fv1za
As
filed with the Securities and Exchange Commission May 23,
2011
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 1
TO
Form F-1
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT OF
1933
DIANA CONTAINERSHIPS
INC.
(Exact name of Registrant as
specified in its charter)
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Republic of The Marshall Islands
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4412
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N/A
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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DIANA CONTAINERSHIPS INC.
Pendelis 16
175 64 Palaio Faliro
Athens, Greece
011 30 210 947 0000
(Address and telephone
number of
Registrants principal executive offices)
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Seward & Kissel LLP
Attention: Gary J. Wolfe, Esq.
One Battery Park Plaza
New York, New York 10004
(212) 574-1223
(Name, address and
telephone
number of agent for service)
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Copies to:
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Gary J. Wolfe, Esq.
Edward S. Horton, 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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Gary L. Sellers, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
(212) 455-2000 (telephone number)
(212) 455-2502 (facsimile number)
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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
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Aggregate
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Amount of
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Securities to be Registered
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Offering Price(1)(2)
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Registration Fee
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Common Shares, $0.01 par value per share
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$
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172,500,000
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$
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20,027.25
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Preferred Stock Purchase Rights(3)
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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 of 1933.
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(2)
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Includes common shares that may be
sold pursuant to the underwriters over-allotment option.
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(3)
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Preferred stock purchase rights are
not currently separable from the common stock and are not
currently exercisable. The value attributable to the preferred
stock purchase rights, if any, will be reflected in the market
price of the common stock.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The information
in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
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PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED
MAY 23, 2011
Shares
Common Stock
Diana Containerships Inc. is
offering shares
of its common stock. Each share of common stock sold in this
offering includes preferred stock purchase rights that trade
with the common stock.
We are a Marshall Islands corporation with our principal office
in Athens, Greece. Our common shares are listed for trading on
the Nasdaq Global Market under the symbol DCIX. The
last reported sale price of our common stock on May 20,
2011 was $10.77 per share.
Diana Shipping Inc. has agreed to purchase approximately
$20.0 million of our common stock in a concurrent private
placement at the public offering price.
Investing in our common shares involves risks. See Risk
Factors beginning on page 14 of this prospectus.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to us
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$
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$
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We have granted the underwriters a
30-day
option to purchase up to an
additional shares
of common stock from us at the initial public offering price
less the underwriting discount if the underwriters sell more
than shares
of common stock in this offering.
None of the Securities and Exchange Commission, any state
securities commission, or any other regulatory body has approved
or disapproved of these securities or determined if this
prospectus is truthful and complete. Any representation to the
contrary is a criminal offense.
The underwriters expect to deliver the shares on or
about ,
2011.
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Wells
Fargo Securities |
BofA Merrill Lynch |
Jefferies |
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BB&T
Capital Markets |
Morgan Keegan |
Cantor Fitzgerald & Co. |
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Dahlman
Rose & Company |
DnB NOR Markets |
RS Platou Markets |
Prospectus
dated ,
2011.
TABLE OF
CONTENTS
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Page
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1
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12
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14
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37
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37
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38
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39
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40
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42
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45
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60
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79
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95
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100
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101
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102
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108
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109
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113
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115
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117
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125
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131
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132
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132
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132
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133
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133
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You may rely on the information contained in this prospectus.
Neither we nor any of the underwriters have authorized anyone to
provide information different from that contained in this
prospectus. When you make a decision about whether to invest in
our common stock, you should not rely upon any information other
than the information in this prospectus. Neither the delivery of
this prospectus nor sale of common stock means that information
contained in this prospectus is correct after the date of this
prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares of common stock in
any circumstances under which the offer of solicitation is
unlawful.
Through and
including ,
2011 (the 25th day after the date of this prospectus), federal
securities laws may require that all dealers that effect
transactions in these securities, whether or not participating
in this offering, to deliver a prospectus. This requirement is
in addition to the dealers obligation to deliver a
prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
SUMMARY
This summary highlights selected information disclosed in
greater detail elsewhere in this prospectus. It is not complete
and does not contain all of the information that may be
important to you and to your investment decision. The following
summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus, by the
documents summarized in this prospectus and by the financial
statements included elsewhere in this prospectus. You should
carefully read this entire prospectus and should consider, among
other things, the matters set forth in Risk Factors
before deciding to invest in our common shares.
We use the term TEU in describing the size of containerships.
TEU is a standard measure of a containerships
cargo-carrying capacity used in the container shipping sector.
It means the space that would be occupied by a container having
the International Organization for Standardizations
standard external dimensions, the length of which is
20 feet, the height of which is 8.5 feet and the width
of which is 8.0 feet. Deadweight tons, or dwt, expressed in
metric tons, each of which is equivalent to 1,000 kilograms,
refers to the maximum weight of cargo and supplies that a vessel
can carry. As used throughout this prospectus, the term
ton refers to metric ton, unless otherwise
indicated.
The information presented in this prospectus assumes that the
underwriters will not exercise their over-allotment option.
Unless we specify otherwise, all references in this prospectus
to we, our, us and the
Company refer to Diana Containerships Inc. and its
subsidiaries. Unless otherwise indicated, all references to
dollars and $ in this prospectus are to,
and amounts are presented in, U.S. dollars.
Except where we or the content otherwise indicate, the
information in this prospectus assumes no exercise of the
underwriters overallotment option described on the cover
page of this prospectus and assumes that common stock sold in
this offering is sold at $10.77 per share, the closing price of
our common stock on the Nasdaq Global Market on May 20,
2011.
Overview
Diana Containerships, Inc. was incorporated in the Marshall
Islands on January 7, 2010, at what we believe to have been
a low period of the containership cycle, to capitalize on what
we perceived to be a long-term opportunity in the sector. Our
objective is to build a global containership business by making
acquisitions that are accretive to our dividends per share. The
two vessels that we own today are chartered to A.P.
Møller-Maersk A/S, or Maersk, and CSAV Valparaiso, or CSAV,
two leading container lines. Furthermore, we have contracted to
acquire one 4,206 TEU containership, the MV Maersk Madrid, which
we expect will be delivered to us on or about June 13, 2011
and two 4,714 TEU containerships, the MV Maersk Malacca and MV
Maersk Merlion, which we expect will be delivered to us on or
about June 21 and June 14, 2011, respectively. Each of
these three vessels will be chartered to Maersk upon their
delivery to us. We refer to these five vessels as our Initial
Fleet. Our common stock is listed on the Nasdaq Global Market
under the symbol DCIX.
We were founded by and share senior executives and a technical
and commercial manager with Diana Shipping Inc. (NYSE: DSX), or
Diana Shipping or our Founder, a leading global provider of
transportation services for drybulk cargoes. Diana Shipping was
formed near the bottom of the drybulk cycle in 1999 with an
initial fleet of six newbuilding vessels, which has since grown
to 25 vessels as a result of acquisitions throughout the
cycle. We believe that our managements experience building
Diana Shipping throughout the drybulk shipping cycle has
positioned us to replicate that success during a similar period
in the containership sector. As of the date of this prospectus,
Diana Shipping owns 666,818 common shares, or approximately
11.0% of our outstanding common stock, and plans to purchase
$20 million of stock in a private placement concurrently
with this offering at the public offering price. In addition,
our management owns an additional 718,191 common shares. We
intend to use the net proceeds of this offering and the
concurrent private placement to repay in full our existing term
loan facility, to fund the balance of the acquisition cost of
the three containerships that we have agreed to acquire from
Maersk, for additional containership acquisitions and general
corporate purposes, including working capital.
In order to enhance returns, we plan to focus on vessels ranging
from 2,500 TEU to 7,500 TEU because we believe that the current
containership orderbook composition, matched with global GDP
growth, creates a favorable multi-year dynamic of supply and
demand for these mid-sized containerships. We will
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also focus on secondhand vessels and re-sale newbuildings
because they will contribute to our cash flows immediately. In
line with our existing fleet, we will favor sister-ships as we
believe that they increase our operating efficiency and
profitability. As industry dynamics change, we might
opportunistically acquire containerships outside of these
parameters in order to increase dividends per share.
Commencing with the second quarter of 2011, we intend to declare
a variable quarterly dividend each February, May, August and
November substantially equal to approximately 70% of our
available cash from operations during the previous quarter after
the payment of cash expenses for the quarter. The remaining
available cash from operations is expected to be used for
reserves for scheduled drydockings, intermediate and special
surveys and other purposes as our board of directors may from
time to time determine are required, after taking into account
contingent liabilities, the terms of any credit facility, our
growth strategy and other cash needs and the requirements of
Marshall Islands law.
We have an existing term loan facility with DnB NOR Bank ASA.
This facility, together with available cash of the company, is
available to us to fund the balance of the acquisition costs of
the additional vessels that we have agreed to acquire. We will
use a portion of the net proceeds of this offering to repay in
full and terminate this facility and following the completion of
this offering will have no outstanding debt. In addition to the
above we are currently in discussions with lenders regarding a
$150 million revolving credit facility, which we refer to
as our Credit Facility.
Market
Opportunity
We believe that the following factors create opportunities for
us to successfully execute our business plan and grow our
business:
Containerized
Trade Volumes Have Recovered
Since the 1960s, when containers were first used as a means of
shipping goods, containerized trade has benefited
disproportionally from macroeconomic trends such as the
migration of manufacturing to low cost labor markets and the
integration of developing economies into international trade.
From 1979 to 2010, containerized trade, as measured by world
container port throughput, has grown at a compound annual growth
rate of 9.3%. In 2010, global containerized trade recovered from
the 2009 economic recession, with cargo volumes exceeding 2008
levels and container port throughput increasing by 13.8%.
World
Container Port Throughput 1990 to 2010
(Million
TEU)
Source: Drewry
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Attractive
Containership Supply Fundamentals
We believe that the current containership supply environment
supports our target vessel sizes and chartering strategy.
Resulting from a combination of delays, cancellations and
virtually no new orders in 2009, the current orderbook for all
sizes of containerships, as measured by aggregate TEU capacity,
stands at 28.8% of the existing fleet, as compared to its peak
of 59.2% in mid-2008. Of the containerships currently on order,
the majority are allocated to very large containerships and
other vessel classes outside of our targeted 2,500 TEU to 7,500
TEU range. We believe that the cascading effect of the increased
supply of larger containerships will have a positive effect on
our fleet, as we believe that this will create additional demand
for larger feeder ships. Finally, we believe that factors such
as slow steaming could effectively reduce the capacity of the
global containership fleet.
Containership
Orderbook by Size and Scheduled Delivery Year
March 31, 2011
Source: Drewry
Industry
Dynamics Support Our Acquisition Strategy
We believe that the recent financial crisis and dislocation of
the containership sector has created an opportunity to acquire
vessels at historically attractive prices, employ them in a
manner that will be accretive to dividends per share and provide
attractive returns on capital. We are focused on pursuing
investments primarily in containerships between 2,500 and 7,500
TEUs. We feel that this targeted range provides supply-demand
fundamentals that are better than in other containership
segments. Furthermore, we believe that this targeted range
provides a more attractive balance between asset values and
charterhire. Prices for newbuilding and secondhand
containerships in the size range we are targeting to invest in
are below their
10-year
historical averages and the rates at which we currently believe
that we can employ these vessels should provide attractive
returns to our investors. Over time, we expect that asset prices
and charterhire will increase and that we will continue to be
able to make acquisitions that meet our investment criteria.
Our
Fleet
Our
Approach to Fleet Development
We own two and have contracted to acquire three containerships
ranging in size from 3,426 to 4,714 TEU. In addition to the
favorable supply dynamics mentioned above, we believe that the
vessel classes we are targeting are best positioned to benefit
from the improving fundamentals in the
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containership sector. We believe that these vessels possess the
versatility to serve a variety of trade routes, ranging from the
critical East-West trade lanes to the fast growing Intra-Asia
lanes, thereby mitigating changes in regional demand patterns.
In addition, vessels in this size range we are targeting will be
able to fit through the expanded Panama Canal, which is expected
to open in 2014. We believe that the composition of the
orderbook, with its heavy concentration on very large
containerships, will further increase demand for our vessels, as
container line companies will require larger feeder ships to
better serve their customers. We will also focus on secondhand
vessels and re-sale newbuildings as they will contribute to our
cash flows immediately. Our objective is to expand our fleet
with selective acquisitions of mid-sized containerships;
however, as industry dynamics change, we might choose to make
acquisitions of containerships outside of our initial size range
if they exceed our return threshold and increase shareholder
value. A key criterion of any vessel acquisition will be that it
be accretive to our dividend per share assuming permanent equity
financing.
Fleet
Summary
Set forth below is summary information concerning our fleet as
of May 23, 2011, after giving effect to the purchase of the
three containerships we have contracted to acquire.
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Delivery
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Vessel
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Sister-
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Gross Rate
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Date
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Redelivery Date to
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BUILT
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TEU
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Ships*
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(USD Per Day)
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Charterer
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to Charterer
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Owners**
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Notes
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Container Vessels
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SAGITTA
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A
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$
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16,000
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A.P. Moller -
Maersk A/S
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June 30, 2010
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May 15, 2011
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2010
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3,426
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$
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22,000
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May 15, 2011
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March 15, 2013
June 15, 2013
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1
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CENTAURUS
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A
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$
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20,000
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CSAV
Valparaiso
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Sept. 4, 2010
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July 21, 2012
Oct. 19, 2012
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2010
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3,426
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MAERSK MALACCA
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B
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$
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21,450
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A.P. Moller -
Maersk A/S
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June 21, 2011
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May 7, 2013-
Aug. 5, 2013
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2, 3
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1990
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4,714
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MAERSK MERLION
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B
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$
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21,450
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A.P. Moller -
Maersk A/S
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June 14, 2011
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April 30, 2013
July 29, 2013
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2, 3
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1990
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4,714
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MAERSK MADRID
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$
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21,450
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A.P. Moller -
Maersk A/S
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June 13, 2011
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April 29, 2013
July 28, 2013
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2, 3
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1989
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4,206
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*
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Each container vessel is a
sister-ship, or closely similar, to other container
vessels that have the same letter.
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**
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Charterers optional period to
redeliver the vessel to owners. Charterers have the right to add
the off hire days, if any, and therefore the optional period may
be extended.
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(1)
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The charterers has the option to
employ the vessel for a further 11-13 month period. The optional
period, if exercised, must be declared on or before
December 15, 2012, and can only commence on May 1,
2013 at a gross daily rate of $30,000.
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(2)
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The charterer has the option to
employ the vessel for a further 12 month period plus or
minus 45 days at a gross daily rate of $25,000.
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(3)
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Expected delivery date. The
aggregate purchase price of the three vessels that we have
agreed to acquire is $70.5 million.
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We believe that there is an ample supply of suitable vessels for
acquisition. We have recently identified two additional
1996-built containerships of approximately 3,500 TEU capacity,
and we are
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currently in discussions to acquire them. We expect that these
vessels would be delivered with a time charter back to the
seller, which we consider a reputable charterer, at a gross
daily charter rate of $23,000 for a period of approximately
36 months. We would expect to take delivery of the vessels
between July and August of 2011. We cannot assure you that we
will be successful in completing the acquisition of these two
additional vessels or entering into charters with the seller on
the terms set forth above or at all.
Our
Founder
One of our key strengths is our relationship with Diana Shipping
and its affiliates, including its wholly-owned subsidiary Diana
Shipping Services S.A., which we refer to as DSS, or our
Manager. We believe that Diana Shippings record of
success, its size and scale, its reputation in the shipping
industry and its commitment to corporate governance and
transparency make us a stronger company than our size may
indicate.
Diana Shipping was the founder of Diana Containerships,
providing our initial capital in 2010. As a result of a private
placement of equity and a distribution of a portion of its Diana
Containerships shares to the shareholders of Diana Shipping,
Diana Shipping owns approximately 11.0% of our outstanding
common stock and plans to purchase $20 million of stock in
a private placement concurrently with this offering at the
public offering price. In addition, our management owns an
additional 718,191 common shares, or approximately 11.8% of our
outstanding common stock.
Experience
and Responsibilities
Our management team is responsible for the strategic management
of our company, including the development of our business plan
and overall vision for our operations. Strategic management also
involves, among other things, locating, purchasing, financing
and selling vessels. Our management team is led by our Chairman
and Chief Executive Officer Mr. Symeon Palios, who founded
the predecessors of Diana Shipping and DSS in 1972.
Mr. Palios has served as the Chairman and Chief Executive
Officer of Diana Shipping since 2005 and as a director since
1999. Mr. Anastasios Margaronis, our President and a
director, also serves as President and as a director of Diana
Shipping and has been employed by the Diana Shipping group of
companies since 1979. Mr. Ioannis Zafirakis, our Chief
Operating Officer, Secretary and a director, serves as Executive
Vice President and Secretary of Diana Shipping and has been
employed by the Diana Shipping group of companies since 1997.
Mr. Andreas Michalopoulos, our Chief Financial Officer and
Treasurer, has held these same offices with Diana Shipping since
2006.
Our management team has experience in multiple sectors of the
international shipping industry, including the containership
sector, and a proven track record of strategic growth beginning
with the formation of the Diana Shipping group of companies in
1972. Our management team is responsible for identifying assets
for acquisition and for the operation of our business in order
to build our fleet and effectively manage our growth. Since
1981, our Founder has purchased, operated or sold 18 secondhand
and newbuilding containerships and multi-purpose vessels that
were capable of transporting containers, including the five
vessels in our Initial Fleet.
Arrangements
with Our Founder
Because we share senior executives with Diana Shipping and
because we employ DSS to provide us administrative support and
commercial and technical management, we have entered into a
non-competition agreement with Diana Shipping. Accordingly, the
parties have agreed that, during the term of any vessel
agreements we enter into with DSS, and for six months
thereafter, we will not acquire or charter any vessel, or
otherwise operate in, the drybulk sector and Diana Shipping will
not acquire or charter any vessel, or otherwise operate in, the
containership sector. We believe that this enables us to bring
to bear the expertise of senior management and DSS, while
clearly delineating how to pursue opportunities in the
respective sectors. We believe that we will be able to grow
faster than similarly sized and capitalized competitors because
of our relationship with DSS.
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We have entered into an Administrative Services Agreement with
DSS, pursuant to which DSS provides administrative services to
us. DSS also provides commercial and technical vessel management
services to us through separate vessel management agreements
between DSS and each of our vessel-owning subsidiaries. We
believe that, as the subsidiary of a public company, DSS
provides us with a particularly high degree of transparency. We
believe that our Administrative Services Agreement provides us
economies of scale and services at prices not achieved by other
similarly sized containership companies. We intend to take
advantage of these cost efficiencies to produce higher returns
on our vessels and greater cash available for distribution to
our shareholders.
Our
Dividend Policy
We currently intend to declare a variable quarterly dividend
each February, May, August and November substantially equal to
approximately 70% of our available cash from operations during
the previous quarter after the payment of cash expenses for the
quarter. The remaining available cash from operations is
expected to be used for reserves for scheduled drydockings,
intermediate and special surveys and other purposes as our board
of directors may from time to time determine are required, after
taking into account contingent liabilities, the terms of any
credit facility, our growth strategy and other cash needs and
the requirements of Marshall Islands law. In times when we have
debt outstanding, we intend to limit our dividend per share to
the amount that we would have been able to pay if we were
financed entirely with equity as described in the section of
this prospectus entitled Dividend Policy. We expect
to use a portion of the net proceeds from this offering to repay
our outstanding debt. Upon completion of the offering, we expect
to have no debt.
We expect to declare our first quarterly dividend in August
2011. Because the closing of the acquisitions of the three
currently-contracted vessels is expected to occur in June 2011,
investors should not annualize our first dividend as a means of
determining the yield or annual dividend payment. We expect that
the dividend payable in November will reflect a full
quarters operations of our entire Initial Fleet, as well
as a partial contribution from any other vessels delivered
during that quarter.
Our
Competitive Strengths
We believe that we have a number of strengths that will provide
us with a sustainable competitive advantage in the containership
sector:
Experienced
Management Team
Our management team has an average of 22 years of
experience each in all aspects of the shipping industry, with
our Chief Executive Officer having over 40 years
experience, including significant experience with fleets
operating in both the containership and drybulk sectors through
all market cycles. Collectively, since 1972, DSS and its
predecessors have managed more than 100 vessels in the
drybulk and containership sectors, and over the last
30 years they have owned
and/or
operated 18 secondhand and newbuilding containerships and
multi-purpose vessels that were capable of transporting
containers, including the five vessels in our Initial fleet. Our
executive officers also serve as the executive officers of Diana
Shipping, which, since going public in 2005, has provided to
shareholders a total return of 15.2% compared with a total
return of the S&P 500 of 12.6% over the same period. We
believe that the experience and reputation of our management
team will enable us to attract customers, obtain repeat
employment opportunities and gain access to acquisition and
financing opportunities to grow our Company and generate strong
financial returns.
Financial
Flexibility to Pursue Acquisitions
We are currently in discussions with lenders regarding a
$150 million revolving credit facility. We believe that our
low leverage, liquidity and access to bank financing and the
capital markets position us with ship brokers, financial
institutions and shipyards as a favored purchaser of quality
containerships
6
and will allow us to make additional near-term accretive
acquisitions during a period when both newbuilding and
high-quality secondhand vessel values remain below their
historical
10-year
averages. Over the longer term, as vessel values and charter
rates increase, we expect to continue to negotiate acquisitions
that are consistent with our investment criteria, and we are
confident in our ability to access the capital and banking
markets. During the last six years, our management team, on
behalf of our Founder, has raised more than $1 billion of
capital from the equity markets and entered into credit
facilities with various international banking institutions for
more than $500 million. We believe that these financings
are indicative of the strong relationships we, through our
management and Founder, enjoy with the financial and investment
communities.
Relationships
with Top Charterers
Our Founder and management team have established relationships
with several of the top charterers in the shipping industry
including CSAV, CMA CGM S.A., China Open Shipping Company, or
Cosco, Hamburg Südamerikanische
Dampfschifffahrts-Gesellschaft KG, Hanjin Shipping Co., Ltd.,
Maersk, MSC Shipping S.A. and P&O Nedlloyd Container Line
Limited (which has merged with Maersk). We believe that these
relationships, matched with our Managers vetting process,
will allow us to selectively charter our vessels at attractive
rates.
Highly
Successful and Reputable Fleet Manager Provides High-Quality,
Cost Efficient Operations
We believe that the resources and reputation of our Manager as a
safe and reliable technical manager provide us with favorable
charter opportunities with well established charterers, as
shippers demands for reliable, on-time services increase
with globalization. We believe that employing our Manager as our
technical manager provides us with a competitive advantage over
other containership operators of a similar size by allowing us
to more closely monitor our operations and to offer higher
quality performance, reliability and efficiency in the
maintenance of our vessels. Additionally, we expect to benefit
from economies of scale not usually realized by operators of our
size and to realize the benefits through reduced costs and
higher distributable cash flow. Our Manager is a subsidiary of a
publicly traded company, which we believe increases transparency
and allows us to operate under high standards of corporate
governance. With approximately 70 shore-based personnel in
Athens, Greece and over 600 offshore employees, our Manager
oversees the technical supervision, such as repairs, maintenance
and inspections, safety and quality, crewing and training, as
well as supply provisioning, of over 25 vessels on the
water, consisting of drybulk carriers and our containerships,
and two newbuilding vessels under construction. Pursuant to each
vessel management agreement, our Manager receives a commission
of 1% of the gross charterhire and freight earned by the vessel
and a technical management fee of $15,000 per vessel per month
for employed vessels and will receive $20,000 per vessel per
month for
laid-up
vessels, if any. We have also agreed to pay our Manager a
monthly fee of $10,000 for administrative services.
Business
Strategy
To
Acquire High Quality Containerships Throughout the Shipping
Cycle
We will seek to provide attractive returns to our investors by
continuing to make accretive acquisitions of high quality
containerships in the secondhand market, including from
shipyards and lending institutions. We believe that, currently,
the containership sector provides attractive acquisition
opportunities as asset values remain below
10-year
averages and will continue to present attractive opportunities
through the cycle. Over time, we expect that asset prices and
charterhire will increase and that we will continue to make
acquisitions that meet our investment criteria. Because members
of our senior management team have successfully navigated
previous market cycles, we believe that we have the experience
and discipline to capitalize on market movements. In addition,
we are not affected by issues currently impacting certain other
containership companies, such as high leverage and the purchase
of vessels at prices significantly above historical averages. We
will initially focus on vessels
7
ranging from 2,500 TEU to 7,500 TEU because we believe that the
current orderbook composition, coupled with global GDP growth,
creates a favorable multi-year dynamic of supply and demand for
these mid-sized containerships. As industry dynamics change, we
might opportunistically acquire containerships outside of this
range as well as enter into newbuilding contracts with shipyards
on terms that meet our acquisition criteria.
Strategically
Deploy Our Vessels in Order to Optimize the Opportunities in the
Time Charter Market
We intend to actively monitor market conditions, charter rates
and vessel operating expenses in order to selectively employ
vessels as market conditions warrant. We initially intend to
enter into short- and medium-term time charters to allow our
shareholders to benefit from what we believe to be an improving
charter rate environment. Depending on market conditions, in the
future we might enter into long-term time charters at rates that
compare favorably to historical averages, shielding us from
charter rates decreases and cyclical fluctuations. We believe
that maintaining staggered charter maturities will provide us
with the flexibility to capitalize on favorable market
conditions, while providing us with a base of strong, visible
cash flows.
Maintain
a Strong Balance Sheet
We have a strong balance sheet and we will employ a portion of
the proceeds of this offering to repay our outstanding debt. As
a result, we will have greater availability under our credit
lines for future acquisitions and our low debt levels should
allow us to generate free cash to fund operations and pay
dividends. In the future, we expect to draw funds on a
short-term basis under our credit lines to fund vessel
acquisitions. We intend to repay our acquisition related debt
from time to time with the net proceeds of subsequent equity
issuances. We believe that maintaining a strong balance sheet
will continue to provide us with the flexibility to capitalize
on vessel purchase opportunities. Notwithstanding the foregoing,
based on prevailing conditions and our outlook for the
containership market, we might consider incurring further
indebtedness in the future to enhance returns to our
shareholders.
Provide
an Attractive Yield to Shareholders Through Quarterly
Dividends
We currently intend to declare a variable quarterly dividend
each February, May, August and November substantially equal to
approximately 70% of our available cash from operations during
the previous quarter after the payment of cash expenses for the
quarter. The remaining available cash from operations is
expected to be used for reserves for scheduled drydockings,
intermediate and special surveys and other purposes as our board
of directors may from time to time determine are required, after
taking into account contingent liabilities, the terms of any
credit facility, our growth strategy and other cash needs and
the requirements of Marshall Islands law. While we expect to
declare a quarterly dividend in August 2011 in respect of a
partial fleets operations, we expect to declare our first
full quarterly distribution in November 2011, which will reflect
a full quarters operations of our entire Initial Fleet, as
well as a partial contribution from any other vessels delivered
during that quarter. Our board of directors may review and amend
our dividend policy from time to time, in light of our plans for
future growth and other factors.
Maintain
Low Cost, Highly Efficient and Reliable Operations
We operate as an efficient and reliable owner of containerships
as a result of the experience of our Manager. DSS currently
manages a fleet of 14 Panamax, one Post-Panamax, eight Capesize
drybulk carriers, the two Panamax containerships in our fleet
and two drybulk carrier newbuildings for which it provides
supervisory services. We believe that we will benefit from
economies of scale in maintenance, supply and crewing of our
vessels, as well in purchasing lubricants and spare parts. We
further believe that we can build on the reputation of our
Manager for safe vessel operations, and we intend to comply with
rigorous international health, safety and environmental
protection regulations.
8
SUMMARY
FINANCIAL DATA
The following table sets forth our summary consolidated
financial data and other operating data. The summary
consolidated financial data in the table as of December 31,
2010 and for the period from January 7, 2010 (inception
date) to December 31, 2010 are derived from our audited
consolidated financial statements and notes thereto which have
been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP). The summary
consolidated financial data in the table as of and for the three
months ended March 31, 2011 and for the period from
January 7, 2010 (inception date) to March 31, 2010 are
derived from our unaudited consolidated financial statements.
The following data should be read in conjunction with
Item 5 Operating and Financial Review and
Prospects, the consolidated financial statements, related
notes and other financial information included elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period from
|
|
|
|
For the period from
|
|
|
|
|
|
January 7, 2010
|
|
|
|
January 7, 2010 (inception
|
|
|
For the three months
|
|
|
(inception date) to
|
|
|
|
date) to December 31,
2010
|
|
|
ended March 31,
2011
|
|
|
March 31, 2010
|
|
|
|
(in U.S. dollars, except for share data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter revenues
|
|
$
|
5,734,716
|
|
|
$
|
3,240,000
|
|
|
|
|
|
Voyage expenses
|
|
|
266,967
|
|
|
|
116,100
|
|
|
|
|
|
Vessel operating expenses
|
|
|
2,884,610
|
|
|
|
954,222
|
|
|
|
|
|
Depreciation
|
|
|
1,453,877
|
|
|
|
723,771
|
|
|
|
|
|
Management fees
|
|
|
203,000
|
|
|
|
90,000
|
|
|
|
|
|
General and administrative expenses
|
|
|
3,523,986
|
|
|
|
851,316
|
|
|
|
236,533
|
|
Foreign currency (gains)/losses
|
|
|
(1,043,563
|
)
|
|
|
6,015
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
$
|
(1,554,161
|
)
|
|
$
|
498,576
|
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
|
(511,291
|
)
|
|
|
(263,550
|
)
|
|
|
|
|
Interest income
|
|
|
64,091
|
|
|
|
21,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(2,001,361
|
)
|
|
$
|
256,829
|
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common share, basic and diluted
|
|
$
|
(0.45
|
)
|
|
$
|
0.04
|
|
|
$
|
(473.36
|
)
|
Weighted average number of common shares, basic and diluted
|
|
|
4,449,431
|
|
|
|
6,106,161
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for
|
|
|
|
|
|
|
the period from
|
|
|
As of and for the period
|
|
|
|
January 7, 2010
|
|
|
from January 7, 2010
|
|
As of and for the
|
|
(inception date) to
|
|
|
(inception date) to
|
|
three months ended
|
|
March 31, 2010
|
|
|
December 31,
2010
|
|
March 31, 2011
|
|
(Cash Flow Data
Only)*
|
|
|
(in U.S. dollars, except operations data)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,098,284
|
|
|
$
|
31,811,827
|
|
|
|
|
|
Total current assets
|
|
|
12,376,014
|
|
|
|
32,601,617
|
|
|
|
|
|
Vessels net book value
|
|
|
92,077,309
|
|
|
|
91,353,538
|
|
|
|
|
|
Total assets
|
|
|
105,349,169
|
|
|
|
125,528,755
|
|
|
|
|
|
Total current liabilities
|
|
|
2,428,676
|
|
|
|
3,966,530
|
|
|
|
|
|
Other non-current liabilities
|
|
|
181,684
|
|
|
|
181,684
|
|
|
|
|
|
Long-term debt (including current portion)
|
|
|
19,489,633
|
|
|
|
39,080,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
84,610,714
|
|
|
|
85,064,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
$
|
(186,525
|
)
|
|
$
|
1,830,343
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(93,531,186
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
103,764,596
|
|
|
|
18,883,200
|
|
|
|
50,000,500
|
|
Fleet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of vessels(1)
|
|
|
1.0
|
|
|
|
2.0
|
|
|
|
|
|
Number of vessels at end of period
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
Weighted average age of fleet at end of period (in years)
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
|
|
Ownership days(2)
|
|
|
361
|
|
|
|
180
|
|
|
|
|
|
Available days(3)
|
|
|
361
|
|
|
|
180
|
|
|
|
|
|
Operating days(4)
|
|
|
352
|
|
|
|
180
|
|
|
|
|
|
Fleet utilization(5)
|
|
|
97.5
|
%
|
|
|
100
|
%
|
|
|
|
|
Average Daily Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent (TCE) rate(6)
|
|
$
|
15,146
|
|
|
$
|
17,355
|
|
|
|
|
|
Daily vessel operating expenses(7)
|
|
|
7,991
|
|
|
|
5,301
|
|
|
|
|
|
|
|
|
*
|
|
We did not have any operating
vessels as of March 31, 2010
|
|
(1)
|
|
Average number of vessels is the
number of vessels that constituted our fleet for the relevant
period, as measured by the sum of the number of days each vessel
was a part of our fleet during the period divided by the number
of calendar days in the period.
|
|
(2)
|
|
Ownership days are the aggregate
number of days in a period during which each vessel in our fleet
has been owned by us. Ownership days are an indicator of the
size of our fleet over a period and affect both the amount of
revenues and the amount of expenses that we record during a
period.
|
|
(3)
|
|
Available days are the number of
our ownership days less the aggregate number of days that our
vessels are off-hire due to scheduled repairs or repairs under
guarantee, vessel upgrades or special surveys and the aggregate
amount of time that we spend positioning our vessels. The
shipping industry uses available days to measure the number of
days in a period during which vessels should be capable of
generating revenues.
|
10
|
|
|
(4)
|
|
Operating days are the number of
available days in a period less the aggregate number of days
that our vessels are off-hire due to any reason, including
unforeseen circumstances. The shipping industry uses operating
days to measure the aggregate number of days in a period during
which vessels actually generate revenues.
|
|
(5)
|
|
We calculate fleet utilization by
dividing the number of our operating days during a period by the
number of our available days during the period. The shipping
industry uses fleet utilization to measure a companys
efficiency in finding suitable employment for its vessels and
minimizing the amount of days that its vessels are off-hire for
reasons other than scheduled repairs or repairs under guarantee,
vessel upgrades, special surveys or vessel positioning.
|
|
(6)
|
|
Time charter equivalent rates, or
TCE rates, are defined as our time charter revenues less voyage
expenses during a period divided by the number of our available
days during the period, which is consistent with industry
standards. Voyage expenses include port charges, bunker (fuel)
expenses, canal charges and commissions. TCE rate is a non-GAAP
measure, and is a standard shipping industry performance measure
used primarily to compare daily earnings generated by vessels on
time charters with daily earnings generated by vessels on voyage
charters, because charter hire rates for vessels on voyage
charters are generally not expressed in per day amounts while
charter hire rates for vessels on time charters are generally
expressed in such amounts. The following table reflects the
calculation of our TCE rates for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
For the period from
|
|
|
|
|
|
|
January 7, 2010 (inception
|
|
|
For the three months
|
|
|
|
date) to December 31, 2010
|
|
|
ended March 31, 2011
|
|
|
|
(in U.S. dollars, except for available days)
|
|
|
Time charter revenues
|
|
$
|
5,734,716
|
|
|
$
|
3,240,000
|
|
Less: voyage expenses
|
|
|
(266,967
|
)
|
|
|
(116,100
|
)
|
|
|
|
|
|
|
|
|
|
Time charter equivalent revenues
|
|
$
|
5,467,749
|
|
|
$
|
3,123,900
|
|
|
|
|
|
|
|
|
|
|
Available days
|
|
|
361
|
|
|
|
180
|
|
Time charter equivalent (TCE) rate
|
|
$
|
15,146
|
|
|
$
|
17,355
|
|
|
|
|
(7)
|
|
Daily vessel operating expenses,
which include crew wages and related costs, the cost of
insurance, expenses relating to repairs and maintenance, the
costs of spares and consumable stores, tonnage taxes and other
miscellaneous expenses, are calculated by dividing vessel
operating expenses by ownership days for the relevant period.
|
11
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.
|
|
|
Issuer
|
|
Diana Containerships Inc. |
|
Common Shares Offered By Us |
|
common shares |
|
Offering Price Per Share |
|
|
|
Over-Allotment Option |
|
common shares |
|
Common Shares to be Issued in the Concurrent Private Placement(1)
|
|
common shares to Diana Shipping for an aggregate of
approximately $20.0 million at the price per share to the
public in this offering. |
|
Common Shares Outstanding After This Offering and the
Concurrent Private Placement(2)(3)
|
|
common shares,
or
common shares if the over-allotment option is exercised in full
in this offering. |
|
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 intend to use the net
proceeds of this offering and the concurrent private placement
to repay in full our existing term loan facility, to fund the
balance of the acquisition costs of three containership vessels
that we have agreed to acquire from Maersk, for additional
containership acquisitions and general corporate purposes,
including working capital. See Use of Proceeds. |
|
|
|
Dividends |
|
We currently intend to declare a variable quarterly dividend
each February, May, August and November substantially equal to
approximately 70% of our available cash from operations
during the previous quarter after the payment of cash expenses
for the quarter. The remaining available cash from operations is
expected to be used for reserves for scheduled drydockings,
intermediate and special surveys and other purposes as our board
of directors may from time to time determine are required, after
taking into account contingent liabilities, the terms of any
credit facility, our growth strategy and other cash needs and
the requirements of Marshall Islands law. |
|
|
|
|
|
We expect to declare our first quarterly dividend in August
2011. Because the closing of the acquisitions of the three
currently-contracted vessels is expected to occur in June 2011,
investors should not annualize our first dividend as a means of
determining the yield or annual dividend payment. We expect that
the dividend payable in November will reflect a full
quarters operations of our entire Initial Fleet, as well
as a partial contribution from any other vessels delivered
during that quarter. |
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In times when we have debt outstanding, we intend to limit our
dividends per share to the amount that we would have been able
to pay if we were financed entirely with equity as |
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described in the section of this prospectus entitled
Dividend Policy. Our board of directors may review
and amend our dividend policy from time to time, in light of our
plans for future growth and other factors. |
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Preferred Stock Purchase Rights |
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We have entered into a stockholders rights agreement dated
August 2, 2010, or the Stockholders Rights Agreement, with
Mellon Investor Services LLC as Rights Agent. Pursuant to this
Stockholders Rights Agreement, each share of our common stock
includes one right, which we refer to as a Right, that entitles
the holder to purchase from us a unit consisting of one
one-thousandth of a share of our preferred stock at an exercise
price specified in the Stockholders Rights Agreement, subject to
specified adjustments. Until a Right is exercised, the holder of
a Right will have no rights to vote or receive dividends or any
other stockholder rights. See Description of Capital
Stock Preferred Stock Purchase Rights for
further details. |
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Voting Rights |
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Under Marshall Islands law and our bylaws, each share of common
stock entitles the holder to one vote. |
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Tax Considerations |
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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. |
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We will be exempt from U.S. federal income taxation on our
U.S.-source
shipping income if we satisfy certain requirements. See
Taxation. |
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Listing |
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Our common shares are listed on the NASDAQ Global Market under
the symbol DCIX. |
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Risk Factors |
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You should consider carefully all of the information set forth
in this prospectus and, in particular, you should evaluate the
risks described under Risk Factors. |
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Conflicts of Interest |
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Certain affiliates of DnB NOR Markets, Inc., an underwriter in
this offering, will receive more than 5% of the net proceeds of
this offering in connection with the repayment in full of our
secured term loan facility with them. See Use of
Proceeds. Accordingly, this offering is being made in
compliance with the requirements of the Financial Industry
Regulatory Authority, or FINRA, Rule 5121. As DnB NOR
Markets, Inc. is not primarily responsible for managing this
offering, pursuant to Rule 5121, the appointment of a
qualified independent underwriter is not necessary. DnB NOR
Markets, Inc. will not confirm sales of the securities to any
account over which it exercises discretionary authority without
the prior written approval of the customer. |
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(1) |
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The number of shares to be issued to Diana Shipping is based on
a public offering price in this offering of
$ per share. |
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(2) |
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Does not include 392,198 common shares issued or reserved for
issuance under our 2010 Equity Incentive Plan, of which the
Company expects to issue 53,333 restricted shares to our
executive officers after the closing of this offering. |
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(3) |
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Pursuant to our amended and restated articles of incorporation,
we are authorized to issue up to 500 million common shares
and 25 million preferred shares, each with a par value of
$0.01 per share. |
13
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
The
Containership Sector is Cyclical and Volatile, with Charter Hire
Rates and Profitability at Reduced Levels, and the Recent Global
Economic Recession has Resulted in Decreased Demand for
Container Shipping.
Our growth will generally depend on continued growth in world
and regional demand for containership services, and the global
economic slowdown in 2008 resulted in decreased demand for
containerships and a related decrease in charter rates that have
not fully recovered.
The ocean-going containership sector is both cyclical and
volatile in terms of charter hire rates and profitability.
Containership charter rates peaked in 2005 and generally stayed
strong until the middle of 2008, when the effects of the recent
economic crisis began to affect global container trade. At the
end of 2009, rates had fallen significantly to below the late
2001 ten-year lows. According to Drewry, in 2010 and 2011
containership charter rates have improved, although such
improvement may not be sustainable and rates remain below
long-term averages and could decline again. Fluctuations in
charter rates result from changes in the supply and demand for
ship capacity and changes in the supply and demand for the major
products internationally transported by containerships. The
factors affecting the supply and demand for containerships and
supply and demand for products shipped in containers are outside
of our control, and the nature, timing and degree of changes in
industry conditions are unpredictable.
The factors that influence demand for containership capacity
include:
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supply and demand for products suitable for shipping in
containers;
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changes in global production of products transported by
containerships;
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the distance container cargo products are to be moved by sea;
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the globalization of manufacturing;
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global and regional economic and political conditions;
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developments in international trade;
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changes in seaborne and other transportation patterns, including
changes in the distances over which container cargoes are
transported;
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environmental and other regulatory developments;
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currency exchange rates; and
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weather.
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The factors that influence the supply of containership capacity
include:
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the number of newbuilding deliveries;
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the scrapping rate of older containerships;
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containership owner access to capital to finance the
construction of newbuildings;
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the price of steel and other raw materials;
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changes in environmental and other regulations that may limit
the useful life of containerships;
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the number of containerships that are sailing at reduced speed,
or slow-steaming, to conserve fuel;
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the number of containerships that are out of service; and
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port congestion and canal closures.
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Our ability to employ any containerships that we acquire will
depend upon, among other things, the then-current state of the
containership market. If the containership market is in a period
of sustained depression, we may be unable to operate our vessels
profitably.
Liner
Companies, which are the Most Significant Charterers of
Containerships, have been Placed Under Significant Financial
Pressure, Thereby Increasing Our Charter Counterparty
Risk.
The decline in global trade due to the economic slowdown has
resulted in a significant decline in demand for the seaborne
transportation of products in containers, including for exports
from China to Europe and the United States. Consequently, the
cargo volumes and freight rates achieved by liner companies,
which charter containerships from ship owners like us, had
declined, adversely affecting their profitability, until
considerable improvement in 2010 and
2011 year-to-date.
The financial challenges faced by liner companies, some of which
announced efforts to obtain third party aid and restructure
their obligations, reduced demand for containership charters.
The combination of the current surplus of containership capacity
and the expected increase in the size of the world containership
fleet over the next several years may make it difficult to
secure substitute employment for our containerships if our
counterparties fail to perform their obligations under the
currently arranged time charters, and any new charter
arrangements we are able to secure may be at lower rates.
We
will be Dependent upon a Limited Number of Customers in a
Consolidating Industry for a Large Part of Our Revenues. the
Loss of These Customers could Adversely Affect Our Financial
Performance.
One of our vessels, the MV Centaurus, is employed on a time
charter to CSAV, and the MV Sagitta and the three secondhand
vessels we have contracted to acquire are employed on time
charters (or will be employed upon their delivery to us from
their respective seller) with Maersk.
Should charterhire for containerships improve, we will seek to
charter a greater portion of our containerships pursuant to
medium- and long-term fixed-rate time charters with leading
liner companies, and we may remain dependent upon a limited
number of liner operators. In addition, in recent years there
have been significant examples of consolidation in the
containership sector; at present, there are over 500 liner
companies (although a large number of these are small niche
operators), but according to Drewry, the top 10 and top
20 companies, including subsidiaries, accounted for
approximately 54% and 73.2% of global liner capacity,
respectively, as of March 2011. Financial difficulties in the
industry may accelerate the trend towards consolidation,
although since the major acquisitions of P&O Nedlloyd and
CP Ships five years ago, activity in this area has been
relatively quiet. The cessation of business with liner companies
to which our vessels are chartered or their failure to fulfill
their obligations under the charters for our containerships
could have a material adverse effect on our financial condition
and results of operations, as well as our cash flows.
An
Over-Supply of Containership Capacity may Lead to a Further
Reduction in Charter Rates, which may Limit Our Ability to
Operate Our Vessels Profitably.
While the size of the containership orderbook has declined over
the last 12 months, newbuilding containerships with an
aggregate capacity of 4.1 million TEU were on order,
representing 28.8% of the total fleet capacity as of
April 30, 2011, according to Drewry. The size of the
orderbook when compared to the fleet is small relative to
historical levels and will result in the increase in the size of
the world containership fleet over the next few years. However,
the orderbook remains heavily skewed towards
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ships of at least 8,000 TEU in size. An over-supply of
containership capacity, combined with a decline in the demand
for containerships, may result in a further reduction of charter
hire rates. If such a reduction continues in the future, we may
only be able to charter our fleet for reduced rates or
unprofitable rates or we may not be able to charter our
containerships at all.
A
Decrease in the Level of Chinas Export of Goods or an
Increase in Trade Protectionism could have a Material Adverse
Impact on Our Charterers Business and, in Turn, could
Cause a Material Adverse Impact on Our Results of Operations,
Financial Condition and Cash Flows.
China exports considerably more goods than it imports. Our
containerships may be deployed on routes involving containerized
trade in and out of emerging markets, and our charterers
container shipping and business revenue may be derived from the
shipment of goods from the Asia Pacific region to various
overseas export markets including the United States and Europe.
Any reduction in or hindrance to the output of China-based
exporters could have a material adverse effect on the growth
rate of Chinas exports and on our charterers
business. For instance, the government of China has recently
implemented economic policies aimed at increasing domestic
consumption of Chinese-made goods. This may have the effect of
reducing the supply of goods available for export and may, in
turn, result in a decrease of demand for container shipping.
Additionally, though in China there is an increasing level of
autonomy and a gradual shift in emphasis to a market
economy and enterprise reform, many of the reforms,
particularly some limited price reforms that result in the
prices for certain commodities being principally determined by
market forces, are unprecedented or experimental and may be
subject to revision, change or abolition. The level of imports
to and exports from China could be adversely affected by changes
to these economic reforms by the Chinese government, as well as
by changes in political, economic and social conditions or other
relevant policies of the Chinese government.
Our operations expose us to the risk that increased trade
protectionism will adversely affect our business. Specifically,
increasing trade protectionism in the markets that our
charterers serve has caused and may continue to cause an
increase in: (i) the cost of goods exported from China,
(ii) the length of time required to deliver goods from
China and (iii) the risks associated with exporting goods
from China, as well as a decrease in the quantity of goods to be
shipped.
Any increased trade barriers or restrictions on trade,
especially trade with China, would have an adverse impact on our
charterers business, operating results and financial
condition and could thereby affect their ability to make timely
charter hire payments to us and to renew and increase the number
of their time charters with us. This could have a material
adverse effect on our business, results of operations and
financial condition and our ability to pay dividends to our
stockholders.
The
State of Global Financial Markets and Economic Conditions may
Adversely Impact Our Ability to Obtain Financing on Acceptable
Terms, which may Hinder or Prevent us from Expanding Our
Business.
Global financial markets and economic conditions have been, and
continue to be, volatile. During the economic downturn that
began in 2008, the debt and equity capital markets were severely
distressed. These issues, along with significant write-offs in
the financial services sector, the re-pricing of credit risk and
weak economic conditions have made, and will likely continue to
make, it difficult to obtain financing. A weak state of global
financial markets and economic conditions might adversely impact
our ability to issue additional equity at prices that will not
be dilutive to our existing shareholders or preclude us from
issuing equity at all.
Also, as a result of concerns about the stability of financial
markets generally and the solvency of counterparties
specifically, the cost of obtaining money from the credit
markets has increased as many lenders have increased interest
rates, enacted tighter lending standards, refused to refinance
existing debt at all or on terms similar to current debt and
reduced, and in some cases ceased, to provide funding to
borrowers. Due to these factors, we cannot be certain that
financing will be available if needed and to the extent
required, on acceptable terms. If financing is not available
when needed, or is available only on unfavorable terms, we may
be unable to meet our obligations as they come due or we may be
unable
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to enhance our existing business, complete acquisitions or
otherwise take advantage of business opportunities as they arise.
The
Earthquake and Resulting Tsunami and Nuclear Power Plant Crisis
that Struck Japan in March 2011 could, in The Near Term, Reduce
Container Volumes to and from Areas of Japan, Including Tokyo,
which could Result in Reductions in Prevailing Charter
Rates.
The March 2011 earthquake in Japan and resulting tsunami have
caused a nuclear power plant located in Japan to fail and emit
radiation. Although the full effect of these disasters, both on
the Japanese and global economies, is not currently known, a
number of liner companies have restricted vessels from calling
on ports in Tokyo and Northern Japan. In addition, authorities
in other countries, including China and the United States, have
begun screening containerships that have visited Japan or nearby
waters for nuclear radiation, causing delays and reduced
attractiveness of any contaminated vessels for subsequent
employment. These disasters will for some period of time result
in reduced container volumes to and from Japan, which has the
worlds third largest economy, and could potentially result
in reduced charter rates. In addition, there can be no
assurances that our vessels trading in the Pacific will not be
impacted by the possible effects of spreading radiation.
Changes
in the Economic and Political Environment in China and Policies
Adopted by the Government to Regulate its Economy may have a
Material Adverse Effect on Our Business, Financial Condition and
Results of Operations.
The Chinese economy differs from the economies of most countries
belonging to the Organization for Economic Cooperation and
Development in such respects as structure, government
involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and
balance of payments position. Prior to 1978, the Chinese economy
was a planned economy. Since 1978, increasing emphasis has been
placed on the utilization of market forces in the development of
the Chinese economy. Annual and five-year State Plans are
adopted by the Chinese government in connection with the
development of the economy. Although state-owned enterprises
still account for a substantial portion of the Chinese
industrial output, in general, the Chinese government is
reducing the level of direct control that it exercises over the
economy through State Plans and other measures. There is an
increasing level of freedom and autonomy in areas such as
allocation of resources, production, pricing and management and
a gradual shift in emphasis to a market economy and
enterprise reform. Limited price reforms were undertaken, with
the result that prices for certain commodities are principally
determined by market forces. Many of the reforms are
unprecedented or experimental and may be subject to revision,
change or abolition based upon the outcome of such experiments.
If the Chinese government does not continue to pursue a policy
of economic reform, the level of imports to and exports from
China could be adversely affected by changes to these economic
reforms by the Chinese government, as well as by changes in
political, economic and social conditions or other relevant
policies of the Chinese government, such as changes in laws,
regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and
financial condition.
Vessel
Values may Fluctuate which may Adversely Affect Our Financial
Condition, Result in the Incurrence of a Loss Upon Disposal of a
Vessel or Increase the Cost of Acquiring Additional
Vessels.
Vessel values may fluctuate due to a number of different
factors, including: general economic and market conditions
affecting the shipping industry; competition from other shipping
companies; the types and sizes of available vessels; the
availability of other modes of transportation; increases in the
supply of vessel capacity; the cost of newbuildings;
governmental or other regulations; prevailing freight rates,
which are the rates paid to the shipowner by the charterer under
a voyage charter, usually calculated either per ton loaded or as
a lump sum amount; and the need to upgrade secondhand and
previously owned vessels as a result of charterer requirements,
technological advances in vessel design or equipment or
otherwise. In addition, as vessels grow older, they generally
decline in value. Due to the
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cyclical nature of the containership market, if for any reason
we sell any of our owned vessels at a time when prices are
depressed, we could incur a loss and our business, results of
operations, cash flow and financial condition could be adversely
affected. Moreover, if the book value of a vessel is impaired
due to unfavorable market conditions we may incur a loss that
could adversely affect our operating results.
Conversely, if vessel values are elevated at a time when we wish
to acquire additional vessels, the cost of acquisition may
increase and this could adversely affect our business, results
of operations, cash flow and financial condition.
The
Containership Sector is Highly Competitive, and we may be Unable
to Compete Successfully for Charters with Established Companies
or New Entrants that may have Greater Resources and Access to
Capital, which may have a Material Adverse Affect on
us.
The containership sector is a highly competitive industry that
is capital intensive and highly fragmented. Competition arises
primarily from other vessel owners, some of whom may have
greater resources and access to capital than we have.
Competition among vessel owners for the seaborne transportation
of semi-finished and finished consumer and industrial products
can be intense and depends on the charter rate, location, size,
age, condition and the acceptability of the vessel and its
operators to charterers. Due in part to the highly fragmented
market, many of our competitors with greater resources and
access to capital than we have could operate larger fleets than
we may operate and thus be able to offer lower charter rates or
higher quality vessels than we are able to offer. If this were
to occur, we may be unable to retain or attract new charterers
on attractive terms or at all, which may have a material adverse
effect on our business, prospects, financial condition,
liquidity and results of operations.
An
Increase in Operating Costs could Adversely Affect Our Cash
Flows and Financial Condition.
Vessel operating expenses include the costs of crew, provisions,
deck and engine stores, lube oil, bunkers, insurance and
maintenance and repairs, which depend on a variety of factors,
many of which are beyond our control. Some of these costs,
primarily relating to insurance and enhanced security measures
implemented after September 11, 2001 and as a result of a
recent increase in the frequency of acts of piracy, have been
increasing. If our vessels suffer damage, they may need to be
repaired at a drydocking facility. The costs of drydock repairs
are unpredictable and can be substantial. Increases in any of
these costs could have a material adverse effect on our
business, results of operations, cash flows and financial
condition.
Fuel,
or Bunker Prices, may Adversely Affect Profits.
While we generally do not bear the cost of fuel, or bunkers, for
vessels operating on time charters, fuel is a significant factor
in negotiating charter rates. As a result, an increase in the
price of fuel beyond our expectations may adversely affect our
profitability at the time of charter negotiation. Fuel is also a
significant, if not the largest, expense in our shipping
operations when vessels are under voyage charter. 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 the Organization of
Petroleum Exporting Countries (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.
Increased
Inspection Procedures, Tighter Import and Export Controls and
New Security Regulations could Increase Costs and Cause
Disruption of Our Business.
The international containership sector is subject to additional
security and customs inspection and related procedures in
countries of origin, destination and trans-shipment points.
These security procedures can result in cargo seizure, delays in
the loading, offloading, trans-shipment, or delivery of
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containers and the levying of customs duties, fines or other
penalties against exporters or importers and, in some cases,
carriers.
Since the events of September 11, 2001,
U.S. authorities have significantly increased the levels of
inspection for all imported containers. Government investment in
non-intrusive container scanning technology has grown, and there
is interest in electronic monitoring technology, including
so-called
e-seals
and smart containers that would enable remote,
centralized monitoring of containers during shipment to identify
tampering with or opening of the containers, along with
potentially measuring other characteristics such as temperature,
air pressure, motion, chemicals, biological agents and radiation.
It is unclear what changes, if any, to the existing security
procedures will ultimately be proposed or implemented, or how
any such changes will affect the containership 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 by container uneconomical
or impractical. These additional costs could reduce the volume
of goods shipped in containers, resulting in a decreased demand
for containerships. In addition, it is unclear what financial
costs any new security procedures might create for containership
owners and operators. Any additional costs or a decrease in
container volumes could have an adverse impact on our ability to
attract customers and therefore have an adverse impact on our
ability to operate our vessels profitably.
Compliance
with Safety and Other Vessel Requirements Imposed by
Classification Societies may be Very Costly and may Adversely
Affect our Business.
The hull and machinery of every commercial vessel must be
classed by a classification society authorized by its country of
registry. The classification society certifies that a vessel is
safe and seaworthy in accordance with the applicable rules and
regulations of the country of registry of the vessel and the
Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and
special surveys. In lieu of a special survey, a vessels
machinery may be on a continuous survey cycle under which the
machinery would be surveyed periodically over a five-year
period. If any vessel does not maintain its class
and/or fails
any annual survey, intermediate survey or special survey, the
vessel will be unable to trade between ports and will be
unemployable. This could negatively impact our results of
operations and financial condition.
We are
Subject to Regulation and Liability Under Environmental Laws
that could Require Significant Expenditures and Affect Our Cash
Flows and Net Income.
Our business and the operations of our containerships will be
materially affected by environmental regulation in the form of
international conventions, national, state and local laws and
regulations in force in the jurisdictions in which our
containerships operate, as well as in the country or countries
of their registration, including those governing the management
and disposal of hazardous substances and wastes, the cleanup of
oil spills and other contamination, air emissions (including
greenhouse gases), water discharges and ballast water
management. Because such conventions, laws, and regulations are
often revised, we cannot predict the ultimate cost of complying
with such requirements or the impact thereof on the re-sale
price or useful life of any containership that we own or will
acquire. Additional conventions, laws and regulations may be
adopted that could limit our ability to do business or increase
the cost of our doing business and which may materially
adversely affect our operations. For example, the cost of
compliance with any new emissions regulation that may be adopted
by the United Nations Framework Convention on Climate Change may
be substantial or we may face substantial taxes on bunkers.
Additionally, we cannot predict the cost of compliance with any
new regulation that may be promulgated by the United States as a
result of the 2010 BP Deepwater Horizon oil spill in the
Gulf of Mexico.
In addition, we are required by various governmental and
quasi-governmental agencies to obtain certain permits, licenses,
certificates, approvals and financial assurances with respect to
our operations.
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Our failure to maintain necessary permits, licenses,
certificates, approvals or financial assurances could require us
to incur substantial costs or temporarily suspend operation of
one or more of the vessels in our fleet, or lead to the
invalidation or reduction of our insurance coverage. Many
environmental requirements are designed to reduce the risk of
pollution, such as oil spills, and our compliance with these
requirements can be costly.
Environmental requirements can also affect the re-sale value or
useful lives of our vessels, require a reduction in cargo
capacity, ship modifications or operational changes or
restrictions, lead to decreased availability of insurance
coverage for environmental matters or result in the denial of
access to certain jurisdictional waters or ports, or detention
in certain ports. Under local, national and foreign laws, as
well as international treaties and conventions, we could incur
material liabilities, including cleanup obligations and natural
resource damages, in the event that there is a release of
petroleum or other hazardous materials from our vessels or
otherwise in connection with our operations. We could also
become subject to personal injury or property damage claims
relating to the release of hazardous materials associated with
our existing or historic operations. Violations of, or
liabilities under, environmental requirements can result in
substantial penalties, fines and other sanctions, including in
certain instances, seizure or detention of our vessels.
The operation of our containerships will also be affected by the
requirements set forth in the International Maritime
Organizations International Management Code for the Safe
Operation of Ships and Pollution Prevention, or the ISM Code.
The ISM Code requires ship-owners and bareboat charterers, which
are charterers under a bareboat charter
agreement1
whereby no crew or provisions are included as part of the
charter agreement, 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. Failure to comply with
the ISM Code may subject us to increased liability, may decrease
available insurance coverage for the affected ships and may
result in denial of access to, or detention in, certain ports.
In addition, in complying with existing environmental laws and
regulations and those that may be adopted, we may incur
significant costs in meeting new maintenance and inspection
requirements and new restrictions on air emissions from our
containerships, in developing contingency arrangements for
potential spills and in obtaining insurance coverage. Government
regulation of vessels, particularly in the areas of safety and
environmental requirements, can be expected to become stricter
in the future and require us to incur significant capital
expenditures on our vessels to keep them in compliance, or even
to scrap or sell certain vessels altogether. Substantial
violations of applicable requirements or a catastrophic release
of bunker fuel from one of our containerships could have a
material adverse impact on our financial condition and results
of operations.
We may
be Unable to Attract and Retain Qualified, Skilled Employees or
Crew Necessary to Operate Our Business.
Our success will depend in large part on our ability and the
ability of our Manager to attract and retain highly skilled and
qualified personnel. In crewing our vessels, we require
technically skilled employees with specialized training who can
perform physically demanding work. Competition to attract and
retain qualified crew members is intense. If we are not able to
increase our rates to compensate for any crew cost increases, it
could have a material adverse effect on our business, results of
operations, cash flows and financial condition. Any inability
we, or our Manager, experience in the future to hire, train and
retain a sufficient number of qualified employees could impair
our ability to manage, maintain and grow our business, which
could have a material adverse effect on our financial condition,
results of operations and cash flows.
1 Bareboat
charter : Also known as a demise charter is a
contract or hire of a ship under which the shipowner is usually
paid a fixed amount of charter hire rate for a certain period of
time during which the charterer is responsible for the operating
costs and voyage costs of the vessel as well as arranging for
crewing.
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Labor
Interruptions could Disrupt Our Business.
Our vessels are manned by masters, officers and crews that are
employed by our vessel-owning subsidiaries. If not resolved in a
timely and cost-effective manner, industrial action or other
labor unrest could prevent or hinder our operations from being
carried out normally and could have a material adverse effect on
our financial condition, results of operations and cash flows.
Our
Vessels may Suffer Damage Due to the Inherent Operational Risks
of the Seaborne Transportation Industry and We may Experience
Unexpected Drydocking Costs, which may Adversely Affect our
Business and Financial Condition.
Our vessels and their cargoes may be at risk of being damaged or
lost because of events such as:
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marine disasters,
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bad weather,
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business interruptions caused by mechanical failures,
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grounding, fire, explosions and collisions,
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human error, war, terrorism, piracy and other circumstances or
events.
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These hazards may result in death or injury to persons, loss of
revenues or property, environmental damage, higher insurance
rates, damage to our customer relationships, delay or rerouting.
If our vessels suffer damage, they may need to be repaired at a
drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay
drydocking costs that our insurance does not cover in full. The
loss of earnings while these vessels are being repaired and
repositioned, as well as the actual cost of these repairs, would
decrease our earnings. 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 steam to more distant drydocking facilities would
decrease our earnings. The involvement of our vessels in an
environmental disaster may also harm our reputation as a safe
and reliable vessel owner and operator.
World
Events could Affect our Results of Operations and Financial
Condition.
Terrorist attacks such as those in New York on
September 11, 2001, in London on July 7, 2005, and in
Mumbai on November 26, 2008, and the continuing response of
the United States and others to these attacks, as well as the
threat of future terrorist attacks around the world, continues
to cause uncertainty in the worlds financial markets and
may affect our business, operating results and financial
condition. Continuing conflicts and recent developments in the
Middle East, including Egypt, and North Africa, including Libya,
and the presence of United States and other armed forces in Iraq
and Afghanistan, may lead to additional acts of terrorism and
armed conflict around the world, which may contribute to further
economic instability in the global financial markets. These
uncertainties could also adversely affect our ability to obtain
additional financing on terms acceptable to us or at all. In the
past, political conflicts have also resulted in attacks on
vessels, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region.
Acts of terrorism and piracy have also affected vessels trading
in regions such as the South China Sea and the Gulf of Aden off
the coast of Somalia. Any of these occurrences could have a
material adverse impact on our operating results, revenues and
costs.
Acts
of Piracy on Ocean-Going Vessels have Recently Increased in
Frequency, which could Adversely Affect Our
Business.
Acts of piracy have historically affected ocean-going vessels
trading in regions of the world such as the South China Sea and
in the Gulf of Aden off the coast of Somalia. Throughout 2008
the frequency of piracy incidents increased significantly, and
continued at a relatively high level during 2010, particularly
21
in the Gulf of Aden off the coast of Somalia, with drybulk
vessels and tankers particularly vulnerable to such attacks. In
November 2008, the Sirius Star, a tanker vessel not
affiliated with us, was captured by pirates in the Indian Ocean
while carrying crude oil estimated to be worth
$100 million, and was released in January 2009 upon a
ransom payment of $3 million. In April 2009, the
Maersk Alabama, a 17,000-ton containership not
affiliated with us, was seized by Somali pirates. The ship was
later released. If these piracy 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 in May 2008, or Joint War Committee war and
strikes listed areas, premiums payable for such coverage
could increase significantly and such insurance coverage may be
more difficult to obtain. In addition, crew costs, including due
to employing onboard security guards, could increase in such
circumstances. Although we believe we are, we may not be
adequately insured to cover losses from these incidents, which
could have a material adverse effect on us. In addition, any
detention hijacking as a result of an act of piracy against the
vessels we plan to acquire, or an increase in cost, or
unavailability, of insurance for our vessels, could have a
material adverse impact on our business, financial condition and
results of operations.
If Our
Vessels Call on Ports Located in Countries that are Subject to
Restrictions Imposed by the U.S. or Other Governments, that
could Adversely Affect our Reputation and the Market for Our
Common Stock.
Although we intend to comply with all applicable sanctions and
embargo laws and regulations, there can be no assurance that we
will maintain such compliance, particularly as the scope of
certain laws may be unclear and may be subject to changing
interpretations. The U.S. sanctions and embargo laws and
regulations vary in their application, as they do not all apply
to the same covered persons or proscribe the same activities,
and such sanctions and embargo laws and regulations may be
amended or strengthened over time. Specifically, we intend to
comply with all applicable sanctions against Cuba, Iran, Sudan
and Syria, and any other countries identified by the
U.S. Department of State as state sponsors of terrorism. In
2010, the U.S. enacted the Comprehensive Iran Sanctions
Accountability and Divestment Act, or CISADA, which expanded the
scope of the former Iran Sanctions Act. Among other things,
CISADA expands the application of the prohibitions to
non-U.S. companies
and introduces limits on the ability of companies and persons to
do business or trade with Iran when such activities relate to
the investment, supply or export of refined petroleum or
petroleum products. Any violation of such restrictions could
result in fines or other penalties and could result in some
investors deciding, or being required, not to invest, in our
company. Additionally, some investors may decide not to invest
in our company simply because we do business with companies that
do business in sanctioned countries. Moreover, our charterers
may violate applicable sanctions and embargo laws and
regulations as a result of actions that do not involve us or our
vessels, and those violations could in turn negatively affect
our reputation. Investor perception of the value of our common
stock may also be adversely affected by the consequences of war,
the effects of terrorism, civil unrest and governmental actions
in these and surrounding countries.
Depending
on the outcome of a government investigation of container liner
companies related to potential antitrust violations, our growth,
operating results and our ability to charter our vessels may be
reduced.
The European Commission is conducting investigations of certain
major container liner companies, including Maersk, related to
potential violations of European Union antitrust rules. Although
we have no basis for assessing the outcome of these
investigations, it is possible that additional financial and
legal obligations may be imposed on one or more of the subject
liner companies. Such obligations may make current or future
customers less likely to enter into or renew time charters for
our containerships, which could reduce our growth opportunities
and harm our business, operating results, financial condition
and ability to pay dividends. In addition, any significant
financial penalties arising from these or similar investigations
could reduce the ability of current or future customers to make
charter payments to us, which likewise could harm our business,
operating results, financial condition and ability to pay
dividends.
22
Governments
could Requisition Our Vessels During a Period of War or
Emergency, Resulting in Loss of Earnings.
A government of a vessels registry could requisition for
title or seize the vessels we plan to acquire. Requisition for
title occurs when a government takes control of a vessel and
becomes the owner. A government could also requisition our
vessels for hire. Requisition for hire occurs when a government
takes control of a vessel and effectively becomes the charterer
at dictated charter rates. Generally, requisitions occur during
a period of war or emergency. Government requisition of one or
more of our vessels could have a material adverse effect on our
business, results of operations, cash flows and financial
condition.
The
Smuggling of Drugs or Other Contraband onto Our Vessels may Lead
to Governmental Claims Against Us.
We expect that our vessels will call in ports in areas where
smugglers attempt to hide drugs and other contraband on vessels,
with or without the knowledge of crew members. To the extent our
vessels are found with contraband, whether inside or attached to
the hull of our vessel and whether with or without the knowledge
of any of our crew, we may face governmental or other regulatory
claims which could have an adverse effect on our business,
results of operations, cash flows and financial condition.
Maritime
Claimants could Arrest the Vessels We Plan to Acquire, which
would Interrupt Our Business.
Crew members, suppliers of goods and services to a vessel,
shippers of cargo and other parties may be entitled to a
maritime lien against that vessel for unsatisfied debts, claims
or damages. In many jurisdictions, a maritime lien holder may
enforce its lien by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our
vessels could interrupt our business or require us to pay large
sums of funds to have the arrest lifted, which would have a
negative effect on our cash flows.
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 the fleet we plan to acquire for claims relating
to another of our ships.
There
is a Lack of Historical Operating History Provided with Vessels
Acquisitions and Profitable Operation of the Vessels will Depend
on Our Skill and Expertise.
Consistent with shipping industry practice, other than
inspection of the physical condition of the vessels and
examinations of classification society records, neither we nor
our Manager will conduct any historical financial due diligence
process when we acquire vessels. Accordingly, neither we nor our
Manager has obtained the historical operating data for the
vessels we have acquired from the sellers because that
information is not material to our decision to make
acquisitions, nor do we believe it would be helpful to potential
investors in assessing our business or profitability. Most
vessels are sold under a standardized agreement, which, among
other things, provides the buyer with the right to inspect the
vessel and the vessels classification society records. The
standard agreement does not give the buyer the right to inspect,
or receive copies of, the historical operating data of the
vessel. Prior to the delivery of a purchased vessel, the seller
typically removes from the vessel all records, including past
financial records and accounts related to the vessel. In
addition, the technical management agreement between the
sellers technical manager and the seller is automatically
terminated and the vessels trading certificates are
revoked by its flag state following a change in ownership.
Consistent with shipping industry practice, we treat the
acquisition of a vessel (whether acquired with or without
charter) as the acquisition of an asset rather than a business.
Although vessels are generally acquired free of charter, in the
future we may acquire some vessels with time charters. Where a
23
vessel has been under a voyage charter, the vessel is delivered
to the buyer free of charter, and it is rare in the shipping
industry for the last charterer of the vessel in the hands of
the seller to continue as the first charterer of the vessel in
the hands of the buyer. In most cases, when a vessel is under
time charter and the buyer wishes to assume that charter, the
vessel cannot be acquired without the charterers consent
and the buyers entering into a separate direct agreement
with the charterer to assume the charter. The purchase of a
vessel itself does not transfer the charter, because it is a
separate service agreement between the vessel owner and the
charterer.
Due to the differences between the prior owners of these vessels
and the Company with respect to the routes we expect to operate,
our future customers, the cargoes we expect to carry, the
freight rates and charter hire rates we will charge in the
future and the costs we expect to incur in operating our
vessels, we believe that our operating results will be
significantly different from the operating results of the
vessels while owned by the prior owners. Profitable operation of
the vessels will depend on our skill and expertise. If we are
unable to operate the vessels profitably, it may have an adverse
affect on our financial condition, results of operations and
cash flows.
Company
Specific Risk Factors
Our
Growth in the Future Depends on Our Ability to Successfully
Charter Our Vessels, for which We will Face Substantial
Competition.
The process of obtaining new long-term time charters is highly
competitive and generally involves an intensive screening
process and competitive bids, and often extends for several
months. Containership charters are awarded based upon a variety
of factors relating to the vessel operator, including:
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shipping industry relationships and reputation for customer
service and safety;
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containership experience and quality of ship operations
(including cost effectiveness);
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quality and experience of seafaring crew;
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the ability to finance containerships at competitive rates and
financial stability generally;
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relationships with shipyards and the ability to get suitable
berths;
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construction management experience, including the ability to
obtain on-time delivery of new ships according to customer
specifications;
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willingness to accept operational risks pursuant to the charter,
such as allowing termination of the charter for force majeure
events; and
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competitiveness of the bid in terms of overall price.
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We expect substantial competition for providing new
containership service from a number of experienced companies,
including state-sponsored entities and major shipping companies.
Many of these competitors have significantly greater financial
resources than we do, and can therefore operate larger fleets
and may be able to offer better charter rates. As a result of
these factors, we may be unable to obtain new customers on a
profitable basis, if at all, which will impede our ability to
establish our operations and implement our growth successfully.
Furthermore, if our vessels become available for employment
under new time charters during periods when charter rates are at
depressed levels, we may have to employ our containerships at
depressed charter rates, if we are able to secure employment for
our vessels at all, which would lead to reduced or volatile
earnings. Future charter rates may not be at a level that will
enable us to operate our containerships profitably to allow us
to implement our growth strategy successfully, pay dividends or
repay our debt.
24
If We
Cannot Complete the Purchase of the Two Containerships that We
have Identified, We may Use a Portion of the Proceeds of this
Offering in Ways with which You may not Agree.
We intend to use a portion of the net proceeds of this public
offering and the concurrent private placement to acquire two
1996-built containerships each of approximately 3,500 TEU
capacity that we have identified and are currently in
discussions to acquire. If we fail to reach acceptable terms
with the third party sellers of these vessels, or if the sellers
fail to deliver the vessels to us after reaching agreement, our
management will have discretion to apply the portion of the
proceeds of this offering that we would have used to purchase
those vessels to acquire other vessels or for general corporate
purposes with which you may not agree. We will not escrow the
proceeds from this offering and will not return the proceeds of
this offering to you if we do not reach acceptable terms with
the sellers or fail to take delivery of the vessels. It may take
a substantial period of time before we can locate and purchase
other suitable vessels and generate sufficient revenue to pay
dividends. During this period, the portion of the proceeds of
this offering originally planned for the acquisition of
additional vessels will be invested on a short-term basis and,
therefore, may not yield returns comparable to what those
vessels might have earned.
We
cannot Assure You That Our Board of Directors will Declare
Dividends.
We currently intend to declare a variable quarterly dividend
each February, May, August and November substantially equal to
approximately 70% of our available cash from operations
during the previous quarter after the payment of cash expenses
for the quarter. The remaining available cash from operations is
expected to be used for reserves for scheduled drydockings,
intermediate and special surveys and other purposes as our board
of directors may from time to time determine are required, after
taking into account contingent liabilities, the terms of any
credit facility, our growth strategy and other cash needs and
the requirements of Marshall Islands law.
The declaration and payment of dividends, if any, will always be
subject to the discretion of our board of directors. The timing
and amount of any dividends declared will depend on, among other
things, our earnings, financial condition and cash requirements
and availability, our ability to obtain debt and equity
financing on acceptable terms as contemplated by our growth
strategy and provisions of Marshall Islands law affecting the
payment of dividends. The international containership sector is
highly volatile, and we cannot predict with certainty the amount
of cash, if any, that will be available for distribution as
dividends in any period. Also, there may be a high degree of
variability from period to period in the amount of cash that is
available for the payment of dividends.
We may incur expenses or liabilities or be subject to other
circumstances in the future that reduce or eliminate the amount
of cash that we have available for distribution as dividends,
including as a result of the risks described in this section of
the prospectus. Our growth strategy contemplates that we will
finance the acquisition of additional vessels through a
combination of short-term debt and equity financing on terms
acceptable to us. If financing is not available to us on
acceptable terms, our board of directors may determine to
finance or refinance acquisitions with cash from operations,
which would reduce or even eliminate the amount of cash
available for the payment of dividends.
Marshall Islands law generally prohibits the payment of
dividends other than from surplus (retained earnings and the
excess of consideration received for the sale of shares above
the par value of the shares) or while a company is insolvent or
would be rendered insolvent by the payment of such a dividend.
In addition, any credit facilities that we may enter into in the
future may include restrictions on our ability to pay dividends.
We are
a Recently Organized Corporation with a Limited Operating
History and Accordingly You will have a Very Limited Basis on
which to Evaluate Our Ability to Achieve Our Business
Objectives.
We are a recently organized corporation with limited operating
results to date. Therefore, our ability to execute our business
strategy is dependent upon the success of our management team
and obtaining additional financing through debt or an offering
of our securities. Because we have a limited
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operating history, you will have very limited information upon
which to evaluate our ability to operate our vessels profitably
and acquire or make new investments, including but not limited
to acquisitions of containerships. If we are unable to continue
to employ our vessels, we may not generate any operating
revenues, and you could lose all or part of your investment.
We may
be Unable to Locate Suitable Vessels which would Adversely
Affect Our Ability to Operate Our Business.
We intend to further grow our fleet through selective
acquisitions. Our business strategy is dependent on identifying
and purchasing suitable vessels. Changing market and regulatory
conditions may limit the availability of suitable vessels
because of customer preferences or because they are not or will
not be compliant with existing or future rules, regulations and
conventions. Additional vessels of the age and quality we desire
may not be available for purchase at prices we are prepared to
pay or at delivery times acceptable to us, and we may not be
able to dispose of vessels at reasonable prices, if at all. If
we are unable to purchase and dispose of vessels at reasonable
prices in accordance with our business strategy or in response
to changing market and regulatory conditions, our business would
be adversely affected.
Our
Purchasing and Operating Secondhand Vessels may Result in
Increased Operating Costs and Vessels
Off-Hire,
which could Adversely Affect our Earnings.
Our current business strategy includes growth through the
acquisition of previously owned vessels. While we will typically
inspect second-hand vessels before purchase, this does not
provide us with the same knowledge about their condition that we
would have had if these vessels had been built for and operated
exclusively by us. Accordingly, we may not discover defects or
other problems with such vessels before purchase. Any such
hidden defects or problems, when detected, may be expensive to
repair, and if not detected, may result in accidents or other
incidents for which we may become liable to third parties. In
addition, 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. Potential
charterers may also choose not to charter older vessels.
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, financial
condition, results of operations and cash flows.
We may
not be Able to Implement our Growth Successfully.
Our business plan is to identify and acquire suitable vessels at
favorable prices and trade our vessels on short-, medium- or
long-term charters. Our business plan will therefore depend upon
our ability to identify and acquire suitable vessels to grow our
fleet in the future and successfully employ our vessels.
Growing any business by acquisition presents numerous risks,
including undisclosed liabilities and obligations, difficulty
obtaining additional qualified personnel and managing
relationships with customers and suppliers. In addition,
competition from other companies, many of which may have
significantly greater financial resources than do we, may reduce
our acquisition opportunities or cause us to pay higher prices.
We cannot assure you that we will be successful in executing our
plans to establish and grow our business or that we will not
incur significant expenses and losses in connection with these
plans. Our failure to effectively identify, purchase, develop
and integrate any vessels could impede our ability to establish
our operations or implement our growth successfully. Our
acquisition
26
growth strategy exposes us to risks that may harm our business,
financial condition and operating results, including risks that
we may:
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fail to realize anticipated benefits, such as cost savings or
cash flow enhancements;
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incur or assume unanticipated liabilities, losses or costs
associated with any vessels or businesses acquired, particularly
if any vessel we acquire proves not to be in good condition;
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be unable to hire, train or retain qualified shore and seafaring
personnel to manage and operate our growing business and fleet;
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decrease our liquidity by using a significant portion of
available cash or borrowing capacity to finance acquisitions;
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significantly increase our interest expense or financial
leverage if we incur additional debt to finance
acquisitions; or
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incur other significant charges, such as impairment of goodwill
or other intangible assets, asset devaluation or restructuring
charges.
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We
have Acquired Re-Sale Newbuilding Vessels in the Past and We may
in the Future Agree to Acquire Additional Newbuilding Vessels,
and Any Delay in the Delivery of Vessels Under Contract could
have a Material Adverse Effect on us.
We have acquired re-sale newbuilding vessels in the past. As we
grow our fleet in the future, we may acquire additional
newbuildings. The completion and delivery of newbuildings could
be delayed because of, among other things:
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quality or engineering problems;
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changes in governmental regulations or maritime self-regulatory
organization standards;
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work stoppages or other labor disturbances at the shipyard;
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bankruptcy of or other financial crisis involving the shipyard;
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a backlog of orders at the shipyard;
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political, social or economic disturbances;
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weather interference or a catastrophic event, such as a major
earthquake or fire;
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requests for changes to the original vessel specifications;
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shortages of or delays in the receipt of necessary construction
materials, such as steel;
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an inability to finance the constructions of the vessels; or
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an inability to obtain requisite permits or approvals.
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If the seller of any newbuilding vessel we have contracted to
purchase is not able to deliver the vessel to us as agreed, or
if we cancel a purchase agreement because a seller has not met
his obligations, it may result in a material adverse effect on
our business, prospects, financial condition, liquidity and
results of operations.
The
Failure of Our Counterparties to Meet Their Obligations to us
Under Any Vessel Purchase Agreements or Time Charter Agreements
could Cause us to Suffer Losses or Otherwise Adversely Affect
our Business.
Currently, our vessels are employed on time charters with
minimum remaining durations between 15 and 24 months.
Generally, we intend to selectively employ our vessels under
short-, medium- or long-term time charters. The ability and
willingness of each of our counterparties to perform its
obligations under a vessel purchase agreement or time charter
agreement with us will depend on a
27
number of factors that are beyond our control and may include,
among other things, general economic conditions, the condition
of the containership market and the overall financial condition
of the counterparty. If the seller of a vessel fails to deliver
a vessel to us as agreed, or if we cancel a purchase agreement
because a seller has not met its obligations, this may have a
material adverse effect on our business. In addition, in
depressed market conditions, there have been reports of
charterers renegotiating their charters or defaulting on their
obligations under charters and our future customers may fail to
pay charterhire or attempt to renegotiate charter rates. If our
future charterers fail to meet their obligations to us or
attempt to renegotiate our future 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.
Increased
Competition in Technological Innovation could Reduce the Demand
for the Vessels We Plan to Acquire and Our Ability to
Successfully Implement Our Business Strategy.
The charter hire rates and the value and operational life of a
vessel are determined by a number of factors including the
vessels efficiency, operational flexibility and physical
life. Efficiency includes speed, fuel economy and the ability to
be loaded and unloaded quickly. Flexibility includes the ability
to enter harbors, utilize related docking facilities and pass
through canals and straits. Physical life is related to the
original design and construction, maintenance and the impact of
the stress of operations. If new containerships are built that
are more efficient or flexible or have longer physical lives
than our vessels, competition from these more technologically
advanced containerships could adversely affect the amount of
charter hire payments we receive for our vessels or our ability
to charter our vessels at all.
Our
Executive Officers and Directors will not Devote All of Their
Time to Our Business, which may Hinder Our Ability to Operate
Successfully.
Our executive officers and directors will be involved in other
business activities, such as the operation of Diana Shipping
with which they have certain employment agreements, which may
result in their spending less time than is appropriate or
necessary to manage our business successfully. This could have a
material adverse effect on our business, results of operations,
cash flows and financial condition.
Diana
Shipping and the Companys Management Currently Own a
Significant Portion of Our Outstanding Common Shares, which may
Limit Your Ability to Influence our Actions.
Diana Shipping currently owns approximately 11.0% of our
outstanding common stock ( % after
the completion of this offering and the concurrent private
placement of $20 million of our common shares to Diana
Shipping, assuming that all of the shares offered under this
prospectus are sold but no exercise of the underwriters
overallotment option), and our executive officers collectively
own approximately 11.8% of our outstanding common stock
( % after the completion of this
offering and the concurrent private placement of
$20 million of our common shares to Diana Shipping,
assuming that all of the shares offered under this prospectus
are sold but no exercise of the underwriters overallotment
option). Accordingly, Diana Shipping and our management have the
power to exert considerable influence over our actions,
including the election of directors, the adoption or amendment
of provisions in our articles of incorporation and possible
mergers or other significant corporate transactions. This
concentration of ownership may have the effect of delaying,
deferring or preventing a change in control, merger,
consolidation, takeover or other business combination. This
concentration of ownership could also discourage a potential
acquirer from making a tender offer or otherwise attempting to
obtain control of us, which could in turn have an adverse effect
on the market price of our shares. So long as Diana Shipping and
our management continue to own a significant amount of our
equity, even though such amount represents less than 50% of our
voting power, they will continue to be able to exercise
considerable influence over our decisions.
28
Diana
Shipping will not Provide any Guarantee of the Performance of
Our Obligations nor will You have Any Recourse Against Diana
Shipping should You Seek to Enforce a Claim Against
us.
Diana Shipping currently owns approximately 11.0% of our common
stock ( % after the completion of
this offering and the concurrent private placement of
$20 million of our common shares to Diana Shipping,
assuming that all of the shares offered under this prospectus
are sold but no exercise of the underwriters overallotment
option), but will not provide any guarantee of the performance
of our obligations. Further, you will have no recourse against
Diana Shipping should you seek to enforce a claim against us.
The
Fiduciary Duties of Our Officers and Directors may Conflict with
Those of the Officers and Directors of Diana Shipping and/or its
Affiliates.
Our officers and directors have fiduciary duties to manage our
business in a manner beneficial to us and our shareholders.
However, our Chief Executive Officer and Chairman, President,
Chief Operating Officer and Chief Financial Officer also serve
as executive officers
and/or
directors of Diana Shipping. As a result, these individuals have
fiduciary duties to manage the business of Diana Shipping and
its affiliates in a manner beneficial to such entities and their
shareholders. Consequently, these officers and directors may
encounter situations in which their fiduciary obligations to
Diana Shipping and us are in conflict. Although Diana Shipping
is contractually restricted from competing with us in the
containership sector, there may be other business opportunities
for which Diana Shipping may compete with us such as hiring
employees, acquiring other businesses, or entering into joint
ventures, which could have a material adverse effect on our
business. In addition, we are contractually restricted from
competing with Diana Shipping in the drybulk carrier sector,
which limits our ability to expand our operations.
We are
Dependent on Our Manager to Assist us in Operating Our Business,
and Our Business will be Harmed if Our Manager Fails to Assist
us Effectively.
We have entered into an Administrative Services Agreement with
Diana Shipping Services, a wholly-owned subsidiary of Diana
Shipping, whom we refer to as DSS or the Manager, whereby DSS
provides us with administrative services, commercial and
technical vessel management services, including chartering,
vessel maintenance, crewing, purchasing, shipyard supervision,
insurance and financial services. Our operational success and
ability to execute our growth strategy will depend significantly
upon the satisfactory performance of these services. Our
business will be harmed if our Manager fails to perform these
services satisfactorily, if it stops providing these services to
us for any reason or if it terminates the Administrative
Services Agreement, as it is entitled to do under certain
circumstances. While we are able to terminate the Administrative
Services Agreement upon the approval of our board of directors,
upon any termination of the Administrative Services Agreement,
we may lose our ability to benefit from economies of scale in
purchasing supplies and other advantages that we believe our
relationship with DSS will provide.
If DSS suffers material damage to its reputation or
relationships, it may harm our ability to:
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acquire new vessels;
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enter into new charters for our vessels;
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obtain financing on commercially acceptable terms; or
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maintain satisfactory relationships with charterers, suppliers
and other third parties.
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If our ability to do any of the things described above is
impaired, it would undermine our ability to establish our
operations and implement our growth successfully.
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Our
Ability to Obtain Additional Debt Financing in the Future may be
Dependent on the Performance of Our Then Existing Charters and
the Creditworthiness of our Charterers.
The actual or perceived credit quality of our charterers, and
any defaults by them, may materially affect our ability to
obtain the additional capital resources that we will require to
purchase additional vessels in the future or may significantly
increase our costs of obtaining such capital. Our inability to
obtain additional financing at all or at a higher than
anticipated cost may materially affect our results of operation
and our ability to implement our business strategy.
We may
be Unable to Attract and Retain Key Management Personnel and
other Employees in the Shipping Industry, which may Negatively
Impact the Effectiveness of Our Management and Results of
Operations.
Our success depends to a significant extent upon the abilities
and efforts of our management team. Our success will depend upon
our ability to retain key members of our management team and to
hire new members as may be necessary. The loss of any of these
individuals could adversely affect our business prospects and
financial condition. Difficulty in hiring and retaining
replacement personnel could adversely affect our business,
results of operations and ability to pay dividends. We do not
intend to maintain key man life insurance on any of
our officers or other members of our management team.
If Our
Insurance is Insufficient to Cover Losses that may Occur to the
Vessels we Plan to Acquire or Result from Our Operations Due to
the Inherent Operational Risks of the Shipping Industry, it
could Adversely Affect our Financial Condition.
The operation of an ocean-going vessel carries inherent risks,
any of which could increase our costs or lower our revenues.
These risks include the possibility of:
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marine disaster;
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environmental accidents;
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cargo and property losses or damage;
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business interruptions caused by mechanical failure, human
error, political action in various countries, war, labor
strikes, or adverse weather conditions; and
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loss of revenue during vessel off-hire periods.
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Under the vessel management agreements, our manager is
responsible for procuring and paying for insurance for our
vessels. Our insurance policies contain standard limitations,
exclusions and deductibles. The policies insure against those
risks that the shipping industry commonly insures against, which
are hull and machinery, protection and indemnity and war risk.
The Manager currently maintains hull and machinery coverage in
an amount at least equal to the vessels purchase price.
The Manager maintains an amount of protection and indemnity
insurance that is at least equal to the standard industry level
of coverage. We cannot assure you that the Manager will be able
to procure adequate insurance coverage for our fleet in the
future or that our insurers will pay any particular claim.
We
Expect to Continue to Operate Substantially Outside the United
States, which will Expose Us to Political and Governmental
Instability, which could Harm Our Operations.
We expect that our operations will continue to be primarily
conducted outside the United States and may be adversely
affected by changing or adverse political and governmental
conditions in the countries where our vessels are flagged or
registered and in the regions where we otherwise engage in
business. Any disruption caused by these factors may interfere
with the operation of our vessels, which could harm our
business, financial condition and results of operations. Past
political efforts to disrupt shipping in these regions,
particularly in the Arabian Gulf, have included attacks on ships
and mining of waterways. In addition, terrorist attacks outside
this region, such as the attacks that occurred against targets
in the United States on September 11, 2001, Spain on
March 11, 2004, London on July 7, 2005,
30
Mumbai on November 26, 2008 and continuing hostilities in
Iraq and Afghanistan and elsewhere in the Middle East and the
world may lead to additional armed conflicts or to further acts
of terrorism and civil disturbance in the United States and
elsewhere. Any such attacks or disturbances may disrupt our
business, increase vessel operating costs, including insurance
costs, and adversely affect our financial condition and results
of operations. Our operations may also be adversely affected by
expropriation of vessels, taxes, regulation, tariffs, trade
embargoes, economic sanctions or a disruption of or limit to
trading activities or other adverse events or circumstances in
or affecting the countries and regions where we operate or where
we may operate in the future.
We
Generate All of Our Revenues in Dollars and Incur a Portion of
Our Expenses in Other Currencies, and Therefore Exchange Rate
Fluctuations could have an Adverse Impact on Our Results of
Operations.
We generate all of our revenues in dollars and incur a portion
of our expenses in currencies other than the dollar. This
difference could lead to fluctuations in net income due to
changes in the value of the dollar relative to the other
currencies, in particular the Euro. Expenses incurred in foreign
currencies against which the dollar falls in value can increase,
decreasing our revenues. Further declines in the value of the
dollar could lead to higher expenses payable by us.
We may
have to Pay Tax on United States Source Income, which would
Reduce Our Earnings.
Under the United States Internal Revenue Code of 1986, or the
Code, 50% of the gross shipping income of a vessel owning or
chartering corporation, such as us and our 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.
We intend to take the position that we qualify for this
statutory tax exemption for U.S. federal income tax return
reporting purposes. However, there are factual circumstances
beyond our control that could cause us to lose the benefit of
this tax exemption after the offering and thereby become subject
to U.S. federal income tax on our
U.S.-source
shipping income. For example, in certain circumstances we may no
longer qualify for exemption under Code Section 883 for a
particular taxable year if shareholders with a five percent or
greater interest in our common shares owned, in the aggregate,
50% or more of our outstanding common shares 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 our
tax-exempt status.
If we are not entitled to exemption under Section 883 for
any taxable year, we would be subject for those years to an
effective 2% United States federal income tax on the shipping
income we derive during the year which is attributable to the
transport of cargoes to or from the United States. The
imposition of this taxation would have a negative effect on our
business and would result in decreased earnings available for
distribution to our shareholders.
We may
be Treated as a Passive Foreign Investment Company,
which could have Certain Adverse U.S. Federal Income Tax
Consequences to U.S. Holders.
A foreign corporation will be treated as a passive foreign
investment company, or PFIC, for U.S. 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, cash will be treated as an asset held
for the production of passive income. For purposes of these
tests, passive income generally includes dividends,
interest, and gains from the sale or exchange of investment
property and rents and royalties other than those 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. U.S. holders of stock in a PFIC
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are subject to a disadvantageous U.S. 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 stock in
the PFIC.
Whether we will be treated as a PFIC will depend upon our method
of operation. In this regard, we intend to treat the gross
income we derive or are deemed to derive from time or voyage
chartering activities as services income, rather than rental
income. Accordingly, we believe that any income from time or
voyage chartering activities will not constitute passive
income, and any assets that we may own and operate in
connection with the production of that income will not
constitute passive assets. However, any gross income that we
derive or are deemed to have derived from bareboat chartering
activities will be treated as rental income and thus will
constitute passive income, and any assets that we
may own and operate in connection with the production of that
income will constitute passive assets. There is substantial
legal authority supporting this position consisting of case law
and 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 our position with regard to our status from time to time
as a PFIC, and there is a risk that the IRS or a court of law
could determine that we are or have been a PFIC for a particular
taxable year.
If we are or have been a PFIC for any taxable year,
U.S. holders of our common stock will face certain adverse
U.S. federal income tax consequences and information
reporting obligations. Under the PFIC rules, unless such
U.S. holders make certain elections available under the
Code (which elections could themselves have certain adverse
consequences for such U.S. holders, as discussed below
under Taxation), such U.S. holders would be
liable to pay U.S. federal income tax at the then
prevailing income tax rates on ordinary income plus interest
upon excess distributions and upon any gain from the disposition
of our common stock, as if the excess distribution or gain had
been recognized ratably over such U.S. holders
holding period for such common stock. See
Taxation United States Federal Income Tax
Considerations United States Federal Income Taxation
of U.S. Holders PFIC Status and Significant Tax
Consequences for a more comprehensive discussion of the
U.S. federal income tax consequences to U.S. holders
of our common stock if we are or were to be treated as a PFIC.
We may
be Subject to Increased Premium Payments, or Calls, because We
Obtain Some of Our Insurance Through Protection and Indemnity
Associations.
We may be subject to increased premium payments, or calls, in
amounts based on our claim records as well as the claim records
of other members of the protection and indemnity associations in
the International Group, which is comprised of 13 mutual
protection and indemnity associations and insures approximately
90% of the worlds commercial tonnage and through which we
receive insurance coverage for tort liability, including
pollution-related liability, as well as actual claims. Amounts
we may be required to pay as a result of such calls will be
unavailable for other purposes.
Risks
Related to Our Common Stock
We may
be Unable to Maintain Our Listing on the Nasdaq Global Market,
which would Adversely Affect the Value of Our Common Shares and
make it more Difficult for You to Monetize Your
Investment.
Nasdaq Global Market and each national securities exchange have
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.
32
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 or piracy 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
containership sector.
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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.
Investor
Confidence may be Adversely Impacted if We are Unable to Comply
with Section 404 of the Sarbanes-Oxley Act of
2002.
As a public reporting company, we have become subject to
Section 404 of the Sarbanes-Oxley Act of 2002, which will
require us to include in our annual report on
Form 20-F
our managements report on, and assessment of, the
effectiveness of our internal controls over financial reporting.
In addition, our independent registered public accounting firm
will be required to attest to and report on the effectiveness of
our internal controls over financial reporting, which
requirement we expect will first apply to our annual report on
Form 20-F
for the fiscal year ended December 31, 2011. Because we
outsource accounting and other services to our Manager, our
management and our independent registered public accounting firm
will be required to also assess the design and operating
effectiveness of our Managers internal controls over
financial reporting. If we or our Manager fail to maintain the
adequacy of our internal controls over financial reporting, we
will not be in compliance with all of the requirements imposed
by Section 404. Any failure to comply with Section 404
could result in an adverse perception of the Company in the
financial marketplace.
Future
Offerings of Debt Securities and Amounts Outstanding Under
Current and Future Credit Facilities or Other Borrowings, which
would Rank Senior to Our Common Stock upon our Liquidation, and
Future Offerings of Equity Securities, which would Dilute Our
Existing Stockholders, may Adversely Affect the Market Value of
Common Stock.
In the future, we may attempt to increase our capital resources
by borrowing under credit facilities, making offerings of debt
or additional offerings of equity securities, including
commercial paper, medium-term notes, senior or subordinated
notes and classes of preferred stock. Upon liquidation, holders
of our debt securities and preferred stock and lenders with
respect to our credit facilities and other borrowings will
receive a distribution of our available assets prior to the
holders of our common stock. Additional equity offerings may
dilute the holdings of our existing stockholders or reduce the
market value of our common stock, or both. Our preferred stock,
if issued, could have a preference on liquidating distributions
or a preference on dividend payments that would limit amounts
available for distribution to holders of our common stock.
Because our decision to borrow under credit facilities or issue
securities in any future offering will depend on market
conditions and other factors beyond our
33
control, we cannot predict or estimate the amount, timing or
nature of our future indebtedness or offering of securities.
Therefore, holders of our common stock bear the risk of our
future offerings reducing the market value of our common stock
and diluting their share holdings in us or that in the event of
bankruptcy, liquidation, dissolution or
winding-up
of the Company, all or substantially all of our assets will be
distributed to holders of our debt securities or preferred
stocks or lenders with respect to our credit facilities and
other borrowings.
Future
Sales of Our Common Stock could have an Adverse Effect on Our
Share Price.
As of the date of this prospectus, we have 6,106,161 shares
of common stock outstanding. We are
offering
common shares in this offering. Additionally, we may in the
future issue additional securities. We may also issue additional
shares of common stock or securities convertible into common
stock, in connection with the hiring of personnel, future
acquisitions, future private placements of our securities or
other business purposes. The potential issuance of such
additional shares of common stock will result in the dilution of
the ownership interests of our existing shareholders and may
create downward pressure on the trading price, if any, of our
common stock.
In addition, our officers, directors and Diana Shipping have
entered into a
90-day
lock-up
agreement with respect to its common stock. Such common stock
will also be deemed to be restricted securities
within the meaning of Rule 144 under the Securities Act and
may not be transferred unless such common stock has been
registered under the Securities Act or an exemption from
registration is available. Upon satisfaction of certain
conditions, Rule 144 permits the sale of certain amounts of
restricted securities one year following the date of acquisition
of the restricted securities from us. As shares of common stock
become eligible for sale under Rule 144, the volume of
sales of common stock on applicable securities markets may
increase, which could reduce the market value of our common
stock. Wells Fargo Securities, LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and Jefferies & Company,
Inc., at any time and without notice, may waive the provisions
of the foregoing
lock-up
agreement. If the restrictions under the
lock-up
agreement are waived, such common stock will be available for
sale into the market, which could reduce the market value for
common stock.
Three other shareholders have reported owning an aggregate of
1,628,330 shares of our common stock, representing
approximately 26.7% of our issued and outstanding common shares
prior to this offering, that are freely transferable without
restrictions under the Securities Act. These holders have not
agreed to any
lock-up
restrictions or other agreements restricting the transfer of
these shares. Accordingly, all or some of these shares may be
sold by these shareholders at any time, which may significantly
reduce the price at which you are able to sell shares of our
common stock that you purchased in this offering. See
Security Ownership of Beneficial Owners and
Management.
We are
a Holding Company, and We will Depend on the Ability of Our
Current and Future Subsidiaries to Distribute Funds to Us in
Order to Satisfy Our Financial Obligations or to Make Dividend
Payments.
We are a holding company, and our current and future
subsidiaries, which will all 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, if any, 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. Also, our subsidiaries are limited by
Marshall Islands law which generally prohibits the payment of
dividends other than from surplus (retained earnings and the
excess of consideration received for the sale of shares above
the par value of the shares) or while a company is insolvent or
would be rendered insolvent by the payment of such a dividend.
34
Because
We are a Foreign Corporation, You may not have the Same Rights
or Protections that a Shareholder in a United States Corporation
may have.
We are incorporated in the Republic of the Marshall Islands,
which does not have a well-developed body of corporate law and
may make it more difficult for our shareholders to protect their
interests. Our corporate affairs are governed by our amended and
restated articles of incorporation and bylaws and the Marshall
Islands Business Corporations Act, or BCA. The provisions of the
BCA resemble provisions of the corporation laws of a number of
states in the United States. The rights and fiduciary
responsibilities of directors under the law of the Marshall
Islands are not as clearly established as the rights and
fiduciary responsibilities of directors under statutes or
judicial precedent in existence in certain
U.S. jurisdictions and there have been few judicial cases
in the Marshall Islands interpreting the BCA. Shareholder rights
may differ as well. While the BCA does specifically incorporate
the non-statutory law, or judicial case law, of the State of
Delaware and other states with substantially similar legislative
provisions, our public shareholders may have more difficulty in
protecting their interests in the face of actions by the
management, directors or controlling shareholders than would
shareholders of a corporation incorporated in a
U.S. jurisdiction. Therefore, you may have more difficulty
in protecting your interests as a shareholder in the face of
actions by the management, directors or controlling stockholders
than would shareholders of a corporation incorporated in a
United States jurisdiction.
Future
Sales of Our Common Stock could Cause the Market Price of Our
Common Stock to Decline.
The market price of our common stock could decline due to sales
of a large number of shares in the market, including sales of
shares by our large shareholders, or the perception that these
sales could occur. These sales could also make it more difficult
or impossible for us to sell equity securities in the future at
a time and price that we deem appropriate to raise funds through
future offerings of shares of our common stock. We have entered
into a registration rights agreement with Diana Shipping that
will entitle it to have all the shares of our common stock that
it owns registered for re-sale in the public market under the
Securities Act.
As a
Key Component of our Business Strategy, We Intend to Issue
Additional Shares of Common Stock or Other Securities to Finance
Our Growth. These Issuances, which would Generally not be
Subject to Shareholder Approval, may Lower Your Ownership
Interests and may Depress the Market Price of Our Common
Stock.
As a key component of our business strategy, we plan to finance
potential future expansions of our fleet in large part with
equity financing. Pursuant to our amended and restated articles
of incorporation, we are authorized to issue up to
500 million common shares and 25 million preferred
shares, each with a par value of $0.01 per share. Therefore,
subject to the rules of the Nasdaq Global Market that are
applicable to us, we plan to issue additional shares of common
stock, and other equity securities of equal or senior rank,
without shareholder approval, in a number of circumstances from
time to time.
The issuance by us of additional shares of common stock or other
equity securities of equal or senior rank will have the
following effects:
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our existing shareholders proportionate ownership interest
in us may decrease;
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the relative voting strength of each previously outstanding
share may be diminished;
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the market price of our common stock may decline; and
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the amount of cash available for dividends payable on our common
stock, if any, may decrease.
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In addition, if we issue shares of our common stock in a future
offering at a price per share lower than the price per share in
this offering, it will be dilutive to purchasers of our common
stock in this offering.
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It may
not be Possible for Our Investors to Enforce U.S. Judgments
Against Us.
We are incorporated in the Republic of the Marshall Islands.
Substantially all of our assets are located outside the United
States. As a result, it may be difficult or impossible for
United States shareholders to serve process within the United
States upon us or to enforce judgment upon us for civil
liabilities in United States courts. In addition, you should not
assume that courts in the countries in which we are incorporated
or where our assets are located (1) would enforce judgments
of United States courts obtained in actions against us based
upon the civil liability provisions of applicable United States
federal and state securities laws or (2) would enforce, in
original actions, liabilities against us based upon these laws.
Prior
to This Offering, There has not been a Large Public Float for
Our Common Stock.
Prior to this offering, there has not been a large public float
for our common stock. We cannot make any prediction as to the
effect, if any, that sales of common stock or the availability
of common stock for sale will have on the market price of our
common stock. The market price of our common stock could decline
because of the sale of a large number of shares of our common
stock or the perception that such sales could occur. These
factors could also make it more difficult to raise funds through
future offerings of common stock. Even though several of our
officers and our Founder, Diana Shipping, have agreed not to
sell their shares for a period of 90 days after the date of
this offering, there are other substantial shareholders of the
Company that are not subject to such
lock-up
arrangements. See Security Ownership of Beneficial Owners
and Management.
Anti-takeover
Provisions in Our Organizational Documents could make it
Difficult for Our Shareholders to Replace or Remove Our Current
Board of Directors or have the Effect of Discouraging, Delaying
or Preventing a Merger or Acquisition, which could Adversely
Affect the Value of Our Securities.
Several provisions of our amended and restated articles of
incorporation and bylaws could make it difficult for our
shareholders to change the composition of our board of directors
in any one year, preventing them from changing the composition
of management. In addition, the same provisions may discourage,
delay or prevent a merger or acquisition that shareholders may
consider favorable.
These provisions include:
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authorizing our board of directors to issue blank
check preferred stock without shareholder approval;
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providing for a classified board of directors with staggered,
three-year terms;
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prohibiting cumulative voting in the election of directors;
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authorizing the removal of directors only for cause and only
upon the affirmative vote of the holders of two-thirds of the
outstanding common shares entitled to vote generally in the
election of directors;
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limiting the persons who may call special meetings of
shareholders; and
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establishing advance notice requirements for nominations for
election to our board of directors or for proposing matters that
can be acted on by shareholders at shareholder meetings.
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In addition, we have entered into a stockholders rights
agreement pursuant to which our board of directors may cause the
substantial dilution of any person that attempts to acquire us
without the approval of our board of directors.
These anti-takeover provisions, including provisions of our
stockholders rights agreement, could substantially impede the
ability of shareholders to benefit from a change in control and,
as a result, may adversely affect the value of our securities,
if any, and the ability of shareholders to realize any potential
change of control premium.
36
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements.
All statements in this document that are not statements of
historical fact or present facts or conditions are
forward-looking statements. These forward looking statements may
be identified by the use of predictive, future-tense or
forward-looking terminology, such as anticipate,
estimate, intend, project,
forecast, plan, potential,
may, should, expect or
similar terms and includes assumptions, expectations,
projections, intentions and beliefs about future events.
Forward-looking statements include, but are not limited to, such
matters as:
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our future operating or financial results;
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statements about pending or recent acquisitions, business
strategy and expected capital spending or operating expenses;
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statements about shipping industry trends, including charter
hire rates and factors affecting supply and demand;
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our ability to obtain additional financing;
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expectations regarding the availability of vessel
acquisitions; and
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anticipating developments with respect to litigation.
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Forward-looking statements are based upon assumptions,
expectations, projections, intentions and beliefs as to future
events that may not prove to be accurate. Actual outcomes and
results may differ materially from what is expressed or forecast
in the forward-looking statements included herein. The reasons
for this include the risks, uncertainties and factors described
under the section of this prospectus entitled Risk
Factors.
ENFORCEABILITY
OF CIVIL LIABILITIES
We are a Marshall Islands company and our principal
administrative offices are located outside the United States in
Athens, Greece. A majority of our directors, officers and the
experts named in this prospectus reside outside the United
States. In addition, a substantial portion of our assets and the
assets of our directors, officers and experts are located
outside of the United States. As a result, you may have
difficulty serving legal process within the United States upon
us or any of these persons. You may also have difficulty
enforcing, both in and outside the United States, judgments you
may obtain in United States courts against us or these persons
in any action, including actions based upon the civil liability
provisions of United States federal or state securities laws.
Furthermore, there is substantial doubt that the courts of the
Marshall Islands or Greece would enter judgments in original
actions brought in those courts predicated on United States
federal or state securities laws.
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USE OF
PROCEEDS
The net proceeds from the sale of the common shares in this
offering and the concurrent private placement to Diana Shipping
are expected to be approximately
$ million
($ million if the
underwriters exercise their over-allotment option in full),
after deducting assumed underwriting discounts and commissions
and estimated offering expenses payable by us. We intend to use
approximately $65.0 million of the net proceeds of this
offering and the concurrent private placement of shares to Diana
Shipping to repay in full our existing secured term loan
facility with DnB NOR Bank ASA, approximately $63.5 million
to fund the balance of the acquisition costs of the three
containerships that we have agreed to acquire from Maersk, and
the balance of approximately $ will
be used for additional containership acquisitions, which may
include the two 1996-built containerships that we are currently
in negotiations to acquire, and general corporate purposes,
including working capital. Our existing secured term loan
facility with DnB NOR Bank ASA that will be repaid with a
portion of the net proceeds of this offering, bears interest at
LIBOR plus a margin of 2.60% per annum, and has a scheduled
maturity in 2013 and 2017, respectively, for each tranche. This
secured term loan facility will be terminated following its
repayment in full. DnB NOR Bank ASA is an affiliate of DnB NOR
Markets, Inc. See Conflicts of Interest for further
information.
38
DIVIDEND
POLICY
We currently intend to declare a variable quarterly dividend
each February, May, August and November substantially equal to
approximately 70% of our available cash from operations during
the previous quarter after the payment of cash expenses for the
quarter. The remaining available cash from operations is
expected to be used for reserves for scheduled drydockings,
intermediate and special surveys and other purposes as our board
of directors may from time to time determine are required, after
taking into account contingent liabilities, the terms of any
credit facility, our growth strategy and other cash needs and
the requirements of Marshall Islands law.
We expect to declare our first quarterly dividend in August
2011. Because the closing of the acquisitions of the three
currently-contracted vessels is expected to occur in June 2011,
investors should not annualize our first dividend as a means of
determining the yield or annual dividend payment. We expect that
the dividend payable in November will reflect a full
quarters operations of our entire Initial Fleet, as well
as a partial contribution from any other vessels delivered
during that quarter.
We have not declared or paid any cash dividends on our common
shares in the past and there can be no assurance that dividends
will be paid in the future. The actual timing and amount of
dividend payments, if any, will be determined by our board of
directors and could be affected by various factors, including
our cash earnings, financial condition and cash requirements,
the loss of a vessel, the acquisition of one or more vessels,
required capital expenditures, reserves established by our board
of directors, increased or unanticipated expenses, a change in
our dividend policy, additional borrowings or future issuances
of securities, many of which will be beyond our control. We are
a holding company, and we depend on the ability of our
subsidiaries to distribute funds to us in order to satisfy our
financial obligations and to make dividend payments. In
addition, any credit facilities that we may enter into in the
future may include restrictions on our ability to pay dividends.
Marshall Islands law generally prohibits the payment of
dividends other than from surplus, or while a company is
insolvent or would be rendered insolvent by the payment of such
a dividend.
In addition, we may incur expenses or liabilities, including
extraordinary expenses, decreases in revenues, including as a
result of unanticipated off-hire days or loss of a vessel, or
increased cash needs that could reduce or eliminate the amount
of cash that we have available for distribution as dividends.
The containership sector is cyclical and volatile. We cannot
predict with accuracy the amount of cash flows our operations
will generate in any given period. Factors beyond our control
may affect the charter market for our vessels and our
charterers ability to satisfy their contractual
obligations to us, and we cannot assure you that dividends will
actually be declared or paid in the future. We cannot assure you
that we will be able to pay regular quarterly dividends, and our
ability to pay dividends will be subject to the limitations set
forth above and in the section of this prospectus titled
Risk Factors.
In times when we have debt outstanding, we intend to limit our
dividends per share to the amount that we would have been able
to pay if we were financed entirely with equity. Our board of
directors may review and amend our dividend policy from time to
time, in light of our plans for future growth and other factors.
39
CAPITALIZATION
The following unaudited table sets forth our capitalization at
March 31, 2011, on an actual basis, as adjusted to give
effect to: (a) the drawdown on May 6, 2011 of
$65.0 million under our facility with DnB NOR Bank ASA
dated May 4, 2011 and the repayment of $38.7 million
of our then-outstanding debt, and (b) the 10% advance paid
in April 2011 amounting to $7.1 million in respect of the
three Maersk containerships that we expect to be delivered in
June 2011, and as further adjusted to give effect to
(i) the issuance and sale of our common shares in this
offering, including the sale of $20 million of our
common shares to Diana Shipping in a concurrent private
placement at the public offering price, (ii) the repayment
of $65.0 million under our loan facility, and
(iii) payment of the balance of the purchase price, or
$63.5 million, for the acquisition of the three Maersk
containerships.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
|
|
|
|
As Further
|
|
|
Actual
|
|
As Adjusted
|
|
Adjusted
|
|
|
|
|
(in U.S. dollars)
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,811,827
|
|
|
$
|
51,043,401
|
|
|
|
|
|
Debt (principal balance, secured and guaranteed)
|
|
|
39,340,000
|
|
|
|
65,000,000
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 25,000,000 shares
authorized, none issued actual, as adjusted and as further
adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 500,000,000 shares
authorized; 6,106,161 shares issued and outstanding actual,
6,106,161 shares issued and outstanding as adjusted,
and shares
issued and outstanding as further adjusted
|
|
|
61,062
|
|
|
|
61,062
|
|
|
|
|
|
Additional paid-in capital
|
|
|
86,747,780
|
|
|
|
86,747,780
|
|
|
|
|
|
Accumulated deficit
|
|
|
(1,744,532
|
)
|
|
|
(1,744,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
85,064,310
|
|
|
$
|
85,064,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
124,404,310
|
|
|
$
|
150,064,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Except as disclosed herein, there have been no material changes
to our consolidated capitalization since March 31, 2011, as
adjusted.
40
HISTORICAL
PRICE INFORMATION FOR OUR COMMON SHARES
Our common shares have traded on the Nasdaq Global Market under
the symbol DCIX since January 19, 2011. From
January 3, 2011 through January 19, 2011, our shares
traded on a when-issued basis on Nasdaq Global
Market. Prior to that time, our shares were privately-held and
were not publicly traded. The table below sets forth the high
and low closing prices for each of the periods indicated for the
common shares.
The high and low closing prices for our common shares, by
quarter, in 2011 were as follows:
|
|
|
|
|
|
|
|
|
For the period from
January 19, 2011 to
|
|
Low
|
|
High
|
|
March 31, 2011
|
|
$
|
11.74
|
|
|
$
|
12.99
|
|
The high and low closing prices for our common shares, by month,
since the shares began trading were as follows:
|
|
|
|
|
|
|
|
|
For the month ended:
|
|
Low
|
|
High
|
|
January 19, 2011 to January 31, 2011
|
|
$
|
12.50
|
|
|
$
|
12.99
|
|
February 2011
|
|
|
12.02
|
|
|
|
12.65
|
|
March 2011
|
|
|
11.74
|
|
|
|
12.65
|
|
April 2011
|
|
|
12.49
|
|
|
|
13.15
|
|
May 1 through May 6, 2011
|
|
|
12.65
|
|
|
|
13.00
|
|
41
SELECTED
FINANCIAL DATA
The following table sets forth our selected consolidated
financial data and other operating data. The selected
consolidated financial data in the table as of December 31,
2010 and for the period from January 7, 2010 (inception
date) to December 31, 2010 are derived from our audited
consolidated financial statements and notes thereto which have
been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP). The selected
consolidated financial data in the table as of and for the three
months ended March 31, 2011 and for the period from
January 7, 2010 (inception date) to March 31, 2010 are
derived from our unaudited consolidated financial statements.
The following data should be read in conjunction with
Item 5 Operating and Financial Review and
Prospects, the consolidated financial statements, related
notes and other financial information included elsewhere in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period from
|
|
|
|
For the period from
|
|
|
|
|
|
January 7, 2010
|
|
|
|
January 7, 2010 (inception
|
|
|
For the three months
|
|
|
(inception date) to
|
|
|
|
date) to December 31,
2010
|
|
|
ended March 31,
2011
|
|
|
March 31, 2010
|
|
|
|
(in U.S. dollars, except for share data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter revenues
|
|
$
|
5,734,716
|
|
|
$
|
3,240,000
|
|
|
|
|
|
Voyage expenses
|
|
|
266,967
|
|
|
|
116,100
|
|
|
|
|
|
Vessel operating expenses
|
|
|
2,884,610
|
|
|
|
954,222
|
|
|
|
|
|
Depreciation
|
|
|
1,453,877
|
|
|
|
723,771
|
|
|
|
|
|
Management fees
|
|
|
203,000
|
|
|
|
90,000
|
|
|
|
|
|
General and administrative expenses
|
|
|
3,523,986
|
|
|
|
851,316
|
|
|
|
236,533
|
|
Foreign currency (gains)/losses
|
|
|
(1,043,563
|
)
|
|
|
6,015
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
$
|
(1,554,161
|
)
|
|
$
|
498,576
|
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
|
(511,291
|
)
|
|
|
(263,550
|
)
|
|
|
|
|
Interest income
|
|
|
64,091
|
|
|
|
21,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
(2,001,361
|
)
|
|
$
|
256,829
|
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common share, basic and diluted
|
|
$
|
(0.45
|
)
|
|
$
|
0.04
|
|
|
$
|
(473.36
|
)
|
Weighted average number of common shares, basic and diluted
|
|
|
4,449,431
|
|
|
|
6,106,161
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for
|
|
|
|
|
|
|
the period from
|
|
|
As of and for the period from
|
|
|
|
January 7, 2010
|
|
|
January 7, 2010
|
|
As of and for the three
|
|
(inception date) to
|
|
|
(inception date) to
|
|
months ended
|
|
March 31, 2010
|
|
|
December 31, 2010
|
|
March 31, 2011
|
|
(Cash Flow Data Only)*
|
|
|
(in U.S. dollars, except operations data)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,098,284
|
|
|
$
|
31,811,827
|
|
|
|
|
|
Total current assets
|
|
|
12,376,014
|
|
|
|
32,601,617
|
|
|
|
|
|
Vessels net book value
|
|
|
92,077,309
|
|
|
|
91,353,538
|
|
|
|
|
|
Total assets
|
|
|
105,349,169
|
|
|
|
125,528,755
|
|
|
|
|
|
Total current liabilities
|
|
|
2,428,676
|
|
|
|
3,966,530
|
|
|
|
|
|
Other non-current liabilities
|
|
|
181,684
|
|
|
|
181,684
|
|
|
|
|
|
Long-term debt (including current portion)
|
|
|
19,489,633
|
|
|
|
39,080,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
84,610,714
|
|
|
|
85,064,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
$
|
(186,525
|
)
|
|
$
|
1,830,343
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(93,531,186
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
103,764,596
|
|
|
|
18,883,200
|
|
|
|
50,000,500
|
|
Fleet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of vessels(1)
|
|
|
1.0
|
|
|
|
2.0
|
|
|
|
|
|
Number of vessels at end of period
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
Weighted average age of fleet at end of period (in years)
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
|
|
Ownership days(2)
|
|
|
361
|
|
|
|
180
|
|
|
|
|
|
Available days(3)
|
|
|
361
|
|
|
|
180
|
|
|
|
|
|
Operating days(4)
|
|
|
352
|
|
|
|
180
|
|
|
|
|
|
Fleet utilization(5)
|
|
|
97.5
|
%
|
|
|
100
|
%
|
|
|
|
|
Average Daily Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent (TCE) rate(6)
|
|
$
|
15,146
|
|
|
$
|
17,355
|
|
|
|
|
|
Daily vessel operating expenses(7)
|
|
|
7,991
|
|
|
|
5,301
|
|
|
|
|
|
|
|
|
* |
|
We did not have any operating vessels as of March 31, 2010 |
|
|
|
(1) |
|
Average number of vessels is the number of vessels that
constituted our fleet for the relevant period, as measured by
the sum of the number of days each vessel was a part of our
fleet during the period divided by the number of calendar days
in the period. |
|
(2) |
|
Ownership days are the aggregate number of days in a period
during which each vessel in our fleet has been owned by us.
Ownership days are an indicator of the size of our fleet over a
period and affect both the amount of revenues and the amount of
expenses that we record during a period. |
|
(3) |
|
Available days are the number of our ownership days less the
aggregate number of days that our vessels are off-hire due to
scheduled repairs or repairs under guarantee, vessel upgrades or
special |
43
|
|
|
|
|
surveys and the aggregate amount of time that we spend
positioning our vessels. The shipping industry uses available
days to measure the number of days in a period during which
vessels should be capable of generating revenues. |
|
(4) |
|
Operating days are the number of available days in a period less
the aggregate number of days that our vessels are off-hire due
to any reason, including unforeseen circumstances. The shipping
industry uses operating days to measure the aggregate number of
days in a period during which vessels actually generate revenues. |
|
(5) |
|
We calculate fleet utilization by dividing the number of our
operating days during a period by the number of our available
days during the period. The shipping industry uses fleet
utilization to measure a companys efficiency in finding
suitable employment for its vessels and minimizing the amount of
days that its vessels are off-hire for reasons other than
scheduled repairs or repairs under guarantee, vessel upgrades,
special surveys or vessel positioning. |
|
(6) |
|
Time charter equivalent rates, or TCE rates, are defined as our
time charter revenues less voyage expenses during a period
divided by the number of our available days during the period,
which is consistent with industry standards. Voyage expenses
include port charges, bunker (fuel) expenses, canal charges and
commissions. TCE rate is a non-GAAP measure, and is a standard
shipping industry performance measure used primarily to compare
daily earnings generated by vessels on time charters with daily
earnings generated by vessels on voyage charters, because
charter hire rates for vessels on voyage charters are generally
not expressed in per day amounts while charter hire rates for
vessels on time charters are generally expressed in such
amounts. The following table reflects the calculation of our TCE
rates for the periods presented. |
|
|
|
|
|
|
|
|
|
|
|
For the period from
|
|
|
|
|
|
|
January 7, 2010
|
|
|
|
|
|
|
(inception
|
|
|
For the three months
|
|
|
|
date) to December 31,
|
|
|
ended
|
|
|
|
2010
|
|
|
March 31, 2011
|
|
|
|
(in U.S. dollars, except for available days)
|
|
|
Time charter revenues
|
|
$
|
5,734,716
|
|
|
$
|
3,240,000
|
|
Less: voyage expenses
|
|
|
(266,967
|
)
|
|
|
(116,100
|
)
|
|
|
|
|
|
|
|
|
|
Time charter equivalent revenues
|
|
$
|
5,467,749
|
|
|
$
|
3,123,900
|
|
|
|
|
|
|
|
|
|
|
Available days
|
|
|
361
|
|
|
|
180
|
|
Time charter equivalent (TCE) rate
|
|
$
|
15,146
|
|
|
$
|
17,355
|
|
|
|
|
(7) |
|
Daily vessel operating expenses, which include crew wages and
related costs, the cost of insurance, expenses relating to
repairs and maintenance, the costs of spares and consumable
stores, tonnage taxes and other miscellaneous expenses, are
calculated by dividing vessel operating expenses by ownership
days for the relevant period. |
44
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis
together with our financial statements and related notes
included elsewhere in this prospectus. This discussion includes
forward-looking statements which, although based on assumptions
that we consider reasonable, are subject to risks and
uncertainties which could cause actual events or conditions to
differ materially from those currently anticipated and expressed
or implied by such forward-looking statements. For a discussion
of some of those risks and uncertainties, read the sections
entitled Forward Looking Statements and Risk
Factors.
Overview
We were incorporated on January 7, 2010 under the laws of
the Republic of the Marshall Islands. We were formed to acquire
containerships engaged in the seaborne transportation of
finished consumer and industrial products. We received net
proceeds from the private offering of approximately
$85.3 million. Following the acquisition of the two vessels
in our initial fleet and the drawdown of $40.0 million
under our secured loan facility, we have applied approximately
62% of the net proceeds of the private offering to a Permitted
Purpose, as defined in our amended and restated by-laws. The
first two vessels in our Initial Fleet are employed on time
charter with expirations in March to June of 2013 for the vessel
Sagitta and July to October 2012 for the vessel Centaurus. Our
Initial Fleet includes three more Containerships that we have
contracted to acquire, MV Maersk Madrid (4,206 TEU), the MV
Maersk Malacca (4,714 TEU) and the MV Maersk Merlion (4,714
TEU), each of which will be chartered to Maersk upon their
delivery to us. In order to maximize returns, we plan to focus
on vessels ranging from 2,500 TEU to 7,500 TEU because we
believe that the current containership orderbook composition,
matched with global GDP growth, creates a favorable multi-year
dynamic of supply and demand for these mid-sized containerships.
We will also focus on secondhand vessels and re-sale
newbuildings because they will contribute to our cash flows
immediately. In line with our existing fleet, we will favor
sister-ships as we believe that they increase our operating
efficiency and profitability margins. As industry dynamics
change, we might opportunistically acquire containerships
outside of these parameters in order to increase dividends per
share. Please read Summary Market
Opportunity and Summary Business
Strategy.
Vessel
Management
DSS, a wholly-owned subsidiary of Diana Shipping, provides
commercial and technical management services for our vessels
under separate vessel management agreements with our vessel
owning subsidiaries. Commercial management includes, among other
things, negotiating charters for vessels, monitoring the
performance of vessels under charter, and managing our
relationships with charterers, obtaining insurance coverage for
our vessels, as well as supervision of the technical management
of the 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. Our Manager also provides to us accounting,
administrative, financial reporting and other services necessary
for the operation of our business.
Results
of Operations
Our revenues consist of revenues from time charters. We believe
that the important measures for analyzing our future results of
the operations consist of the following:
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Ownership Days. We define ownership
days as the aggregate number of days in a period during which
each vessel in our fleet has been owned by us. Ownership days
are an indicator of
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the size of our fleet over a period and affect both the amount
of revenues and the amount of expenses that we record during a
period.
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Available Days. We define available
days as the number of our ownership days less the aggregate
number of days that our vessels are off-hire due to scheduled
repairs or repairs under guarantee, vessel upgrades or special
surveys and the aggregate amount of time that we spend
positioning our vessels. The shipping industry uses available
days to measure the number of days in a period during which
vessels should be capable of generating revenues.
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Operating Days. We define operating
days as the number of our available days in a period less the
aggregate number of days that our vessels are off-hire due to
any reason, including unforeseen circumstances. The shipping
industry uses operating days to measure the aggregate number of
days in a period during which vessels actually generate revenues.
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Fleet Utilization. We calculate fleet
utilization by dividing the number of our operating days during
a period by the number of our available days during the period.
The shipping industry uses fleet utilization to measure a
companys efficiency in finding suitable employment for its
vessels and minimizing the amount of days that its vessels are
off-hire for reasons other than scheduled repairs or repairs
under guarantee, vessel upgrades, special surveys or vessel
positioning.
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Time Charter Equivalent (TCE) rates. We
define TCE rates as our voyage and time charter revenues less
voyage expenses during a period divided by the number of our
available days during the period, which is consistent with
industry standards. TCE rate, a non-GAAP measure, is a standard
shipping industry performance measure used primarily to compare
daily earnings generated by vessels on time charters with daily
earnings generated by vessels on voyage charters, because
charter hire rates for vessels on voyage charters are generally
not expressed in per day amounts while charter hire rates for
vessels on time charters generally are expressed in such amounts.
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Daily Operating Expenses. We define
daily operating expenses as total vessel operating expenses,
which include crew wages and related costs, the cost of
insurance and vessel registry, expenses relating to repairs and
maintenance, the costs of spares and consumable stores, tonnage
taxes, regulatory fees and other miscellaneous expenses divided
by total ownership days.
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We believe these metrics will be helpful in comparing our future
operating performance from period to period as well as to that
of our competitors; however, other shipping companies may not
define the above metrics in the same manner.
Period charters refer to both time and bareboat charters.
Vessels operating on time charters for a certain period of time
provide more predictable cash flows over that period of time,
but can yield lower profit margins than vessels operating in the
spot charter market during periods characterized by favorable
market conditions. Vessels operating in the spot charter market
generate revenues that are less predictable but may enable their
owners to capture increased profit margins during periods of
improvements in charter rates although their owners would be
exposed to the risk of declining charter rates, which may have a
materially adverse impact on financial performance. As we employ
vessels on period charters, future spot charter rates may be
higher or lower than the rates at which we have employed our
vessels on period charters.
Company
History
In April 2010, we completed the sale of an aggregate of
5,892,330 common shares in a private offering under
Rule 144A, Regulation S and Regulation D under
the Securities Act pursuant to the initial purchaser/placement
agreement, dated March 29, 2010, by and between us and FBR
Capital Markets & Co., including 290,000 common shares
issued pursuant to the exercise of FBR Capital
Markets & Co.s option to purchase additional
shares, with aggregate net proceeds of $85.3 million.
46
In May 2010, we issued a total of 213,331 restricted common
shares to our executive officers pursuant to our 2010 Equity
Incentive Plan and related restricted stock grant award
agreements. Of these shares, 106,669 shares have vested and
the remaining shares vest ratably over the remaining two years.
On June 1, 2010, we terminated the existing Consultancy
Agreements with companies controlled by each of the executive
officers and the services that were previously provided to the
Company by the consultants are provided by DSS under the
Administrative Services Agreement. DSS has appointed Diana
Enterprises Inc., a related party, as broker to assist it in
providing services to the Company pursuant to the Broker
Services Agreement, dated June 1, 2010.
On June 8, 2010, we, through our wholly-owned subsidiaries
Likiep Shipping Company Inc. and Orangina Inc., entered into
memoranda of agreement to purchase two newbuilding
containerships, identified as Hull 558 (named Sagitta) and Hull
559 (named Centaurus), from a third-party seller, each with a
carrying capacity of approximately 3,400 TEU for a purchase
price of Euro 37,300,000 per ship (or $45.7 million
and $47.2 million, respectively, excluding any predelivery
expenses). We took delivery of the vessel Sagitta on
June 29, 2010. We took delivery of the Centaurus on
July 9, 2010.
On July 7, 2010, we entered into a term loan agreement with
DnB NOR Bank ASA for an amount of up to $40.0 million to
finance part of the acquisition cost of the vessels Sagitta and
Centaurus. In July 2010, we drew down $10.0 million per
vessel in connection with the acquisition of the two newbuilding
containerships and the remaining $20.0 million was drawn
down in February 2011. Please see Liquidity
and Capital Resources, below.
In November 2010, we completed a registered exchange offer in
which 2,558,997 common shares sold in the private offering were
exchanged for the same number of common shares that were
registered with the SEC, in accordance with the terms of the
registration rights agreement. For further information, see the
Companys registration statement on
Form F-4
(Registration
No. 333-169974)
filed with the Commission on October 15, 2010. Under the
registration rights agreement, we have agreed, under certain
circumstances, to register the common shares sold in the private
offering for re-sale.
In December 2010, we applied for listing on the Nasdaq Global
Market. Our shares became available to trade on January 3,
2011 on a when issued basis and our common shares
became available for trading on January 19, 2011, on a
regular way basis under the symbol DCIX.
On April 13, 2011, through our newly-established
subsidiaries Ebon Shipping Company Inc. (Ebon), Mili
Shipping Company Inc. (Mili) and Ralik Shipping
Company Inc. (Ralik), we entered into three
Memoranda of Agreement (Ralik with Maersk Line UK Ltd., and Mili
and Ebon with A.P. Moller Singapore Pte. Ltd.) for the purchase
of three Panamax container vessels, the MV Maersk
Merlion, the MV Maersk Malacca and the MV
Maersk Madrid, respectively. The MV Maersk
Madrid is a 1989-built vessel of 4,206 TEU capacity. The
purchase price for the MV Maersk Madrid is
$22.5 million. The MV Maersk Malacca and MV
Maersk Merlion are both 1990-built vessels of 4,714
TEU capacity each. The purchase price for the MV Maersk
Malacca and MV Maersk Merlion is
$24.0 million each. On April 18, 2011, we paid to the
Sellers 10% of the vessels price amounting to
$2.4 million for each of the MV Maersk Malacca
and MV Maersk Merlion and $2.25 million for the
MV Maersk Madrid. The remaining consideration shall
be paid upon delivery of the vessels. The expected date of
delivery from their previous owners to us for all three vessels
is June 2011. Each of the three vessels is chartered to A.P.
Møller-Maersk A/S for a period of minimum twenty-four
(24) months plus or minus forty-five (45) days at a
daily rate of $21,450 less a 2.25% commission. The charterer has
the option to employ each vessel for a further twelve
(12) month period plus or minus forty-five (45) days,
at a daily rate of $25,000 less a 2.25% commission starting
twenty-four (24) months after delivery of the vessel to the
charterer. Each charter will commence on or about the day of
that vessels delivery to us.
On May 4, 2011, through certain wholly-owned subsidiaries,
we entered into a loan agreement with DnB NOR Bank ASA for a
maximum amount of $85.0 million in order to refinance the
outstanding balance of the loan facility dated July 7,
2010, to partly finance the cost of the three Panamax container
vessels that we have agreed to acquire and for working capital.
The loan will be made available
47
in two tranches. Tranche 1 shall be the lesser of 65% of
the market value of the vessels Sagitta and Centaurus and
$65.0 million and tranche 2 shall be the lesser of 35%
of the market value of the three Panamax container vessels
mentioned above and $20.0 million. Tranche 1 was drawn
in a single drawdown and tranche 2 will be available for
drawing in three drawdowns until July 31, 2011.
Tranche 1 shall be repaid in 24 consecutive quarterly
installments of $1.1 million each, plus a balloon
installment of $37.6 million to be paid together with the
last installment. Tranche 2 shall be repaid in 8
consecutive quarterly installments of $2.5 million each.
The loan bears interest at LIBOR plus a margin of 2.6% per
annum. We paid $382,500 of arrangement fees on signing of the
agreement and on May 6, 2011, we drew down
$65.0 million of Tranche 1, with which we repaid the
then-outstanding balance of indebtedness under our secured term
loan facility entered into on July 7, 2010 (amounting to
$38.7 million plus interest). We expect to use a portion of
the net proceeds from this offering to repay and terminate this
loan facility. Upon completion of this offering, we expect to
have no debt.
Lack of
Historical Operating Data for Vessels before their
Acquisition
Consistent with shipping industry practice, other than
inspection of the physical condition of the vessels and
examinations of classification society records, there is no
historical financial due diligence process when we acquire
vessels. Accordingly, we will not obtain the historical
operating data for the vessels from the sellers because that
information is not material to our decision to make
acquisitions, nor do we believe it would be helpful to potential
investors in our common shares in assessing our business or
profitability. Most vessels are sold under a standardized
agreement, which, among other things, provides the buyer with
the right to inspect the vessel and the vessels
classification society records. The standard agreement does not
give the buyer the right to inspect, or receive copies of, the
historical operating data of the vessel. Prior to the delivery
of a purchased vessel, the seller typically removes from the
vessel all records, including past financial records and
accounts related to the vessel. In addition, the technical
management agreement between the sellers technical manager
and the seller is automatically terminated and the vessels
trading certificates are revoked by its flag state following a
change in ownership.
Consistent with shipping industry practice, we treat the
acquisition of a vessel (whether acquired with or without
charter) as the acquisition of an asset rather than a business.
Although vessels are generally acquired free of charter, we may,
in the future, acquire vessels with existing time charters.
Where a vessel has been under a voyage charter, the vessel is
delivered to the buyer free of charter, and it is rare in the
shipping industry for the last charterer of the vessel in the
hands of the seller to continue as the first charterer of the
vessel in the hands of the buyer. In most cases, when a vessel
is under time charter and the buyer wishes to assume that
charter, the vessel cannot be acquired without the
charterers consent and the buyers entering into a
separate direct agreement with the charterer to assume the
charter. The purchase of a vessel itself does not transfer the
charter, because it is a separate service agreement between the
vessel owner and the charterer.
When we purchase a vessel and assume or renegotiate a related
time charter, we must take the following steps before the vessel
will be ready to commence operations:
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obtain the charterers consent to us as the new owner;
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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;
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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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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 affect our business and results of
operations.
Our business is comprised of the following main elements:
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acquisition and disposition of vessels;
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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 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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on board safety procedures auditing;
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accounting;
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vessel insurance arrangement;
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vessel chartering;
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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
vessels, which is provided to us pursuant to our Administrative
Services Agreement with DSS, requires the following main
components:
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management of our financial resources, including banking
relationships, i.e., 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 may 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; and
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fluctuations in foreign exchange rates.
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See Risk Factors for additional factors that may
affect our business.
49
Revenues
Voyage
Revenues
Voyage revenues are driven primarily by the number of vessels in
our fleet, the number of voyage days and the amount of daily
charter hire that our vessels earn under charters.
Time
Charter Equivalent (TCE)
A standard maritime industry performance measure used to
evaluate performance is the daily time charter equivalent, or
daily TCE. Daily TCE revenues are voyage revenues minus voyage
expenses divided by the number of available days during the
relevant time period. Voyage expenses primarily consist of port,
canal and fuel costs that are unique to a particular voyage,
which would otherwise be paid by a charterer under a time
charter, as well as commissions. We believe that the daily TCE
neutralizes the variability created by unique costs associated
with particular voyages or the employment of vessels on time
charter or on the spot market and presents a more accurate
representation of the revenues generated by our vessels.
Vessel
Operating Expenses
Vessel operating expenses include crew wages and related costs,
the cost of insurance and vessel registry, expenses relating to
repairs and maintenance, the costs of spares and consumable
stores, tonnage taxes, regulatory fees and other miscellaneous
expenses. Other factors beyond our control, some of which may
affect the shipping industry in general, including, for
instance, developments relating to market prices for crew wages
and insurance, may also cause these expenses to increase. In
conjunction with our senior executive officers, our Manager has
established an operating expense budget for each vessel and
performs the
day-to-day
management of our vessels under separate management agreements
with our vessel-owning subsidiaries. We monitor the performance
of our Manager by comparing actual vessel operating expenses
with the operating expense budget for each vessel. For the
remainder of 2011, and after taking into account the delivery of
our three vessels from Maersk in June 2011, we expect our vessel
operating expenses to average approximately $7,700 per vessel
per day. We are responsible for the costs of any deviations from
the budgeted amounts.
Depreciation
We depreciate our vessels on a straight-line basis over their
estimated useful lives which we estimate to be 30 years
from the date of their initial delivery from the shipyard.
Depreciation is based on the cost less the estimated residual
scrap values, calculated at $200 to $350 per lightweight ton,
depending on the age of the vessels and market conditions.
General
and Administrative Expenses
We incur general and administrative expenses, including our
onshore related expenses such as legal and professional
expenses. Certain of our general and administrative expenses are
provided for under our Administrative Services Agreement with
DSS and the Broker Services Agreement between DSS and Diana
Enterprises. We expect general and administrative expenses to
reflect the costs associated with running a public company
including board of director costs, director and officer
insurance, investor relations, registrar and transfer agent fees
and increased legal and accounting costs related to our
compliance with public reporting obligations and the
Sarbanes-Oxley Act of 2002.
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Results
of Operations
Three
Months Ended March 31, 2011 Compared to the Period from
January 7, 2010 (Inception Date) to March 31,
2010
We took delivery of the two vessels that we currently operate in
June and July 2010, and therefore did not generate any revenue
or incur any vessel operating expenses, depreciation or
management fees during the first quarter of 2010.
Net Income / Loss. Net income
for the three months ended March 31, 2011 amounted to
$0.3 million, which mainly resulted from operating our two
vessels Sagitta and Centaurus and expenses related to becoming a
public company. This compared to net losses of $0.2 million
for the period from January 7, 2010 to March 31, 2010,
which included general and administrative expenses for executive
management fees.
Time Charter Revenues. Time charter
revenues for the three months ended March 31, 2011 amounted
to $3.2 million, representing our gross charter revenues
derived from the time charter contracts of our vessels Sagitta
and Centaurus.
Voyage Expenses. Voyage expenses for
the three months ended March 31, 2011 amounted to
$0.1 million, representing commissions paid to third party
brokers and to DSS on our gross charter hire pursuant to the
time charter agreements with our charterers and our vessel
management agreements with DSS.
Vessel Operating Expenses. Vessel
operating expenses for the three months ended March 31,
2011 amounted to $1.0 million and mainly consist of crew
wages and related costs, consumables and stores insurances, and
repairs and maintenance,
Depreciation. Depreciation for the
three months ended March 31, 2011 amounted to
$0.7 million and represents the depreciation expense of the
two containerships Sagitta and Centaurus, according to our
related policy.
Management Fees. Management fees for
the three months ended March 31, 2011 amounted to
$0.1 million and consist of fees charged by DSS pursuant to
the vessel management agreements that we, through our
vessel-owning subsidiaries, entered into in June 2010 for the
provision of commercial and technical management services for
the vessels in our fleet.
General and Administrative
Expenses. General and administrative expenses
for the three months ended March 31, 2011 increased by
$0.7 million, or 350%, to $0.9 million compared to
$0.2 million for the period from January 7, 2010 to
March 31, 2010, mainly due to compensation cost on
restricted stock awards pursuant to our equity incentive plan
and fees relating to running a public company such as audit,
non-executive
directors compensation listing and legal fees.
Interest and Finance Costs. Interest
and finance costs for the three months ended March 31, 2011
amounted to $0.3 million and consist of the interest
expense relating to our outstanding debt during the period,
commitment commissions and other loan fees and expenses.
Interest Income. Interest income for
the three months ended March 31, 2011 amounted to
$0.02 million and consist of interest income received on
deposits of cash and cash equivalents.
Period
from January 7, 2010 (Inception Date) to December 31,
2010
Net Loss. Net loss for the period from
inception to December 31, 2010 amounted to
$2.0 million and included expenses for establishing the
Company and beginning operations. As we took delivery of the two
vessels that we currently operate in June and July 2010, our
results from operations during the period were not sufficient to
cover our expenses for establishing the Company.
Time Charter Revenues. Time charter
revenues for the period from inception to December 31, 2010
amounted to $5.7 million, representing revenues of our
containership vessels Sagitta and Centaurus
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starting from their delivery to us in late June and early July,
respectively, when they were delivered to the charterers.
Voyage Expenses. Voyage expenses for
the period from inception to December 31, 2010 amounted to
$0.3 million, mainly representing commissions paid to third
party brokers and to DSS on our gross charterhire pursuant to
our vessel management agreements and expenses for bunkers.
Vessel Operating Expenses. Vessel
operating expenses for the period from inception to
December 31, 2010 amounted to $2.9 million and mainly
consist of expenses for the initial supply of our containerships
Sagitta and Centaurus, consisting of all other expenses for
operating the vessels from their delivery to us until year-end,
such as crew wages and related costs, consumables and stores,
insurances, and repairs and maintenance.
Depreciation. Depreciation for the
period from inception to December 31, 2010 amounted to
$1.5 million and represents the depreciation expense of our
containerships from their delivery to us until year-end.
Management Fees. Management fees
amounted to $0.2 million and consist of fees payable to DSS
pursuant to the vessel management agreements that we, through
our vessel-owning subsidiaries, entered into in June 2010 for
the provision of commercial and technical management services
for the vessels in our fleet.
General and Administrative
Expenses. General and administrative expenses
for the period from inception to December 31, 2010 amounted
to $3.5 million and mainly consist of consultancy fees,
brokerage services fees, compensation cost on restricted stock
awards, legal fees and audit fees.
Foreign Currency Gains. Foreign
currency gains for the period from inception to
December 31, 2010 amounted to $1.0 million and mainly
consist of gains from the exchange of U.S Dollars to Euro in
June and July 2010, with respect to the acquisition of the two
newbuildings Sagitta and Centaurus.
Interest and Finance Costs. Interest
and finance costs for the period from inception to
December 31, 2010 amounted to $0.5 million and consist
of the interest expense relating to our outstanding debt during
the period, commitment fees and other loan fees and expenses.
Interest Income. Interest income for
the period from inception to December 31, 2010 amounted to
$0.1 million and consists of interest income received on
deposits of cash and cash equivalents.
Liquidity
and Capital Resources
Our working capital requirements relate to the acquisition and
operation of our fleet. We applied a portion of the net proceeds
of the private offering of approximately $85.3 million,
which includes consideration of $50.0 million from Diana
Shippings investment in our common shares and
approximately $40.0 million of indebtedness under our
secured loan agreement we entered into with DnB NOR Bank ASA on
July 7, 2010, to fund part of the acquisition cost of the
two newbuilding containerships in our Initial Fleet. Currently,
we have agreed to acquire three additional vessels for which we
paid an aggregate amount of $7.1 million with cash on hand.
We also drew down $65.0 million under our loan agreement we
entered into with DnB NOR Bank ASA on May 4, 2011 and
repaid our then outstanding debt of $38.7 million plus
interest. We expect to repay the current outstanding
indebtedness and to fund part of the acquisition cost of the
three vessels we have agreed to acquire with proceeds from this
offering. Following the completion of this offering we will have
no outstanding debt. Our operating cash flow is generated from
charters on our vessels, through our subsidiaries. We expect
that our proceeds from operations will be sufficient to fund our
working capital requirements. We intend to finance our future
growth with future debt and equity offerings as deemed
appropriate by our management and board of directors.
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Working capital, which is current assets minus current
liabilities, including the current portion of long-term debt,
amounted to $28.6 million at March 31, 2011. We
anticipate that internally generated cash flow will be
sufficient to fund the operations of our fleet, including our
working capital requirements.
Credit
Facility
On July 7, 2010, we entered into a secured term loan
facility with DnB NOR Bank ASA for up to $40.0 million to
partially finance the acquisition of the two vessels in our
Initial Fleet. The loan was available in two advances for each
vessel with each advance not exceeding the lower of
$10.0 million and 25% of the market value of the relevant
ship and was available until July 31, 2011. Each advance
was repayable in 24 quarterly installments of $165,000 plus one
final balloon installment of $6.04 million to be paid
together with the last installment. The loan bore interest at
LIBOR plus a margin of 2.40% per annum plus any mandatory
additional cost of funds. We also paid commitment fees of 0.96%
per annum on the undrawn portion of the loan until
February 4, 2011. The loan was secured by, among other
things, a first preferred mortgage over each of the two vessels
and first priority assignments over interest bearing accounts
with DnB NOR Bank ASA for each vessel.
On May 4, 2011, through certain wholly-owned subsidiaries,
we entered into a loan agreement with DnB NOR Bank ASA for a
maximum amount of $85.0 million in order to refinance the
outstanding balance of the loan facility dated July 7,
2010, to partly finance the cost of the three Panamax container
vessels that we have agreed to acquire and for general working
capital. The loan will be made available in two tranches.
Tranche 1 shall be the lesser of 65% of the market value of
the vessels Sagitta and Centaurus and $65.0 million and
tranche 2 shall be the lesser of 35% of the market value of
the three Panamax container vessels mentioned above and
$20.0 million. Tranche 1 was drawn in a single
drawdown and tranche 2 will be available for drawing in
three drawdowns until July 31, 2011. Tranche 1 shall
be repaid in 24 consecutive quarterly installments of
$1.1 million each, plus a balloon installment of
$37.6 million to be paid together with the last
installment. Tranche 2 shall be repaid in 8 consecutive
quarterly installments of $2.5 million each. The loan bears
interest at LIBOR plus a margin of 2.6% per annum. We paid
$382,500 of arrangement fees on signing of the agreement and on
May 6, 2011, we drew down $65.0 million with which we
repaid the then-outstanding balance of indebtedness under our
secured term loan facility entered into on July 7, 2010
(amounting to $38.7 million plus interest).
The loan is secured with a first priority mortgage on each of
the vessels, a first priority assignment of the time charters, a
first priority assignment of the earnings, insurances and
requisition compensation of the vessels, a first priority
assignment of any charter, or other employment contracts
exceeding 12 months, and an unconditional, irrevocable
guarantee from Diana Containerships. The lender also requires
the market values of the mortgaged ships to cover 125% of the
aggregate outstanding balance of the loan. The loan also
includes restrictions as to changes in management, ownership,
additional indebtedness, a consolidated leverage ratio of not
more than 70%, minimum liquidity of 4% of the funded debt. We
expect to use a portion of the net proceeds from this offering
to repay and terminate this loan facility. Upon completion of
the offering, we expect to have no debt. See Description
of Indebtedness.
Cash
Flow
Cash and cash equivalents increased to $31.8 million as of
March 31, 2011 compared to $11.1 million as of
December 31, 2010. We consider highly liquid investments
such as time deposits and certificates of deposit with an
original maturity of three months or less to be cash
equivalents. Cash and cash equivalents are primarily held in
U.S. dollars.
Net
Cash Provided by / Used in Operating Activities
Net cash provided by operating activities for the three months
ended March 31, 2011 amounted to $1.8 million and
represents net cash generated from the ordinary course of
business of our two containerships Sagitta and Centaurus.
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Net cash used in operating activities in the period from
inception to December 31, 2010 amounted to
$0.2 million and represents payments of operating and
general and administrative expenses for starting up and running
the Company.
Net
Cash Used in Investing Activities
Net cash used in investing activities for the period from
inception to December 31, 2010 was $93.5 million and
represents the acquisition cost of our newbuilding
containerships Sagitta and Centaurus including additional
pre-delivery expenses.
Net
Cash Provided by Financing Activities
Net cash provided by financing activities was $18.9 million
in the three months ended March 31, 2011, which consists of
$20.0 million proceeds from long-term debt;
$0.3 million that we paid for loan repayment; and
$0.8 million of additional restricted cash required under
our loan facility. Net cash provided by financing activities in
the period from inception to March 31, 2010 was
$50.0 million, representing contributions from shareholders
for share capital increase.
Net cash provided by financing activities for the period from
inception to December 31, 2010 was $103.8 million and
consists of $85.3 million of the net proceeds received from
the offering of 5,892,330 common shares in a private
transaction, of which $50.0 million was invested by Diana
Shipping; $20.0 million of loan proceeds we received from
our facility with DnB NOR Bank ASA of which $0.3 million
were repaid according to the related repayment schedule;
$0.8 million of cash restricted by our loan facility; and
$0.4 million of finance costs we paid relating to the loan
facility.
Quantitative
and Qualitative Disclosure of Market Risk
Interest
Rate Risk
At December 31, 2010 and March 31, 2011 we had $19.7
and $39.3 million of principal balance outstanding,
respectively, under our loan agreement with DnB NOR Bank ASA,
which we entered into on July 7, 2010, in connection with
the acquisition of the two vessels in our fleet and is subject
to interest rate fluctuations. Total interest incurred under our
loan facility in the period January 7, 2010 (inception
date) to December 31, 2010 amounted to $0.3 million and for
the three months ended March 31, 2011 amounted to
$0.2 million. For the period ended December 31, 2010
the weighted average interest rate was 2.82% and the respective
interest rates ranged from 2.69% to 2.93% including margins. An
average increase of 1% in 2010 interest rates would have
resulted in interest expenses of $0.4 million, instead of
$0.3 million, an increase of 33%. For the three months
ended March 31, 2011, the weighted average interest rate
was 2.70% and the respective interest rates ranged from 2.69% to
2.71%. An average interest rate increase of 1% for the three
months ended March 31, 2011, would have resulted in
interest expense of $0.3 million, an increase of 50%.
Currently, we have $65.0 million of principal balance
outstanding under our refinancing loan facility entered into on
May 4, 2011. We may incur additional debt in the future. We
expect to manage any exposure in interest rates through our
regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments.
Foreign
Exchange Rate Risk
We generate all of our revenues in U.S. dollars. However,
we incur some of our expenses in other currencies, primarily the
Euro. For accounting purposes, expenses incurred in Euros are
converted into U.S. dollars at the exchange rate prevailing
on the date of each transaction. The amount and frequency of
some of these expenses (such as vessel repairs, supplies and
stores) may fluctuate from period to period. In addition, the
purchase price of the two newbuilding containerships Sagitta and
Centaurus was in Euros. In this respect, in June and July 2010
we entered into transactions to convert U.S. dollars to
54
Euro. The result of these transactions was a gain from exchange
differences of approximately $1.1 million, which is
separately reflected in our 2010 consolidated statement of
operations. Since approximately 2002, the dollar has depreciated
against the Euro. Depreciation in the value of the dollar
relative to other currencies increases the dollar cost to us of
paying such expenses. The portion of our expenses incurred in
other currencies could increase in the future, which could
expand our exposure to losses arising from currency fluctuations.
While we have not mitigated the risk associated with exchange
rate fluctuations through the use of financial derivatives, we
may determine to employ such instruments from time to time in
the future in order to minimize this risk. Our use of financial
derivatives would involve certain risks, including the risk that
losses on a hedged position could exceed the nominal amount
invested in the instrument and the risk that the counterparty to
the derivative transaction may be unable or unwilling to satisfy
its contractual obligations, which could have an adverse effect
on our results. Currently, we do not consider the risk from
exchange rate fluctuations to be material for our results of
operations and therefore, we are not engaged in derivative
instruments to hedge part of those expenses.
Capital
Expenditures
Our future capital expenditures relate to the purchase of
containerships. We acquired two newbuilding containerships, Hull
558 (named Sagitta) and Hull 559 (named Centaurus), for a
purchase price of Euro 37.3 million per ship (or
$45.7 million and $47.2 million, respectively,
excluding any predelivery expenses). We financed approximately
$40.0 million of the aggregate purchase price for the two
vessels with our secured loan agreement, which we entered into
with DnB NOR Bank ASA on July 7, 2010 and the remaining
amount with the net proceeds of the private offering. We have
also agreed to acquire three containerships, Maersk Merlion,
Maersk Malacca and Maersk Madrid for the purchase price of
$24.0 million for the first two and $22.5 million for
the third. On April 18, 2011 we paid an aggregate amount of
$7.1 million representing a 10% advance for these vessels
with cash on hands. The balance of the purchase price will be
paid on the vessels delivery which is expected in June 2011. We
expect to pay part of the acquisition cost of these
containerships with cash on hand and with our refinanced loan
facility with DnB NOR Bank ASA, which we entered into on
May 4, 2011.
Inflation
Our management does not consider inflation to be a significant
risk to direct expenses in the current and foreseeable economic
environment.
Off-Balance
Sheet Arrangements
As of the date of this prospectus, we do not have any
off-balance sheet arrangements.
Plan of
Operation
We believe that our current reserves will satisfy our cash
requirements during 2011. We intend to use the net proceeds of
this offering and the concurrent private placement to partly
finance the acquisition of the three containerships that we have
agreed to acquire from Maersk, for additional containership
acquisitions and general corporate purposes, including working
capital. A portion of the net proceeds will be used to repay in
full and terminate our existing loan facility. 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.
55
Contractual
Obligations
The following table presents our contractual obligations as of
March 31, 2011 as adjusted to reflect (i) the
memoranda of agreement for the acquisition of the three Panamax
container vessels Maersk Madrid, Maersk Merlion and Maersk
Malacca contracted in April 2011 and, (ii) the increase in the
fees under the Broker Services Agreement to $1.3 million after
this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
Total
|
|
Obligations
|
|
1 year
|
|
|
2-3 years
|
|
|
4-5 years
|
|
|
5 years
|
|
|
Amount
|
|
|
|
(In thousands of U.S. dollars)
|
|
|
Administrative Services Agreement(1)
|
|
$
|
1,257
|
|
|
$
|
2,600
|
|
|
$
|
1,517
|
|
|
$
|
|
|
|
$
|
5,374
|
|
Memoranda of Agreement(2)
|
|
|
70,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,500
|
|
Long Term Debt(3)
|
|
|
2,765
|
|
|
|
5,612
|
|
|
|
5,612
|
|
|
|
25,351
|
|
|
|
39,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74,522
|
|
|
$
|
8,212
|
|
|
$
|
7,129
|
|
|
$
|
25,351
|
|
|
$
|
115,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On June 1, 2010, we terminated our existing Consultancy
Agreements with companies controlled by our executive officers
and the services that were previously provided to us by the
consultants are provided by DSS under the Administrative
Services Agreement. Under the Administrative Services Agreement,
we pay DSS a monthly fee of $10,000 for administrative services.
DSS has appointed Diana Enterprises Inc., a related party
controlled by our Chief Executive Officer and Chairman,
Mr. Symeon Palios, as broker to assist it in providing
services to the Company pursuant to the Broker Services
Agreement, dated June 1, 2010, for an annual fee of
$1.04 million, which will increase to $1.3 million
after this offering . We reimburse this cost to DSS pursuant to
the Administrative Services Agreement. We have also issued an
aggregate of 213,331 restricted common shares of a fair value of
$3.2 million, pursuant to our 2010 Equity Incentive Plan
and related restricted stock grant award agreements, of which
106,669 shares have vested (fair value of $1.6 million) and
the remaining shares will vest ratably over two years. |
|
(2) |
|
On April 13, 2011, we through our newly-established
subsidiaries Ebon Shipping Company Inc., Mili Shipping Company
Inc. and Ralik Shipping Company Inc. entered into three
Memoranda of Agreement for the purchase of three Panamax
container vessels, the MV Maersk Merlion, the MV Maersk Malacca
and the MV Maersk Madrid, respectively. The purchase price for
the MV Maersk Madrid is $22.5 million and the price for the
MV Maersk Malacca and the MV Maersk Merlion is $24 million
each. On April 18, 2011, we paid to the Sellers 10% of the
vessels price amounting to $2.4 million for each of
the MV Maersk Malacca and MV Maersk Merlion and
$2.25 million for the MV Maersk Madrid. The remaining
consideration will be paid upon delivery of the vessels. The
expected dates of delivery from their previous owners for all
three vessels are in June 2011. We expect to finance these
vessels with the loan facility we entered on May 4, 2011,
described below. |
|
(3) |
|
On July 7, 2010, we, through our wholly owned subsidiaries
Likiep Shipping Company Inc. and Orangina Inc., entered into a
loan agreement with DnB NOR Bank ASA to finance part of the
acquisition cost of the vessels Sagitta and Centaurus, for an
amount of up to $40.0 million. On July 9, 2010, we
drew down two advances of $10.0 million each, and in
February 2011, we drew down the balance of the loan amounting to
$20.0 million. On May 4, 2011, we refinanced this loan
agreement to increase the amount to $85.0 million and to
add as borrowers our wholly owned subsidiaries Ebon Shipping
Company Inc., Mili Shipping Company Inc. and Ralik Shipping
Company Inc. The loan will be made available in two tranches.
Tranche 1 shall be the lesser of 65% of the market value of
the vessels Sagitta and Centaurus and $65.0 million and
tranche 2 shall be the lesser of 35% of the market value of
the three Panamax container vessels mentioned above and
$20.0 million. Tranche 1 was drawn in a single drawdown and
Tranche 2 will be available for drawing in three drawdowns
until July 31, 2011. Tranche 1 shall be repaid in 24
consecutive quarterly installments of $1.1 million each,
plus a balloon installment of $37.6 million to be paid
together with the last installment. Tranche 2 shall be
repaid in 8 consecutive quarterly installments of
$2.5 million |
56
|
|
|
|
|
each. The loan bears interest at LIBOR plus a margin of 2.6% per
annum. We paid $382,500 of arrangement fees on signing of the
agreement. On May 6, 2011, we drew down $65.0 million,
with which we repaid the then-outstanding balance of
indebtedness under the secured term loan facility entered into
on July 7, 2010 (amounting to $38.7 million plus
interest). The table does not include interest we pay under this
loan facility, which is based on LIBOR plus a margin and any
mandatory loan cost. |
The table above does not include any amounts relating to the
Administrative Services Agreement and the vessel management
agreements which we have entered into with DSS, discussed under
section Business Vessel management
agreements, on the basis that such agreements are for a
non-specific term and may be terminated by either party at no
cost with three months notice.
Critical
Accounting Policies
Our financial statements have been prepared in accordance with
U.S. GAAP. The preparation of consolidated financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues
and expenses and related disclosures of contingent assets and
liabilities at the date of our financial statements. Actual
results may differ from these estimates under different
assumptions and conditions.
Critical accounting policies are those that reflect significant
judgments of uncertainties and potentially result in materially
different results under different assumptions and conditions. We
have described below what we believe will be our most critical
accounting policies when we acquire and operate vessels, because
they generally involve a comparatively higher degree of judgment
in their application.
Accounts
Receivable, Trade
Accounts receivable, trade, at each balance sheet date, include
receivables from charterers for hire net of a provision for
doubtful accounts. At each balance sheet date, all potentially
uncollectible accounts will be assessed individually for
purposes of determining the appropriate provision for doubtful
accounts.
Accounting
for Revenues and Expenses
Revenues are generated from charter agreements that we have
entered into for our vessels and may enter into in the future.
Charter agreements with the same charterer are accounted for as
separate agreements according to the terms and conditions of
each agreement. Revenues are recorded when they become fixed and
determinable. Revenues from time charter agreements providing
for varying annual rates over their term will be accounted for
on a straight line basis. Income representing ballast bonus
payments in connection with the repositioning of a vessel by the
charterer to the vessel owner will be recognized in the period
earned. Deferred revenue will include cash received prior to the
balance sheet date for which all criteria for recognition as
revenue would not be met, including any deferred revenue
resulting from charter agreements providing for varying annual
rates, which will be accounted for on a straight line basis.
Deferred revenue also may include the unamortized balance of
liabilities associated with the acquisition of secondhand
vessels with time charters attached, acquired at values below
fair market value at the date the acquisition agreement is
consummated.
Voyage expenses, primarily consisting of port, canal and bunker
expenses that are unique to a particular charter, are paid for
by the charterer under time charter arrangements or by the
Company under voyage charter arrangements, except for
commissions, which are always paid for by the Company,
regardless of charter type. All voyage and vessel operating
expenses are expensed as incurred, except for commissions.
Commissions are deferred over the related voyage charter period
to the extent revenue is deferred since commissions are earned
as revenues are earned.
57
Depreciation
We have recorded 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 her initial
voyage) less accumulated depreciation. We depreciate our
containership vessels on a straight-line basis over their
estimated useful lives, estimated to be 30 years from the
date of initial delivery from the shipyard which we believe is
also consistent with that of other shipping companies.
Secondhand vessels are depreciated from the date of their
acquisition through their remaining estimated useful life.
Depreciation is based on costs less the estimated salvage value.
Furthermore, we estimate the salvage values of our vessels to be
$200 to $350 per light-weight ton depending on the vessels age
and market conditions. A decrease in the useful life of a
containership or in her salvage value would have the effect of
increasing the annual depreciation charge. When regulations
place limitations on the ability of a vessel to trade on a
worldwide basis, the vessels useful life is adjusted at
the date such regulations are adopted.
Deferred
Drydock Cost
Our vessels are required to be drydocked approximately every 30
to 36 months for major repairs and maintenance that cannot
be performed while the vessels are operating. We capitalize the
costs associated with drydockings consisting of the actual costs
incurred at the yard and parts used in the drydockings as they
occur and amortize these costs on a straight-line basis over the
period between drydockings. Unamortized drydocking costs of
vessels that are sold are written off and included in the
calculation of the resulting gain or loss in the year of the
vessels sale. Costs capitalized as part of the drydocking
include actual costs incurred at the yard and parts used in the
drydocking. We believe that these criteria are consistent with
industry practice and that our policy of capitalization reflects
the economics and market values of the vessels. One of the
vessels in our current fleet is scheduled for drydocking in
April 2014, and four of the five vessels in our current fleet
are not scheduled for drydocking until 2015.
Impairment
of Long-lived Assets
We evaluate the carrying amounts (primarily for vessels and
related drydock costs) and periods over which our long-lived
assets are depreciated to determine if events have occurred
which would require modification to their carrying values or
useful lives. When the estimate of undiscounted cash flows,
excluding interest charges, expected to be generated by the use
of the asset is less than its carrying amount, we should
evaluate the asset for an impairment loss. Measurement of the
impairment loss is based on the fair value of the asset. We
determine the fair value of our assets based on management
estimates and assumptions and by making use of available market
data and taking into consideration third party valuations. In
evaluating useful lives and carrying values of long-lived
assets, management reviews certain indicators of potential
impairment, such as undiscounted projected operating cash flows,
vessel sales and purchases, business plans and overall market
conditions. The current economic and market conditions,
including the significant disruptions in the global credit
markets, are having broad effects on participants in a wide
variety of industries.
We determine undiscounted projected net operating cash flows for
each vessel and compare them to the vessels carrying
value. The projected net operating cash flows are determined by
considering the charter revenues from existing charters for the
fixed fleet days and an estimated daily time charter equivalent
for the unfixed days (based on the most recent ten-year blended
(for modern and older vessels) average historical one-year time
charter rates available for each type of vessel) over the
remaining estimated life of each vessel net of brokerage
commissions, expected outflows for scheduled vessels
maintenance and vessel operating expenses assuming an average
annual inflation rate of 3%. Effective fleet utilization is
assumed at 98%, taking into account the period(s) each vessel is
expected to undergo her scheduled maintenance (drydocking and
special surveys), as well as an estimate of 1% off hire days
each year, assumptions in line with our expectations for future
fleet utilization under our current fleet deployment strategy.
58
Share
Based Payment
According to Code 718 Compensation Stock
Compensation of the Accounting Standards Codification, we
are required to measure the cost of employee services received
in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions).
That cost is recognized over the period during which an employee
is required to provide service in exchange for the
award the requisite service period (usually the
vesting period). No compensation cost is recognized for equity
instruments for which employees do not render the requisite
service. Employee share purchase plans will not result in
recognition of compensation cost if certain conditions are met.
We initially measure the cost of employee services received in
exchange for an award or liability instrument based on its
current fair value; the fair value of that award or liability
instrument is re-measured subsequently at each reporting date
through the settlement date. Changes in fair value during the
requisite service period are recognized as compensation cost
over that period with the exception of awards granted in the
form of restricted shares which are measured at their grant date
fair value and are not subsequently re measured. The grant-date
fair value of employee share options and similar instruments are
estimated using option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market
prices for the same or similar instruments are available). If an
equity award is modified after the grant date, incremental
compensation cost is recognized in an amount equal to the excess
of the fair value of the modified award over the fair value of
the original award immediately before the modification.
59
THE
INTERNATIONAL CONTAINERSHIP SECTOR
The information and data in this section relating to the
international containership sector has been provided by Drewry
Shipping Consultants (Drewry) and is taken from Drewry databases
and other sources available in the public domain. Drewry has
advised us that it accurately describes the international
containership sector, subject to the availability and
reliability of the data supporting the statistical and graphical
information presented. Drewrys methodologies for
collecting information and data, and therefore the information
discussed in this section, may differ from those of other
sources, and do not reflect all or even necessarily a
comprehensive set of the actual transactions occurring in the
containership sector.
Introduction
The seaborne transportation industry is an important link in
international trade, with ocean-going vessels representing an
efficient, and often the only, method of transporting large
volumes of basic commodities and finished products. Dry cargo
includes drybulk cargo, container cargo and non-container cargo.
Drybulk cargo is cargo that is shipped in large quantities and
can easily be stowed in a single hold with little risk of cargo
damage. Drybulk cargo is generally categorized as either major
drybulk or minor drybulk. Major drybulk cargo constitutes the
vast majority of drybulk cargo by weight, and includes, among
other things, iron ore, coal and grain. Minor drybulk cargo
includes products such as agricultural products (other than
grain), mineral cargoes, cement, forest products and steel
products and represents the balance of the drybulk industry.
Container cargo is shipped in 20- or 40-foot containers and
includes a wide variety of finished products. Non-container
cargo includes other dry cargoes which cannot be shipped in a
container due to size, weight or handling requirements, such as
large manufacturing equipment or large industrial vehicles.
The balance of seaborne trade involves the transport of liquids
or gases in tanker vessels and includes products such as oil,
refined oil products and chemicals.
60
The following table presents the breakdown of global seaborne
trade by type of cargo in 2000 and 2010.
World
Seaborne Trade: 2000 & 2010(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Million Tons
|
|
CAGR(1) %
|
|
% Total Trade
|
|
|
2000
|
|
2010
|
|
2000-10
|
|
2000
|
|
2010
|
|
Liquid Cargo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
|
|
|
2,079
|
|
|
|
|
2,276
|
|
|
|
|
0.91
|
|
|
|
|
32.1
|
|
|
|
|
25.9
|
|
|
Refined Petroleum Products
|
|
|
602
|
|
|
|
|
875
|
|
|
|
|
3.81
|
|
|
|
|
9.3
|
|
|
|
|
10.0
|
|
|
Liquid Chemicals
|
|
|
128
|
|
|
|
|
214
|
|
|
|
|
5.28
|
|
|
|
|
2.0
|
|
|
|
|
2.4
|
|
|
Liquefied Gases
|
|
|
168
|
|
|
|
|
261
|
|
|
|
|
4.54
|
|
|
|
|
2.6
|
|
|
|
|
3.0
|
|
|
Total Liquid Cargo
|
|
|
2,977
|
|
|
|
|
3,627
|
|
|
|
|
1.99
|
|
|
|
|
46.0
|
|
|
|
|
41.3
|
|
|
Total Dry Cargo
|
|
|
3,491
|
|
|
|
|
5,155
|
|
|
|
|
3.98
|
|
|
|
|
54.0
|
|
|
|
|
58.7
|
|
|
Dry Bulk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
|
|
|
539
|
|
|
|
|
915
|
|
|
|
|
5.43
|
|
|
|
|
8.3
|
|
|
|
|
10.4
|
|
|
Iron Ore
|
|
|
489
|
|
|
|
|
1,004
|
|
|
|
|
7.46
|
|
|
|
|
7.6
|
|
|
|
|
11.4
|
|
|
Grain
|
|
|
221
|
|
|
|
|
242
|
|
|
|
|
0.91
|
|
|
|
|
3.4
|
|
|
|
|
2.8
|
|
|
Total Major Bulks
|
|
|
1,249
|
|
|
|
|
2,161
|
|
|
|
|
5.63
|
|
|
|
|
19.3
|
|
|
|
|
24.6
|
|
|
Minor Bulks
|
|
|
901
|
|
|
|
|
1.018
|
|
|
|
|
1.23
|
|
|
|
|
13.9
|
|
|
|
|
11.6
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Container Cargo
|
|
|
620
|
|
|
|
|
1,366
|
|
|
|
|
8.21
|
|
|
|
|
9.6
|
|
|
|
|
15.6
|
|
|
General Cargo
|
|
|
720
|
|
|
|
|
610
|
|
|
|
|
−1.64
|
|
|
|
|
11.1
|
|
|
|
|
6.9
|
|
|
Total Seaborne Trade
|
|
|
6,468
|
|
|
|
|
8,782
|
|
|
|
|
3.11
|
|
|
|
|
100.0
|
|
|
|
|
100.0
|
|
|
|
|
|
(1) |
|
Compound annual growth rate. |
Source: Drewry
In 2010, approximately 8.8 billion tons of cargo of all
types was transported by sea, of which 5.28 billion tons
were dry cargo and 3.6 billion tons were liquids.
Collectively, in the period 2000 to 2010 the CAGR in world
seaborne trade was 3.1%. However, as the figures in the table
below indicate, there is considerable variation by sector in the
rate of growth, with containers being the fastest growing sector
by a significant margin during this period (although global
container volumes declined by over 9%
year-on-year
in 2009).
61
Seaborne
Trade Growth Rates: 2000 to 2010
(CAGR
%)
Source: Drewry
Container
Shipping
Container shipping was first introduced in the 1950s and since
the late 1960s has become the most common method for
transporting many industrial and consumer products by sea.
Container shipping is performed by container shipping companies
who operate frequent scheduled or liner services, similar to a
passenger airline, with pre-determined port calls, using a
number of owned or chartered vessels of a particular size in
each service to achieve an appropriate frequency and utilization
level.
Container shipping occupies an increasingly important position
in world trade and it is the fastest growing sector of
international shipping, benefiting from a shift in cargo
transport towards unitization as well as from changes in world
trade. Historically, this growth has been sustained by general
increases in world trade, increased global sourcing and
manufacturing and continuing penetration of the general cargo
market. Some major container shipping companies have also shown
a trend to charter an increased percentage of their fleets from
third party owners on competitive long-term charters as opposed
to purchasing vessels outright.
Container shipping has a number of advantages compared with
other shipping methods, including:
Less Cargo Handling. Containers provide
a secure environment for cargo. The contents of a container,
once loaded into the container, are not directly handled until
they reach their final destination. Using other shipping
methods, cargo may be loaded and discharged several times,
resulting in a greater risk of breakage and loss.
Efficient Port Turnaround. With
specialized cranes and other terminal equipment, containerships
can be loaded and unloaded in significantly less time and at
lower cost than other cargo vessels.
Highly Developed Intermodal
Network. Onshore movement of containerized
cargo, from points of origin, around container ports, staging or
storage areas and to final destinations, benefits from the
physical integration of the container with other transportation
equipment such as road chassis, railcars and other means of
hauling the standard-sized containers. A sophisticated port and
intermodal industry has developed to support container
transportation.
62
Reduced Shipping Time. Containerships
can travel at speeds of up to 25 knots per hour, even in rough
seas, thereby transporting cargo over long distances in
relatively short periods of time. This speed reduces transit
time and facilitates the timeliness of regular scheduled port
calls, compared to general cargo shipping. However, since 2008,
due to higher fuel prices and the negative effects of the global
recession, most operators are deploying more ships on single
voyages which has ultimately increased overall round voyage
times and changed shippers supply chains. Many
post-Panamax vessels are now sailing at under 20 knots on
backhaul routes as part of global slow-steaming strategies to
reduce costs. This has also had a positive environmental effect
in helping to reduce ship emissions.
The containers used in maritime transportation are steel boxes
of standard dimensions. The standard unit of measure of volume
or capacity in container shipping is the 20-foot equivalent unit
or TEU, representing a container which is 20 feet long and
typically 8.5 feet high and 8 feet wide. A 40-foot
long container is equivalent to two TEU. There are specialized
containers of both sizes to carry refrigerated perishables or
frozen products as well as tank containers that carry liquids
such as liquefied gases, spirits or chemicals. 40-foot high cube
containers have become much more prevalent in recent years since
shippers can load more lightweight consumer goods from Asia in a
single container, thus reducing overall costs. A container
shipment begins at the shippers premises with the delivery
of an empty container. Once the container has been filled with
cargo, it is transported by truck, rail or barge to a container
port, where it is loaded onto a containership. The container is
shipped either directly to the destination port or through an
intermediate port where it is transferred to another vessel, an
activity referred to as trans-shipment. When the container
arrives at its destination port, it is off-loaded and delivered
to the receivers premises by truck, rail or barge.
Containership
Demand
In 2010, approximately 1.37 billion tons of containerized
cargo was transported by sea, comprising 15.6% of all seaborne
trade by weight. However, as the chart below indicates, the rate
of growth slowed tremendously in 2008 and 2009 as the world
economy weakened, only to recover strongly in 2010.
World
Container Cargo (Million Tons): 1997 to 2010
Source: Drewry
63
In 2009 the volume of container trade contracted for the first
time in history, due to the severity of the worldwide recession.
For the year as a whole the volume of global container trade was
about 9.5% below that of the corresponding period in 2008, which
was itself low by historical standards. As a result of declining
volume and falling rates global carrier revenues for 2009 were
approximately 35% below those of 2008. However, based on
provisional data for 2010, global container trade has recovered
in the wake of renewed growth in the world economy.
Global container trade has increased every year since the
introduction of long-haul containerized shipping routes in the
late 1960s, with the exception of 2009. This momentum is
primarily driven by the growth of economic output and
consumption, increases in global sourcing and changes in
patterns of world trade. Therefore, container trade growth is in
part dependent on levels of economic growth and
regional/national gross domestic product, or GDP. GDP serves as
the best indicator of prospective container volumes, although
the drastic events of 2008/09 prove that the link between GDP
growth and container growth is not as strong as it was.
Inexpensive and reliable containerized transport has facilitated
manufacturing and distribution processes that have accompanied
globalization, allowing manufacturing to move away from
traditionally high-cost production areas, such as Japan, Western
Europe and North America, to lower-cost production areas, such
as China, Vietnam and other parts of South East Asia. There has
been little or no impact on the quality of the distribution
process to the primary consumer markets. As an illustration of
the relative low cost of containerized transportation, many
technologically advanced countries are exporting component parts
for assembly in other countries and re-importing the finished
products. Manufacturers have also focused more on
just-in-time
delivery methods, which are facilitated by the fast transit
times and frequent, reliable services offered by container line
operators and the intermodal industry. However, the increased
incidence of slow steaming has meant that reliability has become
more important than speed to market.
In addition to the effect of general economic conditions, there
are several structural factors that also impact global container
trade, including:
|
|
|
|
|
Increases in world trade;
|
|
|
|
Increases in global sourcing and manufacturing; and
|
|
|
|
Continuing penetration by containerization of traditional
shipping sectors, such as bulk and refrigerated cargo markets.
|
Operators have shifted away from traditional methods of
transporting general cargo and refrigerated perishables towards
containerization, as more ports around the world introduce
container handling technology and as container shipping
productivity becomes more widely recognized. More traditional
bulk cargoes such as grains and soya bean gravitate towards
containerization modes when pricing differentials dictate.
The high growth rate in the container market has outpaced
investment in port and canal infrastructure leading to
congestion in some parts of the transportation chain. Congestion
increases ships time in transit and reduces overall
efficiency. Finally, as the largest containerships are deployed
in the major trade routes, incremental tonnage is required to
feed cargo to these mother ships from ports that either do not
have the volume or the infrastructure to serve very large
vessels directly. Congestion and increasing trans-shipment
absorbs additional ship capacity but does not add any growth to
the overall container market.
World container port throughput, a measure of the level of
activity of the container shipping industry, is made up of three
different traffic streams: loaded containers, empty containers
and trans-shipment containers (full and empty). The following
chart shows world container trade in terms of both loaded and
empty container movements through ports globally.
In the period from 2000 to 2010, port movements of loaded
containers more than doubled from just over 200 million TEU
in 2000 to 540 million TEU in 2010.
64
World
Container Port Throughput
1990 to 2010
(Million
TEU)
Source: Drewry
Regionally, the Far East and South East Asia markets accounted
for 52% of global port throughput in 2010, compared with the
other major markets of Western Europe and North America, which
accounted for 24% of global throughput. Collectively, these four
regions accounted for 76% of all container port throughput in
2010. Regional trends in container port throughput in the period
from 2000 to 2010 are shown in the table below.
Containership
Port Throughput including Empty Containers and
Trans-shipments
(Million
TEU)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
North America
|
|
|
30.9
|
|
|
|
|
31.2
|
|
|
|
|
34.2
|
|
|
|
|
37.5
|
|
|
|
|
40.8
|
|
|
|
|
44.6
|
|
|
|
|
47.0
|
|
|
|
|
47.9
|
|
|
|
|
45.8
|
|
|
|
|
39.9
|
|
|
|
|
44.8
|
|
|
Western Europe
|
|
|
51.7
|
|
|
|
|
52.8
|
|
|
|
|
57.7
|
|
|
|
|
63.4
|
|
|
|
|
70.7
|
|
|
|
|
75.6
|
|
|
|
|
81.4
|
|
|
|
|
91.1
|
|
|
|
|
91.7
|
|
|
|
|
78.8
|
|
|
|
|
86.7
|
|
|
North Europe
|
|
|
31.7
|
|
|
|
|
32.0
|
|
|
|
|
34.5
|
|
|
|
|
37.5
|
|
|
|
|
41.9
|
|
|
|
|
46.0
|
|
|
|
|
50.0
|
|
|
|
|
55.7
|
|
|
|
|
56.4
|
|
|
|
|
46.7
|
|
|
|
|
52.1
|
|
|
South Europe
|
|
|
19.9
|
|
|
|
|
20.8
|
|
|
|
|
23.3
|
|
|
|
|
25.9
|
|
|
|
|
28.8
|
|
|
|
|
29.6
|
|
|
|
|
31.5
|
|
|
|
|
35.3
|
|
|
|
|
35.4
|
|
|
|
|
32.0
|
|
|
|
|
34.6
|
|
|
Asia
|
|
|
71.7
|
|
|
|
|
75.2
|
|
|
|
|
87.6
|
|
|
|
|
105.4
|
|
|
|
|
124.7
|
|
|
|
|
138.0
|
|
|
|
|
157.3
|
|
|
|
|
180.3
|
|
|
|
|
193.7
|
|
|
|
|
178.3
|
|
|
|
|
206.2
|
|
|
South East Asia
|
|
|
34.4
|
|
|
|
|
36.9
|
|
|
|
|
41.1
|
|
|
|
|
45.7
|
|
|
|
|
51.6
|
|
|
|
|
54.9
|
|
|
|
|
59.9
|
|
|
|
|
67.4
|
|
|
|
|
71.1
|
|
|
|
|
65.7
|
|
|
|
|
74.6
|
|
|
Mid-East
|
|
|
11.1
|
|
|
|
|
12.3
|
|
|
|
|
13.7
|
|
|
|
|
16.0
|
|
|
|
|
19.8
|
|
|
|
|
22.4
|
|
|
|
|
24.5
|
|
|
|
|
28.4
|
|
|
|
|
31.9
|
|
|
|
|
31.1
|
|
|
|
|
34.2
|
|
|
Latin America
|
|
|
17.9
|
|
|
|
|
18.8
|
|
|
|
|
19.2
|
|
|
|
|
21.4
|
|
|
|
|
24.7
|
|
|
|
|
28.0
|
|
|
|
|
31.8
|
|
|
|
|
35.3
|
|
|
|
|
37.6
|
|
|
|
|
33.6
|
|
|
|
|
38.0
|
|
|
Caribbean/Central America
|
|
|
9.9
|
|
|
|
|
10.4
|
|
|
|
|
10.4
|
|
|
|
|
11.5
|
|
|
|
|
12.9
|
|
|
|
|
14.2
|
|
|
|
|
16.1
|
|
|
|
|
18.1
|
|
|
|
|
19.2
|
|
|
|
|
17.9
|
|
|
|
|
20.1
|
|
|
South America
|
|
|
8.0
|
|
|
|
|
8.4
|
|
|
|
|
8.8
|
|
|
|
|
9.9
|
|
|
|
|
11.8
|
|
|
|
|
13.8
|
|
|
|
|
15.8
|
|
|
|
|
17.1
|
|
|
|
|
18.4
|
|
|
|
|
15.7
|
|
|
|
|
17.9
|
|
|
Oceania
|
|
|
5.0
|
|
|
|
|
5.3
|
|
|
|
|
6.0
|
|
|
|
|
6.5
|
|
|
|
|
7.3
|
|
|
|
|
7.5
|
|
|
|
|
7.9
|
|
|
|
|
8.6
|
|
|
|
|
9.4
|
|
|
|
|
8.8
|
|
|
|
|
9.6
|
|
|
South Asia
|
|
|
5.5
|
|
|
|
|
5.9
|
|
|
|
|
6.6
|
|
|
|
|
7.3
|
|
|
|
|
8.5
|
|
|
|
|
9.8
|
|
|
|
|
11.5
|
|
|
|
|
13.6
|
|
|
|
|
14.7
|
|
|
|
|
14.1
|
|
|
|
|
16.3
|
|
|
Africa
|
|
|
7.4
|
|
|
|
|
7.6
|
|
|
|
|
8.5
|
|
|
|
|
10.3
|
|
|
|
|
11.4
|
|
|
|
|
13.9
|
|
|
|
|
15.8
|
|
|
|
|
17.9
|
|
|
|
|
20.6
|
|
|
|
|
20.6
|
|
|
|
|
22.4
|
|
|
Eastern Europe
|
|
|
1.1
|
|
|
|
|
1.5
|
|
|
|
|
1.9
|
|
|
|
|
2.4
|
|
|
|
|
3.2
|
|
|
|
|
4.3
|
|
|
|
|
5.4
|
|
|
|
|
7.2
|
|
|
|
|
8.0
|
|
|
|
|
5.1
|
|
|
|
|
6.7
|
|
|
World
|
|
|
236.6
|
|
|
|
|
247.5
|
|
|
|
|
276.6
|
|
|
|
|
316.0
|
|
|
|
|
363.0
|
|
|
|
|
399.0
|
|
|
|
|
442.6
|
|
|
|
|
497.6
|
|
|
|
|
524.5
|
|
|
|
|
475.0
|
|
|
|
|
539.5
|
|
|
Source: Drewry
65
Main
Container Routes
There are three core, or arterial, trade routes in the container
shipping industry: the Transpacific, Transatlantic and
Asia-Europe routes. These routes are often referred to as the
East/West trades. Trade along these routes is primarily driven
by United States and European consumer demand for products made
in Asia. The size of trade between Asia and the Mid-East is also
nearly as large as that on the Transatlantic and should be
considered as a major East-West route on which carriers can
deploy post-Panamax vessels. Supporting these core routes are
the North/South routes and a network of regional routes, of
which the largest is the Intra-Asia market. Other regional
routes include the Europe/Mediterranean, Caribbean/United
States, Europe/South America, Asia/Australia and North
America/South America routes.
Main
Container Routes
Source: Drewry
Different routes are usually served by vessels of different
sizes as determined by the size of the trade, required service
frequency and physical constraints of the ports visited.
The East/West routes are higher volume and longer than the
regional routes and, as a result, are generally served by the
larger containerships known as Panamax, Post-Panamax and
Large/Very Large. The North/South trade routes are generally
served by the smaller Handysize, intermediate and Panamax
containerships. However, in recent years where capacity has
out-stripped demand, carriers have deployed much larger vessels
in some of these smaller or regional trades. Regional routes are
generally served by Feeder and Handysize containerships. The
following table shows the trade routes on which different sizes
of containerships are likely to be suitable to trade:
Containerships Typical
Deployment by Size Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large/Very
|
Trade Route
|
|
Feeder
|
|
Handysize
|
|
Intermediate
|
|
Panamax
|
|
Post-Panamax
|
|
Large
|
TEU
|
|
<1,000
|
|
1,000-1,999
|
|
2,000-2,999
|
|
3,000-4,999
|
|
5,000-7,999
|
|
8,000+
|
|
East/West Routes
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
Intra-Asia
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
North/South Routes
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
Intra-Regional Routes
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Drewry
66
The chart below shows the growth, in volume, of the three
East/West trades from 2001 to 2010. These trades constitute
approximately 30% of global volume.
East/West
Container Trade Routes: 2001 to 2010 Eastbound
(Thousand
TEU)
Source: Drewry
East/West
Container Trade Routes: 2001 to 2010 Westbound
(Thousand
TEU)
Source: Drewry
67
The process of globalization, Chinas entry into the World
Trade Organization in 2001 and the subsequent boom in cheap
manufacturing have fueled global economic development and
demand. As a result, almost all trade routes with the Far East
have experienced significant annual growth in container traffic
since 2001, with the exception of 2009.
There are difference in volumes between the front haul and
backhaul trades, meaning the volume moved eastbound and
westbound to and from its point of origin, with the imbalance
being as much as
three-to-one
in the dominant direction. For the backhaul Mid-East to Asia
route, this can reach as high as
four-to-one.
Container traffic is unbalanced on many global trade routes and
in some cases the gap is widening. While continued growth in the
front haul direction is encouraging, the imbalance impacts
supply, the level and pace of newbuilding and ocean freight
rates in the backhaul trades. Empty re-positioning costs of
containers for ocean carriers are also considerable. The reason
for the imbalance in backhaul trades is the divide between
export-dominated and import-dominant countries for containerized
goods, which is largely related to the shift of manufacturing to
low cost countries.
Containership
Supply
Containerships are typically cellular, which means
they are equipped with metal guide rails to allow for rapid
loading and unloading, and provide for more secure carriage.
Partly cellular containerships include roll-on/roll-off vessels
or ro-ro ships and multipurpose ships which can
carry a variety of cargo including containers. Containerships
may be geared, which means they are equipped with
cranes for loading and unloading containers, and thus do not
need to rely on port cranes. Geared containerships are typically
2,500 TEU and smaller. All large containerships are fully
cellular and call at ports with adequate shore-based loading and
unloading equipment and facilities. Ships range in size from
vessels able to carry less than 500 TEU, to those with capacity
in excess of 12,000 TEU. The main categories of ship are broadly
as follows:
|
|
|
|
|
Large & Very Large: Ships
with a capacity of 8,000 TEU or greater, which are restricted to
employment on a small number of routes.
|
|
|
|
Post-Panamax: Ships with a capacity of
5,000 to 7,999 TEU, so-called because of their inability to
trade through the existing Panama Canal due to dimension
restrictions. However, there are plans to widen the existing
Panama Canal, with completion scheduled in 2014, which will
allow ships up to 12,000 TEU to transit the waterway.
|
|
|
|
Panamax: Ships with a capacity between
3,000 to 4,999 TEU, which is the maximum size that the Panama
Canal can currently handle.
|
|
|
|
Intermediate: In this category the
ships range in size between 2,000 and 2,999 TEU and are
generally able to trade on all routes.
|
|
|
|
Handysize: Smaller ships with
capacities ranging in size from 1,000 to 1,999 TEU, for use in
regional trades.
|
|
|
|
Feeder: Ships of less than 1,000 TEU,
which are normally employed as feeder vessels for trades to and
from hub ports.
|
While new investment in the container shipping industry has
tended to concentrate on building gearless vessels for the
larger trade routes as port infrastructure improves, geared
vessels are still very important for regional trade lanes and
areas such as West Africa, the eastern coast of South America
and certain Asian regions, including Indonesia, where port
infrastructure may be poor or, in some cases, non-existent.
In March 2011, the world fleet of fully cellular containerships
consisted of 4,984 vessels totaling 14.28 million TEU
in nominal capacity. These figures exclude multipurpose and
ro-ro vessels with container carrying capability.
68
World
Cellular Containership Fleet by Size March 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Size
|
|
No.
|
|
TEU
|
|
|
(TEU)
|
|
|
|
(Thousand)
|
|
Feeder
|
|
|
<1,000
|
|
|
|
|
1,228
|
|
|
|
|
739
|
|
|
Handysize
|
|
|
1,000-1,999
|
|
|
|
|
1,273
|
|
|
|
|
1,807
|
|
|
Intermediate
|
|
|
2,000-2,999
|
|
|
|
|
703
|
|
|
|
|
1,786
|
|
|
Panamax
|
|
|
3,000-4,999
|
|
|
|
|
921
|
|
|
|
|
3,706
|
|
|
Post Panamax
|
|
|
5,000-7,999
|
|
|
|
|
541
|
|
|
|
|
3,227
|
|
|
Large
|
|
|
8,000-9,999
|
|
|
|
|
248
|
|
|
|
|
2,122
|
|
|
Very Large
|
|
|
10,000+
|
|
|
|
|
70
|
|
|
|
|
888
|
|
|
|
|
|
Total
|
|
|
|
|
4,984
|
|
|
|
|
14,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Drewry
The fleet has grown rapidly to meet the increases in trade
rising from just under 5 million TEU at the end of 2000 to
14.28 million TEU at the end of March 2011.
Development
of World Container Fleet Capacity: 2000 to 2011
(Million
TEU End of Period)
Source: Drewry
69
The non-weighted average age of all containerships currently in
service is approximately 10 years, as of March 31,
2011.
Container
Fleet Age Profile: March 31, 2011
Source: Drewry
In tandem with the growth in size of the overall fleet there
have also been steady increases in ship size. The average size
of containerships in service in 1997 was 1,590 TEU, but by March
2011 the average size had increased to 2,864 TEU. It will
continue to rise due to the number of large-sized containerships
on order. Indeed, the average size of containership on order as
of March 31, 2011 was 6,537 TEU.
Furthermore, in the last couple of years there has been a
dramatic jump in the size of the largest vessel in service, as
the following chart indicates.
70
The
Containership Fleet Single Largest Vessel in
Service
(TEU)
Source: Drewry
In March 2011, the containership newbuilding orderbook in terms
of TEU size was 4.07 million TEU, equivalent to 28.5% of
the existing cellular containership fleet.
Containership
Orderbook by Size, March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orderbook
|
|
|
|
|
|
|
|
|
|
|
Capacity (Thousand
|
|
|
|
Percent Existing
|
|
|
Size Category
|
|
TEU
|
|
Number of Vessels
|
|
|
|
TEU)
|
|
|
|
Fleet
|
|
|
|
Very Large
|
|
10,000+
|
|
|
155
|
|
|
|
|
2,014
|
|
|
|
|
226.9
|
|
|
Large
|
|
8,000-9,999
|
|
|
96
|
|
|
|
|
812
|
|
|
|
|
38.3
|
|
|
Post Panamax
|
|
5,000-7,999
|
|
|
67
|
|
|
|
|
438
|
|
|
|
|
13.6
|
|
|
Panamax
|
|
3,000-4,999
|
|
|
132
|
|
|
|
|
553
|
|
|
|
|
14.9
|
|
|
Intermediate
|
|
2,000-2,999
|
|
|
36
|
|
|
|
|
94
|
|
|
|
|
5.3
|
|
|
Handysize
|
|
1,000-1,999
|
|
|
94
|
|
|
|
|
122
|
|
|
|
|
6.8
|
|
|
Feeder
|
|
< 1,000
|
|
|
42
|
|
|
|
|
32
|
|
|
|
|
4.4
|
|
|
Total
|
|
|
|
|
622
|
|
|
|
|
4,066
|
|
|
|
|
28.5
|
|
|
Source: Drewry
The size of the orderbook built up rapidly in the period 2006 to
2008, when strong freight rates and robust demand on the key
arterial east-west routes encouraged high levels of new
ordering. Since then, however, with a combination of deliveries,
orderbook cancellations and conversions, and a total absence of
new orders in 2009, the size of the total orderbook has
substantially contracted. In the last few months a few major
operators have started to come back into the market and placed
orders with Asian yards.
Most major containership operators have concentrated on
investments in large and very large containerships (8,000+ TEU)
and this sector alone currently accounts for a third of all
current containership orders, measured by capacity.
Since reaching a peak in late 2008, very few new orders have
been placed and the containership orderbook has declined
somewhat in size due to a combination of deliveries of vessels
and cancellations. It is impossible to determine exactly how
many vessels have been cancelled since the downturn in the
71
market, although it would appear that perhaps as much as 15% of
the orderbook at its peak has already been cancelled.
It is evident that the original peak for deliveries which was
scheduled for
2010-11 is
being flattened out and extended out towards
2012-14 as
owners have negotiated considerable delays with Asian yards. As
such, deliveries from the current orderbook will be spread out
over a much longer period of time.
Containership
Orderbook by Size and Scheduled Delivery Year
March 31, 2011
Source: Drewry
Most of the large and very large containerships are being built
in South Korean shipyards, which currently account for
approximately two-thirds of the containerships on order.
Not all of the vessels on order, especially those for delivery
in 2011 and beyond, will have financing in place and in the
current climate securing funding is proving difficult for many
shipowners. Delays in accessing funding may contribute to ships
being delayed beyond scheduled delivery dates.
Containership
Orderbook by Country of Build March 31, 2011
(Based
on TEU)
Source: Drewry
Apart from the lack of funding, some of the orders which have
been placed have been at greenfield
yards that is, shipyard facilities which have yet to
be constructed and become operational. Some of these yards are
also finding it difficult to secure funds to commence the
construction of the actual shipyard,
72
another possible cause of delays in the delivery of new ships.
Scheduled deliveries based on the orderbook as of
January 1, 2008, 2009 and 2010. 2010 actual deliveries may
be subject to late reports.
Containerships:
Scheduled vs. Actual Deliveries (000 TEU)
Source: Drewry
The extent to which delays in deliveries have already occurred
can be seen by comparing scheduled and actual deliveries in the
years 2008, 2009 and 2010. As can be seen in the chart above,
delays in delivery increased dramatically in 2009, with only
1.1 million TEU of the 2.0 million TEU due to be
delivered in 2009 being delivered by the end of the year. In
effect, almost 50% of the new container tonnage which was
scheduled to be delivered in 2009 was delivered late. The data
for 2010 indicates a similar picture.
Slow
Steaming
Excess shipping capacity and rising fuel prices have prompted
operators in the container sector to reduce vessel operating
speeds and thus reduce fuel costs, while at the same time
requiring more ships to provide the same level of shipping
capacity on a particular route. The impact of reducing sailing
speeds on the number of days required to complete a round voyage
on the three main routes is shown below.
Vessel
Sailing Times
(Sailing
Days Round Voyage)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel Speed
|
|
Route
|
|
|
24.0 Knots
|
|
|
|
|
20.1 Knots
|
|
|
|
|
23.0 Knots
|
|
|
|
|
17.7 Knots
|
|
|
Asia-Europe
|
|
|
36.5
|
|
|
|
|
43.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Trans-Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
23.4
|
|
|
|
|
30.4
|
|
|
Trans-Atlantic
|
|
|
|
|
|
|
|
|
|
|
|
|
23.4
|
|
|
|
|
30.4
|
|
|
Typical No of Vessels Deployed
|
|
|
8
|
|
|
|
|
9
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
Source: Drewry
73
A typical Asia Europe string would comprise eight
8,000 TEU vessels operating at design speeds of 24 knots. By
reducing the sailing speed of the vessels to 20 knots a further
ship would be required to provide the same level of service.
While this has the effect of absorbing additional shipping
capacity, it also reduces fuel costs, as ships use less fuel
when sailing at slower speeds. The exact savings will depend on
the level of speed reduction and the prevailing fuel price, but
based on current fuel prices, an 8,000 TEU vessel operating
Asia- Europe would reduce the round trip fuel cost by
approximately 30%, if it reduced sailing speeds from 24 to 20
knots.
Global
Alliances
Alliances are generally agreements that cover vessel sharing and
operational matters such as the use of certain terminals, where
carriers can take advantage of favorable terms for berthing.
Often the alliance will implement a best ship policy, whereby
members pool vessel resources to deploy the best
appropriately-sized vessels in the same service. There are
currently three main global alliances:
|
|
|
|
|
Grand Alliance. This alliance comprises
Orient Overseas Container Line (OOCL), Hapag-Lloyd, and Nippon
Yusen Kaisha (NYK).
|
|
|
|
New World Alliance. This alliance
comprises Mitsui OSK Lines (MOL), Hyundai Merchant Marine and
American President Line (APL). It operates within the
Trans-Pacific, Trans-Atlantic and Asia-Europe trades.
|
|
|
|
CKYH Alliance. This alliance comprises
Cosco, K Line, Yang Ming and Hanjin. It also operates within the
Trans-Pacific, Trans-Atlantic and Asia-Europe trades.
|
While these are official alliances, there are now more
agreements, if not necessarily formal alliances, between
carriers who were once independent. For example, Evergreen has
recently coordinated certain services with China Shipping, and
MSC/CMACGM and Maersk operate a number of joint string voyages
in the Trans-Pacific. Also, there may be instances where
outsiders cooperate with a more formal alliance. For example,
Zim has contributed services to certain Grand Alliance loop
voyages. Such cooperative agreements are often motivated by a
desire to share costs and jointly fill cargo capacity to more
efficiently operate single string voyages.
Container
Freight Rates
The following chart shows the average container freight rate per
TEU on the core East/West trade lanes: Trans-Pacific,
Trans-Atlantic, and Asia-Europe. Terminal handling charges and
intermodal rates, where applicable, are included.
74
Container
Rates for East/West Routes: 2000 to 2010(1)
($/TEU)
(1) Provisional
Source: Drewry
Freight rates for specialized cargo, including refrigerated
products, normally carry a premium due to increased costs of
transportation and more expensive equipment such as
temperature-controlled containers. Many surcharges, including
fuel, congestion, currency adjustment, peak-season and
heavyweight are standard practice in the industry and these are
normally paid in addition to the basic
port-to-port
ocean freight.
Average
Container Rates for East/West Routes: 2000 to 2010
(US$/TEU)
|
|
|
|
|
|
|
|
|
|
|
|
|
$/TEU
|
|
Change Year-over-Year
|
|
2000
|
|
|
1,421
|
|
|
|
|
2.6
|
|
%
|
2001
|
|
|
1,269
|
|
|
|
|
−10.7
|
|
%
|
2002
|
|
|
1,155
|
|
|
|
|
−9.0
|
|
%
|
2003
|
|
|
1,352
|
|
|
|
|
17.1
|
|
%
|
2004
|
|
|
1,456
|
|
|
|
|
7.5
|
|
%
|
2005
|
|
|
1,495
|
|
|
|
|
2.7
|
|
%
|
2006
|
|
|
1,405
|
|
|
|
|
−6.0
|
|
%
|
2007
|
|
|
1,435
|
|
|
|
|
2.1
|
|
%
|
2008
|
|
|
1,580
|
|
|
|
|
10.1
|
|
%
|
2009
|
|
|
1,146
|
|
|
|
|
−27.5
|
|
%
|
2010
|
|
|
1,450
|
|
|
|
|
26.5
|
|
%
|
Source: Drewry
Containership
Time Charter Rates
The same factors that drive freight rates also affect charter
rates. The growth in demand for container shipping and the
increasing trend among major container operators to charter-in
tonnage have generally increased demand pressure and over time
have caused an increase in time charter rates. The
75
following chart indicates annual average charter rates for
representative containerships from 2002 to January 2011.
One Year
Time Charter Rates for Geared/Gearless Containerships 2002 to
2011
(US$
per Day)
Source: Drewry
One Year
Containership Time Charter Rates 2000 to 2011
(Period
Averages US$ per Day)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEU
|
|
1,500 Geared
|
|
2,500 Geared
|
|
3,500 Gearless
|
|
2000
|
|
|
11,625
|
|
|
|
|
17,869
|
|
|
|
|
24,025
|
|
|
2001
|
|
|
9,475
|
|
|
|
|
13,938
|
|
|
|
|
19,325
|
|
|
2002
|
|
|
7,188
|
|
|
|
|
10,326
|
|
|
|
|
14,431
|
|
|
2003
|
|
|
11,741
|
|
|
|
|
17,833
|
|
|
|
|
23,666
|
|
|
2004
|
|
|
20,200
|
|
|
|
|
26,500
|
|
|
|
|
31,575
|
|
|
2005
|
|
|
25,125
|
|
|
|
|
35,250
|
|
|
|
|
38,875
|
|
|
2006
|
|
|
15,400
|
|
|
|
|
22,700
|
|
|
|
|
27,125
|
|
|
2007
|
|
|
14,175
|
|
|
|
|
25,325
|
|
|
|
|
29,975
|
|
|
2008
|
|
|
12,950
|
|
|
|
|
20,400
|
|
|
|
|
26,450
|
|
|
2009
|
|
|
4,800
|
|
|
|
|
5,575
|
|
|
|
|
6,375
|
|
|
2010
|
|
|
6,650
|
|
|
|
|
8,850
|
|
|
|
|
12,475
|
|
|
March 2011
|
|
|
11,000
|
|
|
|
|
14,700
|
|
|
|
|
18,900
|
|
|
Source: Drewry
With some exceptions, time charter rates for all vessel sizes
increased steadily from 2002 into 2005, in some cases rising by
as much as 50.0%, as charter markets experienced significant
growth. Demand for vessels was largely spurred on by growth in
the volume of exports from China. In 2006, time charter rates
weakened due to supply rising faster than demand and also market
perception. This trend continued in 2007 and 2008, and in 2009
rates fell even farther due to rising supply and very weak
demand.
With the recovery in demand in 2010 and
2011 year-to-date
charter rates across most sizes have improved from the lows of
2009, although in a historical context they still remain poor.
76
Containership
Newbuilding Prices
Newbuilding prices have risen steadily since 2002, due to a
shortage in newbuilding capacity during a period of high
ordering and increased shipbuilders costs as a result of
rising raw material prices, mainly steel. However, since the
second half of 2008 weak market conditions significantly slowed
new ordering to the point that virtually no new orders were
placed for containerships in 2009. Given the lack of new orders
it is very difficult to assess the trend in newbuilding although
all the evidence suggests that prices weakened substantially in
2009, before staging a modest recovery in 2010, as indicated by
the figures in the table below.
Containership
Newbuilding Prices: 2000 to 2011
(End
Period US$ Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEU
|
|
500*
|
|
|
|
1,000*
|
|
|
|
1,500*
|
|
|
|
2,000
|
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
5,500
|
|
|
|
6,500
|
|
|
|
DWT
|
|
|
8,000
|
|
|
|
|
13,500
|
|
|
|
|
22,000
|
|
|
|
|
29,000
|
|
|
|
|
35,000
|
|
|
|
|
40-45,000
|
|
|
|
|
65-70,000
|
|
|
|
|
75,000
|
|
|
2000
|
|
|
9.4
|
|
|
|
|
17.6
|
|
|
|
|
23.1
|
|
|
|
|
28.5
|
|
|
|
|
33.5
|
|
|
|
|
39.0
|
|
|
|
|
57.0
|
|
|
|
|
67.1
|
|
|
2001
|
|
|
9.9
|
|
|
|
|
17.6
|
|
|
|
|
23.0
|
|
|
|
|
29.4
|
|
|
|
|
34.9
|
|
|
|
|
41.0
|
|
|
|
|
60.3
|
|
|
|
|
69.9
|
|
|
2002
|
|
|
9.5
|
|
|
|
|
15.6
|
|
|
|
|
20.8
|
|
|
|
|
25.6
|
|
|
|
|
29.3
|
|
|
|
|
33.8
|
|
|
|
|
52.3
|
|
|
|
|
63.5
|
|
|
2003
|
|
|
12.9
|
|
|
|
|
17.0
|
|
|
|
|
22.6
|
|
|
|
|
28.1
|
|
|
|
|
32.5
|
|
|
|
|
36.9
|
|
|
|
|
55.8
|
|
|
|
|
66.5
|
|
|
2004
|
|
|
18.0
|
|
|
|
|
22.0
|
|
|
|
|
31.1
|
|
|
|
|
34.9
|
|
|
|
|
43.4
|
|
|
|
|
50.3
|
|
|
|
|
74.3
|
|
|
|
|
86.0
|
|
|
2005
|
|
|
18.5
|
|
|
|
|
24.5
|
|
|
|
|
36.4
|
|
|
|
|
41.9
|
|
|
|
|
49.5
|
|
|
|
|
55.9
|
|
|
|
|
87.4
|
|
|
|
|
101.1
|
|
|
2006
|
|
|
15.8
|
|
|
|
|
22.6
|
|
|
|
|
34.4
|
|
|
|
|
40.3
|
|
|
|
|
47.3
|
|
|
|
|
54.4
|
|
|
|
|
85.0
|
|
|
|
|
97.6
|
|
|
2007
|
|
|
16.0
|
|
|
|
|
23.8
|
|
|
|
|
34.0
|
|
|
|
|
40.0
|
|
|
|
|
44.9
|
|
|
|
|
57.9
|
|
|
|
|
85.0
|
|
|
|
|
97.4
|
|
|
2008
|
|
|
16.0
|
|
|
|
|
27.3
|
|
|
|
|
34.0
|
|
|
|
|
40.0
|
|
|
|
|
55.0
|
|
|
|
|
63.8
|
|
|
|
|
76.0
|
|
|
|
|
97.0
|
|
|
2009
|
|
|
10.0
|
|
|
|
|
15.4
|
|
|
|
|
23.5
|
|
|
|
|
31.5
|
|
|
|
|
35.0
|
|
|
|
|
38.0
|
|
|
|
|
71.0
|
|
|
|
|
76.0
|
|
|
2010
|
|
|
10.3
|
|
|
|
|
16.9
|
|
|
|
|
24.0
|
|
|
|
|
31.5
|
|
|
|
|
35.0
|
|
|
|
|
38.6
|
|
|
|
|
68.6
|
|
|
|
|
74.8
|
|
|
March 2011
|
|
|
12.0
|
|
|
|
|
22.0
|
|
|
|
|
28.5
|
|
|
|
|
32.5
|
|
|
|
|
40.0
|
|
|
|
|
47.0
|
|
|
|
|
75.0
|
|
|
|
|
80.0
|
|
|
|
|
|
* |
|
Geared Vessels, all Others Gearless |
Source: Drewry
Containership
Newbuilding Prices 2000 to 2011
(US$
Millions):
Source: Drewry
77
Containership
Secondhand Prices
Vessel values are primarily driven by supply and demand for
vessels. During extended periods of high demand, as evidenced by
high charter rates, vessel values tend to appreciate and vice
versa. However, vessel values are also influenced by age and
specification and by the replacement cost (newbuilding price) in
the case of vessels up to five years old. The following chart
indicates average secondhand prices for containerships in the
period from 2000 to March 2011.
Containership
Secondhand Prices: 2000 to 2011
(US$
Millions)
Source: Drewry
Values for younger vessels tend to fluctuate on a percentage, if
not on a nominal, basis less than values for older vessels. This
is attributed to the finite life of vessels which makes the
price of younger vessels with a commensurably longer remaining
economic life less susceptible to the level of prevailing and
expected charter rates, while prices of older vessels are
influenced more since their remaining economic life is limited.
Vessels are usually sold through specialized brokers who report
transactions to the maritime transportation industry on a
regular basis. The sale and purchase market for vessels is
therefore transparent and liquid, with a large number of vessels
changing hands on an annual basis.
With the rise in freight rates in the period
2005-2008
secondhand values for containerships also increased for all
major ship sizes. However, when demand fell in 2008, rates and
values went into a steep decline. Since then there have been
very few reported secondhand sales and the estimation of
secondhand value is very difficult. Nevertheless, the number of
vessels sold in 2010/early 2011 indicates that the market picked
up and this has been reflected by a slight upward movement in
prices.
78
BUSINESS
Overview
We were incorporated in the Marshall Islands on January 7,
2010, at what we believe to have been a low period of the
containership cycle, to capitalize on what we perceived to be a
long-term opportunity in the sector. Our objective is to build a
global containership business by making acquisitions that are
accretive to our dividends per share. The two vessels that we
own today are chartered to Maersk and CSAV, two leading
container lines. Furthermore, we have contracted to acquire one
4,206 TEU containership, the MV Maersk Madrid, which we expect
will be delivered to us on or about June 13, 2011, and two
4,714 TEU containerships, the MV Maersk Malacca and MV Maersk
Merlion which we expect will be delivered to us on or about
June 21 and June 14, 2011, respectively. Each of these
three vessels will be chartered to Maersk upon their delivery to
us. We refer to these five vessels as our Initial Fleet. Our
common stock is listed on the Nasdaq Global Market under the
symbol DCIX.
We were founded by and share senior executives and a technical
and commercial manager with Diana Shipping, a leading global
provider of transportation services for drybulk cargoes. Diana
Shipping was formed near the bottom of the drybulk cycle in 1999
with an initial fleet of six newbuilding vessels, which has
since grown to 25 vessels as a result of acquisitions
throughout the cycle. We believe that our managements
experience building Diana Shipping throughout the drybulk
shipping cycle has positioned us to replicate that success
during a similar period in the containership sector. As of the
date of this prospectus, Diana Shipping owns 666,818 common
shares, or approximately 11.0% of our outstanding common stock,
and plans to purchase $20 million of stock in a private
placement concurrently with this offering at the public offering
price. In addition, our management owns an additional 718,191
common shares. We intend to use the net proceeds of this
offering and the concurrent private placement to repay in full
our existing term loan facility, to fund the balance of the
acquisition costs of the three containerships that we have
agreed to acquire from Maersk, for additional containership
acquisitions and general corporate purposes, including working
capital.
In order to enhance returns, we plan to focus on vessels ranging
from 2,500 TEU to 7,500 TEU because we believe that the current
containership orderbook composition, matched with global GDP
growth, creates a favorable multi-year dynamic of supply and
demand for these mid-sized containerships. We will also focus on
secondhand vessels and re-sale newbuildings because they will
contribute to our cash flows immediately. In line with our
existing fleet, we will favor sister-ships as we believe that
they increase our operating efficiency and profitability. As
industry dynamics change, we might opportunistically acquire
containerships outside of these parameters in order to increase
dividends per share.
Commencing with the second quarter of 2011, we intend to declare
a variable quarterly dividend each February, May, August and
November substantially equal to approximately 70% of our
available cash from operations during the previous quarter after
the payment of cash expenses for the quarter. The remaining
available cash from operations is expected to be used for
reserves for scheduled drydockings, intermediate and special
surveys and other purposes as our board of directors may from
time to time determine are required, after taking into account
contingent liabilities, the terms of any credit facility, our
growth strategy and other cash needs and the requirements of
Marshall Islands law.
We have an existing term loan facility with DnB NOR Bank ASA.
This facility is available to us to fund the balance of the
acquisition costs of the additional vessels that we have agreed
to acquire. We will use a portion of the net proceeds of this
offering to repay this facility in full and following the
completion of this offering will terminate this facility and
have no outstanding debt. In addition to the above we are
currently in discussions with lenders regarding a
$150 million revolving credit facility, which we refer to
as our Credit Facility.
79
Our
Fleet
Our
Approach to Fleet Development
We own two and have contracted to acquire three containerships
ranging in size from 3,426 to 4,714 TEU. In addition to the
favorable supply dynamics mentioned above, we believe that the
vessel classes we are targeting are best positioned to benefit
from the improving fundamentals in the containership sector. We
believe that these vessels possess the versatility to serve a
variety of trade routes, ranging from the critical East-West
trade lanes to the fast growing Intra-Asia lanes, thereby
mitigating changes in regional demand patterns. In addition,
vessels in this size range we are targeting will be able to fit
through the expanded Panama Canal, which is expected to open in
2014. We believe that the composition of the orderbook, with its
heavy concentration on very large containerships, will further
increase demand for our vessels, as container line companies
will require larger feeder ships to better serve their
customers. We will also focus on secondhand vessels and re-sale
newbuildings as they will contribute to our cash flows
immediately. Our objective is to expand our fleet with selective
acquisitions of mid-sized containerships; however, as industry
dynamics change, we might choose to make acquisitions of
containerships outside of our initial size range if they exceed
our return threshold and increase shareholder value. A key
criterion of any vessel acquisition will be that it be accretive
to our dividend per share assuming permanent equity financing.
Fleet
Summary
Set forth below is summary information concerning our fleet as
of May 23, 2011, after giving effect to the purchase of the
three containerships we have contracted to acquire.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery
|
|
|
|
|
Vessel
|
|
Sister-
|
|
Gross Rate
|
|
|
|
Date
|
|
Redelivery Date to
|
|
|
BUILT
|
|
TEU
|
|
Ships*
|
|
(USD Per Day)
|
|
Charterer
|
|
to Charterer
|
|
Owners**
|
|
Notes
|
|
|
Container Vessels
|
|
SAGITTA
|
|
A
|
|
$
|
16,000
|
|
|
|
A.P. Moller -
Maersk A/S
|
|
June 30, 2010
|
|
May 15, 2011
|
|
|
|
2010
|
|
|
|
|
3,426
|
|
|
|
|
|
$
|
22,000
|
|
|
|
|
|
May 15, 2011
|
|
March 15, 2013
June 15, 2013
|
|
1
|
|
|
CENTAURUS
|
|
A
|
|
$
|
20,000
|
|
|
|
CSAV
Valparaiso
|
|
Sept. 4, 2010
|
|
July 21, 2012
Oct. 19, 2012
|
|
|
|
2010
|
|
|
|
|
3,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAERSK MALACCA
|
|
B
|
|
$
|
21,450
|
|
|
|
A.P. Moller -
Maersk A/S
|
|
June 21, 2011
|
|
May 7, 2013
Aug. 5, 2013
|
|
2, 3
|
|
1990
|
|
|
|
|
4,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAERSK MERLION
|
|
B
|
|
$
|
21,450
|
|
|
|
A.P. Moller -
Maersk A/S
|
|
June 14, 2011
|
|
April 30, 2013
July 29, 2013
|
|
2, 3
|
|
1990
|
|
|
|
|
4,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAERSK MADRID
|
|
|
|
$
|
21,450
|
|
|
|
A.P. Moller -
Maersk A/S
|
|
June 13, 2011
|
|
April 29, 2013
July 28, 2013
|
|
2, 3
|
|
1989
|
|
|
|
|
4,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Each container vessel is a
sister-ship, or closely similar, to other container
vessels that have the same letter.
|
|
**
|
|
Charterers optional period to
redeliver the vessel to owners. Charterers have the right to add
the off hire days, if any, and therefore the optional period may
be extended.
|
|
(1)
|
|
The charterers has the option to
employ the vessel for a further 11-13 month period. The optional
period, if exercised, must be declared on or before
December 15, 2012, and can only commence on May 1,
2013 at a gross daily rate of $30,000.
|
|
(2)
|
|
The charterer has the option to
employ the vessel for further 12 months period plus or
minus 45 days at a gross daily rate of $25,000.
|
80
|
|
|
(3)
|
|
Expected delivery date. The
aggregate purchase price of the three vessels that we have
agreed to acquire is $70.5 million.
|
We have also identified two additional 1996-built containerships
of approximately 3,500 TEU capacity, and we are currently in
discussions to acquire them. We expect that these vessels will
be delivered with a time charter back to the seller, which we
consider a reputable charterer at a gross daily charter rate of
$23,000 for a period of approximately 36 months. We expect
to take delivery of the vessels between July and August of 2011.
We cannot assure you that we will be successful in completing
the acquisition of these two additional vessels or entering into
charters with the seller on the terms set forth above or at all.
Our
Founder
One of our key strengths is our relationship with Diana Shipping
and its affiliates, including its wholly-owned subsidiary Diana
Shipping Services S.A., which we refer to as DSS, or our
Manager. We believe that Diana Shippings record of
success, its size and scale, its reputation in the shipping
industry and its commitment to corporate governance and
transparency make us a stronger company than our size may
indicate.
Diana Shipping was the founder of Diana Containerships,
providing our initial capital in 2010. As a result of a private
placement of equity and a distribution of a portion of its Diana
Containerships shares to the shareholders of Diana Shipping,
Diana Shipping owns approximately 11.0% of our outstanding
common stock and plans to purchase $20 million of stock in
a private placement concurrently with this offering at the
public offering price. In addition, our management owns an
additional 718,191 common shares or approximately 11.8% of our
outstanding common stock.
Experience
and Responsibilities
Our management team is responsible for the strategic management
of our company, including the development of our business plan
and overall vision for our operations. Strategic management also
involves, among other things, locating, purchasing, financing
and selling vessels. Our management team is led by our Chairman
and Chief Executive Officer Mr. Symeon Palios, who founded
the predecessors of Diana Shipping and DSS in 1972.
Mr. Palios has served as the Chairman and Chief Executive
Officer of Diana Shipping since 2005 and as a director since
1999. Mr. Anastasios Margaronis, our President and a
director, also serves as President and as a director of Diana
Shipping and has been employed by the Diana Shipping group of
companies since 1979. Mr. Ioannis Zafirakis, our Chief
Operating Officer, Secretary and a director, serves as Executive
Vice President and Secretary of Diana Shipping and has been
employed by the Diana Shipping group of companies since 1997.
Mr. Andreas Michalopoulos, our Chief Financial Officer and
Treasurer, has held these same offices with Diana Shipping since
2006.
Our management team has experience in multiple sectors of the
international shipping industry, including the containership
sector, and a proven track record of strategic growth beginning
with the formation of the Diana Shipping group of companies in
1972. Our management team is responsible for identifying assets
for acquisition and for the operation of our business in order
to build our fleet and effectively manage our growth. Since
1981, our Founder has purchased, operated or sold 18 secondhand
and newbuilding containerships and multi-purpose vessels that
were capable of transporting containers, including the five
vessels in our Initial Fleet.
Our
Competitive Strengths
We believe that we have a number of strengths that will provide
us with a sustainable competitive advantage in the containership
sector:
Experienced
Management Team
Our management team has an average of 22 years of
experience each in all aspects of the shipping industry, with
our Chief Executive Officer having over 40 years
experience, including significant experience with fleets
operating in both the containership and drybulk sectors through
all market cycles.
81
Collectively, since 1972, DSS and its predecessors have managed
more than 100 vessels in the drybulk and containership
sectors, and over the last 30 years they have owned
and/or
operated 18 secondhand and newbuilding containerships and
multi-purpose vessels that were capable of transporting
containers, including the five vessels in our Initial Fleet. Our
executive officers also serve as the executive officers of Diana
Shipping, which, since going public in 2005, has provided to
shareholders a total return of 15.2% compared with a total
return of the S&P 500 of 12.6% over the same period. We
believe that the experience and reputation of our management
team will enable us to attract customers, obtain repeat
employment opportunities and gain access to acquisition and
financing opportunities to grow our Company and generate strong
financial returns.
Financial
Flexibility to Pursue Acquisitions
We are currently in discussions with lenders regarding a
$ 150 million revolving credit facility. We believe that
our low leverage, liquidity and access to bank financing and the
capital markets position us with ship brokers, financial
institutions and shipyards as a favored purchaser of quality
containerships and will allow us to make additional near-term
accretive acquisitions during a period when both newbuilding and
high-quality secondhand vessel values remain below their
historical
10-year
averages. Over the longer term, as vessel values and charter
rates increase, we expect to continue to negotiate acquisitions
that are consistent with our investment criteria, and we are
confident in our ability to access the capital and banking
markets. During the last six years, our management team, on
behalf of our Founder, has raised more than $1 billion of
capital from the equity markets and entered into credit
facilities with various international banking institutions for
more than $500 million. We believe that these financings
are indicative of the strong relationships we, through our
management and Founder, enjoy with the financial and investment
communities.
Relationships
with Top Charterers
Our Founder and management team have established relationships
with several of the top charterers in the shipping industry
including CSAV, CMA CGM S.A., China Open Shipping Company, or
Cosco, Hamburg Südamerikanische
Dampfschifffahrts-Gesellschaft KG, Hanjin Shipping Co., Ltd.,
Maersk, MSC Shipping S.A. and P&O Nedlloyd Container Line
Limited (which has merged with Maersk). We believe that these
relationships, matched with our Managers vetting process,
will allow us to selectively charter our vessels at attractive
rates.
Highly
Successful and Reputable Fleet Manager Provides High-Quality,
Cost Efficient Operations
We believe that the resources and reputation of our Manager as a
safe and reliable technical manager provide us with favorable
charter opportunities with well established charterers, as
shippers demands for reliable, on-time services increase
with globalization. We believe that employing our Manager as our
technical manager provides us with a competitive advantage over
other containership operators of a similar size by allowing us
to more closely monitor our operations and to offer higher
quality performance, reliability and efficiency in the
maintenance of our vessels. Additionally, we expect to benefit
from economies of scale not usually realized by operators of our
size and to realize the benefits through reduced costs and
higher distributable cash flow. Our Manager is a subsidiary of a
publicly traded company, which we believe increases transparency
and allows us to operate under high standards of corporate
governance. With approximately 70 shore-based personnel in
Athens, Greece and over 600 offshore employees, our Manager
oversees the technical supervision, such as repairs, maintenance
and inspections, safety and quality, crewing and training, as
well as supply provisioning, of over 25 vessels on the
water, consisting of drybulk carriers and our containerships,
and two newbuilding vessels under construction. Pursuant to each
vessel management agreement, our Manager receives a commission
of 1% of the gross charterhire and freight earned by the vessel
and a technical management fee of $15,000 per vessel per month
for employed vessels and will receive $20,000 per vessel per
month for
laid-up
vessels, if any.
82
Business
Strategy
To
Acquire High Quality Containerships Throughout the Shipping
Cycle
We will seek to provide attractive returns to our investors by
continuing to make accretive acquisitions of high quality
containerships in the secondhand market, including from
shipyards and lending institutions. We believe that, currently,
the containership sector provides attractive acquisition
opportunities as asset values remain below
10-year
averages and will continue to present attractive opportunities
through the cycle. Over time, we expect that asset prices and
charterhire will increase and that we will continue to make
acquisitions that meet our investment criteria. Because members
of our senior management team have successfully navigated
previous market cycles, we believe that we have the experience
and discipline to capitalize on market movements. In addition,
we are not affected by issues currently impacting certain other
containership companies, such as high leverage and the purchase
of vessels at prices significantly above historical averages. We
will initially focus on vessels ranging from 2,500 TEU to 7,500
TEU because we believe that the current orderbook composition,
coupled with global GDP growth, creates a favorable multi-year
dynamic of supply and demand for these mid-sized containerships.
As industry dynamics change, we might opportunistically acquire
containerships outside of this range as well as enter into
newbuilding contracts with shipyards on terms that meet our
acquisition criteria.
Strategically
Deploy Our Vessels in Order to Optimize the Opportunities in the
Time Charter Market
We intend to actively monitor market conditions, charter rates
and vessel operating expenses in order to selectively employ
vessels as market conditions warrant. We initially intend to
enter into short- and medium-term time charters to allow our
shareholders to benefit from what we believe to be an improving
charter rate environment. Depending on market conditions, in the
future we might enter into long-term time charters at rates that
compare favorably to historical averages, shielding us from
charter rates decreases and cyclical fluctuations. We believe
that maintaining staggered charter maturities will provide us
with the flexibility to capitalize on favorable market
conditions, while providing us with a base of strong, visible
cash flows.
Maintain
a Strong Balance Sheet
We have a strong balance sheet and we will employ a portion of
the proceeds of this offering to repay our outstanding debt. As
a result, we will have greater availability under our credit
lines for future acquisitions and our low debt levels should
allow us to generate free cash to fund operations and pay
dividends. In the future, we expect to draw funds on a
short-term basis under our credit lines to fund vessel
acquisitions. We intend to repay our acquisition related debt
from time to time with the net proceeds of subsequent equity
issuances. We believe that maintaining a strong balance sheet
will continue to provide us with the flexibility to capitalize
on vessel purchase opportunities. Notwithstanding the foregoing,
based on prevailing conditions and our outlook for the
containership market, we might consider incurring further
indebtedness in the future to enhance returns to our
shareholders.
Provide
an Attractive Yield to Shareholders Through Quarterly
Dividends
We currently intend to declare a variable quarterly dividend
each February, May, August and November substantially equal to
approximately 70% of our available cash from operations during
the previous quarter after the payment of cash expenses for the
quarter. The remaining available cash from operations is
expected to be used for reserves for scheduled drydockings,
intermediate and special surveys and other purposes as our board
of directors may from time to time determine are required, after
taking into account contingent liabilities, the terms of any
credit facility, our growth strategy and other cash needs and
the requirements of Marshall Islands law. While we expect to
declare a quarterly dividend in August 2011 in respect of a
partial fleets operations, we expect to declare our first
full
83
quarterly distribution in November 2011, which will reflect a
full quarters operations of our entire Initial Fleet, as
well as a partial contribution from any other vessels delivered
during that quarter. Our board of directors may review and amend
our dividend policy from time to time, in light of our plans for
future growth and other factors.
Maintain
Low Cost, Highly Efficient and Reliable Operations
We operate as an efficient and reliable owner of containerships
as a result of the experience of our Manager. DSS currently
manages a fleet of 14 Panamax, one Post-Panamax, eight Capesize
drybulk carriers, the two Panamax containerships in our fleet
and two drybulk carrier newbuildings for which it provides
supervisory services. We believe that we will benefit from
economies of scale in maintenance, supply and crewing of our
vessels, as well in purchasing lubricants and spare parts. We
further believe that we can build on the reputation of our
Manager for safe vessel operations, and we intend to comply with
rigorous international health, safety and environmental
protection regulations.
Our
Arrangements with Our Affiliates
Our
Manager
DSS performs commercial and technical management services for
our vessels. DSS also manages Diana Shippings drybulk
carrier fleet with a combined cargo carrying capacity of
approximately 2.9 million dwt, including two vessels under
construction with deliveries expected in the second and third
quarter of 2012. Commercial management includes, among other
things, negotiating charters for vessels, monitoring the
performance of vessels under charter, managing our relationships
with charterers, obtaining insurance coverage for our vessels,
as well as supervision of the technical management of the
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. Our Manager also provides to us accounting,
administrative, financial reporting and other services necessary
for the operation of our business. We actively monitor the
performance of our Manager. We believe that the fees and
commissions we pay under the Administrative Services Agreement,
Broker Services Agreement and Vessel Management Agreements are
consistent with fees and commissions charged by third party
managers and are consistent with fees and commissions charged by
DSS to Diana Shipping. Please see
Administrative Services Agreement,
Broker Services Agreement and
Vessel Management Agreements.
Administrative
Services Agreement
On April 6, 2010, we entered into an Administrative
Services Agreement with DSS, a wholly-owned subsidiary of Diana
Shipping, whereby DSS provides to us accounting, administrative,
financial reporting and other services necessary for the
operation of our business. We actively monitor the performance
of our Manager. We have agreed to pay our Manager a monthly fee
of $10,000 for these administrative services. The initial term
of the agreement is for a period of one year and will
automatically renew for successive twelve month periods unless
the agreement is terminated as provided therein. The agreement
may be terminated by the Company (i) upon thirty days
written notice to the Manager; (ii) if the Manager
materially breaches the agreement and such breach is not
resolved within ninety days; (iii) if the Manager has been
convicted of or entered a plea of guilty or nolo contendere
with respect to a crime and such occurrence is materially
injurious to the Company; (iv) if the holders of a majority
of the Companys outstanding common shares elect to
terminate the agreement; (v) if the Manager commits fraud,
gross negligence or commits an act of willful misconduct, and
the Company is materially injured thereby; (vi) if the
Manager becomes insolvent; or (vi) if there is a
change of control (as defined therein) of the
Manager. The Administrative Services Agreement may be terminated
by the Manager
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(i) after the expiration of the initial term, with six
months notice to the Company; (ii) if the Company
materially breaches the agreement and such breach is not
resolved within ninety days; or (iii) at any time upon the
earlier to occur of (a) the occurrence of a change of
control of the Company; (b) the Managers receipt of
written notice from the Company that a change of control will
occur until sixty (60) days after the later of (1) the
occurrence of such a change of control or (2) the
Managers receipt of the written notice in the preceding
clause (b). If the Company has knowledge that a change of
control of the Company will occur, the Company is required to
give prompt written notice thereof to the Manager.
Broker
Services Agreement
On June 1, 2010, we terminated our existing Consultancy
Agreements with companies controlled by each of the executive
officers and that services that were previously provided to the
Company by the consultants are provided by DSS under the
Administrative Services Agreement. DSS has appointed Diana
Enterprises Inc., a related party controlled by our Chief
Executive Officer and Chairman, Mr. Symeon Palios, as
broker to assist it in providing these services to the Company
pursuant to the Broker Services Agreement, dated June 1,
2010. Pursuant to the agreement, DSS is obligated to pay a
commission to Diana Enterprises in the amount of $260,000 per
quarter for a term of five years. The commission shall increase
to $325,000 per quarter following the completion of this public
offering. DSS may pay additional commissions with respect to a
transaction as the same may be agreed in writing. In the event
that Diana Enterprises terminates the agreement within six
months following a Change of Control (as defined in the
agreement), Diana Enterprises shall be entitled to a lump sum
payment equal to three years annual commission.
Vessel
Management Agreements
DSS also provides commercial and technical management services
for our vessels under separate vessel management agreements with
our vessel owning subsidiaries. The vessel management agreements
continue unless terminated by either party giving three
months written notice; provided that we may terminate the
agreement without such notice upon payment to the Manager of a
fee equal to the average management fees paid to the Manager
over during the last three full months immediately preceding
such termination. Commercial management includes, among other
things, negotiating charters for vessels, monitoring the
performance of vessels under charter, and managing our
relationships with charterers, obtaining insurance coverage for
our vessels, as well as supervision of the technical management
of the 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. Pursuant to each vessel management agreement,
DSS receives a commission of 1% of the gross charterhire and
freight earned by the vessel and a technical management fee of
$15,000 per vessel per month for employed vessels and will
receive $20,000 per vessel per month for
laid-up
vessels, if any. We do not expect to pay management fees for
vessels that may be employed under bareboat charters in the
future. We may, from time to time, request additional services
offered by our Manager, in which case we expect we will pay fees
in accordance with industry practice for these services.
Non-Competition
Agreement
We and Diana Shipping have entered into a non-competition
agreement whereby we have agreed that, during the term of the
Administrative Services Agreement and any vessel management
agreements we enter into with DSS, and for six months
thereafter, we will not acquire or charter any vessel, or
otherwise operate in, the drybulk sector and Diana Shipping will
not acquire or charter any vessel, or otherwise operate in, the
containership sector.
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Potential
Conflicts of Interest
Our officers and directors have fiduciary duties to manage our
business in a manner beneficial to us and our shareholders.
However, our Chief Executive Officer and Chairman, President,
Chief Operating Officer and Chief Financial Officer also serve
as executive officers
and/or
directors of Diana Shipping. As a result, these individuals have
fiduciary duties to manage the business of Diana Shipping and
its affiliates in a manner beneficial to such entities and their
shareholders. Consequently, these officers and directors may
encounter situations in which their fiduciary obligations to
Diana Shipping and us are in conflict. Although Diana Shipping
is contractually restricted from competing with us in the
containership sector, there may be other business opportunities
for which Diana Shipping may compete with us such as hiring
employees, acquiring other businesses, or entering into joint
ventures, which could have a material adverse effect on our
business. In addition, we are contractually restricted from
competing with Diana Shipping in the drybulk carrier sector,
which limits our ability to expand our operations.
Corporate
Structure
We are a corporation incorporated under the laws of the Republic
of the Marshall Islands on January 7, 2010. Each of our
vessels is owned by separate wholly-owned subsidiaries.
We maintain our principal executive offices at Pendelis 16, 175
64 Palaio Faliro, Athens, Greece. Our telephone number at that
address is 011 30 210 947 0000. Our office space is provided to
us by DSS pursuant to our Administrative Services Agreement with
DSS.
Crewing
and Employees
We currently have no employees. DSS, through the Broker Services
Agreement with Diana Enterprises and through the Administrative
Services Agreement is responsible to provide our executive
officers and other services to us and through the Vessel
Management Agreements is responsible for recruiting, either
directly or through a technical manager or a crew manager, the
senior officers and all other crew members for the vessels in
our fleet. DSS has the responsibility to ensure that all seamen
have the qualifications and licenses required to comply with
international regulations and shipping conventions, and that the
vessels are manned by experienced and competent and trained
personnel. DSS is also responsible for ensuring that
seafarers wages and terms of employment conform to
international standards or to general collective bargaining
agreement to allow unrestricted worldwide trading of the vessels.
Competition
We operate in markets that are highly competitive and based
primarily on supply and demand. Generally, we compete for
charters based upon price, customer relationships, operating
expertise, professional reputation and size, age and condition
of the vessel. Competition for providing containership services
comes from a number of shipping companies.
The containership sector of the international shipping industry
is characterized by the significant time necessary to develop
the operating expertise and professional reputation necessary to
obtain and retain customers and, in the past a relative scarcity
of secondhand containerships, which necessitated reliance on
newbuildings which can take a number of years to complete. We
intend to focus on mid-sized TEU capacity containerships ranging
from 2,500 to 7,500 TEU, which we believe have fared better than
smaller vessels during global downturns in the containership
sector. We believe larger containerships, even older
containerships if well maintained, provide us with increased
flexibility and more stable cash flows than smaller TEU capacity
containerships.
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Our
Customers
Our customers include national, regional and international
companies, such as Maersk and CSAV. We believe that developing
strong relationships with the end users of our services allows
us to better satisfy their needs with appropriate and capable
vessels. A prospective charterers financial condition,
creditworthiness, reliability and track record are important
factors in negotiating our vessels employment.
Environmental
and Other Regulations
Government regulation significantly affects the ownership and
operation of our vessels. We are subject to international
conventions and treaties, and, in the countries in which our
vessels may operate or are registered, national, state and local
laws and regulations in force in the countries in which our
vessels may operate or are registered relating to safety and
health and environmental protection, including the storage,
handling, emission, transportation and discharge of hazardous
and non-hazardous materials, and the remediation of
contamination and liability for damage to natural resources.
Compliance with such laws, regulations and other requirements
entails significant expense, including vessel modifications and
implementation of certain operating procedures.
A variety of governmental and private entities subject our
vessels to both scheduled and unscheduled inspections. These
entities include the local port authorities, (applicable
national authorities such as the U.S. Coast Guard and
harbor masters), classification societies, flag state
administrations (countries of registry) and charterers. Some of
these entities require us to obtain permits, licenses,
certificates or approvals for the operation of our vessels. Our
failure to maintain necessary permits, licenses, certificates,
approvals or financial assurances could require us to incur
substantial costs or temporarily suspend operation of one or
more of the vessels in our fleet, or lead to the invalidation or
reduction of our insurance coverage.
In recent periods, heightened levels of environmental and
operational safety concerns among insurance underwriters,
regulators and charterers have led to greater inspection and
safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the shipping industry.
Increasing environmental concerns have created a demand for
vessels that conform to the stricter environmental standards. We
believe that the operation of our vessels will be in substantial
compliance with applicable environmental laws and regulations
and that our vessels will have all material permits, licenses,
certificates or other authorizations necessary for the conduct
of our operations. However, because such laws and regulations
are frequently changed and may impose increasingly strict
requirements, we cannot predict the ultimate cost of complying
with these requirements, or the impact of these requirements on
the re-sale value or useful lives of our vessels. In addition, a
future serious marine incident, such as the 2010 Deepwater
Horizon oil spill, that results in significant oil pollution or
otherwise causes significant adverse environmental impact could
result in additional legislation or regulation that could
negatively affect our profitability.
International
Maritime Organization (IMO)
The IMO, the United Nations agency for maritime safety and the
prevention of pollution, has adopted the International
Convention for the Prevention of Pollution from Ships, or
MARPOL, which has been updated through various amendments.
MARPOL establishes environmental standards relating to oil
leakage or spilling, garbage management, sewage, air emissions,
handling and disposal of noxious liquids and the handling of
harmful substances in packaged forms. For example,
Annex III of MARPOL regulates the transportation of
packaged dangerous goods (marine pollutants) and includes
standards on packing, marking, labeling, documentation, stowage,
quantity limitations and pollution prevention.
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Air
Emissions
In September 1997, the IMO adopted Annex VI to MARPOL to
address air pollution from ships. Effective May 2005,
Annex VI sets limits on sulfur oxide and nitrogen oxide
emissions from all commercial vessel exhausts and prohibits
deliberate emissions of ozone depleting substances (such as
halons and chlorofluorocarbons), emissions of volatile organic
compounds from cargo tanks, and the shipboard incineration of
specific substances. Annex VI also includes a global cap on
the sulfur content of fuel oil and allows for special areas to
be established with more stringent controls on sulfur emissions.
Additional or new conventions, laws and regulations may be
adopted that could require the installation of expensive
emission control systems and adversely affect our business, cash
flows, results of operations and financial condition. In October
2008, the IMO adopted amendments to Annex VI regarding
emissions of sulfur oxide, nitrogen oxide, particulate matter
and ozone-depleting substances, which amendments entered into
force on July 1, 2010. The amended Annex VI will
reduce air pollution from vessels by, among other things,
(i) implementing a progressive reduction of sulfur oxide,
emissions from ships, by reducing the sulfur fuel cap with the
global sulfur cap reduced initially to 3.50% (from the current
cap of 4.50%), effective from January 1, 2012, then
progressively to 0.50%, effective from January 1, 2020,
subject to a feasibility review to be completed no later than
2018; and (ii) establishing new tiers of stringent nitrogen
oxide emissions standards for new marine engines, depending on
their date of installation. U.S. air emissions standards
are now equivalent to these amended Annex VI requirements.
More stringent emission controls may be required in designated
Emission Control Areas, such as the area extending 200 nautical
miles from the Atlantic Gulf and Pacific Coast of the
United States and Canada and the Hawaiian Islands. We may
incur costs to comply with these amended Annex VI standards.
Safety
Management System Requirements
The IMO also adopted the International Convention for the Safety
of Life at Sea, or SOLAS, and the International Convention on
Load Lines, or LL, which impose a variety of standards that
regulate the design and operational features of ships. The IMO
periodically revises the SOLAS and LL standards.
Our operations are also subject to environmental standards and
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 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 rely upon the safety management
system that we and our technical manager implements for
compliance with the ISM Code. The failure of a ship owner or
bareboat charterer to comply with the ISM Code may subject such
party to increased liability, may decrease available insurance
coverage for the affected vessels and may result in a denial of
access to, or detention in, certain ports.
The ISM Code requires that vessel operators also obtain a safety
management certificate for each vessel they operate. This
certificate evidences compliance by a vessels management
with code requirements for a safety management system. No vessel
can obtain a certificate unless its manager has been awarded a
document of compliance, issued by each flag state, under the ISM
Code. We believe that we have all material requisite documents
of compliance for our offices and safety management certificates
for all of our vessels for which such certificates are required
by the ISM Code. We will renew these documents of compliance and
safety management certificates as required.
Noncompliance with the ISM Code and other IMO regulations may
subject the shipowner or bareboat charterer to increased
liability, may lead to decreases in, or invalidation of,
available insurance coverage for affected vessels and may result
in the denial of access to, or detention in, some ports. The
U.S. Coast Guard and European Union authorities have
indicated that vessels not in compliance with the ISM Code by
the applicable deadlines will be prohibited from trading in
U.S. and European Union ports, as the case may be.
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Pollution
Control and Liability Requirements
IMO has negotiated international conventions that impose
pollution control and liability in international waters and the
territorial waters of the signatory nations to such conventions.
For example, many countries have ratified and follow the
liability plan adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution
Damage, or the CLC, although the United States is not a
party. Under this convention and depending on whether the
country in which the damage results is a party to the 1992
Protocol to the CLC, a vessels registered owner is
strictly liable, subject to certain defenses, for pollution
damage caused in the territorial waters of a contracting state
by discharge of persistent oil. The limits on liability outlined
in the 1992 Protocol use the International Monetary Fund
currency unit of Special Drawing Rights, or SDR. The right to
limit liability is forfeited under the CLC where the spill is
caused by the shipowners actual fault and under the 1992
Protocol where the spill is caused by the shipowners
intentional or reckless conduct. Vessels trading with states
that are parties to these conventions must provide evidence of
insurance covering the liability of the owner. In jurisdictions
where the CLC has not been adopted, various legislative schemes
or common law govern, and liability is imposed either on the
basis of fault or in a manner similar to that of the CLC. We
believe that our protection and indemnity insurance will cover
the liability under the plan adopted by the IMO.
The IMO adopted the International Convention on Civil Liability
for Bunker Oil Pollution Damage, or the Bunker Convention, to
impose strict liability on ship owners for pollution damage in
jurisdictional waters of ratifying states caused by discharges
of bunker fuel. The Bunker Convention, which became effective on
November 21, 2008, 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 (but not
exceeding the amount calculated in accordance with the
Convention on Limitation of Liability for Maritime Claims of
1976, as amended). With respect to non-ratifying states,
liability for spills or releases of oil carried as fuel in
ships bunkers typically is determined by the national or
other domestic laws in the jurisdiction where the events or
damages occur.
In addition, IMO adopted an International Convention for the
Control and Management of Ships Ballast Water and
Sediments, or BWM, in February 2004. BWMs implementing
regulations call for a phased introduction of mandatory ballast
water exchange requirements, to be replaced in time with
mandatory concentration limits. BWM will not become effective
until 12 months after it has been adopted by
30 states, the combined merchant fleets of which represent
not less than 35% of the gross tonnage of the worlds
merchant shipping. To date, there has not been sufficient
adoption of this standard for it to take force. However, the
IMOs Marine Environment Protection Committee passed a
resolution in March 2010 encouraging the ratification of the
Convention and calling upon those countries that have already
ratified to encourage the installation of ballast water
management systems. If ballast water treatment requirements
become mandatory, the cost of compliance could increase for
ocean carriers.
The IMO continues to review and introduce new regulations. It is
impossible to predict what additional regulations, if any, may
be passed by the IMO and what effect, if any, such regulations
might have on our operations.
U.S.
Regulations
The U.S. Oil Pollution Act of 1990, or OPA, established an
extensive regulatory and liability regime for the protection and
cleanup of the environment from oil spills. OPA affects all
owners and operators whose vessels trade in the United States,
its territories and possessions or whose vessels operate in
U.S. waters, which includes the U.S. territorial sea
and its 200 nautical mile exclusive economic zone. The United
States has also enacted the Comprehensive Environmental
Response, Compensation and Liability Act, or CERCLA, which
applies to the discharge of hazardous substances other than oil,
whether on land or at sea. Although OPA is primarily directed at
oil tankers (which are not operated by us), it also
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applies to non-tanker ships, including containerships, with
respect to the fuel oil, or bunkers, used to power such ships.
CERCLA also applies to our operations.
Under OPA, vessel owners, operators and bareboat charterers are
responsible parties and are jointly, severally and
strictly liable (unless the spill results solely from the act or
omission of a third party, an act of God or an act of war) for
all containment and
clean-up
costs and other damages arising from discharges or threatened
discharges of oil from their vessels. OPA defines these other
damages broadly to include:
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natural resources damage and related assessment costs;
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real and personal property damage;
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net loss of taxes, royalties, rents, fees and other lost
revenues;
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lost profits or impairment of earning capacity due to property
or natural resources damage; and
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net cost of public services necessitated by a spill response,
such as protection from fire, safety or health hazards, and loss
of subsistence use of natural resources.
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Effective July 31, 2009, the U.S. Coast Guard adjusted
the limits of OPA liability for non-tank vessels to the greater
of $1,000 per gross ton or $0.85 million per non-tank
vessel that is over 3,000 gross tons (subject to possible
adjustment for inflation), and we expect our fleet will be
composed of such vessels. CERCLA, which applies to owners and
operators of vessels, contains a similar liability regime and
provides for cleanup, removal and natural resource damages.
Liability under CERCLA is limited to the greater of $300 per
gross ton or $5 million for vessels carrying a hazardous
substance as cargo and the greater of $300 per gross ton or
$0.5 million for any other vessel. These OPA and CERCLA
limits of liability do not apply if an incident was directly
caused by violation of applicable U.S. federal safety,
construction or operating regulations or by a responsible
partys gross negligence or willful misconduct, or if the
responsible party fails or refuses to report the incident or to
cooperate and assist in connection with oil removal activities.
OPA and the U.S. Coast Guard also require owners and
operators of vessels to establish and maintain with the
U.S. Coast Guard evidence of financial responsibility
sufficient to meet the limit of their potential liability under
OPA and CERCLA.
We maintain pollution liability coverage insurance in the amount
of $1 billion per incident for each of our vessels. If the
damages from a catastrophic spill were to exceed our insurance
coverage, it could have a material adverse effect on our
business, financial condition, results of operations and cash
flows.
The U.S. Clean Water Act, or CWA, prohibits the discharge
of oil or hazardous substances in U.S. navigable waters
unless authorized by a duly-issued permit or exemption, and
imposes strict liability in the form of penalties for any
unauthorized discharges. The CWA also imposes substantial
liability for the costs of removal, remediation and damages and
complements the remedies available under OPA and CERCLA.
The Environmental Protection Agency, or EPA, regulates the
discharge of ballast water and other substances in
U.S. waters under the CWA. Effective February 6, 2009,
EPA regulations require vessels 79 feet in length or longer
(other than commercial fishing and recreational vessels) to
comply with a Vessel General Permit authorizing ballast water
discharges and other discharges incidental to the operation of
vessels. The Vessel General Permit imposes technology and
water-quality based non-numeric effluent limits for certain
types of discharges and establishes specific inspection,
monitoring, recordkeeping and reporting requirements to ensure
the effluent limits are met. However, because of a March 2011
settlement, the EPA has agreed to establish numeric
concentration-based effluent limits by November 2012. Further,
as one of the conditions of the Vessel General Permit,
permittees must comply with all U.S. Coast Guard mandatory
ballast water requirements. U.S. Coast Guard regulates
ballast water under the National Invasive Species Act by
requiring mandatory saltwater flushing, but it does not
currently impose numeric limits. However, the U.S. Coast
Guard proposed a rule that, if finalized as
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proposed, will implement more stringent ballast water
requirements in two phases. Phase one would become effective in
January 2012 and reflects the mandatory concentration limits of
the IMOs BWM Convention discussed above. Phase two would
become effective in January 2016 and could establish a standard
that is 1,000 times more stringent than the phase one standard.
European
Union Regulations
In October 2009, the European Union amended a directive to
impose criminal sanctions for illicit ship-source discharges of
polluting substances, including minor discharges, if committed
with intent, recklessly or with serious negligence and the
discharges individually or in the aggregate result in
deterioration of the quality of water. Criminal liability for
pollution may result in substantial penalties or fines and
increased civil liability claims.
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 vessels. In the United
States, the EPA has issued a finding that greenhouse gases
endanger the public health and safety and has been petitioned,
and had been threatened with a potential lawsuit, by the
California Attorney General to regulate greenhouse gas emissions
from ocean-going vessels. 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
has been a variety of initiatives intended to enhance vessel
security. On November 25, 2002, the U.S. Maritime
Transportation Security Act of 2002, or the MTSA, came into
effect. To implement certain portions of the MTSA, in July 2003,
the U.S. Coast Guard issued regulations requiring the
implementation of certain security requirements aboard vessels
operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created
a new chapter of the convention dealing specifically with
maritime security. The new chapter became effective in July 2004
and imposes various detailed security obligations on vessels and
port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the
ISPS Code. The ISPS Code is designed to protect ports and
international shipping against terrorism. After July 1,
2004, to trade internationally, a vessel must attain an
International Ship Security Certificate from a recognized
security organization approved by the vessels flag state.
Among the various requirements are:
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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 ships and shore
stations, including information on a ships identity,
position, course, speed and navigational status;
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on-board installation of ship security alert systems, which do
not sound on the vessel but only alert the authorities on shore;
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the development of vessel security plans;
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ship identification number to be permanently marked on a
vessels hull;
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a continuous synopsis record kept onboard showing a
vessels history including the name of the ship and of the
state whose flag the ship is entitled to fly, the date on which
the ship was
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registered with that state, the ships identification
number, the port at which the ship is registered and the name of
the registered owner(s) and their registered address; and
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compliance with flag state security certification requirements.
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The U.S. Coast Guard regulations, intended to align with
international maritime security standards, exempt from MTSA
vessel security measures
non-U.S. vessels
that have on board, as of July 1, 2004, a valid
International Ship Security Certificate attesting to the
vessels compliance with SOLAS security requirements and
the ISPS Code. We intend to implement the various security
measures addressed by the MTSA, SOLAS and the ISPS Code.
Inspection
by Classification Societies
Every oceangoing vessel must be classed by a
classification society. The classification society certifies
that the vessel is in class, signifying that the
vessel has been built and maintained in accordance with the
rules of the classification society and complies with applicable
rules and regulations of the vessels country of registry
and the international conventions of which that country is a
member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag
state, the classification society will undertake them on
application or by official order, acting on behalf of the
authorities concerned.
The classification society also undertakes on request other
surveys and checks that are required by regulations and
requirements of the flag state. These surveys are subject to
agreements made in each individual case
and/or to
the regulations of the country concerned.
For maintenance of the class certification, regular and
extraordinary surveys of hull, machinery, including the
electrical plant, and any special equipment classed are required
to be performed as follows:
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Annual Surveys: For seagoing ships,
annual surveys are conducted for the hull and the machinery,
including the electrical plant, and where applicable for special
equipment classed, at intervals of 12 months from the date
of commencement of the class period indicated in the certificate.
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Intermediate Surveys: Extended annual
surveys are referred to as intermediate surveys and typically
are conducted two and one-half years after commissioning and
each class renewal. Intermediate surveys may be carried out on
the occasion of the second or third annual survey.
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Class Renewal Surveys: Class
renewal surveys, also known as special surveys, are carried out
for the ships hull, machinery, including the electrical
plant, and for any special equipment classed, at the intervals
indicated by the character of classification for the hull. At
the special survey, the vessel is thoroughly examined, including
audio-gauging to determine the thickness of the steel
structures. Should the thickness be found to be less than class
requirements, the classification society would prescribe steel
renewals. The classification society may grant a one-year grace
period for completion of the special survey. Substantial amounts
of money may have to be spent for steel renewals to pass a
special survey if the vessel experiences excessive wear and
tear. In lieu of the special survey every four or five years,
depending on whether a grace period was granted, a shipowner has
the option of arranging with the classification society for the
vessels hull or machinery to be on a continuous survey
cycle, in which every part of the vessel would be surveyed
within a five-year cycle. Upon a shipowners request, the
surveys required for class renewal may be split according to an
agreed schedule to extend over the entire period of class. This
process is referred to as continuous class renewal.
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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.
Vessels have their underwater parts inspected every 30 to
36 months. Depending on the vessels age and other
factors, this inspection can often be done afloat with minimal
disruption to the vessels
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commercial deployment. However, vessels are required to be
drydocked, meaning physically removed from the water, for
inspection and related repairs at least once every five years
from delivery. If any defects are found, the classification
surveyor will issue a recommendation which must be rectified by
the ship owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance
coverage that a vessel be certified as in class by a
classification society which is a member of the International
Association of Classification Societies. All new and secondhand
vessels that we purchase must be certified prior to their
delivery under our standard agreements.
100%
Container Screening
The United States signed into law the
9/11
Commission Act on August 3, 2007. The Act requires that all
containers destined to the United States be scanned by x-ray
machines before leaving port. This new requirement for 100%
scanning is set to take effect in 2014. Ports that ship to the
United States will likely have to install new x-ray machines and
make infrastructure changes in order to accommodate the
screening requirements. Such implementation requirements may
change which ports are able to ship to the United States and
shipping companies may incur significant increased costs. It is
impossible to predict how this requirement will affect the
industry as a whole, but changes and additional costs can be
reasonably expected.
Risk of
Loss and Insurance Coverage
General
The operation of any containership 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
vessels trading in the United States exclusive economic zone for
certain oil pollution accidents in the United States, has made
liability insurance more expensive for ship owners and operators
trading in the United States market.
While we plan to maintain hull and machinery insurance, war
risks insurance, protection and indemnity cover, increased value
insurance and freight, demurrage and defense cover for our
vessels that we acquire in amounts that we believe to be prudent
to cover normal risks in our operations, we may not be able to
achieve or maintain this level of coverage throughout a
vessels useful life. Furthermore, while we plan to procure
adequate insurance coverage, not all risks can be insured, and
there can be no guarantee that any specific claim will be paid,
or that we will always be able to obtain adequate insurance
coverage at reasonable rates.
Hull
and Machinery and War Risks Insurance
We plan to maintain for any vessels we acquire marine hull and
machinery and war risks insurance, which would cover the risk of
actual or constructive total loss. We expect that any vessels we
acquire would be covered up to at least fair market value with
deductibles which vary according to the size and value of the
vessel. We also plan to maintain increased value coverage for
any vessels we acquire. Under this increased value coverage, in
the event of total loss of a vessel, we would be entitled to
recover amounts not recoverable under our hull and machinery
policy due to under-insurance.
Protection
and Indemnity Insurance
Protection and indemnity insurance is generally provided by
mutual protection and indemnity associations, or P&I
Associations, which insure our third party liabilities in
connection with our shipping
93
activities. This includes third-party liability and other
related expenses resulting from the injury or death of crew,
passengers and other third parties, the loss or damage to cargo,
claims arising from collisions with other vessels, damage to
other third-party property, pollution arising from oil or other
substances and salvage, towing and other related costs,
including wreck removal. Protection and indemnity insurance is a
form of mutual indemnity insurance, extended by protection and
indemnity mutual associations, or clubs.
We procure protection and indemnity insurance coverage for
pollution in the amount of $1 billion per vessel per
incident. The 13 P&I Associations that comprise the
International Group insure approximately 90% of the worlds
commercial tonnage and have entered into a pooling agreement to
reinsure each associations liabilities. As a member of a
P&I Association which is a member of the International
Group, we are subject to calls payable to the associations based
on the groups claim records as well as the claim records
of all other members of the individual associations and members
of the pool of P&I Associations comprising the
International Group. Supplemental calls are made by the P&I
Association based on estimates of premium income and anticipated
and paid claims and such estimates are adjusted each year by the
Board of Directors of the P&I Association until the closing
of the relevant policy year, which generally occurs within three
years from the end of the policy year. The Standard Steamship
Owners Protection & Indemnity Association
(Bermuda) Limited, the P&I Association in which the
Companys vessels are entered, did not charge any
supplemental calls for the 2007/08, 2008/09, or
2009/10
policy years. The Company does not know whether any supplemental
calls will be charged in respect of
2010/11 or
2011/12, which are the first two years in which the
Companys vessels were entered with the P&I
Association. To the extent we experience supplemental calls; our
policy is to expense such amounts.
Properties
We have no material properties other than our vessels.
Legal
Proceedings
We have not been involved in any legal proceedings which may
have, or have had a significant effect on our business,
financial position, results of operations or liquidity, nor are
we aware of any proceedings that are pending or threatened which
may have a significant effect on our business, financial
position, results of operations or liquidity. From time to time,
we may be subject to legal proceedings and claims in the
ordinary course of business, principally personal injury and
property casualty claims. We expect that these claims would be
covered by insurance, subject to customary deductibles. Those
claims, even if lacking merit, could result in the expenditure
of significant financial and managerial resources.
Exchange
Controls
Under Republic of the 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
non-resident holders of our common stock.
94
MANAGEMENT
Directors
and Senior Management
Set forth below are the names and positions of our directors and
executive officers. Our board of directors is elected annually
on a staggered basis, and each director elected holds office for
a three year term. Our officers are appointed from time to time
by the respective board of directors and hold office until a
successor is elected.
All of our executive officers are also executive officers of
Diana Shipping.
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Name
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Age
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Position
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Symeon Palios
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70
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Class III Director, Chief Executive Officer and Chairman
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Anastasios Margaronis
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55
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Class II Director and President
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Ioannis Zafirakis
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39
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Class I Director, Chief Operating Officer and Secretary
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Andreas Michalopoulos
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40
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Chief Financial Officer and Treasurer
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Giannakis Evangelou
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66
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Class III Director
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Antonios Karavias
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69
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Class I Director
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Nikolaos Petmezas
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62
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Class III Director
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Reidar Brekke
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50
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Class II Director
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Biographical information concerning the directors and executive
officers listed above is set forth below. The term of our
Class I directors expires in 2011, the term of our
Class II directors expires in 2012 and the term of our
Class III directors expires in 2013.
Symeon Palios has served as our Chief Executive
Officer and Chairman since January 13, 2010 and has served
as Chief Executive Officer and Chairman of Diana Shipping since
February 21, 2005 and as a Director of that company since
March 9, 1999. Mr. Palios also serves as an employee
of DSS. Prior to November 12, 2004, Mr. Palios was the
Managing Director of Diana Shipping Agencies S.A. and performed
on our behalf the services he now performs as Chief Executive
Officer. Since 1972, when he formed Diana Shipping Agencies,
Mr. Palios has had the overall responsibility of our
activities. Mr. Palios has 40 years experience
in the shipping industry and expertise in technical and
operational issues. He has served as an ensign in the Greek Navy
for the inspection of passenger boats on behalf of Ministry of
Merchant Marine and is qualified as a naval architect and
engineer. Mr. Palios is a member of various leading
classification societies worldwide and he is a member of the
board of directors of the United Kingdom Freight Demurrage and
Defense Association Limited. He holds a bachelors degree
in Marine Engineering from Durham University.
Anastasios Margaronis has served as our Director
and President since January 13, 2010 and has served in
these positions with Diana Shipping since February 21,
2005. Mr. Margaronis also serves as an employee of DSS.
Prior to February 21, 2005, Mr. Margaronis was
employed by Diana Shipping Agencies S.A. and performed on our
behalf the services he now performs as President. He joined
Diana Shipping Agencies in 1979 and has been responsible for
overseeing our insurance matters, including hull and machinery,
protection and indemnity and war risks cover.
Mr. Margaronis has31 years of experience in shipping,
including in ship finance and insurance. He is a member of the
Greek National Committee of the American Bureau of Shipping and
a member of the board of directors of the United Kingdom Mutual
Steam Ship Assurance Association (Bermuda) Limited. He holds a
bachelors degree in Economics from the University of
Warwick and a masters of science degree in Maritime Law
from the Wales Institute of Science and Technology.
Ioannis Zafirakis has served as our Director,
Chief Operating Officer and Secretary since January 13,
2010 and has served as Director and Executive Vice President and
Secretary of Diana Shipping since February 14, 2008, as the
Vice President and Secretary of that company since
February 21, 2005 and as a director of that company since
March 9, 1999. Mr. Zafirakis also serves as an
employee of DSS. Prior to February 21, 2005,
Mr. Zafirakis was employed by Diana Shipping Agencies S.A.
and performed on the behalf of Diana Shipping the services he
now performs as Executive Vice
95
President of that company. He joined Diana Shipping Agencies
S.A. in 1997 where he held a number of positions in its finance
and accounting department. He holds a bachelors degree in
Business Studies from City University Business School in London
and a masters degree in International Transport from the
University of Wales in Cardiff.
Andreas Michalopoulos has served as our Chief
Financial Officer and Treasurer since January 13, 2010 and
has served in these positions with Diana Shipping since
March 8, 2006. Mr. Michalopoulos started his career in
1993 where he joined Merrill Lynch Private Banking in Paris. In
1995, he became an International Corporate Auditor with Nestle
SA based in Vevey, Switzerland and moved in 1998 to the position
of Trade Marketing and Merchandising Manager. From 2000 to 2002,
he worked for McKinsey and Company in Paris, France as an
Associate Generalist Consultant before joining from 2002 to
2005, a major Greek Pharmaceutical Group with U.S. R&D
activity as a Vice President International Business Development
and Member of the Executive Committee. From 2005 to 2006, he
joined Diana Shipping Agencies as a Project Manager.
Mr. Michalopoulos has graduated from Paris IX Dauphine
University with Honors in 1993 obtaining a MSc in Economics and
a masters degree in Management Sciences specialized in
Finance. In 1995, he also obtained a masters degree in
business administration from Imperial College, University of
London. Mr. Andreas Michalopoulos is married to the
youngest daughter of Mr. Symeon Palios.
Giannakis (John) Evangelou has served as an
independent Director and as the Chairman of our Audit Committee
since February 2011. Mr. Evangelou retired from
Ernst & Young (Hellas), which he joined as a partner
in 1998, on June 30, 2010. During his 12 years at
Ernst & Young, he acted as Transaction Support leader
for Greece and a number of countries in Southeast Europe
including Turkey, Bulgaria, Romania and Serbia. In addition to
his normal duties as a partner John held the position of Quality
and Risk Management leader for Transaction Advisory Services
responsible for a
sub-area
comprising 18 countries spanning from Poland and the Baltic in
the North to Cyprus and Malta in the South. From 1986 through
1997, Mr. Evangelou held the position of Group Finance
director at Manley Hopkins Group, a Marine Services Group of
Companies. From 1991 through 1997, Mr. Evangelou served as
Chief Accounting Officer for Global Ocean Carriers, a shipping
company that was listed on a U.S. stock exchange during
that time. From 1996 to 1998, Mr. Evangelou was an
independent consultant and a member of the team that prepared
Royal Olympic Cruises for its listing on Nasdaq. From 1974
through 1986, Mr. Evangelou was a partner of Moore Stephens
P.C. Additionally, Mr. Evangelou is a Fellow of the
Institute of Chartered Accountants in England and Wales and a
member of the Institute of Certified Accountants
Auditors of Greece.
Antonios Karavias has served as an independent
Director and as the Chairman of our Compensation Committee and
member of our Audit Committee since the completion of the
private offering. Since 2007 Mr. Karavias has served as an
Independent Advisor to the Management of Société
Générale Bank and Trust and Marfin Egnatia Bank.
Previously, Mr. Karavias was with Alpha Bank from 1999 to
2006 as a Deputy Manager of Private Banking and with Merrill
Lynch as a Vice President from 1980 to 1999. He holds a
bachelors degree in Economics from Mississippi State
University and a masters degree in Economics from Pace
University.
Nikolaos Petmezas has served as an independent
Director and as a member of our Compensation Committee since the
completion of the private offering. Mr. Petmezas has served
since 2001 as the Chief Executive Officer of
Maersk-Svitzer-Wijsmuller B.V. and, prior to its acquisition by
Maersk, as a Partner and as Chief Executive Officer of
Wijsmuller Shipping Company B.V. He has also served since 1989
as the Chief Executive Officer of N.G. Petmezas Shipping and
Trading, S.A., and since 1984 as the Chief Executive Officer of
Shipcare Technical Services Shipping Co. LTD. Since 1995
Mr. Petmezas has served as well as the Managing Director of
Kongsberg Gruppen A.S. (Hellenic Office) and, from 1984 to 1995,
as the Managing Director of Kongsberg Vaapenfabrik A.S.
(Hellenic Branch Office). Mr. Petmezas served on the Board
of Directors of Neorion Shipyards, in Syros, Greece from 1989 to
1992. Mr. Petmezas began his career in shipping in 1977,
holding sales positions at Austin & Pickersgill Ltd.
and British Shipbuilders Corporation until 1983.
Mr. Petmezas has been an Advisor at Westinghouse Electric
and Northrop Grumman since 1983 and a Honorary Consul under the
General Consulate of Sri Lanka in
96
Greece since 1995. Mr. Petmezas holds degrees in Law and in
Political Sciences and Economics from the Aristotle University
of Thessaloniki and an LL.M. in Shipping Law from London
University.
Reidar Brekke has served as an independent
Director since June 1, 2010. Mr. Brekke has been an
advisor and deal-maker in the international energy and
transportation sector for the last 15 years. He founded
Energy Capital Services Inc., or ECS, Inc., in March 2008 which
provides strategic and financial advisory services to
international shipping and energy related companies. In
addition, he served as President of ECS Inc., a shipping and
energy industry consulting and advisory services company, from
March 2008 to December 2009. Previously, he served as Manager of
Poten Capital Services LLC, a registered broker-dealer
specializing in the maritime sector, from 2003 to January 2008.
Prior to 2003, Mr. Brekke was Chief Financial Officer, then
President and Chief Operating Officer, of SynchroNet Marine, a
logistics service provider to the global container
transportation industry. From 1994 to 2000, he held several
senior positions with American Marin Advisors, including
Fund Manager of American Shipping Fund I LLC, and
Chief Financial Officer of its broker-dealer subsidiary. Prior
to this, Mr. Brekke was an Advisor for the Norwegian Trade
Commission in New York & Oslo, Norway, and a financial
advisor in Norway. Mr. Brekke graduated from the New Mexico
Military Institute in 1986 and in 1990 he obtained a MBA from
the University of Nevada, Reno. He has been an adjunct professor
at Columbia Universitys School of International and Public
Affairs Center for Energy, Marine Transportation and
Public Policy, and is currently on the board of directors of
three privately-held companies involved in container logistics,
container leasing and drybulk shipping.
Actions
by Our Board of Directors
Our amended and restated bylaws provide that vessel acquisitions
and disposals from or to a related party and long term time
charter employment with any charterer that is a related party
will require the unanimous approval of the independent members
of our Board of Directors and that all other material related
party transactions shall be subject to the approval of a
majority of the independent members of the Board of Directors.
Compensation
of Directors and Senior Management
The members of our senior management are compensated through
their affiliation with Diana Enterprises and its respective
Broker Services Agreement with DSS. The commission payable by
our Manager to Diana Enterprises (for which we reimburse our
Manager) was approximately $0.6 million in 2010. The annual
fee of $1.04 million we pay to Diana Enterprises will
increase to $1.3 million following this offering. Until the
second anniversary of the completion of the private offering,
any increase in these amounts is subject to the approval of the
independent members of our Board of Directors. Diana Enterprises
is a related party controlled by our Chief Executive Officer and
Chairman Mr. Symeon Palios.
Our non-executive directors receive annual compensation in the
aggregate amount of $40,000 plus reimbursement of their
out-of-pocket
expenses incurred while attending any meeting of the board of
directors or any board committee. In addition, a committee
chairman receives an additional $20,000 annually, and other
committee members receive an additional $10,000. We do not have
a retirement plan for our officers or directors.
Committees
of the Board of Directors
We have established an audit committee comprised of two
independent members of our board of directors, who are
responsible for reviewing our accounting controls and
recommending to the board of directors the engagement of our
outside auditors. Our audit committee is responsible for
reviewing all related party transactions for potential conflicts
of interest and all related party transactions will be subject
to the approval of the audit committee. Mr. Giannakis
(John) Evangelou serves as the Chairman of the audit committee,
and Mr. Antonios Kalavrias serves as a member of our audit
committee. We
97
believe that Mr. Evangelou qualifies as an audit committee
financial expert; as such term is defined under Securities and
Exchange Commission rules. We have established a compensation
committee comprised of two independent directors which is
responsible for recommending to the board of directors our
senior executive officers compensation and benefits.
Mr. Antonios Karavias serves as the Chairman of the
compensation committee and Mr. Nikolaos Petmezas serves as
a member of our compensation committee. We have also established
an executive committee comprised of three directors,
Mr. Symeon Palios, Mr. Anastasios Margaronis and
Mr. Ioannis Zafirakis. The executive committee is
responsible for the overall management of our business.
Exemptions
from Certain Corporate Governance Requirements of
Nasdaq.
We have certified to Nasdaq that our corporate governance
practices are in compliance with, and are not prohibited by, the
laws of the Republic of the Marshall Islands. Therefore, we are
exempt from many of Nasdaqs corporate governance practices
other than the requirements regarding the disclosure of a going
concern audit opinion, submission of a listing agreement,
notification to Nasdaq of non-compliance with Nasdaq corporate
governance practices, prohibition on disparate reduction or
restriction of shareholder voting rights, and the establishment
of an audit committee satisfying Nasdaq Listing
Rule 5605(c)(3) and ensuring that such audit
committees members meet the independence requirement of
Listing Rule 5605(c)(2)(A)(ii). The practices we follow in
lieu of Nasdaqs corporate governance rules applicable to
U.S. domestic issuers are as follows:
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As a foreign private issuer, we are not required to have an
audit committee comprised of at least three members. Our audit
committee is comprised of two members.
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As a foreign private issuer, we are not required to adopt a
formal written charter or board resolution addressing the
nominations process. We do not have a nominations committee, nor
have we adopted a board resolution addressing the nominations
process.
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As a foreign private issuer, we are not required to hold
regularly scheduled board meetings at which only independent
directors are present.
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In lieu of obtaining shareholder approval prior to the issuance
of designated securities, we will comply with provisions of the
Marshall Islands Business Corporations Act, which allows the
Board of Directors to approve share issuances.
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As a foreign private issuer, we are not required to solicit
proxies or provide proxy statements to Nasdaq pursuant to Nasdaq
corporate governance rules or Marshall Islands law. Consistent
with Marshall Islands law and as provided in our bylaws, we will
notify our shareholders of meetings between 15 and 60 days
before the meeting. This notification will contain, among other
things, information regarding business to be transacted at the
meeting. In addition, our bylaws provide that shareholders must
give us between 150 and 180 days advance notice to properly
introduce any business at a meeting of shareholders.
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Other than as noted above, we are in compliance with all other
Nasdaq corporate governance standards applicable to
U.S. domestic issuers.
2010
Equity Incentive Plan
We have adopted an equity incentive plan, which we refer to as
the plan, under which directors, officers, employees,
consultants and service providers of us and our subsidiaries and
affiliates will be eligible to receive options to acquire common
stock, stock appreciation rights, restricted stock, restricted
stock units and unrestricted common stock. We have issued or
reserved for issuance a total of 392,198 common shares under the
plan, subject to adjustment for changes in capitalization as
provided in the plan. The plan will be administered by our
compensation committee, or such other committee of our board of
directors as may be designated by the board to administer the
plan. We have issued a total of 213,331 restricted shares under
the plan to our executive officers of which 106,669 shares
have vested.
98
Following this offering we expect to issue an additional 53,333
restricted common shares to our executive officers under the
plan, 25% of which will vest upon the grant of such shares, and
the remainder will vest ratably over three years from their date
of grant.
Under the terms of the plan, stock options and stock
appreciation rights granted under the plan will have an exercise
price per common share equal to the fair market value of a
common share on the date of grant, unless otherwise specifically
provided in an award agreement, but in no event will the
exercise price be less than the greater of (i) the fair
market value of a common share on the date of grant and
(ii) the par value of one share of common stock. 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 ten years from the
date of grant.
The plan administrator may grant shares of restricted stock and
awards of restricted stock units subject to vesting and
forfeiture provisions and other terms and conditions as
determined by the plan administrator in accordance with the
terms of the plan. Following the vesting of a restricted stock
unit, the award recipient will be paid an amount equal to the
number of restricted stock units that then vest multiplied by
the fair market value of a common share on the date of vesting,
which payment may be paid in the form of cash or common shares
or a combination of both, as determined by the plan
administrator. The plan administrator may grant dividend
equivalents with respect to grants of restricted stock units.
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), unless otherwise
provided by the plan administrator in an award agreement, awards
then outstanding will become fully vested and exercisable in
full.
Our board of directors may amend the plan and may amend
outstanding awards, provided that no such amendment may be made
that would materially impair any rights, or materially increase
any obligations, of a grantee under an outstanding award without
the consent of such grantee. Shareholder approval of plan
amendments will be required under certain circumstances. Unless
terminated earlier by our board of directors, the plan will
expire ten years from the date the plan is adopted. The plan
administrator may cancel any award and amend any outstanding
award agreement except no such amendment shall be made without
shareholder approval if such approval is necessary to comply
with any tax or regulatory requirement applicable to the
outstanding award.
99
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In April 2010, we issued in a private offering an aggregate of
3,333,333 common shares to Diana Shipping, which amounted to
approximately 57% of our outstanding common shares, in exchange
for $50.0 million. Diana Shipping distributed 2,667,015 of
these shares to its shareholders as a dividend. Prior to the
completion of this offering, Diana Shipping owns approximately
11.0% of our outstanding shares.
For a description of our Administrative Services Agreement with
Diana Shipping Services S.A., relating to the provision of
administrative services to us, please see
Business Administrative Services
Agreement.
For a description of the Vessel Management Agreements between
our wholly owned subsidiaries and Diana Shipping Services S.A.
relating to the provision of management services for our
vessels, please see Business Vessel Management
Agreements.
For a description of the Broker Services Agreement by and
between DSS and Diana Enterprises Inc., a related party
controlled by our Chief Executive Officer and Chairman
Mr. Symeon Palios, please see Business
Broker Services Agreement.
For a description of our registration rights agreement between
us, FBR Capital Markets & Co. and Diana Shipping,
please see Registration Rights.
100
SECURITY
OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial owners of more than five percent of our common shares
and of our officers and directors as a group as of the date of
this prospectus. All of our shareholders, including the
shareholders listed in this table, are entitled to one vote for
each common share held.
Beneficial ownership is determined in accordance with the
Securities and Exchange Commissions rules. In computing
percentage ownership of each person, common shares subject to
options held by that person that are currently exercisable or
convertible, or exercisable or convertible within 60 days
of the date of this prospectus, are deemed to be beneficially
owned by that person. These shares, however, are not deemed
outstanding for the purpose of computing the percentage
ownership of any other person.
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Shares to be Beneficially
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Shares to be Beneficially
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Owned After Offering
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Owned After Offering
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Shares Beneficially
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and Concurrent
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and Concurrent
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Owned Prior to Offering
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Private Placement
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Private Placement
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and Concurrent
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Assuming No Exercise of
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Assuming Exercise in
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Private Placement
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Over-Allotment Option
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Full of Over-Allotment Option
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Identity of person or group
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Number
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Percentage
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Number
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Percentage
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Number
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Percentage
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Diana Shipping Inc.
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666,818
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10.9
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%
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FBR Capital Markets PT, Inc.(6)
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709,220
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11.6
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%
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709,220
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709,220
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Barclays Bank Plc
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554,500
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9.1
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%
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554,500
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554,500
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FBR Capital Markets & Co.(6)
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364,610
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6.0
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%
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364,610
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364,610
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Symeon Palios
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556,006
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(1)(2)
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9.1
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%
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556,006
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(1)(2)
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556,006
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(1)(2)
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Anastasios Margaronis
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77,098
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(1)(3)
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1.3
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%
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77,098
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(1)(3)
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77,098
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(1)(3)
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Ioannis Zafirakis
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41,891
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(1)(4)
|
|
|
|
*
|
|
|
41,891
|
(1)(4)
|
|
|
|
|
|
|
41,891
|
(1)(4)
|
|
|
|
|
Andreas Michalopoulos
|
|
|
43,196
|
(1)(5)
|
|
|
|
*
|
|
|
43,196
|
(1)(5)
|
|
|
|
|
|
|
43,196
|
(1)(5)
|
|
|
|
|
All directors and officers, as a group
|
|
|
718,191
|
|
|
|
11.8
|
%
|
|
|
718,191
|
|
|
|
|
|
|
|
718,191
|
|
|
|
|
|
|
|
|
(1)
|
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Of these shares, an aggregate of
106,669 shares have vested and the remaining shares vest
ratably over a two year period.
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(2)
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Of these shares, Mr. Palios
may be deemed to beneficially own 76,190, 154,970 and 309,941 of
these common shares through Taracan Investments S.A., Corozal
Compania Naviera S.A. and Ironwood Trading Corp., respectively,
companies of which he is the controlling person.
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|
(3)
|
|
Mr. Margaronis may be deemed
to beneficially own 66,165 of these common shares through Weever
S.A., a company of which he is the controlling person.
|
|
(4)
|
|
Mr. Zafirakis may be deemed to
beneficially own 34,886 of these common shares through D&G
S.A., a company of which he is the controlling person.
|
|
(5)
|
|
Mr. Michalopoulos may be
deemed to beneficially own 36,090 of these common shares through
Love Boat S.A., a company of which he is the controlling person.
|
|
(6)
|
|
Based on the Schedule 13G
filed on February 11, 2011.
|
|
*
|
|
Less than 1%.
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101
DESCRIPTION
OF CAPITAL STOCK
The following is a description of the material terms of our
amended and restated articles of incorporation and bylaws.
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 bylaws, copies of which may be obtained
from us as set forth under Available 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
Business Corporations Act of the Marshall Islands (the
BCA). Our amended and restated articles of
incorporation and bylaws 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 500 million shares of
common stock, par value $0.01 per share, of which
6,106,161 shares are issued and outstanding, and
25 million shares of preferred stock, par value $0.01 per
share, of which no shares are issued and outstanding.
Common
Stock
Each outstanding share of common stock 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 shares of common stock are
entitled to receive ratably all dividends, if any, declared by
our board of directors out of funds legally available for
dividends. Upon our dissolution or liquidation or the sale of
all or substantially all 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 stock will be entitled to receive pro rata
our remaining assets available for distribution. Except as
provided below under Preemptive Rights,
holders of common stock do not have conversion, exchange,
redemption or preemptive rights to subscribe to any of our
securities. The rights, preferences and privileges of holders of
common stock are subject to the rights of the holders of any
shares of preferred stock which we may issue in the future.
Preferred
Stock
Our amended and restated articles of incorporation authorize our
board of directors to establish one or more series of preferred
stock and to determine, with respect to any series of preferred
stock, the terms and rights of that series, including:
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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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Preferred
Stock Purchase Rights
We have entered into a stockholders rights agreement dated
August 2, 2010, or the Stockholders Rights Agreement, with
Mellon Investor Services LLC as Rights Agent. Pursuant to this
Stockholders
102
Rights Agreement, each share of our common stock includes one
right, which we refer to as a Right that entitles the holder to
purchase from us a unit consisting of one one-thousandth of a
share of our preferred stock at an exercise price specified in
the Stockholders Rights Agreement, subject to specified
adjustments. Until a Right is exercised, the holder of a Right
will have no rights to vote or receive dividends or any other
stockholder rights.
The Rights may have anti-takeover effects. The Rights will cause
substantial dilution to any person or group that attempts to
acquire us without the approval of our board of directors. As a
result, the overall effect of the Rights may be to render more
difficult or discourage any attempt to acquire us. Because our
board of directors can approve a redemption of the Rights or a
permitted offer, the Rights should not interfere with a merger
or other business combination approved by our board of directors.
We have summarized the material terms and conditions of the
Stockholders Rights Agreement and the related Rights below.
Detachment
of the Rights
The Rights are attached to all certificates representing our
currently outstanding common stock and will attach to all common
stock certificates we issue prior to the Rights distribution
date that we describe below. The Rights are not exercisable
until after the Rights distribution date and will expire at the
close of business on the tenth anniversary date of the adoption
of the Rights plan, unless we redeem or exchange them earlier as
we describe below. The Rights will separate from the common
stock and a Rights distribution date would occur, subject to
specified exceptions, on the earlier of the following two dates:
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the 10th day after public announcement that a person or
group has acquired ownership of 15% or more of the
Companys common stock or
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the 10th business day (or such later date as determined by
the Companys board of directors) after a person or group
announces a tender or exchange offer which would result in that
person or group holding 15% or more of the Companys common
stock.
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Acquiring person is generally defined in the
Stockholders Rights Agreement as any person, together with all
affiliates or associates, who beneficially owns 15% or more of
the Companys common stock. However, Diana Shipping Inc. is
excluded from the definition of acquiring person. In
addition, persons who beneficially own 15% or more of the
Companys common stock on the effective date of the
Stockholders Rights Agreement are excluded from the definition
of acquiring person until such time as they acquire
additional shares in excess of 1% of the Companys then
outstanding common stock as specified in the Stockholders Rights
Agreement for purposes of the Rights, and therefore until such
time, their ownership cannot trigger the Rights. Specified
inadvertent owners that would otherwise become an
acquiring person, including those who would have this
designation as a result of repurchases of common stock by us,
will not become acquiring persons as a result of those
transactions.
Our board of directors may defer the Rights distribution date in
some circumstances, and some inadvertent acquisitions will not
result in a person becoming an acquiring person if the person
promptly divests itself of a sufficient number of shares of
common stock.
Until the Rights distribution date:
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our common stock certificates will evidence the Rights, and the
Rights will be transferable only with those
certificates; and
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any new common stock will be issued with Rights and new
certificates will contain a notation incorporating the
Stockholders Rights Agreement by reference.
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As soon as practicable after the Rights distribution date, the
Rights Agent will mail certificates representing the Rights to
holders of record of common stock at the close of business on
that date. After the Rights distribution date, only separate
Rights certificates will represent the Rights.
103
We will not issue Rights with any shares of common stock we
issue after the Rights distribution date, except as our board of
directors may otherwise determine.
Flip-In
Event
A flip-in event will occur under the Stockholders
Rights Agreement when a person becomes an acquiring person other
than pursuant to certain kinds of permitted offers. An offer is
permitted under the Stockholders Rights Agreement if a person
will become an acquiring person pursuant to a merger or other
acquisition agreement that has been approved by our board of
directors prior to that person becoming an acquiring person.
If a flip-in event occurs and we have not previously redeemed
the Rights as described under the heading Redemption of
Rights below or, if the acquiring person acquires less
than 50% of our outstanding common stock and we do not exchange
the Rights as described under the heading Exchange of
Rights below, each Right, other than any Right that has
become void, as we describe below, will become exercisable at
the time it is no longer redeemable for the number of shares of
common stock, or, in some cases, cash, property or other of our
securities, having a current market price equal to two times the
exercise price of such Right.
When a flip-in event occurs, all Rights that then are, or in
some circumstances that were, beneficially owned by or
transferred to an acquiring person or specified related parties
will become void in the circumstances the Stockholders Rights
Agreement specifies.
Flip-Over
Event
A flip-over event will occur under the Stockholders
Rights Agreement when, at any time after a person has become an
acquiring person:
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we are acquired in a merger or other business combination
transaction, other than specified mergers that follow a
permitted offer of the type we describe above; or
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50% or more of our assets or earning power is sold or
transferred.
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If a flip-over event occurs, each holder of a Right, other than
any Right that has become void as we describe under the heading
Flip-In Event above, will have the right to receive
the number of shares of common stock of the acquiring company
which has a current market price equal to two times the exercise
price of such Right.
Anti-dilution
The number of outstanding Rights associated with our common
stock is subject to adjustment for any stock split, stock
dividend or subdivision, combination or reclassification of our
common stock occurring prior to the Rights distribution date.
With some exceptions, the Stockholders Rights Agreement will not
require us to adjust the exercise price of the Rights until
cumulative adjustments amount to at least 1% of the exercise
price. It also will not require us to issue fractional shares of
our preferred stock that are not integral multiples of
one-thousandth of a share, and, instead we may make a cash
adjustment based on the market price of the common stock on the
last trading date prior to the date of exercise.
Redemption
of Rights
At any time until the date on which the occurrence of a flip-in
event is first publicly announced, we may order redemption of
the Rights in whole, but not in part, at a redemption price of
$0.01 per Right. The redemption price is subject to adjustment
for any stock split, stock dividend or similar transaction
occurring before the date of redemption. At our option, we may
pay that redemption price in cash or shares of common stock. The
Rights are not exercisable after a flip-in event if they are
timely redeemed by us or until ten days following the first
public announcement of a flip-in event. If our board of
104
directors timely orders the redemption of the Rights, the Rights
will terminate on the effectiveness of that action.
Exchange
of Rights
We may, at our option, exchange the Rights (other than Rights
owned by an acquiring person or an affiliate or an associate of
an acquiring person, which have become void), in whole or in
part. The exchange will be at an exchange ratio of one share of
common stock per Right, subject to specified adjustments at any
time after the occurrence of a flip-in event and prior to any
person other than us or our existing stockholders becoming the
beneficial owner of 50% or more of our outstanding common stock
for the purposes of the Stockholders Rights Agreement.
Amendment
of Terms of Rights
During the time the Rights are redeemable, we may amend any of
the provisions of the Stockholders Rights Agreement, other than
by decreasing the redemption price. Once the Rights cease to be
redeemable, we generally may amend the provisions of the
Stockholders Rights Agreement, other than to decrease the
redemption price, only as follows:
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to cure any ambiguity, defect or inconsistency;
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to make changes that do not materially adversely affect the
interests of holders of Rights, excluding the interests of any
acquiring person; or
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to shorten or lengthen any time period under the Stockholders
Rights Agreement, except that we cannot lengthen the time period
governing redemption or lengthen any time period that protects,
enhances or clarifies the benefits of holders of Rights other
than an acquiring person.
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Preemptive
Rights
Under our amended and restated articles of incorporation, our
shareholders have the right, including Diana Shipping, to
purchase, at the same price per share as new investors, such
additional shares of our common stock in order to maintain their
respective beneficial ownership percentages in the event we
issue further equity, other than pursuant to the 2010 Equity
Incentive Plan, prior to the completion of an initial public
offering.
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 board of directors must consist of at least three members.
Our amended and restated articles of incorporation provide that
the board of directors may only change the number of directors
by a vote of not less than two-thirds of the entire board.
Directors are elected annually on a staggered basis, and each
shall serve for a three year term and until his successor shall
have been duly elected and qualified, except in the event of his
death, resignation, removal, or the earlier termination of his
term of office. Our board of directors has the authority to fix
the amounts which shall be payable to the members of the board
of directors for attendance at any meeting or for services
rendered to us.
Shareholder
Meetings
Under our amended and restated bylaws annual shareholder
meetings will be held at a time and place selected by our board
of directors. The meetings may be held in or outside of the
Marshall Islands. Special meetings may be called for any purpose
or purposes at any time by a majority of our board of directors,
the chairman of our board of directors or an officer of the
Company who is also a director. Our board of directors may set a
record date between 15 and 60 days before the date of any
meeting to
105
determine the shareholders that will be eligible to receive
notice and vote at the meeting. Shareholders of record holding
at least one-third of the shares issued and outstanding and
entitled to vote at such meetings, present in person or by
proxy, will constitute a quorum at all meetings of shareholders.
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
sale of all or substantially all of our assets not made in the
usual course of our business, and receive payment of the fair
value of their shares. In the event of any further amendment of
our amended and restated articles of incorporation a 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 shares, the BCA procedures involve, among other things,
the institution of proceedings in the high court of the Republic
of the Marshall Islands or in any appropriate court in any
jurisdiction in which the companys shares are primarily
traded on a local or national securities exchange.
Shareholders
Derivative Actions
Under the BCA, any of our shareholders may bring an action in
our name to procure a judgment in our favor, also known as a
derivative action, provided that the shareholder bringing the
action is a holder of common stock both at the time the
derivative action is commenced and at the time of the
transaction to which the action relates.
Limitations
on 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 bylaws provide that certain
individuals, including our directors and officers, are entitled
to be indemnified by us to the extent authorized by the BCA, if
he or she acted in good faith and in a manner he or she
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 or
her conduct was unlawful. We shall have the power to pay in
advance expenses a director or officer incurred while defending
a civil or criminal proceeding, subject to certain conditions.
We believe that these indemnification provisions and insurance
are useful to attract and retain qualified directors and
executive officers.
The limitation of liability and indemnification provisions in
our amended and restated 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.
Anti-takeover
Effect of Certain Provisions of our Amended and Restated
Articles of Incorporation and Bylaws
Several provisions of our amended and restated articles of
incorporation and bylaws may have anti-takeover effects. These
provisions, which are summarized below, are intended to avoid
costly takeover
106
battles, lessen our vulnerability to a hostile change of control
and enhance the ability of our board of directors to maximize
shareholder value in connection with any unsolicited offer to
acquire us. However, these anti-takeover provisions, which are
summarized below, could also discourage, delay or prevent
(1) the merger or acquisition of our company by means of a
tender offer, a proxy contest or otherwise that a shareholder
may consider in its best interest and (2) the removal of
incumbent officers and directors.
Blank
Check Preferred Stock
Under the terms of our amended and restated articles of
incorporation, our board of directors has authority, without any
further vote or action by our shareholders, to issue up to
25 million shares of blank check preferred stock. Our board
of directors may issue shares of preferred stock on terms
calculated to discourage, delay or prevent a change of control
of our company or the removal of our management.
Classified
Board of Directors
Our amended and restated articles of incorporation provide for
the division of our board of directors into three classes of
directors, with each class as nearly equal in number as
possible, serving staggered, three-year terms. Approximately
one-third of our board of directors will be elected each year.
This classified board provision could discourage a third party
from making a tender offer for our shares or attempting to
obtain control of us. It could also delay shareholders who do
not agree with the policies of our board of directors from
removing a majority of our board of directors for two years.
Election
and Removal of Directors
Our amended and restated articles of incorporation prohibit
cumulative voting in the election of directors. Our amended and
restated bylaws require parties other than the board of
directors to give advance written notice of nominations for the
election of directors. Our amended and restated articles of
incorporation also provide that our directors may be removed
only for cause and only upon the affirmative vote of two-thirds
of the outstanding shares of our capital stock entitled to vote
for those directors. These provisions may discourage, delay or
prevent the removal of incumbent officers and directors.
Limited
Actions by Shareholders
Under the BCA, our amended and restated articles of
incorporation and bylaws any action required or permitted to be
taken by our shareholders must be effected at an annual or
special meeting of shareholders or by the unanimous written
consent of our shareholders. Our amended and restated articles
of incorporation and bylaws provide that, unless otherwise
prescribed by law, only a majority of our board of directors,
the chairman of our board of directors or an officer of the
Company who is also a director may call special meetings of our
shareholders, and the business transacted at the special meeting
is limited to the purposes stated in the notice. Accordingly, a
shareholder may be prevented from calling a special meeting for
shareholder consideration of a proposal over the opposition of
our board of directors and shareholder consideration of a
proposal may be delayed until the next annual meeting.
Advance
Notice Requirements for Shareholder Proposals and Director
Nominations
Our amended and restated bylaws provide that shareholders
seeking to nominate candidates for election as directors or to
bring business before an annual meeting of shareholders must
provide timely notice of their proposal in writing to the
corporate secretary. Generally, to be timely, a
shareholders notice must be received at our principal
executive offices not less than 150 days nor more than
180 days prior to the one-year anniversary of the preceding
years annual meeting. Our amended and restated bylaws also
specify requirements as to the form and content of a
shareholders notice. These provisions
107
may impede shareholders ability to bring matters before an
annual meeting of shareholders or make nominations for directors
at an annual meeting of shareholders.
Transfer
Agent
The registrar and transfer agent for the common stock is BNY
Mellon Shareowner Services.
Description
of Certain Indebtedness
On July 7, 2010, through our wholly-owned subsidiaries we
entered into a secured term loan facility with DnB NOR Bank ASA
for up to $40.0 million to partially finance the
acquisition of the two vessels in our Initial Fleet. The loan
was available in two advances for each vessel with each advance
not exceeding the lower of $10.0 million and 25% of the
market value of the relevant ship and is available until
July 31, 2011. Each advance was repayable in 24 quarterly
installments of $165,000 plus one final balloon installment of
$6.04 million to be paid together with the last
installment. The loan bore interest at LIBOR plus a margin of
2.40% per annum plus any mandatory additional cost of funds. We
also paid commitment fees of 0.96% per annum on the undrawn
portion until February 2011. The loan was secured by, among
other things, a first preferred mortgage over each of the two
vessels and first priority assignments over interest bearing
accounts with DnB NOR Bank ASA for each vessel.
On May 4, 2011, through certain wholly-owned subsidiaries,
we entered into a loan agreement with DnB NOR Bank ASA for a
maximum amount of $85.0 million in order to refinance the
outstanding balance of the loan facility dated July 7,
2010, to partly finance the cost of the three Panamax container
vessels that we have agreed to acquire and for general working
capital. The loan will be made available in two tranches.
Tranche 1 shall be the lesser of 65% of the market value of
the vessels Sagitta and Centaurus and $65.0 million and
tranche 2 shall be the lesser of 35% of the market value of
the three Panamax container vessels mentioned above and
$20.0 million. Tranche 1 was drawn in a single
drawdown and Tranche 2 will be available for drawing in
three drawdowns until July 31, 2011. Tranche 1 shall
be repaid in 24 consecutive quarterly installments of
$1.1 million each, plus a balloon installment of
$37.6 million to be paid together with the last
installment. Tranche 2 shall be repaid in 8 consecutive
quarterly installments of $2.5 million each. The loan bears
interest at LIBOR plus a margin of 2.6% per annum. We paid
$382,500 of arrangement fees on signing of the agreement and on
May 6, 2011, we drew down $65.0 million, with which we
repaid the then-outstanding balance of indebtedness under our
secured term loan facility entered into on July 7, 2010
(amounting to $38.7 million plus interest). We have not
drawn on Tranche 2.
The loan is secured with a first priority mortgage on each of
the vessels, a first priority assignment of the time charters, a
first priority assignment of the earnings, insurances and
requisition compensation of the vessels, a first priority
assignment of any charter, or other employment contracts
exceeding 12 months, and an unconditional, irrevocable
guarantee from Diana Containerships. The lender also requires
the market values of the mortgaged ships to cover 125% of the
aggregate outstanding balance of the loan. The loan also
includes restrictions as to changes in management, ownership,
additional indebtedness, a consolidated leverage ratio of not
more than 70%, minimum liquidity of 4% of the funded debt.
We expect to use a portion of the net proceeds from this
offering to repay and terminate this loan facility. Upon
completion of the offering, we expect to have no debt.
108
REPUBLIC
OF THE MARSHALL ISLANDS COMPANY CONSIDERATIONS
Our corporate affairs are governed by our amended and restated
articles of incorporation and bylaws and by the BCA. The
provisions of the BCA resemble provisions of the corporation
laws of a number of states in the United States. 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 Republic of The Marshall
Islands and we cannot predict whether Marshall Islands courts
would reach the same conclusions as courts in the United States.
Thus, you may have more difficulty in protecting your interests
in the face of actions by the management, directors or
controlling shareholders than would shareholders of a
corporation incorporated in a United States jurisdiction which
has developed a substantial body of case law. The following
table provides a comparison between the statutory provisions of
the BCA and the Delaware General Corporation Law relating to
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 bylaws.
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May be held at such time or place as designated in the
certificate of incorporation or the bylaws, or if not so
designated, as determined by the board of directors.
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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 bylaws.
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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 bylaws.
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May be held within or without the Marshall Islands.
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May be held within or without 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, 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 meeting if consent is in writing and is signed
by all the shareholders entitled to vote.
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Any action required to be taken at 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 fewer 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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109
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Marshall Islands
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Delaware
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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
shares entitled to vote at a meeting.
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For stock corporations, the certificate of incorporation or
bylaws may specify the number of shares required to constitute a
quorum but in no event shall a quorum consist of less than
one-third of shares entitled to vote at a meeting. In the
absence of such specifications, a majority of shares entitled to
vote shall constitute a quorum.
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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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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 shareholders 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 so authorized by a resolution adopted by the
holders of a majority of the outstanding stock of the
corporation entitled to vote.
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Any domestic corporation owning at least 90% 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% 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 shareholders; 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 shareholder 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
shareholders, 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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Marshall Islands
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Delaware
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The number of board members may be changed by an amendment to
the bylaws, by the shareholders, or by action of the board under
the specific provisions of a bylaw.
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The number of board members shall be fixed by, or in a manner
provided by, the bylaws, unless the certificate of incorporation
fixes the number of directors, in which case a change in the
number shall be made only by an amendment to the certificate of
incorporation.
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If the board is authorized to change the number of directors, it
can only do so by a majority of the entire board and so long as
no decrease in the number shall shorten the term of any
incumbent director.
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If the number of directors is fixed by the certificate of
incorporation, a change in the number shall be made only by an
amendment of the certificate.
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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.
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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 unless the certificate of
incorporation otherwise provides.
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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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In the case of a classified board,
shareholders may effect removal of any or all directors only for
cause.
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Dissenters Rights of Appraisal
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Shareholders have a right to dissent from any plan of merger,
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; or
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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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111
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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 right of a corporation to
procure a judgment in its favor, by a holder of shares or of
voting trust certificates or of a beneficial interest in such
shares or certificates. It shall be made to appear that the
plaintiff is such a holder at the time of bringing the action
and that he was such a holder at the time of the transaction of
which he complains, or that his shares or his interest therein
devolved upon him by operation of law.
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In any derivative suit instituted by a shareholder of 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 or the reasons for not making such effort.
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Other requirements regarding derivative suits have been created
by judicial decision, including that a shareholder may not bring
a derivative suit unless he or she first demands that the
corporation sue on its own behalf and that demand is refused
(unless it is shown that such demand would have been futile).
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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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Reasonable expenses including attorneys fees may be
awarded if the action is successful.
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A corporation may require a plaintiff bringing a derivative suit
to give security for reasonable expenses if the plaintiff owns
less than 5% of any class of stock and the shares have a value
of less than $50,000.
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112
SECURITIES
ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will
have shares
of common stock outstanding,
or
if the underwriters over-allotment option is exercised in
full. Of these shares,
the shares
sold in this offering,
or
if the underwriters over-allotment option is exercised in
full, will be freely transferable in the United States without
restriction under the Securities Act, except for any shares
acquired by our affiliates as defined in
Rule 144 under the Securities Act.
Immediately after the closing of this offering, Diana Shipping,
and our directors and executive officers will continue to
own % of our common shares,
or % of our common shares if the
underwriters over-allotment option is exercised in full,
which were acquired in private transactions not involving a
public offering, and these shares will therefore be treated as
restricted securities for purposes of Rule 144.
Restricted securities may not be resold except in compliance
with the registration requirements of the Securities Act or
under an exemption from those registration requirements, such as
the exemptions provided by Rule 144, Regulation S and
other exemptions under the Securities Act. The restricted
securities held by Diana Shipping and our directors and
executive officers will also be subject to certain
lock-up
restrictions described below.
Three other shareholders have reported owning an aggregate of
1,628,330 shares of our common stock, representing approximately
26.7% of our issued and outstanding common shares prior to this
offering, that are freely transferable without restrictions
under the Securities Act. These holders have not agreed to any
lock-up restrictions or other agreements restricting the
transfer of these shares. Accordingly, all or some of these
shares may be sold by these shareholders at any time, which may
significantly reduce the price at which you are able to sell
shares of our common stock that you purchased in this offering.
See Security Ownership of Beneficial Owners and
Management.
In general, under Rule 144, a person (or persons whose
shares are aggregated), who is not an affiliate of ours and has
not been one of our affiliates at any time during the three
months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least one year, including the
holding period of any prior owner other than an affiliate, is
entitled to sell his, her or its shares without registration and
without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. In
addition, under Rule 144 as currently in effect, if we have
been a public reporting company under the Exchange Act for at
least 90 days, a person (or persons whose shares are
aggregated) who has beneficially owned our restricted shares for
at least six months, is entitled to sell the restricted
securities without registration under the Securities Act,
subject to certain restrictions. Persons who are our affiliates
may sell within any three-month period a number of restricted
shares that does not exceed the greater of the following:
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1% of the total number of common stock then outstanding; or
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The average weekly trading volume of common stock during the
four calendar weeks preceding the date on which notice of the
sale is filed with the SEC.
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Sales under Rule 144 also are subject to the availability
of current public information about us and, in the case of sales
by affiliates, certain manner of sale provisions and notice
requirements.
We, our directors, our named executive officers and Diana
Shipping have agreed that for a period beginning on the date of
this offering until 90 days thereafter subject to certain
other exceptions, we will not, without the prior written consent
of Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Jefferies & Company, Inc.:
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, lend or
otherwise dispose of or transfer, directly or indirectly, any of
our equity securities or any securities convertible into or
exercisable or exchangeable for our equity securities, or, in
the case of Diana Containerships, file any registration
statement under the Securities Act with respect to any of the
foregoing; or
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enter into any swap or other arrangement that transfers to
another, in whole or in part, directly or indirectly, any of the
economic consequences of ownership of any of our equity
securities, whether any such transaction described above is to
be settled by delivery of shares of our common stock or such
other securities, in cash or otherwise.
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As a result of these
lock-up
agreements and rules of the Securities Act, the restricted
shares will be available for sale in the public market, subject
to certain volume and other restrictions, as mentioned above, as
follows:
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Number of Shares
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Date
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Eligible for Sale(1)
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Comment
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Date of prospectus
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None
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Shares locked up and not eligible for sale freely or under Rule
144
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90 days from date of prospectus(2)
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888,098
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Lock-up released; shares eligible for sale under Rule 144
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(1) |
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Excludes an aggregate of 53,133 restricted common shares
that we expect to issue to our executive officers pursuant to
the 2010 Equity Incentive Plan following the closing of this
offering. |
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(2) |
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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 underwriters do not exercise their
over-allotment option. |
114
REGISTRATION
RIGHTS
Registration
Rights Agreement
We have entered into a registration rights agreement, dated
April 6, 2010, with FBR Capital Markets & Co. and
Diana Shipping Inc. The registration rights agreement covers the
shares sold in the private offering, including shares purchased
by Diana Shipping Inc., plus any additional shares of common
stock issued in respect thereof whether by stock dividend, stock
distribution, stock split, or otherwise.
On October 19, 2010, we commenced a registered exchange
offer for 2,558,997 common shares pursuant to the registration
rights agreement, which was completed on November 18, 2010.
In addition, in January 2011, Diana Shipping distributed
2,667,015 of our common shares it owned to its shareholders.
Re-sale
Registration Statement
Under the registration rights agreement, upon completion of the
exchange offer if any of the holders shall so request in
connection with any offering or sale of the Registrable Shares
(as defined therein), we have agreed to cause to be filed with
the Securities and Exchange Commission as soon as practicable
after such determination, date or request (but in no event later
than the date that is 60 days after the date of such
request), one re-sale Registration Statement on
Form F-1
or such other form under the Securities Act then available to
the Company providing for the re-sale of the outstanding
Registrable Shares pursuant to Rule 415 from time to time
by the holders. Currently, the remaining Registrable Shares are
the 666,818 shares of our common stock still owned by Diana
Shipping and 5,884 additional shares that were not exchanged by
their holders in the exchange offer. Diana Shipping has agreed
to not request the filing of a re-sale Registration Statement
for the shares it owns for at least 90 days after the
completion of this offering. We have agreed to use our
reasonable efforts to cause such re-sale registration statement
to be declared effective by the Securities and Exchange
Commission as soon as practicable after the initial filing
thereof and to remain effective, subject to applicable black-out
provisions, until the earlier of (A) such time as all
Registrable Shares covered thereby have been sold in accordance
with the intended distribution of such Registrable Shares,
(B) there are no Registrable Shares outstanding or
(C) the first anniversary of the effective date of such
re-sale registration statement (subject to extension under
certain circumstances) and the condition that the Registrable
Shares have been transferred to an unrestricted CUSIP and are
listed on the New York Stock Exchange or the Nasdaq Global
Market, or on an alternative trading system with the Registrable
Shares qualified under the applicable state securities or
blue sky laws of all fifty (50) states);
provided, however, that if we have an effective re-sale
registration statement on
Form F-1
(or other form then available to the Company) under the
Securities Act and become eligible to use
Form F-3
or such other short-form registration statement form under the
Securities Act, we may, upon thirty (30) business
days prior written notice to all holders, register any
Registrable Shares registered but not yet distributed under the
effective re-sale registration statement on such a short-form
shelf registration statement and, once the short-form shelf
registration statement is declared effective, withdraw the
previous registration statement and, if permitted, transfer the
filing fees from the previous registration statement (such
transfer pursuant to Rule 429, if applicable) unless any
holder registered under the initial re-sale registration
statement notifies the Company within fifteen (15) business
days of receipt of the Company notice that it intends to file a
new registration statement that withdrawal of the initial
re-sale registration statement would interfere with its
distribution of Registrable Shares already in progress, in which
case, the Company shall delay the effectiveness of the shelf
registration statement and termination of the then-effective
initial re-sale registration statement for a period of not less
than thirty (30) days from the date that the Company
receives the notice from such holders requesting a delay. Any
shelf registration statement shall provide for the re-sale from
time to time, subject to certain conditions, and pursuant to any
method or combination of methods legally available (including,
without limitation, an underwritten offering, a direct sale to
purchasers or a sale through brokers or agents, which may
include sales over the internet) by the holders of any and all
Registrable Shares. We are not obligated to maintain the
effectiveness of any shelf registration statement beyond the
first anniversary of the effective date of the initial re-sale
registration statement (subject to extension as provided in the
agreement and the condition that the Registrable
115
Shares have been transferred to an unrestricted CUSIP and are
listed on the New York Stock Exchange or the Nasdaq Global
Market, or on an alternative trading system with the Registrable
Shares qualified under the applicable state securities or
blue sky laws of all fifty (50) states).
Notwithstanding the foregoing, we will be permitted, under
limited circumstances, to suspend the use, from time to time, of
the prospectus that is part of the registration statement filed
pursuant to the registration rights agreement (and therefore
suspend sales under the registration statement) for certain
periods, referred to as blackout periods, if, among
other things, any of the following occurs:
(a) the representative of the underwriters of an
underwritten offering of primary shares by us has advised us
that the sale of shares of our common stock under the
registration statement would have a material adverse effect on
such underwritten offering of primary shares;
(b) a majority of the independent members of our board of
directors determines in good faith that (1) the offer or
sale of any shares of our common stock under the registration
statement would materially impede, delay or interfere with any
proposed financing, offer or sale of securities, acquisition,
merger, tender offer, business combination, corporate
reorganization or other significant transaction involving us;
(2) after the advice of counsel, the sale of the shares
covered by the registration statement would require disclosure
of non-public material information not otherwise required to be
disclosed under applicable law; and (3) either (x) we
have a bona fide business purpose for preserving the
confidentiality of the proposed transaction or information,
(y) disclosure would have a material adverse effect on us
or our ability to consummate the proposed transaction, or
(z) the proposed transaction renders us unable to comply
with SEC requirements, in each case under circumstances that
would make it impracticable or inadvisable to cause the
registration statement to become effective or promptly amend or
supplement the registration statement, as applicable; or
(c) a majority of the independent members of our board of
directors determines in good faith, after the advice of counsel,
that we are required by law, rule or regulation, or that it is
in our best interests, to supplement the registration statement
or file a post-effective amendment to the registration statement
in order to incorporate information into the registration
statement for the purpose of (1) including in the
registration statement any prospectus required under
Section 10(a)(3) of the Securities Act; (2) reflecting
in the prospectus included in the registration statement any
facts or events arising after the effective date of the
registration statement (or of the most-recent post-effective
amendment) that, individually or in the aggregate, represents a
fundamental change in the information set forth in the
prospectus; or (3) including in the prospectus included in
the registration statement any material information with respect
to the plan of distribution not disclosed in the registration
statement or any material change to such information.
The cumulative blackout periods in any rolling
12-month
period commencing on the closing of the offering may not exceed
an aggregate of 90 days and, furthermore, may not exceed
60 days in any rolling
90-day
period.
In addition to this limited ability to suspend use of the
registration statement, until we are eligible to incorporate by
reference into the registration statement our annual and current
reports that will be filed after the effectiveness of our
registration statement, we will be required to amend or
supplement the registration statement to include our quarterly
and annual financial information and other developments material
to us. Therefore, sales under the registration statement will be
suspended until the amendment or supplement, as the case may be,
is filed and effective.
We will bear certain expenses incident to our registration
obligations upon exercise of these registration rights,
including the payment of federal securities law and state blue
sky registration fees, except that we will not bear any
brokers or underwriters discounts and commissions or
transfer taxes relating to sales of shares of our common stock.
We have agreed to indemnify each selling stockholder for certain
violations of federal or state securities laws in connection
with any registration statement in which such selling
stockholder sells its shares of our common stock pursuant to
these registration rights. Each selling stockholder will in turn
agree to indemnify us for federal or state securities law
violations that occur in reliance upon written information it
provides for us in the registration statement.
116
TAXATION
The following is a discussion of the material Marshall Islands
and U.S. federal income tax considerations relevant to an
investment decision by a U.S. Holder 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 stock to all categories of investors, some of
which, such as dealers in securities or commodities, financial
institutions, insurance companies, tax-exempt organizations,
U.S. expatriates, persons liable for the alternative
minimum tax, persons who hold common stock as part of a
straddle, hedge, conversion transaction or integrated
investment, U.S. Holders whose functional currency is not
the United States dollar and investors that own, actually or
under applicable constructive ownership rules, 10% or more of
the Companys common stock, may be subject to special
rules. This discussion deals only with holders who purchase
common stock in this offering and hold the common stock as a
capital asset. You are encouraged to consult your own tax
advisors concerning the overall tax consequences arising in your
own particular situation under U.S. federal, state, local
or foreign law of the ownership of common stock.
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 U.S. counsel, the following are the material
U.S. 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
U.S. federal income tax matters is based on the
U.S. Internal Revenue Code of 1986, as amended, or the
Code, judicial decisions, administrative pronouncements, and
existing and proposed regulations issued by the
U.S. Department of the Treasury, all of which are subject
to change, possibly with retroactive effect.
Taxation
of Operating Income: In General
The following discussion addresses the U.S. federal income
taxation of our operating income if we are engaged in the
international operation of vessels.
Unless exempt from U.S. federal income taxation under the
rules discussed below, a foreign corporation is subject to
U.S. 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
U.S.-source
shipping income.
Shipping income attributable to transportation that both begins
and ends in the United States is considered to be 100% from
sources within the United States. We are not permitted by law to
engage in transportation that produces income which is
considered to be 100% from sources within the United States.
117
Shipping income attributable to transportation exclusively
between
non-U.S. 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 U.S. federal
income tax.
Exemption
of Operating Income from U.S. Federal Income
Taxation
Under Section 883 of the Code, we will be exempt from
U.S. federal income taxation on our
U.S.-source
shipping income if:
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we are organized in a foreign country that grants an
equivalent exemption to corporations organized in
the United States (U.S. corporations); and
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either:
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more than 50% of the value of our common stock is owned,
directly or indirectly, by qualified shareholders,
as described in more detail below, which we refer to as the
50% Ownership Test, or
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our common stock is primarily and regularly traded on an
established securities market in a country that grants an
equivalent exemption to U.S. corporations or in
the United States, which we refer to as the
Publicly-Traded Test.
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The Marshall Islands, the jurisdiction where we are
incorporated, grant an equivalent exemption to
U.S. corporations. We anticipate that any of our
shipholding subsidiaries will be incorporated in a jurisdiction
that provides an equivalent exemption to
U.S. corporations. Therefore, we will be exempt from
U.S. federal income taxation with respect to our
U.S.-source
shipping income if either the 50% Ownership Test or the
Publicly-Traded Test is met.
Prior to this offering, and after this offering, we do not
currently anticipate a circumstance under which we would be able
to satisfy the 50% Ownership Test. Our ability to satisfy the
Publicly-Traded Test is discussed below.
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. Our common shares, which constitute our sole class of
issued and outstanding shares, are primarily traded
on the Nasdaq Global Market.
Under the regulations, stock of a foreign corporation will be
considered to be regularly traded on an established
securities market if one or more classes of stock representing
more than 50% of the outstanding stock, by both total combined
voting power of all classes of shares entitled to vote and total
value, are listed on such market, to which we refer as the
listing threshold. Since our common shares are
listed on the Nasdaq Global Market, we expect to 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. Even if these tests are not satisfied, the
regulations provide that such trading frequency and trading
volume tests will be deemed satisfied if, as is expected to be
the case with our common shares, such class of shares is traded
on an established securities 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
118
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 our
common stock, or 5% Shareholders, the regulations
permit us 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 our
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 we 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 our common
stock for more than half the number of days during the taxable
year.
We currently satisfy and anticipate that after the offering is
completed, we will continue to be able to satisfy the
Publicly-Traded Test and will not be subject to the
5 Percent Override Rule. However, there are factual
circumstances beyond our control that could cause us to lose the
benefit of the Section 883 exemption. For example, there is
a risk that we could no longer qualify for exemption under Code
section 883 for a particular taxable year if shareholders
with a five percent or greater interest in the common shares
were to own 50% or more of our outstanding common shares on more
than half the days of the taxable year. In such case, we would
have to satisfy certain substantiation requirements regarding
the identity of our shareholders in order to qualify for the
Code Section 883 exemption. These requirements are onerous
and there can be no assurance that we would be able to satisfy
them.
Taxation
in Absence of Exemption
To the extent the benefits of Section 883 of the Code are
unavailable, our
U.S.-source
shipping income, to the extent not considered to be
effectively connected with the conduct of a
U.S. trade or business, as described below, would be
subject to a 4% tax imposed by Section 887 of the Code on a
gross basis, without the benefit of deductions. Since under the
sourcing rules described above, no more than 50% of our shipping
income would be treated as being derived from U.S. sources,
the maximum effective rate of U.S. federal income tax on
our shipping income would never exceed 2% under the 4% gross
basis tax regime.
To the extent the benefits of the Section 883 of the Code
exemption are unavailable and our
U.S.-source
shipping income is considered to be effectively
connected with the conduct of a U.S. trade or
business, as described below, any such effectively
connected
U.S.-source
shipping income, net of applicable deductions, would be subject
to the U.S. federal corporate income tax currently imposed
at rates of up to 35%. In addition, we may be subject to an
additional 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 our U.S. trade or business.
Our
U.S.-source
shipping income would be considered effectively
connected with the conduct of a U.S. trade or
business only if:
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we have, or are considered to have, a fixed place of business in
the United States involved in the earning of shipping
income; and
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substantially all of our
U.S.-source
shipping income is attributable to regularly scheduled
transportation, such as the operation of a vessel that follows a
published schedule with repeated sailings at regular intervals
between the same points for voyages that begin or end in the
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United States (or, in the case of income from the bareboat
chartering of a vessel, is attributable to a fixed place of
business in the United States).
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We do not anticipate that we will have any vessel operating to
or from the United States on a regularly scheduled basis. Based
on the foregoing and on the expected mode of our shipping
operations and other activities, we do not anticipate that any
of our
U.S.-source
shipping income will be effectively connected with
the conduct of a U.S. trade or business.
United
States Federal Income Taxation of Gain on Sale of
Vessels
Regardless of whether we qualify for exemption under
Section 883 of the Code, we will not be subject to
U.S. federal income taxation with respect to gain realized
on a sale of a vessel, provided the sale is considered to occur
outside of the United States under U.S. federal income tax
principles. In general, a sale of a vessel will be considered to
occur outside of the United States for this purpose if title to
the vessel, and risk of loss with respect to the vessel, pass to
the buyer outside of the United States. It is expected that any
sale of a vessel by us will be considered to occur outside of
the United States.
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
U.S. citizen or resident, a U.S. corporation or other
U.S. entity taxable as a corporation, an estate the income
of which is subject to U.S. 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 U.S. persons
have the authority to control all substantial decisions of the
trust.
If a partnership 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 the passive foreign investment
company (PFIC) rules below, distributions made by us
with respect to our common stock (other than certain pro-rata
distributions of our common stock) to a U.S. Holder will
generally constitute dividends, which may be taxable as ordinary
income or qualified dividend income as described in
more detail below, to the extent of our current and accumulated
earnings and profits, as determined under U.S. federal
income tax principles. Distributions in excess of our current
and accumulated 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 we are 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
us. Dividends paid with respect to our common stock will
generally be treated as income from sources outside the United
States and will generally constitute passive category
income or, in the case of certain types of
U.S. Holders, general category income for
purposes of computing allowable foreign tax credits for
U.S. foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is
an individual, trust or estate, which we refer to as a
U.S. Individual Holder, will generally be treated as
qualified dividend income that is taxable to such
U.S. Individual Holders at preferential tax rates (through
taxable years beginning on or before December 31,
2012) 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 our common
stock is traded); (2) we are not a PFIC for the taxable
year during which the dividend is paid or the immediately
preceding taxable year (as discussed below); (3) the
U.S. Individual Holder has held 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. Individual Holder is not under an obligation to make
related payments with respect to positions in substantially
similar or related property.
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There is no assurance that any dividends paid on our common
stock through 2012 will be eligible for these preferential rates
in the hands of a U.S. Individual Holder, although, as
described above, they are highly likely to be so eligible.
Legislation has been previously introduced in the
U.S. Congress which, if enacted in its present form, would
preclude our dividends from qualifying for such preferential
rates prospectively from the date of enactment. Further, in the
absence of 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, 2013 or
later will be taxed at ordinary graduated tax rates. Any
distributions out of earnings and profits we pay which are not
eligible for these preferential rates will be taxed as ordinary
income to a U.S. Individual Holder.
Special rules may apply to any extraordinary
dividend, generally, a dividend paid by us in an amount
which is equal to or in excess of ten percent of a
U.S. Holders adjusted tax basis (or fair market value
in certain circumstances) in a share of our common stock. If we
pay an extraordinary dividend on our common stock
that is treated as qualified dividend income, then
any loss derived by a U.S. Individual Holder from the sale
or exchange of such common stock will be treated as long-term
capital loss to the extent of such dividend.
Sale,
Exchange or other Disposition of Common Stock
Subject to the discussion of the PFIC rules below, a
U.S. Holder generally will recognize taxable gain or loss
upon a sale, exchange or other disposition of our common stock
in an amount equal to the difference between the amount realized
by the U.S. Holder from such sale, exchange or other
disposition and the U.S. Holders tax basis in such
stock. A U.S. Holders tax basis in the common stock
generally will equal the U.S. Holders acquisition
cost less any prior return of capital. 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 and will
generally be treated as
U.S.-source
income or loss, as applicable, for U.S. foreign tax credit
purposes. A U.S. Holders ability to deduct capital
losses is subject to certain limitations.
PFIC
Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a
U.S. Holder that holds stock in a foreign corporation
classified as a PFIC for U.S. federal income tax purposes.
In general, we will be treated as a PFIC with respect to a
U.S. Holder if, for any taxable year in which such
U.S. Holder held our common stock, either:
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at least 75% of our 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), which we refer to as the income test; or
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at least 50% of the average value of our assets during such
taxable year produce, or are held for the production of, passive
income, which we refer to as the asset test.
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For purposes of determining whether we are a PFIC, cash will be
treated as an asset which is held for the production of passive
income. In addition, we will be treated as earning and owning
our proportionate share of the income and assets, respectively,
of any of our subsidiary corporations in which we own at least
25% of the value of the subsidiarys stock. Income earned,
or deemed earned, by us in connection with the performance of
services would not constitute passive income. By contrast,
rental income would generally constitute passive
income unless we were treated under specific rules as
deriving our rental income in the active conduct of a trade or
business.
Our status as a PFIC will depend upon the operations of our
vessels. Therefore, we can give no assurances as to whether we
will be a PFIC with respect to any taxable year. In making the
determination as to whether we are a PFIC, we intend to treat
the gross income we derive or are deemed to derive from the time
chartering and voyage chartering activities of us or any of our
wholly owned subsidiaries as services income, rather than rental
income. Correspondingly, in the opinion of Seward &
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Kissel LLP, such income should not constitute passive income,
and the assets that we or our wholly owned subsidiaries own and
operate in connection with the production of such income, should
not constitute passive assets for purposes of determining
whether we are 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 and voyage 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. In the absence of any
legal authority specifically relating to the statutory
provisions governing PFICs, the Internal Revenue Service, or
IRS, or a court could disagree with the opinion of
Seward & Kissel LLP. On the other hand, any income we
derive from bareboat chartering activities will likely be
treated as passive income for purposes of the income test.
Likewise, any assets utilized in the performance of bareboat
chartering activities will likely be treated as generating
passive income for purposes of the asset test.
As discussed more fully below, if we 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 us as a
Qualified Electing Fund, which election we refer to
as a QEF election or a
mark-to-market
election. For taxable years beginning on or after March 18,
2010, a 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
each year for U.S. federal income tax purposes his pro rata
share of our ordinary earnings and our net capital gain, if any,
for our taxable year that ends with or within the taxable year
of the Electing Holder, regardless of whether or not
distributions were received from us by the Electing Holder. The
Electing 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 generally
recognize capital gain or loss on the sale, exchange or other
disposition of our common stock. A U.S. Holder would make a
QEF election with respect to any year that we are a PFIC by
filing IRS Form 8621 with his U.S. federal income tax
return. After the end of each taxable year, we will determine
whether we were a PFIC for such taxable year. If we determine or
otherwise become aware that we are a PFIC for any taxable year,
we will provide each U.S. Holder with all necessary
information (including a PFIC Annual Information Statement) in
order to allow such holder to make a QEF election for such
taxable year.
Taxation of U.S. Holders Making a
Mark-to-Market
Election. Alternatively, if we were to be
treated as a PFIC for any taxable year and, as we anticipate
will continue to be the case after this offering, our shares are
treated as marketable stock, a U.S. Holder
would be allowed to make a
mark-to-market
election with respect to our common shares, 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
shares at the end of the taxable year over such holders
adjusted tax basis in the common shares. 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 shares over their 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
shares would be adjusted to reflect any such income or loss
amount. Gain realized on the sale, exchange or other disposition
of our common shares would be treated as ordinary income, and
any loss realized on the sale, exchange or other disposition of
the common shares 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 we were to be treated
as a PFIC for any taxable year, a U.S. Holder who has not
timely made a QEF or
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mark-to-market
election for the first taxable year in which it holds our common
stock and during which we are treated as PFIC, whom we refer to
as a Non-Electing Holder, would be subject to
special rules with respect to (1) any excess distribution
(i.e., the portion of any distributions received by the
Non-Electing Holder on our common stock in a taxable year in
excess of 125% 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 our common stock. Under
these special rules:
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the excess distribution or gain would be allocated ratably to
each day 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 before we became a PFIC would be taxed as ordinary
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 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 adverse tax consequence would not apply to a pension or
profit sharing trust or other tax-exempt organization that did
not borrow funds or otherwise utilize leverage in connection
with its acquisition of our common stock. In addition, if a
Non-Electing Holder who is an individual dies while owning our
common stock, such holders successor generally would not
receive a
step-up in
tax basis with respect to such common stock.
U.S.
Federal Income Taxation of
Non-U.S.
Holders
A beneficial owner of our common stock (other than a partnership
or entity treated as a partnership for U.S. Federal income
tax purposes) that is not a U.S. Holder is referred to
herein as a
Non-U.S. Holder.
Non-U.S. Holders
generally will not be subject to U.S. federal income tax or
withholding tax on dividends received from us with respect to
our common stock, unless that income is effectively connected
with the
Non-U.S. Holders
conduct of a trade or business in the United States. In general,
if the
Non-U.S. Holder
is entitled to the benefits of certain U.S. income tax
treaties 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.
Non-U.S. Holders
generally will not be subject to U.S. federal income tax or
withholding tax on any gain realized upon the sale, exchange or
other disposition of our common stock, unless:
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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. In general,
if the
Non-U.S. Holder
is entitled to the benefits of certain income tax treaties with
respect to that gain, that gain is taxable only if it 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 U.S. trade or business for
U.S. federal income tax purposes, the income from the
common stock, including dividends and the gain from the sale,
exchange or other disposition of the stock, that is effectively
connected with the conduct of that trade or business will
generally be subject to regular U.S. 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.
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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. Such payments will 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
U.S. 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 sell your common stock through a U.S. office or
broker, the payment of the proceeds is subject to both
U.S. backup withholding and information reporting unless
you certify that you are a
non-U.S. person,
under penalties of perjury, or you otherwise establish an
exemption. If you sell your common stock through a
non-U.S. office
of a
non-U.S. 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, U.S. 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-U.S. office
of a broker that is a U.S. person or has certain other contacts
with the United States (unless you certify that you are a
non-U.S. person,
under penalty of perjury, or you otherwise establish an
exemption).
Backup withholding is not an additional tax. Rather, you
generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed your U.S. federal
income tax liability by timely filing a refund claim with the
IRS.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, we have agreed to sell to the underwriters named
below, and the underwriters, for whom Wells Fargo Securities,
LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Jefferies & Company, Inc., acting as
joint-book running managers and representatives, have severally
agreed to purchase, the respective numbers of shares of common
stock appearing opposite their names below:
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Underwriter
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Number of Shares
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Wells Fargo Securities, LLC
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Jefferies & Company, Inc.
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BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
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Morgan Keegan & Company, Inc.
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Cantor Fitzgerald & Co. Inc.
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Dahlman Rose & Company, LLC
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DnB NOR Markets, Inc.
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RS Platou Markets AS
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Total
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All of the shares to be purchased by the underwriters will be
purchased from us.
The underwriting agreement provides that the obligations of the
several underwriters are subject to various conditions,
including approval of legal matters by counsel. The shares of
common stock are offered by the underwriters, subject to prior
sale, when, as and if issued to and accepted by them. The
underwriters reserve the right to withdraw, cancel or modify the
offer and to reject orders in whole or in part.
The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock offered by
this prospectus if any are purchased, other than those shares
covered by the over-allotment option described below. If an
underwriter defaults, the underwriting agreement provides that
the purchase commitments of the non-defaulting underwriters may
be increased or the underwriting agreement may be terminated.
RS Platou Markets AS is not a U.S. registered broker-dealer
and, pursuant to the underwriting agreement, will effect offers
and sales solely outside of the United States or within the
United States to the extent permitted by
Rule 15a-6
under the Exchange Act and in compliance with state securities
laws.
Over-Allotment
Option
We have granted a
30-day
option to the underwriters to purchase up to a total
of
additional shares of our common stock from us at the initial
public offering price per share less the underwriting discounts
and commissions per share, as set forth on the cover page of
this prospectus, and less any dividends or distributions
declared, paid or payable on the shares that the underwriters
have agreed to purchase from us but that are not payable on such
additional shares, to cover over-allotment, if any. If the
underwriters exercise this option in whole or in part, then the
underwriters will be severally committed, subject to the
conditions described in the underwriting agreement, to purchase
the additional shares of our common stock in proportion to their
respective commitments set forth in the prior table.
Discounts
and Commissions
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus and to certain dealers at that price
less a concession of not
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more than $ per share, of which up
to $ per share may be reallowed to
other dealers. After the initial offering, the public offering
price, concession and reallowance to dealers may be changed.
The following table summarizes the underwriting discounts and
commissions and the proceeds, before expenses, payable to us,
both on a per share basis and in total, assuming either no
exercise or full exercise by the underwriters of their
overallotment option:
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Total
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Without
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Per Share
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Option
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With Option
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Public offering price
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Underwriting discounts and commissions
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Proceeds, before expenses, to us
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We estimate that the expenses of this offering payable by us,
not including underwriting discounts and commissions, will be
approximately $ . Diana Shipping
Inc. has agreed to purchase approximately $20.0 million of
our common shares in a concurrent private placement at the
public offering price, for which the underwriters will not
receive any underwriting discounts and commissions.
Indemnification
of Underwriters
The underwriting agreement provides that we will indemnify the
underwriters against specified liabilities, including
liabilities under the Securities Act, or contribute to payments
that the underwriters may be required to make in respect of
those liabilities.
Lock-Up
Agreements
We, Diana Shipping and all of our directors and officers have
agreed, subject to certain exceptions, that, without the prior
written consent of Wells Fargo Securities, LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and
Jefferies & Company, Inc., as representatives of a
group of underwriters, we and they will not, during the period
beginning on and including the date of this prospectus through
and including the date that is the 90th day after the date
of this prospectus, directly or indirectly:
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issue (in the case of us), offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
to purchase, lend or otherwise transfer or dispose of any shares
of our common stock, preferred stock or other capital stock or
any securities convertible into or exercisable or exchangeable
for our common stock or other capital stock (whether owned as of
the date of the underwriting agreement or acquired during the
lock-up
period);
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in the case of us, file or cause the filing of any registration
statement under the Securities Act with respect to any shares of
our common stock or other capital stock or any securities
convertible into or exercisable or exchangeable for our common
stock or other capital stock; or
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enter into any swap or other agreement, arrangement or
transaction that transfers to another, in whole or in part,
directly or indirectly, any of the economic consequences of
ownership of our common stock or other capital stock or any
securities convertible into or exercisable or exchangeable for
our common stock or other capital stock,
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whether any transaction in any of the foregoing bullet points is
to be settled by delivery of our common stock, other capital
stock, other securities, in cash or otherwise, or publicly
announce an intention to do any of the foregoing. Moreover, if:
(1) during the last 17 days of the
lock-up
period, we issue an earnings release or material news or a
material event relating to us occurs; or
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(2) 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 lock-up
period will be extended and the restrictions imposed will
continue to apply until the expiration of the
18-day
period beginning on the date of issuance of the earnings release
or the occurrence of the material news or material event, as the
case may be, unless Wells Fargo Securities, LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and
Jefferies & Company, Inc. waive, in writing, such
extension.
Subject to certain exceptions detailed in the underwriting
agreement, through the
35th day
following the
lock-up
period, the parties bound by the
lock-up will
not engage in any transaction prohibited by the
lock-up
agreement, unless they first give notice to us and we give
written confirmation of our approval to proceed with such
transaction. Furthermore, the parties bound by the
lock-up
agreement may not make any demand for or exercise any right with
respect to the registration under the 1933 Act, of any
shares of our common stock or other capital stock or any
securities convertible into or exercisable or exchangeable for
our common stock or other capital stock, and we may, with
respect to any common stock or other capital stock or any
securities convertible into or exercisable or exchangeable for
common stock or other capital stock owned or held (of record or
beneficially) by such parties, cause the transfer agent or other
registrar to enter stop transfer instructions and implement stop
transfer procedures with respect to such securities during the
lock-up
period (as the same may be extended as described above).
Wells Fargo Securities, LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Jefferies &
Company, Inc. may, in their sole discretion and at any time or
from time to time, without notice, release all or any portion of
the shares or other securities subject to the
lock-up
agreements. Any determination to release any shares or other
securities subject to the
lock-up
agreements would be based on a number of factors at the time of
determination, which may include the market price of the common
stock, the liquidity of the trading market for the common stock,
general market conditions, the number of shares or other
securities proposed to be sold or otherwise transferred and the
timing, purpose and terms of the proposed sale or other transfer.
Stabilization
In order to facilitate this offering of our common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the market price of our common stock.
Specifically, the underwriters may sell more shares of common
stock than they are obligated to purchase under the underwriting
agreement, creating a short position. A short sale is covered if
the short position is no greater than the number of shares of
common stock available for purchase by the underwriters under
the over-allotment option. The underwriters may close out a
covered short sale by exercising the over-allotment option or
purchasing common stock in the open market. In determining the
source of common stock to close out a covered short sale, the
underwriters may consider, among other things, the market price
of common stock compared to the price payable under the
over-allotment option. The underwriters may also sell shares of
common stock in excess of the over-allotment option, creating a
naked short position. The underwriters must close out any naked
short position by purchasing shares of common stock in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after the date of pricing of this offering that could adversely
affect investors who purchase in this offering.
As an additional means of facilitating this offering, the
underwriters may bid for, and purchase, common stock in the open
market to stabilize the price of our common stock, so long as
stabilizing bids do not exceed a specified maximum. The
underwriting syndicate may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing common
stock in this offering if the underwriting syndicate repurchases
previously distributed common stock to cover syndicate short
positions or to stabilize the price of the common stock.
127
The foregoing transactions, if commenced, may raise or maintain
the market price of our common stock above independent market
levels or prevent or retard a decline in the market price of the
common stock.
The foregoing transactions, if commenced, may be effected on the
Nasdaq Global Market or otherwise. Neither we nor any of the
underwriters makes any representation that the underwriters will
engage in any of these transactions and these transactions, if
commenced, may be discontinued at any time without notice.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of the effect
that the transactions described above, if commenced, may have on
the market price of our common stock.
Relationships
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory services, investment management,
investment research, principal investment, hedging, financing
and brokerage activities. For example, an affiliate of DnB NOR
Markets, Inc. has an existing term loan facility with the
Company. This term loan will be repaid in full at the closing of
this offering and then terminated.
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and investment banking
services for us and our affiliates, for which they have received
or will receive customary fees and expenses. In the ordinary
course of their various business activities, the underwriters
and their respective affiliates may make or hold a broad array
of investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers, and such investment and securities
activities may involve securities
and/or
instruments of the issuer. The underwriters and their respective
affiliates may also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
Sales
Outside the United States
No action has been or will be taken in any jurisdiction (except
in the United States) that would permit a public offering of the
common stock, or the possession, circulation or distribution of
this prospectus or any other material relating to us or the
common stock in any jurisdiction where action for that purpose
is required. Accordingly, the common stock may not be offered or
sold, directly or indirectly, and neither of this prospectus nor
any other offering material or advertisements in connection with
the common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Each of the underwriters may arrange to sell common stock
offered by this prospectus in certain jurisdictions outside the
United States, either directly or through affiliates, where they
are permitted to do so. In that regard, Wells Fargo Securities,
LLC may arrange to sell shares in certain jurisdictions through
an affiliate, Wells Fargo Securities International Limited, or
WFSIL. WFSIL is a wholly-owned indirect subsidiary of Wells
Fargo & Company and an affiliate of Wells Fargo
Securities, LLC. WFSIL is a U.K. incorporated investment firm
regulated by the Financial Services Authority. Wells Fargo
Securities is the trade name for certain corporate and
investment banking services of Wells Fargo & Company
and its affiliates, including Wells Fargo Securities, LLC and
WFSIL.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) an offer to the public of any
shares of common
128
stock which are the subject of the offering contemplated by this
prospectus (the Shares) may not be made in that
Relevant Member State except that an offer to the public in that
Relevant Member State of any Shares may be made at any time
under the following exemptions under the Prospectus Directive,
if they have been implemented in that Relevant Member State:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) 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;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representatives of
the underwriters; or
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive,
provided that no such offer of Shares shall result in a
requirement for the publication by us or any underwriter of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
For the purposes of this provision, the expression an
offer to the public in relation to any 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 any Shares to be offered so as to enable an investor to
decide to purchase any 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.
United
Kingdom
This prospectus and any other material in relation to the shares
described herein 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
Prospective Directive (qualified investors) that
also (i) have professional experience in matters relating
to investments falling within Article 19(5) of the
Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005, as amended, or the Order, (ii) who fall within
Article 49(2)(a) to (d) of the Order or (iii) to
whom it may otherwise lawfully be communicated (all such persons
together being referred to as relevant persons). The
shares are only available to, and any invitation, offer or
agreement to purchase or otherwise acquire such shares will be
engaged in only with, relevant persons. This offering memorandum
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 person in the United Kingdom. Any person
in the United Kingdom that is not a relevant person should not
act or rely on this prospectus or any of its contents.
The distribution of this prospectus in the United Kingdom to
anyone not falling within the above categories is not permitted
and may contravene the Financial Services and Markets Act of
2000. No person falling outside those categories should treat
this prospectus as constituting a promotion to him, or act on it
for any purposes whatever. Recipients of this prospectus are
advised that we, the underwriters and any other person that
communicates this prospectus are not, as a result solely of
communicating this prospectus, acting for or advising them and
are not responsible for providing recipients of this prospectus
with the protections which would be given to those who are
clients of any aforementioned entities that is subject to the
Financial Services Authority Rules.
France
The prospectus supplement and the accompanying prospectus
(including any amendment, supplement or replacement thereto)
have not been approved either by the Autorité des
marchés financiers or by the competent authority of
another State that is a contracting party to the Agreement on
129
the European Economic Area and notified to the Autorité
des marchés financiers; no security has been offered or
sold and will be offered or sold, directly or indirectly, to the
public in France within the meaning of Article L.
411-1 of the
French Code Monétaire et Financier except to
permitted investors, or Permitted Investors, consisting of
persons licensed to provide the investment service of portfolio
management for the account of third parties, qualified investors
(investisseurs qualifiés) acting for their own
account
and/or a
limited circle of investors (cercle restreint
dinvestisseurs) acting for their own account, with
qualified investors and limited circle of
investors having the meaning ascribed to them in
Articles L.
411-2, D.
411-1, D.
411-2, D.
411-4, D.
744-1, D.
754-1 and D.
764-1 of the
French Code Monétaire et Financier; none of this
prospectus supplement and the accompanying Prospectus or any
other materials related to the offer or information contained
therein relating to our securities has been released, issued or
distributed to the public in France except to Permitted
Investors; and the direct or indirect re-sale to the public in
France of any securities acquired by any Permitted Investors may
be made only as provided by Articles L.
411-1, L.
411-2, L.
412-1 and L.
621-8 to L.
621-8-3 of
the French Code Monétaire et Financier and
applicable regulations thereunder.
Notice
to the Residents of Germany
This document has not been prepared in accordance with the
requirements for a securities or sales prospectus under the
German Securities Prospectus Act
(Wertpapierprospektgesetz), the German Sales Prospectus
Act (Verkaufsprospektgesetz), or the German Investment
Act (Investmentgesetz). Neither the German Federal
Financial Services Supervisory Authority (Bundesanstalt fur
Finanzdienstleistungsaufsicht BaFin) nor
any other German authority has been notified of the intention to
distribute the securities in Germany. Consequently, the
securities may not be distributed in Germany by way of public
offering, public advertisement or in any similar manner AND THIS
DOCUMENT AND ANY OTHER DOCUMENT RELATING TO THE OFFERING, AS
WELL AS INFORMATION OR STATEMENTS CONTAINED THEREIN, MAY NOT BE
SUPPLIED TO THE PUBLIC IN GERMANY OR USED IN CONNECTION WITH ANY
OFFER FOR SUBSCRIPTION OF THE SECURITIES TO THE PUBLIC IN
GERMANY OR ANY OTHER MEANS OF PUBLIC MARKETING. The securities
are being offered and sold in Germany only to qualified
investors which are referred to in Section 3,
paragraph 2 no. 1, in connection with Section 2,
no. 6, of the German Securities Prospectus Act. This
document is strictly for use of the person who has received it.
It may not be forwarded to other persons or published in Germany.
Notice
to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will
not be listed on the SIX Swiss Exchange (SIX) or on
any other stock exchange or regulated trading facility in
Switzerland. This document has been prepared without regard to
the disclosure standards for issuance prospectuses under art.
652a or art. 1156 of the Swiss Code of Obligations or the
disclosure standards for listing prospectuses under art. 27 ff.
of the SIX Listing Rules or the listing rules of any other stock
exchange or regulated trading facility in Switzerland. Neither
this document nor any other offering or marketing material
relating to the shares or the offering may be publicly
distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing
material relating to the offering, the Company, the shares have
been or will be filed with or approved by any Swiss regulatory
authority. In particular, this document will not be filed with,
and the offer of shares will not be supervised by, the Swiss
Financial Market Supervisory Authority FINMA (FINMA), and the
offer of shares has not been and will not be authorized under
the Swiss Federal Act on Collective Investment Schemes
(CISA). The investor protection afforded to
acquirers of interests in collective investment schemes under
the CISA does not extend to acquirers of shares.
130
Notice
to Prospective Investors in the Dubai International Financial
Centre
This prospectus supplement relates to an Exempt Offer in
accordance with the Offered Securities Rules of the Dubai
Financial Services Authority (DFSA). This prospectus
supplement is intended for distribution only to persons of a
type specified in the Offered Securities Rules of the DFSA. It
must not be delivered to, or relied on by, any other person. The
DFSA has no responsibility for reviewing or verifying any
documents in connection with Exempt Offers. The DFSA has not
approved this prospectus supplement nor taken steps to verify
the information set forth herein and has no responsibility for
the prospectus supplement. The shares to which this prospectus
supplement relates may be illiquid
and/or
subject to restrictions on their re-sale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
prospectus supplement you should consult an authorized financial
advisor.
Conflicts
of Interest
Certain affiliates of DnB NOR Markets, Inc., an underwriter in
this offering, will receive more than 5% of the net proceeds of
this offering in connection with repaying in full our secured
term loan facility with them. See Use of Proceeds.
Accordingly, this offering is being made in compliance with the
requirements of FINRA Rule 5121. As DnB NOR Markets, Inc.
is not primarily responsible for managing this offering,
pursuant to Rule 5121, the appointment of a qualified
independent underwriter is not necessary. DnB NOR Markets, Inc.
will not confirm sales of the securities to any account over
which it exercises discretionary authority without the prior
written approval of the customer.
131
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.
|
|
|
|
|
SEC Registration Fee
|
|
$
|
20,027.25
|
|
Printing and Engraving Expenses
|
|
|
100,000
|
|
Legal Fees and Expenses
|
|
|
200,000
|
|
Accountants Fees and Expenses
|
|
|
165,000
|
|
Nasdaq Global Market Listing Fee
|
|
|
10,000
|
|
FINRA Fee
|
|
|
17,750
|
|
Blue Sky Fees and Expenses
|
|
|
25,000
|
|
Transfer Agents Fees and Expenses
|
|
|
10,000
|
|
Miscellaneous Costs
|
|
|
152,222.75
|
|
|
|
|
|
|
Total
|
|
$
|
700,000
|
|
|
|
|
|
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Act and is
therefore unenforceable.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on
Form F-1
under the Securities Act with respect to the common stock
offered by this prospectus. For the purposes of this section,
the term registration statement means the original
registration statement and any and all amendments, including the
schedules and exhibits to the original registration statement or
any amendment. This prospectus does not contain all of the
information set forth in the registration statement we filed.
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 furnish holders of common shares with annual reports
containing audited financial statements and a report by our
independent public accountants, and intend to make available
quarterly reports containing selected unaudited financial data
for the first three quarters of each fiscal year. The audited
financial statements will be prepared in accordance with United
States generally accepted accounting principles and those
reports will include a Managements Discussion and
Analysis of Financial Condition and Results of Operations
section for the relevant periods. As a foreign private
issuer, we will be exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy
statements to shareholders, but, will be required to furnish
those proxy statements to shareholders under Nasdaq Global
Market rules. Those proxy statements are not expected to conform
to Schedule 14A of the proxy rules promulgated under the
Exchange Act. In addition, as a foreign private
issuer, we will be exempt from the rules under the
Exchange Act relating to short swing profit reporting and
liability.
132
LEGAL
MATTERS
Certain legal matters in connection with the sale of the shares
of common stock offered hereby, including the legality thereof,
are being passed upon for us by Seward & Kissel LLP,
New York, New York, and for the underwriters by Simpson
Thacher & Bartlett LLP, New York, New York.
EXPERTS
The consolidated financial statements of Diana Containerships
Inc. at December 31, 2010 and for the period then ended included
in this prospectus and Registration Statement have been audited
by Ernst & Young (Hellas) Certified Auditors
Accountants S.A., independent registered public accounting firm,
as set forth in their report thereon appearing elsewhere herein
and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The sections in this prospectus titled Summary
Market Opportunity, Risk Factors and The
International Containership Sector have been reviewed by
Drewry Shipping Consultants Ltd. which has confirmed to us that
such sections accurately describe the international
containership market, subject to the availability and
reliability of the data supporting the statistical information
presented in this prospectus.
133
DIANA
CONTAINERSHIPS INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-18
|
|
|
|
|
F-19
|
|
|
|
|
F-20
|
|
|
|
|
F-21
|
|
|
|
|
F-22
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Diana Containerships
Inc.
We have audited the accompanying consolidated balance sheet of
Diana Containerships Inc. as of December 31, 2010, and the
related consolidated statement of operations, stockholders
equity, and cash flows for the period from January 7, 2010
(date of inception) through December 31, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management and evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Diana Containerships Inc. at
December 31, 2010 and the consolidated results of its
operations and its cash flows for the period from
January 7, 2010 to December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young (Hellas)
Certified Auditors Accountants S.A.
May 9, 2011
Athens, Greece
F-2
|
|
|
|
|
|
|
(Expressed in U.S. Dollars,
|
|
|
|
except for share
data)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,098,284
|
|
Accounts receivable, trade
|
|
|
37,429
|
|
Due from related party (Note 3)
|
|
|
397,853
|
|
Inventories
|
|
|
623,643
|
|
Prepaid expenses
|
|
|
218,805
|
|
|
|
|
|
|
Total current assets
|
|
|
12,376,014
|
|
|
|
|
|
|
FIXED ASSETS:
|
|
|
|
|
Vessels (Note 4)
|
|
|
93,531,186
|
|
Accumulated depreciation (Note 4)
|
|
|
(1,453,877
|
)
|
|
|
|
|
|
Vessels Net book value
|
|
|
92,077,309
|
|
|
|
|
|
|
Total fixed assets
|
|
|
92,077,309
|
|
|
|
|
|
|
Deferred financing costs
|
|
|
109,046
|
|
Restricted cash (Note 5)
|
|
|
786,800
|
|
|
|
|
|
|
Total assets
|
|
$
|
105,349,169
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
Current portion of long-term debt (Note 5)
|
|
$
|
1,361,538
|
|
Accounts payable, trade and other
|
|
|
436,251
|
|
Accrued liabilities
|
|
|
585,456
|
|
Other current liabilities
|
|
|
45,431
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,428,676
|
|
|
|
|
|
|
Long-term debt, net of current portion (Note 5)
|
|
|
18,128,095
|
|
Other non-current liabilities
|
|
|
181,684
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
Preferred stock, $0.01 par value; 25,000,000 shares
authorized, none issued
|
|
|
|
|
Common stock, $0.01 par value; 500,000,000 shares
authorized; 6,106,161 issued and outstanding (Note 8)
|
|
|
61,062
|
|
Additional paid-in capital (Note 8)
|
|
|
86,551,013
|
|
Accumulated deficit
|
|
|
(2,001,361
|
)
|
|
|
|
|
|
Total stockholders equity
|
|
|
84,610,714
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
105,349,169
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-3
DIANA
CONTAINERSHIPS INC.
(DATE OF
INCEPTION) THROUGH DECEMBER 31, 2010
|
|
|
|
|
|
|
(Expressed in U.S. Dollars
|
|
|
|
except for share
data)
|
|
REVENUES:
|
|
|
|
|
Time charter revenues
|
|
$
|
5,734,716
|
|
EXPENSES:
|
|
|
|
|
Voyage expenses (Note 9)
|
|
|
266,967
|
|
Vessel operating expenses (Note 9)
|
|
|
2,884,610
|
|
Depreciation (Note 4)
|
|
|
1,453,877
|
|
Management fees (Note 3)
|
|
|
203,000
|
|
General and administrative expenses (Notes 3 and 7)
|
|
|
3,523,986
|
|
Foreign currency gains
|
|
|
(1,043,563
|
)
|
|
|
|
|
|
Operating loss
|
|
$
|
(1,554,161
|
)
|
|
|
|
|
|
OTHER INCOME/(LOSS)
|
|
|
|
|
Interest and finance costs (Note 10)
|
|
$
|
(511,291
|
)
|
Interest income
|
|
|
64,091
|
|
|
|
|
|
|
Other loss
|
|
|
(447,200
|
)
|
|
|
|
|
|
Net loss
|
|
$
|
(2,001,361
|
)
|
|
|
|
|
|
Loss per common share, basic and diluted (Note 11)
|
|
$
|
(0.45
|
)
|
|
|
|
|
|
Weighted average number of common shares, basic and
diluted
|
|
|
4,449,431
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-4
DIANA
CONTAINERSHIPS INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
# of
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
(Expressed in U.S. Dollars except for share
data)
|
|
|
- Net loss
|
|
$
|
(2,001,361
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2,001,361
|
)
|
|
$
|
(2,001,361
|
)
|
- Issuance of common stock at $1.0 per share
|
|
|
|
|
|
|
500
|
|
|
|
5
|
|
|
|
495
|
|
|
|
|
|
|
|
500
|
|
- Issuance of common stock at $15.0 per share, net of issuance
costs
|
|
|
|
|
|
|
5,892,330
|
|
|
|
58,924
|
|
|
|
85,221,972
|
|
|
|
|
|
|
|
85,280,896
|
|
- Issuance of restricted common stock, at $15.0 per share
|
|
|
|
|
|
|
213,331
|
|
|
|
2,133
|
|
|
|
1,328,546
|
|
|
|
|
|
|
|
1,330,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(2,001,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2010
|
|
|
|
|
|
|
6,106,161
|
|
|
$
|
61,062
|
|
|
$
|
86,551,013
|
|
|
$
|
(2,001,361
|
)
|
|
$
|
84,610,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-5
DIANA
CONTAINERSHIPS INC.
(DATE OF
INCEPTION) THROUGH DECEMBER 31, 2010
|
|
|
|
|
|
|
(Expressed in U.S.
Dollars)
|
|
|
Net loss
|
|
$
|
(2,001,361
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Depreciation
|
|
|
1,453,877
|
|
Amortization of financing costs
|
|
|
110,587
|
|
Foreign exchange gains
|
|
|
(1,051,399
|
)
|
Compensation cost on restricted stock awards
|
|
|
1,330,679
|
|
Increases in:
|
|
|
|
|
Accounts receivable, trade
|
|
|
(37,429
|
)
|
Due from related party
|
|
|
(397,853
|
)
|
Inventories
|
|
|
(623,643
|
)
|
Prepaid Expenses
|
|
|
(218,805
|
)
|
Increases in:
|
|
|
|
|
Accounts payable, trade and other
|
|
|
436,251
|
|
Accrued liabilities
|
|
|
585,456
|
|
Other current liabilities
|
|
|
45,431
|
|
Other non-current liabilities
|
|
|
181,684
|
|
|
|
|
|
|
Net Cash used in Operating Activities
|
|
|
(186,525
|
)
|
|
|
|
|
|
Cash Flows used in Investing Activities:
|
|
|
|
|
Vessel acquisitions and other vessel costs
|
|
|
(93,531,186
|
)
|
|
|
|
|
|
Net Cash used in Investing Activities
|
|
|
(93,531,186
|
)
|
|
|
|
|
|
Cash Flows provided by Financing Activities:
|
|
|
|
|
Proceeds from long term debt
|
|
|
20,000,000
|
|
Issuance of common stock, net of issuance costs
|
|
|
85,281,396
|
|
Payments of financing costs
|
|
|
(400,000
|
)
|
Changes in restricted cash
|
|
|
(786,800
|
)
|
Payments of long term debt
|
|
|
(330,000
|
)
|
|
|
|
|
|
Net Cash provided by Financing Activities
|
|
|
103,764,596
|
|
|
|
|
|
|
Effects of exchange rates on cash
|
|
|
1,051,399
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
11,098,284
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
11,098,284
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
Interest payments
|
|
$
|
154,633
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-6
DIANA
CONTAINERSHIPS INC.
December 31, 2010
(Expressed in US Dollars except for share
data)
1. General
Information
The accompanying consolidated financial statements include the
accounts of Diana Containerships Inc. (DCI) and its
wholly-owned subsidiaries (collectively, the
Company). Diana Containerships Inc. was incorporated
on January 7, 2010 under the laws of the Republic of
Marshall Islands for the purpose of engaging in any lawful act
or activity under the Marshall Islands Business Corporations
Act. In April 2010, the Companys articles of incorporation
and bylaws were amended. Under the amended articles of
incorporation, the Companys authorized share capital
increased from 500 common shares to 500.0 million of common
shares at par value $0.01 and 25.0 million of preferred
shares at par value $0.01. On April 6, 2010, the Company
completed a private offering under rule 144A and
Regulation S and Regulation D of the Securities Act of
1933, as amended, the net proceeds of which amounted to
$85,280,896. A controlling ownership interest of 54.6% over
DCIs common stock was acquired by Diana Shipping Inc.
(DSI) in this private offering.
On October 15, 2010, DCI filed a registration statement on
Form F-4
with the US Securities and Exchange Commission, to register an
aggregate of 2,558,997 common shares sold previously in the
private offering. On October 19, 2010 the registration
statement was declared effective. On January 19, 2011, and
following DSIs decision to effect for a partial spin-off
of 80% of its interest in DCI through a distribution to
DSIs shareholders, DCI began regular way
trading on the Nasdaq Global Market.
The Company is engaged in the seaborne transportation industry
through the ownership and operation of containerships and is the
sole owner of all outstanding shares of the following
subsidiaries, each incorporated in the Marshall Islands:
(a) Likiep Shipping Company Inc.
(Likiep), owner of the Marshall Islands
flag, 3,426 TEU capacity container vessel, Sagitta,
which was built and delivered on June 29, 2010
(Note 4).
(b) Orangina Inc. (Orangina),
owner of the Marshall Islands flag, 3,426 TEU capacity
container vessel, Centaurus, which was built and
delivered on July 9, 2010 (Note 4).
(c) Lemongina Inc. (Lemongina), a
newly established wholly owned subsidiary of the Company. As at
December 31, 2010, Lemongina did not have any operations.
During the period ended December 31, 2010, two charterers
have accounted for more than 10% of the Companys revenues
as follows:
|
|
|
|
|
|
|
December 31,
|
Charterer
|
|
2010
|
|
A
|
|
|
51
|
%
|
B
|
|
|
41
|
%
|
2. Significant
Accounting Policies
(a) Preparation of financial
statements: The accompanying consolidated
financial statements have been prepared in accordance with
U.S. generally accepted accounting principles and include
the accounts of Diana Containerships Inc. and its wholly-owned
subsidiaries referred to in Note 1 above. All significant
intercompany balances and transactions have been eliminated upon
consolidation.
(b) Use of Estimates: The
preparation of consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and
F-7
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(c) Other Comprehensive
Income: The Company follows the provisions of
Accounting Standard Codification (ASC) 220, Comprehensive
Income, which requires separate presentation of certain
transactions, which are recorded directly as components of
stockholders equity. The Company has no such transactions
which affect comprehensive income/(loss) and, accordingly for
the period ended December 31, 2010, comprehensive loss
equals net loss.
(d) Foreign Currency
Translation: The functional currency of the
Company is the U.S. Dollar because the Company operates its
vessels in international shipping markets, and therefore,
primarily transacts business in U.S. Dollars. The
Companys books of accounts are maintained in
U.S. Dollars. Transactions involving other currencies
during the period presented are converted into U.S. Dollars
using the exchange rates in effect at the time of the
transactions. At the balance sheet date, monetary assets and
liabilities which are denominated in other currencies are
translated into U.S. Dollars at the period-end exchange
rates. Resulting gains or losses are reflected separately in the
accompanying consolidated statement of operations.
(e) Cash and Cash Equivalents: The
Company considers highly liquid investments such as time
deposits, certificates of deposit and their equivalents with an
original maturity of three months or less to be cash equivalents.
(f) Restricted Cash: Restricted
cash includes minimum cash deposits required to be maintained
under the Companys borrowing arrangement.
(g) Accounts Receivable,
Trade: The account includes receivables from
charterers for hire, freight and demurrage billings. At each
balance sheet date, all potentially uncollectible accounts are
assessed individually for purposes of determining the
appropriate provision for doubtful accounts. No provision for
doubtful accounts has been made as of December 31, 2010.
(h) Inventories: Inventories
consist of lubricants and victualling which are stated at the
lower of cost or market. Cost is determined by the first in,
first out method. Inventories may also consist of bunkers when
the vessel operates under freight charter or when on the balance
sheet date a vessel has been redelivered by its previous
charterers and has not yet been delivered to new charterers, or
remains idle. Bunkers are also stated at the lower of cost or
market and cost is determined by the first in, first out method.
(i) Vessel Cost: Vessels are
stated at cost which consists of the contract price and costs
incurred upon acquisition or delivery of a vessel from a
shipyard. Subsequent expenditures for conversions and major
improvements are also capitalized when they appreciably extend
the life, increase the earnings capacity or improve the
efficiency or safety of the vessels; otherwise these amounts are
charged to expense as incurred.
(j) Vessel Depreciation: The
Company depreciates containership vessels on a straight-line
basis over their estimated useful lives, estimated to be
30 years from the date of initial delivery from the
shipyard. Second-hand vessels are depreciated from the date of
their acquisition through their remaining estimated useful life.
Depreciation is based on costs less the estimated residual scrap
value, which is assessed at $200 per light-weight ton. A
decrease in the useful life of a containership or in its
residual scrap value would have the effect of increasing the
annual depreciation charge. When regulations place limitations
on the ability of a vessel to trade on a worldwide basis, the
vessels useful life is adjusted at the date such
regulations are adopted.
F-8
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
(k) Impairment of Long-Lived
Assets: The Company follows
ASC 360-10-40
Impairment or Disposal of Long-Lived Assets, which
addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. The Company reviews vessels
for impairment whenever events or changes in circumstances
indicate that the carrying amount of a vessel may not be
recoverable. In evaluating useful lives and carrying values of
long-lived assets, management reviews certain indicators of
potential impairment, such as undiscounted projected operating
cash flows, vessel sales and purchases, business plans and
overall market conditions. When the estimate of future
undiscounted net operating cash flows, excluding interest
charges, expected to be generated by the use of the vessel over
its remaining useful life and its eventual disposition is less
than its carrying amount, the Company evaluates the vessel for
impairment loss. Measurement of the impairment loss is based on
the fair value of the vessel. The fair value of the vessel is
determined based on management estimates and assumptions and by
making use of available market data and third party valuations.
Containership market conditions, charter rates and vessel values
at the balance sheet date did not provide for any impairment
indications for the Companys vessels. Furthermore the
Company did not identify any other facts or circumstances that
would require the write down of vessel values at
December 31, 2010.
(l) Accounting for Revenues and
Expenses: Revenues are generated from time
charter agreements. Time charter agreements with the same
charterer are accounted for as separate agreements according to
the terms and conditions of each agreement. Time charter
revenues are recorded over the term of the charter as service is
provided. Revenues from time charter agreements providing for
varying annual rates over their term are accounted for on a
straight line basis. Deferred revenue, if any, includes cash
received prior to the balance sheet date for which all criteria
to recognise as revenue have not been met, including any
deferred revenue resulting from charter agreements providing for
varying annual rates, which are accounted for on a straight line
basis. Deferred revenue also may include the unamortized balance
of the liability associated with the acquisition of second hand
vessels with time charters attached, acquired at values below
fair market value at the date the acquisition agreement is
consummated.
Voyage expenses, primarily consisting of port, canal and bunker
expenses that are unique to a particular charter, are paid for
by the charterer under time charter arrangements or by the
Company under voyage charter arrangements, except for
commissions, which are always paid for by the Company,
regardless of charter type. All voyage and vessel operating
expenses are expensed as incurred, except for commissions.
Commissions are deferred over the related voyage charter period
to the extent revenue has been deferred since commissions are
due as the Companys revenues are earned.
(m) Loss per Common Share: Basic
losses per common share are computed by dividing net loss
attributable to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
loss per common share reflects the potential dilution that could
occur if securities or other contracts to issue common stock
were exercised.
(n) Accounting for Dry-Docking
Costs: The Company follows the deferral
method of accounting for dry-docking costs whereby actual costs
incurred are deferred and amortized on a straight-line basis
over the period through the date the next dry-docking will be
scheduled to become due. Unamortized dry-docking costs of
vessels that are sold are written off and included in the
calculation of the resulting gain or loss in the year of the
vessels sale.
(o) Financing Costs: Fees paid to
lenders for obtaining new loans or refinancing existing ones are
deferred and recorded as a contra to debt. Other fees paid for
obtaining loan facilities not used at the balance sheet date are
capitalized as deferred financing costs. Fees are amortized to
interest and finance
F-9
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
costs over the life of the related debt using the effective
interest method and, for the fees relating to loan facilities
not used at the balance sheet date, according to the loan
availability terms. Unamortized fees relating to loans repaid or
refinanced as debt extinguishment are expensed as interest and
finance costs in the period the repayment or extinguishment is
made. Loan commitment fees are charged to expense in the period
incurred.
(p) Repairs and Maintenance: All
repair and maintenance expenses including underwater inspection
expenses are expensed in the period incurred. Such costs are
included in vessel operating expenses in the accompanying
consolidated statement of operations.
(q) Share Based Payment: ASC 718
Compensation Stock Compensation,
requires the Company to measure the cost of employee services
received in exchange for an award of equity instruments based on
the grant-date fair value of the award (with limited
exceptions). That cost is recognized over the period during
which an employee is required to provide service in exchange for
the award the requisite service period (usually the
vesting period). No compensation cost is recognized for equity
instruments for which employees do not render the requisite
service. Employee share purchase plans will not result in
recognition of compensation cost if certain conditions are met.
The Company initially measures the cost of employee services
received in exchange for an award or liability instrument based
on its current fair value; the fair value of that award or
liability instrument is remeasured subsequently at each
reporting date through the settlement date. Changes in fair
value during the requisite service period are recognized as
compensation cost over that period with the exception of awards
granted in the form of restricted shares which are measured at
their grant date fair value and are not subsequently re
measured. The grant-date fair value of employee share options
and similar instruments are estimated using option-pricing
models adjusted for the unique characteristics of those
instruments (unless observable market prices for the same or
similar instruments are available). If an equity award is
modified after the grant date, incremental compensation cost is
recognized in an amount equal to the excess of the fair value of
the modified award over the fair value of the original award
immediately before the modification.
(r) Variable Interest
Entities: ASC
850-10-50
Consolidation of Variable Interest Entities,
addresses the consolidation of business enterprises (variable
interest entities) to which the usual condition (ownership of a
majority voting interest) of consolidation does not apply. The
guidance focuses on financial interests that indicate control.
It concludes that in the absence of clear control through voting
interests, a companys exposure (variable interest) to the
economic risks and potential rewards from the variable interest
entitys assets and activities are the best evidence of
control. Variable interests are rights and obligations that
convey economic gains or losses from changes in the value of the
variable interest entitys assets and liabilities. The
Company evaluates financial instruments, service contracts, and
other arrangements to determine if any variable interests
relating to an entity exist, as the primary beneficiary would be
required to include assets, liabilities, and the results of
operations of the variable interest entity in its financial
statements. As of December 31, 2010, no such interests
existed.
(s) Concentration of Credit
Risk: Financial instruments, which
potentially subject the Company to significant concentrations of
credit risk, consist principally of cash and trade accounts
receivable. The Company places its temporary cash investments,
consisting mostly of deposits, with high credit qualified
financial institutions. The Company performs periodic
evaluations of the relative credit standing of those financial
institutions that are considered in the Companys
investment strategy. The Company limits its credit risk with
accounts receivable by performing ongoing credit evaluations of
its customers financial condition and generally does not
require collateral for its accounts receivable and does not have
any agreements to mitigate credit risk.
F-10
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
3. Transactions
with Related Party
Diana Shipping Services S.A. (DSS or the
Manager): DSS, a wholly owned
subsidiary of Diana Shipping Inc. (or DSI), a
Companys major shareholder, provides
(i) administrative services under an Administrative
Services Agreement, for a monthly fee of $10,000;
(ii) brokerage services pursuant to a Broker Services
Agreement that DSS has entered into with Diana Enterprises Inc.,
a related party controlled by the Companys Chief Executive
Officer and Chairman Mr. Symeon Palios (Note 7), for
annual fees of $1,040,000 (to increase to $1,300,000 following
the completion of an initial public offering);
(iii) commercial and technical services pursuant to Vessel
Management Agreements, signed between each shipowning company
and DSS, under which the Company pays a commission of 1% of the
gross charterhire and freight earned by each vessel and a
technical management fee of $15,000 per vessel per month for
employed vessels and $20,000 per vessel per month for
laid-up
vessels.
For the period from January 7, 2010 (date of inception)
through December 31, 2010, management fees under the Vessel
Management Agreements amounted to $203,000 and are included in
Management fees in the accompanying consolidated statement of
operations. In the same period, commissions charged by DSS
amounted to $57,347 and are included in Voyage expenses in the
accompanying consolidated statement of operations (Note 9).
For the period from January 7, 2010 (date of inception)
through December 31, 2010, administrative expenses and
brokerage services amounted to $88,000 and $606,667,
respectively, and are included in General and administrative
expenses in the accompanying consolidated statement of
operations. As at December 31, 2010, an amount of $397,853
was due from DSS, representing Companys payments in excess
of DSS charges, and is included in Due from related party in the
accompanying consolidated balance sheet.
4. Vessels
On June 8, 2010, the Company, through its wholly owned
subsidiaries Likiep and Orangina, entered into memoranda of
agreement with a third party company, to acquire Hulls 558 and
559, respectively, named Sagitta and
Centaurus, respectively, for the purchase price of
Euro 37.3 million, each. On June 11, 2010, the
Company paid Euro 3.73 million, or $4,528,238 (by
using the exchange rate of Euro/US$ on the date of payment) for
each vessel, representing an advance of 10% of the purchase
prices as per the relevant agreements. The balance of the
acquisition costs of Euro 33,570,000, or $41,123,075 (by
using the exchange rate of Euro/US$ on the date of payment) for
Sagitta was paid on June 29, 2010, and the balance of the
acquisition costs of Euro 33,570,000, or $42,697,430 (by
using the exchange rate of Euro/US$ on the date of payment) for
Centaurus was paid on July 9, 2010, on the vessels
respective deliveries. Additional costs included in the cost of
vessels amounted to $321,478 for Sagitta and $332,727 for
Centaurus and relate to vessels permanent equipment,
delivery expenses and
on-site
supervision costs incurred during the construction period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Vessels Cost
|
|
|
Depreciation
|
|
|
Net Book Value
|
|
|
- Acquisition and other vessels costs
|
|
$
|
93,531,186
|
|
|
$
|
|
|
|
$
|
93,531,186
|
|
- Depreciation for the period
|
|
|
|
|
|
|
(1,453,877
|
)
|
|
|
(1,453,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
93,531,186
|
|
|
$
|
(1,453,877
|
)
|
|
$
|
92,077,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Both vessels, having a total carrying value of $92,077,309 as of
December 31, 2010, have been provided as collateral to
secure the loan facility with DnB NOR Bank ASA discussed in
Note 5.
F-11
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
As of December 31, 2010, both vessels were operating under
time charter agreements.
5. Long-Term
Debt, Current and Non-Current
The amount of long-term debt shown in the accompanying
consolidated balance sheet is analyzed as follows:
|
|
|
|
|
|
|
2010
|
|
|
DnB NOR Bank ASA
|
|
$
|
19,670,000
|
|
Less related deferred financing costs
|
|
|
(180,367
|
)
|
|
|
|
|
|
Total
|
|
$
|
19,489,633
|
|
|
|
|
|
|
Current portion of long term debt
|
|
$
|
(1,361,538
|
)
|
|
|
|
|
|
Total
|
|
$
|
18,128,095
|
|
|
|
|
|
|
On July 7, 2010, the Company, through Likiep and Orangina,
entered into a loan agreement with DnB NOR Bank ASA to finance
part of the acquisition cost of the vessels Sagitta
and Centaurus, for an amount of up to
$40.0 million. An arrangement fee of $400,000 was paid on
signing the facility agreement.
On July 9, 2010, the Company, through Likiep and Orangina,
drew down the first two advances of $10.0 million each to
finance part of the acquisition cost of the vessels
Sagitta and Centaurus. On
December 31, 2010, an amount of $19,670,000 was outstanding
under the loan facility. On February 4, 2011, the Company
drew down the remainder of the available facility amounting to
$20.0 million (Note 14). The loan is repayable in 24
quarterly instalments of $165,000 for each advance and a balloon
of $6,040,000 payable together with the last instalment. The
loan bears interest at LIBOR plus a margin of 2.40% per annum.
The Company paid commitment fees of 0.96% per annum on the
undrawn portion of the loan, which for the period from
January 7, 2010 (date of inception) through
December 31, 2010 amounted to $96,000 (Note 10).
During 2010, the weighted average interest rate of the loan was
2.82%.
The loan is secured by a first preferred ship mortgage on the
vessels, general assignments, charter assignments, operating
account assignments, a corporate guarantee and managers
undertakings. The lender may also require additional security if
the market values of the mortgaged ships do not cover 125% of
the aggregate outstanding balance of the loan. The loan also
includes restrictions as to changes in management, ownership,
additional indebtedness, a consolidated leverage ratio of not
more than 70% and minimum liquidity of 4% of the funded debt (to
be measured semi-annually and at the end of each calendar year),
which is presented as Restricted cash in the accompanying
consolidated balance sheet. Furthermore, the Company is not
permitted to pay any dividends that would result in an event of
default or when an event of default has occurred and is
continuing.
Total interest incurred on long-term debt amounted to $273,596
and is included in Interest and finance costs in the
accompanying consolidated statement of operations (Note 10).
F-12
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
On May 4, 2011, the existing loan was refinanced according
to the terms described in Note 14. Pursuant to the new
terms of the loan, the maturity of the Companys loan
facility described above, as of December 31, 2010, and
throughout its term is as follows:
|
|
|
|
|
|
|
Principal
|
|
Period
|
|
Repayment
|
|
|
January 1, 2011 to December 31, 2011
|
|
|
1,361,538
|
|
January 1, 2012 to December 31, 2012
|
|
|
1,403,077
|
|
January 1, 2013 to December 31, 2013
|
|
|
1,403,077
|
|
January 1, 2014 to December 31, 2014
|
|
|
1,403,077
|
|
January 1, 2015 to December 31, 2015
|
|
|
1,403,077
|
|
January 1, 2016 and thereafter
|
|
|
12,696,154
|
|
|
|
|
|
|
Total
|
|
|
19,670,000
|
|
|
|
|
|
|
6. Commitments
and Contingencies
(a) Various claims, suits, and complaints,
including those involving government regulations and product
liability, arise in the ordinary course of the shipping
business. In addition, losses may arise from disputes with
charterers, agents, insurance and other claims with suppliers
relating to the operations of the Companys vessels.
Currently, management is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which
a provision should be established in the accompanying
consolidated financial statements.
The Company accrues for the cost of environmental liabilities
when management becomes aware that a liability is probable and
is able to reasonably estimate the probable exposure. Currently,
management is not aware of any such claims or contingent
liabilities, which should be disclosed, or for which a provision
should be established in the accompanying consolidated financial
statements.
The Companys vessels are covered for pollution in the
amount of $1 billion per vessel per incident, by the
P&I Association in which the Companys vessels are
entered. The Companys vessels are subject to calls payable
to their P&I Association and may be subject to supplemental
calls which are based on estimates of premium income and
anticipated and paid claims. Such estimates are adjusted each
year by the Board of Directors of the P&I Association until
the closing of the relevant policy year, which generally occurs
within three years from the end of the policy year. Supplemental
calls, if any, are expensed when they are announced and
according to the period they relate to. The Company is not aware
of any supplemental calls in respect of the 2010/11 policy year,
which is the first year in which the Companys vessels were
entered into their P&I Association.
(b) As of December 31, 2010, the minimum
contractual charter revenues, net of related commissions, to be
generated from the existing non-cancelable time charter
contracts until their expiration, are estimated at
$8.5 million for 2011 and $4.0 million for 2012.
7. Consultancy
Agreements
On March 29, 2010, the Company entered into consultancy
agreements with companies controlled by its executive officers
for the services to be provided by them, with an effective date
of January 7, 2010. The aggregate annual consulting fee for
the executive officers was $1,040,000.
F-13
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
On June 1, 2010, the Company terminated the above
Consultancy Agreements and as of that date, such services are
provided by DSS under the Administrative Services and under the
Brokerage Services Agreement between DSS and Diana Enterprises
Inc. (Note 3). For the period from January 7, 2010
(date of inception) through June 1, 2010, consultancy fees
amounted $418,889, and are included in General and
administrative expenses in the accompanying consolidated
statement of operations.
8. Change
in Capital Accounts
(a) Private offering: On
April 6, 2010, DCI sold 5,892,330 shares of common
stock in a private offering pursuant to Rule 144A and
Regulation S and Regulation D of the Securities Act of
1933, as amended (the Offering), of which 3,333,333
common shares were acquired by Diana Shipping Inc., a related
party and a major shareholder. The net proceeds of the private
offering amounted to $85,280,896 of which $50,000,000 related to
the purchase of the Companys shares by Diana Shipping Inc.
Effective upon the closing of the private offering, the
Companys Articles of Incorporation and By-laws were
amended and restated, and its authorized share capital increased
to 500,000,000 shares of common stock, par value $0.01 per
share, and 25,000,000 shares of preferred stock, par value
$0.01 per share.
(b) Incentive plan: On
April 6, 2010, DCI adopted an equity incentive plan and
reserved a total of 392,198 common shares for issuance, of which
213,331 common shares of restricted stock with a grant date fair
value of $3,199,965 were issued to the Companys executive
officers pursuant to the Companys Incentive Plan and in
accordance with terms and conditions of Restricted
Shares Award Agreements signed by the grantees. The shares
are subject to applicable vesting as follows: (i) 25% or
53,335 shares were vested on May 6, 2010; and
(ii) the remaining shares vest ratably over three years by
one-third each year.
The Company follows the provisions in ASC 718
Compensation Stock Compensation, for
purposes of accounting for such share-based payments. During the
period from January 7, 2010 (date of inception) through
December 31, 2010, compensation cost on restricted stock
amounted to $1,330,679, and was recognized in General and
administrative expenses. At December 31, 2010, the total
unrecognized cost relating to non-vested restricted share awards
was $1,869,286; and is expected to be recognised over a period
of 2.35 years from the balance sheet date.
(c) Stockholders Rights
Agreement. On August 2, 2010, the
Company entered into a stockholders rights agreement (the
Stockholders Rights Agreement) with Mellon Investor
Services LLC as Rights Agent. Pursuant to this Stockholders
Rights Agreement, each share of the Companys common stock
includes one right (the Right) that will entitle the
holder to purchase from the Company a unit consisting of one
one-thousandth of a share of our preferred stock at an exercise
price specified in the Stockholders Rights Agreement, subject to
specified adjustments. Until a Right is exercised, the holder of
a Right will have no rights to vote or receive dividends or any
other stockholder rights.
F-14
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
9. Voyage
and Vessel Operating Expenses
The amounts in the accompanying consolidated statement of
operations are analyzed as follows:
|
|
|
|
|
|
|
2010
|
|
|
Voyage Expenses
|
|
|
|
|
Bunkers
|
|
|
49,576
|
|
Commissions charged by third parties
|
|
|
160,044
|
|
Commissions charged by a related party (Note 3)
|
|
|
57,347
|
|
|
|
|
|
|
Total
|
|
|
266,967
|
|
|
|
|
|
|
Vessel Operating Expenses
|
|
|
|
|
Crew wages and related costs
|
|
|
1,251,308
|
|
Insurance
|
|
|
160,428
|
|
Spares and consumable stores
|
|
|
1,277,523
|
|
Repairs and maintenance
|
|
|
137,674
|
|
Tonnage taxes (Note 12)
|
|
|
12,744
|
|
Miscellaneous
|
|
|
44,933
|
|
|
|
|
|
|
Total
|
|
|
2,884,610
|
|
|
|
|
|
|
10. Interest
and Finance Costs
The amounts in the accompanying consolidated statement of
operations are analyzed as follows:
|
|
|
|
|
|
|
2010
|
|
|
Interest expense (Note 5)
|
|
|
273,596
|
|
Amortization of financing costs
|
|
|
110,587
|
|
Commitment fees (Note 5)
|
|
|
96,000
|
|
Other
|
|
|
31,108
|
|
|
|
|
|
|
Total
|
|
|
511,291
|
|
|
|
|
|
|
11. Loss
per Share
All shares issued (including the restricted shares issued under
the equity incentive plan) are DCIs common stock and have
equal rights to vote and participate in dividends, subject to
forfeiture provisions set forth in the applicable award
agreement. As the Company incurred losses from continuing
operations in the period, the effect of the unvested restricted
stock awards in both basic and diluted losses per share would be
anti-dilutive.
12. Income
Taxes
Under the laws of the countries of the companies
incorporation and/or vessels registration, the companies
are not subject to tax on international shipping income;
however, they are subject to registration and tonnage taxes,
which are included in vessel operating expenses in the
accompanying consolidated statement of operations (Note 9).
Under Section 883 of the Internal Revenue Code of the
United States (the Code), a corporation would be
exempt from U.S. federal income taxation on its
U.S.-source
shipping income if: (a) it is
F-15
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
organized in a foreign country that grants an equivalent
exemption to corporations organized in the United States
(United States corporations); and (b) either
(i) more than 50% of the value of its common stock is
owned, directly or indirectly, by qualified
shareholders,, which is referred to as the 50%
Ownership Test, or (ii) its common stock is
primarily and regularly traded on an established
securities market in a country that grants an
equivalent exemption to U.S. corporations or in
the United States, which is referred to as the
Publicly-Traded Test.
The Marshall Islands, the jurisdiction where DCI and each of its
subsidiaries are incorporated, grant an equivalent
exemption to U.S. corporations. Therefore, the
Company would be exempt from U.S. federal income taxation
with respect to its
U.S.-source
shipping income if either the 50% Ownership Test or the
Publicly-Traded Test is met.
Prior to the partial spin-off, the Company believes that it
satisfied the 50% Ownership Test. After the partial spin-off,
the Company does not currently anticipate a circumstance under
which it would be able to satisfy the 50% Ownership Test.
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.
After the partial spin-off is completed, the Company believes
that should be able to satisfy the Publicly-Traded Test and
should not be subject to the 5 Percent Override Rule.
However, there are factual circumstances beyond the control of
the Company that could cause it to lose the benefit of the
Section 883 exemption. For example, there is a risk that
the Company could no longer qualify for exemption under Code
section 883 for a particular taxable year if shareholders
with a five percent or greater interest in its common shares
were to own 50% or more of its outstanding common shares on more
than half the days of the taxable year.
It is not anticipated that the Company will have any vessel
operating to the United States on a regularly scheduled basis.
Based on the foregoing and on the expected mode of the shipping
operations and other activities of Diana Containerships, it is
not anticipated that any of the
U.S.-source
shipping income of the Company will be effectively
connected with the conduct of a U.S. trade or
business.
Based on its U.S. source Shipping Income for the period
ended December 31, 2010, the Company would be subject to
U.S. federal income tax of approximately $8,000, in the
absence of an exemption under Section 883.
13. Financial
Instruments
The carrying values of temporary cash investments, accounts
receivable and accounts payable approximate their fair value due
to the short-term nature of these financial instruments. The
fair value of long-term bank loan approximates the recorded
value, due to its variable interest rate.
14. Subsequent
Events
(a) Loan drawdown: On
February 4, 2011, the Company drew down the remaining
$20.0 million under the loan with DnB NOR Bank ASA
mentioned in note 5.
F-16
DIANA
CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2010
(Expressed in US Dollars except for share
data)
(b) Vessel acquisitions: On
April 13, 2011, the Company, through its newly established
subsidiaries Ebon Shipping Company Inc. (Ebon), Mili
Shipping Company Inc. (Mili) and Ralik Shipping
Company Inc. (Ralik), entered into three Memoranda
of Agreement (Ralik with Maersk Line UK Ltd., and Mili and Ebon
with A.P. Moller Singapore Pte. Ltd.) for the purchase of three
Panamax container vessels, the MV Maersk Merlion,
the MV Maersk Malacca and the MV Maersk
Madrid, respectively. The MV Maersk Madrid is
a 1989-built vessel of 4,206 TEU capacity. The purchase price
for the MV Maersk Madrid is $22.5 million. The
MV Maersk Malacca and MV Maersk Merlion
are both 1990-built vessels of 4,714 TEU capacity each. The
purchase price for the MV Maersk Malacca and MV
Maersk Merlion is $24 million each. On
April 18, 2011, the Company paid to the Sellers 10% of the
vessels price amounting to $2.4 million for each of
the MV Maersk Malacca and MV Maersk
Merlion and $2.25 million for the MV Maersk
Madrid. The remaining consideration shall be paid upon
delivery of the vessels.
The expected delivery from their previous owners to the Company
for all three vessels is in June 2011. Each of the three vessels
is chartered to A.P. Møller-Maersk A/S for a period of
minimum twenty-four (24) months plus or minus forty-five
(45) days at a daily rate of $21,450 less a 2.25%
commission. The charterer has the option to employ each vessel
for a further twelve (12) month period plus or minus
forty-five (45) days, at a daily rate of $25,000 less a
2.25% commission starting twenty-four (24) months after
delivery of the vessel to the charterer. Each charter will
commence on or about the day of that vessels delivery to
the Company.
(c) Management agreements: On
April 13, 2011, Mili, Ralik and Ebon, entered into Vessel
Management Agreements with DSS to provide them with commercial
and technical services (Note 3).
(d) Loan agreement: On May 4,
2011, the Company through its subsidiaries except Lemongina,
entered into a loan agreement with DnB NOR ASA for a maximum of
$85.0 million in order to refinance the outstanding balance
of the loan facility dated July 7, 2010
(Note 5) and to partly finance the cost of the vessels
mentioned in note (b) above and for general working capital
purposes. The loan will be made available in two tranches.
Tranche 1 shall be the lesser of 65% of the market value of
the vessels Sagitta and Centaurus and
$65.0 million and tranche 2 shall be the lesser of 35%
of the market value of the vessels mentioned in note
(b) above and $20.0 million. Tranche 1 will be
available for drawing in a single drawdown and tranche 2 in
three drawdowns until July 31, 2011. Tranche 1 shall
be repaid in 24 consecutive quarterly installments of
$1.1 million each, plus a balloon installment of
$37.6 million to be paid together with the last
installment. Tranche 2 shall be repaid in 8 consecutive
quarterly installments of $2.5 million each. The loan will
bear interest at LIBOR plus a margin of 2.6% per annum. The
Company paid $382,500 of arrangement fees on signing of the
agreement and on May 6, 2011, the Company drew down Tranche 1 of
$65.0 million, with which it repaid the then-outstanding balance
of indebtedness under its secured term loan facility entered
into on July 7, 2010 (amounting to $38.7 million plus interest).
The loan will be secured with a first priority mortgage each of
on the vessels, a first priority assignment of the time
charters, a first priority assignment of the earnings,
insurances and requisition compensation of the vessels, a first
priority assignment of any charter, or other employment
contracts exceeding 12 months, and an unconditional,
irrevocable guarantee from Diana Containerships. The lender also
requires the market values of the mortgaged ships to cover 125%
of the aggregate outstanding balance of the loan. The loan also
includes restrictions as to changes in management, ownership,
additional indebtedness, a consolidated leverage ratio of not
more than 70% and minimum liquidity of 4% of the funded debt.
F-17
DIANA
CONTAINERSHIPS INC.
(UNAUDITED)
AND DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31,
2010
|
|
|
|
(Expressed in U.S. Dollars,
|
|
|
|
except for share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,811,827
|
|
|
$
|
11,098,284
|
|
Accounts receivable, trade
|
|
|
44,580
|
|
|
|
37,429
|
|
Due from related party (Note 2)
|
|
|
|
|
|
|
397,853
|
|
Inventories
|
|
|
567,235
|
|
|
|
623,643
|
|
Prepaid expenses
|
|
|
177,975
|
|
|
|
218,805
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
32,601,617
|
|
|
|
12,376,014
|
|
|
|
|
|
|
|
|
|
|
FIXED ASSETS:
|
|
|
|
|
|
|
|
|
Vessels (Note 3)
|
|
|
93,531,186
|
|
|
|
93,531,186
|
|
Accumulated depreciation (Note 3)
|
|
|
(2,177,648
|
)
|
|
|
(1,453,877
|
)
|
|
|
|
|
|
|
|
|
|
Vessels net book value
|
|
|
91,353,538
|
|
|
|
92,077,309
|
|
|
|
|
|
|
|
|
|
|
Total fixed assets
|
|
|
91,353,538
|
|
|
|
92,077,309
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
|
|
|
|
|
109,046
|
|
Restricted cash (Note 4)
|
|
|
1,573,600
|
|
|
|
786,800
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
125,528,755
|
|
|
$
|
105,349,169
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt (Note 4)
|
|
$
|
2,764,615
|
|
|
$
|
1,361,538
|
|
Accounts payable, trade and other
|
|
|
445,945
|
|
|
|
436,251
|
|
Accrued liabilities
|
|
|
273,928
|
|
|
|
585,456
|
|
Due to related parties (Note 2)
|
|
|
436,611
|
|
|
|
|
|
Other current liabilities
|
|
|
45,431
|
|
|
|
45,431
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,966,530
|
|
|
|
2,428,676
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion (Note 4)
|
|
|
36,316,231
|
|
|
|
18,128,095
|
|
Other non-current liabilities
|
|
|
181,684
|
|
|
|
181,684
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 25,000,000 shares
authorized, none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 500,000,000 shares
authorized; 6,106,161 issued and outstanding (Note 6)
|
|
|
61,062
|
|
|
|
61,062
|
|
Additional paid-in capital (Note 6)
|
|
|
86,747,780
|
|
|
|
86,551,013
|
|
Accumulated deficit
|
|
|
(1,744,532
|
)
|
|
|
(2,001,361
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
85,064,310
|
|
|
|
84,610,714
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
125,528,755
|
|
|
$
|
105,349,169
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
interim consolidated financial statements.
F-18
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Expressed in U.S. Dollars except for share
data)
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Time charter revenues
|
|
$
|
3,240,000
|
|
|
$
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
116,100
|
|
|
|
|
|
Vessel operating expenses
|
|
|
954,222
|
|
|
|
|
|
Depreciation (Note 3)
|
|
|
723,771
|
|
|
|
|
|
Management fees (Note 2)
|
|
|
90,000
|
|
|
|
|
|
General and administrative expenses (Note 2)
|
|
|
851,316
|
|
|
|
236,533
|
|
Foreign currency losses
|
|
|
6,015
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
$
|
498,576
|
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(LOSS)
|
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
$
|
(263,550
|
)
|
|
$
|
|
|
Interest income
|
|
|
21,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loss
|
|
|
(241,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
256,829
|
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common share (including unvested shares
of restricted common stock), basic and diluted (Note 7)
|
|
$
|
0.04
|
|
|
$
|
(473.36
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares (including 159,996
unvested shares of restricted common stock in 2011), basic and
diluted
|
|
|
6,106,161
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
interim consolidated financial statements.
F-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
# of
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Income/(Loss)
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
(Expressed in U.S. Dollars except for share
data)
|
|
|
- Net loss
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(236,682
|
)
|
|
$
|
(236,682
|
)
|
- Issuance of common stock at $1.0 per share
|
|
|
|
|
|
|
500
|
|
|
|
5
|
|
|
|
495
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(236,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2010
|
|
|
|
|
|
|
500
|
|
|
$
|
5
|
|
|
$
|
495
|
|
|
$
|
(236,682
|
)
|
|
$
|
(236,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2010
|
|
|
|
|
|
|
6,106,161
|
|
|
$
|
61,062
|
|
|
$
|
86,551,013
|
|
|
$
|
(2,001,361
|
)
|
|
$
|
84,610,714
|
|
- Net income
|
|
$
|
256,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256,829
|
|
|
|
256,829
|
|
- Compensation cost on restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,767
|
|
|
|
|
|
|
|
196,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
256,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2011
|
|
|
|
|
|
|
6,106,161
|
|
|
$
|
61,062
|
|
|
$
|
86,747,780
|
|
|
$
|
(1,744,532
|
)
|
|
$
|
85,064,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
interim consolidated financial statements.
F-20
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Expressed in U.S. Dollars)
|
|
|
Net income/(loss)
|
|
$
|
256,829
|
|
|
$
|
(236,682
|
)
|
Adjustments to reconcile net income/(loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
723,771
|
|
|
|
|
|
Amortization of financing costs
|
|
|
30,259
|
|
|
|
|
|
Compensation cost on restricted stock awards
|
|
|
196,767
|
|
|
|
|
|
(Increase)/Decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
|
(7,151
|
)
|
|
|
|
|
Due from related party
|
|
|
397,853
|
|
|
|
|
|
Inventories
|
|
|
56,408
|
|
|
|
|
|
Prepaid expenses
|
|
|
40,830
|
|
|
|
(299,912
|
)
|
Increase/(Decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable, trade and other
|
|
|
9,694
|
|
|
|
|
|
Accrued liabilities
|
|
|
(311,528
|
)
|
|
|
236,493
|
|
Due to related parties
|
|
|
436,611
|
|
|
|
300,101
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by Operating Activities
|
|
|
1,830,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows provided by Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows provided by Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from long term debt
|
|
|
20,000,000
|
|
|
|
|
|
Issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
500
|
|
Contributions from shareholders for share capital increase
completed on April 6,2010
|
|
|
|
|
|
|
50,000,000
|
|
Changes in restricted cash
|
|
|
(786,800
|
)
|
|
|
|
|
Payments of long term debt
|
|
|
(330,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by Financing Activities
|
|
|
18,883,200
|
|
|
|
50,000,500
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
20,713,543
|
|
|
|
50,000,500
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
11,098,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
31,811,827
|
|
|
$
|
50,000,500
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
132,182
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
interim consolidated financial statements.
F-21
DIANA
CONTAINERSHIPS INC.
March 31, 2011
(Expressed in US Dollars except for share
data)
1. General
Information
The accompanying unaudited interim consolidated financial
statements include the accounts of Diana Containerships Inc.
(DCI) and its wholly-owned subsidiaries
(collectively, the Company). Diana Containerships
Inc. was incorporated on January 7, 2010 under the laws of
the Republic of Marshall Islands for the purpose of engaging in
any lawful act or activity under the Marshall Islands Business
Corporations Act. In April 2010, the Companys articles of
incorporation and bylaws were amended. Under the amended
articles of incorporation, the Companys authorized share
capital increased from 500 common shares to 500.0 million
of common shares at par value $0.01 and 25.0 million of
preferred shares at par value $0.01. On April 6, 2010, the
Company completed a private offering under rule 144A and
Regulation S and Regulation D of the Securities Act of
1933, as amended, the net proceeds of which amounted to
$85,280,896. A controlling ownership interest of 54.6% over
DCIs common stock was acquired by Diana Shipping Inc.
(DSI) in this private offering.
On October 15, 2010, DCI filed a registration statement on
Form F-4
with the US Securities and Exchange Commission, to register an
aggregate of 2,558,997 common shares sold previously in the
private offering. On October 19, 2010 the registration
statement was declared effective. On January 19, 2011, and
following DSIs decision to effect for a partial spin-off
of 80% of its interest in DCI through a distribution to
DSIs shareholders, DCI began regular way
trading on the Nasdaq Global Market.
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with
U.S. generally accepted accounting principles, or
U.S. GAAP, for interim financial information. Accordingly,
they do not include all the information and notes required by
U.S. GAAP for complete financial statements and, in the
opinion of management, reflect all adjustments, which include
only normal recurring adjustments considered necessary for a
fair presentation of the Companys financial position,
results of operations and cash flows for the periods presented.
Operating results for the three months ended March 31, 2011
are not necessarily indicative of the results that might be
expected for the period ending December 31, 2011.
The Company is engaged in the seaborne transportation industry
through the ownership and operation of containerships and is the
sole owner of all outstanding shares of the following
subsidiaries, each incorporated in the Marshall Islands:
(a) Likiep Shipping Company Inc.
(Likiep), owner of the Marshall Islands
flag, 3,426 TEU capacity container vessel, Sagitta,
which was built and delivered on June 29, 2010
(Note 3).
(b) Orangina Inc. (Orangina),
owner of the Marshall Islands flag, 3,426 TEU capacity
container vessel, Centaurus, which was built and
delivered on July 9, 2010 (Note 3).
(c) Lemongina Inc. (Lemongina), a
newly established wholly owned subsidiary of the Company. As at
March 31, 2011, Lemongina did not have any operations.
During the period ended March 31, 2011, two charterers have
accounted for more than 10% of the Companys revenues as
follows:
|
|
|
|
|
Charterer
|
|
2011
|
|
|
A
|
|
|
56
|
%
|
B
|
|
|
44
|
%
|
F-22
DIANA
CONTAINERSHIPS INC.
Notes to Unaudited Interim Consolidated Financial
Statements
March 31, 2011
(Expressed in US Dollars except for share
data)
2. Transactions
with Related Parties
Diana Shipping Services S.A. (DSS or the
Manager): DSS, a wholly owned
subsidiary of DSI, a Companys major shareholder, provides
(i) administrative services under an Administrative
Services Agreement, for a monthly fee of $10,000;
(ii) brokerage services pursuant to a Broker Services
Agreement that DSS has entered into with Diana Enterprises Inc.,
a related party controlled by the Companys Chief Executive
Officer and Chairman Mr. Symeon Palios, for annual fees of
$1,040,000 (to increase to $1,300,000 following the completion
of an initial public offering); (iii) commercial and
technical services pursuant to Vessel Management Agreements,
signed between each shipowning company and DSS, under which the
Company pays a commission of 1% of the gross charterhire and
freight earned by each vessel and a technical management fee of
$15,000 per vessel per month for employed vessels and $20,000
per vessel per month for
laid-up
vessels.
For the three months ended March 31, 2011, management fees
under the Vessel Management Agreements amounted to $90,000 and
are separately presented as Management fees in the accompanying
2011 unaudited interim consolidated statement of income. In the
same period, commissions charged by DSS amounted to $32,400 and
are included in Voyage expenses in the 2011 accompanying
unaudited interim consolidated statement of income.
For the three months ended March 31, 2011, administrative
expenses and brokerage services amounted to $30,000 and
$260,000, respectively, and are included in General and
administrative expenses in the accompanying 2011 unaudited
interim consolidated statement of income. As at March 31,
2011, an amount of $381,611 was due to DSS, for payments made by
DSS on behalf of the Company, and is included in Due to related
parties in the accompanying 2011 consolidated balance sheet. As
at December 31, 2010 an amount of $397,853 was due from
DSS, representing Companys payments in excess of DSS
charges, and is included in Due from related party in the
accompanying 2010 consolidated balance sheet.
3. Vessels
On June 11 and July 9, 2010, the Company, through its
wholly owned subsidiaries Likiep and Orangina, took delivery of
Sagitta and Centaurus, respectively. The
total acquisition cost for Sagitta and
Centaurus amounted to $45,972,791 and $47,558,395,
respectively.
The amounts in the accompanying consolidated balance sheets are
analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Vessels Cost
|
|
Depreciation
|
|
Net Book Value
|
|
Balance, December 31, 2010
|
|
$
|
93,531,186
|
|
|
$
|
(1,453,877
|
)
|
|
$
|
92,077,309
|
|
- Depreciation for the period
|
|
|
|
|
|
|
(723,771
|
)
|
|
|
(723,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011
|
|
$
|
93,531,186
|
|
|
$
|
(2,177,648
|
)
|
|
$
|
91,353,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The vessels, having a total carrying value of $91,353,538 as of
March 31, 2011, have been provided as collateral to secure
the loan facility with DnB NOR Bank ASA discussed in
Note 4. As of March 31, 2011 both vessels were
operating under time charter agreements.
F-23
DIANA
CONTAINERSHIPS INC.
Notes to Unaudited Interim Consolidated Financial
Statements
March 31, 2011
(Expressed in US Dollars except for share
data)
4. Long-Term
Debt, Current and Non-Current
The amounts of long-term debt shown in the accompanying
consolidated balance sheets are analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31,
2010
|
|
DnB NOR Bank ASA
|
|
$
|
39,340,000
|
|
|
$
|
19,670,000
|
|
Less related deferred financing costs
|
|
|
(259,154
|
)
|
|
|
(180,367
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,080,846
|
|
|
$
|
19,489,633
|
|
|
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
$
|
(2,764,615
|
)
|
|
$
|
(1,361,538
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,316,231
|
|
|
$
|
18,128,095
|
|
|
|
|
|
|
|
|
|
|
On July 7, 2010, the Company, through Likiep and Orangina,
entered into a loan agreement with DnB NOR Bank ASA to finance
part of the acquisition cost of the vessels Sagitta
and Centaurus, for an amount of up to
$40.0 million. An arrangement fee of $400,000 was paid on
signing the facility agreement.
On July 9, 2010, the Company, through Likiep and Orangina,
drew down the first two advances of $10.0 million each to
finance part of the acquisition cost of the vessels
Sagitta and Centaurus. The Company drew
down the remainder of the available facility amounting to
$20.0 million on February 4, 2011. As at
March 31, 2011, an amount of $39,340,000 was outstanding
under the loan facility. The loan is repayable in 24 quarterly
installments of $165,000 for each advance and a balloon of
$6,040,000 payable together with the last installment. The loan
bears interest at LIBOR plus a margin of 2.40% per annum. The
Company paid commitment fees of 0.96% per annum on the undrawn
portion of the loan, which for the period from January 1,
2011 through February 4, 2011 (date of drawdown of the
remaining available loan balance) amounted to $18,133.
The loan is secured by a first preferred ship mortgage on the
vessels, general assignments, charter assignments, operating
account assignments, a corporate guarantee and managers
undertakings. The lender may also require additional security if
the market values of the mortgaged ships do not cover 125% of
the aggregate outstanding balance of the loan. The loan also
includes restrictions as to changes in management, ownership,
additional indebtedness, a consolidated leverage ratio of not
more than 70%, and minimum liquidity of 4% of the funded debt
(to be measured semi-annually and at the end of each calendar
year), which is presented as Restricted cash in the accompanying
consolidated balance sheets. Furthermore, the Company is not
permitted to pay any dividends that would result to an event of
default.
Total interest incurred on long-term debt amounted to $215,158
and is included in Interest and finance costs in the
accompanying consolidated statements of income.
F-24
DIANA
CONTAINERSHIPS INC.
Notes to Unaudited Interim Consolidated Financial
Statements
March 31, 2011
(Expressed in US Dollars except for share
data)
On May 4, 2011, the existing loan was refinanced according
to the terms described in Note (9). Pursuant to the new terms of
the loan the maturity of the Companys loan facility
described above, as of March 31, 2011, and throughout its
term is as follows:
|
|
|
|
|
Period
|
|
Principal Repayment
|
|
April 1, 2011 to March 31, 2012
|
|
|
2,764,615
|
|
April 1, 2012 to March 31, 2013
|
|
|
2,806,154
|
|
April 1, 2013 to March 31, 2014
|
|
|
2,806,154
|
|
April 1, 2014 to March 31, 2015
|
|
|
2,806,154
|
|
April 1, 2015 to March 31, 2016
|
|
|
2,806,154
|
|
April 1, 2016 and thereafter
|
|
|
25,350,769
|
|
|
|
|
|
|
Total
|
|
|
39,340,000
|
|
|
|
|
|
|
5. Commitments
and Contingencies
(a) Various claims, suits, and complaints,
including those involving government regulations and product
liability, arise in the ordinary course of the shipping
business. In addition, losses may arise from disputes with
charterers, agents, insurance and other claims with suppliers
relating to the operations of the Companys vessels.
Currently, management is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which
a provision should be established in the accompanying
consolidated financial statements.
The Company accrues for the cost of environmental liabilities
when management becomes aware that a liability is probable and
is able to reasonably estimate the probable exposure. Currently,
management is not aware of any such claims or contingent
liabilities, which should be disclosed, or for which a provision
should be established in the accompanying consolidated financial
statements.
The Companys vessels are covered for pollution in the
amount of $1 billion per vessel per incident, by the
P&I Association in which the Companys vessels are
entered. The Companys vessels are subject to calls payable
to their P&I Association and may be subject to supplemental
calls which are based on estimates of premium income and
anticipated and paid claims. Such estimates are adjusted each
year by the Board of Directors of the P&I Association until
the closing of the relevant policy year, which generally occurs
within three years from the end of the policy year. Supplemental
calls, if any, are expensed when they are announced and
according to the period they relate to. The Company is not aware
of any supplemental calls in respect of the 2010/11 policy year,
which is the first year in which the Companys vessels were
entered into their P&I Association.
(b) As at March 31, 2011, the minimum
contractual charter revenues, net of related commissions, to be
generated from the existing non-cancelable time charter
contracts until their expiration, are estimated at
$11.0 million to be generated in 2011, at
$11.8 million in 2012, and $1.6 million in 2013.
6. Changes
in Capital Accounts
Incentive plan: On April 6, 2010,
DCI adopted an equity incentive plan and reserved a total of
392,198 common shares for issuance. As at March 31, 2011
and December 31, 2010, 213,331 common shares of restricted
stock with a grant date fair value of $3,199,965 had been issued
to the Companys executive officers pursuant to the
Companys Incentive Plan and in accordance with terms and
conditions of Restricted Shares Award Agreements signed by
the grantees. The shares are subject to
F-25
DIANA
CONTAINERSHIPS INC.
Notes to Unaudited Interim Consolidated Financial
Statements
March 31, 2011
(Expressed in US Dollars except for share
data)
applicable vesting as follows: (i) 25% or
53,335 shares were vested on May 6, 2010; and
(ii) the remaining shares vest ratably over three years by
one third each year. Such shares bear non-forfeitable dividends
and according to the provisions of ASC 260 Earnings
per Share the Company considers them as participating
securities in the earnings per share calculations.
The Company follows the provisions in ASC 718
Compensation Stock Compensation, for
purposes of accounting for such share-based payments. During the
three months ended March 31, 2011, compensation cost on
restricted stock amounted to $196,767, and was recognized in
General and administrative expenses with an equal credit in
Additional paid-in capital. At March 31, 2011 and
December 31, 2010, the total unrecognized cost relating to
non-vested restricted share awards was $1,672,519 and $1,869,286
respectively, and is expected to be recognised over a period of
2.10 years from the balance sheet date.
7. Earnings/(Loss)
per Share
All shares issued (including the restricted shares issued under
the equity incentive plan) are DCIs common stock and have
equal rights to vote and participate in dividends, subject to
forfeiture provisions set forth in the applicable award
agreement. Unvested shares granted under the Companys
incentive plan (159,996 at March 31, 2011 in total) receive
dividends which are not refundable, even if such shares are
forfeited, and therefore are considered participating securities
for basic earnings per share calculation purposes. The Company
has not declared any dividends through the period from inception
to March 31, 2011. For the period ended March 31,
2011, the effect of the incremental shares assumed issued,
determined in accordance with the antidilution sequencing
provisions of ASC 260, was antidilutive. For the period
ended March 31, 2010, and on the basis that the Company
incurred losses from continuing operations, basic and diluted
losses per share are the same amount.
8. Financial
Instruments
The carrying values of temporary cash investments, accounts
receivable and accounts payable approximate their fair value due
to the short-term nature of these financial instruments. The
fair value of long-term bank loan approximates the recorded
value due to its variable interest rate.
9. Subsequent
Events
(a) Vessel acquisitions: On
April 13, 2011, the Company, through its newly established
subsidiaries Ebon Shipping Company Inc. (Ebon), Mili
Shipping Company Inc. (Mili) and Ralik Shipping
Company Inc. (Ralik), entered into three Memoranda
of Agreement (Ralik with Maersk Line UK Ltd., and Mili and Ebon
with A.P. Moller Singapore Pte. Ltd.) for the purchase of three
Panamax container vessels, the MV Maersk Merlion,
the MV Maersk Malacca and the MV Maersk
Madrid, respectively. The MV Maersk Madrid is
a 1989-built vessel of 4,206 TEU capacity. The purchase price
for the MV Maersk Madrid is $22.5 million. The
MV Maersk Malacca and MV Maersk Merlion
are both 1990-built vessels of 4,714 TEU capacity each. The
purchase price for the MV Maersk Malacca and MV
Maersk Merlion is $24 million each. On
April 18, 2011, the Company paid to the Sellers 10% of the
vessels price amounting to $2.4 million for each of
the MV Maersk Malacca and MV Maersk
Merlion and $2.25 million for the MV Maersk
Madrid. The remaining consideration shall be paid upon
delivery of the vessels.
The expected delivery from their previous owners to the Company
for all three vessels is in June 2011. Each of the three vessels
is chartered to A.P. Møller-Maersk A/S for a period of
minimum twenty-
F-26
DIANA
CONTAINERSHIPS INC.
Notes to Unaudited Interim Consolidated Financial
Statements
March 31, 2011
(Expressed in US Dollars except for share
data)
four (24) months plus or minus forty-five (45) days at
a daily rate of $21,450 less a 2.25% commission. The charterer
has the option to employ each vessel for a further twelve
(12) month period plus or minus forty-five (45) days,
at a daily rate of $25,000 less a 2.25% commission starting
twenty-four (24) months after delivery of the vessel to the
charterer. Each charter will commence on or about the day of
that vessels delivery to the Company.
(b) Management agreements: On
April 13, 2011, Mili, Ralik and Ebon, entered into Vessel
Management Agreements with DSS to provide them with commercial
and technical services (Note 2).
(c) Loan agreement: On May 4,
2011, the Company through all its subsidiaries except Lemongina,
entered into a loan agreement with DnB NOR ASA for a maximum of
$85.0 million in order to refinance the outstanding balance
of the loan facility dated July 7, 2010
(Note 4) and to partly finance the cost of the vessels
mentioned in note (a) above and for general working capital
purposes. The loan will be made available in two tranches.
Tranche 1 shall be the lesser of 65% of the market value of
the vessels Sagitta and Centaurus and
$65.0 million and tranche 2 shall be the lesser of 35%
of the market value of the vessels mentioned in note
(a) above and $20.0 million. Tranche 1 will be
available for drawing in a single drawdown and tranche 2 in
three drawdowns until July 31, 2011. Tranche 1 shall
be repaid in 24 consecutive quarterly installments of
$1.1 million each, plus a balloon installment of
$37.6 million to be paid together with the last
installment. Tranche 2 shall be repaid in 8 consecutive
quarterly installments of $2.5 million each. The loan will
bear interest at LIBOR plus a margin of 2.6% per annum. The
Company paid $382,500 of arrangement fees on signing of the
agreement and on May 6, 2011, the Company drew down Tranche 1
($65.0 million), with which it repaid the then-outstanding
balance of indebtedness under its secured term loan facility
entered into on July 7, 2010 (amounting to $38.7 million plus
interest).
The loan will be secured with a first priority mortgage each of
on the vessels, a first priority assignment of the time
charters, a first priority assignment of the earnings,
insurances and requisition compensation of the vessels, a first
priority assignment of any charter, or other employment
contracts exceeding 12 months, and an unconditional,
irrevocable guarantee from Diana Containerships. The lender also
requires the market values of the mortgaged ships to cover 125%
of the aggregate outstanding balance of the loan. The loan also
includes restrictions as to changes in management, ownership,
additional indebtedness, a consolidated leverage ratio of not
more than 70%, minimum liquidity of 4% of the funded debt.
F-27
Shares
Common Stock
PRELIMINARY PROSPECTUS
,
2011
Wells Fargo
Securities
BofA Merrill Lynch
Jefferies
BB&T Capital
Markets
Morgan Keegan
Cantor Fitzgerald &
Co.
Dahlman Rose &
Company
DnB NOR Markets
RS Platou Markets
PART II:
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification
of Directors and Officers
Article VIII of the Amended and Restated Bylaws of the of
the Registrant provides as follows:
1. Any person who is or was a Director or officer of the
Corporation, or is or was serving at the request of the
Corporation as a director or officer of another, partnership,
joint venture, trust or other enterprise shall be entitled to be
indemnified by the Corporation upon the same terms, under the
same conditions, and to the same extent as authorized by
Section 60 of the BCA, if he or she acted in good faith and
in a manner he or she 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 or her conduct was unlawful. The
Corporation shall have the power to pay in advance expenses a
director or officer incurred while defending a civil or criminal
proceeding, provided that the director or officer will repay the
amount if it shall ultimately be determined that he or she is
not entitled to indemnification under this section.
2. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a
Director or officer of the Corporation or is or was serving at
the request of the Corporation as a director or officer against
any liability asserted against such person and incurred by such
person in such capacity whether or not the Corporation would
have the power to indemnify such person against such liability
by law or under the provisions of these Bylaws.
II. Section 60 of the Associations Law of the Republic
of the Marshall Islands provides as follows:
1. Actions Not by or in Right of the
Corporation. A corporation shall have power
to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is
or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of no contest, or its equivalent, shall not, of
itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or
not opposed to the bests interests of the corporation, and, with
respect to any criminal action or proceedings, had reasonable
cause to believe that his conduct was unlawful.
2. Actions by or in Right of the
Corporation. A corporation shall have the
power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he
is or was a director or officer of the corporation, or is or was
serving at the request of the corporation, or is or was serving
at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys fees)
actually and reasonably incurred by him or in connection with
the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claims,
issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of
liability but in view of all
II-1
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 the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the
corporation or is or was serving at the request of the
corporation as a director or officer against any liability
asserted against him and incurred by him in such capacity
whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this section.
Item 7. Recent
Sales of Unregistered Securities.
On January 7, 2010 the Company issued 500 common shares at
par value to Diana Shipping Inc. in connection with our initial
capitalization. On April 6, 2010, the Company sold
5,602,330 common shares in a private offering at a price of
$15.00 per share. FBR Capital Markets & Co. acted as
initial purchaser/placement agent for this private offering. The
net proceeds of this private offering were $82,011,889. On
April 29, 2010, the Company issued 290,000 common shares in
a private offering at a price of $15.00 per share pursuant to
the exercise of FBR Capital Markets & Co.s
option to purchase additional shares for net proceeds of
$4,089,000. On May 4, 2010, the Company issued common
shares under the Companys 2010 Equity Incentive Plan as
follows: (a) 76,190 common shares at par value to Taracan
Investments S.A., a company controlled by the Companys
Chairman and Chief Executive Officer; (b) 66,165 common
shares to Weever S.A., a company controlled by the
Companys President and Director; (c) 36,090 common
shares to Love Boat S.A., a company controlled by the
Companys Chief Financial Officer and Treasurer; and
(d) 34,886 common shares to D&G S.A., a company
controlled by the Companys Chief Operating Officer,
Director and Secretary. Each of the above transactions was
exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
II-2
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Date
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Consideration
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Total
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Registration
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Securities Sold
|
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Sold
|
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Per Share
|
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Consideration
|
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Exemption
|
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Purchasers
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500 Common Shares
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January 7, 2010
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$
|
1.00 per share
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$
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500
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Section 4
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(2)
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Diana Shipping Inc.
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5,602,330 Common Shares
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April 6, 2010
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$
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15.00 per share
|
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$
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82,011,889
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Section 4
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(2)
|
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Rule 144A,
Regulation S and
Regulation D
Purchasers
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290,000 Common Shares
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April 29, 2010
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$
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15.00 per share
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$
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4,089,000
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Section 4
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(2)
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Regulation S
purchasers
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76,190 Common Shares
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May 4, 2010
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N/A
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N/A
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Section 4
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(2)
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Taracan Investments S.A.
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66,165 Common Shares
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May 4, 2010
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N/A
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N/A
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Section 4
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(2)
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Weever S.A.
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36,090 Common Shares
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May 4, 2010
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N/A
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N/A
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Section 4
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(2)
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Love Boat S.A.
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34,886 Common Shares
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May 4, 2010
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N/A
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N/A
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Section 4
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(2)
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D&G S.A.
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II-3
Item 8. Exhibits
and Financial Statement Schedules
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Number
|
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Description of Exhibit
|
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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,
incorporated by reference to Exhibit 3.1 of the
Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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3
|
.2
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Amended and Restated Bylaws of the Company, incorporated by
reference to Exhibit 3.2 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
|
|
4
|
.1
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Form of Share Certificate, incorporated by reference to
Exhibit 4.1 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
|
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4
|
.2
|
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Registration Rights Agreement dated April 6, 2010 by and
among the Company, FBR Capital Markets & Co. and Diana
Shipping Inc., incorporated by reference to Exhibit 4.2 of
the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
|
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4
|
.3
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Stockholders Rights Agreement, dated August 2, 2010 by and
between the Company and Mellon Investor Services LLC,
incorporated by reference to Exhibit 4.3 of the
Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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4
|
.4
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Statement of Designations of Rights, Preferences and Privileges
of Series A Participating Preferred Stock of Diana
Containerships Inc., dated August 2, 2010, incorporated by
reference to Exhibit 4.4 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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5
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.1
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Legal Opinion of Seward & Kissel LLP*
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8
|
.1
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Tax Opinion of Seward & Kissel LLP*
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10
|
.1
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2010 Equity Incentive Plan, incorporated by reference to
Exhibit 10.1 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
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.2
|
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Administrative Services Agreement, incorporated by reference to
Exhibit 10.2 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
|
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10
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.3
|
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Broker Services Agreement, incorporated by reference to
Exhibit 10.3 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
|
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10
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.4
|
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Form of Vessel Management Agreement, incorporated by reference
to Exhibit 10.4 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
|
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10
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.5
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Non-Competition Agreement with Diana Shipping Inc., incorporated
by reference to Exhibit 10.5 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
|
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10
|
.6
|
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Loan Agreement, dated July 7, 2010, by and between Likiep
Shipping Company Inc. and Orangina Inc., as Borrowers, and DnB
NOR Bank ASA, incorporated by reference to Exhibit 10.6 of
the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
|
.7
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Loan Agreement, dated May 4, 2011, by and between DnB NOR
Bank ASA , and Likiep Shipping Company Inc., Orangina Inc., Mili
Shipping Company Inc., Ebon Shipping Company Inc., and Ralik
Shipping Company Inc.*
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10
|
.8
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Memorandum of Agreement for m/v Maersk Madrid*
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10
|
.9
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Addendum No. 1 to the Memorandum of Agreement for m/v
Maersk Madrid*
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10
|
.10
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Memorandum of Agreement for m/v Maersk Malacca*
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10
|
.11
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Memorandum of Agreement for m/v Maersk Merlion*
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21
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.1
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List of Subsidiaries*
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23
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.1
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Consent of Independent Registered Public Accounting Firm
(Ernst & Young (Hellas) Certified Auditors
Accountants S.A.)
|
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23
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.2
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Consent of Drewry Shipping Consultants Ltd.
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23
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.3
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Consent of Seward & Kissel LLP (included in
Exhibit 5.1)*
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24
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Power of Attorney*
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** |
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To be filed in a subsequent amendment. |
II-4
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements certificates in such denominations and registered in
such names as required by the 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 Commission such indemnification is against
public policy as expressed in the 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 Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)
(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form F-1
and has duly caused this Amendment No. 1 to the
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, the City of Athens,
Republic of Greece, on the
23rd day
of May, 2011.
DIANA CONTAINERSHIPS INC.
Name: Symeon Palios
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Title:
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Chairman and Chief Executive Officer
|
Power of
Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gary J. Wolfe, Robert E.
Lustrin and Edward S. Horton 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.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the
following persons in the capacities indicated on May 23,
2011.
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Name
|
|
Position
|
|
|
|
|
|
|
|
|
/s/ Symeon
Palios*
Symeon
Palios
|
|
Chief Executive Officer, Chairman and Director (principal
executive officer)
|
|
|
|
|
|
|
|
/s/ Andreas
Michalopoulos*
Andreas
Michalopoulos
|
|
Chief Financial Officer and Treasurer (principal financial
officer and principal accounting officer)
|
|
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/s/ Anastasios
Margaronis*
Anastasios
Margaronis
|
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Director and President
|
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/s/ Ioannis
Zafirakis*
Ioannis
Zafirakis
|
|
Director, Chief Operating Officer and Secretary
|
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/s/ Giannakis
Evangelou*
Giannakis
Evangelou
|
|
Director
|
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II-6
|
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|
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|
Name
|
|
Position
|
|
|
|
|
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|
|
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/s/ Antonios
Karavias*
Antonios
Karavias
|
|
Director
|
|
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|
|
/s/ Nikolaos
Petmezas*
Nikolaos
Petmezas
|
|
Director
|
|
|
|
|
|
|
|
/s/ Reidar
Brekke*
Reidar
Brekke
|
|
Director
|
|
|
|
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|
*By Gary J. Wolfe, attorney-in-fact.
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II-7
Authorized
Representative
Pursuant to the requirements of the Securities Act of 1933, as
amended, the undersigned, the duly authorized representative of
the Registrant in the United States, has signed this
registration statement on May 23, 2011.
BULK CARRIERS (USA) LLC
BY: Diana Shipping Inc., its Sole Member
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By:
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/s/ Ioannis
Zafirakis*
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Ioannis Zafirakis
Director, Executive Vice President and Secretary Authorized
Representative in the United States
*By Gary J.
Wolfe, attorney-in-fact.
II-8
INDEX TO
EXHIBITS
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Number
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Description of Exhibit
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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,
incorporated by reference to Exhibit 3.1 of the
Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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3
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.2
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Amended and Restated Bylaws of the Company, incorporated by
reference to Exhibit 3.2 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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4
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.1
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Form of Share Certificate, incorporated by reference to
Exhibit 4.1 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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4
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.2
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Registration Rights Agreement dated April 6, 2010 by and
among the Company, FBR Capital Markets & Co. and Diana
Shipping Inc., incorporated by reference to Exhibit 4.2 of
the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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4
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.3
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Stockholders Rights Agreement, dated August 2, 2010 by and
between the Company and Mellon Investor Services LLC,
incorporated by reference to Exhibit 4.3 of the
Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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4
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.4
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Statement of Designations of Rights, Preferences and Privileges
of Series A Participating Preferred Stock of Diana
Containerships Inc., dated August 2, 2010, incorporated by
reference to Exhibit 4.4 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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5
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.1
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Legal Opinion of Seward & Kissel LLP*
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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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2010 Equity Incentive Plan, incorporated by reference to
Exhibit 10.1 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
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.2
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Administrative Services Agreement, incorporated by reference to
Exhibit 10.2 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
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.3
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Broker Services Agreement, incorporated by reference to
Exhibit 10.3 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
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.4
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Form of Vessel Management Agreement, incorporated by reference
to Exhibit 10.4 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
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.5
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Non-Competition Agreement with Diana Shipping Inc., incorporated
by reference to Exhibit 10.5 of the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
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.6
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Loan Agreement, dated July 7, 2010, by and between Likiep
Shipping Company Inc. and Orangina Inc., as Borrowers, and DnB
NOR Bank ASA, incorporated by reference to Exhibit 10.6 of
the Companys
Form F-4
filed with the Securities and Exchange Commission on
October 15, 2010.
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10
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.7
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Loan Agreement, dated May 4, 2011, by and between DnB NOR
Bank ASA , and Likiep Shipping Company Inc., Orangina Inc., Mili
Shipping Company Inc., Ebon Shipping Company Inc., and Ralik
Shipping Company Inc.*
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10
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.8
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Memorandum of Agreement for m/v Maersk Madrid*
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10
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.9
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Addendum No. 1 to the Memorandum of Agreement for m/v
Maersk Madrid*
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10
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.10
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Memorandum of Agreement for m/v Maersk Malacca*
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10
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.11
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Memorandum of Agreement for m/v Maersk Merlion*
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21
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.1
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List of Subsidiaries*
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23
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.1
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Consent of Independent Registered Public Accounting Firm
(Ernst & Young (Hellas) Certified Auditors
Accountants S.A.)
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23
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.2
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Consent of Drewry Shipping Consultants Ltd.
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23
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.3
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Consent of Seward & Kissel LLP (included in
Exhibit 5.1)*
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24
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Power of Attorney*
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** |
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To be filed in a subsequent amendment. |