Registration Statement No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIANA SHIPPING INC.
(Exact name of registrant as specified in its charter)
Republic of the Marshall Islands
(State or other jurisdiction of incorporation or organization) |
4412
(Primary Standard Industrial Classification Code Number) |
N/A
(I.R.S. Employer Identification No.) |
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Diana Shipping Inc. Pendelis 16 175 64 Palaio Faliro Athens, Greece (30) 210 947-0100 (Address and telephone number of Registrant's principal executive offices) |
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Seward & Kissel LLP Attention: Gary J. Wolfe, Esq. One Battery Park Plaza New York, New York 10004 (212) 574-1200 (Name, address and telephone number of agent for service) |
Copies to: |
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Gary J. Wolfe, Esq.
Seward & Kissel LLP One Battery Park Plaza New York, New York 10004 (212) 574-1200 (telephone number) (212) 480-8421 (facsimile number) |
Gary L. Sellers, Esq.
Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 (telephone number) (212) 455-2502 (facsimile number) |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered |
Amount to be
Registered(1) |
Proposed Maximum
Offering Price Per Security(1) |
Proposed Maximum
Aggregate Offering Price(1)(2) |
Amount of
Registration Fee |
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Common Stock par value $.01 including preferred stock purchase rights (3) | 14,231,250 | $17.00 | $241,931,250 | $28,475.31 | ||||
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MARCH 1, 2005
Prospectus
12,375,000 Shares
Diana Shipping Inc.
Common Stock
This is the initial public offering of Diana Shipping Inc. No public market currently exists for our common stock.
We currently anticipate the initial public offering price of our common stock to be between $15.00 and $17.00 per share. The shares of our common stock have been approved for listing on the New York Stock Exchange under the symbol "DSX", subject to official notice of issuance.
See the section of this prospectus entitled "Risk Factors" beginning on page 10 to read about the risks you should consider before buying shares of our common stock.
Each share of our common stock includes one right that, under certain circumstances, entitles the holder to purchase from us a unit consisting of one-thousandth of a share of our preferred stock at a purchase price of $25.00 per unit, subject to specified adjustments.
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Per Share
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Total
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Public Offering Price | $ | $ | ||||||
Underwriting Discount | $ | $ | ||||||
Proceeds, Before Expenses, To Us | $ | $ | ||||||
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The underwriters have a 30-day option to purchase up to 1,856,250 additional shares from a selling stockholder to cover any over-allotments. We will not receive any of the proceeds from the sale of shares by the selling stockholder if the underwriters' over-allotment option is exercised.
Delivery of shares will be made on or about March , 2005.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Bear, Stearns & Co. Inc. | ||
Jefferies & Company, Inc. | UBS Investment Bank | |
Fortis Securities LLC |
The date of this prospectus is , 2005
We have not authorized anyone to give any information or to make any representations other than those contained in this prospectus. Do not rely upon any information or representations made outside of this prospectus. This prospectus is not an offer to sell, and it is not soliciting an offer to buy, (1) any securities other than shares of our common stock or (2) shares of our common stock in any circumstances in which our offer or solicitation is unlawful. The information contained in this prospectus may change after the date of this prospectus. Do not assume after the date of this prospectus that the information contained in this prospectus is still correct.
ENFORCEABILITY OF CIVIL LIABILITIES
Diana Shipping Inc. is a Marshall Islands company and our principal executive offices are located outside the United States in Athens, Greece. A majority of our directors, officers and the experts named in the prospectus reside outside the United States. In addition, a substantial portion of our assets and the assets of our directors, officers and experts are located outside the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in United States courts against us or these persons in any action, including actions based upon the civil liability provisions of United States federal or state securities laws. Furthermore, there is substantial doubt that the courts of the Marshall Islands or Greece would enter judgments in original actions brought in those courts predicated on United States federal or state securities laws.
DRY BULK SHIPPING INDUSTRY DATA
The discussions contained under the sections of this prospectus entitled "Business" and "The International Dry Bulk Shipping Industry" have been reviewed by Drewry Shipping Consultants, Ltd., or Drewry, which has confirmed to us that they accurately describe the international dry bulk shipping industry, subject to the reliability of the data supporting the statistical and graphical information presented in this prospectus.
The statistical and graphical information we use in this prospectus has been compiled by Drewry from its database. Drewry compiles and publishes data for the benefit of its clients. Its methodologies for collecting data, and therefore the data collected, may differ from those of other sources, and its data does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the market.
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THIS PROSPECTUS HAS NOT BEEN SUBMITTED TO THE CLEARANCE PROCEDURES OF COMMISSIONE NAZIONALE PER LE SOCIETÀ E LA BORSA , OR CONSOB, AND HAS NOT BEEN AND WILL NOT BE SUBJECT TO THE FORMAL REVIEW OR CLEARANCE PROCEDURES OF CONSOB AND ACCORDINGLY MAY NOT BE USED IN CONNECTION WITH ANY OFFERING OF COMMON STOCK IN THE REPUBLIC OF ITALY, OR ITALY, OTHER THAN TO "PROFESSIONAL INVESTORS" (AS DEFINED IN ACCORDANCE WITH APPLICABLE ITALIAN SECURITIES LAWS AND REGULATIONS). ANY OFFER OF COMMON STOCK IN ITALY IN RELATION TO THE OFFERING IS BEING MADE ONLY TO PROFESSIONAL INVESTORS, PURSUANT TO ARTICLE 30, PARAGRAPH 2 AND ARTICLE 100 A) OF LEGISLATIVE DECREE NO. 58 OF 24 FEBRUARY 1998, AS AMENDED OR DECREE NO. 58, AND AS DEFINED IN ARTICLES 25 AND 31, PARAGRAPH 2 OF CONSOB REGULATION NO. 11522 OF 1 JULY 1998, AS AMENDED, AND EXCLUDING INDIVIDUALS AS DEFINED PURSUANT TO THE AFOREMENTIONED ARTICLE 31, PARAGRAPH 2, WHO MEET THE REQUIREMENTS IN ORDER TO EXERCISE ADMINISTRATIVE, MANAGERIAL OR SUPERVISORY FUNCTIONS AT A REGISTERED SECURITIES DEALING FIRM (A SOCIETÀ DI INTERMEDIAZIONE MOBILIARE , OR SIM), MANAGEMENT COMPANIES AUTHORISED TO MANAGE INDIVIDUAL PORTFOLIOS ON BEHALF OF THIRD PARTIES ( SOCIETÀ DI GESTIONE DEL RISPARMIO , OR SGR) AND FIDUCIARY COMPANIES ( SOCIETÀ FIDUCIARIE ) MANAGING PORTFOLIO INVESTMENTS REGULATED BY ARTICLE 60, PARAGRAPH 4 OF LEGISLATIVE DECREE NO. 415 OF 23 JULY 1996 AND OTHERWISE IN ACCORDANCE WITH APPLICABLE ITALIAN LAWS AND REGULATIONS PROVIDED THEREIN. UNDER NO CIRCUMSTANCES SHOULD THIS PROSPECTUS BE CIRCULATED AMONG, OR BE DISTRIBUTED IN ITALY TO ANY MEMBER OF THE GENERAL PUBLIC IN ITALY OR TO INDIVIDUALS OR ENTITIES FALLING OUTSIDE THE CATEGORIES OF PROFESSIONAL INVESTORS. ANY SUCH OFFER OR ISSUE OR ANY DISTRIBUTION OF THIS PROSPECTUS WITHIN ITALY AND/OR THE RENDERING OF ADVICE OF ANY NATURE WHATSOEVER IN CONNECTION WITH THE OFFERING MUST BE CONDUCTED EITHER BY BANKS, INVESTMENT FIRMS (AS DEFINED IN DECREE NO. 58) AND FINANCIAL COMPANIES ENROLLED IN THE SPECIAL REGISTER PROVIDED FOR BY ARTICLE 107 OF LEGISLATIVE DECREE NO. 385 OF 1 SEPTEMBER 1993, AS AMENDED, TO THE EXTENT DULY AUTHORISED TO ENGAGE IN THE PLACEMENT AND/OR UNDERWRITING OF FINANCIAL INSTRUMENTS IN ITALY IN ACCORDANCE WITH THE RELEVANT PROVISIONS OF DECREE NO. 58.
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This section summarizes some of the information and consolidated financial statements that appear later in this prospectus. As an investor or prospective investor, you should review carefully the risk factors and the more detailed information and financial statements that appear later. In this prospectus, references to "Diana Shipping Inc.", "we", "us", "our company" and "our" refer to Diana Shipping Inc., formerly Diana Shipping Investment Corp., and its subsidiaries. References to our "operating fleet" refer to the seven Panamax dry bulk carriers that we owned and operated as of September 30, 2004. References to our "combined fleet" refer to the vessels in our operating fleet, a new Panamax dry bulk carrier and a secondhand Capesize dry bulk carrier that were delivered to us in February 2005 and an additional Panamax dry bulk carrier that we expect to have delivered to us in April 2005, and references to our "fleet" are to our operating fleet or our combined fleet, as the context requires. References to our "fleet manager" are to Diana Shipping Services S.A., an affiliated entity that manages our fleet, or to Diana Shipping Agencies S.A., an affiliated entity that managed our fleet prior to November 12, 2004, as the context requires.
We are Diana Shipping Inc., a Marshall Islands company that owns and operates dry bulk carriers that transport iron ore, coal, grain and other dry cargoes along worldwide shipping routes. Our operating fleet consists of seven modern Panamax dry bulk carriers that, as of September 30, 2004, had a combined carrying capacity of more than 525,000 dwt and a weighted average age of 3.1 years. During 2003 and the nine month period ended September 30, 2004, we had a fleet utilization of 99.6% and 99.8%, respectively, our vessels achieved daily time charter equivalent rates of $12,812 and $25,269, respectively, and we generated revenues of $25.3 million and $45.4 million, respectively. During 2001, 2002 and 2003 and the nine months ended September 30, 2004, we recorded net income (loss) of ($0.4) million, $0.1 million, $9.5 million and $28.5 million, respectively. During those periods, we recognized non-cash expenses of $1.4 million, $1.4 million, $1.5 million and $1.1 million, respectively, relating to executive management services and office space that our fleet manager provided to us at no cost. Please see Note 13 to our audited consolidated financial statements.
We intend to expand our presence in the dry bulk shipping industry. In furtherance of this objective, we entered into newbuilding contracts with a Chinese shipyard for the construction of two additional Panamax dry bulk carriers that have a carrying capacity of 73,691 dwt and 73,700 dwt, respectively, and a purchase agreement with Louis Dreyfus Armateurs S.A.S. to purchase a secondhand Capesize dry bulk carrier with a carrying capacity of 169,883 dwt. The first new Panamax dry bulk carrier and the secondhand Capesize dry bulk carrier were delivered to us in February 2005. We expect that the second new Panamax dry bulk carrier will be delivered to us in April 2005. Upon the delivery of our second new Panamax dry bulk carrier, as of April 15, 2005, our combined fleet will consist of nine Panamax dry bulk carriers and one Capesize dry bulk carrier that will have a combined carrying capacity of 842,287 dwt and a weighted average age of 3.5 years. We believe that the addition of these vessels to our fleet will be accretive to our earnings and dividends per share.
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The following table presents certain information concerning the dry bulk carriers in our combined fleet.
Vessel
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Operating Status
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Dwt
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Age (1)
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Sister Ship (2)
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Nirefs | Delivered Jan. 2001 | 75,311 | 4.2 years | A | ||||
Alcyon | Delivered Feb. 2001 | 75,247 | 4.2 years | A | ||||
Triton | Delivered March 2001 | 75,336 | 4.1 years | A | ||||
Oceanis | Delivered May 2001 | 75,211 | 3.9 years | A | ||||
Dione | Acquired May 2003 | 75,172 | 4.3 years | A | ||||
Danae | Acquired July 2003 | 75,106 | 4.3 years | A | ||||
Protefs | Delivered Aug. 2004 | 73,630 | 0.6 years | B | ||||
Calipso | Delivered Feb. 2005 | 73,691 | 0.2 years | B | ||||
Pantelis SP | Delivered Feb. 2005 | 169,883 | 6.1 years | | ||||
Clio | Delivery expected April 2005 | 73,700 | 0 years | B |
We charter our dry bulk carriers to customers primarily pursuant to time charters. Under our time charters, the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and canal and port charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel. We also pay (through our fleet manager) commissions ranging from 1.25% to 6.25% of the total daily charter hire rate of each charter to unaffiliated ship brokers and to in-house brokers associated with the charterer, depending on the number of brokers involved with arranging the charter.
We strategically monitor developments in the dry bulk shipping industry on a regular basis and, subject to market demand, adjust the charter hire periods for our vessels according to prevailing market conditions. Historically, we have employed our vessels on primarily short-term time charters that have ranged in duration from three to twelve months, which we believe have provided us with flexibility in responding to market developments and have assisted us in enhancing the amount of charter hire that we are paid. As contemplated by our business strategy, however, we recently entered into time charters in excess of two and one-half years for two of the vessels in our combined fleet. We may in the future extend the charter periods for additional vessels in our fleet to take advantage of the relatively stable cash flow and high utilization rates that are associated with long-term time charters. Given the size of our fleet, we believe that adding one or more additional long-term time charters to our charter portfolio will reduce our potential exposure to the adverse effects of any market downturn without significantly affecting our ability to take advantage of short-term market opportunities.
The strategic, commercial and technical management of our fleet historically has been provided by an affiliated company. Diana Shipping Agencies S.A., or DSA, provided us with these management services from our founding in 1999 through November 12, 2004, at which time responsibility for the commercial and technical management of our fleet was transferred to Diana Shipping Services S.A., to which we refer as DSS or our fleet manager, and the strategic management of our fleet was assumed by us. DSA and DSS are each majority owned and controlled by Mr. Simeon Palios, our Chairman and Chief Executive Officer. The stockholders of DSA and DSS also include Mr. Anastassis Margaronis, our President and a member of our board of directors, and Mr. Ioannis Zafirakis, our Vice President and a member of our board of directors.
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We have entered into an agreement with the stockholders of DSS pursuant to which the DSS stockholders may sell all, but not less than all, of their outstanding shares of DSS to us during the 12 month period following the consummation of this offering for $20.0 million in cash. Under the terms of the agreement, if the DSS stockholders do not sell their outstanding shares to us prior to the one year anniversary of this offering, we may purchase the DSS shares from them for the same consideration at any time prior to the second anniversary of this offering. We expect the DSS stockholders to sell their outstanding shares of DSS to us during the 12 months following the offering and intend to exercise our option if they do not do so. We intend to finance our expected acquisition of our fleet manager with borrowings under our new credit facility and to refinance the acquisition related debt with the net proceeds of future equity issuances. Upon our acquisition of DSS, DSS will become our wholly-owned subsidiary and we will conduct the strategic, commercial and technical management of our fleet in-house.
We believe that we possess a number of strengths that provide us with a competitive advantage in the dry bulk shipping industry:
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Our main objective is to manage and expand our fleet in a manner that enables us to pay attractive dividends to our stockholders. To accomplish this objective, we intend to:
Our policy is to declare quarterly distributions to stockholders by each February, May, August and November substantially equal to our available cash from operations during the previous quarter after cash expenses and reserves for scheduled drydockings, intermediate and special surveys and other purposes as our board of directors may from time to time determine are required, after taking into account contingent liabilities, the terms of our new credit facility, our growth strategy and other cash needs and the requirements of Marshall Islands law. We expect to declare our first quarterly distribution in May 2005.
In times when we have debt outstanding, we intend to limit our dividends per share to the amount that we would have been able to pay if we were financed entirely with equity as described in the
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section of this prospectus entitled "Dividend Policy". Our board of directors may review and amend our dividend policy from time to time, in light of our plans for future growth and other factors.
We believe that the addition of the first of our two new Panamax dry bulk carriers and our secondhand Capesize dry bulk carrier to our fleet in February 2005 and the expected addition of our second new Panamax dry bulk carrier in April 2005, combined with this equity offering, will enable us to pay a higher dividend per share than we would have been able to pay without revenues from these additional vessels, this offering and the application of the net proceeds therefrom to repay our outstanding debt and to fund the purchase of our second new Panamax dry bulk carrier. Assuming that we had (i) completed this offering on January 1, 2003 at an assumed initial public offering price of $16.00 per share (representing the midpoint of the price range shown on the cover of this prospectus) and applied the net proceeds therefrom as described in this prospectus, (ii) employed the nine Panamax dry bulk carriers in our combined fleet at the fleet utilization rates and time charter equivalent rates and with average daily operating expenses that were actually achieved by us during the period and (iii) employed the Capesize dry bulk carrier in our combined fleet at the fleet utilization rates that were actually achieved by us during the period and at time charter equivalent rates that were equal to average time charter equivalent rates for one-year time charters of comparable vessels during the period and with typical daily vessel operating expenses, we estimate that under our dividend policy we would have been able to pay an aggregate dividend of approximately $0.76 per share during 2003, approximately $0.48 per share during the first nine months of 2003 and approximately $1.46 per share during the first nine months of 2004. Please see the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of OperationsDividend Payments" for information relating to our historical dividend payments.
We believe that under current law, our dividend payments from earnings and profits will constitute "qualified dividend income" and as such will generally be subject to a 15% United States federal income tax rate with respect to non-corporate individual stockholders. Distributions in excess of our earnings and profits will be treated first as a non-taxable return of capital to the extent of a United States stockholder's tax basis in its common stock on a dollar-for-dollar basis and thereafter as capital gain. Please see the sections of this prospectus entitled "Dividend Policy" and "Tax Considerations" for additional information regarding dividend payments generally.
Diana Shipping Inc. is a holding company incorporated under the laws of the Marshall Islands. We maintain our principal executive offices at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece. Our telephone number at that address is +30 (210) 947-0100.
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Common stock offered by us | 12,375,000 shares | |
Common stock to be outstanding immediately after this offering |
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40,000,000 shares |
Underwriters' over-allotment option |
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1,856,250 shares |
Use of proceeds |
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We estimate that we will receive net proceeds of approximately $182.1 million from the issuance of new shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated expenses payable by us. We expect to use approximately $15.0 million of the net proceeds of this offering to fund the final installment due on the Panamax dry bulk carrier that we expect to have delivered to us in April 2005, approximately $166.4 million to repay all of our outstanding indebtedness and approximately $0.7 million for general corporate purposes. We intend to apply any amounts not used for such purposes for working capital and general corporate purposes. See the section of this prospectus entitled "Use of Proceeds." |
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We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholder if the underwriters' over-allotment option is exercised. |
New York Stock Exchange listing |
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Shares of our common stock have been approved for listing on the New York Stock Exchange under the symbol "DSX", subject to official notice of issuance. |
Investing in our common stock involves substantial risk. You should carefully consider all the information in this prospectus prior to investing in our common stock. In particular, we urge you to consider carefully the factors set forth in the section of this prospectus entitled "Risk Factors" beginning on page 10.
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Summary Consolidated Financial and Other Data
The following table sets forth our summary consolidated financial and other operating data. The summary consolidated financial data in the table for the three years ended December 31, 2003 are derived from our audited consolidated financial statements. The summary consolidated financial data for the nine months ended September 30, 2003 and 2004 are derived from our unaudited interim consolidated financial statements. We refer you to the footnotes to our consolidated financial statements for a discussion of the basis on which our consolidated financial statements are presented. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2004. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.
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As of and for the
Year Ended December 31, |
As of and for the
Nine Months Ended September 30, (unaudited) |
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2001
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2002
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2003
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2003
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2004
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(in thousands of U.S. dollars, except for share and
per share data) |
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Income Statement Data: | |||||||||||
Voyage and time charter revenues | 11,359 | 11,942 | 25,277 | 16,528 | 45,387 | ||||||
Voyage expenses | 1,494 | 946 | 1,549 | 954 | 3,087 | ||||||
Vessel operating expenses | 3,432 | 3,811 | 6,267 | 4,036 | 6,767 | ||||||
Depreciation | 2,347 | 3,004 | 3,978 | 2,777 | 3,666 | ||||||
Management fees | 456 | 576 | 728 | 512 | 660 | ||||||
Executive management services and rent | 1,363 | 1,404 | 1,470 | 1,103 | 1,146 | ||||||
General and administrative expenses | 70 | 140 | 123 | 60 | 211 | ||||||
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Operating income | 2,197 | 2,061 | 11,162 | 7,086 | 29,850 | ||||||
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Interest and finance cost | (2,690 | ) | (2,001 | ) | (1,680 | ) | (1,006 | ) | (1,408 | ) | |
Foreign currency gains (losses) | 17 | (5 | ) | (20 | ) | (10 | ) | (2 | ) | ||
Interest income | 84 | 21 | 27 | 20 | 73 | ||||||
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Net income (loss) | (392 | ) | 76 | 9,489 | 6,090 | 28,513 | |||||
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Basic earnings (loss) per share | (0.11 | ) | 0.02 | 0.37 | 0.25 | 1.03 | |||||
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Weighted average basic shares outstanding | 3,683,333 | 4,297,161 | 25,340,596 | 24,579,068 | 27,625,000 | ||||||
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Diluted earnings (loss) per share | (0.11 | ) | 0.00 | 0.37 | 0.25 | 1.03 | |||||
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Weighted average diluted shares outstanding | 3,683,333 | 18,416,667 | 25,340,596 | 24,579,068 | 27,625,000 | ||||||
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As of and for the
Year Ended December 31, |
As of and for
the Nine Months Ended September 30, (unaudited) |
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2001
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2002
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2003
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2003
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2004
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(in thousands of U.S. dollars, except for fleet data and
average daily results) |
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Other Financial Data: | |||||||||||||
Cash and cash equivalents | 1,310 | 1,867 | 7,441 | | 8,661 | ||||||||
Total assets | 83,903 | 80,291 | 135,122 | | 158,160 | ||||||||
Long-term debt (including current portion) | 58,051 | 54,154 | 83,256 | | 93,469 | ||||||||
Total stockholders' equity | 23,118 | 23,482 | 48,441 | | 61,100 | ||||||||
Net cash flow provided by operating activities |
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5,131 |
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5,451 |
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15,218 |
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8,864 |
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33,060 |
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Net cash flow (used in) investing activities | (53,011 | ) | | (52,723 | ) | (49,470 | ) | (25,739 | ) | ||||
Net cash flow provided by (used in) financing activities | 47,993 | (4,894 | ) | 43,079 | 44,469 | (6,101 | ) | ||||||
Fleet & Other Data: (1) |
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Average number of vessels (2) | 3.2 | 4.0 | 5.1 | 4.8 | 6.1 | ||||||||
Number of vessels at end of period | 4.0 | 4.0 | 6.0 | 6.0 | 7.0 | ||||||||
Weighted average age of fleet (in years) | 0.8 | 1.8 | 2.9 | 2.3 | 3.3 | ||||||||
Fleet utilization (3) | 98.9 | % | 99.9 | % | 99.6 | % | 99.5 | % | 99.8 | % | |||
Time charter equivalent (TCE) rate (4) | 8,661 | 7,532 | 12,812 | 11,980 | 25,269 |
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commissions. TCE rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters because charter hire rates for vessels on voyage charters are generally not expressed in per day amounts while charter hire rates for vessels on time charters are generally expressed in such amounts. The following table reflects the calculation of our TCE rates for the periods presented.
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Year Ended
December 31, |
Nine Months Ended
September 30, (unaudited) |
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2001
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2002
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2003
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2003
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2004
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(in thousands of U.S. dollars, except for TCE rates,
which are expressed in U.S. dollars, and available days) |
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Voyage and time charter revenues | 11,359 | 11,942 | 25,277 | 16,528 | 45,387 | ||||||
Less: voyage expenses | (1,494 | ) | (946 | ) | (1,549 | ) | (954 | ) | (3,087 | ) | |
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Time charter equivalent revenues | 9,865 | 10,996 | 23,728 | 15,574 | 42,300 | ||||||
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Available days | 1,139 | 1,460 | 1,852 | 1,300 | 1,674 | ||||||
Time charter equivalent (TCE) rate | 8,661 | 7,532 | 12,812 | 11,980 | 25,269 |
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You should consider carefully the following factors, as well as the other information set forth in this prospectus, before making an investment in our common stock. Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our common stock. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results or cash available for dividends or the trading price of our common stock and cause you to lose all or part of your investment.
Industry Specific Risk Factors
Charter hire rates for dry bulk carriers are at historically high levels and may decrease in the future, which may adversely affect our earnings
The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and profitability. The degree of charter hire rate volatility among different types of dry bulk carriers has varied widely, and charter hire rates for Panamax and Capesize dry bulk carriers are currently at historically high levels. Because we generally charter our vessels pursuant to short-term time charters, we are exposed to changes in spot market rates for dry bulk carriers and such changes may affect our earnings and the value of our dry bulk carriers at any given time. We cannot assure that we will be able to successfully charter our vessels in the future or renew existing charters at rates sufficient to allow us to meet our obligations or to pay dividends to our stockholders. Because the factors affecting the supply and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.
Factors that influence demand for vessel capacity include:
The factors that influence the supply of vessel capacity include:
We anticipate that the future demand for our dry bulk carriers will be dependent upon continued economic growth in the world's economies, including China, seasonal and regional changes in demand, changes in the capacity of the global dry bulk carrier fleet and the sources and supply of dry bulk cargo to be transported by sea. The capacity of the global dry bulk carrier fleet seems likely to increase and there can be no assurance that economic growth will continue. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
The market values of our vessels, which are at historically high levels, may decrease, which could limit the amount of funds that we can borrow under our new credit facility
The fair market values of our vessels have generally experienced high volatility and market prices for secondhand Panamax and Capesize dry bulk carriers are currently at historically high levels. You
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should expect the market value of our vessels to fluctuate depending on general economic and market conditions affecting the shipping industry and prevailing charter hire rates, competition from other shipping companies and other modes of transportation, types, sizes and age of vessels, applicable governmental regulations and the cost of newbuildings. If the market value of our fleet declines, we may not be able to draw down the full amount of our new credit facility and we may not be able to obtain other financing or incur debt on terms that are acceptable to us or at all. Please see the section of this prospectus entitled "The International Dry Bulk Shipping Industry" for information concerning historical prices of dry bulk carriers.
The market values of our vessels, which are at historically high levels, may decrease, which could cause us to breach covenants in our new credit facility and adversely affect our operating results
If the market values of our vessels, which are at historically high levels, decrease, we may breach some of the covenants contained in the financing agreements relating to our indebtedness at the time, including covenants in our new credit facility. If we do breach such covenants and we are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet. In addition, if the book value of a vessel 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 operating results.
World events could affect our results of operations and financial condition
Terrorist attacks such as the attacks on the United States on September 11, 2001 and the continuing response of the United States to these attacks, as well as the threat of future terrorist attacks in the United States or elsewhere, continues to cause uncertainty in the world financial markets and may affect our business, operating results and financial condition. The continuing conflict in Iraq may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, 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. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
Our operating results are subject to seasonal fluctuations, which could affect our operating results and the amount of available cash with which we can pay dividends
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter hire rates. This seasonality may result in quarter-to-quarter volatility in our operating results, which could affect the amount of dividends that we pay to our stockholders from quarter to quarter. The dry bulk carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues have historically been weaker during the fiscal quarters ended June 30 and September 30, and, conversely, our revenues have historically been stronger in fiscal quarters ended December 31 and March 31. While this seasonality has not materially affected our operating results, it could materially affect our operating results and cash available for distribution to our stockholders as dividends in the future.
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We are subject to international safety regulations and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports
The operation of our vessels is affected by the requirements set forth in the International Maritime Organization's International Management Code for the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires shipowners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. As of the date of this prospectus, each of our vessels is ISM code-certified.
Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow
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 jurisdictions, a claimant may seek to obtain security for its claim by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both 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. Claimants could attempt to assert "sister ship" liability against one vessel in our fleet for claims relating to another of our vessels.
Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings
A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may negatively impact our revenues and reduce the amount of cash we have available for distribution as dividends to our stockholders.
We are dependent on short-term time charters in a volatile shipping industry and a decline in charter hire rates would affect our results of operations and ability to pay dividends
We charter our vessels primarily pursuant to short-term time charters, although we recently entered into time charters in excess of two and one-half years time charters for two of the vessels in our combined fleet and we may in the future employ additional vessels on longer term time charters. Although dependence on short-term time charters is not unusual in the dry bulk shipping industry, the short-term time charter market is highly competitive and spot market charter hire rates (which affect time charter rates) may fluctuate significantly based upon available charters and the supply of, and demand for, seaborne shipping capacity. While our focus on the short-term time charter market may
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enable us to benefit in periods of increasing charter hire rates, we must consistently renew our charters and this dependence makes us vulnerable to declining charter rates. While current dry bulk carrier charter rates are high, the market is volatile, and in the past short-term time charter and spot market charter rates for dry bulk carriers have declined below operating costs of vessels. We cannot assure you that future charter hire rates will enable us to operate our vessels profitably or to pay you dividends.
We cannot assure you that our board of directors will declare dividends
Our policy is to declare quarterly distributions to stockholders by each February, May, August and November substantially equal to our available cash from operations during the previous quarter after cash expenses and reserves for scheduled drydockings, intermediate and special surveys and other purposes as our board of directors may from time to time determine are required, after taking into account contingent liabilities, the terms of our new credit facility, our growth strategy and other cash needs and the requirements of Marshall Islands law. The declaration and payment of dividends, if any, will always be subject to the discretion of our board of directors. The timing and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy and provisions of Marshall Islands law affecting the payment of dividends. The international dry bulk shipping industry is highly volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period. Also, there may be a high degree of variability from period to period in the amount of cash that is available for the payment of dividends.
We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described in this section of the prospectus. Our growth strategy contemplates that we will finance the acquisition of additional vessels through a combination of debt and equity financing on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce or even eliminate the amount of cash available for the payment of dividends.
Marshall Islands law generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. As of November 30, 2004, as adjusted for dividends paid or to be paid to our current stockholders, changes in our outstanding indebtedness prior to the offering and our issuance and sale of 12,375,000 shares of common stock in this offering at an assumed initial public offering price of $16.00 per share (representing the midpoint of the price range shown on the cover of this prospectus) and the use of a portion of the net proceeds therefrom to repay all of our debt outstanding immediately prior to the closing of this offering, we had surplus (retained earnings and the excess of consideration received for shares above the par value of shares) of $20.9 million available for the payment of dividends, although this amount will not be paid to our new stockholders. Please see the section of this prospectus entitled "Capitalization." We may not have sufficient surplus in the future to pay dividends. We can give no assurance that dividends will be paid in the amounts anticipated in this prospectus or at all.
We may have difficulty managing our planned growth properly
The delivery of the first of our two new Panamax dry bulk carriers and the acquisition of one secondhand Capesize dry bulk carrier in February 2005 has resulted in a significant increase the size of our fleet. In addition, we expect to take delivery of our second new Panamax dry bulk carrier in April 2005. The addition of these vessels to our fleet, as well as our expected acquisition of our fleet manager, will impose significant additional responsibilities on our management and staff and may
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require us to increase the number of our personnel. We will also have to increase our customer base to provide continued employment for the new vessels.
We intend to continue to grow our fleet following the delivery of our second new Panamax dry bulk carrier. Our future growth will primarily depend on:
Growing any business by acquisition presents numerous risks, such as undisclosed liabilities and obligations, the possibility that indemnification agreements will be unenforceable or insufficient to cover potential losses and difficulties associated with imposing common standards, controls, procedures and policies, obtaining additional qualified personnel, managing relationships with customers and integrating newly acquired assets and operations into existing infrastructure. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.
We cannot assure you that we will be able to borrow amounts under our new credit facility and restrictive covenants in our new credit facility may impose financial and other restrictions on us
We have entered into a new secured revolving credit facility with The Royal Bank of Scotland Plc that we intend to use to finance future vessel acquisitions, our acquisition of our fleet manager and our working capital requirements. Our ability to borrow amounts under the new credit facility will be subject to the execution of customary documentation relating to the facility, including security documents, satisfaction of certain customary conditions precedent and compliance with terms and conditions included in the loan documents. Prior to each drawdown, we will be required, among other things, to provide the lender with acceptable valuations of the vessels in our fleet confirming that the vessels in our combined fleet have a minimum value and that the vessels in our fleet that secure our obligations under the facility are sufficient to satisfy minimum security requirements. To the extent that we are not able to satisfy these requirements, including as a result of a decline in the value of our vessels, we may not be able to draw down the full amount under the credit facility without obtaining a waiver or consent from the lender. We will also not be permitted to borrow amounts under the facility if we experience a change of control.
The new credit facility will also impose operating and financial restrictions on us. These restrictions may limit our ability to, among other things:
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Therefore, we may need to seek permission from our lender in order to engage in some corporate actions. Our lender's interests may be different from ours and we cannot guarantee that we will be able to obtain our lender's permission when needed. This may limit our ability to pay dividends to you, finance our future operations, make acquisitions or pursue business opportunities.
We cannot assure you that we will be able to refinance any future indebtedness incurred under our credit facility
We intend to finance our future fleet expansion program with secured indebtedness drawn under our new credit facility. While we intend to refinance amounts drawn under our new credit facility with the net proceeds of future equity offerings, we cannot assure you that we will be able to do so on terms that are acceptable to us or at all. If we are not able to refinance these amounts with the net proceeds of equity offerings on terms acceptable to us or at all, we will have to dedicate a portion of our cash flow from operations to pay the principal and interest of this indebtedness. If we are not able to satisfy these obligations, we may have to undertake alternative financing plans. The actual or perceived credit quality of our charterers, any defaults by them, and the market value of our fleet, among other things, may materially affect our ability to obtain alternative financing. In addition, debt service payments under our new credit facility or alternative financing may limit funds otherwise available for working capital, capital expenditures and other purposes. If we are unable to meet our debt obligations, or if we otherwise default under our new credit facility or an alternative financing arrangement, our lender could declare the debt, together with accrued interest and fees, to be immediately due and payable and foreclose on our fleet, which could result in the acceleration of other indebtedness that we may have at such time and the commencement of similar foreclosure proceedings by other lenders.
If our second dry bulk carrier is not delivered on time, left incomplete or delivered with significant defects, our earnings and financial condition could suffer
We have entered into a newbuilding contract with an established Chinese shipyard for the construction of a new Panamax dry bulk carrier that we expect will be delivered to us in April 2005. A delay in the delivery of this vessel to us or the failure of the contract counterparty to deliver the vessel at all could cause us to breach our obligations under a related time charter and could adversely affect our earnings, our financial condition and the amount of dividends that we pay in the future. In addition, the delivery of this vessel with substantial defects could have similar consequences.
Purchasing and operating secondhand vessels may result in increased operating costs and reduced fleet utilization
While we have the right to inspect previously owned vessels prior to our purchase of them, such an inspection does not provide us with the same knowledge about their condition that we would have if these vessels had been built for and operated exclusively by us. A secondhand vessel may have conditions or defects that we were not aware of when we bought the vessel and which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock which would reduce our fleet utilization. Furthermore, we usually do not receive the benefit of warranties on secondhand vessels.
In the highly competitive international 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, some of whom have substantially greater resources than we do. Competition for the transportation of dry bulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources
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could enter the dry bulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer.
We may be unable to attract and retain key management personnel and other employees in the shipping industry, which may negatively impact the effectiveness of our management and results of operations
Our success depends to a significant extent upon the abilities and efforts of our management team. We have entered into employment contracts with our Chairman and Chief Executive Officer, Mr. Simeon Palios, our Chief Financial Officer, Mr. Konstantinos Koutsomitopoulos, our President, Mr. Anastassis Margaronis and our Vice President, Mr. Ioannis Zafirakis. Our success will depend upon our ability to retain key members of our management team and to hire new members as may be necessary. The loss of any of these individuals could adversely affect our business prospects and financial condition. Difficulty in hiring and retaining replacement personnel could have a similar effect. We do not intend to maintain "key man" life insurance on any of our officers.
Risks associated with operating ocean-going vessels could affect our business and reputation, which could adversely affect our revenues and stock price
The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:
Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an environmental disaster may harm our reputation as a safe and reliable vessel owner and operator.
The shipping industry has inherent operational risks that may not be adequately covered by our insurance
We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Our current insurance includes hull and machinery insurance, war risks insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). We can give no assurance that we are adequately insured against all risks or that our insurers will pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs.
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The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As of September 30, 2004, the seven vessels in our operating fleet had a weighted average age of 3.1 years. Upon the delivery of our second new Panamax dry bulk carrier, as of April 15, 2005, our combined fleet will consist of nine Panamax dry bulk carriers and one Capesize dry bulk carrier that will have a weighted average age of 3.5 years. As our fleet ages, we will incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which our 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 profitably during the remainder of their useful lives.
We may have to pay tax on United States source income, which would reduce our earnings
Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as United States source shipping income and such income is subject to a 4% United States federal income tax without allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury regulations promulgated thereunder in August of 2003.
Both before and after this offering, we expect that we and each of our subsidiaries will qualify for this statutory tax exemption and we will take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption after this offering and thereby become subject to United States federal income tax on our United States source income. For example, after this offering we expect that our Chairman and Chief Executive Officer, Mr. Simeon Palios, and Fortis Bank (Nederland) N.V. will own as much as 69.1% of our outstanding common stock. If other stockholders with a five percent or greater interest in our stock were, in combination with Mr. Palios and Fortis Bank (Nederland) N.V., to own 50% or more of the outstanding shares of our stock on more than half the days during the taxable year we might not be able to qualify for exemption under Code Section 883. Due to the factual nature of the issues involved, we can give no assurances on our tax-exempt status or that of any of our subsidiaries after the offering.
If we or our subsidiaries are not entitled to this exemption under Section 883 for any taxable year, we or our subsidiaries would be subject for those years to a 4% United States federal income tax on our U.S.-source shipping income. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our stockholders.
United States tax authorities could treat us as a "passive foreign investment company", which could have adverse United States federal income tax consequences to United States holders
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or
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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. For purposes of these tests, income derived from the performance of services does not constitute "passive income." United States stockholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our proposed method of operation, 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 time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not constitute "passive income," and 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 proposed method of operation. Accordingly, no assurance can be given that the United States Internal Revenue Service, or 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, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States stockholders will face adverse United States tax consequences. Under the PFIC rules, unless those stockholders make an election available under the Code (which election could itself have adverse consequences for such shareholders, as discussed below under "Tax ConsiderationsUnited States Federal Income Taxation of United States Holders"), such stockholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the stockholder's holding period of our common shares. Please see the section of this prospectus entitled "Tax ConsiderationsUnited States Federal Income Taxation of United States Holders" for a more comprehensive discussion of the United States federal income tax consequences to United States stockholders if we are treated as a PFIC.
We depend upon a few significant customers for a large part of our revenues and the loss of one or more of these customers could adversely affect our financial performance
We have historically derived a significant part of our revenues from a small number of charterers. During the nine months ended September 30, 2004, approximately 94% of our revenues was derived from five charterers and, in 2003, approximately 75% of our revenues was derived from four charterers. If one or more of these charterers chooses not to charter our vessels or is unable to perform under one or more charters with us and we are not able to find a replacement charter, we could suffer a loss of revenues that could adversely affect our financial condition, results of operations and cash available for distribution as dividends to our stockholders.
Our vessels may suffer damage and we may face unexpected drydocking costs, which could adversely affect our cash flow and financial condition
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. The loss of earnings while our vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings and reduce the amount of cash that we have available for dividends. We may not have insurance that is
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sufficient to cover all or any of these costs or losses and may have to pay drydocking costs not covered by our insurance.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to make dividend payments depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our subsidiaries, our board of directors may exercise its discretion not to declare or pay dividends. We do not intend to obtain funds from other sources to pay dividends.
As we expand our business, we may need to improve our operating and financial systems and will need to recruit suitable employees and crew for our vessels
Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet and acquire our fleet manager, and our attempts to improve those systems may be ineffective. In addition, as we expand our fleet, we will need to recruit suitable additional seafarers and shoreside administrative and management personnel. While we have not experienced any difficulty in recruiting to date, we cannot guarantee that we will be able to continue to hire suitable employees as we expand our fleet. If we or our crewing agent encounters business or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to grow our financial and operating systems or to recruit suitable employees as we expand our fleet or acquire our fleet manager, our financial performance may be adversely affected and, among other things, the amount of cash available for distribution as dividends to our stockholders may be reduced.
Risks Relating to Our Common Stock
There is no guarantee that an active and liquid public market for you to resell our common stock will develop
The price of our common stock after this offering may be volatile and may fluctuate due to factors such as:
The dry bulk shipping industry has been highly unpredictable and volatile. The market for common stock in this industry may be equally volatile.
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We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate law
Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the laws 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 the United States. The rights of stockholders of the Marshall Islands may differ from the rights of stockholders of companies incorporated in the United States. While the BCA provides that it is to be interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we can not predict whether Marshall Islands courts would reach the same conclusions as United States courts. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdiction which has developed a relatively more substantial body of case law.
Existing stockholders will effectively control the outcome of matters on which our stockholders are entitled to vote following this offering
Our current stockholders will own, directly or indirectly, approximately 69.1% of our outstanding common stock after this offering, assuming the underwriters do not exercise their over-allotment option. While the existing stockholders have no agreement, arrangement or understanding relating to the voting of their shares of our common stock following the completion of this offering, they will effectively control the outcome of matters on which our stockholders are entitled to vote, including the election of directors and other significant corporate actions. The interests of these stockholders may be different from your interests.
The shares of our common stock that you purchase in this offering will experience immediate and substantial dilution
The initial public offering price of our common stock will be substantially higher than the tangible book value per share of our outstanding common stock. Purchasers of our common stock in this offering will incur dilution of $10.93 per share in the adjusted net tangible book value of their purchased shares. The shares of our common stock owned by existing stockholders will receive a material increase in the net tangible book value per share. You may experience additional dilution if we issue common stock in the future. As a result of this dilution, you may receive significantly less than the full purchase price you paid for the shares in the event of a liquidation.
Because our common stock has never been publicly traded, a trading market may not develop for our common stock and you may not be able to sell your stock
Prior to this offering, there has not been a public market for our common stock. A liquid trading market for our common stock may not develop. The initial public offering price was determined in negotiations between the representative of the underwriters and us and may not be indicative of prices that will prevail in the trading market.
Future sales of our common stock could cause the market price of our common stock to decline
Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that these sales could occur, may depress the market price for our common
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stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future.
We intend to issue additional shares of our common stock in the future and our stockholders may elect to sell large numbers of shares held by them from time to time. Our amended and restated articles of incorporation authorize us to issue 100,000,000 shares of common stock, of which 40,000,000 shares will be outstanding immediately after this offering. Immediately after this offering, assuming that the underwriters do not exercise their over-allotment option, our existing stockholders will own 27,625,000 shares, or approximately 69.1%, of our outstanding common stock. The number of shares of common stock available for sale in the public market will be limited by restrictions applicable under securities laws and agreements that we and our executive officers, directors and existing stockholders have entered into with the underwriters of this offering. Subject to certain exceptions, these agreements generally restrict us and our executive officers, directors and existing stockholders from directly or indirectly offering, selling, pledging, hedging or otherwise disposing of our equity securities or any security that is convertible into or exercisable or exchangeable for our equity securities and from engaging in certain other transactions relating to such securities for a period of 180 days after the date of this prospectus without the prior written consent of Bear, Stearns & Co. Inc. However, Bear, Stearns & Co. Inc. may, in its sole discretion and at any time or from time to time before the expiration of the 180-day lock-up period, without notice, release all or any portion of the securities subject to these agreements.
We intend to enter into a registration rights agreement immediately prior to the closing of this offering with Corozal Compania Naviera S.A., Ironwood Trading Corp. and Zoe S. Company Ltd., our current stockholders of record, pursuant to which we will grant them, their affiliates (including Mr. Simeon Palios, Mr. Anastassis Margaronis and Mr. Ioannis Zafirakis) and certain of their transferees, the right, under certain circumstances and subject to certain restrictions, including restrictions included in the lock-up agreements to which our current stockholders of record are a party, to require us to register under the Securities Act of 1933, as amended, or the Securities Act, shares of our common stock held by them. Under the registration rights agreement, these persons will have the right to request us to register the sale of shares held by them on their behalf and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, these persons will have the ability to exercise certain piggyback registration rights in connection with registered offerings requested by stockholders or initiated by us. Registration of such shares under the Securities Act would, except for shares purchased by affiliates, result in such shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. In addition, shares not registered pursuant to the registration rights agreement may, subject to the lock-up agreements to which our current stockholders of record are a party, be resold pursuant to an exemption from the registration requirements of the Securities Act, including the exemptions provided by Rule 144 and Regulation S under the Securities Act. We refer you to the sections of this prospectus entitled "Related Party TransactionsRegistration Rights Agreement", "Shares Eligible for Future Sale" and "Underwriting" for further information regarding the circumstances under which additional shares of our common stock may be sold.
Anti-takeover provisions in our organizational documents could make it difficult for our stockholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock
Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our stockholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable.
21
These provisions include:
In addition, we have adopted a stockholder rights plan pursuant to which our board of directors may cause the substantial dilution of any person that attempts to acquire us without the approval of our board of directors.
These anti-takeover provisions, including provisions of our stockholder rights plan, could substantially impede the ability of public stockholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.
22
This prospectus includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward-looking statements." All statements in this document that are not statements of historical fact are forward-looking statements. These forward-looking statements may be identified by the use of predictive, future-tense or forward-looking terminology, such as "anticipate," "estimate," "intend," "project," "forecast," "plan," "potential," "will," "may," "should," "expect" or similar terms.
Forward-looking statements include, but are not limited to, such matters as:
Forward-looking statements are based upon assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in the forward-looking statements included herein. The reasons for this include the risks, uncertainties and factors described under the section of this prospectus entitled "Risk Factors."
23
We estimate that we will receive net proceeds of approximately $182.1 million from this offering, after deducting underwriting discounts and commissions and estimated expenses payable by us. We intend to use approximately $15.0 million of the net proceeds to fund the final installment due on the new Panamax dry bulk carrier that we expect to have delivered to us in April 2005, approximately $166.4 million to repay all of our outstanding indebtedness and approximately $0.7 million for general corporate purposes. Our outstanding indebtedness consists of seven credit facilities used to finance all or a portion of the acquisition costs of our dry bulk carriers. The credit facilities have final maturity dates of between June 2013 and November 2015 and bear interest at rates ranging from LIBOR plus 1.125% to LIBOR plus 1.300%. We intend to apply any amounts not used for such purposes for working capital and general corporate purposes.
We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholder if the underwriters' over-allotment option is exercised.
24
Our policy is to declare quarterly distributions to stockholders by each February, May, August and November substantially equal to our available cash from operations during the previous quarter after expenses and reserves for scheduled drydockings, intermediate and special surveys and other purposes as our board of directors may from time to time determine are required, after taking into account contingent liabilities, the terms of our new credit facility, our growth strategy and other cash needs and the requirements of Marshall Islands law. We expect to declare our first quarterly distribution in May 2005.
In times when we have debt outstanding, we intend to limit our dividends per share to the amount that we would have been able to pay if we were financed entirely with equity such that (i) the available cash from operations as determined by our board of directors would be increased by the amount of interest expense incurred on account of such outstanding debt during the current year, and (ii) the number of shares outstanding would be deemed to include an additional number of shares, which, if issued, would have generated net proceeds that would have been sufficient to have allowed us to repay such outstanding debt as of the beginning of the related period (based on the market price of our common stock as of the determination date). Our board of directors may review and amend our dividend policy from time to time in light of our plans for future growth and other factors.
We believe that the addition of the first of our two new Panamax dry bulk carriers and our secondhand Capesize dry bulk carrier to our fleet in February 2005 and the expected addition of our second new Panamax dry bulk carrier in April 2005, combined with this equity offering, will enable us to pay a higher dividend per share than we would have been able to pay without revenues from these additional vessels, this offering and the application of the net proceeds therefrom to repay our outstanding debt and to fund the purchase of our second new Panamax dry bulk carrier. Assuming that we had (i) completed this offering on January 1, 2003 at an assumed initial public offering price of $16.00 per share (representing the midpoint of the price range on the cover of this prospectus) and applied the net proceeds therefrom as described in this prospectus, (ii) employed the nine Panamax dry bulk carriers in our combined fleet at the fleet utilization rates and time charter equivalent rates and with average daily operating expenses that were actually achieved by us during the period and (iii) employed the Capesize dry bulk carrier in our combined fleet at the fleet utilization rates that were actually achieved by us during the period and at time charter equivalent rates that were equal to average time charter equivalent rates for one-year time charters of comparable vessels during the period and with typical daily vessel operating expenses, we estimate that we would have been able to pay an aggregate dividend of approximately $0.76 per share during 2003, approximately $0.48 per share during the first nine months of 2003 and approximately $1.46 per share during the first nine months of 2004. Please see the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of OperationsDividend Payments" for information relating to our historical dividend payments.
We believe that, under current law, our dividend payments from earnings and profits will constitute "qualified dividend income" and as such will generally be subject to a 15% United States federal income tax rate with respect to non-corporate individual stockholders. Distributions in excess of our earnings and profits will be treated first as a non-taxable return of capital to the extent of a United States stockholder's tax basis in its common stock on a dollar-for-dollar basis and thereafter as capital gain. Please see the section of this prospectus entitled "Tax Considerations" for additional information relating to the tax treatment of our dividend payments.
The dry bulk shipping industry is highly volatile, and we cannot accurately predict the amount of cash distributions that we may make in any period. Factors beyond our control may affect the charter market for our vessels and our charterers' ability to satisfy their contractual obligations to us, and we cannot assure you that dividends in amounts similar to those described above will actually be declared.
25
In particular, the dividends described above are based on past charter hire rates that are not necessarily representative of future rates, which are subject to volatile changes due to the cyclical nature of the dry bulk shipping industry. The amounts estimated above are not intended to constitute pro forma financial information within the meaning of regulations promulgated by the Securities and Exchange Commission, but in our view, were determined on a reasonable basis, and reflect our best currently available estimates and judgments. The estimates do not represent actual results and should not be relied upon as being necessarily indicative of future results, and investors are cautioned not to place undue reliance on this information. Neither our independent auditors, nor any other independent accountants, have performed any procedures with respect to, expressed any opinion of, or assumed any responsibility for the estimated amounts.
Marshall Islands law generally prohibits the payment of dividends other than from surplus or when a company is insolvent or if the payment of the dividend would render the company insolvent.
For a description of the restrictions on the payment of dividends contained in our new credit facility, we refer you to the section of this prospectus entitled "New Credit Facility". In addition, we may incur expenses or liabilities, including extraordinary expenses, which could include costs of claims and related litigation expenses, or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends or for which our board of directors may determine we require the establishment of reserves. Our growth strategy contemplates that we will finance the acquisition of additional vessels through a combination of debt and equity financing on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce or even eliminate the amount of cash available for the payment of dividends.
26
The following table sets forth our consolidated capitalization as of November 30, 2004:
There have been no significant adjustments to our capitalization since November 30, 2004, as so adjusted.
|
As of November 30, 2004
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Actual
|
As Adjusted for
Dividends and Changes in Indebtedness |
As Further Adjusted
for this Offering |
|||||||||
|
(in thousands of U.S. dollars)
|
|||||||||||
Debt: | ||||||||||||
Current portion of long-term debt | $ | 7,078 | $ | 63,393 | $ | 0 | ||||||
Long-term debt, net of current portion | 85,639 | 103,006 | 0 | |||||||||
|
|
|
||||||||||
Total debt | $ | 92,717 | $ | 166,399 | $ | 0 | ||||||
|
|
|
||||||||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
||
Common stock, $.01 par value; 100,000,000 shares authorized; 27,625,000 shares issued and outstanding, actual; 40,000,000 shares issued and outstanding, as further adjusted | 276 | 276 | 400 | |||||||||
Additional paid-in capital | 39,362 | 39,362 | 221,378 | |||||||||
Retained earnings (deficit) | 49,010 | (18,490 | ) | (18,490 | ) | |||||||
|
|
|
||||||||||
Total stockholders' equity | 88,648 | 21,148 | 203,288 | |||||||||
|
|
|
||||||||||
Total capitalization | $ | 181,365 | $ | 187,547 | $ | 203,288 | ||||||
|
|
|
27
As of November 30, 2004, on an adjusted basis giving effect to the payment of a $34.0 million cash dividend in December 2004, the declaration of a $14.0 million dividend in February 2005 (payable in April 2005 to stockholders of record in February 2005) and a $19.5 million preferential deemed dividend (representing the portion of the consideration to purchase our fleet manager that exceeds the carrying value of our fleet manager's net assets as of September 30, 2004) that we expect to record in connection with our acquisition of our fleet manager, we had net tangible book value of $20.7 million, or $0.75 per share. After giving effect to the sale of 12,375,000 shares of common stock at an assumed initial public offering price of $16.00 per share (representing the midpoint of the price range shown on the cover of this prospectus), our pro forma adjusted net tangible book value as of November 30, 2004, would have been $202.8 million, or $5.07 per share. This represents an immediate appreciation in adjusted net tangible book value of $4.32 per share to existing stockholders and an immediate dilution in adjusted net tangible book value of $10.93 per share to new investors. The following table illustrates the pro forma per share dilution as of November 30, 2004.
Initial public offering price per share | $ | 16.00 | |
|
|||
Adjusted net tangible book value per share as of November 30, 2004 | $ | 0.75 | |
|
|||
Increase in adjusted net tangible book value attributable to new investors in this offering | $ | 4.32 | |
|
|||
Pro forma adjusted net tangible book value per share after giving effect to this offering | $ | 5.07 | |
|
|||
Dilution per share to new investors | $ | 10.93 | |
|
Adjusted net tangible book value per share of our common stock is determined by dividing our tangible net worth, which consists of tangible assets less liabilities and is adjusted to give effect to the dividend payments described above, by the number of shares of our common stock outstanding. Dilution is determined by subtracting the adjusted net tangible book value per share of common stock after this offering from the public offering price per share.
The following table summarizes, on a pro forma basis as of November 30, 2004, the differences between the number of shares of common stock acquired from us, the total amount paid and the average price per share paid by the existing holders of shares of common stock and by you in this offering, based upon an assumed initial public offering price of $16.00 per share, which represents the midpoint of the price range shown on the cover of this prospectus.
28
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth our selected consolidated financial data and other operating data. The selected consolidated financial data in the table as of and for the three years ended December 31, 2003 are derived from our audited consolidated financial statements. The selected consolidated financial data as of and for the nine months ended September 30, 2003 and 2004 are derived from our unaudited interim consolidated financial statements. We refer you to the footnotes to our consolidated financial statements for a discussion of the basis on which our consolidated financial statements are presented. We have not included financial information as of and for the years ended December 31, 1999 and 2000 due to the unreasonable effort or expense of preparing such information. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the entire year ended December 31, 2004. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included herein.
|
As of and for the
Year Ended December 31, |
As of and for the
Nine Months Ended September 30, (unaudited) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
||||||
|
(in thousands of U.S. dollars, except for
share and per share data) |
||||||||||
Income Statement Data: | |||||||||||
Voyage and time charter revenues | 11,359 | 11,942 | 25,277 | 16,528 | 45,387 | ||||||
Voyage expenses | 1,494 | 946 | 1,549 | 954 | 3,087 | ||||||
Vessel operating expenses | 3,432 | 3,811 | 6,267 | 4,036 | 6,767 | ||||||
Depreciation | 2,347 | 3,004 | 3,978 | 2,777 | 3,666 | ||||||
Management fees | 456 | 576 | 728 | 512 | 660 | ||||||
Executive management services and rent | 1,363 | 1,404 | 1,470 | 1,103 | 1,146 | ||||||
General and administrative expenses | 70 | 140 | 123 | 60 | 211 | ||||||
|
|
|
|
|
|||||||
Operating income |
|
2,197 |
|
2,061 |
|
11,162 |
|
7,086 |
|
29,850 |
|
|
|
|
|
|
|||||||
Interest and finance cost |
|
(2,690 |
) |
(2,001 |
) |
(1,680 |
) |
(1,006 |
) |
(1,408 |
) |
Foreign currency gains (losses) | 17 | (5 | ) | (20 | ) | (10 | ) | (2 | ) | ||
Interest income | 84 | 21 | 27 | 20 | 73 | ||||||
|
|
|
|
|
|||||||
Net income (loss) | (392 | ) | 76 | 9,489 | 6,090 | 28,513 | |||||
|
|
|
|
|
|||||||
Basic earnings (loss) per share |
|
(0.11 |
) |
0.02 |
|
0.37 |
|
0.25 |
|
1.03 |
|
|
|
|
|
|
|||||||
Weighted average basic shares outstanding | 3,683,333 | 4,297,161 | 25,340,596 | 24,579,068 | 27,625,000 | ||||||
|
|
|
|
|
|||||||
Diluted earnings (loss) per share | (0.11 | ) | 0.00 | 0.37 | 0.25 | 1.03 | |||||
|
|
|
|
|
|||||||
Weighted average diluted shares outstanding | 3,683,333 | 18,416,667 | 25,340,596 | 24,579,068 | 27,625,000 | ||||||
|
|
|
|
|
|||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | 1,310 | 1,867 | 7,441 | | 8,661 | ||||||
Total current assets | 3,229 | 3,347 | 9,072 | | 10,096 | ||||||
Total assets | 83,903 | 80,291 | 135,122 | | 158,160 | ||||||
Total current liabilities | 5,536 | 5,863 | 9,107 | | 10,584 | ||||||
Long-term debt (including current portion) | 58,051 | 54,154 | 83,256 | | 93,469 | ||||||
Total stockholders' equity | 23,118 | 23,482 | 48,441 | | 61,100 | ||||||
29
Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by operating activities | 5,131 | 5,451 | 15,218 | 8,864 | 33,060 | ||||||
Net cash flow (used) in investing activities | (53,011 | ) | | (52,723 | ) | (49,470 | ) | (25,739 | ) | ||
Net cash flow provided by (used in) financing activities | 47,993 | (4,894 | ) | 43,079 | 44,469 | (6,101 | ) | ||||
Pro Forma Data: (1) |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities | | | | | 78,084 | ||||||
Total stockholders' equity (deficit) | | | | | (6,400 | ) | |||||
Pro forma earnings (losses) per share, basic and diluted | | | (0.38 | ) | | 0.32 | |||||
Pro forma weighted average number of shares, basic and diluted | | | 26,355,096 | | 28,630,000 | ||||||
Fleet Data: (2) |
|
|
|
|
|
|
|
|
|
|
|
Average number of vessels (3) | 3.2 | 4.0 | 5.1 | 4.8 | 6.1 | ||||||
Number of vessels at end of period | 4.0 | 4.0 | 6.0 | 6.0 | 7.0 | ||||||
Weighted average age of fleet (in years) | 0.8 | 1.8 | 2.9 | 2.3 | 3.3 | ||||||
Ownership days (4) | 1,155 | 1,460 | 1,852 | 1,300 | 1,674 | ||||||
Available days (5) | 1,139 | 1,460 | 1,852 | 1,300 | 1,674 | ||||||
Operating days (6) | 1,126 | 1,459 | 1,845 | 1,294 | 1,670 | ||||||
Fleet utilization (7) | 98.9 | % | 99.9 | % | 99.6 | % | 99.5 | % | 99.8 | % | |
Average Daily Results: (2) |
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent (TCE) rate (8) | 8,661 | 7,532 | 12,812 | 11,980 | 25,269 | ||||||
Daily vessel operating expenses (9) | 2,971 | 2,610 | 3,384 | 3,105 | 4,042 |
30
31
for vessels on time charters are generally expressed in such amounts. The following table reflects the calculation of our TCE rates for the periods presented.
|
Year Ended
December 31, |
Nine Months Ended
September 30, (unaudited) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
||||||
|
(in thousands of U.S. dollars,
except for TCE rates, which are expressed in U.S. dollars, and available days) |
||||||||||
Voyage and time charter revenues | 11,359 | 11,942 | 25,277 | 16,528 | 45,387 | ||||||
Less: voyage expenses | (1,494 | ) | (946 | ) | (1,549 | ) | (954 | ) | (3,087 | ) | |
|
|
|
|
|
|||||||
Time charter equivalent revenues | 9,865 | 10,996 | 23,728 | 15,574 | 42,300 | ||||||
|
|
|
|
|
|||||||
Available days | 1,139 | 1,460 | 1,852 | 1,300 | 1,674 | ||||||
Time charter equivalent (TCE) rate | 8,661 | 7,532 | 12,812 | 11,980 | 25,269 |
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in conjunction with our historical consolidated financial statements and their notes included elsewhere in this prospectus. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section entitled "Risk Factors" and elsewhere in this prospectus.
General
We are Diana Shipping Inc., a Marshall Islands company that owns and operates dry bulk carriers that transport iron ore, coal, grain and other dry cargoes along worldwide shipping routes. Our operating fleet consists of seven modern Panamax dry bulk carriers that, as of September 30, 2004, had a combined carrying capacity of more than 525,000 dwt, and a weighted average age of 3.1 years. During 2003 and the nine month period ended September 30, 2004, we had a fleet utilization of 99.6% and 99.8%, respectively, our vessels achieved time charter equivalent, or TCE, rates of $12,812 and $25,269, respectively, and we generated revenues of $25.3 million and $45.4 million, respectively.
We intend to expand our presence in the dry bulk shipping industry. In furtherance of this objective, we entered into newbuilding contracts with a Chinese shipyard for the construction of two additional Panamax dry bulk carriers that have a carrying capacity of 73,691 dwt and 73,700 dwt, respectively, and a purchase agreement with an unrelated third party to purchase a secondhand Capesize dry bulk carrier with a carrying capacity of 169,883 dwt. The first new Panamax dry bulk carrier and our secondhand Capesize dry bulk carrier were delivered to us in February 2005. We expect that the second Panamax dry bulk carrier will be delivered to us in April 2005. Upon the delivery of these carriers, as of April 15, 2005, our combined fleet will consist of nine operating Panamax dry bulk carriers and one operating Capesize dry bulk carrier that will have a combined carrying capacity of 842,287 dwt and a weighted average age of 3.5 years. We believe that the addition of these vessels to our fleet will be accretive to our earnings and dividends per share.
We charter our dry bulk carriers to customers primarily pursuant to short-term time charters, although we recently entered into time charters in excess of two and one-half years for two of the vessels in our combined fleet. Under our time charters, the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses, and we also pay commissions to one or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter. Although the vessels in our fleet are primarily employed on short-term time charters ranging from three to twelve months, we may employ additional vessels on longer-term time charters in the future.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in our results of operations consist of the following:
33
The following table reflects our ownership days, available days, operating days, fleet utilization and TCE rates for the periods indicated.
|
Year Ended
December 31, |
Nine Months Ended
September 30, (unaudited) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
|||||
|
(TCE rate amounts are expressed in U.S. dollars)
|
|||||||||
Ownership days | 1,155 | 1,460 | 1,852 | 1,300 | 1,674 | |||||
Available days | 1,139 | 1,460 | 1,852 | 1,300 | 1,674 | |||||
Operating days | 1,126 | 1,459 | 1,845 | 1,294 | 1,670 | |||||
Fleet utilization | 98.9% | 99.9% | 99.6% | 99.5% | 99.8% | |||||
Time charter equivalent (TCE) rate | 8,661 | 7,532 | 12,812 | 11,980 | 25,269 |
Voyage and Time Charter Revenue
Our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels operate and the amount of daily charter hire rates that our vessels earn under charters, which, in turn, are affected by a number of factors, including:
34
Our revenues have grown significantly in recent periods as a result of the enlargement of our fleet, which has increased our ownership, available and operating days, and increases in spot market charter hire rates, which, due to the close relationship between spot market charter rates and short-term time charter rates, have resulted in an increase of our daily charter hire rates. At the same time, we believe that the relatively young age of the vessels in our fleet, combined with the effectiveness of the measures that we have undertaken to minimize periods during which our vessels are off-hire, including effective maintenance programs and experienced crew selection, have enabled us to maintain relatively high vessel utilization rates. We also believe that the addition of two new Panamax dry bulk carriers and one secondhand Capesize dry bulk carrier to our fleet during the first four months of 2005 will allow us to further grow our revenues.
Voyage Expenses
We incur voyage expenses that include port and canal charges, bunker (fuel oil) expenses and commissions. Port and canal charges and bunker expenses primarily increase in periods during which vessels are employed on voyage charters because these expenses are for the account of the vessels. Port and canal charges and bunker expenses currently represent a relatively small portion of our vessels' overall expenses because all of our vessels are employed under time charters that require the charterer to bear all of those expenses.
As is common in the shipping industry, we pay (through our fleet manager) commissions ranging from 1.25% to 6.25% of the total daily charter hire rate of each charter to unaffiliated ship brokers and in-house brokers associated with the charters, depending on the number of brokers involved with arranging the charter. In addition to commissions paid to third parties, we have historically paid our fleet manager a commission that is equal to 2% of our revenues in exchange for providing us with strategic, technical and commercial management services in connection with the employment of our fleet. This commission is in addition to the fixed management fees we pay to our fleet manager for the same services, as described below. Please see the section of this prospectus entitled "Acquisition of Our Fleet Manager" below.
The following table presents a breakdown of the commissions paid during the periods indicated.
|
Year Ended December 31,
|
Nine Months Ended
September 30, (unaudited) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
|||||
|
(in thousands of U.S. dollars)
|
|||||||||
Commissions paid to unaffiliated and in-house ship brokers | 631 | 599 | 1,172 | 763 | 2,089 | |||||
Commissions paid to fleet manager | 219 | 239 | 506 | 331 | 908 | |||||
|
|
|
|
|
||||||
Total | 850 | 838 | 1,678 | 1,094 | 2,997 | |||||
|
|
|
|
|
We believe that the amounts and the structures of our commissions are consistent with industry practices.
We expect that the amount of our total commissions will continue to grow as a result of our acquisition of two new Panamax dry bulk carriers and one secondhand Capesize dry bulk carrier during the first four months of 2005. However, the 2% commissions that we pay our fleet manager are expected to be eliminated from our consolidated financial statements as intercompany transactions on our acquisition of our fleet manager.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other
35
miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically increased as a result of the enlargement of our fleet. We expect these expenses to increase further during 2005 as a result of our acquisitions of two new Panamax dry bulk carriers and one secondhand Capesize dry bulk carrier. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance, may also cause these expenses to increase.
Depreciation
The cost of our vessels is depreciated on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 25 years, which we believe is common in the dry bulk shipping industry. Furthermore, we estimate the residual values of our vessels to be $150 per light-weight ton which we also believe is common in the dry bulk shipping industry. Our depreciation charges have increased in recent periods due to the enlargement of our fleet which has also led to an increase of ownership days. We expect that these charges will continue to grow as a result of our acquisition of two new Panamax dry bulk carriers and one secondhand Capesize dry bulk carrier during the first four months of 2005.
Management Fees
We have historically paid our fleet manager a fixed management fee of $12,000 per month for each vessel in our operating fleet in exchange for providing us with strategic, technical and commercial management services in connection with the employment of our fleet. This fee is in addition to the 2% commission on revenues we pay to our fleet manager for the same services, as described above. We have agreed with DSS, our current fleet manager, to increase the amount of the fixed management fee to $15,000 per month for each vessel in our fleet with effect from November 12, 2004 in order to compensate DSS for increased management expenses that have resulted from the strengthening of the Euro relative to the U.S. dollar. The increase in management fees of $3,000 per vessel per month will result in a $252,000 annual increase of the management fees we pay for the vessels in our fleet as of November 12, 2004. Our management fees will increase further as a result of our acquisition of two new Panamax dry bulk carriers and one secondhand Capesize dry bulk carrier during the first four months of 2005 which will increase the number of vessels under management. However, these management fees are expected to be eliminated from our consolidated financial statements as intercompany transactions on our acquisition of DSS.
Executive Management Services and Rent
We recognize expenses relating to executive management services, as well as the value of the lease expense for the office space and the secretarial services that are provided to us at no additional charge by Diana Shipping Services S.A. The recognition of these expenses, for historical purposes, is based on our estimates of the value of the amounts that we would have incurred had our fleet manager not provided the related services and office space to us. The value of the services and rent was determined by reference to the amounts that we intend to compensate our executive officers and to the lease agreement between DSS and the future owner of the office space that is presently occupied by DSS.
General and Administrative Expenses
We incur general and administrative expenses which include our onshore vessel related expenses such as legal and professional expenses and other general vessel expenses. Our general and administrative expenses also include our payroll expenses, including those relating to our executive officers, and rent, which, for historical purposes, is based on our estimates of the fair market value of the amounts that we would have incurred had our fleet manager not provided the related services and office space to us. We expect general and administrative expenses to increase as a result of our initial
36
public offering, the costs associated with running a public company and the enlargement of our fleet. Furthermore, we expect general and administrative expenses to increase in connection with our expected acquisition of our fleet manager, which will result in the recognition of additional expenses, including payroll expenses, relating to our fleet manager's operations.
Interest and Finance Costs
While we expect to use the proceeds of this offering to repay all of our outstanding debt, we have historically incurred interest expense and financing costs in connection with vessel specific debt of our subsidiaries. We expect to incur interest expense and financing costs under our new credit facility in connection with debt incurred to finance future acquisitions. However, we intend to limit the amount of these expenses and costs by repaying our outstanding indebtedness from time to time with the net proceeds of future equity issuances.
Acquisition of Our Fleet Manager
We have entered into an agreement with the stockholders of DSS pursuant to which the DSS stockholders may sell all, but not less than all, of their outstanding shares of DSS to us during the 12 month period following the consummation of this offering for $20.0 million in cash. Under the terms of the agreement, if the DSS stockholders do not sell their outstanding shares to us prior to the one year anniversary of this offering, we may exercise an option to purchase the shares from them for the same consideration at any time prior to the second anniversary of this offering. We expect the DSS stockholders to sell their outstanding shares of DSS to us during the 12 months following this offering and intend to exercise our option if they do not do so.
If we acquire DSS, DSS will become our wholly-owned subsidiary and the 2% commission and management fees that we pay for its management services will be eliminated from our consolidated financial statements as intercompany transactions. A historical breakdown of the amounts that we have paid to DSA is presented in the following table.
|
Year Ended December 31,
|
Nine Months Ended
September 30, (unaudited) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
|||||
|
(in thousands of U.S. dollars)
|
|||||||||
Commissions | 219 | 239 | 506 | 331 | 908 | |||||
Management fees | 456 | 576 | 728 | 512 | 660 | |||||
|
|
|
|
|
||||||
Total | 675 | 815 | 1,234 | 843 | 1,568 | |||||
|
|
|
|
|
If we acquire DSS, we will also be required to pay its operating and other expenses. We expect that the incurrence of these additional expenses, together with the expenses relating to our initial public offering, running a public company and the enlargement of our fleet, will increase the amount of general and administrative expenses that we report during future periods and that such amounts will likely offset the effect of the elimination of the 2% commissions and management fees from our reported results.
Sale of the Amfitrite
In 2002, we entered into a newbuilding contract with the Jiangnan shipyard providing for the construction of the Amfitrite , a Panamax dry bulk carrier with a carrying capacity of 74,000 dwt, for a total price of $20.2 million. In October 2004, prior to the completion of the vessel's construction, we entered into a memorandum of agreement to sell the Amfitrite to an unaffiliated third party on the vessel's delivery to us for cash consideration of $42.0 million. We elected to dispose of the vessel rather
37
than include it in our operating fleet in order to take advantage of the opportunity to sell the newbuilding at a favorable price. In November 2004, we took delivery of the Amfitrite from the shipyard and thereupon delivered the vessel to the buyer. Because we did not operate the Amfitrite prior to the sale, and because we took possession of the vessel only for the purposes of redelivering it to the buyer, we do not consider the vessel to have been part of our fleet and have not presented the vessel in this prospectus as constituting part of our business. We distributed a portion of the cash received from the sale as part of a $34.0 million cash dividend distributed to our current stockholders in December 2004.
Results of Operations
Nine months ended September 30, 2004 compared to the nine months ended September 30, 2003
Voyage and Time Charter Revenues. Voyage and time charter revenues increased by $28.9 million, or 175%, to $45.4 million for the nine months ended September 30, 2004, compared to $16.5 million for the same period in 2003. This increase was primarily attributable to an increase in the daily charter hire rates payable under our time charters and an increase in the number of operating days that we achieved. The increase in charter hire rates was due to an increase in spot market charter and short-term time charter rates that began in September 2003. The increase in operating days during the nine months ended September 30, 2004 resulted primarily from the enlargement of our fleet following our acquisitions of the Dione on May 8, 2003, the Danae on July 30, 2003 and the Protefs on August 31, 2003 and the success of measures that we have undertaken to maintain a relatively high fleet utilization rate. For the nine months ended September 30, 2004, we had total operating days of 1,670 and a fleet utilization of 99.8%, compared to 1,294 total operating days and a fleet utilization of 99.5% for the same period in 2003.
Voyage Expenses. Voyage expenses increased by $2.1 million, or 210.0%, to $3.1 million for the nine months ended September 30, 2004, compared to $1.0 million for the same period in 2003. This increase was attributable to increased commissions. Commissions paid during the nine month periods ended September 30, 2003 and 2004 to our fleet manager amounted to $0.3 million and $0.9 million, respectively, and commission paid to unaffiliated ship brokers and in-house brokers associated with charterers amounted to $0.8 million and $2.1 million, respectively. The increase in commissions resulted primarily from improved trading conditions and charter hire rates and an increase in operating days during the nine months ended September 30, 2004, which increased the amount of revenues that we reported.
Vessel Operating Expenses. Vessel operating expenses increased by $2.8 million, or 70.0%, to $6.8 million for the nine months ended September 30, 2004, compared to $4.0 million for the same period in 2003. This increase in vessel operating expenses was primarily the result of the increased number of ownership days resulting from our acquisition of the Dione , the Danae and the Protefs , which led to an increase in our crew and related costs, as well as higher expenses associated with repairs, maintenance, spares and consumable stores. Daily vessel operating expenses per vessel increased by $937, or 30.2%, to $4,042 for the nine month period ended September 30, 2004, compared to $3,105 for the same period in 2003. This increase was primarily attributable to our acquisitions of the Dione and the Danae , which, due to their flying the Greek flag, are required to employ a comparatively greater number of Greek officers and crew members who are paid relatively higher wages (denominated in Euro) than our non-Greek officers and crew members as well as increased expenses relating to lubricants for the period in 2004.
Depreciation. Depreciation charges increased by $0.9 million, or 32.1%, to $3.7 million for the nine months ended September 30, 2004, compared to $2.8 million for the same period in 2003. This increase was primarily the result of an increase in the number of our vessels and ownership days during the nine months ended September 30, 2004, following our acquisition of the Dione, the Danae and the Protefs in May 2003, July 2003 and August 2004, respectively.
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Management Fees. Management fees increased by $0.2 million, or 40.0%, to $0.7 million for the nine months ended September 30, 2004, compared to $0.5 million for the same period in 2003. This increase was attributable to the increased number of vessels under management following our acquisition of the Dione , the Danae and the Protefs in May 2003, July 2003 and August 2004, respectively.
Interest and Finance Cost. Interest and finance cost increased by $0.4 million, or 40.0%, to $1.4 million for the nine month period ended September 30, 2004, compared to $1.0 million for the same period in 2003. The net increase in interest and finance cost primarily resulted from additional debt raised to finance the acquisition of Protefs during August 2004. Interest expense increased by $0.4 million, or 44.4%, to $1.3 million for the nine month period ended September 30, 2004, compared to $0.9 million in the nine month ended September 30, 2003. This increase was mainly attributable to debt that we incurred to finance our acquisition of the Protefs during August 2004.
Six months ended June 30, 2004 compared to the six months ended June 30, 2003
Voyage and Time Charter Revenues. Voyage and time charter revenues increased by $21.0 million, or 228.3%, to $30.2 million for the six months ended June 30, 2004, compared to $9.2 million for the same period in 2003. This increase was primarily attributable to an increase in the daily charter hire rates payable under our time charters and an increase in the number of operating days that we achieved. The increase in charter hire rates was due to an increase in spot market and short-term time charter rates that began in September 2003. The increase in operating days during the six months ended June 30, 2004 resulted primarily from the enlargement of our fleet following our acquisitions of the Dione on May 8, 2003 and the Danae on July 30, 2003, and the success of measures that we have undertaken to maintain a relatively high fleet utilization rate. For the six months ended June 30, 2004, we had total operating days of 1,090 and a fleet utilization of 99.8%, compared to 776 total operating days and a fleet utilization of 99.7% for the same period in 2003.
Voyage Expenses. Voyage expenses increased by $1.5 million, or 300.0%, to $2.0 million for the six months ended June 30, 2004, compared to $0.5 million for the same period in 2003. This increase was attributable to increased commissions. Commissions paid during the six month periods ended June 30, 2003 and 2004 to our fleet manager amounted to $0.2 million and $0.6 million, respectively, and commission paid to unaffiliated ship brokers and in-house brokers associated with charterers amounted to $0.4 million and $1.4 million, respectively. The increase in commissions resulted primarily from improved trading conditions and charter hire rates and an increase in operating days during the six months ended June 30, 2004, which increased the amount of revenues that we reported.
Vessel Operating Expenses. Vessel operating expenses increased by $1.9 million, or 86.4%, to $4.1 million for the six months ended June 30, 2004, compared to $2.2 million for the same period in 2003. This increase in vessel operating expenses was primarily the result of the increased number of ownership days resulting from our acquisition of the Dione and the Danae , which led to an increase in our crew and related costs, as well as higher expenses associated with repairs, maintenance, spares and consumable stores. Daily vessel operating expenses per vessel increased by $847, or 29.6%, to $3,709 for the period ended June 30, 2004, compared to $2,862 for the same period in 2003. This increase was primarily attributable to our acquisitions of the Dione and the Danae , which, due to their flying the Greek flag, are required to employ a comparatively greater number of Greek officers and crew members who are paid relatively higher wages (denominated in Euro) than our non-Greek officers and crew.
Depreciation. Depreciation charges increased by $0.8 million, or 50.0%, to $2.4 million for the six months ended June 30, 2004, compared to $1.6 million for the same period in 2003. This increase was primarily the result of an increase in the number of our vessels and ownership days during the six
39
months ended June 30, 2004, following our acquisition of the Dione and the Danae in May and July 2003, respectively.
Management Fees. Management fees increased by $0.1 million, or 33.3%, to $0.4 million for the six months ended June 30, 2004, compared to $0.3 million for the same period in 2003. This increase was attributable to the increased number of vessels under management following our acquisition of the Dione and the Danae in May and July 2003, respectively.
Interest and Finance Cost. Interest and finance cost decreased by $0.1 million, or 12.5%, to $0.7 million for the six month period ended June 30, 2004, compared to $0.8 million for the same period in 2003. The net decrease in interest and finance cost primarily resulted from the unrealized gain on the fair value of the two option agreements that were signed in July 2003, which more then offset an increase in our interest expense. Interest expense increased by $0.1 million, or 14.3%, to $0.8 million in the six months ended June 30, 2004, compared to $0.7 million in the six months ended June 30, 2003. This increase resulted primarily from an increase in our total debt that was attributable to our acquisitions of the Dione during the second quarter of 2003 and the Danae during the third quarter of 2003.
Year ended December 31, 2003 compared to the year ended December 31, 2002
Voyage and Time Charter Revenues. Voyage and time charter revenues increased by $13.4 million, or 112.6%, to $25.3 million for the year ended December 31, 2003, compared to $11.9 million for the same period in 2002. This increase was primarily attributable to an increase in the daily charter hire rates payable under our time charters and an increase in the number of operating days that we achieved. The increase in charter hire rates was due to an increase in spot market and short-term time charter rates that began in September 2003. The increase in operating days during 2003 resulted primarily from the enlargement of our fleet following our acquisitions of the Dione on May 8, 2003 and the Danae on July 30, 2003 and the success of measures that we have undertaken to maintain a relatively high fleet utilization rate. In 2003, we had total operating days of 1,845 and fleet utilization of 99.6%, compared to 1,459 total operating days and a fleet utilization of 99.9% in 2002.
Voyage Expenses. Voyage expenses increased by $0.6 million, or 60.0%, to $1.5 million for the year ended December 31, 2003, compared to $0.9 million for the same period in 2002. This increase was attributable to increased commissions. Commissions paid during 2002 and 2003 to our fleet manager amounted to $0.2 million and $0.5 million, respectively, and commissions paid to the unaffiliated ship brokers and in-house ship brokers associated with charterers amounted to $0.5 million and $1.2 million, respectively. The increase in commissions was primarily the result of improved trading conditions and charter hire rates and the increase in operating days in 2003, which increased the amount of revenue we reported. In addition, in 2003, we reported fuel savings of $0.2 million due to the variation in the prices of fuel at the time our vessels were delivered or re-delivered to charterers, compared to fuel expenses of $0.1 million in 2002.
Vessel Operating Expenses. Vessel operating expenses increased by $2.5 million, or 65.8%, to $6.3 million for the year ended December 31, 2003 compared to $3.8 million for the same period in 2002. This increase was primarily the result of the increased number of ownership days during 2003. To a lesser extent, the increase was due to our recognition of costs associated with the initial stocking of newly acquired vessels with spares and other consumable stores upon their delivery to us during the period. Daily vessel operating expenses per vessel increased by $774, or 29.7%, to $3,384 for 2003, compared to $2,610 for 2002. This increase was mainly attributable to increased Euro based expenses, including Greek officer and crew wages and other general rises in miscellaneous operating expenses. The increase in Greek officer and crew wages resulted from our acquisition of the Dione and the Danae , which, due to their flying the Greek flag, are required to employ a comparatively greater
40
number of Greek officers and crew members, who are paid relatively higher wages (denominated in Euro) than our non-Greek officers and crew members.
Depreciation. Depreciation charges increased by $1.0 million, or 33.3%, to $4.0 million for the year ended December 31, 2003, compared to $3.0 million for the same period in 2002. This increase was primarily the result of increased number of vessels and ownership days during the period following our acquisition of the Dione and the Danae in May and July 2003, respectively.
Management Fees. Management fees increased by $0.1 million, or 16.7%, to $0.7 million for the year ended December 31, 2003, compared to $0.6 million for the same period in 2002. This increase was attributable to the increased number of vessels under management following our acquisitions of the Dione and the Danae in May and July 2003.
Interest and Finance Cost. Interest and finance cost decreased by $0.3 million, or 16.0%, to $1.7 million for the year ended December 31, 2003, compared to $2.0 million for the same period in 2002. The decrease in interest and finance cost was mainly attributable to a reduction in our interest expense, which decreased by $0.2 million, or 10.5%, to $1.7 million in 2003, compared to $1.9 million in 2002. The decrease in interest expense resulted from a reduction in the interest rates payable on our outstanding debt during 2003, which more than offset the effects of a $29.1 million increase in our total debt during the period. During 2003, total long-term debt increased to $83.3 million compared with $54.2 million in 2002 due to our incurrence of additional debt under loan agreements entered into in March and July 2003 to partially finance the acquisition cost of the Dione and the Danae .
Year ended December 31, 2002 compared to the year ended December 31, 2001
Voyage and Time Charter Revenues. Voyage and time charter revenues increased by $0.5 million, or 4.4%, to $11.9 million for the year ended December 31, 2002, compared to $11.4 million for the same period in 2001. The increase was primarily attributable to an increase in the number of operating days that we achieved during the period, which resulted from our having owned the Nirefs , the Alcyon , the Triton and the Oceanis for the full year in 2002, compared to only a portion of the year during 2001, and the relatively high fleet utilization that we achieved. In 2002, we achieved 1,459 operating days and a fleet utilization of 99.9%, compared to 1,126 operating days and a fleet utilization of 98.9% in 2001. The effects of the increase in our operating days on our voyage and time charter revenues, however, was substantially offset by a decrease in the average charter hire rates that we were paid during 2002, which resulted from an overall weakening of the spot market.
Voyage Expenses. Voyage expenses decreased by $0.6 million, or 33.3%, to $0.9 million for the year ended December 31, 2002, compared to $1.5 million for the same period in 2001. This decrease was mainly attributable to our performance of one voyage charter in 2001 which contributed $0.5 million of port and bunker charges that were not repeated in 2002.
Vessel Operating Expenses. Vessel operating expenses increased by $0.4 million, or 11.8%, to $3.8 million for the year ended December 31, 2002 compared to $3.4 million for the same period in 2001. This increase was primarily the result of the increased number of ownership days during 2002. Daily vessel operating expenses per vessel decreased by $361, or 12.2%, to $2,610 for 2002, compared to $2,971 for 2001. Daily vessel operating expenses were higher in 2001 due to costs that we incurred during the period in connection with our initial stocking of the Nirefs , the Alcyon , the Triton and the Oceanis with spares and consumable stores upon the delivery of the vessels to us.
Depreciation. Depreciation charges increased by $0.7 million, or 30.4%, to $3.0 million for the year ended 2002, compared to $2.3 million for the same period in 2001. This increase was primarily the result of the increased number of our ownership days during 2002, which resulted from our having
41
owned the Nirefs , the Alcyon , the Triton and the Oceanis for the full year in 2002, compared to only a portion of the year during 2001.
Management Fees. Management fees increased by $0.1 million, or 20.0%, to $0.6 million for the year ended 2002, compared to $0.5 million for the same period in 2001. This increase was attributable to the fact that the Nirefs , the Alcyon , the Triton and the Oceanis were under management during the full year in 2002, compared to only a portion of the year during 2001.
Interest and Finance Cost. Interest and finance cost decreased by $0.7 million, or 26.0%, to $2.0 million for the year ended December 31, 2002, compared to $2.7 million for the same period in 2001. The decrease in interest and finance cost was mainly attributable to a decrease in interest expense. Interest expense decreased by $0.5 million, or 20.8%, to $1.9 million for 2002, compared to $2.4 million for 2001. This decrease was due to a decrease in our total long-term debt and a decrease in prevailing interest rates during 2002.
Liquidity and Capital Resources
We have historically financed our capital requirements with cash flow from operations, equity contributions from stockholders and long-term bank debt. Our main uses of funds have been capital expenditures for the acquisition of new vessels, expenditures incurred in connection with ensuring that our vessels comply with international and regulatory standards, repayments of bank loans and payments of dividends. We will require capital to fund ongoing operations, the construction of new vessels, acquisitions and debt service. We anticipate that following the completion of this offering and taking into account generally expected market conditions, internally generated cash flow and borrowings under our new credit facility will be sufficient to fund the operations of our fleet, including our working capital requirements.
It is our intention to fund our future acquisition related capital requirements initially through borrowings under our new credit facility and to repay those borrowings from time to time with the net proceeds of equity issuances. We believe that excess funds will be available to support our growth strategy, which involves the acquisition of additional vessels, and will allow us to distribute substantially all of our available cash as dividends to our stockholders as contemplated by our dividend policy. Depending on market conditions in the dry bulk shipping industry and acquisition opportunities that may arise, we may be required to obtain additional debt or equity financing which could affect our dividend policy.
Cash Flow
Net Cash Provided By Operating Activities
Net cash provided by operating activities increased by $0.4 million, or 7.8%, to $5.5 million for the year ended December 31, 2002 compared to $5.1 million for the same period in 2001. This increase was primarily attributable to the increase in the number of operating days that we achieved during the period which more than offset the effects of an overall weakening in the spot market and resulted in an increase in our revenues. Net cash provided by operating activities increased by $9.7 million, or 176.4%, to $15.2 million for year ended December 31, 2003, compared to $5.5 million for the same period in 2002. This increase was primarily due to improved trading conditions and an increase in the number of operating days that we achieved during the period, which had a similar effect on our revenues. Net cash provided by operating activities increased by $24.2 million, or 271.9%, to $33.1 million for the nine months ended September 30, 2004, compared to $8.9 million for the same period in 2003, as a result of further improved trading conditions and a further increase in our operating days, which led to an increase in revenues.
42
The value of executive management services and rents in the historical financial statements as of December 31, 2001, 2002 and 2003 and as of September 30, 2003 and 2004 did not affect the net cash provided by operating activities. However, the value of such services is expected to affect future cash flows from operations.
Net Cash Used In Investing Activities
Net cash used in investing activities was $53.0 million for 2001, consisting of the final installments that we paid in connection with our acquisitions of the Nirefs , the Alcyon , the Triton and the Oceanis . No cash was used for investing activities in 2002. Net cash used in investing activities was $52.7 million for 2003, consisting of advances that we paid for the construction of our two new Panamax dry bulk carriers and the final installments that we paid in connection with our acquisitions of the Dione and the Danae . Net cash used in investing activities was $25.7 million for the nine month period ended September 30, 2004, compared to $49.5 million for the same period in 2003. During the nine month period ended September 30, 2003, we expended $44.0 million in connection with our acquisition of the Dione and the Danae . During the nine month period ended September 30, 2004, we paid $11.4 million of advances for the construction of two new Panamax dry bulk carriers and expended $14.3 million in connection with the acquisition of the Protefs .
Net Cash Provided By (Used In) Financing Activities
Net cash provided by financing activities was $48.0 million in 2001. In 2001, we borrowed $64.0 million of long-term debt, which we used to partially finance our acquisitions of the Nirefs , the Alcyon , the Triton and the Oceanis , to repay $14.0 million of outstanding long-term debt and to pay $0.7 million of related financing costs. Net cash used in financing activities was $4.9 million for 2002. In 2002, we repaid $3.9 million of outstanding long-term debt and paid our stockholders a $1.1 million cash dividend. Net cash provided by financing activities was $43.1 million for 2003, consisting of $14.0 million in cash from the issuance of common stock, $33.5 million from borrowings of long-term debt to partially finance the acquisition of vessels, which were offset by $4.4 million used to repay outstanding long-term debt and $0.4 million used to pay related financing costs. For the period ended September 30, 2004, net cash used in financing activities was $6.1 million, consisting primarily of a $17.0 million cash dividend, $5.5 million of cash that was used to repay long-term debt and $15.7 million from borrowings of long-term debt to partially finance the acquisition of the Protefs . For the period ended September 30, 2003, cash from financing activities was $44.5 million consisting primarily of $14.0 million in cash from the issuance of common stock and $33.5 million from borrowings of long-term debt to partially finance the acquisition of vessels, which were offset by $3.9 million used to repay outstanding long-term debt.
New Credit Facility
We have entered into a new $230.0 million secured revolving credit facility with The Royal Bank of Scotland Plc, which we believe will provide us with the necessary liquidity in order to proceed with acquisitions of new vessels and companies with shipping interests. Our new credit facility also permits us to borrow up to $30.0 million for working capital, including up to $20.0 million to finance the acquisition of our fleet manager. Because our strategy involves limiting the amount of debt that we have outstanding, we intend to draw funds under our new credit facility to fund acquisitions and, as necessary, our working capital needs and to repay our acquisition related debt from time to time with the net proceeds of future equity issuances.
The new credit facility has a term of ten years. Prior to the delivery of the second of our two new Panamax dry bulk carriers, we will be permitted to borrow up to the greater of $168.0 million and 60% of the aggregate market value of the vessels in our fleet that secure our obligations under the new credit facility, subject to an overall limit of $230.0 million. Following the delivery of that vessel, we will
43
be permitted to borrow up to the facility limit, provided that conditions to drawdown are satisfied. The facility limit will be $230.0 million for a period of five years from the date of the loan agreement at which time the facility limit will be reduced to $210.0 million. Thereafter, the facility limit will be reduced by $13.5 million semi-annually over a period of five years with a final reduction of $75.0 million at the time of the last semi-annual reduction. Our ability to borrow funds for working capital purposes will be subject to review and renewal eighteen months from the date we signed the loan agreement and thereafter will be subject to review and renewal on an annual basis. If the lender elects to reduce the amount of funds that we may borrow for working capital purposes, the facility limit will be reduced by a corresponding amount.
Our obligations under the credit facility will be secured by a first priority mortgage on each of the vessels in our combined fleet and such other vessels that we may from time to time include with the approval of our lender, a first assignment of all freights, earnings, insurances and requisition compensation and a negative pledge agreement that requires us to either mortgage new vessels to our lender or obtain our lender's consent before we mortgage those vessels to third parties. We may grant additional security from time to time in the future.
Our ability to borrow amounts under the new credit facility will be subject to the execution of customary documentation relating to the facility, including security documents, satisfaction of certain customary conditions precedent and compliance with terms and conditions included in the loan documents. Prior to each drawdown, we will be required, among other things, to provide the lender with acceptable valuations of the vessels in our fleet confirming that the vessels in our combined fleet have an aggregate value of not less than $350.0 million and that the vessels in our fleet that secure our obligations under the new credit facility are sufficient to satisfy minimum security requirements. To the extent that the value of the vessels in our combined fleet falls below $350.0 million, our availability under the credit facility will either be proportionately reduced or we will be required to provide the facility agent with additional security in an amount that will, in its reasonable opinion, be adequate to compensate for such deficiency. To the extent that the vessels in our fleet that secure our obligations under the new credit facility are insufficient to satisfy minimum security requirements, we will be required to grant additional security or obtain a waiver or consent from the lender. We will also not be permitted to borrow amounts under the facility if we experience a change of control. Interest on amounts drawn will be payable at a rate of 1.0% per annum over LIBOR.
Our new credit facility will not prohibit us from paying dividends so long as an event of default has not occurred and we are not, and after giving effect to the payment of the dividend would not be, in breach of a covenant. If we incur debt under the credit facility, however, the amount of cash that we have available to distribute as dividends in a period will be reduced by any interest or principal payments that we are required to make.
Please see the section of this prospectus entitled "New Credit Facility" for further information concerning our new credit facility.
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Contractual Obligations
The following table sets forth our contractual obligations and their maturity dates as of September 30, 2004, as adjusted to reflect our entry into a purchase agreement to acquire a secondhand Capesize dry bulk carrier and our entry into an agreement relating to our acquisition of our fleet manager:
|
Within
One Year |
One to
Three Years |
Three to
Five Years |
More than
Five years |
Total
|
|||||
---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands of U.S. dollars)
|
|||||||||
Bank loans (1) | 7,078 | 14,155 | 14,155 | 58,081 | 93,469 | |||||
Panamax newbuilding contracts (1) | 48,627 | | | | 48,627 | |||||
Capesize purchase agreement (2) | 63,500 | | | | 63,500 | |||||
Fleet manager purchase option (3) | 20,000 | | | | 20,000 |
We intend to repay all outstanding bank debt with the proceeds of this offering and to use our new credit facility as a potential source of liquidity in connection with acquisitions.
On November 12, 2004, we entered into new management agreements with DSS, our fleet manager, with respect to each vessel in our operating fleet. Under these agreements, we pay a monthly flat fee of $15,000 per vessel and a 2% commission on revenues for the services of DSS. These contracts will be renewed annually; however, we expect that within one year of this offering amounts paid to our fleet manager will be eliminated from our consolidated financial statements as intercompany transactions on our anticipated acquisition of DSS.
We have also entered into an agreement with our fleet manager pursuant to which the fleet manager has agreed to provide us with office space and secretarial services for no additional charge until our acquisition of DSS. The annual fair value for the office space rent and secretarial services during 2003 is estimated to be $141,000.
45
Capital Expenditures
We make capital expenditures from time to time in connection with our newbuilding programs and vessel acquisitions. Our recent vessel acquisitions consist of a new Panamax dry bulk carrier and a secondhand Capesize dry bulk carrier that were delivered to us in February 2005. We funded the $18.0 million balance of the final payment installment due upon delivery of the new Panamax dry bulk carrier and the $58.0 million balance of the purchase price due upon delivery of the secondhand Capesize dry bulk carrier with borrowings under new bank loans. We intend to repay those borrowings with a portion of the net proceeds from this offering. Our current commitments for capital expenditures relate to the second of our two new Panamax dry bulk carriers, which we expect will be delivered to us in April 2005. The total contract price for the new Panamax carrier is $20.3 million and is payable in installments. As of September 30, 2004, we had paid $2.0 million of the purchase price with advance payments that have the benefit of a refund guarantee from the Bank of China. We intend to pay the final installment on the new Panamax dry bulk carrier with a portion of the proceeds from this offering.
In addition to our further acquisitions that we may undertake in future periods, we will incur additional capital expenditures in 2006 when six of our ten vessels undergo special surveys. We anticipate that this process of recertification will require us to reposition these vessels from a discharge port to shipyard facilities, which we believe will reduce our available days and operating days during the period. The lost earnings associated with the decrease in operating days, together with the capital needs for repairs and upgrades, is expected to result in increased cash flow needs. We believe that the funding of these requirements will be met with cash on hand.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Inflation
Inflation has only a moderate effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financing costs.
Qualitative and Quantitative Market Risk
Interest Rates
Historically, we have been subject to market risks relating to changes in interest rates, because we have had significant amounts of floating rate debt outstanding. During 2003 and the first nine months of 2004, we paid interest on this debt based on LIBOR plus an average spread of 1.25% on our bank loans. A one percent increase in LIBOR would have increased our interest expense for the period ended September 30, 2004 from $1.5 million to $2.2 million. A one percent increase in LIBOR would have increased our interest expense for the year ended December 31, 2003 from $1.8 million to $2.5 million. Following the completion of the offering and repayment of our outstanding debt, we do not expect to have a material exposure to interest rate changes because we do not expect to have long-term debt outstanding.
Currency and Exchange Rates
We generate all of our revenues in U.S. dollars but currently incur over half of our operating expenses and the majority of our management expenses in currencies other than the U.S. dollar, primarily the Euro. For accounting purposes, expenses incurred in Euros are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. Because a significant portion of
46
our expenses are incurred in currencies other than the U.S. dollar, our expenses may from time to time increase relative to our revenues as a result of fluctuations in exchange rates, particularly between the U.S. dollar and the Euro, which could affect the amount of net income that we report in future periods. While we historically have not mitigated the risk associated with exchange rate fluctuations through the use of financial derivatives, we may determine to employ such instruments from time to time in the future in order to minimize this risk. Our use of financial derivatives would involve certain risks, including the risk that losses on a hedged position could exceed the nominal amount invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual obligations, which could have an adverse effect on our results.
Dividend Payments
We paid our stockholders cash dividends of $1.1 million in December 2002, $17.0 million in September 2004 and $34.0 million in December 2004. We also declared a dividend of $14.0 million in February 2005 that is payable in April 2005 to stockholders of record in February 2005.
We will record our acquisition of our fleet manager at historical cost due to the fact that we and our fleet manager are under common control. The amount of the purchase price that exceeds the carrying value of our fleet manager's net assets ($19.5 million) is considered to be a preferential deemed dividend and will be reflected as a reduction in net income in the period the acquisition is consummated. Accordingly, the amount of $19.5 million is reflected in the pro forma presentation of our interim consolidated balance sheet as of September 30, 2004, together with the dividend of $34.0 million that we paid to our stockholders in December 2004 and a dividend of $14.0 million that we declared in February 2005 (payable in April 2005 to stockholders of record in February 2005) as a reduction in retained earnings. Furthermore, the $19.5 million mentioned above is reflected as a reduction of net income in the presentation of the pro forma net income and the effects of this reduction in net income is also reflected in the pro forma earnings per share for the nine month period ended September 30, 2004 and for the year ended December 31, 2003. In addition, because the total amount ($48.0 million) of the dividends paid in December 2004 and declared in February 2005 exceeded our net income for the twelve month period ended September 30, 2004, pro forma earnings per share are presented for the nine month period ended September 30, 2004 and the year ended December 31, 2003, giving effect to the additional number of shares that would be required to be issued at an assumed initial public offering price of $16.00 per share (representing the midpoint of the price range shown on the cover of this prospectus) to pay the amount of dividends that exceeds net income for the period. Please see Note 10 of our unaudited interim consolidated financial statements and Note 18 of our audited consolidated financial statements for more information concerning our pro forma data.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies, because they generally involve a comparatively higher degree of judgment in their application. For a description of all our significant accounting policies, see Note 2 to our consolidated financial statements included herein.
47
Depreciation
We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation. We depreciate our dry bulk vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years from date of initial delivery from the shipyard. We believe that a 25 year depreciable life is consistent with that of other shipping companies. Depreciation is based on cost less the estimated residual scrap value. Furthermore, we estimate the residual values of our vessels to be $150 per light-weight ton which we believe is common in the dry bulk shipping industry. An increase in the useful life of a dry bulk vessel or in its residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of a dry bulk vessel or in its residual value would have the effect of increasing the annual depreciation charge. However, when regulations place limitations over the ability of a vessel to trade on a worldwide basis, the vessel's useful life is adjusted to end at the date such regulations become effective.
Impairment of Long-lived Assets
We evaluate the carrying amounts and periods over which long-lived assets are depreciated to determine if events have occurred which would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, we review certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. We determine undiscounted projected net operating cash flow for each vessel and compare it to the vessel carrying value. In the event that an impairment were to occur, we would determine the fair value of the related asset and record a charge to operations calculated by comparing the asset's carrying value to the estimated fair value. We estimate fair value primarily through the use of third party valuations performed on an individual vessel basis.
Deferred Drydock Cost
Our vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. We capitalize the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Costs capitalized as part of the drydocking include actual costs incurred at the drydock yard; cost of fuel consumed between the vessel's last discharge port prior to the drydocking and the time the vessel leaves the drydock yard; cost of hiring riding crews to effect repairs on a vessel and parts used in making such repairs that are reasonably made in anticipation of reducing the duration or cost of the drydocking; cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee a drydocking. We believe that these criteria are consistent with U.S. GAAP guidelines and industry practice and that our policy of capitalization reflects the economics and market values of the vessels.
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THE INTERNATIONAL DRY BULK SHIPPING INDUSTRY
The information and data in this section relating to the international dry bulk shipping industry has been provided by Drewry Shipping Consultants, or Drewry, and is taken from Drewry databases and other sources available in the public domain. Drewry has advised us that it accurately describes the international dry bulk shipping industry, subject to the availability and reliability of the data supporting the statistical and graphical information presented. Drewry's methodologies for collecting information and data, and therefore the information discussed in this section, may differ from those of other sources, and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the dry bulk shipping industry.
Overview
The marine industry is a vital link in international trade, with oceangoing vessels representing the most efficient, and often the only method of transporting large volumes of basic commodities and finished products. In 2004, approximately 2.4 billion tons of dry bulk cargo was transported by sea, comprising more than one-third of all international seaborne trade. Dry bulk cargo is cargo that is shipped in large quantities and can be easily stowed in a single hold with little risk of cargo damage. Dry bulk cargo is generally categorized as either major bulk or minor bulk. Major bulk cargo constitutes the vast majority of dry bulk cargo by weight, and includes, among other things, iron ore, coal and grain. Minor bulk cargo includes products such as agricultural products, mineral cargoes, cement, forest products and steel products and represents the balance of the dry bulk industry. Other dry cargo is categorized as container cargo, which is cargo shipped in 20 or 40 foot containers and includes a wide variety of finished products, and non-container cargo, which includes other dry cargoes that cannot be shipped in a container due to size, weight or handling requirements, such as large manufacturing equipment or large industrial vehicles. The balance of seaborne trade involves the transport of liquids or gases in tanker vessels and includes products such as oil, refined oil products and chemicals.
The following table presents the breakdown of the global seaborne trade by type of cargo in 2003:
|
Weight
|
Contribution
|
||||
---|---|---|---|---|---|---|
|
(in million of tons)
|
(%)
|
||||
Dry bulk | ||||||
Major bulk | ||||||
Coal | 652 | 10.3 | ||||
Iron ore | 617 | 9.7 | ||||
Grain | 229 | 3.6 | ||||
|
|
|||||
Total major bulk | 1,498 | 23.6 | ||||
Minor bulk | 956 | 15.1 | ||||
|
|
|||||
Total major and minor bulk | 2,454 | 38.7 | ||||
|
|
|||||
Other dry cargo | ||||||
Container cargo | 896 | 14.8 | ||||
Non-container cargo | 493 | 7.7 | ||||
|
|
|||||
Total other dry cargo | 1,389 | 21.9 | ||||
|
|
|||||
Tanker cargo (oil, refined oil products, chemicals) | 2,500 | 39.4 | ||||
|
|
|||||
Total global seaborne trade | 6,343 | 100.0 | ||||
|
|
Source: Drewry
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The following map represents the major global dry bulk trade routes:
Major Dry Bulk Seaborne Trades
Source: Drewry
Demand for Dry Bulk Carriers
The demand for dry bulk carrier capacity is determined by the underlying demand for commodities transported in dry bulk carriers, which in turn is influenced by trends in the global economy. Seaborne dry bulk trade increased by slightly more than 2% annually during the 1980s and 1990s. However, this rate of growth has increased dramatically in recent years. Between 1999 and 2004, trade in all dry bulk commodities increased from 1.97 billion tons to 2.450 billion tons, an increase of 24.3%.
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The following table illustrates the growth in demand for dry bulk shipping capacity for the periods indicated.
Source: Drewry
One of the main reasons for the resurgence in dry bulk trade has been the growth in imports by China of iron ore, coal and steel products during the last five years. Chinese imports of iron ore alone increased from 55.3 million tons in 1999 to more than 148 million tons in 2003.
The following table illustrates China's gross domestic product growth rate compared to the United States' gross domestic product growth rate during the periods indicated:
Years
|
China GDP Growth Rate
|
U.S. GDP Growth Rate
|
||
---|---|---|---|---|
|
(%)
|
(%)
|
||
1981 1985 | 10.1 | 2.6 | ||
1986 1990 | 7.8 | 2.6 | ||
1991 1995 | 12.0 | 2.3 | ||
1996 2000 | 8.3 | 4.1 | ||
2001 2003 | 7.9 | 1.9 | ||
2004 | 9.3 | 4.4 |
Source: Drewry
Demand for dry bulk carrier capacity is also affected by the operating efficiency of the global fleet, with port congestion, which has been a feature of the market in 2004, absorbing additional tonnage.
In evaluating demand factors for dry bulk carrier capacity, it is important to bear in mind that dry bulk carriers can be the most versatile element of the global shipping fleets in terms of employment alternatives. Dry bulk carriers seldom operate on round trip voyages. Rather, the norm is triangular or multi-leg voyages. Hence, trade distances assume greater importance in the demand equation.
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Dry Bulk Carrier Supply
The global dry bulk carrier fleet may be divided into four categories based on a vessel's carrying capacity. These categories consist of:
The supply of dry bulk carriers is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss.
The following chart illustrates the supply of the global dry bulk carriers for the periods indicated:
Source: Drewry
As of January 2005, the global dry bulk carrier orderbook amounted to 66.89 million dwt, or 20.7% of the existing fleet, with most vessels on the orderbook expected to be delivered within 36 months.
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The following table illustrates the size of the global dry bulk fleet as of January 31, 2005 and the dry bulk carriers for which newbuilding contracts have been entered into as of the same date:
|
Current Fleet
|
Orderbook
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
No. of Vessels
|
Dwt
|
% of Fleet
|
No. of Vessels
|
Dwt
|
% of Fleet
|
||||||
|
|
(in millions)
|
|
|
(in millions)
|
|
||||||
Dry Bulk Carrier Fleet: | ||||||||||||
Capesize |
|
604 |
|
100.19 |
|
31.01 |
|
132 |
|
26.27 |
|
39.2 |
Panamax | 1,217 | 87.21 | 27.0 | 275 | 21.6 | 32.3 | ||||||
Handymax | 2,193 | 92.48 | 28.6 | 367 | 17.6 | 26.34 | ||||||
Handysize | 1,912 | 43.39 | 13.4 | 60 | 1.4 | 2.1 | ||||||
|
|
|
|
|
|
|||||||
Total | 5,926 | 323.17 | 100.0 | 834 | 66.8 | 20.7 | ||||||
|
|
|
|
|
|
Source: Drewry
The level of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs. The following table illustrates the scrapping rates of dry bulk carriers for the periods indicated.
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dry Bulk Carrier Scrapping: | |||||||||||||
Capesize |
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of vessels | 13 | 4 | 3 | 8 | 2 | 1 | |||||||
Dwt (in millions) | 1.2 | 0.5 | 0.4 | 0.9 | 0.3 | 0.1 | |||||||
% of fleet scrapped | 1.5 | 0.6 | 0.5 | 1.0 | 0.3 | 0.1 | |||||||
Panamax |
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of vessels | 45 | 11 | 28 | 18 | 7 | 1 | |||||||
Dwt (in millions) | 3 | 0.7 | 1.9 | 1.2 | 0.5 | 0.9 | |||||||
% of fleet scrapped | 4.1 | 1.0 | 2.5 | 1.5 | 0.6 | 1.1 | |||||||
Handymax |
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of vessels | 53 | 40 | 40 | 25 | 29 | 0 | |||||||
Dwt (in millions) | 2.2 | 1.5 | 1.5 | 0.9 | 1.1 | 0 | |||||||
% of fleet scrapped | 3.1 | 2.0 | 1.9 | 1.1 | 1.3 | 0.0 | |||||||
Handysize |
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of vessels | 66 | 50 | 62 | 64 | 25 | 4 | |||||||
Dwt (in millions) | 1.5 | 1.2 | 1.4 | 1.6 | 0.6 | 0.1 | |||||||
% of fleet scrapped | 3.2 | 2.6 | 3.2 | 3.7 | 1.4 | 0.2 | |||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of vessels | 177 | 105 | 123 | 115 | 63 | 6 | |||||||
Dwt (in millions) | 8.3 | 3.8 | 5.2 | 4.7 | 2.4 | 0.3 | |||||||
% of fleet scrapped | 3.1 | 1.4 | 1.8 | 1.6 | 0.8 | 0.1 |
Source: Drewry
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The average age at which a vessel is scrapped over the last five years has been 26 years. However, due to recent strength in the dry bulk shipping industry, the average age at which the vessels are scrapped has increased. The following chart illustrates the age of global dry bulk fleet for the periods indicated.
Source: Drewry
Charter Hire Rates
Charter hire rates fluctuate by varying degrees among dry bulk carrier size categories. The volume and pattern of trade in a small number of commodities (major bulks) affect demand for larger vessels. Therefore, charter rates and vessel values of larger vessels often show greater volatility. Conversely, trade in a greater number of commodities (minor bulks) drives demand for smaller dry bulk carriers. Accordingly, charter rates and vessel values for those vessels are subject to less volatility.
Charter hire rates paid for dry bulk carriers are primarily a function of the underlying balance between vessel supply and demand, although at times other factors may play a role. Furthermore, the pattern seen in charter rates is broadly mirrored across the different charter types and between the different dry bulk carrier categories. However, because demand for larger dry bulk vessels is affected by the volume and pattern of trade in a relatively small number of commodities, charter hire rates (and vessel values) of larger ships tend to be more volatile than those for smaller vessels.
In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed and fuel consumption.
In the voyage charter market, rates are influenced by cargo size, commodity, port dues and canal transit fees, as well as delivery and redelivery regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no canals to transit. Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load cargo also are generally quoted at lower rates, because such voyages generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area.
Within the dry bulk shipping industry, the charter hire rate references most likely to be monitored are the freight rate indices issued by the Baltic Exchange. These references are based on actual charter hire rates under charter entered into by market participants as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers. The Baltic Panamax Index is the index with the longest history. The Baltic Capesize Index and Baltic Handymax Index are of more recent origin.
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Baltic Exchange Freight Indices
(index points)
Source: Baltic Exchange
As expected, all assessments of dry bulk charter hire rates show a similar pattern. In 2003 and 2004, rates for all sizes of dry bulk carriers strengthened appreciably to historically high levels. According to Drewry, the driver of this dramatic upsurge in charter rates was primarily the high level of demand for raw materials imported by China.
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The following chart shows one year time charter rates for Handymax, Panamax and Capesize dry bulk carriers between 1996 and 2004.
Time Charter Rates
(in U.S. dollars per day)
Source: Drewry
Vessel Prices
Vessel prices, both for newbuildings and secondhand vessels, have increased significantly during the past two years as a result of the strength of the dry bulk shipping industry. Because sectors of the shipping industry (dry bulk carrier, tanker and container ships) are in a period of prosperity, newbuilding prices for all vessel types have increased significantly due to a reduction in the number of berths available for the construction of new vessels in shipyards.
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The following tables present the average prices for both secondhand and newbuilding dry bulk carriers for the periods indicated.
Dry Bulk Carrier Newbuilding Prices
(in millions of U.S. dollars)
Source: Drewry
57
Dry Bulk Carrier Secondhand Prices
(in millions of U.S. dollars)
Source: Drewry
In the secondhand market, the steep increase in newbuilding prices and the strength in the charter market have also affected vessel prices. With vessel earnings running at relatively high levels and a limited availability of newbuilding berths, the ability to deliver a vessel early has resulted in a premium to the purchase price. Consequently, the market has witnessed secondhand prices for five year old Panamax and Capesize dry bulk carriers reaching higher levels than those being "nominally quoted" for comparably sized newbuildings.
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We are Diana Shipping Inc., a Marshall Islands company that owns and operates dry bulk carriers that transport iron ore, coal, grain and other dry cargo along worldwide shipping routes. Our operating fleet consists of seven modern Panamax dry bulk carriers that, as of September 30, 2004, had a combined carrying capacity of more than 525,000 dwt and a weighted average age of 3.1 years. During 2003 and the nine month period ended September 30, 2004, we had a fleet utilization of 99.6% and 99.8%, respectively, our vessels achieved daily time charter equivalent rates of $12,812 and $25,269, respectively, and we generated revenues of $25.3 million and $45.4 million, respectively.
We intend to expand our presence in the dry bulk shipping industry. In furtherance of this objective, we entered into newbuilding contracts with a Chinese shipyard for the construction of two additional Panamax dry bulk carriers that have a carrying capacity of 73,691 dwt and 73,700 dwt, respectively, and a purchase agreement with Louis Dreyfus Armateurs S.A.S. to purchase a secondhand Capesize dry bulk carrier with a carrying capacity of 169,883 dwt. The first new Panamax dry bulk carrier and the secondhand Capesize dry bulk carrier were delivered to us in February 2005. We expect that the second new Panamax dry bulk carrier will be delivered to us in April 2005. Upon the delivery of our second new Panamax dry bulk carrier, as of April 15, 2005, our combined fleet will consist of nine Panamax dry bulk carriers and one Capesize dry bulk carrier that will have a combined carrying capacity of 842,287 dwt and a weighted average age of 3.5 years. We believe that the addition of these vessels to our fleet will be accretive to our earnings and dividends per share.
Our Competitive Strengths
We believe that we possess a number of strengths that provide us with a competitive advantage in the dry bulk shipping industry:
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team is evidenced in part by the decision of Fortis Bank's private equity arm to acquire an equity interest in our business in December 2002.
Our Business Strategy
Our main objective is to manage and expand our fleet in a manner that enables us to pay attractive dividends to our stockholders. To accomplish this objective, we intend to:
60
extend the charter periods for additional vessels in our fleet to take advantage of the relatively stable cash flow and high utilization rates that are associated with long-term time charters. Given the size of our fleet, we believe that adding one or more additional long-term time charters to our charter portfolio will reduce our potential exposure to the adverse effects of any market downturn without materially affecting our ability to take advantage of short-term market opportunities.
Our Fleet
Our fleet consists of dry bulk carriers that transport iron ore, coal, grain and other dry cargoes along worldwide shipping routes. Our operating fleet is composed of seven modern Panamax dry bulk carriers that, as of September 30, 2004, had a combined carrying capacity of more than 525,000 dwt and a weighted average age of 3.1 years. According to Drewry, the average age of the world's Panamax dry bulk carrier fleet was 13 years as of November 30, 2004.
We intend to expand our presence in the dry bulk shipping industry. In furtherance of this objective, we entered into newbuilding contracts with the Jiangnan Shipyard in the People's Republic of China for the construction and delivery of two new Panamax dry bulk carriers that have a carrying capacity of 73,691 and 73,700 dwt, respectively, and entered into a purchase agreement with Louis Dreyfus Armateurs S.A.S. for the purchase of one secondhand Capesize dry bulk carrier built in 1999. We took delivery of the first new Panamax dry bulk carrier and the secondhand Capesize dry bulk carrier in February 2005 and expect to take delivery of the second new Panamax dry bulk carrier in April 2005. We funded the $18.0 million balance of the final payment installment due upon delivery of the first Panamax dry bulk carrier and the $58.0 million balance of the purchase price due upon delivery of the Capesize dry bulk carrier with borrowings under new bank loans. We intend to repay
61
this indebtedness and to finance the final payment installment due on the second Panamax dry bulk carrier with a portion of the net proceeds from this offering. In connection with our acquisition of the Capesize dry bulk carrier, we also were required to pay an unaffiliated ship broker a commission equal to two percent of the purchase price and one time additional expenses of approximately $0.8 million for initial provisioning, stores and spare parts, which we will finance with a portion of the net proceeds from this offering.
Upon the delivery of these vessels, our fleet will consist of nine Panamax dry bulk carriers and one Capesize dry bulk carrier that will have a combined carrying capacity of 842,287 dwt and a weighted average age of 3.5 years as of April 15, 2005. We believe that the addition of these vessels to our fleet will be accretive to our earnings and dividends per share.
The following table presents certain information concerning the dry bulk carriers in our combined fleet.
Vessel
|
Operating Status
|
Dwt
|
Age (1)
|
Time Charter
Expiration Date (2) |
Daily Time
Charter Hire Rate |
Sister
Ship (3) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nirefs | Delivered Jan. 2001 | 75,311 | 4.2 years |
March 20, 2005 to
March 31, 2005 |
$ | 41,000 | A | ||||||
Alcyon | Delivered Feb. 2001 | 75,247 | 4.2 years |
Oct. 15, 2007 to
Feb. 15, 2008 |
$ | 22,582 | A | ||||||
Triton | Delivered March 2001 | 75,336 | 4.1 years | Nov. 27, 2005 to Jan. 27, 2006 | $ | 37,300 | A | ||||||
Oceanis | Delivered May 2001 | 75,211 | 3.9 years | Aug. 20, 2005 to Nov. 5, 2005 | $ | 30,650 | A | ||||||
Dione | Acquired May 2003 | 75,172 | 4.3 years | Nov. 4, 2005 to Jan. 19, 2006 | $ | 32,500 | A | ||||||
Danae | Acquired July 2003 | 75,106 | 4.3 years | Jan. 13, 2007 to April 12, 2007 | $ | 30,000 | A | ||||||
Protefs | Delivered Aug. 2004 | 73,630 | 0.6 years | Aug. 5, 2005 to Oct. 20, 2005 | $ | 31,000 | B | ||||||
Calipso | Delivered Feb. 2005 | 73,691 | 0.2 years |
July 5, 2005 to
Sept. 5, 2005 (4) |
$ | 40,000 | B | ||||||
Pantelis SP | Delivered Feb. 2005 | 169,883 | 6.1 years |
Jan. 25, 2008 to
March 25, 2008 |
$ | 47,500 | | ||||||
Clio | Delivery expected April 2005 | 73,700 | 0 years | | | B |
Each of our vessels is owned, or will be owned following delivery to us, through a separate wholly-owned Panamanian subsidiary.
We charter our dry bulk carriers to customers primarily pursuant to time charters. A time charter involves the hiring of a vessel from its owner for a period of time pursuant to a contract under which the vessel owner places its ship (including its crew and equipment) at the disposal of the charterer. Under a time charter, the charterer periodically pays a fixed daily charter hire rate and bears all voyage expenses, including the cost of bunkers and port and canal charges. Subject to any restrictions in the contract, the charterer determines the type and quantity of cargo to be carried and the ports of loading and discharging. The technical operation and navigation of the vessel at all times remains the responsibility of the vessel owner, which is generally responsible for the vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, costs of spares and
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consumable stores, tonnage taxes and other miscellaneous expenses. In connection with the charter of each of our vessels, we pay (through our fleet manager) commissions ranging from 1.25% to 6.25% of the total daily charter hire rate of each charter to unaffiliated ship brokers and to in-house ship brokers associated with the charterers, depending on the number of brokers involved with arranging the relevant charter. We also pay a commission equal to 2% of the total daily charter hire rate of each vessel charter to our fleet manager.
We strategically monitor developments in the dry bulk shipping industry on a regular basis and adjust the charter hire periods for our vessels according to market conditions. Historically, we have primarily employed short-term time charters that have ranged in duration from three to twelve months. We believe that the short-term nature of those charters has provided us with flexibility in responding to market developments and has assisted us in enhancing the amount of charter hire rates that we are paid, particularly during periods when charter hire rates have increased. As contemplated by our business strategy, however, we recently entered into time charters in excess of two and one-half years for two of the vessels in our combined fleet. We may in the future extend the charter periods for some of the vessels in our fleet to take advantage of the long-term cash flow and high utilization rates that are associated with long-term time charters. Given the size of our fleet, we believe that adding one or more additional long-term time charters to our charter portfolio will reduce our potential exposure to the adverse effects of any market downturn without significantly affecting our ability to take advantage of short-term market opportunities.
Our vessels operate worldwide within the trading limits imposed by our insurance terms and do not operate in areas where United States, European Union or United Nations sanctions have been imposed.
Our Customers
Our assessment of a charterer's financial condition and reliability is an important factor in negotiating employment for our vessels. We generally charter our vessels to major trading houses (including commodities traders), major producers and government-owned entities rather than to more speculative or undercapitalized entities. Our customers include national, regional and international companies, such as Sangamon Transportation (Dreyfus), Deiulemar Compagnia di Navigazione, Green Island Shipping, Cobelfret S.A., Cargill International S.A., Bottiglieri di Navigazione S.p.A. and Cosco Europe GmBH. During the nine months ended September 30, 2004, five of our customers accounted for 94% of our revenues. These customers were Cosco Bulk Carriers (23%), Cobelfret S.A. (16%), Cargill International S.A. (22%), Navios International Inc. (17%) and Daeyang (12%). During 2003, four customers accounted for approximately 75% of our revenues. These customers were Cosco Europe GmBH (25%), Bottiglieri di Navigazione S.p.A. (20%), Cobelfret S.A. (15%) and Deiulemar Compagnia di Navigazione (15%).
Management of Our Fleet
We carry out the strategic management of our fleet, while the commercial and technical management of our fleet is provided by an affiliated entity, Diana Shipping Services S.A., to which we refer as DSS or our fleet manager. DSS is majority owned and controlled by Mr. Simeon Palios, our Chairman and Chief Executive Officer. We expect the DSS stockholders to sell their outstanding shares of DSS to us during the twelve months following this offering and intend to exercise an option to purchase those shares if they do not do so. Upon our acquisition of DSS, our fleet manager will become a wholly-owned subsidiary and we will conduct the entire management of our fleet in-house. Our fleet manager's staff is located in Athens, Greece. For more information about our fleet manager please see the section of this prospectus entitled "Our Fleet Manager".
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Crewing and Shore Employees
We crew our vessels primarily with Greek officers and Filipino officers and seamen. Our fleet manager is responsible for identifying our Greek officers, which are hired by our vessel owning subsidiaries. Our Filipino officers and seamen are referred to our fleet manager by Cosmos Marine Management S.A. and Crossworld Marine Services Inc., two independent crewing agencies. The crewing agencies handle each seaman's training, travel and payroll. We ensure that all our seamen have the qualifications and licenses required to comply with international regulations and shipping conventions. Additionally, our seafaring employees perform most commissioning work and supervise work at shipyards and drydock facilities. We typically man our vessels with more crew members than are required by the country of the vessel's flag in order to allow for the performance of routine maintenance duties.
Although we had no shoreside employees from 2001 through 2003, our fleet manager has informed us of the number of persons employed by it that were dedicated to managing our fleet. The following table presents the average number of shoreside personnel that were employed by our fleet manager on our behalf and the number of seafaring personnel employed by our vessel owning subsidiaries during the periods indicated.
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Year Ended December 31,
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|||||
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2001
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2002
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2003
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|||
Shoreside | 24 | 26 | 28 | |||
Seafaring | 85 | 83 | 130 | |||
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||||
Total | 109 | 109 | 158 | |||
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Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew and the age of a vessel. We have been able to obtain all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business.
Environmental and Other Regulations
Government regulation significantly affects the ownership and operation of our vessels. We are subject to international conventions, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (United States Coast Guard, harbor master or equivalent), classification societies, flag state administrations (country of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses and certificates for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend the operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the dry bulk shipping industry.
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Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations applicable to us as of the date of this prospectus.
International Maritime Organization
The International Maritime Organization, or IMO, has negotiated international conventions that impose liability for oil pollution in international waters and a signatory's territorial waters. In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from ships. Annex VI was ratified in May 2004, and will become effective in May 2005. Annex VI, when it becomes effective, will set limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibit deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. We are formulating a plan to comply with the Annex VI regulations once they come into effect. Compliance with these regulations could require the installation of expensive emission control systems and could have an adverse financial impact on the operation of our vessels.
The operation of our vessels is also affected by the requirements set forth in the IMO's Management Code for the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. As of the date of this prospectus, each of our vessels is ISM code-certified.
The United States Oil Pollution Act of 1990
The United States Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States' territorial sea and its two hundred nautical mile exclusive economic zone.
Under OPA, vessel owners, operators and bareboat charterers are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:
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OPA limits the liability of responsible parties to the greater of $600 per gross ton or $0.5 million per dry bulk vessel that is over 300 gross tons (subject to possible adjustment for inflation). These limits of liability do not apply if an incident was directly caused by violation of applicable United States federal safety, construction or operating regulations or by a responsible party's gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage it could have an adverse effect on our business and results of operation.
OPA requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under the OPA. In December 1994, the United States Coast Guard implemented regulations requiring evidence of financial responsibility in the amount of $1,500 per gross ton, which includes the OPA limitation on liability of $1,200 per gross ton and the United States Comprehensive Environmental Response, Compensation, and Liability Act liability limit of $300 per gross ton. Under the regulations, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance or guaranty. Under OPA, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA.
The United States Coast Guard's regulations concerning certificates of financial responsibility provide, in accordance with OPA, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility. In the event that such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain organizations, which had typically provided certificates of financial responsibility under pre-OPA laws, including the major protection and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or required to waive insurance policy defenses.
The United States Coast Guard's financial responsibility regulations may also be satisfied by evidence of surety bond, guaranty or by self-insurance. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the United States Coast Guard regulations by providing a certificate of responsibility from third party entities that are acceptable to the United States Coast Guard evidencing sufficient self-insurance.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states, which have enacted such legislation, have not yet issued implementing regulations defining vessels owners' responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.
Other Environmental Initiatives
The European Union is considering legislation that will affect the operation of vessels and the liability of owners for oil pollution. It is difficult to predict what legislation, if any, may be promulgated by the European Union or any other country or authority.
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Although the United States is not a party thereto, many countries have ratified and follow the liability scheme adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, or the CLC, and the Convention for the Establishment of an International Fund for Oil Pollution of 1971, as amended. Under these conventions, a vessel's registered owner is strictly liable for pollution damage caused on the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. Many of the countries that have ratified the CLC have increased the liability limits through a 1992 Protocol to the CLC. The liability limits in the countries that have ratified this Protocol are currently approximately $4.0 million plus approximately $566.0 per gross registered ton above 5,000 gross tons with an approximate maximum of $80.5 million per vessel, with the exact amount tied to a unit of account which varies according to a basket of currencies. The right to limit liability is forfeited under the CLC where the spill is caused by the owner's actual fault or privity and, under the 1992 Protocol, where the spill is caused by the owner's intentional or reckless conduct. Vessels trading to contracting states must provide evidence of insurance covering the limited liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to the CLC.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the United States 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, or SOLAS, created a new chapter of the convention dealing specifically with maritime security. The new chapter came into effect 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 or ISPS Code. Among the various requirements are:
The United States Coast Guard regulations, intended to align with international maritime security standards, exempt non-United States vessels from MTSA vessel security measures provided such vessels have on board a valid International Ship Security Certificate, or ISSC, that attests to the vessel's compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code.
Inspection by Classification Societies
Every seagoing vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in class," signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
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The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Most vessels are also drydocked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will issue a "recommendation" which must be rectified by the ship owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in class" by a classification society which is a member of the International Association of Classification Societies. All our vessels are certified as being "in class" by Lloyd's Register of Shipping. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memorandum of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel.
Risk of Loss and Liability Insurance
General
The operation of any dry bulk vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners,
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operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the United States market.
While we maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, increased value insurance and freight, demurrage and defense cover for our operating fleet in amounts that we believe to be prudent to cover normal risks in our operations, we may not be able to achieve or maintain this level of coverage throughout a vessel's useful life. Furthermore, while we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull & Machinery and War Risks Insurance
We maintain marine hull and machinery and war risks insurance, which covers the risk of actual or constructive total loss, for all of our vessels. Our vessels are each covered up to at least fair market value with deductibles of $100,000 per vessel per incident. We also maintain increased value coverage for each of our vessels. Under this increased value coverage, in the event of total loss of a vessel, we are entitled to recover amounts not recoverable under our hull and machinery policy due to under-insurance.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which insure our third party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs." Subject to the "capping" discussed below, our coverage, except for pollution, is unlimited.
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The fourteen P&I Associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on the group's claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group.
Competition
Our business fluctuates in line with the main patterns of trade of the major dry bulk cargoes and varies according to changes in the supply and demand for these items. We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an owner and operator. We compete with other owners of dry bulk carriers in the Panamax and smaller class sectors and with owners of Capesize dry bulk carriers. Ownership of dry bulk carriers is highly fragmented and is divided among approximately 1,500 independent dry bulk carrier owners.
Legal Proceedings
We have not been involved in any legal proceedings which may have, or have had a significant effect on our business, financial position, results of operations or liquidity, nor are we aware of any
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proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Properties
We do not own any real property. Under the terms of our agreement with DSS, DSS provides us with office space located at it offices at Pendelis 16, Athens, Greece at no additional charge. Once we acquire DSS, we expect to pay rent and the cost of secretarial services to a company controlled by our Chairman and Chief Executive Officer, Mr. Simeon Palios. The fair value of the annual rent for the office space and the secretarial services during 2003 is estimated at approximately $141,000. Please see the section of this prospectus entitled "Related Party Transactions".
Exchange Controls
Under Marshall Islands, Panamanian and Greek law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common stock.
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We have entered into a new $230.0 million secured revolving credit facility with The Royal Bank of Scotland Plc. The new credit facility may be used to fund our acquisitions of vessels and companies with shipping interests and our working capital requirements in an amount not to exceed $30.0 million, including up to $20.0 million for our acquisition of our fleet manager.
A fee of $100,000 was paid upon our acceptance of the commitment letter that we entered into in connection with our new credit facility and we paid a fee of $1.2 million on the date that we signed the loan agreement. A commitment fee of 0.375% per annum will accrue on the amount of the undrawn balance from the first available draw down date and will be payable quarterly in arrears for the term of the facility. Interest on amounts drawn will be payable at a rate of 1.0% per annum over LIBOR.
The new credit facility has a term of ten years. Prior to the delivery of the second of our two new Panamax dry bulk carriers, we will be permitted to borrow up to the greater of $168.0 million and 60% of the aggregate market value of the vessels in our fleet that secure our obligations under the new credit facility, subject to an overall limit of $230.0 million. Following the delivery of that vessel, we will be permitted to borrow up to the facility limit, provided that conditions to drawdown are satisfied. The facility limit will be $230.0 million for a period of five years from the date of the loan agreement at which time the facility limit will be reduced to $210.0 million. Thereafter, the facility limit will be reduced by $13.5 million semi-annually over a period of five years with a final reduction of $75.0 million at the time of the last semi-annual reduction. Our ability to borrow funds for working capital purposes will be subject to review and renewal eighteen months from the date we sign the loan agreement and thereafter will be subject to review and renewal on an annual basis. If the lender elects to reduce the amount of funds that we may borrow for working capital purposes, the facility limit will be reduced by a corresponding amount.
Our obligations under the credit facility will be secured by a first priority mortgage on each of the vessels in our combined fleet and such other vessels that we may from time to time include with the approval of our lender, a first assignment of all freights, earnings, insurances and requisition compensation and a negative pledge agreement that requires us to either mortgage new vessels to our lender or obtain our lender's consent before we mortgage those vessels to third parties. We may grant additional security from time to time in the future.
Our ability to borrow amounts under the new credit facility will be subject to the execution of customary documentation relating to the facility, including security documents, satisfaction of certain customary conditions precedent and compliance with terms and conditions included in the loan documents. Prior to each drawdown, we will be required, among other things, to provide the lender with acceptable valuations of the vessels in our fleet confirming that the vessels in our combined fleet have an aggregate value of not less than $350.0 million and that the vessels in our fleet that secure our obligations under the new credit facility are sufficient to satisfy minimum security requirements. To the extent that the value of the vessels in our combined fleet falls below $350.0 million, our availability under the credit facility will either be proportionately reduced or we will be required to provide the facility agent with additional security in an amount that will, in its reasonable opinion, be adequate to compensate for such deficiency. To the extent that the vessels in our fleet that secure our obligations under the new credit facility are insufficient to satisfy minimum security requirements, we will be required to grant additional security or obtain a waiver or consent from the lender. We will also not be permitted to borrow amounts under the facility if we experience a change of control.
The new credit facility will contain financial covenants requiring us, among other things, to ensure that:
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under the new credit facility and the notional or actual cost of terminating any relating hedging arrangements;
For the purposes of the new credit facility, our "total assets" will be defined to include our tangible fixed assets and our current assets, as set forth in our consolidated financial statements, except that the value of any vessels in our fleet that secure our obligations under the new credit facility will be measured by their fair market value rather than their carrying value on our consolidated balance sheet.
The new credit facility will also contain general covenants that will require us to maintain adequate insurance coverage and to obtain the lender's consent before we acquire new vessels, change the flag, class or management of our vessels, enter into time charters or consecutive voyage charters that have a term that exceeds, or which by virtue of any optional extensions may exceed, thirteen months or enter into a new line of business. In addition, the credit facility will include customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, representation and warranty, a cross-default to other indebtedness and non-compliance with security documents.
Our new credit facility will not prohibit us from paying dividends so long as an event of default has not occurred and we are not, and after giving effect to the payment of the dividend would not be, in breach of a covenant. If we incur debt under the credit facility, however, the amount of cash that we have available to distribute as dividends in a period will be reduced by any interest or principal payments that we are required to make.
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The strategic, commercial and technical management of our fleet historically has been carried out by an affiliated company pursuant to separate management agreements between each of our wholly-owned vessel owning subsidiaries and our fleet manager. Diana Shipping Agencies S.A., or DSA, provided us with these management services from our founding through November 12, 2004, at which time responsibility for the commercial and technical management of our fleet was transferred to Diana Shipping Services S.A., or DSS, and the strategic management of our fleet was assumed by us. DSA and DSS are each majority owned and controlled by Mr. Simeon Palios, our Chairman and Chief Executive Officer. The stockholders of DSA and DSS also include Mr. Anastassis Margaronis, our President and a member of our board of directors, and Mr. Ioannis Zafirakis, our Vice President and a member of our board of directors.
We have entered into an agreement with the stockholders of DSS pursuant to which the DSS stockholders may sell all, but not less than all, of their outstanding shares of DSS to us during the 12 month period following the consummation of the offering for $20.0 million in cash. Under the terms of the agreement, if the DSS stockholders do not sell their outstanding shares to us prior to the one year anniversary of the offering, we may exercise an option to purchase the shares from them for the same consideration at any time prior to the second anniversary of the offering. We expect the DSS stockholders to sell their shares of DSS to us during the 12 months following the offering, and intend to exercise our option if they do not do so. We intend to finance our expected acquisition of DSS with borrowings under our new credit facility and to refinance the acquisition related debt with the net proceeds of future equity issuances. Upon our acquisition of DSS, DSS will become our wholly-owned subsidiary and the strategic, commercial and technical management of our fleet will be conducted by us in-house.
Under our management agreements, our fleet manager has historically been responsible for providing us with:
In addition, we have entered into a separate agreement with our fleet manager pursuant to which the fleet manager has agreed to provide us with office space and secretarial services at its offices in Athens, Greece until our acquisition of DSS. The fair value of the annual rental for the office space and the secretarial services during 2003 is estimated at approximately $141,000.
Prior to February 21, 2005, the shoreside personnel provided by our fleet manager included Mr. Simeon Palios, Mr. Anastassis Margaronis, Mr. Ioannis Zafirakis and Evangelos Monastiriotis, who, as employees of our fleet manager, performed services that were substantially identical to services provided by executive officers. On February 21, 2005, Mr. Simeon Palios, Mr. Anastassis Margaronis,
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and Mr. Ioannis Zafirakis became executive officers and employees of our company. On February 21, 2005, Mr. Monastiriotis became an executive officer of our company, although he continues to provide his services to us pursuant to his employment with our fleet manager.
In exchange for providing us with the services, personnel and office space described above, we have historically paid our fleet manager a commission that is equal to 2% of our revenues and a fixed management fee of $12,000 per month for each vessel in our operating fleet, which increased to $15,000 per month per vessel as of November 12, 2004. We expect that the amounts that we pay our fleet manager will be eliminated from our consolidated financial statements as intercompany transactions upon our acquisition of our fleet manager.
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Directors and Executive Officers
Set forth below are the names, ages and positions of our directors and executive officers. Our board of directors is elected annually on a staggered basis, and each director elected holds office for a three year term. Officers are appointed from time to time by our board of directors and hold office until a successor is appointed or their employment is terminated.
Name
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Age
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Position
|
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Simeon Palios | 63 | Class I Director, Chief Executive Officer and Chairman | ||
Anastassis Margaronis | 49 | Class I Director and President | ||
Ioannis Zafirakis | 33 | Class I Director, Vice President and Secretary | ||
Konstantinos Koutsomitopoulos | 37 | Chief Financial Officer and Treasurer | ||
Evangelos Monastiriotis | 54 | Chief Accounting Officer | ||
William (Bill) Lawes | 61 | Class II Director | ||
Konstantinos Psaltis | 66 | Class II Director | ||
Boris Nachamkin | 71 | Class III Director | ||
Apostolos Kontoyannis | 56 | Class III Director |
The term of our Class I directors expires in 2006, the term of our Class II directors expires in 2007 and the term of our Class III directors expires in 2008. Our Class II and Class III directors have agreed to serve as directors effective as of the closing of this offering.
The business address of each officer and director is the address of our principal executive offices, which are located at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece.
Biographical information with respect to each of our directors and executive officers is set forth below.
Simeon P. Palios has served as our Chief Executive Officer and Chairman since February 21, 2005 and as a Director since March 9, 1999. Mr. Palios also serves as an employee of DSS. Prior to November 12, 2004, Mr. Palios was the Managing Director of Diana Shipping Agencies S.A. and performed on our behalf the services he now performs as Chief Executive Officer. Since 1972, when he formed Diana Shipping Agencies, Mr. Palios has had the overall responsibility of our activities. Mr. Palios has 38 years experience in the shipping industry and expertise in technical and operational issues. He has served as an ensign in the Greek Navy for the inspection of passenger boats on behalf of Ministry of Merchant Marine and is qualified as a naval architect and engineer. Mr. Palios is a member of various leading classification societies worldwide and he is a member of the board of directors of the United Kingdom Freight Demurrage and Defence Association Limited. He holds a bachelors degree in Marine Engineering from Durham University.
Anastassis C. Margaronis has served as our President and as a Director since February 21, 2005. Mr. Margaronis also serves as an employee of DSS. Prior to February 21, 2005, Mr. Margaronis was employed by Diana Shipping Agencies S.A. and performed on our behalf the services he now performs as President. He joined Diana Shipping Agencies in 1979 and has been responsible for overseeing our insurance matters, including hull and machinery, protection and indemnity and war risks cover. Mr. Margaronis has 25 years of experience in shipping, including in ship finance and insurance. He is a member of the Governing Council of the Greek Shipowner's Union. He holds a bachelors degree in Economics from the University of Warwick and a masters degree from the Wales Institute of Science and Technology.
Ioannis G. Zafirakis has served as our Vice President and Secretary since February 21, 2005 and as a Director since March 9, 1999. Mr. Zafirakis also serves as an employee of DSS. Prior to February 21, 2005, Mr. Zafirakis was employed by Diana Shipping Agencies S.A. and performed on our
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behalf the services he now performs as Vice President. He joined Diana Shipping Agencies S.A. in 1997 where he held a number of positions in its finance and accounting department. He holds a bachelors degree in Business Studies from City University Business School in London and a masters degree in International Transport from the University of Wales in Cardiff.
Konstantinos Koutsomitopoulos has served as our Chief Financial Officer and Treasurer since February 21, 2005, during which time he has been responsible for overseeing our accounting and finance matters. Prior to becoming our Chief Financial Officer, Mr. Koutsomitopoulos provided similar services to us since joining our company in October 2004. Mr. Koutsomitopoulos also serves as an employee of our DSS. Having a family background in shipping, Mr. Koutsomitopoulos joined Pegasus Shipping Inc., a reporting company in the United States, in 1992. From 1997 to 2002, Mr. Koutsomitopoulos was responsible for chartering, sales and purchasing and assisting in financing activities of the company, holding the positions of Chief Executive Officer and, subsequently, Director. Prior to joining our company in 2004, Mr. Koutsomitopoulos served as an independent financial adviser, primarily serving members of the shipping industry. He has 15 years of experience in shipping and in particular shipping finance. Mr. Koutsomitopoulos graduated from the University of Athens in 1989 with a bachelors degree in Economics and from City University Business School in London in 1991 with a masters degree in Shipping, Trade and Finance.
Evangelos Monastiriotis has served as our Chief Accounting Officer, pursuant to his employment with DSS, since February 21, 2005. Mr. Monastiriotis joined the accounting department of our fleet manager in 1980 and has been responsible for the preparation of its financial statements. Prior to 1980, Mr. Monastiriotis was employed by the Piraeus branch of Moore Stephens & Co., Chartered Accountants. In 1998, he was elected Vice-President of the Economic Chamber of Greece. Mr. Monastiriotis graduated from the Economic University of Athens in 1974 with a bachelors degree in Economics and Business Administration.
William (Bill) Lawes has agreed to serve as a Director and the Chairman of our Audit Committee effective as of the closing of this offering. Mr. Lawes served as a Managing Director and a member of the Regional Senior Management Board of JPMorgan Chase (London) from 1987 until 2002. Prior to joining JPMorgan Chase, he was Global Head of Shipping Finance at Grindlays Bank. Mr. Lawes is currently a member of the International Maritime Industries' Forum. Mr. Lawes is qualified as a member of the Institute of Chartered Accountants of Scotland.
Konstantinos Psaltis has agreed to serve as a Director effective as of the closing of this offering. Since 1981, Mr. Psaltis has served as Managing Director of Ormos Compania Naviera S.A., a company that specializes in operating and managing multipurpose container vessels. Prior to joining Ormos Compania Naviera S.A., Mr. Psaltis simultaneously served as a technical manager in the textile manufacturing industry and as a shareholder of shipping companies managed by M.J. Lemos. From 1961 to 1964, he served as ensign in the Royal Hellenic Navy. Mr. Psaltis is a member of the Germanischer Lloyds Hellas Committee. He holds a degree in Mechanical Engineering from Technische Hochschule Reutlingen & Wuppertal and a bachelors degree in Business Administration from Tubingen University in Germany.
Boris Nachamkin has agreed to serve as a Director and as a member of our Compensation Committee effective as of the closing of this offering. Mr. Nachamkin was with Bankers Trust Company, New York, for 37 years, from 1956 to 1993 and was posted to London in 1968. Upon retirement in 1993, he acted as Managing Director and Global Head of Shipping at Bankers Trust. Mr. Nachamkin was also the UK Representative of Deutsche Bank Shipping from 1996 to 1998 and Senior Executive and Head of Shipping, based in Paris, for Credit Agricole Indosuez between 1998 and 2000. Previously, he was a Director of Mercur Tankers, a company which was listed on the Oslo Stock Exchange, and Ugland International, a shipping company. He also serves as Managing Director of Seatrust Shipping Services Ltd., a private consulting firm.
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Apostolos Kontoyannis has agreed to serve as a Director and as the Chairman of our Compensation Committee and a member of our Audit Committee effective as of the closing of this offering. Since 1987, Mr. Kontoyannis has been the Chairman of Investments and Finance Ltd., a financial consultancy firm he founded, that specializes in financial and structuring issues relating to the Greek maritime industry, with offices in Piraeus and London. He was employed by Chase Manhattan Bank N.A. in Frankfurt (Corporate Bank), London (Head of Shipping Finance South Western European Region) and Piraeus (Manager, Ship Finance Group) from 1975 to 1987. Mr. Kontoyannis holds a bachelors degree in Finance and Marketing and an M.B.A. in Finance from Boston University.
Board Practices
Upon the closing of this offering, we will establish an Audit Committee comprised of two board members which will be responsible for reviewing our accounting controls and recommending to the board of directors the engagement of our outside auditors. Each member will be an independent director. In addition, we will establish a Compensation Committee comprised of two members, which will be responsible for establishing executive officers' compensation and benefits. The members of the Audit Committee will be Mr. William Lawes (Chairman) and Mr. Apostolos Kontoyannis and the members of the Compensation Committee will be Mr. Apostolos Kondoyannis (Chairman) and Mr. Boris Nachamkin. While we are exempt from New York Stock Exchange rules on independent directors, we intend to conform to those rules.
Compensation of Directors and Senior Management
The aggregate annual compensation paid to members of our senior management was $0 for the years ended December 31 2001, 2002 and 2003. Those members of our senior management were employed and paid compensation for those years by our fleet managers from the management fees that we paid to it. We estimate that the fair market value of the aggregate annual compensation for each of the years ended December 31 2001, 2002 and 2003 that we would have paid to members of our senior management had we been a public company would have been $1.3 million, had such services been charged to us at fair value by our fleet manager during those years. Please see Note 13 to our audited consolidated financial statements. We did not pay any benefits in 2002 or 2003. We do not have a retirement plan for our officers or directors. Non-employee directors will receive annual fees in the amount of $40,000 plus reimbursement of their out-of-pocket expenses.
Equity Incentive Plan
We have adopted an equity incentive plan, to which we refer as the plan, which entitles our officers, key employees and directors to receive options to acquire our common stock. A total of 2,800,000 shares of common stock was reserved for issuance under the plan. The plan is administered by our board of directors. Under the terms of the plan, our board of directors will be able to grant new options exercisable at a price per share to be determined by our board of directors. Under the terms of the plan, no options will be exercisable until at least two years after the closing of this offering. Any shares received on exercise of the options will not be able to be sold until three years after the closing of this offering. All options will expire 10 years from the date of grant. The plan will expire 10 years from the closing of this offering.
Employment Agreements
We have entered into employment agreements with each of Mr. Palios, Mr. Margaronis, Mr. Zafirakis and Mr. Koutsomitopoulos for work performed in Greece and separate consulting agreements with companies owned by each of them for work performed outside of Greece. In addition, Mr. Palios, Mr. Margaronis, Mr. Zafirakis and Mr. Koutsomitopoulos have each entered into employment agreements with DSS, our fleet manager, pursuant to which each will offer guidance with respect to his field of expertise.
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The following table sets forth information regarding (i) the owners of more than five percent of our common stock that we are aware of and (ii) the total amount of common stock owned by all of our officers and directors, individually and as a group, in each case as of February 21, 2005 and after giving effect to this offering. All of the stockholders, including the stockholders listed in this table, are entitled to one vote for each share of common stock held.
Title of Class
|
Identity of Person or Group
|
Number of
Shares Owned |
Percent of Class
before Offering |
Number of
Shares to be Sold |
Percent of Class
after Offering |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock, par value $.01 | Simeon Palios(1) | 20,718,750 | 75 | % | | 51.8 | % | ||||
Fortis Bank (Nederland) N.V.(2) | 6,906,250 | 25 | % | 1,856,250 | 12.6 | % | |||||
All officers and directors as a group(3) | 20,718,750 | 75 | % | | 51.8 | % |
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Diana Shipping Services S.A. Management Agreements
We have entered into management agreements with Diana Shipping Services, S.A., or DSS, an affiliated entity that is majority owned and controlled by our Chief Executive Officer and Chairman, Mr. Simeon Palios, with respect to each of the vessels in our operating fleet. We intend to enter into similar management agreements with DSS with respect to vessels that we may acquire in the future. The stockholders of DSS also include Mr. Anastassis Margaronis, our President and a member of our board of directors, and Mr. Ioannis Zafirakis, our Vice President and a member of our board of directors. Under the terms of the management agreements, DSS is responsible for the commercial and technical management of our vessels. Pursuant to the management agreement, we pay DSS a commission equal to 2% of our revenues and a fixed monthly fee of $15,000 per vessel. We believe that the amounts we pay to DSS are comparable to amounts that we would negotiate in an arms length transaction with an unaffiliated third party. We have also entered into a separate agreement with DSS whereby DSS has agreed to provide us with office space and secretarial services at its offices at Pendelis 16, Athens, Greece for no additional charge until we acquire DSS.
Diana Shipping Services S.A. Purchase Option
We have entered into an agreement with the stockholders of DSS pursuant to which the DSS stockholders may sell all, but not less than all, of their outstanding shares of DSS to us during the 12 month period following the consummation of the offering for $20.0 million in cash. DSS's indirect stockholders include Mr. Simeon Palios, our Chairman and Chief Executive Officer, Mr. Anastassis Margaronis, our President and a member of our board of directors and Mr. Ioannis Zafirakis, our Vice President and a member of our board of directors. Under the terms of the agreement, if the DSS stockholders do not sell their outstanding shares to us prior to the one year anniversary of the offering, we may exercise an option to purchase the shares from them for the same consideration at any time prior to the second anniversary of the offering. While we expect the DSS stockholders to sell their shares of DSS to us during the 12 months following the offering, we intend to exercise our option if they do not do so. Upon our acquisition of DSS, DSS will become our wholly-owned subsidiary and we will conduct the strategic, commercial and technical management of our fleet.
Diana Shipping Agencies S.A. Management Agreements
Prior to November 12, 2004, we were a party to management agreements with Diana Shipping Agencies S.A., or DSA, an affiliated entity that is majority owned and controlled by our Chairman and Chief Executive Officer, with respect to each of our vessels from our founding until November 12, 2004. The stockholders of DSA also include Mr. Anastassis Margaronis, our President and a member of our board of directors, and Mr. Ioannis Zafirakis, our Vice President and a member of our board of directors. Under the terms of the agreements, we paid DSA a fixed monthly fee of $12,000 per vessel and a commission equal to 2% of vessel revenue. Under the terms of the management agreement, DSA provided the commercial, strategic and technical management of our vessels. We believe that the amounts we paid to DSA were comparable to amounts that we would have negotiated in an arms length transaction with an unaffiliated third party. DSA also provided us with office space in Athens, Greece. The fair value of the annual rent for the office space and the secretarial services provided during 2003 is estimated at approximately $141,000. Our management agreements with DSA were terminated on November 12, 2004. We have been advised by DSA that it has historically operated its business consistent with market practice in Greece. However, administrative claims may arise against it with respect to past employment practices, although DSA is not aware of any pending or threatened proceedings. We have been advised that the amounts concerned would be relatively small and that DSA
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no longer follows these employment practices. Neither we nor DSS would have any liability for any such claims that could possibly be assessed in respect of DSA.
Commercial Banking, Financial Advisory and Investment Banking Services
Fortis Bank (Nederland) N.V., one of our current stockholders, and its affiliates have provided and may continue to provide commercial banking, financial advisory and investment banking services for us for which they receive customary compensation. Fortis Bank (Nederland) N.V. provided us with bridge loans that we repaid in 2001 and acted as the counterparty under two separate interest rate option contracts that we terminated in November 2004. Fortis Securities LLC, an affiliate of Fortis Bank (Nederland) N.V., is an underwriter in this offering. Please see the section of this prospectus entitled "Underwriting".
Share Purchase and Subscription Agreement
On December 30, 2002, a share purchase and subscription agreement was signed by Zoe S. Company Ltd., or Zoe, an entity that is wholly-owned by Fortis Bank (Nederland) N.V., Ironwood Trading Corp., an affiliated entity controlled by our Chairman and Chief Executive Officer, Mr. Simeon Palios, certain executives of our fleet manager, including Mr. Simeon Palios, and us. Under the terms of this agreement, Zoe acquired from Ironwood Trading Corp., or Ironwood, 50% of our then issued and outstanding shares of common stock. Pursuant to the agreement, Ironwood was granted the first right to purchase shares of common stock held by Zoe in the event of proposed sale of the shares. Ironwood assigned its right of first refusal to Corozal Compania Naviera S.A., or Corozal, an entity also controlled by our Chairman and Chief Executive Officer, which acceded to the agreement, exercised this right and purchased 25% of our issued and outstanding shares of common stock from Zoe on September 3, 2004. The purchase price paid for the shares approximated 25% of the sum of the market value of the Panamax dry bulk carriers in our combined fleet and our working capital, less our outstanding debt and the balance of pre-delivery installments due on our two Panamax newbuilding contracts. Pursuant to the share purchase and subscription agreement, we and our executives are required to obtain the unanimous consent of all stockholders before declaring or paying dividends, modifying our authorized or issued share capital, appointing or terminating our fleet manager, obtaining loans or advances, issuing guarantees, acquiring or selling vessels or other assets and undertaking various other actions. We and the other parties to the agreement intend to terminate the agreement immediately prior to the closing of this offering.
Registration Rights Agreement
We intend to enter into a registration rights agreement immediately prior to the closing of this offering with Corozal Compania Naviera S.A., Ironwood Trading Corp., and Zoe S. Company Ltd., our current stockholders of record, pursuant to which we will grant them, their affiliates (including Mr. Simeon Palios, Mr. Anastassis Margaronis and Mr. Ioannis Zafirakis) and certain of their transferees, the right, under certain circumstances and subject to certain restrictions, including restrictions included in the lock-up agreements to which our current stockholders of record are a party, to require us to register under the Securities Act shares of our common stock held by them. Under the registration rights agreement, these persons will have the right to request us to register the sale of shares held by them on their behalf and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, these persons will have the ability to exercise certain piggyback registration rights in connection with registered offerings requested by stockholders or initiated by us. Immediately after this offering, the current stockholders will own 27,625,000 shares entitled to these registration rights, assuming the underwriters do not exercise their over-allotment option.
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Consultancy Agreements
We have entered into consulting agreements with companies owed by Mr. Palios, Mr. Margaronis, Mr. Zafirakis and Mr. Koutsomitopoulos, respectively. We expect to pay these companies for services with respect to our operations provided by their owners for services performed outside of Greece.
Travel Services
Altair Travel S.A., an affiliated entity that is controlled by our Chairman and Chief Executive Officer, Mr. Simeon Palios, provides us with travel related services. Travel related expenses in 2001, 2002 and 2003 amounted to $140,000, $121,000, and $167,000, respectively. We believe that the fees that we pay to Altair Travel S.A. are no greater than fees we would pay to an unrelated third party for comparable services in an arm's length transaction.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 40,000,000 shares of common stock outstanding. Of these shares, the 12,375,000 shares sold in this offering, or 14,231,250 shares assuming the underwriters exercise their over-allotment option in full, will be freely transferable in the United States without restriction under the Securities Act, except for any shares acquired by one of our "affiliates" as defined under Rule 144. Immediately after consummation of this offering, our current stockholders will continue to own 27,625,000 shares of common stock, or 25,768,750 shares assuming the underwriters exercise their over-allotment option in full, which were acquired in private transactions not involving a public offering and these shares will therefore be treated as "restricted securities" for purposes of Rule 144. The restricted securities held by our current stockholders will be subject to the underwriter's 180-day lock-up agreement as described below. Restricted securities may not be resold except in compliance with the registration requirements of the Securities Act or under an exemption from those registration requirements, such as the exemptions provided by Rule 144, Regulation S and other exemptions under the Securities Act. The preferred stock purchase rights being registered in this offering are attached to our common stock and are subject to the same requirements for resale as the common stock to which they are attached.
In general, under Rule 144 as currently in effect, a person or persons whose shares are aggregated who owns shares that were acquired from the issuer or an affiliate at least one year ago would be entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of our common stock, which will be approximately 400,000 shares immediately after this offering, or (ii) an amount equal to the average weekly reported volume of trading in shares of our common stock on all national securities exchanges and/or reported through the automated quotation system of registered securities associations during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales in reliance on Rule 144 are also subject to other requirements regarding the manner of sale, notice and availability of current public information about us. A person or persons whose shares are aggregated, and who is not deemed to have been one of our affiliates at any time during the 90 days immediately preceding the sale may sell restricted securities in reliance on Rule 144(k) without regard to the limitations described above, provided that two years have expired since the later of the date on which the same restricted securities were acquired from us or one of our affiliates. As defined in Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, that same issuer.
We and our executive officers, directors and existing stockholders have entered into agreements with the underwriters of this offering which, subject to certain exceptions, generally restrict us and our executive officers, directors and stockholders from directly or indirectly offering, selling, pledging, hedging or otherwise disposing of our equity securities, restricted securities or any security that is convertible into or exercisable or exchangeable for our equity securities and from engaging in certain other transactions relating to such securities for a period of 180 days after the date of this prospectus without the prior written consent of Bear, Stearns & Co. Inc. However, Bear, Stearns & Co. Inc. may, in its sole discretion and at any time or from time to time before the expiration of the 180-day lock-up period, without notice, release all or any portion of the securities subject to these agreements. There are no existing agreements with Bear, Stearns & Co. Inc. providing consent to the sale of shares prior to the expiration of the lock-up period.
We will enter into a registration rights agreement immediately prior to the closing of this offering with our stockholders of record pursuant to which we will grant them, their affiliates and certain of their transferees, the right, under certain circumstances and subject to certain restrictions, including restrictions included in the lock-up agreements described above, to require us to register under the Securities Act shares of our common stock held by them. Shares of common stock, when registered under any registration statement, will be available for sale in the open market unless restrictions apply.
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See "Related Party TransactionsRegistration Rights Agreement." In addition, all of these shares would be available for sale into the public market after one year pursuant to Rule 144, Regulation S and other exemptions under the Securities Act, as described above.
As a result of the lock-up agreements and rules of the Securities Act, the restricted shares will be available for sale in the public market, subject to certain volume and other restrictions, as mentioned above, as follows:
Days After the Date of this Prospectus
|
Number of Shares
Eligible for Sale |
Comment
|
||
---|---|---|---|---|
Date of prospectus | None | Shares not locked up and eligible for sale freely or under Rule 144 | ||
180 days (1) | 27,625,000 | Lock-up released; shares eligible for sale under Rule 144 |
Prior to this offering, there has been no public market for our common stock, and no prediction can be made as to the effect, if any, that future sales or the availability of shares for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market, including shares issued upon the exercise of options that may be granted under any employee stock option or employee stock award plan of ours, or the perception that those sales may occur, could adversely affect prevailing market prices for our common stock.
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The following is a description of the material terms of our amended and restated articles of incorporation and bylaws that will be in effect immediately prior to the consummation of this offering. We refer you to our amended and restated articles of incorporation and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part.
Purpose
Our purpose, as stated in our amended and restated articles of incorporation, is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Business Corporations Act of the Marshall Islands, or the BCA. Our amended and restated articles of incorporation and bylaws do not impose any limitations on the ownership rights of our stockholders.
Authorized Capitalization
Under our amended and restated articles of incorporation, as of February 21, 2005, our authorized capital stock consists of 100,000,000 shares of common stock, par value $.01 per share, of which 27,625,000 shares were issued and outstanding, and 25,000,000 shares of preferred stock, par value $.01 per share, of which no shares were issued and outstanding. Upon consummation of this offering, we will have outstanding 40,000,000 shares of common stock and no shares of preferred stock. All of our shares of stock are in registered form.
Common Stock
Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of shares of common stock are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all or our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders or our common stock will be entitled to receive pro rata our remaining assets available for distribution. Holders of common stock do not have conversion, redemption or preemptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of any shares of preferred stock which we may issue in the future.
Preferred Stock
Our amended and restated articles of incorporation authorize our board of directors to establish one or more series of preferred stock and to determine, with respect to any series of preferred stock, the terms and rights of that series, including:
Directors
Our directors are elected by a majority of the votes cast by stockholders entitled to vote. There is no provision for cumulative voting.
Our board of directors must consist of at least one member. Stockholders may change the number of directors only by the affirmative vote of holders of a majority of the outstanding common stock. The board of directors may change the number of directors only by a majority vote of the entire board.
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Each director shall be elected to serve until the next annual meeting of stockholders and until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination of his term of office. Our board of directors has the authority to fix the amounts which shall be payable to the members of the board of directors for attendance at any meeting or for services rendered to us.
Stockholder Meetings
Under our bylaws, annual stockholder meetings will be held at a time and place selected by our board of directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called by stockholders holding not less than one-fifth of all the outstanding shares entitled to vote at such meeting. Our board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the stockholders that will be eligible to receive notice and vote at the meeting.
Dissenters' Rights of Appraisal and Payment
Under the BCA, our stockholders have the right to dissent from various corporate actions, including any merger or consolidation sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a stockholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting stockholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting stockholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which the company's shares are primarily traded on a local or national securities exchange.
Stockholders' Derivative Actions
Under the BCA, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of common stock both at the time the derivative action is commenced and at the time of the transaction to which the action relates.
Limitations on Liability and Indemnification of Officers and Directors
The BCA authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties. Our bylaws includes a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law.
Our bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly authorized to advance certain expenses (including attorneys fees and disbursements and court costs) to our directors and offices and carry directors' and officers' insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive offices.
The limitation of liability and indemnification provisions in our amended and restated articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
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There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Anti-takeover Effect of Certain Provisions of our Amended and Restated Articles of Incorporation and Bylaws
Several provisions of our amended and restated articles of incorporation and 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 stockholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise that a stockholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Blank Check Preferred Stock
Under the terms of our amended and restated articles of incorporation, our board of directors has authority, without any further vote or action by our stockholders, to issue up to 25,000,000 shares of blank check preferred stock. Our board of directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our company or the removal of our management.
Classified Board of Directors
Our amended and restated articles of incorporation provide for the division of our board of directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered, three year terms. Approximately one-third of our board of directors will be 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 stockholders who do not agree with the policies of our board of directors from removing a majority of our board of directors for two years.
Election and Removal of Directors
Our amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our bylaws require parties other than the board of directors to give advance written notice of nominations for the election of directors. Our articles of incorporation also provide that our directors may be removed only for cause and only upon the affirmative vote of a majority of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Stockholders
Our amended and restated articles of incorporation and our bylaws provide that any action required or permitted to be taken by our stockholders must be effected at an annual or special meeting of stockholders or by the unanimous written consent of our stockholders. Our amended and restated articles of incorporation and our bylaws provide that, subject to certain exceptions, our Chairman, Chief Executive Officer, or Secretary at the direction of the board of directors or holders of not less than one-fifth of all outstanding shares may call special meetings of our stockholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a stockholder may be prevented from calling a special meeting for stockholder consideration of a proposal over the opposition of our board of directors and stockholder consideration of a proposal may be delayed until the next annual meeting.
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Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of stockholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a stockholder's notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the date on which we first mailed our proxy materials for the preceding year's annual meeting. Our bylaws also specify requirements as to the form and content of a stockholder's notice. These provisions may impede stockholders' ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders.
Stockholder Rights Plan
General
Each share of our common stock includes one right, or a right, that entitles the holder to purchase from us a unit consisting of one-thousandth of a share of our preferred stock at a purchase price of $25 per unit, subject to specified adjustments. The rights are issued pursuant to a rights agreement between us and , as rights agent. Until a right is exercised, the holder of a right will have no rights to vote or receive dividends or any other stockholder rights.
The rights may have anti-takeover effects. The rights will cause substantial dilution to any person or group that attempts to acquire us without the approval of our board of directors. As a result, the overall effect of the rights may be to render more difficult or discourage any attempt to acquire us. Because our board of directors can approve a redemption of the rights or a permitted offer, the rights should not interfere with a merger or other business combination approved by our board of directors. The adoption of the rights agreement was approved by our existing stockholders prior to the offering.
We have summarized the material terms and conditions of the rights agreement and the rights below. For a complete description of the rights, we encourage you to read the rights agreement, which we have filed as an exhibit to the registration statement of which this prospectus is a part.
Detachment of the Rights
The rights are attached to all certificates representing our currently outstanding common stock and will attach to all common stock certificates we issue prior to the rights distribution date that we describe below. The rights are not exercisable until after the rights distribution date and will expire at the close of business on the tenth anniversary date of the adoption of the rights plan, unless we redeem or exchange them earlier as we describe below. The rights will separate from the common stock and a rights distribution date would occur, subject to specified exceptions, on the earlier of the following two dates:
Existing stockholders are excluded from the definition of "acquiring person" for purposes of the rights, and therefore their ownership cannot trigger the rights. In addition, any person that acquires from an existing stockholder of common stock that would otherwise result in that person becoming an "acquiring person" will not become an acquiring person due to that acquisition. Specified "inadvertent" owners that would otherwise become an acquiring person, including those who would have this designation as a result of repurchases of common stock by us, will not become acquiring persons as a result of those transactions.
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Our board of directors may defer the rights distribution date in some circumstances, and some inadvertent acquisitions will not result in a person becoming an acquiring person if the person promptly divests itself of a sufficient number of shares of common stock.
Until the rights distribution date:
As soon as practicable after the rights distribution date, the rights agent will mail certificates representing the rights to holders of record of common stock at the close of business on that date. After the rights distribution date, only separate rights certificates will represent the rights.
We will not issue rights with any shares of common stock we issue after the rights distribution date, except as our board of directors may otherwise determine.
Flip-In Event
A "flip-in event" will occur under the rights agreement when a person becomes an acquiring person otherwise than pursuant to a permitted offer. The rights agreement generally defines "permitted offer" to mean a tender or exchange offer for all outstanding shares of common stock at a price and on terms that a majority of the members of our board of directors who are independent from the acquiring person or the person making the offer determines to be fair to and otherwise in the best interests of our company and our stockholders.
If a flip-in event occurs and we do not redeem the rights as described under the heading "Redemption of Rights" below, each right, other than any right that has become void, as we describe below, will become exercisable at the time it is no longer redeemable for the number of shares of common stock, or, in some cases, cash, property or other of our securities, having a current market price equal to two times the exercise price of such right.
When a flip-in event occurs, all rights that then are, or in some circumstances that were, beneficially owned by or transferred to an acquiring person or specified related parties will become void in the circumstances the rights agreement specifies.
Flip-Over Event
A "flip-over event" will occur under the rights agreement when, at any time after a person has become an acquiring person:
If a flip-over event occurs, each holder of a right, other than any right that has become void as we describe under the heading "Flip-In Event" above, will have the right to receive the number of shares of common stock of the acquiring company which has a current market price equal to two times the exercise price of such right.
Antidilution
The number of outstanding rights associated with our common stock is subject to adjustment for any stock split, stock dividend or subdivision, combination or reclassification of our common stock occurring prior to the rights distribution date. With some exceptions, the rights agreement will not require us to adjust the exercise price of the rights until cumulative adjustments amount to at least 1% of the exercise price. It also will not require us to issue fractional shares of our preferred stock that are not integral multiples of one one-hundredth of a share, and, instead we may make a cash adjustment
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based on the market price of the common stock on the last trading date prior to the date of exercise. The rights agreement reserves to us the right to require prior to the occurrence of any flip-in event or flip-over event that, on any exercise of rights, a number of rights must be exercised so that we will issue only whole shares of stock.
Redemption of Rights
At any time until 10 days after the date on which the occurrence of a flip-in event is first publicly announced, we may redeem the rights in whole, but not in part, at a redemption price of $.01 per right. The redemption price is subject to adjustment for any stock split, stock dividend or similar transaction occurring before the date of redemption. At our option, we may pay that redemption price in cash, shares of common stock or any other consideration our board of directors may select. The rights are not exercisable after a flip-in event until they are no longer redeemable. If our board of directors timely orders the redemption of the rights, the rights will terminate on the effectiveness of that action.
Exchange of Rights
We may, at our option, exchange the rights (other than rights owned by an acquiring person or an affiliate or an associate of an acquiring person, which have become void), in whole or in part. The exchange will be at an exchange ratio of one share of common stock per right, subject to specified adjustments at any time after the occurrence of a flip-in event and prior to:
Amendment of Terms of Rights
During the time the rights are redeemable, we may amend any of the provisions of the rights agreement, other than by decreasing the redemption price. Once the rights cease to be redeemable, we generally may amend the provisions of the rights agreement, other than to decrease the redemption price, only as follows:
Transfer Agent
The registrar and transfer agent for the common stock is Computershare Investor Services LLC.
Listing
Shares of our common stock have been approved for listing on the New York Stock Exchange under the symbol "DSX", subject to official notice of issuance.
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CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS
Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the Business Corporation Act of the Republic of the Marshall Islands, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. For example, the BCA allows the adoption of various anti-takeover measures such as stockholder "rights" plans. While the BCA also provides that it is to be in interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we can not predict whether Marshall Islands courts would reach the same conclusions as United States courts. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdiction which has developed a substantial body of case law. The following table provides a comparison between the statutory provisions of the BCA and the Delaware General Corporation Law relating to stockholders' rights.
Marshall Islands
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Delaware
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Stockholder Meetings |
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Held at a time and place as designated in the bylaws |
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May be held at such time or place as designated in the certificate of incorporation or the bylaws, or if not so designated, as determined by the board of directors |
| May be held in or outside of the Marshall Islands | | May be held in or outside of Delaware | |||
| Notice: | | Notice: | |||
Whenever stockholders are required to take action at a meeting, written notice shall state the place, date and hour of the meeting and indicate that it is being issued by or at the direction of the person calling the meeting | Whenever stockholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any | |||||
A copy of the notice of any meeting shall be given personally or sent by mail not less than 15 nor more than 60 days before the meeting | Written notice shall be given not less than 10 nor more than 60 days before the meeting | |||||
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Stockholder's Voting Rights |
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Any action required to be taken by a meeting of stockholders may be taken without a meeting if consent is in writing and is signed by all the stockholders entitled to vote |
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Stockholders may act by written consent to elect directors |
| Any person authorized to vote may authorize another person to act for him by proxy | | Any person authorized to vote may authorize another person or persons to act for him by proxy | |||
| Unless otherwise provided in the articles of incorporation, a majority of shares entitled to vote constitutes a quorum. In no event shall a quorum consist of fewer than one third of the shares entitled to vote at a meeting | | For non-stock companies, a certificate of incorporation or bylaws may specify the number of members to constitute a quorum. In the absence of this, one-third of the members shall constitute a quorum | |||
| No provision for cumulative voting | | For stock corporations, a certificate of incorporation or bylaws may specify the number to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares entitled to vote shall constitute a quorum | |||
| The certificate of incorporation may provide for cumulative voting | |||||
Directors |
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The board of directors must consist of at least one member |
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The board of directors must consist of at least one member |
| Number of members can be changed by an amendment to the bylaws, by the stockholders, or by action of the board | | Number of board members shall be fixed by the bylaws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number shall be made only by amendment of the certificate of incorporation. | |||
| If the board of directors is authorized to change the number of directors, it can only do so by an absolute majority (majority of the entire board) | |||||
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Dissenter's Rights of Appraisal |
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Stockholder's have a right to dissent from a merger or sale of all or substantially all assets not made in the usual course of business, and receive payment of the fair value of their shares |
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Appraisal rights shall be available for the shares of any class or series of stock of a corporation in a merger or consolidation |
| A holder of any adversely affected shares who does not vote on or consent in writing to an amendment to the articles of incorporation has the right to dissent and to receive payment for such shares if the amendment: | |||||
Alters or abolishes any preferential right of any outstanding shares having preference; or | ||||||
Creates, alters, or abolishes any provision or right in respect to the redemption of any outstanding shares; or | ||||||
Alters or abolishes any preemptive right of such holder to acquire shares or other securities; or | ||||||
Excludes or limits the right of such holder to vote on any matter, except as such right may be limited by the voting rights given to new shares then being authorized of any existing or new class | ||||||
Stockholder's Derivative Actions |
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An action may be brought in the right of a corporation to procure a judgement in its favor, by a holder of shares or of voting trust certificates or of a beneficial interest in such shares or certificates. It shall be made to appear that the plaintiff is such a holder at the time of bringing the action and that he was such a holder at the time of the transaction of which he complains, or that his shares or his interest therein devolved upon him by operation of law |
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In any derivative suit instituted by a stockholder or a corporation, it shall be averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the transaction of which he complains or that such stockholder's stock thereafter devolved upon such stockholder by operation of law |
| Complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making such effort | |||||
| Such action shall not be discontinued, compromised or settled, without the approval of the High Court of the Republic | |||||
| Attorney's fees may be awarded if the action is successful | |||||
| Corporation may require a plaintiff bringing a derivative suit to give security for reasonable expenses if the plaintiff owns less than 5% of any class of stock and the shares have a value of less than $50,000 |
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The following is a discussion of the material Marshall Islands and United States federal income tax considerations relevant to an investment decision by a United States Holder, as defined below, with respect to the common stock. This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which (such as financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, insurance companies, persons holding our common stock as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities that have elected the mark-to-market method of accounting for their securities, persons liable for alternative minimum tax, persons who are investors in pass-through entities, dealers in securities or currencies and investors whose functional currency is not the United States dollar) may be subject to special rules. This discussion deals only with holders who purchase common stock in connection with this offering. You should consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of common stock.
Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax consequences of our activities to us and stockholders of our common stock. We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our stockholders.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, our United States counsel, the following are the material United States federal income tax consequences to us of our activities and to United States Holders, as defined below, of our common stock. The following discussion of United States federal income tax matters is based on the Internal Revenue Code of 1986, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, all of which are subject to change, possibly with retroactive effect. In addition, the discussion below is based, in part, on the description of our business as described in "Business" above and assumes that we conduct our business as described in that section. Except as otherwise noted, this discussion is based on the assumption that we will not maintain an office or other fixed place of business within the United States. References in the following discussion to "we" and "us" are to Diana Shipping Inc. and its subsidiaries on a consolidated basis.
United States Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from United States federal income taxation under the rules discussed below, a foreign corporation is subject to United States federal income taxation on its "shipping income" that is treated as derived from sources within the United States, to which we refer as "United States source shipping income." For these purposes "shipping income" means any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating agreement, code sharing arrangement or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses. For tax purposes, "United States source shipping income includes (i) 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States and (ii) 100% of shipping income that is attributable to transportation that both begins and ends in the United States.
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Shipping income attributable to transportation exclusively between non- United States ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any United States federal income tax.
In the absence of exemption from tax under Section 883 of the Code, our gross United States source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below. We do not expect to engage in transportation that produces income which is considered to be 100% from sources within the United States.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the regulations thereunder, we will be exempt from United States federal income taxation on our United States source shipping income if:
The Marshall Islands and Panama, the jurisdictions where we and our ship-owning subsidiaries are incorporated, grant an "equivalent exemption" to United States corporations. Therefore, we will be exempt from United States federal income taxation with respect to our United States source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met. Prior to this offering the 50% Ownership Test will be satisfied. After this offering, it may be difficult to satisfy the 50% Ownership Test due to the widely-held ownership of our stock. However, assuming that the common stock is listed on the New York Stock Exchange, we anticipate being able to satisfy the Publicly-Traded Test, as discussed below.
The regulations under Code Section 883 provide, in pertinent part, that stock of a foreign corporation will be considered to be "primarily traded" on an established securities market in a country if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. Upon completion of our offering, we anticipate that our common stock, which will be the sole class of our issued and outstanding stock, will be "primarily traded" on the New York Stock Exchange.
Under the regulations, our common stock will be considered to be "regularly traded" on an established securities market if one or more classes of our stock representing more than 50% of our outstanding shares, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on the market, to which we refer as the "listing threshold."
It is further required that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or 1 / 6 of the days in a short taxable year; and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately
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adjusted in the case of a short taxable year. We believe we will satisfy the trading frequency and trading volume tests. Even if this were not the case, the regulations provide that the trading frequency and trading volume tests will be deemed satisfied if, as we expect to be the case with our common stock, such class of stock is traded on an established market in the United States and such stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that each class of our stock will not be considered to be "regularly traded" on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned, actually or constructively under specified stock attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the value of such class of our outstanding stock, to which we refer as the "5 Percent Override Rule."
For purposes of being able to determine the persons who actually or constructively own 5% or more of our stock, or "5% Stockholders," the regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the United States Securities and Exchange Commission, or the "SEC," as having a 5% or more beneficial interest in our common stock. The regulations further provide that an investment company identified on a SEC Schedule 13G or Schedule 13D filing which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Stockholder for such purposes.
In the event the 5 Percent Override Rule is triggered, the regulations provide that the 5 Percent Override Rule will nevertheless not apply if we can establish that among the closely-held group of 5% Stockholders, there are sufficient 5% Stockholders that are considered to be "qualified stockholders" for purposes of Section 883 to preclude non-qualified 5% Stockholders in the closely-held group from owning 50% or more of each class of our stock for more than half the number of days during the taxable year.
We currently anticipate that after this offering is completed, we will be able to satisfy the Publicly-Traded Test and will not be subject to the 5 Percent Override Rule. However, we can give no assurance this will be the case.
Under the regulations, if we do not satisfy the Publicly-Traded Test and therefore are subject to the 5 Percent Override Rule or the 50% Ownership Test, we would have to satisfy certain substantiation requirements regarding the identity of our stockholders in order to qualify for the Code Section 883 exemption. These requirements are onerous and there is no assurance that we would be able to satisfy them.
To the extent the benefits of Code Section 883 are unavailable, our United States source shipping income, to the extent not considered to be "effectively connected" with the conduct of a United States trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being United States source shipping income, the maximum effective rate of United States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Code Section 883 exemption are unavailable and our United States source shipping income is considered to be "effectively connected" with the conduct of a United States trade or business, as described below, any such "effectively connected" United States source shipping income, net of applicable deductions, would be subject to the United States federal corporate income tax currently imposed at rates of up to 35%. In addition, we may be subject to the 30% "branch profits" taxes on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our United States trade or business.
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Our United States source shipping income would be considered "effectively connected" with the conduct of a United States trade or business only if:
We do not intend to have, or permit circumstances that would result in having, any vessel sailing to or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our United States source shipping income will be "effectively connected" with the conduct of a United States trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Code Section 883, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel will be considered to occur outside of the United States.
United States Federal Income Taxation of United States Holders
As used herein, the term "United States Holder" means a beneficial owner of common stock that
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common stock, you should consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common stock to a United States Holder will generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of such earnings and profits will be treated first as a nontaxable return of capital to the extent of the United States Holder's tax basis in his common stock on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, United States Holders that are corporations will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common stock will generally be treated as "passive income" for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
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Dividends paid on our common stock to a United States Holder who is an individual, trust or estate (a "United States Non-Corporate Holder") will generally be treated as "qualified dividend income" that is taxable to such United States Non-Corporate Holder at preferential tax rates (through 2008) provided that (1) the common stock is readily tradable on an established securities market in the United States (such as the New York Stock Exchange); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are or will be); (3) the United States Non-Corporate Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend; and (4) the United States Non-Corporate Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. Special rules may apply to any "extraordinary dividend"generally, a dividend in an amount which is equal to or in excess of ten percent of a stockholder's adjusted basis in a share of common stockpaid by us. If we pay an "extraordinary dividend" on our common stock that is treated as "qualified dividend income," then any loss derived by a United States Non-Corporate Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of such dividend. There is no assurance that any dividends paid on our common stock will be eligible for these preferential rates in the hands of a United States Non-Corporate Holder, although we believe that they will be so eligible. Any dividends out of earnings and profits we pay which are not eligible for these preferential rates will be taxed as ordinary income to a United States Non-Corporate Holder.
Sale, Exchange or Other Disposition of Common Stock
Assuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common stock in an amount equal to the difference between the amount realized by the United States Holder from such sale, exchange or other disposition and the United States Holder's tax basis in such stock. Such gain or loss will be treated as long-term capital gain or loss if the United States Holder's holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes. Long-term capital gains of United States Non-Corporate Holders are eligible for reduced rates of taxation. A United States Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a United States Holder that holds stock in a foreign corporation classified as a "passive foreign investment company" for United States federal income tax purposes. In general, we will be treated as a passive foreign investment company with respect to a United States Holder if, for any taxable year in which such holder held our common stock, either
For purposes of determining whether we are a passive foreign investment company, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25 percent of the value of the subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not
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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 current operations and future projections, we do not believe that we are, nor do we expect to become, a passive foreign investment company with respect to any taxable year. Although there is no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a passive foreign investment company, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we are a passive foreign investment company. We believe there is substantial legal authority supporting our position consisting of case law and Internal Revenue Service pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. In addition, we have obtained an opinion from our counsel, Seward and Kissel LLP that, based upon our operations as described herein, our income from time charters should not be treated as passive income for purposes of determining whether we are a passive foreign investment company. However, in the absence of any legal authority specifically relating to the statutory provisions governing passive foreign investment companies, the Internal Revenue Service or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a passive foreign investment company with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a passive foreign investment company for any taxable year, a United States Holder would be subject to different taxation rules depending on whether the United States Holder makes an election to treat us as a "Qualified Electing Fund," which election we refer to as a "QEF election." As an alternative to making a QEF election, a United States Holder should be able to make a "mark-to-market" election with respect to our common stock, as discussed below.
Taxation of United States Holders Making a Timely QEF Election
If a United States Holder makes a timely QEF election, which United States Holder we refer to as an "Electing Holder," the Electing Holder must report each year for United States federal income tax purposes its pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received from us by the Electing Holder. The Electing Holder's adjusted tax basis in the common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to any year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common stock. A United States Holder would make a QEF election with respect to any year that our company is a passive foreign investment company by filing one copy of IRS Form 8621 with his United States federal income tax return. If we were to be treated as a passive foreign investment company for any taxable year, we would provide each United States Holder with all necessary information in order to make the qualified electing fund election described above.
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Taxation of United States Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a passive foreign investment company for any taxable year and, as we anticipate, our stock is treated as "marketable stock," a United States Holder would be allowed to make a "mark-to-market" election with respect to our common stock, provided the United States Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury regulations. If that election is made, the United States Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common stock at the end of the taxable year over such holder's adjusted tax basis in the common stock. The United States Holder would also be permitted an ordinary loss in respect of the excess, if any, of the United States Holder's adjusted tax basis in the common stock over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A United States Holder's tax basis in his common stock would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common stock would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the United States Holder.
Taxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a passive foreign investment company for any taxable year, a United States Holder who does not make either a QEF election or a "mark-to-market" election for that year, whom we refer to as a "Non-Electing Holder," would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common stock in a taxable year in excess of 125 percent of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder's holding period for the common stock), and (2) any gain realized on the sale, exchange or other disposition of our common stock. Under these special rules:
These penalties would not apply to a qualified pension, profit sharing or other retirement trust or other tax-exempt organization that did not borrow money or otherwise utilize leverage in connection with its acquisition of our common stock. If we are a passive foreign investment company and a Non-Electing Holder who is an individual dies while owning our common stock, such holder's successor generally would not receive a step-up in tax basis with respect to such stock.
United States Federal Income Taxation of "Non-United States Holders"
A beneficial owner of common stock (other than a partnership) that is not a United States Holder is referred to herein as a "Non-United States Holder."
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Dividends on Common Stock
Non-United States Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to our common stock, unless that income is effectively connected with the Non-United States Holder's conduct of a trade or business in the United States. If the Non-United States Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-United States Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-United States Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common stock, unless:
If the Non-United States Holder is engaged in a United States trade or business for United States federal income tax purposes, the income from the common stock, including dividends and the gain from the sale, exchange or other disposition of the stock, that is effectively connected with the conduct of that trade or business will generally be subject to regular United States federal income tax in the same manner as discussed in the previous section relating to the taxation of United States Holders. In addition, if you are a corporate Non-United States Holder, your earnings and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements if you are a non-corporate United States Holder. Such payments or distributions may also be subject to backup withholding tax if you are a non-corporate United States Holder and you:
Non-United States Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.
If you are a Non-United States Holder and you sell your common stock to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless you certify that you are a non-United States person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common stock through a non-United States office of a non-United States broker and the sales proceeds are paid to
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you outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to you outside the United States, if you sell your common stock through a non-United States office of a broker that is a United States person or has some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has documentary evidence in its records that you are a non-United States person and certain other conditions are met, or you otherwise establish an exemption.
Backup withholding tax is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that exceed your income tax liability by filing a refund claim with the Internal Revenue Service.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate the expenses in connection with the issuance and distribution of our common stock in this offering, other than underwriting discounts and commissions, as follows:
SEC Registration Fee | $ | 28,475 | |
Printing and Engraving Expenses | 150,000 | ||
Legal Fees and Expenses | 750,000 | ||
Accountants' Fees and Expenses | 550,000 | ||
NYSE Entry Fee | 150,000 | ||
Blue Sky Fees and Expenses | 15,000 | ||
Transfer Agent's Fees and Expenses | 10,000 | ||
Miscellaneous Costs | 346,525 | ||
|
|||
Total | $ | 2,000,000 | |
|
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Subject to the terms and conditions of an Underwriting Agreement, dated March , 2005, the underwriters named below, acting through their representative, Bear, Stearns & Co. Inc., have severally agreed with us, subject to the terms and conditions of the Underwriting Agreement, to purchase from us the number of shares of common stock set forth below opposite their respective names.
Underwriters
|
Number of
Shares |
||
---|---|---|---|
Bear, Stearns & Co. Inc. (1) | |||
Jefferies & Company, Inc. (2) | |||
UBS Securities LLC (3) | |||
Fortis Securities LLC (4) | |||
|
|||
Total | |||
|
The Underwriting Agreement provides that the obligations of the several underwriters to purchase and accept delivery of the shares of common stock offered by this prospectus are subject to approval by their counsel of legal matters and to other conditions set forth in the Underwriting Agreement. The underwriters are obligated to purchase and accept delivery of all the shares of common stock offered hereby, other than those shares covered by the over-allotment option described below, if any are purchased.
The representative has advised us that the underwriters propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share, of which $ may be reallowed to other dealers. After this offering, the public offering price, concession and reallowance to dealers may be reduced by the representative. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The shares of common stock are offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority.
Fortis Bank (Nederland) N.V., or the selling stockholder, acting through its affiliate Zoe S. Company Ltd., has granted to the underwriters an option, exercisable within 30 days after the date of the prospectus, to purchase up to an aggregate of 1,856,250 shares, or 4.6%, of our outstanding common stock to cover over-allotments, if any, at the public offering price less underwriting discounts and commissions. If the underwriters exercise their over-allotment option to purchase any of the 1,856,250 additional shares, each underwriter, subject to certain conditions, will become obligated to purchase its pro-rata portion of these additional shares based on the underwriter's percentage underwriting commitment in the offering as indicated in the preceding table. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the shares offered hereby are being sold. Zoe S. Company Ltd. will be obligated, pursuant to the over-allotment option, to sell shares to the underwriters to the extent the over-allotment option is exercised. The underwriters may exercise the over-allotment option only to cover over-allotments made in connection with the sale of the shares of common stock offered in this offering. The only shares of our common stock that are being offered by the selling stockholder in this offering are the shares that may be sold if the underwriters exercise their over-allotment option.
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The following table shows the public offering price, the underwriting discounts and commissions payable to the underwriters by us and by the selling stockholder and the proceeds, before expenses, to us and to the selling stockholder. Such amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional shares.
|
Per Share
|
Total
|
||||||
---|---|---|---|---|---|---|---|---|
|
Without
Over-Allotment |
With
Over-Allotment |
Without
Over-Allotment |
With
Over-Allotment |
||||
Public offering price | ||||||||
Underwriting discounts and commissions payable by us | ||||||||
Proceeds, before expenses, to us | ||||||||
Underwriting discounts and commissions payable by the selling stockholder | | | ||||||
Proceeds, before expenses, to the selling stockholder | | | ||||||
|
|
|
|
We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $2,000,000.
We and Zoe S. Company Ltd. have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the Underwriting Agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Each of our officers, directors and stockholders has agreed, subject to specified exceptions, not to:
for a period of 180 days after the date of this prospectus without the prior written consent of Bear, Stearns & Co. Inc. This restriction terminates after the close of trading of the shares of common stock on and including the 180 days after the date of this prospectus. However, Bear, Stearns & Co. Inc. may, in its sole discretion and at any time or from time to time before the termination of the 180-day period, without notice, release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the representative and any person who will execute a lock-up agreement, providing consent to the sale of shares prior to the expiration of the lock-up period.
In addition, we have agreed that, subject to certain exceptions, during the lock-up period we will not, without the prior written consent of Bear, Stearns & Co. Inc., consent to the disposition of any shares held by stockholders subject to lock-up agreements prior to the expiration of the lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any shares of common stock, any options or warrants to purchase any shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock other than our sale of shares in this offering.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of common stock offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or
103
advertisements in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of common stock offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Each of the underwriters has represented and agreed that:
The offering of the common stock has not been cleared by CONSOB pursuant to Italian securities legislation and, accordingly, no shares of common stock may be offered, sold or delivered, nor may copies of this prospectus or of any other document relating to the common stock be distributed in Italy, except (1) to Professional Investors (operatori qualificati) ; or (2) in circumstances which are exempted from the rules on solicitation of investments pursuant to Decree No. 58 and Article 33, first paragraph, of CONSOB Regulation No. 11971 of May 14, 1999, as amended. Any offer, sale or delivery of the common stock or distribution of copies of this prospectus or any other document relating to the common stock in Italy under (1) or (2) above must be (i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Decree No. 58 and Legislative Decree No. 385 of September 1, 1993, or the Banking Act; and (ii) in compliance with Article 129 of the Banking Act and the implementing guidelines of the Bank of Italy, as amended from time to time, pursuant to which the issue or the offer of securities in Italy may need to be preceded and followed by an appropriate notice to be filed with the Bank of Italy depending, inter alia, on the aggregate value of the securities issued or offered in Italy and their characteristics; and (iii) in compliance with any other applicable laws and regulations.
Shares of our common stock have been approved for listing on the New York Stock Exchange under the symbol "DSX", subject to official notice of issuance. In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders and thereby establish at least 1,100,000 shares in the public float having a minimum aggregate market value of $60,000,000.
A prospectus in electronic format may be made available on websites or through other online services maintained by one or more of the underwriters of this offering, or by their affiliates. Other than the prospectus in electronic format, the information on any underwriter's website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or
104
endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
The representative has advised us that, pursuant to Regulation M under the Securities Exchange Act of 1934, or the Exchange Act, some participants in the offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the shares of common stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the shares of common stock. A "syndicate covering transaction" is the bid for or purchase of shares of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. A "penalty bid" is an arrangement permitting the representative to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with this offering if the shares of common stock originally sold by such underwriter or syndicate member are purchased by the representative in a syndicate covering transaction and have therefore not been effectively placed by such underwriter or syndicate member. The representative has advised us that such transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
The selling stockholder may be deemed to be an "underwriter" within the meaning of the Securities Act and may be subject to certain statutory liabilities of the Securities Act and the Exchange Act.
Fortis Securities LLC, an underwriter in this offering, is an affiliate of the selling stockholder, which immediately prior to this offering beneficially owned 6,906,250 shares, or 25%, of our outstanding common stock. The selling stockholder, acting through its affiliate Zoe S. Company Ltd., has also granted the underwriters an option to purchase additional shares to cover over-allotments, if any, at the public offering price less underwriting discounts and commissions, as described above. Assuming the underwriters exercise their over-allotment option in full, the selling stockholder will beneficially own approximately 12.6% of our outstanding common stock immediately after this offering. Due to this relationship, the underwriters may be deemed to have a "conflict of interest" under Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., or the NASD. Accordingly, this offering will be made in compliance with the applicable provisions of Rule 2720 of the Conduct Rules of the NASD. Rule 2720 requires that the initial public offering price can be no higher than that recommended by a "qualified independent underwriter," as defined by the NASD. Bear, Stearns & Co. Inc. has served as the qualified independent underwriter in pricing this offering and has performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus forms a part.
Prior to this offering, there has not been a public market for our common stock. Consequently, the initial public offering price for our shares of common stock was determined by negotiations between us and the representative of the underwriters subject to the applicable provisions of Rule 2720 of the NASD. Among the factors considered in these negotiations were prevailing market conditions, our financial information, market valuations of other companies that we and the representative of the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.
Certain of the underwriters or their respective affiliates have in the past performed and may in the future from time to time perform investment banking and other financial services for us and our affiliates for which they receive advisory or transaction fees, as applicable, plus out-of-pocket expenses, of the nature and in amounts customary in the industry for these financial services. The selling stockholder, an affiliate of Fortis Securities LLC, provided us with bridge loans that we repaid in 2001 and acted as the counterparty under two separate interest rate option contracts that we terminated in November 2004.
The address of the selling stockholder is Fortis Bank (Nederland) N.V., Blaak 555, 3011 GB Rotterdam, The Netherlands.
105
The validity of the common stock and certain other matters relating to United States and Marshall Islands law will be passed upon for us by Seward & Kissel LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, New York.
The consolidated financial statements of Diana Shipping Inc. as of December 31, 2002 and 2003, and for each of the three years in the period ended December 31, 2003, and as of for the six month periods ended June 30, 2003 and 2004, appearing in this prospectus and registration statement have been audited by Ernst & Young (Hellas) Certified Auditors Accountants S.A., Athens, Greece, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The discussions contained under the sections of this prospectus entitled "Business" and "The International Dry Bulk Shipping Industry" have been reviewed by Drewry Shipping Consultants, Ltd., or Drewry, which has confirmed to us that they accurately describe the international dry bulk shipping industry, subject to the reliability of the data supporting the statistical and graphical information presented in this prospectus.
The statistical and graphical information we use in this prospectus has been compiled by Drewry from its database. Drewry compiles and publishes data for the benefit of its clients. Its methodologies for collecting data, and therefore the data collected, may differ from those of other sources, and its data does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the market.
106
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form F-1 under the Securities Act with respect to the common stock offered hereby. For the purposes of this section, the term registration statement means the original registration statement and any and all amendments including the schedules and exhibits to the original registration statement or any amendment. This prospectus does not contain all of the information set forth in the registration statement we filed. Each statement made in this prospectus concerning a document filed as an exhibit to the registration statement is qualified by reference to that exhibit for a complete statement of its provisions. The registration statement, including its exhibits and schedules, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates from the Public Reference Section of the Commission at its principal office in Washington, D.C. 20549. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
We will furnish holders of common stock with annual reports containing audited financial statements and a report by our independent public accountants, and intend to make available quarterly reports containing selected unaudited financial data for the first three quarters of each fiscal year. The audited financial statements will be prepared in accordance with U.S. GAAP and those reports will include a "Management's Discussion and Analysis of Financial Condition and Results of Operations" section for the relevant periods. As a "foreign private issuer," we will be exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to stockholders, but will be required to furnish our proxy statements to stockholders under New York Stock Exchange rules. Those proxy statements are not expected to conform to Schedule 14A of the proxy rules promulgated under the Exchange Act. In addition, as a "foreign private issuer," we will be exempt from the rules under the Exchange Act relating to short swing profit reporting and liability.
107
Following are definitions of shipping terms used in this Prospectus.
Annual Survey The inspection of a vessel by a classification society, on behalf of a flag state, that takes place every year.
Bareboat Charter Also known as "demise charter." Contract or hire of a ship under which the shipowner is usually paid a fixed amount of charter hire rate for a certain period of time during which the charterer is responsible for the operating costs and voyage costs of the vessel as well as arranging for crewing.
Bulk Carriers Vessels which are specially designed and built to carry large volumes of cargo in bulk cargo form.
Bunkers Heavy fuel oil used to power a vessel's engines.
Capesize A dry bulk carrier in excess of 150,000 dwt.
Charter The hire of a vessel for a specified period of time or to carry a cargo for a fixed fee from a loading port to a discharging port. The contract for a charter is called a charterparty.
Charterer The individual or company hiring a vessel.
Charter Hire Rate A sum of money paid to the vessel owner by a charterer under a time charterparty for the use of a vessel.
Classification Society An independent organization which certifies that a vessel has been built and maintained in accordance with the rules of such organization and complies with the applicable rules and regulations of the country of such vessel and the international conventions of which that country is a member.
Deadweight Ton"dwt" A unit of a vessel's capacity for cargo, fuel oil, stores and crew, measured in metric tons of 1,000 kilograms. A vessel's DWT or total deadweight is the total weight the vessel can carry when loaded to a particular load line.
Draft Vertical distance between the waterline and the bottom of the vessel's keel.
Dry Bulk Non-liquid cargoes of commodities shipped in an unpackaged state.
Drydocking The removal of a vessel from the water for inspection and/or repair of submerged parts.
Gross Ton Unit of 100 cubic feet or 2.831 cubic meters used in arriving at the calculation of gross tonnage.
Handymax A dry bulk courier of approximately 35,000 to 60,000 dwt.
Handysize A dry bulk courier having a carrying capacity of up to approximately 35,000 dwt.
Hull The shell or body of a vessel.
International Maritime Organization"IMO" A United Nations agency that issues international trade standards for shipping.
Intermediate Survey The inspection of a vessel by a classification society surveyor which takes place between two and three years before and after each Special Survey for such vessel pursuant to the rules of international conventions and classification societies.
ISM Code The International Management Code for the Safe Operation of Ships and for Pollution Prevention, as adopted by the IMO.
108
Metric Ton A metric ton of 1,000 kilograms.
Newbuilding A newly constructed vessel.
OPA The United States Oil Pollution Act of 1990 (as amended).
Orderbook A reference to currently placed orders for the construction of vessels (e.g., the Panamax orderbook).
Panamax A dry bulk carrier of approximately 60,000 to 80,000 dwt of maximum length, depth and draft capable of passing fully loaded through the Panama Canal.
Protection and Indemnity Insurance Insurance obtained through a mutual association formed by shipowners to provide liability insurance protection from large financial loss to one member through contributions towards that loss by all members.
Scrapping The disposal of old or damaged vessel tonnage by way of sale as scrap metal.
Short-Term Time Charter A time charter which lasts less than approximately 12 months.
Sister Ships Vessels of the same class and specification which were built by the same shipyard.
SOLAS The International Convention for the Safety of Life at Sea 1974, as amended, adopted under the auspices of the IMO.
Special Survey The inspection of a vessel by a classification society surveyor which takes place a minimum of every four years and a maximum of every five years.
Spot Market The market for immediate chartering of a vessel usually for single voyages.
Strict Liability Liability that is imposed without regard to fault.
Time Charter Contract for hire of a ship. A charter under which the ship-owner is paid charter hire rate on a per day basis for a certain period of time, the shipowner being responsible for providing the crew and paying operating costs while the charterer is responsible for paying the voyage costs. Any delays at port or during the voyages are the responsibility of the charterer, save for certain specific exceptions such as loss of time arising from vessel breakdown and routine maintenance.
Ton A metric ton of 1,000 kilograms.
Weighted Average Age The weighted average age of a fleet is the sum of the age of each vessel in the fleet in each year from its delivery from the builder, weighted by the vessel's dwt in proportion to the total dwt of the fleet for each respective year.
Voyage Charter Contract for hire of a vessel under which a shipowner is paid freight on the basis of moving cargo from a loading port to a discharge port. The shipowner is responsible for paying both operating costs and voyage costs. The charterer is typically responsible for any delay at the loading or discharging ports.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
|
Page
|
|
---|---|---|
Report of Ernst & Young, Independent Registered Public Accounting Firm | F-2 | |
Consolidated Balance Sheets as of December 31, 2002 and 2003 and as of June 30, 2003 and 2004 |
|
F-3 |
Consolidated Statements of Operations for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 |
|
F-4 |
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 |
|
F-5 |
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 |
|
F-6 |
Notes to Consolidated Financial Statements |
|
F-7 |
Consolidated Balance Sheets as of December 31, 2003 and September 30, 2004 (unaudited) |
|
F-30 |
Consolidated Unaudited Statements of Operations for the nine month periods ended September 30, 2003 and 2004 |
|
F-31 |
Consolidated Unaudited Statements of Stockholders' Equity for the nine month periods ended September 30, 2003 and 2004 |
|
F-32 |
Consolidated Unaudited Statements of Cash Flows for the nine month periods ended September 30, 2003 and 2004 |
|
F-33 |
Notes to Unaudited Interim Consolidated Financial Statements |
|
F-34 |
Schedule ICondensed Financial Information for Diana Shipping Inc. |
|
F-44 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders of DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
We have audited the accompanying consolidated balance sheets of DIANA SHIPPING INC. (the "Company"), as of December 31, 2002 and 2003, June 30, 2003 and 2004, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003, and for each of the six month periods ended June 30, 2003 and 2004. Our audits also included the condensed financial information listed in the Index as Schedule I. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of DIANA SHIPPING INC. at December 31, 2002 and 2003, June 30, 2003 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, and for each of the six month periods ended June 30, 2003 and 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/
Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
October 29, 2004
(except for Note 17(d), as to which the date is February 21, 2005)
F-2
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2003
JUNE 30, 2003 AND 2004
(Expressed in thousands of U.S. Dollars except share and per share data)
|
DECEMBER 31,
|
JUNE 30,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2003
|
2004
|
||||||||||
ASSETS | ||||||||||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 1,867 | $ | 7,441 | $ | 6,259 | $ | 18,192 | ||||||
Accounts receivable, trade | 90 | 78 | 133 | 32 | ||||||||||
Due from related companies (Note 3) | | 149 | 93 | | ||||||||||
Inventories (Note 4) | 70 | 366 | 158 | 377 | ||||||||||
Prepaid insurance and other | 28 | 80 | 160 | 188 | ||||||||||
Restricted cash | 1,292 | 958 | 1,497 | 789 | ||||||||||
|
|
|
|
|||||||||||
Total current assets | 3,347 | 9,072 | 8,300 | 19,578 | ||||||||||
|
|
|
|
|||||||||||
FIXED ASSETS: | ||||||||||||||
Advances for vessels under construction and acquisitions and other vessel costs (Note 5) | | 8,642 | 6,406 | 17,460 | ||||||||||
|
|
|
|
|||||||||||
Vessels (Notes 5 and 6) | 81,951 | 126,032 | 103,992 | 126,032 | ||||||||||
Accumulated depreciation (Note 6) | (5,351 | ) | (9,329 | ) | (6,973 | ) | (11,717 | ) | ||||||
|
|
|
|
|||||||||||
Vessels' net book value | 76,600 | 116,703 | 97,019 | 114,315 | ||||||||||
|
|
|
|
|||||||||||
Total fixed assets | 76,600 | 125,345 | 103,425 | 131,775 | ||||||||||
|
|
|
|
|||||||||||
OTHER NON-CURRENT ASSETS: | ||||||||||||||
Deferred charges, net (Note 7) | 344 | 628 | 434 | 586 | ||||||||||
Financial instruments (Note 12) | | 77 | | 236 | ||||||||||
|
|
|
|
|||||||||||
Total assets | $ | 80,291 | $ | 135,122 | $ | 112,159 | $ | 152,175 | ||||||
|
|
|
|
|||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt (Note 9) | $ | 3,898 | $ | 6,027 | $ | 4,897 | $ | 6,028 | ||||||
Accounts payable, trade | 135 | 602 | 328 | 556 | ||||||||||
Accounts payable, other | 44 | 80 | 68 | 131 | ||||||||||
Due to related companies (Note 3) | 1,329 | | | 209 | ||||||||||
Accrued liabilities (Note 8) | 191 | 616 | 498 | 405 | ||||||||||
Unearned revenue | 98 | 1,437 | 517 | 1,303 | ||||||||||
Other current liabilities (Note 11) | 168 | 345 | 345 | 345 | ||||||||||
|
|
|
|
|||||||||||
Total current liabilities | 5,863 | 9,107 | 6,653 | 8,977 | ||||||||||
|
|
|
|
|||||||||||
LONG-TERM DEBT, net of current portion (Note 9) | 50,256 | 77,229 | 63,808 | 74,215 | ||||||||||
|
|
|
|
|||||||||||
OTHER NON-CURRENT LIABILITIES (Note 11) | 690 | 345 | 518 | 173 | ||||||||||
|
|
|
|
|||||||||||
COMMITMENTS AND CONTINGENCIES (Notes 5 and 10) | | | | | ||||||||||
|
|
|
|
|||||||||||
STOCKHOLDERS' EQUITY: | ||||||||||||||
Preferred stock, $0.01 par value; 25,000,000 shares authorized, none issued (Note 17(d)). | | | | | ||||||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 18,416,667 issued and outstanding at December 31, 2002; 27,625,000 issued and outstanding at December 31, 2003 and at June 30, 2003 and 2004. (Notes 13, 14 and 17(d)) | 184 | 276 | 276 | 276 | ||||||||||
Additional paid-in capital (Note 13) | 22,583 | 37,961 | 37,226 | 38,725 | ||||||||||
Retained earnings | 715 | 10,204 | 3,678 | 29,809 | ||||||||||
|
|
|
|
|||||||||||
Total stockholders' equity (deficit) | 23,482 | 48,441 | 41,180 | 68,810 | ||||||||||
|
|
|
|
|||||||||||
Total liabilities and stockholders' equity | $ | 80,291 | $ | 135,122 | $ | 112,159 | $ | 152,175 | ||||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-3
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
FOR THE SIX MONTH PERIODS ENDED JUNE 30,
2003 AND 2004
(Expressed in thousands of U.S. Dollars except share and per share data)
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YEAR ENDED DECEMBER 31,
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SIX MONTHS
ENDED JUNE 30, |
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2001
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2002
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2003
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2003
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2004
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REVENUES: | |||||||||||||||||
Voyage and time charter revenues (Note 1) | $ | 11,359 | $ | 11,942 | $ | 25,277 | $ | 9,150 | $ | 30,166 | |||||||
EXPENSES: | |||||||||||||||||
Voyage expenses (Notes 3 and 11) | 1,494 | 946 | 1,549 | 466 | 2,031 | ||||||||||||
Vessel operating expenses (Notes 2, 3, 11 and 15) | 3,432 | 3,811 | 6,267 | 2,226 | 4,050 | ||||||||||||
Depreciation (Note 6) | 2,347 | 3,004 | 3,978 | 1,622 | 2,388 | ||||||||||||
Management fees (Note 3) | 456 | 576 | 728 | 308 | 432 | ||||||||||||
Executive management services and rent (Note 13) | 1,363 | 1,404 | 1,470 | 735 | 764 | ||||||||||||
General and administrative expenses | 70 | 140 | 123 | 56 | 220 | ||||||||||||
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Operating income | 2,197 | 2,061 | 11,162 | 3,737 | 20,281 | ||||||||||||
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OTHER INCOME (EXPENSES): |
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Interest and finance costs (Notes 9 and 12) | (2,690 | ) | (2,001 | ) | (1,680 | ) | (766 | ) | (719 | ) | |||||||
Interest Income | 84 | 21 | 27 | 5 | 37 | ||||||||||||
Foreign currency gains (losses) | 17 | (5 | ) | (20 | ) | (13 | ) | 6 | |||||||||
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Total other expenses, net | (2,589 | ) | (1,985 | ) | (1,673 | ) | (774 | ) | (676 | ) | |||||||
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Net income (loss) | $ | (392 | ) | $ | 76 | $ | 9,489 | $ | 2,963 | $ | 19,605 | ||||||
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Earnings (losses) per common share, basic (Note 14) | $ | (0.11 | ) | $ | 0.02 | $ | 0.37 | $ | 0.13 | $ | 0.71 | ||||||
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Weighted average number of common shares, basic | 3,683,333 | 4,297,161 | 25,340,596 | 23,056,193 | 27,625,000 | ||||||||||||
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Earnings (losses) per common share, diluted (Note 14) | $ | (0.11 | ) | $ | 0.00 | $ | 0.37 | $ | 0.13 | $ | 0.71 | ||||||
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Weighted average number of common shares, diluted | 3,683,333 | 18,416,667 | 25,340,596 | 23,056,193 | 27,625,000 | ||||||||||||
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Pro forma earnings (losses) per common share, basic and diluted (Note 18) | $ | | $ | | $ | (0.38 | ) | $ | | $ | | ||||||
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Pro forma weighted average number of common shares, basic and diluted (Note 18) | | | 26,346,096 | | | ||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements
F-4
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
(Expressed in thousands of U.S. Dollars except share and per share data)
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Common Stock
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Preferred Stock
|
Additional
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Comprehensive
Income (Loss) |
# of
Shares |
Par
Value |
# of
Shares |
Par
Value |
Paid-in
Capital |
Retained
Earnings |
Total
|
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BALANCE, December 31, 2000 | | 3,683,333 | $ | 37 | 14,733,334 | $ | 147 | $ | 19,816 | $ | 2,147 | $ | 22,147 | |||||||||||
Net loss | (392 | ) | | | | | | (392 | ) | (392 | ) | |||||||||||||
Contribution to additional-paid in capital (Note 13) | | | | | | 1,363 | | 1,363 | ||||||||||||||||
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Comprehensive income | $ | (392 | ) | |||||||||||||||||||||
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BALANCE, December 31, 2001 | | 3,683,333 | $ | 37 | 14,733,334 | $ | 147 | $ | 21,179 | $ | 1,755 | $ | 23,118 | |||||||||||
Net income | 76 | | | | 76 | 76 | ||||||||||||||||||
Conversion of preferred stock (1:1) | | 14,733,334 | 147 | (14,733,334 | ) | (147 | ) | | | | ||||||||||||||
Contribution to additional-paid in capital (Note 13) | | | | | | 1,404 | | 1,404 | ||||||||||||||||
Cash dividends declared and paid ($0.06 per share) (Note 13) | | | | | | | (1,116 | ) | (1,116 | ) | ||||||||||||||
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Comprehensive income | $ | 76 | ||||||||||||||||||||||
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BALANCE, December 31, 2002 | | 18,416,667 | $ | 184 | | $ | | $ | 22,583 | $ | 715 | $ | 23,482 | |||||||||||
Net income | 9,489 | | | | | | 9,489 | 9,489 | ||||||||||||||||
Contribution to additional-paid in capital (Note 13) | | | | | | 1,470 | | 1,470 | ||||||||||||||||
Issuance of common stock (par value $0.01, at $1.52) | | 9,208,333 | 92 | | | 13,908 | | 14,000 | ||||||||||||||||
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Comprehensive income | $ | 9,489 | ||||||||||||||||||||||
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BALANCE, December 31, 2003 | | 27,625,000 | $ | 276 | | $ | | $ | 37,961 | $ | 10,204 | $ | 48,441 | |||||||||||
Net income | 19,605 | | | | | | 19,605 | 19,605 | ||||||||||||||||
Contribution to additional-paid in capital (Note 13) | | | | | | 764 | | 764 | ||||||||||||||||
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Comprehensive income | $ | 19,605 | ||||||||||||||||||||||
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BALANCE, June 30, 2004 | | |||||||||||||||||||||||
27,625,000 | $ | 276 | | $ | | $ | 38,725 | $ | 29,809 | $ | 68,810 | |||||||||||||
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BALANCE, December 31, 2002 | | 18,416,667 | $ | 184 | | $ | | $ | 22,583 | $ | 715 | $ | 23,482 | |||||||||||
Net income | 2,963 | | | | | | 2,963 | 2,963 | ||||||||||||||||
Contribution to additional-paid in capital (Note 13) | | | | | | 735 | | 735 | ||||||||||||||||
Issuance of common stock (par value $0.01, at $1.52) | | 9,208,333 | 92 | | | 13,908 | | 14,000 | ||||||||||||||||
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Comprehensive income | $ | 2,963 | ||||||||||||||||||||||
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BALANCE, June 30, 2003 | | 27,625,000 | $ | 276 | | $ | | $ | 37,226 | $ | 3,678 | $ | 41,180 | |||||||||||
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The accompanying notes are an integral part of these consolidated financial statements
F-5
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
FOR THE SIX MONTH PERIODS ENDED JUNE 30,
2003 AND 2004
(Expressed in thousands of U.S. Dollars)
|
YEAR ENDED DECEMBER 31,
|
SIX MONTHS
ENDED JUNE 30, |
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2001
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2002
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2003
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2003
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2004
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Cash Flows from Operating Activities: | ||||||||||||||||||
Net income (loss) | $ | (392 | ) | $ | 76 | $ | 9,489 | $ | 2,963 | $ | 19,605 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||
Depreciation | 2,347 | 3,004 | 3,978 | 1,622 | 2,388 | |||||||||||||
Executive management services and rent | 1,363 | 1,404 | 1,470 | 735 | 764 | |||||||||||||
Amortization of financing costs | 337 | 61 | 73 | 32 | 42 | |||||||||||||
Change in fair value of interest rate swaps | | | (77 | ) | | (159 | ) | |||||||||||
Recognition and amortization of free lubricants benefit | 378 | 480 | (168 | ) | 5 | (172 | ) | |||||||||||
(Increase) Decrease in: | ||||||||||||||||||
Receivables | (189 | ) | 99 | 12 | (43 | ) | 46 | |||||||||||
Due from related parties | 2,543 | | (149 | ) | (93 | ) | 149 | |||||||||||
Inventories | (173 | ) | 114 | (296 | ) | (88 | ) | (11 | ) | |||||||||
Prepayments and other | (76 | ) | 55 | (52 | ) | (132 | ) | (108 | ) | |||||||||
Increase (Decrease) in: | ||||||||||||||||||
Accounts payable | 348 | (177 | ) | 503 | 217 | 5 | ||||||||||||
Due to related parties | (1,558 | ) | 322 | (1,329 | ) | (1,329 | ) | 209 | ||||||||||
Accrued liabilities | 169 | (51 | ) | 425 | 307 | (211 | ) | |||||||||||
Unearned revenue | 34 | 64 | 1,339 | 419 | (134 | ) | ||||||||||||
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Net Cash from Operating Activities | 5,131 | 5,451 | 15,218 | 4,615 | 22,413 | |||||||||||||
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Cash Flows from Investing Activities: | ||||||||||||||||||
Advances for vessels under construction | | | (8,642 | ) | (6,406 | ) | (8,818 | ) | ||||||||||
Vessel acquisitions | (53,011 | ) | | (44,081 | ) | (22,041 | ) | | ||||||||||
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Net Cash used in Investing Activities | (53,011 | ) | | (52,723 | ) | (28,447 | ) | (8,818 | ) | |||||||||
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Cash Flows from Financing Activities: | ||||||||||||||||||
Proceeds from long-term debt | 64,000 | | 33,500 | 16,500 | | |||||||||||||
Issuance of common stock | | | 14,000 | 14,000 | | |||||||||||||
(Increase) decrease in restricted cash | (1,411 | ) | 119 | 334 | (205 | ) | 169 | |||||||||||
Financing costs | (647 | ) | | (357 | ) | (122 | ) | | ||||||||||
Payments of long-term debt | (13,949 | ) | (3,897 | ) | (4,398 | ) | (1,949 | ) | (3,013 | ) | ||||||||
Cash dividend | | (1,116 | ) | | | | ||||||||||||
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Net Cash from (used in) Financing Activities | 47,993 | (4,894 | ) | 43,079 | 28,224 | (2,844 | ) | |||||||||||
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Net increase in cash and cash equivalents | 113 | 557 | 5,574 | 4,392 | 10,751 | |||||||||||||
Cash and cash equivalents at beginning of year/period | 1,197 | 1,310 | 1,867 | 1,867 | 7,441 | |||||||||||||
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Cash and cash equivalents at end of year/period | $ | 1,310 | $ | 1,867 | $ | 7,441 | $ | 6,259 | $ | 18,192 | ||||||||
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SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||||||||
Cash paid during the year/period for:
Interest payments |
$ | 2,320 | $ | 2,158 | $ | 1,476 | $ | 351 | $ | 1,117 | ||||||||
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Non-cash financing activities:
Executive management services and rent |
$ | 1,363 | $ | 1,404 | $ | 1,470 | $ | 735 | $ | 764 | ||||||||
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The accompanying notes are an integral part of these consolidated financial statements
F-6
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2003 AND JUNE 30, 2003 AND 2004
(Expressed in
thousands of United States Dollars
except share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information:
The accompanying consolidated financial statements include the accounts of Diana Shipping Inc. (formerly Diana Shipping Investment Corp.) ("Diana") and its wholly owned subsidiaries (collectively, the "Company"). The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership and operation of bulker vessels. Diana was formed on March 8, 1999, under the laws of the Republic of Liberia and is the sole owner of all the outstanding bearer shares of the following subsidiaries:
F-7
The operations of the vessels are managed by Diana Shipping Agencies S.A. (the "Manager"), a related Panamanian corporation, which is 65% owned beneficially by the Company's Chief Executive Officer, Simeon Palios, 10% owned by Mr. Palios' two daughters, both over the age of 21, and 25% owned by other individuals who have indirect minority interests in the Company. Prior to the initial public offering discussed in Note 17, the following companies had interests in the Company's common stock: Ironwood Trading Corp., 50% (50% as of June 30, 2004); Corozal Compania Naviera S.A., 25% (0% as of June 30, 2004) and Zoe S. Company Ltd, 25% (50% as of June 30, 2004). Mr. Simeon Palios directly owned approximately 42% and 65% of the common stock of Ironwood Trading Corp. and Corozal Compania Naviera S.A., respectively, beneficially via his personal holding company, Limon Compania Naviera S.A. Furthermore, Mr. Palios indirectly owned approximately 20% of Ironwood Trading Corp. via Corozal Compania Naviara S.A. which owned approximately 30% of the common stock of Ironwood Trading Corp. The Manager has an office in Greece located at Pendelis 16, Palaio Faliro 175 64 Athens Greece. The Manager provides the Company with a wide range of shipping services such as technical support and maintenance, insurance consulting, chartering, financial and accounting services, as well as executive management services, in exchange for fixed and variable fees (Note 3).
During 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004, ten charterers individually accounted for more than 10% of the Company's voyage and time charter revenues as follows:
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Six months
ended June 30, |
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Year ended December 31,
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Charterer
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2001
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2002
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2003
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2003
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2004
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A | 29 | % | 42 | % | 25 | % | 21 | % | 25 | % | |
B | | | | | 16 | % | |||||
C | | | | | 11 | % | |||||
D | | | 15 | % | | 13 | % | ||||
E | | | | | 29 | % | |||||
F | | | | 19 | % | | |||||
G | | 41 | % | 20 | % | 30 | % | | |||
H | | | 15 | % | 16 | % | | ||||
I | 33 | % | | | | | |||||
J | 16 | % | | | | |
F-8
2. Significant Accounting Policies:
F-9
June 30 of each six month period, which are expected to be recovered from insurance companies. Any remaining costs to complete the claims are included in accrued liabilities.
F-10
F-11
information for these charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus the Company has determined that it operates under one reportable segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable.
F-12
disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003.
3. Transactions with Related Parties:
F-13
daughters, and 21% owned by other individuals who have indirect minority interests in the Company. Travel expenses for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 amounted to $140, $121, $167, $61 and $68, respectively and are included in vessel operating expenses in the accompanying consolidated statements of operations. No amounts were payable or receivable to/from Altair at December 31, 2002 and 2003 and at June 30, 2003 and 2004.
4. Inventories:
The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:
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December 31,
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June 30,
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2002
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2003
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2003
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2004
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Lubricants | 12 | 268 | 94 | 280 | |||||
Victualling | 58 | 98 | 64 | 97 | |||||
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Total | 70 | 366 | 158 | 377 | |||||
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F-14
5. Advances for Vessels Under Construction and Acquisitions and Other Vessel Costs:
The amounts shown in the accompanying consolidated balance sheets as of December 31, 2003, June 30, 2003 and 2004 include payments to sellers of vessels or, in the case of contracted vessels, the shipyards, supervision services and capitalized interest cost, in accordance with the accounting policy discussed in Note 2(i), as analyzed below:
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June 30,
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December 31,
2003 |
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2003
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2004
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Advance payments on contract signing | 4,058 | 6,270 | 4,058 | ||||
Additional pre-delivery payments | 4,059 | | 12,162 | ||||
Construction supervision costs | 159 | | 476 | ||||
Capitalized interest | 91 | 28 | 229 | ||||
Other related costs | 275 | 108 | 535 | ||||
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Total | 8,642 | 6,406 | 17,460 | ||||
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The movement of the account, advances for vessels under construction and acquisitions, was as follows:
|
Year ended December 31,
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Six months
ended June 30, |
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2001
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2002
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2003
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2003
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2004
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Beginning balance | 28,940 | | | | 8,642 | |||||
Advances for vessels under construction delivered during the year | 53,011 | | | | | |||||
Advances for vessels under construction and other vessel costs | | | 8,642 | 4,194 | 8,818 | |||||
Advances for vessels acquisition | | | 2,212 | 2,212 | | |||||
Transferred to vessel cost | (81,951 | ) | | (2,212 | ) | | | |||
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Ending balance | | | 8,642 | 6,406 | 17,460 | |||||
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F-15
As at December 31, 2003 and June 30, 2004, subsidiaries of the Company as disclosed in Note 1, had under construction four panamax dry-bulk carriers at the Jiangnan Shipyard in China:
Vessel
Name |
Contract Date
|
Expected
Delivery |
Contract
Amount |
Advances
and Other Vessel Costs |
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December 31,
2003 |
June 30, 2004
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Panamax | ||||||||||
Protefs | December 24, 2002 | Note 17(a) | 20,351 | 4,242 | 6,625 | |||||
Amfitrie | December 24, 2002 | Note 17(c) | 20,191 | 2,187 | 6,407 | |||||
Calipso | April 29, 2003 | February, 2005 | 20,291 | 1,105 | 2,215 | |||||
Clio | April 29, 2003 | March, 2005 | 20,291 | 1,108 | 2,213 | |||||
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Total | 81,124 | 8,642 | 17,460 | |||||||
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As of December 31, 2003, remaining contracted payments for the vessels under construction are $8,103 in the first half of 2004, $36,496 in the second half of 2004 and $28,408 in 2005.
6. Vessels:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
|
Vessel
Cost |
Accumulated
Depreciation |
Net Book
Value |
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Balance, December 31, 2001 | 81,951 | (2,347 | ) | 79,604 | |||
Depreciation for the year | | (3,004 | ) | (3,004 | ) | ||
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Balance, December 31, 2002 | 81,951 | (5,351 | ) | 76,600 | |||
Transfers from vessels under construction | 2,212 | | 2,212 | ||||
Vessel acquisitions | 41,869 | | 41,869 | ||||
Depreciation for the year | | (3,978 | ) | (3,978 | ) | ||
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Balance, December 31, 2003 | 126,032 | (9,329 | ) | 116,703 | |||
Depreciation for the period | | (2,388 | ) | (2,388 | ) | ||
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Balance, June 30, 2004 | 126,032 | (11,717 | ) | 114,315 | |||
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Balance, December 31, 2002 |
|
81,951 |
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(5,351 |
) |
76,600 |
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Vessel acquisitions | 22,041 | | 22,041 | ||||
Depreciation for the period | | (1,622 | ) | (1,622 | ) | ||
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Balance, June 30, 2003 | 103,992 | (6,973 | ) | 97,019 | |||
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Cost of vessels at December 31, 2001, 2002 and 2003 and at June 30, 2003 and 2004, includes $1,951, $1,951, $2,032, $1,992, and $2,032, respectively, of amounts not included in the contract price of
F-16
the vessels but which are material expenses incurred upon acquisition and are capitalized in accordance with the accounting policy discussed in Note 2(i).
At June 30, 2004, all vessels were operating under time charters, the last of which expires in February 2006.
All Company's vessels, having a total carrying value of $114,315 at June 30, 2004, have been provided as collateral to secure the loans discussed in Note 9.
7. Deferred Charges:
The amounts in the accompanying consolidated balance sheets represent unamortized financing costs and are analyzed as follows:
Balance, December 31, 2001 | 405 | ||
Amortization for the year | (61 | ) | |
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Balance, December 31, 2002 | 344 | ||
Additions | 357 | ||
Amortization for the year | (73 | ) | |
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Balance, December 31, 2003 | 628 | ||
Amortization for the period | (42 | ) | |
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Balance, June 30, 2004 | 586 | ||
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Balance, December 31, 2002 |
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344 |
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Additions | 122 | ||
Amortization for the period | (32 | ) | |
|
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Balance, June 30, 2003 | 434 | ||
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The amortization of financing costs is included in interest and finance costs in the accompanying consolidated statements of operations.
F-17
8. Accrued Liabilities:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
|
December 31,
|
June 30,
|
|||||||
---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2003
|
2004
|
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Interest on long-term debt | 22 | 313 | 429 | 147 | |||||
Vessels' operating and voyage expenses | 51 | 250 | 69 | 158 | |||||
General and administrative expenses | 118 | 53 | | 100 | |||||
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Total | 191 | 616 | 498 | 405 | |||||
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9. Long-term Debt:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
|
|
December 31,
|
June 30,
|
||||||||
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Borrower(s)
|
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2002
|
2003
|
2003
|
2004
|
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(a) | Husky Trading S.A. | 13,594 | 12,656 | 13,125 | 12,188 | ||||||
(b) | Panama Compania Armadora S.A. | 13,560 | 12,600 | 13,080 | 12,120 | ||||||
(c) | Skyvan Shipping Company S.A. | 13,500 | 12,500 | 13,000 | 12,000 | ||||||
(d) | Buenos Aires Compania Armadora S.A | 13,500 | 12,500 | 13,000 | 12,000 | ||||||
(e) | Eaton Marine S.A. | | 17,000 | | 16,435 | ||||||
(f) | Chorrera Compania Armadora S.A. | | 16,000 | 16,500 | 15,500 | ||||||
|
|
|
|
||||||||
Total | 54,154 | 83,256 | 68,705 | 80,243 | |||||||
Less: Current portion | (3,898 | ) | (6,027 | ) | (4,897 | ) | (6,028 | ) | |||
|
|
|
|
||||||||
Long-term portion | 50,256 | 77,229 | 63,808 | 74,215 | |||||||
|
|
|
|
Loan (a): Loan for an amount of $15,000, obtained in March 2001 from an unrelated international bank, to refinance Husky's indebtedness of $4,000 under a previous loan agreement (see Loan (g) below), and to partially finance the construction cost of the vessel Triton. The loan bears interest at LIBOR plus a margin and the average interest rate (including the margin) during the years 2003 and 2002 and during the six month periods ended June 30, 2004 and 2003 was 2.54%, 3.27%, 2.40% and 2.60%, respectively, while at December 31, 2003 and 2002 and at June 30, 2004 and 2003, the interest rate (including the margin) was 2.43%, 2.67%, 2.83% and 2.52%, respectively. The outstanding balance of the loan ($12,188) as of June 30, 2004 is payable in 18 equal semi-annual instalments from September 2004 to March 2014, plus a balloon payment of $3,750 payable together with the last instalment.
Loan (b): Loan for an amount of $15,000, obtained in May 2001 from an unrelated international bank, to refinance Panama's indebtedness of $4,000 under a previous loan agreement (see Loan (g) below), and to partially finance the construction cost of the vessel Oceanis. The loan bears interest at LIBOR plus a margin and the average interest rate (including the margin) during the years 2003 and
F-18
2002 and during the six month periods ended June 30, 2004 and 2003 was 2.55%, 3.59%, 2.42% and 2.57%, respectively, while at December 31, 2003 and 2002 and at June 30, 2004 and 2003, the interest rate (including the margin) was 2.53%, 2.60%, 2.49% and 2.53%, respectively. The outstanding balance of the loan ($12,120) as of June 30, 2004 is payable in 35 equal quarterly instalments from August 2004 to February 2014, plus a balloon payment of $3,720 payable in May 2014.
Loan (c): Loan for an amount of $15,000, obtained in January 2001 from an unrelated international bank, to refinance Skyvan's indebtedness of $2,000 under a previous loan agreement (see Loan (g) below), and to partially finance the construction cost of the vessel Nirefs. The loan bears interest at LIBOR plus a margin and the average interest rate (including the margin) during the years 2003 and 2002 and during the six month periods ended June 30, 2004 and 2003 was 2.50%, 3.57%, 2.41% and 2.47%, respectively, while at December 31, 2003 and 2002 and at June 30, 2004 and 2003, the interest rate (including the margin) was 2.42%, 2.53%, 2.40% and 2.53%, respectively. The outstanding balance of the loan ($12,000) as of June 30, 2004 is payable in 18 equal semi-annual instalments from July 2004 to January 2014, plus a balloon payment of $3,000 payable together with the last installment.
Loan (d): Loan for an amount of $15,000, obtained in February 2001 from an unrelated international bank, to refinance Buenos' indebtedness of $2,000 under a previous loan agreement (see Loan (g) below), and to partially finance the construction cost of the vessel Alcyon. The loan bears interest at LIBOR plus a margin and the average interest rate (including the margin) during the years 2003 and 2002 and during the six month periods ended June 30, 2004 and 2003 was 2.53%, 3.43%, 2.39% and 2.65%, respectively, while at December 31, 2003 and 2002 and at June 30, 2004 and 2003, the interest rate (including the margin) was 2.41%, 2.56%, 2.40% and 2.65%, respectively. The outstanding balance of the loan ($12,000) as of June 30, 2004 is payable in 18 equal semi-annual instalments from August 2004 to February 2014, plus a balloon payment of $3,000 payable together with the last installment.
Loan (e): In July 2003, Eaton concluded a loan for an amount of $17,000 from an unrelated international bank to partially finance the acquisition cost of the vessel Danae. The loan bears interest at LIBOR plus a margin and the average interest rate (including the margin) during the year 2003 and during the six month period ended June 30, 2004 was 2.24%, and 2.23%, respectively, while at December 31, 2003 and at June 30, 2004, the interest rate (including the margin) was 2.27% and 2.68%, respectively. The outstanding balance of the loan ($16,435) as of June 30, 2004 is payable in 19 equal semi-annual instalments from January 2005 to July 2014, plus a balloon payment of $5,700 payable together with the last installment.
Loan (f): In March 2003, Chorrera concluded a loan for an amount of $16,500 from an unrelated international bank to partially finance the acquisition cost of the vessel Dione. The loan bears interest at LIBOR plus a margin and the average interest rate (including the margin) during the year 2003 and during the six month periods ended June 30, 2004 and 2003 was 2.52%, 2.44% and 2.54%, respectively, while at December 31, 2003 and at June 30, 2004 and 2003, the interest rate (including the margin) was
F-19
2.47%, 2.48% and 2.53%, respectively. The outstanding balance of the loan ($15,500) as of June 30, 2004 is payable in 36 equal quarterly instalments from August 2005 to May 2014, plus a balloon payment of $6,500 payable together with the last installment.
Loan (g): In July 2000, Skyvan, Buenos, Changame, Husky and Panama entered into one bridge floating interest loan facility with Fortis Bank for a maximum amount of $16 million to partially finance the construction cost of the vessels. Under the terms of this agreement, all borrowers were jointly and severally liable. In the year 2001, all outstanding balances under this loan agreement were fully repaid with the proceeds from the loans mentioned above, and are detailed as follows: Husky's balance ($4,000) was repaid on March 28, 2001; Panama's balance ($4,000) was repaid on May 30, 2001; Skyvan's balance ($2,000) was repaid on January 31, 2001; Buenos' balance ($2,000) was repaid on February 9, 2001. Changame did not have a balance outstanding.
The loans are secured as follows:
The loan agreements contain ship finance covenants including restrictions as to changes in management and ownership of the vessels, additional indebtedness and mortgaging of vessels without the bank's prior consent as well as minimum requirements regarding hull cover ratio. In addition, the borrowing companies must maintain minimum working capital accounts with the lending banks, as defined in the loan agreements. Furthermore, the vessel owning subsidiary companies are not permitted to pay any dividends to Diana Shipping Inc. without the lenders' prior consent. The restricted net assets of the vessel owning subsidiary companies at December 31, 2003 amounted to $43,865.
Total interest incurred on long-term debt for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 amounted to $2,556, $1,940, $1,775, $762 and $974, respectively. Of the above amounts, $203, $0, $91, $28 and $138, for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004, respectively, were capitalized as part of vessel cost or as advances for vessels under construction. Interest expense on long-term debt for the years ended December 31, 2001, 2002 and 2003 and for the six month periods ended June 30, 2003 and 2004 is included in interest expense and finance costs, net of interest capitalized, in the accompanying consolidated statements of operations.
F-20
The annual principal payments required to be made after December 31, 2003, are as follows:
|
Amount
|
|
---|---|---|
1 st half 2004 | 3,014 | |
2 nd half 2004 | 3,014 | |
|
||
2004 Total | 6,028 | |
2005 | 6,028 | |
2006 | 6,027 | |
2007 | 6,027 | |
2008 | 6,028 | |
2009 | 6,028 | |
2010 and thereafter | 47,090 | |
|
||
83,256 | ||
|
On February 21, 2003, Cypres and Urbina signed a secured floating interest rate loan facility with an unrelated international bank for a maximum amount of $31,500 (two tranches of maximum $15,750 each) in order to partially finance the cost of construction and acquisition of Hulls H2301 (Protefs) and H2302 (Amfitrite). The loan facility bears interest at LIBOR plus a margin per annum and both ship-owning companies are jointly and severally liable. As of June 30, 2003, December 31, 2003 and June 30, 2004, no amounts were drawn under this contract.
10. Contingencies:
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Company's vessels. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. A minimum of up to $1 billion of the liabilities associated with the individual vessels actions, mainly for sea pollution, are covered by the Protection and Indemnity (P&I) Club insurance.
F-21
11. Voyage and Vessel Operating Expenses:
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
|
Year ended December 31,
|
Six months
ended June 30, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
||||||
Voyage Expenses | |||||||||||
Port charges | 127 | 4 | 9 | 4 | 1 | ||||||
Bunkers | 417 | 73 | (169 | ) | (152 | ) | 39 | ||||
Commissions charged by third parties | 631 | 599 | 1,172 | 418 | 1,366 | ||||||
Commissions charged by a related party | 219 | 239 | 506 | 183 | 603 | ||||||
Others | 100 | 31 | 31 | 13 | 22 | ||||||
|
|
|
|
|
|||||||
Total | 1,494 | 946 | 1,549 | 466 | 2,031 | ||||||
|
|
|
|
|
|||||||
Vessel Operating Expenses | |||||||||||
Crew wages and related costs | 1,801 | 2,198 | 3,613 | 1,327 | 2,295 | ||||||
Insurance | 330 | 437 | 897 | 372 | 536 | ||||||
Repairs and maintenance | 132 | 164 | 505 | 160 | 371 | ||||||
Spares and consumable stores | 1,055 | 869 | 1,029 | 299 | 741 | ||||||
Taxes (Note 15) | 1 | 28 | 52 | 24 | 33 | ||||||
Miscellaneous | 113 | 115 | 171 | 44 | 74 | ||||||
|
|
|
|
|
|||||||
Total | 3,432 | 3,811 | 6,267 | 2,226 | 4,050 | ||||||
|
|
|
|
|
In the year 2001, the Company signed agreements with an unrelated, international supplier for the exclusive supply of lubricants to the vessels Nirefs, Alcyon, Triton and Oceanis, for periods up to December 31, 2005. Under the terms of these contracts, lubricants supplied during the first two years of operations of the vessels were free of charge. The free of charge periods for the four vessels expired between January and May 2003. The market value of lubricants consumed during the free of charge period, for all four vessels, was $1,649.
The Company classifies lubricant expense in Spares and consumable stores in the aforementioned table of Voyage and Vessel Operating Expenses. During the free lubricant period, the Company recorded the market value of the lubricants consumed as an expense and amortizes the benefit of the free lubricants consumed on a straight-line basis over the periods from the start date of each of the lubricant contracts through December 31, 2005, the date all lubricants contracts will expire. The unamortized balance of the above benefit at December 31, 2002 and 2003 and at June 30, 2003 and 2004 amounted to $858, $690, $863, and $518, respectively, and is reflected in other current and non-current liabilities in the accompanying financial statements.
F-22
12. Interest and Finance Costs:
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
|
Year ended December 31,
|
Six months
ended June 30, |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
|||||||
Interest on long-term debt | 2,353 | 1,940 | 1,684 | 734 | 836 | |||||||
Amortization and write-off of financing costs | 337 | 61 | 73 | 32 | 42 | |||||||
Financial instruments | | | (77 | ) | | (159 | ) | |||||
|
|
|
|
|
||||||||
Total | 2,690 | 2,001 | 1,680 | 766 | 719 | |||||||
|
|
|
|
|
On July 21, 2003, the Company concluded two separate interest rate option contracts (cap and floor) with Fortis Bank for a period of five years (through July 2008) for a notional amount of $38,000. Under the cap option contract, the Company pays a premium of $420 and receives interest (calculated at LIBOR less 5.5%) if LIBOR exceeds 5.5%. Under the floor option contract, the Company receives a premium of $420 and pays interest (calculated at 2.25% less LIBOR) if LIBOR falls below 1%. The Company entered into these agreements in order to partially hedge its exposure to fluctuations in interest rates on its long-term debt. The Company's strategy is to limit the interest rate on a long-term debt principal amount of $38,000, at 5.5% through July 2008. These option agreements did not meet hedge accounting criteria.
The Company has not paid or received premiums or interest up to June 30, 2004. The fair value of these option agreements at December 31, 2003 and at June 30, 2004, in accordance with SFAS No. 133, was $77 and $236, respectively, and was reflected in Financial Instruments in the accompanying consolidated balance sheets. The positive change in the fair value of these options during the year 2003 and during the six month period ended June 30, 2004, of $77 and $159, respectively, is included in interest and finance costs in the accompanying consolidated statements of operations.
13. Common Stock and Additional Paid-In Capital:
The Company's common stock since inception on March 8, 1999 and prior the amendment of its articles of incorporation discussed in Note 17(d), consisted of 100,000 authorized, issued outstanding shares of $10 par value, of which 20,000 were voting common shares and 80,000 were non-voting convertible cumulative preferred shares. On December 16, 2002, as a condition precedent to the share purchase and subscription agreement between the Company, certain executives, Zoe and Ironwood Trading Corp., signed on December 30, 2002 (Note 3(c)), the Company amended its articles of association and increased its authorized shares by 50,000 to total 150,000 authorized shares at $10 par value, and converted the then outstanding preferred shares into common shares at a ratio of 1:1. On December 20, 2002, the Company declared and paid cash dividends of $1,116 to the common stockholders of record on that date.
F-23
At the time of the signing of the share purchase and subscription agreement, Zoe and Ironwood Trading Corp. mutually agreed to authorize the Company to issue 50,000 additional common shares for a total consideration of $14,000 which consideration was based on a fair market valuation of the Company. Accordingly, each shareholder placed $7,000 into an escrow account, which was then released to the Company on the dates mentioned below in exchange for common shares. During the year 2003, the Company issued four allotments of common shares; 8,310 in January for $2,027, 19,643 in March for $5,500, 7,247 in April for $2,029 and 14,800 in May for $4,444. Accordingly, 50,000 common shares were issued during 2003 in exchange for cash consideration of $14,000. This issuance of common stock was allocated to common stock ($500) and additional paid-in capital ($13,500) in the accompanying consolidated statements of stockholders' equity for the year ended December 31, 2003 and for the six-month period ended June 30, 2003.
Following the restatement of the share and per share data included in the accompanying consolidated financial statements to reflect the stock dividend of 27,475,000 shares, discussed in Note 17(d), outstanding for all periods presented, as of December 31, 2002, and 2003 and as of June 30, 2003 and 2004, issued and outstanding common stock amounted to $184, $276, $276 and $276, respectively. As of December 31, 2001 issued and outstanding preferred stock amounted to $147. The holders of the common shares are entitled to one vote on all matters submitted to a vote of stockholders and to receive all dividends, if any.
The amounts shown in the accompanying consolidated balance sheets, as additional paid-in capital, represent (i) payments made by the stockholders at various dates to finance vessel acquisitions in excess of the amounts of bank loans obtained and advances for working capital purposes, (ii) payments made by the stockholders in excess of the par value of common stock purchased by them and (iii) the value of executive management services provided through the management agreement with Diana Shipping Services S.A. to the Company, as well as the value of the lease expense for the office space and of the secretarial services that are provided to the Company at no additional charge by Diana Shipping Services S.A. The value of the above services and free office space was estimated as $1,363, $1,404, $1,470, $735 and $764, for the years ended December 31, 2001, 2002 and 2003 and the six month periods ended June 30, 2003 and 2004, respectively, and is recorded as executive management services and rent in the accompanying consolidated statements of operations and as a contribution to additional paid-in capital in the related consolidated statements of stockholders' equity. The principal stockholder of the Company is also the principal stockholder of Diana Shipping Agencies S.A. (DSA) and Diana Shipping Services S.A. (DSS). On February 21, 2005 the Company entered into direct employment agreements with individuals who will provide executive management services previously provided by DSA. In addition the Company will occupy office space and receive secretarial services both provided by DSS (see Note 17(e)). The value of the above services was determined by reference to the amounts in the employment agreements and lease agreement between DSS and the future owner of the office space presently occupied by DSS. The amounts relating to the management services were discounted for the effect of the salary increases during the years 2001 (3.01%), 2002 (4.75%), 2003 (4.00%) and 2004 (4.92%) as determined by the collective agreements governing the employment of shoreside personnel by shipping companies in Greece, which approximate inflation rates, while the amounts relating to the rent were discounted for the effect of the inflation rates. The management fees to be
F-24
charged by DSS are expected to be $15 per vessel per month plus a 2% commission; previously the management fees charged by DSA were $12 per vessel plus a 2% commission.
Under the share purchase and subscription agreement between the Company, certain executives, Zoe and Ironwood Trading Corp., signed on December 30, 2002 (Note 3), the Company and its executives are required to obtain approval from all stockholders (i.e., unanimous consent) before they initiate or undertake any of the following: declare or pay dividends, modify the authorized or issued share capital of the Company, appoint or terminate the Manager, obtain loans or advances, issue guarantees, acquire or sell vessels or other assets, and various other actions.
14. Earnings Per Common Share:
The components of the calculation of basic earnings per common share and diluted earnings per common share are as follows:
|
Year ended December 31,
|
Six months
ended June 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
|||||||||||
Income (Loss): | ||||||||||||||||
Income (Loss) available to common stockholders | (392 | ) | 76 | 9,489 | 2,963 | 19,605 | ||||||||||
Basic earnings (losses) per share: | ||||||||||||||||
Weighted average Common shares outstanding | 3,683,333 | 4,297,161 | 25,340,596 | 23,056,193 | 27,625,000 | |||||||||||
Diluted earnings (losses) per share: | ||||||||||||||||
Weighted average Common sharesdiluted | 3,683,333 | 18,416,667 | 25,340,596 | 23,056,193 | 27,625,000 | |||||||||||
Basic earnings (losses) per common share | $ | (0.11 | ) | $ | 0.02 | $ | 0.37 | $ | 0.13 | $ | 0.71 | |||||
Diluted earnings (losses) per common share | $ | (0.11 | ) | $ | 0.00 | $ | 0.37 | $ | 0.13 | $ | 0.71 |
During the years ended December 31, 2001 and 2002, the Company had issued and outstanding convertible preferred stock. Since the Company reported a net loss for the year ended December 31, 2001, the impact of the conversion of these shares was not considered for the 2001 diluted earnings (losses) per common share calculation presented above.
15. Income Taxes:
Under the laws of the countries of the companies' incorporation and/or vessels' registration, the companies are not subject to tax on international shipping income, however, they are subject to registration and tonnage taxes, which have been included in vessel operating expenses in the accompanying consolidated statements of operations.
Pursuant to the Internal Revenue Code of the United States (the "Code"), U.S. source income from the international operations of ships is generally exempt from U.S. tax if the company operating
F-25
the ships meets certain requirements. Among other things, in order to qualify for this exemption, the company operating the ships must be incorporated in a country, which grants an equivalent exemption from income taxes to U.S. corporations. All the company's ship-operating subsidiaries satisfy these initial criteria. In addition, these companies must be more than 50% owned by individuals who are residents, as defined, in the countries of incorporation or another foreign country that grants an equivalent exemption to U.S. corporations. These companies also currently satisfy the more than 50% beneficial ownership requirement. In addition, upon completion of the public offering of the Company's shares, the management of the Company believes that by virtue of a special rule applicable to situations where the ship operating companies are beneficially owned by a publicly traded company like the Company, the more than 50% beneficial ownership requirement can also be satisfied based on the trading volume and the anticipated widely-held ownership of the Company's shares, but no assurance can be given that this will remain so in the future, since continued compliance with this rule is subject to factors outside the Company's control.
16. Financial Instruments:
The principal financial assets of the Company consist of cash on hand and at banks and accounts receivable due from charterers. The principal financial liabilities of the Company consist of long-term bank loans and accounts payable due to suppliers.
17. Subsequent Events:
F-26
F-27
additional charge. The value of the annual rental for the office space and the secretarial services is estimated as approximately $150 until the acquisition of DSS discussed in Note 18 occurs. Furthermore, the Company and all parties to the share purchase and subscription agreement, signed on December 30, 2002 (Notes 3 and 13), intend to irrevocably terminate the agreement prior to the closing of the initial public offering.
18. Pro Forma Information (Unaudited):
In February 2005 and within the context of the initial public offering discussed in Note 17(e) above, the Company entered into an agreement with the stockholders of Diana Shipping Services S.A. ("DSS"), a vessel management company related through common control, pursuant to which the Company may exercise an option to purchase 100% of the issued and outstanding shares of DSS at any time between the 13 th month through the 24 th month, inclusive, following the consummation of the public offering for cash consideration of $20,000. The majority shareholding (65%) of DSS is beneficially owned by the Company's Chief Executive Officer, Mr. Simeon Palios. Pursuant to this agreement, the current DSS stockholders may also exercise an option to sell all, but not less than all, of their outstanding shares to the Company for the same consideration at any time during the 12-month period following the consummation of the public offering. The Company expects to pay these amounts from the proceeds of additional debt. The Company intends to exercise its option to acquire DSS if the current DSS stockholders have not exercised their option prior to such time. When DSS is acquired by the Company, the transaction will be recorded at historical cost due to common control. DSS net assets amounted to $500 as of September 30, 2004. The amount in excess of DSS historical book value will be reflected as a reduction in net income in the period the acquisition is consummated as a preferential deemed dividend. Effective November 12, 2004, DSS manages the operations of the Company's vessel in substitution of Diana Shipping Agencies S.A. (Note 1).
As the total amount $48,000 of the dividends paid in December 2004 and declared in February 2005, as further discussed in Note 17(b), exceeded net income for the 12-month period ended September 30, 2004, pro forma earnings per common share are presented in the accompanying December 31, 2003 consolidated statement of operations, giving effect to the additional number of shares that would be required to be issued at an assumed initial public offering price of [$16.00] per share (the mid-point of the expected range of [$15.00] to [$17.00] per share) to pay the amount of
F-28
dividends that exceeds net income for the 12-month period ended September 30, 2004. Furthermore, the portion of the consideration to purchase DSS that exceeds the carrying value of DSS net assets at September 30, 2004 of $19,500 is considered to be a preferential deemed dividend and it is reflected as a reduction of net income in the presentation of the pro forma net loss and the consequent effects of this reduction in net income is also reflected in the pro forma losses per share.
The calculations of the pro forma losses per common share discussed above are as follows:
Calculation of pro forma earnings (losses) per common share:
|
Year ended
December 31, 2003 |
|||
---|---|---|---|---|
Net income | $ | 9,489 | ||
Less: Preferential deemed dividend | (19,500 | ) | ||
|
||||
Pro forma net loss, available to common stockholders | (10,011 | ) | ||
|
||||
Number of shares required to be issued at [$16.00] per share to pay excess of dividends over earnings | [1,005,500 | ] | ||
Weighted average common shares outstanding, basic and dilutedhistorical | 25,340,596 | |||
|
||||
Weighted average common shares outstanding, basic and dilutedfor pro forma calculation | [26,346,096 | ] | ||
|
||||
Pro forma losses per common share, basic and diluted | $ | [(0.38 | )] | |
|
F-29
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003
(Expressed in thousands of U.S.
Dollarsexcept share and per share data)
|
|
SEPTEMBER 30, 2004
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
DECEMBER 31,
2003 |
ACTUAL
|
PRO FORMA
|
||||||||
|
(Note 1)
|
(Unaudited)
|
(Unaudited)
(Note 10) |
||||||||
ASSETS | |||||||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 7,441 | $ | 8,661 | $ | 8,661 | |||||
Accounts receivable, trade | 78 | 144 | 144 | ||||||||
Due from related companies | 149 | | | ||||||||
Inventories | 366 | 568 | 568 | ||||||||
Prepaid insurance and other | 80 | 451 | 451 | ||||||||
Restricted cash | 958 | 272 | 272 | ||||||||
|
|
|
|||||||||
Total current assets | 9,072 | 10,096 | 10,096 | ||||||||
|
|
|
|||||||||
FIXED ASSETS: | |||||||||||
Advances for vessels under construction and acquisitions and other vessel costs | 8,642 | 13,143 | 13,143 | ||||||||
|
|
|
|||||||||
Vessels | 126,032 | 147,269 | 147,269 | ||||||||
Accumulated depreciation | (9,329 | ) | (12,995 | ) | (12,995 | ) | |||||
|
|
|
|||||||||
Vessels' Net Book Value | 116,703 | 134,274 | 134,274 | ||||||||
|
|
|
|||||||||
Total fixed assets | 125,345 | 147,417 | 147,417 | ||||||||
|
|
|
|||||||||
OTHER NON-CURRENT ASSETS: | |||||||||||
Deferred charges, net | 628 | 567 | 567 | ||||||||
Financial instruments | 77 | 80 | 80 | ||||||||
|
|
|
|||||||||
Total assets | $ | 135,122 | $ | 158,160 | $ | 158,160 | |||||
|
|
|
|||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt | $ | 6,027 | $ | 7,078 | $ | 7,078 | |||||
Dividends payable | | | 67,500 | ||||||||
Accounts payable, trade | 602 | 876 | 876 | ||||||||
Accounts payable, other | 80 | 635 | 635 | ||||||||
Due to related companies | | 180 | 180 | ||||||||
Accrued liabilities | 616 | 587 | 587 | ||||||||
Unearned revenue | 1,437 | 883 | 883 | ||||||||
Other current liabilities | 345 | 345 | 345 | ||||||||
|
|
|
|||||||||
Total current liabilities | 9,107 | 10,584 | 78,084 | ||||||||
|
|
|
|||||||||
LONG-TERM DEBT, net of current portion | 77,229 | 86,391 | 86,391 | ||||||||
|
|
|
|||||||||
OTHER NON-CURRENT LIABILITIES | 345 | 85 | 85 | ||||||||
|
|
|
|||||||||
COMMITMENTS AND CONTINGENCIES | | | | ||||||||
|
|
|
|||||||||
STOCKHOLDERS' EQUITY: | |||||||||||
Preferred stock, $0.01 par value; 25,000,000 shares authorized, none issued. | | | | ||||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 27,625,000 issued and outstanding at September 30, 2003 and 2004. | 276 | 276 | 276 | ||||||||
Additional paid-in capital | 37,961 | 39.107 | 39,107 | ||||||||
Retained earnings (accumulated deficit) | 10,204 | 21,717 | (45,783 | ) | |||||||
|
|
|
|||||||||
Total stockholders' equity (deficit) | 48,441 | 61,100 | (6,400 | ) | |||||||
|
|
|
|||||||||
Total liabilities and stockholders' equity | $ | 135,122 | $ | 158,160 | $ | 158,160 | |||||
|
|
|
F-30
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED UNAUDITED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004
(Expressed in thousands of U.S. Dollars except share and per share data)
|
NINE MONTHS ENDED
SEPTEMBER 30, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
||||||
|
(Unaudited)
|
(Unaudited)
|
||||||
REVENUES: | ||||||||
Voyage and time charter revenues | $ | 16,528 | $ | 45,387 | ||||
EXPENSES: |
|
|
|
|
|
|
|
|
Voyage expenses | 954 | 3,087 | ||||||
Vessel operating expenses | 4,036 | 6,767 | ||||||
Depreciation | 2,777 | 3,666 | ||||||
Management fees | 512 | 660 | ||||||
Executive management services and rent | 1,103 | 1,146 | ||||||
General and administrative expenses | 60 | 211 | ||||||
|
|
|||||||
Operating income | 7,086 | 29,850 | ||||||
|
|
|||||||
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
Interest and finance costs | (1,006 | ) | (1,408 | ) | ||||
Interest income | 20 | 73 | ||||||
Foreign currency losses | (10 | ) | (2 | ) | ||||
|
|
|||||||
Total other expenses, net | (996 | ) | (1,337 | ) | ||||
|
|
|||||||
Net Income | $ | 6,090 | $ | 28,513 | ||||
|
|
|||||||
Earnings per common share, basic and diluted | $ | 0.25 | $ | 1.03 | ||||
|
|
|||||||
Weighted average number of common shares, basic and diluted | 24,579,068 | 27,625,000 | ||||||
|
|
|||||||
Pro forma earnings per common share, basic and diluted | $ | | $ | 0.32 | ||||
|
|
|||||||
Pro forma weighted average number of common shares, basic and diluted | | 28,630,000 | ||||||
|
|
F-31
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED UNAUDITED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2004
(Expressed in thousands of U.S. Dollars except share and per share data)
|
|
Common Stock
|
|
|
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Comprehensive
Income |
# of
Shares |
Par
Value |
Additional
Paid-in Capital |
Retained
Earnings |
Total
|
|||||||||||||
BALANCE, December 31, 2002 | | 18,416,667 | $ | 184 | $ | 22,583 | $ | 715 | $ | 23,482 | |||||||||
Net income for the nine month period | 6,090 | | | | 6,090 | 6,090 | |||||||||||||
Contribution to additional paid-in capital | | | | 1,103 | | 1,103 | |||||||||||||
Issuance of common stock (par value $0.01 at $1.52) | | 9,208,333 | 92 | 13,908 | | 14,000 | |||||||||||||
|
|||||||||||||||||||
Comprehensive income | $ | 6,090 | |||||||||||||||||
|
|
|
|
|
|
||||||||||||||
BALANCE, September 30, 2003 | | 27,625,000 | $ | 276 | $ | 37,594 | $ | 6,805 | $ | 44,675 | |||||||||
|
|
|
|
|
|||||||||||||||
BALANCE, December 31, 2003 | | 27,625,000 | $ | 276 | $ | 37,961 | $ | 10,204 | $ | 48,441 | |||||||||
Net income for the nine month period | 28,513 | | | | 28,513 | 28,513 | |||||||||||||
Contribution to additional paid-in capital | | | | 1,146 | | 1,146 | |||||||||||||
Cash dividends declared and paid ($0.62 per share) | | | | | (17,000 | ) | (17,000 | ) | |||||||||||
|
|||||||||||||||||||
Comprehensive income | $ | 28,513 | |||||||||||||||||
|
|
|
|
|
|
||||||||||||||
BALANCE, September 30, 2004 | | 27,625,000 | $ | 276 | $ | 39,107 | $ | 21,717 | $ | 61,100 | |||||||||
|
|
|
|
|
F-32
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2004
(Expressed in thousands of U.S. Dollars)
|
NINE MONTHS ENDED
SEPTEMBER 30, |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
Cash Flows from Operating Activities: | |||||||||
Net income | $ | 6,090 | $ | 28,513 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation | 2,777 | 3,666 | |||||||
Executive management services and rent | 1,103 | 1,146 | |||||||
Amortization of financing costs | 52 | 61 | |||||||
Change in fair value of interest rate swaps | (90 | ) | (3 | ) | |||||
Recognition and amortization of free lubricants benefit | (81 | ) | (259 | ) | |||||
(Increase) Decrease in: | |||||||||
Receivables | 43 | (66 | ) | ||||||
Due from related parties | (1,117 | ) | 149 | ||||||
Inventories | (269 | ) | (202 | ) | |||||
Prepayments and other | (263 | ) | (371 | ) | |||||
Increase (Decrease) in: | |||||||||
Accounts payable | 588 | 829 | |||||||
Due to related parties | (169 | ) | 180 | ||||||
Accrued liabilities | (3 | ) | (29 | ) | |||||
Unearned revenue | 203 | (554 | ) | ||||||
|
|
||||||||
Net Cash from Operating Activities | 8,864 | 33,060 | |||||||
|
|
||||||||
Cash Flows from Investing Activities: | |||||||||
Advances for vessels under construction | (5,389 | ) | (11,388 | ) | |||||
Vessel acquisitions | (44,081 | ) | (14,351 | ) | |||||
|
|
||||||||
Net Cash used in Investing Activities | (49,470 | ) | (25,739 | ) | |||||
|
|
||||||||
Cash Flows from Financing Activities: | |||||||||
Proceeds from long-term debt | 33,500 | 15,750 | |||||||
Issuance of common stock | 14,000 | | |||||||
Decrease in restricted cash | 1,173 | 686 | |||||||
Financing costs | (296 | ) | | ||||||
Payments of long-term debt | (3,908 | ) | (5,537 | ) | |||||
Cash dividend | | (17,000 | ) | ||||||
|
|
||||||||
Net Cash from (used in) Financing Activities | 44,469 | (6,101 | ) | ||||||
|
|
||||||||
Net increase in cash and cash equivalents | 3,863 | 1,220 | |||||||
Cash and cash equivalents at beginning of period | 1,867 | 7,441 | |||||||
|
|
||||||||
Cash and cash equivalents at end of period | $ | 5,730 | $ | 8,661 | |||||
|
|
||||||||
SUPPLEMENTAL CASH FLOW INFORMATION | |||||||||
Cash paid during the period for Interest: | |||||||||
Interest payments | $ | 1,047 | $ | 1,725 | |||||
|
|
||||||||
Non-cash financing activities: | |||||||||
Executive management services and rent | $ | 1,103 | $ | 1,146 | |||||
|
|
F-33
DIANA SHIPPING INC.
(Formerly Diana Shipping Investment Corp.)
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Expressed in thousands of
United States Dollars
except share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information:
The accompanying consolidated financial statements include the accounts of Diana Shipping Inc. (formerly Diana Shipping Investment Corp.) ("Diana") and its wholly owned subsidiaries (collectively, the "Company").
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and notes required by U.S generally accepted accounting principles for complete financial statements. These unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation of the Company's financial position, results of operation and cash flows for the periods presented. Operating results for the nine-month period ended September 30, 2004 are not necessarily indicative of the results that might be expected for the fiscal year ended December 31, 2004.
The financial statements presented in this report should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the registration statement.
The balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership and operation of bulker vessels. Diana was formed on March 8, 1999, under the laws of the Republic of Liberia and is the sole owner of all the outstanding bearer shares of the following subsidiaries:
F-34
During the nine month periods ended September 30, 2003 and 2004, eight charterers individually accounted for more than 10% of the Company's voyage and time charter revenues as follows:
|
Nine months
ended Septebmer 30, |
|||||
---|---|---|---|---|---|---|
Charterer
|
||||||
2003
|
2004
|
|||||
A | 19 | % | 27 | % | ||
B | | 17 | % | |||
C | | 12 | % | |||
D | 13 | % | 16 | % | ||
E | | 22 | % | |||
F | 13 | % | | |||
G | 25 | % | | |||
H | 16 | % | |
2. Adoption of New Accounting Standards:
In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest EntriesAn Interpretation of Accounting Research
F-35
Bulletin ("ARB") No.51. This interpretation provides guidance on how to identify variable interest entities and how to determine whether or not those entities should be consolidated. FIN 46 applies to variable interest entities created after January 31, 2003. FIN 46 also applies in the first fiscal quarter on interim period ending after December 15, 2003 for variable interest entities created before February 1, 2003. The adoption of FIN 46 did not have an impact on the Company's results of operations or financial position.
3. Inventories:
The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:
|
December 31,
2003 |
September 30,
2004 |
|||
---|---|---|---|---|---|
Lubricants | 268 | 452 | |||
Victualling | 98 | 116 | |||
|
|
||||
Total | 366 | 568 | |||
|
|
4. Advances for Vessels Under Construction and Acquisitions and Other Vessel Costs:
The amounts shown in the accompanying consolidated balance sheets as of December 31, 2003 and September 30, 2004 include payments to sellers of vessels or, in the case of contracted vessels, the shipyards, supervision services and capitalized interest cost, as analyzed below:
|
December 31,
2003 |
September 30,
2004 |
|||
---|---|---|---|---|---|
Advance payments on contract signing | 4,058 | 3,043 | |||
Additional pre-delivery payments | 4,059 | 9,103 | |||
Construction supervision costs | 159 | 380 | |||
Capitalized interest | 91 | 205 | |||
Other related costs | 275 | 412 | |||
|
|
||||
Total | 8,642 | 13,143 | |||
|
|
F-36
As at December 31, 2003 and September 30, 2004, subsidiaries of the Company as disclosed in Note 1, had under construction four and three panamax dry-bulk carriers at the Jiangnan Shipyard in China, respectively:
|
|
|
|
Advances and
Other Vessel Costs |
||||||
---|---|---|---|---|---|---|---|---|---|---|
Vessel
Name |
Contract Date
|
Expected
Delivery |
Contract
Amount |
December 31, 2003
|
September 30, 2004
|
|||||
Panamax | ||||||||||
Protefs | December 24, 2002 | Note 5 | 20,351 | 4,242 | | |||||
Amfitrite | December 24, 2002 | Note 9(a) | 20,191 | 2,187 | 6,563 | |||||
Calipso | April 29, 2003 | February, 2005 | 20,291 | 1,105 | 4,312 | |||||
Clio | April 29, 2003 | March, 2005 | 20,291 | 1,108 | 2,268 | |||||
|
|
|
||||||||
Total | 81,124 | 8,642 | 13,143 | |||||||
|
|
|
5. Vessels:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
|
Vessel
Cost |
Accumulated
Depreciation |
Net Book
Value |
||||
---|---|---|---|---|---|---|---|
Balance, December 31, 2002 | 81,951 | (5,351 | ) | 76,600 | |||
Transfers from vessels under construction | 2,212 | | 2,212 | ||||
Vessel acquisitions | 41,869 | | 41,869 | ||||
Depreciation for the year | | (3,978 | ) | (3,978 | ) | ||
|
|
|
|||||
Balance, December 31, 2003 | 126,032 | (9,329 | ) | 116,703 | |||
Transfers from vessels under construction | 6,886 | | 6,886 | ||||
Vessel acquisitions | 14,351 | | 14,351 | ||||
Depreciation for the period | | (3,666 | ) | (3,666 | ) | ||
|
|
|
|||||
Balance, September 30, 2004 | 147,269 | (12,995 | ) | 134,274 | |||
|
|
|
On August 31, 2004, the vessel Protefs was delivered to Cypres. On August 26, 2004, Cypres drew-down one tranche of $15,750 from the secured floating interest rate loan facility signed on February 21, 2003 between the ship owning companies Cypres and Urbina with an unrelated international bank for a maximum amount of $31,500 (two tranches of maximum $15,750 each) in order to partially finance the cost of construction and acquisition of Hulls H2301 (Protefs) and H2302 (Amfitriti). On the same date, the remaining outstanding balance, of $14,351, was paid to the shipyard.
F-37
6. Deferred Charges:
The amounts in the accompanying consolidated balance sheets represent unamortized financing costs and are analyzed as follows:
Balance, December 31, 2002 | 344 | ||
Additions | 357 | ||
Amortization for the year | (73 | ) | |
|
|||
Balance, December 31, 2003 | 628 | ||
Amortization for the period | (61 | ) | |
|
|||
Balance, September 30, 2004 | 567 | ||
|
The amortization of financing costs is included in interest and finance costs in the accompanying consolidated statements of income.
7. Contingencies:
Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Company's vessels. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements.
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. A minimum of up to $1 billion of the liabilities associated with the individual vessels actions, mainly for sea pollution, are covered by the Protection and Indemnity (P&I) Club insurance.
F-38
8. Earnings Per Common Share:
The components of the calculation of basic earnings per common share and diluted earnings per common share are as follows:
|
Nine months
ended September 30, |
||||
---|---|---|---|---|---|
|
2003
|
2004
|
|||
Income: | |||||
Income available to common shareholders | 6,090 | 28,513 | |||
Basic earnings per share: | |||||
Weighted average
Common shares outstanding |
24,579,068 | 27,625,000 | |||
Diluted earnings per share: | |||||
Weighted average
Common sharesdiluted |
24,579,068 | 27,625,000 | |||
Basic earnings per common share | $0.25 | $1.03 | |||
Diluted earnings per common share | $0.25 | $1.03 |
On August 30, 2004, the Board of Directors of Diana approved the declaration and payment of dividends totaling $17,000 ($0.62 per share) after obtaining consents from its respective lending banks. On September 2, 2004, Diana effected the payment to the common shareholders of record as of August 30, 2004.
9. Subsequent Events:
F-39
amounts drawn will be at Libor plus margin. The facility will be available in full for five years then reducing over a period of five years in semiannual amounts of $13.5 million with a $75.0 million balloon payment at maturity. The credit facility will be secured by first priority mortgages over the Company's vessels and assignments of earnings and insurances.
F-40
Company will enter into an agreement with Diana Shipping Services S.A. ("DSS"), pursuant to which DSS will provide the Company with office space and secretarial services for no additional charge. The fair value of the annual rental for the office space and the secretarial services is estimated as approximately $150 until the acquisition of DSS occurs. Furthermore, the Company and all parties to the share purchase and subscription agreement, signed on December 30, 2002, intend to irrevocably terminate the agreement prior to the closing of the initial public offering.
10. Pro Forma Information:
In February 2005 and within the context of the initial public offering discussed in Note 9(f) above, the Company entered into an agreement with the stockholders of Diana Shipping Services S.A. ("DSS"), a vessel management company related through common control, pursuant to which the Company may exercise an option to purchase 100% of the issued and outstanding shares of DSS at any time between the 13th month through the 24th month, inclusive, following the consummation of the
F-41
public offering for cash consideration of $20,000. The majority shareholding (65%) of DSS is beneficially owned by the Company's Chief Executive Officer, Mr. Simeon Palios. Pursuant to this agreement, the current DSS stockholders may also exercise an option to sell all, but not less than all, of their outstanding shares to the Company for the same consideration at any time during the 12-month period following the consummation of the public offering. The Company expects to pay these amounts from the proceeds of additional debt. The Company intends to exercise its option to acquire DSS if the current DSS stockholders have not exercised their option prior to such time. When DSS is acquired by the Company, the transaction will be recorded at historical cost due to common control. DSS net assets amounted to $500 as of September 30, 2004. The amount in excess of DSS historical book value will be reflected as a reduction in net income in the period the acquisition is consummated as a preferential deemed dividend. Effective November 12, 2004, DSS manages the operations of the Company's vessel in substitution of Diana Shipping Agencies S.A.
The portion of the consideration to purchase DSS that exceeds the carrying value of DSS net assets at September 30, 2004 of $19,500 is reflected in the pro forma presentation of the Company's consolidated balance sheet as of September 30, 2004 together with the dividends of $34,000 and $14,000 that the Company paid to its stockholders in December 2004 and declared in February 2005, respectively, as a reduction in retained earnings. Furthermore, as the $19,500 mentioned above is considered to be a preferential deemed dividend, it is reflected as a reduction of net income in the presentation of the pro forma net income (loss) and the consequent effect of this reduction in net income is also reflected in the pro forma earnings (losses) per share. In addition, as the total amount ($48,000) of distribution exceeded net income for the 12 month-period ended September 30, 2004, pro forma earnings (losses) per common share are presented in the accompanying September 30, 2004 consolidated statement of income, giving effect to the additional number of shares that would be required to be issued at an assumed initial public offering price of [$16.00] per share (the mid point of the expected range of [$15.00] to [$17.00] per share) to pay the amount of dividends that exceeds net income for the 12 month-period ended September 30, 2004. The proposed acquisition of DSS does not meet the quantitative thresholds for a significant acquisition and therefore the pro forma presentation does not include the acquisition of DSS.
F-42
The calculations of the pro forma earnings per common share discussed above are as follows:
Calculation of pro forma earnings per common share:
|
Nine Months
ended September 30, 2004 |
||
---|---|---|---|
Net income | $28,513 | ||
Less: Preferential deemed dividend | (19,500 | ) | |
|
|||
Pro forma net income available to common stockholders | 9,013 | ||
|
|||
Number of shares required to be issued at [$16.00] per share to pay excess of dividends over earnings | [1,005,500 | ] | |
Weighted average common shares outstanding, basic and dilutedhistorical | 27,625,000 | ||
|
|||
Weighted average common shares outstanding, basic and diluted
for pro forma calculation |
[28,630,500 | ] | |
|
|||
Pro forma earnings per common share, basic and diluted | $0.32 | ||
|
F-43
Schedule ICondensed Financial Information of Diana Shipping Inc.
(Formerly Diana Shipping Investment Corp.)
BALANCE SHEETS
DECEMBER 31 2002 AND 2003
JUNE 30, 2003 AND 2004
(Expressed in thousands of U.S. Dollarsexcept share and per share data)
|
DECEMBER 31,
|
JUNE 30,
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2003
|
2004
|
|||||||||
ASSETS | |||||||||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | | $ | 2,717 | $ | 2,888 | $ | 14,696 | |||||
Investments | 23,600 | 53,238 | 39,112 | 80,769 | |||||||||
|
|
|
|
||||||||||
Total assets | $ | 23,600 | $ | 55,955 | $ | 42,000 | $ | 95,465 | |||||
|
|
|
|
||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany account | $ | | $ | 7,514 | $ | 820 | $ | 26,555 | |||||
Other current liabilities | 118 | | | 100 | |||||||||
|
|
|
|
||||||||||
118 | 7,514 | 820 | 26,655 | ||||||||||
|
|
|
|
||||||||||
STOCKHOLDERS' EQUITY: | |||||||||||||
Preferred stock, $0.01 par value; 25,000,000 shares authorized, none issued. | | | | | |||||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 18,416,667 issued and outstanding at December 31, 2002; 27,625,000 issued and outstanding at December 31, 2003 and at June 30, 2003 and 2004. | 184 | 276 | 276 | 276 | |||||||||
Additional paid-in capital | 22,583 | 37,961 | 37,226 | 38,725 | |||||||||
Retained earnings | 715 | 10,204 | 3,678 | 29,809 | |||||||||
|
|
|
|
||||||||||
Total stockholders' equity | 23,482 | 48,441 | 41,180 | 68,810 | |||||||||
|
|
|
|
||||||||||
Total liabilities and stockholders' equity | $ | 23,600 | $ | 55,955 | $ | 42,000 | $ | 95,465 | |||||
|
|
|
|
F-44
Schedule ICondensed Financial Information of Diana Shipping Inc.
(Formerly Diana Shipping Investment Corp.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
(Expressed in thousands of U.S. Dollarsexcept share and per share data)
|
YEAR ENDED DECEMBER 31,
|
ENDED JUNE 30,
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
|||||||||||
REVENUES: | ||||||||||||||||
Equity in net income (loss) of subsidiaries | $ | (392 | ) | $ | 194 | $ | 9,549 | $ | 3,021 | $ | 19,770 | |||||
Interest income | | | 8 | | 35 | |||||||||||
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange losses | | | 3 | 3 | | |||||||||||
General and administrative expenses | | 118 | 65 | 55 | 200 | |||||||||||
|
|
|
|
|
||||||||||||
Net Income (Loss) | $ | (392 | ) | $ | 76 | $ | 9,489 | $ | 2,963 | $ | 19,605 | |||||
|
|
|
|
|
||||||||||||
Earnings (Loss) per common share, basic | $ | (0.11 | ) | $ | 0.02 | $ | 0.37 | $ | 0.13 | $ | 0.71 | |||||
|
|
|
|
|
||||||||||||
Weighted average number of shares, basic | 3,683,333 | 4,297,161 | 25,340,596 | 23,056,193 | 27,625,000 | |||||||||||
|
|
|
|
|
||||||||||||
Earnings (Losses) per common share, diluted | (0.11 | ) | 0.00 | 0.37 | 0.13 | 0.71 | ||||||||||
|
|
|
|
|
||||||||||||
Weighted average number of shares, diluted | 3,683,333 | 18,416,667 | 25,340,596 | 23,056,193 | 27,625,000 | |||||||||||
|
|
|
|
|
||||||||||||
Pro forma losses per common share, basic and diluted |
|
$ |
|
|
$ |
|
|
$ |
(0.38 |
) |
$ |
|
|
$ |
|
|
|
|
|
|
|
||||||||||||
Pro forma weighted average number of common shares, basic and diluted |
|
|
|
|
|
|
|
|
26,346,096 |
|
|
|
|
|
|
|
|
|
|
|
|
F-45
Schedule ICondensed Financial Information of Diana Shipping Inc.
(Formerly Diana Shipping Investment Corp.)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31 2001, 2002 AND 2003
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
(Expressed in thousands of U.S.
Dollars except share and per share data)
|
|
Common Stock
|
Preferred Stock
|
|
|
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Comprehensive
Income (Loss) |
# of
Shares |
Par
Value |
# of
Shares |
Par
Value |
Additional
Paid-in Capital |
Retained
Earnings |
Total
|
||||||||||||||||
BALANCE, December 31, 2000 | | 3,683,333 | $ | 37 | 14,733,334 | $ | 147 | $ | 19,816 | $ | 2,147 | $ | 22,147 | |||||||||||
Net loss | (392 | ) | | | | | | (392 | ) | (392 | ) | |||||||||||||
Contribution to additional-paid in capital | | | | | | 1,363 | | 1,363 | ||||||||||||||||
|
||||||||||||||||||||||||
Comprehensive income | $ | (392 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
BALANCE, December 31, 2001 | | 3,683,333 | $ | 37 | 14,733,334 | $ | 147 | $ | 21,179 | $ | 1,755 | $ | 23,118 | |||||||||||
Net income | 76 | | | | 76 | 76 | ||||||||||||||||||
Conversion of preferred stock (1:1) | | 14,733,334 | 147 | 14,733,334 | (147 | ) | ||||||||||||||||||
Contribution to additional-paid in capital | | | | | | 1,404 | | 1,404 | ||||||||||||||||
Cash dividends declared and paid ($0.06 per share) (Note 13) | | | | | | | (1,116 | ) | (1,116 | ) | ||||||||||||||
|
||||||||||||||||||||||||
Comprehensive income | $ | 76 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
BALANCE, December 31, 2002 | | 18,416,667 | $ | 184 | | $ | | $ | 22,583 | $ | 715 | $ | 23,482 | |||||||||||
Net income | 9,489 | | | | | | 9,489 | 9,489 | ||||||||||||||||
Contribution to additional-paid in capital | | | | | | 1,470 | | 1,470 | ||||||||||||||||
Issuance of common stock (par value $0.01, at $1.52) | | 9,208,333 | 92 | | | 13,908 | | 14,000 | ||||||||||||||||
|
||||||||||||||||||||||||
Comprehensive income | $ | 9,489 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
BALANCE, December 31, 2003 | | 27,625,000 | $ | 276 | | $ | | $ | 37,961 | $ | 10,204 | $ | 48,441 | |||||||||||
Net income | 19,605 | | | | | | 19,605 | 19,605 | ||||||||||||||||
Contribution to additional-paid in capital | | | | | | 764 | | 764 | ||||||||||||||||
|
||||||||||||||||||||||||
Comprehensive income | $ | 19,605 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
BALANCE, June 30, 2004 | | 27,625,000 | $ | 276 | | $ | | $ | 38,725 | $ | 29,809 | $ | 68,810 | |||||||||||
|
|
|
|
|
|
|
||||||||||||||||||
BALANCE, December 31, 2002 | | 18,416,667 | $ | 184 | | $ | | $ | 22,583 | $ | 715 | $ | 23,482 | |||||||||||
Net income | 2,963 | | | | | | 2,963 | 2,963 | ||||||||||||||||
Contribution to additional-paid in capital | | | | | | 735 | | 735 | ||||||||||||||||
Issuance of common stock (par value $0.01, at $1.52) | | 9,208,333 | 92 | | | 13,908 | | 14,000 | ||||||||||||||||
|
||||||||||||||||||||||||
Comprehensive income | $ | 2,963 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
BALANCE, June 30, 2003 | | 27,625,000 | $ | 276 | | $ | | $ | 37,226 | $ | 3,678 | $ | 41,180 | |||||||||||
|
|
|
|
|
|
|
F-46
Schedule ICondensed Financial Information of Diana Shipping Inc.
(Formerly Diana Shipping Investment Corp.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 2001, 2002 AND 2003
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
(Expressed in thousands of U.S. Dollars)
|
YEAR ENDED DECEMBER 31,
|
SIX MONTHS
ENDED JUNE 30, |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2001
|
2002
|
2003
|
2003
|
2004
|
|||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||
Net income (loss) | $ | (392 | ) | $ | 76 | $ | 9,489 | $ | 2,963 | $ | 19,605 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||
Undistributed earnings of subsidiaries | 392 | 922 | (9,549 | ) | (3,021 | ) | (19,770 | ) | ||||||||||
Increase (Decrease) in: | ||||||||||||||||||
Intercompany account | | | 7,514 | 820 | 19,041 | |||||||||||||
Other current liabilities | | 118 | (118 | ) | (118 | ) | 100 | |||||||||||
|
|
|
|
|
||||||||||||||
Net Cash from Operating Activities |
|
|
|
|
|
1,116 |
|
|
7,336 |
|
|
644 |
|
|
18,976 |
|
||
|
|
|
|
|
||||||||||||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Investment in subsidiaries | (1,363 | ) | (1,404 | ) | (20,089 | ) | (12,491 | ) | (7,761 | ) | ||||||||
|
|
|
|
|
||||||||||||||
Net Cash used in Investing Activities | (1,363 | ) | (1,404 | ) | (20,089 | ) | (12,491 | ) | (7,761 | ) | ||||||||
|
|
|
|
|
||||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||
Cash dividends | | (1,116 | ) | | | | ||||||||||||
Contribution to additional paid-in capital | 1,363 | 1,404 | 1,470 | 735 | 764 | |||||||||||||
Issuance of common stock | | | 14,000 | 14,000 | | |||||||||||||
|
|
|
|
|
||||||||||||||
Net Cash from Financing Activities | 1,363 | 288 | 15,470 | 14,735 | 764 | |||||||||||||
|
|
|
|
|
||||||||||||||
Net increase in cash and cash equivalents |
|
|
|
|
|
|
|
|
2,717 |
|
|
2,888 |
|
|
11,979 |
|
||
Cash and cash equivalents at beginning of year/period | | | | | 2,717 | |||||||||||||
|
|
|
|
|
||||||||||||||
Cash and cash equivalents at end of year/period | $ | | $ | | $ | 2,717 | $ | 2,888 | $ | 14,696 | ||||||||
|
|
|
|
|
F-47
Schedule ICondensed Financial Information of Diana Shipping Inc.
(Formerly Diana Shipping Investment Corp.)
In the Parent Company only financial statements, the Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company, during the years ended December 31, 2001, 2002 and 2003 and the six-month periods ended June 30, 2003 and 2004, received cash dividends of $0, $1,116, $0, $0 and $0, respectively. The Parent Company only financial statements should be read in conjunction with the Company's consolidated financial statements.
F-48
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
|
Page
|
|
---|---|---|
Enforceability Of Civil Liabilities | i | |
Dry Bulk Shipping Industry Data | i | |
Prospectus Summary | 1 | |
Risk Factors | 10 | |
Forward-Looking Statements | 23 | |
Use Of Proceeds | 24 | |
Dividend Policy | 25 | |
Capitalization | 27 | |
Dilution | 28 | |
Selected Consolidated Financial And Other Data | 29 | |
Management's Discussion And Analysis Of Financial Condition And Results Of Operations | 33 | |
The International Dry Bulk Shipping Industry | 49 | |
Business | 59 | |
New Credit Facility | 71 | |
Our Fleet Manager | 73 | |
Management | 75 | |
Principal Stockholders | 78 | |
Related Party Transactions | 79 | |
Shares Eligible For Future Sale | 82 | |
Description Of Capital Stock | 84 | |
Certain Marshall Islands Company Considerations | 90 | |
Tax Considerations | 93 | |
Other Expenses Of Issuance And Distribution | 101 | |
Underwriting | 102 | |
Legal Matters | 106 | |
Experts | 106 | |
Where You Can Find Additional Information | 107 | |
Glossary Of Shipping Terms | 108 | |
Index To Consolidated Financial Statements and Schedule | F-1 |
12,375,000 Shares
Common Stock
PROSPECTUS
March , 2005
Bear, Stearns & Co. Inc.
Jefferies & Company, Inc.
UBS Investment Bank
Fortis Securities LLC
Through and including , 2005, which is the 25 th day after the date of this prospectus, all dealers effecting transactions in the common stock, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Directors and Officers.
The bylaws of the Registrant provide that every director and officer of the Registrant shall be indemnified out of the funds of the Registrant against:
Section 60 of the Associations Law of the Republic of the Marshall Islands provides as follows:
Indemnification of directors and officers.
II-1
the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
Item 7. Recent Sales of Unregistered Securities.
Not applicable.
Item 8. Exhibits and Financial Statement Schedules.
Exhibit
Number |
Description
|
|
---|---|---|
1 | Form of Underwriting Agreement* | |
3.1 | Amended and Restated Articles of Incorporation of the Company | |
3.2 | Amended and Restated Bylaws of the Company | |
4 | Form of Share Certificate of the Company* | |
5 | Opinion of Seward & Kissel LLP, United States and Marshall Islands Counsel to the Company, as to the validity of the Shares | |
8 | Opinion of Seward & Kissel LLP, United States Counsel to the Company, with respect to certain tax matters | |
10.1 | Form of Stockholders' Rights Agreement | |
10.2 | Form of Registration Rights Agreement | |
10.3 | Form of 2005 Stock Incentive Plan | |
10.4 | Form of Technical Manager Purchase Option Agreement | |
10.5 | Form of Management Agreement* | |
10.6 | Loan agreement, dated February 18, 2005, between the Company and the Royal Bank of Scotland | |
II-2
21 | Subsidiaries of the Company | |
23.1 | Consent of Seward & Kissel LLP (included in Exhibit 5 and Exhibit 8) | |
23.2 | Consent of Ernst & Young (Hellas) Certified Auditors Accountants S.A. | |
23.3 | Consent of Drewry Shipping Consultants Limited | |
24 | Powers of Attorney* |
Item 9. Undertakings.
The undersigned registrant hereby undertakes:
II-3
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-l and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Athens, Country of Greece on February 28, 2005.
DIANA SHIPPING INC. | |||
|
|
By: |
/s/ SIMEON P. PALIOS Name: Simeon P. Palios Title: Chief Executive Officer, Chairman of the Board |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Anastassis Margaronis, Ioannis Zafirakis, Gary J. Wolfe, and Robert E. Lustrin his or her true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on February 28, 2005 in the capacities indicated.
Signature
|
Title
|
|
---|---|---|
|
|
|
/s/
SIMEON P. PALIOS
Simeon P. Palios |
Director, Chief Executive Officer and Chairman of the Board | |
/s/ ANASTASSIS MARGARONIS Anastassis Margaronis |
|
Director and President |
/s/ IOANNIS ZAFIRAKIS Ioannis Zafirakis |
|
Director, Vice President and Secretary |
/s/ KONSTANTINOS KOUTSOMITOPOULOS Konstantinos Koutsomitopoulos |
|
Chief Financial Officer and Treasurer |
/s/ EVANGELOS MONASTIRIOTIS Evangelos Monastiriotis |
|
Chief Accounting Officer |
/s/ PUGLISI & ASSOCIATES Puglisi & Associates |
|
Authorized Representative in the United States |
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
DIANA SHIPPING INC.
PURSUANT TO
THE MARSHALL ISLANDS BUSINESS CORPORATIONS ACT
DIANA SHIPPING INC.
2
3
Shareholder;
The Corporation shall give not less than 20 days notice to all Interested Shareholders prior to the consummation of any of the transactions described in clause (i) or (ii) of the second sentence of this paragraph.
4
5
6
7
Exhibit 3.2
DIANA SHIPPING INC.
(the Corporation)
BYLAWS
As Adopted February 15, 2005
The principal place of business of the corporation shall be at such place or places as the directors shall from time to time determine. The corporation may also have an office or offices at such other places within or without the Marshall Islands as the Board of Directors may from time to time appoint or the business of the Corporation may require.
Section 1. Annual Meeting: The annual meeting of stockholders of the Corporation shall be held on such day and at such time and place within or without the Marshall Islands as the Board of Directors (the Board) may determine for the purpose of electing directors and/or transacting such other business as may properly be brought before the meeting. The Chairman of the Board or, in the Chairmans absence, another person designated by the Board shall act as the Chairman of all annual meetings of stockholders.
Section 2. Nature of Business at Annual Meetings of Stockholders: No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof); (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof); or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in Section 2 of this Article II and has remained a stockholder of record through the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in Section 2 of this Article II.
In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation (the Secretary).
To be timely a stockholders notice to the Secretary of the Corporation must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one-hundred twenty (120) days prior to the date on which the Corporation first mailed our proxy materials for the preceding years annual meeting of stockholders.
To be in proper written form, a stockholders notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. In addition, notwithstanding anything in Section 2 of this Article II to the contrary, a stockholder intending to nominate one or more persons for election as a Director at an annual meeting must comply with Article III Section 3 of these Bylaws for such nomination or nominations to be properly brought before such meeting.
No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in Section 2 of this Article II, provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in Section 2 of this Article II shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman of the meeting shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
Section 3. Special Meeting: A special meeting of stockholders may be called at any time by the Corporations Chairman, Chief Executive Officer, or Secretary at the direction of the board of directors or holders of not less than one-fifth of all outstanding shares may call special meetings of stockholders. The business transacted at the special meeting is limited to the purposes stated in the notice. The Chairman of the Board or, in the Chairmans absence, another person designated by the Board shall act as the Chairman of all special meetings of stockholders. If the Chairman of the special meeting determines that business was not properly brought before the special meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. In addition, the Board of Directors, in their discretion, may prevent a stockholder from calling a special meeting for a stockholder consideration of a proposal and the consideration of the proposal may be delayed until the next annual meeting.
Section 4. Notice of Meetings: Notice of every annual and special meeting of stockholders, other than any meeting the giving of notice of which is otherwise prescribed by law, stating the date, time, place and purpose thereof, and in the case of special meetings, the name of the person or persons at whose direction the notice is being issued, shall be given personally or sent by mail, telegraph, cablegram, telex or teleprinter at least fifteen (15) but not more than sixty (60) days before such meeting, to each stockholder of record entitled to vote thereat and to each stockholder of record who, by
2
reason of any action proposed at such meeting would be entitled to have his shares appraised if such action were taken, and the notice shall include a statement of that purpose and to that effect. If mailed, notice shall be deemed to have been given when deposited in the mail, directed to the stockholder at his address as the same appears on the record of stockholders of the Corporation or at such address as to which the stockholder has given notice to the Secretary. Notice of a meeting need not be given to any stockholder who submits a signed waiver of notice, whether before or after the meeting, or who attends the meeting without protesting prior to the conclusion thereof that he did not receive notice of such meeting.
Section 6. Quorum: At all meetings of stockholders, except as otherwise expressly provided by law, there must be present either in person or by proxy stockholders of record holding at least a majority of the shares issued and outstanding and entitled to vote at such meetings in order to constitute a quorum, but if less than a quorum is present, a majority of those shares present either in person or by proxy shall have power to adjourn any meeting until a quorum shall be present.
Section 7. Voting: If a quorum is present, and except as otherwise expressly provided by law, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the stockholders. At any meeting of stockholders, with respect to matter for which a stockholder is entitled to vote, each such stockholder shall be entitled to one vote for each share it holds. Each stockholder may exercise such voting right either in person or by proxy provided, however, that no proxy shall be valid after the expiration of eleven months from the date such proxy was authorized unless otherwise provided in the proxy. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in the law of the Marshall Islands to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Stockholders may not act by way of written consent.
Section 8. Fixing of Record Date: The Board of Directors may fix a time not more than sixty (60) nor less than fifteen (15) days prior to the date of any meeting of stockholders as the time as of which stockholders entitled to notice of and to vote at such a meeting shall be determined, and all persons who were holders of record of voting shares at such
3
time and no others shall be entitled to notice of and to vote at such meeting. The Board of Directors may fix a time not exceeding sixty (60) days preceding the date fixed for the payment of any dividend, the making of any distribution, the allotment of any rights or the taking of any other action, as a record time for the determination of the stockholders entitled to receive any such dividend, distribution, or allotment or for the purpose of such other action.
Section 1. Number: The affairs, business and property of the Corporation shall be managed by a Board of Directors to consist of such number of directors as shall be fixed by a vote of not less than a majority of the entire Board or by the affirmative vote of holders of a majority of the outstanding capital stock from time to time. Each director shall serve his respective term of office until his successor shall have been elected and qualified, except in the event of his death, resignation or removal. No decrease in the number of directors shall shorten the term of any incumbent director. The directors need not be residents of the Marshall Islands or stockholders of the Corporation. Corporations may, to the extent permitted by law, be elected or appointed directors.
Section 2. How Elected: Except as otherwise provided by law or in Section 5 of this Article III, the directors of the Corporation (other than the first Board of Directors if named in the Articles of Incorporation or designated by the incorporators) shall be elected at the annual meeting of stockholders. Each Director shall be elected to serve until the third succeeding annual meeting of stockholders and until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office.
Section 3. Nomination of Directors : Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Articles of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholders of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in Section 3 of this Article III and on the record date for the determination of stockholder entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in Section 3 of this Article III.
In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90)
4
days nor more than one-hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders.
To be in proper written form, a stockholders notice to the Secretary must set forth; (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder applicable to issuers that are not foreign private issuers and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person and persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in Section 3 of this Article III. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
Section 4. Removal: Any or all of the directors may be removed, with cause by the affirmative vote of holders of a majority of the issued and outstanding voting shares of the Corporation. Any director may be removed for cause by action of the Board of Directors. No director may be removed without cause by either the stockholders or the Board of Directors.
Section 5. Vacancies: Vacancies in the Board of Directors occurring by death, resignation, creation of new directorship, failure of the stockholders to elect the whole class of directors required to be elected at any annual election of directors or for any other reason, including removal of directors for cause, may be filled by the affirmative vote of a majority of the remaining directors then in office, although less than a quorum, at any special meeting called for that purpose or at any regular meeting of the Board.
5
Section 6. Regular meetings: Regular meetings of the Board of Directors may be held at such time and place as may be determined by resolution of the Board of Directors and no notice shall be required for any regular meeting. Except as otherwise provided by law, any business may be transacted at any regular meeting.
Section 7. Special meeting: Special meetings of the Board of Directors may, unless otherwise prescribed by law, be called from time to time by the Chairman, the President, or any officer of the Corporation who is also a Director. The President or the Secretary shall call a special meeting of the Board upon written request directed to either of them by any two Directors stating the time, place and purpose of such special meeting. Special meetings of the Board shall be held on a date and at such time and at such place as may be designated in the notice thereof by the officer calling the meeting.
Section 8. Notice of Special Meeting: Notice of the special date, time and place of each special meeting of the Board of Directors shall be given to each Director at least forty eight (48) hours prior to such meeting, unless the notice is given orally or delivered in person, in which case it shall be given at least twenty-four (24) hours prior to such meeting. For the purpose of this section, notice shall be deemed to be duly given to a Director if given to him personally (including by telephone) or if such notice be delivered to such Director by mail, telegraph, cablegram, telex or teleprinter to his last known address. Notice of a meeting need not be given to any Director who submits a signed waiver of notice, whether before of after the meeting, or who attends the meeting without protesting, prior to the conclusion thereof, the lack of notice to him.
Section 9. Quorum: A majority of the directors at the time in office, present in person or by proxy or conference telephone, shall constitute a quorum for the transaction of business.
Section 10. Interested Directors . No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, or, if the votes of the disinterested directors are insufficient to constitute an act of the Board of Directors as defined in Section 55 of the BCA, by unanimous vote of the disinterested directors; or (ii) the material facts as to his relationship or interest and as to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be
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counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.
Section 11. Voting: The vote of the majority of the directors, present in person or by proxy or conference telephone, at a meeting at which a quorum is present shall be the act of the directors. Any action required or permitted to be taken at a meeting may be taken without a meeting if all members of the Board consent thereto in writing.
Section 12. Compensation of Directors and Members of Committees: The Board may from time to time, in its discretion, fix the amounts which shall be payable to members of the Board of Directors and to members of any committee, for attendance at the meetings of the Board or of such committee and for services rendered to the Corporation.
Executive Committee and Other Committees: The Board of Directors may, by resolution or resolutions passed by a majority of the entire Board, designate from among its members an executive committee to consist of two or more of the directors of the Corporation, which, to the extent provided in said resolution or resolutions, or in these Bylaws, shall have and may exercise, to the extent permitted by law, the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it provided, however, that no committee shall have the power or authority to (i) fill a vacancy in the Board of Directors or in a committee thereof, (ii) amend or repeal any By-law or adopt any new By-law, (iii) amend or repeal any resolution of the entire Board, (iv) or increase the number of directors on the Board of Directors, or (v) remove any Director. In addition, the Board may designate from among its members other committees to consist of two or more of the directors of the Corporation, each of which shall perform such functions and have such authority and powers as shall be delegated to such committee by said resolution or resolutions or as provided for in these Bylaws, except that only the executive committee may have and exercise the powers of the Board of Directors. Members of the executive committee and any other committee shall hold office for such period as may be prescribed by the vote of the entire Board of Directors, subject, however, to removal at any time by the vote of the Board of Directors. Vacancies in membership of such committees shall be filled by vote of the Board of Directors. Committees may adopt their own rules of procedures and may meet at stated times or on such notice as they may determine. Each committee shall keep a record of its proceedings and report the same to the Board when required.
Section 1. Number and Designation: The Board of Directors shall appoint a President, Secretary and Treasurer and such other officers as it may deem necessary. Officers may be of any nationality and need not be residents of the Marshall Islands. The Officers shall be appointed annually by the Board of Directors at its first meeting following the
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annual appointment of directors, (except that the initial officers may be named by the Board at its first meeting following such Boards appointment in the Articles of Incorporation or as designated by the incorporators) but in the event of the failure of the Board to so appoint any officer, such officer may be elected at any subsequent meeting of the Board of Directors. The salaries of officers and any other compensation paid to them shall be fixed from time to time by the Board of Directors. The Board of Directors may at any meeting appoint additional officers. Each officer shall hold office until the first meeting of the Board of Directors following the next annual election of directors and until his successor shall have been duly appointed and qualified except in the event of the earlier termination of his term of office, through death, resignation, removal or otherwise. Any officer may be removed by the Board at any time with or without cause. Any vacancy in an office may be filled for the unexpired position of the term of such office by the Board of Directors at any regular or special meeting.
Section 2. President: In the absence of the Chairman of the Board, the President of the Corporation shall preside at all meetings of the Board of Directors and of the stockholders at which he or she shall be present. The President shall perform all duties incident to the office of president of a corporation and such other duties as may, from time to time, be assigned to him or her by the Board of Directors or as may be provided by law.
Section 3. Secretary: The Secretary shall act as Secretary of all meetings of the stockholders and of the Board of Directors at which he is present, shall have supervision over the giving and serving of notices of the Corporation, shall be the custodian of the corporate records and of the corporate seal of the Corporation, shall be empowered to affix the corporate seal to those documents, the execution of which, on behalf of the Corporation under its seal, is duly authorized and when so affixed may attest the same, and shall exercise the powers and perform such other duties as may be assigned to him by the Board of Directors or the President.
Section 4. Treasurer: The Treasurer shall have general supervision over the care and custody of the funds, securities, and other valuable effects of the Corporation and shall deposit the same or cause the same to be deposited in the name of the Corporation in such depositories as the Board of Directors may designate, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall have supervision over the accounts of all receipts and disbursements of the Corporation, shall, whenever required by the Board, render or cause to be rendered financial statements of the Corporation, shall have the power and perform the duties usually incident to the office of Treasurer, and shall have such powers and perform other duties as may be assigned to him by the Board of Directors or President.
Section 5. Other Officers: Officers other than those treated in Sections 2 through 4 of this Article V shall exercise such powers and perform such duties as may be assigned to them by the Board of Directors or the President.
Section 6. Bond: The Board of Directors shall have power to the extent permitted by law to require any officer, agent or employee of the Corporation to give bond for the faithful
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discharge of his duties in such form and with such surety as the Board of Directors may deem advisable.
Section 1. Form and Issuance: The Shares of the Corporation shall be represented by certificates in form meeting the requirements of law and approved by the Board of Directors. Certificates shall be signed by the President or a Vice-President and by the Secretary or any Assistant Secretary of or the Treasurer or any Assistant Treasurer. These signatures may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee.
Section 2. Transfer: The Board of Directors shall have power and authority to make such rules and regulations as they may deem expedient concerning the issuance, registration and transfer of certificates representing shares of the Corporations stock, and may appoint transfer agents and registrars thereof.
Section 3. Loss of Stock Certificates: The Board of Directors may direct a new certificate of stock to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.
Declaration and Form: Dividends may be declared in conformity with law by, and at the discretion of, the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, stock or other property of the Corporation.
Section 1. Indemnification Any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another, partnership, joint venture, trust or other enterprise shall be entitled to be indemnified by the Corporation upon the same terms, under the same conditions, and to the same extent as authorized by Section 60 of the Business Corporation Act of the Marshall Islands, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Corporation shall have the power to pay in advance expenses a director or officer
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incurred while defending a civil or criminal proceeding, provided that the director or officer will repay the amount if it shall ultimately be determined that the he is not entitled to indemnification under this section.
Section 2. Insurance: The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer against any liability asserted against such person and incurred by such person in such capacity whether or not the Corporation would have the power to indemnify such person against such liability by law or under the provisions of these Bylaws.
Form: The Seal of the Corporation, if any, shall be circular in form, with the name of the Corporation in the circumference and such other appropriate legend as the Board of Directors may from time to time determine.
Fiscal Year: The fiscal year of the Corporation shall be such period of twelve consecutive months as the Board of Directors may by resolution designate.
Amendments: These Bylaws may be amended, added to, altered or repealed, or new By Laws may be adopted, solely at any regular or special meeting of the Board of Directors by the affirmative vote of a majority of the entire Board. The phrase a majority of the entire Board shall be deemed to refer to a majority of the number of directors constituting the Board of Directors as set forth in accordance with Article III, without regard to any vacancies, or if the number of Directors constituting a majority of the entire Board is greater than the number of members of the Board then in office, the unanimous vote of Directors in office.
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Exhibit 5
[FORM OF OPINION]
[ ]
Diana
Shipping Inc.
Pendelis 16
175 64 Palaio Faliro
Athens, Greece
Re: Diana Shipping Inc.
Ladies and Gentlemen:
We have acted as counsel to Diana Shipping Inc. (the Company) in connection with the Companys Registration Statement on Form F-1 (File No. 333-[ ]) (the Registration Statement) as filed with the U.S. Securities and Exchange Commission (the Commission) on [ ], as thereafter amended or supplemented, with respect to the public offering (the Offering) of the common stock of the Company, par value $.01 per share (the Common Stock) and related preferred stock purchase rights (the Rights).
We have examined originals or copies, certified or otherwise identified to our satisfaction, of: (i) the Registration Statement; (ii) the prospectus of the Company (the Prospectus) included in the Registration Statement; (iii) the Stockholders Rights Agreement dated , 2005, between the Company and , as rights agent, relating to the Rights (the Rights Agreement) and (iv) such corporate documents and records of the Company and such other instruments, certificates and documents as we have deemed necessary or appropriate as a basis for the opinions hereinafter expressed. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, the genuineness of all signatures and the legal competence or capacity of persons or entities to complete the execution of documents. As to various questions of fact which are material to the opinions hereinafter expressed, we have relied upon statements or certificates of public officials, directors of the Company and others.
We have further assumed for the purposes of this opinion, without investigation, that (i) all documents contemplated by the Prospectus to be executed in connection with the Offering have been duly authorized, executed and delivered by each of the parties thereto other than the Company, and (ii) the terms of the Offering comply in all respects with the terms, conditions and
restrictions set forth in the Prospectus and all of the instruments, agreements and other documents relating thereto or executed in connection therewith.
Based upon and subject to the foregoing, and having regard to such other legal considerations which we deem relevant, we are of the opinion that:
1. Under the laws of the Republic of the Marshall Islands, the Common Stock and the Rights have been duly authorized, and when the Common Stock and the Rights have been issued, sold and paid for as contemplated in the Prospectus, the Common Stock and the Rights will be validly issued, fully paid and non-assessable.
2. Under the laws of the State of New York, the Rights represent valid and binding obligations of the Company under the Rights Agreement.
This opinion is limited to the law of the State of New York and the Federal law of the United States of America and the laws of the Republic of the Marshall Islands as in effect on the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement, and to each reference to us and the discussions of advice provided by us under the headings Tax ConsiderationsU.S. Federal Income Tax Considerations and Legal Matters in the Prospectus, without admitting we are experts within the meaning of the Securities Act of 1933, as amended, or the rules and regulations of the Commission thereunder with respect to any part of the Registration Statement.
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Very truly yours, |
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DRAFT |
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SEWARD & KISSEL LLP |
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Exhibit 8
[FORM OF US TAX OPINION]
[ ]
Diana Shipping Inc.
Pendelis 16
175 64 Palaio Faliro
Athens, Greece
Re: Diana Shipping Inc.
Ladies and Gentlemen:
You have requested our opinion regarding certain United States federal income tax matters and Marshall Islands tax matters relating to Diana Shipping Inc. (the Company) and the holders of common shares of the Company.
In formulating our opinion as to these matters, we have examined such documents as we have deemed appropriate, including the Registration Statement and amendments to such Registration Statement filed by the Company on Form F-l (File No. ) with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, through the date hereof (the Registration Statement). We also have obtained such additional information as we have deemed relevant and necessary from representatives of the Company.
Capitalized terms not defined herein have the meanings ascribed to them in the Registration Statement.
Based on the facts as set forth in the Registration Statement and, in particular, on the representations, covenants, assumptions, conditions and qualifications described under the caption Tax Considerations therein, we hereby confirm that the opinions of Seward & Kissel LLP with respect to United States federal income tax matters and Marshall Islands tax matters are those opinions attributed to Seward & Kissel LLP expressed in the Registration Statement under the caption Tax Considerations. It is our further opinion that the tax discussion set forth under the caption Tax Considerations U.S. Federal Income Tax Considerations and Tax Considerations Marshall Islands Tax Considerations in the Registration Statement accurately states our views as to the tax matters discussed therein.
Our opinions and the tax discussion as set forth in the Registration Statement are based on the current provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published pronouncements of the Internal Revenue Service which may be cited or used as precedents, and case law, any of which may be changed at any time with retroactive effect. No opinion is expressed on any matters other than those specifically referred to above by reference to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to all references to our firm included in or made part of the Registration Statement.
Very truly yours,
Exhibit 10.1
STOCKHOLDERS RIGHTS AGREEMENT
This Stockholders Rights Agreement (this Rights Agreement ) is made and entered into as of February , 2005, by and between Diana Shipping Inc., a Marshall Islands corporation (the Company ), and , as Rights Agent (the Rights Agent ).
WHEREAS, the Board of Directors of the Company (the Board ) has (a) authorized and declared a dividend of one right (the Right ) for each share of the Companys common stock, par value $.01 per share (the Common Stock) held of record as of the Close of Business (as hereinafter defined) on February , 2005 (the Record Date ) and (b) has further authorized the issuance of one Right in respect of each share of Common Stock that shall become outstanding (i) at any time between the Record Date and the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date (as such terms are hereinafter defined) or (ii) upon the exercise or conversion, prior to the earlier of the Redemption Date or the Final Expiration Date, of any option or other security exercisable for or convertible into shares of Common Stock, which option or other such security is outstanding on the Distribution Date; and
WHEREAS, each Right represents the right of the holder thereof to purchase one one-thousandth of a share of Series A Participating Preferred Stock (as such number may hereafter be adjusted pursuant to the provisions hereof), upon the terms and subject to the conditions set forth herein, having the rights, preferences and privileges set forth in the Certificate of Designations of Series A Participating Preferred Stock, attached hereto as Exhibit A .
NOW THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties hereby agrees as follows:
Acquiring Person shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity holding shares of Common Stock for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall be deemed to be an Acquiring Person as the result of an acquisition of shares of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the shares of Common Stock of the Company then outstanding; provided , however , that a Person who (i) becomes the Beneficial Owner of 15% or more of the shares of Common Stock of the Company then outstanding by reason of share purchases by the Company and (ii) then after such share purchases by the Company, becomes the Beneficial Owner of any additional shares of Common Stock of the Company (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock in shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock), such Person shall be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of such additional shares of Common Stock of the
Company such Person does not beneficially own 15% or more of the shares of Common Stock of the Company then outstanding. Notwithstanding the foregoing, (i) if the Companys Board of Directors determines in good faith that a Person who would otherwise be an Acquiring Person, as defined herein, has become such inadvertently (including, without limitation, because (A) such Person was unaware that it beneficially owned a percentage of the shares of Common Stock that would otherwise cause such Person to be an Acquiring Person, as defined herein, or (B) such Person was aware of the extent of the shares of Common Stock it beneficially owned but had no actual knowledge of the consequences of such beneficial ownership under this Agreement) and without any intention of changing or influencing control of the Company, and if such Person divested or divests as promptly as practicable a sufficient number of shares of Common Stock so that such Person would no longer be an Acquiring Person, as defined herein, then such Person shall not be deemed to be or to have become an Acquiring Person for any purposes of this Agreement; and (ii) if, as of the date hereof, any Person is the Beneficial Owner of 15% or more of the shares of Common Stock outstanding, such Person shall not be or become an Acquiring Person, as defined herein, unless and until such time as such Person shall become the Beneficial Owner of additional shares of Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock in shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock), unless, upon becoming the Beneficial Owner of such additional shares of Common Stock, such Person is not then the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding.
Adjustment fraction shall have the meaning set forth in Section 11(a)(i) hereof.
Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this Agreement.
A Person shall be deemed the Beneficial Owner of and shall be deemed to Beneficially Own any securities:
(i) which such Person or any of such Persons Affiliates or Associates beneficially owns, directly or indirectly, for purposes of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or successor law or regulation);
(ii) which such Person or any of such Persons Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided , however , that a Person shall not be deemed pursuant to this subsection (ii)(A) to be the Beneficial Owner of, or to beneficially own, (1) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such
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Persons Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (2) securities which a Person or any of such Persons Affiliates or Associates may be deemed to have the right to acquire pursuant to any merger or other acquisition agreement between the Company and such Person (or one or more of its Affiliates or Associates) if such agreement has been approved by the Board of Directors of the Company prior to there being an Acquiring Person; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided , however , that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this subsection (ii)(B) if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Persons Affiliates or Associates has any agreement, arrangement or understanding, whether or not in writing (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to subsection (ii)(B) above) or disposing of any securities of the Company; provided , however , that in no case shall an officer or director of the Company be deemed (x) the Beneficial Owner of any securities beneficially owned by another officer or director of the Company solely by reason of actions undertaken by such persons in their capacity as officers or directors of the Company or (y) the Beneficial Owner of securities held of record by the trustee of any employee benefit plan of the Company or any Subsidiary of the Company for the benefit of any employee of the Company or any Subsidiary of the Company, other than the officer or director, by reason of any influence that such officer or director may have over the voting of the securities held in the plan.
Business Day shall mean any day other than a Saturday, Sunday or a day on which banking institutions in New York are authorized or obligated by law or executive order to close.
Close of Business on any given date shall mean 5:00 P.M., New York time, on such date; provided , however , that if such date is not a Business Day it shall mean 5:00 P.M., New York time, on the next succeeding Business Day.
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Common Stock shall have the meaning set forth in the preamble. Common Stock when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person.
Common Stock Equivalents shall have the meaning set forth in Section 11(a)(iii) hereof.
Company shall have the meaning set forth in the preamble, subject to the terms of Section 13(a)(iii)(C) hereof.
Current Per Share Market Price of any security (a Security for purposes of this definition), for all computations other than those made pursuant to Section 11(a)(iii) hereof, shall mean the average of the daily closing prices per share of such Security for the thirty (30) consecutive Trading Days immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price of any Security on any date shall be deemed to be the average of the daily closing prices per share of such Security for the ten (10) consecutive Trading Days immediately prior to such date; provided , however , that in the event that the Current Per Share Market Price of the Security is determined during a period following the announcement by the issuer of such Security of (i) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares or (ii) any subdivision, combination or reclassification of such Security, and prior to the expiration of the applicable thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the Current Per Share Market Price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last sale price or, if such last sale price is not reported, the average of the high bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Security, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. If the Preferred Shares are not publicly traded, the Current Per Share Market Price of the Preferred Shares shall be conclusively deemed to be the Current Per Share Market Price of the shares of Common Stock as determined pursuant to this definition, as appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof, multiplied by 1000. If the Security is not publicly held or so listed or traded, Current Per Share Market Price shall mean the fair value per
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share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.
Current Value shall have the meaning set forth in Section 11(a)(iii) hereof.
Distribution Date shall mean the earlier of (i) the Close of Business on the tenth day after the Shares Acquisition Date (or, if the tenth day after the Shares Acquisition Date occurs before the Record Date, the Close of Business on the Record Date) or (ii) the Close of Business on the tenth Business Day (or such later date as may be determined by action of the Companys Board of Directors) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if, assuming the successful consummation thereof, such Person would be an Acquiring Person.
Equivalent Shares shall mean Preferred Shares and any other class or series of capital stock of the Company which is entitled to the same rights, privileges and preferences as the Preferred Shares.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Exchange Ratio shall have the meaning set forth in Section 24(a) hereof.
Exercise Price shall have the meaning set forth in Section 4(a) hereof.
Expiration Date shall mean the earliest to occur of: (i) the Close of Business on the Final Expiration Date, (ii) the Redemption Date, or (iii) the time at which the Board of Directors orders the exchange of the Rights as provided in Section 24 hereof.
Final Expiration Date shall mean February , 2015.
Nasdaq shall mean the National Association of Securities Dealers, Inc. Automated Quotations System.
Person shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity.
Post-event Transferee shall have the meaning set forth in Section 7(e) hereof.
Preferred Shares shall mean shares of Series A Participating Preferred Stock, $0.01 par value, of the Company.
Pre-event Transferee shall have the meaning set forth in Section 7(e) hereof.
Principal Party shall have the meaning set forth in Section 13(b) hereof.
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Record Date shall have the meaning set forth in the recitals at the beginning of this Rights Agreement.
Redemption Date shall have the meaning set forth in Section 23(a) hereof.
Redemption Price shall have the meaning set forth in Section 23(a) hereof.
Rights Agent shall mean , or its successor or replacement as provided in Sections 19 and 21 hereof.
Rights Certificate shall mean a certificate substantially in the form attached hereto as Exhibit B .
Section 11(a)(ii) Trigger Date shall have the meaning set forth in Section 11(a)(iii) hereof.
Section 13 Event shall mean any event described in clause (i), (ii) or (iii) of Section 13(a) hereof.
Securities Act shall mean the Securities Act of 1933, as amended.
Shares Acquisition Date shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such; provided that, if such Person is determined not to have become an Acquiring Person as defined herein, then no Shares Acquisition Date shall be deemed to have occurred.
Spread shall have the meaning set forth in Section 11(a)(iii) hereof.
Subsidiary of any Person shall mean any corporation or other entity of which an amount of voting securities sufficient to elect a majority of the directors or Persons having similar authority of such corporation or other entity is beneficially owned, directly or indirectly, by such Person, or any corporation or other entity otherwise controlled by such Person.
Substitution Period shall have the meaning set forth in Section 11(a)(iii) hereof.
Summary of Rights shall mean a summary of this Agreement substantially in the form attached hereto as Exhibit C .
Total Exercise Price shall have the meaning set forth in Section 4(a) hereof.
Trading Day shall mean a day on which the principal national securities exchange on which a referenced security is listed or admitted to trading is open for the transaction of business or, if a referenced security is not listed or admitted to trading on any national securities exchange, a Business Day.
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A Triggering Event shall be deemed to have occurred upon any Person, becoming an Acquiring Person.
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THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN A STOCKHOLDER RIGHTS AGREEMENT BETWEEN DIANA SHIPPING INC. AND [ ], AS THE RIGHTS AGENT, DATED AS OF FEBRUARY , 2005, (THE RIGHTS AGREEMENT), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF DIANA SHIPPING INC. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. DIANA SHIPPING INC. WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the shares of Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the shares of Common Stock represented thereby.
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the aggregate Exercise Price of all Preferred Shares issuable upon exercise of one Right being hereinafter referred to as the Total Exercise Price ), but the number and type of securities purchasable upon the exercise of each Right and the Exercise Price shall be subject to adjustment as provided herein.
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT
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holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates.
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for another purpose (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities), the number of Preferred Shares (and, following the occurrence of the Triggering Event, Common Stock and/or other securities) that will be sufficient to permit the exercise in full of all outstanding Rights.
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Rights Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Shares (or other securities of the Company) in a name other than that of, the registered holder of the Rights Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares (or other securities of the Company) upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Companys satisfaction that no such tax is due.
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(ii) Subject to Section 24 of this Agreement, in the event a Triggering Event shall have occurred, then promptly following such Triggering Event each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive for each Right, upon exercise thereof in accordance with the terms of this Agreement and payment of the Exercise Price in effect immediately prior to the occurrence of the Triggering Event, in lieu of a number of one-thousandths of a Preferred Share, such number of shares of Common Stock of the Company as shall equal the result obtained by multiplying the Exercise Price in effect immediately prior to the occurrence of the Triggering Event by the number of one-thousandths of a Preferred Share for which a Right was exercisable (or would have been exercisable if the Distribution Date had occurred) immediately prior to the first occurrence of a Triggering Event, and dividing that product by 50% of the Current Per Share Market Price for shares of Common Stock on the date of occurrence of the Triggering Event; provided , however , that the Exercise Price and the number of shares of Common Stock of the Company so receivable upon exercise of a Right shall be subject to further adjustment as appropriate in accordance with Section 11(e) hereof to reflect any events occurring in respect of the shares of Common Stock of the Company after the occurrence of the Triggering Event.
(iii) In lieu of issuing shares of Common Stock in accordance with Section 11(a)(ii) hereof, the Company may, if the Companys Board of Directors determines that such action is necessary or appropriate and not contrary to the interest of holders of Rights and, in the event that the number of shares of Common Stock which are authorized by the Companys Certificate of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights, or if any necessary regulatory approval for such issuance has not been
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obtained by the Company, the Company shall: (A) determine the excess of (1) the value of the shares of Common Stock issuable upon the exercise of a Right (the Current Value ) over (2) the Exercise Price (such excess, the Spread ) and (B) with respect to each Right, make adequate provision to substitute for such shares of Common Stock, upon exercise of the Rights, (1) cash, (2) a reduction in the Exercise Price, (3) other equity securities of the Company (including, without limitation, shares or units of shares of any series of preferred stock which the Companys Board of Directors has deemed to have the same value as Common Stock (such shares or units of shares of preferred stock are herein called Common Stock Equivalents )), except to the extent that the Company has not obtained any necessary stockholder or regulatory approval for such issuance, (4) debt securities of the Company, except to the extent that the Company has not obtained any necessary stockholder or regulatory approval for such issuance, (5) other assets or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Companys Board of Directors based upon the advice of a nationally recognized investment banking firm selected by the Companys Board of Directors; provided , however , if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Triggering Event and (y) the date on which the Companys right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the Section 11(a)(ii) Trigger Date ), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Exercise Price, Common Stock (to the extent available), except to the extent that the Company has not obtained any necessary stockholder or regulatory approval for such issuance, and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Companys Board of Directors shall determine in good faith that it is likely that sufficient additional Common Stock could be authorized for issuance upon exercise in full of the Rights or that any necessary regulatory approval for such issuance will be obtained, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares or take action to obtain such regulatory approval (such period, as it may be extended, the Substitution Period ). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares, to take any action to obtain any required regulatory approval and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the
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suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the Current Per Share Market Price of the Common Stock on the Section 11(a)(ii) Trigger Date and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Stock on such date.
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per Preferred Share or Equivalent Share (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a Preferred Share or Equivalent Share, as the case may be, and the denominator of which shall be such Current Per Share Market Price of a Preferred Share or Equivalent Share on such record date; provided , however , that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price which would have been in effect if such record date had not been fixed.
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such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holders right to receive such additional shares (fractional or otherwise) upon the occurrence of the event requiring such adjustment.
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other capital stock) as one share of Common Stock has associated with it immediately following the adjustment made pursuant to this Section 11(n). If an event occurs which would require an adjustment under both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(n) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(i) the Company shall consolidate with, or merge with and into, any other Person (other than a wholly-owned Subsidiary of the Company in a transaction the principal purpose of which is to change the state of incorporation of the Company and which complies with Section 11(m) hereof);
(ii) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such merger, all or part of the shares of Common Stock shall be changed into or exchanged for stock or other securities of any other person (or the Company); or
(iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or one or more of its wholly owned Subsidiaries in one or more transactions, each of which individually (and together) complies with Section 11(m) hereof),
then, concurrent with and in each such case:
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(i) in the case of any transaction described in clause (i) or (ii) of Section 13(a) hereof: (A) the Person that is the issuer of the securities into which the shares of Common Stock are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer the shares of Common Stock of which have the greatest aggregate market value of shares outstanding, or (B) if no securities are so issued, (x) the Person that is the other party to the merger, if such Person survives said merger, or, if there is more than one such Person, the Person the shares of Common Stock of which have the greatest aggregate market value of shares outstanding or (y) if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in clause (iii) of Section13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if more than one Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred and each such portion would, were it not for the other equal portions, constitute the greatest portion of the assets or earning power so transferred, or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons is the issuer of shares of Common Stock having the greatest aggregate market value of shares outstanding; provided , however , that in any such case described in the foregoing clause (b)(i) or (b)(ii), if the shares of Common Stock of such Person are not at such time or have not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary of another Person the shares of Common Stock of which are and have been so registered, the term Principal Party shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of
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more than one Person, the Common Stock of which are and have been so registered, the term Principal Party shall refer to whichever of such Persons is the issuer of shares of Common Stock having the greatest aggregate market value of shares outstanding, or (3) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case shall bear the obligations set forth in this Section 13 in the same ratio as its interest in such Person bears to the total of such interests.
(i) prepare and file a registration statement under the Securities Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date, and similarly comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on a national securities exchange or to meet the eligibility requirements for quotation on Nasdaq and list (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical financial statements for such Principal Party which comply in all respects with the requirements for registration on Form F-1 (or any successor form) under the Exchange Act.
In the event that at any time after the occurrence of a Triggering Event some or all of the Rights shall not have been exercised at the time of a transaction described in this Section 13, the Rights
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which have not theretofore been exercised shall thereafter be exercisable in the manner described in Section 13(a) (without taking into account any prior adjustment required by Section 11(a)(ii)).
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prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.
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specified in such application (which date shall not be less than five (5) Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted.
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Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of any state of the United States, in good standing, which is authorized under such laws to exercise corporate trust or stockholder services powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Preferred Shares and the Common Stock, and mail a written notice thereof to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.
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herein referred to as the Redemption Price ) and the Company may, at its option, pay the Redemption Price either in shares of Common Stock (based on the Current Per Share Market Price thereof at the time of redemption) or cash. Such redemption of the Rights by the Company may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. The date on which the Board of Directors elects to make the redemption effective shall be referred to as the Redemption Date .
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give, or any defect in, such notice shall not affect the validity of such exchange. The Company shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.
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Athens, Greece
Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows:
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Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.
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and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights Certificates and all other parties and (y) not subject the Board to any liability to the holders of the Rights.
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IN WITNESS WHEREOF, the parties have executed this Stockholder Rights Agreement as of the date first written above.
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DIANA SHIPPING INC. |
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By: |
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Name: Anastassis Margaronis |
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Title: President |
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[RIGHTS AGENT] |
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By: |
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Name: |
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Title: |
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Exhibit A
CERTIFICATE OF DESIGNATIONS OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES A PARTICIPATING PREFERRED STOCK OF DIANA SHIPPING INC.
The undersigned, Mr. Anastassis Margaronis and Mr. Ioannis Zafirakis do hereby certify:
1. That they are the duly elected and acting President and Secretary, respectively, of Diana Shipping Inc., a Marshall Islands corporation (the Company ).
2. That pursuant to the authority conferred by the Companys Amended and Restated Articles of Incorporation, the Companys Board of Directors on February 21, 2005 adopted the following resolution designating and prescribing the relative rights, preferences and limitations of the Companys Series A Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors (the Board ) of the Company by the Articles of Incorporation, the Board does hereby establish a series of preferred stock, par value $0.01 per share, and the designation and certain powers, preferences and other special rights of the shares of such series, and certain qualifications, limitations and restrictions thereon, are hereby fixed as follows:
Section 1. Designation and Amount . The shares of such series shall be designated as Series A Participating Preferred Stock . The Series A Participating Preferred Stock shall have a par value of $0.01 per share, and the number of shares constituting such series shall initially be 1,000,000, which number the Board may from time to time increase or decrease (but not below the number then outstanding).
Section 2. Proportional Adjustment . In the event the Company shall at any time after the issuance of any share or shares of Series A Participating Preferred Stock (i) declare any dividend on the common stock of the Company par value $0.01 per share (the Common Stock ) payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Company shall simultaneously effect a proportional adjustment to the number of outstanding shares of Series A Participating Preferred Stock.
Section 3. Dividends and Distributions .
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Section 4. Voting Rights . The holders of shares of Series A Participating Preferred Stock shall have the following voting rights:
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Section 5. Certain Restrictions .
Section 6. Reacquired Shares . Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board, subject to the
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conditions and restrictions on issuance set forth herein and, in the Articles of Incorporation, as then amended.
Section 7. Liquidation, Dissolution or Winding Up . Upon any liquidation, dissolution or winding up of the Company , the holders of shares of Series A Participating Preferred Stock shall be entitled to receive an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock plus an amount equal to any accrued and unpaid dividends on such shares of Series A Participating Preferred Stock.
Section 8. Consolidation, Merger, etc . In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.
Section 9. No Redemption . The shares of Series A Participating Preferred Stock shall not be redeemable.
Section 10. Ranking . The Series A Participating Preferred Stock shall rank junior to all other series of the Companys preferred stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.
Section 11. Amendment . The Articles of Incorporation of the Company shall not be further amended in any manner which would materially alter or change the powers, preference or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class.
Section 12. Fractional Shares . Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the Secretary or any Assistant Secretary of this Company be, and they hereby are, authorized and directed to prepare and file a Certificate of Designation of Rights, Preferences and Privileges in accordance with the foregoing resolution and the provisions of Marshall Islands law and to take such actions as they may deem necessary or appropriate to carry out the intent of the foregoing resolution.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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We further declare under penalty of perjury that the matters set forth in the foregoing Certificate of Designation are true and correct of our own knowledge.
Executed at on , 2005.
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Anastassis
Margaronis
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Ioannis
Zafirakis
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Exhibit B
[FORM OF RIGHTS CERTIFICATE]
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Exhibit C
SUMMARY OF RIGHTS
Distribution and Transfer of Rights: |
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Distribution Date: |
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The rights will separate from the common stock and become exercisable after (1) a person or group acquires ownership of 15% or more of the companys common stock or (2) the 10th business day (or such later date as determined by the companys board of directors) after a person or group announces a tender or exchange offer which would result in that person or group holding 15% or more of the companys common stock. |
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Preferred Stock Purchaseable Upon Exercise of Rights: |
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On the Distribution Date, each holder of a right will be entitled to purchase for $25 (the Exercise Price) a fraction (1/1000th) of one share of the companys preferred stock which has similar economic terms as one share of common stock. |
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Flip-in: |
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If an acquiring person (an Acquiring Person) acquires more than 15% of the companys common stock then each holder of a right (except that acquiring person) will be entitled to buy at the Exercise Price, a number of shares of the companys common stock which has a market value of twice the Exercise Price. |
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Flip-over: |
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If after an Acquiring Person acquires more than 15% of the companys common stock, the company merges into another company (either as the surviving corporation or as the disappearing entity) or the company sells more than 50% of its assets or earning power, then each holder of a right (except for those owned by the acquirer) will be entitled to purchase at the Exercise Price, a number of shares of common stock of the surviving entity which has a then current market value of twice the Exercise Price. |
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Exchange Provision: |
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Any time after the date an Acquiring Person obtains more than 15% of the companys common stock and before that Acquiring Person acquires more than 50% of the companys outstanding common stock, the company may exchange each right owned by all other rights holders, in whole or in part, for one share of the companys common stock. |
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Redemption of Rights: |
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The company can redeem the rights at any time prior to a public announcement that a person has acquired ownership of 15% or more of the companys common stock. |
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Expiration of Rights: |
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The rights expire on the earliest of (1) February , 2015 or (2) the exchange or redemption of the rights as described above. |
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Amendment of Terms of Rights: |
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The terms of the rights and the Stockholder Rights Plan may be amended without the consent of the rights holders at any time on or prior to the Distribution Date. After the Distribution Date, the terms of the rights and the Stockholder Rights Plan may be amended to make changes, which do not adversely affect the rights of the rights holders (other than the Acquiring Person). |
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Voting Rights: |
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The rights will not have any voting rights. |
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Anti-dilution Provisions: |
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The rights will have the benefit of certain customary anti-dilution protections |
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Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
by and among
DIANA SHIPPING INC.
and
COROZAL COMPANIA NAVIERA S.A.
IRONWOOD TRADING CORP.
and
ZOE S. COMPANY LTD.
Dated as of , 2005
1
REGISTRATION RIGHTS AGREEMENT dated as of , 2005, by and among DIANA SHIPPING INC., a Marshall Islands company (the Company ), COROZAL COMPANIA NAVIERA S.A., (a Panamanian corporation Corozal ), IRONWOOD TRADING CORP., (a Panamanian corporation ( Ironwood ) and ZOE S. COMPANY LTD., a Bahamian Corporation ( Zoe and, together with Corozal and Ironwood, the Stockholders ).
In consideration of the mutual covenants and agreements herein contained and other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Certain Definitions .
In addition to the terms defined elsewhere in this Agreement, the following terms shall have the following meanings:
1.1 Affiliate of any Person means any other Person which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. The term control (including the terms controlling, controlled by and under common control with) as used with respect to any Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
1.2 Agreement means this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this Registration Rights Agreement as the same may be in effect at the time such reference becomes operative.
1.3 Common Stock means common shares, par value $0.01 per share, of the Company and any other shares into which such shares are converted pursuant to a recapitalization or reorganization.
1.4 Company has the meaning set forth in the introductory paragraph.
1.5 Demand Registration has the meaning set forth in Section 2(a) hereof.
1.6 Exchange Act means the Securities Exchange Act of 1934, as amended.
1.7 Governmental Entity means any national, federal, state, municipal, local, territorial, foreign or other government or any department, commission, board, bureau, agency, regulatory authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or public or private tribunal.
1.8 Holder means any holder of record of Registrable Common Shares and any transferees of at least 50% of such Registrable Common Shares from such Holders. For purposes of this Agreement, the Company may deem and treat the registered holder of Registrable Common Shares as the Holder and absolute owner thereof, and the Company shall not be affected by any notice to the contrary.
1.9 Initiating Holders has the meaning set forth in Section 2(a) hereof.
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1.10 Person means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, Governmental Entity or any other entity.
1.11 Piggyback Registration has the meaning set forth in Section 3(a) hereof.
1.12 Prospectus means the prospectus or prospectuses included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Common Shares covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.
1.13 Qualifying IPO means the sale in an underwritten initial public offering registered under the Securities Act of shares of common equity securities of the Company.
1.14 Registrable Common Shares means the Common Shares held by the Stockholders or affiliates of the Stockholders as of the date of the Qualifying IPO, provided however, Registrable Common Shares shall not include any securities sold by a Person to the public either pursuant to a Registration Statement or Rule 144.
1.15 Registration Expenses has the meaning set forth in Section 7(a) hereof.
1.16 Registration Statement means any registration statement of the Company which covers any of the Registrable Common Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such Registration Statement.
1.17 SEC means the Securities and Exchange Commission.
1.18 Securities Act means the Securities Act of 1933, as amended.
1.19 Stockholders has the meaning set forth in the introductory paragraph.
1.20 Suspension Notice has the meaning set forth in Section 6(l) hereof.
1.21 Underwritten registration or underwritten offering means a registration in which securities of the Company are sold to underwriters for reoffering to the public.
1.22 Withdrawn Demand Registration has the meaning set forth in Section 2(g) hereof.
2. Demand Registrations.
(a) Right to Request Registration . At any time commencing 180 days following the closing of a Qualifying IPO, any Holder or Holders may request registration under the Securities Act ( Initiating Holders ) of all or part of the Registrable Common Shares ( Demand Registration ); provided, that each Demand Registration be at least equal to 10% of the Companys outstanding common shares immediately following the closing of such Qualifying IPO.
Within 10 days after receipt of any such request for Demand Registration, the Company shall give written notice of such request to all other Holders of Registrable Common Shares and shall, subject to the provisions of Section 2(d) hereof, include in such registration all
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such Registrable Common Shares with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Companys notice.
(b) Number of Demand Registrations . Subject to the provisions of Section 2(a), the Initiating Holders of Registrable Common Shares shall collectively be entitled to request an aggregate of three (3) Demand Registrations. A registration shall not count as one of the permitted Demand Registrations (i) until it has become effective, (ii) if the Initiating Holders requesting such registration are not able to have registered and sold at least 50% of the Registrable Common Shares requested by such Initiating Holders to be included in such registration or (iii) in the case of a Demand Registration that would be the last permitted Demand Registration requested hereunder, if the Initiating Holders requesting such registration are not able to have registered and sold all of the Registrable Common Shares requested to be included by such Initiating Holders in such registration.
(c) Priority on Demand Registrations . Except as provided in Section 2(g), the Company shall not include in any Demand Registration any securities which are not Registrable Common Shares without the written consent of the Holders of a majority of the Registrable Common Shares to be included in such registration, or, if such Demand Registration is an underwritten offering, without the written consent of the managing underwriters. If the managing underwriters of the requested Demand Registration advise the Company in writing that in their opinion the number of shares of Registrable Common Shares proposed to be included in any such registration exceeds the number of securities which can be sold in such offering without having an adverse affect on such offering, including the price at which such Registrable Common Shares can be sold, the Company shall include in such registration only the number of shares of Registrable Common Shares which in the opinion of such managing underwriters can be sold without having the adverse effect referred to above. If the number of shares which can be sold without having the adverse effect referred to above is less than the number of shares of Registrable Common Shares proposed to be registered, the amount of Registrable Common Shares to be so sold shall be allocated pro rata among the Holders of Registrable Common Shares desiring to participate in such registration on the basis of the amount of such Registrable Common Shares initially proposed to be registered by such Holders. If the number of shares which can be sold exceeds the number of shares of Registrable Common Shares proposed to be sold, such excess shall be allocated pro rata among the other holders of securities, if any, desiring to participate in such registration based on the amount of such securities initially requested to be registered by such holders or as such holders may otherwise agree.
(d) Restrictions on Demand Registrations . The Company shall not be obligated to effect any Demand Registration within three months after the termination of an offering under a previous Demand Registration or a previous registration under which the Initiating Holder had piggyback rights pursuant to Section 4 hereof where the Initiating Holder was permitted to register and sell 50% of the Registrable Common Shares requested to be included therein. The Company may postpone for up to ninety (90) days the filing or the effectiveness of a Registration Statement for a Demand Registration if, based on the good faith judgment of the Companys board of directors, such postponement or withdrawal is necessary in order to avoid premature disclosure of a matter the board has determined would not be in the best interest of the Company to be disclosed at such time; provided, that in no event shall the Company withdraw a Registration Statement after such Registration Statement has been declared effective; and provided, further, however, that in the event described above, the Initiating Holders requesting such Demand Registration shall be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations. The Company shall provide written notice to the Initiating Holders requesting such Demand Registration of (i) any postponement or withdrawal of the filing or effectiveness of a
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Registration Statement pursuant to this Section 2(d), (ii) the Companys decision to file or seek effectiveness of such Registration Statement following such withdrawal or postponement and (iii) the effectiveness of such Registration Statement. The Company may defer the filing of a particular Registration Statement pursuant to this Section 2(d) only once during any twelve-month period.
(e) Selection of Underwriters . If any of the Registrable Common Shares covered by a Demand Registration are to be sold in an underwritten offering, the Initiating Holders shall have the right to select the managing underwriter(s) to administer the offering subject to the approval of the Company, which will not be unreasonably withheld.
(f) Effective Period of Demand Registrations . After any Demand Registration filed pursuant to this Agreement has become effective, the Company shall use its best efforts to keep such Demand Registration effective for a period equal to 180 days from the date on which the SEC declares such Demand Registration effective (or if such Demand Registration is not effective during any period within such 180 days, such 180-day period shall be extended by the number of days during such period when such Demand Registration is not effective), or such shorter period which shall terminate when all of the Registrable Common Shares covered by such Demand Registration have been sold pursuant to such Demand Registration. If the Company shall withdraw any Demand Registration pursuant to Section 2(d) (a Withdrawn Demand Registration ), the Initiating Holders of the Registrable Common Shares remaining unsold and originally covered by such Withdrawn Demand Registration shall be entitled to a replacement Demand Registration which (subject to the provisions of this Section 2) the Company shall use its best efforts to keep effective for a period commencing on the effective date of such Demand Registration and ending on the earlier to occur of the date (i) which is 180 days from the effective date of such Demand Registration and (ii) on which all of the Registrable Common Shares covered by such Demand Registration have been sold. Such additional Demand Registration otherwise shall be subject to all of the provisions of this Agreement.
3. Shelf Registration.
(a) (i) At such time as the Company is able to use Form F-3 under the Securities Act (or any successor form) for sales of Registrable Common Shares by a Holder, at the request of Holders of the lesser of (x) 5% of the Registrable Common Shares (without reduction for Common Shares that cease to be Registrable Common Shares) and (y) Registrable Common Shares having an aggregate market value of at least $25 million, the Company shall use its commercially reasonable efforts to effect, as expeditiously as possible, the registration under the Securities Act of any number of Registrable Common Shares for which it receives requests in accordance with Section 3(a) (the Shelf Registration ). The Company shall use its commercially reasonable best efforts to cause such Registration Statement to become effective as promptly as practicable and maintain the effectiveness of such Registration Statement (subject to the terms and conditions herein) for a period ending on the earlier of (i) two years following the date on which such Registration Statement first becomes effective (but one year if the Company is not able to use Form F-3 under the Securities Act (or any successor form)), and (ii) the date on which all Registrable Common Shares covered by such Registration Statement have been sold and the distribution contemplated thereby has been completed or have become freely tradeable pursuant to Rule 144 without regard to volume.
(b) The Shelf Registration Statement pursuant to this Section 3 shall to the extent possible under applicable law, be effected to permit sales on a continuous basis pursuant to Rule 415 under the Securities Act. Any takedown under the Shelf Registration pursuant to this Section 3 may or may not be underwritten; provided that (i) Holders may request any underwritten takedown only to be effected as a Demand Registration (in which event, unless such Demand
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Registration would not require representatives of the Company to meet with prospective purchasers of the Companys securities, a Demand Registration must be available thereunder and the number of Demand Registrations available shall be reduced by one subject Section 2(b)) or (ii) Holders may request an unlimited number of underwritten takedowns to be effected in accordance with the terms of Section 4. The Company shall be entitled to effect the Shelf Registration on any available form under the Securities Act.
(c) In the event of a request for a Shelf Registration pursuant to Section 3(a), the Company shall give written notice of the proposed filing of the Registration Statement in connection therewith to all Holders of Registrable Common Shares offering to each such Holder the opportunity to have any or all of the Registrable Common Shares held by such Holder included in such registration statement. Each Holder of Registrable Common Shares desiring to have its Registrable Common Shares registered under this Section 3(c) shall so advise the Company in writing within 15 days after the date of such notice from the Company (which request shall set forth the amount of Registrable Common Shares for which registration is requested), and the Company shall include in such Registration Statement all such Registrable Common Shares so requested to be included therein.
(d) The number, percentage, fraction or kind of shares referred to in this Section 4 shall be appropriately adjusted for any stock dividend, stock split, reverse stock split, combination, recapitalization, reclassification, merger or consolidation, exchange or distribution in respect of the shares of Common Stock.
(e) (e) The Company, and any other holder of the Companys securities who has registration rights, may include its securities in any Shelf Registration effected pursuant to this Section 3.
4. Piggyback Registrations.
(a) Right to Piggyback . If at any time commencing 180 days following the closing of a Qualifying IPO the Company proposes to register any of its common equity securities under the Securities Act (other than a registration statement on Form S-8 or on Form F-4 or any similar successor forms thereto), whether for its own account or for the account of one or more stockholders of the Company, and the registration form to be used may be used for any registration of Registrable Common Shares (a Piggyback Registration ), the Company shall give prompt written notice (in any event within 20 days after its receipt of notice of any exercise of other demand registration rights) to all Holders of its intention to effect such a registration and, subject to Sections 4(b) and 4(c), shall include in such registration all Registrable Common Shares with respect to which the Company has received written requests for inclusion therein within 15 days after the effectiveness of the Companys notice. The Company may postpone or withdraw the filing or the effectiveness of a Piggyback Registration at any time in its sole discretion.
(b) Priority on Primary Registrations . If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without having an adverse effect on such offering, the Company shall include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Common Shares requested to be included therein by the Holders, pro rata among the Holders of such Registrable Common Shares on the basis of the number of shares requested to be registered by such Holders, and (iii) third, other securities requested to be included in such registration pro rata among the holders of such
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securities on the basis of the number of shares requested to be registered by such holders or as such holders may otherwise agree.
(c) Priority on Secondary Registrations . If a Piggyback Registration is an underwritten secondary registration on behalf of a holder of the Companys securities other than Registrable Common Shares, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without having an adverse effect on such offering, the Company shall include in such registration (i) first the securities requested to be included therein by the holders requesting such registration and the Registrable Common Shares requested to be included in such registration, pro rata among the holders of such securities on the basis of the number of shares requested to be registered by such holders, and (ii) second, other securities requested to be included in such registration pro rata among the holders of such securities on the basis of the number of shares requested to be registered by such holders or as such holders may otherwise agree.
(d) Selection of Underwriters . If any Piggyback Registration is an underwritten primary offering, the Company shall have the right to select the managing underwriter or underwriters to administer any such offering.
(e) Other Registrations . If the Company has previously filed a Registration Statement with respect to Registrable Common Shares, and if such previous registration has not been withdrawn or abandoned, the Company shall not be obligated to cause to become effective any other registration of any of its securities under the Securities Act, whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least ninety (90) days has elapsed from the termination of the offering under the previous registration.
5. Holdback Agreements.
The Company agrees not to effect any sale or distribution of any of its equity securities during the 10 days prior to and during the 180 days beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or F-4 or any successor forms thereto) unless the underwriters managing the offering otherwise agree to a shorter period.
6. Registration Procedures.
(a) Whenever the Holders request that any Registrable Common Shares be registered pursuant to this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Common Shares in accordance with the intended methods of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible:
(i) prepare and file with the SEC a Registration Statement with respect to such Registrable Common Shares and use its best efforts to cause such Registration Statement to become effective as soon as practicable thereafter; and before filing a Registration Statement or Prospectus or any amendments or supplements thereto, furnish to the Holders of Registrable Common Shares covered by such Registration Statement and the underwriter or underwriters, if any, copies of all such documents proposed to be filed, including documents incorporated by reference in the Prospectus and, if requested by such Holders, the exhibits incorporated by reference, and such Holders shall have the opportunity to object to any information pertaining to such Holders that is contained therein and the Company will make the corrections reasonably requested by such Holders with
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respect to such information prior to filing any Registration Statement or amendment thereto or any Prospectus or any supplement thereto;
(ii) prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period of not less than 180 days, in the case of a Demand Registration or such shorter period as is necessary to complete the distribution of the securities covered by such Registration Statement and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement;
(iii) furnish to each seller of Registrable Common Shares such number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in such Registration Statement (including each preliminary Prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Common Shares owned by such seller;
(iv) use its best efforts to register or qualify such Registrable Common Shares under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Common Shares owned by such seller (provided, that the Company will not be required to (1) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph 6.(a)(iv), (2) subject itself to taxation in any such jurisdiction, or (3) consent to general service of process in any such jurisdiction);
(v) notify each seller of such Registrable Common Shares, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Common Shares, such Prospectus shall not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading;
(vi) in the case of an underwritten offering, enter into such customary agreements (including underwriting agreements in customary form with customary indemnification provisions) and take all such other actions as the Holders of a majority of the Registrable Common Shares being sold or the underwriters reasonably request in order to expedite or facilitate the disposition of such Registrable Common Shares (including, without limitation, making members of senior management of the Company available to participate in, and cause them to cooperate with the underwriters in connection with, road-show and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Common Shares)) and cause to be delivered to the underwriters and the sellers, if any, opinions of counsel to the Company in
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customary form, covering such matters as are customarily covered by opinions for an underwritten public offering as the underwriters may request and addressed to the underwriters and the sellers;
(vii) make available, for inspection by any seller of Registrable Common Shares, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Companys officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement;
(viii) use its best efforts to cause all such Registrable Common Shares to be listed on each securities exchange on which securities of the same class issued by the Company are then listed;
(ix) if requested, cause to be delivered, immediately prior to the effectiveness of the Registration Statement (and, in the case of an underwritten offering, at the time of delivery of any Registrable Common Shares sold pursuant thereto), letters from the Companys independent certified public accountants addressed to each selling Holder (unless such selling Holder does not provide to such accountants the appropriate representation letter required by rules governing the accounting profession) and each underwriter, if any, stating that such accountants are independent public accountants within the meaning of the Securities Act and the applicable rules and regulations adopted by the SEC thereunder, and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of the independent certified public accountants delivered in connection with primary or secondary underwritten public offerings, as the case may be;
(x) make generally available to its stockholders a consolidated earnings statement (which need not be audited) for the 12 months beginning after the effective date of a Registration Statement as soon as reasonably practicable after the end of such period, which earnings statement shall satisfy the requirements of an earning statement under Section 11(a) of the Securities Act; and
(xi) promptly notify each seller of Registrable Common Shares and the underwriter or underwriters, if any:
(A) when the Registration Statement, any pre-effective amendment, the Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective;
(B) of any comments of the SEC or of any written request by the SEC for amendments or supplements to the Registration Statement or Prospectus;
(C) of the notification to the Company by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement; and
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(D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Common Shares for sale under the applicable securities or blue sky laws of any jurisdiction.
(b) The Company shall ensure that no Registration Statement (including any amendments or supplements thereto and Prospectuses contained therein) shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading (except, with respect to any Holder, for an untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in reliance on and in conformity with written information furnished to the Company by or on behalf of such Holder specifically for use therein).
(c) The Company shall make available to each Holder whose Registrable Common Shares are included in a Registration Statement (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of each Registration Statement and any amendment thereto, each preliminary Prospectus and Prospectus and each amendment or supplement thereto, each letter written by or on behalf of the Company to the SEC or the staff of the SEC (or other governmental agency or self-regulatory body or other body having jurisdiction, including any domestic or foreign securities exchange), and each item of correspondence from the SEC or the staff of the SEC (or other governmental agency or self-regulatory body or other body having jurisdiction, including any domestic or foreign securities exchange), in each case relating to such Registration Statement (other than any portion thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary Prospectus, and all amendments and supplements thereto and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Common Shares owned by such Holder. The Company will promptly notify each Holder by facsimile of the effectiveness of each Registration Statement or any post-effective amendment. The Company will promptly respond to any and all comments received from the SEC, with a view towards causing each Registration Statement or any amendment thereto to be declared effective by the SEC as soon as practicable and shall file an acceleration request as soon as practicable following the resolution or clearance of all SEC comments or, if applicable, following notification by the SEC that any such Registration Statement or any amendment thereto will not be subject to review.
(d) At all times after the Company has filed a registration statement with the SEC pursuant to the requirements of either the Securities Act or the Exchange Act, the Company shall file all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, and take such further action as any Holders may reasonably request, all to the extent required to enable such Holders to be eligible to sell Registrable Common Shares pursuant to Rule 144 (or any similar rule then in effect).
(e) the Company may require each seller of Registrable Common Shares as to which any registration is being effected to furnish to the Company any other information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing.
(f) Each seller of Registrable Common Shares agrees by having its shares treated as Registrable Common Shares hereunder that, upon notice of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein not misleading (a Suspension Notice ), such seller will forthwith discontinue disposition of Registrable Common Shares for a reasonable length of time not to exceed 60 days until such seller is advised
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in writing by the Company that the use of the Prospectus may be resumed and is furnished with a supplemented or amended Prospectus as contemplated by Section 6(c) hereof, and, if so directed by the Company, such seller will deliver to the Company (at the Companys expense) all copies, other than permanent file copies then in such sellers possession, of the Prospectus covering such Registrable Common Shares current at the time of receipt of such notice; provided, however, that such postponement of sales of Registrable Common Shares by the Holders shall not exceed ninety (90) days in the aggregate in any one year. If the Company shall give any notice to suspend the disposition of Registrable Common Shares pursuant to a Prospectus, the Company shall extend the period of time during which the Company is required to maintain the Registration Statement effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date such seller either is advised by the Company that the use of the Prospectus may be resumed or receives the copies of the supplemented or amended Prospectus contemplated by Section 6(e). In any event, the Company shall not be entitled to deliver more than three (3) Suspension Notices in any one year.
7. Registration Expenses.
(a) All expenses incident to the Companys performance of or compliance with this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, listing application fees, printing expenses, transfer agents and registrars fees, cost of distributing Prospectuses in preliminary and final form as well as any supplements thereto, and fees and disbursements of counsel for the Company and all independent certified public accountants and other Persons retained by the Company (all such expenses being herein called Registration Expenses ) (but not including any underwriting discounts or commissions attributable to the sale of Registrable Common Shares or fees and expenses of more than one counsel representing the Holders of Registrable Common Shares), shall be borne by the Company. In addition, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which they are to be listed.
(b) In connection with each registration initiated hereunder (whether a Demand Registration or a Piggyback Registration), the Company shall reimburse the Holders covered by such registration or sale for the reasonable fees and disbursements of one law firm chosen by the Holders of a majority of the Registrable Common Shares included in such registration or sale.
(c) The obligation of the Company to bear the expenses described in Section 7(a) and to reimburse the Holders for the expenses described in Section 7(b) shall apply irrespective of whether a registration, once properly demanded, if applicable, becomes effective, is withdrawn or suspended, is converted to another form of registration and irrespective of when any of the foregoing shall occur; provided, however, that Registration Expenses for any Registration Statement withdrawn solely at the request of a Holder of Registrable Common Shares (unless withdrawn following postponement of filing by the Company in accordance with Section 2(d)(i) or (ii)) or any supplements or amendments to a Registration Statement or Prospectus resulting from a misstatement furnished to the Company by a Holder shall be borne by such Holder.
8. Indemnification.
(a) The Company shall indemnify, to the fullest extent permitted by law, each Holder, its officers, directors and Affiliates and each Person who controls such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses arising out of or based upon any untrue or alleged untrue statement of material fact contained in any
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Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading or any violation or alleged violation by the Company of the Securities Act, the Exchange Act or applicable blue sky laws, except insofar as the same are made in reliance and in conformity with information relating to such Holder furnished in writing to the Company by such Holder expressly for use therein or caused by such Holders failure to deliver to such Holders immediate purchaser a copy of the Registration Statement or Prospectus or any amendments or supplements thereto (if the same was required by applicable law to be so delivered). In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holders.
(b) In connection with any Registration Statement in which a Holder of Registrable Common Shares is participating, each such Holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, shall indemnify, to the fullest extent permitted by law, the Company, its officers, directors Affiliates, and each Person who controls the Company (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses arising out of or based upon any untrue or alleged untrue statement of material fact contained in the Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that the same are made in reliance and in conformity with information relating to such Holder furnished in writing to the Company by such Holder expressly for use therein or caused by such Holders failure to deliver to such Holders immediate purchaser a copy of the Registration Statement or Prospectus or any amendments or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such Holder with a sufficient number of copies of the same; provided, however, that the obligation to indemnify shall be several, not joint and several, among such Holders and the liability of each such Holder shall be in proportion to and limited to the net amount received by such Holder from the sale of Registrable Common Shares pursuant to such Registration Statement.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification, provided that the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have under this Section 8 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to an indemnified party otherwise than under this Section 8 and (ii) unless in such indemnified partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party there may be one or more legal or equitable defenses available to such indemnified party which are in addition to or may conflict with those available to another indemnified party with respect to such claim.
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Failure to give prompt written notice shall not release the indemnifying party from its obligations hereunder.
(d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities.
(e) If the indemnification provided for in or pursuant to this Section 8 is due in accordance with the terms hereof, but is held by a court to be unavailable or unenforceable in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified Person as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which result in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of the indemnifying party on the one hand and of the indemnified Person on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party, and by such partys relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In no event shall the liability of any selling Holder be greater in amount than the amount of net proceeds received by such Holder upon such sale or the amount for which such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 8(a) or 8(b) hereof had been available under the circumstances.
9. Participation in Underwritten Registrations.
No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Persons securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
10. Rule 144.
The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, and it will take such further action as any Holder may reasonably request to make available adequate current public information with respect to the Company meeting the current public information requirements of Rule 144(c) under the Securities Act, to the extent required to enable such Holder to sell Registrable Common Shares without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such information and requirements.
11. Miscellaneous.
(a) Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be hand delivered or mailed postage prepaid by
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registered or certified mail or by facsimile transmission (with immediate telephone confirmation thereafter),
If to the Company:
Diana Shipping Inc.
16, Pendelis Street
Palaio Faliro
175 64 Athens, Greece
with a copy to:
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
Attention: Gary J. Wolfe, Esq.
Facsimile No.: (212) 480-8421
If to the Stockholder:
Attention:
Facsimile No.:
or if to another Holder, to the addresses set forth on the counterpart signature pages of this Agreement signed by such Holders.
If to a transferee Holder, to the address of such Holder set forth in the transfer documentation provided to the Company or at such other address as such party each may specify by written notice to the others, and each such notice, request, consent and other communication shall for all purposes of the Agreement be treated as being effective or having been given when delivered personally or upon receipt of facsimile confirmation if transmitted by facsimile, or, if sent by mail, at the time of its receipt.
(b) No Waivers . No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
(c) Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, it being understood that subsequent Holders of the Registrable Common Shares are intended third party beneficiaries of this Agreement.
(d) Governing Law . The laws of the State of New York shall govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties, without regard to the principles of conflicts of laws thereof.
(e) Jurisdiction . Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal or state court located in the County and State
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of New York, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 10(a) shall be deemed effective service of process on such party.
(f) Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(g) Counterparts; Effectiveness . This Agreement may be executed in any number of counterparts (including by facsimile) and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto.
(h) Entire Agreement . This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof.
(i) Captions . The headings and other captions in this Agreement are for convenience and reference only and shall not be used in interpreting, construing or enforcing any provision of this Agreement.
(j) Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
(k) Amendments . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the prior written consent of the Holders of a majority of the Registrable Common Shares (as constituted on the date hereof); provided, however, that without a Holders written consent no such amendment, modification, supplement or waiver shall affect adversely such Holders rights hereunder in a discriminatory manner inconsistent with its adverse effects on rights of other Holders hereunder (other than as reflected by the different number of shares held by such Holder); provided, further, that the consent or agreement of the Company shall be required with regard to any termination, amendment, modification or supplement of, or waivers or consents to departures from, the terms hereof, which affect the Companys obligations hereunder. This Agreement cannot be changed, modified, discharged or terminated by oral agreement.
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(l) Aggregation of Shares . All Registrable Common Shares held by or acquired by any Affiliated Persons will be aggregated together for the purpose of determining the availability of any rights under this Agreement.
(m) Equitable Relief . Without limiting the remedies available, the parties hereto acknowledge that any failure by the Company to comply with its obligations under this Agreement will result in material irreparable injury to the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, any Holder shall have the right to obtain such relief as may be required to specifically enforce the Companys obligations under this Agreement.
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly executed by each of the parties hereto as of the date first written above.
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EXHIBIT 10.3
DIANA
SHIPPING INC.
2005 STOCK INCENTIVE PLAN
The Diana Shipping Inc. 2005 Stock Incentive Plan (the Plan) is designed to provide certain key persons, on whose initiative and efforts the successful conduct of the business of Diana Shipping Inc. (the Company) depends, with incentives to: (a) enter into and remain in the service of the Company (b) acquire a proprietary interest in the success of the Company, (c) maximize their performance and (d) enhance the long-term performance of the Company.
The persons eligible to receive awards under the Plan are those officers, directors, and executive, managerial, administrative and professional employees of the Company, (collectively, key persons) as the Administrator in its sole discretion shall select, taking into account the duties of the respective employees, their present and potential contributions to the success of the Company, and such other factors as the Administrator shall deem relevant in connection with accomplishing the purpose of the Plan. The Administrator may from time to time, in its sole discretion, determine that any key person shall be ineligible to receive awards under the Plan.
Awards may be made under the Plan in the form of (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) dividend equivalent rights, (e) restricted stock, (f) unrestricted stock, (g) restricted stock units, and (h) performance shares, all as more fully set forth in Article II. The term award means any of the foregoing. No incentive stock option may be granted to a person who is not an employee of the Company on the date of grant.
Any rights the Company may have hereunder in respect of the events giving rise to cause shall be in addition to the rights the Company may have under any other agreement with a grantee or at law or in equity. Any determination of whether a grantees employment or Board membership is (or is deemed to have been) terminated for cause shall be made by the Administrator in its discretion, which determination shall be final, binding and conclusive on all parties. If, subsequent to a grantees voluntary termination of employment or involuntary termination of employment without cause, it is discovered that the grantees employment could have been terminated for cause, the Administrator may deem such grantees employment or Board membership to have been terminated for cause. A grantees termination of employment or Board membership for cause shall be effective as of the date of the occurrence of the event giving rise to cause, regardless of when the determination of cause is made.
Each award granted under the Plan (except an award of unrestricted stock) shall be evidenced by a written certificate (Award Agreement) which shall contain such provisions as the Administrator may, in its sole discretion, deem necessary or desirable. By executing an Award Agreement pursuant to the Plan, a grantee thereby agrees that the award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement.
Subject to the other provisions of this Article II, each option, stock appreciation right and restricted stock unit granted under the Plan shall be exercisable as follows:
Upon written application of the grantee of an option, the Administrator may in its sole discretion determine to substitute, for the exercise of such option, compensation to the grantee not in excess of the difference between the option exercise price and the Fair Market Value of the shares covered by such written application on the date of such application. Such compensation may be in cash, in shares of Common Stock, or both, and the payment thereof may be subject to conditions, all as the Administrator shall determine in its sole discretion. In the event compensation is substituted pursuant to this Section 2.4 for the exercise, in whole or in part, of an option, the number of shares subject to the option shall be reduced by the number of shares for which such compensation is substituted.
Except as otherwise provided in an applicable Award Agreement evidencing an option, stock appreciation right or restricted stock unit, during the lifetime of a grantee, each such award granted to a grantee shall be exercisable only by the grantee and no such award shall be assignable or transferable otherwise than by will or by the laws of descent and distribution. The Administrator may, in any applicable Award Agreement evidencing an option (other than an incentive stock option to the extent inconsistent with the requirements of section 422 of the Code applicable to incentive stock options), permit a grantee to transfer all or some of the options to (A) the grantees spouse, children or grandchildren (Immediate Family Members), (B) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (C) other parties approved by the Administrator in its sole and absolute discretion. Following any such transfer, any transferred options shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.
The Administrator may grant (or sell at a purchase price at least equal to par value) shares of Common Stock free of restrictions under the Plan, to such key persons and in such amounts and subject to such forfeiture provisions as the Administrator shall determine in its sole discretion. Shares may be thus granted or sold in respect of past services or other valid consideration.
Except as provided in Sections 2.5(e), 2.6, 2.7(d) and 2.9(f): (a) no award or right granted to any person under the Plan or under any Award Agreement shall be assignable or transferable other than by will or by the laws of descent and distribution; and (b) all rights granted under the Plan or any Award Agreement shall be exercisable during the life of the grantee only by the grantee or the grantees legal representative.
If any grantee shall, in connection with the acquisition of shares of Common Stock under the Plan, make the election permitted under section 83(b) of the Code (i.e., an election to include in gross income in the year of transfer the amounts specified in section 83(b)), such grantee shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under the authority of Code section 83(b).
Each Award Agreement with respect to an incentive stock option shall require the grantee to notify the Company of any disposition of shares of Common Stock issued pursuant to the exercise of such option under the circumstances described in section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition.
The Administrator may, in its absolute discretion, adjust any grant of shares of restricted stock, the issue date with respect to which has not occurred as of the date of the occurrence of any of the following events, or any grant of performance shares, to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change as the Administrator may deem appropriate to prevent the enlargement or dilution of rights of grantees.
Nothing in the Plan or in any Award Agreement shall confer upon any grantee the right to continue his employment with the Company or affect any right that the Company may have to terminate such employment.
The Administrators determinations under the Plan need not be uniform and may be made by it selectively among persons who receive, or who are eligible to receive, awards under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Administrator shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Agreements, as to (a) the persons to receive awards under the Plan, and (b) the terms and provisions of awards under the Plan.
Nothing contained in the Plan shall be deemed in any way to limit or restrict the Company from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.
Any section, subsection, paragraph or other subdivision headings contained herein are for the purpose of convenience only and are not intended to expand, limit or otherwise define the contents of such subdivisions.
The Company shall not permit any shares of Common Stock to be issued pursuant to Awards granted under the Plan unless such shares of Common Stock are fully paid and non-assessable under applicable law.
Except to the extent preempted by any applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws.
EXHIBIT A
DIANA
SHIPPING INC.
2005 STOCK INCENTIVE PLAN
OPTION AGREEMENT
THIS OPTION AGREEMENT made this [ ] day of , 200 , between Diana Shipping Inc., (the Company) and [ ] (the Optionee).
WHEREAS, the Company desires to carry out the purpose of the Diana Shipping Inc. 2005 Stock Incentive Plan (the Plan), a copy of which is attached hereto as Exhibit A, by affording the Optionee an opportunity to purchase its common stock;
WHEREAS, any terms defined in the Plan shall have the same meaning in this Agreement;
NOW THEREFORE, under the Plan and in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows:
1. Grant of Option The Company hereby grants to the Optionee the right and option (the Option) to purchase [ ] shares of common stock of the Company, par value $ per share (the Shares) on the terms and conditions set forth under the Plan and this Agreement. The Options issued pursuant to this Agreement shall constitute nonqualified stock options.
2. Option Price Subject to Section 5 below, the purchase price of the Shares covered by the Option shall be $__.__ per Share (equaling the offer price per Share in the Companys follow-on offering) which shall be paid in full at the time of exercise. The Option Price is the purchase price per Share times the number of Options to be exercised. The Option Price may be adjusted by the Administrator as provided in Section 3.7 of the Plan.
3. Method of Exercise Subject to the terms and conditions of the Plan and this Agreement, the vested Options may be exercised upon notice to the Company on the form provided by the Administrator and delivery of the Option Price attributable to the optioned Shares to be purchased.
4. Time and Method of Payment - The Option Price for the optioned Shares to be purchase shall be paid in full at the time an Option is exercised. The Option Price may be paid in a combination of cash and Shares having a Market Price equal to the balance of the Option Price. A valid exercise requires that the Optionee deliver the form of exercise and full payment for the optioned Shares to be purchased to the Company.
5. Dividend Equivalents For any full calendar year following the date of grant in which the dividends per share distributed to Company shareholders exceeds three percent (3%) of the Option Price as of the grant date, the Option Price shall be reduced by the amount of the dividends the Optionee would have received with respect to the optioned Shares had the Optionee been a shareholder of record on the record date with respect to such dividend distribution.
6. Vesting and Term of Option The Options shall vest with respect to 25% of the Options on , 2006 and each of the three anniversaries thereafter, conditioned upon the Optionees continued service as an employee of the Company or an affiliate (an Employee) or as a director of the Company from the date of this Agreement until the date such Options vest. In the event the Optionees ceases to be a member of the Board or an Employee, as applicable, for any reason, the Optionee shall forfeit all rights to the non-vested Options. Except as otherwise permitted by the Administrator, this Option shall not be exercisable to any extent prior to , 2006 or after , 2014.
7. Exercise - During the term of the Option, a vested Option may be exercised in one or more exercises in part or in whole at any time. The Administrator, as provided in Section 3.1(c) of the Plan, may accelerate the exercisability of the Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate.
8. Termination of Employment or Board Membership Upon the Optionees termination of service as an Employee or as a member of the Board for any reason, any Options not vested shall be forfeited. Except as provided in the case of the Optionees termination of employment by reason of the Optionees death, Disability or Retirement, each Option granted hereunder shall expire, to the extent vested and not theretofore exercised, upon the earlier of the date the Optionee ceases to be an Employee or a member of the Board, or when the Option would otherwise expire.
9. Death, Disability or Retirement of Optionee If an Optionee shall die or become Disabled while an Employee or member of the Board, or Retire, all vested Options theretofore granted to such Optionee may be exercised pursuant to their terms. In the event of death or incapacity an Option shall be exercised by a legal representative of an Optionee, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative to exercise such Option.
10. Taxes - If the Administrator shall so require, as a condition of exercise of an Option, the Optionee shall agree that no later than the date of exercise, the Optionee will pay to the Company or make arrangements satisfactory to the Administrator regarding payment of any federal, state or local taxes of any kind required by law to be withheld in connection with the exercise of an Option.
11. Nontransferability The Option is nontransferable other than by will or by the laws of descent and distribution.
12. Legal Requirements At the time of the exercise of any Option, the Company or the Administrator may postpone the date of exercise until such time as the Company has available for delivery to the Optionee a prospectus meeting the requirements of all applicable securities laws, and no Shares shall be issued or transferred upon the exercise of any Option unless and until all legal requirements applicable to the issuance or transfer of Shares have been complied with to the satisfaction of the Company.
13. Representation of Optionee Prior to the issuance of any Shares pursuant to the exercise of Options hereunder, at the request of the Administrator, the Optionee shall represent in writing to the Company that it is the Optionees intention to acquire the Shares with respect
to which the Option is to be exercised for investment and not with a view to the distribution thereof.
14. Changes in Capital Structure As determined by the Administrator within the discretion granted under Section 7 of the Plan, if any change described in Section 7 of the Plan is made to the Shares, an appropriate adjustment in the number of Shares for which Options which have been or may be granted under the Plan and the Option Price will be made.
15. Rights as a Shareholder - An Optionee shall have no rights as a shareholder with respect to any Shares covered by the Option until the date of the issuance of a stock certificate for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 5 above and Section 7 of the Plan.
16. Amendment and Termination of the Plan - The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, except as provided in Section 7 of the Plan, no suspension, termination, modification or amendment of the Plan may, without the express written consent of the Optionee involved, adversely affect any Option previously granted to the Optionee.
17. Governing Law - The Plan and this Agreement are governed by the internal substantive laws but not the choice of law rules of New York.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS OPTION AGREEMENT ON THE DATE FIRST WRITTEN ABOVE.
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Exhibit 10.4
OPTION AGREEMENT
made by and between
DIANA SHIPPING INC.
and
LIMON COMPANIA NAVIERA S.A.,
AZUERO COMPANIA NAVIERA S.A.,
HERRERA COMPANIA NAVIERA S.A.,
EL REAL COMPANIA ARMADORA S.A.,
and
SIMEON PALIOS
in respect of
All of the issued and outstanding common shares of Diana Shipping Services S.A.
February , 2005
AGREEMENT
This Agreement is dated as of the day of , 2005, by and among DIANA SHIPPING INC., a Marshall Islands corporation (referred to herein as DSI), each of the stockholders of DIANA SHIPPING SERVICES S.A., a Panamanian corporation (DSS), listed on Schedule I hereto (referred to herein as the Sellers), and SIMEON PALIOS (Palios).
W I T N E S S E T H :
WHEREAS, DSI is engaged, directly and/or indirectly through wholly-owned subsidiaries, in the ownership and operation of dry bulk carriers and has entered, directly and/or indirectly through wholly-owned subsidiaries, into vessel management agreements with DSS (the Management Agreements) pursuant to which DSS provides technical and commercial vessel management to DSI and its wholly owned subsidiaries;
WHEREAS, DSI expects to complete an initial public offering of its common stock (the IPO) during the first calendar quarter of 2005;
WHEREAS, the Sellers collectively own all of the issued and outstanding capital stock of DSS (the DSS Shares);
WHEREAS, DSI wishes to grant the Sellers an option jointly and not severally, commencing on the first business day following the closing of the IPO and terminating on the first anniversary of such closing, subject to the terms and condition set forth in this Agreement, to sell to DSI all, but not less than all, of the DSS Shares;
WHEREAS, if the sale and purchase of the DSS shares does not take place pursuant to the aforesaid option, the Sellers wish to provide DSI an option, commencing on the first anniversary of the closing of the IPO and terminating on the second anniversary of such closing, subject to the terms and condition set forth in this Agreement, to purchase all, but not less than all, of the DSS Shares; and
WHEREAS, Palios has agreed to give the indemnity set forth herein in order to facilitate the transactions described herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged hereby, the parties hereto, intending to be legally bound, hereby agree as follows:
1.1 Sellers Representations . The Sellers hereby jointly and severally represent and warrant to, and agree with DSI both as of the date hereof and as of the Put Option Closing Date or Call Option Closing Date (both as defined below) (the date hereof and such closing date being referred to collectively herein after as the Reference Dates), as applicable, as follows:
1.2 DSIs Representations. DSI hereby represents and warrants to, and agrees with, the Sellers as of the Reference Dates, as follows:
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2.1 Sellers Put Option. (a) DSI hereby grants to the Sellers, jointly and not severally, an irrevocable option (the Put Option) to cause DSI (or a wholly owned subsidiary of DSI to be designated by DSI) to purchase from the Sellers all, but not less than all, of the DSS Shares for the aggregate purchase price of $20 million (the Purchase Price). The Put Option shall commence on the first business day following the closing of the IPO and shall terminate on the first anniversary of the IPO (the Put Option Termination Date).
2.2 Exercise of Put Option. The Put Option shall be exercised by the Sellers delivery to DSI of a written notice no later than 30 days prior to the Put Option Termination Date of the Sellers intent to cause DSI (or its designee) to purchase all, but not less than all, of the DSS Shares (the Put Option Notice). Upon the exercise of the Put Option, DSI (or its designee) shall purchase, and the Sellers shall sell on a date selected by DSI (the Put Option Closing Date), the DSS Shares, free and clear of any Liens, not more than 30 days following receipt by DSI of the Put Option Notice, at which time the Purchase Price shall be transferred to an account or accounts designated by the Sellers and the certificates for the DSS Shares shall be delivered to DSI, together with such instruments of transfer as are necessary to vest title to the DSS Shares in DSI.
2.3 Conditions Precedent to Exercise of Put Option. Each of the Sellers and DSI hereby agree that:
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3.1 DSIs Call Option. (a) The Sellers hereby grant to DSI (or its designee) an irrevocable option (the Call Option) to purchase all, but not less than all, of the DSS Shares for the Purchase Price. The Call Option shall commence on the first anniversary of the closing of the IPO and shall terminate on the second anniversary of the IPO (the Call Option Termination Date).
3.2 Exercise of Call Option. The Call Option shall be exercised by DSIs delivery to the Sellers of a written notice no later than 14 days prior to the Call Option Termination Date of DSIs (or its designees) intent to purchase all, but not less than all, of the DSS Shares (the Call Option Notice). Upon the exercise of the Call Option, DSI (or its designee) shall purchase, and the Sellers shall sell on the date specified by DSI in the Call Option Notice no earlier than seven days after the date of the Call Option Notice and no later than the Call Option Termination Date (the Call Option Closing Date), the DSS Shares, free and clear of any Liens, at which time the Purchase Price shall be transferred to such account or accounts designated by the Sellers and the certificates for the DSS Shares shall be delivered to DSI, together with such instruments of transfer as are necessary to vest title to the DSS Shares in DSI.
4.1 Term of Agreement. This Agreement shall commence on the date hereof and shall continue in full force and effect until the earlier of (i) the purchase of the DSS Shares by DSI (or its designee) pursuant to this Agreement, or (ii) the Call Option Termination Date, provided, however, that the provisions of Article V of this Agreement shall survive the termination of this Agreement.
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5.1 Indemnification.
6.1 Complete Agreement / Amendment. This Agreement constitutes the complete understanding among the parties with respect to its subject matter and no amendment, alteration or modification of any of its provisions shall be valid except by means of a written agreement signed by each of the parties.
6.2 Closing Date Balance Sheet. To the extent necessary, the Sellers shall cooperate with DSI in causing DSS to prepare a balance sheet, audited in accordance with generally accepted accounting principles in the United States, dated as of the Put Option Closing Date or the Call Option Closing Date, as the case may be.
6.3 Successors and Assigns. All of the terms of this Agreement shall inure to the benefit of and shall be binding upon the heirs, executors, administrators, personal representatives,
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successors and permitted assigns of the Sellers and upon the successors and assigns of the Buyer, except as otherwise specifically provided herein.
6.4 Notices. All notices (including a Put Option Notice and a Call Option Notice), offers, acceptance and other communications required or permitted hereunder shall be sufficient if given (a) in writing and personally delivered, or (b) sent by fax provided that answer-back confirmation is received by the sender, in any case addressed, (i) if to DSI, to its then principal office, Attention: President, (ii) if to any of the Sellers, to its then address set forth for such Seller in the books and records of DSS and (iii) if to Palios, care of DSS, in all cases copied to Seward & Kissel LLP, One Battery Park Plaza, New York, NY 10004, fax: +1 212 480-8421 Attn: Gary J. Wolfe, Esq. Any party may change the address to which each such notice or communication shall be sent by giving written notice to the other parties of such new address in the manner provided herein for giving notice.
6.5 Waiver. Except as provided herein, compliance with any provision of this Agreement may be omitted or waived, only by the written agreement of the Sellers and DSI.
6.6 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of New York, without giving effect to the provisions, policies or principles thereof respecting conflict or choice of laws.
6.7 Submission to Jurisdiction. Any legal action or proceeding in connection with this Agreement or the performance hereof may be brought in the state and federal courts located in the Borough of Manhattan, City, County and State of New York, and the parties hereby irrevocably submit to the non-exclusive jurisdiction of such courts for the purpose of any such action or proceeding.
6.8 Service of Process. Each of the Sellers and DSI hereby irrevocably designates Seward & Kissel LLP, One Battery Park Plaza, New York, New York 10004 as agent upon whom process against each of Seller and DSI may be served.
6.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same agreement.
6.10 Further Assurances. Each of the Sellers and DSI agrees to execute and deliver such documents and instruments as may be necessary or advisable in order to implement the provisions of this Agreement.
6.11 Severability. If at any time subsequent to the date of this Agreement, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be if no force or effect but the illegality or unenforceability of such provision shall have no effect upon or impair the enforceability of any other provision.
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IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first set forth above.
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LIMON COMPANIA NAVIERA S.A . |
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SCHEDULE I
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LIMON COMPANIA NAVIERA S.A. |
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AZUERO COMPANIA NAVIERA S.A. |
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EL REAL COMPANIA ARMADORA S.A. |
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SCHEDULE II
Representations and
Warranties of the Sellers
Regarding DSS
1. Organization Good Standing and Authority . DSS is a corporation duly organized, validly existing and in good standing under the laws of Panama. DSS has full corporate power to carry on its business as it is now and has since its incorporation been conducted, and is entitled to own, lease or operate the properties and assets it now owns, leases or operates. DSS is qualified to do business, is in good standing and has all required and appropriate licenses and authorizations in each jurisdiction in which its failure to obtain or maintain such qualification, good standing, licensing or authorization would have a material and adverse effect on the condition (financial or otherwise), assets, properties, business or prospects of DSS.
2. Capitalization . The authorized capitalization of DSS consists solely of authorized shares of common stock, $ .01 par value per share (Common Stock), all of which are issued and outstanding on the date hereof, fully paid and nonassessable. There are not outstanding (i) any options, warrants or other rights to purchase any capital stock of DSS, (ii) any securities convertible into or exchangeable for shares of such stock or (iii) any other commitments of any kind for the issuance of additional shares of capital stock or options, warrants or other securities of DSS.
3. No Subsidiaries . DSS has no equity interests in any other entity.
4. Financial Statements . The Sellers have provided to DSI, DSSs audited balance sheets, and the related statements of income and retained earnings and changes in financial position for the fiscal year ended December 31, 2004 and for any subsequent fiscal years ending prior to the latest of the Reference Dates (the Financial Statements). The Financial Statements (i) were prepared in accordance with the books and records of DSS; (ii) were prepared in accordance with accounting principles generally accepted in the United States consistently applied; and (iii) fairly represent the financial condition of DSS for the periods presented and as of the Reference Dates .
5. Absence of Certain Changes . Except as disclosed to DSI in writing, since the date of the Financial Statements, there has not been (i) any declaration or payment of dividends by DSS or any transfer of cash or other assets of any kind whatsoever by DSS to any of its shareholders with respect to any shares of DSSs capital stock; (ii) any transaction not in the ordinary course of business; (iii) any material adverse change in the consolidated results of operations, condition (financial or otherwise), assets, liabilities (whether absolute, accrued, contingent or otherwise), business or prospects of DSS; (iv) any damage, destruction or loss, whether or not covered by insurance, which has had or may have a material and adverse effect on any of the properties, business or prospects of DSS; (v) any sale or transfer of any of DSSs assets or any cancellation of any debts or claims, except sales in the ordinary course of business; (vi) any mortgage, pledge or subjection to lien, charge or encumbrance of any kind, except liens for taxes not due, of any of DSSs properties or assets; (vii) any material amendment, modification or termination of any material contract or agreement to which DSS is a party; (viii) any increase in, or commitment to increase, the compensation payable or to become
payable to any officer, director, employee or agent of DSS, or any bonus payment or similar arrangement made to or with any of such officers, directors, employees or agents, other than routine increases made in the ordinary course of business; (ix) any incurrence of, assumption of, or taking any property subject to, any liability, except for liabilities incurred or assumed or property taken subsequent to the date(s) of the Financial Statements in the ordinary course of business and consistent with past practice; (x) any adoption of a plan or agreement or amendment to any plan or agreement providing any new or additional fringe benefits; (xi) any material alteration in the manner of keeping the books, accounts or records of DSS, or in the accounting practices therein reflected; or (xii) any other event or condition of any character which has had or may have a material and adverse effect on the condition (financial or otherwise), assets, properties, business or prospects of DSS.
6. Charter Documents . The Sellers have made available to DSI true and correct copies of the Articles of Incorporation and Bylaws or other appropriate charter documents of DSS, in each case as is and will be in effect on the Reference Dates.
7. Tangible Personal Property . The Sellers have provided to DSI (i) a description of each item of tangible personal property owned by DSS having on the Reference Dates either a depreciated book value or estimated fair market value, whichever is greater, per unit in excess of $10,000, or not owned by DSS but in the possession of or used in the business of DSS and having rental payments therefor in excess of $10,000 per year; and (ii) a description of the owner of, and any agreement relating to the use of, each such item of tangible personal property not owned by DSS and the circumstances under which such property is used.
(a) DSS has good and marketable title to each item of such tangible personal property free and clear of all Liens, except for Liens, if any, for personal property taxes not due;
(b) Each item of such tangible personal property not owned by DSS is in such condition that upon the return of such property to its owner in its present condition at the end of the relevant lease term or as otherwise contemplated by the applicable agreement between DSS and the owner or lessor thereof, the obligations of DSS will be discharged;
(c) Each such item of tangible personal property is in good operating condition and repair and is fit for its intended purposes; and
(d) DSS owns or otherwise has the right to use all of the tangible personal properties used by it in the operation of its business or the use of which is necessary for the performance of any material contract, letter of intent or proposal to which it is a party.
8. Intangible Personal Property . The Sellers have provided to DSI as of the Reference Dates (i) a description of the items of intangible personal property owned by, or used in the business of, DSS, including, but not limited to, patents, patent applications, tradenames, trademarks, tradename and trademark registrations, copyright registrations and applications for any of the foregoing and (ii) a true and complete list of all licenses or similar agreements or
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arrangements to which DSS is a party either as licensee or licensor for each such item of intangible personal property.
(a) DSS is the owner of all right, title and interest in and to each such item of intangible personal property, free and clear of all Liens;
(b) DSS has the right and authority to use said items of intangible personal property in connection with the conduct of its respective business in the manner presently conducted, and such use does not conflict with, infringe upon or violate any rights of any other person, firm or corporation; and
(c) There are no outstanding, nor to the best knowledge of the Sellers, any threatened disputes or other disagreements with respect to any licenses or similar agreements described in this Section.
9. Real Property and Leaseholds . DSS does not own any real property. The Sellers have provided to DSI a description of each lease of real property under which DSS is a lessee, lessor, sublessee or sublessor. DSS holds such leaseholds free and clear of all mortgages, Liens, encumbrances, leases, equities, claims, charges, easements, rights-of-way, covenants, conditions and restrictions, except for liens, if any, for property taxes not due. DSS is not in default with respect to any material term or condition of any such lease, nor has any event occurred which through the passage of time or the giving of notice, or both, would constitute a default thereunder by DSS or would cause the acceleration of any obligation of DSS or the creation of a Lien upon any asset of DSS
10. Agreement Not in Breach of Other Instruments . Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will violate, or result in a breach of, any of the terms and provisions of, or constitute a default under, or conflict with, or give any other party thereto a right to terminate any agreement, indenture or other instrument to which DSS is a party or by which it is bound, the Articles of Incorporation and Bylaws or other appropriate charter documents of DSS, or any judgment, decree, order or award of any court, governmental body or arbitrator applicable to DSS or its assets.
11. Insurance . The Sellers have provided to DSI a correct list of all insurance policies of any nature whatsoever maintained by DSS at any time during the three (3) years prior to the Reference Dates and the annual or other premiums payable from time to time thereunder. There are no outstanding requirements or recommendations by any insurance company that issued any such policy or issued by any insurance industry body, mutual protection and indemnity association or any governmental authority which requires or recommends any changes in the conduct of the business of, or any repairs or other work to be done on or with respect to any of the properties or assets of DSS. DSSs insurance policies are valid (i) and in full force and effect and are not voidable; (ii) provide DSS with such coverages and in such amounts, including deductibles, as is customarily carried by corporations of established reputation engaged in the same or similar businesses similarly situated; and, (iii) will remain valid and in full force and effect as of the Reference Dates. DSS has not received any notice or other communication from any such insurance company within the three (3) years preceding the Reference Dates cancelling or materially amending or materially increasing the annual or other premiums payable
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under any of such insurance policies, and to the best knowledge of the Sellers, no such cancellation, amendment or increase of premiums is threatened.
12. Labor and Employment Agreements . The Sellers have disclosed to DSI (i) each collective bargaining agreement and other labor agreement to which DSS is a party or by which it is bound; (ii) each employment, profit sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, health, welfare, or incentive plan or contract to which DSS is a party, or by which it is or may be bound, and (iii) each plan and agreement under which fringe benefits (including, but not limited to, vacation plans or programs, sick leave plans or programs, dental or medical plans or programs, and related or similar benefits) are afforded to employees of DSS. DSS is not, and to the best knowledge of the Sellers, no other party to any such agreement, plan, program or contract is, in default with respect to any material term or condition thereof, nor has any event occurred which through the passage of time or the giving of notice, or both, would constitute a default thereunder or would cause the acceleration of any obligation of any party thereto. DSS has complied in all material respects with all applicable laws, rules and regulations relating to the employment of labor, including those relating to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by appropriate governmental authorities. Except as has been disclosed in writing to DSI, as of the Reference Dates:
(a) No unfair labor practice complaint is pending against DSS, no labor strike or other labor trouble affecting DSS is pending, and no labor grievance of any kind is pending against DSS;
(b) No organization or representation question is pending respecting the employees of DSS, and no such question has been raised within the three (3) year period prior to the Reference Dates;
(c) No arbitration proceeding arising out of or under any collective bargaining agreement is pending, and to the best knowledge of the Sellers no basis for any such proceeding exists;
(d) All reasonably anticipated obligations of DSS, whether arising by operation of law, contract, past custom or otherwise, for unemployment compensation benefits, pension benefits, salaries, bonuses, sick leave, vacation and other forms of compensation payable to the officers, directors and/or other employees of DSS in respect of the services rendered by any of them prior to the date hereof have been paid or adequate accruals therefor have been made in the books and records and consolidated financial statements of DSS.
13. Tax Returns . Except as disclosed in writing to DSI:
(a) Within the times and in the manner prescribed by law, DSS has filed all tax returns for all countries, provinces, states and other governing bodies having jurisdiction to levy taxes upon it or to require it to withhold or collect taxes including, without limitation, income taxes, excise taxes, sales taxes, value added taxes, employment taxes and property taxes, customs taxes, etc.;
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(b) All tax returns filed by DSS for the taxable years ending as of the Reference Dates hereof constitute complete and accurate representations of DSSs tax liabilities for such years and accurately set forth all items (to the extent required to be included or reflected in such returns) relevant to DSSs future tax liabilities, including the tax bases of DSSs properties and assets;
(c) DSS has not waived or extended any applicable statute of limitations relating to the assessment of taxes by any country, province, state or other governing body having jurisdiction to levy taxes upon DSS; and
(d) No examinations of any of the tax returns of DSS are currently in progress nor, to the best knowledge of the Sellers, is any such examination threatened;
14. Litigation . Except for collection actions instituted by DSS involving less than $50,000 individually and actions against DSS covered by insurance and involving claims with alleged damages not more than $100,000 individually or $500,000 in the aggregate and except as disclosed to DSI in writing:
(a) There is no action, suit or proceeding to which DSS is a party (either as a plaintiff or defendant) pending before any court or governmental agency, authority or body or arbitrator; to the best knowledge of the Sellers, there is no action, suit or proceeding threatened against DSS; and to the best knowledge of the Sellers, there is no basis for any such action, suit or proceeding;
(b) Neither DSS, nor any officer, director or employee of DSS, has been permanently or temporarily enjoined by any order, judgment or decree of any court or any governmental agency, authority or body from engaging in or continuing any conduct or practice in connection with the business, assets, or properties of DSS; and
(c) There is not in existence on the date hereof any order, judgment or decree of any court or other tribunal or other agency enjoining or requiring DSS to take any action of any kind with respect to its business, assets or properties.
15. Intercompany Transactions . Except as disclosed in writing to DSI, no intercompany transactions, including dividends, transactions creating intercompany indebtedness, and stock or asset transfers or assignments, between DSS and any other corporate or other business affiliate of DSS, have occurred within the three (3) years preceding the Reference Dates.
16. Indebtedness to and from Officers, etc . Except as disclosed in writing to DSI, DSS is not indebted, directly or indirectly, to any person who is an officer, director, stockholder or employee of DSS or any spouse, child, or other relative or any affiliate of any such person, in any amount whatsoever, other than for salaries for services rendered or reimbursable business expenses, nor is any such officer, director, stockholder, employee, relative or affiliate indebted to DSS except for advances made to DSS in the ordinary course of business to meet reimbursable business expenses anticipated to be incurred by such obligor.
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17. Personnel . The Sellers have provided to DSI a true and complete list of the names and current salaries of all the directors and officers of DSS and all employees of DSS who earn in excess of $60,000 per year.
18. Banking Facilities . The Sellers have provided to DSI a true and complete list of:
(a) each bank, savings and loan or similar financial institution in which DSS has an account or safety deposit box and the numbers of the accounts or safety deposit boxes maintained by DSS thereat; and
(b) the names of all persons authorized to draw on each such account or to have access to any such safety deposit box facility, together with a description of the authority (and conditions thereof, if any) of each such person with respect thereto.
19. Powers or Attorney and Suretyships . Except as disclosed in writing to DSI, DSS does not have any general or special powers of attorney outstanding (whether as grantor or grantee thereof) or has any obligation or liability (whether actual, accrued, accruing, contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any person, corporation, partnership, joint venture, association, organization or other entity, except as endorser or maker of checks or letters of credit, respectively, endorsed or made in the ordinary course of business.
20. Contracts and Agreements . The Sellers have provided to DSI a true and correct list of each contract, agreement, purchase order, lease, license, indenture or commitment, written or oral, to which DSS is a party or by which any of its assets are bound, except:
(i) Agreements for the purchase by DSS of goods, materials, supplies or services in the ordinary course of business involving less than $30,000 in consideration in each such case; and
(ii) Agreements for the sale of goods or services in the ordinary course of business in which the sales price of the goods to be sold and the services to be rendered pursuant to each such agreement is less than $75,000 for each such non-listed agreement.
The contracts, agreements, purchase orders, leases, licenses, indentures or commitments referred to above are hereinafter defined as the Contracts. True and complete copies of each of the Contracts, or where they are oral, true and complete written summaries thereof, have been delivered to DSI. Except as disclosed in writing to DSI:
(a) Each of the Contracts is a valid and binding agreement of DSS and to the best knowledge of the Sellers, all other parties thereto;
(b) DSS has fulfilled all material obligations required pursuant to each Contract to have been performed by it prior to the date hereof, and the Sellers have no reason to believe that DSS will not be able to fulfill, when due, all of its
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obligations under the Contracts which remain to be performed after the date hereof;
(c) There has not occurred any material default under any of the Contracts on the part of DSS, or to the best knowledge of the Sellers, on the part of any other party thereto nor has any event occurred which with the giving of notice of the lapse of time, or both, would constitute any material default on the part of DSS under any of the Contracts nor, to the best knowledge of the Sellers, has any event occurred which with the giving of notice or the lapse of time, or both, would constitute any material default on the part of any other party to any of the Contracts;
(d) No consent of any party to any of the Contracts is required in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby;
(e) DSS is not restricted or purported to be restricted by any contract agreement or arrangement from carrying on their respective business anywhere in the world; and
(f) DSS is not under any liability or obligation with respect to the return of inventory or products of DSS or any Subsidiary in the possession of customers or others.
21. Compliance with Law . The conduct of business by DSS does not violate any laws, statutes, ordinances, rules, regulations, decrees, orders, permits or other similar items in force on the Reference Dates (including, but not limited to, any of the foregoing relating to employment discrimination, environmental protection or conservation) of any country, province, state or other governing body, the enforcement of which would materially and adversely affect the business, assets, condition (financial or otherwise) or prospects of DSS nor has DSS received any notice of any such violation.
22. No Undisclosed Liabilities . Except as and to the extent specifically reflected or reserved against in the Financial Statements otherwise disclosed in writing to DSI, DSS does not have any liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for taxes and interest, penalties and other charges payable with respect to any such liability or obligation) which are material to the condition (financial or otherwise), assets, properties, business or prospects of DSS.
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Exhibit 10.6
Dated February 2005
DIANA SHIPPING INC.
as Borrower
and
THE ROYAL BANK OF SCOTLAND PLC
as Lender
LOAN AGREEMENT
relating to a revolving credit facility of up to USD$230,000,000
WATSON, FARLEY & WILLIAMS
London
THIS LOAN AGREEMENT is made on February 2005
BETWEEN:
(1) DIANA SHIPPING INC. , a company incorporated in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Island, P O Box 1405, Majuro, Marshall Islands MH96960 (the Borrower ); and
(2) THE ROYAL BANK OF SCOTLAND PLC , acting through the Shipping Business Centre at 5-10 Great Tower Street, London EC3P 3HX (the Lender ).
BACKGROUND
The Lender has agreed to make available to the Borrower a revolving credit facility of up to $230,000,000 as follows:
(A) to enable the Borrower or other members of the Group to finance the acquisition of New Ships and the shares of New Companies;
(B) to assist the Borrower in its acquisition of the Approved Manager for a consideration of up to US$20,000,000; and
(C) to provide the Borrower with working capital in an amount of up to US$30,000,000 for an initial period of 18 months commencing on the Availability Date and such working capital facility may be renewed annually thereafter subject to the Lenders annual review,
in each case, subject to the limitations, reductions and other terms and conditions contained in this Agreement.
IT IS AGREED as follows:
Account Charge means the deed in respect of the Operating Account executed or to be executed by the Borrower in favour of the Lender substantially in the form set out in Appendix C (or in such other form as the Lender may approve or require);
Accounting Information means the quarterly financial statements and/or the annual audited financial statements to be provided by the Borrower to the Lender in accordance with Clause 11.7;
Accounting Period means each consecutive period of approximately three months falling during the Security Period (ending on the last day in March, June, September and December of each year) for which quarterly Accounting Information is required to be delivered pursuant to Clause 11.7;
Adjusted Net Worth means, in respect of an Accounting Period, the amount of Total Assets less Consolidated Debt;
Advance means each of the New Ship Advances, the Approved Manager Advance and the Working Capital Advances and, in the plural, means all of them;
Approved Broker means H. Clarkson & Company, Galbraiths Limited, Braemar Seascope, Arrow Shipbrokers or such other firm of independent sale and purchase
shipbrokers as shall be approved by the Lender (in substitution for any of the foregoing), in its sole and absolute discretion, from time to time for the purposes of this Agreement;
Approved Flag means any of the Greek or Bahamas or any other flag as the Lender may, in its sole and absolute discretion approve as the flag on which a Ship may be registered;
Approved Flag State means any of Greece or the Commonwealth of the Bahamas or any other country in which the Lender, may in its sole and absolute discretion, approve that a Ship may be registered;
Approved Manager means, for the time being, Diana Shipping Services S.A., a company incorporated under the laws of the Republic of Panama and whose registered office is at Edificio Centro Magna Corp, Ave. Manuel MA, De y Caza y Calle 51, Panama, Republic of Panama or any other company which the Lender may, in its sole and absolute discretion, approve from time to time as the manager of the Ships;
Approved Manager Advance means the advance requested by the Borrower or, as the context requires, made or to be made by the Lender pursuant to Clause 3.2(d) to assist the Borrower in funding its acquisition of the shares of the Approved Manager;
Availability Date means the date on which all the conditions referred to in Schedule 2 Parts A and B have been satisfied (in the opinion of the Lender) in full and shall be no later than 31 March 2005 unless the Lender otherwise agrees in its sole and absolute discretion;
Availability Period means the period commencing on the date of this Agreement and ending on:
(a) the Termination Date (or such later date as the Lender may agree with the Borrower); or
(b) if earlier, the date on which the Commitment is fully cancelled or terminated,
save that in the case of each Working Capital Advance, such period shall end on the date the Lender notifies the Borrower that the Commitment shall be reduced in accordance with the proviso in Clause 7.1;
Available Commitment means, at any time, the Commitment less the amount of the Facility at that time;
Business Day means a day (other than a Saturday or Sunday) on which banks and financial markets in London are open for business and, in respect of a day on which a payment is required to be made under a Finance Document, also a day on which banks and financial markets are open for business in New York City;
Calculation Period means the period commencing on the date on which the last payment or delivery has been made under section 2(d)(i) of the Master Agreement with respect to a Transaction (or in the case of the first such period the date the relevant Transaction has been entered into) and ending on the next date upon which such a payment on delivery is to be made;
Collateral Ship means any New Ship which is registered under an Approved Flag, is the subject of a Mortgage and which the Borrower nominates as a Collateral Ship for the purposes of this Agreement and, in the plural, means all of them;
Commitment means the maximum amount of the Facility at any given time to be determined in accordance with the commitment schedule set out in Schedule 5 as that
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amount may be limited, reduced, cancelled or terminated in accordance with this Agreement;
Confirmation has the meaning given to that expression in section 14 of the Master Agreement;
Consolidated Debt means, in respect of an Accounting Period, the aggregate amount of Debt due by the members of the Group (other than any such Debt owing by any member of the Group to another member of the Group) as stated in the then most recent Accounting Information;
Consolidated Financial Indebtedness means, in respect of each Accounting Period, the aggregate amount of Financial Indebtedness (including current maturities) due by the members of the Group (other than any such Financial Indebtedness owing by any member of the Group to another member of the Group) as stated in the then most recent Accounting Information;
Contractual Currency has the meaning given in Clause 21.5;
Credit Support Document has the meaning given to that expression in section 14 of the Master Agreement;
Credit Support Provider has the meaning given to that expression in section 14 of the Master Agreement;
Current Assets means, in respect of each Accounting Period, the aggregate of the cash and marketable securities, trade and other receivables from persons other than a member of the Group , realisable within one year, inventories and prepaid expenses which are to be charged to income within one year less any doubtful debts and any discounts or allowances given as stated in the then most recent Accounting Information;
Debt means in relation to any member of the Group (the debtor ):
(a) Financial Indebtedness of the debtor;
(b) liability for any credit to the debtor from a supplier of goods or services or under any instalment purchase or payment plan or other similar arrangement;
(c) contingent liabilities of the debtor (including without limitation any taxes or other payments under dispute) which have been or, under GAAP, should be recorded in the notes to the Accounting Information;
(d) deferred tax of the debtor; and
(e) liability under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person who is not a member of the Group which would fall within (a) to (d) if the references to the debtor referred to the other person;
Dollars and $ means the lawful currency for the time being of the United States of America;
Drawdown Date means, in relation to an Advance, the date requested by the Borrower for the Advance to be made pursuant to Clause 3, or (as the context requires) the date on which the Advance is actually made;
Drawdown Notice means a notice in the form set out in Schedule 1 (or in any other form which the Lender approves or reasonably requires);
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Early Termination Date has the meaning given to that expression in section 14 of the Master Agreement;
EBITDA means, in respect of an Accounting Period, the aggregate amount of consolidated pre-tax profits of the Group before extraordinary or exceptional items, depreciation, interest, rentals under finance leases and similar charges payable as stated in the then most recent Accounting Information;
Earnings means, in relation to each Ship, all moneys whatsoever which are now, or later become, payable (actually or contingently) to the Owner of that Ship and which arise out of the use or operation of that Ship, including (but not limited to):
(a) all freight, hire and passage moneys, compensation payable to the Owner of that Ship in the event of requisition of that Ship for hire, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of that Ship;
(b) all moneys which are at any time payable under Insurances in respect of loss of earnings; and
(c) if and whenever that Ship is employed on terms whereby any moneys falling within paragraphs (a) or (b) are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to that Ship;
Environmental Claim means
(a) any claim by any governmental, judicial or regulatory authority which arises out of an Environmental Incident or an alleged Environmental Incident or which relates to any Environmental Law; or
(b) any claim by any other person which relates to an Environmental Incident or to an alleged Environmental Incident,
and claim means a claim for damages, compensation, fines, penalties or any other payment of any kind, whether or not similar to the foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of enforcement or regulatory action, including the arrest or attachment of any asset;
Environmental Incident means, in relation to each Ship:
(a) any release of Environmentally Sensitive Material from that Ship; or
(b) any incident in which Environmentally Sensitive Material is released from a vessel other than that Ship and which involves a collision between that Ship and such other vessel or some other incident of navigation or operation, in either case, in connection with which that Ship is actually or potentially liable to be arrested, attached, detained or injuncted and/or that Ship and/or the Owner of that Ship and/or any operator or manager of that Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action; or
(c) any other incident in which Environmentally Sensitive Material is released otherwise than from that Ship and in connection with which that Ship is actually or potentially liable to be arrested and/or where the Owner of that Ship and/or any operator or manager of that Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action;
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Environmental Law means any law relating to pollution or protection of the environment, to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material;
Environmentally Sensitive Material means oil, oil products and any other substance (including any chemical, gas or other hazardous or noxious substance) which is (or is capable of being or becoming) polluting, toxic or hazardous;
Event of Default means any of the events or circumstances described in Clause 19.1;
Existing Ships means any of the ships more particularly described in Schedule 3 and, in the singular, means any one of them;
Facility means the principal amount of the borrowing by the Borrower which has been advanced and is for the time being outstanding under this Agreement;
Finance Documents means:
(a) this Agreement;
(b) the Master Agreement;
(c) the Master Agreement Security Deed;
(d) each Guarantee;
(e) each General Assignment;
(f) each Mortgage;
(g) the Account Charge;
(h) each Negative Pledge Agreement;
(i) any other document (whether creating a Security Interest or not) which is executed at any time by the Borrower, any Security Party or any other person as security for, or to establish any form of subordination or priorities arrangement in relation to, any amount payable to the Lender under this Agreement or any of the other documents referred to in this definition;
Financial Indebtedness means, in relation to any member of the Group (the debtor ), a liability of the debtor:
(a) for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor;
(b) under any loan stock, bond, note or other security issued by the debtor;
(c) under any acceptance credit, guarantee or letter of credit facility made available to the debtor;
(d) under a financial lease, a deferred purchase consideration arrangement (in each case, other than in respect of assets or services obtained on normal commercial terms in the ordinary course of business) or any other agreement having the commercial effect of a borrowing or raising of money by the debtor;
(e) under any foreign exchange transaction any interest or currency swap or any other kind of derivative transaction entered into by the debtor or, if the agreement under
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which any such transaction is entered into requires netting of mutual liabilities, the liability of the debtor for the net amount; or
(f) under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person which would fall within (a) to (e) if the references to the debtor referred to the other person;
Fixed Charges means, in respect of an Accounting Period, the aggregate of Interest Expenses and the portion of Consolidated Financial Indebtedness (other than balloon repayments) falling due during that period, as stated in the then most recent Accounting Information.;
GAAP means accounting principles, concepts, bases and policies generally adopted and accepted in the United States of America consistently applied;
General Assignment means, in relation to each Ship, a general assignment of the Earnings, the Insurances and any Requisition Compensation of that Ship executed or to be executed by the Owner of that Ship in favour of the Lender substantially in the form set out in Appendix B (or such other form as the Lender may approve or require);
Group means the Borrower and its subsidiaries (whether direct or indirect) from time to time during the Security Period and member of the Group shall be construed accordingly;
Guarantee means, in relation to each Owner, the guarantee by that Owner of the Borrowers liabilities under this Agreement, the Master Agreement and the Finance Documents executed or to be executed by the relevant Owner in favour of the Lender substantially in the form set out in Appendix D (or such other form as the Lender may approve or require);
Insurances means, in relation to each Ship:
(a) all policies and contracts of insurance, including entries of that Ship in any protection and indemnity or war risks association, which are effected in respect of that Ship, her Earnings or otherwise in relation to her; and
(b) all rights and other assets relating to, or derived from, any of the foregoing, including any rights to a return of a premium;
Interest Expenses means, in respect of an Accounting Period, the aggregate on a consolidated basis of all interest incurred by any member of the Group (excluding any amounts owing by one member of the Group to another member of the Group) and any net amounts payable under interest rate hedge agreements;
Interest Period means a period determined in accordance with Clause 5;
IPO means, the sale of an underwritten initial public offering registered under the U.S. Securities Act of 1933, as amended, of shares of common stock of the Borrower;
ISM Code means, in relation to its application to each Owner, the Approved Manager, each Ship and its operation, the International Safety Management Code (including the guidelines on its implementation), adopted by the International Maritime Organisation Assembly as Resolution MSC 104 (73) (amending Resolution A.741 (18)) and Resolution A.913 (22) (superceding Resolution A.788 (19)), as the same may be amended, supplemented or superceded from time to time (and the terms safety management system , Safety Management Certificate and Document of Compliance have the same meanings as are given to them in the ISM Code);
6
ISPS Code means, in relation to its application to each Owner, the Approved Manager, each Ship and its operation, the International Ship and Port Facility Security Code constituted pursuant to Resolution A.924 (22) of the International Maritime Organisation ( IMO ) adopted by a Diplomatic Conference of the IMO on Maritime Security on 13 December 2002 and now set out in Chapter XI-2 of the Safety of Life at Sea Convention (SOLAS) 1974 (as amended);
Lender means The Royal Bank of Scotland plc, a company incorporated in Scotland having its registered office at 36 St. Andrew Square, Edinburgh EH2 2YB, Scotland acting through the Shipping Business Centre at 5-10 Great Tower Street, London EC3P 3HX, England or through any other branch notified to the Borrower from time to time pursuant to Clause 26.3 and includes all persons directly or indirectly deriving title under it (whether by permitted assignment, amalgamation, operation of law or otherwise);
Liquid Funds means, in respect of an Accounting Period:
(a) cash in hand or held with banks or other financial institutions of the Borrower and/or any other member of the Group in Dollars or another currency freely convertible into Dollars, which is free of any Security Interest (other than a Permitted Security Interest and other than ordinary bankers liens which have not been enforced or become capable of being enforced);
(b) any other short-term financial investment which is free of any Security Interest (other than a Permitted Security Interest) as stated in the then most recent Accounting Information; and
(c) the amount of the Available Commitment;
Major Casualty means any casualty to the Ship in respect of which the claim or the aggregate of the claims against all insurers, before adjustment for any relevant franchise or deductible, exceeds $1,000,000 or the equivalent in any other currency;
Mandatory Cost Rate means the percentage rate which represents the cost to the Lender, relative to the Facility, of compliance with the requirements of the Bank of England, the Financial Services Authority or any other regulatory authority, as determined by the Lender in accordance with the formula detailed in Schedule 4;
Margin means 1 per cent. per annum;
Master Agreement means the Master Agreement (on the 1992 ISDA (Multicurrency - Crossborder) form as modified) entered into by the Lender and the Borrower dated the date of this Agreement, and includes all transactions from time to time entered into and confirmations from time to time exchanged under the Master Agreement and any amending, supplementing or replacement agreements made from time to time;
Master Agreement Liabilities means, at any relevant time, all liabilities actual or contingent, present or future, of the Borrower to the Lender under the Master Agreement;
Master Agreement Security Deed means the deed containing, inter alia, a charge in respect of the Master Agreement executed or to be executed by the Borrower in favour of the Lender substantially in the form set out in Appendix F (or such other form as the Lender may approve or require);
Mortgage means, in relation to each Ship, the first priority or preferred ship mortgage on that Ship and, if required by the Approved Flag State, a collateral deed of covenants, executed or to be executed by the Owner of such Ship in favour of the Lender substantially in the form of Appendix A or such other form as the Lender may approve or require and modified as necessary to conform with the laws of the Approved Flag State;
7
Negative Pledge Agreement means an agreement executed or to be executed by any Unencumbered Owner in favour of the Lender in respect of each New Ship which is not designated by the Borrower as a Collateral Ship, substantially in the form set out in Appendix E (or in such other form as the Lender may approve or require);
New Company means any company which:
(a) has as its principal business the ownership, chartering or operation of vessels;
(b) the Borrower notifies to the Lender pursuant to Clause 3.4 as a company the Borrower wishes to acquire (either directly or through a subsidiary) with the assistance of a New Ship Advance; and
(c) the Lender, in its sole and absolute discretion, shall notify to the Borrower as being acceptable to the Lender, in accordance with Clause 3.4; and
(d) is the subject of a Drawdown Notice,
and in the plural, means all such companies;
New Ship means any dry bulk carrier or cellular container ship (which is not an Existing Ship) which:
(e) the Borrower notifies to the Lender pursuant to Clause 3.4 as a vessel which the Borrower wishes to purchase (either directly or through a subsidiary) with the assistance of a New Ship Advance;
(f) will be no greater than 10 years old at the date of the proposed purchase;
(g) shall be registered on an Approved Flag on and from the date of its purchase by a member of the Group;
(h) the Lender, in its sole and absolute direction, shall notify to the Borrower as being acceptable to the Lender, in accordance with Clause 3.4; and
(i) is the subject of a Drawdown Notice,
and, in the plural, means all such ships;
New Ship Advance means each advance requested by the Borrower or, as the context requires, made or to be made by the Lender pursuant to Clause 3.2(c) to assist the Borrower directly or indirectly in its acquisition of New Ships and the shares of New Companies and, in the plural, means all such advances;
Operating Account means, for the time being, an account opened or to be opened in the name of the Borrower with the Lender designated Diana Shipping Operating Account, or any other account or sub-account (with that or another office of the Lender or with a bank or financial institution other than the Lender) which is designed by the Lender as the Operating Account for the purposes of this Agreement;
Owner means any member of the Group who owns a Ship which is the subject of a Mortgage and, in the plural, means all of them;
Payment Currency has the meaning given in Clause 21.5;
Permitted Security Interests means:
(a) Security Interests created by the Finance Documents;
8
(b) liens for unpaid masters and crews wages in accordance with usual maritime practice;
(c) liens for salvage;
(d) liens arising by operation of law for not more than 2 months prepaid hire under any charter in relation to a Ship not prohibited by this Agreement;
(e) liens for masters disbursements incurred in the ordinary course of trading and any other lien arising by operation of law or otherwise in the ordinary course of the operation, repair or maintenance of a Ship, provided such liens do not secure amounts more than 30 days overdue (unless the overdue amount is being contested by the Borrower in good faith by appropriate steps) and subject, in the case of liens for repair or maintenance, to Clause 14.12(f);
(f) any Security Interest created in favour of a plaintiff or defendant in any proceedings or arbitration as security for costs and expenses where the Borrower is actively prosecuting or defending such proceedings or arbitration in good faith by appropriate steps; and
(g) Security Interests arising by operation of law in respect of taxes which are not overdue for payment or in respect of taxes being contested in good faith by appropriate steps and in respect of which appropriate reserves have been made;
Pertinent Document means:
(a) any Finance Document;
(b) any policy or contract of insurance contemplated by or referred to in Clause 13 or any other provision of this Agreement or another Finance Document;
(c) any other document contemplated by or referred to in any Finance Document; and
(d) any document which has been or is at any time sent by or to the Lender in contemplation of or in connection with any Finance Document or any policy, contract or document falling within paragraphs (b) or (c);
Pertinent Jurisdiction , in relation to a company, means:
(a) England and Wales;
(b) the country under the laws of which the company is incorporated or formed;
(c) a country in which the company has the centre of its main interests or in which the companys central management and control is or has recently been exercised;
(d) a country in which the overall net income of the company is subject to corporation tax, income tax or any similar tax;
(e) a country in which assets of the company (other than securities issued by, or loans to, related companies) having a substantial value are situated, in which the company maintains a branch or a permanent place of business, or in which a Security Interest created by the company must or should be registered in order to ensure its validity or priority; and
(f) a country the courts of which have jurisdiction to make a winding up, administration or similar order in relation to the company whether as main or territorial or ancillary proceedings or which would have such jurisdiction if their
9
assistance were requested by the courts of a country referred to in paragraphs (b) or (c) above;
Pertinent Matter means:
(a) any transaction or matter contemplated by, arising out of, or in connection with a Pertinent Document; or
(b) any statement relating to a Pertinent Document or to a transaction or matter falling within paragraph (a);
and covers any such transaction, matter or statement, whether entered into, arising or made at any time before the signing of this Agreement or on or at any time after that signing;
Potential Event of Default means an event or circumstance which, with the giving of any notice, the lapse of time, a determination of the Lender and/or the satisfaction of any other condition, would constitute an Event of Default;
RBS LIBOR means, for an Interest Period, the rate per annum at which deposits in Dollars in an amount approximately equal to the Facility (or any part thereof) are (or would have been) offered by the Lender to leading banks in the London Interbank Market at or about 11.00 a.m. (London time) on the second Business Day prior to commencement of such Interest Period for that Interest Period for a period equal to that Interest Period and for delivery on the first Business Day of it;
Receiving Bank means American Express Bank Limited, 3 World Financial Centre, 23rd Floor, New York, NY 10285-2300, USA or such other bank as may from time to time be notified by the Lender to the Borrower;
Relevant Interest Rate means RBS LIBOR or, in the case where a Transaction is to be, or has been, entered into under the Master Agreement and the Borrower has not made an election pursuant to Clause 4.3 , TELERATE;
Relevant Person has the meaning given in Clause 19.7;
Repayment Date means, a date on which the Commitment is reduced in accordance with the commitment schedule set out in Schedule 5 and on which the Borrower shall repay any sums necessary to ensure that the Facility does not exceed the then current Commitment;
Requisition Compensation includes all compensation or other moneys payable by reason of any act or event such as is referred to in paragraph (b) of the definition of Total Loss;
Secured Liabilities means all liabilities which the Borrower, the Security Parties or any of them have, at the date of this Agreement or at any later time or times, under or in connection with any Finance Document or any judgment relating to any Finance Document; and for this purpose, there shall be disregarded any total or partial discharge of these liabilities, or variation of their terms, which is effected by, or in connection with, any bankruptcy, liquidation, arrangement or other procedure under the insolvency laws of any country;
Security Interest means:
(a) a mortgage, charge (whether fixed or floating) or pledge, any maritime or other lien or any other security interest of any kind;
10
(b) the security rights of a plaintiff under an action in rem ; and
(c) any arrangement entered into by a person (A) the effect of which is to place another person (B) in a position which is similar, in economic terms, to the position in which B would have been had he held a security interest over an asset of A; but this paragraph (c) does not apply to a right of set off or combination of accounts conferred by the standard terms of business of a bank or financial institution;
Security Party means the Owners, the Unencumbered Owners and any other person (except the Lender) who, as a surety or mortgagor, as a party to any subordination or priorities arrangement, or in any similar capacity, executes a document falling within the last paragraph of the definition of Finance Documents;
Security Period means the period commencing on the date of this Agreement and ending on the date on which the Lender notifies the Borrower and the Security Parties that:
(a) all amounts which have become due for payment by the Borrower or any Security Party under the Finance Documents have been paid;
(b) no amount is owing or has accrued (without yet having become due for payment) under any Finance Document;
(c) neither the Borrower nor any Security Party has any future or contingent liability under Clause 20, 21 or 22 or any other provision of this Agreement or another Finance Document; and
(d) the Lender does not consider that there is a significant risk that any payment or transaction under a Finance Document would be set aside, or would have to be reversed or adjusted, in any present or possible future bankruptcy of the Borrower or a Security Party or in any present or possible future proceeding relating to a Finance Document or any asset covered (or previously covered) by a Security Interest created by a Finance Document;
Ships means, together, the Existing Ships and the Collateral Ships and, in the singular, means any one of them;
Tangible Fixed Assets means, in respect of an Accounting Period, the value (less depreciation computed in accordance with GAAP) on a consolidated basis of all the assets of the Group which would, in accordance with GAAP, be classified as tangible fixed assets, namely items held for ongoing use to the business of the Group including, without limitation, any land, plant, machinery and vessels as such value is stated in the then most recent Accounting Information; Provided that , for the purposes of determining compliance with the covenants set forth in Clause 15.2, the value of such tangible fixed assets attributable to the Ships shall be equal to the aggregate value of such Ships (as determined by one or more of the Approved Brokers in the manner provided for in Clauses 15.5 and 15.6) rather than the value of such Ships as stated in the then most recent Accounting Information;
Taxes includes all present and future income, corporation or value-added taxes and all stamp and other taxes and levies, imposts, deductions, duties, charges and withholdings whatsoever together with interest thereon and penalties with respect thereto, if any, and charges, fees or other amounts made on or in respect thereof (and references to Taxation shall be construed accordingly);
TELERATE means, for an Interest Period:
(a) the rate per annum equal to the offered quotation for deposits in Dollars for a period equal to, or as near as possible equal to, that Interest Period or other
11
relevant period which appears on Telerate Page 3750 at or about 11.00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period or other period (and, for the purposes of this Agreement, Telerate Page 3750 means the display designated as page 3750 on the Telerate Service or such other page as may replace Page 3750 on that service for the purpose of displaying rates comparable to that rate or on such other service as may be nominated by the British Bankers Association as the information vendor for the purpose of displaying British Bankers Association Interest Settlement Rates for Dollars); or
(b) if no rate is quoted on Telerate Page 3750, the rate per annum determined by the Lender to be the rate per annum which leading banks in the London Interbank Market offer for deposits in Dollars in the London Interbank Market at or about 11.00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period or other period for a period equal to that Interest Period or other period and for delivery on the first Business Day of it;
Termination Date means the date falling 10 years after the Availability Date;
Total Assets means, in respect of an Accounting Period, the aggregate of Current Assets and Tangible Fixed Assets;
Total Loss means:
(a) actual, constructive, compromised, agreed or arranged total loss of the Ship;
(b) any expropriation, confiscation, requisition or acquisition of the Ship, whether for full consideration, a consideration less than its proper value, a nominal consideration or without any consideration, which is effected by any government or official authority or by any person or persons claiming to be or to represent a government or official authority (excluding a requisition for hire for a fixed period not exceeding 1 year without any right to an extension) unless it is within 1 month redelivered to the Borrowers full control;
(c) any arrest, capture, seizure or detention of the Ship (including any hijacking or theft) unless it is within 1 month redelivered to the Borrowers full control;
Total Loss Date means:
(a) in the case of an actual loss of the Ship, the date on which it occurred or, if that is unknown, the date when the Ship was last heard of;
(b) in the case of a constructive, compromised, agreed or arranged total loss of the Ship, the earliest of:
(i) the date on which a notice of abandonment is given to the insurers; and
(ii) the date of any compromise, arrangement or agreement made by or on behalf of the Borrower with the Ships insurers in which the insurers agree to treat the Ship as a total loss; and
(c) in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Lender that the event constituting the total loss occurred.
Transaction means a Transaction as defined in the introductory paragraph of the Master Agreement;
12
Unencumbered Owners means any owner of a New Ship which is not a Collateral Ship; and
Working Capital Advance means each advance requested by the Borrower or, as the context requires, made or to be made by the Lender pursuant to Clause 3.2(e) to provide the Group with working capital and, in the plural, means all such advances.
administration notice means a notice appointing an administrator, a notice of intended appointment and any other notice which is required by law (generally or in the case concerned) to be filed with the court or given to a person before, or in connection with, the appointment of an administrator;
approved means, for the purposes of Clause 13, approved in writing by the Lender;
asset includes every kind of property, asset, interest or right, including any present, future or contingent right to any revenues or other payment;
company includes any partnership, joint venture and unincorporated association;
consent includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration, notarisation and legalisation;
contingent liability means a liability which is not certain to arise and/or the amount of which remains unascertained;
document includes a deed; also a letter, fax or telex;
excess risks means the proportion of claims for general average, salvage and salvage charges not recoverable under the hull and machinery policies in respect of the Ship in consequence of its insured value being less than the value at which the Ship is assessed for the purpose of such claims;
expense means any kind of cost, charge or expense (including all legal costs, charges and expenses) and any applicable value added or other tax;
law includes any order or decree, any form of delegated legislation, any treaty or international convention and any regulation or resolution of the Council of the European Union, the European Commission, the United Nations or its Security Council;
legal or administrative action means any legal proceeding or arbitration and any administrative or regulatory action or investigation;
liability includes every kind of debt or liability (present or future, certain or contingent), whether incurred as principal or surety or otherwise;
months shall be construed in accordance with Clause 1.3;
obligatory insurances means all insurances effected, or which the Borrower is obliged to effect, under Clause 13 or any other provision of this Agreement or another Finance Document;
parent company has the meaning given in Clause 1.4;
person includes any company; any state, political sub-division of a state and local or municipal authority; and any international organisation;
13
policy , in relation to any insurance, includes a slip, cover note, certificate of entry or other document evidencing the contract of insurance or its terms;
protection and indemnity risks means the usual risks covered by a protection and indemnity association managed in London, including pollution risks and the proportion (if any) of any sums payable to any other person or persons in case of collision which are not recoverable under the hull and machinery policies by reason of the incorporation in them of clause 6 of the International Hull Clauses (01/11/02 or 01/11/03) or clause 8 of the Institute Time Clauses (Hulls)(1/11/1995) or the Institute Amended Running Down Clause (1/10/71) or any equivalent provision;
regulation includes any regulation, rule, official directive, request or guideline whether or not having the force of law of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation;
subsidiary has the meaning given in Clause 1.4;
tax includes any present or future tax, duty, impost, levy or charge of any kind which is imposed by any state, any political sub-division of a state or any local or municipal authority (including any such imposed in connection with exchange controls), and any connected penalty, interest or fine; and
war risks includes the risk of mines and all risks excluded by clause 23 of the Institute Time Clauses (Hulls)(1/10/83) or clause 24 of the Institute Time Clauses Hulls) (1/11/1995).
and month and monthly shall be construed accordingly.
and any company of which S is a subsidiary is a parent company of S.
14
15
16
Provided that any Interest Period selected by the Borrower under this Clause is subject to availability as determined by the Lender in its sole and absolute discretion and when implementing a scheduled reduction in the Lenders Commitment as set out in Schedule 5, the selection of Interest Periods under this Clause 5.1 shall be made in such manner as to ensure that the expiry of an Interest Period in respect of an amount of the Facility equal to such scheduled reduction amount shall coincide with such reduction date.
17
18
The Lender shall be entitled to debit the Operating Account without prior notice on the Repayment Dates in order to discharge any amount payable to it under this Clause 7.1.
19
and, in the case of a repayment or prepayment of part of the Facility or a reduction of the part of the Commitment and the Lender exercising any part of that entitlement, the Borrowers continuing obligations under the Master Agreement shall, unless agreed otherwise by the Lender, be calculated so far as the Lender considers practicable by reference to the amended commitment reduction schedule taking account of the fact that less than the full amount of the Commitment remains outstanding.
the Borrower shall, within 15 days of being notified by the Lender of such requirement, provide the Lender with, or procure the provision to the Lender of, such additional security as shall, in the opinion of the Lender, be adequate to secure the performance of any relevant Transaction in excess of the Commitment.
20
were a Terminated Transaction (as defined in section 14 of the Master Agreement) effected by the Lender after an Event of Default by the Borrower, and, accordingly, the Lender shall be permitted to recover from the Borrower a payment for early termination calculated in accordance with the provisions of section 6(e)(i) of the Master Agreement.
21
subject to any relevant insolvency laws affecting creditors rights generally.
22
23
Provided that the provisions of this Clause 11.3 shall not prevent:
24
25
and the Borrower will comply (or procure compliance) with the terms of all such consents.
26
withheld) and the Borrower shall keep the Lender fully informed from time to time of any proposed purchases of tonnage by the Borrower or any of its subsidiaries.
and will keep the Lender fully up-to-date with all developments.
which may be requested by the Lender at any time.
or enter into any transaction with or involving such a person or company on terms which are, in any respect, less favourable to the Borrower than those which it could obtain in a
27
bargain made at arms length Provided that this shall not prevent or restrict the Borrower from on-lending Advances to members of the Group for the purposes permitted in accordance with the terms of this Agreement;
28
29
30
31
and the Borrower shall, forthwith upon demand, indemnify the Lender in respect of all fees and other expenses incurred by or for the account of the Lender in connection with any such report as is referred to in paragraph (a).
32
and, forthwith upon receiving notice of the arrest of that Ship, or of her detention in exercise or purported exercise of any lien or claim, the Borrower shall procure that the Owner of that Ship shall procure its release by providing bail or otherwise as the circumstances may require.
33
and, upon the Lenders request, the Borrower shall procure that each Owner shall provide copies of any current charter relating to the Ship owned by it, of any current charter guarantee and of that Ships Safety Management Certificate and the Document of Compliance.
34
and the Borrower shall and shall procure that each Owner shall keep the Lender advised in writing on a regular basis and in such detail as the Lender shall require of the Owners, the Approved Managers or any other persons response to any of those events or matters.
35
the Borrower shall, within 15 days of being notified by the Lender of such requirement (which notification shall be conclusive and binding on the Borrower), comply with Clause 15.3 or 15.4.
36
In the event the Borrower obtains a Second Valuation as aforesaid, the average of the First Valuation and the Second Valuation shall be taken to establish the market value of the relevant Ship and such average shall be conclusive evidence of the market value of the relevant Ship.
37
and interest shall be payable during any extension under paragraph (a) at the rate payable on the original due date.
FIRST: in or towards satisfaction of any amounts as are then accrued due and payable under this Agreement, the Master Agreement and the other Finance Documents (or any of them) or are then due and payable by virtue of payment demanded under this Agreement, the Master Agreement or the other Finance Documents in such order of application as the Lender shall think fit;
38
SECONDLY: in retention of an amount equal to any amounts which are not then due and payable under this Agreement, the Master Agreement or any other Finance Document but which (in the sole and absolute opinion of the Lender) will or may become due and payable in the future and, upon their becoming due and payable, in or towards satisfaction thereof in accordance with the foregoing provisions of this Clause 17.1; and
THIRDLY: the surplus (if any) shall be paid to the Borrower or to whomsoever else may be entitled thereto.
39
40
41
42
in the light of which the Lender considers that there is a significant risk that the Borrower or any Owner is, or will later become, unable to discharge its or their liabilities under the Finance Documents as they fall due.
43
except that this does not exempt the Lender or a receiver or manager from liability for losses shown to have been caused directly or mainly by the dishonesty or the wilful misconduct of the Lenders own officers and employees or ( as the case may be) such receivers or managers own partners or employees.
44
and in respect of any Tax (other than Tax on its overall net income) for which the Lender is liable in connection with any amount paid or payable to the Lender (whether for its own account or otherwise) under any Finance Document.
other than claims, expenses, liabilities and losses which are shown to have been directly and mainly caused by the dishonesty or wilful misconduct of the officers or employees of the Lender.
45
the Borrower shall indemnify the Lender against the loss arising when the amount of the payment actually received by the Lender is converted at the available rate of exchange into the Contractual Currency.
In this Clause 21.5, the available rate of exchange means the rate at which the Lender is able at the opening of business (London time) on the Business Day after it receives the sum concerned to purchase the Contractual Currency with the Payment Currency.
This Clause 21.5 creates a separate liability of the Borrower which is distinct from its other liabilities under the Finance Documents and which shall not be merged in any judgment or order relating to those other liabilities.
46
for the Lender to maintain or give effect to any of its obligations under this Agreement in the manner contemplated by this Agreement.
47
the Lender (or a parent company of it) has incurred or will incur an increased cost .
but not:
48
For the purposes of this Clause 24.2, the Lender may in good faith allocate or spread costs and/or losses among its assets and liabilities (or any class of its assets and liabilities) on such basis as it considers appropriate.
49
50
and there shall not be implied into any Finance Document any term or condition requiring any such provision to be enforced, or such right or remedy to be exercised, within a certain or reasonable time.
(a) |
to the Borrower: |
Pendelis 16 |
|
|
|
175 64 Palaio Faliro |
|
|
|
Athens |
|
|
|
Greece |
|
|
|
|
|
|
|
Telex No: |
214605 BELL GR |
|
|
Fax No: |
+ 302 10 942 4975 |
|
|
Attention: |
Mr S P Palios |
|
|
|
|
(b) |
to the Lender: |
Shipping Business Centre |
|
|
|
5-10 Great Tower Street |
|
|
|
London EC3P 3HX |
|
|
|
|
|
|
|
Fax No: |
+44 20 7615 0119 |
or to such other address as the relevant party may notify the other.
51
the notice shall (subject to Clause 28.5) be deemed to be served, and shall take effect, at 9 a.m. on the next day which is such a business day.
52
The Borrower shall not commence any proceedings in any country other than England in relation to a matter which arises out of or in connection with this Agreement.
THIS AGREEMENT has been entered into on the date stated at the beginning of this Agreement.
53
To: |
The Royal Bank of Scotland plc |
|
5-10 Great Tower Street |
|
London |
|
EC3P 3HX |
Attention: The Shipping Business Centre
[ ]
DRAWDOWN NOTICE
2 We refer to the facility agreement (the Facility Agreement ) dated [ ] 2005 and made between ourselves, as Borrower, and yourselves, as Lender, in connection with a revolving credit facility of up to US$230,000,000. Terms defined in the Facility Agreement have their defined meanings when used in this Drawdown Notice.
3 We request to borrow [a Working Capital], [the Approved Manager], [a New Ship] Advance as follows:-
(a) Amount: US$[ ];
(b) Drawdown Date: [ ];
(c) Duration of the Interest Period shall be [ ] months;
(d) Payment instructions : account in our name and numbered [ ] with [ ] of [ ].
4 We represent and warrant that:
(a) the representations and warranties in Clause 10 of the Facility Agreement would remain true and not misleading if repeated on the date of this notice with reference to the circumstances now existing;
(b) no Event of Default or Potential Event of Default has occurred or will result from the borrowing of the Facility.
5 This notice cannot be revoked without the prior consent of the Lender.
|
|
|
Director |
||
for and on behalf of |
||
DIANA SHIPPING INC. |
54
SCHEDULE 2
CONDITION PRECEDENT DOCUMENTS
PART A
The following are the documents referred to in Clause 9.1(a) required before service of the first Drawdown Notice.
1 A duly executed original of this Agreement, the Master Agreement and all the Finance Documents (other than the Mortgages, the General Assignments and any Negative Pledge Agreements and of each document required to be delivered by each such Finance Document).
6 Copies of the certificate of incorporation and constitutional documents (or equivalent documents) and all amendments thereto of the Borrower and each Security Party and any other documents required to be filed or registered or issued under the laws of the country of its incorporation to establish its incorporation and/or good standing.
7 Copies of resolutions passed at a meeting of the board of directors and shareholders of the Borrower and each Security Party authorising the execution of each of the Finance Documents to which the Borrower or that Security Party is a party and, in the case of the Borrower, authorising named officers or attorneys to give the Drawdown Notice and other notices under this Agreement or other evidence of such approvals and authorisations as shall be acceptable to the Lender.
8 The original of any power of attorney under which any Finance Document is executed on behalf of the Borrower or a Security Party.
9 A list specifying the directors and officers of the Borrower and each Security Party (together with specimen signatures) and specifying the authorised and issued share capital of the Borrower and each Security Party.
10 Copies of all consents which the Borrower or any Security Party requires to enter into, perform or make any payment under, any Finance Document.
11 The originals of any mandates or other documents required by the Lender in connection with the opening or operation of the Operating Account.
12 A valuation of each of the Existing Ships, including m.v.s CALIPSO, CLIO and ERIC L.D. (more particularly described in Schedule 3), addressed to the Lender, stated to be for the purposes of this Agreement and dated not earlier than 30 days before the first Drawdown Date provided by an Approved Broker which shows an aggregate value for the Existing Ships of not less than $350,000,000 Provided that if the aggregate value of the Existing Ships is shown to be less than $350,000,000, then the provisions of Clause 9.1(f) shall apply.
13 Evidence satisfactory to the Lender, in its sole and absolute opinion, that the Borrower has successfully completed the IPO and that:
55
14 Evidence satisfactory to the Lender, in its sole and absolute opinion, that after completion of the IPO referred to in paragraph 9 above, at least 25 per cent. of the issued share capital of the Borrower is vested in the ownership of members of the Palios and Margaronis families and, other than in the case of ownership of members of the Palios and Margaronis families as aforesaid, no one person (or associated (in the sole opinion of the Lender) persons) holds more than 25 per cent of the Borrowers issued share capital.
15 A duly signed compliance certificate in the form set out in Schedule 6 confirming that the Borrower is in compliance with the financial covenants set out in Clause 12.4.
16 If so required by the Lender, a survey report addressed to the Lender, stated to be for the purposes of this Agreement and dated not earlier than 30 days before the first Drawdown Date from an independent marine surveyor selected by the Lender in respect of the physical condition of each Existing Ship.
17 Documentary evidence that the agent for service of process named in Clause 29.1 has accepted its appointment.
18 Such documents and evidence as the Lender shall require, based on applicable law and regulations and the Lenders own internal guidelines, relating to the Lenders knowledge of its customers.
19 If the Lender so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Lender.
56
PART B
The following are the documents referred to in Clause 9.1(b) required on or before the first Drawdown Date.
In Part B of Schedule 3, the following definitions shall have the following meanings:
Relevant Owner means the member of the Group which is the registered owner of the Relevant Ship; and
Relevant Ship means each and every Existing Ship which is owned by the Relevant Owner as at the first Drawdown Date.
1 A duly executed original of the Guarantee, the Mortgage and the General Assignment relative to the Relevant Ship and of each document to be delivered pursuant to each such Finance Document.
2 Documentary evidence that:
(a) the Relevant Ship is registered in the ownership of the Relevant Owner under an Approved Flag;
(b) the Relevant Ship is in the absolute and unencumbered ownership of the Relevant Owner save as contemplated by the Finance Documents relative thereto;
(c) the Relevant Ship maintains the highest classification available to ships of the same type, specification and age of such Ship with a classification society which is a member of the International Association of Classification Societies free of all overdue recommendations and conditions of such Classification Society affecting class;
(d) the Relevant Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of insurances have been complied with; and
(e) the Mortgage relating to the Relevant Ship has been duly registered or recorded against the Relevant Ship as a valid first priority or preferred ship mortgage in accordance with the laws of the relevant Approved Flag State.
3 Documents establishing that the Relevant Ship will, as from the first Drawdown Date be managed by the Approved Manager on terms acceptable to the Lender, together with:
(a) a letter of undertaking executed by the Approved Manager in favour of the Lender in the terms required by the Lender agreeing certain matters in relation to the management of the Relevant Ship and subordinating the rights of the Approved Manager against the Relevant Ship and the Relevant Owner to the rights of the Lender under the Finance Documents; and
(b) copies of the Document of Compliance and Safety Management Certificate issued pursuant to the ISM Code in respect of the Relevant Ship.
4 At the cost of the Borrower a favourable opinion from an independent insurance consultant acceptable to the Lender on such matters relating to the insurances for the Relevant Ship as the Lender may require.
5 Favourable legal opinions from lawyers appointed by the Lender on such matters concerning the laws of the Marshall Islands, any relevant Approved Flag State relating to the Relevant Ship such other relevant jurisdictions as the Lender may required.
57
6 If the Lender so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Lender.
58
PART C
The following are the documents referred to in Clause 9.1(c) required before the Drawdown Date of each New Ship Advance.
In this Part C of Schedule 3, the following definitions shall have the following meanings:
Relevant Advance means, in relation to each New Ship or New Company, the New Ship Advance which shall be used to part-finance the acquisition of such New Ship or New Company;
Relevant Owner means the member of the Group or New Company which is the buyer of the Relevant Ship; and
Relevant Ship means, in relation to each New Ship Advance, the New Ship which is to be financed by such New Ship Advance or any vessel to be acquired as part of the purchase of a New Company.
The following documents apply where the Borrower nominates the New Ship as a Collateral Ship for the purposes of this Agreement pursuant to Clause 3.4(b):
1 Copies of resolutions of the shareholders and directors of the Relevant Owner authorising the execution of each of the Finance Documents to which such Relevant Owner is a party (unless already supplied to the Lender under this Agreement).
2 The original of any power of attorney under which any Finance Document is executed on behalf of the Relevant Owner.
3 Copies of all consents which the Relevant Owner requires to enter into, or make any payment under, any Finance Document to which it is a party.
4 The written confirmation of the Lender that the Relevant Ship and/or the New Company, as the case may be, has been approved by the Lender as a Collateral Ship for the purposes of this Agreement.
5 A duly executed original of the Guarantee of the Relevant Owner and of the Mortgage and the General Assignment relative to the Relevant Ship and of each document to be delivered pursuant to each such Finance Document.
6 Documentary evidence that:
(a) the Relevant Ship has been unconditionally delivered to, and accepted by, the Relevant Owner and the full purchase price payable the seller of the Relevant Ship (in addition to the part to be financed by the Relevant Advance) has been duly paid;
(b) the part of the purchase price of the Relevant Ship which has not been funded out of the proceeds of the Relevant Advance and which has been borrowed by the Relevant Owner or the Borrower is subordinated to the obligations of the Relevant Owner or Borrower to the Lender under the Finance Documents in terms satisfactory to the Lender in its absolute discretion.
(c) the Relevant Ship is registered in the ownership of the Relevant Owner under an Approved Flag;
(d) the Relevant Ship is in the absolute and unencumbered ownership of the Relevant Owner save as contemplated by the Finance Documents;
59
(e) the Relevant Ship maintains the highest classification available for ships of the same type, specification and age as such Ship with a classification society which is a member of the International Association of Classification Societies free of all overdue recommendations and conditions of such classification society affecting class;
(f) the Mortgage relating to the Relevant Ship has been duly registered or recorded against the Relevant Ship as a valid first priority ship mortgage in accordance with the laws of the relevant Approved Flag State; and
(g) the Relevant Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of Insurances have been complied with.
7 Documents establishing that the Relevant Ship will, as from the Drawdown Date relative to the Relevant Advance, be managed by the Approved Manager on terms acceptable to the Lenders, together with:
(a) a letter of undertaking executed by the Approved Manager in favour of the Lender in the terms required by the Lender agreeing certain matters in relation to the management of the Relevant Ship and subordinating the rights of the Approved Manager against the Relevant Ship and the Relevant Owner to the rights of the Lender under the Finance Documents; and
(b) copies of the document of compliance (DOC) and safety management certificate (SMC) issued pursuant to the ISM Code in respect of the Relevant Ship.
8 A valuation (at the expense of the Borrower) of each Ship which is the subject of a Mortgage (including, for these purposes, the Relevant Ship), addressed to the Lender, stated to be for the purposes of this Agreement and dated not earlier than 14 days before the Drawdown Date relative to the Relevant Advance, from one or more Approved Brokers and determined in the manner set out in Clauses 15.5 and 15.6 which shows an aggregate market value of the Ships which are the subject of a Mortgage in an amount which does not breach the ratio set out in Clause 15.2.
9 If required by the Lender, a satisfactory (in the absolute opinion of the Lenders) survey report (at the cost of the Borrower) in respect of the Relevant Ship, addressed to the Lender, stated to be for the purposes of this Agreement and dated not earlier than 30 days before the Drawdown Date relative to the Relevant Advance, from an independent marine surveyor selected by the Lender who shall have conducted a physical inspection of the Relevant Ship.
10 Such documents and evidence as the Lender shall require in relation to each Relevant Owner based on applicable laws and regulations and the Lenders own internal guidelines, relating to the Lenders knowledge of its customer.
11 Documentary evidence that any agent for service of process covered in the Guarantee given by the Relevant Owner, the Mortgage and General Assignment in respect of the Relevant Ship has accepted its appointment for the purpose of the relevant Finance Document.
12 At the cost of the Borrower, a favourable opinion from an independent insurance consultant acceptable to the Lender on such matters relating to the insurances for the Relevant Ship as the Lender may require.
13 Favourable legal opinions from lawyers appointed by the Lender on such matters concerning the laws of the Marshall Islands, the Approved Flag State and such other relevant jurisdictions as the Lender may require.
60
14 If the Lender so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Lender.
The following documents apply where the Borrower does not nominate the New Ship as a Collateral Ship for the purposes of this Agreement pursuant to Clause 3.4(b):
15 Copies of resolutions of the shareholders and directors of the relevant Unencumbered Owner authorising the execution of the Negative Pledge Agreement and any other Finance Documents to which such Unencumbered Owner is a party (unless already supplied to the Lender under this Agreement).
16 The original of any power of attorney under which the Negative Pledge Agreement and any other Finance Document is executed on behalf of the relevant Unencumbered Owner.
17 Copies of all consents which the relevant Unencumbered Owner requires to enter into, or make any payment under, the Negative Pledge Agreement and any other Finance Document to which it is a party.
18 Written confirmation of the Lender that the Relevant Ship and/or New Company, as the case may be, which is the subject of the Relevant Advance has been approved by the Lender as a New Ship or a New Company for the purposes of this Agreement.
19 A duly executed original of the Negative Pledge Agreement relating to the Relevant Advance and each document to be delivered pursuant to such Negative Pledge Agreement.
20 A satisfactory, in the opinion of the Lender, valuation (at the expense of the Borrower) of the Ships, addressed to the Lender, stated to be for the purposes of this Agreement and dated not earlier than 30 days before the Drawdown Date relative to the Relevant Advance, from an Approved Broker.
21 Such documents and evidence as the Lender shall require in relation to each Unencumbered Owner based on applicable laws and regulations and the Lenders own internal guidelines, relating to the Lenders knowledge of its customer.
22 Documentary evidence that any agent for service of process covered in any Negative Pledge Agreement signed in connection with the Relevant Advance has accepted its appointment for the purposes of the relevant Negative Pledge Agreement.
23 Favourable legal opinions from lawyers appointed by the Lender in such matters concerning such relevant jurisdictions as the Lender may require.
24 If the Lender so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Lender.
61
Vessel Name |
|
Owner |
|
Vessel Type |
|
Flag |
|
Dead Weight
|
|
Year Built |
OCEANIS |
|
Panama Compania Armadora S.A. |
|
Bulk carrier |
|
Bahamas |
|
75,211 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
ALCYON |
|
Buenos Aires Compania Armadora S.A. |
|
Bulk carrier |
|
Bahamas |
|
75,247 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
NIREFS |
|
Skyvan Shipping Company S.A. |
|
Bulk carrier |
|
Bahamas |
|
75,311 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
TRITON |
|
Husky Trading S.A. |
|
Bulk carrier |
|
Bahamas |
|
75,336 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
DIONE |
|
Chorrera Compania Armadora S.A. |
|
Bulk carrier |
|
Greece |
|
75,172 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
DANAE |
|
Eaton Marine S.A. |
|
Bulk carrier |
|
Greece |
|
75,106 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
PROTEFS |
|
Cypres Enterprises Corp. |
|
Bulk carrier |
|
Bahamas |
|
73,700 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
CALIPSO (Anticipated delivery March 2005) |
|
Darien Compania Armadora S.A. |
|
Bulk carrier |
|
Bahamas |
|
73,700 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
CLIO (Anticipated delivery May 2005) |
|
Texford Maritime S.A. |
|
Bulk carrier |
|
Approved Flag |
|
73,700 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
ERIC L.D. |
|
Cerada International S.A. |
|
Bulk carrier |
|
Approved Flag |
|
169,883 |
|
1999 |
62
MANDATORY COST FORMULA
The Mandatory Cost Rate will be calculated in accordance with the following formula:
F x 0.01 |
|
300 |
|
where on the day(s) of application of the formula:
F. is the rate of charge payable by the Lender to the Financial Services Authority pursuant to paragraph 2 of the Fees Regulations (but where for this purpose, the figure at paragraph 2.02b/2.03b shall be deemed to be zero) and expressed in pounds per £1 million of the Fee Base of the Lender.
For the purposes of this Schedule:
Fee Base has the meaning ascribed to it for the purposes of, and all be calculated in accordance with, the Fees Regulations.
Fees Regulations means, as appropriate, either the Banking Supervision (Fees) Regulations 2000 or such regulations as from time to time may be in force, relating to the payment of fees for banking supervision in respect of periods subsequent to 31 March 2001.
Any reference to a provision of any statute, directive, order or regulation herein is a reference to that provision as amended or re-enacted from time to time.
If alternative or additional financial requirements are imposed which in the Lenders opinion make the formula set out above no longer appropriate, the Lender shall be entitled to stipulate such other formula as shall be suitable to apply in substitution for the formula set out above.
63
REPAYMENT DATE
|
|
COMMITMENT
|
|
COMMITMENT |
|
|
|
|
(US$) |
|
(US$) |
|
|
|
|
|
|
230,000,000 |
|
|
60 |
|
|
20,000,000 |
|
210,000,000 |
|
66 |
|
|
13,500,000 |
|
196,500,000 |
|
72 |
|
|
13,500,000 |
|
183,000,000 |
|
78 |
|
|
13,500,000 |
|
169,500,000 |
|
84 |
|
|
13,500,000 |
|
156,000,000 |
|
90 |
|
|
13,500,000 |
|
142,500,000 |
|
96 |
|
|
13,500,000 |
|
129,000,000 |
|
102 |
|
|
13,500,000 |
|
115,500,000 |
|
108 |
|
|
13,500,000 |
|
102,000,000 |
|
114 |
|
|
13,500,000 |
|
88,500,000 |
|
120 |
|
|
88,500,000 |
|
0 |
|
64
FORM OF COMPLIANCE CERTIFICATE
To: |
The Royal Bank of Scotland plc |
|
Shipping Business Centre |
|
5-10 Great Tower Street |
|
London |
|
EC3P 3HX |
[ ]
Dear Sirs
Facility Agreement dated [ ] 2005 (the Facility Agreement) made between (i) Diana Shipping Inc. as borrower (the Borrower) and (ii) The Royal Bank of Scotland plc as lender (the Lender) in connection with a revolving credit facility of up to US$230,000,000.
We refer to the Facility Agreement. Terms defined in the Facility Agreement have their defined meanings when used in this Compliance Certificate.
We also refer to the financial covenants set out in clause [ ] of the Facility Agreement.
We confirm that, as at the date of this Compliance Certificate, we are in compliance with the following covenants:
(a) Clause 12.4(a); Adjusted Net Worth is not less than US$200,000,000; and
(b) Clause 12.4(b); EBITDA is at least twice the amount of Interest Expenses;
(c) Clause 12.4(c); Adjusted Net Worth exceeds 35 per cent. of Total Assets;
(d) Clause 12.4(d); Liquid Funds are not less than US$750,000 for each of the Existing Ships and each of the New Ships; and
(e) Clause 12.3(a); no dividends have been declared or paid which would result in the breach of any of the above financial covenants [save as expressly agreed by the Lender in writing].
To evidence such compliance, we attach a copy of the latest [annual audited][quarterly unaudited] accounts of the Borrower together with calculations setting out in reasonable detail the data and calculations resulting therefrom which we have used to support the confirmations made above.
No Event of Default or Potential Event of Default has occurred in relation to the Borrower or the Owner.
Signed
|
|
Chief Financial Officer |
|
for and on behalf of |
|
DIANA SHIPPING INC. |
65
BORROWER
SIGNED by |
) |
|
) |
for and on behalf of |
) |
DIANA SHIPPING INC. |
) |
in the presence of: |
) |
|
|
|
|
LENDER |
|
|
|
SIGNED by |
) |
|
) |
for and on behalf of |
) |
THE ROYAL BANK OF |
) |
SCOTLAND PLC |
) |
in the presence of: |
) |
66
EXHIBIT 21
Subsidiaries of the Company
The following is a list of the Companys subsidiaries as of February 25, 2005
Name of Significant Subsidiary |
|
Country of
|
|
Portion of
|
|
|
|
|
|
|
|
Husky Trading S.A. |
|
Panama |
|
100 |
% |
Panama Compania Armadora S.A. |
|
Panama |
|
100 |
% |
Skyvan Shipping Company S.A. |
|
Panama |
|
100 |
% |
Buenos Aires Compania Armadora S.A. |
|
Panama |
|
100 |
% |
Eaton Marine S.A. |
|
Panama |
|
100 |
% |
Chorrera Compania Armadora S.A. |
|
Panama |
|
100 |
% |
Cypres Enterprises Corp. |
|
Panama |
|
100 |
% |
Urbina Bay Trading S.A. |
|
Panama |
|
100 |
% |
Darien Compania Armadora S.A. |
|
Panama |
|
100 |
% |
Texford Maritime S.A. |
|
Panama |
|
100 |
% |
Changame Compania Armadora S.A. |
|
Panama |
|
100 |
% |
Cerada International S.A. |
|
Panama |
|
100 |
% |
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated October 29, 2004 (except for Note 17(d), as to which the date is February 21, 2005), in the Registration Statement on Form F-1 and related Prospectus of Diana Shipping Inc. (formerly Diana Shipping Investment Corp.) for the registration of 12,375,000 shares of its common stock.
/s/
Ernst & Young
Athens, Greece
February 25, 2005
Exhibit 23.3
Drewry Shipping Consultants Ltd., Drewry House, Meridian Gate, 213 Marsh Wall, London E14 9Fj, England.
Telephone: 020 7538 0191 Facsimile: 020 7987 9396 Email: enquiries@drewry.co.uk Website: www.drewry.co.uk
Diana Shipping Inc |
|
23th February 2005 |
Pendelis 16 |
|
|
175 64 Palaio Faliro |
|
|
Athens, Greece |
|
|
Gentlemen:
Reference is made to the Form F-1 registration statement (the Registration Statement) relating to the public offering of common stock of Diana Shipping Inc. (the Company). We hereby consent to all references to our name in the Registration Statement and to the use of the statistical information supplied by us set forth in sections of the Registration Statement entitled The International Dry Bulk Shipping Industry and Business. We further advise the Company that our role has been limited to the provision of such statistical data supplied by us. With respect to such statistical data, we advise you that:
we have accurately described the international dry bulk shipping industry, subject to the availability and reliability of the data supporting the statistical and graphical information presented; and
our methodologies for collecting information and data may differ from those of other sources and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the dry bulk shipping industry.
We hereby consent to the filing of this letter as an exhibit to the Registration Statement of the Company on Form F-1 to be filed with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and to the reference to our firm in the section of the Registration Statement entitled Experts.
|
Drewry Shipping Consultants |
||||
|
|
||||
|
|
||||
|
By: |
/s/ Paula Puszet |
|
||
|
|
Name: |
Paula Puszet |
||
|
|
Title: |
Marketing Director |
||
Drewry Shipping Consultants Limited registered in London, England No. 3289195