the Company to Rand
Acquisition Corporation ("Rand"), a Delaware corporation and LL
Acquisition Corp., an indirect wholly owned subsidiary of Rand. The shares
currently held by P&B Ships Limited have been conditionally sold to the
Company for cancellation in exchange for the cancellation of the
outstanding note referred to in Note 18 upon completion of the
transaction. Subsequent to the Stock Purchase Agreement, Grand River would
repurchase the remaining 75% of the issued and outstanding shares
presently held by Grand River Holdings, Inc.
F-29
ANNEX A
[EXECUTION COPY]
STOCK PURCHASE AGREEMENT
Dated as of September 2, 2005
Among
RAND ACQUISITION CORPORATION,
LL ACQUISITION CORP.,
and
THE STOCKHOLDERS OF LOWER LAKES TOWING LTD.
TABLE OF CONTENTS
Page
ARTICLE I. CLOSING; SALE AND PURCHASE..........................................1
1.1 The Closing........................................................1
1.2 Sale and Purchase of the Purchase Shares...........................1
1.3 Delivery of Purchase Price and Stock Certificates..................2
1.4 Purchase Price Adjustment..........................................2
1.5 Section 116 Certificate............................................4
1.6 Credit Obligations.................................................5
1.7 Shareholder Approval...............................................6
1.8 Actions Simultaneous...............................................7
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT
TO THE PURCHASE SHARES.............................................7
2.1 Authority; Execution and Delivery; Enforceability..................7
2.2 NonContravention...................................................8
2.3 Title to Purchase Shares...........................................8
2.4 [Intentionally Omitted]............................................8
2.5 Litigation and Claims..............................................8
2.6 No Finder..........................................................9
2.7 Residency of Sellers...............................................9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT
TO THE COMPANY AND SUBSIDIARIES...................................9
3.1 Organization; Good Standing........................................9
3.2 Subsidiaries; Equity Interests.....................................9
3.3 NonContravention..................................................10
3.4 Corporate Documents...............................................10
3.5 Capitalization; Options...........................................10
3.6 Consents and Approvals............................................11
3.7 Title to Assets...................................................11
3.8 Real Property.....................................................12
3.9 Employment and Labor Related Agreements and Actions...............13
3.10 Contracts.........................................................17
3.11 Intellectual Property.............................................19
3.12 Insurance.........................................................20
3.13 Books and Records.................................................21
3.14 Financial Statements; Liabilities.................................21
3.15 Tax Matters.......................................................22
3.16 Absence of Certain Changes and Events.............................25
3.17 Litigation and Claims.............................................26
3.18 Governmental Permits; Compliance with Laws........................26
3.19 Environmental Matters.............................................27
3.20 Employee Plans....................................................28
3.21 Maritime Matters..................................................33
3.22 No Finder.........................................................34
3.23 Certain Business Practices........................................34
3.24 Accounts Receivable...............................................34
3.25 Major Customers...................................................34
i
3.26 Affiliate Transactions............................................35
3.27 Sufficiency of Assets.............................................35
3.28 Bank Accounts.....................................................35
3.29 Disclosure........................................................35
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND RAND..............35
4.1 Organization; Good Standing.......................................35
4.2 Authority; Execution and Delivery; Enforceability.................35
4.3 NonContravention..................................................36
4.4 Consents and Approvals............................................36
4.5 Litigation and Claims.............................................36
4.6 No Finder.........................................................36
4.7 Disclosure........................................................36
ARTICLE V. ACTION PRIOR TO THE CLOSING DATE...................................37
5.1 Conduct of Business...............................................37
5.2 No Breach of Representations and Warranties; Notification
of Certain Matters................................................41
5.3 Access............................................................41
5.4 Standstill........................................................41
5.5 Notice of Litigation..............................................42
5.6 Fulfillment of Conditions to Rand's and Purchaser's
Obligations and to GR Holdings' Obligations Under the
Redemption Agreement..............................................42
5.7 Fulfillment of Conditions to Sellers' Obligations.................42
5.8 Governmental Consents.............................................42
5.9 Third Party Consents..............................................43
5.10 Publicity.........................................................43
5.11 Transfer of Certain Assets........................................43
5.12 Financing.........................................................43
5.13 Conversion of Convertible Notes...................................44
5.14 Consolidated Financial Statements.................................44
ARTICLE VI. OTHER AGREEMENTS OF THE PARTIES...................................44
6.1 Cooperation in Litigation.........................................44
6.2 Confidentiality...................................................44
6.3 Tax Matters.......................................................45
6.4 Additional Tax Covenants of the Sellers...........................47
6.5 Access............................................................48
6.6 Further Assurances................................................48
6.7 Indemnification...................................................48
6.8 Redemption Agreement..............................................48
6.9 Reorganization....................................................49
ARTICLE VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF RAND AND PURCHASER........49
7.1 Representations and Warranties....................................49
7.2 Performance.......................................................49
7.3 No Material Adverse Effect........................................49
7.4 Certificates......................................................49
7.5 No Injunction.....................................................50
7.6 Governmental Approvals............................................50
ii
7.7 Third Party Consents..............................................50
7.8 Escrow Agreement..................................................51
7.9 Employment Agreement..............................................51
7.10 Stock Certificates................................................51
7.11 Good Standing.....................................................51
7.12 Releases..........................................................51
7.13 Liens.............................................................51
7.14 [Intentionally Omitted]...........................................51
7.15 Change in the Law.................................................51
7.16 Legal Opinions....................................................51
7.17 Section 116 Escrow Agreement......................................51
7.18 Bonus Program Participant Agreement...............................51
7.19 [Intentionally Omitted]...........................................51
7.20 Financing.........................................................52
7.21 Redemption........................................................52
ARTICLE VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS..............52
8.1 Representations and Warranties....................................52
8.2 Performance.......................................................52
8.3 Certificates......................................................52
8.4 No Injunction.....................................................52
8.5 Governmental Approvals............................................52
8.6 Third Party Consents..............................................53
8.7 Escrow Agreement..................................................53
8.8 Good Standing.....................................................53
8.9 [Intentionally Omitted]...........................................53
8.10 Legal Opinions....................................................53
8.11 Management Bonus Program..........................................53
ARTICLE IX. INDEMNIFICATION...................................................53
9.1 Survival..........................................................53
9.2 Indemnification by Sellers following Closing......................54
9.3 Indemnification by Purchaser and Rand following Closing...........54
9.4 Limitations on Indemnification....................................55
9.5 Interest..........................................................56
9.6 Tax Treatment of Indemnity Payments...............................56
9.7 Notice of Claims..................................................56
9.8 Third Party Claims................................................56
ARTICLE X. TERMINATION........................................................57
10.1 Termination.......................................................57
10.2 Termination Fee...................................................59
10.3 Effects of Termination............................................59
ARTICLE XI. MISCELLANEOUS.....................................................59
11.1 Expenses of the Transaction.......................................59
11.2 Notices...........................................................59
11.3 No Modification Except in Writing.................................60
11.4 Entire Agreement..................................................60
11.5 Severability......................................................61
iii
11.6 Assignment........................................................61
11.7 Governing Law; Jurisdiction.......................................61
11.8 Specific Performance..............................................61
11.9 Headings; References..............................................62
11.10 Interpretation....................................................62
11.11 Third Parties.....................................................62
11.12 Counterparts and Facsimile Signatures.............................62
11.13 Time of the Essence...............................................62
11.14 Currency..........................................................62
11.15 Sellers' Representative...........................................62
iv
APPENDICES
APPENDIX A. DEFINITIONS
APPENDIX B. SELLER DISCLOSURE SCHEDULE
APPENDIX C. PURCHASER DISCLOSURE SCHEDULE
EXHIBITS
ALLOCATION AMONG SELLERS EXHIBIT 1
EMPLOYMENT AGREEMENT EXHIBIT 2
ESCROW AGREEMENT EXHIBIT 3
RELEASE EXHIBIT 4
OPINION OF SELLERS' COUNSEL EXHIBIT 5
OPINION OF RAND'S AND PURCHASER'S COUNSEL EXHIBIT 6
SECTION 116 ESCROW AGREEMENT EXHIBIT 7
COMPANY INDEBTEDNESS EXHIBIT 8
SELLERS' ADDRESSES EXHIBIT 9
WORKING CAPITAL STATEMENT EXHIBIT 10
MANAGEMENT BONUS PROGRAM EXHIBIT 11
SELLERS SEVERAL LIABILITY ALLOCATION EXHIBIT 12
FINANCING COMMITMENTS EXHIBIT 13
BONUS PROGRAM PARTICIPANT AGREEMENT EXHIBIT 14
REDEMPTION AGREEMENT EXHIBIT 15
v
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement"), dated as of September 2, 2005,
among Rand Acquisition Corporation, a Delaware corporation ("Rand"), LL
Acquisition Corp., a corporation incorporated under the Canada Business
Corporations Act, ("Purchaser"), and the stockholders of Lower Lakes Towing
Ltd., a Canadian corporation (the "Company") listed on Exhibit 1 hereto (the
"Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers are the owners, or through the exercise of
Convertible Notes have the right to become the owners, of 23,568 shares of
common stock of the Company (the "Purchase Shares"), representing all of the
issued and outstanding shares of capital stock of the Company on a fully-diluted
basis;
WHEREAS, Purchaser desires to purchase and acquire from the Sellers, and
the Sellers desire to sell and transfer to Purchaser, the Purchase Shares on the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, terms used in this Agreement and not otherwise defined in this
Agreement are defined in Appendix A hereto.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I.
CLOSING; SALE AND PURCHASE
1.1 The Closing. The closing (the "Closing") of the transactions contained
in this Article I shall take place at 10:00 A.M., Eastern Time, on the second
Business Day after all of the conditions contained in Articles VII and VIII have
been satisfied or waived (other than those conditions which will be satisfied at
the Closing Time), or at such other time or such other date as Purchaser and the
Sellers may agree, at the offices of Katten Muchin Rosenman LLP, 575 Madison
Avenue, New York, New York (hereinafter, such date is referred to as the
"Closing Date" and such time on the Closing Date is referred to as the "Closing
Time.")
1.2 Sale and Purchase of the Purchase Shares. Upon the terms and subject
to the conditions set forth herein, at the Closing, the Sellers agree to sell,
convey, transfer and assign the Purchase Shares to Purchaser free and clear of
all Liens, and deliver to Purchaser certificates representing the Purchase
Shares, duly endorsed in blank or accompanied by stock or other appropriate
powers in blank with all appropriate transfer stamps affixed thereto (the "Stock
Certificates"), and Purchaser agrees to purchase the Purchase Shares from the
Sellers for an aggregate cash purchase price of Fifty Three Million Seven
Hundred Thirty Thousand Dollars ($53,730,000) minus (i) the Payoff Amount and
(ii) the Redemption Price (such sum, the "Purchase Price"). The Purchase Price
shall be subject to adjustment in accordance with Section 1.4.
1
1.3 Delivery of Purchase Price and Stock Certificates. Subject to
satisfaction or waiver by the relevant party of the relevant conditions to
Closing, at the Closing, (i) the Purchase Price, as adjusted by the amount by
which the Estimated Net Working Capital is greater or less than the Working
Capital Base Amount, less the Escrow Amount shall be paid by Purchaser to the
Sellers pursuant to the allocation set forth on Exhibit 1 by wire transfer of
immediately available funds to accounts designated in writing by the Sellers at
least two Business Days prior to the Closing, (ii) the Escrow Amount shall be
paid by Purchaser to the Escrow Agent by wire transfer of immediately available
funds to be held and disbursed by the Escrow Agent in accordance with the terms
of the Escrow Agreement, and (iii) the Stock Certificates shall be delivered by
the Sellers to Purchaser.
1.4 Purchase Price Adjustment. In accordance with the procedures set forth
in this Section 1.4, the Purchase Price shall be adjusted as follows:
(a) (i) No later than three (3) Business Days prior to the Closing Date,
Sellers shall prepare and deliver to Rand a balance sheet that shall set forth
the assets and liabilities of the Company and Subsidiaries on a consolidated
basis as of the close of business on a day that is not more than five (5)
Business Days immediately preceding the Closing Date (the "Estimated Closing
Date Balance Sheet"), and a statement (the "Estimated Statement") of the Net
Working Capital as of the date of the Estimated Closing Date Balance Sheet
derived in a manner consistent with the calculation of "Net Working Capital" on
Exhibit 10 (the "Estimated Net Working Capital"). As provided in Section 1.3,
the Purchase Price shall be adjusted at Closing by the amount by which the
Estimated Net Working Capital is greater or less than the Working Capital Base
Amount.
(ii) Within 90 days after the Closing Date, Rand shall prepare and
deliver to Sellers' Representative a balance sheet that shall set forth the
assets and liabilities of the Company and Subsidiaries on a consolidated basis
as of the close of business on the day immediately preceding the Closing Date
(the "Closing Date Balance Sheet"), and a statement (the "Closing Date
Statement") of the Net Working Capital as of the date of the Closing Date
Balance Sheet derived in a manner consistent with the calculation of "Net
Working Capital" on Exhibit 10 (the "Closing Date Net Working Capital").
(b) The term "Net Working Capital" means the Current Assets of the Company
and Subsidiaries minus the Current Liabilities of the Company and Subsidiaries,
as of the date of the Estimated Closing Date Balance Sheet or Closing Date
Balance Sheet, as applicable, used in preparation of the Estimated Statement or
Closing Date Statement, as applicable, as such items are reflected on the
Estimated Closing Date Balance Sheet or Closing Date Balance Sheet, as
applicable. Such Current Assets and Current Liabilities shall be determined in
accordance with GAAP, using the same accounting methods, policies, practices,
principles and procedures with consistent classifications, judgments and
estimation methodologies as were used in the determination of such items in
determining "Net Working Capital" on Exhibit 10 (the "Working Capital
Principles"), provided, however, for clarity (i) such Current Liabilities shall
not include the Payoff Amount or the Redemption Price, (ii) any currency
conversions in connection with determination of such amounts shall be done on
the basis of prevailing currency conversion rates as of the date of the
Estimated Closing Date Balance Sheet and (iii) to the extent not already
included as accruals on Exhibit 10, all amounts in respect of bonuses,
retirement plan contributions or other benefit plans for employees of the
Company and the Subsidiaries, to the extent not then actually paid, shall be
accrued and included as a Current Liability.
2
(c) The Closing Date Balance Sheet and the Closing Date Statement shall
become final and binding upon the parties on the 45th day following delivery
thereof, unless Sellers' Representative gives written notice of its disagreement
with any amounts or calculations set forth on the Closing Date Balance Sheet and
the Closing Date Statement (a "Notice of Disagreement") to Rand prior to such
date and all amounts and calculations set forth on the Closing Date Balance
Sheet and the Closing Date Statement that are not the subject of a Notice of
Disagreement shall become final and binding on such date. Any Notice of
Disagreement shall specify in reasonable detail the nature of any disagreement
so asserted. If a Notice of Disagreement is received by Rand in a timely manner,
then any amounts or calculations set forth on the Closing Date Balance Sheet and
the Closing Date Statement that are subject to any such Notice of Disagreement
shall become final and binding upon Sellers and Rand on the earlier of (A) the
date Sellers' Representative and Rand resolve in writing any differences they
have with such amounts or calculations and (B) the date any such disputed
amounts or calculations are finally resolved in accordance with Section 1.4(d)
below.
(d) During the 30-day period following the delivery of a Notice of
Disagreement, Sellers' Representative and Rand shall seek in good faith to
resolve any differences that they may have with respect to the matters specified
in the Notice of Disagreement. If, at the end of such 30-day period, such
differences have not been resolved, Sellers' Representative and Rand shall,
within the subsequent 30-day period, submit to an independent accounting firm
(the "Accounting Firm") for arbitration, in accordance with the standards set
forth in this Section 1.4, any and all matters that remain in dispute and were
properly included in the Notice of Disagreement, in the form of a written brief.
The Accounting Firm shall be a nationally recognized Canadian independent public
accounting firm as shall be agreed upon by the Sellers' Representative and Rand
in writing. Sellers' Representative and Rand shall use reasonable efforts to
cause the Accounting Firm to render a written decision resolving the matters
submitted on a timely basis to the Accounting Firm within 30 days of the receipt
of such submission. The scope of the disputes to be resolved by the Accounting
Firm shall be limited to whether the items in dispute were determined in
accordance with the standards set forth in this Section 1.4, and the Accounting
Firm is not to make any other determination, including any determination as to
whether the Working Capital Base Amount is correct. The Accounting Firm's
decision shall be based solely on written submissions made on a timely basis by
Sellers' Representative and Rand and their respective representatives and not by
independent review. The Accounting Firm shall address only those items in
dispute and may not assign a value greater than the greatest value for such item
claimed by either party or smaller than the smallest value for such item claimed
by either party. Judgment may be entered upon the determination of the
Accounting Firm in any court having jurisdiction over the party against which
such determination is to be enforced. The fees and expenses of the Accounting
Firm incurred pursuant to this Section 1.4 shall be borne by Rand and Sellers in
inverse proportion as they may prevail on matters resolved by the Accounting
Firm, which proportionate allocations shall also be determined by the Accounting
Firm at the time the determination of the Accounting Firm is rendered on the
merits of the matters submitted.
3
(e) If the Closing Date Net Working Capital is greater than the Estimated
Net Working Capital, Rand shall, and if the Closing Date Net Working Capital is
less than the Estimated Net Working Capital, Sellers shall, within 10 Business
Days after each time at which any amounts set forth on the Closing Date
Statement become final and binding on the parties, make payment to the other
party by wire transfer in immediately available funds of the amount of such
difference, together with interest thereon at a rate equal to the rate of
interest from time to time announced publicly by Citibank, N.A., as its prime
rate (the "Prime Rate"), calculated on the basis of the actual number of days
elapsed divided by 360, from the Closing Date to the date of payment. Rand shall
pay any amount owed herein to Sellers pursuant to the allocation set forth on
Exhibit 1. Any amounts due to Rand under this Section 1.4 shall first be paid to
Rand from the Escrow Amount (pursuant to the terms of the Escrow Agreement) and,
upon depletion of the Escrow Amount, 67.5% from Sellers and 32.5% through
reduction of the Plan Account Balance until the Plan Account Balance has been
depleted, and then 100% from the Sellers.
(f) Following the Closing, Rand shall not permit the taking of any action
with respect to the accounting books and records of the Company or any
Subsidiary, or the items reflected thereon, on which Net Working Capital is to
be based that are not consistent with the Company's past practices unless such
new practices are required by GAAP or Law. During the 45 day period following
delivery of the Closing Date Balance Sheet, Rand shall afford, and shall cause
the Company and each Subsidiary to afford, to Sellers' Representative and any
accountants, counsel or financial advisers retained by Sellers' Representative
in connection with the determination of Closing Date Net Working Capital in
accordance with this Section 1.4 reasonable access during normal business hours
to all the properties, books, contracts, personnel and records of the Company
relevant to the determination of Closing Date Net Working Capital in accordance
with this Section 1.4.
1.5 Section 116 Certificate.
(a) If a certificate issued by the Minister of National Revenue under
subsection 116(2) of the Tax Act (such certificate, a "Section 116(2)
Certificate") in respect of the disposition of Purchase Shares by any Seller who
is a non-resident of Canada for purposes of the Tax Act (such shares, the
"Non-Resident Purchase Shares", and any such Seller, a "Non-Resident Seller"),
specifying a certificate limit in an amount which is not less than the Purchase
Price as determined prior to any adjustment under Section 1.4 allocable to such
Non-Resident Purchase Shares (the "Non-Resident Purchase Price"), is not
delivered to Purchaser on or before Closing, then Purchaser shall withhold from
the payment to be made to such Non-Resident Seller under Section 1.3 an amount
equal to 25% of the amount, if any, by which the Non-Resident Purchase Price
exceeds such certificate limit, if any (the "Withheld Amount"). The Withheld
Amount in respect of each Non-Resident Seller will be deposited by Purchaser in
an interest bearing account at Ogilvy Renault LLP (the "Section 116 Escrow
Agent"). Any interest or other income earned in respect of each Withheld Amount
(net of any applicable Taxes) will accrue for the benefit of the applicable
Non-Resident Seller.
(b) If, prior to the 29th day after the end of the month in which the
Closing occurs (the "Certificate Date"), a Non-Resident Seller delivers or
causes to be delivered to Purchaser:
(i) a Section 116(2) Certificate in respect of the disposition of
the Non-Resident Purchase Shares, then the Section 116 Escrow Agent will
promptly pay to the Non-Resident Seller the lesser of (1) the Withheld
Amount and (2) the Withheld Amount less 25% of the amount, if any, by
4
which the Non-Resident Purchase Price exceeds the certificate limit
specified in such Section 116(2) Certificate, together with any interest
or other income earned on the Withheld Amount to the date of that payment
(net of any applicable Taxes), and the Section 116 Escrow Agent will
promptly pay to the Receiver General for Canada 25% of the amount, if any,
by which the Non-Resident Purchase Price exceeds the certificate limit
specified in such Section 116(2) Certificate (and the amount so paid will
be credited to Purchaser as payment on account of the amount owing to the
Non-Resident Seller in respect of the Purchase Price); or
(ii) a certificate issued under subsection 116(4) of the Tax Act (a
"Section 116(4) Certificate") in respect of the disposition of the
Non-Resident Purchase Shares, then the Section 116 Escrow Agent will
promptly pay the Withheld Amount to the Non-Resident Seller, together with
any interest or other income earned on the Withheld Amount to the date of
that payment (net of any applicable Taxes).
(c) If Purchaser has withheld any amount payable to a Non-Resident Seller
under the provisions of this Section 1.5 and no Section 116(2) Certificate or
Section 116(4) Certificate has been delivered to the Purchaser by the
Non-Resident Seller in accordance with Section 1.5(b), then the Withheld Amount
in respect of such Non-Resident Seller will be remitted by the Section 116
Escrow Agent to the Receiver General for Canada as contemplated by Subsection
116(5) of the Tax Act on the 30th day after the end of the month in which
Closing occurs (the "Remittance Date"), and the amount so remitted will be
credited to Purchaser on account of the amount payable to the Non-Resident
Seller by the Purchaser in respect of the Purchase Price; provided, however,
that if the Canada Revenue Agency confirms in writing on or before the
Remittance Date that Purchaser may continue to hold the Withheld Amount until a
later date or event without adverse consequences to the Purchaser, then the
Section 116 Escrow Agent will continue to hold that amount on the terms and
conditions of this Section 1.5, and on the terms outlined in the confirmation
from the Canada Revenue Agency, if any, and the Certificate Date and the
Remittance Date will be deemed to have been extended until that later date or
event specified by the Canada Revenue Agency. Any interest or other income
earned in connection with the Withheld Amount from Closing to the Remittance
Date (net of any applicable Taxes) will be paid promptly by the Section 116
Escrow Agent to the Non-Resident Seller upon the release or remittance of the
Withheld Amount.
(d) If, following Closing, the Canada Revenue Agency indicates, in respect
of a particular Non-Resident Seller, that a Section 116(2) Certificate with a
certificate limit in an amount which is not less than the Non-Resident Purchase
Price or a Section 116(4) Certificate will be issued in respect of the
disposition of Non-Resident Purchase Shares upon the payment of an amount (the
"Tax Amount") that does not exceed the applicable Withheld Amount, then the
Section 116 Escrow Agent will remit the Tax Amount to the Receiver General for
Canada as payment of the Tax Amount (and the amount so remitted will be credited
to Purchaser as payment on account of the amount owing to the applicable
Non-Resident Seller in respect of the Purchase Price). Upon delivery of such
certificate, the Section 116 Escrow Agent shall release the Withheld Amount to
the applicable Non-Resident Seller (plus any interest or other income earned
thereon, net of any applicable Taxes), less the Tax Amount.
1.6 Credit Obligations. At the Closing, Rand shall cause, including
through capital contributions or loans to the Company and/or any Subsidiaries by
Purchaser or Rand, (i) an amount sufficient to pay and retire all Indebtedness
of the Company and each Subsidiary to the parties listed on Exhibit 8, in each
case to be paid in full in accordance with the prescribed terms thereof (the
"Payoff Amount") and (ii) $750,000 to be available to Grand River to satisfy the
Redemption Price.
5
1.7 Shareholder Approval.
(a) Rand shall, within ten (10) days of its receipt of (x) all required
information for inclusion in the Proxy Statement (as hereinafter defined) from
the Company and the Subsidiaries and (y) the consent of Deloitte & Touche LLP
with respect to the inclusion in the Proxy Statement of the audited financial
statements of the Company and the Subsidiaries prepared by Deloitte & Touche
LLP, file with the Securities and Exchange Commission (the "SEC") a proxy
statement in preliminary form or such other form, statement or report as may be
required under the federal securities laws (such proxy statement or such other
form, and any amendments or supplements thereto (the "Proxy Statement"))
relating to a shareholders meeting (the "Shareholder Meeting") to be held by
Rand to obtain Shareholder Approval (as hereinafter defined). Rand shall duly
call, give notice of, convene and hold the Shareholder Meeting and solicit
proxies as promptly as reasonably practicable in accordance with applicable law
for the purpose of seeking Shareholder Approval. "Shareholder Approval" shall
mean (i) the affirmative vote of the holders of a majority of the shares of the
issued and outstanding voting stock of Rand in favor of the transactions
contemplated by this Agreement and (ii) the holders of less than 20% of the
common stock issued in Rand's initial public offering ("IPO Shares") shall have
exercised their conversion rights with respect to their shares of common stock
in connection with such vote, all in accordance with, and as required by, Rand's
Certificate of Incorporation.
(b) Rand agrees that the Proxy Statement will comply in all material
respects with all of the requirements of the Exchange Act and Rand will ensure
that the Proxy Statement will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation or
warranty is made by Rand with respect to information supplied in writing by the
Company or the Sellers expressly for inclusion in the Proxy Statement. Rand
shall promptly correct any information provided by it for use in the Proxy
Statement if and to the extent that such information becomes false or misleading
and shall take all steps necessary to cause the Proxy Statement as so corrected
to be filed with the SEC and disseminated to its shareholders, in each case as
and to the extent required by the Exchange Act. Rand shall give Sellers and
their counsel a reasonable opportunity (but no more than 5 Business Days) to
review and comment on the Proxy Statement, and any amendments or supplements
thereto, prior to the filing of any such documents with the SEC and Rand will
give due consideration to Sellers' comments. Rand will provide to Sellers and
their counsel any comments that Rand or its counsel may receive from the SEC or
its staff, whether written or oral, with respect to the Proxy Statement promptly
after receipt of any such comments. Rand will use its reasonable best efforts to
respond to any comments received from the SEC or its staff.
(c) Sellers will cause the Company to ensure that none of the information
regarding the Company or its Subsidiaries supplied by (or at the request or
direction of) Sellers, the Company or any Subsidiary expressly for inclusion in
the Proxy Statement (including any information included in the Seller Disclosure
Schedule and the Consolidated Financial Statements (as hereinafter defined))
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein in light of the circumstances under which they were made, not
6
misleading. If at any time prior to Closing, a change in such information which
would make the preceding sentence incorrect should be discovered by the Sellers,
the Sellers will promptly notify Rand of such change and promptly cause the
Company to amend any such information. Rand shall promptly correct any such
information in the Proxy Statement and shall take all steps necessary to cause
the Proxy Statement as so corrected to be filed with the SEC and disseminated to
its shareholders, in each case as and to the extent required by the Exchange
Act. The Sellers shall, and shall cause the Company and Subsidiaries to,
reasonably cooperate with Rand in its preparation of the Proxy Statement and the
filing of the Proxy Statement with the SEC.
(d) The Sellers will cause the Company and the Subsidiaries to use its
commercially reasonable efforts to obtain the auditors' consents to the
inclusion of the Consolidated Financial Statements in the Proxy Statement, and
to otherwise provide as soon as reasonably practicable any information about the
Company and the Subsidiaries required by the Exchange Act reasonably sufficient
to permit Rand to prepare and file the Proxy Statement.
(e) Rand acknowledges that prior to the Closing, Rand shall not publicly
disclose the Seller Disclosure Schedule as part of the Proxy Statement or
otherwise, subject to applicable law, and taking into account the
confidentiality measures available at law.
(f) Rand, through its board of directors, shall recommend to its
shareholders that they give the Shareholder Approval and, subject to applicable
Law and the exercise of its fiduciary duties (in the good faith judgment of its
board of directors based on the advice of independent legal counsel), shall not
withdraw or modify its recommendation. Rand shall use its reasonable best
efforts to obtain the Shareholder Approval.
1.8 Actions Simultaneous. For purposes of agreement of the parties hereto,
all actions to be taken and all documents to be executed and delivered by all
parties at the Closing shall be deemed to have been taken and executed and
delivered simultaneously and no actions shall be deemed to have been taken nor
shall any documents be deemed to have been executed and delivered until all
actions have been taken and all documents have been executed and delivered.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS WITH RESPECT TO THE PURCHASE SHARES
Each Seller, severally but not jointly, hereby represents and warrants to
Purchaser and Rand as to such Seller and the Purchase Shares owned by such
Seller, and each such Seller acknowledges and confirms that Purchaser is relying
upon such representations and warranties in entering into this Agreement and
purchasing the Purchase Shares, as follows:
2.1 Authority; Execution and Delivery; Enforceability. Each Seller has
full power, authority and capacity to execute and deliver this Agreement and, to
the extent a party thereto, the Related Agreements, to perform such Seller's
respective obligations hereunder and under such Related Agreements and to
consummate the transactions contemplated hereby and by such Related Agreements.
Each of this Agreement and (when executed) the Related Agreements has been (or
will be) duly executed and delivered by such Seller (to the extent a party
7
thereto), and constitutes (or will, when executed, constitute) the legal, valid
and binding obligation of such Seller (to the extent a party thereto),
enforceable against such Seller in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, moratorium and other similar Laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
2.2 Non-Contravention. Except as set forth in the Seller Disclosure
Schedule, the execution and delivery of this Agreement and the Related
Agreements by such Seller (to the extent a party thereto) does not, and the
consummation of the transactions contemplated hereby and by such Related
Agreements and compliance with the terms hereof and of such Related Agreements,
will not (or would not with the giving of notice or the passage of time):
(a) constitute a default under or a violation or breach (with or without
notice) of, result in the acceleration of any obligation under, any provision of
any contract or other instrument to which such Seller is a party or result in
the termination or revocation of any authorization held by any Seller necessary
to the ownership of the Purchase Shares;
(b) violate any Order or any Law affecting such Seller;
(c) violate or contravene the terms or provisions of the articles or
certificate of incorporation or amalgamation, by-laws or similar formation or
organizational documents of any Seller which is not an individual;
(d) result in the creation of any Lien on such Seller's Purchase Shares;
or
(e) allow any other Person to exercise any rights under any of such
Seller's governing documents, shareholders agreements, bylaws or resolutions of
its board of directors or shareholders.
2.3 Title to Purchase Shares. Each Seller has (or upon exercise of its
conversion rights under a Convertible Note will have) good and valid title to
the Purchase Shares owned (or upon conversion of Convertible Notes to be owned)
by such Seller as set forth on the Seller Disclosure Schedule, free and clear of
all Liens, other than as set forth in the Seller Disclosure Schedule. Upon
completion of the transactions contemplated by this Agreement and the Related
Agreements, Purchaser will have legal and beneficial, good and valid title to
each of the Purchase Shares owned by such Seller, free and clear of all Liens,
other than as set forth in the Seller Disclosure Schedule. No Seller is bound by
any contract, agreement, arrangement, commitment or understanding (written or
oral) with, and has not granted any option or right currently in effect or which
would arise after the date hereof to, any Person other than Purchaser with
respect to the acquisition of any of such Seller's Purchase Shares.
2.4 [Intentionally Omitted].
2.5 Litigation and Claims. There is no Action pending or, to the Knowledge
of such Seller, threatened, against or affecting such Seller that could
reasonably be expected to affect (i) such Seller's ability to consummate the
transactions contemplated hereby or by the Related Agreements (to the extent a
party thereto) or (ii) Purchaser's title to the Purchase Shares acquired from
such Seller.
8
2.6 No Finder. Except as set forth in the Seller Disclosure Schedule, no
Seller nor any party acting on such Seller's behalf has paid or become obligated
to pay any fee or commission to any broker, finder or intermediary (other than
counsel) for or on account of the transactions contemplated hereby or by the
Related Agreements.
2.7 Residency of Sellers. The residency of each Seller as at Closing is
listed on Exhibit 9.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT TO THE
COMPANY AND SUBSIDIARIES
Each of the Sellers, jointly and severally, hereby represents and warrants
to Purchaser and Rand and each Seller acknowledges and confirms that Purchaser
is relying upon such representations and warranties in entering into this
Agreement and purchasing the Purchase Shares, as follows:
3.1 Organization; Good Standing. The Company is a corporation formed by
amalgamation and is duly organized, validly existing and in good standing under
the Laws of Canada. The Company has full corporate power and authority to
conduct all of the business and activities conducted by it, and to own or lease
and operate all of the assets owned or leased by it; and is duly licensed,
registered or qualified to do business and is in good standing as a foreign (or
extra-provincial) corporation in all jurisdictions in which the nature of the
business and activities conducted by it, and/or the character of the assets
owned or leased by it, makes such qualification or license necessary, each of
which jurisdictions is listed on the Seller Disclosure Schedule.
3.2 Subsidiaries; Equity Interests.
(a) The Seller Disclosure Schedule contains a complete list of each of the
Company's direct or indirect Subsidiaries. Each such Subsidiary is a corporation
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation, each of which is listed on the Seller Disclosure
Schedule. Each Subsidiary has full corporate power and authority to conduct all
of the business and activities conducted by it, and to own or lease and operate
all of the assets owned or leased by it; and is duly licensed or qualified to do
business and is in good standing as a foreign corporation in all jurisdictions
in which the nature of the business and activities conducted by it, and/or the
character of the assets owned or leased by it, makes such qualification or
license necessary, each of which jurisdictions is listed on the Seller
Disclosure Schedule.
(b) Except as set forth in the Seller Disclosure Schedule, neither the
Company nor any Subsidiary, directly or indirectly, owns any capital stock of or
other equity interests in any Person.
9
(c) The representations and warranties of Grand River set forth in Article
III of the Redemption Agreement are true and correct as if fully set forth
herein.
3.3 Non-Contravention. The execution and delivery of this Agreement and
the Related Agreements by the Sellers does not, and the consummation of the
transactions contemplated hereby and by such Related Agreements and compliance
with the terms hereof and of such Related Agreements, will not (or would not
with the giving of notice or the passage of time):
(a) except as set forth in the Seller Disclosure Schedule, constitute a
default under or a violation or breach (with or without notice) of, or result in
the acceleration of any obligation of the Company or any Subsidiary under, or
change in any right or obligation of, the Company, any Subsidiary or
counterparty under, any provision of any Contract to which the Company or any
Subsidiary is a party or result in the termination or revocation of any
authorization held by the Company or any Subsidiary or necessary to the
ownership of the Purchase Shares or the operation of the business of the Company
or any Subsidiary;
(b) violate any Order or any Law affecting the Company or any Subsidiary,
or the assets of the Company or any Subsidiary;
(c) violate or contravene the terms or provisions of the articles or
certificate of incorporation or amalgamation, by-laws or similar formation or
organizational documents of the Company or any Subsidiary; or
(d) result in the creation of any Lien on any of the assets of the Company
or any Subsidiary.
3.4 Corporate Documents. The Sellers have made available to Purchaser
complete and correct copies of the articles or certificate of incorporation or
amalgamation, as applicable, by-laws and other organizational documents and
stock transfer books of the Company and each Subsidiary. Except as set forth on
the Seller Disclosure Schedule, there are no unanimous shareholder agreements or
declarations affecting the Company or any Subsidiary. The Sellers have made
available to Purchaser copies of all minute books and all other existing records
of any meeting of the board of directors or other similar governing body (and
any committee thereof) or shareholders of the Company and each Subsidiary, which
minute books and records are complete and correct in all material respects.
3.5 Capitalization; Options. The Seller Disclosure Schedule sets forth for
the Company and each Subsidiary the amount of its authorized capital stock, the
amount of its outstanding capital stock and the shareholders of record in
respect of its outstanding capital stock. All the outstanding shares of capital
stock of the Company and each Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable, free and clear of all Liens, other
than pledges set forth in the Seller Disclosure Schedule, each of which will be
fully released as at the Closing. Except as set forth on the Seller Disclosure
Schedule, there are no outstanding subscriptions, warrants, options, contracts,
rights (preemptive or otherwise), calls, demands or commitments of any character
binding on the Company or any Subsidiary relating to any authorized and issued
or unissued shares of capital stock of the Company or any Subsidiary, or other
instruments binding on the Company or any Subsidiary convertible into or
10
exchangeable for such stock, or which obligate the Company or any Subsidiary to
seek authorization to issue additional shares of any class of stock, nor will
any be created by virtue of this Agreement or the Related Agreements or the
transactions contemplated hereby or by the Related Agreements. Upon conversion
of the Convertible Notes, the Purchase Shares will constitute all of the
outstanding shares of capital stock of the Company. The GR Shares constitute all
of the outstanding shares of capital stock of Grand River which are not owned by
the Company, and upon completion of the transactions under the Redemption
Agreement, the 10 common shares of Grand River owned by the Company will
constitute all of the issued and outstanding shares of capital stock of Grand
River. None of the Purchase Shares or the shares of capital stock of any
Subsidiary were (or, with respect to Purchase Shares to be issued upon
conversion of the Convertible Notes, will be) issued in violation of any
applicable Laws.
3.6 Consents and Approvals. Except as set forth in the Seller Disclosure
Schedule and the requirements under the Competition Act and Investment Canada
Act, no consent, approval, waiver, license, permit, order or authorization of,
or registration, declaration or filing with, any Governmental Authority, and no
consent, approval, waiver or other similar authorization of any other Person
(including without limitation any Person who is a party to a Contract binding on
or affecting the Company or any Subsidiary or any Seller), is required to be
obtained by or on behalf of the Company or any Subsidiary or any Seller, as the
case may be, as a result of, or in connection with, or as a condition of the
lawful execution, delivery and performance of this Agreement or the Related
Agreements or the consummation of the transactions contemplated hereby and by
such Related Agreements.
3.7 Title to Assets.
(a) Except as set forth in the Seller Disclosure Schedule, the Company and
each Subsidiary has good and valid title to all of the properties and assets
(whether tangible or intangible) that it purports to own, free and clear of all
Liens (other than Permitted Liens), including, without limitation, all of the
tangible assets reflected on the balance sheets included in the Financial
Statements as of March 31, 2005, other than assets disposed of since such date
in the ordinary course of business consistent with past practice.
(b) Except as set forth in the Seller Disclosure Schedule, none of the
Sellers or any Restricted Persons (other than the Company and the Subsidiaries)
own any assets primarily used in or necessary to conduct the business of the
Company or its Subsidiaries.
(c) All of the tangible personal property of the Company and the
Subsidiaries (other than the Vessels, which are covered under Section 3.21 and
not this Section 3.7(c)) is in good working order and condition, reasonable wear
and tear excepted and is suitable for the use to which they are being put. All
of the leased personal property of the Company and its Subsidiaries is in the
condition reasonably required of such property by the terms of the lease
applicable thereto during the relevant term of the lease. None of such tangible
personal property is in need of maintenance or repairs, except as shown in the
Seller Disclosure Schedule and except for ordinary routine maintenance and
repairs consistent with past practice.
(d) Except as set forth in the Seller Disclosure Schedule, no Person has
any written or oral agreement, option, understanding or commitment, or any right
or privilege (whether at law, by contract or otherwise) capable of becoming such
for the purchase or other acquisition from the Company or the Subsidiaries of
any assets other than in the ordinary course.
11
3.8 Real Property.
(a) Neither the Company nor any of its Subsidiaries holds the fee or the
equity of redemption in, or any other power to control the disposition of, or
any beneficial or other ownership interest whatsoever in any real property.
(b) The Seller Disclosure Schedule lists all Real Property Leases, expiry
dates and base rental amounts. Complete and correct copies of each Real Property
Lease have been provided to Purchaser. Each Real Property Lease is in full force
and effect, has not been amended and is a legal, valid and binding agreement,
enforceable in accordance with its terms, of the Company or its Subsidiaries
and, to the Knowledge of Sellers, of each other Person that is a party thereto.
Neither the Company nor any Subsidiary has received written notice of any, and
to the knowledge of the Company there is no, default (or any condition or event
which, after notice or lapse of time or both, would constitute a default)
thereunder which remains uncured. Neither the Company nor any Subsidiary has
assigned or transferred all or any portion of its interests in the Real Property
Leases. Neither the Company nor any Subsidiary has subleased to any Person any
of the real property which is the subject of any Real Property Lease. There are
no disputes under any of the Real Property Leases in relation to the state of
repair of the premises demised or otherwise. Each Real Property Lease has not
been assigned or encumbered by the Company or any Subsidiary. There are no
letters or other documents signed by the Company or any of its Subsidiaries
under each Real Property Lease waiving or releasing any of the tenant's material
rights or making material accommodations of any kind.
(c) To Sellers' Knowledge, there is no proceeding pending or threatened
for the taking or condemnation of all or any portion of the premises demised
under the Real Property Leases. The Company and its Subsidiaries hold a valid
and existing leasehold interest under the Real Property Leases, free and clear
of any Liens (except Permitted Liens), except for real property Taxes, if any
affecting properties of which the premises demised under the Real Property
Leases form a part, not yet due and payable. There is no brokerage commission or
finder's fee due from the Company or any Subsidiary and unpaid with regard to
any of the Real Property Leases, or which will become due at any time in the
future with regard to any Real Property Lease.
(d) Except as set forth on the Seller Disclosure Schedule, the premises
demised under the Real Property Leases are adequate and sufficient for the
current operations of the Company's and Subsidiaries' business.
(e) Neither the Company nor any Subsidiary has received any written notice
that any portion of any of the security deposits under the Real Property Leases
has been applied or retained by the lessor or licensor or sublessor thereunder.
Neither the Company nor any Subsidiary has, in the last five years, with respect
to any Real Property Lease, (i) made, asserted or has any defense, set off or
counterclaim, (ii) claimed or is entitled to "free" rent, rent concessions,
rebates or rent abatements, or (iii) has questioned or disputed its share of any
additional rent or other charges required to be paid under such Real Property
Lease. Except as set forth in the Seller Disclosure Schedule, neither the
Company nor any Subsidiary has exercised any option granted to it under any such
12
Real Property Lease to (A) cancel or terminate such Real Property Lease or
lessen the term thereof, (B) renew or extend the term thereof or (C) take
additional space. There are no written or oral promises, understandings or
commitments between the Company or any Subsidiary, on the one hand, and each
other Person that is a party to such Real Property Lease, on the other hand,
other than those contained in such Real Property Lease.
(f) Neither the Company nor any Subsidiary has received written notice
that the premises demised under each of the Real Property Leases and the uses
presently made thereof (including the number of parking and loading spaces, if
applicable, provided on the premises) contravene any applicable Laws and, to the
Knowledge of the Sellers, there are no outstanding work orders, deficiency
notices, action request notices or other notifications of non-compliance or
contravention of the premises or any part thereof, and to the Knowledge of the
Sellers, there are no active municipal files in regard to any of the said
premises and the building and other improvements upon each of the said premises
have been constructed in accordance with permits issued by the local
municipality.
(g) To the Knowledge of the Sellers, the premises demised by each of the
Real Property Leases is fully serviced, including storm and sanitary sewers,
hydro, water, gas, telephone and paved roads, and each of the said premises has
free and unfettered access to and from said roads by existing entrances and
exits without requiring any permit therefor from any Governmental Authority.
(h) Except as set forth on the Seller Disclosure Schedule, none of the
Real Property Leases prohibits or requires a consent for a change in the voting
control of the tenant thereunder.
3.9 Employment and Labor Related Agreements and Actions
(a) The Seller Disclosure Schedule contains a complete and correct list,
as of the date hereof of the directors and the officers of the Company and each
Subsidiary.
(b) The Seller Disclosure Schedule contains a complete and correct list of
all employees of the Company and any Subsidiary, together with the employees'
titles, current wages, salaries, hourly or daily rate of pay, bonus entitlement,
date of hire, primary work location and all Contracts (other than common law
contracts in respect of Canadian Employees) currently in effect with current or
former employees, consultants, or independent contractors of the Company and
each Subsidiary, in each case which provides for payments in excess of $25,000
per annum or $100,000 in the aggregate.
(c) All employees of the Company or any Subsidiary whose primary work
location is in the United States are employees of the Subsidiaries ("US
Employees") and, except as set forth in the Seller Disclosure Schedule:
(i) none of the US Employees of the Company or any Subsidiary is
represented by a labor union or organization, no labor union or
organization is certified or recognized as a representative of any such
employees, and neither the Company, nor any Subsidiary, is a party to or
has any obligation under any collective bargaining agreement or other
labor union contract or side agreement with any labor union or
organization, or has any obligation to recognize or deal with any labor
union or organization, with respect to any US Employees, and there are no
such contracts or side agreements pertaining to or which determine the
terms or conditions of employment of any US Employee;
13
(ii) to the Knowledge of the Sellers, there are no pending or
threatened representation campaigns, elections or proceedings or questions
concerning union representation involving any US Employees;
(iii) to the Knowledge of the Sellers, there are no present
activities or efforts of any labor union or organization (or
representatives thereof) to organize any US Employees, nor any demands for
recognition or collective bargaining, nor any strikes, slowdowns or work
stoppages of any kind or, to the Knowledge of the Sellers threats thereof,
and no such activities, efforts, demands, strikes, slowdowns or work
stoppages have occurred since January 1, 2003;
(iv) neither the Company nor any Subsidiary has engaged in, admitted
committing or been held in any administrative or judicial proceeding to
have committed any unfair labor practice in respect of any US Employee
under the National Labor Relations Act, as amended, or any other
applicable Law, and there are no unfair labor practice charges or
complaints pending or, to the Knowledge of the Sellers, threatened,
against the Company or any Subsidiary in respect of such employees;
(v) there are no controversies, claims, demands or grievances
pending or, to the Knowledge of Sellers, threatened between the Company or
any Subsidiary and any US Employees or any actual or claimed
representative thereof;
(vi) the Company and each Subsidiary has at all times complied and
is in compliance with all applicable Laws respecting employment, wages,
hours, compensation, occupational health and safety, and payment and
withholding of Taxes in connection with employment of US Employees, and
neither the Company, nor any Subsidiary, is liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the
foregoing;
(vii) there are no claims, complaints or legal or administrative
proceedings pending or, to the Knowledge of the Sellers, threatened
against the Company or any Subsidiary before any federal, provincial,
state or municipal court or any other Governmental Authority involving or
relating to any past or present US Employees or applicants for employment
of the Company or any Subsidiary, or relating to any acts, omissions or
practices of the Company or any Subsidiary relating to discrimination,
harassment, wage payment, overtime and hours of work, workplace safety or
any other employment-related issues. Neither the Company nor any
Subsidiary is a party to or bound by any Order respecting the employment
or compensation of any US Employees or prospective employees of the
Company or any Subsidiary, other than garnishments of employee wages
obtained by third parties. There are no pending investigations or
abatement orders and no citations issued within the past 3 years by the
Occupational Safety and Health Administration or any other Governmental
Authority relating to the Company or any Subsidiary;
14
(viii) the Company and each Subsidiary has paid in full to all US
Employees, or accrued on its books, all wages, salaries, commissions,
bonuses, benefits and other compensation due to such employees or
otherwise arising under any policy, practice, agreement, plan, program,
statute or other applicable Law;
(ix) neither the Company nor any Subsidiary is closing, or since
January 1, 2003, has closed any Facility, effectuated any layoffs of
employees or implemented any early retirement, separation or window
program affecting US Employees, nor has the Company or any Subsidiary
planned or announced any such action or program for the future; and
(x) the Company and each Subsidiary is in compliance with its
obligations pursuant to WARN, and all other notification and bargaining
obligations arising under any collective bargaining agreement or Law.
(d) All employees of the Company or any Subsidiary whose primary work
location is in Canada are employees of the Company ("Canadian Employees"), and,
except as set forth in the Seller Disclosure Schedule:
(i) none of the Canadian Employees is represented by an employee
association, labor union or other organization; no employee association,
labor union or other organization has been certified or recognized as a
representative of any such Canadian Employees, and neither the Company nor
any Subsidiary is a party to or has any obligation under any collective
bargaining agreement or other contract or side agreement with any employee
association, labor union or organization, or has any obligation to
recognize or deal with any employee association, labor union or
organization, and there are no such contracts or side agreements
pertaining to or which determine the terms or conditions of employment of
any Canadian Employee;
(ii) to the Knowledge of the Sellers, there are no pending or
threatened representation campaigns, elections or proceedings concerning
an employee association or union representation involving any of the
Canadian Employees;
(iii) to the Knowledge of the Sellers, there are no present
activities or efforts of any employee association, labor union or
organization (or representatives thereof) to organize any of the Canadian
Employees, nor any demands for recognition or collective bargaining, nor
any strikes, slowdowns or work stoppages or, to the Knowledge of the
Sellers, threats thereof, and no such activities, efforts, demands,
strikes, slowdowns or work stoppages have occurred since January 1, 2003;
(iv) neither the Company, nor any Subsidiary, has engaged in,
admitted committing or been held in any administrative or judicial
proceeding to have committed any unfair labor practice in the past ten
years in respect of Canadian Employees under the Canada Labour Code, as
amended, or pursuant to any other applicable Law, and, to the Knowledge of
the Sellers, there are no unfair labor practice charges or complaints
pending or, threatened, against the Company or any Subsidiary in respect
of such employees;
15
(v) there are no Actions pending or, to the Knowledge of the
Sellers, threatened between the Company or any Subsidiary and any of the
Canadian Employees or any actual or claimed representative thereof;
(vi) the Company and each Subsidiary has at all times complied and
is in compliance with all applicable Laws respecting employment, wages,
hours, compensation, human rights, employment equity, pay equity, health
and safety, and payment and withholding of Taxes in connection with
employment, and neither the Company, nor any Subsidiary, is liable for any
arrears of wages or any taxes or penalties for failure to comply with any
of the foregoing;
(vii) there are no Actions pending or, to the Knowledge of the
Sellers, threatened against the Company or any Subsidiary before any
Governmental Authority involving or relating to any Canadian Employees or
applicants for employment of the Company or any Subsidiary, or relating to
any acts, omissions or practices of the Company or any Subsidiary relating
to discrimination, harassment, wage payment, overtime and hours of work,
workplace safety or any other employment-related issues;
(viii) neither the Company, nor any Subsidiary, is a party to or
bound by any Order of any kind respecting the employment or compensation
of any Canadian Employees or prospective Canadian Employees of the Company
or any Subsidiary, other than garnishments of wages obtained by third
parties;
(ix) there are no pending Actions or Orders and no Orders issued
within the past 6 years pursuant to any occupational health and safety or
other employment-related Laws by any Governmental Authority relating to
the Company or any Subsidiary;
(x) the Company and each Subsidiary has paid in full to all of the
Canadian Employees, or accrued on its books, all wages, salaries,
commissions, bonuses, benefits and other compensation due to such Canadian
Employees or otherwise arising under any policy, practice, agreement,
plan, program, statute or other applicable Law (but not including amounts
that would be paid in the event of any termination of any Canadian
Employee);
(xi) no Canadian Employee is on short-term disability leave,
long-term disability leave, any other sort of statutory leave, extended
leave of absence, or is receiving benefits pursuant to workplace safety
and insurance Laws;
(xii) there are no written employment contracts, consulting
agreements, independent contractor agreements or other legally binding
arrangements with any Canadian Employees, there are no contracts of
employment, consulting agreements, independent contractor agreements or
other legally binding arrangements entered into with any Canadian Employee
which are not terminable on the giving of reasonable notice in accordance
with applicable Laws, and none of the Canadian Employees have any
non-competition or non-solicitation or other restrictive covenant
agreements;
(xiii) there are no written employment manuals, policies, plans,
guides, handbooks or instruction booklets that set out any terms or
conditions of employment for any of the Canadian Employees; and
16
(xiv) all current assessments pursuant to any workplace safety and
insurance Laws in relation to the Company or any Subsidiary have been paid
or accrued, and neither the Company nor any Subsidiary have been subject
to any special or penalty assessment under any such legislation which has
not been paid. No critical fatal accidents have occurred since 2000, nor
have there been any increase in any assessments or surcharges since 2000
in respect of any Canadian Employees (other than periodic increases in
respect of New Experimental Experience Rating ("NEER") assessments under
the Workplace Safety and Insurance Act (Ontario)).
3.10 Contracts.
(a) The Seller Disclosure Schedule contains a complete and correct list of
all Contracts that involve payments by, or to, the Company and/or any
Subsidiary, of more than $50,000 per annum or $100,000 in the aggregate and all
Contracts without regard to dollar amount, or such lower amount expressly set
forth, in the following categories:
(i) commitments or agreements for services for which a prepayment or
advance has been made to, or by, or on behalf of, the Company or any
Subsidiary in excess of $10,000 per commitment or agreement or $50,000 in
the aggregate;
(ii) partnership or joint venture Contracts or arrangements or any
other agreements involving a sharing of revenue or profits;
(iii) Contracts restricting the Company or any Subsidiary from
carrying on its business or activities, as the case may be, in its usual
and customary manner in any jurisdiction, including, without limitation,
restricting the Company or any Subsidiary from hiring or soliciting any
Person, or operating its assets at maximum capacity;
(iv) any non-competition agreements in favor of the Company or any
Subsidiary (other than employment or consulting agreements);
(v) except as set forth in clause (xi) below, each Contract between
the Company or any Subsidiary, on the one hand, and any Affiliate of the
Company or any Subsidiary, on the other hand;
(vi) any Contracts for the sale or other disposition by the Company
or any Subsidiary of any of its assets, or the acquisition by the Company
or any Subsidiary of any assets, in excess of $10,000 other than in the
ordinary course of business, consistent with past practice, and in no
event in excess of $50,000;
(vii) any Contracts relating to the leasing or chartering of any
material assets of the Company or any Subsidiary to or from any third
party;
(viii) any Contract that (a) limits or contains restrictions on the
ability of the Company or any Subsidiary to declare or pay dividends on,
or to make any other distribution in respect of or to issue or purchase,
redeem or otherwise acquire its capital stock, or to incur Indebtedness,
or to incur or suffer any Lien, to purchase or sell any of assets or
properties, to change the lines of business in which it participates or
engages or to engage in any Business Combination, or (b) require the
Company or any Subsidiary to maintain specified financial ratios or levels
of net worth or other indicia of financial condition;
17
(ix) any Contract relating to Indebtedness incurred or accrued by,
or credit provided to, the Company or any Subsidiary;
(x) any Contract of support, indemnification or assumption or any
similar commitment with respect to the obligations, liabilities (whether
accrued, absolute, contingent or otherwise) or indebtedness of any other
Person;
(xi) any letters of credit, any currency exchange, commodities or
other hedging arrangement or capitalized leases which will not be
satisfied at or prior to Closing;
(xii) each outstanding loan or advance made by the Company or any
Subsidiary to any director, officer, employee, stockholder or other
Affiliate of the Company or any Subsidiary (other than any intercompany
indebtedness reflected in the financial statements of the Company or any
Subsidiary and any business-related advances to employees made in the
ordinary course of business, consistent with past practice and in an
amount not in excess of $5,000 per employee or $50,000 in the aggregate);
and
(xiii) any Contract with any Restricted Person or any Contract made
out of the ordinary course of business and not consistent with past
practice.
(b) Except as set forth in the Seller Disclosure Schedule, the Company and
each Subsidiary has, with respect to all Contracts required to be listed in any
Schedule to this Agreement, delivered to the Purchaser all copies thereof which
are true, correct and complete as to all material terms and has performed all
obligations required to be performed by it, and is entitled to all benefits
under and is not in default under, any such Contract, and each such Contract is
in full force and effect, unamended, and, to the Knowledge of the Sellers, no
other party to any such Contract is in default in any material respect under any
such Contract. Except as set forth in the Seller Disclosure Schedule, no event
has occurred (including the performance of this Agreement) which, with the lapse
of time or the giving of notice or both, would constitute a default by the
Company or any Subsidiary, or, to the Knowledge of the Sellers, by any other
party to any such Contract. For purposes of this Section 3.10(b),
representations that are qualified by Knowledge with respect to another party's
compliance shall be deemed not to include the Knowledge qualifier if such other
party to the Contract is an Affiliate or GR Holdings or an Affiliate of GR
Holdings.
(c) Except as set forth in the Seller Disclosure Schedule, to the
Knowledge of the Sellers, the Company and each Subsidiary has, with respect to
all Contracts other than those required to be listed in any Schedule to this
Agreement, performed the obligations required to be performed by it, and is
entitled to all benefits under and is not in default under, any such Contract,
and to the Knowledge of the Sellers each such Contract is in full force and
effect, unamended, and, to the Knowledge of the Sellers, no other party to any
such Contract is in default in any material respect under any such Contract.
Except as set forth in the Seller Disclosure Schedule, to the Knowledge of the
Sellers no event has occurred (including the performance of this Agreement)
which, with the lapse of time or the giving of notice or both, would constitute
a default by the Company or any Subsidiary, or, to the Knowledge of the Sellers,
by any other party to any such Contract.
18
(d) Except as set forth in the Seller Disclosure Schedule, all Contracts
binding upon or affecting the Company or any Subsidiary have been entered into
on an arm's length basis (within the meaning of the Tax Act). Other than as set
forth in the Seller Disclosure Schedule, since March 31, 2005, there has been no
repayment, forgiveness or other release by or in respect of the Company or any
Subsidiary of debt owed by or to any Restricted Person.
3.11 Intellectual Property.
(a) For the purposes of this Agreement, "Intellectual Property Rights"
shall mean (i) all trademarks, service marks, trade dress, design marks, logos,
trade names, domain names, web-sites, brand names and corporate names, whether
registered or unregistered, active or inactive, together with all goodwill
associated therewith, and all applications, registrations and renewals in
connection therewith, (ii) all inventions and designs (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions and
reexaminations thereof, (iii) all artwork, photographs, advertising and
promotional materials and computer software and all copyright applications,
registrations and renewals in connection therewith, (iv) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information), and (v) all other rights in all
of the foregoing, including such rights as are provided by treaties, conventions
and common law; and (vi) all rights to pursue, recover and retain damages and
costs and attorneys' fees for past, present and future infringement of any of
the foregoing, in each instance owned or used by the Company or any Subsidiary.
Notwithstanding the foregoing, the definition of "Intellectual Property Rights"
shall exclude any "off the shelf" computer software.
(b) The Seller Disclosure Schedule sets forth a complete and correct list
of all: (i) subsisting registrations and applications for registration in the
name of the Company or any Subsidiary for trademarks, service marks, trade
names, corporate names, brand names, logos, domain names, patents and copyrights
included in the Intellectual Property Rights; (ii) material unregistered and/or
common law Intellectual Property Rights and (iii) pending Actions (including,
without limitation, those in Patent and Trademark Offices and courts) directly
related to any Intellectual Property Rights and material Actions threatened in
writing within the six years in respect of patents, and the three years in
respect of any other Intellectual Property Rights, in each case, prior to the
date of this Agreement (e.g., via cease-and-desist letters) directly relating to
any Intellectual Property Rights.
(c) The Company and/or a Subsidiary owns, beneficially owns and/or is
licensed or otherwise have the right to use, all Intellectual Property Rights
necessary to conduct, or material to, the businesses of the Company and the
Subsidiaries as they are currently conducted, in each case free and clear of all
Liens. All applications and registrations for Intellectual Property Rights as
set forth in the Seller Disclosure Schedule, are valid, subsisting, in full
force and effect; have not been assigned and have been properly maintained by
the filing of all necessary declarations and renewals. Except as disclosed in
the Seller Disclosure Schedule, and to the Knowledge of Sellers, there is no
Intellectual Property Right necessary to conduct or material to the businesses
19
of the Company or any Subsidiary as currently conducted whether used by the
Company or any Subsidiary or any Person authorized by any of the foregoing that
is not owned, or beneficially owned, by the Company or any Subsidiary or that
the Company or any such Subsidiary is not properly authorized to use. Except as
disclosed in the Seller Disclosure Schedule, the Company and/or a Subsidiary has
taken commercially reasonable actions to maintain and protect in all material
respects each material item of Intellectual Property Rights used by the Company
or any Subsidiary in the ordinary course of business.
(d) The continued operation of the business of the Company and its
Subsidiaries as presently conducted does not infringe, misappropriate or make
unauthorized use of any Intellectual Property Rights of third parties. Except as
disclosed in the Seller Disclosure Schedule, there are no Actions pending or
threatened in writing that allege that the use or exploitation of the
Intellectual Property Rights infringes, misappropriates or constitutes the
unauthorized use of any Intellectual Property Rights of third parties. To the
Knowledge of Sellers, and except as disclosed in the Seller Disclosure Schedule,
the Intellectual Property Rights are not being infringed by any Person. Except
as disclosed in the Seller Disclosure Schedule, there are no Actions pending for
which notice has been provided to any Seller, the Company or any Subsidiary, or
Actions threatened in writing, challenging the Company's or any Subsidiary's
ownership of, right to use, or the validity or enforceability or patentability
of any Intellectual Property Rights.
(e) Neither the Company nor any Subsidiary is in breach of or default, or
is alleged in any written notice which it has received, to be in breach of or
default under any Contract with respect to Intellectual Property Rights, nor has
an event or condition occurred (or been alleged by any other party in writing to
have occurred) which would constitute a breach or event of default on the part
of the Company or any Subsidiary or would provide a basis for a valid claim,
acceleration, additional fees or termination by any other party under any
Contract with respect to Intellectual Property Rights. Except as disclosed in
the Seller Disclosure Schedule, to the Knowledge of Sellers, no other party is
in breach of or default, in any material respect, under any Contract with
respect to Intellectual Property Rights, nor, to the Knowledge of Sellers, has
any event or condition occurred (or been alleged by any other party in writing
to have occurred) which would constitute a material breach or event of default
on the part of such other party under any such Contract. Except as disclosed in
the Seller Disclosure Schedule, no material waiver or deferral of enforcement of
the rights or benefits of the Company or any Subsidiary has been provided under
any Intellectual Property Rights Contract since January 1, 2002. Except as
disclosed in the Seller Disclosure Schedule, the consummation of the
transactions contemplated hereby and the Related Agreements shall not result in
the loss or impairment of the Company's or any Subsidiary's rights in the
Intellectual Property Rights.
(f) Neither the Company nor any Subsidiary has given to any Person an
indemnity in connection with any Intellectual Property Right, other than
indemnities that, individually or in the aggregate, would not reasonably be
expected to result in liability to the Company or any Subsidiary in excess of
$50,000, except as otherwise disclosed in the Seller Disclosure Schedule.
3.12 Insurance. All property and assets of the Company and the
Subsidiaries are insured against loss or damage in accordance with the interests
stated in the Seller Disclosure Schedule. The Seller Disclosure Schedule
contains a complete and correct list (together with their respective termination
dates) of all policies of fire, casualty, general liability, defamation,
20
personal injury, property damage, workers' compensation and all other forms of
insurance carried by the Company and each Subsidiary or pursuant to which the
Company or any Subsidiary is a named beneficiary or pursuant to which the
business or properties of the Company or any Subsidiary is insured, including
hull and machinery policies, war risks, oil pollution liability, charterer
liability, freight insurance and business interruption, complete and correct
copies of which have been provided to Purchaser. All of such policies and any
substantially equivalent replacement coverages are in full force and effect and
no written, or to the Knowledge of the Sellers, other notice of cancellation or
termination has been received with respect to such policies. The Company or the
applicable Subsidiary has notified such insurers of any claim which could
potentially exceed the applicable insurance policy deductible amount arising
since January 1, 2001 known to it which it believes is covered by any such
insurance policy and has provided Purchaser with a copy of such claim. The
Company is currently considering those new insurance arrangements listed on the
Seller Disclosure Schedule.
(a) Except as set forth in the Seller Disclosure Schedule, neither the
Company, any Subsidiary nor any Seller is a party to any Contract of any kind
pursuant to which the Company, any Subsidiary or any Seller receives payments
from an insurer or an insurance producer for purchasing insurance for the
Company and/or any Subsidiary.
(b) Except as set forth in the Seller Disclosure Schedules, the Company or
each applicable Subsidiary has notified the insurers of the Company and/or such
Subsidiary of all claims known to them or the Sellers which are believed to be
covered by insurance. All such claims have been filed on a timely basis with
insurers and pursued by cooperating with and responding to insurers' requests
for documentation and/or information. To the extent any claim has been denied by
insurers, information concerning such claim is set forth in the Seller
Disclosure Schedule.
(c) Except as set forth in the Seller Disclosure Schedule, there are no
pending or potential claims under insurance covering the Company and/or any
Subsidiary for which the Company and/or any Subsidiary are, or may be obligated
to pay, a deductible.
3.13 Books and Records. Subject to input from the Company's professional
advisors, all accounting and financial Books and Records have been properly and
accurately kept and are complete in all material respects. The Books and Records
are not recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon, or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not), which are not or will not be
available to the Company in the ordinary course of its business prior to and
after the Closing, subject to the general caveat that all computerized Books and
Records may be subject to electronic failure at any time.
3.14 Financial Statements; Liabilities.
(a) The Sellers have provided to Purchaser copies of the audited
non-consolidated balance sheets and statements of operations and cash flows of
the Company and the Subsidiaries for the fiscal years ended March 31, 2003, 2004
and 2005, together with the notes thereto and the opinions of Deloitte & Touche
LLP thereon (collectively, the "Financial Statements"). The Financial Statements
have been prepared from the books and records of the Company and its
21
Subsidiaries, and present fairly, in conformity with GAAP, the assets,
liabilities, income, losses, retained earnings, financial condition, results of
operations and cash flows of the Company and its Subsidiaries for the periods
and dates covered thereby.
(b) Except as set forth in the Seller Disclosure Schedule, neither the
Company nor any Subsidiary has any liabilities or obligations of any kind,
whether absolute, accrued, asserted or unasserted, except liabilities,
obligations and contingencies, that (i) are reflected on or accrued or reserved
against in the Financial Statements for the fiscal year ended March 31, 2005, or
reflected in any notes thereto, (ii) were incurred since March 31, 2005 in the
ordinary course of business or (iii) with respect to liabilities and obligations
of a type not required to be disclosed by GAAP in a consolidated balance sheet
of the Company and its Subsidiaries, or a balance sheet of Grand River, would
not reasonably be expected to have a Material Adverse Effect.
3.15 Tax Matters. Except as set forth in the Seller Disclosure Schedule:
(a) Neither the Company nor any Subsidiary is, or has been at any time
during the period for which any Tax adjustment could be made, a member of any
consolidated, combined, unitary or similar group with respect to any Taxes.
(b) The Company and each Subsidiary has prepared and filed all Tax Returns
within the prescribed period with the appropriate Tax Authority in accordance
with applicable Laws. The Company and each Subsidiary has reported all income
and all other amounts and information required by applicable Law to be reported
on each such Tax Return. Each such Tax Return is true, correct and complete in
all material respects.
(c) The Sellers have made available to Purchaser complete and correct
copies of (i) all income and franchise Tax Returns filed by the Company and each
Subsidiary for the last three taxable years, and (ii) all Tax examination
reports for US Taxes and statements of deficiencies assessed with respect to the
Company and each of the Subsidiaries for the last five taxable years.
(d) The Company and each Subsidiary has paid, on a timely basis, all Taxes
and installments of Taxes, which are required to be paid to any Tax Authority
pursuant to applicable Law. No deficiency with respect to the payment of any
Taxes or Tax installments has been asserted against the Company and its
Subsidiaries by any Tax Authority. Since March 31, 2005, none of the Company or
its Subsidiaries has (i) incurred any liability for Taxes, (ii) engaged in any
transaction or event which would result in any liability for Taxes, or (iii)
realized any income or gain for tax purposes, other than, in each case, in the
ordinary course. Adequate provision has been made in the books and records for
all Taxes payable for all taxable periods ending on or before the Closing Date,
and where no taxable period ends or is deemed to end on or immediately prior to
the Closing Date, for all Taxes in respect of any time or event prior to the
Closing Date.
(e) The Company and each Subsidiary has duly and timely withheld and
collected all Taxes required by applicable Law to be withheld or collected by it
and has duly and timely remitted to the appropriate Tax Authority all such Taxes
as and when required by applicable Law.
(f) There are no Liens for any Taxes (other than Taxes not yet due and
payable) on the assets of the Company or any Subsidiary.
22
(g) There are no proceedings, investigations or audits pending or, to the
Knowledge of Sellers, threatened against or affecting the Company or any of its
Subsidiaries in respect of any Taxes. There are no matters under discussion,
audit or appeal by the Company or any Subsidiary with any Tax Authority relating
to Taxes. All Canadian federal and provincial income Tax Returns of the Company
and each Canadian Subsidiary for the tax periods up to and including March 31,
2004 have been assessed by the relevant Tax Authority.
(h) Neither the Company nor any Subsidiary has requested, entered into any
agreement or other arrangement, or executed any waiver providing for, any
extension of time within which (i) to file any Tax Return, (ii) it is required
to pay or remit any Taxes or amounts on account of Taxes, or (iii) any Tax
Authority may assess or collect Taxes.
(i) There is not, and will not be as of the Closing, any written agreement
or consent made with any Tax Authority with respect to Taxes affecting the
Company or any Subsidiary.
(j) Neither the Company nor any Subsidiary has assets that constitute
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the Code, and none of such assets is subject to a lease,
safe-harbor lease, or other arrangement as a result of which the purported owner
is not treated as the owner for United States federal income Tax purposes.
(k) Neither the Company nor any Subsidiary has entered into any agreement
with, or provided any undertaking to, any Person pursuant to which it has
assumed liability, or can otherwise be obligated, for the payment of Taxes (or
an amount based on the Taxes) owing by such Person.
(l) The Company is not a non-resident of Canada for purposes of the Tax
Act. The Company has, at all relevant times, been and is a taxable Canadian
corporation within the meaning of subsection 89(1) of the Tax Act. The Company
has never been required to file any Tax Return with, and has never been liable
to pay any Taxes to, any Tax Authority outside Canada. No request to file a Tax
Return or for the payment of Tax has ever been made of the Company or any
Subsidiary by a Tax Authority in a jurisdiction where it does not presently file
Tax Returns.
(m) Neither the Company nor any Subsidiary has claimed any reserve for Tax
purposes, if as a result of such claim any amount could be included in its or
the Purchaser's income for a taxation year ending after the Closing. The Company
has not made any payment, nor is it obligated to make any payment, and is not a
party to any agreement under which it could be obligated to make any payment,
that may not be deductible by virtue of section 67 of the Tax Act, other than in
the ordinary course of business.
(n) Neither the Company nor any Subsidiary has made a material Tax
election pursuant to any Law (i) for any taxable year commencing after 2000 or
(ii) that has any effect on the Taxes of the Company or any Subsidiary for any
taxable year ending after the Closing. The Company has not entered into
agreements contemplated by section 191.3 of the Tax Act.
(o) Since April 1, 2000, no Person (other than the Purchaser) has acquired
or had the right to acquire control of the Company or any of its Subsidiaries
for purposes of Section 111 of the Tax Act or Section 382 of the Code.
23
(p) There is no, and prior to the Closing there will not be, any
transaction, election, or failure to take any action or make any election prior
to the Closing that would restrict or limit use (for the benefit of Purchaser)
of the Company's and each Subsidiary's net losses as at the Closing in a
taxation year ending after the Closing and the application (for the benefit of
Sellers) of any such losses to taxation years ending on or prior to the Closing,
other than any limits or restrictions caused by any act, omission or failure of
the Purchaser under applicable Laws, including Section 111 of the Tax Act.
(q) None of sections 78, 80, 80.01, 80.02, 80.03 and 80.04 of the Tax Act,
or any equivalent provision of the Laws of any other jurisdiction, have applied
or will apply to the Company at any time on or before the Closing Date.
(r) Neither the Company nor any Subsidiary has acquired property from a
non-arm's length Person, within the meaning of the Tax Act, for consideration,
the value of which is less than the fair market value of the property,
including, but not limited to, in circumstances which could subject it to a
liability under section 160 of the Tax Act. The value of the consideration paid
or received by the Company or its Subsidiaries for the acquisition, sale or
transfer of property (including intangibles) or the provision of services
(including financial transactions) from or to each other or to any other non
arm's length Person is equal to the estimated fair market value of such property
acquired, transferred or sold or services purchased or provided. The Company and
each Subsidiary has not received any requirement pursuant to section 224 of the
Tax Act which remains unsatisfied in any respect.
(s) No circumstances exist and no transaction or event or series of
transactions or events has occurred which has resulted or could result in a
liability for Tax to the Company, either before, on or after Closing, under
section 17 of the Tax Act. Paragraph 214(3)(a) of the Tax Act has not applied as
a result of any transaction or event involving the Company. For all transactions
between the Company and any Person that is a non-resident of Canada for purposes
of the Tax Act with whom it was not dealing at arm's length during a taxation
year commencing after 1998 and ending on or before the Closing Date and to which
subsection 247(3) of the Tax Act could apply, the Company and each Subsidiary
has made or obtained records or documents that meet the requirements of
paragraphs 247(4)(a) to (c) of the Tax Act.
(t) Neither the Company nor any Subsidiary has undergone a change in
accounting method that currently requires, or will require, an adjustment to
taxable income under Section 481 of the Code for any period following the
Closing Date.
(u) Neither the Company nor any Subsidiary is or has been a "United States
real property holding company" within the meaning of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(v) The Company is duly registered under Part IX of the Excise Tax Act
(Canada) with respect to the goods and services tax and the registration number
is 138054291.
(w) The Company has, as of the date hereof, and will have, as of the
Closing Date, (before giving effect to the transactions contemplated hereby to
occur on the Closing Date but taking into account the application of
non-capital/net operating losses to Pre-Closing Tax Periods pursuant to Section
6.3(b)) at least Cdn$11,000,000 of non-capital/net operating losses available to
be applied by the Company in tax periods beginning after the Closing Date, on
the assumption that none of the restrictions in subsection 111(5) of the Tax Act
will apply to the acquisition of control of the Company by Purchaser under this
Agreement.
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3.16 Absence of Certain Changes and Events. Since March 31, 2005, except
as set forth in the Seller Disclosure Schedule, the Company and each Subsidiary
has conducted its business in the ordinary course thereof consistent with past
practice and from such date, with respect to the Company or each Subsidiary, as
the case may be, there has not been any:
(a) change in the business, assets, liabilities, results of operations or
financial condition of the Company or any Subsidiary, or any event, condition or
contingency (either individually or taken together) affecting the Company or any
Subsidiary directly that constitutes a Material Adverse Effect;
(b) (A) incurrence, payment or discharge of any liability or obligation
(absolute, accrued, contingent or otherwise), (B) sale or transfer of any
property, or (C) acquisition or sale, lease, grant of interest in, or other
disposition of, any assets or businesses, in each of clauses (A), (B) and (C),
other than in the ordinary course of business, consistent with past practice;
(c) (A) guarantee or any other assumption of the obligations of any
Person, or (B) making of any Indebtedness or advance to any Person (other than
business-related advances to employees in the ordinary course of business,
consistent with past practice and in an amount not in excess of $5,000 per
employee or $25,000 in the aggregate);
(d) settlement or compromise of any Action if the amount of such
settlement will not be paid in full prior to the Closing or which settlement or
compromise would reasonably be expected to have a continuing adverse impact on
the business of the Company or any Subsidiary after the Closing;
(e) Tax election or change in a Tax election or the filing for any change
of any method of accounting with any relevant Tax Authority, except as required
by any change in Law;
(f) change in any method of accounting applied in the preparation of the
Financial Statements, other than a change which is required by reason of a
concurrent change in Law or GAAP;
(g) (A) adoption of or amendment to any benefit plan or bonus, profit
sharing, deferred compensation, incentive, stock option or stock purchase plan,
program or commitment, paid time off for sickness or other plan, program or
arrangement for the benefit of its employees, consultants or directors, or (B)
grant of any increase (other than increases required under any Contract entered
into before March 31, 2005 and annual or periodic increases in the ordinary
course of business, consistent with past practice) in the compensation of its
employees, officers or directors (including any such increase pursuant to any
bonus, profit sharing or other compensation or incentive plan, program or
commitment);
(h) material change, termination or modification in any of the Contracts
listed in the Seller Disclosure Schedule pursuant to Section 3.10, nor has the
Company or any Subsidiary entered into any Contract which, had such Contract
been entered into prior to the date hereof, would have been required to have
been listed in the Seller Disclosure Schedule pursuant to Section 3.10, except,
in each case, in the ordinary and regular course of its business and in no event
calling for annual payments by, or to, the Company or any Subsidiary in excess
of $10,000;
25
(i) issuance or sale by the Company or any Subsidiary of any capital stock
of the Company or any Subsidiary, or any security convertible into or
exchangeable for, or any right exercisable to acquire, any shares of such
capital stock;
(j) declaration, distribution or the setting aside for distribution of any
property (including cash), or directly or indirectly, the redemption, purchase
or other acquisition of any shares of capital stock;
(k) amendment, termination or waiver of any rights of value to the Company
or any Subsidiaries greater than $10,000;
(l) any extraordinary loss, damage or destruction, whether or not covered
by insurance;
(m) written off as uncollectible, any Accounts Receivable or any portion
thereof in amounts exceeding $25,000 in each instance, or $100,000 in the
aggregate;
(n) increase in the Company's or any Subsidiary's reserves for contingent
liabilities;
(o) making of any forward purchase commitment in excess of the
requirements of the Company and its Subsidiaries for normal operating purposes
or at prices higher than the current market prices; or
(p) agreement, whether in writing or otherwise, to take any action
described in this Section 3.16.
3.17 Litigation and Claims. Except as set forth in the Seller Disclosure
Schedule, there is no Action pending or, to the Knowledge of the Sellers,
threatened or contemplated, against or affecting the Company or any Subsidiary
or any property or assets used by them, or the Purchase Shares, and there is no
Action pending or, to the Knowledge of the Sellers, threatened or contemplated,
against the Company or any Subsidiary affecting the propriety or validity of the
transactions contemplated hereby or by the Related Agreements. Except as set
forth in the Seller Disclosure Schedule, neither the Company nor any Subsidiary
is subject to or in default under or with respect to any Order.
3.18 Governmental Permits; Compliance with Laws.
(a) The Company and each Subsidiary owns, holds or possesses all
Governmental Permits which are necessary to entitle it to own or lease, operate
and use its assets and to carry on and conduct its business substantially as
currently conducted.
(b) The Seller Disclosure Schedule sets forth a complete and correct list
and brief description of each Governmental Permit owned, held or possessed by
the Company or any Subsidiary. Each Governmental Permit is valid, subsisting and
in good standing. All Governmental Permits are renewable by their terms or in
the ordinary course of business without the need for the Company or any
Subsidiary to comply with any special rules or procedures, agree to any
materially different terms or conditions, or pay any amounts other than routine
26
filing fees. Except as set forth in the Seller Disclosure Schedule, (i) the
Company and each Subsidiary has fulfilled and performed in all respects its
obligations under each of the Governmental Permits which it owns, holds or
possesses, and (ii) no written notice (or, to the Knowledge of Sellers, no
threat) of cancellation, of default or of any dispute concerning any
Governmental Permit, or of any event, condition or state of facts described in
the preceding clause, has been received by the Sellers, the Company or any
Subsidiary.
(c) The Company and each Subsidiary have conducted their respective
businesses and operations is in compliance, and are currently in compliance, in
all material respects with all Laws which are applicable to its respective
business.
3.19 Environmental Matters. Except as set forth in the Seller Disclosure
Schedule:
(a) The Company and each Subsidiary, and the assets of the Company and
each Subsidiary (including real property) are and at all times have been in
compliance in all material respects with its obligations under applicable
Environmental Laws;
(b) Neither the Company nor any Subsidiary has caused or permitted a
release of a Hazardous Substance to the Environment at any of the Facilities;
(c) There are no Environmental Conditions present at, on, or under, any
Facility as a result of activities of the Company or any Subsidiary or any of
their employees or agents or the Vessels, or as a result of activities of any
other Person, in each case in amounts exceeding the levels permitted by
applicable Environmental Law or under circumstances that would reasonably be
expected to result in liability under or relating to Environmental Law;
(d) Neither the Company nor any Subsidiary has disposed of, arranged for
the disposal of, released, threatened to release, or transported any Hazardous
Substances in violation of any applicable Environmental Law or in a manner that
would reasonably be expected to result in liability under or relating to
Environmental Law;
(e) Neither the Company nor any Subsidiary is subject to any Actions, is
subject to any Order or has received any notice or other communication from any
Governmental Authority or the current or prior owner or operator of any of the
Facilities or any other Person, in each case with respect to any actual or
potential violation or failure to comply with any Environmental Law or of any
actual or threatened obligation or liability under any Environmental Law, or
regarding any Hazardous Substances; and to the Knowledge of the Sellers, neither
the Company nor any Subsidiary is threatened with any such Action, Order, notice
or communication;
(f) Neither the Company nor any Subsidiary has been charged with or
convicted of an offence for non-compliance with any Environmental Laws;
(g) No unbudgeted works or additional expenditure of the Company or any
Subsidiary is required or planned in relation to the business of the Company or
any Subsidiary or any of the Facilities to ensure compliance of the Company or
any Subsidiary or any of the Facilities with any Environmental Law or
Governmental Permit;
27
(h) The Company and Subsidiaries have complied in all material respects
with the provisions of (a) the Transportation of Dangerous Goods Act, 1992
(Canada) in handling, offering for transport, transporting or importing any
Hazardous Substances which are "dangerous goods" under that Act, (b) Title 49 of
the Code of Federal Regulations of the United States, and (c) any applicable
Laws regarding invasive species, including without limitation Title 33, Part 151
of the Code of Federal Regulations of the United States and any other applicable
Laws or regulations governing the release or discharge of ballast water;
(i) All contractual arrangements with recognized oil response companies
required to be maintained by the Company or any Subsidiary are in full force and
effect;
(j) Neither the Company nor any Subsidiary has specifically contractually
assumed any liability or obligation under or relating to Environmental Laws or
Hazardous Substances; and
(k) There are no Environmental Reports prepared since June 2000 in the
custody or control of the Company or any Subsidiary relating to the Facilities,
business of the Company or any Subsidiary or activities of the Company or any
Subsidiary that have not been made available to Purchaser.
3.20 Employee Plans
(a) U.S. Employee Plans
(i) Except as set forth in the Seller Disclosure Schedule, none of
the Company, any Subsidiary, the Sellers nor any other Person which
together with the Company, the Subsidiaries or any of the Sellers
constitutes a member of the Company's, the Subsidiaries' or such Seller's
"controlled group" or "affiliated service group" (within the meaning of
Sections 4001(a)(14) and/or (b) of ERISA and/or Sections 414(b), (c), (m)
or (o) of the Code (each such group or groups and each member thereof
hereinafter referred to individually and collectively as the "Group")) has
at any time adopted or maintained, has any liability or is a fiduciary
with respect to or has any present or future obligation to contribute to
or make payment under (i) any employee benefit plan (as defined in Section
3(3) of ERISA) which is subject to ERISA, or (ii) any other material
benefit plan, program, contract or arrangement of any kind whatsoever
(whether for the benefit of present, former, retired or future employees,
consultants or independent contractors of the Group, or for the benefit of
any other Person or Persons) including, without limitation, plans,
programs, contracts or arrangements with respect to pension, retirement,
profit sharing, deferred compensation, thrift, savings, stock ownership,
stock bonus, restricted stock, health, dental, medical, life,
hospitalization, disability, relocation, child care, educational
assistance, stock purchase, stock option, incentive, bonus, sabbatical
leave, vacation, severance, cafeteria, pre-tax premium, flexible spending
or other contribution, benefit or payment of any kind, and plans,
programs, contracts or arrangements providing for contributions, benefits
or payments in the event of a change of ownership or control in whole or
in part of the Group, other than any such benefit plan, program, contract
or arrangement maintained outside the United States primarily for the
benefit of Canadian Employees (hereinafter individually and collective
called the "Canadian Plans"), (all such employee benefit plans and other
benefit plans, programs, contracts or arrangements, whether written or
oral, hereinafter individually and collectively called the "U.S. Employee
Benefit Plans"). No member of the Group has any obligation other than as
required by applicable Law, to amend any U.S. Employee Benefit Plan so as
to increase benefits thereunder or otherwise or to establish any new
benefit plan, program, contract or arrangement.
28
(ii) No U.S. Employee Benefit Plan is subject to Title IV of ERISA,
Section 302 of ERISA or Section 412 or 413(c) of the Code.
(iii) Any and all amounts which any member of the Group is required
to pay, deduct or remit, as contributions or otherwise, with respect to
the U.S. Employee Benefit Plans, have been timely paid, deducted or
remitted.
(iv) Each of the U.S. Employee Benefit Plans (other than any
Multiemployer Plans and any welfare plans (within the meaning of Section
3(1) of ERISA) maintained by a labor union (such welfare plans and
Multiemployer Plans that are U.S. Employee Benefit Plans hereinafter
individually and collectively called "Union Plans")) sponsored or
maintained by the Company or any Subsidiary, to which the Company or any
Subsidiary has any current or future obligation to contribute or under
which any employee of the Company or any such Subsidiary (and/or any
dependent or beneficiary of such employee) is covered or entitled to
benefits by reason of employment with the Company or any such Subsidiary
(such U.S. Employee Benefit Plans hereinafter individually and
collectively called "US Plans") and, to the Knowledge of the Sellers, each
of the Union Plans, has been established, maintained, operated and
administered in all material respects in accordance with its terms and all
applicable Law. Each of the US Plans which is intended to be "qualified"
within the meaning of Sections 401(a) and 501(a) of the Code (a "Qualified
Plan") has been determined by the Internal Revenue Service to be so
qualified and nothing has occurred since the issuance of such
determination to adversely affect such qualified status. There are no
pending, threatened or anticipated Actions, suits, claims, trials,
demands, investigations, arbitrations or proceedings (other than routine
claims for benefits) involving any of the US Plans, or, to the Knowledge
of the Sellers, any of the Union Plans with respect to or affecting the
Company or any Subsidiary or any current or former employee of the Company
or any Subsidiary. There have been no nonexempt "prohibited transactions"
within the meaning of Section 406 of ERISA or Section 4975 of the Code
with respect to any of the U.S. Employee Benefit Plans.
(v) No member of the Group has any withdrawal liability with respect
to a "multiemployer plan" within the meaning of Section 3(37) of ERISA
(each such plan hereinafter a "Multiemployer Plan") under Title IV of
ERISA. No member of the Group is a party to, or participates in, or has
any liability or contingent liability with respect to any Multiemployer
Plan.
(vi) A complete and correct copy of each of the US Plans and
governing documents thereof, and all amendments thereto, whether currently
effective or to become effective at a later date, and all contracts and
agreements relating thereto, or to the funding thereof (including, without
limitation, all trust agreements, insurance contracts, investment
management agreements, subscription and participation agreements,
administration and recordkeeping agreements) have been provided to
Purchaser. In the case of any US Plan that is not in written form, an
accurate and complete description of such US Plan has been provided to
29
Purchaser. With respect to each US Plan, Purchaser has been provided with
a complete and correct copy of each of (i) the three most recent annual
reports (Form 5500 series), including any schedules thereto and audit
reports, (ii) the most recent summary plan description (including
summaries of material modification), and a copy of any other material or
documents distributed to any US Employee, participant or any beneficiary
in connection with any US Plan, and (iii) the most recent Internal Revenue
Service determination letter and/or ruling.
(vii) The Seller Disclosure Schedule lists termination rights and
notice requirements under each US Plan. There have been no material
changes in the financial condition of the respective US Plans (or other
information provided hereunder) from that stated in each US Plan's most
recent of such annual reports.
(viii) Except as set forth on the Seller Disclosure Schedule, no US
Plan provides benefits including, without limitation, death or medical
benefits (whether or not insured), with respect to any employees, former
employees or directors of the Company or any Subsidiary beyond their
retirement or other termination of service, other than (i) coverage
mandated by applicable Law or (ii) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2)
of ERISA.
(ix) Except as set forth in the Seller Disclosure Schedules, neither
the execution and delivery by the Sellers of this Agreement or the Related
Agreements nor the consummation by the Sellers of the transactions
contemplated hereby or by the Related Agreements shall (either alone or
upon the occurrence of additional events or acts) (x) require any the
Company or any Subsidiary to make any payment to, or obtain any consent or
waiver from, any officer, director, employee, consultant or agent of any
member of the Group (other than the Sellers) or (y) accelerate vesting or
payment of any benefits or any payments, increase the amount or value of
any benefit or payment or result in the payment of or obligation to pay
any "excess parachute payment" (within the meaning of Section 280G of the
Code).
(x) The Seller Disclosure Schedule separately identifies each
Canadian Plan as well as each severance or other post termination
arrangement applicable to Canadian Employees.
(xi) All nonqualified deferred compensation plans (within the
meaning of Section 409A(d) of the Code) maintained by the Company or any
Subsidiary or with respect to which the Company or any Subsidiary has any
liability, contingent or otherwise, that is subject to Section 409A of the
Code has, at all times since January 1, 2005, been maintained and
administered in accordance with the Section 409A of the Code.
(xii) The bonus plan underlying the arrangements described under
"Other" in item 3.20(A)(I) of the Seller Disclosure Schedule shall have
been terminated as of the Closing Date without any obligation of the
Company or any Subsidiary continuing thereunder.
30
(xiii) Neither the Company nor any Subsidiary has any liability with
respect to retirement or welfare benefits for any US Employee who is not
covered by a collective bargaining agreement with respect to which the
Company or a Subsidiary is a party (a "Non-Union Employee"), other than
with respect to contributions made to the Union Plans (the annual amount
of which has been provided to Purchaser) to provide coverage thereunder
(the "Non-Union Contributions"). Any coverage of a Non-Union Employee by a
Union Plan is being provided to such Non-Union Employee in accordance with
applicable Law. The Company may unilaterally terminate, without penalty
and with no more than 15 days' notice, any arrangement under which any
Union Plan covers any Non-Union Employee and, prior to any such
termination, each such Union Plan will continue to provide such coverage
so long as the Company or a Subsidiary continues to make Non-Union
Contributions.
(b) Canadian Employee Plans
(i) The Seller Disclosure Schedule identifies all retirement,
pension, supplemental pension, savings, retirement savings, retiring
allowance, bonus, profit sharing, stock purchase, stock option, phantom
stock, share appreciation rights, deferred compensation, severance or
termination pay, change of control, life insurance, medical, hospital,
dental care, vision care, drug, sick leave, short term or long term
disability, salary continuation, unemployment benefits, incentive or other
employee benefit plan, program, arrangement, policy or practice whether
written or oral, formal or informal, funded or unfunded, registered or
unregistered, insured or self-insured that is maintained or otherwise
contributed to, or required to be contributed to, by or on behalf of the
Company or any Subsidiary for the benefit of current or former employees,
directors, officers, shareholders, independent contractors or agents of
the Company or any Subsidiary who are located in Canada (collectively the
"Canadian Employee Benefit Plans") other than government sponsored
pension, employment insurance, workers compensation and health insurance
plans.
(ii) Neither the Company nor any Subsidiary maintains or otherwise
contributes to, nor are the Company or any Subsidiary required to
contribute to, any registered pension plan, by or on behalf of the Company
or any Subsidiary, for the benefit of current or former employees,
directors, officers, shareholders, independent contractors or agents of
the Company or any Subsidiary who are located in Canada.
(iii) Each Canadian Employee Benefit Plan has been maintained,
administered and invested in compliance with its terms and with the
requirements prescribed by applicable Law and is in good standing in
respect of such applicable Law and each Canadian Employee Benefit Plan
that is required to be registered under applicable legislation is duly
registered with the relevant Governmental Authority.
(iv) All contributions or premiums required to be paid, deducted or
remitted and all obligations required to be performed by the Company or
any Subsidiary pursuant to the terms of any Canadian Employee Benefit Plan
or by applicable Law or otherwise, have been paid, deducted, remitted or
performed in a timely fashion and there are no outstanding defaults or
violations with regard to same.
31
(v) There are no Actions pending or, to the Knowledge of the
Sellers, threatened with respect to the Canadian Employee Benefit Plans
(other than routine claims for benefits) and no circumstances or event has
occurred that could result in an Action.
(vi) There has been no judgment, order or award with respect to any
of the Canadian Employee Benefit Plans.
(vii) To the extent required by applicable law and pursuant to GAAP,
the liabilities of the Company or any Subsidiary under any Canadian
Employee Benefit Plan are properly accrued and reflected in the Financial
Statements.
(viii) The Company has delivered the following documents to the
Purchaser:
(A) true and complete copies of all the text of the Canadian
Employee Benefit Plans (where no text exists, a summary has been
provided) and any related trust agreements, insurance contracts or
other documents governing those plans, all as amended to the date
hereof;
(B) a copy of all materials or documents distributed to new or
existing members of the Canadian Employee Benefit Plans during the
last three years;
(C) the most recent accounting and certified financial
statement of each Canadian Employee Benefit Plan for which such
statement is made;
(D) the most recent annual information returns filed with
regulatory authorities in respect of each Canadian Employee Benefit
Plan for which such filing is required;
and no fact, condition or circumstances has occurred since the date of
those documents which would materially affect the information contained
herein.
(ix) To the Knowledge of the Sellers, no event has occurred and
there has been no failure to act on the part of either the Company or any
Subsidiary that could subject either the Company or any Subsidiary or any
of the Canadian Employee Benefit Plans or any successor plan to the
imposition of any tax, penalty, penalty tax or other liability, whether by
way of indemnity or otherwise.
(x) No promises or commitments have been made by the Company or any
Subsidiary to amend any of the Canadian Employee Benefit Plans, to provide
increased benefits thereunder or to establish any new benefit plan, except
as required by applicable Laws or as disclosed in the Seller Disclosure
Schedule.
(xi) The transactions contemplated in this Agreement shall not,
alone or upon the occurrence of any additional or subsequent event, result
in any payment, severance or otherwise, acceleration, vesting, increase in
benefits or acceleration of any funding obligation under any of the
Canadian Employee Benefit Plans with respect to any employees or former
employees of the Company or any Subsidiary.
32
(xii) No employees or former employees of the Company or any
Subsidiary are entitled to post-retirement benefits.
(xiii) None of the Canadian Employee Benefit Plans require or permit
retroactive increases or assessments in premiums or payments.
(xiv) Neither the Company nor any Subsidiary contribute or are
required to contribute to any multi-employer pension or benefit plan. None
of the Canadian Employee Benefit Plans are multi-employer pension or
benefit plans.
3.21 Maritime Matters.
(a) Vessels. The Seller Disclosure Schedule lists all Vessels owned,
chartered or operated by the Company and each Subsidiary, setting forth, for
each Vessel, its (i) name, (ii) owner, (iii) the arrangements (including
intercompany arrangements) pursuant to which such Vessel is chartered or
operated by the Company (iv) official number and call sign, (v) flag, (vi)
deadweight tonnage, (vii) Vessel type, (viii) class description, (ix)
classification society, (x) shipyard and year in which the Vessel was
constructed, (xi) date of the Vessel's last special survey, (xii) date of the
Vessel's last dry-docking and (xiii) the scheduled date of the Vessel's next
dry-docking for purposes of the next scheduled special survey; and Sellers shall
provide, at Closing, such information for vessels, if any, acquired, chartered
or operated in the period between the date hereof and Closing.
(b) The owner of each Vessel has good marketable title, free and clear of
Liens and indemnified from all Actions, including any claim other than Permitted
Liens, and other than any claims, interests or demands listed in the Seller
Disclosure Schedule, and that all permits, certificates and licenses required
for the ownership, operation and chartering of the Vessels are in full force and
effect.
(c) Except as set forth on the Seller Disclosure Schedule, the Vessels are
in good working order and, consistent with their respective ages, are without
material defect or inherent vice in condition, design, operation or fitness as
necessary to fulfill the ongoing requirements of the Company and its
Subsidiaries when operated in a manner not inconsistent with industry practices
for similar freshwater shipping fleets and for the uses currently engaged.
(d) Each Vessel is properly documented and has been operated and equipped
in accordance with and continues to comply with all applicable Laws in force at
the date of this Agreement in so far as they apply to the Vessels.
(e) There has been no change to the certification, classification or
insurance coverage (other than the proposed change to insurance arrangements of
which the Company has advised Rand) of the Vessels since the information
pertaining to same has been furnished to Rand.
(f) Except as set forth on the Seller Disclosure Schedule, each Vessel
fully complies with all requirements of its present class and Classification
Society set forth on the Seller Disclosure Schedule with all continuous or
progressive survey cycles up to date.
33
(g) Except as set forth on the Seller Disclosure Schedule, there is no
Action pending or, to the Knowledge of the Sellers, threatened against the
Company, its Subsidiaries or any of the Vessels with respect to or arising out
of the ownership, use, or operation of the Vessels.
(h) To the Knowledge of the Sellers, all facts relating specifically to
the Vessels (but not including any facts generally affecting the industries or
segments in which the Company or the Subsidiaries operate) which could
materially affect the value of the Vessels or their operations and which would
be likely to affect the decision of an intending buyer of the Vessels have been
disclosed to Rand or Purchaser in writing.
3.22 No Finder. Neither the Company nor any Subsidiary or any party acting
on their behalf, has paid or become obligated to pay any fee or commission to
any broker, finder or intermediary (other than fees or commissions which shall
be paid in full by the Sellers prior to the Closing) for or on account of the
transactions contemplated hereby or by the Related Agreements.
3.23 Certain Business Practices. No director, officer, member, agent,
representative or employee of the Company or any Subsidiary (in their capacities
as such) has: (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; (ii)
made any unlawful payment to foreign or domestic governmental officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended or the
Corruption of Foreign Public Officials Act (Canada); or (iii) made any other
unlawful payment.
3.24 Accounts Receivable. Except to the extent of the amount of the
reserve for doubtful accounts reflected in the balance sheets included in the
Financial Statements or as set forth on the Seller Disclosure Schedule, all
Accounts Receivable of the Company and each Subsidiary reflected therein and all
Accounts Receivable that have arisen since March 31, 2005 (except Accounts
Receivable that have been collected since such date) are valid and enforceable
claims, constitute bona fide Accounts Receivable resulting from the sale of
goods and services in the ordinary course of business and are fully collectable
in a manner consistent with past practice. The Accounts Receivable are subject
to no valid defense, offsets, returns, allowances or credits of any kind, except
returns or credits which are in the ordinary course of the Company's and the
Subsidiaries' business except to the extent of the amount of the reserve for
doubtful accounts reflected in the balance sheets included in the Financial
Statements or as set forth on the Seller Disclosure Schedule.
3.25 Major Customers. The Seller Disclosure Schedule lists, by dollar
volume paid for the year ended March 31, 2005, the 10 largest customers of the
Company and Subsidiaries, taken as a whole, (collectively, the "Major
Customers"). The relationships of Company and Subsidiaries with the Major
Customers are reasonable commercial working relationships and: (i) all amounts
owing from the Major Customers, if not in dispute, have been paid in accordance
with their respective terms; (ii) none of the Major Customers within the last
twelve months has threatened to cancel, or otherwise terminate, the relationship
of such Major Customer with the Company or any Subsidiary; and (iii) none of the
Major Customers during the last twelve months has decreased materially, or
threatened to decrease or limit materially, its relationship with the Company or
any Subsidiary or, to Sellers' Knowledge, intends to decrease or limit
materially its relationship with the Company or any Subsidiary. Neither the
Company nor any Subsidiary has received any written or oral notice or has any
other knowledge regarding the insolvency of any major customer.
34
3.26 Affiliate Transactions. Except as disclosed on the Seller Disclosure
Schedule, no Affiliate of the Company, any Subsidiary, any Seller or any
officer, director, partner, member, consultant or employee of thereof, is a
party to any transaction with the Company or any Subsidiary, including any
Contract or arrangement providing for the furnishing of services (other than in
their capacity as shareholder, officer, director, partner, member, consultant or
employee) to or by, providing for rental of real property or other assets or
rights or privileges to or from, or otherwise requiring payments to or from the
Company, any Subsidiary or any Affiliate thereof.
3.27 Sufficiency of Assets. The property and assets owned and leased by
each of the Company and each Subsidiary include all material rights, assets and
property necessary for the conduct of the business of the Company and each of
the Subsidiaries after the Closing, substantially in the same manner as it was
conducted prior to the Closing. Neither the Company nor any Subsidiary owns or
possesses any property, rights or other assets which are not owned or possessed
solely for the purpose of conducting the respective business of each entity as
it is now being conducted.
3.28 Bank Accounts. The Seller Disclosure Schedule sets forth a complete
list of (i) all bank accounts, savings deposits, money-market accounts,
certificates of deposit, safety deposit boxes, and similar investment accounts
with banks or other financial institutions maintained by or on behalf of the
Company or any Subsidiary showing the depository bank or institution address,
appropriate bank contact personnel, account number and names of signatories, and
(ii) the names of all Persons holding powers of attorney from the Company or any
Subsidiary; true, correct and complete copies of all powers of attorney granted
by the Company or any Subsidiary have been provided to Purchaser.
3.29 Disclosure. No representation or warranty by Sellers in this
Agreement and no statement contained in any document or other writing furnished
or to be furnished to Purchaser pursuant to the provisions hereof, when
considered with all other such documents or writings, contain or will contain
any untrue statement of material fact or omits or will omit to state any
material fact necessary in order to make the statements made herein or therein
not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND RAND
Purchaser and Rand represent and warrant, jointly and severally, to each
Seller as follows:
4.1 Organization; Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the federal laws of
Canada. Rand is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
4.2 Authority; Execution and Delivery; Enforceability. Purchaser and Rand
each have full corporate power and authority to execute and deliver this
Agreement and the Related Agreements (to the extent a party thereto), to perform
their respective obligations hereunder and under the Related Agreements (to the
extent a party thereto) and to consummate the transactions contemplated hereby
and by the Related Agreements (to the extent a party thereto). Other than
obtaining Shareholder Approval, all corporate acts and other proceedings
35
required to be taken by Rand and Purchaser to authorize the execution, delivery
and performance of this Agreement and the Related Agreements to which Rand or
Purchaser is a party have been duly and properly taken. Each of this Agreement
and (when executed) the Related Agreements to which Rand or Purchaser is a party
has been (or will be) duly executed and delivered by Rand and Purchaser, and
constitutes (or will, when executed, constitute) the legal, valid and binding
obligation of Rand and Purchaser, enforceable against Rand and Purchaser in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium and other similar Laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
4.3 Non-Contravention. The execution and delivery of this Agreement and
the Related Agreements by Rand and Purchaser (to the extent a party thereto)
does not, and the consummation of the transactions contemplated hereby and such
Related Agreements and compliance with the terms hereof and of such Related
Agreements, will not (or would not with the giving of notice or the passage of
time):
(a) constitute a violation or breach of the articles or certificate of
incorporation or the amalgamation or the by-laws of Rand or Purchaser,
respectively;
(b) constitute a default under or a violation or breach of, or result in
the acceleration of any obligation under, any provision of any material contract
or other instrument to which Rand or Purchaser is a party or by which any of the
assets of Rand or Purchaser is bound; or
(c) assuming the consents described in Section 4.4 have been received,
violate any Order or any Law affecting Rand or Purchaser, or their respective
assets.
4.4 Consents and Approvals. Except as set forth in the Purchaser
Disclosure Schedule, no consent, approval, waiver, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority or other Person (other than Shareholder Approval) is required to be
obtained by or on behalf of Rand or Purchaser in connection with, or as a
condition of the lawful execution, delivery and performance of this Agreement or
the Related Agreements to which Rand or Purchaser is a party or the consummation
of the transactions contemplated hereby and by such Related Agreements.
4.5 Litigation and Claims. There is no Action pending or, to the knowledge
of Rand or Purchaser, threatened, against or affecting Rand or Purchaser with
respect to the propriety or validity of the transactions contemplated hereby or
by the Related Agreements to which Rand or Purchaser is a party.
4.6 No Finder. Neither Rand nor Purchaser, nor any party acting on their
behalf, has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated hereby
or by the Related Agreements.
4.7 Disclosure. No representation or warranty by Rand or Purchaser in this
Agreement and no statement contained in any document or other writing furnished
or to be furnished to Sellers pursuant to the provisions hereof, when considered
with all others such documents or writings, contain or will contain any untrue
statement of material fact or omits or will omit to state any material fact
necessary in order to make the statements made herein or therein not misleading.
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ARTICLE V.
ACTION PRIOR TO THE CLOSING DATE
From and after the execution of this Agreement until the Closing Time (or
earlier termination of this Agreement in accordance with Section 10.1):
5.1 Conduct of Business.
(a) Each Seller shall cause the Company and each Subsidiary to (i)
continue to conduct the business of the Company and each Subsidiary in the
ordinary course thereof and use its commercially reasonable efforts to maintain
its business in substantially the same manner as heretofore, carry on its
business practices in substantially the same manner as heretofore and keep their
books of account, records and files in a manner consistent with past practice
subject to changes in requirements under GAAP or applicable Law, (ii) use its
commercially reasonable efforts to preserve the organization of the Company and
each Subsidiary intact, to retain the services of the employees of the Company
and each Subsidiary and to preserve the goodwill of the suppliers and customers
of the Company and each Subsidiary and others having business relations with the
Company and each Subsidiary, (iii) pay and perform all of the debts, obligations
and liabilities of the Company and each Subsidiary in a manner consistent with
past practice, and maintain and manage working capital of the Company and
Subsidiaries, in each case consistent with past practice; (iv) maintain all
material assets in a manner consistent with past practices and not take any
action adverse to the preservation of such material assets, (v) fully satisfy
all obligations, on a timely basis, under each employee benefit plan (as defined
in Section 3(3) of ERISA) or under each Canadian Employee Benefit Plans,
including, without limitation, all contribution obligations, and to administer,
operate and maintain each such employee benefit plan in accordance with its
terms and all applicable Laws, including with respect to any Qualified Plan, the
qualification requirements of the Code; (vi) conduct the business of the Company
and each Subsidiary in such a manner that, on the Closing Date, subject to
circumstances which may occur in the interim period from the date hereof which
are beyond the control of the Company and each Subsidiary, the representations
and warranties of Sellers contained in this Agreement shall be true, correct and
complete as if such representations and warranties were made on and as of such
date; (vii) on a periodic basis (as reasonably determined by Rand) report to
Rand concerning material matters relating to the business of the Company and
each of the Subsidiaries; (viii) comply in all material respects with all Laws
applicable to the Company and each Subsidiary; (ix) insure and to keep fully
37
insured all properties, including the Vessels, but in no event to a lesser
extent than existed prior to the execution of this Agreement; (x) comply
strictly and in all respects with the requirements of Environmental Laws and use
its reasonable best efforts to notify Rand as soon as reasonably possible in the
event of any release or discovery of any Hazardous Substance or contaminant at,
upon, under, over or within its property or any contiguous real property or any
real property to which a contaminant could reasonably be anticipated to be
released or in the event of an oil spill in the marine environment or of a
situation necessitating the taking of measures to avoid oil pollution damage in
the marine environment, promptly notify Rand of the same and forward to Rand
copies of all Orders, notices, permits, applications or other communications and
reports, provided such matters are not subject to legal privilege, in connection
with any release or the presence of any contaminant or any matters relating to
Environmental Laws as they affect the real property leased, used or occupied by
the Company or any Subsidiary or of any oil spill or threat of oil spill for any
of the Vessels; (xi) warrant and defend the title to and possession of the
Vessels and every part thereof (except leased equipment), free and clear of all
claims and demands of all other persons whomsoever; (xii) at all times to
maintain and preserve or cause to be maintained and preserved the Vessels, their
equipment and machinery in their current operating condition, subject to the
remediation, repairs and improvements currently required or planned as set forth
on Schedule 3.21(c); (xiii) if legal proceedings are filed against the Vessels
or if any of the Vessels is otherwise attached, levied upon, taken into custody
or by any proceeding arrested or detained by an court or tribunal or by any
Governmental Authority or other authority, to promptly notify Rand thereof by
telecopier in accordance with Section 11.2 and to take such steps as are
commercially reasonable with a view to enabling such Vessel to be released from
arrest or detention as quickly as possible (and in any event, such release to be
effected prior to the Closing Date) and to promptly notify Rand thereof in the
manner aforesaid; (xiv) in the event of the Vessel being requisitioned by the
Canadian or United States government or seized or requisitioned by any subject
government, to forthwith notify Rand by telecopier in accordance with Section
11.2; (xv) keep the Vessels free and clear from all claims, demands, actions or
proceedings (other than Permitted Liens); and (xvii) repair or cause to be
repaired, to the satisfaction of the American Bureau of Shipping and Transport
Canada, the damages to the M/V Mississagi incurred in the August 9, 2005 Welland
Canal incident, such repairs to be completed promptly, and, in any event, no
later than the Closing Time.
(b) Notwithstanding Section 5.1(a) hereof, each Seller shall cause the
Company and each Subsidiary to not, unless otherwise expressly contemplated by
this Agreement or as disclosed in the Seller Disclosure Schedule, without the
prior written consent of Rand which shall not be unreasonably withheld:
(i) make any material change in the businesses or the operations of
the Company or any Subsidiary;
(ii) other than in the ordinary course of business consistent with
past practice, (A) incur, pay or discharge any liability or obligation
(absolute, accrued, contingent or otherwise), (B) sell or transfer any
property, or (C) acquire or sell, lease, grant an interest in or dispose
of any assets or businesses, in each case in (A), (B) and (C ), for or
with respect to liabilities, obligations, properties, assets or businesses
valued at no more than $50,000 individually or $100,000 in the aggregate;
(iii) (A) guarantee or assume any other obligation of any Person, or
(B) make any loan or advance to any Person (other than in the ordinary
course of business, consistent with past practice and business-related
advances to employees in an amount not to exceed $5,000 per employee or
$25,000 in the aggregate);
(iv) waive any right of value owed to, cancel any debt owed to, or
claims held by, the Company or any Subsidiary, except in the ordinary
course of business consistent with past practice;
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(v) settle or compromise any Action, which amount of such settlement
or compromise is not paid in full prior to the Closing or which settlement
or compromise would have a continuing adverse impact on the business of
the Company or any Subsidiary after the Closing;
(vi) make any Tax election or change a Tax election or file for any
change in any material respect of any method of accounting with the
relevant Tax Authority, except as required by any change in Law;
(vii) make any change in the methods of accounting or accounting
principles applied in the preparation of the financial statements of the
Company or any Subsidiary other than a change which is required by reason
of a concurrent change in Law or GAAP;
(viii) (A) adopt, terminate, amend in any material respect (except
as required by this Agreement or applicable Law), fund or secure any
benefit plan or bonus, profit sharing, deferred compensation, incentive,
stock option or stock purchase plan, program or commitment, paid time off
for sickness or other plan, program or arrangement for the benefit of its
employees, consultants or directors, (B) grant any general increase (other
than increases required under a Contract) in the compensation of its
employees (including any such increase pursuant to any bonus, profit
sharing or other compensation or incentive plan, program or commitment) or
any increase (other than increases required under a Contract) in the
compensation payable or to become payable to any officer or director, or
(C) completely or partially withdraw (within the meaning of Section 4201
of ERISA) from any Multiemployer Plan;
(ix) amend or modify any Contract listed in the Seller Disclosure
Schedule pursuant to Section 3.10, or enter into any Contract which, had
such Contract been entered into prior to the date hereof, would have been
required to have been listed in the Seller Disclosure Schedule pursuant to
Section 3.10, except in the ordinary course of business and in no event
calling for annual payments, if a new Contract, or an increase in annual
payments, if an amendment or modification, by, or to, the Company or any
Subsidiary in excess of $50,000 or payments in excess of $100,000 in the
aggregate, other than any amendments and modifications pursuant to grace
periods customary in the industry;
(x) enter into, amend or modify any collective bargaining
agreements;
(xi) authorize, undertake, or enter into any commitment with respect
to, capital expenditure projects individually in excess of $50,000 or in
the aggregate in excess of $100,000 except for winter work and capital
expenditures within contemplated budgeted amounts for such items provided
to Purchaser;
(xii) amend the articles or certificates of incorporation, as
applicable, or by-laws or other governing documents of the Company or any
Subsidiary;
(xiii) issue, deliver, or agree (actually or contingently) to issue
or deliver (whether pursuant to any option or otherwise), or grant or
modify any option, warrant or other right to purchase or otherwise
acquire, any shares of the capital stock of the Company or any Subsidiary,
or any security convertible into or exchangeable for, any shares of such
capital stock, or issue or agree to issue any bonds, notes, or other
securities;
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(xiv) split, combine or reclassify any shares of the capital stock
of the Company or any Subsidiary, retire, redeem or otherwise acquire any
shares of the capital stock of the Company or any Subsidiary, or declare,
set aside or make any distributions of property in respect of the capital
stock of the Company or any Subsidiary, or agree to do any of the
foregoing;
(xv) fail to maintain in force, or make any change in (except in the
ordinary course of business), the insurance coverage contemplated by
Section 3.12 (or substantially equivalent replacement coverage) as being
maintained by the Company or any Subsidiary;
(xvi) issue any communication to employees of the Company or any
Subsidiary with respect to compensation, benefits or employment
continuation or opportunity following the Closing, except as required by
Law;
(xvii) enter into any partnership or joint venture agreement or
arrangement or any similar agreement or arrangement;
(xviii) enter into any Contract which would require a consent
thereunder with respect to the consummation of the transactions
contemplated hereby or by any Related Agreement;
(xix) change the registry of the Vessels and not do or suffer to be
done any acts or things whereby the said registry of the Vessels may be
forfeited or imperiled;
(xx) other than Permitted Liens, grant, create, assume or suffer to
exist any Lien affecting any of their properties, assets, including the
Vessels, or not to assign or hypothecate or attempt to hypothecate any
freight or hire monies and any insurance policies or insurance claims;
(xxi) abandon the Vessels or permit any of the Vessels to be
abandoned in a foreign port;
(xxii) allow nor permit, during the voyage, that any of the Vessels
make any unlawful deviation and that nothing, at any time, be done or
omitted whereby any insurance would become void or voidable in whole or in
part;
(xxiii) enter into a voluntary recognition agreement or other
Contract with, or otherwise voluntarily recognize, any employee
association, labor union or other similar organization in any of the
Canadian employees;
(xxiv) in the event the Company is certified by an employee
association, labor union or other similar organization, pursuant to the
Canada Labour Code, or any other applicable Law, the Company shall not
engage in any discussions, negotiations, or bargaining in respect of a
collective agreement or other Contract or side agreement without informing
Rand and Purchaser in advance and providing Rand and Purchaser with an
opportunity to participate in the discussions, negotiations or bargaining;
or
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(xxv) agree, whether in writing or otherwise, to do any of the
foregoing (other than, in the case of subsection (xiv) above, pursuant to
the Redemption Agreement).
5.2 No Breach of Representations and Warranties; Notification of Certain
Matters. The Sellers, on the one hand, or Purchaser and Rand, on the other hand,
will, in the event of, and promptly after the occurrence of, or promptly after
becoming aware of the occurrence of, or the impending or threatened occurrence
of, any event or condition which would result in the inability of any condition
contained in Articles VII or VIII to be satisfied or would otherwise prevent it
from consummating the transactions contemplated hereby or by any Related
Agreement, give detailed written notice thereof to the Sellers or Purchaser, as
the case may be, and each of the Sellers or Purchaser, as the case may be, shall
use its reasonable best efforts to prevent or promptly to remedy such event,
condition or breach. None of the disclosures pursuant to this Section 5.2 or
investigations enabled or performed pursuant to Section 5.3 will be deemed to
qualify, modify, or amend or supplement the representations, warranties or
covenants of any party.
5.3 Access. Subject to the terms of the Confidentiality Agreement and on
reasonable notice, the Sellers shall afford Rand's and Purchaser's employees,
auditors, legal counsel and other authorized representatives and advisors, as
well as representatives of Rand's and Purchaser's financing sources, all
reasonable opportunity and access during normal business hours to inspect,
investigate and audit the assets, liabilities, Contracts, Books and Records,
operations and business of the Company and each Subsidiary and to interview the
officers of the Company and each Subsidiary and such other employees as the
parties reasonably agree . Subject to prior discussion with the Sellers and
reasonable agreement by the parties on the meeting parameters, the Sellers shall
also permit Rand to meet with the customers and other business partners of the
Company and each Subsidiary to discuss the business conducted between the
Company and each Subsidiary and such customers and business partners. At the
request of Rand, the Sellers shall execute or cause to be executed, such
consents, authorizations and directions as may be necessary to enable Rand and
its representatives to obtain access to all files and records maintained by
Governmental Authorities in respect of the Purchase Shares, the Company, the
Subsidiaries and their respective businesses, provided that Rand shall not, and
shall not attempt, to access such files and records without prior written notice
to Sellers and with participation by Sellers as Sellers may reasonably
determine.
5.4 Standstill. From and after the date hereof unless and until this
Agreement shall have been terminated in accordance with its terms, Sellers
hereby agree and shall cause the Company and its Subsidiaries, and their
respective directors, officers, Affiliates, employees, attorneys, accountants,
representatives, consultants and other agents (collectively, "Representatives")
to agree: (i) to immediately cease any existing discussions or negotiations with
any Person conducted heretofore, directly or indirectly, with respect to any
Business Combination involving or with respect to the Company or any Subsidiary;
(ii) not to directly or indirectly solicit, initiate, encourage or facilitate
the submission of proposals or offers from any Person other than Rand or
Purchaser or their Affiliates relating to any Business Combination involving or
with respect to the Company or any Subsidiary, or (iii) directly or indirectly
participate in any discussions or negotiations regarding, or furnish any
information to any Person other than Rand or Purchaser or their Representatives
in connection with, any proposed or actual Business Combination by any Person
other than Rand or Purchaser or their Affiliates. Sellers shall immediately
notify Rand regarding any contact with any other Person regarding any proposed
Business Combination.
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5.5 Notice of Litigation. Promptly after obtaining Knowledge of the
commencement of or the threatened occurrence of any Action against or with
respect to the Company, any Subsidiary or the Purchase Shares, the Sellers
shall, subject to legal privilege (provided that all details which can be shared
without violating or jeopardizing privilege will be shared), give detailed
written notice thereof to Rand.
5.6 Fulfillment of Conditions to Rand's and Purchaser's Obligations and to
GR Holdings' Obligations Under the Redemption Agreement. Each Seller agrees, and
agrees to cause the Company and each Subsidiary, to use commercially reasonable
efforts to fulfill the conditions contained in Article VII hereof and Article
VII of the Redemption Agreement.
5.7 Fulfillment of Conditions to Sellers' Obligations. Rand and Purchaser
each agree to use commercially reasonable efforts to fulfill the conditions
contained in Article VIII.
5.8 Governmental Consents.
(a) Each of Rand, Purchaser and the Sellers shall, and the Sellers shall
cause the Company and each Subsidiary to, as promptly as practicable following
the execution and delivery of this Agreement make all filings, notices,
petitions, statements, registrations, submissions of information, application or
submission of other documents required by any Governmental Authority in
connection with the transactions contemplated hereby and by the Related
Agreements. Each party will cause all documents that it is responsible for
filing with any Governmental Authority under this Section 5.8 to comply in all
material respects with all applicable Laws. Each such party shall furnish to the
other such necessary information and reasonable assistance as the other may
request in connection with its preparation of such filings or submissions. Each
such party shall keep the other apprised of the status of any communications
with, and any inquiries or requests for additional information from, any
Governmental Authority and shall comply promptly with any such inquiry or
request. Each such party shall use its reasonable best efforts to obtain any
clearance required under applicable Law for the consummation of the transactions
contemplated hereby and by the Related Agreements. Filing fees attributable to
the filings made pursuant to this Section 5.8 shall be borne equally by
Purchaser, on the one hand, and Sellers on the other hand.
(b) Without limiting the generality of the foregoing, each of Rand,
Purchaser and the Sellers shall (i) make any filings under the Investment Canada
Act, the Competition Act, or any other applicable antitrust law, required of it
or any of its Affiliates in connection with this Agreement and the transactions
contemplated hereby and by the Related Agreements as soon as practicable; (ii)
comply at the earliest practicable date and after consultation with the other
parties with any request for additional information or documentary material
received by it from the responsible Minister under the Investment Canada Act,
the Commissioner of Competition or any other antitrust agency, as applicable;
(iii) cooperate with one another in connection with any filings or other
submission aimed at resolving any investigation or other inquiry concerning the
transactions contemplated hereby and by the Related Agreements initiated by the
responsible Minister under the Investment Canada Act, the Commissioner of
42
Competition, or any other antitrust agency, including providing each other with
copies of any notifications, filings, applications and/or other submissions in
draft form for the other party to confirm that information contained within is
consistent and accurate; and (iv) use commercially reasonable efforts to cause
any applicable waiting periods under the Investment Canada Act, the Competition
Act, or any other applicable antitrust law to terminate or expire at the
earliest possible date and to obtain any necessary approvals of the transactions
contemplated hereby and by the Related Agreements from the responsible Minister
under the Investment Canada Act, the Commissioner of Competition, or any other
antitrust agency. Notwithstanding any other term or provision of this Agreement,
Purchaser and the Sellers (collectively) shall each pay one-half of any filing
fee under the Competition Act.
5.9 Third Party Consents. The Sellers shall, and shall cause the Company
and each Subsidiary to, use their respective commercially reasonable efforts
(without the obligation to make payment other than obligations when and as
required under existing Contracts) to obtain all consents, approvals, waivers
and similar authorizations from third parties (other than Governmental
Authorities) which are required by the terms of any Contract or otherwise to be
obtained in connection with the transactions contemplated hereby, including
those identified on the Seller Disclosure Schedule in respect of Section 3.6.
The Sellers shall not be in breach of the covenant contained in this Section 5.9
as a result of the failure of Sellers to obtain any consent, approval, waiver or
similar authorization required by this Section 5.9 if Rand and Purchaser
determine, in their sole discretion, to consummate the transactions contemplated
by this Agreement notwithstanding such failure. Rand and Purchaser shall use
their respective commercially reasonable efforts to cooperate in obtaining any
such consents, so long as neither Rand nor Purchaser is required to make any
payments with respect thereto.
5.10 Publicity. No public release or announcement concerning the
transactions contemplated hereby or by the Related Agreements shall be issued by
any party without the prior consent of the other party (which consent shall not
be unreasonably withheld or delayed), except as such release or announcement may
be required by Law or the rules or regulations of any United States or foreign
securities exchange, in which case the party required to make the release or
announcement shall allow the other party reasonable time to comment on such
release or announcement in advance of such issuance and shall make a reasonable
effort to take into account such comments.
5.11 Transfer of Certain Assets. To the extent any of the Sellers (or any
of their Affiliates, other than the Company or any Subsidiary) own any assets
used in or necessary to conduct the Company's (or any Subsidiary's) business,
such Seller, effective as of the Closing Time, shall (i) sell, assign, deliver
and transfer to Purchaser or the Company or the relevant Subsidiary all such
assets, and (ii) use its best efforts to cause such Affiliate to enter into an
agreement with Purchaser to sell, assign, deliver and transfer to Purchaser or
the Company or the relevant Subsidiary all of such assets, in each case for no
additional consideration.
5.12 Financing. At all times until Closing, Rand shall use its best
efforts to (i) complete the financing under the Financing Commitments; or (ii)
if the Financing Commitments are not able to be completed, secure commitments
for, and complete, alternative financing on terms substantially similar to, and
without substantially greater cost to Rand in the form of fees or other payments
than the costs contemplated by, the Financing Commitments. Rand shall keep
Sellers' Representative informed at all times as to the status of all ongoing
financing matters. For the avoidance of doubt, "best efforts" as used in this
Section shall not include commencing or threatening to commence any Action
against any other Person.
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5.13 Conversion of Convertible Notes. At or prior to the Closing Time,
those Sellers holding Convertible Notes shall fully exercise their rights to
convert all such notes into shares of common stock of the Company. Upon the
exercise of such rights (and the issuance of all shares of common stock issuable
upon such exercise), all such notes shall be deemed repaid in full and
cancelled, and the Company and each Subsidiary shall be deemed entirely released
and discharged from any and all debts, duties or obligations thereunder.
5.14 Consolidated Financial Statements. Prior to the Closing, Sellers
shall provide to Purchaser copies of the audited consolidated balance sheets and
statements of operations and cash flows of the Company and the Subsidiaries for
the fiscal years ended March 31, 2003, 2004 and 2005, together with the notes
thereto and the opinions of Deloitte & Touche LLP thereon (collectively, the
"Consolidated Financial Statements"). The Consolidated Financial Statements will
be prepared from the books and records of the Company and its Subsidiaries, and
will present fairly the assets, liabilities, income, losses, retained earnings,
financial condition, results of operations and cash flows of the Company and its
Subsidiaries for the periods and dates covered thereby, in conformity with
United States generally accepted accounting principles (consistently applied),
the Exchange Act and the rules and regulations of the SEC.
ARTICLE VI.
OTHER AGREEMENTS OF THE PARTIES
6.1 Cooperation in Litigation. Prior to the third anniversary of the
Closing Date, the Sellers shall provide to Rand and Purchaser (at Rand's sole
reasonable cost and expense) such cooperation as may reasonably be requested in
connection with the defense of any litigation relating to the Company or any
Subsidiary whether existing on the Closing Date or arising thereafter out of, or
relating to, an occurrence or event happening before the Closing Date, provided,
that such cooperation is limited to matters of which Sellers have Knowledge.
6.2 Confidentiality.
Each Seller agrees that, subject to any requirement of Law, such Seller
will keep all Confidential Information confidential. Each Seller agrees that it
will not, without the prior written consent of Rand, disclose any Confidential
Information to any Person, other than such disclosures that may be required to
senior management of the Company or to the Company's or any Subsidiary's
accountants or legal advisors. Each Seller agrees that Rand shall be entitled to
seek equitable relief, including injunction and specific performance, in the
event of any breach of the provisions of this Section 6.2. Such remedies shall
not be deemed to be the exclusive remedies for a breach of this Section 6.2 by
any Seller but shall be in addition to all other remedies available at Law or
equity. It is further understood and agreed that failure or delay by Rand in
exercising any right, power or privilege under this Section 6.2 shall not
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise of any right, power or privilege under
this Agreement. Each Seller hereby waives any requirement that Rand post a bond
in connection with any claim for equitable relief.
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6.3 Tax Matters.
(a) The Sellers shall prepare or cause to be prepared in consultation with
Purchaser and file or cause to be filed in a timely manner all Tax Returns for
the Company and Subsidiaries for all periods ending on or prior to the Closing
Date ("Pre-Closing Tax Periods") which are due prior to the Closing Date. Any
such Tax Returns filed between the date hereof and the Closing Date for any
Pre-Closing Tax Period shall be prepared, and each item thereon treated, in a
manner consistent with past practices (including, without limitation, prior Tax
elections and accounting methods or conventions made or utilized by the Company
and Subsidiaries), except as required by applicable Law. The Sellers shall
submit such Tax Returns to the Purchaser for review and comment at least 30 days
prior to filing.
(b) Rand and Purchaser shall prepare or cause to be prepared in
consultation with the Sellers and file or cause to be filed in a timely manner
all Tax Returns for the Company and Subsidiaries for all periods beginning
before and ending after the Closing Date ("Straddle Periods") and for all
Pre-Closing Tax Periods which are due after the Closing Date. All such Tax
Returns shall be prepared and filed (i) in a manner that is consistent with past
practices (including, without limitation, prior Tax elections and accounting
methods or conventions made or utilized by the Company and Subsidiaries, except
as required by applicable Law) and (ii) with application, to the maximum extent
available, of net operating losses in respect of any Pre-Closing Tax Periods.
Rand and Purchaser shall submit such Tax Returns to the Sellers' Representative
for review and comment at least 30 days prior to filing. However, if the
Sellers' Representative disputes any item on such Tax Return, it shall promptly
notify Rand of such disputed item (or items) and the basis for its objection.
The parties shall act in good faith to resolve any such dispute prior to the
date on which the Tax Return is required to be filed. If the parties cannot
resolve any disputed item, the item in question shall be resolved by an
independent accounting firm mutually acceptable to the Sellers and Rand. The
fees and expenses of such accounting firm shall be borne equally by the Sellers
and Rand. All disputes must be resolved prior to the date on which the Tax
Return is required to be filed and the parties shall resolve all disputes (in
the manner described herein) and the Company or the applicable Subsidiary shall
sign and file the Tax Return on or before the last day on which such Tax Return
is required to be filed.
(c) The Sellers shall pay or cause to be paid when due and payable all
Taxes of each of the Company and each Subsidiary, to the extent allocable for
any Pre-Closing Tax Period and any pre-Closing portion of a Straddle Period in
excess of the amounts specifically accrued on the Closing Date Balance Sheet and
included in the computation of Closing Date Net Working Capital for purposes of
adjusting the Purchase Price pursuant to Section 1.4, and Rand and Purchaser
shall so pay or cause to be paid such Taxes for any Tax periods commencing on or
after the Closing Date and any post-Closing portion of a Straddle Period.
(d) Rand, Purchaser and the Sellers agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to the Company and each Subsidiary
(including, without limitation, access to books and records, employees,
contractors and representatives) as is reasonably necessary for the filing of
all Tax Returns, the making of any election related to Taxes as contemplated in
this Section 6.3, the preparation for and conduct of any audit by any Tax
Authority, and the prosecution or defense of any claim, suit or proceeding
relating to any Tax Return. Such cooperation and information shall include
providing copies of relevant Tax Returns or portions thereof, together with
accompanying schedules, related work papers and documents relating to rulings or
45
other determinations by Tax Authorities at the sole cost of the requesting
party. If reasonably requested by Rand or Purchaser, the Sellers' Representative
shall make himself available on a basis mutually convenient to both parties to
provide explanations of any documents or information provided hereunder. Rand,
Purchaser and the Sellers shall retain all books and records with respect to
Taxes pertaining to the Company and each Subsidiary in their respective
possession (which shall include, in the case of Rand and Purchaser, books and
records in the possession of the Company and each Subsidiary) until the later of
(i) the expiration of the statute of limitations of the Tax periods to which
such Tax Returns and other documents relate, without regard to extensions except
to the extent notified by the other party in writing of such extensions for the
respective Tax periods prior to such expirations, and (ii) six years following
the due date (without extension) for such Tax Returns. At the end of such
period, each party shall provide the others with at least ten days' prior
written notice before destroying any such books and records, during which period
the parties receiving such notice can elect to take possession, at their own
expense, of such books and records. Rand, Purchaser and the Sellers shall
cooperate with each other in the conduct of any audit or other proceeding
related to Taxes involving the Company and each Subsidiary. Any information
provided or obtained under this Section 6.3 shall be kept confidential except as
may be otherwise necessary in connection with the filing of Tax Returns or in
conducting an audit or other proceeding.
(e) For purpose of allocating Tax between the pre- and post-Closing
portion of a Straddle Period, the Tax liabilities of the Company and each
Subsidiary shall be determined as follows: (i) the amount of any Tax based on or
measured by income or receipts of the Company and each Subsidiary shall be
apportioned between the pre-Closing period and the post-Closing period based on
an interim closing of the books as of the close of the business on the Closing
Date, and (ii) the amount of any other Taxes of the Company and each Subsidiary
shall be apportioned to the pre-Closing period by multiplying the amount of such
Taxes for the entire period by a fraction, the numerator of which is the number
of days in such period ending on the Closing Date and the denominator of which
is the number of days in the entire period.
(f) All applicable transfer Taxes, sales and/or use Taxes, real property
transfer or excise Taxes, recording, deed, stamp and other similar Taxes, fees
and duties under applicable Law incurred in connection with the transfer of the
Purchase Shares shall be borne equally by the Purchaser, on one hand, and the
Sellers, on the other hand. The Sellers, Rand and Purchaser agree to jointly
prepare or cause to be prepared and file or cause to be filed in a timely
manner, all Tax Returns required to be filed with respect to such Taxes.
(g) For all Tax purposes, Rand, Purchaser and the Sellers agree that they
will report the transactions contemplated by this Agreement in a manner
consistent with the terms of this Agreement, and all parties agree to file their
Tax Returns accordingly.
(h) The Company will not (and will not be required to) include any amount
in computing its income for purposes of the Tax Act as a result of the purchase
for cancellation by the Company of 3,925 Common Shares from P&B Ships Limited,
the repayment by P&B Ships Limited to the Company of a promissory note in the
amount of $2,700,000, dated June 11, 1999, (subsequently reduced to the amount
of $2,603,416 on April 3, 2000) and all related and ancillary transactions. In
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addition, in the preparation of its financial statements for the taxation year
ending on the Closing Date, the Company will not recognize any goodwill or
contributed surplus on its balance sheet in accordance with GAAP as a result of
the transactions described in this Section 6.3(h).
6.4 Additional Tax Covenants of the Sellers.
(a) Each Seller acknowledges that it understands and agrees that the
Purchaser, at its own discretion, may make a ss.338 election under the Code.
(b) Each Seller acknowledges that it understands that the intention of the
Purchaser, following the acquisition by the Purchaser of the Company, is to
amalgamate with the Company in a manner such that the cost to the entity formed
on the amalgamation of the shares of Lower Lakes Transportation Limited will be
determined in accordance with subsection 87(11) of the Tax Act, including an
addition to that cost determined under paragraphs 87(11)(b) and 88(1)(d) of the
Tax Act.
(c) To assist in ensuring that the interests in the shares referred to
above do not constitute "ineligible property" within the meaning of paragraph
88(1)(c) of the Tax Act, each Seller represents and covenants that, except as
otherwise provided for or required in this Agreement or any Related Agreement:
(i) the Seller and any Restricted Person will not, without the prior
written consent of Rand, as part of the Series, acquire any shares of the
capital stock of Rand, any debt of Rand, or any other security of Rand or
its affiliates or any Substituted Property;
(ii) the Seller and any Restricted Person will not own, after the
Closing, any shares of the capital stock of Rand, any debt of Rand, or any
other security of Rand or its affiliates or any Substituted Property that
was acquired prior to such time as part of the Series;
(iii) the Seller will use all reasonable efforts to ensure that any
corporation, partnership or trust in which such Seller or any Restricted
Person is, at any time during the course of the Series and after the
Closing, a "specified shareholder" (for purposes of subparagraph
88(1)(c)(vi) of the Tax Act), and any corporation, partnership or trust in
which such Seller or any Restricted Person would be, at any time during
the course of the Series and after the Closing, a "specified shareholder"
(for purposes of subparagraph 88(1)(c)(vi) of the Tax Act) if all the
shares, partnership interests and trust interests of such corporation,
partnership or trust, respectively, then owned by Sellers or any
Restricted Person who acquired such shares or interests as part of the
Series that were owned at that time by such Seller or any Restricted
Person, will not, without the prior written consent of Rand, as part of
the Series, acquire after the Closing any shares of the capital stock of
Rand, any debt of Rand or any other security of Rand or its affiliates or
any Substituted Property;
(d) In addition to the representations and covenants given above, each
Seller represents and covenants that, for purposes of the Tax Act, it deals at
arm's length with (i) each of the other Sellers, and (ii) each Shareholder of
P&B Shipping Ltd. (except if such Seller is also a shareholder of P&B Shipping
Ltd.).
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6.5 Access. From and after the Closing Date, Rand and Purchaser shall and
shall cause the Company and each Subsidiary to afford to the Sellers and their
agents reasonable access to their properties, books, records, employees and
auditors (during normal business hours and upon reasonable prior written notice)
to the extent necessary to permit the Sellers to determine any matter relating
to their rights and obligations hereunder or to any period ending on or before
the Closing Date; provided, that any such access by the Sellers or their agents
shall not unreasonably interfere with the conduct of the business of Rand,
Purchaser, the Company or any Subsidiary.
6.6 Further Assurances. From and after the Closing Date, each party shall,
at any time and from time to time, make, execute and deliver, or cause to be
made, executed and delivered, for no additional consideration but at the cost
and expense of the requesting party (excluding any internal costs incurred, such
as having any of the following reviewed by counsel) such assignments, deeds,
drafts, checks, stock certificates, returns, filings and other instruments,
agreements, consents and assurances and take or cause to be taken all such
actions as the other party or its counsel may reasonably request for the
effectual consummation and confirmation of this Agreement and the Related
Agreements and the transactions contemplated hereby and by the Related
Agreements.
6.7 Indemnification. Purchaser agrees to cause the Company and its
Subsidiaries (a) except as required by applicable Law, not to change, for three
years after the Closing Time, the provisions of its certificate of incorporation
and bylaws relating to indemnification of each present or former director of the
Company and any Subsidiary in a manner that adversely affects the rights of such
director to indemnification thereunder, and (b) to perform its obligations
thereunder, or exercise any discretionary authority thereunder, to the fullest
extent permitted by Law to provide such director with all rights to
indemnification available thereunder. Notwithstanding the foregoing, nothing
herein shall constitute a waiver of, or otherwise operation to adversely affect,
the existing rights of any director of the Company and its Subsidiaries under
the certificate of incorporation or bylaws of the Company and any Subsidiary in
effect on the date hereof.
6.8 Redemption Agreement. Notwithstanding anything to the contrary
contained in Article VI of the Redemption Agreement, Sellers, on behalf of Grand
River, agree that Rand shall have the sole and exclusive right to waive on
behalf of Grand River, in Rand's sole discretion, any and all of the conditions
specified in Article VI of the Redemption Agreement other than the conditions
specified in Sections 6.4 and 6.6 thereof (which shall not be waived by Rand or
Grand River), provided, however, that Sellers shall not be liable pursuant to
Section 9.2(b)(i) for any Damages arising as a result of the failure of any such
condition to be satisfied to the extent that Rand so determines to waive any
such condition. Sellers further agree that Rand shall be permitted (but not
obligated) to seek to perform, and perform, any and all of Grand River's
obligations under the Redemption Agreement, in the name of Grand River or
otherwise, to the same effect as if the performance of such obligations was by
Grand River. Without limiting the foregoing, on the Closing Date, and after the
Closing Time, Rand, as the holder of the Purchased Shares, shall have the right
to cause the direction of the Company and Grand River with respect to the
obligations of Grand River under the Redemption Agreement. Sellers agree to
cause Grand River to perform its obligations under the Redemption Agreement
prior to the closing of the transactions contemplated thereby, and to cause
Grand River not to terminate, or to agree to terminate, the Redemption Agreement
at any time prior to the termination of this Agreement.
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6.9 Reorganization. Rand and Purchaser agree to take such actions on the
Closing Date (immediately following the consummation of the transactions
contemplated hereby) as are necessary to cause all equity securities of Grand
River which are held by the Company to be transferred to and held by Rand or a
wholly owned US subsidiary of Rand.
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF RAND AND PURCHASER
The obligation of Rand and Purchaser to consummate the transactions
contemplated under this Agreement are subject to the fulfillment of each of the
following conditions, any or all of which may be waived in whole or in part by
Rand and Purchaser, in their sole discretion:
7.1 Representations and Warranties. The representations and warranties
contained in Articles II and III that are qualified as to materiality shall be
true and correct and those not so qualified shall be true and correct in all
material respects, as of the date of this Agreement and as of the Closing Date
as though made on the Closing Date, except to the extent such representations
and warranties expressly relate to a specified date (in which case such
representations and warranties qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, on and as of such specified date). Fulfillment as of the Closing Date
of the condition set forth in this subsection shall be deemed certified by each
Seller unless Purchaser shall have received written notice to the contrary from
Sellers' Representative on the Closing Date.
7.2 Performance. The Sellers shall each have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by any Seller prior to or at the Closing Time.
Fulfillment as of the Closing Date of the condition set forth in this subsection
shall be deemed certified by each Seller unless Purchaser shall have received
written notice to the contrary from Sellers' Representative on the Closing Date.
7.3 No Material Adverse Effect. Between the date of the execution of this
Agreement and the Closing Date, the Company and the Subsidiaries shall not have
suffered or experienced a Material Adverse Effect. Fulfillment as of the Closing
Date of the condition set forth in this subsection shall be deemed certified by
each Seller unless Purchaser shall have received written notice to the contrary
from Sellers' Representative on the Closing Date.
7.4 Certificates. Purchaser shall have received (a) evidence reasonably
satisfactory to it that this Agreement, the Related Agreements and all other
documents contemplated hereby and thereby, and all transactions hereby and
thereby contemplated, have been adopted and approved by each party hereto and
thereto other than Rand and Purchaser and (b) such other evidence with respect
to the fulfillment of the conditions set forth in Sections 7.1, 7.2 and 7.3 as
Purchaser may reasonably request.
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7.5 No Injunction. There shall not be pending, threatened or in effect any
injunction or restraining order issued by a court of competent jurisdiction in
an Action against (i) the consummation of the transactions contemplated hereby
or by any Related Agreement, or (ii) the right of the Company or any of the
Subsidiaries to operate their respective businesses after Closing on
substantially the same basis as currently operated.
7.6 Governmental Approvals.
(a) The parties hereto shall have received all approvals from any
applicable Governmental Authority necessary to consummate the transactions
contemplated hereby and by the Related Agreements.
(b) Investment Canada Act. Without limiting the generality of the
foregoing, with respect to the Investment Canada Act, Rand and Purchaser shall
have received notification from the responsible Minister under the Investment
Canada Act that it is satisfied or is deemed to be satisfied that the
transactions contemplated hereby and by the Related Agreements that are subject
to the provisions of the Investment Canada Act are likely to be of net benefit
to Canada; and any conditions sought by the Minister responsible under the
Investment Canada Act as a prerequisite for certifying the transactions
contemplated in this Agreement as likely to be of net benefit to Canada shall
have been obtained on terms and conditions reasonably satisfactory to Rand and
Purchaser.
(c) Competition Act. Without limiting the generality of the foregoing,
with respect to the Competition Act:
(i) Rand and Purchaser shall have obtained an advance ruling
certificate pursuant to Section 102 of the Competition Act; or
(ii) the waiting period prescribed by Section 123 of the Competition
Act shall have either expired or the Commissioner of Competition shall
have provided the parties with a waiver from complying with Part IX of the
Competition Act pursuant to subsection 113(c) of the Competition Act, and
the Commissioner of Competition or his authorized representative shall
have advised Rand and Purchaser in writing, on terms and in a form
satisfactory to Rand and Purchaser, that the Commissioner does not intend
to make an application under section 92 of the Competition Act with
respect the transactions contemplated hereby and by the Related
Agreements, and neither the Commissioner nor any of her representatives
shall have rescinded or amended such advice.
7.7 Third Party Consents. The Sellers shall have obtained and delivered to
Purchaser all written consents, approvals, waivers, notices or similar
authorizations required to be obtained or given by Sellers, the Company or any
Subsidiary in order to consummate the transactions contemplated hereby and by
the Related Agreements, including those identified on the Seller Disclosure
Schedule in respect of Section 3.6, all in form and substance reasonably
satisfactory to Purchaser.
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7.8 Escrow Agreement. The Sellers, Purchaser and McMillan Binch Mendelsohn
LLP (as escrow agent) shall have entered into an Escrow Agreement, dated as of
the Closing Date, (the "Escrow Agreement") in the form attached hereto as
Exhibit 2.
7.9 Employment Agreement. Scott Bravener shall have executed an employment
agreement, dated as of the Closing Date, substantially in the form attached
hereto as Exhibit 3 with such substantive terms omitted therein completed to the
satisfaction of Rand.
7.10 Stock Certificates. Purchaser shall have received the Stock
Certificates, together with evidence satisfactory to Purchaser that Purchaser
has been entered in the corporate records of each relevant entity as the holder
of record of the Purchase Shares.
7.11 Good Standing. Rand and Purchaser shall have received long-form good
standing certificates or certificates of compliance, where recognized (or the
equivalent thereto in the relevant jurisdiction) relating to the Company and
each Subsidiary, dated within five Business Days of the Closing Date, issued by
the appropriate official of the respective jurisdictions of incorporation or
organization, as the case may be, together with like certificates with respect
to each jurisdiction in which the Company or any Subsidiary carries on business
as listed in the Seller Disclosure Schedule in respect of Section 3.10.
7.12 Releases. Each Seller shall have executed and delivered to Purchaser
a release in substantially the form of Exhibit 4 (each, a "Release").
7.13 Liens. Evidence satisfactory to Purchaser of the release and
discharge of any Liens (other than Permitted Liens) specified in the Seller
Disclosure Schedule in respect of Section 3.7.
7.14 [Intentionally Omitted].
7.15 Change in the Law. Since the date of this Agreement, no Law, proposed
Law, any change in any Law or the interpretation or enforcement of any Law shall
have been introduced, enacted or announced, which prevents Purchaser from
completing the transactions contemplated in this Agreement or any of the Related
Agreements or which could reasonably be expected to result in a Material Adverse
Effect.
7.16 Legal Opinions. Rand and Purchaser shall have received signed
opinions from Sellers' legal counsel, dated as of the Closing Date and addressed
to Rand and Purchaser, substantially in the form attached hereto as Exhibit 5.
7.17 Section 116 Escrow Agreement. The Sellers, Purchaser and Ogilvy
Renault LLP (as escrow agent) shall have entered into the Section 116 Escrow
Agreement, dated as of the Closing Date, (the "Section 116 Escrow Agreement") in
the form attached hereto as Exhibit 7.
7.18 Bonus Program Participant Agreement. The agreement attached hereto as
Exhibit 14, shall have been executed and delivered to Rand by each signatory
thereto.
7.19 [Intentionally Omitted].
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7.20 Financing. Rand, Purchaser or the "Borrowers" under the Financing
Commitments (or if commitments for the alternative financing contemplated under
Section 5.12 shall have been obtained, the intended recipients of such
alternative financing under the terms of such alternative financing commitments)
shall have received the financing proceeds contemplated by the Financing
Commitments (or such alternative commitments).
7.21 Redemption. All conditions precedent to the obligations of Grand
River under the Redemption Agreement shall have been fully satisfied without
waiver (other than in accordance with Section 6.8), and the transactions
contemplated by the Redemption Agreement shall be capable of being consummated
immediately following the Closing.
ARTICLE VIII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
The obligation of the Sellers to consummate the transactions contemplated
by this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by the
Sellers:
8.1 Representations and Warranties. The representations and warranties
contained in Article IV that are qualified as to materiality shall be true and
correct and those not so qualified shall be true and correct in all material
respects, as of the date of this Agreement and as of the Closing Date as though
made on the Closing Date, except to the extent such representations and
warranties expressly relate to a specified date (in which case such
representations and warranties qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, on and as of such specified date).
8.2 Performance. Rand and Purchaser shall have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by them prior to or at the Closing
Time.
8.3 Certificates. The Sellers shall have received (a) a certificate of an
executive officer of Purchaser, dated the Closing Date, certifying to the
fulfillment of the conditions specified in Sections 8.1 and 8.2; (b) a
certificate of the Secretary of each of Rand and Purchaser, dated the Closing
Date, setting forth the resolutions of the Boards of Directors of Rand and
Purchaser approving this Agreement, the Related Agreements to which Rand or
Purchaser is a party and all other documents contemplated hereby and thereby,
and authorizing the transactions hereby and thereby contemplated; and (c) such
other evidence with respect to the fulfillment of any of said conditions as the
Sellers may reasonably request.
8.4 No Injunction. There shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in an Action
against the consummation of the transactions contemplated hereby or by any
Related Agreement.
8.5 Governmental Approvals. The parties hereto shall have received all
approvals from any applicable Governmental Authority necessary to consummate the
transactions contemplated hereby and by the Related Agreements.
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8.6 Third Party Consents. Rand and Purchaser shall have obtained and
delivered to Sellers any written consents, approvals, waivers, notices or
similar authorizations required to be obtained or given by Rand or Purchaser in
order to consummate the transactions contemplated hereby and by the Related
Agreements, including those identified on the Purchaser Disclosure Schedule in
respect of Section 4.4, all in form and substance reasonably satisfactory to
Sellers.
8.7 Escrow Agreement. Purchaser, Sellers and McMillan Binch Mendelsohn LLP
shall have entered into the Escrow Agreement.
8.8 Good Standing. Sellers shall have received long-form good standing
certificates, or certificates of compliance relating to Rand and Purchaser,
dated within five Business Days of the Closing Date, issued by the appropriate
official of their respective jurisdictions of incorporation or organization, as
the case may be.
8.9 [Intentionally Omitted]
8.10 Legal Opinions. Sellers shall have received a signed opinion from
Rand's and Purchaser's legal counsel, dated as of the Closing Date and addressed
to Sellers, substantially in the form attached hereto as Exhibit 6.
8.11 Management Bonus Program. Rand shall have adopted the Management
Bonus Program, in substantially the form of Exhibit 11 hereto.
ARTICLE IX.
INDEMNIFICATION
9.1 Survival
(a) All representations and warranties made herein (or in the certificates
to be delivered pursuant to Sections 7.4 or 8.3 hereof) by the parties to this
Agreement and their respective covenants and agreements to be performed pursuant
to the terms hereof, shall survive the Closing Time, provided, that, the
representations and warranties made herein (or in such certificates or deemed
certifications) by the parties shall terminate on the fifteen month anniversary
of the Closing Date, except that (i) the representations and warranties set
forth in Sections 2.6 (No Finder), Section 3.19 (Environmental Matters), 3.20
(Employee Plans) and 3.22 (No Finder) shall survive the Closing Time until the
expiration of the period ending thirty (30) days after the earlier of (x) the
applicable statute of limitations or (y) six years from the date hereof, (ii)
the representations and warranties set forth in Section 3.15 (Tax Matters) shall
survive the Closing Time until the expiration of the period ending thirty (30)
days after the applicable statute of limitations and (iii) the representations
and warranties set forth in Sections 2.1 (Authority; Execution and Delivery;
Enforceability), 2.3 (Title to Purchase Shares), 3.2(c) (Subsidiaries; Equity
Interests), 3.3 (Non Contravention) and 3.5 (Capitalization; Options) shall
survive the Closing Time indefinitely. Notwithstanding the foregoing, if written
notice of any matter setting forth in reasonable detail a claim for a breach of
any representation or warranty is given to Rand or Purchaser or the applicable
Sellers, as the case may be, in writing pursuant to this Agreement prior to the
end of the applicable survival period, any such representation or warranty that
would otherwise terminate shall be deemed to survive solely with respect to such
matter until such matter is resolved.
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(b) The parties are aware of the provisions of the Limitations Act
(Ontario) and have considered the matter of the survival of their respective
representations, warranties, covenants and indemnities in that context. Each of
the parties waives any limitation defense inconsistent with the survival
provisions of this Agreement. In addition, the obligation to answer for any
breach of a representation and warranty will commence when notice of the breach
is served upon the party making the representation or giving the warranty.
9.2 Indemnification by Sellers
(a) Each Seller, severally but not jointly, shall indemnify and hold
harmless any Purchaser Group Member from and against and shall pay to the
relevant Purchaser Group Member the amount of any and all Damages incurred by
such Purchaser Group Member arising directly or indirectly from or in connection
with any breach of any representation or warranty of such Seller contained in
Article II.
(b) Each Seller, severally but not jointly, shall indemnify and hold
harmless each Purchaser Group Member from and against any and all Damages
incurred by such Purchaser Group Member arising directly or indirectly from or
in connection with:
(i) any breach or failure of (x) the Sellers to perform any
covenants or other obligations of the Sellers contained in this Agreement
or any Related Agreement or (y) subject to Section 6.8, any party to the
Redemption Agreement to perform any of their respective covenants or other
obligations under the Redemption Agreement (provided, however, that
indemnification with respect to covenants or other obligations of Grand
River shall be limited to breaches or failures occurring prior to the
Closing);
(ii) any breach of any representation or warranty contained in
Article III;
(iii) the August 9, 2005 incident in the Welland Canal involving the
M/V Mississagi to the extent exceeding $50,000;
(iv) any breach of any representation or warranty contained in
Article II of the Redemption Agreement; and
(v) (a) GR Holdings' failure to have good and valid title to the
"Purchase Shares" (as defined in the Redemption Agreement), (b) the
existence of Liens on such Purchase Shares (other than as set forth in the
"Seller Disclosure Schedule", as defined in the Redemption Agreement) and
(c) Grand River's failure to have, upon completion of the transactions
contemplated by the Redemption Agreement, legal, beneficial, good and
valid title to such Purchase Shares, free and clear of all Liens.
9.3 Indemnification by Purchaser and Rand. Purchaser and Rand will jointly
and severally indemnify and hold harmless each Seller Group Member from and
against and shall pay to the relevant Seller Group Member the amount of any and
all Damages incurred by such Seller Group Member arising directly or indirectly
from or in connection with:
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(a) any failure by Rand or Purchaser to perform any of the covenants or
other obligations of Rand or Purchaser contained in this Agreement or any
Related Agreement; and
(b) any breach of any representation or warranty of Rand or Purchaser
contained in this Agreement or any Related Agreement.
9.4 Limitations on Indemnification. Notwithstanding the other provisions
of this Article IX:
(a) No Purchaser Group Member shall be entitled to be indemnified pursuant
to Sections 9.2(a) or 9.2(b)(ii) unless and until the Damages incurred by
Purchaser Group Members shall exceed $50,000 per claim, or an aggregate of
$250,000 for all such claims (the "Threshold"), and upon exceeding such
per-claim or aggregate amount, the Purchaser Group Members shall be entitled to
be indemnified for all Damages (including all Damages below such amounts). The
maximum aggregate amount of indemnification pursuant to Section 9.2(b)(ii) that
may be received by Purchaser Group Members shall not exceed the sum of
$9,000,000 plus an amount equal to the Plan Account Balance (such sum, the
"Cap"); provided, however, that Purchaser Group Members shall be entitled to be
indemnified for all Damages on a dollar-for-dollar basis from the first dollar
of Damages, without regard to the per-claim or aggregate Threshold or the Cap,
incurred as a result of any breach of the representations and warranties set
forth in Sections 2.1, 2.3, 2.6, 3.1, 3.2(c) (to the extent that Damages under
3.2(c) arise in connection with the breach of any section of Article III of the
Redemption Agreement other than Sections 3.4 or 3.5 thereof), 3.3, 3.5 or 3.22;
and provided, further, however, that Purchaser Group Members shall be entitled
to be indemnified for all Damages on a dollar-for-dollar basis from the first
dollar of Damages, without regard to the per-claim or aggregate Threshold but
subject to the Cap, incurred as a result of any breach of the representations
and warranties set forth in Sections 3.2(c) (to the extent that Damages under
3.2(c) arise in connection with the breach of Sections 3.4 or 3.5 of the
Redemption Agreement), 3.15, 3.19 or 3.20; and provided, further, however, that
the Purchaser Group Members shall be indemnified for all Damages in excess of
$50,000, without regard to the per claim or aggregate Threshold or the Cap,
incurred by the Purchaser Group Members in connection with the August 9, 2005
incident in the Welland Canal involving the M/V Mississagi.
(b) Any amounts payable to any Purchaser Group Member pursuant to Section
9.2(b)(ii), subject to Section 9.4(a), shall be paid or otherwise satisfied
first from the Escrow Amount and, upon depletion of the Escrow Amount, 67.5%
from Sellers (subject to the maximum indemnification amounts for each Seller
specified in Exhibit 12 and in accordance with the percentages set forth
thereon) and 32.5% through reduction of the Plan Account Balance until the Plan
Account Balance has been depleted, and then 100% from Sellers (subject to the
maximum indemnification amounts for each Seller specified in Exhibit 12 and in
accordance with the percentages set forth thereon).
(c) The amount of any Damages for which indemnification is provided under
this Article IX shall be net of any insurance proceeds available under any
insurance policies as then in effect to an Indemnitee hereunder (or any
Affiliate thereof) in connection with the events or circumstances giving rise to
the indemnification, but only to the extent that the Indemnitee (or any
Affiliate) actually receives any such insurance proceeds (or any benefits
thereof). The Indemnitee (or such Affiliate) will use commercially reasonable
efforts to claim and recover under such insurance policies.
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(d) The parties acknowledge and agree that after the Closing, the
indemnification provisions contained in Sections 9.2 and 9.3 shall be the sole
and exclusive remedy for Damages arising out of or caused by the breach of any
of the representations, warranties, covenants or agreements of the parties
contained in this Agreement or in any certificate delivered in connection
herewith, except for any remedies that may be available under Section 6.2 or
with respect to claims arising out of fraud or willful misconduct.
(e) Notwithstanding anything to the contrary contained in this Agreement,
there shall be no recovery for Damages by any Purchaser Group Member, and such
Damages shall not be included in determining the Thresholds under this Section
9.4, to the extent such item has been paid by the Sellers in accordance with
Section 6.3 or accrued for on the Estimated Closing Date Balance Sheet and
included in the computation of Estimated Net Working Capital for purposes of
adjusting the Purchase Price pursuant to Section 1.4 (it being understood that
any Purchaser Group Member's right to indemnification for any such Damages in
excess of the accruals on the Company's books and records shall not be affected
by this Section 9.4(e)). In addition, no Purchaser Group Member shall be
entitled to indemnification in respect of a claim of breach of Section 3.3(a) to
the extent that the Indemnitor can establish by a final judgment of a court of
competent jurisdiction that Laurence S. Levy had knowledge (assuming for these
purposes that Laurence S. Levy shall have made reasonable inquiry with respect
to such matters of his legal, accounting and other representatives) on or before
the Closing Date of the facts, events or circumstances that caused such breach.
9.5 Interest. Any amount required to be paid pursuant to the indemnities
set forth in this Article IX shall bear interest at the Prime Rate accruing on a
daily basis from the date on which a demand for payment is made until payment in
full.
9.6 Tax Treatment of Indemnity Payments. It is the intention of the
parties to treat any indemnity payment made under this Agreement as an
adjustment to the Purchase Price for all federal, provincial, state, local and
foreign Tax purposes, and the parties agree to file their Tax Returns
accordingly.
9.7 Notice of Claims. Any Purchaser Group Member or Seller Group Member
seeking indemnification hereunder (an "Indemnitee") shall give to the party or
parties obligated to provide indemnification to such Indemnitee (an
"Indemnitor") a notice ("Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based.
9.8 Third Party Claims. In the case of any third party Action as to which
indemnification is sought by an Indemnitee, the Indemnitor shall have 10
Business Days after receipt of a Claim Notice to notify the Indemnitee that it
elects to conduct and control such Action. If the Indemnitor elects to conduct
and control such Action, the Indemnitor shall agree promptly to reimburse the
Indemnitee for the full amount of any Damages resulting from such Action, except
fees and expenses of counsel for the Indemnitee incurred after the assumption of
the conduct and control of such Action by the Indemnitor. If the Indemnitor does
56
not give the foregoing notice, or if the Indemnitor gives such notice but fails
to prosecute vigorously and diligently or settle such Action, the Indemnitee
shall have the right, at the sole expense of the Indemnitor, to defend, conduct,
control and settle such Action, and the Indemnitor shall cooperate with the
Indemnitee in connection therewith, provided, that (x) the Indemnitee shall
permit the Indemnitor to participate in such conduct or settlement through
counsel chosen by the Indemnitor, but the fees and expenses of such counsel
shall be borne by the Indemnitor, and (y) the Indemnitee may not compromise or
settle such Action without the consent of the Indemnitor (which consent will not
be unreasonably withheld or delayed), unless (i) the sole relief provided is
monetary Damages, and (ii) such settlement includes an unconditional release in
favor of the Indemnitor by the third-party claimant from all liability with
respect to such claim (other than liability for payment of any amounts in
connection with such settlement). If the Indemnitor gives the foregoing notice,
subject to the first and second sentences of this Section 9.8, the Indemnitor
shall have the right, at the sole expense of the Indemnitor, to defend, conduct,
control and settle such Action by all appropriate proceedings (which proceedings
will be vigorously and diligently prosecuted by the Indemnitor to a final
conclusion or settlement), with counsel reasonably acceptable to the Indemnitee,
and the Indemnitee shall cooperate with the Indemnitor in connection therewith,
provided, that (x) the Indemnitor shall permit the Indemnitee to participate in
such conduct or settlement through counsel chosen by the Indemnitee, but the
fees and expenses of such counsel shall be borne by the Indemnitee, and (y) the
Indemnitor may not compromise or settle any such Action without the consent of
the Indemnitee (which consent will not be unreasonably withheld or delayed)
unless (i) there is no finding or admission of any violation of Law by the
Indemnitee or any violation by the Indemnitee of the rights of any Person, (ii)
the sole relief provided is money Damages that are paid in full by the
Indemnitor, (iii) the Indemnitee shall have no liability with respect to any
compromise or settlement and (iv) such settlement includes an unconditional
release in favor of the Indemnitee by the third-party claimant from all
liability with respect to such claim. In the case of any third party Action as
to which indemnification is sought by the Indemnitee which involves a claim for
Damages other than solely for money Damages which could have a continuing effect
on the business of the Indemnitee, the Indemnitee and the Indemnitor shall
jointly control the conduct of such Action. The parties hereto shall use their
commercially reasonable efforts to minimize any Damages from claims by third
parties and shall act in good faith in responding to, defending against,
settling or otherwise dealing with such claims, notwithstanding any dispute as
to liability under this Article IX.
ARTICLE X.
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual consent of Purchaser and the Sellers' Representative; or
57
(b) by Purchaser, if there has been (i) a material breach by any Seller of
the representations and warranties contained in this Agreement or (ii) a
material violation by any Seller of any covenant or agreement contained in this
Agreement, provided, that written notice of such violation or breach shall have
been given to such Seller, as applicable, and such violation or breach shall not
have been cured within ten days of receipt of such notice; or
(c) by the Sellers' Representative, if there has been (i) a material
breach by Purchaser or Rand of the representations and warranties contained in
this Agreement or (ii) a material violation by Purchaser or Rand of any covenant
or agreement contained in this Agreement, provided, that written notice of such
violation or breach shall have been given to Purchaser and such violation or
breach shall not have been cured within ten days of receipt of such notice; or
(d) by Purchaser, on the one hand, or the Sellers' Representative, on the
other hand, if the Closing shall not have occurred by January 15, 2006 (the
"Outside Termination Date") (unless the Closing shall have not occurred on or
before such date due to a material breach of the representations and warranties
or of a covenant by such party and/or the action or failure to act of the party
seeking to terminate this Agreement); or
(e) by the Sellers' Representative if the board of directors of Rand has
(A) withdrawn or modified, in any manner adverse to Sellers, the board's
recommendation required pursuant to Section 1.7(f) or (B) failed to issue to its
shareholders or, at any time reasonably requested by Sellers, reissue to its
shareholders the board's recommendation required pursuant to Section 1.7(f). No
such termination will be effective unless and until Sellers have received the
Termination Fee.
58
10.2 Termination Fee If, subsequent to termination by the Sellers'
Representative pursuant to Section 10.1(e), Rand or Purchaser consummates a
"Business Combination" (as defined in Rand's Certificate of Incorporation), Rand
shall pay to the Sellers' Representative for the account of all Sellers a
termination fee in the amount of $2,000,000 (the "Termination Fee") in full
satisfaction of any and all claims which any Seller may have against Purchaser,
Rand or their respective officers, directors, shareholders or Affiliates as a
result of or arising out of the termination of this Agreement.
10.3 Effects of Termination. In the event of a termination of this
Agreement pursuant to this Article X, other than as expressly provided in this
Article X, (i) all further obligations of the parties under this Agreement shall
terminate, (ii) no party shall have any right under or in connection with this
Agreement or the transactions contemplated hereby against any other party, and
(iii) each party shall bear its own costs and expenses; provided however that
the termination of this Agreement under this Article X shall not relieve any
party of liability for any material breach of this Agreement prior to the date
of termination, or constitute a waiver of any claim with respect thereto.
ARTICLE XI.
MISCELLANEOUS
11.1 Expenses of the Transaction. Each of the parties hereto agrees to pay
such party's own fees and expenses in connection with this Agreement and the
Related Agreements and the transactions contemplated hereby and by the Related
Agreements including, without limitation, legal and accounting fees and
expenses.
11.2 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i) when
delivered personally or by private courier, (ii) when actually delivered by
registered or, as applicable, certified mail, return receipt requested, or (iii)
when sent by facsimile transmission (provided, that it is confirmed by a means
specified in clause (i) or (ii)), addressed as follows:
59
If to Purchaser or Rand to:
Rand Acquisition Corporation
450 Park Avenue
Suite 1001
New York, New York 10022
Attention: Laurence S. Levy, Chairman
Facsimile: (212) 644-6262
Telephone: (212) 644-3450
with a copy to:
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York 10022
Attention: Todd J. Emmerman, Esq.
Facsimile: (212) 940-8776
Telephone: (212) 940-8800
If to Sellers, to the addresses listed on Exhibit 9.
with copies to:
McMillan Binch Mendelsohn LLP
BCE Place, Suite 4400
Bay Wellington Tower
181 Bay Street
Toronto, Ontario
M5J 2T3
Attention: David Dunlop
Facsimile: (416) 865-7048
Telephone: (416) 865-7175
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
11.3 No Modification Except in Writing. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
affected by such change, modification or amendment, and this Agreement may not
be discharged except by performance in accordance with its terms or by a writing
signed by the party to which performance is to be rendered.
11.4 Entire Agreement. This Agreement, together with the Schedules,
Appendices and Exhibits hereto, and the Related Agreements, sets forth the
entire agreement and understanding among the parties as to the subject matter
hereof and thereof and merges and supersedes all prior discussions, agreements
and understandings of every kind and nature among them with respect to such
subject matter.
60
11.5 Severability. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
11.6 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. The Sellers shall not be
permitted to assign their respective rights, or delegate their respective
duties, under this Agreement without the prior written consent of Purchaser.
Rand and Purchaser shall not be permitted to assign their respective rights, or
delegate their respective duties, under this Agreement without the prior written
consent of Sellers' Representative.
11.7 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance with,
the Laws of the State of New York applicable to contracts made and to be
performed wholly within said State, without giving effect to the conflict of
laws principles thereof.
(b) Each party to this Agreement irrevocably agrees that any Action
concerning or arising out of the interpretation, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in (i) the courts of the
State of New York located in New York County or (ii) the United States District
Court for the Southern District of New York.
(c) Each party and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. EACH PARTY
HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
11.8 Specific Performance. The parties agree that if any of the provisions
of this Agreement were not performed by Purchaser or Rand, on the one hand, or
the Sellers, on the other hand, in accordance with their specific terms or were
otherwise breached by such parties, irreparable damage would occur, no adequate
remedy at Law would exist and damages would be difficult to determine, and that
the non-breaching party will be entitled to specific performance of the terms
hereof. The parties waive any requirement for the posting of a bond in
connection with any Action seeking specific performance; provided, however, that
nothing herein will affect the right of any of the parties to seek recovery
against any party hereto, at Law, in equity or otherwise, with respect to any
covenants, agreements or obligations to be performed by such party or parties
after the Closing Date.
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11.9 Headings; References. The headings appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. Any reference in this Agreement (including in any Exhibit,
Appendix or Schedule hereto) to a "Section," "Article," or "Exhibit" shall mean
a Section, Article or Exhibit of or to this Agreement unless expressly stated
otherwise.
11.10 Interpretation. In this Agreement, (a) words used herein regardless
of the gender specifically used shall be deemed and construed to include any
other gender, masculine, feminine or neuter, as the context shall require, and
(b) all terms defined in the singular shall have the same meanings when used in
the plural and vice versa. Any statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such statute as from
time to time amended, modified or supplemented, including (in the case of
statutes) by succession of comparable successor statutes. References to a Person
are also its predecessors and permitted successors and assigns.
11.11 Third Parties. The provisions of this Agreement are solely for the
benefit of the parties hereto and shall not inure to the benefit of any third
party.
11.12 Counterparts and Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which taken together shall constitute a single agreement. The parties
hereto agree that this Agreement and any Related Agreement or document,
certificate or instrument ancillary thereto may be executed by facsimile
transmission and that the reproduction of signatures by facsimile or similar
device shall be treated as binding as if originals, and each party agrees and
undertakes to provide the other parties with a copy of such Agreement, document,
certificate or instrument bearing original signatures forthwith upon demand by
the other parties.
11.13 Time of the Essence. Time shall be of the essence of this Agreement.
11.14 Currency. Unless otherwise specified, all dollar amounts set forth
in this Agreement shall be in lawful currency of the United States.
11.15 Sellers' Representative. Each Seller hereby appoints Royal Bank of
Canada, through its operating division RBC Capital Partners, (the "Sellers'
Representative") as its duly appointed representative to act on behalf of such
Seller in the manner contemplated by this Agreement and any of the Related
Agreements, and any act, approval or consent of the Sellers' Representative
shall be deemed to be the act, approval or consent of such Seller and no Person,
including, without limitation, the Purchaser, Rand, the Company or any other
person dealing with the Sellers' Representative in the manner contemplated by
this Agreement or any Related Agreement, shall be required to enquire into the
authority of the Sellers' Representative as to such act, approval or consent, or
otherwise deal with an individual Seller with respect to any such matter. The
Sellers' Representative may be replaced by a successor representative only by
notice to the Purchaser and Rand signed by all of the Sellers.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the day and year first above written.
RAND ACQUISITION CORPORATION
By: /s/ Laurence S. Levy
-------------------------------------------------
Name: Laurence S. Levy
Title: President
LL ACQUISITION CORP.
By: /s/ Laurence S. Levy
-------------------------------------------------
Name: Laurence S. Levy
Title: President
ROYAL BANK OF CANADA, through its operating division,
RBC CAPITAL PARTNERS
By: /s/ Tony Manastersky /s/ Owen Trotter
-------------------------------------------------
Name: Tony Manastersky Owen Trotter
Title: Managing Partner Vice President
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ W. C. Faasen
-------------------------------------------------
Name: W. C. Faassen
Title: Central Manager
UNIVERSAL INSULATIONS HOLDINGS LIMITED
By: /s/ G. M. Hogarth
-------------------------------------------------
Name: G. M. Hogarth
Title: President
NORVEST MEZZANINE FUND LIMITED PARTNERSHIP
By: /s/ W. Ross Campbell
-------------------------------------------------
Name: W. Ross Campbell
Title: Managing Director
/s/ Scott Bravener
-----------------------------------------------------
SCOTT BRAVENER
/s/ Judy Kehoe
-----------------------------------------------------
JUDY KEHOE
/s/ Mark Rohn
-----------------------------------------------------
MARK ROHN
/s/ Victor Roskey
-----------------------------------------------------
VICTOR ROSKEY
/s/ Tim Ryan
-----------------------------------------------------
TIM RYAN
APPENDIX A
DEFINITIONS
Definitions. The following terms when used in the Agreement shall have the
respective meanings ascribed to them below:
"Accounting Firm" has the meaning ascribed to such term in Section 1.4
(d).
"Accounts Receivable" means: (i) all trade accounts receivable and other
rights to payment from customers of the Company or any Subsidiary and the full
benefit of all security for such accounts or rights to payment, including all
trade accounts receivable representing amounts receivable in respect of goods
shipped or products sold or services rendered to customers of the Company or any
Subsidiary; (ii) all other accounts or notes receivable of the Company or any
Subsidiary and the full benefit of all security for such accounts or notes; and
(iii) any Action, remedy or other right related to any of the foregoing.
"Action" shall mean any action, suit, claim, litigation, proceeding,
arbitration, audit, investigation or hearing (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted or
heard by or before, any Governmental Authority.
"Affiliate" shall mean, with respect to a specified Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with such specified Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning ascribed to such term in the Preamble hereto
and includes this Appendix A, the Seller Disclosure Schedule, the Purchaser
Disclosure Schedule and any other Appendices and Exhibits hereto.
"Books and Records" shall mean all books of account, tax returns and other
tax records, personnel records, historic documents relating to U.S. Employee
Benefit Plans and Canadian Employee Benefit Plans, sales and purchase records,
customer and supplier lists, referral sources, research and development reports
and records, production reports and records, equipment logs, operating guides
and manuals, business reports, plans and projections, and all other documents,
files, correspondence and other information of the Company or any of the
Subsidiaries (whether in written, electronic or other form).
"Business Combination" shall mean, with respect to any Person, any merger,
consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other ownership
interests of such Person, or any sale, dividend or other disposition of all or
substantially all of its assets and properties of such Person.
"Business Day" shall mean a day (other than a Saturday or Sunday), on
which commercial banks are open for business in New York, New York and Toronto,
Ontario.
"Canadian Employee Benefit Plans" has the meaning ascribed to such term in
Section 3.20(b)(i).
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"Canadian Employees" has the meaning ascribed to such term in Section
3.9(d).
"Canadian Plans" has the meaning ascribed to such term in Section
3.20(a)(i).
"Cap" has the meaning ascribed to such term in Section 9.4(a).
"Certificate Date" has the meaning ascribed to such term in Section
1.5(b).
"Claim Notice" has the meaning ascribed to such term in Section 9.7.
"Closing" has the meaning ascribed to such term in Section 1.1.
"Closing Date" has the meaning ascribed to such term in Section 1.1.
"Closing Date Balance Sheet" has the meaning ascribed to such term in
Section 1.4 (a)(ii).
"Closing Date Statement" has the meaning ascribed to such term in Section
1.4(a)(ii).
"Closing Time" has the meaning ascribed to such term in Section 1.1.
"Closing Date Net Working Capital" has the meaning ascribed to such term
in Section 1.4 (a)(ii).
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute thereto and all final or temporary
regulations promulgated thereunder and published.
"Company" has the meaning ascribed to such term in the Recitals hereto.
"Competition Act" means the Competition Act (Canada).
"Confidentiality Agreement" shall mean that certain confidentiality
agreement dated February 22, 2005 by Hyde Park Holdings LLC in favor of the
Company.
"Confidential Information" shall mean trade secrets, confidential or
proprietary information, knowledge, or know-how pertaining primarily to the
business of the Company or any Subsidiary, or any confidential or proprietary
information concerning any supplier or customer of the Company or any
Subsidiary, including, without limitation, customer lists, research and
development information and materials, inventions, formulas, methods,
techniques, processes, plans, product designs, procedures, contracts, financial
information and computer models. The term Confidential Information shall not
include (i) information that is generally available to the public or within the
shipping or freight industry, other than as a result of a disclosure by the
receiving party or its directors, officers, shareholders, partners, Affiliates,
employees, agents or advisors in violation of this Agreement; (ii) information
which, prior to disclosure to the receiving party by or on behalf of the
disclosing party, was already in the receiving party's possession on a
non-confidential basis; (iii) information that was developed without the use of
Confidential Information; (iv) information that becomes available to the
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receiving party on a non-confidential basis from a source other than the
Sellers, the Company or any Subsidiary or any of their advisors, agents or
Affiliates, provided, that such source is not known by the receiving party to be
bound by a confidentiality agreement with or other obligation of secrecy to the
Company or any Subsidiary or any other party; (v) information which is
reasonably necessary for the purpose of the disclosing party asserting its
rights in a dispute among the parties hereunder or under any Related Agreement;
or (vi) information reasonably related to any Tax Returns or similar matters
required to be prepared by the disclosing party or any of their representatives
and filed with any Governmental Authority, provided, that, with respect to
Confidential Information disclosed as a result of or in connection with clauses
(v) and (vi) herein, the disclosing party shall provide the non-disclosing party
with prompt written notice of such anticipated disclosure so that the
non-disclosing party may seek a protective order or other appropriate remedy in
connection with such disclosure, and if such protective order or other remedy is
not obtained, the disclosing party hereby agrees to furnish only that portion of
the Confidential Information which it is advised by counsel is legally required
and to exercise its reasonable efforts to obtain assurance that confidential
treatment will be accorded to the Confidential Information.
"Consolidated Financial Statements" has the meaning ascribed to such term
in Section 5.14.
"Contracts" shall mean all legally binding leases, including, without
limitation, Real Property Leases, licenses, contracts, agreements, indentures,
promissory notes, guarantees, arrangements, commitments and understandings of
any kind, whether written or oral, to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or any of the assets of the
Company or any Subsidiary may be bound, and all rights arising under any of
them.
"Convertible Notes" shall mean those convertible non-interest bearing
promissory notes, due on March 28, 2011, issued to Citicorp North America Inc.,
convertible into shares of common stock of the Company at a conversion price of
CDN $599 per share, and currently held by certain Sellers.
"Current Assets" has the meaning ascribed to such term in Section 1.4 (b).
"Current Liabilities" has the meaning ascribed to such term in Section 1.4
(b).
"Damages" shall mean actual losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, Taxes and reasonable
expenses and costs, including reasonable attorneys' and auditors' fees (and any
reasonable experts' fees) and court costs, whether or not involving a third
party claim but shall not include consequential, incidental or punitive damages
or damages for diminution is value or lost profits, other than to the extent
included in a judgment in favor of, and paid to, third parties.
"Environment" shall mean soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"Environmental Condition" shall mean any condition with respect to the
Environment on or off any Facility caused by a release of Hazardous Substances
or violation of Environmental Laws, whether or not yet discovered, which could
or does result in any Damages to the Company, including, without limitation, any
condition resulting from the operation of the business of the Company or any
Subsidiary or the operation of the business of any subtenant or occupant of any
Facility.
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"Environmental Laws" shall mean all Laws relating to the pollution of or
protection of the Environment, from contamination by, or relating to injury to,
or the protection of, real or personal property or human health or the
Environment, including, without limitation, all valid and lawful requirements of
courts and other Governmental Authorities pertaining to reporting, licensing,
permitting, investigation, remediation and removal of, emissions, discharges,
releases or threatened releases of Hazardous Substances, chemical substances,
pesticides, petroleum or petroleum products, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, into the Environment, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, including,
without limitation, the Oil and Pollution Act of 1990, the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, the
Clean Air Act of 1990, the Canadian Environmental Protection Act, the Ontario
Environmental Protection Act, the Migratory Birds Convention Act (Canada) and
the Marine Liability Act (Canada).
"Environmental Report" shall mean any report, study, assessment, audit, or
other similar document that addresses any issue of actual or potential
noncompliance with, actual or potential liability under or cost arising out of,
or actual or potential impact on business in connection with, any Environmental
Law or any proposed or anticipated change in or addition to any Environmental
Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute thereto and all final or
temporary regulations promulgated thereunder.
"Escrow Agent" shall mean McMillan Binch Mendelsohn LLP.
"Escrow Agreement" shall have the meaning ascribed to such term in Section
7.8.
"Escrow Amount" shall mean $2,000,000.
"Estimated Closing Date Balance Sheet" shall have the meaning ascribed to
such term in Section 1.4(a)(i).
"Estimated Net Working Capital" shall have the meaning ascribed to such
term in Section 1.4(a)(i).
"Estimated Statement" shall have the meaning ascribed to such term in
Section 1.4(a)(i).
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended, or any successor law, and regulations and rules issued under that Act
or any successor law.
"Facility" shall mean any facility that is now or has heretofore been
owned, leased or used in connection with the business of the Company or any
Subsidiary.
"Financial Statements" has the meaning ascribed to such term in Section
3.14 (a).
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"Financing Commitments" shall mean the financing commitment letters
attached hereto as Exhibit 13.
"GAAP" shall mean Canadian generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean any (i) federal, state, local,
provincial, territorial, municipal, foreign, or other government, (ii)
governmental or quasi-governmental authority of any nature or (iii) other body
(including privately constituted arbitral tribunals) exercising any statutory,
administrative, judicial, arbitrative, legislative, police, regulatory, or
taxing authority or power.
"Governmental Permits" shall mean all licenses, franchises, registrations,
permits, privileges, immunities, approvals and other authorizations from a
Governmental Authority.
"GR Holdings" means Grand River Holdings, Inc.
"GR Shares" means the 30 common shares of Grand River Navigation Company,
Inc. owned by GR Holdings.
"Grand River" means Grand River Navigation Company, Inc.
"Group" has the meaning ascribed to such term in Section 3.20(a)(i).
"Hazardous Substance" shall mean any substance whether solid, liquid or
gaseous in nature:
(i) the presence of which requires or may hereafter require
notification, investigation, or remediation under any Environmental Law;
(ii) which is or becomes defined as "toxic", a "hazardous waste",
"hazardous material" or "hazardous substance" or "pollutant" or
"contaminant" under any present or future Environmental Laws;
(iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
becomes regulated by any Governmental Authority;
(iv) which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds and is or becomes regulated by
any Governmental Authority;
(v) which contains polychlorinated byphenyls (PCBs) or asbestos or
urea formaldehyde foam insulation; or
(vi) which contains or emits radioactive particles, waves or
materials, including radon gas.
"Indebtedness" of any Person means all obligations of such Person (i) for
borrowed money, or (ii) evidenced by notes, bonds, debentures or similar
instruments, or (iii) for the deferred purchase price of products, goods or
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services (other than trade payables or accruals incurred in the ordinary course
of business), or (iv) under capital leases or (v) in the nature of guarantees of
any of the obligations described in clauses (i) through (iv) above of any other
Person.
"Indemnitee" has the meaning ascribed to such term in Section 9.7.
"Indemnitor" has the meaning ascribed to such term in Section 9.7.
"Intellectual Property Rights" has the meaning ascribed to such term in
Section 3.11(a).
"Investment Canada Act" means the Investment Canada Act (Canada).
"IPO Shares" has the meaning ascribed to such term in Section 1.7(a).
"Knowledge" shall mean, with respect to the Sellers, the actual knowledge
of Sellers and senior management of the Company and its Subsidiaries, or the
knowledge that would be expected to have been obtained upon due inquiry and
reasonable investigation by Scott Bravener, James Siddall, Mark Rohn, Jeffrey
Botham and Tony Walker.
"Law" shall mean any constitution, law, treaty, compact, directive,
ordinance, principal of common law, permit, authorization, variance, regulation,
rule, or statute, including, without limitation, all federal, foreign, Canadian,
international, state, provincial, territorial and local laws related to Taxes,
ERISA, Hazardous Substances and the Environment, zoning and land use,
intellectual property, privacy, occupational safety and health, consumer
protection, product quality, safety, employment and labor matters.
"Liens" shall mean all mortgages, charges, pledges, liens, security
interests, conditional sale agreements, encumbrances and similar restrictions,
maritime liens, rights to detain and statutory rights of arrest.
"Major Customer" has the meaning ascribed to such term in Section 3.25.
"Management Bonus Program" means the "Rand Acquisition Corp. Management
Bonus Program" established on or before the Closing Date for specified senior
management of the Company and its Subsidiaries, in substantially the form of
Exhibit 11 hereto.
"Material Adverse Effect" shall mean any event, condition or contingency
that has had, or is reasonably likely to have, a material adverse effect on the
business, assets, liabilities, results of operations, prospects or financial
condition of the Company and Subsidiaries, taken as a whole, provide however,
that Material Adverse Effect shall not include any such effect or change
resulting from or arising in connection with (a) changes or conditions generally
affecting the industries or segments in which the Company operates; (b) changes
in general economic, market or political conditions; or (c) the announcement,
other disclosure or completion of the transactions contemplated by this
Agreement or any Related Agreement.
"Multiemployer Plan" has the meaning ascribed to such term in Section
3.20(a)(v).
"Net Working Capital" shall have the meaning ascribed to such term in
Section 1.4(b).
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"Non-Resident Purchase Price" has the meaning ascribed to such term in
Section 1.5(a).
"Non-Resident Purchase Shares" has the meaning ascribed to such term in
Section 1.5(a).
"Non-Resident Seller" has the meaning ascribed to such term in Section
1.5(a).
"Non-Union Contributions" has the meaning ascribed to such term in Section
3.20(a)(xiii).
"Non-Union Employee" has the meaning ascribed to such term in Section
3.20(a)(xiii).
"Notice of Disagreement" has the meaning ascribed to such term in Section
1.4(c).
"Order" shall mean any award, decision, injunction, decree, stipulation,
determination, writ, judgment, order, ruling, or verdict ordered, issued, made
or rendered by any court, administrative agency or other Governmental Authority.
"Outside Termination Date" has the meaning ascribed to such term in
Section 10.1(d).
"Payoff Amount" shall have the meaning ascribed to such term in Section
1.6.
"Permitted Liens" means (i) Liens for taxes or assessments or other
governmental charges not yet due and payable or which are being contested in
good faith by the Company or any Subsidiary; (ii) pledges or deposits of money
securing statutory obligations under workers compensation, employment insurance,
social security or public liability Laws or similar legislation; (iii) pledges
or deposits of money securing bids, tenders, contracts (other than contracts for
the payment of money) or leases to which the Company or any Subsidiary is a
party as lessee made in the ordinary course of business; (iv) inchoate and
unperfected workers', mechanics' or similar liens arising in the ordinary course
of business, so long as such Liens attach only to equipment, fixtures, Vessels
and/or premises demised under the Real Property Leases; (v) carriers',
warehousemen's, suppliers' or other similar possessory liens arising in the
ordinary course of business and securing liabilities in an outstanding aggregate
amount not in excess of $250,000 at any time, so long as such Liens attach only
to inventory; (vi) deposits securing, or in lieu of, surety, appeal or customs
bonds in any proceedings to which Company or any Subsidiary is a party; (vii)
zoning restrictions, easements, licenses, or other restrictions on the use of
the premises demised under the Real Property Leases or other minor
irregularities in title (including leasehold title) thereto, so long as the same
do not materially impair the use, value, or marketability of such premises
demised under the Real Property Leases; (viii) Liens for wages claimed by
masters and seamen, claims for salvage expenses, claims for damage and masters
disbursements so long as such amounts owed are not past due; (ix) Liens for
dock, harbor and canal charges and claims in respect of pollution damage so long
as such amounts owed are not past due and (x) other maritime Liens so long as
the Indebtedness to which such Liens relate are not past due.
"Person" shall mean any individual, firm, unincorporated organization,
corporation (including any not-for-profit corporation), general or limited
partnership, limited liability company, cooperative marketing association, joint
venture, estate, trust, association or other entity as well as any syndicate or
group that would be deemed to be a person under Section 13(a)(3) of the Exchange
Act.
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"Plan Account Balance" shall have the meaning ascribed to such term in the
Management Bonus Program.
"Pre-Closing Tax Periods" has the meaning ascribed to such term in Section
6.3(a).
"Prime Rate" has the meaning ascribed to such term in Section 1.4(e).
"Proxy Statement" has the meaning ascribed to such term in Section 1.7(a).
"Purchase Price" has the meaning ascribed to such term in Section 1.2.
"Purchase Shares" has the meaning ascribed to such term in the Recitals
hereto.
"Purchaser" has the meaning ascribed to such term in the Preamble hereto.
"Purchaser Group Member" shall mean each of Purchaser, Rand and their
Affiliates (including, the Company and each Subsidiary as constituted after the
Closing) and their respective directors, officers, employees, agents and
attorneys and their respective successors and assigns.
"Qualified Plan" has the meaning ascribed to such term in Section
3.20(a)(iv).
"Rand" has the meaning ascribed to such term in the Preamble hereto.
"Real Property Leases" shall mean all leases, as amended, for real
property to which any the Company or any Subsidiary is a party or by which it is
bound.
"Redemption Agreement" shall mean the Redemption Agreement, dated as of
the date hereof, by and between Grand River and GR Holdings, in the form
attached hereto as Exhibit 15.
"Redemption Price" shall mean $750,000.
"Related Agreements" shall mean (i) the Escrow Agreement, the Redemption
Agreement and the Section 116 Escrow Agreement and (ii) those other agreements
and documents entered into or delivered between Purchaser, Rand and/or the
Sellers related to, ancillary to, or in connection with this Agreement or the
documents listed in clause (i) hereof.
"Release" shall have the meaning ascribed to such term in Section 7.12.
"Remittance Date" has the meaning ascribed to such term in Section 1.5(c).
"Representatives" shall have the meaning ascribed to such term in Section
5.4.
"Restricted Persons" shall mean, in respect of any Seller, any Person with
whom the Seller does not deal at arm's length (within the meaning of the Tax
Act).
"SEC" has the meaning ascribed to such term in Section 1.7(a).
"Section 116 Escrow Agreement" has the meaning ascribed to such term in
Section 7.17.
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"Section 116(2) Certificate" has the meaning ascribed to such term in
Section 1.5.
"Section 116(4) Certificate" has the meaning ascribed to such term in
Section 1.5.
"Seller Group Member" shall mean the Sellers and their respective
Affiliates and their respective directors, officers, employees, agents and
attorneys and their respective successors and assigns.
"Sellers" has the meaning ascribed to such term in the Preamble hereto.
"Seller Disclosure Schedule" shall mean that certain schedule attached
hereto as Appendix B qualifying the representations and warranties contained in
Articles II and III on a clause-by-clause basis in an appropriately
cross-referenced manner.
"Sellers' Representative" has the meaning ascribed to such term in Section
11.15.
"Series" shall mean the series of transactions or events that includes the
acquisition by Purchaser of the Purchase Shares.
"Set Off Rights Agreement" shall mean the Set Off Rights Agreement between
attached as Exhibit 10 to the Redemption Agreement.
"Shareholder Approval" has the meaning ascribed to such term in Section
1.7(a).
"Shareholder Meeting" has the meaning ascribed to such term in Section
1.7(a).
"Stock Certificates" has the meaning ascribed to such term in Section 1.2.
"Straddle Periods" has the meaning ascribed to such term in Section
6.3(b).
"Subsidiary" means any Person in which the Company directly or indirectly,
through another Person or otherwise, beneficially owns more than fifty percent
(50%) of either the equity or economic interest in, or the voting control of,
such Person. Notwithstanding the foregoing, Grand River shall be considered to
be a Subsidiary of the Company for the purposes of this Agreement and the
Related Agreements.
"Substituted Property" shall mean any property "acquired in substitution
for" any property of Lower Lakes Transportation Limited or Grand River, as such
term is defined for purposes of paragraph 88(1)(c.3) of the Tax Act, and shall
include without limitation, any property the fair market value of which is
wholly or partly attributable, or determinable primarily by reference, to the
shares of Lower Lakes Transportation Limited or Grand River or to any proceeds
from the disposition thereof immediately prior to Closing.
"Tax Act" shall mean the Income Tax Act (Canada).
"Tax Amount" has the meaning ascribed to such term in Section 1.5(d).
"Tax Authority" shall mean any foreign or domestic government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body or other authority exercising any taxing or Tax regulatory authority.
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"Tax Returns" shall mean all returns, reports, declarations, designations,
elections, notices, filings, forms, statements and other documents (whether in
written, electronic or other form) and any amendments, schedules, attachments,
supplements, appendices and exhibits thereto, which have been prepared or filed
or required to be prepared or filed in respect of Taxes.
"Taxes" includes any taxes, duties, assessments, imposts and levies
imposed by any Tax Authority and includes all interest, penalties, fines,
additions to tax or other additional amounts imposed by any Tax Authority
including those levied on, or measured by, or referred to as, income, gross
receipts, profits, capital, transfer, land transfer, sales, goods and services,
harmonized sales, use, value-added, excise, withholding, business, property,
occupancy, employer health, payroll, employment, health, social services,
education and social security taxes, all surtaxes, all customs duties and import
and export taxes, countervail and anti-dumping and all employment insurance,
health insurance and Canada, Quebec and other government pension plan and other
employer plan premiums, contributions or withholdings, excluding for greater
certainty any Taxes imposed on the Company or any Subsidiary on the Closing Date
resulting from actions taken on the Closing Date by the Purchaser (or the
Company or a Subsidiary at the request of the Purchaser) after the Closing Time.
"Termination Fee" has the meaning ascribed to such term in Section 10.2.
"Threshold" has the meaning ascribed to such term in Section 9.4(a).
"Union Plans" has the meaning ascribed to such term in Section
3.20(a)(iv).
"U.S. Employees" has the meaning ascribed to such term in Section 3.9(c).
"U.S. Employee Benefit Plans" has the meaning ascribed to such term in
Section 3.20(a)(i).
"US Plans" has the meaning ascribed to such term in Section 3.20(a)(iv).
"Vessels" shall mean all vessels owned, chartered or operated by the
Company and each Subsidiary, as the case may be, and listed in the Seller
Disclosure Schedule.
"WARN" shall mean the Worker Adjustment and Retraining Notification Act of
1988, as amended.
"Withheld Amount" has the meaning ascribed to such term in Section 1.5(a).
"Working Capital Base Amount" shall mean $3,659,099.
"Working Capital Principles" has the meaning ascribed to such term in
Section 1.4 (b).
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ANNEX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RAND ACQUISITION CORPORATION
Rand Acquisition Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
A. The name of the Corporation is Rand Acquisition Corporation. The
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on June 2, 2004 and was previously
amended on June 11, 2004. The original name of the Corporation was GRAND SLAM
ACQUISITION CORPORATION.
B. Pursuant to Sections 216, 242 and 245 of the General Corporation Law of
the State of Delaware, the Amended and Restated Certificate of Incorporation has
been duly adopted by the majority of the stockholders of the Corporation voting
at a special meeting duly held, and restates and integrates and further amends
the provisions of the Certificate of Incorporation of the Corporation, but not
the Certificates of Designation of any series of Preferred Stock of the
Corporation.
C. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated in its entirety to read as follows:
FIRST. The name of the corporation is RAND LOGISTICS, INC. (hereinafter
sometimes referred to as the "Corporation").
SECOND. The registered office of the Corporation is to be located at 615
S. DuPont Hwy., Kent County, Dover, Delaware. The name of its registered agent
at that address is National Corporate Research, Ltd.
THIRD. The purpose of the Corporation shall be to engage in any lawful act
or activity for which corporations may be organized under the Delaware General
Corporation Law ("GCL").
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 51,000,000, of which 50,000,000
shares shall be Common Stock, par value of $.0001 per share, and 1,000,000
shares shall be Preferred Stock, par value of $.0001 per share.
A. Preferred Stock. The Board of Directors is expressly granted authority
to issue shares of the Preferred Stock, in one or more series, and to fix for
each such series such voting powers, full or limited, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such series (a "Preferred Stock Designation") and as
may be permitted by the GCL. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock"), voting together as a single class, without a separate vote of the
holders of the Preferred Stock, or any series thereof, unless a vote of any such
holders is required pursuant to any Preferred Stock Designation.
B. Common Stock. Except as otherwise required by law or as otherwise
provided in any Preferred Stock Designation, the holders of the Common Stock
shall exclusively possess all voting power and each share of Common Stock shall
have one vote.
FIFTH. The Board of Directors shall be divided into three classes: Class
A, Class B and Class C. The number of directors in each class shall be as nearly
equal as possible. At the first election of directors by the incorporator, the
incorporator shall elect a Class C director for a term expiring at the
Corporation's third Annual Meeting of Stockholders. The Class C director shall
then elect additional Class A, Class B and Class C directors. The directors in
Class A shall be elected for a term expiring at the first Annual Meeting of
Stockholders, the directors in Class B shall be elected for a term expiring at
the second Annual Meeting of Stockholders and the directors in Class C shall be
elected for a term expiring at the third Annual Meeting of Stockholders.
Commencing at the first Annual Meeting of Stockholders, and at each annual
meeting thereafter, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election. Except as the GCL may
otherwise require, in the interim between annual meetings of stockholders or
special meetings of stockholders called for the election of directors and/or the
removal of one or more directors and the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause, may be filled by the vote of a majority of the remaining directors
then in office, although less than a quorum (as defined in the Corporation's
Bylaws), or by the sole remaining director. All directors shall hold office
until the expiration of their respective terms of office and until their
successors shall have been elected and qualified. A director elected to fill a
vacancy resulting from the death, resignation or removal of a director shall
serve for the remainder of the full term of the director whose death,
resignation or removal shall have created such vacancy and until his successor
shall have been elected and qualified.
SIXTH. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. Election of directors need not be by ballot unless the by-laws of the
Corporation so provide.
B. The Board of Directors shall have the power, without the assent or vote
of the stockholders, to make, alter, amend, change, add to or repeal the by-laws
of the Corporation as provided in the by-laws of the Corporation.
C. The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the Corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and binding upon the Corporation and upon all the
stockholders as though it had been approved or ratified by every stockholder of
the Corporation, whether or not the contract or act would otherwise be open to
legal attack because of directors' interests, or for any other reason.
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D. In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this Certificate of Incorporation, and to any by-laws from time to
time made by the stockholders; provided, however, that no by-law so made shall
invalidate any prior act of the directors which would have been valid if such
by-law had not been made.
SEVENTH.
A. Purpose and Authorization.
1. The provisions of this Article SEVENTH are intended to assure that the
Corporation remains in continuous compliance with the citizenship requirements
of the Shipping Act, 1916, the Merchant Marine Act, 1920 and the Merchant Marine
Act, 1936, all as amended, and the regulations promulgated thereunder, as such
laws and regulations are amended from time to time (collectively, the "Maritime
Laws"). It is the policy of the Corporation that Non-Citizens should not
Beneficially Own, individually or in the aggregate, any shares of the
Corporation's Capital Stock in excess of the Permitted Amount. If the Board of
Directors of the Corporation should conclude in its sole discretion at any time
that Non-Citizens have become, or are expected to become, the Beneficial Owners,
individually or in the aggregate, of shares of Capital Stock in excess of the
Permitted Amount, the Board of Directors may by resolution duly adopted declare
that any or all of the provisions of subparagraphs C, D, E and F of this Article
SEVENTH shall apply.
2. The Board of Directors is hereby authorized to effect any and all
measures necessary or desirable (consistent with applicable law and the
provisions of this Amended and Restated Certificate of Incorporation) to fulfill
the purpose and implement the provisions of this Article SEVENTH, including
without limitation, amending the By-Laws of the Corporation and establishing,
amending or eliminating procedures from time to time that are consistent with
the By-Laws that provide for, including without limitation, (i) obtaining, as a
condition to recording the transfer of shares on the stock records of the
Corporation, affidavits or other proof as to the citizenship of existing or
prospective stockholders on whose behalf shares of the Capital Stock of the
Corporation or any interest therein or right thereof are or are to be held, and
(ii) establishing and maintaining a dual stock certificate system under which
different forms of stock certificates representing outstanding shares of the
Capital Stock of the Corporation are issued to Citizens or Non-Citizens.
B. Definitions. For purposes of this Article SEVENTH, the following terms
shall have the meanings specified below:
1. A Person shall be deemed to be the "Beneficial Owner" of, or to
"Beneficially Own," shares of Capital Stock to the extent such Person would be
deemed to be the beneficial owner thereof pursuant to Rule 13d-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as such rule may be amended from time to time.
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2. "Capital Stock" shall mean any class or series of capital stock of the
Corporation other than any class or series of capital stock of the Corporation
that is permitted by the Maritime Administration of the United States Department
of Transportation ("MarAd") to be excluded from the determination of whether the
Corporation is in compliance with the citizenship requirements of the Maritime
Laws.
3. "Capital Stock Register" shall mean the official and conclusive list of
Beneficial Ownership of Capital Stock maintained in the Corporation's books and
records or by a transfer agent duly authorized by the Corporation.
4. "Certificate" shall mean any written or electronic representation of
ownership of Capital Stock of the Corporation.
5. "Citizen" shall mean:
(a) any individual who is a citizen of the United States, by birth,
naturalization, as a derivative citizen or as otherwise authorized by law and
who is (x) free and clear of any trust or fiduciary obligation in favor of, or
control, directly or indirectly, by, Non-Citizens and (y) not employed by or
financially dependent on a Non-Citizen which is affiliated or associated in any
manner with the Corporation;
(b) any corporation
(i) that is organized or incorporated under the laws of the United
States, or of a state of the United States or a political
subdivision thereof, Guam, Puerto Rico, the Virgin Islands, American
Samoa, the District of Columbia, the Northern Mariana Islands, or
any other territory or possession of the United States (each a
"State"),
(ii) of which title to not less than 75% of its stock interest is
beneficially owned by and vested in Persons who are Citizens, as
defined under the relevant clause (a)-(g) of this definition of
"Citizen," free and clear of any trust or fiduciary obligation of
any Non-Citizens,
(iii) of which not less than 75% of the voting power of the stock of
such corporation entitled to vote is beneficially owned by and
vested in Citizens, as defined under the relevant clause (a)-(g) of
this definition of "Citizen," free from any contract or
understanding through which it is arranged that such voting power
may be exercised directly or indirectly on behalf of Non-Citizens,
(iv) of which there are no other means by which direct or indirect
control is conferred upon or permitted to be exercised by
Non-Citizens,
(v) whose chief executive officer (by whatever title), chairman of
the board of directors and all officers authorized to act in the
absence or disability of such Persons or otherwise dispose of or
control any vessel are Citizens, and
(vi) of which not more than a minority of the number of directors
(or equivalent Persons) necessary to constitute a quorum are
Non-Citizens;
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(c) any partnership
(i) that is organized under the laws of the United States or of a
State,
(ii) all general partners of which are Citizens, as defined under
the relevant clause (a)-(g) of this definition of "Citizen,"
(iii) of which not less than a 75% equity interest and voting power
is beneficially owned by Persons who are Citizens, as defined under
the relevant clause (a)-(g) of this definition of "Citizen," free
and clear of any trust or fiduciary obligation in favor of any
Non-Citizens and free from any contract or understanding through
which it is arranged that such voting power may be exercised
directly or indirectly on behalf of Non-Citizens, and
(iv) of which there are no other means by which direct or indirect
control is conferred upon or permitted to be exercised by
Non-Citizens;
(d) any association
(i) that is organized under the laws of the United States or of a
State,
(ii) of which 100% of the members are Citizens, as defined under the
relevant clause (a)-(g) of this definition of "Citizen,"
(iii) whose chief executive officer (by whatever title), chairman of
the board of directors (or equivalent committee or body) and all
Persons authorized to act in the absence or disability of such
Persons or otherwise dispose of or control any vessel are citizens
of the United States,
(iv) of which not less than 75% of the interest and voting power of
such association is beneficially owned by Citizens, free and clear
of any trust or fiduciary obligation in favor' of any Non-Citizens,
and free from any contract or understanding through which it is
arranged that such voting power may be exercised directly or
indirectly on behalf of Non-Citizens,
(v) of which not more than a minority of the number of directors (or
equivalent Persons) necessary to constitute a quorum are
Non-Citizens, and
(vi) of which there are no other means by which direct or indirect
control is conferred upon or permitted to be exercised by
Non-Citizens;
(e) any limited liability company
(i) that is organized under the laws of the United States or of a
State,
(ii) of which 75% of the members are Citizens,
(iii) of which not less than 75% of the membership interest is
beneficially owned by Persons who are Citizens, as defined under the
relevant clause (a)-(g) of this definition of "Citizen,"
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(iv) whose chief executive officer (by whatever title), chairman of
the board of directors (or equivalent committee or body) and all
Persons authorized to act in the absence or disability of such
Persons or otherwise dispose of or control any vessel are citizens
of the United States,
(v) of which not less than 75% of the voting power of such company
entitled to vote is vested in Citizens, free and clear of any trust
or fiduciary obligation, in favor of or on behalf of any
Non-Citizens, and free from any contract or understanding through
which it is arranged that such voting power may be exercised
directly or indirectly on behalf of Non-Citizens,
(vi) of which the managing member or manager (or equivalent Person),
if such company's management is delegated to a single manager or
managing member pursuant to its organizational agreement, is a
citizen of the United States, or, if such company's management is
conferred by its organizational agreement on several managers, a
management committee or board of directors (or equivalent governing
body), each manager having general management authority is a citizen
of the United States and not more than a minority of the number of
management committee members or directors (or equivalent Persons)
necessary to constitute a quorum of such governing body are
Non-Citizens, and
(vii) of which there are no other means by which direct or indirect
control is conferred upon or permitted to be exercised by
Non-Citizens;
(viii) of which Non-Citizens do not have authority within a
management group, whether through veto power, combined voting, or
otherwise, to exercise control over the limited liability company;
(f) any joint venture (if not an association, corporation or partnership)
(i) that is organized under the laws of the United States or of a
State,
(ii) of which 100% of the members are, or 100% of the equity is
beneficially owned by Citizens, as defined under the relevant clause
(a)-(g) of this definition of "Citizen," free and clear of any trust
or fiduciary obligation in favor of any Non-Citizens, and
(iii) of which there are no other means by which direct or indirect
control is conferred upon or permitted to be exercised by
Non-Citizens; and
(g) any trust
(i) that is domiciled in and existing under the laws of the United
States or a State,
(ii) all of the trustees of which are Citizens, as defined under the
relevant clause (a)-(g) of this definition of "Citizen,"
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(iii) of which not less than 75% of the equity interest is owned by
Citizens, as defined under the relevant clause (a)-(g) of this
definition of "Citizen,"
(iv) of which each beneficiary with an enforceable interest in the
trust is a Citizen, as defined under the relevant clause (a)-(g) of
this definition of "Citizen,"
(v) of which there are no other means by which direct or indirect
control is conferred upon or permitted to be exercised by
Non-Citizens;
all as further defined in Subpart C (Sections 67.30-67.47) of Title 46 of
the Code of Federal Regulations, as amended, modified or supplemented.
6. "Non-Citizen" shall mean any Person other than a Citizen.
7. "Permitted Amount" shall mean shares of Capital Stock that,
individually or in the aggregate (a) have Voting Power not in excess of 23% of
Total Voting Power or (b) constitute not more than 23% of the total number of
the issued and outstanding shares of Capital Stock; provided that, if the
Maritime Laws are amended to change the amount of Capital Stock that a
Non-Citizen may own or have the power to vote, then the Permitted Amount shall
be changed to a percentage that is two percentage points less than the
percentage that would cause the Corporation to be no longer qualified under the
Maritime Laws, after giving effect to such amendment, as a Citizen qualified to
(i) engage in coastwise trade, (ii) participate in MarAd's Title XI or
comparable financing programs or (iii) participate in operating differential
subsidies or similar programs.
8. "Person" shall mean an individual, partnership, corporation, limited
liability company, trust, joint venture or other entity.
9. "Record Holder" shall mean any Person whose name appears on the Capital
Stock Register as an owner, beneficial or otherwise, of Capital Stock.
10. "Total Voting Power" shall mean the total number of votes that may be
cast by all outstanding shares of Capital Stock having Voting Power.
11. "Voting Power" shall mean the power to vote with respect to the
election of the Corporation's directors.
C. Restrictions on Transfer.
1. Any transfer, or attempted or purported transfer, of any shares of the
Capital Stock of the Corporation or any interest therein or right thereof, that
would result in the Beneficial Ownership by Non-Citizens, individually or in the
aggregate, of shares of Capital Stock in excess of the Permitted Amount will,
until such excess no longer exists, be void and ineffective as against the
Corporation and the Corporation will not recognize, with respect to those shares
that caused the Permitted Amount to be exceeded, the purported transferee as a
stockholder of the Corporation for any purpose other than the transfer by the
purported transferee of such excess to a person who is a Citizen or to the
extent necessary to effect any other remedy available to the Corporation under
this Article SEVENTH.
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2. Each Record Holder and Beneficial Owner shall advise the Corporation in
writing of any change in such Record Holder's or Beneficial Owner's citizenship
status.
D. Dual Stock Certificate System.
1. The Corporation may institute a "Dual Stock Certificate System" such
that (i) each Certificate representing Capital Stock that is Beneficially Owned
by a Citizen shall be marked "Citizen" and each Certificate representing Capital
Stock that is Beneficially Owned by a Non-Citizen shall be marked "Non-Citizen,"
but with all such Certificates to be identical in all other respects and to
comply with all provisions of the Delaware Act; (ii) to the extent necessary to
enable the Corporation to submit any proof of citizenship required by law or by
contract with the United States government (or any agency thereof), the
Corporation may require the Record Holders and the Beneficial Owners of such
Capital Stock to confirm their citizenship status from time to time, and voting
rights and distributions payable with respect to Capital Stock held by such
Record Holder or Beneficially Owned by such Beneficial Owner may, in the
discretion of the Board of Directors, be withheld until confirmation of such
citizenship status is received; and (iii) the Capital Stock Register of the
Corporation shall be maintained in such manner as to enable the percentage of
Capital Stock that is Beneficially Owned by Non-Citizens and by Citizens to be
confirmed.
2. Beneficial Owners of Certificates bearing notation as Non-Citizen and
Citizen shall have in all respects the same corporate status and corporate
rights regarding Capital Stock of the same class or series, share for share,
except that transfers of the Certificates bearing the Citizen notation to
Non-Citizens shall be restricted as herein provided and violations of the
provisions of this Article SEVENTH shall be dealt with in the manner set forth
herein.
3. The Board of Directors is authorized to take such other ministerial
actions or make such interpretations as it may deem necessary or advisable in
order to implement this Dual Stock Certificate System in a manner consistent
with the policies set forth in this Article SEVENTH.
E. Suspension of Voting, Dividend and Distribution Rights with Respect to
Excess Shares. If any shares of Capital Stock in excess of the Permitted Amount
are Beneficially Owned by Non-Citizens, individually or in the aggregate, any
such excess shares determined in accordance with this subparagraph E (the
"Excess Shares"), shall, until such excess no longer exists, not be entitled to
(1) receive any dividends or distributions of assets declared payable or paid to
the holders of the Capital Stock of the Corporation during such period or (2)
vote with respect to any matter submitted to a vote of the stockholders of the
Corporation, and such Excess Shares shall not be deemed to be outstanding for
purposes of determining the vote required on any matter properly submitted to a
vote of the stockholders of the Corporation. At such time as the Permitted
Amount is no longer exceeded, full voting rights shall be restored to any shares
previously deemed to be Excess Shares, and any dividends or distributions with
respect thereto that have been withheld shall be due and paid to the holders of
such shares. If the number of shares of Capital Stock Beneficially Owned by Non-
Citizens is in excess of the Permitted Amount, the shares deemed to be Excess
Shares for purposes of this Article SEVENTH will be those shares Beneficially
Owned by Non-Citizens that the Board of Directors determines became so
Beneficially Owned most recently, and such determination shall be conclusive.
-8-
F. Redemption Of Excess Shares. The Corporation shall have the power, but
not the obligation, to redeem Excess Shares subject to the following terms and
conditions:
1. The per share redemption price (the "Redemption Price") to be paid for
the Excess Shares to be redeemed shall be the sum of (a) the average closing
sales price of the Capital Stock and (b) any dividend or distribution declared
with respect to such shares prior to the date such shares are called for
redemption hereunder but which has been withheld by the Corporation pursuant to
subparagraph E. As used herein, the term "average closing sales price" shall
mean the average of the closing sales prices of the Capital Stock on a national
securities exchange on which the stock is traded or listed during the 10 trading
days immediately prior to the date the notice of redemption is given; except
that, if the Capital Stock is not so traded or quoted, the average closing sales
price shall be determined in good faith by the Board of Directors.
2. The Redemption Price may be paid in cash or by delivery of a promissory
note of the Corporation, at the election of the Corporation. Any such promissory
note shall have a maturity of not more than 10 years from the date of issuance
and shall bear interest at the rate equal to the then current coupon rate of a
10-year Treasury note as such rate is published in THE WALL STREET JOURNAL or
comparable publication.
3. A notice of redemption shall be given by first class mail, postage
prepaid, mailed not less than 10 days prior to the redemption date to each
holder of record of the shares to be redeemed, at such holder's address as the
same appears on the stock records of the Corporation. Each such notice shall
state (a) the redemption date, (b) the number of shares of Capital Stock to be
redeemed from such holder, (c) the Redemption Price, and the manner of payment
thereof, (d) the place where certificates for such shares are to be surrendered
for payment of the Redemption Price, and (e) that dividends on the shares to be
redeemed will cease to accrue on such redemption date.
4. From and after the redemption date, dividends on the shares of Capital
Stock called for redemption shall cease to accrue and such shares shall no
longer be deemed to be outstanding and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the Redemption Price) shall cease. Upon surrender of the
certificates for any shares so redeemed in accordance with the requirements of
the notice of redemption (properly endorsed or assigned for transfer if the
notice shall so state), such shares shall be redeemed by the Corporation at the
Redemption Price. In case fewer than all shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
shares not redeemed without cost to the holder thereof.
5. Such other terms and conditions as the Board of Directors may
reasonably determine.
-9-
EIGHTH. A. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
GCL is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended. Any repeal or modification of this paragraph A by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation with respect to events occurring
prior to the time of such repeal or modification.
B. The Corporation, to the full extent permitted by Section 145 of the
GCL, as amended from time to time, shall indemnify all persons whom it may
indemnify pursuant thereto. Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding for which such officer or director may
be entitled to indemnification hereunder shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized hereby.
NINTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
(The remainder of this page is left intentionally blank.)
-10-
IN WITNESS WHEREOF, Rand Acquisition Corporation has caused this Amended
and Restated Certificate of Incorporation to be executed by Carol Zelinsky, its
Secretary thereunto duly authorized, this __ day of ________, 2005.
RAND ACQUISITION CORPORATION
----------------------------
Carol Zelinsky
Secretary
-11-
ANNEX C
================================================================================
ESCROW AGREEMENT
Dated _____________, 2005
Between
LL ACQUISITION CORP.
("Purchaser")
and
RBC CAPITAL PARTNERS LIMITED,
CANADIAN IMPERIAL BANK OF COMMERCE,
UNIVERSAL INSULATION HOLDINGS LIMITED,
NORVEST MEZZANINE FUND LIMITED PARTNERSHIP,
SCOTT BRAVENER,
JUDY KEHOE,
MARK ROHN,
VICTOR ROSKEY, and
TIM RYAN
(collectively, "Sellers")
and
MCMILLAN BINCH MENDELSOHN LLP
(the "Escrow Agent")
================================================================================
TABLE OF CONTENTS
RECITALS.......................................................................1
SECTION 1 - INTERPRETATION.....................................................1
1.1 Definitions........................................................2
1.2 Headings and Table of Contents.....................................2
1.3 References.........................................................2
1.4 Number and Gender..................................................2
1.5 Time of Day........................................................2
1.6 Business Day.......................................................3
1.7 Severability.......................................................3
1.8 Schedules..........................................................3
SECTION 2 - APPOINTMENT........................................................3
2.1 Appointment........................................................3
SECTION 3 - PAYMENT INTO ESCROW AND ACKNOWLEDGEMENT............................3
3.1 Escrow Amount......................................................3
SECTION 4 - HOLDING OF ESCROW AMOUNT...........................................3
4.1 Escrow.............................................................3
4.2 Investment of Escrow Amount........................................4
SECTION 5 - DISTRIBUTION OF ESCROW AMOUNT......................................4
5.1 Distributions......................................................4
5.2 Directions.........................................................5
SECTION 6 - ESCROW AGENT......................................................5
6.1 General............................................................5
6.2 Duties and Liabilities of Escrow Agent.............................5
6.3 Disputes...........................................................6
6.4 Removal of Escrow Agent............................................6
6.5 Appointment of New Escrow Agent....................................7
6.6 Failure to Appoint Replacement Agent...............................7
6.7 New Escrow Agent...................................................7
6.8 No Agency..........................................................7
6.9 Indemnity..........................................................7
6.10 Discharge from Duties..............................................8
6.11 Expenses...........................................................8
6.12 Waiver of Claims...................................................8
6.13 Consolidation of Escrow Agent......................................9
SECTION 7 - MISCELLANEOUS......................................................9
7.1 Further Assurances.................................................9
7.2 Notices............................................................9
7.3 Time..............................................................10
7.4 Governing Law.....................................................10
(i)
7.5 Entire Agreement..................................................11
7.6 Execution in Counterparts.........................................11
Schedule "A" - Investment Direction
Schedule "B" - Payment Direction
(ii)
ESCROW AGREEMENT
This Agreement is dated _______________, 2005, between
LL ACQUISITION CORP.,
("Purchaser")
and
RBC CAPITAL PARTNERS LIMITED,
CANADIAN IMPERIAL BANK OF COMMERCE,
UNIVERSAL INSULATION HOLDINGS LIMITED,
NORVEST MEZZANINE FUND LIMITED PARTNERSHIP,
SCOTT BRAVENER,
JUDY KEHOE,
MARK ROHN,
VICTOR ROSKEY, and
TIM RYAN
(collectively, "Sellers")
and
MCMILLAN BINCH MENDELSOHN LLP
("Escrow Agent")
RECITALS
A. Purchaser and Sellers are parties to a stock purchase agreement dated
September 2, 2005 (the "Purchase Agreement") under which Purchaser agreed to
acquire all of the shares of Lower Lakes Towing Ltd. from the Sellers;
B. Sellers' Representative has been appointed under Section 11.15 of the
Purchase Agreement;
C. Sellers have agreed pursuant to Section 1.3 of the Purchase Agreement that a
portion of the Purchase Price (as defined in the Purchase Agreement) will be
held and distributed by the Escrow Agent in accordance with this Agreement; and
D. Purchaser has agreed pursuant to Section 7.8 of the Purchase Agreement to
execute and deliver this Agreement and concurrently pay the Escrow Amount (as
defined below) to the Escrow Agent to be held and distributed by the Escrow
Agent in accordance with this Agreement.
-2-
FOR VALUE RECEIVED, the parties agree as follows:
SECTION 1 - INTERPRETATION
1.1 Definitions.
All capitalized terms defined in the Purchase Agreement that are not
defined in this Agreement shall have the meaning ascribed to them in the
Purchase Agreement. In this Agreement:
(1) Agreement means this escrow agreement, all attached schedules and any
agreement or schedule supplementing or amending this agreement.
(2) Business Day means a day (other than a Saturday or Sunday), on which
commercial banks are open for business in New York, New York and Toronto,
Ontario.
(3) Purchase Agreement has the meaning ascribed thereto in the recitals.
(4) Transmission means any electronic means of sending messages, including telex
or facsimile transmission, which produces a paper record.
1.2 Headings and Table of Contents.
The division of this Agreement into sections, the insertion of headings
and the provision of a table of contents are for convenience of reference only
and do not affect the construction or interpretation of this Agreement.
1.3 References.
Unless otherwise specified, all references in this Agreement to Recitals,
Sections and Schedules are to the recitals to, sections of, and schedules to,
this Agreement, respectively.
1.4 Number and Gender.
Unless otherwise specified, words importing the singular include the
plural and vice versa and words importing gender include all genders. The term
"including" shall be interpreted to mean "including without limitation".
1.5 Time of Day.
Unless otherwise specified, references to time of day or date mean local
time or date in Toronto, Canada.
-3-
1.6 Business Day.
If, under this Agreement, any payment is to be made or any other action
taken, on a day which is not a Business Day, that payment is to be made, and
that other action is to be taken, as applicable, on the next day that is a
Business Day.
1.7 Severability.
If any provision of this Agreement is or becomes illegal, invalid or
unenforceable in any jurisdiction, the illegality, invalidity or
unenforceability of that provision will not affect:
(a) the legality, validity or enforceability of the remaining provisions
of this Agreement; or
(b) the legality, validity or enforceability of that provision in any
other jurisdiction.
1.8 Schedules.
The following Schedules are attached to and form part of this Agreement:
Schedule "A" - Investment Direction
Schedule "B" - Payment Direction
SECTION 2 - APPOINTMENT
2.1 Appointment.
Sellers and Purchaser hereby appoint the Escrow Agent to act, and the
Escrow Agent agrees to act, as Escrow Agent in accordance with the terms and
conditions of this Agreement.
SECTION 3 - PAYMENT INTO ESCROW AND ACKNOWLEDGEMENT
3.1 Escrow Amount.
Purchaser herewith delivers to the Escrow Agent, and the Escrow Agent
hereby acknowledges receipt of $2,000,000 US Dollars payable to McMillan Binch
Mendelsohn LLP, in trust (the "Escrow Amount").
SECTION 4 - HOLDING OF ESCROW AMOUNT
4.1 Escrow.
The Escrow Amount, together with any interest earned thereon or other
proceeds therefrom, shall be held in trust by the Escrow Agent in accordance
with this Agreement.
-4-
4.2 Investment of Escrow Amount.
The Escrow Agent shall deposit the Escrow Amount together with any
interest earned thereon in an interest bearing trust account or any other
account as provided for herein. The Escrow Agent shall invest the Escrow Amount
as directed by Sellers' Representative and Purchaser, such directions to be
substantially in the form of Schedule "A". The Escrow Agent: (i) makes no
representation as to the income, profit, yield or return available or to be
earned upon the Escrow Amount, or as to the certainty of return of principal of
amounts invested in accordance with the terms hereof; and (ii) shall bear no
liability for any failure to achieve the maximum possible or desired yield or
return from the Escrow Amount or for loss of principal of amounts invested in
accordance with the terms hereof. Sellers shall pay all income and other taxes
applicable or exigible on any interest or other income it receives on the Escrow
Amount.
SECTION 5 - DISTRIBUTION OF ESCROW AMOUNT
5.1 Distributions.
(1) The Escrow Agent shall, upon receiving (a) a direction from Sellers'
Representative and Purchaser to the Escrow Agent, executed by Sellers'
Representative and Purchaser substantially in the form attached hereto as
Schedule "B", or (b) an order, decree or judgment from a court of competent
jurisdiction which, by lapse of time or otherwise, shall no longer be or shall
not be subject to appeal or review, pay the portion Escrow Amount for which
payment is directed in such direction, order, decree or judgment.
(2) At any time (and from time to time) within fifteen (15) months after the
date of the Closing, either Purchaser or Sellers' Representative may give a
notice ("Claim Notice") to the other party and Escrow Agent to the effect that
Purchaser or Sellers' Representative, as applicable, claims all or part of the
Escrow Amount pursuant to Section 1.4 or Article IX of the Purchase Agreement (a
"Claim"), specifying the facts upon which such Claim is based and the section or
sections of the Purchase Agreement giving rise to such Claim.
(3) In the event that the party receiving such Claim Notice (the "Receiving
Party") shall fail, within ten (10) business days after the receipt by it of any
Claim Notice, to deliver to the party delivering such Claim Notice (the
"Claiming Party") and the Escrow Agent a notice (the "Objection Notice") denying
that the Claim stated in the Claim Notice is due and payable to the Claiming
Party and setting forth in reasonable detail the reasons for such denial, the
Escrow Agent shall, on the twelfth (12th) business day after receipt by the
Escrow Agent of such Claim Notice, withdraw from the Escrowed Funds and transfer
to the Claiming Party the amount set forth in the Claim Notice (the "Claimed
Amount").
(4) In the event that the Receiving Party shall, within ten (10) business days
after the receipt by it of a Claim Notice, deliver an Objection Notice to the
Claiming Party and the Escrow Agent, the Escrow Agent shall retain in the
Escrowed Funds the amount set forth in the Objection Notice (the "Disputed
Amount") until otherwise directed by a written instrument signed by the Sellers'
Representative and the Purchaser or by an order, decree or judgment of a court
-5-
of competent jurisdiction which, by lapse of time or otherwise, shall no longer
be or shall not be subject to appeal or review. Escrow Agent shall, on the
twelfth (12th) business day after receipt by the Escrow Agent of such Objection
Notice, withdraw from the Escrow Amount and transfer to the Claiming Party the
undisputed amount, if any, which equals the excess of the Claimed Amount over
the Disputed Amount. In the event that the Claiming Party becomes entitled to
receive any amount of the Escrow Amount in satisfaction of a Claim, subject to
the terms of this Agreement, the Escrow Agent shall promptly transfer to the
Claiming Party the amount then held in the Escrow Amount sufficient to comprise
the amount necessary to satisfy such Claim.
(5) On the first (1st) Business Day subsequent to the date which is fifteen (15)
months after the Closing, (i) the Escrow Agent shall deliver to the Sellers (in
the proportions set forth on Exhibit 1 to the Purchase Agreement) the excess of
the balance of the Escrowed Funds over the aggregate of any Disputed Amounts
relating to any Claims made pursuant to this Escrow Agreement and (ii) the
Escrow Agent shall continue to hold such Disputed Amounts in accordance with the
provisions of this Escrow Agreement.
(6) Any payment of any portion of the Escrow Amount to Purchaser or Sellers
shall include any interest accrued hereunder on the amount of such payment.
5.2 Directions.
The Escrow Agent shall have no obligation to make any determination as to
the validity of any direction.
SECTION 6 - ESCROW AGENT
6.1 General.
The Escrow Agent agrees to hold and deal with the Escrow Amount in
accordance with this Agreement.
6.2 Duties and Liabilities of Escrow Agent.
(1) Liability. The Escrow Agent shall not be liable or answerable for anything
whatsoever in connection with this Agreement or any instrument or agreement
required hereunder, including enforcement of this Agreement or any such
instrument or agreement, except for its own wilful misconduct or gross
negligence, and the Escrow Agent shall not have any duty or obligation other
than those expressly provided herein. Notwithstanding anything contained herein
or elsewhere to the contrary, the Escrow Agent shall not have any liability to
Sellers or Purchaser in respect of the deposit or investment of the Escrow
Amount in accordance with this Agreement, including without limitation, the
nature of the deposit or investment, the income or interest received in
connection therewith and the term to maturity thereof.
(2) Other Agreements. The Escrow Agent shall only be bound to act as set forth
in this Agreement and the Escrow Agent shall not be bound in any way by any
agreement or contract between Sellers or Sellers' Representative and Purchaser
(whether or not such Escrow Agent has any knowledge thereof), including the
Purchase Agreement.
-6-
(3) Directions and Court Orders. The Escrow Agent shall comply with such
notices, directions and instructions as are provided for in this Agreement and
any order, judgement or decree of any court of competent jurisdiction. If any
part or all of the Escrow Amount held in escrow by the Escrow Agent is at any
time attached or seized under any court order or in case any judicial order,
judgment or decree shall be made affecting this Agreement or any part hereof
then, in any such event, the Escrow Agent is authorized to rely upon and comply
with such order, judgement or decree, and in the case of such compliance, the
Escrow Agent shall not be liable by reason thereof to Sellers' or Purchaser or
to any other person even if thereafter any such order, judgement or decree is
reversed, modified, annulled, set aside or vacated. The Escrow Agent is not
bound to enquire into the authority of any person signing any certificates,
instructions, directions or orders hereunder.
(4) Reliance on Experts. The Escrow Agent may employ such counsel of its
choosing as it may reasonably deem necessary for the proper discharge of its
duties hereunder. The Escrow Agent may, in relation to its obligations
hereunder, act on the opinion, advice or information obtained from such counsel,
but shall not be bound to act upon such opinion, advice or information and shall
not be held responsible for any loss occasioned for so acting or not so acting,
as the case may be, except if such loss results from the wilful misconduct or
gross negligence of the Escrow Agent. The Escrow Agent may employ such
assistance as may be reasonably necessary to properly discharge its duties.
(5) Other Reliance. The Escrow Agent shall be entitled to rely upon any
instrument or agreement required hereunder and upon statements and
communications received jointly from Sellers' Representative and Purchaser (or
from any other person) believed by it to be authentic, and shall not be liable
for any action taken or omitted in good faith on such reliance.
6.3 Disputes.
Should any controversy arise with respect to the Escrow Agent's duties
hereunder or under any other matter related to this Agreement, the Escrow Agent
may, at the expense of the other parties, apply to a Judge of a court of
competent jurisdiction to determine the rights of the parties. The Escrow Agent
shall be entitled to refrain from taking any action contemplated by this
Agreement in the event that it becomes aware of any disagreement between the
parties hereto as to any facts or as to the happening of any contemplated event
precedent to such action.
6.4 Removal or Resignation of Escrow Agent.
Sellers' Representative and Purchaser, acting jointly, may at any time
remove such Escrow Agent from its role as Escrow Agent hereunder on seven days
written notice to that Escrow Agent. The Escrow Agent may resign at any time by
giving fifteen (15) days notice in writing to Sellers' Representative and
Purchaser.
-7-
6.5 Appointment of New Escrow Agent.
If the Escrow Agent gives notice of resignation or is removed under
Section 6.4, Purchaser shall appoint a new Escrow Agent (providing written
notice thereof to Sellers' Representative).
6.6 Failure to Appoint Replacement Agent.
Upon the effective date of resignation or removal of an Escrow Agent
pursuant to Section 6.4, if a successor Escrow Agent has not been appointed,
then on notice to Sellers' Representative and Purchaser, the Escrow Agent may
apply to a court of competent jurisdiction for the appointment of a successor
Escrow Agent; failing such application to such court within 30 days from the
effective date of such resignation or removal, the Escrow Agent, on notice to
Sellers' Representative and Purchaser, may deposit the Escrow Amount (or provide
control thereof if invested) and all related records and documents with a court
of competent jurisdiction pending the appointment of a successor Escrow Agent,
and the duties and obligation of such Escrow Agent hereunder shall thereupon
cease.
6.7 New Escrow Agent.
Any new Escrow Agent shall agree in writing to be bound by this Agreement
and thereupon shall be vested with the same powers and rights and shall be
subject to the same duties and obligations as if it had executed this Agreement
as the Escrow Agent and, unless otherwise directed in writing jointly by
Sellers' Representative and Purchaser, and upon satisfaction of all of its fees
and expenses, the former Escrow Agent shall cause to be delivered the Escrow
Amount (or control thereof if invested) and all related records and documents to
the new Escrow Agent, execute all such transfers and other documents and do all
such other acts and things as the new Escrow Agent may reasonably request for
the purpose of giving effect thereto.
6.8 No Agency.
Sellers and Purchaser acknowledge that the Escrow Agent is acting solely
as depositary at their request and for their convenience and, notwithstanding
anything to the contrary herein contained, the Escrow Agent shall not be deemed
to be the agent of Sellers, Sellers' Representative or Purchaser except as
otherwise expressly provided herein. Purchaser acknowledges that Escrow Agent is
legal counsel to Sellers' Representative and the other Sellers under the
Purchase Agreement and that Escrow Agent shall continue as such in all
circumstances.
6.9 Indemnity.
(1) Sellers, on the one hand with respect to 50% of every dollar of Losses, and
Purchaser, on the other hand with respect to 50% of every dollar of Losses,
agree to, severally but not jointly, indemnify and hold harmless the Escrow
Agent from and against any and all liabilities, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursement, including legal or
adviser fees and disbursements of whatever kind and nature (collectively,
"Losses") which may at any time be imposed on, incurred by or asserted against
-8-
the Escrow Agent, arising from or out of any act, omission or error of the
Escrow Agent made in the conduct of its duties hereunder; provided that Sellers
or Purchaser shall not be required to indemnify the Escrow Agent against Losses
arising out of and from the gross negligence or wilful misconduct of the Escrow
Agent or any agent employed by the Escrow Agent in carrying out its obligations
hereunder. IN NO EVENT SHALL THE ESCROW AGENT BE LIABLE, DIRECTLY OR INDIRECTLY,
FOR ANY (i) DAMAGES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER,
OTHER THAN DAMAGES WHICH RESULT FROM THE ESCROW AGENT'S FAILURE TO ACT IN
ACCORDANCE WITH THE STANDARDS SET FORTH IN THIS AGREEMENT, OR (ii) SPECIAL OR
CONSEQUENTIAL DAMAGES, EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. This provision shall survive the resignation or
removal of the Escrow Agent or the termination of this Agreement.
6.10 Discharge from Duties.
(1) Disposal of Funds. Upon disposing of all of the Escrow Amount in accordance
with the provisions of this Agreement, the Escrow Agent shall be relieved and
discharged from all claims and liabilities relating to the Escrow Amount and the
Escrow Agent shall not be subject to any claims made by or on behalf of any
party hereto except claims relating to the negligence or wilful misconduct of
the Escrow Agent or any agent employed by the Escrow Agent in carrying out its
obligations hereunder.
(2) Removal on Resignation. Upon resigning or being removed pursuant to Section
6.3 or 6.4, the Escrow Agent shall distribute the Escrow Amount and any interest
or other income earned thereon to the new Escrow Agent appointed pursuant to
Section 6.5 and the Escrow Agent shall, upon such distribution, be discharged
from all further duties and obligations hereunder and shall not be subject to
any claims made by or on behalf of any party hereto except claims relating to
the negligence or wilful misconduct of the Escrow Agent or any agent employed by
the Escrow Agent in carrying out its obligations hereunder.
6.11 Expenses.
The reasonable fees and expenses of the Escrow Agent shall be borne by
Sellers. The Escrow Agent shall have, and is hereby granted, a prior lien upon
any property, cash, or assets of the Escrow Amount, with respect to its unpaid
fees and non-reimbursed expenses, superior to the interests of any other persons
or entities. The Escrow Agent shall be entitled and is hereby granted the right
to set off and deduct any unpaid fees and/or non-reimbursed expenses from
amounts on deposit in the Escrow Amount.
6.12 Waiver of Claims.
Each party hereto waives any claims or demands against the Escrow Agent
and its principals with respect to all acts taken by such Escrow Agent in
conformance with this Agreement. The Escrow Agent shall not have any duty to
take any action other than as specifically provided for in this Agreement. The
Escrow Agent shall not have any liability for any non-action if such action has
been restrained by any order of any court or administrative agency or if, in its
sole discretion, it determines that any such action would violate any law or
governmental regulation.
-9-
6.13 Consolidation of Escrow Agent.
Any corporation, partnership or other entity into which the Escrow Agent
may be merged or converted shall succeed to all the Escrow Agent's rights,
obligations and immunities hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 7 - MISCELLANEOUS
7.1 Further Assurances.
Sellers and Purchaser shall from time to take or cause to be taken such
action and execute and deliver (or cause to be executed and delivered) such
documents and further assurances as may, in the reasonable opinion of counsel
for the other parties, be necessary or advisable to give effect to this
Agreement.
7.2 Notices.
Any notice, demand or other communication (in this Section, a "notice")
required or permitted to be given or made hereunder shall be in writing and
shall be sufficiently given or made if delivered in person or by courier during
normal business hours of the recipient on a Business Day and left with the
recipient, for notices delivered to individuals, or a receptionist or other
responsible employee of the recipient at the relevant address set forth below:
-10-
if to Sellers' Representative on behalf of each of the Sellers:
RBC Capital Partners Limited
200 Bay Street
4th Floor, North Tower
Royal Bank Plaza
Toronto, Ontario M5J 2W7
Attention: Tony Manastersky
Tel: (416) 842-4054
Fax: (416) 842-4060
if to Purchaser:
LL Acquisition Corp.
c/o Hyde Park Holdings LLC
450 Park Avenue, Suite 1001
New York, New York 10022
Attention: Laurence Levy
Tel: (212) 644-3455
Fax: (212) 644-6262
if to the Escrow Agent:
McMillan Binch Mendelsohn LLP
BCE Place, Suite 4400
Bay Wellington Tower, 181 Bay Street
Toronto, Ontario M5J 2T3
Attention: David Dunlop
Tel: (416) 865-7175
Fax: (416) 865-7048
Any notice so given shall be deemed to have been given and to have been received
on the day of delivery. Addresses for notice may be changed by giving notice in
accordance with this Section.
7.3 Time.
Time shall be of the essence of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Province of Ontario, Canada.
-11-
7.5 Entire Agreement.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior negotiations and
understandings. No provision may be amended or waived except in writing.
7.6 Execution in Counterparts.
This Agreement may be executed and delivered in any number of
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument. A party's
transmission by facsimile of a copy of this Agreement duly executed by that
party shall constitute effective delivery by that party of an executed copy of
this Agreement to the party receiving the transmission. A party that has
delivered this Agreement by facsimile shall forthwith deliver an originally
executed copy to the other party or parties.
-12-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LL ACQUISITION CORP.
By:
--------------------------
Name:
Title:
RBC CAPITAL PARTNERS LIMITED
By:
--------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE
By:
--------------------------
Name:
Title:
UNIVERSAL INSULATION HOLDINGS
LIMITED
By:
--------------------------
Name:
Title:
NORVEST MEZZANINE FUND LIMITED
PARTNERSHIP
By:
--------------------------
Name:
Title:
-13-
- ------------------------------ --------------------------------
WITNESS SCOTT BRAVENER
- ------------------------------ --------------------------------
WITNESS JUDY KEHOE
- ------------------------------ --------------------------------
WITNESS MARK ROHN
- ------------------------------ --------------------------------
WITNESS VICTOR ROSKEY
- ------------------------------ --------------------------------
WITNESS TIM RYAN
MCMILLAN BINCH MENDELSOHN LLP
By:
--------------------------
Name:
Title:
Schedule "A" - Investment Direction
Form of Direction with respect to
Investment of Escrow Amount
TO: McMillan Binch Mendelsohn LLP
DATE:
RE: Investment of Escrow Amount held by the Escrow Agent pursuant to an Escrow
Agreement made between LL Acquisition Corp., RBC Capital Partners Limited,
Canadian Imperial Bank Of Commerce, Universal Insulation Holdings Limited,
Norvest Mezzanine Fund Limited Partnership, Scott Bravener, Judy Kehoe, Mark
Rohn, Victor Roskey, Tim Ryan and McMillan Binch Mendelsohn LLP (the "Escrow
Agent") dated as of ______________, 2005 (the "Escrow Agreement")
_______________________________________________
This direction is given pursuant to Section 5.1 of the Escrow Agreement.
Capitalized terms not otherwise defined herein shall have the meaning ascribed
thereto in the Escrow Agreement.
The undersigned hereby jointly authorize and direct the Escrow Agent to invest
the following Escrow Amount as follows as soon as is practicable:
INVESTMENT: RBC GIC
TERM:
TOTAL AMOUNT: $2,000,000 US Dollars
and this shall be your good, sufficient and irrevocable authority to do so.
LL ACQUISITION CORP.
By:
--------------------------
Name:
Title:
RBC CAPITAL PARTNERS LIMITED,
in its capacity as Sellers'
Representative under the
Escrow Agreement
By:
--------------------------
Name:
Title:
"A"-1
Schedule "B" - Payment Direction
Form of Direction with respect to
Disbursement of Escrow Amount
TO: McMillan Binch Mendelsohn LLP
RE: Escrow Agreement made between LLAcquisition Corp., RBC Capital Partners
Limited, Canadian Imperial Bank Of Commerce, Universal Insulation Holdings
Limited, Norvest Mezzanine Fund Limited Partnership, Scott Bravener, Judy Kehoe,
Mark Rohn, Victor Roskey, Tim Ryan and McMillan Binch Mendelsohn LLP and dated
as of _____________, 2005 (the "Escrow Agreement")
________________________________________________
This direction is given pursuant to Section 5.1 of the Escrow Agreement.
Capitalized terms not otherwise defined herein shall have the meaning ascribed
thereto in the Escrow Agreement.
You are hereby irrevocably authorized and directed to pay out of the Escrow
Amount the sum of $_________________________(1) to _________________________(2)
on ____________________(3), all in accordance with the detailed instructions
attached hereto as Appendix 1(4) and this shall be your good, sufficient and
irrevocable authority to do so.
LL ACQUISITION CORP.
By:
--------------------------
Name:
Title:
RBC CAPITAL PARTNERS LIMITED,
in its capacity as Sellers'
Representative under the
Escrow Agreement
By:
--------------------------
Name:
Title:
- ----------
(1) Insert amount (inclusive of interest, if any).
(2) Insert name of payees (if payable to Sellers, in accordance with
Allocation Exhibit to the Purchase Agreement).
(3) Insert date of distribution. Three Business Days notice must be given.
(4) Appendix to contain account, wire transfer, method of payment instructions
etc., as appropriate for each payee.
"B"-1
Appendix 1 - Account Particulars
In Respect of US$2,000,000 Escrow Amount:
Bank Name:
Bank Address:
Bank No.:
Transit No.:
Account No.:
Account Name:
Swift Code:
A.B.A. No.:
"B"-2
ANNEX D
EMPLOYMENT AGREEMENT
BETWEEN:
LOWER LAKES TOWING LTD.
(the "Company")
- and -
SCOTT BRAVENER
(the "Executive")
(collectively referred to as the "Parties")
RECITALS:
A. The Executive has been employed with the Company in the position of
President and Chief Executive Officer since August 1, 1995.
B. The Executive has specialized knowledge and valuable skills and
experience, which are critical to the management of the Company and its
affiliates, Lower Lakes Transportation Company and Grand River Navigation
Company, Inc. (each a "Member Company"), and to the continuing success of
the business of the Company and the Member Companies.
C. The Company wishes to secure the continued services of the Executive.
NOW THEREFORE, for value received the Parties agree as follows:
1. DUTIES AND RESPONSIBILITIES
1.1 Positions, Duties and Responsibilities
(a) The Company confirms the continuing appointment of the Executive in
the position of President and recognizes for all purposes the
Executive's past service with the Company. The Executive will be
responsible for the general supervision and control over the day to
day operations of the Company and each Member Company (to the extent
permissible under laws and regulations applicable to the business of
each such Member Company), and shall have such duties and
responsibilities consistent therewith, including those duties and
responsibilities set out in Schedule A to this Agreement. All senior
management of the Company and each Member Company (to the extent
permissible under laws and regulations applicable to the business of
each such Member Company) will report directly to the Executive. The
-2-
Executive will report to the Board of Directors of the Company (and
the board of directors of each such Member Company, as applicable)
which shall have overall decision making authority for the Company
(or for such Member Company). The Company will appoint the Executive
to the Board of Directors of the Company effective on the date of
this Agreement. The Executive will also serve as the President of
Lower Lakes Transportation Company, and as an officer and director
of each such other Member Company and of Rand Acquisition
Corporation ("Rand") to the extent desired by the Board of Directors
of each such other Member Company or Rand, in each case without
additional compensation therefor.
(b) The Executive shall devote all of his business time, attention and
energies, on a full time and exclusive basis, to the business and
affairs of the Company and the Member Companies, shall use his best
efforts to advance the best interests of the Company and the Member
Companies, and shall not during the Term be engaged in any other
business activities, whether or not such business activities are
pursued for gain, profit or other pecuniary advantage, without
approval of the Board of Directors of the Company; provided,
however, that, it shall not be a violation of this Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or
committees or (ii) manage passive personal investments, in either
case so long as any such activities do not interfere with the
performance of his responsibilities as an employee of the Company in
accordance with this Agreement or adversely affect or negatively
reflect upon the Company or the Member Companies.
1.2 Reassignment
The Company shall not reassign the Executive to another position within the
Company or within a Member Company, or alter the duties, responsibilities,
title, or reporting lines of the Executive in a manner inconsistent with this
Agreement or past practice. The Company shall not change the location of the
Executive's employment unless the Executive agrees to such change.
1.3 Travel
The Executive shall be employed at the Company's location in Port Dover,
Ontario. The Executive shall be available for such business-related travel as
may be required for the purposes of carrying out the Executive's duties and
responsibilities.
2. TERM OF EMPLOYMENT
This Agreement will commence on the closing of the Purchase Agreement and will
continue for an initial term of two years therefrom (the "Term") subject to
section 9. The Term may be extended upon mutual written agreement of the
Parties.
3. BASE SALARY
The Executive will be paid an annual salary in the amount of Cdn $190,000,
subject to applicable statutory deductions and discretionary annual increases to
the extent determined by the Board of Directors of the Company (the "Base
Salary"). The Executive's Base Salary will be payable in accordance with Company
practices and procedures as they may exist from time to time. Base Salary will
be reviewed on an annual basis by the Board of Directors of the Company, with
input from the Executive.
-3-
4. BONUS
4.1 Bonus Plan
The Executive shall be a "Participant" in the Management Bonus Program attached
as Schedule B to this Agreement (the "Bonus Plan").
4.2 Performance Bonus
In addition to, and separate from, any awards granted to the Executive under the
Bonus Plan, for each fiscal year commencing after the date hereof, the Executive
will be entitled to a bonus (the "Performance Bonus") pursuant to a bonus plan
(the "Performance Bonus Plan") to be adopted by the Company or a Member Company
and in which the Executive shall be entitled to participate. The Performance
Bonus Plan shall be adopted no later than the three month anniversary of the
date of this Agreement, and shall be in form and substance acceptable to the
Company or Member Company and reasonably satisfactory to the Executive. In the
event that the Company or a Member Company fails to adopt a Performance Bonus
Plan that is reasonably satisfactory to the Executive on or prior to the three
month anniversary of the date hereof, the Company or Member Company, as
applicable, shall be obligated to retain, at its expense, the services of a
reputable and recognized executive compensation consultant, which consultant
shall, within mutually agreeable parameters and objectives established by the
Company or Member Company and the Executive (which shall include a bonus plan
structure that (i) provides for the commencement of bonus payments upon
achievement of 100% of targeted EBITDA to be determined with the Executive's
input, (ii) appropriately recognizes operational factors such as vessel
accidents, capital expenditure levels, fuel and other operating costs and
efficiencies) and (iii) provides for the ratable accrual of entitlements over
the relevant fiscal year), recommend the terms of the Performance Bonus Plan for
adoption by the Company or Member Company, which recommendation shall be adopted
by the Company or Member Company.
5. RETIREMENT PLANS AND PENSION
The Company will make annual contributions to the Executive's Registered
Retirement Savings Plan in amounts not less than Cdn$11,500 per calendar year.
6. OTHER BENEFITS
The Executive shall be entitled to participate in or receive benefits under any
health and accident plan or any other employee benefit plan or arrangement made
available now or in the future by the Company to its executives and key
management personnel, as determined by the Board of Directors of the Company.
7. VACATION
The Executive will be entitled to four weeks paid (at then current Base Salary)
vacation per calendar year commencing with the 2006 calendar year. Unused
vacation days may not be carried over from one calendar year to the next, and
any unused vacation days as of the end of a calendar year shall be forfeited by
the Executive. The Executive will arrange vacation time to suit the essential
business needs of the Company.
-4-
8. PERQUISITES AND EXPENSES
8.1 Automobile
The Company will continue to lease an automobile for the Executive (the "Lease")
to be used at the Executive's discretion at a maximum monthly cost to the
Company of not more than Cdn$860.00. In addition to the Lease, the Company will
pay all related expenses (maintenance and repair, service, insurance, gasoline,
etc.) related to the business user of such automobile.
8.2 Reimbursement of Expenses
The Company recognizes that the Executive will incur expenses in the performance
of the Executive's duties. The Company shall reimburse the Executive for any
reasonable out-of-pocket expenses incurred in the course of employment.
9. TERMINATION OF EMPLOYMENT; NON-COMPETITION; NON- SOLICITATION
9.1 Terminations Resulting in No Further Obligation to the Company
The Company shall have no further obligations to the Executive hereunder, or
under statute, common law or otherwise, in the event of the following
terminations of employment:
(a) Voluntary Resignation Without Notice
In the event the Executive voluntarily resigns without Good Reason without
at least sixty (60) days advance written notice to the Company.
(b) Cause
In the event the Executive's employment is terminated for Cause, which
term for the purposes of this Agreement shall mean (i) conviction of the
Executive of a criminal offence involving fraud, larceny, misappropriation
of funds, embezzlement or dishonesty; (ii) receipt by or on behalf of
Executive or any member of Executive's immediate family of any personal
profit arising out of in connection with a transaction to which the
Company or a Member Company is party without making full prior disclosure
to the Company or such Member Company; (iii) any misfeasance, nonfeasance
or malfeasance by Executive which causes material harm to the Company or a
Member Company; (iv) breach by the Executive of any material term of this
Agreement, or failure of the Executive to follow and carry out the lawful
instructions of the Board of Directors of the Company or of a Member
Company, in each case after notice and reasonable opportunity for the
Executive to cure such breach or failure; (v) the Executive having been
under the influence of drugs (other than prescription medicine or other
medically-related drugs to the extent that they are taken in accordance
with their directions) or alcohol during the performance of his duties
under this Agreement (it being understood that the Executive will attend
-5-
industry functions at which alcohol will be consumed by the Executive), or
while otherwise under the influence of drugs or alcohol, engages in
inappropriate conduct; or (vi) the Executive having engaged in behavior
that would constitute grounds for liability for sexual harassment or
discrimination.
9.2 Termination by the Company without Cause or Failure to Renew upon Expiry of
the Term.
The Company may terminate the Executive's employment without Cause at any
time prior to the expiry of the Term, or, upon each successive expiry of
the Term where the Company determines not to renew this Agreement, in each
case by providing the Executive with (A) any then accrued but unpaid Base
Salary and Performance Bonus as of the date of termination or non-renewal
and any outstanding reimbursable expenses incurred by the Executive prior
to the date of termination or non-renewal, (B) payment, in equal monthly
payments, of the Executive's Base Salary in effect at the time of
termination or non-renewal for a period of twenty four (24) months, and
(C) continuation of benefits provided pursuant to Sections 5 and 6 for
such payment period (the foregoing clause (A), (B) and (C) being referred
to as the "Separation Package").
9.3 Termination by the Executive for Good Reason
Should the Executive terminate his employment for Good Reason, as hereinafter
defined, he shall receive the Separation Package set out in section 9.2. Failure
of the Executive to terminate his employment on the occurrence of any event
which would constitute Good Reason shall not constitute waiver of his right
under this section 9.2 should Good Reason continue. "Good Reason" is defined as
the occurrence of any of the following without the Executive's express written
consent:
a) the Company assigning to the Executive duties or responsibilities
inconsistent with or inappropriate for his position as President
with the Company, after notice to the Company of, and reasonable
opportunity of the Company to cure, such alleged Good Reason;
b) failure by the Company to continue the Bonus Plan in effect in
accordance with its terms or to provide the Executive with benefits
and other pension or retirement plans in accordance with Sections 5
and 6 substantially consistent with those plans in which the
Executive has participated in periods immediately prior to the Term;
c) the Company relocating the Executive's principal office outside of
Port Dover;
d) a sale to a person (which, for all purposes hereof, shall include,
without limitation, an individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate and a trustee, executor,
administrator or other legal representative) or group of persons not
affiliated with the Company of all or substantially all of the
assets of the Company;
-6-
e) any person or group of persons acting in concert not affiliated with
the Company, becomes the beneficial owner, directly or indirectly,
of voting securities of the Company and/or securities convertible
into or exchangeable for voting securities of the Company, in
aggregate representing directly, or following conversion or exchange
thereof, fifty percent (50%) or more of the combined voting power of
the Company or of any successor to the Company (in each case on a
fully-diluted basis) in any manner whatsoever, including, without
limitation, as a result of a take-over bid, reorganization of
capital, share exchange, arrangement, merger, amalgamation or other
combination of the Company with any other entity;
f) any breach by the Company of any material term of this Agreement
after notice to the Company of such breach and reasonable
opportunity to cure such breach.
9.4 Disability and Death
The Executive shall, upon his Disability (as defined below), have the right to
receive the Separation Package and upon his death any then accrued but unpaid
Base Salary and Performance Bonus and any outstanding reimbursable expenses
incurred by the Executive prior to the date of death. For purposes of this
Agreement, a "Disability" shall occur: (i) immediately after the Company has
provided a written termination notice to the Executive supported by a written
statement from a reputable independent physician selected by the Company to the
effect that the Executive shall have become so incapacitated as to be unable to
resume, within 90 days, his employment hereunder by reason of physical or mental
illness or injury; or (ii) upon rendering of a written termination notice by the
Company after the Executive has been unable to substantially perform his duties
hereunder for 90 consecutive days (exclusive of any vacation permitted under
Section 7 hereof) or for 120 days in any 360 day period by reason of any
physical or mental illness or injury. The Executive agrees to make himself
available and to cooperate in any reasonable examination by a reputable
independent physician selected by the Company for the purposes of a
determination of Disability pursuant to this Section 9.4.
9.5 Non-Competition
The Executive shall not, during his employment or within 24 months following the
termination of his employment for any reason, within Canada or the United States
serve as an executive, officer, director, employee or in any advisory capacity
with or to any competitor, in whole or in part, of the Company or any Member
Companies, or either individually or in partnership or jointly or in conjunction
with any person, firm, trust, partnership, association, syndicate or company, as
principal, agent, shareholder, trustee or in any other manner whatsoever
otherwise carry on or be engaged in or be concerned with any person, firm,
trust, partnership, association, syndicate or company which is a competitor, in
whole or in part, of the Company or any Member Company, except as a shareholder
holding less than 5% of the outstanding shares of any such corporation whose
shares are listed and posted for trading on a recognized stock exchange.
9.6 Non-Solicitation of Customers
The Executive shall not, during his employment or within 24 months following the
termination of his employment for any reason, directly or indirectly, solicit
any customer of the Company or any Member Company in order to attempt to direct
any such customer away from, or to do less business with, the Company or any
Member Company.
-7-
9.7 Non-Solicitation of Employees
The Executive shall not, during his employment or within 24 months following the
termination of his employment for any reason, directly or indirectly recruit,
solicit or endeavour to entice away from the Company or any Member Company any
individual who is an employee of, or service provider to, the Company or any
Member Company.
10. CHANGES TO AGREEMENT
Any modifications or amendments to this Agreement must be in writing and signed
by all Parties or else they shall have no force and effect.
11. ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the Parties and
their respective successors and assigns, including without limitation, the
Executive's heirs, executors, administrators and personal representatives.
12. GOVERNING LAW, VENUE
Except as otherwise explicitly noted, this Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario (without giving
effect to the principles of conflicts of law). Each party to this Agreement
irrevocably agrees that any action or proceeding concerning or arising out of
the interpretation, enforcement and defense of the transactions contemplated by
this Agreement (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the courts located in the Province of Ontario. Each
party and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY WAIVES ALL
RIGHTS TO A TRIAL BY JURY.
13. NOTICES
13.1 Notice to Executive
Any notice required or permitted to be given to the Executive shall be deemed to
have been received if delivered personally to the Executive or sent by courier
to the Executive's home address last known to the Company.
-8-
13.2 Notice to Company
Any notice required or permitted to be given to the Company shall be deemed to
have been received if delivered personally to, sent by courier, or sent by
facsimile to:
Rand Acquisition Corporation
450 Park Avenue
Suite 1001
New York, New York 10022
Attention: Laurence S. Levy, Chairman
Facsimile: (212) 644-6262
Telephone: (212) 644-3450
with a copy to:
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York 10022
Attention: Todd J. Emmerman, Esq.
Facsimile: (212) 940-8776
Telephone: (212) 940-8800
14. CURRENCY
All dollar amounts set forth or referred to in this Agreement refer to Canadian
currency.
15. WITHHOLDING
All payments made by the Company to the Executive or for the benefit of the
Executive shall be less applicable withholdings and deductions.
16. SAVINGS CLAUSE
The parties hereto agree that if, in any judicial proceeding, a court finds any
portion of this Agreement unenforceable, such portion shall be interpreted to
the maximum extent enforceable and the remainder of this Agreement shall be
unaffected and enforced with its terms or to the maximum extent permitted by
law.
17. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with respect
to the subject matter herein and supersedes all prior agreements, negotiations
and discussions between the parties hereto, there being no extraneous
agreements.
-9-
IN WITNESS WHEREOF the Parties have duly executed this Agreement this day
of , 2005.
- -------------------------- ---------------------------------
Witness SCOTT BRAVENER
LOWER LAKES TOWING LTD.
By:
-----------------------------
Name:
Title:
-10-
SCHEDULE A
Operations
o Oversee all aspects of operations.
o Evaluation of vessels.
o Oversee labour negotiations.
o Review and approval of monthly equipment, maintenance and capital
expenditures.
o Problem solving.
Sales & Marketing
o Lead business development effort and sales team.
o Customer relationship management and development.
o Pricing for all products, customers and profitability management.
o Contract negotiations with new and existing customers.
o Troubleshooting and problem solving.
o Direct responsibility for key accounts.
o Hire of new personnel.
Administration & Finance
o Delegation of duties to senior management.
o Strategic planning and implementation.
o Oversee accounting functions and IT systems.
o Accounts payable and cheque approvals.
o Budgeting.
o Legal, accounting and professional services assistance.
o Hiring and firing of employees and determination of responsibilities of
employees.
o Corporate finance - oversee all dealings with Company's bankers and other
lenders.
-11-
EMPLOYMENT AGREEMENT
BETWEEN:
LOWER LAKES TOWING LTD.
(the "Company")
- and -
JAMES SIDDALL
(the "Executive")
(collectively referred to as the "Parties")
RECITALS:
A. The Executive has been employed with the Company in the position of Vice
President - Operations since August 1, 1995.
B. The Executive has specialized knowledge and valuable skills and experience,
which are critical to the management of the Company and its affiliates, Lower
Lakes Transportation Company and Grand River Navigation Company, Inc. (each a
"Member Company"), and to the continuing success of the business of the Company
and the Member Companies.
C. The Company wishes to secure the continued services of the Executive.
NOW THEREFORE, for value received the Parties agree as follows:
1. DUTIES AND RESPONSIBILITIES
1.1 Positions, Duties and Responsibilities
(a) The Company confirms the continuing appointment of the Executive in
the position of Vice President - Operations and recognizes for all
purposes the Executive's past service with the Company. The
Executive shall have such duties and responsibilities that are
consistent with such position, including those duties and
responsibilities set out in Schedule A to this Agreement, both in
relation to the Company and, to the extent permissible under laws
and regulations applicable to the business of the Member Companies,
each Member Company. The Executive will report to the President of
the Company and, to the extent performing services for a Member
Company, the President of such Member Company. The Executive will
serve in such capacity for the Member Companies, and, to the extent
requested by the Board of Directors of the Company, as a director of
the Company, each Member Company and of Rand Acquisition Corporation
("Rand"), in each case without additional compensation therefor.
-12-
(b) The Executive shall devote all of his business time, attention and
energies, on a full time and exclusive basis, to the business and
affairs of the Company and the Member Companies, shall use his best
efforts to advance the best interests of the Company and the Member
Companies, and shall not during the Term be engaged in any other
business activities, whether or not such business activities are
pursued for gain, profit or other pecuniary advantage, without
approval of the Board of Directors of the Company; provided,
however, that, it shall not be a violation of this Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or
committees or (ii) manage passive personal investments, in either
case so long as any such activities do not interfere with the
performance of his responsibilities as an employee of the Company in
accordance with this Agreement or adversely affect or negatively
reflect upon the Company or the Member Companies.
1.2 Reassignment
The Company shall not reassign the Executive to another position within the
Company or within a Member Company, or alter the duties, responsibilities,
title, or reporting lines of the Executive in a manner inconsistent with this
Agreement or past practice. The Company shall not change the location of the
Executive's employment unless the Executive agrees to such change.
1.3 Travel
The Executive shall be employed at the Company's location in Port Dover,
Ontario. The Executive shall be available for such business-related travel as
may be required for the purposes of carrying out the Executive's duties and
responsibilities.
2. TERM OF EMPLOYMENT
This Agreement will commence on the closing of the Purchase Agreement and will
continue for an initial term of two years therefrom (the "Term") subject to
section 9. The Term may be extended upon mutual written agreement of the
Parties.
3. BASE SALARY
The Executive will be paid an annual salary in the amount of Cdn $163,000,
subject to applicable statutory deductions and discretionary annual increases to
the extent determined by the Board of Directors of the Company (the "Base
Salary"). The Executive's Base Salary will be payable in accordance with Company
practices and procedures as they may exist from time to time. Base Salary will
be reviewed on an annual basis by the Board of Directors of the Company, with
input from the Executive.
-13-
4. BONUS
4.1 Bonus Plan
The Executive shall be a "Participant" in the Management Bonus Program attached
as Schedule B to this Agreement (the "Bonus Plan").
4.2 Performance Bonus
In addition to, and separate from, any awards granted to the Executive under the
Bonus Plan, for each fiscal year commencing after the date hereof, the Executive
will be entitled to a bonus (the "Performance Bonus") pursuant to a bonus plan
(the "Performance Bonus Plan") to be adopted by the Company or a Member Company
no later than the three month anniversary of the date of this Agreement, and in
which the Executive shall be entitled to participate.
5. RETIREMENT PLANS AND PENSION
The Company will make annual contributions to the Executive's Registered
Retirement Savings Plan in amounts not less than Cdn$9,800 per calendar year.
6. OTHER BENEFITS
The Executive shall be entitled to participate in or receive benefits under any
health and accident plan or any other employee benefit plan or arrangement made
available now or in the future by the Company to its executives and key
management personnel, as determined by the Board of Directors of the Company.
7. VACATION
The Executive will be entitled to four weeks paid (at then current Base Salary)
vacation per calendar year commencing with the 2006 calendar year. Unused
vacation days may not be carried over from one calendar year to the next, and
any unused vacation days as of the end of a calendar year shall be forfeited by
the Executive. The Executive will arrange vacation time to suit the essential
business needs of the Company.
8. PERQUISITES AND EXPENSES
8.1 Automobile
The Company will continue to lease an automobile for the Executive (the "Lease")
to be used at the Executive's discretion at a maximum monthly cost to the
Company of not more than Cdn$860. In addition to the Lease, the Company will pay
all related expenses (maintenance and repair, service, insurance, gasoline,
etc.) related to the business user of such automobile.
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8.2 Reimbursement of Expenses
The Company recognizes that the Executive will incur expenses in the performance
of the Executive's duties. The Company shall reimburse the Executive for any
reasonable out-of-pocket expenses incurred in the course of employment.
9. TERMINATION OF EMPLOYMENT; NON-COMPETITION; NON- SOLICITATION
9.1 Terminations Resulting in No Further Obligation to the Company
The Company shall have no further obligations to the Executive hereunder, or
under statute, common law or otherwise, in the event of the following
terminations of employment:
(a) Voluntary Resignation Without Notice
In the event the Executive voluntarily resigns without Good Reason without
at least sixty (60) days advance written notice to the Company.
(b) Cause
In the event the Executive's employment is terminated for Cause, which
term for the purposes of this Agreement shall mean (i) conviction of the
Executive of a criminal offence involving fraud, larceny, misappropriation
of funds, embezzlement or dishonesty; (ii) receipt by or on behalf of
Executive or any member of Executive's immediate family of any personal
profit arising out of in connection with a transaction to which the
Company or a Member Company is party without making full prior disclosure
to the Company or such Member Company; (iii) any misfeasance, nonfeasance
or malfeasance by Executive which causes material harm to the Company or a
Member Company; (iv) breach by the Executive of any material term of this
Agreement, or failure of the Executive to follow and carry out the lawful
instructions of the Board of Directors of the Company or of a Member
Company, in each case after notice and reasonable opportunity for the
Executive to cure such breach or failure; (v) the Executive having been
under the influence of drugs (other than prescription medicine or other
medically-related drugs to the extent that they are taken in accordance
with their directions) or alcohol during the performance of his duties
under this Agreement (it being understood that the Executive will attend
industry functions at which alcohol will be consumed by the Executive), or
while otherwise under the influence of drugs or alcohol, engages in
inappropriate conduct; or (vi) the Executive having engaged in behavior
that would constitute grounds for liability for sexual harassment or
discrimination.
9.2 Termination by the Company without Cause or Failure to Renew upon Expiry of
the Term.
The Company may terminate the Executive's employment without Cause at any
time prior to the expiry of the Term, or, upon each successive expiry of
the Term where the Company determines not to renew this Agreement, in each
case by providing the Executive with (A) any then accrued but unpaid Base
Salary and Performance Bonus as of the date of termination or non-renewal
-15-
and any outstanding reimbursable expenses incurred by the Executive prior
to the date of termination or non-renewal, (B) payment, in equal monthly
payments, of the Executive's Base Salary in effect at the time of
termination or non-renewal for a period of twenty four (24) months, and
(C) continuation of benefits provided pursuant to Sections 5 and 6 for
such payment period (the foregoing clause (A), (B) and (C) being referred
to as the "Separation Package").
9.3 Termination by the Executive for Good Reason
Should the Executive terminate his employment for Good Reason, as hereinafter
defined, he shall receive the Separation Package set out in section 9.2. Failure
of the Executive to terminate his employment on the occurrence of any event
which would constitute Good Reason shall not constitute waiver of his right
under this section 9.2 should Good Reason continue. "Good Reason" is defined as
the occurrence of any of the following without the Executive's express written
consent:
a) the Company assigning to the Executive duties or responsibilities
inconsistent with or inappropriate for his position as Vice
President - Operations of the Company, after notice to the Company
of, and reasonable opportunity of the Company to cure, such alleged
Good Reason;
b) failure by the Company to continue the Bonus Plan in effect in
accordance with its terms or to provide the Executive with benefits
and other pension or retirement plans in accordance with Sections 5
and 6 substantially consistent with those plans in which the
Executive has participated in periods immediately prior to the Term;
c) the Company relocating the Executive's principal office outside of
Port Dover;
d) a sale to a person (which, for all purposes hereof, shall include,
without limitation, an individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate and a trustee, executor,
administrator or other legal representative) or group of persons not
affiliated with the Company of all or substantially all of the
assets of the Company;
e) any person or group of persons acting in concert not affiliated with
the Company, becomes the beneficial owner, directly or indirectly,
of voting securities of the Company and/or securities convertible
into or exchangeable for voting securities of the Company, in
aggregate representing directly, or following conversion or exchange
thereof, fifty percent (50%) or more of the combined voting power of
the Company or of any successor to the Company (in each case on a
fully-diluted basis) in any manner whatsoever, including, without
limitation, as a result of a take-over bid, reorganization of
capital, share exchange, arrangement, merger, amalgamation or other
combination of the Company with any other entity;
f) any breach by the Company of any material term of this Agreement
after notice to the Company of such breach and reasonable
opportunity to cure such breach.
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9.4 Disability and Death
The Executive shall, upon his Disability (as defined below), have the right to
receive the Separation Package and upon his death any then accrued but unpaid
Base Salary and Performance Bonus and any outstanding reimbursable expenses
incurred by the Executive prior to the date of death. For purposes of this
Agreement, a "Disability" shall occur: (i) immediately after the Company has
provided a written termination notice to the Executive supported by a written
statement from a reputable independent physician selected by the Company to the
effect that the Executive shall have become so incapacitated as to be unable to
resume, within 90 days, his employment hereunder by reason of physical or mental
illness or injury; or (ii) upon rendering of a written termination notice by the
Company after the Executive has been unable to substantially perform his duties
hereunder for 90 consecutive days (exclusive of any vacation permitted under
Section 7 hereof) or for 120 days in any 360 day period by reason of any
physical or mental illness or injury. The Executive agrees to make himself
available and to cooperate in any reasonable examination by a reputable
independent physician selected by the Company for the purposes of a
determination of Disability pursuant to this Section 9.4.
9.5 Non-Competition
The Executive shall not, during his employment or within 24 months following the
termination of his employment for any reason, within Canada or the United States
serve as an executive, officer, director, employee or in any advisory capacity
with or to any competitor, in whole or in part, of the Company or any Member
Companies, or either individually or in partnership or jointly or in conjunction
with any person, firm, trust, partnership, association, syndicate or company, as
principal, agent, shareholder, trustee or in any other manner whatsoever
otherwise carry on or be engaged in or be concerned with any person, firm,
trust, partnership, association, syndicate or company which is a competitor, in
whole or in part, of the Company or any Member Company, except as a shareholder
holding less than 5% of the outstanding shares of any such corporation whose
shares are listed and posted for trading on a recognized stock exchange.
9.6 Non-Solicitation of Customers
The Executive shall not, during his employment or within 24 months following the
termination of his employment for any reason, directly or indirectly, solicit
any customer of the Company or any Member Company in order to attempt to direct
any such customer away from, or to do less business with, the Company or any
Member Company.
9.7 Non-Solicitation of Employees
The Executive shall not, during his employment or within 24 months following the
termination of his employment for any reason, directly or indirectly recruit,
solicit or endeavour to entice away from the Company or any Member Company any
individual who is an employee of, or service provider to, the Company or any
Member Company.
10. CHANGES TO AGREEMENT
Any modifications or amendments to this Agreement must be in writing and signed
by all Parties or else they shall have no force and effect.
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11. ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the Parties and
their respective successors and assigns, including without limitation, the
Executive's heirs, executors, administrators and personal representatives.
12. GOVERNING LAW, VENUE
Except as otherwise explicitly noted, this Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario (without giving
effect to the principles of conflicts of law). Each party to this Agreement
irrevocably agrees that any action or proceeding concerning or arising out of
the interpretation, enforcement and defense of the transactions contemplated by
this Agreement (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the courts located in the Province of Ontario. Each
party and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY WAIVES ALL
RIGHTS TO A TRIAL BY JURY.
13. NOTICES
13.1 Notice to Executive
Any notice required or permitted to be given to the Executive shall be deemed to
have been received if delivered personally to the Executive or sent by courier
to the Executive's home address last known to the Company.
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13.2 Notice to Company
Any notice required or permitted to be given to the Company shall be deemed to
have been received if delivered personally to, sent by courier, or sent by
facsimile to:
Rand Acquisition Corporation
450 Park Avenue
Suite 1001
New York, New York 10022
Attention: Laurence S. Levy, Chairman
Facsimile: (212) 644-6262
Telephone: (212) 644-3450
with a copy to:
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York 10022
Attention: Todd J. Emmerman, Esq.
Facsimile: (212) 940-8776
Telephone: (212) 940-8800
14. CURRENCY
All dollar amounts set forth or referred to in this Agreement refer to Canadian
currency.
15. WITHHOLDING
All payments made by the Company to the Executive or for the benefit of the
Executive shall be less applicable withholdings and deductions.
16. SAVINGS CLAUSE
The parties hereto agree that if, in any judicial proceeding, a court finds any
portion of this Agreement unenforceable, such portion shall be interpreted to
the maximum extent enforceable and the remainder of this Agreement shall be
unaffected and enforced with its terms or to the maximum extent permitted by
law.
17. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with respect
to the subject matter herein and supersedes all prior agreements, negotiations
and discussions between the parties hereto, there being no extraneous
agreements.
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IN WITNESS WHEREOF the Parties have duly executed this Agreement this day
of , 2005.
- -------------------------- ---------------------------------
Witness JAMES SIDDALL
LOWER LAKES TOWING LTD.
By:
-----------------------------
Name:
Title:
SCHEDULE A
Operations
o Report to the President on all operational matters
o Oversee hiring of Officers and unlicenced personnel (operational)
o Oversee Health & Safety Program, liase with government entities.
o Oversee Security Requirements, programs as CSO
o Create Wage scales, costing for operational employees
o Oversee ongoing HR efforts for operational employees
o Assess evaluations of all employees
o Assess bonus evaluation of all employees
o Develop, maintain policies and procedures (operational)
o Primary assist, manage coatings programs.
o Oversee many aspects of operations, liase with President on others.
o Assist with evaluation of vessels.
o Daily charge of labour management.
o Assess vessel performance on a monthly, quarterly basis.
o First point of contact for ships on all operational matters during
shipping season.
o Problem solving.
Sales & Marketing
o Daily charge of vessel dispatch, customer requirements through operation
season.
o Monitor ytd customer service vs. contractual requirements.
o Liase with marketing team on most contracts as part of that team.
o Customer relationship management and development.
o Assist, negotiate pricing for contract, spot market customers, assess
profitability.
o Troubleshooting and problem solving.
o Front line, daily responsibility to all accounts during operation season.
Administration & Finance
o Do profitability analysis on prospect vessels for purchase, lease.
o Business analysis/profitability for major contracts.
o Assess vessel scheduling for best profitability on a monthly basis.
o Adjust schedules to real situation problems in most profitable manner on a
daily basis
o Provide Accounting with monthly freight revenue numbers for check against
receivables, provide MNSF accruals, other operational accruals
o Assist with IT systems assessment
o Assist as required with budgeting, forecasting of revenues
o Oversee admin. area for Customs / Immigration compliance of vessels /
cargo / personnel
o Liase with legal counsel on any and all labour related matters.
ANNEX E
Execution Copy
PREFERRED STOCK PURCHASE AGREEMENT
Dated September 2, 2005
by and between
KNOTT PARTNERS LP, MATTERHORN OFFSHORE FUND LTD., ANNO LP, GOOD
STEWARD FUND LTD., BAY II RESOURCE PARTNERS, BAY RESOURCE PARTNERS
L.P., BAY RESOURCE PARTNERS OFFSHORE FUND LTD., THOMAS E. CLAUGUS
and
RAND ACQUISITION CORPORATION
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.........................................................1
1.1 Definitions..........................................................1
1.2 Knowledge............................................................4
1.3 Interpretation.......................................................4
ARTICLE II CLOSING; PURCHASE AND SALE.........................................4
2.1 The Closing..........................................................4
2.2 Issuance and Delivery of the Purchase Shares.........................4
2.3 The Purchase Price...................................................4
2.4 Delivery of Purchase Price...........................................5
2.5 Use of Proceeds......................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................5
3.1 Organization; Good Standing..........................................5
3.2 Subsidiaries.........................................................5
3.3 Authority; Execution and Delivery; Enforceability....................5
3.4 Non-Contravention....................................................6
3.5 Corporate Documents..................................................6
3.6 Capitalization; Options..............................................6
3.7 Consents and Approvals...............................................7
3.8 SEC Reports and Financial Statements.................................7
3.9 Litigation and Claims................................................8
3.10 No Finder............................................................8
3.11 Exempt Offering......................................................8
3.12 Agreements; Action...................................................9
3.13 Related-Party Transactions...........................................9
3.14 Title to Property and Assets.........................................9
3.15 Employee Benefit Plans...............................................9
3.16 Tax Returns, Payments and Elections..................................9
3.17 Insurance............................................................10
3.18 Disclosure...........................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYERS.......................10
4.1 Organization and Good Standing.......................................10
4.2 Corporate Authority; Execution and Delivery; Enforceability..........10
4.3 Non-Contravention....................................................11
4.4 Consents and Approvals...............................................11
4.5 Litigation and Claims................................................11
4.6 No Finder............................................................11
4.7 Investment Representations...........................................11
4.8 Accredited Investor..................................................12
ARTICLE V COVENANTS...........................................................12
5.1 Restrictive Legends..................................................12
5.2 Change in Condition..................................................12
5.3 Subordination........................................................12
5.4 Limitation on Affiliate Transactions.................................12
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES.................13
6.1 Conditions to obligations of the Buyers..............................13
6.2 Conditions to obligations of the Company.............................14
ARTICLE VII MISCELLANEOUS.....................................................14
7.1 Survival; Certain Other Matters......................................14
7.2 Further Assurances...................................................15
7.3 Expenses of the Transaction..........................................15
7.4 Notices..............................................................15
7.5 No Modification Except in Writing....................................16
7.6 Entire Agreement.....................................................16
7.7 Severability.........................................................17
7.8 Assignment...........................................................17
7.9 Governing Law; Jurisdiction..........................................17
7.10 Captions.............................................................17
7.11 Counterparts.........................................................17
7.12 Delays or Omissions..................................................18
Annex I Company Disclosure Schedule
Annex II Allocation among Buyers
Exhibit A Certificate of Designations
Exhibit B Registration Rights Agreement
Exhibit C Form of legal opinion
ii
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT ("Agreement"), made and entered into
this 2nd day of September, 2005, by and between KNOTT PARTNERS LP, MATTERHORN
OFFSHORE FUND LTD., ANNO LP, GOOD STEWARD FUND LTD., BAY II RESOURCE PARTNERS,
BAY RESOURCE PARTNERS L.P., BAY RESOURCE PARTNERS OFFSHORE FUND LTD., THOMAS E.
CLAUGUS (each, a "Buyer" and collectively, "Buyers"), and RAND ACQUISITION
CORPORATION, a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Buyers desire to purchase and acquire from the Company, and
the Company desires to issue and deliver to the Buyers, an aggregate of 300,000
shares (the "Purchase Shares") of the Company's Series A Convertible Preferred
Stock, par value $0.0001 ("Series A Preferred Stock"), free and clear of all
claims, liens, options, charges and encumbrances of any kind other than
restrictions on transfer as provided under applicable securities laws ("Liens"),
on the terms and subject to the conditions hereinafter set forth and as
allocated among Buyers as set forth on Annex II to this Agreement; and
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement shall have the meanings ascribed to such terms in Article I of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter contained, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
respective meanings ascribed to them below:
"Action" has the meaning ascribed to such term in Section 3.9.
"Affiliate" means, with respect to any specified Person, (i) any other
Person 50% or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with the power to vote by such specified
Person or (ii) any other Person directly or indirectly controlling, controlled
by or under direct or indirect common control with such specified Person. For
purposes of this definition, the term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person by virtue of ownership of voting securities, by contract
or otherwise.
"Agreement" has the meaning ascribed to such term in the Preamble.
"Business Day" means any day (other than Saturday or Sunday) on which
banking institutions in the State of New York are not authorized or obligated by
law to close.
"Buyer" or "Buyers" has the meaning ascribed to such term in the Preamble.
"Certificate of Designations" shall mean the Certificate of Designations
of the Preferred Stock, attached hereto as Exhibit A.
"Closing" has the meaning ascribed to such term in Section 2.1.
"Closing Date" has the meaning ascribed to such term in Section 2.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute thereto.
"Common Stock" has the meaning ascribed to such term in Section 3.6.
"Company" has the meaning ascribed to such term in the Preamble.
"Company Disclosure Schedule" shall mean that certain schedule attached
hereto as Annex I qualifying the representations and warranties contained in
Article III.
"Company Material Adverse Effect" shall mean any event, condition or
contingency that has had, or is reasonably likely to have, a material adverse
effect on the business, assets, liabilities, results of operations, prospects or
financial condition of the Company and its Subsidiaries, taken as a whole,
provided, however, that a Company Material Adverse Effect shall not include any
such effect resulting from or arising in connection with (a) changes or
conditions generally affecting the industries or segments in which the Company
operates; (b) changes in general economic, market or political conditions; or
(c) the announcement, other disclosure or completion of the transactions
contemplated by the Lower Lakes Acquisition Documents.
"Conversion Shares" has the meaning ascribed to such term in Section
3.6(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and all regulations promulgated thereunder.
"Financial Statements" has the meaning ascribed to such term in Section
3.8.
"GAAP" shall mean United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean any federal, state, municipal or other
governmental authority, department, commission, board, agency or other
instrumentality.
"Governmental Rules" shall mean all laws, statutes, rules, regulations,
codes, ordinances, writs, orders or decrees of any Governmental Authority.
2
"Lien" has the meaning ascribed to such term in the Preamble.
"Lower Lakes Acquisition" shall mean the transactions contemplated by the
Lakes Acquisition Documents.
"Lower Lakes Acquisition Documents" shall mean the Stock Purchase
Agreement, dated September 2, 2005, among the Company, LL Acquisition Corp. and
the stockholders of Lower Lakes Towing Ltd. and the other agreements
contemplated thereby or ancillary thereto.
"Maritime Laws" means the Shipping Act, 1916, Merchant Marine Act, 1920,
and the Merchant Marine Act, 1936, all as amended, and the regulations
promulgated thereunder, collectively.
"Person" shall mean any individual, corporation, partnership, limited
liability company, limited liability partnership, joint venture, estate, trust,
cooperative, foundation, union, syndicate, league, consortium, coalition,
committee, society, firm, company or other enterprise, association, organization
or other entity or Governmental Authority.
"Preferred Stock" has the meaning ascribed to such term in the Recitals.
"Purchase Price" has the meaning ascribed to such term in Section 2.3.
"Purchase Shares" has the meaning ascribed to such term in the Recitals.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, by and between the Company and the Buyers, in the form of Exhibit B
hereto.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Reports" has the meaning ascribed to such term in Section 3.8.
"Section 203" has the meaning ascribed to such term in Section 5.14.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, and all regulations promulgated thereunder
"Subsidiary" shall mean, when used with respect to any Person, any other
Person, whether incorporated or unincorporated, of which (i) more than fifty
percent of the securities or other ownership interests or (ii) securities or
other interests having by their terms ordinary voting power to elect more than
fifty percent of the board of directors or others performing similar functions
with respect to such corporation or other organization, is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries.
"Survival Period" has the meaning ascribed to such term in Section 7.1.
3
"Transaction Documents" shall mean (i) the Registration Rights Agreement
and the Certificate of Designations and (ii) those other agreements,
certificates and documents entered into or delivered between the Buyers and the
Company related to, ancillary to, or in connection with this Agreement, the
Registration Rights Agreement or the Certificate of Designations.
1.2 Knowledge. As used in the Agreement, "to the Company's knowledge" or
"to the knowledge of the Company" or words of similar import shall mean the
actual knowledge of Laurence S. Levy, the Chief Executive Officer of the
Company.
1.3 Interpretation. When a reference is made in this Agreement to a
section, article, paragraph, clause, annex or exhibit, such reference shall be
to a reference to this Agreement unless otherwise clearly indicated to the
contrary. The descriptive article and section headings herein are intended for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The words "hereof," "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement. The meaning assigned to each term used in this
Agreement shall be equally applicable to both the singular and the plural forms
of such term, and words denoting either gender shall include both genders. Where
a word or phrase is defined herein, each of its other grammatical forms shall
have a corresponding meaning.
The parties have participated jointly in the negotiation and drafting of
this Agreement and the Transaction Documents. Consequently, in the event an
ambiguity or question of intent or interpretation arises, this Agreement and
each of the Transaction Documents shall be construed as if drafted jointly by
the parties thereto, and no presumption or burden of proof shall arise favoring
or disfavoring either party by virtue of the authorship of any provision of this
Agreement or of any of the Transaction Documents.
ARTICLE II
CLOSING; PURCHASE AND SALE
2.1 The Closing. Subject to the terms and conditions of this Agreement,
the closing (the "Closing") of the transactions set forth in this Article II
shall take place concurrently with the closing of the Lower Lakes Acquisition,
or at such other time or such other date as Buyers and the Company may agree, at
the offices of Katten Muchin Rosenman LLP, 575 Madison Avenue, New York, New
York (such date upon which the Closing occurs is referred to as the "Closing
Date").
2.2 Issuance and Delivery of the Purchase Shares. At the Closing, the
Company shall issue and deliver to each Buyer certificates for the number of
Purchase Shares set forth on Annex II hereto and each Buyer shall purchase such
Purchase Shares from the Company.
2.3 The Purchase Price. At the Closing, the Buyers shall purchase the
Purchase Shares for a purchase price equal to Fifty Dollars ($50.00) per
Purchase Share (the "Purchase Price"), which shall be paid to the Company by
each Buyer in the amounts set forth on Annex II hereto.
4
2.4 Delivery of Purchase Price. At the Closing, the aggregate Purchase
Price shall be paid by the Buyers to the Company by wire transfer of immediately
available funds to an account designated in writing by the Company at least two
Business Days prior to the Closing.
2.5 Use of Proceeds. The Company shall use the net proceeds from the
issuance of the Purchase Shares for the purposes of (a) funding the purchase
price and other obligations of the Company and its Subsidiaries under the Lower
Lakes Acquisition Documents, as well as payment of related fees and expenses,
and (b) for general working capital purposes following consummation of the Lower
Lakes Acquisition.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyers as of the date hereof
and as of the Closing Date as follows:
3.1 Organization; Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power and authority to conduct its
business as now being conducted and is duly licensed or qualified to do business
and is in good standing as a foreign corporation in all jurisdictions in which
the nature of the business conducted by it, and/or the character of the assets
owned or leased by it, makes such qualification or licensure necessary, except
for those jurisdictions in which the failure to be so qualified or licensed or
to be in good standing would not, individually or in the aggregate, limit the
Company's ability to consummate the transactions hereby contemplated or have a
Company Material Adverse Effect.
3.2 Subsidiaries. All of the outstanding shares of the capital stock of
each Subsidiary of the Company are owned by the Company free and clear of all
Liens. Each of the Company's Subsidiaries is set forth on Section 3.2 of the
Company Disclosure Schedule and is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Each of the Company's Subsidiaries has the power
and authority to conduct its business as now being conducted and is duly
licensed or qualified to do business and is in good standing as a foreign
corporation or other legal entity in all jurisdictions in which the nature of
the business conducted by it, and/or the character of the assets owned or leased
by it, makes such qualification or licensure necessary, except for those
jurisdictions in which the failure to be so qualified or licensed or to be in
good standing would not, individually or in the aggregate, limit the Company's
ability to consummate the transactions hereby contemplated or have a Company
Material Adverse Effect.
3.3 Authority; Execution and Delivery; Enforceability. The Company has the
corporate power and authority to execute and deliver this Agreement and the
Transaction Documents and to consummate the transactions hereby and thereby
contemplated. The execution and delivery by the Company of this Agreement and
5
the Transaction Documents and the consummation by the Company of the
transactions hereby and thereby contemplated have been authorized by all
necessary corporate action of the Company. The Company has duly executed and
delivered this Agreement and the Transaction Documents, and, assuming the due
execution and delivery of this Agreement and the Transaction Documents by each
party thereto (other than the Company), this Agreement and the Transaction
Documents constitute valid and binding obligations of the Company and are
enforceable against the Company in accordance with its and their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or general equitable principles
(whether considered in a proceeding at equity or in law).
3.4 Non-Contravention. Except as set forth on Schedule 3.4, neither the
execution and delivery of this Agreement and the Transaction Documents by the
Company, nor the consummation of the transactions hereby and thereby
contemplated by the Company, will:
(i) constitute any violation or breach of the certificate of
incorporation or the by-laws (or comparable organizational documents in
the case of Subsidiaries) of the Company or any of its Subsidiaries;
(ii) constitute a default under or a violation or breach of, or
result in the acceleration of any obligation under, any provision of any
Contract to which the Company or any of its Subsidiaries is a party or by
which any of the assets of the Company or any of its Subsidiaries or the
Purchase Shares may be affected;
(iii) assuming the consents and approvals described in Section 3.7
have been received, violate any Governmental Rules affecting the Company
or any of its Subsidiaries; or
(iv) result in the creation of any Lien on any of the assets of the
Company or any of its Subsidiaries.
other than, in the case of foregoing clauses (ii), (iii), and (iv), those
defaults, violations, breaches, accelerations and Liens which, individually or
in the aggregate, would not have a Company Material Adverse Effect.
3.5 Corporate Documents. The Company has filed as exhibits to its SEC
Reports true and complete copies of the Certificate of Incorporation, as
amended, and By-Laws of the Company.
3.6 Capitalization; Options. (a) The Company is authorized to issue
20,000,000 shares of Common Stock, 5,600,000 of which are issued and outstanding
as of the date hereof, ("Common Stock") and 1,000,000 shares of Preferred Stock,
none of which are issued and outstanding as of the date hereof (prior to giving
effect to the transactions contemplated by this Agreement).
6
(b) All of the Purchase Shares when issued to Buyers in accordance with
the terms of this Agreement shall be legally and validly issued, fully paid and
non-assessable, free and clear of all Liens. The shares of Common Stock issuable
upon conversion of the Purchase Shares (the "Conversion Shares") have been duly
and validly reserved on the books and records of the Company and, when issued
upon conversion of the Purchase Shares in accordance with the terms of the
Certificate of Designations and applicable Governmental Rules, shall be legally
and validly issued, fully paid and nonassessable, free and clear of all Liens.
(c) Other than the Common Stock and the Preferred Stock, there are no
other series or classes of capital stock of the Company authorized or issued and
outstanding. Except as set forth on Section 3.6(c) of the Company Disclosure
Schedule, there are no outstanding warrants, options, contracts, rights
(preemptive or otherwise), calls, commitments or other instruments convertible
into or exchangeable for shares of capital stock of the Company or any of the
Company's Subsidiaries, in each such case, to which the Company or any of
Company's Subsidiaries is a party and which relates to the sale or issuance of
shares of capital stock of the Company or of any of Company's Subsidiaries
(collectively, the "Company Instruments") As of the date hereof, there are
10,100,000 shares of Common Stock reserved on the Company's books and records
for issuance upon exercise of redeemable warrants and an option held by the
underwriter of the Company's initial public offering. Except as set forth on
Section 3.6(c) of the Company Disclosure Schedule or as contemplated by this
Agreement and the Transaction Documents, (i) the Company has not agreed to
register any shares of its capital stock under the Securities Act or granted
registration rights with respect to shares of its capital stock to any Person
and (ii) there are no voting trusts, stockholders agreements, proxies or other
agreements or understandings in effect to which the Company is a party with
respect to the voting or transfer of any shares of Common Stock. Except as
disclosed in the SEC Reports or any exhibit thereto, to the extent any such
Company Instruments are outstanding as of the date hereof, neither the issuance
and sale of the Purchase Shares nor the issuance of the Conversion Shares in
accordance with its terms will result in an adjustment of the exercise or
conversion price of, or number of shares issuable upon the exercise or
conversion of any such, Company Instruments.
(d) The outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable. All outstanding Common
Stock, options and other securities of the Company were issued in accordance
with the registration or qualification provisions of the Securities Act and any
relevant state securities laws (including, without limitation, anti-fraud
provisions) or, subject in part to the truth and accuracy of each purchaser's
representations to the Company at the time of the purchase thereof, pursuant to
valid exemptions therefrom.
3.7 Consents and Approvals. Except as set forth in Section 3.7 of the
Company Disclosure Schedule, no consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Authority or any
other Person is required on behalf of the Company or any of its Subsidiaries in
connection with the execution, delivery or performance of this Agreement and the
Transaction Documents or the consummation of the transactions contemplated
hereby and thereby, other than such consents, approvals and authorizations of,
and declarations, filings and registrations the failure of which to obtain, make
or otherwise effect which would not, individually or in the aggregate, result in
a Company Material Adverse Effect.
3.8 SEC Reports and Financial Statements.
7
(a) The Company has filed all forms, reports and documents required to be
filed by it with the SEC since November 2, 2004 (collectively, the "SEC
Reports"). The SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. None of
the Company's Subsidiaries is required to file any form, report or other
document with the SEC.
(b) Each of the financial statements (including, in each case, any notes
thereto) contained in the SEC Reports (the "Financial Statements") (i) was
prepared from the books of account and other financial records of the Company,
(ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto) and (iii) presented fairly in all material respects the financial
position of the Company as at the respective dates thereof and the results of
its operations and its cash flows for the respective periods indicated therein
except as otherwise noted therein (subject, in the case of unaudited statements,
to the omission of footnotes and normal and recurring year-end adjustments which
were not and are not expected, individually or in the aggregate, to have a
Company Material Adverse Effect).
(c) Except for liabilities and obligations reflected on the March 31, 2005
balance sheet of the Company included in the SEC Reports (including the notes
thereto), liabilities and obligations disclosed in the SEC Reports (including
exhibits thereto) filed prior to the date of this Agreement and other
liabilities and obligations incurred in the ordinary course of business since
March 31, 2005, neither the Company nor any of the Company's Subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
prepared in accordance with GAAP which, individually or in the aggregate, would
cause a Company Material Adverse Effect.
3.9 Litigation and Claims. There is no action, suit, claim, proceeding,
arbitration or investigation (each, an "Action") pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or, to the best of the Company's knowledge, against any officer,
director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company or that questions the validity of this Agreement, or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby. Neither the Company nor any of its Subsidiaries
is subject to or in default under any judgment, order, writ, agreement,
injunction or decree of any court or Governmental Authority.
3.10 No Finder. Neither the Company, nor any of its Subsidiaries, nor any
party acting on their behalf, has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions contemplated hereby.
3.11 Exempt Offering. Subject in part to the truth and accuracy of each
Buyer's representations set forth in Article IV of this Agreement, the offer,
sale and issuance of the Purchase Shares and the Conversion Shares, as
contemplated by and in conformity with this Agreement are exempt from the
registration requirements of Section 5 of the Securities Act by virtue of
8
Regulation D thereunder, and from the registration or qualification requirements
of any other applicable federal or state securities laws, and the issuance of
the Conversion Shares in accordance with the Company's Certificate of
Incorporation and the Certificate of Designations will be exempt from such
registration and qualification requirements, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
3.12 Agreements; Action. Other than (i) the Lower Lakes Acquisition
Documents, (ii) contracts in respect of services being provided to the Company
by third parties in connection with the Lower Lakes Acquisition and (iii) as
attached as an exhibit to the Company's filing on Form S-1 (as amended) with the
SEC (File no. 333-117051), the Company is not a party to, and none of its
properties, rights or assets are bound by, any material contract, agreement,
lease, power of attorney, guaranty, surety arrangement, or other commitment,
whether written or oral.
3.13 Related-Party Transactions. No employee, officer or director of the
Company or member of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. Except as set forth in the Company's SEC filings, none
of such persons and no "affiliate" or "associate" (as those terms are defined in
Rule 405 promulgated under the 1933 Act) of any such person has had any direct
or indirect ownership interest in, or other material interest in the Company, or
any firm or corporation (i) with which the Company is affiliated, (ii) with
which the Company has a business relationship, (iii) that competes with the
Company, (iv) which purchases from or sells, licenses or furnishes to the
Company any goods, property or services; or (v) which is a party to any contract
or agreement to which the Company is a party or by which it may be bound or
affected; provided, however that no representation or warranty is made with
respect to stock in publicly traded companies that may compete with the Company
owned by employees, officers or directors of the Company and members of their
immediate families.
3.14 Title to Property and Assets. Company has good and marketable title
to all of its properties and assets, in each case, except as set forth in the
SEC filings and except for liens arising from current taxes not yet due and
payable, free and clear of any mortgages, pledges, liens, encumbrances, security
interests or charges of any kind (collectively, "Encumbrances").
3.15 Employee Benefit Plans. Neither the Company, nor any member of a
controlled group (within the meaning of Sections 414(b), (c), (m) and (o) of the
Code)) of employers that include the Company (collectively, the "Company
Group"), maintains any "employee benefit plan" within the meaning of section
3(1) of the Employee Retirement Income Security Act of 1974, as amended) nor any
other severance, bonus, incentive stock option, stock appreciation, stock
purchase, retirement, insurance, profit sharing, deferred compensation welfare
or fringe benefit plan, agreement or arrangement, whether written or unwritten,
providing benefits for employees or former employees of the Company or members
of the Company Group (including such arrangements contained within the
provisions of an individual employment or consulting agreement).
3.16 Tax Returns, Payments and Elections. The Company has filed all tax
returns and reports (including information returns and reports) as required by
law. These returns and reports are true and correct in all material respects.
The Company has paid all taxes and other assessments due, except those contested
9
by it in good faith that are listed in Section 3.16 of the Company Disclosure
Schedule. The provision for taxes of the Company as shown in the Financial
Statements is adequate for taxes due or accrued as of the date thereof. The
Company has not elected to be treated as a Subchapter S corporation pursuant to
Section 1362(a) of the Code, nor has it made any other elections pursuant to the
Code (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities, and no such audits are pending or, to
the Company's knowledge, threatened. Since the date of the Financial Statements,
the Company has not incurred any taxes, assessments or governmental charges
other than in the ordinary course of business. The Company has withheld or
collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
3.17 Insurance. Other than directors' and officers' liability insurance
policies, the Company does not maintain any insurance policies. All insurance
policies maintained by the Company are in full force and effect and the Company
is not in default of any provision thereof. The Company has not received notice
from any issuer of any such insurance policies of its intention to cancel or
refusal to renew any policy issued by it.
3.18 Disclosure. None of this Agreement or any other statements or
certificates made or delivered in connection herewith or therewith contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated therein or necessary to make the
statements herein or therein, in light of the circumstances in which they are
made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
Each Buyer, severally and not jointly, represents and warrants to the
Company as of the date hereof and the Closing Date as follows:
4.1 Organization and Good Standing. Such Buyer (if not an individual) is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of formation.
4.2 Corporate Authority; Execution and Delivery; Enforceability. Such
Buyer has the requisite power and authority to execute and deliver this
Agreement and the Transaction Documents to which it is a party and to consummate
the transactions hereby and thereby contemplated. The execution and delivery by
such Buyer of this Agreement and the Transaction Documents to which it is a
party and the consummation by such Buyer of the transactions hereby and thereby
10
contemplated have been authorized by all necessary action (corporate or
otherwise). Such Buyer has duly executed and delivered this Agreement and the
Transaction Documents to which it is a party, and, assuming the due execution
and delivery of this Agreement and the Transaction Documents by each party
thereto (other than such Buyer), this Agreement and the Transaction Documents to
which it is a party constitute valid and binding obligations of such Buyer and
are enforceable against such Buyer in accordance with its and their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or general equitable principles
(whether considered in a proceeding at equity or in law).
4.3 Non-Contravention. Neither the execution and delivery of this
Agreement or the Transaction Documents to which it is a party by such Buyer, nor
the consummation of the transactions hereby or thereby contemplated by such
Buyer, will:
(i) constitute any violation or breach of the organizational
documents of such Buyer (if not an individual); or
(ii) violate any Government Rule affecting such Buyer, other than
any such violations which, individually or in the aggregate, would not
prevent such Buyer from consummating the transactions contemplated by this
Agreement and the Transaction Documents.
4.4 Consents and Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Authority or third
party is required on behalf of such Buyer in connection with the execution,
delivery or performance of this Agreement or the Transaction Documents to which
it is a party and all documents contemplated hereby or thereby or the
transactions contemplated hereby and thereby, other than such consents,
approvals and authorizations of, and declarations, filings and registrations
with, third parties the failure of which to obtain, make or otherwise effect
which would not, individually or in the aggregate, prevent such Buyer from
consummating the transactions contemplated by this Agreement and the Transaction
Documents.
4.5 Litigation and Claims. There is no action, suit, claim, proceeding,
arbitration or investigation pending or, to the knowledge of such Buyer,
threatened against or affecting such Buyer with respect to the propriety or
validity of the transactions contemplated hereby.
4.6 No Finder. Neither such Buyer nor any party acting on such Buyer's
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated
hereby.
4.7 Investment Representations. Such Buyer hereby acknowledges and agrees
that the Purchase Shares, and, if and when issued, the Conversion Shares, will
not be registered under the Securities Act or any state securities laws and may
not be offered or sold except pursuant to registration or an exemption from the
registration requirements of the Securities Act and all applicable state
securities laws. In this connection, such Buyer understands Rule 144 promulgated
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
11
4.8 Accredited Investor. Such Buyer represents that: (i) such Buyer is an
"accredited investor" (as such term is defined in Regulation D under the
Securities Act) and is acquiring the Purchase Shares for its own account, for
investment purposes only, and not with a view to the resale or offer for sale
thereof or with any present intention of distributing or selling or offering for
sale any of such securities; and (ii) such Buyer is capable of bearing the
economic risk of such investment, including a complete loss of the investment in
the Purchase Shares.
ARTICLE V
COVENANTS
5.1 Restrictive Legends. None of the Purchase Shares or the Conversion
Shares may be transferred without registration under the Securities Act and
applicable state securities laws unless counsel to each transferring Buyer shall
advise the Company in writing that such transfer may be effected without such
registration. Each certificate representing any of the foregoing shall bear
legends in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT (I) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES UNDER
THE ACT, OR (II) UPON RECEIPT BY ISSUER OF AN OPINION OF LEGAL COUNSEL
REASONABLY SATISFACTORY TO ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.
The Company shall remove or cause its registrar and transfer agent to
remove such legend at the time such Purchase Shares or Conversion Shares are
transferred pursuant to an effective registration statement under the Securities
Act or pursuant to Rule 144 under the Securities Act.
5.2 Change in Condition. Prior to the Closing, the Company shall promptly
advise each Buyer in writing of any material change in the condition (financial
or otherwise), operations or properties or businesses of the Company, Lower
Lakes, or any of their respective Subsidiaries.
5.3 Subordination. The Company and each Buyer hereby agree that the form
of subordinated promissory note attached as Exhibit A to the Certificate of
Designations shall be amended to expressly subordinate the indebtedness
represented thereby, and the rights of the holder thereunder, to the senior
indebtedness to be incurred by the Company on the Closing Date in accordance
with the commitment letter in respect thereof attached at Exhibit 14 to the
Stock Purchase Agreement included in the Lower Lakes Acquisition Documents, all
to the reasonable satisfaction of the holders of such senior indebtedness.
5.4 Limitation on Affiliate Transactions. Notwithstanding the
inapplicability of Section 203 of the Delaware General Corporation Law ("Section
203") to the Company, the Buyers and the transactions contemplated hereby, each
Buyer hereby agrees that, from and after the Closing and until the eighteen
12
month anniversary thereof, the Company shall be prohibited from engaging in any
"business combination" (as defined in Section 203) with such Buyer unless such
business combination is approved by the holders of a majority of Common Stock of
the Company, other than Buyers, entitled to vote at a meeting in respect
thereof.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
The obligation of the parties to consummate the transactions contemplated
under this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by the party
whose obligation is subject to such conditions, in their sole discretion;
provided, however, that a waiver by a Buyer of a condition to the obligations of
any such Buyer will not be effective unless such condition is also waived by
each other Buyer with respect to each such other Buyer's obligations.
6.1 Conditions to obligations of the Buyers.
(a) There shall not be in effect any injunction or restraining order
issued by a court of competent jurisdiction in an Action against the
consummation of the transactions contemplated hereby or by any Transaction
Document.
(b) The Lower Lakes Acquisition shall be completed concurrently with the
Closing in accordance with the terms of the Lower Lakes Acquisition Documents,
without waiver by the Company or its Affiliates party thereto of any material
term or condition thereof (including, without limitation, waiver of any event,
condition or contingency that would constitute a Material Adverse Effect (as
defined in the Lower Lakes Acquisition Documents)).
(c) The Company shall have executed and delivered the Registration Rights
Agreement, dated as of the Closing Date.
(d) The Company shall have filed the Certificate of Designations with the
Secretary of State of the State of Delaware.
(e) The Buyers shall have received a short-form good standing certificate
relating to the Company, dated within ten Business Days of the Closing Date
(with a bring down certificate dated as of the Closing), issued by the Secretary
of State of the State of Delaware.
(f) The representations and warranties of the Company contained in Article
III that are qualified as to materiality shall be true and correct and those not
so qualified shall be true and correct in all material respects on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
(g) The Company shall have performed and complied in all material respects
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
13
(h) The Chief Executive Officer of the Company shall deliver to each Buyer
at the Closing a certificate stating that the conditions specified in Sections
6.1(d), 6.1(f), and 6.1(g) have been fulfilled and stating that there shall have
been no event which has resulted in a Company Material Adverse Effect since the
date of the Financial Statements.
(i) All authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Securities
pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
(j) All corporate and other proceedings in connection with the
transactions contemplated hereby at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to Buyers'
counsel, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request. This
may include, without limitation, good standing certificates and certification by
the Company's Secretary regarding the Company's Certificate of Incorporation,
the Certificate of Designations and By-laws and Board of Director and
stockholder resolutions, if any, relating to this Agreement and the transactions
contemplated hereby.
(k) The Buyers shall have received from Katten Muchin Rosenman LLP,
counsel for the Company, an opinion, dated as of the Closing, in the form
attached hereto as Exhibit C.
6.2 Conditions to obligations of the Company.
(a) There shall not be in effect any injunction or restraining order
issued by a court of competent jurisdiction in an Action against the
consummation of the transactions contemplated hereby or by any Transaction
Document.
(b) The Lower Lakes Acquisition shall be completed concurrently with the
Closing in accordance with the terms of the Lower Lakes Acquisition Documents.
(c) The Buyers shall have executed and delivered the Registration Rights
Agreement.
(d) The Buyers shall have provided evidence reasonably satisfactory to the
Company that issuance of the Purchase Shares to the Buyers will not result in
the failure of the Company to be in continuous compliance with the U.S.
citizenship requirements of the Maritime Laws and any provisions of the
certificate of incorporation or by-laws of the Company adopted from time to time
to ensure such compliance .
ARTICLE VII
MISCELLANEOUS
7.1 Survival; Certain Other Matters.
(a) The representations and warranties of the parties contained in this
Agreement shall survive the Closing and shall continue in full force and effect
until the second anniversary of the date hereof, after which time such
representations and warranties shall terminate and have no further force or
effect; provided, however, that the representations and warranties contained in
14
Sections 3.6, 3.13, 4.6, 4.7 and 4.8 hereof shall survive the Closing and remain
in full force and effect until the expiration of the applicable statute of
limitations, after which time such representations and warranties shall
terminate and have no further force or effect. The period during which any such
representation or warranty survives is the "Survival Period" for such
representation or warranty. Notwithstanding the foregoing, any representation or
warranty that would otherwise terminate shall survive with respect to, and only
with respect to, any matter of which notice is given to Company or Buyers, as
the case may be, in writing pursuant to this Agreement prior to the end of the
applicable Survival Period until such matter is resolved, after which time such
representation and warranty shall terminate and have no further force or effect.
The representations, warranties and covenants of the Company contained in or
made pursuant to this Agreement shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of any Buyer or the Company.
(b) The covenants and agreements of the parties contained in this
Agreement shall survive the Closing as to each Buyer until such Buyer no longer
owns any Purchase Shares or Conversion Shares.
(c) Each party hereto may assert a claim or cause of action under this
Agreement with respect to (i) any breach of one or more of the representations
and warranties contained in Articles III and IV hereof, as the case may be,
provided that such claim or cause of action is asserted within the applicable
time period specified in Section 7.1(a) hereof and (ii) subject to Section
7.1(b) hereof, a breach of any one or more of the covenants or agreements
contained in this Agreement. Except as provided for in the immediately preceding
sentence, the parties to this Agreement agree that no claims or causes of action
on any basis (including in contract or tort, under federal or state securities
laws or otherwise), other than for fraud, may be brought against the Company or
any Buyer or any of their respective directors, officers, employees, Affiliates,
shareholders, successors, permitted assigns, agents, or representatives based
upon, directly or indirectly, any of the representations or warranties contained
in Articles III and IV of this Agreement or any misstatement or failure to state
any fact made by Company in connection with such Buyer's purchase of the
Purchase Shares or the Conversion Shares.
7.2 Further Assurances. From and after the Closing Date, each party shall,
at any time and from time to time, make, execute and deliver, or cause to be
made, executed and delivered, such instruments and agreements, and take or cause
to be taken all such actions as counsel for the other party may reasonably
request for the effectual consummation of this Agreement and the transactions
hereby contemplated.
7.3 Expenses of the Transaction. The Company shall pay its own fees and
expenses in connection with this Agreement and the transactions hereby
contemplated and the reasonable fees and expenses of the Buyers incurred in
connection with this Agreement and the transactions hereby contemplated,
including, without limitation, reasonable legal and accounting fees and
expenses, in each case of one such professional services firm; provided,
however, that the Company's obligations under this Section 7.3 to pay Buyers'
reasonable fees and expenses shall not exceed $15,000 in the aggregate unless
the Closing shall have occurred.
7.4 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i) when
15
delivered personally or by private courier, (ii) when actually delivered by
registered or certified United States mail, return receipt requested, or (iii)
when sent by telecopy (provided that it is confirmed by a means specified in
clause (i) or (ii)), addressed as follows:
If to the Buyers, to the addresses set forth on Annex II hereto.
With a copy to:
DLA Piper Rudnick Gray Cary LLP
1251 Avenue of the Americas
New York, New York 10020
Attention: William N. Haddad, Esq.
Telecopy: (212) 884-8498
Telephone: (212) 835-6198
If to the Company to:
Rand Acquisition Corporation
450 Park Avenue, Suite 1001
New York, New York 10022
Telecopy: (212) 644-6262
Telephone: (212) 644-3450
With a copy to:
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York 10022
Attention: Todd Emmerman, Esq.
Telecopy: (212) 940-8776
Telephone: (212) 940-8873
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
7.5 No Modification Except in Writing. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
affected by such change, modification or amendment, and this Agreement may not
be discharged except by performance in accordance with its terms or by a writing
signed by the party to which performance is to be rendered.
7.6 Entire Agreement. This Agreement, together with any Schedules and
Exhibits hereto, sets forth the entire agreement and understanding among the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature among them.
16
7.7 Severability. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
7.8 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. This Agreement may not be
assigned by the Company or a Buyer without the prior written consent of the
other party; provided, however, that, prior to Closing, each Buyer may assign
its rights under this Agreement to any Affiliate of such Buyer that agrees in
favor of the Company in writing to the assumption of the assigning Buyer's
obligations under this Agreement. No such assignment and assumption shall
relieve the assigning Buyer of its obligations under this Agreement.
7.9 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York applicable to contracts made and to be
performed wholly within said State, without giving effect to the conflict of
laws principles thereof.
(b) Each of the parties hereto irrevocably and unconditionally submits to
the exclusive jurisdiction of the United States District Court for the Southern
District of New York or, if such court will not accept jurisdiction, the Supreme
Court of the State of New York, New York County or any court of competent civil
jurisdiction sitting in New York County, New York. In any action, suit or other
proceeding, each of the parties hereto irrevocably and unconditionally waives
and agrees not to assert by way of motion, as a defense or otherwise any claims
that it is not subject to the jurisdiction of the above courts, that such action
or suit is brought in an inconvenient forum or that the venue of such action,
suit or other proceeding is improper. Each of the parties hereto also agrees
that any final and unappealable judgment against a party hereto in connection
with any action, suit or other proceeding shall be conclusive and binding on
such party and that such award or judgment may be enforced in any court of
competent jurisdiction, either within or outside of the United States. A
certified or exemplified copy of such award or judgment shall be conclusive
evidence of the fact and amount of such award or judgment.
(c) EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES THE RIGHT TO A JURY
TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE
ENFORCEMENT OF ANY PROVISION OF THIS AGREEMENT.
7.10 Captions. The captions appearing in this Agreement are inserted only
as a matter of convenience and for reference and in no way define, limit or
describe the scope and intent of this Agreement or any of the provisions hereof.
7.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement.
17
7.12 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or to any Buyer, upon any breach or
default of any party hereto under this Agreement, shall impair any such right,
power or remedy of the Company or any Buyer nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of any
similar breach of default thereafter occurring; nor shall any waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of the Company or any
Buyer of any breach of default under this Agreement, or any waiver on the part
of the Company or any Buyer of any provisions or conditions of this Agreement,
must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement, or by law or
otherwise afforded to the Company or any Buyer, shall be cumulative and not
alternative.
[Signature page follows]
18
IN WITNESS WHEREOF, each of the parties hereto has executed this Preferred
Stock Purchase Agreement on the day and year first above written.
RAND ACQUISITION CORPORATION
By: /s/ Laurence S. Levy
---------------------------
Name: Laurence S. Levy
Title: President
KNOTT PARTNERS LP
By: /s/ David Knott
---------------------------
Name: David Knott
Title: General Partner
MATTERHORN OFFSHORE FUNDS LTD.
By: /s/ David Knott
---------------------------
Name: David Knott
Title: General Partner
GOOD STEWARD FUND LTD.
By: /s/ David Knott
---------------------------
Name: David Knott
Title: General Partner
ANNO LP
By: /s/ David Knott
---------------------------
Name: David Knott
Title: General Partner
BAY II RESOURCE PARTNERS
By: /s/ George E. Case, III
---------------------------
Name: George E. Case, III
Title: Vice President, GMT Capital Corp.,
General Partner
BAY RESOURCE PARTNERS L.P.
By: /s/ George E. Case, III
---------------------------
Name: George E. Case, III
Title: Vice President, GMT Capital Corp.,
General Partner
BAY RESOURCE PARTNERS OFFSHORE FUND
LTD.
By: /s/ George E. Case, III
---------------------------
Name: George E. Case, III
Title: Vice President, GMT Capital Corp.,
Manager, GMT Capital Offshore
Management, LLC, Investment Manager
/s/ Thomas E. Claugus /s/ George E. Case, III
------------------------------------------------
THOMAS E. CLAUGUS
BY: GEORGE E. CASE, III
ANNEX F
CERTIFICATE OF DESIGNATIONS
OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
RAND ACQUISITION CORPORATION
RAND ACQUISITION CORPORATION, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY THAT:
Pursuant to authority conferred upon the Corporation's Board of Directors
(the "Board") by Article FOURTH of the Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation") and pursuant to the provisions
of ss.151 of the Delaware General Corporation Law, the Board adopted and
approved the following resolution providing for the designations, preferences
and other rights, and the qualifications, limitations and restrictions of the
Series A Convertible Preferred Stock.
WHEREAS, the Certificate of Incorporation provides for two classes
of shares known as common stock, $0.0001 par value per share (the "Common
Stock"), and preferred stock, $0.0001 par value per share (the "Preferred
Stock"); and
WHEREAS, the Board is authorized by the Certificate of Incorporation
to provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in such series
and to fix the designations, preferences and rights of the shares of each such
series and the qualifications, limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable
to, and hereby does, designate a Series A Convertible Preferred Stock and fixes
and determines the preferences, rights, qualifications, limitations and
restrictions relating to the Series A Convertible Preferred Stock as follows:
1. Designation. The shares of such series of Preferred Stock shall
be designated "Series A Convertible Preferred Stock" (referred to herein as the
"Series A Stock").
2. Authorized Number. The number of shares constituting the Series A
Stock shall be 300,000.
3. Ranking. The Series A Stock shall rank, as to dividends and upon
Liquidation (as defined in Section 5(a) hereof), senior and prior to the Common
Stock and to all other classes or series of stock issued by the Corporation. All
equity securities of the Corporation to which the Series A Stock ranks prior,
with respect to dividends and upon Liquidation, including, without limitation,
the Common Stock, are collectively referred to herein as "Junior Securities."
4. Dividends.
(a) Dividend Accrual and Payment. (i) The holders of the
Series A Stock shall be entitled to receive, when and if declared by the board,
out of funds legally available for the payment therefor, cash dividends per
share equal to the product of (x) the Dividend Rate (as defined below) and (y)
the Series A Base Price (as defined below) (hereinafter referred to as
"Dividends"). Dividends shall be payable quarterly on the first day immediately
following the end of the Corporation's fiscal quarter, or, if any such date is a
Saturday, Sunday or legal holiday, then on the next day which is not a Saturday,
Sunday or legal holiday (each a "Dividend Payment Date") and to the extent not
paid, shall accrue.
(ii) The "Series A Base Price" means, for each share of
Series A Stock, the sum of (x) the Series A Issue Price (as defined below) of
such share and (y) any Accrued Dividends (as defined below) with respect to such
share.
(iii) The "Series A Issue Price" of each share of Series
A Stock means $50.00 (as adjusted for any combinations, divisions or similar
recapitalizations affecting the shares of Series A Stock).
(iv) "Accrued Dividends" means, with respect to each
share of Series A Stock, any accrued and unpaid Dividends on such share.
(v) "Dividend Rate" means the rate of 7.75% per annum,
provided, however, that in the event that Dividends shall have accrued but
remain unpaid for two consecutive fiscal quarters, the Dividend Rate shall, as
of the end of such two-fiscal quarter period, prospectively increase by 0.5% per
annum, and the Dividend Rate shall further increase prospectively by 0.5% per
annum as of the end of each subsequent two-fiscal quarter period with respect to
which Dividends shall have accrued but remain unpaid, provided, further,
however, that under no circumstances shall the Dividend Rate exceed 12% per
annum, and provided, further, however, that upon payment by the Corporation of
all Accrued Dividends, the Dividend Rate shall thereupon automatically be
reduced prospectively to 7.75% per annum, subject to successive increases and
reductions as provided hereby.
(vi) If any shares of Series A Stock are issued on a
date which does not coincide with a Dividend Payment Date, then the initial
Dividend accrual period applicable to such shares shall be the period from the
date of issuance thereof (the "Original Issue Date") through the last day of the
Corporation's fiscal quarter in which such shares are issued. If the date fixed
for redemption of or payment of a final liquidating distribution on any shares
of Series A Stock, or the date on which any shares of Series A Stock are
converted into Common Stock, does not coincide with a Dividend Payment Date,
then subject to the provisions hereof relating to such redemption, payment or
conversion, the final Dividend accrual period applicable to such shares shall be
the period from the first day of the Corporation's fiscal quarter during which
such redemption, payment or conversion occurs through the redemption, payment or
conversion date.
2
(b) Dividend Limitation on Junior Securities. For so long as
any Dividends shall have accrued but remain unpaid, the Corporation shall
not declare, pay or set apart for payment, any dividend on any Junior
Securities, or make any distribution in respect thereof, either directly
or indirectly, and whether in cash, obligations or shares of the
Corporation or other property.
5. Liquidation.
(a) Liquidation Procedure. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary (a
"Liquidation"), the holders of the shares of Series A Stock shall be entitled,
before any distribution or payment is made upon any Junior Securities, to be
paid an amount per share equal to the sum of (i) the Series A Issue Price and
(ii) any Accrued Dividends with respect to such share through the date of
Liquidation (such sum, the "Liquidation Preference"). If upon Liquidation, the
assets to be distributed among the holders of Series A Stock shall be
insufficient to permit payment in full to the holders of Series A Stock of the
Liquidation Preference, then the entire assets of the Corporation shall be
distributed ratably among such holders in proportion to the full respective
Liquidation Preference to which they are entitled.
(b) Remaining Assets. Upon Liquidation, after the holders of
Series A Stock shall have been paid in full the Liquidation Preference, the
remaining assets of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Junior Securities then outstanding,
or in accordance with any priorities or other terms of such Junior Securities.
(c) Mergers, Reorganizations, Etc. The merger, reorganization
or consolidation of the Corporation into or with another corporation or other
similar transaction or series of related transactions, or the sale of all or
substantially all the assets of the Corporation (the foregoing being referred to
collectively as an "Acquisition") shall not be considered a Liquidation.
6. Conversion. The Series A Stock shall be convertible into shares
of Common Stock of the Corporation in accordance with the following terms:
(a) Right to Convert.
(i) By the Holders of the Series A Stock. Each share of
Series A Stock shall be convertible, at the option of the holder thereof, at any
time after the Original Issue Date to and including the Cash Redemption Date, at
the office of the Corporation or its transfer agent, into that number of the
fully paid and nonassessable shares of Common Stock determined in accordance
with the provisions of Section 6(b) below. In order to convert shares of the
Series A Stock into shares of Common Stock, the holder thereof shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or its transfer agent, together with written notice to the
Corporation stating that it elects to convert the same and setting forth the
name or names it wishes the certificate or certificates for Common Stock to be
issued, and the number of shares of Series A Stock being converted. Such
3
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock at such date and shall,
with respect to such shares, have only those rights of a holder of Common Stock
of the Corporation.
(ii) By the Corporation. If at any time after the third
anniversary of the Original Issue Date, the Market Price (as defined below) on
the OTC Bulletin Board (or on a national securities market on which the Common
Stock is quoted for trading) of the Common Stock for 20 trading days within any
30 trading day period ending on the third business day prior to the date on
which notice of the Company Conversion is given equals or exceeds $8.50 per
share (subject to adjustment in the event of stock splits, reverse stock splits,
stock dividends, recapitalizations or similar events) (the "Conversion
Threshold"), the Corporation shall have the right, at its option, and without
any action on the part of the holders of the Series A Stock, to convert each
share of Series A Stock into that number of the fully paid and nonassessable
shares of Common Stock determined in accordance with the provisions of Section
6(b) below, by delivery of written notice of such conversion to the holders of
the Series A Stock (the "Company Conversion"). The Company Conversion shall be
deemed to occur on the date set forth in such notice, which shall be no less
than three and no more than ten business days after the date of such notice, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock at such date and shall, with respect to
such shares, have only those rights of a holder of Common Stock of the
Corporation. The Conversion Threshold shall be adjusted in accordance with
Section 6(d) in the event of a subdivision of the Common Stock or a dividend in
Common Stock or other securities convertible into or exchangeable for Common
Stock, and in the event of a Reorganization (as defined below), appropriate
adjustment shall be made in the Conversion Threshold such that the Conversion
Threshold thereafter shall be applicable, as nearly as reasonably may be, in
relation to any shares, other securities or property thereafter receivable upon
conversion of the Series A Stock.
(b) Conversion of the Series A Stock; Accrued Dividends.
(i) Each share of Series A Stock converted by the holder
thereof pursuant to Section 6(a)(i) or by the Corporation pursuant to Section
6(a)(ii) shall be converted into the number of fully paid and nonassessable
shares of Common Stock equal to the quotient of (x) the Series A Issue Price
divided by (y) the Conversion Price (as defined below). No shares of Common
Stock shall be issued on account of Accrued Dividends with respect to shares of
Series A Stock being converted (and the holder of such converted shares of
Series A Stock shall have no further right thereto or interest therein), and in
lieu thereof, the Corporation shall issue to the holder of such converted shares
of Series A Stock a subordinated promissory note, in substantially the form of
Exhibit A hereto, with a principal amount equal to the amount of such Accrued
Dividends as of the date of such conversion.
4
(ii) No fractional shares of Common Stock shall be
issued upon conversion of the Series A Stock. All shares of Common Stock
issuable upon conversion of more than one share of Series A Stock of a holder
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of any fractional
share, the Corporation shall, in lieu of issuing any fractional share, pay cash
equal to the product of such fraction multiplied by the Market Price on the date
of conversion.
(iii) The Corporation shall, as soon as practicable
after the surrender of the certificate or certificates evidencing shares of
Series A Stock for conversion at the office of the Corporation or its transfer
agent, issue to each holder of such shares, or its nominee or nominees, a
certificate or certificates evidencing the number of shares of Common Stock to
which it shall be entitled and, in the event that only a part of the shares
evidenced by such certificate or certificates are converted, a certificate
evidencing the number of shares of Series A Stock which are not converted.
(iv) "Market Price" for any day means, with respect to
the shares of Common Stock, the last sale price as reported by Bloomberg (or if
such information is not available from Bloomberg, from another nationally
recognized independent pricing source) for such day. If there is no publicly
traded market for the shares of Common Stock, pricing information will be
obtained directly from broker/dealers and active market makers such as banks and
securities firms. In instances where there is no readily available pricing
information, the Board shall determine in good faith the fair value of the
Common Stock, which determination shall be set forth in a certificate by the
Secretary of the Corporation.
(c) Conversion Price. The conversion price per share for the
Series A Stock shall initially be $6.20 (the "Conversion Price") and shall be
subject to adjustment from time to time as provided herein.
(d) Adjustment for Stock Splits and Combinations. If
outstanding shares of the Common Stock of the Corporation shall be subdivided
into a greater number of shares, or a dividend in Common Stock or other
securities of the Corporation convertible into or exchangeable for Common Stock
(in which latter event the number of shares of Common Stock issuable upon the
conversion or exchange of such securities shall be deemed to have been
distributed) shall be paid in respect to the Common Stock of the Corporation,
the Conversion Price in effect immediately prior to such subdivision or at the
record date of such dividend shall, simultaneously with the effectiveness of
such subdivision or immediately after the record date of such dividend, be
proportionately reduced, and conversely, if outstanding shares of the Common
Stock of the Corporation shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall
simultaneously with the effectiveness of such combination, be proportionately
increased.
(e) Reorganizations, Mergers, Consolidations or
Reclassifications. In the event of any capital reorganization, any
reclassification of the Common Stock (other than a change in par value), or the
consolidation or merger of the Corporation with or into another Person
(collectively referred to hereinafter as "Reorganizations"), upon conversion of
the Series A Stock, the holders of the Series A Stock shall thereafter be
entitled to receive, and provision shall be made therefor in any agreement
5
relating to a Reorganization, the kind and number of shares of Common Stock or
other securities or property (including cash) of the Corporation, or other
corporation resulting from such consolidation or surviving such merger, which
would have been due in connection with such Reorganization to a holder of the
number of shares of the Common Stock of the Corporation to which the Series A
Stock entitled the holder thereof to convert; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the Series
A Stock, to the end that the provisions set forth herein (including the
specified changes and other adjustments to the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares, other securities or property thereafter receivable upon conversion of
the Series A Stock. The provisions of this Section 6(e) shall similarly apply to
successive Reorganizations.
(f) Sale of Additional Shares.
(i) If at any time or from time to time the Corporation
shall issue or sell Additional Shares of Common Stock (as hereinafter defined),
or is deemed by the express provisions of this subsection (f) to issue or sell
Additional Shares of Common Stock, other than as a subdivision or combination of
shares of Common Stock as provided in Section 6(d) above, for a consideration
per share less than the then existing Conversion Price, then the then existing
Conversion Price shall be reduced, as of the opening of business on the date of
such issuance or sale, to a price determined by dividing (A) an amount equal to
the sum of (1) the applicable Conversion Price immediately prior to such
issuance or sale multiplied by the number of shares of Common Stock deemed
outstanding at the close of business on the day before the date of such issuance
or sale, plus (2) the aggregate consideration, if any, received or to be
received by the Corporation upon such issuance or sale, by (B) an amount equal
to the sum of (1) the number of shares of Common Stock deemed outstanding
immediately prior to such issuance or sale, plus (2) the total number of
Additional Shares of Common Stock so issued. For the purposes of the preceding
sentence, the number of shares of Common Stock deemed to be outstanding as of a
given date shall be the sum of (i) the number of shares of Common Stock actually
outstanding, and (ii) the number of shares of Common Stock into which the then
outstanding shares of Series A Stock could be converted if fully converted on
the day immediately preceding the given date.
(ii) For the purpose of making any adjustment in the
Conversion Price or number of shares of Common Stock issuable upon conversion of
the Series A Stock, as provided above, the following provisions shall be
applicable:
(A) In case of the issuance of Common Stock for
consideration in whole or in part for cash, the consideration shall be
deemed to be the amount of cash paid therefor, plus the value of any
property other than cash received by the Corporation as determined in
accordance with clause (B) below.
(B) In case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than
cash, the value of such property or consideration other than cash shall be
deemed to be the fair value thereof as determined in good faith by the
Board.
6
(C) In case of the issuance of (x) options, warrants, or
other rights to acquire or to purchase or to subscribe for Common Stock
(whether or not at the time exercisable), (y) securities convertible into
or exchangeable for Common Stock or (z) options to purchase or rights to
subscribe for such convertible or exchangeable securities (whether or not
at the time so convertible or exchangeable): (1) the aggregate maximum
number of shares of Common Stock deliverable upon exercise of such
options, warrants, or other rights to acquire or to purchase, or to
subscribe for Common Stock (whether or not at the time exercisable) shall
be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in
the manner provided in clauses (A) and (B) above), if any, received by the
Corporation upon the issuance of such options, warrants or rights plus the
purchase or exercise price provided in such options, warrants or rights
for the shares of Common Stock covered thereby; (2) the aggregate maximum
number of shares of Common Stock deliverable upon conversion of, or in
exchange for, any such convertible or exchangeable securities or upon the
exercise of options to purchase, or to subscribe for, such convertible or
exchangeable securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such securities were
issued or such options, warrants or rights were issued and for a
consideration equal to the consideration received by the Corporation for
any such securities and related options or rights, plus the additional
consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related
options, warrants or rights (determined in the manner provided in clauses
(A) and (B) above); and (3) on the expiration of any warrant, right or
option or on the termination of any right to convert or exchange any
convertible or exchangeable securities, (whether or not at the time so
convertible or exchangeable), the Conversion Price then in effect shall
thereupon be readjusted to the Conversion Price as would have been in
effect had the adjustment made upon the granting or issuance of such
warrants, rights or options or convertible or exchangeable securities
(whether or not at the time so convertible or exchangeable) been made upon
the basis of the issuance or sale of only the number of shares of Common
Stock actually issued upon the exercise of such options, warrants or
rights or upon the conversion or exchange of such convertible or
exchangeable securities. No readjustment pursuant to clause (3) above
shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (x) the Conversion Price on the original
adjustment date or (y) the Conversion Price that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(g) Additional Shares of Common Stock. "Additional Shares of
Common Stock" shall mean all shares of Common Stock issued or deemed to be
issued or issuable by the Corporation, whether or not subsequently reacquired or
retired by the Corporation, other than (i) shares of Common Stock issued upon
the conversion of the Series A Stock, (ii) shares of Common Stock issued in
connection with any stock split, stock dividend or recapitalization of the
Corporation, (iii) shares of Common Stock issuable upon the exercise of stock
options or settlement of other awards made under any compensatory or incentive
7
stock, bonus, option or similar plan for the benefit of the officers, directors
or employees of the Company or its subsidiaries in effect or adopted as of or
after the Original Issue Date with respect to, in the aggregate, no more than
ten percent (10%) of the Common Stock issued and outstanding on the Original
Issue Date, as adjusted for stock splits, reverse stock splits, stock dividends,
recapitalizations or similar events, (iv) shares of Common Stock issued upon
settlement of awards under the Rand Management Bonus Program adopted as of the
Original Issue Date, (v) shares of Common Stock issuable upon (a) exercise of
any warrants to purchase Common Stock issued in the Corporation's initial public
offering, (b) exercise of options to purchase "Units" of Common Stock and
warrants to purchase Common Stock issued in connection with the Corporation's
initial public offering to the underwriter(s) thereof or any representatives of
such underwriters, and (c) exercise of the warrants included in the "Units"
referred to in clause (b) above (such warrants, referred to in clauses (a) and
(c) above, "IPO Warrants") and (vi) shares of Common Stock issued pursuant to an
acquisition of a business (including, without limitation, by way of an
acquisition of capital stock) or the assets of a business (which assets do not
consist primarily of cash or cash equivalents) approved by the Board.
(h) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Conversion Price or the number of shares of Common Stock
or other securities issuable upon conversion of the Series A Stock, the
Corporation, at its expense, shall cause the Chief Financial Officer of the
Corporation to compute such adjustment or readjustment in accordance with this
Certificate of Designations and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each registered holder of the Series A Stock at the holder's address
as shown on the Corporation's stock transfer books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (i) the
consideration received or to be received by the Corporation for any Additional
Shares of Common Stock issued or sold or deemed to have been issued or sold,
(ii) the Conversion Price at the time in effect for the Series A Stock, and
(iii) the number of Additional Shares of Common Stock and the type and amount,
if any, of other property which at the time would be received upon conversion of
the Series A Stock.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series A Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect a conversion of all
outstanding shares of the Series A Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Stock, the
Corporation shall promptly seek such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(j) Payment of Taxes. The Corporation shall pay all taxes and
other governmental charges (other than any income or other taxes imposed upon
the profits realized by the recipient) that may be imposed in respect of the
issue or delivery of shares of Common Stock or other securities or property upon
conversion of shares of Series A Stock; provided that, the Corporation shall not
8
pay any taxes or other governmental charge, imposed in connection with any
transfer involved in the issue and delivery of shares of Common Stock or other
securities in a name other than that of which the shares of Series A Stock so
converted were registered.
(k) Minimum Adjustment. No adjustment of the Conversion Price
shall be made if the amount of any such adjustment would be an amount less than
one percent (1%) of the Conversion Price then in effect, but any such amount
shall be carried forward and an adjustment in respect thereof shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
an increase or decrease of one percent (1%) or more.
(l) Certain Adjustments. The Conversion Price shall not be
adjusted upward except in the event of a combination of the outstanding shares
of Common Stock into a smaller number of shares of Common Stock or in the event
of a readjustment of the Conversion Price pursuant to Section 6(f)(ii)(C)(3).
(m) No Impairment, other actions. The Corporation will not, by
amendment of its Certificate of Incorporation (including this Certificate of
Designations) or through any reorganization, recapitalization or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Certificate of Designations in the taking of all such action as may be necessary
or appropriate in order to protect the rights of the holders of Series A
Preferred Stock, including the conversion rights of the holders of Series A
Preferred Stock, against impairment. If the Corporation shall take any action
affecting the outstanding number of shares of Common Stock other than an action
described herein, which would have an inequitable effect on the holders of the
Series A Preferred Stock, then the Conversion Price shall be adjusted in such
manner and at such times as the Board on the advice of the Corporation's
independent public accountants may in good faith determine to be equitable in
the circumstances.
7. Redemption.
(a) (i) Cash Redemption. Concurrently with (i) the
consummation of a merger, reorganization or consolidation of the Corporation
into or with another corporation (A) immediately following which the holders of
Common Stock immediately prior to the consummation of such merger,
reorganization or consolidation do not hold 50% or more of the voting securities
of the surviving entity or (B) in which more than 50% of the voting power of the
Corporation is disposed of in exchange for property, rights or securities
distributed to the holders thereof by the acquiring person, firm or entity, (ii)
a similar transaction or series of transactions which has the effect referred to
in clause (A) or (B) above, or (iii) the consummation of a sale of all or
substantially all the assets of the Corporation (any such transaction referred
to in (i), (ii) or (iii), a "Change of Control", and the date of the
consummation of any Change of Control, the "Cash Redemption Date"), each share
of Series A Stock shall be automatically (and without further action by the
Board or the holders of the Series A Stock) redeemed by the Corporation at a
price per share equal to the sum of (x) one hundred and five percent (105%) of
the Series A Issue Price and (y) any Accrued Dividends with respect to such
share through the Cash Redemption Date (such sum, the "Cash Redemption Price").
9
(ii) Redemption Procedure. On or prior to the Cash Redemption
Date, the Corporation shall deposit an amount equal to the aggregate Cash
Redemption Price with a bank or trust corporation reasonably acceptable to the
Board as a trust fund for the benefit of the holders of the shares of Series A
Stock, with irrevocable instructions and authority to the bank or trust
corporation to pay the Cash Redemption Price for such shares to such holders on
or after the Cash Redemption Date upon receipt of the certificate or
certificates of the shares of Series A Stock to be redeemed. From and after the
Cash Redemption Date, unless there shall have been a default in payment of the
Cash Redemption Price, all rights of the holders of shares of Series A Stock as
holders of Series A Stock (except the right to receive the Redemption Price upon
surrender of their certificate or certificates) shall cease as to those shares
of Series A Stock redeemed, and such shares shall not thereafter be transferred
on the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If on the Cash Redemption Date the funds of the Corporation legally
available for redemption of shares of Series A Stock are insufficient to redeem
the total number of shares of Series A Stock to be redeemed on such date, then
the Corporation will use those funds which are legally available therefor to
redeem the maximum possible number of shares of Series A Stock ratably among the
holders of such shares to be redeemed based upon their holdings of Series A
Stock. Payments shall first be applied against Accrued Dividends and thereafter
against the remainder of the Cash Redemption Price. The shares of Series A Stock
not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series A Stock
such funds will immediately be used to redeem the balance of the shares of
Series A Stock. No dividends or other distributions shall be declared or paid
on, nor shall the Corporation redeem, purchase or acquire any shares of, the
Common Stock or any other class or series of stock of the Corporation unless the
Cash Redemption Price of all shares shall have been paid in full. Until the Cash
Redemption Price for each share of Series A Stock elected to be redeemed shall
have been paid in full, such share of Series A Stock shall remain outstanding
for all purposes and entitle the holder thereof to all the rights and privileges
provided herein, including, without limitation, that Dividends thereon shall
continue to accrue and, if unpaid prior to the date such shares are redeemed,
shall be included as part of the Cash Redemption Price as provided in this
Section 7(a)(ii).
(iii) Notice of Change of Control. The Corporation shall
deliver written notice of a contemplated Change of Control to the holders of
Series A Stock not less than ten (10) business days prior to a prospective Cash
Redemption Date. Such notice shall contain a description of the material terms
of the proposed Change of Control and may be satisfied by delivery to the
holders of Series A Stock of any proxy statement or other notice delivered to
the holders of Common Stock in connection with such Change of Control. Any
notice of conversion delivered by a holder of Series A Stock pursuant to Section
4(a)(i) after the delivery of a notice of a Change of Control and before or on
the Cash Redemption Date specified in such notice of Change of Control may, at
the option of such holder of Series A Stock, specify that the conversion
election specified therein is subject to, and conditioned upon, consummation of
the Change of Control described in such notice, and any such conditional
conversion notice shall be null and void in the event that such Change of
Control is not consummated.
(b) Prohibited Redemption. Except as set forth in this Section 7,
the Corporation shall not have the right to redeem any shares of the Series A
Stock.
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8. Voting Rights.
(a) General. In addition to those rights set forth in Section
9 herein, each holder of Series A Stock shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled to notice of any stockholders' meeting in accordance with the bylaws
of the Corporation (as in effect at the time in question) and applicable law,
and shall be entitled to vote, together with the holders of Common Stock, with
respect to any question upon which the holders of Common Stock have the right to
vote. In addition to those voting rights of holders of Series A Stock set forth
in Section 9 herein or as required by law, the holders of Series A Stock shall
vote together with the holders of Common Stock and not as separate classes.
(b) Series A Stock. On all matters put to a vote to the
holders of Common Stock, each holder of shares of Series A Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series A Stock could be converted pursuant to the
provisions of Section 6 above at the record date for the determination of the
stockholders entitled to vote or, if no such record date is established, the
date such vote is taken or any written consent of stockholders is solicited.
9. Protective Provisions. For so long as at least 50% of the shares
of Series A Stock remain outstanding, the Corporation will not, without first
obtaining the written consent or affirmative vote of holders of at least
two-thirds of the shares of Series A Stock then outstanding, voting separately
as a class, take any action with respect to any of the matters set forth in
Sections 9(a) through 9(f).
(a) Change the Series A Stock. Amend, alter, repeal, impair or
change, in any material respect, the rights, preferences, powers, privileges,
restrictions, qualifications or limitations of the Series A Stock.
(b) Create New Stock. Authorize, establish, create (by
reclassification or otherwise) or issue any additional series of Preferred Stock
or any other new class or series of equity securities or any securities
convertible into equity securities of the Corporation, in each case which would
have a preference over, or be on a parity with, the Series A Stock with respect
to dividends or upon Liquidation.
(c) Amend Charter or Bylaws. Amend, alter, repeal or waive any
provision of this Certificate of Designations, the Certificate of Incorporation
of the Corporation or bylaws of the Corporation which would adversely affect any
right, preference, privilege or voting power of the Series A Stock or the
holders thereof.
(d) Purchase of Shares. Purchase, repurchase or redeem shares
of (i) Common Stock or other Junior Securities or (ii) securities or rights of
any kind convertible into or exercisable or exchangeable for Common Stock or
other Junior Securities, except (a) in each case, upon termination of an
employee, in which case the Corporation may purchase, repurchase or redeem such
shares of Common Stock, Junior Securities or securities held by such employee
pursuant to any agreement or plan under which such shares of Common Stock,
Junior Securities or securities were issued and (b) in the case of clause (ii)
above, the IPO Warrants.
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(e) Authorized Shares. Increase the authorized number of
shares of Series A Preferred Stock.
(f) Change of Control. Effect, or agree to effect, any
transaction which will result in a Change of Control.
No change of the shares of Series A Preferred Stock, pursuant
to subsection (a) above, authorized by the requisite vote of holders of Series A
Stock pursuant to this Section 9, shall become effective until at least five
business days after notice of such authorization has been delivered to each
holder of Series A Stock.
10. Notices of Record Date. Upon (i) any taking by the Corporation
of a record of the holders of any class of securities (including the Series A
Stock) for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, or (ii) any Acquisition (as defined
in Section 5(c)), or other capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation with or into, any other
corporation, or any Liquidation, or any other action of the type or types
requiring an adjustment to the Conversion Price or the number or character of
the Series A Stock as set forth herein or any action described in Section 7
herein, the Corporation shall mail to each holder of Series A Stock at least
thirty (30) days prior to the record date specified therein a notice specifying
(A) the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (B)
the date on which any such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Liquidation, or other action is expected to
become effective, and (C) the date, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, Liquidation, or other action. Such notice shall also
set forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Price and the number, kind, or class
of shares or other securities or property which shall be deliverable upon the
occurrence of such action or deliverable upon the conversion of Series A Stock.
11. No Reissuance of the Preferred Stock. No share or shares of
Series A Stock acquired by the Corporation by reason of purchase, conversion or
otherwise shall be reissued. The Corporation may from time to time to take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of Series A Stock.
12. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
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IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designation this day of , 2005.
RAND ACQUISITION CORPORATION
By:
------------------------
Name:
Title:
ANNEX G
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of ____________,2005, by Rand Acquisition Corporation, a Delaware
corporation (the "Company"), in favor of each of the investors listed on Exhibit
A (each, an "Investor").
A. Pursuant to that certain Preferred Stock Purchase Agreement (the
"Purchase Agreement") dated of even date herewith, by and between the Company
and Investor, the Investor has purchased shares (the "Purchase") of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred)".
B. Pursuant to the Purchase Agreement, the Company is required to provide
the Investor certain registration rights with respect to the shares of the
Company's Common Stock issuable upon conversion of the Series A Preferred.
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of this Section 1:
(a) Common Stock. The term "Common Stock" means the Company's
common stock, $0.0001 par value per share.
(b) Registration. The terms "register," "registration" and
"registered" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(c) Registrable Securities. The term "Registrable Securities"
means (i) the Common Stock issuable upon conversion of the Series A Preferred
and (ii) any shares of Common Stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, any
shares of Common Stock described in clause (i).
(d) Registrable Securities Then Outstanding. The number of
shares of "Registrable Securities then outstanding" shall mean the number of
shares of Common Stock which are Registrable Securities that are then (1) issued
and outstanding or (2) issuable pursuant to the conversion of the Series A
Preferred or other convertible securities.
(e) Holder. The term "Holder" means any person owning of
record Registrable Securities or any assignee of record of such Registrable
Securities to whom rights set forth herein have been duly assigned in accordance
with this Agreement; provided, however, that for purposes of this Agreement, a
record holder of the Series A Preferred convertible into such Registrable
Securities shall be deemed to be the Holder of such Registrable Securities;
provided, further, that Holders of Registrable Securities will not be required
to convert their Series A Preferred into shares of Common Stock in order to
exercise the registration rights granted hereunder.
(f) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.
1.2 Demand Registrations.
(a) Request by Holders. If the Company shall receive at any
time after the three month anniversary of the date hereof, a written request
from the Holders of at least fifty percent (50%) of the then outstanding
Registrable Securities (the "Initiating Holders") that the Company file a
registration statement under the Securities Act of 1933, as amended, (the
"Securities Act") and, if by means of an underwriting, covering the registration
of Registrable Securities pursuant to this Section 1.2, with an anticipated
aggregate offering price of at least $7,500,000 (net of underwriting discounts
and commissions), then the Company shall, within twenty (20) days after the
receipt of such written request, give written notice of such request (the
"Request Notice") to all Holders, and use all reasonable efforts to effect, as
soon as practicable, the registration under the Securities Act of all
Registrable Securities which Holders request to be registered and included in
such registration by written notice given by such Holders to the Company within
twenty (20) days after receipt of the Request Notice, subject only to the
limitations of this Section 1. The Company may, if permitted by law, effect any
registration pursuant to this Section 1.2 by the filing of a registration
statement on Form S-3. Any registration statement filed pursuant to this Section
1.2(a) may, subject to Section 1.2(c), include shares of Common Stock with
respect to which the Company has registration obligations pursuant to written
contractual arrangements ("Other Registrable Securities") including, if
applicable, by post-effective amendment to any "shelf" registration filed with
respect to any Registrable Securities.
(b) Mandatory Shelf Registration. The Company agrees to file
with the SEC, in no event later the six month anniversary of the date hereof
(provided, that if the Company is eligible to file a registration statement on
Form S-3, then such filing shall be made no later than the three month
anniversary of the date hereof), a shelf registration statement on Form S-3 or
such other form under the Securities Act then available to the Company providing
for the resale pursuant to Rule 415 from time to time by the Holders of any and
all Registrable Securities (including the prospectus, amendments and supplements
to such registration statement or prospectus, including pre- and post-effective
amendments, all exhibits thereto and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement,
the "Mandatory Shelf Registration Statement"). The Company shall use its
commercially reasonable efforts to cause such Mandatory Shelf Registration
Statement to be declared effective by the SEC as soon as reasonably practicable
following such filing. Any Mandatory Shelf Registration Statement shall provide
for the resale from time to time, and pursuant to any method or combination of
methods legally available (including, without limitation, an underwritten
offering, a direct sale to purchasers, a sale through brokers or agents, or a
sale over the Internet) by the Holders of any and all Registrable Securities.
(c) Underwriting. If the Holders initiating the registration
request under this Section 1.2 (the "Initiating Holders") intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 1.2 and the Company shall include such information in the
written notice referred to in subsection Section 1.2(a). In such event, the
right of any Holder to include his, her, or its Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the managing underwriter
or underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of this Section 1.2, if the underwriter(s) advise(s) the
2
Company in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that, subject to the rights of the holders of securities issued or
issuable upon exercise of those certain Unit Purchase Options issued to
EarlyBirdCapital, Inc. or its designees in connection with the Company's initial
public offering in November 2004, the number of shares of Registrable Securities
to be included in such underwriting and registration shall not be reduced unless
all other securities of the Company are first entirely excluded from the
underwriting and registration. Any Registrable Securities excluded and withdrawn
from such underwriting shall be withdrawn from the registration.
(d) Maximum Number of Demand Registrations. The Company is
obligated to effect only two such registrations pursuant to Section 1.2(a).
(e) Deferral. Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting the filing of a registration statement
pursuant to this Section 1.2, a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than ninety
(90) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period.
(f) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 1.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of a single counsel for all Holders (but excluding underwriters' discounts and
commissions), shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section 1.2 shall bear such Holder's proportionate
share (based on the number of shares sold by such Holder over the total number
of shares included in such registration at the time it is declared effective) of
all discounts, commissions or other amounts payable to underwriters or brokers
in connection with such offering. Notwithstanding the foregoing, the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to this Section 1.2 if the registration request is subsequently
3
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered, unless the Holders of a majority of the Registrable
Securities then outstanding agree to forfeit their right to a demand
registration pursuant to this Section 1.2 (in which case such right shall be
forfeited by all Holders of Registrable Securities); provided, further, however,
that if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company not known
to the Holders at the time of their request for such registration and have
withdrawn their request for registration with reasonable promptness after
learning of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their demand registration rights
pursuant to this Section 1.2.
1.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
registration under Section 1.2, any employee benefit plan or a corporate
reorganization or other transaction covered by Rule 145 promulgated under the
Securities Act, or a registration on any registration form which does not permit
secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities) and will afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of Registrable Securities such Holder
wishes to include in such registration statement. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.
(a) Underwriting. If a registration statement under which the
Company gives notice under this Section 1.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, subject to the
rights of the holders of securities issued or issuable upon exercise of those
certain Unit Purchase Options issued to EarlyBirdCapital, Inc. or its designees
in connection with the Company's initial public offering in November 2004,
first, to the Company or, if applicable, to the holders of Other Registrable
Securities which, pursuant to written contractual arrangements, has demanded
such registration, and second to Holders requesting inclusion of their
Registrable Securities in such registration statement and any holders of Other
Registrable Securities requesting inclusion of their Other Registrable
Securities in such registration statement on a pro rata basis based on the
number of Registrable Securities and Other Registrable Securities, as
applicable, each such person has requested to be included in the registration.
If any Holder disapproves of the terms of any such underwriting, such Holder may
4
elect to withdraw therefrom by written notice, given in accordance with Section
3.1 hereof, to the Company and the underwriter, delivered at least ten (10)
business days prior to the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder that is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 1.3, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company (but excluding underwriters' discounts
and commissions) shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section 1.3 shall bear such Holder's proportionate
share (based on the number of shares sold by such Holder over the total number
of shares included in such registration at the time it goes effective) of all
discounts, commissions or other amounts payable to underwriters or brokers in
connection with such offering.
1.4 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, subject to the provisions of Section 1.4(f) below, as expeditiously as
reasonably possible:
(a) Use its best efforts to prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
commercially reasonable efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement and comply with the provisions
of the Securities Act with respect to the disposition of all Registrable
Securities of the Company covered by such registration statement until such time
as all of such Registrable Securities registered thereunder shall have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in such registration statement. In the case of
amendments and supplements to a registration statement which are required to be
filed pursuant to this Agreement by reason of the Company filing a report on
Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
5
Exchange Act of 1934, as amended (the "Exchange Act"), the Company shall have
incorporated such report by reference into such registration statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions. The Company shall
promptly notify each Holder of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of any of
the Registrable Securities for sale under the securities or "blue sky" laws of
any jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering and enter into
such other customary agreements and take all such actions as such underwriter
reasonably requests in order to expedite or facilitate the disposition of such
shares. Each Holder participating in such underwriting hereby agrees to also
enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the occurrence of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and promptly prepare a supplement or amendment to such registration
statement to correct such untrue statement or omission, and deliver ten (10)
copies of such supplement or amendment to each Holder (or such other number of
copies as such Holder may reasonably request).
(g) The Company shall use its commercially reasonable efforts
to (i) prevent the issuance of any stop order or other suspension of
effectiveness of any registration statement prepared hereunder, or the
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction and, (ii) if such an order or suspension is issued, to obtain
the withdrawal of such order or suspension at the earliest possible moment and
to notify each Holder who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
(h) The Company shall use its commercially reasonable efforts
either to cause all the Registrable Securities covered by a registration
statement prepared hereunder to be listed on each securities exchange on which
securities of the same class or series issued by the Company are then listed, if
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 1.4(h).
6
(i) The Company shall cooperate with the Holders who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to a
registration statement filed hereunder and enable such certificates to be in
such denominations or amounts, as the case may be, as such Holders may
reasonably request and registered in such names as such Holders may request.
(j) If requested by a Holder, the Company shall use its
commercially reasonable efforts to (i) as soon as practicable incorporate in a
prospectus supplement or post-effective amendment such information as a Holder
reasonably requests to be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being offered or sold, the
purchase price being paid therefor and any other terms of the offering of the
Registrable Securities to be sold in such offering; (ii) as soon as practicable
make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) as soon as
practicable, supplement or make amendments to any registration statement if
reasonably requested by a Holder holding any Registrable Securities.
(k) Use commercially reasonable efforts to furnish, on or
about the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters,
copies of (i) the opinion, if any, of the lead legal counsel representing the
Company for the purposes of such registration issued pursuant to the
underwriting agreement relating to the offering and addressed to the
underwriters and (ii) the letter (including any "bring-downs" related thereto)
from the independent certified public accountants of the Company issued pursuant
to the underwriting agreement relating to the offering and addressed to the
underwriters.
(l) Notwithstanding any other provision of this Agreement,
from and after the time a registration statement filed under this Section 1
covering Registrable Securities is declared effective, the Company shall have
the right to suspend the registration statement and the related prospectus in
order to prevent premature disclosure of any material non-public information
related to corporate developments by delivering notice of such suspension to the
Holders, provided, however, that the Company may exercise the right to such
suspension only once in any 12-month period and for a period not to exceed 90
days. From and after the date of a notice of suspension under this Section
1.4(l), each Holder agrees not to use the registration statement or the related
prospectus for resale of any Registrable Security until the earlier of (1)
notice from the Company that such suspension has been lifted or (2) the 90th day
following the giving of the notice of suspension.
(m) Cause the principal executive officer of the Company, the
principal financial officer of the Company, the principal accounting officer of
the Company and all other officers and members of the management of the Company
to cooperate fully in any offering of Registrable Securities hereunder, which
cooperation shall include participation in meetings with underwriters,
attorneys, accountants and potential investors.
7
(n) Make available for inspection by the Holders included in
such registration statement, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
professional retained by any Holder included in such registration statement or
any underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, as shall be necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any of them in
connection with such registration statement.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 1.2 or 1.3
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of their Registrable Securities.
1.6 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under Section 1.2 or 1.3:
(a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers,
directors, members, employees and agents of each Holder, any underwriter (as
defined in the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, the
"Violations" and, individually, a "Violation"):
(1) any untrue statement or alleged untrue statement of
a material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; or
(2) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
(3) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
federal or state securities law in connection with the offering covered by such
registration statement.
8
The Company will promptly reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, after a request for reimbursement has been received
by the Company, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
selling Holder will be required severally and not jointly to indemnify and hold
harmless the Company, each of its directors, employees, agents, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder's partners, directors or officers or any person who
controls such Holder within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, controlling person, underwriter
or other such Holder, partner or director, officer or controlling person of such
other Holder may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration.
Each such Holder will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person, underwriter or
other Holder, partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; promptly after a request for reimbursement has been
received by the indemnifying Holder, provided, however, that the indemnity
agreement contained in this Section 1.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
payable in indemnity by a Holder under this Section 1.7(b) in respect of any
Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 1.7 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.7,
deliver to the indemnifying party a written notice of the commencement thereof.
The indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
9
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.7, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.7.
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. If the indemnification provided for in this
Section 1.7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying the
indemnified party, shall contribute to the amount paid or payable by such
indemnified party with respect to such loss, liability, claim, damage or expense
in the proportion that is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the statements
or omissions that resulted in such loss, liability, claim, damage or expense, as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. In any such case, (A) no such Holder will be
required to contribute any amount in excess of the public offering price of all
such Registrable Securities offered and sold by such Holder pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Conflict with Underwriting Agreement. Notwithstanding the
foregoing, to the extent that the provisions on indemnification and contribution
contained in the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement will control.
(g) Survival. The obligations of the Company and Holders under
this Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
10
1.8 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) Use reasonable efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144, and of
the Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
1.9 Termination of the Company's Obligations. The Company shall have
no obligations pursuant to Section 1.2 or 1.3 with respect to any Registrable
Securities proposed to be sold by a Holder in a registration pursuant to Section
1.2 or 1.3 if, in the opinion of counsel to the Company, all such Registrable
Securities proposed to be sold by a Holder may be sold in a three (3) month
period without registration under the Securities Act pursuant to Rule 144 under
the Securities Act.
1.10 Limitation on Sale of Registrable Securities. Notwithstanding
the Holders' rights pursuant to Section 1.2 and 1.3 hereof (but without
prejudice thereto), each Holder jointly and severally covenants and agrees that
(i) no Registrable Securities may be sold pursuant to any registration statement
filed under the Securities Act prior to the six month anniversary of the date
hereof and (ii) no more than one half of all Registrable Securities held by all
Holders as a group may be sold pursuant to any registration statement filed
under the Securities Act prior to the twelve month anniversary of the date
hereof.
2. ASSIGNMENT AND AMENDMENT.
2.1 Assignment. Notwithstanding anything herein to the contrary:
(a) Registration Rights. The registration rights of a Holder
under Section 1 hereof may be assigned; provided, however that no party may
assign any of the foregoing rights unless the Company is given written notice by
the assigning party at the time of such assignment stating the name and address
of the assignee and identifying the securities of the Company as to which the
rights in question are being assigned; and provided further that any such
assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 2.
2.2 Amendment and Waiver of Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders (and/or any of their permitted
11
successors or assigns) holding Series A Preferred representing and/or
convertible into a majority of all the Holders' Shares (as defined below);
provided, further, that the grant to third parties of piggyback registration
rights under Section 1.2 hereof on a pari passu basis with the piggyback
registration rights of the Holders under Section 1.2 shall not be deemed to be a
material and adverse change to the piggyback registration rights of the Holders
under this Agreement and shall not require the consent of Holders. As used
herein, the term "Holders' Shares" shall mean the shares of Common Stock then
issuable upon conversion of all then outstanding Series A Preferred. Any
amendment or waiver effected in accordance with this Section 2.2 shall be
binding upon each Holder, each permitted successor or assignee of such Holder
and the Company.
3. GENERAL PROVISIONS.
3.1 Notices. Any and all notices required or permitted to be given
to a party pursuant to the provisions of this Agreement will be in writing and
will be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) at the time of transmission by
facsimile, addressed to the other party at its facsimile number specified herein
(or hereafter modified by subsequent notice to the parties hereto), with
confirmation of receipt made by both telephone and printed confirmation sheet
verifying successful transmission of the facsimile; (iii) one (1) business day
after deposit with an express overnight courier for United States deliveries, or
two (2) business days after such deposit for deliveries outside of the United
States, with proof of delivery from the courier requested; or (iv) three (3)
business days after deposit in the United States mail by certified mail (return
receipt requested) for United States deliveries.
All notices not delivered personally or by facsimile will be
sent with postage and/or other charges prepaid and properly addressed to the
party to be notified at the address or facsimile number as follows, or at such
other address or facsimile number as such other party may designate by one of
the indicated means of notice herein to the other parties hereto as follows:
(a) if to a Holder, at such Holder's address as set forth on
Exhibit A hereto.
(b) if to the Company, marked "Attention: President", at 450
Park Avenue, Suite 1001, New York, New York 10022; Facsimile: (212) 644-6262.
3.2 Entire Agreement. This Agreement and the documents referred to
herein, together with all the Exhibits hereto, constitute the entire agreement
and understanding of the parties with respect to the subject matter of this
Agreement, and supersede any and all prior understandings and agreements,
whether oral or written, between or among the parties hereto with respect to the
specific subject matter hereof.
3.3 Governing Law; Jurisdiction. This Agreement will be governed by
and construed in accordance with the laws of the State of New York , without
giving effect to that body of laws pertaining to conflict of laws. Each of the
parties hereto hereby irrevocably consents to the exclusive jurisdiction of the
courts of the Second Department of the Supreme Court of the State of New York
and the United States District Court for the Southern District of New York and
waives trial by jury in any action or proceeding with respect to this Agreement.
12
3.4 Severability. If any provision of this Agreement is determined
by any court or arbitrator of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such provision will be enforced to the maximum
extent possible given the intent of the parties hereto. If such clause or
provision cannot be so enforced, such provision shall be stricken from this
Agreement and the remainder of this Agreement shall be enforced as if such
invalid, illegal or unenforceable clause or provision had (to the extent not
enforceable) never been contained in this Agreement. Notwithstanding the
forgoing, if the value of this Agreement based upon the substantial benefit of
the bargain for any party is materially impaired, which determination as made by
the presiding court or arbitrator of competent jurisdiction shall be binding,
then both parties agree to substitute such provision(s) through good faith
negotiations.
3.5 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
3.6 Successors And Assigns. Subject to the provisions of Section
2.1, this Agreement, and the rights and obligations of the parties hereunder,
will be binding upon and inure to the benefit of their respective successors,
assigns, heirs, executors, administrators and legal representatives.
3.7 Titles and Headings. The titles, captions and headings of this
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Agreement. Unless otherwise specifically stated,
all references herein to "sections" and "exhibits" will mean "sections" and
"exhibits" to this Agreement.
3.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed an
original, and all of which together shall constitute one and the same agreement.
3.9 Costs And Attorneys' Fees. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
3.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock of the
Company of any class or series, then, upon the occurrence of any subdivision,
combination or stock dividend of such class or series of stock, the specific
number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
3.11 Further Assurances. The parties agree to execute such further
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
THE COMPANY:
RAND ACQUISITION CORPORATION
Name:
---------------------------
By: Laurence Levy
---------------------------
Title: Chief Executive Officer
---------------------------
___________________________ ________________________________
___________________________ ________________________________
___________________________
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
EXHIBIT A
List of Series A Preferred Holders
Number of Shares
of Common Stock Underlying Series A
Name and Address Preferred Held
- ----------------------------------------- ------------------------------------
ANNEX H
[LETTERHEAD OF HOULIHAN SMITH & COMPANY INC.]
August 30, 2005
Board of Directors
Rand Acquisition Corporation
450 Park Avenue, 10th Floor
New York, NY 10022
Gentlemen:
You have informed us that Rand Acquisition Corporation, a Delaware corporation
("Rand" or the "Company"), is considering the purchase of all of the outstanding
stock of Lower Lakes Towing Ltd. ("Lower Lakes") for a total purchase price (the
"Purchase Price") equal to $56.7 million less the amount of Lower Lakes
indebtedness to be refinanced at closing, payable in part through the
establishment of a $3.0 million bonus plan for certain selling shareholders who
will continue to be employed by Lower Lakes following the transaction
(hereinafter, the "Transaction"). We understand that Rand will finance the
Transaction and related acquisition expenses with approximately (i) $24 million
of cash from Rand, (ii) $22.5 million of senior debt to be provided by a
third-party lender, and (iii) the sale and issuance (the "Issuance") by Rand of
300,000 shares of its Series A Convertible Preferred Stock ("Preferred Stock")
to a third party investor that is also a shareholder of Rand (the "Investor")
for a purchase price of $50 per share (the "Issuance Price").
Rand's Board of Directors has engaged Houlihan Smith & Company, Inc.
("Houlihan") to perform an independent analysis and to provide its opinion (the
"Opinion") as to (A) the fairness of (i) the Purchase Price and (ii) the
Issuance Price, in each case, from a financial point of view, to the Rand
shareholders (other than, with respect to the fairness of the Issuance Price,
the Investor, both in its capacity as the holder of the Preferred Stock and as a
common shareholder of Rand) and (B) that the fair market value of Lower Lakes is
at least equal to 80% of Rand's net assets at the time of the Transaction. In
performing our analysis and for purposes of our Opinion set forth herein, we
have, among other things:
a. Reviewed a draft stock purchase agreement among Rand, LL Acquisition Corp
and the stockholders of Lower Lakes. Hereafter, the draft stock purchase
agreement, which is dated August 26, 2005, is referred to as the "Stock
Purchase Agreement".
b. Reviewed a draft Redemption Agreement between Grand River Holdings, Inc.
and Grand River Navigation Company, Inc., dated August 24, 2005;
c. Reviewed Lower Lakes' (and Lower Lakes Transportation Company's) audited
financial statements prepared by Deloitte & Touche LLP for the three
fiscal years ending March 31, 2003, March 31, 2004, and March 31, 2005;
Board of Directors
Rand Acquisition Corp
Fairness Opinion
August 30, 2005 Page 2
d. Reviewed unaudited financial statements prepared by Lower Lakes management
for the interim three-month period ending June 30, 2005. We also reviewed
Lower Lakes' trailing twelve-month consolidated income statements for the
period ending June 30, 2005;
e. Reviewed certain of Rand's public filings with the United States
Securities and Exchange Commission, including Rand's registration
statement on Form S-1 and its most recent filings on Form 10-KSB and Form
10-QSB;
f. Reviewed a draft of the Preferred Stock Purchase Agreement, dated August
30, 2005, between Rand and Investor and a draft of the Certificate of
Designations, dated August 31, 2005, with respect to the Preferred Stock;
g. Reviewed various publications and research reports relating to the bulk
freight shipping and marine transportation industries;
h. Held discussions with members of Lower Lakes' executive management with
respect to the historical and current financial condition and operating
results of Lower Lakes, as well as the historical business and future
prospects of Lower Lakes following the Transaction;
i. Compared Lower Lakes from a financial point of view with certain other
guideline public companies in the bulk freight and transportation
industries that we deemed to be relevant;
j. Conducted due diligence discussions with third parties, including
investment bankers familiar with marine towing and transportation
industries and the public and private debt/equity markets;
k. Compared the proposed financial terms of the Preferred Stock and the
Issuance, with the financial terms of certain financial restructurings and
equity and subordinated debt issuances that we deemed relevant; and
l. Conducted such other studies, analyses, inquiries, and investigations as
we deemed relevant and appropriate.
During our review, we relied upon and assumed, without independent verification,
the accuracy, completeness and reasonableness of the financial and other
information provided to us by executive management of Rand. We have further
relied upon the assurances of the management of Rand that they are unaware of
any facts that would make the information provided to us to be incomplete or
misleading for the purposes of this Opinion. We have not assumed responsibility
for any independent verification of this information nor have we assumed any
obligation to verify this information. We have assumed that any financial model
reviewed by us in connection with the rendering of this Opinion was reasonably
prepared on a basis reflecting the best currently available estimates and
information at the date of this Opinion. We also assumed that any draft
Transaction documents which we reviewed reflect all material economic terms of
the final executed Transaction documents.
Board of Directors
Rand Acquisition Corp
Fairness Opinion
August 30, 2005 Page 3
Our Opinion is necessarily based upon information made available to us, as well
as the economic, market, financial and other conditions as they exist at the
date of this letter. We disclaim any obligation to advise the Board of Directors
of Rand or any person of any change in any fact or matter affecting our Opinion,
which may come or be brought to our attention after the date of this Opinion.
Each of the analyses conducted by Houlihan was carried out to provide a
particular perspective of the Issuance in developing our Opinion. Houlihan did
not form a conclusion as to whether any individual analysis, when considered in
isolation, supported or failed to support our Opinion. Houlihan does not place
any specific reliance or weight on any individual analysis, but instead,
concludes that its analyses, taken as a whole, support its conclusion and
Opinion. Accordingly, Houlihan believes that its analyses must be considered as
a whole and that selecting portions of its analyses or the factors it
considered, without considering all analyses and factors collectively, could
create an incomplete view of the processes underlying the analyses performed by
Houlihan in connection with the preparation of the Opinion.
Our Opinion does not constitute a recommendation to the Board of Directors of
Rand or to Rand's shareholders to proceed with, or vote in favor of, the
Issuance or the Transaction. This Opinion relates solely to the question of (A)
fairness of (i) the Purchase Price and (ii) the Issuance Price, in each case,
from a financial point of view, to the Rand shareholders (other than, with
respect to the fairness of the Issuance Price, the Investor, both in its
capacity as the holder of the Preferred Stock and as a common shareholder of
Rand) and (B) whether the fair market value of Lower Lakes is at least equal to
80% of Rand's net assets at the time of the Transaction. We express no opinion
as to the structure, terms or effect of any other aspect of the Transaction or
Issuance, including, without limitation, any effects resulting from the
application of any bankruptcy proceeding, fraudulent conveyance, or other
international, federal or state insolvency law, or of any pending or threatened
litigation involving Lower Lakes and/or Rand. We are also expressing no opinion
as to the income tax consequences of the Transaction and/or Issuance.
It is understood that this Opinion may be included in its entirety in one or
more filings with the United States Securities and Exchange Commission.
Houlihan, a National Association of Securities Dealers shareholder, as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
underwritings, private placements, bankruptcy, capital restructuring, solvency
analyses, stock buybacks, and valuations for corporate and other purposes.
Houlihan has received a non-contingent fee from Rand relating to its services in
providing this Opinion and has obtained the agreement of Rand to indemnify
Houlihan under certain circumstances.
Board of Directors
Rand Acquisition Corp
Fairness Opinion
August 30, 2005 Page 4
Based upon and subject to the foregoing, we are of the opinion that, as of the
date of this Opinion:
1. The Purchase Price is fair, from a financial point of view, to the
shareholders of Rand;
2. The Issuance Price is fair, from a financial point of view, to the
shareholders of Rand (other than the Investor, both in its capacity as the
holder of the Preferred Stock and as a common shareholder of Rand); and
3. The fair market value of Lower Lakes is at least equal to 80% of Rand's net
assets as of the date hereof.
Very truly yours,
/s/ Houlihan Smith & Company, Inc.
Houlihan Smith & Company, Inc.
ANNEX I
================================================================================
SECTION 116 ESCROW AGREEMENT
Dated ___________, 2005
Between
LL ACQUISITION CORP.
("Purchaser")
and
JUDY KEHOE, MARK ROHN AND TIM RYAN
(collectively, "Non-Resident Sellers")
and
OGILVY RENAULT LLP
("Section 116 Escrow Agent")
================================================================================
TABLE OF CONTENTS
RECITALS.......................................................................1
SECTION 1 - INTERPRETATION.....................................................1
1.1 Definitions........................................................1
1.2 Headings and Table of Contents.....................................2
1.3 References.........................................................2
1.4 Number and Gender..................................................2
1.5 Time of Day........................................................2
1.6 Business Day.......................................................2
1.7 Severability.......................................................2
1.8 Schedules..........................................................3
SECTION 2 - APPOINTMENT........................................................3
2.1 Appointment........................................................3
SECTION 3 - PAYMENT INTO ESCROW AND ACKNOWLEDGEMENT............................3
3.1 Withheld Amount....................................................3
SECTION 4 - HOLDING OF WITHHELD AMOUNT.........................................3
4.1 Escrow.............................................................3
4.2 Investment of Withheld Amount......................................3
SECTION 5 - DISTRIBUTION OF WITHHELD AMOUNT....................................4
5.1 Distributions......................................................4
SECTION 6 - SECTION 116 ESCROW AGENT...........................................5
6.1 General............................................................5
6.2 Duties and Liabilities of Section 116 Escrow Agent.................5
6.3 Disputes...........................................................6
6.4 Resignation of Section 116 Escrow Agent............................6
6.5 Removal of Section 116 Escrow Agent................................6
6.6 Appointment of New Section 116 Escrow Agent........................7
6.7 Failure to Appoint Replacement Agent...............................7
6.8 New Section 116 Escrow Agent.......................................7
6.9 No Agency..........................................................7
6.10 Indemnity..........................................................7
6.11 Discharge from Duties..............................................8
6.12 Expenses...........................................................8
6.13 Waiver of Claims...................................................8
6.14 Consolidation of Section 116 Escrow Agent..........................9
SECTION 7 - MISCELLANEOUS.............................................. .......9
7.1 Further Assurances.................................................9
7.2 Notices............................................................9
7.3 Time..............................................................10
7.4 Governing Law.....................................................10
(i)
7.5 Entire Agreement..................................................11
7.6 Execution in Counterparts.........................................11
Schedule "A" - Investment Direction
(ii)
SECTION 116 ESCROW AGREEMENT
This Agreement is dated ____________, 2005, between
LL ACQUISITION CORP.
("Purchaser")
and
JUDY KEHOE, MARK ROHN AND TIM RYAN
(collectively, "Non-Resident Sellers")
and
OGILVY RENAULT LLP
("Section 116 Escrow Agent")
RECITALS
A. Purchaser and Non-Resident Sellers are parties to a stock purchase agreement
dated September 2, 2005 (the "Purchase Agreement") under which Purchaser agreed
to acquire all of the shares in Lower Lakes Towing Ltd. from the parties
thereto, including the Non-Resident Sellers;
B. Non-Resident Sellers have agreed pursuant to Section 1.5 of the Purchase
Agreement that the Withheld Amount (as defined in the Purchase Agreement) will
be held and distributed by the Section 116 Escrow Agent in accordance with this
Agreement; and
C. Purchaser has agreed pursuant to Section 7.8 of the Purchase Agreement to
deliver the Withheld Amount to the Section 116 Escrow Agent to be held and
distributed by the Section 116 Escrow Agent in accordance with this Agreement.
FOR VALUE RECEIVED, the parties agree as follows:
SECTION 1 - INTERPRETATION
1.1 Definitions.
All capitalized terms defined in the Purchase Agreement that are not
defined in this Agreement shall have the meaning ascribed to them in the
Purchase Agreement. In this Agreement:
(1) Agreement means this escrow agreement, all attached schedules and any
agreement or schedule supplementing or amending this agreement.
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(2) Business Day means a day (other than a Saturday or Sunday), on which
commercial banks are open for business in New York, New York and Toronto,
Ontario.
(3) Deadline means the 29th day after the last day of the month in which the
Closing Date falls or such later date or event provided, in writing, by the
Canada Revenue Agency prior to which no amount of the Withheld Amount is
required to be remitted under S.116(5) of the Income Tax Act (Canada).
(4) Purchase Agreement has the meaning ascribed thereto in the recitals.
(5) Transmission means any electronic means of sending messages, including telex
or facsimile transmission, which produces a paper record.
1.2 Headings and Table of Contents.
The division of this Agreement into sections, the insertion of headings
and the provision of a table of contents are for convenience of reference only
and do not affect the construction or interpretation of this Agreement.
1.3 References.
Unless otherwise specified, all references in this Agreement to Recitals,
Sections and Schedules are to the recitals to, sections of, and schedules to,
this Agreement, respectively.
1.4 Number and Gender.
Unless otherwise specified, words importing the singular include the
plural and vice versa and words importing gender include all genders. The term
"including" shall be interpreted to mean "including without limitation".
1.5 Time of Day.
Unless otherwise specified, references to time of day or date mean local
time or date in Toronto, Canada.
1.6 Business Day.
If, under this Agreement, any payment is to be made or any other action
taken, on a day which is not a Business Day, that payment is to be made, and
that other action is to be taken, as applicable, on the next day that is a
Business Day.
1.7 Severability.
If any provision of this Agreement is or becomes illegal, invalid or
unenforceable in any jurisdiction, the illegality, invalidity or
unenforceability of that provision will not affect:
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(a) the legality, validity or enforceability of the remaining provisions
of this Agreement; or
(b) the legality, validity or enforceability of that provision in any
other jurisdiction.
1.8 Schedules.
The following Schedules are attached to and form part of this Agreement:
Schedule "A" - Investment Direction
Schedule "B" - Payment Direction
SECTION 2 - APPOINTMENT
2.1 Appointment.
Purchaser and Non-Resident Sellers hereby appoint the Section 116 Escrow
Agent to act, and the Section 116 Escrow Agent agrees to act, as Section 116
Escrow Agent in accordance with the terms and conditions of this Agreement.
SECTION 3 - PAYMENT INTO ESCROW AND ACKNOWLEDGEMENT
3.1 Withheld Amount.
Purchaser herewith delivers to the Section 116 Escrow Agent, and the
Section 116 Escrow Agent hereby acknowledges receipt of the Withheld Amount of
US$___________ payable to Ogilvy Renault LLP, in trust.
SECTION 4 - HOLDING OF WITHHELD AMOUNT
4.1 Escrow.
The Withheld Amount, together with any interest earned thereon or other
proceeds therefrom, shall be held in trust by the Section 116 Escrow Agent in
accordance with this Agreement.
4.2 Investment of Withheld Amount.
The Section 116 Escrow Agent shall deposit the Withheld Amount together
with any interest earned thereon in an interest bearing trust account or any
other account as provided for herein. The Section 116 Escrow Agent shall invest
the Withheld Amount as directed by Non-Resident Sellers and Purchaser, such
directions to be substantially in the form of Schedule "A". The Section 116
Escrow Agent: (i) makes no representation as to the income, profit, yield or
return available or to be earned upon the Withheld Amount, or as to the
certainty of return of principal of amounts invested in accordance with the
terms hereof; and (ii) shall bear no liability for any failure to achieve the
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maximum possible or desired yield or return from the Withheld Amount or for loss
of principal of amounts invested in accordance with the terms hereof.
Non-Resident Sellers shall pay all income and other taxes applicable or exigible
on any interest or other income it receives on the Withheld Amount.
SECTION 5 - DISTRIBUTION OF WITHHELD AMOUNT
5.1 Distributions.
(1) If, prior to the Deadline, a Non-Resident Seller delivers or causes to be
delivered to Purchaser:
(a) a Section 116(2) Certificate in respect of the disposition of the
Non-Resident Purchase Shares, then the Section 116 Escrow Agent will
promptly pay to such Non-Resident Seller the lesser of (1) the
Withheld Amount and (2) the Withheld Amount less 25% of the amount,
if any, by which the Non-Resident Purchase Price exceeds the
certificate limit specified in such Section 116(2) Certificate,
together with any interest or other income earned on the Withheld
Amount to the date of that payment (net of any applicable Taxes),
and the Section 116 Escrow Agent will promptly pay to the Receiver
General for Canada 25% of the amount, if any, by which the
Non-Resident Purchase Price exceeds the certificate limit specified
in such Section 116(2) Certificate (and the amount so paid will be
credited to Purchaser as payment on account of the amount owing to
such Non-Resident Seller in respect of the Purchase Price); or
(b) a certificate issued under subsection 116(4) of the Tax Act (a
"Section 116(4) Certificate") in respect of the disposition of such
Non-Resident Purchase Shares, then the Section 116 Escrow Agent will
promptly pay the Withheld Amount to such Non-Resident Seller,
together with any interest or other income earned on the Withheld
Amount to the date of that payment (net of any applicable Taxes).
(2) If no Section 116(2) Certificate or Section 116(4) Certificate has been
delivered to the Purchaser by a Non-Resident Seller by the Deadline, then the
Withheld Amount in respect of such Non-Resident Seller will be remitted by the
Section 116 Escrow Agent to the Receiver General for Canada as contemplated by
Subsection 116(5) of the Tax Act on the 30th day after the end of the month in
which Closing occurs (the "Remittance Date"), and the amount so remitted will be
credited to Purchaser on account of the amount payable to such Non-Resident
Seller by the Purchaser in respect of the Purchase Price; provided, however,
that if the Canada Revenue Agency confirms in writing on or before the
Remittance Date that Purchaser may continue to hold the Withheld Amount until a
later date or event without adverse consequences to the Purchaser, then the
Section 116 Escrow Agent will continue to hold that amount on the terms and
conditions of this Section 5.1, and on the terms outlined in the confirmation
from the Canada Revenue Agency, if any, and the Deadline and the Remittance Date
will be deemed to have been extended until that later date or event specified by
the Canada Revenue Agency. Any interest or other income earned in connection
with the Withheld Amount from Closing to the Remittance Date (net of any
applicable Taxes) will be paid promptly by the Section 116 Escrow Agent to the
Non-Resident Seller upon the release or remittance of the Withheld Amount.
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(3) If, following Closing, the Canada Revenue Agency indicates, in respect of a
particular Non-Resident Seller, that a Section 116(2) Certificate with a
certificate limit in an amount which is not less than the Non-Resident Purchase
Price or a Section 116(4) Certificate will be issued in respect of the
disposition of Non-Resident Purchase Shares upon the payment of an amount (the
"Tax Amount") that does not exceed the applicable Withheld Amount, then the
Section 116 Escrow Agent will remit the Tax Amount to the Receiver General for
Canada as payment of the Tax Amount (and the amount so remitted will be credited
to Purchaser as payment on account of the amount owing to the applicable
Non-Resident Seller in respect of the Purchase Price). Upon delivery of such
certificate, the Section 116 Escrow Agent shall release the Withheld Amount to
the applicable Non-Resident Seller (plus any interest or other income earned
thereon, net of any applicable Taxes), less the Tax Amount.
SECTION 6 - SECTION 116 ESCROW AGENT
6.1 General.
The Section 116 Escrow Agent agrees to hold and deal with the Withheld
Amount in accordance with this Agreement.
6.2 Duties and Liabilities of Section 116 Escrow Agent.
(1) Liability. The Section 116 Escrow Agent shall not be liable or answerable
for anything whatsoever in connection with this Agreement or any instrument or
agreement required hereunder, including enforcement of this Agreement or any
such instrument or agreement, except for its own wilful misconduct or gross
negligence, and the Section 116 Escrow Agent shall not have any duty or
obligation other than those expressly provided herein. Notwithstanding anything
contained herein or elsewhere to the contrary, the Section 116 Escrow Agent
shall not have any liability to Purchaser in respect of the deposit or
investment of the Withheld Amount in accordance with this Agreement, including
without limitation, the nature of the deposit or investment, the income or
interest received in connection therewith and the term to maturity thereof.
(2) Other Agreements. The Section 116 Escrow Agent shall only be bound to act as
set forth in this Agreement and the Section 116 Escrow Agent shall not be bound
in any way by any agreement or contract between Purchaser and Non-Resident
Sellers (whether or not such Section 116 Escrow Agent has any knowledge
thereof), including the Purchase Agreement.
(3) Directions and Court Orders. The Section 116 Escrow Agent shall comply with
such notices, directions and instructions as are provided for in this Agreement
and any order, judgement or decree of any court of competent jurisdiction. If
any part or all of the Withheld Amount held in escrow by the Section 116 Escrow
Agent is at any time attached or seized under any court order or in case any
judicial order, judgement or decree shall be made affecting this Agreement or
-6-
any part hereof then, in any such event, the Section 116 Escrow Agent is
authorized to rely upon and comply with such order, judgment or decree, and in
the case of such compliance, the Section 116 Escrow Agent shall not be liable by
reason thereof to Non-Resident Sellers or Purchaser or to any other person even
if thereafter any such order, judgement or decree is reversed, modified,
annulled, set aside or vacated. The Section 116 Escrow Agent is not bound to
enquire into the authority of any person signing any certificates, instructions,
directions or orders hereunder.
(4) Reliance on Experts. The Section 116 Escrow Agent may employ such counsel of
its choosing as it may reasonably deem necessary for the proper discharge of its
duties hereunder. The Section 116 Escrow Agent may, in relation to its
obligations hereunder, act on the opinion, advice or information obtained from
such counsel, but shall not be bound to act upon such opinion, advice or
information and shall not be held responsible for any loss occasioned for so
acting or not so acting, as the case may be, except if such loss results from
the wilful misconduct or gross negligence of the Section 116 Escrow Agent. The
Section 116 Escrow Agent may employ such assistance as may be reasonably
necessary to properly discharge its duties.
(5) Other Reliance. The Section 116 Escrow Agent shall be entitled to rely upon
any instrument or agreement required hereunder and upon statements and
communications received jointly from Non-Resident Sellers and Purchaser (or from
any other person) believed by it to be authentic, and shall not be liable for
any action taken or omitted in good faith on such reliance.
6.3 Disputes.
Should any controversy arise with respect to the Section 116 Escrow
Agent's duties hereunder or under any other matter related to this Agreement,
the Section 116 Escrow Agent may, at the expense of the other parties, apply to
a Judge of a court of competent jurisdiction to determine the rights of the
parties. The Section 116 Escrow Agent shall be entitled to refrain from taking
any action contemplated by this Agreement in the event that it becomes aware of
any disagreement between the parties hereto as to any facts or as to the
happening of any contemplated event precedent to such action.
6.4 Resignation of Section 116 Escrow Agent.
The Section 116 Escrow Agent may resign at any time by giving fifteen (15)
days notice in writing to Non-Resident Sellers and Purchaser.
6.5 Removal of Section 116 Escrow Agent.
Non-Resident Sellers and Purchaser, acting jointly, may at any time remove
such Section 116 Escrow Agent from its role as Section 116 Escrow Agent
hereunder on seven days written notice to that Section 116 Escrow Agent.
-7-
6.6 Appointment of New Section 116 Escrow Agent.
If the Section 116 Escrow Agent gives notice of resignation under Section
6.4 or is removed under Section 6.5, Purchaser shall appoint a new Section 116
Escrow Agent (providing written notice thereof to Non-Resident Sellers).
6.7 Failure to Appoint Replacement Agent.
Upon the effective date of resignation or removal of an Section 116 Escrow
Agent pursuant to Section 6.4 or 6.5, as the case may be, if a successor Section
116 Escrow Agent has not been appointed, then on notice to Non-Resident Sellers
and Purchaser, the Section 116 Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Section 116 Escrow Agent;
failing such application to such court within 30 days from the effective date of
such resignation or removal, the Section 116 Escrow Agent, on notice to
Non-Resident Sellers and Purchaser, may deposit the Withheld Amount (or provide
control thereof if invested) and all related records and documents with a court
of competent jurisdiction pending the appointment of a successor Section 116
Escrow Agent, and the duties and obligation of such Section 116 Escrow Agent
hereunder shall thereupon cease.
6.8 New Section 116 Escrow Agent.
Any new Section 116 Escrow Agent shall agree in writing to be bound by
this Agreement and thereupon shall be vested with the same powers and rights and
shall be subject to the same duties and obligations as if it had executed this
Agreement as the Section 116 Escrow Agent and, unless otherwise directed in
writing jointly by Non-Resident Sellers and Purchaser, and upon satisfaction of
all of its fees and expenses, the former Section 116 Escrow Agent shall cause to
be delivered the Withheld Amount (or control thereof if invested) and all
related records and documents to the new Section 116 Escrow Agent, execute all
such transfers and other documents and do all such other acts and things as the
new Section 116 Escrow Agent may reasonably request for the purpose of giving
effect thereto.
6.9 No Agency.
Non-Resident Sellers and Purchaser acknowledge that the Section 116 Escrow
Agent is acting solely as depositary at their request and for their convenience
and, notwithstanding anything to the contrary herein contained, the Section 116
Escrow Agent shall not be deemed to be the agent of Non-Resident Sellers or
Purchaser except as otherwise expressly provided herein. Purchaser acknowledges
that Section 116 Escrow Agent is legal counsel to Non-Resident Sellers under the
Purchase Agreement and that Escrow Agent shall continue as such in all
circumstances.
6.10 Indemnity.
(1) Purchaser and Non-Resident Sellers agree to, severally but not jointly,
indemnify and hold harmless the Section 116 Escrow Agent from and against any
and all liabilities, losses, damages, penalties, claims, actions, suits, costs,
expenses and disbursement, including legal or adviser fees and disbursements of
-8-
whatever kind and nature (collectively, "Losses") which may at any time be
imposed on, incurred by or asserted against the Section 116 Escrow Agent,
arising from or out of any act, omission or error of the Section 116 Escrow
Agent made in the conduct of its duties hereunder; provided that Purchaser shall
not be required to indemnify the Section 116 Escrow Agent against Losses arising
out of and from the gross negligence or wilful misconduct of the Section 116
Escrow Agent or any agent employed by the Section 116 Escrow Agent in carrying
out its obligations hereunder. IN NO EVENT SHALL THE SECTION 116 ESCROW AGENT BE
LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (i) DAMAGES OR EXPENSES ARISING OUT OF
THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES WHICH RESULT FROM THE
SECTION 116 ESCROW AGENT'S FAILURE TO ACT IN ACCORDANCE WITH THE STANDARDS SET
FORTH IN THIS AGREEMENT, OR (ii) SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF THE
SECTION 116 ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
This provision shall survive the resignation or removal of the Section 116
Escrow Agent or the termination of this Agreement.
6.11 Discharge from Duties.
(1) Disposal of Funds. Upon disposing of all of the Withheld Amount in
accordance with the provisions of this Agreement, the Section 116 Escrow Agent
shall be relieved and discharged from all claims and liabilities relating to the
Withheld Amount and the Section 116 Escrow Agent shall not be subject to any
claims made by or on behalf of any party hereto except claims relating to the
negligence or wilful misconduct of the Section 116 Escrow Agent or any agent
employed by the Section 116 Escrow Agent in carrying out its obligations
hereunder.
(2) Removal on Resignation. Upon resigning or being removed pursuant to Section
6.4 or 6.5, the Section 116 Escrow Agent shall distribute the Withheld Amount
and any interest or other income earned thereon to the new Section 116 Escrow
Agent appointed pursuant to Section 6.6 and the Section 116 Escrow Agent shall,
upon such distribution, be discharged from all further duties and obligations
hereunder and shall not be subject to any claims made by or on behalf of any
party hereto except claims relating to the negligence or wilful misconduct of
the Section 116 Escrow Agent or any agent employed by the Section 116 Escrow
Agent in carrying out its obligations hereunder.
6.12 Expenses.
The reasonable fees and expenses of the Section 116 Escrow Agent shall be
borne by the Purchaser.
6.13 Waiver of Claims.
Each party hereto waives any claims or demands against the Section 116
Escrow Agent and its principals with respect to all acts taken by such Section
116 Escrow Agent in conformance with this Agreement. The Section 116 Escrow
Agent shall not have any duty to take any action other than as specifically
provided for in this Agreement. The Section 116 Escrow Agent shall not have any
liability for any non-action if such action has been restrained by any order of
any court or administrative agency or if, in its sole discretion, it determines
that any such action would violate any law or governmental regulation.
-9-
6.14 Consolidation of Section 116 Escrow Agent.
Any corporation, partnership or other entity into which the Section 116
Escrow Agent may be merged or converted shall succeed to all the Section 116
Escrow Agent's rights, obligations and immunities hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
SECTION 7 - MISCELLANEOUS
7.1 Further Assurances.
Non-Resident Sellers and Purchaser shall from time to take or cause to be
taken such action and execute and deliver (or cause to be executed and
delivered) such documents and further assurances as may, in the reasonable
opinion of counsel for the other parties, be necessary or advisable to give
effect to this Agreement.
7.2 Notices.
Any notice, demand or other communication (in this Section, a "notice")
required or permitted to be given or made hereunder shall be in writing and
shall be sufficiently given or made if:
(1) delivered in person during normal business hours of the recipient on a
Business Day and left with the recipient, for notices delivered to individuals,
or a receptionist or other responsible employee of the recipient at the relevant
address set forth below;
(2) except during any period of actual or imminent interruption of postal
services due to strike, lockout or other cause, sent by registered mail;
sent by Transmission, charges prepaid and confirmed by registered mail as
provided in Subsection (2), as follows:
if to Purchaser:
LL Acquisition Corp.
c/o Hyde Park Holdings LLC
450 Park Avenue, Suite 1001
New York, New York 10022
Attention: Laurence Levy
Tel: (212) 644-3455
Fax: (212) 644-6262
-10-
if to Judy Kehoe:
43423 Turnberry Isle Ct.
Leesburg, Virginia 20176
if to Mark Rohn:
162 Moore Road
Avon Lake, Ohio 44012
if to Tim Ryan:
1737 Warrington Drive
Henderson, Nevada 89053
if to the Section 116 Escrow Agent:
Ogilvy Renault LLP
Royal Bank Plaza, South Tower
200 Bay Street, P.O. Box 84
Toronto, Ontario, Canada
Attention: Barry N. Segal
Tel: 416.216.4861
Fax: 416.216.3930
Any notice so given shall be deemed to have been given and to have been received
on the day of delivery, if so delivered, on the third Business Day (excluding
each day during which there exists any interruption of postal services due to
strike, lockout or other cause) following the mailing thereof, if so mailed, and
on the day that notice was sent by Transmission, provided such day is a Business
Day and the message is delivered during business hours on the same Business Day
and if not, during business hours on the first Business Day thereafter.
Addresses for notice may be changed by giving notice in accordance with this
Section.
7.3 Time.
Time shall be of the essence of this Agreement.
7.4 Governing Law.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Province of Ontario, Canada.
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7.5 Entire Agreement.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior negotiations and
understandings. No provision may be amended or waived except in writing.
7.6 Execution in Counterparts.
This Agreement may be executed and delivered in any number of
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument. A party's
transmission by facsimile of a copy of this Agreement duly executed by that
party shall constitute effective delivery by that party of an executed copy of
this Agreement to the party receiving the transmission. A party that has
delivered this Agreement by facsimile shall forthwith deliver an originally
executed copy to the other party or parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LL ACQUISITION CORP.
By:
--------------------------
Name:
Title:
- -------------------------- --------------------------
WITNESS JUDY KEHOE
- -------------------------- --------------------------
WITNESS MARK ROHN
- -------------------------- --------------------------
WITNESS TIM RYAN
OGILVY RENAULT LLP
By:
--------------------------
Name:
Title:
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Schedule "A" - Investment Direction
Form of Direction with respect to
Investment of Withheld Amount
RE: Investment of Witheld Amount held by the Section 116 Escrow Agent pursuant
to the Section 116 Escrow Agreement made between LL Acquisition Corp., Judy
Kehoe, Mark Rohn, Tim Ryan and Ogilvy Renault LLP (the "Section 116 Escrow
Agent") and dated as of ______________, 2005 (the "Section 116 Escrow
Agreement")
_______________________________________________
This direction is given pursuant to Section 4.1 of the Section 116 Escrow
Agreement. Capitalized terms not otherwise defined herein shall have the meaning
ascribed thereto in the Section 116 Escrow Agreement.
The undersigned hereby jointly authorize and direct the Section 116 Escrow Agent
to invest the following Withheld Amount as follows as soon as is practicable:
INVESTMENT:
TERM:
TOTAL AMOUNT: US Dollars
and this shall be your good, sufficient and irrevocable authority to do so.
LL ACQUISITION CORP.
By:
--------------------------
Name:
Title:
- -------------------------- --------------------------
WITNESS JUDY KEHOE
- -------------------------- --------------------------
WITNESS MARK ROHN
- -------------------------- --------------------------
WITNESS TIM RYAN
ANNEX J
RAND ACQUISITION CORPORATION
MANAGEMENT BONUS PROGRAM
RAND ACQUISITION CORPORATION
MANAGEMENT BONUS PROGRAM
1. ESTABLISHMENT AND PURPOSE
The Rand Acquisition Corporation Management Bonus Program (the "Plan") is
established by Rand Acquisition Corporation (the "Company") to retain persons
eligible to participate in the Plan; motivate Participants to achieve long-term
Company goals; and further align Participants' interests with those of the
Company's stockholders. The Plan is adopted as of , , 2005 (the "Effective
Date").
2. DEFINITIONS
For purposes of this Plan, the following terms are defined as set forth below:
(a) "Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Company as such terms are defined in Section
424(e) and 424(f) of the Code.
(b) "Audited EBITDA" means the actual EBITDA as determined after each
Fiscal Year in accordance with GAAP.
(c) A Participant's "Award" means an amount equal to such Participant's
Vested Share multiplied by such Participant's Plan Account Balance.
(d) A Participant's "Base Amount" means the opening balance of such
Participant's Plan Account Balance, as specified in "Attachment A".
(e) "Board" means the Board of Directors of the Company.
(f) "Budgeted EBITDA" means the anticipated EBITDA determined by the
Board prior to each Fiscal Year.
(g) "Cause" means (i) conviction of the Participant of a criminal
offence involving fraud, larceny, misappropriation of funds,
embezzlement or dishonesty; (ii) receipt by or on behalf of the
Participant or any member of the Participant's immediate family of
any personal profit arising out of in connection with a transaction
to which the Company or an Affiliate is party without making full
prior disclosure to the Company or such Affiliate; (iii) any
misfeasance, nonfeasance or malfeasance by the Participant in the
performance of his or her duties which causes material harm to the
Company or an Affiliate; (iv) failure of the Participant to follow
and carry out the lawful instructions of his superior after notice
and reasonable opportunity for the Participant to cure such failure;
(v) the Participant having been under the influence of drugs (other
than prescription medicine or other medically-related drugs to the
extent that they are taken in accordance with their directions) or
alcohol during the performance of his or her duties (it being
understood that the Participant may attend industry functions at
which alcohol will be consumed by the Participant), or while
otherwise under the influence of drugs or alcohol, engages in
inappropriate conduct; or (vi) the Participant having engaged in
behavior that would constitute grounds for liability for sexual
harassment, discrimination. Notwithstanding the foregoing, if the
Participant and the Company or an Affiliate have entered into an
employment or services agreement which defines the term "Cause" (or
a similar term), such definition shall govern for purposes of
determining whether such Participant has incurred a Separation of
Service for Cause for purposes of this Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(i) "Commission" means the Securities and Exchange Commission or any
successor agency.
(j) "Committee" means a committee of Directors appointed by the Board to
administer this Plan.
(k) "Company" means Rand Acquisition Corporation, a Delaware
corporation.
(l) "Director" means a member of the Company's Board of Directors.
(m) "Disability" means: (1) the Company has provided a written notice to
the Participant supported by a written statement from a reputable
independent physician selected by the Company to the effect that the
Participant shall have become so incapacitated as to be unable to
resume, within 90 days, his or her employment with the Company or an
Affiliate by reason of physical or mental illness or injury; or (ii)
the Company has provided written notice to the Participant that the
Participant has been unable to substantially perform his or her
duties to the Company or an Affiliate for 90 consecutive days
(exclusive of any permitted vacation days) or for 120 days in any
360 day period by reason of any physical or mental illness or
injury.
(n) "EBITDA" or "Earnings Before Interest Taxes Depreciation and
Amortization" means the sum, without duplication, of the net income
of the Company determined in accordance with GAAP (consistently
applied to the extent past practice qualifies as GAAP), as: (1)
reduced by the amount of any (i) extraordinary income, (ii) net
gains resulting from the sale or other disposition of assets not in
the ordinary course of business and (iii) income attributable to
adjustments relating to prior periods; all as the foregoing items
are included in connection with the determination of net income and
determined on a consolidated basis and in accordance with GAAP
(consistently applied to the extent past practice qualifies as
GAAP); and as (2) increased by the amount of any (i) interest
expense, (ii) taxes, (iii) depreciation expense, (iv) amortization
expense, (v) extraordinary losses, (vi) net losses resulting from
the sale or other disposition of assets not in the ordinary course
of business, (vii) deductions or losses attributable to adjustments
relating to prior periods; all as the foregoing items are deducted
in connection with the determination of net income and determined on
a consolidated basis and in accordance with GAAP (consistently
applied to the extent past practice qualifies as GAAP).
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
(p) "Fiscal Year" means the twelve month period ended March 31 of each
year.
(q) "GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting
profession which are applicable to the circumstances from time to
time.
(r) "Participant" means a person designated as such in accordance with
Section 3.
(s) A Participant's "Plan Account Balance" means the Base Amount for
such Participant, as adjusted in accordance with Section 5.
(t) "Representative" means (i) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the
last will and testament of a Participant or pursuant to the laws of
the jurisdiction in which the Participant had his or her primary
residence at the date of the Participant's death; (ii) the person or
entity acting as the guardian or temporary guardian of a
Participant; or (iii) the person or entity which is the beneficiary
of the Participant upon or following the Participant's death.
(u) "Separation from Service" is given the same meaning as such term is
defined under Section 409A of the Code and any regulation
promulgated, or any guidance released, thereunder. A Participant
shall not be considered to have incurred a Separation from Service
on account of a transfer (i) from employment with the Company to
employment with an Affiliate, (ii) from employment with an Affiliate
to employment with the Company, or (iii) from employment with an
Affiliate to employment with another Affiliate.
(v) "Stock" means a share of the common stock, par value $.0001 per
share, of the Company.
(w) A Participant's "Vested Share" means the portion of the Plan Account
Balance for such Participant in which such Participant is vested as
provided in Section 6.
In addition, certain other terms used herein have the definitions given to them
in the first places in which they are used.
3. ELIGIBILITY
Participation in the Plan shall be limited to the individuals listed on
"Attachment A" hereto (the "Participants").
4. AWARDS
Subject to Section 8(a), the Award granted to a Participant under this Plan
shall be equal to such Participant's Vested Share multiplied by such
Participant's Plan Account Balance as of the Payment Date.
5. PLAN ACCOUNT BALANCE
Following the Effective Date, each Participant's Plan Account Balance will be
adjusted as follows:
As of March 31, 2007 and 2008, each Plan Account Balance will be increased
or decreased pursuant to the following formula:
Audited EBITDA for the Fiscal Year then ended
Plan Account Balance at ---------------------------------------------
the time of adjustment X Audited EBITDA for the immediately preceding
Fiscal Year
6. VESTING
Subject to the provisions of Section 8, on each of March 31, 2006, 2007 and
2008, each Participant then employed by the Company or an Affiliate shall vest
into one-third of such Participant's Plan Account Balance (such vested portion
thereafter being referred to as such Participant's "Vested Share").
7. DISTRIBUTION; REGISTRATION RIGHTS
All Awards under the Plan will be settled on July 31, 2008 (the "Payment Date").
All Awards may be settled in cash and/or in Stock (valued at the Stock's volume
weighted average price for the 20 trading days preceding March 31, 2008), or any
combination thereof, all in the discretion of the Administrator. Notwithstanding
any other provision of the Plan, if, as of the Payment Date, a Participant's
Plan Account Balance is greater than would result pursuant to the following
formula, such Participant's Plan Account Balance shall be reduced to the amount
determined pursuant to the following formula prior to the settlement of an Award
under the Plan:
Stock's volume weighted average price for the
20 trading days preceding the Payment Date
Base Amount X ---------------------------------------------
Stock's volume weighted average price for the
20 trading days preceding the Effective Date
The Company shall enter into the Registration Rights Agreement attached as
"Attachment B" hereto with any Participant that is issued Stock in settlement of
an Award under the Plan.
8. SEPARATION FROM SERVICE
The provisions of this Section 8 shall apply in the event a Participant incurs a
Separation from Service from the Company or an Affiliate at any time prior to
the date on which the Participant shall become fully vested in its Plan Account
Balance as set forth in Section 6:
(a) Should a Participant incur a Separation from Service from the
Company or an Affiliate by reason of death, Disability or
termination by the Company or an Affiliate without Cause (which
shall include for Participants with whom the Company or an Affiliate
is party to an employment or services agreement, a termination by
the Participant for "Good Reason" (as defined in any such agreement)
at any time prior to the date on which the Participant shall become
fully vested in its Plan Account Balance as set forth in Section 6,
then (i) such Participant shall, as of the effective date of such
Separation from Service, become fully vested in its Plan Account
Balance and (ii) such Participant (or such Participant's legal
representative) shall have the option, exercisable by written notice
to the Company within fourteen (14) days of the effective date of
such Separation from Service, to elect to freeze the amount of such
Participant's Award at an amount equal to the Award to which such
Participant would be entitled if the Payment Date were the effective
date of such Separation from Service (calculated in accordance with
Section 7, including the limiting formula therein, and based on such
Participant's Plan Account Balance as of the effective date of such
Separation from Service). A Participant who does not timely deliver
the notice referred to in this Section 8(a) shall be deemed to have
elected not to have frozen an Award hereunder, and such
Participant's Award shall be calculated in accordance with Section 4
and settled in accordance with Section 7. All Awards, whether or not
frozen pursuant to this Section 8(a), shall be settled on the
Payment Date in accordance with Section 7.
(b) Should a Participant incur a Separation from Service from the
Company or an Affiliate for Cause, or incur a Separation from
Service from the Company or an Affiliate voluntarily (other than for
Good Reason, if applicable, which shall be deemed a termination
without Cause and be treated in the manner set forth in clause (a)
of this Section 8) without providing the Company or the Affiliate,
as applicable, 60 days advance notice of such voluntary Separation
from Service, then such Participant's rights to its Plan Account
Balance, including with respect to its Vested Share, shall be
forfeited, and such Participant shall no longer have any rights in
or to its Plan Account Balance or under the Plan.
(c) A Participant that incurs a voluntary Separation from Service from
the Company or an Affiliate (other than for Good Reason, if
applicable, which shall be deemed a termination without Cause and be
treated in the manner set forth in clause (a) of this Section 8) and
who does provide the Company or such Affiliate, as applicable, with
60 days advance notice of such voluntary Separation from Service,
shall retain its Vested Share as of the effective date of such
Separation from Service (and shall receive an Award based on such
Vested Share on the Payment Date in accordance with Section 7) but
shall, as of such effective date, cease to further vest in such
Participant's Plan Account Balance.
(d) Any unvested portion of a Participant's Plan Account Balance
resulting from a Separation from Service described in Section 8(c)
shall be added to the Plan Account Balances of each then remaining
Participant (other than Participants that have elected to freeze
their Award pursuant to Section 8(a)) in proportion to the
respective Plan Account Balance of each such remaining Participant,
and with respect to each such remaining Participant, in proportion
to each such Participant's vested and unvested Plan Account Balance.
9. ADMINISTRATION
The Plan shall be administered by a Committee; provided, however, that, if at
any time no Committee shall be in office, the Plan shall be administered by the
Board. As used herein, the term "Administrator" means the Board or any of its
Committees as shall be administering the Plan. The Administrator will enforce
the Plan in accordance with its terms and will have all powers necessary to
accomplish that purpose, including, but not limited to, the following
discretionary authority:
(a) to make determinations as to any Award granted under this Plan;
(b) to make such adjustments as are reasonably necessary to account for
extraordinary or special events or circumstances, including
adjustments to Budgeted EBITDA on account of acquisitions of assets
or businesses out of the ordinary course of business or other
extraordinary transactions not contemplated in estimating Budgeted
EBITDA;
(c) to determine the amount and the permissible methods of payment under
the Plan;
(d) to construe and interpret the Plan and the terms hereof;
(e) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties and the
administration of the Plan;
(f) to authorize all distributions in accordance with the provisions of
the Plan;
(g) to keep records relating to the Participants and other matters
applicable to the Plan;
(h) to prescribe procedures to be followed by the Participant in
claiming benefits; and
(i) to prescribe and adopt the use of necessary forms including the
forms to be utilized in connection with this Plan.
The Administrator shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan and to otherwise supervise the
administration of the Plan.
Except to the extent prohibited by applicable law, the Administrator may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any portion of its responsibilities
and powers to any other person or persons selected by it. Any such allocation or
delegation may be revoked by the Administrator at any time. The Administrator
may authorize any one or more of their members or any officer of the Company to
execute and deliver documents on behalf of the Administrator.
Any determination made by the Administrator or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Administrator or such delegate. All decisions made
by the Administrator or any appropriately delegated officer pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Participants.
No member of the Administrator, and no officer of the Company, shall be liable
for any action taken or omitted to be taken by such individual or by any other
member of the Administrator or officer of the Company in connection with the
performance of duties under this Plan, except for such individual's own willful
misconduct or as expressly provided by law.
10. MISCELLANEOUS
(a) Amendment. The Board may amend, alter, or discontinue the Plan, but
no amendment, alteration or discontinuation shall be made which
would adversely affect the vested or unvested rights of a
Participant without the Participant's consent. No such amendment
shall be made without the approval of the Company's stockholders to
the extent such approval is required by law, agreement or the rules
of any stock exchange or market on which the Stock is listed.
(b) Unfunded Status of Plan. It is intended that this Plan be an
"unfunded" plan for incentive and deferred compensation. The
Administrator may authorize the creation of trusts or other
arrangements to meet the obligations created under this Plan to
deliver Stock or make payments, provided that, unless the
Administrator otherwise determines, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of this
Plan. The Plan is intended to be maintained primarily for a select
group of management or highly compensated employees, and shall be
construed and administered in accordance with such intention.
(c) Non-transferability of Awards. Except as provided herein, the Awards
payable hereunder, and any interest therein, shall not be
transferable by a Participant, and a Participant shall not be
permitted to anticipate, alienate, sell, assign, transfer, pledge or
otherwise encumber his or her rights to an Award. Any attempted
anticipation, alienation, sale, assignment, pledge or encumbrance
shall be null and void ab initio. Except as provided in Section
10(d)(vi), no interest or right to any Award may be taken for the
satisfaction of debts of, or other obligations or claims against, a
Participant.
(d) General Provisions.
(i) All certificates for shares of Stock or other securities
delivered under the Plan, if any, shall be subject to such
stop transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations
and other requirements of the Commission, any stock exchange
or market on which the Stock is then listed and any applicable
Federal or state securities law, including, but not limited to
the Exchange Act, and the Administrator may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
(ii) Nothing contained in the Plan shall prevent the Company or any
Affiliate from adopting other or additional compensation
arrangements for its employees.
(iii) The adoption of the Plan shall not confer upon any employee,
director, consultant or advisor any right to continued
employment, directorship or service, nor shall it interfere in
any way with the right of the Company or any Affiliate to
terminate the employment or service of any employee,
consultant or advisor at any time.
(iv) All Awards payable under the Plan shall be subject to
withholding by the Company on account of any Federal, state,
local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise
determined by the Administrator, withholding obligations on
account of an Award settled in Stock may be settled with
Stock, including Stock that is part of the Award that gives
rise to the withholding requirement. The Administrator may
establish such procedures as it deems appropriate for the
settlement of withholding obligations with Stock.
(v) The Administrator shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to
whom any amounts payable in the event of the Participant's
death are to be paid.
(vi) Any amounts owed to the Company or an Affiliate by a
Participant of whatever nature including, without limitation,
pursuant to that certain letter agreement dated the Effective
Date and executed by each Participant in favor of the Company
(the "Letter Agreement"), may be offset by the Company from
the value of any shares of Stock, cash or other thing of value
under this Plan, whether or not vested, including by
proportionate reduction of each Participant's Plan Account
Balance with respect to amounts owed pursuant to the Letter
Agreement, and no shares of Stock, cash or other thing of
value under this Plan shall be transferred to a Participant
unless and until all disputes between the Company and the
Participant have been fully and finally resolved and the
Participant has waived all claims to such against the Company
and its Affiliate.
(vii) The grant of Stock shall in no way affect the right of the
Company or an Affiliate to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to
merge, consolidate, dissolve, liquidate or sell or transfer
all or any part of its business or assets.
(viii) If any payment or right accruing to a Participant under this
Plan (without the application of this Section 10(c)(viii)),
either alone or together with other payments or rights
accruing to the Participant from the Company or an Affiliate
("Total Payments") would constitute a "parachute payment" (as
defined in Section 280G of the Code and regulations
thereunder), such payment or right shall be reduced to the
largest amount or greatest right that will result in no
portion of the amount payable or right accruing under this
Plan being subject to an excise tax under Section 4999 of the
Code or being disallowed as a deduction under Section 280G of
the Code; provided, however, that the foregoing shall not
apply to the extent provided otherwise in an Agreement or in
the event the Participant is party to an agreement with the
Company or an Affiliate that explicitly provides for an
alternate treatment of payments or rights that would
constitute "parachute payments." The determination of whether
any reduction in the rights or payments under this Plan is to
apply shall be made by the Administrator in good faith after
consultation with the Participant, and such determination
shall be conclusive and binding on the Participant. The
Participant shall cooperate in good faith with the
Administrator in making such determination and providing the
necessary information for this purpose. The foregoing
provisions of this Section 10(c)(viii) shall apply with
respect to any person only if, after reduction for any
applicable Federal excise tax imposed by Section 4999 of the
Code and Federal income tax imposed by the Code, the Total
Payments accruing to such person would be less than the amount
of the Total Payments as reduced, if applicable, under the
foregoing provisions of this Plan and after reduction for only
Federal income taxes.
(ix) The headings contained in this Plan are for reference purposes
only and shall not affect the meaning or interpretation of
this Plan.
(x) If any provision of this Plan shall for any reason be held to
be invalid or unenforceable, such invalidity or
unenforceability shall not effect any other provision hereby,
and this Plan shall be construed as if such invalid or
unenforceable provision were omitted.
(xi) This Plan shall inure to the benefit of and be binding upon
each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the
Company hereunder, shall be binding upon the Participant's
heirs, Representatives and successors.
(xii) In the event there is an effective registration statement
pursuant to which shares of Stock shall be offered for sale in
an underwritten offering, a Participant shall not, during the
period requested by the underwriters managing the registered
public offering, effect any public sale or distribution of
shares of Stock received pursuant to an Award.
(xiii) None of the Company, an Affiliate or the Administrator shall
have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Stock and such holder shall
have no right to be advised of, any material information
regarding the Company or any Affiliate at any time prior to,
upon or in connection with receipt of Stock under this Plan.
(xvi) This Plan shall be governed by, and construed in accordance
with, the laws of the state of New York.
(xvii) This Plan constitutes the entire agreement of the Company and
the Participants with respect to the subject matter hereof and
shall supersede any prior expressions of intent or
understanding with respect to this Plan.
RAND ACQUISITION CORPORATION
By:
-------------------------------
Its:
-------------------------------
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of ____________, 2008, by Rand Acquisition Corporation, a Delaware
corporation (the "Company"), and those individual signatories hereto
_____________(each, an "Investor" and collectively, the "Investors").
A. Pursuant to that certain Management Bonus Program (the "Bonus Program")
adopted by the Company as of date herewith, each Investor may receive shares of
the Company's Common Stock, par value $0.0001 per share (the "Common Stock") in
lieu of cash payments due under the Bonus Program.
B. The Company has agreed to provide the Investors certain registration
rights with respect to the shares of the Company's Common Stock issuable in lieu
of such cash payments.
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of this Section 1:
(a) Common Stock. The term "Common Stock" means the Company's
common stock, $0.0001 par value per share.
(b) Registration. The terms "register," "registration" and
"registered" refer to a registration effected by preparing and filing a
Registration Statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such Registration Statement.
(c) Registrable Securities. The term "Registrable Securities"
means (i) the Common Stock issuable in lieu of cash payments under the Bonus
Program and (ii) any shares of Common Stock of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
any shares of Common Stock described in clause (i).
(d) Holder. The term "Holder" means any person owning of
record Registrable Securities or any assignee of record of such Registrable
Securities to whom rights set forth herein have been duly assigned in accordance
with this Agreement.
(e) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.
1.2 Registration.
(a) Registration. As soon as reasonably practicable (but in no
event more than 20 business days) after the Company shall have determined to
issue Common Stock to the Investors in lieu of cash payments due under the Bonus
Plan, the Company shall prepare and file with the SEC a registration statement
on such form as the Company may elect in its reasonable discretion covering all
of the Registrable Securities (or amend a registration statement which has been
filed by the Company with the SEC to include the Registrable Securities therein)
(the "Registration Statement") and shall use its commercially reasonable efforts
to cause the Registration Statement to become effective within 30 days after the
issuance of the Registrable Securities (the "Required Effective Date"). Any
Registration Statement filed or amended pursuant to this Section 1.2 shall be
considered to have been demanded by the Holders, solely for the purpose of
triggering piggyback registration rights to which the Company may then be
subject, and may include shares of Common Stock held by other parties with
respect to which the Company has registration obligations pursuant to written
contractual arrangements ("Other Registrable Securities"); provided that no
registration pursuant to this Section 1.2 shall be subject to the terms or
conditions of any such other contractual arrangements, including without
limitation any cutback requirement. Unless otherwise agreed in the sole
discretion of the Company, no Registration Statement pursuant to this Section
1.2 shall provide for an underwritten offering.
(b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 1.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of a single counsel for all Holders (but excluding underwriters' discounts and
commissions, if applicable), shall be borne by the Company. Each Holder
participating in a registration pursuant to this Section 1.2 shall bear such
Holder's proportionate share (based on the number of shares sold by such Holder
over the total number of shares included in such registration at the time it is
declared effective) of all discounts, commissions or other amounts, if any,
payable to underwriters in connection with such offering.
1.3 Deferral. Notwithstanding the foregoing, if the Company shall
furnish to Holders a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be detrimental to the Company and its
shareholders for a Registration Statement to be filed and it is therefore
essential to defer the filing of such Registration Statement, then the Company
shall have the right to defer such filing for a period of not more than ninety
(90) days from the Required Effective Date; provided, however, that the Company
may not utilize this right more than once.
1.4 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, subject to the provisions of Section 1.4(f) below, as expeditiously as
reasonably possible:
(a) Use its best efforts to prepare and file with the SEC a
Registration Statement with respect to such Registrable Securities and to cause
such Registration Statement to become effective, and use its commercially
reasonable efforts to cause such Registration Statement to remain effective for
a period of one year from the date the applicable Registrable Securities were
issued by the Company pursuant to the Bonus Program.
(b) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement and comply with the provisions
of the Securities Act with respect to the disposition of all Registrable
2
Securities of the Company covered by such Registration Statement until such time
as all of such Registrable Securities registered thereunder shall have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement by reason of the Company filing a report on
Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Company shall have
incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the requirement
for the Company to amend or supplement such Registration Statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions. The Company shall
promptly notify each Holder of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of any of
the Registrable Securities for sale under the securities or "blue sky" laws of
any jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering and enter into
such other customary agreements and take all such actions as such underwriter
reasonably requests in order to expedite or facilitate the disposition of such
shares. Each Holder participating in such underwriting hereby agrees to also
enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the occurrence of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and promptly prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission, and deliver ten (10)
copies of such supplement or amendment to each Holder (or such other number of
copies as such Holder may reasonably request).
(g) The Company shall use its commercially reasonable efforts
to (i) prevent the issuance of any stop order or other suspension of
effectiveness of any Registration Statement prepared hereunder, or the
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction and, (ii) if such an order or suspension is issued, to obtain
3
the withdrawal of such order or suspension at the earliest possible moment and
to notify each Holder who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
(h) The Company shall use its commercially reasonable efforts
either to cause all the Registrable Securities covered by a Registration
Statement prepared hereunder to be listed on each securities exchange on which
securities of the same class or series issued by the Company are then listed, if
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 1.4(h).
(i) The Company shall cooperate with the Holders who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to a
Registration Statement filed hereunder and enable such certificates to be in
such denominations or amounts, as the case may be, as such Holders may
reasonably request and registered in such names as such Holders may request.
(j) If requested by a Holder, the Company shall use its
commercially reasonable efforts to (i) as soon as practicable incorporate in a
prospectus supplement or post-effective amendment such information as a Holder
reasonably requests to be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being offered or sold, the
purchase price being paid therefor and any other terms of the offering of the
Registrable Securities to be sold in such offering; (ii) as soon as practicable
make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) as soon as
practicable, supplement or make amendments to any Registration Statement if
reasonably requested by a Holder holding any Registrable Securities..
(k) Use commercially reasonable efforts to furnish, on or
about the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters,
copies of (i) the opinion, if any, of the lead legal counsel representing the
Company for the purposes of such registration issued pursuant to the
underwriting agreement relating to the offering and addressed to the
underwriters and (ii) the letter (including any "bring-downs" related thereto)
from the independent certified public accountants of the Company issued pursuant
to the underwriting agreement relating to the offering and addressed to the
underwriters.
(l) Notwithstanding any other provision of this Agreement,
from and after the time a Registration Statement covering Registrable Securities
is declared effective, the Company shall have the right to suspend the
Registration Statement and the related prospectus in order to prevent premature
disclosure of any material non-public information related to corporate
developments by delivering notice of such suspension to the Holders, provided,
however, that the Company may exercise the right to such suspension only once in
any 12-month period and for a period not to exceed 90 days. From and after the
4
date of a notice of suspension under this Section 1.4(l), each Holder agrees not
to use the Registration Statement or the related prospectus for resale of any
Registrable Security until the earlier of (1) notice from the Company that such
suspension has been lifted or (2) the 90th day following the giving of the
notice of suspension.
(m) Cause the principal executive officer of the Company, the
principal financial officer of the Company, the principal accounting officer of
the Company and all other officers and members of the management of the Company
to cooperate fully in any offering of Registrable Securities hereunder, which
cooperation shall include participation in meetings with underwriters,
attorneys, accountants and potential investors.
(n) Make available for inspection by the Holders included in
such Registration Statement, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
professional retained by any Holder included in such Registration Statement or
any underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, as shall be necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any of them in
connection with such Registration Statement.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 1.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of their Registrable Securities.
1.6 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.7 Indemnification. In the event any Registrable Securities are
included in a Registration Statement under Section 1.2:
(a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers,
directors, members, employees and agents of each Holder, any underwriter (as
defined in the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, the
"Violations" and, individually, a "Violation"):
(1) any untrue statement or alleged untrue statement of
a material fact contained in such Registration Statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; or
5
(2) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
(3) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
federal or state securities law in connection with the offering covered by such
Registration Statement.
The Company will promptly reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, after a request for reimbursement has been received
by the Company, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
selling Holder will be required severally and not jointly to indemnify and hold
harmless the Company, each of its directors, employees, agents, each of its
officers who have signed the Registration Statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such Registration Statement or any
of such other Holder's partners, directors or officers or any person who
controls such Holder within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, controlling person, underwriter
or other such Holder, partner or director, officer or controlling person of such
other Holder may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration.
Each such Holder will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person, underwriter or
other Holder, partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; promptly after a request for reimbursement has been
received by the indemnifying Holder, provided, however, that the indemnity
agreement contained in this Section 1.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
payable in indemnity by a Holder under this Section 1.7(b) in respect of any
Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
6
(c) Notice. Promptly after receipt by an indemnified party
under this Section 1.7 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.7,
deliver to the indemnifying party a written notice of the commencement thereof.
The indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 1.7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 1.7.
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the Registration Statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was timely furnished to the indemnified
party and was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. If the indemnification provided for in this
Section 1.7 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying the
indemnified party, shall contribute to the amount paid or payable by such
indemnified party with respect to such loss, liability, claim, damage or expense
in the proportion that is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the statements
or omissions that resulted in such loss, liability, claim, damage or expense, as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. In any such case, (A) no such Holder will be
required to contribute any amount in excess of the public offering price of all
such Registrable Securities offered and sold by such Holder pursuant to such
Registration Statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
7
(f) Conflict with Underwriting Agreement. Notwithstanding the
foregoing, to the extent that the provisions on indemnification and contribution
contained in an underwriting agreement entered into in connection with an
underwritten public offering are in conflict with the foregoing provisions, the
provisions in an underwriting agreement will control.
(g) Survival. The obligations of the Company and Holders under
this Section 1.7 shall survive the completion of any offering of Registrable
Securities in a Registration Statement, and otherwise.
1.8 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) Use reasonable efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144, and of
the Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
1.9 Termination of the Company's Obligations. The Company shall have
no obligations pursuant to Section 1.2 with respect to any Registrable
Securities proposed to be sold by a particular Holder in a registration pursuant
to Section 1.2 if, in the opinion of counsel to the Company, all such
Registrable Securities proposed to be sold by that particular Holder may be sold
in a three (3) month period without registration under the Securities Act
pursuant to Rule 144 under the Securities Act.
2. ASSIGNMENT AND AMENDMENT.
2.1 Assignment. Notwithstanding anything herein to the contrary, the
registration rights of a Holder under Section 1 hereof may be assigned;
provided, however that no party may assign any of the foregoing rights unless
the Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 2.
2.2 Amendment and Waiver of Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
8
written consent of the Company and Holders (and/or any of their permitted
successors or assigns) holding a majority of all Registrable Securities Any
amendment or waiver effected in accordance with this Section 2.2 shall be
binding upon each Holder, each permitted successor or assignee of such Holder
and the Company.
3. GENERAL PROVISIONS.
3.1 Notices. Any and all notices required or permitted to be given
to a party pursuant to the provisions of this Agreement will be in writing and
will be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) at the time of transmission by
facsimile, addressed to the other party at its facsimile number specified herein
(or hereafter modified by subsequent notice to the parties hereto), with
confirmation of receipt made by both telephone and printed confirmation sheet
verifying successful transmission of the facsimile; (iii) one (1) business day
after deposit with an express overnight courier for United States deliveries, or
two (2) business days after such deposit for deliveries outside of the United
States, with proof of delivery from the courier requested; or (iv) three (3)
business days after deposit in the United States mail by certified mail (return
receipt requested) for United States deliveries.
All notices not delivered personally or by facsimile will be sent
with postage and/or other charges prepaid and properly addressed to the party to
be notified at the address or facsimile number as follows, or at such other
address or facsimile number as such other party may designate by one of the
indicated means of notice herein to the other parties hereto as follows:
(a) if to a Holder, at such Holder's last address on file with
the Company.
(b) if to the Company, marked "Attention: President", at 450
Park Avenue, Suite 1001, New York, New York 10022; Facsimile: (212) 644-6262.
3.2 Entire Agreement. This Agreement and the documents referred to
herein, together with all the Exhibits hereto, constitute the entire agreement
and understanding of the parties with respect to the subject matter of this
Agreement, and supersede any and all prior understandings and agreements,
whether oral or written, between or among the parties hereto with respect to the
specific subject matter hereof.
3.3 Governing Law; Jurisdiction. This Agreement will be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to that body of laws pertaining to conflict of laws. Each of the
parties hereto hereby irrevocably consents to the exclusive jurisdiction of the
courts of the Second Department of the Supreme Court of the State of New York
and the United States District Court for the Southern District of New York and
waives trial by jury in any action or proceeding with respect to this Agreement.
3.4 Severability. If any provision of this Agreement is determined
by any court or arbitrator of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such provision will be enforced to the maximum
extent possible. If such clause or provision cannot be so enforced, such
provision shall be stricken from this Agreement and the remainder of this
9
Agreement shall be enforced as if such invalid, illegal or unenforceable clause
or provision had (to the extent not enforceable) never been contained in this
Agreement. Notwithstanding the forgoing, if the value of this Agreement based
upon the substantial benefit of the bargain for any party is materially
impaired, which determination as made by the presiding court or arbitrator of
competent jurisdiction shall be binding, then both parties agree to substitute
such provision(s) through good faith negotiations.
3.5 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
3.6 Successors And Assigns. Subject to the provisions of Section
2.1, this Agreement, and the rights and obligations of the parties hereunder,
will be binding upon and inure to the benefit of their respective successors,
assigns, heirs, executors, administrators and legal representatives.
3.7 Titles and Headings. The titles, captions and headings of this
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Agreement. Unless otherwise specifically stated,
all references herein to "sections" and "exhibits" will mean "sections" and
"exhibits" to this Agreement.
3.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed an
original, and all of which together shall constitute one and the same agreement.
3.9 Costs And Attorneys' Fees. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
3.10 Further Assurances. The parties agree to execute such further
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
THE COMPANY:
RAND ACQUISITION CORPORATION
Name:
----------------------------------
By:
----------------------------------
Title:
----------------------------------
- --------------------------- ---------------------------
SCOTT BRAVENER ROBERT PIERSON
- --------------------------- ---------------------------
JAMES SIDDALL FRANK BRAVENER
- --------------------------- ---------------------------
MARK ROHN DAVE SCRUTON
- --------------------------- ---------------------------
JEFFREY BOTHAM JOHN CARLSON
- ---------------------------
ANTHONY WALKER
ANNEX K
REDEMPTION AGREEMENT
Dated September 2, 2005
Between
GRAND RIVER NAVIGATION COMPANY, INC.
and
GRAND RIVER HOLDINGS, INC.
TABLE OF CONTENTS
Page
REDEMPTION AGREEMENT...........................................................1
ARTICLE I. CLOSING; SALE AND PURCHASE..........................................1
1.1 The Closing...........................................................1
1.2 Sale and Purchase of the Purchase Shares..............................1
1.3 Delivery of Purchase Price and Stock Certificates.....................1
1.4 Actions Simultaneous..................................................2
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER...........................2
2.1 Authority; Execution and Delivery; Enforceability.....................2
2.2 Non-Contravention.....................................................2
2.3 Title to Purchase Shares..............................................3
2.4 Consents and Approvals................................................3
2.5 Litigation and Claims.................................................3
2.6 No Finder.............................................................3
2.7 No Other Representations and/or Warranties............................3
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................3
3.1 Organization; Good Standing...........................................3
3.2 Authority; Execution and Delivery; Enforceability.....................4
3.3 Non-Contravention.....................................................4
3.4 Consents and Approvals................................................4
3.5 Litigation and Claims.................................................4
3.6 No Finder.............................................................4
ARTICLE IV. ACTION PRIOR TO THE CLOSING DATE...................................4
4.1 No Breach of Representations and Warranties;
Notification of Certain Matters.......................................5
4.2 Standstill............................................................5
4.3 Notice of Litigation..................................................5
4.4 Fulfillment of Conditions to Purchaser's Obligations..................5
4.5 Fulfillment of Conditions to Seller's Obligations.....................5
4.6 Publicity.............................................................5
ARTICLE V. OTHER AGREEMENTS OF THE PARTIES.....................................6
5.1 Cooperation in Litigation.............................................6
5.2 Confidentiality.......................................................6
5.3 Further Assurances....................................................6
5.4 Indemnification.......................................................6
5.5 Company Actions.......................................................6
ARTICLE VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER...................7
6.1 Representations and Warranties........................................7
6.2 Performance...........................................................7
i
6.3 Certificates..........................................................7
6.4 No Injunction.........................................................7
6.5 Third Party Consents..................................................7
6.6 Concurrent Transactions...............................................7
6.7 Legal Opinion.........................................................8
6.8 Releases..............................................................8
6.9 Option Agreement......................................................8
6.10 Shareholder Agreement Termination.....................................8
6.11 Resignations..........................................................8
6.12 Name Change...........................................................8
6.13 Charter Party Agreement...............................................8
6.14 Contracts of Affreightment............................................8
6.15 Liens.................................................................8
6.16 Set Off Rights Agreement..............................................8
ARTICLE VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.....................8
7.1 Representations and Warranties........................................9
7.2 Performance...........................................................9
7.3 Certificates..........................................................9
7.4 No Injunction.........................................................9
7.5 Concurrent Transactions...............................................9
7.6 Lower Lakes Consent...................................................9
7.7 Charter Party Agreement...............................................9
7.8 Contracts of Affreightment............................................9
7.9 Liens.................................................................9
ARTICLE VIII. INDEMNIFICATION..................................................9
8.1 Survival..............................................................9
8.2 Indemnification by Seller.............................................9
8.3 Indemnification by Purchaser.........................................10
8.4 Limitations on Indemnification.......................................10
8.5 Interest.............................................................10
8.6 Notice of Claims.....................................................10
8.7 Third Party Claims...................................................11
8.8 Tax Treatment of Indemnity Payments..................................12
ARTICLE IX. TERMINATION.......................................................12
9.1 Termination..........................................................12
9.2 Effects of Termination...............................................12
ARTICLE X. MISCELLANEOUS......................................................12
10.1 Expenses of the Transaction..........................................12
10.2 Notices..............................................................12
10.3 No Modification Except in Writing....................................13
10.4 Entire Agreement.....................................................13
10.5 Severability.........................................................14
10.6 Assignment...........................................................14
10.7 Governing Law; Jurisdiction..........................................14
10.8 Specific Performance.................................................14
10.9 Headings; References.................................................15
ii
10.10 Interpretation.......................................................15
10.11 Third Parties........................................................15
10.12 Counterparts and Facsimile Signatures................................15
10.13 Time of the Essence..................................................15
10.14 Currency.............................................................15
APPENDICES
APPENDIX A. DEFINITIONS
APPENDIX B. SELLER DISCLOSURE SCHEDULE
APPENDIX C. PURCHASER DISCLOSURE SCHEDULE
EXHIBITS
RELEASE EXHIBIT 1
ESCROW AGREEMENT EXHIBIT 2
OPINION OF COUNSEL TO SELLER EXHIBIT 3
IRREVOCABLE LETTER OF DIRECTION EXHIBIT 4
OPTION AGREEMENT EXHIBIT 5
SHAREHOLDER AGREEMENT TERMINATION EXHIBIT 6
RESIGNATION EXHIBIT 7
BAREBOAT CHARTER EXHIBIT 8
CONTRACTS OF AFFREIGHTMENT EXHIBIT 9A and 9B
SET OFF RIGHTS AGREEMENT EXHIBIT 10
iii
REDEMPTION AGREEMENT
REDEMPTION AGREEMENT ("Agreement"), dated September 2, 2005, between Grand
River Navigation Company, Inc., a Delaware corporation ("Purchaser" or the
"Company") and Grand River Holdings, Inc., a Delaware corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Seller is the owner of 30 shares of common stock (the "Purchase
Shares") of the Company, representing 75% of the issued and outstanding shares
of capital stock of the Company;
WHEREAS, Purchaser desires to purchase and acquire from Seller, and Seller
desires to sell and transfer to Purchaser, the Purchase Shares on the terms and
subject to the conditions hereinafter set forth; and
WHEREAS, terms used in this Agreement and not otherwise defined in this
Agreement are defined in Appendix A hereto.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I.
CLOSING; SALE AND PURCHASE
1.1 The Closing. The closing (the "Closing") of the transactions contained
in this Article I shall take place at 10:00 A.M., Eastern Time, on the second
Business Day after all of the conditions contained in Articles VII and VIII have
been satisfied or waived (other than those conditions which will be satisfied at
the Closing Time), or at such other time or such other date as Purchaser and
Seller may agree, at the offices of Katten Muchin Rosenman LLP, 575 Madison
Avenue, New York, New York (hereinafter, such date is referred to as the
"Closing Date" and such time on the Closing Date is referred to as the "Closing
Time").
1.2 Sale and Purchase of the Purchase Shares. Upon the terms and subject
to the conditions set forth herein, at the Closing, Seller agrees to sell,
convey, transfer and assign the Purchase Shares to Purchaser free and clear of
all Liens, and deliver to Purchaser certificates representing the Purchase
Shares, duly endorsed in blank or accompanied by stock or other appropriate
powers in blank with all appropriate transfer stamps affixed thereto (the "Stock
Certificates and Stock Power"), or, in lieu of the Stock Certificates and Stock
Power, the Irrevocable Letter of Direction (as hereinafter defined), and
Purchaser agrees to purchase the Purchase Shares from Seller for cash in the
amount of Seven Hundred Fifty Thousand Dollars ($750,000) (the "Purchase
Price").
1.3 Delivery of Purchase Price and Stock Certificates. Upon the execution
and delivery of this Agreement by all of the parties hereto, the Stock
Certificates and Stock Power, or the Irrevocable Letter of Direction delivered
in lieu thereof, shall be delivered by Seller to the Escrow Agent to be held and
1
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement. At the Closing, (i) the Purchase Price shall be paid by Purchaser to
Seller by wire transfer of immediately available funds to an account designated
by Seller in writing and (ii) the Stock Certificates and Stock Power, or
Irrevocable Letter of Direction delivered in lieu thereof, shall be delivered by
the Escrow Agent to Purchaser in accordance with the terms of the Escrow
Agreement.
1.4 Actions Simultaneous. For purposes of agreement of the parties hereto,
all actions to be taken and all documents to be executed and delivered by all
parties at the Closing shall be deemed to have been taken and executed and
delivered simultaneously and no actions shall be deemed to have been taken nor
shall any documents be deemed to have been executed and delivered until all
actions have been taken and all documents have been executed and delivered.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
2.1 Authority; Execution and Delivery; Enforceability. Seller has the full
corporate power and authority to execute and deliver this Agreement and the
Escrow Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Escrow Agreement have each been duly executed and delivered by Seller and
each constitutes the legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, moratorium and other similar Laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
2.2 Non-Contravention. Except as noted in the Seller Disclosure Schedule,
the execution and delivery of this Agreement and the Escrow Agreement by Seller
does not, and the consummation of the transactions contemplated hereby and
thereby and compliance with the terms hereof and thereof, will not (or would not
with the giving of notice or the passage of time):
(a) constitute a default under or a violation or breach (with or without
notice) of, result in the acceleration of any obligation under, any provision of
any material contract or other instrument to which Seller is a party or result
in the termination or revocation of any authorization held by Seller necessary
to the ownership of the Purchase Shares;
(b) violate any Order or any Law affecting Seller;
(c) violate or contravene the terms or provisions of the articles or
certificate of incorporation or by-laws of Seller;
(d) result in the creation of any Lien on the Purchase Shares; or
2
(e) allow any other Person to exercise any rights under any of its
governing documents, shareholders agreements, bylaws or resolutions of its board
of directors or shareholders.
2.3 Title to Purchase Shares. Seller has good and valid title to each of
the Purchase Shares, which, other than as set forth in the Seller Disclosure
Schedule, are free and clear of all Liens. Upon completion of the transactions
contemplated by this Agreement, Purchaser will have legal and beneficial, good
and valid title to each of the Purchase Shares, free and clear of all Liens.
Other than as set forth in the Seller Disclosure Schedule, Seller is not
currently bound by any contract, agreement, arrangement, commitment or
understanding (written or oral) with, and has not granted any option or right
currently in effect or which would arise after the date hereof to, any Person
other than Purchaser with respect to the acquisition of any of the Purchase
Shares.
2.4 Consents and Approvals. Except as set forth in the Seller Disclosure
Schedule, no consent, approval, waiver, license, permit, order or authorization
of, or registration, declaration or filing with, any Governmental Authority, and
no consent, approval, waiver or other similar authorization of any other Person
(including, without limitation, any Person who is a party to a Contract binding
on or affecting the Company), is required to be obtained by or on behalf of the
Seller as a result of, or in connection with, or as a condition of the lawful
execution, delivery and performance of this Agreement or the Escrow Agreement or
the consummation of the transactions contemplated hereby or thereby.
2.5 Litigation and Claims. There is no Action pending or, to the knowledge
of Seller, threatened, against or affecting Seller that could reasonably be
expected to affect (i) Seller's ability to consummate the transactions
contemplated hereby or by the Escrow Agreement or (ii) Purchaser's title to the
Purchase Shares acquired from Seller.
2.6 No Finder. Except as set forth in the Seller Disclosure Schedule,
neither Seller nor any party acting on Seller's behalf has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary
(other than counsel) for or on account of the transactions contemplated hereby.
2.7 No Other Representations and/or Warranties. Except as set forth in
this Article II, Seller does not make any representation and/or warranty with
respect to the Purchase Shares and Seller hereby disclaims any and all
representations and/or warranties of any nature with respect to the Company or
the operation of its business.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represent and warrant to Seller as follows:
3.1 Organization; Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware.
3
3.2 Authority; Execution and Delivery; Enforceability. Purchaser has the
full corporate power and authority to execute and deliver this Agreement and the
Escrow Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Escrow Agreement have been duly executed and delivered by Purchaser, and
each constitutes the legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, moratorium and other similar Laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
3.3 Non-Contravention. The execution and delivery of this Agreement by
Purchaser does not, and the consummation of the transactions contemplated hereby
and by the Escrow Agreement and compliance with the terms hereof and thereof,
will not (or would not with the giving of notice or the passage of time):
(a) constitute a violation or breach of the articles or certificate of
incorporation of Purchaser;
(b) constitute a default under or a violation or breach of, or result in
the acceleration of any obligation under, any provision of any material contract
or other instrument to which Purchaser is a party or by which any of the assets
of Purchaser is bound; or
(c) violate any Order or any Law affecting Purchaser, or its assets,
including, without limitation, Section 27 of the Merchant Marine Act, 1920 (46
App. USC ss.883), commonly known as the Jones Act.
3.4 Consents and Approvals. Except as set forth in the Purchaser
Disclosure Schedule, no consent, approval, waiver, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority or other Person is required to be obtained by or on behalf of
Purchaser in connection with, or as a condition of the lawful execution,
delivery and performance of this Agreement or the Escrow Agreement or the
consummation of the transactions contemplated hereby or thereby.
3.5 Litigation and Claims. There is no Action pending or, to the knowledge
of Purchaser, threatened, against or affecting Purchaser with respect to the
propriety or validity of the transactions contemplated hereby.
3.6 No Finder. Neither Purchaser nor any party acting on Purchaser's
behalf, has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated
hereby.
ARTICLE IV.
ACTION PRIOR TO THE CLOSING DATE
From and after the execution of this Agreement until the Closing Time (or
earlier termination of this Agreement in accordance with Section 9.1):
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4.1 No Breach of Representations and Warranties; Notification of Certain
Matters. The Seller on the one hand, and Purchaser on the other hand, will, in
the event of, and promptly after the occurrence of, or promptly after becoming
aware of the occurrence of, or the impending or threatened occurrence of, any
event or condition which would result in the inability of any condition
contained in Articles VI or VII to be satisfied or would otherwise prevent it
from consummating the transactions contemplated hereby, give detailed written
notice thereof to the other party and shall use reasonable best efforts to
prevent or promptly to remedy such event, condition or breach. None of the
disclosures pursuant to this Section 4.1 will be deemed to qualify, modify, or
amend or supplement the representations, warranties or covenants of any party.
4.2 Standstill. From and after the date hereof unless and until this
Agreement shall have been terminated in accordance with its terms, Seller hereby
agrees: (i) to immediately cease any existing discussions or negotiations with
any Person conducted heretofore, directly or indirectly, with respect to any
Business Combination involving or with respect to the Company; (ii) not to
directly or indirectly solicit, initiate, encourage or facilitate the submission
of proposals or offers from any Person relating to any Business Combination
involving or with respect to the Company; or (iii) directly or indirectly
participate in any discussions or negotiations regarding, or furnish any
information to any Person in connection with, any proposed or actual Business
Combination by any Person. Seller shall immediately notify the Purchaser
regarding any contact with any other Person regarding any proposed Business
Combination involving or with respect to the Company.
4.3 Notice of Litigation. Promptly after obtaining knowledge of the
commencement of or the threatened occurrence of any Action against or with
respect to the Company or the Purchase Shares, Seller shall give detailed
written notice thereof to Purchaser.
4.4 Fulfillment of Conditions to Purchaser's Obligations. Seller shall use
commercially reasonable efforts to effectuate the transactions contemplated
hereby and to fulfill the conditions contained in Article VI which are within
the Seller's control; provided, however, that the cost and expense to Seller of
such efforts shall be reasonable, as determined by Seller in its reasonable
discretion.
4.5 Fulfillment of Conditions to Seller's Obligations. Purchaser agrees to
use commercially reasonable efforts to effectuate the transactions contemplated
hereby and to fulfill the conditions contained in Article VII.
4.6 Publicity. No public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
consent of the other party (which consent shall not be unreasonably withheld or
delayed), except as such release or announcement may be required by Law or the
rules or regulations of any United States or foreign securities exchange.
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ARTICLE V.
OTHER AGREEMENTS OF THE PARTIES
5.1 Cooperation in Litigation. Prior to the first anniversary of the
Closing Date, Seller shall provide to Purchaser (at Purchaser's sole reasonable
cost and expense) such cooperation as may reasonably be requested in connection
with the defense of any litigation relating to the Purchase Shares whether
existing on the Closing Date or arising thereafter out of, or relating to, an
occurrence or event happening before the Closing Date, provided, that such
cooperation is limited to matters of which Seller has knowledge.
5.2 Confidentiality. Seller agrees that subject to any requirement of Law,
Seller will keep all Confidential Information confidential. Seller will not,
without the prior written consent of the Company, disclose any Confidential
Information to any Person other than such disclosure that may be required to
senior management of the Company or to the Company's or Seller's accountants or
attorneys. Seller agrees that Purchaser shall be entitled to seek equitable
relief, including injunction and specific performance, in the event of any
breach of the provisions of this Section 5.2. Such remedies shall not be deemed
to be the exclusive remedies for a breach of this Section 5.2 by Seller but
shall be in addition to all other remedies available at Law or equity. It is
further understood and agreed that failure or delay by Purchaser in exercising
any right, power or privilege under this Section 5.2 shall not operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise of any right, power or privilege under this Agreement.
Seller hereby waives any requirement that Purchaser post a bond in connection
with any claim for equitable relief.
5.3 Further Assurances. From and after the Closing Date, each party shall
from time to time make, execute and deliver, or cause to be made, executed and
delivered, for no additional consideration but at the cost and expense of the
requesting party such assignments, deeds, drafts, checks, stock certificates,
returns, filings and other instruments, agreements, consents and assurances and
take or cause to be taken all such actions as the other party or its counsel may
reasonably request for the effectual consummation and confirmation of this
Agreement and the transactions contemplated hereby.
5.4 Indemnification. Purchaser agrees (a) except as required by applicable
Law, not to change, for three years after the Closing Time, the provisions of
its certificate of incorporation and bylaws relating to indemnification of each
present or former director of the Company in a manner that adversely affects the
rights of such director to indemnification thereunder, and (b) to perform its
obligations thereunder, or exercise any discretionary authority thereunder, to
the fullest extent permitted by Law to provide such director with all rights to
indemnification available thereunder. Notwithstanding the foregoing, nothing
herein shall constitute a waiver of, or otherwise operation to adversely affect,
the existing rights of any director of the Company under the certificate of
incorporation or bylaws of the Company in effect on the date hereof.
5.5 Company Actions. Seller agrees that, notwithstanding anything to the
contrary contained in any shareholder or similar agreement applicable to the
Company or ownership of Company capital stock, only Mark Rohn, in his capacity
as an officer of the Company not affiliated with Seller, shall have the power to
act for the Company in connection with any and all matters under this Agreement.
6
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to consummate the transactions contemplated
under this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by Purchaser,
in its sole discretion. Notwithstanding the foregoing, Seller acknowledges that
Purchaser has agreed with Rand that Rand has the sole and exclusive right to
waive any or all of the conditions specified in this Article VI on behalf of the
Purchaser other than the conditions specified in Sections 6.4 and 6.6 hereof
(which shall not be waivable by Purchaser or Rand), and Seller agrees that (i)
any waiver in writing by Rand of any such condition shall be deemed to be a
waiver by Purchaser for purposes of this Agreement and (ii) a purported waiver
by Purchaser without the written consent of Rand shall be without force and
effect.
6.1 Representations and Warranties. The representations and warranties
contained in Article II that are qualified as to materiality shall be true and
correct and those not so qualified shall be true and correct in all material
respects as of the Closing Date as though each such representation or warranty
were made on and as of the Closing Date, except to the extent such
representations or warranties expressly relate to a specified date (in which
case such representation and warranties qualified as to materiality shall be
true and correct, and those not qualified shall be true and correct in all
material respects, on and as of such specified date).
6.2 Performance. Seller shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by Seller prior to or at the Closing Time.
6.3 Certificates. Purchaser shall have received (a) a certificate of an
executive officer of Seller certifying to the fulfillment on the part of Seller
of the conditions specified in Sections 6.1 and 6.2; (b) a certificate of the
Secretary or Assistant Secretary of Seller dated the Closing Date, setting forth
the resolutions of the Board of Directors of Seller adopting and approving this
Agreement and all other documents contemplated hereby and authorizing the
transactions hereby contemplated; and (c) such other evidence with respect to
the fulfillment of said conditions as Purchaser may reasonably request.
6.4 No Injunction. There shall not be pending, threatened or in effect any
injunction or restraining order issued by a court of competent jurisdiction in
an Action against the consummation of the transactions contemplated hereby.
6.5 Third Party Consents. The Seller shall have obtained all written
consents, approvals, waivers, notices or similar authorizations required to be
obtained or given by Seller in order to consummate the transactions contemplated
hereby, including those identified on the Seller Disclosure Schedule in respect
of Section 3.6, all in form and substance reasonably satisfactory to Purchaser.
6.6 Concurrent Transactions. The transactions contemplated by the Lower
Lakes Stock Purchase Agreement to be consummated at the "Closing" thereunder
shall have been consummated and the shares of Common Stock of Purchaser owned by
Lower Lakes Towing, Ltd. shall have been transferred to and held by Rand or a
wholly US subsidiary of Rand.
7
6.7 Legal Opinion. Purchaser shall have received a signed opinion from
Seller's legal counsel, dated as of the Closing Date and addressed to Purchaser,
substantially in the form attached hereto as Exhibit 3.
6.8 Releases. Seller shall have executed and delivered to Purchaser a
release in the form of Exhibit 1.
6.9 Option Agreement. The agreement attached hereto as Exhibit 5 shall
have been executed and delivered by Sand Products Corporation ("Sand").
6.10 Shareholder Agreement Termination. The agreement attached as Exhibit
6 shall have been executed and delivered by Seller.
6.11 Resignations. A resignation and release in the form of Exhibit 7
shall have been executed and delivered by each Seller nominated member of the
board of directors of the Company.
6.12 Name Change. Seller shall concurrently with the Closing change its
name to a name which does not include the words "Grand River" or any component
thereof.
6.13 Charter Party Agreement. Lake Service Shipping Company ("Lake
Service") shall have executed and delivered the Charter Party Agreement in the
form of Exhibit 8 hereto (the "Bareboat Charter").
6.14 Contracts of Affreightment. Sand shall have executed and delivered
the Contracts of Affreightment (the "Contracts of Affreightment") in the form of
Exhibits 9A and 9B hereto.
6.15 Liens. General Electric Capital Corporation shall have released its
Lien on the Purchase Shares.
6.16 Set Off Rights Agreement. The Set Off Rights Agreement attached
hereto as Exhibit 10 (the "Set Off Rights Agreement") shall have been executed
and delivered by Lake Service.
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligation of Seller to consummate the transactions contemplated by
this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by Seller.
Seller agrees that the conditions specified in Sections 7.1, 7.2 and 7.5 shall
be deemed to be satisfied upon delivery to the Escrow Agent of the certificate
specified in Section 7.3, and that the conditions specified in Sections 7.3,
7.6, 7.7 and 7.8 shall be deemed to be satisfied upon delivery of the documents
specified therein to the Escrow Agent.
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7.1 Representations and Warranties. The representations and warranties
contained in Article III shall be true and correct as of the Closing Time as
though each such representation or warranty were made on and as of the Closing
Time, and any representation or warranty made as of a specified date earlier
than the Closing Date shall have been true and correct on and as of such earlier
date.
7.2 Performance. Purchaser shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by them prior to or at the Closing Time.
7.3 Certificates. Seller shall have received a certificate of an executive
officer of Purchaser, dated the Closing Date, certifying to the fulfillment of
the conditions specified in Sections 7.1, 7.2 and 7.5 and (b) a certificate of
the Secretary of Purchaser, dated the Closing Date, setting forth the
resolutions of the Boards of Directors of Purchaser approving this Agreement,
and authorizing the transactions hereby contemplated.
7.4 No Injunction. There shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in an Action
against the consummation of the transactions contemplated hereby.
7.5 Concurrent Transactions. The transactions referred to in the Lower
Lakes Stock Purchase Agreement shall be completed immediately prior to the
transactions under this Agreement.
7.6 Lower Lakes Consent. Lower Lakes Towing Ltd. shall have consented to
the transfer of the Purchase Shares hereunder.
7.7 Charter Party Agreement. The Bareboat Charter shall have been executed
and delivered by Purchaser and Lower Lakes Towing Ltd.
7.8 Contracts of Affreightment. The Contracts of Affreightment shall have
been executed and delivered by Lower Lakes Towing, Ltd., and Lower Lakes
Transportation Company, Inc.
7.9 Liens. General Electric Capital Corporation shall have released its
Lien on the Purchase Shares.
ARTICLE VIII.
INDEMNIFICATION
8.1 Survival. All representations and warranties made herein (or in the
certificates to be delivered pursuant to Sections 6.3 or 7.3 hereof) by the
parties to this Agreement and their respective obligations, covenants and
agreements to be performed pursuant to the terms hereof, shall survive the
Closing Time.
8.2 Indemnification by Seller. Seller shall indemnify and hold harmless
any Purchaser Group Member from and against and shall pay to the relevant
Purchaser Group Member the amount of any and all Damages incurred by such
Purchaser Group Member arising directly or indirectly from or in connection
with:
9
(a) any failure by Seller to perform any of the covenants or other
obligations of Seller in this Agreement; and
(b) any breach of any representation or warranty of Seller contained in
this Agreement.
8.3 Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless each Seller Group Member from and against and shall pay to the relevant
Seller Group Member the amount of any and all Damages incurred by such Seller
Group Member arising directly or indirectly from or in connection with:
(a) any failure by Purchaser to perform any of the covenants or other
obligations of Purchaser in this Agreement; and
(b) any breach of any representation or warranty of Purchaser contained in
this Agreement.
8.4 Limitations on Indemnification. Notwithstanding the other provisions
of this Article VIII:
(a) The Purchaser Group Members shall not be entitled to indemnification
pursuant to this Article VIII in excess of the sum of $750,000 (the "Cap"). Any
amounts payable to any Purchaser Group Member pursuant to this Article VIII
shall be paid in accordance with the Set Off Rights Agreement, to the extent
that such agreement remains in effect at the time of any indemnification claim
under this Agreement.
(b) The amount of any Damages for which indemnification is provided under
this Article VIII shall be net of any insurance proceeds available under any
insurance policies as then in effect to an Indemnitee hereunder (or any
Affiliate thereof) in connection with the events or circumstances giving rise to
the indemnification, but only to the extent that the Indemnitee (or any
Affiliate) actually receives any such insurance proceeds (or any benefits
thereof). The Indemnitee (or such Affiliate) will use commercially reasonable
efforts to claim and recover under such insurance policies.
(c) The parties acknowledge and agree that the indemnification provisions
contained in Sections 8.2 and 8.3 shall be the sole and exclusive remedy for
Damages arising out of or caused by the breach of any of the representations,
warranties, covenants or agreements of the parties contained in this Agreement
or in any certificate delivered in connection herewith and that the maximum
amount of Damages to be paid by Seller hereunder cannot exceed the Cap.
8.5 Interest. Any amount required to be paid pursuant to the indemnities
set forth in this Article VIII shall bear interest at the Prime Rate accruing on
a daily basis from the date on which a demand for payment is made until payment
in full.
8.6 Notice of Claims. Any Purchaser Group Member or Seller Group Member
seeking indemnification hereunder (an "Indemnitee") shall give to the party or
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parties obligated to provide indemnification to such Indemnitee (an
"Indemnitor") a notice ("Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based.
8.7 Third Party Claims. In the case of any third party Action as to which
indemnification is sought by an Indemnitee, the Indemnitor shall have 10
Business Days after receipt of a Claim Notice to notify the Indemnitee that it
elects to conduct and control such Action. If the Indemnitor elects to conduct
and control such Action, the Indemnitor shall agree promptly to reimburse the
Indemnitee for the full amount of any Damages resulting from such Action, except
fees and expenses of counsel for the Indemnitee incurred after the assumption of
the conduct and control of such Action by the Indemnitor. If the Indemnitor does
not give the foregoing notice, or if the Indemnitor gives such notice but fails
to prosecute vigorously and diligently or settle such Action, the Indemnitee
shall have the right, at the sole expense of the Indemnitor, to defend, conduct,
control and settle such Action, and the Indemnitor shall cooperate with the
Indemnitee in connection therewith, provided, that (x) the Indemnitee shall
permit the Indemnitor to participate in such conduct or settlement through
counsel chosen by the Indemnitor, but the fees and expenses of such counsel
shall be borne by the Indemnitor, and (y) the Indemnitee may not compromise or
settle such Action without the consent of the Indemnitor (which consent will not
be unreasonably withheld or delayed), unless (i) the sole relief provided is
monetary Damages, and (ii) such settlement includes an unconditional release in
favor of the Indemnitor by the third-party claimant from all liability with
respect to such claim (other than liability for payment of any amounts in
connection with such settlement). If the Indemnitor gives the foregoing notice,
subject to the first and second sentences of this Section 8.7, the Indemnitor
shall have the right, at the sole expense of the Indemnitor, to defend, conduct,
control and settle such Action by all appropriate proceedings (which proceedings
will be vigorously and diligently prosecuted by the Indemnitor to a final
conclusion or settlement), with counsel reasonably acceptable to the Indemnitee,
and the Indemnitee shall cooperate with the Indemnitor in connection therewith,
provided, that (x) the Indemnitor shall permit the Indemnitee to participate in
such conduct or settlement through counsel chosen by the Indemnitee, but the
fees and expenses of such counsel shall be borne by the Indemnitee, and (y) the
Indemnitor may not compromise or settle any such Action without the consent of
the Indemnitee (which consent will not be unreasonably withheld or delayed)
unless (i) there is no finding or admission of any violation of Law by the
Indemnitee or any violation by the Indemnitee of the rights of any Person, (ii)
the sole relief provided is money Damages that are paid in full by the
Indemnitor, (iii) the Indemnitee shall have no liability with respect to any
compromise or settlement and (iv) such settlement includes an unconditional
release in favor of the Indemnitee by the third-party claimant from all
liability with respect to such claim. In the case of any third party Action as
to which indemnification is sought by the Indemnitee which involves a claim for
Damages other than solely for money Damages which could have a continuing effect
on the business of the Indemnitee, the Indemnitee and the Indemnitor shall
jointly control the conduct of such Action. The parties hereto shall use their
reasonable best efforts to minimize any Damages from claims by third parties and
shall act in good faith in responding to, defending against, settling or
otherwise dealing with such claims, notwithstanding any dispute as to liability
under this Article VIII.
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8.8 Tax Treatment of Indemnity Payments. It is the intention of the
parties to treat any indemnity payment made under this Agreement as an
adjustment to the Purchase Price for all federal, provincial, state, local and
foreign Tax purposes, and the parties agree to file their Tax returns
accordingly.
ARTICLE IX.
TERMINATION
9.1 Termination. This Agreement shall be terminated at any time prior to
the Closing Date:
(a) By mutual consent of Purchaser and Seller; or
(b) If the Lower Lakes Stock Purchase Agreement is terminated.
9.2 Effects of Termination. In the event of a termination of this
Agreement pursuant to this Article IX (i) all further obligations of the parties
under this Agreement shall terminate, (ii) no party shall have any right under
or in connection with this Agreement or the transactions contemplated hereby
against any other party, and (iii) each party shall bear its own costs and
expense; provided, however, that the termination of this Agreement under this
Article IX shall not relieve any party of liability for any material breach of
this Agreement prior to the date of termination, or constitute a waiver of any
claim with respect thereto.
ARTICLE X.
MISCELLANEOUS
10.1 Expenses of the Transaction. Each of the parties hereto agrees to pay
such party's own fees and expenses in connection with this Agreement and the
transactions contemplated hereby including, without limitation, legal and
accounting fees and expenses.
10.2 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i) when
delivered personally or by private courier, (ii) when actually delivered by
registered or certified United States mail, return receipt requested, or (iii)
when sent by facsimile transmission (provided, that it is confirmed by a means
specified in clause (i) or (ii)), addressed as follows:
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If to Purchaser to:
Grand River Navigation Company, Inc.
515 Moore Road, Suite 2
Avon Lake, Ohio 44012
Attention: Mark Rohn
Fax: (440) 930-2099
with a copy to:
Ray, Robinson, Carle & Davies P.L.L.
1717 E. 9th St., Suite 1650
Cleveland, Ohio 44114
Attention: Thomas M. Wynne, Esq.
Fax: (216) 861-4568
If to Seller to:
Grand River Holdings Inc.
63 Kerchival Street
Suite 200
Grosse Pointe Farms, Michigan 48236
Attention: Thomas Burton
Fax: (313) 885-7263
with a copy to:
Ulmer & Berne LLP
1300 East Ninth Street, Suite 900
Cleveland, Ohio 44114
Attention: Douglas K. Sesnowitz, Esq.
Fax: (216) 931-6145
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
10.3 No Modification Except in Writing. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
affected by such change, modification or amendment, and this Agreement may not
be discharged except by performance in accordance with its terms or by a writing
signed by the party to which performance is to be rendered.
10.4 Entire Agreement. This Agreement, together with the Appendices and
Exhibits hereto, sets forth the entire agreement and understanding among the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature among them
with respect to such subject matter.
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10.5 Severability. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
10.6 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. Seller shall not be permitted
to assign their respective rights, or delegate their respective duties, under
this Agreement without the prior written consent of Purchaser. Rand and
Purchaser shall not be permitted to assign their respective rights, or delegate
their respective duties, under this Agreement.
10.7 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance with,
the Laws of the State of Delaware applicable to contracts made and to be
performed wholly within said State, without giving effect to the conflict of
laws principles thereof.
(b) Each party to this Agreement irrevocably agrees that any Action
concerning or arising out of the interpretation, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) governed by another jurisdiction shall be commenced
exclusively in (i) the courts of the State of New York located in New York
County and (ii) the United States District Court for the Southern District of
New York.
(c) Each party and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. EACH PARTY
HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
10.8 Specific Performance. The parties agree that if any of the provisions
of this Agreement were not performed by Purchaser, on the one hand, or Seller,
on the other hand, in accordance with their specific terms or were otherwise
breached by such parties, irreparable damage would occur, no adequate remedy at
Law would exist and damages would be difficult to determine, and that the
non-breaching party will be entitled to specific performance of the terms
hereof. The parties waive any requirement for the posting of a bond in
connection with any Action seeking specific performance; provided, however, that
nothing herein will affect the right of any of the parties to seek recovery
against any party hereto, at Law, in equity or otherwise, with respect to any
covenants, agreements or obligations to be performed by such party or parties
after the Closing Date.
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10.9 Headings; References. The headings appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. Any reference in this Agreement (including in any Exhibit,
Appendix or Schedule hereto) to a "Section," "Article," or "Exhibit" shall mean
a Section, Article or Exhibit of or to this Agreement unless expressly stated
otherwise.
10.10 Interpretation. In this Agreement, (a) words used herein regardless
of the gender specifically used shall be deemed and construed to include any
other gender, masculine, feminine or neuter, as the context shall require, and
(b) all terms defined in the singular shall have the same meanings when used in
the plural and vice versa. Any statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such statute as from
time to time amended, modified or supplemented, including (in the case of
statutes) by succession of comparable successor statutes. References to a Person
are also its predecessors and permitted successors and assigns.
10.11 Third Parties . The provisions of this Agreement are solely for the
benefit of the parties hereto and shall not inure to the benefit of any third
party other than (i) Rand , which shall be a third party beneficiary of each and
every right of Purchaser hereunder prior to and at the Closing and (ii) the
sellers under the Lower Lakes Stock Purchase Agreement, which shall be third
party beneficiaries of each and every right of Purchaser hereunder from and
after the Closing.
10.12 Counterparts and Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which taken together shall constitute a single agreement. The parties
hereto agree that this Agreement or document, certificate or instrument
ancillary thereto may be executed by facsimile transmission and that the
reproduction of signatures by facsimile or similar device shall be treated as
binding as if originals, and each party agrees and undertakes to provide the
other parties with a copy of such Agreement, document, certificate or instrument
bearing original signatures forthwith upon demand by the other parties.
10.13 Time of the Essence. Time shall be of the essence of this Agreement.
10.14 Currency. All dollar amounts set forth in this Agreement shall be in
lawful currency of the United States.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
on the day and year first above written.
GRAND RIVER NAVIGATION COMPANY, INC.
By: /s/ Mark Rohn
-----------------------------
Name: Mark Rohn
Title: President
GRAND RIVER HOLDINGS INC.
By: /s/ Gregory A. Canestraight
-----------------------------
Name: Gregory A. Canestraight
Title: President
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APPENDIX A
DEFINITIONS
Definitions. The following terms when used in the Agreement shall have the
respective meanings ascribed to them below:
"Action" shall mean any action, suit, claim, litigation, proceeding,
arbitration, audit, investigation or hearing (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted or
heard by or before, any Governmental Authority.
"Affiliate" shall mean, with respect to a specified Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with such specified Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"Agreement" has the meaning ascribed to such term in the Preamble hereto
and includes this Appendix A, the Seller Disclosure Schedule, the Purchaser
Disclosure Schedule and the Exhibits hereto.
"Business Combination" shall mean, with respect to any Person, any merger,
consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other ownership
interests of such Person, or any sale, dividend or other disposition of all or
substantially all of its assets and properties of such Person.
"Business Day" shall mean a day (other than a Saturday or Sunday), on
which commercial banks are open for business in New York, New York.
"Claim Notice" has the meaning ascribed to such term in Section 8.6.
"Closing" has the meaning ascribed to such term in Section 1.1.
"Closing Date" has the meaning ascribed to such term in Section 1.1.
"Closing Time" has the meaning ascribed to such term in Section 1.1.
"Company" has the meaning ascribed to such term in the Recitals hereto.
"Confidential Information" shall mean trade secrets, confidential or
proprietary information, knowledge, or know-how pertaining primarily to the
business of the Company, or any confidential or proprietary information
concerning any supplier or customer of the Company.
"Damages" shall mean actual losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, Taxes and reasonable
expenses and costs, including reasonable attorneys' and auditors' fees (and any
reasonable experts' fees) and court costs, whether or not involving a third
party claim but shall not include consequential, incidental or punitive damages
or damages for diminution is value or lost profits, other than to the extent
included in a judgment in favor of, and paid to, third parties.
A-i
"Escrow Agent" shall mean Ulmer & Berne LLP.
"Escrow Agreement" shall mean that certain Escrow Agreement, dated as of
even date herewith, by and among Seller, Purchaser and Escrow Agent, in the form
attached hereto as Exhibit 2.
"Exchange Act" means the U.S Securities Exchange Act of 1934, as amended,
or any successor law, and regulations and rules issued under that Act or any
successor law.
"Governmental Authority" shall mean any (i) federal, state, local,
provincial, territorial, municipal, foreign, or other government, (ii)
governmental or quasi-governmental authority of any nature or (iii) other body
exercising any statutory, administrative, judicial, arbitrative, legislative,
police, regulatory, or taxing authority or power.
"Indemnitee" has the meaning ascribed to such term in Section 8.6.
"Indemnitor" has the meaning ascribed to such term in Section 8.6.
"Irrevocable Letter of Direction" means that certain letter of direction
executed by Seller concurrently herewith in the form attached hereto as Exhibit
4.
"Law" shall mean any constitution, law, treaty, compact, directive,
ordinance, principal of common law, permit, authorization, variance, regulation,
rule, or statute in each case having the force of law.
"Liens" shall mean all mortgages, charges, pledges, liens, security
interests, conditional sale agreements, encumbrances or similar restrictions.
"Lower Lakes Stock Purchase Agreement" means the stock purchase agreement
of even date herewith among Rand, LL Acquisition Corp. and the stockholders of
Lower Lakes Towing Ltd.
"Order" shall mean any award, decision, injunction, decree, stipulation,
determination, writ, judgment, order, ruling, or verdict ordered, issued, made
or rendered by any court, administrative agency or other Governmental Authority.
"Person" shall mean any individual, firm, unincorporated organization,
corporation (including any not-for-profit corporation), general or limited
partnership, limited liability company, cooperative marketing association, joint
venture, estate, trust, association or other entity as well as any syndicate or
group that would be deemed to be a person under Section 13(a)(3) of the Exchange
Act.
"Prime Rate" means the prime rate of interest from time to time announced
publicly by Citibank, N.A. as its prime rate.
"Purchase Price" has the meaning ascribed to such term in Section 1.2.
A-ii
"Purchase Shares" has the meaning ascribed to such term in the Recitals
hereto.
"Purchaser" has the meaning ascribed to such term in the Preamble hereto.
"Purchaser Disclosure Schedule" means that certain schedule attached
hereto as Appendix C qualifying the representations and warranties contained in
Article III on a clause-by-clause basis in an appropriately cross-referenced
manner.
"Purchaser Group Member" shall mean each of Purchaser, Rand and their
Affiliates (including, the Company as constituted after the Closing) and their
respective directors, officers, employees, agents and attorneys and their
respective successors and assigns.
"Rand" shall mean Rand Acquisition Corporation, a Delaware corporation.
"Representatives" means the Company and its directors, officers,
Affiliates, employees, attorneys, accountants, representatives, consultants and
other agents.
"Seller Group Member" means Seller and its Affiliates and their respective
directors, officers, employees, agents and attorneys and their respective
successors and assigns.
"Seller" has the meaning ascribed to such term in the Preamble hereto.
"Seller Disclosure Schedule" means that certain schedule attached hereto
as Appendix B qualifying the representations and warranties contained in Article
II on a clause-by-clause basis in an appropriately cross-referenced manner.
"Tax Authority" shall mean any foreign or domestic government, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
body or other authority exercising any taxing or Tax regulatory authority.
"Taxes" includes any taxes, duties, assessments, imposts and levies
imposed by any Tax Authority and includes all interest, penalties, fines,
additions to tax or other additional amounts imposed by any Tax Authority
including those levied on, or measured by, or referred to as, income, gross
receipts, profits, capital, transfer, land transfer, sales, goods and services,
harmonized sales, use, value-added, excise, withholding, business, property,
occupancy, employer health, payroll, employment, health, social services,
education and social security taxes, all surtaxes, all customs duties and import
and export taxes, countervail and anti-dumping and all employment insurance,
health insurance and other government pension plan and other employer plan
premiums, contributions or withholdings, excluding for greater certainty any
Taxes imposed on the Company on the Closing Date resulting from actions taken on
the Closing Date by the Purchaser (or the Company at the request of the
Purchaser) after the Closing Time.
A-iii
V FOLD AND DETACH HERE AND READ THE REVERSE SIDE V
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PROXY
Rand Acquisition Corporation
450 Park Avenue
10th Floor
New York, New York 10022
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF RAND ACQUISITION CORPORATION
The undersigned appoints Laurence S. Levy and Isaac Kier, and each of them
with full power to act without the other, as proxies, each with the power to
appoint a substitute, and hereby authorizes either of them to represent and to
vote, as designated on the reverse side, all shares of common stock of Rand
Acquisition Corporation held of record by the undersigned on January 31, 2006,
at the Special Meeting of Stockholders to be held on February 28, 2006, or any
postponement or adjournment thereof.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED. BY
EXECUTING THIS PROXY CARD, THE UNDERSIGNED AUTHORIZES THE PROXIES TO VOTE IN
THEIR DISCRETION TO ADOPT THE ACQUISITION PROPOSAL, THE AMENDMENT PROPOSAL AND
THE ADJOURNMENT PROPOSAL IF THE UNDERSIGNED HAS NOT SPECIFIED HOW HIS, HER OR
ITS SHARES SHOULD BE VOTED.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL NUMBERS 1, 2 & 3. THE RAND BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE PROPOSALS SHOWN ON THE REVERSE SIDE.
RAND ACQUISITION CORPORATION MAY POSTPONE THE SPECIAL MEETING TO SOLICIT
ADDITIONAL VOTING INSTRUCTIONS IN THE EVENT THAT A QUORUM IS NOT PRESENT OR
UNDER OTHER CIRCUMSTANCES IF DEEMED ADVISABLE BY THE RAND BOARD OF DIRECTORS.
(Continued and to be signed on reverse side)
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Please mark votes as in this example |X|
PROXY
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL NUMBERS 1, 2 & 3. THE RAND BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
1. To adopt, and approve the transactions contemplated by, the Stock Purchase
Agreement, dated as of September 2, 2005, among Rand, LL Acquisition
Corp., an indirect wholly-owned subsidiary of Rand, and the stockholders
of Lower Lakes Towing Ltd., as amended, and to adopt amendments to the
certificate of incorporation of Rand designed to ensure Rand's compliance
with the citizenship requirements of U.S. maritime laws after completion
of the acquisition.
FOR AGAINST ABSTAIN
|_| |_| |_|
Only if you voted "AGAINST" Proposal Number 1 and you hold shares of Rand
common stock issued in the Rand initial public offering, you may exercise
your conversion rights and demand that Rand convert your shares of common
stock into a pro rata portion of the trust account by marking the
"Exercise Conversion Rights" box below. If you exercise your conversion
rights, then you will be exchanging your shares of Rand common stock for
cash and will no longer own these shares. You will only be entitled to
receive cash for these shares if you continue to hold these shares through
the closing date of the acquisition and the tender of your stock
certificate to Rand.
EXERCISE CONVERSION RIGHTS |_|
2. To adopt additional amendments to the certificate of incorporation of Rand
to increase the number of shares of common stock which Rand is authorized
to issue from 20,000,000 shares to 50,000,000 shares and to change the
name of Rand to Rand Logistics Inc.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. To adopt a proposal to adjourn the special meeting to a later date or
dates, if necessary, to permit further solicitation and vote of proxies in
the event there are not sufficient votes at the time of the special
meeting to adopt the acquisition proposal or the amendment proposal.
FOR AGAINST ABSTAIN
|_| |_| |_|
MARK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT. |_|
PLEASE MARK, DATE AND RETURN THIS PROXY PROMPTLY.
Signature _____________________ Signature ____________________ Date ____________
Sign exactly as name appears on this proxy card. If shares are held jointly,
each holder should sign. Executors, administrators, trustees, guardians,
attorneys and agents should give their full titles. If stockholder is a
corporation, sign in full corporate name by an authorized officer.
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