As filed with the Securities and Exchange Commission on October 14,
2009
Registration Statement No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Baltic Trading Limited
(Exact name of registrant as specified in its charter)
|
|
|
|
|
Republic of the Marshall Islands
|
|
4412
|
|
N/A |
(State or other jurisdiction of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification No.) |
|
|
|
|
|
Baltic Trading Limited
299 Park Avenue, 20th Floor
New York, New York 10171
(646) 443-8550
|
|
|
|
John C. Wobensmith
President
Baltic Trading Limited
299 Park Avenue, 20th Floor |
(Address, including zip code,
and telephone number, including
area code, of Registrants
principal executive offices)
|
|
|
|
New York, New York 10171
(646) 443-8550
(Name, address, including zip code,
and telephone number, including
area code, of agent for service) |
|
|
|
|
|
|
|
Copies to: |
|
|
Kramer Levin Naftalis & Frankel LLP
Attention: Thomas E. Molner, Esq.
1177 Avenue of the Americas
New York, New York 10036
(212) 715-9100 (telephone number)
(212) 715-8000 (facsimile number)
|
|
|
|
Morgan, Lewis & Bockius LLP
Attention: Stephen P. Farrell, Esq.
101 Park Avenue
New York, New York 10178
(212) 309-6000 (telephone number)
(212) 309-6001 (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 to be 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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer o |
|
Accelerated filer o |
|
Non-accelerated filer þ (Do not check if a smaller reporting company) |
|
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title of Each Class of |
|
|
Proposed Maximum Aggregate Offering |
|
|
|
|
|
Securities to be Registered |
|
|
Price(2)(3) |
|
|
Amount of Registration Fee(4) |
|
|
Common Stock, $0.01 par value(1) |
|
|
|
$230,000,000 |
|
|
|
|
$12,834 |
|
|
|
Common Stock Purchase Rights(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In accordance with Rule 457(o) of the Securities Act, the number of shares of Common Stock
being registered and the proposed maximum offering price per share are not included in this
table. |
|
(2) |
|
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457
under the Securities Act of 1933. |
|
(3) |
|
Includes Common Stock that may be sold pursuant to the underwriters over-allotment option. |
|
(4) |
|
Since the Common Stock Purchase Rights trade together with the Common Stock, the registration
fee for the Common Stock also covers the Common Stock Purchase Rights. |
|
(5) |
|
Rights initially will trade together with the Common Stock. The value attributable to the
rights, if any, will be reflected in the market price of the Common Stock. |
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 registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell securities, and we are not soliciting offers to
buy these securities, in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued October 14, 2009
[LOGO]
Baltic Trading Limited
Shares
COMMON STOCK
Baltic Trading Limited is offering shares of its Common Stock. This is
our initial public offering and no public market exists for our shares. We anticipate that the
initial public offering price will be between $ and $ per share
Investing in our Common Stock involves risks. Please read Risk Factors beginning on page
7.
We intend to apply to have our Common Stock approved for listing on the New York Stock
Exchange under the symbol BDI.
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
Total |
Public Offering Price |
|
$ |
|
|
|
$ |
|
|
Underwriting Discount |
|
$ |
|
|
|
$ |
|
|
Proceeds to Baltic Trading Limited (before
expenses) |
|
$ |
|
|
|
$ |
|
|
Baltic Trading Limited has granted the underwriters the right to purchase up to an additional
shares of Common Stock to cover over allotments.
Following
this offering, we will have two classes of stock outstanding, Common Stock and
Class B Stock. The rights of the holders of shares of Common Stock and Class B Stock are identical,
except with respect to voting and conversion. Each share of Common Stock is entitled to one vote
per share. Each share of Class B Stock is entitled to 15 votes per share and is convertible at any
time at the election of the holder into one share of Common Stock. If holders of a majority of the
Class B stock so elect, the aggregate voting power of the Class B Stock will be limited to a
maximum of 49% of the voting power of our outstanding Common Stock and Class B Stock, voting
together as a single class.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or
disapproved of these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers on or about , 2009.
|
|
|
MORGAN STANLEY
|
|
DAHLMAN ROSE & COMPANY |
|
|
|
,
2009 |
|
|
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page |
Summary |
|
|
1 |
|
Risk Factors |
|
|
7 |
|
Forward-Looking Statements |
|
|
32 |
|
Use of Proceeds |
|
|
33 |
|
Capitalization |
|
|
34 |
|
Dilution |
|
|
34 |
|
Our Dividend Policy and Restrictions on Dividends |
|
|
35 |
|
Selected Balance Sheet Data |
|
|
36 |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
|
|
36 |
|
Quantitative and Qualitative Disclosures About Market Risk |
|
|
42 |
|
The International Drybulk Shipping Industry |
|
|
42 |
|
Business |
|
|
60 |
|
Management |
|
|
75 |
|
Our Manager and Management Agreement |
|
|
79 |
|
Certain Relationships and Related-Party Transactions |
|
|
83 |
|
Security Ownership of Certain Beneficial Owners and Management |
|
|
85 |
|
Description of Capital Stock |
|
|
85 |
|
Certain Marshall Islands Company Considerations |
|
|
93 |
|
Shares Eligible for Future Sale |
|
|
96 |
|
Tax Considerations |
|
|
97 |
|
Underwriting |
|
|
104 |
|
Legal Matters |
|
|
107 |
|
Experts |
|
|
107 |
|
Where You Can Find More Information |
|
|
107 |
|
Drybulk
Shipping Industry Data |
|
|
108 |
|
Glossary of Shipping Terms |
|
|
108 |
|
Index to Balance Sheet |
|
|
F-1 |
|
You should rely only on the information contained in this prospectus. We have not, and the
underwriters have not, authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not rely on it. We are
not, and the underwriters are not, making an offer to sell these securities in any jurisdiction
where an offer or sale is not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus only. Our business,
financial condition, results of operations and prospects may have changed since that date.
SUMMARY
This section summarizes material information that appears later in this prospectus and is
qualified in its entirety by the more detailed information and financial statements included
elsewhere in this prospectus. This summary may not contain all of the information that may be
important to you. As an investor or prospective investor, you should carefully review the entire
prospectus, including the risk factors and the more detailed information that appears later.
Unless we specify otherwise, when used in this prospectus the terms Baltic Trading Limited,
the Company, we, our and us refer to Baltic Trading Limited. References to Genco or our
Manager are to Genco Shipping & Trading Limited, which will provide to us commercial, technical,
administrative and strategic services.
For the definition of some of the shipping and other terms used in this prospectus, please
see the glossary at the end of this prospectus. Unless otherwise indicated, all references to
dollars and $ in this prospectus are to, and amounts are presented in, U.S. Dollars.
Overview
We are a newly formed New York City-based company incorporated in October 2009 in the
Marshall Islands to conduct a shipping business focused on the drybulk industry spot market. We
were formed by Genco Shipping & Trading Limited (NYSE: GNK), a leading international drybulk
shipping company that will also serve as our Manager. We intend to leverage the expertise and
reputation of Genco to pursue growth opportunities in the drybulk shipping spot market. To pursue
these opportunities, we plan to acquire and operate a fleet of drybulk ships that will transport
iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. We
plan to operate all of our vessels in the spot market, on spot market-related time charters, or in
vessel pools trading in the spot market. We expect to finance our fleet primarily with equity
capital and to utilize little to no leverage, potentially using a revolving credit facility for
bridge financing for acquisitions. We aim to grow our fleet through timely and selective
acquisitions of vessels in a manner that is accretive to our earnings and cash flow. At or prior
to the closing of this offering, Genco will make a capital contribution to us of $75,000,000 in
exchange for shares of our Class B Stock. We intend to distribute to our shareholders on a quarterly
basis all of our net income less cash expenditures for capital items related to our fleet, other
than vessel acquisitions and related expenses, as further described below under Our Dividend
Policy and Restrictions on Dividends.
Our operations will be managed, under the supervision of our board of directors, by Genco as
our Manager. Upon the closing of this offering, we will enter into a long-term management
agreement (or the Management Agreement) pursuant to which our Manager and its affiliates will apply
their considerable expertise and experience in the drybulk industry to provide us with commercial,
technical, administrative and strategic services.
Our Relationship with Genco Shipping & Trading Limited
One of our key strengths is our relationship with Genco, a leading international drybulk
shipping company with a market capitalization of approximately $ million as of
, 2009 which will serve as our Manager. Genco has developed strong
relationships with major international charterers, shipbuilders and financial institutions through
its seasoned management team. Gencos management team is based in New York City and includes
several executives with extensive experience in the shipping industry who have demonstrated
substantial ability in managing the strategic, commercial, technical and financial aspects of
shipping businesses.
Our Fleet
At the time of this offering, we do not own any vessels and have not yet identified candidates
for vessel acquisitions. Prior to the consummation of this offering, we intend to enter into
agreements with third parties for the purchase of one or more drybulk vessels. We intend to use
most of the proceeds from this offering to purchase our initial fleet.
1
We anticipate our fleet will be comprised primarily of Capesize, Panamax and Supramax vessels
but will evaluate all classes of drybulk vessels for potential acquisition. We will seek to grow
our fleet through timely and selective acquisitions of drybulk vessels. In evaluating vessel
purchases, we plan to acquire modern vessels with high specifications that we believe will provide
an attractive return on equity and will be accretive to earnings and cash flow based on anticipated
market rates at the time of purchase. Although we have not entered into any specific transactions
at this time, we currently expect that we will purchase five to seven vessels by the
end of 2010. Based on current market prices, we expect the purchase price for Capesize vessels to
be from $ to $ per vessel; for Panamax vessels, from $
to $ per vessel; and for Supramax vessels, from $ to $
per vessel. Accordingly, we expect our total expenditures to acquire vessels through
the end of 2010 to be from $ to $ .
We intend to employ our vessels in the spot market or on certain spot market-related time
charters. Our goal is to provide shareholders with the opportunity to invest in a company with a
strategic focus on the drybulk spot market which utilizes little to no leverage and seeks to
distribute regular dividends based on earnings.
Our Competitive Strengths
We believe that we will possess a number of strengths that will provide us with a competitive
advantage in the drybulk shipping industry, including the following:
|
|
Our Chairman and board of directors have substantial experience in the shipping industry.
Peter C. Georgiopoulos, the Chairman of our board of directors, is the founder and Chairman of
Genco Shipping & Trading Limited (NYSE: GNK), our parent company and a publicly traded drybulk
shipping company; the founder and Chairman and former CEO of General Maritime Corp. (NYSE:
GMR), a publicly-traded supplier of international seaborne crude oil transportation services;
and the Chairman of Aegean Marine Petroleum Network Inc. (NYSE: ANW) a leading marine fuel
logistics company. Mr. Georgiopoulos oversaw the growth of Genco from its initial fleet of 16
drybulk vessels to 35 owned or contracted vessels today and the growth of General Maritime
from a single-vessel privately owned company to a publicly traded owner and operator of 31
tankers today. |
|
|
We have an experienced U.S.-based management team. Our management team will be based in
New York City and includes executives with extensive experience in the shipping industry who
have demonstrated substantial ability in managing the commercial, technical and financial
aspects of our business. Key members of our management team include our President and Chief
Financial Officer, John C. Wobensmith, who is also the Chief Financial Officer of Genco and
has 16 years of experience in the shipping industry, specializing in shipping finance and the
capital markets, and a commercial chartering manager to be identified. |
|
|
We expect to have a strong balance sheet and intend to maintain a minimum amount of
leverage. Following this offering we will have no debt. We expect to finance future vessel
acquisitions primarily through future equity follow-on offerings and internally generated cash
flow. We intend to seek a revolving credit facility primarily to provide bridge financing
for vessel acquisitions. |
|
|
We intend to maintain an efficient management structure with low operating cost. Genco, our
Manager, will provide the commercial and technical management of our fleet through a
management contract. Genco will apply its significant experience in successfully managing its
own fleet to manage the drydocking, budgeting, and sale and purchase of vessels in our fleet.
Genco intends to retain the commercial management of our fleet in-house, thereby benefiting
from the substantial experience and relationships of its management team in the shipping
industry. Please read Our Manager and Management Agreements Management Agreement. We
believe our management structure, which will include outsourcing of our technical management
to qualified third-party independent technical managers under Gencos supervision, will
significantly enhance the scalability of our business, allowing us to expand our fleet without
substantial increases in overhead costs. We also expect to realize cost benefits based on the
combined size of Gencos fleet and our fleet from the extensive network of
sellers of vessel supplies, crewing companies, insurers, and other service providers that Genco
and its management team has built over the years. |
2
|
|
We expect to benefit from Gencos strong relationships with members of the shipping
industry. Our experienced management team and Genco, our Manager, have developed strong
relationships with major international charterers, such as Cargill International S.A., Cosco
Bulk Carriers Co., Ltd., STX Panocean (UK) Co., Ltd., BHP Billiton, Louis Dreyfus Corporation,
ArcelorMittal and Clipper Bulk Shipping, N.V., as well as shipbuilders and financial
institutions. Genco has leveraged these relationships to enter into charters at favorable
rates, consummate acquisitions that have been accretive to earnings, and generate sizeable
returns to Gencos shareholders since Gencos initial public offering in 2005. We believe
that these relationships will lead to greater asset acquisition opportunities and will provide
significant opportunities for future growth. |
|
|
We intend to acquire a modern, high-quality fleet of drybulk vessels. Our vessel
acquisitions will target modern vessels built in shipyards with reputations for constructing
high-quality vessels. We believe that owning a modern, high-quality fleet is more attractive
to charterers, reduces operating costs and fuel consumption and allows our fleet to be more
reliable, which improves utilization. Where applicable we will seek to acquire sister ships
which will provide further operating efficiencies. All of these factors will provide us with
a competitive advantage in securing favorable employment of our vessels. |
Business Strategy
Our strategy is to manage and expand our fleet in a manner that maximizes our cash flows from
operations and enables us to pay attractive dividends to our shareholders. Key elements of our
business strategy include:
|
|
Deploy our vessels in the spot market. We seek to provide shareholders with the
opportunity to invest in a company with a strategic focus on the drybulk spot market by
deploying our vessels on voyage or time charters or in vessel pools that are related to the
spot market. |
|
|
Return a substantial portion of our cash flow to shareholders through quarterly dividends.
We intend to pay quarterly dividends to our shareholders approximately equal to our net
income minus cash capital expenditures for vessels, other than vessel acquisitions and related
expenses plus non-cash compensation (see Our Dividend Policy). As we intend to primarily finance acquisitions through
equity financing as well as internally generated cash flow and to maintain low leverage, we
expect our cash flow to be sufficient to support quarterly dividends. |
|
|
Maintain a strong balance sheet. We believe that maintaining a strong balance sheet that
is primarily equity financed will provide substantial security to investors, provide us with
significant liquidity to pursue vessel acquisitions, and support our dividend policy. |
|
|
Strategically expand the size of our fleet. We intend to acquire modern, high-quality
drybulk carriers through timely and selective acquisitions of vessels in a manner that is
accretive to our earnings and cash flow. We currently view Capesize, Panamax and Supramax
vessel classes as providing attractive return characteristics but will evaluate all classes of
drybulk vessels for potential acquisition. A key element to our acquisition strategy will be
to pursue vessels at attractive valuations relative to the valuation of our public equity. In
the current market, asset values in the drybulk shipping industry are significantly below
historical values. We believe that these circumstances present an opportunity for us to seek
to grow our fleet at favorable prices. |
|
|
Operate a high-quality fleet. We intend to maintain a modern, high-quality fleet that
meets or exceeds stringent industry standards and complies with charterer requirements through
our technical managers comprehensive maintenance program. In addition, our technical
managers maintain the quality of our vessels by carrying out regular inspections, both while
in port and at sea. |
|
|
Maintain low-cost, highly efficient operations. We expect that, under the Management
Agreement we plan to enter into with Genco, Genco will coordinate and oversee the technical
management of our fleet and will utilize qualified third-party independent technical managers.
We believe that Genco will be able to do so at a cost to us that would be lower than what
could be achieved by performing the function in-house. We expect that
Gencos management team will actively monitor and control vessel operating expenses incurred by
the independent technical managers by overseeing their activities. |
3
|
|
Capitalize on our management teams experience and reputation. We intend to capitalize on
the reputation of the management team at Genco and our company for high standards of
performance, reliability and safety, and maintain strong relationships with major
international charterers and other owners, many of whom consider the reputation of a vessel
owner and operator when entering into charters and asset sales. We believe that our management
teams track record improves our relationships with high quality shipowners, charterers and
financial institutions, many of which consider reputation to be an indicator of
creditworthiness. |
Our Dividend Policy
We intend to adopt a dividend policy to pay a variable quarterly dividend equal to our Cash
Available for Distribution, which represents net income less cash expenditures for capital items
related to our fleet other than vessel acquisitions and related expenses, plus non-cash compensation, during the previous
quarter, subject to any additional reserves our board of directors may from time to time determine
are required for the prudent conduct of our business, taking into account contingent liabilities,
the terms of any credit facilities we may enter into, our other cash needs and the requirements of
Marshall Islands law. Dividends will be paid equally on a per-share basis between our Common Stock
and our Class B Stock. Declaration and payment of dividends is at the discretion of our board of
directors, and there can be no assurance that we will not reduce or eliminate our dividend. Please
read Our Dividend Policy and Restrictions on Dividends and Risk Factors for a more detailed
description of the calculation of Cash Available for Distribution and various factors that could
reduce or eliminate our ability to pay dividends.
Our Arrangements with Genco
Prior to the closing of this offering, Genco, through its wholly owned subsidiary, Genco
Investments LLC, will contribute $75,000,000 to us as a capital contribution, and we will issue to
Genco Investments LLC shares of our Class B Stock. Simultaneously,
Genco Investments LLC will surrender to us 100 shares of our capital stock that it currently holds
under our existing articles of incorporation. Under the terms of our amended and restated articles
of incorporation to be effective prior to the closing of this offering, shares of our Class B Stock
will entitle the holder to 15 votes per share. As a result, we believe that, upon the closing of
this offering, Genco will control over 50% of the combined voting power of our Common Stock and
Class B Stock, voting as a single class. However, if holders of a majority of the Class B Stock
make an irrevocable election to do so, our Class B Stock will be limited to an aggregate maximum of
49% of the combined voting power of our Common Stock and Class B Stock. In addition, pursuant to
a subscription agreement to be entered into between us and Genco Investments LLC at or prior to the
consummation of this offering, for so long as Genco directly or indirectly holds at least 10% of
the aggregate number of outstanding shares of our Common Stock and Class B Stock, Genco Investments
LLC will be entitled to receive an additional number of shares of Class B Stock equal to 2% of the
number of shares of Common Stock issued after the consummation of this offering, excluding any
shares of Common Stock issuable upon the exercise of the underwriters over-allotment option in
this offering.
As our Manager, Genco will manage our business pursuant to a long-term Management Agreement,
under which it will provide to us commercial, technical, administrative and strategic services.
Commercial services primarily involve vessel chartering. Technical services primarily include
vessel operation, maintenance and crewing. Administrative services primarily include accounting,
legal and financial services. Strategic services primarily include providing advice on acquisitions
and dispositions, strategic planning and general management of our business. We will pay our
Manager a fee for these services and reimburse our Manager for the reasonable direct or indirect
expenses it incurs in providing us with administrative and strategic services, including the cost
of Manager personnel who perform services for us. We expect that Genco will provide us with all of
our staff. However, our board of directors and our executive officers have the authority to hire
additional staff as they deem necessary.
We will also enter into agreements with Genco by which (a) Genco will have a right of first
refusal with respect to certain business opportunities that may be attractive to us and vice versa
and (b) we will provide to Genco
and its affiliates registration rights with respect to shares of our Common Stock and Class B Stock
owned by it or them.
4
For further details about our agreements with Genco, please read Our Manager and Management
Agreements Management Agreement, and Certain Relationships and Related-Party Transactions.
Corporate Information
We maintain our principal executive offices at 299 Park Avenue, 20th Floor, New York, NY
10171. Our telephone number at that address is (646) 443-8550.
5
The Offering
|
|
|
Common Stock offered
|
|
shares. |
|
|
|
|
|
shares if the underwriters exercise their
over-allotment option in full. |
|
|
|
Shares outstanding
immediately after this
offering
|
|
shares of Common Stock, including the
shares to be issued in this offering
(assuming no exercise of the underwriters
over-allotment option) and
restricted shares to be issued as incentive
compensation to our directors and officers under
our 2009 Equity Incentive Plan. |
|
|
|
|
|
shares of Class B Stock. |
|
|
|
Use of proceeds
|
|
We intend to use the net proceeds of this
offering for vessel acquisitions as well as for
working capital purposes. |
|
|
|
Cash dividends
|
|
We intend to pay a variable cash dividend each
quarter on our Common Stock and Class B Stock of
all our Cash Available for Distribution, subject
to the discretion of our board of directors.
Cash Available for Distribution represents net
income less cash expenditures for capital items
related to our fleet, other than vessel
acquisitions and related expenses, plus non-cash compensation. There is no
guarantee that we will pay any dividends on our
shares of common stock in any quarter, and our
payment of dividends will subject to compliance
with the laws of the Republic of the Marshall
Islands and any reserves the board of directors
may from time to time determine are required. |
|
|
|
Class B Stock
|
|
Upon the closing of this offering, Genco will own
indirectly all of our outstanding shares of Class B
Stock through a wholly owned subsidiary. The Class B
Stock is not being registered in this offering. The
principal difference between our Common Stock and our
Class B Stock is that each share of Class B Stock
entitles the holder thereof to 15 votes on matters
presented to our shareholders, while each share of
Common Stock entitles the holder thereof to only one
vote on such matters. As a result, we believe Genco
will control over 50% of the combined voting power of
our Common Stock and Class B Stock upon the closing of
this offering. However, if holders of a majority of
the Class B Stock make an irrevocable election to do
so, the aggregate voting power of the Class B Stock
will be limited to a maximum of 49% of the voting power
of our outstanding Common Stock and Class B Stock,
voting together as a single class. Holders of shares
of Class B Stock may elect at any time to have such
shares converted into shares of Common Stock on a
one-for-one basis. |
|
|
|
|
|
In addition, upon any transfer of shares of Class B
Stock to a holder other than Genco or its affiliates or
any successor to Gencos business or to all or
substantially all of its assets, such shares shall
automatically convert into shares of Common Stock. All
such conversions will be effected on a one-for-one
basis. |
6
|
|
|
|
|
Pursuant to a subscription agreement to be entered into
between us and Genco Investments LLC at or prior to the
consummation of this offering, Genco Investments LLC
will be entitled to receive a number of shares of Class
B Stock equal to 2% of the number of shares of Common
Stock issued from time to time after the consummation
of this offering, excluding any shares of Common Stock
issuable upon the exercise of the underwriters
over-allotment option in this offering. These
additional shares would be issued for no additional
consideration unless insufficient surplus from Genco
Investments LLCs $75,000,000 capital contribution
exists to cover the par value of such additional
shares, in which case Genco Investment LLC will pay us
the par value of such shares. |
|
|
|
Tax considerations
|
|
We believe that under current U.S. federal income tax
law, some portion of the distributions you receive from
us will constitute dividends, and if you are an
individual citizen or resident of the United States or
a U.S. estate or trust and meet certain holding period
requirements, then such dividends are expected to be
taxable as qualified dividend income subject to a
maximum 15% U.S. federal income tax rate (currently
through 2010). Distributions that are not treated as
dividends will be treated first as a non-taxable return
of capital to the extent of your tax basis in your
Common Stock and thereafter as capital gain. |
|
|
|
NYSE listing
|
|
We intend to apply to have our Common Stock approved
for listing on the New York Stock Exchange under the
symbol BDI. |
Unless we indicate otherwise or the context otherwise requires, all information in this
prospectus assumes that the underwriters do not exercise their over-allotment option.
Risk Factors
Investing in our Common Stock involves substantial risk. You should carefully consider all the
information in this prospectus prior to investing in our Common Stock. In particular, we urge you
to consider carefully the factors set forth in the section of this prospectus entitled Risk
Factors beginning on page 7.
7
RISK FACTORS
Any investment in our Common Stock involves a high degree of risk. You should carefully
consider the following risk factors together with all of the other information included in this
prospectus when evaluating an investment in our Common Stock. Some of the following risks relate
principally to us and our business and the industry in which we operate. Other risks relate
principally to the securities market and ownership of our shares.
If any of the following risks actually occurs, our business, financial condition, operating
results or cash flows could be materially adversely affected. In that case, we might not be able to
pay dividends on shares of our Common Stock, the trading price of our Common Stock could decline,
and you could lose all or part of your investment.
RISK FACTORS RELATED TO OUR BUSINESS & OPERATIONS
Industry Specific Risk Factors
The current global economic downturn may negatively impact our business.
In the current global economy, operating businesses have been facing tightening credit,
weakening demand for goods and services, deteriorating international liquidity conditions, and
declining markets. Lower demand for drybulk cargoes as well as diminished trade credit available
for the delivery of such cargoes have led to decreased demand for drybulk vessels, creating
downward pressure on charter rates. If the current global economic environment persists or
worsens, we may be negatively affected in the following ways:
|
|
We may not be able to employ our vessels at charter rates as favorable to us as historical
rates or operate our vessels profitably. |
|
|
The market value of our vessels could decrease, which may cause us to recognize losses if
any of our vessels are sold or if their values are impaired. |
The occurrence of any of the foregoing could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay dividends.
Charterhire rates for drybulk carriers are volatile and are currently at relatively low levels as
compared to recent historical levels and may further decrease in the future, which may adversely
affect our earnings.
The abrupt and dramatic downturn in the drybulk charter market, from which we will derive the
large majority of our revenues, has severely affected the drybulk shipping industry. The Baltic Dry
Index, an index published by The Baltic Exchange of shipping rates for 20 key drybulk routes, fell
94% from a peak of 11,793 in May 2008 to a low of 663 in December 2008. It subsequently rose to a
high of 4,291 on June 3, 2009 and then declined to 2,163 as of September 24, 2009. It was
2,695 as of October 9, 2009. There can be no assurance that the drybulk charter market will
recover over the next several months and the market could continue to decline further. These
circumstances, which result from the economic dislocation worldwide and the disruption of the
credit markets, have had a number of adverse consequences for drybulk shipping, including, among
other things:
|
|
|
an absence of financing for vessels; |
|
|
|
|
no active second-hand market for the sale of vessels; |
|
|
|
|
extremely low charter rates, particularly for vessels employed in the spot market; |
|
|
|
|
widespread loan covenant defaults in the drybulk shipping industry; and |
|
|
|
|
declaration of bankruptcy by some operators and shipowners as well as charterers. |
The occurrence of one or more of these events could adversely affect our business, results of
operations, cash flows, financial condition and ability to pay dividends.
8
We intend to charter all our vessels principally in the spot market, and as a result, we will be
exposed to the cyclicality and volatility of the spot charter market.
Since we intend to charter all our vessels principally in the spot market, we will be exposed
to the cyclicality and volatility of the spot charter market, and we will not have long term, fixed
rate time charters to ameliorate the adverse effects of downturns in the spot market. Capesize
vessels, which we intend to operate as part of our fleet, have been particularly susceptible to
recent volatility in spot charter rates. We cannot assure you that we will be able to successfully
charter our vessels in the future at rates sufficient to allow us to meet our obligations or to pay
dividends to our shareholders. The supply of and demand for shipping capacity strongly influences
freight rates. 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:
|
|
demand for and production of drybulk products; |
|
|
global and regional economic and political conditions including developments in
international trade, fluctuations in industrial and agricultural production and armed
conflicts; |
|
|
the distance drybulk cargo is to be moved by sea; |
|
|
environmental and other regulatory developments; and |
|
|
changes in seaborne and other transportation patterns. |
The factors that influence the supply of vessel capacity include:
|
|
the number of newbuilding deliveries; |
|
|
port and canal congestion; |
|
|
the scrapping rate of older vessels; |
|
|
the number of vessels that are out of service, i.e., laid-up, drydocked, awaiting repairs
or otherwise not available for hire. |
In addition to the prevailing and anticipated freight rates, factors that affect the rate of
newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in
relation to scrap prices, costs of bunkers and other operating costs, costs associated with
classification society surveys, normal maintenance and insurance coverage, the efficiency and age
profile of the existing fleet in the market and government and industry regulation of maritime
transportation practices, particularly environmental protection laws and regulations. These
factors influencing the supply of and demand for shipping capacity are outside of our control, and
we may not be able to correctly assess the nature, timing and degree of changes in industry
conditions.
We anticipate that the future demand for our drybulk carriers will be dependent upon economic
growth in the worlds economies, including China and India, seasonal and regional changes in
demand, changes in the capacity of the global drybulk carrier fleet and the sources and supply of
drybulk cargo to be transported by sea. The capacity of the global drybulk carrier fleet seems
likely to increase, and we can provide no assurance as to the timing or extent of future economic
growth. Adverse economic, political, social or other developments could have a material adverse
effect on our business, results of operations, cash flows, financial condition and ability to pay
dividends.
9
An over-supply of drybulk carrier capacity may lead to reductions in charterhire rates and
profitability.
The market supply of drybulk carriers has been increasing as a result of the delivery of
numerous newbuilding orders over the last few years. Currently, we believe there is an oversupply
of vessels, as evidenced by some carriers letting their ships sit idle rather than operate them at
current rates.
Newbuildings were delivered in significant numbers starting at the beginning of 2006 and
continued to be delivered in significant numbers through 2007, 2008, and 2009 to date. An
oversupply of drybulk carrier capacity may result in a reduction of charterhire rates, as evidenced
by historically low rates in December 2008. If such a reduction continues, we may only be able to
charter our vessels at reduced or unprofitable rates, or we may not be able to charter these
vessels at all. The occurrence of these events could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to pay dividends.
The market values of our vessels may decrease, which could adversely affect our operating results,
cause us to breach one or more covenants in any credit facility we may enter into, or limit the
total amount we may borrow under such a credit facility.
If the book value of one of our vessels is impaired due to unfavorable market conditions or a
vessel is sold at a price below its book value, we would incur a loss that could adversely affect
our financial results. Also, if we enter into a credit facility in the future, certain covenants
of that credit facility may depend on the market value of our fleet. If the market value of our
fleet declines, we may not be in compliance with certain provisions of the credit facility, and we
may not be able to refinance our debt or obtain additional financing under the credit
facility. The occurrence of these events could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay dividends.
A further economic slowdown in the Asia Pacific region could have a material adverse effect on our
business, financial position and results of operations.
A significant number of the port calls we expect our vessels to make will likely involve the
loading or discharging of raw materials and semi-finished products in ports in the Asia Pacific
region. As a result, a negative change in economic conditions in any Asia Pacific country, and
particularly in China or Japan, could have an adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay dividends. In particular, in recent
years, China has been one of the worlds fastest growing economies in terms of gross domestic
product, although the growth rate of Chinas economy slowed significantly in 2008. We cannot
assure you that the Chinese economy will not experience a significant contraction in the
future. Moreover, a significant or protracted slowdown in the economies of the United States, the
European Union or various Asian countries may adversely affect economic growth in China and
elsewhere. Our business, results of operations, cash flows, financial condition and ability to pay
dividends will likely be materially and adversely affected by an economic downturn in any of these
countries.
We will be subject to regulation and liability under
environmental and operational safety laws that could require significant expenditures and affect our cash flows and net income
and could subject us to increased liability under applicable law or regulation.
Our business
and the operation of our vessels will be materially affected by government regulation in the form of international conventions
and national, state and local laws and regulations in force in the jurisdictions in which the vessels will operate, as well as
in the countries of their registration.
Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with
them or their impact on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations
may be adopted that could limit our ability to do business or increase the cost of our doing business and that may
materially adversely affect our business, results of operations, cash flows, financial condition and ability to pay
dividends. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations.
10
The operation of our vessels will be affected by the requirements set forth in the United Nations International Maritime
Organizations 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.
Although the
United States is not a party, 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 of 1969, as amended in 2000, or the CLC, and the
Convention for the Establishment of an International Fund for Oil Pollution of 1971, as amended. Under these conventions, a vessels 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 right to limit liability is also forfeited under the CLC where the spill is caused by the owners actual fault and, under
the 1992 Protocol, where the spill is caused by the owners intentional or reckless conduct. Vessels trading to contracting states must provide evidence of insurance coverage. 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.
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 U.S. waters. OPA allows for potentially unlimited liability without regard to fault of vessel owners, operators and bareboat charterers for all containment and clean-up costs and other damages
arising from discharges or threatened discharges of oil from their vessels, including bunkers, in U.S. waters. OPA also expressly permits individual states to impose their own liability regimes with regard to hazardous materials and oil pollution
materials occurring within their boundaries.
While
we will not carry oil as cargo, we may carry bunkers in our drybulk carriers. We plan to maintain, for each of our vessels, pollution liability coverage insurance of $1 billion per incident. Damages from a catastrophic spill exceeding our
insurance coverage could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
Increased inspection procedures and tighter import and export controls could increase costs and
disrupt our business.
International shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination. Inspection procedures can result in the seizure
of the contents of our vessels, delays in the loading, offloading or delivery and the levying of
customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and
legal obligations on us. Furthermore, changes to inspection procedures could also impose
additional costs and obligations on our customers and may, in certain cases, render the shipment of
certain types of cargo uneconomical or impractical. Any such changes or developments may have a
material adverse effect on our business, results of operations, cash flows, financial condition and
ability to pay dividends.
We plan to operate our vessels worldwide, and as a result, our vessels will be exposed to
international risks which could reduce revenue or increase expenses.
The international shipping industry is an inherently risky business involving global
operations. Our vessels will be at risk of damage or loss because of events such as mechanical
failure, collision, human error, war, terrorism, piracy, cargo loss and bad weather. All these
hazards can result in death or injury to persons, increased costs, loss of revenues, loss or damage
to property (including cargo), environmental damage, higher insurance rates, damage to our customer
relationships, harm to our reputation as a safe and reliable operator and delay or rerouting. In
addition, changing economic, regulatory and political conditions in some countries, including
political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism,
labor strikes and boycotts. These sorts of events could interfere with shipping routes and result
in market disruptions which could have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay dividends.
11
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. We may have to pay drydocking
costs that our insurance does not cover in full. In addition, space at drydocking facilities is
sometimes limited and not all drydocking facilities are conveniently located. We may be unable to
find space at a suitable drydocking facility or we may be forced to travel to a drydocking facility
that is distant from the relevant vessels position. The loss of earnings while our vessels are
being repaired and repositioned or from being forced to wait for space or to travel to more distant
drydocking facilities, as well as the actual cost of repairs, could negatively impact our business,
results of operations, cash flows, financial condition and ability to pay dividends.
The operation of drybulk carriers has certain unique operational risks which could affect our
earnings and cash flow.
The operation of certain ship types, such as drybulk carriers, has certain unique risks. With
a drybulk carrier, the cargo itself and its interaction with the vessel can be an operational
risk. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and react badly to
water exposure. In addition, drybulk carriers are often subjected to battering treatment during
unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small
bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment
during unloading procedures may be more susceptible to breach to the sea. Hull breaches in drybulk
carriers may lead to the flooding of the vessels holds. If a drybulk carrier suffers flooding in
its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle
the vessels bulkheads, leading to the loss of a vessel. If we are unable to adequately maintain
our vessels, we may be unable to prevent these events. Any of these circumstances or events may
have a material adverse effect on our business, results of operations, cash flows, financial
condition and ability to pay dividends. In addition, the loss of any of our vessels could harm our
reputation as a safe and reliable vessel owner and operator.
Acts of piracy on ocean-going vessels have recently increased in frequency, which could
adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world
such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008 and
2009, the frequency of piracy incidents increased significantly, particularly in the Gulf of Aden
off the coast of Somalia. If these piracy attacks result in regions in which our vessels are
deployed being characterized by insurers as war risk zones, as the Gulf of Aden temporarily was
in May 2008, or Joint War Committee (JWC) war and strikes listed areas, premiums payable for such
coverage could increase significantly and such insurance coverage may be more difficult to
obtain. In addition, crew costs, including costs which may be incurred to the extent we employ
onboard security guards, could increase in such circumstances. We may not be adequately insured to
cover losses from these incidents, which could have a material adverse effect on us. In addition,
detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or
unavailability of insurance for our vessels, could have a material adverse impact on our business,
results of operations, cash flows, financial condition and ability to pay dividends.
In response to piracy incidents in 2008 and 2009, particularly in the Gulf of Aden off the
coast of Somalia, following consultation with regulatory authorities, we may station armed guards
on some of our vessels in some instances. While our use of guards is intended to deter and prevent
the hijacking of our vessels, it may also increase our risk of liability for death or injury to
persons or damage to personal property. While we believe we will generally have adequate insurance
in place to cover such liability, if we do not, it could adversely impact our business, results of
operations, cash flows, and financial condition.
12
Terrorist attacks, such as the attacks on the United States on September 11, 2001, and other acts
of violence or war may affect the financial markets, our vessels, our operations, or our customers
and may therefore have an adverse effect on our business, results of operations and financial
condition.
Terrorist attacks such as the attacks in the United States on September 11, 2001 and the
United States continuing response to these attacks, the attacks in London on July 7, 2005, as well
as the threat of future terrorist attacks, continue to cause uncertainty in the world financial
markets, including the energy markets. The continuing conflict in Iraq may lead to additional acts
of terrorism, armed conflict and civil disturbance around the world, which may contribute to
further instability including in the drybulk shipping markets. Terrorist attacks, such as the
attack on the M.T. Limburg in Yemen in October 2002, may also negatively affect our trade patterns
or other operations and directly impact our vessels or our customers. Future terrorist attacks
could result in increased volatility of the financial markets in the United States and globally and
could result in an economic recession in the United States or the world. Any of these occurrences,
or the perception that drybulk carriers are potential terrorist targets, could have a material
adverse impact on our business, results of operations, cash flows, financial condition and ability
to pay dividends.
Compliance with safety and other vessel requirements imposed by classification societies may be
costly and could reduce our net cash flows and net income.
The hull and machinery of every commercial vessel must be certified as being in class by a
classification society authorized by its country of registry. The classification society certifies
that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the
country of registry of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a
special survey, a vessels machinery may be placed on a continuous survey cycle, under which the
machinery would be surveyed periodically over a five-year period. We expect our vessels to be on
special survey cycles for hull inspection and continuous survey cycles for machinery
inspection. Every vessel is also required to be drydocked every two to three years for inspection
of its underwater parts.
If any vessel does not maintain its class or fails any annual, intermediate or special survey,
the vessel will be unable to trade between ports and will be unemployable, which could have a
material adverse effect on our business, results of operations, cash flows, financial condition and
ability to pay dividends.
We may be unable to attract and retain qualified, skilled employees or crew necessary to operate
our business.
Our success depends in large part on the ability of our Manager, our third party technical
managers, and us to attract and retain highly skilled and qualified personnel. In crewing our
vessels, we require technically skilled employees with specialized training who can perform
physically demanding work. Competition to attract and retain qualified crew members is
intense. If we are not able to increase our rates to compensate for any crew cost increases, it
could have a material adverse effect on our business, results of operations, cash flows, financial
condition and ability to pay dividends. Any inability our Manager, our third party technical
managers, or we experience in the future to hire, train and retain a sufficient number of qualified
employees could impair our ability to manage, maintain and grow our business, which could have a
material adverse effect on our business, results of operations, cash flows, financial condition and
ability to pay dividends.
Labor interruptions could disrupt our business.
We plan for our vessels to be manned by masters, officers and crews that are employed by third
parties. If not resolved in a timely and cost-effective manner, industrial action or other labor
unrest could prevent or hinder our operations from being carried out normally and could have a
material adverse effect on our business, results of operations, cash flows, financial condition and
ability to pay dividends.
13
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against
us.
We expect that our vessels will call in ports in South America and other areas where smugglers
attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew
members. To the extent our vessels are found with contraband, whether inside or attached to the
hull of our vessel and whether with or without the knowledge of any of our crew, we may face
governmental or other regulatory claims which could have an adverse effect on our business, results
of operations, cash flows, financial condition and ability to pay dividends.
Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the
related off-hire period.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties
may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In
many jurisdictions, a maritime lienholder may enforce its lien by arresting or attaching a
vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels
could result in a significant loss of earnings for the related off-hire period. In addition, in
jurisdictions where the sister ship theory of liability applies, a claimant may arrest the vessel
which is subject to the claimants maritime lien and any associated vessel, which is any vessel
owned or controlled by the same owner. In countries with sister ship liability laws, claims
might be asserted against us or any of our vessels for liabilities of other vessels that we own.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of
earnings.
A government of a vessels registry could requisition for title or seize our vessels.
Requisition for title occurs when a government takes control of a vessel and becomes the owner. A
government could also requisition our vessels for hire. Requisition for hire occurs when a
government takes control of a vessel and effectively becomes the charterer at dictated charter
rates. Generally, requisitions occur during a period of war or emergency. Government requisition
of one or more of our vessels could have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay dividends.
Increases in fuel prices could adversely affect our profits.
Spot charter arrangements generally provide that the vessel owner or pool operator bear the
cost of fuel in the form of bunkers, which is a significant vessel operating expense. As a result,
an increase in the price of fuel beyond our expectations may adversely affect our profitability,
cash flows and ability to pay dividends. The price and supply of fuel is unpredictable and
fluctuates as a result of events outside our control, including geo-political developments, supply
and demand for oil and gas, actions by members of the Organization of the Petroleum Exporting
Countries and other oil and gas producers, war and unrest in oil producing countries and regions,
regional production patterns and environmental concerns and regulations.
Our results of operations are subject to seasonal fluctuations, which may adversely affect our
financial condition.
We plan to operate our vessels in markets that have historically exhibited seasonal variations
in demand and, as a result, charter rates. This seasonality may result in quarter-to-quarter
volatility in our operating results, as our vessels will trade in the spot market. The drybulk
sector is typically stronger in the fall and winter months in anticipation of increased consumption
of coal and raw materials in the northern hemisphere during the winter months. As a result, our
revenues could be weaker during the fiscal quarters ended June 30 and September 30, and conversely,
our revenue could be stronger during the quarters ended December 31 and March 31. This seasonality
could have a material adverse effect on our business, results of operations, cash flows, financial
condition and ability to pay dividends.
14
Company Specific Risk Factors
We have no operating history on which you can evaluate our business strategy.
We are a recently-formed company with no operating history and will have no assets prior to
the closing of this offering other than a capital contribution from Genco Investments LLC.
Accordingly, there can be no assurance that our business strategy and operations will be
successful.
We may not be able to establish our operations or implement our growth effectively.
Our business plan will primarily depend on identifying suitable vessels that are in good
condition, acquiring these vessels at favorable prices, and profitably employing them on spot
market-related charters to establish and expand our operations. Our business plan will therefore
depend upon a number of factors, some of which may not be within our control. These factors
include our ability to:
|
|
identify suitable vessels or shipping companies for acquisitions or joint ventures to
establish our initial fleet and grow our fleet in the future; |
|
|
|
integrate successfully any acquired vessels or businesses with our existing operations; and |
|
|
|
obtain required financing for our existing and any new operations. |
Growing any business by acquisition presents numerous risks, including undisclosed liabilities and
obligations, difficulty obtaining additional qualified personnel, managing relationships with
customers and suppliers and integrating newly acquired operations into existing infrastructures.
In addition, competition from other companies, many of which have significantly greater financial
resources than do we or Genco, may reduce our acquisition opportunities or cause us to pay higher
prices. We cannot assure you that we will be successful in executing our plans to establish and
grow our business or that we will not incur significant expenses and losses in connection with
these plans. Our failure to effectively identify, purchase, develop and integrate any vessels or
businesses could adversely affect our business, financial condition and results of operations.
Our acquisition growth strategy exposes us to risks that may harm our business, financial condition
and operating results, including risks that we may:
|
|
fail to realize anticipated benefits, such as new customer
relationships, cost-savings or cash flow enhancements; |
|
|
|
incur or assume unanticipated liabilities, losses or costs associated
with any vessels or businesses acquired, particularly if any vessel we
acquire proves not to be in good condition; |
|
|
|
be unable to hire, train or retain qualified shore and seafaring
personnel to manage and operate our growing business and fleet; |
|
|
|
decrease our liquidity by using a significant portion of available
cash or borrowing capacity to finance acquisitions; |
|
|
|
significantly increase our interest expense or financial leverage if
we incur additional debt to finance acquisitions; or |
|
|
|
incur other significant charges, such as impairment of goodwill or
other intangible assets, asset devaluation or restructuring charges. |
Moreover, we plan to finance potential future expansions of our fleet primarily through equity
financing, which we expect will mainly consist of issuances of additional shares of our Common
Stock, and internally generated cash flow. We also may enter into a credit facility that will
provide bridge financing for vessel acquisitions. If we are unable to complete equity issuances at
prices that we deem acceptable, our internally generated cash flow is insufficient, or we cannot enter into a credit facility on favorable terms, we may need to revise
our growth plan or consider alternative forms of financing.
15
We will depend heavily upon spot charters, and any decrease in spot charter rates may adversely
affect our earnings and our ability to pay dividends.
We intend to employ our vessels in the spot market, on certain spot market-related time
charters known as trip charters, or in vessel pools trading in the spot market. Our financial
performance will therefore be substantially affected by conditions in the drybulk vessel spot
market. The spot market is highly volatile and fluctuates based upon vessel and cargo supply and
demand. In addition, vessels may experience repeated periods of unemployment between spot charters.
The successful operation of our vessels in the spot market depends upon, among other things,
obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for
charters and time spent traveling unladen to pick up cargo, or ballast time. In the past, there
have been periods when spot rates have declined below the operating cost of vessels. Future spot
rates may decline significantly and may not be sufficient to enable our vessels trading in the spot
market to operate profitably or for us to pay dividends and may have a material adverse effect on
our cash flows and financial condition.
Genco and its affiliates may compete with us or claim business opportunities that would benefit us.
Genco may compete with us and is not contractually restricted from doing so. Our amended and
restated articles of incorporation that will be in effect before the closing of this offering and
the Omnibus Agreement specify that Genco will have a right of first refusal with respect to
business opportunities generally except with respect to certain spot charter opportunities, as to
which we will have a right of first refusal. We expect that the most common types of business
opportunities for which Genco will have a right of first refusal will be vessel purchase and sale
opportunities and charters other than the spot charter opportunities for which we have a right of
first refusal. Other business opportunities for which Genco will have a result of first refusal
would be to hire employees, acquire other businesses, or enter into joint ventures. These
provisions may strengthen Gencos ability to compete with us or claim business opportunities that
would benefit us, which could have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay dividends.
Our strategy of financing vessel acquisitions through equity offerings and our earnings with little
to no leverage may adversely affect our growth and earnings.
We plan to finance acquisitions for our fleet primarily through equity offerings. While we
intend to seek a revolving credit facility that will provide bridge financing to acquire vessels
until we can conduct an equity offering, we do not anticipate entering into a credit facility of
sufficient size to allow us to make large additions to our fleet solely through borrowings.
Accordingly, if we are unable to complete equity offerings on acceptable terms or at all, or if our
earnings are insufficient, we may be unable to take advantage of strategic opportunities to expand
our fleet. As a result, our future earnings, cash flows and growth may be adversely affected.
We may be unable to pay dividends.
We currently intend to pay a variable quarterly dividend equal to our Cash Available for
Distribution from the previous quarter, subject to any reserves the board of directors may from
time to time determine are required. The amount of Cash Available for Distribution will principally
depend upon the amount of cash we generate from our operations, which may fluctuate from quarter to
quarter based upon, among other things:
|
|
the cyclicality in the spot vessel market; |
|
|
|
the rates we obtain from our charters; |
|
|
|
the price and demand for drybulk cargoes; |
|
|
|
the level of our operating costs, such as the cost of crews and insurance; |
16
|
|
the number of off-hire days for our fleet and the timing of, and number
of days required for, drydocking of our vessels; |
|
|
|
delays in the delivery of any vessels we have agreed to acquire; |
|
|
|
prevailing global and regional economic and political conditions; and |
|
|
|
the effect of governmental regulations and maritime self-regulatory
organization standards on the conduct of our business. |
Until we acquire vessels and deploy them on charters, we will not generate cash from
operations for dividends. Accordingly, it may take substantial time following the closing of this
offering before it would be possible for us to pay any dividends.
The actual amount of cash generated also will depend upon other factors, such as:
|
|
the level of capital expenditures we make, including for maintaining
existing vessels and acquiring new vessels, which we expect will be
substantial; |
|
|
|
our debt service requirements and restrictions on distributions
contained in any credit agreement we may enter into; |
|
|
|
fluctuations in our working capital needs; and |
|
|
|
the amount of any cash reserves established by our board of directors,
including reserves for working capital and other matters. |
In addition, the declaration and payment of dividends is subject at all times to the
discretion of our board of directors and compliance with the laws of the Republic of The Marshall
Islands. Please read Our Dividend Policy and Restrictions on Dividends for more details.
Our ability to grow and satisfy our financial needs may be adversely affected by our dividend
policy.
The dividend policy we plan to adopt calls for us to distribute all of our Cash Available for
Distribution on a quarterly basis, subject to any reserves that our board of directors may
determine are required. Accordingly, our growth, if any, may not be as fast as businesses that
reinvest their cash to expand ongoing operations.
In determining the amount of Cash Available for Distribution, our board of directors will
consider contingent liabilities, the terms of any credit facilities we may enter into, our other
cash needs and the requirements of Marshall Islands law. We believe that we will generally finance
any maintenance and expansion capital expenditures from cash balances or external financing sources
(which we intend as part of our strategy to be equity issuances and borrowings under a revolving
credit facility we will seek to enter into, but could include potential debt issuances). To the
extent we do not have sufficient cash reserves or are unable to obtain financing for these
purposes, our dividend policy may significantly impair our ability to meet our financial needs or
to grow.
We must make substantial capital expenditures to maintain the operating capacity of our fleet,
which may reduce the amount of cash for dividends to our shareholders.
We must make substantial capital expenditures to maintain the operating capacity of our fleet
and we generally expect to finance these maintenance capital expenditures with cash balances or
undrawn credit facilities. We anticipate growing our fleet through the acquisition of vessels,
which would increase the level of our maintenance capital expenditures.
17
Maintenance capital expenditures include capital expenditures associated with drydocking a
vessel, modifying an existing vessel or acquiring a new vessel to the extent these expenditures are
incurred to maintain the operating capacity of our fleet. These expenditures could increase as a
result of changes in the cost of labor and materials; customer requirements; increases in our fleet
size or the cost of replacement vessels; governmental regulations and maritime self-regulatory
organization standards relating to safety, security or the environment; and competitive standards.
In addition, maintenance capital expenditures will vary significantly from quarter to quarter
based on the number of vessels drydocked during that quarter. Significant maintenance capital
expenditures may reduce the amount of Cash Available for Distribution to our shareholders.
We will be required to make substantial capital expenditures to expand the size of our fleet, which
may diminish , our ability to pay dividends, increase our financial leverage, or dilute our
shareholders ownership interest in us.
We will be required to make substantial capital expenditures to increase the size of our
fleet. We intend to expand our fleet by acquiring existing vessels from other parties or
newbuilding vessels, which we refer to as newbuildings.
We generally will be required to make installment payments on any newbuildings prior to their
delivery. We typically would pay 10% to 25% of the purchase price of a vessel upon signing the
purchase contract, even though delivery of the completed vessel will not occur until much later
(approximately three to four years from the order). If we finance all or a portion of these
acquisition costs by issuing debt securities, we will increase the aggregate amount of interest we
must pay prior to generating cash from the operation of the newbuilding. Any interest expense we
incur in connection with financing our vessel acquisitions, including capitalized interest expense,
will decrease the amount of our dividends. If we finance these acquisition costs by issuing shares
of common stock, we will dilute our quarterly per-share dividends prior to generating cash from the
operation of the newbuilding.
To fund expansion capital expenditures, we may be required to use cash balances, cash from
operations, incur borrowings or raise capital through the sale of debt or additional equity
securities. Use of cash from operations will reduce the amount of cash for dividends to our
shareholders. Our ability to obtain bank financing or to access the capital markets for future
offerings may be limited by our financial condition at the time of any such financing or offering,
as well as by adverse market conditions resulting from, among other things, general economic
conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain
funds for capital expenditures could have a material adverse effect on our business, results of
operations and financial condition and on our ability to pay dividends. Even if we are successful
in obtaining the necessary funds, the terms of such financings could limit our ability to pay
dividends to shareholders. In addition, incurring additional debt may significantly increase our
interest expense and financial leverage, and issuing additional equity securities may result in
significant shareholder ownership or dividend dilution.
Our executive officers and the officers of our Manager will not devote all of their time to our
business, which may hinder our ability to operate successfully.
Our executive officers and the officers of our Manager will be involved in other Genco
business activities, which may result in their spending less time than is appropriate or necessary
to manage our business successfully. This could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay dividends.
Our executive officers and directors, our Manager, and the executive officers and directors of our
Manager have conflicts of interest and limited fiduciary and contractual duties, which may permit
them to favor interests of Genco or its affiliates above our interests and those of our Common
Stock holders and allow Genco to compete with us.
Conflicts of interest may arise between Genco, our Manager, and its affiliates, on the one
hand, and us and our shareholders, on the other hand. These conflicts include, among others, the
following situations:
|
|
our President and Chief Financial Officer and certain of our
directors also serve as executive officers or directors of Genco, who is our Manager, or its affiliates, and we have limited their fiduciary duties
regarding business opportunities that may be attractive to both Genco and us; |
18
|
|
our Manager will advise our board of directors about the amount and timing of asset purchases and sales,
capital expenditures, borrowings, issuances of additional common stock and cash reserves, each of which can
affect the amount of the Cash Available for Distribution to our shareholders; |
|
|
|
our executive officers and those of our Manager will not spend all of their time on matters related to our
business; and |
|
|
|
our Manager will advise us of costs incurred by it and its affiliates that it believes are reimbursable by us. |
As a result of these conflicts, our Manager may favor its own interests and the
interests of its affiliates over our interests and those of our shareholders, which could have a
material adverse effect on our business, results of operations, cash flows, financial condition and
ability to pay dividends
The fiduciary duties of our officers and directors may conflict with those of the officers and
directors of Genco and its affiliates.
Our officers and directors have fiduciary duties to manage our business in a manner beneficial
to us and our shareholders. However, our Chairman, our President and Chief Financial Officer and
one of our independent directors also serve as executive officers or directors of Genco. As a
result, these individuals have fiduciary duties to manage the business of Genco and its affiliates
in a manner beneficial to such entities and their shareholders. Consequently, these officers and
directors may encounter situations in which their fiduciary obligations to Genco and us are in
conflict. The resolution of these conflicts may not always be in our best interest or that of our
shareholders and could have a material adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividend.
Our Manager has rights to terminate the Management Agreement and, under certain circumstances,
could receive substantial sums in connection with such termination; however, even if our board of
directors or our shareholders are dissatisfied with our Manager, there are limited circumstances
under which we can terminate the Management Agreement.
The Management Agreement will have an initial term of approximately 15 years and will
automatically renew for subsequent five-year terms provided that certain conditions are met. Our
Manager has the right, after five years following the completion of this offering, to terminate the
Management Agreement with 12 months notice. Our Manager also has the right to terminate the
Management Agreement after a dispute resolution process if we have materially breached the
Management Agreement.
Our Manager may elect to terminate the Management Agreement upon the sale of all or
substantially all of our assets to a third party, our liquidation or after any change of control of
our company occurs. If our Manager so elects to terminate the Management Agreement, then our
Manager may be paid a termination fee, which could be substantial.
In addition, our rights to terminate the Management Agreement are limited. Even if we are not
satisfied with the Managers efforts in managing our business, unless our Manager materially
breaches the agreement, we may terminate the Management Agreement only:
|
|
if we provide notice in the fourth quarter of 2019 after two-thirds of
our board of directors elect to terminate the Management Agreement,
which termination would be effective December 31, 2020; or |
|
|
|
if we provide notice of termination in the fourth quarter of 2023,
which termination would be effective December 31, 2024. |
19
If we elect to terminate the Management Agreement at either of these points or at the end of a
subsequent renewal term, our Manager will receive a termination fee, which may be substantial.
Please read Our Manager and Management Agreement Management Agreement Term and Termination
Rights for a more detailed description of termination rights under the Management Agreement.
We will depend on Genco to assist us in operating our business and competing in our markets, and
our business will be harmed if Genco fails to assist us effectively.
Upon the closing of this offering, we will enter into the Management Agreement with Genco as
our Manager, pursuant to which Genco will provide to us commercial, technical, administrative and
strategic services, including vessel maintenance, crewing, purchasing, shipyard supervision,
insurance and financial services. Our operational success and ability to execute our growth
strategy will depend significantly upon the satisfactory performance of these services by Genco.
Our business will be harmed if Genco fails to perform these services satisfactorily, if it stops
providing these services to us for any reason or if it terminates the Management Agreement, as it
is entitled to do under certain circumstances. The circumstances under which we are able to
terminate the Management Agreement are extremely limited and do not include mere dissatisfaction
with our Managers performance. In addition, upon any termination of the Management Agreement, we
may lose our ability to benefit from economies of scale in purchasing supplies and other advantages
that we believe our relationship with Genco will provide.
If Genco suffers material damage to its reputation or relationships, it may harm our ability
to:
|
|
acquire new vessels; |
|
|
|
enter into new charters for our vessels; |
|
|
|
obtain financing on commercially acceptable terms; or |
|
|
|
maintain satisfactory relationships with charterers, suppliers and other third parties. |
If our ability to do any of the things described above is impaired, it could have a material
adverse effect on our business, results of operations and financial condition and our ability to
pay dividends to shareholders.
An increase in operating costs could adversely affect our cash flows and financial condition.
Under the Management Agreement, we must pay for vessel operating expenses (including crewing,
repairs and maintenance, insurance, stores, lube oils and communication expenses), and in addition
for spot or voyage charters, voyage expenses (including bunker fuel expenses, port fees, cargo
loading and unloading expenses, canal tolls, agency fees and conversions). These expenses depend
upon a variety of factors, many of which are beyond our or our Managers control. Some of these
costs, primarily relating to fuel, insurance and enhanced security measures, have been increasing
and may increase in the future. Increases in any of these costs would decrease our earnings, cash
flows and the amount of Cash Available for Distribution to our shareholders.
Financing agreements containing operating and financial restrictions may restrict our business and
financing activities.
The operating and financial restrictions and covenants in any future financing agreements
could adversely affect our ability to finance future operations or capital needs or to pursue and
expand our business activities. For example, these financing arrangements may restrict our ability
to:
|
|
pay dividends; |
|
|
|
incur or guarantee indebtedness; |
20
|
|
change ownership or structure, including mergers, consolidations, liquidations and dissolutions; |
|
|
|
incur liens on our assets; |
|
|
|
sell, transfer, assign or convey assets; |
|
|
|
make certain investments; and |
|
|
|
enter into a new line of business. |
Our ability to comply with covenants and restrictions contained in debt instruments may be
affected by events beyond our control, including prevailing economic, financial and industry
conditions. If market or other economic conditions deteriorate, we may fail to comply with these
covenants. If we breach any of the restrictions, covenants, ratios or tests in the financing
agreements, our obligations may become immediately due and payable, and the lenders commitment, if
any, to make further loans may terminate. A default under financing agreements could also result in
foreclosure on any of our vessels and other assets securing related loans. The occurrence of any
of these events could have a material adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends.
Restrictions in our potential future debt agreements may prevent us from paying dividends.
The payment of principal and interest on any debt we incur will reduce the amount of cash for
dividends to our shareholders. In addition, we expect that our financing agreements will prohibit
the payment of dividends upon the occurrence of the following events, among others:
|
|
failure to pay any principal, interest, fees, expenses or other amounts when due; |
|
|
|
failure to notify the lenders of any material oil spill or discharge of
hazardous material, or of any action or claim related thereto; |
|
|
|
breach or lapse of any insurance with respect to the vessels; |
|
|
|
breach of certain financial covenants; |
|
|
|
failure to observe any other agreement, security instrument, obligation or
covenant beyond specified cure periods in certain cases; |
|
|
|
default under other indebtedness; |
|
|
|
bankruptcy or insolvency events; |
|
|
|
failure of any representation or warranty to be materially correct; |
|
|
|
a change of control, as defined in the applicable agreement; and |
|
|
|
a material adverse effect, as defined in the applicable agreement. |
Our purchasing and operating previously owned vessels may result in increased operating costs and
vessels off-hire, which could adversely affect our earnings.
Our current business strategy includes growth through the acquisition of previously owned
vessels. While we typically inspect previously owned vessels before purchase, this does not
provide us with the same knowledge about their condition that we would have had if these vessels
had been built for and operated exclusively by us. Accordingly, we may not discover defects or
other problems with such vessels before purchase. Any such hidden defects or problems, when
detected, may be expensive to repair, and if not detected, may result in accidents or other
incidents for which we may become liable to third parties. Also, when purchasing previously
owned vessels, we do not receive the benefit of any builder warranties if the vessels we buy are
older than one year.
21
In general, the costs to maintain a vessel in good operating condition increase with the age
of the vessel. Older vessels are typically less fuel efficient than more recently constructed
vessels due to improvements in engine technology.
Governmental regulations, safety and other equipment standards related to the age of vessels
may require expenditures for alterations or the addition of new equipment to some of our vessels
and may restrict the type of activities in which these vessels may engage. We cannot assure you
that, as our vessels age, market conditions will justify those expenditures or enable us to operate
our vessels profitably during the remainder of their useful lives. As a result, regulations and
standards could have a material adverse effect on our business, results of operations, cash flows,
financial condition and ability to pay dividends.
An increase in operating costs could adversely affect our cash flows and financial condition.
Our vessel operating expenses include the costs of crew, provisions, deck and engine stores,
lube oil, bunkers, insurance and maintenance and repairs, which depend on a variety of factors,
many of which are beyond our control. Some of these costs, primarily relating to insurance and
enhanced security measures implemented after September 11, 2001 and as a result of a recent
increase in the frequency of acts of piracy, have been increasing. In addition, to the extent we
employ our vessels on voyage charters, we will also have to bear the cost of bunkers. The price of
bunker fuel may increase in the future. 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.
Increases in any of these costs could have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay dividends.
We will depend to a significant degree upon third-party managers to provide the technical
management of our fleet. Any failure of these technical managers to perform their obligations to
us could adversely affect our business.
Through our Manager, we will contract the technical management of our fleet, including
crewing, maintenance and repair services, to third-party technical management companies. The
failure of these technical managers to perform their obligations could materially and adversely
affect our business, results of operations, cash flows, financial condition and ability to pay
dividends. Although we may have rights against our third-party managers if they default on their
obligations, our shareholders will share that recourse only indirectly to the extent that we
recover funds.
In the highly competitive international drybulk 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 drybulk cargoes can be intense
and depends on price, location, size, age, condition and the acceptability of the vessel and its
managers to the charterers. Due in part to the highly fragmented market, competitors with greater
resources could enter and operate larger fleets through consolidations or acquisitions that may be
able to offer better prices and fleets than we are able to offer.
We expect to maintain all of our cash with a limited number of financial institutions, which will
subject us to credit risk.
We expect to maintain all of our cash with a limited number of financial institutions for the
foreseeable future. None of our balances will be covered by insurance in the event of default by
these financial institutions. The occurrence of such a default could therefore have a material
adverse effect on our business, financial condition, results of operations and cash flows.
22
If we are unable to fund our capital expenditures, we may not be able to continue to operate some
of our vessels, which would have a material adverse effect on our business and our ability to pay
dividends.
In order to fund our capital expenditures, we generally plan to use equity financing. If
equity financing is not available on favorable terms, we may have to use debt financing. Our
ability to borrow money and access the capital markets through future offerings may be limited by
our financial condition at the time of any such offering as well as by adverse market conditions
resulting from, among other things, general economic conditions and contingencies and uncertainties
that are beyond our control. Our failure to obtain the funds for necessary future capital
expenditures could limit our ability to continue to operate some of our vessels or impair the
values of our vessels and could have a material adverse effect on our business, results of
operations, financial condition, cash flows and ability to pay dividends. Even if we are
successful in obtaining such funds through financings, the terms of such financings could further
limit our ability to pay dividends.
We are a holding company, and we will depend on the ability of our future subsidiaries to distribute
funds to us in order to satisfy our financial obligations or to make dividend payments.
We are a holding company, and our future subsidiaries, which will be all wholly owned by us,
either directly or indirectly, will conduct all of our operations and own all of our operating
assets. We will have no significant assets other than the equity interests in our wholly owned
subsidiaries. As a result, our ability to satisfy our financial obligations and to pay dividends
to our shareholders will depend on the ability of our subsidiaries to distribute funds to us. In
turn, the ability of our subsidiaries to make dividend payments to us will depend on them having
profits available for distribution and, to the extent that we are unable to obtain dividends from
our subsidiaries, this will limit the discretion of our board of directors to pay or recommend the
payment of dividends.
Our ability to obtain debt financing may depend on the performance of our business, our Manager,
and market conditions.
The actual or perceived credit quality of our business, our Manager, and market conditions
affecting the spot charter market and the credit markets may materially affect our ability to
obtain the additional capital resources that may be required to purchase additional vessels or may
significantly increase our costs of obtaining such capital. Our inability to obtain additional
financing at all or at a higher than anticipated cost may have a material adverse affect on our
business, results of operations, cash flows, financial condition and ability to pay dividends.
If management is unable to continue to provide reports as to the effectiveness of our internal
control over financial reporting or our independent registered public accounting firm is unable to
continue to provide us with unqualified attestation reports as to the effectiveness of our
internal control over financial reporting, investors could lose confidence in the reliability of
our financial statements, which could result in a decrease in the value of our Common Stock.
Under Section 404 of the Sarbanes-Oxley Act of 2002, after we file our annual report on Form
10-K for our initial fiscal year, we will be required to include in each of our subsequent future
annual reports on Form 10-K a report containing our managements assessment of the effectiveness of
our internal control over financial reporting and a related attestation of our independent
registered public accounting firm. As our manager, Genco will provide substantially all of our
financial reporting, and we will depend on the procedures they have in place. If, in such future
annual reports on Form 10-K, our management cannot provide a report as to the effectiveness of our
internal control over financial reporting or our independent registered public accounting firm is
unable to provide us with an unqualified attestation report as to the effectiveness of our internal
control over financial reporting as required by Section 404, investors could lose confidence in the
reliability of our financial statements, which could result in a decrease in the value of our
Common Stock.
Our costs of operating as a public company will be significant, and our management will be required
to devote substantial time to complying with public company regulations.
As a public company, we will incur significant legal, accounting and other expenses. In
addition, the Sarbanes-Oxley Act of 2002 (or Sarbanes-Oxley), as well as rules subsequently
implemented by the Securities and Exchange Commission (or the SEC) and the New York Stock Exchange,
have imposed various requirements on public companies, including changes in corporate governance practices, and these requirements
will continue to evolve. Our Manager, management personnel, and other personnel, if any, will need
to devote a substantial amount of time to comply with these requirements. Moreover, these rules and
regulations will increase our legal and financial compliance costs and will make some activities
more time-consuming and costly.
23
Sarbanes-Oxley requires, among other things, that we maintain and periodically evaluate our
internal control over financial reporting and disclosure controls and procedures. In particular, we
will need to perform system and process evaluation and testing of our internal control over
financial reporting to allow management and our independent registered public accounting firm to
report on the effectiveness of our internal control over financial reporting, as required by
Section 404 of Sarbanes-Oxley. While we expect to be able to follow Gencos model and systems for
compliance with Section 404, our compliance with Section 404 may require that we incur substantial
accounting expense and expend significant management efforts, and we will depend on Genco for our
compliance.
We may be unable to attract and retain key management personnel and other employees in the shipping
industry, which may negatively affect the effectiveness of our management and our results of
operations.
Our success depends to a significant extent upon the abilities and efforts of our management
team and our ability to hire and retain key members of our management team. The loss of any of
these individuals could adversely affect our business prospects and financial condition.
Difficulty in hiring and retaining personnel could have a material adverse effect our business,
results of operations, cash flows, financial condition and ability to pay dividends. We do not
intend to maintain key man life insurance on any of our officers.
We may not have adequate insurance to compensate us if we lose our vessels or to compensate third
parties.
There are a number of risks associated with the operation of ocean-going vessels, including
mechanical failure, collision, human error, war, terrorism, piracy, property loss, cargo loss or
damage and business interruption due to political circumstances in foreign countries, hostilities
and labor strikes. Any of these events may result in loss of revenues, increased costs and
decreased cash flows. In addition, the operation of any vessel is subject to the inherent
possibility of marine disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade.
We will be insured against tort claims and some contractual claims (including claims related
to environmental damage and pollution) through memberships in protection and indemnity associations
or clubs, or P&I Associations. As a result of such membership, the P&I Associations will provide
us coverage for such tort and contractual claims. We will also carry hull and machinery insurance
and war risk insurance for our fleet. We plan to insure our vessels for third-party liability
claims subject to and in accordance with the rules of the P&I Associations in which the vessels are
entered. We also will maintain insurance against loss of hire, which covers business interruptions
that result in the loss of use of a vessel. We can give no assurance that we will be adequately
insured against all risks. We may not be able to obtain adequate insurance coverage for our fleet
in the future. The insurers may not pay particular claims. Our insurance policies contain
deductibles for which we will be responsible and limitations and exclusions which may increase our
costs or lower our revenue.
We cannot assure you that we will be able to renew our insurance policies on the same or
commercially reasonable terms, or at all, in the future. For example, more stringent environmental
regulations have led in the past to increased costs for, and in the future may result in the lack
of availability of, protection and indemnity insurance against risks of environmental damage or
pollution. Any uninsured or underinsured loss could harm our business, results of operations, cash
flows, financial condition and ability to pay dividends. In addition, our insurance may be
voidable by the insurers as a result of certain of our actions, such as our ships failing to
maintain certification with applicable maritime self-regulatory organizations. Further, we cannot
assure you that our insurance policies will cover all losses that we incur, or that disputes over
insurance claims will not arise with our insurance carriers. Any claims covered by insurance would
be subject to deductibles, and since it is possible that a large number of claims may be brought,
the aggregate amount of these deductibles could be material. In addition, our insurance policies
are subject to limitations and exclusions, which may increase our costs or lower our revenues,
thereby possibly having a material adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends.
24
We will be subject to funding calls by our protection and indemnity associations, and our
associations may not have enough resources to cover claims made against them.
We are indemnified for legal liabilities incurred while operating our vessels through
membership in P&I Associations. P&I Associations are mutual insurance associations whose members
must contribute to cover losses sustained by other association members. The objective of a P&I
Association is to provide mutual insurance based on the aggregate tonnage of a members vessels
entered into the association. Claims are paid through the aggregate premiums of all members of the
association, although members remain subject to calls for additional funds if the aggregate
premiums are insufficient to cover claims submitted to the association. Claims submitted to the
association may include those incurred by members of the association, as well as claims submitted
to the association from other P&I Associations with which our P&I Association has entered into
interassociation agreements. We cannot assure you that the P&I Associations to which we belong
will remain viable or that we will not become subject to additional funding calls which could
adversely affect us.
We may have to pay U.S. tax on U.S. source income, which would reduce our net income and cash
flows.
We do not expect to qualify for an exemption pursuant to Section 883 of the Internal Revenue
Code of 1986 (the Code), which we refer to as Section 883, upon the closing of this offering. As
a result, we will be subject to U.S. federal income tax on our shipping income that is derived from
U.S. sources as described below. To the extent we are subject to such tax, our net income and cash
flows would be reduced by the amount of such tax.
We would qualify for exemption under Section 883 if, among other things, one or more classes
of our stock representing, in the aggregate, more than 50% of the combined voting power and value
of all classes of our stock were treated as primarily and regularly traded on an established
securities market in the United States. Under applicable Treasury regulations, we may not satisfy
this publicly traded requirement in any taxable year in which 50% or more of any class(es) of stock
we rely on to meet this rule is owned for more than half the days in such year by persons who
actually or constructively own 5% or more of such class(es) of our stock, which we sometimes refer
to as 5% shareholders.
Upon the closing of this offering, our Common Stock will represent more than 50% of the value
of all classes of our stock, but less than 50% of the combined voting power of all classes of our
stock. Unless the holders of the Class B Stock irrevocably elect to limit their aggregate voting
power to 49%, our Class B Stock will represent more than 50% of the combined voting power of all
classes of our voting stock and will not be treated as primarily and regularly traded on an
established securities market in the United States. Therefore, upon closing of this offering, we do
not expect to qualify for exemption under Section 883. As a result, 50% of our gross shipping
income attributable to transportation beginning or ending in the United States, if any, will be
subject to a 4% tax without allowance for deductions. While we do not currently anticipate that a
significant portion of our shipping income will be U.S. source shipping income, there can be no
assurance that this will be the case.
In the event that holders of a majority of the Class B Stock irrevocably elect to reduce the
voting power of the Class B Stock to constitute not more than 49% of the total voting power of all
classes of stock, our Common Stock will represent more than 50% of the combined voting power and
value of all classes of our stock. However, there can be no assurance as to if and when holders of
Class B Stock may do so, and we have no right to require these holders to do so. Even if that were
to occur, if 5% shareholders of the Common Stock were to own more than 50% of our Common Stock for
more than half the days of any taxable year, we may nonetheless not be eligible to claim exemption
from tax under Section 883 for such taxable year.
U.S. tax authorities could treat us as a passive foreign investment company, which could have
adverse U.S. federal income tax consequences to U.S. shareholders.
A foreign corporation generally will be treated as a passive foreign investment company,
which we sometimes refer to as a PFIC, for U.S. federal income tax purposes if either (1) at least
75% of its gross income for any taxable year consists of passive income or (2) at least 50% of
its assets (averaged over the year and generally determined based upon value) produce or are held
for the production of passive income. U.S. shareholders of a PFIC are subject to a
disadvantageous U.S. federal income tax regime with respect to distributions they receive from the
PFIC and gain, if any, they derive from the sale or other disposition of their stock in the PFIC.
25
For purposes of these tests, passive income generally includes dividends, interest, gains
from the sale or exchange of investment property and rents and royalties other than rents and
royalties which are received from unrelated parties in connection with the active conduct of a
trade or business, as defined in applicable Treasury regulations.
If we would otherwise be a PFIC in our start-up year (defined as the first taxable year we
earn gross income) as a result of a delay in purchasing vessels with the proceeds of the offering,
we will not be treated as a PFIC in that taxable year, provided that (i) no predecessor corporation
was a PFIC, (ii) it is established to the United States Internal Revenue Services satisfaction
that we will not be a PFIC in either of the two succeeding taxable years, and (iii) we are not, in
fact, a PFIC for either succeeding taxable year. We will attempt to conduct our affairs in a manner
so that, if applicable, we will satisfy the start-up year exception, but we cannot assure you that
we will so qualify.
For purposes of these tests, income derived from the performance of services does not
constitute passive income. By contrast, rental income would generally constitute passive income
unless we were treated under specific rules as deriving our rental income in the active conduct of
a trade or business. Based on our planned operations and certain estimates of our gross income and
gross assets, we do not believe that we will be a PFIC with respect to any taxable year. In this
regard, we treat the gross income we derive or are deemed to derive from our spot chartering
activities as services income, rather than rental income. Accordingly, we believe that (1) our
income from our spot chartering activities does not constitute passive income and (2) the assets
that we own and operate in connection with the production of that income do not constitute passive
assets.
There is, however, no direct legal authority under the PFIC rules addressing our method of
operation. Moreover, in a recent case not concerning PFICs, Tidewater Inc. v. U.S., 565 F.3d 299
(5th Cir. 2009), the Fifth Circuit held that a vessel time charter at issue generated
rental, rather than services, income. However, the courts ruling was contrary to the position of
the U.S. Internal Revenue Service, which we sometimes refer to as the IRS, that the time charter
income should be treated as services income. Moreover, that case dealt with time charters, while
substantially all of our income will be generated from the movement of freight at spot rates under
contracts whose terms we anticipate will differ in material respects from those in the time
charters at issue in Tidewater. No assurance can be given that the IRS, or a court of law will
accept our position, and there is a risk that the IRS or a court of law could determine that we are
a PFIC. Moreover, no assurance can be given that the IRS or a court of law will accept our
position, and there is a risk that the IRS or a court of law could determine that we are a PFIC.
Moreover, because there are uncertainties in the application of the PFIC rules, because the PFIC
test is an annual test, and because, although we intend to manage our business so as to avoid PFIC
status to the extent consistent with our other business goals, there could be changes in the nature
and extent of our operations in future years, there can be no assurance that we will not become a
PFIC in any taxable year.
If we were to be treated as a PFIC for any taxable year (and regardless of whether we remain a
PFIC for subsequent taxable years), our U.S. shareholders would face adverse U.S. tax consequences.
Under the PFIC rules, unless a shareholder makes certain elections available under the Code (which
elections could themselves have adverse consequences for such shareholder, as discussed under the
section captioned U.S. Federal Income Tax Considerations to Shareholders U.S. Federal Income
Taxation of U.S. Holders Passive Foreign Investment Company Status and Significant Tax
Consequences), such shareholder would be liable to pay U.S. federal income tax at the highest
applicable income tax rates on ordinary income upon the receipt of excess distributions and upon
any gain from the disposition of our Common Stock, plus interest on such amounts, as if such excess
distribution or gain had been recognized ratably over the shareholders holding period of our
common stock. See the section captioned U.S. Federal Income Tax Considerations U.S. Federal
Income Taxation of U.S. Holders Passive Foreign Investment Company Status and Significant Tax
Consequences for a more comprehensive discussion of the U.S. federal income tax consequences to
U.S. shareholders if we are treated as a PFIC.
Because we will generate all of our revenues in U.S. dollars but incur a portion of our
expenses in other currencies, exchange rate fluctuations could hurt our results of operations.
We will generate all of our revenues in U.S. dollars, but we may incur drydocking costs and
special survey fees in other currencies. If our expenditures on such costs and fees were
significant, and the U.S. dollar were weak against such currencies, our business, results of operations, cash flows, financial condition
and ability to pay dividends could be adversely affected.
26
RISK FACTORS RELATED TO OUR COMMON STOCK
The concentration of our capital stock ownership with Genco and its affiliates and the superior
voting rights of our Class B Stock held by Genco will limit our Common Stock holders ability to
influence corporate matters.
Under our amended and restated articles of incorporation that will be in effect before the
closing of this offering, our Class B Stock will have 15 votes per share, and our Common Stock will
have one vote per share resulting in Genco controlling in excess of 50% of the combined voting
power of these two classes of stock. However, if holders of a majority of the Class B Stock make
an irrevocable election to do so, the aggregate voting power of the Class B Stock will be limited
to a maximum of 49% of the voting power of our outstanding Common Stock and Class B Stock, voting
together as a single class. Upon the closing of this offering, Genco will indirectly own shares of
Class B Stock representing % of the voting power of our outstanding capital stock (
% if the underwriters exercise their over-allotment option in full). In addition, pursuant to the a
subscription agreement to be entered into between us and Genco at or prior to the consummation of
this offering, for so long as Genco holds at least 10% of the aggregate number of outstanding
shares of our Common Stock and Class B Stock, Genco will be entitled to receive an additional
number of shares of Class B Stock equal to 2% of the number of shares of Common Stock issued after
the consummation of this offering, excluding any shares of Common Stock issuable upon the exercise
of the underwriters over-allotment option in this offering. These additional shares would be
issued for no additional consideration unless insufficient surplus from Genco Investments LLCs
$75,000,000 capital contribution exists to cover the par value of such additional shares, in which
case Genco Investment LLC will pay us the par value of such shares. In addition, members of our
board of directors or our management team who are affiliated with Genco or other individuals
providing services under the Management Agreement who are affiliated with Genco may receive equity
awards under our 2009 Equity Incentive Plan.
Through its ownership of our Class B Stock, its role as our Manager and the issuance of equity
awards to individuals affiliated with Genco, Genco will have substantial control and influence over
our management and affairs and over all matters requiring shareholder approval, including the
election of directors and significant corporate transactions, such as a merger or other sale of our
company or its assets, for the foreseeable future. In addition, because of this dual-class stock
structure, Genco will continue to be able to control all matters submitted to our shareholders for
approval even though it will own significantly less than 50% of the aggregate number of outstanding
shares of our Common Stock and Class B Stock. This concentrated control limits our Common Stock
holders ability to influence corporate matters and, as a result, we may take actions that our
Common Stock holders do not view as beneficial. As a result, the market price of our Common Stock
could be adversely affected.
Because we are a foreign corporation, you may not have the same rights or protections that a
shareholder in a United States corporation may have.
We are incorporated in the Republic of the Marshall Islands, which does not have a
well-developed body of corporate law and may make it more difficult for our shareholders to protect
their interests. Our corporate affairs are governed by our amended and restated articles of
incorporation and by-laws and the Marshall Islands Business Corporations Act, or BCA. The
provisions of the BCA resemble provisions of the corporation laws of a number of states in the
United States. The rights and fiduciary responsibilities of directors under the law of the
Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of
directors under statutes or judicial precedent in existence in certain U.S. jurisdictions and there
have been few judicial cases in the Marshall Islands interpreting the BCA. Shareholder rights may
differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial
case law, of the State of Delaware and other states with substantially similar legislative
provisions, our public shareholders may have more difficulty in protecting their interests in the
face of actions by the management, directors or controlling shareholders than would shareholders of
a corporation incorporated in a U.S. jurisdiction. Therefore, you may have more difficulty in
protecting your interests as a shareholder in the face of actions by the management, directors or
controlling stockholders than would shareholders of a corporation incorporated in a United States
jurisdiction.
27
Provisions of our amended and restated articles of incorporation and by-laws and our shareholder
rights plan may have anti-takeover effects which could adversely affect the market price of our
Common Stock.
Several provisions of our amended and restated articles of incorporation and by-laws, which
are summarized below, may have anti-takeover effects. These provisions are intended to avoid
costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the
ability of our board of directors to maximize shareholder value in connection with any unsolicited
offer to acquire our company. However, these anti-takeover provisions could also discourage, delay
or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest
or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent
officers and directors.
Dual Class Stock
Our
dual class stock structure, which will consist of Common Stock and Class B Stock, gives Genco and
its affiliates control over all matters requiring shareholder approval, including the election of
directors and significant corporate transactions, such as a merger or other sale of our company or
its assets.
Blank Check Preferred Stock.
Under the terms of our amended and restated articles of incorporation, our board of directors
has the authority, without any further vote or action by our shareholders, to authorize our
issuance of up to 100,000,000 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 beginning upon the expiration of the initial term for each
class. Approximately one-third of our board of directors is elected each year. This classified
board provision could discourage a third party from making a tender offer for our shares or
attempting to obtain control of us. It could also delay shareholders who do not agree with the
policies of our board of directors from removing a majority of our board of directors for up to two
years.
Election and Removal of Directors.
Our amended and restated articles of incorporation prohibit cumulative voting in the election
of directors. Our by-laws 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
662/3% of the outstanding shares of our capital stock entitled to vote for those
directors or by a majority of the members of the board of directors then in office. These
provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders.
Our amended and restated articles of incorporation and our by-laws provide that any action
required or permitted to be taken by our shareholders must be effected at an annual or special
meeting of shareholders or by the unanimous written consent of our shareholders. Our amended and
restated articles of incorporation and our by-laws provide that, subject to certain exceptions, our
Chairman, President, or Secretary at the direction of the board of directors may call special
meetings of our shareholders and the business transacted at the special meeting is limited to the
purposes stated in the notice.
Advance Notice Requirements for Shareholder Proposals and Director Nominations.
Our by-laws provide that shareholders seeking to nominate candidates for election as directors
or to bring business before an annual meeting of shareholders must provide timely notice of their
proposal in writing to the corporate secretary. Generally, to be timely, a shareholders notice
must be received at our principal executive offices not less than 150 days nor more than 180 days before the date on which we first mailed
our proxy materials for the preceding years annual meeting. Our by-laws also specify requirements
as to the form and content of a shareholders notice. These provisions may impede shareholders
ability to bring matters before an annual meeting of shareholders or make nominations for directors
at an annual meeting of shareholders.
28
In addition, we have entered into a shareholder rights plan that makes it more difficult for a
third party to acquire us without the support of our board of directors. See Description of
Capital Stock Shareholder Rights Plan for further details.
It may not be possible for our investors to enforce U.S. judgments against us.
We are incorporated in the Republic of the Marshall Islands, and we expect most of our future
subsidiaries will also be organized in the Marshall Islands. We expect that substantially all of
our assets and those of our subsidiaries will be located outside the United States. As a result,
it may be difficult or impossible for United States shareholders to serve process within the United
States upon us or to enforce judgment upon us for civil liabilities in United States courts. In
addition, you should not assume that courts in the countries in which we are incorporated or where
our assets are located (1) would enforce judgments of United States courts obtained in actions
against us based upon the civil liability provisions of applicable United States federal and state
securities laws or (2) would enforce, in original actions, liabilities against us based upon these
laws.
Future sales of our Common Stock could cause the market price of our common stock to decline.
The market price of our Common Stock could decline due to sales of a large number of shares in
the market, including sales of shares by our large shareholders, or the perception that these sales
could occur. These sales could also make it more difficult or impossible for us to sell equity
securities in the future at a time and price that we deem appropriate to raise funds through future
offerings of Common Stock. We have entered into a registration rights agreement with Genco that
entitles it to have all the shares of our common stock that it owns registered for sale in the
public market under the Securities Act.
Purchasers in this offering will experience immediate and substantial dilution of $ per
share of Common Stock.
The assumed initial public offering price per share of Common Stock exceeds the pro forma net
tangible book value per share of Common Stock and Class B Stock, immediately after this offering.
Based on an assumed initial public offering price of $ per share, you will incur
immediate and substantial dilution of $ per share. Please read Dilution for a more
detailed description of the dilution that you will experience upon the completion of this
offering.
As a key component of our business strategy, we intend to issue additional shares of Common Stock
or other securities to finance our growth. These issuances, which would generally not be subject
to shareholder approval,will dilute your ownership interests and may
depress the market price of the Common Stock.
We plan to finance potential future expansions of our fleet primarily through equity financing
and internally generated cash flow. Therefore, subject to the rules of the New York Stock
Exchange, we plan to issue additional shares of Common Stock, and other equity securities of equal
or senior rank, without shareholder approval, in a number of circumstances from time to time.
The issuance by us of additional shares of Common Stock or other equity securities of equal or
senior rank will have the following effects:
|
|
our existing shareholders proportionate ownership interest in us will decrease; |
|
|
|
the amount of cash available for dividends payable on our common stock may decrease; |
|
|
|
the relative voting strength of each previously outstanding share may be diminished; and |
|
|
the market price of our Common Stock may decline. |
29
In addition, if we issue shares of our Common Stock in a future offering at a price per share lower
than the price per share in this offering, it will be dilutive to purchasers of Common Stock in
this offering.
There is no existing market for our Common Stock, and we cannot be certain that an active trading
market or a specific share price will be established.
Prior to this offering, there has been no public market for shares of our Common Stock. We
intend to seek approval for listing of our Common Stock on the New York Stock Exchange, under the
symbol BDI. We cannot predict the extent to which investor interest in our company will lead to
the development of an active trading market on the New York Stock Exchange or otherwise or how
liquid that market might become. The initial public offering price for the shares of our Common
Stock will be determined by negotiations between us and the underwriters, and may not be indicative
of the price that will prevail in the trading market following this offering. The market price for
our Common Stock may decline below the initial public offering price, and our stock price is likely
to be volatile following this offering.
If the stock price of our Common Stock fluctuates after this offering, you could lose a significant
part of your investment.
The market price of our Common Stock may be influenced by many factors, many of which are
beyond our control, including those described above under Risk Factors Related to Our Business
and Operations and the following:
|
|
the failure of securities analysts to publish research about us after this offering, or analysts
making changes in their financial estimates; |
|
|
|
announcements by us or our competitors of significant contracts, acquisitions or capital commitments; |
|
|
|
variations in quarterly operating results; |
|
|
|
general economic conditions; |
|
|
|
terrorist acts; |
|
|
|
future sales of our Common Stock or other securities; and |
|
|
|
investors perception of us and the drybulk shipping industry. |
As a result of these factors, investors in our Common Stock may not be able to resell their
shares at or above the initial offering price. These broad market and industry factors may
materially reduce the market price of our Common Stock, regardless of our operating performance.
30
We have agreed to restrict our ability to issue preferred stock or take other actions that may
result in a default under Gencos credit facility, which may limit how we conduct our business.
So that Genco may comply with a provision in its existing credit facility, the Omnibus
Agreement that we will enter into with Genco will provide that we will not issue any shares of
preferred stock without the prior written consent of Genco. We therefore do not anticipate that we
will be able to issue preferred stock for the foreseeable future. As a result, our options for
raising additional capital that we may require for future operations or growth may be limited.
The Omnibus Agreement will also provide that we will use our commercially reasonable efforts not to
take any action that would result in an event of default under Gencos existing credit facility or
the terms of any future credit facility that Genco may enter into to the extent such terms impose
no greater restrictions on Gencos subsidiaries than its existing credit facility. We may
therefore have to take actions or forego opportunities that would otherwise be in our best interests in order to prevent an event of default under Gencos
credit facility. For example, this may restrict, among other things, our ability to make
acquisitions or investments in other companies, our ability to borrow generally, the terms we may
enter into in a credit facility of our own, or our ability to expand our operations into other
lines of business.
31
FORWARD-LOOKING STATEMENTS
Statements included in this prospectus which are not historical facts (including any
statements concerning plans and objectives of management for future operations or economic
performance, or assumptions related thereto) are forward-looking statements. In addition, we and
our representatives may from time to time make other oral or written statements which are also
forward-looking statements. Such statements include, in particular, statements about our plans,
strategies, business prospects, changes and trends in our business and the markets in which we
operate, as described in this prospectus. In some cases, you can identify the forward-looking
statements by the use of words such as may, will, could, should, would, expect, plan,
anticipate, intend, forecast, believe, estimate, predict, propose, potential,
continue or the negative of these terms or other comparable terminology.
Forward-looking statements appear in a number of places and include statements with respect
to, among other things:
|
|
|
expectations of our ability to pay dividends on our common stock; |
|
|
|
|
future financial condition or results of operations and future revenues and expenses; |
|
|
|
|
the repayment of our debt, if any; |
|
|
|
|
general market conditions and shipping market trends, including charter rates and
factors affecting supply and demand; |
|
|
|
|
expected compliance with financing agreements and the expected effect of restrictive
covenants in such agreements; |
|
|
|
|
planned capital expenditures and the ability to fund capital expenditures from external
financing sources; |
|
|
|
|
the need to establish reserves that would reduce dividends on our common stock; |
|
|
|
|
future supply of, and demand for, drybulk cargoes; |
|
|
|
|
changes in demand or rates in the drybulk shipping industry; |
|
|
|
|
changes in the supply of or demand for drybulk products, generally or in particular
regions; |
|
|
|
|
changes in the supply of drybulk carriers, including newbuilding of vessels or lower
than anticipated scrapping of older vessels; |
|
|
|
|
changes in rules and regulations applicable to the cargo industry, including, without
limitation, legislation adopted by international organizations or by individual countries
and actions taken by regulatory authorities; |
|
|
|
|
increases in costs and expenses including but not limited to: crew wages, insurance,
provisions, lube oil, bunkers, repairs, maintenance and general and administrative
expenses; |
|
|
|
|
the adequacy of our insurance arrangements; |
|
|
|
|
changes in general domestic and international political conditions; |
|
|
|
|
changes in the condition of the Companys vessels or applicable maintenance or
regulatory standards (which may affect, among other things, our anticipated drydocking or
maintenance and repair costs) and unanticipated drydock expenditures; |
|
|
|
|
the ability to leverage Gencos relationships and reputation in the shipping industry; |
32
|
|
|
the ability to maximize the use of vessels; |
|
|
|
|
operating expenses, availability of crew, number of off-hire days, drydocking
requirements and insurance costs; |
|
|
|
|
expected pursuit of strategic opportunities, including the acquisition of vessels and
expansion into new markets; |
|
|
|
|
expected financial flexibility to pursue acquisitions and other expansion opportunities; |
|
|
|
|
the ability to compete successfully for future chartering and newbuilding opportunities; |
|
|
|
|
the anticipated incremental general and administrative expenses as a public company and
expenses under service agreements with other affiliates of Genco; |
|
|
|
|
the anticipated taxation of our company and distributions to
our shareholders; |
|
|
|
|
the expected lifespan of our vessels; |
|
|
|
|
the expected demand in the drybulk shipping sector in general and the demand for vessels
in particular; |
|
|
|
|
customers increasing emphasis on environmental and safety concerns; |
|
|
|
|
anticipated funds for liquidity needs and the sufficiency of cash flows; and |
|
|
|
|
our business strategy and other plans and objectives for future operations. |
Forward-looking statements are made based upon managements current plans, expectations,
estimates, assumptions and beliefs concerning future events impacting us and therefore are subject
to a number of risks, uncertainties and assumptions, including those risks discussed in Risk
Factors and those risks discussed in other reports we file with the SEC. The risks, uncertainties
and assumptions are inherently subject to significant uncertainties and contingencies, many of
which are beyond our control. We caution that forward-looking statements are not guarantees and
that actual results could differ materially from those expressed or implied in the forward-looking
statements.
We undertake no obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to reflect the occurrence
of unanticipated events. New factors emerge from time to time, and it is not possible for us to
predict all of these factors. Further, we cannot assess the impact of each such factor on our
business or the extent to which any factor, or combination of factors, may cause actual results to
be materially different from those contained in any forward-looking statement.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ million from the sale of
shares of Common Stock offered by this prospectus, assuming an initial public
offering price of $ per share and after deducting underwriting discounts and commissions
and estimated offering expenses. Based upon the number of shares of Common Stock offered by us in
this offering as set forth on the cover page of this prospectus, a $1.00 increase (decrease) in the
assumed initial public offering price of $ per share would increase (decrease) the net
proceeds to us from this offering by approximately $ million, after deducting the
estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We expect to use the net proceeds from this offering to fund future vessel acquisitions as
well as provide working capital. Although we have not entered into any specific transactions at
this time, we expect our total expenditures to acquire vessels through the end of 2010 to be from $
to $ . See BusinessFleet.
33
CAPITALIZATION
The following unaudited table sets forth our capitalization at , 2009,
on
an actual basis and as adjusted to give effect to (i) the sale of the Common Stock we are offering
after deduction of the underwriting discount and commissions and (ii) the capital contribution by
Genco Investments LLC to us of $75,000,000 prior to the closing of this offering :
|
|
|
|
|
|
|
|
|
|
|
As of , 2009 |
|
|
|
Actual |
|
|
As Adjusted |
|
|
|
(in thousands) |
|
Total cash and cash equivalents |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Capital stock, par value $0.01 per share: 100
shares authorized; 100 and 0 shares issued and
outstanding actual and as adjusted,
respectively.(1) |
|
|
|
|
|
|
|
|
Common
Stock, par value $0.01 per share: 500,000,000 shares authorized; 0 and
shares issued and outstanding
actual and as adjusted, respectively |
|
|
|
|
|
|
|
|
Class B
Stock, par value $0.01 per share: 100,000,000 shares authorized; 0 and
shares issued and outstanding
actual and as adjusted, respectively |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Issued to Genco Investments LLC in connection with our incorporation. Genco Invesments LLC
will surrender these shares in connection in connection with its subscription for Class B Stock
prior to the closing of this offering. |
DILUTION
Dilution is the amount by which the offering price per share of Common Stock will exceed the
net tangible book value per share of our Common Stock and Class B Stock after this offering.
Assuming an initial public offering price of $ per share of Common Stock, on a pro forma
basis as of , 2009, after giving effect to this offering of Common Stock, the
application of the net proceeds in the manner described under Use of Proceeds and the formation
and contribution transactions related to this offering, our pro forma net tangible book value would
have been $ million, or $ per share. Purchasers of our Common Stock in this offering
will experience substantial and immediate dilution in net tangible book value per share, as
illustrated in the following table.
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share of Common Stock |
|
|
|
|
|
$ |
|
|
Pro forma net tangible book value per share before this offering (1) |
|
$ |
|
|
|
|
|
|
Increase in net tangible book value per share attributable to purchasers in this offering |
|
|
|
|
|
|
|
|
Less: Pro forma net tangible book value per share after this offering (2) |
|
|
|
|
|
|
|
|
Immediate dilution in net tangible book value per share to purchasers in this offering |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Determined by dividing the shares of our
Common Stock and shares of our Class B Stock to be
issued to Genco Investments LLC, a wholly owned subsidiary of Genco,
for its contribution of $75,000,000 to us into the net tangible book
value of the contributed assets. |
|
(2) |
|
Determined by dividing the total number of shares of Common Stock and
Class B Stock ( Common Stock and
Class B Stock) to be outstanding after this offering into our pro
forma net tangible book value, after giving effect to the application
of the net proceeds of this offering. |
The following table sets forth, on a pro forma basis as of , 2009,
the
number of shares of Common Stock that we will issue and the total consideration contributed or paid
to us by the purchasers of Common Stock in this offering or Class B Stock upon consummation of the
transactions contemplated by this prospectus.
34
Genco will only acquire Class B Stock prior to the consummation of this offering, and new
investors will only acquire Common Stock in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Acquired |
|
|
Total Consideration |
|
|
|
Number |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Genco Shipping & Trading Limited |
|
|
|
|
|
|
% |
|
|
$ |
|
|
|
|
% |
|
New investors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OUR DIVIDEND POLICY AND RESTRICTIONS ON DIVIDENDS
You should read the following discussion of our dividend policy and restrictions on dividends
in conjunction with specific assumptions included in this section. In addition, you should read
Forward-Looking Statements and Risk Factors for information regarding statements that do not
relate strictly to historical or current facts and certain risks inherent in our business.
Our Dividend Policy
Our
dividend policy reflects a basic judgment that our shareholders will be better served by
our distributing our Cash Available for Distribution rather than retaining it. We believe that we
will generally finance any capital expenditures relating to vessel acquisitions from external
financing sources rather than cash flows from operations.
We intend to adopt a dividend policy to pay a variable quarterly dividend equal to our Cash
Available for Distribution, during the previous quarter, subject to any reserves our board of
directors may from time to time determine are required. Dividends will be paid equally on a
per-share basis between our Common Stock and our Class B Stock. Cash Available for Distribution
represents our net income less cash expenditures for capital items related to our fleet, such as
drydocking or special surveys, other than vessel acquisitions and related expenses, plus non-cash compensation. For purposes
of calculating Cash Available for Distribution, we may disregard non-cash adjustments to our net
income, such as those that would result from acquiring a vessel subject to a charter that was above
or below market rates. We intend to pay dividends on a quarterly basis.
Limitations on Dividends and Our Ability to Change Our Dividend Policy
There
is no guarantee that our shareholders will receive quarterly dividends from us. Our
dividend policy may be changed at any time by our board of directors and is subject to certain
restrictions, including:
|
|
Our shareholders have no contractual or other legal right to receive dividends. |
|
|
|
Our board of directors has authority to establish reserves for the prudent
conduct of our business, after giving effect to contingent liabilities, the
terms of any credit facilities we may enter into, our other cash needs and the
requirements of Marshall Islands law. The establishment of these reserves
could result in a reduction in dividends to you. We do not anticipate the need
for reserves at this time. |
|
|
|
Our board of directors may modify or terminate our dividend policy at any
time. Even if our dividend policy is not modified or revoked, the amount of
dividends we pay under our dividend policy and the decision to pay any
dividend is determined by our board of directors. |
|
|
|
Marshall Islands law generally prohibits the payment of a dividend when a
company is insolvent or would be rendered insolvent by the payment of such a
dividend or when the declaration or payment would be contrary to any
restriction contained in the companys articles of incorporation. Dividends
may be declared and paid out of surplus only, but if there is no surplus,
dividends may be declared or paid out of the net profits for the fiscal year
in which the dividend is declared and for the preceding fiscal year. |
|
|
|
We may lack sufficient cash to pay dividends due to decreases in net voyage
revenues or increases in operating expenses, principal and interest payments
on outstanding debt, tax expenses, working capital requirements, capital
expenditures or other anticipated or unanticipated cash needs. |
35
|
|
Our dividend policy may be affected by restrictions on distributions under any
credit facilities we may enter into, which contain material financial tests
and covenants that must be satisfied. If we are unable to satisfy these
restrictions included in the credit facilities or if we are otherwise in
default under the facilities, we would be prohibited from making cash
distributions to you, notwithstanding our stated cash dividend policy. |
|
|
While we intend that future acquisitions to expand our fleet will
enhance our ability to pay dividends over time, acquisitions could
limit our Cash Available for Distribution. |
Our
ability to make distributions to our shareholders will depend upon the performance of
subsidiaries we will form to own and operate vessels, which are our principal cash-generating
assets, and their ability to distribute funds to us. The ability of our ship-owning or other
subsidiaries to make distributions to us may be restricted by, among other things, the provisions
of future indebtedness, applicable corporate or limited liability company laws and other laws and
regulations.
We have no operating history upon which to rely as to whether we will have sufficient cash
available to pay dividends on our common stock. In addition, the drybulk vessel spot charter
market is highly volatile, and we cannot accurately predict the amount of cash distributions, if
any, that we may make in any period. Factors beyond our control may affect the charter market for
our vessels, our charterers ability to satisfy their contractual obligations to us, and our voyage
and operating expenses. Until we acquire vessels and deploy them on charters, we will not generate
cash from operations for dividends. Accordingly, it may take substantial time following the
closing of this offering before it would be possible for us to pay any dividends.
SELECTED BALANCE SHEET DATA
We were incorporated on October 6, 2009 and have no operating history. The following balance
sheet as of October 6, 2009 has been derived from our audited financial statement which is included
in this prospectus. The balance sheet information provided below should be read in conjunction
with the accompanying financial statement and the related notes thereto, and Managements
Discussion and Analysis of Financial Condition and Results of Operations.
|
|
|
|
|
|
|
As of |
|
|
|
October 6, 2009 |
|
Cash |
|
$ |
1 |
|
|
|
|
|
Total assets |
|
$ |
1 |
|
|
|
|
|
Liabilities and shareholders equity |
|
|
|
|
Liabilities |
|
$ |
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
Capital stock, $0.01 par value per share; 100 shares issued and outstanding |
|
$ |
1 |
|
|
|
|
|
Total shareholders equity |
|
$ |
1 |
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1 |
|
|
|
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the audited financial statement
and related notes of Baltic Trading Limited included elsewhere in this prospectus. The financial
statements have been prepared in accordance with GAAP and are presented in U.S. Dollars unless
otherwise indicated.
This discussion includes forward-looking statements which, although based on assumptions that
we consider reasonable, are subject to risks and uncertainties which could cause actual events or
conditions to differ materially from those currently anticipated and expressed or implied by such
forward-looking statements. For a discussion of some of those risks and uncertainties, see the sections entitled
Forward-Looking Statements and Risk Factors.
36
Overview
We are a Marshall Islands corporation recently formed to own and employ drybulk vessels in
the spot market. We will employ a chartering strategy intended to maximize cash flow from our
vessels through trading in the spot market, on spot market-related time charters known as trip
charters, or in vessel pools trading in the spot market. We anticipate opportunities to grow our
fleet through acquisitions of existing vessels from other parties as well as newbuildings.
Future Results of Operations
Baltic Trading Limited is a newly formed company and, accordingly, has no results of
operations as of the date of this prospectus. We do not expect to have any revenues until we
acquire at least one vessel and commence a charter for such vessel, after which time our revenues
will consist primarily of charterhire. Our ongoing cash expenses are expected to consist of fees
and reimbursements under our Management Agreement and other expenses directly related to the
operation of our vessels and certain administrative expenses. We do not expect to have any income
tax liabilities in the Marshall Islands but may be subject to tax in the United States on revenues
derived from voyages that either begin or end in the United States. See Tax Considerations.
We expect that our financial results will be largely driven by the following factors:
|
|
|
the number of vessels in our fleet and their charter rates; |
|
|
|
|
the number of days that our vessels are utilized and not subject to drydocking,
special surveys or otherwise off-hire; and |
|
|
|
|
our ability to control our fixed and variable expenses, including our ship
management fees, our operating costs and our general, administrative and other
expenses, including insurance. Operating costs may vary from month to month depending
on a number of factors, including the timing of purchases of lube oil, crew changes and
delivery of spare parts. |
Lack of Historical Operating Data for Vessels before Their Acquisition
Consistent with shipping industry practice, we may not be able obtain the historical operating
data for our purchased vessels from the sellers, in part because that information may not be
material to our decision to make acquisitions. Most vessels are sold under a standardized
agreement, which, among other things, provides the buyer with the right to inspect the vessel and
the vessels classification society records. The standard agreement does not give the buyer the
right to inspect, or receive copies of, the historical operating data of the vessel. Should this
information be available, we will request that it is provided. Prior to the delivery of a
purchased vessel, the seller typically removes from the vessel all records, including past
financial records and accounts related to the vessel. In addition, the technical management
agreement between the sellers technical manager and the seller is automatically terminated and the
vessels trading certificates are revoked by its flag state following a change in ownership.
In addition, and consistent with shipping industry practice, but depending on the individual
facts and circumstances, we will likely treat the acquisition of a vessel (whether acquired with or
without charter) from unaffiliated parties as the acquisition of an asset rather than a business.
Although vessels are generally acquired free of charter, we may, in the future, acquire some
vessels with time charters. Where a vessel has been under a voyage charter, the vessel is
delivered to the buyer free of charter, and it is rare in the shipping industry for the last
charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel
in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes
to assume that charter, the vessel cannot be acquired without the charterers consent and the
buyers entering into a separate direct agreement with the charterer to assume the charter. The
purchase of a vessel itself does not generally transfer the charter, because it is a separate
service agreement between the vessel owner and the charterer.
37
When we purchase a vessel and assume or renegotiate a related time charter, we must take the
following steps before the vessel will be ready to commence operations:
|
|
|
obtain the charterers consent to us as the new owner; |
|
|
|
|
obtain the charterers consent to a new technical manager; |
|
|
|
|
obtain the charterers consent to a new flag for the vessel; |
|
|
|
|
arrange for a new crew for the vessel; |
|
|
|
|
replace all hired equipment on board, such as gas cylinders and communication
equipment; |
|
|
|
|
negotiate and enter into new insurance contracts for the vessel through our own
insurance brokers; |
|
|
|
|
register the vessel under a flag state and perform the related inspections in order
to obtain new trading certificates from the flag state; |
|
|
|
|
implement a new planned maintenance program for the vessel; and |
|
|
|
|
ensure that the new technical manager obtains new certificates for compliance with
the safety and vessel security regulations of the flag state. |
The following discussion is intended to help you understand how acquisitions of vessels would
affect our business and results of operations:
Our business will be comprised of the following main elements:
|
|
|
employment and operation of our vessels; and |
|
|
|
|
management of the financial, general and administrative elements involved in the
conduct of our business and ownership of our vessels. |
The employment and operation of our vessels will require the following main components:
|
|
|
vessel maintenance and repair; |
|
|
|
|
crew selection and training; |
|
|
|
|
vessel spares and stores supply; |
|
|
|
|
contingency response planning; |
|
|
|
|
onboard safety procedures auditing; |
|
|
|
|
accounting; |
|
|
|
|
vessel insurance arrangement; |
|
|
|
|
vessel chartering; |
|
|
|
|
vessel hire management; |
|
|
|
|
vessel surveying; and |
|
|
|
|
vessel performance monitoring. |
38
The management of financial, general and administrative elements involved in the conduct of
our business and ownership of our vessels will require the following main components:
|
|
|
management of our financial resources, including banking relationships, such as the
administration of bank loans and bank accounts; |
|
|
|
|
management of our accounting system and records and financial reporting; |
|
|
|
|
administration of the legal and regulatory requirements affecting our business and
assets; and |
|
|
|
|
management of the relationships with our service providers and customers. |
The principal factors that will affect our profitability, cash flows and shareholders return
on investment include:
|
|
|
rates and periods of charter hire; |
|
|
|
|
levels of vessel operating expenses; |
|
|
|
|
depreciation expenses; |
|
|
|
|
financing costs; |
|
|
|
|
capital expenditures; and |
|
|
|
|
fluctuations in foreign exchange rates. |
Voyage Revenues
Voyage revenues are driven primarily by the number of vessels that we will have in our fleet,
the number of calendar days during which our vessels will generate revenues and the amount of daily
charter hire that our vessels will earn under charters. These, in turn, are affected by a number
of factors, including our decisions relating to vessel acquisitions and disposals, the amount of
time that we will spend positioning our vessels, the amount of time that our vessels will spend in
drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of
our vessels, levels of supply and demand in the drybulk carrier market and other factors affecting
spot market charter rates for our vessels.
Vessels operating in the spot charter market generate revenues that are less predictable than
those operating on time charters but may enable us to capture increased profit margins during
periods of improvements in charter rates. Conversely, by operating in the spot charter market, we
will be exposed to the risk of declining charter rates, which may have a materially adverse impact
on our financial performance.
Plan of Operation
Our plan of operation for the remainder of 2009 and the first half of 2010 is to:
|
|
|
Seek to acquire up to seven drybulk vessels, with a focus on Capesize, Panamax, and
Supramax vessels, using proceeds from this offering and cash flow from operations. |
|
|
|
|
Seek to enter into a revolving credit facility to provide, among other things, for
bridge financing for potential vessel acquisitions. |
|
|
|
|
Hire personnel as needed to support our operations. |
Given the price ranges of the types of vessels we plan to acquire, we believe that the proceeds
from this offering will satisfy our cash requirements during this period. We do not believe it
will be necessary in the six months after the closing of this offering to raise additional funds to
meet expenditures for operating our business.
Time Charter Equivalent (TCE)
A standard maritime industry performance measure is the daily time charter equivalent, or
daily TCE. Daily TCE revenues are voyage revenues minus voyage expenses divided by the number of
calendar days during the relevant time period. Voyage expenses primarily consist of port, canal
and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer
under a time charter, as well as commissions. We believe that the daily TCE neutralizes the
variability created by unique costs associated with particular voyages or the employment of vessels
on time charter or on the spot market and presents a more accurate representation of the revenues
generated by our vessels.
Vessel Operating Expenses
Our vessel operating expenses will include crew wages and related costs, the cost of
insurance, expenses relating to repairs and maintenance (excluding drydocking), the costs of spares
and consumable stores, tonnage taxes and other miscellaneous expenses. We anticipate that our
vessel operating expenses, which generally represent fixed costs, will increase as we add vessels
to our fleet. Other factors beyond our control, some of which may affect the shipping industry in
general, including, for instance, developments relating to market prices for insurance and crew
wages, may also cause these expenses to increase.
Voyage Expenses
To the extent we operate our vessels on voyage charters in the spot market, we will be
responsible for all voyage expenses. Voyage expenses are all expenses unique to a particular
voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal
tolls, agency fees and commissions. We expect that our voyage expenses will vary depending on the
number of vessels in our fleet and the extent to which we enter into voyage charters in the spot market as opposed to trip charters or vessel pools, in which
we would not be responsible for voyage expenses. See Business Our Charters Chartering
Strategy for a description of the types of arrangements we may make for our vessels.
39
Depreciation and Amortization
We will depreciate our vessels on a straight-line basis over their estimated useful lives,
which we expect to be approximately 25 years from the date of their initial delivery from the
shipyard, based on the types of vessels we plan to purchase. Depreciation is based on cost less
estimated residual value. We will defer the total costs associated with a drydocking and amortize
these costs on a straight-line basis over the period to the next scheduled drydocking.
General and Administrative Expenses
Our general and administrative expenses will include fees payable under our Management
Agreement with Genco, directors fees, office rent, travel, communications, insurance, legal,
auditing, investor relations and other professional expenses.
Liquidity and Capital Resources
Our primary initial sources of capital will be Gencos capital contribution of $75,000,000 for
shares of our Class B Stock and the net proceeds from this offering of our Common
Stock, which are expected to be $ after deduction of the underwriting discount
and commissions. We will require capital to fund ongoing operations, acquisitions and potential
debt service, for which we expect the main sources to be cash flow from operations and equity
offerings. We plan to finance potential future expansions of our fleet primarily through equity
financing, which we expect will mainly consist of issuances of additional shares of our Common
Stock, and internally generated cash flow. We may enter into a credit facility to provide, among
other potential purposes, bridge financing for vessel acquisitions. We do not anticipate that such
a credit facility will be used to satisfy our long-term capital needs. If we are unable to
complete equity issuances at prices that we deem acceptable, our internally generated cash flow is
insufficient, or we cannot enter into a credit facility on favorable terms, we may need to revise
our growth plan or consider alternative forms of financing. We anticipate that internally
generated cash flow and the proceeds from this offering will be sufficient to fund the operations
of our fleet, including our working capital requirements, through the end of our fiscal year ending
December 31, 2010.
Our business will be capital intensive, and its future success will depend on our ability to
maintain a high-quality fleet through the acquisition of newer drybulk vessels and the selective
sale of older drybulk vessels. These acquisitions will be principally subject to managements
expectation of future market conditions as well as our ability to acquire drybulk vessels on
favorable terms.
Our dividend policy will also impact our future liquidity position. We currently intend to
pay a variable quarterly dividend equal to our Cash Available for Distribution from the previous
quarter, subject to any reserves the board of directors may from time to time determine are
required. These reserves may cover, among other things, drydocking, repairs, claims, liabilities
and other obligations, debt amortization, acquisitions of additional assets and working capital.
Contractual Obligations
As of the date of this prospectus, we do not have any material contractual obligations, except
for the payment of fees to our advisers upon the consummation of this offering as described in this
prospectus.
Consolidation
We expect that we will continue to be consolidated into Gencos financial statements following
the closing of this offering. Accordingly, we plan to conform to Gencos accounting principles in
our financial statements.
40
Critical Accounting Policies
Critical accounting policies are those that reflect significant judgments or uncertainties,
and potentially result in materially different results under different assumptions and conditions.
We have described below what we believe will be our most critical accounting policies that will
involve a high degree of judgment and the methods of their application upon the acquisition of our
fleet.
Vessel acquisitions. When we enter into an acquisition transaction, we will determine whether
the acquisition transaction was the purchase of an asset or a business based on the facts and
circumstances of the transaction. As is customary in the shipping industry, the purchase of a
vessel is normally treated as a purchase of an asset as the historical operating data for the
vessel is not reviewed nor is material to our decision to make such acquisition.
If a vessel is acquired with an existing time charter, we allocate the purchase price of the
vessel and the time charter based on, among other things, vessel market valuations and the present
value (using an interest rate which reflects the risks associated with the acquired charters) of
the difference between (i) the contractual amounts to be paid pursuant to the charter terms and
(ii) managements estimate of the fair market charter rate, measured over a period equal to the
remaining term of the charter. The capitalized above-market (assets) and below-market
(liabilities) charters are amortized as a reduction or increase, respectively, to voyage revenues
over the remaining term of the charter.
Recognition of revenues and voyage and vessel operating expenses. Revenues will be generated
from the hire that we will receive under charters. We will generally record charter revenues over
the term of the charter as service is provided. In spot charters, operating costs including crews,
maintenance and insurance, fuel, and port charges are typically paid by the owner of the vessel.
There are certain other non-specified voyage expenses which will be borne by us. We will
recognize voyage expenses and vessel operating expenses when incurred.
Due from charterers, net Due from charterers, net will include accounts receivable from
charters net of the provision for doubtful accounts. At each balance sheet date, we plan to
establish the provision based on a review of all outstanding charter receivables.
Our revenue will be based on contracted charterparties. However, there is always the
possibility of dispute over terms and payment of hires and freights. In particular, disagreements
may arise as to the responsibility of lost time and revenue due to us as a result. Accordingly, we
will periodically assess the recoverability of amounts outstanding and estimate a provision if
there is a possibility of non-recoverability.
Depreciation. We expect to 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 will depreciate our drybulk vessels on a
straight-line basis over their estimated useful lives, expected to be approximately 25 years from
the date of initial delivery from the shipyard, based on the types of vessels we plan to
purchase. Depreciation is based on cost less the estimated residual scrap value. Based on the
current market and the types of vessels we plan to purchase, we expect the residual values of our
vessels will be based upon a value of approximately $175 per lightweight ton. An increase in the
useful life of a drybulk 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
drybulk vessel or in its residual value would have the effect of increasing the annual depreciation
charge. However, when regulations place limitations over the ability of a vessel to trade on a
worldwide basis, we will adjust the vessels useful life to end at the date such regulations
preclude such vessels further commercial use.
Deferred drydocking costs. We expect our vessels will be 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 defer the costs associated with drydockings as they occur and
amortize these costs on a straight-line basis over the period between drydockings. Deferred
drydocking costs will include actual costs incurred at the drydock yard; cost of travel, lodging
and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a
third party to oversee the drydocking.
41
Impairment of long-lived assets. We will record impairment losses on long-lived assets used
in operations when indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than their carrying amounts. In the evaluation of the
fair value and future benefits of long-lived assets, we will perform an analysis of the anticipated
undiscounted future net cash flows of the related long-lived assets. If the carrying value of the
related asset exceeds the undiscounted cash flows, the carrying value will be reduced to its fair
value. Various factors including anticipated future charter rates, estimated scrap values, future
drydocking costs and estimated vessel operating costs, will be included in this analysis.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
Inflation
We expect that inflation will have only a moderate effect on our expenses under current
economic conditions. In the event that significant global inflationary pressures appear, these
pressures would increase our operating, voyage, general and administrative, and financing
costs. However, we expect our costs to increase based on the anticipated increased costs for
crewing, lube oil, and bunkers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The international shipping industry is a capital intensive industry, requiring significant
amounts of investment. We plan to seek to enter into a revolving credit facility that will
provide us with bridge financing for potential vessel acquisitions. Our interest expense under any
such credit facility will be affected by changes in the general level of interest rates.
Increasing interest rates could adversely impact our future earnings.
Currency and exchange rates risk
The international shipping industrys functional currency is the U.S. Dollar. We expect that
virtually all of our revenues and most of our operating costs will be in U.S. Dollars. We expect
to incur certain operating expenses in currencies other than the U.S. dollar, and we expect the
foreign exchange risk associated with these operating expenses to be immaterial.
THE INTERNATIONAL DRYBULK SHIPPING INDUSTRY
All the information and data presented in this section, including the analysis of the various
sectors of the drybulk shipping industry, has been provided by Drewry. Drewry has advised that the
statistical and graphical information contained herein is drawn from its database and other
sources. In connection therewith, Drewry has advised that: (a) certain information in Drewrys
database is derived from estimates or subjective judgments; (b) the information in the databases of
other maritime data collection agencies may differ from the information in Drewrys database; (c)
while Drewry has taken reasonable care in the compilation of the statistical and graphical
information and believes it to be accurate and correct, data compilation is subject to limited
audit and validation procedures.
Industry Overview
The seaborne transportation industry is a vital link in international trade, with ocean going
vessels representing the most efficient, and often the only, method of transporting large volumes
of basic commodities and finished products. In 2008, approximately 5.1 billion tons of dry cargo
was transported by sea, which represents approximately 57% of total global seaborne trade. Drybulk
cargo is cargo that is shipped in large quantities and can be easily stowed in a single hold with
little risk of cargo damage. Drybulk cargo is generally categorized as either major drybulk or
minor drybulk. Major drybulk cargo constitutes the vast majority of drybulk cargo by weight, and
includes, among other things, iron ore, coal and grain. Minor drybulk cargo includes products such
as agricultural products (other than grain), mineral cargoes, cement, forest products and steel products and represents the balance of
the drybulk industry. Other drybulk cargo is categorized as container cargo, which is shipped in
20- or 40- foot containers and includes a wide variety of either finished products, or
non-container cargo, which includes other drybulk 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.
42
The following table presents the breakdown of global seaborne trade by type of cargo in 2000 and
2008.
World Seaborne Trade: 2000 & 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade - |
|
CAGR(1) |
|
|
|
|
Million Tons |
|
2000-08 |
|
% Total Trade |
|
|
2000 |
|
2008 |
|
% |
|
2000 |
|
2008 |
|
Dry Cargo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Bulks |
|
|
1,249 |
|
|
|
1,950 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
Coal |
|
|
539 |
|
|
|
830 |
|
|
|
5.5 |
% |
|
|
8.2 |
|
|
|
9.2 |
|
Iron Ore |
|
|
489 |
|
|
|
886 |
|
|
|
7.7 |
% |
|
|
7.5 |
|
|
|
9.8 |
|
Grain |
|
|
221 |
|
|
|
235 |
|
|
|
0.7 |
% |
|
|
3.4 |
|
|
|
2.6 |
|
Minor Bulks |
|
|
901 |
|
|
|
1,087 |
|
|
|
2.4 |
% |
|
|
13.8 |
|
|
|
12.0 |
|
Total Drybulk |
|
|
2,150 |
|
|
|
3,037 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
Container Cargo |
|
|
620 |
|
|
|
1,375 |
|
|
|
10.5 |
% |
|
|
9.5 |
|
|
|
15.2 |
|
Non Container/General Cargo |
|
|
720 |
|
|
|
705 |
|
|
|
-0.3 |
% |
|
|
11.0 |
|
|
|
7.8 |
|
Total Dry Cargo |
|
|
3,490 |
|
|
|
5,117 |
|
|
|
4.9 |
% |
|
|
53.4 |
|
|
|
56.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquid Cargo |
|
|
3,051 |
|
|
|
3,942 |
|
|
|
3.3 |
% |
|
|
46.6 |
|
|
|
43.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Seaborne Trade |
|
|
6,541 |
|
|
|
9,059 |
|
|
|
4.2 |
% |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
(1) |
|
Compound annual growth rate. |
Source: Drewry
Limited data is available for 2009, but the early indications suggest that in line with the
downturn in the world economy the volume of seaborne trade in all of the major commodity groups has
declined from the levels achieved in 2008.
Drybulk Trade
Drybulk trade is influenced by the underlying demand for the drybulk commodities which, in turn, is
influenced by the level of worldwide economic activity. Generally, growth in gross domestic
product, or GDP, and industrial production correlate with peaks in demand for marine drybulk
transportation services. The following chart demonstrates the change in world drybulk trade
between 2000 and 2008.
43
Drybulk Trade Development: 2000 to 2008
(Million Tons)
Source: Drewry
Historically, certain economies have acted as the primary drivers of drybulk trade. In the
1990s, Japan was the driving force of increases in ton-miles, when buoyant Japanese industrial
production stimulated demand for imported drybulk commodities. More recently, China and, to a
lesser extent, India have been the main drivers behind the recent increase in seaborne drybulk
trade, as high levels of economic growth have generated increased demand for imported raw
materials.
The following table illustrates Chinas and Indias gross domestic product growth rates
compared to those of the United States, Europe, Japan and the world during the periods indicated.
Real GDP Growth: 2000 to 2008
(% change previous period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GDP |
|
2000 |
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
Global Economy |
|
|
4.8 |
|
|
|
2.4 |
|
|
|
3.0 |
|
|
|
4.1 |
|
|
|
5.3 |
|
|
|
4.4 |
|
|
|
5.1 |
|
|
|
5.0 |
|
|
|
2.8 |
|
USA |
|
|
3.8 |
|
|
|
0.3 |
|
|
|
1.6 |
|
|
|
2.7 |
|
|
|
3.9 |
|
|
|
3.1 |
|
|
|
2.9 |
|
|
|
2.2 |
|
|
|
0.4 |
|
Europe |
|
|
3.4 |
|
|
|
1.7 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
2.1 |
|
|
|
1.8 |
|
|
|
3.0 |
|
|
|
2.7 |
|
|
|
0.6 |
|
Japan |
|
|
2.8 |
|
|
|
0.4 |
|
|
|
-0.3 |
|
|
|
1.8 |
|
|
|
2.7 |
|
|
|
1.9 |
|
|
|
2.4 |
|
|
|
2.1 |
|
|
|
-0.7 |
|
China |
|
|
8.0 |
|
|
|
7.5 |
|
|
|
8.3 |
|
|
|
10.0 |
|
|
|
10.1 |
|
|
|
10.4 |
|
|
|
11.6 |
|
|
|
11.9 |
|
|
|
9.0 |
|
India |
|
|
5.1 |
|
|
|
4.4 |
|
|
|
4.7 |
|
|
|
7.4 |
|
|
|
7.0 |
|
|
|
9.1 |
|
|
|
9.8 |
|
|
|
9.3 |
|
|
|
7.5 |
|
Source: Drewry
The impact of the rapid expansion of Asian economies on drybulk trade growth can be seen
below. In the 1990s, the average CAGR in seaborne trade was 2.8%, but in the period 2000-2008, the
average annual rate jumped to 4.4%.
44
Drybulk Trade* Growth Rates by Period
(CAGR Percent)
* Based on tons
Source: Drewry
The following is an overview of changes in seaborne trade in major and minor bulk cargoes in
the period 2000 to 2008.
Drybulk Seaborne Trade: 2000 to 2008
(Million Tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAGR% |
|
|
2000 |
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2000/2008 |
|
Coal |
|
|
539 |
|
|
|
587 |
|
|
|
590 |
|
|
|
619 |
|
|
|
650 |
|
|
|
675 |
|
|
|
769 |
|
|
|
833 |
|
|
|
830 |
|
|
|
5.5 |
|
Iron Ore |
|
|
489 |
|
|
|
503 |
|
|
|
544 |
|
|
|
580 |
|
|
|
644 |
|
|
|
715 |
|
|
|
759 |
|
|
|
823 |
|
|
|
886 |
|
|
|
7.7 |
|
Grain |
|
|
221 |
|
|
|
213 |
|
|
|
210 |
|
|
|
211 |
|
|
|
208 |
|
|
|
212 |
|
|
|
221 |
|
|
|
228 |
|
|
|
235 |
|
|
|
0.7 |
|
Minor Bulks |
|
|
901 |
|
|
|
890 |
|
|
|
900 |
|
|
|
957 |
|
|
|
1,025 |
|
|
|
1,000 |
|
|
|
1,035 |
|
|
|
1,075 |
|
|
|
1,087 |
|
|
|
2.4 |
|
Total |
|
|
2,150 |
|
|
|
2,193 |
|
|
|
2,244 |
|
|
|
2,367 |
|
|
|
2,526 |
|
|
|
2,602 |
|
|
|
2,783 |
|
|
|
2,958 |
|
|
|
3,037 |
|
|
|
4.4 |
|
(1) Compound annual growth rate.
Source: Drewry
Coal
Asias rapid industrial development has contributed to strong demand for coal, which accounted
for roughly a third of the total growth of seaborne drybulk trade between 2000 and 2008. Coal is
divided into two main categories: thermal (or steam) and coking (or metallurgical). Thermal coal
is used mainly for power generation, whereas coking coal is used to produce coke to feed blast
furnaces in the production of steel.
Expansion in air-conditioned office and factory space, along with industrial use, has
increased demand for electricity, of which nearly half is generated from coal-fired plants, thus
increasing demand for thermal coal. In addition, Japans domestic nuclear power generating
industry has suffered from safety problems in recent years, leading to increased demand for oil,
gas and coal-fired power generation. Furthermore, the high cost of oil and gas has led to
increasing development of coal-fired electricity plants around the world, especially in Asia.
Future prospects are heavily tied to the steel industry. Coking coal is of higher quality than
thermal coal (i.e. more carbon and fewer impurities) and its price is both higher and more
volatile.
45
Increases in steam coal demand have been significant, as both developed and developing nations
require increasing amounts of electric power. The main exporters of coal are Australia, South
Africa, Russia, Indonesia, United States, Colombia and Canada. The main importers of coal are
Europe, Japan, South Korea, Taiwan, India and China. Coal is transported primarily by Capesize and
Panamax vessels.
Iron Ore
Iron ore is used as a raw material for the production of steel, along with limestone and
coking (or metallurgical) coal. Steel is the most important construction and engineering material
in the world. In 2008, approximately 886 million tons of iron ore were exported worldwide, with
the main importers being China, the European Union, Japan and South Korea. The main producers and
exporters of iron ore are Australia and Brazil.
Chinese imports of iron ore have grown significantly due to increased steel production in the
last few years and have been a major driving force in the drybulk sector. In 2008, Chinese iron
ore imports increased by approximately 15.7% to 444.1 million tons and despite the downturn in the
world economy and global trade they have continued to grow in 2009. In the first eight months of
2009 total Chinese imports of iron ore amounted to 404 million tons.
Chinese Seaborne Iron Ore Imports
(Million Tons)
* 2009 Imports: January-August Only
Source: Drewry
Chinese imports of iron ore have traditionally come primarily from Australia, Brazil and
India. Since 2000, the shares of Indian and Brazilian imports have increased. Australia and
Brazil together account for approximately two thirds of global iron ore exports. Although both
have seen strong demand from China, Australia continues to benefit the most from Chinas increased
demand for iron ore. India is also becoming a major exporter of iron ore. Unlike Australia and
Brazil, which tend to export primarily in the larger Capesize vessels, much of Indias exports are
shipped in smaller Panamax, Supramax and Handymax vessels.
46
The following chart shows how Chinese market share of world iron ore seaborne trade developed
between 2000 and 2008.
World Seaborne Iron Ore Trades and Chinese Market Share
Source: Drewry
The growth in iron ore trades is closely linked to trends in global steel production. World
steel production rose steadily between 2000 and 2008, as did Chinese market share, as indicated by
the chart below.
World Steel Production and Chinese Market Share
Source: Drewry
Globally, Chinese steel production and consumption was the principal driver of the drybulk
shipping boom fully supported by the iron ore trades. From about 127.2 million tons of crude steel
output in 2000, Chinese production increased to approximately 498 million tons in 2008. In the
first eight months of 2009 total Chinese steel production amounted to 369 million tons.
Grains
Grains include wheat, coarse grains (corn, barley, oats, rye and sorghum) and oil seeds
extracted from different crops such as soybeans and cotton seeds. In general, wheat is used for
human consumption, while coarse grains are used as feed for livestock. Oil seeds are used to
manufacture vegetable oil for human consumption or for industrial use, while their protein-rich
residue is used as food for livestock.
47
Global grain production is dominated by the United States. Argentina is the second largest
producer, followed by Canada and Australia. International trade in grains is dominated by four key
exporting regions: North America, South America, Oceania and Europe (including the former Soviet
Union). These regions collectively account for over 90% of global exports. In terms of imports,
the Asia/Pacific region (excluding Japan) ranks first, followed by Latin America, Africa and the
Middle East.
Historically, international grain trade volumes have fluctuated considerably as a result of
regional weather conditions and the long history of grain price volatility and government
interventionism. However, demand for wheat and coarse grains are fundamentally linked in the
long-term to population growth and rising per capita income.
Minor Drybulks
The balance of drybulk trade, minor drybulks, can be subdivided into two types of cargo. The
first type includes secondary drybulks or free-flowing cargo, such as agricultural cargoes, bauxite
and alumina, fertilizers and cement. The second type is neo-bulks, which include non-free flowing
or part manufactured cargo that is principally forest products and steel products, including scrap.
Major Drybulk Carrier Routes
Drybulk carriers are one of the most versatile elements of the global shipping fleet in terms
of employment alternatives. They seldom operate on round trip voyages with high ballasting times.
Rather, the norm is often triangular or multi-leg voyages. Hence, trade distances assume greater
importance in the demand equation, and increases in long-haul shipments will have greater impact on
overall vessel demand. The following map represents the major global drybulk trade routes:
Major Drybulk Seaborne Trades
Source: Drewry.
Demand for Drybulk Vessels
Globally, total seaborne trade in all drybulk commodities increased from 2.15 billion tons in 2000
to 3.04 billion tons in 2008, representing a CAGR (compound average growth rate) of 4.4%. Another
industry measure of vessel demand is ton-miles, which is calculated by multiplying the volume of
cargo moved on each route by the distance of such voyage. Between 2000 and 2008, ton-mile demand
in the drybulk sector increased by 44% to 16.1 billion ton-miles, equivalent to a CAGR of 5.0%.
The following table illustrates this measure. However, it is clear that with the downturn in the
global economy and the drop in drybulk trade, demand for drybulk carriers will be weaker in 2009.
48
Drybulk Vessel Demand: 2000 to 2008
Billion Ton-Miles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAGR(1) |
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2000/2008% |
|
|
Coal |
|
|
2,830 |
|
|
|
3,082 |
|
|
|
3,097 |
|
|
|
3,249 |
|
|
|
3,412 |
|
|
|
3,543 |
|
|
|
3,842 |
|
|
|
4,166 |
|
|
|
4,151 |
|
|
|
5 |
% |
Iron Ore |
|
|
2,689 |
|
|
|
2,766 |
|
|
|
2,989 |
|
|
|
3,192 |
|
|
|
3,525 |
|
|
|
3,899 |
|
|
|
4,113 |
|
|
|
4,440 |
|
|
|
4,782 |
|
|
|
7 |
% |
Grain |
|
|
1,161 |
|
|
|
1,118 |
|
|
|
1,102 |
|
|
|
1,107 |
|
|
|
1,089 |
|
|
|
1,112 |
|
|
|
1,160 |
|
|
|
1,196 |
|
|
|
1,231 |
|
|
|
1 |
% |
Minor Bulks |
|
|
4,456 |
|
|
|
4,404 |
|
|
|
4,451 |
|
|
|
4,723 |
|
|
|
5,058 |
|
|
|
5,172 |
|
|
|
5,431 |
|
|
|
5,697 |
|
|
|
5,896 |
|
|
|
4 |
% |
Total |
|
|
11,138 |
|
|
|
11,371 |
|
|
|
11,641 |
|
|
|
12,274 |
|
|
|
13,086 |
|
|
|
13,728 |
|
|
|
14,547 |
|
|
|
15,500 |
|
|
|
16,061 |
|
|
|
5 |
% |
|
|
|
(1) |
|
Compound annual growth rate. |
|
* |
|
includes ton-mile demand for ships below 10,000 dwt. |
|
Source: Drewry |
Seasonality
Two of the three largest commodity drivers of the drybulk industry, coal and grains, are
affected by seasonal demand fluctuations. Thermal coal is linked to the energy markets and in
general encounters upswings towards the end of the year in anticipation of the forthcoming winter
period as power supply companies try to increase their stocks, or during hot summer periods when
increased electricity demand is required for air conditioning and refrigeration purposes. Grain
production is also seasonal and is driven by the harvest cycle of the northern and southern
hemispheres. However, with four nations and the European Union representing the largest grain
producers (the United States, Canada and the European Union in the northern hemisphere and
Argentina and Australia in the southern hemisphere), harvests and crops reach seaborne markets
throughout the year. In 2009 seasonal trading patterns were also disrupted due to Chinese iron ore
price negotiations. Taken as a whole, seasonal factors mean that the market for drybulk vessels is
often stronger during the winter months.
Supply of Drybulk Vessels
The world drybulk fleet is generally divided into six major categories, based on a vessels
cargo carrying capacity. These categories consist of: Very Large Ore Carrier, Capesize, Post
Panamax, Panamax, Handymax and Handysize.
|
|
|
Category |
|
Size Range - Dwt |
|
Handysize |
|
10-39,999 |
Handymax |
|
40-59,999 |
Panamax |
|
60-79,999 |
Post Panamax |
|
80-109,999 |
Capesize |
|
110-199,999 |
VLOC |
|
200,000 + |
|
|
Handysize. Handysize vessels have a carrying capacity of up to 39,999 dwt. These vessels
are primarily involved in carrying minor bulk cargoes. Increasingly, ships of this type
operate on regional trading routes, and may serve as trans-shipment feeders for larger
vessels. Handysize vessels are well suited for small ports with length and draft
restrictions. Their cargo gear enables them to service ports lacking the infrastructure for
cargo loading and unloading. |
|
|
Handymax. Handymax vessels have a carrying capacity of between 40,000 and 59,999 dwt.
These vessels operate on a large number of geographically dispersed global trade routes,
carrying primarily grains and minor bulks. Within the Handymax category there is also a
sub-sector known as Supramax. Supramax bulk carriers are ships between 50,000 to 59,999 dwt,
normally offering cargo loading and unloading flexibility with
on-board cranes, while at the same time possessing the cargo carrying capability approaching conventional
Panamax bulk carriers. Hence, the earnings potential of a Supramax drybulk carrier, when
compared to a conventional Handymax vessel of 45,000 dwt, is greater. |
49
|
|
Panamax. Panamax vessels have a carrying capacity of between 60,000 and 79,999 dwt. These
vessels carry coal, grains, and, to a lesser extent, minor bulks, including steel products,
forest products and fertilizers. Panamax vessels are able to pass through the Panama Canal,
making them more versatile than larger vessels. |
|
|
Post Panamax (sometimes known as Kamsarmax). Typically between 80,000 and 109,999 dwt,
they tend to be shallower and have a larger beam than a standard Panamax vessel with a higher
cubic capacity. They have been designed specifically for loading high cubic cargoes from
draught restricted ports. This type of vessel cannot transit the Panama Canal. The term
Kamsarmax stems from Port Kamsar in Guinea, where large quantities of bauxite are exported
from a port with only 13.5m draught and a 229m LOA restriction, but no beam restriction. . |
|
|
Capesize. Capesize vessels have carrying capacities of between 110,000 and 199,999 dwt. Only the
largest ports around the world possess the infrastructure to accommodate vessels of this size.
Capesize vessels are mainly used to transport iron ore or coal and, to a lesser extent,
grains, primarily on long-haul routes. |
|
|
VLOC. Very large ore carriers are in excess of 200,000 dwt and are a comparatively new
sector of the drybulk carrier fleet. VLOCs are built to exploit economies of scale on
long-haul iron ore routes. |
Drybulk Vessels Indicative Deployment by Size Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Panamax/ |
|
|
|
|
Cargo Type |
|
Handysize |
|
Handymax |
|
Supramax |
|
Panamax |
|
Kamsarmax |
|
Capesize |
|
VLOC |
|
Iron Ore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
Coal |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Grains |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
Alumina, Bauxite |
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
Steel Products |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
Forest Products |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fertilizers |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minerals |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minor Bulks-Other |
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Drewry
The supply of drybulk shipping capacity, measured by the amount of suitable vessel tonnage
available to carry cargo, is determined by the size of the existing worldwide drybulk fleet, the
number of new vessels on order, the scrapping of older vessels and the number of vessels out of
active service (i.e., laid up or otherwise not available for hire). In addition to prevailing and
anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up
include newbuilding prices, second-hand vessel values in relation to scrap prices, costs of bunkers
and other voyage expenses, costs associated with classification society surveys, normal maintenance
and insurance coverage, the efficiency and age profile of the existing fleets in the market and
government and industry regulation of marine transportation practices.
The supply of drybulk vessels is not only a result of the number of vessels in service, but
also the operating efficiency of the fleet. For example, during times of very heavy commodity
demand, bottlenecks develop in the form of port congestion, which absorbs fleet capacity through
delays in loading and discharging of cargo.
50
As of August 31, 2009, the world fleet of drybulk vessels consisted of 6,932 vessels, totaling
437.5 million dwt in capacity. These figures are, however, based on pure drybulk vessels and
exclude a small number of combination vessels.
The following table presents the world drybulk vessel fleet by size as of August 31, 2009.
Drybulk Vessel Fleet: August 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
% of Total |
|
|
Deadweight |
|
Number of |
|
Fleet |
|
Total Capacity |
|
Fleet |
Size Category |
|
Tons |
|
Vessels |
|
(number) |
|
(million dwt) |
|
(dwt) |
|
Handysize |
|
10-39,999 |
|
|
2,654 |
|
|
|
38.3 |
|
|
|
72.3 |
|
|
|
16.5 |
|
Handymax |
|
40-59,999 |
|
|
1,763 |
|
|
|
25.4 |
|
|
|
86.6 |
|
|
|
19.8 |
|
Panamax |
|
60-79,999 |
|
|
1,377 |
|
|
|
19.9 |
|
|
|
98.9 |
|
|
|
22.6 |
|
Post Panamax |
|
80-109,999 |
|
|
251 |
|
|
|
3.6 |
|
|
|
22.0 |
|
|
|
5.0 |
|
Capesize |
|
110-199,999 |
|
|
729 |
|
|
|
10.5 |
|
|
|
120.5 |
|
|
|
27.5 |
|
VLOC |
|
200,000+ |
|
|
158 |
|
|
|
2.3 |
|
|
|
37.3 |
|
|
|
8.5 |
|
Total |
|
|
|
|
6,932 |
|
|
|
100.0 |
|
|
|
437.5 |
|
|
|
100.0 |
|
Source: Drewry
The average age of drybulk vessels in service at this date was approximately 16.0 years. The
following chart illustrates the age profile of the global drybulk vessel fleet as of August 2009.
Drybulk Vessel Fleet Age Profile: August 2009
(Millions of Dwt & No of Vessels)
Source: Drewry
The supply of drybulk vessels depends on the delivery of new vessels and the removal of
vessels from the global fleet, either through scrapping or loss.
As of August 31, 2009, the global drybulk orderbook (excluding options) amounted to 290.6
million dwt, or 66.4% of the existing drybulk fleet. The size of orderbook built up rapidly in the
period 2006 to 2008, when strong freight encouraged high levels of new ordering. However,
following the collapse in the drybulk market in the second half of 2008, new ordering has almost
come to a complete standstill. Together, with the combination of deliveries and orderbook
cancellations, the size of the orderbook in relation to the existing fleet has started to fall.
51
Drybulk Vessel Orderbook: August 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
2010 |
|
|
|
2011 |
|
|
|
2012 |
|
|
|
2013 |
|
|
|
2014+ |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
000 |
|
|
|
|
|
|
|
000 |
|
|
|
|
|
|
|
000 |
|
|
|
|
|
|
|
000 |
|
|
|
|
|
|
|
000 |
|
|
|
|
|
|
|
000 |
|
|
|
|
|
|
|
000 |
|
|
|
% of |
|
Size |
|
|
No |
|
|
Dwt |
|
|
|
No |
|
|
Dwt |
|
|
|
No |
|
|
Dwt |
|
|
|
No |
|
|
Dwt |
|
|
|
No |
|
|
Dwt |
|
|
|
No |
|
|
Dwt |
|
|
|
No |
|
|
Dwt |
|
|
|
fleet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-39,999 |
|
|
|
236 |
|
|
|
7,198 |
|
|
|
|
304 |
|
|
|
9,482 |
|
|
|
|
201 |
|
|
|
6,664 |
|
|
|
|
82 |
|
|
|
2,796 |
|
|
|
|
13 |
|
|
|
445 |
|
|
|
|
1 |
|
|
|
32 |
|
|
|
|
837 |
|
|
|
26,617 |
|
|
|
|
36.8 |
|
40-59,999 |
|
|
|
238 |
|
|
|
13,276 |
|
|
|
|
358 |
|
|
|
20,186 |
|
|
|
|
269 |
|
|
|
15,191 |
|
|
|
|
70 |
|
|
|
3,950 |
|
|
|
|
13 |
|
|
|
711 |
|
|
|
|
1 |
|
|
|
58 |
|
|
|
|
949 |
|
|
|
53,372 |
|
|
|
|
61.7 |
|
60-79,999 |
|
|
|
44 |
|
|
|
3,260 |
|
|
|
|
73 |
|
|
|
5,441 |
|
|
|
|
75 |
|
|
|
5,548 |
|
|
|
|
38 |
|
|
|
2,565 |
|
|
|
|
14 |
|
|
|
913 |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
|
244 |
|
|
|
17,727 |
|
|
|
|
17.9 |
|
80-109,999 |
|
|
|
64 |
|
|
|
5,593 |
|
|
|
|
200 |
|
|
|
17,204 |
|
|
|
|
155 |
|
|
|
13,618 |
|
|
|
|
51 |
|
|
|
4,349 |
|
|
|
|
18 |
|
|
|
1,549 |
|
|
|
|
4 |
|
|
|
329 |
|
|
|
|
492 |
|
|
|
42,642 |
|
|
|
|
193.6 |
|
110-199,999 |
|
|
|
115 |
|
|
|
20,115 |
|
|
|
|
296 |
|
|
|
50,830 |
|
|
|
|
179 |
|
|
|
29,191 |
|
|
|
|
65 |
|
|
|
10,541 |
|
|
|
|
17 |
|
|
|
2,737 |
|
|
|
|
6 |
|
|
|
1,055 |
|
|
|
|
678 |
|
|
|
114,468 |
|
|
|
|
95 |
|
200,000+ |
|
|
|
10 |
|
|
|
2,768 |
|
|
|
|
27 |
|
|
|
6,838 |
|
|
|
|
45 |
|
|
|
12,850 |
|
|
|
|
38 |
|
|
|
11,292 |
|
|
|
|
8 |
|
|
|
1,834 |
|
|
|
|
1 |
|
|
|
225 |
|
|
|
|
129 |
|
|
|
35,808 |
|
|
|
|
95 |
|
Total |
|
|
|
10 |
|
|
|
52,209 |
|
|
|
|
1,258 |
|
|
|
109,982 |
|
|
|
|
924 |
|
|
|
83,062 |
|
|
|
|
344 |
|
|
|
35,494 |
|
|
|
|
83 |
|
|
|
8,199 |
|
|
|
|
13 |
|
|
|
1,699 |
|
|
|
|
3,329 |
|
|
|
290,634 |
|
|
|
|
66.4 |
|
Source: Drewry
Not all of the vessels on order, especially those for delivery in 2011 and beyond will have
financing in place and in the current climate securing funding is proving difficult for many
shipowners. Inevitably, delays in accessing funding may well have a knock-on effect in terms of
ships being delayed beyond scheduled delivery dates.
Apart for the lack of funding, it is also apparent that some of the orders which have been
placed have been at greenfield yards, that is, shipyard facilities which have yet to be
constructed and become operational. Some of these yards are also finding it difficult to secure
funds to commence the construction of the actual shipyard and this is another reason which is
likely to lead to delays in the delivery of new ships. The following chart provides information
with respect to the scheduled delivery dates for the drybulk vessels on order as of August 31,
2009.
Drybulk Vessel Orderbook (000 Dwt) by Delivery Date: August 2009
(By Scheduled Year of Delivery)
Source: Drewry
Deliveries & Slippage
If all the ships currently on order are delivered on time and to schedule there would be a
large influx of newbuildings in 2010 and 2011 in the drybulk sector. However, it is clear that not
all ships currently on order will be delivered on time for a number of reasons, including the
following:
|
|
In the most recent new ordering spree which peaked in early 2008 shipowners were quoted
unrealistic delivery times by some of the less experienced and new emerging shipyards. |
52
|
|
The current economic and financial crisis and the steep depression in shipping markets
generally may lead to further orderbook cancellations. |
|
|
Financing is not in place for all of the ships on order and in the current climate some
owners will find it difficult to secure adequate funding. |
|
|
Orders have been placed at greenfield shipyards, some of which are also finding it
difficult to secure funding for yard development. |
|
|
Even before the crisis the less experienced shipyards were experiencing delays in
deliveries. |
Delays in deliveries are often referred to as slippage. Historically, slippage rates have
tended to be less than 10%, which means that 10% of the ships due to be delivered in any year are
in fact delivered in subsequent years. However, in 2007 and 2008 slippage rates rose, as the high
level of new ordering that occurred across all market sectors since 2004 led to the commercial
vessel orderbook reaching its highest point in history. This placed pressure on shipbuilding
capacity, which in turn has forced shipowners to place orders for new ships in countries or yards
which have little or no experience in building ships for international customers. Indeed, in some
cases the orders have been placed with new shipyards which have yet to construct the actual
shipbuilding facilities. Just recently there have been reports that the Chinese government has
decided to halt all expansion plans for domestic shipyards in a bid to curb over-capacity.
In 2008, some 20% of all the ships that should have been delivered in the year will be
delivered late, that is they will; be delivered in 2009 or beyond. In the drybulk sector, the
evidence suggests that the slippage rate was just below 20% in 2008. The preliminary evidence
suggests that slippage has continued to be a feature of the market-place in 2009. At the start of
the year some 70 million dwt was scheduled to be delivered in 2009, but by August 2009 just over 23
million dwt had been delivered. Although late reports and deliveries in the period September to
December 2009 will inflate the 23 million dwt, it seems probable that not all of the ships
scheduled for delivery in the year will be delivered. As previously explained one reason for the
delay in deliveries is the inexperience of some of the yards constructing drybulk carriers.
Indeed, over 40% of the current drybulk carrier orderbook is with Chinese shipyards, many of whom
are struggling to meet scheduled delivery dates.
Drybulk Carrier Orderbook By Place of Build: August 2009
Source: Drewry
Taken as whole slippage is a manifestation of the combined effects of (i) shipyards quoting
unrealistic delivery times in the first place (ii) inexperience among new shipbuilders and (iii)
financing problems associated with both shipowners securing finance and new shipyards obtaining
development capital.
The outcome is that the delivery of new ships to the market-place has been at a slower pace
than the headline newbuilding orderbook delivery schedule would suggest. If this situation
persists the increases in drybulk carrier supply will be spread out over a longer period of time.
53
Vessel Scrapping
The level of scrapping activity is generally a function of the age profile of the fleet, as
all ships have finite lives, together with charter market conditions, and operating, repair and
survey costs. While strong freight markets persisted, there was minimal scrapping activity, but as
freight markets weakened, scrapping activity has picked up. The following chart illustrates the
scrapping rates of drybulk vessels for the periods indicated. It can be seen that there has been
marked increase in scrapping activity in 2008 and in the first eight months of 2009.
Drybulk Carrier Scrapping
(000 dwt)
(1) January to August only
Source:
Drewry.
Drybulk Carrier Values
Newbuilding prices are determined by a number of factors, including the underlying balance
between shipyard output and newbuilding demand, raw material costs, freight markets and exchange
rates. From 2003 to 2007, high levels of new ordering were recorded across all sectors of
shipping, and as a result, newbuilding prices increased significantly, as can be seen in the chart
below. However, as freight markets declined in the second half of 2008 new vessel ordering came to
an almost complete stop, which made the assessment of newbuilding prices very difficult.
Nevertheless, based on the few contracts which have been reported, it is evident that prices for
new ships have also weakened in line with the general downturn in the market. Besides the lack of
new ordering, the other factor which has pushed prices lower is that the price of steel has also
fallen.
The following chart depicts changes in newbuilding contract prices for drybulk carriers on a
monthly basis since 1996 to August 2009.
54
Drybulk Carrier Newbuilding Prices: 1996-2009
(Million U.S. Dollars)
Source: Drewry
The dramatic increase in newbuilding prices and the strength of the charter market have also
affected values in the secondhand market, to the extent that prices for drybulk carriers rose
sharply from 2004 reaching a peak in mid 2008. 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 increases in secondhand prices, especially for modern tonnage. Consequently,
secondhand prices of modern drybulk carriers in 2008 reached higher levels than those of comparably
sized newbuildings.
However, this situation changed quickly when the freight market fell and values for all types
of bulk carrier declined steeply in the second half of 2008. It should be noted that there were
very few recorded sales in the second half of 2008 after the market collapsed and the trend in
prices during this period can only be taken as an assessment. In 2009, there have been more
reported sales and the details of these sales seem to suggest that after reaching a floor in the
early part of 2009, prices for modern secondhand drybulk carriers have staged a modest recovery.
Drybulk Carrier Secondhand Prices 5 Year Old Vessels*
(Million U.S. Dollars)
* Handysize vessel is 10 years old
Source:
Drewry
55
Port Congestion
Supply of drybulk carrier capacity is also affected by the operating efficiency of the global
fleet. In recent years, the growth in trade has led to port congestion, with ships at times being
forced to wait outside port to either load or discharge due to limited supply of berths at major
ports. At major Australian coal and iron ports in mid-2009, delays were several days for most
vessels, and there have also been delays in unloading at Chinese drybulk terminals. In effect,
port delays absorb shipping capacity, and the potential impact of this type of delay on capacity is
shown in the chart below.
Port Delays Impact on Shipping Capacity
Indicates reduction in shipping capacity of a 170,000 dwt Capesize bulk carrier
trading iron ore on round voyages
Source: Drewry
Based on a Capesize bulk carrier trading iron ore on a round voyage pattern from Australia to
China, a 10 day delay for loading on each voyage would reduce the overall transportation capacity
of the vessel by 30%. Hence, it is easy to see that delays at major bulk carrier loading ports
have reduced the amount of available shipping capacity in the sector, and in doing so have led to a
much tighter balance between overall supply and demand.
Charter Market
Drybulk vessels are employed in the market through a number of different chartering options.
The general terms typically found in these types of contracts are described below.
|
|
Time Charter. A charter under which the vessel owner is paid charterhire on a per-day
basis for a specified period of time. Typically, the ship owner receives semi-monthly
charterhire payments on a U.S. Dollar-per-day basis and is responsible for providing the crew
and paying vessel operating expenses while the charterer is responsible for paying the voyage
expenses and additional voyage insurance. Under time charters, including trip time charters,
the charterer pays voyage expenses such as port, canal and fuel costs and bunkers. |
|
|
Trip Charter. A time charter for a trip to carry a specific cargo from a load port to a
discharge port at a set daily rate. |
|
|
Voyage Charter. A voyage charter involves the carriage of a specific amount and type of
cargo on a load port-to-discharge port basis, subject to various cargo handling terms. Most
of these charters are of a single voyage nature, as trading patterns do not encourage round
voyage trading. The owner of the vessel receives one payment derived by multiplying the
tonnage of cargo loaded on board by the agreed upon freight rate expressed on a U.S.
dollar-per-ton basis. The owner is responsible for the payment of all voyage and operating
expenses, as well as the capital costs of the vessel. |
56
|
|
Spot Charter. Generally refers to a voyage charter or a trip charter (see separate
definitions), which generally last from 10 days to three months. Under both types of spot
charters, the ship owner would pay for vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, and
for commissions on gross revenues. The ship owner would also be responsible for each vessels
intermediate and special survey costs. |
|
|
Contract of Affreightment A contract of affreightment, or CoA, relates to the carriage of
multiple cargoes over the same route and enables the CoA holder to nominate different vessels
to perform the individual voyages. Essentially, it constitutes a series of voyage charters to
carry a specified amount of cargo during the term of the CoA, which usually spans a number of
years. All of the ships operating expenses, voyage expenses and capital costs are borne by
the ship owner. Freight normally is agreed on a U.S. dollar-per-ton basis. |
|
|
Bareboat Charter A bareboat charter involves the use of a vessel usually over longer
periods of time ranging over several years. In this case, all voyage related costs, mainly
vessel fuel and port dues, as well as all vessel-operating expenses, such as day-to-day
operations, maintenance, crewing and insurance, are for the charterers account. The owner of
the vessel receives monthly charter hire payments on a U.S. dollar per day basis and is
responsible only for the payment of capital costs related to the vessel. A bareboat charter
is also known as a demise charter or a time charter by demise. |
Charter Rates
In the time charter market, rates vary depending on the length of the charter period and
vessel specific factors such as age, speed, size 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.
Voyages loading from a port where vessels usually discharge cargo, or discharging from a port where
vessels usually load cargo, are generally quoted at lower rates. This is because such voyages
generally increase vessel efficiency by reducing the unloaded portion (or ballast leg) that is
included in the calculation of the return charter to a loading area.
Within the drybulk shipping industry, the freight rate indices issued by the Baltic Exchange
in London are the references most likely to be monitored. These references are based on actual
charter hire rates under charters entered into by market participants as well as daily assessments
provided to the Baltic Exchange by a panel of major shipbrokers. The chart below illustrates
Baltic Freight Indices over the period 1999 to August 2009.
The Baltic Exchange, an independent organization comprised of shipbrokers, shipping companies
and other shipping players, provides daily independent shipping market information and has created
freight rate indices reflecting the average freight rates (that incorporate actual business
concluded as well as daily assessments provided to the exchange by a panel of independent
shipbrokers) for the major bulk vessel trading routes. These indices include the Baltic Panamax
Index, or BPI, the index with the longest history and, more recently, the Baltic Capesize Index, or
BCI. The following chart details the movement of the BPI, BCI and Baltic Handymax Index from 1999
to the end of August 2009.
57
Baltic Exchange Freight Indices: 1999 to 2009
(Index Points)
The BSI replaced the BHMI on 03.01.06, although the index has been calculated since 01.07.05
Source: Baltic Exchange
Charter (or hire) rates paid for drybulk vessels are generally a function of the underlying
balance between vessel supply and demand. Over the past 25 years, drybulk cargo charter rates have
passed through cyclical phases and changes in vessel supply and demand have created a pattern of
rate peaks and troughs, which can been from the chart above. Generally, spot/voyage charter
rates will be more volatile than time charter rates, as they reflect short term movements in demand
and of course market sentiment.
The trend in voyage rates expressed in terms of a time charter equivalent is shown in the
following chart for representative drybulk vessels.
Drybulk Vessels TCE Rates
(US$ Per Day)
Source: Drewry
58
In the time charter market, rates vary depending on the length of the charter period as well
as vessel specific factors, such as age, speed and fuel consumption. Generally, short-term time
charter rates are higher than long-term charter rates. The market benchmark tends to be a 12-month
time charter rate, based on a modern vessel.
From early 2006 until the middle of 2008, rates for all sizes of drybulk vessels increased
significantly and in most cased reached record levels. However, the severe downturn in the global
economy in the second half of 2008 and the collapse in demand for drybulk vessels led rates to
plummet almost overnight to record lows. Since then rates have stabilized and in some cases have
staged something of recovery, but not to the levels seen in 2007 and 2008.
The following charts show one-year time charter rates for Capesize, Panamax, Supramax and
Handysize class vessels between 1996 and August 2009.
One Year Time Charter Rates: 1996 to 2009
(U.S. Dollars per Day)
Source: Drewry.
The following table illustrates a comparison of average one year time charter rates for
Handysize, Supramax, Panamax, Capesize and VLOC drybulk carriers between 2000 and August 2009.
Drybulk Carriers One-Year Time Charter Rates (Period Averages)
(U.S. Dollars per Day)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handysize |
|
Supramax |
|
Panamax |
|
Capesize |
|
VLOC |
|
|
28,000 dwt |
|
55,000 dwt |
|
75,000 dwt |
|
170,000 dwt |
|
200,000 dwt+ |
|
|
10-15 years old |
|
1-5 years old |
|
1-5 years old |
|
1-5 years old |
|
1-5 years old |
|
2000 |
|
|
7,371 |
|
|
|
9,433 |
|
|
|
11,063 |
|
|
|
18,021 |
|
|
|
n/a |
|
2001 |
|
|
5,629 |
|
|
|
8,472 |
|
|
|
9,543 |
|
|
|
14,431 |
|
|
|
n/a |
|
2002 |
|
|
4,829 |
|
|
|
7,442 |
|
|
|
9,102 |
|
|
|
13,608 |
|
|
|
n/a |
|
2003 |
|
|
8,289 |
|
|
|
13,736 |
|
|
|
17,781 |
|
|
|
30,021 |
|
|
|
n/a |
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handysize |
|
Supramax |
|
Panamax |
|
Capesize |
|
VLOC |
|
|
28,000 dwt |
|
55,000 dwt |
|
75,000 dwt |
|
170,000 dwt |
|
200,000 dwt+ |
|
|
10-15 years old |
|
1-5 years old |
|
1-5 years old |
|
1-5 years old |
|
1-5 years old |
|
2004 |
|
|
14,413 |
|
|
|
31,313 |
|
|
|
36,708 |
|
|
|
55,917 |
|
|
|
n/a |
|
2005 |
|
|
12,021 |
|
|
|
23,038 |
|
|
|
27,854 |
|
|
|
49,333 |
|
|
|
54,330 |
|
2006 |
|
|
12,558 |
|
|
|
21,800 |
|
|
|
22,475 |
|
|
|
45,646 |
|
|
|
50,650 |
|
2007 |
|
|
23,021 |
|
|
|
43,946 |
|
|
|
52,229 |
|
|
|
102,875 |
|
|
|
107,920 |
|
2008 |
|
|
24,110 |
|
|
|
48,310 |
|
|
|
56,480 |
|
|
|
116,180 |
|
|
|
119,240 |
|
Aug 09(1) |
|
|
9,400 |
|
|
|
15,700 |
|
|
|
22,000 |
|
|
|
41,800 |
|
|
|
36,000 |
|
|
|
|
(1) |
|
Average rate for August 2009. |
|
Source: Drewry |
BUSINESS
Overview
We are a Marshall Islands corporation formed in October 2009 by Genco (NYSE: GNK). Our
business is to own drybulk vessels, and we will employ a chartering strategy intended to maximize
cash flow from our vessels through trading in the spot market, on spot market-related time charters
known as trip charters, or in vessel pools trading in the spot market. We expect to benefit from
Gencos expertise, relationships and reputation as we operate our fleet and pursue accretive growth
opportunities. We intend to distribute to our shareholders on a quarterly basis all of our Cash
Available for Distribution. Our primary objective is to increase our dividends on a per-share
basis.
We intend to grow our fleet through acquisitions of existing vessels from other parties as
well as newbuildings. We believe that the recent economic downturn has resulted in historically
low valuation levels for dry bulk vessels and that, as a result, there will be significant
opportunities to acquire vessels that will provide attractive returns to investors. Our intention
is to seek growth opportunities that will provide accretive earnings and cash flow and that can be
financed on acceptable terms.
Our operations will be managed, under the supervision of our executive officers and board of
directors, by Genco, our Manager. Since its inception, our Manager has established a strong
reputation with major international charterers, shipbuilders and financial institutions that we
believe will significantly enhance our ability to create value for shareholders. Our Manager has
built its own fleet from 16 drybulk vessels to 35 owned or contracted vessels today while
maintaining one of the lowest cost structures in the industry. Upon the closing of this offering,
we will enter into the Management Agreement pursuant to which our Manager and its affiliates will
provide to us commercial, technical, administrative and strategic services. We will pay our Manager
management fees for these services and will reimburse our Manager for its direct and indirect
expenses in providing these services as well as the pro rata portion of the salary and other costs
incurred by our Manager in employing and compensating an internal auditor who will be made
available to us on a part time basis.
Immediately after the completion of this offering, Genco will own all of our outstanding
shares of Class B Stock, which represents 100% of our outstanding Class B Stock but represents
% of the aggregate voting power of our Common Stock and Class B Stock, or % of such
aggregate voting power if the underwriters exercise their over-allotment option in full.
Fleet
At the time of this offering, we do not own any vessels. Prior to the consummation of this
offering, we intend to enter into agreements with third parties for the purchase of one or more
drybulk vessels. We intend to use most of the proceeds from this
offering to purchase our initial fleet.
We anticipate our fleet will be comprised primarily of Capesize, Panamax and Supramax vessels
but will evaluate all classes of drybulk vessels for potential acquisition. We will seek to grow
our fleet through timely and selective acquisitions of drybulk vessels. In evaluating vessel
purchases, we plan to acquire modern vessels with high specifications that we believe will provide
an attractive return on equity and will be accretive to earnings and cash flow based on anticipated
market rates at the time of purchase. We believe that having the flexibility to operate a range
of drybulk vessels will allow us to take advantage of periodic value dislocations of assets and
provide accretive acquisitions for investors. Although we have not entered into any specific
transactions at this time, we currently expect that we will purchase five to seven vessels
by the end of 2010. Based on current market prices, we expect the purchase price for Capesize
vessels to be from $ to $ per vessel; for Panamax vessels,
from $ to $ per vessel; and for Supramax vessels, from $ to
$ per vessel Accordingly, we expect our total expenditures to
acquire vessels through the end of 2010 to be from $ to $ .
60
Our Competitive Strengths
We believe that we will possess a number of strengths that will provide us with a competitive
advantage in the drybulk shipping industry, including the following:
|
|
Our Chairman and board of directors have substantial experience in the shipping industry.
Peter C. Georgiopoulos, the Chairman of our board of directors, is the founder and Chairman of
Genco Shipping & Trading Limited (NYSE: GNK), our parent company and a publicly traded drybulk
shipping company; the founder and Chairman and former CEO of General Maritime Corp. (NYSE:
GMR), a publicly-traded supplier of international seaborne crude oil transportation services;
and the Chairman of Aegean Marine Petroleum Network Inc. (NYSE: ANW) a leading marine fuel
logistics company. Mr. Georgiopoulos oversaw the growth of Genco from its initial fleet of 16
drybulk vessels to 35 owned or contracted vessels today and the growth of General Maritime
from a single-vessel privately owned company to a publicly traded owner and operator of 31
tankers today. |
|
|
We have an experienced U.S.-based management team. Our management team will be based in
New York City and includes executives with extensive experience in the shipping industry who
have demonstrated substantial ability in managing the commercial, technical and financial
aspects of our business. Key members of our management team include our President and Chief
Financial Officer, John C. Wobensmith, who has 16 years of experience in the shipping
industry, specializing in shipping finance and the capital markets, and a commercial
chartering manager to be identified. |
|
|
We expect to have a strong balance sheet and intend to maintain a minimum amount of
leverage. Following this offering we will have low leverage with no debt. We expect to
finance future vessel acquisitions primarily through future equity follow-on offerings and
internally generated cash flow. We intend to seek a revolving credit facility primarily to
provide bridge financing for vessel acquisitions. We believe that maintaining a minimum
amount of leverage and the ability to access capital through a credit facility will provide us
significant financial flexibility to pursue accretive transactions in a timely manner. |
|
|
We intend to maintain an efficient management structure with low operating cost. Genco, our
Manager, will provide the commercial and technical management of our fleet through a
management contract. In addition, Genco will provide administrative and strategic services
allowing us to benefit from their established credibility in the market place while keeping
costs at attractive levels. Commercial management involves negotiating charters for vessels
and monitoring the performance of our vessels under their charters. Strategic management
involves locating, purchasing, financing and selling vessels. Genco will apply its
significant experience in successfully managing its own fleet to manage the drydocking,
budgeting, and sale and purchase of vessels in our fleet. Genco intends to retain the
commercial management of our fleet in-house, thereby benefiting from the substantial
experience and relationships of its management team in the shipping industry. Please read
Our Manager and Management Agreements Management Agreement. We believe our management
structure, which will include outsourcing of our technical management to qualified third-party
independent technical managers under Gencos supervision, will significantly enhance the
scalability of our business, allowing us to expand our fleet without substantial increases in
overhead costs. We also expect to realize cost benefits based on the combined size of Gencos
fleet and our fleet from the extensive network of sellers of vessel supplies, crewing
companies, insurers, and other service providers that Genco and its management team has built
over the years. |
61
|
|
We expect to benefit from Gencos strong relationships with members of the shipping
industry. Our experienced management team and Genco, our Manager, have developed strong
relationships with major international charterers, such as Cargill International S.A., Cosco
Bulk Carriers Co., Ltd., STX Panocean (UK) Co., Ltd., BHP Billiton, Louis Dreyfus Corporation,
ArcelorMittal and Clipper Bulk Shipping, N.V. as well as shipbuilders and financial
institutions. We believe our relationship with Genco and its affiliates will provide us with
numerous benefits that are key to our long-term growth and success, including Gencos
expertise in commercial management and Gencos reputation within the shipping industry and
network of strong relationships with many of the worlds drybulk raw material producers,
agricultural traders and exporters, industrial end-users, shipyards, and shipping companies.
Genco has leveraged these relationships to enter into
charters at favorable rates, consummate acquisitions that have been accretive to earnings, and
generate sizeable returns to Gencos shareholders since Gencos initial public offering in 2005.
We believe that these relationships will lead to greater asset acquisition opportunities and
will provide significant opportunities for future growth. |
|
|
We intend to acquire a modern, high-quality fleet of drybulk vessels. Our vessel
acquisitions will target modern vessels built in shipyards with reputations for constructing
high-quality vessels. We believe that owning a modern, high-quality fleet is more attractive
to charterers, reduces operating costs and fuel consumption and allows our fleet to be more
reliable, which improves utilization. Capesize vessels are primarily dedicated to the carriage
of iron ore and coal over long distances. Panamax and Supramax vessels are highly flexible
vessels capable of carrying a wide range of drybulk commodities, including iron ore, coal,
grain and fertilizer, and of being accommodated in most major discharge ports. We believe that
owning a high-quality, flexible fleet will provide us with a competitive advantage in the
charter market, where vessel age, flexibility and quality are of significant importance in
competing for business. Where applicable we will seek to acquire sister ships which will
provide further operating efficiencies. All of these factors will provide us with a
competitive advantage in securing favorable employment of our vessels. |
Business Strategy
Our strategy is to manage and expand our fleet in a manner that maximizes our cash flows from
operations and enables us to pay attractive dividends to our shareholders. Key elements of our
business strategy include:
|
|
Deploy our vessels in the spot market. We seek to provide shareholders with the
opportunity to invest in a company with a strategic focus on the drybulk spot market by
deploying our vessels on voyage or time charters or in vessel pools that are related to the
spot market. Please see Business Our Charters for a description of the kinds of charters
we plan to enter into. |
|
|
Return a substantial portion of our cash flow to shareholders through quarterly dividends.
We intend to pay quarterly dividends to our shareholders approximately equal to our net income
minus cash expenditures for our fleet, other than vessel acquisitions and related expenses, plus non-cash compensation
(see Our Dividend Policy and Restrictions on Dividends). We believe that our management
agreement, which will provide for management fees plus reimbursement of costs and expenses,
will help to stabilize our cost structure. As we intend to primarily finance acquisitions
through equity financing as well as internally generated cash flow and to maintain low
leverage, we expect our cash flow to be sufficient to support quarterly dividends. |
|
|
Maintaining a strong balance sheet. We believe that maintaining a strong balance sheet
that is primarily equity financed will provide substantial security to investors, provide us
with significant liquidity to pursue vessel acquisitions, and support our dividend policy. We
expect to finance future vessel acquisitions primarily through future equity follow-on
offerings, internally generated cash flow and selective borrowing under a credit facility we
intend to enter into that will provide us with bridge financing. We believe that maintaining a
minimum amount of leverage will provide us the financial flexibility to pursue accretive
transactions. |
|
|
Strategically expand the size of our fleet. We intend to acquire modern, high-quality
drybulk carriers through timely and selective acquisitions of vessels in a manner that is
accretive to our earnings and cash flow. We currently view Capesize, Panamax and Supramax
vessel classes as providing attractive return characteristics, but will evaluate all classes
of drybulk vessels for potential acquisition. A key element to our acquisition strategy will
be to pursue vessels at attractive valuations relative to the valuation of our public equity.
We believe that our charter strategy and financial flexibility will allow us to make
additional accretive acquisitions. |
62
|
|
Operate a high-quality fleet - We intend to maintain a modern, high-quality fleet that
meets or exceeds stringent industry standards and complies with charterer requirements through
our technical managers comprehensive maintenance program. In addition, our technical
managers maintain the quality of our vessels by carrying out regular inspections, both while
in port and at sea. We also intend to provide superior customer service by maintaining high
standards of performance, reliability and safety. Our customers seek transportation partners
that have a reputation for such high standards. We intend to leverage Gencos operational
expertise and
customer relationships to enhance our competitiveness through seeking to consistently deliver
superior customer service. |
|
|
Maintain low-cost, highly efficient operations - We expect that, under the Management
Agreement we plan to enter into with Genco, Genco will subcontract the technical management of
our fleet to qualified third-party independent technical managers. We believe that Genco will
be able to do so at a cost lower than what could be achieved by performing the function
in-house. We expect that Gencos management team will actively monitor and control vessel
operating expenses incurred by the independent technical managers by overseeing their
activities. |
|
|
Capitalize on our management teams experience and reputation - We intend to capitalize on
the reputation of the management team at Genco and our company for high standards of
performance, reliability and safety, and maintain strong relationships with major
international charterers and other owners, many of whom consider the reputation of a vessel
owner and operator when entering into charters and asset sales. We believe that we can draw
upon our relationship with Genco and its established reputation in order to obtain favorable
charters and attract new customers. We believe that our management teams track record
improves our relationships with high quality shipowners, charterers and financial
institutions, many of which consider reputation to be an indicator of creditworthiness. |
Our Charters
Chartering Strategy
We intend to operate our vessels on voyage charters in the spot market; on trip charters,
which are spot market-related time charters we describe below; or in vessel pools trading in the
spot market. Spot market revenues may generate increased profit margins during times when vessel
rates are escalating, while vessels operating under fixed-rate time charters generally provide more
predictable cash flows. We will seek to charter our vessels to maximize cash flow from our vessels
based on our Managers outlook for freight rates, vessel market conditions and global economic
conditions. Under all of the arrangements described below, we will generally be required, among
other things, to keep our vessels seaworthy, to crew and maintain our vessels, and to comply with
applicable regulations.
Voyage Charters. Vessels operating in the spot market typically are chartered for a single
voyage, which may last up to several weeks. Under a typical voyage charter in the spot market, the
shipowner is paid on the basis of moving cargo from a loading port to a discharge port. The
shipowner is responsible for paying both vessel operating costs and voyage expenses, and the
charterer is responsible for any delay at the loading or discharging ports. Voyage expenses are all
expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo
loading and unloading expenses, canal tolls, agency fees and commissions. Vessel operating expenses
include crewing, repairs and maintenance, insurance, stores, lube oils, bunkers and communication
expenses.
Trip Charters. Under a typical trip charter in the spot market, the shipowner is paid on the
basis of moving cargo from a loading port to a discharge port at a set daily rate. The charterer
is responsible for paying for bunkers and other voyage expenses, while the shipowner is responsible
for paying vessel operating expenses. When the vessel is off-hire, or not available for service,
the shipowner generally is not entitled to payment, unless the charterer is responsible for the
circumstances giving rise to the lack of availability.
63
Vessel Pools. Vessel pool arrangements provide the benefits of a large-scale operation and
chartering efficiencies that might not be available to smaller fleets. Under a pool arrangement,
the vessels operate under a time charter agreement whereby the cost of bunkers and port expenses
are borne by the pool and operating costs including crews, maintenance and insurance are typically
paid by the owner of the vessel. Members of the pool share in the revenue generated by the entire
group of vessels in the pool. When the vessel is off-hire, the shipowner generally is not entitled
to payment, unless the charter of a vessel in the pool is responsible for the circumstances giving
rise to the lack of availability.
Ship Management and Maintenance. We will be responsible for the technical management of
the vessel and for maintaining the vessel, periodic drydocking, cleaning and painting and
performing work required by
regulations. Our Manager will provide these services to us pursuant to the Management Agreement for
our vessels. Please read Management and Management Agreements Management Agreement.
Termination. Each of our charters will terminate upon loss of the applicable
vessel. In addition, vessel owners are generally entitled to suspend
performance if the charterer defaults in its payment obligations under a time charter. Either party may also terminate
the charter in the event of war in specified countries or in locations that would significantly
disrupt the free trade of the vessel.
Classification and Inspection
Every commercial vessels hull and machinery is evaluated by a classification society
authorized by its country of registry. The classification society certifies that the vessel has
been built and maintained in accordance with the rules of the classification society and complies
with applicable rules and regulations of the vessels country of registry and the international
conventions of which that country is a member. Each vessel is inspected by a surveyor of the
classification society in three surveys of varying frequency and thoroughness: every year for the
annual survey, every two to three years for the intermediate survey and every four to five years
for special surveys. Special surveys always require drydocking. Vessels that are 15 years old or
older are required, as part of the intermediate survey process, to be drydocked every 24 to 30
months for inspection of the underwater portions of the vessel and for necessary repairs stemming
from the inspection.
We expect that in addition to the classification inspections, many of our customers will
regularly inspect our vessels as a precondition to chartering them for voyages. We believe that
well-maintained, high-quality vessels will provide us with a competitive advantage in the current
environment of increasing regulation and customer emphasis on quality.
We plan to implement the International Safety Management Code, which was promulgated by the
International Maritime Organization, or IMO (the United Nations agency for maritime safety and the
prevention of marine pollution by ships), to establish pollution prevention requirements applicable
to vessels. We also plan to obtain documents of compliance for our offices and safety management
certificates for all of our vessels for which the certificates are required by the IMO.
Crewing and Employees
We expect that each drybulk vessel we own will be crewed with 20 to 23 officers and
seamen. Our technical managers will be responsible for locating and retaining qualified officers
for our vessels. The crewing agencies handle each seamans training, travel and payroll, and
ensure that all the seamen on our vessels have the qualifications and licenses required to comply
with international regulations and shipping conventions. We intend generally to man our vessels
with more crew members than are required by the country of the vessels flag in order to allow for
the performance of routine maintenance duties.
64
Customers
Our assessment of a charterers financial condition and reliability is an important factor in
negotiating employment for our vessels. We intend to generally charter our vessels to major
trading houses (including commodities traders), major producers and government-owned entities
rather than to more speculative or undercapitalized entities.
Competition
We expect our business to fluctuate in line with the main patterns of trade of the major
drybulk cargoes and vary according to changes in the supply and demand for these items. We plan to
operate in markets that are highly competitive and based primarily on supply and demand. We expect
to compete for charters on the basis of price,
vessel location and size, age and condition of the vessel, as well as on our reputation as an
owner and operator. We expect to compete with other owners of drybulk carriers in the Capesize,
Panamax, Supramax, Handymax and Handysize class sectors, some of whom may also charter our vessels
as customers. Ownership of drybulk carriers is highly fragmented and is divided among
approximately 1,300 independent drybulk carrier owners.
In addition, Genco may compete with us and is not contractually restricted from doing so. Our
Amended and Restated Articles of Incorporation that will be in effect before the closing of this
offering and the Omnibus Agreement specify that Genco will have a right of first refusal with
respect to business opportunities generally except with respect to certain spot charter
opportunities, as to which we will have a right of first refusal. We expect that the most common
types of business opportunities for which Genco will have a right of first refusal will be vessel
acquisitions and charters other than the spot charter opportunities for which we have a right of
first refusal.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain
permits, licenses, certificates and other authorizations with respect to our vessels. The kinds of
permits, licenses, certificates and other authorizations required for each vessel depend upon
several factors, including the commodity transported, the waters in which the vessel operates, the
nationality of the vessels crew and the age of the vessel. We expect to have all material
permits, licenses, certificates and other authorizations necessary for the conduct of our
operations. However, additional laws and regulations, environmental or otherwise, may be adopted
which could limit our ability to do business or increase the cost of our doing business.
Insurance
General
The operation of any drybulk vessel includes risks such as mechanical failure, collision,
property loss, cargo loss or damage and business interruption due to political circumstances in
foreign countries, piracy, 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. The U.S. Oil
Pollution Act of 1990, or OPA, which imposes virtually unlimited liability upon owners, operators
and demise charterers of vessels trading in the U.S.-exclusive economic zone for certain oil
pollution accidents in the United States, has made liability insurance more expensive for ship
owners and operators trading in the U.S. market.
While we expect to maintain hull and machinery insurance, war risks insurance, protection and
indemnity cover, and freight, demurrage and defense cover and loss of hire insurance for our 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 vessels useful life. Furthermore,
not all risks can be insured, and there can be no guarantee that any specific claim will be paid,
or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery, War Risks, Kidnap and Ransom Insurance
We expect to maintain marine hull and machinery, war risks and kidnap and ransom insurance
which cover the risk of actual or constructive total loss, for all of our vessels. We plan for our
vessels to each be covered up to at least fair market value with deductibles, which will depend
primarily on the class of the insured vessel and will be subject to change. We plan to be covered,
subject to applicable limitations in our policy, to have the crew released in the case of
kidnapping due to piracy in the Gulf of Aden / Somalia.
65
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.
We plan to maintain protection and indemnity insurance coverage for pollution of $1 billion
per vessel per incident. The 13 P&I Associations that comprise the International Group insure
approximately 90% of the worlds commercial tonnage and have entered into a pooling agreement to
reinsure each associations liabilities. We intend to become a member of a P&I Association, which
is a member of the International Group. As a result, we will be subject to calls payable to the
associations based on the groups 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.
Loss of Hire Insurance
We plan to maintain loss of hire insurance, which covers business interruptions and related
losses that result from the loss of use of a vessel. We expect our loss of hire insurance will
have a 14-day deductible and provide claim coverage for up to 90 days. We expect our loss of hire
insurance for piracy in the Gulf of Aden / Somalia has a 20-day deductible and provide claim
coverage for up to 50 days.
Environmental and Other Regulations
Government
regulation will significantly affect the ownership and operation of
our vessels. We will be
subject to international conventions and treaties, and, in the countries in which our vessels may
operate or are registered, national, state and local laws and regulations in force in the countries
in which our vessels may operate or are registered relating to safety and health and environmental
protection, including the storage, handling, emission, transportation and discharge of hazardous
and non-hazardous materials, and the remediation of contamination and liability for damage to
natural resources. Compliance with such laws, regulations and other requirements entails
significant expense, including vessel modifications and implementation of certain operating
procedures.
A
variety of governmental and private entities will subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities, (applicable national
authorities such as the U.S. Coast Guard and harbor masters), classification societies, flag state
administrations (countries of registry) and charterers. Some of these
entities will require us to obtain
permits, licenses, certificates, financial assurances and other authorizations for the operation of
our vessels. Our failure to maintain necessary permits, certificates or approvals could require us
to incur substantial costs or result in the temporary suspension of operation of one or more of our
vessels.
66
In recent periods, heightened levels of environmental and operational safety concerns among
insurance underwriters, regulators and charterers have led to greater inspection and safety
requirements on all vessels and may accelerate the scrapping of older vessels throughout the
drybulk shipping industry. Increasing environmental concerns have created a demand for vessels that
conform to the stricter environmental standards. We believe that the
operation of our vessels will be in
substantial compliance with applicable environmental laws and
regulations and that our vessels will have
all material permits, licenses, certificates or other authorizations necessary for the conduct of
our operations. However, because such laws and regulations are frequently changed and may impose
increasingly stricter requirements, we cannot predict the ultimate cost of complying with these
requirements, or the impact of these requirements on the resale value or useful lives of our
vessels. In addition, a future serious marine incident that results in significant oil pollution or
otherwise causes significant adverse environmental impact could result in additional legislation or
regulation that could negatively affect our profitability.
International Maritime Organization (IMO)
The IMO, the United Nations agency for maritime safety and the prevention of pollution by
ships, has adopted the International Convention for the Prevention of Marine Pollution, 1973, as
modified by the related Protocol of 1978, which has been updated through various amendments, or the
MARPOL Convention. The MARPOL Convention establishes environmental standards relating to oil
leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious
liquids and the handling of harmful substances in packaged forms. The IMO adopted regulations that
set forth pollution prevention requirements applicable to drybulk carriers. These regulations have
been adopted by over 150 nations, including many of the jurisdictions in which our vessels operate.
Air Emissions
In September 1997, the IMO adopted Annex VI to the MARPOL Convention to address air pollution
from ships. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions
from all commercial vessel exhausts and prohibits deliberate emissions of ozone depleting
substances (such as halons and chlorofluorocarbons), emissions of volatile organic compounds from
cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global
cap on the sulfur content of fuel oil and allows for special areas to be established with more
stringent controls on sulfur emissions. In October 2008, the IMO adopted amendments to Annex VI
regarding particulate matter, nitrogen oxide and sulfur oxide emission standards which are expected
to enter into force on July 1, 2010. The amended Annex VI would reduce air pollution from vessels
by, among other things, (i) implementing a progressive reduction of sulfur oxide, emissions from
ships, with the global sulfur cap reduced initially to 3.50% (from the current cap of 4.50%),
effective from January 1, 2012, then progressively to 0.50%, effective from January 1, 2020, subject
to a feasibility review to be completed no later than 2018; and (ii) establishing new tiers of
stringent nitrogen oxide emissions standards for new marine engines, depending on their date of
installation. The United States ratified the Annex VI amendments in October 2008, thereby rendering its emissions standards equivalent to IMO requirements. Once these
amendments become effective, we may incur costs to comply with the revised standards.
67
Safety Management System Requirements
The IMO also adopted the International Convention for the Safety of Life at Sea, or SOLAS and
the International Convention on Load Lines, or LL Convention, which impose a variety of standards
that regulate the design and operational features of ships. The IMO periodically revises the SOLAS
Convention and LL Convention Standards.
Under Chapter IX of SOLAS, the International Safety Management Code for the Safe Operation of
Ships and for Pollution Prevention, or ISM Code, our operations are also subject to environmental
standards and requirements contained in the ISM Code promulgated by the IMO. The ISM Code requires
the party with operational control of a vessel to develop an extensive safety management system
that includes, among other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and describing
procedures for responding to emergencies. We will rely upon the safety management system that we and our
technical manager will implement for compliance with the ISM Code. The failure of a 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.
The ISM Code requires that vessel operators also obtain a safety management certificate for
each vessel they operate. This certificate evidences compliance by a vessels management with code
requirements for a safety management system. No vessel can obtain a certificate unless its manager
has been awarded a document of compliance, issued by each flag state, under the ISM Code. We
believe that we will have all material requisite documents of compliance for our offices and safety
management certificates for all of our vessels for which such certificates are required by the IMO.
We will renew these documents of compliance and safety management certificates as required.
68
Pollution Control and Liability Requirements
IMO has negotiated international conventions that impose liability for oil pollution in
international waters and the territorial waters of the nations signatory to such conventions. For
example, IMO adopted an International Convention for the Control and Management of Ships Ballast
Water and Sediments, or the BWM Convention, in February 2004. The BWM Conventions implementing
regulations call for a phased introduction of mandatory ballast water exchange requirements
(beginning in 2009), to be replaced in time with mandatory concentration limits. The BWM Convention
will not become effective until 12 months after it has been adopted by 30 states, the combined
merchant fleets of which represent not less than 35% of the gross tonnage of the worlds merchant
shipping. To date, there has not been sufficient adoption of this standard for it to take force.
Although the United States is not a party to these conventions, many countries have ratified
and follow the liability plan adopted by the IMO and set out in the International Convention on
Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the CLC. Under this
convention and depending on whether the country in which the damage results is a party to the 1992
Protocol to the CLC, a vessels registered owner is strictly liable, subject to certain defenses,
for pollution damage caused in the territorial waters of a contracting state by discharge of
persistent oil. The limits on liability outlined in the 1992 Protocol use the International
Monetary Fund currency unit of Special Drawing Rights, or SDR. Under an amendment to the 1992
Protocol that became effective on November 1, 2003, for vessels between 5,000 and 140,000 gross
tons (a unit of measurement for the total enclosed spaces within a vessel), liability is limited to
approximately 4.51 million SDR plus 631 SDR for each additional gross ton over 5,000. For vessels
of over 140,000 gross tons, liability is limited to 89.77 million SDR. The exchange rate between
SDRs and dollars was 0.634113 SDR per dollar on October 2, 2009. As the convention calculates
liability in terms of a basket of currencies, these figures are based on currency exchange rates on
October 2, 2009. The right to limit liability is forfeited under the CLC where the spill is caused
by the shipowners actual fault and under the 1992 Protocol where the spill is caused by the
shipowners intentional or reckless conduct. Vessels trading with states that are parties to these
conventions must provide evidence of insurance covering the liability of the owner. In
jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner
similar to that of the CLC. We believe that our protection and indemnity insurance will cover the
liability under the plan adopted by the IMO.
69
Noncompliance with the ISM Code or other IMO regulations may subject the vessel owner or
bareboat charterer to increased liability, lead to decreases in available insurance coverage for
affected vessels or result in the denial of access to, or detention in, some ports. The U.S. Coast
Guard and European Union authorities have indicated that vessels not in compliance with the ISM
Code by the applicable deadlines will be prohibited from trading in U.S. and European Union ports,
respectively. We expect that each of our vessels will be ISM Code-certified, but there can be no
assurance that such certifications will be maintained in the future.
The IMO continues to review and introduce new regulations. It is impossible to predict what
additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations
might have on our operations.
The U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation and
Liability Act
The U.S. 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. The United States has also enacted the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to
the discharge of hazardous substances other than oil, whether on land or at sea. Both OPA and
CERCLA impact our operations.
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:
|
|
natural resources damage and the costs of assessment thereof; |
|
|
|
real and personal property damage; |
|
|
|
net loss of taxes, royalties, rents, fees and other lost revenues; |
|
|
|
lost profits or impairment of earning capacity due to property or natural resources damage; and |
|
|
|
net cost of public services necessitated by a spill response, such as protection from fire,
safety or health hazards,
and loss of subsistence use of natural resources. |
70
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability for non-tank
vessels to the greater of $1,000 per gross ton or $854,400 and established a procedure for
adjusting the limits for inflation every three years. CERCLA, which applies to owners and operators
of vessels, contains a similar liability regime and provides for cleanup, removal and natural
resource damages. Liability under CERCLA is limited to the greater of $300 per gross ton or $5
million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton
or $0.5 million for any other vessel. These OPA and CERCLA limits of liability do not apply if an
incident was directly caused by violation of applicable U.S. federal safety, construction or
operating regulations or by a responsible partys gross negligence or willful misconduct, or if the
responsible party fails or refuses to report the incident or to cooperate and assist in connection
with oil removal activities.
OPA also requires owners and operators of vessels to establish and maintain with the U.S.
Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential
liability under OPA and CERCLA. Vessel owners and operators may satisfy their financial
responsibility obligations by providing a proof of insurance, a surety bond, self-insurance or a
guaranty. We plan to comply with the U.S. Coast Guards financial responsibility regulations by
providing a certificate of responsibility evidencing sufficient self-insurance.
We expect to maintain pollution liability coverage insurance in the amount of $1 billion per
incident for each of our vessels. If the damages from a catastrophic spill were to exceed our
insurance coverage, it could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in
U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict
liability in the form of penalties for any unauthorized discharges. The CWA also imposes
substantial liability for the costs of removal, remediation and damages and complements the
remedies available under OPA and CERCLA.
The U.S. Environmental Protection Agency, or the EPA, regulates the discharge of ballast water
and other substances in U.S. waters under the CWA. Effective February 6, 2009, EPA regulations
require vessels 79 feet in length or longer (other than commercial fishing vessels) to obtain a
Vessel General Permit authorizing discharges of ballast waters and other wastewaters incidental to
the operation of vessels. U.S. Coast Guard regulations adopted under the U.S. National Invasive
Species Act, or NISA, also impose mandatory ballast water management practices for all vessels
equipped with ballast water tanks entering U.S. waters, and the Coast Guard recently proposed new
ballast water management standards and practices. Compliance with the EPA and the U.S. Coast Guard
regulations could require the installation of equipment on our vessels to treat ballast water
before it is discharged or the implementation of other port facility disposal arrangements or
procedures at potentially substantial cost, and/or otherwise restrict our vessels from entering
U.S. waters.
71
The United States has requested IMO to designate the area extending 200 miles from the
territorial sea baseline adjacent to the Atlantic/Gulf and Pacific coasts and the Hawaiian Islands
as Emission Control Areas under the MARPOL Annex VI amendments. If approved by the IMO, more
stringent emissions control standards would apply in the Emission Control Areas that would cause us
to incur additional costs.
European Union Regulations
In 2005, the European Union adopted a directive on ship-source pollution, imposing criminal
sanctions for intentional, reckless or negligent pollution discharges by ships. The directive could
result in criminal liability for pollution from vessels in waters of European countries that adopt
implementing legislation. Criminal liability for pollution may result in substantial penalties or
fines and increased civil liability claims.
Greenhouse Gas Regulation
In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate
Change, which we refer to as the Kyoto Protocol, entered into force. Pursuant to the Kyoto
Protocol, adopting countries are required to implement national programs to reduce emissions of
certain gases, generally referred to as greenhouse gases, which are suspected of contributing to
global warming. Currently, the emissions of greenhouse gases from international shipping are not
subject to the Kyoto Protocol. However, a new treaty may be adopted at the United Nations climate
change conference in Copenhagen in December 2009, and restrictions on shipping may be included. The
European Union has indicated that it intends to propose an expansion of the existing European Union
emissions trading scheme to include emissions of greenhouse gases from vessels. In the United
States, the EPA has issued a proposed finding that greenhouse gases threaten public health and
safety and is considering a petition from the California Attorney General to regulate greenhouse
gas emissions from ocean-going vessels. Other federal regulations relating to the control of
greenhouse gas emissions may follow. In addition, climate change initiatives are being considered
in the U.S. Congress. Any passage of climate control legislation or other regulatory initiatives by
the IMO, EU, the U.S. or other countries where we operate that restrict emissions of greenhouse
gases could require us to make significant financial expenditures that we cannot predict with
certainty at this time.
72
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives
intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security
Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA, in July
2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS created
a new chapter of the convention dealing specifically with maritime security. The new chapter became
effective in July 2004 and imposes various detailed security obligations on vessels and port
authorities, most of which are contained in the newly created International Ship and Port
Facilities Security Code, or the ISPS Code. The ISPS Code is designed to protect ports and
international shipping against terrorism. After July 1, 2004, to trade internationally, a vessel
must attain an International Ship Security Certificate from a recognized security organization
approved by the vessels flag state. Among the various requirements are:
|
|
on-board installation of automatic identification systems to provide a means for the
automatic transmission of
safety-related information from among similarly equipped ships and shore stations, including information on a
ships identity, position, course, speed and navigational status; |
|
|
|
on-board installation of ship security alert systems, which do not sound on the vessel but only alert the
authorities on shore; |
|
|
|
the development of vessel security plans; |
|
|
|
ship identification number to be permanently marked on a vessels hull; |
|
|
|
a continuous synopsis record kept onboard showing a vessels history including the name of
the ship and of the
state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ships
identification number, the port at which the ship is registered and the name of the registered owner(s) and their
registered address; and |
|
|
|
compliance with flag state security certification requirements. |
The U.S. Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have on board, as of
July 1, 2004, a valid International Ship Security Certificate attesting to the vessels compliance
with SOLAS security requirements and the ISPS Code. We have implemented the various security
measures addressed by the MTSA, SOLAS and the ISPS Code.
73
Inspection by Classification Societies
Every oceangoing vessel must be classed by a classification society. The classification
society certifies that the vessel is in class, signifying that the vessel has been built and
maintained in accordance with the rules of the classification society and complies with applicable
rules and regulations of the vessels country of registry and the international conventions of
which that country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the classification society will
undertake them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks that are
required by regulations and requirements of the flag state. These surveys are subject to
agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class certification, regular and extraordinary surveys of hull,
machinery, including the electrical plant, and any special equipment classed are required to be
performed as follows:
|
|
Annual Surveys: For seagoing ships, annual surveys are conducted for the hull and the
machinery, including the electrical plant, and where applicable for special equipment classed,
at intervals of 12 months from the date of commencement of the class period indicated in the
certificate. |
|
|
Intermediate Surveys: Extended annual surveys are referred to as intermediate surveys and
typically are conducted two and one-half years after commissioning and each class renewal.
Intermediate surveys may be carried out on the occasion of the second or third annual survey. |
|
|
Class Renewal Surveys: Class renewal surveys, also known as special surveys, are carried
out for the ships hull, machinery, including the electrical plant, and for any special
equipment classed, at the intervals indicated by the character of classification for the hull.
At the special survey, the vessel is thoroughly examined, including audio-gauging to
determine the thickness of the steel structures. Should the thickness be found to be less
than class requirements, the classification society would prescribe steel renewals. The
classification society may grant a one-year grace period for completion of the special survey.
Substantial amounts of money may have to be spent for steel renewals to pass a special survey
if the vessel experiences excessive wear and tear. In lieu of the special survey every four
or five years, depending on whether a grace period was granted, a shipowner has the option of
arranging with the classification society for the vessels hull or machinery to be on a
continuous survey cycle, in which every part of the vessel would be surveyed within a
five-year cycle. Upon a shipowners request, the surveys required for class renewal may be
split according to an agreed schedule to extend over the entire period of class. This process
is referred to as continuous class renewal. |
All areas subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between surveys are prescribed
elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Most vessels are also drydocked every 30 to 36 months for inspection of the underwater parts
and for repairs related to inspections. If any defects are found, the classification surveyor will
issue a recommendation which must be rectified by the shipowner within prescribed time limits.
74
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 new and secondhand vessels that we purchase must be
certified prior to their delivery under our standard agreements.
Seasonality
We plan to operate our vessels in markets that have historically exhibited seasonal variations
in demand and, as a result, charter rates. However, this seasonality may result in
quarter-to-quarter volatility in our operating results, as our vessels will trade on the spot
market. The drybulk sector is typically stronger in the fall and winter months in anticipation of
increased consumption of coal and raw materials in the northern hemisphere during the winter
months. As a result, our revenues could be weaker during the fiscal quarters ended June 30 and
September 30, and conversely, our revenues could be stronger during the quarters ended December 31
and March 31.
Properties
We do not expect to have any material properties prior to the closing of this offering.
Legal Proceedings
We have not been involved in any legal proceedings that may have, or have had, a significant
effect on our business, financial position, results of operations or liquidity, and we are not
aware of any proceedings that are pending or threatened that may have a material adverse effect on
our business, financial position, results of operations or liquidity. From time to time, we may be
subject to legal proceedings and claims in the ordinary course of business, principally personal
injury and property casualty claims. We expect that these claims would be covered by insurance,
subject to customary deductibles. Those claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources.
Exchange Controls
Under Marshall Islands law, there are currently no restrictions on the export or import of
capital, including foreign exchange controls or restrictions that affect the remittance of
dividends, interest or other payments to our non-resident Common Stock holders.
MANAGEMENT
Directors and Executive Officers of Baltic Trading Limited
Our board of directors and executive officers will oversee and supervise our operations.
Subject to this oversight and supervision, our operations will be managed generally by our Manager.
Upon the closing of this offering, we will enter into a Management Agreement, pursuant to which our
Manager and its affiliates will provide to us commercial, technical, administrative and strategic
services. Please read Management and Management Agreements Management Agreement for additional
information about this agreement.
Our President and Chief Financial Officer, John C. Wobensmith, will allocate his time
between managing our business and affairs, directly as such officers and indirectly as officers of
our Manager, and the business and affairs of Genco, for which he also serves as Chief Financial
Officer. The amount of time Mr. Wobensmith will allocate among our business and the businesses of
Genco will vary from time to time depending on various circumstances and needs of the businesses,
such as the relative levels of strategic activities of the businesses.
Our officers and individuals providing services to us or our future subsidiaries may face a
conflict regarding the allocation of their time between our business and the other business
interests of Genco or its affiliates. We intend to seek to cause our officers to devote as much
time to the management of our business and affairs as is necessary for the proper conduct thereof.
75
The following table provides information about our initial directors and executive officers
who will be in office as of the closing of this offering. We expect to identify and appoint one
additional director prior to the closing of this offering. The term of our Class I directors
expires in 2010, and the term of our Class II directors expires in 2011. All of the directors listed below have agreed to serve as directors
effective as of the closing of this offering. The business address of each of our directors and
executive officers listed below is 299 Park Avenue, 20th Floor, New York, NY 10171. Ages of the
following individuals are as of October 14, 2009.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Peter C. Georgiopoulos
|
|
|
48 |
|
|
Chairman of the Board of Directors and Class I Director* |
John C. Wobensmith
|
|
|
39 |
|
|
President, Chief Financial Officer, Principal
Accounting Officer, Secretary and Treasurer |
Basil G. Mavroleon
|
|
|
61 |
|
|
Class I Director* |
Edward Terino
|
|
|
55 |
|
|
Class II Director* |
George Wood
|
|
|
64 |
|
|
Class II Director* |
|
|
|
* |
|
To be appointed prior to the closing of this
offering.
The business experience of these individuals is included below. |
Peter C. Georgiopoulos Since 2004, Mr. Georgiopoulos served as Chairman of Genco Shipping &
Trading Limited, a company he founded. Under the leadership of Mr. Georgiopoulos, Genco Shipping &
Trading Limited has become a bellwether in the drybulk industry, growing its high quality operating
fleet to 35 owned or contracted vessels today. Since 1997, Peter C. Georgiopoulos served as Chairman and a member of
the board of directors of General Maritime Corporation and its predecessors, which he founded, and
he served as CEO from 1997 to 2008 and President from 2003 to 2008. Under the leadership of Mr.
Georgiopoulos, General Maritime Corporation grew from a single ship ownership company to what today
is an industry leader listed on the New York Stock Exchange. Mr. Georgiopoulos is also Chairman
and a director of Aegean Marine Petroleum Network, Inc., a company listed on the New York Stock
Exchange. From 1991 to 1997, he was the principal of Maritime Equity Management, a ship-owning and
investment company that he founded in 1991. From 1990 to 1991, he was affiliated with Mallory Jones
Lynch & Associates, an oil tanker brokerage firm. From 1987 to 1990, Mr. Georgiopoulos was an
investment banker at Drexel Burnham Lambert. Before entering the investment banking business, he
had extensive experience in the sale, purchase and chartering of vessels while working for
shipowners in New York and Piraeus, Greece. Mr. Georgiopoulos is a member of the American Bureau of
Shipping. He holds an MBA from Dartmouth College.
John C. Wobensmith has served as Gencos Chief Financial Officer and Principal Accounting
Officer since April 4, 2005 and is responsible for overseeing Gencos accounting and financial
matters. Mr. Wobensmith has 16 years of experience in the shipping industry, with a concentration
in shipping finance. Before becoming our Chief Financial Officer, Mr. Wobensmith served as a Senior
Vice President with American Marine Advisors, Inc., an investment bank focused on the shipping
industry. While at American Marine Advisors, Inc., Mr. Wobensmith was involved in mergers and
acquisitions, equity fund management, debt placement and equity placement in the shipping industry.
From 1993 through 2000, he worked in the international maritime lending group of The First National
Bank of Maryland serving as a Vice President from 1998. He has a bachelors degree in economics
from St. Marys College of Maryland and holds the Chartered Financial Analyst designation. He also
serves on the St. Marys College of Marylands Board of Trustees as Treasurer.
Basil G. Mavroleon has served as a director of Genco since July 27, 2005 and currently serves
as the Chairman of Gencos Compensation Committee and a member of the Nominating and Corporate
Governance Committee. Mr. Mavroleon has been employed in the shipping industry for the last 39
years. Since 1986, Mr. Mavroleon has been Manager of the Projects Group of Charles R. Weber
Company, Inc. one of the largest ship brokerages and marine consultants in the United States. Mr.
Mavroleon also serves as Managing Director of WeberSeas (Hellas) S.A., a comprehensive sale and
purchase, marine projects and tanker chartering brokerage based in Piraeus, Greece. Since its
inception in 2003 through its liquidation in December 2005, Mr. Mavroleon has also served as
Chairman of Azimuth Fund Management (Jersey) Limited, a hedge fund dealing with tanker freight
forward agreements and derivatives. Mr. Mavroleon is a member of the Baltic Exchange and is on the
board of the Associate Membership Committee of Intertanko, a member of the Association of Ship
Brokers and Agents, on the advisory board of NAMMA (North American Maritime Ministry Association), a board member of
NAMEPA (North American Marine Environmental Protection Association), is Chairman of the New York
World Scale Committee, a member of the Hellenic Chamber of Commerce, a member of the Connecticut
Maritime Association and a member of NYMAR (New York Maritime Inc.).
76
Edward Terino has served as President of GET Advisory Services, LLC, a strategic and financial
management consulting firm focused on the maritime and technology industries, since March 2009. He
has also served since 2007 as director of S1 Corporation, an internet banking and payments software
company, where he is also Chairman of the Audit Committee and a member of the Compensation
Committee. From January 2009 through March 2009, Mr. Terino served as a consultant to General
Maritime Corporation following the merger of Arlington Tankers Ltd with General Maritime
Corporation in December 2008. Prior to the merger, Mr. Terino was the President, Chief Executive
Officer and Chief Financial Officer of Arlington Tankers Ltd., an international seaborne
transporter of crude oil and petroleum products, a position he held since January 2008. Mr. Terino
served as Arlingtons Co-Chief Executive Officer and Chief Financial Officer from July 2005 until
August 2007, and as its Chief Executive Officer, interim President and Chief Financial Officer from
August 2007 until January 2008. From October 1999 until March 2006, Mr. Terino served on the board
of directors and as Chairman of the Audit Committee of EBT International, Inc., a Web content
management software company. From September 2001 until June 2005, Mr. Terino served as Senior Vice
President, Chief Financial Officer, Treasurer and Secretary of Art Technology Group, Inc., a
provider of Internet-based e-commerce software focused on the Global 1000 market.
George Wood has served since May 2004 as managing director of Chancery Export Finance LLC
(Chancery), a firm with a master guarantee agreement with the Export Import Bank of the United States of America, or ExIm
Bank. Chancery provides ExIm Bank guaranteed financing for purchase of U.S.-manufactured capital
goods by overseas buyers. Before becoming managing director of Chancery, Mr. Wood worked as
managing director of Baltimore-based Bengur Bryan & Co, or Bengur Bryan from April 2000 to May
2004, providing investment banking services to transportation-related companies in the global
maritime, U.S. trucking, motor coach and rail industries. Prior to this, Mr. Wood was employed for
27 years in various managerial positions at the First National Bank of Maryland, which included
managing the International Banking Group as well as the banks specialized lending divisions in
leasing, rail, maritime and motor coach industries, encompassing a risk asset portfolio of $1.2
billion. Mr. Wood presently serves as a member of the boards of directors of Atlanta-based
Infinity Rails, where he has been a director since October 2004; Wawa Inc., where he has been a
director since November 1990 and currently serves as Chairman of the Finance Committee and a member
of the Compensation Committee and Strategic Gasoline Committee; and Ultrapetrol (Bahamas) Ltd.,
where he has been a director since October 2006 and serves as Chairman of the Audit Committee.
Mr. Wood also recently served on the Board of LASCO Shipping Co. from October 2001 to October 2004,
where he was Chairman of the Audit Committee and a member of the Compensation Committee, and the
Board of John S. Connor Inc from May 2004 until May 2007, where he was Chairman of the Compensation
Committee and a member of the Audit Committee. Mr. Wood holds a B.S. in Economics and Finance from
the University of Pennsylvania and an MBA from the University of North Carolina and became a CPA in
1980.
Board of Directors and Committees
Prior to the closing of the offering, our board of directors will consist of five directors.
In compliance with the corporate governance rules of The New York Stock Exchange, our initial board
of directors will appoint independent members constituting a majority of the board upon the listing
of our Common Stock on The New York Stock Exchange.
We will establish a conflicts committee, an audit committee, a compensation committee, and a
nominating and corporate governance committee, each comprised of independent directors. Subject to
the initial phase-in period described above, at least three members of our board of directors will
serve on a conflicts committee to review specific matters that the board believes may involve
conflicts of interest, such as certain transactions between us and Genco or its affiliates. The
board of directors is not obligated to seek approval of the conflicts committee on any matter, and
may determine the resolution of any conflicts of interest itself. For matters presented to it, the
conflicts committee will determine if the resolution of the conflict of interest is fair and
reasonable to us. Any matters approved by the conflicts committee will be conclusively deemed to be
fair and reasonable to us, taking into account the totality of the relationship between the parties
involved, including other transactions that may be particularly favorable or advantageous to us.
The members of the conflicts committee may not be officers or
employees of us or any of our affiliates and must meet the independence standards established by The New York Stock
Exchange to serve on an audit committee of a board of directors. Our initial conflicts committee
will be comprised of the members of our audit committee.
77
Our board of directors also will have an audit committee of at least three independent
directors. The audit committee will, among other things, review our external financial reporting,
engage our external auditors and oversee our internal audit activities and procedures and the
adequacy of our internal accounting controls.
We will also establish a compensation committee who will be responsible for which will be
responsible for establishing executive officers compensation and benefits, reviewing and making
recommendations to the board regarding our compensation policies, and overseeing our 2009 Equity
Incentive Plan described below.
We will also establish a nominating and corporate governance committee that will be
responsible for recommending to the board of directors nominees for director and directors for
appointment to board committees and advising the board with regard to corporate governance
practices and recommending director compensation. Shareholders may also nominate directors in
accordance with procedures set forth in our by-laws.
Executive Compensation
We were formed in October 2009. We have not paid any compensation to our directors or officers
or accrued any obligations with respect to management incentive or retirement benefits for the
directors and officers prior to this offering. Because our executive officers are employees of
Genco, their compensation (other than any awards under the long-term incentive plan described
below) is set and paid by Genco.
Compensation of Our Directors
Our officers and other officers of Genco who serve as our directors will not receive
additional compensation for their service as directors. We anticipate that each non-management
director will receive compensation for attending meetings of the board of directors, as well as
committee meetings. We expect that non-management directors will receive a director fee of $
per year and shares of Common Stock subject to vesting over a one-year period.
We intend to grant shares of Common Stock to the non-management directors immediately after their
appointment as directors. Members of the audit committee each will receive a fee of $
per year; of the compensation committee, $ per year; and of the nominating and corporate
governance committee, $ per year. In addition, each director will be reimbursed for
out-of-pocket expenses in connection with attending meetings of the board of directors or
committees. Each director will be fully indemnified by us for actions associated with being a
director to the extent permitted under Marshall Islands law.
2009 Equity Incentive Plan
Prior to the closing of this offering, we intend to adopt the Baltic Trading Limited 2009
Equity Incentive Plan in which our and our affiliates employees, directors and consultants will be
eligible to participate. The plan provides for the award of restricted stock, restricted stock
units, stock options, stock appreciation rights and other stock or cash-based awards.
Administration. The plan will be administered by our board of directors. To the extent
permitted by law, and except where our board elects to act as administrator or to delegate its
responsibilities and powers to another person, the board shall be deemed to have delegated all of
its responsibilities and powers to our compensation committee or such other committee as the board
may designate, other than the authority to amend or terminate the plan. The compensation governance
committee will have the authority to, among other things, designate participants under the plan,
determine the type or types of awards to be granted to a participant, determine the number of
shares of Common Stock to be covered by awards, determine the terms and conditions applicable to
awards and interpret and administer the plan.
Number of Shares of Common Stock. Subject to adjustment in the event of any distribution,
recapitalization, split, merger, consolidation and the like, the number of shares of Common Stock
available for delivery pursuant to awards granted under the plan is 2,000,000. There is no limit
on the number of awards that may be granted and paid in cash. If any award is forfeited or
otherwise terminates or is cancelled without delivery of Common Stock, those shares will again be available for grant under the plan. Common Stock
delivered under the plan will consist of authorized but unissued shares or shares acquired by us in
the open market, from us or from any other person or entity.
78
Restricted Stock and Restricted Stock Units. Restricted stock is subject to forfeiture prior
to the vesting of the award. A restricted stock unit is notional stock that entitles the grantee to
receive a share of Common Stock upon the vesting of the restricted stock unit or, in the discretion
of the compensation committee, cash equivalent to the value of the Common Stock. The compensation
committee may determine to make grants under the plan of restricted stock and restricted stock
units to plan participants containing such terms as the compensation committee may determine. The
compensation committee will determine the period over which restricted stock and restricted stock
units granted to plan participants will vest. The committee may base its determination upon the
achievement of specified performance goals.
Stock Options and Stock Appreciation Rights. The plan will permit the grant of options
covering Common Stock and the grant of stock appreciation rights. A stock appreciation right is an
award that, upon exercise, entitles the participant to receive the excess of the fair market value
of a share of Common Stock on the exercise date over the base price established for the stock
appreciation right. Such excess may be paid in Common Stock, cash, or a combination thereof, as
determined by the compensation committee in its discretion. The compensation committee will be able
to make grants of stock options and stock appreciation rights under the plan to employees,
consultants and directors containing such terms as the committee may determine. Stock options and
stock appreciation rights may have an exercise price or base price that is no less than the fair
market value of the Common Stock on the date of grant. In general, stock options and stock
appreciation rights granted will become exercisable over a period determined by the compensation
committee.
Unrestricted Stock. The compensation committee, in its discretion, may grant shares of Common
Stock free of restrictions under the plan in respect of past services or other valid consideration.
Performance Shares. The plan permits the grant of performance share awards subject to such
vesting and forfeiture and other terms and conditions as the compensation committee may determine.
Such an award entitles the grantee to acquire shares of Common Stock or to be paid the value
thereof in cash if specified performance goals are met.
Dividend Equivalent Rights. The compensation committee, in its discretion, may grant dividend
equivalent rights with respect to an award of an option, stock appreciation right, or performance
shares.
Change of Control. Unless otherwise provided in the instrument evidencing the award, in the
event of a change in control of Baltic Trading Limited, all outstanding awards will become fully
and immediately vested and exercisable.
Term, Termination and Amendment of Plan. Our board of directors or its compensation
committee, in its discretion may terminate, suspend or discontinue the plan at any time with
respect to any award that has not yet been granted. Our board of directors also has the right to
alter or amend the plan or any part of the plan from time to time, including increasing the number
of shares of Common Stock that may be granted, subject to shareholder approval as required by the
exchange upon which the shares of Common Stock is listed at that time. However, other than
adjustments to outstanding awards upon the occurrence of certain unusual or nonrecurring events,
generally no change in any outstanding grant may be made that would materially impair the rights of
the participant without the consent of the participant.
OUR MANAGER AND MANAGEMENT AGREEMENT
Overview
We believe that our business will benefit through access to the expertise and resources of
Genco and its subsidiaries. Accordingly, we will enter into agreements with them from time to time
pursuant to which they will provide services to us, including under the Management Agreement that
will become effective upon the closing of this offering.
79
Genco, our Manager, will provide to us commercial, technical, administrative and strategic
services necessary to support our business through the Management Agreement with us.
A Summary of the Management Agreement is set forth below. Capitalized words and expressions
used but not defined herein shall have the meanings given to them in the Management Agreement, as
applicable. Because the following is only a summary, it does not contain all information that you
may find useful. For more complete information, you should read the entire Management Agreement,
which is included as exhibits to the registration statement of which this prospectus is a part and
are incorporated into this prospectus by reference.
Management Agreement
Under the Management Agreement, our Manager will be responsible for providing us with
substantially all of our services, including:
|
|
commercial services, which include chartering and marketing; |
|
|
|
technical services, which include vessel maintenance; ensuring
regulatory and classification society compliance; crewing; insurance;
purchasing; and shipyard supervision; |
|
|
|
administrative services, which include legal, investor relations and
financial compliance services; bookkeeping and accounting
services; and banking and financial services; and |
|
|
|
strategic services, which include strategic planning; acquisitions of
assets and businesses; and general management of our business. |
Our Manager will use its best efforts to provide these services upon our request in a
commercially reasonable manner and may provide these services directly to us or subcontract for
certain of these services with other entities, primarily other Genco subsidiaries. However, our
Manager will subcontract with qualified third-party independent technical managers not affiliated
with Genco for the technical management of our vessels. Our Manager will remain responsible for
any subcontracted services. We will indemnify our Manager for losses it incurs in connection with
providing these services, excluding losses caused by the recklessness, gross negligence or willful
misconduct of our Manager or its employees or agents, for which losses our Manager will indemnify
us.
Term and Termination Rights
Subject to the termination rights described below, the initial term of the Management
Agreement will expire on December 31, 2024. If not terminated, the Management Agreement shall
automatically renew for a five-year period and shall thereafter be extended in additional five-year
increments if we do not provide notice of termination in the fourth quarter of the year immediately
preceding the end of the respective term.
Our Termination Rights. We may terminate the Management Agreement under any of the following
circumstances:
|
|
First, if at any time our Manager materially breaches the management
agreement and the matter is unresolved after a 90-day dispute resolution
period. |
|
|
|
Second, if at any time (1) our Manager has been convicted of, or has
entered into a plea bargain or plea of nolo contendere or settlement
admitting guilt for a crime, which conviction, plea or settlement is
demonstrably and materially injurious to us and (2) the holders of a
majority of the outstanding Common Stock elect to terminate the
Management Agreement. |
|
|
|
Third, if the manager commits fraud or is grossly negligent, or commits
an act of willful misconduct and we are materially injured thereby. |
|
|
|
Fourth, if at any time our Manager experiences certain bankruptcy events. |
80
|
|
Fifth, if any person or persons, other than Peter C. Georgiopoulos,
controls a majority of the voting or economic control of our Manager and
we do not consent to the change of control, which consent shall not be
unreasonably withheld or delayed. |
|
|
|
Sixth, if we provide notice in the fourth quarter of 2019 after
two-thirds of our board of directors elect to terminate the Management
Agreement, which termination would be effective on December 31, 2020. |
|
|
|
Seventh, if we provide notice in the fourth quarter of 2023, which
termination would be effective on December 31, 2024. If the Management
Agreement extends pursuant to its terms as described above, we can elect
to exercise this optional termination right in the fourth quarter of the
year immediately preceding the end of the respective term. |
If we elect to terminate the Management Agreement under the sixth or seventh circumstances described
above, our Manager will receive be entitled to receive a payment, which we refer to as the
Termination Payment, in a lump sum within 30 days following the termination date of the Management
Agreement. A Termination Payment is also payable if our Manager terminates the Management
Agreement as described below and is generally calculated as the five times the average annual
management fees payable to Genco for the last five completed years of the term of the Management
Agreement, or such lesser number of years as may have been completed at the time of termination.
If the Management Agreement terminates during its initial year, the Termination Payment will be approximately $9.6 million, based on five times an amount of approximately $1.9 million.
Our Managers Termination Rights. Our Manager may terminate the Management Agreement prior to the
end of its term under any of the following circumstances:
|
|
First, after the fifth anniversary of this offering with 12 months
written notice. At our option, the Manager shall continue to provide
technical services to us for up to an additional two-year period from
termination. |
|
|
|
Second, if at any time we materially breach the agreement and the
matter is unresolved after a 90-day dispute resolution period. |
|
|
|
Third, if there is a change of control (as defined below of us). If
we have knowledge that such a change of control will occur, we must
give the Manager written notice. The Manager can exercise its right
to terminate for change of control upon the earlier of the occurrence
of such change of control or its receipt of such notice from us until
60 days after the later of the occurrence of such change of control or
its receipt of such notice from us. |
Termination after Our Change of Control. The Management Agreement will terminate automatically
immediately after a change of control (as defined below) of us.
Change of control means the occurrence of any of the following:
|
|
the sale, lease, transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or substantially all of our assets,
other than a disposition to Genco or any of its affiliates; |
|
|
|
the adoption by our board of directors of a plan of liquidation or dissolution of us; |
|
|
|
the consummation of any transaction (including, without limitation, any merger or consolidation) the
result of which is that any person (as such term is used in Section 13(d)(3) of the U.S. Securities
Exchange Act of 1934), other than Genco or any of its affiliates, becomes the beneficial owner,
directly or indirectly, of more than a majority of our voting shares, measured by voting power rather
than number of shares; |
|
|
|
if, at any time, we become insolvent, admit in writing our inability to pay our debts as they become
due, are adjudged bankrupt or declare our bankruptcy or make an assignment for the benefit of
creditors, a proposal or similar action under the bankruptcy, insolvency or other similar laws of any
applicable jurisdiction or commence or consent to proceedings relating to it under any reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction; |
81
|
|
we consolidate with, or merge with or into, any person (other than Genco or any of its affiliates), or
any such person consolidates with, or merges with or into, us, in any such event pursuant to a
transaction in which outstanding shares of our common stock are converted into or exchanged for cash,
securities or other property, or receive a payment of cash, securities or other property, other than
any such transaction where any of our common stock outstanding immediately prior to such transaction is
converted into or exchanged for voting stock of the surviving or transferee person constituting a
majority of the outstanding voting power of such surviving or transferee person immediately after
giving effect to such issuance; and |
|
|
|
the first day on which a majority of the members of our board of directors are not continuing directors. |
Continuing directors means, as of any date of determination, any member of our board of
directors who was:
|
|
a member of our board of directors on the date immediately after the closing of this offering; or |
|
|
|
nominated for election or elected to our board of directors with the approval of a majority of
the directors then in office who were either directors immediately after the closing of this
offering or whose nomination or election was previously so approved. |
If our Manager elects to terminate the Management Agreement for our material breach as described
above, our Manager will receive the Termination Payment payable in four quarterly installments over
the course of the first year following termination. If our Manager elects to terminate the
Management Agreement for our change of control as described above, we will be required to pay our
Manager the Termination Payment in a single installment.
Compensation of Our Manager
Management Fees. In return for providing to us services under the Management Agreement, we
will pay our Manager management fees based on the following components:
|
|
Commercial services fee. We will pay a fee to our Manager for
commercial services it provides to us equal to 1.25% of gross charter
revenues generated by each vessel. |
|
|
|
Technical services fee. We will pay a fee to our Manager for
technical services it provides to us at a rate of $750 per vessel per
day. This $750 amount is subject to increase on each anniversary of the date hereof
based on the total percentage increase, if any, in the Consumer Price Index over the
immediately preceding twelve months of the Term. For purposes of this provision, the
Consumer Price Index used is the Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics of the United States Department of Labor,
New York, N.Y. - Northeastern N.J. Area, All Items, or any successor index.
If there is no successor index, our Manager has the right to reasonably select a substitute. |
|
|
|
Sale & purchase fee. We will pay a fee to our Manager equal to 1% of
the gross purchase or sale price upon the consummation of any
purchase or sale of a vessel by us. |
In addition, we will reimburse our Manager for its direct and indirect expenses in providing
administrative and strategic services as well as the other types of services listed above services
as well as for the pro rata portion of the salary and other costs incurred by our Manager in
employing and compensating an internal auditor who will be made available to us on a part time
basis. The Management Agreement also provides that we have the right to audit costs and expenses
billed to us by our Manager and also provides for a third party to settle any billing disputes
between us and our Manager.
Amendments
The Management Agreement may not be amended without the consent of both parties.
82
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
After this offering, Genco will own, directly or indirectly, shares of
our
Class B Stock, representing a % ownership interest in us and % of the aggregate voting
power of our outstanding shares of common stock ( % and %, respectively, if the
underwriters exercise their over-allotment option in full).
Distributions and Payments to Genco and its Affiliates, Including Our Manager
The following table summarizes distributions and payments to be made by us to Genco, which
will be our Manager, or its affiliates, in connection with our formation and ongoing operation and
termination of the Management Agreement. These distributions and payments were determined by and
among affiliated entities and, consequently, are not the result of arms-length negotiations.
|
|
|
Formation Stage
|
|
|
|
|
|
The consideration
received by Genco and
its affiliates for its
capital contribution of
$75,000,000 to us
|
|
shares of Class B Stock. |
|
|
|
Operational Stage |
|
|
|
|
|
Dividends to Genco and its affiliates
|
|
Based on their ownership of shares
of our Common Stock or Class B
Stock, Genco and its affiliates
will be entitled to receive
dividends that our board of
directors declares on our Common
Stock or Class B Stock. |
|
|
|
Payments to our Manager
|
|
Genco, our Manager, will manage
our operations, subject to the
oversight of our board of
directors and the supervision of
our executive officers. Pursuant
to the Management Agreement, our
Manager will provide to us
commercial, technical,
administrative and strategic
services. We will pay fees for
these services as set forth in the
Management Agreement. We will not
be able to quantify in advance the
fees for services provided under
the Management Agreement because
the payment amounts due and the
particular amounts or mix of
services to be provided under that
agreement are not specified or
fixed, and we expect that the
aggregate amount of these fees
will vary from period to period.
Please read Our Manager and
Management Agreements Management
Agreement for further information
about the Management Agreement. |
|
|
|
Termination of Management Agreement
|
|
We or our Manager may terminate
the Management Agreement under
specified circumstances, and in
some of those circumstances we
will be required to pay a
termination fee to our Manager,
the amount of which may be
substantial. Please read Our
Manager and ManagementRelated
Agreements Management Agreement
for further information about the
Management Agreement. |
Agreements Governing the Transactions
We have entered into or will enter into various agreements that will effect the transactions
relating to our formation and this offering, including the vesting of assets in, and the assumption
of liabilities by, us and the application of the proceeds of this offering. These agreements will
not be the result of arms-length negotiations and they, or any of the transactions that they
provide for, may not be effected on terms at least as favorable to us as they could have been
obtained from unaffiliated third parties. All of the transaction expenses incurred in connection
with these transactions will be paid from the proceeds of this offering.
83
Omnibus Agreement
Prior to or at the closing of this offering, we will enter into an Omnibus Agreement with
Genco reflecting the provisions described below.
Business Opportunities
Under the omnibus agreement, Genco and we will agree that Genco and its other affiliates may
pursue any Business Opportunity (as defined in (a) below) of which it, they or we become aware,
subject to certain conditions. Business Opportunities may include, among other things,
opportunities to charter or acquire vessels or to acquire vessel businesses.
Pursuant to the Omnibus Agreement, we will agree that:
|
(a) |
|
Genco and its other affiliates may engage (and will have no duty to
refrain from engaging) in the same or similar activities or lines of
business as us, including conducting business in the drybulk spot
market, and that we will not be deemed to have an interest or
expectancy in any business opportunity, transaction or other matter,
including any opportunity to acquire or dispose of a drybulk vessel
(each a Business Opportunity) in which Genco or any of its other
affiliates engages or seeks to engage merely because we engage in the
same or similar activities or lines of business as that related to
such Business Opportunity; |
|
|
(b) |
|
if Genco or any of its affiliates, including us (whether through our
any of their respective officers or directors who are also officers
or directors of us, or otherwise) acquires knowledge of a potential
Business Opportunity that may be deemed to constitute a corporate
opportunity of both Genco and us, then (i) prior to the expiration of
a period of two weeks, neither Genco, our Manager nor any of such
officers or directors will have any duty to communicate or offer such
Business Opportunity to us and (ii) Genco shall have a right of first
refusal for a period of two weeks to elect to pursue or acquire such
Business Opportunity for itself or direct such Business Opportunity
to another person or entity unless such Business Opportunity is the
opportunity to enter into a voyage charter or trip charter, for a
particular drybulk vessel (a Spot Charter Opportunity); and |
|
|
(c) |
|
if Genco or any of its affiliates, including us (whether through our
any of their respective officers or directors who are also officers or
directors of us, or otherwise) acquires knowledge of a potential Spot
Charter Opportunity that may be deemed to constitute a corporate
opportunity of both Genco and us, then (i) prior to the expiration of
a period of two weeks, neither we nor our officers or directors will
have any duty to communicate or offer such Spot Charter Opportunity to
Genco and (ii) we shall have a right of first refusal for a period of
24 hours to elect to pursue or acquire such Spot Charter Opportunity
for ourselves. |
For the avoidance of doubt, an index time charter that produces revenues based on current spot
charter rates would be considered a Business Opportunity of Genco.
As the entry of a drybulk vessel by either Genco or us into a vessel pool would not prevent
the other party from taking the same action, neither Genco nor we have any obligation to provide
notice or a right of first refusal to the other party regarding the entry of a drybulk vessel into
a vessel pool.
Termination Rights. If Genco or its other affiliates no longer beneficially own shares
representing at least 10% of the aggregate number of outstanding shares of our Common Stock and
Class B Stock, and no person who is an officer or director of us is also an officer or director of
Genco or its other affiliates, then the business opportunity provisions of the omnibus agreement
will terminate.
Other Restrictions
So that Genco may comply with a provision in its existing credit facility, the Omnibus Agreement
will provide that we will not issue any shares of preferred stock without the prior written consent
of Genco. In addition, the Omnibus Agreement will also provide that we will use our commercially reasonable efforts not to
take any action that would result in an event of default under Gencos existing credit facility or
the terms of any future credit facility Genco may enter into to the extent such terms impose no
greater restrictions on Gencos subsidiaries than its existing credit facility.
84
Amendments
The omnibus agreement may not be amended without the prior approval of the conflicts committee
of our board of directors if the proposed amendment will, in the reasonable discretion of our board
of directors, adversely affect our Common Stock holders.
Registration Rights
Prior to or at the closing of this offering, we will enter into a registration rights
agreement with Genco pursuant to which we will grant Genco and its affiliates certain registration
rights with respect to our Common Stock and Class B Stock owned by them. Pursuant to the agreement,
Genco will have the right, subject to certain terms and conditions, to require us, on up to three
separate occasions following the first anniversary of this offering, to register under the
Securities Act of 1933, as amended (or the Securities Act), shares of our Common Stock, including
Common Stock issuable upon conversion of Class B Stock, held by Genco and its affiliates for offer
and sale to the public (including by way of underwritten public offering) and incidental or
piggyback rights permitting participation in certain registrations of common stock by us.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our Common Stock and Class B Stock
that will be outstanding immediately following the closing of this offering and the related
transactions and held by beneficial owners of 5.0% or more of the Common Stock or Class B Stock and
by all of our directors and officers as a group. The table does not reflect any shares of Common
Stock that our directors or officers may purchase in the offering, including through the directed
share program described in Underwriting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
Total Common |
|
|
Common |
|
Common |
|
Class B |
|
Class B |
|
and Class B |
|
|
Stock to be |
|
Stock to be |
|
Stock to be |
|
Stock to be |
|
Stock to be |
|
|
Beneficially |
|
Beneficially |
|
Beneficially |
|
Beneficially |
|
Beneficially |
Name of Beneficial Owner |
|
Owned |
|
Owned |
|
Owned |
|
Owned |
|
Owned |
Genco Shipping &
Trading Limited |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
% |
|
|
% |
|
All directors and
officers as a group
(5 persons) (1) |
|
|
|
* |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
* |
|
Less than 1.0% |
|
(1) |
|
Excludes shares of Class B Stock beneficially owned by Genco, on the
board of directors of which serve individuals who will be our
directors prior to the closing of this offering, Peter C.
Georgiopoulos and Basil G. Mavroleon. In addition, Mr. Wobensmith is
also Chief Financial Officer of Genco. Please read Certain
Relationships and Related-Party Transactions Our Executive Officers
and Certain of Our Directors for more detail. |
DESCRIPTION OF CAPITAL STOCK
The following is a description of material terms of our amended and restated articles of
incorporation and amended and restated by-laws that will be in effect prior to the closing of this
offering. Because the following is a summary, it does not contain all information that you may
find useful. For more complete information, you should read our amended and restated articles of incorporation and by-laws, copies of which will be
filed as exhibits to the registration statement of which this prospectus forms a part.
85
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
Marshall Islands Business Corporations Act, or BCA. Our articles of incorporation and by-laws do
not impose any limitations on the ownership rights of our shareholders.
Authorized Capitalization
Our amended and restated articles of incorporation will provide for Common Stock, which has
one vote per share, and Class B Stock, which has 15 votes per share. However, if holders of a
majority of the Class B Stock make an irrevocable election to do so, the aggregate voting power of
the Class B Stock will be limited to a maximum of 49% of the voting power of our outstanding Common
Stock and Class B Stock. Other than these voting rights and conversion rights applicable to the
Class B Stock as described below, the rights of the two classes of stock are identical. The rights
of these classes of stock are discussed in greater detail below.
Immediately following the closing of this offering, our authorized capital stock will consist
of 700,000,000 shares, of which:
|
|
|
500,000,000 shares will be designated as Common Stock, par value $0.01 per share; |
|
|
|
|
100,000,000 shares will be designated as Class B Stock, par value $0.01 per share; and |
|
|
|
|
100,000,000 shares will be designated as preferred stock, par value $0.01 per share. |
Immediately following the closing of this offering, we will have outstanding
shares of Common Stock, shares of Class B Stock and no shares of preferred
stock.
Common Stock and Class B Stock
Voting Rights
Generally, Marshall Islands law provides that the holders of a class of stock are entitled to
a separate class vote on any proposed amendment to our articles of incorporation that would change
the aggregate number of authorized shares or the par value of that class of shares or alter or
change the powers, preferences or special rights of that class so as to affect it adversely.
Holders of our Common Stock and Class B Stock will have identical rights, except that our
Common Stock holders will be entitled to one vote per share and holders of our Class B Stock will
be entitled to 15 votes per share. However, if holders of a majority of the Class B Stock make an
irrevocable election to do so, the aggregate voting power of the Class B Stock will be limited to a
maximum of 49% of the voting power of our outstanding Common Stock and Class B Stock, voting
together as a single class at the election of holders of a majority of the Class B stock as noted
above. Except as otherwise provided by the BCA, holders of shares of Common Stock and Class B
Stock will vote together as a single class on all matters submitted to a vote of shareholders,
including the election of directors.
Dividends
Marshall Islands law generally prohibits the payment of a dividend when a company is insolvent
or would be rendered insolvent by the payment of such a dividend or when the declaration or payment
would be contrary to any restrictions contained in the companys articles of incorporation.
Dividends may be declared and paid out of surplus only, but if there is no surplus, dividends may be declared or paid out of the net profits for
the fiscal year in which the dividend is declared and for the preceding fiscal year.
86
Subject to preferences that may apply to any shares of preferred stock outstanding at the
time, the holders of our Common Stock and Class B Stock will be entitled to share equally in any
dividends that our board of directors may declare from time to time out of funds legally available
for dividends. In the event a stock dividend is paid, the holders of Common Stock will receive
Common Stock, or rights to acquire Common Stock, as the case may be, and the holders of Class B
Stock will receive Class B Stock, or rights to acquire Class B Stock, as the case may be.
Liquidation Rights
Upon our liquidation, dissolution or winding-up, the holders of our Common Stock and Class B
Stock will be entitled to share equally in all assets remaining after the payment of any
liabilities and the liquidation preferences on any outstanding preferred stock.
Conversion
Shares of our Common Stock will not be convertible into any other shares of our capital stock.
Each share of our Class B Stock will be convertible at any time at the option of the holder
thereof into one share of our Common Stock. In addition:
|
|
upon any transfer of shares of Class B Stock to a holder other than
Genco or any of its affiliates or any successor to Gencos business or
to all or substantially all of its assets, such shares of Class B
Stock will automatically convert into Common Stock upon such transfer;
and |
|
|
|
all shares of our Class B Stock will automatically convert into shares
of our Common Stock if the aggregate number of outstanding shares of
Common Stock and Class B Stock beneficially owned by Genco and its
affiliates falls below 10% of the aggregate number of outstanding
shares of our Common Stock and Class B Stock. |
|
All such conversions will be effected on a one-for-one basis.
Once converted into Common Stock, shares of Class B Stock shall not be reissued. Neither our
Common Stock nor our Class B Stock may be subdivided or combined unless the other class of stock
concurrently is subdivided or combined in the same proportion and in the same manner.
Anti-Dilution
Pursuant to a subscription agreement to be entered into between us and Genco Investments LLC
at or prior to the consummation of this offering, for so long as Genco directly or indirectly holds
at least 10% of the aggregate number of outstanding shares of our Common Stock and Class B Stock,
Genco Investments LLC will be entitled to receive an additional number of shares of Class B Stock
equal to 2% of the number of shares of Common Stock issued after the consummation of this offering,
excluding any shares of Common Stock issuable upon the exercise of the underwriters over-allotment
option in this offering. These additional shares would be issued for no additional consideration
unless insufficient surplus from Genco Investments LLCs $75,000,000 capital contribution exists to
cover the par value of such additional shares, in which case Genco Investment LLC will pay us the
par value of such shares.
Other Rights
Our Common Stock holders will not have redemption or preemptive rights to subscribe for any of
our securities. The rights, preferences and privileges of our Common Stock holders are subject to
the rights of the holders of any shares of preferred stock that we may issue in the future.
87
Preferred Stock
Our amended and restated articles of incorporation will authorize our board of directors to
establish one or more series of preferred stock and to determine, with respect to any series of
preferred stock, the terms and rights of that series, including:
|
|
|
the designation of the series; |
|
|
|
|
the number of shares of the series; |
|
|
|
|
the preferences and relative, participating, option or other special
rights, if any, and any qualifications, limitations or restrictions of
such series; and |
|
|
|
|
the voting rights, if any, of the holders of the series. |
|
So that Genco may comply with a provision in its existing credit facility, the Omnibus
Agreement that we will enter into with Genco will provide that we will not issue any shares of
preferred stock without the prior written consent of Genco.
Directors
Our directors will be elected by a plurality of the votes cast by shareholders entitled to
vote. There will be no provision for cumulative voting.
Our amended and restated articles of incorporation will provide that our board of directors
must consist of at least three members. Shareholders may change the number of directors only by the
affirmative vote of holders of 80% or more of the voting power of all outstanding shares of our
capital stock. The board of directors may change the number of directors only by a majority vote
of the entire board.
Shareholder Meetings
Under our amended and restated by-laws, annual general meetings will be held at a time and
place selected by our board of directors. The meetings may be held in or outside of the Marshall
Islands. If we fail to hold an annual meeting within 90 days of the designated date, a special
meeting in lieu of an annual meeting may be called by shareholders holding not less than one-fifth
of the voting power of all outstanding shares entitled to vote at such meeting. Other than such a
meeting in lieu of an annual meeting, special meetings of shareholders may be called only by the
chairman of our board of directors or our chief executive officer, at the direction of our board of
directors as set forth in a resolution stating the purpose or purposes thereof approved by a
majority of the entire board of directors. Our board of directors may set a record date between 15
and 60 days before the date of any meeting to determine the shareolders that will be eligible to
receive notice and vote at the meeting.
Dissenters Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions,
including any merger or consolidation or sale of all or substantially all of our assets, and
receive payment of the fair value of their shares. In the event of any further amendment of our
articles of incorporation, a shareholder also has the right to dissent and receive payment for the
shareholders shares if the amendment alters certain rights in respect of those shares. The
dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the
event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA
procedures involve, among other things, the institution of proceedings in any appropriate court in
any jurisdiction in which our shares are primarily traded on a local or national securities
exchange.
88
Shareholders Derivative Actions
Under the BCA, any of our
shareholders may bring an action in our name to procure a judgment
in our favor, also known as a derivative action, provided that the shareholder bringing the action
is a holder of common stock both at the time the derivative action is commenced and at the time of
the transaction to which the action relates.
Limitations on Director Liability and Indemnification of Directors and Officers
The BCA authorizes corporations to limit or eliminate the personal liability of directors to
corporations and their shareholders for monetary damages for breaches of directors fiduciary
duties. Our articles of incorporation include a provision that eliminates the personal liability of
directors for monetary damages for actions taken as a director to the fullest extent permitted by
law.
Our amended and restated articles of incorporation will also provide that we must indemnify
our directors and officers to the fullest extent permitted by law. We are also expressly authorized
to advance certain expenses (including attorneys fees and disbursements and court costs) to our
directors and offices and to carry directors and officers insurance providing indemnification for
our directors and officers for some liabilities. We believe that these indemnification provisions
and insurance are useful to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our amended and restated
articles of incorporation and by-laws may discourage shareholders from bringing a lawsuit against
directors for breach of their fiduciary duty. These provisions may also have the effect of reducing
the likelihood of derivative litigation against directors and officers, even though such an action,
if successful, might otherwise benefit us and our shareholders. In addition, your investment may be
adversely affected to the extent that we pay the costs of settlement and damage awards against our
directors and officers pursuant to these indemnification provisions.
Our amended and restated articles of incorporation will also give Genco a right of first
refusal for business opportunities that may be attractive to both Genco and us. This provision
effectively limits the fiduciary duties we or our shareholders otherwise may be owed regarding
these business opportunities by our directors and officers who also serve as directors or officers
of Genco or its other affiliates. If Genco or its affiliates no longer beneficially own shares
representing at least 10% of the aggregate number of outstanding shares of our Common Stock and
Class B Stock, and no person who is an officer or director of us is also an officer or director of
Genco or its other affiliates, then this business opportunity provision of our articles of
incorporation will terminate.
There is currently no pending litigation or proceeding involving any of our directors,
officers or employees for which indemnification is being sought.
Anti-Takeover Effect of Certain Provisions of Our Articles of Incorporation and By-laws
Several provisions of our amended and restated articles of incorporation and by-laws, which
are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly
takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability
of our board of directors to maximize shareholder value in connection with any unsolicited offer to
acquire us. However, these anti-takeover provisions, which are summarized below, could also
discourage, delay or prevent (1) the merger or acquisition of us by means of a tender offer, a
proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal
of incumbent officers and directors.
Dual Class Structure
As discussed above, our Class B Stock will have 15 votes per share, subject to a 49% aggregate
Class B Stock voting power maximum at the election of holders of a majority of the Class B stock,
while our Common Stock, which is the class of stock we are selling in this offering and which will
be the only class of stock which is publicly traded, will have one vote per share. After this
offering, Genco will control all of our Class B Stock. Because of our dual-class structure, Genco
will be able to control all matters submitted to our shareholders for approval even if it and its affiliates come to own significantly less than 50% of the
aggregate number of outstanding shares of our Common Stock and Class B Stock. This concentrated
control could discourage others from initiating any potential merger, takeover or other change of
control transaction that other shareholders may view as beneficial.
89
Blank Check Preferred Stock
Under the terms of our amended and restated articles of incorporation, our board of directors
will have authority, without any further vote or action by our shareholders, to issue up to
100 million shares of blank check preferred stock. Our board could authorize the issuance of
preferred stock with voting or conversion rights that could dilute the voting power or rights of
the holders of Common Stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among other things, have
the effect of delaying, deferring or preventing a change in control of us or the removal of our
management and might harm the market price of our Common Stock. We have no current plans to issue
any shares of preferred stock and will agree with Genco under the Omnibus Agreement not to issue
any shares of preferred stock without Gencos prior written consent.
Election and Removal of Directors
Our amended and restated articles of incorporation will prohibit cumulative voting in the
election of directors. Our by-laws require parties other than the board of directors to give
advance written notice of nominations for the election of directors. These provisions may
discourage, delay or prevent the removal of incumbent officers and directors.
Our amended and restated by-laws will provide that shareholders are required to give us
advance notice of any person they wish to propose for election as a director at an annual general
meeting if that person is not proposed by our board of directors. These advance notice provisions
provide that the shareholder must have given written notice of such proposal not less than 150 days
nor more than 180 days prior to the anniversary date of the immediately preceding annual general
meeting.
Our shareholders may not call special meetings for the purpose of electing directors except in
lieu of an annual meeting as discussed above or to replace a director being removed by the
shareholders. Our amended and restated articles of incorporation provide that any director or our
entire board of directors may be removed at any time, with or without cause, by the affirmative
vote of the holders of a 80% or more of the total voting power of our outstanding capital stock or
by directors constituting at least two-thirds of the entire board of directors.
Limited Actions by Shareholders
Our amended and restated by-laws will provide that any action required or permitted to be
taken by our shareholders must be effected at an annual or special meeting of shareholders or by
the unanimous written consent of our shareholders, provided that if the BCA in the future permits
action to be taken by less than unanimous written consent of our shareholders, the holders of
voting power sufficient to take such specified action may do so by written consent so long as Genco
and its affiliates (other than us and our subsidiaries) beneficially own shares representing a
majority of the total voting power of our outstanding capital stock. Our amended and restated
by-laws will provide that, subject to certain limited exceptions, only our Chairman or President,
at the direction of the board of directors, may call special meetings of our shareholders, and the
business transacted at the special meeting is limited to the purposes stated in the notice.
Accordingly, a shareholder may be prevented from calling a special meeting for shareholder
consideration of a proposal over the opposition of our board of directors and shareholder
consideration of a proposal may be delayed until the next annual general meeting.
90
Shareholder Rights Plan
General
Each share of our Common Stock and our Class B Stock will include one right, or,
collectively, the rights, that entitles the holder to purchase from us a unit consisting of
one-thousandth of one share of the same class of stock in which such right is included at a
purchase price of $ per share, subject to specified adjustments. The rights will be issued
pursuant to a rights agreement between us and BNY Mellon Shareowner Services, as rights agent.
Until a right is exercised, the holder of a right will have no rights to vote, receive dividends or
any other shareholder rights by virtue of its ownership of such right.
The rights may have anti-takeover effects. The rights may 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 could 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 will be approved by our
sole shareholder before the closing of this 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 will file as an exhibit to the registration statement of which this prospectus
is a part.
Detachment of the Rights
The rights will be attached to all certificates representing our currently
outstanding Common Stock and Class B Stock and will attach to all Common Stock and Class B Stock
certificates we issue before the rights distribution date or the date on which the rights expire
(or thereafter, in certain circumstances). The rights will not be exercisable until after the
rights distribution date and will expire at the close of business on , 2019, unless
we redeem or exchange them earlier as we describe below. The rights will separate from the Common
Stock and Class B Stock and a rights distribution date would occur, subject to specified
exceptions, on the earlier of the following two dates:
|
|
ten days following a public announcement that a person or group of affiliated or associated
persons, or an acquiring person, has acquired or obtained the right to acquire beneficial
ownership of 15% or more of our outstanding Common Stock; or |
|
|
|
ten business days following the announcement of a tender or exchange offer that would result,
if closed, in a persons becoming an acquiring person. |
Genco, Peter Georgiopoulos, and their respective related entities will be excluded
from the definition of acquiring person for purposes of the distribution of the rights, and
therefore their ownership cannot trigger the distribution of the rights. 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.
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.
91
Until the rights distribution date:
|
|
our Common Stock and Class B Stock certificates will evidence the rights, and the rights will
be transferable only with those certificates; and |
|
|
any new Common Stock and Class B Stock will be issued with rights and new certificates will
contain a notation incorporating the rights agreement by reference. |
As soon as practicable after the rights distribution date, the rights agent will mail
certificates representing the rights to holders of record of our Common Stock and Class B 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 or Class B 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, as defined above.
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 stock of the same class of stock in which such right is included, 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. For purposes of a flip-in event, a share of Class B Stock will be
deemed to have the same market price as a share of Common Stock.
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:
|
|
we are acquired in a merger or other business combination transaction, subject to limited
exceptions; or |
|
|
50% or more of our assets or earning power is sold or transferred. |
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.
Anti-Dilution
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 before 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 Common Stock that are not integral multiples of one one-hundred thousandth
of a share of preferred stock and, instead, we may make a cash adjustment based on the market price
of the common stock on the last trading date before the date of exercise. The rights agreement
reserves to us the right to require before 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.
92
Redemption of Rights
At any time before the earlier of the date on which a person publicly announces that
it has become an acquiring person or the date on which the rights expire, we may redeem the rights
in whole, but not in part, at a redemption price of $0.01 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 or shares of common
stock. The rights are not exercisable after a flip-in event until they are no longer redeemable.
The rights will terminate immediately upon ordering the redemption and making the appropriate
filing with the rights agent.
Exchange of Rights
We may, at our option, subject to applicable laws, rules and regulations, 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 before any person becoming the beneficial owner of 50% or
more of the shares of common stock then outstanding.
Amendment of Terms of Rights
During the time the rights are redeemable, we may amend any of the provisions of the
rights agreement in any way without the approval of the rights holders. Once the rights cease to be
redeemable, we generally may amend the provisions of the rights agreement without the approval of
the rights holders, only as follows:
|
|
to cure any ambiguity, defect or inconsistency; |
|
|
to make changes that do not materially adversely affect the interests of holders of rights,
excluding the interests of any acquiring person; or |
|
|
to shorten or lengthen any time period under the rights agreement, except that we cannot
lengthen the time period governing redemption or any other time period, unless such
lengthening is for the purpose of protecting, clarifying or enhancing the rights and benefits
of the rights holders (other than an acquiring person). |
Transfer Agent
The registrar and transfer agent for our Common Stock will be BNY Mellon Shareowner Services.
CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS
Our corporate affairs are governed by our articles of incorporation and by-laws and by the
BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in
the United States, including Delaware. While the BCA also provides that it is to be interpreted
according to the laws of the State of Delaware and other states with substantially similar
legislative provisions, there have been few, if any, court cases interpreting the BCA in the
Marshall Islands, and we cannot predict whether Marshall Islands courts would reach the same
conclusions as Delaware or other courts in the United States. Accordingly, you may have more
difficulty in protecting your interests under Marshall Islands law in the face of actions by our
management, directors or controlling shareholders than would shareholders of a corporation
incorporated in a U.S. jurisdiction that has developed a substantial body of case law.
The following table provides a comparison between statutory provisions of the BCA and the Delaware General Corporation Law
relating to shareholders rights.
93
|
|
|
Marshall Islands |
|
Delaware |
Shareholder Meetings
|
|
|
|
Held at a time and place as designated in the by-laws.
|
|
May be held at such time or place as
designated in the certificate of
incorporation or the by-laws, or if
not so designated, as determined by
the board of directors. |
|
|
|
Special meetings of the shareholders may be called by
the board of directors or by such person or persons
as may be authorized by the articles of incorporation
or by the by-laws.
|
|
Special meetings of the shareholders
may be called by the board of
directors or by such person or
persons as may be authorized by the
certificate of incorporation or by
the by-laws. |
|
|
|
May be held in or outside of the Marshall Islands.
|
|
May be held in or outside of Delaware. |
|
|
|
Notice:
|
|
Notice: |
|
|
|
Whenever shareholders are required to take any
action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and
hour of the meeting and, unless it is an annual
meeting, indicate that it is being issued by or at
the direction of the person calling the meeting.
|
|
Whenever shareholders are
required to take any action at a
meeting, a written notice of the
meeting shall be given which shall
state the place, if any, date and
hour of the meeting, and the means of
remote communication, if any. |
|
|
|
A copy of the notice of any meeting shall be
given personally or sent by mail not less than 15 nor
more than 60 days before the meeting.
|
|
Written notice shall be given not
less than 10 nor more than 60 days
before the meeting. |
|
|
|
Shareholders Voting Rights
|
|
|
|
Any action required to be taken by a meeting of
shareholders may be taken without a meeting if
consent is in writing and is signed by all the
shareholders entitled to vote with respect to the
subject matter thereof.
|
|
Any action required to be taken by a
meeting of shareholders may be taken
without a meeting if a consent for
such action is in writing and is
signed by shareholders having not
less than the minimum number of votes
that would be necessary to authorize
or take such action at a meeting at
which all shares entitled to vote
thereon were present and voted. |
|
|
|
Any person authorized to vote may authorize another
person or persons to act for him by proxy.
|
|
Any person authorized to vote may
authorize another person or persons
to act for him by proxy. |
|
|
|
Unless otherwise provided in the articles of
incorporation, a majority of shares entitled to vote
constitutes a quorum. In no event shall a quorum
consist of fewer than one third of the shares
entitled to vote at a meeting.
|
|
For stock corporations, the
certificate of incorporation or
by-laws may specify the number of
shares required to constitute a
quorum but in no event shall a quorum
consist of less than one-third of
shares entitled to vote at a meeting.
In the absence of such
specifications, a majority of shares
entitled to vote shall constitute a
quorum. |
|
|
|
The articles of incorporation may provide for
cumulative voting in the election of directors.
|
|
The certificate of incorporation may
provide for cumulative voting in the
election of directors. |
|
|
|
Directors
|
|
|
|
The board of directors must consist of at least one
member.
|
|
The board of directors must consist
of at least one member. |
94
|
|
|
Marshall Islands |
|
Delaware |
Number of board members can be changed by an
amendment to the by-laws, by the shareholders, or by
action of the board under the specific provisions of
a bylaw.
|
|
Number of board members shall be
fixed by, or in a manner provided by,
the by-laws, unless the certificate
of incorporation fixes the number of
directors, in which case a change in
the number shall be made only by
amendment of the certificate of
incorporation. |
|
|
|
If the board of directors is authorized to change the
number of directors, it can only do so by a majority
of the entire board of directors and so long as no
decrease in the number shortens the term of any
incumbent director. |
|
|
|
|
|
Dissenters Rights of Appraisal
|
|
|
|
Shareholders have a right to dissent from any plan of
merger or consolidation or sale of all or
substantially all assets not made in the usual course
of business, and receive payment of the fair value of
their shares.
|
|
Appraisal rights shall be available
for the shares of any class or series
of stock of a corporation in a merger
or consolidation, subject to limited
exceptions, such as a merger or
consolidation of corporations listed
on a national securities exchange in
which listed stock is the offered
consideration. |
|
|
|
A holder of any adversely affected shares who does
not vote on or consent in writing to an amendment to
the articles of incorporation has the right to
dissent and to receive payment for such shares if the
amendment: |
|
|
|
|
|
Alters or abolishes any preferential right of any
outstanding shares having preference; or |
|
|
|
|
|
Creates, alters or abolishes any provision or
right in respect to the redemption of any outstanding
shares; or |
|
|
|
|
|
Alters or abolishes any preemptive right of such
holder to acquire shares or other securities; or |
|
|
|
|
|
Excludes or limits the right of such holder to
vote on any matter, except as such right may be
limited by the voting rights given to new shares then
being authorized of any existing or new class. |
|
|
|
|
|
Shareholders Derivative Actions
|
|
|
|
An action may be brought in the right of a
corporation to procure a judgment in its favor, by a
holder of shares or of voting trust certificates or
of a beneficial interest in such shares or
certificates. It shall be made to appear that the
plaintiff is such a holder at the time of bringing
the action and that he was such a holder at the time
of the transaction of which he complains, or that his
shares or his interest therein devolved upon him by
operation of law.
|
|
In any derivative suit instituted by
a shareholder or a corporation, it
shall be averred in the complaint
that the plaintiff was a shareholder of the corporation at the time of the
transaction of which he complains or
that such shareholders stock
thereafter devolved upon such shareholder by operation of law. |
|
|
|
A complaint shall set forth with particularity the
efforts of the plaintiff to secure the initiation of
such action by the board of directors or the reasons
for not making such effort. |
|
|
|
|
|
Such action shall not be discontinued, compromised or
settled without the approval of the High Court of the
Republic of The Marshall Islands. |
|
|
|
|
|
Attorneys fees may be
awarded if the action is successful. |
|
|
|
|
|
A corporation may require a plaintiff bringing a
derivative suit to give security for reasonable
expenses if the plaintiff owns less than 5% of any
class of stock and the shares have a value of less
than $50,000. |
|
|
95
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict what effect, if any, market sales of shares of Common Stock or the
availability of shares of Common Stock for sale will have on the market price of our Common Stock.
Nevertheless, sales of substantial amounts of Common Stock in the public market, or the perception
that such sales might occur, could materially and adversely affect the market price of our Common
Stock and could impair our ability to raise capital through the sale of our equity or
equity-related securities at a time and price that we deem appropriate.
Upon completion of this offering, we will have shares of Common Stock
and shares of Class B Stock outstanding. Of these shares, the Common Stock sold in
the offering will be freely transferable in the United States without restriction under the
Securities Act, except that any shares held by our affiliates, as that term is defined under Rule
144 of the Securities Act, may be sold only in compliance with the limitations described below. The
remaining outstanding shares of our common stock may be sold in the public market only if
registered under the Securities Act or if they qualify for an exemption from registration under
Rule 144 under the Securities Act, which are summarized below, or another SEC rule.
Upon the completion of this offering, Genco will own shares of
Class B
Stock. These shares may not be resold except in compliance with the registration requirements of
the Securities Act or under an exemption from those registration requirements, such as the
exemptions provided by Rule 144, Regulation S and other exemptions under the Securities Act. Our
shares of common stock held by Genco or its affiliates will be subject to the underwriters lock-up
agreement as described below.
Prior to or at the closing of this offering, we will enter into a registration rights
agreement with Genco, pursuant to which we will grant it and its affiliates, the right, under
certain circumstances and subject to certain restrictions, to require us, following the first
anniversary of this offering, to register under the Securities Act any Common Stock, including
Common Stock issuable upon conversion of Class B Stock, owned by Genco or its affiliates. Please
read Certain Relationships and Related-Party Transactions Registration Rights Agreement.
Rule 144
In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who
is not our affiliate and has not been our affiliate at any time during the preceding three months
will be entitled to sell any shares of our common stock that such person has beneficially owned for
at least six months, including the holding period of any prior owner other than one of our
affiliates, without regard to volume limitations. Sales of our common stock by any such person
would be subject to the availability of current public information about us if the shares to be
sold were beneficially owned by such person for less than one year.
In addition, under Rule 144, a person may sell shares of our common stock acquired from us
immediately upon the closing of this offering, without regard to volume limitations or the
availability of public information about us, if:
|
|
|
the person is not our affiliate and has not been our affiliate at any
time during the preceding three months; and |
|
|
|
|
the person has beneficially owned the shares to be sold for at least
one year, including the holding period of any prior owner other than
one of our affiliates. |
96
Beginning 90 days after the date of this prospectus, our affiliates who have beneficially
owned shares of our common stock for at least six months, including the holding period of any prior
owner other than one of our affiliates, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
|
|
|
1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after
this offering; and |
|
|
|
|
the average weekly trading volume in our common stock on the New York
Stock Exchange during the four calendar weeks preceding the date of
filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144
with respect to the sale. |
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about us.
Lock-Up Agreements
In connection with this offering, we, Genco, and each of our officers and directors, including
nominees for directors, have agreed with the underwriters, subject to certain exceptions, not to
sell, dispose of or hedge any of our Common Stock or securities convertible into or exchangeable
for shares of Common Stock, for a period of at least 180 days after the date of this prospectus,
except with the prior written consent of the representatives of the underwriters. Please read
Underwriting.
TAX CONSIDERATIONS
The following is a discussion of the material Marshall Islands and U.S. federal income tax
considerations relevant to an investment decision by a U.S. Holder or a Non-U.S. Holder, as defined
below, with respect to the common stock. This discussion does not purport to deal with the tax
consequences of owning our common stock to all categories of investors, some of which (such as
financial institutions, regulated investment companies, real estate investment trusts, tax-exempt
organizations, insurance companies, persons holding our common stock as part of a hedging,
integrated, conversion or constructive sale transaction or a straddle, traders in securities that
have elected the mark-to-market method of accounting for their securities, persons liable for
alternative minimum tax, persons who are investors in pass-through entities, persons who own,
actually or under applicable constructive ownership rules, 10% or more of our Common Stock, dealers
in securities or currencies and investors whose functional currency is not the U.S. dollar) may be
subject to special rules. This discussion deals only with holders who purchase common stock in
connection with this offering and hold the common stock as a capital asset. Moreover, this
discussion is based on laws, regulations and other authorities in effect as of the date of this
prospectus, all of which are subject to change, possibly with retroactive effect. You are
encouraged to consult your own tax advisors concerning the overall tax consequences arising in your
own particular situation under U.S. federal, state, local or foreign law of the ownership of our
common stock.
Marshall Islands Tax Considerations
The following are the material Marshall Islands tax consequences of our activities to us and
to our shareholders of investing in 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 or income tax will be imposed upon payments of dividends by us to
our shareholders or proceeds from the disposition of our common stock.
U.S. Federal Income Tax Considerations
For purposes of this discussion, the term U.S. Holder means a beneficial owner of our common
stock that is, for United States federal income tax purposes, (i) an individual U.S. citizen or
resident, (ii) a U.S. corporation or other U.S. entity taxable as a corporation, (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a
trust if either (x) a court within the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust, or (y) the trust has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S. person. If a partnership, or an entity
treated for U.S. federal income tax purposes as a partnership, such as a limited liability company,
holds common stock, the tax treatment of a partner will generally depend on the status of the
partner and upon the activities of the partnership. If you are a
partner in such a partnership holding our common stock, you are encouraged to consult your tax advisor. A
beneficial owner of our common stock (other than a partnership) that is not a U.S. Holder is
referred to below as a Non-U.S. Holder.
97
Taxation of Operating Income: In General
Unless exempt from U.S. federal income taxation, a foreign corporation is subject to U.S.
federal income tax in respect of any income that is derived from the use of vessels, from the
hiring or leasing of vessels for use on a time, voyage or bareboat charter basis or from the
performance of services directly related to those uses, which we refer to as shipping income, to
the extent that the shipping income is derived from sources within the United States, which we
refer to as U.S. source shipping income.
For these purposes, 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 constitutes U.S. source
shipping income.
No portion of shipping income attributable to transportation exclusively between non-U.S.
ports will be considered to be U.S. source shipping income. Such shipping income will not be
subject to any U.S. federal income tax.
Shipping income attributable to transportation exclusively between U.S. ports will be
considered to be 100% derived from U.S. sources. However, due to prohibitions under U.S. law, we do
not engage in transportation of cargo that produces 100% U.S. source shipping income.
Unless exempt from tax under Section 883 of the Code (or effectively connected with the
conduct of a U.S. trade or business, as described below), our gross U.S. source shipping income
generally would be subject to a 4% tax imposed without allowance for deductions.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the related regulations, a foreign corporation will be exempt
from U.S. federal income taxation on its U.S. source shipping income if:
(1) it is organized in a qualified foreign country, which is one that grants an equivalent
exemption from tax to corporations organized in the United States in respect of each
category of shipping income for which exemption is being claimed under Section 883, and to
which we refer as the Country of Organization Test; and
(2) either:
(a) more than 50% of the value of its stock is beneficially owned, directly or
indirectly, by qualified shareholders, which includes individuals who are
residents of a qualified foreign country, to which we refer as the 50% Ownership
Test;
(b) one or more classes of its stock representing, in the aggregate, more than 50%
of the combined voting power and value of all classes of its stock are primarily
and regularly traded on one or more established securities markets in a qualified
foreign country or in the United States, to which we refer as the Publicly Traded
Test; or
(c) it is a controlled foreign corporation and it satisfies an ownership test to
which, collectively, we refer as the CFC Test.
The Marshall Islands, the jurisdiction where we are incorporated, has been officially
recognized by the IRS as a qualified foreign country that currently grants the requisite equivalent
exemption from tax in respect of each category of shipping income we expect to earn in the future,
which we refer to as an Equivalent Exemption. Therefore, we will satisfy the Country of
Organization Test and will be exempt from U.S. federal income
taxation with respect to our U.S. source shipping income if we are able to satisfy any one of the 50%
Ownership Test, the Publicly Traded Test or the CFC Test.
98
We believe that, upon the closing of this offering, we will not satisfy the Publicly Traded
Test, although we may satisfy such test in the future, as discussed below. We do not currently
anticipate circumstances under which we would be able to satisfy either the 50% Ownership Test or
the CFC Test.
Publicly Traded Test
The regulations under Section 883 provide, in pertinent part, that a corporation will meet the
Publicly Traded Test if one or more classes of stock of a foreign corporation representing, in the
aggregate, more than 50% of the combined voting power and value of all classes of stock are
primarily and regularly traded on one or more established securities markets in a qualified
foreign country or in the United States. A class of stock will be considered to be primarily
traded on an established securities market in a country if the number of shares of such class of
stock that are traded during any taxable year on all established securities markets in that country
exceeds the number of shares of such stock that are traded during that year on established
securities markets in any other single country.
Under the regulations, a class of stock will be considered to be regularly traded on an
established securities market if (1) such class of stock is listed on such market, (2) such class
of stock is traded on such market, other than in minimal quantities, on at least 60 days during the
taxable year or one sixth of the days in a short taxable year; and (2) the aggregate number of
shares of such class of stock traded on such market during the taxable year is at least 10% of the
average number of shares of such class of stock outstanding during such year, or as appropriately
adjusted in the case of a short taxable year. The regulations provide that the trading frequency
and trading volume tests will be deemed satisfied if a class of stock is regularly quoted by
dealers making a market in such stock. Our Common Stock will be traded on the NYSE.
The regulations provide, in pertinent part, that a class of stock will not be considered to be
regularly traded on an established securities market for any taxable year in which 50% or more of
the outstanding shares of such class of stock are owned, actually or constructively under specified
stock attribution rules, on more than half the days during the taxable year by persons who each own
5% or more of the outstanding shares of such class of stock, to which we refer as the Five Percent
Override Rule.
For purposes of being able to determine the persons who actually or constructively own 5% or
more of a class of stock, or 5% shareholders, the regulations permit a company to rely on
Schedule 13G and Schedule 13D filings with the SEC to identify its 5% shareholders. The regulations
further provide that an investment company which is registered under the Investment Company Act of
1940, as amended, will not be treated as a 5% shareholder for these purposes.
In the event the Five Percent Override Rule is triggered, the regulations provide that the
Five Percent Override Rule will nevertheless not apply if the company can establish that there are
sufficient 5% shareholders that are considered to be qualified shareholders for purposes of
Section 883 to preclude non-qualified 5% shareholders from owning 50% or more of the class of stock
for more than half the number of days during the taxable year.
Upon the closing of this offering, our Class B Stock, which will not be primarily and
regularly traded on an established securities market, will represent more than 50% of the combined
voting power of all classes of stock, while our Common Stock will represent more than 50% of the
value of all classes of stock. Thus, at present, we do not believe we will be able to satisfy the
Publicly Traded Test.
If a majority of the holders of the Class B Stock irrevocably elects to reduce the voting
power of the Class B Stock to constitute not more than 49% of the total voting power of all classes
of stock, our Common Stock following such election would represent more than 50% of the combined
voting power and value of all classes of stock. In that event, we believe that our Common Stock
would be primarily traded on the NYSE. In addition, we believe that we would be able to satisfy
the trading frequency and trading volume tests with respect to our
Common Stock and, subject to the Five Percent Override Rule described above, our Common Stock would
be considered to be regularly traded on the NYSE. Therefore, if a majority of the holders of the
Class B Stock make such election, we believe that we would satisfy the Publicly Traded Test and
thus qualify for the Section 883 exemption and be exempt from U.S. federal income taxation on our
U.S. source shipping income.
99
Taxation in Absence of Section 883 Exemption
So long as we do not qualify for exemption under Section 883 as described above, our gross
U.S. source shipping income will be subject to a 4% tax, without allowance for deductions, unless
such income is effectively connected with the conduct of a U.S. trade or business (effectively
connected income), as described below. Since under the sourcing rules described above no more than
50% of our shipping income will be treated as being U.S. source shipping income, the maximum
effective rate of U.S. federal income tax on our non-effectively connected shipping income will
never exceed 2%. We do not currently anticipate that a significant portion of our shipping income
will be U.S. source shipping income. In the event that the holder of the Class B Stock elects to
reduce the voting power of the Class B Stock, as described above, and we qualify for exemption
under Section 883, then we would no longer be subject to the 4% tax on our U.S. source shipping
income.
To the extent our U.S. source shipping income, or other income we may have, is considered to
be effectively connected income, as described below, any such income, net of applicable deductions,
would be subject to the U.S. federal corporate income tax, currently imposed at rates of up to 35%.
In addition, we may be subject to a 30% branch profits tax on such income, and on certain
interest paid or deemed paid attributable to the conduct of such trade or business.
Our U.S. source shipping income would be considered effectively connected income only if:
|
|
|
we have, or are considered to have, a fixed place of business in the United States
involved in the earning of U.S. source shipping income; and |
|
|
|
|
substantially all of our U.S. source shipping income is attributable to regularly
scheduled transportation, such as the operation of a vessel that follows a published
schedule with repeated sailings at regular intervals between the same points for voyages
that begin or end in the United States. |
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 expected mode of
our future shipping operations and other activities, we believe that none of our U.S. source
shipping income will constitute effectively connected income. However, we may from time to time
generate non-shipping income that may be treated as effectively connected income.
United States Taxation of Gain on Sale of Vessels
Provided we qualify for exemption from tax under Section 883 in respect of our shipping
income, gain from the sale of a vessel likewise should be exempt from tax under Section 883. If,
however, our shipping income does not, for whatever reason, qualify for exemption under Section
883, then such gain may be treated as effectively connected income (determined under rules
different from those discussed above) and subject to the net income and branch profits tax regime
described above.
U.S. Federal Income Taxation of U.S. Holders
Distributions
Subject to the discussion of PFICs below, any distributions made by us with respect to our
common stock to a U.S. Holder will generally constitute dividends to the extent of our current or
accumulated earnings and profits, as determined under U.S. federal income tax principles.
Distributions in excess of those earnings and profits will be treated first as a nontaxable return
of capital to the extent of the U.S. Holders tax basis in our common stock, and thereafter as
capital gain. Because we are not a U.S. corporation, U.S. Holders
that are corporations will not be entitled to claim a dividends-received deduction with respect to any distributions they
receive from us. Amounts taxable as dividends generally will be treated as foreign source passive
income for U.S. foreign tax credit purposes.
100
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate (a
U.S. Non-Corporate Holder) will generally be treated as qualified dividend income that is
taxable to such U.S. Non-Corporate Holder at preferential tax rates through 2010, provided that (1)
the common stock is readily tradable on an established securities market in the United States (such
as the NYSE, on which we expect our common stock will be traded); (2) we are not a PFIC for the
taxable year during which the dividend is paid or the immediately preceding taxable year (which, as
discussed below, we do not believe will be the case); (3) the U.S. Non-Corporate Holders holding
period of the common stock includes more than 60 days in the 121-day period beginning 60 days
before the date on which the common stock becomes ex-dividend; and (4) the U.S. Non-Corporate
Holder is not under an obligation to make related payments with respect to positions in
substantially similar or related property. There is no assurance that (i) any dividends paid on
our common stock will be eligible for these preferential rates in the hands of a U.S. Non-Corporate
Holder, or (ii) the preferential rate on dividends will not be repealed prior to the scheduled
expiration date or expire on such date. Any dividends we pay out of earnings and profits which are
not eligible for these preferential rates will be taxed as ordinary income to a U.S. Non-Corporate
Holder.
Special rules may apply to any extraordinary dividend generally, a dividend in an amount
which is equal to or in excess of 10% of a shareholders adjusted basis (or fair market value in
certain circumstances) in a share of our common stock paid by us. If we pay an extraordinary
dividend on our common stock that is treated as qualified dividend income, then any loss derived
by a U.S. Non-Corporate Holder from the sale or exchange of such common stock will be treated as
long-term capital loss to the extent of such dividend.
Sale, Exchange or Other Disposition of Common Stock
Subject to the discussion of PFICs below, a U.S. Holder generally will recognize taxable gain
or loss upon a sale, exchange or other taxable disposition of our common stock in an amount equal
to the difference between the amount realized by the U.S. Holder from such disposition and the U.S.
Holders tax basis in such stock. Such gain or loss will be treated as long-term capital gain or
loss if the U.S. Holders holding period is greater than one year at the time of the disposition.
Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable,
for U.S. foreign tax credit purposes. Long-term capital gains of U.S. Non-Corporate Holders are
eligible for reduced rates of taxation. A U.S. Holders ability to deduct capital losses is subject
to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
We will be a passive foreign investment company (a PFIC) if either:
|
|
75% or more of our gross income in a taxable year consists of passive income (generally
including dividends, interest, gains from the sale or exchange of investment property and
rents and royalties other than rents and royalties which are received from unrelated parties
in connection with the active conduct of a trade or business, as defined in applicable
Treasury regulations); or |
|
|
at least 50% of our assets in a taxable year (averaged over the year and generally
determined based upon value) produce or are held for the production of passive income. |
If we would otherwise be a PFIC in our start-up year (defined as the first taxable year we
earn gross income) as a result of a delay in purchasing vessels with the proceeds of the offering,
we will not be treated as a PFIC in that taxable year, provided that (i) no predecessor corporation
was a PFIC, (ii) it is established to the United States Internal Revenue Services satisfaction
that we will not be a PFIC in either of the two succeeding taxable years, and (iii) we are not, in
fact, a PFIC for either succeeding taxable year. We will attempt to conduct our affairs in a manner
so that, if applicable, we will satisfy the start-up year exception, but we cannot assure you that
we will so qualify.
101
For purposes of determining whether we are a PFIC, income derived from the performance of
services does not constitute passive income. By contrast, rental income would generally constitute
passive income unless we were treated under specific rules as deriving our rental income in the
active conduct of a trade or business. Based on our planned operations and future projections, we
do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend
to treat our income from the spot charter of vessels as services income, rather than rental income.
Accordingly, we believe that such income does not constitute passive income, and that the assets
that we own and operate in connection with the production of that income, primarily our vessels, do
not constitute passive assets for purposes of determining whether we are a PFIC.
There is, however, no direct legal authority under the PFIC rules addressing our method of
operation. Moreover, in a recent case not concerning PFICs, Tidewater Inc. v. U.S., 565 F.3d 299
(5th Cir. 2009), the Fifth Circuit held that a vessel time charter at issue generated
rental, rather than services, income. However, the courts ruling was contrary to the position of
the U.S. Internal Revenue Service, which we sometimes refer to as the IRS, that the time charter
income should be treated as services income. Moreover, that case dealt with time charters, while
substantially all of our income will be generated from the movement of freight at spot rates under
contracts whose terms we anticipate will differ in material respects from those in the time
charters at issue in Tidewater. No assurance can be given that the IRS, or a court of law will
accept our position, and there is a risk that the IRS or a court of law could determine that we are
a PFIC. Moreover, because there are uncertainties in the application of the PFIC rules, because the
PFIC test is an annual test, and because, although we intend to manage our business so as to avoid
PFIC status to the extent consistent with our other business goals, there could be changes in the
nature and extent of our operations in future years, there can be no assurance that we will not
become a PFIC in any taxable year.
If we were to be treated as a PFIC for any taxable year (and regardless of whether we remain a
PFIC for subsequent taxable years), each U.S. Holder who is treated as owning our stock for
purposes of the PFIC rules would be liable to pay U.S. federal income tax at the highest applicable
income tax rates on ordinary income upon the receipt of excess distributions (i.e., the portion of
any distributions received by the U.S. Holder on our common stock in a taxable year in excess of
125 percent of the average annual distributions received by the U.S. Holder in the three preceding
taxable years or, if shorter, the U.S. Holders holding period for the common stock) and on any
gain from the disposition of our common stock, plus interest on such amounts, as if such excess
distributions or gain had been recognized ratably over the U.S. Holders holding period of our
common stock.
The above rules relating to the taxation of excess distributions and dispositions will not
apply to a U.S. Holder who has made a timely qualified electing fund (QEF) election for all
taxable years that the holder has held our common stock and we were a PFIC. Instead, each U.S.
Holder who has made a timely QEF election is required for each taxable year to include in income a
pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital
gain as long-term capital gain, regardless of whether we have made any distributions of the
earnings or gain. The U.S. Holders basis in our common stock will be increased to reflect taxed
but undistributed income. Distributions of income that had been previously taxed will result in a
corresponding reduction in the basis of the common stock and will not be taxed again once
distributed. A U.S. Holder making a QEF election would generally recognize capital gain or loss on
the sale, exchange or other disposition of our common stock. If we determine that we are a PFIC
for any taxable year, we may provide each U.S. Holder with all necessary information in order to
make the QEF election described above.
Alternatively, if we were to be treated as a PFIC for any taxable year and provided that our
common stock is treated as marketable, which we believe will be the case, a U.S. Holder may make
a mark-to-market election. Under a mark-to-market election, any excess of the fair market value of
the common stock at the close of any taxable year over the U.S. Holders adjusted tax basis in the
common stock is included in the U.S. Holders income as ordinary income. In addition, the excess,
if any, of the U.S. Holders adjusted tax basis at the close of any taxable year over the fair
market value of the common stock is deductible in an amount equal to the lesser of the amount of
the excess or the amount of the net mark-to-market gains that the U.S. Holder included in income in
prior years. A U.S. Holders tax basis in our common stock would be adjusted to reflect any such
income or loss. Gain realized on the sale, exchange or other disposition of our common stock would
be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of
our common stock would be treated as ordinary loss to the extent that such loss does not exceed the
net mark-to-market gains previously included by the U.S. Holder.
102
A U.S. Holder who holds our common stock during a period when we are a PFIC generally will be
subject to the foregoing rules for that taxable year and all subsequent taxable years with respect
to that U.S. Holders holding of our common stock, even if we cease to be a PFIC, subject to
certain exceptions for U.S. Holders who made a mark-to-market or QEF election. U.S. Holders are
urged to consult their tax advisors regarding the PFIC rules, including as to the advisability of
choosing to make a QEF or mark-to-market election.
U.S. Federal Income Taxation of Non-U.S. Holders
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax
on dividends received from us on our common stock unless the income is effectively connected income
(and, if an income tax treaty applies, the income is attributable to a permanent establishment
maintained by the Non-U.S. Holder in the United States).
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax
on any gain realized upon the sale, exchange or other disposition of our common stock, unless
either:
|
|
the gain is effectively connected income (and, if a treaty applies, the gain is
attributable to a permanent establishment maintained by the Non-U.S. Holder in the United
States); or |
|
|
the Non-U.S. Holder is an individual who is present in the United States for 183 days or
more during the taxable year of disposition and certain other conditions are met. |
Effectively connected income will generally be subject to regular U.S. federal income tax in
the same manner as discussed in the section above relating to the taxation of U.S. Holders, unless
exempt under an applicable income tax treaty. In addition, earnings and profits of a corporate
Non-U.S. Holder that are attributable to such income, as determined after allowance for certain
adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower
rate as may be specified by an applicable income tax treaty.
Non-U.S. Holders may be subject to tax in jurisdictions other than the United States on
dividends received from us on our common stock and on any gain realized upon the sale, exchange or
other disposition of our common stock.
Backup Withholding and Information Reporting
In general, payments of distributions on, and the proceeds of a disposition of, our common stock
will be subject to U.S. federal income tax information reporting requirements if you are a
Non-Corporate U.S. Holder. Such payments may also be subject to U.S. federal backup withholding tax
if you are a Non-Corporate U.S. Holder and you:
|
|
fail to provide us with an accurate taxpayer identification number; |
|
|
are notified by the IRS that you have failed to report all interest or dividends required
to be shown on your federal income tax returns; or |
|
|
fail to comply with applicable certification requirements. |
Non-U.S. Holders generally will be subject to information reporting with respect to
distributions on our common stock. Non-U.S. Holders may be required to establish their exemption
from information reporting on proceeds of a disposition of our common stock and from backup
withholding by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.
Backup withholding tax is not an additional tax. Rather, you generally may obtain a refund of
any amounts withheld under backup withholding rules that exceed your income tax liability by filing
a refund claim with the IRS.
103
UNDERWRITING
Morgan Stanley & Co. Incorporated and Dahlman Rose & Company, LLC are the representatives of the underwriters
and joint book-running managers.
The company and the underwriters named below have entered into an underwriting agreement with
respect to the shares being offered. Subject to certain conditions, each underwriter has severally
agreed to purchase from us the number of shares indicated in the following table.
|
|
|
Name |
|
Number of Shares |
Morgan Stanley & Co. Incorporated |
|
|
Dahlman Rose & Company, LLC |
|
|
Total |
|
|
The underwriters are committed to take and pay for all of the shares being offered by us, if
any are taken, other than the shares covered by the option described below unless and until the
option is exercised. The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased, or the offering may be
terminated.
We have granted to the underwriters an option, exercisable for 30 days from the date of this
prospectus, to purchase up to additional shares of Common Stock at the purchase price
listed above. The underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of Common Stock offered
by this prospectus supplement. To the extent the option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase about the same percentage of the additional
shares of Common Stock as the number listed next to the underwriters name in the preceding table
bears to the total number of shares of Common Stock listed next to the names of all underwriters in
the preceding table.
The following table shows the underwriting discounts and commissions that we are to pay to the
underwriters in connection with this offering. These amounts are shown assuming both no exercise
and full exercise of the underwriters option to purchase additional shares of Common Stock.
Paid by Baltic Trading Limited
|
|
|
|
|
|
|
No Exercise |
|
Full Exercise |
Per Share |
|
|
|
|
Total |
|
|
|
|
Shares sold by the underwriters to the public will initially be offered at the initial public
offering price set forth on the cover of this prospectus. If all the shares are not sold at the
initial public offering price, the representatives may change the offering price and the other
selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance
and subject to the underwriters right to reject any order in whole or in part.
We, each of our officers and directors and each of the officers and directors of Genco have
agreed that, for a period of 180 days from the date of this prospectus, we and they will not,
without the prior written consent of Morgan Stanley & Co. Incorporated and Dahlman Rose & Company, LLC, dispose of or hedge any shares of our
Common Stock or any securities convertible into or exchangeable for our Common Stock, subject to
certain exceptions. Morgan Stanley & Co. Incorporated and Dahlman Rose & Company, LLC, in their sole discretion, may release any of the
securities subject to these lock-up agreements at any time without notice. The representatives have
no present intent or arrangement to release any of the securities subject to these lock-up
agreements. The release of any lock-up is considered on a case-by-case basis. Factors in deciding
whether to release Common Stock may include the length of time before the lock-up expires, the
number of shares of Common Stock involved, the reason for the requested release, market conditions,
the trading price of our Common Stock, historical trading volume of our Common Stock and whether
the person seeking the release is an officer, director or affiliate of us.
104
The 180-day restricted period described in the preceding paragraph will be extended if:
|
|
during the last 17 days of the restricted period we issue an earnings
release or announce material news or a material event; or |
|
|
prior to the expiration of the restricted period, we announce that we
will release earnings results during the 16-day period beginning on
the last day of the restricted period, |
in which case the restrictions described in the preceding paragraph will continue to apply until
the expiration of the 18-day period beginning on the issuance of the earnings release or the
announcement of the material news or event.
Prior to the offering, there has been no public market for the Common Stock. The initial
public offering price will be negotiated among the company and the representatives. Among the
factors to be considered in determining the initial public offering price of the Common Stock are
the information set forth in this prospectus and otherwise available to the underwriters, our
prospects and the history of, and prospects for, the drybulk industry in which we will compete, an
assessment of our management, our prospects for future earnings and growth, the general condition
of the securities markets at the time of this offering, the recent market prices of, and the demand
for, publicly traded common stock of generally comparable companies and other factors deemed
relevant by the representatives and us.
We are seeking to have our Common Stock approved for listing on The New York Stock Exchange,
subject to official notice of issuance, under the symbol BDI.
In connection with the offering, the underwriters may purchase and sell shares of Common Stock
in the open market. These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Shorts sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase in the offering.
Covered short sales are sales made in an amount not greater than the underwriters option to
purchase additional shares from us. The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or purchasing shares in the open
market. In determining the source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase additional shares pursuant to the
option granted to them. Naked short sales are any sales in excess of such option. The
underwriters must close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are concerned that there may
be downward pressure on the price of the Common Stock in the open market after pricing that could
adversely affect investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of Common Stock made by the underwriters in the open market prior to
the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter
repays to the underwriters a portion of the underwriting discount received by it because the
representatives have repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases
by the underwriters for their own accounts, may have the effect of preventing or retarding a
decline in the market price of the companys Common Stock, and together with the imposition of the
penalty bid, may stabilize, maintain or otherwise affect the market price of the Common Stock. As a
result, the price of the Common Stock may be higher than the price that otherwise might exist in
the open market. If these activities are commenced, they may be discontinued at any time. These
transactions may be effected on The New York Stock Exchange, in the over-the-counter market or
otherwise.
The underwriters do not expect sales to discretionary accounts to exceed five percent of the
total number of shares offered.
We estimate that our portion of the total expenses of this offering will be
$
.
105
Certain of the underwriters and their affiliates from time to time have performed investment
banking, commercial banking and advisory services for our affiliate Genco, for which they have
received customary fees and expenses. The underwriters and their affiliates may from time to time
perform investment banking and advisory services for us and our affiliate Genco, and in the
ordinary course of business for which they may in the future receive customary fees and expenses.
A prospectus in electronic format may be made available on the web sites maintained by one or
more of the underwriters. The representatives may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders. The representatives will allocate
shares to underwriters that may make Internet distributions on the same basis as other allocations.
In addition, shares may be sold by the underwriters to securities dealers who resell shares to
online brokerage account holders.
We have agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be
required to make because of any of those liabilities.
Other than in the United States, no action has been taken by us or the underwriters that would
permit a public offering of the Common Stock offered by this prospectus in any jurisdiction where
action for that purpose is required. The 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
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 common shares offered by this prospectus in any jurisdiction in
which such an offer or a solicitation is unlawful.
Selling Restrictions
European Economic Area
In relation to each member state of the European Economic Area that has implemented the
Prospectus Directive (each, a relevant member state), with effect from and including the date on
which the Prospectus Directive is implemented in that relevant member state (the relevant
implementation date), an offer of securities described in this prospectus may not be made to the
public in that relevant member state other than:
|
|
|
to any legal entity that is authorized or regulated to operate in the financial markets
or, if not so authorized or regulated, whose corporate purpose is solely to invest in
securities; |
|
|
|
|
to any legal entity that has two or more of (1) an average of at least 250 employees
during the last financial year; (2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000, as shown in its last annual or
consolidated accounts; |
|
|
|
|
to fewer than 100 natural or legal persons (other than qualified investors as defined in
the Prospectus Directive) subject to obtaining the prior consent of the representatives; or |
|
|
|
|
in any other circumstances that do not require the publication of a prospectus pursuant
to Article 3 of the Prospectus Directive, provided that no such offer of securities shall
require us or any underwriter to publish a prospectus pursuant to Article 3 of the
Prospectus Directive. |
For purposes of this provision, the expression an offer of securities to the public in any
relevant member state means the communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be offered so as to enable an investor
to decide to purchase or subscribe the securities, as the expression may be varied in that member
state by any measure implementing the Prospectus Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in
each relevant member state. We have not authorized and do not
authorize the making of any offer of securities through any financial intermediary on our behalf, other than offers
made by the underwriters with a view to the final placement of the securities as contemplated in
this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is
authorized to make any further offer of the securities on behalf of us or the underwriters.
106
United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United
Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus
Directive (Qualified Investors) that are also (i) investment professionals falling within Article
19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order)
or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling
within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as
relevant persons). This prospectus and its contents are confidential and should not be distributed,
published or reproduced (in whole or in part) or disclosed by recipients to any other persons in
the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act
or rely on this document or any of its contents.
LEGAL MATTERS
Various legal matters in connection with this offering will be passed on for us by Kramer
Levin Naftalis & Frankel LLP, New York, New York, Reeder & Simpson P.C., Majuro, Marshall Islands
and Seward & Kissel LLP, New York, New York; and the underwriters by Morgan Lewis & Bockius LLP,
New York, New York.
EXPERTS
The balance sheet of Baltic Trading Limited included in this Prospectus
has been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as
stated in their report appearing herein. Such financial statement has been included herein in
reliance upon the report of such firm given upon their authority as experts in accounting and
auditing.
The sections in this prospectus entitled Risk FactorsCharterhire rates for drybulk carriers
are volatile and are currently at relatively low levels as compared to recent historical levels and
may further decrease in the future, which may adversely affect our earnings, The International
Drybulk Shipping Industry and the statistical and graphical information contained therein, and
Glossary of Shipping
Terms, and in any other instance where Drewry has been
identified as the source of information included in this prospectus, have been reviewed by Drewry,
which has confirmed to us that they accurately describe the international drybulk shipping market,
subject to the availability and reliability of the data supporting the statistical information
presented in this prospectus, as indicated in the consent of Drewry filed as an exhibit to the
registration statement on Form S-1 under the Securities Act of which this prospectus is a part.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1
under the Securities Act with respect to the common stock offered by this prospectus. For the
purposes of this section, the term registration statement means the original registration
statement and any and all amendments, including the schedules and exhibits to the original
registration statement or any amendment. This prospectus does not contain all of the information
set forth in the registration statement we filed. Each statement made in this prospectus concerning
a document filed as an exhibit to the registration statement is qualified by reference to that
exhibit for a complete statement of its provisions. The registration statement, including its
exhibits and schedules, may be inspected and copied at the public reference facilities maintained
by the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330,
and you may obtain copies at prescribed rates from the Public Reference Section of the SEC at its
principal office in Washington, D.C. 20549. The SEC maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements and other information regarding registrants that
file electronically with the SEC.
107
We will be subject to the full informational requirements of the Securities Exchange Act of
1934. To comply with these requirements, we will file periodic reports, proxy statements and other
information with the SEC.
DRYBULK SHIPPING INDUSTRY DATA
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.
GLOSSARY OF SHIPPING TERMS
The following are definitions of certain terms that are commonly used in the shipping industry
and in this prospectus.
Annual survey. The inspection of a vessel pursuant to international conventions, by a
classification society surveyor, on behalf of the flag state, that takes place every year.
Ballast. A voyage during which the vessel is not laden with cargo.
Bareboat charter. A bareboat charter involves the use of a vessel usually over longer
periods of time ranging over several years. In this case, all voyage related costs, mainly vessel
fuel and port dues, as well as all vessel-operating expenses, such as day-to-day operations,
maintenance, crewing and insurance, are for the charterers account. The owner of the vessel
receives monthly charter hire payments on a U.S. dollar per day basis and is responsible only for
the payment of capital costs related to the vessel. A bareboat charter is also known as a demise
charter or a time charter by demise.
Bunkers. Heavy fuel and diesel oil used to power a vessels engines.
Capesize. Capesize vessels have carrying capacities of between 110,000 and 199,999 dwt. Only the largest ports around the
world possess the infrastructure to accommodate vessels of this size. Capesize vessels are mainly used to transport iron ore or coal and, to a lesser extent, grains, primarily on long-haul routes.
Charter. The hire of a vessel for a specified period of time or to carry a cargo from a
loading port to a discharging port. The contract for a charter is commonly called a charterparty.
Charterer. The party that hires a vessel for a period of time or for a voyage.
Charterhire. A sum of money paid to the ship owner by a charterer for the use of a vessel.
Charterhire paid under a voyage charter is also known as freight.
Classification society. An independent society that certifies that a vessel has been built
and maintained according to the societys rules for that type of vessel and complies with the
applicable rules and regulations of the country of the vessels registry and the international
conventions of which that country is a member. A vessel that receives its certification is referred
to as being in-class.
Contract of affreightment. A contract of affreightment, or CoA, relates to the carriage of
multiple cargoes over the same route and enables the CoA holder to nominate different vessels to
perform the individual voyages. Essentially, it constitutes a series of voyage charters to carry a
specified amount of cargo during the term of the CoA, which usually spans a number of years. All of the ships operating expenses, voyage
expenses and capital costs are borne by the ship owner. Freight normally is agreed on a U.S.
dollar-per-ton basis.
108
Drybulk carrier. A vessel designed to carry bulk cargo, such as coal, iron ore and grain,
that is loaded in bulk and not in bags, packages or containers.
Drydocking. The removal of a vessel from the water for inspection and repair of those parts
of a vessel which are below the water line. During drydockings, which are required to be performed
periodically, certain mandatory classification society inspections are carried out and relevant
certifications are issued. Drydockings are generally required once every 30 months or twice every
five years, one of which must be a special survey.
Dwt. Deadweight ton, which is a unit of a vessels capacity for cargo, fuel, oil, stores
and crew measured in metric tons of 1,000 kilograms.
Fix. A shipping industry term for arranging the charter of a vessel.
Freight. A sum of money paid to the ship owner by the charterer under a voyage charter,
usually calculated either per ton loaded or as a lump-sum amount.
Gross ton. A unit of measurement for the total enclosed space within a vessel equal to 100
cubic feet or 2.831 cubic meters.
Handymax. Handymax
vessels have a carrying capacity of between 40,000 and 59,999 dwt.
These vessels operate on a large number of geographically dispersed global trade routes,
carrying primarily grains and minor bulks. Within the Handymax category there is
also a sub-sector known as Supramax.
Supramax bulk carriers are ships between 50,000 to 59,999 dwt, normally
offering cargo loading and unloading flexibility with on-board cranes,
while at the same time possessing the cargo carrying capability approaching
conventional Panamax bulk carriers. Hence, the earnings potential of a
Supramax drybulk carrier, when compared to a conventional Handymax vessel of
45,000 dwt, is greater.
Handysize. Handysize
vessels have a carrying capacity of up to 39,999 dwt.
These vessels are primarily involved in carrying minor bulk cargoes.
Increasingly, ships of this type operate on regional trading routes, and may serve
as trans-shipment feeders for larger vessels.
Handysize vessels are well suited for small ports with length and draft restrictions.
Their cargo gear enables them to service ports lacking the infrastructure
for cargo loading and unloading.
Hull. Shell or body of a ship.
IMO. International Maritime Organization, a U.N. agency that issues international standards
for shipping.
Intermediate survey. The inspection of a vessel by a classification society surveyor that
takes place 24 to 36 months after each special survey.
Newbuilding. A new vessel under construction or just completed.
Off-hire. The period in which a vessel is unable to perform the services for which it is
immediately required under a time charter. Off-hire periods can include days spent on repairs,
drydocking and surveys, whether or not scheduled.
OPA. The U.S. Oil Pollution Act of 1990.
Panamax. Panamax vessels have a carrying capacity of between 60,000 and 79,999 dwt.
These vessels carry coal,
grains, and, to a lesser extent, minor bulks, including steel products, forest products and fertilizers.
Panamax vessels are able to pass through the Panama Canal, making them more versatile than larger vessels.
Protection and indemnity insurance. Insurance obtained through a mutual association formed
by ship owners to provide liability indemnification protection from various liabilities to which
they are exposed in the course of their business, and which spreads the liability costs of each
member by requiring contribution by all members in the event of a loss.
Scrapping. The sale of a vessel as scrap metal.
Sister ships. Vessels of the same class and specifications typically built at the same
shipyard.
109
Special survey. The inspection of a vessel by a classification society surveyor that takes
place every five years, as part of the recertification of the vessel by the classification society.
Spot charter. Generally refers to a voyage charter or a trip charter (see separate
definitions), which generally last from 10 days to three months. Under both types of spot
charters, the ship owner would pay for vessel operating expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, and for
commissions on gross revenues. The ship owner would also be responsible for each vessels
intermediate and special survey costs.
Spot market. The market for immediate chartering of a vessel, usually for single voyages.
Supramax. See the definition of Handymax above.
TCE. Time charter equivalent, or TCE, is a measure of the average daily revenue performance
of a vessel on a per-voyage basis. Our method of calculating TCE is consistent with industry
standards and is determined by dividing revenues (net of voyage expenses) by available days for the
relevant time period. TCE is a standard shipping industry performance measure used primarily to
compare period-to-period changes in a shipping companys performance despite changes in the mix of
charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels
may be employed during specific periods.
Time charter. A charter under which the vessel owner is paid charterhire on a per-day basis
for a specified period of time. Typically, the ship owner receives semi-monthly charterhire
payments on a U.S. Dollar-per-day basis and is responsible for providing the crew and paying vessel
operating expenses while the charterer is responsible for paying the voyage expenses and additional
voyage insurance. Under time charters, including trip time charters, the charterer pays voyage
expenses such as port, canal and fuel costs and bunkers.
Trip charter. A time charter for a trip to carry a specific cargo from a load port to a
discharge port at a set daily rate.
Vessel operating expenses. The costs of operating a vessel, primarily consisting of crew
wages and associated costs, insurance premiums, management fees, lube oil, bunker and spare part
costs, and repair and maintenance costs. Vessel operating expenses exclude fuel costs, port
expenses, agents fees, canal dues and extra war risk insurance premiums, as well as commissions,
which are included in voyage expenses.
Voyage charter. A voyage charter involves the carriage of a specific amount and type of
cargo on a load port-to-discharge port basis, subject to various cargo handling terms. Most of
these charters are of a single voyage nature, as trading patterns do not encourage round voyage
trading. The owner of the vessel receives one payment derived by multiplying the tonnage of cargo
loaded on board by the agreed upon freight rate expressed on a U.S. dollar-per-ton basis. The
owner is responsible for the payment of all voyage and operating expenses, as well as the capital
costs of the vessel..
Voyage expenses. Expenses incurred due to a vessels traveling from a loading port to a
discharging port, such as fuel (bunkers) costs, port expenses, agents fees, canal dues and extra
war risk insurance, as well as commissions.
110
BALTIC TRADING LIMITED
INDEX TO BALANCE SHEET
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Baltic Trading Limited:
We have audited the accompanying balance sheet of Baltic Trading Limited (the Company) as of
October 6, 2009. This financial statement is the responsibility of the Companys management. Our
responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet,
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects, the financial
position of Baltic Trading Limited as of October 6, 2009, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
October 13, 2009
F-2
BALTIC TRADING LIMITED
BALANCE SHEET
(In United States dollars)
|
|
|
|
|
|
|
As of |
|
|
|
October 6, 2009 |
|
Cash |
|
$ |
1 |
|
|
|
|
|
Total assets |
|
$ |
1 |
|
|
|
|
|
Liabilities and shareholders equity |
|
|
|
|
Liabilities |
|
$ |
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
Capital stock, $0.01 par value per share; 100 shares issued and outstanding |
|
|
1 |
|
|
|
|
|
Total shareholders equity |
|
|
1 |
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1 |
|
|
|
|
|
See notes to balance sheet.
F-3
BALTIC TRADING LIMITED
NOTES TO BALANCE SHEET
(In United States dollars)
1. Nature of Operations
Baltic Trading Limited (the Company) was formed on October 6, 2009, under the laws of the
Republic of the Marshall Islands, and is a wholly owned subsidiary of Genco Investments LLC, which
in turn is a wholly owned subsidiary of Genco Shipping & Trading Corporation (Genco). The
Company was formed to own and employ drybulk vessels in the spot market. The spot market represents
immediate chartering of a vessel, usually for single voyages. As of October 6, 2009, Genco
Investments LLC owns 100% of the capital stock of the Company. The authorized capital stock of the
Company consists of 100 shares of capital stock, par value $.01 per share, all of which have been
issued to Genco Investments LLC.
2. Basis of Presentation
The accompanying balance sheet has been prepared on the basis of accounting principles
generally accepted in the United States of America.
3. Legal Proceedings
From time to time, the Company may be subject to legal proceedings and claims in the ordinary
course of its business, principally personal injury and property casualty claims. Such claims,
even if lacking merit, could result in the expenditure of significant financial and managerial
resources. The Company is not aware of any legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the Company, its financial
condition, results of operations or cash flows.
4. Subsequent Events
Subsequent events have been evaluated through October 13, 2009, the date of issuance of the
balance sheet herein.
F-4
Shares
Common Stock
Baltic Trading Limited
[Logo]
MORGAN STANLEY
DAHLMAN ROSE & COMPANY
Through and including , 2009 (the 25th day after the date of this prospectus), all
dealers that buy, sell or trade shares of our Common Stock, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
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 |
|
$ |
12,834 |
|
Printing Expenses |
|
|
|
|
Legal Fees and Expenses |
|
|
|
|
Accountants Fees and Expenses |
|
|
|
|
NYSE Listing Fee |
|
|
|
|
FINRA Filing Fee |
|
$ |
23,500 |
|
Blue Sky Fees and Expenses |
|
|
|
|
Transfer Agents Fees and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Fees and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
|
|
|
Item 14. Indemnification of Directors and Officers.
The amended and restated by-laws of the Registrant will provide that every director and
officer of the Registrant shall be indemnified out of the funds of the Registrant against:
(1) all civil liabilities, loss, damage or expense (including but not limited to liabilities
under contract, tort and statute or any applicable foreign law or regulation and all reasonable
legal and other costs and expenses properly payable) incurred or suffered by him as such director
or officer acting in the reasonable belief that he has been so appointed or elected notwithstanding
any defect in such appointment or election, provided always that such indemnity shall not extend to
any matter which would render it void pursuant to any Marshall Islands statute from time to time in
force concerning companies insofar as the same applies to the Registrant (the Companies Acts);
and
(2) all liabilities incurred by him as such director or officer in defending any proceedings,
whether civil or criminal, in which judgment is given in his favor, or in which he is acquitted, or
in connection with any application under the Companies Acts in which relief from liability is
granted to him by the court.
Section 60 of the Associations Law of the Republic of the Marshall Islands provides as
follows:
Indemnification of directors and officers.
(1) Actions not by or in right of the corporation. A corporation shall have power to
indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of no contest, or its
equivalent, shall not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the bests interests of the
corporation, and, with respect to any criminal action or proceedings, had reasonable cause to
believe that his conduct was unlawful.
II-1
(2) Actions by or in right of the corporation, A corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of the corporation, or is
or was serving at the request of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys fees) actually and reasonably incurred by
him or in connection with the defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any claims, issue or
matter as to which such person shall have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the court shall deem proper.
(3) When director or officer successful, To the extent that a director or officer of a
corporation has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (1) or (2) of this section, or in the defense of a claim,
issue or matter therein, he shall be indemnified against expenses (including attorneys fees)
actually and reasonably incurred by him in connection therewith.
(4) Payment of expenses in advance, Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid in advance of the final disposition of such action, suit or
proceeding as authorized by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as authorized in this
section.
(5) Continuation of indemnification. The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators of such a person.
(6) Insurance, A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the corporation or is or was serving at
the request of the corporation as a director or officer against any liability asserted against him
and incurred by him in such capacity. whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
Item 15. Recent Sales of Unregistered Securities
On October 6, 2009, in connection with our incorporation, we issued 100 shares of our capital
stock, par value $0.01 per share, to Genco Investments LLC in consideration of a capital
contribution of $1. That issuance was exempt from registration under Section 4(2) of the Securities
Act.
There have been no other sales of unregistered securities within the past three years.
II-2
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
1.1
|
|
Form of Underwriting Agreement* |
|
|
|
3.1
|
|
Amended and Restated Articles of Incorporation of Baltic Trading Limited* |
|
|
|
3.2
|
|
Amended and Restated By-laws of Baltic Trading Limited* |
|
|
|
4.1
|
|
Form of Share Certificate of the Companys Common Stock* |
|
|
|
4.2
|
|
Form of Registration Rights Agreement between Baltic Trading Limited and Genco* |
|
|
|
4.3
|
|
Form of Subscription Agreement for Class B Stock between Baltic Trading Limited and Genco* |
|
|
|
4.4
|
|
Form of Shareholders Rights Agreement* |
|
|
|
5.1
|
|
Form of opinion of Reeder & Simpson P.C., Marshall Islands counsel to Baltic Trading
Limited, as to the legality of securities being registered.* |
|
|
|
5.2
|
|
Form of opinion of Kramer Levin Naftalis & Frankel LLP, United States counsel to Baltic
Trading Limited, as to the legality of securities being registered.* |
|
|
|
8.1
|
|
Form of opinion of Reeder & Simpson P.C., Marshall Islands counsel to Baltic Trading
Limited, as to certain tax matters* |
|
|
|
8.2
|
|
Form of opinion of Kramer Levin Naftalis & Frankel LLP, United States counsel for the
Company, as to certain tax matters* |
|
|
|
10.1
|
|
Form of Management Agreement |
|
|
|
10.2
|
|
Form of Omnibus Agreement* |
|
|
|
10.3
|
|
Form of Subscription Agreement for Class B Stock* |
|
|
|
10.4
|
|
Baltic Trading Limited 2009 Equity Incentive Plan* |
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP |
|
|
|
23.2
|
|
Consent of Drewry Shipping Consultants Limited |
|
|
|
23.3
|
|
Consent of Peter C. Georgiopoulos |
|
|
|
23.4
|
|
Consent of Basil G. Mavroleon |
|
|
|
23.5
|
|
Consent of Edward Terino |
|
|
|
23.6
|
|
Consent of George Wood |
|
|
|
* |
|
To be filed by amendment. |
II-3
Item 17. Undertakings.
Reg. S-K, Item 512(f) Undertaking: The undersigned Registrant hereby undertakes to provide
to the underwriter at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Reg. S-K, Item 512(h) Undertaking: Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described above in Item 14, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than payment by the
Registrant of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
Reg. S-K, Item 512(I) Undertaking: The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant to has duly caused
this Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on October 14, 2009.
|
|
|
|
|
|
BALTIC TRADING LIMITED
|
|
|
By: |
/s/ John C. Wobensmith
|
|
|
|
Name: |
John C. Wobensmith |
|
|
|
Title: |
President, Secretary and Treasurer |
|
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has
been signed by the following person on October 14, 2009 in the capacities indicated.
|
|
|
Signature |
|
Title |
|
|
|
/s/ John C. Wobensmith
John C. Wobensmith
|
|
President, Secretary, Treasurer and Director (principal
executive officer, principal financial
officer and principal accounting officer) of Baltic
Trading Limited |
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
1.1 |
|
|
Form of Underwriting Agreement* |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Articles of Incorporation of Baltic Trading Limited* |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated By-laws of Baltic Trading Limited* |
|
|
|
|
|
|
4.1 |
|
|
Form of Share Certificate of the Companys Common Stock* |
|
|
|
|
|
|
4.2 |
|
|
Form of Registration Rights Agreement between Baltic Trading Limited and Genco* |
|
|
|
|
|
|
4.3 |
|
|
Form of Subscription Agreement for Class B Stock between Baltic Trading Limited and Genco* |
|
|
|
|
|
|
4.4 |
|
|
Form of Shareholders Rights Agreement* |
|
|
|
|
|
|
5.1 |
|
|
Form of opinion of Reeder & Simpson P.C., Marshall Islands counsel to Baltic Trading
Limited, as to the legality of securities being registered.* |
|
|
|
|
|
|
5.2 |
|
|
Form of opinion of Kramer Levin Naftalis & Frankel LLP, United States counsel to Baltic
Trading Limited, as to the legality of securities being registered.* |
|
|
|
|
|
|
8.1 |
|
|
Form of opinion of Reeder & Simpson P.C., Marshall Islands counsel to Baltic Trading
Limited, as to certain tax matters* |
|
|
|
|
|
|
8.2 |
|
|
Form of opinion of Kramer Levin Naftalis & Frankel LLP, United States counsel for the
Company, as to certain tax matters* |
|
|
|
|
|
|
10.1 |
|
|
Form of Management Agreement |
|
|
|
|
|
|
10.2 |
|
|
Form of Omnibus Agreement* |
|
|
|
|
|
|
10.3 |
|
|
Form of Subscription Agreement for Class B Stock* |
|
|
|
|
|
|
10.4 |
|
|
Baltic Trading Limited 2009 Equity Incentive Plan* |
|
|
|
|
|
|
23.1 |
|
|
Consent of Deloitte & Touche LLP |
|
|
|
|
|
|
23.2 |
|
|
Consent of Drewry Shipping Consultants Limited |
|
|
|
|
|
|
23.3 |
|
|
Consent of Peter C. Georgiopoulos |
|
|
|
|
|
|
23.4 |
|
|
Consent of Basil G. Mavroleon |
|
|
|
|
|
|
23.5 |
|
|
Consent of Edward Terino |
|
|
|
|
|
|
23.6 |
|
|
Consent of George Wood |
|
|
|
* |
|
To be filed by amendment. |