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The following is an excerpt from a 20-F/A SEC Filing, filed by CENARGO INTERNATIONAL PLC on 3/16/2001.
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CENARGO INTERNATIONAL PLC - 20-F/A - 20010316 - LIQUIDITY_CAPITAL

Liquidity And Capital Resources

Total shareholders equity at September 30, 2000 was $37.7 million compared to $45.2 million at September 30, 1999. The decrease of $7.5 million is represented by a net loss of $3.2 million in the 2000 year and accumulative translation adjustment of $4.3 million, on translation of Sterling based subsidiary companies into US dollars.

Long term debt at September 30, 2000 consists of $172.9 million 9% First Priority Ship Mortgage Notes (the "Notes") together with other secured debts and obligations. The debt drawndown to finance the purchase of two new build vessels totaling $85 million ($59.75 million at September 30, 1999) was repaid on delivery of the two vessels in 2000 from the proceeds of the sale of the vessels to a British banking institution. The vessels are now on 12 year operating leases to the Company.

The principal obligations under capital leases of $12.8 million at 30 September 1999 were bought out using escrow proceeds in October 1999.

At September 30, 2000 the Company had cash and cash equivalents of $18.8 million compared to $69.3 million at September 30, 1998. Of the $18.8 million, $4.6 million was held in blocked accounts principally as collateral for the operating leases for Northern and Midnight Merchant. Cash and cash equivalents decreased by $50.5 million principally as a result of the purchase of Norse Irish Ferries Limited ($36.0 million) buying out the capital leases for vessels Saga Moon and River Lune and the purchase of Eaglescliffe ($5.6 million).

Tonnage Tax

The UK Treasury published the Finance Bill in April 2000, including the proposed UK tonnage tax regime. The bill became law in early August 2000. The tonnage tax regime will allow UK shipping companies to elect to pay corporate tax based on a nominal profit derived from the net tonnage of its ships. Non shipping activities will be "ring fenced" and taxed as before,

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based on taxable net income. The regime is intended to promote the UK shipping industry and its competitive position.

Subject to a review of the final legislation Cenargo may elect to enter the tonnage tax regime from October 1, 2000 or 2001. This will allow Cenargo to operate its ferry and shipping business virtually tax-free. Transitional rules of the regime mean that the majority of the Company's deferred tax liability ($15.8 million at September 30, 2000) will be extinguished over a seven year period at approximately 15% per annum.

The Notes

Pursuant to a Purchase Agreement dated June 19, 1998, the Company sold unregistered 9 3/4% First Priority Ship Mortgage Notes due 2008 (the "Restricted Notes") in an aggregate principal amount of $175,000,000 to BancBoston Securities Inc. (the "Initial Purchaser") in reliance upon, and subsequently resold by the Initial Purchaser thereof under, exemptions from the registration provisions of the Securities Act (including those provided by Section 4(2) thereof, and Rule 144A and Regulation S promulgated thereunder). The Initial Purchasers subsequently placed the Restricted Notes with qualified institutional buyers in reliance upon Rule 144A under the Securities Act and with a limited number of accredited investors (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act). The net proceeds to the Company from the sale of the Restricted Notes (the "Offering") were approximately $166.2 million. The Company used such net proceeds (i) to refinance approximately $131.9 million of existing indebtedness, (ii) to fund the final installments of the purchase price of the two RoPax Vessels by depositing $31.3 million into an escrow account, and (iii) retained the balance for working capital purposes.

Pursuant to a prospectus dated December 22, 1998, under a Registration Statement declared effective on that date under the Securities Act, the Company commenced an offer (the "Exchange Offer") to exchange $1,000 principal amount of its registered 9 3/4% First Priority Ship Mortgage Notes due 2008 (the "Exchange Notes") for each $1,000 principal amount of the Restricted Notes. The form and terms of the Exchange Notes are identical in all material respects to those of the Restricted Notes, except for certain transfer restrictions and registration rights relating to the Restricted Notes. The Exchange Notes have the same redemption terms as the Restricted Notes. The Exchange Notes evidence the same indebtedness as the Restricted Notes and were issued pursuant to, and entitled to the benefits of, an Indenture

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among the Company, the Subsidiary Guarantors and the Bankers Trust Company, (the "Trustee"), dated as of June 19, 1998 governing the Restricted Notes and the Exchange Notes (the "Indenture")(the Restricted Notes and Exchange Notes collectively referred to herein as the "Notes").

The Notes are secured by first priority statutory mortgages and deeds of covenants (including first assignments of insurances) collateral thereto (the "Mortgages") on the vessels securing the Notes (the "Mortgaged Vessels"), the assets of NIF and the land and buildings of Eaglescliffe. In the event that the Company and the Subsidiary Guarantors default on their obligations to make payments in respect of the Notes, holders of the Notes would be entitled to payment out of the proceeds from the sale of the Mortgaged Vessels.

Prior to June 15, 2003, the Notes will be subject to redemption at the option of the Company, in whole but not in part, upon a Change of Control, at specified redemption prices. On and after June 15, 2003, the Notes will be subject to redemption at any time at the option of the Company, in whole or in part, at specified redemption prices. In addition, the Notes will be redeemable at the option of the Company, in whole but not in part, at specified redemption prices, in the event changes in withholding tax treatment of the Notes would obligate the Company to pay Additional Amounts. Moreover, at any time prior to June 15, 2001, the Company may redeem up to 35% of the aggregate principal amount of the Notes at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the redemption date, with the net cash proceeds of one or more public offerings of equity securities, other than Disqualified Stock, of the Company, provided that at least $113.75 million in principal amount of Notes remains outstanding immediately after the occurrence of each such redemption.

Upon the occurrence of a Change of Control, (a) each holder of Notes will have the right to require the Company to repurchase all or any part of such holder's Notes at a repurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase.

The Notes are fully and unconditionally guaranteed on a senior basis, jointly and severally, by the Subsidiary Guarantors.

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The Notes and the Subsidiary Guarantees are senior obligations of the Company and of the Subsidiary Guarantors, respectively, will rank pari passu in right of payment with all existing and future senior indebtedness of the Company and of the Subsidiary Guarantors, respectively, and will be senior in right of payment to all future subordinated indebtedness of the Company and of the Subsidiary Guarantors, respectively.

As to each Mortgaged Vessel, the Subsidiary Mortgagor granted to the Trustee a Mortgage on such Mortgaged Vessel to secure the payment of all sums of money (including principal, premium, interest, and Liquidated Damages, if any) from time to time payable by such Subsidiary Mortgagor under its Subsidiary Guarantee, the payment of principal, premium, interest and Liquidated Damages, if any, on the Notes, the payment of all other sums payable by Cenargo under the Indenture and the payment of all other sums payable under the Security Agreements. The Mortgages were recorded in accordance with the provisions of the law of the country in which the applicable Mortgaged Vessel is registered. Concurrently with the closing of the Offering, all previously existing mortgages on the Mortgaged Vessels were released. The maximum liability of each Subsidiary Mortgagor under its Mortgages is limited to the same extent as such Subsidiary Mortgagor's maximum liability under its Subsidiary Guarantee.

The Credit Facility

The Company entered into a credit facility with Bank Boston, N.A. (the "Credit Facility") concurrently with the consummation of the Offering. The Credit Facility makes available to the Company up to $85 million as a construction and term loan facility to finance the acquisition and construction of vessels.

This facility was repaid in full following delivery of the two new build vessels in March and September 2000.

The two vessels were sold to a British bank. The Company now has operating leases for the two vessels. Both operating leases are for twelve years starting March and September 2000 respectively.

The operating leases contain various covenants that restrict the Company from taking various actions and that require that the Company observe certain financial covenants. The operating leases' covenants include covenants relating to loan to collateral value ratios, an interest coverage ratio, a leverage

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ratio, a minimum net worth test and limitations on indebtedness, granting of liens, mergers, acquisitions, disposition of assets, change in business activities and certain other corporate activities.

The operating leases provide for events of default, including nonpayment of principal, interest or fees, covenant defaults, breaches of representations or warranties in any material respect, cross default and cross acceleration to certain other indebtedness, bankruptcy, certain environmental matters, material judgment defaults and change of control.

Substantial Leverage and Debt Service

The Company is highly leveraged, with $181.3 million of total indebtedness outstanding (including the Notes) and $37.7 million of shareholders' equity at September 30, 2000. Subject to the restrictions in the Indenture and under the operating leases, each of Cenargo and its subsidiaries, including the Subsidiary Guarantors, may incur additional indebtedness from time to time, including under the operating leases. The degree to which the Company is leveraged could have important consequences for holders of the Notes, including but not limited to the following:
(i) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on the Notes and any other future indebtedness, thereby reducing the funds available to the Company for other purposes; (iii) indebtedness outstanding under the Credit Facility is secured by security interests in, or liens on, certain of the assets of the Company, and may become due prior to the time the principal on the Notes will become due; (iv) the Company may be hindered in its ability to withstand competitive pressures and respond to changing business conditions; (v) the Company may be more vulnerable in the event of a downturn in general economic conditions or in its business; (vi) the Company may be more highly leveraged than others with which it competes, which may put it at a competitive disadvantage; and (vii) the Company's indebtedness (other than the Notes), including under the Credit Facility, may bear interest at floating rates, thereby rendering the Company vulnerable to increases in interest rates.

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Cyclicality of Shipping Industry

The shipping industry has been highly cyclical, experiencing volatility in profitability, vessel values and charter rates resulting from changes in the supply of, and demand for, shipping capacity. The demand for ships is influenced by, among other factors, global and regional economic conditions, developments in international trade, changes in seaborne and other transportation patterns, weather patterns, crop yields, armed conflicts, port congestion, canal closures, political developments, conflicts, embargoes and strikes. The demand for ships is also influenced by, among other things, the demand for consumer goods, perishable foodstuffs and dry bulk commodities. Demand for such products is affected by, among other things, general economic conditions, commodity prices, environmental concerns, weather and competition from alternatives to coal and oil. The supply of shipping capacity is a function of the delivery of new vessels and the number of older vessels scrapped, converted to other uses, reactivated or lost. Such supply may be affected by regulation of maritime transportation practices by governmental and international authorities. All of these factors which affect the supply of and demand for vessel capacity are beyond the control of the Company. In addition, the nature, timing and degree of changes in the shipping markets in which the Company operates, as well as future charter rates and values of its vessels, are not readily determinable.

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