As filed with the Securities and Exchange Commission on
July 2, 2010
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
RIDGEBURY TANKERS LTD
(Exact name of Registrant as
specified in its charter)
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Republic of The Marshall Islands
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4412
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98-0656615
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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625 Ridgebury Road
Ridgefield, Connecticut 06877
(203) 748-4784
(Address and telephone number of
Registrants principal executive offices)
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
(212) 574-1223
(Name, address and telephone
number of agent for service)
Copies to:
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Lawrence Rutkowski, Esq.
Robert E. Lustrin, Esq.
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
(212) 574-1223
(telephone number)
(212) 480-8421
(facsimile number)
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Alexander A. Gendzier, Esq.
Jones Day
222 East 41st Street
New York, New York 10017-6702
(212) 326-7821 (telephone number)
(212) 755-7306 (facsimile number)
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are being
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, 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. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ
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(Do not check if a smaller reporting company)
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CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate
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Registration
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Securities to be Registered
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Offering Price(1)(2)
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Fee(2)
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Common Shares, $0.01 par value per share
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$
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250,000,000
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$
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17,825.00
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(1) |
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Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(o) under the Securities Act. |
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(2) |
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Includes common shares that may be sold pursuant to the
underwriters over-allotment option. |
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 or until the Registration Statement shall
become effective on such date as the Securities and Exchange
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 these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT
TO COMPLETION, DATED JULY 2, 2010
Preliminary
Prospectus
Shares
Common
Shares
We are
offering
of our common shares. This is our initial public offering and no
public market currently exists for our common shares. We expect
the initial public offering price of our common shares to be
between $ and
$ per common share.
We intend to apply to have our common shares listed for trading
on the Nasdaq Global Market under the trading symbol
RDGE.
Investing in our common shares involves
risks. Please read Risk Factors beginning
on page 8.
Neither the Securities and Exchange Commission nor any state
securities commission or any other regulatory body has approved
or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
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PER SHARE
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TOTAL
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Public Offering Price
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$
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$
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Underwriting Discounts and Commissions
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$
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$
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Proceeds to the Company Before Expenses
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$
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$
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Delivery of the common shares is expected to be made on or
about ,
2010. We have granted the underwriter an option for a period of
30 days to purchase, on the same terms and conditions set
forth above, up to an
additional
of our common shares to cover overallotments. If the underwriter
exercises the option in full, the total underwriting discounts
and commissions payable by us will be
$ and the total proceeds to us,
before expenses, will be $ .
Book-Running Manager
Jefferies &
Company
Prospectus
dated ,
2010
Table of
Contents
Until ,
2010 (25 days after the date of this prospectus), all
dealers that buy, sell, or trade the common shares, 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 and with
respect to their unsold allotments or subscriptions.
We have not authorized anyone to give any information or to make
any representations other than those contained in this
prospectus. Do not rely upon any information or representations
made outside of this prospectus. This prospectus is not an offer
to sell, and it is not soliciting an offer to buy, (1) any
securities other than our common shares or (2) our common
shares in any circumstances in which our offer or solicitation
is unlawful. The information contained in this prospectus may
change after the date of this prospectus. Do not assume after
the date of this prospectus that the information contained in
this prospectus is still correct.
The information presented in this prospectus assumes (1) an
initial public offering price
of per
common share, which is the mid-point of the estimated range of
the price set forth on the cover page of this prospectus,
(2) that Mr. Robert Burke and his family will purchase
approximately $5.8 million of our common shares in a
concurrent private placement and (3) that the underwriter
will not exercise its overallotment option. The information in
this prospectus gives effect to
a :1
common stock split (in the form of a dividend
of
common shares), which will take effect prior to the completion
of this offering. Unless otherwise indicated, all references to
dollars and $ in this prospectus are to,
and amounts are presented in, U.S. dollars.
i
Prospectus
Summary
This summary highlights information contained in this
prospectus. Before investing in our common shares, you should
read this entire prospectus carefully, including the section
entitled Risk Factors and our balance sheet and
related notes, for a more complete understanding of our business
and this offering. Unless we specify otherwise, all references
in this prospectus to we, our,
us and the Company refer to Ridgebury
Tankers Ltd and its subsidiaries. The glossary contained in
Annex A of this prospectus provides definitions of certain
terms that are commonly used in the shipping industry.
Our
Company
We were incorporated under Marshall Islands law in February
2010, by our founder, Mr. Robert Burke. We are primarily
focused on acquiring and deploying Suezmax tankers in spot
market-related vessel pools, in the spot charter markets or
under spot market indexed time charters. We believe that spot
exposure, combined with the benefits of employing the Suezmax
tankers that will comprise our initial fleet in a pool, will
enable us to benefit from the increasing demand for long-haul
crude oil. We believe that Suezmax tankers are versatile because
they are capable of trading on both short- and long-haul routes
and to a wide variety of ports. For these reasons, we believe
that tankers, and particularly Suezmax tankers, present
attractive investment opportunities. We intend to focus
primarily on the spot market because we believe that spot
charters will (i) provide us with better flexibility than
time charters to adjust to changing market conditions;
(ii) better position us to capitalize on a rising freight
rate market; and (iii) allow us to achieve higher returns,
because according to Drewry Shipping Consultants Ltd., or
Drewry, during the period from 2000 through June 2010, spot
market rates for Suezmax tankers have been higher on average
than one-year time charter rates and therefore have historically
provided higher average returns.
We expect that our initial fleet will consist of three to four
Suezmax tankers. We intend to use the net proceeds of this
offering and the concurrent private placement described below to
acquire these vessels from unrelated third parties for an
aggregate purchase price of approximately
$ million. We expect to take
delivery of all of these vessels within 60 days from the
date of this prospectus. Pursuant to our pool entry letter
agreement with Heidmar Inc., or Heidmar, and consented to by
Blue Fin Tankers, Inc., or the Blue Fin Tankers Pool, we have
agreed to operate these vessels in the Blue Fin Tankers Pool,
the second-largest spot market-related Suezmax tanker pool in
the world (by vessel count), for a minimum of three years. The
Blue Fin Tankers Pool currently operates a fleet of 18 Suezmax
tankers, with nine different pool partners, including
well-established shipowners that pool their vessels in order to
achieve better market coverage and efficiencies. In addition,
with an average age of less than five years at the end of April
2010, we believe the vessels that operate in the Blue Fin
Tankers Pool are younger on average than those that comprise
other large Suezmax pools. The Blue Fin Tankers Pool is managed
by Heidmar. Additionally, we have agreed to employ the first
four Suezmax tankers that we acquire and any other Suezmax
tankers that we may acquire in the Blue Fin Tankers Pool for a
period of three years. Furthermore, should we acquire any other
tankers, we have agreed to offer to employ such tankers in an
applicable tanker pool operated by Heidmar or its subsidiaries
for a minimum of three years. We will contract with third-party
managers for the technical management of our vessels. Initially,
we intend to retain Bernhard Schulte Shipmanagement, or Schulte,
to provide the technical management of our vessels. Schulte
manages approximately 600 vessels and has significant
experience in the tanker sector. We aim to grow our fleet
through timely and selective acquisitions of vessels in a manner
that is accretive to our ability to pay dividends per share.
Please see Dividend Policy.
Prior to or contemporaneously with the closing of this offering,
we expect to enter into a commitment letter for a new senior
secured revolving credit facility, or our credit facility. We
expect to use money borrowed under our credit facility to fund
future vessel acquisitions and for general corporate purposes.
We intend to refinance all or a portion of the money that we
borrow under our credit facility with the proceeds of future
equity offerings in order to maintain a strong balance sheet
with little or no debt. In addition, Mr. Burke and his
family will purchase approximately $5.8 million of our
common shares in a concurrent private placement,
representing % of our common shares
that will be outstanding after the closing of this offering and
the concurrent private placement.
1
We intend to distribute to our shareholders on a quarterly basis
an aggregate amount of cash that is expected to be substantially
equal to our net operating cash flow during the previous
quarter, after reserves, as our board of directors may from time
to time determine, in the manner discussed under the caption
Dividend Policy. Net operating cash flow is a
non-GAAP measure that is different from cash flow from
operations and, rather, represents net income plus depreciation,
amortization and non-cash administrative charges. We expect to
make our first dividend payment in the first quarter of 2011 in
respect of any net operating cash flow that we earn in the
fourth quarter of 2010.
Our Initial
Fleet
We expect that our initial fleet will consist of three to four
Suezmax tankers. We are currently in discussions with various
third-party sellers, and expect to enter into memoranda of
agreement with one or more of them prior to the consummation of
this offering to acquire the vessels in our initial fleet. We
expect that the memoranda of agreement will provide for the
delivery of the vessels to us within 60 days of the date of
this prospectus. Pursuant to the memoranda of agreement, we
expect the sellers to agree to endeavor to deliver these vessels
as early as possible within the
60-day
period.
Although we expect our fleet to initially be comprised of
Suezmax tankers, we will evaluate all classes of tankers for
potential future acquisitions. We will seek to grow our fleet
through timely and selective acquisitions of tankers that we
believe will provide an attractive return on equity and will be
accretive to our ability to pay dividends per common share based
on anticipated spot charter market rates at the time of purchase.
Tanker Industry
Trends
Based on information provided by Drewry, we believe that the
following industry trends create growth opportunities for us as
an owner and operator of tankers and, in some cases, Suezmax
tankers in particular:
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the global economic downturn and limited availability of vessel
financing, among other things, have resulted in tanker values
near their recent historic lows, although these values are
currently rising;
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recovery in oil and refined petroleum product consumption driven
by a rebound in global economic activity and industrial
production, which has resulted in increasing demand for tankers;
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increased aggregate seaborne transportation distances, due in
large part to growing economies in China and India, limitations
on expansion of existing refinery capacity, marginal refinery
profitability in certain developed countries, and lower cost
refinery capacity becoming increasingly located in developing
countries further from end consumers, benefiting demand for and
utilization of large tankers, such as Suezmax tankers;
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International Maritime Organization, or IMO, regulations
mandating a phase-out by 2010, or 2015 by exemption of a
tankers flag state under certain conditions, of
single-hull tankers, which made up approximately 8% of the
worlds tanker supply as of the end of May 2010, benefiting
demand for and utilization of double-hull tankers, such as the
vessels we intend to acquire and operate; and
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charterers concerns about environmental and safety
standards, which shifts their preference toward modern tankers
operated by reputable ship operators.
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Competitive
Strengths
We believe that the extensive experience of our corporate
management team and the principles on which we plan to operate
our business will enhance our ability to successfully compete in
the tanker industry as follows:
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Experienced Corporate Management. We believe
that our management team has extensive experience in the
international shipping industry, including in the tanker sector.
In particular, Mr. Burke has been involved in the shipping
industry for over 30 years, in a variety of capacities. He
attended the U.S. Merchant Marine Academy in Kings Point,
New York, a U.S. Federal service academy, where he received
a degree in Nautical Science. After graduating in 1981, he
sailed as a ships officer aboard tankers for three years,
after which he attended Columbia University School of Business,
where he received a Master of Business Administration in
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Finance and International Business. Following his graduation
from business school, Mr. Burke arranged debt financing and
chartering for
U.S.-based
tanker companies. From 1990 to 1997, while Managing Director and
head of GE Capital Corporations ship finance division,
Mr. Burke led a wide range of financing and investing
activities for shipping and shipping-related companies,
including equity, debt and leasing in the U.S., Russia, Europe,
South America and Asia. He later directed investments in
shipping companies while founder and head of the
$200 million Overseas Private Investment Corporation
Maritime Fund, an equity fund sponsored by both the
U.S. government and private equity. Ultimately, this fund
was sold to a European bank with a positive return to all
limited partners. Most recently, in 2006, Mr. Burke
negotiated the successful purchase, was an equity investor in,
and served as Chief Executive Officer of Chembulk Tankers LLC, a
company specializing in the ownership and operation of chemical
tankers with a fleet of 19 chemical tankers. In January
2008, Chembulk was sold to an Indonesian competitor. The sale
provided a significant return to investors of several times
their equity investment. Mr. Kevin Bavolar, our Chief
Financial Officer, has been employed in numerous finance roles
over the past 30 years. Mr. Bavolar has extensive
experience in the oil & gas and energy industries, as
well as broad experience in financial reporting for
U.S. public companies. Our vice president of operations,
Mr. Steven Fitzgerald, has over 20 years of experience
in the shipping industry, including originating, structuring and
closing marine finance transactions, engaging in commercial
management activities and serving as a port captain and terminal
operations assistant. Collectively, over the last 30 years,
our management team has been involved in the purchase and sale
of over 50 vessels. As a result of these decades of
experience, we believe that our management team has built strong
relationships with major international charterers, third-party
suppliers, shipbuilders and financial institutions, and
developed extensive operational capabilities and strong target
evaluation capabilities.
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Alignment of Management and Shareholder
Interests. We believe that our corporate
structure and the structure of our managements
compensation aligns our managements interests with those
of our shareholders. Both Mr. Burke and Mr. Bavolar
will enter into five-year employment agreements, at what we
believe are current market rate salaries, which are paid partly
in cash and partly in stock. Messrs. Burke and Bavolar will
also participate in an incentive stock plan that rewards
management based on our growth in profitability and overall
return to shareholders. The employment agreements and incentive
stock plan will be the only transactions between us and our
management, and the terms of these agreements are clearly
enumerated in the employment agreements and the incentive stock
plan. We believe that this compensation structure eliminates
many of the conflicts between our managements interests
and those of our shareholders, and should reduce our costs to
the benefit of our shareholders. To ensure that there are few
conflicts of interest between us and our management, we do not
intend to have (i) any poison pills, dual
classes of stock or any other anti-takeover provisions in our
governing documents, (ii) management-controlled blocks of
stock, (iii) sale and purchase fees paid to management
affiliates for sales or purchases of vessels,
(iv) technical management fees paid to affiliates,
(v) commercial management fees or commissions paid to
affiliates, (vi) vessels sold to us or purchased by us from
affiliates or (vii) other fees paid to management or
management affiliates that are common in the shipping industry.
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Our Focus on Suezmax Tankers. Initially, we
intend to focus on the Suezmax segment of the tanker shipping
industry. Suezmax tankers are the workhorse of ocean crude oil
transportation and, according to Drewry, demand for them is
increasing in areas with increased crude oil output. In
addition, according to Drewry, Suezmax tankers should directly
benefit from the increasing exports of crude oil from the Middle
East, West Africa and Caspian/Black Sea regions into the
consuming nations as the world economy continues to recover.
Suezmax tankers are nearly twice the size of Aframax vessels,
yet are able to compete on nearly all of the same trade routes
as Aframax vessels. Compared to larger Very Large Crude
Carriers, or VLCCs, Suezmax tankers have significantly more
trading-lane
options and, therefore, fewer ballast voyages. Due to these
factors, the charterhire earned from Suezmax tankers typically
reflects changes in the demand for and cost of transportation of
crude oil without the attendant volatility of VLCCs.
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Employment of Our Initial Fleet in the Blue Fin Tankers
Pool. We expect to operate the vessels that will
comprise our initial fleet in the Blue Fin Tankers Pool, the
second-largest spot market-related Suezmax tanker pool in the
world (by vessel count), for a minimum period of three years. We
believe that our participation in the Blue Fin Tankers Pool
gives us marketing and efficiency advantages similar to those of
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more established owners in the pool, including access to the
same long-term relationships, charters and private cargoes with
oil majors and traders as those enjoyed by the other pool
participants. In addition, because we are scheduled to receive
regular, monthly distributions from the pool of a share of the
pools monthly earnings, we will not be subject to
receiving charterhire at irregular intervals in the spot market,
which helps to reduce the effect of fluctuations in cash flow.
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Low leverage to build a strong balance
sheet. Immediately following this offering, we
expect to have little or no debt. While we plan to finance
future vessel acquisitions with borrowings under our credit
facility, we intend to maintain a low level of debt by
refinancing borrowings with future equity issuances. We believe
that having borrowing capacity under our credit facility and a
strong balance sheet with little or no debt will enable us to
move quickly in acquiring vessels as opportunities arise as it
will allow us to draw down on our credit facility if and as we
identify vessel acquisition opportunities.
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Modern, high-quality fleet of tankers. Our
vessel acquisition strategy will target modern double-hull
tankers built in shipyards that we believe construct
high-quality vessels. We believe that owning a modern,
high-quality fleet of double-hull tankers is more attractive to
charterers, reduces operating costs and fuel consumption and
will allow our fleet to be more reliable, which improves
utilization. Where applicable, we will seek to acquire sister
ships in an effort to further enhance operating efficiencies.
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Business
Strategy
Our strategy is to assemble a fleet of modern high-quality
tankers, initially consisting of Suezmax tankers, for employment
in the spot market, including in spot market-related vessel
pools, and to grow our business through accretive vessel
acquisitions. As detailed below, our strategy largely relies on
blending certain complementary elements of vessel employment
with a capital structure that supports our growth and
operations. We believe that by relying primarily on equity
financing for future vessel acquisitions, we will be in a better
position to withstand the volatility of the spot market and will
have more cash available to pay dividends than if we relied
primarily on debt financing since cash flows from operations can
be used to pay dividends as opposed to debt and interest
payments. Key elements of our business strategy include:
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Strategically expanding the size of our
fleet. We intend to acquire modern, high-quality
Suezmax tankers and other types of tankers as we may determine,
through timely and selective acquisitions of vessels in a manner
that is accretive to our ability to pay dividends per share. We
view Suezmax tankers as currently providing attractive return
characteristics, although we will evaluate all classes of
tankers 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 while asset values in the tanker industry have been
rising from their recent historical lows, current tanker values
present us with attractive opportunities to grow our fleet at
favorable prices.
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Initially deploying our vessels in the Blue Fin Tankers
Pool. We seek to provide shareholders with the
opportunity to invest in a company with a strategic focus on the
tanker spot market for Suezmax tankers by initially deploying
the vessels in our initial fleet in the Blue Fin Tankers Pool,
the second-largest spot market-related Suezmax tanker pool in
the world (by vessel count), for a minimum period of three
years. Employment of our vessels in the Blue Fin Tankers Pool
will allow us to capture the trends of a rising freight rate
market while somewhat insulating us from short-term downward
spikes in spot charter rates. Upward movements in spot rates
have the potential to increase our revenues. Conversely, our
revenues may decline if spot market rates decline, and we will
not benefit from the stabilizing effect of fixed-rate time
charters. However, we believe our financial strategy to maintain
a low level of debt and our receipt of a share of the net pool
revenues earned across a large fleet of vessels will allow us to
withstand volatility in spot market rates, as our fixed costs
will be at a relatively low level.
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Distributing our net operating cash flow to shareholders
through quarterly dividends. We intend to declare
quarterly dividends to shareholders substantially equal to our
net operating cash flow during the previous quarter, after
reserves, as our board of directors may from time to time
determine are required or advisable. Please see Dividend
Policy.
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Our Dividend
Policy
We intend to declare quarterly dividends to shareholders
substantially equal to our net operating cash flow during the
previous quarter, after reserves, as our board of directors may
from time to time determine are required or advisable. We expect
to make our first dividend payment in the first quarter of 2011
in respect of any net operating cash flow that we earn in the
fourth quarter of 2010. Net operating cash flow is a non-GAAP
measure that is different from cash flow from operations and,
rather, represents net income plus depreciation, amortization
and non-cash administrative charges. We expect the reserves to
consist of reserves and expenses for drydocking, vessel
upgrades, other maintenance capital expenditures and our other
cash needs. Our board of directors will also take into account
contingent liabilities, the terms of our credit facility and
pool arrangement, and the requirements of Marshall Islands law
in determining the amount of dividends that we may pay. As we
intend to primarily finance acquisitions through the use of
equity, except on an interim basis when we may draw down on our
credit facility, and to maintain low leverage, we expect our
cash flow to be sufficient to support quarterly dividends. We
believe that by focusing on the tanker spot market and intending
to pay quarterly dividends, we will provide equity investors
with the opportunity to gain exposure to the trends of the
Suezmax segment of the tanker industry, which we believe will in
turn enhance our ability to conduct future equity offerings.
If we declare a dividend in respect of a quarter in which an
equity issuance has taken place, we will calculate the dividend
per share as our net operating cash flow less reserves for the
quarter, after taking into account the factors described above,
divided by the weighted average number of common shares
outstanding over that quarter. The aggregate dividend paid will
be the dividend per share, calculated as described above,
multiplied by the number of common shares outstanding as of the
dividend record date, which is likely to be equal to the number
of common shares outstanding at the end of the relevant quarter.
For an illustration of the amount of cash that we may have
available to pay dividends during the first full year of
operations after we acquire our initial fleet, please see
Managements Discussion and Analysis of Financial
Condition and Future Results of OperationsIndicative
Analysis of Variability of Net Operating Cash Flow. The
declaration and payment of dividends will be at the discretion
of our board of directors and subject to the terms of our credit
facility and pool arrangement, and the requirements of Marshall
Islands law, and we cannot assure you that we will not change
our dividend policy to reduce or eliminate our dividend. Please
see Dividend Policy and Risk Factors.
Our Credit
Facility
Prior to or contemporaneous with the closing of this offering,
we expect to enter into a commitment letter to obtain our credit
facility. We expect to use money borrowed under our credit
facility to fund future vessel acquisitions and for general
corporate purposes. We intend to refinance all or a portion of
the money that we borrow under our credit facility with the
proceeds of future equity offerings in order to maintain a
strong balance sheet with little or no debt. We are currently
negotiating the terms of the commitment letter and our credit
facility. The availability to us of our credit facility will be
subject to execution of definitive loan documents. For further
details of our proposed credit facility, please see
Description of Credit Facility.
Corporate
Information
We are a Marshall Islands corporation with principal executive
offices located at 625 Ridgebury Road, Ridgefield, Connecticut
06877. Our telephone number at that address is
(203) 748-4784. We expect to maintain a website on the
internet at
http://www.ridgeburytankers.com.
The information on our website is not incorporated by reference
into, and does not constitute a part of, this prospectus. We
will own our vessels through separate wholly-owned subsidiaries
that are incorporated in the Marshall Islands or other
jurisdictions generally acceptable to lenders in the shipping
industry.
5
The
Offering
This summary highlights information contained in this
prospectus. Before investing in our common shares, you should
read this entire prospectus carefully, including the section
entitled Risk Factors and our financial statements
and related notes, for a more complete understanding of our
business and this offering.
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Common shares offered
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common
shares |
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Offering price per share
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$ |
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Over-allotment option
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common
shares |
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Common shares outstanding after this offering
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common
shares,
or common
shares if the over-allotment option is exercised in full |
Use of
Proceeds
The net proceeds from the sale of the common shares are expected
to be approximately
$ million, after deducting
assumed underwriting discounts and commissions and estimated
offering expenses payable by us. We expect to use approximately
$ million of the net proceeds
of this offering and concurrent private placement (after
deducting fees and expenses) to fund the purchase of the vessels
that will comprise our initial fleet,
$ million to pay the
commitment fee in respect of our credit facility and the
remainder of the net proceeds for working capital purposes. We
expect that the purchase price for each of the vessels that will
comprise our initial fleet will be made in two installments: 10%
of the purchase price per vessel paid as a deposit concurrently
with the closing of this offering and 90% of the purchase price
per vessel paid at the time of delivery of each vessel. During
this period, we may temporarily invest portions of the net
proceeds in U.S. treasury securities. Please see Use
of Proceeds.
Dividends
We intend to declare quarterly dividends to shareholders
substantially equal to our net operating cash flow during the
previous quarter after reserves as our board of directors may
from time to time determine are required or advisable. We expect
to make our first dividend payment in the first quarter of 2011
in respect of any net operating cash flow that we earn in the
fourth quarter of 2010. Net operating cash flow is a non-GAAP
measure that is different from cash flow from operations and,
rather, represents net income plus depreciation, amortization
and non-cash administrative charges. We expect the reserves to
consist of reserves and expenses for drydocking, vessel upgrades
and other maintenance capital expenditures and our other cash
needs. Our board of directors will also take into account
contingent liabilities, the terms of our credit facility and
pool arrangement, and the requirements of Marshall Islands law
in determining the amount of dividends that we may pay. If we
declare a dividend in respect of a quarter in which an equity
issuance has taken place, we will calculate the dividend per
share as our net operating cash flow less reserves for the
quarter, after taking into account the factors described above,
divided by the weighted average number of common shares
outstanding over that quarter. The aggregate dividend paid will
be the dividend per share, calculated as described above,
multiplied by the number of common shares outstanding as of the
dividend record date, which is likely to be equal to the number
of common shares outstanding at the end of the relevant quarter.
For an illustration of the amount of cash that we may have
available to pay dividends during the first full year of
operations after we acquire our initial fleet, please see
Managements Discussion and Analysis of Financial
Condition and Future Results of OperationsIndicative
Analysis of Variability of Net Operating Cash Flow. The
declaration and payment of dividends will be at the discretion
of our board of directors and subject to the terms of our credit
facility and pool arrangement, and the requirements of Marshall
Islands law, and we cannot assure you that we will not change
our dividend policy to reduce or eliminate our dividend. Please
see Dividend Policy and Risk Factors.
6
Tax
Considerations
Our distributions will constitute dividends to the extent of the
Companys current or accumulated earnings and profits.
Distributions in excess of such earnings and profits will be
treated first as a nontaxable return of capital to the extent of
the investors tax basis in his common stock and thereafter
as capital gain. Under current law, if we were to pay any
dividends in 2010, we anticipate that any such dividends would
be treated as qualified dividend income to
U.S. non-corporate shareholders taxable at preferential tax
rates (through 2010), provided that the shareholder satisfies
certain holding period and other requirements. Any dividends
that we pay thereafter or that are not eligible for these
preferential tax rates will be taxable as ordinary income in the
absence of new legislation extending the term of the
preferential tax rates. It should be noted that the Company does
not currently anticipate that it will pay any dividends prior to
January 1, 2011.
Listing
We intend to apply to have our common stock approved for listing
on the Nasdaq Global Market under the symbol RDGE.
Risk
Factors
Investments in our securities involve a high degree of risk. You
should carefully consider the risks described under Risk
Factors together with all the other information included
in this prospectus before deciding to invest in our common
shares.
7
Risk
Factors
You should carefully consider the following information about
risks, together with the other information contained in this
prospectus, before making an investment in our common shares. If
any of the circumstances or events described below actually
arises or occurs, our business, results of operations, cash
flows, financial condition and ability to pay dividends could be
materially adversely affected. In any such case, the market
price of our common shares could decline, and you may lose all
or part of your investment.
Industry Specific
Risk Factors
If the
tanker industry, which historically has been cyclical, is
depressed in the future, our earnings and available cash flow
may be adversely affected.
The tanker industry is both cyclical and volatile in terms of
charter rates and profitability. Charter rates are still
relatively low compared to the rates achieved in the years
preceding the global financial crisis, and recent improvements
in charter rates may be short-lived. These factors may adversely
affect the rates payable and the amounts we receive in respect
of our vessels operating in tanker pools, as well as our ability
to recharter any non-pooled vessels we may have in the future.
Our ability to sell our vessels upon the expiration or
termination of their pooling or chartering agreements may also
be adversely affected. Any renewal or replacement pooling
arrangements or charters that we enter into may not generate
revenues sufficient to allow us to operate our vessels
profitably. Fluctuations in charter rates and tanker values
result from changes in the supply and demand for tanker capacity.
The factors that influence demand for tanker capacity include:
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supply of and demand for oil and oil products;
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regional availability of refining capacity;
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global and regional economic and political conditions, including
developments in international trade and fluctuations in
industrial and agricultural production;
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changes in seaborne and other transportation patterns, including
changes in the distances over which tanker cargoes are
transported by sea;
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environmental and other legal and regulatory developments;
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currency exchange rates;
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weather and acts of God and natural disasters, including
hurricanes and typhoons;
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competition from alternative sources of energy and for other
shipping companies and other modes of transportation; and
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international sanctions, embargoes, import and export
restrictions, nationalizations, piracy and wars.
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The factors that influence the supply of tanker capacity include:
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current and expected purchase orders for tankers;
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the number of tanker newbuilding deliveries;
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the scrapping rate of older tankers;
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conversion of tankers to other uses or conversion of other
vessels to tankers;
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the price of steel and vessel equipment;
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the successful implementation of the phase-out of single-hull
tankers;
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technological advances in tanker design and capacity;
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tanker freight rates, which are affected by factors that may
effect the rate of newbulding, swapping and laying up of tankers;
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the number of tankers that are out of service; and
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changes in environmental and other regulations that may limit
the useful lives of tankers.
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The factors affecting the supply and demand for tankers have
been volatile and are outside of our control, and the nature,
timing and degree of changes in industry conditions are
unpredictable, including those discussed above.
We will
be exposed to the cyclicality and volatility of the spot charter
market.
We expect to employ the vessels that will comprise our initial
fleet in the Blue Fin Tankers Pool and will be focused on
acquiring and deploying additional tankers in, or based on, the
spot charter markets. As a result, we expect to be exposed to
the cyclicality and volatility of the spot charter market. We do
not expect to have sufficient long-term, fixed-rate time
charters to mitigate the adverse effects of downturns in the
spot market.
The spot charter market fluctuates significantly based on the
supply of and demand for tanker capacity, as discussed in the
preceding risk factor, and the revenues the pool generates will
be dependent on the spot charter market for Suezmax tankers. In
the past, there have been periods when spot rates have declined
below the operating cost of vessels. If spot charter rates
decline, the pools revenue will also decline, and as a
result, we may not receive revenues from the pool sufficient for
us to operate our vessels profitably. If we are not profitable,
we may not be able to meet our obligations, including making
payments on any future indebtedness, or paying dividends.
Furthermore, as charter rates for spot charters are fixed for a
single voyage, which may last up to several weeks, during
periods in which spot charter rates are rising, we will
generally experience delays in realizing the benefits from such
increases.
We cannot assure you that we will be able to successfully enter
into profitable pooling arrangements or charter our vessels in
the future at rates sufficient to allow us to meet our
obligations, pay dividends to our shareholders or remain
profitable.
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. Peaks in tanker demand quite often precede
seasonal oil consumption peaks, as refiners and suppliers
anticipate consumer demand. Seasonal peaks in oil demand can
broadly be classified into two main categories: increased demand
prior to Northern Hemisphere winters as heating oil consumption
increases and increased demand for gasoline prior to the summer
driving season in the United States. This seasonality may result
in
quarter-to-quarter
volatility in our operating results, as our vessels will trade
in the spot market. This seasonality could have a material
adverse effect on our business, results of operations, cash
flows, financial condition and ability to pay dividends.
Our
vessels and their cargoes will be subject to the inherent
operational risks of the tanker industry and we may experience
negative consequences, including unexpected damages, costs,
delays or the total loss of our vessels or their cargoes, which
may adversely affect our business and financial
condition.
Our vessels and their cargoes will be at risk of being damaged
or lost because of events such as marine disasters, bad weather
and other acts of God, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions,
human error, war, terrorism, piracy and other circumstances or
events. Changing economic, regulatory and political conditions
in some countries, including political and military conflicts,
have from time to time resulted in attacks on vessels, mining of
waterways, piracy, terrorism, labor strikes and boycotts. These
hazards may result in death or injury to persons, loss of
revenues or property, the payment of ransoms, environmental
damage, higher insurance rates, damage to our customer
relationships and market disruptions, delay or rerouting. In
addition, the operation of tankers has unique operational risks
associated with the transportation of oil. An oil spill may
cause significant environmental damage, and the associated costs
could exceed the insurance coverage available to us. Compared to
other types of vessels, tankers are exposed to a higher risk of
damage and loss by fire, whether ignited by a terrorist attack,
collision or other cause, due to the high flammability and high
volume of the oil transported in tankers.
If our vessels suffer damage, they may need to be repaired at a
drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay
drydocking costs that our insurance does not cover at
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all or in full. The loss of revenues while these vessels are
being repaired and repositioned, as well as the actual cost of
these repairs, may adversely affect our business and financial
condition. In addition, space at drydocking facilities is
sometimes limited, and not all drydocking facilities are
conveniently located. We may be unable to find space at a
suitable drydocking facility or our vessels may be forced to
travel to a drydocking facility that is not conveniently located
relative to our vessels positions. The loss of earnings
while these vessels are forced to wait for space or to travel to
more distant drydocking facilities may adversely affect our
business and financial condition. Further, the total loss of any
of our vessels could harm our reputation as a safe and reliable
vessel owner and operator. If we are unable to adequately
maintain or safeguard our vessels, we may be unable to prevent
any such damage, costs or loss, which could negatively impact
our business, financial condition, results of operations and
cash flows.
We will
be subject to complex laws and regulations, including
environmental laws and regulations, that can adversely affect
our business, results of operations and financial
condition.
Our operations will be subject to numerous laws and regulations,
in the form of international conventions and treaties, national,
state and local laws and national and international regulations
in force in the jurisdictions in which our vessels operate or
are registered, which can significantly affect the ownership and
operation of our vessels. These requirements include, but are
not limited to, the U.S. Oil Pollution Act of 1990, or OPA,
the International Maritime Organization, or IMO, International
Convention on Civil Liability for Oil Pollution Damage of 1969
(as from time to time amended), generally referred to as CLC,
the IMO International Convention for the Prevention of Pollution
from Ships of 1973 (as from time to time amended), generally
referred to as MARPOL, the IMO International Convention for the
Safety of Life at Sea of 1974 (as from time to time amended),
generally referred to as SOLAS, the IMO International Convention
on Load Lines of 1966 (as from time to time amended) and the
U.S. Maritime Transportation Security Act of 2002.
Compliance with such laws and regulations, where applicable, may
require installation of costly equipment or operational changes
and may affect the resale value or useful lives of our vessels.
Compliance with such laws and regulations may require us to
obtain certain permits or authorizations prior to commencing
operations. Failure to obtain such permits or authorizations
could materially impact our business results of operations,
financial conditions and ability to pay dividends by delaying or
limiting our ability to accept charterers. We may also incur
additional costs in order to comply with other existing and
future regulatory obligations, including, but not limited to,
costs relating to air emissions including greenhouse gases, the
management of ballast waters, maintenance and inspection,
elimination of tin-based paint, development and implementation
of emergency procedures and insurance coverage or other
financial assurance of our ability to address pollution
incidents. These costs could have a material adverse effect on
our business, results of operations, cash flows and financial
condition and our available cash. A failure to comply with
applicable laws and regulations may result in administrative and
civil penalties, criminal sanctions or the suspension or
termination of our operations. Environmental laws often impose
strict liability for remediation of spills and releases of oil
and hazardous substances, which could subject us to liability,
without regard to whether we were negligent or at fault. Under
OPA, for example, owners, operators and bareboat charterers are
jointly and severally strictly liable for the discharge of oil
in U.S. waters, including the 200-nautical mile exclusive
economic zone around the United States. An oil spill could also
result in significant liability, including fines, penalties,
criminal liability and remediation costs for natural resource
damages under other international and U.S. Federal, state
and local laws, as well as third-party damages, including
punitive damages, and could harm our reputation with current or
potential charterers of our tankers. We will be required to
satisfy insurance and financial responsibility requirements for
potential oil (including marine fuel) spills and other pollution
incidents. Although our technical manager will arrange for
insurance to cover our vessels with respect to certain
environmental risks, there can be no assurance that such
insurance will be sufficient to cover all such risks or that any
claims will not have a material adverse effect on our business,
financial condition, results of operations and cash flows.
Furthermore, the explosion of the Deepwater Horizon and
the subsequent release of oil into the Gulf of Mexico, or other
events, may result in further regulation of the tanker industry,
and modifications to statutory liability schemes, which could
have a material adverse effect on our business, financial
condition, results of operations and cash flows.
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Increased
inspection procedures, tighter import and export controls and
new security regulations could increase costs and cause
disruption of our business.
International shipping is subject to security and customs
inspection and related procedures in countries of origin,
destination and trans-shipment points. Since the events 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 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. These security
procedures can result in delays in the loading, offloading or
trans-shipment and the levying of customs duties, fines or other
penalties against exporters or importers and, in some cases,
carriers. Future changes to the existing security procedures may
be implemented that could affect the tanker sector. These
changes have the potential to impose additional financial and
legal obligations on carriers and, in certain cases, to render
the shipment of certain types of goods uneconomical or
impractical. These additional costs could reduce the volume of
goods shipped, resulting in a decreased demand for vessels and
have a negative effect on our business, revenues and customer
relations.
If we
fail to comply with international safety regulations, we may be
subject to increased liability, which may adversely affect our
insurance coverage and may result in a denial of access to, or
detention in, certain ports.
The operation of our vessels will be affected by the
requirements set forth in the IMOs International
Management Code for the Safe Operation of Ships and Pollution
Prevention, or the 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. If we fail
to comply with the ISM Code, we may be subject to increased
liability or our vessel insurance coverage may be invalidated or
decreased for our affected vessels. Such failure may also result
in a denial of access to, or detention in, certain ports.
Recent
changes in environmental and other governmental requirements may
adversely affect our operations.
In December 2009, the U.S. Environmental Protection Agency
finalized new nitrogen oxide emissions control standards and
reduced sulfur content fuel standards applicable to newly built
large marine (Category 3) engines, which we expect
will be applicable to certain of the newer vessels we acquire.
Category 3 engines are diesel engines that typically range in
size from 3,000 to 100,000 horsepower, and are used for
propulsion power on certain vessels such as container ships, oil
tankers, bulk carriers, and cruise ships. As of July 1,
2009, the State of California requires that both U.S. and
foreign flagged vessels, subject to specified exceptions, use
reduced sulfur content fuel of 1.5% for marine gas oil or 0.5%
for diesel oil when operating within 24 nautical miles of
Californias coastline. As of January 1, 2012, these
limits will both drop to 0.1% sulfur content. In addition, as of
January 1, 2010, the EU introduced a 0.1% maximum sulfur
requirement for fuels used by vessels at berth in EU ports.
Although we will take steps to ensure our vessels comply with
these air emission regulations, enforcement of these
industry-wide regulations by the U.S. Coast Guard, EPA or
EU authorities and appropriate compliance measures could result
in material operational restrictions in the use of our vessels,
which could have a material adverse effect on our business,
results of operations and financial condition.
Greenhouse
gas restrictions may adversely impact our operations.
A number of countries and the IMO have adopted, or are
considering the adoption of, regulatory frameworks to reduce
greenhouse gas emissions. These regulatory measures may include,
among others, adoption of cap and trade regimes, carbon taxes,
increased efficiency standards, and incentives or mandates for
renewable energy. Compliance with such measures could increase
our costs related to operating and maintaining our vessels and
require us to install new emission controls, acquire allowances
or pay taxes related to our greenhouse gas emissions, or
administer and manage a greenhouse gas emissions program, any of
which could have a material adverse effect on our business,
results of operations and financial condition.
11
Political
instability, terrorist or other attacks, war or international
hostilities can affect the tanker industry, which may adversely
affect our business, results of operations and cash
flows.
We intend to conduct most of our operations outside of the
United States, and our business, results of operations and cash
flows may be adversely affected by the effects of political
instability, terrorist or other attacks, war or international
hostilities. Terrorist attacks such as the attacks in the United
States on September 11, 2001, in London on July 7,
2005 and in Mumbai on November 26, 2008, and the continuing
response of the international community to these attacks, as
well as the threat of future terrorist attacks, continue to
contribute to world economic instability and uncertainty in
global financial markets. As a result of the above, insurers
have increased premiums and reduced or restricted coverage for
losses caused by terrorist acts generally. Future terrorist
attacks could result in increased volatility of the financial
markets and negatively impact the U.S. and global economy.
These uncertainties could also adversely affect our ability to
obtain additional financing on terms acceptable to us or at all.
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 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.
Changes
in fuel, or bunkers, prices may adversely affect
profits.
The cost of fuel, or bunkers, will be a significant, if not the
largest, expense in our shipping operations for our vessels
employed on the spot market, and can have a significant impact
on pool earnings. In addition, if we decide to employ our
vessels on time charter, the charterer would be generally
responsible for the cost of fuel; however, such cost may affect
the charter rates we would be able to negotiate for our vessels.
Accordingly, changes in the price of fuel may adversely affect
our profitability. The price and supply of fuel is unpredictable
and fluctuates based on events outside our control, including
geopolitical developments, supply and demand for oil and gas,
actions by OPEC and other oil and gas producers, war and unrest
in oil producing countries and regions, regional production
patterns and environmental concerns. Further, fuel may become
much more expensive in the future, which may reduce the
profitability and competitiveness of our business versus other
forms of transportation, such as truck or rail.
The
market values of our vessels may decrease, which could cause us
to breach covenants in our credit facility and adversely affect
our operating results.
The market values of tankers have generally experienced high
volatility. The market prices for tankers declined significantly
from historically high levels reached in mid-2008 and remain at
relatively low levels. You should expect the market value of our
vessels to fluctuate depending on general economic and market
conditions affecting the shipping industry and prevailing
charter rates, competition from other shipping companies and
other modes of transportation, types, sizes and ages of vessels,
applicable governmental regulations and the cost of newbuildings.
If the capacity of new vessels delivered exceeds the capacity of
tankers being scrapped, phased-out or lost, tanker capacity will
increase. In addition, according to Drewry, as of May 30,
2010, the newbuilding orderbook, which extends to 2015, equaled
approximately 33% of the existing world tanker fleet and the
current orderbook may increase further in proportion to the
existing fleet. If the supply of tanker capacity increases and
if the demand for tanker capacity does not increase
correspondingly, charter rates and the market values of our
vessels could materially decline. A reduction in charter rates
and vessel values may have a material adverse effect on our
results of operations and available cash.
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, complying with certain
covenants in our proposed credit facility will depend on the
market value of our fleet, and complying
12
with covenants in any other credit facility we may enter into
may also depend on such market value. If the market value of our
fleet declines, we may not be in compliance with these
provisions of our credit facility and any other credit facility
we may enter into, and we may not be able to refinance any debt
we have outstanding under these facilities or obtain additional
financing under our credit facility or any other credit
facility. 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.
Acts of
piracy on ocean-going vessels have recently increased in
frequency, which could adversely affect our business and results
of operations.
Acts of piracy have historically affected ocean-going vessels
trading in regions of the world such as the South China Sea and
the Gulf of Aden off the coast of Somalia. Throughout 2008 and
2009, the frequency of piracy incidents against commercial
shipping vessels increased significantly, particularly in the
Gulf of Aden. For example, in November 2008, the M/V Sirius
Star, a tanker not affiliated with us, was captured by
pirates in the Indian Ocean while carrying crude oil estimated
to be worth $100 million at the time of its capture. If
these pirate attacks result in regions in which our vessels are
deployed being characterized as war risk zones by
insurers, as the Gulf of Aden temporarily was categorized in May
2008, premiums payable for insurance coverage could increase
significantly and such coverage may be more difficult to obtain.
In addition, crew costs, including costs in connection with
employing onboard security guards, could increase in such
circumstances. We may not be adequately insured to cover losses
from these incidents, including the payment of any ransom we may
be forced to make, which could have a material adverse effect on
us. In addition, any of these events may result in a loss of
revenues, increased costs and decreased cash flows to our
customers, which could impair their ability to make payments to
us under our charters.
Maritime
claimants could arrest our vessels, which would have a negative
effect on our cash flows.
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 lien holder may
enforce its lien by arresting or attaching a vessel through
foreclosure proceedings. In addition, in some jurisdictions,
such as South Africa, under the sister ship theory
of liability, a claimant may arrest both the vessel which is
subject to the claimants maritime lien and any
associated vessel, which is any vessel owned or
controlled by the same owner. Claimants could try to assert
sister ship liability against one vessel in our
fleet for claims relating to another of our vessels. The arrest
or attachment of one or more of our vessels could interrupt our
business or require us to pay large sums of money to have the
arrest or attachment lifted, which would have a negative effect
on our cash flows and our ability to pay dividends.
Governments
could requisition our vessels during a period of war or
emergency, which may negatively impact our business, financial
condition, results of operations and available cash.
A government could requisition for title or seize our vessels.
Requisition for title occurs when a government takes control of
a vessel and becomes the owner. Also, a government could
requisition our vessels for hire. Requisition for hire occurs
when a government takes control of a vessel and effectively
becomes the charterer at government-dictated charter rates.
Generally, requisitions occur during a period of war or
emergency. Government requisition of one or more of our vessels
may negatively impact our business, financial condition, results
of operations and cash flows.
If labor
interruptions are not resolved in a timely manner, they could
have a material adverse effect on our business, results of
operations, cash flows, financial condition and available
cash.
Masters, officers and crews man our vessels. 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 as we expect and could have a material adverse
effect on our business, results of operations, cash flows,
financial condition and available cash.
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A renewed
contraction or worsening of the global credit markets and the
resulting volatility in the financial markets could have a
material adverse impact on our results of operations, financial
condition and cash flows, and could cause the market price of
our common shares to decline.
Over the last two years, a number of major financial
institutions have experienced serious financial difficulties
and, in some cases, have entered into bankruptcy proceedings or
are subject to regulatory enforcement actions. These
difficulties have resulted, in part, from declining markets for
assets held by such institutions, particularly the reduction in
the value of their mortgage and asset-backed securities
portfolios. These difficulties have been compounded by a general
decline in the willingness of banks and other financial
institutions to extend credit, particularly in the shipping
industry, due to the historically volatile asset values of
vessels. As the shipping industry has been highly dependent on
the availability of credit to finance and expand operations, it
has been negatively affected by this decline. If we are unable
to obtain credit or draw down upon our borrowing capacity, our
liquidity could be adversely affected and we may not be able to
implement our growth strategy. These outcomes could have a
material adverse impact on our business, results of operations,
financial condition, ability to grow and cash flows, and could
cause the market price of our common shares to decline.
Company Specific
Risk Factors
If we do
not identify suitable tankers for acquisition or successfully
integrate any acquired tankers, we may not be able to grow or to
effectively manage our growth.
One of our principal strategies is to continue to grow by
expanding our operations and adding to our fleet. Our future
growth will depend upon a number of factors, some of which may
not be within our control. These factors include our ability to:
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identify suitable tankers for acquisitions at attractive prices,
which may not be possible if asset prices rise too quickly;
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manage relationships with customers and suppliers;
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integrate any acquired tankers successfully with our
then-existing operations;
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hire, train and retain qualified personnel to manage and operate
our growing business and fleet;
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identify additional new markets;
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improve our operating, financial and accounting systems and
controls; and
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obtain required financing for our existing and new operations.
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Additionally, although the secondhand sale and purchase market
for tankers has traditionally been relatively liquid, activity
in 2009 was much lower due to a combination of weak market
conditions, a lack of funding and general economic uncertainty.
Few VLCC, Suezmax, Aframax or Panamax crude tankers were sold
during that time, and even fewer of these vessels were modern.
Please see The International Oil Tanker Shipping
IndustryThe Charter Market. Because we anticipate
that our fleet will be comprised primarily of Suezmax tankers
(although we intend to evaluate all classes of crude tanker
vessels for potential future acquisitions), should the
secondhand tanker market remain relatively illiquid, we may have
to purchase some or all of our fleet as newbuilding vessels.
This could increase the purchase cost of our fleet and delay the
growth of our fleet, as orders for newbuilding vessels typically
take 14 to 36 months to fulfill. Please see
Company Specific Risk FactorsWe will need to
make substantial capital expenditures to maintain the operating
capacity of our fleet, which may reduce the amount of cash
available for dividends to our shareholders. Any failure to fund
our capital expenditure requirements could have a material
adverse effect on our business, results of operations, financial
condition, cash flows and ability to pay dividends.
Our failure to effectively identify, purchase, develop and
integrate any tankers or businesses could adversely affect our
business, financial condition and results of operations. The
number of employees that perform services for us and our current
operating and financial systems may not be adequate as we
implement our plan to expand the size of our fleet, and we may
not be able to effectively hire more employees or adequately
improve those systems. Moreover, we plan to finance potential
future expansions of our fleet primarily through equity
financing, which we
14
expect will mainly consist of issuances of additional common
shares. We also intend to enter into our credit facility, which
will provide financing to fund vessel acquisitions. Either of
these financial options could reduce available cash. If we are
unable to complete equity issuances at prices that we deem
acceptable, our cash on hand is insufficient or we cannot enter
into our credit facility on favorable terms or access available
borrowings under our credit facility, we may need to revise our
growth plan or consider alternative forms of financing. We
cannot give any assurance that we will be successful in
executing our growth plans or that we will not incur significant
expenses and losses in connection with such growth plans.
The
revenues we earn will be dependent on the success and
profitability of the spot market-related vessel pools in which
our initial vessels operate.
The profitability of our vessels operating in vessel pools will
depend upon the pool managers ability to successfully
implement a profitable chartering strategy, which will include,
among other things, obtaining favorable charters, contracts of
affreightment or other short-term contracts, and employing
vessels in the pool efficiently in order to service those
charters. The pools profitability will also depend on
minimizing, to the extent possible, time spent waiting for
charters and time spent traveling unladen to pick up cargo.
Furthermore, should an incident occur that negatively affects
the pools revenues or should the pool underperform, then
our success and profitability will be impacted as a result. The
pool manager will exercise control and discretion over the
operation of the pool, and our success and profitability will
depend on the success of the pool.
We may be
required to seek replacement vessels for our initial fleet and
incur additional costs if we do not consummate this offering
prior to the deadlines contained in the memoranda of agreement
for such vessels.
Under each of the memoranda of agreement for the secondhand
vessels in our initial fleet, a condition precedent to
completing the acquisition of the vessels is the consummation of
our initial public offering prior
to ,
2010. If the closing of this offering does not occur prior to
such date, we intend to seek from any seller extensions of such
dates until this offering may be consummated. Any seller is
under no obligation to grant an extension on the same terms as
currently in the memoranda of agreement or at all. If we believe
such extensions are unobtainable, we may seek replacement
vessels for the vessels in our initial fleet, however we may not
be able to find suitable replacement vessels without significant
delay or additional costs.
Delays in
deliveries of the vessels that will comprise our initial fleet
or any additional vessels we may acquire in the future, our
decision to cancel an order for purchase of a vessel or our
inability to otherwise complete the acquisitions of vessels for
our fleet could harm our operating results.
We expect to purchase the vessels that will comprise our initial
fleet and take delivery of these vessels within 60 days of
the closing of this offering. We also may purchase additional
vessels from time to time. The delivery of any of these vessels
could be delayed, not completed or cancelled, which would delay
or eliminate our expected receipt of revenues from the
employment of these vessels. The seller could fail to deliver
these vessels to us as agreed, or we could cancel a purchase
contract because the seller has not met its obligations.
If the delivery of any vessel is materially delayed or
cancelled, especially if we have committed the vessel to a
charter under which we become responsible for substantial
liquidated damages to the customer as a result of such delay or
cancellation, our business, financial condition and results of
operations could be adversely affected.
If we
cannot complete the purchase of any of the vessels intended to
comprise our initial fleet, we may use the net proceeds from
this offering for general corporate purposes that you may not
agree with.
If we cannot complete the purchase of any of the vessels
intended to comprise our initial fleet, our management will have
the discretion to apply the net proceeds from this offering for
any reason that you may not agree with, including acquiring
other vessels or for general corporate purposes. Although we
expect to enter into agreements to purchase three to four
Suezmax tankers, it is possible that the purchase of some or all
of the vessels may not be completed. We do not expect to close
the purchase of any of these vessels before the closing of this
offering. We will not escrow the proceeds from this offering and
will not return any of the proceeds to you if we do not purchase
these vessels. It may take a substantial period of time before
we can locate and purchase other suitable
15
vessels for which the net proceeds from this offering could be
used, if we decide to purchase vessels from the proceeds, which
could result in adverse U.S. Federal income tax
consequences for U.S. shareholders. Please see the section
captioned Tax ConsiderationsUnited States Federal
Income Taxation of the CompanyUnited States Federal Income
Taxation of U.S. Holders.
After we
acquire our vessels, we will be required to provide charterers
with certain information and meet other conditions, which will
prevent us from immediately employing them in the Blue Fin
Tankers Pool and may adversely affect our results of operations,
financial condition and cash flows.
We intend to employ the vessels that comprise our initial fleet
in the Blue Fin Tankers Pool. Oil majors chartering vessels in
the spot market, however, require that vessel owners and their
technical managers disclose certain information and meet other
conditions relating to, among other things, vessel
specifications and the technical managers operational
standards. Upon their acquisition, the technical manager of our
vessels will change, thereby obligating our technical manager to
ensure that these requirements are met or oil majors will not
accept our tankers under charter. Similar requirements are also
a precondition to having our vessels approved to trade in the
Blue Fin Tankers Pool. Accordingly, until we are able to
establish that we and our technical manager comply with these
requirements, Heidmar will charter our vessels in the spot
market pursuant to our commercial management agreement. This
delay in getting our tankers approved for trading in the pool
may adversely affect our results of operations, financial
condition and cash flows in relation to what we might have
achieved had we been operating our vessels in the Blue Fin
Tankers Pool during this period.
Our
strategy of financing future acquisitions through equity
offerings and refinancing our credit facility with the proceeds
of future equity offerings will reduce the ownership interest of
our existing shareholders and may adversely affect our growth
and earnings.
Although we have no current plan for a follow-on equity
offering, we intend to replace the debt on our credit facility
and to finance future tanker acquisitions primarily through
equity offerings, which will cause our existing
shareholders interest in us to be reduced. We do not
anticipate that our credit facility will be of sufficient size
to allow us to make large additions to our fleet solely through
borrowings, unless we were to repay a substantial portion of the
borrowings made in connection with this offering. 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, ability
to pay dividends and growth may be adversely affected.
Although the secondhand sale and purchase market for tankers has
traditionally been relatively liquid, activity in 2009 was much
lower. Few VLCC, Suezmax, Aframax or Panamax crude tankers were
sold during that time, and even fewer of these vessels were
modern. Please see The International Oil Tanker Shipping
Industry. Because we anticipate that our fleet will be
comprised primarily of Suezmax tankers (although we intend to
evaluate all classes of crude tanker vessels for potential
future acquisitions), should the secondhand tanker market remain
relatively illiquid, we may have to purchase some or all of our
fleet as newbuilding vessels. This could increase the purchase
cost of our fleet and delay the growth of our fleet, as orders
for newbuilding vessels typically take 14 to 36 months to
fulfill. Please see Company Specific Risk
FactorsWe will need to make substantial capital
expenditures to maintain the operating capacity of our fleet,
which may reduce the amount of cash available for dividends to
our shareholders. Any failure to fund our capital expenditure
requirements could have a material adverse effect on our
business, results of operations, financial condition, cash flows
and ability to pay dividends.
Any
acquisition of a vessel may not be profitable to us at or after
the time we acquire it.
Our strategy contemplates that we will seek to grow our fleet
through selective vessel acquisitions that are accretive to our
ability to pay dividends to our shareholders. However, any
acquisition of a vessel may not be profitable to us at or after
the time we acquire it. We may:
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fail to realize anticipated benefits, such as new customer
relationships, cost savings or cash flow enhancements;
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decrease our liquidity by using a significant portion of our
available cash or borrowing capacity to finance vessel
acquisitions;
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significantly increase our interest expenses or financial
leverage if we incur additional debt to finance vessel
acquisitions;
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incur or assume unanticipated liabilities, losses or costs
associated with the business or vessels acquired, particularly
if any vessel we acquire proves not to be in good condition; or
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incur other significant charges, such as impairment of goodwill
or other intangible assets, asset devaluation or restructuring
charges.
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In addition, unlike newbuildings, secondhand vessels typically
provide very limited or no warranties with respect to the
condition of the vessel. Furthermore, our limited inspections,
if any, of secondhand vessels prior to purchase will not
normally provide us with the same knowledge about the history
and condition of the vessel that we would have if the vessel had
been built for or previously operated by us, and, accordingly,
we may not discover defects or other problems with such vessels
prior to purchase. Repairs and maintenance costs for secondhand
vessels are difficult to predict and the purchase of secondhand
vessels could result in higher than anticipated operating
expenditures. If not detected, a defect may result in accidents
or other incidents for which we may become liable to third
parties.
Our ability to achieve our business and financial objectives is
subject to a variety of factors, many of which are beyond our
control. Our failure to execute our business strategy or to
manage our growth effectively could adversely affect our
business, financial condition, results of operations and amount
of dividends we pay, if any.
We may be unable to pay dividends.
Commencing in the first quarter of 2011, we intend to begin
paying dividends in an aggregate cash amount which is expected
to be substantially equal to our net operating cash flow during
the previous quarter, after reserves as our board of directors
may from time to time determine are required, taking into
account contingent liabilities, the terms of our credit
facility, our other cash needs and the requirements of Marshall
Islands law. Please see Dividend Policy. The amount
of such cash available for distribution will principally depend
upon the amount of cash we generate from our operations, which
may fluctuate from quarter to quarter, based upon, among other
things:
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whether or not our vessels are accepted for trading in the Blue
Fin Tankers Pool and, if not, our ability to find other suitable
chartering or pooling arrangements;
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the cyclicality in the spot vessel market;
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fluctuations in the price of bunkers;
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the rates we or the pool obtain from charters;
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the level of our operating costs, such as the cost of crews and
insurance;
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the level of capital expenditures we make, including for
maintaining existing vessels and acquiring new vessels;
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the number of vessels in our fleet and their share of pool
revenues, if pooled, or their charter rates;
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the amount of pool earnings we receive from our vessels
operating in the pool, based on the pools performance as
reflected in the net pool revenue;
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our debt service requirements and restrictions on distributions
contained in our credit facility or any other credit agreement
we may enter into;
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fluctuations in our working capital needs;
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the number of off-hire days for our fleet and the timing of, and
number of days required for, drydocking of our vessels;
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delays in the delivery of any vessels we have agreed to acquire;
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the amount of any cash reserves established by our board of
directors, including reserves for working capital and other
matters;
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prevailing global and regional economic and political
conditions; and
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the effect of governmental regulations and maritime
self-regulatory organization standards on the conduct of our
business.
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Additionally, the payment of principal and interest on any debt
we incur could reduce the amount of cash for dividends to our
shareholders. We expect that our credit facility and any other
financing agreements we may enter into in the future will
prohibit the payment of dividends upon the occurrence of the
following events, among others:
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failure to pay any principal, interest, fees, expenses or other
amounts when due;
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failure to notify the lenders of any material oil spill or
discharge of hazardous material, or of any action or claim
related thereto;
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breach or lapse of any insurance with respect to the vessels;
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breach of certain financial covenants;
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failure to observe any other agreement, security instrument,
obligation or covenant beyond specified cure periods in certain
cases;
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default under other indebtedness;
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bankruptcy or insolvency events;
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failure of any representation or warranty to be materially
correct;
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a change of control, as defined in the applicable agreement; and
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a material adverse effect, as defined in the applicable
agreement.
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Until we take delivery of and commence operating vessels, 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. Even after we have commenced operating our vessels,
market conditions or corporate circumstances may prevent us from
paying dividends in the future.
Our
ability to grow and satisfy our financial needs may be adversely
affected by our dividend policy.
As a result of our intention to pay a quarterly dividend in the
future under our dividend policy, our growth, if any, may be
slower than businesses that reinvest their cash to expand
ongoing operations or for acquisitions. We believe that we will
generally be able to 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, on an interim basis, borrowings under our credit
facility). 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 will
need to make substantial capital expenditures to maintain the
operating capacity of our fleet, which may reduce the amount of
cash available for dividends to our shareholders. Any failure to
fund our capital expenditure requirements could have a material
adverse effect on our business, results of operations, financial
condition, cash flows and ability to pay dividends.
We will need to make substantial capital expenditures to
maintain the operating capacity of our fleet and we generally
expect to finance these expenditures with cash reserves.
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. We
anticipate growing our fleet through the acquisition of vessels,
which would increase the level of our maintenance capital
expenditures.
Maintenance capital expenditures will vary significantly from
quarter to quarter based on the number of vessels drydocked
during that quarter. Our ability to borrow money in order to
finance these expenditures may be limited by our financial
condition at the time of any such borrowing, as well as by
adverse market conditions resulting from, among other things,
general economic conditions and contingencies and uncertainties
that are beyond our control. Significant maintenance capital
expenditures
and/or our
failure to obtain the funds for such expenditures
18
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, the terms of
the financings could further limit our ability to pay dividends.
An
increase in operating costs could adversely affect our cash
flows and financial condition.
Under the technical management agreements, we intend to enter
into, when our vessels are operating in a pool, we will be
required to pay for vessel operating expenses (including
crewing, repairs and maintenance, insurance, stores, lube oils
and communication expenses), and when our vessels are operating
on spot or voyage charters, we will be required additionally to
pay for voyage expenses (including bunker fuel expenses, port
fees, cargo loading and unloading expenses, canal tolls and
agency fees and conversions). These expenses depend upon a
variety of factors, many of which are beyond our or our
technical managers control. Some of these costs, primarily
relating to fuel, insurance and enhanced security measures, have
been increasing and may increase in the future. Further
increases of those costs or increases in any of the other 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 our
credit facility and any future financing agreements could
adversely affect our ability to finance future operations or
capital needs, or to pursue and expand our business activities.
For example, these financing arrangements may restrict our
ability to:
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pay dividends;
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incur or guarantee indebtedness;
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change ownership or structure, including mergers,
consolidations, liquidations and dissolutions;
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incur liens on our assets;
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sell, transfer, assign or convey assets;
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make certain investments; and
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enter into a new line of business.
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These financing arrangements may also require meeting certain
financial ratios as described under Description of Credit
Facility. 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.
We cannot
assure you that we will be able to enter into and borrow any
amounts under our credit facility.
Prior to or contemporaneously with the closing of this offering,
we will have entered into a commitment letter to obtain our
credit facility. Our ability to enter into our credit facility
as described in this prospectus will depend on us and the
lenders agreeing on documentation, law firms delivering legal
opinions and the satisfaction of other closing conditions. Our
ability to borrow under our credit facility, once we have
entered into it, will depend on our meeting the conditions
precedent to that borrowing, including with respect to funds
drawn to pay for acquisition vessels, acquired vessels meeting
certain financial criteria and the vessels meeting certain age
and other requirements. These events may be beyond our control.
If we do not enter into our credit facility as described in this
prospectus and borrow under it to provide financing for
additional vessels consistent with our growth strategy,
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we may need to seek alternative financing arrangements and
possibly alter our business plan. In that event, we cannot
assure you we will be able to pay dividends and we would suffer
other potential negative consequences.
Our
credit facility will limit our operating and financial
flexibility.
Our level of indebtedness, and the covenants contained in our
credit facility, could have important consequences, including:
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impairing our ability to make investments and obtain additional
financing for working capital, capital expenditures, additional
vessel acquisitions or other general corporate purposes;
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limiting our ability to use operating cash flow in other areas
of our business or to pay dividends because we must dedicate a
substantial portion of these funds to make principal and
interest payments on our indebtedness;
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making us more vulnerable to a downturn in our business, our
industry or the economy in general as a substantial portion of
our operating cash flow will be required to make principal and
interest payments on our indebtedness, making it more difficult
to react to changes in our business and industry and market
conditions;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;
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putting us at a competitive disadvantage to competitors that
have less debt; and
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increasing our vulnerability to rising interest rates regarding
our floating rate debt.
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Our credit facility will impose operating and financial
restrictions on our activities. These restrictions will limit
our ability to take various actions, such as:
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creating or incurring liens on the collateral securing the
credit facility, or taking or omitting to take any actions that
would adversely affect or impair in any material respect the
collateral securing the credit facility;
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incurring or guaranteeing additional indebtedness;
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paying dividends, redeeming indebtedness, repurchasing stock or
making other investments;
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consummating a merger, consolidation or sale of all or
substantially all of our or our subsidiaries assets;
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entering into joint ventures or partnerships;
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purchasing or transferring or selling assets;
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entering into transactions with affiliates;
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terminating, amending or modifying material agreements;
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incurring dividend or other payment restrictions affecting our
guarantor subsidiaries;
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amending, modifying or changing our organizational documents;
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issuing capital stock of certain subsidiaries;
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engaging in business other than our current business and
reasonably related extensions thereof; and
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employing our vessels in certain jurisdictions.
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In addition, we expect our credit facility will require us to
maintain restricted cash deposits, to meet certain financial
ratios, to maintain a minimum level of security for the vessel
mortgages based largely on the market value of the vessels, and
to satisfy certain other financial condition tests, several of
which become more restrictive over time. These covenants may
require us to reduce our debt or take some other actions in
order to comply, including the pledge of additional collateral
if the value of our vessels decline. Our ability to satisfy
required financial ratios and tests and comply with other
covenants can be affected by events beyond our control,
including prevailing economic, financial and industry
conditions, among other things. As a result, we cannot assure
you that we will be able to comply with these restrictions and
covenants or meet these tests. These covenants may also prevent
us from taking advantage of business opportunities that may
arise.
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Our failure to comply with the restrictions and covenants in our
credit facility and any future debt agreements could cause a
default under the terms of those agreements. If we are in
default under the terms of any agreements governing such
indebtedness:
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the holders of such indebtedness could elect to declare all the
funds borrowed thereunder to be due and payable, together with
accrued and unpaid interest, which would likely cause a
cross-default or cross-acceleration under any other future debt
agreements,
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the lenders under our credit facility could elect to terminate
their commitments thereunder, cease making further loans, which
would negatively affect our access to liquidity, and institute
foreclosure proceedings against our vessels and any other assets
securing the debt; and
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we could be forced into bankruptcy or liquidation.
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If the holders of our debt declare it to be immediately due and
payable, we may not be able to pay our debt or borrow sufficient
funds to refinance it. Even if new financing is available, it
may not be available on terms that are acceptable to us. These
restrictions could also limit our ability to obtain future
financings, make needed capital expenditures, withstand a
downturn in our business or the economy in general, or otherwise
conduct necessary business activities.
To
service our indebtedness and other obligations, including our
credit facility, we will require a significant amount of cash.
Our ability to generate cash depends on many factors beyond our
control.
Our ability to make payments on or refinance our indebtedness,
including our credit facility, and to fund working capital needs
and planned capital expenditures will depend on our ability to
generate cash in the future. A significant reduction in the
operating cash flows, including as a result of changes in
general economic, legislative or regulatory conditions,
increased competition or other events beyond our control, could
increase the need for additional or alternative sources of
liquidity and could have a material adverse effect on our
business, financial condition, results of operations, prospects
and the ability to service debt and other obligations, including
our credit facility. If we are unable to service our
indebtedness or to fund our other liquidity needs, we may be
forced to adopt an alternative strategy that may include actions
such as reducing capital expenditures, selling assets,
restructuring or refinancing indebtedness, seeking additional
equity capital or any combination of the foregoing. We cannot
assure you that any of these alternative strategies could be
effected on satisfactory terms, if at all, or that they would
yield sufficient funds to make required payments under our
credit facility or to fund our other liquidity needs. Reducing
or delaying capital expenditures or selling assets could delay
future cash flows. In addition, the terms of existing or future
debt agreements, including our credit facility may restrict us
from adopting any of these alternatives.
We cannot assure you that our business will generate sufficient
cash flows from operations or that future borrowings will be
available in an amount sufficient to enable us to pay our
indebtedness, including our credit facility, or to fund our
other liquidity needs. We may need to refinance all or a portion
of our indebtedness, including our credit facility, on or before
the maturity of the debt. We cannot assure you that we will be
able to refinance any, or all, of our indebtedness on
commercially reasonable terms or at all.
The failure to generate sufficient cash flow or to achieve any
of these alternatives could significantly adversely affect our
ability to pay the amounts due under our credit facility. In
addition, if we default in the payment of amounts due under our
credit facility, it could give rise to an event of default under
our credit facility and possible acceleration of amounts due
under any future outstanding indebtedness. In the event of any
acceleration, there can be no assurance that we will have enough
cash to repay our outstanding indebtedness, including our credit
facility.
Our
purchase and operation of secondhand vessels may result in
increased operating costs and vessels off-hire, which could
adversely affect our earnings.
Part of our current business strategy includes growth through
the acquisition of secondhand vessels. Although we typically
inspect secondhand 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. Furthermore, secondhand vessels are often
sold as is/where is and with limited information
available. As a result, we may not
21
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 secondhand vessels, we do
not receive the benefit of any builder warranties if the vessels
we buy are older than one year.
In
general, the costs to maintain a vessel in good operating
condition increase with the age of the vessel. Older vessels are
typically less fuel efficient than more recently constructed
vessels, due to improvements in engine technology.
Governmental regulations, safety and other equipment standards
related to the age of vessels may require expenditures for
alterations or the addition of new equipment to some of our
vessels and may restrict the type of activities in which these
vessels may engage. We cannot assure you that, as our vessels
age, market conditions will justify those expenditures or enable
us to operate our vessels 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.
Failure
of counterparties, including charterers, the Pool Manager or
technical managers, to meet their obligations to us could have a
material adverse effect on our business, financial condition,
results of operations, cash flows and amount of dividends we may
pay, if any.
We expect to enter into, among other things, memoranda of
agreement, pooling arrangements, charter parties, ship
management agreements and loan agreements with third parties
with respect to the purchase and operation of our fleet. Such
agreements subject us to counterparty risks. Although we may
have rights against any counterparty if it defaults on its
obligations, our shareholders will share that recourse only
indirectly to the extent that we recover funds. In particular,
we face credit risk with our charterers, particularly to the
extent our vessels are employed outside of pooling arrangements.
It is possible that not all of our charterers will provide
detailed financial information regarding their operations. As a
result, charterer risk is largely assessed on the basis of our
charterers reputation in the market, and even on that
basis, there can be no assurance that they can or will fulfill
their obligations under the contracts we may enter into with
them. Charterers are sensitive to the commodity markets and may
be impacted by market forces affecting commodities. In addition,
in depressed market conditions, there have been reports of
charterers renegotiating their charters or defaulting on their
obligations under charters. Our customers may fail to pay
charterhire or attempt to renegotiate charter rates. Should a
charterer counterparty fail to honor its obligations under
agreements with us, it may be difficult to secure substitute
employment for such vessel, and any new charter arrangements we
secure on the spot market or on charters may be at lower rates,
depending on the then existing charter rate levels, compared to
the rates currently being charged for our vessels. In addition,
if the charterer of a vessel in our fleet that is used as
collateral under one of our loan agreements defaults on its
charter obligations to us, such default may constitute an event
of default under the relevant loan agreement, which may allow
the bank to exercise remedies under the loan agreement. If our
charterers fail to meet their obligations to us or attempt to
renegotiate our charter agreements, we could sustain significant
losses which could have a material adverse effect on our
business, financial condition, results of operations and cash
flows, as well as our ability to pay dividends, if any, in the
future, and compliance with covenants in our loan agreements.
Further, if we had to find a replacement technical manager, we
may need approval from our lenders to change the technical
manager.
The ability of each of the counterparties to perform its
obligations under a contract with us or ones entered into on our
behalf will depend on a number of factors that are beyond our
control and may include, among other things, general economic
conditions, the condition of the shipping sector, the overall
financial condition of the counterparty, charter rates received
for tanker vessels and the supply and demand for commodities.
Should a counterparty fail to honor its obligations under any
such contracts, we could sustain significant losses which could
have a material adverse effect on our business, financial
condition, results of operations, cash flows and amount of
dividends we may pay, if any.
22
We may be
unsuccessful in competing in the highly competitive
international tanker market, which would negatively affect our
financial condition and our ability to expand our
business.
The operation of oil tankers and the transportation of oil and
oil products is extremely competitive, and we compete in an
industry that is capital intensive and highly fragmented.
Reduced demand for transportation of oil and oil products could
lead to increased competition. Competition arises primarily from
other tanker owners, including major oil companies. Although
fragmented, a certain element of the international tanker
industry has begun to consolidate. At the end of May 2010,
according to Drewry, the top 10 companies control
approximately 28% of the vessels and 34% of the tonnage in the
world tanker fleet, excluding chartered-in vessels. These
companies exert greater influence over market conditions and
likely have substantially greater resources than we do,
providing them with a significant competitive advantage. Because
competition for the transportation of oil and oil products
depends on price, location, size, age, condition and the
acceptability of the tanker and its operators to the charterers,
and because a larger market share generally permits companies to
offer more favorable terms, we may not be able to successfully
compete if the ownership of tankers continues to consolidate and
thereby reduces our market share.
In addition, we will also have to compete with independent
tanker companies with particular geographic or service
specialties. We may not be able to compete profitably as we
expand our business into new geographic regions or provide new
services. New markets may require different skills, knowledge or
strategies, and the competitors in those new markets may have
greater financial strength and capital resources than we will.
As a new
company, we have a limited history and may not be able to
implement our business strategy successfully.
We are a recently-formed company with limited performance
record, operating history and historical financial information
upon which you can evaluate our operations or our ability to
formulate a successful business strategy or successfully
implement its execution. Even if we successfully implement our
business strategy, it may not improve our net revenues or
operating results. Furthermore, we may decide to alter or
discontinue aspects of our business strategy and may adopt
alternative or additional strategies in response to business or
competitive factors or factors or events beyond our control.
Our future growth will depend on the successful implementation
of our business strategy. A principal focus of our business
strategy is to grow by expanding the size of our fleet and
capitalize on the spot market, including by taking advantage of
spot market-related pooling arrangements. Our future growth will
depend upon a number of factors, including our ability to:
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identify and acquire suitable newbuildings and vessels in the
secondhand market;
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purchase and sell vessels;
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maintain or develop new and existing customer relationships;
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take delivery of and integrate the vessels comprising our
initial fleet, as well as any additional vessels we may acquire
in the future;
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successfully manage our liquidity and expenses and obtain the
necessary financing to fund our growth; and
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attract, hire, train and retain qualified shore and seafaring
personnel to manage and operate our growing business and fleet.
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In addition, even if we successfully implement our business
strategy, it may not improve our net revenues or operating
results. Furthermore, we may decide to alter or discontinue
aspects of our business strategy and may adopt alternative or
additional strategies in response to business or competitive
factors or factors or events beyond our control.
23
We will
be a holding company, and we will depend on the ability of our
subsidiaries to distribute funds to us in order to satisfy our
financial obligations or to make dividend payments.
We will be a holding company, and our subsidiaries, all of which
will be 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 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.
Upon completion of this offering, we will be a public company,
and as such, we will have significant legal, accounting and
other expenses in addition to our initial registration and
listing expenses. Furthermore, Sarbanes-Oxley, as well as rules
subsequently implemented by the SEC and stock exchanges, have
imposed various requirements on public companies, including
corporate governance practices, and these requirements may
continue to evolve. We and our 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 increase our legal and financial compliance
costs and make some activities more time-consuming and costly.
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 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. Our compliance with Section 404 may require
that we incur substantial accounting expense and expend
significant management efforts.
If
management is unable to provide reports as to the effectiveness
of our internal control over financial reporting or our
independent registered public accountant firm is unable 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 shares.
Under Section 404 of the Sarbanes-Oxley Act of 2002, or
Sarbanes-Oxley, 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 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 accountants. 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 accountants are 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 shares.
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 and our ability to hire and retain
key members of management. The loss of any of these individuals
could adversely affect our business prospects and financial
condition. Difficulty in hiring and retaining personnel could
have a material adverse effect on our business, results of
operations, cash flows, financial condition and ability to pay
dividends. We do not intend to maintain key man life
insurance on any of our officers, but we will have employment
agreements with Messrs. Burke and Bavolar, which are
described in Our ManagementEmployment
Agreements.
24
Schulte,
our technical manager, is a privately held company and there is
little or no publicly available information about it.
Our technical managers ability to render management
services will depend in part on its own financial strength.
Circumstances beyond our control could impair the technical
managers financial strength, and because it will be a
privately held company, information about the financial strength
of the technical manager is not available. As a result, we and
an investor in our securities might have little advance warning
of financial or other problems affecting the technical manager
even though its financial or other problems could have a
material adverse effect on us and our shareholders.
We and
our subsidiaries may be subject to group liability for damages
or debts owed by one of our subsidiaries or by us.
Although each of the vessels is and will be separately owned by
individual subsidiaries, under certain circumstances, a parent
company and its ship-owning subsidiaries can be held liable
under corporate veil-piercing principles for damages or debts
owed by one of the subsidiaries or the parent. Therefore, it is
possible that all of our assets and those of our subsidiaries
could be subject to execution upon a judgment against us or any
of our subsidiaries.
Our
vessels must protect the safety and condition of their cargoes
and any failure to do so may subject us to claims for loss or
damage.
Under our time charters and on the spot market, we are
responsible for the safekeeping of cargo entrusted to us and
must properly maintain and control equipment and other apparatus
to ensure that cargo is not lost or damaged in transit. Claims
and any liability for loss or damage to cargo could harm our
reputation and adversely affect our business, financial
condition and results of operations.
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 expect to 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. 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 will belong will
remain viable or that we will not become subject to additional
funding calls which could adversely affect us. We also intend to
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 may contain
deductibles for which we will be responsible and limitations and
exclusions which may increase our costs or lower our revenue.
Although we do not anticipate any difficulty in having our
technical manager initially obtain insurance policies for us, we
cannot assure you that we will be able to renew such policies on
the same or commercially reasonable
25
terms, or at all, in the future. For example, more stringent
environmental regulations have in the past led 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
vessels 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 may be 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.
The
failure to maintain class certifications of authorized
classification societies on one or more of our vessels would
affect our ability to employ such vessels, which could
negatively impact our results of operations.
The hull and machinery of every commercial vessel must be
certified as meeting its class requirements by a classification
society authorized by the vessels country of registry. The
classification society certifies that the vessel is safe and
seaworthy in accordance with the applicable rules and
regulations of the country of registry of the vessel and SOLAS.
In order for a vessel to maintain its classification, the vessel
must undergo annual surveys, intermediate surveys and special
surveys. In lieu of a special survey, a vessels machinery
may be on a continuous survey cycle under which the machinery
would be surveyed from time to time over a five-year period.
Every vessel may also be required to be drydocked every two to
three years for inspection of the underwater parts of the
vessel. If a vessel fails any survey or otherwise fails to
maintain its class, the vessel will be unable to trade and will
be unemployable, and may subject us to claims from the
charterer, if we have chartered the vessel, which would
negatively impact our revenues as well as our reputation. In
addition, we could be in violation of certain of the covenants
in our credit facility, which could result in additional adverse
effects.
The
Company may have to pay tax on United States source income,
which would reduce its earnings.
Under the United States Internal Revenue Code of 1986, as
amended, or the Code, 50% of the gross shipping income of a
vessel owning or chartering corporation, such as the Company and
its subsidiaries, that is attributable to transportation that
begins or ends, but that does not both begin and end, in the
United States may be subject to a 4% United States federal
income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under
section 883 of the Code and the applicable Treasury
Regulations promulgated thereunder.
After this offering, although it is not free from doubt, the
Company and its subsidiaries anticipate they will qualify for
this statutory tax exemption. However, there are factual
circumstances beyond the Companys control that could cause
it to lose the benefit of this tax exemption after the offering
and thereby become subject to United States federal income tax
on its United States source income. For example, the Company
would no longer qualify for exemption under Code
section 883 for a particular taxable year if certain
shareholders with a five percent or greater interest in the
Companys stock owned, in the aggregate, 50% or more of the
outstanding shares of the Companys common stock for more
than half the days during the taxable year. Due to the factual
nature of the issues involved, there can be no assurances on the
tax-exempt status of the Company or any of its subsidiaries.
If the Company or its subsidiaries were not entitled to
exemption under Section 883 for any taxable year, they
could be subject for those years to an effective 2% United
States federal income tax on the gross shipping income these
companies derive during the year which is attributable to the
transport or cargoes to or from the United States. The
imposition of this taxation would have a negative effect on the
Companys business and would result in decreased earnings
available for distribution to the Companys shareholders.
26
United
States tax authorities could treat the Company as a
passive foreign investment company, which could have
adverse United States federal income tax consequences to U.S.
Holders.
A foreign corporation will be treated as a passive foreign
investment company, or PFIC, for United States federal
income tax purposes if either (1) at least 75% of its gross
income for any taxable year consists of certain types of
passive income or (2) at least 50% of the
average value of the corporations assets produce or are
held for the production of those types of passive
income. For purposes of these tests, passive
income includes dividends, interest, and gains from the
sale or exchange of investment property and rents and royalties
other than rents and royalties which are received from unrelated
parties in connection with the active conduct of a trade or
business. For purposes of these tests, income derived from the
performance of services does not constitute passive
income. United States shareholders of a PFIC are subject
to a disadvantageous United States federal income tax regime
with respect to the income derived by the PFIC, the
distributions they receive from the PFIC and the gain, if any,
they derive from the sale or other disposition of their shares
in the PFIC.
The Company does not anticipate that it will be treated as a
PFIC with respect to any taxable year. Based upon the
Companys expected operations as described herein, its
income from time charters should not be treated as passive
income for purposes of determining whether it is a passive
foreign investment company. Accordingly, the Companys
income from its time chartering activities should not constitute
passive income, and the assets that the Company owns
and operates in connection with the production of that income
should not constitute passive assets.
There is substantial legal authority supporting this position
consisting of case law and United States Internal Revenue
Service, or IRS, pronouncements concerning the characterization
of income derived from time charters and voyage charters as
services income for other tax purposes. However, it should be
noted that there is also authority which characterizes time
charter income as rental income rather than services income for
other tax purposes. Accordingly, no assurance can be given that
the IRS or a court of law will accept the view that income from
time charter activities is not passive income, and
there is a risk that the IRS or a court of law could determine
that the Company is a PFIC. Moreover, no assurance can be given
that the Company would not constitute a PFIC for any future
taxable year if the nature and extent of the Companys
operations changed.
If the IRS were to find that the Company is or has been a PFIC
for any taxable year, United States shareholders of the Company
would face adverse United States federal income tax consequences
and information reporting obligations. Under the PFIC rules,
unless those shareholders make an election available under the
Code (which election could itself have adverse consequences for
such shareholders, as discussed below under Tax
ConsiderationsUnited States Federal Income Taxation of the
CompanyUnited States Federal Income Taxation of
U.S. Holders), such shareholders would be liable to
pay United States federal income tax at the then prevailing
income tax rates on ordinary income plus interest upon excess
distributions and upon any gain from the disposition of their
common shares, as if the excess distribution or gain had been
recognized ratably over the shareholders holding period of
the common shares. See Tax ConsiderationsUnited
States Federal Income Taxation of the CompanyUnited States
Federal Income Taxation of U.S. Holders for a more
comprehensive discussion of the United States federal income tax
consequences to United States shareholders if the Company is
treated as a PFIC.
We may be
treated as a controlled foreign corporation, which
could have certain adverse U.S. Federal income tax consequences
to U.S. Holders.
For U.S. Federal income tax purposes, we will be a
controlled foreign corporation, or CFC, if, on any day of the
taxable year, more than 50% of our common shares are owned by
U.S. persons, each of whom actually or constructively owns
10% or more of such common shares. We do not foresee qualifying
as a CFC; however, depending upon the ownership of our stock
after this offering, we may qualify as a CFC. CFC status could
have adverse U.S. Federal income tax consequences to those
United States persons owning, actually or constructively, 10% or
more of our common shares, as discussed below in Tax
ConsiderationsUnited States Federal Income Taxation of the
CompanyUnited States Federal Income Taxation of
U.S. Holders.
27
Risk Factors
Related To Our Common Shares
We could
be adversely affected by violations of the U.S. Foreign Corrupt
Practices Act and similar worldwide anti-bribery laws.
The U.S. Foreign Corrupt Practices Act and similar
worldwide anti-bribery laws generally prohibit companies and
their intermediaries from making improper payments to
non-U.S. officials
for the purpose of obtaining or retaining business. Our policies
mandate compliance with these laws. We operate in many parts of
the world that have experienced governmental corruption to some
degree and, in certain circumstances, strict compliance with
anti-bribery laws may conflict with local customs and practices.
Despite our compliance program, we cannot assure you that our
internal control policies and procedures always will protect us
from reckless or negligent acts committed by our employees or
agents. Violations of these laws, or allegations of such
violations, could have a negative impact on our business,
results of operations and reputation.
Because
we are a foreign corporation, you may not have the same rights
or protections that a shareholder in a U.S. corporation may
have.
We are, and we expect most of our future subsidiaries will be,
incorporated in the Republic of the Marshall Islands. The
Marshall Islands 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 laws of the Marshall Islands, however, 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 specifically incorporates the non-statutory law,
or judicial case law, of the State of Delaware and other states
with substantially similar legislative provisions, our
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 shareholders than would shareholders of a
corporation incorporated in a U.S. jurisdiction.
It may
not be possible for our investors to enforce U.S. judgments
against us.
In addition to being incorporated 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, 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 U.S. courts obtained in
actions against us based upon the civil liability provisions of
applicable U.S. Federal and state securities laws or
(2) would enforce liabilities against us based upon these
laws.
As a key
component of our business strategy, we intend to issue
additional common shares or other securities to finance our
growth. These issuances, which would generally not be subject to
shareholder approval, may lower the relative voting power of
your ownership interests and may depress the market price of the
common shares.
As a key component of our business strategy, we plan to finance
potential future expansions of our fleet primarily through
equity financing. Therefore, subject to the rules of any equity
market that are applicable to us, we plan to issue additional
common shares, 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 common shares or other equity
securities of equal or senior rank will have the following
effects:
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our existing shareholders proportionate ownership interest
in us may decrease;
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the amount of cash available for dividends payable on our common
shares may decrease;
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the relative voting strength of each previously outstanding
share may be diminished; and
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the market price of our common shares may decline.
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In addition, if we issue common shares 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 shares in this
offering.
If the
share price of our common shares fluctuates after this offering,
you could lose a significant part of your investment.
The market price of our common shares may be influenced by many
factors, many of which are beyond our control, including the
other risks described under Risk Factors Related to
Our Common Shares and the following:
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the failure of securities analysts to publish research about us
after this offering, or analysts making changes in their
financial estimates;
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announcements by us or our competitors of significant contracts,
acquisitions or capital commitments;
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variations in quarterly operating results;
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general economic conditions;
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terrorist acts;
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future sales of our common shares or other securities; and
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investors perception of us and the international tanker
industry.
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As a result of these factors, investors in our common shares may
not be able to resell their common shares at or above the
initial offering price. These broad market and industry factors
may materially reduce the market price of our common shares,
regardless of our operating performance.
We expect
our common shares to be approved for listing on the Nasdaq
Global Market, but a market may not develop for our common
shares, and we may be unable to maintain our listing on the
Nasdaq Global Market, either of which would adversely affect the
value of our common shares and make it more difficult for you to
monetize your investment.
We expect our common shares to be approved for listing on the
Nasdaq Global Market, but we will have no prior trading history,
and thus there is no way to determine the prices or volumes at
which our common shares will trade. We can give no assurance as
to the development of liquidity or any trading market for our
common shares. Holders of our common shares may not be able to
resell the common shares at or near their original acquisition
price, or at all.
Additionally, the Nasdaq Global Market and each national
securities exchange has certain corporate governance
requirements that must be met in order for us to maintain our
listing. If we qualify for listing and subsequently fail to meet
the relevant corporate governance requirements, our common
shares could be delisted, which would make it harder for you to
monetize your investment in our common shares and would cause
the value of your investment to decline.
There is
no existing market for our common shares, 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 our
common shares. We expect to list our common shares on the Nasdaq
Global Market, under the symbol RDGE. We cannot
predict the extent to which investor interest in our company
will lead to the development of an active trading market on the
Nasdaq Global Market or otherwise or how liquid that market
might become. The initial public offering price for the common
shares will be determined by negotiations between us and the
underwriter, and may not be indicative of the price that will
prevail in the trading market following this offering. The
market price for our common shares may decline below the initial
public offering price, and our stock price is likely to be
volatile following this offering.
29
You will
experience immediate and substantial dilution as a result of
this offering and may experience additional dilution in the
future.
If you purchase common stock in this offering, you will pay more
for your shares of common stock than the amounts paid by our
existing shareholders for their shares. Such existing
shareholders
hold
common shares, which represents
approximately % of the common
shares we expect to be outstanding after this offering. As a
result, you will incur immediate and substantial dilution of
$ per share, representing the
difference between the initial public offering price and our pro
forma as adjusted net tangible book value per share
at ,
2010, after giving effect to this offering. In addition,
purchasers of our common stock in this offering will have
contributed approximately % of the
aggregate price paid by all purchasers of our common stock, but
will own only approximately % of
the shares outstanding after this offering. For more
information, please see Dilution.
Future
sales of shares could depress the market price for our common
stock.
Upon completion of this offering and the concurrent private
placement, Messrs. Burke and Bavolar will own
approximately % of our outstanding
common stock, which may be resold subject to the holding period,
current public information, volume, manner of sale and notice
requirements of Rule 144 under the Securities Act, as a
result of their status as our affiliates.
Furthermore, shares held by Messrs. Burke and Bavolar will
be subject to a 180 day
lock-up
agreement. For more information, please see
Shares Eligible for Future Sale. Sales or the
possibility of sales of substantial amounts of shares of our
common stock by Messrs. Burke and Bavolar in the public
markets could adversely affect the market price of our common
stock. These sales, or the perception that these sales could
occur, could also adversely impact our ability to sell equity
securities in the future at a time and price that we deem
appropriate to raise funds through future equity offerings.
30
Cautionary Note
Regarding Forward-Looking Statements
This prospectus contains forward-looking statements within the
meaning of, and we intend that such forward-looking statements
be subject to the safe harbor provisions of, the
U.S. Federal securities laws. These forward-looking
statements are included throughout this prospectus, including in
sections entitled Prospectus Summary, Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Future Results of Operations
and Business and related matters such as our
industry, business strategy, goals, expectations concerning our
market position, future operations, dividends, margins,
profitability, capital expenditures, liquidity and capital
resources and other financial and operating information.
Forward-looking statements are, by definition, statements that
are not historical in nature and relate to possible future
events. They may be, but are not necessarily, identified by
words such as, but not limited to, believe,
expect, anticipate,
estimate, intend, plan,
targets, projects, likely,
will, would, could and
similar expressions.
These forward-looking statements reflect our current views with
respect to possible future events, are based on various
assumptions and are subject to risks and uncertainties. These
forward-looking statements are not guarantees or predictions of
our future performance, and our actual results and future
developments may differ materially from those projected in, and
contemplated by, these forward-looking statements. As a result,
you should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from
those anticipated in these forward-looking statements. Among the
factors that could cause actual results to differ materially are
the following:
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If the tanker industry, which historically has been cyclical, is
depressed in the future, our earnings and available cash flow
may be adversely affected.
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We will be exposed to the cyclicality and volatility of the spot
charter market.
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Our results of operations are subject to seasonal fluctuations,
which may adversely affect our financial condition.
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Our vessels and their cargoes will be subject to the inherent
operational risks of the tanker industry and we may experience
negative consequences, including unexpected damages, costs,
delays or the total loss of our vessels or their cargoes, which
may adversely affect our business and financial condition.
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We will be subject to complex laws and regulations, including
environmental laws and regulations, that can adversely affect
our business, results of operations and financial condition.
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Increased inspection procedures, tighter import and export
controls and new security regulations could increase costs and
cause disruption of our business.
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If we fail to comply with international safety regulations, we
may be subject to increased liability, which may adversely
affect our insurance coverage and may result in a denial of
access to, or detention in, certain ports.
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Recent changes in environmental and other governmental
requirements may adversely affect our operations.
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Greenhouse gas restrictions may adversely impact our operations.
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Political instability, terrorist or other attacks, war or
international hostilities can affect the tanker industry, which
may adversely affect our business, results of operations and
cash flows.
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The smuggling of drugs or other contraband onto our vessels may
lead to governmental claims against us.
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Changes in fuel, or bunkers, prices may adversely affect profits.
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The market values of our vessels may decrease, which could cause
us to breach covenants in our credit facility and adversely
affect our operating results.
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Acts of piracy on ocean-going vessels have recently increased in
frequency, which could adversely affect our business and results
of operations.
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Maritime claimants could arrest our vessels, which would have a
negative effect on our cash flows.
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Governments could requisition our vessels during a period of war
or emergency, which may negatively impact our business,
financial condition, results of operations and available cash.
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If labor interruptions are not resolved in a timely manner, they
could have a material adverse effect on our business, results of
operations, cash flows, financial condition and available cash.
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31
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A renewed contraction or worsening of the global credit markets
and the resulting volatility in the financial markets could have
a material adverse impact on our results of operations,
financial condition and cash flows, and could cause the market
price of our common shares to decline.
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If we do not identify suitable tankers for acquisition or
successfully integrate any acquired tankers, we may not be able
to grow or to effectively manage our growth.
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The revenues we earn will be dependent on the success and
profitability of the spot market-related vessel pools in which
our initial vessels operate.
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We may be required to seek replacement vessels for our initial
fleet and incur additional costs if we do not consummate this
offering prior to the deadlines contained in the memoranda of
agreement for such vessels.
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Delays in deliveries of the vessels that will comprise our
initial fleet or any additional vessels we may acquire in the
future, our decision to cancel an order for purchase of a vessel
or our inability to otherwise complete the acquisitions of
vessels for our fleet could harm our operating results.
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If we cannot complete the purchase of any of the vessels
intended to comprise our initial fleet, we may use the net
proceeds from this offering for general corporate purposes that
you may not agree with.
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After we acquire our vessels, we will be required to provide
charterers with certain information and meet other conditions,
which will prevent us from immediately employing them in the
Blue Fin Tankers Pool and adversely affect our results of
operations, financial condition and cash flows.
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Our strategy of financing future acquisitions through equity
offerings and refinancing our credit facility with the proceeds
of future equity offerings will reduce the ownership interest of
our existing shareholders and may adversely affect our growth
and earnings.
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Any acquisition of a vessel may not be profitable to us at or
after the time we acquire it.
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We may be unable to pay dividends.
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Our ability to grow and satisfy our financial needs may be
adversely affected by our dividend policy.
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We will need to make substantial capital expenditures to
maintain the operating capacity of our fleet, which may reduce
the amount of cash available for dividends to our shareholders.
Any failure to fund our capital expenditure requirements could
have a material adverse effect on our business, results of
operations, financial condition, cash flows and ability to pay
dividends.
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An increase in operating costs could adversely affect our cash
flows and financial condition.
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Financing agreements containing operating and financial
restrictions may restrict our business and financing activities.
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We cannot assure you that we will be able to enter into and
borrow any amounts under our credit facility.
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Our credit facility will limit our operating and financial
flexibility.
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To service our indebtedness and other obligations, including our
credit facility, we will require a significant amount of cash.
Our ability to generate cash depends on many factors beyond our
control.
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Our purchase and operation of secondhand vessels may result in
increased operating costs and vessels off-hire, which could
adversely affect our earnings.
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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.
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Failure of counterparties, including charterers, the Pool
Manager or technical managers, to meet their obligations to us
could have a material adverse effect on our business, financial
condition, results of operations, cash flows and amount of
dividends we may pay, if any.
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We may be unsuccessful in competing in the highly competitive
international tanker market, which would negatively affect our
financial condition and our ability to expand our business.
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As a new company, we have a limited history and may not be able
to implement our business strategy successfully.
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32
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We will be a holding company, and we will depend on the ability
of our subsidiaries to distribute funds to us in order to
satisfy our financial obligations or to make dividend payments.
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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.
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If management is unable to provide reports as to the
effectiveness of our internal control over financial reporting
or our independent registered public accountant firm is unable
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 shares.
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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.
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Schulte, our technical manager, is a privately held company and
there is little or no publicly available information
about it.
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We and our subsidiaries may be subject to group liability for
damages or debts owed by one of our subsidiaries or by us.
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Our vessels must protect the safety and condition of their
cargoes and any failure to do so may subject us to claims for
loss or damage.
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We may not have adequate insurance to compensate us if we lose
our vessels or to compensate third parties.
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The failure to maintain class certifications of authorized
classification societies on one or more of our vessels would
affect our ability to employ such vessels, which could
negatively impact our results of operations.
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The Company may have to pay tax on United States source income,
which would reduce its earnings.
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United States tax authorities could treat the Company as a
passive foreign investment company, which could have
adverse United States federal income tax consequences to
U.S. Holders.
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We may be treated as a controlled foreign
corporation, which could have certain adverse
U.S. Federal income tax consequences to U.S. Holders.
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We could be adversely affected by violations of the
U.S. Foreign Corrupt Practices Act and similar worldwide
anti-bribery laws.
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Because we are a foreign corporation, you may not have the same
rights or protections that a shareholder in a
U.S. corporation may have.
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It may not be possible for our investors to enforce
U.S. judgments against us.
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As a key component of our business strategy, we intend to issue
additional common shares or other securities to finance our
growth. These issuances, which would generally not be subject to
shareholder approval, may lower the relative voting power of
your ownership interests and may depress the market price of the
common shares.
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If the share price of our common shares fluctuates after this
offering, you could lose a significant part of your investment.
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We expect our common shares to be approved for listing on the
Nasdaq Global Market, but a market may not develop for our
common shares, and we may be unable to maintain our listing on
the Nasdaq Global Market, either of which would adversely affect
the value of our common shares and make it more difficult for
you to monetize your investment.
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There is no existing market for our common shares, and we cannot
be certain that an active trading market or a specific share
price will be established.
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You will experience immediate and substantial dilution as a
result of this offering and may experience additional dilution
in the future.
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Future sales of shares could depress the market price for our
common stock.
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33
For more information regarding these risks and uncertainties,
please see Risk Factors.
Many of these factors are beyond our ability to control or
predict. Any, or a combination, of these factors could
materially affect our future financial condition or results of
operations and the ultimate accuracy of the forward-looking
statements. These forward-looking statements are not guarantees
of our future performance, and our actual results and future
developments may differ materially from those projected in the
forward-looking statements. Management cautions against putting
undue reliance on forward-looking statements or projecting any
future results based on such statements.
All forward-looking statements included in this prospectus are
made only as of the date of this prospectus, and we do not
undertake any obligation to publicly update or correct any
forward-looking statements to reflect events or circumstances
that subsequently occur, or of which we become aware after the
date of this prospectus. You should read this prospectus
completely and with the understanding that our actual future
results may be materially different from what we expect. We may
not update these forward-looking statements, even if our
situation changes in the future. All forward-looking statements
attributable to us are expressly qualified by these cautionary
statements.
34
Use of
Proceeds
The net proceeds from the sale of the common shares are expected
to be approximately
$ million, after deducting
assumed underwriting discounts and commissions and estimated
offering expenses payable by us. We expect to use approximately
$ million of the net proceeds
of this offering and concurrent private placement (after
deducting fees and expenses) to fund the purchase of the vessels
that will comprise our initial fleet,
$ million to pay the
commitment fee in respect of our credit facility and the
remainder of the net proceeds for working capital purposes. We
expect that the purchase price for each of the vessels that will
comprise our initial fleet will be made in two installments: 10%
of the purchase price per vessel paid as a deposit concurrently
with the closing of this offering and 90% of the purchase price
per vessel paid at the time of delivery of each vessel. During
this period, we may temporarily invest portions of the net
proceeds in U.S. treasury securities.
35
Dividend
Policy
We intend to declare quarterly dividends to shareholders
substantially equal to our net operating cash flow during the
previous quarter, after reserves, as our board of directors may
from time to time determine are required or advisable. We expect
to make our first dividend payment in the first quarter of 2011
in respect of any net operating cash flow that we earn in the
fourth quarter of 2010. Net operating cash flow is a non-GAAP
measure that is different from cash flow from operations and,
rather, represents net income plus depreciation, amortization
and non-cash administrative charges. We expect the reserves to
consist of reserves and expenses for drydocking, vessel
upgrades, other maintenance capital expenditures and our other
cash needs. Our board of directors will also take into account
contingent liabilities, the terms of our credit facility and
pool arrangement and the requirements of Marshall Islands law in
determining the amount of dividends that we may pay.
If we declare a dividend in respect of a quarter in which an
equity issuance has taken place, we may calculate the dividend
per share as our net operating cash flow less reserves for the
quarter, after taking into account the factors described above,
divided by the weighted average number of common shares
outstanding over that quarter. The aggregate dividend paid will
be the dividend per share, calculated as described above,
multiplied by the number of common shares outstanding as of the
dividend record date, which is likely to be equal to the number
of common shares outstanding at the end of the relevant quarter.
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:
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Our shareholders have no contractual or other legal right to
receive dividends.
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Our board of directors has the authority and may be legally
required to establish reserves for the prudent conduct of our
business, after giving effect to contingent liabilities, the
terms of our proposed credit facility and payments of principal
and interest thereunder, as well as any other 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.
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The declaration and payment of dividends will be at the
discretion of our board of directors and subject to the terms of
our credit facility and pool arrangement and the requirements of
Marshall Islands law, and we cannot assure you that we will not
change our dividend policy to reduce or eliminate our dividend.
Please see Risk Factors. 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.
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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.
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We may lack sufficient cash to pay dividends.
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Our dividend policy may be affected by restrictions on
distributions under our credit facility and any other credit
facilities we may enter into.
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See Risk Factors for additional information on
limitations relating to our ability to pay dividends.
36
Capitalization
The following table sets forth our capitalization as
of ,
2010 on an actual basis and on an as adjusted basis giving
effect to:
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the issuance and sale
of
common shares in this offering and concurrent private placement;
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the application of the net proceeds we expect to receive in this
offering and from the concurrent private placement as described
under Use of Proceeds; and
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a :1
common stock split (in the form of a stock dividend
of restricted
common shares) prior to the completion of this offering.
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The information set forth in the table below assumes no exercise
of the underwriters option to purchase additional common
shares. This table should be read in conjunction with the
sections entitled Use of Proceeds and
Managements Discussion and Analysis of Financial
Condition and Future Results of Operations and our balance
sheet and related notes appearing elsewhere in this prospectus.
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As of , 2010
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Actual
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As Adjusted
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Capital stock, par value $0.01 per share: 275 million
shares authorized; 625
and shares
issued and outstanding actual and as adjusted, respectively(1)
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$
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$
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Paid-in capital
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Total shareholders equity
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Total capitalization
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$
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$
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(1) |
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In connection with our incorporation, 500 common shares were
issued to Mr. Robert Burke and 125 common shares were
issued to Mr. Kevin Bavolar. |
37
Dilution
Dilution is the amount by which the offering price paid by
purchasers of our common shares in this offering will exceed the
net tangible book value per share after this offering. Our
existing shareholders
hold
common shares, which represents
approximately % of the shares we
expect to be outstanding after this offering. Our net tangible
book value as
of ,
2010 was $ per share. Net tangible
book value per share is determined by dividing our tangible net
worth (tangible assets less total liabilities) by the total
number of outstanding common shares. After giving effect to the
sale of the common shares in this offering and assuming the
deduction of the estimated discounts, placement agent fees and
expenses of this offering and the application of the net
proceeds as described in Use of Proceeds, and
assuming the underwriter does not exercise its option to
purchase additional common shares, our pro forma net tangible
book value as
of ,
2010 would have been $ per share.
This represents an immediate increase in the net tangible book
value of $ per share to our
existing stockholders and an immediate dilution (i.e., the
difference between the offering price and the pro forma net
tangible book value after this offering) to new investors
purchasing common shares in this offering.
The following table illustrates the pro forma per share dilution
to new investors purchasing common shares in this offering:
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Assumed offering price per common share
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$
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Net tangible book value per common share before this offering
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Increase in net tangible book value per common share
attributable to new investors in this offering
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Pro forma net tangible book value per common share after giving
effect to this offering
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Dilution per common share to new investors
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$
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38
Selected Balance
Sheet Data
We were incorporated on February 22, 2010 and have no
operating history. The following balance sheet as of
April 27, 2010 has been derived from our audited balance
sheet, which is included in this prospectus. The selected
balance sheet data is not indicative of the results we would
have achieved had we operated as a public company or of our
future results. The balance sheet information provided below
should be read in conjunction with our audited balance sheet,
the related notes thereto and Managements Discussion
and Analysis of Financial Condition and Future Results of
Operations.
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As of
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April 27, 2010
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Cash
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$
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1,000
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Total assets
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$
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1,000
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Liabilities and shareholders equity
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Liabilities
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$
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Total Liabilities
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Commitments and Contingencies
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Shareholders equity
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Common shares, par value $0.01 per share: 250 million
common shares authorized, 625 issued and outstanding; preferred
shares, par value $0.01 per share: 25 million preferred
shares authorized, 0 issued and outstanding
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6
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Paid-in capital in excess of par value
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994
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Total shareholders equity
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1,000
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Total liabilities and shareholders equity
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$
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1,000
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39
Managements
Discussion and Analysis of
Financial Condition and Future Results of Operations
The following discussion of our financial condition and
results of operations should be read in conjunction with our
balance sheet, and the related notes, and the other financial
and other information included in this prospectus. This
discussion contains forward-looking statements, which are based
on our assumptions about the future of our business. Our actual
results will likely differ materially from those contained in
the forward-looking statements. Please read Cautionary
Note Regarding Forward-Looking Statements for additional
information regarding forward-looking statements used in this
prospectus. References in the following discussion to
our and us are to our company and our
subsidiaries.
We are a recently-formed Marshall Islands company based in
Connecticut, primarily focused on acquiring and deploying
Suezmax tankers in, or based on, the spot charter markets. We
will employ a chartering strategy intended to maximize cash flow
from our vessels through trading in spot market-related vessel
pools, in the spot charter markets or under spot market indexed
time charters.
Future Results of
Operations
Ridgebury Tankers Ltd is a recently-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 pooling or charter
arrangement for such vessel, after which time our revenues will
consist primarily of pool revenue
and/or
charterhire. Our ongoing expenses, other than depreciation and
amortization, are expected to consist of fees and reimbursements
under our management agreements 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:
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charter rates available for Suezmax tankers in the spot market;
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the level of our operating costs, such as the cost of bunkers,
crews and insurance;
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the number of vessels in our fleet and their share of pool
revenues, if pooled, or their charter rates;
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the amount of pool earnings we receive from our vessels
operating in the pool, based on the pools performance as
reflected in the net pool revenue;
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the number of days that our vessels are utilized and not subject
to drydocking, special surveys or otherwise off-hire; and
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our ability to control our fixed and variable expenses,
including our technical 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.
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Lack of
Historical Operating Data for Vessels before Their
Acquisition
Consistent with shipping industry practice, we may not be able
to obtain the historical operating data for the vessels that we
may purchase from third party sellers, in part because that
information is not material to our decision to acquire vessels.
Typically, vessels are sold under a standardized agreement,
which, among other things, provides us with the right to inspect
the vessel and the vessels classification society records.
Although we intend to inspect the historical operating data of
the vessels that will comprise our initial fleet prior to this
offering, the standard vessel purchase agreement does not give
us the right to inspect, or receive copies of, the historical
operating data of the vessel. Accordingly, such information will
not be available to us. 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 will
be automatically terminated and the vessels trading
certificates are revoked by its flag state following a change in
ownership.
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In addition, and consistent with shipping industry practice, we
will treat the acquisition from unaffiliated third parties of
the vessels that will comprise our initial fleet as the
acquisition of assets rather than a business. Future
acquisitions will be evaluated based on the relevant facts and
circumstances. 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 when owned by the seller to continue as the first
charterer of the vessel when the vessel has been purchased by
and delivered to the buyer. Consistent with shipping industry
practice, if we wish to take delivery of a vessel with the
associated time charter, such delivery is subject to the
charterers consent and we will be required to enter into a
separate and direct agreement with that charterer to assume the
time 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. For example, the
three to four vessels that will comprise our initial fleet are
being acquired without a charter attached. Similarly, we expect
that the crew with respect to these vessels will change, as the
technical manager of the vessels will change. Also, upon our
acquisition of these vessels, we will need to provide the oil
majors with information that satisfies their requirements with
respect to our vessels and technical manager. As similar
requirements are also a precondition to entering the Blue Fin
Tankers Pool, we will operate our vessels in the spot market
until we can enter them into the Blue Fin Tankers Pool. We
expect that the vetting process typically takes 30 to 60 days.
When we purchase a vessel and assume or renegotiate a related
charter, we must take the following steps before the vessel will
be ready to commence operations:
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obtain the charterers consent to our assumption of
ownership;
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obtain the charterers consent to a new technical manager;
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obtain the charterers consent to a new flag for the vessel;
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arrange for a new crew for the vessel;
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replace all hired equipment on board, such as gas cylinders and
communication equipment;
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negotiate and enter into new insurance contracts for the vessel
through our own insurance brokers or have our technical manager
obtain insurance coverage for us as a managed vessel;
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register the vessel under a flag state and perform the related
inspections in order to obtain new trading certificates from the
flag state;
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obtain any required approvals from the charterer, such as the
oil majors, or the pool;
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implement a new planned maintenance program for the
vessel; and
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ensure that the new technical manager obtains new certificates
for compliance with the safety and vessel security regulations
of the flag state.
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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:
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employment and operation of our vessels; and
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management of the financial, general and administrative elements
involved in the conduct of our business and ownership of our
vessels.
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The employment and operation of our vessels will require the
following main components:
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vessel maintenance and repair;
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crew selection and training;
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vessel spares and stores supply;
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contingency response planning;
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onboard safety procedures auditing;
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accounting;
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vessel insurance arrangement;
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vessel chartering, either directly or through pooling
arrangements;
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vessel hire management;
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vessel surveying; and
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vessel performance monitoring.
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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:
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management of our financial resources, including banking
relationships, such as the administration of bank loans and bank
accounts;
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management of our accounting system and records and financial
reporting;
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administration of the legal and regulatory requirements
affecting our business and assets; and
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management of the relationships with our service providers and
customers.
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The principal factors that will affect our profitability, cash
flows and shareholders return on investment include:
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rates and periods of charterhire;
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levels of vessel operating expenses;
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depreciation expenses;
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financing costs;
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capital expenditures; and
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fluctuations in foreign exchange rates.
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Factors Affecting
Our Results of Operations
Revenues
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
charterhire that our vessels will earn under our pooling
arrangements or 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 and our
pool managers 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 tanker market and other factors affecting spot market
charter rates for our vessels
Pool
Revenues
Pool net revenue in the Blue Fin Tankers Pool equals pool gross
revenue less pool gross expenses, primarily made up of voyage
expense, commissions and pool general and administration costs.
Net revenue is adjusted for voyages not yet completed, amounts
of freight and hire earned but not yet received, apportionment
of prepaid expenses, retentions to cover claims in progress, and
adequate provisions for the outstanding or contingent
obligations and liabilities of the pool. It is our policy to
recognize revenue based on the monthly distribution from the
pool, which is net of the pool managers commission
of % of gross revenues. In
addition, we recognize as an operating expense the management
fee charged by the pool manager of $ per
vessel per day. The management fee will increase annually based
on a formula based on the Consumer Price Index.
Pool
Points
The successful operation of our vessels in spot market-related
vessel pools will depend on, among other things, the age, dwt,
carrying capacity, speed and fuel consumption of our vessels,
which will determine the pool points we receive. The number of
pool points we receive, together with, among other things, each
of our vessels operating
42
days during the month will determine our share of the
pools net revenue. Our pool points for our vessels are
calculated at the time that each respective vessel is entered
into the pool. Our pool points may be reduced if certain pool
requirements are not met, including if we do not maintain a
minimum number of oil major approvals and if we fail to provide
for ship inspection reports, or SIREs, at least every six
months. The amount of pool points that we are assigned will have
an effect on our financial results, the cash we generate from
operations and, therefore, the cash available to pay dividends.
Assuming that we can successfully implement our strategy of
acquiring modern, high-quality vessels, we believe we will
benefit from a pool points system that awards pool points on
this basis, which we believe will enhance our revenue.
Spot and
Time Charter Revenues
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. However, by operating
in the spot charter market, we will also expose ourselves to the
risk of declining charter rates. Our exposure to declining spot
charter rates may have a materially adverse impact on our
financial performance.
Vessels operating in the time charter market generate revenues
in a manner that would subject us to counterparty risk. In
depressed market conditions, charterers may seek to renegotiate
the terms of their existing charter parties or avoid their
obligations under those contracts. Should a counterparty fail to
honor its obligations under agreements with us, we could sustain
significant losses, which could have a material adverse effect
on our business, financial condition, results of operations and
cash flows.
Plan of
Operation
Our plan of operation for the remainder of 2010 and the first
half of 2011 is to:
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acquire our initial fleet of three to four vessels, through the
use of net proceeds received from this offering and, to the
extent necessary, borrowings under our credit facility;
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seek to complete entry into our credit facility to provide
financing for additional vessel acquisitions as described below;
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potentially identify for purchase, and selectively acquire,
additional vessels;
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potentially raise additional funds through equity offerings to
the extent we fund the purchase price of any vessels we acquire
with borrowings under our credit facility; and
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hire personnel as needed to support our operations.
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Assuming no acquisition of additional vessels beyond those that
will comprise our initial fleet, we believe that the proceeds
from this offering and available funds under our credit facility
will satisfy our cash requirements during this period. We do not
believe it will be necessary in the year 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 representation of the revenues generated by our
vessels that is more commonly-used in the shipping industry.
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Vessel
Operating Expenses
Our vessel operating expenses will include crew wages and
related costs, the cost of insurance (reimbursed to our
technical manager), 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 variable 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
We will not be responsible for voyage expenses with respect to
our vessels operating in a pool. 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, in which we are responsible for voyage
expenses, and trip charters or vessel pools, in which we would
not be responsible for voyage expenses. Please see
BusinessOur ChartersChartering Strategy
for a description of the types of arrangements we may make for
our vessels.
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 expense the total costs associated with
a drydocking as they are incurred.
General and
Administrative Expenses
Our general and administrative expenses will include fees
payable under our management agreements, directors fees,
office rent, travel, communications, insurance, legal, auditing,
investor relations and other professional expenses. We expect
our general and administrative expenses to range from
$ million to
$ million for our first
12 months of operations, excluding non-cash compensation,
and expect to utilize cash of approximately
$ to
$ per month for these expenses.
With respect to the restricted common shares to be issued as
incentive compensation under our 2010 Equity Incentive Plan (as
described under the captions Our
ManagementCompensation of Directors and Senior
Management), we will recognize compensation expense over
the vesting period applicable to such restricted common shares.
Under U.S. GAAP, equity incentives granted to management
(such as those granted under restricted stock agreements) as a
result of this offering, future offerings or under current or
future compensation arrangements, may be required to be
recognized as compensation in our income statement in the future.
Liquidity and
Capital Resources
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 common shares.
Prior to or contemporaneous with the closing of this offering,
we expect to enter into a commitment letter to obtain for our
credit facility. We expect to use money borrowed under our
credit facility to fund future vessel acquisitions and for
general corporate purposes. We intend to refinance all or a
portion of the money that we borrow under our credit facility
with the proceeds of future equity offerings in order to
maintain a strong balance sheet with little or no debt. We are
currently negotiating the terms of the commitment letter and our
credit facility. The availability to us of our credit facility
will be subject to execution of definitive loan documents. For
further details of our proposed credit facility, please see
Description of Credit Facility.
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Borrowings except those for working capital purposes are to be
repaid with proceeds from follow-on equity offerings or
otherwise within 12 months from drawdown. All amounts
outstanding must be repaid in full on our credit facilitys
maturity date. We do not anticipate that borrowings under this
facility would be used to satisfy our long-term capital needs.
Borrowings under our credit facility will be secured by liens on
our initial vessels and other related assets. Our subsidiaries,
which may at any time own one or more of our initial vessels,
will act as guarantors under our credit facility.
Our credit facility will require us to comply with a number of
covenants, including financial covenants related to liquidity,
consolidated net worth, and collateral maintenance; delivery of
quarterly and annual financial statements and annual
projections; maintaining adequate insurances; compliance with
laws (including environmental); compliance with ERISA;
maintenance of flag and class of the initial vessels;
restrictions on consolidations, mergers or sales of assets;
prohibitions on changes in the technical manager of the vessels
that comprise our initial fleet; limitations on changes to our
management agreement; limitations on liens; limitations on
additional indebtedness; prohibitions on paying dividends if an
event of default has occurred or would occur as a result of
payment of a dividend; prohibitions on transactions with
affiliates; and other customary covenants.
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 tankers and the selective sale
of older tankers. These acquisitions will be principally subject
to managements expectation of future market conditions as
well as our ability to acquire tankers on favorable terms.
We intend to declare quarterly dividends to shareholders
substantially equal to our net operating cash flow during the
previous quarter after reserves as our board of directors may
from time to time determine are required or advisable. We expect
to make our first dividend payment in the first quarter of 2011
in respect of any net operating cash flow that we earn in the
fourth quarter of 2010. Net operating cash flow is a non-GAAP
measure that is different from cash flow from operations and,
rather, represents net income plus depreciation, amortization
and non-cash administrative charges. We expect the reserves to
consist of reserves and expenses for drydocking, vessel upgrades
and other maintenance capital expenditures and our other cash
needs. Our board of directors will also take into account
contingent liabilities, the terms of our credit facility and
pool arrangement, and the requirements of Marshall Islands law
in determining the amount of dividends that we may pay.
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
advisors and the reimbursements of amounts to our Chief
Executive Officer and Chief Financial Officer upon the
consummation of this offering as described in this prospectus
under Factors Affecting Our Results of
OperationsOff-Balance Sheet Arrangements.
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 received pursuant to the
charter terms and (ii) managements estimate of the
fair market charter rate, measured over a
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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. The
amortization periods related to any capitalized amounts for
above-market (assets) and below-market (liabilities) time
charter contracts will be continually evaluated for
reasonableness based on, among other factors, changes in
expectations of the future exercise of renewal option periods,
the expiration of such renewal options, and future time charter
rates.
Recognition of
revenues and voyage and vessel operating expenses
Revenues will be generated from the hire that we will receive
under charters and pooling arrangements. 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.
Pool net revenue in the Blue Fin Tankers Pool equals pool gross
revenue less pool gross expenses. Net revenue is adjusted by the
pool for voyages not yet completed, amounts of freight and hire
earned but not yet received, apportionment of prepaid expenses,
retentions to cover claims in progress and adequate provisions
for the outstanding or contingent obligations and liabilities of
the pool.
The Blue Fin Tankers Pools net revenues are distributed to
pool members based on a point system. The number of pool points
we receive, together with, among other things, each of our
vessels operating days during the month will determine our
share of the pools net revenue.
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 tankers 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. We
will periodically re-evaluate our policy with respect to
depreciation. 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 $250 per
lightweight ton. An increase in the useful life of a tanker or
in its residual value would have the effect of decreasing the
annual depreciation charge and extending it into later periods.
A decrease in the useful life of a tanker 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.
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 will expense these costs as they are incurred.
Drydocking costs will include actual costs incurred at the
drydock yard; cost of travel, lodging and subsistence of our
personnel sent to the drydocking site to supervise; and the cost
of hiring a third party to oversee the drydocking.
Impairment of
long-lived assets
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
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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
In anticipation of the commencement of our operations, we and
our Chief Executive Officer and Chief Financial Officer expect
to enter into certain agreements such as memoranda of agreement
with unrelated third parties to acquire the three to four
vessels that will comprise our initial fleet. We and our Chief
Executive Officer and Chief Financial Officer also intend to
enter into agreements with operational and financial
consultants, employment agreements, restricted stock agreements
and a sublet agreement related to our corporate offices. We will
enter into a technical management agreement with Schulte. These
agreements are or will become binding upon us, and we expect to
incur liabilities related to these agreements, upon the
successful closing of this offering.
Additionally, we will incur certain closing expenditures upon
the successful closing of this offering. The Company estimates
such expenditures to be approximately
$ million to
$ million, which includes the
amounts to be reimbursed to the Chief Executive Officer and
Chief Financial Officer for certain expenditures incurred after
April 27, 2010 comprising legal services, consulting
services, travel, entertainment, corporate office rent, auditing
services, incorporation and such other expenditures as deemed
necessary on behalf of the Company, but excludes the
underwriters discount and the commitment fee for our
credit facility.
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.
Indicative
Analysis of Variability of Net Operating Cash Flow
All of the information set forth below is for illustrative
purposes only. Our underlying assumptions may prove to be
incorrect. Actual results will almost certainly differ, and the
variations between actual results and these assumptions may be
material. We may have materially lower revenues, set aside
substantial reserves or incur more expenses or a material amount
of extraordinary expenses. Our intention is to pay quarterly
dividends equal to our net operating cash flow after cash
reserves. You should not assume or conclude that we will pay any
dividends in any period. While our policy will be to pay
dividends quarterly, we have no obligation to do so and our
policy may change.
Due to the variability of spot rates, we believe it is helpful
for investors to understand the effect on our net operating cash
flow that various spot rates may have. We do not, as a matter of
course, make public projections as to future sales, earnings or
other results. However, our management has prepared the
information set forth below as an indicative analysis for the
purpose of illustrating the variability of our possible net
operating cash flow.
The indicative analysis of the variability of net operating cash
flow is not a financial forecast and does not comply with the
guidelines established by the American Institute of Certified
Public Accountants with respect to prospective financial
information. However, we believe that our calculations were
prepared on a reasonable basis. THE ASSUMPTIONS AND ESTIMATES
UNDERLYING THE INDICATIVE ANALYSIS OF VARIABILITY OF NET
OPERATING CASH FLOW ARE INHERENTLY UNCERTAIN ALTHOUGH THEY ARE
CONSIDERED REASONABLE BY OUR MANAGEMENT AS OF THE DATE HEREOF.
Neither our independent auditors, nor any other independent
accountants or financial advisors, have compiled, examined, or
performed any procedures with respect to the indicative
analysis, nor have they expressed any opinion or any form of
assurance on such information or its achievability, and assume
no responsibility for, and disclaim any association with, the
indicative analysis of variability of our net operating cash
flow.
The information and tables below present scenarios and a
sensitivity analysis with respect to the net operating cash flow
that we may derive and from which we may pay dividends during
our first full year of our initial fleets operations.
There are various factors that could affect whether and at what
times we acquire vessels, but we currently expect to purchase
and take delivery of the vessels that comprise our initial fleet
within 60 days of the
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closing of this offering. The sensitivity analysis of the
variability in our net operating cash flow depends on various
assumed spot market charter rates that may be available over the
year. The spot market is volatile with the potential for
significant increases or decreases in charter rates. Our
revenues and our net operating cash flow may decline if spot
market charter rates decline or our expenses increase. The spot
market may be affected by whether the global economy declines or
continues to recover. Further, while global economic activity is
one factor influencing demand, supply of tanker vessels is also
an important factor affecting spot market charter rates. An
undersupply of tanker vessels could lead to higher spot market
rates despite weak economic conditions, while an oversupply of
tanker vessels could lead to lower spot market rates despite
strong economic conditions. See Risk FactorsIf the
tanker industry, which historically has been cyclical, is
depressed in the future, our earnings and available cash flow
may be adversely affected.
As the indicative analysis below demonstrates, our possible
results are subject to great variability and are not predictable
with any meaningful level of precision. Investors and potential
investors should recognize that actual performance could be
materially worse than is illustrated in the indicative analysis.
Such adverse results could be driven by changes in the factors
considered in the indicative analysis, including charter rates,
Pool Expenses (as defined below) and vessel utilization, as well
as other factors, including those described in this prospectus
under Risk Factors. Many of these factors are beyond
our control.
Assumptions
For purposes of the indicative analysis, we assume:
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that we acquire three to four vessels to comprise our initial
fleet within 60 days of the closing of this offering;
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that our initial fleet will commence operations for us on the
date of delivery;
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an average charterhire rate available for our vessels in the
Blue Fin Tankers Pool during the full year of operations
commencing upon the date that we have taken delivery of three to
four vessels to comprise our initial fleet;
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that we have no other cash expenses or liabilities other than
our apportioned Pool Expenses (as defined below), our general
and administrative expenses, our credit facility undrawn
commitment fee and the cost of the dividends on unvested
restricted common shares;
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that no other common shares are issued subsequent to the closing
of this offering; and
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that we remain in compliance with our credit agreements and have
no debt outstanding for the entire period.
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Pool Expenses means our apportioned share from the
relevant pool of the cost of bunkers and port expenses, as well
as our vessel operating costs, including crews, maintenance and
insurance.
General and administrative expenses include onshore
vessel administration related expenses such as legal and
professional expenses and recurring administrative and other
expenses including payroll and expenses relating to our
executive officers and office staff, office rent and expenses,
directors fees, non-cash compensation expense and
directors and officers insurance, and the ongoing expenses of
being a public company.
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Due to the variability of spot rates, we believe it is helpful
to investors to understand the effect on our net operating cash
flow that various spot rates may have. Accordingly, given the
qualifications set forth above, we expect that our net operating
cash flow during our first full year of operations at various
assumed charterhire rates would vary as follows:
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Assumed charterhire per vessel per day from pool
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|
Assumed annual spot market-related charterhire from pool(1)
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|
Assumed cash costs and reserves(2)
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|
Indicative net operating cash flow
|
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(In
thousands of dollars)
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|
Assumed charterhire per vessel per day from pool
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|
|
Assumed annual spot market-related charterhire from pool(1)
|
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|
Assumed cash costs and reserves(2)
|
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|
|
Indicative net operating cash flow
|
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|
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|
|
|
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|
(In thousands of dollars)
|
|
|
(1) |
|
We have calculated our assumed annual spot market-related
charterhire as follows: (the assumed charterhire per vessel per
day) multiplied by (360 days) multiplied by (three to four
vessels). The average daily charterhire earned in the spot
market by Suezmax tankers in 2009 was
$ and in the first quarter of 2010
was $ . |
|
(2) |
|
Our assumed cash costs for the purposes of the table above are
$ per vessel per day for daily
operating expenses, $ per vessel
per day for the Blue Fin Tankers Pool fee,
$ million annual general and
administrative expenses,
$ million for the credit
facility undrawn commitment fee and the cost of the dividends on
unvested restricted shares for our first full operating year.
Our assumed reserves for the purposes of the table above are
$ per vessel per day for our first
full operating year, which management estimates as reasonable,
and include reserves that our board of directors determines are
necessary or advisable, such as reserves for drydocking, vessel
upgrades and other capital maintenance expenditures, our cash
needs, and as may be required by covenants under our credit
facility or required under our pool documents. |
Our policy is to pay dividends from net operating cash flow
after cash reserves for drydocking, vessel upgrades and other
maintenance capital expenditures. We estimate that the cash
reserve for the purposes of calculating the amount of our net
operating cash flow available for payment of dividends by us
will approximate $ million
for our first full operating year, based on estimated drydocking
costs of $ per vessel every two
and a half years.
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 intend
to enter into our credit facility, which will provide us with
financing for potential vessel acquisitions. Our interest
expense under our 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.
49
The International
Oil Tanker Shipping Industry
All the information and data presented in this section,
including the analysis of the various sectors of the oil tanker
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.
Introduction
The seaborne transportation industry is a vital link in
international trade, with oceangoing vessels representing the
most efficient, and often the only means of transporting large
volumes of basic commodities and finished products. Seaborne
cargo is broadly categorized as either liquid or dry cargo.
Liquid cargo includes crude oil, refined petroleum products,
vegetable oils, gases and chemicals. Dry cargo includes drybulk
cargo, container cargo, non-container cargo and other cargo.
The following table presents the breakdown of global seaborne
trade by type of cargo in 2000 and 2009.
World
Seaborne Trade: 2000 and 2009
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|
|
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|
CAGR(1)
|
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|
|
|
|
|
|
|
TradeTons
|
|
|
2000-09
|
|
|
% Total Trade
|
|
|
|
2000
|
|
|
2009
|
|
|
%
|
|
|
2000
|
|
|
2009
|
|
|
Liquid Cargo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
|
|
|
1,661
|
|
|
|
1,952
|
|
|
|
1.81
|
|
|
|
28.2
|
|
|
|
24.8
|
|
Refined Pet Products
|
|
|
451
|
|
|
|
724
|
|
|
|
5.40
|
|
|
|
7.6
|
|
|
|
9.2
|
|
Liquid Chemicals
|
|
|
128
|
|
|
|
211
|
|
|
|
5.68
|
|
|
|
2.2
|
|
|
|
2.7
|
|
Liquefied Gases
|
|
|
168
|
|
|
|
258
|
|
|
|
4.91
|
|
|
|
2.8
|
|
|
|
3.3
|
|
Total Liquid Cargo
|
|
|
2,408
|
|
|
|
3,145
|
|
|
|
3.01
|
|
|
|
40.8
|
|
|
|
39.9
|
|
Total Dry Cargo
|
|
|
3,491
|
|
|
|
4,742
|
|
|
|
3.46
|
|
|
|
59.2
|
|
|
|
60.1
|
|
Total Seaborne Trade
|
|
|
5,899
|
|
|
|
7,887
|
|
|
|
3.28
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
(1) |
|
Compound annual growth rate. |
Source: Drewry
The trend toward the integration of world economies requiring
increased imports and exports, outsourcing production to
overseas locations away from consuming centers and the need to
source scarce commodities from remote locations has supported
the growth of demand for the seaborne transportation industry.
In general, the supply of and demand for seaborne transportation
capacity are the primary drivers of charter rates and values for
all vessels. Larger vessels exhibit higher charter rate and
vessel value volatility compared with smaller vessels, due to
the larger volume of cargo shipped on board, their reliance on a
few key commodities, and long-haul routes among a small number
of ports. Vessel values primarily reflect prevailing and
expected future charter rates, and are also influenced by
factors such as the age of the vessel, the shipyard of its
construction and its specifications. During extended periods of
high charter rates, vessel values tend to appreciate, while
during periods where rates have declined, such as the period we
are in currently, vessel values tend to decline. Historically,
the relationship between incremental supply and demand has
varied among different sectors, meaning that at any one time
different sectors of the seaborne transportation industry may be
at differing stages of their respective supply and demand cycle,
as the drivers of demand in each sector are different and are
not always subject to the same factors.
50
Oil Tanker
Demand
Demand for oil tankers is primarily determined by the volume of
crude oil and refined petroleum products transported and the
distances over which they are transported and is normally
expressed on terms of ton miles, which is calculated by
multiplying the volume of cargo carried on a route by the
distance between the load and discharge ports. Demand for crude
oil and refined petroleum products is in turn affected by a
number of factors including general economic conditions
(including increases and decreases in industrial production),
oil prices, environmental concerns, weather conditions, and
competition from alternative energy sources.
World oil consumption has generally experienced sustained growth
since 2000, albeit it declined in 2009 due to the slowdown in
the global economy. Provisional data for 2010 however suggests
that demand has rebounded strongly in the first three months of
the year.
World Oil
Consumption: 2000-2010
(Million
Barrels Per Day)
|
|
|
* |
|
Provisional assessment for the 2010 based on consumption pattern
in the first three months of the year. The final figure may be
subject to change |
Source: Drewry
In recent years, Asia, in particular China, has been the main
generator of additional demand for oil, with this demand largely
supplied from traditional sources such as the Middle East.
Production and exports from the Middle East have historically
had a significant impact on the demand for tanker capacity, and,
consequently, on tanker charter hire rates, due to the
relatively long distances between this supply source and typical
destination ports.
World oil consumption estimates for 2009 were 84.9 million
barrels per day, an increase of 11.4% over the 76.2 million
barrels per day consumption in 2000. Oil consumption in China
over the same period grew by 77% to 8.5 million barrels per
day.
51
World Oil
Consumption by Region: 2000-2009
(Million
Barrels Per Day)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAGR %
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
00-09
|
|
|
North America
|
|
|
24.0
|
|
|
|
24.0
|
|
|
|
24.1
|
|
|
|
24.5
|
|
|
|
25.3
|
|
|
|
25.5
|
|
|
|
25.4
|
|
|
|
25.5
|
|
|
|
24.2
|
|
|
|
23.2
|
|
|
|
(0.38
|
)%
|
Europe
|
|
|
15.1
|
|
|
|
15.3
|
|
|
|
15.3
|
|
|
|
15.4
|
|
|
|
15.6
|
|
|
|
15.5
|
|
|
|
15.5
|
|
|
|
15.3
|
|
|
|
15.4
|
|
|
|
14.6
|
|
|
|
(0.37
|
)%
|
Pacific
|
|
|
8.6
|
|
|
|
8.7
|
|
|
|
8.6
|
|
|
|
8.7
|
|
|
|
8.5
|
|
|
|
8.6
|
|
|
|
8.5
|
|
|
|
8.4
|
|
|
|
8.1
|
|
|
|
7.7
|
|
|
|
(1.22
|
)%
|
Total OECD(1)
|
|
|
47.7
|
|
|
|
48.0
|
|
|
|
48.0
|
|
|
|
48.6
|
|
|
|
49.4
|
|
|
|
49.6
|
|
|
|
49.4
|
|
|
|
49.2
|
|
|
|
47.7
|
|
|
|
45.5
|
|
|
|
(0.52
|
)%
|
China
|
|
|
4.8
|
|
|
|
4.7
|
|
|
|
5.0
|
|
|
|
5.6
|
|
|
|
6.4
|
|
|
|
6.6
|
|
|
|
7.0
|
|
|
|
7.6
|
|
|
|
7.9
|
|
|
|
8.5
|
|
|
|
6.56
|
%
|
Middle East
|
|
|
4.7
|
|
|
|
5.2
|
|
|
|
5.4
|
|
|
|
5.4
|
|
|
|
5.8
|
|
|
|
6.1
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
7.1
|
|
|
|
7.2
|
|
|
|
4.85
|
%
|
Asia (excluding China)
|
|
|
7.3
|
|
|
|
7.6
|
|
|
|
7.9
|
|
|
|
8.1
|
|
|
|
8.6
|
|
|
|
8.8
|
|
|
|
8.9
|
|
|
|
9.5
|
|
|
|
9.7
|
|
|
|
9.9
|
|
|
|
3.44
|
%
|
Africa
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
2.7
|
|
|
|
2.7
|
|
|
|
2.8
|
|
|
|
2.9
|
|
|
|
3.0
|
|
|
|
3.1
|
|
|
|
3.2
|
|
|
|
3.2
|
|
|
|
3.25
|
%
|
Latin America
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.8
|
|
|
|
4.7
|
|
|
|
4.9
|
|
|
|
5.0
|
|
|
|
5.2
|
|
|
|
5.7
|
|
|
|
5.9
|
|
|
|
6.0
|
|
|
|
2.28
|
%
|
FSU(2)
|
|
|
3.6
|
|
|
|
3.7
|
|
|
|
3.5
|
|
|
|
3.6
|
|
|
|
3.7
|
|
|
|
3.8
|
|
|
|
3.9
|
|
|
|
4.2
|
|
|
|
4.2
|
|
|
|
3.9
|
|
|
|
0.89
|
%
|
Europe
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
0.00
|
%
|
Total Non-OECD
|
|
|
28.4
|
|
|
|
29.5
|
|
|
|
30.0
|
|
|
|
30.8
|
|
|
|
32.9
|
|
|
|
33.9
|
|
|
|
35.2
|
|
|
|
37.4
|
|
|
|
38.7
|
|
|
|
39.4
|
|
|
|
3.70
|
%
|
World Total
|
|
|
76.1
|
|
|
|
77.5
|
|
|
|
78.0
|
|
|
|
79.4
|
|
|
|
82.3
|
|
|
|
83.5
|
|
|
|
84.6
|
|
|
|
86.6
|
|
|
|
86.4
|
|
|
|
84.9
|
|
|
|
1.22
|
%
|
|
|
|
|
(1) |
|
Organisation for Economic Co-operation & Development; |
|
(2) |
|
Former Soviet Union |
Source: Drewryderived from
industry sources
Seasonal trends also affect world oil consumption and
consequently oil tanker demand. While trends in consumption do
vary by season, peaks in tanker demand quite often precede
seasonal consumption peaks, as refiners and suppliers anticipate
consumer demand. Seasonal peaks in oil demand can broadly be
classified into two main categories: increased demand prior to
Northern Hemisphere winters as heating oil consumption increases
and increased demand for gasoline prior to the summer driving
season in the United States.
Oil exports from short-haul regions, such as Latin America and
the North Sea, are significantly closer to ports used by the
primary consumers of such exports, which results in shorter
average voyage length as compared to oil exports from the Middle
East. Therefore, production in short-haul regions historically
has had less of an impact on the demand for larger vessels while
increasing the demand for vessels in the Handy, Panamax and
Aframax market segments.
The transportation of crude oil is typically unidirectional, in
that most oil is transported from a few areas of production to
many regions of consumption, where it is refined into petroleum
products. Conversely, the transportation of refined petroleum
products and associated cargoes is multi-directional, in that
there are several areas of both production and consumption. The
multi-directional nature of the product tanker market is
enhanced by the competitive, complex and technical nature of the
refining business, which requires any surplus or deficit of
product to be dealt with promptly. Global trends in production
by region in the period from 2000 to 2010 are shown in the table
below.
52
World Oil
Production: 2000 to 2010
(Million
Barrels Per Day)
|
|
|
* |
|
Provisional assessment for 1Q 2010 |
Source: Drewry
Source: Drewry
Oil Refinery
Capacity
Oil refineries also vary greatly in the quantity, variety and
specification of products that they produce, and it is common
for tankers to take products into and out of the same refinery.
This global multi-directional trade pattern enables owners and
operators of product tankers to engage in charters of
triangulation, and thereby maximize the revenue.
The distribution of refinery throughput by region in the period
from 2000 to 2008 is shown in the following chart.
Changes in refinery throughput are to a certain extent driven by
changes in the location of capacity and capacity increases are
taking place mostly in the developing world, especially in Asia.
In turn this is leading to changes in voyage patterns and longer
voyages.
53
Oil
Refinery Throughput By Region: 2000 to 2008
(Million
Barrels Per Day)
Source: Drewry
Oil
Refinery Throughput By Region: Growth Rates 2000 to 2008
(CAGRPercent)
Source: Drewry
As the chart above indicates, in response to growing domestic
demand, Chinese refinery throughput has grown at the fastest
rate of any global region in the last decade, with the Middle
East and other developing regions following behind. By contrast,
refinery throughput in North America has actually declined in
the last decade. The shift in global refinery capacity from the
developed to the developing world is likely to continue as
refinery development plans are heavily focused on areas such as
Asia and the Middle East, with relatively little capacity
additions planned for North America and Europe.
54
World Oil
Trades
As a result of the increases in world oil consumption, oil
production and refinery throughput, world oil trades have also
grown. The chart below illustrates changes in global seaborne
movements of crude oil and refined petroleum products (expressed
in millions of tons) between 2000 and 2009.
Seaborne
Oil Trade Development: 2000 to 2009
(Million
Tons)
Source: Drewry
The volume of crude oil moved by sea each year also reflects the
underlying changes in world oil consumption and production.
Seaborne trade in crude oil in 2009 is provisionally estimated
at 1.95 billion tons, approximately 17.5% higher than 2000.
In the case of refined petroleum products, seaborne movements in
2009 are provisionally estimated at 724.0 million tons
(excluding intra-regional trades), representing an increase of
60% from 2000. The graph below illustrates average growth rates
for global seaborne movements of crude oil and refined petroleum
products (expressed in millions of tons) in the periods
1980-89,
1990-99 and
2000 to 2009.
Oil
Trade*Growth Rates by Period
(CAGRPercent)
Source: Drewry
55
Demand for oil tankers is primarily determined by the volume of
crude oil and refined petroleum products transported and the
distances over which they are transported. Tanker demand is
generally expressed in ton miles and is measured as the product
of the volume of oil carried (measured in metric tons)
multiplied by the distance over which it is carried (measured in
miles). Among the factors that affect demand for tankers is the
volume of demand for crude oil and refined petroleum products,
as well as the geographical pattern of oil movements.
Oil
Tanker Demand: 2000 to 2009
(Million
Tons/Billion Ton Miles)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAGR %
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
00-09
|
|
|
Seaborne TradeMillion Tons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined Products
|
|
|
451
|
|
|
|
475
|
|
|
|
486
|
|
|
|
491
|
|
|
|
526
|
|
|
|
576
|
|
|
|
658
|
|
|
|
717
|
|
|
|
728
|
|
|
|
724
|
|
|
|
5.40
|
%
|
Crude Oil
|
|
|
1,661
|
|
|
|
1,684
|
|
|
|
1,667
|
|
|
|
1,770
|
|
|
|
1,855
|
|
|
|
1,885
|
|
|
|
1,933
|
|
|
|
1,984
|
|
|
|
1,970
|
|
|
|
1,952
|
|
|
|
1.80
|
%
|
Total Seaborne Trade
|
|
|
2,112
|
|
|
|
2,159
|
|
|
|
2,153
|
|
|
|
2,261
|
|
|
|
2,381
|
|
|
|
2,461
|
|
|
|
2,591
|
|
|
|
2,701
|
|
|
|
2,698
|
|
|
|
2,676
|
|
|
|
2.70
|
%
|
DemandBillion Ton Miles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined Products
|
|
|
1,583
|
|
|
|
1,733
|
|
|
|
1,572
|
|
|
|
1,853
|
|
|
|
2,226
|
|
|
|
2,886
|
|
|
|
3,021
|
|
|
|
3,233
|
|
|
|
3,380
|
|
|
|
3,320
|
|
|
|
8.60
|
%
|
Crude Oil
|
|
|
7,220
|
|
|
|
7,528
|
|
|
|
7,140
|
|
|
|
7,814
|
|
|
|
8,504
|
|
|
|
9,299
|
|
|
|
9,562
|
|
|
|
9,719
|
|
|
|
9,149
|
|
|
|
8,976
|
|
|
|
2.50
|
%
|
Total Ton Mile Demand
|
|
|
8,803
|
|
|
|
9,261
|
|
|
|
8,712
|
|
|
|
9,667
|
|
|
|
10,730
|
|
|
|
12,185
|
|
|
|
12,583
|
|
|
|
12,952
|
|
|
|
12,529
|
|
|
|
12,296
|
|
|
|
3.80
|
%
|
|
Source: Drewry
Major
Seaborne Oil Trades
Principal
Load/Discharge Zones
|
|
|
|
|
|
|
|
|
|
|
S. America N. Europe
|
|
FSU
|
|
W. Africa
|
|
N. Africa
|
|
Middle East
|
|
S.E Asia
|
|
N. AmericaEurope
|
|
Europe
|
|
Europe
|
|
Europe
|
|
Far East
|
|
Far East
|
N. America
|
|
|
|
N. America
|
|
N. America
|
|
Europe
|
|
Australia
|
|
|
|
|
Far East
|
|
|
|
N. America
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
Source: Drewry
56
Depending on their size, oil tankers will be deployed in
different loading zones. An indication of the main loading zones
and principal trading routes is provided below.
Oil
TankersTypical Deployment by Size Category
|
|
|
(1) |
|
MEG stands for Middle East Gulf |
|
(2) |
|
WA stands for West Africa |
|
(3) |
|
NS stands for North Sea |
|
(4) |
|
Long haul via Cape of Good Hope for VLCCs, medium haul since
Suezmaxes may transit the Suez Canal fully laden |
|
(5) |
|
All non Far East locations |
Source: Drewry
Over 40% of all reported Suezmax spot cargo loadings in 2009
were from West Africa, with the major routes being to the
Caribbean/U.S Eastern Seaboard and to Europe. Loadings from
ports bordering the Mediterranean accounted for another 33% of
all reported spot cargo loadings, with the principal routes
being to the Caribbean/U.S. Eastern Seaboard and intra
Mediterranean.
57
Suezmax
TankersMajor Loading Zones* : 2009
(Million
Dwt)
|
|
|
* |
|
Based on reported spot cargo movements; does not cover all cargo
movements |
Source: Drewry
Oil Tanker
Supply
The world oil tanker fleet is generally divided into five major
types of vessel classifications, based on vessel carrying
capacity. Additionally, the tanker fleet is divided between
crude tankers that carry crude oil or residual fuel oil
(dirty products), and product tankers that carry
refined petroleum products (clean products) such as
gasoline, jet fuel, kerosene, naphtha and gas oil. Product
tankers do not form a distinct vessel classification, but are
identified on the basis of various factors, including technical
and trading histories. While product tankers can carry dirty
products, they generally do not switch between clean and dirty
cargoes, as a vessels tank must be cleaned prior to
loading a different cargo type.
The main fleet categories are Very Large Crude Carrier (VLCC),
Suezmax, Aframax, Panamax and Handy oil tankers.
|
|
|
|
|
|
|
Category
|
|
Size Range - Dwt
|
|
|
VLCC
|
|
|
200,000 +
|
|
Suezmax
|
|
|
120-199,999
|
|
Aframax
|
|
|
80-119,999
|
|
Panamax
|
|
|
50-79,999
|
|
Handy
|
|
|
10-49,999
|
|
|
In order to benefit from economies of scale, tanker charterers
transporting crude oil will typically charter the largest
possible vessel, taking into consideration port and canal size
restrictions and optimal cargo lot sizes. The main tanker vessel
types are:
VLCCs, with an oil cargo carrying capacity in excess of
200,000 dwt. VLCCs carry the largest percentage of crude oil,
typically on long-haul voyages, although port constraints limit
their trading routes. For example, only a few U.S. ports,
such as the Louisiana Offshore Oil Port, are capable of handling
a fully laden VLCC. VLCCs generally trade on long-haul routes
from the Middle East to Asia, Europe and the U.S. ports on
the Gulf of Mexico or the Caribbean. Vessels in excess of
320,000 dwt are sometimes known as Ultra Large Crude Carriers,
or ULCCs.
58
Suezmax tankers, with an oil cargo carrying capacity of
approximately 120,000 to 200,000 dwt. Suezmax tankers are
engaged in a range of crude oil trades, most usually from West
Africa to the United States, the Gulf of Mexico and to the
Caribbean; from the Middle East to Europe, within the North Sea,
the Mediterranean and within Asia.
Aframax tankers, with an oil cargo carrying capacity of
approximately 80,000 to 120,000 dwt. Aframax tankers are
employed in shorter regional trades, mainly in Northwest Europe,
the Caribbean, the Mediterranean and Asia.
Panamax tankers, with an oil carrying capacity of 50,000
to 80,000 dwt. Panamax tankers represent a more specialized
trading sphere by generally taking advantage of port
restrictions on larger vessels in North and South America
and, therefore, generally trade in these markets.
Handy tankers, comprising both Handysize tankers and
Handymax tankers, with an oil cargo carrying capacity of less
than 50,000 dwt but more than 10,000 dwt. Handy tankers trade on
a variety of regional trade routes carrying refined petroleum
products and crude oil on trade routes not suitable for larger
vessels. While larger size vessels, generally Aframax and above,
typically carry only crude oil, a number of such tankers have
the capability to carry refined petroleum products and some
chemicals. As such, some of these vessels will also be included
within the chemical fleet. However, handy tankers carry the
majority of refined petroleum products, with more than 90% of
vessels in this size range transporting clean products.
Oil Tanker
Fleet
The supply of tankers is measured in deadweight tons, or dwt.
The supply of tanker capacity is determined by the age and size
of the existing global fleet, the number of vessels on order,
also known as newbuildings, the number of tankers removed from
the fleet by scrapping and international regulations. Other
factors which can affect the short-term supply of tankers
include the number of combined carriers (vessels capable of
trading wet and dry cargoes) trading in the oil market and the
number of tankers in storage, dry-docked, awaiting repairs or
otherwise not available or out of commission (collectively,
lay-up
or total inactivity).
As of March 31, 2010, the world fleet of oil tankers
consisted of 3,204 vessels, totaling 373.2 million dwt
in capacity. The following table presents the world oil tanker
fleet by size.
Oil
Tanker FleetMarch 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
% of Fleet
|
|
|
Capacity
|
|
|
% of Fleet
|
|
Size Category
|
|
Deadweight Tons
|
|
|
Vessels
|
|
|
(number)
|
|
|
(million dwt )
|
|
|
(dwt)
|
|
|
VLCC
|
|
|
>200,000
|
|
|
|
542
|
|
|
|
16.9
|
|
|
|
162.4
|
|
|
|
43.5
|
|
Suezmax
|
|
|
120,000-199,000
|
|
|
|
391
|
|
|
|
12.2
|
|
|
|
59.9
|
|
|
|
16.1
|
|
Aframax
|
|
|
80,000-119,000
|
|
|
|
830
|
|
|
|
25.9
|
|
|
|
87.2
|
|
|
|
23.3
|
|
Panamax
|
|
|
50,000-79,999
|
|
|
|
454
|
|
|
|
14.2
|
|
|
|
30.9
|
|
|
|
8.3
|
|
Handymax/size
|
|
|
10,000-49,999
|
|
|
|
987
|
|
|
|
30.8
|
|
|
|
32.7
|
|
|
|
8.8
|
|
Total
|
|
|
|
|
|
|
3,204
|
|
|
|
100.0
|
%
|
|
|
373.2
|
|
|
|
100.0
|
%
|
|
Source: Drewry
59
Oil
Tanker Fleet Development: 2000 to 2010
Source: Drewry
Oil
Tanker Orderbook by Scheduled Delivery Date: March 2010
(000
Dwt)
Oil Tanker Orderbook March 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
% of Fleet
|
|
|
Capacity
|
|
|
% of Fleet
|
|
Size Category
|
|
Deadweight Tons
|
|
|
Vessels
|
|
|
(number)
|
|
|
(million dwt )
|
|
|
(dwt)
|
|
|
VLCC
|
|
|
>200,000
|
|
|
|
204
|
|
|
|
37.6
|
|
|
|
63.0
|
|
|
|
38.8
|
|
Suezmax
|
|
|
120,000-199,999
|
|
|
|
143
|
|
|
|
36.6
|
|
|
|
22.6
|
|
|
|
37.8
|
|
Aframax
|
|
|
80,000-119,999
|
|
|
|
188
|
|
|
|
22.7
|
|
|
|
20.7
|
|
|
|
23.7
|
|
Panamax
|
|
|
50,000-79,999
|
|
|
|
130
|
|
|
|
28.6
|
|
|
|
8.5
|
|
|
|
27.3
|
|
Handy
|
|
|
10,000-49,9999
|
|
|
|
145
|
|
|
|
14.7
|
|
|
|
5.5
|
|
|
|
16.9
|
|
Total
|
|
|
|
|
|
|
810
|
|
|
|
25.3
|
%
|
|
|
120.3
|
|
|
|
32.2
|
%
|
|
Source: Drewry
60
Oil
Tanker New Orders/Orderbook as % of Fleet
Source: Drewry
Oil
Tanker Orderbook by Scheduled Delivery Date: March 2010
(000
Dwt)
Source: Drewry
Deliveries and
Slippage
If all the tankers currently on order are delivered on time and
on schedule, there would be a large influx of newbuildings in
2010 and 2011 in the oil tanker sector. However, it is likely
that not all tankers 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 often quoted unrealistic delivery times by
some of the less experienced and newly emerging shipyards.
Delays in deliveries
|
61
|
|
|
|
|
from these shipyards have been varied, but the evidence
available suggests that slippage rates have been considerable,
with some shipyards only delivering two-thirds of what they were
due to deliver in 2009.
|
|
|
|
|
|
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 tankers 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. A greenfield yard is a shipyard with no
prior experience in building vessels for international account.
|
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 vessels due to be delivered in any
year are in fact delivered in subsequent years. However, in 2008
and 2009 slippage rates rose across all market sectors due to
the above factors. In the tanker sector as a whole, the evidence
suggests that the slippage rate was just below 20% in 2009.
Oil
Tanker Orderbook by Location of Construction: March
2010
Source: Drewry
Oil Tanker
Deletions
As the tanker fleet ages, a number of vessels are scrapped as
they become uneconomical to operate or prohibited to trade
because of environmental laws, which effectively limit the
trading life of single-hull tankers. Some countries have in fact
talked of introducing age restrictions which would prevent old
single-hulled tankers from calling at their ports, but to date
China/Hong Kong are the only major oil importers to introduce
such legislation, which goes beyond the MARPOL protocols which
are explained later.
Vessel owners often conclude that it is more economical to scrap
a vessel that has exhausted its useful life than to upgrade the
vessel to maintain it in-class. A vessel is deemed
to be in-class if the surveyors of a classification
society determine that the vessel conforms to the standards and
rules of that classification society. Customers, insurance
companies and other industry participants use the survey and
classification regime to obtain reasonable assurance of a
vessels seaworthiness, and vessels must be certified as
in-class in order to continue to trade and be admitted to ports
worldwide. In many cases, particularly when tankers reach
approximately 25 years of age, the costs of conducting the
special survey and performing associated repairs, such as the
replacement of steel plate, in order to maintain a vessel
in-class may not be economically efficient. In recent years,
most oil tankers that have been scrapped were between 25 and
30 years of age.
62
Oil
Tanker Fleet Age ProfileMarch 2010
Source: Drewry
Scrapping activity declined in the middle of the decade to
relatively low levels when freight rates were very strong, but
scrapping picked up in 2009 when the freight market was weak.
This trend has continued in the first quarter of 2010 with
demolition levels reaching just under 4.8 million dwt.
Historically, scrap prices have averaged around $150 per ton,
although in March 2010 they were in excess of $300 per ton.
Oil
Tanker Scrapping: 2000-2010
(000
dwt)
Source: Drewry.
Besides age, the removal of vessels from the trading fleet can
be influenced by legislation. According to the revised MARPOL
(the IMO International Convention for the Prevention of
Pollution from Ships, 1973, as modified by the Protocol of 1978
relating thereto (MARPOL 73/78)) Regulation 13G,
single-hull tankers should be phased out or converted to a
double-hull by the dates established by the revised regulation.
Despite the legislative changes, there still exists the
potential to use single-hull, double-side or double-bottom
tankers beyond 2010, as there is flexibility allowed by the IMO
for flag and state exemptions. As per the exemptions mentioned
under MARPOL Regulation 13H for the prevention of oil
pollution from oil tankers, when carrying heavy grade oil (HGOs)
such as heavy crude oils and fuel oils of density higher than
900 kg/m3
at 15°C), the IMO has the discretion to allow continued
operation of single-hull, double-side or double-bottom
63
tankers beyond the set phase-out dates (April 5, 2005 for
single-hull tankers of 5,000 dwt and above; and the anniversary
date in 2008 for single-hull tankers of 600 dwt and above but
less than 5,000 dwt), depending upon size, age, operational
area, structural conditions of the ship and results of the
IMOs Condition Assessment Scheme (CAS),
provided that the operation does not go beyond the date on which
the tanker reaches 25 years after the date of its delivery.
However, the regulation allows the flag state of a given vessel
to permit continued operation of category 2 (an oil tanker of
20,000 dwt and above carrying crude oil, fuel oil, heavy diesel
oil or lubricating oil as cargo, and of 30,000 dwt and above
carrying oil other than the above) or category 3 tankers (an oil
tanker of 5,000 dwt and above but less than that specified for a
Category 2 type oil tanker) beyond their phase-out dates, in
accordance with the schedule, subject to satisfactory results
from the CAS. Nonetheless, the continued operation of
single-hulls must not go beyond the anniversary of the date of
delivery of the ship in 2015 or the date on which the ship
reaches 25 years of age after the date of its delivery,
whichever is earlier.
Vessel
Ownership
Seaborne oil transportation services are provided by independent
ship owners, state-owned shipping companies, oil companies and
commodity traders. As a result, ownership of the fleet is quite
fragmented, with no single owner controlling more than 5% of the
transportation capacity within the sector. However, a certain
element of consolidation has taken place in the oil tanker
industry in recent years, with the result that in the Suezmax
sector the top ten companies control some 30% of the vessels and
tonnage in service in March 2010.
Top 10
Owners Share* of the Tanker Fleet*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Top 10
|
|
|
|
|
|
|
|
|
|
Top 10
|
|
|
% of Total
|
|
|
Total
|
|
|
|
|
|
|
Deadweight
|
|
|
Number of
|
|
|
Fleet
|
|
|
Capacity
|
|
|
% of Fleet
|
|
Size Category
|
|
Tons
|
|
|
Vessels
|
|
|
(number)
|
|
|
(million dwt )
|
|
|
(dwt)
|
|
|
VLCC
|
|
|
>200,000
|
|
|
|
218
|
|
|
|
40.2
|
|
|
|
66.2
|
|
|
|
40.8
|
|
Suezmax
|
|
|
120,000-199,000
|
|
|
|
116
|
|
|
|
29.7
|
|
|
|
18.1
|
|
|
|
30.2
|
|
Aframax
|
|
|
80,000-119,000
|
|
|
|
239
|
|
|
|
28.8
|
|
|
|
25.2
|
|
|
|
28.9
|
|
Panamax
|
|
|
50,000-79,999
|
|
|
|
169
|
|
|
|
37.2
|
|
|
|
11.7
|
|
|
|
37.9
|
|
Handymax/size
|
|
|
10,000-49,999
|
|
|
|
165
|
|
|
|
16.7
|
|
|
|
5.7
|
|
|
|
17.4
|
|
Total
|
|
|
|
|
|
|
907
|
|
|
|
28.3
|
%
|
|
|
126.9
|
|
|
|
34.0
|
%
|
|
|
|
|
* |
|
Based on Dwt and Fleet at end March 2010 |
Source: Drewry
The Charter
Market
Worldscale is the tanker industrys standard
reference for calculating freight rates, and its aim is to make
the business of fixing tankers quicker, easier and more flexible.
Worldscale is used because it provides the flexibility required
for the oil trade. Oil is a fairly homogenous commodity, it does
not vary too much in quality and it is relatively easy to
transport by a variety of methods. This, combined with the
volatility of the world oil markets, means that an oil cargo may
be bought and sold many times while at sea. The cargo owner
therefore requires great flexibility in its choice of discharge
options. If tanker fixtures were priced in the same way as dry
cargo fixtures this would involve the shipowner calculating
separate individual freights for a wide variety of discharge
points. Worldscale provides a solution to this problem by
providing a set of nominal rates designed to provide roughly the
same daily income irrespective of discharge point.
TCE, or time charter equivalent, is the figure that
describes the earnings potential of any voyage based on the
quoted Worldscale rate. As described above, the Worldscale rate
is set and can then be converted into dollars per cargo ton. A
voyage calculation is then performed which takes all expenses
(port costs, bunkers and commission)
64
out from the gross revenue. This leaves a net profit which is
divided by the total voyage days (at sea and in port) to give a
daily TCE rate.
Tanker charter hire rates and vessel values for all tankers are
strongly influenced by the supply and demand for tanker
capacity. Small changes in tanker utilization have historically
led to relatively large fluctuations in tanker charter rates for
VLCCs, more moderate price volatility in the Suezmax, Aframax
and Panamax markets and less volatility in the Handy market
compared to the tanker market as a whole. The Handy segment has
generally been less volatile than other market segments because
these vessels mainly transport refined petroleum products that
are not subject to the same degree of volatility as the crude
oil market.
From 2005 to 2007, time charter rates for all sizes of oil
tankers rose quite steeply, reflecting the fact that buoyant
demand for oil and increased sea-borne movements of oil
generated additional demand for tanker capacity. This led to a
much tighter balance between vessel demand and supply. However,
as the world economy weakened in the second half of 2008 demand
for oil also fell and had a negative impact on tanker demand and
freight rates. Rates therefore declined in 2009 but in the first
three months of 2010 they have stabilized and in some cases have
risen slightly.
Oil
Tanker One Year Time Charter Rates: 20002010
(US$/Day
Period Averages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Size Category
|
|
Handysize
|
|
|
Handymax
|
|
|
Aframax
|
|
|
Suezmax
|
|
|
VLCC
|
|
|
DWT
|
|
|
30,000
|
|
|
|
45,000
|
|
|
|
90-95,000
|
|
|
|
150,000
|
|
|
|
280,000
|
|
2000
|
|
|
12,454
|
|
|
|
13,958
|
|
|
|
18,854
|
|
|
|
27,042
|
|
|
|
35,250
|
|
2001
|
|
|
15,583
|
|
|
|
17,563
|
|
|
|
23,125
|
|
|
|
30,500
|
|
|
|
37,958
|
|
2002
|
|
|
11,417
|
|
|
|
13,288
|
|
|
|
16,896
|
|
|
|
17,750
|
|
|
|
23,458
|
|
2003
|
|
|
13,267
|
|
|
|
14,846
|
|
|
|
19,146
|
|
|
|
26,104
|
|
|
|
33,604
|
|
2004
|
|
|
15,629
|
|
|
|
19,029
|
|
|
|
29,500
|
|
|
|
37,875
|
|
|
|
53,900
|
|
2005
|
|
|
18,854
|
|
|
|
25,271
|
|
|
|
35,021
|
|
|
|
42,292
|
|
|
|
60,125
|
|
2006
|
|
|
21,417
|
|
|
|
26,792
|
|
|
|
35,233
|
|
|
|
42,667
|
|
|
|
55,992
|
|
2007
|
|
|
22,000
|
|
|
|
24,500
|
|
|
|
33,143
|
|
|
|
43,042
|
|
|
|
53,333
|
|
2008
|
|
|
21,438
|
|
|
|
23,092
|
|
|
|
34,708
|
|
|
|
46,917
|
|
|
|
74,662
|
|
2009
|
|
|
9,700
|
|
|
|
10,800
|
|
|
|
17,400
|
|
|
|
22,500
|
|
|
|
31,500
|
|
March 2010
|
|
|
9,850
|
|
|
|
11,200
|
|
|
|
17,500
|
|
|
|
21,800
|
|
|
|
33,200
|
|
|
|
Source: Drewry
In general terms, time charter rates are less volatile than spot
rates, because they reflect the fact that the vessel is fixed
for a longer period of time. In the spot market, rates will
reflect the immediate underlying conditions in vessel supply and
demand and are thus prone to more volatility.
The following chart indicates the trend in Suezmax tanker TCE
rates in the period 2000 to 2010. During this period the average
TCE rate was just under $33,000 per day, with the market low and
high being $7,200 and $127,300 per day respectively. In March
2010 the average TCE rate for Suezmax tanker was $22,100 per
day, while the one year time charter rate was $21,800 per day.
65
Suezmax
Time Charter Equivalent Rates:
2000-2010
(US$/Day)
Source: Drewry
Time
Charter and TCE Rate Comparison*
(US$/Day)
|
|
|
|
|
|
|
|
|
|
|
|
Average 1 Yr Time Charter
|
|
|
|
|
Rate 2000-2010
|
|
Average TCE Rate 2000-2010
|
|
Aframax(1)
|
|
|
26,180
|
|
|
|
34,945
|
|
Suexmax(2)
|
|
|
33,766
|
|
|
|
37,958
|
|
VLCC(3)
|
|
|
46,198
|
|
|
|
51,512
|
|
|
|
|
|
* |
|
Based on (1) N W EuropeN W Europe voyage,
(2) West AfricaUSES voyage and (3) MEG to Japan,
MEGN W Europe and West Africa-USES voyages. |
TCE rates based on Drewry standard ship types
Source: Drewry
Vessel
Prices
Higher tanker freight rates during 2005 to 2007 stimulated
significant new vessel ordering and similar conditions occurred
in other shipping sectors, notably in the drybulk and container
sectors. In addition, newbuilding demand was also strong for
liquefied natural gas, or LNG, carriers and other specialized
ship categories. As a result, the orderbook for all commercial
cargo carrying vessels in 2009 was at record levels, although as
indicated previously very few orders were placed in 2009 due to
the weak state of the market.
Newbuilding prices for all vessel types increased significantly
during 2005 to 2008, due to a combination of rising demand,
shortage in berth space and rising raw material costs,
especially the price of steel, Prices for oil tankers reached
record highs around September 2008 but they weakened thereafter
in the face of the downturn in the freight markets.
The lack of new orders makes it difficult to gauge current price
levels exactly, but the most recent evidence suggests that
newbuilding prices have stabilized and have risen by a small
amount in the first three months of 2010. The trend in
indicative newbuilding prices for a range of oil tankers is
shown in the following chart.
66
Oil
Tanker Newbuilding Prices:
2000-2009
(US$
Million)
Source: Drewry
The trend in newbuilding prices and the movement in freight
rates also have a major impact on the way secondhand values
develop. The chart below illustrates the movements of prices for
secondhand
(5-year-old)
oil tankers between 2000 and March 2010.
Oil
Tanker Secondhand Prices5 Year Old Vessels:
2000-2010
(US$
Million)
Source: Drewry
With vessel earnings running at high levels and a dearth of
available newbuilding berths, demand for oil tankers available
for early delivery was at a premium and secondhand values for
all tankers rose steadily from 2004 until the middle of 2008. In
some instances, the market witnessed secondhand prices for
five-year-old
oil tankers reaching levels higher than those for comparably
sized newbuildings.
67
However, this situation was temporary and with the downturn in
freight rates, secondhand values for tankers fell throughout
2009. In the first quarter of 2010 however, there is evidence
that secondhand values have stabilized as a result of
improvements in the freight market and are beginning to exhibit
an upward trend.
The relationship between newbuilding prices, freight rates and
secondhand values for Suezmax tankers in the period 2000 to
March 2010 is shown in the chart below.
Suezmax
Oil Tanker : Newbuilding, Secondhand Prices & Time
Charter Rates
2000-2010
(US$
Million/$ Per Day)
Source: Drewry
68
Business
We were incorporated under Marshall Islands law in February
2010, by our founder, Mr. Robert Burke. We are primarily
focused on acquiring and deploying Suezmax tankers in spot
market-related vessel pools, in the spot charter markets or
under spot market indexed time charters. We believe that spot
exposure, combined with the benefits of employing the Suezmax
tankers that will comprise our initial fleet in a pool, will
enable us to benefit from the increasing demand for long-haul
crude oil. We believe that Suezmax tankers are versatile because
they are capable of trading on both short- and long-haul routes
and to a wide variety of ports. For these reasons, we believe
that tankers, and particularly Suezmax tankers, present
attractive investment opportunities. We intend to focus
primarily on the spot market because we believe that spot
charters will (i) provide us with better flexibility than
time charters to adjust to changing market conditions;
(ii) better position us to capitalize on a rising freight
rate market and (iii) allow us to achieve higher returns,
because, according to Drewry, during the period from 2000
through June 2010, spot market rates for Suezmax tankers have
been higher on average than one-year time charter rates and
therefore have historically provided higher average returns.
We expect that our initial fleet will consist of three to four
Suezmax tankers. We intend to use the net proceeds of this
offering and the concurrent private placement described below to
acquire these vessels from unrelated third parties for an
aggregate purchase price of approximately
$ million. We expect to take
delivery of all of these vessels within 60 days from the
date of this prospectus. Pursuant to our pool entry letter
agreement with Heidmar, and consented to by the Blue Fin Tankers
Pool, we have agreed to operate these vessels in the Blue Fin
Tankers Pool, the second-largest spot market-related Suezmax
tanker pool in the world (by vessel count), for a minimum of
three years. The Blue Fin Tankers Pool currently operates a
fleet of 18 Suezmax tankers, with nine different pool partners,
including well-established shipowners that pool their vessels in
order to achieve better market coverage and efficiencies. In
addition, with an average age of less than five years at the end
of April 2010, we believe the vessels that operate in the Blue
Fin Tankers Pool are younger on average than those that comprise
other large Suezmax pools. The Blue Fin Tankers Pool is managed
by Heidmar. Additionally, we have agreed to employ the first
four Suezmax tankers that we acquire and any other Suezmax
tankers that we may acquire in the Blue Fin Tankers Pool for a
period of three years. Furthermore, should we acquire any other
tankers, we have agreed to offer to employ such tankers in an
applicable tanker pool operated by Heidmar or its subsidiaries
for a minimum of three years. We will contract with third-party
managers for the technical management of our vessels. Initially,
we intend to retain Schulte to provide the technical management
of our vessels. Schulte manages approximately 600 vessels
and has significant experience in the tanker sector. We aim to
grow our fleet through timely and selective acquisitions of
vessels in a manner that is accretive to our ability to pay
dividends per share. Please see Dividend Policy.
Prior to or contemporaneously with the closing of this offering,
we expect to enter into a commitment letter for our new credit
facility. We expect to use money borrowed under our credit
facility to fund future vessel acquisitions and for general
corporate purposes. We intend to refinance all or a portion of
the money that we borrow under our credit facility with the
proceeds of future equity offerings in order to maintain a
strong balance sheet with little or no debt. In addition,
Mr. Burke and his family will purchase approximately
$5.8 million of our common shares in a concurrent private
placement,
representing %
of our common shares that will be outstanding after the closing
of this offering and the concurrent private placement.
We intend to distribute to our shareholders on a quarterly basis
an aggregate amount of cash that is expected to be substantially
equal to our net operating cash flow during the previous
quarter, after reserves, as our board of directors may from time
to time determine, in the manner discussed under the caption
Dividend Policy. Net operating cash flow is a
non-GAAP measure that is different from cash flow from
operations and, rather, represents net income plus depreciation,
amortization and non-cash administrative charges. We expect to
make our first dividend payment in the first quarter of 2011 in
respect of any net operating cash flow that we earn in the
fourth quarter of 2010.
Our Initial
Fleet
We expect that our initial fleet will consist of three to four
Suezmax tankers. We are currently in discussions with various
third-party sellers, and expect to enter into memoranda of
agreement with one or more of them prior to
69
the consummation of this offering to acquire the vessels in our
initial fleet. We expect that the memoranda of agreement will
provide for the delivery of the vessels to us within
60 days of the date of this prospectus. Pursuant to the
memoranda of agreement, we expect the sellers to agree to
endeavor to deliver these vessels as early as possible within
the 60-day
period.
Although we expect our fleet to initially be comprised of
Suezmax tankers, we will evaluate all classes of tankers for
potential future acquisitions. We will seek to grow our fleet
through timely and selective acquisitions of tankers that we
believe will provide an attractive return on equity and will be
accretive to our ability to pay dividends per common share based
on anticipated spot charter market rates at the time of purchase.
Tanker Industry
Trends
Based on information provided by Drewry, we believe that the
following industry trends create growth opportunities for us as
an owner and operator of tankers and, in some cases, Suezmax
tankers in particular:
|
|
|
|
|
the global economic downturn and limited availability of vessel
financing, among other things, have resulted in tanker values
near their recent historic lows, although these values are
currently rising;
|
|
|
|
recovery in oil and refined petroleum product consumption driven
by a rebound in global economic activity and industrial
production, which has resulted in increasing demand for tankers;
|
|
|
|
increased aggregate seaborne transportation distances, due in
large part to growing economies in China and India, limitations
on expansion of existing refinery capacity, marginal refinery
profitability in certain developed countries, and lower cost
refinery capacity becoming increasingly located in developing
countries further from end consumers, benefiting demand for and
utilization of large tankers, such as Suezmax tankers;
|
|
|
|
IMO regulations mandating a phase-out by 2010, or 2015 by
exemption of a tankers flag state under certain
conditions, of single-hull tankers, which made up approximately
8% of the worlds tanker supply as of the end of May 2010,
benefiting demand for and utilization of double-hull tankers,
such as the vessels we intend to acquire and operate; and
|
|
|
|
charterers concerns about environmental and safety
standards, which shifts their preference toward modern tankers
operated by reputable ship operators.
|
Competitive
Strengths
We believe that the extensive experience of our corporate
management team and the principles on which we plan to operate
our business will enhance our ability to successfully compete in
the tanker industry as follows:
|
|
|
|
|
Experienced Corporate Management. We believe
that our management team has extensive experience in the
international shipping industry, including in the tanker sector.
In particular, Mr. Burke has been involved in the shipping
industry for over 30 years, in a variety of capacities. He
attended the U.S. Merchant Marine Academy in Kings Point,
New York, a U.S. Federal service academy, where he received
a degree in Nautical Science. After graduating in 1981, he
sailed as a ships officer aboard tankers for three years,
after which he attended Columbia University School of Business,
where he received a Master of Business Administration in Finance
and International Business. Following his graduation from
business school, Mr. Burke arranged debt financing and
chartering for
U.S.-based
tanker companies. From 1990 to 1997, while Managing Director and
head of GE Capital Corporations ship finance division,
Mr. Burke led a wide range of financing and investing
activities for shipping and shipping-related companies,
including equity, debt and leasing in the U.S., Russia, Europe,
South America and Asia. He later directed investments in
shipping companies while founder and head of the
$200 million Overseas Private Investment Corporation
Maritime Fund, an equity fund sponsored by both the
U.S. government and private equity. Ultimately, this fund
was sold to a European bank with a positive return to all
limited partners. Most recently, in 2006, Mr. Burke
negotiated the successful purchase, was an equity investor in,
and served as Chief Executive Officer of Chembulk Tankers LLC, a
company specializing in the ownership and operation of chemical
tankers with a fleet of 19 chemical tankers. In January 2008,
Chembulk was sold to an Indonesian competitor. The sale provided
a significant return to investors of several times their equity
investment. Mr. Kevin Bavolar, our Chief
|
70
|
|
|
|
|
Financial Officer, has been employed in numerous finance roles
over the past 30 years. Mr. Bavolar has extensive
experience in the oil & gas and energy industries, as
well as broad experience in financial reporting for
U.S. public companies. Our vice president of operations,
Mr. Steven Fitzgerald, has over 20 years of experience
in the shipping industry, including originating, structuring and
closing marine finance transactions, engaging in commercial
management activities and serving as a port captain and terminal
operations assistant. Collectively, over the last 30 years,
our management team has been involved in the purchase and sale
of over 50 vessels. As a result of these decades of
experience, we believe that our management team has built strong
relationships with major international charterers, third-party
suppliers, shipbuilders and financial institutions, and
developed extensive operational capabilities and strong target
evaluation capabilities.
|
|
|
|
|
|
Alignment of Management and Shareholder
Interests. We believe that our corporate
structure and the structure of our managements
compensation aligns our managements interests with those
of our shareholders. Both Mr. Burke and Mr. Bavolar
will enter into five-year employment agreements, at what we
believe are current market rate salaries, which are paid partly
in cash and partly in stock. Messrs. Burke and Bavolar will
also participate in an incentive stock plan that rewards
management based on our growth in profitability and overall
return to shareholders. The employment agreements and incentive
stock plan will be the only transactions between us and our
management, and the terms of these agreements are clearly
enumerated in the employment agreements and the incentive stock
plan. We believe that this compensation structure eliminates
many of the conflicts between our managements interests
and those of our shareholders, and should reduce our costs to
the benefit of our shareholders. To ensure that there are few
conflicts of interest between us and our management, we do not
intend to have (i) any poison pills, dual
classes of stock or any other anti-takeover provisions in our
governing documents, (ii) management-controlled blocks of
stock, (iii) sale and purchase fees paid to management
affiliates for sales or purchases of vessels,
(iv) technical management fees paid to affiliates,
(v) commercial management fees or commissions paid to
affiliates, (vi) vessels sold to us or purchased by us from
affiliates or (vii) other fees paid to management or
management affiliates that are common in the shipping industry.
|
|
|
|
Our Focus on Suezmax Tankers. Initially, we
intend to focus on the Suezmax segment of the tanker shipping
industry. Suezmax tankers are the workhorse of ocean crude oil
transportation and, according to Drewry, demand for them is
increasing in areas with increased crude oil output. In
addition, according to Drewry, Suezmax tankers should directly
benefit from the increasing exports of crude oil from the Middle
East, West Africa and Caspian/Black Sea regions into the
consuming nations as the world economy continues to recover.
Suezmax tankers are nearly twice the size of Aframax vessels,
yet are able to compete on nearly all of the same trade routes
as Aframax vessels. Compared to larger Very Large Crude
Carriers, or VLCCs, Suezmax tankers have significantly more
trading-lane
options and, therefore, fewer ballast voyages. Due to these
factors, the charterhire earned from Suezmax tankers typically
reflects changes in the demand for and cost of transportation of
crude oil without the attendant volatility of VLCCs.
|
|
|
|
Employment of Our Initial Fleet in the Blue Fin Tankers
Pool. We expect to operate the vessels that will
comprise our initial fleet in the Blue Fin Tankers Pool, the
second-largest spot market-related Suezmax tanker pool in the
world (by vessel count), for a minimum period of three years. We
believe that our participation in the Blue Fin Tankers Pool
gives us marketing and efficiency advantages similar to those of
more established owners in the pool, including access to the
same long-term relationships, charters and private cargoes with
oil majors and traders as those enjoyed by the other pool
participants. In addition, because we are scheduled to receive
regular, monthly distributions from the pool of a share of the
pools monthly earnings, we will not be subject to
receiving charterhire at irregular intervals in the spot market,
which helps to reduce the effect of fluctuations in cash flow.
|
|
|
|
Low leverage to build a strong balance
sheet. Immediately following this offering, we
expect to have little or no debt. While we plan to finance
future vessel acquisitions with borrowings under our credit
facility, we intend to maintain a low level of debt by
refinancing borrowings with future equity issuances. We believe
that having borrowing capacity under our credit facility and a
strong balance sheet with little or no debt will enable us to
move quickly in acquiring vessels as opportunities arise as it
will allow us to drawdown on our credit facility if and as we
identify vessel acquisition opportunities.
|
71
|
|
|
|
|
Modern, high-quality fleet of tankers. Our
vessel acquisition strategy will target modern double-hull
tankers built in shipyards that we believe construct
high-quality vessels. We believe that owning a modern,
high-quality fleet of double-hull tankers is more attractive to
charterers, reduces operating costs and fuel consumption and
will allow our fleet to be more reliable, which improves
utilization. Where applicable, we will seek to acquire sister
ships in an effort to further enhance operating efficiencies.
|
Business
Strategy
Our strategy is to assemble a fleet of modern high-quality
tankers, initially consisting of Suezmax tankers, for employment
in the spot market, including in spot market-related vessel
pools, and to grow our business through accretive vessel
acquisitions. As detailed below, our strategy largely relies on
blending certain complementary elements of vessel employment
with a capital structure that supports our growth and
operations. We believe that by relying primarily on equity
financing for future vessel acquisitions, we will be in a better
position to withstand the volatility of the spot market and will
have more cash available to pay dividends than if we relied
primarily on debt financing since cash flows from operations can
be used to pay dividends as opposed to debt and interest
payments. Key elements of our business strategy include:
|
|
|
|
|
Strategically expanding the size of our
fleet. We intend to acquire modern, high-quality
Suezmax tankers and other types of tankers as we may determine,
through timely and selective acquisitions of vessels in a manner
that is accretive to our ability to pay dividends per share. We
view Suezmax tankers as currently providing attractive return
characteristics, although we will evaluate all classes of
tankers 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 while asset values in the tanker industry have been
rising from their recent historical lows, current tanker values
present us with attractive opportunities to grow our fleet at
favorable prices.
|
|
|
|
Initially deploying our vessels in the Blue Fin Tankers
Pool. We seek to provide shareholders with the
opportunity to invest in a company with a strategic focus on the
tanker spot market for Suezmax tankers by initially deploying
the vessels in our initial fleet in the Blue Fin Tankers Pool,
the second-largest spot market-related Suezmax tanker pool in
the world (by vessel count), for a minimum period of three
years. Employment of our vessels in the Blue Fin Tankers Pool
will allow us to capture the trends of a rising freight rate
market while somewhat insulating us from short-term downward
spikes in spot charter rates. Upward movements in spot rates
have the potential to increase our revenues. Conversely, our
revenues may decline if spot market rates decline, and we will
not benefit from the stabilizing effect of fixed-rate time
charters. However, we believe our financial strategy to maintain
a low level of debt and our receipt of a share of the net pool
revenues earned across a large fleet of vessels will allow us to
withstand volatility in spot market rates, as our fixed costs
will be at a relatively low level.
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Distributing our net operating cash flow to shareholders
through quarterly dividends. We intend to declare
quarterly dividends to shareholders substantially equal to our
net operating cash flow during the previous quarter, after
reserves, as our board of directors may from time to time
determine are required or advisable. Please see Dividend
Policy.
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Our
Charters
Chartering
Strategy
We will generate revenues by entering our initial vessels into a
tanker pool that in turn generates revenues by charging
customers for the transportation of their crude oil and other
petroleum products using our vessels and the other vessels
operating in the pool. We expect to initially operate the
vessels that will comprise our initial fleet in the Blue Fin
Tankers Pool, the second-largest spot market-related Suezmax
tanker pool in the world (by vessel count), for a minimum period
of three years. The Blue Fin Tankers Pool currently operates a
fleet of 18 Suezmax tanker vessels, with nine different pool
partners, including well-established shipowners that pool their
vessels in order to achieve better market coverage and
efficiencies. The large, modern and homogeneous fleet enhances
operational efficiency through increased vessel utilization and
reduced expenses. We have agreed to employ the first
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four Suezmax tankers that we acquire and any other Suezmax
tankers that we may acquire in the Blue Fin Tankers Pool for a
period of three years. Furthermore, should we acquire any other
tankers, we have agreed to offer to employ such tankers in an
applicable tanker pool operated by Heidmar or its subsidiaries
for a minimum of three years. Subject to the preceding two
sentences, we may employ vessels that we acquire in the future
in the Blue Fin Tankers Pool, in another spot market-related
tanker pool, in the tanker spot charter market or under spot
market indexed time charters. Spot market revenues may generate
increased profit margins during times when vessel rates are
increasing, while vessels operating under fixed-rate time
charters generally provide more stable cash flows. We will seek
to pool or charter our vessels to maximize cash flow from our
vessels based on our outlook for freight rates, vessel market
conditions and global economic conditions.
Vessel
Pools
Vessel pool arrangements provide the benefits of large-scale
operating and chartering efficiencies that might not be
available to smaller fleets. Under a pooling arrangement, the
vessels operate under a time or spot 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 vessels owner
generally is not entitled to payment for the period of off-hire,
unless the charterer of a vessel in the pool is responsible for
the circumstances giving rise to the lack of availability. We
will generally be required to provide for the technical
management of our vessels, including, among other things, to
keep our vessels seaworthy, to crew and maintain our vessels and
to comply with applicable regulations. Please see
Technical Management and Maintenance.
Terms of
Blue Fin Tankers Pool Agreement
The Blue Fin Tankers Pool is managed by Heidmar and facilitates
a tanker vessel pool comprised of vessels that have been
committed to the pool on terms and conditions set forth in each
vessels pool agreement. Each pool participant that commits
vessels to the pool must be accepted into the pool in accordance
with the terms and conditions of the pool agreements entered
into by each of the other participants. Ridgebury Tankers Ltd
has been accepted as a pool participant and, upon acquisition of
our vessels, we intend to enter into a pool agreement for each
of our three to four initial vessels for a minimum period of
three years. Should we remove any of the first four Suezmax
tankers that we enter into the pool before the third anniversary
of the entry of such vessel into the pool, other than for
non-performance by the pool manager, then we will be required to
pay a fee to Heidmar which shall not exceed
$
per removed vessel.
Pool participants are responsible for, among other things:
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maintaining their pool vessels in seaworthy condition and to the
agreed technical and operational standards of the pool;
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maintaining all required ISM certificates and keeping the pool
vessel classed with a classification society that is a member of
the International Association of Classification Societies, or
IACS;
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obtaining and maintaining a minimum number of agreed oil major
approvals in accordance with the pool agreement;
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providing for inspections to insure that SIREs are obtained at
least every six months;
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obtaining, for its own account, in accordance with standards
consistent with prudent first class owners of vessels, all
relevant insurance policies for its pool vessels, including hull
and machinery, protection and indemnity, or P&I, and war
risk insurance policies; and
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providing for the technical management of its pool vessels,
including all matters related to vessel seaworthiness, crewing
and crew administration, victualling, maintenance and repairs,
drydocking, provisioning (lube oils, stores and spare parts),
compliance with class requirements and compliance with the
requirements of relevant authorities.
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The pool manager is responsible for the commercial management of
each pool vessel, which includes, among other things:
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marketing the vessels;
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trading pattern analysis;
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handling of charters and employment contracts;
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commercial operations and payment and collection of expenses and
revenues relating to commercial operations;
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handling of any post-fixture claims; and
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budgeting, accounting and performance of the pool.
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The pool manager has sole authority to fix employment for the
pool vessels. The pool manager has the authority to commit each
pool vessel to an employment contract, on a voyage basis, or on
a time charter or contract of affreightment less than
180 days that is consistent with the pool agreement.
We will pay Heidmar an initial management fee of
$ per day per vessel, including
any off-hire periods, and a commission
of % on all gross freight,
demurrage, dead freight and miscellaneous revenue receipts paid
in respect of our vessels, which fee and commission are deducted
from our share of pool revenue. Under the commercial management
agreement pursuant to which Heidmar will charter our vessels
prior to the operation of our vessels in the Blue Fin Tankers
Pool, this commission will be %.
The management fee will increase annually based on a formula
based on the Consumer Price Index. Each participant
bears other expenses related to its vessel, including husbandry
(launch, service, stores, crew changes, fresh water, and certain
other expenses), environmental compliance, loss of hire
insurance costs and vetting and customer compliance costs.
Technical
Management and Maintenance
Whether we operate our vessels in a pool or charter them
directly under spot or timer charters, we will be responsible
for the technical management of our vessels and for maintaining
our vessels, providing for periodic drydocking, cleaning and
painting and performing work required by regulations. Our
technical manager will provide these services to us pursuant to
the technical management agreement we will enter into for each
of our vessels. Please see Our Technical
Manager and Management Agreements.
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 ISM Code, which was promulgated by the
IMO to establish pollution prevention requirements applicable to
vessels. We expect that our technical manager will 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.
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Officers
and Crewing
We currently have no employees other than our executive and
non-executive officers. Our technical manager will be
responsible for identifying, screening and recruiting, directly
or through a crewing agent, the officers and all other crew
members for our vessels that are employed by our vessel-owning
subsidiaries.
Customers
When our vessels are trading in a pool, we will benefit from the
pools relationships and charters with oil majors, traders
and other charterers. At any time when we are chartering our
vessels directly, our assessment of a charterers financial
condition and reliability will be an important factor in
negotiating employment for our vessels. We intend to generally
charter our non-pooled vessels, if any, to major trading houses
(including commodities traders), major producers and
government-owned entities rather than to more speculative or
undercapitalized entities.
Competition
We will operate in markets that are highly competitive and based
primarily on supply and demand. We and our pool manager compete
for charters on the basis of price, vessel location, size, age
and condition of the vessel, as well as on our reputation and
that of our pool manager. We and our pool manager compete
primarily with other independent tanker vessel-owners, other
tanker pools and with major oil companies that own and operate
their own vessels. Our competitors may have more resources than
us or our pool manager or the pools in which we operate our
vessels and may operate vessels that are newer, and therefore
more attractive to charterers, than our vessels and the other
vessels that operate in the pools in which we operate our
vessels. Ownership of tankers is highly fragmented and is
divided among publicly listed companies, state-controlled owners
and private vessel owners.
Permits
and Authorizations
We will be required by various governmental and
quasi-governmental agencies to obtain certain permits, licenses
and certificates with respect to our vessels. The kinds of
permits, licenses and certificates required depend upon several
factors, including the commodity transported, the waters in
which the vessel operates, the nationality of the vessels
crew and the age of a vessel. We expect to be able to obtain all
permits, licenses and certificates currently required to permit
our vessels to operate. Additional laws and regulations,
environmental or otherwise, may be adopted, which could limit
our ability to do business or increase the cost of us doing
business.
Seasonality
The tanker market is typically stronger in the winter months as
a result of increased oil consumption in the northern hemisphere
but weaker in the summer months as a result of lower oil
consumption in the northern hemisphere and refinery maintenance.
In addition, unpredictable weather patterns during the winter
months tend to disrupt vessel scheduling. The oil price
volatility resulting from these factors has historically led to
increased oil trading activities in the winter months.
Properties
We do not expect to have any material real 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
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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
holders of our common shares.
Our Technical
Manager and Management Agreements
We intend to contract with third-party managers for the
technical management of our vessels. Initially, we intend to
retain Schulte to provide the technical management of our
vessels. Technical management includes managing
day-to-day
vessel operations, performing general vessel maintenance,
ensuring regulatory and classification society compliance,
supervising the maintenance and general efficiency of vessels,
arranging the hire of qualified officers and crew, arranging and
supervising drydocking and repairs, arranging for the purchase
of supplies, spare parts and new equipment for vessels,
appointing supervisors and technical consultants and providing
technical support.
Schulte will receive a technical management fee of approximately
$ per vessel per year, or
approximately $ per vessel per
month, increased annually for inflation, or as otherwise agreed,
after 2010. Schulte is currently responsible for the technical
management of a fleet of approximately 600 vessels,
including 154 oil tankers, and maintains the quality of the
vessels it manages by carrying out regular inspections, both
while in port and at sea, and adopting a preventative
maintenance program for each vessel. Schulte currently employs
approximately 1,140 shore-based personnel and approximately
15,000 offshore employees. We believe that the resources and
reputation of Schulte as a safe and reliable technical manager
will provide us with favorable charter opportunities with well
established charterers, many of whom consider the reputation of
the vessel manager when seeking vessels. Schulte may supervise
the construction of any newbuilding vessels that we may agree to
acquire, as well as provide administrative services to us, such
as accounting and financial reporting services.
Oil majors require vessel owners and their technical managers to
disclose certain information and meet other conditions with
respect to, among other things, vessel specifications and the
technical managers operational standards. Upon our
acquisition of our initial fleet of three to four vessels, we
expect that, the technical managers of such vessels will change
and therefore obligate our charterers to ensure that these
requirements will continue to be satisfied or oil majors will
not accept our tankers under charter. Similar requirements are
also a precondition to entering the Blue Fin Tankers Pool and,
accordingly, until we are able to establish that we comply with
these requirements, Heidmar will charter our vessels in the spot
market pursuant to our commercial management agreement. We
expect that the vetting process typically takes 30 to 60 days.
Environmental and
Other Regulations
Government regulations and laws will significantly affect the
ownership and operation of our vessels. We are subject to
international conventions, national, state and local laws and
regulations in force in the countries in which our vessels may
operate or will be registered and compliance with such laws,
regulations and other requirements may entail significant
expense.
Our vessels will be subject to both scheduled and unscheduled
inspections by a variety of government, quasi-governmental and
private organizations including the local port authorities,
national authorities, harbor masters or equivalent,
classification societies, flag state administrations (countries
of registry) and charterers. Our failure to obtain and maintain
permits, licenses, certificates or other approvals required by
some of these entities could require us to incur substantial
costs, delay commencement of operations or temporarily suspend
operation of one or more of our vessels.
We believe that the heightened levels of environmental and
quality 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 industry. Increasing environmental
concerns have created a demand for vessels that conform to
stricter environmental standards.
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We intend 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, additional legislation or regulation applicable to
the operation of our vessels that may be implemented in the
future could negatively affect our profitability.
International
Maritime Organization
The International Maritime Organization, or the IMO, the United
Nations agency for maritime safety and the prevention of
pollution by ships, has adopted several international
conventions that regulate the international shipping industry,
including the International Convention on Civil Liability for
Oil Pollution Damage, the International Convention on Civil
Liability for Bunker Oil Pollution Damage, and the International
Convention for the Prevention of Pollution from Ships, 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 form.
In September 1997, the IMO adopted Annex VI to MARPOL to
address air pollution from ships. Annex VI came into force
on May 19, 2005. It sets limits on sulfur oxide and
nitrogen oxide emissions from ship exhausts and prohibits
deliberate emissions of ozone depleting substances, such as
chlorofluorocarbons. Annex VI also includes a global cap on
the sulfur content of fuel oil and allows for special areas to
be established with more stringent controls on sulfur emissions.
Annex VI has been ratified by some, but not all IMO member
states. In October 2008, the Marine Environment Protection
Committee, or MEPC, of the IMO approved amendments to
Annex VI regarding particulate matter, nitrogen oxide and
sulfur oxide emissions standards. These amendments will enter
into force in July 2010. They seek to reduce air pollution from
vessels by establishing a series of progressive standards to
further limit the sulfur content in fuel oil, which would be
phased in by 2020, and by establishing new tiers of nitrogen
oxide emission standards for new marine diesel engines,
depending on their date of installation. Additionally, more
stringent emission standards could apply in coastal areas
designated as Emission Control Areas (ECAs). Please
see United Statesthe U.S. Clean Air Act
below for information on the ECA designated in North America and
the Hawaiian Islands. We intend to obtain International Air
Pollution Prevention certificates evidencing compliance with
Annex VI requirements for all of our vessels.
Although the United States is not a party, many countries have
ratified 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 for pollution
damage caused in the territorial waters of a contracting state
by discharge of persistent oil, subject under certain
circumstances to certain defenses and limitations. Vessels
trading to 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 the CLC.
The IMO also has adopted the International Convention on Civil
Liability for Bunker Oil Pollution Damage, or the Bunker
Convention, which imposes liability on ship owners for pollution
damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel and requires registered owners of
ships over 1,000 gross tons to maintain insurance for
pollution damage in an amount equal to the limits of liability
under the applicable national or international limitation regime.
The operation of our vessels will also be affected by the
requirements contained in the International Safety Management
Code for the Safe Operation of Ships and for Pollution
Prevention, or ISM Code, promulgated by the IMO under the
International Convention for the Safety of Life at Sea, or
SOLAS. 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 intend to rely upon
the safety management system that our appointed ship managers
have developed.
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Noncompliance with the ISM Code or with other IMO regulations
may subject a shipowner or bareboat charterer to increased
liability, may lead to decreases in available insurance coverage
for affected vessels and may result in the denial of access to,
or detention in, some ports including United States and European
Union ports.
United
States
The
U.S. Oil Pollution Act of 1990 and the 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 environmental
protection and cleanup of oil spills. OPA affects all owners and
operators whose vessels trade with the United States or its
territories or possessions, or whose vessels operate in the
waters of the United States, which include the
U.S. territorial sea and the 200 nautical mile exclusive
economic zone around the United States. The Comprehensive
Environmental Response, Compensation and Liability Act, or
CERCLA, imposes liability for cleanup and natural resource
damage from the release 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 who 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 oil spills from their
vessels. OPA currently limits the liability of responsible
parties with respect to tankers over 3,000 gross tons to
the greater of $3,200 per gross tons or $23,496,000 per
single-hull tanker, and $2,000 per gross ton or $17,088,000 per
double hull tanker, respectively, and permits individual states
to impose their own liability regimes with regard to oil
pollution incidents occurring within their boundaries. Some
states have enacted legislation providing for unlimited
liability for discharge of pollutants within their waters;
however, in some cases, states which have enacted this type of
legislation have not yet issued implementing regulations
defining tanker owners responsibilities under these laws.
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
currently is limited to the greater of $300 per gross ton or
$5.0 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 limits of liability do not apply, however, where the
incident is caused by violation of applicable U.S. federal
safety, construction or operating regulations, or by the
responsible partys gross negligence or willful misconduct.
These limits also do not apply if the responsible party fails or
refuses to report the incident or to cooperate and assist in
connection with the substance removal activities. OPA and CERCLA
each preserve the right to recover damages under existing law,
including maritime tort law. We intend to be in substantial
compliance with OPA, CERCLA and all applicable state regulations
in the ports where our vessels call.
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 strict liability under the act. Under the regulations,
evidence of financial responsibility may be demonstrated by
insurance, surety bond, self-insurance or guaranty. Under OPA
regulations, an owner or operator of more than one tanker is
required to demonstrate evidence of financial responsibility for
the entire fleet in an amount equal only to the financial
responsibility requirement of the tanker having the greatest
maximum strict liability under OPA and CERCLA. We intend to
provide such evidence and receive certificates of financial
responsibility from the U.S. Coast Guard for each of our
vessels required to have one.
OPA specifically permits individual U.S. coastal states to
impose their own liability regimes with regard to oil pollution
incidents occurring within their boundaries, and some states
have enacted legislation providing for unlimited liability for
oil spills.
The explosion of the Deepwater Horizon and subsequent
release of oil into the Gulf of Mexico, or other events, may
result in significant modifications to liability regime covering
oil spills and related financial responsibility requirements.
The U.S.
Clean Water Act
The U.S. Clean Water Act of 1972, or CWA, prohibits the
discharge of oil, hazardous substances, and ballast water in
U.S. navigable waters unless authorized by a duly-issued
permit or exemption, and imposes strict liability
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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. Furthermore, most U.S. states that
border a navigable waterway have enacted environmental pollution
laws that impose strict liability on a person for removal costs
and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than
U.S. federal law.
The United States Environmental Protection Agency, or EPA, has
enacted rules requiring a permit regulating ballast water
discharges and other discharges incidental to the normal
operation of certain vessels within United States waters under
the Vessel General Permit for Discharges Incidental to the
Normal Operation of Vessels, or VGP. To be covered by the VGP,
owners of certain vessels must submit a Notice of Intent, or
NOI, at least 30 days before the vessel operates in United
States waters. Compliance with the VGP could require the
installation of equipment on our vessels to treat ballast water
before it is discharged or the implementation of other disposal
arrangements,
and/or
otherwise restrict our vessels from entering United States
waters. In addition, certain states have enacted more stringent
discharge standards as conditions to their required
certification of the VGP. We intend to submit NOIs for our
vessels where required and do not believe that the costs
associated with obtaining and complying with the VGP will have a
material impact on our operations.
The U.S.
Clean Air Act
The U.S. Clean Air Act of 1970, as amended by the Clean Air
Act Amendments of 1977 and 1990, or the CAA, requires the EPA to
promulgate standards applicable to emissions of volatile organic
compounds and other air contaminants. Our vessels may be subject
to vapor control and recovery requirements for certain cargoes
when loading, unloading, ballasting, cleaning and conducting
other operations in regulated port areas and emission standards
for so-called Category 3 marine diesel engines
operating in U.S. waters. The marine diesel engine emission
standards are currently limited to new engines beginning with
the 2004 model year. On December 22, 2009, the EPA
announced final emission standards for Category 3 marine diesel
engines equivalent to those adopted in the amendments to
Annex VI to MARPOL. The emission standards apply in two
stages: near-term standards for newly-built engines will apply
from 2011, and long-term standards requiring an 80% reduction in
nitrogen dioxides (NOx) will apply from 2016. Compliance with
these standards may cause us to incur costs to install control
equipment on our vessels.
The CAA also requires states to draft State Implementation
Plans, or SIPs, designed to attain national health-based air
quality standards in primarily major metropolitan
and/or
industrial areas. Several SIPs regulate emissions resulting from
vessel loading and unloading operations by requiring the
installation of vapor control equipment. Vessels sailing within
24 miles of the California coastline whose itineraries call
for them to enter any California ports, terminal facilities, or
internal or estuarine waters must use marine gas oil at or below
1.5% sulfur and marine diesel oil at or below 0.5% sulfur and,
effective January 1, 2012, marine fuels with a sulfur
content at or below 0.1% (1,000 ppm) sulfur.
The MEPC has designated the area extending 200 miles from
the territorial sea baseline adjacent to the Atlantic/Gulf and
Pacific coasts and the eight main Hawaiian Islands as an ECA
under the Annex VI amendments. The new ECA will enter into
force in August 2012, whereupon fuel used by all vessels
operating in the ECA cannot exceed 1.0% sulfur, dropping to 0.1%
sulfur in 2015. From 2016, NOx after-treatment requirements will
also apply. If other ECAs are approved by the IMO or other new
or more stringent requirements relating to emissions from marine
diesel engines or port operations by vessels are adopted by the
EPA or the states where we operate, compliance with these
regulations could entail significant capital expenditures or
otherwise increase the costs of our operations.
European
Union
The European Union has adopted legislation that would:
(1) ban manifestly
sub-standard
vessels (defined as those over 15 years old that have been
detained by port authorities at least twice in a six month
period) from European waters and create an obligation of port
states to inspect vessels posing a high risk to maritime safety
or the marine environment; and (2) provide the European
Union with greater authority and control over classification
societies, including the ability to seek to suspend or revoke
the authority of negligent societies. In addition, European
Union regulations enacted in 2003 now prohibit all single-hull
tankers from entering into its ports or offshore terminals.
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The sinking of the oil tanker Prestige in 2002 has led to the
adoption of other environmental regulations by certain European
Union Member States. It is difficult to predict what legislation
or additional regulations, if any, may be promulgated by the
European Union in the future.
Other
Environmental Initiatives
U.S. Coast Guard regulations adopted and proposed for
adoption under the U.S. National Invasive Species Act, or
NISA, impose mandatory ballast water management practices for
all vessels equipped with ballast water tanks entering
U.S. waters, which 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,
and/or
otherwise restrict our vessels from entering U.S. waters.
At the international level, the IMO adopted an International
Convention for the Control and Management of Ships Ballast
Water and Sediments in February 2004 (the BWM
Convention). The Conventions implementing
regulations call for a phased introduction of mandatory ballast
water exchange requirements, to be replaced in time with
mandatory concentration limits. The BWM Convention will not
enter into force 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. As of May 31, 2010 the BWM
Convention has been adopted by 25 states, representing
24.25% of world tonnage.
If mid-ocean ballast exchange is made mandatory throughout the
United States or at the international level, or if ballast water
treatment requirements or options are instituted, the cost of
compliance could increase for ocean carriers, and the costs of
ballast water treatment may be material.
Greenhouse Gas
Regulation
The IMO is evaluating mandatory measures to reduce greenhouse
gas emissions from international shipping, which may include
market-based instruments or a carbon tax. The European Union has
indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include
emissions of greenhouse gases from marine vessel. In the United
States, the EPA has issued a finding that greenhouse gases
threaten the public health and safety. 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, or any treaty adopted at the
international level to succeed the Kyoto Protocol, that restrict
emissions of greenhouse gases could require us to make
significant financial expenditures that we cannot predict with
certainty at this time.
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 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
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, or ISSC, from a
recognized security organization approved by the vessels
flag state. Among the various requirements are:
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on-board installation of automatic identification systems to
provide a means for the automatic transmission of safety-related
information from among similarly equipped vessels and shore
stations, including information on a ships identity,
position, course, speed and navigational status;
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on-board installation of ship security alert systems, which do
not sound on the vessel but only alert the authorities on shore;
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the development of vessel security plans;
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ship identification number to be permanently marked on a
vessels hull;
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a continuous synopsis record kept onboard showing a
vessels history including the name of the ship and of the
state whose flag the ship is entitled to fly, the date on which
the ship was registered with that state, the ships
identification number, the port at which the ship is registered
and the name of the registered owner(s) and their registered
address; and
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compliance with flag state security certification requirements.
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The U.S. Coast Guard regulations, intended to align with
international maritime security standards, exempt from MTSA
vessel security measures
non-U.S. vessels
that have on board, as of July 1, 2004, a valid ISSC
attesting to the vessels compliance with SOLAS security
requirements and the ISPS Code. We intend to implement the
various security measures addressed by MTSA, SOLAS and the ISPS
Code, and we expect our fleet to be in compliance with
applicable security requirements.
Inspection by
Classification Societies
Every seagoing vessel must be classed by a
classification society. The classification society certifies
that the vessel is in class, signifying that the
vessel has been built and maintained in accordance with the
rules of the classification society and complies with applicable
rules and regulations of the 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, regular and extraordinary surveys
of hull and machinery, including the electrical plant, and any
special equipment classed are required to be performed as
follows:
Annual Surveys: For seagoing vessels, 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.
At an owners application, the surveys required for class
renewal may be split according to an agreed schedule and
extended 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.
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Most vessels are also dry-docked every 30 to 36 months for
inspection of the underwater parts and for repairs related to
inspections. If any defects are found, the classification
surveyor will issue a recommendation which must be
rectified by the ship owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance
coverage that a vessel be certified as in class by a
classification society which is a member of the International
Association of Classification Societies. We expect that all of
our vessels will be certified as being in class by
Lloyds Register. All new and secondhand vessels that we purchase
must be certified prior to their delivery under our standard
contracts.
Risk of Loss and
Liability Insurance
The operation of any cargo vessel includes risks, such as
mechanical failure, collision, property loss, cargo loss or
damage and business interruption due to political circumstances
in foreign countries, hostilities and labor strikes. In
addition, there is always an inherent possibility of marine
disaster, including oil spills and other environmental mishaps,
and the liabilities arising from owning and operating vessels in
international trade. OPA, which imposes virtually unlimited
liability upon owners, operators and demise charterers of any
vessel trading in the United States exclusive economic zone for
certain oil pollution accidents in the United States, has made
liability insurance more expensive for ship owners and operators
trading in the United States market. While we believe that our
intended insurance coverage is adequate, not all risks can be
insured, any specific claim may not be paid, and we may not
always be able to obtain adequate insurance coverage at
reasonable rates.
Hull and
Machinery Insurance
We intend to obtain marine hull and machinery and war risk
insurance, which include the risk of actual or constructive
total loss, for all of the vessels in our fleet. We expect that
the vessels in our fleet will each be covered up to at least
fair market value, with deductibles of $175,000 per vessel per
incident. We may also arrange increased value coverage for each
vessel. Under this increased value coverage, in the event of
total loss of a vessel, we expect to be able recover for amounts
not recoverable under the hull and machinery policy by reason of
any under-insurance.
Protection and
Indemnity Insurance
Protection and indemnity insurance is provided by P&I
Associations, which will cover our third party liabilities in
connection with our shipping activities. This includes third
party liability and other related expenses of injury or death of
crew, passengers and other third parties, 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.
We plan on our protection and indemnity insurance coverage for
pollution to be $1.0 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. Each P&I Association has
capped its exposure to this pooling agreement at approximately
$5.4 billion. As a member of a P&I Association that is
a member of the International Group, we will be subject to calls
payable to the associations based on its 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.
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Our
Management
Directors and
Executive Officers
Set forth below are the names, ages and positions of our sole
director, nominees who have agreed to be appointed as directors
of the Company prior to the effective date of this registration
statement, and executive officers as of July 2, 2010. Our
board of directors is elected annually, and each director
elected holds office for a one-year term or until his successor
shall have been duly elected and qualified, except in the event
of his death, resignation or removal. Officers are elected from
time to time by vote of our board of directors and hold office
until a successor is elected. The business address for our sole
director and each director-nominee and executive officer is the
address of our principal executive office which is 625 Ridgebury
Road, Ridgefield, Connecticut 06877.
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Name
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Age
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Position
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Robert Burke
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Chairman, Sole Director, President and Chief Executive Officer
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Kevin Bavolar
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Chief Financial Officer
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Douglas E. Schimmel
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Director-Nominee
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Christopher McGrath
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Director-Nominee
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Robert L. Lewis
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Director-Nominee
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Kevin M. Kennedy
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Director-Nominee
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Biographical information with respect to our sole director and
each of our director-nominees and executive officers is set
forth below.
Robert Burke,
Chairman, Sole Director, President & Chief Executive
Officer
Robert Burke has been involved in the shipping industry for over
30 years in a variety of capacities. Mr. Burke
attended the U.S. Merchant Marine Academy in Kings Point,
New York, a U.S. Federal service academy, where he received
a degree in Nautical Science. After graduating in 1981, he
sailed as a ships officer aboard tankers for three years.
He attended Columbia University School of Business from 1983 to
1985, where he received a Masters of Business Administration in
Finance and International Business; afterwards, he arranged debt
financing and chartering for U.S. based tanker companies.
From 1990 to 1997, while Managing Director and head of GE
Capital Corporations ship finance division, he led a wide
range of financing and investing activities for shipping and
shipping-related companies, including equity, debt and leasing
in the U.S., Russia, Europe, South America and Asia. He later
directed investments in shipping companies while founder and
head of the $200 million Overseas Private Investment
Corporation Maritime Fund, an equity fund sponsored by both
U.S. government and private equity. Ultimately, this fund
was sold to a European bank with a positive return to all
limited partners. Most recently, in 2006, he negotiated the
successful purchase, was an equity investor in, and served as
Chief Executive Officer of Chembulk Tankers LLC, a company
specializing in the ownership and operation of chemical tankers
with a fleet of 19 chemical tankers. In January 2008, Chembulk
was sold to an Indonesian competitor. The sale provided a
significant return to investors of several times their equity
investment.
Kevin Bavolar,
Chief Financial Officer
Kevin Bavolar, our Chief Financial Officer, has been employed in
numerous finance roles over the past 30 years. He served as
the Vice-President of Financial Systems and Controls at
Greenfield Online, Inc. from May 2005 to January 2009.
Mr. Bavolars experience includes external and SEC
financial reporting for public corporations; sourcing and
structuring financial equity investments, primarily in the
oil & gas and energy industries; directing
Sarbanes-Oxley compliance for public corporations; and directing
financial budgeting, controllership, and GAAP compliance.
Mr. Bavolar has a B.S. in Accounting from Fordham
University.
Douglas E.
Schimmel, Director-Nominee
Douglas E. Schimmel has been employed at Sandler Capital
Management since 1994 and is currently the portfolio manager for
Sandler Capitals long/short credit fund. Mr. Schimmel
is a research analyst and leads credit analysis
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for the hedge fund team. Since joining Sandler Capital,
Mr. Schimmel has invested in both private and public
companies and currently serves as a director of Destinta
Theatres, LLC, Multivision Communications, Inc. and Trailer
Bridge, Inc. From 1993 to 1994, Mr. Schimmel was an equity
research analyst at Merrill Lynch, covering and publishing
investment research in the cable television and broadcasting
industries. From 1988 until 1993, he was an analyst/portfolio
manager at Wertheim Schroder & Company specializing in
media, telecommunications, and package food and beverage company
investments. He has in the past served as director of James
Cable Partners, L.P., Intercomm Holdings, LLC, Intercomm
Holdings Trinidad, LLC, Mediareseaux SA and Smart Route Systems,
Inc. Mr. Schimmel has served as well on the creditor
committees of Scott Cable Communications, Inc., Dan River, Inc.
and Lexington Precision, Corp. Mr. Schimmel has a B.A. from
the University of Miami.
Christopher
McGrath, Director-Nominee
Christopher McGrath has been employed since 2007 as Associate
General Counsel for the Patrolmens Benevolent Association
Of The City Of New York, Inc. He possesses responsibility for
pension disability and investment legal functions as they relate
to the union leaderships responsibilities as trustees to
the Police Pension Fund, the multi-billion dollar retirement
system of New York City Police Officers. From 2004 to 2007,
Mr. McGrath worked for the Harleysville Insurance Company
as Senior Trial Counsel representing Harleysville and its policy
holders in commercial and personal injury litigation. He worked
in private law practice as a litigator in commercial and
personal injury matters from 1999 to 2004. From 1985 to 1998,
Mr. McGrath worked in public service for the New York City
Human Resources Administration as Associate General Counsel for
three years and for the Office of the District Attorney of
Queens County as an Assistant District Attorney for
10 years. He received a JD from Fordham University in 1984
and a BA from Fairfield University in 1981.
Robert L. Lewis,
Director-Nominee
Robert L. Lewis retired from the General Electric Company in
2006 after 33 years of service in GEs financial
services business, most recently as an officer of GE and as the
business leader of GEs Structured Finance Group for
15 years. In that role, he took on a variety of assignments
in marketing and risk management. The Structured Finance Group
served a range of sectors including energy, telecommunications,
transportation and heavy industry, with specific product
expertise including project financing, leasing, secured lending
and the provision of equity capital. In addition to these
activities, the business invested in companies and projects in
Europe, Asia and Latin and South America. Mr. Lewis
received a MBA from Boston University in 1973 and an
undergraduate business degree from the University of Colorado in
1969. Currently, he serves as an advisor or board member to a
number or private enterprises.
Kevin M. Kennedy,
Director-Nominee
Kevin M. Kennedy has served since 2007 as the Chief Financial
Officer of Nautilus Holdings Limited, a ship leasing company
with 16 modern container vessels currently in service under
charter to major liner companies. From 2005 to 2007, he was the
Chief Financial Officer of Seaspan Corporation, a major public
ship leasing company. From 2001 to 2005, Mr. Kennedy was a
founding partner of Great Circle Capital LLC, a private equity
fund management company. From 1994 to 2001, he held several
positions in Marine Finance at GE Capital Services Structured
Finance Group, Inc. and from 1982 to 1994 held various positions
in shipping and marine finance. Mr. Kennedy earned an MBA
in Finance from Columbia University Graduate School of Business
in 1986 and a BS in Nautical Science in 1981 from the United
States Merchant Marine Academy. He has served as a director and
a member of the Audit Committee of Seaboard Corporation, as a
board member of Tufton Oceanic Limited, and has held various
other positions in the shipping industry.
Board of
Directors and Committees
Our board of directors will, prior to the closing of this
offering, consist of five directors. Under the corporate
governance rules of the Nasdaq Global Market, from which we have
derived our definition for determining whether a director is
independent, a majority of such board of directors will be
independent members constituting a majority of the board upon
the listing of our common shares on the Nasdaq Global Market.
Under the
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corporate governance rules of the Nasdaq Global Market, a
director will not be considered independent unless the board
affirmatively determines that the director has no material
relationship with us. In making this determination, the board
will broadly consider all facts and circumstances it deems
relevant from the standpoint of the director and from that of
persons or organizations with which the director has an
affiliation. Material relationships can include commercial,
industrial, banking, consulting, legal, accounting, charitable
and familial relationships among others. In addition, a director
would not be independent if:
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the director is, or has been within the last three years, an
employee of us, or an immediate family member is, or has been
within the last three years, an executive officer of us;
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the director has received, or has an immediate family member who
has received, during any
12-month
period within the last three years, more than $120,000 in direct
compensation from us other than director and committee fees and
pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way
on continued service);
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the director is a current partner or employee of a firm that is
our internal or external auditor; the director has an immediate
family member who is a current partner of such a firm; the
director has an immediate family member who is a current
employee of such a firm and personally works on our audit; or
the director or an immediate family member was within the last
three years a partner or employee of such a firm and personally
worked on our audit within that time;
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the director or an immediate family member is, or has been
within the last three years, employed as an executive officer of
another company where any of our present executive officers at
the same time serves or served on that other companys
compensation committee; or
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the director is a current employee, or an immediate family
member is a current executive officer, of another company that
has made payments to, or received payments from, us for property
or services in an amount which, in any of the last three fiscal
years, exceeds the greater of $1 million or 2% of such
other companys consolidated gross revenues.
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Prior to the closing of this offering, we will establish an
audit committee, a compensation committee, and a nominating and
corporate governance committee, each comprised of independent
directors.
Our audit committee will consist 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.
Our compensation committee will be responsible for establishing
executive officers compensation and benefits, reviewing
and making recommendations to the board regarding our
compensation policies and overseeing our 2010 Equity Incentive
Plan described below.
Our nominating and corporate governance committee 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.
Compensation of
Directors and Senior Management
We were formed in February 2010. 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.
We expect to pay aggregate total compensation to our senior
executive officers for the remainder of 2010 of approximately
$ . Each of our non-employee
directors will receive annual cash compensation in the aggregate
amount of $ annually, plus an
additional annual fee of $ for
each committee on which a director serves plus an additional
annual fee of $ for each committee
for which a director serves as Chairman, per year, plus
reimbursements for actual expenses incurred while acting in
their capacity as a director. Our officers and directors are
eligible to receive awards under our equity incentive plan which
is described below under 2010 Equity Incentive
Plan. We do not have a retirement plan for our officers or
directors.
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We believe that it is important to align the interests of our
directors and management with that of our shareholders. In this
regard, we have determined that it will generally be beneficial
to us and to our shareholders for our directors and management
to have a stake in our long-term performance. We expect to have
a meaningful component of our compensation package for our
management consist of equity interests in the Company in order
to provide them on an on-going basis with a meaningful
percentage of ownership in the Company. We intend each year to
grant our President and Chief Executive Officer, as well as our
Chief Financial Officer, a number of restricted common shares
with fair market value equal to %
of such officers respective total compensation for such
year.
Employment
Agreements
Prior to the completion of this offering, we will enter into
employment agreements with Messrs. Burke and Bavolar. These
employment agreements will provide for a five-year employment
period commencing upon this offering, and thereafter will
automatically renew annually for an additional one-year
employment period, unless either party provides
90 days prior notice of non-renewal of such
agreement. After the employment agreement is executed, but prior
to the completion of this offering, Messrs. Burke and
Bavolar will, without receiving any compensation except for the
reimbursement of expenses, provide us with consulting services.
The employment agreements will provide that, following the
completion of this offering and during their terms,
Mr. Burke will serve as our President and Chief Executive
Officer and Mr. Bavolar will serve as our Chief Financial
Officer. In addition, the employment agreements will provide
that, during the term of his employment agreement, our board of
directors will nominate Mr. Burke to serve on our board of
directors and will use its commercially reasonable efforts to
secure his election to the board. The employment agreement will
provide that Messrs. Burke and Bavolar will devote
substantially all of their business time and attention to the
performance of their duties under their respective employment
agreements but may engage in such other activities as may be
permitted under the employment agreements.
2010 Equity
Incentive Plan
We expect to adopt an equity incentive plan, which we refer to
as the plan, under which directors, officers, employees and
consultants of us and our affiliates are eligible to receive
incentive stock options and nonqualified stock options to
acquire our common shares, stock appreciation rights, restricted
common shares, performance units, unrestricted common shares and
other stock-based awards. We will reserve a total of
approximately % of the outstanding
common shares for issuance under the plan, subject to adjustment
for changes in capitalization as provided in the plan. Shares
subject to awards that are forfeited, terminated or repurchased
by us, and shares used to pay an options exercise price or
to satisfy tax withholding obligations in connection with
awards, will again become available for issuance under the plan.
The plan will initially be administered by our board of
directors or such committee of our board as may be appointed by
our board to serve as plan administrator.
Under the terms of the plan, unless otherwise determined by the
plan administrator, stock options and stock appreciation rights
granted under the plan will have an exercise price per common
share equal to no less than the fair market value of a common
share on the date of grant. Options and stock appreciation
rights will be exercisable at times and under conditions as
determined by the plan administrator, but in no event will they
be exercisable later than years
from the date of grant. Except for adjustments for changes in
capitalization, as provided in the plan, repricing of options to
reduce their exercise price is not permitted under the terms of
the plan.
The plan administrator may grant restricted common shares and
performance units subject to vesting and forfeiture provisions
and other terms and conditions as determined by the plan
administrator. With respect to performance units, at the end of
the applicable performance period, the plan administrator will
determine if the performance goals have been satisfied and the
award recipient will be entitled to receive the number of common
shares equal to the number of performance units determined to
have been earned, or cash equal to the fair market value of such
number of common shares, or a combination of such payment
methods, as determined by the plan administrator. The plan
administrator may also grant unrestricted common shares and
other awards that are valued
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in whole or in part by reference to, or are otherwise based
upon, our common shares, including dividend equivalents and
convertible debentures.
Adjustments may be made to outstanding awards in the event of a
corporate transaction or change in capitalization or other
extraordinary event. In the event of a change in
control (as defined in the plan), the plan administrator
may provide for the accelerated vesting
and/or
release of restrictions of awards then outstanding.
Our board of directors may amend or terminate the plan and may
amend outstanding awards, provided that generally no such
amendment or termination may be made that would materially
impair any rights, or materially increase any obligations, of a
grantee under an outstanding award. Shareholder approval of plan
amendments may be required under certain circumstances. Unless
terminated earlier by our board of directors, the plan will
expire years from the earlier of
the date the plan is adopted by our board or approved by our
shareholders.
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Certain
Relationships and Related Party Transactions
Registration
Rights
Pursuant to the Registration Rights Agreement, we will grant
Messrs. Burke and Bavolar customary registration rights
with respect to our common shares owned by them or purchased in
the concurrent private placement. Please see
Shares Eligible For Future SaleRegistration
Rights.
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Security
Ownership of Beneficial Owners and Management
The following table sets forth information regarding the
beneficial owners of more than 5.0% of our common shares, and
the beneficial ownership of each of our directors and executive
officers and of all of our directors and executive officers as a
group. All of our shareholders, including the shareholders
listed in this table, are entitled to one vote for each common
share held.
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Common
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Percentage of
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Stock to be
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Common
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Beneficially
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Stock
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Name and Address of Beneficial Owner(1)
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Owned
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Outstanding
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Robert Burke
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Kevin Bavolar
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All directors and officers as a group
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Unless otherwise indicated, the business address of each
beneficial owner identified is
c/o Ridgebury
Tankers Ltd, 625 Ridgebury Road, Ridgefield, Connecticut 06877. |
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Description of
Credit Facility
We summarize below the terms of the commitment letter we expect
to enter into by the closing of this offering for our credit
facility and the possible terms of such credit facility. Our
entering into the commitment letter and the credit facility will
be subject to due diligence by the prospective lenders and the
agreement on definitive documentation, among other things. We
cannot assure you that we will be successful in entering into
the commitment letter and the credit facility on the terms
described below, or at all.
Prior to or contemporaneous with the closing of this offering,
we expect to enter into a commitment letter for our credit
facility. We expect to use money borrowed under our credit
facility to fund future vessel acquisitions and for general
corporate purposes. We intend to refinance all or a portion of
the money that we borrow under our credit facility with the
proceeds of future equity offerings in order to maintain a
strong balance sheet with little or no debt. We are currently
negotiating the terms of our credit facility.
We expect that borrowings under our credit facility will be
secured by liens on our initial vessels and other related
assets. Our subsidiaries, which may at any time own one or more
of our initial vessels, will act as guarantors under our credit
facility.
We expect our credit facility will require us to comply with a
number of covenants, including financial covenants related to
liquidity, total leverage ratio, interest coverage ratio and
collateral maintenance; delivery of quarterly and annual
financial statements and annual projections; maintaining
adequate insurances; compliance with laws (including
environmental); compliance with ERISA; maintenance of flag and
class of the initial vessels; restrictions on consolidations,
mergers or sales of assets; prohibitions on changes in the
technical manager of the vessels that comprise our initial
fleet; limitations on changes to our management agreement;
limitations on liens; limitations on additional indebtedness;
prohibitions on paying dividends if an event of default has
occurred or would occur as a result of payment of a dividend;
prohibitions on transactions with affiliates; and other
customary covenants.
We expect our credit facility will also contain customary
conditions to borrowing, events of default and remedies.
90
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 may be
obtained from us as set forth under Where You Can Find
Additional Information.
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
Under our amended and restated articles of incorporation our
authorized capital stock consists of 250 million common
shares, par value $0.01 per share, of which 625 shares are
issued and outstanding, and 25 million preferred shares,
par value $0.01 per share, of which no shares are issued and
outstanding. The information in this prospectus gives effect to
a :1
common stock split (in the form of a stock dividend
of
common shares), which will take place prior to the completion of
this offering.
Common
Shares
Each outstanding common share entitles the holder to one vote on
all matters submitted to a vote of shareholders. Subject to
preferences that may be applicable to any outstanding shares of
preferred stock, holders of common shares are entitled to
receive ratably all dividends, if any, declared by our board of
directors out of funds legally available for dividends. Upon our
dissolution or liquidation or the sale of all or substantially
all of our assets, after payment in full of all amounts required
to be paid to creditors and to the holders of preferred stock
having liquidation preferences, if any, the holders of our
common shares are entitled to receive pro rata our remaining
assets available for distribution. Holders of common shares do
not have conversion, redemption or pre-emptive rights to
subscribe to any of our securities. The rights, preferences and
privileges of holders of common shares are subject to the rights
of the holders of any shares of preferred stock, which we may
issue in the future.
Preferred
Shares
Our amended and restated articles of incorporation authorize our
board of directors to establish one or more series of preferred
stock and to determine, with respect to any series of preferred
stock, the terms and rights of that series, including:
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the designation of the series;
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the number of shares of the series;
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the preferences and relative, participating, option or other
special rights, if any, and any qualifications, limitations or
restrictions of such series; and
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the voting rights, if any, of the holders of the series.
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Directors
Our directors are elected by a plurality of the votes cast by
shareholders entitled to vote. There is no provision for
cumulative voting.
Our amended and restated bylaws require our board of directors
to consist of at least one member. Upon the completion of this
offering, our board of directors will consist of five members.
Our amended and restated bylaws may be amended by the vote of a
majority of our entire board of directors.
91
Directors are elected annually, and each shall serve for a
one-year term and until his successor shall have been duly
elected and qualified, except in the event of his death,
resignation or removal. Our board of directors has the authority
to fix the amounts which shall be payable to the members of the
board of directors for attendance at any meeting or for services
rendered to us.
Shareholder
Meetings
Under our amended and restated bylaws, annual meetings of
shareholders will be held at a time and place selected by our
board of directors. The meetings may be held in or outside of
the Republic of The Marshall Islands. Special meetings may be
called at any time by a majority of our board of directors, the
chairman of our board of directors, an officer of the Company
who is also a director or a majority of the shares then
outstanding and eligible to vote. Our board of directors may set
a record date between 15 and 60 days before the date of any
meeting to determine the shareholders that will be eligible to
receive notice and vote at the meeting. One or more shareholders
representing at least one-third of the total voting rights of
our total issued and outstanding shares present in person or by
proxy at a shareholder meeting shall constitute a quorum for the
purposes of 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
and the sale of all or substantially all of our assets not made
in the usual course of our business, and receive payment of the
fair value of their shares. In the event of any further
amendment of our articles of incorporation, a shareholder also
has the right to dissent and receive payment for his or her
shares if the amendment alters certain rights in respect of
those shares. The dissenting 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 common shares, the BCA procedures involve, among other
things, the institution of proceedings in the high court of the
Republic of The Marshall Islands or in any appropriate court in
any jurisdiction in which our shares are primarily traded on a
local or national securities exchange.
Shareholders
Derivative Actions
Under the BCA, any of our shareholders may bring an action in
our name to procure a judgment in our favor, also known as a
derivative action, provided that the shareholder bringing the
action is a holder of common shares both at the time the
derivative action is commenced and at the time of the
transaction to which the action relates.
Limitations on
Liability and Indemnification of Officers and
Directors
The BCA authorizes corporations to limit or eliminate the
personal liability of directors and officers to corporations and
their shareholders for monetary damages for breaches of
directors fiduciary duties. Our amended and restated
articles of incorporation and bylaws 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 bylaws provide that we must indemnify our directors and
officers to the fullest extent authorized by law. We are also
expressly authorized to advance certain expenses (including
attorneys fees and disbursements and court costs) to our
directors and officers and carry directors and
officers insurance providing indemnification for our
directors, officers and certain employees for some liabilities.
We believe that these indemnification provisions and this
insurance are useful to attract and retain qualified directors
and executive officers.
The limitation of liability and indemnification provisions in
our articles of incorporation and bylaws may discourage
shareholders from bringing a lawsuit against directors for
breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if
successful, might otherwise benefit us and our shareholders. In
addition, your investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against
directors and officers pursuant to these indemnification
provisions.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
92
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.
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Marshall Islands
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Delaware
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Shareholder Meetings
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Held at a time and place as designated in the by-laws.
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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.
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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.
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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.
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May be held in or outside of the Marshall Islands.
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May be held in or outside of Delaware.
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Notice:
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Notice:
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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.
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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.
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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.
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Written notice shall be given not less
than 10 nor more than 60 days before the meeting.
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Shareholders Voting Rights
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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.
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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.
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Any person authorized to vote may authorize another person or
persons to act for him by proxy.
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Any person authorized to vote may authorize another person or
persons to act for him by proxy.
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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
common shares entitled to vote at a meeting.
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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.
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When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholders.
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When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholders.
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Marshall Islands
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Delaware
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The articles of incorporation may provide for cumulative voting
in the election of directors.
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The certificate of incorporation may provide for cumulative
voting in the election of directors.
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Any two or more domestic corporations may merge into a single
corporation if approved by the board and if authorized by a
majority vote of the holders of outstanding shares at a
shareholder meeting.
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Any two or more corporations existing under the laws of the
state may merge into a single corporation pursuant to a board
resolution and upon the majority vote by stockholders of each
constituent corporation at an annual or special meeting.
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Any sale, lease, exchange or other disposition of all or
substantially all the assets of a corporation, if not made in
the corporations usual or regular course of business, once
approved by the board, shall be authorized by the affirmative
vote of two-thirds of the shares of those entitled to vote at a
shareholder meeting.
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Every corporation may at any meeting of the board sell, lease or
exchange all or substantially all of its property and assets as
its board deems expedient and for the best interests of the
corporation when and as so authorized by a resolution adopted by
the holders of a majority of the outstanding stock of a
corporation entitled to vote.
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Any domestic corporation owning at least 90.0% of the
outstanding shares of each class of another domestic corporation
may merge such other corporation into itself without the
authorization of the shareholders of any corporation.
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Any corporation owning at least 90.0% of the outstanding shares
of each class of another corporation may merge the other
corporation into itself and assume all of its obligations
without the vote or consent of stockholders; however, in case
the parent corporation is not the surviving corporation, the
proposed merger shall be approved by a majority of the
outstanding stock of the parent corporation entitled to vote at
a duly called stockholder meeting.
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Any mortgage, pledge of or creation of a security interest in
all or any part of the corporate property may be authorized
without the vote or consent of the shareholders, unless
otherwise provided for in the articles of incorporation.
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Any mortgage or pledge of a corporations property and
assets may be authorized without the vote or consent of
stockholders, except to the extent that the certificate of
incorporation otherwise provides.
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Directors
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The board of directors must consist of at least one member.
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The board of directors must consist of at least one member.
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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 by-law.
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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 to the
certificate of incorporation.
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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.
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Marshall Islands
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Delaware
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Removal:
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Removal:
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Any or all of the directors may be removed for cause by vote of the shareholders.
If the articles of incorporation or the bylaws so provide, any or all of the directors may be removed without cause by vote of the shareholders.
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Any or all of the directors may be
removed, with or without cause, by the holders of a majority of
the shares entitled to vote except: (1) unless the certificate
of incorporation otherwise provides, in the case of a
corporation whose board is classified, stockholders may effect
such removal only for cause, or (2) if the corporation has
cumulative voting, if less than the entire board is to be
removed, no director may be removed without cause if the votes
cast against such directors removal would be sufficient to
elect such director if then cumulatively voted at an election of
the entire board of directors, or, if there be classes of
directors, at an election of the class of directors of which
such director is a part.
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Dissenters Rights of Appraisal
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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.
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Appraisal rights shall be available for the shares of any class
or series of stock of a corporation in a merger or
consolidation, 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.
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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:
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Alters or abolishes any preferential
right of any outstanding shares having preference; or
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Creates, alters or abolishes any
provision or right in respect to the redemption of any
outstanding shares.
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Alters or abolishes any preemptive right
of such holder to acquire shares or other securities; or
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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.
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Marshall Islands
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Delaware
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Shareholders Derivative Actions
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An action may be brought in the name 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 the action is brought and that he was
such a holder at the time of the transaction of which he
complains, or that his shares or his interest therein devolved
upon him by operation of law.
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In any derivative suit instituted by a shareholder or a
corporation, it shall be averred in the complaint that the
plaintiff was a shareholder of the corporation at the time of
the transaction of which he complains or that such
shareholders stock thereafter devolved upon such
shareholder by operation of law.
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A complaint shall set forth with particularity the efforts of
the plaintiff to secure the initiation of such action by the
board of directors or the reasons for not making such effort.
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Such action shall not be discontinued, compromised or settled
without the approval of the High Court of the Republic of The
Marshall Islands.
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Attorneys fees may be awarded if the action is successful.
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A corporation may require a plaintiff bringing a derivative suit
to give security for reasonable expenses if the plaintiff owns
less than 5% of any class of stock and the common shares have a
value of less than $50,000.
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96
Shares Eligible
for Future Sale
Upon completion of this offering and the concurrent private
placement, we will
have common
shares outstanding, assuming the underwriter does not exercise
its over-allotment option. Of these common shares, only
the
common shares sold in this offering will be freely transferable
in the United States without restriction under the Securities
Act, except for any common shares acquired by one of our
affiliates as defined in Rule 144 under the
Securities Act. Immediately after the closing of this offering
and the concurrent private placement, certain directors and
executive officers of our Company will continue to
own
of our common shares, which were acquired in private
transactions not involving a public offering, and these common
shares will therefore be treated as restricted
securities for purposes of Rule 144. The restricted
securities held by these persons will be subject to the
underwriters
lock-up
agreement, as described below. Restricted securities may not be
resold except in compliance with the registration requirements
of the Securities Act or under an exemption from those
registration requirements, such as the exemptions provided by
Rule 144, Regulation S and other exemptions under the
Securities Act.
Registration
Rights
Prior to or at the closing of this offering, we will enter into
a registration rights agreement with our directors and executive
officers pursuant to which we will grant them certain
registration rights with respect to our common shares owned by
them. Pursuant to the agreement, these executive officers and
directors will have the right, subject to certain terms and
conditions, to require us, on up
to
separate occasions following
the
anniversary of this offering, to register their common shares
under the Securities Act 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 shares by us.
Please read Certain Relationships and Related Party
TransactionsRegistration Rights.
Rule 144
In general, under Rule 144 as currently in effect, a person
or persons who is an affiliate, or whose shares are aggregated
and who owns shares that were acquired from the issuer or an
affiliate at least six months ago, would be entitled to sell,
within any three-month period, a number of shares that does not
exceed the greater of (i) 1% of our then outstanding common
shares, which would be
approximately
common shares immediately after this offering and the concurrent
private placement, or (ii) an amount equal to the average
weekly reported volume of trading in our common shares on all
national securities exchanges
and/or
reported through the automated quotation system of registered
securities associations during the four calendar weeks preceding
the date on which notice of the sale is filed with the SEC.
Sales in reliance on Rule 144 are also subject to other
requirements regarding the manner of sale, notice and
availability of current public information about us.
A person or persons whose common shares are aggregated, and who
is not deemed to have been one of our affiliates at any time
during the 90 days immediately preceding the sale, may sell
restricted securities in reliance on Rule 144(b)(1) without
regard to the limitations described above, subject to our
compliance with Exchange Act reporting obligations for at least
three months before the sale, and provided that six months have
expired since the date on which the same restricted securities
were acquired from us or one of our affiliates, and provided
further that such sales comply with the current public
information provision of Rule 144 (until the securities
have been held for one year). As defined in Rule 144, an
affiliate of an issuer is a person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, that same issuer.
We, our officers, directors, each beneficial owner of 1% or more
of the outstanding capital stock of the Company (including
Messrs. Burke and Bavolar) have agreed to a
180-day
lock-up with
respect to our common shares and other of our securities that
they beneficially own, including securities that are convertible
into common shares and securities that are exchangeable or
exercisable for common shares. This means that, without the
prior written consent of the underwriter, for a period of
180 days following the date of this prospectus, we and such
persons may not, subject to certain exceptions, directly or
indirectly (1) sell (including, without limitation, any
short sale), offer, contract or grant any option to sell
(including, without limitation, any short sale), pledge,
transfer, establish an open put equivalent position
within the meaning of
Rule 16a-1(h)
under the Exchange Act or otherwise
97
dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of
any common shares, options, rights or warrants to acquire common
shares, or securities exchangeable or exercisable for or
convertible into common shares (other than as contemplated in
this offering) currently or hereafter owned either of record or
beneficially or (2) publicly announce an intention to do
any of the foregoing. In addition, the
lock-up
period may be extended in the event that we issue an earnings
release or announce certain material news or a material event
with respect to us occurs during the last 17 days of the
lock-up
period, or prior to the expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period.
The restrictions in these
lock-up
agreements will not apply, subject to certain conditions, to the
transfer of any or all of the common shares owned by a
stockholder, either during such stockholders lifetime or
on death, by gift, will or interstate succession to the
immediate family of the stockholder or to a trust the
beneficiaries of which are exclusively the stockholder
and/or a
member or members of the stockholders immediate family,
provided, however, that the recipient agrees to be bound by such
restrictions. See
Lock-Up
Agreements below.
As a result of these
lock-up
agreements and the rules of the Securities Act, the restricted
shares will be available for sale in the public market, subject
to certain volume and other restrictions, as mentioned above, as
follows:
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Number of Shares
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Date
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Eligible for Sale
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Comment
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Date of prospectus
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None
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Shares not locked up and eligible for sale freely or under Rule
144
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180 days from date of prospectus(1)
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Lock-up released; shares eligible for sale under Rule 144
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,
2010
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Shares eligible for sale under Rule 144
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(1) |
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Assumes that the
lock-up
period will not be extended or waived in accordance with the
terms of the
lock-up
agreement and that the underwriter does not exercise its
over-allotment option. |
Prior to this offering, there has been no public market for our
common shares, and no prediction can be made as to the effect,
if any, that future sales or the availability of common shares
for sale will have on the market price of our common shares
prevailing from time to time. Nevertheless, sales of substantial
amounts of our common shares in the public market, including
common shares issued upon the exercise of options that may be
granted under any employee stock option or employee stock award
plan of ours, or the perception that those sales may occur,
could adversely affect prevailing market prices for our common
shares.
Lock-Up
Agreements
In connection with this offering, we, our officers, directors,
each beneficial owner of 1% or more of the outstanding capital
stock of the company (including Messrs. Burke and Bavolar)
have agreed with the underwriter, subject to certain exceptions,
not to sell, dispose of or hedge any of our common shares for a
period of at least 180 days after the date of this
prospectus, except with the prior written consent of the
underwriter. Please read UnderwritingNo Sales of
Similar Securities.
98
Tax
Considerations
The following is a discussion of the material Marshall Islands
and United States federal income tax considerations relevant to
an investment decision by a U.S. Holder and a
Non-U.S. Holder,
each as defined below, with respect to the common stock. This
discussion does not purport to deal with the tax consequences of
owning common shares to all categories of investors, such as
banks, regulated investment companies, insurance companies, tax
exempt organizations, dealers in securities, partners and
partnerships, S corporations, estates and trusts, investors
that hold their common shares as part of a hedge, straddle or
integrated conversion transaction, and U.S. Holders whose
functional currency is not the United States dollar, some of
which 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. This
discussion does not contain a detailed description of all the
United States federal income tax consequences that may apply to
your particular situation and should not be viewed as tax
advice. You are encouraged to consult your own tax advisors
concerning the overall tax consequences arising in your own
particular situation under United States federal, state, local
or foreign law of the ownership of common stock, the effect of
any changes in applicable tax law, and your entitlement to
benefits under any applicable income tax treaty.
Marshall Islands
Tax Considerations
In the opinion of Seward & Kissel LLP, the following
are the material Marshall Islands tax consequences of the
Companys activities to the Company and its shareholders of
the common stock. The Company is incorporated in the Marshall
Islands. Under current Marshall Islands law, the Company is not
subject to tax on income or capital gains, and no Marshall
Islands withholding tax will be imposed upon payments of
dividends by the Company to its shareholders.
United States
Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, the
Companys United States counsel, the following are the
material United States federal income tax consequences to the
Company of its activities and to U.S. Holders and
Non-U.S. Holders,
each as defined below, of the common stock. The following
discussion of United States federal income tax matters is based
on the United States Internal Revenue Code of 1986, as amended,
or the Code, judicial decisions, administrative pronouncements,
and existing and proposed regulations issued by the United
States Department of the Treasury, all of which are subject to
change, possibly with retroactive effect. The discussion below
is based, in part, on the description of the Companys
business as described herein and assumes that the Company
conducts its business as described therein. References in the
following discussion to the Company are to Ridgebury
Tankers Ltd and its subsidiaries, collectively.
United States
Federal Income Taxation of the Company
Taxation
of Operating Income: In General
Unless exempt from United States federal income taxation under
the rules discussed below, a foreign corporation is subject to
United States federal income taxation 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, from the participation in a pool, partnership, strategic
alliance, joint operating agreement, code sharing arrangements
or other joint venture it directly or indirectly owns or
participates in that generates such income, or from the
performance of services directly related to those uses, which we
refer to as shipping income, to the extent that the
shipping income is derived from sources within the United States.
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 income from
sources within the United States, which we refer to as
United States-source shipping income.
99
Shipping income attributable to transportation exclusively
between
non-United
States ports will be considered to be 100% derived from sources
outside the United States. Shipping income derived from sources
outside the United States will not be subject to any United
States federal income tax.
Shipping income attributable to transportation exclusively
between United States ports is considered to be 100% derived
from United States sources. However, the Company is not
permitted by United States law to engage in the transportation
of cargoes that produces 100% United States source income.
Unless exempt from tax under Section 883, the
Companys gross United States-source shipping income would
be subject to a 4% tax imposed without allowance for deductions
as described below.
Exemption
of Operating Income from United States Federal Income
Taxation
Under Section 883 and the regulations thereunder, a foreign
corporation will be exempt from United States federal income
taxation on its United States-source shipping income if:
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(1)
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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
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(2)
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one of the following tests is met:
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(A)
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more than 50% of the value of its shares 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;
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(B)
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its shares are primarily and regularly traded on an
established securities market in a qualified foreign
country or in the United States, to which we refer as the
Publicly-Traded Test; or
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(C)
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we are a controlled foreign corporation, or CFC, for
U.S. federal income tax purposes and we satisfy the
Qualified U.S. Person Ownership Test, each as
described in more detail below, to which we refer to as the
CFC Test.
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The Republic of the Marshall Islands, the jurisdiction where the
Company and its ship-owning subsidiaries are incorporated, has
been officially recognized by the IRS as a qualified foreign
country that grants the requisite equivalent
exemption from tax in respect of each category of shipping
income the Company earns and currently expects to earn in the
future. Therefore, the Company will be exempt from United States
federal income taxation with respect to its United States-source
shipping income if it satisfies either the 50% Ownership Test,
the Publicly-Traded Test or the CFC Test.
After this offering, although it is not free from doubt, the
Company should satisfy the Publicly-Traded Test, as discussed
below, and under certain circumstances may satisfy the CFC Test.
The Company does not currently anticipate a circumstance under
which it would be able to satisfy the 50% Ownership Test after
this offering.
Publicly-Traded
Test
The regulations under Section 883 provide, in pertinent
part, that shares of a foreign corporation will be considered to
be primarily traded on an established securities
market in a country if the number of shares of each class of
shares that are traded during any taxable year on all
established securities markets in that country exceeds the
number of shares in each such class that are traded during that
year on established securities markets in any other single
country. After this offering, the Companys common stock,
which is its sole class of issued and outstanding shares, will
be primarily traded on the Nasdaq Global Market.
Under the regulations, the Companys common stock will be
considered to be regularly traded on an established
securities market if one or more classes of its shares
representing more than 50% of its outstanding shares, by both
total combined voting power of all classes of shares entitled to
vote and total value, are listed on such market, to
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which we refer as the listing threshold. Since,
after this offering, all the Companys common stock will be
listed on the Nasdaq Global Market, the Company should satisfy
the listing threshold.
It is further required that with respect to each class of shares
relied upon to meet the listing threshold, (i) such class
of shares is traded on the 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 (ii) the
aggregate number of shares of such class of shares traded on
such market during the taxable year is at least 10% of the
average number of shares of such class of shares outstanding
during such year or as appropriately adjusted in the case of a
short taxable year. The Company believes that it will satisfy
the trading frequency and trading volume tests. Even if this
were not the case, the regulations provide that the trading
frequency and trading volume tests will be deemed satisfied if,
as is expected to be the case with the Companys common
stock, such class of shares is traded on an established market
in the United States and such shares are regularly quoted by
dealers making a market in such shares.
Notwithstanding the foregoing, the regulations provide, in
pertinent part, that a class of shares will not be considered to
be regularly traded on an established securities
market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are owned,
actually or constructively under specified share attribution
rules, on more than half the days during the taxable year by
persons who each own 5% or more of the vote and value of such
class of outstanding shares, to which we refer as the
5 Percent Override Rule.
For purposes of being able to determine the persons who actually
or constructively own 5% or more of the vote and value of the
Companys common stock, or 5% Shareholders, the
regulations permit the Company to rely on those persons that are
identified on Schedule 13G and Schedule 13D filings
with the Securities and Exchange Commission, as owning 5% or
more of the Companys common stock. 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 such purposes.
In the event the 5 Percent Override Rule is triggered, the
regulations provide that the 5 Percent Override Rule will
nevertheless not apply if the Company can establish that within
the group of 5% Shareholders, there are sufficient qualified
shareholders for purposes of Section 883 to preclude
non-qualified shareholders in such group from owning 50% or more
of the Companys common stock for more than half the number
of days during the taxable year.
After this offering, although it is not free from doubt, we
anticipate that we will satisfy the Publicly-Traded Test and
will not be subject to the 5 Percent Override Rule.
However, if our 5% Shareholders were to come to own 50% or more
of our common stock, then we would be subject to the 5% Override
Rule unless we could establish that among the closely-held group
of 5% Shareholders, there are sufficient 5% Shareholders that
are qualified stockholders for purposes of Section 883 to
preclude non-qualified 5% Shareholders in the closely-held group
from owning 50% or more of each class of our stock for more than
half the number of days during the taxable year. In order to
establish this, sufficient 5% Shareholders that are qualified
stockholders would have to comply with certain documentation and
certification requirements designed to substantiate their
identity as qualified stockholders. These requirements are
onerous and there is no certainty that we will satisfy them.
CFC
Test
We will be a CFC for U.S. federal income tax purposes if
more than 50% of our common stock, our sole class of issued and
outstanding stock, is owned by United States persons each of
whom actually or constructively owns 10% or more of such common
stock. We refer to such 10% United States persons as
United States Shareholders. Depending upon the
ownership of our stock after this offering, we may be treated as
a CFC.
We will satisfy the Qualified U.S. Person Ownership Test if
more than 50% of the total value of our outstanding stock is
owned (directly or indirectly through specified attribution
rules) by one or more qualified U.S. persons. A
qualified U.S. person is a U.S. citizen,
resident alien, domestic corporation or a tax-exempt domestic
trust. In order to establish our exemption under the CFC Test,
each qualified U.S. person and each
intermediary in the chain of ownership between us and the
qualified U.S. person must provide us with an
ownership statement signed under penalty of perjury. Depending
upon the ownership of our stock after this offering, we may be
able to
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satisfy the Qualified U.S. Person Ownership Test, although
we can give no assurance that this will be or will remain the
case.
If we are a CFC and we satisfy the Qualified U.S. Person
Ownership Test, then we would satisfy the CFC Test and we would
be exempt from U.S. federal income tax on our
U.S. source shipping income under Section 883. There
can be no assurance that we will be treated as a CFC or will
satisfy the Qualified U.S. Person Ownership Test.
Taxation
In Absence of Section 883 Exemption
If the benefits of Section 883 are unavailable, the
Companys United States source shipping income would be
subject to a 4% tax imposed by Section 887 of the Code on a
gross basis, without the benefit of deductions, to the extent
that such income is not considered to be effectively
connected with the conduct of a United States trade or
business, as described below. Since under the sourcing rules
described above, no more than 50% of the Companys shipping
income would be treated as being United States source shipping
income, the maximum effective rate of United States federal
income tax on the Companys shipping income would never
exceed 2% under the 4% gross basis tax regime.
To the extent the Companys United States source shipping
income is considered to be effectively connected
with the conduct of a United States trade or business, as
described below, any such effectively connected
United States source shipping income, net of applicable
deductions, would be subject to United States federal income
tax, currently imposed at rates of up to 35%. In addition, the
Company may be subject to the 30% branch profits tax
on earnings effectively connected with the conduct of such trade
or business, as determined after allowance for certain
adjustments, and on certain interest paid or deemed paid
attributable to the conduct of the Companys United States
trade or business.
The Companys United States source shipping income would be
considered effectively connected with the conduct of
a United States trade or business only if:
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the Company has, or is considered to have, a fixed place of
business in the United States involved in the earning of United
States source shipping income; and
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substantially all of the Companys United States 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.
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Although the Company may be considered to have a fixed place of
business in the United States, the Company does not intend to
have, or permit circumstances that would result in having, any
vessel sailing to or from the United States on a regularly
scheduled basis. Based on the foregoing and on the expected mode
of the Companys shipping operations and other activities,
it is anticipated that none of the Companys United States
source shipping income will be effectively connected
with the conduct of a United States trade or business.
United
States Taxation of Gain on Sale of Vessels
If, as the Company believes, it qualifies for exemption from tax
under Section 883 in respect of the shipping income derived
from the international operation of its vessels, then gain from
the sale of any such vessel should likewise be exempt from tax
under Section 883. If, however, the Companys shipping
income from such vessels does not for whatever reason qualify
for exemption under Section 883 and assuming that any
decision on a vessel sale is made from and attributable to the
United States office of the Company, as we believe likely to be
the case as the Company is currently structured, then any gain
derived from the sale of any such vessel will be treated as
derived from United States sources and subject to United States
federal income tax as effectively connected income
(determined under rules different from those discussed above)
under the above described net income tax regime and, to an
extent, potentially subject to an additional 30% tax under the
above described branch profits tax.
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United
States Federal Income Taxation of U.S. Holders
As used herein, the term U.S. Holder means a
beneficial owner of common stock that is an individual United
States citizen or resident, a United States corporation or other
United States entity taxable as a corporation, an estate the
income of which is subject to United States federal income
taxation regardless of its source, or a trust if a court within
the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more United States
persons have the authority to control all substantial decisions
of the trust.
If a partnership (or an entity treated as a partnership for
United States federal income tax purposes) holds the common
stock, the tax treatment of a partner will generally depend upon
the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding the
common stock, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment
companies below, any distributions made by the Company with
respect to its common stock to a U.S. Holder will generally
constitute dividends to the extent of the Companys current
or accumulated earnings and profits, as determined under United
States federal income tax principles. Distributions in excess of
such earnings and profits will be treated first as a nontaxable
return of capital to the extent of the U.S. Holders
tax basis in his common stock on a
dollar-for-dollar
basis and thereafter as capital gain. Because the Company is not
a United States 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
the Company. Dividends paid with respect to the Companys
common stock will generally be treated as passive category
income for purposes of computing allowable foreign tax
credits for United States foreign tax credit purposes.
Under current law, if we were to pay any dividends in 2010 on
the Companys common stock to a U.S. Holder who is an
individual, trust or estate (a U.S. Non-Corporate
Holder), we anticipate that any such dividends would 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 Nasdaq Global Market on which the
Companys common stock is traded); (2) the Company is
not a passive foreign investment company for the taxable year
during which the dividend is paid or the immediately preceding
taxable year (which, as discussed below, the Company does not
anticipate being); (3) the U.S. Non-Corporate Holder
has owned the common stock for more than 60 days in the
121-day
period beginning 60 days before the date on which the
common stock becomes ex-dividend; and (4) the
U.S. Non-Corporate Holder is not under an obligation to
make related payments with respect to positions in substantially
similar or related property. In the absence of new legislation
extending the term of the preferential tax rates for qualified
dividend income, all dividends received by a taxpayer in tax
years beginning on January 1, 2011 or later will be taxed
at ordinary graduated tax rates. It should be noted that the
Company does not currently anticipate that it will pay any
dividends prior to January 1, 2011.
Even if new legislation were to extend preferential rates to
dividends paid after 2010, there is no assurance that any
dividends paid on the Companys common stock would be
eligible for preferential rates in the hands of a
U.S. Non-Corporate Holder, although, as described above,
they should be so eligible. Legislation has been previously
introduced in the United States Congress which, if enacted in
its present form, would preclude the Companys dividends
from qualifying for preferential rates prospectively from the
date of enactment. Any dividends out of earnings and profits the
Company pays which are not eligible for preferential rates will
be taxed as ordinary income to a U.S. Non-Corporate Holder.
Special rules may apply to any extraordinary
dividendgenerally, a dividend in an amount which is
equal to or in excess of 10% of a shareholders adjusted
basis in a common sharepaid by the Company. If the Company
pays an extraordinary dividend on its 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.
103
Sale,
Exchange or Other Disposition of Common Stock
Assuming the Company does not constitute a passive foreign
investment company for any taxable year, a U.S. Holder
generally will recognize taxable gain or loss upon a sale,
exchange or other disposition of the Companys common stock
in an amount equal to the difference between the amount realized
by the U.S. Holder from such sale, exchange or other
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 sale, exchange or other
disposition. Such capital gain or loss will generally be treated
as United States source income or loss, as applicable, for
United States foreign tax credit purposes. Long-term capital
gains of U.S. Non-Corporate Holders are currently 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
Special United States federal income tax rules apply to a
U.S. Holder that holds shares in a foreign corporation
classified as a passive foreign investment company,
or PFIC, for United States federal income tax purposes. In
general, the Company will be treated as a passive foreign
investment company with respect to a U.S. Holder if, for
any taxable year in which such holder holds the Companys
common stock, either
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at least 75% of the Companys gross income for such taxable
year consists of passive income (e.g., dividends, interest,
capital gains and rents derived other than in the active conduct
of a rental business); or
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at least 50% of the average value of the Companys assets
during such taxable year produce, or are held for the production
of, passive income.
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For purposes of determining whether the Company is a PFIC, the
Company will be treated as earning and owning its proportionate
share of the income and assets, respectively, of any of its
subsidiary corporations in which the Company owns at least 25%
of the value of the subsidiarys stock. Income earned, or
deemed earned, by the Company in connection with the performance
of services would not constitute passive income. By contrast,
rental income would generally constitute passive
income unless the Company was treated under specific rules
as deriving its rental income in the active conduct of a trade
or business.
Based upon the Companys expected operations as described
herein, its income from time charters should not be treated as
passive income for purposes of determining whether it is a PFIC.
Although there is no legal authority directly on point, this
view is based principally on the position that the gross income
the Company derives from its time chartering activities should
constitute services income, rather than rental income.
Accordingly, such income should not constitute passive income,
and the assets that the Company owns and operates in connection
with the production of such income, in particular, the vessels,
should not constitute passive assets for purposes of determining
whether the Company is a PFIC. There is substantial legal
authority supporting this position consisting of case law and
IRS pronouncements concerning the characterization of income
derived from time charters as services income for other tax
purposes. However, there is also authority which characterizes
time charter income as rental income rather than services income
for other tax purposes. It should be noted that in the absence
of any legal authority specifically relating to the statutory
provisions governing PFICs, the IRS or a court could disagree
with this position. Therefore, although it is not free from
doubt, based on the Companys current operations and future
projections, the Company should not be treated as a PFIC with
respect to any taxable year after the offering. However,
although the Company intends to conduct its affairs in a manner
to avoid being classified as a PFIC with respect to any taxable
year, the Company cannot assure you that the nature of its
operations will not change in the future. In addition, although
the Company intends to acquire certain identified vessels with
the proceeds of the offering, if such acquisition was not to be
consummated in a timely manner, the Company could be treated as
a PFIC.
As discussed more fully below, if the Company were to be treated
as a PFIC for any taxable year, a U.S. Holder would be
subject to different taxation rules depending on whether the
U.S. Holder makes an election to treat the Company as a
Qualified Electing Fund, which election we refer to
as a QEF election. As an alternative to making a QEF
election, a U.S. Holder should be able to make a
mark-to-market
election with respect to the Companys common stock, as
discussed below. For taxable years beginning on or after
March 18, 2010, a
104
U.S. Holder of shares in a PFIC will be required to file an
annual information return containing information regarding the
PFIC as required by applicable Treasury Regulations.
Taxation
of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which
U.S. Holder we refer to as an Electing Holder,
the Electing Holder must report for United States federal income
tax purposes its pro rata share of the Companys ordinary
earnings and net capital gain, if any, for each taxable year of
the Company for which it is a PFIC that ends with or within the
taxable year of the Electing Holder, regardless of whether or
not distributions were received from the Company by the Electing
Holder. No portion of any such inclusions of ordinary earnings
will be treated as qualified dividend income. Net
capital gain inclusions of United States Non-Corporate Holders
would be eligible for preferential capital gains tax rates. The
Electing Holders adjusted tax basis in the common stock
will be increased to reflect taxed but undistributed earnings
and profits. Distributions of earnings and profits that had been
previously taxed will result in a corresponding reduction in the
adjusted tax basis in the common stock and will not be taxed
again once distributed. An Electing Holder would not, however,
be entitled to a deduction for its pro rata share of any losses
that the Company incurs with respect to any year. An Electing
Holder would generally recognize capital gain or loss on the
sale, exchange or other disposition of the Companys common
stock. A U.S. Holder would make a timely QEF election for
shares of the Company by filing one copy of IRS Form 8621
with his United States federal income tax return for the first
year in which he held such shares when the Company was a PFIC.
If the Company were to be treated as a PFIC for any taxable
year, the Company would provide each U.S. Holder with all
necessary information in order to make the QEF election
described above.
Taxation
of U.S. Holders Making a
Mark-to-Market
Election
Alternatively, if the Company were to be treated as a PFIC for
any taxable year and, as is currently the case, its shares are
treated as marketable stock, a U.S. Holder
would be allowed to make a
mark-to-market
election with respect to the Companys common stock,
provided the U.S. Holder completes and files IRS
Form 8621 in accordance with the relevant instructions and
related Treasury regulations. If that election is made, the
U.S. Holder generally would include as ordinary income in
each taxable year the excess, if any, of the fair market value
of the common stock at the end of the taxable year over such
holders adjusted tax basis in the common stock. The
U.S. Holder would also be permitted an ordinary loss in
respect of the excess, if any, of the U.S. Holders
adjusted tax basis in the common stock over its fair market
value at the end of the taxable year, but only to the extent of
the net amount previously included in income as a result of the
mark-to-market
election. A U.S. Holders tax basis in his common
stock would be adjusted to reflect any such income or loss
amount. Gain realized on the sale, exchange or other disposition
of the Companys common stock would be treated as ordinary
income, and any loss realized on the sale, exchange or other
disposition of the common 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.
Taxation
of U.S. Holders Not Making a Timely QEF or
Mark-to-Market
Election
Finally, if the Company were to be treated as a PFIC for any
taxable year, a U.S. Holder who does not make either a QEF
election or a
mark-to-market
election for that year, whom we refer to as a Non-Electing
Holder, would be subject to special rules with respect to
(1) any excess distribution (i.e., the portion of any
distributions received by the Non-Electing Holder on the common
stock in a taxable year in excess of 125% of the average annual
distributions received by the Non-Electing Holder in the three
preceding taxable years, or, if shorter, the Non-Electing
Holders holding period for the common stock), and
(2) any gain realized on the sale, exchange or other
disposition of the Companys common stock. Under these
special rules:
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the excess distribution or gain would be allocated ratably over
the Non-Electing Holders aggregate holding period for the
common stock;
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the amount allocated to the current taxable year, and any
taxable year prior to the first taxable year in which the
Company was a PFIC, would be taxed as ordinary income and would
not be qualified dividend income; and
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the amount allocated to each of the other taxable years would be
subject to tax at the highest rate of tax in
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105
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effect for the applicable class of taxpayer for that year, and
an interest charge for the deemed deferral benefit would be
imposed with respect to the resulting tax attributable to each
such other taxable year.
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These special rules would not apply to a qualified pension,
profit sharing or other retirement trust or other tax-exempt
organization that did not borrow money or otherwise utilize
leverage in connection with its acquisition of the
Companys common stock. If the Company is a PFIC and a
Non-Electing Holder who is an individual dies while owning the
Companys common stock, such holders successor
generally would not receive a
step-up in
tax basis with respect to such shares.
Controlled
Foreign Corporation Status and Significant Tax
Consequences
As discussed above, we will be treated as a CFC for
U.S. federal income tax purposes if more than 50% of our
common stock, our sole class of issued and outstanding stock, is
owned by United States Shareholders (i.e., United States persons
each of whom actually or constructively owns 10% or more of such
common stock).
If we are treated as a CFC, then, subject to a de minimis
exception, each United States Shareholder will be required to
include in his income for our taxable year ending with or within
the United States Shareholders taxable year, his pro rata
share of our Subpart F income. Subpart F income
includes, among other items, interest, dividends, rents,
royalties and capital gains derived from assets producing the
above types of income. However, Subpart F income does not
include income derived from the performance of services for
unrelated persons. Therefore, income derived by us from the time
or voyage charter of our vessels should not be treated as
Subpart F income. Income derived by us from the bareboat charter
of vessels, if any, will generally be treated as Subpart F
income.
In addition, if we are treated as a CFC, then a portion of the
gain realized by a U.S. Holder who owns or owned at least
10% of our voting shares at any time during the five-year period
ending on the date of his sale, exchange or other taxable
disposition of such shares will be required to treat the gain
realized on such disposition as a dividend rather than as
capital gain up to the amount of his pro rata share of our
undistributed, untaxed earnings and profits. This deemed
dividend will be taxed in manner described above under
Distributions. Any gain realized on the disposition
of our common shares in excess of the U.S. Holders
pro rata share of our undistributed, untaxed earnings and
profits will be treated as capital gain and taxed in the manner
described above under Sale, Exchange or Other Disposition
of Common Shares.
It should be noted the PFIC rules will not apply to any United
States Shareholder for the portion of his holding period during
which we are a CFC.
United
States Federal Income Taxation of
Non-U.S.
Holders
A beneficial owner of common stock (other than a partnership)
that is not a U.S. Holder is referred to herein as a
Non-U.S. Holder.
If a partnership (or an entity treated as a partnership for
United States federal income tax purposes) holds the common
stock, the tax treatment of a partner will generally depend upon
the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding the
common stock, you are encouraged to consult your tax advisor.
Dividends
on Common Stock
Non-U.S. Holders
generally will not be subject to United States federal income
tax or withholding tax on dividends received from the Company
with respect to its common stock, unless that income is
effectively connected with the
Non-U.S. Holders
conduct of a trade or business in the United States. If the
Non-U.S. Holder
is entitled to the benefits of a United States income tax treaty
with respect to those dividends, that income is taxable only if
it is attributable to a permanent establishment maintained by
the
Non-U.S. Holder
in the United States.
106
Sale,
Exchange or Other Disposition of Common Stock
Non-U.S. Holders
generally will not be subject to United States federal income
tax or withholding tax on any gain realized upon the sale,
exchange or other disposition of the Companys common
stock, unless:
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the gain is effectively connected with the
Non-U.S. Holders
conduct of a trade or business in the United States (and, if the
Non-U.S. Holder
is entitled to the benefits of an income tax treaty with respect
to that gain, that gain is attributable to a permanent
establishment maintained by the
Non-U.S. Holder
in the United States); or
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the
Non-U.S. Holder
is an individual who is present in the United States for
183 days or more during the taxable year of disposition and
other conditions are met.
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If the
Non-U.S. Holder
is engaged in a United States trade or business for United
States federal income tax purposes, the income from the common
stock, including dividends and the gain from the sale, exchange
or other disposition of the common stock, that is effectively
connected with the conduct of that trade or business will
generally be subject to regular United States federal income tax
in the same manner as discussed in the previous section relating
to the taxation of U.S. Holders. In addition, if you are a
corporate
Non-U.S. Holder,
your earnings and profits that are attributable to the
effectively connected income, which are subject to certain
adjustments, may be subject to an additional branch profits tax
at a rate of 30%, or at a lower rate as may be specified by an
applicable income tax treaty.
Backup
Withholding and Information Reporting
In general, dividend payments, or other taxable distributions,
made within the United States to you will be subject to
information reporting requirements if you are a non-corporate
U.S. Holder. Such payments or distributions may also be
subject to backup withholding tax if you are a non-corporate
U.S. Holder and you:
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fail to provide an accurate taxpayer identification number;
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are notified by the IRS that you have failed to report all
interest or dividends required to be shown on your federal
income tax returns; or
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in certain circumstances, fail to comply with applicable
certification requirements.
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Non-U.S. Holders
may be required to establish their exemption from information
reporting and backup withholding by certifying their status on
IRS
Form W-8BEN,
W-8ECI or
W-8IMY, as
applicable.
If you are a
Non-U.S. Holder
and you sell your common stock to or through a United States
office of a broker, the payment of the proceeds is subject to
both United States backup withholding and information reporting
unless you certify that you are a
non-United
States person, under penalties of perjury, or you otherwise
establish an exemption. If you sell your common stock through a
non-United
States office of a
non-United
States broker and the sales proceeds are paid to you outside the
United States, then information reporting and backup withholding
generally will not apply to that payment. However, United States
information reporting requirements, but not backup withholding,
will apply to a payment of sales proceeds, even if that payment
is made to you outside the United States, if you sell your
common stock through a
non-United
States office of a broker that is a United States person or has
some other contacts with the United States. Such information
reporting requirements will not apply, however, if the broker
has documentary evidence in its records that you are a
non-United
States person and certain other conditions are met, or you
otherwise establish an exemption. Backup withholding tax is not
an additional tax. Rather, you generally may obtain a refund of
any amounts withheld under backup withholding rules that exceed
your income tax liability by filing a refund claim with the IRS.
107
Underwriting
Subject to the terms and conditions set forth in the
underwriting agreement to be dated on or
about ,
2010, between us and Jefferies & Company, Inc., as
underwriter, we have agreed to sell to the underwriter and the
underwriter has agreed to purchase from us, the entire number of
common shares indicated in the table below:
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Number of Common
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Underwriter
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Shares
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Jefferies & Company, Inc.
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Total
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The underwriting agreement provides that the obligations of the
underwriter are subject to certain conditions precedent such as
the receipt by the underwriter of officers certificates
and legal opinions and the approval of certain legal matters by
its counsel. The underwriting agreement provides that the
underwriter will purchase all of the common shares if any of the
common shares are purchased. We have agreed to indemnify the
underwriter and certain of its controlling persons jointly and
severally against certain liabilities, including certain
liabilities under the Securities Act, and to contribute to
payments that the underwriter may be required to make in respect
of those liabilities.
The underwriter has advised us that it currently intends to make
a market in the common shares. However, the underwriter is not
obligated to do so and may discontinue any market-making
activities at any time without notice. No assurance can be given
as to the liquidity of the trading market for the common shares.
The underwriter is offering the common shares subject to its
acceptance of the common shares from us and subject to prior
sale. The underwriter reserves the right to withdraw, cancel or
modify offers to the public and to reject orders in whole or in
part. In addition, the underwriter has advised us that it does
not intend to confirm sales to any account over which it
exercises discretionary authority without the consent of the
customer.
Commission and
Expenses
The underwriter has advised us that it proposes to offer the
common shares to the public at the initial public offering price
set forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of
$ per common share. The
underwriter may allow, and certain dealers may reallow, a
discount from the concession not in excess of
$ per common share to certain
brokers and dealers. After the offering, the initial public
offering price, concession and reallowance to dealers may be
reduced by the underwriter. No such reduction will change the
amount of proceeds to be received by us as set forth on the
cover page of this prospectus.
The following table shows the public offering price, the
underwriting discounts and commissions that we are to pay to the
underwriter and the proceeds, before expenses, to us in
connection with this offering. Such amounts are shown assuming
both no exercise and full exercise of the underwriters
option to purchase additional common shares.
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Per Share
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Total
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Without
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With
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Without
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With
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Option to
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Option to
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Option to
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Option to
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Purchase
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Purchase
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Purchase
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Purchase
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Additional
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Additional
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Additional
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Additional
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Shares
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Shares
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Shares
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Shares
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Public offering price
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$
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$
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$
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$
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Underwriting discounts and commissions paid by us(1)
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$
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$
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Proceeds to us, before expenses
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$
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$
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$
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$
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No underwriting discount or commissions will be received in
connection with the purchase by Mr. Burke and his family of
$5.8 million of our common shares in a concurrent private
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108
We estimate expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions
referred to above, will be approximately
$ .
Determination of
Offering Price
Prior to the offering, there has not been a public market for
our common shares. Consequently, the initial public offering
price for our common shares will be determined by negotiations
between us and the underwriter. Among the factors to be
considered in these negotiations will be prevailing market
conditions, our financial information, market valuations of
other companies that we and the underwriter believe to be
comparable to us, estimates of our business potential, the
present state of our development and other factors deemed
relevant.
We offer no assurances that the initial public offering price
will correspond to the price at which the common shares will
trade in the public market subsequent to the offering or that an
active trading market for the common shares will develop and
continue after the offering.
Listing
We intend to apply to have our common shares approved for
listing on the Nasdaq Global Market under the trading symbol
RDGE.
Option to
Purchase Additional Common Shares
We have granted to the underwriter an option, exercisable for
30 days from the date of this prospectus, to purchase up to
an aggregate
of
additional common shares from us at the public offering price
set forth on the cover page of this prospectus, less
underwriting discounts and commissions. This option may be
exercised only if the underwriter sells more common shares than
the total number set forth in the table above.
No Sales of
Similar Securities
We, our officers, directors, holders of all or substantially all
of the outstanding capital stock of the Company have agreed,
subject to specified exceptions, not to directly or indirectly:
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sell (including, without limitation, any short sale), offer,
contract or grant any option to sell (including, without
limitation, any short sale), pledge, transfer, establish an open
put equivalent position within the meaning of
Rule 16a-l(h)
under the Exchange Act,
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otherwise dispose of or transfer or announce the offering of, or
file a registration statement under the Securities Act in
respect of any common shares, options, rights or warrants to
acquire common shares, or securities exchangeable or exercisable
for or convertible into common shares currently or hereafter
owned either of record or beneficially, or
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publicly announce an intention to do any of the foregoing for a
period of and including 180 days after the date of this
prospectus without the prior written consent of the underwriter.
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These restrictions terminate after the close of trading of the
common shares on and including the 180 days after the date
of the underwriting agreement. However, subject to certain
exceptions, in the event that either:
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during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to us occurs, or
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prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
restricted period,
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then in either case the expiration of the
180-day
restricted period will be extended until the expiration of the
18-day
period beginning on the date of the issuance of an earnings
release or the occurrence of the material news or event, as
applicable, unless the underwriter waives, in writing, such an
extension.
The underwriter may, in its sole discretion and at any time or
from time to time before the termination of the
180-day
period, without public notice, release all or any portion of the
securities subject to
lock-up
agreements.
109
There are no existing agreements between the underwriter and any
of our shareholders who will execute a
lock-up
agreement, providing consent to the sale of common shares prior
to the expiration of the
lock-up
period, except for the concurrent private placement.
Stabilization
The underwriter has advised us that, pursuant to
Regulation M under the Exchange Act, they may engage in
transactions, including overallotment, stabilizing bids,
syndicate covering transactions or the imposition of penalty
bids, which may have the effect of stabilizing or maintaining
the market price of the common shares at a level above that
which might otherwise prevail in the open market. Overallotment
involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Covered short
sales are sales made in an amount not greater than the
underwriters option to purchase additional common shares
in this offering. The underwriter may close out any covered
short position by either exercising its option to purchase
additional common shares or purchasing common shares in the open
market. In determining the source of common shares to close out
the covered short position, the underwriter will consider, among
other things, the price of common shares available for purchase
in the open market as compared to the price at which it may
purchase common shares through the option to purchase additional
common shares. Naked short sales are sales in excess
of the option to purchase additional common shares. The
underwriter must close out any naked short position by
purchasing common shares in the open market. A naked short
position is more likely to be created if the underwriter is
concerned that there may be downward pressure on the price of
the common shares in the open market after pricing that could
adversely affect investors who purchase in this offering. A
stabilizing bid is a bid for the purchase of common shares on
behalf of the underwriter for the purpose of fixing or
maintaining the price of the common shares. A syndicate covering
transaction is the bid for or the purchase of common shares on
behalf of the underwriter to reduce a short position incurred by
the underwriter in connection with the offering. A penalty bid
is an arrangement permitting the underwriter to reclaim the
selling concession otherwise accruing to a syndicate member in
connection with the offering if the common shares originally
sold by such syndicate member are purchased in a syndicate
covering transaction and therefore have not been effectively
placed by such syndicate member. Neither we nor the underwriter
makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above
may have on the price of our common shares. The underwriter is
not obligated to engage in these activities and, if commenced,
any of the activities may be discontinued at any time.
Electronic
Distribution
A prospectus in electronic format may be made available by
e-mail or on
the websites or through online services maintained by the
underwriter or its affiliates. In those cases, prospective
investors may view offering terms online and may be allowed to
place orders online. The underwriter may agree with us to
allocate a specific number of common shares for sale to online
brokerage account holders. Any such allocation for online
distributions will be made by the underwriter on the same basis
as other allocations. Other than the prospectus in electronic
format, the information on the underwriters website and
any information contained in any other website maintained by the
underwriter is not part of this prospectus, has not been
approved
and/or
endorsed by us or the underwriter and should not be relied upon
by investors.
Affiliations
The underwriter or its affiliates from time to time may in the
future provide investment banking, commercial lending and
financial advisory services to us and our affiliates in the
ordinary course of business. The underwriter and its affiliates,
as applicable, will receive customary compensation in connection
with such services.
Selling
Restrictions
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (as defined
below) (each, a Relevant Member State), with effect
from and including the date on which the
110
Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date), an offer
of our common shares to the public may not be made in that
Relevant Member State prior to the publication of a prospectus
in relation to our common shares which has either been approved
by the competent authority in that Relevant Member State or,
where appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except
that, with effect from and including the Relevant Implementation
Date, an offer to the public in that Relevant Member State of
any of our common shares may be made at any time:
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to any legal entity which 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;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last 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;
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to fewer than 100 natural or legal persons per Relevant Member
State (other than qualified investors as defined in the
Prospectus Directive), subject to obtaining the prior consent of
the representatives of the underwriters for any such
offer; or
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in any other circumstances which do not require the publication
by us of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of our common shares to the public in relation
to any of the common shares in any Relevant Member State means
the communication in any form and by any means of sufficient
information on the terms of the offer and our common shares to
be offered so as to enable an investor to decide to purchase our
common shares, as the same may be varied in that Member State by
any measure implementing the Prospectus Directive in that Member
State and the expression Prospectus Directive means
Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
France
This prospectus has not been, and will not be, submitted to the
clearance procedures of the Autorité des marches financiers
(the AMF) in France and may not be directly or
indirectly released, issued, or distributed to the public in
France, or used in connection with any offer or sale of our
common shares to the public in France, in each case within the
meaning of Article L.
411-1 of the
French Code monétaire et financier (the French
Financial and Monetary Code).
Our common shares have not been, and will not be, offered or
sold to the public in France, directly or indirectly, and will
only be offered or sold in France (1) to qualified
investors (investisseurs qualifies) investing for their own
account, in accordance with all applicable rules and
regulations, and in particular in accordance with
Articles L.
411-2 and D.
411-2 of the
French Financial and Monetary Code; (2) to investment
services providers authorized to engage in portfolio investment
on behalf of third parties, in accordance with Article L.4
11-2 of the
French Financial and Monetary Code or (3) in a transaction
that, in accordance with all applicable rules and regulations,
does not otherwise constitute an offer to the public
(appel public à l épargne) in France
within the meaning of Article L.4l 1-1 of the French
Financial and Monetary Code.
This prospectus is not to be further distributed or reproduced
(in whole or in part) in France by any recipient, and this
prospectus has been distributed to the recipient on the
understanding that such recipient is a qualified investor or
otherwise meets the requirements set forth above, will only
participate in the issue or sale of the securities for their own
account and undertakes not to transfer, directly or indirectly,
the securities to the public in France, other than in compliance
with all applicable laws and regulations and in particular with
Articles L.4
11-1, L.41
1-2, D.41 1-1 and D.41 1-2 of the French Financial and Monetary
Code.
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 that are also (i) investment
professionals falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion)
111
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 (each such person being referred to as a
relevant person).
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.
Italy
This prospectus has not been and will not be flied with or
cleared by the Italian securities exchange commission
(Commissione Nazionale per le societa e la Borsathe
CONSOB) pursuant to Legislative Decree No. 58
of 24 February 1998 (as amended, the Finance
Law) and to CONSOB Regulation No. 11971 of
14 May 1999 (as amended, the Issuers
Regulation). Accordingly, copies of this prospectus or any
other document relating to the common shares may not be
distributed, made available or advertised in Italy, nor may the
common shares be offered, purchased, sold, promoted, advertised
or delivered, directly or indirectly, to the public other than
(i) to Professional Investors (such being the persons
and entities as defined pursuant to article 31(2) of CONSOB
Regulation No. 11522 of 1 July 1998, as amended,
the Intermediaries Regulation) pursuant to
article 100 of the Finance Law or (ii) to prospective
investors where the offer of the common shares relies on the
exemption from the investment solicitation rules pursuant to,
and in compliance with the conditions set out by
article 100 of the Finance Law and article 33 of the
Issuers Regulation, or by any applicable exemption; provided
that any such offer, sale, promotion, advertising or delivery of
the common shares or distribution of the prospectus, or any part
thereof, or of any other document or material relating to the
common shares in Italy is made: (a) by investment firms,
banks or financial intermediaries authorized to carry out such
activities in the Republic of Italy in accordance with the
Finance Law, the Issuers Regulation, Legislative Decree
No. 385 of 1 September 1993 (as amended, the
Banking Law), the Intermediaries Regulation, and any
other applicable laws and regulations and (b) in compliance
with any applicable notification requirement or duty which may,
from time to time, be imposed by CONSOB, Bank of Italy or by any
other competent authority.
Germany
Any offer or solicitation of common shares within Germany must
be in full compliance with the German Securities Prospectus Act
(WertpapierprospektgesetzWpPG). The offer and solicitation
of common shares to the public in Germany requires the
publication of a prospectus that has to be filed with and
approved by the German Federal Financial Services Supervisory
Authority (Bundesanstalt fur
FinanzdienstleistungsaufsichtBaFin). This prospectus has
not been and will not be submitted for filing and approval to
the BaFin and, consequently, will not be published. Therefore,
this prospectus does not constitute a public offer under the
German Securities Prospectus Act (Werrpapierprospektgesetz).
This prospectus and any other document relating to our common
shares, as well as any information contained therein, must
therefore not be supplied to the public in Germany or used in
connection with any offer of our common shares to the public in
Germany, any public marketing of our common shares or any public
solicitation for offers to acquire our common shares. This
prospectus and other offering materials relating to the offer of
our common shares are strictly confidential and may not be
distributed to any person or entity other than the designated
recipients hereof.
Greece
The common shares have not been and will not be offered or sold
to persons in Greece other than to insurance companies, credit
institutions, social security funds and other legal entities or
individuals who qualify as qualified investors
within the meaning of Law No. 3401/2005 (Art. 2 para. 1 (f)
(aa)) and any other relevant regulation. No action has been
taken by the underwriter that would, or is intended to, permit a
public offer of the common shares in Greece. The publication and
distribution of this prospectus in Greece has not been approved
by the Hellenic Capital Markets Commission and accordingly, the
underwriter will not, directly or indirectly, cause the offer or
sale of any common shares or distribute or publish this
prospectus or any other document or information in Greece except
under circumstances that will, to the best of its knowledge and
belief, result in compliance with
112
any applicable laws and regulations of Greece and all offers and
sales of common shares in Greece will be made on the same terms.
Norway
The selling restriction for the European Economic Area set out
above applies for offers of any common shares in Norway. An
offer to the public in Norway of any of the common shares may be
made at any time:
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to any legal entity which 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;
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to any legal entity registered as a qualified investor
(Norwegian: profesjonell investor) with the Oslo
Stock Exchange pursuant to
Section 7-1
of Regulation No. 876 of 2007 to the Norwegian
Securities Trading Act (Act of 2007, No. 75) which 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;
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to fewer than 100 natural or legal persons per Relevant Member
State (other than qualified investors as defined in the
Prospectus Directive), subject to obtaining the prior consent of
the underwriter for any such offer; or
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in any other circumstances which do not require the publication
by us of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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Switzerland
We have not been registered with the Swiss Federal Banking
Commission as a foreign mutual fund pursuant to Article 45
of the Swiss Mutual Fund Act of 18 March 1994.
Accordingly, the common shares may not be offered to the public
in or from Switzerland, and neither this prospectus, nor any
other offering materials relating to our common shares may be
distributed in connection with any such public offering. Our
common shares may only be offered in or from Switzerland to
institutional investors and to a limited number of other
investors without any public offering.
Abandoned Private
Offering
Between May 3, 2010 and June 2, 2010, we were engaged in
preliminary discussions with a number of potential investors,
both directly and through registered broker-dealers, concerning
a possible private placement of up to 15,720,000 of our common
shares. We and any person acting on our behalf offered
securities only to persons that were, or that we reasonably
believed to be, accredited investors, as defined in
Regulation D under the Securities Act. The private
placement was intended to be completed in reliance upon Rule 506
of Regulation D. On June 2, 2010, we abandoned the
private placement and all offering activity in connection
therewith was terminated in order to enable us to pursue this
offering. No offers to buy or indications of interest given in
the private placement discussions were accepted. This prospectus
supersedes any offering materials used in the abandoned private
placement.
113
Disclosure of the
Securities and Exchange Commissions Position on
Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
Legal
Matters
Certain legal matters in connection with the sale of the shares
of common shares, including the legality thereof, offered hereby
are being passed upon for us by Seward & Kissel LLP,
New York, New York; and for the underwriter by Jones Day, New
York, New York.
Experts
The financial statement 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 is included in
reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The sections in this prospectus titled Prospectus
Summary and The International Oil Tanker Shipping
Industry have been reviewed by Drewry, which has confirmed
to us that such sections accurately describe the international
tanker market, subject to the availability and reliability of
the data supporting the statistical information presented in
this prospectus.
Where You Can
Find Additional Information
We have filed with the Commission a registration statement on
Form S-1
under the Securities Act with respect to the common shares
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.
Although we believe that we have accurately summarized the
material terms of documents filed as exhibits to the
registration statement, you should read those exhibits for a
complete statement of their 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, N.E.,
Room 1580, 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.
We will be subject to the full informational requirements of the
Exchange Act. To comply with these requirements, we will file
periodic reports, proxy statements and other information with
the Securities and Exchange Commission. In addition, we intend
to make available on or through our Internet website
(http://www.ridgeburytankers.com)
our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC.
Enforceability of
Civil Liabilities
Ridgebury Tankers Ltd is a Marshall Islands company, and we
expect that substantially all of our assets and those of our
subsidiaries will be located outside of the United States. As a
result, 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 U.S. courts obtained in
actions against us based upon the civil liability provisions of
applicable U.S. Federal and state securities laws or
(2) would enforce liabilities against us based upon these
laws.
114
Annex A
Glossary of
Shipping Terms
The following are definitions of certain terms that are commonly
used in the shipping industry.
Aframax tanker. A tanker ranging in size from
85,000 dwt to 120,000 dwt.
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 Voyage. A voyage during which the
vessel is not laden with cargo.
Bareboat charter. A charter of a vessel under
which the vessel-owner is usually paid a fixed daily or monthly
rate for a certain period of time during which the charterer is
responsible for the ship operating expenses and voyage expenses
of the vessel and for the management of the vessel. In this
case, all voyage related costs, including vessel fuel, or
bunker, and port dues as well as all vessel operating costs,
such as
day-to-day
operations, maintenance, crewing and insurance are paid by the
charterer. A bareboat charter is also known as a demise
charter or a time charter by demise and
involves the use of a vessel usually over longer periods of time
ranging over several years The owner of the vessel receives
monthly charterhire payments on a per day basis and is
responsible only for the payment of capital costs related to the
vessel.
Bunkers. Fuel oil used to operate a
vessels engines, generators and boilers.
CERCLA. Comprehensive Environmental Response,
Compensation and Liability Act.
Charter. The hiring of a vessel, or use of its
carrying capacity, for either (1) a specified period of
time or (2) to carry a cargo for a fixed fee from a loading
port to a discharging port. The contract for a charter is called
a charterparty.
Charterer. The party that hires a vessel
pursuant to a charter.
Charterhire. Money paid to the vessel-owner by
a charterer for the use of a vessel under a time charter or
bareboat charter. Such payments are usually made during the
course of the charter every 15 or 30 days in advance or in
arrears by multiplying the daily charter rate times the number
of days and, under a time charter only, subtracting any time the
vessel was deemed to be off-hire. Under a bareboat charter such
payments are usually made monthly and are calculated on a 360 or
365 day calendar year basis.
Charter rate. The amount of money agreed
between the charterer and the vessel-owner accrued on a daily or
monthly basis that is used to calculate the vessels
charterhire.
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 in which the vessel is registered, as well as the
international conventions which that country has ratified. A
vessel that receives its certification is referred to as being
in class as of the date of issuance.
Contract of Affreightment. A contract of
affreightment, or COA, relates to the carriage of specific
quantities of cargo with multiple voyages over the same route
and over a specific period of time which usually spans a number
of years. A COA does not designate the specific vessels or
voyage schedules that will transport the cargo, thereby
providing both the charterer and ship owner greater operating
flexibility than with voyage charters alone. The charterer has
the flexibility to determine the individual voyage scheduling at
a future date while the ship owner may use different ships to
perform these individual voyages. As a result, COAs are mostly
entered into by large fleet operators such as pools or ship
owners with large fleets of the same vessel type. All of the
ships operating, voyage and capital costs are borne by the
ship owner while the freight rate normally is agreed on a per
cargo ton basis.
Deadweight ton or dwt. A unit of a
vessels capacity for cargo, fuel oil, stores and crew,
measured in metric tons of 1,000 kilograms. A vessels dwt
or total deadweight is the total weight necessary to submerge
the vessel to its maximum permitted draft.
A-1
Double-hull. Hull construction design in which
a vessel has an inner and outer side and bottom separated by
void space, usually 2 meters in width.
Draft. Vertical distance between the waterline
and the bottom of the vessels keel.
Drydocking. The removal of a vessel from the
water for inspection
and/or
repair of those parts of a vessel which are below the water
line. During drydockings, which are required to be carried out
periodically, certain mandatory classification society
inspections are carried out and relevant certifications issued.
Drydockings are generally required once every 30 to
60 months.
Handymax (also known as MR or Medium Range)
tanker. A tanker ranging in size from 25,000 dwt
to 50,000 dwt.
Handysize tanker: A tanker ranging in size
from 10,000 dwt to 25,000 dwt.
Hull. Shell or body of a vessel.
IMO. International Maritime Organization, a
United Nations agency that issues international regulations and
standards for seaborne transportation.
ISM Code. International Safety Management Code
for the Safe Operation of Ships and for Pollution Prevention,
which, among other things, requires vessel-owners to obtain a
safety management certification for each vessel they manage.
ISPS Code. International Security Code for
Ports and Ships, which enacts measures to detect and prevent
security threats to vessels and ports.
Intermediate survey. The inspection of a
vessel by a classification society surveyor which takes place
between two and three years before and after each special survey
for such vessel pursuant to the rules of international
conventions and classification societies.
LIBOR. London inter-bank offered rate.
Metric ton. A unit of weight equal to 1,000
kilograms.
Newbuilding. A new vessel under construction
or just completed.
Off-hire. The period a vessel is unable to
perform the services for which it is required under a time
charter. Off-hire periods typically include days spent
undergoing repairs and drydocking, whether or not scheduled.
OPA. Oil Pollution Act of 1990 of the United
States (as amended).
Orderbook. A reference to currently placed
orders for the construction of vessels.
Panamax tanker. A tanker ranging in size from
55,000 dwt to 85,000 dwt. The term is derived from the maximum
length, breadth and draft capable of passing fully loaded
through the Panama Canal.
Product tanker. A tanker designed for the
carriage of refined petroleum products whose cargo tanks are
usually coated with epoxy-based paint to facilitate the cleaning
of the tanker between the carriage of different cargoes and to
prevent product contamination and hull corrosion. A product
tanker typically has multiple cargo tanks capable of handling
different cargoes simultaneously. The vessel may have equipment
designed for the loading and unloading of cargoes with a high
viscosity.
Profit sharing. An arrangement between owners
and charterers to share, at a predetermined percentage, voyage
revenue in excess of an agreed base charter rate.
Protection and indemnity (or P&I)
insurance. Insurance obtained through mutual
associations (called Clubs) formed by vessel-owners
to provide liability insurance protection against a large
financial loss by one member by contribution towards that loss
by all members. To a great extent, the risks are reinsured.
Refined petroleum products. Refined crude oil
products, such as fuel oils, gasoline and jet fuel.
A-2
Scrapping. The disposal of old or damaged
vessel tonnage by way of sale as scrap metal.
Single-hull. A hull construction design in
which a vessel has only one hull.
Sister ship. Vessels of the same type and
specification.
SOLAS. The International Convention for the
Safety of Life at Sea 1974, as amended, adopted under the
auspices of the IMO.
Special survey. An extensive inspection of a
vessel by classification society surveyors that must be
completed within five years. Special surveys require a vessel to
be drydocked.
Spot charter. A spot charter is an industry
term referring to both voyage and trip time charters. These
charters are referred to as spot charters or spot market
charters due to their short term duration, consisting mostly of
a single voyage between one load port and one discharge port.
Spot market. The market for the immediate
chartering of a vessel, usually for single voyages.
Spot market indexed time charter. Time charter
for which the rate of hire is variable and depends on the
fluctuations of the spot market.
Strict liability. Liability that is imposed
without regard to fault.
Suezmax tanker. Tanker ranging in size from
120,000 dwt to 200,000 dwt. The term is derived from the maximum
length, breadth and draft capable of passing fully loaded
through the Suez Canal.
Tanker. Vessel designed for the carriage of
liquid cargoes in bulk with cargo space consisting of many
tanks. Tankers carry a variety of products including crude oil,
refined petroleum products, liquid chemicals and liquid gas.
Time charter. A time charter is a contract
under which a charterer pays a fixed daily hire rate on a
semi-monthly or monthly basis for a fixed period of time for use
of the vessel. Subject to any restrictions in the charter, the
charterer decides the type and quantity of cargo to be carried
and the ports of loading and unloading. The charterer pays the
voyage related expenses such as fuel, canal tolls, and port
charges. The vessel-owner pays all vessel operating costs such
as the management expenses and crew costs as well as for the
capital costs of the vessel. Any delays at port or during the
voyages are the responsibility of the charterer, except for
certain specific exceptions such as loss of time arising from
vessel breakdown and routine maintenance.
Time charter equivalent (TCE) rates. Time
charter equivalent, or TCE, rates, are a standard industry
measure of the average daily revenue performance of a vessel.
The TCE rate achieved on a given voyage is expressed in
U.S. dollars/day and is generally calculated by subtracting
voyage expenses, including bunkers and port charges, from voyage
revenue and dividing the net amount (time charter equivalent
revenues) by the number of days in the period.
Trip time charter. A trip time charter is a
short term time charter where the vessel performs a single
voyage between load port(s) and discharge port(s) and the
charterer pays a fixed daily hire rate on a semi-monthly basis
for use of the vessel. The difference between a trip time
charter and a voyage charter is only in the form of payment for
use of the vessel and the respective financial responsibilities
of the charterer and vessel-owner as described under time
charter and voyage charter.
Ton. See Metric ton.
Ultra Large Crude Carrier (ULCC). A tanker
whose size is above 200,000 dwt and has a typical cargo capacity
of about 350,000 dwt.
Very Large Crude Carrier (VLCC). A tanker
whose size is above 200,000 dwt and has a typical cargo capacity
of about 300,000 dwt.
Vessel operating costs. The costs of operating
a vessel that is incurred during a charter, primarily consisting
of crew wages and associated costs, insurance premiums,
lubricants and spare parts, and repair and maintenance costs.
A-3
Vessel operating costs exclude fuel and port charges, which are
known as voyage expenses. For a time charter, the
vessel-owner pays vessel operating costs. For a bareboat
charter, the charterer pays vessel operating costs.
Victualling. Provision of food supplies to
crew members.
Voyage charter. A voyage charter involves the
carriage of a specific amount and type of cargo from specific
load port(s) to specific discharge port(s), subject to various
cargo handling terms. Most of these charters are of a single
voyage nature between two specific ports, as trading patterns do
not encourage round voyage trading. The owner of the vessel
receives one payment derived by multiplying the tons of cargo
loaded on board by the cost per cargo ton, as agreed to
transport that cargo between the specific ports. The owner is
responsible for the payment of all expenses including voyage,
operating and capital costs of the vessel. The charterer is
typically responsible for any delay at the loading or
discharging ports.
Voyage expenses. Expenses incurred due to a
vessels traveling from a loading port to a discharging
port, such as fuel (bunker) cost, port expenses, agents
fees, canal dues and extra war risk insurance, as well as
commissions.
A-4
Report of
Independent Registered Public Accounting Firm
To the Shareholders of Ridgebury Tankers Ltd:
We have audited the accompanying balance sheet of Ridgebury
Tankers Ltd (the Company) as of April 27, 2010.
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 Ridgebury Tankers
Ltd as of April 27, 2010, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte &
Touche LLP
New York, NY
April 29, 2010, except for Notes 4 and 5, as to which
the date is June 30, 2010.
F-2
Ridgebury Tankers
Ltd
(In
United States Dollars)
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
April 27, 2010
|
|
|
Cash
|
|
$
|
1,000
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,000
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
Liabilities
|
|
$
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
Shareholders equity
|
|
|
|
|
Common shares, par value $0.01 per share: 250 million
common shares authorized, 625 issued and outstanding; preferred
shares, par value $0.01 per share: 25 million preferred
shares authorized, 0 issued and outstanding
|
|
|
6
|
|
Paid-in capital in excess of par value
|
|
|
994
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,000
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,000
|
|
|
|
|
|
|
|
See notes to balance sheet.
F-3
Ridgebury Tankers
Ltd
(In
United States dollars)
Ridgebury Tankers Ltd (the Company) was formed on
February 22, 2010, under the laws of the Republic of the
Marshall Islands. The Company was formed to own and employ
Suezmax tankers in the Blue Fin Tankers Pool or otherwise in the
spot market. The spot markets represent immediate chartering of
a vessel, including the deployment of vessels in spot
market-related vessel pools. As of April 27, 2010, the
executive officers of the Company own 100% of the capital stock
of the Company. The authorized capital stock of the Company
consists of 250 million common shares, par value $0.01 per
share, of which 625 have been issued, and 25 million
preferred shares, par value $0.01 per share, none of which have
been issued.
The accompanying balance sheet has been prepared on the basis of
accounting principles generally accepted in the United States of
America.
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.
|
Commitments and
Contingencies
|
Employment
Contracts
The Company has entered into employment contracts with its
Executive Officers, Robert Burke and Kevin Bavolar.
Certain
Expenditures
Subsequent to April 27, 2010, the Executive Officers of the
Company have incurred certain expenditures comprising legal
services, consulting services, travel, entertainment, corporate
office rent, auditing services, incorporation (documents,
filings and services) and such other expenditures as deemed
necessary on behalf of the Company. The Executive Officers
currently bear the liability for these expenditures. Contingent
upon successful completion of the Companys equity
offering, the Company intends to reimburse such officers for
these expenditures, subject to the documentation of payment for
such expenditures. The estimated amount anticipated to be
reimbursed by the Company is $1.25 million to
$1.5 million.
Other
The Company is not aware of any other claims, commitments or
contingent liabilities that should be disclosed, or for which a
provision should be established in the accompanying financial
statements, other than those detailed herein.
Off Balance
Sheet Agreements
The Company plans to commence its business operations
immediately after the receipt of the proceeds from the common
stock equity issuance. In anticipation of the commencement of
operations, the Company and its
F-4
Ridgebury Tankers
Ltd
Notes To Balance
Sheet(Continued)
Executive Officers have entered into certain agreements such as
agreements with several operational and financial consultants;
Employment Agreements with the Executive Officers of the
Company; Restricted Stock Agreements with the Executive Officers
of the Company; and a Sublet Agreement related to the
Companys corporate offices. The Restricted Stock
Agreements contain certain performance based vesting that, if
achieved, may require the Company to recognize an income
statement charge in the future. The Company will enter into a
technical management contract with Bernard Schulte
Shipmanagement. These agreements will become binding upon the
Company, and the Company expects to incur liabilities related to
these agreements, upon the successful closing of the Offering.
Additionally, the Company will incur certain closing
expenditures upon the successful closing of the Offering. The
Company estimates such expenditures to be approximately
$1.25 million to $1.5 million, which includes the
amounts to be reimbursed to the Executive Officers, but excludes
the underwriters discount and the commitment fee for the
Companys new credit facility.
Subsequent events have been evaluated from April 27, 2010,
the date of issuance of the balance sheet herein, through
June 30, 2010. Except as disclosed herein, the Company is
not aware of any subsequent events that should be disclosed.
F-5
Shares
Common
Stock
Preliminary
Prospectus
Jefferies &
Company
, 2010
PART II:
Information not Required in the Prospectus
|
|
Item 13.
|
Other Expenses of
Issuance and Distribution
|
We estimate the expenses in connection with the distribution of
our common shares in this offering, other than underwriting
discounts and commissions, will be as set forth in the table
below. We will be responsible for paying the following expenses
associated with this offering.
|
|
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|
SEC Registration Fee
|
|
$
|
*
|
|
Printing and Engraving Expenses
|
|
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*
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|
Legal Fees and Expenses
|
|
|
*
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|
Accountants Fees and Expenses
|
|
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*
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|
Nasdaq Global Market Listing Fee
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|
|
*
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|
FINRA Fee
|
|
|
*
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|
Blue Sky Fees and Expenses
|
|
|
*
|
|
Transfer Agents Fees and Expenses
|
|
|
*
|
|
Miscellaneous Costs
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
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* |
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To be provided by amendment. |
|
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Item 14.
|
Indemnification
of Directors and Officers
|
The bylaws of the Registrant provide that every director and
officer of the Registrant shall be indemnified out of the funds
of the Registrant to the extent permitted by Section 60 of
the BCA.
Section 60 of the BCA provides as follows:
Indemnification of directors and officers:
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|
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|
(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 best interests of the corporation, and, with
respect to any criminal action or proceedings, had reasonable
cause to believe that his conduct was unlawful.
|
|
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(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
|
II-1
|
|
|
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|
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)
|
Indemnification pursuant to other rights. The
indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
|
|
|
(6)
|
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.
|
|
|
(7)
|
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 February 22, 2010, we issued 500 common shares, par
value $0.01 per share, to Robert P. Burke and on April 19,
2010, we issued 125 common shares, par value $0.01 per
share, to Kevin M. Bavolar in exchange for aggregate
consideration of $800 and $200, respectively. The following
table sets forth private sales of our common shares since
inception:
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|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
Consideration
|
|
Total
|
|
Registration
|
|
|
Securities Sold
|
|
Date Sold
|
|
Per Share
|
|
Consideration
|
|
Exemption
|
|
Purchasers
|
|
500 common shares
|
|
February 22, 2010
|
|
$
|
1.60 per share
|
|
|
$
|
800
|
|
|
|
|
|
|
Robert P. Burke
|
125 common shares
|
|
April 19, 2010
|
|
$
|
1.60 per share
|
|
|
$
|
200
|
|
|
|
|
|
|
Kevin M. Bavolar
|
|
II-2
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules
|
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
*1
|
|
|
Form of Underwriting Agreement
|
|
*3
|
.1
|
|
Amended and Restated Articles of Incorporation of the Company
|
|
*3
|
.2
|
|
Amended and Restated Bylaws of the Company
|
|
*4
|
.1
|
|
Form of Stock Certificate
|
|
*4
|
.2
|
|
Form of Registration Rights Agreement between Robert P. Burke
and Kevin M. Bavolar and the Company
|
|
*4
|
.3
|
|
Form of Restricted Stock Agreement
|
|
5
|
.1
|
|
Form of Opinion of Seward & Kissel LLP, U.S. and
Marshall Islands counsel to the Company, as to the validity of
the common stock
|
|
*8
|
.1
|
|
Tax opinion of Seward & Kissel LLP
|
|
*10
|
.1
|
|
Memoranda of Agreement
|
|
*10
|
.2
|
|
Equity Incentive Plan
|
|
*10
|
.3
|
|
Employment Agreements of Robert P. Burke and Kevin M. Bavolar
|
|
*10
|
.4
|
|
Form of Technical Management Agreement
|
|
*21
|
|
|
Subsidiaries of the Company.
|
|
23
|
.1
|
|
Consent of Seward & Kissel LLP (included in
Exhibit 5.1)
|
|
23
|
.2
|
|
Consent of Deloitte & Touche LLP
|
|
23
|
.3
|
|
Consent of Drewry Shipping Consultants Ltd.
|
|
23
|
.4
|
|
Consent of Douglas E. Schimmel
|
|
23
|
.5
|
|
Consent of Christopher McGrath
|
|
23
|
.6
|
|
Consent of Robert L. Lewis
|
|
23
|
.7
|
|
Consent of Kevin M. Kennedy
|
|
24
|
.1
|
|
Powers of Attorney (included on the signature page hereto).
|
|
|
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* |
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To be filed by subsequent amendment. |
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the 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 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 whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
II-3
The undersigned registrant hereby undertakes that:
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(1)
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For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
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(2)
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For the purpose of determining any liability under the
Securities Act, 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.
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II-4
Signatures
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Greenwich, Connecticut, on the 2nd
day of July, 2010.
RIDGEBURY TANKERS LTD
Name: Robert P. Burke
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Title:
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President and Chief Executive Officer
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Power of
Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lawrence Rutkowski and
Robert E. Lustrin, or either of them, with full power to act
alone, his or her true lawful attorneys-in-fact and agents, with
full powers of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments or supplements to this
registration statement, whether pre-effective or post-effective,
including any subsequent registration statement for the same
offering which may be filed under Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing necessary to be
done, as fully for all intents and purposes as he or she might
or could do in person hereby ratifying and confirming all that
said attorneys-in-fact and agents, or his substitute, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of
1933, as amended, this registration statement has been signed by
the following persons on July 2, 2010 in the capacities
indicated.
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Signature
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Title
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/s/ Robert
P. Burke
Robert
P. Burke
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Chairman, Sole Director, President and
Chief Executive Officer
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/s/ Kevin
M. Bavolar
Kevin
M. Bavolar
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Chief Financial Officer
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II-5
Exhibit Index
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Exhibit
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Number
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Description
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*1
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Form of Underwriting Agreement
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*3
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.1
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Amended and Restated Articles of Incorporation of the Company
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*3
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.2
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Amended and Restated Bylaws of the Company
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*4
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.1
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Form of Stock Certificate
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*4
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.2
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Form of Registration Rights Agreement between Robert P. Burke
and Kevin M. Bavolar and the Company
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*4
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.3
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Form of Restricted Stock Agreement
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5
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.1
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Form of Opinion of Seward & Kissel LLP, U.S. and
Marshall Islands counsel to the Company, as to the validity of
the common stock
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*8
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.1
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Tax opinion of Seward & Kissel LLP
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*10
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.1
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Memoranda of Agreement
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*10
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.2
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Equity Incentive Plan
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*10
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.3
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Employment Agreements of Robert P. Burke and Kevin M. Bavolar
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*10
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.4
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Form of Technical Management Agreement
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*21
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Subsidiaries of the Company.
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23
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.1
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Consent of Seward & Kissel LLP (included in
Exhibit 5.1)
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23
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.2
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Consent of Deloitte & Touche LLP
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23
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.3
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Consent of Drewry Shipping Consultants Ltd.
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23
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.4
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Consent of Douglas E. Schimmel
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23
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.5
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Consent of Christopher McGrath
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23
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.6
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Consent of Robert L. Lewis
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23
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.7
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Consent of Kevin M. Kennedy
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24
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.1
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Powers of Attorney (included on the signature page hereto).
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* |
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To be filed by subsequent amendment. |