Republic of the Marshall Islands | 4412 | Not Applicable | ||
(State or other jurisdiction of
incorporation or organization) |
Primary Standard Industrial
Classification Code Number |
(I.R.S. Employer
Identification No.) |
Information
contained herein is subject to completion or amendment. A
registration statement relating to these securities has been
filed with the Securities and Exchange Commission. We may not
sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state in
which the offer or sale is not
permitted.
|
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F-1 | ||||||||
EX-2.2: AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER | ||||||||
EX-4.5: REGISTRATION RIGHTS AGREEMENT | ||||||||
EX-10.10: SERVICES AGREEMENT | ||||||||
EX-23.2: CONSENT OF DELOITTE, HADJIPAVLOU, SOFIANOS & CAMBANIS SA |
ii
Vessel | ||||||||||||
Owner | Country of Incorporation | Name | Flag | |||||||||
1)
|
Diana Trading Ltd. | Republic of the Marshall Islands | IRINI | Marshall Islands | ||||||||
2)
|
Alterwall Business Inc. | Republic of Panama | YM QINGDAO I | Panamanian | ||||||||
3)
|
Allendale Investments S.A. | Republic of Panama | KUO HSIUNG | Panamanian | ||||||||
4)
|
Alcinoe Shipping Limited | Republic of Cyprus | PANTELIS P. | Cypriot | ||||||||
5)
|
Searoute Maritime Limited | Republic of Cyprus | ARIEL | Cypriot | ||||||||
6)
|
Oceanpride Shipping Limited | Republic of Cyprus | JOHN P. | Cypriot | ||||||||
7)
|
Oceanopera Shipping Limited | Republic of Cyprus | NIKOLAOS P. | Cypriot | ||||||||
8)
|
Salina Shipholding Corp. | Republic of the Marshall Islands | ARTEMIS | Marshall Islands |
1
Country | TEU | |||||||||||||||||||
Vessel | Dwt | Built | Year Built | Type | Capacity | |||||||||||||||
IRINI
|
69,734 | Japan | 1988 | Dry Bulk | N/A | |||||||||||||||
YM QINGDAO I
|
18,253 | Japan | 1990 | Containership | 1,269 | |||||||||||||||
KUO HSIUNG
|
18,154 | Japan | 1993 | Containership | 1,269 | |||||||||||||||
PANTELIS P.
|
26,354 | Scotland | 1981 | Dry Bulk | N/A | |||||||||||||||
ARIEL
|
33,712 | Japan | 1977 | Dry Bulk | N/A | |||||||||||||||
JOHN P.
|
26,354 | Scotland | 1981 | Dry Bulk | N/A | |||||||||||||||
NIKOLAOS P.
|
34,750 | Spain | 1984 | Dry Bulk | N/A | |||||||||||||||
ARTEMIS
|
29,693 | Croatia | 1987 | Containership | 2,098 |
| Experienced Management Team. Our management team has significant experience in operating drybulk carriers and expertise in all aspects of commercial, technical, operational and financial areas of our business. Our main shareholding family has over 100 years experience in shipping and enjoys a well established reputation. The Pittas family roots in shipping go back four generations to the 19 th century. Nikolaos Pittas started the family business more than 125 years ago and has been followed by his sons and his grandsons, one of whom is Mr. John Pittas, a controlling shareholder of Friends Investment Company Inc. (Friends), the largest shareholder of Euroseas. Aristides J. Pittas, his son, is the CEO, President, Chairman of the Board and a Director of Euroseas. Aristides P. Pittas, his nephew, is the Vice-Chairman of the Board and a Director of Euroseas. This experience enables management, among other things, to identify suitable shipping opportunities and time its investments in an efficient manner. | |
| Strong Customer Relationships. Through Eurobulk, our ship management company, and Eurochart, our chartering broker, we have many long-established customer relationships with major charterers and shipping pools (Klaveness), and we believe we are well regarded within the international shipping community. | |
| Profitable Operations to Date. The Pittas family, the principal owners of Eurobulk and of our largest shareholder, has over the past 125 years operated vessels profitably for many of those years by carefully selecting secondhand vessels, competitively commissioning and actively supervising cost-efficient shipyards to perform repairs, reconditioning and systems upgrading work, together with a proactive preventive maintenance program both ashore and at sea, and employing professional, well-trained masters, officers and crews. We believe that this combination allows us to minimize off-hire periods, effectively manage insurance costs, and control overall operating expenses. | |
2
3
4
5
6
Year Ended December 31,
Six Months Ended June 30,
Euroseas Ltd. Summary Historical
Financials
2002
2003
2004
2004
2005
(All amounts in U.S. dollars)
15,291,761
25,951,023
45,718,006
21,321,769
23,833,736
(420,959
)
(906,017
)
(2,215,197
)
(1,018,218
)
(1,340,228
)
531,936
436,935
370,345
60,829
131,903
7,164,271
8,775,730
8,906,252
4,727,324
4,270,787
1,469,690
1,722,800
1,972,252
1,007,771
965,384
4,053,049
4,757,933
3,461,678
1,640,565
1,824,322
2,315,477
2,315,477
(799,970
)
(793,257
)
(708,284
)
(297,916
)
(545,719
)
27,029
11,000
(82,029
)
2,849
(690
)
(1,808
)
(3,734
)
312
6,238
36,384
187,069
18,535
89,698
(790,883
)
(757,563
)
(495,994
)
(272,115
)
(537,738
)
30,655
(167,433
)
891,628
8,426,612
30,611,765
14,910,424
14,763,374
3,192,345
9,409,339
16,461,159
12,404,490
11,276,109
45,254,226
41,096,067
34,171,164
35,434,642
32,978,300
596,262
929,757
2,205,178
1,996,885
2,357,775
1,216,289
22,856
50,259,121
51,458,019
52,837,501
49,836,017
46,612,184
10,878,488
8,481,773
13,764,846
10,332,710
18,341,155
23,845,000
20,595,000
13,990,000
15,126,220
41,400,000
297,542
297,542
297,542
297,542
297,542
21,285,634
27,486,246
31,112,655
30,634,170
1,651,029
5,631,343
10,956,132
34,208,693
13,382,837
8,157,781
(177,169
)
482,778
(3,541,236
)
(108,277
)
8,621,660
(17,036,079
)
214,832
6,756,242
6,722,524
(1,230,155
)
12,247,355
(4,778,000
)
(33,567,500
)
(17,231,280
)
(16,972,500
)
0.03
0.28
1.03
0.50
0.50
0.02
0.04
0.91
0.40
1.49
29,754,166
29,754,166
29,754,166
29,754,166
29,754,166
687,500
1,200,000
26,962,500
11,762,500
44,225,000
(2)
Table of Contents
(1)
In 2004, the estimated scrap value of the vessels was increased
from $170 to $300 per light ton to better reflect market price
developments in the scrap metal market. The effect of this
change in estimate was to reduce 2004 depreciation expense by
$1,400,010 and increase 2004 net income by the same amount. In
addition, in 2004, the estimated useful life of the vessel m/v
Ariel
was extended from 28 years to 30 years
since the vessel performed dry-docking in the current year and
it is not expected to be sold until year 2007. M/V
Widar
was sold in April 2004. Depreciation expense for m/v
Widar
for the year ended December 31, 2004 amounted
to $136,384 compared to $409,149 in 2003.
(2)
The dividend paid out in 2005 is in excess of previously
retained earnings because the Company decided to distribute to
its original shareholders in advance of going public most of the
profits relating to the Companys operations up to that
time and to recapitalize the Company. This one-time dividend
cannot be considered indicative of future dividend payments and
the Company refers you to the other sections in this prospectus
for a clearer understanding of the Companys dividend
policy.
Table of Contents
There may not be an active market for our shares, which may cause our shares to trade at lower prices and make it difficult to sell your shares. |
The price of our shares may be volatile and less than you originally paid for such shares. |
| actual or anticipated fluctuations in quarterly and annual results; | |
| mergers and strategic alliances in the shipping industry; | |
| market conditions in the industry; | |
| changes in government regulation; | |
| fluctuations in our quarterly revenues and earnings and those of our publicly held competitors; | |
| shortfalls in our operating results from levels forecasted by securities analysts; | |
| announcements concerning us or our competitors; and | |
| the general state of the securities markets. |
Our Articles of Incorporation and Bylaws contain anti-takeover provisions that may discourage, delay or prevent (1) our merger or acquisition and/or (2) the removal of incumbent directors and officers. |
7
8
9
10
11
12
13
14
15
16
17
18
19
The cyclical nature of the shipping industry may lead to
volatile changes in freight rates which may reduce our revenues
and net income.
The value of our vessels may fluctuate, adversely
affecting our earnings, liquidity and causing it us breach our
secured credit agreements.
general economic and market conditions affecting the shipping
industry;
supply of drybulk and containership vessels;
demand for drybulk containership vessels;
types and sizes of vessels;
other modes of transportation;
cost of newbuildings;
new regulatory requirements from governments or self-regulated
organizations; and
prevailing level of charter rates.
Table of Contents
Although charter rates in the international shipping
industry reached historic highs recently, future profitability
will be dependent on the level of charter rates and commodity
prices.
supply and demand for drybulk and containership commodities, and
separately for containerized cargo;
global and regional economic conditions;
the distance drybulk and containership commodities are to be
moved by sea; and
changes in seaborne and other transportation patterns.
the number of newbuilding deliveries;
the scrapping rate of older vessels;
changes in environmental and other regulations that may limit
the useful life of vessels;
the number of vessels that are laid up; and
changes in global drybulk and containership commodity production
and manufacturing distribution patterns of finished goods.
An economic slowdown in the Asia Pacific region could
materially reduce the amount and/or profitability of our
business.
Table of Contents
We may become dependent on spot charters in the volatile
shipping markets, which can result in decreased revenues and/or
profitability.
We are subject to regulation and liability under
environmental laws that could require significant expenditures
and affect our cash flows and net income.
Table of Contents
Capital expenditures and other costs necessary to operate
and maintain our vessels may increase due to changes in
governmental regulations, safety or other equipment
standards.
Increased inspection procedures and tighter import and
export controls could increase costs and disrupt our
business.
Rising fuel prices may adversely affect our
profits.
Table of Contents
If our vessels fail to maintain their class certification
and/or fail any annual survey, intermediate survey, drydocking
or special survey, that vessel would be unable to carry cargo,
thereby reducing our revenues and profitability and violating
certain loan covenants of our third-party indebtedness.
Maritime claimants could arrest our vessels, which could
interrupt our cash flow.
Governments could requisition our vessels during a period
of war or emergency, resulting in loss of earnings.
World events outside our control may negatively affect our
ability to operate, thereby reducing our revenues and net income
or our ability to obtain additional financing, thereby
restricting the implementation of our business strategy.
Table of Contents
We will depend entirely on Eurobulk to manage and charter
our fleet.
Because Eurobulk is a privately held company, there is
little or no publicly available information about it and we may
get very little advance warning of operational or financial
problems experienced by Eurobulk that may adversely affect
us.
We and our principal officers have affiliations with
Eurobulk that could create conflicts of interest detrimental to
us.
We are a holding company, and we depend on the ability of
our subsidiaries to distribute funds to us in order to satisfy
our financial obligations or to make dividend payments.
Table of Contents
We may not be able to pay dividends.
Companies affiliated with Eurobulk or our officers and
directors may acquire vessels that compete with our
fleet.
If we are unable to fund our capital expenditures, we may
not be able to continue to operate some of our vessels, which
would have a material adverse effect on our business and our
ability to pay dividends.
If we fail to manage our planned growth properly, we may
not be able to successfully expand our market share.
locating and acquiring suitable vessels;
identifying and consummating acquisitions or joint ventures;
integrating any acquired business successfully with our existing
operations;
enhancing our customer base;
Table of Contents
managing our expansion; and
obtaining required financing.
A decline in the market value of our vessels could lead to
a default under our loan agreements and the loss of our
vessels.
Our existing loan agreements contain restrictive covenants
that may limit our liquidity and corporate activities.
incur additional indebtedness;
create liens on our assets;
sell capital stock of our subsidiaries;
make investments;
engage in mergers or acquisitions;
pay dividends;
make capital expenditures;
change the management of our vessels or terminate or materially
amend the management agreement relating to each vessel; and
sell our vessels.
Servicing future debt would limit funds available for
other purposes.
Table of Contents
Our ability to obtain additional debt financing may be
dependent on the performance of our then existing charters and
the creditworthiness of our charterers.
As we expand our business, we may need to upgrade our
operations and financial systems, and add more staff and crew.
If we cannot upgrade these systems or recruit suitable
employees, our performance may be adversely affected.
Because we obtain some of our insurance through protection
and indemnity associations, we may also be subject to calls in
amounts based not only on our own claim records, but also the
claim records of other members of the protection and indemnity
associations.
Labor interruptions could disrupt our business.
In the highly competitive international drybulk and
containership shipping industry, we may not be able to compete
for charters with new entrants or established companies with
greater resources.
We may be unable to attract and retain key management
personnel and other employees in the shipping industry, which
may negatively affect the effectiveness of our management and
our results of operations.
Table of Contents
Risks involved with operating ocean going vessels could
affect our business and reputation, which may reduce our
revenues.
crew strikes and/or boycotts;
marine disaster;
piracy;
environmental accidents;
cargo and property losses or damage; and
business interruptions caused by mechanical failure, human
error, war, terrorism, political action in various countries,
labor strikes or adverse weather conditions.
Our vessels may suffer damage and it may face unexpected
drydocking costs, which could affect our cash flow and financial
condition.
Purchasing and operating previously owned, or secondhand,
vessels may result in increased operating costs and vessels
off-hire, which could adversely affect our earnings.
We may not have adequate insurance to compensate us
adequately for damage to, or loss of, our vessels.
Table of Contents
Our operations outside the United States of America expose
it to risks of mining, terrorism and piracy that may interfere
with the operation of our vessels.
Because the Republic of the Marshall Islands, where we are
incorporated, does not have a well-developed body of corporate
law, shareholders may have fewer rights and protections than
under typical United States law, such as Delaware, and
shareholders may have difficulty in protecting their interest
with regard to actions taken by our Board of Directors.
Obligations associated with being a public company will
require significant company resources and management
attention
Table of Contents
Our historical financial and operating data may not be
representative of our future results because we are a newly
formed company with no operating history as a stand-alone entity
or as a publicly traded company.
We depend upon a few significant charterers for a large
part of our revenues. The loss of one or more of these
charterers could adversely affect our financial
performance.
Exposure to currency exchange rate fluctuations will
result in fluctuations in our cash flows and operating
results.
U.S. tax authorities could treat us as a
passive foreign investment company, which could have
adverse U.S. federal income tax consequences to
U.S. holders.
Table of Contents
We may have to pay tax on United States source income,
which would reduce our earnings.
20
| our future operating or financial results; | |
| future, pending or recent acquisitions, business strategy, areas of possible expansion, and expected capital spending or operating expenses; and | |
| drybulk and containership market trends, including charter rates and factors affecting vessel supply and demand. |
21
(a) The Merger with Cove in which 1,079,167 shares are to be issued to the shareholders of Cove, when the Merger is consummated, (or to Friends if the Merger is not consummated). | |
(b) Cash dividend of $2.65 million declared on November 2, 2005 to (i) our shareholders of record on December 16, 2005, and (ii) either Coves shareholders that will exchange their shares to Euroseas shares, if the merger with Cove is consummated, or, Friends which will be issued the shares that would have been issued to Coves shareholders if the merger is not consummated. none of the Companys warrants are assumed exercised. | |
As of September 30, 2005 | |||||||||
As Adjusted for | |||||||||
Subsequent Event | |||||||||
Actual | and This Offering | ||||||||
(In U.S. dollars) | |||||||||
Debt:
|
|||||||||
Current portion of long term debt
|
12,854,998 | 12,854,998 | |||||||
Total long term debt, net of current portion
|
24,375,002 | 24,375,002 | |||||||
Total debt
|
37,230,000 | 37,230,000 | |||||||
Shareholders equity
|
|||||||||
Common stock, $.01 par value; 100,000,000 shares authorized on
an actual and as adjusted basis; 36,781,159 shares issued and
outstanding on an actual basis; 37,860,326 shares issued and
outstanding on an as adjusted basis
|
367,812 | 378,603 | |||||||
Additional paid-in capital
|
35,083,781 | 35,072,990 | |||||||
Retained earnings (deficit)
|
(10,026,292 | ) | (10,026,292 | ) | |||||
Dividend declared November 2, 2005
|
| (2,650,223 | ) | ||||||
Total shareholders equity (deficit)
|
25,425,301 | 25,435,301 | |||||||
Total capitalization
|
62,655,301 | 60,015,078 |
Initial offering price per share in the Private Placement
|
$ | 3.00 | ||
Net tangible book value per share as of June 30, 2005
|
$ | 0.06 | ||
Increase in net tangible book value attributable to the new
investors
|
$ | 0.46 | ||
Proforma net tangible book value per share after giving effect
to this offering
|
$ | 0.52 | ||
Dilution per share to the new investors
|
$ | 2.48 |
22
Pro Forma Shares | ||||||||||||||||||||
Outstanding | Total Consideration | |||||||||||||||||||
Average Price | ||||||||||||||||||||
Number | Percent | Amount | Percent | per Share | ||||||||||||||||
Existing shareholders
|
29,754,166 | 78.6% | $ | 1,651,029 | 7.3% | $ | 0.06 | |||||||||||||
Cove shareholders
|
1,079,167 | 2.8% | $ | 10,000 | 0.0% | $ | 0.01 | |||||||||||||
New investors
|
7,026,993 | 18.6% | $ | 21,080,979 | 92.7% | $ | 3.00 | |||||||||||||
Total
|
37,860,326 | 100.0% | $ | 22,742,008 | 100.0% | $ | 0.60 |
23
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
Euroseas Ltd. Summary Historical Financials | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||
(All amounts in U.S. dollars) | ||||||||||||||||||||
Statement of Income Data
|
||||||||||||||||||||
Voyage revenue
|
15,291,761 | 25,951,023 | 45,718,006 | 21,321,769 | 23,833,736 | |||||||||||||||
Commissions
|
(420,959 | ) | (906,017 | ) | (2,215,197 | ) | (1,018,218 | ) | (1,340,228 | ) | ||||||||||
Voyage expenses
|
(531,936 | ) | (436,935 | ) | (370,345 | ) | (60,829 | ) | (131,903 | ) | ||||||||||
Vessel operating expenses
|
(7,164,271 | ) | (8,775,730 | ) | (8,906,252 | ) | (4,727,324 | ) | (4,270,787 | ) | ||||||||||
Management fees
|
(1,469,690 | ) | (1,722,800 | ) | (1,972,252 | ) | (1,007,771 | ) | (965,384 | ) | ||||||||||
Amortization and depreciation(1)
|
(4,053,049 | ) | (4,757,933 | ) | (3,461,678 | ) | (1,640,565 | ) | (1,824,322 | ) | ||||||||||
Net gain on sale of vessel
|
| | 2,315,477 | 2,315,477 | | |||||||||||||||
Interest and finance cost
|
(799,970 | ) | (793,257 | ) | (708,284 | ) | (297,916 | ) | (545,719 | ) | ||||||||||
Derivative gain/(loss)
|
| | 27,029 | 11,000 | (82,029 | ) | ||||||||||||||
Foreign exchange gain/(loss)
|
2,849 | (690 | ) | (1,808 | ) | (3,734 | ) | 312 | ||||||||||||
Interest income
|
6,238 | 36,384 | 187,069 | 18,535 | 89,698 | |||||||||||||||
Other income/(expenses), net
|
(790,883 | ) | (757,563 | ) | (495,994 | ) | (272,115 | ) | (537,738 | ) | ||||||||||
Equity in earnings/(losses)
|
30,655 | (167,433 | ) | | | | ||||||||||||||
Net income for the period
|
891,628 | 8,426,612 | 30,611,765 | 14,910,424 | 14,763,374 | |||||||||||||||
Balance Sheet Data (at period end)
|
||||||||||||||||||||
Current Assets
|
3,192,345 | 9,409,339 | 16,461,159 | 12,404,490 | 11,276,109 | |||||||||||||||
Vessels, net book value
|
45,254,226 | 41,096,067 | 34,171,164 | 35,434,642 | 32,978,300 | |||||||||||||||
Deferred charges, net
|
596,262 | 929,757 | 2,205,178 | 1,996,885 | 2,357,775 | |||||||||||||||
Investment in associate
|
1,216,289 | 22,856 | | | | |||||||||||||||
Total assets
|
50,259,121 | 51,458,019 | 52,837,501 | 49,836,017 | 46,612,184 | |||||||||||||||
Current liabilities, including current portion of long-term debt
|
10,878,488 | 8,481,773 | 13,764,846 | 10,332,710 | 18,341,155 | |||||||||||||||
Long-term debt, including current portion
|
23,845,000 | 20,595,000 | 13,990,000 | 15,126,220 | 41,400,000 | |||||||||||||||
Common stock
|
297,542 | 297,542 | 297,542 | 297,542 | 297,542 | |||||||||||||||
Total shareholders equity
|
21,285,634 | 27,486,246 | 31,112,655 | 30,634,170 | 1,651,029 |
24
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
Euroseas Ltd. Summary Historical Financials | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||
(All amounts in U.S. dollars) | ||||||||||||||||||||
Other Financial Data
|
||||||||||||||||||||
Net cash provided by operating activities
|
5,631,343 | 10,956,132 | 34,208,693 | 13,382,837 | 8,157,781 | |||||||||||||||
Net cash paid to (received from) related party
|
(177,169 | ) | 482,778 | (3,541,236 | ) | (108,277 | ) | 8,621,660 | ||||||||||||
Net cash from investing activities
|
(17,036,079 | ) | 214,832 | 6,756,242 | 6,722,524 | (1,230,155 | ) | |||||||||||||
Net cash used in financing activities
|
12,247,355 | (4,778,000 | ) | (33,567,500 | ) | (17,231,280 | ) | (16,972,500 | ) | |||||||||||
Earnings per share, basic and diluted
|
0.03 | 0.28 | 1.03 | 0.50 | 0.50 | |||||||||||||||
Cash Dividends, declared per common share
|
0.02 | 0.04 | 0.91 | 0.40 | 1.49 | |||||||||||||||
Weighted average number of shares outstanding during the period
|
29,754,166 | 29,754,166 | 29,754,166 | 29,754,166 | 29,754,166 | |||||||||||||||
Cash paid for common stock dividend declared
|
687,500 | 1,200,000 | 26,962,500 | 11,762,500 | 44,225,000 | (2) |
(1) | In 2004, the estimated scrap value of the vessels was increased from $170 to $300 per light ton to better reflect market price developments in the scrap metal market. The effect of this change in estimate was to reduce 2004 depreciation expense by $1,400,010 and increase 2004 net income by the same amount. In addition, in 2004, the estimated useful life of the vessel m/v Ariel was extended from 28 years to 30 years since the vessel performed dry-docking in the current year and it is not expected to be sold until year 2007. M/ V Widar was sold in April 2004. Depreciation expense for m/v Widar for the year ended December 31, 2004 amounted to $136,384 compared to $409,149 in 2003. |
(2) | The dividend paid out in 2005 is in excess of previously retained earnings because the Company decided to distribute to its original shareholders in advance of going public most of the profits relating to the Companys operations up to that time and to recapitalize the Company. This one-time dividend cannot be considered indicative of future dividend payments and the Company refers you to the other sections in this prospectus for a clearer understanding of the Companys dividend policy. |
25
26
Factors Affecting Our Results of Operations |
| Calendar days . We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period. | |
| Available days . We define available days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled repairs, drydockings or special or intermediate surveys. The shipping industry uses available days to measure the number of days in a period during which vessels were available to generate revenues. | |
| Voyage days . We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled and unscheduled repairs, drydockings or special or intermediate surveys or days waiting to find employment. The shipping industry uses voyage days to measure the number of days in a period during which vessels actually generate revenues. | |
| Fleet utilization . We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our available days during that period. The shipping industry uses fleet utilization to measure a companys efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons such as unscheduled repairs or days waiting to find employment. | |
| Spot Charter Rates . Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. The fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. | |
| Time Charter Equivalent . A standard maritime industry performance measure used to evaluate performance is the daily time charter equivalent, or daily TCE. Daily TCE revenues are voyage revenues minus voyage expenses divided by the number of voyage days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter. We believe that the daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employment of drybulk carriers on time charter or on the spot market (containership are chartered on a time charter basis) and presents a more accurate representation of the revenues generated by our vessels. |
27
Basis of Presentation and General Information |
| Voyage revenues . Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charter hire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the transportation market and other factors affecting spot market charter rates in both the drybulk carrier and containership markets. | |
| Commissions . We pay commissions on all chartering arrangements of 1-1.25% to Eurochart, one of our affiliates, plus additional commission of usually up to 5% to other brokers involved in the transaction. These additional commissions, as well as changes to charter rates will cause our commission expenses to fluctuate from period to period. Eurochart also receives a fee equal to 1% calculated as stated in the relevant memorandum of agreement for any vessel bought or sold by them on our behalf. | |
| Voyage expenses . Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage which would otherwise be paid by the charterer under a time charter contract, as well as commissions. Under time charters, the charterer pays voyage expenses whereas under spot market voyage charters, we pay such expenses. The amounts of such voyage expenses are driven by the mix of charters undertaken during the period. | |
| Vessel Operating Expenses . Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically changed in line with the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general (including, for instance, developments relating to market prices for insurance or inflationary increases) may also cause these expenses to increase. | |
| Management fees . These are the fees that we pay to Eurobulk, our ship manager and an affiliate, under our management agreement with Eurobulk for the technical and commercial management that Eurobulk performs on our behalf. The fee is 590 Euros per vessel per day and is payable monthly in advance. | |
| Depreciation . We depreciate our vessels on a straight-line basis with reference to the cost of the vessel, age and scrap value as estimated at the date of acquisition. Depreciation is calculated over the remaining useful life of the vessel, which is estimated to range from 25 to 30 years from the date of original construction. Remaining useful lives of property are periodically reviewed and revised to recognize changes in conditions, new regulations or other reasons. Revisions of estimated lives are recognized over current and future periods. During 2004, management changed its estimate of the scrap value of its vessels. | |
| Amortization of deferred drydocking costs . Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are trading. We capitalize the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Costs capitalized as part of the drydocking include actual costs incurred at the drydock yard; cost of hiring riding crews to effect repairs on a vessel and parts used in making such repairs that are reasonably made in anticipation of reducing the duration or cost of the drydocking; cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee a drydocking. We believe that these criteria are consistent with industry practice and that our policy of capitalization reflects the economics and market values of the vessels. | |
28
| Interest expense . We traditionally finance vessel acquisitions partly with debt on which we incur interest expense. The interest rate we pay is generally linked to the 3-month LIBOR rate, although from time to time we utilize fixed rate loans or could use interest rate swaps to eliminate our interest rate exposure. Interest due is expensed in the period is accrued. Loan cost are amortized over the period of the loan; the un-amortized portion is written-off if the loan is prepaid early. | |
| General and administrative expenses . We will incur expenses consisting mainly of executive compensation, professional fees, directors liability insurance and reimbursement of our directors and officers travel-related expenses. General and administrative expenses will increase following the completion of our Private Placement and anticipated Merger in due to the duties typically associated with public companies. We acquire executive services, our CEO, CFO and Secretary, through Eurobulk. In 2005, executive compensation for such services to us as a public company is estimated to be $500,000 on an annualized basis starting in July 2005, incremental to the management fee. |
Vessel Type | Bulkers | Containerships | Total | |||||||||
Average number of vessels
|
5 | 2 | 7 | |||||||||
Number of vessels at end of period
|
5 | 2 | 7 | |||||||||
Dwt (in thousands)/ teu at end of period
|
190.9 | 2,538 | ||||||||||
Average age at end of period (years)
|
22.6 | 14.0 | 20.1 |
Vessel Type | 2005 H1 | 2004 H1 | 2004 | 2003 | 2002 | |||||||||||||||
Utilization in period
|
99.8 | % | 99.4 | % | 99.5 | % | 99.3 | % | 99.7 | % | ||||||||||
TCE per ship per day
|
$ | 19,099 | $ | 15,956 | $ | 17,839 | $ | 8,965 | $ | 6,049 | ||||||||||
Operating expenses per ship per day including management fees $
|
$ | 4,133 | $ | 4,129 | $ | 4,064 | $ | 3,595 | $ | 3,467 | ||||||||||
Voyage revenues ($ thousand)
|
$ | 23,834 | $ | 21,322 | $ | 45,718 | $ | 25,951 | $ | 15,292 | ||||||||||
Net income ($ thousand)
|
$ | 14,763 | $ | 14,910 | $ | 30,612 | $ | 8,427 | $ | 892 | ||||||||||
Voyage days
|
1,239.4 | 1,333 | 2,542 | 2,846 | 2,440 | |||||||||||||||
Available Days
|
1,242 | 1,338 | 2,554 | 2,867 | 2,448 | |||||||||||||||
Calendar days
|
1,267 | 1,389 | 2,677 | 2,920 | 2,490 |
Six month period ended June 30, 2005 compared to six month period ending June 30, 2004. |
29
30
Net cash from operating activities. |
Net cash from investing activities. |
Net cash used in financing activities. |
31
32
For the year ended December 31, 2004 compared to the year ended December 31, 2003 |
33
Net cash from operating activities. |
Net cash from investing activities. |
Net cash used in financing activities. |
34
For the year ended December 31, 2003 compared to the year ended December 31, 2002 |
35
Net cash from operating activities. |
Net cash from investing activities. |
Net cash used in financing activities. |
Less Than | One to | Three to | More Than | |||||||||||||||||
In U.S. dollars | Total | One Year | Three Years | Five Years | Five Years | |||||||||||||||
Bank debt
|
$ | 41,400,000 | $ | 14,780,000 | $ | 19,160,000 | $ | 4,660,000 | $ | 2,800,000 | ||||||||||
Interest Payment (1)
|
$ | 4,295,771 | $ | 1,790,748 | $ | 2,217,505 | $ | 194,250 | $ | 93,188 | ||||||||||
Management fees (2)
|
$ | 11,176,241 | $ | 2,022,192 | $ | 4,419,631 | $ | 4,734,418 | |
36
Depreciation |
Revenue and expense recognition |
Deferred drydock costs |
37
Impairment of long-lived assets |
Recent accounting pronouncements |
38
39
Year Ended June 30, | Amount | |||
2006
|
340,100 | |||
2007
|
221,300 | |||
2008
|
125,500 | |||
2009
|
60,300 | |||
2010 and thereafter
|
51,000 |
40
41
Owner | Country of Incorporation | Vessel Name | Flag | |||||
1)
|
Diana Trading Ltd. | Republic of the Marshall Islands | IRINI | Marshall Islands | ||||
2)
|
Alterwall Business Inc. | Republic of Panama | YM QINGDAO I | Panamanian | ||||
3)
|
Allendale Investments S.A. | Republic of Panama | KUO HSIUNG | Panamanian | ||||
4)
|
Alcinoe Shipping Limited | Republic of Cyprus | PANTELIS P. | Cypriot | ||||
5)
|
Searoute Maritime Limited | Republic of Cyprus | ARIEL | Cypriot | ||||
6)
|
Oceanpride Shipping Limited | Republic of Cyprus | JOHN P. | Cypriot | ||||
7)
|
Oceanopera Shipping Limited | Republic of Cyprus | NIKOLAOS P. | Cypriot | ||||
8)
|
Salina Shipholding Corp. | Republic of the Marshall Islands | ARTEMIS | Marshall Islands |
Country | TEU | |||||||||||||
Vessel | Dwt | Built | Year Built | Type | Capacity | |||||||||
IRINI
|
69,734 | Japan | 1988 | Dry Bulk | N/A | |||||||||
YM QINGDAO I
|
18,253 | Japan | 1990 | Containership | 1,269 | |||||||||
KUO HSIUNG
|
18,154 | Japan | 1993 | Containership | 1,269 | |||||||||
PANTELIS P.
|
26,354 | Scotland | 1981 | Dry Bulk | N/A | |||||||||
ARIEL
|
33,712 | Japan | 1977 | Dry Bulk | N/A | |||||||||
JOHN P.
|
26,354 | Scotland | 1981 | Dry Bulk | N/A | |||||||||
NIKOLAOS P.
|
34,750 | Spain | 1984 | Dry Bulk | N/A | |||||||||
ARTEMIS
|
29,693 | Croatia | 1987 | Containership | 2,098 |
| Experienced Management Team. Our management team has significant experience in operating drybulk carriers and expertise in all aspects of commercial, technical, operational and financial areas of our business. Our main shareholding family has over 100 years experience in shipping and enjoys a well established reputation. The Pittas family roots in shipping go back four generations to the 19 th century. |
42
Nikolaos Pittas started the family business more than 125 years ago and has been followed by his sons and his grandsons, one of whom is Mr. John Pittas, a controlling shareholder of Friends Investment Company Inc., the largest shareholder of Euroseas. Aristides J. Pittas, his son, is the CEO, President, Chairman of the Board and a Director of Euroseas. Aristides P. Pittas, his nephew, is the Vice-Chairman of the Board and a Director of Euroseas. This experience enables management, among other things, to identify suitable shipping opportunities and time its investments in an efficient manner. | ||
| Strong Customer Relationships. Through Eurobulk, our ship management company, and Eurochart, our chartering broker, we have many long-established customer relationships with major charterers and shipping pools (Klaveness), and we believe we are well regarded within the international shipping community. | |
| Profitable Operations to Date. The Pittas family, the principal owner of Eurobulk and of our largest shareholder, has over the past 125 years operated vessels profitably for many of those years by carefully selecting secondhand vessels, competitively commissioning and actively supervising cost-efficient shipyards to perform repairs, reconditioning and systems upgrading work, together with a proactive preventive maintenance program both ashore and at sea, and employing professional, well-trained masters, officers and crews. We believe that this combination allows us to minimize off-hire periods, effectively manage insurance costs, and control overall operating expenses. | |
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44
| Diana Shipping (NYSE: DSX) larger vessels (13). | |
| Dryships (Nasdaq: DRYS) larger vessels (27). | |
| Excel Maritime (NYSE: EXM) mix of vessels (18) primarily larger size. | |
| Eagle Bulk Shipping (Nasdaq: EGLE) handymaxes (14). | |
Environmental Regulation International Maritime Organization (IMO) |
45
Environmental Regulations The United States of America Oil Pollution Act of 1990 |
Vessel Security Regulations |
46
| on-board installation of automatic information systems (AIS), to enhance vessel-to-vessel and vessel-to-shore communications; | |
| on-board installation of ship security alert systems; | |
| the development of vessel security plans; and | |
| compliance with flag state security certification requirements. |
Inspection by Classification Societies |
General |
47
Hull and Machinery Insurance |
Protection and Indemnity Insurance |
48
Name | Age | Position | ||||
Aristides J. Pittas
|
46 | Chairman, President and CEO; Director | ||||
Dr. Anastasios Aslidis
|
45 | CFO and Treasurer; Director | ||||
Aristides P. Pittas
|
53 | Vice Chairman; Director | ||||
Stephania Karmiri
|
37 | Secretary | ||||
George Skarvelis
|
44 | Director | ||||
George Taniskidis
|
44 | Director | ||||
Gerald Turner
|
57 | Director | ||||
Panagiotis Kyriakopoulos
|
45 | Director |
49
50
Family Relationships |
Audit Committee |
Code of Ethics |
Director Compensation |
Executive Compensation and Employment Agreements |
Options |
Option Plans |
Corporate Governance |
| Following the closing of this offering, we will have a board of directors with a majority of independent directors which holds at least one annual meeting at which only independent directors are present, consistent with Nasdaq corporate governance requirements. We are not required under Marshall Islands law to maintain a board of directors with a majority of independent directors, and we cannot guarantee that we will always in the future maintain a board of directors with a majority of independent directors. |
51
| In lieu of a compensation committee comprised of independent directors, our board of directors will be responsible for establishing the executive officers compensation and benefits. Under Marshall Islands law, compensation of the executive officers is not required to be determined by an independent committee. | |
| In lieu of a nomination committee comprised of independent directors, our board of directors will be responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders may also identify and recommend potential candidates to become candidates to become board members in writing. No formal written charter has been prepared or adopted because this process is outlined in our bylaws. | |
| In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Marshall Islands law requirements, a related party transaction will be permitted if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board and the Board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, or, if the votes of the disinterested directors are insufficient to constitute an act of the Board as defined in Section 55 of the Marshall Islands Business Corporations Act, by unanimous vote of the disinterested directors; or (ii) the material facts as to his relationship or interest are disclosed and the shareholders are entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a simple majority vote of the shareholders; or (iii) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. | |
| As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law, we will notify our shareholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our bylaws provide that shareholders must give us advance notice to properly introduce any business at a meeting of the shareholders. Our bylaws also provide that shareholders may designate in writing a proxy to act on their behalf. | |
| In lieu of holding regular meetings at which only independent directors are present, our entire board of directors, a majority of whom are independent, will hold regular meetings as is consistent with the laws of the Republic of the Marshall Islands. |
52
Pre-Merger and | ||||||||||||||
Private Placement | ||||||||||||||
Euroseas Amount | Pre-Merger and | Post-Merger and | ||||||||||||
of Shares | Private Placement | Private Placement | ||||||||||||
Name and Address of | Beneficially | Euroseas Percent | Euroseas Percent | |||||||||||
Title of Class | Beneficial Owner (1) | Owned | of Class | of Class | ||||||||||
Common Stock
|
Friends Investment Company Inc. (2) | 29,754,166 | 100 | % | 78.59 | % | ||||||||
Common Stock
|
Aristides J. Pittas (3) | 714,100 | 2.4 | % | 1.89 | % | ||||||||
Common Stock
|
George Skarvelis (4) | 1,576,971 | 5.3 | % | 4.16 | % | ||||||||
Common Stock
|
George Taniskidis (5) | 29,754 | * | * | ||||||||||
Common Stock
|
Gerald Turner (6) | 422,509 | 1.42 | % | 1.11 | % | ||||||||
Common Stock
|
Panagiotis Kyriakopoulos (7) | 178,525 | * | * | ||||||||||
Common Stock
|
Aristides P. Pittas (8) | 2,439,842 | 8.2 | % | 6.44 | % | ||||||||
Common Stock
|
Anastasios Aslidis | 0 | 0 | % | 0 | % | ||||||||
Common Stock
|
Stephania Karmiri (9) | 5,951 | * | * | ||||||||||
Common Stock
|
All directors and officers and 5% owners as a group | 29,754,166 | 100 | % | 78.59 | % |
* | Indicates less than 1.0%. |
(1) | Beneficial ownership is determined in accordance with the Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities. Except as subject to community property laws, where applicable, the person named above has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by him/her. |
(2) | John Pittas has investment power and voting control over these securities. |
(3) | Includes 714,100 shares of common stock held of record by Friends, by virtue of Mr. Pittas ownership interest in Friends. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. |
(4) | Includes 1,576,971 shares of common stock held of record by Friends, by virtue of Mr. Skarvelis ownership interest in Friends. Mr. Skarvelis disclaims beneficial ownership except to the extent of his pecuniary interest. |
(5) | Includes 29,754 shares of common stock held of record by Friends, by virtue of Mr. Taniskidis ownership in Friends. Mr. Taniskidis disclaims beneficial ownership except to the extent of his pecuniary interest. |
(6) | Includes 422,509 shares of common stock held of record by Friends, by virtue of Mr. Turners ownership interest in Friends. Mr. Turner disclaims beneficial ownership except to the extent of his pecuniary interest. |
(7) | Includes 178,525 shares of common stock held of record by Friends, by virtue of Mr. Kyriakopoulos ownership in Friends. Mr. Kyriakopoulos disclaims beneficial ownership except to the extent of his pecuniary interest. |
(8) | Includes 2,439,842 shares of common stock held of record by Friends, by virtue of Mr. Pittas ownership interest in Friends. Mr. Pittas disclaims beneficial ownership except to the extent of his pecuniary interest. |
(9) | Includes 5,951 shares of common stock held of records by Friends, by virtue of Mrs. Karmiris ownership in Friends. Mrs. Karmiri disclaims beneficial ownership except to the extent of her pecuniary interest. |
53
54
Certain Provisions of Our Articles of Incorporation and Bylaws |
| allow the Board of Directors to issue, without further action by the shareholders, up to 20,000,000 shares of undesignated preferred stock; | |
| require that special meetings of our shareholders be called only by the Board of Directors or the Chairman of the Board; and | |
| establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of shareholders. |
| prior to such time, the Board of Directors approved either the Business Combination or the transaction which resulted in the shareholder becoming an Interested Shareholder; or |
55
| upon consummation of the transaction which resulted in the shareholder becoming an Interested Shareholder, the Interested Shareholder owned at least 85% of the voting stock of Euroseas outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or | |
| at or subsequent to such time, the Business Combination is approved by the Board of Directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least 51% of the outstanding voting stock that is not owned by the interested shareholder; or | |
| the shareholder became an Interested Shareholder prior to the consummation of the initial public offering of Euroseas common stock under the Securities Act. |
| A shareholder becomes an Interested Shareholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the shareholder ceases to be an Interested Shareholder; and (ii) would not, at any time within the three-year period immediately prior to a Business Combination between Euroseas and such shareholder, have been an Interested Shareholder but for the inadvertent acquisition of ownership; or | |
| The Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an Interested Shareholder during the previous three years or who became an Interested Shareholder with the approval of the Board; and (iii) is approved or not opposed by a majority of the members of the Board then in office (but not less than one) who were Directors prior to any person becoming an Interested Shareholder during the previous three years or were recommended for election or elected to succeed such Directors by a majority of such Directors. The proposed transactions referred to in the preceding sentence are limited to: |
(a) a merger or consolidation of Euroseas (except for a merger in respect of which, pursuant to the BCA, no vote of the shareholders of Euroseas is required); | |
(b) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of Euroseas or of any direct or indirect majority-owned subsidiary of Euroseas (other than to any direct or indirect wholly-owned subsidiary or to Euroseas) having an aggregate market value equal to 50% or more of either that aggregate market value of all of the assets of Euroseas determined on a consolidated basis or the aggregate market value of all the outstanding shares; or | |
(c) a proposed tender or exchange offer for 50% or more of the outstanding voting shares of Euroseas. |
| Any merger or consolidation of Euroseas or any direct or indirect majority-owned subsidiary of Euroseas with (i) the Interested Shareholder or any of its affiliates, or (ii) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the Interested Shareholder; | |
| Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a shareholder of Euroseas, to or with the Interested Shareholder, whether as part of a dissolution or otherwise, of assets of Euroseas or of any direct or indirect majority-owned subsidiary of Euroseas which assets have an aggregate market value equal to |
56
10% or more of either the aggregate market value of all the assets of Euroseas determined on a consolidated basis or the aggregate market value of all the outstanding shares; | ||
| Any transaction which results in the issuance or transfer by Euroseas or by any direct or indirect majority-owned subsidiary of Euroseas of any shares, or any share of such subsidiary, to the Interested Shareholder, except: (i) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which securities were outstanding prior to the time that the Interested Shareholder became such; (ii) pursuant to a merger with a direct or indirect wholly-owned subsidiary of Euroseas solely for purposes of forming a holding company; (iii) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares, or shares of any such subsidiary, which security is distributed, pro rata to all holders of a class or series of shares subsequent to the time the Interested Shareholder became such; (iv) pursuant to an exchange offer by Euroseas to purchase shares made on the same terms to all holders of said shares; or (v) any issuance or transfer of shares by Euroseas; provided however, that in no case under items (iii)-(v) of this subparagraph shall there be an increase in the Interested Shareholders proportionate share of the any class or series of shares; | |
| Any transaction involving Euroseas or any direct or indirect majority-owned subsidiary of Euroseas which has the effect, directly or indirectly, of increasing the proportionate share of any class or series of shares, or securities convertible into any class or series of shares, or shares of any such subsidiary, or securities convertible into such shares, which is owned by the Interested Shareholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares not caused, directly or indirectly, by the Interested Shareholder; or | |
| Any receipt by the Interested Shareholder of the benefit, directly or indirectly (except proportionately as a shareholder of Euroseas), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted above) provided by or through Euroseas or any direct or indirect majority-owned subsidiary. |
| is the owner of 15% or more of the outstanding voting shares of Euroseas; or | |
| is an affiliate or associate of Euroseas and was the owner of 15% or more of the outstanding voting shares of Euroseas at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an Interested Shareholder; and the affiliates and associates of such person; provided, however, that the term Interested Shareholder shall not include any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of action taken solely by Euroseas; provided that such person shall be an Interested Shareholder if thereafter such person acquires additional shares of voting shares of Euroseas, except as a result of further Company action not caused, directly or indirectly, by such person. |
57
Marshall Islands | Delaware | ||
Shareholder Meetings | |||
Held at a time and place as designated in the bylaws
|
May be held in the manner provided in the bylaws. The articles of incorporation may designate any place for such meetings and, in the absence of such designation, as directed by the bylaws. | ||
May be held within or outside the Marshall Islands
|
May be held within or outside Delaware | ||
Notice:
|
Notice: | ||
Whenever shareholders are required to take action at
a meeting, written notice shall state the place, date and hour
of the meeting and indicate that it is being issued by or at the
direction of the person calling the meeting
|
Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of electronic communication, if any by which stockholders and proxies may be deemed to be present and vote at such meeting | ||
A copy of the notice of any meeting shall be given
personally or sent by mail not less than 15 nor more than 60
days before the meeting
|
Written notice shall be given not less than 10 nor more than 60 days before the date of the meeting | ||
Shareholders Voting Rights | |||
Any action required to be taken by meeting of
shareholders may be taken without meeting if consent is in
writing and is signed by all the shareholders entitled to vote
|
Stockholders may act by majority written consent with respect to any action required or permitted to be taken at a meeting of stockholders | ||
Any person authorized to vote may authorize another
person to act for him by proxy
|
Any person authorized to vote may authorize another person or persons to act for him by proxy | ||
Unless otherwise provided in the articles of
incorporation, a majority of shares entitled to vote constitutes
a quorum. In no event shall a quorum consist of fewer than one
third of the shares entitled to vote at a meeting
|
|||
The Articles of Incorporation may provide for
cumulative voting
|
The voting power present in person or by the proxy at the meeting shall constitute a quorum | ||
The articles of incorporation may provide for cumulative voting | |||
Directors | |||
Board must consist of at least one member
|
Board must consist of at least one member | ||
Number of members can be changed by an amendment to
the bylaws, by the shareholders, or by action of the board
|
A corporation may provide in its articles of incorporation or in its bylaws for a fixed or variable number of directors and for the manner in which the number may be increased or decreased | ||
If the board is authorized to change the number of
directors, it can only do so by an absolute majority (majority
of the entire board)
|
58
Marshall Islands
Delaware
Dissenters Rights of Appraisal
Appraisal rights shall be available for the shares
of any class or series of stock of a corporation in a merger or
consolidation
Shareholders Derivative Actions
In any derivative suit instituted by a stockholder
of a corporation, it shall be averred in the complaint that the
plaintiff was a stockholder of the corporation at the time of
the transaction of which he complains or that such
stockholders stock thereafter devolved upon such
stockholder by operation of law
59
Taxation of Operating Income: In General |
60
Exemption of Operating Income from United States Federal Income Taxation |
| we are organized in a foreign country (our country of organization) that grants an equivalent exemption to corporations organized in the United States; and |
| more than 50% of the value of our stock is owned, directly or indirectly, by qualified stockholders, individuals who are residents of our country of organization or of another foreign country that grants an equivalent exemption to corporations organized in the United States, which we refer to as the 50% Ownership Test, or | |
| our stock is primarily and regularly traded on an established securities market in our country of organization, in another country that grants an equivalent exemption to United States corporations, or in the United States, which we refer to as the Publicly-Traded Test. |
Taxation In Absence of Exemption |
61
| We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and | |
| substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. |
United States Taxation of Gain on Sale of Vessels |
Distributions |
62
Sale, Exchange or other Disposition of Common Stock |
Passive Foreign Investment Company Status and Significant Tax Consequences |
| at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or | |
| at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income. |
63
Taxation of U.S. Holders Making a Timely QEF Election |
Taxation of U.S. Holders Making a Mark-to-Market Election |
64
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election |
| the excess distribution or gain would be allocated ratably over the Non-Electing Holders aggregate holding period for the common stock; | |
| the amount allocated to the current taxable year and any taxable year before we became a passive foreign investment company would be taxed as ordinary income; and | |
| the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. |
Dividends on Common Stock |
Sale, Exchange or Other Disposition of Common Stock |
| the gain is effectively connected with the Non-U.S. Holders conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of an income tax treaty with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or | |
| the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met. |
65
| fail to provide an accurate taxpayer identification number; | |
| are notified by the Internal Revenue Service that you have failed to report all interest or dividends required to be shown on your federal income tax returns; or | |
| in certain circumstances, fail to comply with applicable certification requirements. |
66
67
Shares of Common | Shares of Common | |||||||||||||||||||
Stock Beneficially | Stock Beneficially | |||||||||||||||||||
Owned Prior to the | Owned After the | |||||||||||||||||||
Offering | Offering | |||||||||||||||||||
Number of | Number of | Number of | ||||||||||||||||||
Shares | Percent | Shares | Shares | Percent | ||||||||||||||||
Beneficially | of | Being | Beneficially | of | ||||||||||||||||
Selling Stockholder | Owned | Class (1) | Offered | Owned (2) | Class (1) | |||||||||||||||
Bonanza Master
Fund Ltd.
(3)
|
2,500,000 | 6.6 | % | 2,500,000 | 0 | * | ||||||||||||||
JMG Capital Partners,
LP
(4)
|
625,000 | 1.7 | % | 625,000 | 0 | * | ||||||||||||||
JMG Triton Offshore Fund,
Ltd.
(5)
|
625,000 | 1.7 | % | 625,000 | 0 | * | ||||||||||||||
Eurobulk Marine Holdings,
Inc.
(6)
|
1,250,000 | 3.3 | % | 1,250,000 | 0 | * | ||||||||||||||
Third Point Resources
Ltd.
(7)
|
650,000 | 1.7 | % | 650,000 | 0 | * | ||||||||||||||
Third Point Resources
L.P.
(8)
|
391,666 | 1.0 | % | 391,666 | 0 | * | ||||||||||||||
BTG Investments,
LLC
(9)
|
625,000 | 1.7 | % | 625,000 | 0 | * | ||||||||||||||
Basso
Fund Ltd.
(10)
|
260,416 | * | 260,416 | 0 | * | |||||||||||||||
Basso Private Opportunity Holding
Fund Ltd.
(11)
|
260,416 | * | 260,416 | 0 | * | |||||||||||||||
Kircher Family Trust dtd
03-24-04
(12)
|
416,666 | 1.1 | % | 416,666 | 0 | * | ||||||||||||||
Omicron Master
Trust
(13)
|
416,666 | 1.1 | % | 416,666 | 0 | * | ||||||||||||||
Whitebox Intermarket Partners
L.P.
(14)
|
312,500 | * | 312,500 | 0 | * | |||||||||||||||
Vacky Holding
S.A.
(15)
|
15,166 | * | 15,166 | 0 | * | |||||||||||||||
James J.
Apostolakis
(16)
|
30,332 | * | 30,332 | 0 | * | |||||||||||||||
Marion Corp. Defined Benefit Pension
Plan
(17)
|
30,332 | * | 30,332 | 0 | * | |||||||||||||||
SRB Greenway Capital,
L.P.
(18)
|
12,457 | * | 12,457 | 0 | * | |||||||||||||||
SRB Greenway Capital (QP),
L.P.
(19)
|
84,707 | * | 84,707 | 0 | * | |||||||||||||||
SRB Greenway Offshore Operating Fund,
L.P.
(20)
|
7,000 | * | 7,000 | 0 | * | |||||||||||||||
Nite Capital,
L.P.
(21)
|
83,332 | * | 83,332 | 0 | * | |||||||||||||||
Vision Opportunity Master Fund,
Ltd.
(22)
|
83,332 | * | 83,332 | 0 | * | |||||||||||||||
Jonathan
Spanier
(23)
|
13,750 | * | 13,750 | 0 | * | |||||||||||||||
Peter G.
Geddes
(24)
|
13,750 | * | 13,750 | 0 | * | |||||||||||||||
Jesse Grossman Accountancy Corp. Retirement Trust
(25)
|
13,750 | * | 13,750 | 0 | * | |||||||||||||||
Michael
Stone
(26)
|
41,666 | * | 41,666 | 0 | * | |||||||||||||||
David E.
Graber
(27)
|
20,832 | * | 20,832 | 0 | * | |||||||||||||||
Seward Ave Partners,
LLC
(28)
|
144,712 | * | 144,712 | 0 | * | |||||||||||||||
Jonathan
Spanier
(29)
|
142,653 | * | 142,653 | 0 | * | |||||||||||||||
Olive Grove,
LLC
(30)
|
165,699 | * | 165,699 | 0 | * | |||||||||||||||
Blue Star Investors
Ltd.
(31)
|
272,868 | * | 272,868 | 0 | * | |||||||||||||||
Jodi
Hunter
(32)
|
92,672 | * | 92,672 | 0 | * |
* | Less than one percent. |
68
(1) | Based on 37,860,326 shares of Euroseas common stock that will be issued and outstanding immediately following the merger of Cove Apparel, Inc. with Euroseas Acquisition Company, Inc., a wholly-owned subsidiary of Euroseas, assuming each Cove stockholder participates in the merger. For purposes of calculating the percentage ownership, any shares that each selling shareholder has the right to acquire within 60 days under warrants or options have been included in the total number of shares outstanding for that person, in accordance with Rule 13d-3 under the Exchange Act. | |
(2) | Assumes that the selling shareholders sell all of their shares of common stock beneficially owned by each selling shareholder and offered hereby immediately following the merger described in this prospectus. | |
(3) | Reflects 2,000,000 shares of common stock and 500,000 shares of common stock issuable upon the exercise of warrants. Brian Ladin is the Managing Director of Bonanza Master Fund LTD. Bernay Box is the President of Bonanza Fund Management LLC, and as such has investment power and voting control over these securities. Mr. Box disclaims beneficial ownership of these securities. The address for the selling shareholder is 300 Crescent Court, Suite 1740, Dallas, Texas 75201. | |
(4) | Reflects 500,000 shares of common stock and 125,000 shares of common stock issuable upon the exercise of warrants. JMG Capital Partners, L.P. (JMG Partners) is a California limited partnership. Its general partner is JMG Capital Management, LLC (the Manager), a Delaware limited liability company and an investment adviser that has voting and dispositive power over JMG Partners investments, including the Euroseas shares. The equity interests of the Manager are owned by JMG Capital Management, Inc., (JMG Capital) a California corporation, and Asset Alliance Holding Corp., a Delaware corporation. Jonathan M. Glaser is the Executive Office and Director of JMG Capital and has sole investment discretion over JMG Partners portfolio holdings. The address for the selling shareholder is 11601 Wilshire Blvd., Suite 2180, Los Angeles, California 90025. | |
(5) | Reflects 500,000 shares of common stock and 125,000 shares of common stock issuable upon the exercise of warrants. JMG Triton Offshore Fund, Ltd. (the Fund) is an international business company organized under the laws of the British Virgin Islands. The Funds investment manager is Pacific Assets Management LLC, a Delaware limited liability company (the Manager) that has voting and dispositive power over the Funds investments, including the Euroseas shares. The equity interests of the Manager are owned by Pacific Capital Management, Inc., a California corporation (Pacific) and Asset Alliance Holding Corp., a Delaware corporation. The equity interests of Pacific are owned by Messrs. Roger Richter, Jonathan M. Glaser and Daniel A. David. Messrs. Glaser and Richter have sole investment discretion over the Funds portfolio holdings. The address for the selling shareholder is 11601 Wilshire Blvd., Suite 2180, Los Angeles, California 90025. | |
(6) | Reflects 1,000,000 shares of common stock and 250,000 shares of common stock issuable upon the exercise of warrants. John Pittas has investment power and voting control over these securities. The address for the selling shareholder is Aethrion Center, 40 Ag. Konstantinou Street, 151 24 Maroussi, Greece. | |
(7) | Reflects 520,000 shares of common stock and 130,000 shares of common stock issuable upon the exercise of warrants. Daniel S. Loeb has investment power and voting control over these securities. Mr. Loeb disclaims beneficial ownership of these securities. The address for the selling shareholder is 390 Park Avenue, 18 th Fl., New York, New York, 10022. | |
(8) | Reflects 313,333 shares of common stock and 78,333 shares of common stock issuable upon the exercise of warrants. Daniel S. Loeb has investment power and voting control over these securities. Mr. Loeb disclaims beneficial ownership of these securities. The address for the selling shareholder is 390 Park Avenue, 18 th Fl., New York, New York, 10022. | |
(9) | Reflects 500,000 shares of common stock and 125,000 shares of common stock issuable upon the exercise of warrants. Gordon Roth and Byron Roth share investment power and voting control, and claim beneficial ownership of these securities.- The address for the selling shareholder is c/o BTG Investments, 24 Corporate Plaza, Newport Beach, California, 92660. |
69
(10) | Reflects 208,333 shares of common stock and 52,083 shares of common stock issuable upon the exercise of warrants. Basso Capital Management, L.P. (Basso) is the Investment Manager to Basso Fund Ltd. Howard I. Fischer is a managing member of Basso GP, LLC, the General Partner of Basso, and as such has investment power and voting control over these securities. Mr. Fischer disclaims beneficial ownership of these securities. |
(11) | Reflects 208,333 shares of common stock and 52,083 shares of common stock issuable upon the exercise of warrants. Basso Capital Management, L.P. (Basso) is the Investment Manager to Basso Private Opportunity Holding Fund Ltd. Howard I. Fischer is a managing member of Basso GP, LLC, the General Partner of Basso, and as such has investment power and voting control over these securities. Mr. Fischer disclaims beneficial ownership of these securities. |
(12) | Reflects 333,333 shares of common stock and 83,333 shares of common stock issuable upon the exercise of warrants. Steven C. Kircher, Trustee, has investment power and voting control over these securities. Mr. Kircher disclaims beneficial ownership of these securities. The address for the selling shareholder is 6000 Greystone Place, Granite Bay, California, 95746. |
(13) | Reflects 333,333 shares of common stock and 83,333 shares of common stock issuable upon the exercise of warrants. The address for the selling shareholder is 650 Fifth Ave, 24th Fl, New York, New York, 10019. |
(14) | Reflects 250,000 shares of common stock and 62,500 shares of common stock issuable upon the exercise of warrants. Whitebox Intermarket Partners, L.P. is a B.V.I. limited partnership. Its general partner is Whitebox Intermarket Advisors, LLC (the Manager), a Delaware limited liability company and investment adviser that has voting and dispositive power over Whitebox Intermarket Advisors, LLC, including the Euroseas shares. The equity interest of the Manager are owned by Whitebox Intermarket Partners, L.P.. Andrew J. Redleaf is the Managing Member of the General Partner, Chief Executive Officer and Director of Whitebox Intermarket Advisors, LLC and has sole investment discretion over Whitebox Intermarket Partners, L.P. portfolio holdings. The address for the selling shareholder is 3033 Excelsior Blvd. #300, Minneapolis, MN 55416. |
(15) | Reflects 12,133 shares of common stock and 3,033 shares of common stock issuable upon the exercise of warrants. Vassiliki Demis is the Director of Vacky Holdings, SA and as such has investment power and voting control over these securities. Mr. Demis disclaims beneficial ownership of these securities. The address for the selling shareholder is c/o Vassiliki Demis, 14 Perikleous Street, Piraeus Gr 18536, Greece. |
(16) | Reflects 24,266 shares of common stock and 6,066 shares of common stock issuable upon the exercise of warrants. James J. Apostolakis has investment power and voting control over these securities, and has beneficial ownership of these securities. The address for the selling shareholder is 150 E.69th St, New York, New York 10021. |
(17) | Reflects 24,266 shares of common stock and 6,066 shares of common stock issuable upon the exercise of warrants. Robert F. DiMarsico is the Trustee of the Marion Corp. Defined Benefit Pension Plan, and as such has investment power and voting control over these securities, and has beneficial ownership of these securities. The address for the selling shareholder is 869 Park Ave, River Edge, NJ 07661. |
(18) | Reflects 9,966 shares of common stock and 2,491 shares of common stock issuable upon the exercise of warrants. BC Advisors, LLC (BCA) is the general partner of SRB Management, L.P (SRBGC), SRB Greenway Capital (Q.P.), L.P. (SRBQP) and SRB Greenway Offshore Operating Fund, L.P. (SRB Offshore). Steven R. Becker is the sole principal of BCA. Through his control of BCA, Mr. Becker possesses sole voting and investment control over the portfolio securities of each of SRBGC, SRBQP and SRB Offshore. The address of the selling shareholder is 300 Crescent Court, Suite 1111, Dallas, Texas, 75201. |
(19) | Reflects 67,766 shares of common stock and 16,941 shares of common stock issuable upon the exercise of warrants. BC Advisors, LLC (BCA) is the general partner of SRB Management, L.P (SRBGC), SRB Greenway Capital (Q.P.), L.P. (SRBQP) and SRB Greenway Offshore Operating Fund, L.P. (SRB Offshore). Steven R. Becker is the sole principal of BCA. Through his |
70
control of BCA, Mr. Becker possesses sole voting and investment control over the portfolio securities of each of SRBGC, SRBQP and SRB Offshore. The address of the selling shareholder is 300 Crescent Court, Suite 1111, Dallas, Texas, 75201. | |
(20) | Reflects 5,600 shares of common stock and 1,400 shares of common stock issuable upon the exercise of warrants. BC Advisors, LLC (BCA) is the general partner of SRB Management, L.P (SRBGC), SRB Greenway Capital (Q.P.), L.P. (SRBQP) and SRB Greenway Offshore Operating Fund, L.P. (SRB Offshore). Steven R. Becker is the sole principal of BCA. Through his control of BCA, Mr. Becker possesses sole voting and investment control over the portfolio securities of each of SRBGC, SRBQP and SRB Offshore. The address of the selling shareholder is 300 Crescent Court, Suite 1111, Dallas, Texas, 75201. |
(21) | Reflects 66,666 shares of common stock and 16,666 shares of common stock issuable upon the exercise of warrants. Keith A. Goodman is Manager of the General Partner for Nite Capital LP, and as such has investment power and voting control over these securities, and has beneficial ownership of these securities. The address for the selling shareholder is 100 East Cook Ave #201, Libertyville, IL 60048. |
(22) | Reflects 66,666 shares of common stock and 16,666 shares of common stock issuable upon the exercise of warrants. Adam Banowitz has investment power and voting control over these securities, and has beneficial ownership of these securities. The address for the selling shareholder is 954 3 rd Ave #402, New York, New York 10022. |
(23) | Reflects 11,000 shares of common stock and 2,750 shares of common stock issuable upon the exercise of warrants. Jonathan Evan Spanier has investment power and voting control over these securities, and disclaims beneficial ownership of these securities. The address for the selling shareholder is 267 S. Beverly Drive #1162, Beverly Hills, California, 90212. |
(24) | Reflects 11,000 shares of common stock and 2,750 shares of common stock issuable upon the exercise of warrants. Peter G. Geddes has investment power and voting control over these securities, and has beneficial ownership of these securities. The address for the selling shareholder is P.O. Box 5303, Beverly Hills, California 90212. |
(25) | Reflects 11,000 shares of common stock and 2,750 shares of common stock issuable upon the exercise of warrants. Jesse Grossman, Trustee of the Jesse Grossman Accountancy Corp. Retirement Trust, has investment power and voting control over these securities, and claims beneficial ownership of these securities. The address for the selling shareholder is 5000 Llano Drive, Woodland Hills, California, 91364. |
(26) | Reflects 33,333 shares of common stock and 8,333 shares of common stock issuable upon the exercise of warrants. Michael Stone has investment power and voting control over these securities, and has beneficial ownership of these securities. The address for the selling shareholder is 18 Ozone Avenue, Venice, California, 90291. |
(27) | Reflects 16,666 shares of common stock and 4,166 shares of common stock issuable upon the exercise of warrants. David Graber has investment power and voting control over these securities, and has beneficial ownership of these securities. The address for the selling shareholder is 9101 St. Ives Drive, Los Angeles, California, 90069. |
(28) | Reflects 144,712 shares of common stock issuable upon consummation of the Merger. Seward Ave Partners, LLC is a Delaware limited liability company. Beneficial ownership of these securities is as follows: 92% Jesse Grossman; 4% Anthony Salandra; and 4% Winnie Huang who share investment power and voting control in the same proportions as beneficial ownership. The address for the selling shareholder is c/o Winnie Huang, 175 South Lake Avenue, Suite 307, Pasadena, California 91101. |
(29) | Reflects 142,653 shares of common stock issuable upon consummation of the Merger. Jonathan Spanier has investment power and voting control over these securities. The address for the selling shareholder is 269 S. Beverly Dr., Suite 1102, Beverly Hills, California 90212. |
(30) | Reflects 165,699 shares of common stock issuable upon consummation of the Merger. Olive Grove, LLC is a limited liability company organized under the laws of the State of California. Olive Grove, LLC is beneficially owned by the following members in the following approximate percentages: |
71
85% by Peter G. Geddes and 15% by David Graber. Peter G. Geddes, has investment power and voting control over these securities. The address for the selling shareholder is P.O. Box 5303, Beverly Hills, California 90212. | |
(31) | Reflects 272,868 shares of common stock issuable upon consummation of the Merger. James A Loughran and Barry Taleghany, each acting singly, has investment power and voting control over these securities. The address for the selling shareholder is c/o James Loughran, 38 Hertford Streed, London W1JSG, England. |
(32) | Reflects 92,672 shares of common stock issuable upon consummation of the Merger. Jodi Hunter has investment power and voting control over these securities. The address for the selling shareholder is 1003 Dormador, Suite 21, San Clemente, California 92672. |
| ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| an exchange distribution in accordance with the rules of the applicable exchange; | |
| privately negotiated transactions; | |
| settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; | |
| broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; | |
| a combination of any such methods of sale; | |
| through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or | |
| any other method permitted pursuant to applicable law. |
72
73
74
75
76
Pages | ||
F-2 | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-6 | ||
F-7 F-22 | ||
Balance Sheets December 31, 2003 and 2004
|
F-23 | |
F-24 | ||
F-25 | ||
F-26 | ||
F-27 |
F-1
Deloitte. | |
Hadjipavlou, Sofianos & Cambanis S.A. |
F-2
F-3
Notes | 2002 | 2003 | 2004 | |||||||||||||
(All amounts expressed in U.S. dollars) | ||||||||||||||||
Revenues
|
||||||||||||||||
Voyage Revenue
|
15,291,761 | 25,951,023 | 45,718,006 | |||||||||||||
Commissions
|
9 | (420,959 | ) | (906,017 | ) | (2,215,197 | ) | |||||||||
Net revenue
|
14,870,802 | 25,045,006 | 43,502,809 | |||||||||||||
Operating Expenses
|
||||||||||||||||
Voyage expenses
|
15 | 531,936 | 436,935 | 370,345 | ||||||||||||
Vessel operating expenses
|
15 | 7,164,271 | 8,775,730 | 8,906,252 | ||||||||||||
Management fees
|
9 | 1,469,690 | 1,722,800 | 1,972,252 | ||||||||||||
Amortization and depreciation
|
4, 5 | 4,053,049 | 4,757,933 | 3,461,678 | ||||||||||||
Net gain on sale of vessel
|
4 | | | (2,315,477 | ) | |||||||||||
Total operating expenses
|
13,218,946 | 15,693,398 | 12,395,050 | |||||||||||||
Operating income
|
1,651,856 | 9,351,608 | 31,107,759 | |||||||||||||
Other Income/(Expenses)
|
||||||||||||||||
Interest and finance cost
|
(799,970 | ) | (793,257 | ) | (708,284 | ) | ||||||||||
Derivative gain
|
| | 27,029 | |||||||||||||
Foreign exchange gain/(loss)
|
2,849 | (690 | ) | (1,808 | ) | |||||||||||
Interest income
|
6,238 | 36,384 | 187,069 | |||||||||||||
Other expenses, net
|
(790,883 | ) | (757,563 | ) | (495,994 | ) | ||||||||||
Equity in earnings/(losses)
|
6 | 30,655 | (167,433 | ) | | |||||||||||
Net income for the year
|
891,628 | 8,426,612 | 30,611,765 | |||||||||||||
Earnings per share, basic and diluted
|
12 | 0.03 | 0.28 | 1.03 | ||||||||||||
Weighted average number of shares outstanding during the
period
|
12 | 29,754,166 | 29,754,166 | 29,754,166 | ||||||||||||
F-4
Common | Preferred | |||||||||||||||||||||||||||
Number of | Shares | Shares | Paid-In | |||||||||||||||||||||||||
Comprehensive | Shares | Amount | Amount | Capital | Retained | |||||||||||||||||||||||
Income | (Note 12) | (Note 12) | (Note 12) | (Note 12) | Earnings | Total | ||||||||||||||||||||||
(All amounts, except per share data, expressed in U.S. dollars) | ||||||||||||||||||||||||||||
Balance, January 1, 2002
|
| 29,754,166 | 297,542 | | 15,073,236 | 1,210,728 | 16,581,506 | |||||||||||||||||||||
Net income
|
891,628 | | | | | 891,628 | 891,628 | |||||||||||||||||||||
Contribution
|
| | | 4,500,000 | | 4,500,000 | ||||||||||||||||||||||
Dividend paid
|
| | | | | (687,500 | ) | (687,500 | ) | |||||||||||||||||||
Balance, December 31, 2002
|
| 29,754,166 | 297,542 | | 19,573,236 | 1,414,856 | 21,285,634 | |||||||||||||||||||||
Net income
|
8,426,612 | | | | | 8,426,612 | 8,426,612 | |||||||||||||||||||||
Dividends paid/return of capital
|
| | | | (950,000 | ) | (1,276,000 | ) | (2,226,000 | ) | ||||||||||||||||||
Balance, December 31, 2003
|
29,754,166 | 297,542 | | 18,623,236 | 8,565,468 | 27,486,246 | ||||||||||||||||||||||
Net income
|
30,611,765 | | | | | 30,611,765 | 30,611,765 | |||||||||||||||||||||
Dividends paid/return of capital
|
| | | | (1,549,855 | ) | (25,435,501 | ) | (26,985,356 | ) | ||||||||||||||||||
Balance, December 31, 2004
|
29,754,166 | 297,542 | | 17,073,381 | 13,741,732 | 31,112,655 | ||||||||||||||||||||||
F-5
2002 | 2003 | 2004 | ||||||||||
(All amounts expressed in U.S. dollars) | ||||||||||||
Cash Flows from Operating Activities:
|
||||||||||||
Net income
|
891,628 | 8,426,612 | 30,611,765 | |||||||||
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
Depreciation of vessel
|
3,514,403 | 4,158,159 | 2,530,100 | |||||||||
Amortization of dry-docking expenses
|
538,646 | 599,774 | 931,578 | |||||||||
Amortization of deferred finance cost
|
55,497 | 67,402 | 50,681 | |||||||||
Equity in earnings
|
(30,655 | ) | 167,433 | |||||||||
Provision for doubtful accounts
|
| 3,592 | (27,907 | ) | ||||||||
Gain on sale of vessel
|
| | (2,315,477 | ) | ||||||||
Changes in operating assets and liabilities:
|
||||||||||||
(Increase)/decrease in:
|
||||||||||||
Trade accounts receivable, net
|
68,888 | 110,471 | 213,762 | |||||||||
Prepaid expenses
|
(3,213 | ) | 26,552 | (133,437 | ) | |||||||
Claims and other receivables
|
29,728 | (171,731 | ) | 208,524 | ||||||||
Inventories
|
(125,499 | ) | (7,748 | ) | 51,449 | |||||||
Increase/(decrease) in:
|
||||||||||||
Due to related companies
|
177,169 | (482,778 | ) | 3,541,236 | ||||||||
Trade accounts payable
|
644,749 | (650,863 | ) | 77,487 | ||||||||
Accrued expenses
|
3,125 | (43,308 | ) | 66,193 | ||||||||
Other liabilities
|
(133,123 | ) | (274,764 | ) | 673,157 | |||||||
Deferred dry-docking expenses
|
| (972,671 | ) | (2,270,418 | ) | |||||||
Net cash provided by operating activities
|
5,631,343 | 10,956,132 | 34,208,693 | |||||||||
Cash Flows from Investing Activities:
|
||||||||||||
Purchase of vessel
|
(16,993,811 | ) | | | ||||||||
(Increase)/decrease in cash retention accounts
|
(42,268 | ) | 214,832 | 33,224 | ||||||||
Proceeds from sale of vessels
|
| | 6,723,018 | |||||||||
Net cash from investing activities
|
(17,036,079 | ) | 214,832 | 6,756,242 | ||||||||
Cash Flows from Financing Activities:
|
||||||||||||
Increase in common stock and paid-in capital
|
4,500,000 | | | |||||||||
Dividends
|
(687,500 | ) | (1,200,000 | ) | (26,962,500 | ) | ||||||
Advance from shareholders
|
300,000 | | | |||||||||
Repayment of advances from shareholders
|
| (300,000 | ) | | ||||||||
Deferred finance costs
|
(120,145 | ) | (28,000 | ) | | |||||||
Proceeds from long-term debt
|
11,900,000 | 3,000,000 | | |||||||||
Repayment of long-term debt
|
(3,645,000 | ) | (6,250,000 | ) | (6,605,000 | ) | ||||||
Net cash used in financing activities
|
12,247,355 | (4,778,000 | ) | (33,567,500 | ) | |||||||
Net increase in cash and cash equivalents
|
842,619 | 6,392,964 | 7,397,435 | |||||||||
Cash and cash equivalents at beginning of year
|
864,464 | 1,707,083 | 8,100,047 | |||||||||
Cash and cash equivalents at end of year
|
1,707,083 | 8,100,047 | 15,497,482 | |||||||||
Supplemental cash flow information
|
||||||||||||
Cash paid during the year for:
|
||||||||||||
Cash paid for interest
|
582,740 | 725,034 | 474,430 | |||||||||
Non Cash Items:
|
||||||||||||
Dividend and return of capital from investment in associates
(note 6)
|
| 1,026,000 | 22,856 |
F-6
1. | Basis of Presentation and General Information |
| Searoute Maritime Ltd. incorporated in Cyprus on May 20, 1992, owner of the Cyprus flag 33,712 DWT bulk carrier motor vessel Ariel, which was built in 1977 and acquired on March 5, 1993. | |
| Oceanopera Shipping Ltd. incorporated in Cyprus on June 26, 1995, owner of the Cyprus flag 34,750 DWT bulk carrier motor vessel Nikolaos P, which was built in 1984 and acquired on July 22, 1996. | |
| Oceanpride Shipping Ltd. incorporated in Cyprus on March 7, 1998, owner of the Cyprus flag 26,354 DWT bulk carrier motor vessel John P, which was built in 1981 and acquired on March 7, 1998. | |
| Alcinoe Shipping Ltd. incorporated in Cyprus on March 20, 1997, owner of the Cyprus flag 26,354 DWT bulk carrier motor vessel Pantelis P, which was built in 1981 and acquired on June 4, 1997. | |
| Alterwall Business Inc. incorporated in Panama on January 15, 2001, owner of the Panama flag 18,253 DWT container carrier motor vessel HM Qingdao1 (ex Kuo Jane), which was built in 1990 and acquired on February 16, 2001. | |
| Allendale Investment S.A. incorporated in Panama on January 22, 2002, owner of the Panama flag 18,154 DWT container carrier motor vessel Kuo Hsiung, which was built in 1993 and acquired on May 13, 2002. | |
| Diana Trading Ltd. incorporated in the Marshall Islands on September 25, 2002, owner of the Marshall Islands flag 69,734 DWT bulk carrier motor vessel Irini, which was built in 1988 and acquired on October 15, 2002. |
(a) Silvergold Shipping Ltd. incorporated in Cyprus on May 16, 1994. Up to June 3, 1996, the Company was engaged in ship owning activities, but thereafter, the Companys assets and liabilities were |
F-7
liquidated and the retained earnings were distributed to the shareholders. The Company remained dormant until October 10, 2000 when it acquired the 18,000 DWT, Cyprus flag, container carrier motor vessel Widar, which was built in 1986. The vessel was sold on April 24, 2004. The group of beneficial shareholders which own the above mentioned ship-owing companies also own the ship owning company, Silvergold Shipping Ltd., accordingly, these accompanying financial statements also consolidate the accounts of Silvergold Shipping Ltd. until May 31, 2005, when Silvergold Shipping Ltd. declared a final dividend of $35,000 to its shareholders. | |
(b) Fitsoulas Corporation Limited which was incorporated in Malta on September 24, 1999, is the owner of the Malta flag 41,427 DWT bulk carrier motor vessel Elena Heart, which was built in 1983 and acquired on October 22, 1999. The vessel was sold on March 31, 2003. The group of beneficial shareholders which own the above mentioned ship-owing companies also exercised significant influence over the ship-owning company Fitsoulas Corporation Limited through their 38% interest in that company, and this investment was therefore accounted for using the equity method. |
Year Ended December 31, | ||||||||||||
Charterer | 2002 | 2003 | 2004 | |||||||||
A
|
42.40 | % | 31.30 | % | 12.20 | % | ||||||
B
|
28.68 | % | 23.01 | % | 11.50 | % | ||||||
C
|
| 10.55 | % | | ||||||||
D
|
| | 20.60 | % | ||||||||
E
|
| | 10.52 | % | ||||||||
F
|
| | 14.07 | % |
2. | Significant Accounting Policies |
Principles of Consolidation |
Investment in Associates |
Use of Estimates |
F-8
Other Comprehensive Income |
Foreign Currency Translation |
Cash and Cash Equivalents |
Restricted Cash |
Trade Accounts Receivable |
Claims and Other Receivables |
Inventories |
Vessels |
F-9
Depreciation |
Revenue and Expense Recognition |
Repairs and Maintenance |
Accounting for Dry-Docking Costs |
Pension and Retirement Benefit Obligations Crew |
Financing Costs |
F-10
Assets Held for Sale |
Impairment of Long-Lived Assets |
Derivative Financial Instruments |
Earnings Per Common Share |
Segment Reporting |
F-11
Recent Accounting Pronouncements |
F-12
3. | Inventories |
2003 | 2004 | |||||||
Lubricants
|
263,408 | 256,223 | ||||||
Victualling
|
91,519 | 47,255 | ||||||
Total
|
354,927 | 303,478 | ||||||
F-13
4.
Vessels
Vessel
Accumulated
Net Book
Cost
Depreciation
Value
(Amount expressed in thousands)
44,593
(12,818
)
31,775
(3,515
)
(3,515
)
16,994
16,994
61,587
(16,333
)
45,254
(4,158
)
(4,158
)
61,587
(20,491
)
41,096
(2,530
)
(2,530
)
(5,827
)
1,432
(4,395
)
55,760
(21,589
)
34,171
5. | Deferred Charges |
2002 | 2003 | 2004 | ||||||||||
Balance, beginning of year
|
1,070,261 | 596,262 | 929,757 | |||||||||
Additions:
|
120,144 | 1,000,671 | 2,270,418 | |||||||||
Amortization of dry-docking expenses
|
(538,646 | ) | (599,774 | ) | (931,578 | ) | ||||||
Amortization of loan arrangement fees
|
(55,497 | ) | (67,402 | ) | (50,681 | ) | ||||||
Written-off on sale of vessel M/ V Widar
|
| | (12,738 | ) | ||||||||
Balance, end of year
|
596,262 | 929,757 | 2,205,178 | |||||||||
F-14
6.
Investment in Associate
2002
2003
2004
1,185,634
1,216,289
22,856
30,655
(167,433
)
(1,026,000
)
(22,856
)
1,216,289
22,856
7. | Accrued Expenses |
2003 | 2004 | |||||||
Accrued payroll expenses
|
83,240 | 95,615 | ||||||
Accrued interest
|
23,800 | 100,366 | ||||||
Other accrued expenses
|
147,823 | 125,075 | ||||||
Total
|
254,863 | 321,056 | ||||||
8. | Deferred Revenue |
9. | Related Party Transactions |
F-15
10.
Long-Term Debt
December 31,
Borrower
2003
2004
(a
)
4,350,000
3,750,000
(b
)
2,500,000
1,600,000
(c
)
5,020,000
4,140,000
(d
)
5,100,000
4,500,000
(e
)
250,000
(e
)
2,000,000
(e
)
1,375,000
20,595,000
13,990,000
(5,105,000
)
(6,030,000
)
15,490,000
7,960,000
2005
|
6,030,000 | |||
2006
|
2,280,000 | |||
2007
|
1,480,000 | |||
2008
|
4,200,000 | |||
Total
|
$ | 13,990,000 | ||
(a) | On January 30, 2001, Alterwall Business Inc. (the owner of M/ V HM Qingdao I (ex M/ V Kuo Jane)) entered into a loan agreement for an amount of $6,000,000. The loan is repayable in sixteen quarterly installments of $150,000 each and a balloon payment of $3,600,000 due in February 2005. (See Subsequent events e.(1)). Interest is calculated at LIBOR plus 1.5% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.26%, 2.75% and 3.65%. |
(b) | On April 1, 2003, Alcinoe Shipping Limited (the owner of M/ V Pantelis P.) and Oceanpride Shipping Limited (the owner of M/ V John P.) jointly and severally entered into a new loan amounting to $3,000,000 when the outstanding amount of the old loan was $780,000. The loan is repayable in twelve consecutive quarterly installments being four installments of $250,000 each, eight installments of $200,000 each and a balloon payment of $400,000 payable with the last installment in August 2006. The first installment is due in August 2003. Interest is calculated on LIBOR plus 1.75% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.15%, 2.91% and 3.89%. | |
(c) | On October 10, 2002, Diana Trading Limited (the owner of M/ V Irini) entered into a loan agreement for an amount of $5,900,000 which was drawn down in to tranches of $4,900,000 on October 16, 2002 and of $1,000,000 on December 2, 2002. The loan is repayable in twenty-four consecutive quarterly installments of $220,000 each, and a balloon payment of $600,000 payable together with the last installment due in |
F-16
October 2008. The first installment is payable in January 2003. The interest is calculated at LIBOR plus 1.6% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.03%, 2.93% and 3.8%. | ||
(d) | On May 1, 2002, Allendale Investments S.A. (the owner of m/ v Kuo Hsiung ) entered into a loan agreement for an amount of $6,000,000 which was drawn down on May 31, 2002. The loan is repayable in twenty-four consecutive quarterly installments of $150,000 plus a balloon payment of $2,400,000 payable with the last installment in May 2008. The interest is calculated at LIBOR plus 1.75% per annum. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.56%, 3.05% and 3.63%. | |
(e) | The loans of Searoute Maritime Limited (the owner of m/ v Ariel ), Silvergold Shipping Limited (the owner of m/ v Widar ) and Oceanopera Shipping Limited (the owner of m/ v Nikolaos ) were fully repaid in 2004. The average interest rate for the years ended December 31, 2002, 2003 and 2004 amounted to 3.5%, 2.94% and 2.94%. |
| a first priority mortgage over the respective vessels. | |
| a first priority assignment of earnings and insurances. | |
| a personal guarantee of one shareholder. | |
| the corporate guarantee of the management company. |
11. | Income Taxes |
F-17
12.
Earnings Per Common Share
December 31,
December 31,
December 31,
2002
2003
2004
891,628
8,426,612
30,611,765
29,754,166
29,754,166
29,754,166
29,754,166
29,754,166
29,754,166
0.03
0.28
1.03
0.03
0.28
1.03
13. | Commitments and Contingencies |
14. | Common Stock and Paid-In Capital |
F-18
15.
Voyage and Vessel Operating Expenses
Year Ended December 31,
2002
2003
2004
132,076
202,537
188,319
387,973
227,398
182,026
11,887
7,000
531,936
436,935
370,345
3,934,140
4,569,039
4,460,233
875,319
1,334,517
1,486,179
503,761
595,194
515,820
391,576
455,931
446,034
1,310,317
1,555,286
1,660,600
31,327
34,206
46,997
117,831
231,557
290,389
7,164,271
8,775,730
8,906,252
Year Ended December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Commissions charged by third parties
|
265,899 | 619,552 | 1,334,307 | |||||||||
Commissions charges by related parties
|
155,060 | 286,465 | 880,890 | |||||||||
Total
|
420,959 | 906,017 | 2,215,197 | |||||||||
16. | Financial Instruments |
F-19
17. | Subsequent Events |
1. | Transaction with Euroseas Ltd. and Cove Apparel Inc. |
2. | Dividends |
3. | New Loans |
F-20
| a second priority mortgage over the respective vessel. | |
| general assignment of earnings and insurance. | |
| a personal guarantee of one shareholder. | |
| first priority mortgage over the respective vessels on a joint and several basis. | |
| first assignment of earnings and insurance. | |
| a personal guarantee of the majority shareholder. | |
| a corporate guarantee of Eurobulk Ltd. | |
| a minimum liquidity balance equal to no less than $1,000,000 through out the life of the facility. |
4. | Refinance of Loans |
F-21
| first priority mortgage over the respective vessels on a joint and several basis. | |
| first assignment of earnings and insurance. | |
| a personal guarantee of one shareholder. | |
| a corporate guarantee of Eurobulk Ltd. | |
| a pledge of all the issued shares of each borrower |
5. | Management Agreements |
6. | Dividend and Authorization of Reverse Stock Split |
7. | Acquisition of Vessel |
F-22
December 31,
December 31,
2003
2004
ASSETS
27,486,245
31,112,654
27,486,245
31,112,654
LIABILITIES AND SHAREHOLDERS EQUITY
297,542
297,542
18,623,236
17,073,381
8,565,467
13,741,731
27,486,245
31,112,654
27,486,245
31,112,654
F-23
Year Ended December 31,
2002
2003
2004
891,627
8,426,612
30,611,765
891,627
8,426,612
30,611,765
0.03
0.28
1.03
29,754,166
29,754,166
29,754,166
F-24
Retained | ||||||||||||||||||||||||||||
Common | Preferred | Earnings/ | ||||||||||||||||||||||||||
Comprehensive | Number of | Shares | Shares | Paid-in | (Accumulated | |||||||||||||||||||||||
Income | Shares | Amount | Amount | Capital | deficit) | Total | ||||||||||||||||||||||
Balance, January 1, 2002
|
29,754,166 | 297,542 | | 15,073,236 | 1,210,728 | 16,581,506 | ||||||||||||||||||||||
Net income
|
891,628 | | | | | 891,628 | 891,628 | |||||||||||||||||||||
Contribution
|
| | | 4,500,000 | ||||||||||||||||||||||||
Dividends paid
|
| | | | (687,500 | ) | (687,500 | ) | ||||||||||||||||||||
Balance, December 31, 2002
|
29,754,166 | 297,542 | | 19,573,236 | 1,414,856 | 21,285,634 | ||||||||||||||||||||||
Net income
|
8,426,612 | | | | | 8,426,612 | 8,426,612 | |||||||||||||||||||||
Dividends paid/ return of capital
|
| | | (950,000 | ) | (1,276,000 | ) | (2,226,000 | ) | |||||||||||||||||||
Balance, December 31, 2003
|
29,754,166 | 297,542 | | 18,623,236 | 8,565,468 | 27,486,246 | ||||||||||||||||||||||
Net income
|
30,611,765 | | | | | 30,611,765 | 30,611,765 | |||||||||||||||||||||
Dividends paid/ return of capital
|
| | | (1,549,855 | ) | (25,435,501 | ) | (26,985,356 | ) | |||||||||||||||||||
Balance, December 31, 2004
|
29,754,166 | 297,542 | | 17,073,381 | 13,741,732 | 31,112,655 |
F-25
2002
2003
2004
891,628
8,426,612
30,611,765
(204,127
)
(6,002,612
)
(3,626,409
)
687,500
2,226,000
26,985,356
(4,500,000
)
(4,500,000
)
(687,500
)
(2,226,000
)
(26,985,356
)
4,500,000
3,812,500
(2,226,000
)
(26,985,356
)
F-26
F-27
F-28
Pages | ||||
F-30 | ||||
F-31 | ||||
F-32 | ||||
F-33 | ||||
F-34 F-38 |
F-29
F-30
F-31
F-32
F-33
F-34
F-35
F-36
F-37
F-38
F-39
(1)
Gives effect to the payment of a cash dividend of
$2.65 million to (i) our shareholders of record on
December 16, 2005, and (ii) either Cove
Apparel Inc.s shareholders that will exchange their
shares to Euroseas shares, if the merger with Cove
Apparel Inc. is consummated, or, Friends which will issue
the shares that would have been issued to Cove
Apparel Inc.s Shareholders, if the merger is not
consummated. It assumes no exercise of any of the Companys
warrants.
Table of Contents
Six Months Ended June 30,
2004
2005
(All amounts expressed
in U.S. dollars)
(Unaudited)
(Unaudited)
21,321,769
23,833,736
(1,018,218
)
(1,340,228
)
20,303,551
22,493,508
60,829
131,903
4,727,324
4,270,787
1,007,771
965,384
1,640,565
1,824,322
(2,315,477
)
5,121,012
7,192,396
15,182,539
15,301,112
(297,916
)
(545,719
)
11,000
(82,029
)
(3,734
)
312
18,535
89,698
(272,115
)
(537,738
)
14,910,424
14,763,374
0.50
0.50
29,754,166
29,754,166
Table of Contents
Retained
Common
Preferred
Earnings/
Comprehensive
Number of
Shares
Shares
Paid-In
(Accumulated
Income
Shares
Amount
Amount
Capital
Deficit)
Total
(All amounts, except per share data, expressed in U.S. dollars)
29,754,166
297,542
17,073,381
13,741,732
31,112,655
14,763,374
14,763,374
14,763,374
(15,719,894
)
(28,505,106
)
(44,225,000
)
29,754,166
297,542
1,353,487
1,651,029
Table of Contents
Six Months Ended June 30,
2004
2005
(All amounts expressed
in U.S. dollars)
(Unaudited)
(Unaudited)
14,910,424
14,763,374
1,328,247
1,191,864
312,318
632,458
26,269
61,784
(2,315,477
)
(27,907
)
(11,000
)
82,029
(170,965
)
236,233
(319,914
)
77,845
333,139
(13,887
)
98,927
(16,287
)
108,277
(8,621,660
)
866,962
67,219
(182,671
)
116,914
(93,714
)
268,634
(1,480,078
)
(688,739
)
13,382,837
8,157,781
(494
)
(1,230,155
)
6,723,018
6,722,524
(1,230,155
)
(157,500
)
(11,762,500
)
(44,225,000
)
28,810,000
(5,468,780
)
(1,400,000
)
(17,231,280
)
(16,972,500
)
2,874,081
(10,044,874
)
8,100,047
15,497,482
10,974,128
5,452,608
253,644
260,376
Table of Contents
1.
Basis of Presentation and General Information
Searoute Maritime Ltd. incorporated in Cyprus on May 20,
1992, owner of the Cyprus flag 33,712 DWT bulk carrier motor
vessel Ariel, which was built in 1977 and acquired
on March 5, 1993.
Oceanopera Shipping Ltd. incorporated in Cyprus on June 26,
1995, owner of the Cyprus flag 34,750 DWT bulk carrier motor
vessel Nikolaos P, which was built in 1984 and
acquired on July 22, 1996.
Oceanpride Shipping Ltd. incorporated in Cyprus on March 7,
1998, owner of the Cyprus flag 26,354 DWT bulk carrier motor
vessel John P, which was built in 1981 and acquired
on March 7, 1998.
Alcinoe Shipping Ltd. incorporated in Cyprus on March 20,
1997, owner of the Cyprus flag 26,354 DWT bulk carrier motor
vessel Pantelis P, which was built in 1981 and
acquired on June 4, 1997.
Alterwall Business Inc. incorporated in Panama on
January 15, 2001, owner of the Panama flag 18,253 DWT
container carrier motor vessel HM Qingdao1 (ex Kuo
Jane), which was built in 1990 and acquired on February 16,
2001.
Allendale Investment S.A. incorporated in Panama on
January 22, 2002, owner of the Panama flag 18,154 DWT
container carrier motor vessel Kuo Hsiung, which was
built in 1993 and acquired on May 13, 2002.
Diana Trading Ltd. incorporated in the Marshall Islands on
September 25, 2002, owner of the Marshall Islands flag
69,734 DWT bulk carrier motor vessel Irini, which
was built in 1988 and acquired on October 15, 2002.
Euroseas Acquisition Company Inc. was incorporated in Delaware,
United States of America on June 21, 2005, to effect a
merger with Cove Apparel Inc. See Note 7.
Table of Contents
(a) Silvergold Shipping Ltd. incorporated in Cyprus on
May 16, 1994. Up to June 3, 1996, the Company was
engaged in ship owning activities, but thereafter, the
Companys assets and liabilities were liquidated and the
retained earnings were distributed to the shareholders. The
Company remained dormant until October 10, 2000 when it
acquired the 18,000 DWT, Cyprus flag, container carrier motor
vessel Widar, which was built in 1986. The vessel
was sold on April 24, 2004. The group of beneficial
shareholders which own the above mentioned ship-owing companies
also own the ship owning company, Silvergold Shipping Ltd.,
accordingly, these accompanying financial statements also
consolidate the accounts of Silvergold Shipping Ltd until
May 31, 2005, when Silvergold Shipping Ltd declared a final
dividend of $35,000 to its shareholders.
(b) Fitsoulas Corporation Limited which was incorporated in
Malta on September 24, 1999, is the owner of the Malta flag
41,427 DWT bulk carrier motor vessel Elena Heart, which was
built in 1983 and acquired on October 22, 1999. The vessel
was sold on March 31, 2003. The group of beneficial
shareholders which own the above mentioned ship-owing companies
also exercised significant influence over the ship-owning
company Fitsoulas Corporation Limited through their 38% interest
in that company, and this investment was therefore accounted for
using the equity method.
Six Months
Ended June 30,
Charterer
2004
2005
12.91
%
16.77
%
12.37
%
11.6
%
10.87
%
10.81
%
19.52
%
Table of Contents
2.
Inventories
June 30,
2005
261,954
57,811
319,765
3.
Deferred Revenue
4.
Related Party Transactions
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5.
Long-Term Debt
June 30,
Borrower
2005
(a
)
7,900,000
(c
)
20,000,000
(b
)
13,500,000
41,400,000
(14,780,000
)
26,620,000
14,780,000
8,980,000
10,180,000
2,860,000
1,800,000
2,800,000
$
41,400,000
(a)
On May 9, 2005 Diana Trading Ltd. (the owner of m/v
Irini
) entered into a loan agreement amounting to
$4,200,000 which was drawn down on May 9, 2005. The loan is
repayable in twelve consecutive quarterly installments being
four installments of $450,000 each, and eight installments of
$300,000 each with the last installment due in May 2008. The
first installment is payable in August 2005. The interest is
calculated at LIBOR plus 1.25% per annum.
(b)
On May 16, 2005 Alcinoe Shipping Ltd (the owner of m/v
Pantelis P
.), Oceanpride Shipping Ltd. (the owner of m/v
John P
.), Searoute Maritime Ltd. (the owner of m/v
Ariel
) and Oceanopera Shipping Ltd. (the owner of
m/v
Nikolaos P
) jointly and severally entered into a new
eurodollar loan amounting to $13,500,000 which was drawn down on
May 16, 2005. Prior to obtaining the loan an amount of
$1,400,000 was paid in settlement of the outstanding loans as at
March 31, 2005 for Alcinoe Shipping Ltd. and
Oceanpride Shipping Ltd. The new loan is repayable in twelve
consecutive quarterly installments being two installments of
$2,000,000 each, one installment of $1,500,000, nine
installments of $600,000 each and a balloon payment of
$2,600,000 payable with the last installment in May 2008. The
first installment is due in August 2005. Interest is calculated
on LIBOR plus 1.5% per annum.
(c)
On May 24, 2005, Allendale Investments S.A. (the owner of
m/v
Kuo Hsiung
) and Alterwall Business Inc. (the
owner of m/v
HM Qingdao1
(ex
Kuo Jane
))
jointly and severally entered into a loan agreement amounting to
$20,000,000 which was drawn down on May 26, 2005. The
outstanding amount
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of the old loans was $7,800,000 and was repaid in full. The loan
is repayable in twenty-four unequal consecutive quarterly
installments of $1,500,000 each in the first year, $1,125,000
each in the second year, $775,000 in the third year, $450,000
each in the forth through to the sixth year and a balloon
payment of $1,000,000 payable with the last installment in May
2011. The interest is calculated at LIBOR plus 1.25% per
annum as long as the outstanding amount remains below 60% of the
fair market value (FMV) of the vessel and 1.375% if the
outstanding amount is above 60% of the FMV of the vessel.
first priority mortgage over the respective vessels on a joint
and several basis.
first assignment of earnings and insurance.
a personal guarantee of one shareholder.
a corporate guarantee of Eurobulk Ltd.
a pledge of all the issued shares of each borrower
6.
Commitments and Contingencies
7.
Subsequent Events
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II-1
II-2
II-3
II-4
Item 6.
Indemnification of Directors and Officers.
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Item 7.
Recent Sales of Unregistered Securities
Item 8.
Exhibits and Financial Statement Schedules.
Agreement and Plan of Merger dated as of August 25, 2005 by
and among Euroseas Ltd., Euroseas Acquisition Company Inc., Cove
Apparel, Inc., and Kevin Peterson, Shawn Peterson, Jodi Hunter
and Daniel Trotter(1)
Amendment No. 1 to Agreement and Plan of Merger, dated
November 22, 2005(2)
Articles of Incorporation of Euroseas Ltd.(1)
Bylaws of Euroseas Ltd.(1)
Specimen Common Stock Certificate(1)
Form of Securities Purchase Agreement(1)
Form of Registration Rights Agreement(1)
Form of Warrant(1)
Registration Rights Agreement between Euroseas Ltd. and Friends
Investment Company Inc., dated November 2, 2005(2)
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Opinion of Seward & Kissel LLP, special Marshall
Islands counsel to the Registrant, as to the validity of the
shares of Common Stock(3)
Opinion of Seward & Kissel LLP, as to certain tax
matters(3)
Form of Lock-Up Agreement(1)
Loan Agreement between Oceanopera Shipping Limited, as borrower
and HSBC Bank plc, as lender for the amount of USD$3,200,000,
dated June 11, 2001(1)
Loan Agreement between Diana Trading Ltd., as borrower, and
Oceanopera Shipping Limited, as corporate guarantor, and HSBC
Bank plc, as the lender, dated October 16, 2002 for the
amount of USD$5,900,000(1)
Loan Agreement between Diana Trading Ltd., as borrower, and HSBC
Bank plc, as lender, for the amount of USD$4,200,000 dated
May 9, 2005(1)
Loan Agreement dated May 16, 2005 between EFG Eurobank
Ergasias S.A., as lender, and Alcinoe Shipping Limited,
Oceanopera Shipping Limited, Oceanpride Shipping Limited, and
Searoute Maritime Limited, as borrowers, for the amount of
US$13,500,000(1)
Secured Loan Facility Agreement dated May 24, 2005 between
Allendale Investments S.A. and Alterwall Business Inc. as
borrowers, Fortis Bank (Nederland) N.V. and others as lenders,
and Fortis Bank (Nederland) N.V. as agent and security trustee
for USD$20,000,000(1)
Form of Standard Ship Management Agreement(1)
Agreement between Eurobulk Ltd. and Eurochart S.A., for the
provision of exclusive brokerage services, dated
December 20, 2004(1)
Form of Current Time Charter(1)
Services Agreement between Euroseas Ltd. and Eurobulk Ltd. dated
November 2, 2005(2)
Subsidiaries of the Registrant(1)
Consents of Seward & Kissel LLP (included in its
opinions filed as Exhibits 5.1 and 8.1(3))
Consent of Deloitte, Hadjipavlou, Sofianos & Cambanis
S.A.(2)
Power of Attorney(4)
(1)
Previously filed.
(2)
Filed herewith.
(3)
To be filed by amendment.
(4)
Included on the signature page of this Registration Statement.
Item 9.
Undertakings.
(1)
To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a)
To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(b)
To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
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(c)
To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2)
That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
(3)
To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4)
To file a post-effective amendment to the registration statement
to include any financial statements required by §210.3-19
of Regulation S-X at the start of any delayed offering or
throughout a continuous offering.
i.
to respond to requests for information that is incorporated by
reference into the prospectus, within one business day of
receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means; and
ii.
to arrange or provide for a facility in the U.S. for the purpose
of responding to such requests. The undertaking in
subparagraph (i) above include information contained in
documents filed subsequent to the effective date of the
registration statement through the date of responding to the
request.
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II-5
II-6
EUROSEAS LTD.
By:
/s/ Aristides J. Pittas
Name: Aristides J. Pittas
Title:
Chairman of the Board and President
SIGNATURES
TITLE
DATE
/s/ Aristides J. Pittas
Chairman of the Board of Directors, President and Chief
Executive Officer (Principal Executive Officer)
December 5, 2005
/s/ Dr. Anastasios Aslidis
Chief Financial Officer, Treasurer and Director (Principal
Financial and Accounting Officer) and Authorized Representative
in the United States
December 5, 2005
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SIGNATURES
TITLE
DATE
/s/ Aristides P. Pittas
Vice Chairman and Director
December 5, 2005
/s/ Stephania Karmiri
Secretary
December 5, 2005
/s/ George Skarvelis
Director
December 5, 2005
/s/ George Taniskidis
Director
December 5, 2005
/s/ Gerald Turner
Director
December 5, 2005
/s/ Panagiotis Kyriakopoulos
Director
December 5, 2005
Exhibit 2.2
AMENDMENT NO. 1 TO MERGER AGREEMENT
THIS AMENDMENT NO. 1 TO MERGER AGREEMENT, dated as of November 22, 2005 (this "Amendment"), is made by and among Euroseas Ltd., a corporation organized under the laws of the Republic of the Marshall Islands ("Euroseas"), Euroseas Acquisition Company Inc., a corporation organized under the laws of the State of Delaware ("EuroSub"), Cove Apparel, Inc., a Nevada Corporation ("Cove"), Kevin Peterson ("K. Peterson"), Shawn Peterson ("S. Peterson"), Jodi Hunter ("Hunter") and Daniel Trotter ("Trotter" and together with K. Peterson, S. Peterson and Hunter, each a "Cove Principal" and collectively, the "Cove Principals").
W I T N E S S E T H:
WHEREAS, the parties executed that certain Agreement and Plan of Merger, dated as of August 25, 2005 (the "Merger Agreement");
WHEREAS, the parties hereto have agreed to amend the Merger Agreement on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS
SECTION 1.1. Amendments to the Merger Agreement.
(a) Effective as of the date hereof, the definition of "Pledged Shares" in Section 1.1 of the Merger Agreement is hereby deleted in its entirety and replaced by the following:
"PLEDGED SHARES means 475,000 Euroseas Shares (subject to adjustment
for any reverse stock split by Euroseas) to be received in
connection with the Merger, acquired in private transactions, in the
open market or otherwise) that are pledged to Euroseas by the Cove
Principals or other pledgors reasonably acceptable to Euroseas and
deposited with an independent collateral agent in accordance with
Section 9.2 below to secure the indemnification obligations of the
Cove Principals under Article IX of this Agreement."
(b) Effective as of the date hereof, the first sentence of Section 3.2(a) of the Merger Agreement is hereby deleted in its entirety and replaced by the following:
"(a) As of immediately prior to the Closing, the authorized capital stock of Euroseas shall consist solely of 100,000,000 common shares, $0.01 par value, and 20,000,000 preferred shares, $0.001 par value, of which 29,754,166 common
shares (subject to adjustment for any reverse stock split by Euroseas and excluding any shares and warrants to be issued in the Private Placement Transaction), and no preferred shares, will be issued and outstanding."
(c) Effective as of the date hereof, the third and fourth lines of
Section 5.1 of the Merger Agreement are hereby amended by deleting the words
"the other party" and replacing them with the words "either Euroseas or Cove, as
applicable...."
(d) Effective as of the date hereof, Section 5.1(b) of the Merger Agreement is hereby deleted in its entirety and replaced by the following:
"(b) It shall not (i) split, combine or reclassify its outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise (other than (A) a reverse stock split by Euroseas, or (B) any declaration and payment of dividends, so long as the appropriate amount of such dividends are held in trust and paid to the Cove stockholders if the Merger is consummated or paid to Friends if the Merger is not consummated), (ii) spin-off any assets or businesses, (iii) engage in any transaction for the purpose of effecting a recapitalization, or (iv) engage in any transaction or series of related transactions which has a similar effect to any of the foregoing;"
(e) Effective as of the date hereof, Section 7.2(a) of the Merger Agreement is hereby amended by deleting the words "each of the Cove Principals and" in the last line of such section.
(f) Effective as of the date hereof, Section 8.3 of the Merger Agreement is hereby deleted in its entirety and replaced by the following:
"This Agreement may not be amended except by an instrument in writing signed by Euroseas and Cove."
(g) Effective as of the date hereof, the first sentence of Section 9.2(c) of the Merger Agreement is hereby deleted in its entirety and replaced by the following:
"In furtherance of the foregoing, on or prior to the Closing Date, the Cove Principals shall pledge or cause to be pledged to Euroseas an aggregate of at least 475,000 Euroseas Shares (after giving effect to the Merger and the exchange of Cove Common Stock for Euroseas Shares in connection therewith and subject to any adjustment for any reverse stock split by Euroseas) by pledgors reasonably acceptable to Euroseas and such Pledged Shares shall be deposited with an independent collateral agent to secure the indemnification obligations of the Cove Principals under this Article IX
(h) Effective as of the date hereof, Section 10.11 of the Merger Agreement is hereby deleted in its entirety.
(i) Effective as of the date hereof, footnote 1 in Exhibit 2.6 to the Merger Agreement is hereby deleted in its entirety and replaced by the following:
"Assumes all outstanding securities in Cove and Euroseas are exchanged for, or converted to, Euroseas Shares and gives effect to the contemplated Private Placement Transaction but does not include any warrants issued in the Private Placement Transaction and does not take into account any reverse stock split by Euroseas."
ARTICLE II
MISCELLANEOUS
SECTION 2.1. Rules of Construction; Definitions. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Merger Agreement.
SECTION 2.2. No Other Amendment or Waiver. Except for the amendments set forth herein, the text of the Merger Agreement shall remain unchanged and in full force and effect, and is hereby ratified and confirmed by the parties. Each reference in Merger Agreement to "this Agreement" shall mean the Merger Agreement, as amended by this Amendment, and as hereinafter amended or restated.
SECTION 2.3. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
SECTION 2.4. Counterparts. This Amendment may be executed by the parties hereto in several counterparts, each of which when executed and delivered shall be deemed to be an original and all of which shall constitute together but one and the same agreement.
SECTION 2.5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective authorized officers as of the day and year first above written.
EUROSEAS ACQUISITION COMPANY, INC.
By: /s/ Aristides J. Pittas ------------------------------ Name: Aristides J. Pittas Title: President |
EUROSEAS LTD.
By: /s/ Aristides J. Pittas ------------------------------ Name: Aristides J. Pittas Title: President |
COVE APPAREL, INC.
By: /s/ Kevin Peterson ------------------------------ Name: Kevin Peterson Title: President /s/ Kevin Peterson ------------------------------------- Kevin Peterson /s/ Shawn Peterson ------------------------------------- Shawn Peterson /s/ Jodi Hunter ------------------------------------- Jodi Hunter /s/ Daniel Trotter ------------------------------------- Daniel Trotter |
Exhibit 4.5
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is
made and entered into as of November 2, 2005 by and between Euroseas Ltd., a
Marshall Islands corporation (the "Company") and Friends Investment Company
Inc., a Marshall Islands corporation ("Friends"). Friends and any Person that
becomes a party to this Agreement after the date hereof (any such Person, an
"Outside Investor") are hereinafter referred to collectively as the
"Stockholders." Capitalized terms used herein without definition are defined in
Section 10.
WHEREAS, the parties hereto wish to set forth certain rights and obligations with respect to the registration of the shares of Common Stock under the Securities Act.
NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Registrations Upon Request.
1.1 Requests by Friends. At any time after termination of the Lock-Up Agreement, Friends shall have the right to request that the Company effect the registration under the Securities Act of all or a portion of the Registrable Securities owned by Friends, each such request to specify the intended method or methods of disposition thereof. Upon any such request, the Company will promptly, but in any event within fifteen (15) days, give written notice of such request to all holders of Registrable Securities and thereupon the Company will, subject to Section 1.4, use its best efforts to effect the prompt registration under the Securities Act of:
(a) the Registrable Securities which the Company has been so requested to register by Friends, and
(b) all other Registrable Securities which the Company has been requested to register by the holders thereof by written request given to the Company by such holders within fifteen (15) days after the giving of such written notice by the Company to such holders,
all to the extent required to permit the disposition of the Registrable Securities so to be registered in accordance with the intended method or methods of disposition of Friends.
Notwithstanding the foregoing, but subject to the rights of holders of Registrable Securities under Section 2, (a) if the Board determines in its good faith judgment, after consultation with a firm of nationally recognized underwriters, that a requested registration under this Section 1.1 will have a material and adverse effect on the offering price or marketability of the securities being sold in a then contemplated public
offering, the Company may defer the filing (but not the preparation) of the
registration statement which is required to effect such registration during the
period starting with the 30th day immediately preceding the date of anticipated
filing by the Company of the registration statement and ending on the later of
(i) a date 60 days following the effective date of the registration statement
relating to such public offering or (ii) such later date (not to exceed 180
days) as may be required by the managing underwriter of the public offering,
provided that at all times the Company is in good faith using all reasonable
efforts to cause such registration statement to be filed as soon as possible and
provided, further, that such period shall end on such earlier date as may be
permitted by the underwriters of such underwritten public offering, and (b) if
the Company shall at any time furnish to Friends a certificate signed by the
president of the Company stating that the Company has pending or in process a
material transaction (including, but not limited to, a financing transaction),
the disclosure of which would, in the good faith judgment of the Board,
materially and adversely affect the Company, the Company may defer the filing
(but not the preparation) of a registration statement to be filed pursuant to
this Section 1.1 for up to sixty (60) days (but the Company shall use its best
efforts to complete the transaction and file the registration statement as soon
as possible).
1.2 Registration Statement Form. A registration requested pursuant to
Section 1.1 shall be effected by the filing of a registration statement on a
form agreed to by Friends.
1.3 Expenses. The Company shall pay all Registration Expenses in connection with any registration requested under Section 1.1; provided that each seller of Registrable Securities shall pay all Registration Expenses to the extent required to be paid by such seller under applicable law and all underwriting discounts and commissions and transfer taxes, if any.
1.4 Priority in Demand Registrations. If a registration pursuant to
Section 1.1 involves an underwritten offering, and the managing underwriter (or,
in the case of an offering which is not underwritten, a nationally recognized
investment banking firm) shall advise the Company in writing (with a copy to
each Person requesting registration of Registrable Securities) that, in its
opinion, the number of securities requested, and otherwise proposed to be
included in such registration, exceeds the number which can be sold in such
offering without materially and adversely affecting the marketability or
offering price of the securities being sold in such registration, the Company
shall include in such registration, to the extent of the number which the
Company is so advised can be sold in such offering without such material adverse
effect, first, the Registrable Securities of Friends and the Outside Investors,
if any, on a pro rata basis (based on the number of shares of Registrable
Securities owned by each such Stockholder), and second, the securities, if any,
being sold by the Company. In the event of any such determination under this
Section 1.4, the Company shall give the affected holders of Registrable
Securities notice of such determination and in lieu of the notice otherwise
required under Section 1.1.
2. Incidental Registrations. If the Company at any time after expiration of the Lock-Up Agreement proposes to register any of its equity securities under the Securities Act for
its own account (including, but not limited to, a shelf registration statement on Form F-3, but other than pursuant to a registration on Form F-4 or S-8 or any successor form), then the Company shall give prompt written notice to all holders of Registrable Securities regarding such proposed registration. Upon the written request of any such holder made within 15 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such holder and the intended method or methods of disposition thereof), the Company shall use its best efforts to effect the registration under the Securities Act of such Registrable Securities on a pro rata basis in accordance with such intended method or methods of disposition, provided that:
(a) the Company shall not include Registrable Securities in such proposed registration to the extent that the Board shall have determined, after consultation with the managing underwriter for such offering, that it would materially and adversely affect the marketability or the offering price of the securities being sold in such registration to include any Registrable Securities in such registration provided, that in the event of any such determination, the Company shall give the affected holders of Registrable Securities notice of such determination and in lieu of the notice otherwise required by the first sentence of this Section 2;
(b) if, at any time after giving written notice (pursuant to this
Section 2) of its intention to register equity securities and prior to
the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not
to register such equity securities, the Company may, at its election,
give written notice of such determination to each holder of
Registrable Securities and, thereupon, shall not be obligated to
register any Registrable Securities in connection with such
registration (but shall nevertheless pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of
Friends that a registration be effected under Section 1.1; and
(c) if in connection with a registration pursuant to this Section 2, the managing underwriter of such registration (or, in the case of an offering that is not underwritten, a nationally recognized investment banking firm) shall advise the Company in writing (with a copy to each holder of Registrable Securities requesting registration thereof) that the number of securities requested and otherwise proposed to be included in such registration exceeds the number which can be sold in such offering without materially and adversely affecting the marketability or offering price of the securities being sold in such registration, then in the case of any registration pursuant to this Section 2, the Company shall include in such registration to the extent of the number which the Company is so advised can be sold in such offering without such material adverse effect, first, the securities, if any, being sold by the Company, and second, the Registrable Securities of Friends and the Outside Investors, if any, on a pro rata basis (based on the number of shares of Registrable Securities owned by each such Stockholder).
The Company shall pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2, provided that
each seller of Registrable Securities shall pay all Registration Expenses to the extent required to be paid by such seller under applicable law and all underwriting discounts and commissions and transfer taxes, if any. No registration effected under this Section 2 shall relieve the Company from its obligation to effect registrations under Section 1.1.
3. Registration Procedures. If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 1.1 or Section 2, the Company shall promptly:
(a) prepare, and as soon as practicable, but in any event within sixty (60) days thereafter, file with the Commission, a registration statement with respect to such Registrable Securities, make all required filings with the NASD and use its best efforts to cause such registration statement to become effective as soon as practicable;
(b) prepare and promptly file with the Commission such amendments and post-effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for so long as is required to comply with the provisions of the Securities Act and to complete the disposition of all securities covered by such registration statement in accordance with the intended method or methods of disposition thereof, but in no event for a period of more than two years after such registration statement becomes effective;
(c) furnish copies of all documents proposed to be filed with the Commission in connection with such registration to (i) counsel selected by Friends in the case of a registration pursuant to Section 1.1 and otherwise the Majority Holders, and which counsel may also be counsel to the Company, and (ii) each seller of Registrable Securities (or in the case of the initial filing of a registration statement, within five business days of such initial filing) and such documents shall be subject to the review of such counsel; provided that the Company shall not file any registration statement or any amendment or post-effective amendment or supplement to such registration statement or the prospectus used in connection therewith to which such counsel shall have reasonably objected on the grounds that such registration statement amendment, supplement or prospectus does not comply (explaining why) in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder;
(d) furnish to each seller of Registrable Securities, without charge, such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits and documents filed therewith) and such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller in accordance with the intended method or methods of disposition thereof;
(e) use its best efforts to register or qualify such Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such seller to consummate the disposition of such Registrable Securities in such jurisdictions in accordance with the intended method or methods of disposition thereof, provided that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, subject itself to taxation in any jurisdiction wherein it is not so subject, or take any action which would subject it to general service of process in any jurisdiction wherein it is not so subject;
(f) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies, authorities or self-regulatory bodies as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities in accordance with the intended method or methods of disposition thereof;
(g) in the case of an underwritten offering, furnish to Friends:
(i) an opinion of counsel for the Company experienced in securities law matters, dated the effective date of the registration statement (and, if such registration includes an underwritten public offering, the date of the closing under the underwriting agreement); and
(ii) a "comfort" letter (unless the registration is pursuant to Section 2 and such a letter is not otherwise being furnished to the Company), dated the effective date of such registration statement (and if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have issued an audit report on the Company's financial statements included in the registration statement, covering (in the case of (i) and (ii)) such matters as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities and such other matters as Friends may reasonably request;
(h) notify each seller of any Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event or existence of any fact as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and, as promptly as is practicable, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;
(i) otherwise comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement of the Company (in form complying with the provisions of Rule 158 under the Securities Act) covering the period of at least 12 months, but not more than 18 months, beginning with the first month after the effective date of such registration statement;
(j) notify each seller of any Registrable Securities covered by such registration statement (i) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission for amendments or supplements to such registration statement or to amend or to supplement such prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose and (iv) of the suspension of the qualification of such securities for offering or sale in any jurisdiction, or of the institution of any proceedings for any of such purposes;
(k) use every reasonable effort to obtain the lifting of any stop order that might be issued suspending the effectiveness of such registration statement at the earliest possible moment;
(l) use its best efforts (i) (A) to list such Registrable
Securities on any securities exchange on which the equity securities
of the Company are then listed or, if no such equity securities are
then listed, on an exchange selected by the Company, if such listing
is then permitted under the rules of such exchange, or (B) if such
listing is not practicable, to secure designation of such securities
as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1 under the Exchange Act or, failing that, to secure NASDAQ
authorization for such Registrable Securities, and, without limiting
the foregoing, to arrange for at least two market makers to register
as such with respect to such Registrable Securities with the NASD, and
(ii) to provide a transfer agent and registrar for such Registrable
Securities not later than the effective date of such registration
statement and to instruct such transfer agent (A) to release any stop
transfer order with respect to the certificates with respect to the
Registrable Securities being sold and (B) to furnish certificates
without restrictive legends representing ownership of the shares being
sold, in such denominations requested by the sellers of the
Registrable
Securities or the lead underwriter;
(m) enter into such agreements and take such other actions as Friends, counsel to the Majority Holders (if applicable), or the underwriters reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including, without limitation, preparing for, and participating in, such number of "road shows" and all such other customary selling efforts as the underwriters reasonably request in order to expedite or facilitate such disposition;
(n) furnish to any holder of such Registrable Securities such information and assistance as Friends or, if applicable, counsel to the Majority Holders, may reasonably request in connection with any "due diligence" effort which Friends or counsel to the Majority Holders, as the case may be, deems appropriate; and
(o) use its best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby.
As a condition to its registration of Registrable Securities of any prospective seller, the Company may require such seller of any Registrable Securities as to which any registration is being effected to execute powers-of-attorney, custody arrangements and other customary agreements appropriate to facilitate the offering and to furnish to the Company such information regarding such seller, its ownership of Registrable Securities and the disposition of such Registrable Securities as the Company may from time to time reasonably request in writing and as shall be required by law in connection therewith. Each such holder agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such holder not materially misleading.
The Company agrees not to file or make any amendment to any registration statement with respect to any Registrable Securities, or any amendment of or supplement to the prospectus used in connection therewith, which refers to any holder of Registrable Securities, or otherwise identifies any holder of Registrable Securities as the holder of any Registrable Securities, without the consent of such holder, such consent not to be unreasonably withheld or delayed, unless such disclosure is required by law.
By acquisition of Registrable Securities, each holder of such Registrable Securities shall be deemed to have agreed that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(h), such holder will promptly discontinue such holder's disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(h). If so directed by the Company, each holder of Registrable Securities will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, in such holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. In the event that the Company shall give any such notice, the period mentioned in Section 3(a) shall be extended by the number of days during the period from
and including the date of the giving of such notice to and including the date when each seller of any Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 3(h).
4. Underwritten Offerings.
4.1 Underwriting Agreement. If requested by the underwriters for any
underwritten offering pursuant to a registration requested under Section 1.1 or
Section 2, the Company shall enter into an underwriting agreement with the
underwriters for such offering, such agreement to be reasonably satisfactory in
substance and form to the underwriters and to Friends (unless Friends is not
participating in such registration, in which case, counsel to the Majority
Holders). Any such underwriting agreement shall contain such representations and
warranties by the Company and such other terms and provisions as are customarily
contained in agreements of this type, including, without limitation, indemnities
to the effect and to the extent provided in Section 8. Each holder of
Registrable Securities to be distributed by such underwriter who owns 10% or
more of the Common Stock of the Company (computed on a fully-diluted basis) at
the time of the such offering shall be a party to such underwriting agreement
and may, at such holder's option, require that any or all of the representations
and warranties by, and the agreements on the part of, the Company to and for the
benefit of such underwriters be made to and for the benefit of such holder of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement shall also be
conditions precedent to the obligations of such holder of Registrable
Securities. Outside Investors, if any, in their capacities as stockholders
and/or controlling persons shall not be required by any underwriting agreement
to make any representations or warranties to or agreements with the Company or
the underwriters other than representations, warranties or agreements regarding
such holder, the ownership of such holder's Registrable Securities and such
holder's intended method or methods of disposition and any other representation
required by law or to furnish any indemnity to any Person which is broader than
the indemnity furnished by such holder pursuant to Section 8.2.
4.2 Selection of Underwriters. If the Company at any time proposes to register any of its securities under the Securities Act for sale for its own account pursuant to an underwritten offering, the Company will have the right to select the managing underwriter (which shall be of nationally recognized standing) to administer the offering, but if Friends and its Affiliates at such time own at least 10% of the number of shares of Common Stock they own on the date hereof, only with the approval of Friends, such approval not to be unreasonably withheld. Notwithstanding the foregoing sentence, whenever a registration requested pursuant to Section 1.1 is for an underwritten offering, Friends will have the right to select the managing underwriter (which shall be of nationally recognized standing) to administer the offering, but only with the approval of the Company, such approval not to be unreasonably withheld.
5. Holdback Agreements.
(a) If and whenever the Company proposes to register any of its equity securities under the Securities Act for its own account (other than on Form F-4 or S-8 or any successor form) or is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 1.1 or Section 2, each holder of Registrable Securities agrees by acquisition of such Registrable Securities not to effect any sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, or to request registration under Section 1.1 of any Registrable Securities within seven days prior to and 90 days (unless advised by the managing underwriter that a longer period, not to exceed 180 days, is required, or such shorter period as the managing underwriter for any underwritten offering may agree) after the effective date of the registration statement relating to such registration (the "Trigger Date"), except as part of such registration or unless, in the case of a sale or distribution not involving a public offering, the transferee agrees in writing to be subject to this Section 5, even if such Registrable Securities cease to be Registrable Securities upon such transfer; provided that, with respect to any shelf registration statement on Form F-3, the Trigger Date shall be the pricing of any offering made under such registration statement. If requested by such managing underwriter, each holder of Registrable Securities agrees to execute an agreement to such effect with the Company and consistent with such managing underwriter's customary form of holdback agreement.
(b) The Company agrees not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities within seven days prior to and 90 days (or such longer period, not to exceed 180 days, which may be required by the managing underwriter, or such shorter period as the managing underwriter may agree) after the Trigger Date with respect to any registration statement filed pursuant to Section 1.1 (except (i) as part of such registration, (ii) as permitted by any related underwriting agreement, (iii) pursuant to an employee equity compensation plan, (iv) pursuant to an acquisition or strategic relationship, bank or equipment financing or similar transaction or (v) pursuant to a registration on Form F-4 or S-8 or any successor form); provided that, with respect to any shelf registration statement on Form F-3, the Trigger Date shall be the pricing of any offering made under such registration statement. In addition, if, and to the extent requested by the managing underwriter, the Company shall use its best efforts to cause each holder (other than any holder already subject to Section 5(a)) of its equity securities or any securities convertible into or exchangeable or exercisable for any of such securities, whether outstanding on the date of this Agreement or issued at any time after the date of this Agreement (other than any such securities acquired in a public offering), to agree not to effect any such public sale or distribution of such securities during such period, except as part of any such registration if permitted, and to cause each such holder to enter into an agreement to such effect with the Company and consistent with such managing underwriter's customary form of holdback agreement.
6. Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, the Company shall give counsel to the holders of such Registrable Securities so to be registered the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and shall give such counsel access to the financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries and opportunities to discuss the business of the Company with its officers and the independent public accountants who have issued audit reports on its financial statements in each case as shall be reasonably requested by such counsel in connection with such registration statement.
7. No Grant of Future Registration Rights. The Company shall not grant any other demand or incidental registration rights to any other Person without the prior written consent of Friends, so long as Friends, together with its Affiliates, continue to own at least 10% of the number of shares of Common Stock that Friends owns on the date hereof.
8. Indemnification.
8.1 Indemnification by the Company. In the event of any registration
of any Registrable Securities pursuant to this Agreement, the Company shall
indemnify, defend and hold harmless (a) each seller of such Registrable
Securities, (b) the directors, members, stockholders, officers, partners,
employees, agents and Affiliates of such seller, (c) each Person who
participates as an underwriter in the offering or sale of such securities and
(d) each person, if any, who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) any of the foregoing against
any and all losses, claims, damages or liabilities (or actions or proceedings in
respect thereof), jointly or severally, directly or indirectly, based upon or
arising out of (i) any untrue statement or alleged untrue statement of a fact
contained in any registration statement under which such Registrable Securities
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein or used in connection with
the offering of securities covered thereby, or any amendment or supplement
thereto, or (ii) any omission or alleged omission to state a fact required to be
stated therein or necessary to make the statements therein not misleading; and
the Company will reimburse each such indemnified party for any legal or any
other expenses reasonably incurred by them in connection with enforcing its
rights hereunder or under the underwriting agreement entered into in connection
with such offering or investigating, preparing, pursuing or defending any such
loss, claim, damage, liability, action or proceeding, except insofar as any such
loss, claim, damage, liability, action, proceeding or expense arises out of or
is based upon an untrue statement or omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such seller expressly for use in
the preparation thereof in accordance with the second sentence of Section 8.2.
Such indemnity shall remain in full force and effect, regardless of any
investigation made by such indemnified party and shall survive the transfer of
such Registrable Securities by such seller. If the Company is entitled to, and
does, assume the
defense of the related action or proceedings provided herein, then the indemnity agreement contained in this Section 8.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed).
8.2 Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 1.1 or Section 2 that the Company shall have received
an undertaking satisfactory to it from each of the prospective sellers of such
Registrable Securities to indemnify and hold harmless, severally, not jointly,
in the same manner and to the same extent as set forth in Section 8.1, the
Company, its directors, officers, employees, agents and each person, if any, who
controls (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) the Company, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such seller
expressly for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement. The
Company and the holders of the Registrable Securities in their capacities as
stockholders and/or controlling persons (but not in their capacities as managers
of the Company) hereby acknowledge and agree that, unless otherwise expressly
agreed to in writing by such holders, the only information furnished or to be
furnished to the Company for use in any registration statement or prospectus
relating to the Registrable Securities or in any amendment, supplement or
preliminary materials associated therewith are statements specifically relating
to (a) transactions between such holder and its Affiliates, on the one hand, and
the Company, on the other hand, (b) the beneficial ownership of shares of Common
Stock by such holder and its Affiliates and (c) the name and address of such
holder. If any additional information about such holder or the plan of
distribution (other than for an underwritten offering) is required by law to be
disclosed in any such document, then such holder shall not unreasonably withhold
its agreement referred to in the immediately preceding sentence of this Section
8.2. Such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling person and shall survive the transfer of such Registrable
Securities by such seller. The indemnity agreement contained in this Section 8.2
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, action or proceeding if such settlement is effected without the
consent of such seller (which consent shall not be unreasonably withheld or
delayed). The indemnity provided by each seller of Registrable Securities under
this Section 8.2 shall be limited in amount to the net amount of proceeds
actually received by such seller from the sale of Registrable Securities
pursuant to such registration statement.
8.3 Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraphs of this Section 8, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party, give written notice to the indemnifying party of the commencement of such action or proceeding, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding paragraphs of this Section 8, except to the extent that the indemnifying party is materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate therein and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof except for the reasonable fees and expenses of any counsel retained by such indemnified party to monitor such action or proceeding. Notwithstanding the foregoing, if such indemnified party reasonably determines, based upon advice of independent counsel, that a conflict of interest may exist between the indemnified party and the indemnifying party with respect to such action and that it is advisable for such indemnified party to be represented by separate counsel, such indemnified party may retain other counsel, reasonably satisfactory to the indemnifying party, to represent such indemnified party, and the indemnifying party shall pay all reasonable fees and expenses of such counsel. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of such indemnified party, which consent shall not be unreasonably withheld, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.
8.4 Other Indemnification. Indemnification similar to that specified in the preceding paragraphs of this Section 8 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration (other than under the Securities Act) or other qualification of such Registrable Securities under any federal or state law or regulation of any governmental authority.
8.5 Indemnification Payments. Any indemnification required to be made by an indemnifying party pursuant to this Section 8 shall be made by periodic payments to the indemnified party during the course of the action or proceeding, as and when bills are received by such indemnifying party with respect to an indemnifiable loss, claim, damage, liability or expense incurred by such indemnified party.
8.6 Other Remedies. If for any reason any indemnification specified in the preceding paragraphs of this Section 8 is unavailable, or is insufficient to hold harmless an indemnified party, other than by reason of the exceptions provided therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities, actions, proceedings or expenses in such proportion as is appropriate to reflect the relative benefits to and faults of the indemnifying party on the one hand and the indemnified party on the other and the statements or omissions or alleged statements or omissions which resulted in such loss,
claim, damage, liability, action, proceeding or expense, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statements or omissions.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding the
other provisions of this Section 8, in respect of any claim for indemnification
pursuant to this Section 8, no indemnifying party (other than the Company) shall
be required to contribute pursuant to this Section 8.6 any amount in excess of
(a) the net proceeds received and retained by such indemnifying party from the
sale of its Registrable Securities covered by the applicable registration
statement, preliminary prospectus, final prospectus, or supplement or amendment
thereto, filed pursuant hereto minus (b) any amounts previously paid by such
indemnifying party pursuant to this Section 8 in respect of such claim, it being
understood that insofar as such net proceeds have been distributed by any
indemnifying party to its partners, stockholders or members, the amount of such
indemnifying party's contribution hereunder shall be limited to the net proceeds
which it actually recovers from its partners, stockholders or members based upon
their relative fault and that to the extent that such indemnifying party has not
distributed such net proceeds, the amount such indemnifying party's contribution
hereunder shall be limited by the percentage of such net proceeds which
corresponds to the percentage equity interests in such indemnifying party held
by those of its partners, stockholders or members who have been determined to be
at fault. No party shall be liable for contribution under this Section 8.6
except to the extent and under such circumstances as such party would have been
liable for indemnification under this Section 8 if such indemnification were
enforceable under applicable law.
(9) Representations and Warranties. Each Stockholder represents and warrants to the Company and each other Stockholder that:
(a) such Stockholder has the power, authority and capacity (or, in the case of any Stockholder that is a corporation, limited liability company or limited partnership, all corporate, limited liability company or limited partnership power and authority, as the case may be) to execute, deliver and perform this Agreement;
(b) in the case of a Stockholder that is a corporation, limited liability company or limited partnership, the execution, delivery and performance of this Agreement by such Stockholder has been duly and validly authorized and approved by all necessary corporate, limited liability company or limited partnership action, as the case may be;
(c) this Agreement has been duly and validly executed and delivered by such Stockholder and constitutes a valid and legally binding obligation of such Stockholder, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or relating to creditors' rights generally and general principles of equity; and
(d) the execution, delivery and performance of this Agreement by such Stockholder does not and will not violate the terms of or result in the acceleration of any obligation under (i) any material contract, commitment or other material instrument to which such Stockholder is a party or by which such Stockholder is bound or (ii) in the case of a Stockholder that is a corporation, limited liability company or limited partnership, the certificate of incorporation, certificate of formation, certificate of limited partnership, by-laws, limited liability company agreement or limited partnership agreement, as the case may be.
10. Definitions. For purposes of this Agreement, the following terms shall have the following respective meanings:
Affiliate: a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.
Board: the board of directors of the Company.
Commission: the Securities and Exchange Commission.
Common Stock: the Common Stock of the Company, par value $.01 per share.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder which shall be in effect at the time.
Lock-Up Agreement: the Lock-Up Agreement, dated as of August 25, 2005 between Friends and the Company.
Majority Holders: the holders of at least 51% of the Registrable Securities that are participating in the registration at issue.
NASD: National Association of Securities Dealers, Inc. NASDAQ: the Nasdaq National Market.
Person: an individual, corporation, partnership, limited liability company, joint venture, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Registrable Securities: the shares of Common Stock beneficially owned (within the meaning of Rule 13d-3 of the Exchange Act) by Friends, the Outside Investors, if any, or the Permitted Transferees (as such term is defined in Section 11.2). As to any particular shares of Common Stock, such securities shall cease to be Registrable Securities
when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) a registration statement on Form S-8 with respect to the sale of such securities shall have become effective under the Securities Act and such securities have been disposed of pursuant thereto, (iii) they shall have been sold to the public pursuant to Rule 144 under the Securities Act, (iv) they shall have been otherwise transferred other than to a Permitted Transferee and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force or (v) they shall have ceased to be outstanding. Any and all shares of Common Stock which may be issued in respect of, in exchange for, or in substitution for any Registrable Securities, whether by reason of any stock split, stock dividend, reverse stock split, recapitalization, combination or otherwise, shall also be "Registrable Securities" hereunder.
Registration Expenses: all expenses incident to the
Company's performance of or compliance with any registration pursuant to this
Agreement, including, without limitation, (i) registration, filing and NASD
fees, (ii) fees and expenses of complying with securities or blue sky laws,
(iii) fees and expenses associated with listing securities on an exchange or
NASDAQ, (iv) word processing, duplicating and printing expenses, (v) messenger
and delivery expenses, (vi) transfer agents', trustees', depositories',
registrars' and fiscal agents' fees, (vii) fees and disbursements of counsel for
the Company and of its independent public accountants, including the expenses of
any special audits or "cold comfort" letters, (viii) reasonable fees and
disbursements of any one counsel retained by the sellers of Registrable
Securities, which counsel shall be designated in the manner specified in Section
3(c), and (ix) any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any.
Securities Act: the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder which shall be in effect at the time.
11. Miscellaneous.
11.1 Rule 144, etc. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act relating to any class of equity securities, the Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (b) any successor rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities, the Company shall deliver to such holder a written statement as to whether it has complied with such
requirements.
11.2 Successors, Assigns and Transferees. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns under this Section 11.2. The provisions of this Agreement which are for the benefit of a holder of Registrable Securities shall be for the benefit of and enforceable by any transferee of such Registrable Securities; provided that such transferee executes a joinder agreement agreeing to be bound by all of the transferor's obligations hereunder, including, without limitation, Section 5 hereof, copies of which shall have been delivered to the Company (each such transferee, a "Permitted Transferee").
11.3 Stock Splits, etc. Each holder of Registrable Securities agrees that it will vote to effect a stock split, reverse stock split, recapitalization or combination with respect to any Registrable Securities in connection with any registration of any Registrable Securities hereunder, or otherwise, if (i) the managing underwriter shall advise the Company in writing (or, in connection with an offering that is not underwritten, if an investment banker shall advise the Company in writing) that in its opinion such a stock split, reverse stock split, recapitalization or combination would facilitate or increase the likelihood of success of the offering, and (ii) such stock split, reverse stock split, recapitalization or combination does not impact the respective ownership percentages of each such holder of Registrable Securities in the Company. The Company shall cooperate in all respects in effecting any such stock split, reverse stock split, recapitalization or combination.
11.4 Amendment and Modification. This Agreement may be amended, modified or supplemented by the Company with the written consent of Friends and a majority (by number of shares) of any other holders of Registrable Securities whose interests would be adversely affected by such amendment, modification or supplement; provided that the interests of any existing holders of Registrable Securities shall not be adversely affected by an amendment, modification or supplement of this Agreement that provides for or has the effect of providing for an additional grant of incidental registration rights with a lower or the same priority as the rights held by such existing holders of Registrable Securities, as long as any such grant of incidental registration rights with the same priority are pari passu with those held by such existing holders of Registrable Securities.
11.5 Outside Investors. Notwithstanding anything in this Agreement to the contrary, the Company may, with the consent of Friends (and only the consent of Friends), admit one or more Persons to this Agreement and designate such Person as an "Outside Investor" for all purposes of this Agreement, provided that any such Outside Investor executes and delivers a joinder agreement to this Agreement and such other agreements or documents as may reasonably be requested by the Company.
11.6 Governing Law. This Agreement and the rights and obligations of the parties hereunder and the Persons subject hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York, without giving effect to the choice of law principles thereof.
11.7 Invalidity of Provision. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction.
11.8 Notices. All notices, requests, demands, letters, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered personally, (b) mailed, certified or registered mail with postage prepaid, (c) sent by next-day or overnight mail or delivery or (d) sent by fax, as follows:
(i) If to the Company, to:
Aethrion Center 40 Ag, Konstantinou Street 151 24 Maroussi, Greece Telephone: 011-30 210 6105110 Facsimile: 011-30 210 6105111 Attention: President
with a copy to Friends at its address set forth in (ii) below.
(ii) If to Friends, to it at:
Aethrion Center 40 Ag, Konstantinou Street 151 24 Maroussi, Greece Telephone: 011-30 210 6105110 Facsimile: 011-30 210 6105111 Attention: President
with a copy to:
Seward & Kissel LLP One Battery Park Plaza New York, New York 10004 Telephone: (212) 574-1200 Facsimile: (212) 480-8421 Attention: Lawrence Rutkowski, Esq.
or to such other Person or address as any party shall specify by notice in writing to the Company. All such notices, requests, demands, letters, waivers and other communications shall be deemed to have been received (w) if by personal delivery on the day after such delivery, (x) if by certified or registered mail, on the fifth business day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered, or (z) if by fax, on the day delivered, provided that such delivery is confirmed.
11.9 Headings; Execution in Counterparts. The headings and captions contained herein are for convenience and shall not control or affect the meaning or construction of any provision hereof This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and which together shall constitute one and the same instrument.
11.10 Injunctive Relief. Each of the parties recognizes and agrees that money damages may be insufficient and, therefore, in the event of a breach of any provision of this Agreement the aggrieved party may elect to institute and prosecute proceedings in any court of competent jurisdiction to enforce specific performance or to enjoin the continuing breach of this Agreement. Such remedies shall, however, be cumulative and not exclusive, and shall be in addition to any other remedy which such party may have.
11.11 Term. This Agreement shall be effective as of the date hereof and shall continue in effect thereafter until the earlier of (a) its termination by the consent of the parties hereto or their respective successors in interest and (b) the date on which no Registrable Securities remain outstanding.
11.12 Further Assurances. Subject to the specific terms of this Agreement, each of the Company and the Stockholders shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby.
11.13 Entire Agreement. This Agreement constitutes the entire agreement and the understanding of the parties hereto with the matters referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such matters.
IN WITNESS WHEREOF this Agreement has been signed by each of the parties hereto, and shall be effective as of the date first above written.
EUROSEAS LTD.
By: /s/ Tasos Aslidis -------------------------------------------- Name: Tasos Aslidis Title: Chief Financial Officer |
FRIENDS INVESTMENT COMPANY INC.
By: /s/ Aristides P. Pittas -------------------------------------------- Name: Aristides P. Pittas Title: President |
Exhibit 10.10
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement") dated as of November 2, 2005 between Euroseas Ltd. (the "Company"), Eurobulk Ltd. (the "Consultant").
W I T N E S S E T H :
WHEREAS, the Company desires to engage Consultant to provide the services specified herein to the Company, and Consultant desires to be so engaged by the Company, all subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereto do hereby agree as follows:
1. Duties of Consultant. During the term of this Agreement as provided in Section 2 below, Consultant will be engaged as an independent contractor to provide the services specified herein to the Company and its subsidiaries and Consultant agrees to such engagement, upon the terms and conditions herein set forth. During such term, Consultant shall render advice and provide executive services to the Company from time to time, including, but not limited to, the services of a Chief Executive Officer, a Chief Financial Officer and a Secretary and such other matters as may be mutually agreed between Consultant and the Company (the "Services"). The Services shall include (a) the authority and responsibilities consistent with the foregoing executive positions and (b) such other services as the Board of Directors of the Company may deem necessary and relevant.
2. Term of Agreement. The engagement of Consultant hereunder shall continue through June 30, 2010 (the "Initial Term"), and shall be automatically renewed thereafter on an annual basis unless terminated by the Company or Consultant by written notice to the other on or before the 90th day preceding any scheduled termination date, unless sooner terminated as hereinafter provided in Section 7 below.
3. Place of Performance. Consultant shall render the Services at one or more suitable locations selected by the parties.
4. Staffing Requirement. The Services supplied by Consultant shall only be performed by the following persons: President and Chief Executive Officer by Aristides J. Pittas; Chief Financial Officer and Treasurer by Anastasios Aslidis; and Secretary by Stephania Karmiri. Any other person performing any of the Services must first be approved by the Company in writing.
5. Compensation. In consideration of Consultant's services provided hereunder, the Company agrees to pay Consultant a consulting fee at the rate of $500,000 per anuum payable in advance in four quarterly installments. This amount will be adjusted annually for inflation.
6. Expenses. In order to facilitate Consultant's carrying out its duties hereunder, the Company shall promptly reimburse Consultant for all reasonable expenses paid or incurred by it, its employees or agents in connection with the performance of its duties hereunder, upon presentation by Consultant of an itemized accounting therefor in accordance with the policies of the Company.
7. Termination. (a) In the event of Consultant's willful misconduct (not including negligence) in any material respect or its material breach of, or material failure to perform, its duties or responsibilities hereunder, the Company may terminate Consultant's engagement hereunder at any time for cause by giving written notice to Consultant stating the cause for such termination.
(b) If Consultant is unable to perform its duties hereunder by reason of mental or physical illness or other incapacity of its designated and approved employees continuing for a period of twelve (12) consecutive months, the Company may, at any time after the expiration of such twelve-month period and prior to such employee's recovery from such illness or incapacity, elect to terminate Consultant's engagement hereunder by giving written notice of such election to Consultant.
(c) Either party may terminate this Agreement on at least 90 days' written notice prior to the end of the Initial Term or prior to the expiration of any applicable renewal term.
(d) The parties, by mutual agreement, may terminate this Agreement at any time.
8. Confidential Information. Consultant agrees that, during its engagement by the Company and at all times thereafter, it will not disclose to others except to its employees, agents, advisors or representatives, directly or indirectly, any confidential information, which is in the nature of trade secrets, relating to the business, prospects or plans of any of the Company. Upon termination of the engagement with the Company, Consultant shall surrender to the Company any and all work papers, reports, manuals, documents and the like (including all originals and copies thereof) in its or its agents or representatives' possession which contain any such confidential information.
9. Nonexclusive Engagement. During the term of this Agreement, Consultant shall be permitted to engage in such other business activities and perform services for entities other than the Company; provided, however, Consultant shall at all times provide sufficient staffing to satisfactorily perform the Services to be provided hereunder and Consultant's engagement in rendering services to entities other than the Company shall not substantially interfere with or adversely affect its provision of the Services hereunder.
10. Notices. Any and all notices or other communications required or permitted to be given under any of the provisions of this Agreement shall be in writing and shall be deemed to have been duly given and received when delivered personally or three (3) days
after mailing, if mailed by registered or certified mail, return receipt requested. Either party may change its mailing address for the purposes of this Agreement by notice to the other as herein provided.
11. Authority. The Company represents to Consultant that this Agreement has been duly authorized on behalf of the Company by its Board of Directors. Consultant represents to the Company that this Agreement has been duly authorized on behalf of the Consultant by its Board of Directors, that it is free to enter into this Agreement and that its entering into this Agreement does not violate any obligation that it has to any other person or legal entity.
12. Separability. In the event that any provision of this Agreement would be held to be invalid or unenforceable for any reason unless narrowed by construction, this Agreement shall be construed as if such invalid or unenforceable provision had been more narrowly drawn so as not to be invalid or unenforceable. If, notwithstanding the foregoing, any provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall attach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement.
13. Miscellaneous.
(a) This Agreement sets forth the entire understanding of the Company and Consultant with respect to the subject matter hereof and cannot be amended or modified except by a writing signed by each of the parties hereto. No waiver of any term, condition or obligation of this Agreement shall be valid unless in writing and signed by the waiving party. No failure or delay by either the Company or Consultant in exercising any right or remedy under this Agreement will waive any provision of this Agreement, nor will any single or partial exercise by either the Company or Consultant of any right or remedy under this Agreement preclude any of them from otherwise or further exercising the rights or remedies contained herein, or any other rights or remedies granted by any law or any related document.
(b) The Section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of said Sections.
(c) This Agreement shall be deemed to be a contract under the laws of the State of New York and shall be construed and enforced in accordance with the laws of said state.
(d) This Agreement may be executed in any number of counterparts each of which shall be deemed an original and all of which, taken together, shall constitute a single original document.
(e) It is understood and agreed among the parties that in rendering services hereunder, Consultant is an independent contractor of the Company and shall not be deemed to constitute a director, officer or employee of the Company solely in respect of this Agreement.
(f) The Company shall have no obligation to any person entitled to the benefits of this Agreement with respect to any tax obligation any such person incurs as a result of
or attributable to this Agreement or arising from any payments made or to be made hereunder or thereunder.
(g) The provisions of this Agreement which by their terms call for performance subsequent to termination of this Agreement shall so survive such termination.
(h) This Agreement may not be transferred, assigned or delegated by any of the parties hereto without the prior written consent of the other parties hereto.
(i) (1) The Company hereby confirms to and agrees with Consultant with respect to any and all matters arising out of or in connection with its engagement as a consultant hereunder, that Consultant shall be entitled to receive the benefits of all indemnification provisions contained in the bylaws of the Company to the fullest extent permitted by applicable law at the time of the assertion of any liability against Consultant. Without limiting the generality of the foregoing, the Company hereby covenants and agrees that Consultant shall be entitled to receive any and all indemnification to which Consultant would have been entitled had it or they acted as an officer or director of the Company, including, without limitation, such indemnification benefits as may hereafter be extended or otherwise made available by the Company to its executive officers.
(2) Consultant shall cooperate fully with the Company in the prosecution or defense, as the case may be, of any and all actions, governmental inquiries or other legal proceedings in which Consultant's assistance may be requested by the Company. Such cooperation shall include, among other things, making documents in Consultant's custody or control available to the Company or its counsel, making itself available for interviews by the Company or its counsel, and making itself available to appear as a witness, at deposition, trial or otherwise. Any and all reasonable and necessary vouchered out-of-pocket expenses incurred by Consultant in fulfilling its obligations under this paragraph 13(i) shall be reimbursed by the Company.
(3) The provisions of this Section 13(i) shall survive the termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Services Agreement as of the date first written above.
Euroseas Ltd.
By: /s/ Aristides J. Pittas ---------------------------------- Name: Aristides J. Pittas Title: Chief Executive Officer |
Eurobulk Ltd.
By: /s/ Marcos C. Vassilikos ---------------------------------- Name: Marcos C. Vassilikos Title: Managing Director |
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form F-1 of our report dated June 30, 2005, except for Note 17(1) as to which the date is August 25, 2005, and Note 17(6), as to which the date is November 22, 2005 and Note 17(7), as to which the date is November 25, 2005 relating to the consolidated financial statements of Euroseas Ltd. and subsidiaries appearing in the Prospectus, which is part of this Registration Statement, and to the financial statement schedule of Euroseas Ltd. appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Experts" in such Prospectus.
Deloitte.
Hadjipavlou, Sofianos & Cambanis S.A.
Athens, Greece
December 5, 2005