The following table sets forth information regarding (i) the beneficial owners of more than five percent of our common stock that we are aware of and (ii) the total amount of common stock beneficially owned by our officers and directors (other than Mr. Marinakis) as a group, in each case as of the date of this prospectus and after giving effect to this offering.
RELATED PARTY TRANSACTIONS
Express Sea Transport Corporation
ESTC is a privately-held company that is owned and operated by the Marinakis family, including Mr. Marinakis, our President and Chief Executive Officer. ESTC, which does not own vessels itself, is in the business of chartering in and chartering out primarily dry bulk carrier vessels to exploit trading opportunities identified by members of the Marinakis family active in this business and by certain other individuals employed by or involved in the management of ESTC.
From time to time, ESTC has chartered certain of our vessels. In aggregate, we have received charterhire payments from ESTC of $1.3 million in 2002, $4.8 million in 2003 and $6.6 million in 2004. As of January 1, 2005, we have not entered into, and do not expect in the future to enter into, any chartering arrangements with ESTC.
Subject to the terms of a Letter Agreement between the Company and ESTC, dated June 10, 2005, the Company, acting through independent members of our board of directors, has an option to explore and negotiate for the acquisition of ESTC within one year commencing on the one year anniversary of this offering, which may be extended by mutual consent of the parties. The acquisition price is to be calculated by reference to three valuations of ESTC, each submitted by an independent third party appraiser. Each appraiser will be a shipbroker, shipping consultant, other shipping professional or financial expert with recognized expertise in the shipping industry. The Company, acting through its independent directors, and ESTC will each appoint one of the three appraisers. The third appraiser will be jointly appointed by the first two appointed appraisers.
Following their appointment, each of the three appraisers will independently calculate the then current fair market value of ESTC in accordance with the terms of the Letter Agreement, after taking into account their knowledge and expertise of the markets applicable to the transaction. In calculating such valuation, the appraisers will consider what is customary and reasonable for businesses of a similar nature; provided that the terms of any final purchase price will in any event be subject to, and consistent with, the terms and conditions of the Letter Agreement. Notwithstanding the parties' agreement to appoint appraisers for this purpose as described in this section and more fully in the Letter Agreement, each of the Company and ESTC may take any other actions consistent with the Letter Agreement, including appointing or retaining other experts or advisers, for the purpose of assisting them in evaluating or performing any aspect of the proposed transaction.
Following each appraiser's submission of an independent valuation, these valuations will be considered in good faith by the Company and ESTC and if the Company and ESTC accept the range of valuations so submitted, the parties will agree to negotiate a final purchase price in good faith. If the parties agree to a final purchase price, the Company and ESTC will agree to enter into a purchase and sale agreement with respect to ESTC on terms and conditions consistent with the Letter Agreement. All fees and expenses associated with the appointment of and valuation by the appraisers, as well as all fees and expenses in connection with completing the purchase and sale of ESTC, including the reasonable fees and expenses of ESTC's legal counsel, will be borne by the Company; provided that the Company and ESTC will independently pay all fees and expenses of any other of their respective experts or advisers.
For so long as ESTC is not part of the Company, there is a risk that the vessels chartered by ESTC could be in competition with vessels in our fleet. If competition does arise, members of the Marinakis family may be faced with conflicts of interest with respect to their interests in ESTC and any obligations and responsibilities they may have to us. These conflicts may arise in connection with, among other things, the division of Mr. Marinakis's time between ESTC and us and, while not currently contemplated, any decision by the Marinakis family to manage or own other vessels outside of our Company, which vessels may be, or may be perceived to be, in direct or indirect competition with our vessels.
Curzon Maritime Limited
Curzon Maritime Limited is a ship brokering company located in London, which prior to its sale to certain of its employees in the second quarter of 2005, was held in trust for the benefit of certain
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members of the Marinakis family, including Mr. Marinakis, our President and Chief Executive Officer, who was a director of this company until his resignation on December 31, 2004. Since his resignation, Mr. Marinakis has not participated in the management or operational decisions of Curzon Maritime Limited.
Curzon Maritime Limited, together with Curzon Shipbrokers Corp. (described below), has historically acted as our primary non-exclusive shipbroker and has typically charged us a brokerage commission of approximately 1.25% of the charterhire, freight and demurrage of each charter in which it has been involved as a shipbroker. This commission rate is within the standard range for such services in the shipping industry. In connection with the brokering services provided to us, we paid Curzon Maritime Limited an aggregate of $108,000 in 2002, $367,000 in 2003 and $897,000 in 2004 for brokerage fees on some of our charters.
The trustee of the trust that holds Curzon Maritime Limited, acting on behalf of the trust's beneficiaries, sold Curzon Maritime Limited to certain of its employees in May 2005. Following the sale, Curzon Maritime Limited, together with Curzon Shipbrokers Corp., has continued to act as our non-exclusive broker.
Curzon Shipbrokers Corp.
Curzon Shipbrokers Corp. is a privately-owned ship brokering company registered in Panama with a branch in Greece. Curzon Shipbrokers Corp. was, prior to its sale to certain of its employees in the second quarter of 2005, beneficially owned by the Marinakis family, including Mr. Marinakis, our President and Chief Executive Officer.
Curzon Shipbrokers Corp., together with Curzon Maritime Limited, has historically acted as our primary non-exclusive shipbroker and has typically charged us a brokerage commission of approximately 1.25% of the charterhire, freight and demurrage of each charter in which it has been involved as a shipbroker. This commission rate is within the standard range for such services in the industry. In connection with the brokering services provided to us, we paid Curzon Shipbrokers Corp. an aggregate of $26,000 in 2002, $277,000 in 2003 and $581,000 in 2004 for brokerage fees on some of our charters.
The owners of Curzon Shipbrokers Corp. sold Curzon Shipbrokers Corp. to certain of its employees in May 2005, subject to the payment by the employees of the full purchase price in fifty, monthly, non-interest bearing installments. Following the sale, Curzon Shipbrokers Corp., together with Curzon Maritime Limited, has continued to act as our non-exclusive broker.
Barclay Shipping Limited
Barclay Shipping Limited is a Liberian company with a branch in Piraeus, Athens, Greece that is wholly-owned and controlled by certain members of the Marinakis family, including Mr. Marinakis, our President and Chief Executive Officer. Prior to December 31, 2004, Barclay Shipping Limited provided operating, technical and chartering ship management services to certain of our vessels. The fees we paid to Barclay primarily comprised fixed fees of $18,000 per month per vessel (for the 12 months ended December 31, 2004) and $15,000 per month per vessel (prior to such period). As of January 1, 2005, the commercial and technical management of all of the vessels then managed by Barclay, with the exception of one vessel, the Ayrton, which was sold for scrap in April 2005, was transferred to Capital Ship Management Corp., our wholly-owned ship management subsidiary. In connection with the ship management services provided to our vessels under ship management arrangements with Barclay Shipping Limited, we paid Barclay Shipping Limited an aggregate of $1.2 million in 2002, $2.2 million in 2003 and $2.8 million in 2004. In the first quarter of 2005, we paid Barclay Shipping Limited $19,000 for management fees incurred in the period in respect of the Ayrton.
In connection with the execution of our contracts for 16 newbuildings with Hyundai MIPO shipyard in South Korea, Barclay Shipping Limited earned the right to receive commission payments from the shipyard. These commission payments are fixed in amount and, in the aggregate, amount to approximately 2% of the total purchase price of the newbuildings. As of April 15, 2004, Barclay
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Shipping Limited had received commission payments aggregating approximately $1.3 million pursuant to the commission agreements it entered into with the shipyard. Pursuant to a Commission Receivables Sale Agreement dated June 10, 2005 between Barclay Shipping Limited and the Company, Barclay Shipping Limited sold to the Company the right to receive the remaining commission payments, which in the aggregate amount to up to $9.4 million, for which the Company paid a total consideration of $8.9 million.
Express Energy Inc.
Express Energy Inc. is a Panamanian company with a branch in Greece, and is a related entity owned by the Marinakis family. Express Energy's main activity is to act as a broker for us and for unrelated third parties in transactions for the purchase of lubricants and bunkers from third party suppliers. As of January 1, 2005, we assumed the activities of Express Energy Inc. that relate to the provision of lubricants and bunkers for the vessels in our fleet.
Leases
Capital Ship Management Corp. leases five floors of office space at 3, Iassonos Street, Piraeus, Athens, 18537 Greece from a separate lessor for each floor. Each lessor is a company beneficially owned by the Marinakis family. The basic terms of these leases are set forth below:
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| • | Lease dated January 1, 2003, entered into by Capital Ship Management Corp. with Forest World as Lessor for use and occupancy of 311 square meters of ground floor storage space through December 31, 2015. We pay Forest World a use and occupancy fee for lease of this space in the amount of €622 per month. |
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| • | Lease dated December 1, 2002 (replaced by lease dated March 1, 2005), entered into with Vanimar Inc. as Lessor for use and occupancy of 156 square meters of office space on the 1st floor through March 1, 2017. We pay Vanimar Inc. a use and occupancy fee for lease of this space in the amount of €360 per month. |
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| • | Lease dated January 1, 2003, entered into with Skyline Holdings Corp. as Lessor for use and occupancy of 304 square meters of office space on the 6th floor through December 31, 2015. We pay Skyline Holdings Corp. a use and occupancy fee for lease of this space in the amount of €1,216 per month. |
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| • | Lease dated March 1, 2005 entered into with Dimension International SA as Lessor for use and occupancy of 363 square meters of basement storage space through March 1, 2017. We pay Dimension International SA a use and occupancy fee for lease of this space in the amount of €800 per month. |
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| • | Lease dated March 1, 2005 entered into with Arch Finance as Lessor for use and occupancy of 150 square meters of office space on the 7th floor through March 1, 2017. We pay Arch Finance a use and occupancy fee for lease of this space in the amount of €500 per month. |
We believe that the use and occupancy fee on each of our leases is no greater than would have been incurred with a third party on an arm's length basis at the time we entered into such lease.
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SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of our common stock sold in this offering will be freely tradable without restriction under the Securities Act of 1933, except for any shares that may be acquired by one of our "affiliates", as that term is defined in Rule 144 under the Securities Act. Persons who may be deemed to be affiliates generally include individuals or entities that control, are controlled by, or are under common control with us and may include our directors, officers and significant stockholders.
The shares of our common stock held by Mr. Marinakis and his family are "restricted securities" as defined in Rule 144, and may not be sold other than through registration under the Securities Act, under an exemption from registration or in compliance with the resale limitations of Rule 144.
Generally, Rule 144 provides that, beginning 90 days after the date of this offering, a person who has beneficially owned "restricted" shares for at least one year will be entitled to sell on the open market in brokers' transactions, within any three-month period, a number of shares that does not exceed the greater of:
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| • | 1% of the then outstanding shares of common stock; and |
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| • | the average weekly trading volume of the common stock on the open market during the four calendar weeks preceding such sale. |
Sales under Rule 144 are also subject to requirements related to the manner in which the sales may be sold, post-sale notice requirements and the availability of current public information about the issuer.
In the event that any person who is deemed to be our affiliate purchases shares of our common stock in this offering or acquires shares of our common stock pursuant to one of our employee benefit plans, the shares held by that person are required under Rule 144 to be sold in brokers' transactions, subject to the volume limitations described above. Shares properly sold in reliance upon Rule 144 to persons who are not affiliates are thereafter freely tradable without restriction.
Our President and CEO, together with his family, who will beneficially own an aggregate of 46,330,000 shares of common stock after this offering, have signed lock-up agreements under which they have agreed not to offer, sell, pledge, contract to sell, short sell, grant any option in or otherwise dispose of, or enter into any hedging transaction with respect to, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock beneficially owned by them, for a period ending at least 180 days after the date of this prospectus. The foregoing does not prohibit open market purchases and sales of our common stock by such holders after the completion of this offering and transfers or dispositions by our officers, directors and stockholders can be made sooner:
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| • | with the written consent of Goldman Sachs International on behalf of the other underwriters; |
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| • | as a gift or by will or intestacy; |
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| • | to immediate family members; |
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| • | to any trust, partnership or other entity for the direct or indirect benefit of the holder or his or her immediate family; and |
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| • | as a distribution to any affiliate or wholly owned subsidary of the holder; |
in each case, so long as the transferee of such shares agrees to be bound by the lock-up agreement.
We expect to enter into a registration rights agreement with the Marinakis family which will entitle the Marinakis family to have all of its shares registered for sale in the public market following the expiration of the "lock-up" period described above.
No prediction can be made as to the effect, if any, that future sales or the availability of shares for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market, including shares issued upon the exercise of options that may be granted under any employee stock option or employee stock award plan of ours, or the perception that those sales may occur, could adversely affect prevailing market prices for our common stock.
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DESCRIPTION OF CAPITAL STOCK
General
The following summary of our capital stock is subject in all respects to the BCA and to our Articles and By-laws. Therefore, we refer you to our Articles and By-laws, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part. Article IV of our Articles describes our objects and purposes, which include any lawful activity for which companies may now or hereafter be organized under the BCA.
Authorized Capitalization
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $.001 per share, of which 46,330,000 shares were issued and outstanding immediately prior to the completion of this offering, and 5,000,000 shares of preferred stock, par value $.001 per share, of which no shares were issued and outstanding. Upon consummation of this offering, assuming that the underwriters have not exercised their over-allotment option, we will have outstanding 63,000,000 shares of common stock and no shares of preferred stock. All of our shares of stock are in registered form.
Common Stock
Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of shares of common stock are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all 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. Holders of common stock do not have conversion, redemption or preemptive rights to subscribe to any of our securities, other than as described below in "Stockholders' Rights Plan". 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 Articles 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. |
Directors
Our directors are elected by a majority of the votes cast by stockholders entitled to vote. Our Articles prohibit cumulative voting.
Our board of directors must consist of at least three and no more than twelve members. The number of directors may be changed only by the affirmative vote of the majority of the entire board of directors.
Until such date as Mr. Marinakis, his spouse, mother, children or their children or a person controlled by any one or group of them (for purposes of this section of the prospectus, the "Permitted
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Holder") ceases to control more than 40.1% of our voting stock (such date being referred to herein as the "Trigger Date"), each director will be elected to serve until the next annual meeting of stockholders and until his successor shall have been duly elected and qualified, except in the event of his death, resignation removal, or the earlier termination of his term of office. For a description of director terms after the Trigger Date, see "—Classified Board of Directors" below. 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.
Prior to the Trigger Date, vacancies in the board of directors for any reason, and any created directorships resulting from any increase in the number of directors, may be filled by the vote of not less than a majority of the members of the board of directors then in office, even if less than a quorum, or by the majority vote of our shareholders. After the Trigger Date, vacancies may only be filled by the vote of not less than a majority of the board of directors then in office, even if less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen, as discussed below in "—Classified Board of Directors", and until their successors shall be elected and qualified.
Stockholder Meetings
Annual stockholder meetings will be held at a time and place selected by our board of directors. The meetings may be held in or outside of the Marshall Islands. Prior to the Trigger Date, special meetings may be called by a majority of the board of directors, by the Permitted Holder, or by stockholders holding not less than a majority of all the outstanding shares entitled to vote at such meeting. After the Trigger Date, special meetings may be called only by a majority of the board of directors or the Permitted Holder. Our board of directors may set a record date between 15 and 30 days before the date of any meeting to determine the stockholders that will be eligible to receive notice and vote at the meeting.
Notice Requirements
Prior to the Trigger Date, nominations and stockholder proposals by the Permitted Holder will not be subject to any advance notice procedures in the By-laws.
Dissenters' Rights of Appraisal and Payment
Under the BCA, our stockholders have the right to dissent from various corporate actions, including any merger or sale of all or substantially all of our assets not made in the usual course of our business, and receive payment for the fair value of their shares. In the event of any amendment to our Articles, a stockholder also has the right to dissent and receive payment for its shares if the amendment alters certain rights in respect of those shares. The dissenting stockholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting stockholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which our shares are primarily traded on a local or national securities exchange.
Stockholders' Derivative Actions
Under the BCA, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action had a beneficial interest in our 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
Under our Articles, none of our directors shall be liable to us or our stockholders for monetary damages for actions taken in his or her capacity as a director or officer and made in good faith, to the fullest extent that the BCA or any other law of the Republic of the Marshall Islands permits.
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Our By-laws provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly authorized to advance certain expenses (including attorneys' fees) to our directors and officers and carry directors' and officers' insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our Articles and By-laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
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 Articles and By-laws
Several provisions of our Articles and By-laws, which are summarized below, may have anti-takeover effects, particularly after the Trigger Date. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions could also discourage, delay or prevent (1) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise, which a stockholder may consider in its best interests, and (2) the removal of incumbent officers and directors.
Blank Check Preferred Stock
Under the terms of our Articles, our board of directors has authority, without any further vote or action by our stockholders, to issue up to 5,000,000 shares of blank check preferred stock. Our board of directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our company or the removal of our management.
Classified Board of Directors
Our Articles provide that after the Trigger Date our board of directors will be divided into three classes of directors, with each class as nearly equal in number as possible, serving staggered, three year terms. Approximately one-third of our board of directors will be elected each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of us. It could also delay stockholders who do not agree with the policies of our board of directors from removing a majority of our board of directors for two years.
Election and Removal of Directors
Our Articles prohibit cumulative voting in the election of directors. Our By-laws require parties other than the board of directors and, prior to the Trigger Date, the Permitted Holder, to give advance written notice of nominations for the election of directors. Although our Articles provide that directors may be removed with or without cause by a majority vote of shareholders prior to the Trigger Date, once the Trigger Date has occurred, our directors may be removed only for cause and only upon the affirmative vote of a majority of the outstanding shares of our capital stock entitled to vote for those directors, cast at a special meeting of shareholders called for that purpose. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited Actions by Stockholders
Our Articles and By-laws provide that prior to the Trigger Date, any action required or permitted to be taken by our stockholders must be effected at an annual or special meeting of stockholders or
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with or without notice by the unanimous written consent of our stockholders. After the Trigger Date, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing.
Our Articles and By-laws provide that, subject to certain exceptions, only our board of directors and/or the Permitted Holder may call special meetings of our stockholders. Accordingly, a stockholder may be prevented from calling a special meeting for stockholder consideration of a proposal over the opposition of our board of directors and stockholder consideration of a proposal may be delayed until the next annual meeting.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our By-laws provide that stockholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of stockholders must provide timely notice of their proposal in writing to our Secretary. Generally, to be timely, a stockholder's notice must be received by our secretary not less than 15 days nor more than 30 days prior to the anniversary date of the preceding year's annual meeting. Our By-laws also specify requirements as to the form and content of a stockholder's notice. These provisions may impede stockholders' ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders.
Stockholders' Rights Plan
General
Each share of our common stock includes a right that entitles the holder to purchase from us a unit consisting of one-thousandth of a share of our preferred stock at a purchase price of $ per unit, subject to specified adjustments. The rights will be issued pursuant to a rights agreement between us and a rights agent. Until a right is exercised, the holder of a right will have no rights to vote or receive dividends or any other stockholder rights.
The rights may have anti-takeover effects. The rights will cause substantial dilution to any person or group that attempts to acquire us without the approval of our board of directors. As a result, the overall effect of the rights may be to render more difficult or discourage any attempt to acquire us. Because our board of directors can approve a redemption of the rights for a permitted offer, the rights should not interfere with a merger or other business combination approved by our board of directors. The adoption of the rights agreement was approved by our existing stockholders prior to this offering.
We have summarized the material terms and conditions of the rights agreement and the rights below. For a complete description of the rights, we encourage you to read the rights agreement, which we have filed as an exhibit to the registration statement of which this prospectus is a part.
Detachment of the Rights
The rights are attached to all certificates representing our currently outstanding common stock and will attach to all common stock certificates we issue prior to the rights distribution date that we describe below. The rights are not exercisable until after the rights distribution date and will expire at the close of business on the tenth anniversary date of the adoption of the rights plan, unless we redeem or exchange them earlier as described 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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| • | 10 days following a public announcement that a person or group of affiliated or associated persons, or an "acquiring person", has acquired or obtained the right to acquire beneficial ownership of 20% or more of our outstanding common stock; or |
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| • | 10 days following the start of a tender or exchange offer that would result, if closed, in a person's becoming an acquiring person. |
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Existing stockholders are excluded from the definition of acquiring person for purposes of the rights, and therefore their ownership cannot trigger the rights. In addition, any person that acquires from an existing stockholder common stock that would otherwise result in that person becoming an acquiring person will not become an acquiring person due to that acquisition. Specified "inadvertent" owners that would otherwise become an acquiring person, including those who would have this designation as a result of repurchases of common stock by us, will not become acquiring persons as a result of those transactions.
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 rights agreement by reference. |
As soon as practicable after the rights distribution date, the rights agent will mail certificates representing the rights to holders of record of common stock at the close of business on that date. After the rights distribution date, only separate rights certificates will represent the rights.
We will not issue rights with any shares of common stock we issue after the rights distribution date, except as our board of directors may otherwise determine.
Flip-In Event
A "flip-in event" will occur under the rights agreement when a person becomes an acquiring person otherwise than pursuant to a permitted offer. The rights agreement generally defines "permitted offer" to mean a tender or exchange offer for all outstanding shares of common stock at a price and on terms that a majority of the members of our board of directors who are independent from the acquiring person or the person making the offer determines to be fair to and otherwise in the best interests of our company and our stockholders.
If a flip-in event occurs and we do not redeem the rights as described under the heading "Redemption of Rights" below, each right, other than any right that has become void, as we describe below, will become exercisable at the time it is no longer redeemable for the number of shares of common stock, or, in some cases, cash, property or other of our securities, having a current market price equal to two times the exercise price of such right.
When a flip-in event occurs, all rights that then are, or in some circumstances that were, beneficially owned by or transferred to an acquiring person or specified related parties will become void in the circumstances the rights agreement specifies.
Flip-Over Event
A "flip-over event" will occur under the rights agreement when, at any time after a person has become an acquiring person:
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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, cash flow or earning power is sold or transferred. |
If a flip-over event occurs, each holder of a right, other than any right that has become void as we describe under the heading "Flip-In Event" above, will have the right to receive the number of shares of common stock of the acquiring company which has a current market price equal to two times the exercise price of such right.
Antidilution
The number of outstanding rights associated with our common stock is subject to adjustment for any stock split, stock dividend or subdivision, combination or reclassification of our common stock
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occurring prior to the rights distribution date. With some exceptions, the rights agreement will not require us to adjust the exercise price of the rights until cumulative adjustments amount to at least 1% of the exercise price. It also will not require us to issue fractional shares of our preferred stock that are not integral multiples of one one-hundredth of a share, and, instead we may make a cash adjustment based on the market price of the common stock on the last trading date prior to the date of exercise. The rights agreement reserves to us the right to require prior to the occurrence of any flip-in event or flip-over event that, on any exercise of rights, a number of rights must be exercised so that we will issue only whole shares of stock.
Redemption of Rights
At any time until 10 days after the date on which the occurrence of a flip-in event is first publicly announced, we may redeem the rights in whole, but not in part, at a redemption price of $ per right. The redemption price is subject to adjustment for any stock split, stock dividend or similar transaction occurring before the date of redemption. At our option, we may pay that redemption price in cash, shares of common stock or any other consideration our board of directors may select. The rights are not exercisable after a flip-in event until they are no longer redeemable. If our board of directors timely orders the redemption of the rights, the rights will terminate on the effectiveness of that action.
Exchange of Rights
We may, at our option, exchange the rights (other than rights owned by an acquiring person or an affiliate or an associate of an acquiring person, which have become void), in whole or in part. The exchange will be at an exchange ratio of one share of common stock per right, subject to specified adjustments at any time after the occurrence of a flip-in event and prior to:
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| • | any person other than our existing stockholders becoming the beneficial owner of common stock with voting power equal to 50% or more of the total voting power of all shares of common stock entitled to vote in the election of directors; or |
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| • | the occurrence of a flip-over event. |
Amendment of Terms of Rights
During the time the rights are redeemable, we may amend any of the provisions of the rights agreement, other than by decreasing the redemption price. Once the rights cease to be redeemable, we generally may amend the provisions of the rights agreement, other than to decrease the redemption price, only as follows:
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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 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. |
Amendment of Articles and By-laws
Generally, our Articles provide that prior to the Trigger Date the affirmative vote of the holders of a majority of the voting power of all outstanding shares of common stock is required for any amendment to, alteration of, change to or repeal of any sections of the Articles, and after the Trigger Date, an 80% supermajority is required. Our board of directors is expressly authorized to make, alter or repeal our By-laws by a vote of not less than a majority of the entire board of directors, and the stockholders may not make additional By-laws and may not alter or repeal any By-law.
Transfer Agent
The registrar and transfer agent for our common stock is .
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CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS
Our corporate affairs are governed by our Articles and By-laws and by the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. For example, the BCA allows the adoption of various anti-takeover measures such as stockholder "rights" plans. While the BCA also provides that it is to be interpreted according to the laws of the State of Delaware and other states of the United States with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we cannot predict whether Marshall Islands courts would reach the same conclusions as U.S. courts. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdiction which has developed a substantial body of case law. The following table provides a general comparison between the statutory provisions of the BCA and the Delaware General Corporation Law relating to stockholders' rights.
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| Marshall Islands | | Delaware |
| Stockholder Meetings |
| • Held at a time and place as designated in the by-laws | | • May be held at such time or place as designated in the certificate of incorporation or the by-laws, or if not so designated, as determined by the board of directors |
| • May be held within or without the Marshall Islands | | • May be held within or without Delaware |
| • Notice: | | • Notice: |
| • Whenever stockholders are required or permitted to take any action at a meeting, written notice shall state the place, date and hour of the meeting and, unless it is the annual meeting, indicate that it is being issued by or at the direction of the person calling the meeting | | • Whenever stockholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any |
| • A copy of the notice of any meeting shall be given personally or sent by mail, telegraph, cablegram, telex or teleprinter, not less than 15 nor more than 60 days before the date of the meeting | | • Written notice shall be given not less than 10 nor more than 60 days before the meeting |
| Stockholders' Voting Rights |
| • Any action required to be taken by a meeting of stockholders or any action which may be taken at a meeting of the stockholders may be taken without a meeting if a consent in writing, setting forth the action to be taken, is signed by all the stockholders entitled to vote with respect to the subject matter thereof | | • Stockholders may act by written consent to elect directors |
| • Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent without a meeting may authorize another person to act for him by proxy | | • Any person authorized to vote may authorize another person or persons to act for him by proxy |
|
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| | | | | | |
| Marshall Islands | | Delaware |
| • Unless otherwise provided in the articles of incorporation, a majority of shares entitled to vote, represented in person or by proxy, constitutes a quorum. In no event shall a quorum consist of fewer than one third of the shares entitled to vote at a meeting | | • For stock corporations, certificate of incorporation or by-laws may specify the number to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares entitled to vote shall constitute a quorum |
| • Allows articles of incorporation to provide for cumulative voting, as such term is used in the BCA | | • The certificate of incorporation may provide for cumulative voting |
| Directors |
| • Board must consist of at least one member | | • Board must consist of at least one member |
| • Number of directors can be changed by an amendment to the by-laws, by the stockholders, or by action of the board | | • Number of directors shall be fixed by the by-laws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number shall be made only by amendment of the certificate |
| • If the board is authorized by the by-laws to change the number of directors, whether by amending the by-laws or by taking action under the specific provisions of a bylaw, such amendment or action shall require the vote of a majority of the entire board and no decrease shall shorten the term of any incumbent director | |
| Dissenters' Rights of Appraisal |
| • Any stockholder shall have the right to dissent from any of the following corporate actions and receive payment of the fair value of his shares: (a) any plan of merger or consolidation to which the corporation is a party; or (b) any sale or exchange of all or substantially all of the property and assets not made in the usual and regular course of business, including a sale in dissolution, but not including a sale pursuant to an order of a court having jurisdiction in the premises or a sale for cash on terms requiring that all or substantially all the net proceeds of sales be distributed to the shareholders in accordance with their respective interest within one year after the date of sale | | • Appraisal rights shall be available for the shares of any class or series of stock of a corporation in a merger or consolidation |
| • A holder of any adversely affected shares who does not vote on or consent in writing to an amendment to the articles of incorporation shall, subject to and by complying with the provisions of the BCA relating to the procedure to enforce shareholders' rights to receive payment for shares, have the right to dissent and to receive payment for such shares if the articles of amendment: | | |
|
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| | | | | | |
| Marshall Islands | | Delaware |
| → Alter or abolish any preferential right of any outstanding shares having preferences; or | | |
| → Create, alter, or abolish any provision or right in respect to the redemption of any outstanding shares; or | | |
| → Alter or abolish any preemptive right of such holder to acquire shares or other securities; or | | |
| → Exclude or limit 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 | | |
| Stockholders' Derivative Actions |
| • An action may be brought in the right of a corporation to procure a judgment in its favor, by a holder of shares or of voting trust certificates or of a beneficial interest in such shares or certificates. It shall be made to appear that the plaintiff is such a holder at the time of bringing the action and that he was such a holder at the time of the transaction of which he complains, or that his shares or his interest therein devolved upon him by operation of law | | • In any derivative suit instituted by a stockholder or a corporation, it shall be averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the transaction of which he complaints or that such stockholder's stock thereafter devolved upon such stockholder by operation of law |
| • Complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making such effort | | |
| • Such action in the Republic of the Marshall Islands shall not be discontinued, compromised or settled without the approval of the High Court of the Republic | | |
| • Reasonable expenses, including reasonable attorneys' fees may be awarded if the action is successful | | |
| • Corporation may require a plaintiff bringing a derivative suit to give security for reasonable expenses if the plaintiff owns less than 5% of any class of stock and the shares have a value of less than $50,000 | | |
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TAX CONSIDERATIONS
The following is a discussion of the material Marshall Islands and United States federal income tax considerations relevant to the acquisition, ownership and disposition by a U.S. Holder, as defined below, of our common stock. This discussion does not address the tax consequences of owning common stock that may be relevant to special categories of investors, subject to special rules or treatment, such as banks, insurance companies, tax-exempt entities, financial institutions, broker-dealers, persons holding common stock as part of a hedging or conversion transaction or as part of a "straddle", United States expatriates, persons subject to alternative minimum tax, persons whose functional currency is not the United States dollar, and investors in pass-through entities. This discussion deals only with holders who purchase common stock in connection with this offering. You should consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of common stock.
Marshall Islands Tax Considerations
We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our stockholders.
United States Federal Income Tax Considerations
The following discussion of United States federal income tax matters is based on the Internal Revenue Code of 1986 (the Code), judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, all of which are subject to change, possibly with retroactive effect. In addition, the discussion below is based, in part, on the description of our business as described in "Business" above and assumes that we conduct our business as described in that section. Except as otherwise noted, this discussion is based on the assumption that we will not maintain an office or other fixed place of business within the United States. References in the following discussion to "we" and "us" are to Capital Maritime & Trading Corp. and its subsidiaries on a consolidated basis. The following discussion does not include any description of the tax laws of any state or local governments within the United States and this discussion does not address any aspects of estate and gift taxation.
United States Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from United States federal income taxation under the rules discussed below, a foreign corporation is subject to United States federal income taxation 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 do not expect to engage in transportation that produces income which is considered to be 100% from sources within the United States.
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 United States federal income tax.
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In the absence of exemption from tax under Section 883, as explained more fully below, our gross U.S. source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code and the regulations thereunder, we will be exempt from United States federal income taxation on our U.S.-source shipping income if:
(1) we are organized in a foreign country (our "country of organization") that grants an "equivalent exemption" to corporations organized in the United States; and
(2) either
(A) more than 50% of the value of our stock is owned, directly or indirectly, by individuals who are "residents" of our country of organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States (a "qualified shareholder"), which we refer to as the "50% Ownership Test", or
(B) our stock is "primarily and regularly traded on an established securities market" in our country of organization, in another country that grants an "equivalent exemption" to United States corporations, or in the United States, which we refer to as the "Publicly-Traded Test".
The jurisdictions where we and our vessel-owning subsidiaries are incorporated, the Marshall Islands, Panama and Malta, grant an "equivalent exemption" to U.S. corporations. In addition, Mr. Marinakis and his family, who, after closing, will own more than 50% of our common stock for United States federal income tax purposes, are residents of countries that grant an "equivalent exemption" to U.S. corporations. Therefore, after this offering and assuming that the common stock continues to be listed on the New York Stock Exchange, we anticipate being able to satisfy both the Publicly-Traded Test and the 50% Ownership Test, as discussed below.
The regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be "primarily traded" on an established securities market if, with respect to each class of stock that is "regularly traded" (as discussed below), the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. We anticipate that our common stock, which is our sole class of issued and outstanding stock, will be "primarily traded" on the New York Stock Exchange.
Under the regulations, our common stock will be considered to be "regularly traded" on an established securities market if it satisfies two requirements. The first requirement, which we refer to as the "listing threshold", will be satisfied if shares of one or more classes of our stock are listed on the market and such class or classes represent 50% or more of the total combined voting power of all classes of stock entitled to vote and of the total value of all of our stock. Since our common stock will be our sole class of stock outstanding and will be listed on the New York Stock Exchange, we will satisfy the listing threshold.
It is further required that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock be 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 stock traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year. We believe we will satisfy the trading frequency and trading volume tests. Even if this were not the case, the regulations provide that the trading frequency and trading volume tests will be deemed satisfied if, as we expect to be the case with our common stock, such stock is traded on an established market in the United States and such stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that our common stock will not be considered to be "regularly traded" on an established securities market for any taxable
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year in which 50% or more of the outstanding shares of the stock are owned, actually or constructively under specified stock attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the value of our outstanding stock, which we refer to as the "Closely Held Exception".
For purposes of being able to determine the persons who own 5% or more of our 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 United States Securities and Exchange Commission, or the "SEC", as having a 5% or more beneficial interest in our common stock. The regulations further provide that an investment company identified on a SEC Schedule 13G or Schedule 13D filing which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% shareholder for such purposes.
The regulations provide that the Closely Held Exception will not apply if we can establish that among the closely-held group of 5% Shareholders, there are sufficient 5% Shareholders that are considered to be qualified shareholders for purposes of Section 883 to preclude 5% Shareholders in the closely-held group that are not qualified shareholders from owning 50% or more of our common stock for more than half the number of days during such year and we satisfy certain substantiation requirements regarding the identity of our shareholders.
After the closing of this offering, we expect that Mr. Marinakis and his family will own, or will be deemed to own for United States federal income tax purposes, more than 50% of our common stock. Such stock will not be owned, directly or indirectly, through bearer shares. In addition, the relevant members of the Marinakis family, the entities through which they are deemed to own our common stock for United States federal income tax purposes and we intend to comply with the annual substantiation requirements of the Section 883 regulations. As a result, we expect to satisfy both the Publicly Traded Test and the 50% Ownership Test upon the closing of this offering. However, we can give no assurance this will be the case and will continue to be the case after this offering is completed. Furthermore, we might not satisfy the Publicly Traded Test or the 50% Ownership Test if Mr. Marinakis and his family do not continue to own for United States federal income tax purposes more than 50% of our outstanding shares or it they lose their status as Qualified Shareholders.
To the extent the benefits of Code Section 883 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 United States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Code Section 883 exemption are unavailable and our 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 United States federal corporate income tax currently imposed at rates of up to 35%. In addition, we may be subject to the 30% "branch profits" taxes on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of its 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 United States. |
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We do not currently have or expect to permit circumstances that would result in our having any vessel sailing to or operating in the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S. source shipping income will be "effectively connected" with the conduct of a U.S . trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Code Section 883, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel 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
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| • | is a United States citizen or resident, United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, |
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| • | owns the common stock as a capital asset, generally, for investment purposes, and |
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| • | owns less than 10% of our common stock for United States federal income tax purposes. |
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common stock, you should consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common stock to a 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 or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder's tax basis in his common stock on a dollar for dollar basis and thereafter as capital gain. Notwithstanding the foregoing, we do not intend to maintain calculations of earnings and profits, as determined for United States federal income tax purposes, and, consequently, any distributions generally must be reported as dividend income for U.S. information reporting purposes. 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 "passive income" or, in the case of certain types of U.S. Holders, "financial services income" (for tax years beginning on or before December 31, 2006) or "general category income" (for tax years beginning after December 31, 2006), for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate (U.S. Individual Holder) should be treated as "qualified dividend income" that is taxable to such U.S. Individual Holders at preferential tax rates (through 2008) provided that (1) the common stock is readily tradable on an established securities market in the United States (such as the New York Stock Exchange); (2) we are not a passive foreign investment company for the taxable year during
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which the dividend is paid or the immediately preceding taxable year (which we do not believe we are or will be); and (3) the U.S. Individual Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend. Any dividends paid by the Company which are not eligible for these preferential rates will be treated as ordinary income to a U.S. Individual Holder. Special rules may apply to any "extraordinary dividend"—generally, a dividend in an amount which is equal to or in excess of ten percent of a stockholder's adjusted basis (or, at the election of the U.S. Individual Holder, the stock's then fair market value) in a share of common stock—paid by us. If we pay an "extraordinary dividend" on our common stock that is treated as "qualified dividend income", then any loss derived by a U.S. 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 passive foreign investment companies 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. Holder's tax basis in such stock. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special and adverse United States federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign investment company for United States federal income tax purposes. In general, we will be treated as a passive foreign investment company with respect to a U.S. Holder if, for any taxable year in which such 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), or |
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| • | at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income. |
For purposes of determining whether we are a passive foreign investment company, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25 percent of the value of the subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute "passive income" unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we will be a passive foreign investment company in our 2005 taxable year, nor do we expect to become a passive foreign investment company with respect to any taxable year. Although there is no legal authority directly on point, and we are not relying upon an opinion of counsel on this issue, our belief is based principally on the position that, for purposes of determining whether we are a passive foreign investment company, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we were a passive foreign investment company.
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We believe there is substantial legal authority supporting our position consisting of case law and Internal Revenue Service pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, in the absence of any legal authority specifically relating to the statutory provisions governing passive foreign investment companies, the Internal Revenue Service or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a passive foreign investment company with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a passive foreign investment company for any taxable year, a 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". As an alternative to making a QEF election, a U.S. Holder should be able to make a "mark-to-market" election with respect to our common stock, as discussed below.
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 United States 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 Holder's adjusted tax basis in the common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing Holder would 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 our company is a passive foreign investment company by filing one copy of IRS Form 8621 with his United States federal income tax return and a second copy in accordance with the instructions to such form. If we were to be treated as a passive foreign investment company for any taxable year, we would provide each U.S. Holder with all necessary information in order to make the qualified electing fund election described above.
Taxation of U.S. Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a passive foreign investment company for any taxable year and, as we anticipate, our stock is treated as "marketable stock", a U.S. Holder would be allowed to make a "mark-to-market" election with respect to our common stock, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common stock at the end of the taxable year over such holder's adjusted tax basis in the common stock. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the common stock over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder's tax basis in his common stock would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common stock would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the 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 passive foreign investment company for any taxable year, a U.S. Holder who does not make either a QEF election or a "mark-to-market" election for that year,
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whom we refer to as a "Non-Electing Holder", would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common stock in a taxable year in excess of 125 percent of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder's holding period for the common stock), and (2) any gain realized on the sale, exchange or other disposition of our common stock. Under these special rules:
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| • | the excess distribution or gain would be allocated ratably over the Non-Electing Holder's aggregate holding period for the common stock; |
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| • | the amount allocated to the current taxable year 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. |
These penalties would not apply to a qualified pension, profit sharing or other retirement trust or other tax-exempt organization that did not borrow money or otherwise utilize leverage in connection with its acquisition of our common stock. If a Non-Electing Holder who is an individual dies while owning our common stock, such holder's successor generally would not receive a step-up in tax basis with respect to such stock.
United States Federal Income Taxation of "Non-U.S. Holders"
A beneficial owner of common stock that is not a U.S. Holder is referred to herein as a "Non-U.S. Holder".
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to our common stock, unless that income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common stock, unless:
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| • | the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of an income tax treaty 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. |
If the Non-U.S. Holder is engaged in a United States trade or business for United States federal income tax purposes, the income from the common stock, including dividends and the gain from the sale, exchange or other disposition of the stock that is effectively connected with the conduct of that trade or business will generally be subject to regular United States federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable income tax treaty.
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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 and 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 Internal Revenue Service that you have failed to report all interest or dividends required to be shown on your federal income tax returns; or |
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| • | in certain circumstances, fail to comply with applicable certification requirements. |
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 to or through a United States office or broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless you certify that you are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common stock through a non-United States office of a non-United States broker and the sales proceeds are paid to you outside the United States then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to you outside the United States, if you sell your common stock through a non-United States office of a broker that is a United States person or has some other contacts with the United States.
Backup withholding tax is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that exceed your income tax liability by filing a refund claim with the Internal Revenue Service.
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PLAN OF DISTRIBUTION
We and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs International, Bear, Stearns & Co. Inc., Jefferies & Company, Inc., HSBC Securities (USA) Inc. and National Bank of Greece SA are the representatives of the underwriters.
All of the underwriters may sell shares in the global offering. The shares will be sold contemporaneously in all countries in which the underwriters may sell shares. Each underwriter may offer and sell shares anywhere in the United States, which will be effected through the U.S. selling group. The members of the U.S. selling group are: Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Jefferies & Company, Inc., HSBC Securities (USA) Inc. and NBGI Securities Inc.
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| Underwriters | | Number of Shares |
| Goldman Sachs International. | | | | |
| Bear, Stearns & Co. Inc. | | | | |
| Jefferies & Company, Inc. | | | | |
| HSBC Securities (USA) Inc. | | | | |
| National Bank of Greece SA | | | | |
| Total | | | 16,670,000 | |
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Goldman Sachs International is the global coordinator for this offering.
The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 2,500,500 shares from us to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and commissions of % we will pay to the underwriters. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase 2,500,500 additional shares.
| | | | | | | | | | |
| Paid by the Company | | No Exercise | | Full Exercise |
| Per Share | | $ | | | | $ | | |
| Total | | $ | | | | $ | | |
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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. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.
We and our President and Chief Executive Officer, together with his family, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our common stock or securities convertible into or exchangeable for common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman Sachs International on behalf of the other underwriters. This agreement does not apply to any employee benefit plans existing as of the date of this prospectus. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.
The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the 180-day restricted period we issue an earnings release
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or announce material news or a material event; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 15-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.
Prior to this offering, there has been no public market for the shares. The initial public offering price has been negotiated among us and the representatives. Among the factors considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, were our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
Our common stock has been approved for listing on the New York Stock Exchange under the symbol "CPM". In order to meet one of the requirements for listing the common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
In connection with this offering, the underwriters may purchase and sell common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Shorts sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares from us in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. "Naked" short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of this offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of our common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise.
Each underwriter has represented, warranted and agreed that: (i) it has not offered or sold and, prior to the expiry of a period of six months from the closing date, will not offer or sell any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (FSMA)) received by it in connection with the issue or sale of any shares in circumstances in which section 21(1) of the FSMA
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does not apply to us; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
The shares may not be offered or sold, transferred or delivered, as part of their initial distribution or at any time thereafter, directly or indirectly, to any individual or legal entity in the Netherlands other than to individuals or legal entities who or which trade or invest in securities in the conduct of their profession or trade, which includes banks, securities intermediaries, insurance companies, pension funds, other institutional investors and commercial enterprises which, as an ancillary activity, regularly trade or invest in securities.
The shares may not be offered or sold by means of any document other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the shares may be issued, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation or subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the securities to the public in Singapore.
The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
A prospectus in electronic format will be made available on the website maintained by one or more of the lead managers of this offering and may also be made available on websites maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the lead managers to underwriters that may make Internet distributions on the same basis as other allocations.
Bear, Stearns & Co. Inc. has agreed to pay a portion of the aggregate underwriting discount that it will receive in connection with this offering to an individual Greek national who introduced Bear, Stearns & Co. Inc. to the Company.
The National Bank of Greece SA provided a loan dated July 24, 2003 to six of our vessel owning companies to partially finance six vessels in an aggregate amount of $25.8 million. The amount currently outstanding under this loan is $20.2 million. The National Bank of Greece SA also provided two loans, each dated November 30, 2004, to two of our vessel owning companies in connection with the purchase of certain vessels. Each loan was for $28.0 million. The amount currently outstanding under each loan is $24.5 million. A portion of the proceeds from this offering will be used to repay these loans. Because National Bank of Greece SA is an underwriter and it may receive more than 10% of the entire net proceeds in this offering, the underwriters may be deemed to have a
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"conflict of interest" under Rule 2710(h) of the Conduct Rules of the NASD, Inc. Accordingly, this offering will be made in compliance with the applicable provisions of Rule 2720 of the conduct rules. Rule 2720 requires that the initial public offering price can be no higher than that recommended by a "qualified independent underwriter", as defined by the NASD. Goldman, Sachs & Co. has served in that capacity and performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this Prospectus forms a part. Goldman, Sachs & Co. has received $10,000 from us as compensation for such role.
The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
We estimate that our share of total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $3.5 million.
We have agreed to indemnify the several underwriters and the several underwriters have agreed to indemnify us, in each case, against certain liabilities, including liabilities arising under the Securities Act, or to contribute to payments that the other may be required to make in respect thereof.
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 received or will receive customary fees and expenses. An affiliate of HSBC Securities (USA) Inc., HSBC Bank plc, has committed to lend up to $55 million to us under a commitment letter dated May 24, 2005 related to one of our new credit facilities. See "Business—Credit Facilities—New Credit Facilities" for a discussion of our new credit facilities.
The representatives of the underwriters may be reached at the following addresses:
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| • | Goldman Sachs International, Peterborough Court, 133 Fleet Street, London EC4A 2BB; |
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| • | Bear, Stearns & Co. Inc., 383 Madison Avenue, New York, New York 10179; |
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| • | Jefferies & Company, Inc., 520 Madison Avenue, 12th Floor, New York, New York 10022; |
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| • | HSBC Securities (USA) Inc., 452 Fifth Avenue, New York, New York 10018; |
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| • | National Bank of Greece SA, 86 Aiolou, Athens 10232, Greece. |
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OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate our expenses in connection with the issuance and distribution of our common stock in this offering, other than underwriting discounts and commissions, as follows:
| | | | | | |
| SEC Registration Fee | | | | | | $ | 36,102 | |
| Printing and Engraving Expenses | | | | | | | 120,000 | |
| Legal Fees and Expenses | | | | | | | 1,500,000 | |
| Accountants' Fees and Expenses | | | | | | | 1,200,000 | |
| NASD Registration Fee | | | | | | | 31,173 | |
| NYSE Listing Fee | | | | | | | 150,000 | |
| Transfer Agent's Fees and Expenses | | | | | | | 10,000 | |
| Miscellaneous Costs | | | | | | | 500,000 | |
| | | | | | | | | |
| Total | | | | | | $ | 3,547,275 | |
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LEGAL MATTERS
Cravath, Swaine & Moore LLP, London, England, has advised us on certain U.S. securities law matters in connection with this offering. The validity of the common stock offered by this prospectus, the matter of enforcement of judgments in the Republic of Marshall Islands and Republic of Marshall Islands tax consequences have been passed upon by Healy & Baillie, LLP, New York, New York. The underwriters have been represented by Sullivan & Cromwell LLP, London, England.
EXPERTS
The consolidated audited financial statements of Capital Maritime & Trading Corp. at December 31, 2004, 2003 and 2002 and for each of the three years in the period ended December 31, 2004, appearing in this prospectus and registration statement have been audited by Ernst & Young (Hellas) Certified Auditors Accountants S.A., Athens, Greece, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
Certain statistical information in this prospectus, including in the section entitled "Industry" has been supplied by E.A. Gibson Shipbrokers Ltd., which has confirmed to us that it accurately describes the matters discussed therein, subject to the availability and reliability of the data supporting the statistical information presented, as indicated in the consent of Gibson filed as an exhibit to the registration statement on Form F-1 under the Securities Act of which this prospectus is a part.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form F-1 under the Securities Act with respect to the common stock offered hereby. For the purposes of this section, the term registration statement means the original registration statement and any and all amendments including the schedules and exhibits to the original registration statement or any amendment. This prospectus does not contain all of the information set forth in the registration statement we filed. Each statement made in this prospectus concerning a document filed as an exhibit to the registration statement is qualified by reference to that exhibit for a complete statement of its provisions. The registration statement, including its exhibits and schedules, may be inspected and copied at the public reference facilities maintained by the Commission at 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 Commission at its principal office in Washington, D.C. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
We will furnish holders of common stock with annual reports containing audited financial statements and a report by our independent public accountants, and intend to make available quarterly reports containing selected unaudited financial data for the first three quarters of each fiscal year. The audited financial statements will be prepared in accordance with United States generally accepted accounting principles and those reports will include a "Management's Discussion and Analysis of Financial Condition and Results of Operations" section for the relevant periods. As a "foreign private issuer", we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to stockholders, but, are required to furnish certain proxy statements to stockholders under New York Stock Exchange rules. Those proxy statements are not expected to conform to Schedule 14A of the proxy rules promulgated under the Exchange Act. In addition, as a "foreign private issuer", we are exempt from the rules under the Exchange Act relating to short swing profit reporting and liability.
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GLOSSARY OF TECHNICAL TERMS
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| Aframax | | A tanker with a carrying capacity of 80,000 to 120,000 dwt, which is typically used for carrying crude oil and oil products |
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| Annual survey | | The inspection of a vessel pursuant to international conventions, by a classification society surveyor, on behalf of the flag state, that takes place every year |
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| Available days | | The total days that a vessel was in our possession for a certain period and available for employment, net of off-hire days associated with major repairs, upgrades, drydockings or special or intermediate surveys |
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| Average number of vessels | | The number of vessels that constituted our fleet for a 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 total days in that period |
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| Ballast days | | The days on which a ship performs a voyage without cargo on board |
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| Bareboat charter | | Contract or hire of a vessel under which the shipowner is usually paid a fixed rate of charterhire 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 (also known as a "demise charter") |
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| Bulk carrier | | A vessel that transports dry cargo, such as grain, coal, iron ore, fertilizer and steel. Also sometimes called "dry bulk carrier" |
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| Bunker | | Fuel, consisting of fuel oil and diesel, burned in a vessel's engines |
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| Capesize | | A bulk carrier with a capacity of 80,000 dwt or more which is typically used for long voyages in the coal, iron ore and grain trades |
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| Charter | | A contract for the commercial chartering of a vessel |
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| Charter in | | The chartering of a vessel from a third party for the carriage of cargoes controlled by the charterer |
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| Charter out | | The chartering of a vessel to a third party for the carriage of cargoes controlled by the third party |
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| Charterhire | | The revenue earned by a vessel pursuant to a time charter or voyage charter |
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| Charterer | | A person, firm or company hiring a vessel for the carriage of goods or other purposes |
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| Charterparty | | A contract covering the transportation of cargo by sea, including the terms of the carriage, remuneration and other terms |
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| Classification society | | An independent society which certifies that a vessel has been built and maintained in accordance with the rules of such society and complies with the applicable rules and regulations of the flag state of such vessel and the international conventions of which that country is a member |
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| Commercial management | | The management of those aspects of ship owning and operation that relate to obtaining economic value from the vessel, which includes ship financing, purchase and sale, chartering or vessel employment, voyage execution, insurance and claims handling, accounting and corporate administration |
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| Dead Freight | | The compensation payable when a quantity of cargo is loaded that is less than the minimum provided in the terms of the charterparty |
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| Demurrage | | The penalty paid to owners for exceeding the time allowed for loading and unloading cargo under the terms of a charter |
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| Document of compliance | | A document issued to a company which certifies that it complies with the requirements of the ISM Code |
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| Double-hull | | Hull construction design in which a vessel has an inner and outer side and bottom separated by void space |
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| Draft | | The vertical distance between the waterline and the bottom of a vessel's keel |
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| Dry cargo | | Dry bulk commodity cargoes, such as grain, coal, iron ore, fertilizer and steel shipped in an unpackaged state |
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| Drydocking | | The removal of a vessel from the water for inspection, maintenance and/or repair of submerged parts |
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| Dwt | | Dead weight tonnes, the unit of measurement of weight capacity of vessels, which is the total weight the ship can carry, including cargo, bunkers, water, stores, spares, crew, etc. at a specified draft. Dwt is measured in metric tonne units, each of which is equivalent to 1,000 kilograms |
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| Firm order | | A newbuilding order for which a shipbuilding contract has been executed |
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| Flag state | | The country where a vessel is registered |
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| Fleet utilization | | The percentage of time that our vessels were available for revenue generating days, determined by dividing operating days by available days for the relevant period |
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| Freight | | The revenue earned by a vessel pursuant to a voyage charter |
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| Grabs | | On-board equipment to load and unload cargo |
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| Gross freight | | The total amount of freight prior to deducting commissions and other withholding charges |
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| Handymax | | A bulk carrier of 35-59,999 dwt, which is used to carry a wide range of bulk cargoes, including major and minor bulk cargoes. Also refers to a tanker of 30-60,000 dwt |
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| Handysize | | Bulk carrier of 25-34,999 dwt, which is used primarily to carry minor bulk cargoes and limited quantities of major bulk cargoes. Also refers to a tanker of 10-30,000 dwt |
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| HELCOM | | The Helsinki Commission, which governs safety regulations in the Gulf of Finland |
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| Ice Class 1A | | A vessel meeting the requirements for transit through ice with a thickness of 0.8 meters or less |
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| Ice Class 1B | | A vessel meeting the requirements for transit through ice with a thickness of 0.6 meters or less |
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| Idle days | | Days during which a vessel is idle awaiting employment |
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| IMO | | The International Maritime Organization, a United Nations agency that issues international standards for shipping |
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| IMO III | | Regulations to be implemented by the IMO with respect to the transport of certain cargoes, including edible oils |
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| Intermediate survey | | The inspection of a vessel by a classification society surveyor that takes place every two and a half years after the special survey |
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| ISM Code | | The International Management Code for the Safe Operation of Ships and for Pollution Prevention adopted by the IMO |
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| Lwt | | Light weight tonnes, which measures the weight of the steel parts of a vessel, expressed in metric tonnes |
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| Major bulk | | Dry bulk cargoes consisting of iron ore, coal and grain |
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| Medium-range (MR) | | A tanker with a carrying capacity of 25-50,000 dwt which is used for carrying a wide variety of products |
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| Minor bulk | | Dry bulk cargoes such as forest products, iron and steel products, fertilizers, agricultural products, minerals and petcoke, bauxite and alumina, cement, other construction materials and salt |
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| Newbuilding | | A vessel under construction or on order |
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| OBO | | Acronym for Oil Bulk Ore carriers, identifying a combination vessel able to transport all three types of cargo |
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| Oil majors | | A term used to identify multinational oil companies such as Shell (Stasco), ExxonMobil (IMT), ChevronTexaco, ConocoPhillips, Statoil and BP |
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| Off-hire | | The days on which a vessel is not employed due to major repairs, upgrades, drydockings, intermediate surveys and special surveys |
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| Operating costs | | The costs of the vessels including crewing costs, insurance, repairs and maintenance, stores, lubricants and administrative expenses (but excluding capital costs, drydocking costs, which are amortized, and voyage costs) |
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| Operating days | | The days a vessel is in operation for a period, measured by subtracting idle days from available days |
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| Panamax | | A bulk carrier or tanker of 60,000 to 79,999 dwt. Panamax vessels are primarily used to transport major bulks such as crude oil and oil products, although they can also be used to transport certain minor bulks such as fertilizers, ores, petcoke and salt. The name signifies their ability to transit the Panama canal |
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| P&I | | Protection and indemnity. This denotes the insurance coverage taken by a ship owner or charterer against third party liabilities such as oil pollution, cargo damage, crew injury or loss of life, etc. |
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| P&I Association | | A mutual insurance association providing P&I insurance coverage |
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| Product tanker | | A tanker designed to carry a wide variety of liquid products, including clean products (such as refined petroleum products and edible oils) and crude oil. Product/chemical tankers also carry acids and other chemicals. The separated cargo tanks in both types of tankers are coated to prevent product contamination and hull corrosion |
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| Refined petroleum products | | The resulting product recovered in an oil refinery at the various stages of processing crude oil, such as fuel oil, diesel and gasoil, kerosene and gasoline |
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| Scrapping | | The disposal of old vessels by way of sale as scrap metal |
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| Secondhand vessel | | A term used to describe a vessel that is sold or transferred to a party by the party that first employed the vessel after delivery from the shipyard or a by a subsequent transferee |
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| Single-hull | | A vessel that does not have a double-hull |
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| Sister ships | | One or more vessels of the same specifications typically built at the same shipyard |
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| Slop tanks | | Designated tanks within the vessel's system used for the collection of tank washings and residues, often a dual purpose tank also used for cargo when cleaned |
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| Special survey (S/S) | | The extensive inspection of a vessel by a classification society surveyor that takes place every five years |
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| Spot market | | The market for chartering of a vessel, usually for a single cargo or short-term trading for a period of up to twelve months |
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| Tanker | | A vessel that transports liquid (wet) cargoes, such as refined petroleum products, crude oil, edible oils and light chemicals |
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| TCE | | Time charter equivalent, a standard industry measurement of the average daily revenue performance of a vessel, calculated net of voyage costs |
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| Technical management | | The management of those aspects of ship owning and operation that relate to the physical operation of a vessel, including the provision of crew, routine maintenance, repairs, drydocking, supplies of stores and spares, compliance with all applicable international regulations, safety and quality management, environmental protection, newbuilding plan, design, approval and supervision, and certain technical and financial reporting |
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| Time charter | | A charter for an agreed period of time, under which the ship owner is paid on a per day basis and is responsible for operating the vessel and paying the operating costs while the charterer is responsible for paying the voyage costs and bears the risk of any delays at port or during the voyage except where caused by a defect of the ship |
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| Total days | | The total days a vessel was in our possession for a period, including idle days and off-hire days associated with major repairs, upgrades, drydockings, special surveys or intermediate surveys |
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| Voyage charter | | A charter under which a ship owner is paid freight on the basis of moving cargo from a load port to a discharge port and is responsible for paying both operating costs and voyage costs |
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| Voyage costs | | Bunker costs, port charges, canal dues (or tolls) and commissions incurred during the course of a voyage |
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| Vessel operating expenses | | These consist of crew expenses, insurance, spare parts, stores and lubricating oils, vessel repairs and surveys, maintenance and other costs |
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| Wet cargo | | Liquid cargoes, such as refined petroleum products, crude oil, edible oils and light chemicals |
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CAPITAL MARITIME & TRADING CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | |
| | | Page |
| Report of Ernst & Young, Independent Registered Public Accounting Firm | | F-2 |
| Consolidated Balance Sheets as of December 31, 2004, 2003 and 2002 | | F-3 |
Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002 | | F-4 |
Consolidated Statements of Stockholders´ Equity for the years ended
December 31, 2004, 2003 and 2002 | | F-5 |
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002 | | F-6 |
| Notes to Consolidated Financial Statements | | F-7 |
| Condensed Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004 | | F-26 |
| Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2005 and 2004 (unaudited) | | F-27 |
| Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2005 and 2004 (unaudited) | | F-28 |
| Notes to Condensed Consolidated Financial Statements (unaudited) | | F-29 |
| Schedule I: Condensed Financial Information of Capital Maritime & Trading Corp. | | F-42 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
CAPITAL MARITIME & TRADING CORP.
We have audited the accompanying consolidated balance sheets of Capital Maritime & Trading Corp. (the Company) as of December 31, 2004, 2003 and 2002, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. Our audits also included the condensed financial information listed in the Index as Schedule I: Item 8(b). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits 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 Company's 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2004, 2003 and 2002 and the consolidated results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
June 11, 2005
(except for the effects of the reorganization as disclosed in Notes 1 and 7 as to which the date is , 2005)
The foregoing report is in the form that will be signed upon the completion of the reorganization of certain companies under common control as disclosed in Notes 1 and 7 to the financial statements.
Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
June 11, 2005
F-2
CAPITAL MARITIME & TRADING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share data)
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2004 | | 2003 | | 2002 |
| ASSETS | | | | | | | | | | | | |
| CURRENT ASSETS: | | | | | | | | | | | | |
| Cash and cash equivalents | | | 41,885 | | | | 5,543 | | | | — | |
| Restricted cash | | | 4,577 | | | | 4,119 | | | | 740 | |
| Trade accounts receivable, net | | | 15,351 | | | | 6,739 | | | | 1,018 | |
| Insurance claims | | | 172 | | | | 707 | | | | 299 | |
| Due from related parties (Note 3) | | | 475 | | | | 404 | | | | 604 | |
| Prepayments and other | | | 5,489 | | | | 2,172 | | | | 547 | |
| Inventories | | | 2,563 | | | | 1,504 | | | | 993 | |
| Total current assets | | | 70,512 | | | | 21,188 | | | | 4,201 | |
| | | | | | | | | | | | | |
| Fixed assets, net (Note 4) | | | 352,578 | | | | 137,843 | | | | 54,274 | | | | | |
| | | | | | | | | | | | | |
| OTHER NON CURRENT ASSETS: | | | | | | | | | | | | |
| Deferred charges, net | | | 3,599 | | | | 2,613 | | | | 1,807 | |
| Restricted cash (Note 10) | | | 6,535 | | | | — | | | | — | |
| Total assets | | | 433,224 | | | | 161,644 | | | | 60,282 | |
| | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | | | | | |
| Current portion of long-term debt (Note 5) | | | 53,244 | | | | 19,314 | | | | 5,588 | |
| Trade accounts payable | | | 6,188 | | | | 4,052 | | | | 2,018 | |
| Due to related parties (Note 3) | | | 10,051 | | | | 3,935 | | | | 2,711 | |
| Accrued liabilities (Note 6) | | | 5,449 | | | | 3,156 | | | | 668 | |
| Deferred revenue | | | 2,737 | | | | 1,571 | | | | 283 | |
| Dividends payable | | | 148,136 | | | | — | | | | — | |
| Total current liabilities | | | 225,805 | | | | 32,028 | | | | 11,268 | |
| | | | | | | | | | | | | |
| Long-term debt, net (Note 5) | | | 164,103 | | | | 76,967 | | | | 25,590 | |
| Contingencies and commitments (Note 10) | | | — | | | | — | | | | — | | | | | |
| | | | | | | | | | | | | |
| STOCKHOLDERS' EQUITY: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock, $0.001 par value; 200,000,000
authorized: 46,330,000 issued, and outstanding (Note 7) | | | 46 | | | | 46 | | | | 46 | |
| Preferred stock, $0.001 par value; 5,000,000 authorized: none issued | | | — | | | | — | | | | — | |
| Additional paid-in capital (Note 7) | | | 93,966 | | | | 41,794 | | | | 22,749 | |
| Retained earnings (accumulated deficit) | | | (50,696 | ) | | | 10,809 | | | | 629 | |
| Total stockholders' equity | | | 43,316 | | | | 52,649 | | | | 23,424 | |
| Total liabilities and stockholders' equity | | | 433,224 | | | | 161,644 | | | | 60,282 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CAPITAL MARITIME & TRADING CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars, except share and per share data)
| | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2004 | | 2003 | | 2002 |
| REVENUES: | | | | | | | | | | | | |
| Time and voyage charter revenues | | | 182,214 | | | | 72,962 | | | | 16,319 | |
| Charter revenue from related parties (Note 3) | | | 6,607 | | | | 4,821 | | | | 1,270 | |
| Total revenues | | | 188,821 | | | | 77,783 | | | | 17,589 | |
| | | | | | | | | | | | | |
| EXPENSES: | | | | | | | | | | | | |
| Voyage expenses | | | 17,614 | | | | 8,103 | | | | 1,607 | |
| Voyage expense – related parties (Notes 3 and 8) | | | 13,202 | | | | 7,625 | | | | 1,369 | |
| Vessel operating expenses (Note 8) | | | 30,977 | | | | 18,755 | | | | 6,306 | |
| Depreciation and amortization | | | 18,225 | | | | 10,636 | | | | 3,422 | |
| General and administrative expenses | | | 3,115 | | | | 1,160 | | | | 271 | |
| Operating expenses – related parties (Notes 3 and 8) | | | 2,787 | | | | 2,660 | | | | 1,440 | |
| Executive management services (Note 7) | | | 857 | | | | 824 | | | | 787 | |
| Gain on sale of vessels | | | (47,155 | ) | | | — | | | | — | |
| Operating income | | | 149,199 | | | | 28,020 | | | | 2,387 | |
| | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES), NET: | | | | | | | | | | | | |
| Interest expense | | | (3,595 | ) | | | (1,939 | ) | | | (776 | ) |
| Interest income | | | 513 | | | | 39 | | | | 53 | |
| Foreign currency gains, net | | | 118 | | | | 20 | | | | 17 | |
| Total other expenses, net | | | (2,964 | ) | | | (1,880 | ) | | | (706 | ) |
| | | | | | | | | | | | | |
| Net income | | | 146,235 | | | | 26,140 | | | | 1,681 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income per share, basic and diluted | | | 3.16 | | | | 0.56 | | | | 0.04 | | | | | |
| | | | | | | | | | | | | |
| Weighted average number of shares, basic and diluted | | | 46,330,000 | | | | 46,330,000 | | | | 46,330,000 | |
| | | | | | | | | | | | | |
Pro forma (unaudited) net income per share, basic
and diluted (Note 11) | | | 2.90 | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma (unaudited) weighted average number of
shares, basic and diluted (Note 11) | | | 50,430,333 | | | | | | | | | |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CAPITAL MARITIME & TRADING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands of U.S. dollars, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock | |
| | | Comprehensive
Income | | Number of
Shares | | Par
Value | | Additional
Paid-in
Capital | | (Accumulated
Deficit)/Retained
Earnings | | Total
Stockholders'
Equity |
Balance,
January 1, 2002 | | | | | | | 46,330,000 | | | | 46 | | | | 16,239 | | | | 7,277 | | | | 23,562 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income | | | 1,681 | | | | — | | | | — | | | | — | | | | 1,681 | | | | 1,681 | |
| Capital Contributions | | | — | | | | — | | | | — | | | | 6,510 | | | | — | | | | 6,510 | |
| Dividend Distribution | | | — | | | | — | | | | — | | | | — | | | | (8,329 | ) | | | (8,329 | ) |
| Comprehensive Income | | | 1,681 | | | | | | | | | | | | | | | | | | | | | |
Balance,
December 31, 2002 | | | | | | | 46,330,000 | | | | 46 | | | | 22,749 | | | | 629 | | | | 23,424 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 26,140 | | | | — | | | | — | | | | — | | | | 26,140 | | | | 26,140 | |
| Capital Contributions | | | — | | | | — | | | | — | | | | 19,045 | | | | — | | | | 19,045 | |
| Dividend Distribution | | | — | | | | — | | | | — | | | | — | | | | (15,960 | ) | | | (15,960 | ) |
| Comprehensive income | | | 26,140 | | | | | | | | | | | | | | | | | | | | | |
Balance,
December 31, 2003 | | | | | | | 46,330,000 | | | | 46 | | | | 41,794 | | | | 10,809 | | | | 52,649 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 146,235 | | | | — | | | | — | | | | — | | | | 146,235 | | | | 146,235 | |
| Capital Contributions | | | — | | | | — | | | | — | | | | 52,172 | | | | — | | | | 52,172 | |
| Dividend Distribution | | | — | | | | — | | | | — | | | | — | | | | (207,740 | ) | | | (207,740 | ) |
| Comprehensive income | | | 146,235 | | | | | | | | | | | | | | | | | | | | | |
Balance,
December 31, 2004 | | | | | | | 46,330,000 | | | | 46 | | | | 93,966 | | | | (50,696 | ) | | | 43,316 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CAPITAL MARITIME & TRADING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
| | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2004 | | 2003 | | 2002 |
| Cash Flows from Operating Activities: | | | | | | | | | | | | |
| Net income | | | 146,235 | | | | 26,140 | | | | 1,681 | |
Adjustments to reconcile net income to net cash
provided by operating activities: | | | | | | | | | | | | |
| Depreciation of fixed assets | | | 16,359 | | | | 9,562 | | | | 2,905 | |
| Amortization of deferred charges | | | 1,866 | | | | 1,075 | | | | 517 | |
| Amortization of debt discount | | | 247 | | | | 155 | | | | 55 | |
| Executive management services | | | 857 | | | | 824 | | | | 787 | |
| Gain on sale of vessels | | | (47,155 | ) | | | — | | | | — | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Trade accounts receivables | | | (8,612 | ) | | | (5,721 | ) | | | 53 | |
| Due from related parties | | | (71 | ) | | | 200 | | | | 5,730 | |
| Insurance claims | | | 535 | | | | (408 | ) | | | (290 | ) |
| Prepayments and other | | | (3,317 | ) | | | (1,625 | ) | | | (790 | ) |
| Inventories | | | (1,059 | ) | | | (511 | ) | | | (781 | ) |
| Deferred charges | | | (3,377 | ) | | | (1,881 | ) | | | (2,086 | ) |
| Restricted cash | | | (6,535 | ) | | | — | | | | — | |
| Trade accounts payable | | | 2,136 | | | | 2,034 | | | | 1,813 | |
| Due to related parties | | | (2,792 | ) | | | 1,224 | | | | 2,467 | |
| Accrued liabilities | | | 2,293 | | | | 2,488 | | | | 215 | |
| Deferred revenue | | | 1,166 | | | | 1,288 | | | | 193 | |
| Net cash provided by operating activities | | | 98,776 | | | | 34,844 | | | | 12,469 | |
| Cash Flows from Investing Activities: | | | | | | | | | | | | |
| Vessel acquisitions | | | (200,521 | ) | | | (92,116 | ) | | | (15,956 | ) |
| Vessel advances – newbuildings | | | (50,377 | ) | | | — | | | | (7,019 | ) |
| Vessel advances – other vessel acquisitions | | | (3,300 | ) | | | (966 | ) | | | — | |
| Proceeds from sale of vessels | | | 71,146 | | | | — | | | | — | |
| Acquisition of other assets | | | (362 | ) | | | (49 | ) | | | — | |
| Net cash used in investing activities | | | (183,414 | ) | | | (93,131 | ) | | | (22,975 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | | | | |
| Proceeds from issuance of long-term debt | | | 153,115 | | | | 71,558 | | | | 16,266 | |
| Repayments of long-term debt | | | (32,296 | ) | | | (6,610 | ) | | | (3,366 | ) |
| Capital contributions | | | 51,315 | | | | 18,221 | | | | 5,723 | |
| Restricted cash | | | (458 | ) | | | (3,379 | ) | | | (740 | ) |
| Dividends paid | | | (50,696 | ) | | | (15,960 | ) | | | (8,329 | ) |
| Net cash provided by financing activities | | | 120,980 | | | | 63,830 | | | | 9,554 | |
| Net increase/(decrease) in cash and cash equivalents | | | 36,342 | | | | 5,543 | | | | (952 | ) |
| Cash and cash equivalents at beginning of year | | | 5,543 | | | | — | | | | 952 | |
| Cash and cash equivalents at end of year | | | 41,885 | | | | 5,543 | | | | — | |
|
Supplemental cash flow information:
Cash paid for loan interest amounted to $2,053, $1,336 and $594 for the years ended December 31, 2004, 2003 and 2002, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data)
1. Basis of Presentation and General Information
CAPITAL MARITIME & TRADING CORP. ("Capital" or the "Company") was incorporated under the laws of the Marshall Islands on March 10, 2005, in connection with a reorganization to serve as a holding company for (i) 41 vessel-owning companies, (ii) 18 vessel-owning companies for new building vessels under construction (the "newbuildings") and (iii) one vessel management company ("Capital Ship Management Corp." or the "Manager"), (collectively, the "Contributed Companies," as listed in the table below). Prior to the reorganization, the Contributed Companies and Capital were indirectly wholly-owned by the Marinakis family (the "Marinakis Family"), consisting of the Company's Chief Executive Officer, Mr. Evangelos Marinakis, and his mother, Mrs. Eirini Marinakis. The reorganization included the following transactions:
| |
| (a) | Mrs. Eirini Marinakis ("IM") established a Lichtenstein Foundation ("IM Foundation"), which has as current life beneficiary IM. Through IM Foundation, IM also established a Marshall Islands company ("IM Holding Corp."). Mr. Evangelos Marinakis ("EM") established a Marshall Islands company ("EM Holding Corp."). |
| |
| | The Marinakis Family contributed their shares in the Contributed Companies to Capital, in exchange for common stock of Capital. |
| |
| (b) | The Marinakis Family transferred all of their shares of Capital to EM Holding Corp. and IM Holding Corp., which are wholly owned by EM and the IM Foundation, respectively. |
Following completion of the reorganization, the Contributed Companies are wholly owned subsidiaries of Capital.
The incorporation of Capital and the contribution of the Contributed Companies, represents a reorganization of entities under common control, since the owners before and after the reorganization are the Marinakis Family, and have been accounted for in a manner similar to a pooling of interests for the periods presented. Accordingly, the financial statements of the Company have been presented using historical carrying costs of the Contributed Companies. The consolidated financial statements have also been prepared on the basis that Capital existed for all periods presented and was the sole shareholder of the Contributed Companies in all such periods.
The consolidated financial statements include the following subsidiaries:
| | | | | | | | | | |
| Company | | Country of
Incorporation | | Name of Vessel
Owned by Subsidiary |
| Vessel owning companies — operating | | | |
| Active Shipmanagement Corp. | | Marshall Islands | | M/T Amadeus ** |
| Active Tankers Shipmanagement S.A. | | Marshall Islands | | M/T Active |
| Aspen Consulting Company | | Marshall Islands | | M/T Aristos II |
| Astrid Navigation Co. | | Marshall Islands | | M/T Amigo |
| Blake Maritime Inc. | | Marshall Islands | | M/T Athlos |
| Bolero Shipping Ltd | | Malta | | M/V Miltiadis Junior * |
| Calais Shipholding Co. | | Marshall Islands | | M/T Amor |
| Capitol Shipmanagement Co. | | Marshall Islands | | M/T Ayrton ** |
| Chantel Marine Corp. | | Marshall Islands | | M/T Amorito |
| Dardanos Shipping Company Limited | | Malta | | M/V Napoleon |
| Dynamic Management Co. | | Marshall Islands | | M/T Archon |
| Figaro Shipping Ltd | | Malta | | M/T Alexandros |
| FlagShip Company Limited | | Malta | | M/V Miltiadis M * |
|
F-7
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| | | | | | | | | | |
| Company | | Country of
Incorporation | | Name of Vessel
Owned by Subsidiary |
| Fleet Shipping S.A. | | Marshall Islands | | M/T Laertis |
| Geraldine Shipping Limited | | Malta | | M/T Leader M |
| Gleamer Shipping Ltd | | Malta | | M/V Megas Alexandros |
| Globe Lake Navigation Ltd | | Malta | | M/V Apollonas ** |
| Highbury Management Company | | Marshall Islands | | M/V Apostolos II |
| Hutton Shipholding Corp. | | Marshall Islands | | M/T Mon Ami |
| Indigo Shipping Company | | Marshall Islands | | M/V Miltiadis II |
| Jet Maritime Corp. | | Marshall Islands | | M/T Vancouver Spirit |
| Karmaton Finance Limited | | British Virgin Islands | | M/V Mineral Trader * |
| Magic Star Shipping Co. Ltd | | Malta | | M/T Aristotelis |
| Marine Pilot Ltd. | | Marshall Islands | | M/T Archimidis |
| Milagros Navigation Co. | | Marshall Islands | | M/V Ayrton II |
| Monocraft Shipping Company Limited | | Cyprus | | M/V Apostolos * |
| Moondance Marine Limited | | Malta | | M/T Fighter |
| Nuse Shipping Ltd | | Marshall Islands | | M/T Aktor |
| Ocean Village Maritime S.A. | | Panama | | M/T Miltiadis M (NB) |
| Odette Marine Corp. | | Marshall Islands | | M/T Alegro Double |
| Oro Shipmanagement Ltd. | | Marshall Islands | | M/T Aias |
| Palladium Shipmanagement Inc. | | Marshall Islands | | M/T Asterix I |
| Prelude Shipmanagement Ltd. | | Marshall Islands | | M/V Miltiadis Junior II |
| Russell Marine Inc. | | Marshall Islands | | M/T Aris Double |
| Ship Power Marine S.A. | | Marshall Islands | | M/T Victoria Spirit |
| Skydance Marine Ltd | | Malta | | M/V Father M. |
| Star Glory Shipping Limited | | Cyprus | | M/V Miltiadis * |
| Vague Shipping Ltd | | Malta | | M/T Agamemnon |
| Vortimer Marine Inc. | | Marshall Islands | | M/V Alterego |
| Web Shipping Company Ltd | | Malta | | M/V Giorgos |
| Zoom Shipping Ltd | | Malta | | M/T Achilleas |
| * Sold in 2004 | |
| ** Sold in 2005 | |
| (NB)—Newbuilding | |
| Management Company: | | | | |
| Capital Ship Management Corp. | | Panama | | — |
| |
| Vessel owning companies — newbuildings | | | | |
| Adrian Shipholding Inc. | | Marshall Islands | | M/T Alkiviadis |
| Apollonas Shipping Company | | Marshall Islands | | M/T Avax |
| Atlantas Shipping Company | | Marshall Islands | | M/T Aristidis |
| Belrose Maritime Inc. | | Marshall Islands | | M/T Adonis |
| Canvey Shipmanagement Ltd. | | Marshall Islands | | M/T Assos |
| Carnation Shipping Company | | Marshall Islands | | M/T Arionas |
| Centurion Navigation Limited | | Marshall Islands | | M/T Aktoras |
| Epicurus Shipping Company | | Marshall Islands | | M/T Atrotos |
|
F-8
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| | | | | | | | | | |
| Company | | Country of
Incorporation | | Name of Vessel
Owned by Subsidiary |
| Forbes Maritime Co. | | Marshall Islands | | M/T Aristofanis** |
| Gladiator Marine Inc. | | Marshall Islands | | M/T Aris |
| Iraklitos Shipping Company | | Marshall Islands | | M/T Axios |
| Laredo Maritime Inc. | | Marshall Islands | | M/T Akeraios |
| Lorenzo Shipmanagement Inc. | | Marshall Islands | | M/T Apostolos |
| Polarwind Maritime S.A. | | Marshall Islands | | M/T Agisilaos |
| Ross Shipmanagement Co. | | Marshall Islands | | M/T Attikos* |
| Shipping Rider Co. | | Marshall Islands | | M/T Atlantas |
| Splendor Shipholding S.A. | | Marshall Islands | | M/T Anemos |
| Tempest Maritime Inc. | | Marshall Islands | | M/T Aiolos |
|
| |
| * | Delivered in January 2005. |
| |
| ** | Delivered in June 2005. |
The Company is engaged in the ocean transportation services of crude and refined petroleum and dry cargo products. No charterers accounted for more than 10% of voyage charter revenue in 2004 and 2003. During 2002, two charterers accounted for 15% and 12%, respectively of voyage revenue.
2. Significant Accounting Policies
| |
| (a) | Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated upon consolidation. |
| |
| (b) | Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. |
| |
| (c) | Accounting for Revenue and Related Expenses: The Company generates its revenues from charterers for the charterhire of its vessels. Vessels are chartered using either voyage charters, where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified charter rate, or time charters, where a contract is entered into for the use of a vessel for a specific period of time and a specified daily charterhire rate. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized, as it is earned ratably over the duration of the period of each voyage or time charter. A voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo. Deferred revenue represents cash received prior to the balance sheet date and is related to revenue earned after such date. |
| |
| | For vessels operating in pooling arrangements, the Company earns a percentage of total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool's participant, including the Company, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel's age, design and other performance characteristics. Net revenue under pooling arrangements is recognized when earned in accordance with the agreed-upon formula. |
F-9
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| | Demurrage income represents payments by the charterer to the vessel owner when loading or discharging time exceeds the stipulated time in the voyage charter and is recognized when the amount is fixed or determinable and collection is reasonably assured. Vessel voyage costs, 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. The commissions are deferred and amortized over the related voyage charter period to the extent revenue has been deferred since commissions are earned as the Company's revenues are earned. All other voyage expenses and other vessel operating expenses are expensed as incurred. |
| |
| (d) | Foreign Currency Translation: The functional currency of the Company is the U.S. dollar because the Company's vessels operate in international shipping markets that utilize the U.S. dollar as the functional currency. The accounting records of the Company are maintained in U.S. dollars. Transactions involving other currencies during the year are converted into U.S. dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in currencies other than the U.S. dollar, are translated into the functional currency using the exchange rate at that date. Gains or losses resulting from foreign currency transactions are included in foreign currency gains and losses, net in the accompanying statements of income. |
| |
| (e) | Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with original maturity of three months or less to be cash equivalents. |
| |
| (f) | Restricted Cash: Certain of the Company's loan agreements require the Company to fund a loan retention account in the name of the vessel-owning subsidiary. The amount deposited is equivalent to either one sixth or one third of the loan installment (depending on the frequency of the repayment elected by the Company, i.e. quarterly or semi annually) plus interest that will fall due on the repayment date. Also, there are instances of disputes for which the Company is obliged to deposit money in restricted accounts in order to release its vessels from arrest proceedings. |
| |
| (g) | Trade Accounts Receivable, Net: The amount shown as trade accounts receivable, net at each balance sheet date, reflects the estimated recoveries from charterers for hire, freight and demurrage billings, net of allowance for doubtful accounts. As of December 31, 2004, 2003, and 2002, no allowance for doubtful accounts was required. |
| |
| (h) | Insurance Claims: The Company records insurance claim recoveries for insured losses incurred on damage to fixed assets. Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Company's fixed assets suffer insured damages and the Company can make an estimate of the amount to be reimbursed following the insurance claim. Claims are submitted to the insurance company, which may increase or decrease the claim amount. Such adjustments are recorded in the period they are known and have not been material to the Company's financial position or results of operation in 2004, 2003 and 2002. |
| |
| (i) | Inventories: Inventories consist of consumable bunkers, lubricants, spares and stores and are stated at the lower of cost or market value. The cost is determined by the first-in, first-out method. |
| |
| (j) | Fixed Assets, Net: Fixed assets, net consist primarily of vessels. The vessels are stated at cost, less accumulated depreciation. Vessel cost consists of the contract price for the vessel and any material expenses incurred upon acquisition (initial repairs, improvements and delivery expenses, interest and on-site supervision costs incurred during the construction periods). Subsequent |
F-10
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| | expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Otherwise these amounts are charged to expenses as incurred. The cost of each of the Company's vessels is depreciated beginning when the vessel is ready for its intended use, on a straight-line basis over the vessels' remaining economic useful life, after considering the estimated residual value. Management estimates the useful life of new vessels at 25 years, which is consistent with industry practice. Acquired secondhand vessels are depreciated from the date of their acquisition over their remaining estimated useful life. As of the date of their acquisition the remaining estimated useful life of the Company's secondhand vessels was 3 to 20 years. |
| |
| (k) | Impairment of Long-lived Assets: The Company uses SFAS 144 "Accounting for the Impairment or Disposal of Long-lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires that long-lived assets and certain identifiable intangibles held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss for an asset held for use should be recognized 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. Measurement of the impairment loss is based on the appraised fair value of the asset. The Company regularly reviews its vessels for impairment on a vessel by vessel basis. No impairment loss was recorded in 2004, 2003 or 2002. |
| |
| (l) | Deferred Charges: The Company's vessels are required to be inspected and re-licensed from time to time. The inspection and re-licensing includes special surveys every five years and intermediate surveys/dry-docking every two to three years for inspection of underwater parts. The Company defers the costs for these inspections as they are incurred and amortizes them on a straight-line basis over the respective licensing period, which ranges from 2.5 years to 5 years. Costs include actual costs incurred at the yard, cost of fuel consumed, and the cost of hiring riding crews to effect repairs. At December 31, 2004, 2003 and 2002, all deferred charges were being amortized over 2.5 years. The unamortized portion of special survey and dry-docking costs for vessels that are sold are written off to income when the vessel is sold. |
| |
| (m) | Debt Discount: Fees paid to lenders for obtaining new loans or refinancing existing loans are capitalized and recorded as a contra to debt. Debt discount is amortized to interest expense over the term of the respective loan using the effective interest rate method. |
| |
| (n) | Pension and Retirement Benefit Obligations: Certain of the Company's employees are covered by state-sponsored pension funds for which the Company is required to contribute a portion of the monthly salary of these employees to the fund. Upon retirement of these employees, the state-sponsored pension funds are responsible for paying the employees retirement benefits and accordingly the Company has no obligation for these benefits. The cost recognized as expense associated with the Company's contributions was $191, $23 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively. |
| |
| (o) | Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, and trade accounts receivable. The Company places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions. Credit risk with respect to trade accounts receivable is generally diversified due to the large number of entities comprising the Company's charterer base and their dispersion across many geographic areas. The Company does not obtain rights to collateral to reduce its credit risk. |
F-11
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| (p) | Income Taxes: The Company is not liable for the payment of any income tax on its income. Instead, a tax is levied based on the tonnage of the vessels, which is included in operating expenses. |
| |
| (q) | Net Income Per Share: Basic net income per share is computed by dividing the net income by the weighted average number of common shares outstanding during the year. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock result in the issuance of such stock. The Company has no outstanding securities or other similar contracts which would dilute net income per share. |
| |
| (r) | Recent Accounting Pronouncements: In December 2003, the FASB issued Interpretation No. 46R, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (the "Interpretation"), which revised Interpretation No. 46, issued in January 2003. The Interpretation 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. This Interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company's exposure (variable interest) to the economic risks and potential rewards from the variable interest entity's 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 entity's assets and liabilities. Variable interests may arise from financial instruments, service contracts, and other arrangements. If an enterprise holds a majority of the variable interests of an entity, the enterprise would be considered the primary beneficiary. The primary beneficiary would be required to include assets, liabilities, and the results of operations of the variable interest entity in the financial statements of the primary beneficiary. In 2004, the Company was required to adopt the provisions of FIN 46R for entities created prior to February 2003. For entities created after January 2003, the Company adopted FIN 46R in 2003. The adoption of FIN 46R in 2003 for entities created after January 2003 and in 2004 for entities created prior to January 2003, did not have any impact on the Company's consolidated financial position, results of operations or cash flows. |
| |
| (s) | Segment Reporting: The Company reports financial information and evaluates its operations by charter revenues and not by the length of ship employment for its customers, i.e. spot or time charters. The Company does not use discrete financial information to evaluate the operating results for each such type of charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability or other financial information for these charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus the Company has determined that it operates under one reportable segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable. |
F-12
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
3. Transactions with Related Parties
Transactions with related parties consisted of the following:
| | | | | | | | | | | | | | |
| | | For the year ended December 31 |
| | | 2004 | | 2003 | | 2002 |
| Charter revenues: | |
| Express Sea Transport Corporation (a) | | | 6,607 | | | | 4,821 | | | | 1,270 | |
| | |
| Voyage expenses: | |
| Express Energy Inc. (g) | | | 11,724 | | | | 6,981 | | | | 1,235 | |
| Curzon Maritime Limited (c) | | | 897 | | | | 367 | | | | 108 | |
| Curzon Shipbrokers Corporation (d) | | | 581 | | | | 277 | | | | 26 | |
| | | | 13,202 | | | | 7,625 | | | | 1,369 | |
| Vessel operating expenses: | |
| Express Energy Inc. (g) | | | — | | | | 459 | | | | 288 | |
| Management fees: | |
| Barclay Shipping Limited (b) | | | 2,754 | | | | 2,170 | | | | 1,152 | |
| General and administrative expenses: | |
| Forest World S.A.(e) | | | 10 | | | | 9 | | | | — | |
| Vanimar Inc. (f) | | | 6 | | | | 5 | | | | — | |
| Skyline Holdings Corp. (f) | | | 17 | | | | 17 | | | | — | |
| Total operating expenses — related parties | | | 2,787 | | | | 2,660 | | | | 1,440 | |
|
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2004 | | 2003 | | 2002 |
| Due from related parties | |
| Barclay Shipping Limited (b) | | | — | | | | 345 | | | | 604 | |
| Express Sea Transport Corporation (a) | | | 475 | | | | — | | | | — | |
| Curzon Maritime Limited (c) | | | — | | | | 59 | | | | — | |
| | | | 475 | | | | 404 | | | | 604 | |
| Due to related parties | |
| Barclay Shipping Limited (b) and Note 7(d) | | | 8,908 | | | | 3,093 | | | | 2,059 | |
| Curzon Shipbrokers Corporation (d) | | | 11 | | | | 195 | | | | 26 | |
| Curzon Maritime Limited (c) | | | — | | | | — | | | | 22 | |
| Express Energy Inc. (g) | | | 1,072 | | | | 615 | | | | 604 | |
| Forest World S.A. (e) | | | 18 | | | | 9 | | | | — | |
| Skyline Holdings Corp. (f) | | | 32 | | | | 18 | | | | — | |
| Vanimar Inc. (f) | | | 10 | | | | 5 | | | | — | |
| | | | 10,051 | | | | 3,935 | | | | 2,711 | |
|
The Company, together with the related parties mentioned below, are under the common control of the Marinakis Family. Details of the related parties are listed below as follows:
| |
| (a) | Express Sea Transport Corporation ("ESTC"): ESTC is a company incorporated in Panama, with a branch office in Greece, under law 89/1967. ESTC is involved in the business of chartering in |
F-13
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| | and chartering out primarily dry bulk carrier vessels on a voyage or time basis. From time to time the Company charters its vessels to ESTC under short-term time charter arrangements. The Company has recorded charter revenues from ESTC of $6,607, $4,821 and $1,270 for the years ended December 31, 2004, 2003 and 2002, respectively. As of January 1, 2005, the Company no longer enters into any new chartering arrangements with ESTC. |
| |
| (b) | Barclay Shipping Limited ("Barclay"): Certain of the ship-owning companies included in the consolidated financial statements have had a management agreement with Barclay, a Liberian corporation, to provide operating, technical and chartering ship management services for a monthly management fee of $18 per vessel ($15 per vessel prior to 2004). Barclay has a branch office registered in Greece under the provisions of law 89/1967. Additionally, Barclay handled the cash management of certain of the vessels under its management. Under the terms of the management agreement, management fees for operating the vessels for the year ended December 31, 2004, 2003 and 2002, amounted to $2,754, $2,170 and $1,152, respectively. As of January 1, 2005, the commercial and technical management of all of the vessels managed by Barclay, with the exception of one vessel, was transferred to Capital Ship Management Corp., a wholly owned subsidiary of the Company. |
| |
| (c) | Curzon Maritime Limited ("CML"): CML is registered in the United Kingdom. Its main activity is to act as a broker in arranging charters for dry cargo vessels for which CML charges a brokerage commission of 1.25% on the freight, hire and demurrage of each such charter. Total commission expenses incurred by the Company under this arrangement amounted to $897, $367 and $108, for the years ended December 31, 2004, 2003 and 2002, respectively. |
| |
| (d) | Curzon Shipbrokers Corporation ("CSC"): CSC is registered in Greece. Its main activity is to act as a broker in arranging charters for wet and dry cargo vessels for which CSC charges a brokerage commission of 1.25% on the freight, hire and demurrage of each such charter. Total commission expenses incurred by the Company under this arrangement amounted to $581, $277 and $26, for the years ended December 31, 2004, 2003 and 2002, respectively. |
| |
| (e) | Through its subsidiary, Capital Ship Management Corp., the Company has entered into a lease agreement with Forest World S.A., for the rental by the Manager of a 311 square meter warehouse, for the monthly fee of $0.8 per month. The contract expires on December 31, 2015. |
| |
| (f) | Capital Ship Management Corp. has entered into two separate lease agreements with Vanimar Inc. and Skyline Holding Corp., for the rental by the Manager of certain office premises. The combined monthly fee under these leases is $1.9 per month. The contracts will expire on December 31, 2008, and December 31, 2015. |
| |
| (g) | Express Energy Inc. ("EEI"): EEI is registered in Greece and its main activity is to act as a broker for the supply of bunkers and lubricants to the Company and to other parties. Total supplies provided to the Company through the brokering activity of EEI amounted to $12,361, $7,604 and $1,914 for the years ended December 31, 2004, 2003 and 2002, respectively, of which $11,724, $7,440 and $1,523 was expensed in 2004, 2003 and 2002, respectively, and are included in voyage expense-related parties and operating expenses-related parties. As of January 1, 2005, the Company no longer enters into these brokering arrangements with EEI. |
F-14
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
4. Fixed Assets, Net
The major classes of fixed assets are the following at December 31:
| | | | | | | | | | | | | | |
| | | 2004 | | 2003 | | 2002 |
| Cost: | |
| Vessels | | | 323,278 | | | | 153,910 | | | | 54,776 | |
Advances for acquisition of
vessels | | | 53,677 | | | | 966 | | | | 7,018 | |
| Other fixed assets | | | 411 | | | | 49 | | | | — | |
| | | | 377,366 | | | | 154,925 | | | | 61,794 | |
| Accumulated depreciation | | | (24,788 | ) | | | (17,082 | ) | | | (7,520 | ) |
| Fixed Assets, Net | | | 352,578 | | | | 137,843 | | | | 54,274 | |
|
The Company's vessels, having total net book value of $288,725 at December 31, 2004, have been provided as collateral to secure bank loans.
During 2004, the Company disposed of five vessels as part of implementing its strategy to modernize and expand its fleet of vessels, for total consideration of $71,146. The total net book value, including unamortized deferred charges, amounted to $23,991.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data)
5. Long-Term Debt, Net
Long-term debt consists of the following at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2004 | | 2003 | | 2002 |
| | | Bank loans | | Vessel | | Amount | | Rate % | | Amount | | Rate % | | Amount | | Rate % |
| a. | | Issued May 30, 1998, maturing May 30, 2005 | | M/V
Apostolos | | | — | | | | — | | | | 1,588 | | | | 2.28 | % | | | 2,066 | | | | 2.51 | % |
| b. | | Issued October 8, 1999, maturing October 8, 2004 (M/V Father M) and June 3, 2004 (M/V Miltiadis M) | | M/V Father M
and
M/V Miltiadis M | | | — | | | | — | | | | 1,821 | | | | 2.28 | % | | | 2,425 | | | | 2.51 | % |
| c. | | Issued July 27, 2000, maturing July 27,2004 | | M/V Mineral
Trader | | | — | | | | — | | | | 1,324 | | | | 2.28 | % | | | 1,746 | | | | 2.51 | % |
| d. | | Issued July 12, 2000, maturing July 12, 2008 | | M/V Miltiadis | | | — | | | | — | | | | 7,972 | | | | 2.28 | % | | | 8,962 | | | | 2.51 | % |
| e. | | Issued July 12, 2002, maturing July 12, 2007 | | M/T Leader M | | | 2,949 | | | | 3.71 | % | | | 3,624 | | | | 2.65 | % | | | 4,299 | | | | 2.88 | % |
| f. | | Issued May 29, 2002 maturing May 29,2006 | | M/V Napoleon
and M/T Fighter | | | 2,161 | | | | 3.78 | % | | | 4,316 | | | | 2.53 | % | | | 5,227 | | | | 2.76 | % |
| g. | | Issued October 18, 2002, maturing October 18, 2005 | | M/V Giorgos | | | 1,997 | | | | 3.58 | % | | | 2,690 | | | | 2.60 | % | | | 3,379 | | | | 2.76 | % |
| h. | | Issued November 4, 2002, maturing November 4, 2005 | | M/V Megas
Alexandros | | | 1,542 | | | | 3.33 | % | | | 2,311 | | | | 2.31 | % | | | 3,074 | | | | 2.57 | % |
| i. | | Issued January 2, 2003, maturing January 2, 2006 | | M/V Miltiades
Junior | | | — | | | | — | | | | 2,856 | | | | 2.53 | % | | | — | | | | — | |
| j. | | Issued January 23, 2003, maturing January 23,2007 | | M/T Laertis | | | 2,113 | | | | 3.42 | % | | | 2,610 | | | | 2.65 | % | | | — | | | | — | |
| k. | | Issued July 28, 2003 and August 22, 2003, maturing July 28, 2007 (M/T Aktor, M/T Alexandros, M/T Aristotelis, M/T Achilleas and M/T Agamemnon) and August 22, 2013 (M/T Miltiadis M) | | M/T Aktor and
M/T Alexandros
and M/T
Aristotelis and
M/T Achilleas
and M/T
Agamemnon
and M/T
Miltiadis M | | | 43,647 | | | | 2.77 | % | | | 51,246 | | | | 2.52 | % | | | — | | | | — | |
| l. | | Issued July 22, 2003, maturing July 22, 2009 | | M/T Amor and
M/T Athlos | | | 6,619 | | | | 3.42 | % | | | 7,693 | | | | 2.62 | % | | | — | | | | — | |
| m. | | Issued December 17, 2003, maturing December 17, 2009 | | M/V Apollonas | | | 4,672 | | | | 3.60 | % | | | 6,260 | | | | 2.41 | % | | | — | | | | — | |
|
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2004 | | 2003 | | 2002 |
| | | Bank loans | | Vessel | | Amount | | Rate % | | Amount | | Rate % | | Amount | | Rate % |
| n. | | Issued March 22, 2004, maturing March 22, 2006 | | M/T Ayrton | | | 2,717 | | | | 3.58 | % | | | (30 | ) | | | — | | | | — | | | | — | |
| o. | | Issued February 10, 2004, maturing February 10, 2006 | | M/T Aias | | | 1,682 | | | | 3.44 | % | | | — | | | | — | | | | — | | | | — | |
| p. | | Issued March 2, 2004, maturing March 2, 2008 | | M/T Aristos II | | | 4,017 | | | | 3.80 | % | | | — | | | | — | | | | — | | | | — | |
| q. | | Issued October 18, 2004, maturing October 18, 2014 | | M/V Miltiadis
Jr II | | | 17,426 | | | | 3.25 | % | | | — | | | | — | | | | — | | | | — | |
| r. | | Issued November 2, 2004, maturing November 2, 2014 | | M/V Apostolos II | | | 17,427 | | | | 3.50 | % | | | — | | | | — | | | | — | | | | — | |
| s. | | Issued October 4, 2004, maturing October 4, 2014 | | M/V Miltiadis II | | | 21,943 | | | | 3.16 | % | | | — | | | | — | | | | — | | | | — | |
| t. | | Issued November 9, 2004, maturing November 9, 2006 | | M/T Mon Ami | | | 3,776 | | | | 4.27 | % | | | — | | | | — | | | | — | | | | — | |
| u. | | Issued November 5, 2004, maturing November 3, 2008 | | M/T Archimides | | | 10,451 | | | | 4.11 | % | | | — | | | | — | | | | — | | | | — | |
| v. | | Issued November 12, 2004, maturing November 12, 2008 | | M/T Archon | | | 9,959 | | | | 3.77 | % | | | — | | | | — | | | | — | | | | — | |
| w. | | Issued November 30, 2004, maturing November 30, 2012 | | M/T Vancouver
Spirit | | | 27,902 | | | | 3.97 | % | | | — | | | | — | | | | — | | | | — | |
| x. | | Issued December 7, 2004, maturing December 7, 2012 | | M/T Victoria
Spirit | | | 27,902 | | | | 3.98 | % | | | — | | | | — | | | | — | | | | — | |
| y. | | Issued December 21, 2004, maturing December 21, 2006 | | M/T Amadeus | | | 3,225 | | | | 4.07 | % | | | — | | | | — | | | | — | | | | — | |
| z. | | Issued December 21, 2004, maturing December 21, 2006 | | M/T Asterix I | | | 3,225 | | | | 4.07 | % | | | — | | | | — | | | | — | | | | — | |
| aa. | | Loan fee for loan issued January 20, 2005, maturing January 20, 2007 | | M/T Active | | | (5 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | Total | | | | | 217,347 | | | | | | | | 96,281 | | | | | | | | 31,178 | | |
| | | Less: Current portion | | | | | 53,244 | | | | | | | | 19,314 | | | | | | | | 5,588 | | |
| | | Long-term portion | | | | | 164,103 | | | | | | | | 76,967 | | | | | | | | 25,590 | | |
|
All of the above bank loans bear interest at LIBOR plus a margin payable quarterly or semi-annually. Each bank loan is secured by a first preferred mortgage on the respective vessel or vessels and a general assignment of the earnings, insurances and requisition compensation of the respective vessel or vessels. Certain loans also require additional security, including: cash collateral; interest bearing loan anticipation account with the bank; corporate guarantee of the management company;
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
letter of undertaking of the management company; mortgage insurance interest; or personal guarantee. The Company's weighted average interest rate for the years ended December 31, 2004, 2003 and 2002 was 3.51%, 2.78% and 3.37%, respectively, as at year end.
In accordance with the covenants in certain of these loan agreements, the Company's restricted cash on deposit with the applicable lending banks as of December 31, 2004, 2003 and 2002 in the aggregate amounted to $4,577, $4,119 and $740, respectively. The loan agreements contain other customary ship finance covenants, including restrictions as to: changes in management and ownership of the mortgaged vessels, the incurrence of additional indebtedness, the mortgaging of vessels and the payment of dividends without the applicable bank's prior consent as well as minimum requirements as to the applicable vessel's or vessels' market value and insured value in relation to the outstanding balance of the applicable loan.
The required annual loan principal payments per bank loan to be made subsequent to December 31, 2004 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Bank Loans1 |
| Year | | e. | | f. | | g. | | h. | | j. | | k. | | l. |
| 2005 | | | 680 | | | | 586 | | | | 2,000 | | | | 1,548 | | | | 500 | | | | 6,700 | | | | 1,080 | |
| 2006 | | | 680 | | | | 1,597 | | | | — | | | | — | | | | 500 | | | | 6,700 | | | | 1,080 | |
| 2007 | | | 1,610 | | | | — | | | | — | | | | — | | | | 1,125 | | | | 11,610 | | | | 1,080 | |
| 2008 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,760 | | | | 1,080 | |
| 2009 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,760 | | | | 2,330 | |
| 2010 and thereafter | | | — | | | | — | | | | — | | | | — | | | | — | | | | 15,315 | | | | — | |
| TOTAL | | | 2,970 | | | | 2,183 | | | | 2,000 | | | | 1,548 | | | | 2,125 | | | | 43,845 | | | | 6,650 | |
| Less debt discount | | | 21 | | | | 22 | | | | 3 | | | | 6 | | | | 12 | | | | 198 | | | | 31 | |
| | | | 2,949 | | | | 2,161 | | | | 1,997 | | | | 1,542 | | | | 2,113 | | | | 43,647 | | | | 6,619 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Bank Loans1 |
| Year | | m. | | n. | | o. | | p. | | q. | | r. | | s. |
| 2005 | | | 4,700 | | | | 1,000 | | | | 600 | | | | 900 | | | | 3,000 | | | | 3,000 | | | | 4,500 | |
| 2006 | | | — | | | | 1,750 | | | | 1,100 | | | | 900 | | | | 2,000 | | | | 2,000 | | | | 3,000 | |
| 2007 | | | — | | | | — | | | | — | | | | 900 | | | | 1,500 | | | | 1,500 | | | | 1,250 | |
| 2008 | | | — | | | | — | | | | — | | | | 1,350 | | | | 950 | | | | 950 | | | | 1,250 | |
| 2009 | | | — | | | | — | | | | — | | | | — | | | | 950 | | | | 950 | | | | 1,250 | |
| 2010 and thereafter | | | — | | | | — | | | | — | | | | — | | | | 9,100 | | | | 9,100 | | | | 10,750 | |
| TOTAL | | | 4,700 | | | | 2,750 | | | | 1,700 | | | | 4,050 | | | | 17,500 | | | | 17,500 | | | | 22,000 | |
| Less debt discount | | | 28 | | | | 33 | | | | 18 | | | | 33 | | | | 74 | | | | 73 | | | | 57 | |
| | | | 4,672 | | | | 2,717 | | | | 1,682 | | | | 4,017 | | | | 17,426 | | | | 17,427 | | | | 21,943 | |
|
| |
| 1 | The bank loans listed under a-aa in this table correspond to the loans listed as a-aa in the table above. |
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Bank Loans1 |
| Year | | t. | | u. | | v. | | w. | | x. | | y. | | z. | | aa. | | TOTAL |
| 2005 | | | 1,400 | | | | 2,250 | | | | 1,800 | | | | 7,000 | | | | 7,000 | | | | 1,500 | | | | 1,500 | | | | — | | | | 53,244 | |
| 2006 | | | 2,400 | | | | 2,250 | | | | 1,800 | | | | 4,000 | | | | 4,000 | | | | 1,750 | | | | 1,750 | | | | — | | | | 39,257 | |
| 2007 | | | — | | | | 2,250 | | | | 1,800 | | | | 3.000 | | | | 3,000 | | | | — | | | | — | | | | — | | | | 30,625 | |
| 2008 | | | — | | | | 3,750 | | | | 4,600 | | | | 2,200 | | | | 2,200 | | | | — | | | | — | | | | — | | | | 20,090 | |
| 2009 | | | — | | | | — | | | | — | | | | 2,200 | | | | 2,200 | | | | — | | | | — | | | | — | | | | 11,640 | |
| 2010 and thereafter | | | — | | | | — | | | | — | | | | 9,600 | | | | 9,600 | | | | — | | | | — | | | | — | | | | 63,465 | |
| TOTAL | | | 3,800 | | | | 10,500 | | | | 10,000 | | | | 28,000 | | | | 28,000 | | | | 3,250 | | | | 3,250 | | | | — | | | | 218,321 | |
| Less debt discount | | | 24 | | | | 49 | | | | 41 | | | | 98 | | | | 98 | | | | 25 | | | | 25 | | | | 5 | | | | 974 | |
| | | | 3,776 | | | | 10,451 | | | | 9,959 | | | | 27,902 | | | | 27,902 | | | | 3,225 | | | | 3,225 | | | | (5 | ) | | | 217,347 | |
|
| |
| 1 | The bank loans listed under a-aa in this table correspond to the loans listed as a-aa in the table above. |
6. Accrued Liabilities
Accrued liabilities consist of the following at December 31:
| | | | | | | | | | | | | | |
| | | 2004 | | 2003 | | 2002 |
| Accrued wages and crew expenses | | | 1,431 | | | | 318 | | | | 187 | |
| Accrued loan interest & loan fees | | | 1,416 | | | | 226 | | | | 98 | |
| Accrued voyage expenses and commission | | | 1,199 | | | | 1,472 | | | | 155 | |
| Accrued payable for newbuildings | | | 765 | | | | 765 | | | | — | |
| Accrued insurance | | | 245 | | | | 161 | | | | 57 | |
| Others | | | 393 | | | | 214 | | | | 171 | |
| | | | 5,449 | | | | 3,156 | | | | 668 | |
|
7. Stockholders' Equity
| |
| (a) | Formation: The Company was formed on March 10, 2005, and its common stock at inception consisted of 500 shares authorized with no par value. On June 2, 2005, the Company amended its Articles of Incorporation. Under the Company's Amended and Restated Articles of Incorporation, the Company increased its authorized capital stock to 200,000,000 shares (all in registered form), consisting of 200,000,000 shares of common stock, par value $0.001, per share. In addition, the Company, at the time of the amendment of its Articles of Incorporation, cancelled the existing 500 shares with no par value. In connection with the reorganization discussed in Note 1, 46,330,000 shares of common stock were issued in exchange for the contribution of the Contributed Companies. |
| |
| | The amounts shown in the accompanying consolidated balance sheets as additional paid-in capital represent (i) payments made by the Marinakis Family at various dates to finance vessel acquisitions in excess of the amounts of bank loans obtained and (ii) the value of executive management services provided by Mr. Marinakis, as acting CEO, to the Company at no additional charge by Barclay Shipping Limited. The capital contributions relating to the acquisition of vessels amounted to $51,315, $18,221 and $5,723, in 2004, 2003 and 2002, respectively. The value of the executive services provided by Mr. Marinakis was estimated at $857, $824, and $787, for the years ended December 31, 2004, 2003 and 2002, respectively, and is recorded as executive management services in the accompanying consolidated |
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| | statements of income and as contributions to additional paid-in capital in the related consolidated statements of stockholders' equity. On May 25, 2005, the Company entered into a direct employment agreement with Mr. Marinakis who will provide executive management services, in the capacity as Chief Executive Officer of the Company, which was previously provided by Barclay Shipping Limited at no additional cost. The estimated value of the above services was determined by reference to the amounts in Mr. Marinakis employment agreement, discounted for the effect of the salary increases during the years 2004 (4.92%), 2003 (4.00%) and 2002 (4.75%) as determined by the collective bargaining agreements governing the employment of shoreside personnel by shipping companies in Greece, which approximate inflation rates. |
| |
| (b) | Preferred Stock: Under the Company's amended and restated Articles of Incorporation, the Company's board of directors has the authority to issue shares of preferred stock (5,000,000 shares authorized, $0.001 par value) from time to time in one or more series, to fix the number of shares and terms of each such series and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions. The preferred stock may have different voting rights from the common stock. The Company's board of directors has not authorized the issuance of any preferred stock at December 31, 2004. |
| |
| (c) | Dividends: Under the Company's Amended and Restated Articles of Incorporation, subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock will share equally on a per share basis any dividends when declared by the Company's board of directors. However, the declaration and payment of dividends is, in certain circumstances, subject to obtaining consents from the Company's bank lenders. The Company has obtained the required consents from its lenders for the payment of dividends relating to the Company's earnings through December 31, 2004, accordingly, no retained earnings are restricted at December 31, 2004. The Company declared dividends of $158,132, $15,960 and $8,329 during the years ended December 31, 2004, 2003 and 2002, respectively, and paid dividends of $50,696, $15,960 and $8,329 in 2004, 2003 and 2002, respectively, (dividends per share were $1.09, $0.34 and $0.18 for the years ended December 31, 2004, 2003 and 2002, respectively). The Company's earnings subsequent to December 31, 2004, are restricted and cannot be distributed without additional consents from the Company's lenders, for which the Company has obtained such consents for earnings through March 31, 2005. On June 10, 2005 the Company declared dividends amounting to $40,700 relating to earnings through March 31, 2005, which has been recorded as dividends payable at December 31, 2004. |
| |
| (d) | Other transactions with stockholders: Barclay has the right to receive commission payments from Hyundai Mipo Dockyard Co. Ltd. in respect of certain newbuildings on order by Capital from the ship yard. These commission payments are fixed in amount and approximate 2% of the total contract price per newbuilding. On June 6, 2005, the Company entered into a Commission Receivables Sale Agreement with Barclay pursuant to which Barclay sold the right to receive commissions that become payable after April 13, 2005. Barclay is under common control with the Company and has no historical cost basis in the rights being transferred to the Company under the Commission Receivables Sale Agreement. The purchase price payable by the Company to Barclay is $8,908, which has been accounted for as a dividend to the Marinakis Family. Commissions received by the Company from the ship yard will be accounted for as a reduction of the related vessel acquisition cost. |
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
8. Voyage Expenses and Vessel Operating Expenses
Voyage expenses and Vessel operating expenses consist of the following for the years ended December 31:
| | | | | | | | | | | | | | |
| | | 2004 | | 2003 | | 2002 |
| Voyage expenses | | | 17,614 | | | | 8,103 | | | | 1,607 | |
| Voyage expense – related parties (Note 3) | | | 13,202 | | | | 7,625 | | | | 1,369 | |
| | | | 30,816 | | | | 15,728 | | | | 2,976 | |
| Voyage expenses consist of: | |
| Port charges | | | 9,567 | | | | 4,751 | | | | 783 | |
| Bunkers | | | 11,543 | | | | 6,153 | | | | 1,085 | |
| Commissions | | | 8,370 | | | | 3,839 | | | | 769 | |
| Other | | | 1,336 | | | | 985 | | | | 339 | |
| | | | 30,816 | | | | 15,728 | | | | 2,976 | |
|
| | | | | | | | | | | | | | |
| | | 2004 | | 2003 | | 2002 |
| Vessel operating expenses | | | 30,977 | | | | 18,755 | | | | 6,306 | |
| Vessel operating expenses – related parties (Note 3) | | | — | | | | 459 | | | | 288 | |
| | | | 30,977 | | | | 19,214 | | | | 6,594 | |
| Vessel operating expenses consist of: | |
| Crew costs and related costs | | | 15,762 | | | | 9,813 | | | | 3,544 | |
| Insurance | | | 4,863 | | | | 3,667 | | | | 1,301 | |
| Spares, repairs, maintenance and other | | | 6,190 | | | | 3,102 | | | | 764 | |
| Stores and lubricants | | | 4,103 | | | | 2,632 | | | | 985 | |
| Management fees – third party | | | 59 | | | | — | | | | — | |
| | | | 30,977 | | | | 19,214 | | | | 6,594 | |
|
9. Income Taxes
Under the laws of the countries of the vessel-owning subsidiaries' incorporation and/or vessels' registration, these companies are not subject to tax on international shipping income. However, they are subject to registration and tonnage taxes, which have been included in vessel operating expenses in the accompanying consolidated statements of operations.
Furthermore, the Company has been exempt from United States federal income taxation on U.S. source shipping income. However, in the future the Company might not continue to satisfy these requirements, specifically the 50% Ownership Test or be able to satisfy the Publicly-Traded Test if the owners of more than 50% of the value of the Company's outstanding shares were to change. Accordingly, the Company may be subject to United States federal income taxation on U.S. source shipping income earned in the future.
10. Contingencies and Commitments
Contingencies:
Various claims, suits and complaints, including those involving government regulations, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers,
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
environmental claims, agents, insurers and from claims with suppliers relating to the operations of the Company's vessels. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which provision should be established in the accompanying consolidated financial statements other than those disclosed below:
| |
| (a) | The Company's vessel M/V Miltiadis Junior, is involved in a dispute with a time charterer under an agreement dated September 5, 2003. The total damages claimed by the time charterer is approximately $1,800. The first of the two claims relates to delays in the voyage and subsequent losses allegedly suffered by the time charterer as a consequence of repairs to the vessel's boiler tubes during the term of the charter. The second claim relates to a dispute regarding the terms of an option to extend the time charter. In connection with these claims, the time charterer also lodged a caveat/claim against the vessel with the Maltese Ship's Registry to prevent it from being sold. On July 23, 2004, the Company sold the vessel to a third party. As a result of the claim made with the Maltese Ship Registry, the Company provided security in the form of a deposit of $2,500 in an escrow account in order to release the vessel to the third party purchaser. Arbitration proceedings in relation to the status of the security deposited in the escrow account have commenced and are in process in London, UK. Management believes that the likelihood of a loss to the Company is greater than remote but not probable and, as such, the Company has not recorded any provision in the Company's accounts at December 31, 2004, for this claim. In the event a loss is incurred, management does not believe the amount of the loss can be reasonably estimated at this time. |
| |
| (b) | The Company entered into a memorandum of agreement in May 2004, ("MOA") for the sale of the M/V AKTOR to Brotojoyo Maritime Pte Ltd ("Buyer"). On August 31, 2004, although the vessel had arrived at the contracted delivery location, the Company terminated the MOA on grounds that it believed the Buyer had repudiated and renunciated its contractual obligations. The Buyer has asserted that the termination of the MOA by the Company was wrongful and has made the following claims: (i) loss and damages for loss of profits in relation to the period of delay from July 16, 2004 to August 31, 2004, (ii) loss and damages in relation to the non-delivery of the vessel and or wrongful termination of the MOA and (iii) various costs, including bank costs and legal costs, expenses, interest, and compound interests. In September 2004, the Buyer took steps to secure its alleged claims and arrested the vessel at Inchon, South Korea. The Courts in Inchon issued two arrest orders during ex-parte proceedings for a total amount of $4,035. The Company provided security by way of cash deposit paid to the Courts of Inchon in the equivalent sum in Korean Won and the vessel was released from both arrests. Presently the case is pending arbitration in London. The Company believes it is not probable a loss will result from this matter. Accordingly, no amounts have been accrued for this claim. In the event a loss is incurred, management does not believe the amount of any such loss can be reasonably estimated at this time. |
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
Commitments:
| |
| (a) | Vessel Purchase Commitments: The Company has outstanding purchase commitments relating to the construction of 18 new vessels and the acquisition of one vessel, which at December 31, 2004, in the aggregate amounted to approximately $561,089 and are payable as follows: |
|
| | | | | | | | | | |
| Year | | Vessel Purchase
Commitments | |
| 2005 | | | 111,786 | | |
| 2006 | | | 226,174 | | |
| 2007 | | | 223,129 | | |
| Total | | | 561,089 | | |
|
| |
| (b) | Lease Commitments: At December 31, 2004, the Company was a party to operating lease agreements from related parties (see Note 3). The future minimum lease payments under these related party operating leases at December 31, 2004, are as follows: |
|
| | | | | | | | | | |
| Year | | Operating leases | |
| 2005 | | | 31 | | |
| 2006 | | | 31 | | |
| 2007 | | | 31 | | |
| 2008 | | | 31 | | |
| 2009 | | | 31 | | |
| Thereafter | | | 151 | | |
| Total minimum rental commitments | | | 306 | | |
|
Total rent expense under operating leases for 2004 amounted to $31 and is included in operating expenses-related parties in the accompanying statements of income.
11. Net Income Per Share and Pro Forma (Unaudited) Net Income Per Share
Basic net income per share "EPS" are calculated on the basis of the weighted average number of shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares. The weighted average number of common shares outstanding reflects the issuance of shares for the Contributed Companies in the reorganization described in Note 1 as if they had been issued at the beginning of the earliest period presented.
The Company declared dividends of $158,132 in 2004 and $40,700 in 2005. The Company has also recorded the purchase of the commission payments payable to Barclay as a dividend, which amounted to $8,908. The Company has recorded these dividends totaling $207,740 as of December 31, 2004.
In addition, as the total amount $207,740 of the dividends declared in the twelve-month period ended June 10, 2005, as further discussed in Note 12, exceeded net income for the twelve-month period ended December 31, 2004, pro forma (unaudited) net income per common share are presented in the accompanying December 31, 2004 consolidated statements of income, giving effect to the additional number of shares that would be required to be issued at an assumed initial public offering price of $15.00 per share (the mid point of the expected range of $14.00 to $16.00 per share) to pay the amount of dividends that exceeds net income for the twelve-month period ended December 31, 2004.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
The calculations of the pro forma (unaudited) net income per common share discussed above are as follows:
Calculation of number of additional shares to be issued:
| | | | | | |
| Net income for the twelve-month period ended December 31, 2004 | | 146,235 |
| Amount of dividends for twelve-month period ended June 10, 2005 | | (207,740) |
| Excess of dividends over net income | | (61,505) |
| Number of shares required to be issued at $15.00 per share to pay excess of dividends over net income | | | 4,100,333 | |
|
Calculation of pro forma (unaudited) net income per common share:
| | | | | | |
| | | Year ended
December 31, 2004 |
| Net income | | 146,235 |
| Number of shares required to be issued at $15.00 per share to pay excess of dividends over net income | | | 4,100,333 | |
| Weighted average common shares outstanding, basic and diluted – historical | | | 46,330,000 | |
| Weighted average common shares outstanding, basic and diluted – for pro forma (unaudited) calculation | | | 50,430.333 | |
| Pro forma (unaudited) net income per common share, basic and diluted | | | 2.90 | |
|
12. Subsequent Events (Unaudited)
| |
| (a) | Initial Public Offering: In December 2004, the Company commenced preparation for an initial public offering of its common shares to be registered in the United States and listed on the New York Stock Exchange. Following the completion of the initial public offering, it is expected that the Marinakis Family will own directly or indirectly approximately 73.5% of the Company's outstanding common stock and 73.5% of the voting power associated with the Company's voting stock. |
| |
| (b) | Equity Incentive Plan: On June 11, 2005, the Company adopted an equity incentive plan (the "Plan") which will entitle the Company's officers, key employees and directors to receive options to acquire the Company's common stock. A total of 1,000,000 shares of common stock will be reserved for issuance under the Plan. The Plan will be administered by the Company's board of directors. Under the terms of the Plan, the Company's board of directors will be able to grant new options exercisable at a price per share to be determined by the Company's board of directors. The options to be issued under the Plan will be exercisable at least 3 years after the closing of the initial public offering discussed above. In addition, any shares received in exercise of the options will not be able to be sold until three years after the closing of the initial public offering discussed above. All options will expire 10 years from the date of grant. The expiry of the plan will be at the discretion of board of directors. |
| |
| (c) | Lease commitments: On March 1, 2005, the Company entered into two additional operating lease agreements both expiring on March 1, 2017, with Arch Finance and Dimension International S.A., related parties. The future minimum lease payments under these two related party operating leases total $1.6 (€1.3) per month, $230.4 in aggregate. |
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| (d) | Express Sea Transport Corporation: On June 10, 2005, the Company entered into a Letter of Agreement (the "Agreement") with ESTC, a related party (Note 3), pursuant to which the Company has a one-year option, commencing on the first anniversary of the closing of the initial public offering, to acquire ESTC. The duration of the right to exercise the option may be extended beyond the initial one year period if both parties agree in writing to extend the duration. |
| |
| (e) | Acquisition of Vessels: Subsequent to December 31, 2004 the Company acquired eight vessels for a total amount of $144,375. The acquisition cost of these vessels was financed through advances from the Company's stockholders of $59.4 million and bank loans as discussed in (f) and (h) below. |
| |
| (f) | New Credit Facility: Subsequent to December 31, 2004, the Company obtained six loans from six banks in order to partially finance the acquisition of vessels. The long-term loans amounted to $105,950 payable over a period ranging from 2 to 10 years. The loans bear interest at LIBOR plus a margin and each loan is secured by a first priority mortgage over the applicable vessel or vessels. |
| |
| | Furthermore, the Company obtained four commitment letters from seven banks in order to partially finance the acquisition of new buildings. The long-term loans amounted to $451.7 million, payable over a period ranging from 10 to 11 years. The long-term loans are expected to bear interest at LIBOR plus a margin and each loan will be secured by a first priority mortgage over the applicable vessel or vessels. |
| |
| | Furthermore, the Company obtained a commitment letter from one bank for $10.0 million in order to partially finance the acquisition of one new building delivered in June 2005. |
| |
| (g) | Dividends Paid: Subsequent to December 31, 2004, the Company paid dividends of $112.5 million to its stockholders. |
| |
| (h) | Advances from stockholders: Subsequent to December 31, 2004, the Company obtained advances from the stockholders amounting to $59.4 million. Furthermore, the Company obtained a credit line of approximately $60 million which was used to repay these advances. |
| |
| (i) | Disposal of Vessels: Subsequent to December 31, 2004, the Company in continuation of its strategy to modernize, expand and enhance its fleet of vessels disposed of three vessels for total consideration of $27,974. The total net book value, including unamortized deferred charges, amounted to $14,679 and the gain on the sale of vessels amounted to $13,295. As a result of these sales, the Company repaid certain existing loans amounting to $10,450 and used the remaining proceeds to finance acquisitions of other vessels. |
F-25
CAPITAL MARITIME & TRADING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands of U.S. dollars, except for share and per share data)
| | | | | | | | | | |
| | | March 31,
2005 | | December 31,
2004 |
| | | (Unaudited) | | (see Note 1) |
| ASSETS | |
| CURRENT ASSETS: | |
| Cash and cash equivalents | | | 54,761 | | | | 41,885 | |
| Restricted cash | | | 8,798 | | | | 4,577 | |
| Trade accounts receivable, net | | | 18,229 | | | | 15,351 | |
| Insurance claims | | | 122 | | | | 172 | |
| Due from related parties (Note 3) | | | 205 | | | | 475 | |
| Prepayments and other | | | 7,925 | | | | 5,489 | |
| Inventories | | | 2,861 | | | | 2,563 | |
| Total current assets | | | 92,901 | | | | 70,512 | |
| Fixed assets, net (Note 4) | | | 439,777 | | | | 352,578 | |
| OTHER NON CURRENT ASSETS | |
| Deferred charges, net | | | 5,334 | | | | 3,599 | |
| Restricted cash | | | 6,535 | | | | 6,535 | |
| Total assets | | | 544,547 | | | | 433,224 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| CURRENT LIABILITIES: | |
| Current portion of long-term debt (Note 5) | | | 58,043 | | | | 53,244 | |
| Trade accounts payable | | | 9,509 | | | | 6,188 | |
| Due to related parties (Note 3) | | | 9,558 | | | | 10,051 | |
| Accrued liabilities | | | 7,343 | | | | 5,449 | |
| Deferred revenue | | | 11,774 | | | | 2,737 | |
| Dividends payable | | | 127,523 | | | | 148,136 | |
| Total current liabilities | | | 223,750 | | | | 225,805 | |
| Long term debt, net (Note 5) | | | 210,733 | | | | 164,103 | |
| Deferred revenue | | | 1,368 | | | | — | |
| Contingencies and commitments (Note 8) | | | — | | | | — | |
| STOCKHOLDERS' EQUITY: | |
| Common stock $0.001 par value; 200,000,000 authorized; 46,330,000 issued, and outstanding | | | 46 | | | | 46 | |
| Preferred stock, $0.001 par value; 5,000,000 authorized; none issued | | | — | | | | — | |
| Additional paid-in capital | | | 108,544 | | | | 93,966 | |
| Retained earnings/(accumulated deficit) | | | 106 | | | | (50,696 | ) |
| Total stockholders' equity | | | 108,696 | | | | 43,316 | |
| Total liabilities and stockholders' equity | | | 544,547 | | | | 433,224 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-26
CAPITAL MARITIME & TRADING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except for share and per share data)
| | | | | | | | | | | | | | | | | | | | | | |
| | | March 31,
2005 | | March 31,
2004 | |
| REVENUES: | |
| Time and voyage charter revenues | | | 75,848 | | | | 43,323 | | |
| Charter revenue from related parties (Note 3) | | | 19 | | | | 1,940 | | |
| Total revenues | | | 75,867 | | | | 45,263 | | |
| EXPENSES: | |
| Voyage expenses | | | 11,637 | | | | 3,567 | | |
| Voyage expenses – related parties (Note 3) | | | 1,777 | | | | 3,467 | | |
| Vessel operating expenses (Note 7) | | | 10,841 | | | | 7,480 | | |
| Depreciation and amortization | | | 8,080 | | | | 4,027 | | |
| General and administrative expenses | | | 1,232 | | | | 654 | | |
| Operating expenses – related parties (Note 3) | | | 66 | | | | 1,221 | | |
| Executive management services | | | 225 | | | | 214 | | |
| Gain on sale of vessels | | | (10,828 | ) | | | — | | |
| Operating income | | | 52,837 | | | | 24,633 | | |
| OTHER INCOME (EXPENSES), NET: | |
| Interest expense | | | (2,389 | ) | | | (744 | ) | |
| Interest income | | | 264 | | | | 5 | | |
| Foreign currency (loss), net | | | 90 | | | | (9 | ) | |
| Total other (expenses), net | | | (2,035 | ) | | | (748 | ) | |
| Net Income | | | 50,802 | | | | 23,885 | | |
| | | | | | |
| Net income per share, basic and diluted | | $ | 1.10 | | | $ | 0.52 | | |
| Weighted average number of shares, basic and diluted | | | 46,330,000 | | | | 46,330,000 | | |
| Pro forma net income per share, basic and diluted (Note 6) | | $ | 1.04 | | | | | | |
| Pro forma weighted average number of shares, basic and diluted (Note 6) | | | 48,635,867 | | | | | | |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-27
CAPITAL MARITIME & TRADING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except for share and per share data)
| | | | | | | | | | |
| | | March 31,
2005 | | March 31,
2004 |
| Cash Flows from Operating Activities: | |
| Net income | | | 50,802 | | | | 23,885 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation of fixed assets | | | 7,450 | | | | 3,619 | |
| Amortization of deferred charges | | | 630 | | | | 408 | |
| Amortization of debt discount | | | 70 | | | | 40 | |
| Amortization of deferred revenue | | | (1,051 | ) | | | — | |
| Executive management services | | | 225 | | | | 214 | |
| Gain on sale of vessels | | | (10,828 | ) | | | — | |
| Changes in operating assets and liabilities: | |
| Trade accounts receivables | | | (2,878 | ) | | | (1,186 | ) |
| Due from related parties | | | 270 | | | | (16,451 | ) |
| Insurance claims | | | 50 | | | | 46 | |
| Prepayments and other | | | (2,436 | ) | | | 521 | |
| Inventories | | | (298 | ) | | | (362 | ) |
| Deferred charges | | | (3,279 | ) | | | (287 | ) |
| Trade accounts payable | | | 3,321 | | | | 1,396 | |
| Due to related parties | | | (493 | ) | | | 20,949 | |
| Accrued liabilities | | | 1,894 | | | | 69 | |
| Deferred revenue | | | (14 | ) | | | (220 | ) |
| Net cash provided by operating activities | | | 43,435 | | | | 32,641 | |
| Cash Flows from Investing Activities | |
| Vessel acquisitions | | | (75,251 | ) | | | (8,755 | ) |
| Vessel advances – new-buildings | | | (16,180 | ) | | | (25,277 | ) |
| Vessel advances – other vessel acquisitions | | | (3,217 | ) | | | — | |
| Proceeds from sale of vessels | | | 23,430 | | | | — | |
| Acquisition of other assets | | | (167 | ) | | | (24 | ) |
| Net cash provided in investing activities | | | (71,385 | ) | | | (34,056 | ) |
| Cash Flows from Financing Activities | |
| Proceeds from long term debt | | | 64,768 | | | | 9,960 | |
| Payments of long term debt | | | (13,461 | ) | | | (5,723 | ) |
| Capital contributions | | | 14,353 | | | | 2,131 | |
| Restricted cash | | | (4,221 | ) | | | 1,913 | |
| Dividends paid | | | (20,613 | ) | | | (1,001 | ) |
| Net cash provided by financing activities | | | 40,826 | | | | 7,280 | |
| Net increase in cash and cash equivalents | | | 12,876 | | | | 5,865 | |
| Cash and cash equivalents at beginning of period | | | 41,885 | | | | 5,543 | |
| Cash and cash equivalents at end of period | | | 54,761 | | | | 11,408 | |
|
Supplemental Cash flow information:
Cash paid for interest amounted to $1,710 and $458, for the three-month periods ended March 31, 2005 and 2004, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-28
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
1. Basis of Presentation and General Information
The accompanying unaudited consolidated interim financial statements include the accounts of CAPITAL MARITIME & TRADING CORP. and its wholly owned subsidiaries (collectively, the "Company") and have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.
In the opinion of the management, all adjustments (consisting of adjustments of a normal recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results of the three-month period ended March 31, 2005 are not necessarily indicative of the results that might be expected for any interim period or the fiscal year ended December 31, 2005. The financial statements presented in this report should be read in conjunction with the consolidated financial statements and footnotes for the three years ending December 31, 2004.
The balance sheet at December 31, 2004 has been derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by United States generally accepted accounting principles for complete financial statements.
2. Significant Accounting Policies
| |
| (a) | Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated upon consolidation. |
| |
| (b) | Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. |
| |
| (c) | Accounting for Revenue and Related Expenses: The Company generates its revenues from charterers for the charterhire of its vessels. Vessels are chartered using either voyage charters, where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified charter rate, or time charters, where a contract is entered into for the use of a vessel for a specific period of time and a specified daily charterhire rate. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized, as it is earned ratably over the duration of the period of each voyage or time charter. A voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo. Deferred revenue includes cash received prior to the balance sheet date and is related to revenue earned after such date. Deferred revenue also includes the liability associated with the acquisition of vessels with time charters, at values below market, net of amount amortized to revenue for the three-month period ended March 31, 2005. |
| |
| | For vessels operating in pooling arrangements, the Company earns a percentage of total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool's participant, including the Company, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel's age, design and other performance characteristics. Net revenue under pooling arrangements is recognized when earned in accordance with the agreed-upon formula. |
F-29
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
| |
| | Demurrage income represents payments by the charterer to the vessel owner when loading or discharging time exceeds the stipulated time in the voyage charter and is recognized when the amount is fixed or determinable and collection is reasonably assured. Vessel voyage costs, 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. The commissions are deferred and amortized over the related voyage charter period to the extent revenue has been deferred since commissions are earned as the Company's revenues are earned. All other voyage expenses and other vessel operating expenses are expensed as incurred. |
| |
| (d) | Foreign Currency Translation: The functional currency of the Company is the U.S. dollar because the Company's vessels operate in international shipping markets that utilize the U.S. dollar as the functional currency. The accounting records of the Company are maintained in U.S. dollars. Transactions involving other currencies during the year are converted into U.S. dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in currencies other than the U.S. dollar, are translated into the functional currency using the exchange rate at that date. Gains or losses resulting from foreign currency transactions are included in foreign currency gains and losses, net in the accompanying statements of income. |
| |
| (e) | Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with original maturity of three months or less to be cash equivalents. |
| |
| (f) | Restricted Cash: Certain of the Company's loan agreements require the Company to fund a loan retention account in the name of the vessel-owning subsidiary. The amount deposited is equivalent to either one sixth or one third of the loan installment (depending on the frequency of the repayment elected by the Company, i.e. quarterly or semi annually) plus interest that will fall due on the repayment date. Also, there are instances of disputes for which the Company is obliged to deposit money in restricted accounts in order to release its vessels from arrest proceedings. |
| |
| (g) | Trade Accounts Receivable, Net: The amount shown as trade accounts receivable, net at each balance sheet date, reflects the estimated recoveries from charterers for hire, freight and demurrage billings, net of allowance for doubtful accounts. As of March 31, 2005 and December 31, 2004, no allowance for doubtful accounts was required. |
| |
| (h) | Insurance Claims: The Company records insurance claim recoveries for insured losses incurred on damage to fixed assets. Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Company's fixed assets suffer insured damages and the Company can make an estimate of the amount to be reimbursed following the insurance claim. Claims are submitted to the insurance company, which may increase or decrease the claim amount. Such adjustments are recorded in the period they are known and have not been material to the Company's financial position or results of operation in the periods ended March 31, 2005 and 2004. |
| |
| (i) | Inventories: Inventories consist of consumable bunkers, lubricants, spares and stores and are stated at the lower of cost or market value. The cost is determined by the first-in, first-out method. |
| |
| (j) | Fixed Assets, Net: Fixed assets, net consist primarily of vessels. The vessels are stated at cost, less accumulated depreciation. Vessel cost consists of the contract price for the vessel and any material expenses incurred upon acquisition (initial repairs, improvements and delivery expenses, interest and on-site supervision costs incurred during the construction periods). |
F-30
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Otherwise these amounts are charged to expenses as incurred. The cost of each of the Company's vessels is depreciated beginning when the vessel is ready for its intended use, on a straight-line basis over the vessels' remaining economic useful life, after considering the estimated residual value. Management estimates the useful life of new vessels at 25 years, which is consistent with industry practice. Acquired secondhand vessels are depreciated from the date of their acquisition over their remaining estimated useful life. As of the date of their acquisition the remaining estimated useful life of the Company's secondhand vessels was 3 to 20 years.
| |
| (k) | Impairment of Long-lived Assets: The Company uses SFAS 144 "Accounting for the Impairment or Disposal of Long-lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires that long-lived assets and certain identifiable intangibles held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss for an asset held for use should be recognized 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. Measurement of the impairment loss is based on the appraised fair value of the asset. The Company regularly reviews its vessels for impairment on a vessel by vessel basis. No impairment loss was recorded in the periods ended March 31, 2005 and 2004. |
| |
| (l) | Deferred Charges: The Company's vessels are required to be inspected and re-licensed from time to time. The inspection and re-licensing includes special surveys every five years and intermediate surveys/dry-docking every two to three years for inspection of underwater parts. The Company defers the costs for these inspections as they are incurred and amortizes them on a straight-line basis over the respective licensing period, which ranges from 2.5 years to 5 years. Costs include actual costs incurred at the yard, cost of fuel consumed, and the cost of hiring riding crews to effect repairs. At March 31, 2005 and December 31, 2004, all deferred charges were being amortized over 2.5 years. The unamortized portion of special survey and dry-docking costs for vessels that are sold are written off to income when the vessel is sold. |
| |
| (m) | Debt Discount: Fees paid to lenders for obtaining new loans or refinancing existing loans are capitalized and recorded as a contra to debt. Debt discount is amortized to interest expense over the term of the respective loan using the effective interest rate method. |
| |
| (n) | Pension and Retirement Benefit Obligations: Certain of the Company's employees are covered by state-sponsored pension funds for which the Company is required to contribute a portion of the monthly salary of these employees to the fund. Upon retirement of these employees, the state-sponsored pension funds are responsible for paying the employees retirement benefits and accordingly the Company has no obligation for these benefits. The cost recognized as expense associated with the Company's contributions was $91 and $23 for the periods ended March 31, 2005 and 2004, respectively. |
| |
| (o) | Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, and trade accounts receivable. The Company places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions. Credit risk with respect to trade accounts receivable is generally diversified due to the large number of entities comprising the Company's charterer base and their dispersion across many geographic areas. The Company does not obtain rights to collateral to reduce its credit risk. |
F-31
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
| |
| (p) | Income Taxes: The Company is not liable for the payment of any income tax on its income. Instead, a tax is levied based on the tonnage of the vessels, which is included in operating expenses. |
| |
| (q) | Net Income Per Share: Basic net income per share is computed by dividing the net income by the weighted average number of common shares outstanding during the year. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock result in the issuance of such stock. The Company has no outstanding securities or other similar contracts which would dilute net income per share. |
| |
| (r) | Recent Accounting Pronouncements: In December 2003, the FASB issued Interpretation No. 46R, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (the "Interpretation"), which revised Interpretation No. 46, issued in January 2003. The Interpretation 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. This Interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company's exposure (variable interest) to the economic risks and potential rewards from the variable interest entity's 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 entity's assets and liabilities. Variable interests may arise from financial instruments, service contracts, and other arrangements. If an enterprise holds a majority of the variable interests of an entity, the enterprise would be considered the primary beneficiary. The primary beneficiary would be required to include assets, liabilities, and the results of operations of the variable interest entity in the financial statements of the primary beneficiary. In 2004, the Company was required to adopt the provisions of FIN 46R for entities created prior to February 2003. For entities created after January 2003, the Company adopted FIN 46R in 2003. The adoption of FIN 46R in 2003 for entities created after January 2003 and in 2004 for entities created prior to January 2003, did not have any impact on the Company's consolidated financial position, results of operations or cash flows. |
| |
| (s) | Segment Reporting: The Company reports financial information and evaluates its operations by charter revenues and not by the length of ship employment for its customers, i.e. spot or time charters. The Company does not use discrete financial information to evaluate the operating results for each such type of charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability or other financial information for these charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus the Company has determined that it operates under one reportable segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable. |
| |
| (t) | Stock Based Compensation: The Company grants stock options for a fixed number of shares to employees with an exercise price fixed in U.S dollars. The Company accounts for stock option grants in accordance with SFAS No. 123 (R) "Share-Based Payments", which requires all share-based payments to employees including grants of employees stock options, to be recognized as compensation expense based on their fair values. As of March 31, 2005, no options have been awarded to employees. |
F-32
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
3. Transactions with Related Parties
Transactions with related parties consisted of the following:
| | | | | | | | | | |
| | | For the three-month periods
ended March 31, |
| | | 2005 | | 2004 |
| Voyage revenues: | |
| Express Sea Transport Corp. (a) | | | 19 | | | | 1,940 | |
| Voyage expenses: | |
| Express Energy Inc. (h) | | | 1,174 | | | | 2,970 | |
| Curzon Maritime Limited (c) | | | 30 | | | | 189 | |
| Curzon Shipbrokers Corporation (d) | | | 573 | | | | 308 | |
| | | | 1,777 | | | | 3,467 | |
| Vessel Operating expenses: | |
| Express Energy Inc. (h) | | | — | | | | 457 | |
| Management Fees: | |
| Barclay Shipping Limited (b) | | | 54 | | | | 756 | |
| General and administrative expenses: | |
| Forest World S.A.(e) | | | 3 | | | | 3 | |
| Vanimar Inc. (f) | | | 2 | | | | 1 | |
| Skyline Holdings Corp. (f) | | | 5 | | | | 4 | |
| Arch Finance Inc. (g) | | | 1 | | | | — | |
| Dimension International S.A. (g) | | | 1 | | | | — | |
| Total Operating expenses – related parties | | | 66 | | | | 1,221 | |
|
| | | | | | | | | | |
| | | At March 31,
2005 | | At December 31,
2004 |
| Due from related parties | |
| Express Sea Transport Corporation (a) | | | 205 | | | | 475 | |
| | | | 205 | | | | 475 | |
| Due to related parties | |
| Barclay Shipping Limited (b) | | | 8,908 | | | | 8,908 | |
| Curzon Shipbrokers Corporation (d) | | | 549 | | | | 11 | |
| Curzon Maritime Limited (c) | | | 30 | | | | — | |
| Express Energy Inc. (h) | | | — | | | | 1,072 | |
| Forest World S.A. (e) | | | 20 | | | | 18 | |
| Skyline Holdings Corp. (f) | | | 38 | | | | 32 | |
| Vanimar Inc (f) | | | 11 | | | | 10 | |
| Arch Finance Inc. (g) | | | 1 | | | | — | |
| Dimension International S.A.(g) | | | 1 | | | | — | |
| | | | 9,558 | | | | 10,051 | |
|
The Company together with the related companies mentioned below are under the common control of the Marinakis Family. Details of the related companies are listed below as follows:
| |
| (a) | Express Sea Transport Corporation ("ESTC"): ESTC is a company incorporated in Panama, with a branch office in Greece, under law 89/1967. ESTC is involved in the business of chartering in |
F-33
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
| |
| | and chartering out primarily dry bulk carrier vessels on a voyage or time basis. From time to time the Company charters its vessels to ESTC under short-term time charter arrangements. The Company has recorded charter revenues from ESTC of $19 and $1,940 for the three-month periods ended March 31, 2005 and 2004, respectively. |
| |
| (b) | Barclay Shipping Limited ("Barclay"): Certain of the ship-owning companies included in the consolidated financial statements have a management agreement with Barclay, a Panamanian corporation, to provide operating, technical and chartering ship management services for a monthly management fee of $18 per vessel. Barclay has a branch office registered in Greece under the provisions of law 89/1967. Additionally, Barclay handled the cash management of certain of the vessels under its management. Under the terms of the management agreement, management fees for operating the vessels for the three-month periods ended March 31, 2005 and 2004 amounted to $54 and $756, respectively. As of January 1, 2005, the commercial and technical management of all of the vessels managed by Barclay, with the exception of one vessel, was transferred to Capital Ship Management Corp., a wholly owned subsidiary of the Company. |
| |
| (c) | Curzon Maritime Limited ("CML"): CML is registered in the United Kingdom. Its main activity is to act as a broker in arranging charters for dry cargo vessels for which CML charges a brokerage commission of 1.25% on freight, hire and demurrage of each such charter. Total commission expenses incurred by the Company under this arrangement amounted to $30 and $189, for the three-month periods ended March 31, 2005 and 2004, respectively. |
| |
| (d) | Curzon Shipbrokers Corporation ("CSC"): CSC is registered in Greece. Its main activity is to act as a broker in arranging charters for wet and dry cargo vessels for which CSC charges a brokerage commission of 1.25% on freight, hire and demurrage of each such charter. Total commission expenses incurred by the Company under this arrangement amounted to $573, and $308, for the three-month periods ended March 31, 2005 and 2004, respectively. |
| |
| (e) | Through its subsidiary, Capital Ship Management Corp., the Company has entered into a lease agreement with Forest World S.A., for the rental by the Manager of a 311 square meters warehouse, for the monthly fee of $0.8 per month. The contract expires on December 31, 2015. |
| |
| (f) | Capital Ship Management Corp. has entered into two separate lease agreements with Vanimar Inc. and Skyline Holding Corp., for the rental by the Manager of certain office premises. The combined monthly fee under these leases is $1.9 per month. The contracts will expire on December 1, 2008 and December 31, 2015 respectively. |
| |
| (g) | Capital Ship Management Corp. has entered into two separate lease agreements dated March 1, 2005, with Arch Finance Inc. and Dimension International S.A., for the rental by the Manager of certain office premises. The combined monthly fee under these leases is $1.7 per month. The contracts will expire on March 1, 2017. |
| |
| (h) | Express Energy Inc. ("EEI"): EEI is registered in Greece and its main activity is to act as the Company's broker for the supply of bunkers and lubricants for the Company's vessels. Total supplies provided to the Company through the brokering activity of EEI amounted to $nil and $4,010 for the three-month periods ended March 31, 2005 and 2004, respectively, and, $1,174 and $3,427 was expensed in the three month periods ended March 31, 2005 and 2004 respectively, and are included in voyage expenses and operating expenses. As of January 1, 2005, the Company no longer enters into any new activity with EEI. |
F-34
CAPITAL MARITIME & TRADING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
4. Fixed Assets, net
The major classes of fixed assets are the following at:
| | | | | | | | | | |
| | | March 31,
2005 | | December 31,
2004 |
| Cost : | |
| Vessels | | | 401,692 | | | | 323,278 | |
| Advances for acquisition of new-buildings | | | 65,505 | | | | 50,377 | |
| Advances for acquisition of vessels | | | 3,217 | | | | 3,300 | |
| Other fixed assets | | | 577 | | | | 411 | |
| | | | 470,991 | | | | 377,366 | |
| Accumulated depreciation | | | (31,214 | ) | | | (24,788 | ) |
| Fixed Assets, net | | | 439,777 | | | | 352,578 | |
|
The Company's vessels, having total net book value of $359,156 at March 31, 2005, have been provided as collateral to secure bank loans.
During the three-month period ended March 31, 2005, the Company purchased two vessels with associated time charter agreements, at a purchase price of $69,000. The values ascribed to the assumed time charters at the dates of acquisition amounted to $11,470 and have been reflected in the cost of vessels and deferred revenue.
In addition during the three month period ended March 31, 2005, as part of implementing its strategy to modernize and expand its fleet of vessels, the Company purchased one newbuilding at a purchase price of $10,460, and disposed of two vessels for total consideration of $23,430. The total net book value for the sold vessels, including unamortized deferred charges, amounted to $12,602.
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data)
5. Long-term Debt
Long-term debt consists of the following at March 31, 2005 and December 31, 2004:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | March 31, 2005 | | December 31, 2004 |
| | | Bank loans | | Vessel | | Amount | | Rate % | | Amount | | Rate % |
| a. | | Issued July 12, 2002, maturing
July 12, 2007 | | M/T Leader M | | $ | 2,781 | | | | 3.71 | % | | $ | 2,949 | | | | 3.71 | % |
| b. | | Issued December 11, 2002, maturing May 29,2006 | | M/V Napoleon
and M/T Fighter | | | 2,016 | | | | 4.27 | % | | | 2,161 | | | | 3.78 | % |
| c. | | Issued October 18, 2002, maturing October 18, 2005 | | M/V Giorgos | | | 1,999 | | | | 3.58 | % | | | 1,997 | | | | 3.58 | % |
| d. | | Issued November 4, 2002, maturing November 4, 2005 | | M/V Megas Alexandros | | | 1,544 | | | | 3.99 | % | | | 1,542 | | | | 3.33 | % |
| e. | | Issued January 23, 2003, maturing January 23, 2007 | | M/T Laertis | | | 1,990 | | | | 4.42 | % | | | 2,113 | | | | 3.42 | % |
| f. | | Issued July 28, 2003 and August 22, 2003, maturing July 28, 2007 (M/T Aktor, M/T Alexandros, M/T Aristotelis, M/T Achilleas and M/T Agamemnon) and August 22, 2013 (M/T Miltiadis M) | | M/T Aktor and
M/T Alexandros
and M/T Aristotelis
and M/T Achilleas
and M/T Agamemnon
and M/T Miltiadis M | | | 40,314 | | | | 4.33 | % | | | 43,647 | | | | 2.77 | % |
| g. | | Issued July 22, 2003, maturing
July 22, 2009 | | M/T Amor and
M/T Athlos | | | 6,351 | | | | 4.42 | % | | | 6,619 | | | | 3.42 | % |
| h. | | Issued December 17, 2003, maturing December 17, 2009 | | M/V Apollonas | | | — | | | | — | | | | 4,672 | | | | 3.60 | % |
| i. | | Issued March 22, 2004, maturing March 22, 2006 | | M/T Ayrton | | | 2,475 | | | | 4.35 | % | | | 2,717 | | | | 3.58 | % |
| j. | | Issued February 10, 2004, maturing February 10, 2006 | | M/T Aias | | | 1,386 | | | | 4.49 | % | | | 1,682 | | | | 3.44 | % |
| k. | | Issued March 2, 2004, maturing March 2, 2008 | | M/T Aristos II | | | 3,570 | | | | 3.80 | % | | | 4,017 | | | | 3.80 | % |
| l. | | Issued October 18, 2004, maturing October 18, 2014 | | M/V Miltiadis Jr II | | | 17,428 | | | | 4.06 | % | | | 17,426 | | | | 3.25 | % |
| m. | | Issued November 2, 2004, maturing Novermber 2, 2014 | | M/V Apostolos II | | | 17,429 | | | | 3.50 | % | | | 17,427 | | | | 3.50 | % |
| n. | | Issued October 4, 2004, maturing October 4, 2014 | | M/V Miltiadis II | | | 21,945 | | | | 3.91 | % | | | 21,943 | | | | 3.16 | % |
| o. | | Issued November 9, 2004, maturing November 9, 2006 | | M/T Mon Ami | | | 3,779 | | | | 4.27 | % | | | 3,776 | | | | 4.27 | % |
| p. | | Issued November 5 ,2004, maturing November 3, 2008 | | M/T Archimides | | | 10,454 | | | | 4.11 | % | | | 10,451 | | | | 4.11 | % |
| q. | | Issued November 12 ,2004, maturing November 12, 2008 | | M/T Archon | | | 9,511 | | | | 3.97 | % | | | 9,959 | | | | 3.77 | % |
| r. | | Issued November 30, 2004, maturing November 30, 2012 | | M/T Vancouver Spirit | | | 27,905 | | | | 3.97 | % | | | 27,902 | | | | 3.97 | % |
| s. | | Issued December 7, 2004, maturing December 7, 2012 | | M/T Victoria Spirit | | | 27,905 | | | | 3.98 | % | | | 27,902 | | | | 3.98 | % |
|
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data) (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | March 31, 2005 | | December 31, 2004 |
| | | Bank loans | | Vessel | | Amount | | Rate % | | Amount | | Rate % |
| t. | | Issued December 21 ,2004, maturing December 21, 2006 | | M/T Amadeus | | | — | | | | — | | | | 3,225 | | | | 4.07 | % |
| u. | | Issued December 21 ,2004, maturing December 21, 2006 | | M/T Asterix I | | | 3,228 | | | | 4.60 | % | | | 3,225 | | | | 4.07 | % |
| v. | | Issued January 20 ,2005, maturing January 20, 2007 | | M/T Active | | | 4,174 | | | | 4.40 | % | | | (5 | ) | | | — | |
| w. | | Issued March 4 ,2005, maturing March 4, 2015 | | M/T Attikos | | | 9,975 | | | | 4.33 | % | | | — | | | | — | |
| x. | | Issued March 7 ,2005, maturing March 7, 2013 | | M/V Alterego | | | 25,915 | | | | 4.38 | % | | | — | | | | — | |
| y. | | Issued March 2 ,2005, maturing March 2, 2015 | | M/V Ayrton II | | | 24,702 | | | | 4.29 | % | | | — | | | | — | |
| | | Total | | | | $ | 268,776 | | | | | | | $ | 217,347 | | |
| | | Less: Current portion | | | | | 58,043 | | | | | | | | 53,244 | | |
| | | Long-term portion | | | | $ | 210,733 | | | | | | | $ | 164,103 | | |
|
All of the above bank loans bear interest at LIBOR plus a margin payable quarterly or semi-annually. Each bank loan is secured by a first preferred mortgage on the respective vessel or vessels and a general assignment of the earnings, insurances and requisition compensation of the respective vessel or vessels. Certain loans also require additional security, including: cash collateral; interest bearing loan anticipation account with the bank; corporate guarantee of the management company; letter of undertaking of the management company; mortgage insurance interest; or personal guarantee. The Company's weighted average interest rate for the three-month periods ended March 31, 2005, and 2004 was 4.13%, and 2.57%, respectively, as at period end.
In accordance with the covenants in certain of these loan agreements, the Company's restricted cash on deposit with the applicable lending banks as of March 31, 2005 and December 31, 2004 in the aggregate amounted to $8,798 and $4,577, respectively. The loan agreements contain other customary ship finance covenants, including restrictions as to: changes in management and ownership of the mortgaged vessels, the incurrence of additional indebtedness, the mortgaging of vessels and the payment of dividends without the applicable bank's prior consent as well as minimum requirements as to the applicable vessel's or vessels' market value and insured value in relation to the outstanding balance of the applicable loan.
The required annual loan principal payments per bank loan to be made subsequent to March 31, 2005 are as follows:
| | | | | | |
| March 31, | | |
| 2006 | | $ | 58,043 | |
| 2007 | | | 49,511 | |
| 2008 | | | 34,260 | |
| 2009 | | | 22,690 | |
| 2010 | | | 15,770 | |
| Thereafter | | | 89,535 | |
| Total | | $ | 269,809 | |
| Less debt discount | | | 1,033 | |
| | | $ | 268,776 | |
|
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data) (continued)
6. Net income per share and pro forma net earnings per share
Basic net income per share "EPS" are calculated on the basis of the weighted average number of shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares. The weighted average number of common shares outstanding reflects the issuance of shares for the Contributed Companies in the reorganization as if they had been issued at the beginning of the earliest period presented.
The Company has declared dividends of $40,700 for the three month period ended March 31, 2005, which were given retroactive effect in the Company's financial statements for the year ended December 31, 2004. Furthermore, the Company has also entered into an agreement on June 6, 2005 to purchase the commission payments payable to Barclay as a dividend of $8,908, which was also given retroactive effect in the Company's financial statements for the year ended December 31, 2004.
In addition, as the total amount $207,740 of the dividends declared in the twelve-months ended March 31, 2005, exceeded net income for the twelve-month period ended March 31, 2005, pro forma net income per common share are presented in the accompanying consolidated statements of income for the three-months ended March 31, 2005, giving effect to the additional number of shares that would be required to be issued at an assumed initial public offering price of $15.00 per share (the mid point of the expected range of $14.00 to $16.00 per share) to pay the amount of dividends that exceeds net income for the twelve-month period ended March 31, 2005.
The calculations of the pro forma net income per common share discussed above are as follows:
| | | | | | |
| Calculation of number of additional shares to be issued: | | | | |
| Net income for the year ended December 31, 2004 | | $ | 146,235 | |
| Less net income for the three-month period ended March 31, 2004 | | | (23,885 | ) |
| Plus net income for the three-month period ended March 31, 2005 | | | 50,802 | |
| Net income for the twelve-month period ended March 31, 2005 | | | 173,152 | |
| Amount of dividends for twelve-months ended | | | (207,740 | ) |
| Excess of dividends over earnings | | $ | (34,588 | ) |
| Number of shares required to be issued at $15.00 per share to pay excess of dividends over earnings | | | 2,305,867 | |
|
| | | | | | |
| | | Three-months
ended March 31,
2005 |
| Calculation of pro forma net income per common share: | |
| Net income | | $ | 50,802 | |
| Number of shares required to be issued at $15.00 per share to pay excess of dividends over earnings | | | 2,305,867 | |
| Weighted average common shares outstanding, basic and diluted — historical | | | 46,330,000 | |
| Weighted average common shares outstanding, basic and diluted — for pro forma calculation | | | 48,635,867 | |
| Pro forma income per common share, basic and diluted | | $ | 1.04 | |
|
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data) (continued)
7. Voyage and Vessel Operating Expenses
The amounts are analyzed as follows:
| | | | | | | | | | |
| | | For the three-month periods
ended March 31, |
| | | 2005 | | 2004 |
| Voyage expenses | | | 11,637 | | | | 3,567 | |
| Voyage expenses – related parties (Note 2) | | | 1,777 | | | | 3,467 | |
| | | | 13,414 | | | | 7,034 | |
| Voyage expenses consist of: | |
| Port charges | | | 5,673 | | | | 2,110 | |
| Bunkers | | | 4,392 | | | | 2,970 | |
| Commissions | | | 3,053 | | | | 1,754 | |
| Other | | | 296 | | | | 200 | |
| Total | | | 13,414 | | | | 7,034 | |
|
| | | | | | | | | | |
| | | 2005 | | 2004 |
| Vessel operating expenses | | | 10,841 | | | | 7,480 | |
| Vessel operating expenses — related parties (Note 2) | | | — | | | | 457 | |
| | | | 10,841 | | | | 7,937 | |
| Vessel operating expenses consist of: | |
| Crew costs and related costs | | | 5,231 | | | | 3,702 | |
| Insurance | | | 1,461 | | | | 1,339 | |
| Spares, repair, maintenance and other | | | 2,322 | | | | 1,720 | |
| Stores & lubricants | | | 1,629 | | | | 1,176 | |
| Management fees – third party | | | 198 | | | | — | |
| Total | | | 10,841 | | | | 7,937 | |
|
8. Contingencies and Commitments
Contingencies:
Various claims, suits and complaints, including those involving government regulations, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, environmental claims, agents, insurers and from claims with suppliers relating to the operations of the Company's vessels. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which provision should be established in the accompanying consolidated financial statements other than those disclosed below:
| |
| (a) | The Company's vessel M/V Miltiadis Junior, is involved in a dispute with a time charterer under an agreement dated September 5, 2003. The total damages claimed by the time charterer is approximately $1,800. The first of the two claims relates to delays in the voyage and subsequent losses allegedly suffered by the time charterer as a consequence of repairs to the vessel's boiler tubes during the term of the charter. The second claim relates to a dispute regarding the terms of an option to extend the time charter. In connection with these claims, the time charterer also lodged a caveat/claim against the vessel with the Maltese Ship's Registry to prevent it from being sold. On July 23, 2004, the Company sold the vessel to a third party. As a result of the claim |
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| | made with the Maltese Ship Registry, the Company provided security in the form of a deposit of $2,500 in an escrow account in order to release the vessel to the third party purchaser. Arbitration proceedings in relation to the status of the security deposited in the escrow account have commenced and are in process in London, UK. Management believes that the likelihood of a loss to the Company is greater than remote but not probable and, as such, the Company has not recorded any provision in the Company's accounts at December 31, 2004, for this claim. In the event a loss is incurred, management does not believe the amount of the loss can be reasonably estimated at this time. |
| |
| (b) | The Company entered into a memorandum of agreement in May 2004, ("MOA") for the sale of the M/V AKTOR to Brotojoyo Maritime Pte Ltd ("Buyer"). On August 31, 2004, although the vessel had arrived at the contracted delivery location, the Company terminated the MOA on grounds that it believed the Buyer had repudiated and renunciated its contractual obligations. The Buyer has asserted that the termination of the MOA by the Company was wrongful and has made the following claims: (i) loss and damages for loss of profits in relation to the period of delay from July 16, 2004 to August 31, 2004, (ii) loss and damages in relation to the non-delivery of the vessel and or wrongful termination of the MOA and (iii) various costs, including bank costs and legal costs, expenses, interest, and compound interests. In September 2004, the Buyer took steps to secure its alleged claims and arrested the vessel at Inchon, South Korea. The Courts in Inchon issued two arrest orders during ex-parte proceedings for a total amount of $4,035. The Company provided security by way of cash deposit paid to the Courts of Inchon in the equivalent sum in Korean Won and the vessel was released from both arrests. Presently the case is pending arbitration in London. The Company believes it is not probable a loss will result from this matter. Accordingly, no amounts have been accrued for this claim. In the event a loss is incurred, management does not believe the amount of any such loss can be reasonably estimated at this time. |
Commitments:
| |
| (a) | Vessel Purchase Commitments: The Company has outstanding purchase commitments relating to the construction of 17 new vessels and the acquisition of two vessels, which at
March 31, 2005, in the aggregate amounted to approximately $534,679 and are payable as follows: |
| | | | | | |
| March 31, | | Vessel Purchase
Commitments |
| 2006 | | $ | 142,945 | |
| 2007 | | | 276,416 | |
| 2008 | | | 115,318 | |
| Total | | $ | 534,679 | |
|
9. Subsequent Events
| |
| (a) | Initial Public Offering: In December 2004, the Company commenced preparation for an initial public offering of its common shares to be registered in the United States and listed on the New York Stock Exchange. Following the completion of the initial public offering, it is expected that the Marinakis Family will own directly or indirectly approximately 73.5% of the Company's outstanding common stock and 73.5% of the voting power associated with the Company's voting stock. |
| |
| (b) | Equity Incentive Plan: On June 11, 2005, the Company adopted an equity incentive plan (the "Plan") which will entitle the Company's officers, key employees and directors to receive options |
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three-month periods ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except share and per share data) (continued)
| |
| | to acquire the Company's common stock. A total 1,000,000 shares of common stock will be reserved for issuance under the Plan. The Plan will be administered by the Company's board of directors. Under the terms of the Plan, the Company's board of directors will be able to grant new options exercisable at a price per share to be determined by the Company's board of directors. The options to be issued under the Plan will be exercisable at least 3 years after the closing of the initial public offering discussed above. In addition, any shares received in exercise of the options will not be able to be sold until three years after the closing of the initial public offering discussed above. All options will expire 10 years from the date of grant. The expiry of the plan will be at the discretion of board of directors. |
| |
| (c) | Express Sea Transport Corporation: On June 10, 2005, the Company entered into a Letter of Agreement (the "Agreement") with ESTC, a related party (Note 3), pursuant to which the Company has a one-year option, commencing on the first anniversary of the closing of the initial public offering, to acquire ESTC. The duration of the right to exercise the option may be extended beyond the initial one year period if both parties agree in writing to extend the duration. |
| |
| (d) | Acquisition of Vessels: Subsequent to March 31, 2005, the Company acquired five vessels for a total amount of $64,946. The acquisition cost of these vessels was financed through advances from the Company's stockholders and bank loans as discussed in (e) and (f) below. |
| |
| (e) | New Credit Facility: Subsequent to March 31, 2005, the Company obtained two loans from two banks in order to partially finance the acquisition of four vessels. The long-term loans amounted to $41 million, payable over a period of two to three years. The loans bear interest at LIBOR plus a margin and each loan is secured by a first priority mortgage over the applicable vessel or vessels. |
| |
| | Furthermore, the Company obtained four commitment letters from seven banks in order to partially finance the acquisition of new buildings. The long-term loans amounted to $451.7 million, payable over a period ranging from 10 to 11 years. The long-term loans are expected to bear interest at LIBOR plus a margin and each loan will be secured by a first priority mortgage over the applicable vessel or vessels. |
| |
| | Furthermore, the Company obtained a commitment letter from one bank for $10.0 million in order to partially finance the acquisition of one new building delivered in June 2005. |
| |
| (f) | Dividends Paid: Subsequent to March 31, 2005, the Company paid dividends of $91.9 million to its stockholders. |
| |
| (g) | Advances from stockholders: Subsequent to March 31, 2005, the Company obtained advances from the stockholders amounting to $59.4 million. Furthermore the Company obtained a credit line of approximately $60 million which was used to repay these advances. |
| |
| (h) | Disposal of Vessels: Subsequent to March 31, 2005, the Company disposed of one vessel in continuation of its strategy to modernize and expand its fleet of vessels for a total consideration of $4,774. The total net book value, including unamortized deferred charges, amounted to $2,307 as at the respective date of sale. As a result of this sale, the Company repaid an existing loan amounting to $2,500 and used the remaining processes to finance acquisitions of other vessels. |
F-41
Schedule I – Condensed Financial Information of Capital Maritime & Trading Corp.
BALANCE SHEETS
DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data)
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2004 | | 2003 | | 2002 |
| ASSETS | |
| CURRENT ASSETS: | |
| Investments | | | 191,452 | | | | 52,649 | | | | 23,424 | |
| Total assets | | | 191,452 | | | | 52,649 | | | | 23,424 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| CURRENT LIABILITIES: | |
| Dividends payable | | | 148,136 | | | | — | | | | — | |
| STOCKHOLDERS' EQUITY: | |
| Common stock $0.001 par value; 200,000,000 authorized, 46,330,000 issued, and outstanding | | | 46 | | | | 46 | | | | 46 | |
Preferred stock, $0.001 par value; 5,000,000
authorized, none issued | | | — | | | | — | | | | — | |
| Additional paid-in capital | | | 93,966 | | | | 41,794 | | | | 22,749 | |
| Retained earnings (accumulated deficit) | | | (50,696 | ) | | | 10,809 | | | | 629 | |
| Total stockholders' equity | | | 43,316 | | | | 52,649 | | | | 23,424 | |
| Total liabilities and stockholders' equity | | | 191,452 | | | | 52,649 | | | | 23,424 | |
|
F-42
Schedule I – Condensed Financial Information of Capital Maritime & Trading Corp.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. Dollars, except share and per share data)
| | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2004 | | 2003 | | 2002 |
| REVENUES: | |
| Equity in net income of subsidiaries | | | 146,235 | | | | 26,140 | | | | 1,681 | |
| Net Income | | | 146,235 | | | | 26,140 | | | | 1,681 | |
| Net income per common share, basic and diluted | | $ | 3.16 | | | $ | 0.56 | | | $ | 0.04 | |
| Weighted average number of shares, basic and diluted | | | 46,330,000 | | | | 46,330,000 | | | | 46,330,000 | |
Pro forma (unaudited) net income per share,
basic and diluted | | $ | 2.90 | | |
Pro forma (unaudited) weighted average
number of shares, basic and diluted | | | 50,430,333 | | |
|
F-43
Schedule I – Condensed Financial Information of Capital Maritime & Trading Corp.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock | |
| | | Comprehensive
Income | | Number of
Shares | | Par
Value | | Additional
Paid in
Capital | | (Accumulated
Deficit)/Retained
Earnings | | Total
Stockholders'
Equity |
| Balance, January 1, 2002 | | | | | | | 46,330,000 | | | | 46 | | | | 16,239 | | | | 7,277 | | | | 23,562 | |
| Net Income | | | 1,681 | | | | — | | | | — | | | | — | | | | 1,681 | | | | 1,681 | |
| Capital Contributions | | | — | | | | — | | | | — | | | | 6,510 | | | | — | | | | 6,510 | |
| Dividend Distributions | | | — | | | | — | | | | — | | | | — | | | | (8,329 | ) | | | (8,329 | ) |
| Comprehensive Income | | | 1,681 | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2002 | | | | | | | 46,330,000 | | | | 46 | | | | 22,749 | | | | 629 | | | | 23,424 | |
| Net income | | | 26,140 | | | | — | | | | — | | | | — | | | | 26,140 | | | | 26,140 | |
| Capital Contributions | | | — | | | | — | | | | — | | | | 19,045 | | | | — | | | | 19,045 | |
| Dividend Distributions | | | — | | | | — | | | | — | | | | — | | | | (15,960 | ) | | | (15,960 | ) |
| Comprehensive income | | | 26,140 | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2003 | | | | | | | 46,330,000 | | | | 46 | | | | 41,794 | | | | 10,809 | | | | 52,649 | |
| Net income | | | 146,235 | | | | — | | | | — | | | | — | | | | 146,235 | | | | 146,235 | |
| Capital Contributions | | | — | | | | — | | | | — | | | | 52,172 | | | | — | | | | 52,172 | |
| Dividend Distributions | | | — | | | | — | | | | — | | | | — | | | | (207,740 | ) | | | (207,740 | ) |
| Comprehensive income | | | 146,235 | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2004 | | | | | | | 46,330,000 | | | | 46 | | | | 93,966 | | | | (50,696 | ) | | | 43,316 | |
|
F-44
Schedule I – Condensed Financial Information of Capital Maritime & Trading Corp.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 and 2002
(in thousands of U.S. dollars, except share and per share data)
| | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2004 | | 2003 | | 2002 |
| Cash Flows from Operating Activities: | | | | | | | | | | | | |
| Net Income | | | 146,235 | | | | 26,140 | | | | 1,681 | |
Adjustment to reconcile net income to net cash provided by operating activities:
Undistributed earnings of affiliates | | | (95,539 | ) | | | (10,180 | ) | | | 6,648 | |
| Net Cash Provided by Operating Activities | | | 50,696 | | | | 15,960 | | | | 8,329 | |
| Cash Flows from Investing Activities: | |
| Investment in Subsidiaries | | | (51,315 | ) | | | (18,221 | ) | | | (5,723 | ) |
| Net Cash Used in Investing Activities | | | (51,315 | ) | | | (18,221 | ) | | | (5,723 | ) |
| Cash Flows from Financing Activities: | |
| Capital contributions | | | 51,315 | | | | 18,221 | | | | 5,723 | |
| Dividends paid | | | (50,696 | ) | | | (15,960 | ) | | | (8,329 | ) |
| Net Cash Provided by/ (Used in) Financing Activities | | | 619 | | | | 2,261 | | | | (2,606 | ) |
| Net increase in cash and cash equivalents | | | — | | | | — | | | | — | |
| Cash and cash equivalents at beginning of year | | | — | | | | — | | | | — | |
| Cash and cash equivalents at end of year | | | — | | | | — | | | | — | |
|
In the Capital Maritime & Trading Corp. ("Parent Company") only financial statements, the Parent Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries. The Parent Company for the years ended December 31, 2004, 2003 and 2002, received cash dividends of $50,696, $15,960 and $8,329, respectively. The Parent Company only financial statements should be read in conjunction with the Parent Company's consolidated financial statements.
F-45
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
| | | | | | |
| | | Page |
| Enforceability of Civil Liabilities | | | i | |
| Industry Data | | | i | |
| Presentation Of Certain Information | | | i | |
| Prospectus Summary | | | 1 | |
| Risk Factors | | | 10 | |
| Forward-Looking Statements | | | 30 | |
| Use of Proceeds | | | 31 | |
| Dividend Policy | | | 32 | |
| Capitalization | | | 33 | |
| Dilution | | | 34 | |
| Selected Consolidated Financial and Other Data | | | 35 | |
| Management's Discussion and Analysis of Financial Condition and Results of Operations | | | 38 | |
| Industry | | | 65 | |
| Business | | | 81 | |
| Management | | | 111 | |
| Principal Stockholders | | | 115 | |
| Related Party Transactions | | | 116 | |
| Shares Eligible for Future Sale | | | 119 | |
| Description of Capital Stock | | | 120 | |
| Certain Marshall Islands Company Considerations | | | 126 | |
| Tax Considerations | | | 129 | |
| Plan of Distribution | | | 137 | |
| Other Expenses of Issuance and Distribution | | | 141 | |
| Legal Matters | | | 142 | |
| Experts | | | 142 | |
| Where You Can Find Additional Information | | | 142 | |
| Glossary of Technical Terms | | | 143 | |
| Index to Consolidated Financial Statements | | | F-1 | |
|
Through and including , 2005 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
16,670,000 Shares
Capital Maritime &
Trading Corp.
Common Stock
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Jefferies & Company, Inc.
HSBC
NBGI Securities Inc.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Directors and Officers.
The By-laws of the Registrant provide that every director and officer of the Registrant shall be indemnified out of the funds of the Registrant, to the fullest extent permitted by Marshall Islands law, against:
| |
| (1) | all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such director or officer in connection with any civil or criminal proceeding to which they are made party by reason of the fact they are or were a director or officer of the corporation; and |
| |
| (2) | all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such director or officer in connection with any civil or criminal proceeding initiated by such director or officer so long as the initiation of such proceeding was authorized by the board of directors. |
Section 60 of the Associations Law of the Republic of the Marshall Islands provides as follows:
Indemnification of directors and officers.
| |
| (1) | Actions not by or in right of the corporation. A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of no contest, or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonable believed to be in or not opposed to the bests interests of the corporation, and, with respect to any criminal action or proceeding, 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 the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. |
II-1
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| (3) | When director or officer successful. To the extent that 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. |
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| (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. |
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| (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. |
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| (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. |
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| (7) | Insurance. A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer against any liability asserted against him and incurred by him in such capacity whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. |
Item 7. Recent Sales of Unregistered Securities.
Not applicable.
Item 8. Exhibits and Financial Statement Schedules.
| | | | | | |
Exhibit
Number | | Description |
| 1.1 | | Form of Underwriting Agreement* |
| 2.1 | | Plan of reorganization* |
| 3.1 | | Amended and Restated Articles of Incorporation |
| 3.2 | | Amended and Restated By-laws |
| 4.1 | | Specimen of certificate representing the equity shares* |
| 4.2 | | Stockholders' Rights Agreement* |
| 5.1 | | Opinion of Healy & Baillie, LLP* |
| 10.1 | | Loan Agreement, dated November 30, 2004, between Jet Maritime Corp. and National Bank of Greece S.A. |
| 10.2 | | Loan Agreement, dated November 30, 2004, between Ship Power Marine S.A. and National Bank of Greece S.A. |
|
II-2
| | | | | | |
Exhibit
Number | | Description |
| 10.3 | | Loan Agreement, dated July 24, 2003, between Figaro Shipping Ltd., Magic Star Shipping Co. Ltd., Nuse Shipping Ltd., Vague Shipping Ltd., Zoom Shipping Ltd., Ocean Village Maritime S.A. and National Bank of Greece S.A. |
| 10.4 | | Form of shipbuilding contract for the production of one 47,000 dwt class product/chemical tanker by Hyundai Mipo Dockyard Co. Ltd. |
| 10.5 | | Form of shipbuilding contract for the production of one 37,000 dwt class product/chemical tanker by Hyundai Mipo Dockyard Co. Ltd. |
| 10.6 | | [Reserved] |
| 10.7 | | Form of registration rights agreement * |
| 10.8 | | Form of performance guarantee for shipbuilding contract entered into by Barclay Shipping Limited |
| 10.9 | | Form of management agreement between Barclay Shipping Limited and vessel-owning subsidiary |
| 10.10 | | Letter Agreement, dated June 10, 2005, between Express Sea Transport Corporation and the Registrant |
| 10.11 | | Commission Receivables Sale Agreement, dated as of June 6, 2005, between Barclay Shipping Limited and the Registrant |
| 10.12 | | Letter agreement, dated May 19, 2005, among the Registrant, Aegean Baltic Bank S.A. and HSH Nordbank AG |
| 10.13 | | Letter agreement, dated April 26, 2005, among the Registrant, Capital Ship Management Corp., Bremer Landesbank Kreditanstalk Oldenburg—Girozentrale and Deutsche Schiffsbank AG |
| 10.14 | | Letter agreement, dated May 23, 2005, between the Registrant and Fortis Bank (Nederland) N.V. |
| 10.15 | | Letter agreement, dated May 24, 2005, among the Registrant, HSBC Bank plc and ING Bank NV |
| 10.16 | | Letter agreement, dated May 24, 2005, between Capital Ship Management Corp. and EFG Eurobank Ergasias S.A. |
| 21.1 | | Subsidiaries of the Registrant |
| 23.1 | | Consent of Ernst & Young (Hellas) Certified Auditors Accountants S.A. |
| 23.2 | | Consent of Healy & Baillie, LLP (included in Exhibit 5.1)* |
| 23.3 | | Consent of E.A. Gibson Shipbrokers Ltd. |
| 24.1 | | Powers of Attorney (included in this Part II of the Registration Statement) |
|
| |
| * To be filed by amendment. |
II-3
Item 9. Undertakings.
The undersigned Registrant hereby undertakes:
| |
| (1) | That for purposes of determining any liability under the Securities Act of 1933, as amended (the "Act"), the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. |
| |
| (2) | That for purposes of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| |
| (3) | To provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. |
Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions herein, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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.
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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 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Piraeus, Country of Greece on the 13th day of June, 2005.
| CAPITAL MARITIME & TRADING CORP. |
| By: /s/ Evangelos M. Marinakis |
| Name: Evangelos M. Marinakis
Title: President and Chief Executive Officer |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Evangelos M. Marinakis, Gregory J. Timagenis and Ioannis E. Lazaridis his or her true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on the 13th day of June, 2005 in the capacities and on the dates indicated.
| | | | |
| Signature | | Title | | Date |
|
| /s/ Gregory J. Timagenis | | Chairman of the Board | | June 13, 2005 |
|
| Gregory J. Timagenis |
|
| /s/ Evangelos M. Marinakis | | Director, President and Chief
Executive Officer (Principal
Executive Officer) | | June 13, 2005 |
|
| Evangelos M. Marinakis |
|
| /s/ Ioannis E. Lazaridis | | Director and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer) | | June 13, 2005 |
|
| Ioannis E. Lazaridis |
|
| /s/ Pierre de Demandolx Dedons | | Director | | June 13, 2005 |
|
| Pierre de Demandolx Dedons |
|
| /s/ Stuart R. Maconochie | | Director | | June 13, 2005 |
|
| Stuart R. Maconochie |
|
| /s/ Abel Rasterhoff | | Director | | June 13, 2005 |
|
| Abel Rasterhoff |
|
| /s/ John A. Xylas | | Director | | June 13, 2005 |
|
| John A. Xylas |
|
II-5
SIGNATURE OF AUTHORIZED REPRESENTATIVE OF THE REGISTRANT
Pursuant to the Securities Act of 1933, as amended, the undersigned, a duly authorized representative of Capital Maritime & Trading Corp. in the United States, has signed the Registration Statement in the City of Newark, State of Delaware on the 13th day of June, 2005.
| Puglisi & Associates |
| By: /s/ Donald J. Puglisi |
| Name: Donald J. Puglisi
Title: Managing Director |
II-6
EXHIBIT INDEX
| | | | | | |
| Exhibit Number | | Description |
| | 1.1 | | | Form of Underwriting Agreement* |
| | 2.1 | | | Plan of reorganization* |
| | 3.1 | | | Amended and Restated Articles of Incorporation |
| | 3.2 | | | Amended and Restated By-laws |
| | 4.1 | | | Specimen of certificate representing the equity shares* |
| | 4.2 | | | Stockholders' Rights Agreement* |
| | 5.1 | | | Opinion of Healy & Baillie, LLP* |
| | 10.1 | | | Loan Agreement, dated November 30, 2004, between Jet Maritime Corp. and National Bank of Greece S.A. |
| | 10.2 | | | Loan Agreement, dated November 30, 2004, between Ship Power Marine S.A. and National Bank of Greece S.A. |
| | 10.3 | | | Loan Agreement, dated July 24, 2003, between Figaro Shipping Ltd., Magic Star Shipping Co. Ltd., Nuse Shipping Ltd., Vague Shipping Ltd., Zoom Shipping Ltd., Ocean Village Maritime S.A. and National Bank of Greece S.A. |
| | 10.4 | | | Form of shipbuilding contract for the production of one 47,000 dwt class product/chemical tanker by Hyundai Mipo Dockyard Co. Ltd. |
| | 10.5 | | | Form of shipbuilding contract for the production of one 37,000 dwt class product/chemical tanker by Hyundai Mipo Dockyard Co. Ltd. |
| | 10.6 | | | [Reserved] |
| | 10.7 | | | Form of registration rights agreement * |
| | 10.8 | | | Form of performance guarantee for shipbuilding contract entered into by Barclay Shipping Limited |
| | 10.9 | | | Form of management agreement between Barclay Shipping Limited and vessel-owning subsidiary |
| | 10.10 | | | Letter Agreement dated June 10, 2005, between Express Sea Transport Corporation and the Registrant |
| | 10.11 | | | Commission Receivables Sale Agreement, dated as of June 6, 2005, between Barclay Shipping Limited and the Registrant |
| | 10.12 | | | Letter agreement, dated May 19, 2005, between the Registrant, Aegean Baltic Bank S.A. and HSH Nordbank AG |
| | 10.13 | | | Letter agreement, dated April 26, 2005, among the Registrant, Capital Ship Management Corp., Bremer Landesbank Kreditanstalk Oldenburg—Girozentrale and Deutsche Schiffsbank AG |
| | 10.14 | | | Letter agreement, dated May 23, 2005, between the Registrant and Fortis Bank (Nederland) N.V. |
| | 10.15 | | | Letter agreement, dated May 24, 2005, among the Registrant, HSBC Bank plc and ING Bank NV |
| | 10.16 | | | Letter agreement, dated May 24, 2005, between Capital Ship Management Corp. and EFG Eurobank Ergasias S.A. |
| | 21.1 | | | Subsidiaries of the Registrant |
| | 23.1 | | | Consent of Ernst & Young (Hellas) Certified Auditors Accountants S.A. |
| | 23.2 | | | Consent of Healy & Baillie, LLP (included in Exhibit 5.1)* |
| | 23.3 | | | Consent of E.A. Gibson Shipbrokers Ltd. |
| | 24.1 | | | Powers of Attorney (included in this Part II of the Registration Statement) |
|
* To be filed by amendment.
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