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RAND LOGISTICS, INC. - 10KSB - 20060331 - PART_I
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Rand Logistics Inc. (formerly Rand Acquisition Corporation) was formed on
June 2, 2004 as a blank check company to effect a merger, capital stock
exchange, asset acquisition or other similar business combination with an
operating business. On November 2, 2004, we closed our initial public offering
of 4,000,000 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. The units were sold at an offering price of $6.00 per
unit, generating gross proceeds of $24,000,000. On November 3, 2004, we sold an
additional 600,000 units pursuant to the underwriters' over-allotment option
raising additional gross proceeds of $3,600,000. After deducting the
underwriting discounts and commissions and the offering expenses, the total net
proceeds to us from the offering were approximately $24,605,000.
On March 3, 2006, we acquired all of the outstanding shares of capital
stock of Lower Lakes Towing Ltd., a Canadian corporation which, with its
subsidiary Lower Lakes Transportation Company, provides bulk freight shipping
services throughout the Great Lakes region. As part of the acquisition of Lower
Lakes, we also acquired Lower Lakes affiliate, Grand River Navigation Company,
Inc. Prior to the acquisition, we did not conduct, or have any investment in,
any operating business. In this discussion of Rand's business, unless the
context otherwise requires, references to Rand include Rand and its direct and
indirect subsidiaries, and references to Lower Lakes' business or the business
of Lower Lakes mean the combined businesses of Lower Lakes, Lower Lakes
Transportation and Grand River.
Rand's shipping business is operated in Canada by Lower Lakes and in the
United States by Lower Lakes Transportation. 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 services the construction, electric utility and integrated steel
industries through the transportation of limestone, coal, iron ore, salt, grain
and other dry bulk commodities.
We believe 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.
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. Boom forward self-unloading
vessels - those with their booms located in front of the cargo holds - 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 - which represent the smaller end of Great Lakes vessels with
maximum dimensions of approximately 650 feet in length and 72 feet in beam and
carrying capacities of 15,000 to 20,000 tons - 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.
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. 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
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. We believe 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.
Moreover, we believes that customers are generally willing to continue to use
the same carrier assuming such carrier provides satisfactory service with
competitive pricing.
Employees
As of December 31, 2005, 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. Lower Lakes has never experienced a work stoppage as a result of labor
issues, and we believe that our employee relations are good. Laurence S. Levy,
our chairman of the board and chief executive officer, is Rand's only executive
officer, and Rand does not at present have any other employees.
Additional Information
Additional information relating to Rand's and Lower Lakes' business is
included in Exhibit 99.1 to this Form 10-KSB, which is incorporated herein by
reference.
ITEM 2. DESCRIPTION OF PROPERTY
Rand maintains its executive offices at 450 Park Avenue, 10th Floor, New
York, New York 10022 pursuant to an agreement with ProChannel Management LLC, an
affiliate of Laurence S. Levy, our chairman of the board and chief executive
officer. We pay ProChannel Management a monthly fee of $7,500 which is for
general and administrative services including office space, utilities and
secretarial support. We believe, based on rents and fees for similar services in
the New York City metropolitan area, that the fee charged by ProChannel
Management is at least as favorable as we could have obtained from an
unaffiliated person. ProChannel is not obligated to continue to provide such
office space and services to us, and there can be no assurance as to whether, or
for how long, ProChannel will continue to make such office space available.
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Lower Lakes' currently leases the following properties:
o Lower Lakes Towing has leased approximately 4,500 square feet of
warehouse space at 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 at 625 Main Street, Port Dover, Ontario. The office
space is leased to Lower Lakes on a month-to-month basis for
$1370.25 per month by Scott Bravener, James Siddall, Franklin
Bravener and Robert Pierson, each of whom is an employee of Lower
Lakes. We believe that the lease is on terms consistent with leases
negotiated at arms' length. The lease terminates on March 31, 2006.
Lower Lakes has entered into a new lease with an unrelated third
party for approximately 3,075 square feet of office space at 517
Main St., Port Dover, Ontario that expires March 2013.
o Lower Lakes Transportation has leased approximately 100 square feet
of office space at 1207 Delaware Avenue, Suite 217, Buffalo, New
York 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.
We consider our current office space adequate for our current operations.
ITEM 3. LEGAL PROCEEDINGS
Rand is not involved in any legal proceedings which may have a significant
effect on its business, financial position, results of operations or liquidity,
nor are we aware of any proceedings that are pending or threatened which may
have a significant effect on our 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our units, common stock and warrants are traded on the Over-the-Counter
Bulletin Board under the symbols RAQCU, RAQC and RAQCW, respectively. The
following table sets forth the range of high and low closing bid prices for the
units, common stock and warrants for the periods indicated since the units
commenced public trading on October 28, 2004 and since the common stock and
warrants commenced public trading on November 10, 2004. The over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily reflect actual transactions.
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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
December 31, 2005 $ 5.90 $ 5.39 $ 1.22 $ 0.85 $ 7.90 $ 7.05
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Holders
As of March 30, 2006, there was one holder of record of our units, five
holders of record of our common stock and one holder of record of our warrants.
Dividends
We have not paid any dividends on our common stock to date and do not
intend to pay dividends on our common stock in the near future. The payment of
dividends in the future will be contingent upon our revenues, earnings, capital
requirements and general financial condition. The payment of dividends is within
the discretion of our board of directors. Other than dividends which our board
of directors may determine to pay on our preferred stock, it is the present
intention of our board of directors to retain all earnings for future investment
and use in our business operations. Accordingly, our board of directors does not
anticipate declaring any dividends in the foreseeable future on our common
stock. In addition, no dividends may be declared or paid on our common stock
unless all accrued dividends on our preferred stock have been paid.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation. The following presentation of the plan of operation of
Rand has been prepared by internal management and should be read in conjunction
with the financial statements and notes thereto included in, or referred to, in
this report. Some of the statements below discuss "forward-looking" information.
Those statements include statements regarding the intent, belief or current
expectations of Rand and its management team. You are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. These risks and uncertainties include but are not
limited to, those risks and uncertainties discussed in Exhibit 99.1 to this Form
10-KSB which is incorporated herein by reference. In light of the significant
risks and uncertainties inherent in the forward-looking statements included in
this report, the inclusion of such statements should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
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. On November 2,
2004, we closed our initial public offering of 4,000,000 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. The units
were sold at an offering price of $6.00 per unit, generating gross proceeds of
$24,000,000. On November 3, 2004, we sold an additional 600,000 units pursuant
to the underwriters' over-allotment option raising additional gross proceeds of
$3,600,000. After deducting the underwriting discounts and commissions and the
offering expenses, the total net proceeds to us from the offering were
approximately $24,605,000.
In connection with our initial public offering, we issued to the
representative of the underwriters, 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 our initial public offering except that the warrants included
in the units underlying the option have an exercise price of $6.25 per share.
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The option will be exercisable by the holder at $9.90 per unit commencing upon
our consummation of a business combination and will expire on October 26, 2009.
We accounted for the fair value of the option, inclusive of the receipt of the
$100 cash payment, as an expense of our initial public offering resulting in a
charge directly to stockholders' equity. We estimate 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 option and the
underlying warrants and the market price of the units and underlying securities)
to exercise the option without the payment of any cash.
On March 3, 2006, Rand, through its wholly-owned subsidiary, LL
Acquisition Corp., acquired all of the outstanding shares of capital stock of
Lower Lakes Towing in accordance with the terms of the Stock Purchase Agreement,
dated September 2, 2005, by and among Rand, LL Acquisition Corp. and the
stockholders of Lower Lakes, as amended. Immediately following completion of the
acquisition, and in conjunction therewith, LL Acquisition Corp. and Lower Lakes
were amalgamated under Canadian law and the shares of capital stock of Grand
River and Lower Lakes Transportation owned by Lower Lakes at the time of the
amalgamation were transferred to Rand's wholly-owned subsidiary, Rand LL
Holdings Corp. Upon completion of such transfer, the outstanding shares of Grand
River not owned by Rand LL Holdings Corp. were redeemed in accordance with the
terms of the Redemption Agreement, dated September 2, 2006, between Grand River
and GR Holdings, Inc. Following completion of the foregoing transactions, as of
March 3, 2006, each of Lower Lakes, Grand River and Lower Lakes Transportation
became indirect, wholly-owned subsidiaries of Rand. In conjunction with the
foregoing transactions, as of March 3, 2006, Rand changed its name to Rand
Logistics Inc.
In accordance with the terms of the Stock Purchase Agreement and
Redemption Agreement, respectively, Rand paid US$9,843,748 to the selling
shareholders of Lower Lakes and US$750,000 to GR Holdings, Inc., and arranged
for the repayment of the acquisition closing date indebtedness of such entities
of Cdn$43,732,749 and US$5,156,945, respectively. The amount paid to the Lower
Lakes selling shareholders reflects certain adjustments made on the acquisition
closing date in accordance with the Stock Purchase Agreement and such amount is
subject to further adjustment after the acquisition closing based Rand's
determination of the net working capital of Lower Lakes and its affiliates as of
January 15, 2006. Rand funded the acquisition closing date payments with the
approximately US$24,646,000 of proceeds of its initial public offering held in
trust, US$15,000,000 of proceeds of the acquisition closing date issuance of
Rand's newly created series A convertible preferred stock, and proceeds of the
new senior loan facility entered into on the acquisition closing date by Lower
Lakes, Grand River and Lowe Lakes Transportation.
The shares of series A convertible preferred stock were issued pursuant to
the terms of the Preferred Stock Purchase Agreement, dated September 2, 2006, by
and among Rand and Knott Partners LP and certain of its affiliates, and Bay
Resource Partners L.P. and certain of its affiliates. In accordance with the
terms of the Preferred Stock Purchase Agreement, Rand issued 300,000 shares on
the acquisition closing date for $50 per share or an aggregate purchase price of
$15,000,000. The shares of series A convertible preferred stock were not
registered under the Securities Act of 1933, but the series A preferred
stockholders have the right to require the filing of a registration statement
with respect to shares of Rand common stock issuable upon conversion of the
shares of series A convertible preferred stock. The series A preferred
stockholders are prohibited from selling any shares of such common stock under a
registration statement prior to the six month anniversary of the acquisition
closing date or more than one half of all such shares of common stock held by
them as a group prior to the twelve month anniversary of the acquisition closing
date. The shares of series A convertible preferred stock: rank senior to Rand's
common stock with respect to liquidation and dividends; are entitled to receive
a cash dividend at the annual rate of 7.75% (based on the $50 per share issue
price), 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); are convertible into shares of Rand common stock at any time at the
option of the series A preferred stockholder at a conversion price of $6.20 per
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share (based on the $50 per share issue price and subject to adjustment) or
8.065 shares of common stock for each Series A Preferred Share (subject to
adjustment); are convertible into shares of Rand 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); may be redeemed by Rand in
connection with certain change of control or acquisition transactions; will vote
on an as-converted basis with Rand's common stock; and have a separate vote over
certain material transactions or changes involving Rand.
Rand's Certificate of Incorporation was amended and restated on the
acquisition closing date to, among other things, 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 adopt certain amendments 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. The maritime law- related
amendments 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.
Rand intends to continue to pursue acquisition opportunities in an effort
to diversify its investments. Rand's strategy and business model as it relates
to Lower Lakes 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.
Rand's management believes that the acquisition of additional
vessels would provide it with a larger share of the available River
Class capacity, provide additional operating flexibility and extend
the longevity of its fleet. Rand is actively pursuing acquisition
opportunities but is not committed to any acquisitions at the
present time;
o New customer relationships and long-term contracts. Rand believes
that opportunities exists to enter into additional long-term
contracts with new customers. Rand believes that Lower Lakes has
historically built strong relationships with its customers, who Rand
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, Rand believes opportunities exist for Rand to increase
its business with existing customers.
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
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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
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.
Rand believes that its current cash on hand together with cash flows from
operations of Lower Lakes will be sufficient to satisfy Lower Lakes' and Rand's
cash requirements for the foreseeable future; provided, however, that there can
be no assurance that Rand will have sufficient cash to pay current dividends on
the series A preferred stock, in which case such dividends would accrue in
accordance with the terms of the series A preferred stock.
Neither Rand nor Lower Lakes has any specific current plans to increase or
decrease the number of its employees or to purchase or sell any significant
equipment.. However, implementation of Rand's acquisition strategy could result
in a future increase in the number of its employees or future acquisitions of
equipment.
Off-Balance Sheet Arrangements. Options and warrants issued in conjunction
with our initial public offering are equity linked derivatives and accordingly
represent off balance sheet arrangements. The options and warrants meet the
scope exception in paragraph 11(a) of FAS 133 and are accordingly not accounted
for as derivatives for purposes of FAS 133, but instead are accounted for as
equity. See the notes to the December 31, 2005 financial statements for a
discussion of outstanding options and warrants.
ITEM 7. FINANCIAL STATEMENTS
This information appears following Item 14 of this Report and is
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROL AND PROCEDURES
An evaluation of the effectiveness of our disclosure controls and
procedures as of December 31, 2005 was made under the supervision and with the
participation of our management, including our chief executive officer. Based on
that evaluation, he concluded that our disclosure controls and procedures are
effective as of the end of the period covered by this report to ensure that
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. Since our inception through December 31, 2005, there were no
significant changes in our internal controls over financial reporting that has
materially affected, or is reasonably likely to material affect our internal
controls over financial reporting.
ITEM 8B. OTHER INFORMATION
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
Our current directors and executive officers are as follows:
Name Age Position
--------------------------------------------------------------------------------
Laurence S. Levy 49 Chairman of the Board and Chief
Executive Officer, Rand; Director
and Vice President, Lower Lakes,
Lower Lakes Transportation and Grand
River
Scott Bravener 41 President, Lower Lakes and Lower
Lakes Transportation; Director, Rand
and Lower Lakes
James Siddall 41 Vice President - Marine Operations,
Lower Lakes and Lower Lakes
Transportation
Jeffrey Botham 39 Chief Financial Officer, Lower Lakes
and Lower Lakes Transportation
Mark Rohn 48 President, Grand River
Isaac Kier 52 Director, Rand
Sandeep D. Alva 44 Director, Rand
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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.
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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).
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 2006 Mr. Kier has been the principal at Kier Global
LLC, a private equity and real estate investment firm. From 2000 to 2006, Mr.
Kier served as a general partner of Coqui Capital Partners L.P., a venture
capital firm. 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 which has signed an agreement
to purchase Ram Energy. 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., (AMEX:HBX), a biopharmaceutical company. 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.
9
Our board of directors is divided into three classes with only one class
of directors being elected in each year and each class serving a three-year
term. The term of office of the first class of directors, consisting of Sandeep
D. Alva, will expire at our first annual meeting of stockholders. The term of
office of the second class of directors, consisting of Isaac Kier, will expire
at the second annual meeting. The term of office of the third class of
directors, consisting of Laurence S. Levy and Scott Bravener, will expire at the
third annual meeting.
Special Advisor
Edward Levy was a managing director of CIBC World Markets Corp. from
August 1995 through December 2004, and was co-head of CIBC World Markets Corp.'s
Leveraged Finance Group from June 2001 until December 2004. 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 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
ten percent stockholders are required by regulation to furnish us with copies of
all Section 16(a) forms they file. Based solely on copies of such forms received
or written representations from certain reporting persons that no Form 5s were
required for those persons, we believe that, during the fiscal year ended
December 31, 2005, all filing requirements applicable to our officers, directors
and greater than ten percent beneficial owners were complied with.
Code of Ethics
In November 2004, our board of directors adopted a code of ethics that
applies to our directors, officers and employees as well as those of our
subsidiaries. Requests for copies of our code of ethics should be sent in
writing to Rand Acquisition Corporation, 450 Park Avenue, 10th Floor, New York,
New York 10022.
ITEM 10. EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 2005, other than $7,500
per-month paid by Rand to ProChannel Management, an affiliate of Laurence S.
Levy for providing Rand with office space and certain office and secretarial
services, no compensation of any kind, including finders and consulting fees,
was paid to any of our executive officers or directors, or any of their
respective affiliates, for services rendered to Rand or any of its subsidiaries.
However, our executive officers and directors were entitled during such period
to be reimbursed for any out-of-pocket expenses incurred in connection with
activities on our behalf such as identifying potential target businesses and
performing due diligence on suitable business combinations.
10
Since our formation, we have not granted any stock options or stock
appreciation rights or any awards under long-term incentive plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Rand's common stock as of March 30, 2006 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.
All of the shares of our outstanding common stock owned by our founders
prior to our initial public offering have been placed in escrow with Continental
Stock Transfer & Trust Company, as escrow agent, pursuant to an escrow agreement
described below.
Amount and
Nature of
Beneficial Percent of
Name and Address of Beneficial Owner Ownership Class
----------------------------------------------- ----------------- ----------
Laurence S. Levy(1) 1,594,286(2) 24.9%
Rand Management LLC(1) 794,286(2) 14.2%
Isaac Kier(3) 957,000(4) 15.4%
Kier Family, L.P.(3) 300,000(5) 5.2%
David M. Knott(6) 3,487,177(7) 41.9%
Dorset Management Corporation
Hummingbird Management, LLC(8) 509,100(9) 9.0%
MHR Capital Partners Master Account LP(10) 1,449,080(11) 21.9%
MHR Advisors LLC(10) 1,640,652(12) 24.3%
MHR Fund Management LLC
Mark H. Rachesky, M.D.
Sapling, LLC(13) 335,000(14) 6.0%
Amarath Global Equities Master Fund Limited(15) 300,000(16) 5.4%
Amarath Advisors L.L.C.
Nicholas M. Maounis
Sandeep D. Alva(17) 200,000(18) 3.5%
Bay Resources Partners L.P.(19) 1,209,677(20) 17.7%
Bay II Resources Partners L.P.
Bay Resources Partners Offshore Fund Ltd.
Thomas E. Claugus
Scott Bravener(21) -- --%
All directors and executive officers as a
group (3 individuals) 2,751,286(22) 38.7%
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11
(1) Unless otherwise indicated, the business address of each of the following
is 450 Park Avenue, 10th Floor, New York, New York 10022.
(2) 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. Mr. Levy
is the trustee for the trust. Includes 800,000 shares of common stock
issuable upon exercise of warrants held by Mr. Levy. This information was
based on a Schedule 13D filed with the Securities and Exchange Commission
on March 30, 2006.
(3) The business address of both Mr. Kier and Kier Family, L.P. is Coqui
Capital Partners, L.P., 1775 Broadway, Suite 604, New York, New York
10019.
(4) In addition to shares held directly, includes 17,000 shares of common
stock held by Mr. Kier's wife and 100,000 shares of common stock held
through a Kier Family, L.P. of which Mr. Kier is the general partner. Also
includes 607,000 shares of common stock issuable upon exercise of
warrants. This information was based on a Schedule 13D filed with the
Securities and Exchange Commission on March 30, 2006.
(5) Represents 100,000 shares of common stock and 200,000 shares of common
stock issuable upon exercise of warrants. This information was based on a
Schedule 13D filed with the Securities and Exchange Commission on March
30, 2006.
(6) The business address of Mr. Knott and Dorset Management Corporation is 485
Underhill Boulevard, Suite 205, Syosett, New York 11791.
(7) This information is based on (i) a Schedule 13D filed with the Securities
and Exchange Commission on March 16, 2006. Includes 1,505,000 shares of
common stock issuable upon exercise of warrants and 1,209,677 shares of
common stock issuable upon conversion of 150,000 shares of Series A
convertible preferred stock.
(8) The business address of Hummingbird Management, LLC is 460 Park Avenue,
12th Floor, New York, New York 10022.
(9) The foregoing information was derived from a Schedule 13D/A filed with the
Securities and Exchange Commission on November 3, 2005.
(10) The business address of these entities and this individual is 40 West 57th
Street, 24th Floor, New York, New York 10019.
(11) This information is based on (i) a Schedule 13D filed with the Securities
and Exchange Commission on March 10, 2006. Comprised of 429,373 shares of
Common Stock and 1,019,707 shares of Common Stock issuable upon exercise
of warrants.
12
(12) This information is based on a Schedule 13D filed with the Securities and
Exchange Commission on March 10, 2006. Comprised of (i) 429,373 shares of
Common Stock held for the account of MHR Capital Partners Master Account
LP; (ii) 1,019,707 shares of common stock issuable upon exercise of
warrants held for the account of MHR Capital Partners Master Account LP;
(iii) 53,027 shares of Common Stock held for the account of MHR Capital
Partners (100); and (iv) 138,545 shares of Common Stock issuable upon
exercise of warrants held for the account of MHR Capital Partners (100).
MHR Advisors LLC is the general partner of MHR Capital Partners Master
Account LP and MHR Capital Partners (100). Dr. Rachesky is the managing
member of MHR Advisors LLC. MHR Fund Management LLC is the management
company for MHR Capital Partners Master Account LP and MHR Capital
Partners (100).
(13) The business address of Sapling, LLC is 535 Fifth Avenue, 31st Floor, New
York, New York 10017.
(14) This information was derived from a Schedule 13G filed with the Securities
and Exchange Commission on March 31, 2005.
(15) The business address of these entities and individuals is c/o Amarath
Advisors L.L.C., One American Lane, Greenwich, Connecticut 06831.
(16) This information was derived from a Schedule 13G filed with the Securities
and Exchange Commission on February 10, 2006.
(17) The business address of Mr. Alva is Falcon Investment Advisors, LLC, 60
Kendrick Street, Needham, Massachusetts 02494.
(18) Includes 100,000 shares of Common Stock and 100,000 shares underlying
warrants, which warrants became exercisable on March 3, 2006. This
information is derived from a Form 3 and a Form 4 filed on October 28,
2004 and August 20, 2005, respectively.
(19) The business address of these entities and this individual is 2100
RiverEdge Pkwy, Suite 840, Atlanta GA 30328. This information is based on
the number of shares of Rand's series A convertible preferred stock issued
to such entities. Information as to the beneficial ownership of these
shares is not available at the time of this report.
(20) Comprised of 1,209,677 shares underlying Rand's series A convertible
preferred stock. This information is based on the number of shares of
Rand's series A convertible preferred stock issued to such entities.
Information as to the beneficial ownership of these shares is not
available at the time of this report.
(21) The business address for Mr. Bravener is 625 Main Street Port Dover,
Ontario Canada NOA 1NO.
(22) Include 1,507,000 shares of common stock issuable upon exercise of
warrants which warrants became exercisable on March 3, 2006.
Laurence S. Levy, Rand Management LLC, Isaac Kier and Falcon Partners
Holdings, LLC may be deemed to be our "parents" and "promoters," as these terms
are defined under the Federal securities laws.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 2004, we issued 875,000 shares of our 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:
13
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
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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
was unable to effect a business combination and required to liquidate, none of
Rand's initial stockholders would have received 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.
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;
14
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. ProChannel is not obligated to continue to provide such
office space and services to us, and there can be no assurance as to whether, or
for how long, ProChannel will continue to make such office space available.
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.
Scott Bravener, along with three employees of Lower Lakes, lease office
space at 625 Main Street, Port Dover, Ontario to Lower Lakes on a month-to-month
basis for $1370.25 per month. We believe that the lease is on terms consistent
with leases negotiated at arms' length. The lease terminates on march 31, 2006.
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.
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.
ITEM 13. EXHIBITS.
The following Exhibits are filed as part of this report.
15
Exhibit No. Description
----------- -----------
2.1 Stock Purchase Agreement, dated as of September 2, 2005, among
Rand Acquisition Corporation, LLP, Acquisition Corp. and the
stockholders of Lower Lakes Towing Ltd. (Omitted: Appendices-
Seller Disclosure Schedule and Purchase Seller Disclosure
Schedule; Exhibits - 1) Allocation among Sellers, 2) Employment
Agreement, 3) Escrow Agreement, 4) Release, 5) Opinion of
Sellers' Counsel, 6) Opinion of Rand's and Purchaser's Counsel,
7) Section 116 Escrow Agreement, 8) Company Indebtedness, 9)
Seller's Addresses, 10) Working Capital Statement, 11) Management
Bonus Program, 12) Sellers Several Liability Allocation, 13)
Financing Commitments (filed separately), 14) Bonus Program
Participant Agreement and 15) Redemption Agreement). (1)
2.2 Amendment to Stock Purchase Agreement, dated December 29, 2005.
(2)
2.3 Amendment to Stock Purchase Agreement, dated January 27, 2006.
(3)
2.4 Amendment to Stock Purchase Agreement, dated February 27, 2006.
(4)
3.1 Certificate of Incorporation. (5)
3.1.1 Amended and Restated Certificate of Incorporation, filed with the
Secretary of State of the State of Delaware on March 3, 2006.(7)
3.1.2 Certificate of Designations, filed with the Secretary of State of
the State of Delaware on March 3, 2006.(7)
3.2 By-laws. (5)
4.1 Specimen Unit Certificate. (5)
4.2 Specimen Common Stock Certificate. (5)
4.3 Specimen Warrant Certificate. (5)
4.4 Form of Unit Purchase Option granted to EarlyBirdCapital, Inc.
(5)
4.5 Form of Warrant Agreement between Continental Stock Transfer &
Trust Company and the Registrant. (5)
10.1 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Laurence S. Levy. (5)
10.2 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Isaac Kier. (1)
10.3 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Sandeep D. Alva. (5)
10.4 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Falcon Partners Holdings, LLC. (5)
10.5 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Natalie Lynn Levy Irrevocable Trust. (5)
10.6 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Michael Benjamin Levy Irrevocable Trust. (5)
10.7 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Jessica Rose Levy Irrevocable Trust. (5)
10.8 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Jane Levy. (5)
10.9 Form of Investment Management Trust Agreement between Continental
Stock Transfer & Trust Company and the Registrant. (5)
10.10 Form of Stock Escrow Agreement between the Registrant,
Continental Stock Transfer & Trust Company and the Founders. (5)
10.11 Form of Letter Agreement between ProChannel Management LLC and
Registrant regarding administrative support. (5)
10.12 Promissory Note, dated June 10, 2004, in the principal amount of
$70,000 issued to Laurence S. Levy. (5)
10.13 Registration Rights Agreement among the Registrant and the
Founders. (5)
10.14 Form of Warrant Purchase Agreements among each of Laurence S.
Levy, Isaac Kier and Sandeep D. Alva and EarlyBirdCapital, Inc.
(5)
10.15 Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and
Rand Management LLC. (5)
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16
10.16 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 Resources Partners, Bay
Resource Partners L.P., Bay Resource Partners Offshore Fund Ltd.,
Thomas E. Claugus and Rand Acquisition Corporation. (1)
10.17 Financing Commitment, dated August 22, 2005, between GE
Commercial & Industrial Finance, Inc. and Rand Acquisition
Corporation. (1)
10.18 Credit Agreement, dated as of March 3, 2006, among Lower Lakes
Towing Ltd., Lower Lakes Transportation Company, Grand River
Navigation Company, Inc, the other Credit Parties signatory
hereto, General Electric Capital Corporation as a US Lender and
as Agent for the Secured Parties and the other Lenders signatory
hereto from time to time, and GE Canada Finance Holding Company,
as a Canadian Lender and the other Lenders signatory hereto from
time to time.(7)
10.19 Employment Agreement, dated March 3, 2006, between Scott Bravener
and Rand Acquisition Corporation.(7)
10.20 Employment Agreement, dated March 3, 2006, between James Siddall
and Rand Acquisition Corporation.(7)
10.21 Management Bonus Plan, dated March 3, 2006.(7)
14 Code of Ethics. (6)
21 Subsidiaries of Rand. (8)
31 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.(8)
32 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.(8)
99.1 Risk Factors to Annual Report of Form 10-KSB for period ending
December 31, 2005.(8)
(1) Incorporated by reference to the Registrant's Amended Quarterly Report on
Form 10-QSB/A, filed with the Securities and Exchange Commission on
January 20, 2006.
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on January 3, 2006.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on January 31, 2006.
(4) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on March 1, 2006.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (SEC File No. 333-117051).
(6) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB, filed with the Securities and Exchange Commission on March 31,
2005.
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on March 9, 2006.
(8) Filed herewith.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The firm of Goldstein, Golub, Kessler LLP ("GGK") acts as our principal
accountant. Through September 30, 2005, GGK had a continuing relationship with
American Express Tax and Business Services Inc. (TBS), from which it leased
auditing staff who were full time, permanent employees of TBS and through which
its partners provide non-audit services. Subsequent to September 30, 2005, this
relationship ceased and the firm established a similar relationship with RSM
McGladrey, Inc. ("RSM"). GGK has no full time employees and therefore, none of
the audit services performed were provided by permanent full-time employees of
GGK. GGK manages and supervises the audit and audit staff, and is exclusively
responsible for the opinion rendered in connection with its examination. The
following is a summary of fees paid or to be paid to GGK and RSM for services
rendered.
17
Audit Fees
During the fiscal year ended December 31, 2004, we paid our principal accountant
$25,000 for the services they performed in connection with our initial public
offering, including the financial statements included in the Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 2, 2004;
$2,000 in connection with the review of our Quarterly Reports on Form 10-QSB,
and $10,000 in connection with the December 31, 2004 audit and 10-KSB.
During the fiscal year ended December 31, 2005, we paid or expect to pay our
principal accountant $15,000 for the services they performed in connection with
the December 31, 2005 audit and 10-KSB and the financial statements included in
the Current Report on Form 8-K filed with the Securities and Exchange Commission
on March 9 2006; $19,000 in connection with the reviews of our Quarterly Reports
on Form 10-QSB, and $3,000 in connection with the December 31, 2004 10-K/A.
Audit-Related Fees
During 2005, our principal accountant did not render assistance and related
services reasonably related to the performance of the audit or review of
financial statements.
Tax Fees
During 2005, we paid TBS $1,500 for services rendered for tax compliance
for the year ended December 31, 2004.
All Other Fees
During 2005, there were no fees billed for products and services provided
by the principal accountant other than those set forth above.
18
SIGNATURES
Pursuant to the requirements of the Section 13 or 15 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
31st day of March 2006.
RAND ACQUISITION CORPORATION
By: /s/ Laurence S. Levy
-------------------------------
Laurence S. Levy
Chairman of the Board and Chief
Executive Officer (Principal
Executive and Financial and
Accounting Officer)
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In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Laurence S. Levy Chairman of the Board and Chief March 31, 2006
---------------------- Executive Officer (Principal
Laurence S. Levy Executive and Financial and
Accounting Officer)
/s/ Isaac Kier Director March 31, 2006
----------------------
Isaac Kier
/s/ Sandeep D. Alva Director March 31, 2006
----------------------
Sandeep D. Alva
/s/ Scott Bravener Director March 31, 2006
----------------------
Scott Bravener
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19
RAND LOGISTICS INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
(a) Financial Statements
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
NOTES TO FINANCIAL STATEMENTS F-7-F-10
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Rand Logistics, Inc. (formerly Rand Acquisition Corporation)
|
We have audited the accompanying consolidated balance sheets of Rand Logistics,
Inc. (formerly Rand Acquisition Corporation) and Subsidiaries (a development
stage company) as of December 31, 2005 and 2004, and the related consolidated
statements of operations, stockholders' equity and cash flows for the cumulative
period from June 2, 2004 (inception) to December 31, 2005, the year ended
December 31, 2005 and the period from June 2, 2004 (date of inception) to
December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rand
Logistics, Inc. and Subsidiaries as of December 31, 2005 and 2004 and the
results of their operations and their cash flows for the cumulative period from
June 2, 2004 (inception) to December 31, 2005, the year ended December 31, 2005
and the period from June 2, 2004 (inception) to December 31, 2004 in conformity
with U.S. generally accepted accounting principles.
As described in Note 8, on March 3, 2006, Rand Logistics, Inc. acquired the
capital of Lower Lakes Towing Ltd., issued Series A preferred stock and entered
into a senior loan facility.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 3, 2006
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Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
(a corporation in the development stage)
Balance Sheet
===========================================================================================
December 31 December 31
2005 2004
-------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 176,945 $ 802,667
Investments held in Trust Fund (Note 1) 24,511,698 23,804,261
Prepaid expenses 17,815 57,750
------------ ------------
Total current assets 24,706,458 24,664,678
Deferred Acquisition Costs (Note 1) 2,083,097 --
------------ ------------
Total assets $ 26,789,555 $ 24,664,678
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses (Note 4) $ 1,885,644 $ 12,000
Taxes Payable (Note 5) 55,523 34,357
Deferred Interest 155,108 13,645
------------ ------------
Total liabilities 2,096,275 60,002
------------ ------------
Common stock, subject to possible redemption,
919,540 shares at redemption value (Note 1) 4,744,826 4,744,826
------------ ------------
Commitments (Notes 3 and 8)
Stockholders' equity (Notes 1, 2, 6, 7 and 8)
Preferred stock, $.0001 par value, Authorized
1,000,000 shares; none issued -- --
Common stock, $.0001 par value
Authorized 50,000,000 shares
Issued and outstanding 5,600,000 shares (which
includes 919,540 subject to possible redemption) 560 560
Additional paid-in capital 19,884,465 19,884,465
Surplus/( Deficit) accumulated during development stage 63,429 (25,175)
------------ ------------
Total stockholders' equity 19,948,454 19,859,850
------------ ------------
Total liabilities and stockholders' equity $ 26,789,555 $ 24,664,678
============ ============
|
See accompanying notes to financial statements.
F-3
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
(a corporation in the development stage)
Statement of Operations
===================================================================================================================
Period from Period from
June 2, 2004 For the June 2, 2004
(inception) to Year Ended (inception) to
December 31, 2005 December 31, 2005 December 31, 2004
-------------------------------------------------------------------------------------------------------------------
Income:
Interest Income $ 638,123 $ 581,555 $ 56,568
----------- ----------- -----------
Expenses:
Franchise and capital-based taxes 81,055 46,698 34,357
Professional fees 85,676 69,383 16,293
Rent and office 106,209 90,000 16,209
Insurance 68,333 58,833 9,500
Other formation and operating costs 64,172 58,788 5,384
----------- ----------- -----------
Total Expenses 405,445 323,702 81,743
----------- ----------- -----------
Income (loss) before provision for income taxes 232,678 257,853 --
Provision for income taxes 169,249 169,249 --
----------- ----------- -----------
Net income (loss) $ 63,429 $ 88,604 $ (25,175)
=========== =========== ===========
Net loss per share basic and diluted $ .02 $ (.01)
=========== ===========
Weighted average shares outstanding 5,600,000 2,584,634
=========== ===========
|
See accompanying notes to financial statements.
F-4
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
(a corporation in the development stage)
Statement of Stockholders' Equity
===================================================================================================================================
Additional Surplus (Deficit)
Common Stock Paid-In accumulated during the
Shares Amount Capital development stage Total
-----------------------------------------------------------------------------------------------------------------------------------
Sale of 1,000,000 shares of common stock to
initial stockholders as of June 2, 2004
at $.025 per share 1,000,000 $ 100 $ 24,900 -- $ 25,000
Sale of 4,000,000 units, net of underwriters'
discount and offering expenses (includes
799,600 shares subject to possible redemption) 4,000,000 400 21,310,351 -- 21,310,751
Proceeds of exercise of overallotment option
by underwriters 600,000 60 3,293,940 3,294,000
Proceeds subject to possible redemption of
919,540 shares -- -- (4,744,826) -- (4,744,826)
Proceeds from issuance of option -- -- 100 -- 100
Net loss -- -- -- (25,175) (25,175)
--------- ------------ ------------ ------------ ------------
Balance, December 31, 2004 5,600,000 560 19,884,465 (25,175) 19,859,850
Net income -- -- -- 88,604 88,604
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005 5,600,000 $ 560 $ 19,884,465 $ 63,429 $ 19,948,454
========= ============ ============ ============ ============
|
See accompanying notes to financial statements.
F-5
Rand Logistics, Inc.
(formerly Rand Acquisition Corporation)
(a corporation in the development stage)
Statement of Cash Flows
====================================================================================================================================
Period from Period from
June 2, 2004 For the June 2, 2004
(inception to) Year Ended (inception) to
December 31, 2005 December 31, 2005 December 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income (loss) $ 63,429 $ 88,604 $ (25,175)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Interest Accrued on Treasury Bill (775,697) (707,436) (68,261)
Increase (Decrease) in prepaid expenses (17,815) 39,935 (57,750)
Increase in accrued expenses 42,178 30,178 12,000
Increase (Decrease) in income tax payable 55,523 21,166 34,357
Increase in deferred interest 155,108 141,463 13,645
------------ ------------ ------------
Net cash used in operating activities (477,274) (386,090) (91,184)
------------ ------------ ------------
Cash Flows from Investing Activities
Cash placed in Trust Fund (23,736,000) -- (23,736,000)
Payment of deferred acquisition costs (239,632) (239,632) --
------------ ------------ ------------
Net cash used in investing activities (23,975,632) (239,632) (23,736,000)
------------ ------------ ------------
Cash Flows from Financing Activities
Gross proceeds 27,600,000 -- 27,600,000
Proceeds from notes payable, stockholder 70,000 -- 70,000
Payment of note payable, stockholder (70,000) -- (70,000)
Proceeds from sale of shares of common stock 25,000 -- 25,000
Proceeds from issuance of option 100 -- 100
Payment of costs of public offering (2,995,249) -- (2,995,249)
------------ ------------ ------------
Net cash provided by financing activities 24,629,851 -- 24,629,851
------------ ------------ ------------
Net increase (decrease) in cash -- (625,722) --
Cash at beginning of period -- 802,667 --
------------ ------------ ------------
Cash at end of the period $ 176,945 $ 176,945 $ 802,667
============ ============ ============
Supplemental schedule of non-cash investing activities:
Accrual of deferred acquisition costs $ 1,843,465 $ 1,843,465 $ --
============ ============ ============
|
F-6
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
================================================================================
1. Organization Rand Acquisition Corporation was incorporated in
and Delaware on June 2, 2004 as a blank check
Business company whose objective was to acquire an
Operations operating business (a "Business Combination").
As described in Note 8 (Subsequent Events), on
March 3, 2006, Rand Acquisition Corporation
consummated a Business Combination and changed
its name to Rand Logistics, Inc.
The consolidated financial statements include
the accounts of Rand Logistics, Inc. and its
wholly owned subsidiaries (collectively, the
"Company"). All significant intercompany
transaction and balances have been eliminated.
The registration statement for the Company's
initial public offering ("Offering") was
declared effective October 27, 2004. The Company
consummated the offering on November 2, 2004 and
received net proceeds of approximately
$21,311,000 (Note 2). On November 3, 2004, the
underwriters exercised their allotment option
resulting in further proceeds to the Company of
$3,294,000. The Company's management had broad
discretion with respect to the specific
application of the net proceeds of the Offering,
although substantially all of the net proceeds
of the Offering were intended to be generally
applied toward consummating a Business
Combination. A portion of the net proceeds,
originally $23,736,000, was placed in an
interest-bearing trust account ("Trust Fund")
until the earlier of (i) the consummation of a
Business Combination or (ii) liquidation of the
Company. Under the agreement governing the Trust
Fund, funds were only be invested in United
States government securities (Treasury Bills)
with a maturity of 180 days or less. This amount
was invested in a Treasury Bill. The Treasury
Bill has been accounted for as a trading
security, which is recorded at its market value
of approximately $24,512,000 at December 31,
2005 (and $23,804,000 at December 31, 2004). The
excess of market value over cost, exclusive of
the deferred interest described further below,
is included in interest income in the
accompanying statement of operations. The
remaining net proceeds were available to the
Company to pay for business, legal and
accounting due diligence on prospective
acquisitions and continuing general and
administrative expenses.
The Company, after signing a definitive
agreement for its first Business Combination,
was required to submit the Business Combination
for stockholder approval. To be approved, the
Business Combination required the approval of
holders of a majority of the shares issued in
|
F-7
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
the Offering ("Public Stockholders"). When
voting the Business Combination, all of the
Company's stockholders prior to the Offering,
including all of the officers and directors of
the Company ("Initial Stockholders"), agreed to
vote their 1,000,000 founding shares of common
stock in accordance with the vote of the holders
of majority of the shares issued in the
Offering. On February 28, 2006, the Business
Combination discussed in Note 8 (Subsequent
Events) was approved by Public Stockholders
holding a majority of the shares of common stock
issued in the Offering.
Public Stockholders who voted against the
Business Combination could also demand that the
Company redeem their shares if the Business
Combination is consummated. The per share
redemption price would equal the amount in the
Trust Fund as of the record date for
determination of stockholders entitled to vote
on the Business Combination divided by the
number of shares of common stock held by Public
Stockholders at the consummation of the
Offering. Under the terms of the Company's
Certificate of Incorporation, the Company could
not consummate a Business Combination if holders
of more than 19.99% of the shares of common
stock issued in the Offering demanded redemption
of their shares. Accordingly, a portion of the
net proceeds from the offering (19.99% of the
amount originally held in the Trust Fund) has
been classified as common stock subject to
possible redemption in the accompanying December
31, 2005 and December 31, 2004 balance sheets
and 19.99% of the related interest earned on the
Treasury Bill has been recorded as deferred
interest. The Company further conditioned the
Business Combination discussed in Note 8
(Subsequent Events) on holders of not more than
5% of the shares of common stock issued in the
Offering demanding redemption. No Public
Stockholders demanded redemption of their shares
in connection with the Business Combination
discussed in Note 8 (Subsequent Events) and as
such the common stock subject to redemption will
be reclassified to stockholders equity and the
deferred interest will be recognized as income
in the first quarter of 2006.
The Company's Certificate of Incorporation also
required mandatory liquidation of the Company,
without stockholder approval, in the event that
the Company did not consummate a Business
Combination within 18 months from the date of
the consummation of the Offering, or 24 months
from the consummation of the Offering if certain
extension criteria were satisfied.
F-8
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
The voting requirements, redemption rights and
mandatory liquidation discussed above are not
applicable after consummation of a Business
Combination.
For purposes of the statement of cash flows, the
Company considers all highly liquid debt
instruments with an original maturity of three
months or less to be cash equivalents.
The Company maintains cash in bank deposit
accounts which, at times, exceed federally
insured limits. The Company has not experienced
any losses on these accounts.
Deferred acquisition costs consist of legal,
consulting and other costs incurred through
December 31, 2005 that are directly related to
the acquisition or financing described in Note
8.
Deferred income taxes are provided for the
differences between the bases of assets and
liabilities for financial reporting and income
tax purposes. A valuation allowance is
established when necessary to reduce deferred
tax assets to the amount expected to be
realized.
Basic income (loss) per share is computed by
dividing net loss by the weighted-average number
of shares of common stock outstanding during the
period. Diluted income (loss) per share gives
effect to dilutive options, warrants and other
potential common stock outstanding during the
periods. Diluted income (loss) per share does
not include the Redeemable Common Stock Purchase
Warrants (see Note 2) to purchase an aggregate
of 9,200,000 shares of common stock at $5.00 per
share and the underwriters' option (see Note 2)
to purchase 300,000 Units at an exercise price
of $9.90 per Unit (with 600,000 underlying
warrants at $6.25 per share), respectively, that
were outstanding at December 31, 2005 and 2004
because the shares underlying the conversion of
the warrants are contingently issuable at
December 31, 2005 and 2004 and the exercise
price of the underwriters' option is in excess
of the related market value of the Units.
In 2006, diluted earnings per share will require
consideration of the Redeemable Common Stock
Purchase Warrants because the contingency was
satisfied upon the completion of the transaction
described in Note 8.
The preparation of financial statements in
conformity with accounting principles generally
accepted in the United States of America
F-9
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
================================================================================
requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities at the date of the
financial statements and the reported amounts of
expenses during the reporting period. Actual
results could differ from those estimates.
Management does not believe that any recently
issued, but not yet effective, accounting
standards if currently adopted would have a
material effect on the accompanying financial
statements.
2. Initial Public
Offering On November 2, 2004, the Company sold a total of
4,600,000 units ("Units") in the Offering and
the underwriters' exercise of their
overallotment option. Each Unit consists of one
share of the Company's common stock, $.0001 par
value, and two Redeemable Common Stock Purchase
Warrants ("Warrants"). Each Warrant will entitle
the holder to purchase from the Company one
share of common stock at an exercise price of
$5.00 commencing the later of the completion of
a Business Combination (See Note 8) with a
target business or one year from the effective
date of the Offering and expiring four years
from the date of the prospectus. The Warrants
will be redeemable, upon prior written consent
of EarlyBirdCapital, Inc., at a price of $.01
per Warrant upon 30 days' notice after the
Warrants become exercisable, only in the event
that the last sale price of the common stock is
at least $8.50 per share for any 20 trading days
within a 30 trading day period ending on the
third day prior to the date on which notice of
redemption is given.
In connection with this Offering, the Company
issued an option, for $100, to the
representative of the underwriters to purchase
300,000 Units at an exercise price of $9.90 per
Unit. Each Unit included within this option
consists of one share of common stock and two
warrants. The Units issuable upon exercise of
the option are identical to those issued in the
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 the Company and will expire on
October 26, 2009. The Company has accounted for
the fair value of the option, inclusive of the
receipt of the $100 cash payment, as an expense
of the Offering resulting in a charge directly
to the stockholders' equity. The Company
estimates 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 granted to the
Representative has been estimated as of the date
|
F-10
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
================================================================================
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 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 option and the underlying
Warrants and the market price of the Units and
underlying securities) to exercise the option
without the payment of any cash.
3. Commitment The Company presently occupies office space
provided by an affiliate of an Initial
Stockholder. Such affiliate has agreed that it
will make such office space, as well as certain
office and secretarial services, available to
the Company, as may be required by the Company
from time to time. The Company has agreed to pay
such affiliate $7,500 per month for such
services commencing on the effective date of the
Offering. The statement of operations for the
period from inception to December 31, 2005 and
the period ended December 31, 2004 includes
$106,209, $90,000 and $16,209, respectively,
related to this agreement.
In connection with the Business Combination
described in Note 8, in March 2006 the Company
entered into employment agreements with two
individuals (See Note 8).
4. Accrued Expenses Accrued expenses consists of the following:
December 31,
2005 2004
---------- --------
Professional fees in $1,843,465 --
connection with the
transaction described
in Note 8
Other Professional Fees 33,500 $ 12,000
Other 8,679 --
---------- --------
$1,885,644 $ 12,000
========== ========
|
F-11
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
================================================================================
5. Taxes Payable The provision for income taxes consists of the
following:
Period from
Year ended Inception to
December 31 December 31
2005 2004
----------- ------------
Current:
Federal 104,285 --
State and Local 64,964 --
Deferred:
Federal -- --
State and Local -- --
--------- ---------
$ 169,249 $ --
========= =========
|
The total provision for income taxes differs
from that amount which would be computed by
applying the U.S. Federal income tax rate to
income before provision for income taxes as
follow:
Period from
Year ended Inception to
December 31 December 31
2005 2004
----------- -----------
Statutory federal income tax rate 34% (34%)
State income taxes 16.6% --
Valuation allowance 15% 34%
----- -----
Effective income tax rate 65.6% --
===== =====
|
The tax effect of temporary differences that
give rise to the net deferred tax asset is as
follows:
December 31,
--------------
2005 2004
---- ----
Asset:
Deferred Interest Income 70,400 6,200
Other 1,100 1,400
Federal NOL -- 22,100
State and Local NOLs -- 5,600
------- -------
Total deferred tax asset $71,500 $35,300
======= =======
Liability:
Prepaid Expense $8,100 $25,700
-------- -------
Total Deferred Tax Liability $8,100 $25,700
-------- -------
Net Deferred Asset $63,400 $ 9,600
Valuation Allowance ($63,400) ($9,600)
-------- -------
$ -- $ --
======== =======
|
F-12
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
================================================================================
During the year ended December 31, 2005, the
Company paid $160,424 of income and State
Franchise taxes (exclusive of Delaware).
6. Preferred Stock The Company is authorized to issue 1,000,000
shares of preferred stock with such
designations, voting and other rights and
preferences as may be determined from time to
time by the Board of Directors.
7. Common Stock On October 7, 2004, the Company's Board of
Directors authorized a stock dividend of
0.1428571 shares of common stock for each
outstanding share of common stock. All
references in the accompanying financial
statements to the number of shares of stock have
been retroactively restated to reflect this
transaction.
At December 31, 2005, 10,100,000 shares of
common stock were reserved for issuance upon
exercise of redeemable warrants and the
underwriters' unit purchase option.
8. Subsequent Events -
Unaudited On March 3, 2006, Rand Acquisition Corporation,
through its wholly-owned subsidiary, LL
Acquisition Corp., acquired all of the
outstanding shares of capital stock of Lower
Lakes Towing Ltd. ("Lower Lakes") in accordance
with the terms of the Stock Purchase Agreement,
dated September 2, 2005, by and among Rand
Acquisition Corporation, LL Acquisition Corp.
and the stockholders of Lower Lakes, as amended.
Immediately following completion of the
acquisition, and in conjunction therewith, LL
Acquisition Corp. and Lower Lakes were
amalgamated under Canadian law and the shares of
capital stock of Grand River Navigation Company,
Inc. ("Grand River") and Lower Lakes
Transportation Company ("LLT") owned by Lower
Lakes at the time of the amalgamation were
transferred to Rand Acquisition Corporation's
wholly-owned subsidiary, Rand LL Holdings Corp.
Upon completion of such transfer, the
outstanding shares of Grand River not owned by
Rand LL Holdings Corp. were redeemed in
accordance with the terms of the Redemption
Agreement, dated September 2, 2005, between
Grand River and GR Holdings, Inc. Following
completion of the foregoing transactions, as of
March 3, 2006, each of Lower Lakes, Grand River
and LLT became indirect, wholly-owned
subsidiaries of Rand Acquisition Corporation. In
conjunction with the foregoing transactions, as
of March 3, 2006, Rand Acquisition Corporation
changed its name to Rand Logistics Inc.
Lower Lakes and LLT provide bulk freight
shipping services throughout the Great Lakes
|
F-13
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
region to, among others, the construction
aggregates, integrated steel, salt, agriculture
and electric utility industries. 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. LLT
time charters the U.S. flagged vessels from
Grand River. 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 LLT's business.
In accordance with the terms of the Stock
Purchase Agreement and Redemption Agreement,
respectively, the Company paid $9,843,748 to the
selling shareholders of Lower Lakes and $750,000
to GR Holdings, Inc., and arranged for the
repayment of the acquisition closing date
indebtedness of such entities of Cdn $43,732,749
(approximately $37,522,000 at December 31, 2005)
and $5,156,945, respectively. The amount paid to
the Lower Lakes selling shareholders reflects
certain adjustments made on the acquisition
closing date in accordance with the Stock
Purchase Agreement and such amount is subject to
further adjustment after the acquisition closing
based the Company's determination of the net
working capital of Lower Lakes and its
affiliates as of January 15, 2006. The Company
funded the acquisition closing date payments
with the approximately $24,646,000 of proceeds
of its initial public offering held in trust,
$15,000,000 of proceeds of the acquisition
closing date issuance of the Company's newly
created series A convertible preferred stock,
and proceeds of the new senior loan facility
entered into on the acquisition closing date by
Lower Lakes, Grand River and LLT.
The shares of series A convertible preferred
stock were issued pursuant to the terms of the
Preferred Stock Purchase Agreement, dated
September 2, 2005, by and among the Company and
Knott Partners LP and certain of its affiliates,
and Bay Resource Partners L.P. and certain of
its affiliates. In accordance with the terms of
the Preferred Stock Purchase Agreement, the
Company issued 300,000 shares on the acquisition
closing date for an aggregate purchase price of
$15,000,000. The shares of series A convertible
preferred stock were not registered under the
Securities Act of 1933, but the series A
preferred stockholders have the right to require
F-14
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
the filing of a registration statement with
respect to shares of the Company's common stock
issuable upon conversion of the shares of series
A convertible preferred stock. The series A
preferred stockholders are prohibited from
selling any shares of such common stock under a
registration statement prior to the six month
anniversary of the acquisition closing date or
more than one half of all such shares of common
stock held by them as a group prior to the
twelve month anniversary of the acquisition
closing date. The shares of series A convertible
preferred stock: rank senior to the Company's
common stock with respect to liquidation and
dividends; are 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); are
convertible into shares of the Company's common
stock at any time at the option of the series A
preferred stockholder based on a conversion
price of $6.20 per share (subject to
adjustment); are convertible into shares of the
Company's common stock (based on a conversion
price of $6.20 per share, subject to adjustment)
at the option of the Company if, after the third
anniversary of the acquisition, the trading
price of the Company's common stock for 20
trading days within any 30 trading day period
equals or exceeds $8.50 per share (subject to
adjustment); may be redeemed by the Company in
connection with certain change of control or
acquisition transactions; will vote on an
as-converted basis with the Company's common
stock; and have a separate vote over certain
material transactions or changes involving the
Company.
The Company's Certificate of Incorporation was
amended and restated on the acquisition closing
date to, among other things, increase the number
of shares of common stock that the Company is
authorized to issue from 20,000,000 shares to
50,000,000 shares, and to adopt certain
amendments designed to ensure the Company'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. The maritime law-
related amendments limit the aggregate
percentage ownership of the Company's capital
stock, including common stock, by non-U.S.
citizens to 23% of the outstanding shares of the
Company's capital stock and no more than 23% of
the voting power of the Company. In addition,
these amendments give the Company's Board of
F-15
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
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 the Company
to be in violation of U.S. maritime laws.
The Credit Agreement governing the new senior
credit facility provides for (i) a revolving
credit facility under which Lower Lakes may
borrow up to Cdn $2,300,000 (approximately
$1,973,000 at December 31, 2005) and an
additional seasonal facility of $2,000,000,
subject to limitations, (ii) a revolving credit
facility under which LLT may borrow up to
$3,500,000 and an additional seasonal facility
of $2,000,000, subject to limitations, (iii) a
Canadian dollar denominated term loan facility
under which Lower Lakes may borrow Cdn
$21,200,000 (approximately $18,189,000 at
December 31, 2005), and (iv) a US dollar
denominated term loan facility under which Grand
River may borrow $4,000,000. Borrowings under
the new senior credit facility are required to
be used to refinance the borrowers' existing
senior credit facility, to finance working
capital and for the acquisition of the stock of
the borrowers and other general corporate
purposes. The full amount of both term loans was
extended to the borrowers on March 3, 2006. Rand
is neither a party to the Credit Agreement nor a
guarantor of any obligations under the Credit
Agreement.
Under the new senior credit facility, the
revolving credit facility expires on March 3,
2011. The outstanding principal amount of the
Canadian term loan borrowings will be repayable
as follows: (i) an aggregate of Cdn $2,120,000
(approximately $1,819,000 at December 31, 2005)
per annum shall be payable in four equal
quarterly installments during the first year,
(ii) an aggregate of Cdn $2,544,000
(approximately $2,183,000 at December 31, 2005)
shall be payable in four equal quarterly
installments in each of the next four years, and
(iii) a final payment in the outstanding
principal amount of the Canadian term loan shall
be payable upon the Canadian term loan
facility's maturity on March 3, 2011. The
outstanding principal amount of the US term loan
borrowings will be repayable as follows: (i) an
aggregate of $400,000 per annum shall be payable
in four equal quarterly installments during the
first year, (ii) an aggregate of $480,000 per
annum shall be payable in four equal quarterly
installments in each of the next four years, and
(iii) a final payment in the outstanding
principal amount of the US term loan shall be
payable upon the US term loan facility's
maturity on March 3, 2011.
F-16
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
Borrowings under the Canadian revolving credit
facility and Canadian term loan will bear an
interest rate per annum, at the borrowers'
option, equal to (i) the Canadian Prime Rate (as
defined in the new senior credit facility), plus
2% per annum or (ii) the BA Rate (as defined in
the new senior credit facility) plus 3% per
annum. The US revolving credit facility and the
US term loan will bear interest, at the
borrowers' option equal to (i) LIBOR (as defined
in the new senior credit facility) plus 3.00%
per annum, or (ii) the US Base Rate(as defined
in the new senior credit facility), plus 2% per
annum.
Obligations under the new senior credit facility
are secured by a first priority lien and
security interest on all of the borrowers'
assets, tangible or intangible, real, personal
or mixed, existing and newly acquired, and a
pledge by Rand LL Holdings Corp of all of the
outstanding capital stock of the borrowers. In
addition, all obligations under the new senior
credit facility will also be secured by a
pledge, with limited exception, of all the
outstanding capital stock of the borrowers'
subsidiaries. The indebtedness of each borrower
under the new credit facility is unconditionally
guarantied by each other borrower and by Rand LL
Holdings Corp. and such guaranty is secured by a
lien on substantially all of the assets of each
borrower and Rand LL Holdings Corp.
Under the new senior credit facility, the
borrowers will be required to make mandatory
prepayments of principal on term loan borrowings
(i) if the outstanding balance of the term loans
plus the outstanding balance of the seasonal
facilities exceeds the sum of 75% of the fair
market value of the vessels owned by the
borrowers, less the amount of outstanding liens
against the vessels with priority over the
Lenders' liens, in an amount equal to such
excess, (ii) in the event of certain
dispositions of assets and insurance proceeds
(all subject to certain exceptions), in an
amount equal to 100% of the net proceeds
received by the borrowers therefrom, and (iii)
in an amount equal to 100% of the net proceeds
to a borrower from any issuance of a borrower's
debt or equity securities.
The new senior credit facility contains certain
covenants, including those limiting borrowers'
and their subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire
assets or businesses, change the nature or its
business, engage in transactions with related
parties, make certain investments or pay
dividends. In addition, the new senior credit
facility requires the borrowers to maintain
certain financial ratios. Failure of the
borrowers to comply with any of these covenants
or financial ratios could result in the loans
under the new senior credit facility being
accelerated.
F-17
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
The Company is in the process of allocating the
purchase price to the tangible and intangible
assets and liabilities as of the date of the
acquisition. The preliminary estimate of
goodwill in the acquisition is approximately $11
million.
In connection with the Lower Lakes acquisition,
the Company entered into employment agreements
with two employees. The employee agreements are
for an initial period of two years in the
aggregate amounts of Cdn $353,000 (approximately
$303,000 at December 31, 2005) per year, plus
bonuses, under terms defined in the employment
agreements.
F-18
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
The following unaudited pro forma condensed consolidated balance sheet
combines the historical balance sheets of Lower Lakes and Rand as of December
31, 2005, giving effect to the transactions described in the Stock Purchase
Agreement as if they had occurred on December 31, 2005.
Pro Forma
Combined
ASSETS
CURRENT
Cash and cash reserved
for repairs and drydock
expenditures $ 5,965,994
Accounts receivable, net 8,125,659
Prepaid expenses and other
current assets 2,365,211
Investments held in trust
Deferred income taxes 123,378
-------------------------------------------------------------------------------
16,580,242
CAPITAL ASSETS, NET 37,490,439
DEFERRED INCOME TAXES 5,335,159
DEFERRED ACQUISITION COSTS --
DEFERRED DRYDOCK AND FINANCING
COSTS, NET 5,679,051
INTANGIBLE ASSETS 11,068,837
-------------------------------------------------------------------------------
$ 76,153,728
===============================================================================
LIABILITIES
CURRENT $ 10,532,637
|
LONG-TERM DEBT
Long-term debt - senior and
subordinated 20,236,142
Long-term obligation - vessel
lease 1,758,132
Deferred income taxes 5,183,537
Common stock subject to
conversion --
Convertible notes --
-------------------------------------------------------------------------------
27,177,811
-------------------------------------------------------------------------------
MINORITY INTEREST --
-------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Convertible preferred
shares 14,500,000
Common stock par value 560
Share capital
Due from shareholder --
Additional paid in capital 24,629,291
Accumulated deficit (686,571)
Accumulated other
comprehensive loss --
-------------------------------------------------------------------------------
38,443,280
-------------------------------------------------------------------------------
$ 76,153,728
===============================================================================
|
F-19
Rand Logistics, Inc. and Subsidiaries
(formerly Rand Acquisition Corporation)
Notes to Financial Statements
The following unaudited pro forma condensed consolidated statements of
operations combine (i) the historical statement of operations of Rand for the
twelve months ended December 31, 2005 and the historical statement of operations
of Lower Lakes for the twelve months ended December 31, 2005 giving effect to
the acquisition as if it had occurred on January 1, 2005.
Pro Forma
Combined
--------------
REVENUE $ 61,240,535
----------------------------------------------------------------------------
EXPENSES
Outside voyage charter fees 7,379,638
Vessel operating expenses 40,628,366
Winter costs 1,625,671
Administration 3,276,188
Depreciation 3,939,420
Amortization of deferred drydock 1,033,339
costs
Foreign exchange gain (276,251)
Loss on asset disposal 113,405
----------------------------------------------------------------------------
57,719,776
----------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 3,520,759
----------------------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest 1,996,750
Other income (598,018)
Loss on debt extinguishment 52,130
Amortization of deferred financing costs 864,264
----------------------------------------------------------------------------
2,315,126
----------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST 1,205,633
----------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 750,433
MINORITY INTEREST --
----------------------------------------------------------------------------
NET INCOME $ 455,200
----------------------------------------------------------------------------
Pro forma net income (loss) per share:
Pro forma weighted average outstanding shares - basic and
diluted 5,600,000
--------------
Pro forma net loss per share $ (0.13)(a)
--------------
(a) There is a pro forma loss per share due to the effect of convertible
preferred stock dividends.
|
F-20
Exhibit 21
Subsidiaries of Rand
-----------------------------------------------------------------------------------------------------------
Name of Subsidiary State or other jurisdiction of Names under which such subsidiaries
incorporation or organization do business
-----------------------------------------------------------------------------------------------------------
Rand LL Holdings Corp. Delaware Rand LL Holdings Corp.
-----------------------------------------------------------------------------------------------------------
Lower Lakes Towing Ltd. Canada Lower Lakes Towing Ltd.
-----------------------------------------------------------------------------------------------------------
Lower Lakes Transportation Company Delaware Lower Lakes Transportation Company
-----------------------------------------------------------------------------------------------------------
Grand River Navigation Ltd. Delaware Grand River Navigation Ltd.;
GR Nav. (Name used in Michigan)
-----------------------------------------------------------------------------------------------------------
Port Dover Steamship Company Inc. Canada Port Dover Steamship Company Inc.
-----------------------------------------------------------------------------------------------------------
|
Exhibit 31
FORM OF CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATIONS
I, Laurence S. Levy, certify that:
1. I have reviewed this annual report on Form 10-KSB of Rand Acquisition
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report
is being prepared;
(b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability
to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: March 31, 2006
/s/ Laurence S. Levy
---------------------------------
Name: Laurence S. Levy
Title: Chairman of the Board and
Chief Executive Officer
|
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Rand Logistics Inc. (the "Company") on
Form 10-KSB for the period ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned, in
the capacity and on the date indicated below, hereby certifies pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
March 31, 2006 By: /s/ Laurence S. Levy
-----------------------------
Laurence S. Levy
Chairman of the Board and
Chief Executive Officer
|
Exhibit 99.1
In addition to other information included in this report, the following factors
should be considered in evaluating our business and future prospects.
Risks Associated with our Business
Our business is dependent upon key personnel whose loss may adversely impact our
business.
We depend on the expertise, experience and continued services of Lower
Lakes' 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 our business. We seek to compensate and incentivize executives,
as well as other employees, through competitive salaries and bonus plans, but
there can be no assurance that these programs will allow us to retain key
employees or hire new key employees. As a result, if Bravener were to leave
Lower Lakes, we 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.
Our officers and directors may allocate their time to other businesses thereby
causing conflicts of interest in their determination as to how much time to
devote to our affairs.
Our officers and directors are not required to commit their full time to
our affairs, which may result in a conflict of interest in allocating their time
between our operations and other businesses. Laurence S. Levy, our sole
executive officer, is engaged in several other business endeavors and is not
obligated to contribute any specific number of hours per week to our affairs.
Some of our officers and directors may have conflicts of interest in business
opportunities.
Some of our officers and directors may become aware of business
opportunities which may be appropriate for presentation to us as well as the
other entities with which they are or may be affiliated. Each of Laurence S.
Levy, our chairman of the board and chief executive officer, and Isaac Kier, one
of our directors, has contractual obligations that require them to present
appropriate business opportunities to other entities prior to presenting them to
us for our consideration. Additionally, due to our officers' and directors'
existing affiliations with other entities, they may have fiduciary obligations
to present potential business opportunities to those entities in addition to
presenting them to us which could cause additional conflicts of interest.
Accordingly, they may have conflicts of interest in determining to which entity
a particular business opportunity should be presented. For example, Mr. Levy has
a pre-existing contractual and fiduciary obligation to Ozburn-Hessey Logistics,
LLC, of which he is a director and consultant. Mr. Levy's contractual
obligations include limiting his ability to present to us potential business
combination partners in certain industries that we intend to focus on. Mr. Kier
has a pre-existing contractual and fiduciary obligation to Tremisis Energy
Acquisition Corporation, a blank check company seeking to acquire an operating
business in either the energy or environmental industries and their related
infrastructures.
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.
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 our business.
In order to fund Lower Lakes' capital expenditures, we may be required to
incur borrowings or raise capital through the sale of debt or equity securities.
Our ability to access the capital markets for future offerings may be limited by
our 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. Our
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 our 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.
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). We 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 we believe are standard
in the shipping industry, may nevertheless increase its costs.
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 us 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, we are subject to credit risks at various
levels, including with charterers, cargo interests, or terminal customers. If
the counterparties fail to meet their obligations, Lower Lakes could suffer
losses on such contracts which would decrease our 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 of
Lower Lakes under its new senior credit facility bears 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
our 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 our results of operations.
Servicing debt could limit funds available for other purposes, such as the
payment of dividends.
Lower Lakes will use cash to pay the principal and interest on its debt as
well as to fund required reserves for future capital expenditures. These
payments limit funds otherwise available for other purposes, including
distributions of cash to our stockholders.
Lower Lakes' loan agreements contain restrictive covenants that will limit its
liquidity and corporate activities.
Lower Lakes' loan agreements impose operating and financial restrictions
that limit Lower Lakes' ability to:
o incur additional indebtedness;
o create additional liens on its assets;
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 us 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 our 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. Any work
stoppages or other labor disturbances could have a material adverse effect on
our 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 we believe 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 our 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.
Restriction on foreign ownership and possible required divestiture of stock.
Under U.S. maritime laws, in order for us to maintain our eligibility to
own and operate vessels in the U.S. domestic trade, 75% of our outstanding
capital stock and voting power is required to be held by U.S. citizens. Although
our amended and restated certificate of incorporation will contain provisions
limiting non-citizenship ownership of our capital stock, we 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 our result of operations. If our
board of directors determines that persons who are not citizens of the U.S. own
more than 23% of our outstanding capital stock or more than 23% of our voting
power, we may redeem such stock or, if redemption is not permitted by applicable
law or if our board of directors, in its discretion, elects not to make such
redemption, we 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 our
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.
Our outstanding warrants may have an adverse effect on the market price of
common stock and make it more difficult to obtain future public financing.
We currently have outstanding warrants to purchase 9,200,000 shares of
common stock and an option to purchase 300,000 shares of common stock and
warrants to purchase an additional 600,000 shares of common stock. The sale, or
even the possibility of sale, of the shares underlying the warrants and options
could have an adverse effect on the market price for our securities or on our
ability to obtain future public financing. If and to the extent these warrants
and options are exercised, you may experience dilution to your holdings.
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.
If our founding officers and directors exercise their registration rights, it
may have an adverse effect on the market price our common stock.
Our founding officers and directors and their affiliates and associates to
whom shares of our common stock were issued prior to our initial public offering
are entitled to demand that we register the resale of their shares of common
stock at any time after the date on which their shares are released from escrow.
If our founders exercise their registration rights with respect to all of their
shares of common stock, then there will be an additional 1,000,000 shares of
common stock eligible for trading in the public market. The presence of this
additional number of shares of common stock eligible for trading in the public
market may have an adverse effect on the market price of our common stock.
Our securities are quoted on the OTC Bulletin Board, which limits the liquidity
and price of our securities.
Our securities are traded on the OTC Bulletin Board, an NASD-sponsored and
operated inter-dealer automated quotation system for equity securities not
included on The Nasdaq Stock Market. Quotation of our securities on the OTC
Bulletin Board limits the liquidity and price of our securities more than if our
securities were quoted or listed on The Nasdaq Stock Market or a national
exchange.
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;
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.
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, 2005, the average age of the vessels operated by Lower
Lakes was approximately 60 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
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
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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