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 Registrant’s 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:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

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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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TABLE OF CONTENTS

 

 

 

SUMMARY

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 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 Manager’s 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 Manager’s 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 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

	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 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 Agreement—Management 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 Maritime’s 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 Maritime’s reputation within the shipping industry and its network of relationships with many of the world’s 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 world’s 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 world’s 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 Maritime’s 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.
Ø	We believe we will benefit from Capital Maritime’s 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 Maritime’s prior relationships with oil majors and traders, vessels owned and managed by Capital Maritime do not ship a significant percentage of the world’s seaborne oil.
Ø	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.

Ø	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 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. 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.
Ø	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.
Ø	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.”
Ø	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.
Ø	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.

Ø

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 Maritime’s 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.

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.

		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.
		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 “Management—2010 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.
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 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.
Tax considerations		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.
NYSE listing		We have been cleared to apply to have our Common Stock approved for listing on the New York Stock Exchange under the symbol “CRU.”

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

 

 

 

 

The factors that influence the supply of tanker capacity include:

 

 

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 world’s 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.

 

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 Industry—Charter 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:

 

 

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:

 

 

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 requirements—whether imposed by the classification societies, international statutes, national and local administrations or industry—must 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 major’s 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 operator’s TMSA will be sufficient for the assessment to be undertaken, a term charter relationship also requires a thorough office audit. An operator’s 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

 

Risk factors

 

 

operator’s 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:

 

 

Risk factors

 

 

 

 

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.

 

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 Industry—Charter 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

 

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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 & Operations—Company Specific Risk Factors—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” 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:

 

 

A wide range of economic, social and other factors can significantly affect the strength of the world’s 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 world’s 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.

 

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 world’s fastest growing economies in terms of gross domestic product, although the growth rate of China’s 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

 

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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 MEPC’s 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 world’s merchant shipping tonnage. As of December 31, 2009, 21 states, representing about 22.63% of the world’s merchant shipping tonnage, have ratified the BWM Convention. In the United States, ballast water

 

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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 vessel’s flag state. For a further description of the various requirements, please see “Business—Environmental and Other Regulations—Vessel 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 vessel’s arrival via telephone, fax, or e-mail. Due to the events of September 11, 2001, the U.S. Coast Guard’s 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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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

 

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.

 

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 vessel’s 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

 

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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 claimant’s 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 vessel’s 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.

 

 

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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:

 

 

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:

 

 

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 vessel’s 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.

 

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 Maritime’s 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 Transactions—Business 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 internally—generated 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

 

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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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity 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:

 

 

The actual amount of cash generated will also depend upon other factors, such as:

 

 

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.

 

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:

 

 

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

 

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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

 

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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 Maritime’s.

 

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:

 

 

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

 

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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 Manager’s 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 Agreement—Management Agreement—Term 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 Maritime’s 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 Manager’s 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.

 

Risk factors

 

 

If Capital Maritime suffers material damage to its reputation or relationships, it may harm our ability to:

 

 

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 Manager’s 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 Manager’s 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

 

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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 vessel’s 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.

 

Risk factors

 

 

Given the prevailing market and economic conditions, including the recent financial turmoil affecting the world’s 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 management’s 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.

 

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 SEC’s 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 Maritime’s 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 agent’s 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

 

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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 member’s vessels entered into the association. Claims are paid through the aggregate premiums of all members of the association, although members

 

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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 subsidiary’s 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 Considerations—Exemption 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

 

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 court’s 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 Considerations—United States Federal Income Taxation of U.S. Holders—Passive 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 shareholder’s holding period of our Common Stock. See the section captioned “United States Federal Income Tax Considerations—United States Federal Income Taxation of U.S. Holders—Passive 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

 

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:

 

 

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving 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:

 

 

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:

 

 

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

 

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

 

 

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

 

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 / 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 shareholder’s 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 year’s annual meeting. Our amended and restated bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede a shareholder’s 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 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 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.

 

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:

 

 

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

 

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:

 

 

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.

 

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s 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 “Management’s 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:

 

 

Special note regarding forward-looking statements

 

 

 

 

Forward-looking statements are made based upon management’s 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.

 

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.

 

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”).

 

 

 

 

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.

 

 

 

 

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.

 

 

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:

 

 

Our dividend policy and restrictions on dividends

 

 

 

 

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.

 

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All figures in the table below are in United States Dollars.

 

 

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 Cooper’s 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 “Management’s 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.

 

 

 

Crude Carriers Corp.

 

 

 

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 Company’s 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 Company’s 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Crude Carriers Corp.

 

 

 

 

 

 

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 Agreement—Management 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.

 

Management’s 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 market—related 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 vessel’s 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 seller’s technical manager and the seller is automatically terminated and the vessel’s trading certificates are revoked by its flag state following a change in ownership.

 

Management’s 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:

 

 

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:

 

 

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:

 

 

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.

 

Management’s 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.