Registration
No. 333-
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM F-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Crude Carriers Corp.
(Exact Name of Registrant as
Specified in Its Charter)
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Republic of The Marshall Islands
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4412
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N/A
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(IRS Employer
Identification Number)
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Crude Carriers Corp.
3 Iassonos Street,
185 37 Piraeus
Greece
+30 210 458 4950
(Address, including zip code,
and
telephone number, including
area
code, of Registrants
principal
executive offices)
CT Corporation System
111 Eighth Avenue
New York, NY 10011
(212) 894-8800
(Name, address, including zip
code,
and telephone number,
including
area code, of agent for
service)
Copies to:
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Jay Clayton, Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
(212) 558-3445
(telephone number)
(212) 558-3588
(facsimile number)
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Gregory M. Shaw, Esq.
Cravath, Swaine & Moore LLP
CityPoint, One Ropemaker Street
London, EC2Y 9HR, England
+44 207 453 1000
(telephone number)
+44 207 860 1150 (facsimile number)
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, please check the
following
box.
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If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
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If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
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If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
þ
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Smaller reporting
company
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(Do not check if a smaller reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed
Maximum
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Title of Each
Class of
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Aggregate
Offering
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Amount of
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Securities to be
Registered
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Price(2)(3)
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Registration
Fee
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Common Stock, par value $0.0001 per share(1)
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$310,500,000
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$22,138.65
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(1)
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In accordance with
Rule 457(o) of the Securities Act, the number of shares of
Common Stock being registered and the proposed maximum offering
price per share are not included in this table.
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(2)
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Estimated solely for the purpose
of calculating the registration fee pursuant to Rule 457
under the Securities Act of 1933.
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(3)
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Includes Common Stock that may
be sold pursuant to the underwriters over-allotment
option.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
Information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities, and we are not soliciting offers
to buy these securities, in any jurisdiction where the offer or
sale is not permitted.
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PRELIMINARY
PROSPECTUS
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Subject to Completion
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March 1, 2010
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13,500,000
Shares
Common
Stock
This is the initial public offering of our Common Stock. No
public market currently exists for our Common Stock. We are
offering all of the 13,500,000 shares of Common Stock
offered by this prospectus. We expect the public offering price
to be between $19.00 and $21.00 per share.
We have been cleared to apply to list our Common Stock on the
New York Stock Exchange under the symbol CRU.
Investing in our Common Stock involves a high degree of risk.
Before buying any shares, you should carefully read the
discussion of material risks of investing in our Common Stock in
Risk Factors beginning on page 12 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per
Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to us
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$
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$
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The underwriters may also purchase up to an additional 2,025,000
shares of our Common Stock at the public offering price, less
the underwriting discounts and commissions payable by us, to
cover over-allotments, if any, within 30 days from the date
of this prospectus. If the underwriters exercise this option in
full, the total underwriting discounts and commissions will be
$
and our total proceeds, before expenses, will be
$ .
Following this offering, we will have two classes of stock
outstanding, Common Stock and Class B Stock. The rights of
the holders of shares of Common Stock and Class B Stock are
identical, except with respect to voting and conversion. Each
share of Common Stock is entitled to one vote per share. Each
share of Class B Stock is entitled to 10 votes per share
and is convertible at any time at the election of the holder
into one share of Common Stock. The aggregate voting power of
the Class B Stock will be limited to a maximum of 49% of
the voting power of our outstanding Common Stock and
Class B Stock, voting together as a single class.
The underwriters are offering the Common Stock as set forth
under Underwriting. Delivery of the shares will be
made on or
about , 2010.
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UBS
Investment Bank
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BofA Merrill Lynch
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Wells Fargo Securities
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Nordea
Markets
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Oppenheimer & Co.
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Cantor
Fitzgerald & Co.
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Pareto Securities
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RS Platou Markets
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ING
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M/T
Miltiadis M II 162,397 dwt built April 2006
at Daewoo Shipbuilding & Marine Engineering Co., Ltd, South Korea
M/T Alexander the
Great 297,958 dwt under construction
at Universal Shipbuilding Corporation, Ariake, Japan
TABLE OF
CONTENTS
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F-1
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SUMMARY
This section summarizes material information that appears
later in this prospectus and is qualified in its entirety by the
more detailed information and financial statements included
elsewhere in this prospectus. This summary may not contain all
of the information that may be important to you. As an investor
or prospective investor, you should carefully review the entire
prospectus, including the risk factors and the more detailed
information that appears later.
Unless we specify otherwise, when used in this prospectus the
terms Crude Carriers, the Company,
we, our and us refer to
Crude Carriers Corp. References to Capital Maritime
or Manager are to Capital Maritime &
Trading Corp. and its subsidiary Capital Ship Management Corp.,
which will provide to us commercial, technical, administrative
and strategic services.
For the definition of some of the shipping and other terms
used in this prospectus, please see Glossary of Shipping
Terms at the end of this prospectus. Unless otherwise
indicated, all references to dollars and
$ in this prospectus are to, and amounts are
presented in, U.S. Dollars.
OVERVIEW
We are a newly formed transportation company incorporated in the
Marshall Islands in October 2009 to conduct a shipping business
focused on the crude tanker industry. We plan to acquire and
operate a fleet of crude tankers that will transport mainly
crude oil and fuel oil along worldwide shipping routes. Capital
Maritime, an international shipping company, will serve as our
Manager. We intend to leverage the expertise and reputation of
our Manager to pursue growth opportunities in the crude oil
tanker shipping market. We intend to maintain a flexible
approach to chartering with the strategy of optimizing our
selection of the available commercial opportunities over time.
We currently expect to focus on the spot market, including all
types of spot marketrelated engagements such as single
voyage or short-term time charters, but retain the ability to
evaluate and enter into longer-term period charters, including
time- and bareboat charters with terms that may provide for
profit sharing arrangements or with returns that are linked to
spot market indices. We may also charter-in vessels, meaning we
may charter vessels we do not own with the intention of
chartering them in accordance with our chartering and fleet
management strategy.
We have entered into agreements to acquire three modern,
high-specification vessels and will aim to grow our fleet
further through timely and selective acquisitions of vessels in
a manner that is accretive to our earnings, cash flow and net
asset value. We have entered into an agreement to acquire a
modern, 2006-built high-specification Suezmax vessel from
Capital Maritime, our Manager, at a price of
$71.25 million, the average of two independent valuations.
We have also entered into agreements to acquire two newbuilt
very large crude carrier tankers (VLCCs) for
$96.5 million each. We will acquire the Suezmax promptly
following the consummation of this offering and expect delivery
of the VLCCs in March 2010 and June 2010. We intend to finance
our fleet primarily with equity and internally-generated cash
flow. We have entered into a signed commitment letter with
Nordea Bank Finland Plc, London Branch, to obtain a new
$100 million revolving credit facility. We intend to
utilize this credit facility opportunistically for the future
growth of the Company beyond the acquisition of our initial
fleet in a manner that will enhance our earnings, cash flow and
net asset value. We do not expect to use this credit facility to
acquire our initial fleet.
Our operations will be managed, under the supervision of our
board of directors, by Capital Maritime as our Manager. Upon the
closing of this offering, we will enter into a long-term
management agreement pursuant to which our Manager and its
affiliates will apply their expertise and experience in the
tanker industry to provide us with commercial, technical,
administrative and strategic services. The management agreement
will be for an initial term of approximately ten years and will
automatically renew for additional five-year periods unless
terminated in accordance with its terms. We will pay our Manager
fees for the services it provides us as well as reimburse our
Manager for its costs and expenses incurred in providing certain
of these services. In addition, if the management agreement is
terminated under certain circumstances, we will pay our Manager
a termination payment calculated in accordance
1
with a pre-established formula. Please read Our Manager
and Management AgreementManagement Agreement for
further information regarding the management agreement.
At or prior to the closing of this offering, Crude Carriers
Investments Corp., a related party to Capital Maritime, will
make a capital contribution to us of $40 million in
exchange for shares of our Class B Stock pursuant to a
subscription agreement at a price per share equal to the public
offering price in this offering. Our Class B Stock grants
holders 10 votes per share and therefore we expect Crude
Carriers Investments Corp. to have 49% of the voting power of
our shares (a percentage that would be higher absent the 49%
voting cap on shares of Class B Stock held by any
Class B Stock holder, including its affiliates). Upon the
completion of this offering, therefore, holders of our Common
Stock will have 51% of the voting power in the Company and will
have acquired that aggregate position for $270 million,
whereas Crude Carriers Investments Corp. will have 49% of the
voting power in the Company and will have acquired that position
for $40 million. Except as described below, shares of our
Common Stock and our Class B Stock have equivalent economic
rights. Upon certain transfers, shares of Class B Stock
will convert to shares of Common Stock on a one-for-one basis.
Under the subscription agreement between us and Crude Carriers
Investments Corp. for Class B Shares, Crude Carriers
Investments Corp. will be entitled, so long as Capital Maritime
or any of its affiliates is our manager, to subscribe for an
additional number of shares of Class B Stock equal to 2.0%
of the number of shares of Common Stock issued after the
consummation of this offering, excluding any shares of Common
Stock issuable upon the exercise of the underwriters
over-allotment option in this offering. These additional shares
of Class B Stock would be issued to Crude Carriers
Investments Corp. for additional nominal consideration equal to
their aggregate par value of $0.0001 per share. Based on a
capital contribution of $40 million by Crude Carriers
Investments Corp. and an offering of shares at a price of
$20.00 per share (the midpoint of the expected offering
price), Crude Carriers Investments Corp. would therefore hold,
at the completion of this offering, 2,000,000 shares of
Class B Stock and a 12.9 percent economic interest in
the Company, while the holders of Common Stock would hold
13,500,000 shares of Common Stock and a 87.1 percent
economic interest in the Company.
We intend to distribute to our shareholders on a quarterly basis
substantially all of our net cash flow less any amount required
to maintain a reserve that our Board determines is appropriate.
See Our Dividend Policy and Restrictions on
Dividends.
OUR RELATIONSHIP
WITH CAPITAL MARITIME
One of our key strengths is our relationship with Capital
Maritime, our Manager, an international shipping company that
owns and manages a fleet of tanker and dry bulk vessels. Capital
Maritime has developed relationships with major international
charterers including oil majors, traders, shipbuilders and
financial institutions through its management team. Capital
Maritime is qualified to engage in spot and long-term period
business with a number of oil majors including BP p.l.c.,
Royal Dutch Shell plc, StatoilHydro ASA, Chevron Corporation,
ExxonMobil Corporation and Total S.A. and has a history of
conducting business with the major traders in the spot market
including Vitol Group, ST Shipping and Transport Pte Ltd
(the shipping affiliate of Glencore International AG) and
Trafigura Beheer BV. We believe that we will benefit from
these relationships in various respects, including that Capital
Maritimes qualification to do business with these and
other companies will allow us to engage in commercial
relationships with those companies without having to satisfy
their qualification requirements independently. Capital
Maritimes management team includes several executives with
experience in the shipping industry who we believe have a
demonstrated track record of managing the strategic, commercial,
technical and financial aspects of shipping businesses and
maintaining cost-competitive and efficient operations. Because
Capital Maritime will own only one tanker vessel upon the
consummation of this offering, we do not expect that Capital
Maritime will be a significant competitor. We estimate that
vessels owned or managed by Capital Maritime ship less than 1%
of the worlds seaborne oil.
At the time of this offering, we do not own any vessels. We have
entered into a contract with Capital Maritime to acquire the
Miltiadis M II, a modern, 2006-built Suezmax crude tanker (the
Initial
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Suezmax), for $71.25 million, the average of two
valuations from independent ship brokers (one such broker valued
the Initial Suezmax at $71 million and another at between
$72 million and $71 million), by purchasing all of the
shares of the subsidiary of Capital Maritime that owns it. The
Initial Suezmax was constructed by Daewoo
Shipbuilding & Marine Engineering Co. Ltd. to include
high specification features, including increased maneuvering
capacity, adverse weather condition capacity (including ice with
a thickness of 0.8 meters or less) and the ability to transport
or store crude oil, fuel oil and clean petroleum products.
According to industry data, a total of four Suezmax vessels with
similar features have been built to date. Consummation of this
transaction is contingent on the completion of this offering and
it is expected to take place simultaneously with the completion
of this offering. The Initial Suezmax is currently employed in
the spot market. We believe that the terms of sale for the
Initial Suezmax are consistent with similar transactions between
unrelated third parties. The Initial Suezmax is currently
subject to a mortgage and certain other encumbrances entered
into in connection with Capital Maritimes financing of the
purchase of the Initial Suezmax. Prior to consummating the sale
of the Initial Suezmax, Capital Maritime will cause the mortgage
over the Initial Suezmax to be released and will use its
reasonable best efforts to cause the cancellation and discharge
of the other encumbrances on the Initial Suezmax in connection
with the financing. See Index to Financial
StatementsCooper Consultants Co.Notes to Financial
Statements3(b) for a description of the financing
and the encumbrances it created. We expect these encumbrances to
be cancelled and released before or at the completion of this
offering.
Capital Maritime has agreed to purchase two very large crude
carrier tankers newly-built at Universal Shipyards in Japan (the
Universal VLCCs) for $96.5 million each.
Capital Maritime has made a 20% deposit on these vessels. We
have entered into contracts with Capital Maritime to acquire its
rights to purchase the subisidiaries that hold the rights to the
Universal VLCCs upon the consummation of this offering in
exchange for a payment equal to the deposit made by Capital
Maritime, plus a sale and purchase fee equal to 1% of the
purchase price of the Universal VLCCs pursuant to the terms of
the management agreement with our Manager. We expect the fee
paid to Capital Maritime in connection with the acquisition of
each vessel to be $965,000 pursuant to our management agreement
with Capital Maritime. We have entered into these contracts with
Capital Maritime rather than contracting directly with the
entities selling the Universal VLCCs because we did not have the
necessary funds available to make the deposits necessary to
secure the Universal VLCCs when the opportunity to purchase them
arose. Capital Maritime had the means to capitalize on the
acquisition opportunity at the time it was presented. Upon the
consummation of this offering, we will bear the entire risk of
the loss of the $38.6 million deposit on the Universal
VLCCs.
Substantially all of the proceeds of this offering and the
capital contribution from Crude Carriers Investments Corp. will
be used to purchase the Universal VLCCs and the Initial Suezmax.
There are various factors that will affect whether and at what
times we acquire vessels, but we currently estimate that we will
purchase and take delivery of the Initial Suezmax upon the
consummation of this offering, expect delivery of one Universal
VLCC in March 2010 and expect delivery of the other Universal
VLCC in June 2010. We may enter into additional contracts to
acquire vessels prior to the consummation of this offering.
Various factors could affect our vessel acquisition estimates,
including delays in delivery of the Universal VLCCs. Please read
the various risks discussed under Risk FactorsRisk
Factors Related to Our Planned Business &
OperationsIndustry Specific Risk Factors, especially
Delays, cancellations or non-completion of
deliveries of newbuilding vessels could harm our operating
results, for more information.
Our initial fleet will be comprised of very large crude carrier
vessels (known as VLCCs) and Suezmax vessels, and
while we intend to evaluate all classes of crude tanker vessels,
including Aframax and Panamax tanker vessels, for potential
future acquisitions we anticipate that our fleet will continue
to be comprised primarily of VLCC and Suezmax vessels. In
evaluating additional vessel purchases, we plan to focus on
modern vessels with specifications that we believe will provide
an attractive return on equity and will be accretive to earnings
and cash flow. Based on current market prices, we expect the
purchase price for such vessels would likely be in a range from
$75 million to $100 million for a VLCC vessel and in a
range from $55 million to $75 million for a Suezmax
vessel. In addition to the Initial
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Suezmax, Capital Maritime currently owns one additional modern,
double-hull crude oil Suezmax tanker that we may elect to review
as a potential acquisition in the future. Any purchase of a
vessel from Capital Maritime or its affiliates will be subject
to the approval of our Board of Directors. Our Board of
Directors may (but is not obligated to) refer the purchase to a
committee of independent directors for a recommendation, but our
Board of Directors would not be bound by such a recommendation.
However, in considering such a transaction, our Board of
Directors will consider valuations of the vessel generated by
independent
third-party
brokers.
Following the consummation of this offering, we expect to grant
management options to purchase our Common Stock.
We intend to maintain a flexible approach to chartering with the
strategy of optimizing our selection of the available commercial
opportunities over time. We currently expect to focus on the
spot market, including all types of spot marketrelated
employment such as single voyage or short-term time charters,
but retain the ability to evaluate and enter into longer-term
period charters, including time- and bareboat charters with
terms that may provide for profit sharing arrangements or with
returns that are linked to spot market indices. Our goal is to
provide shareholders with the opportunity to invest in a company
with a strategic focus on the tanker market that intends to
maintain a strong balance sheet and seeks to distribute regular
dividends based on cash flows in excess of any amount required
to maintain a reserve that our Board determines is appropriate.
FOUNDATIONS OF
OUR BUSINESS
We believe that we will possess a number of strengths that will
provide us with a competitive advantage in the tanker shipping
industry, including the following:
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Our Chairman and Chief Executive Officer, Board of Directors
and management team have experience in the shipping
industry.
Evangelos M. Marinakis, the Chairman of
our Board of Directors and our Chief Executive Officer, is the
founder and Chief Executive Officer of Capital Maritime and the
founder and Chairman of Capital Product Partners L.P., a
NASDAQ-listed product tanker company. Over the past
18 years, Mr. Marinakis has overseen the operations of
Capital Maritime and its predecessor companies as it has grown
from its initial fleet of 7 vessels to 36 owned, managed or
contracted vessels today, 19 of which are owned by Capital
Product Partners L.P. Mr. Marinakis has also overseen the
operations of Capital Product Partners L.P. since its inception
in 2007. Our management team also includes Ioannis E. Lazaridis,
our President and the Chief Executive and Chief Financial
Officer of Capital Product Partners L.P.; Gerasimos G.
Kalogiratos, our Chief Financial Officer, who has 8 years
of experience in the shipping and finance industries,
specializing in shipping finance and vessel acquisitions; and
Andreas C. Konialidis, our Chartering Manager, who has over
11 years of experience in the shipping industry,
specializing in chartering and commercial management of vessels,
and who will oversee our Managers chartering activities.
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Our Manager has a track record in the commercial management
of vessels.
Our Manager has a demonstrated track
record of managing the commercial, technical and financial
aspects implicated by our business. Our Managers team is
experienced and has displayed expertise in identifying
profitable chartering and vessel sale and acquisition
opportunities, having purchased and sold a number of vessels and
negotiated numerous charters over the past two decades. We
expect the experience and expertise of our Manager and its
employees to be key to our growth.
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We intend to pursue a strategy of low leverage to maintain a
strong balance sheet.
We will finance our initial
fleet primarily with equity and internally-generated cash flow.
We have also entered into a signed commitment letter with Nordea
Bank Finland Plc, London Branch, to obtain a new
$100 million revolving credit facility. Any future vessel
acquisitions are expected to be financed primarily through
future equity follow-on offerings and internally-generated cash
flow. We intend to utilize this credit facility
opportunistically for the future growth of the Company beyond
the acquisition of our initial fleet in a manner that will
enhance our earnings cash flow and net asset
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value. We do not expect to use this credit facility to acquire
our initial fleet. In the event we utilize our credit facility,
we expect to maintain low levels of leverage.
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We intend to maintain an efficient management structure with
competitive operating costs.
Our Manager will
provide the commercial and technical management of our fleet
pursuant to a management agreement (the Management
Agreement). Capital Maritime will apply its experience in
successfully managing the commercial and technical operations of
its own fleet, including overseeing and arranging repairs,
surveys, inspections in drydock, vetting by charterers,
budgeting, operations, sale and purchase transactions and
chartering in order to obtain the best possible operating
performance from the vessels in our fleet. We expect to realize
cost benefits based on a network of providers of vessel
supplies, bunkers suppliers, crewing agencies, insurers, and
other service providers that Capital Maritime and its management
team have established over the years. See Our Manager and
Management AgreementManagement Agreement. We believe
our management structure will enhance the scalability of our
business, allowing us to expand our fleet without substantial
increases in overhead costs.
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We believe we will benefit from Capital Maritimes
history of satisfying the operational, safety, environmental and
technical vetting criteria imposed by oil majors and its
relationships within the shipping industry.
We
believe Capital Maritimes reputation within the shipping
industry and its network of relationships with many of the
worlds leading oil companies, commodity traders and
shipping companies will provide numerous benefits that are key
to our long-term growth and success. Capital Maritime is among a
limited number of shipping managers that have successfully
satisfied the operational, safety, environmental and technical
vetting criteria of some of the worlds most selective
major international oil companies, including BP p.l.c., Royal
Dutch Shell plc, StatoilHydro ASA, Chevron Corporation,
ExxonMobil Corporation and Total S.A., and has qualified to do
business with them. Although the worlds leading oil
companies do not disclose lists of companies qualified to do
business with them, we estimate that, historically, at any one
time less than approximately 30 shipping managers are qualified
to do so. Capital Maritime has also been qualified to charter
vessels and enter into spot charter agreements with major
refiners and traders such as Sunoco Inc, Koch Industries,
Reliance Petrochemical Ltd, Vitol Group, ST Shipping and
Transport Pte Ltd (the shipping affiliate of Glencore
International AG), Trafigura Beheer BV., LITASCO SA (a
subsidiary of Lukoil Oil Company), NOC Petroleum Group, S.A.,
Independent Petroleum Group, Addax Petroleum Corporation (a
subsidiary of China Petrochemical Corporation) and Morgan
Stanley. As our Manager, Capital Maritimes qualification
to do business with these and other companies will allow us to
engage in commercial relationships with them without having to
satisfy their qualification requirements independently. We
believe that these relationships of our Manager and its track
record within the shipping industry are likely to lead to
greater asset acquisition and chartering opportunities for us
and will provide significant opportunities for future growth.
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We believe we will benefit from Capital Maritimes
ability to form strategic relationships with key players in the
shipping industry.
Capital Maritime has a history
of forming strategic relationships with key players in the
shipping industry including oil majors and traders. We believe
that the strategic relationships our Manager has cultivated and
its history of conducting repeat business will give us an
advantage in accessing certain business opportunities and
understanding our customers commercial requirements.
Although we may benefit from Capital Maritimes prior
relationships with oil majors and traders, vessels owned and
managed by Capital Maritime do not ship a significant percentage
of the worlds seaborne oil.
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We intend to acquire a modern, high-quality fleet of tanker
vessels.
Our initial fleet of vessels will have
high specifications and an average age of approximately one
year. Further vessel acquisitions will target modern vessels
with high specifications. We believe that owning a modern,
high-quality fleet is more attractive to charterers, reduces
operating costs and allows our fleet to be more reliable, which
improves utilization. The tanker shipping industry is highly
regulated and we aim to own and operate vessels that satisfy all
current and pending safety and environmental regulations. In
certain circumstances, we will seek to acquire sister ships that
we expect will provide further operating
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efficiencies. We expect that the combination of these factors
will provide us with a competitive advantage in securing
favorable employment for our vessels.
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BUSINESS
STRATEGY
Our strategy is to manage and expand our fleet in a manner that
produces strong cash flows, which, in turn, fund dividends to
our shareholders. Key elements of our business strategy include:
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Strategically deploy our vessels in order to optimize the
opportunities in the chartering market.
We intend
to maintain a flexible approach to chartering with the strategy
of optimizing our selection of the available commercial
opportunities over time. We currently expect to focus on the
spot market, including all types of spot marketrelated
employment such as single voyage or short-term time charters,
but retain the ability to evaluate and enter into longer-term
period charters, including time- and bareboat charters with
terms that may provide for profit sharing arrangements or with
returns that are linked to spot market indices. We may also
charter-in vessels, meaning we may charter vessels we do not own
with the intention of chartering them in accordance with our
chartering and fleet management strategy.
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Strategically develop and grow our fleet.
We
intend to acquire modern, high-quality tanker vessels through
timely and selective acquisitions of vessels in a manner that is
accretive to our earnings and cash flow. We currently view VLCC
and Suezmax vessel classes as providing attractive return
characteristics but will evaluate all classes of crude oil
tanker vessels for potential acquisition, including Aframax and
Panamax tankers. A key element of our acquisition strategy will
be to pursue vessels at attractive valuations relative to the
valuation of our public equity. In the current market, asset
values in the tanker shipping industry are tending towards
levels significantly below average historical values. We believe
that these circumstances present an opportunity for us to seek
to establish and then grow our fleet at favorable prices.
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Return a substantial portion of our cash flow to shareholders
through quarterly dividends.
We intend to
distribute to our shareholders on a quarterly basis
substantially all of our net cash flow less any amount required
to maintain a reserve that our Board determines from time to
time is appropriate for the operation and future growth of our
fleet. See Our Dividend Policy and Restrictions on
Dividends.
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Maintain a strong balance sheet.
We believe
that primarily using equity and internally-generated cash flows
to finance our business will provide for a strong balance sheet
and, as a result, greater flexibility to capture market
opportunities. Although our use of equity rather than debt
financing may result in substantial dilution to our
shareholders, we believe that this approach is suited to the
current global economic conditions, including the relatively
restrictive credit environment. During periods of relatively low
charter rates, revenue may be significantly reduced and, for
levered companies, debt service can be a significant additional
burden and can further limit the opportunities available to such
companies by, for example, causing them to enter into long term
charters at historically low rates. Currently, the spot market
is experiencing a period of substantially low rates as compared
to historic averages. Historical tanker spot market rates have
been volatile as a result of the many conditions and factors
that can affect the price, supply and demand for tanker
capacity. The current global economic crisis has reduced demand
for transportation of oil over longer distances. It is our
current expectation that spot rates will increase as any
significant recovery in the world economy and demand and supply
of oil occurs. While a failure to recover from this crisis could
leave such rates stagnant or lead to a further decline, we
believe that having a strong balance sheet and trading in the
spot market will allow us to more quickly capture higher charter
rates when they increase while allowing us the flexibility to
take advantage of other attractive business opportunities when
they arise.
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Operate a high-quality fleet.
We intend to
maintain a modern, high-quality fleet that satisfies all current
and pending safety and environmental standards and complies with
charterer requirements through our Managers comprehensive
maintenance program. In addition, our Manager will maintain the
quality of our vessels by carrying out regular inspections, both
while in port and at sea.
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Maintain cost-competitive, highly efficient
operations.
Under the Management Agreement,
Capital Maritime will coordinate and oversee the commercial and
technical management of our fleet. We believe that Capital
Maritime will be able to do so at a cost to us that would be
competitive to what could be achieved by performing these
functions in-house and that Capital Maritimes rates are
competitive with those that would be available to us through
third-party managers. Vessels managed by Capital Maritime have
been distinguished as top performing vessels in the BP fleet in
the last two years. We expect the efficiency and operational
expertise of the Capital Maritime fleet to provide our vessels
with a competitive advantage over other charterers in the market.
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OUR DIVIDEND
POLICY
We intend to pay a variable quarterly dividend based on our cash
available for distribution, which represents net cash flow
during the previous quarter less any amount required to maintain
a reserve that our board of directors determines from time to
time is appropriate for the operation and future growth of our
fleet, taking into account (among other factors) contingent
liabilities, the terms of any credit facilities we may enter
into, our other cash needs and the requirements of the laws of
the Republic of The Marshall Islands. These reserves may cover,
among other things, drydocking, repairs, growth, claims,
liabilities and other obligations, debt amortization,
acquisitions of additional assets and working capital. Dividends
will be paid equally on a per-share basis between our Common
Stock and our Class B Stock. The declaration and payment of
dividends is at the discretion of our board of directors, and
there can be no assurance that we will not reduce or eliminate
our dividend. Please read Our Dividend Policy and
Restrictions on Dividends and Risk Factors for
a more detailed description of the calculation of cash available
for distribution and various factors that could reduce or
eliminate our ability to pay dividends.
SUBSCRIPTION AND
VOTING ARRANGEMENTS WITH CRUDE CARRIERS INVESTMENTS CORP. AND
CERTAIN ARRANGEMENTS WITH CAPITAL MARITIME
At or prior to the closing of this offering, Crude Carriers
Investments Corp., a related party to Capital Maritime, will
make a capital contribution to us of $40 million in
exchange for shares of our Class B Stock pursuant to a
subscription agreement (the Subscription Agreement)
at a price per share equal to the public offering price in this
offering. Our Class B Stock grants holders 10 votes per
share and therefore we expect Crude Carriers Investments Corp.
to have 49% of the voting power of our shares (a percentage that
would be higher absent the 49% voting cap on shares of
Class B Stock held by any Class B Stock holder,
including its affiliates). Upon the completion of this offering,
therefore, holders of our Common Stock will have 51% of the
voting power in the Company and will have acquired that
aggregate position for $270 million, whereas Crude Carriers
Investments Corp. will have 49% of the voting power in the
Company and will have acquired that position for
$40 million. Except as provided in the Subscription
Agreement, shares of our Common Stock and our Class B Stock
have equivalent economic rights. Upon certain transfers, shares
of Class B Stock will convert to shares of Common Stock on
a one-for one basis.
Under the Subscription Agreement, Crude Carriers Investments
Corp. will be entitled, so long as Capital Maritime or any of
its affiliates is our manager, to subscribe for an additional
number of shares of Class B Stock equal to 2.0% of the
number of shares of Common Stock issued after the consummation
of this offering, excluding any shares of Common Stock issuable
upon the exercise of the underwriters over-allotment
option in this offering. These additional shares of Class B
Stock would be issued to Crude Carriers Investments Corp. for
additional nominal consideration equal to their aggregate par
value of $0.0001 per share. Based on a capital contribution of
$40 million by Crude Carriers Investments Corp. and an
offering of shares at a price of $20.00 per share (the midpoint
of the expected offering price), Crude Carriers Investments
Corp. would therefore hold, at the completion of this offering,
2,000,000 shares of Class B Stock and a
12.9 percent economic interest in the Company, while the
holders of Common Stock would hold 13,500,000 shares of
Common Stock and a 87.1 percent economic interest in the
Company.
7
To preserve our ability to have certain items of our income be
exempt from United States federal income taxation under
Section 883 of the United States Internal Revenue Code of
1986, as amended (the Code), our amended and
restated articles of incorporation will provide that if, at any
time, any person or group other than Crude Carriers Investments
Corp. owns beneficially 5% or more of the Common Stock then
outstanding, then any Common Stock owned by that person or group
in excess of 4.9% may not be voted. The voting rights of any
such shareholders that would have been in excess of 4.9% shall
be redistributed pro rata among other shareholders of our Common
Stock holding less than 5.0% of our Common Stock. In addition,
if Crude Carriers Investments Corp., its affiliates, their
transferees and persons who acquired such shares with the prior
approval of our Board of Directors, owns beneficially, and
taking into account all applicable attribution rules under the
Code, 50% or more of our Common Stock then outstanding and such
shareholders are not qualified shareholders under the applicable
U.S. Department of the Treasury (Treasury)
regulations sufficient to reduce the nonqualified
shareholders stake in the Common Stock below 50%, then any
such Common Stock owned by such shareholders in excess of 49%
may not be voted on any matter (except for purposes of
nominating a person for election to our board). The voting
rights of any such shareholder that is not a qualified
shareholder in excess of 49% will be redistributed pro rata
among the other Common Stock holders holding less than 4.9% of
the Common Stock.
As our Manager, Capital Maritime will manage our business
pursuant to the Management Agreement, under which it will
provide to us commercial, technical, administrative, investor
relations and strategic services. Commercial services primarily
involve vessel chartering and vessel sale and purchase.
Technical services primarily include vessel operation,
maintenance, obtaining appropriate insurance, regulatory,
vetting and classification society compliance, purchasing and
crewing. Administrative services primarily include accounting,
legal and financial compliance services. Investor relations
services primarily include assisting with the preparation and
dissemination of information, interacting with investors and
engaging in public relations activities. Strategic services
primarily include providing advice on acquisitions and
dispositions, financings, strategic planning and general
management of our business. We will pay our Manager a fee for
these services and reimburse our Manager for the reasonable
direct or indirect expenses it incurs in providing us such
services, including the cost of Manager personnel who perform
services for us. We expect that Capital Maritime will provide us
with the majority of our staff. However, our board of directors
and our executive officers have the authority to hire additional
staff as they deem necessary.
We will also enter into (a) the business opportunities
agreement by which we will have a right to take advantage of
certain business opportunities that may be attractive to Capital
Maritime and vice versa and (b) an agreement with Crude
Carriers Investments Corp. by which we will provide to it and
its affiliates registration rights under the Securities Act of
1933, as amended (the Securities Act), with respect
to shares of our Common Stock and Class B Stock owned by it
or them.
For further details about our agreements with Capital Maritime
and Crude Carriers Investments Corp., please read Our
Manager and Management AgreementManagement
Agreement, and Certain Relationships and
Related-Party Transactions.
CORPORATE
INFORMATION
We maintain our principal executive offices at 3 Iassonos
Street, 185 37 Piraeus, Greece. Our telephone number at that
address is +30 210 4584950.
8
THE OFFERING
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Common Stock offered
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13,500,000 shares.
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15,525,000 shares if the underwriters exercise their
over-allotment option in full.
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Shares outstanding immediately after this offering
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13,500,000 shares of Common Stock (assuming no exercise of
the underwriters over-allotment option).
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2,000,000 shares of Class B Stock (assuming an initial
public offering price of $20.00 per share, the mid-point of the
range shown on the cover of this prospectus).
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Use of proceeds
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We intend to use substantially all of the proceeds from this
offering, along with the capital contribution from Crude
Carriers Investments Corp., to purchase our initial fleet.
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Dividend policy
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We intend to pay a variable quarterly dividend based on our cash
available for distribution, which represents net cash flow
during the previous quarter less any amount required to maintain
a reserve that our board of directors determines from time to
time is appropriate for the operation and future growth of our
fleet, taking into account (among other factors) contingent
liabilities, the terms of any credit facilities we may enter
into, our other cash needs and the requirements of the laws of
the Republic of The Marshall Islands. These reserves may cover,
among other things, drydocking, repairs, growth, claims,
liabilities and other obligations, debt amortization,
acquisitions of additional assets and working capital. There is
no guarantee that we will pay any dividends on our shares of
Common Stock in any quarter, and our payment of dividends will
be subject to compliance Marshall Islands law.
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Class B Stock
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Upon the closing of this offering, Crude Carriers Investments
Corp. will own all of our outstanding shares of Class B
Stock. The Class B Stock is not being registered in this
offering. The principal difference between our Common Stock and
our Class B Stock is that each share of Class B Stock
entitles the holder thereof to 10 votes on matters presented to
our shareholders, while each share of Common Stock entitles the
holder thereof to only one vote on such matters. However, the
voting power of the Class B Stock held by any entity and
its affiliates is limited to an aggregate maximum of 49% of the
combined voting power of our Common Stock and Class B
Stock. Holders of shares of Class B Stock may elect at any
time to have such shares converted into shares of Common Stock
on a
one-for-one
basis.
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In addition, upon any transfer of shares of Class B Stock
to a holder other than Crude Carriers Investments shares Corp.
or any of its affiliates, such shares shall automatically and
irrevocably convert into shares of Common Stock on a
one-for-one
basis.
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If the aggregate number of shares of Common Stock and Class B
Stock beneficially owned by Crude Carriers Investments
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Corp. and its affiliates falls below the number of shares of
Class B Stock issued to Crude Carriers Investments Corp.
for its $40 million subscription made in connection with
this offering (estimated to be 2,000,000 shares assuming an
initial public offering price of $20 per share, the mid-point of
the range shown on the cover of this prospectus, such number of
shares to be adjusted for any subdivision or conversion of the
Class B Stock) then all shares of our Class B Stock will
automatically convert into shares of our Common Stock.
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Pursuant to the Subscription Agreement, Crude Carriers
Investments Corp. will be entitled, so long as Capital Maritime
or any of its affiliates is our manager, to subscribe for an
additional number of shares of Class B Stock equal to 2.0%
of the number of shares of Common Stock issued, excluding shares
of Common Stock issued in this offering, shares of Common Stock
issued under our 2010 Equity Incentive Plan (see
Management2010 Equity Incentive Plan) and
future equity compensation. These additional shares would be
issued for additional nominal consideration equal to their par
value of $0.0001 per share.
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Voting Rights
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To preserve our ability to have certain items of our income be
exempt from United States federal income taxation under
Section 883 of the Code, if, at any time, any person or
group other than Crude Carriers Investments Corp. owns
beneficially 5% or more of the Common Stock then outstanding,
then any Common Stock owned by that person or group in excess of
4.9% may not be voted. The voting rights of any such
shareholders in excess of 4.9% shall be redistributed pro rata
among other shareholders of our Common Stock holding less than
5.0% of our Common Stock.
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Tax considerations
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We believe that under current United States federal income tax
law, some portion of the distributions you receive from us will
constitute dividends, and if you are an individual citizen or
resident of the United States or a U.S. estate or trust and meet
certain holding period requirements, then such dividends are
expected to be taxable as qualified dividend income
subject to a maximum 15% United States federal income tax rate
(on dividends paid in taxable years beginning before
January 1, 2011). Distributions that are not treated as
dividends will be treated first as a non-taxable return of
capital to the extent of your tax basis in your Common Stock and
thereafter as capital gain.
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NYSE listing
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We have been cleared to apply to have our Common Stock approved
for listing on the New York Stock Exchange under the symbol
CRU.
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Unless we indicate otherwise or the context otherwise requires,
all information in this prospectus assumes that the underwriters
do not exercise their over-allotment option.
10
RISK
FACTORS
Investing in our Common Stock involves substantial risk. You
should carefully consider all the information in this prospectus
prior to investing in our Common Stock. In particular, we urge
you to consider carefully the factors set forth in the section
of this prospectus entitled Risk Factors beginning
on page 12.
11
RISK FACTORS
Any investment in our Common Stock involves a high degree of
risk. You should carefully consider the following risk factors
together with all of the other information included in this
prospectus when evaluating an investment in our Common Stock.
Some of the following risks relate principally to us and our
business and the industry in which we operate. Other risks
relate principally to the securities market and ownership of our
shares.
If any of the following risks actually occurs, our business,
financial condition, operating results or cash flows could be
materially adversely affected. In that case, we might not be
able to pay dividends on shares of our Common Stock, the trading
price of our Common Stock could decline, and you could lose all
or part of your investment.
RISK FACTORS
RELATED TO OUR PLANNED BUSINESS & OPERATIONS
Industry Specific
Risk Factors
The current
global economic downturn may negatively impact our
business.
In the current global economy, operating businesses have been
facing tightening credit, weakening demand for goods and
services, deteriorating international liquidity conditions, and
declining markets. Oil demand has contracted sharply as a result
of the global economic slow down. Lower demand for crude oil as
well as diminished trade credit available for the trading of
such cargoes have led to decreased demand for tanker vessels,
creating downward pressure on charter rates. See The
International Tanker Shipping IndustryCharter
Rates & Asset Values. If the current global
economic environment persists or worsens, we may be negatively
affected in the following ways:
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We may not be able to employ our vessels at favorable charter
rates or operate our vessels profitably.
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The market value of our vessels could significantly decrease,
which may cause us to recognize losses if any of our vessels are
sold or if their values are impaired.
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The occurrence of any of the foregoing could have a material
adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends.
Fluctuations in charter rates and tanker values result from
changes in the supply and demand for tanker capacity and changes
in the supply and demand for oil and oil products.
The factors affecting the supply and demand for tankers are
outside of our control, and the nature, timing and degree of
changes in industry conditions are unpredictable.
The factors that influence demand for tanker capacity include:
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demand for oil and oil products;
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supply of oil and oil products;
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regional availability of refining capacity;
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acts of God and natural disasters including, but not limited to,
hurricanes and typhoons;
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global and regional economic and political conditions, including
developments in international trade, fluctuations in industrial
and agricultural production and armed conflicts;
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the distance oil and oil products are to be moved by sea;
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increases in the production of oil in areas linked by pipelines
to consuming areas, the extension of existing, or the
development of new, pipeline systems in markets we may serve, or
the conversion of existing non-oil pipelines to oil pipelines in
those markets;
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changes in seaborne and other transportation patterns;
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Risk
factors
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weather;
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competition from alternative sources of energy, including
nuclear power, natural gas and coal; and
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refinery utilization and maintenance.
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The factors that influence the supply of tanker capacity include:
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the number of newbuilding deliveries;
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the scrapping rate of older vessels;
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the price of steel;
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conversion of tankers to other uses;
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the successful implementation of the single hull phase out;
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port and canal congestion;
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the number of vessels that are out of service; and
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environmental and other concerns and regulations.
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In addition to the prevailing and anticipated freight rates,
factors that affect the rate of newbuilding, scrapping and
laying-up include newbuilding prices, secondhand vessel values
in relation to scrap prices, costs of bunkers and other
operating costs, costs associated with classification society
surveys, normal maintenance and insurance coverage, the
efficiency and age profile of the existing fleet in the market
and government and industry regulation of maritime
transportation practices, particularly environmental protection
laws and regulations. These factors influencing the supply of
and demand for shipping capacity are outside of our control, and
we may not be able to correctly assess the nature, timing and
degree of changes in industry conditions.
We anticipate that the future demand for our tanker vessels will
be dependent upon economic growth in the worlds economies,
including the Organisation for Economic Co-operation and
Development (OECD) countries, China and India,
seasonal and regional changes in demand, changes in the capacity
of the global tanker vessel fleet and the sources and supply of
tanker cargo to be transported by sea including output by member
states of the Organization for Petroleum Exporting Countries
(OPEC), West African oil producing countries and the
former Soviet Union (FSU). Adverse economic,
political, social or other developments could have a material
adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends.
Historically, the tanker markets have been volatile as a result
of the many conditions and factors that can affect the price,
supply and demand for tanker capacity. The current global
economic crisis may reduce demand for transportation of oil over
longer distances and supply of tankers to carry that oil, which
may have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay
dividends.
Changes in the
oil markets could result in decreased demand for our vessels and
services.
Demand for our vessels and services in transporting oil will
depend upon world and regional oil markets. Any decrease in
shipments of crude oil in those markets could have a material
adverse effect on our business, financial condition and results
of operations. Historically, those markets have been volatile as
a result of the many conditions and events that affect the
price, production and transport of oil, including competition
from alternative energy sources. In the long-term it is possible
that oil demand may be reduced by an increased reliance on
alternative energy sources, a drive for increased efficiency in
the use of oil as a result of environmental concerns or high oil
prices. The current recession affecting the U.S. and world
economies may result in protracted reduced consumption of oil
products and a decreased demand for our vessels and lower
charter rates, which could have a material adverse effect on our
business, results of operations, cash flows, financial condition
and ability to pay dividends.
13
Risk
factors
Charterhire rates
for tanker vessels are volatile and are currently at relatively
low levels as compared to recent levels and may further decrease
in the future, which may adversely affect our
earnings.
Oil tanker charterhire rates are sensitive to changes in demand
for and supply of vessel capacity and consequently are volatile.
Pricing of oil transportation services occurs in a highly
competitive global tanker charter market. Charterhire rates are
at relatively low rates as compared to recent levels. See
The International Tanker Shipping IndustryCharter
Rates & Asset Values. There can be no assurance
that the tanker charter market will recover over the next
several months and the market could continue to decline further.
These circumstances, which result from the economic dislocation
worldwide and the disruption of the credit markets, have had a
number of adverse consequences for tanker shipping, including,
among other things:
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an absence of financing for vessels;
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no active second-hand market for the sale of vessels;
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extremely low charter rates, particularly for vessels employed
in the spot market, which might not be sufficient to cover for
the vessels operating expenses;
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widespread loan covenant defaults in the tanker shipping
industry; and
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declaration of bankruptcy by some operators, traders and
shipowners as well as charterers.
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The occurrence of one or more of these events could adversely
affect our business, results of operations, cash flows,
financial condition and ability to pay dividends.
The process for
obtaining longer period charters is highly
competitive.
Medium- to long-term time charters and bareboat charters have
the potential to provide income at pre-determined rates over
more extended periods of time. However, the process for
obtaining longer term time charters and bareboat charters is
highly competitive and generally involves a lengthy, intensive
and continuous screening and vetting process and the submission
of competitive bids that often extends for several months. In
addition to the quality, age and suitability of the vessel,
longer term shipping contracts tend to be awarded based upon a
variety of other factors relating to the vessel operator,
including:
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the operators environmental, health and safety record;
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compliance with the International Maritime Organization
(IMO) (the United Nations agency for maritime safety
and the prevention of marine pollution by ships) standards and
the heightened industry standards that have been set by some
energy companies;
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shipping industry relationships, reputation for customer
service, technical and operating expertise;
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shipping experience and quality of ship operations, including
cost-effectiveness;
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quality, experience and technical capability of crews;
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the ability to finance vessels at competitive rates and overall
financial stability;
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relationships with shipyards and the ability to obtain suitable
berths;
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construction management experience, including the ability to
procure on-time delivery of new vessels according to customer
specifications;
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willingness to accept operational risks pursuant to the charter,
such as allowing termination of the charter for force majeure
events; and
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competitiveness of the bid in terms of overall price.
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14
Risk
factors
We may have
trouble competing for medium- to long-term charters and our
entry into such charters could negatively impact our
returns.
It is likely that we will face substantial competition for
medium- to long-term charter business from a number of
experienced companies. Many of these competitors might have
significantly greater financial resources than we do. It is also
likely that we will face increased numbers of competitors
entering into our transportation sectors. Many of these
competitors have strong reputations and extensive resources and
experience. Increased competition may cause greater price
competition, especially for medium- to long-term charters.
As a result of these factors, we may be unable to expand our
relationships with customers or obtain new customers for medium-
to long-term time charters or bareboat charters on a profitable
basis, if at all. However, if we employ our vessels under longer
term time charters or bareboat charters, our vessels may not be
available for trading in the spot market during an upturn in the
tanker market cycle, when spot trading may be more profitable.
If we cannot successfully employ our vessels in profitable time
charters our results of operations and operating cash flow could
be adversely affected.
Failure to
fulfill oil majors vetting processes might adversely
affect the employment of our vessels in the spot and period
market.
Shipping in general and crude oil, refined product and chemical
tankers in particular have been, and will remain, heavily
regulated. Many international and national rules, regulations
and other requirementswhether imposed by the
classification societies, international statutes, national and
local administrations or industrymust be complied with in
order to enable a shipping company to operate and a vessel to
trade.
Traditionally there have been relatively few commercial players
in the oil trading business and the industry is continuously
being consolidated. The so called oil majors, such
as ExxonMobil, BP p.l.c., Royal Dutch Shell plc, Chevron,
ConocoPhillips and Total S.A., together with a few smaller
companies, represent a significant percentage of the production,
trading and, especially, shipping (terminals) of crude and oil
products world-wide.
Concerns for the environment have led the oil majors to develop
and implement a strict due diligence process when selecting
their commercial partners, especially vessels and vessel
operators. The vetting process has evolved into a sophisticated
and comprehensive assessment of both the vessel and the vessel
operator.
While numerous factors are considered and evaluated prior to a
commercial decision, the oil majors, through their association,
Oil Companies International Marine Forum (OCIMF),
have developed and are implementing two basic tools: (a) a
Ship Inspection Report Programme (SIRE); and
(b) the Tanker Management & Self Assessment
(TMSA) Program. The former is a ship inspection
based upon a thorough Vessel Inspection Questionnaire
(VIQ), and performed by OCIMF-accredited inspectors,
resulting in a report being logged on SIRE. The report is an
important element of the ship evaluation undertaken by any oil
major when a commercial need exists.
Based upon commercial needs, there are three levels of
assessment used by the oil majors: (a) terminal use, which
will clear a vessel to call at one of the oil majors
terminals; (b) voyage charter, which will clear the vessel
for a single voyage; and (c) term charter, which will clear
the vessel for use for an extended period of time.
While for the terminal use and voyage charter relationships a
ship inspection and the operators TMSA will be sufficient
for the assessment to be undertaken, a term charter relationship
also requires a thorough office audit. An operators
request for such an audit is by no means a guarantee one will be
performed; it will take a long record of proven excellent safety
and environmental protection on the
15
Risk
factors
operators part as well as high commercial interest on the
part of the oil major to have an office audit performed.
Few ship management companies worldwide are evaluated by the oil
majors and even fewer complete the evaluation successfully.
We will be
dependent on spot charters and period charters with profit
sharing arrangements, which are dependent on spot market
fluctuations and any decrease in spot charter rates in the
future may adversely affect our earnings and our ability to pay
dividends.
Since we intend to charter a significant proportion of our
vessels in the spot market, or place them on period charters
with profit sharing arrangements, which are dependent on spot
market fluctuations, we will be exposed to the cyclicality and
volatility of the spot charter market and will be highly
dependent on spot market charter rates.
Although spot chartering is common in the tanker industry, the
spot charter market may fluctuate significantly based upon
demand for seaborne transportation of crude oil and oil products
as well as tanker supply. The world oil demand is influenced by
many factors, including international economic activity;
geographic changes in oil production, processing, and
consumption; oil price levels; inventory policies of the major
oil and oil trading companies; and strategic inventory policies
of countries such as the United States and China. The successful
operation of our vessels in the spot charter market depends
upon, among other things, obtaining profitable spot charters and
minimizing, to the extent possible, time spent waiting for
charters and time spent traveling ballast to pick up cargo. The
spot market is very volatile, and, in the past, there have been
periods when spot rates have declined below the operating cost
of vessels. If future spot charter rates decline, then we may be
unable to operate our vessels trading in the spot market
profitably, meet our obligations, including payments on
indebtedness, or to pay dividends.
Furthermore, as charter rates for spot charters are fixed for a
single voyage which may last up to several weeks, during periods
in which spot charter rates are rising, we will generally
experience delays in realizing the benefits from such increases.
Our ability to obtain or renew the charters on our vessels, the
charter rates payable under any replacement charters and vessel
values will depend upon, among other things, economic conditions
in the sectors in which our vessels operate at that time,
changes in the supply and demand for vessel capacity and changes
in the supply and demand for the seaborne transportation of
energy resources.
We may derive a
significant portion of our revenues from a limited number of
customers, and the loss of any customer or charter or vessel
could result in a significant loss of revenues and cash
flow.
To the extent we derive a significant portion of our revenues
and cash flow from a limited number of customers, a loss of a
customer could result in a significant loss of revenues and cash
flow. We could lose a customer or the benefits of a charter if:
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the customer faces financial difficulties forcing it to declare
bankruptcy or making it impossible for it to perform its
obligations under the charter, including the payment of the
agreed rates in a timely manner;
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the customer fails to make charter payments because of its
financial inability, disagreements with us or otherwise;
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the customer tries to re-negotiate the terms of the charter
agreement due to prevailing economic and market conditions;
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the customer exercises certain rights to terminate a charter or
purchase a vessel;
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16
Risk
factors
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the customer terminates the charter because we fail to deliver
the vessel within a fixed period of time, the vessel is lost or
damaged beyond repair, there are serious deficiencies in the
vessel or prolonged periods of off-hire, or we default under the
charter;
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a prolonged force majeure event affecting the customer,
including damage to or destruction of relevant production
facilities, war or political unrest prevents us from performing
services for that customer; or
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The customer terminates the charter because we fail to comply
with the strict safety, environmental and vetting criteria of
the charterer or the rules and regulations of various maritime
organizations and bodies.
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We may derive a
significant portion of our revenues from time to time from
medium- to long-term time charters (including bareboat
charters).
If we lose a key charter, we may be unable to re-deploy the
related vessel on terms as favorable to us due to the long-term
nature of charters. If we are unable to re-deploy a vessel for
which the charter has been terminated, we will not receive any
revenues from that vessel, but we may be required to pay
expenses necessary to maintain the vessel in proper operating
condition. Until such time as the vessel is re-chartered, we may
have to operate it in the spot market at charter rates, which
may not be as favorable to us as medium- to long-term charter
rates that may be prevailing at the time.
Under certain charter agreements, a customer may be granted the
right to purchase the vessel being chartered. If this right is
exercised, we would not receive any further revenue from the
vessel and may be unable to obtain a substitute vessel and
charter. This may cause us to receive decreased revenue and cash
flows from having fewer vessels operating in our fleet. Any
replacement newbuilding would not generate revenues during its
construction, and we may be unable to charter any replacement
vessel on terms as favorable to us as those of the terminated
charter. Any compensation under our charters for a purchase of
the vessels may not adequately compensate us for the loss of the
vessel and related time charter.
The loss of any of our customers, time or bareboat charters or
vessels, or a decline in payments under our charters, could have
a material adverse effect on our business, results of operations
and financial condition and our ability to make cash
distributions.
Changes in
charter rates could negatively impact our returns.
We may enter into agreements pursuant to which we agree to
charter-in vessels. If the rates to charter-in vessels decline
prior to us chartering out the vessels we have chartered in, our
business, results of operations, cash flows, financial condition
and ability to pay dividends could be negatively impacted.
An over-supply of
tanker vessel capacity may lead to reductions in charterhire
rates and profitability.
The market supply of tanker vessels has been increasing as a
result of the delivery of substantial newbuilding orders over
the last few years, which, based on the current order book is
expected to continue into 2011. Newbuildings were delivered in
significant numbers starting at the beginning of 2006 and
continued to be delivered in significant numbers through 2007,
2008, and 2009 to date. In addition, the rate of newbuilding
supply might accelerate in 2010. An oversupply of tanker vessel
capacity may result in a reduction of charterhire rates. If such
a reduction continues, we may only be able to charter our
vessels at reduced or unprofitable rates, or we may not be able
to charter these vessels at all. The occurrence of these events
could have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay
dividends.
17
Risk
factors
Delays,
cancellations or non-completion of deliveries of newbuilding
vessels could harm our operating results.
We expect to acquire two newbuilt VLCCs, the delivery of which
could be delayed, not completed or cancelled, which would delay
our receipt of revenues under charters or other contracts
related to the vessels. The shipbuilder could fail to deliver
the newbuilding vessel as agreed or we could cancel the purchase
contract if the shipbuilder fails to meet its obligations. In
addition, under charters we may enter into that are related to a
newbuilding, if our delivery of the newbuilding to our customer
is delayed, we may be required to pay liquidated damages during
the delay. For prolonged delays, the customer may terminate the
charter and, in addition to the resulting loss of revenues, we
may be responsible for additional, substantial liquidated
damages. The completion and delivery of newbuildings could be
delayed, cancelled or otherwise not completed because of:
quality or engineering problems; changes in governmental
regulations or maritime self-regulatory organization standards;
work stoppages or other labor disturbances at the shipyard;
bankruptcy or other financial crisis of the shipbuilder; a
backlog of orders at the shipyard; political or economic
disturbances; weather interference or catastrophic event, such
as a major earthquake or fire; requests for changes to the
original vessel specifications; shortages of or delays in the
receipt of necessary construction materials, such as steel;
inability to finance the construction or conversion of the
vessels; or inability to obtain requisite permits or approvals.
If delivery of a vessel is materially delayed, it could
materially adversely affect our results of operations and
financial condition and our ability to pay dividends. Although
the building contracts typically incorporate penalties for late
delivery, we cannot assure you that the vessels will be
delivered on time or that we will be able to collect the late
delivery payment from the shipyards.
We cannot assure
you that we will realize the expected benefits of our agreements
to acquire the Universal VLCCs, scheduled to be delivered in
March and June of 2010.
We will purchase from Capital Maritime the companies holding the
contracts to acquire the Universal VLCC newbuildings for
approximately $96.5 million per vessel. The two vessels are
scheduled to be delivered in March and June of 2010. The
delivery of the vessels is subject to the completion of
customary documentation and closing conditions. Although we
anticipate that the acquisition will be accretive, we cannot
assure you that we will realize the expected benefits of the
acquisition. Further, it is possible that the shipyard may fail
to perform under the agreements, which might result in our being
unable to purchase the vessels and having to write off the
$38.6 million deposit for which we will reimburse Capital
Maritime at closing. We cannot assure you that we will be able
to repossess the vessels under construction or their parts in
case of a default of the shipyard and, while we may have refund
guarantees, we cannot assure you that we will be able to collect
or that it will be in our interest to collect these guarantees.
New vessels may
experience initial operational difficulties.
New vessels, during their initial period of operation, have the
possibility of encountering structural, mechanical and
electrical problems. Normally, we will receive the benefit of a
warranty from the shipyard for new buildings, but we cannot
assure you that the warranty will be able to resolve any problem
with the vessel without additional costs to us.
The secondhand
market for suitable vessels is currently slow, which may impede
our ability to acquire suitable vessels and grow our
fleet.
Although the secondhand sale and purchase market for tankers has
traditionally been relatively liquid, activity in 2009 was much
lower. Few VLCC, Suezmax, Aframax and Panamax crude tankers have
been sold in that time, and even fewer of these vessels have
been modern. See The International Tanker Shipping
IndustryCharter Rates & Asset Values.
Because we anticipate that our fleet will be comprised primarily
of VLCC and Suezmax vessels (although we intend to evaluate all
classes of crude
18
Risk
factors
tanker vessels, including Aframax and Panamax tanker vessels,
for potential future acquisitions), should the secondhand tanker
market remain relatively illiquid, we may have to purchase some
or all of our fleet as newbuilding vessels. This could increase
the purchase cost of our fleet and delay the growth of our
fleet, as orders for newbuilding vessels typically take 14 to
36 months to fulfill. Please see Risk Factors
Related to Our Planned Business &
OperationsCompany Specific Risk FactorsWe will be
required to make substantial capital expenditures to grow the
size of our fleet, which may diminish our ability to pay
dividends, increase our financial leverage, or dilute our
shareholders ownership interest in us for more
information on certain risks associated with buying newbuilding
vessels.
The market values
of our vessels may decrease, which could adversely affect our
operating results, cause us to breach one or more covenants in
any credit facility we may enter into, or limit the total amount
we may borrow under such a credit facility.
Tanker values declined in 2009, estimated to have begun in the
summer of 2008. If the book value of one of our vessels is
impaired due to unfavorable market conditions or a vessel is
sold at a price below its book value, we would incur a loss that
could adversely affect our financial results. Also, if we enter
into a credit facility in the future, certain covenants of that
credit facility may depend on the market value of our fleet. If
the market value of our fleet declines, we may not be in
compliance with certain provisions of the credit facility, and
we may not be able to refinance our debt or obtain additional
financing under the credit facility. The occurrence of these
events could have a material adverse effect on our business,
results of operations, cash flows, financial condition and
ability to pay dividends.
Decreases in
shipments of crude oil may adversely affect our financial
performance.
The demand for our oil tankers derives primarily from demand for
Arabian Gulf and West African crude oil, along with crude oil
from the FSU. Decreases in shipments of crude oil from these
geographical areas would have a material adverse effect on our
financial performance. Among the factors which could lead to
such a decrease are:
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increased crude oil production from other areas;
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increased refining capacity in the Arabian Gulf, West Africa or
the FSU;
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increased use of existing and future crude oil pipelines in the
Arabian Gulf, West Africa and the FSU;
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a decision by Arabian Gulf, West African and the FSU
oil-producing nations to increase their crude oil prices or to
further decrease or limit their crude oil production; and
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armed conflict in the Arabian Gulf and West Africa and political
or other factors.
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A wide range of economic, social and other factors can
significantly affect the strength of the worlds industrial
economies and their demand for crude oil from the mentioned
geographical areas. Historically, those markets have been
volatile as a result of the many conditions and events that
affect the price, production and transport of oil, including
competition from alternative energy sources. In the long-term it
is possible that oil demand may be reduced by an increased
reliance on alternative energy sources, a drive for increased
efficiency in the use of oil as a result of environmental
concerns or high oil prices. One such factor is the price of
worldwide crude oil. The worlds oil markets have
experienced high levels of volatility in the last 25 years.
In July 2008, oil prices rose to a high of approximately $143
per barrel before decreasing to approximately $38 per barrel by
the end of December 2008. Decreases in shipments of crude oil
from the above mentioned geographical areas would have a
material adverse effect on our financial performance.
19
Risk
factors
Disruptions in
world financial markets and the resulting governmental action in
the United States and in other parts of the world could have a
material adverse impact on our results of operations, financial
condition and cash flows, and could cause the market price of
our ordinary shares to decline.
Over the last year, global financial markets have experienced
extraordinary disruption and volatility following adverse
changes in the global credit markets. The credit markets in the
United States have experienced significant contraction,
deleveraging and reduced liquidity, and governments around the
world have taken highly significant measures in response to such
events, including the enactment of the Emergency Economic
Stabilization Act of 2008 in the United States, and may
implement other significant responses in the future. Securities
and futures markets and the credit markets are subject to
comprehensive statutes, regulations and other requirements. The
U.S. Securities and Exchange Commission (SEC),
other regulators, self-regulatory organizations and exchanges
have enacted temporary emergency regulations and may take other
extraordinary actions in the event of market emergencies and may
effect permanent changes in law or interpretations of existing
laws. Recently, a number of financial institutions have
experienced serious financial difficulties and, in some cases,
have entered into bankruptcy proceedings or are in regulatory
enforcement actions. These difficulties have resulted, in part,
from declining markets for assets held by such institutions,
particularly the reduction in the value of their mortgage and
asset-backed securities portfolios. These difficulties have been
compounded by a general decline in the willingness by banks and
other financial institutions to extend credit. In addition,
these difficulties may adversely affect the financial
institutions that provide our credit facilities and may impair
their ability to continue to perform under their financing
obligations to us, which could have an impact on our ability to
fund current and future obligations.
A further
economic slowdown in the OECD area and the Asia Pacific region
could have a material adverse impact on our results of
operations, financial condition and cash flows, and could cause
the market price of our ordinary shares to decline.
A significant number of the port calls we expect our vessels to
make will likely involve the loading or discharging of cargo in
ports in OECD countries and the Asia Pacific region. As a
result, a negative change in economic conditions in any OECD
country or in any Asia Pacific country, and particularly in
China or Japan, could have an adverse effect on our business,
results of operations, cash flows, financial condition and
ability to pay dividends. In particular, in recent years, China
has been one of the worlds fastest growing economies in
terms of gross domestic product, although the growth rate of
Chinas economy slowed significantly in 2008 and 2009. We
cannot assure you that the Chinese economy will not experience a
significant contraction in the future. Moreover, a significant
or protracted slowdown in the economies of the United States,
the European Union (the EU) or various Asian
countries may adversely affect economic growth in China and
elsewhere.
We will be
subject to regulation and liability under environmental and
operational safety laws and conventions that could require
significant expenditures, affect our cash flows and net income
and could subject us to significant liability.
Our operations will be affected by extensive and changing
international, national and local environmental protection laws,
regulations, treaties, conventions and standards in force in
international waters, the jurisdictional waters of the countries
in which our vessels operate, as well as the countries of our
vessels registration. Many of these requirements are
designed to reduce the risk of oil spills, air emissions and
other pollution, and to reduce potential negative environmental
effects associated with the maritime industry in general. Our
compliance with these requirements can be costly.
These requirements can affect the resale value or useful lives
of our vessels, require reductions in cargo capacity, ship
modifications or operational changes or restrictions, lead to
decreased availability of insurance coverage or increased policy
costs for environmental matters or result in the denial of
access
20
Risk
factors
to certain jurisdictional waters or ports, or detention in
certain ports. Under local, national and foreign laws, as well
as international treaties and conventions, we could incur
material liabilities, including cleanup obligations and natural
resource damages, in the event that there is a release of
petroleum or other hazardous substances from our vessels or
otherwise in connection with our operations. Violations of or
liabilities under environmental requirements also can result in
substantial penalties, fines and other sanctions, including, in
certain instances, seizure or detention of our vessels, and
third-party claims for personal injury or property damage.
The United States Oil Pollution Act of 1990 (OPA)
affects all vessel owners shipping oil or petroleum products to,
from or within the United States. OPA allows for potentially
unlimited liability without regard to fault of owners, operators
and bareboat charterers of vessels for oil pollution in
U.S. waters. Similarly, the International Convention on
Civil Liability for Oil Pollution Damage, 1969, as amended,
which has been adopted by most countries outside of the U.S.,
imposes liability for oil pollution in international waters. OPA
expressly permits individual states to impose their own
liability regimes with regard to hazardous materials and oil
pollution incidents occurring within their boundaries. Coastal
states in the U.S. have enacted pollution prevention
liability and response laws, many providing for unlimited
liability.
In addition to complying with OPA, relevant U.S. Coast
Guard regulations, IMO regulations, such as Annex IV and
Annex VI to the International Convention for the Prevention
of Pollution from Ships (MARPOL), EU directives and
other existing laws and regulations and those that may be
adopted, shipowners may incur significant additional costs in
meeting new maintenance and inspection requirements, in
developing contingency arrangements for potential spills and in
obtaining insurance coverage. Government regulation of vessels,
particularly in the areas of safety and environmental
requirements, can be expected to become stricter in the future
and require us to incur significant capital expenditure on our
vessels to keep them in compliance, or even to scrap or sell
certain vessels altogether.
For example, amendments to revise the regulations of MARPOL
regarding the prevention of air pollution from ships were
approved by the Marine Environment Protection Committee
(MEPC) and formally adopted at MEPCs
58th session held in October 2008. The amendments establish
a series of progressive standards to further limit the sulphur
content in fuel oil, which would be phased in through 2020, and
new tiers of nitrogen oxide emission standards for new marine
diesel engines, depending on their date of installation. The
amendments are expected to enter into force under the tacit
acceptance procedure in July 2010, or on some other date
determined by the MEPC.
Further legislation, or amendments to existing legislation,
applicable to international and national maritime trade is
expected over the coming years in areas such as ship recycling,
sewage systems, emission control (including emissions of
greenhouse gases) and ballast treatment and handling. For
example, legislation and regulations that require more stringent
controls of air emissions from ocean-going vessels are pending
or have been approved at the federal and state level in the
U.S. Such legislation or regulations may require
significant additional capital expenditures or operating
expenses (such as increased costs for low-sulfur fuel) in order
for us to maintain our vessels compliance with
international
and/or
national regulations. In addition, various jurisdictions,
including the IMO and the United States, have proposed or
implemented requirements governing the management of ballast
water to prevent the introduction of non-indigenous invasive
species having adverse ecological impacts. For example, the IMO
has adopted the International Convention for the Control and
Management of Ships Ballast Water and Sediments (BWM
Convention) which calls for a phased introduction of
mandatory ballast water exchange requirements, to be replaced in
time with mandatory concentration limits. The BWM Convention
will enter into force 12 months after it has been adopted
by 30 states, the combined merchant fleets of which
represent not less than 35% of the gross tonnage of the
worlds merchant shipping tonnage. As of December 31,
2009, 21 states, representing about 22.63% of the
worlds merchant shipping tonnage, have ratified the BWM
Convention. In the United States, ballast water
21
Risk
factors
management legislation has been enacted in several states, and
federal legislation is currently pending in the
U.S. Congress. In addition, the U.S. Environmental
Protection Agency (EPA) has also adopted a rule
which requires commercial vessels to obtain a Vessel
General Permit from the U.S. Coast Guard in
compliance with the Federal Water Pollution Control Act
regulating the discharge of ballast water and other discharges
into U.S. waters. Significant expenditures for the
installation of additional equipment or new systems on board our
vessels and changes in operating procedures may be required in
order to comply with existing or future regulations regarding
ballast water management, along with the potential for increased
port disposal costs. Other requirements may also come into force
regarding the protection of endangered species which could lead
to changes in the routes our vessels follow or in trading
patterns generally and thus to additional capital and operating
expenditures. Furthermore, new environmental laws and regulatory
requirements regarding greenhouse gas emissions can be expected
to come into effect in a number of jurisdictions in the future
that will affect our operations, fuel costs and capital
expenditures.
Additionally, as a result of marine accidents we believe that
regulation of the shipping industry will continue to become more
stringent and more expensive for us and our competitors. In
recent years, the IMO and EU have both accelerated their
existing non-double-hull phase-out schedules in response to
highly publicized oil spills and other shipping incidents
involving companies unrelated to us. In addition, legislation is
being discussed that would subject vessels to centralized
routing. Future incidents may result in the adoption of even
stricter laws and regulations, which could limit our operations
or our ability to do business and which could have a material
adverse effect on our business and financial results.
Increased
inspection procedures by port authorities or other authorities
and tighter import and export controls could increase costs and
disrupt our business.
International shipping is subject to various security and
customs inspection and related procedures in countries of origin
and destination. Inspection procedures can result in the seizure
of the contents of our vessels, delays in the loading,
offloading or delivery and the levying of customs duties, fines
or other penalties against us.
Since the terrorist attacks of September 11, 2001, there
have been a variety of initiatives intended to enhance vessel
security. On November 25, 2002, the U.S. Maritime
Transportation Security Act of 2002 (MTSA) came into
effect. To implement certain portions of the MTSA, in July 2003,
the U.S. Coast Guard issued regulations requiring the
implementation of certain security requirements aboard vessels
operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to the
International Convention for the Safety of Life at Sea
(SOLAS) created a new chapter of the convention
dealing specifically with maritime security. The new chapter
became effective in July 2004 and imposes various detailed
security obligations on vessels and port authorities, most of
which are contained in the newly created International Ship and
Port Facilities Security Code (ISPS Code). The ISPS
Code is designed to protect ports and international shipping
against terrorism. After July 1, 2004, to trade
internationally, a vessel must attain an International Ship
Security Certificate from a recognized security organization
approved by the vessels flag state. For a further
description of the various requirements, please see
BusinessEnvironmental and Other
RegulationsVessel Security Regulations.
The U.S. Coast Guard has developed the Electronic Notice of
Arrival/Departure
(e-NOA/D)
application to provide the means of fulfilling the arrival and
departure notification requirements of the U.S. Coast Guard
and U.S. Customs and Border Protection (CBP)
online. Prior to September 11, 2001, ships or their agents
notified the Marine Safety Office/Captain Of The Port zone
within 24 hours of the vessels arrival via telephone,
fax, or
e-mail.
Due
to the events of September 11, 2001, the U.S. Coast
Guards National Vessel Movement Center
(NVMC)/Ship Arrival Notification System was set up
as part of a U.S. Department of Homeland Security
initiative. Also, as a result of this initiative,
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Risk
factors
the advance notice time requirement changed from 24 hours
to 96 hours (or 24 hours, depending upon normal
transit time). Notices of arrival or departure continue to be
submitted via telephone, fax, or
e-mail,
but
are now to be submitted to the NVMC, where watch personnel enter
the information into a central U.S. Coast Guard database.
Additionally, the National Security Agency has identified
certain countries known for high terrorist activities and if a
vessel has either called some of these identified countries in
its previous ports or the members of the crew are from any of
these identified countries, more stringent security requirements
must be met.
On June 6, 2005, the Advanced Passenger Information System
(APIS) Final Rule, 19 C.F.R.
§§ 4.7b and 4.64, became effective. Pursuant to
these regulations, a commercial carrier arriving into or
departing from the United States is required to electronically
transmit an APIS manifest to CBP through an approved electronic
interchange and programming format. All international commercial
carriers transporting passengers or crewmembers must obtain an
international carrier bond and place it on file with the CBP
prior to entry or departure from the United States. The minimum
bond amount is $50,000.
It is possible that changes to inspection procedures could
impose additional financial and legal obligations on us.
Furthermore, changes to inspection procedures could also impose
additional costs and obligations on our customers and may, in
certain cases, render the shipping activities uneconomical or
impractical. Any such changes or developments may have a
material adverse effect on our business, results of operations,
cash flows, financial condition and ability to pay dividends.
We plan to
operate our vessels worldwide, and as a result, our vessels will
be exposed to international risks that could reduce revenue or
increase expenses.
The international shipping industry is an inherently risky
business involving global operations. Our vessels will be at a
risk of damage or loss because of events such as mechanical
failure, collision, human error, war, terrorism, piracy, cargo
loss and bad weather. In addition, changing economic, regulatory
and political conditions in some countries, including political
and military conflicts, have from time to time resulted in
attacks on vessels, mining of waterways, piracy, terrorism,
labor strikes and boycotts. These hazards may result in death or
injury to persons, loss of revenues or property, environmental
damage, higher insurance rates, damage to our customer
relationships, market disruptions, delay or rerouting, which
could reduce our revenue or increase our expenses.
If our vessels
suffer damage due to the inherent operational risks of the
tanker industry, we may experience unexpected drydocking costs
and delays or total loss of our vessels, which may adversely
affect our business and financial condition.
Our vessels and their cargoes will be at risk of being damaged
or lost because of events such as marine disasters, bad weather,
business interruptions caused by mechanical failures, grounding,
fire, explosions and collisions, human error, war, terrorism,
piracy and other circumstances or events. In addition, the
operation of tankers has unique operational risks associated
with the transportation of oil. An oil spill may cause
significant environmental damage, and the costs associated with
a catastrophic spill could exceed the insurance coverage
available to us. Compared to other types of vessels, tankers are
exposed to a higher risk of damage and loss by fire, whether
ignited by a terrorist attack, collision or other cause, due to
the high flammability and high volume of the oil transported in
tankers.
If our vessels suffer damage, they may need to be repaired at a
drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay
drydocking costs that our insurance does not cover in full. The
loss of earnings while these vessels are being repaired and
repositioned, as well as the actual cost of these repairs, may
adversely affect our business and financial condition. In
addition, space at drydocking facilities is sometimes limited
and not all drydocking facilities are conveniently located. We
may be unable to find space at a suitable drydocking facility or
23
Risk
factors
our vessels may be forced to travel to a drydocking facility
that is not conveniently located to our vessels positions.
The loss of earnings while these vessels are forced to wait for
space or to travel to more distant drydocking facilities may
adversely affect our business and financial condition. Further,
the total loss of any of our vessels could harm our reputation
as a safe and reliable vessel owner and operator. If we are
unable to adequately maintain or safeguard our vessels, we may
be unable to prevent any such damage, costs, or loss that could
negatively impact our business, financial condition, results of
operations, cash flows and ability to pay dividends.
Acts of piracy on
ocean-going vessels have recently increased in frequency, which
could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels
trading in regions of the world such as the South China Sea and
in the Gulf of Aden off the coast of Somalia. Throughout 2008
and 2009, the frequency of piracy incidents increased
significantly, particularly in the Gulf of Aden off the coast of
Somalia. If these piracy attacks result in regions in which our
vessels are deployed being characterized by insurers as
war risk zones, as the Gulf of Aden temporarily was
in May 2008, or Joint War Committee (JWC) war
and strikes listed areas, premiums payable for such
coverage could increase significantly and such insurance
coverage may be more difficult to obtain. In addition, crew
costs, including costs which may be incurred to the extent we
employ onboard security guards, could increase in such
circumstances. We may not be adequately insured to cover losses
from these incidents, which could have a material adverse effect
on us. In addition, detention hijacking as a result of an act of
piracy against our vessels, or an increase in cost, or
unavailability of insurance for our vessels, could have a
material adverse impact on our business, results of operations,
cash flows, financial condition and ability to pay dividends.
In response to piracy incidents in 2008 and 2009, particularly
in the Gulf of Aden off the coast of Somalia, following
consultation with regulatory authorities, we may station armed
guards on some of our vessels in some instances. While our use
of guards is intended to deter and prevent the hijacking of our
vessels, it may also increase our risk of liability for death or
injury to persons or damage to personal property. If we do not
have adequate insurance in place to cover such liability, it
could adversely impact our business, results of operations, cash
flows, financial condition and ability to pay dividends.
Political
instability, terrorist or other attacks, war or international
hostilities can affect the tanker industry, which may adversely
affect our business.
We conduct most of our operations outside of the United States,
and our business, results of operations, cash flows, financial
condition and ability to pay dividends may be adversely affected
by the effects of political instability, terrorist or other
attacks, war or international hostilities. Terrorist attacks
such as the attacks on the United States on September 11,
2001, the bombings in Spain on March 11, 2004 and in London
on July 7, 2005 and the continuing response of the United
States to these attacks, as well as the threat of future
terrorist attacks, continue to contribute to world economic
instability and uncertainty in global financial markets. Future
terrorist attacks could result in increased volatility of the
financial markets in the United States and globally and could
result in an economic recession in the United States or the
world. These uncertainties could also adversely affect our
ability to obtain additional financing on terms acceptable to us
or at all.
In the past, political instability has also resulted in attacks
on vessels, such as the attack on the M/T Limburg in October
2002, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region.
Acts of terrorism and piracy have also affected vessels trading
in regions such as the South China Sea and the Gulf of Aden off
the coast of Somalia. Any of these occurrences could have a
material adverse impact on our business, financial condition,
results of operations, cash flows and ability to pay dividends.
24
Risk
factors
Compliance with
safety and other vessel requirements imposed by classification
societies may be costly and could reduce our net cash flows and
net income.
The hull and machinery of every commercial vessel must be
certified as being in class by a classification
society authorized by its country of registry. The
classification society certifies that a vessel is safe and
seaworthy in accordance with the applicable rules and
regulations of the country of registry of the vessel and SOLAS.
A vessel must undergo annual surveys, intermediate surveys and
special surveys. In lieu of a special survey, a vessels
machinery may be placed on a continuous survey cycle, under
which the machinery would be surveyed periodically over a
five-year period. We expect our vessels to be on special survey
cycles for hull inspection and continuous survey cycles for
machinery inspection. Every vessel is also required to be
drydocked every two to three years for inspection of its
underwater parts.
If any vessel does not maintain its class or fails any annual,
intermediate or special survey, the vessel will be unable to
trade between ports and will be unemployable, which could have a
material adverse effect on our business, results of operations,
cash flows, financial condition and ability to pay dividends.
We may be unable
to attract and retain qualified, skilled employees or crew
necessary to operate our business.
Our success depends in large part on the ability of our Manager,
any affiliated or
sub-contracting
parties they may contract with on our behalf, and us to attract
and retain highly skilled and qualified personnel. In crewing
our vessels, we require technically skilled employees with
specialized training who can perform physically demanding work.
Competition to attract and retain qualified crew members is
intense. If we are not able to increase our rates to compensate
for any crew cost increases, it could have a material adverse
effect on our business, results of operations, cash flows,
financial condition and ability to pay dividends. Any inability
our Manager, our third party technical managers, or we
experience in the future to hire, train and retain a sufficient
number of qualified employees could impair our ability to
manage, maintain and grow our business, which could have a
material adverse effect on our business, results of operations,
cash flows, financial condition and ability to pay dividends.
Labor
interruptions could disrupt our business.
We plan for our vessels to be manned by masters, officers and
crews that are employed by third parties. If not resolved in a
timely and cost-effective manner, industrial action or other
labor unrest could prevent or hinder our operations from being
carried out normally and could have a material adverse effect on
our business, results of operations, cash flows, financial
condition and ability to pay dividends.
The smuggling of
drugs or other contraband onto our vessels may lead to
governmental claims against us.
We expect that our vessels will call in ports in South America
and other areas where smugglers attempt to hide drugs and other
contraband on vessels, with or without the knowledge of crew
members. To the extent our vessels are found with contraband,
whether inside or attached to the hull of our vessel and whether
with or without the knowledge of any of our crew, we may face
governmental or other regulatory claims which could have an
adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends.
Arrests of our
vessels by maritime claimants could cause a significant loss of
earnings for the related off-hire period.
Crew members, suppliers of goods and services to a vessel,
shippers of cargo and other parties may be entitled to a
maritime lien against a vessel for unsatisfied debts, claims or
damages. In many
25
Risk
factors
jurisdictions, a maritime lienholder may enforce its lien by
arresting or attaching a vessel through
foreclosure proceedings. The arrest or attachment of one or more
of our vessels could result in a significant loss of earnings
for the related off-hire period. In addition, in jurisdictions
where the sister ship theory of liability applies, a
claimant may arrest the vessel which is subject to the
claimants maritime lien and any associated
vessel, which is any vessel owned or controlled by the same
owner. In countries with sister ship liability laws,
claims might be asserted against us or any of our vessels for
liabilities of other vessels that we own.
Governments could
requisition our vessels during a period of war or emergency,
resulting in loss of earnings.
A government of a vessels registry could requisition for
title or seize our vessels. Requisition for title occurs when a
government takes control of a vessel and becomes the owner. A
government could also requisition our vessels for hire.
Requisition for hire occurs when a government takes control of a
vessel and effectively becomes the charterer at dictated charter
rates. Generally, requisitions occur during a period of war or
emergency. Government requisition of one or more of our vessels
could have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay
dividends.
Increases in fuel
prices could adversely affect our profits.
Spot charter arrangements generally provide that the vessel
owner or pool operator bear the cost of fuel in the form of
bunkers, which is a significant vessel operating expense.
Because we do not intend to hedge our fuel costs, an increase in
the price of fuel beyond our expectations may adversely affect
our profitability, cash flows and ability to pay dividends. The
price and supply of fuel is unpredictable and fluctuates as a
result of events outside our control, including geo-political
developments, supply and demand for oil and gas, actions by
members of OPEC and other oil and gas producers, war and unrest
in oil producing countries and regions, regional production
patterns and environmental concerns and regulations.
Given that the vessel owner or pool operator bears the cost of
fuel under spot charters, the recent volatility in fuel prices
is one factor affecting profitability in the tanker spot market.
To profitably price an individual charter, the vessel owner or
pool operator must take into account the anticipated cost of
fuel for the duration of the charter. Changes in the actual
price of fuel at the time the charter is to be performed could
result in the charter being performed at a significantly greater
or lesser cost than originally anticipated and may result in
losses or diminished profits. As an example of the volatility of
fuel prices, in the last 12 months, the purchase price in
the port of Fujairah, United Arab Emirates, of one of the most
common fuels used by tanker vessels has fluctuated from
approximately $254 to $495 per metric ton. The price of fuel
also varies from port to port.
COMPANY SPECIFIC
RISK FACTORS
We have no
operating history on which you can evaluate our business
strategy.
We are a recently-formed company with no operating history and
will have no assets prior to the closing of this offering other
than a capital contribution from Crude Carriers Investments
Corp. Accordingly, there can be no assurance that our business
strategy and operations will be successful.
We may not be
able to establish our operations or implement our growth
effectively.
Our business plan will primarily depend on identifying suitable
vessels that are in good condition, acquiring these vessels at
favorable prices and profitably employing them on charters to
establish and expand our operations. There can be no assurance
that we will be able to identify vessels that are suitable for
our business plan. Furthermore, the price of vessels is volatile
and beyond our control, and
26
Risk
factors
any purchase of a vessel involves the risk of misjudging the
value of the vessel and of purchasing the vessel at a price
higher than what we could have paid had we purchased the vessel
at another time. In addition, there can be no assurance that the
vessels we identify and acquire will perform at the levels we
expect at the time they are acquired.
Our business plan will depend upon a number of factors, some of
which may not be within our control. These factors include our
ability to:
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identify suitable vessels or shipping companies for acquisitions
or joint ventures to establish our initial fleet and grow our
fleet in the future;
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successfully integrate any acquired vessels or businesses with
our existing operations; and
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obtain required financing for our existing and any new
operations.
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Growing any business by acquisition presents numerous risks,
including undisclosed liabilities and obligations, difficulty
obtaining additional qualified personnel, managing relationships
with customers and suppliers and integrating newly acquired
operations into existing infrastructures. In addition,
competition from other companies, many of which have
significantly greater financial resources than do we or Capital
Maritime, may reduce our acquisition opportunities or cause us
to pay higher prices. We cannot assure you that we will be
successful in executing our plans to establish and grow our
business or that we will not incur significant expenses and
losses in connection with these plans. Our failure to
effectively identify, purchase, develop and integrate any
vessels or businesses could adversely affect our business,
financial condition and results of operations. Our acquisition
growth strategy exposes us to risks that may harm our business,
financial condition and operating results, including risks that
we may:
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fail to realize anticipated benefits, such as new customer
relationships, cost-savings or cash flow enhancements;
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incur or assume unanticipated liabilities, losses or costs
associated with any vessels or businesses acquired, particularly
if any vessel we acquire proves not to be in good condition;
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be unable to hire, train or retain qualified shore and seafaring
personnel to manage and operate our growing business and fleet;
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decrease our liquidity by using a significant portion of
available cash or borrowing capacity to finance acquisitions;
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significantly increase our interest expense or financial
leverage if we incur additional debt to finance
acquisitions; or
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incur other significant charges, such as impairment of goodwill
or other intangible assets, asset devaluation or restructuring
charges.
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Unlike newbuildings, existing vessels typically do not carry
warranties as to their condition. While we generally inspect
existing vessels prior to purchase, such an inspection would
normally not provide us with as much knowledge of a
vessels condition as we would possess if it had been built
for us and operated by us during its life. Repairs and
maintenance costs for existing vessels are difficult to predict
and may be substantially higher than for vessels we have
operated since they were built. These costs could decrease our
cash flow and reduce our liquidity.
Moreover, we plan to finance potential future expansions of our
fleet primarily through equity financing, which we expect will
mainly consist of issuances of additional shares of our Common
Stock, and internally-generated cash flow. We also expect to
enter into a credit facility that we will use opportunistically
for the growth of the Company beyond our initial fleet in a
manner that will enhance our earnings, cash flow and net asset
value. If we are unable to complete equity issuances at prices
that we deem acceptable, our internally-generated cash flow is
insufficient, or we cannot enter into a credit facility on
favorable terms, we may need to revise our growth plan or
consider alternative forms of financing.
27
Risk
factors
Our earnings may
be adversely affected if we do not successfully employ our
vessels on time charters, in pools or take advantage of the
current spot market on which we will heavily depend. Any
decrease in spot charter rates may adversely affect our earnings
and our ability to pay dividends.
We intend to employ a significant number of our vessels in the
spot market, on certain short time charters, which are spot
related, or in vessel pools trading in the spot market. Our
financial performance will therefore be substantially affected
by conditions in the tanker vessel spot market. The spot market
is highly volatile and fluctuates based upon vessel and cargo
supply and demand. Significant fluctuations in charter rates
will result in significant fluctuations in the utilization of
our vessels and our profitability. Although we may charter out
some of our vessels on long-term time charters when we want to
lock in favorable charter rates and generate predictable revenue
streams, our vessels that are committed to time charters may not
be available for spot voyages during an upswing in the shipping
industry, when spot voyages might be more profitable. In
addition, vessels may experience repeated periods of
unemployment between spot charters. The successful operation of
our vessels in the spot market depends upon, among other things,
obtaining profitable spot charters and minimizing, to the extent
possible, time spent waiting for charters and time spent
traveling unladen to pick up cargo, or ballast time. In the
past, there have been periods when spot rates have declined
below the operating cost of vessels. Future spot rates may
decline significantly and may not be sufficient to enable our
vessels trading in the spot market to operate profitably or for
us to pay dividends and may have a material adverse effect on
our cash flows and financial condition.
Capital Maritime
and its affiliates may compete with us or claim business
opportunities that would benefit us.
Aside from the Initial Suezmax, of the 36 vessels currently
owned, managed or contracted by Capital Maritime, Capital
Maritime owns and manages one vessel and manages another vessel
that engage in activities similar to those we intend to conduct.
In addition, Capital Maritime may otherwise compete with us and
is not contractually restricted from doing so. The Business
Opportunities Agreement will specify that we will have a right
to take advantage of certain business opportunities, including
certain spot charter, period charter, bareboat charter and
vessel purchase opportunities. However, we will have a limited
time period within which to exercise such right after which
Capital Maritime will have the right to take advantage of any
such opportunities for its own account. For example, we will
have (a) a maximum of 48 hours to take advantage of
period and bareboat charter opportunities, (b) a reasonable
amount of time in light of the facts and circumstances to take
advantage of spot charter opportunities, (c) 120 hours
(and an additional 72 hours upon our request) to take
advantage of vessel acquisition opportunities and (d) a
maximum of 120 hours to take advantage of other business
opportunities. These provisions may not materially restrict
Capital Maritimes ability to compete with us or claim
business opportunities that would benefit us, and competition
from Capital Maritime could have a material adverse effect on
our business, results of operations, cash flows, financial
condition and ability to pay dividends. Please read
Certain Relationships and Related-Party
TransactionsBusiness Opportunities Agreement for
more information, including further detail regarding the time
period within which we must exercise our right to take advantage
of business opportunities.
Our strategy of
financing vessel acquisitions primarily through equity offerings
and our earnings may adversely affect our growth and
earnings.
We plan to finance acquisitions for our fleet primarily through
equity offerings and internallygenerated cash flows. While
we have entered into a commitment to obtain a revolving credit
facility that will allow us to make opportunistic purchases of
vessels, we do not anticipate entering into a credit facility of
sufficient size to allow us to make large additions to our fleet
solely through borrowings. Accordingly, if we are unable to
complete equity offerings on acceptable terms or at all, or if
our
28
Risk
factors
earnings are insufficient, we may be unable to take advantage of
strategic opportunities to expand our fleet. As a result, our
future earnings, cash flows and growth may be adversely
affected. Please see Managements Discussion and
Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources for more
information regarding our credit facility.
We may be unable
to pay dividends.
We currently intend to pay a variable quarterly dividend equal
to our cash available for distribution, which represents net
cash flow during the previous quarter less any amount required
to maintain a reserve that our board of directors determines
from time to time is appropriate for the operation and future
growth of our fleet, taking into account (among other factors)
contingent liabilities, the terms of any credit facilities we
may enter into, our other cash needs and the requirements of the
laws of the Republic of The Marshall Islands. The amount of cash
available for distribution will principally depend upon the
amount of cash we generate from our operations, which may
fluctuate from quarter to quarter based upon, among other things:
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the cyclicality in the spot and period vessel market;
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the rates we obtain from our charters for spot or period
charters;
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the performance of pools and the rating of our vessels under
such pool agreements;
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the price and demand for tanker cargoes;
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the level of our operating costs, such as the cost of crews,
spares, stores, lubricants and insurance;
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the number of off-hire days for our fleet and the timing of, and
number of days required for, maintenance and drydocking of our
vessels;
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delays in the delivery of any vessels we have agreed to acquire;
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prevailing global and regional economic and political conditions;
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force majeure events;
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compliance with oil major requirements and the vetting
process; and
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the effect of governmental regulations and maritime
self-regulatory organization standards on the conduct of our
business.
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The actual amount of cash generated will also depend upon other
factors, such as:
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the level of capital expenditures we make, including for
maintaining existing vessels and acquiring new vessels, which we
expect will be substantial;
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our debt service requirements and the terms, covenants and
restrictions on distributions contained in any credit agreement
we may enter into;
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fluctuations in our working capital needs; and
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the amount of any cash reserves established by our board of
directors, including reserves for the conduct of our operations
and growth and other matters.
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In addition, the declaration and payment of dividends is subject
at all times to the discretion of our board of directors and
compliance with the laws of the Republic of The Marshall
Islands. Please read Our Dividend Policy and Restrictions
on Dividends for more information.
29
Risk
factors
Our growth
depends on continued growth in demand for crude oil and oil
products and the continued demand for seaborne transportation of
crude oil.
Our growth strategy focuses on expansion mainly in the crude oil
shipping sector. Accordingly, our growth depends on continued
growth in world and regional demand for oil and the
transportation of crude oil by sea, which could be negatively
affected by a number of factors, including:
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the economic and financial developments globally, including
actual and projected global economic growth;
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fluctuations in the actual or projected price of crude oil and
refined products;
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refining capacity and its geographical location;
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increases in the production of oil in areas linked by pipelines
to consuming areas, the extension of existing, or the
development of new, pipeline systems in markets we may serve, or
the conversion of existing non-oil pipelines to oil pipelines in
those markets;
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decreases in the consumption of oil due to increases in its
price relative to other energy sources, other factors making
consumption of oil less attractive, energy conservation measures
or environmental requirements on consumers;
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availability of new, alternative energy sources; and
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negative or deteriorating global or regional economic or
political conditions, particularly in oil consuming regions,
which could reduce energy consumption or its growth.
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The refining industry, which relies on crude oil as its prime
source of supply for further processing, may respond to the
economic downturn and demand weakness by reducing operating
rates and by reducing or canceling certain investment expansion
plans, including plans for additional refining capacity. Reduced
demand for crude oil and the shipping of crude oil or the
increased availability of pipelines used to transport crude oil,
would have a material adverse effect on our future growth and
could harm our business, results of operations, financial
condition, cash flows and ability to pay dividends.
Our ability to
grow and satisfy our financial needs may be adversely affected
by our dividend policy.
The dividend policy we plan to adopt calls for us to distribute
all of our cash available for distribution on a quarterly basis.
Cash available for distribution may be reduced by any reserves
that our board of directors may determine are required, in its
sole discretion. Accordingly, our growth, if any, may not be as
fast as businesses that reinvest their cash to expand ongoing
operations.
In determining the amount of cash available for distribution,
our board of directors will consider contingent liabilities, the
terms of any credit facilities we may enter into, our other cash
needs and the requirements of Marshall Islands law as well as
growth potential of the company. Please read Our Dividend
Policy and Restrictions on Dividends for more information.
We believe that we will generally finance maintenance from cash
balances and expansion capital expenditures primarily from
equity, internally-generated cash flow, and borrowings under a
revolving credit facility we have committed to enter into. To
the extent we do not have sufficient cash reserves or are unable
to obtain financing for these purposes, our dividend policy may
significantly impair our ability to meet our financial needs or
to grow.
We must make
substantial capital expenditures to maintain the operating
capacity of our fleet, which may reduce the amount of cash for
dividends to our shareholders.
We must make substantial capital expenditures to maintain the
operating capacity of our fleet and we generally expect to
finance these operating capital expenditures with cash balances
including cash raised
30
Risk
factors
through equity offerings. We anticipate growing our fleet
through the acquisition of vessels, which would increase the
level of our operating capital expenditures.
The reserves we may establish include capital expenditures
associated with drydocking a vessel, modifying an existing
vessel or acquiring a new vessel to the extent these
expenditures are incurred to maintain the operating capacity of
our fleet. These expenditures could increase as a result of
changes in the cost of labor and materials; customer
requirements; increases in our fleet size or the cost of
replacement vessels; governmental regulations and maritime
self-regulatory organization standards relating to safety,
security or the environment; and competitive standards.
In addition, operating capital expenditures will vary
significantly from quarter to quarter based on the number of
vessels drydocked during that quarter, among other factors.
Significant operating capital expenditures may reduce the amount
of cash available for distribution to our shareholders.
We will be
required to make substantial capital expenditures to grow the
size of our fleet, which may diminish our ability to pay
dividends, increase our financial leverage, or dilute our
shareholders ownership interest in us.
We will be required to make substantial capital expenditures to
increase the size of our fleet. We intend to expand our fleet by
acquiring existing vessels from other parties or newbuilding
vessels, which we refer to as newbuildings.
We generally will be required to make installment payments on
any newbuildings prior to their delivery, even though delivery
of the completed vessel will not occur until much later
(approximately two to four years from the order). We typically
would pay 10% to 25% of the purchase price of an existing vessel
upon signing the purchase contract and pay the balance due on
delivery (which may be a few months later). If we finance all or
a portion of these acquisition costs by issuing debt securities,
we will increase the aggregate amount of interest we must pay
prior to generating cash from the operation of the newbuilding.
Any interest expense we incur in connection with financing our
vessel acquisitions, including capitalized interest expense,
will decrease the amount of our dividends. If we finance these
acquisition costs by issuing shares of Common Stock, we will
dilute our quarterly per-share dividends prior to generating
cash from the operation of the newbuilding.
To fund growth capital expenditures, we may be required to
opportunistically incur borrowings, raise capital through the
sale of debt or additional equity securities or use cash
balances or cash from operations. Use of cash from operations
will reduce the amount of cash available for distribution as
dividends to our shareholders. Our ability to obtain bank
financing or to access the capital markets for future offerings
may be limited by our financial condition at the time of any
such financing or offering, as well as by adverse market
conditions resulting from, among other things, general economic
conditions and contingencies and uncertainties that are beyond
our control. Our failure to obtain funds for capital
expenditures could have a material adverse effect on our
business, results of operations and financial condition and on
our ability to pay dividends. Even if we are successful in
obtaining the necessary funds, the terms of such financings
could limit our ability to pay dividends to shareholders. In
addition, incurring additional debt may significantly increase
our interest expense and financial leverage, and issuing
additional equity securities may result in significant
shareholder ownership or dividend dilution.
Our executive
officers and the officers of our Manager will not devote all of
their time to our business, which may hinder our ability to
operate successfully.
Our executive officers and the officers of our Manager will be
involved in other Capital Maritime business activities, which
may result in their spending less time than is appropriate or
necessary to manage our business successfully. This could have a
material adverse effect on our business, results of operations,
cash flows, financial condition and ability to pay dividends. In
addition, the amount of time
31
Risk
factors
our officers will allocate among our business and the businesses
of Capital Maritime could vary significantly from time to time
depending on various circumstances and needs of the businesses,
such as the relative levels of strategic activities of the
businesses. There will be no formal requirements or guidelines
for the allocation of our officers time between our
business and Capital Maritimes.
Our Manager may
favor its and its affiliates interests in certain matters
that may conflict with our own and we may lose business
opportunities to our Manager that may otherwise be available to
us.
Conflicts of interest may arise between Capital Maritime, our
Manager, and its affiliates, on the one hand, and us and our
shareholders, on the other hand. These conflicts include, among
others, the following situations:
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The Business Opportunities Agreement specifies that Capital
Maritime must only inform us of certain spot, period and
bareboat charter opportunities, certain vessel acquisition
opportunities and certain other business opportunities that we
would be capable of pursuing. We will have a limited time to
exercise our right to pursue such opportunities before Capital
Maritime can take advantage of such opportunities. The time
period to take advantage of such opportunities can be
48 hours, 120 hours, 192 hours or a reasonable
time in light of the circumstances, depending on the
opportunity. See Certain Relationships and Related-Party
TransactionsBusiness Opportunity Agreement for more
information.
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Ø
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Our Manager will advise our board of directors about the amount
and timing of asset purchases and sales, capital expenditures,
borrowings, issuances of additional Common Stock and cash
reserves, each of which can affect the amount of the cash
available for distribution to our shareholders.
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Our executive officers and certain of our directors also serve
as officers or directors of our Manager or its affiliates and
such officers and directors will not spend all of their time on
matters related to our business.
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Our Manager will advise us of costs incurred by it and its
affiliates that it believes are reimbursable by us.
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As a result of these conflicts, our Manager may favor its own
interests and the interests of its affiliates over our interests
and those of our shareholders, which could have a material
adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends.
Our directors and
officers that also hold positions with our Manager may have
conflicts of interest with respect to business opportunities and
other matters involving both companies.
Our officers and directors have fiduciary duties to manage our
business in a manner beneficial to us and our shareholders.
However, our executive officers and certain of our directors
also currently serve as executive officers or directors of
Capital Maritime or its affiliates, and as a result, these
individuals also have fiduciary duties to manage the business of
Capital Maritime and its affiliates in a manner beneficial to
such entities and their shareholders. Consequently, these
officers and directors may encounter situations in which our
interests and those of Capital Maritime and its affiliates
conflict. We believe the principal situations in which these
conflicts may occur are in the allocation of business
opportunities to Capital Maritime or us, particularly with
respect to the allocation of chartering or vessel purchase
opportunities. Our amended and restated articles of
incorporation and the Business Opportunities Agreement
anticipate the possibility of such a conflict and define the
conduct of certain of our affairs as it pertains to such
conflicts. Our amended and restated articles of incorporation
and the Business Opportunities Agreement specify that we will
have a right to take advantage of certain business opportunities
(including certain spot charter, period charter, bareboat
charter and vessel purchase opportunities) within a limited time
period, after which Capital Maritime will have the right to take
advantage of any such opportunities for its own account. The
resolution of these conflicts may
32
Risk
factors
not always be in our best interest or that of our shareholders
and could have a material adverse effect on our business,
results of operations, cash flows, financial condition and
ability to pay dividends.
Our Manager has
rights to terminate the Management Agreement and, under certain
circumstances, could receive substantial sums in connection with
such termination; however, even if our board of directors or our
shareholders are dissatisfied with our Manager, there are
limited circumstances under which we can terminate the
Management Agreement.
The Management Agreement will have an initial term of
approximately 10 years and will automatically renew for
subsequent five-year terms provided that certain conditions are
met. Our Manager has the right, after five years following the
completion of this offering, to terminate the Management
Agreement with 6 months notice. Our Manager also has
the right to terminate the Management Agreement if we have
materially breached the Management Agreement.
Our Manager may elect to terminate the Management Agreement upon
the sale of all or substantially all of our assets to a third
party, our liquidation or after any change of control of our
company occurs. If our Manager so elects to terminate the
Management Agreement, then our Manager may be paid a termination
fee, which could be substantial. This termination payment shall
initially be $9 million and shall increase on each one-year
anniversary during which the Management Agreement remains in
effect (on a compound basis) in accordance with the total
percentage increase, if any, in the Consumer Price Index over
the immediately preceding twelve months.
In addition, our rights to terminate the Management Agreement
are limited. Even if we are not satisfied with the
Managers efforts in managing our business, unless our
Manager materially breaches the agreement, we may terminate the
Management Agreement only if we provide notice of termination in
the fourth quarter of 2019, which termination would be effective
December 31, 2020.
If we elect to terminate the Management Agreement at either of
these points or at the end of a subsequent renewal term, our
Manager will receive a termination fee, which may be
substantial. Please read Our Manager and Management
AgreementManagement AgreementTerm and Termination
Rights for a more detailed description of termination
rights and the termination payment under the Management
Agreement.
We will depend on
Capital Maritime to assist us in operating our business and
competing in our markets, and our business will be harmed if
Capital Maritime fails to assist us effectively.
Upon the closing of this offering, we will enter into the
Management Agreement with Capital Maritime as our Manager,
pursuant to which Capital Maritime will provide to us
commercial, technical, administrative, investor relations and
strategic services, including vessel chartering, vessel sale and
purchase, vessel operation, vessel maintenance, obtaining
appropriate insurance, regulatory, vetting and classification
society compliance, purchasing, crewing, strategic planning, and
advice on financings, acquisitions and dispositions. Our
operational success and ability to execute our growth strategy
will depend significantly upon the satisfactory performance of
these services by Capital Maritime. Capital Maritime has not
exclusively managed tanker vessels; instead, while it has
predominately managed tanker vessels, it also has managed a
variety of vessel types. Furthermore, Capital Maritimes
past performance may not be indicative of their future
performance on our behalf. Our business will be harmed if
Capital Maritime fails to perform these services satisfactorily,
if it stops providing these services to us for any reason or if
it terminates the Management Agreement, as it is entitled to do
under certain circumstances. The circumstances under which we
are able to terminate the Management Agreement are extremely
limited and do not include mere dissatisfaction with our
Managers performance. In addition, upon any termination of
the Management Agreement, we may lose our ability to benefit
from economies of scale in purchasing supplies and other
advantages that we believe our relationship with Capital
Maritime will provide.
33
Risk
factors
If Capital Maritime suffers material damage to its reputation or
relationships, it may harm our ability to:
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acquire new vessels;
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enter into new charters for our vessels;
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obtain financing on commercially acceptable terms; or
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maintain satisfactory relationships with charterers, suppliers
and other third parties.
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If our ability to do any of the things described above is
impaired, it could have a material adverse effect on our
business, results of operations, cash flows, financial condition
and ability to pay dividends.
Our Manager is a
privately held company and there is little publicly-available
information about it.
The ability of our Manager to continue providing services for
our benefit will depend in part on its own financial strength.
Circumstances beyond our control could impair our Managers
financial strength, and because it is a privately held company,
little or no information about its financial strength is
publicly available. As a result, an investor in our Common Stock
might have little advance warning of problems affecting our
Manager, even though these problems could have a material
adverse effect on us. As part of our reporting obligations as a
public company, we will disclose information regarding our
Manager that has a material impact on us to the extent that we
become aware of such information.
An increase in
operating costs could adversely affect our cash flows and
financial condition.
Under the Management Agreement, we must pay for vessel operating
expenses (including crewing, repairs and maintenance, insurance,
stores, lube oils and communication expenses), and, for spot or
voyage charters, voyage expenses (including bunker fuel
expenses, port fees, cargo loading and unloading expenses, canal
tolls, agency fees and conversions). These expenses depend upon
a variety of factors, many of which are beyond our or our
Managers control. Some of these costs, primarily relating
to fuel, insurance and enhanced security measures, have been
increasing and may increase in the future. Increases in any of
these costs would decrease our earnings, cash flows and the
amount of cash available for distribution to our shareholders.
Our purchasing
and operating previously owned vessels may result in increased
operating costs and vessels off-hire, which could adversely
affect our earnings.
Our current business strategy includes growth through the
acquisition of previously owned vessels. While we typically
inspect previously owned vessels before purchase, this does not
provide us with the same knowledge about their condition that we
would have had if these vessels had been built for and operated
exclusively by us. Accordingly, we may not discover defects or
other problems with such vessels before purchase. Any such
hidden defects or problems, when detected, may be expensive to
repair, and, if not detected, may result in accidents or other
incidents for which we may become liable to third parties. Also,
when purchasing previously owned vessels, we do not receive the
benefit of any builder warranties if the vessels we buy are
older than one year.
In general, the costs to maintain a vessel in good operating
condition increase with the age of the vessel. Older vessels are
typically less fuel efficient than more recently constructed
vessels due to improvements in engine technology.
Governmental regulations, safety and other equipment standards
related to the age of vessels may require expenditures for
alterations or the addition of new equipment to some of our
vessels and may restrict the type of activities in which these
vessels may engage. We cannot assure you that, as our vessels
age, market conditions will justify those expenditures or enable
us to operate our vessels
34
Risk
factors
profitably during the remainder of their useful lives. As a
result, regulations and standards could have a material adverse
effect on our business, results of operations, cash flows,
financial condition and ability to pay dividends.
Our Manager may
elect to subcontract the technical management of our fleet to
third party managers. Any failure of these technical managers to
perform their obligations to us could adversely affect our
business.
Our Manager may elect to subcontract part or all of the services
of the technical management of our fleet, including crewing,
maintenance and repair services, to third-party technical
management companies. The failure of these technical managers to
perform their obligations could materially and adversely affect
our business, results of operations, cash flows, financial
condition and ability to pay dividends. Although we may have
rights against our third-party managers if they default on their
obligations, our shareholders will share that recourse only
indirectly to the extent that we recover funds.
In the highly
competitive international tanker shipping industry, we may not
be able to compete for charters with new entrants or established
companies with greater resources.
We employ our vessels in a highly competitive market that is
capital intensive and highly fragmented. Competition arises
primarily from other vessel owners, including oil majors, some
of whom have substantially greater resources than we do.
Competition for the transportation of crude oil can be intense
and depends on the offered charter rate, the location, technical
specification, quality of the vessel and the reputation of the
vessels manager. Due in part to the highly fragmented
market, competitors with greater resources could enter and
operate larger fleets through consolidations or acquisitions
that may be able to offer better prices and fleets than we are
able to offer.
We expect to
maintain all of our cash with a limited number of financial
institutions including financial institutions that may be
located in Greece, which will subject us to credit
risk.
We expect to maintain all of our cash with a limited number of
reputable financial institutions, including institutions that
may be located in Greece. These financial institutions located
in Greece may be subsidiaries of international banks or Greek
financial institutions. We do not expect that these balances
will be covered by insurance in the event of default by these
financial institutions. The occurrence of such a default could
therefore have a material adverse effect on our business,
financial condition, results of operations and cash flows.
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.
In order to fund our capital expenditures, we generally plan to
use equity financing, internally-generated cash flows and
opportunistic drawdowns from a revolving credit facility we have
committed to enter into. If equity financing is not available on
favorable terms, we may have to use debt financing. Our ability
to borrow money and access the capital markets through future
offerings may be limited by our financial condition at the time
of any such offering as well as by adverse market conditions
resulting from, among other things, general economic conditions
and contingencies and uncertainties that are beyond our control.
Our failure to obtain the funds for necessary future capital
expenditures could limit our ability to continue to operate some
of our vessels or impair the values of our vessels and could
have a material adverse effect on our business, results of
operations, financial condition, cash flows and ability to pay
dividends. Even if we are successful in obtaining such funds
through financings, the terms of such financings could further
limit our ability to pay dividends.
35
Risk
factors
Given the prevailing market and economic conditions, including
the recent financial turmoil affecting the worlds debt,
credit and capital markets, the ability of banks and credit
institutions to finance new projects, including the acquisition
of new vessels in the future, is uncertain, and the availability
of liquidity is generally limited. As a result, the prevailing
market and economic conditions may affect our ability to grow
and expand our business.
We are a holding
company, and we will depend on the ability of our future
subsidiaries to distribute funds to us in order to satisfy our
financial obligations or to make dividend payments.
We are a holding company, and our future subsidiaries, which
will be all wholly owned by us either directly or indirectly,
will conduct all of our operations and own all of our operating
assets. We will have no significant assets other than the equity
interests in our wholly owned subsidiaries. As a result, our
ability to satisfy our financial obligations and to pay
dividends to our shareholders will depend on the ability of our
subsidiaries to distribute funds to us. In turn, the ability of
our subsidiaries to make dividend payments to us will depend on
them having profits available for distribution and, to the
extent that we are unable to obtain dividends from our
subsidiaries, this will limit the discretion of our board of
directors to pay or recommend the payment of dividends.
Our ability to
pay dividends on a quarterly basis will be affected by the
amount of reserves our Board of Directors elects to make each
quarter.
Dividends will be paid equally on a per-share basis between our
Common Stock and our Class B Stock. Cash available for
distribution represents net cash flow during the previous
quarter less any amount required to maintain a reserve that our
board of directors determines from time to time is appropriate
for the operation and future growth of our fleet, taking into
account (among other factors) contingent liabilities, the terms
of any credit facilities we may enter into, our other cash needs
(including without limitation reserves for acquisitions of
vessels, drydocking, special surveys, repairs, claims,
liabilities and other obligations, debt amortization and
acquisitions of additional assets) and the requirements of the
laws of the Republic of The Marshall Islands. The level of
reserves in any quarter is determined by our board of directors
in its sole discretion. Any changes to the amount of reserves
may decrease the amount of cash available for distribution.
If management is
unable to continue to provide reports as to the effectiveness of
our internal control over financial reporting or our independent
registered public accounting firm is unable to continue to
provide us with unqualified attestation reports as to the
effectiveness of our internal control over financial reporting,
investors could lose confidence in the reliability of our
financial statements, which could result in a decrease in the
value of our Common Stock.
Under Section 404 of the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley), after we file our annual report on
Form 20-F
for our initial fiscal year, we will be required to include in
each of our subsequent future annual reports on
Form 20-F
a report containing our managements assessment of the
effectiveness of our internal control over financial reporting
and a related attestation of our independent registered public
accounting firm. As our manager, Capital Maritime will provide
substantially all of our financial reporting, and we will depend
on the procedures they have in place. If, in such future annual
reports on
Form 20-F,
our management cannot provide a report as to the effectiveness
of our internal control over financial reporting or our
independent registered public accounting firm is unable to
provide us with an unqualified attestation report as to the
effectiveness of our internal control over financial reporting
as required by Section 404, investors could lose confidence
in the reliability of our financial statements, which could
result in a decrease in the value of our Common Stock.
36
Risk
factors
Our costs of
operating as a public company will be significant, and our
management will be required to devote substantial time to
complying with public company regulations.
As a public company, we will incur significant legal, accounting
and other expenses. In addition, Sarbanes-Oxley, as well as
rules subsequently implemented by the SEC and the New York Stock
Exchange (the NYSE), have imposed various
requirements on public companies, including changes in corporate
governance practices, and these requirements will continue to
evolve. Our Manager, management personnel, and other personnel,
if any, will need to devote a substantial amount of time to
comply with these requirements. Moreover, these rules and
regulations will increase our legal and financial compliance
costs and will make some activities more time-consuming and
costly.
As a publicly traded entity, we will be required to comply with
the SECs reporting requirements and with corporate
governance and related requirements of Sarbanes-Oxley, the SEC
and the NYSE, on which our common shares will be listed.
Section 404 of Sarbanes-Oxley requires that we evaluate and
determine the effectiveness of our internal control over
financial reporting on an annual basis. If we have a material
weakness in our internal control over financial reporting, we
may not detect errors on a timely basis and our financial
statements may be materially misstated. While we expect to
follow Capital Maritimes model and systems for compliance
with Section 404, we will be required to dedicate a
significant amount of time and resources to ensure compliance
with the regulatory requirements of Section 404. We will
work with our legal, accounting and financial advisors to
identify any areas in which changes should be made to our
financial and management control systems to manage our growth
and our obligations as a public company. However, these and
other measures we may take may not be sufficient to allow us to
satisfy our obligations as a public company on a timely and
reliable basis. We expect to incur significant legal, accounting
and other expenses in complying with these and other applicable
regulations. We anticipate that our incremental general and
administrative expenses as a publicly traded company will
include costs associated with annual reports to shareholders,
tax returns, investor relations, registrar and transfer
agents fees, incremental director and officer liability
insurance costs and director compensation.
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.
Our success depends to a significant extent upon the abilities
and efforts of our management team and our ability to hire and
retain key members of our management team. The loss of any of
these individuals could adversely affect our business prospects
and financial condition. Difficulty in hiring and retaining
personnel could have a material adverse effect on our business,
results of operations, cash flows, financial condition and
ability to pay dividends. We do not intend to maintain key
man life insurance on any of our officers.
We may not have
adequate insurance to compensate us if we lose our vessels or to
compensate third parties.
There are a number of risks associated with the operation of
ocean-going vessels, including mechanical failure, collision,
human error, war, terrorism, piracy, property loss, cargo loss
or damage and business interruption due to political
circumstances in foreign countries, hostilities and labor
strikes. Any of these events may result in loss of revenues,
increased costs and decreased cash flows. In addition, the
operation of any vessel is subject to the inherent possibility
of marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating
vessels in international trade.
We intend to insure vessels we acquire against tort claims and
some contractual claims (including claims related to
environmental damage and pollution) through memberships in
protection and indemnity
37
Risk
factors
associations or clubs (P&I Associations). As a
result of such membership, the P&I Associations will
provide us coverage for such tort and contractual claims. We
will also carry hull and machinery insurance and war risk
insurance for our fleet. We plan to insure our vessels for
third-party liability claims subject to and in accordance with
the rules of the P&I Associations in which the vessels are
entered. We can give no assurance that we will be adequately
insured against all risks. We may not be able to obtain adequate
insurance coverage for our fleet in the future. The insurers may
not pay particular claims. Our insurance policies contain
deductibles for which we will be responsible and limitations and
exclusions which may increase our costs or lower our revenue. We
do not currently maintain off-hire insurance, which would cover
the loss of revenue during extended vessel off-hire periods,
such as those that occur during an unscheduled drydocking due to
damage to the vessel from accidents. Accordingly, any extended
vessel off-hire, due to an accident or otherwise, could have a
material adverse effect on our business and our ability to pay
distributions to our shareholders. Any claims covered by
insurance would be subject to deductibles, and since it is
possible that a large number of claims may be brought, the
aggregate amount of these deductibles could be material. Certain
of our insurance coverage is maintained through mutual
protection and indemnity associations, and as a member of such
associations we may be required to make additional payments over
and above budgeted premiums if member claims exceed association
reserves.
We cannot assure you that we will be able to renew our insurance
policies on the same or commercially reasonable terms, or at
all, in the future. For example, more stringent environmental
regulations have led in the past to increased costs for, and in
the future may result in the lack of availability of, protection
and indemnity insurance against risks of environmental damage or
pollution. Any uninsured or underinsured loss could harm our
business, results of operations, cash flows, financial condition
and ability to pay dividends. In addition, our insurance may be
voidable by the insurers as a result of certain of our actions,
such as our ships failing to maintain certification with
applicable maritime self-regulatory organizations. Further, we
cannot assure you that our insurance policies will cover all
losses that we incur, or that disputes over insurance claims
will not arise with our insurance carriers. Any claims covered
by insurance would be subject to deductibles, and since it is
possible that a large number of claims may be brought, the
aggregate amount of these deductibles could be material. In
addition, our insurance policies are subject to limitations and
exclusions, which may increase our costs or lower our revenues,
thereby possibly having a material adverse effect on our
business, results of operations, cash flows, financial condition
and ability to pay dividends.
For example, more stringent environmental regulations have led
in the past to increased costs for, and in the future may result
in the lack of availability of, insurance against risks of
environmental damage or pollution. A catastrophic oil spill or
marine disaster could exceed our insurance coverage, which could
harm our business, financial condition, cash flows, operating
results and ability to pay dividends. In addition, certain of
our vessels may be placed under bareboat charters. Under the
terms of these charters, the charterer may provide for the
insurance of the vessel and as a result these vessels may not be
adequately insured
and/or
in
some cases may be self-insured. Any uninsured or underinsured
loss could harm our business, financial condition, cash flows,
operating results and ability to pay dividends. In addition, our
insurance may be voidable by the insurers as a result of certain
of our actions, such as our ships failing to maintain
certification with applicable maritime self-regulatory
organizations.
We will be
subject to funding calls by our protection and indemnity
associations, and our associations may not have enough resources
to cover claims made against them.
We are indemnified for legal liabilities incurred while
operating our vessels through membership in P&I
Associations. P&I Associations are mutual insurance
associations whose members must contribute to cover losses
sustained by other association members. The objective of a
P&I Association is to provide mutual insurance based on the
aggregate tonnage of a members vessels entered into the
association. Claims are paid through the aggregate premiums of
all members of the association, although members
38
Risk
factors
remain subject to calls for additional funds if the aggregate
premiums are insufficient to cover claims submitted to the
association. Claims submitted to the association may include
those incurred by members of the association, as well as claims
submitted to the association from other P&I Associations
with which our P&I Association has entered into
interassociation agreements. We cannot assure you that the
P&I Associations to which we belong will remain viable or
that we will not become subject to additional funding calls
which could adversely affect us.
We may have to
pay United States federal income tax on U.S. source income,
which would reduce our net income and cash flows.
We expect that we and certain corporate subsidiaries will
qualify for an exemption pursuant to Section 883 of the
Code (Section 883) upon the closing of this
offering, and that we and these subsidiaries will therefore not
be subject to United States federal income tax on our shipping
income that is derived from U.S. sources, as described
below. However, there are factual circumstances beyond our
control that could cause us or any of these subsidiaries to lose
the benefit of this tax exemption. Therefore, we can give no
assurances on this matter. If we or any of these subsidiaries
were not to qualify for the exemption under Section 883,
50% of our or such subsidiarys gross shipping income
attributable to transportation beginning or ending in the United
States will be subject to a 4% tax without allowance for
deductions. See United States Federal Income Tax
ConsiderationsExemption of Operating Income from United
States Federal Income Taxation.
U.S. tax
authorities could treat us as a passive foreign investment
company, which could have adverse United States federal
income tax consequences to U.S. shareholders.
A foreign corporation generally will be treated as a passive
foreign investment company (PFIC) for United States
federal income tax purposes if either (a) at least 75% of
its gross income for any taxable year consists of passive
income or (b) at least 50% of its assets (averaged
over the year and generally determined based upon value) produce
or are held for the production of passive income.
U.S. shareholders of a PFIC are subject to a
disadvantageous United States federal income tax regime with
respect to distributions they receive from the PFIC and gain, if
any, they derive from the sale or other disposition of their
stock in the PFIC.
For purposes of these tests, passive income
generally includes dividends, interest, gains from the sale or
exchange of investment property and rents and royalties other
than rents and royalties which are received from unrelated
parties in connection with the active conduct of a trade or
business, as defined in applicable Treasury regulations.
If we would otherwise be a PFIC in our
start-up
year (defined as the first taxable year we earn gross
income) as a result of a delay in purchasing vessels with the
proceeds of the offering (or generally for any other reason), we
will not be treated as a PFIC in that taxable year, provided
that (a) no predecessor corporation was a PFIC, (b) it
is established to the satisfaction of the United States Internal
Revenue Service (the IRS) that we will not be a PFIC
in either of the two succeeding taxable years, and (c) we
are not, in fact, a PFIC for either succeeding taxable year. We
will attempt to conduct our affairs in a manner so that, if
applicable, we will satisfy the
start-up
year exception, but we cannot assure you that we will so qualify.
For purposes of these tests, income derived from the performance
of services does not constitute passive income. By
contrast, rental income would generally constitute passive
income unless we were treated under specific rules as deriving
our rental income in the active conduct of a trade or business.
Based on our planned operations and certain estimates of our
gross income and gross assets, we do not believe that we will be
a PFIC with respect to any taxable year. In this regard, we
intend to treat the gross income we derive or are deemed to
derive from our spot chartering and time chartering activities
as services income, rather than rental income. Accordingly, we
believe that (a) our income from our
39
Risk
factors
spot chartering and time chartering activities does not
constitute passive income and (b) the assets that we own
and operate in connection with the production of that income do
not constitute passive assets.
There is, however, no direct legal authority under the PFIC
rules addressing our method of operation. Moreover, in a recent
case not concerning PFICs,
Tidewater Inc.
v.
United
States
, 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit
held that a vessel time charter at issue generated predominantly
rental income rather than services income. However, the
courts ruling was contrary to the position of the IRS that
the time charter income at issue should have been treated as
services income. Moreover,
Tidewater
analyzed time
charters, while we anticipate that a significant portion of our
income will be generated from spot charters.
No assurance, however, can be given that the IRS or a court of
law will accept our position, and there is a risk that the IRS
or a court of law could determine that we are a PFIC. Moreover,
because there are uncertainties in the application of the PFIC
rules, because the PFIC test is an annual test, and because,
although we intend to manage our business so as to avoid PFIC
status to the extent consistent with our other business goals,
there could be changes in the nature and extent of our
operations in future years, there can be no assurance that we
will not become a PFIC in any taxable year.
If we were to be treated as a PFIC for any taxable year (and
regardless of whether we remain a PFIC for subsequent taxable
years), our U.S. shareholders would face adverse
U.S. tax consequences. Under the PFIC rules, unless a
shareholder makes certain elections available under the Code
(which elections could themselves have adverse consequences for
such shareholder, as discussed under the section captioned
United States Federal Income Tax
ConsiderationsUnited States Federal Income Taxation of
U.S. HoldersPassive Foreign Investment Company Status
and Significant Tax Consequences), such shareholder would
be liable to pay United States federal income tax at the highest
applicable income tax rates on ordinary income upon the receipt
of excess distributions and upon any gain from the disposition
of our Common Stock, plus interest on such amounts, as if such
excess distribution or gain had been recognized ratably over the
shareholders holding period of our Common Stock. See the
section captioned United States Federal Income Tax
ConsiderationsUnited States Federal Income Taxation of
U.S. HoldersPassive Foreign Investment Company Status
and Significant Tax Consequences for a more comprehensive
discussion of the United States federal income tax consequences
to U.S. shareholders if we are treated as a PFIC.
Because we will
generate all of our revenues in U.S. dollars but incur a
portion of our expenses in other currencies, exchange rate
fluctuations could hurt our results of operations.
We will generate all of our revenues in U.S. dollars, but
we may incur drydocking costs and special survey fees in other
currencies. If our expenditures on such costs and fees were
significant, and the U.S. dollar were weak against such
currencies, our business, results of operations, cash flows,
financial condition and ability to pay dividends could be
adversely affected.
We cannot assure
you that we will be able to borrow amounts under our revolving
credit facility, and restrictive covenants in our revolving
credit facility or future financing agreements may impose
financial and other restrictions on us, such as limiting our
ability to pay dividends.
In connection with this offering, we have entered into a signed
commitment letter with Nordea Bank Finland Plc, London Branch,
to obtain a new $100 million revolving credit facility. We
intend to utilize this credit facility opportunistically for the
future growth of the Company beyond the acquisition of our
initial fleet in a manner that will enhance our earnings, cash
flow and net asset value. Our ability to borrow amounts under
the credit facility will be subject to the execution of
customary documentation, satisfaction of certain customary
conditions precedent and compliance with terms and conditions
included in the loan documents. Our ability to borrow funds from
the credit facility to acquire additional vessels under the
credit facility will be partially dependent on whether the
purchase of the
40
Risk
factors
acquired vessels meets certain financial criteria, and whether
the vessels meet certain age and other requirements.
Additionally, the credit facility will prohibit us from paying
dividends to our shareholders if an event of default has
occurred and is continuing or if an event of default will occur
as a result of the payment of such dividend.
The operating and financial restrictions and covenants in our
revolving credit facility and any future financing agreements
could adversely affect our ability to finance future operations
or capital needs or to pursue and expand our business
activities. For example, our credit facility contains
restrictive covenants that may prohibit us from, among other
things:
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paying dividends;
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incurring or guaranteeing indebtedness;
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charging, pledging or encumbering our vessels;
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changing the flag, class, management or ownership of our vessels;
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changing the commercial and technical management of our
vessels; and
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selling or changing the beneficial ownership or control of our
vessels.
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Therefore, we may need to seek consent from our lenders in order
to engage in certain corporate actions. Our lenders
interests may be different from ours and we cannot guarantee
that we will be able to obtain our lenders consent when
needed. Our ability to comply with covenants and restrictions
contained in our revolving credit facility or future debt
instruments may be affected by events beyond our control,
including prevailing economic, financial and industry
conditions. If market or other economic conditions deteriorate,
we may fail to comply with these covenants. If we breach any of
the restrictions, covenants, ratios or tests in our revolving
credit facility or future financing agreements, our obligations
may become immediately due and payable, and the lenders
commitment, if any, to make further loans may terminate. A
default under our revolving credit facility or future financing
agreements could also result in foreclosure on any of our
vessels and other assets securing related loans. The occurrence
of any of these events could have a material adverse effect on
our business, results of operations, cash flows, financial
condition and ability to pay dividends. See the section
captioned Managements Discussion and Analysis of
Financial Condition and Results of OperationsLiquidity and
Capital ResourcesRevolving Credit Facility for a
more comprehensive discussion of our revolving credit facility.
Financing
agreements containing operating and financial restrictions may
restrict our business and financing activities.
The operating and financial restrictions and covenants in any
future financing agreements, including our revolving credit
facility, could adversely affect our ability to finance future
operations or capital needs or to pursue and expand our business
activities. For example, these financing arrangements may
restrict our ability to:
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pay dividends;
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incur or guarantee indebtedness;
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change ownership or structure, including mergers,
consolidations, liquidations and dissolutions;
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grow our business through borrowings alone;
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incur liens on our assets;
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sell, transfer, assign or convey assets;
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make certain investments; and
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enter into a new line of business.
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41
Risk
factors
Our ability to comply with covenants and restrictions contained
in debt instruments may be affected by events beyond our
control, including prevailing economic, financial and industry
conditions. If market or other economic conditions deteriorate,
we may fail to comply with these covenants. If we breach any of
the restrictions, covenants, ratios or tests in the financing
agreements, our obligations may become immediately due and
payable, and the lenders commitment, if any, to make
further loans may terminate. A default under financing
agreements could also result in foreclosure on any of our
vessels and other assets securing related loans. The occurrence
of any of these events could have a material adverse effect on
our business, results of operations, cash flows, financial
condition and ability to pay dividends.
Restrictions in
our potential future debt agreements may prevent us from paying
dividends.
The payment of principal and interest on any debt we incur will
reduce the amount of cash for dividends to our shareholders. In
addition, we expect that our financing agreements will prohibit
the payment of dividends upon the occurrence of the following
events, among others:
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failure to pay any principal, interest, fees, expenses or other
amounts when due;
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failure to notify the lenders of any material oil spill or
discharge of hazardous material, or of any action or claim
related thereto;
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breach or lapse of any insurance with respect to the vessels;
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breach of certain financial or other covenants;
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failure to observe any other agreement, security instrument,
obligation or covenant beyond specified cure periods in certain
cases;
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default under other indebtedness;
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bankruptcy or insolvency events;
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failure of any representation or warranty to be materially
correct;
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a change of control, as defined in the applicable
agreement; and
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a material adverse effect, as defined in the applicable
agreement.
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Our ability to
obtain debt financing may depend on the performance of our
business, our Manager, and market conditions.
The actual or perceived credit quality of our business, our
Manager, and market conditions affecting the spot charter market
and the credit markets may materially affect our ability to
obtain the additional capital resources that may be required to
purchase additional vessels or may significantly increase our
costs of obtaining such capital. Our inability to obtain
additional financing at all or at a higher than anticipated cost
may have a material adverse affect on our business, results of
operations, cash flows, financial condition and ability to pay
dividends.
We are relying on
the companies from which we are acquiring the Universal VLCCs to
pay all costs for the Universal VLCCs that we will not own until
after completion of this offering.
The two Universal VLCCs are being built pursuant to two
shipbuilding contracts entered into by Universal and the current
contractors (the VLCC Sellers). The VLCC Sellers are
responsible for all costs relating to the construction and
delivery of the Universal VLCCs that the vessel-owning
subsidiaries we will acquire have contracted to purchase, but
that have not yet been delivered from the shipyard. When the
vessels have passed inspection and been delivered to the VLCC
Sellers, the vessel-owning subsidiaries will purchase the
Universal VLCCs at specified prices. If the VLCC Sellers fail to
continue to make construction payments for these vessels, we
could lose access to the Universal VLCCs
42
Risk
factors
as a result of the default, which could harm our business and
reduce our ability to pay dividends to our shareholders.
RISK FACTORS
RELATED TO OUR COMMON STOCK AND CAPITAL STRUCTURE
The concentration
of our capital stock ownership with Crude Carriers Investments
Corp. and its affiliates and the superior voting rights of our
Class B Stock held by Crude Carriers Investments Corp. will
limit our Common Stock holders ability to influence
corporate matters.
Under our amended and restated articles of incorporation that
will be in effect before the closing of this offering, our
Class B Stock will have 10 votes per share, and our Common
Stock will have one vote per share, resulting in Crude Carriers
Investments Corp. controlling in excess of 50% of the combined
voting power of these two classes of stock but for the limit on
the voting power of the Class B Stock held by it and its
affiliates to an aggregate maximum of 49% of the combined voting
power of our Common Stock and Class B Stock. Therefore,
upon the closing of this offering, Crude Carriers Investments
Corp. will own shares of Class B Stock representing 49% of
the voting power of our outstanding capital stock (remaining at
49% if the underwriters exercise their over-allotment option in
full). In addition, pursuant to the Subscription Agreement,
Crude Carriers Investments Corp. will be entitled, so long as
Capital Maritime or any of its affiliates is our manager, to
subscribe for an additional number of shares of Class B
Stock equal to 2.0% of the number of shares of Common Stock
issued, excluding shares of Common Stock issued in this
offering, shares of Common Stock issued under our 2010 Equity
Incentive Plan (see Management2010 Equity Incentive
Plan) and future equity compensation. These additional
shares would be issued for additional nominal consideration
equal to their par value. In addition, members of our board of
directors or our management team who are affiliated with Capital
Maritime, a related party to Crude Carriers Investments Corp.,
or other individuals providing services under the Management
Agreement who are affiliated with Capital Maritime, may receive
equity awards under our 2010 Equity Incentive Plan.
Through its ownership of our Class B Stock and its relation
to our Manager, Crude Carriers Investments Corp. will have
substantial control and influence over our management and
affairs and over all matters requiring shareholder approval,
including the election of directors and significant corporate
transactions, such as a merger or other sale of our company or
its assets, for the foreseeable future. In addition, because of
this dual-class stock structure, Crude Carriers Investments
Corp. will continue to be able to control all matters submitted
to our shareholders for approval even though it will own
significantly less than 50% of the aggregate number of
outstanding shares of our Common Stock and Class B Stock.
This concentrated control limits our Common Stock holders
ability to influence corporate matters and, as a result, we may
take actions that our Common Stock holders do not view as
beneficial. As a result, the market price of our Common Stock
could be adversely affected.
The voting rights
of certain shareholders owning 5% or more of our Common Stock
are restricted.
Our amended and restated articles of incorporation restrict
Common Share holders voting rights by providing that if
any person or group, other than Crude Carriers Investments
Corp., owns beneficially 5% or more of the Common Stock then
outstanding, then any such Common Stock owned by that person or
group in excess of 4.9% may not be voted on any matter. The
voting rights of any such Common Stock holders in excess of 4.9%
will be redistributed pro rata among the other Common Stock
holders holding less than 5.0% of the Common Stock.
43
Risk
factors
Because we are a
foreign corporation, you may not have the same rights or
protections that a shareholder in a United States corporation
may have.
We are incorporated in the Republic of The Marshall Islands,
which does not have a well-developed body of corporate law and
may make it more difficult for our shareholders to protect their
interests. Our corporate affairs are governed by our amended and
restated articles of incorporation, our amended and restated
bylaws and the Marshall Islands Business Corporations Act
(BCA). The provisions of the BCA resemble provisions
of the corporation laws of a number of states in the United
States. However, the rights and fiduciary responsibilities of
directors under the law of the Marshall Islands are not as
clearly established as the rights and fiduciary responsibilities
of directors under statutes or judicial precedent in existence
in certain U.S. jurisdictions and there have been few
judicial cases in the Marshall Islands interpreting the BCA.
Shareholder rights may differ as well. While the BCA does
specifically incorporate the non-statutory law, or judicial case
law, of the State of Delaware and other states with
substantially similar legislative provisions, our public
shareholders may have more difficulty in protecting their
interests in the face of actions by the management, directors or
controlling shareholders than would shareholders of a
corporation incorporated in a U.S. jurisdiction. See
Certain Marshall Islands Company Considerations.
Provisions of our
amended and restated articles of incorporation and amended and
restated bylaws may have anti-takeover effects which could
adversely affect the market price of our Common Stock.
Several provisions of our amended and restated articles of
incorporation and amended and restated bylaws, which are
summarized below, may have anti-takeover effects. These
provisions are intended to avoid costly takeover battles, lessen
our vulnerability to a hostile change of control and enhance the
ability of our board of directors to maximize shareholder value
in connection with any unsolicited offer to acquire our company.
However, these anti-takeover provisions could also discourage,
delay or prevent (a) the merger or acquisition of our
company by means of a tender offer, a proxy contest or otherwise
that a shareholder may consider in its best interest and
(b) the removal of incumbent officers and directors.
Dual Class Stock.
Our dual class stock
structure, which will consist of Common Stock and Class B
Stock, gives Crude Carriers Investments Corp. and its affiliates
a significant degree of control over all matters requiring
shareholder approval, including the election of directors and
significant corporate transactions, such as a merger or other
sale of our company or its assets. The extent of this control is
diminished because the aggregate voting power of the
Class B Stock held by Crude Carriers Investments Corp. and
its affiliates is limited to an aggregate maximum of 49% of the
combined voting power of our outstanding Common Stock and
Class B Stock. Nevertheless, this concentrated control
could discourage others from initiating any potential merger,
takeover or other change of control transaction that other
shareholders may view as beneficial.
Blank Check Preferred Stock.
Under the terms
of our amended and restated articles of incorporation, our board
of directors will have authority, without any further vote or
action by our shareholders, to issue up to 100 million
shares of blank check preferred stock. Our board
could authorize the issuance of preferred stock with voting or
conversion rights that could dilute the voting power or rights
of the holders of Common Stock. The issuance of preferred stock,
while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other
things, have the effect of delaying, deferring or preventing a
change in control of us or the removal of our management and
might harm the market price of our Common Stock. We have no
current plans to issue any shares of preferred stock.
Classified Board of Directors.
Our amended and
restated articles of incorporation provide for the division of
our board of directors into three classes of directors, with
each class as nearly equal in
44
Risk
factors
number as possible, serving staggered, three-year terms
beginning upon the expiration of the initial term for each
class. Approximately one-third of our board of directors is
elected each year. This classified board provision could
discourage a third party from making a tender offer for our
shares or attempting to obtain control of us. It could also
delay shareholders who do not agree with the policies of our
board of directors from removing a majority of our board of
directors for up to two years.
Election and Removal of Directors.
Our amended
and restated articles of incorporation do not provide for
cumulative voting in the election of directors. Our amended and
restated bylaws require parties other than the board of
directors to give advance written notice of nominations for the
election of directors. Our amended and restated articles of
incorporation also provide that our directors may be removed
only for cause upon the affirmative vote of
66
2
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3
%
of the outstanding shares of our capital stock entitled to vote
for those directors or by a majority of the members of the board
of directors then in office. These provisions may discourage,
delay or prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders.
Our amended
and restated articles of incorporation and our amended and
restated bylaws provide that any action required or permitted to
be taken by our shareholders must be effected at an annual or
special meeting of shareholders or as otherwise permitted by the
BCA. Our amended and restated articles of incorporation and our
amended and restated bylaws provide that, subject to certain
exceptions, our Chairman or Chief Executive Officer, in either
case at the direction of the board of directors, may call
special meetings of our shareholders and the business transacted
at the special meeting is limited to the purposes stated in the
notice.
Advance Notice Requirements for Shareholder Proposals and
Director Nominations.
Our amended and restated
bylaws provide that shareholders seeking to nominate candidates
for election as directors or to bring business before an annual
meeting of shareholders must provide timely notice of their
proposal in writing to the corporate secretary. Generally, to be
timely, a shareholders notice must be received at our
principal executive offices not less than 90 days or more
than 120 days before the date on which we first mailed our
proxy materials for the preceding years annual meeting.
Our amended and restated bylaws also specify requirements as to
the form and content of a shareholders notice. These
provisions may impede a shareholders ability to bring
matters before an annual meeting of shareholders or make
nominations for directors at an annual meeting of shareholders.
Bylaw Amendments.
Our amended and restated
bylaws may only be repealed or amended by a vote of
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2
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3
%
or more of the total voting power of our outstanding capital
stock. In light of the voting rights of our Class B Stock,
any amendment of our bylaws will likely require the approval of
Crude Carriers Investment Corp.
It may not be
possible for our investors to enforce U.S. judgments
against us.
We are incorporated in the Republic of The Marshall Islands, and
we expect most of our future subsidiaries will also be organized
in the Marshall Islands. We expect that substantially all of our
assets and those of our subsidiaries will be located outside the
United States. As a result, it may be difficult or impossible
for United States shareholders to serve process within the
United States upon us or to enforce judgment upon us for civil
liabilities in United States courts. In addition, you should not
assume that courts in the countries in which we are incorporated
or where our assets are located (a) would enforce judgments
of United States courts obtained in actions against us based
upon the civil liability provisions of applicable United States
federal and state securities laws or (b) would enforce, in
original actions, liabilities against us based upon these laws.
45
Risk
factors
Future sales of
our Common Stock could cause the market price of our Common
Stock to decline.
The market price of our Common Stock could decline due to sales
of a large number of shares in the market, including sales of
shares by our large shareholders, or the perception that these
sales could occur. These sales could also make it more difficult
or impossible for us to sell equity securities in the future at
a time and price that we deem appropriate to raise funds through
future offerings of Common Stock. Prior to or at the closing of
this offering, we will enter into a registration rights
agreement with Crude Carriers Investments Corp. pursuant to
which we will grant Crude Carriers Investments Corp. certain
registration rights with respect to our Common Stock and
Class B Stock owned by them.
Purchasers in
this offering will experience immediate and substantial dilution
of $0.90 per share of Common Stock.
The assumed initial public offering price per share of Common
Stock exceeds the pro forma net tangible book value per share of
Common Stock and Class B Stock, immediately after this
offering. Based on an assumed initial public offering price of
$20.00 per share, you will incur immediate and substantial
dilution of $0.90 per share. Please read Dilution
for a more detailed description of the dilution that you will
experience upon the completion of this offering.
As a key
component of our business strategy, we intend to issue
additional shares of Common Stock or other securities to finance
our growth. These issuances, which would generally not be
subject to shareholder approval, will dilute your ownership
interests and may depress the market price of the Common
Stock.
We plan to finance potential future expansions of our fleet
primarily through equity financing and internally-generated cash
flow. Therefore, subject to the rules of the NYSE, we plan to
issue additional shares of Common Stock, and other equity
securities of equal or senior rank, without shareholder
approval, in a number of circumstances from time to time.
The issuance by us of shares of Common Stock or other equity
securities of equal or senior rank will have the following
effects:
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Crude Carriers Investments Corp. will be entitled, so long as
Capital Maritime or any of its affiliates is our manager, to
subscribe for an additional number of shares of Class B
Stock equal to 2.0% of the number of shares of Common Stock
issued, excluding shares of Common Stock issued in this
offering, shares of Common Stock issued under our 2010 Equity
Incentive Plan (see Management2010 Equity Incentive
Plan) and future equity compensation. These additional
shares would be issued for additional nominal consideration
equal to their par value.
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Our existing shareholders proportionate ownership interest
in us will decrease.
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The amount of cash available for distribution as dividends
payable on our Common Stock may decrease.
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The relative voting strength of each previously outstanding
share may be diminished.
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The market price of our Common Stock may decline.
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In addition, if we issue shares of our Common Stock in a future
offering at a price per share lower than the price per share in
this offering, it will be dilutive to purchasers of Common Stock
in this offering.
There is no
existing market for our Common Stock, and we cannot be certain
that an active trading market or a specific share price will be
established.
Prior to this offering, there has been no public market for
shares of our Common Stock. We have been cleared to apply for
listing of our Common Stock on the NYSE under the symbol
CRU. We cannot
46
Risk
factors
predict the extent to which investor interest in our company
will lead to the development of an active trading market on the
NYSE or otherwise or how liquid that market might become. The
initial public offering price for the shares of our Common Stock
will be determined by negotiations between us and the
underwriters, and may not be indicative of the price that will
prevail in the trading market following this offering. The
market price for our Common Stock may decline below the initial
public offering price, and our stock price is likely to be
volatile following this offering.
Increases in
interest rates may cause the market price of our shares to
decline.
An increase in interest rates may cause a corresponding decline
in demand for equity investments in general, and in particular
for yield based equity investments such as our shares. Any such
increase in interest rates or reduction in demand for our shares
resulting from other relatively more attractive investment
opportunities may cause the trading price of our shares to
decline.
If the stock
price of our Common Stock fluctuates after this offering, you
could lose a significant part of your investment.
The market price of our Common Stock may be influenced by many
factors, many of which are beyond our control, including those
described above under Risk Factors Related to Our
Planned Business & Operations and the following:
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the failure of securities analysts to publish research about us
after this offering, or analysts making changes in their
financial estimates;
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announcements by us or our competitors of significant contracts,
acquisitions or capital commitments;
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variations in quarterly operating results;
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general economic conditions;
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terrorist acts;
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future sales of our Common Stock or other securities; and
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investors perception of us and the tanker shipping
industry.
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As a result of these factors, investors in our Common Stock may
not be able to resell their shares at or above the initial
offering price. These broad market and industry factors may
materially reduce the market price of our Common Stock,
regardless of our operating performance.
47
Special
note regarding forward-looking statements
The SEC encourages companies to disclose forward-looking
information so that investors can better understand a
companys future prospects and make informed investment
decisions. Statements included in this prospectus that are not
historical facts (including, without limitation, our financial
forecasts and any other statements concerning plans and
objectives of management for future operations or economic
performance, or assumptions related thereto) are forward-looking
statements.
The indicative numerical examples, estimates and predictions
under the caption Managements Discussion and
Analysis of Financial Condition and Results of Operation
are forward-looking statements. Additionally, we use words such
as may, will, could,
should, would, expect,
plan, anticipate, intend,
forecast, believe, estimate,
predict, propose, potential,
continue or the negative of these terms or other
comparable terminology to identify forward-looking statements,
but they are not the only way we identify such statements. All
forward-looking statements reflect our present expectations of
future events and are subject to a number of factors and
uncertainties that could cause actual results to differ
materially from those described in the forward-looking
statements. In addition to the risks related to our business
discussed under Risk Factors, other factors could
cause actual results to differ materially from those described
in the forward-looking statements.
Forward-looking statements appear in a number of places and
include statements with respect to, among other things:
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expectations of our ability to pay dividends on our Common Stock;
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future financial condition or results of operations and future
revenues and expenses;
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the repayment of our debt, if any;
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general market conditions and shipping market trends, including
charter rates and factors affecting supply and demand;
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expected compliance with financing agreements and the expected
effect of restrictive covenants in such agreements;
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planned capital expenditures and the ability to fund capital
expenditures from external financing sources;
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the need to establish reserves that would reduce dividends on
our Common Stock;
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future supply of, and demand for, crude oil generally or in
particular regions;
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changes in demand or charterhire rates in the tanker shipping
industry;
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changes in the supply of tanker vessels, including newbuildings
or lower than anticipated scrapping of older vessels;
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changes in regulatory requirements applicable to the oil
transport industry, including, without limitation, requirements
adopted by international organizations or by individual
countries and actions taken by regulatory authorities and
governing such areas as safety and environmental compliance;
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changes in the requirements and standards imposed on shipping
companies by the oil majors;
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increases in costs and expenses including but not limited to:
crew wages, insurance, provisions, lube oil, bunkers, repairs,
maintenance and general and administrative expenses;
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the adequacy of our insurance arrangements;
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changes in general domestic and international political
conditions;
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48
Special
note regarding forward-looking statements
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changes in the condition of our vessels or applicable
maintenance or regulatory standards (which may affect, among
other things, our anticipated drydocking or maintenance and
repair costs) and unanticipated drydock expenditures;
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the ability to leverage Capital Maritimes relationships
and reputation in the shipping industry;
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the ability to maintain qualifications for long-term business
with oil majors and other major charterers;
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the ability to maximize the use of vessels;
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the ability to charter-in and subsequently charter out
profitably;
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operating expenses, availability of crew, number of off-hire
days, drydocking requirements and insurance costs;
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expected pursuit of strategic opportunities, including the
acquisition of vessels and expansion into new markets;
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expected financial flexibility to pursue acquisitions and other
expansion opportunities;
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the ability to compete successfully for future chartering and
newbuilding opportunities;
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the anticipated incremental general and administrative expenses
as a public company and expenses under service agreements with
other affiliates of Capital Maritime or third parties;
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the anticipated taxation of our company and distributions to our
shareholders;
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the expected lifespan of our vessels;
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the ability to employ and retain key employees;
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customers increasing emphasis on environmental and safety
concerns;
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anticipated funds for liquidity needs and the sufficiency of
cash flows; and
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our business strategy and other plans and objectives for future
operations.
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Forward-looking statements are made based upon managements
current plans, expectations, estimates, assumptions and beliefs
concerning future events impacting us and therefore are subject
to a number of risks, uncertainties and assumptions, including
those risks discussed in Risk Factors and those
risks discussed in other reports we file with the SEC. The
risks, uncertainties and assumptions are inherently subject to
significant uncertainties and contingencies, many of which are
beyond our control. We caution that forward-looking statements
are not guarantees and that actual results could differ
materially from those expressed or implied in the
forward-looking statements.
We undertake no obligation to update any forward-looking
statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time
to time, and it is not possible for us to predict all of these
factors. Further, we cannot assess the impact of each such
factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to be
materially different from those contained in any forward-looking
statement.
49
Use of proceeds
We expect to receive net proceeds of approximately
$251.4 million from the sale of shares of Common Stock
offered by this prospectus, assuming an initial public offering
price of $20.00 per share, the mid-point of the range shown on
the cover of this prospectus, and after deducting underwriting
discounts and commissions and estimated offering expenses
payable by us. Based upon the number of shares of Common Stock
offered by us in this offering as set forth on the cover page of
this prospectus, a $1.00 increase (decrease) in the assumed
initial public offering price of $20.00 per share would increase
(decrease) the net proceeds to us from this offering by
approximately $12.50 million, after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us.
Substantially all of the proceeds of this offering and the
$40 million capital contribution from Crude Carriers
Investments Corp. will be used to purchase the two Universal
VLCCs and the Initial Suezmax. There are various factors that
will affect whether and at what times we acquire vessels, but we
currently estimate that we will purchase and take delivery of
the Initial Suezmax upon the consummation of this offering,
expect delivery of one Universal VLCC in March 2010 and expect
delivery of the other Universal VLCC in June 2010. The amount of
the proceeds of this offering that we expect will be transferred
to our affiliates in connection with these transactions is
approximately $109.85 million (comprised of the price of
the Initial Suezmax of $71,250,000 and reimbursement of the
deposits on the Universal VLCCs, an aggregate of $38,600,000).
Prior to being deployed as set forth above, the proceeds that
are not in use as working capital will be held in United States
Treasury bills or deposits at leading financial institutions
until such a time as we use them to acquire vessels. We may
raise additional capital by issuing Common Stock after this
offering.
50
Capitalization
The following unaudited table sets forth our capitalization at
December 31, 2009, on an actual basis and as adjusted to
give effect to (a) the sale of the Common Stock we are
offering, assuming an offering price of approximately $20.00 per
share of Common Stock, after deduction of the underwriting
discount of 6.75% and expenses payable by us, (b) the
capital contribution by Crude Carriers Investments Corp. to us
of $40 million prior to the closing of this offering and
(c) the acquisition of Cooper Consultants Co.
(Cooper).
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31, 2009
|
|
|
|
Actual
|
|
|
As
Adjusted
(5)
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
0
|
|
|
|
0
|
|
Total Debt
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Capital stock, par value $1.00 per share: 100 shares
authorized; 100 and 0 shares issued and outstanding actual
and as adjusted, respectively
|
|
|
100
|
|
|
|
0
(1
|
)
|
Common Stock, par value $0.0001 per share: 1 billion shares
authorized; 0 and 13,500,000 shares issued and outstanding
actual and as adjusted, respectively
|
|
|
0
|
|
|
|
1,350
|
(2)
|
Class B Stock, par value $0.0001 per share:
100 million shares authorized; 0 and 2,000,000 shares
issued and outstanding actual and as adjusted, respectively
|
|
|
0
|
|
|
|
200
|
(2)
|
Additional paid in capital
|
|
|
0
|
|
|
|
296,390,493
|
(3)(4)
|
Total shareholders equity
|
|
|
100
|
|
|
|
296,392,043
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
100
|
|
|
$
|
296,392,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Crude Carriers Investment Corp. will surrender the Capital
Stock of 100 issued shares in connection with its
subscription for the Class B Stock.
|
|
(2)
|
|
The amount of $1,350 and $200 represent the issuance of
13,500,000 Common shares and 2,000,000 Class B shares
respectively with par value of $0.0001 per Common and
Class B share according to the amended articles of
incorporation of Crude Carriers Corp.
|
|
(3)
|
|
Net proceeds of the offering and the $40 million
contribution by Crude Carriers Investments Corp. amounted to
291,403,811 reduced by the Common Stock and Class B Stock
of $1,350 and $200 respectively.
|
|
(4)
|
|
Acquisition of the Initial Suezmax for a total consideration
of $71,250,000. The difference between the acquisition price
($71,250,000) and the vessels net book value
($76,238,232), at December 31, 2009, amounted to $4,988,232
is recorded as an increase in the stockholders equity.
|
|
(5)
|
|
Assumes the issuance of 13,500,000 shares of Common Stock and
the issuance of 2,000,000 shares of Class B Stock and no
exercise of the underwriters over-allotment option.
|
51
Dilution
Dilution is the amount by which the offering price per share of
Common Stock will exceed the net tangible book value per share
of our Common Stock and Class B Stock after this offering.
Assuming an initial public offering price of $20.00 per share of
Common Stock, on a pro forma basis as of December 31, 2009,
after giving effect to this offering of Common Stock, the
application of the net proceeds in the manner described under
Use of Proceeds and the formation and contribution
transactions related to this offering, our pro forma net
tangible book value was $44.7 million, or $22.35 per share.
Purchasers of our Common Stock in this offering will experience
substantial and immediate dilution in net tangible book value
per share, as illustrated in the following table.
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share of Common Stock
|
|
|
|
|
|
$
|
20.00
|
|
Pro forma net tangible book value per share as of
December 31, 2009, before giving effect to this
offering
(1)
|
|
$
|
22.35
|
|
|
|
|
|
Decrease in net tangible book value per share attributable to
purchasers in this offering
|
|
|
3.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Pro forma net tangible book value per share after giving
effect to this
offering
(2)
|
|
|
|
|
|
|
19.10
|
|
|
|
|
|
|
|
|
|
|
Immediate dilution in net tangible book value per share to
purchasers in this offering
|
|
|
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Determined by dividing the shares of our Class B Stock
to be issued to Crude Carriers Investments Corp., a wholly owned
subsidiary of Capital Maritime, for its contribution of
$40 million to us into the pro forma net tangible book
value of Crude Carriers.
|
|
(2)
|
|
Determined by dividing the total number of shares of Common
Stock and Class B Stock to be outstanding after this
offering into our pro forma net tangible book value, after
giving effect to the application of the net proceeds of this
offering.
|
The following table sets forth, on a pro forma basis as of
December 31, 2009, the number of shares of Common Stock
purchased from us and the total consideration contributed or
paid to us by the purchasers of Common Stock in this offering or
Class B Stock upon consummation of the transactions
contemplated by this prospectus.
Crude Carriers Investments Corp. will only acquire Class B
Stock prior to the consummation of this offering, and new
investors will only acquire Common Stock in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Acquired
|
|
|
Total
Consideration
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Crude Carriers Investments Corp.
|
|
|
2,000,000
|
|
|
|
12.9
|
%
|
|
|
40,000,000
|
|
|
|
12.9
|
%
|
New investors
|
|
|
13,500,000
|
|
|
|
87.1
|
|
|
|
270,000,000
|
|
|
|
87.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Our dividend policy
and restrictions on dividends
You should read the following discussion of our dividend
policy and restrictions on dividends in conjunction with
specific assumptions included in this section. In addition, you
should read Special Note Regarding Forward-Looking
Statements and Risk Factors for information
regarding statements that do not relate strictly to historical
or current facts and certain risks inherent in our business.
OUR DIVIDEND
POLICY
Our dividend policy reflects a basic judgment that our
shareholders will generally be better served by our distributing
our cash available for distribution rather than retaining it. We
intend to finance our initial fleet primarily with equity and we
have entered into a signed commitment letter with Nordea Bank
Finland Plc, London Branch, to obtain a new $100 million
revolving credit facility that we will use opportunistically for
the growth of the Company beyond our initial fleet in a manner
that will enhance our earnings, cash flows and net asset value.
We do not expect to use this credit facility to acquire our
initial fleet.
We intend to pay a variable quarterly dividend based on our cash
available for distribution during the previous quarter.
Dividends will be paid equally on a per-share basis between our
Common Stock and our Class B Stock. Cash available for
distribution equals our net cash flow during the previous
quarter less any amount required to maintain a reserve that our
board of directors determines from time to time is appropriate
for the conduct and growth of our fleet (including without
limitation reserves for acquisitions of vessels, drydocking,
special surveys, off-hire of our vessels, repairs, claims,
liabilities and other obligations, debt amortization and
acquisitions of additional assets) and in compliance with
Marshall Islands law.
LIMITATIONS ON
DIVIDENDS AND OUR ABILITY TO CHANGE OUR DIVIDEND
POLICY
There is no guarantee that our shareholders will receive
dividends from us. Our dividend policy may be changed at any
time by our board of directors and is subject to certain
restrictions, including:
|
|
Ø
|
Our shareholders have no contractual or other legal right to
receive dividends under our dividend policy or otherwise.
|
|
Ø
|
Our board of directors has authority to establish reserves for
the prudent conduct and the growth of our business, after giving
effect to contingent liabilities, the terms of any credit
facilities we may enter into, our other cash needs and the
requirements of Marshall Islands law. The establishment of these
reserves could result in a reduction in dividends to our
shareholders. We do not anticipate the need for reserves at this
time.
|
|
Ø
|
Our board of directors may modify or terminate our dividend
policy at any time. Even if our dividend policy is not modified
or revoked, the amount of dividends we pay under our dividend
policy and the decision to pay any dividend is determined by our
board of directors.
|
|
Ø
|
Marshall Islands law generally prohibits the payment of a
dividend when a company is insolvent or would be rendered
insolvent by the payment of such a dividend or when the
declaration or payment would be contrary to any restriction
contained in the companys articles of incorporation.
Dividends may be declared and paid out of surplus only, but if
there is no surplus, dividends may be declared or paid out of
the net profits for the fiscal year in which the dividend is
declared and for the preceding fiscal year.
|
|
Ø
|
We may lack sufficient cash to pay dividends due to decreases in
net voyage revenues or increases in operating expenses,
principal and interest payments on outstanding debt, tax
expenses, working capital requirements, capital expenditures or
other anticipated or unanticipated cash needs.
|
53
Our dividend
policy and restrictions on dividends
|
|
Ø
|
Our dividend policy may be affected by restrictions on
distributions under any credit facilities we may enter into,
which contain material financial tests and covenants that must
be satisfied. If we are unable to satisfy these restrictions
included in the credit facilities or if we are otherwise in
default under the facilities, we would be prohibited from making
dividend distributions to our shareholders, notwithstanding our
dividend policy.
|
|
Ø
|
While we intend that future acquisitions to expand our fleet
will enhance our ability to pay dividends over time,
acquisitions could limit our cash available for distribution.
|
Our ability to make distributions to our shareholders will
depend upon the performance of subsidiaries we will form to own
and operate vessels, which are our principal cash-generating
assets, and their ability to distribute funds to us. The ability
of our ship-owning or other subsidiaries to make distributions
to us may be restricted by, among other things, the provisions
of future indebtedness, applicable corporate or limited
liability company laws and other laws and regulations.
We have no operating history upon which to rely as to whether we
will have sufficient cash available to pay dividends on our
Common Stock. In addition, the tanker vessel spot charter market
is highly volatile, and we cannot accurately predict the amount
of dividend distributions, if any, that we may make in any
period. Factors beyond our control may affect the charter market
for our vessels, our charterers ability to satisfy their
contractual obligations to us, and our voyage and operating
expenses.
54
SELECTED FINANCIAL
INFORMATION
We were incorporated in October 2009 and have no operating
history. The following balance sheet as of December 31,
2009 has been derived from our audited financial statements,
which are included in this prospectus. The balance sheet
information provided below should be read in conjunction with
the accompanying balance sheet of Crude Carriers Corp. and the
related notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
All figures in the table below are in United States Dollars.
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
175
|
|
|
|
|
|
|
Total current assets
|
|
|
175
|
|
|
|
|
|
|
Other non-current assets
|
|
|
|
|
Deferred charges,
|
|
|
294,725
|
|
|
|
|
|
|
Total non-current assets
|
|
|
294,725
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
294,900
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
Due to related parties
|
|
|
26,800
|
|
Accrued Liabilities
|
|
|
268,000
|
|
|
|
|
|
|
Total current liabilities
|
|
|
294,800
|
|
|
|
|
|
|
Total liabilities
|
|
|
294,800
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
Capital stock, $1.00 par value per share; 100 shares
issued and outstanding
|
|
|
100
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
100
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
294,900
|
|
|
|
|
|
|
55
Selected
financial information
The table below, containing selected financial information for
the Initial Suezmax as of and for the years ended
December 31, 2009, 2008 and 2007, and for the period from
April 6, 2006 (inception) to December 31, 2006 has
been derived from the audited financial statements for those
periods of Cooper, the Capital Maritime subsidiary that
currently owns the Initial Suezmax. The financial information
below will change as of the consummation of the offering because
Capital Maritime will assume all of Coopers liabilities
and assets except for the Initial Suezmax and its inventories.
Upon the consummation of this offering, we will acquire the
Initial Suezmax and its inventories. Prior to consummating the
sale of the Initial Suezmax, Capital Maritime will cause the
mortgage on it to be released and Capital Maritime will use its
reasonable best efforts to cause the cancellation and discharge
of the other encumbrances on the Initial Suezmax. We expect
these encumbrances to be cancelled and released before or at the
completion of the offering. The information provided below
should be read in conjunction with the accompanying financial
statements of Cooper and the related notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations. All figures in the
table below, except number of shares, are in thousands of
U.S. Dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
April 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(inception) to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,870
|
|
|
$
|
39,166
|
|
|
$
|
24,665
|
|
|
$
|
15,017
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
(1)
|
|
|
6,252
|
|
|
|
14,317
|
|
|
|
10,800
|
|
|
|
5,182
|
|
Vessel operating expensesrelated
party
(2)
|
|
|
540
|
|
|
|
540
|
|
|
|
270
|
|
|
|
176
|
|
Vessel operating
expenses
(2)
|
|
|
2,457
|
|
|
|
2,351
|
|
|
|
2,243
|
|
|
|
1,292
|
|
General and administrative expenses
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,357
|
|
|
|
3,356
|
|
|
|
3,356
|
|
|
|
2,238
|
|
Total operating expenses
|
|
|
12,606
|
|
|
|
20,865
|
|
|
|
16,669
|
|
|
|
8,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (expense)
|
|
|
4,264
|
|
|
|
18,301
|
|
|
|
7,996
|
|
|
|
6,129
|
|
Interest expense and finance costs
|
|
|
(530
|
)
|
|
|
(1,590
|
)
|
|
|
(3,132
|
)
|
|
|
(3,059
|
)
|
Interest income
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
Foreign currency gain (loss), net
|
|
|
2
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
(4
|
)
|
Net income (loss)
|
|
$
|
3,736
|
|
|
$
|
16,712
|
|
|
$
|
4,846
|
|
|
$
|
3,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data
(at end of period)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels, net
|
|
$
|
76,238
|
|
|
$
|
79,595
|
|
|
$
|
82,951
|
|
|
$
|
86,307
|
|
Total assets
|
|
|
80,966
|
|
|
|
82,174
|
|
|
|
88,413
|
|
|
|
89,150
|
|
Total long-term debt including current portion
|
|
|
32,460
|
|
|
|
35,621
|
|
|
|
39,587
|
|
|
|
65,800
|
|
Total stockholders equity
|
|
|
46,860
|
|
|
|
43,124
|
|
|
|
26,412
|
|
|
|
21,566
|
|
Number of shares
|
|
|
500
|
|
|
|
500
|
|
|
|
500
|
|
|
|
500
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
3,161
|
|
|
$
|
20,859
|
|
|
$
|
9,313
|
|
|
$
|
4,471
|
|
Net cash (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,545
|
)
|
Net cash (used in) / provided by financing activities
|
|
|
(3,161
|
)
|
|
|
(20,869
|
)
|
|
|
(9,310
|
)
|
|
|
84,082
|
|
|
|
|
(1)
|
|
Vessel voyage expenses primarily
consist of commissions, port expenses, canal dues and
bunkers.
|
(2)
|
|
Our vessel operating expenses
have consisted primarily of crew costs, insurance, repairs and
maintenance, stores, lubricants, spares and consumables,
professional and legal fees and miscellaneous expenses.
Operating expenses also include management fees payable to our
manager, Capital Ship Management Corp., under the provisions of
the management agreement between Cooper and Capital Ship
Management Corp.
|
56
Crude Carriers
Corp.
Unaudited pro forma
financial statements
As discussed in Selected Financial Information, the
Company will acquire the Initial Suezmax from Capital Maritime
by acquiring Cooper at the time of this offering. The Company
and Cooper are entities that are currently commonly controlled
by Capital Maritime. Therefore, the acquisition of the Initial
Suezmax by the Company, once consummated, will be accounted for
as a combination of entities under common control in a manner
similar to a pooling of interests. Such accounting will result
in the retroactive restatement of the historical financial
statements of the Company as if the Initial Suezmax was owned by
the Company for all periods presented, with Cooper being the
predecessor entity.
The following unaudited pro forma condensed combined financial
statements present the financial position of the Company as of
and for the year ended December 31, 2009, assuming this
offering and the related transactions had been completed as of
January 1, 2009 for purposes of the unaudited pro forma
condensed combined statement of income and as of
December 31, 2009 for purposes of the unaudited pro forma
condensed combined balance sheet. The historical financial
information has been adjusted to give effect to pro forma events
that are directly attributable to this offering and the related
transactions.
These unaudited pro forma condensed combined financial
statements do not purport to represent what the Companys
financial position would actually have been had the completion
of this offering and the related transactions in fact occurred
on December 31, 2009, nor does it purport to project the
Companys financial position at any future date.
The following unaudited pro forma condensed combined financial
statements should be read together with the audited financial
statements of the Company and of Cooper and the accompanying
notes included elsewhere in this prospectus. They should also be
read together with Managements Discussion and
Analysis of Financial Condition and Results of Operations.
57
Crude Carriers
Corp.
UNAUDITED PRO FORMA
CONDENSED BALANCE SHEET
AS OF DECEMBER
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Carriers
|
|
|
|
Crude Carriers
|
|
|
Cooper
Consultants
|
|
|
Adjustments
|
|
|
Corp. Pro
Forma
|
|
|
|
Corp.
|
|
|
Co.
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
(in thousands of
United States dollars)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
(1),(2),(3)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
Trade accounts
receivable
(1)
|
|
|
|
|
|
|
1,340
|
|
|
|
(1,340
|
)
|
|
|
|
|
Due from related
parties
(1)
|
|
|
|
|
|
|
1,878
|
|
|
|
(1,878
|
)
|
|
|
|
|
Prepayments and other
assets
(1)
|
|
|
|
|
|
|
45
|
|
|
|
(45
|
)
|
|
|
|
|
Inventories
(1)
|
|
|
|
|
|
|
1,411
|
|
|
|
|
|
|
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
|
|
|
$
|
4,675
|
|
|
$
|
(3,264
|
)
|
|
$
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel,
net
(3)
|
|
|
|
|
|
|
76,238
|
|
|
|
|
|
|
|
76,238
|
|
Advances for vessels under
construction
(4)
|
|
|
|
|
|
|
|
|
|
|
38,600
|
|
|
|
38,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed assets
|
|
$
|
|
|
|
$
|
76,238
|
|
|
|
38,600
|
|
|
$
|
114,838
|
|
Other non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred finance
charges,
(1)
|
|
|
295
|
|
|
|
53
|
|
|
|
(53
|
)
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
$
|
295
|
|
|
$
|
76,291
|
|
|
$
|
38,547
|
|
|
$
|
115,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
295
|
|
|
$
|
80,966
|
|
|
$
|
35,283
|
|
|
$
|
116,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Current portion of related-party
debt
(1)
|
|
|
|
|
|
|
3,161
|
|
|
|
(3,161
|
)
|
|
|
|
|
Trade accounts
payable
(1)
|
|
|
|
|
|
|
1,344
|
|
|
|
(1,344
|
)
|
|
|
|
|
Due to related
parties
(5)
|
|
|
27
|
|
|
|
|
|
|
|
71,261
|
|
|
|
71,288
|
|
Accrued
liabilities
(1)
|
|
|
268
|
|
|
|
302
|
|
|
|
(302
|
)
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
295
|
|
|
$
|
4,807
|
|
|
$
|
66,454
|
|
|
$
|
71,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term related-party
debt
(1)
|
|
|
|
|
|
|
29,299
|
|
|
|
(29,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
$
|
|
|
|
$
|
29,299
|
|
|
$
|
(29,299
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
295
|
|
|
$
|
34,106
|
|
|
$
|
37,155
|
|
|
$
|
71,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Carriers Corp.: 100 capital shares, $1.00 par value
per share Cooper Consultants Co.: 1,000 common shares with no
par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital(1),
(3)
|
|
|
|
|
|
|
18,500
|
|
|
$
|
(13,512
|
)
|
|
|
4,988
|
|
Retained earnings
|
|
|
|
|
|
|
28,360
|
|
|
|
(28,360
|
)
|
|
|
|
|
Class B
Stock
(2)
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
|
|
|
$
|
46,860
|
|
|
$
|
(1,872
|
)
|
|
$
|
44,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
295
|
|
|
$
|
80,966
|
|
|
$
|
35,283
|
|
|
$
|
116,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Only the Initial Suezmax and related inventories will be
purchased by the Company concurrently upon the consummation of
the offering.
|
58
Crude Carriers
Corp.
|
|
|
(2)
|
|
Upon the consummation of the offering Crude Carriers
Investments Corp. will make a cash contribution of $40,000 to
us.
|
|
(3)
|
|
Upon the consummation of the offering, we will acquire the
shares of the vessel owning-company of the Initial Suezmax for
$71,250. The difference between the acquisition price and the
vessels net book value, which difference equals $4,988,
will be recorded as an increase in stockholders equity
representing a capital contribution to us by Capital
Maritime.
|
|
(4)
|
|
Upon the consummation of the offering, we expect to make two
payments of $19,300 each toward the acquisition of the two
Universal VLCCs. Upon the deliveries of these two vessels, which
are expected to occur in March 2010 and June 2010, respectively,
the Company will pay a sale and purchase fee of 1% of the total
purchase price of each vessel to Capital Maritime &
Trading Corp pursuant to the Management Agreement. The total
purchase price of the two Universal VLCCs is $193,000 ($96,500
each) and the total sale and purchase fee is therefore $1,930.
Such sale and purchase fee will be included as part of the total
purchase consideration paid to Capital Maritime &
Trading Corp. Any difference between the historical book value
of these vessels and the total purchase consideration will be
recorded in stockholders equity. Additionally, to the
extent that the total purchase consideration exceeds the
historical book value of these vessels, such excess may result
in a reduction to income available to common shareholders for
the purposes of computing earnings per share. We have excluded
the sale and purchase fee from the unaudited pro forma condensed
balance sheet as neither vessel will have been delivered as of
the expected date of consummation of this offering.
|
|
(5)
|
|
Proceeds from this offering have not been reflected as
adjustments within our unaudited pro forma condensed combined
balance sheet, consistent with the requirements of
Article 11 of SEC
Regulation S-X.
We expect that the purchase of the Initial Suezmax and related
inventories, and the initial payments associated with the two
Universal VLCCs will be paid by Capital Maritime on our behalf,
with repayment by us using proceeds from this offering.
|
59
Crude Carriers
Corp.
UNAUDITED PRO FORMA
CONDENSED STATEMENT OF INCOME
FOR THE YEAR
ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Carriers
Corp.
|
|
|
|
Cooper
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
Consultants
Co.
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
(in thousands of
United States dollars)
|
|
|
Revenues
|
|
$
|
16,870
|
|
|
|
|
|
|
$
|
16,870
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
(1)
|
|
|
6,252
|
|
|
|
210
|
|
|
|
6,462
|
|
Vessel operating expenses
|
|
|
2,457
|
|
|
|
|
|
|
|
2,457
|
|
Vessel operating expensesrelated
party
(1)
|
|
|
540
|
|
|
|
7
|
|
|
|
547
|
|
Vessel depreciation
|
|
|
3,357
|
|
|
|
|
|
|
|
3,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
4,264
|
|
|
|
|
|
|
$
|
4,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense & finance
cost
(2)
|
|
|
(530
|
)
|
|
|
530
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency loss, net
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(528
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
3,736
|
|
|
$
|
747
|
|
|
$
|
4,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Concurrently with the closing of this offering, we will enter
into the Management Agreement with our Manager. We have assumed
commercial fees of 1.25% on the Companys gross revenues,
technical management fees of $0.9 per vessel per day,
Sarbanes-Oxley compliance fees of $0.1 per vessel per day, and
reporting services fees of $50.0 per quarter.
|
|
(2)
|
|
We intend to acquire the shares of the vessel-owning company
of the Initial Suezmax with the offering proceeds and the cash
contribution of Crude Carriers Investments Corp., and therefore
we will not draw down any amount from the $100 million
revolving credit facility that we have committed to enter into.
As a result we do not have any interest charges in our unaudited
pro forma condensed statement of income.
|
60
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion in conjunction with
the audited balance sheet and related notes of Crude Carriers
Corp. and the audited financial statements and related notes and
the unaudited interim financial statements and related notes of
Cooper Consultants Co., the entity that holds the Initial
Suezmax, included elsewhere in this prospectus. The financial
statements have been prepared in accordance with U.S. GAAP
and are presented in U.S. Dollars unless otherwise
indicated.
This discussion includes forward-looking statements which,
although based on assumptions that we consider reasonable, are
subject to risks and uncertainties which could cause actual
events or conditions to differ materially from those currently
anticipated and expressed or implied by such forward-looking
statements. For a discussion of some of those risks and
uncertainties, see the sections entitled Special Note
Regarding Forward-Looking Statements and Risk
Factors.
OVERVIEW
We are a newly formed transportation company incorporated in the
Marshall Islands in October 2009 to conduct a shipping business
focused on the crude tanker industry. We have no meaningful
operating history as an independent company. We plan to acquire
and operate a fleet of crude tankers that will transport mainly
crude oil and fuel oil along worldwide shipping routes.
Limited Operating
History
Below we discuss various factors that we believe will affect our
future results as well as the historic results of operations for
the Initial Suezmax, the vessel we have agreed to acquire from
Capital Maritime. As you review and evaluate this discussion you
should recognize that we have no meaningful operating history as
an independent company and that the discussion of historical
results is for a single vessel, while we intend to acquire and
operate a fleet of vessels. Accordingly, the presentation of
historical results for the Initial Suezmax may not be indicative
of results that may be expected in the future.
Management of
Operations
Our operations will be managed, under the supervision of our
board of directors, by Capital Maritime as our Manager. Upon the
closing of this offering, we will enter into the Management
Agreement pursuant to which our Manager and its affiliates will
provide us with commercial, technical, administrative and
strategic services. The Management Agreement will be for an
initial term of approximately ten years and will automatically
renew for additional five-year periods unless terminated in
accordance with its terms. We will pay our Manager fees for the
services it provides us as well as reimburse our Manager for its
costs and expenses incurred in providing certain of these
services. In addition, if the Management Agreement is terminated
under certain circumstances, we will pay our Manager a
termination payment calculated in accordance with a
pre-established formula. Please read Our Manager and
Management AgreementManagement Agreement for further
information regarding the Management Agreement.
Approach to Fleet
Establishment; Initial Purchase
We intend to establish and grow our fleet through timely and
selective acquisitions of vessels in a manner that is accretive
to our earnings, cash flow and net asset value. We have entered
into agreements with Capital Maritime to acquire the Initial
Suezmax, which is currently deployed in the spot market, at a
price of $71.25 million and the two Universal VLCCs for
$96.5 million each.
61
Managements
discussion and analysis of financial condition and results of
operations
Substantially all of the proceeds of this offering and the
$40 million capital contribution from Crude Carriers
Investments Corp. will be used to purchase the Initial Suezmax
and the Universal VLCCs. There are various factors that will
affect whether and at what times we acquire vessels, but we
currently estimate that we will purchase and take delivery of
the Initial Suezmax upon the consummation of this offering,
expect delivery of one Universal VLCC in March 2010 and expect
delivery of the other Universal VLCC in June 2010. We intend to
finance our fleet primarily with equity and internally-generated
cash flow. We have entered into a signed commitment letter with
Nordea Bank Finland Plc, London Branch, to obtain a new
$100 million revolving credit facility. We intend to
utilize this credit facility opportunistically for the future
growth of the Company beyond the acquisition of our initial
fleet in a manner that will enhance our earnings cash flow and
net asset value. We do not expect to use this credit facility to
acquire our initial fleet.
Approach to
Chartering
We intend to maintain a flexible approach to chartering with the
strategy of optimizing our selection of the available commercial
opportunities over time. We currently expect to focus on the
spot market, including all types of spot marketrelated
engagements such as single voyage or short-term time charters,
but retain the ability to evaluate and enter into longer-term
period charters, including time- and bareboat charters with
terms that may provide for profit sharing arrangements or with
returns that are linked to spot market indices. We may also
charter-in vessels, meaning we may charter vessels we do not own
with the intention of chartering them in accordance with our
chartering and fleet management strategy.
Our
Charterers
We will generate revenues by charging our customers for the use
of a vessel to transport their products. The Initial Suezmax has
historically generated its revenue from a relatively small
number of charterers. For the year ended December 31, 2009
Clearlake Shipping Ltd, ST Shipping and Transport Pte and
Standard Tankers Bahamas (an affiliate of Exxon Mobil) accounted
for 46%, 24%, and 16% of total revenue, respectively. For the
year ended December 31, 2008 Petroleo Brasileiro SA, Sun
International LTD, Valero Marketing and Supply Company,
Petro-Canada and British Petroleum Shipping Limited accounted
for 31%, 12%, 11%, 10% and 10% of total revenue, respectively.
For the year ended December 31, 2007, British Petroleum
Shipping Limited accounted for 87% of total revenue.
Dividend
Policy
We intend to distribute to our shareholders on a quarterly basis
substantially all of our net cash flow less any amount required
to maintain a reserve that our Board determines from time to
time is appropriate for the operation and future growth of our
fleet. See Our Dividend Policy and Restrictions on
Dividends.
Lack of
Historical Operating Data for Vessels before Their
Acquisition
Consistent with shipping industry practice, we may not be able
obtain the historical operating data for our purchased vessels
from the sellers, in part because that information may not be
material to our decision to make acquisitions. Most vessels are
sold under a standardized agreement, which, among other things,
provides the buyer with the right to inspect the vessel and the
vessels classification society records. The standard
agreement does not give the buyer the right to inspect, or
receive copies of, the historical operating data of the vessel.
Should this information be available, we will request that it is
provided. Prior to the delivery of a purchased vessel, the
seller typically removes from the vessel all records, including
past financial records and accounts related to the vessel. In
addition, the technical management agreement between the
sellers technical manager and the seller is automatically
terminated and the vessels trading certificates are
revoked by its flag state following a change in ownership.
62
Managements
discussion and analysis of financial condition and results of
operations
FACTORS AFFECTING
FUTURE RESULTS OF OPERATIONS
We believe the principal factors that will affect our future
results of operations are the economic, regulatory, financial,
credit, political and governmental conditions that affect the
shipping industry generally and that affect conditions in
countries and markets in which our vessels engage in business.
Other key factors that will be fundamental to our business,
future financial condition and results of operations include:
|
|
Ø
|
levels of crude oil and oil product demand and inventories;
|
|
Ø
|
freight and charter hire levels and our ability to re-charter
our vessels as their charters expire;
|
|
Ø
|
the supply of crude oil tankers and factors affecting supply,
including the number of newbuildings entering the world tanker
fleet each year;
|
|
Ø
|
the ability to increase the size of our fleet and make
additional acquisitions that are accretive to our shareholders;
|
|
Ø
|
the ability of Capital Maritimes commercial and chartering
operations to successfully employ our vessels at economically
attractive rates, particularly as our fleet expands and our
charters expire;
|
|
Ø
|
our ability to benefit from new maritime regulations concerning
the phase-out of single-hull vessels and the more restrictive
regulations for the transport of certain products and cargoes;
|
|
Ø
|
the effective and efficient technical management of our vessels;
|
|
Ø
|
Capital Maritimes ability to obtain and maintain major
international oil company approvals and to satisfy their
technical, health, safety and compliance standards; and
|
|
Ø
|
the strength of and growth in the number of our customer
relationships, especially with major international oil companies
and major commodity traders.
|
In addition to the factors discussed above, we believe certain
specific factors have impacted, and will continue to impact, our
results of operations. These factors include:
|
|
Ø
|
the freight and charter hire earned by our vessels under voyage,
spot charters, time charters and bareboat charters;
|
|
Ø
|
our access to debt, and equity and the cost of such capital,
required to acquire additional vessels
and/or
to
implement our business strategy;
|
|
Ø
|
our ability to sell vessels at prices we deem
satisfactory; and
|
|
Ø
|
our level of debt and the related interest expense and
amortization of principal.
|
Please read Risk Factors for a discussion of certain
risks inherent in our business.
PLAN OF
OPERATION
Our plan of operation through the third quarter of 2010 is to:
|
|
Ø
|
Acquire the Initial Suezmax and the Universal VLCCs, completing
the investment of substantially all of the proceeds of this
offering.
|
|
Ø
|
Hire personnel as needed to support our operations.
|
|
Ø
|
Continue to seek opportunities to invest in crude tanker
shipping after we complete the investment of the proceeds from
this offering.
|
Given the price ranges of the types of vessels we plan to
acquire, we anticipate that internally-generated cash flow, the
proceeds from this offering and the capital contribution from
Crude Carriers Investments Corp. will be sufficient to fund the
operations of our fleet, including our working capital
requirements, through the end of the third quarter of 2010.
However, we may raise additional capital by issuing Common Stock
after this offering.
63
Managements
discussion and analysis of financial condition and results of
operations
RESULTS OF
OPERATIONS FOR THE INITIAL SUEZMAX
From January 1, 2007 through December 31, 2008, the
Initial Suezmax was chartered only on voyage charters. The
Initial Suezmax operated under a time charter for a part of the
year ended December 31, 2009.
Voyage expenses are direct expenses to voyage revenues and
primarily consist of commissions, port expenses, canal dues and
bunkers. Voyage costs are paid for by the owner of the vessel
under voyage charters. Under time charters and bareboat
charters, voyage costs, except for commissions, are paid for by
the charterer.
Vessel operating expenses consist primarily of crew costs,
insurances, spares/repairs, stores and lubricants, and fees paid
to the manager for the commercial and technical management of
the vessel.
The following tables summarize voyage results, voyage expenses,
and operating expenses for the years ended on December 31,
2009, 2008 and 2007.
Voyage
Results Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(in thousands of
United States dollars except number of days and TCE)
|
|
|
Days
|
|
|
365
|
|
|
|
366
|
|
|
|
365
|
|
Gross Revenues
|
|
$
|
16,870
|
|
|
$
|
39,166
|
|
|
$
|
24,665
|
|
Voyage Expenses
|
|
|
6,252
|
|
|
|
14,317
|
|
|
|
10,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
10,618
|
|
|
|
24,849
|
|
|
|
13,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCE
|
|
$
|
29,090
|
|
|
$
|
67,893
|
|
|
$
|
37,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
Expenses Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(in thousands
of
|
|
|
|
United States
dollars)
|
|
|
Commissions
|
|
$
|
423
|
|
|
$
|
604
|
|
|
$
|
80
|
|
Port expenses
|
|
|
477
|
|
|
|
2,096
|
|
|
|
3,867
|
|
Bunkers
|
|
|
5,352
|
|
|
|
11,602
|
|
|
|
6,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
15
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,252
|
|
|
$
|
14,317
|
|
|
$
|
10,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
Managements
discussion and analysis of financial condition and results of
operations
Operating
Expenses Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(in thousands
of
|
|
|
|
United States
dollars)
|
|
|
Crew costs and related costs
|
|
$
|
1,195
|
|
|
$
|
1,243
|
|
|
$
|
1,134
|
|
Insurance expense
|
|
|
460
|
|
|
|
362
|
|
|
|
385
|
|
Spares, repairs, maintenance and other expenses
|
|
|
388
|
|
|
|
282
|
|
|
|
273
|
|
Stores and lubricants
|
|
|
323
|
|
|
|
376
|
|
|
|
339
|
|
Management fees
|
|
|
540
|
|
|
|
540
|
|
|
|
270
|
|
Other operating expenses
|
|
|
91
|
|
|
|
88
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,997
|
|
|
$
|
2,891
|
|
|
$
|
2,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2009 Compared to Year Ended December 31,
2008
Results for the Initial Suezmax for the years ended
December 31, 2009 and December 31, 2008 differ
primarily due to the 57% lower average daily time charter
equivalent rate (TCE) of $29,090 compared to $67,893
that the initial Suezmax tanker earned in 2009 as compared to
2008. The tanker market deteriorated during 2009 on the back of
the global economic slowdown.
Revenues
Revenues for the Initial Suezmax amounted to approximately
$16.9 million for the year ended December 31, 2009, as
compared to $39.2 million for the year ended
December 31, 2008. The lower revenues during 2008 were
mainly due to lower TCE spot rates prevailing in the market.
Voyage
Expenses
Voyage expenses for the Initial Suezmax amounted to
$6.3 million for the year ended December 31, 2009 as
compared to $14.3 million for the year ended
December 31, 2008. The lower expenses in 2009 were
primarily due to a 53% decline in bunker expenses as the vessel
was employed on a time charter for a part of 2009. Bunker
expenses for 2009 amounted to $5.4 million as compared to
$11.6 million in 2008.
Vessel Operating
Expenses
For the year ended December 31, 2009, vessel operating
expenses for the Initial Suezmax amounted to approximately
$3.0 million, of which $0.5 million was paid to the
manager; for the year ended December 31, 2008, vessel
operating expenses for the Initial Suezmax amounted to
approximately $2.9 million, of which $0.5 million was
paid to the manager. The increase in operating expenses is
attributable primarily to the increased insurance and spare and
repairs expenses.
Depreciation
Depreciation of fixed assets for the Initial Suezmax amounted to
$3.4 million for the years ended December 31, 2009 and
2008.
General and
Administrative Expenses
General and Administrative expenses for the Initial Suezmax
amounted to $0 for the year ended December 31, 2009
compared to $0.3 million for the year ended
December 31, 2008, which represented an allowance for
doubtful receivables.
65
Managements
discussion and analysis of financial condition and results of
operations
Other Income
(Expense), Net
Other income (expense), net for the Initial Suezmax for the year
ended December 31, 2009 was approximately
$(0.5) million as compared to $(1.6) million for the
year ended December 31, 2008. The decrease is primarily due
to the lower interest rates and lower average loan outstanding
during 2009.
Net
Income
Net income for the Initial Suezmax for the year ended
December 31, 2009 amounted to $3.7 million as compared
to $16.7 million for the year ended December 31, 2008.
Year Ended
December 31, 2008 Compared to Year Ended December 31,
2007
Results for the Initial Suezmax for the years ended
December 31, 2008 and December 31, 2007 differ
primarily due to the 79% higher average daily TCE of $67,893
compared to $37,986 that the Initial Suezmax earned in 2008 as
compared to 2007.
Revenues
Revenues for the Initial Suezmax amounted to approximately
$39.2 million for the year ended December 31, 2008, as
compared to $24.7 million for the year ended
December 31, 2007. The higher revenues during 2008 were
mainly due to higher spot rates prevailing in the market
resulting to a higher TCE earned compared to 2007.
Voyage
Expenses
Voyage expenses for the Initial Suezmax amounted to
$14.3 million for the year ended December 31, 2008 as
compared to $10.8 million for the year ended
December 31, 2007. The higher expenses in 2008 were
primarily due to 70% increase in bunker expenses following
higher prices for bunkers. Bunker expenses for 2008 amounted to
$11.6 million as compared to $6.8 million in 2007.
Vessel Operating
Expenses
For the year ended December 31, 2008, vessel operating
expenses for the Initial Suezmax amounted to approximately
$2.9 million, of which $0.5 million was paid to the
manager; for the year ended December 31, 2007, vessel
operating expenses for the Initial Suezmax amounted to
approximately $2.5 million, of which $0.3 million was
paid to the manager. The increase in operating expenses is
attributable primarily to the 100% higher fees paid to the
manager and to 10% increase in crew costs.
Depreciation
Depreciation of fixed assets for the Initial Suezmax amounted to
$3.4 million for the years ended December 31, 2008 and
2007.
General and
Administrative Expenses
General and Administrative expenses for the Initial Suezmax
amounted to $0.3 million for the year ended
December 31, 2008, which represented an allowance for
doubtful receivables, as compared to $0 for the year ended
December 31, 2007.
Other Income
(Expense), Net
Other income (expense), net for the Initial Suezmax for the year
ended December 31, 2008 was approximately
$(1.6) million as compared to $(3.2) million for the
year ended December 31, 2007. The decrease is primarily due
to the lower interest rates and lower average loan outstanding
during 2008.
66
Managements
discussion and analysis of financial condition and results of
operations
Net
Income
Net income for the Initial Suezmax for the year ended
December 31, 2008 amounted to $16.7 million as
compared to $4.8 million for the year ended
December 31, 2007.
LIQUIDITY AND
CAPITAL RESOURCES
Crude
Carriers
Our primary initial sources of capital will be Crude Carriers
Investments Corp.s capital contribution of
$40 million for 2,000,000 shares of our Class B Stock
and the net proceeds from this offering of our Common Stock,
which are expected to be $251.4 million after deduction of
the underwriting discount and commissions. We will require
capital to fund ongoing operations, acquisitions and potential
debt service, for which we expect the main sources to be cash
flow from operations and equity offerings.
We anticipate that internally-generated cash flow, the proceeds
from this offering and the capital contribution from Crude
Carriers Investments Corp. will be sufficient to fund the
operations of our fleet, including our working capital
requirements, through the end of the third quarter of 2010. We
expect to make the following significant capital expenditures:
|
|
Ø
|
We will purchase the Initial Suezmax for $71.25 million
upon the consummation of this offering
|
|
Ø
|
Upon the consummation of this offering, we expect to purchase,
for an aggregate amount of $38.6 million, the right to
acquire the Universal VLCCs.
|
|
Ø
|
In connection with the purchase of the first Universal VLCC, we
expect to pay its seller $77.2 million upon delivery,
currently expected in March 2010.
|
|
Ø
|
In connection with the purchase of the second Universal VLCC, we
expect to pay its seller $77.2 million upon delivery,
currently expected in June 2010.
|
Following this period, we expect to continue to fund the
operations of our fleet, including our working capital
requirements, and to finance potential future expansions of our
fleet primarily with internally-generated cash flow and equity
financing, which we expect will mainly consist of issuances of
additional shares of our Common Stock. Because the spot market
is highly volatile, cash flows from operations may be volatile.
See Indicative Analysis of Commercial
Opportunities, particularly the indicative sensitivity
tables, for illustrations of how variations in spot rates may
affect income from our vessels and therefore our cash flows. If
we are unable to complete equity issuances at prices that we
deem acceptable, our internally-generated cash flow is
insufficient or we cannot enter into a credit facility on
favorable terms, then we may need to revise our growth plan or
consider alternative forms of financing such as issuing debt.
Initial
Suezmax
Cash
Flows
The following tables summarize the cash and cash equivalents
provided by/(used in) operating and financing activities for the
Initial Suezmax. Amounts are presented in millions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
$
|
3.2
|
|
|
$
|
20.9
|
|
|
$
|
9.3
|
|
Net Cash (Used in) Financing Activities
|
|
$
|
(3.2
|
)
|
|
$
|
(20.9
|
)
|
|
$
|
(9.3
|
)
|
67
Managements
discussion and analysis of financial condition and results of
operations
Net Cash Provided
by Operating Activities
Net cash provided by operating activities by the Initial Suezmax
decreased to $3.2 million for the year ended
December 31, 2009 from $20.9 million for the year
ended December 31, 2008 primarily due to the decline of
operating income in 2009. The increase in net cash provided by
operating activities by the
Initial Suezmax for the year ended December 31, 2008 as
compared to 2007 is primarily due to the increase in operating
income in 2008.
Net Cash Used in
Financing Activities
Net cash used in financing activities with respect to the
Initial Suezmax amounted to $3.2 million for the year ended
December 31, 2009, down from $20.9 million for the
year ended December 31, 2008. During 2007, net cash used in
financing activities amounted to $9.3 million.
Cash used in financing activities with respect to the Initial
Suezmax for years 2009, 2008 and 2007 relates to repayments of
the related party loan that Capital Maritime drew in 2006 to
finance the Initial Suezmax.
Borrowings
The long-term related party borrowings are reflected in the
balance sheet as Long-term relatedparty debt
and as current liabilities in Current portion of
relatedparty long-term debt. As of December 31,
2009, long-term debt with respect to the Initial Suezmax was
$29.3 million and the current portion of long-term debt was
$3.2 million, as compared to $32.5 million and
$3.2 million, respectively, as of December 31, 2008.
All liabilities in respect of the Initial Suezmax up to the
transfer date will be assumed by Capital Maritime.
Revolving Credit
Facility
We have entered into a signed commitment letter with Nordea Bank
Finland Plc, London Branch, to obtain a new $100 million
revolving credit facility. This commitment is subject only to
documentation, which is to be completed no later than
March 31, 2010. We intend to utilize this credit facility
opportunistically for the future growth of the Company beyond
the acquisition of our initial fleet in a manner that will
enhance our earnings cash flow and net asset value. We do not
expect to use this credit facility to acquire our initial fleet.
We do not anticipate that this credit facility will be used to
satisfy our long-term capital needs. Our obligations under the
credit facility will be secured by first-priority mortgages
covering each of our vessels and will be guaranteed by each of
our subsidiaries that owns any of our vessels.
The financing under the credit facility is available to us only
to fund the acquisition costs of crude tanker vessels, to be no
more than five years old at the time of their acquisition, so
long as the ratio of (x) the aggregate outstanding amount
under the credit facility divided by (y) the combined fair
market value of our vessels does not exceed 40%.
Borrowings under the credit facility will bear interest at a
rate of 3.00% per annum over US$ LIBOR. We expect to be able to
draw under the credit facility on or after May 1, 2010
until the fifth anniversary of the date we enter into the credit
facility, at which date any amounts available for borrowing
under the credit facility will automatically terminate and the
outstanding amount under the credit facility must be repaid. We
are required to repay all loans we draw under the credit
facility with proceeds from a secondary offering within nine
months of such drawdown. The credit facility has a final
maturity date of the fifth anniversary of the date we enter into
the credit facility, which we expect to be the date of the
closing of this offering.
68
Managements
discussion and analysis of financial condition and results of
operations
Our credit facility contains restrictive covenants that prohibit
us from, among other things: incurring or guaranteeing
indebtedness; charging, pledging or encumbering our vessels;
changing the flag, class, management or ownership of our
vessels; changing the commercial and technical management of our
vessels; and selling or changing the beneficial ownership or
control of our vessels.
In addition, the credit facility will require us to:
|
|
Ø
|
maintain minimum liquidity by holding cash or cash equivalents
of at least $1,000,000 per vessel we own;
|
|
Ø
|
maintain a ratio of EBITDA (as it will be defined in the credit
facility) to interest expense of at least 3.00 to 1.00 on a
trailing four-quarter basis commencing on June 30,
2010; and
|
|
Ø
|
maintain a minimum equity ratio of value adjusted
stockholders equity to value adjusted total assets of at
least 30%.
|
We will also be required to maintain an aggregate market value
of our financed vessels equal to at least 160% of the aggregate
amount outstanding under the credit facility. If the aggregate
market value of our financed vessels falls below 160% of the
aggregate amount outstanding under the credit facility, we will
have a 45 day remedy period during which we may post
additional collateral or reduce the amount outstanding under the
credit facility.
The credit facility will prohibit us from paying dividends to
our shareholders if an event of default has occurred and is
continuing or if an event of default will occur as a result of
the payment of such dividend. Events of default under the credit
facility will include:
|
|
Ø
|
failure to pay principal or interest when due;
|
|
Ø
|
any breach of covenants that continues unremedied for
30 days;
|
|
Ø
|
any material inaccuracy of any representation or warranty;
|
|
Ø
|
the occurrence of a material adverse change;
|
|
Ø
|
our default under any indebtedness other than the credit
facility of $10 million or greater;
|
|
Ø
|
a change of control, defined in the credit agreement to occur
when two or more persons acting in concert or any individual
person (other than the largest beneficial owner of our shares)
(x) acquire, legally
and/or
beneficially and either directly or indirectly, an ownership
interest
and/or
voting rights in excess of 50% of our issued share capital or
(y) has the right or ability to control, either directly or
indirectly, the affairs or composition of the majority of our
Board of Directors;
|
|
Ø
|
a failure in the effectiveness of security documents entered
into in connection with the credit agreement;
|
|
Ø
|
an unsatisfied uninsured material judgment following final
appeal; or
|
|
Ø
|
certain events of insolvency or bankruptcy.
|
INDICATIVE
ANALYSIS OF CERTAIN COMMERCIAL OPPORTUNITIES
Prospective
Financial Information
The Company does not as a matter of course make public
projections as to future sales, earnings, or other results.
However, the management of the Company has prepared the
prospective financial information set forth below to present an
indicative analysis for the purpose of illustrating the
variability of possible operating results and that actual
results are not predictable with any meaningful level of
precision. The accompanying prospective financial information
was not prepared with a view toward public disclosure or with a
view toward complying with the guidelines established by the
American Institute of Certified Public Accountants with respect
to prospective financial information, but, in the view of the
Companys management, was prepared on a reasonable basis,
reflects the best
69
Managements
discussion and analysis of financial condition and results of
operations
currently available estimates and judgments, and presents, to
the best of managements knowledge and belief, the expected
course of action and the expected future financial performance
of the vessels. However, this information is not fact and should
not be relied upon as being necessarily indicative of future
results, and readers of this Registration Statement are
cautioned not to place undue reliance on the prospective
financial information.
Neither the Companys independent auditors, nor any other
independent accountants, have compiled, examined, or performed
any procedures with respect to the prospective financial
information contained herein, nor have they expressed any
opinion or any other form of assurance on such information or
its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial
information.
Indicative
AnalysisGeneral
Substantially all of the proceeds of this offering and the
$40 million capital contribution from Crude Carriers
Investments Corp. will be used to purchase the two Universal
VLCCs and the Initial Suezmax. There are various factors that
will affect whether and at what times we acquire vessels, but we
currently estimate that we will purchase and take delivery of
the Initial Suezmax upon the consummation of this offering,
expect delivery of one Universal VLCC in March 2010 and expect
delivery of the other Universal VLCC in June 2010. We expect
that we will identify and analyze a number of potential vessel
acquisition candidates as we build our fleet and that such
vessels may have diverse characteristics and circumstances
including age, specification, construction quality and
maintenance condition. In anticipation of such analysis and
acquisition activity, we currently are monitoring and analyzing
vessel acquisition markets and have presented below our
indicative analysis of the acquisition of the Initial Suezmax
and a modern VLCC tanker. Investors and potential investors
should recognize that these markets and related markets,
including the charter markets, in the past have had, and we
expect in the future will have, significant and in some
instances rapid fluctuations and that vessel values, performance
and charter rates will vary widely. We also include in our
analysis average spot earnings experienced by the industry over
certain historic periods. Spot earnings are estimated as daily
time charter equivalents (TCEs) of voyage freight
rates, and expressed in $/day on the voyage based on third party
industry data. See The International Tanker
IndustryCharter Rates & Asset Values. In
broad terms, earnings are calculated by taking the total
revenue, deducting current bunker costs based on prices at
representative regional bunker ports and estimated port costs
(after currency adjustments) and then dividing the result by the
number of voyage days. Average earnings for each ship type are
averages of the voyage earnings for selected routes. Certain
factors are not accounted for in the earnings calculations,
including: (a) the payment of commissions; (b) other
voyage-related costs; (c) vessel waiting time at port; and
(d) time the vessel is off-hire.
The sensitivity tables below illustrate the variability of
possible results and that actual results are not predictable
with any meaningful level of precision. Investors and potential
investors should recognize that actual vessel values and
performance could be materially worse than is illustrated in the
indicative sensitivity tables. Such adverse results could be
driven by adverse changes in the factors considered in the
indicative analysis, including charter rates, voyage expenses,
operating expenses, and vessel utilization, as well as other
factors, including those described above under Risk
Factors. Many of these factors are beyond our control.
Indicative
AnalysisInitial Suezmax
For purposes of indicative analysis, as of January 31, 2010
we assume:
|
|
Ø
|
That the acquisition cost of the Initial Suezmax will be
$71.25 million, which is the average price of the Initial
Suezmax derived from the reports of two independent ship brokers.
|
70
Managements
discussion and analysis of financial condition and results of
operations
|
|
Ø
|
Spot earnings for the Initial Suezmax of approximately $27,064
per day, based on the average spot earnings for 2009 obtained
from third-party industry market analyses. We also include in
the sensitivity analysis average rates experienced by the
industry over certain historic periods. See The
International Tanker IndustryCharter Rates &
Asset Values.
|
|
Ø
|
Daily operating expenses of $9,500 per day, based on third-party
industry market analyses, our experience with similar vessels
and the estimated daily operating expenses of the Initial
Suezmax, and no drydocking expenses.
|
|
Ø
|
358 revenue days out of 365 operating days, based on 98%
utilization.
|
|
Ø
|
Voyage commissions of 3.75%.
|
|
Ø
|
Depreciation expenses of $3,356,460.56 per year.
|
On the basis of these assumptions, we estimate the annual vessel
operating income could be approximately $2.5 million
(vessel operating income in this case being estimated gross
revenues less estimated vessel operating expenses of $9,500 per
day less voyage commissions less depreciation). These estimates
assume that the vessel is acquired debt free and do not include
any allocation for corporate, general and administrative
expenses. We estimate the residual scrap value of the Initial
Suezmax to be $4.6 million on the basis of 25,743
lightweight tons at $180 per lightweight ton. See
Critical Accounting PoliciesFixed Assets,
net.
This indicative sensitivity table below uses the same estimates
and assumptions but varies only the estimated spot earnings per
day for a range of historical rates. This indicative table
illustrates the potential for volatility in vessel operating
results.
Indicative
Sensitivity TableInitial Suezmax
Annual Vessel Operating Income Estimates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highest
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowest Annual
|
|
|
Annual
|
|
|
|
|
|
|
|
|
January
|
|
|
|
Average 1999
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
2010
|
|
|
|
2009
|
|
|
1999-2009
|
|
|
1999-2009
|
|
|
2009
|
|
|
Average
|
|
|
|
|
Inflation-Adjusted Estimated Spot Earnings per Day
|
|
$
|
20,781
|
|
|
$
|
78,415
|
|
|
$
|
48,709
|
|
|
$
|
27,064
|
|
|
$
|
47,373
|
|
Estimated Vessel Operating Income
|
|
$
|
330,623
|
|
|
$
|
20,173,074
|
|
|
$
|
9,946,017
|
|
|
$
|
2,493,889
|
|
|
$
|
9,485,888
|
|
Indicative
AnalysisUniversal VLCC
For purposes of indicative analysis, as of January 31, 2010
we assume:
|
|
Ø
|
An acquisition cost for a Universal VLCC of $96.5 million.
|
|
Ø
|
A spot rate for a VLCC of approximately $36,455 per day, based
on the average spot earnings for 2009 obtained from third-party
market analyses. We also include the sensitivity analysis
average rates experienced by the industry over certain historic
periods. See The International Tanker
IndustryCharter Rates & Asset Values.
|
|
Ø
|
Daily operating expenses of $10,500 per day, based on
third-party industry market analyses and our experience with
similar vessels, and no dry docking expenses.
|
|
Ø
|
358 revenue days out of 365 operating days, based on 98%
utilization.
|
|
Ø
|
Voyage commissions of 3.75%.
|
|
Ø
|
Depreciation expenses of $3,572,000 per year.
|
71
Managements
discussion and analysis of financial condition and results of
operations
On the basis of these assumptions, we estimate the annual vessel
operating income could be approximately $5.1 million
(vessel operating income in this case being estimated gross
revenues less estimated vessel operating expenses of $10,500 per
day less voyage commissions less depreciation). These estimates
assume that the vessel is acquired debt-free and do not include
any allocation for corporate, general and administrative
expenses. The residual scrap value has been calculated at
$7.2 million on the basis of an estimated 40,000
lightweight tons for this type of vessel at $180 per lightweight
ton; we do not yet know the exact lightweight of a Universal
VLCC. See Critical Accounting PoliciesFixed
Assets, net.
This indicative sensitivity table below uses the same estimates
and assumptions but varies only the estimated spot earnings per
day for a range of historical rates. This indicative table
illustrates the potential for volatility in vessel operating
results.
Indicative
Sensitivity TableModern VLCC
Annual Vessel Operating Income Estimates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highest
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowest
|
|
|
Annual
|
|
|
|
|
|
|
|
|
January
|
|
|
|
Annual
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
2010
|
|
|
|
Average
1999-2009
|
|
|
1999-2009
|
|
|
1999-2009
|
|
|
2009
|
|
|
Average
|
|
|
|
|
Inflation-Adjusted Estimated Spot Earnings per Day
|
|
$
|
27,463
|
|
|
$
|
110,318
|
|
|
$
|
61,411
|
|
|
$
|
36,455
|
|
|
$
|
74,895
|
|
Estimated Vessel Operating Income
|
|
$
|
2,050,633
|
|
|
$
|
30,576,384
|
|
|
$
|
13,738,382
|
|
|
$
|
5,146,541
|
|
|
$
|
18,380,990
|
|
CONTRACTUAL
OBLIGATIONS
Upon the consummation of this offering, the Company expects that
its contractual obligations will be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by
period
|
|
|
|
|
|
|
Less then
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
|
|
|
(in thousands of
U.S. dollars)
|
|
|
Vessel Purchase
Commitments
(1)
|
|
$
|
264,250
|
|
|
$
|
264,250
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Management
fee
(2)
|
|
|
15,396
|
|
|
|
2,985
|
|
|
|
2,483
|
|
|
|
2,481
|
|
|
|
7,447
|
|
Total
|
|
$
|
279,646
|
|
|
$
|
267,235
|
|
|
$
|
2,483
|
|
|
$
|
2,481
|
|
|
$
|
7,447
|
|
|
|
|
(1)
|
|
Purchase commitments represent outstanding purchase
commitments that we will enter into upon the consummation of
this offering for the acquisition of the Initial Suezmax and the
two VLCCs that are scheduled to be delivered in March and June
2010.
|
|
(2)
|
|
Concurrently with the closing of this offering, we will enter
into the Management Agreement with our Manager. We have
calculated a sale and purchase fee of $1,930 on the aggregate
acquisition cost of the two Universal VLCCs, technical
management fees of $0.9 per vessel per day, Sarbanes-Oxley
compliance fees of $0.1 per vessel per day, and reporting
services fees of $50.0 per quarter up beginning from
March 1, 2010 up to December 31, 2020.
|
GENERAL AND
ADMINISTRATIVE EXPENSES
Our general and administrative expenses will include fees
payable under the Management Agreement, directors fees,
office rent, travel, communications, insurance, legal, audit,
investor relations and other professional expenses and other
fees related to the expenses of a publicly-traded company.
72
Managements
discussion and analysis of financial condition and results of
operations
CRITICAL
ACCOUNTING POLICIES
Critical accounting policies are those that reflect significant
judgments or uncertainties, and potentially result in materially
different results under different assumptions and conditions. We
have described below what we believe will be our most critical
accounting policies that will involve a high degree of judgment
and the methods of their application upon the acquisition of our
fleet.
Vessel
acquisitions
When we enter into an acquisition transaction, we determine
whether the acquisition transaction is the purchase of an asset
or a business based on the facts and circumstances of the
transaction. As is customary in the shipping industry, the
purchase of a vessel is normally treated as a purchase of an
asset, as neither the historical operating data for the vessel
is reviewed nor is such data material to our decision to make
such acquisition, although various other factors must be
assessed and taken into consideration. The acquisition of
Cooper, the Capital Maritime subsidiary that owns the Initial
Suezmax, will be treated as an acquisition of a business rather
than an acquisition of an asset. In addition, we will account
for our acquisition of Cooper as a transaction of entities under
common control, and accordingly, we will initially value the
assets transferred at their carrying amounts. Any difference
between the carrying amount of the assets received and
consideration paid by us to Capital Maritime will be recorded in
equity.
If a vessel is acquired with an existing time charter, we
allocate the purchase price of the vessel and the time charter
based on, among other things, vessel market valuations and the
present value (using an interest rate that reflects the risks
associated with the acquired charters) of the difference between
(a) the contractual amounts to be paid pursuant to the
charter terms and (b) managements estimate of the
fair market charter rate, measured over a period equal to the
remaining term of the charter. The capitalized above-market
(assets) and below-market (liabilities) charters are amortized
as a reduction or increase, respectively, to voyage revenues
over the remaining term of the charter.
Trade
receivables, net
Trade receivables, net include accounts receivable from charters
net of the provision for doubtful accounts. At each balance
sheet date, all potentially uncollectible accounts will be
assessed individually for purposes of determining the
appropriate provision for doubtful accounts.
Our revenue is based on contracted charter parties. However,
there is always the possibility of dispute over terms and
payment of hires and freights. In particular, disagreements may
arise as to the responsibility of lost time and revenue due to
us as a result. Accordingly, we periodically assess the
recoverability of amounts outstanding and estimate a provision
if there is a possibility of non-recoverability.
Recognition of
revenues and voyage and vessel operating expenses
We generate our revenues from voyage and time charter
agreements. If a time or voyage charter agreement exists, the
price is fixed, service is provided and the collection of the
related revenue is reasonably assured, revenues are recorded
over the term of the charter as service is provided and
recognized on a pro-rata basis over the duration of the voyage.
We do not begin recognizing voyage or time charter revenue until
a charter contract has been agreed to both by us and the
charterer. Demurrage income, which is included in voyage
revenues, represents payments received from the charterer when
loading or discharging time exceeded the stipulated time in the
voyage charter and is recognized when earned. Probable losses
such as uncollectible amounts from time and voyage charters are
provided for in full at the time such losses can be estimated.
73
Managements
discussion and analysis of financial condition and results of
operations
Vessel voyage expenses are direct expenses to voyage revenues
and primarily consist of commissions, port expenses, canal dues
and bunkers. Commissions are expensed over the related charter
period and all the other voyage expenses are expensed as
incurred. For time charters all voyage expenses except
commissions are assumed by the charterer of the vessel. For
voyage charters all voyage costs are assumed by the owner of the
vessel.
Vessel operating expenses are all expenses relating to the
operation of the vessel, including crewing, insurance, repairs
and maintenance, stores, lubricants, spares and consumables,
professional and legal fees and miscellaneous expenses. Vessel
operating expenses are recognized as incurred; payments in
advance of services or use are recorded as prepaid expenses.
Under voyage and time charter agreements the operating expenses
are assumed by the owner of the vessel.
Fixed Assets,
net
We record the value of our vessel at its cost (which includes
acquisition costs directly attributable to the vessel and
expenditures made to prepare the vessel for its initial voyage)
less accumulated depreciation. We depreciate our vessel on a
straight-line basis over its remaining economic useful life. Our
estimate of the useful life of our vessel is 25 years from
the date of initial delivery from the shipyard which is common
shipping industry practice with tankers. Depreciation is based
on cost less the estimated residual scrap value. Residual value
calculation is based upon a vessels lightweight tonnage
multiplied by a scrap rate of $180 per lightweight ton, which
represents managements best estimate based on historical
trends and current industry conditions. An increase in the
useful life of a tanker vessel or in its residual value would
have the effect of decreasing the annual depreciation charge and
extending it into later periods. A decrease in the useful life
of a tanker vessel or in its residual value would have the
effect of increasing the annual depreciation charge. However,
when regulations place limitations over the ability of a vessel
to trade on a worldwide basis, we will adjust the vessels
useful life to end at the date such regulations preclude such
vessels further commercial use.
Deferred
drydocking costs
Our vessel is required to be drydocked approximately every 30 to
60 months for major repairs and maintenance that cannot be
performed while the vessel is operating. We defer the costs
associated with drydockings as they occur and amortize these
costs on a straight-line basis over the period between
drydockings. Deferred drydocking costs will include actual costs
incurred at the drydock yard; 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 the
drydocking.
Impairment of
long-lived assets
Impairment loss is recognized on a long-lived asset used in
operations when indicators of impairment are present and the
carrying amount of the long-lived asset is less than its fair
value and it is not recoverable from the undiscounted cash flows
estimated to be generated by the asset. In determining future
benefits derived from use of long-lived assets, the Company
performs an analysis of the anticipated undiscounted future net
cash flows of the related long-lived assets. If the carrying
value of the related asset exceeds its undiscounted future net
cash flows, the carrying value is reduced to its fair value.
Various factors including future charter rates and vessel
operating costs are included in this analysis. We did not note,
for the years ended December 31, 2008 and 2007 any events
or changes in circumstances indicating that the carrying amount
of our vessel may not be recoverable. However, in the year ended
December 31, 2009, market conditions changed significantly
as a result of the credit crisis and resulting slowdown in world
trade. Charter rates for tanker vessels fell and values of
assets were affected although there were limited transactions to
confirm that. We considered these market developments as
indicators of potential impairment of the carrying amount of its
asset. We performed the undiscounted cash flow test as of
December 31, 2009. We determined undiscounted projected net
74
Managements
discussion and analysis of financial condition and results of
operations
operating cash flows for the vessel and compared it to the
vessels carrying value. In developing estimates of future
cash flows, we made assumptions about future charter rates,
utilization rates, ship operating expenses, future dry docking
costs and the estimated remaining useful life of the vessel.
These assumptions are based on historical trends as well as
future expectations that are in line with our historical
performance and our expectations for the vessel utilization
under our deployment strategy. Based on these assumptions we
determined that the undiscounted cash flows support the
vessels carrying amount as of December 31, 2009.
OFF-BALANCE SHEET
ARRANGEMENTS
We currently do not have any off-balance sheet arrangements.
INFLATION
We expect that inflation will have only a moderate effect on our
expenses under current economic conditions. In the event that
significant global inflationary pressures appear, these
pressures would increase our operating, voyage, general and
administrative, and financing costs. However, we expect our
costs to increase based on the anticipated increased costs for
crewing, lube oil and bunkers.
75
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our risk
management policy
Our policy is to continuously monitor our exposure to business
risks, including the impact of changes in interest rates and
currency rates as well as inflation on earnings and cash flows.
We intend to assess these risks and, when appropriate, take
measures to minimize our exposure to the risks.
INTEREST RATE
RISK
The international shipping industry is a capital intensive
industry, requiring significant amounts of investment. We have
entered into a commitment to obtain a revolving credit facility
that will provide us with bridge financing for potential vessel
acquisitions. Our interest expense under any such credit
facility will be affected by changes in the general level of
interest rates. Increasing interest rates could adversely impact
our future earnings.
CURRENCY AND
EXCHANGE RATES RISK
The international shipping industrys functional currency
is the U.S. Dollar. We expect that virtually all of our
revenues and most of our operating costs will be in
U.S. Dollars. We expect to incur certain operating expenses
in currencies other than the U.S. Dollar, and we expect the
foreign exchange risk associated with these operating expenses
to be immaterial.
COMMODITY
RISK
The price and supply of fuel is unpredictable and fluctuates as
a result of events outside our control, including geo-political
developments, supply and demand for oil and gas, actions by
members of OPEC and other oil and gas producers, war and unrest
in oil producing countries and regions, regional production
patterns and environmental concerns and regulations. Because we
do not intend to hedge our fuel costs, an increase in the price
of fuel beyond our expectations may adversely affect our
profitability, cash flows and ability to pay dividends.
INFLATION
Inflation is expected to have a minimal impact on vessel
operating expenses, drydocking expenses and general and
administrative expenses to date. Our management does not
consider inflation to be a significant risk to direct expenses
in the current and foreseeable economic environment. However, in
the event that inflation becomes a significant factor in the
global economy, inflationary pressures would result in increased
operating, voyage and financing costs.
76
THE INTERNATIONAL
TANKER INDUSTRY
The information and data contained in this prospectus
relating to the international tanker industry has been provided
by Clarkson Research Services Limited, CRSL, and is
taken from CRSLs database and other sources. CRSL has
advised that: (a) some information in CRSLs database
is derived from estimates or subjective judgments; (b) the
information in the databases of other maritime data collection
agencies may differ from the information in CRSLs
database; (c) whilst CRSL has taken reasonable care in the
compilation of the statistical and graphical information and
believes it to be accurate and correct, data compilation is
subject to limited audit and validation procedures.
TANKER DEMAND AND
SUPPLY OVERVIEW
The maritime shipping industry is fundamental to international
trade as it is the only practicable and cost effective means of
transporting large volumes of many essential commodities. Oil
has been one of the worlds most important energy sources
for a number of decades and the oil tanker industry plays a
vital link in the global energy supply chain. In 2008, oil
accounted for approximately 34.8% of world energy consumption.
Oil demand grew steadily at an annual compound growth rate of
1.3% between 1999 and 2008, from approximately 75.3 million
barrels per day (bpd) to 84.5 million bpd (according to BP
Statistical Review of World Energy), primarily as result of
global economic growth. The economic slowdown experienced in
2008 and much of 2009 has had an impact on overall oil demand,
with the International Energy Agency (IEA)
estimating that oil demand fell by 1.5% in 2009. However, in
recent months the IEA has been upwardly revising its demand
forecasts for 2009 and 2010, and in February projected a rise in
demand of 1.6 million bpd to 86.5 million bpd in 2010,
representing 1.8% annual growth. Of the 84.5 million bpd
consumed in 2008, 39.5 million bpd (46.7%) was estimated to
have been transported on tankers according to the BP Statistical
Review of World Energy. The chart below illustrates the growth
in oil demand in recent years, along with the IEA demand
projections to the end of 2010. The graph also shows the
seasonality of oil demand and the impact of the global economic
slowdown on oil demand.
Source: IEA Oil Market Report,
February 2010
Note:
The IEA do revise figures and forecasts
over time. Current 2010 estimate as at February 2010 is
86.5 million bpd.
Between 2002 and 2008, seaborne crude oil trade measured in
billion tonnes is estimated to have grown at 2.1%. Tanker
demand, measured in
tonne-miles,
is a product of (a) the amount of cargo transported in
tankers, multiplied by (b) the distance over which this
cargo is transported. In
tonne-mile
terms,
77
The international
tanker industry
seaborne crude oil trade grew at 2.9% p.a. between 2002 and
2008, reflecting a small increase in the average length of haul.
However in 2009, growth in seaborne crude oil trade has slowed
significantly by approximately 4%. In the long term it is
possible that oil demand may be reduced by an increased reliance
on alternative sources
and/or
a
drive for increased efficiency in the use of oil as a result of
environmental concerns, declining reserves
and/or
high
oil prices. Trading patterns are sensitive both to major
geographical events and to small shifts, imbalances and
disruptions at all stagesfrom wellhead production through
refining to end use. Seaborne trading distances are also
influenced by infrastructural factors, such as the availability
of pipelines and canal shortcuts. Although oil can
also be delivered by pipeline or rail, the vast majority of
worldwide crude and refined petroleum products transportation
has been conducted by tankers because transport by sea is
typically the only or most cost-effective method.
Source: Fearnleys October 2009 /
IEA February 2010
Note:
(e) = estimate, (p) = projection
Note:
The above chart shows
ton-mile
developments according to Fearnleys. Due to coverage and
definitional issues, the numbers published by Fearnleys and
Clarkson Research Services Limited differ. 2010 forecasts range
considerably; Clarkson Research Services Limiteds 2010
projection for crude tanker deadweight demand is lower than
Fearnleys.
Tanker charter hire and vessel values are strongly influenced by
the supply of, and demand for tanker capacity. The crude tanker
industry has historically developed in a cyclical fashion,
although the length of these cycles has varied significantly.
Supply and demand in the tanker market were closely matched in
the five years prior to 2009, although they became divergent
during 2009.
In recent years, the tanker fleet (>10,000 dwt) has grown
strongly as a result of increased shipyard deliveries, growing
by 5.8% in 2006, 6.0% in 2007 and 5.6% in 2008, and 7.3% in
2009. In the same periods, the VLCC fleet grew by 3.4%, 4.1%,
3.7% and 5.6%, while the Suezmax fleet grew by 7.0%, 4.3%, 1.2%
and 8.8%, respectively.
78
The international
tanker industry
Figure 3:
Tanker Phase-Out and Orderbook (assuming 2010
phase-out)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
Suezmax
|
|
|
Aframax
|
|
|
|
Phase-Out
(1)
|
|
|
Orderbook
(2)
|
|
|
Phase-Out
(1)
|
|
|
Orderbook
(2)
|
|
|
Phase-Out
(1)
|
|
|
Orderbook
(2)
|
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
|
|
2010
|
|
|
87
|
|
|
|
23.89
|
|
|
|
75
|
|
|
|
23.16
|
|
|
|
24
|
|
|
|
3.52
|
|
|
|
53
|
|
|
|
8.14
|
|
|
|
34
|
|
|
|
3.17
|
|
|
|
85
|
|
|
|
9.36
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
28.97
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
9.95
|
|
|
|
3
|
|
|
|
0.30
|
|
|
|
56
|
|
|
|
6.10
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
6.96
|
|
|
|
1
|
|
|
|
0.13
|
|
|
|
13
|
|
|
|
2.03
|
|
|
|
4
|
|
|
|
0.39
|
|
|
|
5
|
|
|
|
0.55
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
0.32
|
|
|
|
3
|
|
|
|
0.45
|
|
|
|
9
|
|
|
|
1.40
|
|
|
|
3
|
|
|
|
0.32
|
|
|
|
5
|
|
|
|
0.54
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
0.09
|
|
|
|
4
|
|
|
|
0.428
|
|
2015
|
|
|
5
|
|
|
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phase-Out
|
|
|
92
|
|
|
|
25.39
|
|
|
|
191
|
|
|
|
59.41
|
|
|
|
33
|
|
|
|
4.84
|
|
|
|
139
|
|
|
|
21.51
|
|
|
|
55
|
|
|
|
5.28
|
|
|
|
155
|
|
|
|
16.97
|
|
Total Fleet
|
|
|
545
|
|
|
|
163.37
|
|
|
|
|
|
|
|
|
|
|
|
402
|
|
|
|
61.57
|
|
|
|
|
|
|
|
|
|
|
|
841
|
|
|
|
88.31
|
|
|
|
|
|
|
|
|
|
% of Fleet
|
|
|
|
|
|
|
15.5
|
%
|
|
|
|
|
|
|
36.4
|
%
|
|
|
|
|
|
|
7.9
|
%
|
|
|
|
|
|
|
34.9
|
%
|
|
|
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
19.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Clarkson Research, 1st February 2010.
Note 1:
Phase-out figures based on CRSL
estimates of IMO MARPOL Annex I, Regulation 20,
1st February 2010. It assumes phase-out of all single-hull
vessels at the 2010 deadline (although some vessels will benefit
from possible extensions granted by flag and port states), that
double-bottomed and double-sided vessels will trade to
25 years and that the average demolition age is
30 years.
Note 2:
Orderbook as at 1st February
2010. These figures are subject to change as a result of delay,
cancellation and further ordering. In 2009, recorded deliveries
were 25% lower than expected at the start of the year for all
tankers above 10,000 dwt while 3% of the scheduled 2009
deliveries have been removed completely from the orderbook.
Delays and cancellations are expected to increase but estimates
vary significantly.
The IMO phase-out applies to international voyages. Vessels may
continue to trade coastally.
The aggregate tanker orderbook for new vessels has retreated
from historical highs in 2008 to an equivalent of 29% of the
fleet (128.5 million dwt) as of February 1st, 2010.
Delivering the orderbook will present a number of challenges,
both technical and financial and therefore some slippage or
cancellations of orders at shipyards is expected. In 2009,
approximately 25.3% of tanker deliveries (>10,000 dwt)
expected to enter the fleet at the start of the year were not
confirmed as delivered (i.e. Non Delivery). Despite
this, there are still a considerable number of vessels to be
delivered within the next few years.
There are approximately 42.3 million dwt of non
double-hulled vessels that may be phased out by the end of 2010
due to IMO regulations and a further 8.8 million dwt of
double-sided or double-bottomed vessels that are expected to be
phased out before 2015. In total, non double-hull vessels
represent 11.6% of the fleet in dwt. There are also
8.6 million dwt of double-hulled vessels over 20 years
of age, which could be candidates for scrapping by 2015 because
of their age. In total these vessels represent 13.6% of the
tanker fleet. It is important to note that the IMO regulations
do permit some trading extensions beyond 2010.
TANKER MARKET
OVERVIEW
Tanker earnings fell significantly in 2009 following a near
record year in 2008. A seasonal increase in demand caused by a
cold weather snap in the northern hemisphere saw chartering
rates improve in the final few months of 2009 and into 2010. In
2009, VLCC spot earnings averaged $36,671 per day, 63% lower
than the 2008 average. Timecharter rates fell in 2009 as did
timecharter activity. In 2006 there were 177 reported tanker
timecharters, falling to 151 in 2007, 157 in 2008 and 104 in
2009. There were a total of 28 VLCC timecharter fixtures, 11
Suezmax timecharter fixtures and 31 Aframax timecharter fixtures
in 2009.
79
The international
tanker industry
A resale (a new vessel able to give prompt delivery) VLCC price,
as of February 2010, is estimated to be approximately
$100 million, compared to a peak price of $195 million
in August 2008 (inflation adjusted value of $190 million),
and a five year average of $138m (inflation adjusted value of
$142 million). Five year old VLCC prices as of February
2010 are estimated to be approximately $80 million,
compared to a ten year average of $92 million (inflation
adjusted value of $100 million). Five year old Suezmax
prices as of February 2010 are estimated to be approximately
$59 million, compared to a ten year average of
$63 million (inflation adjusted value of $68 million).
Since a peak in the summer of 2008 asset values have fallen from
historical highs and are approximately half of peak prices now.
TANKER VESSEL
TYPES
Crude oil tankers transport crude oil from points of production
to points of consumption, typically oil refineries. Customers
include oil companies, oil traders, large oil consumers,
refiners, government agencies and storage facility operators.
The global oil tanker fleet is generally divided into five major
categories of vessels, based on carrying capacity. In order to
benefit from economies of scale, tanker charterers transporting
crude oil will typically charter the largest possible vessel for
a particular voyage, taking into consideration port and canal
size restrictions and optimal cargo lot sizes. The five
categories are shown in the table below.
80
The international
tanker industry
Figure 4:
Tanker Vessel Types
|
|
|
|
|
|
|
Class of
Tankers
|
|
Cargo capacity
(dwt)
|
|
(000
bbl)
|
|
Typical
use
|
|
|
Ultra Large Crude Carrier ULCCs
|
|
> 320,000
|
|
2,040
|
|
Long-haul crude oil transportations from the Middle East Gulf
and West Africa to predominantly Far Eastern destinations such
as China, Japan and Korea but also Northern Europe and the U.S.
Gulf.
|
Very Large Crude Carrier ULCCs
|
|
200,000 - 319,999
|
|
|
|
|
Suezmax
|
|
120,000 - 199,999
|
|
1,027
|
|
Medium-haul of both crude oil and fuel oil from the FSU, Middle
East and West Africa to the United States and Europe.
|
|
|
Aframax
|
|
80,000 - 119,999
|
|
715
|
|
Short- to medium-haul of crude oil and refined petroleum
products from the North Sea, Baltic or West Africa to Europe or
the East Coast of the U.S.; from the Middle East Gulf to the
Pacific Rim and on regional trade routes in the North Sea, the
Caribbean, the Mediterranean and the Indo-Pacific Basin.
|
|
|
Panamax
|
|
60,000 - 79,999
|
|
492
|
|
Short- to medium-haul of crude oil and refined petroleum
products worldwide, mostly on regional trade routes.
|
|
|
Handymax
|
|
40,000 - 59,999
|
|
318
|
|
Short-haul of mostly refined petroleum products worldwide,
usually on local or regional trade routes.
|
Handysize
|
|
10,000 - 39,999
|
|
167
|
|
|
Source: Clarkson Research, 1st February 2010.
Note:
Average bbl per sector shown.
bbl refers to the cargo carrying capacity for the
vessel based on a conversion from metric to barrel capacity.
The focus of this tanker industry review will be on the larger
crude carrying sectors, VLCCs and Suezmaxes.
VLCC TRADING
ROUTES
VLCC activity has shown a trend towards Far East destinations,
with China accounting for approximately 21% of all reported VLCC
spot fixtures in 2009, Korea accounting for 12%, India 13% and
Other Far East (including Japan and Singapore) a
further 30%. The market share of VLCC spot fixtures into OECD
North America and the Atlantic generally fell significantly in
2009. A growing share of Middle East crude exports have been
heading to the Far East in 2009 and this pattern is expected to
persist with the growing economies of China and India demanding
more crude for domestic consumption. In recent years, a number
of trades have evolved which are relatively long-haul. This
includes movements into South China from long-haul destinations
such as West Africa and the
81
The international
tanker industry
Caribbean which in spot fixtures terms increased by 69% and 125%
respectively between 2004 and 2009. In addition, there has been
a 122% increase in spot fixtures from the Caribbean to Singapore
over the same period. VLCC spot fixtures into West Coast India
have increased 19% over 2004 to 2009. Single-hull VLCCs continue
to be active loading out of the Middle East, but the Atlantic
remains effectively closed to them. The number of areas actively
receiving single hulls has narrowed, in 2009 the main spot
discharge areas for singlehull VLCCs were Thailand, Taiwan
and West Coast India. In 2009, the spot routes showing the
largest
year-on-year
growth were West Africa to West Coast India, the Arabian Gulf to
South China and Venezuela to South East Asia. Most Atlantic
routes saw reduced volumes in 2009.
Note:
Based on publicly reported spot fixtures
and is not comprehensive of all movements.
Abbreviations:
DH is Double Hull, NDH is
Non-Double Hull, WAFR is West Africa, USG is United States Gulf,
AG is Arabian Gulf, WCI is West Coast India, SPOR is Singapore,
CAR is Caribbean, TWN is Taiwan, SCH is South China, JAP is
Japan, KOR is South Korea, THAI is Thailand.
82
The international
tanker industry
Figure 6:
Top 10 2009 VLCC Spot Fixture
Routes, Ranked by Cargo Size in M Tonnes
|
|
|
|
|
|
|
|
|
|
|
Route
|
|
2009
|
|
|
04-09
Growth
|
|
|
|
|
1
|
|
AG- South China
|
|
|
79
|
|
|
|
136
|
%
|
2
|
|
AG- Korea
|
|
|
53
|
|
|
|
11
|
%
|
3
|
|
WAF- US Gulf
|
|
|
34
|
|
|
|
(31
|
)%
|
4
|
|
AG- Singapore
|
|
|
29
|
|
|
|
(42
|
)%
|
5
|
|
AG- West Coast India
|
|
|
27
|
|
|
|
(1
|
)%
|
6
|
|
Caribs- Singapore
|
|
|
27
|
|
|
|
122
|
%
|
7
|
|
AG-Thailand
|
|
|
26
|
|
|
|
28
|
%
|
8
|
|
AG- US Gulf
|
|
|
23
|
|
|
|
(63
|
)%
|
9
|
|
AG-Taiwan
|
|
|
20
|
|
|
|
(2
|
)%
|
10
|
|
WAF- West Cost India
|
|
|
15
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
144
|
|
|
|
(37
|
)%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Clarkson Research, February 2010
Note:
Spot Fixtures data is not comprehensive
and does not cover all cargo movements.
Note:
The% change
2004-2009
does not necessarily reflect actual cargo moved because of non
spot and off market movements.
SUEZMAX TRADING
ROUTES
Spot fixing activity for Suezmaxes continues to remain focused
in the Atlantic, with North America accounting for 30% of spot
fixtures in 2008. Activity has remained high for fixtures
discharging in Europe, accounting for 35% of all fixtures in
2008. Former Soviet Union (FSU) exports through the
Black Sea have increased over the past couple of years as
Suezmaxes are the largest sized tanker able to navigate the
Bosporus Strait. Suezmaxes have been less active east of the
Suez, with spot fixture discharges accounting for only 22% in
terms of vessel deadweight. West African exports are influenced
by political unrest. FSU crude exports out of the Black Sea have
increased over 2009 as several new Russian fields came online
quicker than had originally been envisaged. Some FSU production
has been transported to Far Eastern destinations such as China
and South Korea and these trading patterns have acted to provide
increased deadweight demand.
At certain seasonal points, crude exports from North Baltic
ports and some of the northern regions of Russia require ice
class vessels. Ice class tankers are vessels that have been
constructed with strengthened hulls, a sufficient level of
propulsive power for transit through ice-covered routes and
specialized machinery and equipment for cold climates. The
demand prospects for these tankers depend on oil exports from
these ice regions and the severity of ice
conditions. In recent years Baltic winters have generally been
mild and as newbuildings have been delivered there has been an
increase in the number of tankers with ice class 1A
classification. As a result premiums paid for ice class tonnage
have been limited. There are 22 Suezmax with ice class 1A
notation, although many of these vessels trade globally rather
than exclusively in ice regions.
There are a small number of Suezmax vessels with epoxy coated
tanks (2% of the fleet), allowing storage and transportation
opportunities of clean oil products cargoes. However, these
opportunities have been rare in recent years and the majority of
these vessels continue to trade crude. Vessels trading crude
require extensive cleaning before trading clean. 46 Suezmax
tankers operate with bow thrusters, potentially allowing some
limited advantage due to additional maneuverability.
83
The international
tanker industry
Note:
Based on publicly reported spot fixtures
and is not comprehensive of all movements.
Note:
Routes not showing a breakdown between
DH and NDH are 100% DH.
Abbreviations:
DH is Double Hull, NDH is
Non-Double Hull, WAFR is West Africa, USG is United States Gulf,
AG is Arabian Gulf, WCI is West Coast India, SPOR is Singapore,
CAR is Caribbean, TWN is Taiwan, SCH is South China, JAP is
Japan, KOR is South Korea, THAI is Thailand.
Figure 8:
Top 10 2009 Suezmax Spot Fixture Routes,
Ranked by Cargo Size in M Tonnes
|
|
|
|
|
|
|
|
|
|
|
Route
|
|
2009
|
|
|
04-09
Growth
|
|
|
|
|
1
|
|
WAF- US Gulf
|
|
|
28
|
|
|
|
3
|
%
|
2
|
|
Black Sea- UK Cont
|
|
|
22
|
|
|
|
(34
|
)%
|
3
|
|
WAF- UK Cont
|
|
|
17
|
|
|
|
163
|
%
|
4
|
|
WAF- USAC
|
|
|
13
|
|
|
|
(37
|
)%
|
5
|
|
AG- West Coast India
|
|
|
8
|
|
|
|
37
|
%
|
6
|
|
WAF- Sth America
|
|
|
5
|
|
|
|
180
|
%
|
7
|
|
East Med- West Med
|
|
|
5
|
|
|
|
(28
|
)%
|
8
|
|
WAF- US Gulf
|
|
|
5
|
|
|
|
15
|
%
|
9
|
|
WAF- West Med
|
|
|
5
|
|
|
|
(22
|
)%
|
10
|
|
WAF- Brazil
|
|
|
5
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
139
|
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Clarkson Research, February 2010
Note:
Spot Fixtures data is not comprehensive
and does not cover all cargo movements.
Note:
The % change
2004-2009
does not necessarily reflect actual cargo moved because of non
spot and off market movements.
84
The international
tanker industry
OIL TANKER
DEMAND
Demand for oil tankers is dictated by world oil demand and
trade, which is influenced by many factors, including
international economic activity; geographic changes in oil
production, processing, and consumption; oil price levels;
inventory policies of the major oil and oil trading companies;
and strategic inventory policies of countries such as the United
States and China.
Tanker demand, measured in
tonne-miles,
is a product of (a) the amount of cargo transported in
tankers, multiplied by (b) the distance over which this
cargo is transported. The distance is the more variable element
of the
tonne-mile
demand equation and is determined by seaborne trading patterns,
which are principally influenced by the locations of production
and consumption. Seaborne trading patterns are also periodically
influenced by geo-political events that divert tankers from
normal trading patterns, as well as by inter-regional oil
trading activity created by oil supply and demand imbalances.
Total seaborne oil trade has increased from 1.6 billion
tonnes in 1990 to an estimated 2.7 billion tonnes in 2008.
It is estimated to have declined to 2.6 billion tones in
2009. Tonnage of oil shipped is primarily a function of global
oil consumption, which is driven by economic activity as well as
the long-term impact of oil prices on the location and related
volume of oil production. Tonnage of oil shipped is also
influenced by transportation alternatives (such as pipelines)
and the output of refineries.
Note:
(e) = estimate, (p) = projection
Between 2002 and 2008 seaborne trade in crude oil has grown at a
Compound Average Growth Rate (CAGR) of 2.1% per
annum, and seaborne trade in refined petroleum products has
grown at CAGR of 5.8% per annum. In
tonne-mile
terms, crude oil growth has been 2.9% between 2002 and 2008.
These figures indicate that, in general terms, demand for world
tanker tonnage is growing at a faster rate than global demand
for crude oil (oil demand grew at an annual compound growth rate
of 1.4% per year between 1999 and 2008), which implies that a
larger proportion of global oil demand is being transported
internationally by sea. Seaborne oil trade is estimated to have
fallen by 3.8% in 2009, but is expected to return to growth in
2010 if global oil demand recovers. The graph below compares
annual percentage growth in crude tanker
tonne-miles
and annual percentage growth in total world oil consumption.
85
The international
tanker industry
Source: Fearnleys October 2009/IEA February 2010
Note:
(e) = estimate, (p) = projection
Note:
The above chart shows
ton-mile
developments according to Fearnleys. Due to coverage and
definitional issues, the numbers published by Fearnleys and
Clarkson Research Services Limited differ. 2010 forecasts range
considerably; Clarkson Research Services Limiteds 2010
projection for crude tanker deadweight demand is lower than
Fearnleys
Overall, both long-haul and short-haul production has increased
since 1993, as can be seen in the graph below. Falling
production in some mature short haul oil fields, such as the
North Sea and South East Asia, has been offset by the increasing
production of the FSU. Long haul production increases have
largely been driven by Saudi Arabia, which has the greatest
spare production capacity and greatest proven reserves, and
Iraq, as the country recovers from war. Between 1998 and 2008
long-haul production has grown over 3 times as fast as
short-haul production.
Note:
Short Haul (<5,000 mile
voyage) defined as: UK, Norway, Ecuador, Venezuela, Mexico,
Libya, Algeria, Egypt, Gabon, Nigeria, Indonesia, Former Soviet
Union. Long Haul (>5,000 mile voyage) defined as:
Qatar, UAE, Iraq, Iran, Kuwait, Neutral Zone, Saudi Arabia.
The growth in demand for oil and the changing location of supply
is changing the structure of the tanker market. Between 2003 and
2008, over 80% of new production was located in three regions:
the FSU, the Arabian Gulf and West Africa; together these three
regions produced 50% of global supply in
86
The international
tanker industry
2008. Over the recent economic downturn Chinese oil companies
have been particularly active in large capital injections to oil
producers around the world. Long-term supply agreements have
been reached with Venezuela, Brazil and for the development of
FSU fields and investment is being considered for West Africa.
Transporting significant volumes of crude from Venezuela to
China would increase
tonne-mile
demand. During 2009 it was reported that Chinese oil companies
have concluded supply agreements that will, if they materialise,
result in over 200,000 bpd of crude oil being imported from
Brazil and over 350,000 bpd of crude and products being
imported from Venezuela.
Major consumers, including the United States, Europe and China,
have been forced to diversify their supply as regional fields
mature, meaning demand for long-haul and short-haul oil has
continued to grow. The IEA reports that global oil demand fell
by 0.3 million bpd in 2008 to 86.2 million bpd and is
expected to have fallen a further 1.3 million bpd in 2009
to 84.9 million bpd. The IEA has been revising downwards
their oil demand figures from the end of 2008 to mid-2009 as a
result of the economic instability and the slowdown in global
economic activity over the current downturn. However, in recent
months, the IEA have been upwardly revising their demand
forecasts for 2009 and 2010 and in February 2010 projected a
rise in demand of 1.6 million bpd in 2010.
Note:
Forecasts are subject to revision.
Demand for oil is influenced by a number of factors. For
example, between 2003 and 2008, U.S. oil demand is
estimated to have fallen by over 0.5 million bpd, to
19.5 million bpd. In 2009 however, a severe economic
slowdown forced oil demand to fall to around 18.7 million
bpd. As a result of the rapid growth of the Chinese economy
between 2003 and 2008, Chinese oil demand is estimated to have
grown from 5.6 million bpd to 7.9 million bpd. Chinese
oil imports increased by 11.4% in the first eleven months of
2009, with 92% of imports from long-haul destinations. The IEA
estimates that Chinese oil demand grew by an average of
0.6 million bpd in 2009 and will further grow by
0.4 million bpd in 2010 in part due to the building of the
Chinese strategic oil reserve. Over the same 2003 to 2008
period, the growth of Indias economy has expanded oil
demand by 0.6 million bpd, to 3.1 million bpd.
Finally, over the same period, the Middle East has seen its
demand of oil grow by 1.6 million bpd to 7.1 million
bpd. However, the global economic downturn has curtailed oil
demand growth in 2009 and this has reduced tanker demand.
International oil agencies expect oil demand to recover in 2010,
with the IEA expecting oil demand to grow by 1.6 million
bpd.
It is estimated that the United States, China and India together
accounted for over a third of global oil demand in 2008. The
combined demand from these three countries alone is responsible
for 38% of the total demand growth between 2003 and 2008. The
majority of this demand growth has been satisfied through oil
imported by sea. Over this period, however, the Middle East
accounted for 24% of demand growth (none of which was imported
by sea).
87
The international
tanker industry
An oil price contango for much of the first six months of 2009
resulted in the short-term charter of tankers for oil storage.
Estimates put the total volume of crude and products being held
in tankers as a result of this short term floating storage at
130 million barrels at the height of storage activities in
April 2009, principally on VLCCs and Suezmaxes. The use of
vessels for floating storage through much of 2009 had a
noticeable impact on the availability of tonnage. Estimates vary
but around 40 VLCCs were engaged in short-term storage through
April 2009. By the end of the year the oil price contango still
prompted the use of tankers for storage but estimates put the
number of VLCCs engaged at around 30 at the end of December
2009. Some recently delivered Suezmaxes have been chartered to
transport clean cargoes due to arbitrage opportunities.
OIL TANKER
SUPPLY
The effective supply of oil tanker capacity is determined by the
size of the existing fleet, the rate of newbuilding deliveries,
scrapping and casualties, the number of combined carriers (ships
capable of carrying wet and dry cargoes) that are actually used
for the carriage of oil, the number of vessels undergoing
conversion out of the tanker fleet (dry bulk, offshore or heavy
lift) and the number used as storage vessels and the amount of
tonnage in
lay-up
(vessels idle, but still available for trading after a period of
re-commissioning). The carrying capacity of the international
tanker fleet is a critical determinant of pricing for tanker
transportation services. The table below shows the tanker fleet.
Figure
14: World Crude Oil and Product Tanker Fleet By Vessel Size
(over 10,000 dwt)
|
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|
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|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% share
|
|
|
Average
|
|
|
|
|
|
% Single
|
|
|
|
|
|
% DH Fleet
Over
|
|
Class
|
|
Size
(Dwt)
|
|
Number
|
|
|
Million
Dwt
|
|
|
of Dwt
|
|
|
Age
|
|
|
%
Double
|
|
|
Hull (by
Dwt)
|
|
|
% DB/DS
|
|
|
20 years (by
Dwt)
|
|
|
|
|
ULCC/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
200,000 & above
|
|
|
545
|
|
|
|
163.4
|
|
|
|
37.2
|
%
|
|
|
8.6
|
|
|
|
84.5
|
%
|
|
|
14.6
|
%
|
|
|
0.9
|
%
|
|
|
0.0
|
%
|
Suezmax
|
|
120,000-199,999
|
|
|
402
|
|
|
|
61.6
|
|
|
|
14.0
|
%
|
|
|
8.8
|
|
|
|
92.1
|
%
|
|
|
5.2
|
%
|
|
|
2.7
|
%
|
|
|
2.1
|
%
|
Aframax
|
|
80,000-119,999
|
|
|
841
|
|
|
|
88.3
|
|
|
|
20.1
|
%
|
|
|
8.2
|
|
|
|
94.0
|
%
|
|
|
3.2
|
%
|
|
|
2.8
|
%
|
|
|
2.0
|
%
|
Others
|
|
10-80,000 dwt
|
|
|
3,520
|
|
|
|
125.8
|
|
|
|
28.7
|
%
|
|
|
9.3
|
|
|
|
87.6
|
%
|
|
|
6.5
|
%
|
|
|
5.9
|
%
|
|
|
5.2
|
%
|
|
|
Total
|
|
>10,000 dwt
|
|
|
5,308
|
|
|
|
439.1
|
|
|
|
100.0
|
%
|
|
|
9.0
|
|
|
|
88.4
|
%
|
|
|
8.7
|
%
|
|
|
3.0
|
%
|
|
|
2.2
|
%
|
|
|
Source: Clarkson Research, 1st February 2010
Note:
Includes ships above 10,000 dwt only.
DB/DS Double Bottomed/ Double Sided, DH Double Hull
88
The international
tanker industry
The world tanker fleet (of 10,000 dwt and above) expanded from
274.3 million dwt at the beginning of 1996 to
439.1 million dwt at the start of February 2010,
constituting a 60% expansion in just over 14 years. As of
1st February 2010, VLCCs made up 37% of the fleet in dwt
terms, Suezmax tankers made up 14% in dwt terms and Aframax
tankers made up 20% of the fleet in dwt terms. The chart below
shows the development of the historical tanker fleet.
Source: Clarkson Research, February 2010
The level of newbuilding orders is a function primarily of
newbuilding prices in relation to current and anticipated
charter market conditions. The orderbook indicates the number of
confirmed shipbuilding contracts for newbuilding vessels that
are scheduled to be delivered into the market and is an
indicator of how the global supply of vessels will develop over
the next few years. At the start of February 2010, the world
tanker orderbook for vessels above 10,000 dwt was
128.5 million dwt, equivalent to 29% of the existing fleet.
46% of the total tanker orderbook is due for delivery by the end
of 2010. The outstanding orderbook includes some vessels that
were not delivered in 2009 and have been re-scheduled to be
delivered in 2010. The orderbook profile for deliveries to the
end of 2010 is particularly heavy at 14% of the fleet. However,
12% of the current fleet is non double-hull, the majority of
which will have to be phased out, converted, retro-fitted, or
employed for other purposes by the end of 2010 if international
regulations are strictly enforced. A further 2% of the tanker
fleet is aged over 20 years and double hull.
The VLCC orderbook makes up almost 46% of the outstanding tanker
orderbook in dwt terms, with Suezmaxes accounting for 17% and
Aframaxes 13%. The majority of the tanker orderbook is due for
delivery before the end of 2011.
89
The international
tanker industry
The table below shows the fleet, orderbook and the planned
delivery schedule going forward.
Figure
16: Tanker Orderbook and Delivery Schedule
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
|
|
|
|
|
Orderbook
(OB)
|
|
|
% of Fleet On
Order for Delivery (by dwt):
|
|
|
2009 Non-
|
|
Class
|
|
Size
(Dwt)
|
|
|
Number
|
|
|
Million
Dwt
|
|
|
% of OB
|
|
|
% of
fleet
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013+
|
|
|
Total
|
|
|
Delivery
Rate
|
|
|
|
|
ULCC/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
200,000 & above
|
|
|
|
191
|
|
|
|
59.4
|
|
|
|
46.2
|
%
|
|
|
38.1
|
%
|
|
|
14.3
|
%
|
|
|
17.9
|
%
|
|
|
4.3
|
%
|
|
|
0.2
|
%
|
|
|
38.1
|
%
|
|
|
20.0
|
%
|
Suezmax
|
|
|
120,000-199,999
|
|
|
|
139
|
|
|
|
21.5
|
|
|
|
16.7
|
%
|
|
|
35.6
|
%
|
|
|
13.5
|
%
|
|
|
16.5
|
%
|
|
|
3.4
|
%
|
|
|
2.3
|
%
|
|
|
35.6
|
%
|
|
|
34.7
|
%
|
Aframax
|
|
|
80,000-119,999
|
|
|
|
155
|
|
|
|
17.0
|
|
|
|
13.2
|
%
|
|
|
19.3
|
%
|
|
|
10.7
|
%
|
|
|
6.9
|
%
|
|
|
0.6
|
%
|
|
|
1.1
|
%
|
|
|
19.3
|
%
|
|
|
11.3
|
%
|
Others
|
|
|
10-80,000 dwt
|
|
|
|
833
|
|
|
|
30.6
|
|
|
|
23.8
|
%
|
|
|
24.3
|
%
|
|
|
14.4
|
%
|
|
|
8.3
|
%
|
|
|
1.4
|
%
|
|
|
0.2
|
%
|
|
|
24.3
|
%
|
|
|
33.8
|
%
|
|
|
Total
|
|
|
>10,000 dwt
|
|
|
|
1,318
|
|
|
|
128.5
|
|
|
|
100.0
|
%
|
|
|
29.5
|
%
|
|
|
13.5
|
%
|
|
|
12.7
|
%
|
|
|
2.6
|
%
|
|
|
0.7
|
%
|
|
|
29.5
|
%
|
|
|
25.3
|
%
|
|
|
Source: Clarkson Research, 1st February 2010
Note:
Includes ships above 10,000 dwt only.
2009 non-delivery rates are estimates for 2009. Negative rates
imply over-delivery of orders
Note:
Going forward, the orderbook will be
influenced by delays, cancellations and the re-negotiation of
contracts. Due to these technical and contractual issues, there
is currently considerable uncertainty surrounding the orderbook.
The figures quoted above relate to the orderbook as at
1st February 2010 and take no account for these potential
delivery problems. Orderbook includes some orders originally
scheduled for 2009 delivery.
Delivering the orderbook will present a number of challenges,
both technical and financial. A proportion of ships on order
have been contracted at shipyards that are either currently
under construction (Greenfield Shipyards) or have
delivered their first vessels in the past two years. Some of
these projects are reported to be experiencing technical and
financial problems and it is therefore expected that
construction of some of the shipyards and vessels may be
delayed. However some non established yards are also proceeding
on schedule. Ship owners with vessels on order are also
experiencing financing problems as a result of the reduced
charter markets, declines in asset values and lack of bank
financing availability. The current tanker orderbook has an
estimated contract value of approximately $90 billion, with
the VLCC and Suezmax orderbooks estimated to have a contract
value of $27.5 billion and $12 billion. The average
contract price for VLCCs in the current orderbook is
$136 million compared to a current resale price of
$100 million and newbuilding price of $99 million. The
average contract price for Suezmaxes in the current orderbook is
$82 million compared to a current resale price of
$72 million and newbuilding price of $61.5 million.
Estimates of the proportion financed vary, but it is likely that
a significant proportion has yet to secure financing. As a
result, it is expected that there will be delays and
cancellations as a result of these financial challenges although
in some cases vessels will continue to be built and resold by
the yard involved.
Approximately 7% of the tankers on order have been contracted at
shipyards currently under construction and which have never
built ships before. 17% of the VLCC orderbook is on order at non
established yards, while the corresponding figure for the
Suezmax sector is 35%. A significant proportion of the non
established yards are Chinese but some non established yards are
also proceeding on schedule.
In the first eleven months of 2009, over 9.8 million dwt of
tanker tonnage were been reportedly cancelled, although
establishing accurate data is difficult. In addition, in 2009,
25.3% of deliveries expected to enter the fleet at the start of
the year were not delivered. Approximately 20.0% of VLCCs and
34.7% of Suezmax deliveries expected to enter the fleet at the
start 2009 were not confirmed as delivered. This is partly due
to statistical reporting delays but also because of delays in
construction and cancellations of orders. It is expected that
cancellation levels will increase, although estimates vary
significantly. Despite these delays and cancellations, there are
still a considerable number of vessels to be delivered within
the next few years and these deliveries may put downward
pressure on charter rates or vessel prices.
90
The international
tanker industry
Source: Clarkson Research,
February 2010
At any point in time, the level of scrapping activity is a
function primarily of scrapping prices in relation to current
and prospective charter market conditions, as well as operating,
repair and survey costs, which are in turn sometimes determined
by industry regulations. Insurance companies and customers rely
on the survey and classification regime to provide reasonable
assurance of a tankers seaworthiness and tankers must be
certified as in-class in order to continue to trade.
Tanker demolition (above 10,000 dwt) averaged 16.6 million
dwt per annum between 2000 and 2003 but fell to 8.0 million
dwt in 2004 and 4.0 million dwt in 2005, with a buoyant
market encouraging owners to prolong the life of their elderly
vessels. Despite record high scrap prices in 2006 and 2007,
demolition fell to 3.0 million dwt per annum, due to the
firm freight market encouraging owners to keep their ships in
the market. However, a further 5.1 million dwt of tankers
were converted out of the fleet during 2007. Inflated vessel
earnings over the course of 2008 saw few vessels sold for scrap:
only 76 vessels (representing 4.1 million dwt) were
scrapped. A total of 130 vessels representing
8.4 million dwt were sold for scrap in 2009. Scrap prices
have decreased from $700 per ldt in July 2008 to $320 per ldt at
the end of October 2009 but have since firmed to above $400 per
ldt at the start of February 2010. In the final quarter of 2009,
2 VLCCs, 3 Suezmaxes and 10 Aframaxes were sold for demolition.
In total in 2009, 30 VLCCs of 8.2 million dwt and 17
Suezmaxes of 2.6 million dwt were removed from the fleet
due to conversion and demolition.
Source: Clarkson Research,
February 2010
91
The international
tanker industry
A number of single-hull tankers, the majority of which are
VLCCs, have been converted or are under conversion to the dry
bulk or offshore markets. Most of these vessels have undergone
these conversions several years ahead of their phase-out
timetable under IMO regulations. In 2008, approximately
11.3 million dwt of tankers were converted out of the fleet
while in 2009 there were approximately 10.5 million dwt
converted. There will be further conversions to dry bulk or
offshore purposes going forward, although it is expected that
this will be at significantly lower levels. During 2009, 8
single hull VLCCs were sold for demolition and 17 were reported
as sold in the sale and purchase market. The majority of the
sale and purchase market transactions involve plans to convert
tonnage to offshore or dry bulk purposes. Middle Eastern sellers
have been particularly active in selling single hull VLCCs to
South America buyers with some ear-marked for conversion into
dry bulk carriers to service the Brazil-China iron ore trade.
REGULATORY
ENVIRONMENT
The seaborne transportation of crude oil, refined petroleum
products and edible oils is subject to regulatory measures
focused on increasing safety and providing greater protection
for the marine environment at global and local levels.
Governmental authorities and international conventions have
historically regulated the oil and refined petroleum products
transportation industry, and since 1990 the emphasis on
environmental protection has increased. Legislation and
regulations such as OPA, IMO protocols, and classification
society procedures demand higher-quality vessel construction,
maintenance, repair and operations. This development has
accelerated in recent years in the wake of several high-profile
accidents involving
1970s-built
ships of single-hull construction, including the
ERIKA in 1999 and the PRESTIGE in
November 2002. A summary of selected regulations pertaining to
the operation of tankers is shown in the table below.
92
The international
tanker industry
Figure
19: Summary of Selected Shipping Regulations
|
|
|
|
|
|
|
Introduced/
|
|
|
Regulation
|
|
Modified
|
|
Features
|
|
|
OPA
|
|
1989
|
|
Single-hull tankers banned by 2010 in the U.S.
|
|
|
|
|
Double-sided and double-bottom tankers banned by 2015.
|
IMO MARPOL Regulation 13G
|
|
1992
|
|
Single-hull tankers banned from trading by their 25th
anniversary. All single-hull tankers fitted with segregated
ballast tanks may continue trading to their 30th anniversary,
provided they have had selected inspections. Newbuildings must
be double-hull.
|
IMO MARPOL Regulation 13G
|
|
2001
|
|
Phase-out of pre-MARPOL tankers by 2007. Remaining single-hull
tankers phased-out by 2015.
|
IMO MARPOL Regulation 13G (Now called Annex 1,
Regulation 20)
|
|
2003
|
|
Phase-out of pre-MARPOL tankers by 2005. Remaining single-hull
tankers phased-out by the end of 2010 or 2015, depending on port
and flag states. Single-hull tankers over 15 years of age
subject to Conditional Assessment Scheme.
|
|
|
IMO MARPOL Regulation 13H (Now called Annex 1,
Regulation 21)
|
|
2003
|
|
Single-hull tankers banned from carrying heavy oil grades by
2005, or 2008 for tankers between 600 -- 5,000 dwt.
|
EU 417/2002
|
|
1999
|
|
25-year-old single-hull tankers to cease trading by 2007 unless
they apply hydrostatic balance methods or segregated ballast
tanks. Single-hull tankers fitted with segregated ballast tanks
phased-out by 2015.
|
EU1723/2003
|
|
2003
|
|
Pre-MARPOL single-hull tankers banned after 2005. Remaining
single-hull tankers banned after 2010. Single-hull tankers
banned from carrying heavy oil grades by 2003.
|
MARPOL Annex II, International Bulk Chemical Code (IBC)
|
|
2004
|
|
Since January 1, 2007, vegetable oils which were previously
categorized as being unrestricted will now be required to be
carried in IMO II chemical tankers, or certain IMO III tankers
that meet the environmental protection requirements of an IMO II
tanker with regard to hull type (double-hull) and cargo tank
location.
|
|
|
Source: Clarkson Research, February 2010.
Recently ratified international regulations include (a) the
IMO regulations in 2003 to accelerate the phase-out of tankers
without double-hulls and (b) limiting the transportation of
fuel oil to double-hull vessels. As a result, oil companies
acting as charterers, terminal operators, shippers and receivers
are becoming increasingly selective with respect to the vessels
they are willing to accept, inspecting and vetting both vessels
and shipping companies on a periodic basis.
93
The international
tanker industry
The increasing focus on safety and protection of the environment
has led oil companies as charterers, terminal operators, flag
states, shippers and receivers to become increasingly selective
with respect to the vessels they charter, vetting both vessels
and shipping companies on a periodic basis or not allowing
vessels into port. This vetting can include, but is not limited
to, vessel condition, hull type, crewing, age and owner.
Although these vetting procedures and increased regulations
raise the operating cost and potential liabilities for tanker
vessel owners and operators, they strengthen the relative
competitive position of shipowners with higher quality tanker
fleets and operations. When chartering vessels on longer period
charters oil majors use additional vetting procedures which can
include increased officer vetting and past performance
consideration. Oil majors also tend to have a policy of
chartering vessels for time charters that are below ten years of
age. Analysis of chartering in the entire market shows that the
level of single-hulled tonnage chartered by oil majors has
dropped significantly in recent years.
The table below shows estimates of the number of VLCC, Suezmax
and Aframax tankers due to be phased out under IMO MARPOL
Annex I, Regulation 20 through 2010, alongside the
current orderbook for delivery through 2010. The analysis
assumes that the IMO phase-out program will be followed and that
flag and port states will not allow extensions for single-hull
vessels beyond 2010.
Figure
20: Tanker Phase-Out and Orderbook (assuming 2010
phase-out)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
Suezmax
|
|
|
Aframax
|
|
|
|
Phase-Out
1
|
|
|
Orderbook
2
|
|
|
Phase-Out
1
|
|
|
Orderbook
2
|
|
|
Phase-Out
1
|
|
|
Orderbook
2
|
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
No.
|
|
|
million
dwt
|
|
|
|
|
2010
|
|
|
87
|
|
|
|
23.89
|
|
|
|
75
|
|
|
|
23.16
|
|
|
|
24
|
|
|
|
3.52
|
|
|
|
53
|
|
|
|
8.14
|
|
|
|
34
|
|
|
|
3.17
|
|
|
|
85
|
|
|
|
9.36
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
28.97
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
9.95
|
|
|
|
3
|
|
|
|
0.30
|
|
|
|
56
|
|
|
|
6.10
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
6.96
|
|
|
|
1
|
|
|
|
0.13
|
|
|
|
13
|
|
|
|
2.03
|
|
|
|
4
|
|
|
|
0.39
|
|
|
|
5
|
|
|
|
0.55
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
0.32
|
|
|
|
3
|
|
|
|
0.45
|
|
|
|
9
|
|
|
|
1.40
|
|
|
|
3
|
|
|
|
0.32
|
|
|
|
5
|
|
|
|
0.54
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
0.09
|
|
|
|
4
|
|
|
|
0.428
|
|
2015
|
|
|
5
|
|
|
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
Total Phase-Out
|
|
|
92
|
|
|
|
25.39
|
|
|
|
191
|
|
|
|
59.41
|
|
|
|
33
|
|
|
|
4.84
|
|
|
|
139
|
|
|
|
21.51
|
|
|
|
55
|
|
|
|
5.28
|
|
|
|
155
|
|
|
|
16.97
|
|
Total Fleet
|
|
|
545
|
|
|
|
163.37
|
|
|
|
|
|
|
|
|
|
|
|
402
|
|
|
|
61.57
|
|
|
|
|
|
|
|
|
|
|
|
841
|
|
|
|
88.31
|
|
|
|
|
|
|
|
|
|
% of Fleet
|
|
|
|
|
|
|
15.5
|
%
|
|
|
|
|
|
|
36.4
|
%
|
|
|
|
|
|
|
7.9
|
%
|
|
|
|
|
|
|
34.9
|
%
|
|
|
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
19.2
|
%
|
|
|
Source: Clarkson Research, 1st February 2010.
Note 1:
Phase-out figures based on CRSL
estimates of IMO MARPOL Annex I, Regulation 20,
1st February 2010. It assumes phase-out of all single-hull
vessels at the 2010 deadline (although some vessels will benefit
from possible extensions granted by flag and port states), that
double-bottomed and double-sided vessels will trade to
25 years and that the average demolition age is
30 years.
Note 2:
Orderbook as at 1st February
2010. These figures are subject to change as a result of delay,
cancellation and further ordering. In 2009, recorded deliveries
were 25% lower than expected at the start of the year for all
tankers above 10,000 dwt while 3% of the scheduled 2009
deliveries have been removed completely from the orderbook.
Delays and cancellations are expected to increase but estimates
vary significantly.
The IMO phase-out applies to international voyages. Vessels may
continue to trade coastally.
If the strict phase-out is fully adhered to in 2010, the VLCC
fleet will contract for the first time since 2003 even assuming
the orderbook is delivered in full as scheduled. A total of 87
VLCCs are set to be phased out this year comprising
23.9 million dwt against an orderbook delivery schedule of
75 vessels of 23.2 million dwt. However, it is
uncertain as to whether the phase-out will be fully implemented
and a number of vessels have been granted extensions by their
flag states (see below) and may trade on.
A number of countries or regions have announced (either formally
to the IMO or via press statements) that they will not allow the
extended trading of non-double hull ships beyond 2010. These
include the United States, European Union, South Korea, Mexico,
China, Philippines and Australia. Other countries, such as oil
importing states Japan, India and Singapore have indicated they
will adopt a more
94
The international
tanker industry
flexible policy towards extensions. These status updates are
based on publicly reported dialogue with the IMO and related
press releases. It therefore remains possible that a significant
proportion of single-hull ships may continue to trade beyond
2010, increasing the global supply of tanker capacity and
putting downward pressure on rates. In addition, tankers may
continue to trade in coastal domestic waters. Political
decisions or oil spill incidents may change this flexible
attitude. After the 1993-built, single-hulled VLCC HEBEI
SPIRIT spilled 10,800 tons of crude oil in Korean
international waters in November 2007, South Korea modified its
policy towards single-hull vessels. Announcements from South
Korean refiners and government officials have stated that limits
on the number of single-hull vessels entering Korean ports will
be introduced ahead of the IMO phase out schedule in 2010. In
November 2009 it was reported by press sources that the main
Middle East bunkering port of Fujairah in the Arabian Gulf will
not permit laden single-hull tankers beyond January 1, 2010.
Further press reports in November 2009 suggested that China also
would not accept single hull tankers beyond January 2011.
However, no official confirmation has been posted publicly by
the IMO. Taiwan and Thailand remain the most active in terms of
non double-hull spot discharges, with 50% of Taiwan spot
fixtures in 2009 being non double-hulled and 66% of Thailand
discharges being non double-hulled. India has also seen growth
as a single-hull destination.
CHARTER
RATES & ASSET VALUES
Seaborne crude oil and oil products transportation is an
established industry. The two main types of oil tanker operators
are independent operators, both publicly-listed and private
companies, which charter out their vessels for voyage or time
charter use, and major oil companies (including state-owned
companies). At present, the majority of independent operators
hire their tankers for one voyage at a time in the form of a
spot charter at fluctuating rates based on existing tanker
supply and demand. Competition is based primarily on the offered
charter rate, the location, technical specification, and quality
of the vessel and the reputation of the vessels manager.
Oil tanker charter hire rates are sensitive to changes in demand
for and supply of vessel capacity and consequently are volatile.
Pricing of oil transportation services occurs in a highly
competitive global tanker charter market.
95
The international
tanker industry
Figure
21: Top Spot Fixture Charterers in 2009 Based on Cargoes
Carried
|
|
|
|
|
|
|
|
|
|
|
VLCC
2009
|
|
% of
Total
|
|
|
Suezmax
2009
|
|
% of
Total
|
|
|
|
|
1 UNIPEC
|
|
|
10.2
|
%
|
|
1 BP
|
|
|
5.3
|
%
|
2 IOC
|
|
|
6.7
|
%
|
|
2 CSSSA
|
|
|
5.3
|
%
|
3 BLUELIGHT
|
|
|
5.2
|
%
|
|
3 CLEARLAKE SHPG
|
|
|
5.3
|
%
|
4 RELIANCE
|
|
|
5.0
|
%
|
|
4 SHELL
|
|
|
4.8
|
%
|
5 SHELL
|
|
|
4.2
|
%
|
|
5 IOC
|
|
|
4.7
|
%
|
6 PETROCHINA
|
|
|
3.7
|
%
|
|
6 EXXONMOBIL
|
|
|
4.3
|
%
|
7 SK CORP
|
|
|
3.6
|
%
|
|
7 PETROBRAS
|
|
|
3.9
|
%
|
8 BP
|
|
|
3.4
|
%
|
|
8 VITOL
|
|
|
3.7
|
%
|
9 GLASFORD
|
|
|
3.4
|
%
|
|
9 CHEVRON
|
|
|
3.6
|
%
|
10 EXXONMOBIL
|
|
|
3.2
|
%
|
|
10 REPSOL
|
|
|
3.0
|
%
|
11 GS CALTEX
|
|
|
2.7
|
%
|
|
11 CONOCO
|
|
|
2.5
|
%
|
12 CPC
|
|
|
2.6
|
%
|
|
12 BPCL
|
|
|
2.5
|
%
|
13 SSANGYONG
|
|
|
2.1
|
%
|
|
13 UNIPEC
|
|
|
2.4
|
%
|
14 FORMOSA
|
|
|
2.1
|
%
|
|
14 MERCURIA
|
|
|
2.3
|
%
|
15 HMM
|
|
|
2.1
|
%
|
|
15 SUN
|
|
|
2.3
|
%
|
16 VITOL
|
|
|
2.0
|
%
|
|
16 CEPSA
|
|
|
2.2
|
%
|
17 ZHUHAI ZHENRONG
|
|
|
2.0
|
%
|
|
17 HESS
|
|
|
2.1
|
%
|
18 THAI OIL
|
|
|
2.0
|
%
|
|
18 VALERO
|
|
|
1.9
|
%
|
19 CONOCO
|
|
|
2.0
|
%
|
|
19 SUNOCO
|
|
|
1.8
|
%
|
20 KOCH
|
|
|
1.9
|
%
|
|
20 PETROGAL
|
|
|
1.6
|
%
|
Source: Clarkson Research, February 2010.
Note:
Based on publicly reported spot fixtures
and is not comprehensive of all movements.
In the years prior to 2009, the tanker market had seen a much
closer demand-supply balance than before. The slow removal of
the large oversupply of tankers evident in the 1980s, combined
with resurgent oil demand, led to the conditions experienced
between 2004 and 2008 when the fine demand-supply balance led to
increasing volatility and generally higher freight rates. During
this period, there were a series of significant spikes in
freight rates: including the beginning of 2004, the
summer/autumn of 2004, the autumn of 2005 and the summer of
2006. Various factors contributed to these spikes. Strong
underlying economic and oil demand growth; strong seasonal
demand, low stock prices, strong Chinese and U.S. demand,
congestion, hurricanes; and geopolitical events such as the shut
down of Venezuelan oil refineries and political instability in
Nigeria. Another important factor is sentiment; if there is a
tight supply and demand balance, market participants expect
rates to climb when unexpected events occur, and this sentiment
can drive the market. Sentiment can also help drive the market
downwards. Freight rates remained high from the winter of 2007
until the final quarter of 2008. Freight rates had a near record
year in 2008 with VLCC earnings peaking at $171,267 per day on
May 16. Following a relatively resilient winter, rates fell
through the spring of 2009 as the global economic situation
worsened. A seasonal increase in demand caused by a cold weather
snap in the northern hemisphere saw chartering rates improve in
the final few months of 2009 and into 2010. In 2009, VLCC spot
earnings averaged $36,671 per day, 63% down on the 2008 average.
Earnings for VLCCs and Suezmaxes were given support through much
of 2009 due to the continued use of larger vessels for
short-term floating storage. Estimates put the total volume of
crude and products being held in tankers as a result of this
short-term floating storage at 130 million barrels at the
height of storage activities in April 2009, principally on VLCCs
and Suezmaxes. Estimates vary but around 40 VLCCs were engaged
in the short-term storage through April 2009. By the end of the
year the oil price contango still prompted the use of tankers
but estimates put the number of VLCCs engaged at around at 30 at
the end of December 2009.
96
The international
tanker industry
The following graph shows the historical development of crude
tanker spot earnings for modern VLCCs, Suezmaxes and Aframaxes.
Spot earnings for modern vessels are typically higher than those
for older tonnage.
Source: Clarkson Research,
February 2010
Note:
Average timecharter equivalent earnings
as calculated by Clarkson Research using the assumptions for
VLCC, Suezmax and Aframax tankers described in Shipping
Intelligence Weekly. Data to February 2010. There is no
guarantee that current rates are sustainable and rates may
increase or decrease significantly over short periods of time.
Figure
23: Historical Tanker Earnings, Nominal and Inflation
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
Suezmax
|
|
|
Aframax
|
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
|
|
2009
|
|
|
36,511
|
|
|
|
36,455
|
|
|
|
27,096
|
|
|
|
27,064
|
|
|
|
15,760
|
|
|
|
15,746
|
|
2010-01
|
|
|
75,667
|
|
|
|
74,895
|
|
|
|
47,861
|
|
|
|
47,373
|
|
|
|
24,931
|
|
|
|
24,677
|
|
5 Year Avg
|
|
|
65,509
|
|
|
|
67,887
|
|
|
|
52,144
|
|
|
|
54,179
|
|
|
|
37,451
|
|
|
|
39,024
|
|
5 Year Peak
|
|
|
193,836
|
|
|
|
197,280
|
|
|
|
117,643
|
|
|
|
114,329
|
|
|
|
72,733
|
|
|
|
78,684
|
|
5 Year Trough
|
|
|
20,406
|
|
|
|
20,363
|
|
|
|
12,113
|
|
|
|
11,997
|
|
|
|
5,754
|
|
|
|
5,699
|
|
10 Year Avg
|
|
|
58,702
|
|
|
|
64,459
|
|
|
|
46,622
|
|
|
|
51,327
|
|
|
|
34,975
|
|
|
|
38,716
|
|
10 Year Peak
|
|
|
204,361
|
|
|
|
228,722
|
|
|
|
140,516
|
|
|
|
157,266
|
|
|
|
87,863
|
|
|
|
98,336
|
|
10 Year Trough
|
|
|
10,780
|
|
|
|
12,816
|
|
|
|
12,113
|
|
|
|
11,997
|
|
|
|
5,754
|
|
|
|
5,699
|
|
Source: Clarkson Research, February 2010
Note:
Inflation-adjusted values are based on
historical US Consumer Price Index, indexed October 2008
to September 2009. Prices are
evaluated at the end of each calendar month.
Note:
5 Year average is based on December
2004 to December 2009 end-month data. 10 Year average is
based on December 1999 to December 2009 end-month data. Basis
monthly observations.
Note:
The last ten years have been at
historical highs. See graphs and text for longer context.
Traditionally, tanker period timecharter activity has been low,
especially because a higher proportion of the tanker fleet was
owned by the oil majors. More recently the oil companies have
sought to spread the risk from carrying crude oil by engaging
independent tanker owners. There has been a long-term trends
towards oil majors reducing their levels of tanker ownership.
The independent tanker owner is looking to balance the security
of the long-term income stream from the timecharter against the
lost opportunity cost of playing the volatile but potentially
more lucrative spot market. In recent years the spot market has
been firm, and occasionally soared to new highs for crude
vessels. In these
97
The international
tanker industry
circumstances, independent owners have been reluctant to commit
to long-term timecharters, and prefer to have the option of
switching or keeping a proportion of their fleet in the spot
market. In 2006 there were 177 reported tanker timecharters,
falling to 151 in 2007, 157 in 2008 and 104 in 2009. In 2009,
there were a total of 28 VLCC timecharter fixtures, 11 Suezmax
timecharter fixtures and 31 Aframax timecharter fixtures. Some
owners and charterers have agreed to spot market based profit
sharing arrangements above a minimum base rate.
Figure
24: Tanker T/C Activity over One Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Fixtures
|
|
Year
|
|
VLCC
|
|
|
Suezmax
|
|
|
Aframax
|
|
|
|
|
1995
|
|
|
18
|
|
|
|
7
|
|
|
|
37
|
|
1996
|
|
|
12
|
|
|
|
12
|
|
|
|
29
|
|
1997
|
|
|
7
|
|
|
|
15
|
|
|
|
37
|
|
1998
|
|
|
7
|
|
|
|
11
|
|
|
|
15
|
|
1999
|
|
|
15
|
|
|
|
4
|
|
|
|
22
|
|
2000
|
|
|
19
|
|
|
|
14
|
|
|
|
31
|
|
2001
|
|
|
26
|
|
|
|
7
|
|
|
|
58
|
|
2002
|
|
|
22
|
|
|
|
11
|
|
|
|
25
|
|
2003
|
|
|
27
|
|
|
|
12
|
|
|
|
38
|
|
2004
|
|
|
25
|
|
|
|
13
|
|
|
|
51
|
|
2005
|
|
|
14
|
|
|
|
19
|
|
|
|
39
|
|
2006
|
|
|
29
|
|
|
|
22
|
|
|
|
40
|
|
2007
|
|
|
22
|
|
|
|
16
|
|
|
|
34
|
|
2008
|
|
|
14
|
|
|
|
28
|
|
|
|
53
|
|
2009
|
|
|
28
|
|
|
|
11
|
|
|
|
31
|
|
Source: Clarkson Research, February 2010
Note:
Based on publicly reported fixtures and
is not comprehensive.
98
The international
tanker industry
The graph below shows the movements in time charter rates for
VLCC, Suezmax and Aframax tankers over a longer period. The
estimated one year timecharter rate for a VLCC as at beginning
of February 2010 was $40,000 per day, compared to a ten year
average of $48,008 per day and a twenty year average of $36,863
per day. The inflation adjusted averages over the same periods
are $52,518 per day and $44,469 per day. The estimated one year
timecharter rate for a Suezmax as at beginning of February 2010
was $29,000 per day, compared to a ten year average of $35,807
per day and a twenty year average of $26,834 per day. The
inflation adjusted averages over the same periods are $39,275
per day and $32,302 per day.
Figure
25: Historical Tanker One Year T/C Rates, Nominal and Inflation
Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
Suezmax
|
|
|
Aframax
|
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
$/day
|
|
|
|
|
2009
|
|
|
39,550
|
|
|
|
39,484
|
|
|
|
30,502
|
|
|
|
30,446
|
|
|
|
20,042
|
|
|
|
20,001
|
|
2010-01
|
|
|
38,200
|
|
|
|
37,811
|
|
|
|
27,600
|
|
|
|
27,319
|
|
|
|
18,200
|
|
|
|
18,015
|
|
5 Year Avg
|
|
|
57,052
|
|
|
|
59,137
|
|
|
|
41,735
|
|
|
|
43,324
|
|
|
|
31,362
|
|
|
|
32,602
|
|
5 Year Peak
|
|
|
90,000
|
|
|
|
87,465
|
|
|
|
55,625
|
|
|
|
61,670
|
|
|
|
43,500
|
|
|
|
44,259
|
|
5 Year Trough
|
|
|
31,000
|
|
|
|
30,684
|
|
|
|
24,000
|
|
|
|
23,755
|
|
|
|
17,000
|
|
|
|
16,827
|
|
10 Year Avg
|
|
|
48,008
|
|
|
|
52,518
|
|
|
|
35,807
|
|
|
|
39,275
|
|
|
|
27,155
|
|
|
|
29,891
|
|
10 Year Peak
|
|
|
90,000
|
|
|
|
96,531
|
|
|
|
58,750
|
|
|
|
65,753
|
|
|
|
43,500
|
|
|
|
47,286
|
|
10 Year Trough
|
|
|
20,375
|
|
|
|
24,064
|
|
|
|
18,000
|
|
|
|
21,259
|
|
|
|
12,000
|
|
|
|
15,242
|
|
Source: Clarkson Research, February 2010
Note:
Inflation-adjusted values are based on
historical US Consumer Price Index, indexed October 2008
to
September 2009. Prices are evaluated at the end of each calendar
month.
Note:
5 Year average is based on December
2004 to December 2009 end-month data. 10 Year average is
based on December 1999 to December 2009 end-month data. Basis
monthly observations.
Note:
The last ten years have been at
historical highs. See graphs and text for longer context.
These trends are shown in the second graph below.
Source: Clarkson Research,
February 2010
Note:
The vessels used in these time charter
estimates are standard modern vessels in this market sector.
Clarkson brokers estimate timecharter rates each week for these
standard vessels, which is informed by transactions and
99
The international
tanker industry
ongoing negotiations associated
with vessels of similar size. There is often a bid offer spread
between owners and charterers, and the above reflects published
owners prices.
Source: Clarkson Research, February 2010
Note:
Inflation-adjusted values are based on
historical US Consumer Price Index, indexed October 2008 to
September 2009. The vessels used in these time charter estimates
are standard modern vessels in this market sector. Clarkson
brokers estimate timecharter rates each week for these standard
vessels, which is informed by transactions and ongoing
negotiations associated with vessels of similar size. There is
often a bid offer spread between owners and charterers, and the
above reflects published owners prices.
There is a relationship between changes in asset values and the
tanker charter market. A reduction in charter rates caused by a
decrease in demand for or an increase in the supply of tanker
vessels would reduce vessel prices, although there can be a lag
in the change in vessel prices. The secondhand market is
composed of two sectors: the market for vessels changing hands
between owners and the market for the demolition of ships, with
breakers competing for vessels ready to be sold for scrap. The
newbuilding market for ships is made up of owners looking to
place contracts for new vessels and the shipyards building them.
Newbuilding prices increased significantly between 2003 and the
summer of 2008, primarily as a result of increased tanker demand
for new tonnage in response to increased demand for oil, higher
charter rates, regulations requiring the phase-out of
single-hull tankers, constrained shipyard capacity and rising
steel, equipment and labour prices (which contributed to a
significant increase in shipyard costs). In addition, as a
result of strong demand for other types of vessels, shipyard
capacity, especially for large vessels, has been booked several
years in advance, further contributing to the increased prices
of newbuildings. The dearth of contracting activity which has so
far characterized the current shipping downturn has seen yards
reduce prices in an attempt to attract fresh business. Current
newbuilding prices are significantly below the peaks reported at
the height of the market in the summer of 2008. Contracting
activity in 2009 was limited due to low freight rates, the poor
market outlook and difficulties in securing financing. In the
medium term, shipbuilding capacity is growing strongly and may
lead to weakening prices in a period of weaker shipbuilding
demand.
100
The international
tanker industry
Source: Clarkson Research,
February 2010
Note:
Prices are evaluated at the end of each
calendar month. From the start of October 2008 onwards,
newbuilding prices have become uncertain due to the lack of
concluded contracts. Newbuilding prices assume European
spec., Standard payment schedules and first class
competitive yards quotations.
Source: Clarkson Research,
February 2010
Note:
Prices are evaluated at the end of each
calendar month. From the start of October 2008 onwards,
newbuilding prices have become uncertain due to the lack of
concluded contracts. Newbuilding prices assume European
spec., Standard payment schedules and first class
competitive yards quotations. Inflation-adjusted values
are based on historical US Consumer Price Index, indexed October
2008 to September 2009. Prices are evaluated at the end of each
calendar month.
The secondhand sale and purchase market for tankers has
traditionally been relatively liquid, with tankers changing
hands between owners on a regular basis. Oil tanker secondhand
prices are influenced by potential earnings and as a result of
trends in the supply of, and demand, for tanker capacity.
Secondhand prices peaked over the summer of 2008 and have since
progressed on a downward declined. As of February 2010, resale
values for crude tankers have retreated below newbuilding prices
and
5-year-old
values have dropped to around half of the peak in summer 2008.
The market for secondhand crude tankers was very active in 2007
and in 2008, with 370 and 257 recorded sales respectively. In
2009, however, activity has been much lower with only 166 tanker
sales reported. Only 26 VLCC tankers, 17 Suezmax tankers and 32
Aframax tankers have been sold during this period with
relatively few of these being modern vessels. The following
graphs show the long term historical development of a resale
VLCC (newbuilding with prompt delivery) and
5-year-old
secondhand VLCC, Suezmax and Aframax prices. An inflation
adjusted trend is also shown.
101
The international
tanker industry
Source: Clarkson Research,
February 2010
Note:
Prices are evaluated at the end of each
calendar month. Due to market turbulence and an unusually
complex sale and purchase market, no secondhand price updates
have been published by CRSL since the start of October 2008.
There have been periods of uncertainty surrounding secondhand
prices and the values provided since October 2008 are subject to
wider than usual confidence margins.
Source: Clarkson Research,
February 2010
Note:
Inflation-adjusted values are based on
historical US Consumer Price Index, indexed October 2008 to
September 2009. Prices are evaluated at the end of each calendar
month. Due to market turbulence and an unusually complex sale
and purchase market, no secondhand price updates have been
published by CRSL since the start of October 2008. There have
been periods of uncertainty surrounding secondhand prices and
the values provided since October 2008 are subject to wider than
usual confidence margins.
Five year old VLCC prices as of February 2010 are estimated to
be approximately $80 million, compared to a five year
average of $116 million, a ten year average of
$92 million, a twenty year average of $75 million and
a thirty year average of $58 million. On an inflation
adjusted basis, these averages are $121 million,
$100 million, $92 million and $77 million. The
peak price for a 5 year-old VLCC was estimated as
$165 million in August 2008, while the lowest price over
the past ten years on an inflation adjusted basis was
$63 million in 2002 ($53 million on a non-adjusted
basis). Five year old Suezmax prices as of February 2010 are
estimated to be approximately $59 million, compared to a
five year average of $79 million and a ten year average of
$63 million, a twenty year average of $51 million and
a twenty seven year average of $40 million. On an inflation
adjusted basis these averages are $82 million,
$68 million, $62 million and $53 million. The
peak price for a 5 year-old Suezmax was
102
The international
tanker industry
$105 million in September 2008, while the lowest price over
the past ten years on an inflation adjusted basis was
$38 million in 2002 ($45 million on a non-adjusted
basis).
Figure
32: Resale and 5 Year Old Asset Values Summary
Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
Resale
|
|
|
VLCC 5 Year
Old
|
|
|
Suezmax
5 Year Old
|
|
|
Aframax
5 Year Old
|
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
Nominal
|
|
|
Inflation
Adjusted
|
|
|
|
$
million
|
|
|
$
million
|
|
|
$
million
|
|
|
$
million
|
|
|
$
million
|
|
|
$
million
|
|
|
$
million
|
|
|
$
million
|
|
|
|
|
2009
|
|
|
107
|
|
|
|
106
|
|
|
|
85
|
|
|
|
84
|
|
|
|
60
|
|
|
|
60
|
|
|
|
44
|
|
|
|
44
|
|
2010-01
|
|
|
100
|
|
|
|
99
|
|
|
|
80
|
|
|
|
79
|
|
|
|
59
|
|
|
|
58
|
|
|
|
44
|
|
|
|
44
|
|
5 Year Avg
|
|
|
138
|
|
|
|
142
|
|
|
|
116
|
|
|
|
121
|
|
|
|
79
|
|
|
|
82
|
|
|
|
62
|
|
|
|
64
|
|
5 Year Peak
|
|
|
195
|
|
|
|
190
|
|
|
|
165
|
|
|
|
161
|
|
|
|
105
|
|
|
|
103
|
|
|
|
79
|
|
|
|
77
|
|
5 Year Trough
|
|
|
98
|
|
|
|
97
|
|
|
|
79
|
|
|
|
78
|
|
|
|
54
|
|
|
|
54
|
|
|
|
39
|
|
|
|
39
|
|
10 Year Avg
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
100
|
|
|
|
63
|
|
|
|
68
|
|
|
|
49
|
|
|
|
53
|
|
10 Year Peak
|
|
|
|
|
|
|
|
|
|
|
165
|
|
|
|
161
|
|
|
|
105
|
|
|
|
103
|
|
|
|
79
|
|
|
|
77
|
|
10 Year Trough
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
63
|
|
|
|
35
|
|
|
|
44
|
|
|
|
26
|
|
|
|
31
|
|
|
|
Source: Clarkson Research, February 2010
Note:
Inflation-adjusted values are based on
historical US Consumer Price Index, indexed October 2008 to
September 2009. Prices are evaluated at the end of each calendar
month.
Note:
5 Year average is based on December
2004 to December 2009 end-month data. 10 Year average is
based on December 1999 to December 2009 end-month data.
Note:
VLCC resale values have only been
collected since May 2005, the 5 year average, peak and
trough is based on May 2005 to December 2009 end-month data.
Basis monthly observations.
Note:
The last ten years have been at
historical highs. See graphs and text for longer context.
103
BUSINESS
We are a newly formed transportation company incorporated in the
Marshall Islands in October 2009 to conduct a shipping business
focused on the crude tanker industry. We plan to acquire and
operate a fleet of crude tankers that will transport mainly
crude oil and fuel oil along worldwide shipping routes. Capital
Maritime, an international shipping company, will serve as our
Manager. We intend to leverage the expertise and reputation of
our Manager to pursue growth opportunities in the crude oil
tanker shipping market. We intend to maintain a flexible
approach to chartering with the strategy of optimizing our
selection of the available commercial opportunities over time.
We currently expect to focus on the spot market, including all
types of spot marketrelated engagement such as single
voyage or short-term time charters, but retain the ability to
evaluate and enter into longer-term period charters, including
time- and bareboat charters with terms that may provide for
profit sharing arrangements or with returns that are linked to
spot market indices. We may also charter-in vessels, meaning we
may charter vessels we do not own with the intention of
chartering them in accordance with our chartering and fleet
management strategy.
We have entered into agreements to acquire three modern,
high-specification vessels and will aim to grow our fleet
further through timely and selective acquisitions of vessels in
a manner that is accretive to our earnings, cash flow and net
asset value. We have entered into an agreement to acquire the
Initial Suezmax vessel from Capital Maritime, our Manager, at a
price of $71.25 million, the average of two independent
valuations. We have also entered into agreements to acquire two
newbuilt VLCCs for $96.5 million each. We will acquire the
Suezmax promptly following the consummation of this offering and
expect delivery of the VLCCs in March 2010 and June 2010. We
intend to finance our fleet primarily with equity and
internally-generated cash flow. We have entered into a signed
commitment letter with Nordea Bank Finland Plc, London Branch,
to obtain a new $100 million revolving credit facility. We
intend to utilize this credit facility opportunistically for the
future growth of the Company beyond the acquisition of our
initial fleet in a manner that will enhance our earnings, cash
flow and net asset value. We do not expect to use this credit
facility to acquire our initial fleet.
Our operations will be managed, under the supervision of our
board of directors, by Capital Maritime as our Manager. Upon the
closing of this offering, we will enter into a long-term
management agreement pursuant to which our Manager and its
affiliates will apply their expertise and experience in the
tanker industry to provide us with commercial, technical,
administrative and strategic services. The Management Agreement
will be for an initial term of approximately ten years and will
automatically renew for additional five-year periods unless
terminated in accordance with its terms. We will pay our Manager
fees for the services it provides us as well as reimburse our
Manager for its costs and expenses incurred in providing certain
of these services. In addition, if the Management Agreement is
terminated under certain circumstances, we will pay our Manager
a termination payment calculated in accordance with a
pre-established formula. Please read Our Manager and
Management AgreementManagement Agreement for further
information regarding the Management Agreement.
At or prior to the closing of this offering, Crude Carriers
Investments Corp., a related party to Capital Maritime, will
make a capital contribution to us of $40 million in
exchange for shares of our Class B Stock pursuant to the
Subscription Agreement at a price per share equal to the public
offering price in this offering. Our Class B Stock grants
holders 10 votes per share and therefore we expect Crude
Carriers Investments Corp. to have 49% of the voting power of
our shares (a percentage that would be higher absent the 49%
voting cap on shares of Class B Stock held by any
Class B Stock holder, including its affiliates). Upon the
completion of this offering, therefore, holders of our Common
Stock will have 51% of the voting power in the Company and will
have acquired that aggregate position for $270 million,
whereas Crude Carriers Investments Corp. will have 49% of the
voting power in the Company and will have acquired that position
for $40 million. Except as provided in the Subscription
Agreement, shares of our Common Stock and our Class B Stock
have equivalent economic rights. Upon
104
Business
certain transfers, shares of Class B Stock will convert to
shares of Common Stock on a one-for-one basis.
Under the Subscription Agreement, Crude Carriers Investments
Corp. will be entitled, so long as Capital Maritime or any of
its affiliates is our manager, to subscribe for an additional
number of shares of Class B Stock equal to 2.0% of the
number of shares of Common Stock issued after the consummation
of this offering, excluding any shares of Common Stock issuable
upon the exercise of the underwriters over-allotment
option in this offering. These additional shares of Class B
Stock would be issued to Crude Carriers Investments Corp. for
additional nominal consideration equal to their aggregate par
value of $0.0001 per share. Based on a capital contribution of
$40 million by Crude Carriers Investments Corp. and an
offering of shares at a price of $20.00 per share (the midpoint
of the expected offering price), Crude Carriers Investments
Corp. would therefore hold, at the completion of this offering,
2,000,000 shares of Class B Stock and a
12.9 percent economic interest in the Company, while the
holders of Common Stock would hold 13,500,000 shares of
Common Stock and a 87.1 percent economic interest in the
Company.
We intend to distribute to our shareholders on a quarterly basis
substantially all of our net cash flow less any amount required
to maintain a reserve that our Board determines is appropriate.
See Our Dividend Policy and Restrictions on
Dividends.
We have entered into a contract with Capital Maritime to acquire
the Initial Suezmax for $71.25 million, the average of two
valuations from independent ship brokers (one such broker valued
the Initial Suezmax at $71 million and another at between
$72 million and $71 million), by purchasing all of the
shares of the subsidiary of Capital Maritime that owns it. The
Initial Suezmax was constructed by Daewoo
Shipbuilding & Marine Engineering Co. Ltd. to include
high specification features, including increased maneuvering
capacity, adverse weather condition capacity (including ice with
a thickness of 0.8 meters or less) and the ability to transport
or store crude oil, fuel oil and clean petroleum products.
According to industry data, a total of four Suezmax vessels with
similar features have been built to date. Consummation of this
transaction is contingent on the completion of this offering and
it is expected to take place simultaneously with the completion
of this offering. The Initial Suezmax is currently employed in
the spot market. We believe that the terms of sale for the
Initial Suezmax are consistent with similar transactions between
unrelated third parties. We will acquire the Initial Suezmax
free of encumbrances except encumbrances that arise from the
Initial Suezmaxs current charter, if any.
Capital Maritime has agreed to purchase the Universal VLCCs for
$96.5 million each. Capital Maritime has made a 20% deposit
on these vessels. We have entered into contracts with Capital
Maritime to acquire its rights to purchase the subsidiaries that
hold the rights to the Universal VLCCs upon the consummation of
this offering in exchange for a payment equal to the deposit
made by Capital Maritime, plus a sale and purchase fee equal to
1% of the purchase price of the Universal VLCCs pursuant to the
Management Agreement. We expect the fee paid to Capital Maritime
in connection with the acquisition of each vessel to be $965,000
pursuant to our management agreement with Capital Maritime. We
have entered into these contracts with Capital Maritime rather
than contracting directly with the entities selling the
Universal VLCCs because we did not have the necessary funds
available to make the deposits necessary to secure the Universal
VLCCs when the opportunity to purchase them arose. Capital
Maritime had the means to capitalize on the acquisition
opportunity at the time it was presented. Upon the consummation
of this offering, we will bear the entire risk of the loss of
the $38.6 million deposit on the Universal VLCCs.
Substantially all of the proceeds of this offering and the
capital contribution from Crude Carriers Investments Corp. will
be used to purchase the Universal VLCCs and the Initial Suezmax.
There are various factors that will affect whether and at what
times we acquire vessels, but we currently estimate that we will
purchase and take delivery of the Initial Suezmax upon the
consummation of this offering,
105
Business
expect delivery of one Universal VLCC in March 2010 and expect
delivery of the other Universal VLCC in June 2010. We may enter
into additional contracts to acquire vessels prior to the
consummation of this offering. Various factors could affect our
vessel acquisition estimates, including delays in delivery of
the Universal VLCCs. Please read the various risks discussed
under Risk FactorsRisk Factors Related to Our
Planned Business & Operations, especially
Delays, cancellations or non-completion of
deliveries of newbuilding vessels could harm our operating
results, for more information.
Our initial fleet will be comprised of VLCC and Suezmax vessels,
and while we intend to evaluate all classes of tanker vessels,
including Aframax and Panamax tanker vessels, for potential
future acquisitions. We anticipate that our fleet will continue
to be comprised primarily of VLCC Suezmax vessels. In evaluating
additional vessel purchases, we plan to focus on modern vessels
with specifications that we believe will provide an attractive
return on equity and will be accretive to earnings and cash
flow. Based on current market prices, we expect the purchase
price for such vessels would likely be in a range from
$75 million to $100 million for a VLCC vessel and in a
range from $55 million to $75 million for a Suezmax
vessel. While total expenditures for our initial fleet will be
determined by many factors, including fleet composition and
market factors, see The International Tanker
IndustryCharter Rates & Asset Values, we
expect that such expenditures will be approximately equivalent
to the aggregate funds raised from this offering and contributed
by Crude Carriers Investments Corp. However, the timing and
amount of these expenditures may be subject to significant
fluctuations. See Risk FactorsRisk Factors Related
to Our Planned Business & OperationsIndustry
Specific Risk FactorsThe secondhand market for suitable
vessels is currently slow, which may impede our ability to
acquire suitable vessels and grow our fleet. In addition
to the Initial Suezmax, Capital Maritime currently owns one
additional modern, double-hull crude oil Suezmax tanker that we
may elect to review as a potential acquisition in the future.
Any purchase of a vessel from Capital Maritime or its affiliates
will be subject to the approval of our Board of Directors. Our
Board of Directors may (but is not obligated to) refer the
purchase to a committee of independent directors for a
recommendation, but our Board of Directors would not be bound by
such a recommendation. However, in considering such a
transaction, our Board of Directors will consider valuations of
the vessel generated by independent third-party brokers.
Following the consummation of this offering, we expect to grant
management options to purchase our Common Stock.
We intend to maintain a flexible approach to chartering with the
strategy of optimizing our selection of the available commercial
opportunities over time. We currently expect to focus on the
spot market, including all types of spot market-related
employment such as single voyage or short-term time charters,
but retain the ability to evaluate and enter into longer-term
period charters, including time- and bareboat charters with
terms that may provide for profit sharing arrangements or with
returns that are linked to spot market indices. Our goal is to
provide shareholders with the opportunity to invest in a company
with a strategic focus on the tanker market that intends to
maintain a strong balance sheet and seeks to distribute regular
dividends based on cash flows in excess of any amount required
to maintain a reserve that our Board determines is appropriate.
FOUNDATIONS OF
OUR BUSINESS
We believe that we will possess a number of strengths that will
provide us with a competitive advantage in the tanker shipping
industry, including the following:
|
|
Ø
|
Our Chairman and Chief Executive Officer, board of directors
and management team have experience in the shipping
industry.
Evangelos M. Marinakis, the Chairman of
our board of directors and our Chief Executive Officer, is the
founder and Chief Executive Officer of Capital Maritime and the
founder and Chairman of Capital Product Partners L.P., a
NASDAQ-listed product tanker company. Over the past
18 years, Mr. Marinakis has overseen the operations of
Capital
|
106
Business
|
|
|
Maritime and its predecessor companies as it has grown from its
initial fleet of 7 vessels to 36 owned, managed or
contracted vessels today, 19 of which are owned by Capital
Product Partners L.P. Mr. Marinakis has also overseen the
operations of Capital Product Partners L.P. since its inception
in 2007. Our management team also includes Ioannis E. Lazaridis,
our President and the Chief Executive and Chief Financial
Officer of Capital Product Partners L.P.; Gerasimos G.
Kalogiratos, our Chief Financial Officer, who has 8 years
of experience in the shipping and finance industries,
specializing in shipping finance and vessel acquisitions; and
Andreas C. Konialidis, our Chartering Manager, who has over
11 years of experience in the shipping industry,
specializing in chartering and commercial management of vessels,
and who will oversee our Managers chartering activities.
|
|
|
Ø
|
Our Manager has a track record in the commercial management
of vessels.
Our Manager has a demonstrated track
record of managing the commercial, technical and financial
aspects implicated by our business. Our Managers team is
experienced and has displayed expertise in identifying
profitable chartering and vessel sale and acquisition
opportunities, having purchased and sold a number of vessels and
negotiated numerous charters over the past two decades. We
expect the experience and expertise of our Manager and its
employees to be key to our growth.
|
|
Ø
|
We intend to pursue a strategy of low leverage to maintain a
strong balance sheet.
We will finance our initial
fleet primarily with equity and internally-generated cash flow.
We have entered into a signed commitment letter with Nordea Bank
Finland Plc, London Branch, to obtain a new $100 million
revolving credit facility. Any future vessel acquisitions are
expected to be financed primarily through future equity
follow-on offerings and internally-generated cash flow. We
intend to utilize this credit facility opportunistically for the
future growth of the Company beyond the acquisition of our
initial fleet in a manner that will enhance our earnings cash
flow and net asset value. We do not expect to use this credit
facility to acquire our initial fleet. In the event we utilize
our credit facility, we expect to maintain low levels of
leverage.
|
|
Ø
|
We intend to maintain an efficient management structure with
competitive operating costs.
Our Manager will
provide the commercial and technical management of our fleet
pursuant to the Management Agreement. Capital Maritime will
apply its experience in successfully managing the commercial and
technical operations of its own fleet, including overseeing and
arranging repairs, surveys, inspections in drydock, vetting by
charterers, budgeting, operations, sale and purchase
transactions and chartering in order to obtain the best possible
operating performance from the vessels in our fleet. We expect
to realize cost benefits based on a network of providers of
vessel supplies, bunkers suppliers, crewing agencies, insurers,
and other service providers that Capital Maritime and its
management team have established over the years. See Our
Manager and Management AgreementManagement
Agreement. We believe our management structure will
enhance the scalability of our business, allowing us to expand
our fleet without substantial increases in overhead costs.
|
|
Ø
|
We believe we will benefit from Capital Maritimes
history of satisfying the operational, safety, environmental and
technical vetting criteria imposed by oil majors and its
relationships within the shipping industry.
We
believe Capital Maritimes reputation within the shipping
industry and its network of relationships with many of the
worlds leading oil companies, commodity traders and
shipping companies will provide numerous benefits that are key
to our long-term growth and success. Capital Maritime is among a
limited number of shipping managers that have successfully
satisfied the operational, safety, environmental and technical
vetting criteria of some of the worlds most selective
major international oil companies, including BP p.l.c., Royal
Dutch Shell plc, StatoilHydro ASA, Chevron Corporation,
ExxonMobil Corporation and Total S.A., and has qualified to do
business with them. Although the worlds leading oil
companies do not disclose lists of companies qualified to do
business with them, we estimate that, historically, at any one
time less than approximately 30 shipping managers are qualified
to do so. Capital Maritime has also been
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qualified to charter vessels and enter into spot charter
agreements with major refiners and traders such as Sunoco Inc,
Koch Industries, Reliance Petrochemical Ltd, Vitol Group, ST
Shipping and Transport Pte Ltd (the shipping affiliate of
Glencore International AG), Trafigura Beheer BV., LITASCO SA (a
subsidiary of Lukoil Oil Company), NOC Petroleum Group, S.A.,
Independent Petroleum Group, Addax Petroleum Corporation (a
subsidiary of China Petrochemical Corporation) and Morgan
Stanley. As our Manager, Capital Maritimes qualification
to do business with these and other companies will allow us to
engage in commercial relationships with them without having to
satisfy their qualification requirements independently. We
believe that these relationships of our Manager and its track
record within the shipping industry are likely to lead to
greater asset acquisition and chartering opportunities for us
and will provide significant opportunities for future growth.
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We believe we will benefit from Capital Maritimes
ability to form strategic relationships with key players in the
shipping industry.
Capital Maritime has a history
of forming strategic relationships with key players in the
shipping industry including oil majors and traders. We believe
that the strategic relationships our Manager has cultivated and
its history of conducting repeat business will give us an
advantage in accessing certain business opportunities and
understanding our customers commercial requirements.
Although we may benefit from Capital Maritimes prior
relationships with oil majors and traders, vessels owned and
managed by Capital Maritime do not ship a significant percentage
of the worlds seaborne oil.
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We intend to acquire a modern, high-quality fleet of tanker
vessels.
Our initial fleet of vessels will have
high specifications and an average age of approximately one
year. Further vessel acquisitions will target modern vessels
with high specifications. We believe that owning a modern,
high-quality fleet is more attractive to charterers, reduces
operating costs and allows our fleet to be more reliable, which
improves utilization. The tanker shipping industry is highly
regulated and we aim to own and operate vessels that satisfy all
current and pending safety and environmental regulations. In
certain circumstances, we will seek to acquire sister ships that
we expect will provide further operating efficiencies. We expect
that the combination of these factors will provide us with a
competitive advantage in securing favorable employment for our
vessels.
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BUSINESS
STRATEGY
Our strategy is to manage and expand our fleet in a manner that
produces strong cash flows, which, in turn, fund dividends to
our shareholders. Key elements of our business strategy include:
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Strategically deploy our vessels in order to optimize the
opportunities in the chartering market.
We intend
to maintain a flexible approach to chartering with the strategy
of optimizing our selection of the available commercial
opportunities over time. We currently expect to focus on the
spot market, including all types of spot marketrelated
employment such as single voyage or short-term time charters,
but retain the ability to evaluate and enter into longer-term
period charters, including time- and bareboat charters with
terms that may provide for profit sharing arrangements or with
returns that are linked to spot market indices. We may also
charter-in vessels, meaning we may charter vessels we do not own
with the intention of chartering them in accordance with our
chartering and fleet management strategy.
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Strategically develop and grow our fleet.
We
intend to acquire modern, high-quality tanker vessels through
timely and selective acquisitions of vessels in a manner that is
accretive to our earnings and cash flow. We currently view VLCC
and Suezmax vessel classes as providing attractive return
characteristics but will evaluate all classes of crude oil
tanker vessels for potential acquisition, including Aframax and
Panamax tankers. A key element of our acquisition strategy will
be to pursue vessels at attractive valuations relative to the
valuation of our public equity. In the current market, asset
values in the tanker shipping industry are tending towards
levels significantly below average
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historical values. We believe that these circumstances present
an opportunity for us to seek to establish and then grow our
fleet at favorable prices.
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Return a substantial portion of our cash flow to shareholders
through quarterly dividends.
We intend to
distribute to our shareholders on a quarterly basis
substantially all of our net cash flow less any amount required
to maintain a reserve that our Board determines from time to
time is appropriate for the operation and future growth of our
fleet. See Our Dividend Policy and Restrictions on
Dividends.
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Maintain a strong balance sheet.
We believe
that primarily using equity and internally-generated cash flows
to finance our business will provide for a strong balance sheet
and, as a result, greater flexibility to capture market
opportunities. Although our use of equity rather than debt
financing may result in substantial dilution to our
shareholders, we believe that this approach is suited to the
current global economic conditions, including the relatively
restrictive credit environment. During periods of relatively low
charter rates, revenue may be significantly reduced and, for
levered companies, debt service can be a significant additional
burden and can further limit the opportunities available to such
companies by, for example, causing them to enter into long term
charters at historically low rates. Currently, the spot market
is experiencing a period of substantially low rates as compared
to historic averages. Historical tanker spot market rates have
been volatile as a result of the many conditions and factors
that can affect the price, supply and demand for tanker
capacity. The current global economic crisis has reduced demand
for transportation of oil over longer distances. It is our
current expectation that spot rates will increase as any
significant recovery in the world economy and demand and supply
of oil occurs. While a failure to recover from this crisis could
leave such rates stagnant or lead to a further decline, we
believe that having a strong balance sheet and trading in the
spot market will allow us to more quickly capture higher charter
rates when they increase while allowing us the flexibility to
take advantage of other attractive business opportunities when
they arise.
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Operate a high-quality fleet.
We intend to
maintain a modern, high-quality fleet that satisfies all current
and pending safety and environmental standards and complies with
charterer requirements through our Managers comprehensive
maintenance program. In addition, our Manager will maintain the
quality of our vessels by carrying out regular inspections, both
while in port and at sea.
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Maintain cost-competitive, highly efficient
operations.
Under the Management Agreement,
Capital Maritime will coordinate and oversee the commercial and
technical management of our fleet. We believe that Capital
Maritime will be able to do so at a cost to us that would be
competitive to what could be achieved by performing these
functions in-house and that Capital Maritimes rates are
competitive with those that would be available to us through
third-party managers. Vessels managed by Capital Maritime have
been distinguished as top performing vessels in the BP fleet in
the last two years. We expect the efficiency and operational
expertise of the Capital Maritime fleet to provide our vessels
with a competitive advantage over other charterers in the market.
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VESSEL
ACQUISITION AND SALES
At the time of this offering, we do not own any vessels.
Substantially all of the proceeds of this offering and the
capital contribution from Crude Carriers Investments Corp. will
be used to purchase the Initial Suezmax and the Universal VLCCs.
The Initial Suezmax and the Universal VLCCs will be held in
subsidiaries that will be wholly owned by Crude Carriers
Operating Corp., our wholly-owned subsidiary created to hold our
operating assets.
Acquisition of
the Initial Suezmax
We have entered into a contract with Capital Maritime to acquire
the Initial Suezmax for $71.25 million, the average of two
valuations from independent ship brokers (one such broker valued
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the Initial Suezmax at $71 million and another at between
$72 million and $71 million), by purchasing all of the
shares of Cooper, the subsidiary of Capital Maritime that owns
it. The Initial Suezmax was constructed by Daewoo
Shipbuilding & Marine Engineering Co. Ltd. to include
high specification features, including increased maneuvering
capacity, adverse weather condition capacity (including ice with
a thickness of 0.8 meters or less) and the ability to transport
or store crude oil, fuel oil and clean petroleum products.
According to industry data, a total of four Suezmax vessels with
similar features have been built to date. Consummation of this
transaction is contingent on the completion of this offering and
it is expected to take place simultaneously with the completion
of this offering. We currently estimate that we will purchase
and take delivery of the Initial Suezmax upon the consummation
of this offering. The Initial Suezmax is currently employed in
the spot market. We believe that the terms of sale for the
Initial Suezmax are consistent with similar transactions between
unrelated third parties. The Initial Suezmax is currently
subject to certain encumbrances. Among others, these
encumbrances include a mortgage entered into in connection with
Capital Maritimes financing of the purchase of the Initial
Suezmax, a joint and several guarantee with 13 other vessel
owning subsidiaries of a loan agreement entered into by Capital
Maritime on June 26, 2006 and a spot charter party
agreement entered into on or about January 18, 2010 for a
voyage that commenced on February 10, 2010 and is expected
to be completed between March 3-5, 2010. With our consent,
Capital Maritime may also enter the Initial Suezmax into other
charter agreements prior to the consummation of this offering.
Prior to consummating the sale of the Initial Suezmax, Capital
Maritime will cause the mortgage over the Initial Suezmax to be
released and will use its reasonable best efforts to cause the
cancellation and discharge of the other encumbrances on the
Initial Suezmax in connection with the financing. In the event
that Capital Maritime is unable to cancel and release the
encumbrances prior to the completion of the offering, the
contract between Capital Maritime and us provides that Capital
Maritime will indemnify us for any loss attributable to the
failure to cancel and release those encumbrances. See
Index to Financial StatementsCooper Consultants
Co.Notes to Financial Statements3(b) for a
description of the financing and the encumbrances it created. We
expect these encumbrances to be cancelled and released before or
at the completion of this offering.
In connection with the closing of this offering we will purchase
Capital Maritimes interests in its subsidiary that owns
the Initial Suezmax pursuant to a share purchase agreement (the
Initial Suezmax Share Purchase Agreement). The
payment for and delivery of the Initial Suezmax under the
Initial Suezmax Share Purchase Agreement is expected to take
place immediately following the consummation of this offering.
We will account for such acquisition as a transaction between
entities under common control and, accordingly, will record the
Initial Suezmax at its carrying amount to Cooper. Any difference
between such carrying amount and the purchase price of the
Initial Suezmax will be recorded in equity. The carrying amount
of Initial Suezmax at December 31, 2009 was
$76.24 million while its market value based on the average
of two valuations from independent ship brokers was
$71.25 million. Cooper classifies the Initial Suezmax as a
long-lived asset held and used for purposes of its impairment
analysis at December 31, 2009 and will continue such
classification at the transfer date. Cooper will perform an
impairment analysis of the carrying amount of Initial Suezmax at
the transfer date noting that, among other factors, its carrying
amount exceeds its market value. We do not, however, expect that
Cooper will record an impairment loss as we expect that the
undiscounted cash flows expected to result from the use and
eventual disposition of Initial Suezmax will exceed its carrying
amount. See Managements Discussion and Analysis of
Financial Condition and Results of OperationsCritical
Accounting PoliciesVessel Acquisitions for a
description of our accounting for the acquisition of the Initial
Suezmax and Managements Discussion and Analysis of
Financial Condition and Results of OperationsCritical
Accounting PoliciesImpairment on Long-Lived Assets
for a description of how we determine impairment loss for
long-lived assets.
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Acquisition of
the Universal VLCCs
The two Universal VLCCs are being built pursuant to two
shipbuilding contracts that will not be assigned to us, entered
into by Universal and the VLCC Sellers. Capital Maritime has
agreed to purchase the right to take delivery of the Universal
VLCCs and all other rights in the vessels from the VLCC Sellers
for $96.5 million each. Capital Maritime has made a 20%
deposit on each of these vessels and is obligated to pay the
remainder of the purchase price upon the delivery of the
vessels. Capital Maritimes rights in respect of the
Universal VLCCs and related liabilities are confined to two
wholly owned vessel-owning subsidiaries. We have entered into
two share purchase agreements with Capital Maritime to acquire
these vessel-owning subsidiaries (the Universal VLCC Share
Purchase Agreements), and therefore, Capital
Maritimes rights with respect to the Universal VLCCs upon
the consummation of this offering. Pursuant to each share
purchase agreement we will be required to make a payment equal
to the deposit made by Capital Maritime and pursuant to the
Management Agreement we will be required to pay a sale and
purchase fee equal to 1% of the purchase price of the Universal
VLCCs. We expect the fee paid to Capital Maritime in connection
with the acquisition of each vessel to be $965,000 pursuant to
our Management Agreement with Capital Maritime. Upon
consummation of each of the Universal VLCC Share Purchase
Agreements, we have also agreed to use our best efforts to
procure the termination and release of the Managers
obligations as a guarantor under the vessel purchase agreements,
and assume this guarantee if necessary. We have entered into
these contracts with Capital Maritime rather than contracting
directly with the entities selling the Universal VLCCs because
we did not have the necessary funds available to make the
deposits necessary to secure the Universal VLCCs when the
opportunity to purchase them arose. Capital Maritime had the
means to capitalize on the acquisition opportunity at the time
it was presented. Upon the consummation of this offering, we
will bear the entire risk of the loss of the $38.6 million
deposit on the Universal VLCCs.
We currently expect to take delivery of each Universal VLCC upon
its completion and its purchase by the respective vessel-owning
subsidiary. We expect delivery of one Universal VLCC on or about
March 26, 2010 and expect delivery of the other Universal
VLCC on or about June 25, 2010. We will pay the balance of
the cost of each Universal VLCC at least two business days prior
to the expected date of delivery of the relevant Universal VLCC.
With our consent, Capital Maritime may enter the Universal VLCCs
into charter agreements prior to delivery of the Universal VLCCs
to us.
If the Universal VLCCs are not ready for delivery on
April 15, 2010 and July 15, 2010, respectively, the
applicable vessel-owning subsidiary will have the right to
terminate its agreement to acquire the vessel from the
applicable VLCC Seller. The VLCC Sellers have retained the right
to cancel their obligation to take delivery of the Universal
VLCCs from the shipyard in certain circumstances, including if
the shipyard fails to make the applicable Universal VLCC ready
for delivery on or before the relevant canceling date or if the
shipyard defaults in the delivery of the Universal VLCC
according to the terms of the relevant contract. There are also
certain circumstances in which the shipyard may cancel its
contracts with the VLCC Sellers, including if the VLCC Sellers
fail to make outstanding construction payments on the Universal
VLCCs to the shipyard. In each of these circumstances, the
failure to deliver the vessel would allow us to trigger the
termination right described above, but we have no right to
perform the VLCC Sellers obligations under the
shipbuilding contracts on their behalf.
The trial runs of each Universal VLCC will be supervised by the
applicable VLCC Seller, which, under each of the Universal VLCC
Share Purchase Agreements, has committed to allow observers and
certain initial crew members designated by the relevant
vessel-owning subsidiary to attend the sea trials and any
additional tests. The vessel-owning subsidiaries will otherwise
take delivery of the Universal VLCCs as-is from the VLCC
Sellers, with no further right of inspection.
For a
12-month
period that begins once a vessel has been delivered to the
applicable VLCC Seller and continues following its delivery to
the applicable vessel-owning subsidiary, the shipyard guarantees
each vessel in its entirety against all defects in the vessel
which are due to defective material
and/or
poor
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workmanship on the part of the shipyard
and/or
its
subcontractors, provided that such defects are not in any part
of the vessel which may have been replaced or repaired by any
other contractor subsequent to the vessels delivery, or
have not been caused or aggravated by our omission or improper
use and maintenance of the vessel, by ordinary wear and tear or
by any other circumstance beyond the shipyards control. We
will not be entitled to enforce such warranties directly against
the shipyard, but the VLCC Sellers have undertaken to process
and enforce them on behalf of the vessel-owning subsidiaries.
The shipyard will remedy at its expense any vessel defects that
are guaranteed pursuant to the terms of the contract. The
shipyard is not responsible for any consequential or special
loss, damage or expense including, but not limited to, loss of
time, loss of profit or loss of earnings incurred as a result of
such defects.
Vessel
Acquisitions Generally
We may enter into additional contracts to acquire vessels prior
to the consummation of this offering. Various factors could
affect our vessel acquisition estimates, including delays in
delivery of the Universal VLCCs. Please read the various risks
discussed under Risk FactorsRisk Factors Related to
Our Planned Business & Operations, especially
Industry Specific Risk FactorsDelays, cancellations
or non-completion of deliveries of newbuilding vessels could
harm our operating results, for more information.
Vessels available for sale are usually marketed through a
worldwide network of shipping brokers. While certain of such
sale candidates are marketed openly, a number of candidates are
presented to a limited number of shipping companies, including
companies with an established and favorable sales and purchase
track record. We believe that Capital Maritimes reputation
in the shipping industry and its relationships with a number of
shipbrokers, shipowners, commercial banks and shipyards
worldwide will provide access to many such acquisition
opportunities. In his capacity as Chief Executive Officer of
Capital Maritime and its predecessor companies, our Chairman and
Chief Executive Officer has completed numerous sale and purchase
transactions of tankers and other vessels over the last
14 years. In addition, we believe that Capital
Maritimes network of relationships with oil majors,
traders and key charterers worldwide and its strategic
relationships will allow us to identify the vessel type and
specifications that are in demand for specific business
opportunities that might arise.
Sales of operating vessels generally are affected pursuant to a
standardized Memorandum of Agreement (MOA), which,
among other terms, provides the buyer with the right to inspect
the vessel and the vessels classification society records
and stipulates the time period and geographical range where the
vessel will be delivered to the buyer. In certain instances, an
agreement is reached between the buyer and the seller subject to
the final confirmation of specified terms and conditions by
either or both parties within a specified period of time. In
general, at the time such terms and conditions are deemed
satisfied the buyer will be required to pay a deposit into a
joint account, which is released to the sellers on the
consummation of the sale. The seller undertakes to deliver the
vessel in the condition set out in the agreement including
compliance with class and rules and regulations of the
vessels country of registry and typically will undertake
to deliver the vessel without any mortgage or lien and to
indemnify the new owner from any claims pending under the
sellers ownership.
In certain instances, we may consider purchasing newbuilt
vessels for prompt delivery directly from the shipyards pursuant
to newbuilding construction contracts or contracting tanker
vessels for later delivery pursuant to a MOA. In connection with
the contracting of newbuildings, purchasers generally are
required to make installment payments prior to their delivery.
Purchasers typically must pay a percentage of the purchase price
upon signing the purchase contract, even though delivery of the
completed vessel will not occur until much later (for example,
approximately 14 to 36 months from the signing of the
purchase contract). Purchasers are also required to pay similar
installments throughout the construction of the vessel, which
are usually connected with certain shipbuilding milestones. We
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anticipate that shipyards will offer competitive prices for
newbuilding vessels in the short- to medium-term due to the
recent significant downturn in contracting activity for
newbuildings. See The International Tanker
IndustryCharter Rates & Asset Values.
Should we decide to acquire newbuildings, we expect to benefit
from Capital Maritimes history of contracting, supervising
and taking delivery of newbuilding tanker vessels including the
co-designing of vessels to meet the customers commercial
and technical requirements.
We also anticipate that due to the recent global financial and
shipping markets turmoil certain commercial banks and other
lenders may be in control of tanker vessels and we expect these
lenders may choose to market these vessels for sale. We also
expect that these lenders will have a desire to negotiate with
financially strong, reputable owners and managers with whom they
have an established relationship and have conducted business in
the past. We expect that we will be well placed to exploit such
opportunities as they arise through the relationships Capital
Maritime has developed with certain of the commercial banks that
are active in shipping finance worldwide.
OUR
CHARTERS
Chartering
Strategy
We will seek to charter our vessels to maximize cash flow from
our vessels based on our Managers outlook for freight
rates, vessel market conditions and global economic conditions.
We expect to mainly operate our vessels on voyage charters in
the spot market; on trip charters, which are spot
marketrelated time charters that are described below in
more detail; or in vessel pools trading in the spot market. We
may also enter into longer-term period time charters with terms
that may provide for profit sharing arrangements or with returns
that are linked to spot-market indices. Spot market revenues may
generate increased profit margins during times when vessel rates
are escalating. Vessels operating under fixed-rate time charters
generally provide more predictable cash flows compared to spot
market voyage charters or spot market-related trip charters.
Under our charter arrangements, we will generally be required,
among other things, to keep our vessels seaworthy, to crew and
maintain our vessels, and to comply with applicable laws and
regulations. We may also decide to charter-in vessels for period
and then charter them out to third parties either on a spot or
on a period basis.
The increasing focus on safety and protection of the environment
has led oil companies as charterers, terminal operators, flag
states, shippers and receivers to become increasingly selective
with respect to the vessels they charter and the technical
managers they have as counterparties, vetting both vessels and
ship management companies on a continuous basis. This vetting
assessment can include, but is not limited to, vessel condition,
hull type, crewing, age and technical manager. If a vessel or
Manager fails a vetting assessment, the charter contract may be
terminated or suspended. See Risk FactorsRisk
Factors Related to Our Planned Business &
OperationsIndustry Specific Risk FactorsFailure to
fulfill oil majors vetting processes might adversely
affect the employment of our vessels in the spot and period
market. Although these vetting procedures and increased
regulations generally increase vessel operating costs and
potential liabilities, they strengthen the relative competitive
position of shipowners with higher quality tanker fleets and
operations. We expect that by operating a high quality fleet and
by leveraging Capital Maritimes reputation and
relationships with oil majors, traders and operators, we will be
eligible for all types of charter opportunities, including time
charters, which typically require vessels and managers to
satisfy the highest level of risk assessment. See
Major Oil Company Vetting Process.
Voyage
Charters
Vessels operating in the spot market typically are chartered for
a single voyage, which may last up to several weeks. Under a
typical voyage charter in the spot market, the shipowner is paid
on the basis of moving cargo from a loading port to a discharge
port. The performance from voyage chartering is
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related to vessel utilization, with performance generally
improved by increasing the utilization of the vessel or, in
other words, reducing the number of days a vessel is not
employed after a discharge. In voyage charters the shipowner
generally is responsible for paying both vessel operating
expenses and voyage expenses, and the charterer generally is
responsible for any delay at the loading or discharging ports.
Voyage expenses are all expenses unique to a particular voyage,
including any bunker expenses, port fees, cargo loading and
unloading expenses, canal tolls, agency fees and commissions.
Vessel operating expenses include crewing, repairs and
maintenance, insurance, stores, lube oils, bunkers and
communication expenses.
Trip or Short
Time Charters
Under a typical trip charter in the spot market, the shipowner
is paid on the basis of moving cargo from a loading port to a
discharge port at a set daily rate. The charterer is responsible
for paying for bunkers and other voyage expenses, while the
shipowner is responsible for paying vessel operating expenses.
When the vessel is off-hire, or not available for service, the
shipowner generally is not entitled to payment, unless the
charterer is responsible for the circumstances giving rise to
the lack of availability.
Vessel
Pools
Vessel pool arrangements provide the benefits of a large-scale
operation and chartering efficiencies that might not be
available to smaller fleets. Under a pool arrangement, a vessel
is chartered out by the pool manager under an agreement similar
to a time charter agreement whereby the cost of bunkers and port
expenses are borne by the pool and operating costs including
crews, maintenance and insurance are typically paid by the owner
of the vessel. Members of the pool share in the revenue
generated by the entire group of vessels in the pool, regardless
of the performance of the individual vessel, but the charterhire
is divided based usually on points among all of the vessels in
the pool and therefore generally does not provide the steady
income normally associated with time charters. Vessels
points are rewarded based on their performance, age,
consumption, speed and other factors on a competitive basis
compared to other vessels in the pool. Vessels trading under a
pool arrangement are usually chartered in the spot market, but
the pool manager might charter the vessels under short or longer
time charters, depending on the pool arrangement between the
shipowner and the pool manager. When the vessel is off-hire, the
shipowner generally is not entitled to payment, unless the
charter of a vessel in the pool is responsible for the
circumstances giving rise to the lack of availability.
Time
Charters
A time charter is a contract for the use of a vessel for a fixed
period of time at a specified daily rate. Under a time charter,
the vessels owner provides crewing and other services
related to the vessels operation, the cost of which is
included in the daily rate and the charterer is responsible for
substantially all vessel voyage costs except for commissions,
which generally are assumed by the owner. Time charters may
include profit share arrangements. Traditionally, tanker time
charter activity has been smaller compared to voyage or short
term charter activity. However, over the last few years time
charter activity has increased. This trend has in large part
been caused by the divestment of tanker vessels by oil majors.
This action has resulted in an increase in the activity of the
oil majors in the time charter market. While there has been a
correlation between oil majors reducing their levels of tanker
ownership and increasing time charter activity, the demand in
the time charter market also depends on the relative pricing
between the spot charter, voyage and time charter rates.
Bareboat
Charters
A bareboat charter is a contract pursuant to which the vessel
owner provides the vessel to the customer for a fixed period of
time at a specified daily rate, and the customer provides for
all of the vessels
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expenses (including any commissions) and generally assumes all
risk of operation. The customer undertakes to maintain the
vessel in a good state of repair and efficient operating
condition and drydock the vessel during this period at its cost
and as per the classification society requirements. The basic
rate hire is payable monthly in advance in U.S. Dollars.
Ship Management
and Maintenance
Except in the case of bareboat charters, we will be responsible
for the commercial and technical management of our vessels and
for maintaining the vessel, periodic drydocking, chartering,
vetting, cleaning and painting and performing work required by
regulations. Our Manager will provide these services to us
pursuant to the Management Agreement for our vessels, and may
outsource these obligations to third parties. See Our
Manager and Management AgreementsManagement
Agreement.
Termination
Each of our charters is expected to terminate upon loss of the
applicable vessel. In addition, vessel owners are generally
entitled to suspend performance if the charterer defaults in its
payment obligations under a time charter. Either party may also
terminate the charter in (a) the event of war in specified
countries or in locations that would significantly disrupt the
free trade of the vessel, (b) the event that the vessel
causes an oil spill or (c) if the vessel is disqualified
from engaging in transportation for the major oil companies
pursuant to the vetting process.
Classification
and Inspection
Every commercial vessels hull and machinery is evaluated
by a classification society authorized by its country of
registry. The classification society certifies that the vessel
has been built and maintained in accordance with the rules of
the classification society and complies with applicable rules
and regulations of the vessels country of registry and the
international conventions of which that country is a member.
Each vessel is inspected by a surveyor of the classification
society in three surveys of varying frequency and thoroughness:
every year for the annual survey, every two to three years for
the intermediate survey and every four to five years for special
surveys. Special surveys always require drydocking. Vessels that
are 15 years old or older are required, as part of the
intermediate survey process, to be drydocked every 24 to
30 months for inspection of the underwater portions of the
vessel and for necessary repairs stemming from the inspection.
We expect that in addition to the classification inspections,
many of our customers will regularly inspect our vessels as a
precondition to chartering them for voyages. We believe that
well-maintained, high-quality vessels will provide us with a
competitive advantage in the current environment of increasing
regulation and customer emphasis on quality.
We plan to implement Chapter IX of SOLAS, the International
Safety Management Code for the Safe Operation of Ships and for
Pollution Prevention (the ISM Code), which was
promulgated by the IMO, to comply with pollution prevention
requirements applicable to vessels. We also plan to obtain
documents of compliance for our offices and safety management
certificates for all of our vessels for which the certificates
are required by the IMO.
Major Oil Company
Vetting Process
Shipping in general, and crude oil, refined product and chemical
tankers, in particular, have been, and will remain, heavily
regulated. Many international and national rules, regulations
and other requirementswhether imposed by the
classification societies, international statutes, national and
local
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administrations or industrymust be complied with in order
to enable a shipping company to operate and a vessel to trade.
Traditionally there have been relatively few large players in
the oil trading business and the industry is continuously
consolidating. The so-called oil majors companies,
such as ExxonMobil Corporation, BP p.l.c., Royal Dutch Shell
plc, Chevron Corporation, ConocoPhillips, StatoilHydro ASA and
Total S.A., together with a few smaller companies, represent a
significant percentage of the production, trading and,
especially, shipping logistics (terminals) of crude and refined
products world-wide. Concerns for the environment, health and
safety have led the oil majors to develop and implement a strict
due diligence process when selecting their commercial partners.
This vetting process has evolved into a sophisticated and
comprehensive risk assessment of both the vessel operator and
the vessel.
While a plethora of parameters are considered and evaluated
prior to a commercial decision, the oil majors, through their
association, the OCIMF, have developed and are implementing two
basic tools: (a) SIRE and (b) the TMSA Program. The
former is a physical ship inspection based upon a thorough VIQ,
and performed by accredited OCIMF inspectors, resulting in a
report being logged on SIRE, while the latter is a recent
addition to the risk assessment tools used by the oil majors.
Based upon commercial needs, there are three levels of risk
assessment used by the oil majors: (a) terminal use, which
will clear a vessel to call at one of the oil majors
terminals; (b) voyage charter, which will clear the vessel
for a single voyage; and (c) term charter, which will clear
the vessel for use for an extended period of time. The depth,
complexity and difficulty of each of these levels of assessment
vary. While for the terminal use and voyage charter
relationships a ship inspection and the operators TMSA
will be sufficient for the assessment to be undertaken, a
longer-term charter relationship also requires a thorough office
assessment. In addition to the commercial interest on the part
of the oil major, an excellent safety and environmental
protection record is necessary to ensure an office assessment is
undertaken.
We believe that Capital Maritime and Capital Ship Management are
among a small number of ship management companies to have
undergone and successfully completed audits by six major
international oil companies in the last few years (i.e., BP
p.l.c., Royal Dutch Shell plc, StatoilHydro ASA, Chevron
Corporation, ExxonMobil Corporation and Total S.A.).
Crewing and
Employees
We expect that each tanker vessel we own will be crewed with 20
to 24 officers, seamen and cadets. We expect Capital Maritime to
recruit senior officers and crew for our vessels through its
subsidiaries and crewing agents in various countries in which it
does business, including Romania, Russia and the Philippines.
The crewing agencies handle each seamans training, travel
and payroll, and ensure that all the seamen on our vessels have
the qualifications and licenses required to comply with
international regulations and shipping conventions. Our Manager
has considerable experience in arranging and operating vessels
successfully for Capital Maritime in various configurations and
has a pool of certified and experienced crew members that we can
access to recruit crew members for our own vessels.
Customers
Our assessment of a charterers financial condition and
reliability is an important factor in negotiating employment for
our vessels. We intend to generally charter our vessels to
counterparties we believe are creditworthy such as oil majors
and major oil traders. Capital Maritime is qualified for
business with a number of oil majors, including BP Shipping,
Shell, Total, Chevron and Exxon and traders such as Trafigura,
ST Shipping and Transport Pte Ltd (the shipping affiliate of
Glencore International AG) and Morgan Stanley, and has also
entered into spot charter agreements with charterers such as
Litasco, Vitol, NOC, IPG and ADDAX in the past. As our Manager,
Capital Maritimes qualification to do
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business with these and other companies will allow us to engage
in commercial relationships with them without having to satisfy
their qualification requirements independently. Capital Maritime
has developed such commercial relationships with oil majors,
traders and operators over the last several years by
establishing a reputation and track record for reliable vessel
management in addition to successfully completing the vetting
process implemented by oil majors. See Major Oil
Company Vetting Process. We believe that these
relationships of our Manager will lead to greater employment
opportunities for our vessels in the future.
Competition
We expect our business to fluctuate in line with the main
patterns of trade of crude oil and vary according to changes in
the supply and demand for crude oil. We plan to operate in
markets that are highly fragmented, competitive and based
primarily on supply and demand. Seaborne crude oil
transportation services generally are provided by two main types
of operators: major oil company captive fleets (both private and
state owned); and independent ship-owner fleets. In addition,
several owners and operators pool their vessels together on an
ongoing basis, and such pools are available to customers to the
same extent as independently owned and operated fleets. Many
major oil companies and other oil trading companies, the primary
charterers of the vessels we expect to own, also operate their
own vessels and use such vessels not only to transport their own
crude oil but also to transport crude oil for third party
charterers in direct competition with independent owners and
operators in the tanker charter market. We expect to compete for
charters on the basis of price; vessel location; size, age and
condition of the vessel; acceptability of the vessel and its
manager; and on our reputation as an owner and operator.
Competition is also affected by the availability of other size
vessels to compete in the trades in which we engage. We expect
to compete with other owners of tanker vessels, some of whom may
also charter our vessels as customers.
We believe that Capital Maritime and Capital Ship Management are
among a limited number of ship management companies that have
undergone and successfully completed audits by six major
international oil companies in the last few years, including
audits with BP p.l.c., Royal Dutch Shell plc, StatoilHydro ASA,
Chevron Corporation, ExxonMobil Corporation and Total S.A. We
believe that their ability to comply with the rigorous and
comprehensive standards of major oil companies relative to less
qualified or experienced operators will assist us in competing
effectively for new charters.
Furthermore, under the Business Opportunities Agreement, we will
have a right to take advantage of certain business
opportunities, including certain spot charter, period charter,
bareboat charter and vessel purchase opportunities, that may be
attractive to Capital Maritime. We therefore do not expect that
Capital Maritime will compete with us to a material extent, even
though it is not contractually restricted from doing so. Please
read Certain Relationships and Related-Party
TransactionsBusiness Opportunities Agreement for
more information.
PERMITS AND
AUTHORIZATIONS
We are required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses, certificates and
other authorizations with respect to our vessels. The kinds of
permits, licenses, certificates and other authorizations
required for each vessel depend upon several factors, including
the commodity transported, the area in which the vessel trades,
the nationality of the vessels crew and the age of the
vessel. We expect to have all material permits, licenses,
certificates and other authorizations necessary for the conduct
of our operations. However, future laws and regulations,
environmental or otherwise, may limit our ability to conduct
business or increase the cost of our doing business.
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MANAGEMENT OF
SHIP OPERATIONS, ADMINISTRATION AND SAFETY
Capital Maritime provides expertise in various functions
critical to our operations. This enables a safe, efficient and
cost-effective operation and, pursuant to the Management
Agreement we have entered into with Capital Maritime, we have
access to technical management services, including commercial
management of the vessels, vessel maintenance and crewing,
purchasing, insurance and shipyard supervision as well as human
resources, financial and other administrative services,
including bookkeeping, audit and accounting services,
administrative and clerical services, banking and financial
services, client, investor relations and information technology.
Capital Maritime operates under a safety management system in
compliance with the IMOs ISM Code and certified by the
American Bureau of Shipping. Capital Ship Managements
management systems also comply with the quality assurance
standard ISO 9001, the environmental management standard ISO
14001 and the Occupational Health & Safety Management
System (OHSAS) 18001, all of which are certified by
Lloyds Register of Shipping. Capital Ship Management
recently received one of the first approvals worldwide
acknowledging its successful implementation of an
Integrated Management System Certification by the
Lloyds Register Group. Furthermore, in 2009, Capital Ship
Management became the first shipping company to adopt the
Business Continuity Management principles in
cooperation with Lloyds Register Group. As a result, we
expect that our vessels operations will be conducted in a
manner intended to protect the safety and health of Capital Ship
Managements employees, the general public and the
environment. Capital Ship Managements technical management
team actively manages the risks inherent in our business and is
committed to eliminating incidents that threaten safety, such as
groundings, fires, collisions and petroleum spills, as well as
reducing emissions and waste generation.
Capital Ship Managements track record of providing safe,
efficient and cost-effective operations has also been recognized
by the fact that two of the vessels under its operation have
been distinguished as Top Performing Vessels by BP Shipping for
2008. Three of its vessels were top 10 performers in 2007, and
one was the top performer. BP Shippings time charter fleet
numbers more than 100 vessels, and performance is evaluated
based on health, safety, security and environmental criteria,
speed and consumption, vessel availability, pumping performance,
trading approvals and port performance.
Capital Ship Management was awarded in December 2009, the Tanker
Company of the Year award in Greece by Lloyds List for its
track record and achievements in the Greek shipping industry.
INSPECTION BY
CLASSIFICATION SOCIETIES
Every oceangoing vessel must be classed by a
classification society. The classification society certifies
that the vessel is in class, signifying that the
vessel has been built and maintained in accordance with the
rules of the classification society and complies with applicable
rules and regulations of the vessels country of registry
and the international conventions of which that country is a
member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag
state, the classification society will undertake them on
application or by official order, acting on behalf of the
authorities concerned.
The classification society also undertakes on request other
surveys and checks that are required by regulations and
requirements of the flag state. These surveys are subject to
agreements made in each individual case
and/or
to
the regulations of the country concerned.
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For maintenance of the class certification, regular and
extraordinary surveys of hull, machinery, including the
electrical plant, and any special equipment classed are required
to be performed as follows:
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Annual Surveys:
For seagoing ships, annual
surveys are conducted for the hull and the machinery, including
the electrical plant, and where applicable for special equipment
classed, at intervals of 12 months from the date of
commencement of the class period indicated in the certificate.
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Intermediate Surveys:
Extended annual surveys
are referred to as intermediate surveys and typically are
conducted two and one-half years after commissioning and each
class renewal. Intermediate surveys may be carried out on the
occasion of the second or third annual survey.
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Class Renewal Surveys:
Class renewal
surveys, also known as special surveys, are carried out for the
ships hull, machinery, including the electrical plant, and
for any special equipment classed, at the intervals indicated by
the character of classification for the hull. At the special
survey, the vessel is thoroughly examined, including
audio-gauging to determine the thickness of the steel
structures. Should the thickness be found to be less than class
requirements, the classification society would prescribe steel
renewals. The classification society may grant a one-year grace
period for completion of the special survey. Substantial amounts
of money may have to be spent for steel renewals to pass a
special survey if the vessel experiences excessive wear and
tear. In lieu of the special survey every four or five years,
depending on whether a grace period was granted, a shipowner has
the option of arranging with the classification society for the
vessels hull or machinery to be on a continuous survey
cycle, in which every part of the vessel would be surveyed
within a five-year cycle. Upon a shipowners request, the
surveys required for class renewal may be split according to an
agreed schedule to extend over the entire period of class. This
process is referred to as continuous class renewal.
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Occasional Surveys:
These are inspections
carried out as a result of unexpected events, for example, an
accident or other circumstances requiring unscheduled attendance
by the classification society for re-confirming that the vessel
maintains its class, following such an unexpected event.
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All areas subject to survey as defined by the classification
society are required to be surveyed at least once per class
period, unless shorter intervals between surveys are prescribed
elsewhere. The period between two subsequent surveys of each
area must not exceed five years.
Most vessels are also drydocked every 30 to 36 months for
inspection of the underwater parts and for repairs related to
inspections. If any defects are found, the classification
surveyor will issue a recommendation which must be
rectified by the shipowner within prescribed time limits.
Most insurance underwriters make it a condition for insurance
coverage that a vessel be certified as in class by a
classification society that is a member of the International
Association of Classification Societies. All new and secondhand
vessels that we purchase must be certified prior to their
delivery under our standard agreements.
INSURANCE
General
operational risks
The operation of any tanker vessel involves a high degree of
operational risk both towards the ship itself, to the
environment in which it operates, to the cargo it carries and to
those serving on board.
Key examples of such risks are as follows:
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Hull damagearising from grounding or collision of the
vessel;
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Machinery damagearising from mechanical failure;
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Cargo lossarising from hull damage;
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Property damagearising from cargo loss into the marine
environment;
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Personal injuryarising from collision or piracy;
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Business interruptionarising from strikes and political or
regulatory change; or
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Environmental damagearising from marine disasters such as
oil spills and other environmental mishaps.
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Nevertheless, there remains a residual risk which cannot
practically be excluded, including the possibility of human
error, and the extent of losses attached to that residual risk
can be enormous.
An obvious example of such a marine disaster involving the
carriage of crude oil is the Exxon Valdez grounding
in Prince William Sound, Alaska, in March 1989.
These liabilities can materially impair or end a companys
ability to trade. For example, OPA imposes virtually unlimited
liability upon owners, operators and demise charterers of
vessels trading in the U.S. exclusive economic zone for
certain oil pollution accidents in the United States. Such
liabilities are traditionally covered by insurance but such
coverage is itself limited (in the case of oil pollution
liabilities, to an amount of $1 billion).
While we expect to maintain the traditional range of marine and
liability insurance coverage for our fleet (hull and machinery
insurance, war risks insurance, protection and indemnity
coverage, and freight, demurrage and defense cover) in amounts
and to extents that we believe will be prudent to cover normal
risks in our operations, we may not be able to achieve or
maintain this level of coverage throughout a vessels
useful life. Furthermore, not all risks can be insured, and
there can be no guarantee that any specific claim will be paid,
or that we will always be able to obtain adequate insurance
coverage at reasonable rates.
Marine risks:
hull and machinery and war risks (including the risks of piracy,
capture and seizure)
We expect to maintain marine hull and machinery and war risks
insurance which cover the risk of actual or constructive total
loss, for all of our vessels, including loss by reason of
capture and seizure by pirates, which is a growing contemporary
problem. We plan for our vessels to each be covered up to at
least fair market value. Such cover is subject to policy
deductibles, which are modest in comparison with industry norms
but which are always subject to change.
Liability risks:
protection and indemnity insurance
As is customary, we plan to insure the third-party liabilities
arising in connection with our shipping activities in a P&I
Association belonging to the International Group of P&I
Clubs (the International Group). This provides
coverage for liabilities and related costs resulting from the
injury or death of crew and other third parties, the loss or
damage to cargo, claims arising from collisions with other
vessels, damage to other third-party property, pollution arising
from oil or other substances and salvage, towing and other
related costs, including wreck removal. Subject to the
capping discussed below in respect of oil pollution
liabilities, such coverage is unlimited.
We plan to maintain coverage in respect of oil pollution risks
in the amount of $1 billion per vessel per incident, which
is the maximum (capped) level of cover available from P&I
Associations in the International Group. The 13 P&I
Associations that comprise the International Group insure
approximately 90% of the worlds commercial tonnage and
have jointly entered into a pooling agreement to reinsure each
associations liabilities. As a result of insuring our
liability risks in this way we will be subject to calls payable
by us to the P&I Association based on the International
Groups claims records as well as the particular P&I
Associations claims experience which could include a
liability to pay unbudgeted supplementary contributions required
to balance the particular P&I
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Associations accounts or to meet its obligations to
contribute to the liabilities of another International Group
P&I Association.
Commercial
risks
Freight
Demurrage & Detention (FDD)
coverage
We plan to maintain FDD coverage which is a customary insurance
designed to meet (on a discretionary basis) the legal costs of
pursuing or defending proceedings, for example, arising out of
contractual disputes.
Loss of Hire and
Strike Cover
Loss of hire insurance covers business interruptions and related
losses that result from the loss of use of a vessel, including
because of piracy. We currently do not intend to insure for loss
of hire or strikes as we have estimated that the cost associated
with such insurances is disproportionate to the benefit;
however, we, in consultation with our managers will continue to
evaluate the need and benefit of such insurance coverage and may
elect in the future to be covered for such risks.
ENVIRONMENTAL AND
OTHER REGULATIONS
Government regulation will significantly affect the ownership
and operation of our vessels. We will be subject to
international conventions and treaties, and, in the countries in
which our vessels may operate or are registered, national, state
and local laws and regulations in force in the countries in
which our vessels may operate or are registered relating to
safety and health and environmental protection, including the
storage, handling, emission, transportation and discharge of
hazardous and non-hazardous materials, and the remediation of
contamination and liability for damage to natural resources.
These laws and regulations include the OPA, the International
Convention for Prevention of Pollution from Ships, regulations
adopted by the IMO and the European Union, various volatile
organic compound air emission requirements, SOLAS, the
U.S. Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA), the U.S. Clean
Water Act (CWA), and other regulations described
below. Compliance with such laws, regulations and other
requirements entails significant expense, including vessel
modifications and implementation of certain operating procedures.
A variety of governmental and private entities will subject our
vessels to both scheduled and unscheduled inspections. These
entities include the local port authorities, applicable national
authorities such as the U.S. Coast Guard and harbor
masters, classification societies, flag state administrations
(countries of registry) and charterers. Some of these entities
will require us to obtain permits, licenses, certificates,
financial assurances and other authorizations for the operation
of our vessels. Our failure to maintain necessary permits,
certificates or approvals could require us to incur substantial
costs or result in the temporary suspension of operation of one
or more of our vessels.
In recent periods, heightened levels of environmental and
operational safety concerns among insurance underwriters,
regulators and charterers have led to greater inspection and
safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the tanker shipping
industry. Increasing environmental concerns have created a
demand for vessels that conform to the stricter environmental
standards. We believe that the operation of our vessels will be
in substantial compliance with applicable environmental laws and
regulations and that our vessels will have all material permits,
licenses, certificates or other authorizations necessary for the
conduct of our operations. However, because such laws and
regulations frequently change and may impose increasingly
stricter requirements, we cannot predict the ultimate cost of
complying with these requirements, or the impact of these
requirements on the resale value or useful lives of our vessels.
In addition, future serious marine
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incidents that result in significant oil pollution or otherwise
causes significant adverse environmental impact could result in
additional legislation or regulation that could negatively
affect our profitability.
International
Maritime Organization (IMO)
The IMO, the United Nations agency for maritime safety and the
prevention of pollution by ships, has adopted the MARPOL
Convention. The MARPOL Convention establishes environmental
standards relating to oil leakage or spilling, garbage
management, sewage, air emissions, emergency planning, training,
record-keeping, handling and disposal of noxious liquids and the
handling of harmful substances in packaged forms. The IMO
adopted regulations that set forth pollution prevention
requirements applicable to tanker vessels. These regulations
have been adopted by over 150 nations, including many of the
jurisdictions in which our vessels operate.
Air
Emissions
In September 1997, the IMO adopted Annex VI to the MARPOL
Convention to address air pollution from ships. Effective May
2005, Annex VI sets limits on sulfur oxide and nitrogen
oxide emissions from all commercial vessel exhausts and
prohibits deliberate emissions of ozone depleting substances
(such as halons and chlorofluorocarbons), emissions of volatile
organic compounds from cargo tanks, and the shipboard
incineration of specific substances. Annex VI also includes
a global cap on the sulfur content of fuel oil and allows for
special areas to be established with more stringent controls on
sulfur emissions. In October 2008, the IMO adopted amendments to
Annex VI regarding particulate matter, nitrogen oxide and
sulfur oxide emission standards which are expected to enter into
force on July 1, 2010. The amended Annex VI would
reduce air pollution from vessels by, among other things,
(a) implementing a progressive reduction of sulfur oxide
emissions from ships, with the global sulfur cap reduced
initially to 3.50% (from the current cap of 4.50%), effective
from January 1, 2012, then progressively to 0.50%,
effective from January 1, 2020, subject to a feasibility
review to be completed no later than 2018; and
(b) establishing new tiers of stringent nitrogen oxide
emissions standards for new marine engines, depending on their
date of installation. The United States ratified the
Annex VI amendments in October 2008, thereby rendering
U.S. emissions standards equivalent to IMO requirements.
Once these amendments become effective, we may incur costs to
comply with the revised standards.
Safety Management
System Requirements
The IMO also adopted SOLAS and the International Convention on
Load Lines (LL Convention), which impose a variety
of standards that regulate the design and operational features
of ships. The IMO periodically revises SOLAS and LL Convention
Standards.
Our operations are also subject to environmental standards and
requirements contained in the ISM Code promulgated by the IMO.
The ISM Code requires the party with operational control of a
vessel to develop an extensive safety management system that
includes, among other things, the adoption of a safety and
environmental protection policy setting forth instructions and
procedures for operating its vessels safely and describing
procedures for responding to emergencies. We will rely upon the
safety management system that we and our technical manager will
implement for compliance with the ISM Code. The failure of a
shipowner or bareboat charterer to comply with the ISM Code may
subject such party to increased liability, may decrease
available insurance coverage for the affected vessels and may
result in a denial of access to, or detention in, certain ports.
The ISM Code also requires that vessel operators obtain a safety
management certificate for each vessel they operate. This
certificate evidences compliance by a vessels management
with code requirements for a safety management system. No vessel
can obtain a certificate unless its manager has been awarded a
document of compliance, issued by each flag state, under the ISM
Code. We believe that we will have
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all material requisite documents of compliance for our offices
and safety management certificates for all of our vessels for
which such certificates are required by the IMO. We will renew
these documents of compliance and safety management certificates
as required.
Pollution Control
and Liability Requirements
IMO has negotiated international conventions that impose
liability for oil pollution in international waters and the
territorial waters of the nations signatory to such conventions.
For example, IMO adopted the BWM Convention, in February 2004.
The BWM Conventions implementing regulations call for a
phased introduction of mandatory ballast water exchange
requirements (beginning in 2009), to be replaced in time with
mandatory concentration limits. The BWM Convention will not
become effective until 12 months after it has been adopted
by 30 states, the combined merchant fleets of which
represent not less than 35% of the gross tonnage of the
worlds merchant shipping. To date, there has not been
sufficient adoption of this standard for it to take force.
In 2001, the IMO adopted the International Convention on Civil
Liability for Bunker Oil Pollution Damage (Bunker
Convention), which imposes strict liability on shipowners
for pollution damage in jurisdictional waters of ratifying
states caused by discharges of bunker oil. The Bunker Convention
also requires registered owners of ships over a certain size to
maintain insurance for pollution damage in an amount equal to
the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount
calculated in accordance with the Convention on Limitation of
Liability for Maritime Claims of 1976, as amended). The Bunker
Convention entered into force on November 1, 2008.
Although the United States is not a party to these conventions,
many countries have ratified and follow the liability plan
adopted by the International Maritime Organization and set out
in the International Convention on Civil Liability for Oil
Pollution Damage of 1969, as amended in 2000 (CLC).
Under this convention and depending on whether the country in
which the damage results is a party to the 1992 Protocol to the
CLC, a vessels registered owner is strictly liable,
subject to certain limited defenses, for pollution damage caused
in the territorial waters of a contracting state by discharge of
persistent oil. The limits on liability outlined in the 1992
Protocol use the International Monetary Fund currency unit of
Special Drawing Rights (SDR). Under an amendment to
the 1992 Protocol that became effective on November 1,
2003, for vessels between 5,000 and 140,000 gross tons (a
unit of measurement for the total enclosed spaces within a
vessel), liability is limited to approximately 4.51 million
SDR plus 631 SDR for each additional gross ton over 5,000. For
vessels of over 140,000 gross tons, liability is limited to
89.77 million SDR. The exchange rate between SDRs and
dollars was 0.642435 SDR per U.S. dollar on
January 28, 2010. The right to limit liability is forfeited
under the CLC where the spill is caused by the shipowners
actual fault and under the 1992 Protocol where the spill is
caused by the shipowners intentional or reckless conduct.
Vessels trading with states that are parties to these
conventions must provide evidence of insurance covering the
liability of the owner. In jurisdictions where the CLC has not
been adopted, various legislative schemes or common law govern,
and liability is imposed either on the basis of fault or in a
manner similar to that of the CLC. We believe that our
protection and indemnity insurance will cover the liability
under the plan adopted by the IMO.
Noncompliance with the ISM Code or other IMO regulations may
subject the vessel owner or bareboat charterer to increased
liability, lead to decreases in available insurance coverage for
affected vessels or result in the denial of access to, or
detention in, some ports. The U.S. Coast Guard and European
Union authorities have indicated that vessels not in compliance
with the ISM Code by the applicable deadlines will be prohibited
from trading in U.S. and European Union ports,
respectively. We expect that each of our vessels will be ISM
Code-certified, but there can be no assurance that such
certifications will be maintained in the future.
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The IMO continues to review and introduce new regulations. It is
impossible to predict what additional regulations, if any, may
be passed by the IMO and what effect, if any, such regulations
might have on our operations.
The U.S. Oil
Pollution Act of 1990 and Comprehensive Environmental Response,
Compensation and Liability Act
OPA established an extensive regulatory and liability regime
governing the maritime transport of petroleum and liability for
oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or
whose vessels operate in United States waters, which includes
the United States territorial sea and its two hundred
nautical mile exclusive economic zone. The United States has
also enacted CERCLA, which applies to the discharge of hazardous
substances other than oil, whether on land or at sea. Our
operations will be subject to both OPA and CERCLA.
Under OPA, vessel owners, operators and bareboat charterers are
responsible parties and are jointly, severally and
strictly liable (unless the spill results solely from the act or
omission of a third party, an act of God or an act of war) for
all containment and
clean-up
costs and other damages arising from discharges or threatened
discharges of oil from their vessels. OPA defines these other
damages broadly to include:
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natural resources damage and the costs of assessment thereof;
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real and personal property damage;
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net loss of taxes, royalties, rents, fees and other lost
revenues;
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lost profits or impairment of earning capacity due to property
or natural resources damage; and
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net cost of public services necessitated by a spill response,
such as protection from fire, safety or health hazards, and loss
of subsistence use of natural resources.
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Effective July 31, 2009, the U.S. Coast Guard adjusted
the limits of OPA liability for double-hulled tank vessels over
3000 gross tons to the greater of $2,000 per gross ton or
$17,088,000 or, for non-tank vessels, to the greater of $1,000
per gross ton or $854,400 and established a procedure for
adjusting the limits for inflation every three years. CERCLA,
which applies to owners and operators of vessels, contains a
similar liability regime and provides for cleanup, removal and
natural resource damages. Liability under CERCLA is limited to
the greater of $300 per gross ton or $5 million for vessels
carrying a hazardous substance as cargo and the greater of $300
per gross ton or $0.5 million for any other vessel. These
OPA and CERCLA limits of liability do not apply if an incident
was directly caused by violation of applicable U.S. federal
safety, construction or operating regulations or by a
responsible partys gross negligence or willful misconduct,
or if the responsible party fails or refuses to report the
incident or to cooperate and assist in connection with oil
removal activities. In addition, OPA specifically permits
individual U.S. states to impose their own liability
regimes with regard to oil pollution incidents occurring within
their boundaries, and some states have enacted legislation
providing for unlimited liability for oil spills.
OPA also requires owners and operators of vessels to establish
and maintain with the U.S. Coast Guard evidence of
financial responsibility sufficient to meet the limit of their
potential liability under OPA and CERCLA. Vessel owners and
operators may satisfy their financial responsibility obligations
by providing a proof of insurance, a surety bond, self-insurance
or a guaranty. We plan to comply with the U.S. Coast
Guards financial responsibility regulations by providing a
certificate of responsibility evidencing sufficient
self-insurance.
We expect to maintain pollution liability coverage insurance in
the amount of $1 billion per incident for each of our
vessels. If the damages from a catastrophic spill were to exceed
our insurance coverage, it
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Business
could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
The U.S. Clean
Water Act
The CWA prohibits the discharge of oil or hazardous substances
in U.S. navigable waters unless authorized by a duly-issued
permit or exemption, and imposes strict liability in the form of
penalties for any unauthorized discharges. The CWA also imposes
substantial liability for the costs of removal, remediation and
damages and complements the remedies available under OPA and
CERCLA. The EPA regulates the discharge of ballast water and
other substances in U.S. waters under the CWA. Effective
February 6, 2009, EPA regulations require vessels
79 feet in length or longer (other than commercial fishing
vessels) to obtain a Vessel General Permit authorizing
discharges of ballast waters and other wastewaters incidental to
the operation of vessels when operating within the
three-mile
territorial waters or inland waters of the United States.
U.S. Coast Guard regulations adopted under the
U.S. National Invasive Species Act (NISA) also
impose mandatory ballast water management practices for all
vessels equipped with ballast water tanks entering
U.S. waters, and the Coast Guard recently proposed new
ballast water management standards and practices. Compliance
with the EPA and the U.S. Coast Guard regulations could
require the installation of equipment on our vessels to treat
ballast water before it is discharged or the implementation of
other port facility disposal arrangements or procedures at
potentially substantial cost,
and/or
otherwise restrict our vessels from entering U.S. waters.
U.S. Clean Air
Act
The Clean Air Act requires the EPA to promulgate standards
applicable to emissions of volatile organic compounds and other
air contaminants. In December 2009, the EPA announced its
intention to publish final amendments to the emission standards
for new marine diesel engines installed on ships flagged or
registered in the United States that are consistent with
standards required under recent amendments to Annex VI of
MARPOL. The new regulations include near-term standards
beginning in 2011 for newly built engines requiring more
efficient use of engine technologies in use today and long-term
standards beginning in 2016 requiring an 80% reduction in
nitrogen oxide emissions below current standards. The Clean Air
Act also requires states to draft State Implementation Plans
(SIPs) designed to attain national health-based air
quality standards in primarily major metropolitan
and/or
industrial areas. Several SIPs regulate emissions resulting from
vessel loading and unloading operations by requiring the
installation of vapor control equipment. Individual states,
including California, have also attempted to regulate vessel
emissions within state waters. California also has adopted fuel
content regulations that will apply to all vessels sailing
within 24 miles of the California coastline and whose
itineraries call for them to enter any California ports,
terminal facilities, or internal or estuarine waters. In
addition, the United States has requested IMO to designate the
area extending 200 miles from the territorial sea baseline
adjacent to the Atlantic/Gulf and Pacific coasts and the
Hawaiian Islands as Emission Control Areas under the MARPOL
Annex VI amendments. If approved by the IMO, more stringent
emissions control standards would apply in the Emission Control
Areas that would cause us to incur additional costs.
European Union
Regulations
In 2005, the European Union adopted a directive on ship-source
pollution, imposing criminal sanctions for intentional, reckless
or negligent pollution discharges by ships. The directive could
result in criminal liability for pollution from vessels in
waters of European countries that adopt implementing
legislation. Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability
claims.
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Business
Greenhouse Gas
Regulation
In February 2005, the Kyoto Protocol to the United Nations
Framework Convention on Climate Change (the Kyoto
Protocol) entered into force. Pursuant to the Kyoto
Protocol, adopting countries are required to implement national
programs to reduce emissions of certain gases, generally
referred to as greenhouse gases. Currently, the emissions of
greenhouse gases from international shipping are not subject to
the Kyoto Protocol. However, a new treaty may be adopted in the
future that includes restrictions on shipping emissions. The
European Union has indicated that it intends to propose an
expansion of the existing European Union emissions trading
scheme to include emissions of greenhouse gases from marine
vessels. In the United States, the EPA has issued a proposed
finding that greenhouse gases threaten public health and safety
and is considering a petition from the California Attorney
General to regulate greenhouse gas emissions from ocean-going
vessels. Other federal regulations relating to the control of
greenhouse gas emissions may follow. In addition, climate change
initiatives are being considered in the U.S. Congress. Any
passage of climate control legislation or other regulatory
initiatives by the IMO, EU, the United States or other countries
where we operate that restrict emissions of greenhouse gases
could require us to make significant financial expenditures that
we cannot predict with certainty at this time or otherwise limit
our operations.
Vessel Security
Regulations
Since the terrorist attacks of September 11, 2001, there
have been a variety of initiatives intended to enhance vessel
security. On November 25, 2002, the U.S. Maritime
Transportation Security Act of 2002 (MTSA), came
into effect. To implement certain portions of the MTSA, in July
2003, the U.S. Coast Guard issued regulations requiring the
implementation of certain security requirements aboard vessels
operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created
a new chapter of the convention dealing specifically with
maritime security. The new chapter became effective in July 2004
and imposes various detailed security obligations on vessels and
port authorities, most of which are contained in the newly
created International Ship and Port Facilities Security Code
(ISPS Code). The ISPS Code is designed to protect
ports and international shipping against terrorism. After
July 1, 2004, to trade internationally, a vessel must
attain an International Ship Security Certificate from a
recognized security organization approved by the vessels
flag state. Among the various requirements are:
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on-board installation of automatic identification systems to
provide a means for the automatic transmission of safety-related
information from similarly equipped ships and shore stations,
including information on a ships identity, position,
course, speed and navigational status;
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on-board installation of ship security alert systems, which do
not sound on the vessel but only alert the authorities on shore;
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the development of vessel security plans;
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ship identification number to be permanently marked on a
vessels hull;
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a continuous synopsis record kept onboard showing a
vessels history including the name of the ship and of the
state whose flag the ship is entitled to fly, the date on which
the ship was registered with that state, the ships
identification number, the port at which the ship is registered
and the name of the registered owner(s) and their registered
address; and
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compliance with flag state security certification requirements.
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The U.S. Coast Guard regulations, intended to align with
international maritime security standards, exempt from MTSA
vessel security measures
non-U.S. vessels
that have on board, as of July 1, 2004, a valid
International Ship Security Certificate attesting to the
vessels compliance with SOLAS security requirements and
the ISPS Code. We intend to implement the various security
measures addressed by the MTSA, SOLAS and the ISPS Code.
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Business
VOLATILITY
We plan to operate our vessels in markets that have historically
exhibited significant volatility in demand and, as a result,
charter rates. This volatility in charter rates may result in
quarter-to-quarter
volatility in our operating results, as our vessels will trade
on the spot market. The world oil demand is influenced by many
factors, including international economic activity; geographic
changes in oil production, processing, and consumption; oil
price levels; inventory policies of the major oil and oil
trading companies; and strategic inventory policies of countries
such as the United States and China.
PROPERTIES
We do not expect to have any material properties prior to the
closing of this offering.
LEGAL
PROCEEDINGS
We have not been involved in any legal proceedings that may
have, or have had, a significant effect on our business,
financial position, results of operations or liquidity, and we
are not aware of any proceedings that are pending or threatened
that may have a material adverse effect on our business,
financial position, results of operations or liquidity. From
time to time, we may be subject to legal proceedings and claims
in the ordinary course of business, principally personal injury
and property casualty claims. We expect that these claims would
be covered by insurance, subject to customary deductibles. Those
claims, even if lacking merit, could result in the expenditure
of significant financial and managerial resources.
EXCHANGE
CONTROLS
Under Marshall Islands law, there are currently no restrictions
on the export or import of capital, including foreign exchange
controls or restrictions that affect the remittance of
dividends, interest or other payments to our non-resident Common
Stock holders.
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MANAGEMENT
DIRECTORS AND
EXECUTIVE OFFICERS OF CRUDE CARRIERS
Our board of directors and executive officers will oversee and
supervise our operations. Subject to this oversight and
supervision, our operations will be managed generally by our
Manager. Upon the closing of this offering, we will enter into a
Management Agreement, pursuant to which our Manager and its
affiliates will provide to us commercial, technical,
administrative and strategic services. Please read Our
Manager and Management AgreementManagement Agreement
for additional information about this agreement.
Our Chairman and Chief Executive Officer will allocate his time
between managing our business and affairs, directly as our
officer and indirectly as an officer of our Manager, and the
business and affairs of Capital Maritime. The amount of time
that our Chairman and Chief Executive Officer will allocate
among our business and the businesses of Capital Maritime will
vary from time to time depending on various circumstances and
needs of the businesses, such as the relative levels of
strategic activities of the businesses.
Our officers and individuals providing services to us or our
future subsidiaries may face a conflict regarding the allocation
of their time between our business and the other business
interests of Capital Maritime or its affiliates. The amount of
time our officers will allocate among our business and the
businesses of Capital Maritime could vary significantly from
time to time depending on various circumstances and needs of the
businesses, such as the relative levels of strategic activities
of the businesses. While there will be no formal requirements or
guidelines for the allocation of our officers time between
our business and Capital Maritimes, our officers
performance of their duties will be subject to the ongoing
oversight of our board of directors and we intend to cause our
officers to devote as much time to the management of our
business and affairs as is necessary for the proper fulfillment
of their duties and obligations.
The following table provides information about our directors and
executive officers who will be in office as of the closing of
this offering. We expect to identify and appoint seven directors
prior to the closing of this offering. The term of our
Class I directors expires in 2013, the term of our
Class II directors expires in 2012 and the term of our
Class III directors expires in 2011. All of the directors
listed below have agreed to serve as directors effective as of
the closing of this offering. The business address of each of
our directors and executive officers listed below is 3 Iassonos
Street, 185 37 Piraeus, Greece. Ages of the following
individuals are as of January 1, 2010.
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Name
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Age
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Position
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Evangelos M. Marinakis
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Chairman of the Board of Directors, Chief Executive Officer and
Class I Director
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Gregory J. Timagenis
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64
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Class I Director
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Richard Sages
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53
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Class I Director
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Andreas C. Konialidis
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Chartering Manager and Class II Director
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Pierre de Demandolx Dedons
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69
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Class II Director
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Gerasimos G. Kalogiratos
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Chief Financial Officer and Class III Director
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Socrates Kominakis
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42
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Class III Director
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Ioannis E. Lazaridis
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42
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President
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Management
The business experience of these individuals is included below.
Evangelos M.
Marinakis, Director, Chairman of the Board and Chief Executive
Officer.
Mr. Marinakis joined our board of directors and serves as
the Chairman of the Board and as our Chief Executive Officer.
Mr. Marinakis has served as the Chairman of the Board of
Capital Product Partners L.P since its inception in 2007 and has
also served as Capital Maritimes Chief Executive Officer
and as a director since its incorporation in March 2005. From
1992 to 2005, Mr. Marinakis was the Commercial Manager of
Capital Ship Management and oversaw the businesses of the group
of companies that currently form Capital Maritime. For the
past 15 years, Mr. Marinakis has also been active in
various other family businesses, all related to the shipping
industry. During this time he founded Curzon Maritime Limited, a
shipping broker, and Express Sea Transport Corporation, an
international vessel operator. Mr. Marinakis began his
career as a Sale & Purchase trainee broker at Harley
Mullion in the UK, and then worked as a chartering broker for
Elders Chartering Limited, also in the UK. Mr. Marinakis
holds a B.A. in International Business Administration and an MSc
in International Relations from the United States International
University Europe, London.
Ioannis E.
Lazaridis, President.
Mr. Lazaridis joined our company as President.
Mr. Lazaridis has served as Chief Executive and Chief
Financial Officer of Capital Product Partners L.P., a
Nasdaq-listed company, since its formation in January 2007.
Mr. Lazaridis also has served as Capital Maritimes
Chief Financial Officer and as a director of Capital Maritime
since its incorporation in March 2005. From 2004 to March 2005,
Mr. Lazaridis was employed by Capital Maritimes
predecessor companies in the same capacity. From 1996 to 2004,
Mr. Lazaridis was employed by Credit Agricole Indosuez
Cheuvreux in London, where he worked in the equity department.
From 1993 to 1996, Mr. Lazaridis was employed by Kleinwort
Benson in equity sales and from 1990 to 1993 he was employed by
Norwich Union Investment Management. Mr. Lazaridis holds a
B.A. degree in economics from the University of Thessaloniki in
Greece and an M.A. in Finance from the University of Reading in
the United Kingdom. He is also an Associate at the Institute of
Investment Management and Research in the United Kingdom.
Gerasimos G.
Kalogiratos, Director and Chief Financial Officer.
Mr. Kalogiratos joined our board of directors and serves as
our Chief Financial Officer. Mr. Kalogiratos joined Capital
Maritime & Trading Corp. in 2005 and currently serves
as Finance Director. His responsibilities include the
newbuilding commercial projects (including contract negotiations
and financing) and vessel sales & acquisitions. He was
part of the team that completed the IPO of Capital Product
Partners L.P. in 2007 and currently acts as Capital Product
Partners L.P.s Investment Relations Officer. From 1998 to
2000, Mr. Kalogiratos was employed by Attalos Securities
S.A. in Greece, where he worked in the equities sales
department. Before he joined Capital Maritime, he completed his
MA in European Politics and Economics at the Humboldt University
and subsequently worked for the European Politics Department of
the Frei University in Germany. Mr. Kalogiratos holds a
B.A. degree in Politics, Philosophy and Economics from the
University of Oxford in the United Kingdom.
Andreas C.
Konialidis, Director and Chartering Manager.
Mr. Konialidis joined our board of directors and serves as
our Chartering Manager. Mr. Konialidis has over
11 years experience in the shipping industry. Since 2005,
Mr. Konialidis has been the chartering director for Curzon
Maritime Ltd, a brokerage and consultancy firm based in London,
where he has developed and overseen the chartering activities of
the Capital Maritime groups tanker operations with a
particular emphasis on Suezmaxes and product carriers. From 2003
to 2005, Mr. Konialidis was a chartering executive for
National Shipping Company of Saudi Arabias fleet of modern
VLCCs
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Management
operating on the spot market. Prior to that Mr. Konialidis
served 5 years as a chartering broker for Elka Shipping
(London) Ltd, the chartering arm of a large operator of Aframax,
Suezmax and VLCC tankers. He holds a BSC in Maritime Business
and Maritime Law from the University of Plymouth.
Gregory J.
Timagenis, Director.
Mr. Timagenis has served as the Chairman of the Board of
Capital Maritime & Trading Corp. since its
incorporation in March 2005. He is the senior partner at
Timagenis Law Firm. Mr. Timagenis practice has
centered around maritime, banking and finance law, capital
markets and mergers and acquisitions. He has 39 years of
practice in all litigious and non litigious aspects of maritime
law and he has acted as legal advisor to a number of listed
companies. In addition to his practice as an attorney,
Mr. Timagenis has been chairman of the board of
Seamens Pension Fund
(1989-1995
and 2009 to date) and has lectured at the University of Athens
and the Naval Academy and has acted as an arbitrator for the
Greek Chamber of Shipping as well as in ICC arbitrations.
Mr. Timagenis holds degrees in law, economics and political
science from the University of Athens, a masters degree
and a PhD in law from the University of London. Upon the
consummation of this offering, he will resign his directorship
with Capital Maritime.
Pierre de
Demandolx Dedons, Director.
Mr. de Demandolx Dedons has been involved in the shipping
industry in various capacities for over forty years and since
1997 has been primarily a shipping consultant. From 1984 to
1997, Mr. de Demandolx Dedons was employed by Groupe
WORMS & Cie, a French financial, insurance and
transportation company, where he held several positions in the
organization, including Deputy General Manager of Cie Navale
Worms (which became Compagnie Nationale De Navigation in
1986) and General Manager in charge of FinanceTankers
and Offshore, a position he held from 1991 to 1996. From 1986 to
2004, Mr. de Demandolx Dedons was a member of the board of
directors of UK P&I Clubs. Prior to this involvement, from
1975 to 1984, Mr. de Demandolx Dedons was active in the French
Shipowners Association in Paris, serving as its Deputy
General Manager from 1975 to 1977 and as its General Manager
from 1977 to 1984. He currently sits on a number of boards of
directors both in Europe and the United States, including Seacor
Holdings Inc., a company listed on the NYSE. Mr. de Demandolx
Dedons holds a bachelors degree in politics and a
bachelors degree in civil engineering and has completed a
senior management program at the Harvard Business School. Mr. de
Demandolx Dedons currently serves as a director of Capital
Maritime. Upon the consummation of this offering, he will resign
his directorship with Capital Maritime.
Socrates
Kominakis, Director.
Mr. Kominakis is the Chairman of Wind Hellas, a mobile
operator in Greece, and owner of Milos Advisors, a private
equity fund that focuses on the turnaround of undermanaged
assets in Greece and Europe. In parallel, he acts as an advisor
for Apax Partners concerning their investments in Greece. He
started his professional career in marketing for
Procter & Gamble Greece, before he became Marketing
Director and Vice President for Kraft Jacobs Suchard. Then he
joined Vodafone Greece as Marketing Director and subsequently as
Commercial Director. He was Chief Executive Officer of Wind
Hellas from 2004 until early 2009. In 2005 he executed a
management buyout of Wind Hellas from Telecom Italia, together
with private equity firms TPG and Apax Partners. In 2007 he
resold Wind Hellas to Weather Investments, achieving a return of
420% on the invested equity. During this time, Wind Hellas
sales increased by 30% and its EBITDA increased by 100%.
Mr. Kominakis holds a bachelors degree in Science of
Business Administration from the American College of Greece
(Deree College) and an MBA from Edinburgh University.
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Management
Richard Sages,
Director.
Mr. Sages has over thirty years of experience in the
shipping industry. Since 2000 Mr. Sages has been a Director
of the Odin Marine Group. Odin Marine has offices in New York,
Rotterdam and Singapore and is a brokering firm specializing in
the bulk transportation of petroleum and chemical products,
vegetable oils and renewable fuels. Mr. Sages worked as a
tanker chartering broker from 1979 to 1984 with Mid Ocean
Tankers, from 1984 to 1988 with Universal Transport Corp. and
with Odin Marine to the present. He is also a member of the
Board of Directors for the National Institute of Oil Seed
Products. He holds a BBA in Accounting and a Masters in
Finance from Iona College.
BOARD OF
DIRECTORS AND COMMITTEES
Prior to the closing of the offering, our board of directors
will consist of the directors named above. In keeping with the
corporate governance rules of the NYSE, from which we have
derived our definition for determining whether a director is
independent, four directors (namely Messrs. Timagenis, de
Demandolx Dedons, Sages and Kominakis) will be independent
directors. Under the corporate governance rules of the NYSE, a
director will not be considered independent unless the board
affirmatively determines that the director has no material
relationship with us. In making this determination, the board
will broadly consider all facts and circumstances the board
deems relevant from the standpoint of the director and from that
of persons or organizations with which the director has an
affiliation. Material relationships can include commercial,
industrial, banking, consulting, legal, accounting, charitable
and familial relationships among others. In addition, a director
would not be independent if:
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the director is, or has been within the last three years, an
employee of us, or an immediate family member is, or has been
within the last three years, an executive officer of us;
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the director has received, or has an immediate family member who
has received, during any twelve-month period within the last
three years, more than $120,000 in direct compensation from us
other than director and committee fees and pension or other
forms of deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service);
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the director is a current partner or employee of a firm that is
our internal or external auditor; the director has an immediate
family member who is a current partner of such a firm; the
director has an immediate family member who is a current
employee of such a firm and personally works on our audit; or
the director or an immediate family member was within the last
three years a partner or employee of such a firm and personally
worked on our audit within that time;
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the director or an immediate family member is, or has been
within the last three years, employed as an executive officer of
another company where any of our present executive officers at
the same time serves or served on that other companys
compensation committee; or
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the director is a current employee, or an immediate family
member is a current executive officer, of another company that
has made payments to, or received payments from, us for property
or services in an amount which, in any of the last three fiscal
years, exceeds the greater of $1 million or 2% of such
other companys consolidated gross revenues.
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We will establish an independent directors committee,
which will also be our audit committee. The members of the
independent directors committee will meet the independence
standards established by the NYSE to serve on an audit committee
of a board of directors. We believe that directors may be
properly identified as independent even if they have previously
served as executive officers or directors of Capital Maritime,
our Manager. The initial members of our independent
directors committee will be Gregory J. Timagenis,
Pierre de Demandolx Dedons, Richard Sages and Socrates
Kominakis.
The independent directors committee will provide a
mechanism for independent assessment of whether proposed
arrangements with our Manager and its other affiliates, or
proposed modifications to
131
Management
arrangements with our Manager and its other affiliates, are fair
and reasonable to us. The board is not obligated to seek
approval of the independent directors committee on any
matter; however, consistent with the related parties transaction
policy we plan to adopt prior to the completion of this
offering, the board may submit such proposed arrangements or
modifications to the independent directors committee. See
Certain Relationships and Related-Party
TransactionsReview and Approval of Transactions with
Related Persons for the details of this policy. For
matters presented to it, the independent directors
committee will determine if the resolution of the conflict of
interest is fair and reasonable to us. Any matters approved by
the independent directors committee will be conclusively
deemed to be fair and reasonable to us, taking into account the
totality of the relationship between the parties involved,
including other transactions that may be particularly favorable
or advantageous to us. Our board of directors has the power to
override a determination by the committee. However, a
determination by directors who were interested in the
transaction would be subject to Section 58 of the BCA,
which provides that the transaction may be void or voidable
unless the material facts of the interested directors
interests are known or disclosed to the board and the board
approves the transaction by a vote sufficient for such purpose
without counting the vote of the interested directors, or if the
vote of the disinterested directors is insufficient, by
unanimous vote of the disinterested directors.
Serving as our audit committee, the independent directors
committee will, among other things, review our external
financial reporting, engage our external auditors and oversee
our internal audit activities and procedures and the adequacy of
our internal accounting controls.
Our board of directors may also establish a compensation
committee and a nominating and corporate governance committee.
EXECUTIVE
COMPENSATION
We were formed in October 2009. We have not paid any
compensation to our directors or officers or accrued any
obligations with respect to management incentive or retirement
benefits for the directors and officers prior to this offering.
Because our executive officers are employees of Capital Maritime
(as well as us), their compensation (other than any awards under
the long-term incentive plan described below) is set and paid by
Capital Maritime, and we would have reimbursed Capital Maritime
for the compensation paid to our officers by Capital Maritime
for services that our officers provided to us. Upon the closing
of this offering, however, Capital Maritime will have paid no
compensation to our officers for such services.
COMPENSATION OF
OUR DIRECTORS
Our officers and other officers of Capital Maritime who serve as
our directors will not receive additional compensation for their
service as directors. We anticipate that each non-management
director will receive compensation for attending meetings of the
board of directors as well as committee meetings. We expect that
non-management directors will each receive a director fee of
$20,000 per year ($30,000 per year for committee chairmen) and
shares of Common Stock subject to vesting over a one-year
period. We intend to grant shares of Common Stock to the
non-management directors immediately after their appointment as
directors. In addition, each director will be reimbursed for
out-of-pocket
expenses in connection with attending meetings of the board of
directors or committees. Each director will be fully indemnified
by us for actions associated with being a director to the extent
permitted under Marshall Islands law.
2010 EQUITY
INCENTIVE PLAN
Prior to closing of this offering, we intend to adopt the Crude
Carriers 2010 Equity Incentive Plan in which our and our
affiliates employees, directors and consultants will be
eligible to participate. The
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Management
plan provides for the award of restricted stock, restricted
stock units, stock options, stock appreciation rights and other
stock or cash-based awards.
Administration
The plan will be administered by our board of directors. To the
extent permitted by law, and except where our board elects to
act as administrator or to delegate its responsibilities and
powers to another person, the board may delegate any or all of
its responsibilities and powers to such committee of the board
as the board may designate, other than the authority to amend or
terminate the plan. The board of directors will have the
authority to, among other things, designate participants under
the plan, determine the type or types of awards to be granted to
a participant, determine the number of shares of Common Stock to
be covered by awards, determine the terms and conditions
applicable to awards and interpret and administer the plan.
Number of Shares
of Common Stock
Subject to adjustment in the event of any distribution,
recapitalization, split, merger, consolidation and the like, the
number of shares of Common Stock available for delivery pursuant
to awards granted under the plan will be equal to 7% of the
number of shares of Common Stock issued pursuant to this
offering and 5% of the number of shares issued in any future
offering. There is no limit on the number of awards that may be
granted and paid in cash. If any award is forfeited or otherwise
terminates or is cancelled without delivery of Common Stock,
those shares will again be available for grant under the plan.
Common Stock delivered under the plan will consist of authorized
but unissued shares or shares acquired by us in the open market,
from us or from any other person or entity.
Restricted Stock
and Restricted Stock Units
Restricted stock is subject to forfeiture prior to the vesting
of the award. A restricted stock unit is notional stock that
entitles the grantee to receive a share of Common Stock upon the
vesting of the restricted stock unit or, in the discretion of
the board of directors, cash equivalent to the value of the
Common Stock. The board of directors may determine to make
grants under the plan of restricted stock and restricted stock
units to plan participants containing such terms as the board of
directors may determine. The board of directors will determine
the period over which restricted stock and restricted stock
units granted to plan participants will vest. The board of
directors may base its determination upon the achievement of
specified performance goals.
Stock Options and
Stock Appreciation Rights
The plan will permit the grant of options covering Common Stock
and the grant of stock appreciation rights. A stock appreciation
right is an award that, upon exercise, entitles the participant
to receive the excess of the fair market value of a share of
Common Stock on the exercise date over the base price
established for the stock appreciation right. Such excess may be
paid in Common Stock, cash, or a combination thereof, as
determined by the board of directors in its discretion. The
board of directors will be able to make grants of stock options
and stock appreciation rights under the plan to employees,
consultants and directors containing such terms as the committee
may determine. Stock options and stock appreciation rights may
have an exercise price or base price that is no less than the
fair market value of the Common Stock on the date of grant. In
general, stock options and stock appreciation rights granted
will become exercisable over a period determined by the board of
directors. Following the consummation of this offering, we
expect to grant management options to purchase our Common Stock.
133
Management
Unrestricted
Stock
The board of directors, in its discretion, may grant shares of
Common Stock free of restrictions under the plan in respect of
past services or other valid consideration.
Performance
Shares
The plan permits the grant of performance share awards subject
to such vesting and forfeiture and other terms and conditions as
the board of directors may determine. Such an award entitles the
grantee to acquire shares of Common Stock or to be paid the
value thereof in cash if specified performance goals are met.
Dividend
Equivalent Rights
The board of directors, in its discretion, may grant dividend
equivalent rights with respect to an award of an option, stock
appreciation right or performance shares.
Change of
Control
Unless otherwise provided in the instrument evidencing the
award, in the event of a change in control of Crude Carriers,
all outstanding awards will become fully and immediately vested
and exercisable.
Term, Termination
and Amendment of Plan
Our board of directors may in its discretion terminate, suspend
or discontinue the plan at any time with respect to any award
that has not yet been granted. Our board of directors also has
the right to alter or amend the plan or any part of the plan
from time to time, including increasing the number of shares of
Common Stock that may be granted, subject to shareholder
approval as required by the exchange upon which the shares of
Common Stock is listed at that time. However, other than
adjustments to outstanding awards upon the occurrence of certain
unusual or nonrecurring events, generally no change in any
outstanding grant may be made that would materially impair the
rights of the participant without the consent of the participant.
VOTING
RIGHTS
To preserve our ability to have certain items of our income be
exempt from United States federal income taxation under
Section 883 of the Code, if, at any time, any person or
group other than Crude Carriers Investments Corp. owns
beneficially 5% or more of the Common Stock then outstanding,
then any Common Stock owned by that person or group in excess of
4.9% may not be voted. The voting rights of any such
shareholders that would have been in excess of 4.9% shall be
redistributed pro rata among other shareholders of our Common
Stock holding less than 5.0% of our Common Stock. In addition,
if Crude Carriers Investments Corp., its affiliates, their
transferees and persons who acquired such shares with the prior
approval of our board of directors, owns beneficially, and
taking into account all applicable attribution rules under the
Code, 50% or more of our Common Stock then outstanding and such
shareholders are not qualified shareholders under the applicable
Treasury regulations sufficient to reduce the nonqualified
shareholders stake in the Common Stock below 50%, then any
such Common Stock owned by such shareholders in excess of 49%
may not be voted on any matter (except for purposes of
nominating a person for election to our board). The voting
rights of any such shareholder that is not a qualified
shareholder in excess of 49% will be redistributed pro rata
among the other Common Stock holders holding less than 4.9% of
the Common Stock.
134
OUR MANAGER AND
MANAGEMENT AGREEMENT
OVERVIEW
We believe that our business will benefit through access to the
expertise and resources of Capital Maritime and its affiliates.
Accordingly, we will enter into agreements with them from time
to time pursuant to which they will provide services to us,
including under the Management Agreement that will become
effective upon the closing of this offering.
Capital Maritime, our Manager, will provide to us commercial,
technical, administrative and strategic services necessary to
support our business through the Management Agreement with us.
A Summary of the Management Agreement is set forth below.
Capitalized words and expressions used but not defined herein
shall have the meanings given to them in the Management
Agreement, as applicable. Because the following is only a
summary, it does not contain all information that you may find
useful. For more complete information, you should read the
entire Management Agreement, which is included as an exhibit to
the Registration Statement and is filed as a part hereof.
MANAGEMENT
AGREEMENT
Under the Management Agreement, our Manager will be responsible
for providing us with substantially all of our services,
including:
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commercial services
, which include vessel
chartering and marketing;
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technical services
, which include vessel
maintenance; ensuring regulatory and classification society
compliance; crewing; insurance; purchasing; and shipyard
supervision;
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administrative services
, which include legal and
financial compliance services; bookkeeping and accounting
services; and banking and financial services;
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strategic services
, which include strategic
planning; acquisitions of assets and businesses; financing
negotiations; and general management of our business; and
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investor relations services
, which include
assisting with the preparation and dissemination of information;
interacting with investors; and engaging in public relations
activities.
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Our Manager will provide these services to us in a commercially
reasonable manner as we may from time to time direct and may
provide these services directly to us, assign its obligation to
provide certain services to certain identified third-parties,
primarily other Capital Maritime subsidiaries, or subcontract
for certain of these services with other entities. In
particular, our Manager may assign its obligation to provide
technical management services to a third-party technical
manager. Our Manager will remain responsible for any
subcontracted services. We will indemnify our Manager for losses
it incurs in connection with providing these services, excluding
losses caused by the recklessness, gross negligence or willful
misconduct of our Manager or its employees or agents, for which
losses our Manager will indemnify us.
Term and
Termination Rights
Subject to the termination rights described below, the initial
term of the Management Agreement will expire on
December 31, 2020. If not terminated, the Management
Agreement shall automatically renew for a five-year period and
shall thereafter be extended in additional five-year increments
if we do not provide notice of termination in the fourth quarter
of the year immediately preceding the end of the respective term.
135
Our manager and
management agreement
Our Termination Rights.
We may
terminate the Management Agreement under any of the following
circumstances:
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First
, if our Manager experiences a change of
control where a party that currently does not have the power to
elect a majority of our board members gains such power.
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Second
, if at any time our Manager materially
breaches the Management Agreement and the matter is unresolved
after a
90-day
dispute resolution period.
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Third
, if at any time (a) our Manager has
been convicted of, or has entered into a plea bargain or plea of
nolo contendere
or settlement admitting guilt for
a crime, which conviction, plea or settlement is demonstrably
and materially injurious to us and (b) the holders of a
majority of the outstanding Common Stock elect to terminate the
Management Agreement.
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Fourth
, if our Manager has been proven to have
committed fraud or to have been grossly negligent, or to have
committed an act of willful misconduct and we are materially
injured thereby.
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Fifth
, if at any time our Manager experiences
certain bankruptcy events.
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Sixth
, if we provide notice in the fourth quarter
of 2019, which termination would be effective on
December 31, 2020. If the Management Agreement extends
pursuant to its terms as described above, we can elect to
exercise this optional termination right in the fourth quarter
of the year immediately preceding the end of the respective term.
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If we elect to terminate the Management Agreement under the
sixth circumstance described above, our Manager would be
entitled to receive a payment (the Termination
Payment) in a lump sum within 30 days following the
termination date of the Management Agreement. The Termination
Payment will initially be $9 million and shall increase on each
one-year anniversary during which the Management Agreement
remains in effect (on a compound basis) in accordance with the
total percentage increase, if any, in the Consumer Price Index
over the immediately preceding twelve months.
Our Managers Termination
Rights.
Our Manager may terminate the
Management Agreement prior to the end of its term under any of
the following circumstances:
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First
, after the fifth anniversary of this
offering with 6 months written notice. At our option,
the Manager shall continue to provide technical services to us
for up to an additional one-year period from termination.
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Second
, if at any time we materially breach the
agreement and the matter is unresolved after 90 days.
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Third
, if at any time we experience certain
bankruptcy events.
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Fourth
, if there is a change of control where a
party that currently does not have the power to elect a majority
of our board members gains such power. If we have knowledge that
such a change of control will occur, we must give the Manager
written notice. The Manager can exercise its right to terminate
for change of control upon the earlier of the occurrence of such
change of control or its receipt of such notice from us until
60 days after the later of the occurrence of such change of
control or its receipt of such notice from us.
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Fifth
, if at any time all or substantially all of
our assets are sold, leased, transferred, conveyed or otherwise
disposed of in one or a series of related transactions to a
party that is not affiliated with us.
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If our Manager elects to terminate the Management Agreement
under the second, third, fourth or fifth circumstance described
above, our Manager would be entitled to receive the Termination
Payment.
136
Our manager and
management agreement
Compensation of
Our Manager
In return for providing to us services under the Management
Agreement, we will pay our Manager management fees based on the
following components:
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Technical management fee.
We will pay a
fee to our Manager for technical services it provides to us at a
rate of $850 per vessel per day. This $850 amount is subject to
increase on each anniversary of the date hereof based on the
total percentage increase, if any, in the Consumer Price Index
over the immediately preceding twelve months of the Term. For
purposes of this provision, the Consumer Price Index used is the
Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics of the United States Department of
Labor, New York, N.Y.Northeastern N.J. Area, All Items, or
any successor index. If there is no successor index, our Manager
has the right to reasonably select a substitute.
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Sale & purchase fee.
We will
pay a fee to our Manager equal to 1% of the gross purchase or
sale price upon the consummation of any purchase or sale of a
vessel by us.
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Section 404 compliance fee.
We
will pay a fee of $100 per day per vessel for services in
connection with compliance with Section 404 of
Sarbanes-Oxley.
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Financial reporting services fee.
We
will pay a quarterly fee of $50,000 for services in relation to
our financial reporting requirements under the SEC rules and the
establishment and monitoring of internal controls over financial
reporting.
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Commercial services fee.
We will pay a
fee of 1.25% of all gross charter revenues generated by each
vessel for Commercial Services rendered.
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The fees set forth above are subject to quarterly adjustment to
reflect changes to the U.S. Dollar/Euro exchange rate from
a base rate of 1.50 U.S. Dollar/Euro. The quarterly
U.S. Dollar/Euro exchange rate adjustment is included in
the Management Agreement to address the fact that Capital
Maritime will be paid in U.S. Dollars under the Management
Agreement but a significant proportion of the costs it expects
to bear in providing services to the Company will be denominated
in Euros. The adjustment has the effect of indexing the fees
under the Management Agreement to the U.S. Dollar/Euro
exchange rate in order for the rate paid to Capital Maritime to
be more reflective of its actual costs.
In addition, we will reimburse our Manager for all of its direct
and indirect costs, expenses and liabilities incurred in
providing services to us, including, but not limited to,
employment costs for any personnel of our Manager for time spent
on matters related to providing services to us. The Management
Agreement also provides that we have the right to receive a
detailed statement of the costs and expenses billed to us by our
Manager and also provides for a third party to settle any
billing disputes between us and our Manager.
Amendments
The Management Agreement may not be amended without the consent
of both parties.
Outside
Activities
In the Management Agreement, we acknowledge that our Manager may
engage in activities that may compete or conflict with our own.
137
CERTAIN
RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
After this offering, Crude Carriers Investments Corp., a related
party to Capital Maritime, will own, directly or indirectly,
2,000,000 shares of our Class B Stock, representing a
12.9% ownership interest in us and 49% of the aggregate voting
power of our outstanding shares of Common Stock and Class B
stock (12.7% and 49%, respectively, if the underwriters exercise
their over-allotment option in full).
OUR EXECUTIVE
OFFICERS AND CERTAIN OF OUR DIRECTORS
Evangelos M. Marinakis, our Chairman and Chief Executive
Officer, Ioannis E. Lazaridis, our President, and Gerasimos G.
Kalogiratos, our Chief Financial Officer and director, are all
employees of Capital Maritime. Mr. Marinakis also serves as
Chief Executive Officer of Capital Maritime.
DISTRIBUTIONS AND
PAYMENTS TO CRUDE CARRIERS INVESTMENTS CORP. AND OUR
MANAGER
The following table summarizes distributions and payments to be
made by us to Crude Carriers Investments Corp. and our Manager
in connection with our formation, ongoing operation and
termination of the Management Agreement. These distributions and
payments were determined by and among related parties and,
consequently, are not the result of arms-length
negotiations.
Formation
Stage
The consideration received by Crude Carriers Investments Corp.
for its capital contribution of $40 million to us is
2,000,000 shares of Class B Stock (assuming an initial
public offering price of $20.00 per share, the mid-point of the
range shown on the cover of this prospectus). We have agreed to
purchase, pursuant to a stock purchase agreement, the Initial
Suezmax from Capital Maritime for $71.25 million, the
average of two valuations from independent ship brokers; one
such broker valued the Initial Suezmax at $71 million and
another at between $72 million and $71 million. We
have also agreed to purchase, pursuant to stock purchase
agreements, the Universal VLCCs from Capital Maritime for
$96.5 million each.
Operational
Stage
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Dividends to Crude Carriers Investments Corp. and its affiliates
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Based on their ownership of shares of our Common Stock or
Class B Stock, Crude Carriers Investments Corp., a related
party to Capital Maritime, will be entitled to receive dividends
that our board of directors declares on our Common Stock or
Class B Stock.
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Payments to our Manager
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Capital Maritime, our Manager, will manage our operations,
subject to the oversight of our board of directors and the
supervision of our executive officers. Pursuant to the
Management Agreement, our Manager will provide to us commercial,
technical, administrative and strategic services. We will pay
fees for these services as set forth in the Management
Agreement. We will not be able to quantify in advance the fees
for services provided under the Management Agreement because the
payment amounts due and the particular amounts or mix of
services to be provided under that agreement are not specified
or fixed, and we expect that the aggregate amount of
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138
Certain
relationships and related-party transactions
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these fees will vary from period to period. Please read
Our Manager and Management Agreement Management
Agreement for further information about the Management
Agreement.
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Termination of Management Agreement
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We or our Manager may terminate the Management Agreement under
specified circumstances, and in some of those circumstances we
will be required to pay a termination fee to our Manager, the
amount of which may be substantial. Please read Our
Manager and Management Agreement Management
Agreement for further information about the Management
Agreement.
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AGREEMENTS
GOVERNING THE TRANSACTIONS
We have entered into or will enter into various agreements that
will effect the transactions relating to our formation and this
offering, including the vesting of assets in, and the assumption
of liabilities by, us and the application of the proceeds of
this offering. These agreements will not be the result of
arms-length negotiations and they, or any of the
transactions that they provide for, may not be effected on terms
at least as favorable to us as they could have been obtained
from unaffiliated third parties. All of the transaction expenses
incurred in connection with these transactions will be paid from
the proceeds of this offering.
BUSINESS
OPPORTUNITIES AGREEMENT
Prior to or at the closing of this offering, we will enter into
a business opportunities agreement (the Business
Opportunities Agreement) with Capital Maritime reflecting
the provisions and principles described below.
Under the Business Opportunities Agreement (and in conformity
with our amended and restated articles of incorporation),
Capital Maritime and we will agree that either party may pursue
any Business Opportunity (as defined in (a) below) of which
we, Capital Maritime or its affiliates become aware, subject to
certain procedures and conditions. Business Opportunities may
include, among other things, opportunities to charter or acquire
vessels or to acquire vessel businesses.
Pursuant to the Business Opportunities Agreement, we will agree
that:
(a)
General.
Capital Maritime and its
affiliates may engage (and will have no duty to refrain from
engaging) in the same or similar activities or lines of business
as us, including conducting business in the tanker spot market,
and we will not be deemed to have an interest or expectancy in
any business opportunity, transaction or other matter,
including, but not limited to, any opportunity to acquire a
tanker vessel (each a Business Opportunity) in which
Capital Maritime or any of its affiliates engages or seeks to
engage, as a result of the circumstance that we engage or may
engage in the same or similar activities or lines of business as
those related to such Business Opportunity; and
(b)
Protocol for Business
Opportunities.
If we or Capital Maritime,
including its affiliates (whether through any of their
respective officers or directors that they share with us, or
otherwise) acquires knowledge of a potential Business
Opportunity that may be deemed to constitute a business
opportunity for us, then (x) if Capital Maritime acquires
such knowledge, Capital Maritime will promptly notify us of such
opportunity, and (y) for a period of up to 5 business days
from the date we acquire such knowledge (whether directly or
through notice from Capital Maritime), we shall have a right
(that we must exercise or decline as promptly as practicable) to
elect to pursue or acquire such Business Opportunity for
ourselves or direct such Business Opportunity to another person
or entity, provided
139
Certain
relationships and related-party transactions
that if such Business Opportunity is the opportunity to enter
into a voyage charter or trip charter (including any index time
charter that produces revenues based on current spot charter
rates) for a particular tanker vessel (a Spot Charter
Opportunity), a period charter with or without profit
sharing for a particular tanker vessel (a Period Charter
Opportunity) or a bareboat charter (a Bareboat
Charter Opportunity) or to acquire a crude tanker (a
Vessel Acquisition Opportunity) then the following
time periods shall apply:
(i)
Spot Charter Opportunities.
With
respect to any Spot Charter Opportunity, we shall have such
right to elect to pursue or acquire such Spot Charter
Opportunity for ourselves before Capital Maritime can make a
similar election, such right to be available to us for a
reasonable period of time in light of the circumstances,
including, without limitation, the time period the Spot
Opportunity is expected to be available;
(ii)
Period Charter Opportunities.
With
respect to any Period Charter Opportunities, for a period of up
to 48 hours we shall have such right (that we must exercise
or decline as promptly as practicable) to elect to pursue or
acquire such Period Charter Opportunity for ourselves or direct
such Period Charter Opportunity to another person or entity;
(iii)
Bareboat Charter
Opportunities.
With respect to any Bareboat
Charter Opportunities, for a period of up to 48 hours we
shall have such right (that we must exercise or decline as
promptly as practicable) to elect to pursue or acquire such
Bareboat Charter Opportunity for ourselves or direct such
Bareboat Charter Opportunity to another person or entity; and
(iv)
Vessel Acquisition Opportunities.
With
respect to any Vessel Acquisition Opportunity, for a period of
120 hours we shall have such right (that we must exercise
or decline as promptly as practicable) to elect to pursue or
acquire such Vessel Acquisition Opportunity for ourselves or
direct such Vessel Acquisition Opportunity to another person or
entity. Additionally, we have the right to receive, upon
request, an additional 72 hours to consider a Vessel
Acquisition Opportunity.
We do not anticipate that our business and operations and the
business and operations of Capital Maritime will have
significant overlap. Capital Maritime will own only one tanker
vessel upon the consummation of this offering, and therefore we
do not expect that Capital Maritime will be a significant
competitor. Because our perspective and the perspective of
Capital Maritime may differ substantially on matters such as
dividend policy, leverage, target market and fleet composition,
it is likely that we and Capital Maritime will evaluate a given
market opportunity differently and reach substantially different
conclusions regarding its value to our respective businesses.
Consequently, there may be various opportunities that we will
elect not to pursue that Capital Maritime will pursue, and there
may be various opportunities that we will pursue that Capital
Maritime would not have pursued. In addition, as the entry of a
tanker vessel by either Capital Maritime or us into a vessel
pool would not be expected to prevent the other party from
taking the same action, under the Business Opportunities
Agreement neither Capital Maritime nor we have any obligation to
provide notice or a right of first refusal to the other party
regarding the entry of a tanker vessel into a vessel pool.
Termination
Rights
The Business Opportunities Agreement shall terminate immediately
upon a change of control of Capital Maritime or Crude Carriers.
In addition, Capital Maritime may terminate the Business
Opportunities Agreement upon the termination of the Management
Agreement, provided that (A) if the Management Agreement is
terminated by Capital Maritime, other than as a result of
(i) a material breach by the Company, (ii) a change in
control of the Company or a sale of all or substantially all of
the assets to a third party or (iii) the dissolution,
insolvency or bankruptcy of the Company, then Capital Maritime
may not terminate the Business Opportunities Agreement until the
earlier of (x) and (y) where (x) is the later of
(1) the date that is 12 months from the date of
termination of the Management Agreement and
140
Certain
relationships and related-party transactions
(2) the date that neither a majority of the executive
officers nor a majority of the directors of the Company are also
officers or directors of Capital Maritime or an entity
controlled, directly or indirectly, by Capital Maritime and
(y) is the first date that any event provided in
(i) through (iii) above occurs.
Amendments
The Business Opportunities Agreement may not be amended without
the prior approval of the independent directors committee
of our board of directors if the proposed amendment will, in the
reasonable discretion of our board of directors, adversely
affect our Common Stock holders.
REGISTRATION
RIGHTS
Prior to or at the closing of this offering, we will enter into
a registration rights agreement with Crude Carriers Investments
Corp. pursuant to which we will grant Crude Carriers Investments
Corp. certain registration rights with respect to our Common
Stock and Class B Stock owned by them. Pursuant to the
agreement, Crude Carriers Investments Corp. will have the right,
subject to certain terms and conditions, to require us, on up to
four separate occasions following the expiration of
180 days from the date of this offering, to register under
the Securities Act shares of our Common Stock, including Common
Stock issuable upon conversion of Class B Stock, held by
Crude Carriers Investments Corp. for offer and sale to the
public (including by way of underwritten public offering) and
incidental or piggyback rights permitting
participation in certain registrations of Common Stock by us. We
will be obligated to pay all expenses incidental to the
registration excluding underwriting discounts and commissions.
REVIEW AND
APPROVAL OF TRANSACTIONS WITH RELATED PERSONS
Prior to the completion of this offering, our Board of Directors
will adopt a policy and procedures for review, approval and
monitoring of transactions involving our company and
related persons (generally, our Manager and its
affiliates and our directors, executive officers, director
nominees, shareholders owning five percent or greater of any
class of our voting securities and immediate family members of
the foregoing). The policy will be in accordance with applicable
Marshall Islands law and will cover any related-person
transaction that meets the thresholds for disclosure under the
relevant SEC rules for foreign private issuers (generally,
transactions that are material to us or the related party;
transactions that are unusual in their nature or conditions; or
loans involving us and a related party) and will be applied to
any such transactions proposed after the policys adoption.
Related-person transactions must be approved by the Board or by
the independent directors committee, who will approve the
transaction only if they determine that it is in our best
interests. It is expected that the Board will approve in advance
certain classes of transactions subject to period review,
including transactions under the Management Agreement. In
considering the transaction, the Board or committee will
consider various factors, including as applicable: (i) the
related persons interest in the transaction; (ii) the
approximate dollar value of the amount involved in the
transaction; (iii) the approximate dollar value of the
amount of the related persons interest in the transaction
without regard to the amount of any profit or loss;
(iv) our business rationale for entering into the
transaction; (v) the alternatives to entering into a
related-person transaction; (vi) whether the transaction is
on terms no less favorable to us than terms that could have been
reached with an unrelated third party; (vii) the potential
for the transaction to lead to an actual or apparent conflict of
interest and any safeguards imposed to prevent such actual or
apparent conflicts; (viii) the overall fairness of the
transaction to us; (ix) valuations generated by independent
third-party brokers where the transaction in question is the
purchase of a vessel from a related party; and (x) any
other information regarding the transaction or the related
person in the context of the proposed transaction that would be
material to investors in light of the circumstances of the
particular transaction. If a director is involved in the
transaction, he or she will not cast a vote regarding the
transaction.
141
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Common Stock and Class B
Stock beneficially owned by beneficial owners of 5.0% or more of
the Common Stock or Class B Stock and by our directors and
officers as of March 1, 2010. The table does not reflect
any shares of Common Stock that our directors or officers may
purchase in the offering. This table assumes the issuance of
13,500,000 shares of Common Stock and of 2,000,000 shares of
Class B Stock.
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Percentage of
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Percentage of
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Percentage of
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Total Common
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Common
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Common
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Class B
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Class B
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and Class B
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Stock to be
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Stock to be
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Stock to be
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Stock to be
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Stock to be
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Beneficially
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Beneficially
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Beneficially
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Beneficially
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Beneficially
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Name of
Beneficial Owner
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Owned
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Owned
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Owned
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Owned
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Owned
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Crude Carriers Investments Corp.
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0
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|
|
|
0.0
|
%
|
|
|
2,000,000
|
|
|
|
100.0
|
%
|
|
|
12.9
|
%
|
Evangelos M. Marinakis
|
|
|
0
|
|
|
|
0.0
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Gregory J. Timagenis
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Andreas C. Konialidis
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Pierre de Demandolx Dedons
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Gerasimos G. Kalogiratos
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Socrates Kominakis
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Richard Sages
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Ioannis E. Lazaridis
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
* Less than 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Marinakis family, including Evangelos M. Marinakis,
through its ownership of Crude Carriers Investments Corp., may
be deemed to beneficially own the Class B Stock held by
Crude Carriers Investments Corp.
|
142
DESCRIPTION OF
CAPITAL STOCK
The following is a description of material terms of our amended
and restated articles of incorporation and amended and restated
bylaws that will be in effect prior to the closing of this
offering. Because the following is a summary, it does not
contain all information that you may find useful. For more
complete information, you should read our amended and restated
articles of incorporation and amended and restated bylaws,
copies of which will be filed as exhibits to the Registration
Statement of which this prospectus forms a part.
PURPOSE
Our purpose, as stated in our amended and restated articles of
incorporation, is to engage in any lawful act or activity for
which corporations may now or hereafter be organized under the
BCA. Our amended and restated articles of incorporation and
amended and restated bylaws do not impose any limitations on the
ownership rights of our shareholders.
AUTHORIZED
CAPITALIZATION
Our amended and restated articles of incorporation will provide
for Common Stock, which has one vote per share, and Class B
Stock, which has 10 votes per share. However, the voting power
of the Class B Stock held by Crude Carriers Investments
Corp. and its affiliates will be limited to an aggregate maximum
of 49% of the combined voting power of our Common Stock and
Class B Stock. Other than these voting rights and
conversion rights applicable to the Class B Stock as
described below, the rights of the two classes of stock are
equivalent. The rights of these classes of stock are discussed
in greater detail below.
Immediately following the closing of this offering, our
authorized capital stock will consist of
1,200,000,000 shares, of which:
|
|
Ø
|
1,000,000,000 shares will be designated as Common Stock,
par value $0.0001 per share;
|
|
Ø
|
100,000,000 shares will be designated as Class B
Stock, par value $0.0001 per share; and
|
|
Ø
|
100,000,000 shares will be designated as preferred stock,
par value $0.0001 per share.
|
Immediately following the closing of this offering, we will have
13,500,000 outstanding shares of Common Stock,
2,000,000 outstanding shares of Class B Stock,
assuming an offering price at the mid-point of the range shown
on the cover of this prospectus, and no outstanding shares of
preferred stock.
COMMON STOCK AND
CLASS B STOCK
Voting
Rights
Generally, Marshall Islands law provides that the holders of a
class of stock are entitled to a separate class vote on any
proposed amendment to our articles of incorporation that would
change the aggregate number of authorized shares or the par
value of that class of shares or alter or change the powers,
preferences or special rights of that class so as to affect it
adversely.
Except as described below, holders of our Common Stock and
Class B Stock will have equivalent economic rights, but our
Common Stock holders will be entitled to one vote per share and
our Class B Stock holders will be entitled to 10 votes per
share. However, to preserve our ability to have certain items of
our income be exempt from United States federal income taxation
under Section 883 of the Code, the voting power of the
Class B Stock will be limited to an aggregate maximum of
49% of the combined voting power of our Common Stock and Class B
Stock. Except as otherwise provided by the BCA, holders of
shares of Common Stock and Class B Stock will vote together
as a single class on all matters submitted to a vote of
shareholders, including the election of directors. In addition,
if, at any
143
Description of
capital stock
time, any person or group other than Crude Carriers Investments
Corp. owns beneficially 5% or more of the Common Stock then
outstanding, then any Common Stock owned by that person or group
in excess of 4.9% may not be voted. The voting rights of any
such shareholders in excess of 4.9% shall be redistributed pro
rata among other shareholders of our Common Stock holding less
than 5.0% of our Common Stock.
Dividends
Marshall Islands law generally prohibits the payment of a
dividend when a company is insolvent or would be rendered
insolvent by the payment of such a dividend or when the
declaration or payment would be contrary to any restrictions
contained in the companys articles of incorporation.
Dividends may be declared and paid out of surplus only, but if
there is no surplus, dividends may be declared or paid out of
the net profits for the fiscal year in which the dividend is
declared and for the preceding fiscal year.
Subject to preferences that may apply to any shares of preferred
stock outstanding at the time, the holders of our Common Stock
and Class B Stock will be entitled to share equally in any
dividends that our board of directors may declare from time to
time out of funds legally available for dividends. In the event
a stock dividend is paid, the holders of Common Stock will
receive Common Stock, or rights to acquire Common Stock, as the
case may be, and the holders of Class B Stock will receive
Class B Stock, or rights to acquire Class B Stock, as
the case may be.
Liquidation
Rights
Upon our liquidation, dissolution or
winding-up,
the holders of our Common Stock and Class B Stock will be
entitled to share equally on a pro rata basis in all assets
remaining after the payment in full of all amounts required to
be paid to creditors and to the holders of preferred stock
having liquidation preferences, if any.
Conversion
Shares of our Common Stock will not be convertible into any
other shares of our capital stock.
Each share of our Class B Stock will be convertible at any
time at the option of the holder thereof into one share of our
Common Stock. In addition:
|
|
Ø
|
upon any transfer of shares of Class B Stock to a holder
other than Crude Carriers Investments Corp. or any of its
affiliates, such shares of Class B Stock will automatically
convert into Common Stock upon such transfer and
|
|
Ø
|
all shares of our Class B Stock will automatically convert
into shares of our Common Stock if the aggregate number of
shares of Common Stock and Class B Stock beneficially owned
by Crude Carriers Investments Corp. and its affiliates falls
below the number of shares of Class B Stock issued to Crude
Carriers Investments Corp. for its $40 million subscription
made in connection with this offering (estimated to be
2,000,000 shares assuming an initial public offering price
of $20 per share, the mid-point of the range shown on the cover
of this prospectus, such number of shares to be adjusted for any
subdivision or conversion of the Class B Stock).
|
All such conversions will be effected on a
one-for-one
basis.
Once converted into Common Stock, shares of Class B Stock
shall not be reissued.
Class B
Stock Subscription Rights
Pursuant to the Subscription Agreement, Crude Carriers
Investments Corp. will be entitled, so long as Capital Maritime
or any of its affiliates is our manager, to subscribe for an
additional number of shares of Class B Stock equal to 2.0%
of the number of shares of Common Stock issued, excluding shares
of Common Stock issued in this offering, shares of Common Stock
issued under our 2010 Equity Incentive Plan (see
Management2010 Equity Incentive Plan) and
future equity compensation. These additional shares would be
issued for additional nominal consideration equal to their par
value.
144
Description of
capital stock
Other
Rights
Our Common Stock holders will not have conversion, redemption or
preemptive rights to subscribe for any of our securities. The
rights, preferences and privileges of our Common Stock holders
are subject to the rights of the holders of any shares of
preferred stock that we may issue in the future. Our
Class B Stock holders will have preemptive rights in the
Class B Stock.
PREFERRED
STOCK
Our amended and restated articles of incorporation will
authorize our board of directors to establish one or more series
of preferred stock and to determine, with respect to any series
of preferred stock, the terms and rights of that series,
including:
|
|
Ø
|
the designation of the series;
|
|
Ø
|
the number of shares of the series;
|
|
Ø
|
the preferences and relative, participating, option or other
special rights, if any, and any qualifications, limitations or
restrictions of such series; and
|
|
Ø
|
the voting rights, if any, of the holders of the series.
|
DIRECTORS
Our directors will be elected by a plurality of the votes cast
by shareholders entitled to vote. Cumulative voting shall not be
used to elect directors.
Our amended and restated articles of incorporation will provide
that our board of directors must consist of at least three
members. Our amended and restated articles of incorporation will
also provide that shareholders may change the number of
directors only by the affirmative vote of holders of 80% or more
of the voting power of all outstanding shares of our capital
stock. The board of directors may change the number of directors
only by a majority vote of the entire board.
SHAREHOLDER
MEETINGS
Under our amended and restated bylaws, annual general meetings
will be held at a time and place selected by our Board of
Directors. The meetings may be held in or outside of the
Marshall Islands. If we fail to hold an annual meeting within
90 days of the designated date, a special meeting in lieu
of an annual meeting may be called by shareholders holding not
less than 10% of the voting power (as such term is defined in
our amended and restated articles of incorporation) of all
outstanding shares entitled to vote at such meeting. Other than
such a meeting in lieu of an annual meeting, special meetings of
shareholders may be called only by the Chairman of our Board of
Directors or our Chief Executive Officer, in either case at the
direction of our Board of Directors, as set forth in a
resolution stating the purpose or purposes thereof approved by a
majority of the entire Board of Directors. Our Board of
Directors may set a record date between 15 and 60 days
before the date of any meeting to determine the shareholders
that will be eligible to receive notice and vote at the meeting.
DISSENTERS
RIGHTS OF APPRAISAL AND PAYMENT
Under the BCA, our shareholders have the right to dissent from
various corporate actions, including any merger or consolidation
or sale or exchange of all or substantially all of our assets,
and receive payment of the fair value of their shares. In the
event of any further amendment of our amended and restated
articles of incorporation, a shareholder will also have the
right to dissent and receive payment for the shareholders
shares if the amendment alters certain rights in respect of
those shares. The dissenting shareholder must follow the
procedures set forth in the BCA to receive payment. In the event
that we and any dissenting shareholder fail to agree on a price
for the shares, the BCA procedures involve,
145
Description of
capital stock
among other things, the institution of proceedings in any
appropriate court in any jurisdiction in which our shares are
primarily traded on a local or national securities exchange.
SHAREHOLDERS
DERIVATIVE ACTIONS
Under the BCA, any of our shareholders may bring an action in
our name to procure a judgment in our favor, also known as a
derivative action, provided that the shareholder bringing the
action is a holder of Common Stock both at the time the
derivative action is commenced and at the time of the
transaction to which the action relates.
LIMITATIONS ON
DIRECTOR LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The BCA authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their
shareholders for monetary damages for breaches of
directors fiduciary duties if the director acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and had no
reason to believe his conduct was unlawful. Our amended and
restated articles of incorporation include a provision that
eliminates the personal liability of directors for monetary
damages for actions taken as a director to the fullest extent
permitted by law.
Our amended and restated bylaws will also provide that we must
indemnify our directors and officers to the fullest extent
permitted by law. We are also expressly authorized to advance
certain expenses (including attorneys fees and
disbursements and court costs) to our directors and officers and
to carry directors and officers insurance providing
indemnification for our directors and officers for some
liabilities. We believe that these indemnification provisions
and insurance are useful to attract and retain qualified
directors and officers.
The limitation of liability and indemnification provisions in
our amended and restated articles of incorporation and amended
and restated bylaws may discourage shareholders from bringing a
lawsuit against directors for breach of their fiduciary duty.
These provisions may also have the effect of reducing the
likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might
otherwise benefit us and our shareholders. In addition, your
investment may be adversely affected to the extent that we pay
the costs of settlement and damage awards against our directors
and officers pursuant to these indemnification provisions.
Our amended and restated articles of incorporation anticipate
the possibility of a conflict regarding business opportunities
by our directors and officers who also serve as directors or
officers of Capital Maritime or its affiliates on a basis
consistent with the Business Opportunities Agreement. See
Certain Relationships and Related-Party
TransactionsBusiness Opportunities Agreement. We do
not anticipate that our business and the business of Capital
Maritime will have significant overlap.
There is currently no pending litigation or proceeding involving
any of our directors, officers or employees for which
indemnification is being sought.
ANTI-TAKEOVER
EFFECT OF CERTAIN PROVISIONS OF OUR AMENDED AND RESTATED
ARTICLES OF INCORPORATION AND AMENDED AND RESTATED
BYLAWS
Several provisions of our amended and restated articles of
incorporation and amended and restated bylaws, which are
summarized below, may have anti-takeover effects. These
provisions are intended to avoid costly takeover battles, lessen
our vulnerability to a hostile change of control and enhance the
ability of our board of directors to maximize shareholder value
in connection with any unsolicited offer to acquire us. However,
these anti-takeover provisions, which are summarized below,
could also discourage, delay or prevent (a) the merger or
acquisition of us by means of a tender offer, a proxy contest or
otherwise that a shareholder may consider in its best interest
and (b) the removal of incumbent officers and directors.
146
Description of
capital stock
Dual
Class Structure
As discussed above, our Class B Stock will have 10 votes
per share, while our Common Stock, which is the class of stock
we are selling in this offering and which will be the only class
of stock which is publicly traded, will have one vote per share.
After this offering, Crude Carriers Investments Corp. will
control all of our Class B Stock, although, pursuant to the
terms of the Class B Stock, the voting power of the
Class B Stock held by Crude Carriers Investments Corp. and
its affiliates will be limited to an aggregate maximum of 49% of
the combined voting power of our Common Stock and Class B
Stock. Because of our dual-class structure, Crude Carriers
Investments Corp. may be able to significantly influence matters
submitted to our shareholders for approval even if it and its
affiliates come to own significantly less than 50% of the
aggregate number of outstanding shares of our Common Stock and
Class B Stock. This concentrated control could discourage
others from initiating any potential merger, takeover or other
change of control transaction that other shareholders may view
as beneficial.
Blank Check
Preferred Stock
Under the terms of our amended and restated articles of
incorporation, our board of directors will have authority,
without any further vote or action by our shareholders, to issue
up to 100 million shares of blank check
preferred stock. Our board could authorize the issuance of
preferred stock with voting or conversion rights that could
dilute the voting power or rights of the holders of Common
Stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect
of delaying, deferring or preventing a change in control of us
or the removal of our management and might harm the market price
of our Common Stock. We have no current plans to issue any
shares of preferred stock.
Classified Board
of Directors
Our amended and restated articles of incorporation provide for
the division of our board of directors into three classes of
directors, with each class as nearly equal in number as
possible, serving staggered, three-year terms beginning upon the
expiration of the initial term for each class. Approximately
one-third of our board of directors is elected each year. This
classified board provision could discourage a third party from
making a tender offer for our shares or attempting to obtain
control of us. It could also delay shareholders who do not agree
with the policies of our board of directors from removing a
majority of our board of directors for up to two years.
Election and
Removal of Directors
Our amended and restated articles of incorporation prohibit
cumulative voting in the election of directors. Our amended and
restated bylaws will require parties other than the board of
directors to give advance written notice of nominations for the
election of directors. These provisions may discourage, delay or
prevent the removal of incumbent officers and directors.
Our amended and restated bylaws provide that shareholders are
required to give us advance notice of any person they wish to
propose for election as a director at an annual general meeting
if that person is not proposed by our board of directors. These
advance notice provisions provide that the shareholder must have
given written notice of such proposal not less than 90 days
nor more than 120 days prior to the anniversary date of the
immediately preceding annual general meeting.
Our shareholders may not call special meetings for the purpose
of electing directors except in lieu of an annual meeting as
discussed above or to replace a director being removed by the
shareholders. Our amended and restated articles of incorporation
provide that any director or our entire board of directors may
be removed at any time, solely for cause, by the affirmative
vote of the holders of
66
2
/
3
%
or more
147
Description of
capital stock
of the total voting power of our outstanding capital stock or by
a majority of the entire board of directors.
Limited Actions
by Shareholders
Our amended and restated bylaws provide that any action required
or permitted to be taken by our shareholders must be effected at
an annual or special meeting of shareholders or as otherwise
permitted by the BCA. Our amended and restated bylaws provide
that, subject to certain limited exceptions, only our Chairman
or Chief Executive Officer, in either case at the direction of
the board of directors, may call special meetings of our
shareholders, and the business transacted at the special meeting
will be limited to the purposes stated in the notice.
Accordingly, a shareholder may be prevented from calling a
special meeting for shareholder consideration of a proposal over
the opposition of our board of directors and shareholder
consideration of a proposal may be delayed until the next annual
general meeting.
Amendments to the
Articles of Incorporation
Article VI of our amended and restated articles of
incorporation provides, among other things, for the election,
removal and classification of our directors, and may only be
repealed or amended by a vote of
66
2
/
3
%
or more of the total voting power of our outstanding capital
stock.
Bylaw
Amendments
Our amended and restated bylaws may only be repealed or amended
by a vote of
66
2
/
3
%
or more of the total voting power of our outstanding capital
stock. In light of the voting rights of our Class B Stock,
any amendments to our bylaws will likely require the approval of
Crude Carriers Investment Corp.
TRANSFER
AGENT
The registrar and transfer agent for our Common Stock will be
BNY Mellon Shareowner Services.
148
CERTAIN MARSHALL
ISLANDS COMPANY CONSIDERATIONS
Our corporate affairs will be governed by our amended and
restated articles of incorporation, our amended and restated
bylaws and the BCA. The provisions of the BCA resemble
provisions of the corporation laws of a number of states in the
United States, including Delaware. While the BCA also provides
that it is to be interpreted according to the laws of the State
of Delaware and other states with substantially similar
legislative provisions, there have been few, if any, court cases
interpreting the BCA in the Marshall Islands, and we cannot
predict whether Marshall Islands courts would reach the same
conclusions as Delaware or other courts in the United States.
Accordingly, you may have more difficulty in protecting your
interests under Marshall Islands law in the face of actions by
our management, directors or controlling shareholders than would
shareholders of a corporation incorporated in a
U.S. jurisdiction that has developed a substantial body of
case law.
The following table provides a comparison between statutory
provisions of the BCA and the Delaware General Corporation Law
relating to shareholders rights.
|
|
|
Marshall
Islands
|
|
Delaware
|
|
|
|
Shareholder Meetings
|
|
|
|
Held at a time and place as designated in the bylaws.
|
|
May be held at such time or place as designated in the
certificate of incorporation or the bylaws, or if not so
designated, as determined by the board of directors.
|
|
|
|
Special meetings of the shareholders may be called by the board
of directors or by such person or persons as may be authorized
by the articles of incorporation or by the bylaws.
|
|
Special meetings of the shareholders may be called by the board
of directors or by such person or persons as may be authorized
by the certificate of incorporation or by the bylaws.
|
|
|
|
May be held in or outside of the Marshall Islands
|
|
May be held in or outside of Delaware.
|
|
|
|
Notice:
|
|
Notice:
|
|
|
|
Whenever shareholders are required to
take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the
meeting and, unless it is an annual meeting, indicate that it is
being issued by or at the direction of the person calling the
meeting.
|
|
Whenever shareholders are required 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 remote communication, if
any.
|
|
|
|
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 meeting.
|
|
Shareholders Voting Rights
|
|
|
|
Any action required to be taken by a meeting of shareholders may
be taken without a meeting if consent is in writing and is
signed by all the shareholders entitled to vote with respect to
the subject matter thereof.
|
|
Any action required to be taken by a meeting of shareholders may
be taken without a meeting if a consent for such action is in
writing and is signed by shareholders having not less than the
minimum number of votes that would be necessary to authorize or
take such action at a meeting at
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
Marshall
Islands
|
|
Delaware
|
|
|
|
|
|
|
|
which all shares entitled to vote thereon were present and
voted.
|
|
|
|
Any person authorized to vote may authorize another person or
persons 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.
|
|
For stock corporations, the certificate of incorporation or
bylaws may specify the number of shares required to constitute a
quorum but in no event shall a quorum consist of less than one-
third of shares entitled to vote at a meeting. In the absence of
such specifications, a majority of shares entitled to vote shall
constitute a quorum.
|
|
|
|
The articles of incorporation may provide for cumulative voting
in the election of directors.
|
|
The certificate of incorporation may provide for cumulative
voting in the election of directors.
|
|
Directors
|
|
|
|
The board of directors must consist of at least one member.
|
|
The board of directors must consist of at least one member.
|
|
|
|
Number of board members can be changed by an amendment to the
bylaws, by the shareholders, or by action of the board under the
specific provisions of a bylaw.
|
|
Number of board members shall be fixed by, or in a manner
provided by, the bylaws, unless the certificate of incorporation
fixes the number of directors, in which case a change in the
number shall be made only by amendment of the certificate of
incorporation.
|
|
|
|
If the board of directors is authorized to change the number of
directors, it can only do so by a majority of the entire board
of directors and so long as no decrease in the number of
directors shortens the term of any incumbent director.
|
|
|
|
Dissenters Rights of Appraisal
|
|
|
|
Shareholders have a right to dissent from any plan of merger or
consolidation or sale or exchange of all or substantially all
assets not made in the usual course of business, and receive
payment of the fair value of their shares.
|
|
Appraisal rights shall be available for the shares of any class
or series of stock of a corporation in a merger or
consolidation, subject to limited exceptions, such as a merger
or consolidation of corporations listed on a national securities
exchange in which listed stock is the offered consideration.
|
|
|
|
A holder of any adversely affected shares who does not vote on
or consent in writing to an amendment to the articles of
incorporation has the right to dissent and to receive payment
for such shares if the amendment:
|
|
|
|
|
|
Alters or abolishes any preferential
right of any outstanding shares having preference; or
|
|
|
|
|
|
|
|
|
150
|
|
|
Marshall
Islands
|
|
Delaware
|
|
|
|
|
|
Creates, alters or abolishes any
provision or right in respect to the redemption of any
outstanding shares; or
|
|
|
|
|
|
Alters or abolishes any preemptive
right of such holder to acquire shares or other securities; or
|
|
|
|
|
|
Excludes or limits the right of such
holder to vote on any matter, except as such right may be
limited by the voting rights given to new shares then being
authorized of any existing or new class.
|
|
|
|
Shareholders Derivative Actions
|
|
|
|
An action may be brought in the right of a corporation to
procure a judgment in its favor, by a holder of shares or of
voting trust certificates or of a beneficial interest in such
shares or certificates. It shall be made to appear that the
plaintiff is such a holder at the time of bringing the action
and that he was such a holder at the time of the transaction of
which he complains, or that his shares or his interest therein
devolved upon him by operation of law.
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In any derivative suit instituted by a shareholder or a
corporation, it shall be averred in the complaint that the
plaintiff was a shareholder of the corporation at the time of
the transaction of which he complains or that such
shareholders stock thereafter devolved upon such
shareholder by operation of law.
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A complaint shall set forth with particularity the efforts of
the plaintiff to secure the initiation of such action by the
board of directors or the reasons for not making such effort.
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Such action shall not be discontinued, compromised or settled
without the approval of the High Court of the Republic of The
Marshall Islands.
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Attorneys fees may be awarded if the action is successful.
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A corporation may require a plaintiff bringing a derivative suit
to give security for reasonable expenses if the plaintiff owns
less than 5% of any class of stock and the shares have a value
of less than $50,000.
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151
We cannot predict what effect, if any, market sales of shares of
Common Stock or the availability of shares of Common Stock for
sale will have on the market price of our Common Stock.
Nevertheless, sales of substantial amounts of Common Stock in
the public market, or the perception that such sales might
occur, could materially and adversely affect the market price of
our Common Stock and could impair our ability to raise capital
through the sale of our equity or equity-related securities at a
time and price that we deem appropriate.
Upon completion of this offering, we will have shares of Common
Stock and shares of Class B Stock outstanding. Of these
shares, the Common Stock sold in the offering will be freely
transferable in the United States without restriction under the
Securities Act, except that any shares held by our
affiliates, as that term is defined under
Rule 144 of the Securities Act, may be sold only in
compliance with the limitations described below. The remaining
outstanding shares of our Common Stock may be sold in the public
market only if registered under the Securities Act or if they
qualify for an exemption from registration under Rule 144
under the Securities Act, which are summarized below, or another
SEC rule.
Upon the completion of this offering, Crude Carriers Investments
Corp. will own shares of Class B Stock. These shares may
not be resold except in compliance with the registration
requirements of the Securities Act or under an exemption from
those registration requirements, such as the exemptions provided
by Rule 144, Regulation S and other exemptions under
the Securities Act. Our shares of Common Stock held by Crude
Carriers Investments Corp. or its affiliates will be subject to
the underwriters
lock-up
agreement as described below.
Prior to or at the closing of this offering, we will enter into
a registration rights agreement with Crude Carriers Investments
Corp., pursuant to which we will grant it and its affiliates,
the right, under certain circumstances and subject to certain
restrictions, to require us, following the first anniversary of
this offering, to register under the Securities Act any Common
Stock, including Common Stock issuable upon conversion of
Class B Stock, owned by Crude Carriers Investments Corp. or
its affiliates. Please read Certain Relationships and
Related-Party TransactionsRegistration Rights.
RULE 144
In general, under Rule 144, beginning 90 days after
the date of this prospectus, a person who is not our affiliate
and has not been our affiliate at any time during the preceding
three months will be entitled to sell any shares of our Common
Stock that such person has beneficially owned for at least six
months, including the holding period of any prior owner other
than one of our affiliates, without regard to volume
limitations. Sales of our Common Stock by any such person would
be subject to the availability of current public information
about us if the shares to be sold were beneficially owned by
such person for less than one year.
In addition, under Rule 144, a person may sell shares of
our Common Stock acquired from us immediately upon the closing
of this offering, without regard to volume limitations or the
availability of public information about us, if:
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the person is not our affiliate and has not been our affiliate
at any time during the preceding three months; and
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the person has beneficially owned the shares to be sold for at
least one year, including the holding period of any prior owner
other than one of our affiliates.
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Beginning 90 days after the date of this prospectus, our
affiliates who have beneficially owned shares of our Common
Stock for at least six months, including the holding period of
any prior owner other than
152
Shares eligible
for future sale
one of our affiliates, would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of:
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1% of the number of shares of our Common Stock then outstanding,
which will equal approximately 135,000 shares immediately
after this offering; and
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the average weekly trading volume in our Common Stock on the
NYSE during the four calendar weeks preceding the date of filing
of a Notice of Proposed Sale of Securities Pursuant to
Rule 144 with respect to the sale.
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Sales under Rule 144 by our affiliates are also subject to
manner of sale provisions and notice requirements and to the
availability of current public information about us.
LOCK-UP
AGREEMENTS
In connection with this offering, we, Crude Carriers Investments
Corp., and each of our officers and directors, including
nominees for directors, have agreed with the underwriters,
subject to certain exceptions, not to sell, dispose of or hedge
any of our Common Stock or securities convertible into or
exchangeable for shares of Common Stock, for a period of at
least 180 days after the date of this prospectus, except
with the prior written consent of the representatives of the
underwriters. Please read UnderwritingNo Sales of
Similar Securities.
The following discussion is based on the opinion of Watson,
Farley & Williams (New York) LLP, our counsel as to
matters of the laws of the Republic of The Marshall Islands, and
the current laws of the Republic of The Marshall Islands and is
applicable only to persons who do not reside in, maintain
offices in or engage in business in the Republic of The Marshall
Islands.
Because we do not, and we do not expect that we or any of our
future subsidiaries will, conduct business or operations in the
Republic of The Marshall Islands, and because we anticipate that
all documentation related to any offerings pursuant to this
prospectus will be executed outside of the Republic of The
Marshall Islands, under current Marshall Islands law you will
not be subject to Marshall Islands taxation or withholding on
distributions. In addition, you will not be subject to Marshall
Islands stamp, capital gains or other taxes on the purchase,
ownership or disposition of shares of Common Stock, and you will
not be required by the Republic of The Marshall Islands to file
a tax return related to the shares of Common Stock.
It is the responsibility of each stockholder to investigate the
legal and tax consequences, under the laws of the pertinent
jurisdictions, including the Republic of The Marshall Islands,
of its investment in us. Accordingly, each stockholder is urged
to consult its tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each stockholder
to file all state, local and
non-U.S.,
as
well as U.S. federal, tax returns that may be required
of it.
153
The following is a discussion of the material United States
federal income tax considerations relevant to an investment
decision by a U.S. Holder or a
Non-U.S. Holder,
as defined below, with respect to our Common Stock. To the
extent it relates to United States federal income tax matters,
and subject to the qualifications, exceptions, assumption and
limitations contained in the discussion, it is the opinion of
Sullivan & Cromwell LLP, United States federal income tax
counsel to us. This discussion does not purport to address the
tax consequences of owning our Common Stock to all categories of
investors, some of which (such as financial institutions,
regulated investment companies, real estate investment trusts,
tax-exempt organizations, insurance companies, persons holding
our Common Stock as part of a hedging, integrated, conversion or
constructive sale transaction or a straddle, traders in
securities that have elected the
mark-to-market
method of accounting for their securities, persons liable for
alternative minimum tax, persons who are investors in
pass-through entities, persons who own, actually or under
applicable constructive ownership rules, 10% or more of our
Common Stock, dealers in securities or currencies and
U.S. Holders whose functional currency is not the
U.S. dollar) may be subject to special rules. This
discussion deals only with holders who purchase Common Stock in
connection with this offering and hold the Common Stock as a
capital asset. Moreover, this discussion is based on laws,
regulations and other authorities in effect as of the date of
this prospectus, all of which are subject to change, possibly
with retroactive effect. You are encouraged to consult your own
tax advisors concerning the overall tax consequences arising in
your own particular situation under United States federal,
state, local or foreign law of the ownership of our Common Stock.
For purposes of this discussion, the term
U.S. Holder means a beneficial owner of our
Common Stock that is, for United States federal income tax
purposes, (a) a citizen or resident of the United States,
(b) a domestic corporation, (c) an estate the income
of which is subject to United States federal income taxation
regardless of its source, or (d) a trust if either
(1) a court within the United States is able to exercise
primary jurisdiction over the administration of the trust and
one or more U.S. persons have the authority to control all
substantial decisions of the trust, or (2) the trust has a
valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person. If a partnership holds
Common Stock, the tax treatment of a partner in such partnership
will generally depend on the status of the partner and upon the
activities of the partnership. If you are a partner in such a
partnership holding our Common Stock, you are encouraged to
consult your tax advisor. A beneficial owner of our Common Stock
(other than a partnership) that is not a U.S. person for
United States federal income tax purposes is referred to below
as a
Non-U.S. Holder.
TAXATION OF
OPERATING INCOME: IN GENERAL
Unless exempt from United States federal income taxation, a
foreign corporation is subject to United States federal income
tax in respect of any income that is derived from the use of
vessels, from the hiring or leasing of vessels for use on a
time, voyage or bareboat charter basis or from the performance
of services directly related to those uses, collectively
referred to as shipping income, to the extent that
the shipping income is derived from sources within the United
States.
For these purposes, shipping income attributable to
transportation that begins or ends, but that does not both begin
and end, in the United States, which we refer to as
U.S. source international shipping income, will
be considered to be 50% derived from sources within the United
States.
No portion of shipping income attributable to transportation
exclusively between
non-U.S. ports
will be considered to be derived from sources within the United
States. Such shipping income will not be subject to any United
States federal income tax.
154
United States
federal income tax considerations
Shipping income attributable to transportation exclusively
between U.S. ports will be considered to be 100% derived
from U.S. sources. However, due to prohibitions under
U.S. law, we do not anticipate engaging in the
transportation of cargo that would produce 100% U.S. source
shipping income.
Unless exempt from tax under Section 883 of the Code (or
effectively connected with the conduct of a
U.S. trade or business, as described below), 50% of our
gross U.S. source international shipping income generally
would be subject to a 4% tax imposed without allowance for
deductions.
EXEMPTION OF
OPERATING INCOME FROM UNITED STATES FEDERAL INCOME
TAXATION
Under Section 883 of the Code and the related regulations,
a foreign corporation will be exempt from United States federal
income taxation on its U.S. source international shipping
income if:
(a) it is organized in a qualified foreign country, which
is one that grants an equivalent exemption from tax
to corporations organized in the United States in respect of
each category of shipping income for which exemption is being
claimed under Section 883, and to which we refer as the
Country of Organization Test; and
(b) either:
(1) more than 50% of the value of its stock is beneficially
owned, directly or indirectly, by qualified shareholders, which
includes individuals who are residents of a
qualified foreign country, to which we refer as the 50%
Ownership Test;
(2) one or more classes of its stock representing, in the
aggregate, more than 50% of the combined voting power and value
of all classes of its stock are primarily and regularly
traded on one or more established securities markets in a
qualified foreign country or in the United States, to which we
refer as the Publicly Traded Test; or
(3) it is a controlled foreign corporation and
it satisfies an ownership test to which, collectively, we refer
as the CFC Test.
The Marshall Islands, the jurisdiction where we are
incorporated, has been officially recognized by the IRS as a
qualified foreign country that currently grants the requisite
equivalent exemption from tax in respect of each category of
shipping income we expect to earn in the future. Therefore, we
will satisfy the Country of Organization Test and will likely be
exempt from U.S. federal income taxation with respect to
our U.S. source international shipping income if we are
able to satisfy any one of the 50% Ownership Test, the Publicly
Traded Test or the CFC Test.
The regulations under Section 883 provide, in pertinent
part, that a corporation will meet the Publicly Traded Test if
one or more classes of stock of a foreign corporation
representing, in the aggregate, more than 50% of the combined
voting power and value of all classes of stock are
primarily and regularly traded on one or more established
securities markets in a qualified foreign country or in
the United States. A class of stock will be considered to be
primarily traded on an established securities market
in a country if the number of shares of such class of stock that
are traded during any taxable year on all established securities
markets in that country exceeds the number of shares of such
stock that are traded during that year on established securities
markets in any other single country.
Under the regulations, a class of stock will be considered to be
regularly traded on an established securities market
if (a) such class of stock is listed on such market,
(b) such class of stock is traded on such market, other
than in minimal quantities, on at least 60 days during the
taxable year or one sixth of the days in a short taxable year,
and (c) the aggregate number of shares of such class of
stock traded on such market during the taxable year is at least
10% of the average number of shares of such class of stock
outstanding during such year, or as appropriately adjusted in
the case of a short taxable year. The
155
United States
federal income tax considerations
regulations provide that the trading frequency and trading
volume tests will be deemed satisfied if a class of stock is
regularly quoted by dealers making a market in such stock.
The regulations provide, in pertinent part, that a class of
stock will not be considered to be regularly traded
on an established securities market for any taxable year in
which 50% or more of the outstanding shares of such class of
stock are owned, actually or constructively under specified
stock attribution rules, on more than half the days during the
taxable year by persons who each own 5% or more of the
outstanding shares of such class of stock, to which we refer as
the Five Percent Override Rule.
For purposes of being able to determine the persons who actually
or constructively own 5% or more of a class of stock, or
5% shareholders, the regulations permit a company to
rely on Schedule 13G and Schedule 13D filings with the
SEC to identify its 5% shareholders. The regulations further
provide that an investment company that is registered under the
Investment Company Act of 1940, as amended, will not be treated
as a 5% shareholder for these purposes.
Since we expect that our Common Stock will only be traded on the
NYSE, which is considered to be an established securities
market, we expect that our Common Stock will be deemed to be
primarily traded on an established securities
market. In addition, as the voting power of the Class B
Stock constitutes not more than 49% of the total voting power of
all classes of stock, upon the closing of this offering, we
expect that our Common Stock will represent more than 50% of the
combined voting power and value of all classes of our stock. We
do not expect that the Five Percent Override Rule would apply to
our Common Stock because the voting rights of any 5% shareholder
other than Crude Carriers Investments Corp. are limited to a
4.9% voting interest in us regardless of how many shares of
Common Stock are held by that 5% shareholder. Furthermore, we
believe we will meet the trading volume requirements described
previously because the pertinent regulations provide that
trading volume requirements will be deemed to be met with
respect to a class of equity traded on an established securities
market in the United States, where, as we expect will be the
case for our Common Stock, the class of equity is regularly
quoted by dealers who regularly and actively make offers,
purchases and sales of such equity to unrelated persons in the
ordinary course of business. In addition, the voting rights of
Crude Carriers Investments Corp. and related parties are limited
to a 49% voting interest regardless of how many shares of Common
Stock it actually owns, unless a sufficient number of
shareholders of Crude Carriers Investments Corp. and related
parties meet certain requirements that would permit us to avoid
the application of the Five Percent Override Rule.
We therefore expect that our Common Stock will be considered to
be primarily and regularly traded on an established
securities market and that we and each of our corporate
subsidiaries in which we own more than 50% of the value of the
outstanding stock and that is organized in a qualifying foreign
country will therefore qualify for the Section 883 tax
exemption. There can, however, be no assurance in this regard.
Should any of the facts described above cease to be correct, our
and these subsidiaries ability to qualify for the
Section 883 tax exemption will be compromised.
TAXATION IN
ABSENCE OF SECTION 883 EXEMPTION
If we do not qualify for exemption under Section 883 as
described above, 50% of our gross U.S. source international
shipping income will be subject to a 4% tax, without allowance
for deductions, unless such income is effectively connected with
the conduct of a U.S. trade or business (effectively
connected income), as described below. We do not currently
anticipate that a significant portion of our shipping income
will be U.S. source international shipping income, though
there can be no assurance in this regard.
To the extent our U.S. source international shipping income
or any other income we may have is considered to be effectively
connected income, as described below, any such income, net of
applicable
156
United States
federal income tax considerations
deductions, would be subject to the United States federal
corporate income tax, currently imposed at rates of up to 35%.
In addition, we may be subject to a 30% branch
profits tax on such income, and on certain interest paid
or deemed paid attributable to the conduct of such trade or
business.
Our U.S. source international shipping income would be
considered effectively connected income only if:
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we have, or are considered to have, a fixed place of business in
the United States involved in the earning of U.S. source
international shipping income; and
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substantially all of our U.S. source international 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.
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We do not intend to have either a fixed place of business in the
United States or any vessel sailing to or from the United States
on a regularly scheduled basis. Based on the expected mode of
our future shipping operations and other activities, we believe
that none of our shipping income will constitute effectively
connected income. However, the nature and extent of our
operations are subject to change, and there can be no assurance
that some of our shipping income will not constitute effectively
connected income. We may also from time to time generate
non-shipping income that may be treated as effectively connected
income.
UNITED STATES
TAXATION OF GAIN ON SALE OF VESSELS
Provided we qualify for exemption from tax under
Section 883 in respect of our shipping income, gain from
the sale of a vessel likewise should be exempt from tax under
Section 883. If, however, our shipping income does not, for
whatever reason, qualify for exemption under Section 883,
then such gain could be treated as effectively connected income
(determined under rules different from those discussed above)
and subject to the net income and branch profits tax regime
described above.
UNITED STATES
FEDERAL INCOME TAXATION OF U.S. HOLDERS
Distributions
Subject to the discussion of PFICs below, any distributions made
by us with respect to our Common Stock to a U.S. Holder
will generally constitute dividends to the extent of our current
or accumulated earnings and profits, as determined under United
States federal income tax principles. Distributions in excess of
those earnings and profits will be treated first as a nontaxable
return of capital to the extent of the U.S. Holders
tax basis in our Common Stock, and thereafter as capital gain.
Because we are not a U.S. corporation, U.S. Holders
that are corporations will not be entitled to claim a
dividends-received deduction with respect to any distributions
they receive from us. Amounts taxable as dividends generally
will be treated as income from sources outside the United States
and will, depending on your circumstances, be
passive or general income which, in
either case, is treated separately from other types of income
for purposes of computing the foreign tax credit allowable to
you. However, if (a) we are 50% or more owned, by vote or
value, by United States persons and (b) at least 10% of our
earnings and profits are attributable to sources within the
United States, then for foreign tax credit purposes, a portion
of our dividends would be treated as derived from sources within
the United States. With respect to any dividend paid for any
taxable year, the United States source ratio of our dividends
for foreign tax credit purposes would be equal to the portion of
our earnings and profits from sources within the United States
for such taxable year, divided by the total amount of our
earnings and profits for such taxable year.
Dividends paid on our Common Stock to a U.S. Holder who is
an individual, trust or estate (a U.S. Non-Corporate
Holder) will generally be treated as qualified
dividend income that is taxable
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United States
federal income tax considerations
to such U.S. Non-Corporate Holder at a maximum tax rate of
15% (for payments made in taxable years beginning before
January 1, 2011), provided that (a) the Common Stock
is readily tradable on an established securities market in the
United States (such as the NYSE, on which we expect our Common
Stock will be traded); (b) we are not a PFIC for the
taxable year during which the dividend is paid or the
immediately preceding taxable year (which, as discussed below,
we do not believe will be the case); (c) the
U.S. Non-Corporate Holders holding period of the
Common Stock includes more than 60 days in the
121-day
period beginning 60 days before the date on which the
Common Stock becomes ex-dividend; and (d) the
U.S. Non-Corporate Holder is not under an obligation to
make related payments with respect to positions in substantially
similar or related property. There is no assurance that
(a) any dividends paid on our Common Stock will be eligible
for these preferential rates in the hands of a
U.S. Non-Corporate Holder, or (b) the preferential
rate on dividends will not be repealed or extended prior to the
scheduled expiration date or expire on such date. Any dividends
we pay out of earnings and profits which are not eligible for
these preferential rates will be taxed as ordinary income to a
U.S. Non-Corporate Holder.
Special rules may apply to any extraordinary
dividendgenerally, a dividend in an amount which is
equal to or in excess of 10% of a shareholders adjusted
basis (or fair market value in certain circumstances) in a share
of our Common Stockpaid by us. If we pay an
extraordinary dividend on our Common Stock that is
treated as qualified dividend income, then any loss
derived by a U.S. Non-Corporate Holder from the sale or
exchange of such Common Stock will be treated as long-term
capital loss to the extent of such dividend.
Sale, Exchange or
Other Disposition of Common Stock
Subject to the discussion of PFICs below, a U.S. Holder
generally will recognize capital gain or loss upon a sale,
exchange or other taxable disposition of our Common Stock in an
amount equal to the difference between the amount realized by
the U.S. Holder from such disposition and the
U.S. Holders tax basis in such stock. Capital gain of
a U.S. Non-Corporate Holder that is recognized in taxable
years beginning before January 1, 2011 is generally taxed
at a maximum rate of 15% where the holder has a holding period
greater than one year. Such capital gain or loss will generally
be treated as U.S. source income or loss, as applicable,
for U.S. foreign tax credit purposes. A
U.S. Holders ability to deduct capital losses is
subject to certain limitations.
Passive Foreign
Investment Company Status and Significant Tax
Consequences
We will be a PFIC with respect to a U.S. Holder if, for any
taxable year in which the U.S. Holder held our Common
Stock, either:
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75% or more of our gross income for the taxable year consists of
passive income (generally including dividends,
interest, gains from the sale or exchange of investment property
and rents and royalties other than rents and royalties which are
received from unrelated parties in connection with the active
conduct of a trade or business, as defined in applicable
Treasury regulations); or
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at least 50% of our assets for the taxable year (averaged over
the year and generally determined based upon value) produce or
are held for the production of passive income.
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If we would otherwise be a PFIC in our
start-up
year (defined as the first taxable year we earn gross
income) as a result of a delay in purchasing vessels with the
proceeds of the offering (or generally for any other reason), we
will not be treated as a PFIC in that taxable year, provided
that (a) no predecessor corporation was a PFIC, (b) it
is established to the IRSs satisfaction that we will not
be a PFIC in either of the two succeeding taxable years, and
(c) we are not, in fact, a PFIC for either succeeding
taxable year. We will attempt to conduct our affairs in a manner
so that, if applicable, we will satisfy the
start-up
year exception, but we cannot assure you that we will so qualify.
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United States
federal income tax considerations
For purposes of these tests, income derived from the performance
of services does not constitute passive income. By contrast,
rental income would generally constitute passive income unless
we were treated under specific rules as deriving our rental
income in the active conduct of a trade or business. Based on
our planned operations and future projections, we do not believe
that we will be a PFIC with respect to any taxable year. In this
regard, we intend to treat our income from the spot charter and
time charter of vessels as services income, rather than rental
income. Accordingly, we believe that such income does not
constitute passive income, and that the assets that we own and
operate in connection with the production of that income,
primarily our vessels, do not constitute passive assets for
purposes of determining whether we are a PFIC, at least to the
extent that they generate income that is not passive.
There is, however, no direct legal authority under the PFIC
rules addressing our method of operation. Moreover, in a recent
case not concerning PFICs,
Tidewater Inc.
v.
United
States
, 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit
held that a vessel time charter at issue generated predominantly
rental income rather than services income. However, the
courts ruling was contrary to the position of the IRS that
the time charter income should have been treated as services
income. Moreover,
Tidewater
analyzed time charters, while
we anticipate that a significant portion of our income will be
generated from spot charters.
No assurance, however, can be given that the IRS, or a court of
law will accept our position, and there is a risk that the IRS
or a court of law could determine that we are a PFIC. Moreover,
because there are uncertainties in the application of the PFIC
rules, because the PFIC test is an annual test, and because,
although we intend to manage our business so as to avoid PFIC
status to the extent consistent with our other business goals,
there could be changes in the nature and extent of our
operations in future years, there can be no assurance that we
will not become a PFIC in any taxable year.
If we were to be treated as a PFIC for any taxable year (and
regardless of whether we remain a PFIC for subsequent taxable
years), each U.S. Holder who is treated as owning our stock
for purposes of the PFIC rules would be liable to pay United
States federal income tax at the highest applicable income tax
rates on ordinary income upon the receipt of excess
distributions (generally the portion of any distributions
received by the U.S. Holder on our Common Stock in a
taxable year in excess of 125 percent of the average annual
distributions received by the U.S. Holder in the three
preceding taxable years or, if shorter, the
U.S. Holders holding period for the Common Stock) and
on any gain from the disposition of our Common Stock, plus
interest on such amounts, as if such excess distributions or
gain had been recognized ratably over the
U.S. Holders holding period of our Common Stock.
The above rules relating to the taxation of excess distributions
and dispositions will not apply to a U.S. Holder who has
made a timely qualified electing fund
(QEF) election. Instead, each U.S. Holder who
has made a timely QEF election is required for each taxable year
to include in income a pro rata share of our ordinary earnings
as ordinary income and a pro rata share of our net capital gain
as long-term capital gain, regardless of whether we have made
any distributions of the earnings or gain. The
U.S. Holders basis in our Common Stock will be
increased to reflect taxed but undistributed income.
Distributions of income that had been previously taxed will
result in a corresponding reduction in the basis of the Common
Stock and will not be taxed again once distributed. A
U.S. Holder making a QEF election would generally recognize
capital gain or loss on the sale, exchange or other disposition
of our Common Stock. If we determine that we are a PFIC for any
taxable year, we intend to provide U.S. Holders with such
information as may be required to make a QEF election effective.
Alternatively, if we were to be treated as a PFIC for any
taxable year and provided that our Common Stock is treated as
marketable, which we believe will be the case, a
U.S. Holder may make a
mark-to-market
election. Under a
mark-to-market
election, any excess of the fair market value of the Common
Stock at the close of any taxable year over the
U.S. Holders adjusted tax basis in the Common Stock
is included in the U.S. Holders income as ordinary
income. These amounts of ordinary
159
United States
federal income tax considerations
income will not be eligible for the favorable tax rates
applicable to qualified dividend income or long-term capital
gains. In addition, the excess, if any, of the
U.S. Holders adjusted tax basis at the close of any
taxable year over the fair market value of the Common Stock is
deductible in an amount equal to the lesser of the amount of the
excess or the amount of the net
mark-to-market
gains that the U.S. Holder included in income in prior
years. A U.S. Holders tax basis in our Common Stock
would be adjusted to reflect any such income or loss. Gain
realized on the sale, exchange or other disposition of our
Common Stock would be treated as ordinary income, and any loss
realized on the sale, exchange or other disposition of our
Common Stock would be treated as ordinary loss to the extent
that such loss does not exceed the net
mark-to-market
gains previously included by the U.S. Holder.
A U.S. Holder who holds our Common Stock during a period
when we are a PFIC generally will be subject to the foregoing
rules for that taxable year and all subsequent taxable years
with respect to that U.S. Holders holding of our
Common Stock, even if we cease to be a PFIC, subject to certain
exceptions for U.S. Holders who made a
mark-to-market
or QEF election. U.S. Holders are urged to consult their
tax advisors regarding the PFIC rules, including as to the
advisability of choosing to make a QEF or
mark-to-market
election.
UNITED STATES
FEDERAL INCOME TAXATION OF
NON-U.S.
HOLDERS
Non-U.S. Holders
generally will not be subject to United States federal income
tax or withholding tax on dividends received from us on our
Common Stock unless the income is effectively connected income
(and the dividends are attributable to a permanent establishment
maintained by the
Non-U.S. Holder
in the United States if that is required by an applicable income
tax treaty).
Non-U.S. Holders
generally will not be subject to United States federal income
tax or withholding tax on any gain realized upon the sale,
exchange or other disposition of our Common Stock, unless either:
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the gain is effectively connected income (and the gain is
attributable to a permanent establishment maintained by the
Non-U.S. Holder
in the United States if that is required by an applicable income
tax treaty); or
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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
certain other conditions are met.
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Effectively connected income will generally be subject to
regular U.S. federal income tax in the same manner as
discussed in the section above relating to the taxation of
U.S. Holders, unless exempt under an applicable income tax
treaty. In addition, earnings and profits of a corporate
Non-U.S. Holder
that are attributable to such income, as determined after
allowance for certain adjustments, may be subject to an
additional branch profits tax at a rate of 30%, or at a lower
rate as may be specified by an applicable income tax treaty.
Non-U.S. Holders
may be subject to tax in jurisdictions other than the United
States on dividends received from us on our Common Stock and on
any gain realized upon the sale, exchange or other disposition
of our Common Stock.
BACKUP
WITHHOLDING AND INFORMATION REPORTING
In general, payments of distributions on our Common Stock that
are made within the United States, and the proceeds of a
disposition of our Common Stock that is effected at a United
States office of a broker will be subject to United States
federal income tax information reporting requirements if you are
a Non-Corporate U.S. Holder. Such payments may also be
subject to United States federal backup withholding tax if you
are a Non-Corporate U.S. Holder and you:
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fail to provide us with an accurate taxpayer identification
number;
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160
United States
federal income tax considerations
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are notified by the IRS that you have failed to report all
interest or dividends required to be shown on your federal
income tax returns; or
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fail to comply with applicable certification requirements.
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A
Non-U.S. Holder
that receives distributions on our Common Stock within the
United States or sells our Common Stock through the United
States office of a broker will be subject to backup withholding
and information reporting unless the
Non-U.S. Holder
certifies that it is a
non-U.S. person,
under penalties of perjury, or otherwise establishes an
exemption.
Information reporting and backup withholding will generally not
apply to payments of proceeds from a disposition of our Common
Stock if the Common Stock is sold through the
non-U.S. office
of a
non-U.S. broker
and the proceeds are paid outside the United States. However,
information reporting (but not backup withholding) will apply to
a payment of proceeds, even if that payment is made outside the
United States, stemming from a sale of our Common Stock through
a
non-U.S. office
of a broker that is a U.S. person or has certain other
connections with the United States.
Backup withholding tax is not an additional tax. Rather, you
generally may obtain a refund of any amounts withheld under
backup withholding rules that exceed your income tax liability
by filing a refund claim with the IRS.
161
We are offering the shares of our Common Stock described in this
prospectus through the underwriters named below. UBS Securities
LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Wells Fargo Securities, LLC are the joint
book-running managers of this offering and representatives of
the underwriters. We have entered into an underwriting agreement
with the representatives, on behalf of the underwriters. Subject
to the terms and conditions of the underwriting agreement, each
of the underwriters has severally agreed to purchase the number
of shares of Common Stock listed next to its name in the
following table.
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Number of
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Underwriters
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Shares
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UBS Securities LLC
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Wells Fargo Securities, LLC
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Nordea Bank Norge ASA
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Oppenheimer & Co. Inc.
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Cantor Fitzgerald & Co.
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Pareto Securities Inc.
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RS Platou Markets AS
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ING Financial Markets LLC
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Total
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13,500,000
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The underwriting agreement provides that the underwriters must
buy all of the shares if they buy any of them. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option
described below.
Our Common Stock is offered subject to a number of conditions,
including:
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receipt and acceptance of our Common Stock by the
underwriters; and
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the underwriters right to reject orders in whole or in
part.
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We have been advised by the representatives that the
underwriters intend to make a market in our Common Stock but
that they are not obligated to do so and may discontinue making
a market at any time without notice.
In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
OVER-ALLOTMENT
OPTION
We have granted the underwriters an option to buy up to an
aggregate of 2,025,000 additional shares of our Common
Stock. The underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, made in connection
with this offering. If the underwriters exercise this option,
they will each purchase additional shares approximately in
proportion to the amounts specified in the table above.
COMMISSIONS AND
DISCOUNTS
Shares sold by the underwriters to the public will initially be
offered at the initial offering price set forth on the cover of
this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the initial
public offering price. Any of these securities dealers may
resell any shares purchased from the underwriters to other
brokers or dealers at a discount up to
162
Underwriting
$ per share from the initial
public offering price. Sales of shares made outside of the
U.S. may be made by affiliates of the underwriters. Nordea
Bank Norge ASA and RS Platou Markets AS are not
U.S. registered broker-dealers and, pursuant to the
underwriting agreement, will effect offers and sales solely
outside of the United States or within the United States to the
extent permitted by
Rule 15a-6
under the Exchange Act and in compliance with state securities
laws. If all the shares are not sold at the initial public
offering price, the representatives may change the offering
price and the other selling terms. Upon execution of the
underwriting agreement, the underwriters will be obligated to
purchase the shares at the prices and upon the terms stated
therein and, as a result, will thereafter bear any risk
associated with changing the offering price to the public or
other selling terms.
The following table shows the per share and total underwriting
discounts and commissions we will pay to the underwriters
assuming both no exercise and full exercise of the
underwriters option to purchase up to additional
2,025,000 shares.
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No
exercise
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Full
exercise
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Per share
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$
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$
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Total
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$
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$
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The underwriters have agreed to reimburse us for certain of our
expenses in connection with this offering.
NO SALES OF
SIMILAR SECURITIES
We, our executive officers and directors and Crude Carriers
Investments Corp. have entered into
lock-up
agreements with the underwriters. Under these agreements,
subject to certain exceptions, we and each of these persons may
not, without the prior written approval of UBS Securities LLC,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Wells Fargo Securities, LLC, offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, or hedge our
Common Stock, Class B Stock or securities convertible into
or exchangeable or exercisable for our Common Stock or
Class B Stock. These restrictions will be in effect for a
period of 180 days after the date of this prospectus.
However, if:
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during the period that begins on the date that is 15 calendar
days plus three business days before the last day of the
180-day
lock-up
period and ends on the last day of the
180-day
lock-up
period, we issue an earnings release or material news or a
material event relating to us occurs; or
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prior to the expiration of the
180-day
lock-up
period, we announce that we will release earnings results during
the 16 day period beginning on the last day of the
180-day
lock-up
period,
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then the
180-day
lock-up
period shall continue to apply until the expiration of the date
that is 15 calendar days plus three business days after the date
on which the issuance of the earnings release or the material
news or material event occurs. At any time and without public
notice, UBS Securities LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Wells Fargo
Securities, LLC may, in their sole discretion, release some or
all of the securities from these
lock-up
agreements.
We have agreed to indemnify the underwriters against certain
liabilities, including certain liabilities under the Securities
Act. If we are unable to provide this indemnification, we have
agreed to contribute to payments the underwriters may be
required to make in respect of those liabilities.
NEW YORK STOCK
EXCHANGE LISTING
We have been cleared to apply to list our Common Stock on the
NYSE under the trading symbol CRU.
163
Underwriting
PRICE
STABILIZATION, SHORT POSITIONS
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of our Common Stock, including:
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stabilizing transactions;
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short sales;
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purchases to cover positions created by short sales;
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imposition of penalty bids; and
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syndicate covering transactions.
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Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our Common Stock while this offering is in progress.
These transactions may also include making short sales of our
Common Stock, which involve the sale by the underwriters of a
greater number of shares of Common Stock than they are required
to purchase in this offering and purchasing shares of Common
Stock on the open market to cover positions created by short
sales. Short sales may be covered short sales, which
are short positions in an amount not greater than the
underwriters over-allotment option referred to above, or
may be naked short sales, which are short positions
in excess of that amount.
The underwriters may close out any covered short position by
either exercising their over-allotment option, in whole or in
part, or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase
shares through the over-allotment option.
Naked short sales are in excess of the over-allotment option.
The underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the Common Stock
in the open market that could adversely affect investors who
purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our Common Stock
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions on the NYSE, in the
over-the-counter
market or otherwise.
DETERMINATION OF
OFFERING PRICE
Prior to this offering, there was no public market for our
Common Stock. The initial public offering price will be
determined by negotiation by us and the representatives of the
underwriters. The principal factors to be considered in
determining the initial public offering price include:
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the information set forth in this prospectus and otherwise
available to representatives;
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our history and prospects and the history of and prospects for
the industry in which we compete;
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an assessment of our management;
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our prospects for future earnings and the present state of our
development;
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the general condition of the securities markets at the time of
this offering;
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164
Underwriting
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the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies; and
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other factors deemed relevant by the underwriters and us.
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AFFILIATIONS
The underwriters and their affiliates may from time to time
perform investment banking, commercial banking, advisory and
other financial services for us and our affiliates for which
they may in the future receive customary fees and commissions.
Pursuant to the signed commitment letter we have entered into,
Nordea Bank Finland Plc, London Branch, an affiliate of Nordea
Bank Norge ASA, will be the lead arranger, a lender, the
facility agent and the security trustee under our
$100 million revolving credit facility.
SELLING
RESTRICTIONS
European Economic
Area
In relation to each Member State of the European Economic Area,
or EEA, which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from, and
including, the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date), an offer to the public of our
securities which are the subject of the offering contemplated by
this prospectus may not be made in that Relevant Member State,
except that, with effect from, and including, the Relevant
Implementation Date, an offer to the public in that Relevant
Member State of our securities may be made at any time under the
following exemptions under the Prospectus Directive, if they
have been implemented in that Relevant Member State:
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(a)
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to legal entities which are authorized or regulated to operate
in the financial markets, or, if not so authorized or regulated,
whose corporate purpose is solely to invest in our securities;
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(b)
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last (or, in Sweden,
the last two) financial year(s); (2) a total balance sheet
of more than 43,000,000 and (3) an annual net
turnover of more than 50,000,000, as shown in its last
(or, in Sweden, the last two) annual or consolidated
accounts; or
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(c)
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer; or
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(d)
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive provided that no such offer of our
securities shall result in a requirement for the publication by
us or any underwriter or agent of a prospectus pursuant to
Article 3 of the Prospectus Directive.
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As used above, the expression offered to the public
in relation to any of our securities in any Relevant Member
State means the communication in any form and by any means of
sufficient information on the terms of the offer and our
securities to be offered so as to enable an investor to decide
to purchase or subscribe for our securities, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
The EEA selling restriction is in addition to any other selling
restrictions set out in this prospectus.
165
Underwriting
United
Kingdom
This prospectus is only being distributed to and is only
directed at (a) persons who are outside the United Kingdom,
(b) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order),
or (c) high net worth companies, and other persons to who
it may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order, all such persons
together being referred to as relevant persons. The
securities are only available to, and any invitation, offer or
agreement to subscribe, purchase or otherwise acquire such
securities will be engaged in only with, relevant persons. Any
person who is not a relevant person should not act or rely on
this prospectus or any of its contents.
Switzerland
Our securities may not and will not be publicly offered,
distributed or re-distributed in or from Switzerland, and
neither this prospectus nor any other solicitation for
investments in our securities may be communicated or distributed
in Switzerland in any way that could constitute a public
offering within the meaning of articles 652a or 1156 of the
Swiss Federal Code of Obligations or of Article 2 of the
Federal Act on Investment Funds of March 18, 1994. This
prospectus may not be copied, reproduced, distributed or passed
on to others without the underwriters and agents
prior written consent. This prospectus is not a prospectus
within the meaning of Articles 1156 and 652a of the Swiss
Code of Obligations or a listing prospectus according to
article 32 of the Listing Rules of the Swiss exchange and
may not comply with the information standards required
thereunder. We will not apply for a listing of our securities on
any Swiss stock exchange or other Swiss regulated market and
this prospectus may not comply with the information required
under the relevant listing rules. The securities have not been
and will not be approved by any Swiss regulatory authority. The
securities have not been and will not be registered with or
supervised by the Swiss Federal Banking Commission, and have not
been and will not be authorized under the Federal Act on
Investment Funds of March 18, 1994. The investor protection
afforded to acquirers of investment fund certificates by the
Federal Act on Investment Funds of March 18, 1994 does not
extend to acquirers of our securities.
Hong
Kong
Our securities may not be offered or sold in Hong Kong, by means
of this prospectus or any document other than to persons whose
ordinary business is to buy or sell shares, whether as principal
or agent, or in circumstances which do not constitute an offer
to the public within the meaning of the Companies Ordinance
(Cap. 32, Laws of Hong Kong). No advertisement, invitation or
document relating to our securities may be issued or may be in
the possession of any person other than with respect to the
securities which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of our
securities may not be circulated or distributed, nor may our
securities be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or
indirectly, to persons in Singapore other than (a) to an
institutional investor under Section 274 of the Securities
and Futures Act, Chapter 289 of Singapore, or SFA,
(b) to a relevant person pursuant to Section 275(1),
or any person pursuant to Section 275(1A), and in
accordance with the conditions specified in Section 275 of
the SFA or (c) otherwise pursuant to, and in accordance
with
166
Underwriting
the conditions of, any other applicable provision of the SFA, in
each case subject to compliance with conditions set forth in the
SFA.
Where our securities are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor as defined in
Section 4A of the SFA) the sole business of which is to
hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited
investor; or (b) a trust (where the trustee is not an
accredited investor) whose sole purpose is to hold investments
and each beneficiary of the trust is an individual who is an
accredited investor; shares of that corporation or the
beneficiaries rights and interest (howsoever described) in
that trust shall not be transferable for six months after that
corporation or that trust has acquired the shares under
Section 275 of the SFA, except: (a) to an
institutional investor (for corporations under Section 274
of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or any person pursuant to an
offer that is made on terms that such shares of that corporation
or such rights and interest in that trust are acquired at a
consideration of not less than S$200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the
conditions, specified in Section 275 of the SFA;
(b) where no consideration is given for the transfer; or
(c) where the transfer is by operation of law.
Japan
Our securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the Securities
and Exchange Law) and our securities will not be offered
or sold, directly or indirectly, in Japan, or to, or for the
benefit of, any resident of Japan (which term as used herein
means any person resident in Japan, including any corporation or
other entity organized under the laws of Japan), or to others
for re-offering or resale, directly or indirectly, in Japan, or
to a resident of Japan, except pursuant to an exemption from the
registration requirements of, and otherwise in compliance with,
the Securities and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
Australia
This prospectus is not a formal disclosure document and has not
been lodged with the Australian Securities and Investments
Commission. It does not purport to contain all information that
an investor or their professional advisers would expect to find
in a product disclosure statement for the purposes of
Part 7.9 of the Corporations Act 2001 (Australia) in
relation to the securities.
The securities are not being offered in Australia to
retail clients as defined in section 761G of
the Corporations Act 2001 (Australia). This offering is being
made in Australia solely to wholesale clients as
defined in section 761G of the Corporations Act 2001
(Australia) and as such no product disclosure statement in
relation to the securities has been prepared.
This prospectus does not constitute an offer in Australia other
than to wholesale clients. By submitting an application for our
securities, you represent and warrant to us that you are a
wholesale client. If any recipient is not a wholesale client, no
applications for our securities will be accepted from such
recipient. Any offer to a recipient in Australia, and any
agreement arising from acceptance of such offer, is personal and
may only be accepted by the recipient. In addition, by applying
for our securities you undertake to us that, for a period of
12 months from the date of issue of the securities, you
will not transfer any interest in the securities to any person
in Australia other than a wholesale client.
167
Underwriting
Dubai
International Financial Centre
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares which are the
subject of the offering contemplated by this prospectus may be
illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
document you should consult an authorised financial adviser.
168
The validity of the shares of our Common Stock and certain other
legal matters with respect to the laws of the Republic of The
Marshall Islands will be passed upon by Watson,
Farley & Williams (New York) LLP. Certain United
States federal income tax matters will be passed upon for us by
Sullivan & Cromwell LLP, New York, New York. Certain
matters with respect to this offering will be passed upon for
the underwriters by Cravath, Swaine & Moore LLP,
London, England. Cravath, Swaine & Moore LLP has from
time to time represented, and may continue to represent, Capital
Maritime and certain of its affiliates in connection with
certain legal matters.
The balance sheet of Crude Carriers Corp. at December 31,
2009 and the financial statements of Cooper Consultants Co. (the
subsidiary of Capital Maritime that currently owns the Initial
Suezmax) as of December 31, 2009 and 2008 and for the years
ended December 31, 2009, 2008 and 2007 included in this
Prospectus have been audited by Deloitte. Hadjipavlou,
Sofianos & Cambanis S.A., an independent registered
public accounting firm, as stated in their reports appearing
herein. Such balance sheets and financial statements have been
so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The sections in this prospectus entitled The International
Tanker Industry and the statistical and graphical
information contained therein, and Glossary of Shipping
Terms, and in any other instance where CRSL has been
identified as the source of information included in this
prospectus, have been reviewed by CRSL, which has confirmed to
us that they accurately describe the international tanker
shipping market, subject to the availability and reliability of
the data supporting the statistical information presented in
this prospectus, as indicated in the consent of CRSL filed as an
exhibit to the Registration Statement on
Form F-1
under the Securities Act of which this prospectus is a part.
Our authorized representative in the United States of America is
Puglisi & Associates. The address of the authorized
representative in the United States is 850 Library Avenue,
Suite 204, Newark, Delaware 19711.
169
We have filed with the SEC a registration statement on
Form F-1
under the Securities Act with respect to the Common Stock
offered by this prospectus. For the purposes of this section,
the term registration statement means the original
registration statement and any and all amendments, including the
schedules and exhibits to the original registration statement or
any amendment. This prospectus does not contain all of the
information set forth in the registration statement we filed.
Each statement made in this prospectus concerning a document
filed as an exhibit to the registration statement is qualified
by reference to that exhibit for a complete statement of its
provisions. The registration statement, including its exhibits
and schedules, may be inspected and copied at the public
reference facilities maintained by the SEC at
100 F Street, NE, Washington, D.C. 20549. You may
obtain information on the operation of the public reference room
by calling 1 (800) SEC-0330, and you may obtain copies at
prescribed rates from the Public Reference Section of the SEC at
its principal office in Washington, D.C. 20549. The SEC
maintains a website
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding registrants that file electronically
with the SEC.
Upon completion of this offering, we will be subject to the
information requirements of the U.S. Securities Exchange
Act of 1934, as amended (the Exchange Act), and, in
accordance therewith, we will be required to file with the SEC
annual reports on
Form 20-F
within six months of our fiscal year-end, and provide to the SEC
other material information on
Form 6-K.
These reports and other information may be inspected and copied
at the public reference facilities maintained by the SEC or
obtained from the SECs website as provided above. However,
as a foreign private issuer, we will be exempt under the
Exchange Act from, among other things, the rules prescribing the
furnishing and content of proxy statements and the provisions of
Regulation FD aimed at preventing issuers from making
selective disclosure of material non-public information, and our
executive officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. In
addition, we will not be required under the Exchange Act to file
periodic reports and financial statements with the SEC as
frequently or as promptly as U.S. companies whose
securities are registered under the Exchange Act. For instance,
we will not be required under the Exchange Act to file with the
SEC quarterly reports on
Form 10-Q
or current reports on
Form 8-K.
We intend to furnish or make available to our shareholders
annual reports containing our audited consolidated financial
statements prepared in conformity with U.S. GAAP, and make
available to our shareholders quarterly reports containing our
unaudited interim financial information for the first three
fiscal quarters of each fiscal year. Our annual report will
contain a detailed statement of any transactions with our
Manager or its affiliates, and of fees, commissions,
compensation and other benefits paid or accrued to our Manager
or its affiliates for the fiscal year completed, showing the
amount paid or accrued to each recipient and the services
performed.
The statistical and graphical information we use in this
prospectus has been compiled by CRSL from its database. CRSL
compiles and publishes data for the benefit of its clients. Its
methodologies for collecting data, and therefore the data
collected, may differ from those of other sources, and its data
does not reflect all or even necessarily a comprehensive set of
the actual transactions occurring in the market.
170
The following are definitions of certain terms that are commonly
used in the shipping industry and in this prospectus.
Aframax.
A medium size crude oil tanker of
approximately 80,000 to 120,000 deadweight tons. Because of
their size, Aframaxes are able to operate on many different
routes, including from Latin America and the North Sea to the
U.S. They are also used in Lightering. Modern Aframaxes can
generally transport from 500,000 to 800,000 barrels of
crude oil.
Annual survey.
The inspection of a vessel
pursuant to international conventions, by a classification
society surveyor, on behalf of the flag state, that takes place
every year.
Available days.
The total days that a vessel
is available for employment, net of off-hire days associated
with major repairs, upgrades, drydockings or special or
intermediate surveys.
Ballast Voyage.
A voyage during which the
vessel is not laden with cargo.
Bareboat charter.
A bareboat charter involves
the use of a vessel usually over longer periods of time ranging
over several years. In this case, all voyage related costs,
mainly vessel fuel and port dues, as well as all
vessel-operating expenses, such as
day-to-day
operations, maintenance, crewing and insurance, are for the
charterers account. The owner of the vessel receives
monthly charter hire payments on a U.S. dollar per day
basis and is responsible only for the payment of capital costs
related to the vessel. A bareboat charter is also known as a
demise charter or a time charter by
demise.
Brokerage commission.
Commission payable by
the shipowner to the broker, expressed as a percentage of the
freight or hire. It is part of the charterparty.
Bunkers.
Fuel burned in a vessels
engines.
Charter.
The hire of a vessel for the
transportation of a cargo. The contract for a charter is
commonly called a charterparty.
Charterer.
The party that hires a vessel under
the charterparty.
Charterhire.
A sum of money paid to the
shipowner by a charterer for the use of a vessel. Charterhire
paid under a voyage charter is also known as freight.
Classification society.
An independent society
that certifies that a vessel has been built and maintained
according to the societys rules for that type of vessel
and complies with the applicable rules and regulations of the
country of the vessels registry and the international
conventions of which that country is a signatory. A vessel that
receives its certification is referred to as being
in-class.
CLC.
International Convention on Civil
Liability for Oil Pollution Damage, 1969, as amended.
COFR.
Certificates of financial responsibility
sufficient to meet potential liabilities under OPA and CERCLA,
which owners and operators of vessels must establish and
maintain with the United States Coast Guard.
Contract of affreightment.
A contract of
affreightment (CoA) relates to the carriage of
multiple cargoes over the same route and enables the CoA holder
to nominate different vessels to perform the individual voyages.
Essentially, it constitutes a series of voyage charters to carry
a specified amount of cargo during the term of the CoA, which
usually spans a number of years. All of the ships costs
are borne by the shipowner. Freight normally is agreed on a
U.S. dollar-per-ton
basis.
Document of compliance.
A document issued to a
company which certifies that it complies with the requirements
of the ISM Code.
171
Glossary of
shipping terms
Commercial Management or Commercially
Managed.
The management of the employment, or
chartering, of a vessel and associated functions, including
seeking and negotiating employment for vessels, billing and
collecting revenues, issuing voyage instructions, purchasing
fuel, and appointing port agents.
Commercial Pool.
A commercial pool is a group
of similar size and quality vessels with different shipowners
that are placed under one administrator or manager. Pools allow
for scheduling and other operating efficiencies such as
multi-legged charters and Contracts of Affreightment and other
operating efficiencies.
Double-hull.
Hull construction design by which
a ship has an inner and outer hull, separated by void space,
usually several feet in width.
Double-bottom.
Hull construction design by
which a ship has an inner and outer hull only at the bottom of
the vessel.
Double-side.
Hull construction design by which
a ship has an inner and outer hull only on both vertical sides
of the vessels hull.
Drydocking.
The removal of a vessel from the
water for inspection and repair of those parts of a vessel which
are below the water line. During drydockings, which are required
to be performed periodically, certain mandatory classification
society inspections are carried out and relevant certifications
are issued. Drydockings are generally required once every
30 months or twice every five years, one of which must be a
special survey.
Dwt.
Deadweight ton, which is a unit of a
vessels carrying capacity, including cargo, fuel, oil,
water, stores and crew measured in metric tons of 1,000
kilograms.
Fix.
A shipping industry term for arranging
the charter of a vessel.
Flag state.
The country where a vessel is
registered.
Freight.
A sum of money paid to the shipowner
by the charterer under a voyage charter, usually calculated
either per ton loaded or as a lump-sum amount.
GAAP.
Accounting principles generally accepted
in the United States.
General and administrative expenses.
General
and administrative expenses consist of employment costs of
shoreside staff and cost of facilities, as well as legal, audit
and other administrative costs.
Gross ton.
A unit of the volume of a
ships enclosed spaces measured to the outside of the hull
framing.
H&M.
Hull and machinery insurance.
HELCOM.
The Helsinki Commission, which governs
safety regulations in the Gulf of Finland.
Hire rate.
The agreed sum or rate to be paid
by the charterer for the use of the vessel; usually paid in
$/day.
Hull.
Shell or body of a ship.
IMO.
International Maritime Organization, a
U.N. agency that establishes international standards for
shipping.
Intermediate survey.
The inspection of a
vessel by a classification society surveyor that takes place 24
to 36 months after each special survey.
172
Glossary of
shipping terms
ISM Code.
International Safety Management Code
for the Safe Operation of Ships and for Pollution Prevention,
which, among other things, requires vessel owners to obtain a
safety management certification for each vessel they manage.
ISPS.
International Security Code for Ports
and Ships, which enacts measures to detect and prevent security
threats to ships and ports.
MARPOL.
The International Convention for the
Prevention of Pollution from Ships.
Modern vessel.
A general term that typically
describes a vessel up to five years old.
Newbuilding.
A new vessel under construction
or just completed.
Off-hire.
The period in which a vessel is
unable to perform the services for which it is immediately
required under a time charter. Off-hire periods can include days
spent on repairs, drydocking and surveys, whether or not
scheduled. Charterhire is generally not paid during off-hire
periods. This is usually agreed in the charterparty. If the
off-hire period is subject to dispute then resolutions are
usually met through arbitration panels.
Oil products.
The resulting product recovered
in an oil refinery at the various stages of processing crude
oil, such as fuel oil, diesel and gasoil, kerosene and gasoline.
OPA.
The U.S. Oil Pollution Act of 1990,
as amended.
Operating costs.
The costs of operating the
vessels, including crewing costs, insurance, repairs and
maintenance, stores, spares, lubricants and miscellaneous
expenses (but excluding capital costs, interest and voyage
costs).
Operating days.
The days a vessel is in
operation for a period, measured by subtracting idle days from
available days.
Panamax.
Panamax vessels have a carrying
capacity of approximately 60,000 to 80,000 deadweight tons.
Modern Panamaxes generally transport approximately
490,000 barrels of crude oil or refined oil products mostly
on regional trades and
short-to-medium
haul worldwide trades.
Protection and indemnity (P&I)
insurance.
Insurance obtained through a mutual
association formed by shipowners to provide liability
indemnification protection from various liabilities to which
they are exposed in the course of their business, such as oil
pollution, cargo damage, crew injury or loss of life, and which
spreads the liability costs of each member by requiring
contribution by all members in the event of a loss.
Scrapping.
The sale of a vessel as scrap metal.
Short-term charter.
A charter for a term less
than two years.
Single Hull.
Hull construction design by which
a ship has a single hull separating the cargo from the ocean.
Sister ships.
One or more vessels of the same
or similar specifications typically built at the same shipyard.
SOLAS.
International Convention for Safety of
Life at Sea, which provides, among other things, rules for the
construction and equipment of commercial vessels.
Special survey.
The inspection of a vessel by
a classification society surveyor that takes place every four to
five years, as part of the recertification of the vessel by the
classification society.
Spot charter.
Generally refers to a voyage
charter or a trip charter (see separate definitions), which
generally last from 10 days to three months. Under both
types of spot charters, the shipowner would
173
Glossary of
shipping terms
pay for vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance,
maintenance and repairs, and for commissions on gross revenues.
The shipowner would also be responsible for each vessels
intermediate and special survey costs. Under a timecharter
agreement the charterer is responsible for the payment of voyage
and operating expenses.
Spot market.
The market for a vessel for
single voyages.
Suezmax.
A large crude oil tanker of
approximately 120,000 to 200,000 deadweight tons. Modern
Suezmaxes can generally transport about one million barrels of
crude oil.
Tanker vessel.
A vessel designed to carry
liquid cargoes in specially designed cargo tanks, fitted with
all the necessary equipment to safely load, transport and
discharge same into land or off shore terminals or other vessels.
Time Charter Equivalent Rate
(TCE).
Shipping industry performance
measure used primarily to compare daily earnings generated by
vessels on time charters with daily earnings generated by
vessels on voyage charters, because charter hire rates for
vessels on voyage charters are generally not expressed in per
day amounts while charter hire rates for vessels on time
charters generally are expressed in such amounts. TCE is
expressed as U.S. dollars per day rate and is calculated as
voyage revenues less voyage expenses divided by the number of
voyage days.
Time charter.
A charter under which the vessel
owner is paid charterhire on a
per-day
basis for a specified period of time. Typically, the shipowner
receives semi-monthly charterhire payments on a
U.S. Dollar-per-day
basis and is responsible for providing the crew and paying
vessel operating expenses while the charterer is responsible for
paying the voyage expenses and additional voyage insurance.
Under time charters, including trip time charters, the charterer
pays voyage expenses such as port and canal costs and bunkers.
Trip charter or short time charter.
A time
charter for a trip to carry a specific cargo from a delivery
point via load and discharge ports to a redelivery point.
Vessel operating expenses.
The costs of
operating a vessel, primarily consisting of crew wages and
associated costs, insurance premiums, management fees, lube oil
and spare part costs, and repair and maintenance costs. Vessel
operating expenses exclude fuel costs, port expenses,
agents fees, canal dues and extra war risk insurance
premiums, as well as commissions, which are included in
voyage expenses.
Vessel utilisation.
The percentage of time
that vessels are available for revenue generating days,
determined by dividing operating days by available days for the
relevant period.
VLCC.
VLCC is the abbreviation for Very Large
Crude Carrier, a large crude oil tanker of approximately 200,000
to 320,000 deadweight tons. Modern VLCCs can generally transport
two million barrels or more of crude oil. These vessels are
mainly used on the longest (long haul) routes from the Arabian
Gulf to North America, Europe, and Asia, and from West Africa to
the U.S. and Far Eastern destinations.
Voyage charter.
A voyage charter involves the
carriage of a specific amount and type of cargo on a load
port-to-discharge
port basis, subject to various cargo handling terms. Owners are
also responsible for any positioning movement costs. Most of
these charters are of a single voyage nature, as trading
patterns do not encourage round voyage trading. The owner of the
vessel receives one payment derived by multiplying the tonnage
of cargo loaded on board by the agreed upon freight rate
expressed on a
U.S. dollar-per-ton
basis. The owner is responsible for the payment of all voyage
and operating expenses, as well as the capital costs of the
vessel.
174
Glossary of
shipping terms
Voyage expenses.
Expenses incurred due to a
vessels traveling from a loading port to a discharging
port, such as fuel (bunkers) costs, port expenses, agents
fees, canal dues and extra war risk insurance, as well as
commissions.
Worldscale 100.
Worldscale Association, a
tanker shipping industry group, publishes a lengthy schedule of
rates for popular tanker voyages. The printed figures, called
Worldscale 100s, reflect application of tanker operating
cost assumption to the ports and distance/steaming time on
route. These flat rates appear in U.S. dollars
per ton of cargo. Shipowners and spot charterers usually
negotiate the hire price of a tanker as a percentage of
Worldscale 100 for the voyage involved.
175
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Crude
Carriers Corp.
Index to financial statements
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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Cooper
Consultants Co.
Index to financial statements
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F-10
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F-11
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F-12
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F-13
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F-14
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F-15
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F-1
Crude Carriers
Corp.
To the Board of Directors and Shareholders of
Crude Carriers Corp.:
We have audited the accompanying balance sheet of Crude Carriers
Corp. (the Company) as of December 31, 2009,
and the related statements of income, stockholders equity,
and cash flow for the period from October 29, 2009
(inception) to December 31, 2009. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Crude Carriers
Corp. as of December 31, 2009, and the results of its
operations and its cash flows for the period from
October 29, 2009 (inception) to December 31, 2009, in
conformity with accounting principles generally accepted in the
United States of America.
/s/
Deloitte.
Hadjipavlou, Sofianos, & Cambanis S.A.
Athens, Greece
March 1, 2010
F-2
Crude Carriers
Corp.
Balance sheet
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As of
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December 31,
2009
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(In United States
dollars)
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Assets
|
Current assets
|
|
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Cash and cash equivalents
|
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$
|
175
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Total current assets
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175
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Other non-current assets
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Deferred charges (Note 2)
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294,725
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Total non-current assets
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294,725
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TOTAL ASSETS
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$
|
294,900
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Liabilities and stockholders equity
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Current liabilities
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Due to related parties (Note 3)
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$
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26,800
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Accrued Liabilities (Note 4)
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268,000
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Total current liabilities
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294,800
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Total liabilities
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294,800
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Stockholders equity
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Capital stock, $1.00 par value per share; 100 shares
issued and outstanding
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100
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Total stockholders equity
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100
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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294,900
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The accompanying notes are an integral part of these financial
statements.
F-3
Crude Carriers
Corp.
Statement of income
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For the period
from
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October 29,
2009
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(inception) to
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December 31,
2009
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(In United States
dollars)
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Revenues
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$
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Expenses:
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Voyage expenses
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Vessel operating expenses
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Vessel operating expensesrelated party
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General and administrative expenses
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Vessel depreciation
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Operating income
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$
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Other income (expense), net:
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Interest expense and finance cost
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Interest income
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Foreign currency loss, net
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Total other (expense), net
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Net income
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$
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|
|
|
|
|
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|
The accompanying notes are an integral part of these financial
statements.
F-4
Crude Carriers
Corp.
Statement of
stockholders equity
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CAPITAL
STOCK
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Number
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Additional
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Total
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of
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paid-in
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Retained
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Stockholders
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Shares
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Par
Value
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capital
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Earnings
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Equity
|
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(In United States
dollars)
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Balance at October 29, 2009 (Inception)
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Issuance of capital stock
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100
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$
|
100
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$
|
100
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Balance at December 31, 2009
|
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100
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$
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100
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$
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$
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$
|
100
|
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The accompanying notes are an integral part of these financial
statements.
F-5
Crude Carriers
Corp.
Statement of cash
flows
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For the period
from
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October, 29
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(inception) to
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December 31,
2009
|
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(In United States
dollars)
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Cash flows from operating activities:
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Net income
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$
|
|
|
Cash flows from financing activities:
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Advances from related party
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26,800
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Payment of offering expenses
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(26,725
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)
|
Issuance of capital stock by Crude Carriers Investments
Corp.
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100
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Net cash provided by financing activities
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175
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Net increase in cash and cash equivalents
|
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|
175
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Cash and cash equivalents at beginning of the period
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|
|
|
|
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|
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Cash and cash equivalents at end of period
|
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$
|
175
|
|
|
|
|
|
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Non-Cash in Financing Activities
|
|
|
|
|
Accrued offering expenses
|
|
|
268,000
|
|
The accompanying notes are an integral part of these financial
statements.
F-6
Crude Carriers
Corp.
Notes to
financial statements
(In United States
dollars)
Crude Carriers Corp. (the Company) was formed on
October 29, 2009, under the laws of the Republic of The
Marshall Islands, and is a wholly owned subsidiary of Crude
Carriers Investments Corp. The Company was formed to own and
employ tanker vessels with an emphasis in the spot market. The
spot market represents immediate chartering of a vessel, usually
for single voyages. As of December 31, 2009, Crude Carriers
Investments Corp. owns 100% of the capital stock of the Company.
The authorized capital stock of the Company consists of
100 shares of capital stock, par value $1.00 per share, all
of which have been issued to Crude Carriers Investments Corp.
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2.
|
Significant
Accounting Policies
|
(a) Basis of Presentation: The accompanying financial
statements have been prepared on the basis of accounting
principles generally accepted in the United States of America.
(b) Deferred charges: Deferred charges consist of fees in
connection with the Companys initial public offering.
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|
3.
|
Transactions with
Related Parties
|
The Company had related party transactions with Crude Carriers
Investments Corp. due to funds that were received for paying
expenses in connection with the Companys initial public
offering.
Accrued liabilities represent costs incurred in connection with
the Companys initial public offering that have not been
paid.
From time to time, the Company may be subject to legal
proceedings and claims in the ordinary course of its business,
principally personal injury and property casualty claims. Such
claims, even if lacking merit, could result in the expenditure
of significant financial and managerial resources. The Company
is not aware of any legal proceedings or claims that it believes
will have, individually or in the aggregate, a material adverse
effect on the Company, its financial condition, results of
operations or cash flows.
Subsequent events have been evaluated through March 1,
2010, the date of issuance of these financial statements.
On February 5, 2010 the Company has signed a commitment
letter with a syndicate of financial institutions including
Nordea Bank Finland Plc, London Branch for a $100,000,000 senior
secured credit facility. The Companys ability to borrow
amounts under the credit facility will be subject to the
execution of customary documentation which must be completed no
later than March 31, 2010, satisfaction of certain
customary conditions precedent and compliance with terms and
conditions
F-7
Notes to
financial statements
included in the loan documents. The funds available from this
credit facility may be used by the Company to fund part or the
whole of future vessel acquisitions provided that the ratio of
the aggregate amount of outstanding loan divided by the fair
market value of the collateral vessels shall not exceed 40%. The
credit facility shall be repaid with the proceeds from a
secondary offering within nine months of such drawdown. The
credit facility has a final maturity date of the fifth
anniversary of the date the Company enters into the credit
facility, which is expected to be the date of the closing of the
offering.
This credit facility bears interest at a rate of 3% over US
LIBOR and is payable quarterly. Loan commitment and ticking fees
are calculated at 1.00% and 0.60% p.a. respectively on any
undrawn amount and are paid quarterly. Borrowings under this
credit facility are jointly and severally secured by the
vessel-owning companies of the collateral vessels. The credit
facility also contains customary ship finance covenants,
including restrictions as to: changes in management and
ownership of the mortgaged vessels, the incurrence of additional
indebtedness, the mortgaging of vessels, the ratio of EBITDA to
Net Interest Expenses, the Minimum Liquidity and the Minimum
Equity ratio.
|
|
(b)
|
Share Purchase Agreements
|
On March 1, 2010 the Company entered into the following
share purchase agreements with Capital Maritime &
Trading Corp. (CMTC) for:
|
|
Ø
|
the acquisition of the shares of Cooper Consultants Co., the
vessel owning company of the M/T Miltiadis
M II, a modern, 2006-built Suezmax crude tanker (the
Initial Suezmax), for a total consideration of
$71,250,000. The acquisition of the shares of Cooper Consultants
Co. by the Company, shall take place on the consummation of the
Initial Public Offering (IPO) of the Company on the
New York Stock Exchange. The M/T Miltiadis M II will
be transferred to the Company at historical cost of CMTC at the
date of transfer and the difference between the acquisition
price and the vessels net book value, will be recorded in
the Companys stockholders equity. All assets and
liabilities of the vessel-owning company of M/T Miltiadis
M II except the vessel and necessary permits will be
retained by CMTC.
|
|
Ø
|
the acquisition of the shares of Alexander The Great Carriers
Corp., the vessel owning company of a new building motor tanker
currently under construction by Universal Shipbuilding
Corporation in Japan bearing hull number S093
(Hull S093). The total acquisition cost is
$96,500,000 and up to date the vessel owning subsidiary of
Hull S093 had paid advances of $19,300,000 towards this
hull. The remaining amount of $77,200,000 will be paid to the
shipyard upon the delivery of the vessel in March 2010. The
acquisition of the shares of Alexander The Great Carriers Corp.
by the Company shall take place on the consummation of the
Companys IPO on the New York Stock Exchange and on the
same time Crude Carriers Corp. has to remit to CMTC the amount
of $19,300,000 which represents the advances that CMTC paid to
the shipyard toward this hull.
|
|
Ø
|
the acquisition of the shares of Achilleas Carriers Corp., the
vessel owning company of a new building motor tanker currently
under construction by Universal Shipbuilding Corporation in
Japan bearing hull number S094 (Hull S094). The
total acquisition cost is $96,500,000 and up to date the vessel
owning subsidiary of Hull S094 had paid advances of $19,300,000
towards this hull. The remaining amount of $77,200,000 will be
paid to the shipyard upon the delivery of the vessel in June
2010. The acquisition of the shares of Achilleas Carriers Corp.
by the Company shall take place on the consummation of the
Companys IPO on the New York Stock Exchange and on the
same time Crude Carriers Corp. has to remit to CMTC the amount
of $19,300,000 which represents the advances that CMTC paid to
the shipyard toward this hull.
|
|
|
(c)
|
Amendment and restatement of the articles of incorporation and
equity incentive plan
|
F-8
Notes to
financial statements
On March 1, 2010 an amendment and restatement to the
articles of incorporation of the Company has been adopted.
According to this amendment, the Company changed the par value
of its Common Stock to US$0.0001 and restated its authorized
capital to 1,000,000,000 shares of Common Stock, par value
US$0.0001 per share, 100,000,000 shares of Class B
Stock, par value US$0.0001 per share, and
100,000,000 shares of preferred stock, par value US$0.0001
per share. The Companys capital stock of 100 shares
issued and outstanding will remain outstanding until the closing
of the offering at which time they will be surrendered.
On March 1, 2010 an equity incentive plan has been adopted
by the Company. No grants have been awarded nor will be awarded
at the IPO under this equity investment plan.
F-9
Cooper
Consultants Co.
Report of
independent registered public accounting firm
To the Board of Directors and Stockholder of
Cooper Consultants Co.:
We have audited the accompanying balance sheets of Cooper
Consultants Co. (Cooper) as of December 31,
2009 and 2008, and the related statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. These
financial statements are the responsibility of Coopers
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Cooper is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of Coopers internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Cooper Consultants
Co. as of December 31, 2009 and 2008, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
Deloitte.
Hadjipavlou, Sofianos & Cambanis S.A.
Athens, Greece
January 28, 2010
F-10
Cooper
Consultants Co.
Balance sheets
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
|
(In thousands of
United States
|
|
|
|
Dollars, except
number of shares)
|
|
|
Assets
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1
|
|
|
$
|
1
|
|
Trade accounts receivable, net of allowance for bad debts of $0
and $301, respectively
|
|
|
1,340
|
|
|
|
1,589
|
|
Due from related parties (Note 3)
|
|
|
1,878
|
|
|
|
56
|
|
Prepayments and other assets
|
|
|
45
|
|
|
|
83
|
|
Inventories
|
|
|
1,411
|
|
|
|
785
|
|
Total current assets
|
|
|
4,675
|
|
|
|
2,514
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
Vessel, net (Note 4)
|
|
|
76,238
|
|
|
|
79,595
|
|
|
|
|
|
|
|
|
|
|
Total fixed assets
|
|
|
76,238
|
|
|
|
79,595
|
|
Other non-current assets
|
|
|
|
|
|
|
|
|
Deferred charges, net
|
|
|
53
|
|
|
|
65
|
|
Total non-current assets
|
|
|
76,291
|
|
|
|
79,660
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
80,966
|
|
|
$
|
82,174
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
Current liabilities
|
|
|
|
|
|
|
|
|
Current portion of related-party long-term debt (Note 3)
|
|
$
|
3,161
|
|
|
$
|
3,161
|
|
Trade accounts payable
|
|
|
1,344
|
|
|
|
1,324
|
|
Due to related parties (Note 3)
|
|
|
|
|
|
|
1,764
|
|
Accrued liabilities (Note 5)
|
|
|
302
|
|
|
|
341
|
|
Total current liabilities
|
|
|
4,807
|
|
|
|
6,590
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Long-term related-party debt (Note 3)
|
|
|
29,299
|
|
|
|
32,460
|
|
Total long-term liabilities
|
|
|
29,299
|
|
|
|
32,460
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
34,106
|
|
|
|
39,050
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock (par value $0; 500 shares issued and
outstanding at December 31, 2009 and 2008) (Note 6)
|
|
|
|
|
|
|
|
|
Additional paid-in capital (Note 6)
|
|
|
18,500
|
|
|
|
18,500
|
|
Retained earnings
|
|
|
28,360
|
|
|
|
24,624
|
|
Total stockholders equity
|
|
|
46,860
|
|
|
|
43,124
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
80,966
|
|
|
$
|
82,174
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-11
Cooper
Consultants Co.
Statements of income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(In thousands of
United States Dollars)
|
|
|
Revenues
|
|
$
|
16,870
|
|
|
$
|
39,166
|
|
|
$
|
24,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
6,252
|
|
|
|
14,317
|
|
|
|
10,800
|
|
Vessel operating expenses
|
|
|
2,457
|
|
|
|
2,351
|
|
|
|
2,243
|
|
Vessel operating expenses - related party (Note 3)
|
|
|
540
|
|
|
|
540
|
|
|
|
270
|
|
General and administrative expenses
|
|
|
|
|
|
|
301
|
|
|
|
|
|
Vessel depreciation (Note 4)
|
|
|
3,357
|
|
|
|
3,356
|
|
|
|
3,356
|
|
Operating income
|
|
$
|
4,264
|
|
|
$
|
18,301
|
|
|
$
|
7,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and finance cost
|
|
|
(530
|
)
|
|
|
(1,590
|
)
|
|
|
(3,132
|
)
|
Interest income
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
Foreign currency loss, net
|
|
|
2
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense), net
|
|
|
(528
|
)
|
|
|
(1,589
|
)
|
|
|
(3,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,736
|
|
|
$
|
16,712
|
|
|
$
|
4,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-12
Cooper
Consultants Co.
Statements of
stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
STOCK
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
paid-in
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
capital
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
(In thousands of
United States dollars, except number of shares)
|
|
|
Balance at December 31, 2006
|
|
|
500
|
|
|
|
|
|
|
|
18,500
|
|
|
|
3,066
|
|
|
|
21,566
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,846
|
|
|
|
4,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
500
|
|
|
|
|
|
|
|
18,500
|
|
|
|
7,912
|
|
|
|
26,412
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,712
|
|
|
|
16,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
500
|
|
|
|
|
|
|
$
|
18,500
|
|
|
$
|
24,624
|
|
|
$
|
43,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,736
|
|
|
|
3,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
500
|
|
|
|
|
|
|
$
|
18,500
|
|
|
$
|
28,360
|
|
|
$
|
46,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-13
Cooper
Consultants Co.
Statements of cash
flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(In thousands of
United States Dollars)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,736
|
|
|
$
|
16,712
|
|
|
$
|
4,846
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel depreciation
|
|
|
3,357
|
|
|
|
3,356
|
|
|
|
3,356
|
|
Provision for allowance of bad debts
|
|
|
|
|
|
|
301
|
|
|
|
|
|
Amortization of deferred charges
|
|
|
12
|
|
|
|
14
|
|
|
|
48
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
249
|
|
|
|
2,235
|
|
|
|
(2,261
|
)
|
Due from related parties
|
|
|
(1,822
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
Prepayments and other assets
|
|
|
38
|
|
|
|
(21
|
)
|
|
|
(43
|
)
|
Inventories
|
|
|
(626
|
)
|
|
|
352
|
|
|
|
(355
|
)
|
Trade accounts payable
|
|
|
20
|
|
|
|
(220
|
)
|
|
|
543
|
|
Due to related parties
|
|
|
(1,764
|
)
|
|
|
(1,901
|
)
|
|
|
3,146
|
|
Accrued liabilities
|
|
|
(39
|
)
|
|
|
39
|
|
|
|
38
|
|
Net cash provided by operating activities
|
|
|
3,161
|
|
|
|
20,859
|
|
|
|
9,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related partiesdebt financing
|
|
|
|
|
|
|
(16,903
|
)
|
|
|
16,903
|
|
Repayments of related party debt
|
|
|
(3,161
|
)
|
|
|
(3,966
|
)
|
|
|
(26,213
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(3,161
|
)
|
|
|
(20,869
|
)
|
|
|
(9,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
|
|
|
|
(10
|
)
|
|
|
3
|
|
Cash and cash equivalents at beginning of the year
|
|
|
1
|
|
|
|
11
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
513
|
|
|
$
|
1,596
|
|
|
$
|
3,082
|
|
The accompanying notes are an integral part of these financial
statements.
F-14
Cooper
Consultants Co.
Notes to financial
statements
(In thousands of
United States Dollars)
|
|
1.
|
Basis of
Presentation and General Information
|
The accompanying financial statements of Cooper Consultants Co.,
the subsidiary of Capital Maritime that currently owns the
Initial Suezmax (Cooper), have been prepared in
conformity with accounting principles generally accepted in the
United States of America (U.S. GAAP). The
reporting and functional currency of Cooper is the United States
Dollar.
Cooper, a wholly-owned subsidiary of Capital
Maritime & Trading Corp. (CMTC), was
formed on April 6, 2006 under the laws of the Marshall
Islands for the purpose of acquiring a newbuilding double-hull
Ice class 1A Suezmax, the M/T Miltiadis M II. The M/T
Miltiadis M II was acquired in 2006 as a resale from a third
party.
|
|
2.
|
Significant
Accounting Policies
|
(a) Use of Estimates: The preparation of
financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements. Actual results could differ from those
estimates.
(b) Other comprehensive income: Cooper
presents separately comprehensive income, if any, and its
components in stockholders equity. Cooper did not have
other comprehensive income during any periods presented and,
accordingly, comprehensive income equals net income for all
periods presented.
(c) Accounting for Revenue, Voyage and Operating
Expenses: Revenues are generated from voyage and time
charter agreements. If a time or voyage charter agreement
exists, the price is fixed, service is provided and the
collection of the related revenue is reasonably assured,
revenues are recorded over the term of the charter as service is
provided and recognized on a pro-rata basis over the duration of
the voyage. A voyage is deemed to commence upon the later of the
completion of discharge of the vessels previous cargo or
upon vessel arrival to the agreed upon port based on the terms
of a voyage contract that is not cancelable and voyage is deemed
to end upon the completion of discharge of the delivered cargo.
A time charter contract is deemed to commence from the time of
the delivery of the vessel to an agreed port and is deemed to
end upon the re-delivery of the vessel at an agreed port and
adjusted for the off-hire days that a vessel spends undergoing
repairs, maintenance or upgrade work. We do not begin
recognizing voyage or time charter revenue until a charter
contract has been agreed to both by us and the charterer.
Demurrage income, which is included in voyage revenues,
represents payments received from the charterer when loading or
discharging time exceeded the stipulated time in the voyage
charter and is recognized when earned. Probable losses such as
uncollectible amounts from time and voyage charters are provided
for in full at the time such losses can be estimated.
Vessel voyage expenses are direct expenses to voyage revenues
and primarily consist of commissions, port expenses, canal dues
and bunkers. Commissions are expensed over the related charter
period and all the other voyage expenses are expensed as
incurred. For time charters all voyage expenses except
commissions are assumed by the charterer of the vessel. For
voyage charters all voyage costs are assumed by the owner of the
vessel.
Vessel operating expenses are all expenses relating to the
operation of the vessel, including crewing, insurance, repairs
and maintenance, stores, lubricants, spares and consumables,
professional and legal fees and miscellaneous expenses. Vessel
operating expenses are recognized as incurred; payments in
advance of services or use are recorded as prepaid expenses.
Under voyage and time charter agreements the operating expenses
are assumed by the owner of the vessel.
F-15
Notes to
financial statements
(d) Foreign Currency Transactions: The
functional currency of Cooper is the United States Dollar
because Coopers vessel operates in international shipping
markets that utilize the United States Dollar as the functional
currency. The accounting records of Cooper are maintained in
United States Dollars. Transactions involving other currencies
during the year are converted into United States Dollars using
the exchange rates in effect at the time of the transactions. At
the balance sheet dates, monetary assets and liabilities, which
are denominated in currencies other than the United States
Dollar, are translated into the functional currency using the
exchange rate at that date. Gains or losses resulting from
foreign currency transactions and translations are included in
foreign currency gains and losses, net in the accompanying
statements of income.
(e) Cash and Cash Equivalents: Cooper
considers highly-liquid investments such as time deposits and
certificates of deposit with an original maturity of three
months or less to be cash equivalents.
(f) Trade Accounts Receivable, net: The
amounts shown as trade accounts receivable, net reflect the
estimated recoveries from charterers for hire, freight and
demurrage billings. At each balance sheet date, all potentially
uncollectible accounts are assessed individually for purposes of
determining the appropriate provision for doubtful accounts.
Cooper had not established any allowance for doubtful accounts
as of December 31, 2009. As of December 31, 2008, the
allowance for doubtful receivables amounted to $301 which is
comprised entirely of a bad debt expense that incurred during
the year.
(g) Inventories: Inventories consist of
consumable bunkers, lubricants, spares and stores and are stated
at the lower of cost or market value. The cost is determined by
the
first-in,
first-out method.
(h) Fixed Assets, net: Fixed assets, net
consist of one vessel which is stated at cost, less accumulated
depreciation. Vessel cost consists of the contract price of the
vessel and any other expenses to prepare the vessel for its
intended use. The vessel is depreciated beginning when it is
delivered from the shipyard and ready for its intended use, on a
straight-line basis over the remaining economic useful life,
after considering the estimated residual value. Management
estimates the useful life to be 25 years.
(i) Drydocking and special survey
expenses: Drydocking and special survey expenses are
deferred and amortized over the estimated period to the next
scheduled drydocking or special survey, which are generally two
and a half years and five years, respectively. Unamortized
drydocking and special survey expenses of vessels that are sold
are written-off to income in the year of the vessels sale.
There were no drydocking or special survey expenses for the
periods presented in these financial statements.
(j) Impairment of Long-lived
Assets: Impairment loss is recognized on a long-lived
asset used in operations when indicators of impairment are
present and the carrying amount of the long-lived asset is less
than its fair value and it is not recoverable from the
undiscounted cash flows estimated to be generated by the asset.
In determining future benefits derived from use of long-lived
assets, Cooper performs an analysis of the anticipated
undiscounted future net cash flows of the related long-lived
asset. If the carrying value of the related asset exceeds its
undiscounted future net cash flows, the carrying value is
reduced to its fair value. Various factors including future
charter rates and vessel operating costs are included in this
analysis. Cooper did not note for the year ended
December 31, 2008, any events or changes in circumstances
indicating that the carrying amount of its vessels may not be
recoverable. However, during the year ended December 31,
2009, market conditions changed significantly as a result of the
credit crisis and resulting slowdown in world trade. Charter
rates for tanker vessels decreased and values of assets were
affected although there were limited transactions to confirm the
extent of such decreases. Cooper considered these market
developments as indicators of potential impairment of the
carrying amount of its asset. Cooper performed the undiscounted
cash flow test as of December 31, 2009 for its vessel and
determined that the undiscounted cash flows support the
vessels carrying amount as of December 31, 2009.
F-16
Notes to
financial statements
(k) Deferred Charges: Deferred charges
consist of fees paid to lenders for obtaining new loans or
refinancing existing loans and are capitalized as deferred
finance charges and amortized to interest expense over the term
of the respective loan using the effective interest rate method.
(l) Concentration of Credit
Risk: Financial instruments which potentially subject
Cooper to significant concentrations of credit risk consist
principally of trade accounts receivable. Most of Coopers
revenues were derived from a few charterers. For the year ended
December 31, 2009 Clearlake Shipping Ltd, ST Shipping and
Transport Pte and Standard Tankers Bahamas (an affiliate of
Exxon Mobil) accounted for 46%, 24%, and 16% of total revenue,
respectively. For the year ended December 31, 2008 Petroleo
Brasileiro SA, Sun International LTD, Valero Marketing and
Supply Company, Petro-Canada and British Petroleum Shipping
Limited accounted for 31%, 12%, 11%, 10% and 10% of total
revenue, respectively. For the year ended December 31,
2007, British Petroleum Shipping Limited accounted for 87% of
total revenue. Cooper does not obtain rights of collateral from
its charterers to reduce its credit risk.
(m) Fair Value of Financial
Instruments: On January 1, 2008, Cooper adopted
the new accounting guidance relating to fair value measurement
for financial assets and liabilities and any other assets and
liabilities carried at fair value. This guidance defines fair
value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. Coopers
adoption of this new guidance did not have a material effect on
Coopers Financial Statements for financial assets and
liabilities and any other assets and liabilities carried at fair
value. The carrying value of trade receivables, accounts payable
and accrued liabilities approximates fair value. The fair values
of long-term variable rate bank loans approximate the recorded
values, due to their variable interest.
(n) Income Taxes: Cooper is not subject to
the payment of any Marshall Islands income tax on its income.
Instead, a tax is levied based on the tonnage of the vessel,
which is included in operating expenses (Note 7).
(o) Recent Accounting Pronouncements:
In February 2007, new accounting guidance was issued permitting
the election of fair value measurement for many financial
instruments and certain other items, with unrealized gains and
losses on designated items recognized in earnings at each
subsequent period. This guidance also established presentation
and disclosure requirements for similar types of assets and
liabilities measured at fair value. Cooper elected not to adopt
any of the fair value options offered by this guidance.
In December 2008, new guidance was issued which requires public
entities to provide additional disclosures about transfers of
financial assets and to provide additional disclosures about
their involvement with variable interest entities. The adoption
of this guidance during the year ended December 31, 2008,
has had no effect on disclosures in our financial statements.
In May 2009, new accounting guidance was issued which
established principles and requirements for reporting events or
transactions occurring after the balance sheet date. The
guidance requires us to disclose the date through which
subsequent events have been evaluated and whether it is the date
the financial statements were issued. It also requires an entity
to consider pro forma financial information disclosures if an
unrecognized subsequent event is significant and to reissue
financial statements filed with the SEC or other regulatory
agencies if failure to do so could make the financial statements
misleading. The new guidance is effective prospectively for
financial statements issued for interim and annual periods
ending after June 15, 2009. Coopers adoption of this
guidance subsequent to December 31, 2008 did not have a
material impact on its financial statements.
In June 2009, new accounting guidance was issued which
established the FASB Accounting Standards Codification as the
single source of authoritative US GAAP. The new guidance is
effective for financial statements issued for interim and annual
periods ending after September 15, 2009. Coopers
adoption of
F-17
Notes to
financial statements
this guidance subsequent to December 31, 2008 did not have
a material impact on its financial statements.
In June 2009, new guidance was issued to revise the approach to
determine when a variable interest entity (VIE)
should be consolidated. The new consolidation model for VIEs
considers whether the Company has the power to direct the
activities that most significantly impact the VIEs
economic performance and shares in the significant risks and
rewards of the entity. The guidance on VIEs requires companies
to continually reassess VIEs to determine if consolidation is
appropriate and provide additional disclosures. The new guidance
is effective as of the beginning of the first fiscal year that
begins after November 15, 2009 and early adoption is
prohibited. Cooper does not expect that the adoption of this
guidance will have a material impact on its financial statements.
|
|
3.
|
Transactions with
Related Parties
|
The vessel owning company of the M/T Miltiadis M II had related
party transactions with CMTC and its subsidiaries including
Capital Ship Management Corp. (the Manager or
CSM) mainly for the following reasons:
|
|
Ø
|
Capital contribution from CMTC;
|
|
Ø
|
Loan agreements that CMTC entered into, acting as the borrower,
for the financing of the acquisition of the M/T Miltiadis M II;
|
|
Ø
|
Manager payments on behalf of the vessel owning company and hire
receipts from charterers;
|
|
Ø
|
Manager monthly fees, for providing services such as chartering,
technical support and maintenance, insurance, consulting,
financial and accounting services; and
|
|
Ø
|
Funds advanced to and received from entities with common
ownership.
|
Cooper recognized the amounts of $540, $540, and $270 for the
years ended December 31, 2009, 2008 and 2007, respectively,
as management fee expense in its income statements in accordance
with the management agreement that it has entered into with CSM.
Under this agreement CSM provides commercial, technical,
insurance and administrative services to Cooper in exchange of a
monthly fee.
Balances with related parties consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
Due from Related Parties:
|
|
|
|
|
|
|
|
|
CSMManager
(a)
|
|
|
1,878
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Total due from related parties
|
|
$
|
1,878
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
Due to Related Parties:
|
|
|
|
|
|
|
|
|
CMTCloan
(b)
|
|
|
32,460
|
|
|
|
35,621
|
|
CSMManager
(a)
|
|
|
|
|
|
|
1,764
|
|
|
|
|
|
|
|
|
|
|
Total due to related parties
|
|
$
|
32,460
|
|
|
$
|
37,385
|
|
|
|
|
|
|
|
|
|
|
(a) Manager: The balance in this line item relates to
funds that are received from charterers, less disbursements made
to creditors, including loan principal and loan interest
repayments that were made by the Manager on behalf of the
vessel-owning subsidiary.
(b) CMTC Loans: On June 26, 2006 CMTC entered
into a loan agreement up to $187,000, divided in three tranches,
with a bank for the refinancing of the existing debt of
13 vessel owning subsidiaries. CMTC drew down the amount of
$168,600 under the respective loan agreement. On
September 15, 2006 CMTC amended the loan agreement with the
tranche D to include an additional $70,000 for the
financing of the M/T Miltiadis M II (the related party
loan). CMTC drew down the amount of
F-18
Notes to
financial statements
$70,000 on the same date. Under this loan agreement CMTC was the
borrower and the vessel-owning companies, including Cooper,
acted as guarantors and all the vessels have been provided as
collateral to the loan. The loan is comprised of a number of
tranches and the guarantors in all tranches are jointly and
severally liable under the terms of the loan agreement.
As of December 31, 2009 and 2008, the balance of the CMTC
loan was $124,897 and $137,850 respectively.
A summary of the related-party loan is shown below:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
Total related-party loan
|
|
$
|
32,460
|
|
|
$
|
35,621
|
|
Less: Current portion
|
|
|
3,161
|
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
29,299
|
|
|
$
|
32,460
|
|
|
|
|
|
|
|
|
|
|
The related party loan bears interest at LIBOR plus a margin of
85 basis points payable quarterly. The bank loan was
secured by a first preferred mortgage on the respective vessel
and a general assignment of the earnings, insurances, mortgage
interest insurance, and requisition compensation of the
respective vessel. The weighted average interest rate for the
related party loan as of December 31, 2009 and 2008 was
1.47% and 4.07% respectively. Interest expense for the
related-party loan for the years ended December 31, 2009,
2008 and 2007 amounted to $511, $1,596 and $3,080 respectively.
The loan agreement also contains customary ship finance
covenants, including restrictions as to: changes in management
and ownership of the mortgaged vessels, the incurrence of
additional indebtedness, the mortgaging of vessels, the ratio of
EBITDA to Net Interest Expenses, the ratio of net Total
Indebtedness to the aggregate Market Value of the total fleet.
The loan agreement also contains the collateral maintenance
requirement. As of December 31, 2009, Cooper was in
compliance with all debt covenants.
The required annual loan principal payments for the
related-party loan to be made subsequent to December 31,
2009, are as follows
Related
Party Loan Repayment Schedule
|
|
|
|
|
Year ending
December 31,
|
|
Amount
|
|
|
|
|
2010
|
|
$
|
3,161
|
|
2011
|
|
|
3,161
|
|
2012
|
|
|
3,161
|
|
2013
|
|
|
3,161
|
|
2014
|
|
|
3,161
|
|
Thereafter
|
|
|
16,655
|
|
|
|
|
|
|
Total
|
|
$
|
32,460
|
|
|
|
|
|
|
F-19
Notes to
financial statements
An analysis of vessel, net is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
Vessel cost
|
|
|
88,545
|
|
|
|
88,545
|
|
Total cost
|
|
|
88,545
|
|
|
|
88,545
|
|
Less: accumulated depreciation
|
|
|
(12,307
|
)
|
|
|
(8,950
|
)
|
|
|
|
|
|
|
|
|
|
Vessel, net
|
|
$
|
76,238
|
|
|
$
|
79,595
|
|
|
|
|
|
|
|
|
|
|
The vessel has been provided as collateral to secure the
related-party loan by CMTC.
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
Loan interest and loan fees
|
|
|
4
|
|
|
|
5
|
|
Wages and crew expenses
|
|
|
75
|
|
|
|
47
|
|
Other operating expenses
|
|
|
85
|
|
|
|
66
|
|
Voyage expenses and commissions
|
|
|
138
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
302
|
|
|
$
|
341
|
|
|
|
|
|
|
|
|
|
|
General:
Cooper was formed on
April 6, 2006, and its common stock at inception consisted
of 500 shares authorized with no par value.
Additional Paid in Capital:
The amount
shown in the accompanying balance sheets as additional paid-in
capital represents contributions made by CMTC to finance the
vessel acquisition in excess of the amount of the bank loan
obtained. Such contributions amounted to $18,500 for the year
ended December 31, 2006. No additional contributions were
made for the years ended December 31, 2009, 2008 and 2007.
Under the laws of Marshall Islands, the country of incorporation
of Cooper, and the laws of Liberia, the country of registration
of the vessel, Cooper is not subject to tax on international
shipping income. However, it is subject to registration and
tonnage taxes, which have been included in vessel operating
expenses in the accompanying statements of income.
Based on its current operations, Cooper does not expect to have
U.S. source domestic transportation income. However,
certain of Coopers activities give rise to
U.S. source international shipping income, and future
expansion of Coopers operations could result in an
increase in the amount of U.S. source international
shipping income, as well as give rise to U.S. source
domestic transportation income, all of which could be subject to
U.S. federal income taxation, unless the exemption from
U.S. taxation under Section 883 of the Code applies.
F-20
Notes to
financial statements
|
|
8.
|
Commitments and
Contingencies
|
Various claims, suits, and complaints, including those involving
government regulations and product liability, arise in the
ordinary course of the shipping business. In addition, losses
may arise from disputes with charterers, agents, insurance and
other claims with suppliers relating to the operations of
Coopers vessel. Cooper is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which
a provision should be established in the financial statements.
Cooper accrues for the cost of environmental liabilities when
management becomes aware that a liability is probable and is
able to reasonably estimate the probable exposure. Currently,
Cooper is not aware of any such claims or contingent
liabilities, which should be disclosed, or for which a provision
should be established in the accompanying financial statements.
We have evaluated subsequent events through March 1, 2010,
the date the financial statements are issued.
F-21
Through and
including (the
25th day after the date of this prospectus), federal
securities laws may require all dealers that effect transactions
in our Common Stock, whether or not participating in this
offering, to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters with respect to their unsold allotments or
subscriptions.
Crude Carriers
Corp.
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 6.
|
Indemnification
of Directors and Officers.
|
The amended and restated bylaws of the Registrant will provide
that every director and officer of the Registrant shall be
indemnified out of the funds of the Registrant against:
(1) all civil liabilities, loss, damage or expense
(including but not limited to liabilities under contract, tort
and statute or any applicable foreign law or regulation and all
reasonable legal and other costs and expenses properly payable)
incurred or suffered by him as such director or officer acting
in the reasonable belief that he has been so appointed or
elected notwithstanding any defect in such appointment or
election, provided always that such indemnity shall not extend
to any matter which would render it void pursuant to any
Marshall Islands statute from time to time in force concerning
companies insofar as the same applies to the Registrant; and
(2) all liabilities incurred by him as such director
or officer in defending any proceedings, whether civil or
criminal, in which judgment is given in his favor, or in which
he is acquitted, or in connection with any application under the
Business Corporations Act of the Republic of the Marshall
Islands (the BCA) in which relief from liability is
granted to him by the court.
Section 60 of the BCA provides as follows:
Indemnification of directors and officers.
(1)
Actions not by or in right of the
corporation.
A corporation shall have power to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director
or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of no contest, or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the bests interests of the corporation, and, with
respect to any criminal action or proceedings, had reasonable
cause to believe that his conduct was unlawful.
(2)
Actions by or in right of the
corporation.
A corporation shall have the power
to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was
a director or officer of the corporation, or is or was serving
at the request of the corporation, or is or was serving at the
request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys fees)
actually and reasonably incurred by him or in connection with
the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claims,
issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall
determine upon application that,
II-1
Crude Carriers
Corp.
despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall
deem proper.
(3)
When director or officer
successful.
To the extent that a director or
officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (1) or (2) of this section, or in
the defense of a claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys fees)
actually and reasonably incurred by him in connection therewith.
(4)
Payment of expenses in
advance.
Expenses incurred in defending a civil
or criminal action, suit or proceeding may be paid in advance of
the final disposition of such action, suit or proceeding as
authorized by the board of directors in the specific case upon
receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
corporation as authorized in this section.
(5)
Continuation of
indemnification.
The indemnification and
advancement of expenses provided by, or granted pursuant to,
this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
(6)
Insurance.
A corporation shall
have power to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation or
is or was serving at the request of the corporation as a
director or officer against any liability asserted against him
and incurred by him in such capacity, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this section.
|
|
Item 7.
|
Recent Sales of
Unregistered Securities
|
On November 4, 2009, we issued 100 shares of our
Capital Stock, par value $1.00 per share, to Crude Carriers
Investments Corp. in consideration of a capital contribution of
$100.00. That issuance was exempt from registration under
Section 4(2) of the Securities Act.
There have been no other sales of unregistered securities within
the past three years.
II-2
Crude Carriers
Corp.
|
|
Item 8.
|
Exhibits and
Financial Statement Schedules
|
(a) Exhibits.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation of Crude Carriers
Corp.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Crude Carriers Corp.
|
|
4
|
.1
|
|
Form of Registration Rights Agreement between Crude Carriers
Corp. and Crude Carriers Investments Corp.
|
|
4
|
.2
|
|
Form of Subscription Agreement for Class B Stock between
Crude Carriers Corp. and Crude Carriers Investments Corp.
|
|
4
|
.3
|
|
Specimen stock certificate representing the Registrants
common stock
|
|
5
|
.1
|
|
Opinion of Watson, Farley & Williams (New York) LLP,
Marshall Islands counsel to Crude Carriers, as to the legality
of securities being registered
|
|
8
|
.1
|
|
Opinion of Watson, Farley & Williams (New York) LLP,
Marshall Islands counsel to Crude Carriers, as to certain tax
matters
|
|
8
|
.2
|
|
Opinion of Sullivan & Cromwell LLP, special United
States counsel to Crude Carriers, as to certain United States
federal income tax matters
|
|
10
|
.1
|
|
Form of Management Agreement between Crude Carriers Corp. and
Capital Ship Management Corp.
|
|
10
|
.2
|
|
Form of Business Opportunities Agreement between Crude Carriers
Corp. and Capital Maritime & Trading Corp.
|
|
10
|
.3
|
|
Form of Share Purchase Agreement between Crude Carriers Corp.
and Capital Maritime & Trading Corp. for Cooper
Consultants Co.
|
|
10
|
.4
|
|
Form of Share Purchase Agreement between Crude Carriers Corp.
and Capital Maritime & Trading Corp. for Alexander the
Great Carriers Corp.
|
|
10
|
.5
|
|
Form of Share Purchase Agreement between Crude Carriers Corp.
and Capital Maritime & Trading Corp. for Achilleas
Carriers Corp.
|
|
10
|
.6
|
|
Crude Carriers 2010 Equity Incentive Plan
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
23
|
.2
|
|
Consent of Clarkson Research Services Limited
|
|
23
|
.3
|
|
Consent of Evangelos M. Marinakis
|
|
23
|
.4
|
|
Consent of Gregory J. Timagenis
|
|
23
|
.5
|
|
Consent of Pierre de Demandolx Dedons
|
|
23
|
.6
|
|
Consent of Gerasimos G. Kalogiratos
|
|
23
|
.7
|
|
Consent of Andreas C. Konialidis
|
|
23
|
.8
|
|
Consent of Socrates Kominakis
|
|
23
|
.9
|
|
Consent of Richard Sages
|
II-3
Crude Carriers
Corp.
Reg. S-K, Item 512(f) Undertaking
: The
undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Reg. S-K, Item 512(h) Undertaking
:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant
of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted against the
registrant by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Reg. S-K, Item 512(i) Undertaking
: The
undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under
the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus 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.
II-4
Crude Carriers
Corp.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
it meets all of the requirements for filing on
Form F-1
and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of Piraeus, Greece on March 1, 2010.
CRUDE CARRIERS CORP.
|
|
|
|
By:
|
/s/
Gerasimos
G. Kalogiratos
|
Name: Gerasimos G. Kalogiratos
Title: Chief Financial Officer and Director
POWER OF
ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints each of Evangelos M. Marinakis, Ioannis E. Laziridis,
Gerasimos G. Kalogiratos and Andreas C. Konialidis, acting
alone, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any or
all amendments or supplements to this Registration Statement,
whether pre-effective or post-effective and any and all
additional registration statements pursuant to Rule 462(b)
of the Securities Act of 1933, as amended, and to file the same
with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing necessary or
appropriate to be done with respect to this Registration
Statement or any amendments or supplements hereto or any and all
additional registration statements pursuant to Rule 462(b)
of the Securities Act of 1933, as amended, in the premises, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes,
may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
on March 1, 2010 in the capacities indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
|
/s/
Evangelos
M. Marinakis
Evangelos
M. Marinakis
|
|
Chairman of the Board of Directors, Chief Executive Officer and
Director
|
/s/
Ioannis
E. Lazaridis
Ioannis
E. Lazaridis
|
|
President
|
/s/
Gerasimos
G. Kalogiratos
Gerasimos
G. Kalogiratos
|
|
Chief Financial Officer and Director
|
/s/
Andreas
C. Konialidis
Andreas
C. Konialidis
|
|
Chartering Manager and Director
|
/s/
Gregory
J. Timagenis
Gregory
J. Timagenis
|
|
Director
|
/s/
Richard
Sages
Richard
Sages
|
|
Director
|
II-5
Crude Carriers
Corp.
|
|
|
|
|
Signature
|
|
Title
|
|
|
/s/
Pierre
de Demandolx Dedons
Pierre
de Demandolx Dedons
|
|
Director
|
/s/
Socrates
Kominakis
Socrates
Kominakis
|
|
Director
|
II-6
Crude Carriers
Corp.
SIGNATURE OF
AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrants duly authorized representative in
the United States has signed this Registration Statement in
Newark, Delaware, on March 1, 2010.
PUGLISI & ASSOCIATES
|
|
|
|
By:
|
/s/
Gregory
F. Lavelle
|
Name: Gregory F. Lavelle
Title: Managing Director
II-7
Crude Carriers
Corp.
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation of Crude Carriers
Corp.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Crude Carriers Corp.
|
|
4
|
.1
|
|
Form of Registration Rights Agreement between Crude Carriers
Corp. and Crude Carriers Investments Corp.
|
|
4
|
.2
|
|
Form of Subscription Agreement for Class B Stock between
Crude Carriers Corp. and Crude Carriers Investments Corp.
|
|
4
|
.3
|
|
Specimen stock certificate representing the Registrants
common stock
|
|
5
|
.1
|
|
Opinion of Watson, Farley & Williams (New York) LLP,
Marshall Islands counsel to Crude Carriers, as to the legality
of securities being registered
|
|
8
|
.1
|
|
Opinion of Watson, Farley & Williams (New York) LLP,
Marshall Islands counsel to Crude Carriers, as to certain tax
matters
|
|
8
|
.2
|
|
Opinion of Sullivan & Cromwell LLP, special United
States counsel to Crude Carriers, as to certain United States
federal income tax matters
|
|
10
|
.1
|
|
Form of Management Agreement between Crude Carriers Corp. and
Capital Ship Management Corp.
|
|
10
|
.2
|
|
Form of Business Opportunities Agreement between Crude Carriers
Corp. and Capital Maritime & Trading Corp.
|
|
10
|
.3
|
|
Form of Share Purchase Agreement between Crude Carriers Corp.
and Capital Maritime & Trading Corp. for Cooper
Consultants Co.
|
|
10
|
.4
|
|
Form of Share Purchase Agreement between Crude Carriers Corp.
and Capital Maritime & Trading Corp. for Alexander the
Great Carriers Corp.
|
|
10
|
.5
|
|
Form of Share Purchase Agreement between Crude Carriers Corp.
and Capital Maritime & Trading Corp. for Achilleas
Carriers Corp.
|
|
10
|
.6
|
|
Crude Carriers 2010 Equity Incentive Plan
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
23
|
.2
|
|
Consent of Clarkson Research Services Limited
|
|
23
|
.3
|
|
Consent of Evangelos M. Marinakis
|
|
23
|
.4
|
|
Consent of Gregory J. Timagenis
|
|
23
|
.5
|
|
Consent of Pierre de Demandolx Dedons
|
|
23
|
.6
|
|
Consent of Gerasimos G. Kalogiratos
|
|
23
|
.7
|
|
Consent of Andreas C. Konialidis
|
|
23
|
.8
|
|
Consent of Socrates Kominakis
|
|
23
|
.9
|
|
Consent of Richard Sages
|
II-8
Exhibit 1.1
Crude Carriers Corp.
13,500,000 Shares
Common Stock
($0.0001 par value per Share)
Underwriting Agreement
[
, 2010]
Underwriting Agreement
[
, 2010]
UBS Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Wells Fargo Securities, LLC
as Representatives of the several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, New York 10171-0026
Ladies and Gentlemen:
Crude Carriers Corp., a Republic of The Marshall Islands corporation (the
Company
),
proposes to issue and sell to the underwriters named in
Schedule A
annexed hereto (the
Underwriters
), for whom you are acting as representatives, an aggregate of 13,500,000
shares (the
Firm Shares
) of common stock, $0.0001 par value per share (the
Common
Stock
), of the Company. In addition, solely for the purpose of covering over-allotments, the
Company proposes to grant to the Underwriters the option to purchase from the Company up to an
additional 2,025,000 shares of Common Stock (the
Additional Shares
). The Firm Shares and
the Additional Shares are hereinafter collectively sometimes referred to as the
Shares
.
The Shares are described in the Prospectus which is referred to below.
The Company has prepared and filed, in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations thereunder (collectively, the
Act
), with
the Securities and Exchange Commission (the
Commission
) a registration statement on Form
F-1 (File No. [333-
]) under the Act, including a prospectus, relating to the Shares.
Except where the context otherwise requires,
Registration Statement
, as used herein,
means the registration statement, as amended at the time of such registration statements
effectiveness for purposes of Section 11 of the Act, as such section applies to the respective
Underwriters (the
Effective Time
), including (i) all documents filed as a part thereof,
(ii) any information contained in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, to the extent such information is deemed, pursuant to Rule 430A or Rule 430C under
the Act, to be part of the registration statement at the Effective Time, and (iii) any registration
statement filed to register the offer and sale of Shares pursuant to Rule 462(b) under the Act.
The Company has furnished to you, for use by the Underwriters and by dealers in connection
with the offering of the Shares, copies of one or more preliminary prospectuses relating to the
Shares. Except where the context otherwise requires,
Preliminary Prospectus
, as used
herein, means each such preliminary prospectus, in the form so furnished.
Except where the context otherwise requires,
Prospectus
, as used herein, means the
prospectus, relating to the Shares, filed by the Company with the Commission pursuant to Rule
424(b) under the Act on or before the second business day after the date hereof (or such
earlier time as may be required under the Act), or, if no such filing is required, the final
prospectus included in the Registration Statement at the time it became effective under the Act, in
each case in the form furnished by the Company to you for use by the Underwriters and by dealers in
connection with the offering of the Shares.
Permitted Free Writing Prospectuses
, as used herein, means the documents listed on
Schedule B
attached hereto and each road show (as defined in Rule 433 under the Act), if
any, related to the offering of the Shares contemplated hereby that is a written communication
(as defined in Rule 405 under the Act) (each such road show, an
Electronic Road Show
).
The Underwriters have not offered or sold and will not offer or sell, without the Companys
consent, any Shares by means of any free writing prospectus (as defined in Rule 405 under the
Act) that is required to be filed by the Underwriters with the Commission pursuant to Rule 433
under the Act, other than a Permitted Free Writing Prospectus.
Covered Free Writing Prospectuses
, as used herein, means (i) each issuer free
writing prospectus (as defined in Rule 433(h)(1) under the Act), if any, relating to the Shares,
which is not a Permitted Free Writing Prospectus and (ii) each Permitted Free Writing Prospectus.
Disclosure Package
, as used herein, means any Preliminary Prospectus together with
any combination of one or more of the Permitted Free Writing Prospectuses, if any.
As used in this Agreement,
business day
shall mean a day on which the New York Stock
Exchange (the
NYSE
) is open for trading. The terms herein, hereof, hereto,
hereinafter and similar terms, as used in this Agreement, shall in each case refer to this
Agreement as a whole and not to any particular section, paragraph, sentence or other subdivision of
this Agreement. The term or, as used herein, is not exclusive.
The Company has prepared and filed, in accordance with Section 12 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (collectively, the
Exchange
Act
), a registration statement (as amended, the
Exchange Act Registration Statement
)
on Form 8-A (File No. [___]) under the Exchange Act to register, under Section 12(b) of the
Exchange Act, the class of securities consisting of the Common Stock.
All parties understand that, upon the terms set forth in the Prospectus, Nordea Bank Norge ASA
will effect offers and sales solely outside of the United States or within the United States to the
extent permitted by Rule 15a-6 under the Exchange Act and in compliance with state securities laws.
In connection with the offering of the Shares and prior to the closing of the purchase of the
Firm Shares contemplated hereby, the Company has entered or will enter into (i) a long-term
management agreement (the
Management Agreement
) with Capital Ship Management Corp. (the
Manager
), a subsidiary of Capital Maritime & Trading Corp. (
Capital Maritime
),
pursuant to which the Manager will provide the Company with certain commercial, technical,
administrative and strategic services, (ii) an agreement with Capital Maritime, pursuant to which
the Company will have the right to be notified and take advantage of certain
- 2 -
business opportunities that may be attractive to Capital Maritime or its affiliates (the
Business Opportunities Agreement
), (iii) an agreement with Crude Carriers Investments
Corp. by which the Company will provide Crude Carriers Investments Corp. and its affiliates with
certain registration rights under the Act with respect to shares of Common Stock and shares of the
Companys Class B Stock owned by it (the
Registration Rights Agreement
), (iv) a
subscription agreement with Crude Carriers Investments Corp., pursuant to which, among other
things, Crude Carriers Investments Corp. will make a capital contribution to the Company of
$40,000,000 in exchange for [2,000,000] shares of the Companys Class B Stock (the
Subscription Agreement
), (v) a share purchase agreement with Capital Maritime (the
Cooper Purchase Agreement
) pursuant to which the Company will acquire from Capital
Maritime, for a price of $71,250,000, all the outstanding capital stock of Cooper Consultants Co.
(
Cooper
), a Republic of The Marshall Islands company owning the 2006-built Ice class 1A
Suezmax vessel named M/T Miltiadis M II (
Vessel
), (vi) a share purchase agreement with
Capital Maritime (the
Achilleas Purchase Agreement
) pursuant to which the Company will
acquire from Capital Maritime, for a price of $19,300,000, all the outstanding capital stock of
Achilleas Carrier Corp. (
Achilleas
), a Republic of Liberia corporation, (vii) a share
purchase agreement with Capital Maritime (the
Alexander Purchase Agreement
) pursuant to
which the Company will acquire from Capital Maritime, for a price of $19,300,000, all the
outstanding capital stock of Alexander The Great Carriers Corp. (
Alexander
), a Republic
of Liberia corporation, and (viii) a commitment letter with Nordea Bank Finland Plc, London Branch,
dated February 5, 2010, pursuant to which a 5-year, $100 million senior secured revolving credit
facility has been made available to the Company (the
Commitment Letter
). The Management
Agreement, the Business Opportunities Agreement, the Registration Rights Agreement, the
Subscription Agreement, the Cooper Purchase Agreement, the Achilleas Purchase Agreement, the
Alexander Purchase Agreement and the Commitment Letter are collectively referred to herein as the
Transaction Documents
. The Company, Capital Maritime, the Manager and Crude Carriers
Investments Corp. are referred to herein as the
Capital Parties
.
The Capital Parties and the Underwriters agree as follows:
1.
Sale and Purchase.
Upon the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the
respective Underwriters, and each of the Underwriters, severally and not jointly, agrees to
purchase from the Company, the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule A attached hereto, subject to adjustment in accordance with Section 8
hereof, in each case at a purchase price of $[___] per Share. The Company is advised by you that
(i) the Underwriters intend to make a public offering in the United States of, or offer for sale in
jurisdictions outside the United States, their respective portions of the Firm Shares as soon after
the effective date of the Registration Statement as in your judgment is advisable, (ii) Nordea Bank
Norge ASA intends to effect offers and sales of its portion of the Firm Shares solely outside of
the United States or within the United States to the extent permitted by Rule 15a-6 under the
Exchange Act and in compliance with state securities laws, and (iii) the Underwriters intend
initially to offer the Firm Shares upon the terms set forth in the Prospectus.
In addition, the Company hereby grants to the several Underwriters the option (the
Over-Allotment Option
) to purchase, and upon the basis of the representations and
warranties and subject to the terms and conditions herein set forth, the Underwriters shall have
- 3 -
the right to purchase, severally and not jointly, from the Company, ratably in accordance with
the number of Firm Shares to be purchased by each of them, all or a portion of the Additional
Shares as may be necessary to cover over-allotments made in connection with the offering of the
Firm Shares, at the same purchase price per share to be paid by the Underwriters to the Company for
the Firm Shares. The Over-Allotment Option may be exercised by UBS Securities LLC (
UBS
)
on behalf of the several Underwriters at any time and from time to time on or before the thirtieth
day following the date of the Prospectus, by written notice to the Company. Such notice shall set
forth the aggregate number of Additional Shares as to which the Over-Allotment Option is being
exercised and the date and time when the Additional Shares are to be delivered (any such date and
time being herein referred to as an
additional time of purchase
);
provided
,
however
, that no additional time of purchase shall be earlier than the time of purchase
(as defined below) nor earlier than the second business day after the date on which the
Over-Allotment Option shall have been exercised nor later than the tenth business day after the
date on which the Over-Allotment Option shall have been exercised. The number of Additional Shares
to be sold to each Underwriter shall be the number which bears the same proportion to the aggregate
number of Additional Shares being purchased as the number of Firm Shares set forth opposite the
name of such Underwriter on
Schedule A
hereto bears to the total number of Firm Shares
(subject, in each case, to such adjustment as UBS may determine to eliminate fractional shares),
subject to adjustment in accordance with Section 8 hereof.
2.
Payment and Delivery
. Payment of the purchase price for the Firm Shares shall be
made to the Company by Federal Funds wire transfer against delivery of the Firm Shares, in
definitive form, to you through the facilities of The Depository Trust Company (
DTC
) for
the respective accounts of the Underwriters. Such payment and delivery shall be made at 10:00
A.M., New York City time, on [
], 2010 (unless another time shall be agreed to by you and the
Company or unless postponed in accordance with the provisions of Section 8 hereof). The time at
which such payment and delivery are to be made is hereinafter sometimes called the
time of
purchase
. Electronic transfer of the Firm Shares shall be made to you at the time of purchase
in such names and in such denominations as you shall specify at least one business day in advance.
Payment of the purchase price for the Additional Shares shall be made at the additional time
of purchase in the same manner and at the same office and time of day as the payment for the Firm
Shares. Electronic transfer of the Additional Shares shall be made to you at the additional time
of purchase in such names and in such denominations as you shall specify at least one business day
in advance, except in case of simultaneous settlement of the purchase of the Firm Shares and the
purchase of the Additional Shares.
Deliveries of the documents described in Section 6 hereof with respect to the purchase of the
Shares shall be made at the offices of Cravath, Swaine & Moore LLP at Worldwide Plaza, 825 Eighth
Avenue, New York, NY 10019-7475, at 9:00 A.M., New York City time, on the date of the closing of
the purchase of the Firm Shares or the Additional Shares, as the case may be.
3.
Representations and Warranties of the Capital Parties
. Each of the Company and
Crude Carriers Investments Corp. and, with respect to subsections (b), (i), (j), (l), (o), (p),
(q), (r), (s), (t), (u), (w), (y), (z), (aa), (bb), (cc), (dd), (ee), (ff), (hh), (ii), (jj), (kk),
(nn), (oo) and (pp), hereof, each of Capital Maritime and the Manager, jointly and severally,
represents and warrants
- 4 -
to and agrees with each of the Underwriters that:
(a)
Filing and Effectiveness of Registration Statements.
The Registration
Statement has heretofore become effective under the Act or, with respect to any
registration statement to be filed to register the offer and sale of Shares pursuant to
Rule 462(b) under the Act, will be filed with the Commission and become effective under
the Act no later than 10:00 P.M., New York City time, on the date of determination of the
public offering price for the Shares; no stop order of the Commission preventing or
suspending the use of any Preliminary Prospectus or Permitted Free Writing Prospectus, or
the effectiveness of the Registration Statement, has been issued, and no proceedings for
such purpose have been instituted or, to the knowledge of the Capital Parties, are
contemplated by the Commission; the Exchange Act Registration Statement has become
effective as provided in Section 12 of the Exchange Act;
(b)
Compliance with Act Requirements.
The Registration Statement complied
when it became effective, complies as of the date hereof and, as amended or supplemented,
at the time of purchase, each additional time of purchase, if any, and at all times
during which a prospectus is required by the Act to be delivered (whether physically or
through compliance with Rule 172 under the Act or any similar rule) in connection with
any sale of Shares, will comply, in all material respects, with the requirements of the
Act; the Registration Statement did not, as of the Effective Time, contain 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; each Preliminary
Prospectus complied, at the time it was filed with the Commission, and complies as of the
date hereof, in all material respects with the requirements of the Act; at no time during
the period that begins on the earlier of the date of such Preliminary Prospectus and the
date such Preliminary Prospectus was filed with the Commission and ends at the time of
purchase did or will any Preliminary Prospectus, as then amended or supplemented, include
an untrue statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under which they
were made, not misleading, and at no time during such period did or will any Preliminary
Prospectus, as then amended or supplemented, together with any combination of one or more
of the then issued Permitted Free Writing Prospectuses, if any, include an untrue
statement of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were made, not
misleading; the Prospectus will comply, as of its date, the date that it is filed with
the Commission, the time of purchase, each additional time of purchase, if any, and at
all times during which a prospectus is required by the Act to be delivered (whether
physically or through compliance with Rule 172 under the Act or any similar rule) in
connection with any sale of Shares, in all material respects, with the requirements of
the Act (including, without limitation, Section 10(a) of the Act); at no time during the
period that begins on the earlier of the date of the Prospectus and the date the
Prospectus is filed with the Commission and ends at the later of the time of purchase,
the latest additional time of purchase, if any, and the end of the period during which a
prospectus is required by the Act to be delivered (whether physically or through
compliance with
- 5 -
Rule 172 under the Act or any similar rule) in connection with any sale of Shares
did or will the Prospectus, as then amended or supplemented, include an untrue statement
of a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not
misleading; at no time during the period that begins on the date of such Permitted Free
Writing Prospectus and ends at the time of purchase did or will any Permitted Free
Writing Prospectus include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
provided
,
however
, that the Capital Parties make no representation or warranty in this
Section 3(b) with respect to any statement contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus in
reliance upon and in conformity with information concerning an Underwriter and furnished
in writing by or on behalf of such Underwriter through you to the Company expressly for
use in the Registration Statement, such Preliminary Prospectus, the Prospectus or such
Permitted Free Writing Prospectus;
(c)
Prospectuses.
Prior to the execution of this Agreement, the Company has
not, directly or indirectly, offered or sold any Shares by means of any prospectus
(within the meaning of the Act) or used any prospectus (within the meaning of the Act)
in connection with the offer or sale of the Shares, in each case other than the
Preliminary Prospectuses and the Permitted Free Writing Prospectuses, if any; the Company
has not, directly or indirectly, prepared, used or referred to any Permitted Free Writing
Prospectus except in compliance with Rules 164 and 433 under the Act; assuming that such
Permitted Free Writing Prospectus is accompanied or preceded by the most recent
Preliminary Prospectus that contains a price range or the Prospectus, as the case may be,
and that such Permitted Free Writing Prospectus is so sent or given after the
Registration Statement was filed with the Commission (and after such Permitted Free
Writing Prospectus was, if required pursuant to Rule 433(d) under the Act, filed with the
Commission), the sending or giving, by any Underwriter, of any Permitted Free Writing
Prospectus will satisfy the provisions of Rule 164 and Rule 433 (without reliance on
subsections (b), (c) and (d) of Rule 164); each of the Preliminary Prospectuses dated
[___] is a prospectus that, other than by reason of Rule 433 or Rule 431 under the Act,
satisfies the requirements of Section 10 of the Act, including a price range where
required by rule; neither the Company nor the Underwriters are disqualified, by reason of
subsection (f) or (g) of Rule 164 under the Act, from using, in connection with the offer
and sale of the Shares, free writing prospectuses (as defined in Rule 405 under the
Act) pursuant to Rules 164 and 433 under the Act; the Company is not an ineligible
issuer (as defined in Rule 405 under the Act) as of the eligibility determination date
for purposes of Rules 164 and 433 under the Act with respect to the offering of the
Shares contemplated by the Registration Statement, without taking into account any
determination by the Commission pursuant to Rule 405 under the Act that it is not
necessary under the circumstances that the Company be considered an ineligible issuer;
the parties hereto agree and understand that the content of any and all road shows (as
defined in Rule 433 under the Act) related to the offering of the Shares contemplated
hereby is solely the property of the Company; the Company has caused there to be made
available at least one version of a
bona fide
- 6 -
electronic road show (as defined in Rule 433 under the Act) in a manner that,
pursuant to Rule 433(d)(8)(ii) under the Act, causes the Company not to be required,
pursuant to Rule 433(d) under the Act, to file, with the Commission, any Electronic Road
Show;
(d)
Issuer Free Writing Prospectuses.
Each issuer free writing prospectus,
as of its issue date and at all subsequent times through the time of purchase and each
additional time of purchase, as the case may be, or until any earlier date that the
Company notified or notifies the Underwriters as described in Section 4(f) did not, does
not and will not include any information that conflicted, conflicts or will conflict with
the information contained in the Registration Statement, the Preliminary Prospectuses and
the Prospectus;
(e)
Foreign Private Issuer Status.
The Company is a foreign private
issuer as defined in Rule 405 under the Act;
(f)
Independent Accountants.
Deloitte. Hadjipavlou, Sofianos & Cambanis
S.A., the accountants who certified the financial statements and supporting schedules
included in the Registration Statement, the Preliminary Prospectuses and the Prospectus,
are independent registered public accountants as required by the Act, the rules and
regulations under the Act and the rules of the Public Company Accounting Oversight Board;
(g)
No Restrictions.
There are no restrictions on the voting or subsequent
transfers of the Shares under the laws of the Republic of The Marshall Islands, the
Companys amended and restated articles of incorporation (
Articles of
Incorporation
), the Companys amended and restated bylaws (
Bylaws
) or any
agreement or other instrument to which the Company is a party;
(h)
Financial Statements.
The financial statements included in the
Registration Statement, the Preliminary Prospectuses, the Prospectus and the Permitted
Free Writing Prospectuses, together with the related schedules and notes, present fairly
the financial position of the entities purported to be shown thereby on the basis stated
therein at the dates indicated; said financial statements have been prepared in
conformity with U.S. generally accepted accounting principles (
GAAP
) applied on
a consistent basis throughout the periods involved. The supporting schedules, if any,
present fairly in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information included in the
Registration Statement, the Preliminary Prospectuses, the Prospectus and the Permitted
Free Writing Prospectuses present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial statements included in
the Registration Statement. The pro forma financial statements and data included in the
Registration Statement, the Preliminary Prospectuses, the Prospectus and the Permitted
Free Writing Prospectuses present fairly the information shown therein, have been
prepared in accordance with the Commissions rules and guidelines with respect to pro
forma financial statements and have been properly compiled on the bases described
therein, and the assumptions used in the preparation thereof are reasonable
- 7 -
and the adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein. The Company, Cooper, Achilleas and Alexander do
not have any material liabilities or obligations, direct or contingent (including any
off-balance sheet obligations), not described in the Registration Statement (excluding
the exhibits thereto), each Preliminary Prospectus and the Prospectus. All disclosures
contained in the Registration Statement, the Preliminary Prospectuses, the Prospectus and
the Permitted Free Writing Prospectuses regarding non-GAAP financial measures (as such
term is defined by the rules and regulations of the Commission) comply with Item 10 of
Regulation S-K under the Act, to the extent applicable;
(i)
No Material Adverse Change in Business.
Since the respective dates as
of which information is given in the Registration Statement, the Preliminary
Prospectuses, the Prospectus and the Permitted Free Writing Prospectuses, except as
otherwise stated therein, (A) there has been no material adverse change, or development
that would reasonably be expected to cause a material adverse change, in the condition,
financial or otherwise, or in the results of operation, properties, management, business
affairs or business prospects of the Company, Cooper, Achilleas or Alexander (a
Material Adverse Effect
), (B) there have been no transactions entered into by
the Company, Cooper, Achilleas or Alexander that are material with respect to the
Company, Cooper, Achilleas or Alexander (C) there has been no dividend or distribution of
any kind declared, paid or made on the capital stock of the Company, Cooper, Achilleas or
Alexander and (D) the Company has not received any notice from the NYSE regarding the
delisting of the Common Stock from the NYSE;
(j)
Formation and Qualification of the Capital Parties, Cooper, Achilleas and
Alexander.
Each of the Capital Parties, Cooper, Achilleas and Alexander has been
duly incorporated and is validly existing as a corporation and is in good standing under
the laws of its jurisdiction of incorporation and each of the Capital Parties, Cooper,
Achilleas and Alexander has full corporate power and authority, as applicable, necessary
to own, lease and operate the properties it owns, leases or operates and to conduct its
business as described in the Registration Statement, the Preliminary Prospectuses, the
Prospectus and the Permitted Free Writing Prospectuses. Each of the Capital Parties has
full corporate power and authority, as applicable, necessary to enter into, execute,
deliver and perform its obligations under the Transaction Documents to which it is a
party and to enter into, execute, deliver and perform its obligations under this
Agreement. Each of the Capital Parties, Cooper, Achilleas and Alexander is duly
qualified to transact business and is in good standing as a foreign corporation, as
applicable, in each other jurisdiction in which such qualification is required for the
conduct of its business, except where the failure to so qualify or to be in good standing
would not result in a Material Adverse Effect or subject the Company, Cooper, Achilleas
or Alexander to any material liability or disability;
(k)
Authorization, Issuance and Ownership of the Shares; Description of the
Companys Capital Stock.
The Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be duly and
validly issued, fully paid and non-assessable and free of statutory and contractual
preemptive rights, resale rights, rights of first refusal and similar rights; the Shares
- 8 -
when issued and delivered against payment therefor as provided herein, will be free
and clear of all liens, encumbrances, security interests, pledges, mortgages, charges or
other claims (collectively,
Liens
) and free of any restriction upon the voting
or transfer thereof pursuant to the Business Corporations Act of the Republic of The
Marshall Islands (
MIBCA
), the Articles of Incorporation, the Bylaws or any
agreement or other instrument to which the Company is a party. The capital stock of the
Company, including the Shares, conforms in all material respects to each description
thereof, if any, contained in the Registration Statement, the Preliminary Prospectuses,
the Prospectus and the Permitted Free Writing Prospectuses; and the certificates for the
Shares are in due and proper form;
(l)
Ownership and Capital Stock of Cooper, Achilleas and Alexander.
At the
time of purchase and each additional time of purchase, after giving effect to the Cooper
Purchase Agreement, the Achilleas Purchase Agreement and the Alexander Purchase
Agreement, the Company will own all of the issued and outstanding capital stock of
Cooper, Achilleas and Alexander; such capital stock will have been duly authorized and
validly issued, fully paid and non-assessable and free of all Liens, statutory and
contractual preemptive rights, resale rights, rights of first refusal and similar rights
and any restriction upon the voting or transfer thereof pursuant to the MIBCA or the
Business Corporation Act of the Republic of Liberia (
LBCA
), as the case may be,
the articles of incorporation and the bylaws of each of Cooper, Achilleas and Alexander
or any agreement or other instrument to which Cooper, Achilleas or Alexander are a party.
At the time of purchase and each additional time of purchase, after giving effect to the
Cooper Purchase Agreement, the Achilleas Purchase Agreement and the Alexander Purchase
Agreement, the Company will have no subsidiaries (as defined under the Act) other than
Crude Carriers Operating Corp., Cooper, Achilleas and Alexander and will not own,
directly or indirectly, any other shares of stock or any other equity interests or
long-term debt securities of any corporation, firm, partnership, joint venture,
association or other entity;
(m)
Capitalization.
As of the date of this Agreement, the Company has an
authorized and outstanding capitalization as set forth in the sections of the
Registration Statement, the Preliminary Prospectuses and the Prospectus entitled
Capitalization and Description of capital stock (and any similar sections or
information, if any, contained in any Permitted Free Writing Prospectus), and, as of the
time of purchase and each additional time of purchase, as the case may be, and after
giving effect to the transactions contemplated by the Transaction Documents, the Company
shall have an authorized and outstanding capitalization as set forth in the sections of
the Registration Statement, the Preliminary Prospectuses and the Prospectus entitled
Capitalization and Description of capital stock (and any similar sections or
information, if any, contained in any Permitted Free Writing Prospectus); all of the
issued and outstanding shares of capital stock, including the Common Stock and the Class
B Stock, of the Company have been duly authorized and validly issued and are fully paid
and non-assessable, have been issued in compliance with all applicable securities laws
and were not issued in violation of any preemptive right, resale right, right of first
refusal or similar right; the Articles of Incorporation and the Bylaws, each in the form
filed as an exhibit to the Registration Statement, have been heretofore duly authorized
and
- 9 -
approved in accordance with the MIBCA and shall become effective and in full force
at or before the time of purchase; the Shares are duly listed, and admitted and
authorized for trading, subject to official notice of issuance and evidence of
satisfactory distribution, on the NYSE;
(n)
No Preemptive Rights or Options; No Registration Rights.
Except as
described in the Registration Statement, the Preliminary Prospectuses, the Prospectus and
the Permitted Free Writing Prospectuses, there are no (A) preemptive rights, resale
rights, rights of first refusal or other rights to subscribe for or to purchase any
equity securities of the Company, Cooper, Achilleas or Alexander or (B) outstanding
options or warrants to purchase any securities of the Company, Cooper, Achilleas or
Alexander (including, without limitations, stock options under any stock option plan of
the Company). Other than pursuant to the Registration Rights Agreement, there are no
persons with registration rights or similar rights to have any securities of the Company,
Cooper, Achilleas or Alexander registered pursuant to the Registration Statement or
otherwise registered under the Act;
(o)
Authority and Authorization of Agreement.
Each of the Capital Parties
has the legal right and power, and all authorization and approval required by law, to
enter into this Agreement and has validly taken all corporate action (including
shareholder action), as the case may be, required for the authorization, execution and
delivery of this Agreement and the consummation of all the transactions contemplated
hereby. The Company has all requisite corporate power and authority necessary, and has
validly taken all corporate action required, for the issuance, sale and delivery of the
Shares to the Underwriters in accordance herewith. This Agreement has been duly
authorized, executed and delivered by each of the Capital Parties;
(p)
Authorization, Execution, Delivery and Enforceability of Transaction
Documents.
Each Transaction Document conforms in all material respects to the
description thereof contained in the Registration Statement. Each of the Capital Parties
has the legal right and power, and all authorization and approval required by law, to
enter into each of the Transaction Documents to which it is a party and has validly taken
all corporate action (including shareholder action), as the case may be, required for the
authorization, execution and delivery of any such Transaction Document and the
consummation of all the transactions contemplated thereby. At or before the time of
purchase, the Transaction Documents will have been duly authorized, executed and
delivered by the Capital Parties that are parties thereto and each will be a valid and
legally binding agreement of the parties thereto, enforceable against such parties in
accordance with its terms, provided that, with respect to each Transaction Document, the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws relating to or affecting creditors rights
generally and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law);
(q)
No Conflicts.
None of (A) the offering, issuance or sale of the Shares
as contemplated hereby, (B) the execution, delivery and performance of this Agreement and
the Transaction Documents by the Capital Parties that are parties
- 10 -
thereto or (C) the consummation of any other transactions contemplated by this
Agreement or the Transaction Documents, (1) conflicts or will conflict with or
constitutes or will constitute a violation of the organizational agreement, certificate
of formation or conversion, certificate or articles of incorporation, by-laws or other
constituent document (collectively, the
Organizational Documents
) of any of the
Capital Parties, (2) conflicts or will conflict with or constitutes or will constitute a
breach or violation of, or a default (or an event that, with notice or lapse of time or
both, would constitute such a default) under any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which any of the Capital Parties is
a party or by which any of them or any of their respective properties may be bound, (3)
violates or will violate any statute, law or regulation (including, without limitation,
the rules and regulations of the NYSE) or any order, judgment, decree or injunction of
any court, governmental agency, regulatory authority or body directed to any of the
Capital Parties or any of their properties in a proceeding to which any of them or their
property is a party or (4) results or will result in the creation or imposition of any
Lien upon any property or assets of any of the Capital Parties, which conflicts,
breaches, violations, defaults or Liens, in the case of clauses (2) or (4), would,
individually or in the aggregate, have a Material Adverse Effect, have a material adverse
effect on the ability of any of the Capital Parties to consummate the transactions
contemplated by this Agreement or the Transaction Documents to be consummated on or prior
to the time of purchase or each additional time of purchase, as applicable;
(r)
No Consents.
No permit, consent, approval, authorization, order,
registration, filing or qualification (
Consent
) of or with any court,
governmental agency, regulatory authority (including, without limitation, the NYSE) or
body having jurisdiction over any of the Capital Parties or any of their properties or
assets is required, in connection with the offering, issuance or sale by the Company of
the Shares, the execution, delivery and performance of this Agreement and the Transaction
Documents by the Capital Parties that are parties thereto, on or prior to the time of
purchase and each additional time of purchase, as the case may be, or the consummation of
the transactions contemplated by this Agreement or the Transaction Documents to be
consummated on or prior to the time of purchase or each additional time of purchase, as
the case may be, except (A) for such permits, consents, approvals and similar
authorizations required under the Act, the Exchange Act and state securities or Blue
Sky laws, (B) for such consents that have been, or prior to the time of purchase will
be, obtained, and (C) for such consents that, if not obtained, would not, individually or
in the aggregate, have or reasonably be expected to have a Material Adverse Effect;
(s)
No Defaults.
None of the Capital Parties nor any of their respective
directors and officers is in (A) violation of its Organizational Documents, (B) violation
of any statute, law, rule or regulation (including, without limitation, the rules and
regulations of the NYSE), or any judgment, order, injunction or decree of any court,
governmental agency, regulatory authority or body or arbitrator having jurisdiction over
such Capital Party, as the case may be, or any of its properties or assets or (C) breach,
default (or an event which, with notice or lapse of time or both, would
- 11 -
constitute such an event) or violation in the performance of any obligation,
agreement or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or by which it
or any of its properties may be bound, which in the case of clauses (B) and (C) would, if
continued, have a Material Adverse Effect or could materially impair the ability of any
of the Capital Parties to perform their obligations under this Agreement or the
Transaction Documents;
(t)
Absence of Labor Dispute.
No labor dispute with the employees of the
Company, the Manager, Cooper, Achilleas or Alexander exists or, to the knowledge of the
Capital Parties, is imminent, and none of the Capital Parties has knowledge of any
existing or imminent labor disturbance by the employees of any of the Companys, the
Managers, Coopers, Achilleas or Alexanders principal suppliers, manufacturers,
customers or contractors, which, in any case, would result in a Material Adverse Effect;
(u)
Absence of Proceedings.
There is no action, suit, proceeding, inquiry
or investigation before or brought by any court or governmental agency, regulatory
authority or body, domestic or foreign, now pending, or, to the knowledge of the Capital
Parties, threatened, against or affecting any of the Company, Cooper, Achilleas or
Alexander which is required to be disclosed in the Registration Statement (other than as
disclosed therein), or which might result in a Material Adverse Effect, or which might
materially and adversely affect the properties or assets thereof or the consummation of
the transactions contemplated in this Agreement or the performance by any of the Capital
Parties of its obligations hereunder or under the Transaction Documents; the aggregate of
all pending legal or governmental proceedings to which any of the Company, Cooper,
Achilleas or Alexander is a party or of which any of their respective property or assets
is the subject which are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not result in a Material Adverse
Effect;
(v)
Accuracy of Exhibits.
There are no contracts or documents which are
required to be described in the Registration Statement, the Preliminary Prospectuses, the
Prospectus or the Permitted Free Writing Prospectuses or to be filed as exhibits to the
Registration Statement which have not been so described and filed as required. Neither
the Company, Cooper, Achilleas nor Alexander has sent or received any communication
regarding termination of, or intent not to renew, any of the contracts or agreements
referred to or described in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any Permitted Free Writing Prospectus or filed as an exhibit to the
Registration Statement, and no such termination or non-renewal has been threatened by the
Company, Cooper, Achilleas, Alexander or, to the knowledge of the Capital Parties, any
other party to any such contract or agreement;
(w)
Possession of Intellectual Property.
The Company, Cooper, Achilleas and
Alexander own or possess, or can acquire on reasonable terms, adequate patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
- 12 -
or procedures), trademarks, service marks, trade names or other intellectual
property (collectively,
Intellectual Property
) necessary to carry on their
businesses, as conducted or proposed to be conducted in conformity with the description
thereof included in the Registration Statement, and none of the Capital Parties, Cooper,
Achilleas and Alexander has received any notice or is otherwise aware of any infringement
of or conflict with asserted rights of others with respect to any Intellectual Property
or of any facts or circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company, Cooper, Achilleas and Alexander and
which infringement or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect;
(x)
Absence of Further Requirements.
No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the performance by the
Company of its obligations hereunder, in connection with the offering, issuance or sale
of the Shares hereunder or the consummation of the transactions contemplated by this
Agreement, except such as have been already obtained or as may be required under the Act
or state securities laws.
(y)
Absence of Manipulation.
None of the Capital Parties nor any affiliate
of the Capital Parties has taken, nor will any of them take, directly or indirectly, any
action which is designed to or which has constituted or which would be expected to cause
or result in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares;
(z)
Sufficiency of the Cooper Purchase Agreement.
The Cooper Purchase
Agreement will be legally sufficient to transfer or convey to the Company valid rights to
use or manage all properties that are, individually or in the aggregate, required to
enable the Company to conduct, directly or indirectly, Coopers operations, including the
operations of the Vessel, in all material respects as contemplated by the Registration
Statement, the Preliminary Prospectuses, the Prospectus and the Permitted Free Writing
Prospectuses, subject to the conditions, reservations, encumbrances and limitations
described therein;
(aa)
Sufficiency of the Achilleas and Alexander Purchase Agreements.
The
Achilleas Purchase Agreement and the Alexander Purchase Agreement will be legally
sufficient to transfer or convey to the Company valid rights to use or manage all
properties that are, individually or in the aggregate, required to enable the Company to
conduct, directly or indirectly, Achilleas and Alexanders operations, respectively, in
all material respects as contemplated by the Registration Statement, the Preliminary
Prospectuses, the Prospectus and the Permitted Free Writing Prospectuses, subject to the
conditions, reservations, encumbrances and limitations described therein;
(bb)
Vessel Title and Registration.
At the time of purchase and each
additional time of purchase, as the case may be, after giving effect to the transactions
contemplated by the Cooper Purchase Agreement, the Vessel will be duly registered as
- 13 -
a vessel under the laws of the Republic of Liberia in the sole ownership of Cooper;
on such date, Cooper will have good and marketable title to the Vessel, free and clear of
all Liens and defects of the title of record; and the Vessel will be in good standing
with respect to the payment of past and current taxes, fees and other amounts payable
under the laws of the Republic of Liberia as would affect its registry with the ship
registry of the Republic of Liberia;
(cc)
Newbuilding Vessel Title and Registration.
The Capital Parties have no
reason to believe that, upon the closing of the transactions contemplated by the
Achilleas Purchase Agreement and the Alexander Purchase Agreement and the delivery
thereby of each of the newbuilding vessels listed on Schedule C, as the case may be,
Achilleas and Alexander will not be able to cause each such vessel, as of such date, to
be duly registered as a vessel under the laws of a jurisdiction suitable to Achilleas or
Alexander, as applicable, in the sole ownership of Achilleas or Alexander, respectively;
on such date, Achilleas and Alexander will have good and marketable title to each of the
newbuilding vessels listed on Schedule C, respectively, free and clear of all Liens and
defects of the title of record;
(dd)
Permits.
Each of the Company, Cooper, Achilleas, Alexander and the
Manager has, or at time of purchase and each additional time of purchase will have, such
permits, Consents, licenses, franchises, concessions, certificates and authorizations
(
Permits
) of, and has or will have made all declarations and filings with, all
federal, provincial, state, local or foreign governmental or regulatory authorities, all
self-regulatory organizations and all courts and other tribunals, as are necessary to own
or lease its properties and to conduct its business in the manner described in the
Registration Statement, the Preliminary Prospectuses, the Prospectus and the Permitted
Free Writing Prospectuses, subject to such qualifications as may be set forth therein and
except for such Permits, declarations and filings that, if not obtained, would not,
individually or in the aggregate, have or reasonably be expected to have a Material
Adverse Effect; except as set forth in the Registration Statement, the Preliminary
Prospectuses, the Prospectus and the Permitted Free Writing Prospectuses, each of the
Company, Cooper, Achilleas, Alexander and the Manager has, or at the time of purchase and
each additional time of purchase will have, fulfilled and performed all its material
obligations with respect to such Permits which are or will be due to have been fulfilled
and performed by such date and no event has occurred that would prevent the Permits from
being renewed or reissued or that allows, or after notice or lapse of time would allow,
revocation or termination thereof or results or would result in any impairment of the
rights of the holder of any such Permit, except for such non-renewals, non-issues,
revocations, terminations and impairments that would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect, and none of
such Permits contains any restriction that is materially burdensome to the Company,
Cooper, Achilleas or Alexander;
(ee)
Environmental Laws.
Except as described in the Registration Statement
and except as would not, singly or in the aggregate, result in a Material Adverse Effect,
(A) neither the Company, Cooper, Achilleas nor Alexander is in violation of any federal,
state, local or foreign treaty, statute, law, rule, regulation, ordinance, code,
- 14 -
binding regulatory policy or rule of common law or any final and legally binding
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or protection of
human health, as it relates to any harmful substance or the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including, without limitation, laws and regulations relating to the
emission, discharge or release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum
products, ballast water or asbestos-containing materials (collectively,
Hazardous
Materials
) or to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
Environmental
Laws
), (B) the Company, Cooper, Achilleas, Alexander and the Manager have all
permits, certificates, authorizations and approvals required under any applicable
Environmental Laws for the conduct of the Companys, Coopers, Achilleas and Alexanders
respective businesses as described in the Registration Statement, the Preliminary
Prospectuses, the Prospectuses and the Permitted Free Writing Prospectuses and are each
in compliance with such requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings relating to
any Environmental Law against either the Company, Cooper, Achilleas or Alexander, and (D)
to the knowledge of the Capital Parties, there are no events or circumstances that would
reasonably be expected to form the basis of an order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or agency, against
or affecting any of the Company, Cooper, Achilleas, Alexander or the Manager relating to
Hazardous Materials or any Environmental Laws. In the ordinary course of their business,
the Company and Cooper conduct periodic reviews of the effect of the Environmental Laws
on their respective businesses, operations and properties, in the course of which they
identify and evaluate associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for clean-up, closure of properties or
compliance with the Environmental Laws or any certificate, permit, license or approval,
any related constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company and Cooper have reasonably concluded
that such associated costs and liabilities are not expected to, individually or in the
aggregate, have a Material Adverse Effect;
(ff)
Insurance.
Cooper carries or is entitled to the benefits of insurance
relating to the Vessel and its properties, operations, personnel and businesses with
financially sound and reputable insurers, in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the same or similar
business, and all such insurance is in full force and effect. The Capital Parties have
no reason to believe that Cooper will not be able (A) to renew their existing insurance
coverage as and when such policies expire or (B) to obtain comparable coverage from
similar institutions as may be necessary or appropriate and at a cost that would not
result in a Material Adverse Change. The Capital Parties have no reason to believe that,
upon the closing of the transactions contemplated by the Achilleas Purchase Agreement and
the Alexander Purchase Agreement and the delivery thereby
- 15 -
of each of the newbuilding vessels listed on Schedule C, Achilleas and Alexander
will not be able (i) to obtain insurance relating to said vessels and their respective
properties, operations, personnel and businesses with insurers of recognized
international standing as of said dates, in such amounts and covering such risks as are
generally maintained by companies of established repute engaged in the same or similar
business, and (ii) to cause all such insurance to be in full force and effect. None of
the Company, Cooper, Achilleas and Alexander has been denied any insurance coverage which
it has sought or for which it has applied;
(gg)
Dividends.
All dividends and other distributions declared and payable
on the shares of Common Stock of the Company may under the current laws and regulations
of the Republic of The Marshall Islands be paid in United States dollars and freely
transferred out of the Republic of The Marshall Islands; and all such dividends and other
distributions, so long as the shareholder is not a resident of the Republic of The
Marshall Islands, are not subject to withholding or other taxes under the current laws
and regulations of Republic of The Marshall Islands and may be declared and paid without
the necessity of obtaining any consents, approvals, authorizations, orders licenses,
registrations, clearances and qualifications of or with any court or governmental agency
or body or any stock exchange authorities in the Republic of The Marshall Islands. At
the time of purchase and each additional time of purchase, as applicable, none of Cooper,
Achilleas or Alexander will be prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other distribution on its equity securities,
from repaying any loans or advances from the Company or from transferring any of its
property or assets to the Company;
(hh)
Accounting Controls.
The Company, Cooper, Achilleas and Alexander
maintain a system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with managements general or
specific authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain accountability for
assets; (C) access to assets is permitted only in accordance with managements general or
specific authorization; and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with respect
to any differences. Except as described in the Prospectus, since the end of each of the
Companys and Coopers most recent audited fiscal year, or the date of Achilleas and
Alexanders incorporation, there has been (1) no material weakness in the Companys,
Coopers, Achilleas or Alexanders internal control over financial reporting (whether or
not remediated) and (2) no change in the Companys, Coopers, Achilleas or Alexanders
internal control over financial reporting that has materially affected, or is reasonably
likely to materially affect, their respective ability to record, process, summarize, make
known to their respective executive officers or report financial data;
(ii)
Compliance with the Sarbanes-Oxley Act.
The Company has taken all
necessary actions to ensure that, upon the effectiveness of the Registration Statement,
it will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002 and all
rules and regulations promulgated thereunder or implementing the provisions thereof
- 16 -
(the
Sarbanes-Oxley Act
) that are then in effect and which the Company is
required to comply with as of the effectiveness of the Registration Statement, and is
actively taking steps to ensure that it will be in compliance with other provisions of
the Sarbanes-Oxley Act not currently in effect, upon the effectiveness of such
provisions, or which will become applicable to the Company at all times after the
effectiveness of the Registration Statement;
(jj)
Payment of Taxes.
Each of the Company, Cooper, Achilleas and Alexander
has filed (or has obtained extensions with respect to) all material foreign, federal,
state and local income and franchise tax returns required to be filed through the date of
this Agreement, which returns are correct and complete in all material respects, and has
timely paid all taxes due from it, other than those (A) that are being contested in good
faith and for which adequate reserves have been established in accordance with generally
accepted accounting principles or (B) that, if not paid, would not have a Material
Adverse Effect;
(kk)
Investment Company Act.
None of the Company, Cooper, Achilleas or
Alexander are now, and after giving effect to the transactions contemplated by this
Agreement and the Transaction Documents will be, an investment company or a company
controlled by an investment company under the Investment Company Act of 1940, as
amended (the
1940 Act
);
(ll)
Passive Foreign Investment Company.
The Company is not now, and after
giving effect to the to the transactions contemplated by this Agreement and the
Transaction Documents will not be, a Passive Foreign Investment Company (
PFIC
)
within the meaning of Section 1297(a) of the Internal Revenue Code, and based on the
Companys current and expected assets, income and operations as described in the
Prospectus, the Company is not likely to become a PFIC;
(mm)
PFIC Start-Up Year Exception.
The Company did not earn gross income in
2009 and has not previously utilized its start-up year exception under Section 1298(b)(2)
of the Internal Revenue Code;
(nn)
Section 883 Exemption.
After giving effect to the transactions
contemplated by this Agreement and the Transaction Documents, the Company will qualify
for the exemption from U.S. federal income tax on its U.S. source international
transportation income under Section 883 of the Internal Revenue Code;
(oo)
Foreign Corrupt Practices Act.
Neither the Company, Cooper, Achilleas
nor Alexander, nor, to the knowledge of the Capital Parties, any director, officer,
agent, employee, affiliate or other person acting on behalf of the Company, Cooper,
Achilleas or Alexander is aware of or has taken any action, directly or indirectly, that
would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977,
as amended, and the rules and regulations thereunder (the
FCPA
), including,
without limitation, making use of the mails or any means or instrumentality of interstate
commerce corruptly in furtherance of an offer, payment, promise to pay or authorization
of the payment of any money, or other property, gift,
- 17 -
promise to give, or authorization of the giving of anything of value to any foreign
official (as such term is defined in the FCPA) or any foreign political party or
official thereof or any candidate for foreign political office, in contravention of the
FCPA and each of the Company, Cooper, Achilleas and Alexander, and to the knowledge of
the Capital Parties, the affiliates of the Company, Cooper, Achilleas and Alexander have
conducted their businesses in compliance with the FCPA and have instituted and maintain
policies and procedures designed to ensure, and which are reasonably expected to continue
to ensure, continued compliance therewith;
(pp)
Money Laundering Laws.
The operations of the Company, Cooper,
Achilleas and Alexander are and have been conducted at all times in compliance with
applicable financial recordkeeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, the money laundering statutes of all
jurisdictions, the rules and regulations thereunder and any related or similar rules,
regulations or guidelines, issued, administered or enforced by any governmental agency
(collectively, the
Money Laundering Laws
), and no action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator involving
either the Company, Cooper, Achilleas or Alexander with respect to the Money Laundering
Laws is pending or, to the best knowledge of the Capital Parties, threatened;
(qq)
OFAC.
Neither the Company, Cooper, Achilleas nor Alexander, nor, to
the knowledge of the Capital Parties, any director, officer, agent, employee, affiliate
or person acting on behalf of the Company, Cooper Achilleas or Alexander is currently
subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the
U.S. Treasury Department (
OFAC
); and the Company will not directly or
indirectly use the proceeds of the offering, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture partner or other person or
entity, for the purpose of financing the activities of any person currently subject to
any U.S. sanctions administered by OFAC;
(rr)
Statistical and Market-Related Data.
Any statistical and
market-related data included in the Registration Statement, the Preliminary Prospectuses,
the Prospectus and the Permitted Free Writing Prospectuses is based on or derived from
sources that the Company believes to be reliable and accurate and the Company has
obtained the written consent to the use of such data from such sources to the extent
required;
(ss)
Lock-Up Agreement.
The Company has obtained for the benefit of the
Underwriters the agreement (a
Lock-Up Agreement
), in the form set forth as
Exhibit A hereto, of (i) each of its directors and officers (within the meaning of Rule
16a-1(f) under the Exchange Act) and (ii) each holder of shares of Common Stock, or any
security convertible into or exercisable or exchangeable for shares of Common Stock or
any warrant or other right to acquire shares of Common Stock or any such security;
(tt)
Private Placement.
The offer, sale and issuance of the shares of the
Companys Class B Stock to Crude Carriers Investments Corp. pursuant to the
- 18 -
Subscription Agreement are exempt from the registration requirements of the Act and
the securities laws of any state having jurisdiction with respect thereto, and none of
the Capital Parties has taken or will take any action that would cause the loss of such
exemption;
(uu)
No Association with FINRA Members.
To the knowledge of the Capital
Parties, there are no affiliations or associations between (i) any member of FINRA and
(ii) the Company or any of the Companys officers, directors or 5% or greater security
holders or any beneficial owner of the Companys unregistered equity securities that were
acquired at any time on or after the 180th day immediately preceding the date the
Registration Statement was initially filed with the Commission, except as disclosed in
the Registration Statement (excluding the exhibits thereto), the Preliminary Prospectuses
and the Prospectus; and
(vv)
No Fees or Commissions.
Except pursuant to this Agreement, the Company
has not incurred any liability for any finders or brokers fee or agents commission in
connection with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or by the Registration Statement.
In addition, any certificate signed by any officer of any Capital Party and delivered to any
Underwriter or counsel for the Underwriters in connection with the offering of the Shares shall be
deemed to be a joint and several representation and warranty by each Capital Party, as to matters
covered thereby, to each Underwriter.
4.
Certain Covenants of the Company and the other Capital Parties
. The Company hereby
agrees, the Company and Crude Carriers Investments Corp. hereby agree, jointly and severally, with
respect to subsection (n) below, the Company and Capital Maritime hereby agree, jointly and
severally, with respect to subsection (u) below and the Capital Parties hereby agree, jointly and
severally, with respect to subsections (o) and (q) below:
(a) to furnish such information as may be required and otherwise to cooperate in
qualifying the Shares for offering and sale under the securities or blue sky laws of such
states or other jurisdictions as you may designate and to maintain such qualifications in
effect so long as you may request for the distribution of the Shares;
provided
,
however
, that the Company shall not be required to qualify as a foreign
corporation or to consent to the service of process under the laws of any such
jurisdiction (except service of process with respect to the offering and sale of the
Shares); and to promptly advise you of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for offer or sale in
any jurisdiction or the initiation or threatening of any proceeding for such purpose;
(b) to make available to the Underwriters in New York City, as soon as practicable
after this Agreement becomes effective, and thereafter from time to time to furnish to
the Underwriters, as many copies of the Prospectus (or of the Prospectus as amended or
supplemented if the Company shall have made any amendments or supplements thereto after
the effective date of the Registration Statement) as the
- 19 -
Underwriters may reasonably request for the purposes contemplated by the Act; in
case any Underwriter is required to deliver (whether physically or through compliance
with Rule 172 under the Act or any similar rule), in connection with the sale of the
Shares, a prospectus after the nine-month period referred to in Section 10(a)(3) of the
Act, the Company will prepare, at its expense, promptly upon request such amendment or
amendments to the Registration Statement and the Prospectus as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act;
(c) if, at the time this Agreement is executed and delivered, it is necessary for a
post-effective amendment to the Registration Statement, or a Registration Statement under
Rule 462(b) under the Act, to be filed with the Commission and become effective before
the Shares may be sold, the Company will use its reasonable best efforts to cause such
post-effective amendment or such Registration Statement to be filed and become effective,
and will pay any applicable fees in accordance with the Act, as soon as possible; and the
Company will advise you promptly and, if requested by you, will confirm such advice in
writing, (i) when such post-effective amendment or such Registration Statement has become
effective, and (ii) if Rule 430A under the Act is used, when the Prospectus is filed with
the Commission pursuant to Rule 424(b) under the Act (which the Company agrees to file in
a timely manner in accordance with such Rules);
(d) to advise you promptly, confirming such advice in writing, of any request by the
Commission for amendments or supplements to the Registration Statement or the Exchange
Act Registration Statement, any Preliminary Prospectus, the Prospectus or any Permitted
Free Writing Prospectus or for additional information with respect thereto, or of notice
of institution of proceedings for, or the entry of a stop order, suspending the
effectiveness of the Registration Statement and, if the Commission should enter a stop
order suspending the effectiveness of the Registration Statement, to use its best efforts
to obtain the lifting or removal of such order as soon as possible; to advise you
promptly of any proposal to amend or supplement the Registration Statement or the
Exchange Act Registration Statement, any Preliminary Prospectus or the Prospectus, and to
provide you and Underwriters counsel copies of any such documents for review and comment
a reasonable amount of time prior to any proposed filing and to file no such amendment or
supplement to which you shall reasonably object in writing;
(e) subject to Section 4(d) hereof, to file promptly all reports, statements and
other documents required to be filed by the Company with the Commission in order to
comply with the Exchange Act for so long as a prospectus is required by the Act to be
delivered (whether physically or through compliance with Rule 172 under the Act or any
similar rule) in connection with any sale of Shares; and to provide you, for your review
and comment, with a copy of such reports, statements and other documents to be filed by
the Company pursuant to the Exchange Act during such period a reasonable amount of time
prior to any proposed filing, and to file no such report, statement or document to which
you shall have objected in writing; and to promptly notify you of such filing;
- 20 -
(f) to advise the Underwriters promptly of the happening of any event within the
period during which a prospectus is required by the Act to be delivered (whether
physically or through compliance with Rule 172 under the Act or any similar rule) in
connection with any sale of Shares, which event could require the making of any change in
the Prospectus then being used so that the Prospectus would not include an untrue
statement of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are made, not
misleading, and to advise the Underwriters promptly if, during such period, it shall
become necessary to amend or supplement the Prospectus to cause the Prospectus to comply
with the requirements of the Act, and, in each case, during such time, subject to Section
4(d) hereof, to prepare and furnish, at the Companys expense, jointly and severally, to
the Underwriters promptly such amendments or supplements to such Prospectus as may be
necessary to reflect any such change or to effect such compliance;
(g) to notify you promptly if, at any time prior to the filing of the Prospectus
pursuant to Rule 424(b), any event occurs as a result of which the Disclosure Package
would include any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the circumstances under which
they were made at such time not misleading, so that any use of the Disclosure Package may
cease until it is amended or supplemented; (ii) amend or supplement the Disclosure
Package to correct such statement or omission; and (iii) supply any amendment or
supplement to you in such quantities as you may reasonably request;
(h) to make generally available to its security holders, and to deliver to you, an
earnings statement of the Company (which will satisfy the provisions of Section 11(a) of
the Act) covering a period of twelve months beginning after the effective date of the
Registration Statement (as defined in Rule 158(c) under the Act) as soon as is reasonably
practicable after the termination of such twelve-month period but in any case not later
than [___];
(i) to furnish to you [___] copies of the Registration Statement, as initially filed
with the Commission, and of all amendments thereto (including all exhibits thereto) and
sufficient copies of the foregoing (other than exhibits) for distribution of a copy to
each of the other Underwriters;
(j) to furnish to you as early as practicable prior to the time of purchase and any
additional time of purchase, as the case may be, but not later than two business days
prior thereto, a copy of the latest available unaudited interim and monthly financial
statements, if any, of the Company, Cooper, Achilleas and Alexander which have been read
by the Companys independent registered public accountants, as stated in their letter to
be furnished pursuant to Section 6(g) hereof;
(k) to apply the net proceeds from the sale of the Shares in the manner set forth
under the caption Use of proceeds in the Prospectus and to file such reports with the
Commission with respect to the sale of the Shares and the application of the
- 21 -
proceeds therefrom as may be required by Rule 463 under the Act;
(l)
subject to the Underwriters agreement to reimburse the Company
for certain of its expenses in connection with the offering of the
Shares, to pay all costs, expenses, fees and taxes in connection with (i) the
preparation and filing of the Registration Statement, each Preliminary Prospectus, the
Prospectus, each Permitted Free Writing Prospectus and any amendments or supplements
thereto, and the printing and furnishing of copies of each thereof to the Underwriters
and to dealers (including costs of mailing and shipment), (ii) the registration, issue,
sale and delivery of the Shares including any stock or transfer taxes and stamp or
similar duties payable upon the sale, issuance or delivery of the Shares to the
Underwriters, (iii) the producing, word processing and/or printing of this Agreement, any
Agreement among Underwriters, any dealer agreements, any powers of attorney and any
closing documents (including compilations thereof) and the reproduction and/or printing
and furnishing of copies of each thereof to the Underwriters and (except closing
documents) to dealers (including costs of mailing and shipment), (iv) the qualification
of the Shares for offering and sale under state or foreign laws and the determination of
their eligibility for investment under state or foreign law and the printing and
furnishing of copies of any blue sky surveys or legal investment surveys to the
Underwriters and to dealers, (v) any listing of the Shares on any securities exchange or
qualification of the Shares for quotation on the NYSE and any registration thereof under
the Exchange Act, (vi) any filing for review of the public offering of the Shares by
FINRA, (vii) the fees and disbursements of any transfer agent or registrar for the
Shares, (viii) the costs and expenses of the Company relating to presentations or
meetings undertaken in connection with the marketing of the offering and sale of the
Shares to prospective investors and the Underwriters sales forces, including, without
limitation, expenses associated with the production of road show slides and graphics,
fees and expenses of any consultants engaged in connection with the road show
presentations that are approved in advance by the Company, travel, lodging and other
expenses incurred by the officers of the Company and any such consultants, and the cost
of any aircraft chartered in connection with the road show, (ix) the costs and expenses
of qualifying the Shares for inclusion in the book-entry settlement system of the DTC,
(x) the preparation and filing of the Exchange Act Registration Statement, including any
amendments thereto, (xi) the performance of the Capital Parties other obligations
hereunder. It is understood that, except as provided in this subsection (l) and Sections
5 and 9 hereof, the Underwriters will pay all of their own costs and expenses, including
without limitation fees and disbursements of their counsel and the transportation and
other expenses incurred by or on their behalf relating to presentations or meetings
undertaken in connection with the marketing of the offering to prospective investors;
(m) to comply with Rule 433(d) under the Act (without reliance on Rule 164(b) under
the Act) and with Rule 433(g) under the Act;
(n) beginning on the date hereof and ending on, and including, the date that is 180
days after the date of the Prospectus (the
Lock-Up Period
), without your prior
written consent, not to (i) issue, sell, offer to sell, contract or agree to sell,
hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to
dispose of, directly or indirectly, or establish or increase a put equivalent position or
liquidate or
- 22 -
decrease a call equivalent position within the meaning of Section 16 of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, with respect
to, any Common Stock, Class B Stock or any other securities of the Company that are
substantially similar to Common Stock or Class B Stock, or any securities convertible
into or exchangeable or exercisable for, or any warrants or other rights to purchase, the
foregoing, (ii) file or cause to become effective a registration statement under the Act
relating to the offer and sale of any Common Stock, Class B Stock or any other securities
of the Company that are substantially similar to Common Stock or Class B Stock, or any
securities convertible into or exchangeable or exercisable for, or any warrants or other
rights to purchase, the foregoing, (iii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of ownership
of Common Stock, Class B Stock or any other securities of the Company that are
substantially similar to Common Stock or Class B Stock, or any securities convertible
into or exchangeable or exercisable for, or any warrants or other rights to purchase, the
foregoing, whether any such transaction is to be settled by delivery of Common Stock,
Class B Stock or such other securities, in cash or otherwise or (iv) publicly announce an
intention to effect any transaction specified in clause (i), (ii) or (iii) hereof,
except, in each case, for (A) the registration of the offer and sale of the Shares as
contemplated by this Agreement, (B) issuances of Common Stock upon the exercise of
options or warrants disclosed as outstanding or to be issued in the Registration
Statement (excluding the exhibits thereto), each Preliminary Prospectus and the
Prospectus, and (C) the issuance of employee stock options not exercisable during the
Lock-Up Period pursuant to stock option plans described in the Registration Statement
(excluding the exhibits thereto), each Preliminary Prospectus and the Prospectus;
provided
,
however
, that if (a) during the period that begins on the date
that is fifteen (15) calendar days plus three (3) business days before the last day of
the Lock-Up Period and ends on the last day of the Lock-Up Period, the Company issues an
earnings release or material news or a material event relating to the Company occurs; or
(b) prior to the expiration of the Lock-Up Period, the Company announces that it will
release earnings results during the sixteen (16) day period beginning on the last day of
the Lock-Up Period, then the restrictions imposed by this Section 4(n) shall continue to
apply until the expiration of the date that is fifteen (15) calendar days plus three (3)
business days after the date on which the issuance of the earnings release or the
material news or material event occurs;
(o) prior to the time of purchase or any additional time of purchase, as the case
may be, to issue no press release or other communication directly or indirectly and hold
no press conferences with respect to the Company, Cooper, Achilleas or Alexander, the
financial condition, results of operations, business, properties, assets, or liabilities
of the Company, Cooper, Achilleas or Alexander or the offering of the Shares, without
your prior consent;
(p) not, at any time at or after the execution of this Agreement, to, directly or
indirectly, offer or sell any Shares by means of any prospectus (within the meaning of
the Act), or use any prospectus (within the meaning of the Act) in connection with the
offer or sale of the Shares, in each case other than the Prospectus;
- 23 -
(q) not to, and to cause Cooper, Achilleas and Alexander not to, take, directly or
indirectly, any action designed, or which will constitute, or has constituted, or might
reasonably be expected to cause or result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the Shares;
(r) for a period of five years after the later of the time of purchase or the latest
additional time of purchase, the Company will use its reasonable best efforts to ensure
that (i) none of its subsidiaries shall become an investment company as defined in the
1940 Act, and (ii) the Company shall not become a PFIC;
(s) to use its reasonable best efforts to cause the Common Stock, including the
Shares, to be listed on the NYSE and to maintain such listing on the NYSE;
(t) to maintain a transfer agent and, if necessary under the jurisdiction of
incorporation of the Company, a registrar for the Common Stock; and
(u) to consummate the transactions contemplated by the Cooper Purchase Agreement,
the Achilleas Purchase Agreement and the Alexander Purchase Agreement in accordance with
the terms of such agreements.
5.
Reimbursement of the Underwriters Expenses
. If, after the execution and delivery
of this Agreement, the Shares are not delivered for any reason other than the termination of this
Agreement pursuant to the fifth paragraph of Section 8 hereof or the default by one or more of the
Underwriters in its or their respective obligations hereunder, the Company and Capital Maritime,
jointly and severally, shall, in addition to paying the amounts described in Section 4(l) hereof,
reimburse the Underwriters for all of their reasonable out-of-pocket expenses, including reasonable
fees and disbursements of their counsel.
6.
Conditions of the Underwriters Obligations
. The several obligations of the
Underwriters hereunder are subject to the accuracy of the representations and warranties on the
part of each Capital Party on the date hereof, at the time of purchase and, if applicable, at the
additional time of purchase, the performance by each Capital Party of its respective obligations
hereunder and to the following additional conditions precedent:
(a) At the time of purchase and, if applicable, at the additional time of purchase,
the Underwriters shall have received an opinion and a negative assurance letter of
Sullivan & Cromwell LLP, United States counsel for the Capital Parties, addressed to the
Underwriters, and dated the time of purchase or the additional time of purchase, as the
case may be, in the forms set forth, respectively, in
Exhibit B
and
Exhibit C
hereto.
(b) At the time of purchase and, if applicable, at the additional time of purchase,
the Underwriters shall have received an opinion of Watson, Farley & Williams (New York)
LLP, Republic of The Marshall Islands counsel for the Company, Capital Maritime and Crude
Carriers Investments Corp., addressed to the Underwriters, and dated the time of purchase
or the additional time of purchase, as the case may be, in the form set forth in
Exhibit D
hereto.
- 24 -
(c) At the time of purchase and, if applicable, at the additional time of purchase,
the Underwriters shall have received an opinion of [___], Republic of Panama counsel for
the Manager, addressed to the Underwriters, and dated the time of purchase or the
additional time of purchase, as the case may be, in the form set forth in
Exhibit
E
hereto.
(d) At the time of purchase and, if applicable, at the additional time of purchase,
the Underwriters shall have received an opinion of Watson, Farley & Williams (New York)
LLP, Liberian counsel for the Company, addressed to the Underwriters, and dated the time
of purchase or the additional time of purchase, as the case may be, in the form set forth
in
Exhibit F
hereto.
(e) At the time of purchase and, if applicable, at the additional time of purchase,
the Underwriters shall have received an opinion of [Bairactaris & Partners], Greek
counsel for the Capital Parties, addressed to the Underwriters, and dated the time of
purchase or the additional time of purchase, as the case may be, in the form set forth in
Exhibit G
hereto.
(f) At the time of purchase and, if applicable, at the additional time of purchase,
the Underwriters shall have received an opinion of [___], English counsel for the
Company, addressed to the Underwriters, and dated the time of purchase or the additional
time of purchase, as the case may be, in the form set forth in
Exhibit H
hereto.
(g) You shall have received from Deloitte. Hadjipavlou, Sofianos & Cambanis S.A.
letters dated, respectively, the date of this Agreement, the date of the Prospectus, the
time of purchase and, if applicable, the additional time of purchase, and addressed to
the Underwriters (with executed copies for each Underwriter) in the forms satisfactory to
UBS, which letters shall cover, without limitation, the various financial disclosures
contained in the Registration Statement, the Preliminary Prospectuses, the Prospectus and
the Permitted Free Writing Prospectuses, if any.
(h) You shall have received at the time of purchase and, if applicable, at the
additional time of purchase, the favorable opinion and negative assurance letter of
Cravath, Swaine & Moore LLP, counsel for the Underwriters, dated the time of purchase or
the additional time of purchase, as the case may be, in form and substance reasonably
satisfactory to UBS.
(i) No Prospectus or amendment or supplement to the Registration Statement or the
Prospectus shall have been filed to which you shall have reasonably objected in writing.
(j) The Registration Statement, the Exchange Act Registration Statement and any
registration statement required to be filed, prior to the sale of the Shares, under the
Act pursuant to Rule 462(b) shall have been filed and shall have become effective under
the Act or the Exchange Act, as the case may be. If Rule 430A under the Act is used, the
Prospectus shall have been filed with the Commission pursuant to Rule
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424(b) under the Act at or before 5:30 P.M., New York City time, on the second full
business day after the date of this Agreement (or such earlier time as may be required
under the Act).
(k) Prior to and at the time of purchase, and, if applicable, the additional time of
purchase, (i) no stop order with respect to the effectiveness of the Registration
Statement shall have been issued under the Act or proceedings initiated under Section
8(d) or 8(e) of the Act; (ii) the Registration Statement and all amendments thereto shall
not contain 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;
(iii) none of the Preliminary Prospectuses or the Prospectus, and no amendment or
supplement thereto, shall include an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading; (iv) no Disclosure Package, and
no amendment or supplement thereto, shall include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading; and (v) none of
the Permitted Free Writing Prospectuses, if any, shall include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not misleading.
(l) Each Capital Party shall, at the time of purchase and, if applicable, at the
additional time of purchase, have delivered to you a certificate of its Chief Executive
Officer and its Chief Financial Officer, dated the time of purchase or the additional
time of purchase, as the case may be, in the forms attached, respectively, as
Exhibit
I
,
Exhibit J
,
Exhibit K
, and
Exhibit L
hereto.
(m) You shall have received each of the signed Lock-Up Agreements referred to in
Section 4(ss) hereof, and each such Lock-Up Agreement shall be in full force and effect
at the time of purchase and the additional time of purchase, as the case may be.
(n) Prior to the time of purchase, the Board of Directors of the Company shall have
validly adopted a policy for the review, approval and monitoring of transactions
involving the Company and related persons, as described in the section of the
Registration Statement, the Preliminary Prospectuses and the Prospectus entitled Certain
Relationships and Related-Party Transactions.
(o) The Capital Parties shall have furnished to you such other documents and
certificates as to the accuracy and completeness of any statement in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any Permitted Free Writing
Prospectus as of the time of purchase and, if applicable, the additional time of
purchase, as you may reasonably request.
(p) The Shares shall have been approved for listing on the NYSE, subject only to
notice of issuance and evidence of satisfactory distribution at or prior to the
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time of purchase or the additional time of purchase, as the case may be.
(q) FINRA shall not have raised any objection with respect to the fairness or
reasonableness of the underwriting, or other arrangements of the transactions,
contemplated hereby.
7.
Effective Date of Agreement; Termination
. This Agreement shall become effective
when the parties hereto have executed and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be subject to termination in the
absolute discretion of UBS, if (1) since the time of execution of this Agreement or the earlier
respective dates as of which information is given in the Registration Statement, the Preliminary
Prospectuses, the Prospectus and the Permitted Free Writing Prospectuses, if any, there has been
any change or any development involving a prospective change in the business, properties,
management, condition, financial or otherwise, or results of operations of the Company, Cooper,
Achilleas or Alexander the effect of which change or development is, in the sole judgment of UBS,
so material and adverse as to make it impractical or inadvisable to proceed with the public
offering or the delivery of the Shares on the terms and in the manner contemplated in the
Registration Statement, the Preliminary Prospectuses, the Prospectus and the Permitted Free Writing
Prospectuses, if any, or (2) since the time of execution of this Agreement, there shall have
occurred: (A) a suspension or material limitation in trading in securities generally on the NYSE;
(B) a suspension or material limitation in trading in the Companys securities on the NYSE; (C) a
general moratorium on commercial banking activities declared by either federal or New York State
authorities or a material disruption in commercial banking or securities settlement or clearance
services in the United States; (D) an outbreak or escalation of hostilities involving the United
States, an escalation of acts of terrorism involving the United States or a declaration by the
United States of a national emergency or war; or (E) any other calamity or crisis or any change in
financial, political or economic conditions in the United States or elsewhere, if the effect of any
such event specified in clause (D) or (E), in the sole judgment of UBS, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the Shares on the terms and in
the manner contemplated in the Registration Statement, the Preliminary Prospectuses, the Prospectus
and the Permitted Free Writing Prospectuses, if any, or (3) since the time of execution of this
Agreement, there shall have occurred any downgrading, or any notice or announcement shall have been
given or made of: (A) any intended or potential downgrading or (B) any watch, review or possible
change that does not indicate an affirmation or improvement in the rating accorded any securities
of or guaranteed by the Company, Cooper, Achilleas or Alexander by any nationally recognized
statistical rating organization, as that term is defined in Rule 436(g)(2) under the Act.
If UBS elects to terminate this Agreement as provided in this Section 7, the Capital Parties
and each other Underwriter shall be notified promptly in writing pursuant to Section 11 hereof.
If the sale to the Underwriters of the Shares, as contemplated by this Agreement, is not
carried out by the Underwriters for any reason permitted under this Agreement, or if such sale is
not carried out because the Capital Parties shall be unable to comply with any of the terms of this
Agreement, each party shall bear its own costs and expenses relating to the transactions
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contemplated by this Agreement, the Capital Parties shall not be under any obligation or
liability under this Agreement (except to the extent provided in Sections 4(l), 5 and 9 hereof),
and the Underwriters shall be under no obligation or liability to the Company under this Agreement
(except to the extent provided in Section 9 hereof) or to one another hereunder.
8.
Increase in Underwriters Commitments
. Subject to Sections 6 and 7 hereof, if any
Underwriter shall default in its obligation to take up and pay for the Firm Shares to be purchased
by it hereunder (otherwise than for a failure of a condition set forth in Section 6 hereof or a
reason sufficient to justify the termination of this Agreement under the provisions of Section 7
hereof) and if the number of Firm Shares which all Underwriters so defaulting shall have agreed but
failed to take up and pay for does not exceed 10% of the total number of Firm Shares, the
non-defaulting Underwriters (including the Underwriters, if any, substituted in the manner set
forth below) shall take up and pay for (in addition to the aggregate number of Firm Shares they are
obligated to purchase pursuant to Section 1 hereof) the number of Firm Shares agreed to be
purchased by all such defaulting Underwriters, as hereinafter provided. Such Shares shall be taken
up and paid for by such non-defaulting Underwriters in such amount or amounts as you may designate
with the consent of each Underwriter so designated or, in the event no such designation is made,
such Shares shall be taken up and paid for by all non-defaulting Underwriters pro rata in
proportion to the aggregate number of Firm Shares set forth opposite the names of such
non-defaulting Underwriters in
Schedule A
.
Without relieving any defaulting Underwriter from its obligations hereunder, the Company
agrees with the non-defaulting Underwriters that it will not sell any Firm Shares hereunder unless
all of the Firm Shares are purchased by the Underwriters (or by substituted Underwriters selected
by you with the approval of the Company or selected by the Company with your approval).
If a new Underwriter or Underwriters are substituted by the Underwriters or by the Company for
a defaulting Underwriter or Underwriters in accordance with the foregoing provision, the Company or
you shall have the right to postpone the time of purchase for a period not exceeding five business
days in order that any necessary changes in the Registration Statement and the Prospectus and other
documents may be effected.
The term Underwriter as used in this Agreement shall refer to and include any Underwriter
substituted under this Section 8 with like effect as if such substituted Underwriter had originally
been named in
Schedule A
hereto.
If the aggregate number of Firm Shares which the defaulting Underwriter or Underwriters agreed
to purchase exceeds 10% of the total number of Firm Shares which all Underwriters agreed to
purchase hereunder, and if neither the non-defaulting Underwriters nor the Company shall make
arrangements within the five business day period stated above for the purchase of all the Firm
Shares which the defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall terminate without further act or deed and without any liability on the part of the
Company or any other Capital Party to any Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or any other Capital Party. Nothing in this paragraph,
and no action taken hereunder, shall relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
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9.
Indemnity and Contribution
.
(a) The Capital Parties, jointly and severally, agree to indemnify, defend and hold
harmless each Underwriter, its partners, directors, officers and members, any person who
controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, and any affiliate (within the meaning of Rule 405 under the Act) of such
Underwriter, and the successors and assigns of all of the foregoing persons, from and
against any loss, damage, expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, any such Underwriter or any such person may
incur under the Act, the Exchange Act, the common law, other statutory law or regulation
or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or
is based upon (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration Statement as amended by
any post-effective amendment thereof by the Company) or arises out of or is based upon
any omission or alleged omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as any such
loss, damage, expense, liability or claim arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained in, and in conformity
with information concerning an Underwriter furnished in writing by or on behalf of such
Underwriter through you to the Company expressly for use in, the Registration Statement
or arises out of or is based upon any omission or alleged omission to state a material
fact in the Registration Statement in connection with such information, which material
fact was not contained in such information and which material fact was required to be
stated in such Registration Statement or was necessary to make such information not
misleading, or (ii) any untrue statement or alleged untrue statement of a material fact
included in any Prospectus (the term Prospectus for the purpose of this Section 9 being
deemed to include any Preliminary Prospectus, the Prospectus and any amendments or
supplements to the foregoing), in any Covered Free Writing Prospectus, in any issuer
information (as defined in Rule 433 under the Act) of the Company or in any Prospectus
together with any combination of one or more of the Covered Free Writing Prospectuses, if
any, or arises out of or is based upon any omission or alleged omission to state a
material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except, with respect to such
Prospectus or any Permitted Free Writing Prospectus, insofar as any such loss, damage,
expense, liability or claim arises out of or is based upon any untrue statement or
alleged untrue statement of a material fact contained in, and in conformity with
information concerning an Underwriter furnished in writing by or on behalf of such
Underwriter through you to the Company expressly for use in, such Prospectus or Permitted
Free Writing Prospectus or arises out of or is based upon any omission or alleged
omission to state a material fact in such Prospectus or Permitted Free Writing Prospectus
in connection with such information, which material fact was not contained in such
information and which material fact was necessary in order to make the statements in such
information, in the light of the circumstances under which they were made, not
misleading.
(b) Each Underwriter severally agrees to indemnify, defend and hold
- 29 -
harmless the Company, its directors and officers, and any person who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and the successors and assigns of all of the foregoing persons, from and against any
loss, damage, expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, the Company or any such person may incur
under the Act, the Exchange Act, the common law or otherwise, insofar as such loss,
damage, expense, liability or claim arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in, and in conformity
with information concerning such Underwriter furnished in writing by or on behalf of such
Underwriter through you to the Company expressly for use in, the Registration Statement
(or in the Registration Statement as amended by any post-effective amendment thereof by
the Company), or arises out of or is based upon any omission or alleged omission to state
a material fact in such Registration Statement in connection with such information, which
material fact was not contained in such information and which material fact was required
to be stated in such Registration Statement or was necessary to make such information not
misleading or (ii) any untrue statement or alleged untrue statement of a material fact
contained in, and in conformity with information concerning such Underwriter furnished in
writing by or on behalf of such Underwriter through you to the Company expressly for use
in, a Prospectus or a Permitted Free Writing Prospectus, or arises out of or is based
upon any omission or alleged omission to state a material fact in such Prospectus or
Permitted Free Writing Prospectus in connection with such information, which material
fact was not contained in such information and which material fact was necessary in order
to make the statements in such information, in the light of the circumstances under which
they were made, not misleading.
(c) If any action, suit or proceeding (each, a
Proceeding
) is brought
against a person (an
indemnified party
) in respect of which indemnity may be
sought against any Capital Party or an Underwriter (as applicable, the
indemnifying
party
) pursuant to subsection (a) or (b), respectively, of this Section 9, such
indemnified party shall promptly notify such indemnifying party in writing of the
institution of such Proceeding and such indemnifying party shall assume the defense of
such Proceeding, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses;
provided
,
however
, that the omission to so notify such indemnifying party shall not relieve
such indemnifying party from any liability which such indemnifying party may have to any
indemnified party or otherwise. The indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the indemnifying
party in connection with the defense of such Proceeding or the indemnifying party shall
not have, within a reasonable period of time in light of the circumstances, employed
counsel to defend such Proceeding or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which are
different from, additional to or in conflict with those available to such indemnifying
party (in which case such indemnifying party shall not have the right to direct the
defense of such Proceeding on behalf of the indemnified party or parties), in any of
which events such fees and
- 30 -
expenses shall be borne by such indemnifying party and paid as incurred (it being
understood, however, that such indemnifying party shall not be liable for the expenses of
more than one separate counsel (in addition to one local counsel for each jurisdiction in
which any one Proceeding is brought) in any one Proceeding or series of related
Proceedings in the same jurisdiction representing the indemnified parties who are parties
to such Proceeding). The indemnifying party shall not be liable for any settlement of
any Proceeding effected without its written consent, but, if settled with its written
consent, such indemnifying party agrees to indemnify and hold harmless the indemnified
party or parties from and against any loss or liability by reason of such settlement.
Notwithstanding the foregoing sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second sentence of this Section 9(c), then the
indemnifying party agrees that it shall be liable for any settlement of any Proceeding
effected without its written consent if (i) such settlement is entered into more than 60
business days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall not have fully reimbursed the indemnified party in
accordance with such request prior to the date of such settlement and (iii) such
indemnified party shall have given the indemnifying party at least 30 days prior notice
of its intention to settle. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or threatened
Proceeding in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such Proceeding and does not include an
admission of fault or culpability or a failure to act by or on behalf of such indemnified
party.
(d) If the indemnification provided for in this Section 9 is unavailable to an
indemnified party under subsections (a) and (b) of this Section 9 or insufficient to hold
an indemnified party harmless in respect of any losses, damages, expenses, liabilities or
claims referred to therein, then each applicable indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses, damages,
expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses, damages,
expenses, liabilities or claims, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same respective proportions as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company, and the total underwriting discounts and commissions
received by the Underwriters, bear to the aggregate public offering price of the Shares.
The relative fault of the Company on the one hand and of the Underwriters on the other
shall be determined by reference to, among other things,
- 31 -
whether the untrue statement or alleged untrue statement of a material fact or
omission or alleged omission relates to information supplied by the Company or by the
Underwriters and the parties relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or payable
by a party as a result of the losses, damages, expenses, liabilities and claims referred
to in this subsection shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating, preparing to defend
or defending any Proceeding.
(e) The Capital Parties and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable considerations
referred to in subsection (d) above. Notwithstanding the provisions of this Section 9,
no Underwriter shall be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by such Underwriter and
distributed to the public were offered to the public exceeds the amount of any damage
which such Underwriter has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters obligations to contribute pursuant to this Section
9 are several in proportion to their respective underwriting commitments and not joint.
(f) The indemnity and contribution agreements contained in this Section 9 and the
covenants, warranties and representations of the Capital Parties contained in this
Agreement shall remain in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, its partners, directors, officers or members or any
person (including each partner, officer, director or member of such person) who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, or by or on behalf of the Capital Parties, their respective directors or officers or
any person who controls the Capital Parties within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or
the issuance and delivery of the Shares. Each Capital Party and each Underwriter agree
promptly to notify each other of the commencement of any Proceeding against it and, in
the case of the Company, against any of the Companys officers or directors in connection
with the issuance and sale of the Shares, or in connection with the Registration
Statement, any Preliminary Prospectus, the Prospectus or any Permitted Free Writing
Prospectus.
10.
Information Furnished by the Underwriters
. The statements set forth in the first
paragraph immediately following the caption Commissions and Discounts and in the paragraphs
immediately under the caption Price Stabilization; Short Positions in the Prospectus, only
insofar as such statements relate to the amount of selling concession and reallowance or to
over-allotment and stabilization activities that may be undertaken by the Underwriters, and the
names of the Underwriters on the cover of the Prospectus constitute the
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only information furnished by or on behalf of the Underwriters, as such information is
referred to in Sections 3 and 9 hereof.
11.
Notices
. Except as otherwise herein provided, all statements, requests, notices
and agreements shall be in writing or by telegram or facsimile and, if to the Underwriters, shall
be sufficient in all respects if delivered or sent to UBS Securities LLC, 299 Park Avenue, New
York, NY 10171-0026, Attention: Syndicate Department and to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, One Bryant Park, New York, NY 10036, Attention: Syndicate Department with a copy to
ECM Legal; and if to the Capital Parties, shall be sufficient in all respects if delivered or sent
to the Company at the offices of the Company at 3 Iassonos Street, 185 37 Piraeus, Greece
(facsimile: +30 210 428 4285), Attention: Evangelos M. Marinakis, Chairman of the Board and Chief
Executive Officer.
12.
Governing Law; Construction
. This Agreement and any claim, counterclaim or
dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement
(
Claim
), directly or indirectly, shall be governed by, and construed in accordance with,
the laws of the State of New York. The section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
13.
Submission to Jurisdiction
. Except as set forth below, no Claim may be commenced,
prosecuted or continued in any court other than the courts of the State of New York located in the
City and County of New York or in the United States District Court for the Southern District of New
York, which courts shall have exclusive jurisdiction over the adjudication of such matters, and
each Capital Party consents to the jurisdiction of such courts and personal service with respect
thereto. Each Capital Party hereby consents to personal jurisdiction, service and venue in any
court in which any Claim arising out of or in any way relating to this Agreement is brought by any
third party against any Underwriter or any indemnified party. Each Underwriter and each Capital
Party (on its behalf and, to the extent permitted by applicable law, on behalf of its shareholders
and affiliates) waives all right to trial by jury in any action, proceeding or counterclaim
(whether based upon contract, tort or otherwise) in any way arising out of or relating to this
Agreement. Each Capital Party agrees that a final judgment in any such action, proceeding or
counterclaim brought in any such court shall be conclusive and binding upon such Capital Party and
may be enforced in any other courts to the jurisdiction of which such Capital Party is or may be
subject, by suit upon such judgment.
14.
Appointment of Agent.
Each Capital Party hereby irrevocably designates and
appoints [CT Corporation System] (the
Process Agent
), as the authorized agent of such
Capital Party upon whom process may be served in any Claim brought against any such Capital Party,
it being understood that the designation and appointment of the Process Agent as such authorized
agent shall become effective immediately without any further action on the part of any such Capital
Party. Each Capital Party represents to each Underwriter that it has notified the Process Agent of
such designation and appointment and that the Process Agent has accepted the same in writing. Each
Capital Party hereby irrevocably authorizes and directs the Process Agent to accept such service.
Each Capital Party further agrees that service of process upon the Process Agent and written notice
of said service to such Capital Party mailed by first-class mail or delivered to the Process Agent,
shall be deemed in every respect effective service of process upon such Capital Party in any such
Claim. Nothing herein shall affect the right of each
- 33 -
Underwriter, its partners, directors, officers and members, any person who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or any
affiliate (within the meaning of Rule 405 under the Act) of such Underwriter, or the successors
and assigns of all of the foregoing persons, to serve process in any other manner permitted by law.
15.
Parties at Interest
. The Agreement herein set forth has been and is made solely
for the benefit of the Underwriters and the Capital Parties and to the extent provided in Section 9
hereof the controlling persons, partners, directors, officers, members and affiliates referred to
in such Section, and their respective successors, assigns, heirs, personal representatives and
executors and administrators. No other person, partnership, association or corporation (including
a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.
16.
No Fiduciary Relationship
. Each Capital Party hereby acknowledges that the
Underwriters are acting solely as underwriters in connection with the purchase and sale of the
Companys securities. Each Capital Party further acknowledges that the Underwriters are acting
pursuant to a contractual relationship created solely by this Agreement entered into on an arms
length basis, and in no event do the parties intend that the Underwriters act or be responsible as
a fiduciary to the Company or the other Capital Parties, their respective management, shareholders
or creditors or any other person in connection with any activity that the Underwriters may
undertake or have undertaken in furtherance of the purchase and sale of the Companys securities,
either before or after the date hereof. The Underwriters hereby expressly disclaim any fiduciary
or similar obligations to the Company or any other Capital Party, either in connection with the
transactions contemplated by this Agreement or any matters leading up to such transactions, and the
Capital Parties hereby confirm their understanding and agreement to that effect. The Capital
Parties and the Underwriters agree that the Company and the Underwriters are each responsible for
making their own independent judgments with respect to any such transactions and that any opinions
or views expressed by the Underwriters to the Company regarding such transactions, including, but
not limited to, any opinions or views with respect to the price or market for the Companys
securities, do not constitute advice or recommendations to the Company. The Capital Parties and
the Underwriters agree that the Underwriters are acting as principal and not the agent or fiduciary
of the Company or any other Capital Party and no Underwriter has assumed, and none of them will
assume, any advisory responsibility in favor of the Company or any other Capital Party with respect
to the transactions contemplated hereby or the process leading thereto (irrespective of whether any
Underwriter has advised or is currently advising the Company on other matters). Each Capital Party
hereby waives and releases, to the fullest extent permitted by law, any claims that such Capital
Party may have against the Underwriters with respect to any breach or alleged breach of any
fiduciary, advisory or similar duty to such Capital Party in connection with the transactions
contemplated by this Agreement or any matters leading up to such transactions.
17.
Counterparts
. This Agreement may be signed by the parties in one or more
counterparts which together shall constitute one and the same agreement among the parties.
18.
Successors and Assigns
. This Agreement shall be binding upon the Underwriters and
the Capital Parties and their successors and assigns and any successor or assign of any
- 34 -
substantial portion of any of the Capital Parties and the Underwriters respective businesses
and/or assets.
19.
Miscellaneous
. UBS, an indirect, wholly owned subsidiary of UBS AG, is not a bank
and is separate from any affiliated bank, including any U.S. branch or agency of UBS AG. Because
UBS is a separately incorporated entity, it is solely responsible for its own contractual
obligations and commitments, including obligations with respect to sales and purchases of
securities. Securities sold, offered or recommended by UBS are not deposits, are not insured by
the Federal Deposit Insurance Corporation, are not guaranteed by a branch or agency, and are not
otherwise an obligation or responsibility of a branch or agency.
[
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]
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If the foregoing correctly sets forth the understanding among the Capital Parties and the
several Underwriters, please so indicate in the space provided below for that purpose, whereupon
this Agreement and your acceptance shall constitute a binding agreement among the Capital Parties
and the Underwriters, severally.
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Very truly yours,
Crude Carriers Corp.
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By:
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Name:
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Title:
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Capital Maritime & Trading Corp.
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Capital Ship Management Corp.
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Crude Carriers Investments Corp.
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Accepted and agreed to as of the date first above
written, on behalf of itself and the several other
Underwriters named in Schedule A
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By:
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UBS Securities LLC
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By:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
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Wells Fargo Securities, LLC
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