46 C.F.R. Appendix II to Part 390 – Sample Capital Construction Fund Agreement

[Contract No. MA/CCF—]

capital construction fund agreement with

This Capital Construction Fund Agreement (“Agreement”), made on the date hereinafter set forth, by and between the United States of America, represented by the Maritime Administrator, Department of Transportation (“Maritime Administrator”), and ______, a corporation organized and existing under the laws of the State of ______ (“Party”), a citizen of the United States of America.

Whereas: 1. The Party has applied for the establishment of a Capital Construction Fund (“Fund”) under section 607 of the Merchant Marine Act, 1936, as amended (“Act”);

2. The Party is the owner or lessee or has contracted for the construction of one or more eligible vessels as defined in 46 U.S.C. 53501, which vessels are listed in Schedule A hereof;

3. The Party has a program for the construction or acquisition of qualified agreement vessels as defined in 46 U.S.C. 53501, which program is described in Schedule B hereof;

4. The Maritime Administrator and the Party desire to enter into an Agreement for the purpose of providing replacement vessels, additional vessels, or reconstruction vessels, built in the United States and documented under the laws of the United States for operation in the United States foreign, Great Lakes, or noncontiguous domestic trade;

5. The Maritime Administrator has determined that the Party qualifies for an Agreement under the Act; and

6. The Maritime Administrator has authorized the award of an Agreement upon the terms and conditions set forth herein subject to the Act, as it may be amended from time to time, and such rules and regulations as shall be prescribed by the Secretary of Transportation or his delegate, either alone or jointly with the Secretary of the Treasury, as necessary to carry out the powers, duties, and functions vested in them by the Act (“rules and regulations”).

Now, therefore in consideration of the premises the Maritime Administrator and the Party hereby agree as follows:

1. Establishment of a Fund: (A) A Fund is hereby established for the purposes set forth in Article 2 hereof, pursuant to such terms and conditions as shall be prescribed in this Agreement, the Act, or the rules and regulations.

(B) The Fund shall be established in the depositories listed in Schedule C hereof.
2. Purpose of the Fund: The Fund established hereunder shall be utilized to provide for replacement vessels, additional vessels, or reconstructed vessels, built in the United States and documented under the laws of the United States for operation in the United States foreign, Great Lakes, or noncontiguous domestic trade, and to provide for qualified withdrawals to achieve the program set forth in Schedule B hereof.
3. Term of the Agreement: This Agreement shall be effective on the date of execution by the Maritime Administrator and shall continue until terminated under Article 4.
4. Termination of Agreement: (A) This Agreement may be terminated at any time under any of the following circumstances:
(1) Upon written mutual agreement by the parties;
(2) Upon written notice by the Party that a change has been made in the rules and regulations which would have a substantial effect upon the rights or obligations of the Party.
(B) This Agreement shall terminate upon completion of the program as set forth in Schedule B hereof.
(C) Upon termination of this Agreement pursuant to paragraphs (A) and/or (B) hereof all amounts remaining in the Fund shall be treated as if withdrawn in a nonqualified withdrawal (as that term is defined in the Act and the rules and regulations) on the date of termination of this Agreement.
5. Deposits to be made into the Fund: (A) Subject to any restrictions contained in the Act, the rules and regulations, or this Agreement, the Party may deposit, for each taxable year to which this Agreement applies, amounts representing:
(1) Taxable income attributable to the operation of the vessels listed in Schedule A or B hereof;
(2) The depreciation allowable under section 167 of the Internal Revenue Code of 1986, on the vessels listed in Schedule A or B hereof;
(3) The net proceeds from the sale or other disposition of any of the vessels listed in Schedule A or B hereof; and
(4) The net proceeds from insurance or indemnity attributable to the vessels listed in Schedule A or B hereof.
(B) The Party shall deposit for each taxable year to which this Agreement applies:
(1) All receipts from the investment or reinvestment of amounts held in the Fund, except that the Party shall not be permitted to deposit more than is necessary to complete its program set out in Schedule B hereof; and
(2) The net proceeds from the mortgage of any vessel listed in Schedule B hereof for which qualified withdrawals from the Fund have been made.
(C) Notwithstanding anything in paragraph (A) or (B) hereof to the contrary, the Party shall make the minimum deposits set forth in Schedule D hereof at the time and in such amounts as may be set forth therein. The Party specifically agrees to deposit up to one hundred percent of allowable taxable income attributable to the operation of agreement vessels in order to meet its obligations under this paragraph.
(D) In the event that any leased vessel listed in Schedule A hereof is included in another capital construction fund agreement, the maximum amount of depreciation which the Party may deposit in respect to that vessel shall be calculated by using the allowable percentage of the depreciation ceiling listed for that vessel in Schedule A hereof.
6. Withdrawals from the Fund: (A) The Party may make such qualified withdrawals (as that term is defined in the Act and the rules and regulations) as shall be necessary to fulfill the obligations set forth in Schedule B hereof. Any such qualified withdrawal may be made without the consent of the Maritime Administrator, except as required by the rules and regulations.
(B) Any other withdrawal from the Fund shall be made only upon the prior written consent of the Maritime Administrator, as required by the rules and regulations.
7. Investment of the Fund: (A) The Party, at its discretion, may invest assets held in the Fund in accordance with the Act and the rules and regulations.
(B) The Party agrees that when investing assets held in the Fund to make such investments as will insure that sufficient cash is available at the time qualified withdrawals are required in accordance with the program described in Schedule B hereof.
8. Pledges, Assignments and Transfers: (A) The Party agrees not to assign, pledge or otherwise encumber, either directly or indirectly or through any reorganization, merger, or consolidation, all or any part of this Agreement, the Fund, or any assets in the Fund without the prior written consent of the Maritime Administrator; Provided, however, The Party may transfer the assets of the Fund, in whole or in part, to an investment trustee, as provided in the rules and regulations.
(B) The Party shall not obligate any assets in the Fund as a compensating balance.
(C) The Party may not sell, transfer or otherwise dispose of any vessel, or part thereof, described in Schedule B hereof without the prior written consent of the Maritime Administrator.
9. Records and Reports: (A) The Party and each affiliate, domestic agent, subsidiary or holding company connected with, or directly or indirectly controlling or controlled by the Party shall keep its books, records, and accounts relating to the maintenance, operation, servicing of the vessel(s) and/or service(s) covered by this Agreement in such form as may be prescribed by the Maritime Administrator under the rules and regulations.
(B) The Maritime Administrator agrees not to require the duplication of books, records and accounts required to be kept in some other form by the Interstate Commerce Commission or the Secretary of the Treasury, so long as the information required in paragraph (A) hereof is made available to the Maritime Administrator.
(C) The Party agrees to file, upon notice from the Maritime Administrator, balance sheets, profit and loss statements, and such other statements of financial operations, special reports, charters, ships' logs, memoranda of facts and transactions, as in the opinion of the Maritime Administrator may affect the Party's performance under this Agreement.
(D) The Maritime Administrator may require by regulation that any of such statements, reports and memoranda shall be certified by independent certified public accountants acceptable to the Maritime Administrator.
(E) The Maritime Administrator may require the Party to establish and maintain systems of control of expenses and revenues in connection with the operation of the agreement vessel(s).
(F) The Party agrees to submit promptly to the Maritime Administrator any contract executed in connection with the program described in Schedule B hereof.
(G) The Maritime Administrator is hereby authorized to examine and audit the books, records, and accounts of all persons referred to in this Article whenever he may deem it necessary or desirable.
10. Modification and Amendment: This Agreement may be modified or amended at any time by mutual written consent.
11. Incorporation of Schedules: The attached Schedules A, B, C, and D are incorporated into and made a part of this Agreement.
12. Liquidated Damages: (A) In the event that the Party operates any qualified agreement vessel described in Schedule B hereof in geographic trades other than those permitted by 46 U.S.C. 53501 et seq, this Agreement, and/or the rules and regulations, the Party shall pay to the United States an amount of liquidated damages for each day of such impermissible geographic trading which shall constitute the time value of the deferral of Federal income tax which the Party has received. The amount shall be calculated in accordance with the rules and regulations.
(B) The Party agrees to pay the daily rate of liquidated damages to the Maritime Administrator, for deposit in the Treasury of the United States, within the time limits provided for in the rules and regulations.
(C) Nothing in this Article shall in any way be construed to diminish or waive any of the Maritime Administrator's other remedies for breach under the Act, the Agreement, or the rules and regulations.
(D) Notwithstanding the fact that the Agreement may be terminated pursuant to the provisions of Article 4 hereof, or otherwise, the provisions of this Article 12 shall continue in effect as follows:
(1) In the case of a vessel constructed or acquired within one year of final delivery from the shipyard after construction with the aid of qualified withdrawals, for a period of twenty (20) years from the date of such vessel's final delivery;
(2) In the case of a vessel reconstructed or acquired more than one year after final delivery from the shipyard after construction with the aid of qualified withdrawals, for a period of ten (10) years from the date of such vessel's final delivery from the shipyard after reconstruction or the date of such vessel's acquisition; and

(3) In the case of a vessel included in Schedule B hereof as a qualified agreement vessel in regard to which qualified withdrawals from the Fund have been made to pay existing indebtedness, for a period of ten (10) years from the date of the first qualified withdrawal in regard to such vessel, Provided, however, That if such vessel was more than fifteen (15) years old on the date of the first qualified withdrawal in regard thereto, such conditions shall continue for a period of five (5) years in regard to such vessel.

13. Warranties and Representations by the Party: The Party hereby warrants and represents that:

(A) The Party is a citizen of the United States within the meaning of section 2 of the Shipping Act, 1916, as amended, and will continue to be so for the term of this Agreement. The Party agrees that, each year, within thirty (30) days after the annual meeting of its stockholders, it shall file a supplemental affidavit as evidence of its continuing United States citizenship, provided that any changes in data last furnished with respect to officers, directors, and stockholders holding five percent or more of the issued and outstanding stock of each class or series which would result in a loss of the Party's status as a United States citizen shall be promptly reported to the Maritime Administrator.
(B) The Party owns, is the lessee, or has contracted for the construction of one or more eligible vessels (within the meaning of 46 U.S.C. 53501) as listed in Schedule A hereof.
(C) The qualified vessels described in Schedule B hereof: (1) Were or will be constructed or reconstructed in the United States, except as provided in the Act and the rules and regulations;
(2) Are or will be documented under the laws of the United States and will continue to remain so documented; and
(3) Will be operated in the foreign, Great Lakes or noncontiguous domestic trade of the United States within the meaning of the Act and the rules and regulations
(D) The Party will meet its deposit obligations as agreed upon in Article 5 of this Agreement.
(E) The Party will promptly inform the Maritime Administrator, in writing, of any change in circumstances which would tend to adversely affect the ability of the Party to carry out its obligations under the Agreement.
(F) The Party will faithfully conform to all rules and regulations governing the Agreement and the Fund.
(G) Nothing of monetary value has been improperly given, promised, or implied for entering into this Agreement. The Party further warrants that no improper personal, political or other activities have been used or attempted in an effort to influence the outcome of the discussions or negotiations leading to the award of this Agreement. Breach of this warranty shall constitute an event of default for which the Maritime Administrator shall have the right, notwithstanding Article 4, to terminate this Agreement without liability to the United States.
14. Default in Obligations: (A) If the Maritime Administrator determines that any substantial obligation under this Agreement is not being fulfilled by the Party, he may, under the rules and regulations and after the Party has been given notice and an opportunity to be heard, declare a breach and treat the entire Fund, or any portion thereof, as an amount withdrawn in a nonqualified withdrawal.
(B) The Maritime Administrator shall provide an opportunity for the Party to cure a breach declared pursuant to Paragraph (A) of this Article 14.
(C) Events of breach by the Party shall include, but shall not be limited to: (1) Failure in any respect to use due diligence in performing the program set forth in Schedule B hereof;
(2) Obligating the assets in the Fund as a compensating balance;
(3) Failure to make deposits required in Schedule D hereof;
(4) Failure to secure written permission from the Maritime Administrator when such permission is required by the rules and regulations;
(5) Failure to submit reports and/or records on a timely basis as provided in Article 9 hereof;
(6) Any material misrepresentation made by the Party or any failure by the Party to disclose material information in connection with this Agreement whether before or after execution hereof and whether made in an application, report, affidavit, or otherwise; or

(7) Failure by the Party to comply with any provisions of 46 U.S.C. 53501 et seq, the rules and regulations, or this Agreement.

15. Extension of Federal Income Tax Benefits: The Maritime Administrator agrees that the Federal income tax benefits provided in the Act and the rules and regulations shall be available to the Party if the Party shall carry out its obligations under this Agreement.

United States of America, Maritime Administrator, Department of Transportation

(Seal)

Attest:

By __________

(Secretary)

(Seal)

By __________

(Secretary)

Attest:

(Contracting Officer)

(Secretary)

Approved as to form: (Date of Execution)

______ By ______

(Assistant General (President)

Counsel, Maritime

Administration)

XYZ Co—Schedule A—Eligible Agreement Vessels
(a)	(b)	(c)	(d)	(e)
Name of vessel	Specific type	Capacity	Owned or leased and owner is leased	Date and place constructed
SS Smith, official No. 236425.	Tanker	56,000 dwt	Leased: ABC Ships, Inc., San Diego, Calif., 50 percent of depreciation ceiling	1962, American Steel, San Francisco, Calif.
SS Brown, official No. 325111	......do	265,000 dwt	Owned	1974, Southern Shipyards, Mobile, Ala.
SS Jones, official No. 190528.	Container ship	30,000 dwt, 500 400-ft containers	......do	1954, Bond Shipyard, New York, N.Y.
Hercules, official No. 256,125	Oceangoing tugboat	105 ft 2,000 hp	......do	1968, Washington Iron Works, Seattle, Wash.
XYZ-1, official No. 257,164	Roll-on, roll-off barge	1,200 gr ton, 45 40-ft containers	......do	1968, Washington Iron Works, Seattle, Wash.
XYZ-2, official No. 260,138	......do	......do	......do	1969, Washington Iron Works, Seattle, Wash.
OTC-35, official No. 262,170	......do	1,500 gr ton, 60 40-ft containers	Leased; Oregon Towing Co., Portland, Oreg., 100 percent of depreciation ceiling	1969, J. & J. Shipyard, Portland, Oreg.
200 trailers, Nos. 111032-A-10677B-1M through 11032-A-10877B-1M	Dry cargo	40 ft	Leased; International Leasing Co., New York, N.Y. 0 percent of depreciation ceiling	1968, Acme Container Corp., New York, N.Y.
1,500 containers, Nos. 312 A through 1312 A.	Refrigerated dry cargo.	......do	Owned	1969, Aluminum Products, Inc., Dallas, Tex.

XYZ Co—Schedule A—Eligible Agreement Vessels (Continued)
	(f)	(g)	(h)	(i)
	Date and place reconstructed	Date documented	Area of operation	Details of service
SS Smith, official No. 236425	Not available	1962	Noncontiguous domestic trade	Carriage of crude oil from Valdez, Alaska, to west coast of the continental United States.
SS Brown, official No. 325111	......do	1974	U.S. foreign trade	Worldwide carriage of crude oil.
SS Jones, official No. 190528	1970, Litton Systems, Mississippi	1954	U.S. foreign and noncontiguous trade	Container service between Japan and California via Hawaii.
Hercules, official No. 256,125	Not available	1968	Domestic	Towing roll-on, roll-off barges from Puget Sound to San Francisco.
XYZ-1, official No. 257,164	......do	1968	......do	Carriage of trailer type containers between Puget Sound and San Francisco.
XYZ-2, official No. 260,138	......do	1969	......do	Do.
OTC-35, official No. 262,170	......do	1969	......do	Do.
200 trailers, Nos. 111032-A-10677B-1M through 11032-A-10877B-1M	......do	NA	......do	For use on Barges XYZ-1, XYZ-2, and OTC-35.
1,500 containers, Nos. 312 A through 1312 A.	......do	NA	U.S. foreign noncontiguous domestic trade	For use as complement of SS Jones.

XYZ Co., Program Objectives—I. Acquisition or Construction of Vessels
Vessel name, and official number	General characteristics	Approximate cost	Amount to be withdrawn from fund	Approximate date of—	Anticipated area of operation
Contract	Delivery

XYZ Co., Program Objectives—II. Reconstruction of Vessels
Vessel name, and official number	General characteristics	Approximate cost	Amount to be withdrawn from fund	Approximate date of—	Anticipated area of operation
Contract	Delivery

XYZ Co., Program Objectives—III. Payment of Principal on Existing Indebtedness
Vessel name and official number	Purpose of indebtedness	Amount to be paid from fund

XYZ Co., Schedule C—Depositories for Capital Construction Fund
Name	Address
1. First American Bank checking account	2001 Park Ave., San Francisco, Calif. 94109.
2. Southern California National Bank investment trustee established pursuant to sec. 390.7 of the SOC regulations	1 Waterfront Place, San Francisco, Calif. 94101.

XYZ Co. Schedule D—Minimum Deposits[In thousands]
Taxable year	Ordinary income	Net proceeds	Fund interest	Depreciation	Total
1973 to 1975	$3,150	1 $2,400	$250		$5,800
1976 to 1978	2,900	2 1,500	325		4,725
1979 to 1981	3,000		350	85	3,435
1982 to 1984	2,800		74	125	3,000
1985 to 1987	2,850		90	60	3,000
1988 to 1990	2,900		100		3,000
1991 to 1993	3,000		100		3,100
1994 to 1996	3,100		110		3,210
1997 to 1999	3,250		120		3,370
2000	3,200		120		3,320
Total					35,960
1 Net proceeds from sale of barges XYZ-1 and XYZ-2 for $1,200,000 each.
2 Net proceeds from sale of tug Hercules.

[41 FR 4265, Jan. 29, 1976, as amended at 42 FR 43632, Aug. 30, 1977; 74 FR 17097, Apr. 14, 2009]