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Reserve Fund-Common Stock Trust shall have the following powers and duties in addition to those described in subparagraph (6) of this paragraph:

(i) To hold any accumulated income of the Capital Reserve Fund-Common Stock Trust as well as amount of common stock transferred to such Trust from the Special Reserve Fund-Common Stock Trust, for the purpose of investing and reinvesting in common stocks as specified in subparagraph (6) (i) of this paragraph.

(ii) Upon reasonable notice in writing signed by the Administrator and the Operator, to pay to the Capital Reserve Fund from the principal and/or accumulated income of the Trust such amount or amounts, in cash, as the Administrator and the Operator direct.

(iii) If, pursuant to the terms of the Common Stock Trust Agreement, the Trust terminates or is revoked by the Administrator, to reduce the principal and accumulated income to cash and to pay such cash to the Capital Reserve Fund in the amount or amounts and within such period of time as the Administrator and the Operator direct. In the event of such termination or revocation, or in the event of the resignation or removal of a Trustee, to supply a statement reporting the information required under subparagraph (6) (vii) of this paragraph with copies distributed as provided therein.

(8) Additional powers and duties of Trustee; Special Reserve Fund-Common Stock Trust. The Trustee of the Special Reserve Fund-Common Stock Trust shall have the following powers and duties in addition to those described in subparagraph (6) of this paragraph:

(i) Upon reasonable notice in writing signed by the Administrator and the Operator, to pay to the Special Reserve Fund from the principal of the Trust such amount or amounts, in cash, as the Administrator and the Operator direct.

(ii) To pay the entire income of the Trust (which income shall not be invested or reinvested by the Trustee of the Special Reserve Fund-Common Stock Trust) from time to time, but at least monthly, to the Capital Reserve FundCommon Stock Trust, or if there be no such Trust at the time then to pay to the Capital Reserve Fund such amount or amounts as the Administrator and the Operator direct.

(iii) After the Administrator advises the Trustee that a statutory and/or con

tractual recapture period under the Operator's Operating-Differential Subsidy Agreement has terminated, to transfer from the Trust, to the extent such amount is in the Trust, an amount determined by the Administrator to be equal to the sum of the value of (a) the net capital gains made (whether realized or not), (b) the stock dividends declared and (c) the rights to purchase stock issued to the Trust; all made, declared and/or issued during such recapture period:

(1) In cash or in stock to the Capital Reserve Fund-Common Stock Trust; or

(2) In cash, if there be no Capital Reserve Fund-Common Stock Trust, to the Capital Reserve Fund in the amount or amounts as the Administrator and the Operator direct.

(iv) If, pursuant to the terms of the Common Stock Trust Agreement, the Trust terminates or is revoked by the Administrator, to reduce the principal to cash and to pay such cash to the Special Reserve Fund in the amount or amounts and within such period of time as the Administrator and the Operator direct. In the event of such termination or revocation, or in the event of the resignation or removal of a Trustee, to supply a statement reporting the information required under subparagraph (6) (vii) of this paragraph with copies distributed as provided therein.

(v) To render, at such time as the Administrator advises the Trustee that a statutory and/or contractual recapture period under the Operator's OperatingDifferential Subsidy Agreement has terminated, a statement of the Special Reserve Fund-Common Stock Trust showing the sum of the value of (a) the net capital gains made (whether realized or not), (b) the stock dividends declared, and (c) the rights to purchase stock issued to the Trust, and showing any other known factor affecting the book value of the investments.

(9) Identification of approved depositories and Trustees. Upon the creation of a Common Stock Trust, the Administrator shall advise the Trustee in writing of (i) the approved depositories in which are maintained Capital Reserve Fund Joint Account or Accounts and the Special Reserve Fund Joint Account or Accounts in the name of the Maritime Administration and the Operator, and (ii) in the event there is in existence a Common Stock Trust, the identity of the Trustee of such existing Common Stock

Trust. The Administrator shall advise the Trustee in writing of any changes in the foregoing.

(10) Modification от alteration of Trust Agreement. The Administrator and the Operator may by mutual agreement modify or alter the Trust Agreement as to all or any part of the Trust Agreement without the consent of the Trustee upon ten days (excluding Saturdays, Sundays and national holidays) notice in writing to the Trustee; except as to the Trustee's compensation, which shall only be changed by mutual consent of all parties to the Trust Agreement.

(11) Examination of Trustee's records. The Administrator and the Operator shall have access to and the right to examine and make photostatic or other copies of any books, documents, papers and/or records of the Trustee involving transactions related to the Trust.

(12) Resignation or removal of the Trustee. Any Trustee may resign at any time by giving sixty days (excluding Saturdays, Sundays, and national holidays) notice in writing to the Administrator and the Operator. The Administrator and the Operator acting jointly may remove any Trustee at any time after giving thirty days (excluding Saturdays, Sundays and national holidays) notice in writing. In the case of the resignation or removal of any Trustee the Operator shall with the prior written approval of the Administrator appoint a successor Trustee and the predecessor Trustee shall at the direction of the Administrator forthwith transfer and deliver the trust fund in its entirety to such successor Trustee.

(13) Statements required from the Operator. The Operator shall render semiannually to the Administrator within thirty days after the close of each calendar half year, a report, in duplicate, of the Capital Reserve Fund-Common Stock Trust and/or Special Reserve Fund-Common Stock Trust consisting of a detailed list of assets held in the Trust at the end of the period showing the book value and the current market value of the investments, also a summary reporting the total book value of the trust fund at the beginning and at the end of the period, the capital gains or losses realized during the period, and the Trustee's fees paid out o. the principal of the Trust during the period. The original of the report shall be sent to the Administrator, and the duplicate

copy to the District Comptroller, Maritime Administration.

(14) Revocation and termination of the Common Stock Trusts. Any Common Stock Trust (1) may be revoked by the Administrator at any time after notice to the Operator, and an opportunity to be heard, or by the Operator with the prior written or telegraphic approval of the Administrator; and (ii) shall terminate (a) when no longer permitted by law, and (b) immediately upon written notice from the Administrator to the Trustee that the Operator has ceased to be a subsidized operator.

(15) Determination of controlling provisions. If the rules and regulations prescribed in this paragraph should conflict with the provisions of any applicable statute or of a Common Stock Trust Agreement, such provisions shall govern. The resolutions referred to in this section shall be retained in accordance with the provisions of § 380.24 of this chapter. [G.O. 31, 2d Rev., 25 F.R. 3714, Apr. 28, 1960, as amended at 30 F.R. 12356, Sept. 28, 1965] § 286.3 Capital necessarily employed in the business.

(a) Fundamental basis. (1) Capital necessarily employed in the business or capital investment necessarily employed in the operation of the subsidized vessels, services, routes, and lines (such terms hereinafter being referred to as "capital employed") shall be determined upon the basis of the net worth reported by the operator in its balance sheet as at the end of the month preceding the effective date of the agreement (or in the last previous balance sheet deemed by the Maritime Administrator to present fairly the financial position of the operator, but adjusted to take into account subsequent changes in net worth and such other changes as the Maritime Administrator may deem essential to a proper determination of capital employed as at the end of such month), and as at each succeeding December 31 during the effective period of the agreement, adjusted as hereinafter provided. For the purpose of this determination, net worth shall be as stated in the operator's balance sheet, prepared in accordance with the Uniform System of Accounts for Operating-Differential Subsidy Contractors, as adopted by the Maritime Administrator in Part 282 of this chapter. Net worth shall be deemed to include capital stock, capital surplus, and earned surplus: Provided, That cap

ital stock subscribed but not issued as at the date of this determination, or any part thereof, shall be deemed to be so included only from the date on which, and to the extent that, payments are made on account of such subscriptions. The net worth of the operator shall be adjusted to recognize the excess or deficiency of the underlying book value of wholly-owned subsidiary companies as compared with the investment of the operator therein, provided such companies with the prior written approval of the Maritime Administrator, perform services or supply facilities coming within the purview of section 803 of the Merchant Marine Act, 1936, as amended, or the Subsidy Agreement of the operator. Net worth, as thus stated, shall be further adjusted in such manner as the Maritime Administrator may determine to be fair and reasonable, including the elimination of appreciation, adequate statement of the liabilities, and such other adjustments as are consistent with sound accounting principles. the computation of net worth, goodwill and other intangibles not actually acquired for cash or for a consideration determined by the Maritime Administrator to be the equivalent thereof and stock held in treasury shall be excluded, and in instances where, in the judgment of the Maritime Administrator, goodwill and other intangibles were acquired improvidently or at an excessive price, the amount thereof shall be excluded also, or reduced, as the Maritime Administrator may determine.

In

(2) In determining capital employed, based on the net worth of the operator, certain limitations shall be applied as follows:

LIMITATION (1)

CAPITAL RESERVE FUND

Interest Accruals for Deposit in Statutory [Capital] Reserve Funds

The excess, if any, of the sum of the balances in the Capital Reserve Fund and Interest Accruals for Deposit in Statutory [Capital] Reserve Funds accounts (as said accounts are hereinafter defined and after interim adjustments thereof are made as provided under paragraph (d) of this section) over the sum of (1) and (11) as set forth below shall be deemed to be Capital Held in Reserve, and shall not be taken into account in determining capital employed:

(1) The total depreciation, computed in accordance with Part 284 of this chapter, deposited or accrued for deposit in the Capital Reserve Fund on the vessels assigned under the Operating-Differential Subsidy

Agreement at the beginning of the year or other accounting period with respect to which the determination is made.

(11) The amount (exclusive of approved transfers not actually effected) in the Capltal Reserve Fund determined by the Maritime Administrator as being committed by the operator to complete the equity payments (that is, the cost of vessel designs and plans, other capitalizable items, and the sum of progress payments to be made by the operator during the period of construction or reconstruction) (after deduction of any trade-in allowance otherwise allowed for capital employed) of the operator's cost of a vessel, or vessels, covered by a construction, reconstruction, or Construction-Differential Subsidy Agreement, which vessel(s) is (are) to be assigned under an Operating-Differential Subsidy Agreement.

For the purpose of applying this limitation, the aggregate of the balances in the Capital Reserve Fund and Interest Accruals for Deposit in Statutory [Capital] Reserve Funds accounts, as of the date of the balance sheet on which the determination of capital employed is based, shall include only the following:

The sum of

(a) The actual amount on deposit (including securities valued as provided under applicable regulations) in the Capital Reserve Fund of the operator;

(b) The balance of account entitled Interest Accruals for Deposit in Statutory [Capital] Reserve Funds;

(c) All other accrued deposits (except voluntary deposits) into the Capital Reserve Fund as follows:

(1) Accrued depreciation on vessels required to be deposited,

(2) Proceeds from sale or loss of vessels and other amounts which, upon collection, are required to be deposited.

(d) Approved transfers from the Special Reserve Fund;

(e) Less-amounts reflected in the balance sheet (other than Mortgage Notes-Vessels) which are payable from the Capital Reserve Fund and which are excluded from Working Capital for the purpose of determining capital employed.

LIMITATION (2)

SPECIAL RESERVE FUND

Deferred Operating-Differential Subsidy Receivable Less: Recapturable Profits-Maritime Administration

The excess, if any, of the sum of the balances in the Special Reserve Fund and Deferred Operating-Differential Subsidy Receivable account, less the balance in the Recapturable Profits-Maritime Administration account (as hereinafter defined and after interim adjustments provided under paragraph (d) of this section) over five (5) percent of capital employed, computed without regard to the Special Reserve Fund and related accounts as determined in accordance

with this Limitation as at the last day of the recapture period immediately preceding the recapture period current on the effective date of this part and as at the last day of each consecutively succeeding recapture period shall be deemed to be Capital Held in Reserve, and shall not be taken into account in determining capital employed; except that during the initial recapture period of the first of one or more OperatingDifferential Subsidy Agreements, if consecutive and without interval, the sum of the balances in the Special Reserve Fund account and Deferred Operating-Differential Subsidy Receivable account, less the balance in Recapturable Profits-Maritime Administration account, shall be deemed to be Capital Held in Reserve and shall not be taken into account in determining capital employed.

For the purpose of applying this Limitation, the balance in the Special Reserve Fund and related accounts listed below, including accruals, as of the balance sheet date on which the determination of capital employed is based, shall include only the following:

(a) Actual amount on deposit (including securities valued as provided under applicable regulations) in the Special Reserve Fund of the operator;

(b) All accrued mandatory deposits into the Special Reserve Fund;

(c) Less-Approved transfers to the Capital Reserve Fund;

(d) Deferred Operating-Differential Subsidy Receivable;

(e) Less-Recapturable Profits-Maritime Administration.

LIMITATION (3)

ADJUSTED WORKING CAPITAL

The excess, if any, of the balance of AdJusted Working Capital of the operator and its wholly-owned subsidiary companies as of the balance sheet date, after interim adjustments thereof, as provided in paragraph (d) of this section, and allocated to subsidized operations as provided in paragraph (e) of this section, over Limitation of Adjusted Working Capital in subsidized operations, as defined in Limitation (4), shall be deemed to be Capital Held in Reserve in the business and shall not be taken into account in determining capital employed.

For the purpose of applying this Limitation, Adjusted Working Capital shall include only the following accounts defined in Part 282 of this chapter:

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Less: 400-534

495 500

Current liabilities (excluding mort-
gage notes-vessels, and other
liabilities payable from statutory
reserve funds).

Advance ticket sales and deposits.
Unterminated voyage revenue.

The provision for accrued deposits into the statutory reserve funds referred to in Accounts 100-199 hereinabove shall include, but is not limited to, the following:

(1) Accrued depreciation on vessels required to be deposited into the Capital Reserve Fund;

(ii) Proceeds from sale or loss of vessels and other amounts which, upon collection, are required to be deposited into the Capital Reserve Fund;

(iii) All accrued mandatory deposits into the Special Reserve Fund.

LIMITATION (4)

LIMITATION OF ADJUSTED WORKING CAPITAL

Adjusted Working Capital as determined under Limitation (3) shall be allowed as capital employed to the extent of the Total Average Voyage Expenses employed in subsidized operations determined as follows:

Average Voyage Expenses shall be determined on the basis of the actual expenses of operating and maintaining the subsidized vessels (excluding lay-up expenses) for a period represented by the average length of time of all round voyages (excluding lay-up periods) calculated separately for each subsidized service (line). For the purposes of this Limitation, the term "line" shall be deemed to mean those described in Part I of the Operating-Differential Subsidy Agreement, or in instances where the routes or services described therein are not designated as lines, then the trade routes referred to in Part I of the Subsidy Agreement shall for such purposes be deemed to be lines: Provided, That in any event passenger services shall be deemed to be lines separate and distinct from freight services: And provided further, That, in instances where unsubsidized vessels are operated in subsidized services and are subject to the reserve and recapture provisions of the agreement, they shall not be considered as a separate category but shall be included with the subsidized vessels for the line involved.

This determination shall be made in the following manner:

First: By dividing the sum of such expenses for the accounting period involved applicable to the subsidized vessels in each such service (line) by the aggregate number of days (excluding lay-up days) consumed in all voyages of such vessels in each Buch service (line) terminating during such period;

Second: By multiplying the quotient thus obtained by the number of days (excluding lay-up days) in the average voyage in each such service (line); and

Third: By multiplying the resulting product by the quotient of the total number of days (excluding lay-up days) consumed in voyages of subsidized vessels in each such service (line) terminating during the accounting period divided by the number of calendar days within the accounting period.

The expense of operating and maintaining the subsidized vessels shall include overhead (Accounts 900-955 less Accounts 670 and 895) allocated to subsidized operations under § 286.4 and total Operating Expense-Terminated Voyages (Accounts 701-799 in Part 282 of this chapter). For the purpose of this Limitation, if, in any instance, the average subsidized voyage in any subsidized service (line), as determined above, is of less than ninety (90) days' duration, the expense of hull and machinery insurance (Account 755) and P & I insurance (Account 757) shall be determined to be that for a period of ninety (90) days: Provided, That such allowance for insurance expense shall not, in the aggregate, exceed the total actual insurance expense for the accounting period. Expenses used for this purpose shall be those included in the annual reports (Maritime Form MA 172) for each calendar year, and shall not be adjusted thereafter.

LIMITATION (5)

ACCOUNTS REPRESENTING THE REMAINDER OF ADJUSTED NET WORTH

Those accounts representing the remainder of adjusted net worth of the operator, and which have not been provided for in the calculation of capital employed under Limitations (1) through (4) of this section and paragraph (c) of this section, shall be included in capital employed to the extent to which they are allocable to subsidized operations as provided under paragraph (e) of this section, subject to final acceptance or rejection by the Maritime Administrator.

(b) Valuation of capital assets. Subsidized and unsubsidized vessels when included in capital employed shall be valued in accordance with Part 284 of this chapter, and other capital assets shall be valued at cost, including betterments and reconditioning costs, to the operator or to any former owner who at any time previous to the acquisition of such assets by the operator was a subsidiary, holding, affiliate, or associate company of the operator (referred to as a "related company"), whichever is the lower, less depreciation: Provided, That the cost of acquisition of any assets acquired in exchange for capital shares or other securities of the operator from other than a related company shall not be in excess of the fair value of such property at the date of acquisition. Except as provided for decreases in in

debtedness in paragraph (d)(3) of this section and costs of reconstructing and reconditioning in paragraph (d) (6) of this section, no adjustment shall be made in the computation of capital employed for the increase in equity in vessels represented by betterments or liquidation of mortgage indebtedness applicable thereto, or for the decrease in such equity represented by the accrual of depreciation, for the year or other accounting period during which such betterments are made, indebtedness is liquidated, or depreciation accrues.

(c) Allocation of vessel equity. (1) The equity of the operator in vessels (meaning the depreciated value thereof as determined in accordance with Part 284 of this chapter, less the outstanding balance of any mortgage obligations covering such vessels, including such proportion of any blanket mortgage obligations as the Maritime Administrator may determine to be applicable thereto) shall be included in capital employed only during the period of operation or maintenance thereof under the agreement.

(2) In the event that any of the subsidized vessels is withdrawn from operation in the subsidized service for part of any fiscal period, a corresponding reduction shall be made in the calculation of capital employed on the basis of the relation that the number of days during which such vessel is so withdrawn bears to the total number of days in the year or other accounting period involved. In instances where an unsubsidized vessel owned by the operator is operated in its subsidized service, unless otherwise stipulated by the Maritime Administrator in connection with his written approval of the operations of such vessel in the subsidized service, the equity of the operator in such vessel (meaning the depreciated value thereof as determined in accordance with Part 284 of this chapter, less the outstanding balance of any mortgage obligations covering such vessel, including such proportion of any blanket mortgage obligations as the Maritime Administrator may determine to be applicable thereto) shall be included ratably in the calculation of capital employed on the basis of the relation that the number of days during which such vessel is so operated bears to the total number of days in the year or other accounting period involved.

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