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A Family Tradition With legal battles in the rearview mirror, McAllister is set to thrive

With roots dating back to 1864, the McAllister Towing and Transportation Company is one of the oldest American familyrun operators of water transportation existing today. More than five years ago, law suits filled with animosity threatened to end the history of four generations of McAllisters at the helm of the company. But a last-minute agreement secured the towing and ferry components, which reverted to Captain Brian A.

McAllister, now the sole owner. The conflict began in January 1993, when William Kallop, president, and Brian McAllister, chairman of the board, each filed suits against one another. Kallop's suit claimed he owned 100 shares of the company's stock, while McAllister owned 99 shares; thus making Kallop the majority shareholder. McAllister's suit, accompanied by a written agreement dated August 1979, contended that both Kallop and McAllister each owned 99 shares of the company's stock.

A Delaware Court of Chancery ruled in favor of McAllister in July 1995. In June 1996, the Delaware Supreme Court upheld the decision. The Court of Chancery designated a custodian to auction the company if the shareholders were unable to resolve their difference. On the eve of the auction, a divisive reorganization agreement was reached between the two, with McAllister retaining the tugboat and transportation business and Kallop receiving the oil exploration, production and oilfield support businesses.

Admittedly, according to Brian McAllister, the agreement was not reached amicably, but rather, out of necessity.

"He didn't want to see the company auctioned off, and neither did we," says McAllister. "Each of us had a bid ready, though, and there were probably 10-15 companies in New York City, sitting in the offices of investment bankers, waiting to submit a bid." In 1864, Capt. James McAllister, a young seaman, emigrated from Ireland to New York to find employment in New York Harbor, a veritable hotbed of maritime activity. Shortly thereafter, he purchased a small sail lighter, which he employed carrying freight between ships and piers in New York Harbor. Originally called the Greenpoint Lighterage Co., the operation evolved into McAllister Brothers, Inc., one of the largest towing and transportation companies in the U.S.

In the early years, business was excellent, as New York Harbor became the largest distribution center and port the world would ever know.

Thousands of tugs, barges, lighters and ferries were owned and operated by railroads, oil companies and family-owned enterprises. These vessels moved both people and freight up the Hudson River to the Erie Canal, the Canals to the Delaware River and along the ports of the Long Island Sound.

By the turn of the century, Capt. James McAllister, an older, more prosperous boat operator, entered the excursion boat business. He formed the McAllister Steamboat Company At the helm for good: Following lengthy and often acrimonious legal battles regarding the company's ownership, McAllister Towing & Transportation Co. is set for a fresh strart. Pictured, from left to right, is: Eric McAllister, vice president, corporate development; A.J. McAllister, vice president, sales; Brian McAllister, president, and Buckley McAllister, vice president, general counsel. with his partners, his sons and brothers, who had followed him over from Ireland.

By 1909, the McAllisters had acquired a fleet of four side-wheelers from the Starrin Company, and renamed them: Ajax, Aurora, Amphion and Atlas. In 1914, the company was awarded a contract by the Interstate Park Commission to operate vessels between the Battery and Bear Mountain, a major tourist attraction. The pride of the fleet was Grand Republic, a 4,000-passenger majestic sidewheeler. In 1916, James McAllister passed away. In the settlement of the estate, one of the sons, Daniel, took the reins of the McAllister Steamboat Company, and accepted the fleet of excursion boats. For the next six years, Daniel McAllister won contracts for new routes, bought boats and established himself as a leading steamboat excursion operator in New York Harbor.

On April 25, 1924, a raging dockside fire destroyed steamers Grand Republic,Highlander and Nassau where they were berthed at 155th Street on the Henry Hudson River. Grand Republic and Nassau sank, and Highlander burned to the main deck. Daniel began to rebuild Highlander with a $500,000 contract with the Federal Shipbuilding Company, and then renamed the vessel Bear Mountain.

In 1931, Daniel won a contract to provide ferry service for tourists to the Statue of Liberty, outbidding 10 other harbor operators. The government contract helped him through the financial crises, but he was outbid for the contract in 1937. In 1938, he suffered a stroke, and passed away a year later.

Upon his death, equipment was auctioned off to satisfy creditors. Six months later, Bear Mountain, acquired at the auction for $50,000, was resold for $350,000. The growing popularity of the automobile, coupled with the massive destruction of the Great Depression, signaled the end of the steamboat era. Long Island Sound service that had been provided by companies including the Fall River Line, the New London Line, the New Haven Line, the lines to Providence, the Montauk Line, and of course, the McAllister Steamboat Company, all ceased to exist. All that remained were the Bridgeport & Port Jefferson Steamboat Company, which ironically, was sold to the McAllister Tugboat Company in 1961. The depression also brought McAllister Brothers, the towing company, to near ruin, but the third generation of McAllisters: Anthony, James and Gerard are credited with pulling the company through the difficult years.

The Fourth Generation In 1969, McAllister Towing and Transportation (MT&T) was formed by Brian, his brother Anthony, and cousins Neill and James, as a vehicle for the acquisition of McAllister Brothers. The prior generation, Anthony Sr. (father of Brian and Anthony) and James P. (J.P.), the father of Neill and James, owned and operated the company, and had expressed an interest in retiring by the late 1960s. The junior McAllisters wanted to carry on the family business, but the senior McAllisters wanted to liquidate their equity interests, and sell the company. Several buyers began negotiating November, 1998 to purchase McAllister Brothers. The junior McAllisters, especially Brian, did not want to work for a "Wall Street outfit," and began trying to put together an offer to purchase the company.

In the early 1970s, Brian invited William Kallop to join MT&T, to strengthen the offer. Kallop was working with another group that was also trying to purchase McAllister Brothers. Kallop agreed to join MT&T as an equal stockholder. Finally, Brian and Anthony's brother Bruce was added to the group. Bruce was an attorney practicing maritime law, and didn't work for the corporation. With Bruce leading the negotiations, MT&T purchased McAllister Brothers. However, a rivalry between J.P. and Anthony Sr. complicated the deal. If all stockholders had equal interests, the sons of Anthony Sr. would own more stock than the sons of J.P. Tb accommodate the wishes of J.P., James and Neill each received an extra 49 shares, making their combined stockholdings equal to the sons of Anthony Sr. However, MT&T had an option to repurchase the shares without the consent of Neill and/or James. Tax aspects of the buyout precipitated what would later cause the company to be torn apart. Anthony Sr. could not accept the deal unless his proceeds from the sale of McAllister Brothers were treated as capital gains, as compared to ordinary income - a difference of 40 percent, lb accomplish that, his sons could not own 50 percent or more of the corporation, and one share needed to be assigned. Due to the feud between J.P. and Anthony Sr., an extra share issued to Neill or James was out of the question. Instead, it was issued to Kallop, the only non-family member. In 1974, MT&T purchased McAllister Brothers for approximately $15 million. Kallop held 100 shares; Bruce, Tony and Brian each held 99 shares and James and Neill each held 148 shares.

The Lawsuit In early 1979, Bruce announced his intention to leave MT&T - he had accepted a position as deputy assistant secretary of commerce for Maritime Affairs. The company repurchased his stock; and his shares were not redistributed. Brian attempted to equalize the shares of all the stockholders, following Bruce's departure. The uneven ownership bothered him. In the words of Kallop, Brian "went on a crusade" to equalize the shares in 1979. An agreement was drafted, by which Kallop would turn in his one extra share, and Neill and James would turn in their extra 49 shares. Neill and James rejected the agreement; which was bothersome, but not fatal, since their shares could be repurchased by the company without their consent.

Kallop's share became more important. In August, 1979, an agreement was drafted, which Kallop and Brian both signed, transferring a single share of Kallop's stock back to MT&T. This agreement would become the central issue of the lawsuit years later; stating, "I hereby give, transfer and deliver to the Company one share of Common Stock as a contribution capital. At the request of the Company, I shall execute such further documentation, if any, as may be necessary or desirable to folly effectuate such transfer." According to court testimony, Kallop intended to transfer his share back to MT&T, but had a change of heart approximately one month later. He stated during testimony he felt concern about a possible investigation by the IRS into a tax fraud conspiracy; yet at the time, he told no one of his decision to rescind. Nevertheless, the transfer agreement had been signed.

Over the next seven years, Neill, James and Anthony all retired from the company, leaving Kallop and Brian as sole stockholders. In 1986, after Anthony retired, the stockholders agreement, in place since 1974, expired, since there were fewer than three shareholders. A new agreement was drafted, once again reaffirming Kallop's contribution of his additional share to the company, providing a guarantee each shareholder would remain a director as long as he remained a stockholder, and providing a third director would be elected jointly by the two stockholders. That third director was Lawrence Chan.

From 1986 to 1991, Kallop and Brian saved the company from bankruptcy, and turned it into a successful enterprise. However, by 1990, Kallop was reevaluating MT&T's heavy investment in tugboats. He determined the tugboat operations were chronically losing money, and would never be profitable. He also realized that Brian, president of MT&T and supervisor of the tugboat operations, was unlikely to support reducing MT&T's role in the tugboat industry. A formal director's meeting was scheduled for October, 1991. Brian feared Kallop and Chan planned to remove him as an officer of MT&T, and checked the company's financial statements.




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