e20vfza
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 20-F/A
Amendment No. 1
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o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES
EXCHANGE ACT OF 1934
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OR
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
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For the fiscal year ended December 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
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For the transition period
from to
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OR
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o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
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Date of
event requiring this shell company report
Commission file number
001-32520
NEWLEAD HOLDINGS LTD.
(Exact name of Registrant as
specified in its charter)
(Translation of Registrants
name into English)
Bermuda
(Jurisdiction of incorporation or
organization)
83 Akti Miaouli & Flessa Str., Piraeus Greece 185 38
(Address of principal executive
offices)
Mr. Michail S. Zolotas
83 Akti Miaouli & Flessa Str.
Piraeus Greece 185 38
Tel: + 30 213 014 8600, Fax: + 30 213 014 8609
E-mail: mzolotas@newleadholdings.com
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section
12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common shares, $0.01 par value
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NASDAQ Global Market
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Securities
registered or to be registered pursuant to Section 12(g) of
the Act: |
None |
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Securities
for which there is a reporting obligation pursuant to
Section 15(d) of the Act: |
None |
Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close
of the period covered by the annual report:
As of December 31, 2009, there were 76,873,821 of the
registrants common shares outstanding.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No x
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934. Yes o No x
Note-Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 from their obligations under
those Sections.
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated
filer in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer x
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Indicate by check mark which basis of accounting the
registrant has used to prepare the financial statements included
in this filing:
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U.S. GAAP þ
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International Financial Reporting Standards as issued
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Other
o
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by the International Accounting
Standards o
If Other has been checked in response to the
previous question, indicate by check mark which financial
statement item the registrant has elected to follow.
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange
Act). Yes o No x
EXPLANATORY
NOTE
The Company is filing this Amendment No. 1 (this
Amendment) to its Annual Report on
Form 20-
F for the period October 14, 2009 to December 31,
2009, as filed with the Securities and Exchange Commission on
March 18, 2010 (the Original Filing). This
Amendment includes a restatement of (1) our consolidated
balance sheet as of December 31, 2009 and the related
consolidated statement of shareholders equity for the
period October 14, 2009 to December 31, 2009. (Refer
to Note 2 to the consolidated financial statements for
further discussion) (2) certain balance sheet selected
financial data as of December 31, 2009; and (3) our
managements discussion and analysis of financial condition
and results of operations for the period October 14, 2009
to December 31, 2009, contained in Item 5 of this
Annual Report on
Form 20-F/A.
Subsequent to the filing of the Companys Annual Report on
Form 20-F for the period October 14, 2009 to
December 31, 2009, the Company identified that, in
connection with the reporting of the 2009 recapitalization (see
Note 4), the goodwill resulting from the application of
acquisition accounting to the Aries business was recorded
directly in shareholders equity but should have been
recorded as Goodwill in the Companys non-current assets.
The Company has corrected this error in the consolidated balance
sheet and the consolidated statement of shareholders
equity with resulting increases in Goodwill, Total Non-Current
Assets, Total Assets, Additional Paid-in Capital and Total
Shareholders Equity of $86.0 million as of December 31,
2009. As a result, goodwill increased from zero to $86.0
million, total non-current assets increased from
$277.9 million to $363.9 million, total assets
increased from $399.3 million to $485.3 million, additional
paid-in capital increased from $110.3 million to
$196.3 million and total shareholders equity
increased from $72.5 million to $158.5 million. This correction
had no effect on Net loss or Net cash used in operating
activities. In addition, and unconnected to the correction of
the error, certain amounts in the Consolidated Statements of
Cash Flows in the Predecessor period have been reclassified to
conform to the presentation adopted in the Successor period.
Management also has determined that the control deficiency
resulting in the error described above on the 2009
recapitalization accounting, which gave rise to this
restatement, constituted material weaknesses in our internal
control over financial reporting, as of December 31, 2009.
Please read Item 15, Controls and Procedures
for additional discussion.
If the 2010 quarterly information previously released by the
Company was similarly restated, the only impact would be that
the line items for goodwill and shareholders equity would
each be increased by approximately $86 million.
Subsequent to the Original Filing, the Company effected a
1-for-12 reverse split of its common shares effective August 3,
2010. Except as described above and the subsequent events note
(Note 23), this
Form 20-F/A
does not amend or update any other information contained in the
Original Filing.
With respect to the
1-for-12
reverse split event, Additional Paid-in Capital increased, and
Share Capital equally decreased, by an amount of
$0.7 million; due to this reclassification and in
conjunction with the restatement issue described above,
Additional Paid-in Capital as of December 31, 2009 amounted
to $196.3 million.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In this report, we, us, our,
NewLead and the Company all refer to
NewLead Holdings Ltd. and its subsidiaries.
The Company desires to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995 and is including this cautionary statement in connection
therewith. This document and any other written or oral
statements made by the Company or on its behalf may include
forward-looking statements that reflect its current views with
respect to future events and financial performance. This report
includes assumptions, expectations, projections, intentions and
beliefs about future events. These statements are intended as
forward-looking statements. We caution that
assumptions, expectations, projections, intentions and beliefs
about future events may and often do vary from actual results
and the differences can be material. When used in this document,
the words anticipate, estimate,
project, forecast, plan,
potential, may, should and
expect reflect forward-looking statements.
All statements in this document that are not statements of
historical fact are forward-looking statements. Forward-looking
statements include, but are not limited to, such matters as
future operating or financial results; statements about planned,
pending or recent vessel disposals
and/or
acquisitions, business strategy, future dividend payments and
expected capital spending or operating expenses, including
dry-docking and insurance costs; statements about trends in the
product tanker and dry bulk vessel shipping segments, including
charter rates and factors affecting supply and demand;
expectations regarding the availability of vessel acquisitions;
completion of repairs; length of off-hire; availability of
charters and anticipated developments with respect to any
pending litigation.
The forward-looking statements in this report are based upon
various assumptions, many of which are based, in turn, upon
further assumptions, including, without limitation,
managements examination of historical operating trends,
data contained in our records and other data available from
third parties. Although NewLead believes that these assumptions
were reasonable when made, because these assumptions are
inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and
are beyond our control, NewLead cannot assure you that it will
achieve or accomplish these expectations, beliefs or projections
described in the forward-looking statements contained in this
report. Important factors that, in our view, could cause actual
results to differ materially from those discussed in the
forward-looking statements include the strength of world
economies and currencies; general market conditions, including
changes in charter rates and vessel values; failure of a seller
to deliver one or more vessels; failure of a buyer to accept
delivery of a vessel; inability to procure acquisition
financing; default by one or more charterers of our vessels; our
ability to complete documentation of agreements in principle;
changes in demand for oil and oil products; the effect of
changes in OPECs petroleum production levels; worldwide
oil consumption and storage; changes in demand that may affect
attitudes of time charterers; scheduled and unscheduled
dry-docking; additional time spent in completing repairs;
changes in NewLeads voyage and operating expenses,
including bunker prices, dry-docking and insurance costs;
changes in governmental rules and regulations or actions taken
by regulatory authorities; potential liability from pending or
future litigation; domestic and international political
conditions; potential disruption of shipping routes due to
accidents, international hostilities and political events or
acts by terrorists or pirates; material adverse events affecting
NewLead; and other factors discussed in NewLeads filings
with the U.S. Securities and Exchange Commission from time
to time.
3
PART I
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Item 1.
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Identity
of Directors, Senior Management and Advisers
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Not applicable.
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Item 2.
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Offer
Statistics and Expected Timetable
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Not applicable.
Unless the context otherwise requires, as used in this report,
the terms the Company, we,
us and our refer to NewLead Holdings
Ltd. and all of its subsidiaries. We use the term deadweight
tons, or dwt, in describing the size of vessels. Dwt, expressed
in metric tons, each of which is equivalent to 1,000 kilograms,
refers to the maximum weight of cargo and supplies that a vessel
can carry.
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A.
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Selected
Financial Data
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The NewLead historical successor information is derived from the
audited consolidated financial statements of NewLead as of
December 31, 2009 for the period from October 14, 2009
to December 31, 2009. The NewLead historical predecessor
information is derived from the audited consolidated financial
statements as of and for the years ended December 31, 2008,
2007, 2006, 2005, and for the period from January 1, 2009
to October 13, 2009. The information is only a summary and
should be read in conjunction with Item 5. Operating
and Financial Review and Prospects and our audited
consolidated financial statements and the audited financial
statements of our predecessor and notes thereto contained in
this report. During the first half of 2009, we sold one vessel
(Ocean Hope) and during the end of 2009 we exited the container
market. The results of these container vessels, as well as the
related loss on the sale of the Ocean Hope, have been classified
as discontinued operations. During the second half of 2009, the
Company underwent an approximately $400 million
recapitalization in order to reposition itself within the
market. As a result, a new board of directors, as well as new
management, are in place to ensure an efficient implementation
of the new business strategy. The selected consolidated
financial information has been amended to reflect the sale of
these vessels as discontinued operations, and the acquisition of
three dry bulk vessels as part of the recapitalization as well
as the predecessor and successor
presentation for the periods of January 1 to October 13,
2009 and October 14 to December 31, 2009, respectively, due
to a change in control of the business also as a result of the
recapitalization. See Note 4 to the Consolidated Financial
Statements contained in this report.
Subsequent to the filing of the Companys Annual Report on
Form 20-F
for the period from October 14, 2009 to December 31,
2009, the Company identified that, in connection with the
reporting of the 2009 recapitalization (see Note 4), the
goodwill resulting from the application of acquisition
accounting to the Aries business was recorded directly in
shareholders equity but should have been recorded as
Goodwill in the Companys non-current assets. The Company
has corrected this error in the consolidated balance sheet and
the consolidated statement of shareholders equity with
resulting increases in Goodwill, Total Non-Current Assets, Total
Assets, Additional Paid-in Capital and Total Shareholders
Equity of $86.0 million as of December 31, 2009. As a
result, goodwill increased from zero to $86.0 million,
total non-current assets increased from $277.9 million to
$363.9 million, total assets increased from
$399.3 million to $485.3 million, additional paid-in
capital increased from $110.3 million to
$196.3 million and total shareholders equity
increased from $72.5 million to $158.5 million. This
correction had no effect on Net loss or Net cash used in
operating activities. In addition, and unconnected to the
correction of the error, certain amounts in the Consolidated
Statements of Cash Flows in the Predecessor period have been
reclassified to conform to the presentation adopted in the
Successor period.
If the 2010 quarterly information previously released by the
Company was similarly restated, the only impact would be that
the line items for goodwill and shareholders equity would
each be increased by approximately $86 million.
Subsequent to the Original Filing, the Company effected a
1-for-12
reverse split of its common shares effective August 3,
2010. Except as described above and the subsequent events note
(Note 23), this
Form 20-F/A
does not amend or update any other information contained in the
Original Filing.
4
With respect to the
1-for-12
reverse split event, Additional Paid-in Capital increased, and
Share Capital equally decreased, by an amount of
$0.7 million; due to this reclassification and in
conjunction with the restatement issue described above,
Additional Paid-in Capital as of December 31, 2009 amounted
to $196.3 million.
In accordance with standard shipping industry practice, we did
not obtain from the sellers historical operating data for the
vessels that we acquired, as that data was not material to our
decision to purchase the vessels. Accordingly, we have not
included any historical financial data relating to the results
of operations of our vessels for any period before we acquired
them. Please see the discussion in Item 5. Operating
and Financial Review and Prospects Lack of
Historical Operating Data for Vessels Before their
Acquisition.
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Successor
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Predecessor
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October 14
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January 1
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to
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to
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Year Ended
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Year Ended
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Year Ended
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Year Ended
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December 31,
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October 13,
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December 31,
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December 31,
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December 31,
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December 31,
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2009
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2009
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2008
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2007
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2006
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2005
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(Restated)
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(U.S. dollars in thousands except per share data and
fleet data)
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Statement of Operations Data
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Operating revenues
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14,096
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33,564
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56,519
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55,774
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45,973
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30,535
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Vessel operating expenses
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(6,530
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)
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(22,681
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)
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(19,798
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)
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(17,489
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)
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(12,780
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)
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(9,309
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)
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Management fees
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(315
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)
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(900
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)
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(1,404
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)
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(1,243
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)
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(1,110
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)
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(829
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)
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General & administrative expenses
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(12,025
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)
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(8,366
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)
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(7,816
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)
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(5,278
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)
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(4,029
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)
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(1,539
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)
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Depreciation and amortization expenses
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(4,844
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)
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(11,813
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)
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(15,040
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)
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(14,029
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)
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(9,318
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)
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(4,116
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)
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Impairment charge
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(68,042
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)
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Net operating (loss)/income from continuing operations
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(14,659
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)
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(87,581
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)
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5,449
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14,471
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16,157
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14,397
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Interest and finance expense, net
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(23,996
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)
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(10,928
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)
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(15,741
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)
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(16,966
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)
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(13,463
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)
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(8,344
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)
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Other income/(expenses), net
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40
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2
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(11
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)
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(72
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)
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(148
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)
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Net (loss)/income from continuing operations
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(35,865
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)
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(95,448
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)
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(16,573
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)
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(5,936
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)
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1,644
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6,645
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Net (loss)/income
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(37,872
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)
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(125,764
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)
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(39,828
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)
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(8,733
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)
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2,199
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14,771
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(Loss)/earnings per share (basic and diluted) continuing
operations
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(6.42
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)
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(39.84
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)
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(6.94
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)
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(2.50
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)
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0.72
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3.48
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(Loss)/earnings per share (basic and diluted)
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(6.78
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)
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(52.49
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)
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|
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(16.69
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)
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(3.68
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)
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0.96
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7.68
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Cash dividends declared per share
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1.20
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7.56
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10.68
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6.24
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Weighted average number of shares (basic and diluted)
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5,588,937
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2,395,858
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2,386,182
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2,373,238
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2,368,073
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1,926,539
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Balance Sheet Data (at year end)
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Cash and cash equivalents
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106,255
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4,009
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12,444
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|
|
|
11,612
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|
|
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19,248
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Restricted cash
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|
403
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|
|
|
|
|
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8,510
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|
39
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3,242
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|
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|
10
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Total current assets
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121,421
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|
|
|
|
|
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19,741
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|
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20,199
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|
|
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22,430
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|
|
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22,438
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Total assets
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485,321
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317,777
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425,491
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458,040
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377,898
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Total current liabilities
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54,212
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251,489
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311,997
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29,622
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21,356
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Current portion of long-term debt
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14,240
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223,710
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284,800
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Long-term debt
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264,460
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|
|
|
|
|
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|
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|
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|
|
|
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|
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284,800
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|
|
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183,820
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Total liabilities
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|
|
326,809
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|
|
|
|
|
|
|
|
252,261
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|
|
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318,372
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|
|
|
325,452
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|
|
|
222,217
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|
Total shareholders equity
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|
|
158,512
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|
|
|
|
|
|
|
|
65,516
|
|
|
|
107,119
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|
|
|
132,588
|
|
|
|
155,681
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|
Other Financial Data (for year end)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net cash (used in)/provided by operating activities
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|
|
(5,869
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)
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|
|
|
(10,557
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)
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|
|
2,901
|
|
|
|
17,581
|
|
|
|
24,215
|
|
|
|
36,974
|
|
Net cash provided by/(used in) investing activities
|
|
|
|
|
|
|
|
2,216
|
|
|
|
61,083
|
|
|
|
(2,008
|
)
|
|
|
(101,815
|
)
|
|
|
(114,001
|
)
|
Net cash provided by/(used in) financing activities
|
|
|
112,124
|
|
|
|
|
4,332
|
|
|
|
(72,419
|
)
|
|
|
(14,741
|
)
|
|
|
69,964
|
|
|
|
90,941
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
106,255
|
|
|
|
|
(4,009
|
)
|
|
|
(8,435
|
)
|
|
|
832
|
|
|
|
(7,636
|
)
|
|
|
13,914
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
(2,862
|
)
|
|
|
(17,970
|
)
|
|
|
(25,292
|
)
|
|
|
(14,776
|
)
|
Fleet Data (at year end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of product tankers owned
|
|
|
9
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
10
|
|
|
|
8
|
|
Number of container vessels
owned(1)
|
|
|
2
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Number of dry bulk vessels owned
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Considered discontinued operations
for all periods presented.
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 14
|
|
|
|
January 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
|
|
|
|
to
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
October 13,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
(All amounts in thousands of U.S. dollars, unless otherwise
stated)
|
|
NET (LOSS)/INCOME from continuing operations
|
|
$
|
(35,865
|
)
|
|
|
$
|
(95,448
|
)
|
|
$
|
(16,573
|
)
|
|
$
|
(5,936
|
)
|
|
$
|
1,644
|
|
|
$
|
6,645
|
|
Plus Net interest expense/(income)
|
|
|
23,760
|
|
|
|
|
10,919
|
|
|
|
15,509
|
|
|
|
16,336
|
|
|
|
12,652
|
|
|
|
7,851
|
|
Plus Depreciation and Amortization
|
|
|
4,844
|
|
|
|
|
11,813
|
|
|
|
15,040
|
|
|
|
14,029
|
|
|
|
9,318
|
|
|
|
4,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
(7,261
|
)
|
|
|
$
|
(72,716
|
)
|
|
$
|
13,976
|
|
|
$
|
24,429
|
|
|
$
|
23,614
|
|
|
$
|
18,612
|
|
Plus Deferred Income (straight-line)
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus Claim provisions
|
|
|
|
|
|
|
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus Impairment loss
|
|
|
|
|
|
|
|
68,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus/(minus) Change in fair value of derivatives
|
|
|
(2,554
|
)
|
|
|
|
(3,012
|
)
|
|
|
6,515
|
|
|
|
4,060
|
|
|
|
1,788
|
|
|
|
(248
|
)
|
Plus Doubtful receivables and bad debts
|
|
|
|
|
|
|
|
217
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus Share based compensation expense (including
warrants valuation
|
|
|
7,898
|
|
|
|
|
793
|
|
|
|
1,083
|
|
|
|
1,232
|
|
|
|
|
|
|
|
|
|
ADJUSTED
EBITDA(1)
|
|
$
|
(1,759
|
)
|
|
|
$
|
(2,946
|
)
|
|
$
|
21,734
|
|
|
$
|
29,721
|
|
|
$
|
25,402
|
|
|
$
|
18,364
|
|
|
|
|
(1)
|
|
EBITDA represents net income from
continuing operations, before net interest, taxes, depreciation
and amortization. Adjusted EBITDA represents EBITDA before other
non-cash items such as share-based compensation expense, claim
provisions, doubtful receivables, impairment loss, change in
fair value of derivatives, straight-line of revenue and the
effect of the amortization of the deferred revenue due to the
assumption of charters associated with certain vessels
acquisitions. The Company uses Adjusted EBITDA because it
believes that EBITDA is a basis upon which liquidity can be
assessed and because it believes that EBITDA presents useful
information to investors regarding the Companys ability to
service and/or incur indebtedness. The Company also believes
that EBITDA is useful to investors because it is frequently used
by securities analysts, investors and other interested parties
in the evaluation of companies in our industry. EBITDA and
Adjusted EBITDA have limitations as analytical tools, and should
not be considered in isolation or as a substitute for analysis
of the Companys results as reported under U.S. GAAP. Some
of these limitations are: (i) EBITDA does not reflect
changes in, or cash requirements for, working capital needs; and
(ii) although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized may have to
be replaced in the future, and EBITDA does not reflect any cash
requirements for such capital expenditures.
|
|
|
B.
|
Capitalization
and Indebtedness
|
Not applicable.
|
|
C.
|
Reasons
for the Offer and Use of Proceeds
|
Not applicable.
The following risks relate principally to the industry in which
we operate and our business in general. Other risks relate to
the securities market and ownership of our common shares. If any
of the circumstances or events described below actually arises
or occurs, our business, results of operations, cash flows,
financial condition and ability to pay dividends in the future
could be materially adversely affected. In any such case, the
market price of our common shares could decline, and you may
lose all or part of your investment.
6
Industry
Specific Risk Factors
Charter rates for product tankers and dry bulk vessels have
declined significantly and may decrease in the future, which may
adversely affect our earnings.
The product tanker and dry bulk vessel markets are cyclical with
high volatility in charter hire rates and industry
profitability. The degree of charter hire rate volatility among
different types of product tankers and dry bulk vessels has
varied widely and after reaching historical highs in mid-2008,
charter hire rates for product tankers and dry bulk vessels have
declined significantly from historically high levels. If the
shipping industry is depressed in the future when our charters
expire, our revenues, earnings and available cash flow may be
adversely affected. In addition, a further decline in charter
hire rates likely will cause the value of our vessels to further
decline. Two of our bareboat period charters (two product
tankers) are scheduled to expire during 2010. In addition, six
of our product tankers are currently in the spot market. We
cannot assure you that we will be able to successfully charter
these vessels in the future or renew our existing charters at
rates sufficient to allow us to operate our business profitably
or meet our obligations. However, where possible, we shall also
endeavor to fix vessels under period charter including profit
sharing element. Our ability to re-charter these vessels on the
expiration or termination of our current charters, the charter
rates payable under any replacement charters and vessel values
will depend upon, among other things, economic conditions in the
product tanker markets at that time, changes in the supply and
demand for vessel capacity and changes in the supply and demand
for oil and oil products. We anticipate that the future demand
for our dry bulk carriers and dry bulk charter rates will be
dependent upon demand for imported commodities, economic growth
in the emerging markets, including the Asia Pacific region
(including China), India, Brazil and Russia and the rest of the
world, seasonal and regional changes in demand and changes to
the capacity of the world fleet. Recent adverse economic,
political, social or other developments have decreased demand
and prospects for growth in the shipping industry and thereby
could reduce revenue significantly. A decline in demand for
commodities transported in dry bulk carriers or an increase in
supply of dry bulk vessels could cause a further decline in
charter rates, which could materially adversely affect our
results of operations and financial condition. If we sell a
vessel at a time when the market value of our vessels has
fallen, the sale may be at less than the vessels carrying
amount, resulting in a loss.
The factors affecting the supply and demand for product tankers
and dry bulk vessels are outside of our control and are
unpredictable. The nature, timing, direction and degree of
changes in industry conditions are also unpredictable.
The factors that influence the demand for vessel capacity
include:
|
|
|
|
|
demand for oil and oil products;
|
|
|
|
supply of oil and oil products;
|
|
|
|
demand for dry cargoes such as coal and raw materials;
|
|
|
|
demand for dry cargoes such as coal and raw materials;
|
|
|
|
demand of energy in developing countries;
|
|
|
|
continuing growth of industrialization in the emerging countries;
|
|
|
|
regional availability of refining capacity;
|
|
|
|
the globalization of manufacturing;
|
|
|
|
global and regional economic and political conditions;
|
|
|
|
developments in international trade;
|
|
|
|
changes in seaborne and other transportation patterns, including
changes in the distances over which cargoes are transported;
|
|
|
|
environmental and other regulatory developments;
|
7
|
|
|
|
|
currency exchange rates; and
|
|
|
|
weather.
|
The factors that influence the supply of vessel capacity include:
|
|
|
|
|
the number of newbuilding deliveries;
|
|
|
|
the scrapping rate of older vessels;
|
|
|
|
the price of steel and vessel equipment;
|
|
|
|
changes in environmental and other regulations that may limit
the useful lives of vessels;
|
|
|
|
the number of vessels that are in or out of service; and
|
|
|
|
port or canal congestion.
|
If the number of new vessels delivered exceeds the number of
vessels being scrapped and lost, vessel capacity will increase.
If the supply of vessel capacity increases but the demand for
vessel capacity does not increase correspondingly, charter rates
and vessel values could materially decline.
Please see the information contained in the table of vessel
information under Item 4 Information on
the Company Business Overview Our
Fleet. The period charter expiration dates for all our
vessels are detailed in the table under Charter
Expiration, except for the six product tankers that are
currently employed in the spot market.
Please see the information contained in
Item 5 Operating and Financial Review and
Prospects Operating Results Important
Factors to Consider When Evaluating our Historical and Future
Results of Operations.
The downturns in the product tankers and dry bulk vessels
charter markets may have an adverse effect on our earnings,
affect compliance with our loan covenants and our ability to pay
dividends if reinstated in the future.
Charter rates for product tankers have declined sharply since
the highs of 2008. For example, the Baltic Clean Tankers index
has dropped 70% and the Baltic Dirty Index 77% from the highs of
2008. Index (BCTI), a measure of international clean tanker
routes and a selection of basket and individual TCEs, dropped
from 969 points in 2008 to 449 points in 2009. The downturn
resulted in lower operating revenues for the product tankers
charter markets. According to industry sources, the products
tanker market did not perform well during 2009, with chartering
markets in the Mediterranean, United Kingdom Channel and
Caribbean flirting with levels below operating costs throughout.
The dirty products market has been especially downbeat, with
earnings remaining below $10,000/day for much of 2009. The clean
market initially offered some resistance to the slowdown in oil
demand, but as the fleet has continued to grow, the availability
of spot tonnage soon outstripped demand. The decline in charter
rates in the product tanker market has resulted in a
commensurate decline in our tanker vessel values, which in turn
affects our cash flows and liquidity. In the dry bulk market,
during the period from October 30, 2007 to
December 31, 2009, the Baltic Exchanges Panamax time
charter average daily rates experienced a low of $3,537 and a
high of $94,977. Additionally, during the period from
January 1, 2009 to December 31, 2009, the Baltic
Exchanges Capesize time charter average daily rates
experienced a low of $8,997 and a high of $93,197 and the Baltic
Dry Index experienced a low of 772 points and a high of 4,661
points.
If the current low charter rates in the product tanker and dry
bulk vessels markets continue through any significant period in
2010, when bareboat charters for our two vessels (two product
tankers) that are employed on bareboat charter expire, and we
are consequently exposed to then-prevailing charter rates, our
earnings may be adversely affected. If these trends continue, in
order to remain viable, we may have to extend the period during
which we suspend dividend payments
and/or sell
vessels in our fleet. At the same time, we endeavour to charter
several vessels of our fleet in period charters with floor hire
rate plus profit sharing elements in order to benefit from a
potential increase in the charter market.
8
Our impairment analysis performed during the period from
January 1, 2009 to October 13, 2009 and for the year
ended December 31, 2008 resulted in impairment losses of
$91.6 million and $30.1 million, respectively.
However, the current assumptions used and the estimates made are
highly subjective, and could be negatively impacted by further
significant deterioration in charter rates or vessel utilization
over the remaining life of the vessels which could require the
Company to record a material impairment charge in future periods.
A further economic slowdown in the Asia Pacific region could
exacerbate the effect of recent slowdowns in the economies of
the United States and the European Union and may have a material
adverse effect on our business, financial condition and results
of operations.
We anticipate that a significant number of the port calls made
by our vessels will continue to involve the loading or
discharging of commodities in ports in the Asia Pacific region.
As a result, negative changes in economic conditions in any Asia
Pacific country, particularly in China, may exacerbate the
effect of recent slowdowns in the economies of the United States
and the European Union and may have a material adverse effect on
our business, financial condition and results of operations, as
well as our future prospects. In recent years, China has been
one of the worlds fastest growing economies in terms of
gross domestic product, which has had a significant impact on
shipping demand. This rate of growth declined significantly in
the second half of 2008 and it is likely that China and other
countries in the Asia Pacific region will continue to experience
slowed or even negative economic growth in the near future.
Moreover, the current economic slowdown in the economies of the
United States, the European Union and other Asian countries may
further adversely affect economic growth in China and elsewhere.
In late 2008, China announced a $586.0 billion stimulus
package aimed in part at increasing investment and consumer
spending and maintaining export growth in response to the recent
slowdown in its economic growth. Our business, financial
condition and results of operations, as well as our future
prospects, will likely be materially and adversely affected by a
further economic downturn in any of these countries.
Changes in the economic and political environment in China
and policies adopted by the government to regulate its economy
may have a material adverse effect on our business, financial
condition and results of operations.
The Chinese economy differs from the economies of most countries
belonging to the Organization for Economic Cooperation and
Development (OECD) in such respects as structure, government
involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and
balance of payments position. Prior to 1978, the Chinese economy
was a planned economy. Since 1978, increasing emphasis has been
placed on the utilization of market forces in the development of
the Chinese economy. Annual and five year State Plans are
adopted by the Chinese government in connection with the
development of the economy. Although state-owned enterprises
still account for a substantial portion of the Chinese
industrial output, in general, the Chinese government is
reducing the level of direct control that it exercises over the
economy through State Plans and other measures. There is an
increasing level of freedom and autonomy in areas such as
allocation of resources, production, pricing and management and
a gradual shift in emphasis to a market economy and
enterprise reform. Limited price reforms were undertaken, with
the result that prices for certain commodities are principally
determined by market forces. Many of the reforms are
unprecedented or experimental and may be subject to revision,
change or abolition based upon the outcome of such experiments.
If the Chinese government does not continue to pursue a policy
of economic reform, the level of imports to and exports from
China could be adversely affected by changes to these economic
reforms by the Chinese government, as well as by changes in
political, economic and social conditions or other relevant
policies of the Chinese government, such as changes in laws,
regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and
financial condition.
The value of our vessels may fluctuate, which may adversely
affect our liquidity.
Vessel values can fluctuate substantially over time due to a
number of different factors, including:
|
|
|
|
|
general economic and market conditions affecting the shipping
industry;
|
|
|
|
competition from other shipping companies;
|
9
|
|
|
|
|
the types and sizes of available vessels;
|
|
|
|
the availability of other modes of transportation;
|
|
|
|
increases in the supply of vessel capacity;
|
|
|
|
the cost of newbuildings;
|
|
|
|
availability of acquisition finance;
|
|
|
|
prevailing charter rates; and
|
|
|
|
the cost of retrofitting or modifying second hand vessels as a
result of charterer requirements, technological advances in
vessel design or equipment, changes in applicable environmental
or other regulations or standards, or otherwise.
|
In addition, as vessels grow older, they generally decline in
value. Due to the cyclical nature of the product tanker and dry
bulk vessel markets, if for any reason we sell vessels at a time
when prices have fallen, we could incur a loss and our business,
results of operations, cash flows, financial condition and
ability to pay dividends in the future could be adversely
affected.
An
over-supply of tanker capacity may lead to reductions in charter
hire rates and profitability.
The market supply of tankers is affected by a number of factors
such as demand for energy resources, oil, and petroleum
products, waiting days in ports, as well as strong overall
economic growth in parts of the world economy including Asia.
Furthermore, the extension of refinery capacity in India and the
Middle East up to 2011 is expected to exceed the immediate
consumption in these areas, and an increase in exports of
refined oil products is expected as a result. Triggered by a
retrenchment in import demand in major developed countries and
more restricted access to trade financing, trade flows fell at
an annualized rate of between 30 and 50 per cent in most
economies in late 2008 and early 2009. Asian economies
experienced the sharpest decline. Import demand from consumption
and business investment remained weak. Global demand for crude
and products dropped in 2009. The tanker market suffered long
periods of depressed hire rates in 2009. Forecasts for global
oil consumption show a growth of 1.2 million barrels per
day in 2010 and 1.6 million barrels per day in 2011.
Trading patterns change as developing countries search for new
areas to source their oil supplies. There has been an increase
in the shipping fixtures for moving crude from West Africa and
the Caribbean to India and Far East. India is expected to offer
a helping hand in the short- to medium-term while the bulk for
the Chinese cargoes move on China-owned tankers. Many new Indian
refinery projects are coming on line in the next few years which
will sell a lot of crude being moved in and products hauled out
of the country. Factors that tend to decrease tanker supply
include the conversion of tankers to non-tanker purposes and the
phasing out of single-hull tankers due to legislation and
environmental concerns. We believe that the current order book
represents a significant percentage of the existing fleet. An
over-supply of tanker capacity may result in a reduction of
charter hire rates. If a reduction in charter rates occurs, upon
the expiration or termination of our vessels current
charters, we may only be able to recharter our vessels at
reduced or unprofitable rates or we may not be able to charter
these vessels at all, which could lead to a material adverse
effect on our results of operations.
An
over-supply of dry bulk vessel capacity may lead to further
reductions in charter hire rates and profitability.
The market supply of dry bulk vessels has been increasing, and
the carrying capacity (measured in dwt) on order is at a
historically high level. This has led to an over-supply of dry
bulk vessel capacity, resulting in a reduction of charter hire
rates and a decrease in the value of our dry bulk vessels. The
nexus between dry bulk shipping rates and China will draw even
closer as industrialisation and urbanisation developments
intensify over the next decade. As a result of strong demand
from China, combined with a
pick-up in
other nations, the Global Shipping 2010 report forecast
historically high dry bulk tonnage requirements over the next
few years. Significant fleet expansion would cap rate levels
over the next couple of years at least. The reduction in rates
may, under certain circumstances, affect the ability of our
customers who charter our dry
10
bulk vessels to make charter hire payments to us. This and other
factors affecting the supply and demand for dry bulk vessels and
the supply and demand for dry bulk vessels are outside our
control and the nature, timing and degree of changes in the
industry may affect the ability of our charterers to make
charter hire payments to us.
Disruptions
in world financial markets and the resulting governmental action
in the United States and in other parts of the world could have
a material adverse impact on our results of operations,
financial condition and cash flows, and could cause the market
price of our common shares to further decline.
The United States and other parts of the world are exhibiting
deteriorating economic trends and have been in a recession. For
example, the credit markets in the United States have
experienced significant contraction, deleveraging and reduced
liquidity, and the United States federal government and
state governments have implemented and are considering a broad
variety of governmental action
and/or new
regulation of the financial markets. Securities and futures
markets and the credit markets are subject to comprehensive
statutes, regulations and other requirements. The Securities and
Exchange Commission, other regulators, self-regulatory
organizations and exchanges are authorized to take extraordinary
actions in the event of market emergencies, and may effect
changes in law or interpretations of existing laws.
Recently, a number of financial institutions have experienced
serious financial difficulties and, in some cases, have entered
bankruptcy proceedings or are in regulatory enforcement actions.
The uncertainty surrounding the future of the credit markets in
the United States and the rest of the world has resulted in
reduced access to credit worldwide. As of December 31,
2009, we had total outstanding indebtedness of approximately
$278.7 million.
We face risks attendant to changes in economic environments,
changes in interest rates, and instability in the banking and
securities markets around the world, among other factors. Major
market disruptions and the current adverse changes in market
conditions and regulatory climate in the United States and
worldwide may adversely affect our business or impair our
ability to borrow amounts under our Facility Agreement or any
future financial arrangements. We cannot predict how long the
current market conditions will last. However, these recent and
developing economic and governmental factors, together with the
concurrent decline in charter rates and vessel values, may have
a material adverse effect on our results of operations,
financial condition or cash flows, have caused the trading price
of our common shares on the NASDAQ Global Market to decline and
could cause the price of our common shares to continue to
decline.
Acts of
piracy on ocean-going vessels have recently increased in
frequency, which could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels
trading in regions of the world such as the South China Sea and
in the Gulf of Aden off the coast of Somalia. Throughout 2008
and continuing through 2009, the frequency of piracy incidents
increased significantly, particularly in the Gulf of Aden off
the coast of Somalia, with dry bulk vessels and tankers
particularly vulnerable to such attacks. For example, in
December 2009, the M/V Navios Apollon, a cargo vessel not
affiliated with us, was seized by pirates 800 miles off the
coast of Somalia while transporting fertilizer from Tampa,
Florida to Rozi, India. The vessel was released in late February
2010 upon the payment of an unreported sum of money. In April
2009, the Maersk Alabama, a cargo vessel not affiliated with us,
was captured by pirates off the coast of Somalia and was
released following military action by the U.S. Navy. If
these piracy attacks result in regions in which our vessels are
deployed being characterized as war risk zones by
insurers, as the Gulf of Aden temporarily was in May 2008, or
Joint War Committee (JWC) war and strikes listed
areas, premiums payable for such coverage could increase
significantly and such insurance coverage may be more difficult
to obtain. In addition, crew costs, including due to employing
onboard security guards, could increase in such circumstances.
We may not be adequately insured to cover losses from these
incidents, which could have a material adverse effect on us. In
addition, any detention hijacking as a result of an act of
piracy against our vessels, or an increase in cost, or
unavailability, of insurance for our vessels, could have a
material adverse impact on our business, financial condition,
results of operations and ability to reinstate the payment of
dividends.
11
Fuel, or
bunker prices, may adversely affect profits.
While we generally do not bear the cost of fuel, or bunkers,
under our time charters, fuel is a significant factor in
negotiating charter rates. As a result, an increase in the price
of fuel beyond our expectations may adversely affect our
profitability at the time of charter negotiation or when our
vessels trade in the spot market. Fuel is also a significant, if
not the largest, expense in our shipping operations when vessels
are under voyage charter. Increases in the price of fuel may
adversely affect our profitability. The price and supply of fuel
is unpredictable and fluctuates based on events outside our
control, including geopolitical developments, supply and demand
for oil and gas, actions by OPEC and other oil and gas
producers, war and unrest in oil producing countries and
regions, regional production patterns and environmental
concerns. Further, fuel may become much more expensive in the
future, which may reduce the profitability and competitiveness
of our business versus other forms of transportation, such as
truck or rail.
We are
subject to complex laws and regulations, including environmental
regulations that can adversely affect the cost, manner or
feasibility of doing business.
The shipping business and vessel operation are materially
affected by government regulation in the form of international
conventions, national, state and local laws, and regulations in
force in the jurisdictions in which vessels operate, as well as
in the country or countries of their registration. Because such
conventions, laws and regulations are often revised, we cannot
predict the ultimate cost of complying with such conventions,
laws and regulations, or the impact thereof on the fair market
price or useful life of our vessels. Changes in governmental
regulations, safety or other equipment standards, as well as
compliance with standards imposed by maritime self-regulatory
organizations and customer requirements or competition, may
require us to make capital and other expenditures. In order to
satisfy any such requirements, we may be required to take any of
our vessels out of service for extended periods of time, with
corresponding losses of revenues. In the future, market
conditions may not justify these expenditures or enable us to
operate our vessels profitably, particularly older vessels,
during the remainder of their economic lives. This could lead to
significant asset write-downs.
Additional conventions, laws and regulations may be adopted that
could limit our ability to do business, require capital
expenditures or otherwise increase our cost of doing business,
which may materially adversely affect our operations, as well as
the shipping industry generally. For example, in various
jurisdictions legislation has been enacted, or is under
consideration that would impose more stringent requirements on
air pollution and other ship emissions, including emissions of
greenhouse gases and ballast water discharged from vessels. We
are required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates
with respect to our operations.
For all vessels, including those operated under our fleet, at
present, international liability for oil pollution is governed
by the International Convention on Civil Liability for Bunker
Oil Pollution Damage, or the Bunker Convention. In 2001, the IMO
adopted the Bunker Convention, which imposes strict liability on
ship owners for pollution damage in jurisdictional waters of
ratifying states caused by discharges of bunker oil.
The Bunker Convention defines bunker oil as
any hydrocarbon mineral oil, including lubricating oil,
used or intended to be used for the operation or propulsion of
the ship, and any residues of such oil. The Bunker
Convention also requires registered owners of ships over a
certain size to maintain insurance for pollution damage in an
amount equal to the limits of liability under the applicable
national or international limitation regime (but not exceeding
the amount calculated in accordance with the Convention on
Limitation of Liability for Maritime Claims of 1976, as amended,
or the 1976 Convention). The Bunker Convention entered into
force on November 21, 2008, and in early 2010 it was in
effect in 47 states. In other jurisdictions, liability for
spills or releases of oil from ships bunkers continues to
be determined by the national or other domestic laws in the
jurisdiction where the events or damages occur.
Environmental legislation in the United States merits particular
mention as it is in many respects more onerous than
international laws, representing a high-water mark of regulation
with which ship owners and operators must comply, and of
liability likely to be incurred in the event of non-compliance
or an incident causing pollution. U.S. federal legislation,
including notably the Oil Pollution Act of 1990, or the OPA,
12
establishes an extensive regulatory and liability regime for the
protection and cleanup of the environment from oil spills,
including bunker oil spills from dry bulk vessels as well as
cargo or bunker oil spills from tankers. The OPA affects all
owners and operators whose vessels trade in the United States,
its territories and possessions or whose vessels operate in
United States waters, which includes the United States
territorial sea and its 200 nautical mile exclusive economic
zone. Under the OPA, vessel owners, operators and bareboat
charterers are responsible parties and are jointly,
severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an
act of war) for all containment and
clean-up
costs and other damages arising from discharges or substantial
threats of discharges, of oil from their vessels. In addition to
potential liability under OPA as the relevant federal
legislation, vessel owners may in some instances incur liability
on an even more stringent basis under state law in the
particular state where the spillage occurred.
Outside of the United States, other national laws generally
provide for the owner to bear strict liability for pollution,
subject to a right to limit liability under applicable national
or international regimes for limitation of liability. The most
widely applicable international regime limiting maritime
pollution liability is the 1976 Convention referred to above.
Rights to limit liability under the 1976 Convention are
forfeited when a spill is caused by a shipowners
intentional or reckless conduct. Certain states have ratified
the IMOs 1996 Protocol to the 1976 Convention. The
Protocol provides for substantially higher the liability limits
to apply in those jurisdictions than the limits set forth in the
1976 Convention, or the 1996 LLMC Protocol. Finally, some
jurisdictions are not a party to either the 1976 Convention or
the 1996 LLMC Protocol, and, therefore, a shipowners
rights to limit liability for maritime pollution in such
jurisdictions may be uncertain.
In some areas of regulation the EU has introduced new laws
without attempting to procure a corresponding amendment of
international law. Notably it adopted in 2005 a directive on
ship-source pollution, imposing criminal sanctions for pollution
not only where this is caused by intent or recklessness (which
would be an offence under the International Convention for the
Prevention of Pollution from Ships, or MARPOL), but also where
it is caused by serious negligence. The directive
could therefore result in criminal liability being incurred in
circumstances where it would not be incurred under international
law. Experience has shown that in the emotive atmosphere often
associated with pollution incidents, retributive attitudes
towards ship interests have found expression in negligence being
alleged by prosecutors and found by courts on grounds which the
international maritime community has found hard to understand.
Moreover, there is skepticism that the notion of serious
negligence is likely to prove any narrower in practice
than ordinary negligence. Criminal liability for a pollution
incident could not only result in us incurring substantial
penalties or fines, but may also, in some jurisdictions,
facilitate civil liability claims for greater compensation than
would otherwise have been payable.
We currently maintain, for each of our owned vessels, insurance
coverage against pollution liability risks in the amount of
$1.0 billion per incident. The insured risks include
penalties and fines as well as civil liabilities and expenses
resulting from accidental pollution. However, this insurance
coverage is subject to exclusions, deductibles and other terms
and conditions. If any liabilities or expenses fall within an
exclusion from coverage, or if damages from a catastrophic
incident exceed the $1.0 billion limitation of coverage per
incident, our cash flow, profitability and financial position
could be adversely impacted.
Climate
change and government laws and regulations related to climate
change could negatively impact our financial
condition.
In addition to other climate-related risks set forth in this
Risk Factors section, we are and will be, directly
and indirectly, subject to the effects of climate change and
may, directly or indirectly, be affected by government laws and
regulations related to climate change. We cannot predict with
any degree of certainty what effect, if any, possible climate
change and government laws and regulations related to climate
change will have on our operations, whether directly or
indirectly. While we believe that it is difficult to assess the
timing and effect of climate change and pending legislation and
regulation related to climate change on our business, we believe
that climate change and government laws and regulations related
to climate change may affect, directly or indirectly,
(i) the cost of the vessels we may acquire in the future,
(ii) our ability to continue to operate as we have in the
past, (iii) the cost of operating our vessels, and
(iv) insurance premiums,
13
deductibles and the availability of coverage. As a result, our
financial condition could be negatively impacted by significant
climate change and related governmental regulation, and that
impact could be material
If we
purchase any newbuilding vessels, delays, cancellations or
non-completion of deliveries of newbuilding vessels could harm
our operating results.
If we purchase any newbuilding vessels, the shipbuilder could
fail to deliver the newbuilding vessel as agreed or their
counterparty could cancel the purchase contract if the
shipbuilder fails to meet its obligations. In addition, under
charters we may enter into that are related to a newbuilding, if
our delivery of the newbuilding to our customer is delayed, we
may be required to pay liquidated damages during the delay. For
prolonged delays, the customer may terminate the charter and, in
addition to the resulting loss of revenues, we may be
responsible for additional, substantial liquidated damages.
The completion and delivery of newbuildings could be delayed,
cancelled or otherwise not completed because of:
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quality or engineering problems;
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changes in governmental regulations or maritime self-regulatory
organization standards;
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work stoppages or other labor disturbances at the shipyard;
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bankruptcy or other financial crisis of the shipbuilder;
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a backlog of orders at the shipyard;
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political or economic disturbances;
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weather interference or catastrophic event, such as a major
earthquake or fire;
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requests for changes to the original vessel specifications;
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shortages of or delays in the receipt of necessary construction
materials, such as steel;
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inability to finance the construction or conversion of the
vessels; or
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inability to obtain requisite permits or approvals.
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If delivery of a vessel is materially delayed, it could
materially adversely affect our results of operations and
financial condition and our ability to make cash distributions.
We are
subject to international safety regulations and the failure to
comply with these regulations may subject us to increased
liability, may adversely affect our insurance coverage and may
result in a denial of access to, or detention in, certain
ports.
The operation of our vessels is affected by the requirements set
forth in the IMO International Management Code for the Safe
Operation of Ships and Pollution Prevention, or ISM Code. The
ISM Code requires shipowners, ship managers and bareboat
charterers to develop and maintain an extensive Safety
Management System that includes the adoption of a safety
and environmental protection policy setting forth instructions
and procedures for safe operation and describing procedures for
dealing with emergencies. The failure of a shipowner or bareboat
charterer to comply with the ISM Code may subject it to
increased liability, may invalidate existing insurance or
decrease available insurance coverage for the affected vessels
and may result in a denial of access to, or detention in,
certain ports. For example, the United States Coast Guard and
European Union authorities have indicated that vessels not in
compliance with the ISM Code will be prohibited from trading in
ports in the United States and European Union. As of the date of
this report, each of our vessels is ISM code-certified. However,
there can be no assurance that such certification will be
maintained indefinitely.
14
Our
vessels may suffer damage due to the inherent operational risks
of the seaborne transportation industry and we may experience
unexpected dry-docking costs, which may adversely affect our
business and financial condition.
Our vessels and their cargoes will be at risk of being damaged
or lost because of events such as marine disasters, bad weather,
business interruptions caused by mechanical failures, grounding,
fire, explosions and collisions, human error, war, terrorism,
piracy and other circumstances or events. These hazards may
result in death or injury to persons, loss of revenues or
property, environmental damage, higher insurance rates, damage
to our customer relationships, delay or rerouting. If our
vessels suffer damage, they may need to be repaired at a
dry-docking facility. The costs of dry-dock repairs are
unpredictable and may be substantial. We may have to pay
dry-docking costs that our insurance does not cover in full. The
loss of earnings while these vessels are being repaired and
repositioned, as well as the actual cost of these repairs, would
decrease our earnings. In addition, space at dry-docking
facilities is sometimes limited and not all dry-docking
facilities are conveniently located. We may be unable to find
space at a suitable dry-docking facility or our vessels may be
forced to travel to a dry-docking facility that is not
conveniently located to our vessels positions. The loss of
earnings while these vessels are forced to wait for space or to
steam to more distant dry-docking facilities would decrease our
earnings.
Our
insurance may not be adequate to cover our losses that may
result from our operations, which are subject to the inherent
operational risks of the seaborne transportation
industry.
We carry insurance to protect us against most of the
accident-related risks involved in the conduct of our business,
including marine hull and machinery insurance, protection and
indemnity insurance, which includes pollution risks, crew
insurance and war risk insurance. However, we may not be
adequately insured to cover losses from our operational risks,
which could have a material adverse effect on us. Additionally,
our insurers may refuse to pay particular claims and our
insurance may be voidable by the insurers if we take, or fail to
take, certain action, such as failing to maintain certification
of our vessels with applicable maritime regulatory
organizations. Any significant uninsured or under-insured loss
or liability could have a material adverse effect on our
business, results of operations, cash flows and financial
condition. In addition, we may not be able to obtain adequate
insurance coverage at reasonable rates in the future during
adverse insurance market conditions.
As a result of the September 11, 2001 attacks, the
U.S. response to the attacks and the related concerns
regarding terrorism, insurers have increased premiums and
reduced or restricted coverage for losses caused by terrorist
acts generally. Accordingly, premiums payable for terrorist
coverage have increased substantially and the level of terrorist
coverage has been significantly reduced.
In addition, while we carry loss of hire insurance to cover 100%
of our fleet, we may not be able to maintain this level of
coverage. Accordingly, any loss of a vessel or extended vessel
off-hire, due to an accident or otherwise, could have a material
adverse effect on our business, results of operations, financial
condition and our ability to pay dividends, if reinstated to our
shareholders in the future.
Because
we obtain some of our insurance through protection and indemnity
associations, we may also be subject to calls in amounts based
not only on our own claim records, but also on the claim records
of other members of the protection and indemnity
associations.
We may be subject to calls in amounts based not only on our
claim records but also on the claim records of other members of
the protection and indemnity associations through which we
receive insurance coverage for tort liability, including
pollution-related liability. Our payment of these calls could
result in significant expense to us, which could have a material
adverse effect on our business, results of operations, cash
flows and financial condition.
In addition, in some jurisdictions, such as South Africa, under
the sister ship theory of liability, a claimant may
arrest both the vessel that is subject to the claimants
maritime lien and any associated vessel, which is
any vessel owned or controlled by the same owner. Claimants
could try to assert sister ship liability against
one vessel in our fleet for claims relating to another of our
vessels.
15
Labor
interruptions could disrupt our business.
Our vessels are manned by masters, officers and crews that are
employed by third parties. If not resolved in a timely and
cost-effective manner, industrial action or other labor unrest
could prevent or hinder our operations from being carried out as
we expect and could have a material adverse effect on our
business, results of operations, cash flows, financial condition
and ability to pay dividends, if reinstated in the future.
Maritime
claimants could arrest our vessels, which would interrupt our
business.
Crew members, suppliers of goods and services to a vessel,
shippers of cargo and other parties may be entitled to a
maritime lien against a vessel for unsatisfied debts, claims or
damages. In many jurisdictions, a maritime lien holder may
enforce its lien by arresting or attaching a vessel through
foreclosure proceedings. The arrest or attachment of one or more
of our vessels could interrupt our business or require us to pay
large sums of money to have the arrest lifted, which would have
a negative effect on our cash flows.
Governments
could requisition our vessels during a period of war or
emergency without adequate compensation.
A government could requisition or seize our vessels. Under
requisition for title, a government takes control of a vessel
and becomes its owner. Under requisition for hire, a government
takes control of a vessel and effectively becomes its charterer
at dictated charter rates. Generally, requisitions occur during
periods of war or emergency. Although we would be entitled to
compensation in the event of a requisition, the amount and
timing of payment would be uncertain. Government requisition of
one or more of our vessels may negatively impact our business,
financial condition and results of operations.
A failure
to pass inspection by classification societies could result in
one or more vessels being unemployable unless and until they
pass inspection, resulting in a loss of revenues from such
vessels for that period and a corresponding decrease in
operating cash flows.
The hull and machinery of every commercial vessel must be
classed by a classification society authorized by its country of
registry. The classification society certifies that a vessel is
safe and seaworthy in accordance with the applicable rules and
regulations of the country of registry of the vessel and with
SOLAS. Our fleet is currently enrolled with Nippon Kaijori
Kyokai Corp., Bureau Veritas, or Germanischer Lloyd.
A vessel must undergo an annual survey, an intermediate survey
and a special survey. In lieu of a special survey, a
vessels machinery may be on a continuous survey cycle,
under which the machinery would be surveyed periodically over a
five-year period. Our vessels are on special survey cycles for
hull inspection and continuous survey cycles for machinery
inspection. Every vessel may be also required to be dry-docked
every two to three years for inspection of the underwater parts
of such vessel.
If any vessel fails any annual survey, intermediate survey or
special survey, the vessel may be unable to trade between ports
and, therefore, would be unemployable, potentially causing a
negative impact on our revenues due to the loss of revenues from
such vessel until she is able to trade again.
We
operate our vessels worldwide and, as a result, our vessels are
exposed to international risks that could reduce revenue or
increase expenses.
The international shipping industry is an inherently risky
business involving global operations. Our vessels are at risk of
damage or loss because of events such as mechanical failure,
collision, human error, war, terrorism, piracy, cargo loss and
bad weather. In addition, changing economic, regulatory and
political conditions in some countries, including political and
military conflicts, have from time to time resulted in attacks
on vessels, mining of waterways, piracy, terrorism, labor
strikes and boycotts. These sorts of events could interfere with
shipping routes and result in market disruptions that may reduce
our revenue or increase our expenses.
16
Terrorist
attacks and international hostilities can affect the seaborne
transportation industry, which could adversely affect our
business.
We conduct most of our operations outside of the United States,
and our business, results of operations, cash flows and
financial condition may be adversely affected by changing
economic, political and government conditions in the countries
and regions where our vessels are employed or registered.
Moreover, we operate in a sector of the economy that is likely
to be adversely impacted by the effects of political
instability, terrorist or other attacks, war or international
hostilities. Terrorist attacks such as the attacks on the United
States on September 11, 2001, in London on July 7,
2005 and in Mumbai on November 26, 2008 and the continuing
response of the United States and others to these attacks, as
well as the threat of future terrorist attacks in the United
States or elsewhere, continue to cause uncertainty in the world
financial markets and may affect our business, operating results
and financial condition. The continuing presence of the United
States and other armed forces in Iraq and Afghanistan may lead
to additional acts of terrorism and armed conflict around the
world, which may contribute to further economic instability in
the global financial markets. These uncertainties could also
adversely affect our ability to obtain additional financing on
terms acceptable to us or at all. In the past, political
conflicts have also resulted in attacks on vessels, mining of
waterways and other efforts to disrupt international shipping,
particularly in the Arabian Gulf region. Acts of terrorism and
piracy have also affected vessels trading in regions such as the
South China Sea and the Gulf of Aden off the coast of Somalia.
Any of these occurrences could have a material adverse impact on
our operating results, revenues and costs.
Terrorist attacks on vessels, such as the October 2002 attack on
the M/V Limburg, a very large crude carrier not related to us,
may in the future also negatively affect our operations and
financial condition and directly impact our vessels or our
customers. Future terrorist attacks could result in increased
volatility and turmoil in the financial markets in the United
States and globally. Any of these occurrences could have a
material adverse impact on our revenues and costs.
Company
Specific Risk Factors
Under the
terms of our facility agreement, certain financial covenants
(excluding working capital and minimum liquidity) have been
waived by our lenders until at least April 2012 with respect to
some covenants and until October 2012 with respect to others. If
we are unable to succeed in implementing our business plan, we
could be in default under the facility agreement when such
covenants come into effect. Such event could have a material
adverse effect on our operations and our ability to raise new
capital.
On October 13, 2009, we entered into a new
$221.4 million facility agreement with our existing
syndicate of lenders (the Facility Agreement) to
refinance our existing revolving credit facility. The Facility
Agreement requires us to meet certain financial covenants that
become effective in April 2012 with respect to certain financial
covenants and in October 2012 with respect to others. We intend
to be in compliance with all financial covenants by such
deadlines. However, if we are unable to do so, our lenders may
declare an event of default unless we are able to pledge
additional collateral, repay our outstanding borrowings or
obtain covenant waivers. If the lenders declare an event of
default, it could have a material adverse effect on our
operations and our ability to raise new capital.
We have
incurred high levels of debt and with the refinancing of our
credit facility and issuance of the 7% Notes, we are
heavily leveraged. Defaults or other violations of the
provisions of our various debt instruments could have a material
adverse effect on our business.
In addition to, and in connection with, the Facility Agreement,
in October 2009, we issued $145.0 million of 7% convertible
senior notes due in 2015, which we refer to herein as the
7% Notes, $125.0 million of which are still
outstanding as of December 31, 2009. The 7% Notes are
convertible into common shares at a conversion price of $0.75
per share, subject to adjustment for certain events, including
certain distributions by us of cash, debt and other assets, spin
offs and other events. If we are unable to service our debt, and
our lenders or noteholders declare us in default thereunder, it
could have a material adverse effect on our operations.
17
The
market value of our vessels have declined and may further
decrease, which could lead to the loss of our vessels and/or we
may incur a loss if we sell vessels following a decline in their
market value.
The fair market values of our vessels have generally experienced
high volatility and have recently declined significantly and
resulted in an impairment charge of $91.6 million for the
period from January 1, 2009 to October 13, 2009. If we
sell one or more of our vessels at a time when vessel prices
have fallen and before we have recorded an impairment adjustment
to our consolidated financial statements, the sale may be less
than the vessels carrying value on our consolidated
financial statements, resulting in a loss and a reduction in
earnings. Furthermore, if vessel values fall significantly, we
may have to record further impairment adjustments in our
consolidated financial statements, which could adversely affect
our financial results.
For the
periods from January 1, 2009 to October 13, 2009 and
from October 14, 2009 to December 31, 2009, we were
dependent upon three significant charterers for the majority of
our revenues. When the charter agreements expire or terminate,
we will need to find new employment for the affected vessels in
the currently depressed charter market, which may adversely
affect our results of operations and cash flows.
We have historically derived a significant part of our revenue
from a small number of charterers. For the periods from
January 1, 2009 to October 13, 2009 and from
October 14, 2009 to December 31, 2009, and for the
year ended December 31, 2008, approximately 55%, 55% and
65%, respectively, of our revenue was derived from three
charterers. The loss of charterers upon whom we have
historically been dependent may adversely affect our results of
operations, cash flows and financial condition. Further, after
the sale of our remaining container vessels and the transfer of
three vessels from Grandunion Inc., we now operate a fleet of
12 vessels. Assuming that we sell one or more additional
vessels in order to reduce the outstanding balance under our
Facility Agreement, we will operate a smaller fleet. If the size
of our fleet decreases, we will become increasingly dependent
upon a limited number of charterers for our revenues.
Our
charterers may terminate or default on their charters, which
could adversely affect our results of operations and cash
flow.
Our charterers may terminate earlier than the dates indicated in
their charter agreements. The terms of our charters vary as to
which events or occurrences will cause a charter to terminate or
give the charterer the option to terminate the charter, but
these generally include a total or constructive total loss of
the related vessel, the requisition for hire of the related
vessel or the failure of the related vessel to meet specified
performance criteria. In addition, the ability of each of our
charterers to perform its obligations under a charter will
depend on a number of factors that are beyond our control. These
factors may include general economic conditions, the condition
of a specific shipping market sector, the charter rates received
for specific types of vessels and various operating expenses.
The costs and delays associated with the default by a charterer
of a vessel may be considerable and may adversely affect our
business, results of operations, cash flows and financial
condition.
We cannot predict whether our charterers will, upon the
expiration of their charters, recharter our vessels on favorable
terms or at all. If our charterers decide not to recharter our
vessels, we may not be able to recharter them on terms similar
to the terms of our current charters. In the future, we may also
employ our vessels on the spot charter market, which is subject
to greater rate fluctuation than the time charter market.
The time charters for five of our vessels currently provide for
charter rates that are above current market rates. If we receive
lower charter rates under replacement charters or are unable to
recharter all of our vessels, our business, results of
operations, cash flows and financial condition may be adversely
affected.
In addition, in depressed market conditions, our charterers may
no longer need a vessel that is currently under charter or may
be able to obtain a comparable vessel at lower rates. As a
result, charterers may seek to renegotiate the terms of their
existing charter parties or avoid their obligations under those
contracts. Should a counterparty fail to honor its obligations
under agreements with us, we could sustain significant losses,
which could have a material adverse effect on our business,
results of operations, cash flows and financial condition.
18
We may be
unable to attract and retain key management personnel and other
employees in the shipping industry, which may negatively impact
the effectiveness of our management and our results of
operations.
Our success depends to a significant extent upon the abilities
and efforts of our management team. We expect to enter into
employment contracts with Nicholas G. Fistes, our Chairman, and
Michail S. Zolotas, our Chief Executive Officer and President,
and we have entered into an employment agreement with Allan L.
Shaw, our Chief Financial Officer. Our success will depend upon
our ability to retain key members of our management team and to
hire new members as may be necessary. The loss of any of these
individuals could adversely affect our business prospects and
financial condition. Difficulty in hiring and retaining
replacement personnel could have a similar effect. We do not
maintain key man life insurance on any of our
officers.
Members
of our management team continue to own and operate Grandunion
Inc., a competitor, and may have conflicts of interest with
respect to their fiduciary duties to both companies.
Furthermore, they may not be able to devote sufficient time to
our operations.
Nicholas G. Fistes, our Chairman, and Michail S. Zolotas, our
Deputy Chairman, Chief Executive Officer and President, continue
to be sole stockholders and the chairman and chief executive
officer, respectively, of Grandunion Inc.
(Grandunion). Grandunion is a competitor of ours and
as such, Mr. Fistes and Mr. Zolotas may have conflicts
of interest with respect to their fiduciary duties to both our
Company and Grandunion. Furthermore, if Mr. Zolotas or
Mr. Fistes are unable to devote sufficient time to their
management duties of our Company, it could have a material
adverse effect on our operations.
Our board
of directors has determined to suspend the payment of cash
dividends in order to preserve capital and to allow management
to focus on improving our operating results, and until
conditions improve in the international shipping industry and
credit markets, it is unlikely that we will reinstate the
payment of dividends.
On September 12, 2008, our board of directors determined to
immediately suspend payment of our quarterly dividend. The
decision followed our managements strategic review of our
business and reflected our focus on improving our long-term
strength and operational results. We will make dividend payments
to our shareholders only if our board of directors, acting in
its sole discretion, determines that such payments would be in
our best interest and in compliance with relevant legal and
contractual requirements. The principal business factors that
our board of directors expects to consider when determining the
timing and amount of dividend payments will be our earnings,
financial condition and cash requirements at the time.
Currently, the principal contractual and legal restrictions on
our ability to make dividend payments are those contained in our
Facility Agreement and those created by Bermuda law.
Our Facility Agreement prohibits us from paying a dividend if an
event of default under the Facility Agreement is continuing or
would result from the payment of the dividend. Our Facility
Agreement further requires us to maintain financial ratios and
minimum liquidity and working capital amounts. Our obligations
pursuant to these and other terms of our Facility Agreement
could prevent us from making dividend payments under certain
circumstances.
Under Bermuda law, we may not declare or pay dividends if there
are reasonable grounds for believing that (1) we are, or
would after the payment be, unable to pay our liabilities as
they become due or (2) the realizable value of our assets
would thereby be less than the sum of our liabilities, our
issued share capital (the total par value of all outstanding
shares) and share premium accounts (the aggregate amount paid
for the subscription for our shares in excess of the aggregate
par value of such shares). Consequently, events beyond our
control, such as a reduction in the realizable value of our
assets, could cause us to be unable to make dividend payments.
We may incur other expenses or liabilities that would reduce or
eliminate the cash available for distribution as dividends in
the future. We may also enter into new agreements or new legal
provisions may be adopted that will restrict our ability to pay
dividends in the future. As a result, we cannot assure you that
we will be able to reinstate the payment of dividends.
19
We are
currently dependent, in part, upon third-party managers for the
management of our vessels. However, it is our intention to
consolidate the management of almost all of our vessels in-house
in the future.
Currently, International Tanker Management Limited, or ITM,
based in Dubai, performs technical management of three of our
vessels, Ernst Jacob Ship Management GmbH, or Ernst Jacob,
performs technical management of the Chinook and the Nordanvind,
Newlead Bulkers S.A., or Newlead Bulkers, performs technical
management of the Australia, Brazil and China dry bulk vessels,
and Newlead Shipping S.A., or Newlead Shipping, performs
technical management of the Newlead Avra (formerly Altius) and
the Newlead Fortune (formerly Fortius). Commercial management
for these vessels are provided in-house. The Stena Compass and
the Stena Compassion are employed under a bareboat charter. In
addition, we are generally required to obtain approval from our
lenders to change our ship managers.
The loss of services of one or more of our managers or the
failure of one or more of our managers to perform their
obligations under the respective management agreements could
materially and adversely affect our business, results of
operations, cash flows and financial condition. Although we may
have rights against ITM, Newlead Bulkers, Newlead Shipping,
and/or Ernst
Jacob if they default on their obligations to us, our
shareholders will not directly share that recourse.
The ability of our ship managers to continue providing services
for our benefit will depend in part on their own financial
strength. Circumstances beyond our control could impair the
financial strength of our ship managers. Because our third-party
ship managers are privately-held companies, it is unlikely that
information about their financial strength would become public
prior to any default by such ship manager under the management
agreements. As a result, an investor in our shares might have
little advance warning of problems affecting our ship managers,
even though those problems could have a material adverse effect
on us.
If we are
unable to operate our vessels efficiently, we may be
unsuccessful in competing in the highly competitive
international tanker market.
The operation of tanker vessels and transportation of crude and
petroleum products is extremely competitive. Competition arises
primarily from other tanker owners, including major oil
companies as well as independent tanker companies, some of whom
have substantially greater resources than our own. Competition
for the transportation of oil and oil products can be intense
and depends on price, location, size, age, condition and the
acceptability of the tanker and its operators to the charterers.
Due in part to the highly fragmented market, competitors with
greater resources could enter the product tanker shipping
markets and operate larger fleets through consolidations or
acquisitions and may be able to offer lower charter rates and
higher quality vessels than we are able to offer.
Our market share may decrease in the future. We may not be able
to compete profitably as we expand our business into new
geographic regions or provide new services. New markets may
require different skills, knowledge or strategies than we use in
our current markets, and the competitors in those new markets
may have greater financial strength and capital resources than
we do.
The
operation of tankers involves certain unique operational
risks.
The operation of tankers has unique operational risks associated
with the transportation of oil. An oil spill may cause
significant environmental damage, and a catastrophic spill could
exceed the insurance coverage available. Compared to other types
of vessels, tankers are exposed to a higher risk of damage and
loss by fire, whether ignited by a terrorist attack, collision,
or other cause, due to the high flammability and high volume of
the oil transported in tankers.
If we are unable to maintain or safeguard our vessels adequately
we may be unable to prevent these events. Any of these
circumstances or events could negatively impact our business,
financial condition and results of operations. In addition, the
loss of any of our vessels could harm our reputation as a safe
and reliable vessel owner and operator.
20
We may
not be able to grow or effectively manage our growth.
A principal focus of our strategy is to grow by expanding our
product tanker and dry bulk fleet as opportunities are
identified. Our future growth will depend on a number of
factors. These factors include our ability to:
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identify vessels for acquisition;
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consummate acquisitions;
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integrate acquired vessels successfully with our existing
operations;
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identify businesses engaged in managing, operating or owning
vessels for acquisitions or joint ventures;
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hire, train and retain qualified personnel and crew to manage
and operate our growing business and fleet;
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identify additional new markets;
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improve our operating, financial and accounting systems and
controls; and
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obtain required financing for our existing and new operations.
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A deficiency in any of these factors could adversely affect our
ability to achieve anticipated growth in cash flows or realize
other anticipated benefits. In addition, competition from other
buyers could reduce our acquisition opportunities or cause us to
pay a higher price than we might otherwise pay.
The process of integrating acquired vessels into our operations
may result in unforeseen operating difficulties, may absorb
significant management attention and may require significant
financial resources that would otherwise be available for the
ongoing development and expansion of our existing operations.
Future acquisitions could result in the incurrence of additional
indebtedness and liabilities that could have a material adverse
effect on our business, results of operations, cash flows and
financial condition. Further, if we issue additional common
shares, your interest in our Company will be diluted.
Capital
expenditures and other costs necessary to operate and maintain
our vessels may increase due to changes in governmental
regulations, safety or other equipment standards.
Changes in governmental regulations, safety or other equipment
standards, as well as compliance with standards imposed by
maritime self-regulatory organizations and customer requirements
or competition, may require us to make additional expenditures.
These expenditures could increase as a result of changes in:
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the cost of our labor and materials;
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the cost of suitable replacement vessels;
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customer/market requirements;
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increases in the size of our fleet; and
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governmental regulations and maritime self-regulatory
organization standards relating to safety, security or the
environment.
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In order to satisfy these requirements, we may, from time to
time, be required to take our vessels out of service for
extended periods of time, with corresponding losses of revenues.
In the future, market conditions may not justify these
expenditures or enable us to operate some or all of our vessels
profitably during the remainder of their economic lives.
21
If we are
unable to fund our capital expenditures, we may not be able to
continue to operate some of our vessels, which would have a
material adverse effect on our business.
In order to fund our capital expenditures, we may be required to
incur borrowings or raise capital through the sale of debt or
equity securities. Our ability to access the capital markets
through future offerings may be limited by our financial
condition at the time of any such offering as well as by adverse
market conditions resulting from, among other things, general
economic conditions and contingencies and uncertainties that are
beyond our control. Our failure to obtain the funds for
necessary future capital expenditures would limit our ability to
continue to operate some of our vessels and could have a
material adverse effect on our business, results of operations
and financial condition.
Unless we
set aside reserves or are able to borrow funds for vessel
replacement, at the end of a vessels useful life our
revenue will decline, which would adversely affect our business,
results of operations and financial condition.
Unless we maintain reserves or are able to borrow or raise funds
for vessel replacement, we will be unable to replace the vessels
in our fleet upon the expiration of their useful lives, which we
estimate to be 25 years. Our cash flows and income are
dependent on the revenues earned by the chartering of our
vessels to customers. If we are unable to replace the vessels in
our fleet upon the expiration of their useful lives, our
business, results of operations and financial condition, if any,
in the future will be materially and adversely affected. Any
reserves set aside for vessel replacement may not be available
for dividends, if any, in the future.
Risks
associated with operating ocean-going vessels could affect our
business and reputation, which could adversely affect our
revenues and share price.
The operation of ocean-going vessels carries inherent risks.
These risks include the possibility of:
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marine disaster;
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environmental accidents;
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cargo and property losses or damage;
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business interruptions caused by mechanical failure, human
error, war, terrorism, political action in various countries,
labor strikes or adverse weather conditions; and
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piracy.
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Any of these circumstances or events could increase our costs or
lower our revenues. The involvement of our vessels in an
environmental disaster may harm our reputation as a safe and
reliable vessel owner and operator.
Exposure
to currency exchange rate fluctuations will result in
fluctuations in our cash flows and operating results.
We generate all our revenues in U.S. dollars, but a portion
of our vessel operating expenses are in currencies other than
U.S. dollars and we incur a portion of our general and
administrative expenses in currencies other than the
U.S. dollar. For the periods from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009, we incurred 37.6% of our operating
expenses in currencies other than the U.S. dollar. This
difference could lead to fluctuations in our vessel operating
expenses, which would affect our financial results. Expenses
incurred in foreign currencies increase when the value of the
U.S. dollar falls, which would reduce our profitability.
For example, in the year ended December 31, 2009, the value
of the U.S. dollar reached highs of $1.51 and lows of $1.26
compared to the Euro, and as such, a 1% adverse movement in
U.S. dollar exchange rates would have increased our vessel
operating expenses.
22
Our
incorporation under the laws of Bermuda may limit the ability of
our shareholders to protect their interests.
We are a Bermuda company. Our memorandum of association and
bye-laws and the Bermuda Companies Act of 1981, or the BCA, as
amended, govern our corporate affairs. Investors may have more
difficulty in protecting their interests in the face of actions
by management, directors or controlling shareholders than would
shareholders of a corporation incorporated in a United States
jurisdiction. Under Bermuda law, a director generally owes a
fiduciary duty only to the company, not to the companys
shareholders. Our shareholders may not have a direct cause of
action against our directors. In addition, Bermuda law does not
provide a mechanism for our shareholders to bring a class action
lawsuit under Bermuda law. Further, our bye-laws provide for the
indemnification of our directors or officers against any
liability arising out of any act or omission, except for an act
or omission constituting fraud or dishonesty. There is a
statutory remedy under Section 111 of the BCA, which
provides that a shareholder may seek redress in the courts as
long as such shareholder can establish that our affairs are
being conducted, or have been conducted, in a manner oppressive
or prejudicial to the interests of some part of the
shareholders, including such shareholder. However, the
principles governing Section 111 have not been well
developed.
If the
recent volatility in LIBOR continues, it could affect our
profitability, earnings and cash flow.
LIBOR has recently been volatile, with the spread between LIBOR
and the prime lending rate widening significantly at times.
These conditions are the result of the recent disruptions in the
international credit markets. Because the interest rates borne
by our outstanding indebtedness fluctuate with changes in LIBOR,
if this volatility were to continue, it would affect the amount
of interest payable on our debt, which in turn, could have an
adverse effect on our profitability, earnings and cash flow.
Recently, however, lenders have insisted on provisions that
entitle the lenders, in their discretion, to replace published
LIBOR as the base for the interest calculation with their
cost-of-funds
rate. If we are required to agree to such a provision in future
loan agreements, our lending costs could increase significantly,
which would have an adverse effect on our profitability,
earnings and cash flow.
It may
not be possible for investors to enforce U.S. judgments against
us.
We and the majority of our subsidiaries are incorporated in
jurisdictions outside the U.S. (with the exception of
NewLead Holdings (US) LLC, which is incorporated in Delaware),
and substantially all of our assets and those of our
subsidiaries are located outside the U.S. In addition, most
of our directors and officers are non-residents of the U.S., and
all or a substantial portion of the assets of these
non-residents are located outside the U.S. As a result, it
may be difficult or impossible for U.S. investors to serve
process within the U.S. upon us, our subsidiaries or our
directors and officers or to enforce a judgment against us for
civil liabilities in U.S. courts. In addition, you should
not assume that courts in the countries in which we or our
subsidiaries are incorporated or where our or the assets of our
subsidiaries are located (1) would enforce judgments of
U.S. courts obtained in actions against us or our
subsidiaries based upon the civil liability provisions of
applicable U.S. federal and state securities laws or
(2) would enforce, in original actions, liabilities against
us or our subsidiaries based on those laws.
U.S. tax
authorities could treat us as a passive foreign investment
company, which could have adverse U.S. federal income tax
consequences to U.S. shareholders.
A foreign corporation will be treated as a passive foreign
investment company, or PFIC, for U.S. federal income
tax purposes if either (1) at least 75% of its gross income
for any taxable year consists of certain types of passive
income or (2) at least 50% of the average value of
the corporations assets produce or are held for the
production of those types of passive income. For
purposes of these tests, passive income includes
dividends, interest, and gains from the sale or exchange of
investment property, and rents and royalties other than rents
and royalties which are received from unrelated parties in
connection with the active conduct of a trade or business. For
purposes of these tests, income derived from the performance of
services does not constitute passive income.
U.S. shareholders of a PFIC are subject to a
disadvantageous
23
U.S. federal income tax regime applicable to the income
derived by the PFIC, the distributions they receive from the
PFIC, and the gain, if any, they derive from the sale or other
disposition of their shares in the PFIC.
Based on our method of operation, we do not believe that we have
been, are or will be a PFIC. In this regard, we treat the gross
income we derive or are deemed to derive from our chartering
activities as services income, rather than rental income.
Accordingly, we believe that our income from our chartering
activities does not constitute passive income, and
the assets that we own and operate in connection with the
production of that income do not constitute passive assets.
There is, however, no direct legal authority under the PFIC
rules addressing our method of operation. Accordingly, no
assurance can be given that the U.S. Internal Revenue
Service, or IRS, or a court of law will accept our position, and
there is a risk that the IRS or a court of law could determine
that we are a PFIC. Moreover, no assurance can be given that we
would not constitute a PFIC for any future taxable year if there
were to be changes in the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any
taxable year, our U.S. shareholders would face adverse and
special U.S. tax consequences. Among other things, the
distributions a shareholder received with respect to our shares
and the gain, if any, a shareholder derived from his sale or
other disposition of our shares would be taxable as ordinary
income (rather than as qualified dividend income or capital
gain, as the case may be), would be treated as realized ratably
over his holding period in our common shares, and would be
subject to an additional interest charge. However, a
U.S. shareholder may be able to make certain tax elections
that would ameliorate these consequences.
We may
have to pay tax on
U.S.-source
income, which would reduce our earnings.
Under the United States Internal Revenue Code, referred to
herein as the Code, 50% of the gross shipping income of a
vessel-owning or chartering corporation, such as our Company and
our subsidiaries, that is attributable to transportation that
begins or ends, but that does not both begin and end, in the
United States is characterized as
U.S.-source
shipping income and is subject to a 4% United States federal
income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under
Section 883 of the Code and the related treasury
regulations, referred to herein as Treasury
Regulations.
We expect that we and each of our subsidiaries qualifies for
this statutory tax exemption, and we take this position for
United States federal income tax reporting purposes. However,
there are factual circumstances beyond our control that could
cause us to lose the benefit of this tax exemption and thereby
become subject to United States federal income tax on our
U.S.-source
income.
If we or our subsidiaries are not entitled to exemption under
Section 883 of the Code for any taxable year, the
imposition of a 4% U.S. federal income tax on our
U.S.-source
shipping income and that of our subsidiaries could have a
negative effect on our business and would result in decreased
earnings available for distribution to our shareholders.
Risks
Relating to Our Common Shares
There may
not be an active market for our common shares, which may cause
our common shares to trade at a discount and make it difficult
to sell the common shares you purchase.
We cannot assure you that an active trading market for our
common shares will be sustained. We cannot assure you of the
price at which our common shares will trade in the public market
in the future or that the price of our shares in the public
market will reflect our actual financial performance. You may
not be able to resell your common shares at or above their
current market price. Additionally, a lack of liquidity may
result in wide bid-ask spreads, contribute to significant
fluctuations in the market price of our common shares and limit
the number of investors who are able to buy the common shares.
The product tanker markets have been highly unpredictable and
volatile. The market price of our common shares may be similarly
volatile.
24
In this regard, on February 8, 2010, we received a notice
from NASDAQ that our closing bid price for the 30 consecutive
business days prior to February 8, 2010, was below the
minimum $1.00 per share bid price continued listing requirement.
Our common shares will continue to list on NASDAQ during the
180-day
grace period we were afforded to regain compliance. During the
grace period, we may regain compliance with the minimum bid
price requirement by maintaining a closing bid price at or above
$1.00 per share for at least 10 consecutive trading days. If we
are unable to satisfy the continued listing requirement at the
end of the
180-day
grace period, we may still be eligible for continued listing in
the event we can demonstrate compliance with all initial
standards for listing on the NASDAQ Capital Market, except for
the minimum bid price requirement.
Michail
S. Zolotas, our Chief Executive Officer, President and Deputy
Chairman, beneficially owns approximately 76% of our outstanding
common shares and as a result, he is able to influence the
outcome of shareholder votes.
Michail S. Zolotas, our Chief Executive Officer, President and
Deputy Chairman, beneficially owns approximately 76% of our
outstanding common shares through his share ownership directly
and through Grandunion, as well as a voting agreement between
Grandunion and Rocket Marine Inc., or Rocket Marine, a company
controlled by two of our former directors and principal
shareholders. The ownership amount does not include beneficial
ownership of the common shares still underlying the
7% Notes. If Mr. Zolotas were to convert all of the
7% Notes owned by Focus Maritime Corp., he would
beneficially own approximately 93% of our then-outstanding
common shares as of December 31, 2009. As a result of this
share ownership and for so long as Mr. Zolotas owns a
significant percentage of our outstanding common shares, he will
be able to control or influence the outcome of any shareholder
vote, including the election of directors, the adoption or
amendment of provisions in our memorandum of association or
bye-laws and possible mergers, amalgamations, corporate control
contests and other significant corporate transactions. This
concentration of ownership may have the effect of delaying,
deferring or preventing a change in control, merger,
amalgamation, consolidation, takeover or other business
combination. This concentration of ownership could also
discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us, which could in
turn have an adverse effect on the market price of our common
shares. In addition, this concentration of ownership has had,
and may continue to have, an adverse effect on the liquidity of
our common shares.
Anti-takeover
provisions in our organizational documents could have the effect
of discouraging, delaying or preventing a merger, amalgamation
or acquisition, which could adversely affect the market price of
our common shares.
Several provisions of our bye-laws and the loan/financing
agreements to which we are party could discourage, delay or
prevent a merger or acquisition that shareholders may consider
favorable. These include provisions:
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authorizing our board of directors to issue blank
check preference shares without shareholder approval;
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establishing a classified board of directors with staggered,
three-year terms;
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prohibiting us from engaging in a business
combination with an interested shareholder for
a period of three years after the date of the transaction in
which the person becomes an interested shareholder unless
certain conditions are met;
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not permitting cumulative voting in the election of directors;
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authorizing the removal of directors only for cause and only
upon the affirmative vote of the holders of at least 80% of our
outstanding common shares;
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limiting the persons who may call special meetings of
shareholders to our board of directors, subject to certain
rights guaranteed to shareholders under the BCA;
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requiring Grandunion to maintain legal and beneficial ownership
of not less than 10% of the issued and outstanding share capital
of the Company;
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requiring Nicholas Fistes and Michael Zolotas to be at any given
time the beneficial owners of at least 50.1% of the voting share
capital of Grandunion;
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requiring Nicholas Fistes and Michael Zolotas to remain at any
given time the Chairman, and the President and Chief Executive
Officer of the Company, respectively; and
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establishing advance notice requirements for nominations for
election to our board of directors and for proposing matters
that can be acted on by shareholders at our shareholder meetings.
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These provisions could have the effect of discouraging, delaying
or preventing a merger, amalgamation or acquisition, which could
adversely affect the market price of our common shares.
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Item 4.
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Information
on the Company
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A.
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History
and Development of the Company
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The legal and commercial name of the Company is NewLead Holdings
Ltd., a Bermuda company incorporated under the Bermuda Companies
Act of 1981 on January 12, 2005 under the name Aries
Maritime Holdings Limited. NewLeads principal place of
business is 83 Akti Miaouli & Flessa Str., Piraeus
Greece 185 38 and its telephone number is
(30) 213-014-8600.
NewLead is an international shipping company that owns and
operates product tanker and dry bulk vessels. In the fourth
quarter of 2009, NewLead underwent a recapitalization, the
result of which included a change in the composition of its
board of directors and its senior management and the
Companys exit from the container vessel market through the
recent sale of its remaining two container vessels. In addition,
the recapitalization allowed new management to seek to gain
market leadership in both dry bulk and tanker sectors by
executing a focused strategy, which includes:
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Creating a diversified, balanced
fleet. The Company has created a diversified
business model across two major shipping asset sectors: dry bulk
carriers and refined product tankers. This advantageous blend of
vessels generates a revenue mix that can help the company
mitigate rate fluctuations while providing stable cash flow
during shipping cycles.
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Executing an accretive fleet
expansion. The Company will continue to
deploy its available cash to grow the fleet opportunistically
across these two asset classes, utilizing its entrenched
industry network, to build a stable and core fleet of 30+
vessels and to become an established maritime leader.
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Optimizing fleet through active chartering
strategy. NewLead employs a prudent
chartering strategy, maintaining an optimum balance of period
and spot charters, to ensure cash flow stability while providing
for the opportunity to participate in market upswings. During
certain periods, the Companys asset utilization and
portfolio may favor one particular shipping sector (e.g.,
product tankers) based on strategic chartering decisions and
market conditions. Overall, the Companys aim is to build
and maintain long-term relationships with its well-established
and diversified customer base to grow sustainable revenues while
limiting counterparty risk.
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Achieving
best-in-class
commercial and technical excellence. NewLead intends to
bring all aspects of commercial and technical ship management
in-house to improve overall operational efficiency while
providing a scalable platform to support future growth.
Furthermore, achieving this strategic objective should benefit
the Company by increasing operating days, reducing operating
costs and enhancing cash flow while maintaining fleet quality,
safety and reliability. implement a new business strategy that
includes growing its two business segments (wet and dry),
building a core fleet of owned and chartered-in vessels, as well
as creating an appropriate revenue mix to achieve a stable cash
flow.
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26
Recapitalization
and Recent Developments
$400.0
Million Recapitalization
On October 13, 2009, the Company consummated all of the
following transactions simultaneously in connection with an
approximately $400.0 million recapitalization of the
Company:
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Grandunion transferred 100% ownership in three dry bulk carriers
(which transaction included assets with a carrying value of
approximately $75.3 million and the assumption of a
facility of $37.4 million, for a net value of
$35.0 million) to the Company in exchange for 1,581,483
newly issued common shares of the Company. The details of the
three new dry bulk vessels and their related charters are set
forth in the below table:
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Name
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Type
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DWT
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Charter-out rate per day (net)
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Charter Term (years)
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China
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Capesize
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135,364
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$12,753
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Through March 2017 (maximum option)
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Australia
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Capesize
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172,972
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$20,391
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Through January 2012 (maximum option)
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Brazil
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Capesize
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151,738
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$28,985 1st/2nd year $26,180 balance years, all plus profit
sharing above $26,600*.
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February 2015
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*
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Profit calculation: 85% of the Cape
Spot 4 TCE Avg. minus $26,600
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A voting agreement between Grandunion and Rocket Marine was
entered into for which Grandunion transferred 222,223 of the
Companys common shares to Rocket Marine, a company
controlled by two of our former directors and principal
shareholders, in exchange for Grandunions control over the
voting rights relating to the shares owned by Rocket Marine and
its affiliates. There are 1,463,629 common shares subject to the
voting agreement. The voting agreement is in place for as long
as Rocket Marine owns the common shares. The voting agreement
contains a
lock-up
period until December 31, 2011, which, in the case of
transfer or sale by Rocket Marine, requires the approval of
Grandunion.
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The Company issued $145.0 million in aggregate principal
amount of the 7% Notes due 2015. The 7% Notes are
convertible into common shares at a conversion price of
$9.00 per share, subject to adjustment for certain events,
including certain distributions by the Company of cash, debt and
other assets, spin offs and other events. The 7% Notes are
convertible at any time and if fully converted would result in
the issuance of approximately 16.1 million newly issued
common shares. The Investment Bank of Greece owns $100,000
outstanding principal amount of the 7% Notes and has
received warrants to purchase up to 416,667 common shares at an
exercise price of $24.00 per share, with an expiration date of
October 13, 2015. The remainder ($144.9 million) is
owned by Focus Maritime Corp., a company controlled by
Mr. Zolotas, the Companys President and Chief
Executive Officer. The proceeds of the 7% Notes were used
in part to repay, in an amount of $20.0 million, a portion
of existing indebtedness and the remaining proceeds are expected
to be used to fund vessel acquisitions and for other general
corporate purposes. In November 2009, $20.0 million of the
7% Notes were converted into approximately 2.2 million
common shares. The $125.0 million outstanding principal
amount of our 7% Notes is reflected as $41.4 million
on our December 31, 2009 balance sheet due to the netting
impact of a beneficial conversion feature (discount) as more
fully described below under the caption
Item 5 Operating and Financial
Review and Prospects Liquidity and Capital
Resources Indebtedness and in
Note 12 of the Consolidated Financial Statements. We
estimate as of March 18, 2010, the net outstanding amount
for balance sheet purposes is approximately $44.5 million.
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The Companys existing syndicate of lenders entered into a
new $221.4 million facility agreement, dated
October 13, 2009, referred to herein as the Facility
Agreement, by and among the Company and the banks
identified therein in order to refinance the Companys
existing revolving credit facility. The Company applied
$20.0 million of the proceeds of the issuance of the
7% Notes to reduce the outstanding balance under the
Facility Agreement to $201.4 million, and the Facility
Agreement has
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27
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been structured with $38.0 million payable in 19 quarterly
installments of $2.0 million each, and a
$163.4 million repayment due in October 2014. As a result
of the refinancing new financial covenants were put in place.
Except for working capital and minimum liquidity covenants, all
other covenants will become effective in a period ranging from
30 to 36 months from the execution of the Facility
Agreement to allow a sufficient period of time for new
management to implement its business strategy. Subsequent to the
year end, the Company applied $9.0 million of the proceeds
from the disposal of its two container vessels to reduce the
outstanding credit facility balance. As a result, the quarterly
installment has been reduced to approximately $1.9 million.
As of March 18, 2010, there was $190.4 million
outstanding under the Facility Agreement.
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The Company assumed a $37.4 million credit facility in
relation to the three vessels transferred to it as part of the
recapitalization. The $37.4 million credit facility is
payable in 20 consecutive quarterly installments of
$1.56 million and a $6.2 million repayment due in
October 2014. Such facility bears a margin of 3.5% above LIBOR.
Subsequent to its assumption, this facility has been, and
continues to be, periodically paid down and drawn upon to
minimize the Companys cost of capital. The Company pays a
1% commitment fee on the undrawn amount. As of March 18,
2010, there was no outstanding balance under this facility.
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The Company underwent a complete change in leadership, resulting
in the reconstitution of the board of directors and the
appointment of new senior management. The new management of the
Company is led by Nicholas G. Fistes as Executive Director
(Chairman), Michail S. Zolotas as Executive Director (Deputy
Chairman), President and Chief Executive Officer, and Allan L.
Shaw as Executive Director and Chief Financial Officer.
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Deleveraging
Activities
In November 2009, $20.0 million of the outstanding
7% Notes were converted into 2.2 million common shares
at a conversion price of $9.00 per share. Following the
conversion, the remaining amount of outstanding 7% Notes is
$125.0 million and such notes are convertible into
approximately 13.9 million common shares.
Furthermore, the sale of non-productive assets will generate
aggregate proceeds of $21.5 million, a portion of which
will be utilized to pay down debt. This amount includes
$8.5 million from the anticipated transfer of the Chinook,
a Romanian 2001-built, 38,700 dwt Medium Range tanker that has
been operating on the spot market and generating operating
losses as part of the acquisition of Kamsarmaxes.
Name
Change and Amended Bye-Laws
On December 4, 2009, at a special general meeting, the
shareholders of the Company approved a name change of the
Company from Aries Maritime Holdings Limited to
NewLead Holdings Ltd. The name change became
effective upon the filing by the Company of a Certificate of
Incorporation of Name Change with the Bermuda Registrar of
Companies on December 21, 2009, at which time the Company
changed its trading symbol on the NASDAQ Stock Market to
NEWL. In addition, upon shareholder approval also
received at such special general meeting, the Company adopted a
change to its bye-laws to permit written resolutions to be
approved by a majority of the shareholders rather than
unanimously.
Fleet
Expansion and Technical Management
On November 13, 2009, Grandunion entered into a non-binding
letter of intent with the Company to drop down Newlead Shipping
S.A., or Newlead Shipping, and four dry bulk and two product
tanker vessels identified below in a transaction valued at
approximately $180.0 million, of which approximately
$20.0 million will be paid through the issuance of the
Companys common shares at a price of $27.0 per share. The
balance of the purchase price will be paid through the
assumption of existing liabilities. The transaction is subject
to board approval and consents from existing creditors. It is
anticipated the transaction will provide a meaningful impact on
operating results by the end of the second quarter of 2010.
28
Newlead Shipping is an integrated technical and commercial
management company, appropriately licensed and staffed,
providing a broad spectrum of technical and commercial
management to all markets within the maritime industry. Newlead
Shipping has the following accreditations:
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ISO 9001:2000 from American Bureau of Shipping for a quality
management system, by consistently providing a service that
meets customer and applicable statutory and regulatory
requirements, and enhancing customer satisfaction through, among
other things, processes for continual improvement.
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ISO 14001:2004 from American Bureau of Shipping for
environmental management, including policy and objectives
targeting legal and other requirements.
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Safety, Quality and Environmental accreditation from American
Bureau of Shipping.
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Newlead Shippings management has broad expertise,
including specialized knowledge required for managing oil
tankers, gas carriers, chemical carriers and bulkers. Senior
personnel have a record of successfully performing and consist
of a pool of dedicated senior engineers and top-class masters.
Commercial
and Other Details
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Charter
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Party
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Expected
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Charter
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Charter Party
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End Date
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Year
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Rate
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Charter Party
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Party
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Expected
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(Including
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Vessel
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Built
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DWT
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($)
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Commissions
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Commencement
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Duration
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End Date
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Max. Option)
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Drybulk Vessels Capesize
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Grand Ocean
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1990
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149,498
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15,000 1st year; 16,000
2nd year;
16,000
3rd
option year
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3.75% + 0.25%
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2/10/2009
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2 years +/- 60 days
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Min. 12/10/2010 to Max. 4/10/2011
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4/10/2012
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Grand Venetico
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1990
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134,982
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16,500
1st year;
18,500 balance; 18,500 option six months
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3.75% + 0.25%
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3/1/2009
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Abt. 2.5 years +/- 60 days
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Min. 7/10/2011 to Max. 11/10/2011
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5/10/2012
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Panamaxes
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Grand Victoria
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2002
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75,966
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18,000
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3.75% + 1.25% + 1.25%
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11/22/2009
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Abt. 11 to abt. 13 mos.
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Min. 10/7/2010 to Max. 1/6/2011
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1/6/2011
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Grand Rodosi
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1990
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68,788
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10,200 net; plus profit sharing 50/50*
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0.25%
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7/22/2009
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Abt. 3 years +/- 60 days
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Min. 5/23/2012 to Max. 9/20/2012
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9/20/2012
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Product Tankers Handy size
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Hiona
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2003
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37,337
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19,500 plus profit sharing
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1.25% + 1.25%
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4/18/2008
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36 months +/- 30 days Charterers option
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Min. 3/18/2011 to Max. 5/18/2011
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5/18/2011
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Hiotissa
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2004
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37,330
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19,500 plus profit sharing
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1.25% + 1.25%
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5/6/2008
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36 months +/- 30 days Charterers option
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Min. 4/6/2011 to Max. 6/6/2011
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6/6/2011
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*
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Profit calculation: 86% of Cape
Spot 4 TCE Avg. minus $10,200.
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Exit from
the Container Market
In January 2010, the Company completed the sale of the Seine and
the Saronikos Bridge for $13.0 million of gross cash
proceeds, $9 million of which was used to pay down
outstanding debt. The Saronikos Bridge and the Seine were
delivered to their new owners in January 2010. As a result of
the sale and delivery of these vessels, the Company exited the
container market.
New
Charter Party Agreement
On January 26, 2010, the Company entered into a five-month
time charter from February 8, 2010 through July 1,
2010 for the 1992-built, product tanker High Land at a net of
commission rate of $8,181 per day.
29
Acquisition
of Kamsarmaxes
In February 2010, the Company signed a Stock Purchase Agreement
for the purchase of two geared, 80,000 dwt Kamsarmaxes from
COSCO Dalian Shipyard Co., Ltd. These vessels are expected to be
delivered in the fourth quarter of 2010 and 2011, respectively.
The aggregate purchase price of these vessels was
$112.7 million. The charter for the first vessel is for a
five-year initial term at $28,710 (net) per day, with an option
to extend for an additional two-year term. The charter for the
second vessel is for a seven-year term at $27,300 (net) per day.
These time charters are projected to add approximately
$16.1 million in EBITDA annually and $104.0 million in
aggregate EBITDA. The closing of the transaction is expected to
take place not later than the second quarter of 2010.
Gabriel Petrides, a former Board member and an affiliate of
Rocket Marine, one of our principal stockholders, is one of the
principals of the seller of these vessels. The vote on Rocket
Marines shares is controlled by Grandunion pursuant to a
voting agreement, and Mr. Petrides left our board in
October 2009. Accordingly, even though Rocket Marine is a
principal stockholder, neither it nor Mr. Petrides has the
ability to influence us. We believe that the negotiations were
conducted at arms length and that the sale price
represents is no less favorable than would have been achieved
through arms length negotiations with a
wholly-unaffiliated third party.
NASDAQ
Listing Notification
On February 8, 2010, the Company received written
notification from The NASDAQ Stock Market, LLC
(NASDAQ) indicating that because the closing bid
price of the Companys common stock for 30 consecutive
business days was below the minimum $1.00 per share bid price
requirement for continued listing on The NASDAQ Global Select
Market, the Company is not in compliance with NASDAQ Listing
Rule 5450(a)(1).
The Companys common stock will continue to be listed and
traded on The NASDAQ Global Select Market during the applicable
grace period of 180 calendar days. During the grace period, the
Company may regain compliance with the minimum bid price
requirement by maintaining a closing bid price at or above $1.00
per share for at least ten consecutive business days pursuant to
Listing Rule 5810(c)(3)(A). Beyond this
180-day
period ending August 9, 2010, the Company may also be
eligible for an additional grace period provided it demonstrates
compliance with all the initial standards for listing on The
NASDAQ Capital Market as set forth in Listing Rule 5505,
with the exception of the minimum bid price. The Company
continues to monitor its closing bid price and is considering
its options in order to regain compliance with the bid price
requirement.
30
Our
Fleet
Following the recapitalization on October 13, 2009 and the
disposition of the two container vessels in January 2010, we
currently operate a fleet of 12 vessels, consisting of nine
product tankers and three dry bulk vessels. Currently, six of
our twelve vessels are secured on period charters with
established international charterers. Charters for two of our
product tanker vessels (employed under bareboat period charters)
and one of our dry bulk vessels currently have profit-sharing
components.
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Net Daily
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Charter
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Vessel Name
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Size
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Year Built
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Charter Expiration
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Hire Rate
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Product Tanker Vessels
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Stena Compass
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72,750 dwt
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2006
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August 2010
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$18,232.50
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(1)
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Stena Compassion
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72,750 dwt
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2006
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December 2010
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$18,232.50
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(1)
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Newlead Avra (formerly Altius)
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73,400 dwt
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2004
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Spot Market
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Newlead Fortune (formerly Fortius)
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73,400 dwt
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2004
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Spot Market
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Nordanvind
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38,701 dwt
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2001
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Spot Market
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Chinook(2)
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38,701 dwt
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2001
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Spot Market
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Ostria
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38,701 dwt
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2000
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Spot Market
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High Land
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41,450 dwt
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1992
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July 2010
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$8,181.25
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High Rider
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41,502 dwt
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1991
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Spot Market
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Dry bulk Vessels
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Brazil
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151,738 dwt
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1995
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February
2015(3)
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$28,985
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(4)
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Australia
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172,972 dwt
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1993
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January
2012(3)
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$20,391
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China
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135,364 dwt
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1992
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March
2017(3)
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$12,753
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(1)
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Bareboat charters, plus additional
income under profit sharing provisions.
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(2)
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A memorandum of agreement
(MOA) for the sale of the Chinook was signed on
February 18, 2010. Gabriel Petrides, a former member of our
board of directors, and an affiliate of Rocket Marine, one of
our principal stockholders, is a principal of the purchaser of
the Chinook.
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(3)
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Maximum option.
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(4)
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$28,985 for the first and second
years, $26,180 all years thereafter, plus profit sharing (85% of
the Cape Spot 4 TCE Avg. Minus $26,600).
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Our product tankers are designed to transport several different
refined petroleum products simultaneously in segregated coated
cargo tanks. These cargoes typically include gasoline, jet fuel,
kerosene, naphtha and heating oil. The average age of our
product tankers was approximately nine years as of
December 31, 2009. Two of our product tankers were employed
under bareboat period charters as of December 31, 2009,
with remaining terms ranging from approximately five to nine
months. The High Land has been operating under a five month time
charter since February 2010, and the remaining tankers were
operating in the spot market.
The charters for the dry bulk vessels have approximately
remaining periods ranging as follows:
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China Minimum five years, eight months
Maximum six years, seven months, plus an option to extend
further by approximately 159 days due to dry-docking
duration.
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Australia Minimum one year and eight
months Maximum one year and ten months.
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Brazil Minimum four years, seven months
Maximum four years, eleven months.
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After our period charters expire, we may employ our vessels
under new period charters or in the spot voyage market between
period charters, depending on the prevailing market conditions
at that time.
31
Vessel
Charters
Currently, six of our vessels are committed under period
employment agreements with international companies. Pursuant to
these agreements, known as charterparties, we provide these
companies, or charterers, with a vessel and crew at a fixed,
per-day rate
for a specified term.
The charterers under the time charters referenced below are
generally responsible for, among other things, the cost of all
fuels with respect to the vessels (with certain exceptions,
including during off-hire periods); port charges; costs related
to towage, pilotage, mooring expenses at loading and discharging
facilities; and certain operating expenses. The charterers are
not obligated to pay us charter hire for off-hire days, which
include days a vessel is out of service due to, among other
things, repairs or dry-dockings. Under the time charters, we are
generally required, among other things, to keep the related
vessels seaworthy, to crew and maintain the vessels and to
comply with applicable regulations. We are also required to
provide protection and indemnity, hull and machinery, war risk
and oil pollution insurance cover. Our ship management companies
perform these duties for us under the ship management agreements.
Charter periods are typically, at the charterers option,
subject to (1) extension or reduction by between 15 and
60 days at the end of the final charter period and
(2) extension by any amount of time during the charter
period that the vessel is off-hire. A vessel is generally
considered to be off-hire during any period that it
is out of service due to damage to or breakdown of the vessel or
its equipment or a default or deficiency of its crew. Under
certain circumstances our charters may terminate prior to their
scheduled termination dates. The terms of our charters vary as
to which events or occurrences will cause a charter to terminate
or give the charterer the option to terminate the charter, but
these generally include a total or constructive total loss of
the related vessel, the requisition for hire of the related
vessel or the failure of the related vessel to meet specified
performance criteria.
The High Land is employed under a time charter at a daily
charter rate of approximately $8,181, net of commissions, which
commenced on February 8, 2010, for a period of
approximately five months.
The Brazil is employed under a basic daily charter rate of
approximately $28,985 for the first and second year and
approximately $26,180 for the remaining years. In addition, our
charterer is required to pay an additional hire equal to 50% of
the average daily BCI 4 TC routes value, less a 15% discount,
above $26,600. If certain conditions are met, the Brazils
third year hire will remain at $28,985 net of commissions.
The duration of this charter is about six years plus or minus
60 days, ending, at a minimum, in December of 2014, or, at
a maximum, in February 2015.
The China is employed under a time charter daily hire rate of
approximately $12,753, net of commissions. The duration of this
charter is a minimum of five years plus eight months and a
maximum of six years plus six months, at the charterers
option, ending, at a minimum in November 2015, and, at a
maximum, in March 2017.
The Australia is employed under a time charter daily hire rate
of approximately $20,391, net of commissions. The duration of
this charter is a minimum of 20 months to a maximum of
22 months, at the charterers option, ending at a
minimum in November 2011, and, at a maximum, in January 2012.
The Stena Compass and the Stena Compassion are currently
employed under bareboat charters with two companies of the Stena
Group. Under the terms of the bareboat charters, the Stena Group
companies are required to pay a basic daily charter rate of
$18,232 per vessel, net of commissions. In addition, the Stena
Group companies are required to pay an additional hire equal to
30% of the actual time charter equivalent above $26,000 per day
for each vessel. The bareboat charters for the Stena Compass and
the Stena Compassion expire in August 2010 and December 2010,
respectively.
The charterers under the bareboat charters referenced above are
generally responsible for the running and voyage costs of the
vessels. Running cost include among other things, operation,
maintenance, insurance (protection and indemnity, hull and
machinery, war risk and oil pollution) and repairs, dry-docking
and crew. Also, charter hire is not subject to deductions for
off-hire days under the bareboat charters.
32
Fleet
Management
The technical management for three of our vessels, the Ostria,
High Land and High Rider, is currently performed by
International Tanker Management Limited, or ITM. In January
2010, the technical management for the Nordanvind was cancelled
with AMT Management, and since January 16, 2010, the
technical management of the Nordanvind has been provided by
Ernst Jacob, who also provides technical management for the
Chinook. In February 2010, the technical management for the
Newlead Avra (formerly Altius) was cancelled with ITM for a fee
of approximately $36,000, and since February 14, 2010,
technical management for the Newlead Avra has been provided by
Newlead Shipping S.A. In March 2010, the technical management
for the Newlead Fortune (formerly Fortius) was cancelled with
AMT Management for a fee of approximately $36,000. Since
March 11, 2010, technical management of the Newlead Fortune
has been provided by Newlead Shipping S.A. The technical
management of the Australia, which was until recently provided
by Stamford Navigation Inc., has since March 1, 2010 been
provided by Newlead Bulkers S.A., or Newlead Bulkers. The
technical management for the China and Brazil, which was until
recently provided by Newfront Shipping S.A. has since
March 1, 2010 been provided by Newlead Bulkers. The Stena
Compass and the Stena Compassion are currently employed under
bareboat charters with two companies of the Stena Group.
As compensation for these services, we pay the technical
managers a total amount to cover the budgeted vessel operating
expenses, which we have established jointly with the technical
managers, inclusive of the management fee. These are reviewed
and agreed upon annually.
The commercial management for all of our vessels is currently
provided in-house.
Crewing
and Employees
As of December 31, 2009, NewLead, including our
wholly-owned subsidiary, AMT Management Ltd., employed
27 employees, all of whom are shore-based. We employ an
average of 25 crew members per vessel owned, which number varies
depending on the number of vessels in the fleet at any given
time and duration of ship voyages.
Our technical managers ensure that all seamen have the
qualifications and licenses required to comply with
international regulations and shipping conventions and that our
vessels employ experienced and competent personnel.
All of the employees of our managers are subject to a general
collective bargaining agreement covering employees of shipping
agents. These agreements set industry-wide minimum standards. We
have not had any labor interruptions with our employees under
this collective bargaining agreement.
Seasonality
The demand for product tankers and dry bulk vessels has
historically fluctuated depending on the time of year. Demand
for product tankers is influenced by many factors, including
general economic conditions, but it is primarily related to
demand for petroleum products in the areas of greatest
consumption. Accordingly, demand for product tankers generally
rises during the winter months and falls during the summer
months in the northern hemisphere. Moreover, these are
generalized trading patterns that vary from year to year and
there is no guarantee that similar patterns will continue in the
future. The three largest commodity drivers of the dry bulk
industry, iron ore, steam coal and grains, are all affected by
seasonal demand fluctuations. Steam coal is linked to the energy
markets and in general encounters upswings towards the end of
the year in anticipation of the forthcoming winter period as
power supply companies try to increase their stocks, or during
hot summer periods when increased electricity demand is required
for air conditioning and refrigeration purposes. Grain
production is highly seasonal and driven by the harvest cycle of
the northern and southern hemispheres. However, with four
nations and the European Union representing the largest grain
producers (the United States, Canada and the European Union in
the northern hemisphere and Argentina and Australia in the
southern hemisphere), harvests and crops reach seaborne markets
throughout the year.
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The
Product Tanker Industry
The international seaborne transportation industry represents
the most efficient and, we believe, safest method of
transporting large volumes of crude oil and refined petroleum
products such as gasoline, diesel, fuel oil, gas oil and jet
fuel, as well as edible oils and chemicals. Over the past five
years, seaborne transportation of refined petroleum products has
grown substantially.
Freight rates in the refined petroleum product tanker shipping
industry are determined by the supply of product tankers and the
demand for crude oil and refined petroleum products
transportation. Factors that affect the supply of product
tankers and the demand for transportation of crude oil and
refined petroleum products include:
Supply:
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The recent economic downturn has reduced the rate of new orders
placed in this market segment. Considering the amount of product
tankers that are on order, there are fears that oversupply of
tonnage may occur in the near future. However, it is uncertain
what percentage of the orders will finally materialize;
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The phase-out of single hull tankers under more stringent
regulatory and environmental protection laws and regulations
will reduce the overall supply of vessels;
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The implementation of stringent safety and security measures has
effectively reduced the supply of product tankers that are
available for hire at any particular time; and
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Major energy companies are selective in the employment of
product tankers and have strict vetting standards for approval
of vessels for trading.
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Demand:
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For most of the prior years, the strength of the global economy,
and in particular Chinas economic growth, has increased
demand;
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The increase in the distance petroleum products are transported
due to the increased exports from new refineries in the Middle
East and Asia and the expected lack of growth in the refining
capacity of the refineries in the U.S. and Europe; and
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Increasing global production and consumption of refined
petroleum products, and in particular the increase in exports
from the Asian, Russian Baltic and Caspian regions.
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The Dry
Bulk Shipping Industry
The global dry bulk carrier fleet may be divided into four
categories based on a vessels carrying capacity. These
categories consist of:
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Capesize vessels have carrying capacities of more than
85,000 dwt. These vessels generally operate along long haul iron
ore and coal trade routes. There are relatively few ports around
the world with the infrastructure to accommodate vessels of this
size.
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Panamax vessels have a carrying capacity of between
60,000 and 85,000 dwt. These vessels carry coal, grains, and, to
a lesser extent, minor bulks, including steel products, forest
products and fertilizers. Panamax vessels are able to pass
through the Panama Canal making them more versatile than larger
vessels.
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Handymax vessels have a carrying capacity of between
35,000 and 60,000 dwt. These vessels operate along a large
number of geographically dispersed global trade routes mainly
carrying grains and minor bulks. Vessels below 60,000 dwt are
sometimes built with on-board cranes enabling them to load and
discharge cargo in countries and ports with limited
infrastructure.
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Handysize vessels have a carrying capacity of up to
35,000 dwt. These vessels carry exclusively minor bulk cargo.
Increasingly, these vessels have operated along regional trading
routes. Handysize vessels are well suited for small ports with
length and draft restrictions that may lack the infrastructure
for cargo loading and unloading.
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Apart from the above, sub classes have been created for specific
trades:
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Kamsarmax: An approximately 82,000 dwt Panamax with increased
length overall (the length of a vessel, referred to herein as
LOA) of 229 meters (m), named for Port
Kamsar in Equatorial Guinea.
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Postpanamax: An approximately 92,000 dwt vessel with
increased LOA of 235m.
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Dunkirkmax: An approximately 175,000 dwt large Capesize with
maximum LOA of 289m and a maximum beam (the width of a vessel,
referred to herein as B) of 45m, named for the
French ports eastern harbor lock at Dunkirk.
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Newcastlemax: An approximately 185,000 dwt large Capesize
with a maximum B of 47m, named for the Australian port of
Newcastle.
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Setouchmax: An approximately 205,000 dwt large Capesize (a
very large bulk carrier or VLBC) with a
low design draught of 16.10m and a maximum LOA of 299.9m, named
for ports in the Setouch Sea in Japan.
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The supply of dry bulk carriers is dependent on the delivery of
new vessels and the removal of vessels from the global fleet,
either through scrapping or loss. Currently, newbuilding
statistics from shipping analysts show that approximately
0.28 million tons dwt of dry bulk vessels are on order,
representing approximately 60% of the existing fleet. The bulk
carrier fleet is expected to grow more than 10% in 2010. This
supply increase, however, is expected to be absorbed by the
recovery in dry bulk demand and the scrapping activity. The
level of scrapping activity is generally a function of scrapping
prices in relation to current and prospective charter market
conditions, as well as operating, repair and survey costs. The
average age at which a vessel is scrapped over the last five
years has been 26 years. However, due to recent strength in
the dry bulk shipping industry, the average age at which the
vessels are scrapped has increased.
The demand for dry bulk carrier capacity is determined by the
underlying demand for commodities transported in dry bulk
carriers, which in turn is influenced by trends in the global
economy. Seaborne dry bulk trade increased by slightly more than
2% annually during the 1980s and 1990s. However, this rate of
growth has increased dramatically in recent years. Between 2001
and September of 2008, the average of the Baltic Dry Index (BDI)
was 3,768 points. During the last quarter of 2008 and the first
quarter of 2009 the dry bulk market was significantly affected
from the credit crisis and the worldwide recession which dropped
the BDI to a six months average of 1,169 points, while from the
second quarter of 2009 and up to now the BDI average
considerably recovered to 2,957 points The BDI is an index
issued daily by the London-based Baltic Exchange which tracks
worldwide international shipping prices of various dry bulk
cargoes. The index provides an assessment of the price of
moving the major raw materials by sea. Demand for dry bulk
carrier capacity is also affected by the operating efficiency of
the global fleet, with port congestion, which has been a feature
of the market since 2004, absorbing tonnage and therefore
leading to a tighter balance between supply and demand. In
evaluating demand factors for dry bulk carrier capacity, it is
important to bear in mind that dry bulk carriers can be the most
versatile element of the global shipping fleets in terms of
employment alternatives. Dry bulk carriers seldom operate on
round trip voyages. Rather, dry bulk carriers customarily
operate on triangular or multi-leg voyages. Therefore, trade
distances assume greater importance in the demand equation.
Sources
of applicable rules and standards
Shipping is one of the worlds most heavily regulated
industries, and, in addition, it is subject to many industry
standards. Government regulation significantly affects the
ownership and operation of vessels. These regulations consist
mainly of rules and standards established by international
conventions, but they also
35
include national, state, and local laws and regulations in force
in jurisdictions where vessels may operate or are registered,
and which are commonly more stringent than international rules
and standards. This is the case particularly in the United
States and, increasingly, in Europe. A variety of governmental
and private entities subject vessels to both scheduled and
unscheduled inspections. These entities include local port
authorities (the U.S. Coast Guard, harbor masters or
equivalent entities), classification societies, flag state
administration (country vessel of registry), and charterers,
particularly terminal operators. Certain of these entities
require vessel owners to obtain permits, licenses, and
certificates for the operation of their vessels. Failure to
maintain necessary permits or approvals could require a vessel
owner to incur substantial costs or temporarily suspend
operation of one or more of its vessels. Heightened levels of
environmental and quality concerns among insurance underwriters,
regulators, and charterers continue to lead to greater
inspection and safety requirements on all vessels and may
accelerate the scrapping of older vessels throughout the
industry. Increasing environmental concerns have created a
demand for vessels that conform to stricter environmental
standards. Vessel owners are required to maintain operating
standards for all vessels that will emphasize operational
safety, quality maintenance, continuous training of officers and
crews and compliance with U.S. and international
regulations. The International Maritime Organization, or IMO,
has negotiated a number of international conventions concerned
with preventing, reducing or controlling pollution from ships.
These fall into two main categories, consisting firstly of those
concerned generally with ship safety standards, and secondly of
those specifically concerned with measures to prevent pollution.
Environmental
and Other Regulations
Government regulation significantly affects the ownership and
operation of our fleet. We are subject to various international
conventions, laws and regulations in force in the countries in
which our vessels may operate or are registered. Compliance with
such laws, regulations and other requirements can entail
significant expense, including vessel modification and
implementation of certain operating procedures.
A variety of governmental and private entities subject our
vessels to both scheduled and unscheduled inspections. These
entities include the local port authorities (applicable national
authorities such as the U.S. Coast Guard and harbor
masters), classification societies, flag state administration
(country of registry) and charterers, particularly terminal
operators, and oil companies. Some of these entities require us
to obtain permits, licenses, certificates and other
authorizations for the operation of our fleet. Our failure to
maintain necessary permits or approvals could require us to
incur substantial costs or temporarily suspend operation of one
or more of the vessels in our fleet.
Heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to
greater inspection and safety requirements on all vessels and
may accelerate the scrapping of older vessels throughout the
industry. Increasing environmental concerns have created a
demand for vessels that conform to stricter environmental
standards. We are required to maintain operating standards for
all of our vessels emphasizing operational safety, quality
maintenance, continuous training of our officers and crews and
compliance with applicable local, national and international
environmental laws and regulations. We believe that the
operation of our vessels is in substantial compliance with
applicable environmental laws and regulations and that our
vessels have all material permits, licenses, certificates or
other authorizations necessary for the conduct of our
operations; however, because such laws and regulations are
frequently changed and may impose increasingly stricter
requirements, we cannot predict the ultimate cost of complying
with these requirements, or the impact of these requirements on
the resale value or useful lives of our vessels. In addition, a
future serious marine incident that results in significant oil
pollution or otherwise causes significant adverse environmental
impact could result in additional legislation or regulation that
could negatively affect our profitability.
International
Maritime Organization
The International Maritime Organization, or IMO (the United
Nations agency for maritime safety and the prevention of
pollution by ships), has adopted the International Convention
for the Prevention of Marine Pollution from Ships, 1973, as
modified by the Protocol of 1978 relating thereto, which has
been updated through various amendments, referred to herein as
the MARPOL Convention or MARPOL. The MARPOL
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Convention implements environmental standards including oil
leakage or spilling, garbage management, as well as the handling
and disposal of noxious liquids, harmful substances in packaged
forms, sewage and air emissions. These regulations, which have
been implemented in many jurisdictions in which our vessels
operate, provide, in part, that:
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25-year old
tankers must be of double-hull construction or of a mid-deck
design with double-sided construction, unless:
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(1) they have wing tanks or double-bottom spaces not used
for the carriage of oil that cover at least 30% of the length of
the cargo tank section of the hull or bottom; or
(2) they are capable of hydrostatically balanced loading
(loading less cargo into a tanker so that in the event of a
breach of the hull, water flows into the tanker, displacing oil
upwards instead of into the sea);
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30-year old
tankers must be of double-hull construction or mid-deck design
with double-sided construction; and
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all tankers will be subject to enhanced inspections.
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Also, under IMO regulations, a newbuild tanker of 5,000 dwt and
above must be of double-hull construction or a mid-deck design
with double-sided construction or be of another approved design
ensuring the same level of protection against oil pollution if
the tanker:
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is the subject of a contract for a major conversion or original
construction on or after July 6, 1993;
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commences a major conversion or has its keel laid on or after
January 6, 1994; or
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completes a major conversion or is a newbuilding delivered on or
after July 6, 1996.
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Effective September 2002, the IMO accelerated its existing
timetable for the phase-out of single-hull oil tankers. At the
time, these regulations required the phase-out of most
single-hull oil tankers by 2015 or earlier, depending on the age
of the tanker and whether it has segregated ballast tanks. Under
the regulations, the flag state may allow for some newer
single-hull ships registered in its country that conform to
certain technical specifications to continue operating until the
25th anniversary of their delivery. Any port state,
however, may deny entry of those single-hull tankers that are
allowed to operate until their 25th anniversary to ports or
offshore terminals.
However, as a result of the oil spill in November 2002 relating
to the loss of the MT Prestige, which was owned by a company not
affiliated with us, in December 2003, the Marine Environmental
Protection Committee of the IMO, or MEPC, adopted an amendment
to the MARPOL Convention, which became effective in April 2005.
The amendment revised an existing Regulation 13G
accelerating the phase-out of single-hull oil tankers and
adopted a new Regulation 13H on the prevention of oil
pollution from oil tankers when carrying heavy grade oil.
Under the revised regulations, a flag state may permit continued
operation of certain Category 2 or 3 tankers beyond their
phase-out date in accordance with the above schedule. Under
Regulation 13G, the flag state may allow for some newer
single-hull oil tankers registered in its country that conform
to certain technical specifications to continue operating until
the earlier of the anniversary of the date of delivery of the
vessel in 2015 or the 25th anniversary of their delivery.
Under Regulations 13G and 13H, as described below, certain
Category 2 and 3 tankers fitted only with double bottoms or
double sides may be allowed by the flag state to continue
operations until their 25th anniversary of delivery. Any
port state, however, may deny entry of those single-hull oil
tankers that are allowed to operate under any of the flag state
exemptions.
In October 2004, the MEPC adopted a unified interpretation of
Regulation 13G that clarified the delivery date for
converted tankers. Under the interpretation, where an oil tanker
has undergone a major conversion that has resulted in the
replacement of the fore-body, including the entire cargo
carrying section, the major conversion completion date shall be
deemed to be the date of delivery of the ship, provided that:
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the oil tanker conversion was completed before July 6, 1996;
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the conversion included the replacement of the entire cargo
section and fore-body and the tanker complies with all the
relevant provisions of the MARPOL Convention applicable at the
date of completion of the major conversion; and
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the original delivery date of the oil tanker will apply when
considering the 15 years of age threshold relating to the
first technical specifications survey to be completed in
accordance with the MARPOL Convention.
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In December 2003, the MEPC adopted a new Regulation 13H on
the prevention of oil pollution from oil tankers when carrying
heavy grade oil, or HGO, which includes most grades of marine
fuel. The new regulation bans the carriage of HGO in single-hull
oil tankers of 5,000 dwt and above after April 5, 2005, and
in single-hull oil tankers of 600 dwt and above but less than
5,000 dwt, no later than the anniversary of their delivery in
2008.
Under Regulation 13H, HGO means any of the following:
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crude oils having a density at 15 degrees Celsius
(oC)
higher than 900 kilograms per cubic meter
(kg/m3);
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fuel oils having either a density at
15oC
higher than 900 kg/m3 or a kinematic viscosity at
50oC
higher than 180 square millimeters per second
(mm2/s); or
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bitumen, tar and their emulsions.
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Under regulation 13H, the flag state may allow continued
operation of oil tankers of 5,000 dwt and above, carrying crude
oil with a density at
15oC
higher than 900 kg/m3 but lower than 945 kg/m3, that conform to
certain technical specifications and if, in the opinion of the
flag state, the ship is fit to continue such operation, having
regard to the size, age, operational area and structural
conditions of the ship and provided that the continued operation
shall not go beyond the date on which the ship reaches
25 years after the date of its delivery. The flag state may
also allow continued operation of a single-hull oil tanker of
600 dwt and above but less than 5,000 dwt, carrying HGO as
cargo, if, in the opinion of the flag state, the ship is fit to
continue such operation, having regard to the size, age,
operational area and structural conditions of the ship, provided
that the operation shall not go beyond the date on which the
ship reaches 25 years after the date of its delivery.
The flag state may also exempt an oil tanker of 600 dwt and
above carrying HGO as cargo if the ship is either engaged in
voyages exclusively within an area under its jurisdiction, or is
engaged in voyages exclusively within an area under the
jurisdiction of another party, provided the party within whose
jurisdiction the ship will be operating agrees. The same applies
to vessels operating as floating storage units of HGO.
Any port state, however, can deny entry of single-hull tankers
carrying HGO which have been allowed to continue operation under
the exemptions mentioned above, into the ports or offshore
terminals under its jurisdiction, or deny
ship-to-ship
transfer of HGO in areas under its jurisdiction except when this
is necessary for the purpose of securing the safety of a ship or
saving life at sea.
Revised Annex I to the MARPOL Convention entered into force
in January 2007. Revised Annex I incorporates various
amendments adopted since the MARPOL Convention entered into
force in 1983, including the amendments to Regulation 13G
(Regulation 20 in the revised Annex) and
Regulation 13H (regulation 21 in the revised Annex).
Revised Annex I also imposes construction requirements for
oil tankers delivered on or after January 1, 2010. A
further amendment to revised Annex I includes an amendment
to the definition of HGO that will broaden the scope of
Regulation 21. On August 1, 2007, Regulation 12A
(an amendment to Annex I) came into force requiring
oil fuel tanks to be located inside the double-hull in all ships
with an aggregate oil fuel capacity of 600
m3 and
above, which are delivered on or after August 1, 2010,
including ships for which the building contract is entered into
on or after August 1, 2007 or, in the absence of a
contract, for which the keel is laid on or after
February 1, 2008.
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Ballast
Water Requirements
The IMO adopted an International Convention for the Control and
Management of Ships Ballast Water and Sediments, or the
BWM Convention, in February 2004. The BWM Conventions
implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements (beginning in
2009), to be replaced in time with mandatory concentration
limits. The BWM Convention will not enter into force until
12 months after it has been adopted by 30 states, the
combined merchant fleets of which represent not less than 35% of
the gross tonnage of the worlds merchant shipping. To
date, there has not been sufficient adoption of this standard by
governments that are members of the convention for it to take
force. Moreover, the IMO has supported deferring the
requirements of this convention that would first come into
effect until December 31, 2011, even if it were to be
adopted earlier.
Air
Emissions
In September 1997, the IMO adopted Annex VI to the MARPOL
Convention to address air pollution from ships. Effective in May
2005, Annex VI sets limits on sulfur oxide and nitrogen
oxide emissions from all commercial vessel exhausts and
prohibits deliberate emissions of ozone depleting substances
(such as halons and chlorofluorocarbons), emissions of volatile
compounds from cargo tanks, and the shipboard incineration of
specific substances. Annex VI also includes a global cap on
the sulfur content of fuel oil and allows for special areas to
be established with more stringent controls on sulfur emissions.
We believe that all our vessels are currently compliant in all
material respects with these regulations. Additional or new
conventions, laws and regulations may be adopted that could
require the installation of expensive emission control systems
and that could adversely affect our business, cash flows,
results of operations and financial condition.
In October 2008, the IMO adopted amendments to Annex VI
regarding particulate matter, nitrogen oxide and sulfur oxide
emission standards which are expected to enter into force on
July 1, 2010. The amended Annex VI would reduce air
pollution from vessels by, among other things,
(i) implementing a progressive reduction of sulfur oxide,
emissions from ships, with the global sulfur cap reduced
initially to 3.5% (from the current cap of 4.5%), effective from
January 1, 2012, then progressively to 0.50%, effective
from January 1, 2020, subject to a feasibility review to be
completed no later than 2018; and (ii) establishing new
tiers of stringent nitrogen oxide emissions standards for new
marine engines, depending on their date of installation. Once
these amendments become effective, we may incur costs to comply
with these revised standards.
Safety
Requirements
The IMO has also adopted the International Convention for the
Safety of Life at Sea, or SOLAS Convention, and the
International Convention on Load Lines, 1966, or LL Convention,
which impose a variety of standards to regulate design and
operational features of ships. SOLAS Convention and LL
Convention standards are revised periodically. We believe that
all our vessels are in substantial compliance with SOLAS
Convention and LL Convention standards.
Under Chapter IX of SOLAS, the requirements contained in
the International Safety Management Code for the Safe Operation
of Ships and for Pollution Prevention, or ISM Code, promulgated
by the IMO, the party with operational control of a vessel is
required to develop an extensive safety management system that
includes, among other things, the adoption of a safety and
environmental protection policy setting forth instructions and
procedures for operating its vessels safely and describing
procedures for responding to emergencies. In 1998, the ISM Code
became mandatory with the adoption of Chapter IX of SOLAS.
We intend to rely upon the safety management systems that AMT
Management Ltd. and our other ship management companies have
developed.
The ISM Code requires that vessel operators obtain a safety
management certificate for each vessel they operate. This
certificate evidences compliance by a vessels management
with ISM Code requirements for a safety management system. No
vessel can obtain a safety management certificate unless its
operator has been awarded a document of compliance, issued by
each flag state, under the ISM Code. AMT Management Ltd. and our
other ship management companies have obtained documents of
compliance for their offices and safety
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management certificates for the vessels in our fleet for which
such certificates are required by the IMO. These documents of
compliance and safety management certificates are renewed as
required.
Non-compliance with the ISM Code and other IMO regulations may
subject the shipowner or bareboat charterer to increased
liability, may lead to decreases in available insurance coverage
for affected vessels and may result in the denial of access to,
or detention in, some ports. For example, the U.S. Coast
Guard and European Union (EU) authorities have indicated that
vessels not in compliance with the ISM Code will be prohibited
from trading in U.S. and EU ports.
Another amendment of SOLAS, made after the terrorist attacks in
the United States on September 11, 2001, introduced special
measures to enhance maritime security, including the
International Ship and Port Facilities Security Code (ISPS
Code). Our fleet maintains ISM and ISPS certifications for
safety and security of operations.
Oil
Pollution Liability
Although the U.S. is not a party to these conventions, many
countries have ratified and follow the liability plan adopted by
the IMO and set out in the International Convention on Civil
Liability for Oil Pollution Damage of 1969, as amended in 2000,
or the CLC. Under this convention and depending on whether the
country in which the damage results is a party to the CLC, a
vessels registered owner is strictly liable for pollution
damage caused in the territorial waters of a contracting state
by discharge of persistent oil, subject to certain complete
defenses. The limits on liability outlined in the 1992 Protocol
use the International Monetary Fund currency unit of Special
Drawing Rights, or SDR. Under an amendment to the 1992 Protocol
that became effective on November 1, 2003 for vessels of
5,000 to 140,000 gross tons (a unit of measurement for the
total enclosed spaces within a vessel), liability will be
limited to approximately 4.51 million SDR, or
$6.938 million, plus 631 SDR, or $970.77, for each
additional gross ton over 5,000. For vessels over
140,000 gross tons, liability will be limited to
89.77 million SDR, or $138.10 million. The exchange
rate between SDRs and U.S. dollars was 0.65 SDR per
U.S. dollar on March 12, 2010. The right to limit
liability is forfeited under the CLC where the spill is caused
by the owners actual fault and under the 1992 Protocol
where the spill is caused by the owners intentional or
reckless conduct. Vessels trading to states that are parties to
these conventions must provide evidence of insurance covering
the liability of the owner. In jurisdictions where the CLC has
not been adopted various legislative schemes or common law
govern, and liability is imposed either on the basis of fault or
in a manner similar to that of the CLC. We believe that our
insurance will cover the liability under the plan adopted by the
IMO.
The IMO continues to review and introduce new regulations. It is
difficult to accurately predict what additional regulations, if
any, may be passed by the IMO in the future and what effect, if
any, such regulations might have on our operations.
United
States Requirements
U.S.
Oil Pollution Act of 1990 and Comprehensive Environmental
Response, Compensation and Liability Act
In 1990, the U.S. Congress enacted OPA to establish an
extensive regulatory and liability regime for environmental
protection and cleanup of oil spills. OPA affects all owners and
operators whose vessels trade with the U.S. or its
territories or possessions, or whose vessels operate in the
waters of the U.S., which include the U.S. territorial sea
and the 200 nautical mile exclusive economic zone around the
U.S. The Comprehensive Environmental Response, Compensation
and Liability Act, or CERCLA, imposes liability for
clean-up and
natural resource damage from the release of hazardous substances
(other than oil) whether on land or at sea. Both OPA and CERCLA
impact our operations.
Under OPA, vessel owners, operators and bareboat charterers are
responsible parties who are jointly, severally and strictly
liable (unless the spill results solely from the act or omission
of a third party, an act of God or an act of war) for all
containment and
clean-up
costs and other damages arising from oil spills from their
vessels. These other damages are defined broadly to include:
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natural resource damages and related assessment costs;
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real and personal property damages;
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net loss of taxes, royalties, rents, profits or earnings
capacity;
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net cost of public services necessitated by a spill response,
such as protection from fire, safety or health hazards;
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loss of profits or impairment of earning capacity due to injury,
destruction or loss of real property, personal property and
natural resources; and
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loss of subsistence use of natural resources.
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Under amendments to OPA that became effective on July 11,
2006, the liability of responsible parties is limited, with
respect to tanker vessels with a qualifying double hull, to the
greater of $1,900 per gross ton or $16.0 million per vessel
that is over 3,000 gross tons, and with respect to
non-tanker vessels, to the greater of $950 per gross ton or
$0.8 million per vessel (subject to periodic adjustment for
inflation). The act specifically permits individual states to
impose their own liability regimes with regard to oil pollution
incidents occurring within their boundaries, and some states
have enacted legislation providing for unlimited liability for
discharge of pollutants within their waters. In some cases,
states that have enacted this type of legislation have not yet
issued implementing regulations defining tanker owners
responsibilities under these laws. CERCLA, which applies to
owners and operators of vessels, contains a similar liability
regime and provides for
clean-up,
removal and natural resource damages relating to the discharge
of hazardous substances (other than oil). Liability under CERCLA
is limited to the greater of $300 per gross ton or
$5.0 million for vessels carrying a hazardous substance as
cargo or residue and the greater of $300 per gross ton or
$0.5 million for any other vessel.
These limits of liability do not apply, however, where the
incident is caused by violation of applicable U.S. federal
safety, construction or operating regulations, or by the
responsible partys gross negligence or willful misconduct.
These limits also do not apply if the responsible party fails or
refuses to report the incident or to cooperate and assist in
connection with the substance removal activities. OPA and CERCLA
each preserve the right to recover damages under existing law,
including maritime tort law. We believe that we are in
substantial compliance with OPA, CERCLA and all applicable state
regulations in the ports where our vessels call.
OPA also requires owners and operators of vessels to establish
and maintain with the U.S. Coast Guard evidence of
financial responsibility sufficient to meet the limit of their
potential strict liability under the act. U.S. Coast Guard
regulations currently require evidence of financial
responsibility in the amount of $2,200 per gross ton for
tankers, coupling the OPA limitation on liability of $1,900 per
gross ton with the CERCLA liability limit of $300 per gross ton.
Under the regulations, evidence of financial responsibility may
be demonstrated by insurance, surety bond, self-insurance or
guaranty. Under OPA regulations, an owner or operator of more
than one tanker is required to demonstrate evidence of financial
responsibility for the entire fleet in an amount equal only to
the financial responsibility requirement of the tanker having
the greatest maximum strict liability under OPA and CERCLA. We
have provided such evidence and received certificates of
financial responsibility from the U.S. Coast Guard for each
of our vessels required to have one.
OPA requires owners and operators of all vessels over
300 gross tons, even those that do not carry petroleum or
hazardous substances as cargo, to establish and maintain with
the U.S. Coast Guard evidence of financial responsibility
sufficient to meet their potential liabilities under OPA. On
February 6, 2008, the U.S. Coast Guard proposed
amendments to the financial responsibility regulations to
increase the required amount of such Certificates of Financial
Responsibility to $1,250 per gross ton to reflect the 2006
increases in limits on OPA liability. The increased amounts will
become effective 90 days after the proposed regulations are
finalized. We believe our insurance coverage as described above
meets the requirements of OPA. Under OPA, an owner or operator
of a fleet of vessels is required only to demonstrate evidence
of financial responsibility in an amount sufficient to cover the
vessel in the fleet having the greatest maximum liability under
OPA. Under the self-insurance provisions, the ship owner or
operator must have a net worth and working capital, measured in
assets located in the United States against liabilities located
anywhere in the world, that exceeds the applicable amount of
financial responsibility. We have complied with the
U.S. Coast Guard regulations by providing a certificate of
responsibility from third party entities that are acceptable to
the
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U.S. Coast Guard evidencing sufficient self-insurance. The
U.S. Coast Guards regulations concerning certificates
of financial responsibility provide, in accordance with OPA,
that claimants may bring suit directly against an insurer or
guarantor that furnishes certificates of financial
responsibility. In the event that such insurer or guarantor is
sued directly, it is prohibited from asserting any contractual
defense that it may have had against the responsible party and
is limited to asserting those defenses available to the
responsible party and the defense that the incident was caused
by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of
financial responsibility under pre-OPA laws, including the major
protection and indemnity organizations, have declined to furnish
evidence of insurance for vessel owners and operators if they
are subject to direct actions or required to waive insurance
policy defenses. This requirement may have the effect of
limiting the availability of the type of coverage required by
the Coast Guard and could increase our costs of obtaining this
insurance as well as the costs of our competitors that also
require such coverage.
NewLead and the Stena Group companies managing the Stena Compass
and Stena Compassion have arranged insurance for our vessels
with pollution liability insurance in the maximum commercially
available amount of $1.0 billion per incident. The insured
risks include penalties and fines as well as civil liabilities
and expenses resulting from accidental pollution. However, this
insurance coverage is subject to exclusions, deductibles and
other terms and conditions. If any liabilities or expenses fall
within an exclusion from coverage, or if damages from a
catastrophic incident exceed the $1.0 billion limitation of
coverage per incident, our cash flow, profitability and
financial position could be adversely impacted.
Under OPA, with certain limited exceptions, all newly-built or
converted vessels operating in U.S. waters must be built
with double hulls, and existing vessels that do not comply with
the double hull requirement will be prohibited from trading in
U.S. waters over a
20-year
period
(1995-2015)
based on size, age and place of discharge, unless retrofitted
with double hulls. Owners or operators of tankers operating in
the waters of the United States must file vessel response plans
with the U.S. Coast Guard, and their tankers are required
to operate in compliance with their U.S. Coast Guard
approved plans. These response plans must, among other things:
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address a worst case scenario and identify and
ensure, through contract or other approved means, the
availability of necessary private response resources to respond
to a worst case discharge;
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describe crew training and drills; and
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identify a qualified individual with full authority to implement
removal actions.
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We have obtained vessel response plans approved by the
U.S. Coast Guard for our vessels operating in the waters of
the U.S. In addition, we conduct regular oil spill response
drills in accordance with the guidelines set out in OPA.
As discussed above, OPA does not prevent individual states from
imposing their own liability regimes with respect to oil
pollution incidents occurring within their boundaries, including
adjacent coastal waters. In fact, most U.S. states that
border a navigable waterway have enacted environmental pollution
laws that impose strict liability on a person for removal costs
and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than
U.S. federal law.
Additional
U.S. Environmental Requirements
The U.S. Clean Air Act of 1970, as amended by the Clean Air
Act Amendments of 1977 and 1990 (the CAA), requires
the U.S. Environmental Protection Agency, or EPA, to
promulgate standards applicable to emissions of volatile organic
compounds and other air contaminants. Our vessels are subject to
vapor control and recovery requirements for certain cargoes when
loading, unloading, ballasting, cleaning and conducting other
operations in regulated port areas. Our vessels that operate in
such port areas are equipped with vapor control systems that
satisfy these requirements. The CAA also requires states to
draft State Implementation Plans, or SIPs, designed to attain
national health-based air quality standards in primarily major
metropolitan
and/or
industrial areas. Several SIPs regulate emissions resulting from
vessel loading and unloading operations by requiring the
installation of vapor control equipment. As indicated above, our
vessels operating in covered
42
port areas are already equipped with vapor control systems that
satisfy these requirements. Although a risk exists that new
regulations could require significant capital expenditures and
otherwise increase our costs, we believe, based on the
regulations that have been proposed to date, that no material
capital expenditures beyond those currently contemplated and no
material increase in costs are likely to be required.
The Clean Water Act (CWA) prohibits the discharge of
oil or hazardous substances into navigable waters and imposes
strict liability in the form of penalties for any unauthorized
discharges. The CWA also imposes substantial liability for the
costs of removal, remediation and damages. State laws for the
control of water pollution also provide varying civil, criminal
and administrative penalties in the case of a discharge of
petroleum or hazardous materials into state waters. The CWA
complements the remedies available under the more recent OPA and
CERCLA, discussed above.
Effective February 6, 2009, the EPA, regulates the
discharge of ballast water and other substances incidental to
the normal operation of vessels in U.S. waters using a
Vessel General Permit, or VGP, system pursuant to the CWA, in
order to combat the risk of harmful foreign organisms that can
travel in ballast water carried from foreign ports. A VGP is
required for commercial vessels 79 feet in length or longer
(other than commercial fishing vessels). Compliance could
require the installation of equipment on our vessels to treat
ballast water before it is discharged or the implementation of
other port facility disposal arrangements or procedures at
potentially substantial cost,
and/or
otherwise restrict our vessels from entering U.S. waters.
Ballast water is also addressed under the U.S. National
Invasive Species Act, or NISA. U.S. Coast Guard regulations
adopted under NISA impose mandatory ballast water management
practices for all vessels equipped with ballast water tanks
entering U.S. waters.
European
Union Restrictions
European regulations in the maritime sector are in general based
on international law. However, since the Erika incident in 1999,
the European Community has become increasingly active in the
field of regulation of maritime safety and protection of the
environment. It has been the driving force behind a number of
amendments of MARPOL (including, for example, changes to
accelerate the time-table for the phase-out of single hull
tankers, and to prohibit the carriage in such tankers of heavy
grades of oil), and if dissatisfied either with the extent of
such amendments or with the time-table for their introduction it
has been prepared to legislate on a unilateral basis. In some
instances where it has done so, international regulations have
subsequently been amended to the same level of stringency as
that introduced in Europe, but the risk is well established that
EU regulations may from time to time impose burdens and costs on
ship owners and operators which are additional to those involved
in complying with international rules and standards. In some
areas of regulation the EU has introduced new laws without
attempting to procure a corresponding amendment of international
law. Notably, it adopted in 2005 a directive on ship-source
pollution, imposing criminal sanctions for pollution not only
where this is caused by intent or recklessness (which would be
an offence under MARPOL), but also where it is caused by
serious negligence. The directive could therefore
result in criminal liability being incurred in circumstances
where it would not be incurred under international law.
Experience has shown that in the emotive atmosphere often
associated with pollution incidents, retributive attitudes
towards ship interests have found expression in negligence being
alleged by prosecutors and found by courts on grounds which the
international maritime community has found hard to understand.
Moreover, there is skepticism that the notion of serious
negligence is likely to prove any narrower in practice
than ordinary negligence. Criminal liability for a pollution
incident could not only result in us incurring substantial
penalties or fines but may also, in some jurisdictions,
facilitate civil liability claims for greater compensation than
would otherwise have been payable.
In response to the MT Prestige oil spill in November 2002, the
European Union adopted legislation that prohibits all
single-hull tankers from entering into its ports or offshore
terminals by June 2010 or earlier depending on age. The European
Union has also banned all single-hull tankers carrying heavy
grades of oil from entering or leaving its ports or offshore
terminals or anchoring in areas under its jurisdiction. Certain
single-hull tankers above 15 years of age are also
restricted from entering or leaving European Union ports or
offshore terminals and anchoring in areas under European Union
jurisdiction.
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The European Union has also adopted legislation that:
(1) strengthens regulation against manifestly
sub-standard
vessels (defined as those over 15 years old that have been
detained by port authorities at least twice in a six-month
period) from European waters and creates an obligation of port
states to inspect vessels posing a high risk to maritime safety
or the marine environment and (2) provides the European
Union with greater authority and control over classification
societies, including the ability to seek to suspend or revoke
the authority of negligent societies. It is difficult to
accurately predict what legislation or additional regulations,
if any, may be promulgated by the European Union or any other
country or authority.
All of the tankers in our fleet are
double-hulled;
however, the High Land and the High Rider do not meet the
requirements of MARPOL Regulation 19, and are subject to
certain restrictions in trading.
Greenhouse
Gas Regulation
In February 2005, the Kyoto Protocol to the United Nations
Framework Convention on Climate Change, which we refer to as the
Kyoto Protocol, entered into force. Pursuant to the Kyoto
Protocol, adopting countries are required to implement national
programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of
contributing to global warming. Currently, the emissions of
greenhouse gases from international shipping are not subject to
the Kyoto Protocol. However, the European Union has indicated
that it intends to propose an expansion of the existing European
Union emissions trading scheme to include emissions of
greenhouse gases from vessels. In the U.S., the EPA has begun
the process of declaring greenhouse gases to be dangerous
pollutants, which may be followed by future federal regulation
of greenhouse gases. Any passage of climate control legislation
or other regulatory initiatives by the IMO, EU, the U.S. or
other countries where we operate that restrict emissions of
greenhouse gases could require us to make significant financial
expenditures we cannot predict with certainty at this time.
Vessel
Security Regulations
Since the terrorist attacks of September 11, 2001, there
have been a variety of initiatives intended to enhance vessel
security. On November 25, 2002, the U.S. Maritime
Transportation Security Act of 2002, or MTSA, came into effect.
To implement certain portions of the MTSA, in July 2003, the
U.S. Coast Guard issued regulations requiring the
implementation of certain security requirements aboard vessels
operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created
a new chapter of the convention dealing specifically with
maritime security. The new chapter became effective in July 2004
and imposes various detailed security obligations on vessels and
port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the
ISPS Code. The ISPS Code is designed to protect ports and
international shipping against terrorism. To trade
internationally, a vessel must attain an International Ship
Security Certificate, or ISSC, from a recognized security
organization approved by the vessels flag state. Among the
various requirements are:
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on-board installation of automatic identification systems to
provide a means for the automatic transmission of safety-related
information from among similarly equipped ships and shore
stations, including information on a ships identity,
position, course, speed and navigational status;
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on-board installation of ship security alert systems, which do
not sound on the vessel but only alerts the authorities on shore;
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the development of vessel security plans;
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ship identification number to be permanently marked on a
vessels hull;
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a continuous synopsis record kept onboard showing a
vessels history including the name of the ship and of the
state whose flag the ship is entitled to fly, the date on which
the ship was registered with that state, the ships
identification number, the port at which the ship is registered
and the name of the registered owner(s) and their registered
address; and
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compliance with flag state security certification requirements.
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The U.S. Coast Guard regulations, intended to align with
international maritime security standards, exempt from MTSA
vessel security measures
non-U.S. vessels
that have on board, as of July 1, 2004, a valid ISSC
attesting to the vessels compliance with SOLAS security
requirements and the ISPS Code. We have implemented the various
security measures addressed by MTSA, SOLAS and the ISPS Code,
and our fleet is in compliance with applicable security
requirements.
International
laws governing civil liability to pay compensation or
damages
In 2001, the IMO adopted the International Convention on Civil
Liability for Bunker Oil Pollution Damage, or the Bunker
Convention, which imposes strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states
caused by discharges of bunker oil. The Bunker
Convention defines bunker oil as any
hydrocarbon mineral oil, including lubricating oil, used or
intended to be used for the operation or propulsion of the ship,
and any residues of such oil. The Bunker Convention also
requires registered owners of ships over a certain size to
maintain insurance for pollution damage in an amount equal to
the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount
calculated in accordance with the Convention on Limitation of
Liability for Maritime Claims of 1976, as amended, or the 1976
Convention). The Bunker Convention entered into force on
November 21, 2008, and in early 2009 it was in effect in
22 states. In other jurisdictions liability for spills or
releases of oil from ships bunkers continues to be
determined by the national or other domestic laws in the
jurisdiction where the events or damages occur. Outside the
United States, national laws generally provide for the owner to
bear strict liability for pollution, subject to a right to limit
liability under applicable national or international regimes for
limitation of liability. The most widely applicable
international regime limiting maritime pollution liability is
the 1976 Convention. Rights to limit liability under the 1976
Convention are forfeited where a spill is caused by a
shipowners intentional or reckless conduct. Some states
have ratified the 1996 LLMC Protocol to the 1976 Convention,
which provides for liability limits substantially higher than
those set forth in the 1976 Convention to apply in such states.
Finally, some jurisdictions are not a party to either the 1976
Convention or the 1996 LLMC Protocol, and, therefore,
shipowners rights to limit liability for maritime
pollution in such jurisdictions may be uncertain.
Risk of
Loss and Insurance
The operation of any cargo vessel includes risks such as
mechanical failure, physical damage, collision, property loss,
cargo loss or damage and business interruption due to political
circumstances in foreign countries, hostilities and labor
strikes. In addition, there is always an inherent possibility of
marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating
vessels in international trade. The U.S. Oil Pollution Act
of 1990, or OPA, which imposes virtually unlimited liability
upon owners, operators and charterers of any vessel trading in
the United States exclusive economic zone for certain oil
pollution accidents in the United States, has made liability
insurance more expensive for ship owners and operators trading
in the U.S. market. While we believe that our present
insurance coverage is adequate, not all risks can be insured
against, and there can be no guarantee that any specific claim
will be paid, or that we will always be able to obtain adequate
insurance coverage at reasonable rates.
We have obtained marine hull and machinery and war risk
insurance, which includes the risk of actual or constructive
total loss, for all our vessels. The vessels are each covered up
to at least fair market value.
We also arranged increased value insurance for most of our
vessels. Under the increased value insurance, in case of total
loss of the vessel, we will be able to recover the sum insured
under the policy in addition to the sum insured under our hull
and machinery policy. Increased value insurance also covers
excess liabilities that are not recoverable in full by the hull
and machinery policies by reason of under-insurance.
Protection and indemnity insurance, which covers our third-party
liabilities in connection with our shipping activities, is
provided by mutual protection and indemnity associations, or
P&I Associations. This insurance covers third-party
liability and other related expenses of injury or death of crew,
passengers and other third parties, loss or damage to cargo,
claims arising from collisions with other vessels, damage to
other third-party property, pollution arising from oil or other
substances, and salvage, towing and other related costs,
including
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wreck removal. Protection and indemnity insurance is a form of
mutual indemnity insurance, extended by protection and indemnity
mutual associations, or clubs. Our coverage, except
for pollution, is unlimited.
Our current protection and indemnity insurance coverage for
pollution is $1.0 billion per vessel per incident. The 13
P&I Associations that compose the International Group
insure approximately 90% of the worlds commercial tonnage
and have entered into a pooling agreement to reinsure each
associations liabilities. Each P&I Association has
capped its exposure to this pooling agreement at approximately
$5.4 billion. As a member of a P&I Association that is
a member of the International Group, we are subject to calls
payable to the associations based on our claim records as well
as the claim records of all other members of the individual
associations, and members of the International Group.
Inspection
by a Classification Society
Our vessels have been certified as being in class by
either Nippon Kaijori Kyokai Corp., Bureau Veritas, or
Germanischer Lloyd each of which is a member of the
International Association of Classification Societies. Every
commercial vessels hull and machinery is evaluated by a
classification society authorized by its country of registry.
The classification society certifies that the vessel has been
built and maintained in accordance with the rules of the
classification society and complies with applicable rules and
regulations of the vessels country of registry and the
international conventions of which that country is a member.
Each vessel is inspected by a surveyor of the classification
society in three surveys of varying frequency and thoroughness:
every year for the annual survey, every two to three years for
intermediate surveys and every four to five years for special
surveys. Should any defects be found, the classification
surveyor will issue a recommendation for appropriate
repairs, which have to be made by the shipowner within the time
limit prescribed. Vessels may be required, as part of the annual
and intermediate survey process, to be dry-docked for inspection
of the underwater portions of the vessel and for necessary
repair stemming from the inspection. Special surveys always
require dry-docking.
Competition
We operate in markets that are highly competitive and based
primarily on supply and demand. We compete for charters on the
basis of price, vessel location, size, age and condition of the
vessel, as well as on our reputation as an operator. We
typically arrange our charters in the period market through the
use of brokers, who negotiate the terms of the charters based on
market conditions. We compete primarily with owners of container
ships and owners of product tankers in the Aframax, Panamax and
Handymax class sizes. Ownership of tankers is highly fragmented
and is divided among major oil companies and independent vessel
owners.
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C.
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Organizational
Structure
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NewLead is the sole owner of all outstanding shares of the
subsidiaries listed in Note 1 of our consolidated financial
statements included in this report.
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D.
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Properties,
Plants and Equipment
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Not applicable.
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Item 4A.
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Unresolved
Staff Comments
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Not applicable.
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Item 5.
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Operating
and Financial Review and Prospects
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The following is a discussion of NewLead Holdings Ltd., as
Successor to and as Predecessor of the
recapitalization as discussed in the following paragraphs and in
Note 4 (Restated) to the Consolidated Financial Statements
as of December 31, 2009, for the period from
October 14, 2009 to December 31, 2009 and for the
period from January 1, 2009 to October 13, 2009. Also
following is a discussion of the Predecessor Companys
financial condition and results of operations for the fiscal
years ended December 31,
46
2008 and 2007. All of these financial statements have been
prepared in accordance with Generally Accepted Accounting
Principles in the United States of America (GAAP). You should
read this section together with the consolidated financial
statements including the notes to those financial statements for
the years and periods mentioned above, which are included in
this document.
Subsequent to the filing of the Companys Annual Report on
Form 20-F
for the period from October 14, 2009 to December 31,
2009, the Company identified that, in connection with the
reporting of the 2009 recapitalization (see Note 4
(Restated)), the goodwill resulting from the application of
acquisition accounting to the Aries business was recorded
directly in shareholders equity but should have been
recorded as Goodwill in the Companys
non-current
assets. The Company has corrected this error in the consolidated
balance sheet and the consolidated statement of
shareholders equity with resulting increases in Goodwill,
Total Non-Current Assets, Total Assets, Additional Paid-in
Capital and Total Shareholders Equity of
$86.0 million as of December 31, 2009. As a result,
goodwill increased from zero to $86.0 million, total
non-current assets increased from $277.9 million to
$363.9 million, total assets increased from
$399.3 million to $485.3 million, additional paid-in
capital increased from $110.3 million to
$196.3 million and total shareholders equity
increased from $72.5 million to $158.5 million. This
correction had no effect on Net loss or Net cash used in
operating activities. In addition, and unconnected to the
correction of the error, certain amounts in the Consolidated
Statements of Cash Flows in the Predecessor period have been
reclassified to conform to the presentation adopted in the
Successor period.
If the 2010 quarterly information previously released by the
Company was similarly restated, the only impact would be that
the line items for goodwill and shareholders equity would
each be increased by approximately $86 million.
Subsequent to the Original Filing, the Company effected a
1-for-12
reverse split of its common shares effective August 3,
2010. Except as described above and the subsequent events note
(Note 23), this
Form 20-F/A
does not amend or update any other information contained in the
Original Filing.
With respect to the
1-for-12
reverse split event, Additional Paid-in Capital increased, and
Share Capital equally decreased, by an amount of
$0.7 million; due to this reclassification and in
conjunction with the restatement issue described above,
Additional Paid-in Capital as of December 31, 2009 amounted
to $196.3 million.
The report contains forward-looking statements which are based
on our assumptions about the future of our business. Our actual
results will likely differ materially from those contained in
the forward-looking statements and such differences may be
material. Please read Forward-Looking Statements for
additional information regarding forward-looking statements used
in this document. Reference in the following discussion to
our, us, NewLead and the
Company refer to our company, our subsidiaries and
the predecessor operations of NewLead Holdings Ltd., except
where the context otherwise indicates or requires.
Overview
NewLead Holdings Ltd. is a international shipping company that
owns a fleet of dry bulk carriers and double-hulled product
tankers. We provide ideal solutions for sea transportation
requirements and a significant role in meeting the worldwide
demand for distribution of petroleum products and dry bulk
commodities.
Focused on operational excellence, NewLead provides its
customers with safe, reliable and environmentally sound seaborne
transportation services that meet stringent internal and
external standards. We will endeavor to capitalize on the
dynamics of the shipping industry, expand our Company and create
shareholder value.
During the fourth quarter of 2009, NewLead underwent a
recapitalization to reposition itself and focus on the wet and
dry segments of its business. As a result of the
recapitalization, we changed our board of directors and senior
management, exited the container market by selling our remaining
two container vessels, refinanced certain obligations in order
to set us on a more sound financial position. In addition, we
are currently implementing a new business strategy that includes
growing our two business segments (wet and dry), building a core
fleet of owned and chartered-in vessels and creating an
appropriate revenue mix to achieve a stable cash flow. Moreover
the new business strategy aims to:
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Grow our diversified fleet through sourced networks at favorable
terms;
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Implement a coherent charter strategy to achieve an optimal mix
of spot charters, time charters and bareboat charters to smooth
exposure to market cycles;
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Maintain cash flow stability with upside potential;
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Solidify a diverse customer base with established reliable
charterers to reduce our counterparty risk;
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Bring in quality in-house technical managers to ensure efficient
operations and optimum fleet utilization; and
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Employ leverage with a favorable repayment profile.
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NewLead Holdings Ltd. is a Bermuda-chartered company maintaining
its principal office in Piraeus, Greece.
Important
Factors to Consider When Evaluating Our Historical and Future
Results of Operations
Charters
We generate revenues by charging customers for the
transportation of oil and petroleum products in our product
tankers business and for a wide array of unpackaged cargo in our
dry bulk business. As of March 18, 2010, we employ four of
our vessels on period charter agreements, six of our vessels
under spot market charters and two of our vessels on bareboat
charters. As of March 18, 2010, the charters for the
product tankers have approximate remaining periods ranging from
five month to eleven months, and the charters for the dry bulk
vessels have approximate remaining periods ranging from one year
and eight months to six years and seven months. A time charter
is a contract for the use of a vessel for a specific period of
time during which the charterer pays all of the voyage expenses,
including port and canal charges and the cost of bunkers, but
the vessel owner pays the vessel operating expenses, including
the cost of crewing, insuring, repairing and maintaining the
vessel, the costs of spares and consumable stores and tonnage
taxes. Under a spot-market charter, the vessel owner pays both
the voyage expenses (less specified amounts covered by the
voyage charterer) and the vessel operating expenses. Under both
types of charters we pay commissions to ship brokers depending
on the number of brokers involved with arranging the charter.
Vessels operating in the spot-charter market generate revenues
that are less predictable than time charter revenues, but may
enable us to capture increased profit margins during periods of
improvements in charter rates.
We believe the principal factors that will affect our future
results of operations are the economic, regulatory, political
and governmental conditions that affect the shipping industry
generally and that affect conditions in countries and markets in
which our vessels engage in business. Please read the section
titled Risk Factors for a discussion of certain
risks inherent in our business.
We believe that the important measures for analyzing trends in
our results of operations consist of the following:
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Market exposure: We manage the size and
composition of our fleet by chartering our owned vessels to
international charterers. We aim at achieving an appropriate
balance between wet and dry vessels to diversify our market risk.
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Available days: Available days is the total
number of days a vessel is controlled by a company less the
aggregate number of days that the vessel is off-hire due to
scheduled repairs or repairs under guarantee, vessel upgrades or
special surveys. The shipping industry uses available days to
measure the number of days in a period during which vessels
should be capable of generating revenues.
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Operating days: Operating days is the number
of available days in a period less the aggregate number of days
that the vessels are off-hire due to any reason, including lack
of demand or unforeseen circumstances. The shipping industry
uses operating days to measure the aggregate number of days in a
period during which vessels actually generate revenues.
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Fleet utilization: Fleet utilization is
obtained by dividing the number of operating days during a
period by the number of available days during the period. The
shipping industry uses fleet utilization to measure a
companys efficiency in finding suitable employment for its
vessels and minimizing the amount of days that its vessels are
off-hire for reasons other than scheduled repairs or repairs
under guarantee, vessel upgrades, special surveys or vessel
positioning.
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48
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Equivalent vessels data is the available days of the
fleet divided by the number of the calendar days in the
respective period.
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TCE rates: Time Charter Equivalent, or TCE,
rates are defined as voyage and time charter revenues, less
voyage expenses during a period, divided by the number of
available days during the period. The TCE rate is a standard
shipping industry performance measure used primarily to compare
daily earnings generated by vessels on time charters with daily
earnings generated by vessels on voyage charters, because
charter hire rates for vessels on voyage charters are generally
not expressed in per day amounts, while charter hire rates for
vessels on time charters generally are expressed in such
amounts. This has been adjusted to reflect that the Stena
Compass and the Stena Compassion were each employed on a
bareboat charter by assuming a TCE rate of $24,500 per day,
reflecting assumed operating costs of $5,800 per day, has been
included in respect of the annual operating days of the vessels
during the periods from January 1, 2009 to October 13,
2009 and October 14, 2009 to December 31, 2009 and for
the years ended December 31, 2008 and 2007, respectively.
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Set forth below are our selected historical and statistical data
that we believes may be useful in better understanding our
financial position and results of operations.
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Successor
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Predecessor
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October 14
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January 1
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Year Ended
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to
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to
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December 31,
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December 31, 2009
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October 13, 2009
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2008
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Available days
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824
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2,285
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3,294
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Operating days
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682
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1,874
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3,029
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Fleet utilization
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83
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%
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82
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%
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92
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%
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Equivalent vessels
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87
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%
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89
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%
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100
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%
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Time Charter Equivalent rate
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$
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12,293
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$
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12,052
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$
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16,318
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Principal
Factors that Affect Our Business
The principal factors that affect our financial position,
results of operations and cash flows include:
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charter rates and periods of charter hire;
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vessel operating expenses and voyage costs, which are incurred
in both U.S. dollars and other currencies, primarily Euros;
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depreciation expenses, which are a function of the cost of our
vessels, significant vessel improvement costs and our
vessels estimated useful lives; and
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financing costs related to our indebtedness, which totalled
$278.7 million at December 31, 2009.
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You should read the following discussion together with the
information contained in the table of vessel information under
Item 4 Information on the
Company Business Overview Our
Fleet. The net daily charter hire rates detailed in that
table under Net Daily Charter hire Rate are fixed
rates and all detailed vessels, except the Newlead Avra
(formerly Altius), the Newlead Fortune (formerly Fortius),
Nordanvind, Ostria, High Rider and Chinook (which are currently
operating in the spot market) and the High Land (which is
operating under a time charter), are employed under bareboat
period charters. Revenues from period charters are stable over
the duration of the charter, provided there are no unexpected or
periodic survey off-hire periods and no performance claims from
the charterer or charterer defaults. We cannot guarantee that
actual results will be as anticipated. Due to the
recapitalization on October 13, 2009 and as part of the new
management strategy, we have exited the container market and
have entered into the dry bulk market to better diversify our
business and focus on our wet and dry
business segments. The discussions hereafter then represent only
our continuing operations, except where specifically mentioned.
49
Revenues
For the period from October 14, 2009 to December 31,
2009, total revenue from continuing operations were derived from
the time, bareboat and voyage charters of our nine product
tankers and three dry bulk vessels. The charters for the product
tankers have remaining periods ranging from approximately five
to eleven months. Charters for the two Stena product tanker
vessels and one of our dry bulk vessels, currently have
profit-sharing components.
The charters for the dry bulk vessels have remaining periods
ranging approximately as follows:
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China Minimum five years, eight months
Maximum six years, seven months, plus an option to extend
further by approximately 159 days due to dry-docking
duration.
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Australia Minimum one year and eight
months Maximum one year and ten months.
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Brazil Minimum four years, seven months
Maximum four years, eleven months.
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We believe that the performance of the charterers to date has
been in accordance with our charter contracts. At the maturity
of each charter, we will seek to renew these charters with the
same or other reputable charterers.
Our revenues, for the period from January 1, 2009 to
October 13, 2009 reflect the continuing operations of nine
product tankers. Our revenues, for the period from
October 14, 2009 to December 31, 2009 reflect the
continuing operations of nine product tankers and three dry bulk
vessels. During the period from January 1, 2009 to
October 13, 2009, the period from October 14, 2009 to
December 31, 2009 and for the year ended December 31,
2008, our product tankers and dry bulk vessels recorded 2,285,
824 and 3,294 available days, respectively, due to scheduled
repairs and vessel upgrades. Available days is the total number
of days a vessel is controlled by a company less the aggregate
number of days that the vessel is off-hire due to scheduled
repairs or repairs under guarantee, vessel upgrades or special
surveys. The shipping industry uses available days to measure
the number of days in a period during which vessels should be
capable of generating revenues. In addition, six of our vessels
were out of service during the periods from January 1, 2009
to October 13, 2009 and from October 14, 2009 to
December 31, 2009 due to scheduled dry-docking and special
survey, upgrading and preventative maintenance works. All met
their required class certification except the Nordanvind, due to
repairs that the vessel underwent all through 2009. We expect
the Nordanvind will be generating revenues soon. Given the
significant number of dry-docking days during the period from
January 1, 2009 to October 13, 2009 and from
October 14, 2009 to December 31, 2009, fleet
utilization decreased by approximately 11% and 10%, to 82% and
83%, respectively, compared to 92% for the year ended
December 31, 2008.
For the periods from January 1, 2009 to October 13,
2009, October 14, 2009 to December 31, 2009 and for
the years ended December 31, 2008 and 2007, our revenues
from our nine product tankers were $33.6, $9.2 million,
$56.5 million and $55.8 million, respectively. For the
period from October 14, 2009 to December 31, 2009, our
revenues from our three dry bulk vessels were $4.9 million.
We did not have any dry bulk vessels during the period from
January 1, 2009 to October 13, 2009 and the years
ended December 31, 2008 and 2007.
Commissions
Commissions are paid to brokers and are typically based on a
percentage of the charter hire rate. A typical commission is
1.25% of the gross charter hire/freight earned (including
demurrage) for each broker involved in a fixture. We are
currently paying aggregate commissions ranging from 2.5% to 6.5%
per vessel per fixture (including address commission, which
represents money deducted from the charterer at source).
Voyage
Expenses
Voyage expenses are incurred due to a vessel travelling from a
loading port to a discharging port, to repair facilities or on a
repositioning voyage, and include fuel (bunkers) cost, port
expenses, agents fees, canal dues and extra war risk
insurance. Under time charters, the charterer is responsible for
paying voyage expenses while the vessel is on hire.
50
General
and Administrative Expenses
These expenses include executive and director compensation
(inclusive of shares granted), staff wages, legal fees, audit
fees, liability insurance premium and Company administration
costs.
Vessel
Operating Expenses
Vessel operating expenses are the costs of operating a vessel,
primarily consisting of crew wages and associated costs,
insurance premiums, lubricants and spare parts, and repair and
maintenance costs. Vessel operating expenses exclude fuel cost,
port expenses, agents fees, canal dues and extra war risk
insurance, which are not included in voyage expenses.
Certain vessel operating expenses are higher during the initial
period of a vessels operation. Initial daily vessel
operating expenses are usually higher than normal as newly
acquired vessels are inspected and modified to conform to the
requirements of our fleet.
Under multi-year time charters, and under short-term time
charters, we pay for vessel operating expenses. Under bareboat
charters, our charterers bear most vessel operating expenses,
including the costs of crewing, insurance, surveys,
dry-dockings, maintenance and repairs.
Depreciation
Depreciation is the periodic cost charged to our income for the
reduction in usefulness and long-term value of our vessels. We
depreciate the cost of our vessels over 25 years on a
straight-line basis. No charge is made for depreciation of
vessels under construction until they are delivered.
Amortization
of Special Survey and Dry-docking Costs
We follow the deferral method of accounting for special survey
and dry-docking costs. Special survey and dry-docking costs are
amortized over the above periods or to the next dry-docking or
special survey date if such has been determined, which reflects
the period between each required special survey and minimum
period between each dry-docking.
Interest
and Finance Expenses
Interest expenses include interest, commitment fees, arrangement
fees, amortization of deferred financing costs, amortization of
the debt discount and other similar charges. Interest incurred
during the construction of a newbuilding is capitalized in the
cost of the newbuilding. The amount of interest expense is
determined by the amount of loans and advances outstanding from
time to time and interest rates. The effect of changes in
interest rates may be reduced (increased) by interest rate swaps
or other derivative instruments. We use interest rate swaps to
hedge our interest rate exposure under our loan agreements.
Change
in Fair Value of Derivatives
At the end of each quarter, the fair values of our interest rate
swaps are valued to market. Changes in the fair value between
quarters are recognized in the statements of operations.
Foreign
Exchange Rates
Foreign exchange rate fluctuations, particularly between the
Euro and the U.S. dollar, have had an impact on our vessel
operating expenses and administrative expenses. We actively seek
to manage such exposure. Close monitoring of foreign exchange
rate trends, maintaining foreign currency accounts and buying
foreign currency in anticipation of our future requirements are
the main ways we manage our exposure to foreign exchange risk.
See below under Results of Operations Foreign
Exchange Rates.
Lack of
Historical Operating Data for Vessels Before their
Acquisition
Consistent with shipping industry practice, other than
inspection of the physical condition of the vessels and
examinations of classification society records, there is no
historical financial due diligence process when we acquire
vessels. Accordingly, we do not obtain the historical operating
data for the vessels from the sellers because that information
is not material to our decision to make acquisitions, nor do we
believe it would be
51
helpful to potential investors in our common shares in assessing
our business or profitability. Most vessels are sold under a
standardized agreement, which, among other things, provides the
buyer with the right to inspect the vessel and the vessels
classification society records. The standard agreement does not
give the buyer the right to inspect, or receive copies of, the
historical operating data of the vessel. Prior to the delivery
of a purchased vessel, the seller typically removes from the
vessel all records, including past financial records and
accounts related to the vessel. In addition, the technical
management agreement between the sellers technical manager
and the seller is automatically terminated and the vessels
trading certificates are revoked by its flag state following a
change in ownership.
Consistent with shipping industry practice, we treat the
acquisition of a vessel (whether acquired with or without
charter) as the acquisition of an asset rather than a business.
Although vessels are generally acquired free of charter, we have
acquired (and may in the future acquire) some vessels with
period charters. Where a vessel has been under a voyage charter,
the vessel is delivered to the buyer free of charter. It is rare
in the shipping industry for the last charterer of the vessel in
the hands of the seller to continue as the first charterer of
the vessel in the hands of the buyer. In most cases, when a
vessel is under period charter and the buyer wishes to assume
that charter, the vessel cannot be acquired without the
charterers consent and the buyers entering into a
separate direct agreement with the charterer to assume the
charter. The purchase of a vessel itself does not transfer the
charter because it is a separate service agreement between the
vessel owner and the charterer. When we purchase a vessel and
assume a related period charter, we must take the following
steps before the vessel will be ready to commence operations:
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obtain the charterers consent to us as the new owner;
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obtain the charterers consent to a new technical manager;
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in some cases, obtain the charterers consent to a new flag
for the vessel;
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arrange for a new crew for the vessel;
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replace all hired equipment on board, such as gas cylinders and
communication equipment;
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negotiate and enter into new insurance contracts for the vessel
through our own insurance brokers;
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register the vessel under a flag state and perform the related
inspections in order to obtain new trading certificates from the
flag state;
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implement a new planned maintenance program for the
vessel; and
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ensure that the new technical manager obtains new certificates
for compliance with the safety and vessel security regulations
of the flag state.
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The following discussion is intended to help you understand how
acquisitions of vessels affect our business and results of
operations.
Our business is comprised of the following main elements:
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employment and operation of our product tankers and dry bulk
vessels; and
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management of the financial, general and administrative elements
involved in the conduct of our business and ownership of our
product tankers and dry bulk vessels.
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The employment and operation of our vessels require the
following main components:
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vessel maintenance and repair;
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crew selection and training;
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vessel spares and stores supply;
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contingency response planning;
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onboard safety procedures auditing;
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52
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accounting;
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vessel insurance arrangement;
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vessel chartering;
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vessel hire management;
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vessel surveying; and
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vessel performance monitoring.
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The management of financial, general and administrative elements
involved in the conduct of our business and ownership of our
vessels requires the following main components:
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management of our financial resources, including banking
relationships (i.e., administration of bank loans and bank
accounts);
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management of our accounting system and records and financial
reporting; and
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administration of the legal and regulatory requirements
affecting our business and assets.
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Critical
Accounting Policies (Restated)
NewLeads consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America, or U.S. GAAP. The
preparation of these consolidated financial statements requires
NewLead Holdings Ltd. to make estimates in the application of
its accounting policies based on the best assumptions, judgments
and opinions of management. The following is a discussion of the
accounting policies that involve a higher degree of judgment and
the methods of their application that affect the reported amount
of assets and liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities at the date of
its consolidated financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
Our financial position, results of operations and cash flows
include all expenses allocable to our business, but may not be
indicative of the results we would have achieved had we operated
as a public entity under our current chartering, management and
other arrangements for the entire periods presented or for
future periods.
Critical accounting policies are those that reflect significant
judgments of uncertainties and potentially result in materially
different results under different assumptions and conditions. We
have described below what we believe are our most critical
accounting policies, because they generally involve a
comparatively higher degree of judgment in their application.
For a description of our significant accounting policies, see
Note 2 to our consolidated financial statements included
herein.
Use of
Estimates
The preparation of consolidated financial statements in
conformity with the accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities as of the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. On an on-going basis, management evaluates the
estimates and judgments, including those related to uncompleted
voyages, future dry-dock dates, the selection of useful lives
for tangible assets, expected future cash flows from long-lived
assets to support impairment tests, provisions necessary for
accounts receivables, provisions for legal disputes, and
contingencies. Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results could differ from those
estimates under different assumptions
and/or
conditions.
53
Vessels,
net
Vessels represent our most significant assets. NewLead records
the value of its vessels at their cost (which includes
acquisition costs directly attributable to the vessel and
expenditures made to prepare the vessel for its initial voyage)
less accumulated depreciation.
Depreciation is computed using the straight-line basis method
over the estimated useful life of the vessel, after considering
the estimated residual value. We estimate the residual values of
our product tankers based on a scrap value of $307 per
lightweight ton, and a scrap value of $250 or $275 per
lightweight ton for our dry bulk vessels. We believe these
levels are common in the shipping industry. An increase in the
useful life of a vessel or in its residual value would have the
effect of decreasing the annual depreciation charge and
extending it into later periods. A decrease in the useful life
of a vessel or in its residual value would have the effect of
increasing the annual depreciation charge. Management estimates
the useful life of our vessels to be 25 years from the date
of initial delivery from the shipyard. We believe that a
25-year
depreciable life is consistent with that of other shipping
companies and it represents the most reasonable useful life for
each of our vessels. However, when regulations place limitations
over the ability of a vessel to trade on a worldwide basis, its
useful life is re-estimated to end at the date such regulations
become effective.
If circumstances cause us to change our assumptions in making
determinations as to whether vessel improvements should be
capitalized, the amounts we expense each year as repairs and
maintenance costs could increase, partially offset by a decrease
in depreciation expense.
Impairment
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. If the future net undiscounted cash
flows from the assets are less than the carrying values of the
asset, an impairment loss is recorded equal to the difference
between the assets carrying value and its fair value.
During the predecessor period in 2009, we concluded that events
and circumstances had changed that may indicate the existence of
potential impairment of our long-lived assets. As a result, we
performed an impairment assessment of long-lived assets. The
significant factors and assumptions we used in undiscounted
projected net operating cash flow analysis included, among
others, operating revenues, off-hire revenues, dry-docking
costs, operating expenses and management fee estimates. Revenues
assumptions were based on a number factors for the remaining
life of the vessel (a) contracted time charter rates up to
the end of life of the current contract of each vessel,
(b) historical average time charter rates, (c) current
market conditions and, the respective vessels ages as well
as considerations such as scheduled and unscheduled off-hire
revenues based on historical experience. Operating expenses
assumptions included an annual escalation factor. All estimates
used and assumptions made were in accordance with our historical
experience of the shipping industry.
Our assessment included our evaluation of the estimated fair
market values for each vessel obtained by third-party valuations
for which management assumes responsibility for all assumptions
and judgements compared to the carrying value. The significant
factors we used in deriving the carrying value included: net
book value of the vessels, unamortized special survey and
dry-docking cost and deferred revenue.
Our impairment analysis as of December 31, 2009 did not
result in an impairment loss. During the periods from
January 1, 2009 to October 13, 2009, we recorded an
impairment loss of $68.0 million from continuing operations
and $23.6 million from discontinued operations. During the
year ended December 31, 2008, we recorded an impairment
loss of $30.1 million, which relates to discontinued
operations. There was no impairment loss for the year ended
December 31, 2007. The current assumptions used and the
estimates made are highly subjective, and could be negatively
impacted by further significant deterioration in charter rates
or vessel utilization over the remaining life of the vessels,
which could require us to record a material impairment charge in
future periods.
54
Deferred
Dry-docking and Special Survey Costs
Our vessels are subject to regularly scheduled dry-docking and
special surveys which are carried out every 30 and
60 months respectively, to coincide with the renewal of the
related certificates issued by the Classification Societies,
unless a further extension is obtained in rare cases and under
certain conditions. The costs of dry-docking and special surveys
is deferred and amortized over the above periods or to the next
dry-docking or special survey date if such has been determined.
Unamortized dry-docking or special survey costs of vessels sold
are written off to income in the year the vessel is sold. When
vessels are acquired the portion of the vessels
capitalized cost that relates to dry-docking or special survey
is treated as a separate component of the vessels cost and
is deferred and amortized as above. This cost is determined by
reference to the estimated economic benefits to be derived until
the next dry-docking or special survey.
Share-based
Compensation
Reflects grants of common shares, restricted common shares and
share options approved by the board of directors The restricted
common shares and share option awards are subject to applicable
vesting and unvested common shares and options may be forfeited
under specified circumstances. The fair values of share option
grants have been calculated based on the Binomial lattice model
method. The fair value of common share grants is determined by
reference to the quoted share price on the date of grant.
Accounts
Receivable
The amount shown as Accounts Receivable at each balance sheet
date includes estimated recoveries from charterers for hire,
freight and demurrage billings, net of allowance for doubtful
accounts. An estimate is made of the allowance for doubtful
accounts based on a review of all outstanding amounts at each
period, and an allowance is made for any accounts which
management believes are not recoverable. Bad debts are written
off in the year in which they are identified. The provision for
doubtful accounts at December 31, 2009 and 2008 amounted to
$1.2 million and $0.9 million, respectively, which
relates to continued and discontinued operations.
Revenue
Recognition
Revenues are generated by chartering our customers for the use
of our vessels to transport petroleum products and wide array of
unpackaged cargo. In recognizing revenue we are required to make
certain estimates and assumptions. Historically, differences
between our estimates and actual results have not been material
to our financial results.
We have provided services to our customers under the following
types of contractual relationships:
Voyage Charters, which are contracts made in the spot
market for the use of a vessel for a specific voyage for a
specified charter rate.
Time Charters, which are contracts for the use of a
vessel for a fixed period of time at a specified daily rate. All
other expenses related to the time charter voyages are assumed
by the charterers.
Bareboat Charters, which are contracts pursuant to which
the vessel owner provides the vessel to the charterer for a
fixed period of time at a specified daily rate, and the customer
provides for all of the vessels operating expenses
including crewing repairs, maintenance, insurance, stores lube
oils and communication expenses in addition to the voyage costs
(with the exception of commissions) and generally assumes all
risk of operation.
Any profit sharing additional hires generated are recorded over
the term of the charter as the service is provided.
Fair
Value of Financial Instruments
We have entered into various interest rate swaps agreements in
order to hedge then interest expense arising from our long-term
borrowings detailed in Note 11 to our consolidated
financial statements. Under the interest rate swaps, we agree
with the counter party to exchange, at specified intervals, the
difference between a fixed rate and floating rate interest
amount calculated by reference to the agreed notional amount. In
determining the fair value of interest rate swaps, a number of
assumptions and estimates are required to be made. These
assumptions include future interest rates.
55
These assumptions are assessed at the end of each reporting
period based on available information existing at that time.
Accordingly, the assumptions upon which these estimates are
based are subject to change and may result in a material change
in the fair value of these items.
The 7% Notes have two embedded conversion
options (1) an any time conversion
option and (2) a Make Whole Fundamental Change
conversion option, which gives the holder 10% more shares upon
conversion, in certain circumstances.
(1) The any time conversion option does meet
the definition of a derivative in the Financial Account
Standards Boards (FASB) Accounting Standard
Codification (ASC) 815; however, this embedded
conversion option meets the ASC
815-10-15
scope exception, as it is both (a) indexed to its own stock
and (b) would be classified in stockholders equity,
if freestanding. As a result, this conversion option will not be
bifurcated and separately accounted for.
(2) The Make Whole Fundamental Change
conversion option meets the definition of a derivative under ASC
815. However, this embedded conversion option does not meet the
ASC
815-10-15
scope exception, since this conversion option cannot be
considered indexed to its own stock. As a result, the conversion
option has been bifurcated from the host contract, the
7% Notes, and separately accounted for.
Our market price on the date of issuance of the 7% Notes
was $15.24 and the stated conversion price is $9.00. Since the
any time conversion option has not been bifurcated,
we recorded a beneficial conversion feature (BCF),
totalling $100.5 million, as a contra liability (discount)
that will be amortized into the income statement (via interest
charge) over the life of the 7% Notes. For the period from
October 14, 2009 to December 31, 2009,
$17.0 million of interest was expensed in the statement of
operations.
Purchase
of Vessels
When we identify any intangible assets or liabilities associated
with the acquisition of a vessel, we record all identified
tangible and intangible assets or liabilities at fair value.
Fair value is determined by reference to market data and the
discounted amount of expected future cash flows. Where we have
assumed an existing charter obligation at charter rates that are
less than market charter rates, we record a liability, being the
difference between the assumed charter rate and the market
charter rate for an equivalent vessel. This deferred charter
revenue is amortized to revenue over the remaining period of the
charter. The determination of the fair value of acquired assets
and assumed liabilities requires us to make significant
assumptions and estimates of many variables including market
charter rates, expected future charter rates, future vessel
operating expenses, the level of utilization of our vessels and
our weighted average cost of capital. The use of different
assumptions could result in a material change in the fair value
of these items, which could have a material impact on our
financial position and results of operations.
Goodwill:
Goodwill acquired in a business combination initiated after June
30, 2001 is not to be amortized. Rather, the guidance requires
that goodwill be tested for impairment at least annually and
written down with a charge to operations if the carrying amount
exceeds its implied fair value.
The Company evaluates goodwill for impairment using a two-step
process. First, the aggregate fair value of the reporting unit
is compared to its carrying amount, including goodwill. The
Company determines the fair value based on a combination of
discounted cash flow analysis and an industry market multiple.
If the fair value of the reporting unit exceeds its carrying
amount, no impairment exists. If the carrying amount of the
reporting unit exceeds its fair value, then the Company must
perform the second step in order to determine the implied fair
value of the reporting units goodwill and compare it with
its carrying amount. The implied fair value is determined by
allocating the fair value of the reporting unit to all the
assets and liabilities of that unit, as if the unit had been
acquired in a business combination and the fair value of the
unit was the purchase price. If the carrying amount of the
goodwill exceeds its implied fair value, then a goodwill
impairment is recognized by writing the goodwill down to the
implied fair value.
56
Results
of continuing operations
For the
Year Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
Comparison between these two periods is of limited value as a
result of the recapitalization on October 13, 2009, the
year ended December 31, 2009 is reported as a predecessor
period, prior to the recapitalization, and a successor period,
after the recapitalization.
The successor and predecessor periods are not comparable as the
successor period revenue and expense accounts include increases
to certain charges, as well as the addition of the three vessels
newly acquired from Grandunion. The increases principally relate
to increased interest charges arising as a consequence of
additional indebtedness associated with our recapitalization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 14,
|
|
|
|
January 1,
|
|
|
|
|
|
|
2009 to
|
|
|
|
2009 to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
October 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
(Expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
14,096
|
|
|
|
$
|
33,564
|
|
|
$
|
56,519
|
|
Commissions
|
|
|
(407
|
)
|
|
|
|
(769
|
)
|
|
|
(689
|
)
|
Voyage expenses
|
|
|
(4,634
|
)
|
|
|
|
(8,574
|
)
|
|
|
(6,323
|
)
|
Vessel operating expenses
|
|
|
(6,530
|
)
|
|
|
|
(22,681
|
)
|
|
|
(19,798
|
)
|
General and administrative expenses
|
|
|
(12,025
|
)
|
|
|
|
(8,366
|
)
|
|
|
(7,816
|
)
|
Depreciation and amortization expenses
|
|
|
(4,844
|
)
|
|
|
|
(11,813
|
)
|
|
|
(15,040
|
)
|
Impairment loss
|
|
|
|
|
|
|
|
(68,042
|
)
|
|
|
|
|
Management fees
|
|
|
(315
|
)
|
|
|
|
(900
|
)
|
|
|
(1,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,755
|
)
|
|
|
|
(121,145
|
)
|
|
|
(51,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating (loss)/income
|
|
|
(14,659
|
)
|
|
|
|
(87,581
|
)
|
|
|
5,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance expenses, net
|
|
|
(23,996
|
)
|
|
|
|
(10,928
|
)
|
|
|
(15,741
|
)
|
Interest income
|
|
|
236
|
|
|
|
|
9
|
|
|
|
232
|
|
Other income, net
|
|
|
|
|
|
|
|
40
|
|
|
|
2
|
|
Change in fair value of derivatives
|
|
|
2,554
|
|
|
|
|
3,012
|
|
|
|
(6,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(35,865
|
)
|
|
|
|
(95,448
|
)
|
|
|
(16,573
|
)
|
Net loss from discontinued operations
|
|
|
(2,007
|
)
|
|
|
|
(30,316
|
)
|
|
|
(23,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(37,872
|
)
|
|
|
$
|
(125,764
|
)
|
|
$
|
(39,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
For the period from January 1, 2009 to October 13,
2009 and from October 14, 2009 to December 31, 2009,
total operating revenues from continuing operations were
$33.6 million and $14.1 million, respectively. This
compares to total revenues of $56.5 million for the year
ended December 31, 2008. This decrease in revenue was
primarily attributable to a reduction in vessel operating days,
as well as, lower TCE rates. For the period from January 1,
2009 to October 13, 2009 and from October 14, 2009 to
December 31, 2009 and for the year ended December 31,
2008, our daily TCE rates were $12,052, $12,293 and $16,318,
respectively. The decrease in TCE rates reflect the significant
exposure we had in the spot market, as seven out of the twelve
vessels operated in the spot market during the periods from
January 1, 2009 to October 13, 2009 and
October 14, 2009 to December 31, 2009, a consequence
of the general economic environment and market conditions for
the tanker market that resulted in lower charter/spot rates as
well as lower utilization. Moreover an acceleration of scheduled
dry-dockings and repairs adversely impacted revenue during the
periods from January 1, 2009 to October 13, 2009 and
October 14, 2009 to December 31, 2009. In addition,
the Nordanvind did not produce revenue during any of 2009 due to
dry-docking and repairs.
57
Fleet utilization for the periods from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009 and for the year ended December 31,
2008, was 82%, 83%, and 92%, respectively. The decrease in
utilization was attributable to the unemployment days when the
tankers operated in the spot market, as only 50% of the fleet
was operating under time charters for the periods from
January 1, 2009 to October 13, 2009 and from
October 14, 2009 to December 31, 2009, compared to 85%
of the fleet being fixed on time charters in 2008.
Commissions
Chartering commissions were $0.8 million and
$0.4 million for the periods from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009, respectively. This compares to
$0.7 million during 2008. The increase is primary
attributable to higher commissions paid due to the fact that
seven out of twelve vessels are on spot charters.
Voyage
Expenses
Voyage expenses were $8.6 million and $4.6 million for
the periods from January 1, 2009 to October 13, 2009
and from October 14, 2009 to December 31, 2009,
respectively. This compares to $6.3 million during 2008.
The significant increase reflects the exposure of our fleet in
the spot market, as well as the increase in off-hire days.
Vessel
Operating Expenses
Vessel operating expenses were $22.7 million and
$6.5 million for the periods from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009, respectively. This compares to
$19.8 million during 2008, reflecting increased repairs, as
well as the transfer of the dry bulk vessels during the period
from October 14, 2009 to December 31, 2009. Moreover,
during the periods from January 1, 2009 to October 13,
2009 and from October 14, 2009 to December 31, 2009,
respectively, vessel operating expenses include a provision for
claims of $3.7 million and $0, respectively. There has been
no provision for claims accounted for in 2008. In addition,
during 2008, we had fleet running costs partially reduced by the
contribution of Magnus Carriers Corporation (Magnus
Carriers) under the budget variance sharing arrangement,
under the ship management agreements between certain of our
vessel-owning subsidiaries and Magnus Carriers. Magnus
Carriers contribution to vessel operating expenses
amounted to $0.8 million for the year ended
December 31, 2008.
General
and Administrative Expenses
General and administrative expenses were $8.4 million and
$12.0 million for the periods from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009, respectively. This compares to
$7.8 million during 2008. This increase relates primarily
to transaction costs of $12.4 million associated with the
October 13, 2009 recapitalization.
Depreciation
and Amortization
Depreciation and amortization expenses were $11.8 million
and $4.8 million for the periods from January 1, 2009
to October 13, 2009 and from October 14, 2009 to
December 31, 2009, respectively. This compares to
$15.0 million during the year ended December 31, 2008.
This increase was due primarily to the transfer of the three dry
bulk vessels.
Impairment
Loss
Pursuant to the standard requirements, we evaluated the carrying
amounts of our long-lived assets in light of current market
conditions. The total impairment loss for the periods from
January 1, 2009 to October 13, 2009 and from
October 14, 2009 to December 31, 2009, amounted to
$68.0 million and $0, respectively. No impairment loss was
recorded in the year ended December 31, 2008. The
significant factors and assumptions we used in undiscounted
projected net operating cash flow analysis included, among
others, operating
58
revenues, off-hire revenues, dry-docking costs, operating
expenses and management fee estimates. Revenues assumptions were
based on a number factors for the remaining life of the vessel,
including: (a) contracted time charter rates up to the end
of life of the current contract of each vessel;
(b) historical average time charter rates; (c) current
market conditions; and (d) the respective vessels
age, as well as considerations such as scheduled and unscheduled
off-hire revenues based on historical experience. Operating
expenses, assumptions included an annual escalation factor,
while estimated fair market values for each vessel were obtained
by third-party valuations for which management assumes
responsibility for all assumptions and judgements used. All
estimates used and assumptions made were in accordance with our
historical experience of the shipping industry.
Management
Fees
Management fees were $0.9 million and $0.3 million for
the periods from January 1, 2009 to October 13, 2009
and from October 14, 2009 to December 31, 2009,
respectively. This compares to $1.4 million during 2008.
This decrease was due primarily to the termination of commercial
ship management agreements with Magnus Carriers on May 1,
2009, which was partially offset with the three dry bulk vessels
transferred as a result of the October 13, 2009
recapitalization.
Interest
and Finance Expense
Total interest and finance expenses were $10.9 million and
$24.0 million for the periods from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009, respectively. This compares to
$15.7 million during 2008. The primary reason for such
increase relates to the amortization of the beneficial
conversion feature of $17.0 million during the period from
October 14, 2009 to December 31, 2009. Moreover,
interest expense on loans was $9.7 million and
$5.4 million for the periods from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009, respectively. This compares to interest
expense of $13.4 million during 2008. This increase was due
primarily to the initial issuance of the 7% Notes and the
$37.4 million credit facility in relation to the three dry
bulk vessels transferred as part of the recapitalization on
October 13, 2009. In particular, the increase in interest
expense from October 14, 2009 to December 31, 2009 was
attributable primarily to the 7% Notes, which included a
$17.0 million non-cash charge from the amortization of the
beneficial conversion feature embedded in the 7% Notes. In
addition, amortization of deferred financing costs was
$0.6 million and $1.4 million for the periods from
January 1, 2009 to October 13, 2009 and from
October 14, 2009 to December 31, 2009, respectively.
This compares to $0.9 million in 2008.
Change
in Fair Value of Derivatives
The mark to market of our eight interest rate swaps during the
period from January 1, 2009 to October 13, 2009,
resulted in an unrealized gain of $3.0 million. The mark to
market of our eight interest rate swaps and our warrants, as
well as, the make whole fundamental change derivative resulted
in an unrealized gain of $2.6 million for the period from
October 14, 2009 to December 31, 2009. This compares
to an unrealized loss during 2008 of $6.5 million. The mark
to market valuation resulted in an increase in the derivative
liabilities in the balance sheet to $17.1 million as of
December 31, 2009.
Net
Loss
Net loss from continuing operations was $95.4 million and
$35.9 million for the period from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009, respectively. This compares to a net
loss of $16.6 million, recorded for the year ended
December 31, 2008. Besides the significantly lower net
revenues generated for the product tankers in the spot market
and increased operating expenses as discussed above, the results
for the period from January 1, 2009 to October 13,
2009, reflect a $68.0 million vessel impairment charge and
a $3.7 million provision for charter claims The results for
the period from October 14, 2009 to December 13, 2009
reflect higher net interest expenses of approximately
$24.0 million as consequence of our recapitalization,
primarily attributable to the 7% Notes, which included a
$17.0 million non-cash charge from the amortization of the
beneficial conversion feature embedded in the notes as discussed
59
above. Furthermore, the results from January 1, 2009 to
October 13, 2009 also include transaction costs of
$12.4 million associated with the recapitalization.
The net loss for the period from January 1, 2009 to
October 13, 2009 and from October 14, 2009 to
December 31, 2009 and for the year ended December 31,
2008 was $125.8 million, $37.9 million and
$39.8 million, respectively. These include losses from
discontinued operations of $30.3 million and
$2.0 million for the periods from January 1, 2009 to
October 13, 2009 and October 14, 2009 to
December 31, 2009, respectively and $23.3 million for
the year ended December 31, 2008, which primarily relate to
our exit from the container market.
For the
Year Ended December 31, 2008 Compared to the Year Ended
December 31, 2007
The following table presents consolidated revenue and expense
information for the year ended December 31, 2008 and 2007.
This information was derived from our audited consolidated
revenue and expense accounts for the respective periods.
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
|
(Expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
56,519
|
|
|
$
|
55,774
|
|
Commissions
|
|
|
(689
|
)
|
|
|
(551
|
)
|
Voyage expenses
|
|
|
(6,323
|
)
|
|
|
(2,713
|
)
|
Vessel operating expenses
|
|
|
(19,798
|
)
|
|
|
(17,489
|
)
|
General and administrative expenses
|
|
|
(7,816
|
)
|
|
|
(5,278
|
)
|
Depreciation and amortization expenses
|
|
|
(15,040
|
)
|
|
|
(14,029
|
)
|
Impairment loss
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
(1,404
|
)
|
|
|
(1,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,070
|
)
|
|
|
(41,303
|
)
|
Net operating income
|
|
|
5,449
|
|
|
|
14,471
|
|
|
|
|
|
|
|
|
|
|
Interest and finance expenses, net
|
|
|
(15,741
|
)
|
|
|
(16,966
|
)
|
Interest income
|
|
|
232
|
|
|
|
630
|
|
Other income/(expenses) income, net
|
|
|
2
|
|
|
|
(11
|
)
|
Change in fair value of derivatives
|
|
|
(6,515
|
)
|
|
|
(4,060
|
)
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(16,573
|
)
|
|
|
(5,936
|
)
|
Net loss from discontinued operations
|
|
|
(23,255
|
)
|
|
|
(2,797
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(39,828
|
)
|
|
$
|
(8,733
|
)
|
|
|
|
|
|
|
|
|
|
Revenues
Total revenues increased 1.3% to $56.5 million during the
year ended December 31, 2008, compared to
$55.8 million in 2007. This minimal increase in revenues
was attributable primarily to the vessel utilization as well as
competitive charter rates for certain vessels in our fleet
compared to 2007. Despite the adverse general economic
environment and market conditions that prevailed during the
second part of the year in 2008, the tanker products market was
less affected. As a result, two out of twelve vessels operated
in the spot market during the year ended December 31, 2008.
Commissions
Chartering commissions increased by approximately 16.7% to
$0.7 million during the year ended December 31, 2008,
compared to $0.6 million during the equivalent period in
2007.
60
Voyage
Expenses
Voyage expenses increased by approximately 133.3% to
$6.3 million during the year ended December 31, 2008,
compared to $2.7 million during the equivalent period in
2007. The increase was primary attributable to increased world
commodity oil prices, as more of our vessels traded in the spot
market with low revenue spot daily rates, and the increase in
off-hire days.
Vessel
Operating Expenses
Vessel operating expenses increased by approximately 13.1% to
$19.8 million during the year ended December 31, 2008,
compared to $17.5 million during the equivalent period in
2007. This increase was attributed mainly to higher repairs and
upgrading costs for the vessels and higher average fleet running
costs partially offset by Magnus Carriers under the budget
variance sharing arrangement, under the ship management
agreements between certain of our vessel-owning subsidiaries and
Magnus Carriers. Magnus Carriers contribution to vessels
operating expenses amounted to $0.8 million during the year
ended December 31, 2008 and $2.2 million during the
equivalent period in 2007. Excluding Magnus Carriers
contribution, vessel operating expenses remain at approximately
the same levels.
General
and Administrative Expenses
General and administrative expenses increased by approximately
47.2% to $7.8 million during the year ended
December 31, 2008, compared to $5.3 million during
2007. This increase was due primarily to increased payroll costs
as a result of the establishment of AMT Management, as well as
to higher third-party fees and compensation costs related to
restricted share grants.
Depreciation
and Amortization
Depreciation and amortization increase by approximately 7.1% to
$15.0 million during the year ended December 31, 2008,
compared to $14.0 million during 2007. This increase was
due primarily to higher dry-docking and special survey costs in
2008 relating to the High land, Seine, Ostria and Saronikos
Bridge.
Management
Fees
Management fees increased by approximately 16.7% to
$1.4 million during the year ended December 31, 2009,
compared to $1.2 million in 2008.
Interest
and Finance Expense
Total interest and finance expense decreased by approximately
7.6% to $15.7 million during the year ended
December 31, 2008, compared to $17.0 million in 2007.
Interest expense on loans decreased by approximately 11.3% to
$13.4 million, compared to $15.1 million in 2007. This
decrease was due primarily to lower interest rates. Interest and
finance expenses for both the year ended December 31, 2008
and 2007 include amortization of deferred financing costs
amounting to $0.9 million and $1.3 million,
respectively.
Change
in Fair Value of Derivatives
The mark to market impact of our seven interest rate swaps in
effect as of December 31, 2008 and 2007 resulted in
unrealized losses of $6.5 million and $4.1 million,
respectively. The mark to market valuation of this set of seven
interest rate swaps for both years resulted in liabilities of
$12.5 million and $5.9 million, respectively.
Net
loss
Net loss from continuing operations for the year ended
December 31, 2008 and 2007 amounted to $16.6 million
and $6.0 million respectively. This increase in net loss
was primarily attributable to higher fleet running costs,
increased voyage expenses, as well as the adverse change in the
fair value of our interest rate swaps.
61
Net loss from discontinued operations for the years ended
December 31, 2008 and 2007 were $23.3 million and
$2.7 million, respectively. This increase is due primarily
to the impairment charge of $30.1 million that related to
the container vessels.
|
|
B.
|
Liquidity
and Capital Resources
|
Overview
We operate in a capital intensive industry. Our principal
sources of liquidity are cash flows from operations, equity and
debt. Our future liquidity requirements relate to: (i) our
operating expenses; (ii) quarterly and six month payments
of interest and other debt-related expenses and the repayment of
principal; (iii) maintenance of financial covenants under
our fully revolving credit facility agreement;
(iv) payments for dry-docking and special survey costs; and
(v) maintenance of cash reserves to provide for
contingencies.
As of December 31, 2009, we had a positive working capital
position of approximately $67.2 million, reflecting
$106.3 million cash and cash equivalents, compared with a
negative working capital position of approximately
$231.7 million as of December 31, 2008. Total debt
amounted to $278.7 million for the year ended
December 31, 2009, compared to $223.7 million as of
December 31, 2008. The long term portion of the debt
amounted to 264.5 million for the year ended
December 31, 2009 compared to $0 as at December 31,
2008. In 2008, the total debt of $223.7 million was
classified under short term debt due to violation of certain
covenants of the credit facility, which has subsequently been
refinanced as part of the recapitalization. Management believes
that we have sufficient working capital to meet our current
working capital requirements for at least the next
12 months.
As further explained below under Indebtedness, as a
result of the refinancing, new financial covenants have been
incorporated into our credit facility. Upon its refinancing, the
financial covenants in the Facility Agreement will become
effective (excluding working capital and minimum liquidity
covenants) in a period ranging from 30 to 36 months from
the execution of the Facility Agreement to allow a sufficient
period of time for new management to implement its business
strategy.
On October 13, 2009, the following actions occurred in
connection with the approximately $400.0 million
recapitalization:
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|
|
|
|
Our existing syndicate of lenders entered into a new
$221.4 million Facility Agreement to refinance our existing
revolving credit facility. As of March 18, 2010, the amount
outstanding under the Facility Agreement was $190.4 million.
|
|
|
|
The issuance of $145.0 million of the 7% Notes, that
are convertible into common shares at a conversion price of
$9.00 per common share. The $125.0 million outstanding
principal amount of our 7% Notes is reflected as
$41.4 million on our December 31, 2009 balance sheet
due to the netting impact of a beneficial conversion feature
(discount) as more fully described below under
Indebtedness and in Note 12 of the
Consolidated Financial Statements. We estimate as of
March 18, 2010, the net outstanding amount for balance
sheet purposes is approximately $44.5 million.
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|
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|
We assumed a $37.4 million credit facility in relation to
the three vessels transferred to us as part of the
recapitalization. Subsequent to its assumption, this facility
has been, and continues to be, periodically paid down and drawn
upon to minimize our cost of capital. As of March 18, 2010,
there was no outstanding balance under this facility.
|
62
The following table below summarizes the cash flows from our
operations for each of the years ended December 31, 2009,
2008 and 2007:
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|
|
|
|
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|
|
|
|
|
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|
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|
|
|
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Predecessor
|
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|
Successor
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Year Ended
|
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|
Year Ended
|
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|
October 14, 2009 to
|
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|
January 1, 2009 to
|
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|
December 31,
|
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|
December 31,
|
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|
|
December 31, 2009
|
|
|
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October 13, 2009
|
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|
2008
|
|
|
2007
|
|
|
|
(audited)
|
|
|
|
(audited)
|
|
|
(audited)
|
|
|
(audited)
|
|
Net cash (used in)/provided by operating activities
|
|
$
|
(5,869
|
)
|
|
|
$
|
(10,557
|
)
|
|
$
|
2,901
|
|
|
$
|
17,581
|
|
Net cash provided by/(used in) investing activities
|
|
|
|
|
|
|
|
2,216
|
|
|
|
61,083
|
|
|
|
(2,008
|
)
|
Net cash provided by/(used in) financing activities
|
|
|
112,124
|
|
|
|
|
4,332
|
|
|
|
(72,419
|
)
|
|
|
(14,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
106,255
|
|
|
|
|
(4,009
|
)
|
|
|
(8,435
|
)
|
|
|
832
|
|
Cash and cash equivalents, beginning of the year
|
|
|
|
|
|
|
|
4,009
|
|
|
|
12,444
|
|
|
|
11,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
106,255
|
|
|
|
$
|
|
|
|
$
|
4,009
|
|
|
$
|
12,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows
As of December 31, 2009, 2008 and 2007, we had cash
balances of $106.3 million, $4.0 million, and
$12.4 million, respectively.
For the periods from January 1, 2009 to October 13,
2009 and October 14, 2009 to December 31, 2009, net
cash used in operating activities was $(10.6) million and
$(5.9) million, respectively. This compares to
$2.9 million, cash provided by operating activities for the
year ended December 31, 2008. This change was due to a
larger net loss, excluding non-cash items, which was partially
offset by positive cash flow changes in working capital.
For periods from January 1, 2009 to October 13, 2009
and October 14, 2009 to December 31, 2009, our net
cash provided by investing activities were $2.2 million and
$0, respectively. This compares to net cash provided by
investing activities of $61.1 million for the year ended
December 31, 2008. This decrease was due primarily to
vessel disposals amounting to $59.6 million during the year
ended December 31, 2008. Proceeds from vessel disposals for
the period from January 1, 2009 to October 13, 2009
amounted to just $2.3 million.
For the periods from January 1, 2009 to October 13,
2009 and October 14, 2009 to December 31, 2009, our
net cash provided by financing activities was
$112.1 million and $4.3 million. This compares to net
cash used in financing activities of $(72.4) million in the
year ended December 31, 2008. The primary reason for the
change was the use of $20.0 million of the proceeds from
the issuance of the $145 million of 7% Notes to reduce
the $221.4 million credit facility. Cash was used to repay
our credit facility is the primary reason for the change in 2008.
For the year ended December 31, 2008, our net cash provided
by operating activities was $2.9 million, compared to
$17.6 million during the year ended December 31, 2007,
a decrease of 83.5%. This decrease was due primarily to a net
loss of $39.8 million for the year ended December 31,
2008, compared to a net loss of $8.7 million for the year
ended December 31, 2007.
For the year ended December 31, 2008, our net cash provided
by investing activities was $61.1 million, compared to our
net cash used in investing activities of $(2.0) million
during the year ended December 31, 2007, an increase of
3155%. This increase was due primarily to vessel disposals
amounting to $59.6 million during the year ended
December 31, 2008. There were no disposals of vessels in
the year ended December 31, 2007.
63
In the year ended December 31, 2008, our net cash used in
financing activities was $72.4 million, compared to
$14.7 million in the year ended December 31, 2007, an
increase of 393%. This increase was due primarily to repayments
under our credit facility amounting to $61.1 million.
Indebtedness
As of December 31, 2009 and 2008, we had total outstanding
indebtedness of approximately $278.7 million and
$223.7 million, respectively.
We assumed a $37.4 million credit facility in relation to
the three vessels transferred to us as part of the
recapitalization. The $37.4 million credit facility is
payable in 20 consecutive quarterly instalments of
$1.56 million and a $6.2 million repayment due in
October 2014. Such facility bears margin of 3.5% above LIBOR.
Subsequent to its assumption, this facility has been, and
continues to be, periodically paid down and drawn upon to
minimize our cost of capital. As of December 31, 2009, the
outstanding balance was $35.8 million. Subsequent to the
year end the facility was repaid in full. We pay a 1% commitment
fee on the undrawn amount.
On October 13, 2009, our existing syndicate of lenders
entered into a new $221.4 million facility agreement,
referred to herein as the Facility Agreement, by and
among us and the banks identified therein in order to refinance
our then-existing revolving credit facility. Prior to the
refinancing discussed previously, we had entered into a
$360.0 million fully revolving credit facility in April
2006 with Bank of Scotland and Nordea Bank Finland as lead
arrangers and Bank of Scotland as Agent. Upon its execution in
2006, we used the fully revolving credit facility to
(i) refinance our old $140.0 million drawn term loan;
(ii) refinance our old revolving acquisition facility,
which was drawn to the extent of $43.8 million at
December 31, 2005 and which was further drawn in February
2006 in the amount of $50.5 million to complete the
purchase of the Stena Compass; and (iii) to complete the
purchase of the Stena Compassion. During 2008, we were in breach
of our covenants under the fully revolving credit facility. We
then entered into a Fifth Supplemental Agreement, in connection
with the temporary relaxation of the interest coverage covenant
of the facility, with an increased margin of 1.75% above LIBOR
applied during the year ended December 31, 2009 and until
the refinancing on October 13, 2009. Although we paid an
increased interest margin, rates overall have decreased. As of
December 31, 2009, borrowings under our original fully
revolving credit facility bore an annual effective interest
rate, including the margin of 5.81%.
The current Facility Agreement has been structured with
$38.0 million payable in 19 quarterly instalments of
$2.0 million each, and a $163.4 million repayment due
in October 2014. Of the proceeds of the issuance of the
7% Notes, $20.0 million was applied to the Facility
Agreement, and as a result of further payments made towards the
Facility Agreement, there is currently $190.4 million
outstanding under the Facility Agreement. Subsequent to the year
end, we applied $9.0 million of the proceeds from the
disposal of its two container vessels to reduce the outstanding
credit facility balance. As a result, the quarterly installment
has been reduced to approximately $1.9 million.
Our obligations under the Facility Agreement are secured by a
first priority security interest, subject to permitted liens, in
all vessels in our fleet and any other vessels we subsequently
acquire. In addition, the lenders have a first priority security
interest in all earnings from and insurances on our vessels, all
existing and future charters relating to our vessels, our ship
management agreements and all equity interests in our
subsidiaries. Our obligations under the Facility Agreement are
also guaranteed by all subsidiaries that have an ownership
interest in any of our vessels.
As explained further below, the Facility Agreement bears an
increased margin of 2.75% above LIBOR through the original
maturity date, April 6, 2011.
Under the new terms of the Facility Agreement, amounts drawn
bear interest at an annual rate equal to LIBOR plus a margin
equal to:
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|
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|
|
1.75% if our total shareholders equity divided by our
total assets, adjusting the book value of our fleet to its
market value, is equal to or greater than and 50%;
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64
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|
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|
|
2.75% if our total shareholders equity divided by our
total assets, adjusting the book value of our fleet to its
market value, is equal to or greater than 27.5% but less than
50%; and
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|
|
|
3.25% if our total shareholders equity divided by our
total assets, adjusting the book value of our fleet to its
market value, is less than 27.5%.
|
The Facility Agreement requires us to adhere to certain
financial covenants as of the end of each fiscal quarter,
including the following:
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|
|
|
|
our shareholders equity as a percentage of our total
assets, adjusting the book value of our fleet to its market
value, must be no less than:
|
(a) 25% from the financial quarter ending
September 30, 2012 until June 30, 2013; and
(b) 30% from the financial quarter ending
September 30, 2013 onwards.
|
|
|
|
|
maintain, on a consolidated basis on each financial quarter,
working capital of not less than zero dollars ($0);
|
|
|
|
the ratio of EBITDA (earnings before interest, taxes,
depreciation and amortization) to interest expense must be no
less than:
|
(a) 2.00 to 1.00 from the financial quarter day ending
September 30, 2012 until June 30, 2013; and
(b) 2.50 to 1.00 from the financial quarter day ending
September 30, 2013 onwards.
The new financial covenants put in place as a result of the
recapitalization, excluding working capital and minimum
liquidity covenants, will become effective in a period ranging
from 30 to 36 months from the execution of the Facility
Agreement to allow a sufficient period of time for new
management to implement its business strategy.
Subsequent to the recapitalization on October 13, 2009, we
were no longer in breach of the following covenants:
|
|
|
|
|
An adjusted equity ratio of not less than 35%;
|
|
|
|
An interest coverage ratio (as defined in the facility
agreement) of not less than 3.00 to 1.00;
|
|
|
|
The reduction of outstanding borrowings to $200.0 million
in accordance with the Fifth Supplemental Agreement;
|
|
|
|
A working capital balance, including the $221.4 million of
debt reflected as current, of not less than $0; and
|
|
|
|
The minimum liquidity requirement consisting of free cash and
cash equivalents.
|
In connection with the recapitalization, we issued
$145.0 million in aggregate principal amount of 7%
convertible senior notes due 2015. The 7% Notes are
convertible into common shares at a conversion price of $9.00
per share, subject to adjustment for certain events, including
certain distributions by us of cash, debt and other assets, spin
offs and other events. The 7% Notes were issued pursuant to
the Indenture dated October 13, 2009 between us and Marfin
Egnatia Bank S.A., and the Note Purchase Agreement, executed by
each of Investment Bank of Greece and Focus Maritime Corp. as
purchasers. Currently, Investment Bank of Greece retains
$100,000 outstanding principal amount of the 7% Notes and
the remainder ($144.9 million) is owned by Focus Maritime
Corp., a company controlled by Michail S. Zolotas our President
and Chief Executive Officer. All of the outstanding
7% Notes owned by Focus Maritime Corp. were pledged to, and
their acquisition was financed by, Marfin Egnatia Bank S.A. The
proceeds of the 7% Notes were used in part to repay, in an
amount of $20.0 million, a portion of existing indebtedness
and the remaining proceeds are expected to be used to fund
vessel acquisitions and for other general corporate purposes. In
connection with the issuance of the 7% Notes, Investment
Bank of Greece received warrants to purchase up to 416,667
common shares at an exercise price of $24.00 per share, with an
expiration date of October 13, 2015. The Note Purchase
Agreement and the Indenture with respect to the 7% Notes
contain certain covenants, including
65
limitations on the incurrence of additional indebtedness, except
in connection with approved vessel acquisitions, and limitations
on mergers and consolidations. In connection with the issuance
of the 7% Notes, we entered into a Registration Rights
Agreement providing the holders of the 7% Notes with
certain demand and other registration rights for the common
shares underlying the 7% Notes and the
416,667 warrants. In November 2009, Focus Maritime Corp.
converted $20.0 million of the 7% Notes into
approximately 2.22 million new common shares. Accordingly,
in the aggregate, $125.0 million of the 7% Notes
remain outstanding as of March 18, 2010. The
$125.0 million outstanding principal amount of our
7% Notes is reflected as $41.4 million on our
December 31, 2009 balance sheet due to the netting impact
of a beneficial conversion feature (discount) described below
and in Note 12 of the Consolidated Financial Statements. We
estimate March 18, 2010, the net outstanding amount for
balance sheet purposes is approximately $44.5 million.
We have accounted for the 7% Notes as follows:
(1) A Beneficial Conversion Feature
(BCF); and
(2) A Make Whole Fundamental Change conversion
option which has been valued separately. Under the accounting
provision, these two components factor into the valuation of the
7% Notes as follows:
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|
|
|
|
The BCF was valued at $100.5 million and is amortized over
the life of the 7% Notes as interest expense. The BCF
represents the difference between the conversion price of the
7% Notes ($9.00) and the market price of our common shares
at the date of issuance ($15.24), multiplied by
16.1 million shares, assuming full conversion of the
initial $145.0 7% Notes. Assuming no further conversions of
the remaining $125.0 million of the 7% Notes, the
annual BCF amortization will be $14.4 million
annually; and
|
|
|
|
the Make Whole Fundamental Change was valued at $31,310 relating
to an additional benefit of 10% of additional shares that the
holders can potentially acquire when converting the
7% Notes should certain conditions exist. This will also be
amortized over the life of the 7% Notes as an interest
expense.
|
We use interest rate swaps to swap our floating rate interest
payment obligations for fixed rate obligations. For additional
information regarding our interest rate swaps, please read
Quantitative and Qualitative Disclosures About Market
Risk Interest Rate Exposure herein.
Adjusted
EBITDA
Adjusted EBITDA represents EBITDA before other non-cash items
such as share-based compensation expense, claim provisions,
doubtful receivables and the effect of the amortization of the
deferred revenue due to the assumption of charters associated
with certain vessels acquisitions. We use Adjusted EBITDA
because we believe that Adjusted EBITDA is a basis upon which
liquidity can be assessed and presents useful information to
investors regarding our ability to service
and/or incur
indebtedness. We also use Adjusted EBITDA: (i) by
prospective and current lessors as well as potential lenders to
evaluate potential transactions; and (ii) to evaluate and
price potential acquisition candidates.
Adjusted EBITDA has limitations as an analytical tool, and
should not be considered in isolation or as a substitute for
analysis of our results as reported under U.S. GAAP. Some
of these limitations are: (i) Adjusted EBITDA does not
reflect changes in, or cash requirements for, working capital
needs; and (ii) although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized may
have to be replaced in the future, and Adjusted EBITDA does not
reflect any cash requirements for such capital expenditures.
Because of these limitations, Adjusted EBITDA should not be
considered as a principal indicator of our performance.
Adjusted EBITDA from continuing operations for the periods from
January 1, 2009 to October 13, 2009 and
October 14, 2009 to December 31, 2009 was a loss of
$2.9 million and a loss of $1.8 million, respectively.
This compares to $21.7 million for the 12 months ended
December 31, 2008. This decrease is mainly attributable to
the 15.6% decrease in revenue as well as significantly higher
voyage expenses due to the majority of the fleet operating in
the spot market. Voyage expenses increased by $6.9 million
or 109.5% to
66
$13.2 million dollars for the periods from January 1,
2009 to October 13, 2009 and October 14, 2009 to
December 31, 2009 compared to $6.3 million during the
year ended December 31, 2008. Additionally, vessel
operating expenses increased by 47.5% to $29.2 million
dollars for the periods from January 1, 2009 to
October 13, 2009 and October 14, 2009 to
December 31, 2009 from $19.8 million for the year
ended December 31, 2008, reflecting increased repair
expenses and the transfer of the dry bulk vessels. Furthermore,
there were approximately $4.8 million of expenses related
to our recapitalization.
Capital
Expenditures
In February 2010, we signed a Stock Purchase Agreement for the
purchase of two geared Kamsarmaxes for an aggregate purchase
price of $112.7 million. For more detail, please see the
information contained under Item 4.A.
History and Development of the Company regarding capital
expenditures.
|
|
C.
|
Research
and Development, Patents and Licenses
|
Not applicable.
Not applicable.
|
|
E.
|
Off-Balance
Sheet Arrangements
|
We do not have any material off-balance sheet arrangements.
|
|
F.
|
Tabular
Disclosure of Contractual Obligations
|
As of December 31, 2009, significant existing contractual
obligations and contingencies consisted of our obligations as
borrower under our Facility Agreement. In addition, we had
contractual obligations under interest rate swap contracts, ship
management agreements and an office rental agreement.
Long-Term
Financial Obligations and Other Commercial Obligations
The following table sets out long-term financial and other
commercial obligations, outstanding as of December 31, 2009
(all figures in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Payment due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
Long-term debt
obligation(1)
|
|
$
|
237,270
|
|
|
$
|
14,240
|
|
|
$
|
28,480
|
|
|
$
|
194,550
|
|
|
$
|
|
|
Interest
payments(2)
|
|
|
91,080
|
|
|
|
23,836
|
|
|
|
35,932
|
|
|
|
31,312
|
|
|
|
|
|
Rental
agreement(3)
|
|
|
1,313
|
|
|
|
110
|
|
|
|
220
|
|
|
|
220
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(4)
|
|
$
|
329,663
|
|
|
$
|
38,186
|
|
|
$
|
64,632
|
|
|
$
|
276,082
|
|
|
$
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
(1)
|
|
Refers to our obligations to repay
the indebtedness outstanding as of December 31, 2009,
assuming that we meet the covenants of the credit facility. The
amount does not reflect the repayment of the 7% Notes.
|
|
(2)
|
|
Refers to our expected interest
payments over the term of the indebtedness outstanding as of
December 31, 2009, assuming an effective interest rate of
5.81% per annum.
|
|
(3)
|
|
Refers to our obligations under the
rental agreements for office space.
|
|
(4)
|
|
This does not include the dropdown
of the vessels and management company, or the acquisition of the
Kamsarmaxes.
|
67
Recent
Accounting Developments
Fair
Value
In September 2006, the FASB issued guidance that defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. In February
2008, the FASB deferred the effective date to January 1,
2009 for all nonfinancial assets and liabilities, except for
those that are recognized or disclosed at fair value on a
recurring basis (that is, at least annually). The guidance was
effective for us for the fiscal year beginning January 1,
2009 and did not have a material effect on our condensed
consolidated financial statements.
In April 2009, the FASB issued additional guidance for
estimating fair value. The additional guidance addresses
determining fair value when the volume and level of activity for
an asset or liability have significantly decreased and
identifying transactions that are not orderly. This additional
guidance was effective for us and did not have a material impact
on our condensed consolidated financial statements.
Accounting
for Business Combinations
We adopted new U.S. GAAP guidance related to business
combinations beginning in our first quarter of fiscal year 2009.
Earlier adoption was prohibited. The adoption of the new
guidance did not have an immediate significant impact on its
condensed consolidated financial statements; however, it will
impact the accounting for any future business combinations.
Under the new guidance, an entity is required to recognize the
assets acquired, liabilities assumed, contractual contingencies
and contingent consideration at their fair value on the
acquisition date. It further requires that acquisition-related
costs be recognized separately from the acquisition and expensed
as incurred; that restructuring costs generally be expensed in
periods subsequent to the acquisition date; and that changes in
accounting for deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period
be recognized as a component of provision for income taxes. In
addition, acquired-in process research and development is
capitalized as an intangible asset and amortized over its
estimated useful life.
Determination
of the Useful Life of Intangible Assets
We adopted new U.S. GAAP guidance concerning the
determination of the useful life of intangible assets beginning
in our first quarter of fiscal year 2009. The adoption of this
guidance did not have a significant impact on our condensed
consolidated financial statements. The new guidance amends the
factors that are to be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset. The new guidance is intended to
improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows
originally used to measure the fair value of the intangible
asset under U.S. GAAP.
Interim
Disclosure about Fair Value of Financial
Instruments
In April 2009, the FASB amended the Fair Value of Financial
Instruments Subsection of the ASC to require an entity to
provide disclosures about fair value of financial instruments in
interim financial information (Fair Value Disclosure
Amendment). The Fair Value Disclosure Amendment requires a
publicly traded company to include disclosures about the fair
value of its financial instruments whenever it issues summarized
financial information for interim reporting periods. In
addition, entities must disclose in the body or in the
accompanying notes of its summarized financial information for
interim reporting periods and in its financial statements for
annual reporting periods, the fair value of all financial
instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of
financial position. The Fair Value Disclosure Amendment became
effective for us and our adoption of it did not have a
significant effect on our financial position, results of
operations, or cash flows.
68
Transfers
of Financial Assets
In June 2009, the FASB issued new guidance concerning the
transfer of financial assets. This guidance amends the criteria
for a transfer of a financial asset to be accounted for as a
sale, creates more stringent conditions for reporting a transfer
of a portion of a financial asset as a sale, changes the initial
measurement of a transferors interest in transferred
financial assets, eliminates the qualifying special-purpose
entity concept and provides for new disclosures. This new
guidance will be effective for us for transfers of financial
assets beginning in our first quarter of fiscal 2011, with
earlier adoption prohibited. We do not expect the impact of this
guidance to be material to our condensed consolidated financial
statements.
Determining
the Primary Beneficiary of a Variable Interest
Entity
In June 2009, the FASB issued new guidance concerning the
determination of the primary beneficiary of a variable interest
entity (VIE). This new guidance amends current
U.S. GAAP by: requiring ongoing reassessments of whether an
enterprise is the primary beneficiary of a VIE; amending the
quantitative approach previously required for determining the
primary beneficiary of the VIE; modifying the guidance used to
determine whether an equity is a VIE; adding an additional
reconsideration event (e.g. troubled debt restructurings) for
determining whether an entity is a VIE; and requiring enhanced
disclosures regarding an entitys involvement with a VIE.
This new guidance will be effective for us beginning in our
first quarter of fiscal 2011, with earlier adoption prohibited.
We do not expect the impact of this new guidance to be material
to our condensed consolidated financial statements.
FASB
Accounting Standards Codification
In June 2009, the FASB issued new guidance concerning the
organization of authoritative guidance under U.S. GAAP.
This new guidance created the FASB Accounting Standards
Codification (Codification). The Codification has
become the source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification became effective for us in
our third quarter of fiscal 2009. As the Codification is not
intended to change or alter existing U.S. GAAP, it did not
have any impact on our condensed consolidated financial
statements. On its effective date, the Codification superseded
all then-existing non-SEC accounting and reporting standards.
All other nongrandfathered non-SEC accounting literature not
included in the Codification will become nonauthoritative.
Measuring
Liabilities at Fair Value
In August 2009, the FASB released new guidance concerning
measuring liabilities at fair value. The new guidance provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain
valuation techniques. Additionally, it clarifies that a
reporting entity is not required to adjust the fair value of a
liability for the existence of a restriction that prevents the
transfer of the liability. This new guidance is effective for
the first reporting period after its issuance, however earlier
application is permitted. The application of this new guidance
is not expected to have a significant impact on our condensed
consolidated financial statements.
Subsequent
Events
In May 2009, the FASB issued additional guidance related to
subsequent events (found under ASC
855-10 and
formerly referred to as Statement of Financial Accounting
Standards No. 165, Subsequent Events). This
guidance is intended to establish general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. Specifically, it sets forth the
period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance
sheet date in its financial statements, and the disclosures that
an entity should make about events or
69
transactions that occurred after the balance sheet date. This
guidance is effective for fiscal years and interim periods ended
after June 15, 2009 and is applied prospectively. The
adoption of this guidance during the year ended
December 31, 2009 did not have a material impact on our
consolidated financial statements.
Subsequent
Events
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(a)
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On January 1, 2010, the board of directors made an annual
restricted share grant in an aggregate amount of 6,668
restricted common shares to the independent directors of the
board of directors. These restricted common shares vest 100% on
the first anniversary date of the grant.
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(b)
|
In January 2010, we sold the MSC Seine and the Saronikos Bridge
for an aggregate purchase price resulting in gross proceeds to
us of $12.8 million, paid in cash. The Saronikos Bridge was
delivered to her new owners on January 7, 2010 and the MSC
Seine was delivered on January 20, 2010.
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(c)
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In February 2010, we signed a Stock Purchase Agreement providing
for the purchase of two geared, 80,000 dwt Kamsarmaxes from
COSCO Dalian Shipyard Co., Ltd. These vessels are expected to be
delivered in the fourth quarter of 2010 and 2011, respectively.
The aggregate purchase price of these vessels was
$112.7 million. The charter attached for the first vessel
is for a five-year initial term at a net daily rate of $28,710,
with an option to extend the term for an additional two years.
The charter for the second vessel is for a seven-year term at a
net daily rate of $27,300.
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Gabriel Petrides, a former Board member and an affiliate of
Rocket Marine, one of our principal stockholders, is one of the
principals of the seller of the two Kamsarmax vessels and is a
principal of the purchaser of the Chinook. The vote on Rocket
Marines shares is controlled by Grandunion pursuant to a
voting agreement, and Mr. Petrides left our board in
October 2009. Accordingly, even though Rocket Marine is a
principal stockholder, neither it nor Mr. Petrides has the
ability to influence us. We believe that the negotiations were
conducted at arms length and that the sale price
represents is no less favorable than would have been achieved
through arms length negotiations with a
wholly-unaffiliated third party.
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In relation to the above transaction, we have also signed a
Memorandum of Agreement for the sale of the product tanker
Chinook for $8.5 million.
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Once closed, the $112.7 million purchase price for the two
Kamsarmaxes will be paid by $80.0 million of debt
financing, cash and cash equivalents, as well as the
consideration for the transfer of the Chinook to be delivered
against the purchase price.
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(d)
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On February 26, 2009, we entered into a five-month time
charter beginning February 6, 2010 through July 1,
2010 for the 1992-built, 41,450 dwt product tanker High Land at
a net of commission rate of $8,181 per day.
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(e)
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On August 3, 2010, the Company effected a 1-for-12 reverse split
of its common shares.
|
See the section entitled Forward-Looking Statements
at the beginning of this annual report.
70
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Item 6.
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Directors,
Senior Management and Employees
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A.
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Directors
and Senior Management
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Set forth below are the names, ages and positions of our
directors and executive officers and their respective terms of
service to the Company. Our board of directors is elected
annually on a staggered basis, and each director elected holds
office until his successor shall have been duly elected, except
in the event of his death, resignation, removal or the earlier
termination of his office. The primary business address of each
of our executive officers and directors is 83 Akti Miaouli and
Flessa, Piraeus Greece, 185 38.
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Name
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Age
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Position
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Nicholas G Fistes
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51
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Class I Director and Chairman since October 13, 2009
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Michail S. Zolotas
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35
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Class I Director and Deputy Chairman, President and CEO since
October 13, 2009
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Allan L. Shaw
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46
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Class II Director, and Chief Financial Officer since
October 13, 2009
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Masaaki Kohsaka
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76
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Class II Director since October 13, 2009
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Spyros Gianniotis
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50
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Class III Director since October 13, 20009
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Apostolos I. Tsitsirakis
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42
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Class III Director since October 13, 2009
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Panagiotis Skiadas
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39
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Class III Director since June 2005
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Panagiotis Peter Kallifidas
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40
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Corporate Secretary since January 1, 2010
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George Fragos
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46
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Chief Operating Officer since October 13, 2009
|
Sozon Alifragkis
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40
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Senior Vice President and Chief Commercial Office since October
13, 2009
|
Our board of directors is divided into three classes, as nearly
equal in number as possible, with each director serving a
three-year term and one class being elected at each years
annual meeting of shareholders. The term of the Class III
Directors expires at our annual meeting in 2010, the term of the
Class II Directors expires at our annual meeting in 2011
and the term of the Class I Directors expires at our annual
meeting in 2012.
As a result of the recapitalization on October 13, 2009,
the board of directors and management has changed. Set forth
below is certain biographical information about each of these
individuals, who were newly appointed on the date of the
recapitalization.
Nicholas
G. Fistes
Director, Executive Chairman
Nicholas G. Fistes began his career as a Naval Architect and
Marine Engineer in charge of worldwide new construction and
shipbuilding with Ceres Hellenic Shipping Enterprises Ltd. He
later became the Chief Executive Officer of Ceres
(2004-2005),
one of the largest ship management companies in the world,
managing various types of ships including crude oil tankers,
chemical tankers, LNG ships and dry bulk carriers.
Mr. Fistes also served as Chief Executive Officer of
Seachem Tankers Ltd.
(1993-1996),
a commercial chemical tanker operating company and as Chief
Executive Officer of Coeclerici Ceres Bulk Carriers, a bulk
carrier shipping company
(2002-2003).
He served on the Executive Committee of Euronav NV from 2006 to
2008. He was also a Board Member of the shipmanagement companies
Ceres LNG Services Ltd. and Ceres Hellas Maritime Company from
2004 to 2006. In 2006, together with Michael Zolotas,
Mr. Fistes founded Grandunion Inc., a shipholding company,
where he holds the position of Chairman. From March 2007 until
2009, he was the Chairman of the International Association of
Independent Tanker Owners (INTERTANKO) and serves on the Board
of the Hellenic Marine Environment Protection Association
(HELMEPA). He is a member of a number of industry-related
associations including the Executive Committee of the
International Association of Dry Cargo Shipowners (INTERCARGO)
and the American Bureau of Shipping (ABS). Mr. Fistes
serves on the Hellenic Committees for Det Norske Veritas (DNV),
Registro Italiano Navale (RINA) and the Korean Register of
Shipping (KR). Mr. Fistes also serves on the Mediterranean
Committee for the China Classification Society (CCS).
Mr. Fistes holds a Bachelor of Science
71
Degree in Naval Architecture and Shipbuilding from Newcastle
Upon-Tyne University and a Masters of Science Degree in
Ocean Systems Management from the Massachusetts Institute of
Technology.
Michael
S. Zolotas
Director, President and Chief Executive Officer
Michael S. Zolotas is a third generation shipowner with
18 years technical, operational and commercial experience.
He completed a Bachelors Degree in Mechanical Engineering
from the Stevens Institute of Technology. Mr. Zolotas
joined Stamford Navigation Inc. as a superintendent engineer
where he spent almost three years in sea service and in pure
technical matters including repairs and conversions and
newbuildings. In 1999, Mr. Zolotas became General Manager
of Stamford Navigation Inc. Over the next six years, he expanded
Stamford Navigation Inc. from two vessels to close to thirty
vessels ranging from 17,000 dwt to 170,000 dwt. In 2005, he was
nominated as member of Bureau Veritas (BV) Black Sea
Mediterranean Committee, on which he serves as board member. In
2006, he was nominated as member of Registro Italiano Navale
(RINA). He is also a member of China Classification Society
(CCS) Mediterranean Committee. From 2001 to 2007, he served on
the board of the CTM Pool. In 2006, together with
Mr. Nicholas G. Fistes, Mr. Zolotas founded Grandunion
Inc., where he serves as Chief Executive Officer and is a board
member.
Allan L.
Shaw
Director, Chief Financial Officer
Allan L. Shaw has over 20 years of financial management
experience and began his career at Deloitte & Touche
where he became a manager. Mr. Shaw was, from 1996, a
member of the Board of Directors until 2002, and Chief Financial
Officer until 2001 of Viatel Inc., an international
telecommunications company. After Viatel Inc., he served as the
Chief Financial Officer and Executive Management Board Member of
Serono International S.A., a global biotechnology company from
2002 to 2004. Mr. Shaw is the founder and Senior Managing
Director of Shaw Strategic Capital LLC, an international
financial advisory firm and has been a member of Navios Maritime
Holdings Inc.s Board of Directors since October 25,
2005. Mr. Shaw was appointed to the Board of Directors and
named Chief Financial Officer of NewLead Holdings Ltd. on
October 13, 2009. Mr. Shaw, a United States Certified
Public Accountant, received a Bachelor of Science degree from
the State University of New York, Oswego in 1986.
Spyros
Gianniotis
Director
Spyros Gianniotis has worked in various positions in major banks
throughout Greece and the United States for over 23 years.
From 1989 until 2001, Mr. Gianniotis held positions at
Citigroup in Athens, Piraeus and New York. In 2001,
Mr. Gianniotis became the Assistant General Manager, Head
of Shipping at Piraeus Bank S.A. In 2008, Mr. Gianniotis
became the Chief Financial Officer of Aegean Marine Petroleum
Network Inc., a position he currently holds. Mr. Gianniotis
holds a B.A. from Queens College, CUNY, an MSc from Maritime
College, SUNY and an MBA from Wagner College. He joined
NewLeads Board of Directors in October 2009.
Masaaki
Kohsaka
Director
Masaaki Kohsaka has over 50 years of experience in the
maritime sector in virtually every phase of operations and
management. He has served in advisory roles for Grandunion since
2007. In 1995, Mr. Kohsaka served as the Managing Director,
Planning Department and Cruise Department and Executive Officer
of Owners Division of Showa Line Ltd. Prior to that position, he
served as the Director and General Manager, Planning Department
at Showa Line Ltd. in charge of newbuildings, sale and purchase,
shipmanagement, insurance and legal matters. Masaaki Kohsaka
started his career in 1959 in the Liner Department of Nissan
Steamship Co. Ltd. He has been a Maritime Arbitrator since 199
and was a Member of the Tokyo Maritime Arbitration Commission
from 1991 through 1997. Masaaki Kohsaka is a graduate of The
Faculty of Law, Hitotsubashi University in Tokyo. He joined
NewLeads Board of Directors in October 2009.
72
Panagiotis
Skiadas
Director
Panagiotis Skiadas has served as a member of our board of
directors since the closing of our initial public offering in
June 2005. He is currently the Environmental Manager of VIOHALCO
S.A., a holding company of the largest Greek metals processing
group that incorporates approximately 90 companies and
accounts for approximately 10% of Greeces total exports.
Within that role, Mr. Skiadas is responsible for all
environmental and climate change issues as well as certain
energy related matters. Prior to joining VIOHALCO in April 2006,
Mr. Skiadas performed a similar role for a subsidiary of
VIOHALCO, ELVAL S.A. He has also served as the
Section Manager of Environmental Operations for the
Organizational Committee of Olympic Games in Athens in 2004.
Mr. Skiadas holds a Bachelor of Science from the University
of Florida and a Masters in Engineering from the
Massachusetts Institute of Technology in Environmental
Engineering.
Apostolos
I. Tsitsirakis
Director
Apostolos I. Tsitsirakis has long worked within the maritime
industry in both London and Piraeus. From 1997 to 2003,
Mr. Tsitsirakis was affiliated with a family ship-owning
and management company where he held the position of Director of
Marine Operations. He is the founder and previously served as
President of Maritime Capital, a private consulting and
management firm with particular emphasis on shipping and
international oil industries. Mr. Tsitsirakis has served on
the Board of Directors of Aegean Marine Petroleum Inc., and has
participated as a partner and investor in Fleet Acquisition LLC,
the fleet acquisition company that formed Genco Shipping.
Mr. Tsitsirakis has a Masters degree in Business
Administration from Webster University in London. He joined
NewLeads Board of Directors in October 2009.
Panagiotis
Peter Kallifidas
General Counsel and Corporate Secretary
Peter Kallifidas has been NewLeads general counsel since
December 1, 2009. Prior to NewLead, Mr. Kallifidas
served as general counsel for Fairport Shipping
Limited/Commercial S. A. from July 2002 to November 2009. From
August 1996 to June 2002, Mr. Kallifidas was a member of
the in-house legal team of Dioryx Maritime Corporation/Liquimar
Tankers Management Inc. Mr. Kallifidas received his
undergraduate degree from the Law School of the Aristotle
University of Thessaloniki in Greece and a Masters degree in
Maritime Law from the University of Southampton in the United
Kingdom. Mr. Kallifidas is admitted to practice before the
Athens Bar Association.
Sozon A.
Alifragis
Senior Vice President and Chief Commercial Officer
Sozon A. Alifragis has over a decade of experience in the
maritime industry. He has served as Commercial Director of
Grandunion Inc. as well as Director of Commercial Operations of
Newfront Shipping S.A., Newlead Shipping S.A. and Stamford
Navigation S.A. in charge of Commercial, Commercial Operations
and Insurance and Claims Departments. Mr. Alifragis has
also served in top management positions within Ceres Hellenic
Shipping S.A. and has worked with Odfjell Tankers in Bergen and
within the Commercial Operations Departments at Seachem Tankers
in Houston. Mr. Alifragis holds a degree in Electrical and
Computer Engineering from Aristotle University of Thessaloniki,
Greece, an MSc. in Shipping Trade and Finance from City
University, London and Postgraduate degree in Maritime Law from
London Guildhall University. He is a member of the Technical
Chamber of Greece as well as a member of INTERTANKO Insurance
and Legal Committee. Since 2005, Mr. Alifragis has also
been a Fellow Member of the Institute of Chartered Shipbrokers.
George
Fragos
Chief Operating Officer
George Fragos has 20 years of shipping and shipmanagement
experience with various vessel types including crude/product
tankers, chemical carriers, bulk carriers, LNG tankers and
passenger ships. Mr. Fragos joined Ceres Hellenic Shipping
in 1990 as superintendent engineer and was promoted to senior
and top
73
management positions within the group and its affiliated
companies. Mr. Fragos has served in such roles as Technical
Manager and Technical Director of the passenger shipping
company, Director of Newbuilding Projects, Marine
Division Director, Fleet Director of Euronav Shipmanagement
Hellas and Chief Executive Officer of Gaslog Investments.
Mr. Fragos has also served on the Board of Ceres Hellas,
Ceres LNG, and Egypt LNG. In 2007, Mr. Fragos became
Director of the Tanker Division of Grandunion, as well as
Managing Director of the tanker shipmanagement company within
Grandunion Group. In 2008, he became the Chief Executive Officer
of the affiliate tanker shipowning venture, Tankunion Inc.
Mr. Fragos has previously been a member of INTECARGO Safety
and Technical Committee and is presently a member of the
Business Advisory Committee of Athens Laboratory of Business
Administrations MBA in Shipping program.
Mr. Fragos graduated with a degree in Mechanical
Engineering from the National Technical University of Athens.
We paid our officers and directors aggregate compensation of
approximately $2,466,416 and $413,789 for the periods of
January 1, 2009 to October 13, 2009 and
October 14, 2009 to December 31, 2009, respectively.
In addition, share-based compensation costs for the periods of
January 1, 2009 to October 13, 2009 and
October 14, 2009 to December 31, 2009 were $792,809
and $783,073, respectively. In addition, each director will be
reimbursed for
out-of-pocket
expenses incurred while attending any meeting of the board of
directors or any board committee. These reimbursed amounts
amounted to $6,987 and $42,283, respectively, for the periods of
January 1, 2009 to October 13, 2009 and
October 14, 2009 to December 31, 2009.
On October 13, 2009, we entered into an employment
agreement with Mr. Allan L. Shaw to employ him as our Chief
Financial Officer. This agreement has an initial term of three
years unless terminated earlier in accordance with the terms of
such agreement. The initial term shall be automatically extended
for successive one year terms unless we or Mr. Shaw gives
notice of non-renewal at least 180 prior to the expiration of
the initial term or such one year extension to the initial term.
Under the employment agreement, Mr. Shaw is expected to
receive an annual gross salary of $375,000. The Company will
also pay Mr. Shaw a guaranteed bonus of $375,000 for the
initial Performance Period (as defined in the agreement), such
bonus shall be payable on or before January 5, 2011.
Mr. Shaw was also granted 166,667 of our restricted common
shares subject to applicable vesting periods, as mentioned
below. Mr. Shaw has been granted 250,000 options at an
exercise price of $19.80 subject to applicable vesting periods
as mentioned below.
2005
Equity Incentive Plan
We adopted an equity incentive plan, which we refer to herein as
the 2005 Equity Incentive Plan, under which our officers, key
employees and directors are eligible to receive equity
compensation awards. Our board of directors adopted an amendment
to the plan on December 22, 2009 pursuant to which we have
reserved a total of 583,334 common shares for issuance under the
plan, of which 74,375 have been issued. Our board of directors
administers the plan. Under the terms of the plan, our board of
directors is able to grant new options exercisable at a price
per common share to be determined by our board of directors but
in no event less than fair market value of the common share as
of the date of grant. The plan also permits our board of
directors to award other securities, including restricted and
unrestricted shares, performance shares and share appreciation
rights. All options will expire no later than ten years from the
date of the grant. Unless terminated earlier pursuant to its
terms, the plan will terminate ten years from the date it was
adopted by the board of directors.
On January 31, 2009, and pursuant to the employment
agreement dated July 23, 2008 of our former Chief Executive
Officer Jeffrey O. Parry, 8,334 restricted share units under the
2005 Equity Incentive Plan, were converted into 8,334 fully
vested restricted common shares.
In October 2009, we issued under the 2005 Equity Incentive Plan
restricted common shares to Panagiotis Skiadas, George Xiradakis
and Christopher Georgakis for a total of 7,292 shares, all
of which were fully vested on October 13, 2009.
74
On October 13, 2009, an aggregate of 18,750 restricted
common shares that were issued under the 2005 Equity Incentive
Plan in October 2008 to all the
then-directors
(3,750 restricted common shares to each director of the Company)
were fully vested.
On October 13, 2009, 1,667 restricted common shares that
were issued under the 2005 Equity Incentive Plan to the former
Chief Financial Officer of the Company in October 2008, were
fully vested.
On October 13, 2009, as per Jeffrey O. Parrys release
agreement dated October 13, 2009, 25,000 options to
purchase common shares of the Company granted pursuant to the
Option Agreement dated July 23, 2008, were immediately and
fully vested and remain exercisable through July 23, 2018.
In November 2009, we issued outside the 2005 Equity Incentive
Plan, 166,667 restricted common shares to Allan L. Shaw, subject
to the following vesting periods:
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83,333 shares are scheduled to vest January 01,
2011; and
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83,334 shares are scheduled to vest January 01, 2012.
|
On October 2009, pursuant to Mr. Shaws employment
agreement, our Chief Financial Officer he was granted a one-time
option share award to purchase 250,000 common shares at $19.80
per share exercisable through the fifth anniversary of the
commencement date of his employment agreement. The options shall
vest on an equal monthly basis on the last day of each month
during the first thirty-six (36) months of the agreement
term commencing October 31, 2009.
Board
Classes
Our board of directors currently consists of seven members.
Directors are elected annually and serve until their successors
are appointed or they resign, unless their office is earlier
vacated in accordance with our bye-laws or with the provisions
of the BCA. Each of the directors has served in his respective
capacity since his election, which for all directors except
Panagiotis Skiadas was October 13, 2009. Mr. Skiadas
has served as a member of the board since June 2005. Our board
of directors is divided into three classes, as nearly equal in
number as possible, with each director serving a three-year term
and one class being elected at each years annual meeting
of shareholders. The term of the Class III Directors
expires at our annual meeting in 2010, the term of the
Class II Directors expires at our annual meeting in 2011
and the term of the Class I Directors expires at our annual
meeting in 2012. At each succeeding annual general meeting,
successors to the class of directors whose term expires at that
annual general meeting shall be elected for a three year term.
Committees
of the Board of Directors
We have established an Audit Committee comprised of our three
independent directors responsible for reviewing our accounting
controls and recommending to the board of directors the
engagement of our outside auditors. The current members of our
audit committee are Messrs. Spyros Gianniotis (Chairman),
Apostolos I. Tsitsirakis and Panagiotis Skiadas. We have also
established a Compensation Committee comprised of three
independent directors responsible for reviewing the compensation
of our senior management, officers and board of directors. The
current members of our Compensation Committee are
Messrs. Apostolos I. Tsitsirakis, Spyros Gianniotis and
Panagiotis Skiadas. We have also established a Governance and
Nominating Committee. The current members of our Governance and
Nominating Committee comprise Messrs. Panagiotis Skiadas,
Apostolos I. Tsitsirakis and Spyros Gianniotis.
There are no service contracts between us and any of our
directors providing for benefits upon termination of their
employment or service. Please see the information contained
under Item 7B Related Party
Transactions regarding transactions between us and any of
our directors.
See Item 4 Information on the
Company Business Overview Crewing and
Employees.
75
The following table sets forth information regarding the
beneficial ownership of the common shares of NewLead as of
March 18, 2010, based on 6,621,152 common shares
outstanding as of such date, by each of NewLeads executive
officers and directors.
Unless otherwise indicated, NewLead believes that all persons
named in the table have sole voting and investment power with
respect to all common shares beneficially owned by them.
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Amount and Nature
|
|
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Percentage of
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of Beneficial
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Outstanding
|
|
Name and Address of Beneficial
Owner(1)
|
|
Ownership
|
|
|
Common Shares
|
|
|
Michail S.
Zolotas(2)(3)(4)
|
|
|
18,922,888
|
|
|
|
92.3
|
%
|
Nicholas G
Fistes(3)(4)
|
|
|
2,822,888
|
|
|
|
42.6
|
%
|
Allan L.
Shaw(5)
|
|
|
166,667
|
|
|
|
2.5
|
%
|
Masaaki Kohsaka
|
|
|
5,417
|
|
|
|
*
|
|
Spyros Gianniotis
|
|
|
5,417
|
|
|
|
*
|
|
Apostolos I. Tsitsirakis
|
|
|
5,417
|
|
|
|
*
|
|
Panagiotis Skiadas
|
|
|
15,417
|
|
|
|
*
|
|
Panagiotis Peter Kallifidas
|
|
|
*
|
|
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*
|
|
George Fragos
|
|
|
*
|
|
|
|
*
|
|
Sozon Alifragkis
|
|
|
*
|
|
|
|
*
|
|
Directors and Executive Officers as a
Group(2)(3)(4)
|
|
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19,121,223
|
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93.3
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%
|
|
|
|
*
|
|
Less than one percent
|
|
(1)
|
|
The business address of each of the
individuals is 83 Akti Miaouli & Flessa Street,
Piraeus Greece 185 38.
|
|
(2)
|
|
Includes 13,877,778 common shares
underlying the 7% Notes owned by Focus Maritime Corp., a
Marshall Islands corporation. Focus Maritime is wholly-owned by
Michail S. Zolotas. Focus Maritimes business address is 83
Akti Miaouli & Flessa Street, Piraeus Greece, 185 38.
The foregoing information was derived from a Schedule 13G/A
filed by Grandunion with the Securities and Exchange Commission
(SEC) on October 22, 2009.
|
|
(3)
|
|
Includes 1,359,259 common shares
owned by Grandunion Inc., a Marshall Islands corporation
wholly-owned by Nicholas G. Fistes and Michail S. Zolotas, who
each own 50% of the issued and outstanding capital stock of
Grandunion. Grandunions business address is 83 Akti
Miaouli & Flessa Street, Piraeus Greece 185 38. The
foregoing information was derived from a Schedule 13G/A filed
with the SEC on October 22, 2009.
|
|
(4)
|
|
Includes 1,463,629 common shares
beneficially owned by Rocket Marine Inc. that is subject to a
voting agreement with Grandunion, over which Grandunion has
voting power. Rocket Marine Inc., a Marshall Islands
corporation, is a wholly-owned subsidiary of Aries Energy
Corporation, which is also a Marshall Islands corporation. Mons
Bolin, the Companys former Chief Executive Officer,
President and member of the board of directors, and Captain
Gabriel Petridis, the Companys former Chairman, each own
50% of the issued and outstanding capital stock of Aries Energy
Corporation. Each of Aries Energy Corporation, Mons Bolin and
Captain Gabriel Petridis disclaims beneficial ownership of such
shares, except to the extent of their pecuniary interest
therein. The principal business address for each of Aries Energy
Corporation, Mr. Bolin and Cpt. Petridis is 18 Zerva Nap.
Street, Glyfada, Athens Greece 166 75. The foregoing information
was derived from a Schedule 13G/A filed with the SEC on
October 16, 2009.
|
|
(5)
|
|
Does not include 250,000 common
shares underlying options.
|
|
|
Item 7.
|
Major
Shareholders and Related Party Transactions
|
The following table sets forth information regarding the owners
of more than 5% of our common shares, par value $0.01 per share,
that we are aware of as of March 18, 2010. On
March 18, 2010, there were
76
6,621,152 common shares outstanding. None of these shareholders
have voting rights that differ from any other shareholder.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature
|
|
|
Percentage of
|
|
|
|
of Beneficial
|
|
|
Outstanding
|
|
Identity of Person or Group
|
|
Ownership
|
|
|
Common Shares
|
|
|
Focus Maritime
Corp.(1)(2)
|
|
|
16,100,000
|
|
|
|
79.4
|
%
|
Grandunion
Inc.(3)(4)
|
|
|
2,822,888
|
|
|
|
42.6
|
%
|
Michail S.
Zolotas(1)(2)(3)(4)
|
|
|
18,922,888
|
|
|
|
92.3
|
%
|
Nicholas G.
Fistes(2)(4)
|
|
|
2,822,888
|
|
|
|
42.6
|
%
|
Rocket Marine
Inc.(5)
|
|
|
1,463,629
|
|
|
|
22.8
|
%
|
S. Goldman Advisors,
LLC(6)
|
|
|
625,000
|
|
|
|
9.2
|
%
|
Investment Bank of Greece,
S.A.(7)
|
|
|
427,750
|
|
|
|
6.3
|
%
|
|
|
|
(1)
|
|
Focus Maritime Corp., a Marshall
Islands corporation, is wholly-owned by Michail S. Zolotas.
Focus Maritimes business address is 83 Akti
Miaouli & Flessa Street, Piraeus Greece 185 38. The
foregoing information was derived from a Schedule 13G/A
filed by Grandunion with the Securities and Exchange Commission
(SEC) on October 22, 2009.
|
|
(2)
|
|
Includes 13,877,778 common shares
underlying the 7% Notes.
|
|
(3)
|
|
Grandunion Inc., a Marshall Islands
corporation, is wholly-owned by Nicholas G. Fistes and Michail
S. Zolotas, who each own 50% of the issued and outstanding
capital stock of Grandunion. Grandunions business address
is 83 Akti Miaouli & Flessa Street, Piraeus Greece 185
38. The foregoing information was derived from a
Schedule 13G/A filed with the SEC on October 22, 2009.
|
|
(4)
|
|
Includes 1,463,629 common shares
beneficially owned by Rocket Marine Inc. that is subject to a
voting agreement with Grandunion, over which Grandunion has
voting power.
|
|
(5)
|
|
Rocket Marine Inc., a Marshall
Islands corporation, is a wholly-owned subsidiary of Aries
Energy Corporation, which is also a Marshall Islands
corporation. Mons Bolin, the Companys former Chief
Executive Officer, President and member of the board of
directors, and Captain Gabriel Petridis, the Companys
former Chairman, each own 50% of the issued and outstanding
capital stock of Aries Energy Corporation. Each of Aries Energy
Corporation, Mons Bolin and Captain Gabriel Petridis disclaims
beneficial ownership of such shares, except to the extent of
their pecuniary interest therein. The principal business address
for each of Aries Energy Corporation, Mr. Bolin and Cpt.
Petridis is 18 Zerva Nap. Street, Glyfada, Athens Greece 166 75.
The foregoing information was derived from a Schedule 13G/A
filed with the SEC on October 16, 2009.
|
|
(6)
|
|
Includes 416,667 common shares
underlying warrants. Beneficial ownership is shared by Sheldon
Goldman, sole member of S. Goldman Advisors, LLC. The principal
business address of S. Goldman Advisors, LLC and
Mr. Goldman is 641 Lexington Avenue, 18th Floor, New York,
NY, 10022. The foregoing information was derived from a
Schedule 13D filed with the SEC on October 22, 2009.
|
|
(7)
|
|
Includes 416,667 common shares
underlying warrants and 11,111 common shares underlying the
7% Notes. Represents shares owned by Investment Bank of
Greece, S.A. (IBG), Marfin Egnatia Bank S.A.
(Marfin Egnatia) and Marfin Popular Bank Public Co.,
Ltd. (Marfin Popular). Marfin Egnatia is deemed to
beneficially own the foregoing shares as a result of its
approximately 92% ownership of IBG and Marfin Popular is deemed
to beneficially own such shares as a result of its approximately
97% ownership of Marfin Egnatia. The principal business address
of IBG is 24B Kifissias Avenue, Maroussi, Athens Greece 151 25.
The principal business address of Marfin Egnatiais 20
Mitropoleos Street and Komninon Street, Thessaloniki Greece 546
24. The principal business address of Marfin Popular is 154
Limassol Avenue, Nicosia, 2025, Cyprus. The foregoing
information was derived from a Schedule 13G filed with the
SEC on October 22, 2009.
|
During the period from January 1, 2009 to October 13,
2009 and from October 14, 2009 to December 31, 2009,
the percentage ownership of Grandunion, Mr. Zolotas,
Mr. Fistes, Rocket Marine and Focus Maritime all
significantly changed compared to the same period in the fiscal
year ended December 31, 2008. This change is due primarily
to the transactions related to the recapitalization.
77
|
|
B.
|
Related
Party Transactions
|
Consistent with Bermuda law requirements, our bye-laws require
any director who has a potential conflict of interest to
identify and declare the nature of the conflict to our board of
directors. Our bye-laws additionally provide that related party
transactions must be approved by independent and disinterested
directors.
Grandunion
Inc.
Nicholas G. Fistes, our Chairman, and Michail S. Zolotas, our
Deputy Chairman, Chief Executive Officer and President, are the
sole stockholder and the chairman and chief executive officer,
respectively, of Grandunion. On October 13, 2009,
Grandunion transferred 100% ownership in three dry bulk
carriers, the China, the Australia and the Brazil (which
transaction included assets with a carrying value of
approximately $75.3 million and the assumption of a credit
facility of $37.4 million, for a net value of
$35.0 million) to the Company in exchange for 1,581,483
newly issued common shares of the Company.
As part of the same transaction, a voting agreement between
Grandunion and Rocket Marine was entered into for which
Grandunion transferred 222,223 of the Companys common
shares to Rocket Marine, a company controlled by two of our
former directors and principal shareholders, in exchange for
Grandunions control over the voting rights relating to the
shares owned by Rocket Marine and its affiliates. There are
1,463,629 common shares subject to the voting agreement. The
voting agreement is in place for as long as Rocket Marine owns
the common shares. The voting agreement contains a
lock-up
period until December 31, 2011, which, in the case of
transfer or sale by Rocket Marine, requires the approval of
Grandunion.
In addition, on October 13, 2009, the Company issued
$145.0 million in aggregate principal amount of 7%
convertible senior notes due 2015. The 7% Notes were issued
pursuant to the Indenture dated October 13, 2009 between
the Company and Marfin Egnatia Bank S.A., and the Note Purchase
Agreement, executed by each of Investment Bank of Greece and
Focus Maritime Corp., a company controlled by Michail S.
Zolotas, as purchasers. The 7% Notes are convertible into
common shares at a conversion price of $9.00 per share, subject
to adjustment for certain events, including certain
distributions by the Company of cash, debt and other assets,
spin offs and other events. The 7% Notes are convertible at
any time and if fully converted would result in the issuance of
approximately 16.1 million newly issued common shares.
Currently, Investment Bank of Greece retains $100,000
outstanding principal amount of the 7% Notes and the
remainder ($144.9 million) is owned by Focus Maritime Corp.
All of the outstanding 7% Notes owned by Focus Maritime
Corp. were pledged to, and their acquisition was financed by,
Marfin Egnatia Bank S.A. The proceeds of the 7% Notes were
used in part to repay, in an amount of $20.0 million, a
portion of existing indebtedness and the remaining proceeds are
expected to be used to fund vessel acquisitions and for other
general corporate purposes. The Note Purchase Agreement and the
Indenture with respect to the 7% Notes contain certain
covenants, including limitations on the incurrence of additional
indebtedness, except in connection with approved vessel
acquisitions, and limitations on mergers and consolidations. In
connection with the issuance of the 7% Notes, the Company
entered into a Registration Rights Agreement providing the
holders of the 7% Notes with certain demand and other
registration rights for the common shares underlying the
7% Notes. In November 2009, Focus Maritime Corp. converted
$20.0 million of the 7% Notes into approximately
2.2 million new common shares. Accordingly, in the
aggregate, $125.0 million of the 7% Notes remain
outstanding as of March 18, 2010.
Technical
and Commercial Management
Newlead Bulkers, a wholly-owned subsidiary of Grandunion, is a
company that performs technical management of the Australia, the
Brazil and the China under technical ship management agreements
that can be cancelled with two-months notice. Newlead Bulkers
took over technical management of the Australia from Stamford on
March 1, 2010. Also on March 1, 2010, Newlead Bulkers
took over technical management of the China and Brazil from
Newfront Shipping, a company with common shareholding with
Grandunion. Newlead Shipping, a wholly-owned subsidiary of
Grandunion, has performed technical management of the Newlead
Avra (formerly Altius) since February 14, 2010. This
agreement can be cancelled with two-months notice.
78
AMT Management, a wholly-owned subsidiary of the Company,
provided the technical management of the Nordanvind from
November 2008 until January 16, 2010.
The commercial management for all our vessels is currently
provided in-house. See Item 5 Operating
and Financial Review and Prospects Technical and
Commercial Management of our Fleet above for a current
status of our fleet management.
Sozon A. Alifragis, the Companys Senior Vice President and
Chief Commercial Officer, is also Commercial Director of
Grandunion as well as Director of Commercial Operations of
Newfront Shipping, Newlead Shipping and Stamford.
During the fourth quarter of 2009, the Company entered into a
non-binding Letter of Intent to acquire Newlead Shipping and six
vessels, consisting of four dry bulk carriers and two product
tankers, in a transaction valued at approximately
$180.0 million, of which approximately $20.0 million
will be paid through the issuance of common shares at a price no
less than $27.0 per share, a premium of over 156% from the
recent closing price of NewLeads common shares. The
balance of the purchase price will be paid through the
assumption of existing liabilities. The transaction is subject
to board approval and consents from existing creditors. It is
anticipated the transaction will provide a meaningfully impact
on operating results by the end of the second quarter of 2010.
Rocket
Marine Inc.
In February 2010, we signed a Stock Purchase Agreement providing
for the purchase of two geared, 80,000 dwt Kamsarmaxes from
COSCO Dalian Shipyard Co., Ltd. Gabriel Petrides, a former Board
member and an affiliate of Rocket Marine, one of our principal
stockholders, is one of the principals of the seller of these
vessels. For more information, see Item 5
Operating and Financial Review and Prospects
Subsequent Events.
Terra
Stabile A.E.
We lease office space in Piraeus, Greece from Terra Stabile
A.E., a shareholder of which is Michail Zolotas, our Chief
Executive Officer and member of our board of directors. In
November 2009, we entered into a
12-year
lease agreement with the landowner.
Sea
Breeze Ltd.
During the periods from January 1, 2009 to October 13,
2009 and from October 14, 2009 to December 31, 2009,
the Company paid brokerage fees of approximately $115,000 and
$12,000, respectively, to Sea Breeze Ltd., a company owned by
Mons S. Bolin, our former Chief Executive Officer.
|
|
C.
|
Interests
of experts and counsel.
|
Not applicable.
|
|
Item 8.
|
Financial
Information
|
|
|
A.
|
Consolidated
Statements and Other Financial Information
|
See
Item 18.
Legal
Proceedings Against Us
From time to time in the future we may be subject to legal
proceedings and claims in the ordinary course of business,
principally personal injury and property casualty claims. Those
claims, even if lacking merit,
79
could result in the expenditure of significant financial and
managerial resources. Current legal proceedings of which we are
aware are as follows:
|
|
|
|
|
The charterers of the vessel Newlead Avra (formerly Altius)
notified the Company in October 2008 of their intention to
pursue the following claims and notified the appointment of an
arbitrator in relation to them:
|
|
|
|
|
a)
|
Damages suffered by
sub-charterers
of the vessel in respect of remaining on board cargo at New York
in September 2007;
|
|
|
b)
|
Damages suffered by
sub-charterers
of the vessel as a result of a change in management and the
consequent dispute regarding oil major approval from October
2007; and
|
|
|
c)
|
Damages suffered by
sub-charterers
of the vessel resulting from a grounding at Houston in October
2007.
|
|
|
|
|
|
The charterers of the Newlead Fortune (formerly Fortius)
notified the Company in October 2008 of their intention to
pursue the following claims, and notified the appointment of an
arbitrator in relation to them:
|
|
|
|
|
a)
|
Damages as a result of a change in management and the consequent
dispute regarding oil major approval from October 2007; and
|
|
|
b)
|
Damages resulting from the creation of Hydrogen Sulphide in the
vessels tanks at two ports in the United States.
|
Other than as described above, we have not been involved in any
legal proceedings which may have, or have had a significant
effect on our financial position, nor are we aware of any
proceedings that are pending or threatened which may have a
significant effect on our financial position.
Dividend
Policy
On September 12, 2008, we determined to suspend payment of
our quarterly dividend, effective immediately. The decision
followed our managements strategic review of our business
and reflected our focus on improving our long-term strength and
operational results. We will make dividend payments to our
shareholders only if our board of directors, acting in its sole
discretion, determines that such payments would be in our best
interest and in compliance with relevant legal and contractual
requirements. The principal business factors that our board of
directors expects to consider when determining the timing and
amount of dividend payments will be our earnings, financial
condition and cash requirements at the time. Currently, the
principal contractual and legal restrictions on our ability to
make dividend payments are those contained in our fully
revolving credit facility agreement, which we refer to as our
credit agreement, and those created by Bermuda law.
Our credit agreement prohibits us from paying a dividend if an
event of default under the credit agreement is continuing or
would result from the payment of the dividend. Our credit
agreement further requires us to maintain specified financial
ratios and minimum liquidity and working capital amounts. Our
obligations pursuant to these and other terms of our fully
revolving credit facility could prevent us from making dividend
payments under certain circumstances. In March 2008, pursuant to
the condition imposed by our lenders in connection with the
relaxation of the interest coverage ratio under our credit
facility, our board of directors suspended the payment of
quarterly dividends commencing with the dividend in respect of
the fourth quarter of 2007. The Company resumed payment of
dividends with a dividend of $1.20 per share in respect of the
first quarter of 2008. In September 2008, our board of directors
suspended the payment of quarterly dividends commencing with the
dividend in respect of the second quarter of 2008. Our board of
directors may review and amend our dividend policy from time to
time in light of our plans for future growth and other factors.
Under Bermuda law, a company may not declare or pay dividends if
there are reasonable grounds for believing either that the
company is, or would after the payment be, unable to pay its
liabilities as they become due, or that the realizable value of
its assets would thereby be less than the sum of its
liabilities, its issued share capital (the total par value of
all outstanding shares) and share premium accounts (the
aggregate amount paid for the subscription for its shares in
excess of the aggregate par value of such shares). If the
realizable value of our assets decreases, our ability to pay
dividends may require our shareholders to approve resolutions
reducing our share premium account by transferring an amount to
our contributed surplus account.
80
Not applicable.
|
|
Item 9.
|
The
Offer and Listing
|
|
|
A.
|
Offer
and Listing Details
|
The trading market for our common shares is the NASDAQ Global
Market, on which the shares are listed under the symbol
NEWL. The following table sets forth the high and
low closing prices for our common shares since our initial
public offering of common shares at $150.00 per share on
June 3, 2005, as reported by the NASDAQ Global Market. The
following prices reflect the 1-for-12 reverse split of our
common shares on August 3, 2010. The high and low closing
prices for our common shares for the periods indicated were as
follows:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
For the Fiscal Year Ended December 31, 2005*
|
|
$
|
191.89
|
|
|
$
|
150.01
|
|
For the Fiscal Year Ended December 31, 2006
|
|
$
|
173.65
|
|
|
$
|
109.80
|
|
For the Fiscal Year Ended December 31, 2007
|
|
$
|
123.80
|
|
|
$
|
78.00
|
|
For the Fiscal Year Ended December 31, 2008
|
|
$
|
87.60
|
|
|
$
|
3.84
|
|
For the Fiscal Year Ended December 31, 2009
|
|
$
|
16.92
|
|
|
$
|
4.32
|
|
For the Quarter Ended
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
$
|
87.60
|
|
|
$
|
68.16
|
|
June 30, 2008
|
|
$
|
75.00
|
|
|
$
|
58.20
|
|
September 30, 2008
|
|
$
|
50.40
|
|
|
$
|
25.08
|
|
December 31, 2008
|
|
$
|
24.48
|
|
|
$
|
3.84
|
|
March 31, 2009
|
|
$
|
16.92
|
|
|
$
|
4.44
|
|
June 30, 2009
|
|
$
|
10.81
|
|
|
$
|
4.32
|
|
September 30, 2009
|
|
$
|
9.61
|
|
|
$
|
6.92
|
|
December 31, 2009
|
|
$
|
15.24
|
|
|
$
|
9.00
|
|
For the Month
|
|
|
|
|
|
|
|
|
October 2009
|
|
$
|
15.24
|
|
|
$
|
9.00
|
|
November 2009
|
|
$
|
13.92
|
|
|
$
|
11.64
|
|
December 2009
|
|
$
|
12.60
|
|
|
$
|
10.80
|
|
January 2010
|
|
$
|
11.52
|
|
|
$
|
8.88
|
|
February 2010
|
|
$
|
10.80
|
|
|
$
|
8.21
|
|
March 2010 (through March 17, 2010)
|
|
$
|
11.28
|
|
|
$
|
9.84
|
|
* Period
beginning June 3, 2005
Not applicable.
See Item 9.A. above.
Not applicable.
Not applicable.
81
|
|
Item 10.
|
Additional
Information
|
Not applicable.
|
|
B.
|
Memorandum
and Articles of Association
|
The following description of our capital stock summarizes the
material terms of our Memorandum of Association and our
bye-laws. Under our Memorandum of Association, as amended, our
authorized capital consists of 500 million preference
shares, par value $0.01 per share and 1 billion common
shares, par value of $0.01 per share.
Common
shares
Our Memorandum of Association and bye-laws were amended on
August 26, 2009 to increase the authorized share capital of
the Company to 1,000,000,000 common shares, and 500,000,000
preference shares.
Holders of common shares have no pre-emptive, subscription,
redemption, conversion or sinking fund rights. Holders of common
shares are entitled to one vote for each share held of record on
all matters submitted to a vote of our shareholders. Holders of
common shares have no cumulative voting rights. Holders of
common shares are entitled to dividends if and when they are
declared by our board of directors, subject to any preferred
dividend right of holders of any preference shares. Directors to
be elected by holders of common shares require a plurality of
votes cast at a meeting at which a quorum is present. For all
other matters, unless a different majority is required by law or
our bye-laws, resolutions to be approved by holders of common
shares require approval by a majority of votes cast at a meeting
at which a quorum is present.
Upon our liquidation, dissolution or winding up, our common
shareholders will be entitled to receive, ratably, our net
assets available after the payment of all our debts and
liabilities and any preference amount owed to any preference
shareholders.
The rights of our common shareholders, including the right to
elect directors, are subject to the rights of any series of
preference shares we may issue in the future.
Preference
Shares
Under the terms of our bye-laws, our board of directors has
authority to issue up to 30 million blank check
preference shares in one or more series and to fix the rights,
preferences, privileges and restrictions of the preference
shares, including voting rights, dividend rights, conversion
rights, redemption terms (including sinking fund provisions) and
liquidation preferences and the number of shares constituting a
series or the designation of a series.
The rights of holders of our common shares will be subject to,
and could be adversely affected by, the rights of the holders of
any preference shares that we may issue in the future. Our board
of directors may designate and fix rights, preferences,
privileges and restrictions of each series of preference shares
which are greater than those of our common shares. Our issuance
of preference shares could, among other things:
|
|
|
|
|
restrict dividends on our common shares;
|
|
|
|
dilute the voting power of our common shares;
|
|
|
|
impair the liquidation rights of our common shares; and
|
|
|
|
Discourage, delay or prevent a change of control of our Company.
|
Our board of directors does not at present intend to seek
shareholder approval prior to any issuance of currently
authorized preference shares, unless otherwise required by
applicable law or NASDAQ requirements. Although we currently
have no plans to issue preference shares, we may issue them in
the future.
82
Treasury
Shares
Our bye-laws were amended at our 2008 annual general meeting to
allow our board of directors, at its discretion and without the
sanction of a resolution of members, to authorize the
acquisition by us of our shares, to be held as treasury shares.
Our board of directors may, at its discretion and without the
sanction of a resolution of Members, authorize the acquisition
by us of our own shares, to be held as treasury shares, upon
such terms as the board of directors may in its discretion
determine, provided always that such acquisition is effected in
accordance with the provisions of the BCA. We shall be entered
in the register of members as a shareholder in respect of the
shares held by us as treasury shares and shall be our
shareholder but subject always to the provisions of the BCA and
for the avoidance of doubt we shall not exercise any rights and
shall not enjoy or participate in any of the rights attaching to
those shares save as expressly provided for in the BCA. Subject
as otherwise provided in our bye-laws in relation to our shares
generally, any of our shares held by us as treasury shares shall
be at the disposal of the board of directors, which may hold all
or any of such shares, dispose of or transfer all or any of such
shares for cash or other consideration, or cancel all or any of
such shares.
Dividends
Under Bermuda law, a company may not declare or pay dividends if
there are reasonable grounds for believing either that the
company is, or would after the payment be, unable to pay its
liabilities as they become due, or that the realizable value of
its assets would thereby be less than the sum of its
liabilities, its issued share capital (the total par value of
all outstanding shares) and share premium accounts (the
aggregate amount paid for the subscription for its shares in
excess of the aggregate par value of such shares). If the
realizable value of our assets decreases, our ability to pay
dividends may require our shareholders to approve resolutions
reducing our share premium account by transferring an amount to
our contributed surplus account. There are no restrictions on
our ability to transfer funds (other than funds denominated in
Bermuda dollars) in and out of Bermuda or to pay dividends to
U.S. residents who are holders of our common shares.
Anti-Takeover
Effects of Provisions of Our Constitutional Documents
Several provisions of our bye-laws may have anti-takeover
effects. These provisions are intended to avoid costly takeover
battles, lessen our vulnerability to a hostile change of control
and enhance the ability of our board of directors to maximize
shareholder value in connection with any unsolicited offer to
acquire us. However, these anti-takeover provisions, which are
summarized below, could also discourage, delay or prevent
(1) the merger, amalgamation or acquisition of our company
by means of a tender offer, a proxy contest or otherwise, that a
shareholder may consider in its best interest and (2) the
removal of our incumbent directors and executive officers.
Blank
Check Preference Shares
Under the terms of our bye-laws, subject to applicable legal or
NASDAQ requirements, our board of directors has authority,
without any further vote or action by our shareholders, to issue
up to 500 million preference shares with such rights,
preferences and privileges as our board may determine. Our board
of directors may issue preference shares 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 bye-laws provide for the division of our board of directors
into three classes of directors, with each class as nearly equal
in number as possible, serving staggered, three year terms.
One-third (or as near as possible) of our directors will be
elected each year. Our bye-laws also provide that directors may
only be removed for cause upon the vote of the holders of no
less than 80% of our outstanding common shares. These provisions
could discourage a third party from making a tender offer for
our shares or attempting to obtain control of our company. It
could also delay shareholders who do not agree with the policies
of the board of directors from removing a majority of the board
of directors for two years.
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Business
Combinations
Although the BCA does not contain specific provisions regarding
business combinations between companies organized
under the laws of Bermuda and interested
shareholders, we have included these provisions in our
bye-laws. Specifically, our bye-laws contain provisions which
prohibit us from engaging in a business combination with an
interested shareholder for a period of three years after the
date of the transaction in which the person became an interested
shareholder, unless, in addition to any other approval that may
be required by applicable law:
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prior to the date of the transaction that resulted in the
shareholder becoming an interested shareholder, our board of
directors approved either the business combination or the
transaction that resulted in the shareholder becoming an
interested shareholder;
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upon consummation of the transaction that resulted in the
shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of our voting shares outstanding
at the time the transaction commenced; or
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after the date of the transaction that resulted in the
shareholder becoming an interested shareholder, the business
combination is approved by the board of directors and authorized
at an annual or special meeting of shareholders by the
affirmative vote of at least 80% of our outstanding voting
shares that are not owned by the interested shareholder.
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For purposes of these provisions, a business
combination includes mergers, amalgamations,
consolidations, exchanges, asset sales, leases, certain issues
or transfers of shares or other securities and other
transactions resulting in a financial benefit to the interested
shareholder. An interested shareholder is any person
or entity that beneficially owns 15% or more of our outstanding
voting shares and any person or entity affiliated with or
controlling or controlled by that person or entity, except that
so long as Rocket Marine owns 15% or more of our outstanding
voting shares, Rocket Marine shall not be an interested
shareholder unless it acquires additional voting shares
representing 8% or more of our outstanding voting shares.
Election
and Removal of Directors
Our bye-laws do not permit cumulative voting in the election of
directors. Our bye-laws require shareholders wishing to propose
a person for election as a director (other than persons proposed
by our board of directors) to give advance written notice of
nominations for the election of directors. Our bye-laws also
provide that our directors may be removed only for cause and
only upon the affirmative vote of the holders of at least 80% of
our outstanding common shares, voted at a duly authorized
meeting of shareholders called for that purpose, provided that
notice of such meeting is served on such director at least
14 days before the meeting. These provisions may
discourage, delay or prevent the removal of our incumbent
directors.
Shareholder
Meetings
Under our bye-laws, annual meetings of shareholders will be held
at a time and place selected by our board of directors each
calendar year. Special meetings of shareholders may be called by
our board of directors at any time and must be called at the
request of shareholders holding at least 10% of our
paid-up
share capital carrying the right to vote at general meetings.
Under our bye-laws at least 15, but not more than 60, days
notice of an annual meeting or any special meeting must be given
to each shareholder entitled to vote at that meeting. Under
Bermuda law accidental failure to give notice will not
invalidate proceedings at a meeting. Our board of directors may
set a record date between 15 and 60 days before the date of
any meeting to determine the shareholders who will be eligible
to receive notice and vote at the meeting.
Limited
Actions by Shareholders
Any action required or permitted to be taken by our shareholders
must be effected at an annual or special meeting of shareholders
or by majority written consent without a meeting. Our bye-laws
provide that, subject to certain exceptions and to the rights
granted to shareholders pursuant to the BCA, only our board of
directors may call special meetings of our shareholders and the
business transacted at a special meeting is
84
limited to the purposes stated in the notice for that meeting.
Accordingly, a shareholder may be prevented from calling a
special meeting for shareholder consideration of a proposal over
the opposition of our board of directors and shareholder
consideration of a proposal may be delayed until the next annual
meeting.
Subject to certain rights set out in the BCA, our bye-laws
provide that shareholders are required to give advance notice to
us of any business to be introduced by a shareholder at any
annual meeting. The advance notice provisions provide that, for
business to be properly introduced by a shareholder when such
business is not specified in the notice of meeting or brought by
or at the direction of our board of directors, the shareholder
must have given our secretary notice not less than 90 nor more
than 120 days prior to the anniversary date of the
immediately preceding annual meeting of the shareholders. In the
event the annual meeting is called for a date that is not within
30 days before or after such anniversary date, the
shareholder must give our secretary notice not later than
10 days following the earlier of the date on which notice
of the annual meeting was mailed to the shareholders or the date
on which public disclosure of the annual meeting was made. The
chairman of the meeting may, if the facts warrant, determine and
declare that any business was not properly brought before such
meeting and such business will not be transacted.
Amendments
to Bye-Laws
Our bye-laws require the affirmative vote of the holders of not
less than 80% of our outstanding voting shares to amend, alter,
change or repeal the following provisions in our bye-laws:
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the classified board and director election and removal
provisions;
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the percentage of approval required for our shareholders to
amend our bye-laws;
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the limitations on business combinations between us and
interested shareholders;
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the provisions requiring the affirmative vote of the holders of
not less than 80% of our outstanding voting shares to amend the
foregoing provisions; and
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the limitations on shareholders ability to call special
meetings, subject to certain rights guaranteed to shareholders
under the BCA.
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The passing of written resolutions by majority consent of the
shareholders.
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These requirements make it more difficult for our shareholders
to make changes to the provisions in our bye-laws that could
have anti-takeover effects.
The following is a summary of each material contract, other than
material contracts entered into in the ordinary course of
business, to which we or any of our subsidiaries is a party, for
the two years immediately preceding the date of this Annual
Report, each of which is included in the list of exhibits in
Item 19.
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Sixth Supplemental Agreement, dated June 24, 2009 between
the Company and The Bank of Scotland relating to a Credit
Agreement dated April 3, 2006. This revolving credit
facility was refinanced and replaced by the Facility Agreement
described in more detail in Item 5
Operating and Financial Review and Prospects.
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Securities Purchase Agreement, dated as of September 16,
2009 between Grandunion and the Company. Please read
Item 5 Operating and Financial Review and
Prospects for a summary of certain contract terms.
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Facility Agreement, dated October 13, 2009 among the
Company, Bank of Scotland plc, Nordea Bank Finland plc, London
Branch, HSH Nordbank AG, The Governor and the Company of the
Bank of Ireland, Sumitomo Mitsui Banking Corporation, Brussels
Branch, Bayerische Hypo-und Vereinsbank AG, Commerzbank
Aktiengesellschaft, General Electric Capital Corporation,
Natixis and Swedbank AB (publ).
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Indenture, dated as of October 13, 2009 between the Company
and Marfin Egnatia Bank S.A. (Marfin Bank). The
7% Notes were issued under this Indenture. Please read
Item 5 Operating and Financial Review and
Prospects for a summary of certain contract terms.
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Note Purchase Agreement, dated October 13, 2009 among the
Company, each of the purchasers listed on the signature thereto,
and Marfin Bank. Please read Item 5 Operating
and Financial Review and Prospects for a summary of
certain contract terms.
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7% Convertible Senior Note Due 2015, dated October 13,
2009, made by the Company. Please read
Item 5 Operating and Financial Review and
Prospects for a summary of certain contract terms.
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Registration Rights Agreement, dated October 13, 2009 among
Investment Bank of Greece, Focus Maritime Corp. and the Company.
Please read Item 5 Operating and
Financial Review and Prospects for a summary of certain
contract terms.
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Financial Agreement, dated August 18, 2009 among Marfin
Bank, Australia Holdings Ltd., China Holdings Ltd. and Brazil
Holdings Ltd. This $37.4 million credit facility was
assumed by the Company in October 2009 as part of the
recapitalization. Please read Item 5
Operating and Financial Review and Prospects for a summary
of certain contract terms.
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The Company has been designated as a non-resident of Bermuda for
exchange control purposes by the Bermuda Monetary Authority,
whose permission for the issue of our common shares was obtained
prior to the offering thereof.
The transfer of shares between persons regarded as resident
outside Bermuda for exchange control purposes and the issuance
of common shares to or by such persons may be effected without
specific consent under the Bermuda Exchange Control Act of 1972
and regulations thereunder. Issues and transfers of Common
Shares involving any person regarded as resident in Bermuda for
exchange control purposes require specific prior approval under
the Bermuda Exchange Control Act of 1972.
Subject to the foregoing, there are no limitations on the rights
of owners of our common shares to hold or vote their shares.
Because the Company has been designated as non-resident for
Bermuda exchange control purposes, there are no restrictions on
its ability to transfer funds in and out of Bermuda or to pay
dividends to United States residents who are holders of our
common shares, other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates may be issued
only in the names of corporations or individuals. In the case of
an applicant acting in a special capacity (for example, as an
executor or trustee), certificates may, at the request of the
applicant, record the capacity in which the applicant is acting.
Notwithstanding the recording of any such special capacity, the
Company is not bound to investigate or incur any responsibility
in respect of the proper administration of any such estate or
trust.
The Company will take no notice of any trust applicable to any
of its shares or other securities whether or not it had notice
of such trust.
As an exempted company, the Company is exempt from
Bermuda laws which restrict the percentage of share capital that
may be held by non-Bermudians, but as an exempted company, the
Company may not participate in certain business transactions
including: (i) the acquisition or holding of land in
Bermuda (except that required for its business and held by way
of lease or tenancy for terms of not more than 21 years)
without the express authorization of the Bermuda legislature;
(ii) the taking of mortgages on land in Bermuda to secure
an amount in excess of $50,000 without the consent of the
Minister of Finance of Bermuda; (iii) the acquisition of
securities created or issued by, or any interest in, any local
company or business, other than certain types of Bermuda
government securities or securities of another exempted
company, exempted partnership or other corporation or
partnership resident in Bermuda but incorporated abroad; or
(iv) the carrying on of business of any kind in Bermuda,
except insofar as may be necessary for the carrying on of its
business outside Bermuda or under a license granted by the
Minister of Finance of Bermuda.
86
There is a statutory remedy under Section 111 of the
Companies Act 1981 which provides that a shareholder may seek
redress in the Bermuda courts as long as such shareholder can
establish that the Companys affairs are being conducted,
or have been conducted, in a manner oppressive or prejudicial to
the interests of some part of the shareholders, including such
shareholder. However, this remedy has not yet been interpreted
by the Bermuda courts.
The Bermuda government actively encourages foreign investment in
exempted entities like the Company that are based in
Bermuda but do not operate in competition with local business.
In addition to having no restrictions on the degree of foreign
ownership, the Company is subject neither to taxes on its income
or dividends nor to any exchange controls in Bermuda. In
addition, there is no capital gains tax in Bermuda, and profits
can be accumulated by the Company, as required, without
limitation. There is no income tax treaty between the United
States and Bermuda pertaining to the taxation of income other
than applicable to insurance enterprises.
The following is a discussion of the material Bermuda and United
States federal income tax considerations with respect to the
Company and holders of common shares. This discussion does not
purport to deal with the tax consequences of owning common
shares to all categories of investors, some of which, such as
dealers in securities, investors whose functional currency is
not the United States dollar and investors that own, actually or
under applicable constructive ownership rules, 10% or more of
our common shares, may be subject to special rules. This
discussion deals only with holders who hold the common shares as
a capital asset. Holders of common shares are encouraged to
consult their own tax advisors concerning the overall tax
consequences arising in their own particular situation under
United States federal, state, local or foreign law of the
ownership of common shares.
Bermuda
Tax Considerations
As of the date of this document, we are not subject to taxation
under the laws of Bermuda, and distributions to us by our
subsidiaries also are not subject to any Bermuda tax. As of the
date of this document, there is no Bermuda income, corporation
or profits tax, withholding tax, capital gains tax, capital
transfer tax, estate duty or inheritance tax payable by
non-residents of Bermuda in respect of capital gains realized on
a disposition of our common shares or in respect of
distributions by us with respect to our common shares. This
discussion does not, however, apply to the taxation of persons
ordinarily resident in Bermuda. Bermuda holders should consult
their own tax advisors regarding possible Bermuda taxes with
respect to dispositions of, and distributions on, our common
shares.
United
States Federal Income Tax Considerations
The following are the material United States federal income tax
consequences to us of our activities and to U.S. Holders
and
Non-U.S. Holders,
each as defined below, of our common shares. The following
discussion of United States federal income tax matters is based
on the United States Internal Revenue Code of 1986, or the Code,
judicial decisions, administrative pronouncements, and existing
and proposed regulations issued by the United States Department
of the Treasury, all of which are subject to change, possibly
with retroactive effect. The discussion below is based, in part,
on the description of our business as described in
Item 4 Information on the Company
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 NewLead Holdings Ltd. and its subsidiaries
on a consolidated basis.
87
United
States Federal Income Taxation of Our Company
Taxation
of Operating Income: In General
We earn substantially all of our income from the use of vessels,
from the hiring or leasing of vessels for use on a time, voyage
or bareboat charter basis or from the performance of services
directly related to those uses, which we refer to as
shipping income.
Fifty percent of shipping income that is attributable to
transportation that begins or ends, but that does not both begin
and end, in the United States constitutes income from sources
within the United States, which we refer to as
U.S.-source
shipping income.
Shipping income attributable to transportation that both begins
and ends in the United States is considered to be 100% from
sources within the United States. We are not permitted by law to
engage in transportation that produces income which is
considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively
between
non-U.S. ports
is not considered to be 100% derived from sources outside the
United States. Shipping income derived from sources outside the
United States is not subject to any United States federal income
tax.
In the absence of exemption from tax under Section 883, our
gross U.S. source shipping income is 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, a foreign corporation will
be exempt from United States federal income taxation on its
U.S.-source
shipping income if:
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(1)
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it is organized in a qualified foreign country, which is one
that grants an equivalent exemption to corporations
organized in the United States in respect of such category of
the shipping income for which exemption is being claimed under
Section 883 and which we refer to as the Country of
Organization Test; and
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(2) Either
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(A)
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more than 50% of the value of its stock is beneficially owned,
directly or indirectly, by individuals who are
residents of a qualified foreign country, which we
refer to as the 50% Ownership Test, or
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(B)
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its stock is primarily and regularly traded on an
established securities market in its country of
organization, in another qualified foreign country or in the
United States, which we refer to as the Publicly Traded
Test.
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The Country of Organization Test is satisfied since we are
incorporated in Bermuda, and each of our subsidiaries is
incorporated in the Bermuda, the Marshall Islands, or Liberia,
all of which are qualified foreign countries in respect of each
category of Shipping Income we currently earn and expect to earn
in the future. Therefore, we and our subsidiaries are exempt
from United States federal income taxation with respect to our
U.S.-source
shipping income as we and each of our subsidiaries meet either
of the 50% Ownership Test or the Publicly Traded Test. Under a
special attribution rule of Section 883, each of our
Subsidiaries is deemed to have satisfied the 50% Ownership Test
if we satisfy such test or the Publicly Traded Test. Due to the
widely-held nature of our common shares, we may have difficulty
satisfying the 50% Ownership Test.
The Treasury Regulations provide, in pertinent part, that stock
of a foreign corporation is considered to be primarily
traded on an established securities market if the number
of shares of each class of stock that are traded during any
taxable year on all established securities markets in that
country exceeds the number of shares in each such class that are
traded during that year on established securities markets in any
other single country. Our common shares, which are our sole
class of issued and outstanding stock, are primarily
traded on the NASDAQ Global Market, which is an
established securities market in the United States.
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Under the Treasury Regulations, our common shares are considered
to be regularly traded on an established securities
market if one or more classes of our shares representing more
than 50% of our outstanding shares, by total combined voting
power of all classes of shares entitled to vote and total value,
is listed on an established securities market, which we refer to
as the listing threshold. Since our common shares are our sole
class of issued and outstanding stock and are listed on the
NASDAQ Global Market, we meet 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
the stock is traded on the market, other than in minimal
quantities, on at least 60 days during the taxable year or
1/6
of the days in a short taxable year; and (ii) the aggregate
number of shares of such class of stock traded on such market 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 satisfy these trading
frequency and trading volume tests. Even if this were not the
case, the Treasury Regulations provide that the trading
frequency and trading volume tests will be deemed satisfied if,
as is currently the case with our common shares, such class of
stock is traded on an established market in the United States
and such stock is regularly quoted by dealers making a market in
such stock.
Notwithstanding the foregoing, the Treasury Regulations provide,
in pertinent part, that our shares are not to be considered to
be regularly traded on an established securities
market for any taxable year in which 50% or more of the vote and
value of our outstanding common shares 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 vote and value of our outstanding common
shares, which we refer to as the 5 Percent Override
Rule.
To determine the persons who own 5% or more of the vote and
value of our shares, or 5% Shareholders, the
Treasury Regulations permit us to rely on those persons that are
identified on Form 13G and Form 13D filings with the
United States Securities and Exchange Commission, or the
SEC, as having a 5% or more beneficial interest in
our common shares. The Treasury Regulations further provide that
an investment company which is registered under the Investment
Company Act of 1940, as amended, will not be treated as a 5%
Shareholder for such purposes.
In the event the 5 Percent Override Rule is triggered, the
Treasury Regulations provide that the 5 Percent Override
Rule does not apply if we can establish in conformity with the
Treasury Regulations that within the group of 5% Shareholders,
sufficient shares are owned by qualified shareholders for
purposes of Section 883 to preclude non-qualified
shareholders in such group from owning 50% or more of the value
of our shares for more than half the number of days during such
year.
Even though we believe that we will be able to qualify for the
benefits of Section 883 under the Publicly-Traded Test, we
can provide no assurance that we will be able to continue to so
qualify in the future.
Taxation
In The Absence of Section 883 Exemption
To the extent the benefits of 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
U.S. federal income tax on our shipping income would never
exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Section 883 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, in lieu of
the 4% gross basis tax described above, be subject to the
U.S. federal corporate income tax currently imposed at
rates of up to 35%. In addition, we may be subject to the 30%
branch profits tax on earnings effectively
connected with the conduct of such trade or business, as
determined after allowance for certain
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adjustments, and on certain interest paid or deemed paid
attributable to the conduct of our U.S. trade or business.
Our U.S. source shipping income would be considered
effectively connected with the conduct of a
U.S. trade or business only if:
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we have, or are considered to have, a fixed place of business in
the United States involved in the earning of shipping
income; and
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substantially all of our U.S. source shipping income is
attributable to regularly scheduled transportation, such as the
operation of a vessel that follows a published schedule with
repeated sailings at regular intervals between the same points
for voyages that begin or end in the United States.
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We do not have, or permit circumstances that would result in our
having, a fixed place of business in the United States involved
in the earning of shipping income and therefore, 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
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 shares that 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.
If a partnership holds our common shares, 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 shares, you are encouraged to
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 shares 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. Holders tax basis
in his common shares on a
dollar-for-dollar
basis and thereafter as capital gain. Because we are not a
United States corporation, U.S. Holders that are
corporations will not be entitled to claim a dividends received
deduction with respect to any distributions they receive from
us. Dividends paid with respect to our common shares will
generally be treated as passive category income or,
in the case of certain types of U.S. Holders general
category income for purposes of computing allowable
foreign tax credits for United States foreign tax credit
purposes.
Dividends paid on our common shares to a U.S. Holder who is
an individual, trust or estate (a U.S. Individual
Holder) will generally be treated as qualified
dividend income that is taxable to such
U.S. Individual Holders at preferential tax rates (through
2010) provided that (1) the common shares are readily
tradable on an established securities market in the United
States (such as the NASDAQ Global Market, on which our common
shares are traded); (2) we are not a passive foreign
investment company for the taxable year during which the
dividend is paid or the immediately preceding taxable year
(which we do not believe we are, have been or will be); and
(3) the U.S. Individual Holder has owned the common
shares for more than
90
60 days in the
121-day
period beginning 60 days before the date on which the
common shares becomes ex-dividend. Legislation has been
previously introduced in the U.S. Congress which, if
enacted in its present form, would preclude our dividends from
qualifying for such preferential rates prospectively from the
date of the enactment. Therefore, there is no assurance that any
dividends paid on our common shares will be eligible for these
preferential rates in the hands of a U.S. Individual
Holder. Any dividends paid by the Company which are not eligible
for these preferential rates will be taxed as ordinary income to
a U.S. Individual Holder.
Special rules may apply to any extraordinary
dividend generally, a dividend in an amount which is equal
to or in excess of ten percent of a shareholders adjusted
basis (or fair market value in certain circumstances) in a
common share paid by us. If we pay an extraordinary
dividend on our common shares 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 shares will be treated as long-term capital loss to the
extent of such dividend.
Sale,
Exchange or other Disposition of Common Shares
Assuming we do not constitute a passive foreign investment
company for any taxable year, a U.S. Holder generally
recognizes taxable gain or loss upon a sale, exchange or other
disposition of our common shares in an amount equal to the
difference between the amount realized by the U.S. Holder
from such sale, exchange or other disposition and the
U.S. Holders tax basis in such stock. Such gain or
loss is treated as long-term capital gain or loss if the
U.S. Holders holding period is greater than one year
at the time of the sale, exchange or other disposition. Such
capital gain or loss is generally treated as
U.S.-source
income or loss, as applicable, for U.S. foreign tax credit
purposes. A U.S. Holders ability to deduct capital
losses is subject to certain limitations.
Passive
Foreign Investment Company Status and Significant Tax
Consequences
Special 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 are 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 shares, 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.
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For purposes of determining whether we are a passive foreign
investment company, we are treated as earning and owning our
proportionate share of the income and assets, respectively, of
any of our subsidiary corporations in which we own at least 25%
of the value of the subsidiarys stock. Income earned, or
deemed earned, by us in connection with the performance of
services would not constitute passive income. By contrast,
rental income would generally constitute passive
income unless we were treated under specific rules as
deriving our rental income in the active conduct of a trade or
business.
Based on our current operations and future projections, we do
not believe that we have been, are, nor do we expect to become,
a passive foreign investment company with respect to any taxable
year. Although there is no legal authority directly on point,
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 are a passive foreign investment company. We believe
there is substantial legal authority supporting our position
consisting of case law and Internal Revenue Service
pronouncements concerning the characterization of income derived
from time charters and voyage charters as services income for
other tax purposes. 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
91
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.
If we were to be treated as a passive foreign investment
company, special and adverse United States federal income tax
rules would apply to a U.S. Holder of our shares. Among
other things, the distributions a U.S. Holder received with
respect to our shares and gains, if any, a U.S. Holder
derived from his sale or other disposition of our shares would
be taxable as ordinary income (rather than as qualified dividend
income or capital gain, as the case may be), would be treated as
realized ratably over his holding period in our common shares,
and would be subject to an additional interest charge. However,
a U.S. Holder might be able to make certain tax elections
which ameliorate these consequences.
United
States Federal Income Taxation of
Non-U.S.
Holders
A beneficial owner of common shares that is not a
U.S. Holder is referred to herein as a
Non-U.S. Holder.
Dividends
on Common Shares
Non-U.S. Holders
generally are not subject to United States federal income tax or
withholding tax on dividends received from us with respect to
our common shares, unless that income is effectively connected
with the
Non-U.S. Holders
conduct of a trade or business in the United States. If the
Non-U.S. Holder
is entitled to the benefits of a United States income tax treaty
with respect to those dividends, that income is taxable only if
it is attributable to a permanent establishment maintained by
the
Non-U.S. Holder
in the United States.
Sale,
Exchange or Other Disposition of Common Shares
Non-U.S. Holders
generally are not subject to United States federal income tax or
withholding tax on any gain realized upon the sale, exchange or
other disposition of our common shares, unless:
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the gain is effectively connected with the
Non-U.S. Holders
conduct of a trade or business in the United States. 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.
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If the
Non-U.S. Holder
is engaged in a United States trade or business for United
States federal income tax purposes, the income from the common
shares, 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 is generally 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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F.
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Dividends
and paying agents
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Not applicable.
Not applicable.
We file annual reports and other information with the SEC. You
may read and copy any document we file with the SEC at its
public reference room at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. You may also obtain
copies of this information by mail from the public reference
section of the SEC, 100 F Street,
92
N.E., Room 1580, Washington, D.C. 20549, at prescribed
rates. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room. Our SEC filings are also available to the public at the
web site maintained by the SEC at
http://www.sec.gov,
as well as on our website at
http://www.newleadholdings.com.
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I.
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Subsidiary
information
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Not applicable.
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Item 11.
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Quantitative
and Qualitative Disclosures About Market Risk
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Interest
Rate Exposure
Prior to the refinancing of our then-existing credit facility,
our debt obligations under the then-existing facility agreement
bore interest at LIBOR plus a margin approximately ranging from
0.276% to 1.5% per annum. With the recapitalization and
refinancing of the Facility Agreement, the new covenants put in
place (excluding working capital and minimum liquidity
covenants) under the Facility Agreement will become effective in
a period ranging from 30 to 36 months from the execution of
the Facility Agreement. However, increasing interest rates could
adversely affect our future profitability.
On July 5, 2006, we entered into interest rate swaps with
five banks on identical terms. These five swaps have an
effective date of July 3, 2006 and a maturity date of
April 3, 2011. Under the terms of the swap agreements, we
pay a fixed interest rate of 5.63% per annum on a total of
$100.0 million of our long-term debt.
On April 3, 2008, we entered into a floored swap
transaction with one bank and a simultaneous swap and cap
transaction with another bank. These two synthetic swaps have an
effective date of April 3, 2008 and maturity dates of
April 3, 2011 and April 4, 2011, respectively. Under
the terms of the floored swap agreement, we pay a fixed interest
rate of 4.285% per annum on a total of $23.3 million of our
long term debt. Under the terms of the swap and cap
transactions, we pay a fixed interest rate of 4.14% on a total
of $23.3 million of our long-term debt and we have limited
our interest rate exposure to 4.14% on an additional amount of
$23.3 million.
A 100 basis point increase in LIBOR would have resulted in
an increase of approximately $0.3 million in our interest
expense on the unhedged element of drawings under the terms of
our original credit facility for the year ended
December 31, 2009.
In connection with the recapitalization, we entered into an
interest rate swap with Marfin Egnatia Bank. This swap has an
effective date of September 2, 2009 and a maturity date of
September 2, 2014. Under the terms of the swap agreement,
we pay a fixed interest rate of 4.08% per annum on a total of
$37.4 million of our long-term debt.
Foreign
Exchange Rate Exposure
Our vessel-owning subsidiaries generate revenues in
U.S. dollars but incur a portion of their vessel operating
expenses, and we incur a portion of our general and
administrative costs, in other currencies, primarily Euros.
We monitor trends in foreign exchange rates closely and actively
manage our exposure to foreign exchange rates. We maintain
foreign currency accounts and buy foreign currency in
anticipation of our future requirements in an effort to manage
foreign exchange risk. During the year ended December 31,
2009, the value of the U.S. dollar reached highs of $1.51
and lows of $1.26 compared to the Euro, and as a result, an
adverse or positive movement could increase or decrease
operating and general and administrative expenses. During the
periods from January 1, 2009 to October 13, 2009 and
from October 14, 2009 to December 31, 2009, the effect
was minimal.
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Item 12.
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Description
of Securities Other than Equity Securities
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Not applicable.
93
PART II
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Item 13.
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Defaults,
Dividend Arrearages and Delinquencies
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Neither we nor any of our subsidiaries have been subject to a
material default in the payment of principal, interest, a
sinking fund or purchase fund installment or any other material
default that was not cured within 30 days. In addition, the
payment of our dividends is not, and has not been in arrears or
has not been subject to a material delinquency that was not
cured within 30 days.
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Item 14.
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Material
Modifications to the Rights of Security Holders and Use of
Proceeds
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Not applicable.
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ITEM 15.
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Controls
and Procedures
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(a)
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Disclosure
Controls and Procedures
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In our Annual Report on
Form 20-F
(Original Filing) for the period October 14,
2009 to December 31, 2009, filed on March 18, 2010,
management of the Company, including our CEO (principal
executive officer) and CFO (principal financial officer),
evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in
Rule 13a-15(e) promulgated under the Exchange Act of
1934, as amended (the Exchange Act)) as of the end
of the period covered by the Original Filing. Based on that
evaluation, management initially concluded that our disclosure
controls and procedures were effective as of December 31,
2009 to provide reasonable assurance that the information
required to be included in our reports filed or submitted under
the Exchange Act as of such time was recorded, processed,
summarized, and reported within the time period specified in the
U.S. Securities and Exchange Commissions (the
Commission) rules and forms and such information was
accumulated and communicated as appropriate to allow timely
decisions regarding required disclosures.
Subsequent to that evaluation, in connection with the
restatement discussed in note 2 of our consolidated
financial statements, management of the Company, including our
CEO (principal executive officer) and CFO (principal financial
officer), reevaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2009. As a
result of such re-evaluation, management, including our CEO
(principal executive officer) and CFO (principal financial
officer), has concluded that our disclosure controls and
procedures were not effective as of December 31, 2009
because of the material weakness in internal control over
financial reporting described below.
Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed
in our reports filed or submitted under the Exchange Act is
properly recorded, processed, summarized and reported within the
time periods required by the Commissions rules and forms,
and that such information is accumulated and communicated to
management of the Company, with the participation of its Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
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(b)
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Managements
annual report on internal control over financial
reporting
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Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f) and
15d-15(f) under
the Securities and Exchange Act of 1934, as amended. The
Companys internal control over financial reporting is a
process designed by, or under the supervision of the
Companys Chief Executive Officer and Chief Financial
Officer, and carried out by the Companys Board of
Directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of the
Companys financial reporting and the preparation of the
Companys consolidated financial statements for external
reporting purposes in accordance with U.S. GAAP. The
Companys internal control over financial reporting
includes policies and procedures that:
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Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and
dispositions of assets of the Company;
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94
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Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of consolidated financial
statements in accordance with U.S. GAAP, and that receipts
and expenditures are being made only in accordance with
authorizations of management and directors of the
Company; and
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Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the Companys assets that could have a material effect on
the consolidated financial statements.
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Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management has assessed the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2009. In making its assessment of internal
control over financial reporting, management used the criteria
described in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material
misstatement of the registrants annual or interim
financial statements will not be prevented or detected on a
timely basis by the companys internal control over
financial reporting.
We did not maintain effective controls over the recognition and
measurement of goodwill. Specifically, our controls to prevent
and detect the misapplication of the acquisition method of
accounting required for the non routine and complex transaction
of the October 2009 re-capitalization, did not operate
effectively. More specifically the goodwill resulted from this
transaction has been recorded directly in shareholders
equity, instead in separate balance sheet account. This control
deficiency resulted in understatement of Goodwill and
shareholders equity of approximately $86.0 million
and resulted in the restatement of the Companys
consolidated financial statements as of December 31, 2009.
Accordingly, our management has determined that this control
deficiency constitutes a material weakness.
In Managements annual report on internal control over
financial reporting included in the Companys original
filing of the Annual Report on
Form 20-F
for the period from October 14, 2009 to December 31,
2009, management concluded that the Company maintained effective
internal control over financial reporting as of
December 31, 2009. Management has subsequently determined
that the material weakness described above existed as of
December 31, 2009. As a result of this material weakness,
management has concluded that the Company did not maintain
effective internal control over financial reporting surrounding
the re-capitalization accounting as of December 31, 2009
based on the criteria set forth in Internal Control
Integrated Framework issued by the COSO. Accordingly, management
has restated its original report on internal control over
financial reporting.
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(c)
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Attestation
report of the independent registered public accounting
firm
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The effectiveness of the Companys internal control over
financial reporting as of December 31, 2009, has been
audited by PricewaterhouseCoopers S.A., an independent
registered public accounting firm, as stated in their report
which appears herein.
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(d)
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Changes
in internal control over financial reporting
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There have been no changes in internal controls over financial
reporting during the period covered by this Annual Report that
have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
95
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(e)
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Remediation
efforts and/or plans for the remediation
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We are in the process of implementing a remediation plan to
address the material weakness described above. A number of steps
have already been taken to improve our financial close and
reporting and our disclosure controls and procedures.
Specifically, since the beginning of 2010, the following actions
have been taken:
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We have appointed new external consultants to assist us with
completing our implementation of a comprehensive system of
internal controls over financial closing and reporting. In
addition, the consultants will be assisting us with documenting
and evaluating the adequacy and operating effectiveness of our
companys internal control environment.
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We have hired senior accounting staff with US GAAP expertise and
significant professional experience in the shipping industry and
in particular in other US listed companies.
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We have hired a new Internal Auditor with sufficient
professional experience in the shipping industry and in
particular in other US listed companies.
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The Audit Committee of the Board of Directors has been informed
of the material weakness over the application of U.S. GAAP.
They are being updated as to the Companys remediation
progress, and we would expect this communication to continue
until all control deficiency issues are addressed and remediated
to their satisfaction.
Our disclosure controls and procedures relating to the non
routine and complex recapitalization transaction were not
effective as of December 31, 2009. Upon the remediation
action mentioned above, as of April 11, 2011, we believe
that our disclosure procedures and controls were effective to
ensure that information required to be disclosed by us in the
reports we file is accumulated and communicated to our
management to allow timely decisions regarding required
disclosures.
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Item 16A.
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Audit
Committee Financial Expert
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We have established an audit committee comprised of three
members, which is responsible for reviewing our accounting
controls and recommending to the board of directors the
engagement of our outside auditors. Each member is an
independent director under the corporate governance rules of the
NASDAQ Global Market that are applicable to us. The members of
the audit committee are Messrs. Spyros Gianniotis,
Apostolos I. Tsitsirakis and Panagiotis Skiadas.
Mr. Gianniotis serves as the audit committee
financial expert as defined in the instructions to
Item 16.A. in the
Form 20-F.
As a foreign private issuer, we are exempt from the rules of the
NASDAQ Global Market that require the adoption of a code of
ethics. However, we have voluntarily adopted a code of ethics
that applies to our principal executive officer, principal
financial officer and persons performing similar functions. We
will provide any person a hard copy of our code of ethics free
of charge upon written request. Shareholders may direct their
requests to the Company at 83 Akti Miaouli & Flessa
Str., 185 38 Piraeus Greece, Attn: Corporate Secretary.
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Item 16C.
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Principal
Accountant Fees and Services
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Audit
Fees
Our principal accountants for the fiscal years ended
December 31, 2009 and 2008 were PricewaterhouseCoopers S.A.
Our audit fees for 2009 and 2008 were $300,000 and $532,500,
respectively.
Audit-Related
Fees
We did not incur audit-related fees for 2009 and 2008.
96
Tax
Fees
We did not incur tax fees for 2009 or 2008.
All
Other Fees
We did not incur any other fees for 2009 or 2008.
Our audit committee pre-approves all audit, audit-related and
non-audit services not prohibited by law to be performed by our
independent auditors and associated fees prior to the engagement
of the independent auditor with respect to such services.
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Item 16D.
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Exemptions
from the Listing Standards for Audit Committees
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Not applicable.
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Item 16E.
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Purchases
of Equity Securities by the Issuer and Affiliated
Purchases
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None.
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Item 16F.
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Changes
in Registrants Certifying Accountant
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Not applicable.
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Item 16G.
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Corporate
Governance
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We have certified to NASDAQ that our corporate governance
practices are in compliance with, and are not prohibited by, the
laws of Bermuda. Therefore, we are exempt from many of
NASDAQs corporate governance practices other than the
requirements regarding the disclosure of a going concern audit
opinion, submission of a listing agreement, notification of
material non-compliance with NASDAQ corporate governance
practices and the establishment and composition of an audit
committee and a formal written audit committee charter. The
practices that we follow in lieu of NASDAQs corporate
governance rules are described below.
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We have a board of directors with a majority of independent
directors which holds at least one annual meeting at which only
independent directors are present, consistent with NASDAQ
corporate governance requirements. We are not required under
Bermuda law to maintain a board of directors with a majority of
independent directors, and we cannot guarantee that we will
always in the future maintain a board of directors with a
majority of independent directors.
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We have a Governance and Nominating committee comprised of
independent directors that is responsible for identifying and
recommending potential candidates to become board members and
recommending directors for appointment to the board and board
committees. Shareholders may also identify and recommend
potential candidates to become board members in writing. No
formal written charter has been prepared or adopted because this
process is outlined in our bye-laws.
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In lieu of obtaining an independent review of related party
transactions for conflicts of interests, consistent with Bermuda
law requirements, our bye-laws require any director who has a
potential conflict of interest to identify and declare the
nature of the conflict to our board of directors at the first
meeting of the board of directors. Our bye-laws additionally
provide that related party transactions must be approved by
independent and disinterested directors.
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In lieu of obtaining shareholder approval prior to the issuance
of securities, we were required to obtain the consent of the
Bermuda Monetary Authority as required by Bermuda law before we
issued securities. We have obtained blanket consent from the
Bermuda Monetary Authority. If we choose to issue additional
securities, we will not be required to obtain any further
consent so long as our common shares are listed.
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97
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As a foreign private issuer, we are not required to solicit
proxies or provide proxy statements to NASDAQ pursuant to NASDAQ
corporate governance rules or Bermuda law. Consistent with
Bermuda law, we will notify our shareholders of meetings between
15 and 60 days before the meeting. This notification will
contain, among other things, information regarding business to
be transacted at the meeting. In addition, our bye-laws provide
that shareholders must give us advance notice to properly
introduce any business at a meeting of the shareholders. Our
bye-laws also provide that shareholders may designate a proxy to
act on their behalf (in writing or by telephonic or electronic
means as approved by our board from time to time).
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Other than as noted above, we are in full compliance with all
other applicable NASDAQ corporate governance standards.
98
PART III
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Item 17.
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Financial
Statements
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See Item 18.
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Item 18.
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Financial
Statements
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The financial information required by this Item, together with
the related report of PricewaterhouseCoopers S.A. thereon, is
filed as part of this annual report.
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1
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.1
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Amended and Restated Memorandum of Association of NewLead
Holdings Ltd. (Previously filed as Exhibit 99.1 to the
Companys Report on
Form 6-K,
filed on September 30, 2009 and hereby incorporated by
reference.)
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1
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.2
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Certificate of Incorporation on Change of Name (Previously filed
as Exhibit 1.1 to the Companys Report on
Form 6-K,
filed on January 8, 2010 and hereby incorporated by
reference.)
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1
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.3
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Amended and Restated Bye-laws of the Company (Previously filed
as Exhibit 3.1 to the Companys Report on
Form 6-K,
filed on January 27, 2010 and hereby incorporated by
reference.)
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2
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.1
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Indenture, dated as of October 13, 2009 between the Company
and Marfin Egnatia Bank S.A. (Previously filed as
Exhibit 99.1 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
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2
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.2
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Form of Note Purchase Agreement, dated October 13, 2009
among the Company, each of the purchasers listed on the
signature thereto, and Marfin Egnatia Bank S.A. (Previously
filed as Exhibit 99.2 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
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2
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.3
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Form of 7% Convertible Senior Note Due 2015, dated as of
October 13, 2009, made by the Company (Previously filed as
Exhibit 99.3 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
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2
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.4
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Warrant Certificate, dated October 13, 2009 from the
Company to Investment Bank of Greece (Previously filed as
Exhibit 99.8 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
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4
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.1
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Form of Equity Incentive Plan (Previously filed as
Exhibit 10.6 to the Companys 10.6 to the
Companys registration statement on
Form F-1/A
(Registration
No. 333-124952)
and hereby incorporated by reference.)
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4
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.2
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Amendment to Equity Incentive Plan (Previously filed as
Exhibit 4.9 to the Companys Annual Report on
Form 20-F,
filed on June 26, 2009 and hereby incorporated by
reference.)
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4
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.3
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Fifth Supplemental Agreement, dated June 11, 2008 between
the Company and The Bank of Scotland relating to the Credit
Agreement, dated April 3, 2006 among the Company and The
Bank of Scotland and Nordea Bank Finland as joint lead arrangers
(Previously filed as Exhibit 4.7 to the Companys
Annual Report on
Form 20-F,
filed on June 30, 2008 and hereby incorporated by
reference.)
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4
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.4
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Sixth Supplemental Agreement, dated June 24, 2009 between
the Company and The Bank of Scotland relating to a Credit
Agreement, dated April 3, 2006 among the Company and The
Bank of Scotland and Nordea Bank Finland as joint lead arrangers
(Previously filed as Exhibit 4.8 to the Companys
Annual Report on
Form 20-F,
filed on June 26, 2009 and hereby incorporated by
reference.)
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4
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.5
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$145 Million Convertible Bond Commitment Letter, dated
July 15, 2009 between Investment Bank of Greece and the
Company (Previously filed as Exhibit 99.F to the
Schedule 13D of Grandunion Inc., filed on
September 28, 2009 and hereby incorporated by reference.)
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4
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.6
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Financial Agreement, dated August 18, 2009 among Marfin
Bank, Australia Holdings Ltd., China Holdings Ltd. and Brazil
Holdings Ltd. (Previously filed as Exhibit 10.1 to the
Companys Report on
Form 6-K,
filed on January 27, 2010 and hereby incorporated by
reference.)
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4
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.7
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Securities Purchase Agreement, dated September 16, 2009
between Grandunion Inc. and the Company (Previously filed as
Exhibit 99.D to the Schedule 13D (Amendment
No. 1) of Grandunion Inc. and Focus Maritime Corp.,
filed on October 22, 2009 and hereby incorporated by
reference.)
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4
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.8
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Voting Agreement, dated September 16, 2009 among Grandunion
Inc., Rocket Marine Inc. Gabriel Petrides, Mons S. Bolin and
Aries Energy Corporation and acknowledged by the Company
(Previously filed as Exhibit 99.B to the Schedule 13D
of Grandunion Inc., filed on September 28, 2009 and hereby
incorporated by reference.)
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4
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.9
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Lock-Up
Agreement, dated September 16, 2009 among Grandunion Inc.,
Rocket Marine Inc., Gabriel Petrides, Mons S. Bolin and Aries
Energy Corporation and acknowledged by the Company (Previously
filed as Exhibit 99.C to the Schedule 13D of
Grandunion Inc., filed on September 28, 2009 and hereby
incorporated by reference.)
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4
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.10
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Lock-Up
Agreement, dated September 16, 2009 among Grandunion Inc.,
Rocket Marine Inc., Gabriel Petrides, Mons S. Bolin and Aries
Energy Corporation and acknowledged by the Company (Previously
filed as Exhibit 99.D to the Schedule 13D of
Grandunion Inc., filed on September 28, 2009 and hereby
incorporated by reference.)
|
|
4
|
.10
|
|
Lock-Up
Agreement, dated September 16, 2009 between Grandunion Inc.
and the Company (Previously filed as Exhibit 99.E to the
Schedule 13D of Grandunion Inc., filed on
September 28, 2009 and hereby incorporated by reference.)
|
|
4
|
.11
|
|
Facility Agreement, dated October 13, 2009 among the
Company, Bank of Scotland plc, Nordea Bank Finland plc, London
Branch, HSH Nordbank AG, The Governor and the Company of the
Bank of Ireland, Sumitomo Mitsui Banking Corporation, Brussels
Branch, Bayerische Hypo-und Vereinsbank AG, Commerzbank
Aktiengesellschaft, General Electric Capital Corporation,
Natixis and Swedbank AB (publ) (Previously filed as
Exhibit 99.5 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
|
|
4
|
.12
|
|
Warrant Purchase Agreement, dated October 13, 2009 between
the Company and Investment Bank of Greece (Previously filed as
Exhibit 99.6 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
|
|
4
|
.13
|
|
Warrant Agreement, dated October 13, 2009 between the
Company and Investment Bank of Greece (Previously filed as
Exhibit 99.7 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
|
|
4
|
.14
|
|
Registration Rights Agreement, dated October 13, 2009 among
Investment Bank of Greece, Focus Maritime Corp. and the Company
(Previously filed as Exhibit 99.4 to the Companys
Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
|
|
4
|
.15
|
|
Registration Rights Agreement, dated October 13, 2009
between the Company and Investment Bank of Greece (Previously
filed as Exhibit 99.4 to the Companys Report on
Form 6-K,
filed on October 22, 2009 and hereby incorporated by
reference.)
|
|
4
|
.16
|
|
$80 Million Secured Senior and Junior Term Loan Facility
Commitment Letter, dated February 19, 2019 between Bank of
Scotland and the Company, as guarantor (Previously filed as
Exhibit 4.16 to the Companys Annual Report on Form 20-F,
filed on March 18, 2010 and incorporated by reference.)
|
|
8
|
.1
|
|
List of Subsidiaries (Previously filed as Exhibit 8.1 to the
Companys Annual Report on Form 20-F, filed on
March 18, 2010 and incorporated by reference.)
|
|
12
|
.1*
|
|
Rule 13a-14(a)/15d-14(a)
Certification of the Companys Chief Executive Officer.
|
|
12
|
.2*
|
|
Rule 13a-14(a)/15d-14(a)
Certification of the Companys Chief Financial Officer.
|
|
13
|
.1*
|
|
Certification of the Companys Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
13
|
.2*
|
|
Certification of the Companys Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
100
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to
sign this registration statement on its behalf.
NEWLEAD HOLDINGS LTD.
|
|
|
|
By:
|
/s/ Michail
S. Zolotas
|
Name: Michail S. Zolotas
|
|
|
|
Title:
|
Chief Executive Officer
|
April 11, 2011
101
INDEX TO
THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2 and F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
NewLead Holdings Ltd.:
In our opinion, the accompanying consolidated balance sheet as
of December 31, 2009 and the related consolidated
statements of operations, shareholders equity and cash
flows for the period from October 14, 2009 to
December 31, 2009 present fairly, in all material respects,
the financial position of NewLead Holdings Ltd. and its
subsidiaries (Successor) at December 31, 2009, and the
results of their operations and their cash flows for the period
from October 14, 2009 to December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. Management and we previously concluded
that the Company maintained effective internal control over
financial reporting as of December 31, 2009. However,
management has subsequently determined that a material weakness
in internal control over financial reporting related to
accounting for the October 2009 re-capitalization existed as of
December 31, 2009. Accordingly, Managements annual
report on internal control over financial reporting appearing
under Item 15(b) has been restated and our present opinion
on internal control over financial reporting, as presented
herein, is different from that expressed in our previous report.
In our opinion, the Company did not maintain, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) because a material weakness in internal
control over financial reporting related to accounting for the
October 2009 re-capitalization existed as of that date. A
material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis. The material
weakness referred to above is described in managements
report referred to above. We considered this material weakness
in determining the nature, timing, and extent of audit tests
applied in our audit of the 2009 consolidated financial
statements, and our present opinion regarding the effectiveness
of the Companys internal control over financial reporting
does not affect our opinion on those consolidated financial
statements. The Companys management is responsible for
these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting
included in managements report referred to above. Our
responsibility is to express opinions on these financial
statements and on the Companys internal control over
financial reporting based on our integrated audit. We conducted
our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement and whether effective internal control
over financial reporting was maintained in all material
respects. Our audit of the financial statements included
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. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinions.
As discussed in Note 2 to the consolidated financial
statements, the Company has restated its 2009 financial
statements to correct an error.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for business combinations in 2009.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company;
F-2
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers S.A.
Athens, Greece
March 18, 2010, except with respect to our opinion on the
consolidated financial statements insofar as it relates to the
effects of the reverse share split discussed in Note 23, as
to which the date is December 29, 2010, and except for the
restatement discussed in Note 2 to the consolidated
financial statements and the matter described in the penultimate
paragraph of Managements annual report on internal control
over financial reporting, as to which the date is April 11, 2011.
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
NewLead Holdings Ltd.:
In our opinion, the consolidated balance sheet as of
December 31, 2008 and the related consolidated statements
of operations, shareholders equity and cash flows for the
period from January 1, 2009 to October 13, 2009, and
for each of the two years in the period ended December 31,
2008 present fairly, in all material respects, the financial
position of NewLead Holdings Ltd. and its subsidiaries
(Predecessor) at December 31, 2008, and the results of
their operations and their cash flows for the period from
January 1, 2009 to October 13, 2009 and for each of
the two years in the period ended December 31, 2008, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes 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.
/s/ PricewaterhouseCoopers S.A.
Athens, Greece
March 18, 2010, except with respect to our opinion on the
consolidated financial statements insofar as it relates to the
effects of the reverse stock split discussed in Note 23, as
to which the date is December 29, 2010.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
As of December 31,
|
|
|
|
|
Notes
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
2
|
|
|
|
$
|
106,255
|
|
|
|
$
|
4,009
|
|
Restricted cash
|
|
|
|
5
|
|
|
|
|
403
|
|
|
|
|
8,510
|
|
Trade receivables, net
|
|
|
|
2
|
|
|
|
|
4,572
|
|
|
|
|
2,533
|
|
Other receivables
|
|
|
|
|
|
|
|
|
496
|
|
|
|
|
2,289
|
|
Inventories
|
|
|
|
6
|
|
|
|
|
3,085
|
|
|
|
|
1,224
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
1,082
|
|
|
|
|
967
|
|
Back log asset
|
|
|
|
13
|
|
|
|
|
5,528
|
|
|
|
|
|
|
Due from managing agent
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
160
|
|
Due from related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
|
|
121,421
|
|
|
|
|
19,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
5
|
|
|
|
|
9,668
|
|
|
|
|
|
|
Assets held for sale
|
|
|
|
7
|
|
|
|
|
8,250
|
|
|
|
|
|
|
Vessels and other fixed assets, net
|
|
|
|
7
|
|
|
|
|
253,115
|
|
|
|
|
296,463
|
|
Goodwill
|
|
|
|
4
|
|
|
|
|
86,036
|
|
|
|
|
|
|
Deferred charges, net
|
|
|
|
8
|
|
|
|
|
6,831
|
|
|
|
|
1,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
|
|
|
|
363,900
|
|
|
|
|
298,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
$
|
485,321
|
|
|
|
$
|
317,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
|
11
|
|
|
|
$
|
14,240
|
|
|
|
$
|
223,710
|
|
Accounts payable, trade
|
|
|
|
9
|
|
|
|
|
11,048
|
|
|
|
|
3,601
|
|
Accrued liabilities
|
|
|
|
10
|
|
|
|
|
16,957
|
|
|
|
|
7,776
|
|
Deferred income
|
|
|
|
|
|
|
|
|
226
|
|
|
|
|
1,807
|
|
Derivative financial instruments
|
|
|
|
17
|
|
|
|
|
9,687
|
|
|
|
|
12,451
|
|
Deferred charter revenue
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
2,144
|
|
Due to managing agent
|
|
|
|
21
|
|
|
|
|
2,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
54,212
|
|
|
|
|
251,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
17
|
|
|
|
|
7,407
|
|
|
|
|
|
|
7% convertible senior notes, net
|
|
|
|
12
|
|
|
|
|
41,430
|
|
|
|
|
|
|
Deferred income
|
|
|
|
|
|
|
|
|
730
|
|
|
|
|
|
|
Deferred charter revenue
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
772
|
|
Long-term debt
|
|
|
|
11
|
|
|
|
|
223,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
|
|
|
|
272,597
|
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
326,809
|
|
|
|
|
252,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUCCESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference Shares, $0.01 par value, 500 million shares
authorized, none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares, $0.01 par value, 1 billion shares
authorized, 6.6 million shares issued and outstanding as of
December 31, 2009
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
PREDECESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference Shares, $0.01 par value, 30 million shares
authorized, none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares, $0.01 par value, 100 million shares
authorized, 2.4 million shares issued and outstanding as of
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
196,317
|
|
|
|
|
114,053
|
|
Accumulated deficit
|
|
|
|
15
|
|
|
|
|
(37,872
|
)
|
|
|
|
(48,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
|
|
|
|
|
158,512
|
|
|
|
|
65,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
|
|
|
|
|
$
|
485,321
|
|
|
|
$
|
317,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
October 14, 2009
|
|
|
|
January 1, 2009
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
to
|
|
|
|
to
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Notes
|
|
|
December 31, 2009
|
|
|
|
October 13, 2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
16
|
|
|
$
|
14,096
|
|
|
|
$
|
33,564
|
|
|
$
|
56,519
|
|
|
$
|
55,774
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
|
21
|
|
|
|
(407
|
)
|
|
|
|
(769
|
)
|
|
|
(689
|
)
|
|
|
(551
|
)
|
Voyage expenses
|
|
|
|
|
|
|
(4,634
|
)
|
|
|
|
(8,574
|
)
|
|
|
(6,323
|
)
|
|
|
(2,713
|
)
|
Vessel operating expenses
|
|
|
21
|
|
|
|
(6,530
|
)
|
|
|
|
(22,681
|
)
|
|
|
(19,798
|
)
|
|
|
(17,489
|
)
|
General & administrative expenses
|
|
|
21
|
|
|
|
(12,025
|
)
|
|
|
|
(8,366
|
)
|
|
|
(7,816
|
)
|
|
|
(5,278
|
)
|
Depreciation and amortization expenses
|
|
|
7
|
|
|
|
(4,844
|
)
|
|
|
|
(11,813
|
)
|
|
|
(15,040
|
)
|
|
|
(14,029
|
)
|
Impairment loss
|
|
|
2
|
|
|
|
|
|
|
|
|
(68,042
|
)
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
|
|
|
|
(315
|
)
|
|
|
|
(900
|
)
|
|
|
(1,404
|
)
|
|
|
(1,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,755
|
)
|
|
|
|
(121,145
|
)
|
|
|
(51,070
|
)
|
|
|
(41,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating (loss) / income
|
|
|
|
|
|
|
(14,659
|
)
|
|
|
|
(87,581
|
)
|
|
|
5,449
|
|
|
|
14,471
|
|
OTHER INCOME / (EXPENSES), NET:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest & finance expense, net
|
|
|
11
|
|
|
|
(23,996
|
)
|
|
|
|
(10,928
|
)
|
|
|
(15,741
|
)
|
|
|
(16,966
|
)
|
Interest income
|
|
|
|
|
|
|
236
|
|
|
|
|
9
|
|
|
|
232
|
|
|
|
630
|
|
Other income / (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
2
|
|
|
|
(11
|
)
|
Change in fair value of derivatives
|
|
|
17
|
|
|
|
2,554
|
|
|
|
|
3,012
|
|
|
|
(6,515
|
)
|
|
|
(4,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
|
|
|
|
(21,206
|
)
|
|
|
|
(7,867
|
)
|
|
|
(22,022
|
)
|
|
|
(20,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
|
|
|
|
(35,865
|
)
|
|
|
|
(95,448
|
)
|
|
|
(16,573
|
)
|
|
|
(5,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
22
|
|
|
|
(2,007
|
)
|
|
|
|
(30,316
|
)
|
|
|
(23,255
|
)
|
|
|
(2,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(37,872
|
)
|
|
|
$
|
(125,764
|
)
|
|
$
|
(39,828
|
)
|
|
|
(8,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
$
|
(6.42
|
)
|
|
|
$
|
(39.84
|
)
|
|
$
|
(6.94
|
)
|
|
|
(2.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
$
|
(0.36
|
)
|
|
|
$
|
(12.65
|
)
|
|
$
|
(9.75
|
)
|
|
|
(1.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
(6.78
|
)
|
|
|
$
|
(52.49
|
)
|
|
$
|
(16.69
|
)
|
|
|
(3.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
5,588,937
|
|
|
|
|
2,395,858
|
|
|
|
2,386,182
|
|
|
|
2,373,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Number of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Shares in
|
|
|
Share
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Shareholders
|
|
|
|
Notes
|
|
|
Thousands)
|
|
|
Capital
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance at December 31, 2006 (Predecessor)
|
|
|
|
|
|
|
2,368
|
|
|
$
|
24
|
|
|
$
|
132,564
|
|
|
$
|
|
|
|
$
|
132,588
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,733
|
)
|
|
|
(8,733
|
)
|
Issuance of common shares
|
|
|
14
|
|
|
|
17
|
|
|
|
0
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Share-based compensation
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
1,232
|
|
|
|
|
|
|
|
1,232
|
|
Dividends paid
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
(17,970
|
)
|
|
|
|
|
|
|
(17,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 (Predecessor)
|
|
|
|
|
|
|
2,385
|
|
|
|
24
|
|
|
|
115,828
|
|
|
|
(8,733
|
)
|
|
|
107,119
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,828
|
)
|
|
|
(39,828
|
)
|
Issuance of common shares
|
|
|
14
|
|
|
|
29
|
|
|
|
0
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Share-based compensation
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
1,083
|
|
|
|
|
|
|
|
1,083
|
|
Dividends paid
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
(2,862
|
)
|
|
|
|
|
|
|
(2,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 (Predecessor)
|
|
|
|
|
|
|
2,414
|
|
|
|
24
|
|
|
|
114,053
|
|
|
|
(48,561
|
)
|
|
|
65,516
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125,764
|
)
|
|
|
(125,764
|
)
|
Issuance of common shares
|
|
|
14
|
|
|
|
7
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Share-based compensation
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
793
|
|
|
|
|
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 13, 2009 (Predecessor)
|
|
|
|
|
|
|
2,421
|
|
|
$
|
25
|
|
|
$
|
114,846
|
|
|
$
|
(174,325
|
)
|
|
$
|
(59,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in control basis adjustment, restated
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
(77,978
|
)
|
|
|
174,325
|
|
|
|
96,347
|
|
Contribution of vessels
|
|
|
4
|
|
|
|
1,582
|
|
|
|
16
|
|
|
|
34,981
|
|
|
|
|
|
|
|
34,997
|
|
Beneficial conversion feature on the 7% convertible senior notes
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
100,536
|
|
|
|
|
|
|
|
100,536
|
|
Conversion of the 7% convertible senior notes ($20m)
|
|
|
|
|
|
|
2,222
|
|
|
|
22
|
|
|
|
19,978
|
|
|
|
|
|
|
|
20,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,872
|
)
|
|
|
(37,872
|
)
|
Share-based compensation
|
|
|
14
|
|
|
|
390
|
|
|
|
4
|
|
|
|
3,954
|
|
|
|
|
|
|
|
3,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 (Successor), restated
|
|
|
|
|
|
|
6,615
|
|
|
$
|
67
|
|
|
$
|
196,317
|
|
|
$
|
(37,872
|
)
|
|
$
|
158,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
October 14, 2009
|
|
|
|
January 1, 2009
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
to
|
|
|
|
to
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Notes
|
|
|
December 31, 2009
|
|
|
|
October 13, 2009
|
|
|
2008
|
|
|
2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(37,872
|
)
|
|
|
$
|
(125,764
|
)
|
|
$
|
(39,828
|
)
|
|
$
|
(8,733
|
)
|
Adjustments to reconcile net loss to net cash (used in)/
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,13
|
|
|
|
3,656
|
|
|
|
|
17,368
|
|
|
|
30,493
|
|
|
|
37,138
|
|
Impairment loss
|
|
|
|
|
|
|
|
|
|
|
|
91,601
|
|
|
|
30,075
|
|
|
|
|
|
Provision for doubtful receivables
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
1,018
|
|
|
|
|
|
Amortization and write-off of deferred financing costs
|
|
|
8
|
|
|
|
1,391
|
|
|
|
|
555
|
|
|
|
1,333
|
|
|
|
1,308
|
|
Amortization of deferred charter revenue
|
|
|
|
|
|
|
|
|
|
|
|
(1,694
|
)
|
|
|
(8,115
|
)
|
|
|
(6,010
|
)
|
Amortization of back log asset
|
|
|
|
|
|
|
1,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of the beneficial conversion feature
|
|
|
12
|
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative financial instruments
|
|
|
17
|
|
|
|
(2,554
|
)
|
|
|
|
(3,012
|
)
|
|
|
6,515
|
|
|
|
4,060
|
|
Payments for dry-docking / special survey costs
|
|
|
|
|
|
|
(1,040
|
)
|
|
|
|
(4,306
|
)
|
|
|
(2,159
|
)
|
|
|
(6,144
|
)
|
Share-based compensation
|
|
|
14
|
|
|
|
3,958
|
|
|
|
|
793
|
|
|
|
1,083
|
|
|
|
1,232
|
|
Warrants compensation expense
|
|
|
17
|
|
|
|
3,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss / (Gain) on sale of vessels
|
|
|
|
|
|
|
|
|
|
|
|
5,584
|
|
|
|
(13,569
|
)
|
|
|
|
|
Changes in assets and liabilities
|
|
|
18
|
|
|
|
3,660
|
|
|
|
|
8,026
|
|
|
|
(3,945
|
)
|
|
|
(5,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/ provided by operating activities
|
|
|
|
|
|
|
(5,869
|
)
|
|
|
|
(10,557
|
)
|
|
|
2,901
|
|
|
|
17,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel acquisitions/ additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(399
|
)
|
Other fixed asset acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
(27
|
)
|
|
|
(37
|
)
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,548
|
|
|
|
(1,572
|
)
|
Vessels disposals
|
|
|
|
|
|
|
|
|
|
|
|
2,279
|
|
|
|
59,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/ (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
|
2,216
|
|
|
|
61,083
|
|
|
|
(2,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments of long-term debt
|
|
|
11
|
|
|
|
(57,400
|
)
|
|
|
|
(2,280
|
)
|
|
|
(61,090
|
)
|
|
|
|
|
Proceeds from long-term debt
|
|
|
11
|
|
|
|
35,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from 7% convertible senior notes, net
|
|
|
12
|
|
|
|
140,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
5
|
|
|
|
(8,173
|
)
|
|
|
|
6,612
|
|
|
|
(8,471
|
)
|
|
|
3,227
|
|
Shareholders contribution
|
|
|
|
|
|
|
1,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of capital shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
2
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,862
|
)
|
|
|
(17,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/ (used in) financing activities
|
|
|
|
|
|
|
112,124
|
|
|
|
|
4,332
|
|
|
|
(72,419
|
)
|
|
|
(14,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/ (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
106,255
|
|
|
|
|
(4,009
|
)
|
|
|
(8,435
|
)
|
|
|
832
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
4,009
|
|
|
|
12,444
|
|
|
|
11,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
|
|
|
$
|
106,255
|
|
|
|
$
|
|
|
|
$
|
4,009
|
|
|
$
|
12,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
$
|
663
|
|
|
|
$
|
13,140
|
|
|
$
|
13,453
|
|
|
$
|
23,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As a result of the change in
control the predecessor assets and liabilities were adjusted to
fair value on October 13, 2009, which amounted to an
increase of $96,347, in shareholders equity (see
note 4 (Restated)).
|
|
(2)
|
|
Contribution of the Grandunion Inc.
vessels amounting to $75,289 in vessels and $37,400 in Long-term
debt (see note 4 (Restated)).
|
|
(3)
|
|
Issuance of warrants related to
financing costs amounting to $3,940 (see note 2).
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
NewLead Holdings Ltd. (the Company or
NewLead) was incorporated on January 12, 2005
under the name Aries Maritime Holdings Limited and
on December 21, 2009, the Company changed its name to
NewLead Holdings Ltd.
On October 13, 2009, the Company announced an approximately
$400,000 recapitalization, which resulted in Grandunion Inc.
(Grandunion) acquiring control of the Company.
Pursuant to the Stock Purchase Agreement entered into on
September 16, 2009, Grandunion, a company controlled by
Michail S. Zolotas and Nicholas G. Fistes, acquired 1,581,483
newly issued common shares of the Company in exchange for three
dry bulk carriers. Of such shares, 222,223 were transferred to
Rocket Marine Inc. (Rocket Marine), a company
controlled by two former directors and principal shareholders in
the Company, in exchange for Rocket Marine and its affiliates
entering into a voting agreement with Grandunion. Under this
voting agreement, Grandunion controls the voting rights relating
to the shares owned by Rocket Marine and its affiliates. As at
December 31, 2009, Grandunion owned approximately 21% of
the Company and, as a result of the voting agreement, controls
the vote of approximately 43% of the Companys outstanding
common shares.
In connection with the recapitalization, the Company issued
$145,000 in aggregate principal amount of 7% senior
unsecured convertible notes due 2015 (the
7% Notes). The 7% Notes are convertible
into common shares at a conversion price of $9.00 per share,
subject to adjustment for certain events, including certain
distributions by the Company of cash, debt and other assets,
spin offs and other events. The issuance of the 7% Notes
was pursuant to an Indenture dated October 13, 2009 between
the Company and Marfin Egnatia Bank S.A., and a Note Purchase
Agreement, executed by each of Investment Bank of Greece and
Focus Maritime Corp. as purchasers. The 7% Notes are
convertible at any time and if fully converted would result in
the issuance of approximately 16.1 million newly issued
common shares. Currently, Investment Bank of Greece retains $100
outstanding principal amount of the 7% Notes and has
received warrants to purchase up to 416,667 common shares at an
exercise price of $24.00 per share, with an expiration date of
October 13, 2015. The remainder ($144,900) is owned by
Focus Maritime Corp., a company controlled by Mr. Zolotas,
the Companys President and Chief Executive Officer. All of
the outstanding 7% Notes owned by Focus Maritime Corp. were
pledged to, and their acquisition was financed by, Marfin
Egnatia Bank S.A. The Note Purchase Agreement and the Indenture
with respect to the 7% Notes contain certain covenants,
including limitations on the incurrence of additional
indebtedness, except in connection with approved vessel
acquisitions, and limitations on mergers and consolidations. In
connection with the issuance of the 7% Notes, the Company
entered into a Registration Rights Agreement providing certain
demand and other registration rights for the common shares
underlying the 7% Notes. In November 2009, Focus Maritime
Corp. converted $20,000 of the 7% Notes into approximately
2.2 million new common shares. Accordingly, in the
aggregate, $125,000 of the 7% Notes remain outstanding. As
a result of this conversion, Focus Maritime Corp. as at
December 31, 2009 owns approximately 34% of the
Companys outstanding common shares.
The new management of the Company is led by Nicholas G. Fistes
as Executive Director (Chairman), Michail S. Zolotas as
Executive Director (Deputy Chairman), President and Chief
Executive Officer, and Allan L. Shaw as Executive Director and
Chief Financial Officer. The new management team intends to
build the technical and commercial group of the Company and
incorporate the Companys existing team into their
operations.
The Companys principal business is the acquisition and
operation of vessels. NewLead conducts its operations through
the vessel-owning Companies whose principal activity is the
ownership and operation of product tankers and dry bulk vessels
that transport a variety of refined petroleum products and a
wide array of unpackaged cargo world-wide.
F-9
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
The consolidated financial statements have been prepared to
reflect the consolidation of the companies listed below. The
historical balance sheets and results of operations of the
companies listed below have been reflected in the consolidated
balance sheets and consolidated statements of income, cash flows
and shareholders equity at and for each period since their
respective incorporation dates.
As of December 31, 2009, NewLeads subsidiaries
included in these consolidated financial statements are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
Country of
|
|
|
|
Periods that
|
|
|
Periods that
|
Company Name
|
|
Incorporation
|
|
Vessel Name
|
|
vessel operates
|
|
|
vessel operates
|
1.
|
|
Land Marine S.A.
|
|
Marshall Islands
|
|
M/T High Land
|
|
10/14 /2009-12/31/2009
|
|
|
03/07/2003 10/13/2009
|
2.
|
|
Rider Marine S.A.
|
|
Marshall Islands
|
|
M/T High Rider
|
|
10/14 /2009 12/31/2009
|
|
|
03/18/2003 10/13/2009
|
3.
|
|
Ostria Waves Ltd.
|
|
Marshall Islands
|
|
M/T Ostria
|
|
10/14 /2009 12/31/2009
|
|
|
05/25/2004 10/13/2009
|
4.
|
|
Altius Marine S.A.
|
|
Marshall Islands
|
|
M/T
Altius(1)
|
|
10/14 /2009 12/31/2009
|
|
|
06/24/2004 10/13/2009
|
5.
|
|
Fortius Marine S.A.
|
|
Marshall Islands
|
|
M/T
Fortius(2)
|
|
10/14 /2009 12/31/2009
|
|
|
08/02/2004 10/13/2009
|
6.
|
|
Vintage Marine S.A.
|
|
Marshall Islands
|
|
M/T
Arius(3)
|
|
|
|
|
08/05/2004 06/11/2008
|
7.
|
|
Ermina Marine Ltd.
|
|
Marshall Islands
|
|
M/T Nordanvind
|
|
10/14 /2009 12/31/2009
|
|
|
12/09/2004 10/13/2009
|
8.
|
|
Chinook Waves Corporation
|
|
Marshall Islands
|
|
M/T
Chinook(4)
|
|
10/14 /2009 12/31/2009
|
|
|
11/30/2005 10/13/2009
|
9.
|
|
Compass Overseas Ltd.
|
|
Bermuda
|
|
M/T Stena Compass
|
|
10/14 /2009 12/31/2009
|
|
|
02/14/2006 10/13/2009
|
10.
|
|
Compassion Overseas Ltd.
|
|
Bermuda
|
|
M/T Stena Compassion
|
|
10/14 /2009 12/31/2009
|
|
|
06/16/2006 10/13/2009
|
11.
|
|
Santa Ana Waves Corporation
|
|
Marshall Islands
|
|
|
|
10/14 /2009 12/31/2009
|
|
|
|
12.
|
|
Makassar Marine Ltd.
|
|
Marshall Islands
|
|
M/V Saronikos
Bridge(5)
|
|
10/14 /2009 12/31/2009
|
|
|
7/15/2005 10/13/2009
|
13.
|
|
Seine Marine Ltd.
|
|
Marshall Islands
|
|
M/V MSC
Seine(6)
|
|
10/14 /2009 12/31/2009
|
|
|
6/24/2005 10/13/2009
|
14.
|
|
Jubilee Shipholding S.A.
|
|
Marshall Islands
|
|
M/V Ocean
Hope(7)
|
|
|
|
|
7/26/2004 06/29/2009
|
15.
|
|
Olympic Galaxy Shipping Ltd.
|
|
Marshall Islands
|
|
M/V Energy
1(8)
|
|
|
|
|
4/28/2004 06/02/2008
|
16.
|
|
Dynamic Maritime Co.
|
|
Marshall Islands
|
|
M/V MSC
Oslo(9)
|
|
|
|
|
6/1/2004 04/30/2008
|
17.
|
|
Australia Holdings Ltd.
|
|
Liberia
|
|
M/V Australia
|
|
10/14 /2009 12/31/2009
|
|
|
|
18.
|
|
Brazil Holdings Ltd.
|
|
Liberia
|
|
M/V Brazil
|
|
10/14 /2009 12/31/2009
|
|
|
|
19.
|
|
China Holdings Ltd.
|
|
Liberia
|
|
M/V China
|
|
10/14 /2009 12/31/2009
|
|
|
|
20.
|
|
AMT Management Ltd.
|
|
Marshall Islands
|
|
|
|
|
|
|
|
21.
|
|
Aries Maritime (US) LLC
|
|
United States
|
|
(10)
|
|
|
|
|
|
22.
|
|
Abroad Consulting Ltd.
|
|
Marshall Islands
|
|
(11)
|
|
|
|
|
|
|
|
|
(1)
|
|
M/T Altius was renamed to Newlead
Avra on February 14, 2010.
|
|
(2)
|
|
M/T Fortius was renamed to Newlead
Fortune on March 11, 2010.
|
|
(3)
|
|
M/T Arius was sold on June 11,
2008.
|
|
(4)
|
|
A memorandum of agreement (MOA) for
the sale of the M/T Chinook was signed on February 18, 2010.
|
|
(5)
|
|
M/V Saronikos Bridge was sold on
January 7, 2010.
|
|
(6)
|
|
M/V MSC Seine was sold on
January 20, 2010.
|
|
(7)
|
|
M/V Ocean Hope was sold on
June 29, 2009.
|
|
(8)
|
|
M/V Energy 1 was sold on
June 2, 2008.
|
|
(9)
|
|
M/V MSC Oslo was sold on
April 30, 2008.
|
|
(10)
|
|
Aries Maritime (US) LLC was
incorporated on October 23, 2008, as a representative
office in the United States.
|
|
(11)
|
|
Abroad Consulting Ltd. was
incorporated on November 13, 2009.
|
F-10
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Restated)
|
Basis
of Presentation:
The accompanying consolidated financial statements are prepared
in accordance with accounting principals generally accepted in
the United States of America (US GAAP).
The financial statements for the periods prior to
October 14, 2009, as labelled Predecessor,
reflect the consolidated financial position, results of
operations and cash flows of the twelve vessel-owning
subsidiaries of NewLead.
The financial statements for the period from October 14,
2009 to December 31, 2009, as labelled
Successor, reflect the consolidated financial
position, results of operations and cash flows of the successor
Company. These consolidated financial statements have been
presented using the
step-up
basis of the predecessor 11 vessel-owning subsidiaries and
the historical basis of the three vessel-owning subsidiaries
contributed by Grandunion.
Restatement
of Previously Issued Financial Statements:
Subsequent to the filing of the Companys Annual Report on
Form 20-F
for the period October 14, 2009 to December 31, 2009,
the Company identified that, in connection with the reporting of
the 2009 recapitalization (see Note 4), the goodwill
resulting from the application of acquisition accounting to the
Aries business was recorded directly in shareholders
equity but should have been recorded as Goodwill in the
Companys non-current assets. The Company has corrected
this error in the consolidated balance sheet and the
consolidated statement of shareholders equity with
resulting increases in Goodwill, Total Non-Current Assets, Total
Assets, Additional Paid-in Capital and Total Shareholders
Equity of $86,036 as of December 31, 2009. As a result,
goodwill increased from zero to $86,036, total non-current
assets increased from $277,864 to $363,900, total assets
increased from $399,385 to $485,321, additional paid-in capital
increased from $110,281 to $196,317 and total shareholders
equity increased from $72,476 to $158,512. This correction had
no effect on Net loss or Net cash used in operating activities.
Principles
of Consolidation:
The accompanying consolidated financial statements represent the
consolidation of the accounts of the Company and its
wholly-owned subsidiaries. The subsidiaries are fully
consolidated from the date on which control is transferred to
the Company.
The Company also consolidates entities that are determined to be
variable interest entities as defined in the accounting
guidance, if it determines that it is the primary beneficiary. A
variable interest entity is defined as a legal entity where
either (a) equity interest holders as a group lack the
characteristics of a controlling financial interest, including
decision making ability and an interest in the entitys
residual risks and rewards, or (b) the equity holders have
not provided sufficient equity investment to permit the entity
to finance its activities without additional subordinated
financial support, or (c) the voting rights of some
investors are not proportional to their obligations to absorb
the expected losses of the entity, their rights to receive the
expected residual returns of the entity, or both and
substantially all of the entitys activities either involve
or are conducted on behalf of an investor that has
disproportionately few voting rights.
All inter-company transaction balances and transactions have
been eliminated upon consolidation.
F-11
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Use of
Estimates:
The preparation of consolidated financial statements in
conformity with the 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 as of the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. On an on-going basis, management evaluates the
estimates and judgments, including those related to future
dry-dock dates, the selection of useful lives for tangible
assets, expected future cash flows from long-lived assets to
support impairment tests, provisions necessary for accounts
receivables, provisions for legal disputes, and contingencies.
Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results could differ from those estimates under
different assumptions
and/or
conditions.
Foreign
Currency Transactions:
The functional currency of the Company is the U.S. Dollar
because the Companys vessels operate in international
shipping markets, which typically utilize the U.S. Dollar
as the functional currency. The accounting records of the
Companys subsidiaries are maintained in U.S. dollars.
Transactions involving other currencies during a period 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
other currencies, are translated to reflect the period-end
exchange rates. Resulting gains or losses are reflected in the
accompanying consolidated statements of operations.
Cash
and Cash Equivalents:
The Company considers highly liquid investments, such as time
deposits and certificates of deposit, with an original maturity
of three months or less to be cash equivalents. As of
December 31, 2009, total cash and cash equivalents amounted
to approximately $106,255, which includes the proceeds of the
7% Notes received as a result of the recapitalization on
October 13, 2009. These funds are to be used for general
corporate purposes, to fund vessel acquisitions and to partially
repay existing indebtedness.
Restricted
Cash:
Restricted cash includes cash collateralized, retention
accounts, which are used to fund the debt service payments
coming due in accordance with the facility agreement, as well
as, the minimum liquidity required under the facility agreement.
The funds can only be used for the purposes of interest payments
and loan repayments.
Trade
Receivables, Net and Other Receivables:
The amount shown as trade receivables, net includes estimated
recoveries from charterers for hire, freight and demurrage
billings, net of provision for doubtful accounts. At each
balance sheet date, all potentially uncollectible accounts are
assessed individually for purposes of determining the
appropriate provision for doubtful accounts. The provision for
doubtful accounts at December 31, 2009, 2008 and 2007
amounted to $1,150, $858 and $0, respectively. The 2009 movement
includes a write off of $292 during the period from
January 1, to October 13, 2009. This relates to
continuing and discontinued operations. Other receivables
relates to claims for hull and machinery and loss of hire
insurers.
Inventories:
Inventories, which comprise bunkers, lubricants, provisions and
stores remaining on board the vessels at period end, are valued
at the lower of cost and market value as determined using the
first in first out method.
F-12
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Vessels
and Other Fixed Assets, net:
Vessels are stated at cost, which consists of the contract
price, delivery and acquisition expenses, interest cost while
under construction, and, where applicable, initial improvements.
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 a vessel; otherwise, these amounts are charged to
expenses as incurred. Pursuant to the recapitalization on
October 13, 2009, the Companys predecessor vessels
were adjusted to fair value (see note 4 (Restated)).
The component of each new vessels initial capitalized cost
that relates to dry-docking and special survey calculated by
reference to the related estimated economic benefits to be
derived until the next scheduled dry-docking and special survey,
is treated as a separate component of the vessels cost and
is accounted for in accordance with the accounting policy for
dry-docking and special survey costs.
Vessels depreciation is computed using the straight-line
method over the estimated useful life of the vessels, after
considering the estimated salvage value of the vessels. Each
vessels salvage value is equal to the product of its
lightweight tonnage and estimated scrap value per lightweight
ton. Management estimates the useful life of the Companys
vessels to be 25 years from the date of its initial
delivery from the shipyard. However, when regulations place
limitations over the ability of a vessel to trade, its useful
life is adjusted to end at the date such regulations become
effective.
Fixed assets are stated at cost. The cost and related
accumulated depreciation of fixed assets sold or retired are
removed from the accounts at the time of sale or retirement and
any gain or loss is included in the accompanying statement of
operations.
Depreciation of fixed assets is computed using the straight-line
method. Annual depreciation rates, which approximate the useful
life of the assets, are:
|
|
|
Furniture, fixtures and equipment:
|
|
5 years
|
Computer equipment and software:
|
|
5 years
|
Assets
held for sale/Discontinued operations:
Long-lived assets are classified as Assets held for
sale when the following criteria are met: management has
committed to a plan to sell the asset; the asset is available
for immediate sale in its present condition; an active program
to locate a buyer and other actions required to complete the
plan to sell the asset have been initiated; the sale of the
asset is probable, and transfer of the asset is expected to
qualify for recognition as a completed sale within one year; the
asset is being actively marketed for sale at a price that is
reasonable in relation to its current fair value and actions
required to complete the plan indicate that it is unlikely that
significant changes to the plan will be made or that the plan
will be withdrawn. Long-lived assets classified as held for sale
are measured at the lower of their carrying amount or fair value
less cost to sell. These assets are not depreciated once they
meet the criteria to be held for sale. Assets held for sale are
stated net of cost and accumulated depreciation, as well as,
capitalized cost of dry-docking and special survey and
accumulated amortization. During the period October 14,
2009 to December 31, 2009 the Company discontinued its
container operations by committing to sell its remaining two
container vessels and exiting from the market. As of
December 31, 2009 and 2008, the transfer to assets held for
sale, net totaled to $8,250 and $0, respectively.
The Company reports discontinued operations when the operations
and cash flows of a component, usually a vessel, have been (or
will be) eliminated from the ongoing operations of the Company,
and the Company will not have any significant continuing
involvement in the operations of the component after its
disposal. All assets held for sale are considered discontinued
operations for all periods presented.
F-13
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Accounting
for Special Survey and Dry-docking Costs:
The Companys vessels are subject to regularly scheduled
dry-docking and special surveys, which are carried out every 30
or 60 months to coincide with the renewal of the related
certificates issued by the Classification Societies, unless a
further extension is obtained in rare cases and under certain
conditions. The costs of dry-docking and special surveys is
deferred and amortized over the above periods or to the next
dry-docking or special survey date if such has been determined.
Unamortized dry-docking or special survey costs of vessels sold
are written off to income in the year the vessel is sold.
Costs incurred during the dry-docking period relating to routine
repairs and maintenance are expensed. The unamortized portion of
special survey and dry-docking costs for vessels sold is
included as part of the carrying amount of the vessel in
determining the gain/(loss) on sale of the vessel.
Impairment
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. If the future net undiscounted cash
flows from the assets are less than the carrying values of the
asset, an impairment loss is recorded equal to the difference
between the assets carrying value and its fair value.
As of September 30, 2009, the Company concluded that events
and circumstances had changed that may indicate the existence of
potential impairment of its long-lived assets. As a result, the
Company performed an impairment assessment of long-lived assets.
The significant factors and assumptions the Company used in
undiscounted projected net operating cash flow analysis
included, among others, operating revenues, off-hire revenues,
dry-docking costs, operating expenses and management fee
estimates. Revenues assumptions were based on a number factors
for the remaining life of the vessel (a) contracted time
charter rates up to the end of life of the current contract of
each vessel, (b) historical average time charter rates,
(c) current market conditions and, the respective
vessels ages as well as considerations such as scheduled
and unscheduled off-hire revenues based on historical
experience. Operating expenses assumptions included an annual
escalation factor. All estimates used and assumptions made were
in accordance with the Companys historical experience of
the shipping industry.
The Companys assessment included its evaluation of the
estimated fair market values for each vessel obtained by
third-party valuations for which management assumes
responsibility for all assumptions and judgements compared to
the carrying value. The significant factors the Company used in
deriving the carrying value included: net book value of the
vessels, unamortized special survey and dry-docking cost and
deferred revenue. The current assumptions used and the estimates
made are highly subjective, and could be negatively impacted by
further significant deterioration in charter rates or vessel
utilization over the remaining life of the vessels, which could
require the Company to record a material impairment charge in
future periods.
The Companys impairment analysis as of December 31,
2009 did not result in an impairment loss. During the periods
from January 1, 2009 to October 13, 2009, the Company
recorded an impairment loss of $68,042 from continuing
operations and $23,559 from discontinued operations. During the
year ended December 31, 2008, the Company recorded an
impairment loss of $30,075, which relates to discontinued
operations. There was no impairment loss for the year ended
December 31, 2007.
Goodwill:
Goodwill acquired in a business combination initiated after
June 30, 2001 is not to be amortized. Rather, the guidance
requires that goodwill be tested for impairment at least
annually and written down with a charge to operations if the
carrying amount exceeds its implied fair value.
F-14
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
The Company evaluates goodwill for impairment using a two-step
process. First, the aggregate fair value of the reporting unit
is compared to its carrying amount, including goodwill. The
Company determines the fair value based on a combination of
discounted cash flow analysis and an industry market multiple.
If the fair value of the reporting unit exceeds its carrying
amount, no impairment exists. If the carrying amount of the
reporting unit exceeds its fair value, then the Company must
perform the second step in order to determine the implied fair
value of the reporting units goodwill and compare it with
its carrying amount. The implied fair value is determined by
allocating the fair value of the reporting unit to all the
assets and liabilities of that unit, as if the unit had been
acquired in a business combination and the fair value of the
unit was the purchase price. If the carrying amount of the
goodwill exceeds its implied fair value, then a goodwill
impairment is recognized by writing the goodwill down to the
implied fair value.
Backlog
asset / Deferred charter revenue:
Where the Company identifies any assets or liabilities
associated with the acquisition of a vessel, the Company
typically records all such identified assets or liabilities at
fair value. Fair value is determined by reference to market
data. The Company values any asset or liability arising from the
market value of the time or bareboat charters assumed when a
vessel is acquired. The amount to be recorded as an asset or
liability at the date of vessel delivery is based on the
difference between the current fair value of a charter with
similar characteristics as the time charter assumed and the net
present value of future contractual cash flows from the time
charter contract assumed. When the present value of the time
charter assumed is greater than the current fair value of such
charter, the difference is recorded as a back log asset;
otherwise, the difference is recorded as deferred charter
revenue. Such assets and liabilities, respectively, are
amortized as an increase in, or a reduction of,
Depreciation and Amortization Expense over the
remaining period of the time or bareboat charters acquired.
Provisions:
The Company, in the ordinary course of business, is subject to
various claims, suits and complaints. Management provides for a
contingent loss in the financial statements if the contingency
had been incurred at the date of the financial statements and
the amount of the loss can be reasonably estimated. In
accordance with the guidance issued by the Financial Accounting
Standards Board (FASB) in accounting for
contingencies, as interpreted by the FASB-issued guidance
reasonable estimation of the amount of a loss, if
the Company has determined that the reasonable estimate of the
loss is a range and there is no best estimate within the range,
the Company will provide the lower amount of the range. See
note 18 Commitments and Contingencies for
further discussion.
The Company participates in Protection and Indemnity (P&I)
insurance plans provided by mutual insurance associations known
as P&I clubs. Under the terms of these plans, participants
may be required to pay additional premiums (supplementary calls)
to fund operating deficits incurred by the clubs (back
calls). Obligations for back calls are accrued annually
based on information provided by the clubs.
Financing
Costs:
Fees incurred for obtaining new debt or refinancing existing
debt are deferred and amortized over the life of the related
debt, using the effective interest rate method. Any unamortized
balance of costs relating to debt repaid or refinanced is
expensed in the period the repayment or refinancing is made.
Fees incurred in a refinancing of existing debt continue to be
amortized over the remaining term of the new debt where there is
a modification of the debt. Fees incurred in a refinancing of
existing loans where there is an extinguishment of the old debt
is written off and included in the debt extinguishment gain or
loss.
F-15
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Interest
Expense:
Interest costs are expensed as incurred and include interest on
loans, financing costs, amortization and write-offs and
beneficial conversion feature. Interest costs incurred while a
vessel is being constructed are capitalized.
Accounting
for Revenue and Expenses:
The Company generates its revenues from charterers for the
charter hire of its vessels. Vessels are chartered using either
time and bareboat charters, where a contract is entered into for
the use of a vessel for a specific period of time and a
specified daily charter hire rate, or 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. If a charter
agreement exists, price is fixed, service is provided and
collection of the related revenue is reasonably assured, revenue
is recognized as it is earned rateably on a straight-line basis
over the duration of the period of each time charter as adjusted
for the off-hire days that the vessel spends undergoing repairs,
maintenance and upgrade work depending on the condition and
specification of the vessel and address commissions. A voyage is
deemed to commence upon the completion of discharge of the
vessels previous cargo and is deemed to end upon the
completion of the discharge of the current cargo.
Profit sharing represents the Companys portion on the
excess of the actual net daily charter rate earned by the
Companys charterers from the employment of the
Companys vessels over a predetermined base charter rate,
as agreed between the Company and its charterers; such profit
sharing is recognized in revenue when mutually settled.
Demurrage income represents payments by the charterer to the
vessel owner when loading or discharging time exceeded the
stipulated time in the voyage charter and is recognized as
incurred.
Deferred income represents cash received on charter agreement
prior to the balance sheet date and is related to revenue not
meeting the criteria for recognition.
Voyage
Expenses:
Voyage expenses comprise all expenses related to each particular
voyage, including time charter hire paid and voyage freight paid
bunkers, port charges, canal tolls, cargo handling, agency fees
and brokerage commissions.
Vessel
Operating Expenses:
Vessel operating expenses consist of all expenses relating to
the operation of vessels, including crewing, repairs and
maintenance, insurance, stores and lubricants and miscellaneous
expenses such as communications.
Insurance
Claims:
Insurance claims represent the claimable expenses, net of
deductibles, which are probable to be recovered from insurance
companies. Any costs to complete the claims are included in
accrued liabilities. The Company accounts for the cost of
possible additional call amounts under its insurance
arrangements in accordance with the accounting guidance for
contingencies based on the Companys historical experience
and the shipping industry practices. These claims are included
in the consolidated balance sheet line item Other current
assets.
Pension
and Retirement Benefit Obligations-Crew:
The crew on board the companies vessels serve in such
capacity under short-term contracts (usually up to seven months)
and accordingly, the vessel-owning companies are not liable for
any pension or post retirement benefits.
F-16
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Repairs
and Maintenance:
Expenditure for routine repairs and maintenance of the vessels
is charged against income in the period in which the expenditure
is incurred. Major vessel improvements and upgrades are
capitalized to the cost of vessel.
Derivative
Financial Instruments:
Derivative financial instruments are recognized in the balance
sheets at their fair values as either assets or liabilities.
Changes in the fair value of derivatives that are designated and
qualify as cash flow hedges, and that are highly effective, are
recognized in other comprehensive income. If derivative
transactions do not meet the criteria to qualify for hedge
accounting, any unrealized changes in fair value are recognized
immediately in the statement of operations.
Amounts receivable or payable arising on the termination of
interest rate swap agreements qualifying as hedging instruments
are deferred and amortized over the shorter of the life of the
hedged debt or the hedge instrument.
The Company has entered into various interest rate swap
agreements (see note 17) that did not qualify for
hedge accounting. As such, the fair value of these agreements
and changes therein are recognized in the balance sheets and
statements of operations, respectively.
Share-based
Compensation:
The standard requires the Company to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award
(with limited exceptions). That cost is recognized over the
period during which an employee is required to provide service
in exchange for the award the requisite service
period (usually the vesting period). No compensation cost is
recognized for equity instruments for which employees do not
render the requisite service. Employee share purchase plans will
not result in recognition of compensation cost if certain
conditions are met.
The Company initially measures the cost of employee services
received in exchange for an award or liability instrument based
on its current fair value; the fair value of that award or
liability instrument is remeasured subsequently at each
reporting date through the settlement date. Changes in fair
value during the requisite service period are recognized as
compensation cost over that period. The grant-date fair value of
employee share options and similar instruments are estimated
using option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market
prices for the same or similar instruments are available). If an
equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair
value of the original award immediately before the modification.
Warrants:
The Company initially measures warrants at fair value. If
warrants meet accounting criteria for equity classification then
there is no other measurement subsequent to their issue. If
based on their contractual terms warrants need to be recorded as
derivative liabilities they are remeasured to fair value at each
reporting period with changes recognised in the statement of
operations.
Segment
Reporting:
The Company accounts for its segments in accordance with the
FASB-issued guidance which establishes disclosures about
segments of an enterprise and related information and requires
descriptive information about
F-17
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
its reportable operating segments. Operating segments, as
defined, are components of an enterprise about which separate
financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Based on the
Companys methods of internal reporting, management
structure and after the transfer of the three dry bulk vessels,
the Company now has two reportable segments: Wet Operations
(consisting of tankers transporting several different refined
petroleum products simultaneously in segregated, coated cargo
tanks) and Dry Operations (consists of transportation and
handling of bulk cargoes through ownership, operation and
trading of vessels).
Loss
per Share:
The Company has presented loss per share for all periods
presented based on the weighted average number of its
outstanding common shares at the reported periods. There are no
dilutive or potentially dilutive securities, accordingly there
is no difference between basic and diluted net loss per share.
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3.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
Fair
Value
In September 2006, the FASB issued guidance that defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. In February
2008, the FASB deferred the effective date to January 1,
2009 for all nonfinancial assets and liabilities, except for
those that are recognized or disclosed at fair value on a
recurring basis (that is, at least annually). The guidance was
effective for the Company for the fiscal year beginning
January 1, 2009 and did not have a material effect on its
condensed consolidated financial statements.
In April 2009, the FASB issued additional guidance for
estimating fair value. The additional guidance addresses
determining fair value when the volume and level of activity for
an asset or liability have significantly decreased and
identifying transactions that are not orderly. This additional
guidance was effective for the Company and did not have a
material impact on the consolidated financial statements of the
Company.
Accounting
for Business Combinations
The Company adopted new U.S. GAAP guidance related to
business combinations beginning in its first quarter of fiscal
year 2009. Earlier adoption was prohibited. The adoption of the
new guidance did not have an immediate significant impact on its
condensed consolidated financial statements; however, it will
impact the accounting for any future business combinations.
Under the new guidance, an entity is required to recognize the
assets acquired, liabilities assumed, contractual contingencies
and contingent consideration at their fair value on the
acquisition date. It further requires that acquisition-related
costs be recognized separately from the acquisition and expensed
as incurred; that restructuring costs generally be expensed in
periods subsequent to the acquisition date; and that changes in
accounting for deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period
be recognized as a component of provision for income taxes. In
addition, acquired-in process research and development is
capitalized as an intangible asset and amortized over its
estimated useful life.
Determination
of the Useful Life of Intangible Assets
The Company adopted new U.S. GAAP guidance concerning the
determination of the useful life of intangible assets beginning
in its first quarter of fiscal year 2009. The adoption of this
guidance did not have a significant impact on the Companys
condensed consolidated financial statements. The new guidance
amends the factors that are to be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset. The new guidance is
intended to improve the consistency between
F-18
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
the useful life of a recognized intangible asset and the period
of expected cash flows originally used to measure the fair value
of the intangible asset under U.S. GAAP.
Interim
Disclosure about Fair Value of Financial Instruments
In April 2009, the FASB amended the Fair Value of Financial
Instruments Subsection of the ASC to require an entity to
provide disclosures about fair value of financial instruments in
interim financial information (Fair Value Disclosure
Amendment). The Fair Value Disclosure Amendment requires a
publicly traded company to include disclosures about the fair
value of its financial instruments whenever it issues summarized
financial information for interim reporting periods. In
addition, entities must disclose in the body or in the
accompanying notes of its summarized financial information for
interim reporting periods and in its financial statements for
annual reporting periods, the fair value of all financial
instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of
financial position. The Fair Value Disclosure Amendment became
effective for the Company and its adoption did not have a
significant effect on its financial position, results of
operations, or cash flows.
Transfers
of Financial Assets
In June 2009, the FASB issued new guidance concerning the
transfer of financial assets. This guidance amends the criteria
for a transfer of a financial asset to be accounted for as a
sale, creates more stringent conditions for reporting a transfer
of a portion of a financial asset as a sale, changes the initial
measurement of a transferors interest in transferred
financial assets, eliminates the qualifying special-purpose
entity concept and provides for new disclosures. This new
guidance will be effective for the Company for transfers of
financial assets beginning in its first quarter of fiscal 2011,
with earlier adoption prohibited. The Company does not expect
the impact of this guidance to be material to its consolidated
financial statements.
Determining
the Primary Beneficiary of a Variable Interest Entity
In June 2009, the FASB issued new guidance concerning the
determination of the primary beneficiary of a variable interest
entity (VIE). This new guidance amends current
U.S. GAAP by: requiring ongoing reassessments of whether an
enterprise is the primary beneficiary of a VIE; amending the
quantitative approach previously required for determining the
primary beneficiary of the VIE; modifying the guidance used to
determine whether an equity is a VIE; adding an additional
reconsideration event (e.g. troubled debt restructurings) for
determining whether an entity is a VIE; and requiring enhanced
disclosures regarding an entitys involvement with a VIE.
This new guidance will be effective for the Company beginning in
its first quarter of fiscal 2010, with earlier adoption
prohibited. The Company does not expect the impact of this new
guidance to be material to its consolidated financial statements.
FASB
Accounting Standards Codification
In June 2009, the FASB issued new guidance concerning the
organization of authoritative guidance under U.S. GAAP.
This new guidance created the FASB Accounting Standards
Codification (Codification). The Codification has
become the source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification became effective for the
Company in its third quarter of fiscal 2009. As the Codification
is not intended to change or alter existing U.S. GAAP, it
did not have any impact on the Companys condensed
consolidated financial statements. On its effective date, the
Codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will
become non-authoritative.
F-19
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Measuring
Liabilities at Fair Value
In August 2009, the FASB released new guidance concerning
measuring liabilities at fair value. The new guidance provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain
valuation techniques. Additionally, it clarifies that a
reporting entity is not required to adjust the fair value of a
liability for the existence of a restriction that prevents the
transfer of the liability. This new guidance is effective for
the first reporting period after its issuance, however earlier
application is permitted. The application of this new guidance
did not have a significant impact on the Companys
consolidated financial statements.
Reclassifications
Certain amounts in prior periods financial statements have been
reclassified to conform to current period presentation.
Subsequent
Events
In May 2009, the FASB issued additional guidance related to
subsequent events (formerly SFAS No. 165,
Subsequent Events). This guidance is intended to
establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
Specifically, it sets forth the period after the balance sheet
date during which management of a reporting entity should
evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should
make about events or transactions that occurred after the
balance sheet date. This guidance is effective for fiscal years
and interim periods ended after June 15, 2009 and is
applied prospectively. The adoption of this guidance during the
year ended December 31, 2009 did not have a material impact
on the Companys consolidated financial statements.
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4.
|
RECAPITALIZATION
(RESTATED)
|
On October 13, 2009, the Company consummated all of the
following transactions simultaneously in connection with the
approximately $400,000 recapitalization of the Company, as
described below:
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Grandunion transferred 100% ownership in three dry bulk carriers
(which transaction included assets with a carrying value of
approximately $75,289 and the assumption of a credit facility of
$37,400, for a net value of approximately $35,000) to the
Company in exchange for 1,581,483 newly issued common shares of
the Company. These three vessels and other related assets and
liabilities have been recorded at Grandunion historical cost
since control over the vessels and other related assets and
liabilities have not changed. The details of the three new dry
bulk vessels and their related charters are set forth in the
below table:
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|
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|
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|
|
|
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|
|
Name
|
|
Type
|
|
DWT
|
|
|
Charter-out rate per day (net)
|
|
Charter Term (years)
|
|
China
|
|
Capesize
|
|
|
135,364
|
|
|
$12.75
|
|
Through March 2017 (maximum option)
|
Australia
|
|
Capesize
|
|
|
172,972
|
|
|
$20.39
|
|
Through January 2012 (maximum option)
|
Brazil
|
|
Capesize
|
|
|
151,738
|
|
|
$28.98 1st/2nd year
$26.18 balance years, all plus
profit sharing above $26.60.
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|
February 2015
|
|
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A voting agreement between Grandunion and Rocket Marine was
entered into for which Grandunion transferred 222,223 of the
Companys common shares to Rocket Marine, a company
controlled by two of the Companys former directors and
principal shareholders, in exchange for Grandunions
control over the voting rights relating to the shares owned by
Rocket Marine and its affiliates. There are 1,463,629 common
shares subject to the voting agreement. The voting agreement is
in place for as long as Rocket Marine owns the common shares.
The voting agreement contains a
lock-up
period until December 31, 2011, which, in the case of
transfer or sale by Rocket Marine, requires the approval of
Grandunion.
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F-20
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
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The Company issued $145,000 in aggregate principal amount of
7% senior unsecured convertible notes due 2015, referred to
herein as the 7% Notes. The 7% Notes are
convertible into common shares at a conversion price of $9.00
per share, subject to adjustment for certain events, including
certain distributions by the Company of cash, debt and other
assets, spin offs and other events. The 7% Notes are
convertible at any time and if fully converted would result in
the issuance of approximately 16.1 million newly issued
common shares. The Investment Bank of Greece owns $100
outstanding principal amount of the 7% Notes and has
received warrants to purchase up to 416,667 common shares at an
exercise price of $24.00 per share, with an expiration date of
October 13, 2015. The remainder ($144,900) is owned by
Focus Maritime Corp., a company controlled by Mr. Zolotas,
the Companys President and Chief Executive Officer. The
proceeds of the 7% Notes were used in part to repay, in an
amount of $20,000, a portion of existing indebtedness and the
remaining proceeds are expected to be used to fund vessel
acquisitions and for other general corporate purposes. In
November 2009, $20,000 of the 7% Notes were converted into
approximately 2.2 million common shares. The $125,000
outstanding principal amount of our 7% Notes is reflected
as $41,430 on our December 31, 2009 balance sheet due to
the netting impact of a beneficial conversion feature (discount)
described in Note 12.
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The Companys existing syndicate of lenders entered into a
new $221,400 facility agreement, dated October 13, 2009,
referred to herein as the Facility Agreement, by and
among the Company and the banks identified therein in order to
refinance the Companys existing revolving credit facility.
|
|
|
|
The Company assumed a $37,400 credit facility in relation to the
three vessels transferred to it as part of the recapitalization.
The $37,400 credit facility is payable in 20 consecutive
quarterly instalments of $1,560 and a $6,200 repayment due in
October 2014. Such facility bears margin of 3.5% above LIBOR.
Subsequent to its assumption, this facility has been, and
continues to be, periodically paid down and drawn upon to
minimize the Companys cost of capital. As of
December 31, 2009, the outstanding balance was $35,840.
Subsequent to the year end, the facility was repaid in full. The
Company pays a 1% commitment fee on the undrawn amount.
|
The transaction was recorded as follows:
1. The transfer of the three vessels to NewLead from
Grandunion is accounted for as an asset acquisition and at
historical book value, since control over the vessels has not
changed.
2. The acquisition of the predecessor entity was accounted
for under the acquisition method of accounting and accordingly,
these assets and liabilities assumed were recorded at their fair
values. The Company utilized a combination of valuation methods,
such as the market approach and the income approach, in order to
determine the fair values of the predecessor vessels time
charters attached, the charter free values of the vessels and
the calculation of the equity consideration. The fair value of
the entity as a business was determined based on its
capitalization on October 13, 2009. The excess of the
purchase price over the fair value of the assets acquired and
liabilities assumed resulted in a premium (goodwill) of $86,036
and was recorded in the line Goodwill in the
Companys consolidated balance sheet. Goodwill has been
allocated to the wet and dry reporting units, based on the fair
values of the vessels, at approximately 76% and 24%,
respectively.
The carrying amount of Goodwill as of December 31, 2009 was
analyzed as follows:
|
|
|
|
|
|
|
|
|
Balance January 1, 2009
|
|
$
|
|
|
|
|
|
|
Goodwill acquired during the year
|
|
|
86,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
$
|
86,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The basis adjustments, presented in the following table, result
from the Companys assessment of the estimated fair market
values for each vessel, obtained by third-party valuations for
which management
F-21
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
assumes responsibility for all assumptions and judgements
compared to the carrying value. The significant factors the
Company used in deriving the carrying value included: net book
value of the vessels, unamortized special survey and dry-docking
cost and deferred revenue. The Company believes that the
resulting balance sheet reflects the fair value of the assets
and liabilities at the change of control date of
October 13, 2009.
The following table shows the roll forward of the balance sheet
of NewLead (Predecessor) as of October 13, 2009 to NewLead
(Successor) on October 13, 2009 and is being presented
solely to reflect the change of control and contribution from
Grandunion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 13, 2009
|
|
|
|
October 13, 2009
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
Grandunion
|
|
|
|
|
|
Post
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
(at historical
|
|
|
Financing
|
|
|
Recapitalized
|
|
|
|
Carrying
|
|
|
|
Basis
|
|
|
and Liabilities
|
|
|
basis)
|
|
|
Activities
|
|
|
Carrying
|
|
|
|
Value
|
|
|
|
Adjustments
|
|
|
Acquired
|
|
|
(5)
|
|
|
(7)
|
|
|
Values
|
|
|
|
A
|
|
|
|
B
|
|
|
C=A+B
|
|
|
D
|
|
|
E
|
|
|
F=C+D+E
|
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
(Restated)
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,139
|
|
|
$
|
131,544
|
(8)
|
|
$
|
132,683
|
|
Restricted cash
|
|
|
1,898
|
|
|
|
|
|
|
|
|
1,898
|
|
|
|
|
|
|
|
(1,498
|
)(7)
|
|
|
400
|
|
Trade receivables, net
|
|
|
3,721
|
|
|
|
|
|
|
|
|
3,721
|
|
|
|
|
|
|
|
|
|
|
|
3,721
|
|
Other receivables
|
|
|
584
|
|
|
|
|
|
|
|
|
584
|
|
|
|
|
|
|
|
|
|
|
|
584
|
|
Inventories
|
|
|
2,713
|
|
|
|
|
|
|
|
|
2,713
|
|
|
|
262
|
|
|
|
|
|
|
|
2,975
|
|
Prepaid expenses
|
|
|
1,102
|
|
|
|
|
|
|
|
|
1,102
|
|
|
|
|
|
|
|
|
|
|
|
1,102
|
|
Backlog asset
|
|
|
|
|
|
|
|
7,520
|
(2)
|
|
|
7,520
|
|
|
|
|
|
|
|
|
|
|
|
7,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,018
|
|
|
|
|
7,520
|
|
|
|
17,538
|
|
|
|
1,401
|
|
|
|
130,046
|
|
|
|
148,985
|
|
Vessels and other fixed assets, net
|
|
|
185,813
|
|
|
|
|
2,587
|
(1)
|
|
|
188,400
|
|
|
|
75,289
|
|
|
|
|
|
|
|
263,689
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,672
|
(7)
|
|
|
10,672
|
|
Deferred charges, net
|
|
|
1,018
|
|
|
|
|
(1,018
|
)(3)
|
|
|
|
|
|
|
|
|
|
|
8,222
|
(8)
|
|
|
8,222
|
|
Goodwill
|
|
|
|
|
|
|
|
86,036
|
|
|
|
86,036
|
|
|
|
|
|
|
|
|
|
|
|
86,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
186,831
|
|
|
|
|
87,605
|
|
|
|
274,436
|
|
|
|
75,289
|
|
|
|
18,894
|
|
|
|
368,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
196,849
|
|
|
|
|
95,125
|
|
|
|
291,974
|
|
|
|
76,690
|
|
|
|
148,940
|
|
|
|
517,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
(221,430
|
)
|
|
|
|
|
|
|
|
(221,430
|
)
|
|
|
(6,240
|
)
|
|
|
193,430
|
(7)
|
|
|
(34,240
|
)
|
Accounts payable, trade
|
|
|
(10,146
|
)
|
|
|
|
|
|
|
|
(10,146
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,146
|
)
|
Accrued liabilities
|
|
|
(11,794
|
)
|
|
|
|
|
|
|
|
(11,794
|
)
|
|
|
(298
|
)
|
|
|
|
|
|
|
(12,092
|
)
|
Deferred income
|
|
|
(673
|
)
|
|
|
|
|
|
|
|
(673
|
)
|
|
|
(887
|
)
|
|
|
|
|
|
|
(1,560
|
)
|
Derivative financial instruments
|
|
|
(9,439
|
)
|
|
|
|
|
|
|
|
(9,439
|
)
|
|
|
(2,295
|
)
|
|
|
|
|
|
|
(11,734
|
)
|
Deferred charter revenue
|
|
|
(1,222
|
)
|
|
|
|
1,222
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to managing agent
|
|
|
(1,599
|
)
|
|
|
|
|
|
|
|
(1,599
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(256,303
|
)
|
|
|
|
1,222
|
|
|
|
(255,081
|
)
|
|
|
(9,720
|
)
|
|
|
193,430
|
|
|
|
(71,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(813
|
)
|
|
|
|
|
|
|
(813
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,971
|
)(8)
|
|
|
(3,971
|
)
|
7% Convertible senior notes, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,433
|
)(8)
|
|
|
(44,433
|
)
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,160
|
)
|
|
|
(193,430
|
)(7)
|
|
|
(224,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,973
|
)
|
|
|
(241,834
|
)
|
|
|
(273,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(256,303
|
)
|
|
|
|
1,222
|
|
|
|
(255,081
|
)
|
|
|
(41,693
|
)
|
|
|
(48,404
|
)
|
|
|
(345,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(40
|
)
|
Additional paid-in capital
|
|
|
(114,847
|
)
|
|
|
|
(96,347
|
)
|
|
|
(36,869
|
)
|
|
|
(34,981
|
)
|
|
|
(100,536
|
)
|
|
|
(172,386
|
)
|
Accumulated deficit
|
|
|
174,325
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
59,454
|
|
|
|
|
(96,347
|
)
|
|
|
(36,893
|
)
|
|
|
(34,997
|
)
|
|
|
(100,536
|
)
|
|
|
(172,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
(196,849
|
)
|
|
|
$
|
(95,125
|
)
|
|
$
|
(291,974
|
)
|
|
$
|
(76,690
|
)
|
|
$
|
(148,940
|
)
|
|
$
|
(517,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
|
(1)
|
|
Vessels and other fixed assets, net
were adjusted to fair market value.
|
|
(2)
|
|
Backlog asset which relates to
charter-out
contracts were determined to have a fair value.
|
|
(3)
|
|
Deferred charges were valued at $0.
|
|
(4)
|
|
Deferred charter revenue was valued
at $0.
|
|
(5)
|
|
The assets and liabilities of the
three vessel owning companies brought into the Company from
Grandunion were recorded at their historical cost.
|
|
(6)
|
|
Accumulated deficit was transferred
to additional paid-in capital.
|
|
(7)
|
|
The Companys existing
syndicate of lenders entered into the new Facility Agreement,
dated October 13, 2009, which resulted in the
classification of the debt according to the contractual terms.
As a result of the new Facility agreement the Company complied
with its covenants, note 11, and on the recapitalization
date the Companys debt was reclassified between its long
and short term components based on its contractual terms, while
the agreement requires restricted cash of 5%.
|
|
(8)
|
|
Represents the issuance of the
7% Notes described at the beginning of this note, net of
discounts. For the detailed components of the 7% Notes see
discussion in notes 2 (warrants) and 12.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
|
2008
|
|
Retention account
|
|
$
|
|
|
|
|
$
|
2,054
|
|
Minimum Liquidity
|
|
|
403
|
|
|
|
|
6,436
|
|
Other
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
Short term restricted account
|
|
|
403
|
|
|
|
|
8,510
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Liquidity
|
|
|
9,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term restricted account
|
|
|
9,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,071
|
|
|
|
$
|
8,510
|
|
|
|
|
|
|
|
|
|
|
|
Cash deposited in the retention account is made available for
loan interest payments within three months of being deposited.
From January 1, 2009 to October 13, 2009, the Company
was in breach of the minimum liquidity covenant (see
note 11).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
|
2008
|
|
Lubricants
|
|
$
|
953
|
|
|
|
$
|
722
|
|
Bunkers
|
|
|
2,075
|
|
|
|
|
361
|
|
Provisions (Stores)
|
|
|
57
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,085
|
|
|
|
$
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
F-23
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
7.
|
VESSELS
AND OTHER FIXED ASSETS, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed
|
|
|
|
|
|
Special
|
|
|
Dry-
|
|
|
|
|
Cost
|
|
assets
|
|
|
Vessels
|
|
|
survey
|
|
|
docking
|
|
|
Total
|
|
|
PREDECESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
183
|
|
|
$
|
479,172
|
|
|
$
|
7,856
|
|
|
$
|
17,321
|
|
|
$
|
504,532
|
|
Additions
|
|
|
27
|
|
|
|
|
|
|
|
1,019
|
|
|
|
1,140
|
|
|
|
2,186
|
|
Disposals Discontinued operations (note 22)
|
|
|
|
|
|
|
(69,003
|
)
|
|
|
(822
|
)
|
|
|
(6,450
|
)
|
|
|
(76,275
|
)
|
Impairment loss (note 2)
|
|
|
|
|
|
|
(30,075
|
)
|
|
|
|
|
|
|
|
|
|
|
(30,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
210
|
|
|
|
380,094
|
|
|
|
8,053
|
|
|
|
12,011
|
|
|
|
400,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
63
|
|
|
|
|
|
|
|
1,358
|
|
|
|
4,761
|
|
|
|
6,182
|
|
Disposals Discontinued operations (note 22)
|
|
|
|
|
|
|
(17,224
|
)
|
|
|
(421
|
)
|
|
|
(484
|
)
|
|
|
(18,129
|
)
|
Impairment loss (note 2)
|
|
|
|
|
|
|
(91,601
|
)
|
|
|
|
|
|
|
|
|
|
|
(91,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 13, 2009
|
|
|
273
|
|
|
|
271,269
|
|
|
|
8,990
|
|
|
|
16,288
|
|
|
|
296,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUCCESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,333
|
|
|
|
1,333
|
|
Additions Contribution from Grandunion
|
|
|
|
|
|
|
98,985
|
|
|
|
|
|
|
|
5,767
|
|
|
|
104,752
|
|
Change in control basis adjustment
|
|
|
(273
|
)
|
|
|
(82,870
|
)
|
|
|
(8,990
|
)
|
|
|
(16,288
|
)
|
|
|
(108,421
|
)
|
Transfer to assets held for sale (note 2, 22)
|
|
|
|
|
|
|
(8,400
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
278,984
|
|
|
|
|
|
|
|
7,100
|
|
|
|
286,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREDECESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
(60
|
)
|
|
|
(89,788
|
)
|
|
|
(4,249
|
)
|
|
|
(9,597
|
)
|
|
|
(103,694
|
)
|
Depreciation and Amortization of the year
|
|
|
(39
|
)
|
|
|
(25,437
|
)
|
|
|
(1,242
|
)
|
|
|
(3,775
|
)
|
|
|
(30,493
|
)
|
Disposals
|
|
|
|
|
|
|
25,753
|
|
|
|
570
|
|
|
|
3,959
|
|
|
|
30,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
(99
|
)
|
|
|
(89,472
|
)
|
|
|
(4,921
|
)
|
|
|
(9,413
|
)
|
|
|
(103,905
|
)
|
Depreciation and Amortization of the year*
|
|
|
(174
|
)
|
|
|
(14,073
|
)
|
|
|
(1,071
|
)
|
|
|
(2,050
|
)
|
|
|
(17,368
|
)
|
Disposals
|
|
|
|
|
|
|
9,361
|
|
|
|
421
|
|
|
|
484
|
|
|
|
10,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 13, 2009
|
|
|
(273
|
)
|
|
|
(94,184
|
)
|
|
|
(5,571
|
)
|
|
|
(10,979
|
)
|
|
|
(111,007
|
)
|
SUCCESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions Contribution from Grandunion
|
|
|
|
|
|
|
(27,894
|
)
|
|
|
|
|
|
|
(1,569
|
)
|
|
|
(29,463
|
)
|
Change in control basis adjustment
|
|
|
273
|
|
|
|
94,184
|
|
|
|
5,571
|
|
|
|
10,979
|
|
|
|
111,007
|
|
Depreciation and Amortization of the year
|
|
|
|
|
|
|
(3,187
|
)
|
|
|
|
|
|
|
(469
|
)
|
|
|
(3,656
|
)
|
Transfer to assets held for sale (note 2, 22)
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
(30,931
|
)
|
|
|
|
|
|
|
(2,038
|
)
|
|
|
(32,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREDECESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value December 31, 2007
|
|
|
123
|
|
|
|
389,384
|
|
|
|
3,607
|
|
|
|
7,724
|
|
|
|
400,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value December 31, 2008
|
|
|
111
|
|
|
|
290,622
|
|
|
|
3,132
|
|
|
|
2,598
|
|
|
|
296,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value October 13, 2009
|
|
|
|
|
|
|
177,085
|
|
|
|
3,419
|
|
|
|
5,309
|
|
|
|
185,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUCCESSOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value December 31, 2009
|
|
$
|
|
|
|
$
|
248,053
|
|
|
$
|
|
|
|
$
|
5,062
|
|
|
$
|
253,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
|
*
|
|
Depreciation and amortization
expenses in the Consolidated Statements of Operations for
the period from October 14, 2009 to December 31, 2009
includes an amount of approximately $1,300, which represents the
amortization of Backlog assets.
|
On June 11, 2008, the Company sold the Arius to an
unrelated party for net proceeds of approximately $21,400. The
gain on the sale of the vessel amounted to approximately $8,600.
The Company paid 1% of the purchase price as sales commission to
Magnus Carriers Corporation (Magnus Carriers), a
related company. The Company also paid a 1% commission to a
brokerage firm, of which one of the former Companys
directors is a shareholder (refer to note 21).
On April 30, 2008 and June 2, 2008, the Company sold
both the MSC Oslo and its sister ship, the Energy 1, to an
unrelated party for net proceeds totalling approximately $19,700
and $18,500, respectively. The gain on the sale of the MSC Oslo
amounted to approximately $2,900 and the gain on the sale of the
Energy 1 amounted to approximately $2,100. The Company paid 1%
of the purchase price as sales commission to Magnus Carriers
(refer to note 21).
On June 10, 2009, the Company sold the Ocean Hope to an
unrelated party for net proceeds of approximately $2,300. The
loss on the sale of the vessel amounted to approximately $5,600.
The Company paid 4% of the purchase price as sales commission to
Braemar Seascope Limited, an unrelated company. The Company also
paid a 1% commission to a brokerage firm, of which one of the
former Companys directors is a shareholder (refer to
note 21).
The results of the above sold vessels until the date of their
delivery to their new owners, have been reported as discontinued
operations in the accompanying statements of operations and cash
flows (see note 22). On October 13, 2009, Grandunion
(an affiliate Company) transferred three dry bulk carriers to
the Company with a net historical basis of $75,289 (see
note 4 (Restated)).
|
|
|
|
|
|
|
Financing Costs
|
|
|
Net Book Value at December 31, 2006 (Predecessor)
|
|
$
|
4,214
|
|
Amortization
|
|
|
(1,308
|
)
|
|
|
|
|
|
Net Book Value at December 31, 2007 (Predecessor)
|
|
|
2,906
|
|
Amortization
|
|
|
(850
|
)
|
Deferred charges written-off
|
|
|
(483
|
)
|
|
|
|
|
|
Net Book Value at December 31, 2008 (Predecessor)
|
|
|
1,573
|
|
Amortization
|
|
|
(555
|
)
|
|
|
|
|
|
Net Book Value at October 13, 2009 (Predecessor)
|
|
|
1,018
|
|
Change in control basis adjustment
|
|
|
(1,018
|
)
|
Additions
|
|
|
8,222
|
|
Amortization
|
|
|
(1,391
|
)
|
|
|
|
|
|
Net Book Value at December 31, 2009 (Successor)
|
|
$
|
6,831
|
|
|
|
|
|
|
F-25
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
9.
|
ACCOUNTS
PAYABLE, TRADE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
|
2008
|
|
Suppliers
|
|
$
|
6,316
|
|
|
|
$
|
1,368
|
|
Agents
|
|
|
261
|
|
|
|
|
159
|
|
Other creditors
|
|
|
4,471
|
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,048
|
|
|
|
$
|
3,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Interest
|
|
$
|
5,267
|
|
|
$
|
3,366
|
|
Claims
|
|
|
4,152
|
|
|
|
815
|
|
Other accrued expenses
|
|
|
7,538
|
|
|
|
3,595
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,957
|
|
|
$
|
7,776
|
|
|
|
|
|
|
|
|
|
|
Senior
secured credit agreement
Below is a summary of the long-term portion and short-term
portion of the debt as at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$37,400
|
|
|
|
|
|
|
Facility
|
|
|
Credit
|
|
|
|
|
Description
|
|
Agreement
|
|
|
Facility
|
|
|
Total
|
|
|
Long-term
|
|
|
193,430
|
|
|
|
29,600
|
|
|
|
223,030
|
|
Short-term
|
|
|
8,000
|
|
|
|
6,240
|
|
|
|
14,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
201,430
|
|
|
|
35,840
|
|
|
|
237,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2008 total debt amounted
to $223,700, which amount relates to the Companys
syndicate of lenders that was reflected as current due to the
Company being in breach of its covenants, as discussed further
below:
Prior to the recapitalization on October 13, 2009, the
Company had entered into a $360,000 fully revolving credit
facility in April 2006 with Bank of Scotland and Nordea Bank
Finland as lead arrangers and Bank of Scotland as Agent. Upon
its execution in 2006, the Company used the fully revolving
credit facility to (i) refinance the old $140,000 drawn
term loan; (ii) refinance the old revolving acquisition
facility, which was drawn to the extent of $43,800 at
December 31, 2005 and which was further drawn in February
2006 in the amount of $50,500 to complete the purchase of the
Stena Compass; and (iii) to complete the purchase of the
Stena Compassion. During 2008 and up to October 13, 2009,
the Company was in breach of its covenants under the fully
revolving credit facility. The Company then entered into a Fifth
Supplemental Agreement, in connection with the temporary
relaxation of the interest coverage covenant of the facility,
with an increased
F-26
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
margin of 1.75% above LIBOR applied until the refinancing on
October 13, 2009. Although the Company paid an increased
interest margin, rates overall have decreased.
The Company was in breach of the following covenants:
|
|
|
|
|
An adjusted equity ratio of not less than 35%;
|
|
|
|
An interest coverage ratio (as defined in the facility
agreement) of not less than 3.00 to 1.00;
|
|
|
|
The reduction of outstanding borrowings to $200,000 in
accordance with the Fifth Supplemental Agreement;
|
|
|
|
A working capital balance, including the $221,400 of debt
reflected as current, of not less than $0; and
|
|
|
|
The minimum liquidity requirement consisting of free cash and
cash equivalents.
|
Subsequent to the recapitalization on October 13, 2009, the
Companys existing syndicate of lenders entered into a new
$221,400 facility agreement, referred to herein as the
Facility Agreement, by and among the Company and the
banks identified therein in order to refinance the
Companys existing revolving credit facility. The current
Facility Agreement is payable in 19 quarterly instalments of
approximately $2,000 each, and a $163,400 balloon payment due in
October 2014. Of the proceeds of the issuance of the
7% Notes (see note 12), $20,000 was applied to reduce
the Facility Agreement.
The Companys obligations under the new Facility Agreement
were secured by a first priority security interest, subject to
permitted liens, on all vessels in the Companys fleet and
any other vessels the Company subsequently acquire. In addition,
the lenders will have a first priority security interest in all
earnings from and insurances on the Companys vessels, all
existing and future charters relating to the Companys
vessels, the Companys ship management agreements and all
equity interests in the Companys subsidiaries. The
Companys obligations under the new Facility Agreement are
also guaranteed by all subsidiaries that have an ownership
interest in any of the Companys vessels, excluding the
three vessels transferred to the Company as part of the
recapitalization.
As explained further below, the new Facility Agreement bears an
increased margin of 2.75% above LIBOR up and until the original
maturity date, April 6, 2011.
Under the new terms of the Facility Agreement, amounts drawn
bear interest at an annual rate equal to LIBOR plus a margin
equal to:
|
|
|
|
|
1.75% if the Companys total shareholders equity
divided by the Companys total assets, adjusting the book
value of the Companys fleet to its market value, is equal
to or greater than and 50%;
|
|
|
|
2.75% if the Companys total shareholders equity
divided by the Companys total assets, adjusting the book
value of the Companys fleet to its market value, is equal
to or greater than 27.5% but less than 50%; and
|
|
|
|
3.25% if the Companys total shareholders equity
divided by the Companys total assets, adjusting the book
value of the Companys fleet to its market value, is less
than 27.5%.
|
As a result to the recapitalization, new financial covenants
were put in place. Except from working capital and minimum
liquidity all other covenants will become effective in a period
ranging from 30 to 36 months from the effective date of the
Facility Agreement to allow a sufficient period of time for new
management to implement its business strategy. The Company was
compliant with its debt covenants at December 31, 2009.
F-27
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
The new Facility Agreement requires the Company to adhere to
certain financial covenants as of the end of each fiscal
quarter, including the following:
|
|
|
|
|
the Companys shareholders equity as a percentage of
the Companys total assets, adjusting the book value of the
Companys fleet to its market value, must be no less than:
|
(a) 25% from the financial quarter ending
September 30, 2012 until June 30, 2013; and
(b) 30% from the financial quarter ending
September 30, 2013 onwards.
|
|
|
|
|
maintain, on a consolidated basis on each financial quarter,
working capital of not less than zero dollars ($0);
|
|
|
|
the minimum liquidity requirement, at five percent of the
outstanding loan:
|
|
|
|
the ratio of EBITDA (earnings before interest, taxes,
depreciation and amortization) to interest expense must be no
less than;
|
(a) 2.00 to 1.00 from the financial quarter day ending
September 30, 2012 until June 30, 2013; and
(b) 2.50 to 1.00 from the financial quarter day ending
September 30, 2013 onwards.
|
|
(b)
|
$37,400
Credit Facility
|
The Company assumed a $37,400 credit facility in relation to the
three vessels transferred to it as part of the recapitalization.
The $37,400 credit facility is payable in 20 consecutive
quarterly instalments of $1,560 and a $6,200 repayment due in
October 2014. Such facility bears margin of 3.5% above LIBOR.
Subsequent to its assumption, this facility has been, and
continues to be, periodically paid down and drawn upon to
minimize the Companys cost of capital. As of
December 31, 2009, the outstanding balance was $35,840.
Subsequent to the year end, the facility was repaid in full. The
Company pays a 1% commitment fee on the undrawn amount.
The amounts shown as interest and finance expense in the
statements of operations are analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
October 14,
|
|
|
January 1,
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
2009 to
|
|
|
2009 to
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 13,
|
|
|
December 31,
|
|
|
December 31,
|
|
Continuing Operations
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest expense
|
|
$
|
5,416
|
|
|
$
|
9,711
|
|
|
$
|
13,413
|
|
|
$
|
15,080
|
|
Amortization of deferred charges
|
|
|
1,391
|
|
|
|
555
|
|
|
|
850
|
|
|
|
1,308
|
|
Amortization of the beneficial conversion feature (see
note 12)
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges written off
|
|
|
|
|
|
|
|
|
|
|
483
|
|
|
|
|
|
Other fees
|
|
|
189
|
|
|
|
662
|
|
|
|
995
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,996
|
|
|
$
|
10,928
|
|
|
$
|
15,741
|
|
|
$
|
16,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective interest rate at December 31, 2009 was
approximately 5.81% p.a. (2008: 5.76% p.a., 2007: 6.94% p.a.).
F-28
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
As at December 31, 2009, repayments of the long-term debt,
are as follows:
|
|
|
|
|
Successor
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
2010
|
|
$
|
14,240
|
|
2011
|
|
|
14,240
|
|
2012
|
|
|
14,240
|
|
2013
|
|
|
14,240
|
|
2014 and thereafter
|
|
|
180,310
|
|
|
|
|
|
|
|
|
$
|
237,270
|
|
|
|
|
|
|
|
|
12.
|
7% CONVERTIBLE
SENIOR NOTES
|
In connection with the recapitalization on October 13,
2009, the Company issued $145,000 in aggregate principal
amount of 7% senior unsecured convertible notes due 2015.
The 7% Notes are convertible into common shares at a
conversion price of $9.00 per share, (Any time
conversion option, subject to adjustment for certain events,
including certain distributions by the Company of cash, debt and
other assets, spin offs and other events. The issuance of the
7% Notes was pursuant to the Indenture dated
October 13, 2009 between the Company and Marfin Egnatia
Bank S.A., and the Note Purchase Agreement, executed by each of
Investment Bank of Greece and Focus Maritime Corp. as
purchasers. Currently, Investment Bank of Greece retains $100
outstanding principal amount of the 7% Notes and has
received warrants to purchase up to 416,667 common shares at an
exercise price of $24.00 per share, with an expiration date of
October 13, 2015. These warrants have been fair valued as
of October 13, 2009 as such they will be amortized over a
period of six years. The warrants are to be marked to market at
every reporting date. The remainder of the 7% Notes is
owned by Focus Maritime Corp., a company controlled by Michail
S. Zolotas the Companys President and Chief Executive
Officer. All of the outstanding 7% Notes owned by Focus
Maritime Corp. were pledged to, and their acquisition was
financed by, Marfin Egnatia Bank S.A. The proceeds of the
7% Notes were used in part to repay, in an amount of
$20,000, a portion of existing indebtedness and the remaining
proceeds are expected to be used for general corporate purposes
and to fund vessel acquisitions. The Note Purchase Agreement and
the Indenture with respect to the 7% Notes contain certain
covenants, including limitations on the incurrence of additional
indebtedness, except in connection with approved vessel
acquisitions, and limitations on mergers and consolidations. In
connection with the issuance of the 7% Notes, the Company
entered into a Registration Rights Agreement providing the
holders of the 7% Notes with certain demand and other
registration rights for the common shares underlying the
7% Notes.
In November 2009, Focus Maritime Corp. converted $20,000 of the
7% Notes into approximately 2.2 million new common
shares. Accordingly, in the aggregate, $125,000 of the
7% Notes remain outstanding as at December 31, 2009.
The 7% Notes have two embedded conversion
options (1) An Any time conversion
option and (2) A Make Whole Fundamental Change
conversion option, which gives the holder 10% more shares upon
conversion, in certain circumstances.
(1) The Any time conversion option does meet
the definition of a derivative ASC 815 however, this embedded
conversion option meets the ASC
815-10-15
scope exception, as it is both (1) indexed to its own stock
and (2) would be classified in stockholders equity,
if freestanding. As a result, this conversion option will not be
bifurcated and separately accounted for.
F-29
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
(2) The Make Whole Fundamental Change
conversion option meets the definition of a derivative under ASC
815. However, this embedded conversion option does not meet the
ASC
815-10-15
scope exception, since this conversion option cannot be
considered indexed to its own stock. As a result, the conversion
option has been bifurcated from the host contract, the
7% Notes, and separately accounted for. The conversion
option was valued at $34.
The Companys market price on the date of issuance was
$15.24 and the stated conversion price is $9.00. Since the
Any time conversion option has not been bifurcated,
the Company recorded a beneficial conversion feature (BCF),
totalling $100,536, as a contra liability (discount) that will
be amortized into the income statement (via interest charge)
over the life of the 7% Notes. For the period from
October 14, 2009 to December 31, 2009, $17,000 of
interest was expensed in the statement of operations.
The amount regarding the 7% Notes presented in the
Consolidated Balance Sheet is analysed as follows:
|
|
|
|
|
|
|
Successor
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
7% Convertible Senior Notes initially issued
|
|
$
|
(145,000
|
)
|
Partial conversion of the convertible senior notes
|
|
|
20,000
|
|
|
|
|
|
|
7% Convertible Senior Notes outstanding
|
|
|
(125,000
|
)
|
Beneficial conversion feature
|
|
|
100,536
|
|
Amortization of the beneficial conversion feature
|
|
|
(17,000
|
)
|
Make whole fundamental change
|
|
|
34
|
|
|
|
|
|
|
7% Convertible Senior Notes
|
|
$
|
(41,430
|
)
|
|
|
|
|
|
|
|
13.
|
BACK LOG
ASSET / DEFERRED CHARTER REVENUE
|
|
|
|
|
|
December 31, 2006 (Predecessor)
|
|
$
|
17,041
|
|
Amortization
|
|
|
(6,010
|
)
|
|
|
|
|
|
December 31, 2007 (Predecessor)
|
|
|
11,031
|
|
Amortization
|
|
|
(8,115
|
)
|
|
|
|
|
|
December 31, 2008 (Predecessor)
|
|
|
2,916
|
|
Amortization
|
|
|
(1,694
|
)
|
|
|
|
|
|
October 13, 2009 (Predecessor)
|
|
|
1,222
|
|
Change in control basis adjustment*
|
|
|
6,298
|
|
Amortization
|
|
|
(1,992
|
)
|
|
|
|
|
|
December 31, 2009 (Successor)
|
|
|
5,528
|
|
|
|
|
|
|
Short-term
|
|
|
5,528
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,528
|
|
|
|
|
|
|
|
|
|
* |
|
On the date of recapitalization the remaining balance of
deferred charter revenue of $1,222 was written off (see
note 4 (Restated)). |
F-30
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
14.
|
SHARE-BASED
COMPENSATION
|
Equity
Incentive Plan
The Companys 2005 Equity Incentive Plan (the
Plan) is designed to provide certain key persons, on
whose initiative and efforts the successful conduct of the
Company depends, with incentives to: (a) enter into and
remain in the service of the Company, (b) acquire a
proprietary interest in the success of the Company,
(c) maximize their performance, and (d) enhance the
long-term performance of the Company.
On May 29, 2009, the Company amended the Plan to:
(a) increase the number of common shares reserved for
issuance to 83,334 in order for the Company to best compensate
its officers, directors and employees, (b) ensure that no
incentive share options shall be granted under the Plan from and
following May 29, 2009.
On December 22, 2009, the Companys new management
further amended the Plan to increase the number of common shares
reserved for issuance to 583,334 in order for the Company to
best compensate its officers, directors and other employees.
In addition, the Company may grant restricted common shares and
share options to third parties and to employees outside the
auspices of the Plan.
Restricted
Common Shares
The Company measures share-based compensation cost at grant
date, based on the estimated fair value of the restricted common
share awards, which is determined by the closing price of the
Companys common shares on the NASDAQ on the grant date and
recognizes the cost as expense on a straight-line basis over the
requisite service period.
During the periods October 14 to December 31, 2009
(Successor), January 1 to October 13, 2009 (Predecessor),
and the years ended December 31, 2008 (Predecessor), and
2007 (Predecessor) the Company recognized compensation cost
related to the Companys restricted shares of $3,552, $680,
$1,040, and $1,232, respectively.
F-31
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
A summary of the activity for restricted share awards during the
periods October 14 to December 31, 2009, January 1 to
October 13, 2009 and the years ended of December 31,
2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
Number of
|
|
|
Average
|
|
|
Vesting Period
|
|
|
|
Shares
|
|
|
Fair Values
|
|
|
(Years)
|
|
|
Outstanding and non-vested shares, at January 1, 2007
(Predecessor)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted(1)
|
|
|
16,668
|
|
|
$
|
103.68
|
|
|
|
0.8
|
|
Vested
|
|
|
(8,334
|
)
|
|
$
|
103.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and non-vested shares, as of December 31,
2007 (Predecessor)
|
|
|
8,334
|
|
|
$
|
103.68
|
|
|
|
0.8
|
|
Granted(2)
|
|
|
28,751
|
|
|
$
|
38.91
|
|
|
|
1.2
|
|
Vested
|
|
|
(17,085
|
)
|
|
$
|
70.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and non-vested shares, as of December 31,
2008 (Predecessor)
|
|
|
20,000
|
|
|
$
|
39.30
|
|
|
|
1.6
|
|
Granted(3)
|
|
|
7,293
|
|
|
$
|
15.24
|
|
|
|
0.0
|
|
Vested
|
|
|
(27,293
|
)
|
|
$
|
32.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and non-vested shares, as of October 13,
2009 (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
0.0
|
|
Granted(4)
|
|
|
390,001
|
|
|
$
|
15.13
|
|
|
|
0.8
|
|
Vested
|
|
|
(208,334
|
)
|
|
$
|
15.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and non-vested shares, as of December 31,
2009 (Successor)
|
|
|
181,667
|
|
|
$
|
15.01
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
8,334 shares had immediate
vesting and 8,334 shares were vested in April 2008.
|
|
(2)
|
|
18,750 shares vest over a
three-year period, 8,334 shares had immediate vesting and
1,667 shares vests over a two-year period. Vesting for
these shares was accelerated on the date of recapitalization.
|
|
(3)
|
|
Vested on the date of the
recapitalization.
|
|
(4)
|
|
208,334 shares had immediate
vesting, 166,667 have a two-year vesting schedule (at
January 1, 2011, and 2012), while 15,000 vest in three
years (at January 1, 2011, 2012, and 2013).
|
Compensation cost of $2,348, related to non-vested shares will
be primarily recognized over the next two years.
F-32
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Share
options
The summary of share option awards is summarized as follows (in
thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Average Fair
|
|
|
average Vesting
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Value
|
|
|
Period (years)
|
|
|
Outstanding, at January 1, 2008 (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted(1)
|
|
|
25,000
|
|
|
$
|
104.00
|
|
|
$
|
6.20
|
|
|
|
3.0
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, as of December 31, 2008 (Predecessor)
|
|
|
25,000
|
|
|
$
|
104.00
|
|
|
$
|
6.20
|
|
|
|
3.0
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, as of October 13, 2009 (Predecessor)
|
|
|
25,000
|
|
|
$
|
104.00
|
|
|
$
|
6.20
|
|
|
|
0.0
|
|
Granted(2)
|
|
|
250,000
|
|
|
$
|
19.80
|
|
|
$
|
6.25
|
|
|
|
3.0
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, as of December 31, 2009 (Successor)
|
|
|
275,000
|
|
|
$
|
27.45
|
|
|
$
|
6.24
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
45,834
|
|
|
$
|
65.76
|
|
|
$
|
6.24
|
|
|
|
|
|
|
|
|
(1)
|
|
In 2008, the Company granted to
25,000 share options to purchase common shares subject to a
vesting period of three annual equal installments. The fair
value of these share option awards has been calculated based on
the Binomial lattice model method. The Company used this model
given that the options granted are exercisable at a specified
time after vesting period (up to 10 years). The assumptions
utilized in the Binomial lattice valuation model for the share
option included a dividend yield of 5% and an expected
volatility of 43%. For the first two vesting dates, the
risk-free interest rate was 3.8% and the fair value per share
option amounted to $6.60 with an expected life of 6 years.
For the third vesting date, the risk-free interest rate was 4.6%
with an expected life of 10 years, while the fair value per
share option amounted to $5.40. No share options were granted
during the year ended December 31, 2007. On
October 13, 2009, all these shares were vested due to the
recapitalization.
|
|
(2)
|
|
In 2009, the Company granted
250,000 share options to purchase common shares, which vest
equally over 36 months and are subject to accelerated
vesting upon certain circumstances. The fair value of these
share option awards has been calculated based on the Binomial
lattice model method. The Company used this model given that the
options granted are exercisable at a specified time after
vesting period (through five years from October 13, 2009).
The assumptions utilized in the Binomial lattice valuation model
for the share option included a dividend yield of 0% and an
expected volatility of 90%. The risk-free interest rate was 2.3%
and the weighted average fair value per share option amounted to
$6.25.
|
During the periods October 14 to December 31, 2009
(Successor), January 1 to October 13, 2009 (Predecessor),
and the years ended December 31, 2008 (Predecessor), and
2007 (Predecessor), the Company recognized share-based
compensation cost of $406, $113, $43, and $0, respectively.
F-33
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Unrecognized compensation of $1,156 will be recognized in future
years to the date of the full vesting of all share options,
October 31, 2012.
The weighted average contractual life of the share options
outstanding as of December 31, 2009 was 5.1 years.
As of December 31, 2009, the intrinsic value of the
Companys share options was $0 since the share price of the
Companys common shares was less than the exercise price.
|
|
15.
|
COMMON
SHARES AND DIVIDENDS
|
Common
Shares
As a result of the issuance of restricted shares during the
periods October 14 to December 31, 2009, January 1 to
October 13, 2009, and the years ended December 31,
2008, and 2007, the Companys share capital was increased
(amounts in thousand shares) by 390, 7, 29, and 17,
respectively. As a result of the recapitalization, and the
partial conversion of the 7% notes, during the period
October 14 to December 31, 2009 the Companys share
capital was also increased by 1,582 and 2,223 thousand shares,
respectively.
Dividends
(a) During the year ended December 31, 2009, the
Company paid no dividends.
(b) During the year ended December 31, 2008, the
Company paid dividends of $1.20 per share (approximately $2,900)
to existing shareholders.
(c) During the year ended December 31, 2007, the
Company paid dividends of $7.56 per share (approximately $1,800)
to existing shareholders.
|
|
16.
|
SEGMENT
INFORMATION (RESTATED)
|
The Company has two reportable segments from which it derives
its revenues: Wet Operations and Dry Operations. The reportable
segments reflect the internal organization of the Company and
are strategic businesses that offer different products and
services. The Wet business consists of tankers transporting
several different refined petroleum products simultaneously in
segregated, coated cargo tanks, while the Dry operations
consists of transportation and handling of bulk cargoes through
ownership, operation, and trading of vessels.
F-34
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
The Company measures segment performance based on net income.
Inter-segment sales and transfers are not significant and have
been eliminated and are not included in the following tables.
Summarized financial information concerning each of the
Companys reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wet
|
|
|
Dry
|
|
|
Total
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 14,
|
|
|
|
January 1,
|
|
|
October 14,
|
|
|
|
January 1,
|
|
|
October 14,
|
|
|
|
January 1,
|
|
|
|
to
|
|
|
|
to
|
|
|
to
|
|
|
|
to
|
|
|
to
|
|
|
|
to
|
|
|
|
December 31,
|
|
|
|
October 13,
|
|
|
December 31,
|
|
|
|
October 13,
|
|
|
December 31,
|
|
|
|
October 13,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2009
|
|
|
|
Restated
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
Operating revenue
|
|
$
|
9,201
|
|
|
|
$
|
33,564
|
|
|
$
|
4,895
|
|
|
|
$
|
|
|
|
$
|
14,096
|
|
|
|
$
|
33,564
|
|
Commissions
|
|
|
(292
|
)
|
|
|
|
(769
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
(769
|
)
|
Voyage expenses
|
|
|
(4,548
|
)
|
|
|
|
(8,574
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
(4,634
|
)
|
|
|
|
(8,574
|
)
|
Vessel operating expenses
|
|
|
(4,694
|
)
|
|
|
|
(22,681
|
)
|
|
|
(1,836
|
)
|
|
|
|
|
|
|
|
(6,530
|
)
|
|
|
|
(22,681
|
)
|
General & administrative expenses
|
|
|
(1,766
|
)
|
|
|
|
(4,553
|
)
|
|
|
(540
|
)
|
|
|
|
|
|
|
|
(2,306
|
)
|
|
|
|
(4,553
|
)
|
Management fees
|
|
|
(194
|
)
|
|
|
|
(900
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
(315
|
)
|
|
|
|
(900
|
)
|
Other income, net
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating (loss) / income before depreciation and
amortisation
|
|
|
(2,293
|
)
|
|
|
|
(3,873
|
)
|
|
|
2,197
|
|
|
|
|
|
|
|
|
(96
|
)
|
|
|
|
(3,873
|
)
|
Depreciation and amortization expenses
|
|
|
(2,989
|
)
|
|
|
|
(11,813
|
)
|
|
|
(1,855
|
)
|
|
|
|
|
|
|
|
(4,844
|
)
|
|
|
|
(11,813
|
)
|
Impairment loss
|
|
|
|
|
|
|
|
(68,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating (loss) / income
|
|
|
(5,282
|
)
|
|
|
|
(83,728
|
)
|
|
|
342
|
|
|
|
|
|
|
|
|
(4,940
|
)
|
|
|
|
(83,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs
|
|
|
(6,702
|
)
|
|
|
|
(3,442
|
)
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
|
(8,936
|
)
|
|
|
|
(3,442
|
)
|
Compensation costs
|
|
|
(587
|
)
|
|
|
|
(371
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
(783
|
)
|
|
|
|
(371
|
)
|
Interest and finance expenses, net
|
|
|
(18,372
|
)
|
|
|
|
(10,928
|
)
|
|
|
(5,624
|
)
|
|
|
|
|
|
|
|
(23,996
|
)
|
|
|
|
(10,928
|
)
|
Interest income
|
|
|
177
|
|
|
|
|
9
|
|
|
|
59
|
|
|
|
|
|
|
|
|
236
|
|
|
|
|
9
|
|
Change in fair value of derivatives
|
|
|
1,537
|
|
|
|
|
3,012
|
|
|
|
1,017
|
|
|
|
|
|
|
|
|
2,554
|
|
|
|
|
3,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(29,229
|
)
|
|
|
$
|
(95,448
|
)
|
|
$
|
(6,636
|
)
|
|
|
$
|
|
|
|
$
|
(35,865
|
)
|
|
|
$
|
(95,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
388,824
|
|
|
|
|
|
|
|
$
|
96,497
|
|
|
|
|
|
|
|
$
|
485,321
|
|
|
|
|
|
|
Goodwill
|
|
|
65,768
|
|
|
|
|
|
|
|
|
20,268
|
|
|
|
|
|
|
|
|
86,036
|
|
|
|
|
|
|
Long-lived assets
|
|
|
179,516
|
|
|
|
|
|
|
|
|
73,599
|
|
|
|
|
|
|
|
|
253,115
|
|
|
|
|
|
|
F-35
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
Wet
|
|
|
Dry
|
|
|
Total
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Operating revenue
|
|
$
|
56,519
|
|
|
$
|
|
|
|
$
|
56,519
|
|
Commissions
|
|
|
(689
|
)
|
|
|
|
|
|
|
(689
|
)
|
Voyage expenses
|
|
|
(6,323
|
)
|
|
|
|
|
|
|
(6,323
|
)
|
Vessel operating expenses
|
|
|
(19,798
|
)
|
|
|
|
|
|
|
(19,798
|
)
|
General & administrative expenses
|
|
|
(6,733
|
)
|
|
|
|
|
|
|
(6,733
|
)
|
Management fees
|
|
|
(1,404
|
)
|
|
|
|
|
|
|
(1,404
|
)
|
Other income, net
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income before depreciation and amortisation
|
|
|
21,574
|
|
|
|
|
|
|
|
21,574
|
|
Depreciation and amortization expenses
|
|
|
(15,040
|
)
|
|
|
|
|
|
|
(15,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
6,534
|
|
|
|
|
|
|
|
6,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
(1,083
|
)
|
|
|
|
|
|
|
(1,083
|
)
|
Interest and finance expenses, net
|
|
|
(15,741
|
)
|
|
|
|
|
|
|
(15,741
|
)
|
Interest income
|
|
|
232
|
|
|
|
|
|
|
|
232
|
|
Change in fair value of derivatives
|
|
|
(6,515
|
)
|
|
|
|
|
|
|
(6,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(16,573
|
)
|
|
$
|
|
|
|
$
|
(16,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
317,777
|
|
|
$
|
|
|
|
$
|
317,777
|
|
F-36
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
Wet
|
|
|
Dry
|
|
|
Total
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Operating revenue
|
|
$
|
55,774
|
|
|
$
|
|
|
|
$
|
55,774
|
|
Commissions
|
|
|
(551
|
)
|
|
|
|
|
|
|
(551
|
)
|
Voyage expenses Vessel operating expenses
|
|
|
(2,713
|
)
|
|
|
|
|
|
|
(2,713
|
)
|
Vessel operating expenses
|
|
|
(17,489
|
)
|
|
|
|
|
|
|
(17,489
|
)
|
General & administrative expenses
|
|
|
(4,046
|
)
|
|
|
|
|
|
|
(4,046
|
)
|
Management fees
|
|
|
(1,243
|
)
|
|
|
|
|
|
|
(1,243
|
)
|
Other expenses, net
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income before depreciation and amortization
|
|
|
29,721
|
|
|
|
|
|
|
|
29,721
|
|
Depreciation and amortization expenses
|
|
|
(14,029
|
)
|
|
|
|
|
|
|
(14,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
15,692
|
|
|
|
|
|
|
|
15.692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation costs
|
|
|
(1,232
|
)
|
|
|
|
|
|
|
(1,232
|
)
|
Interest and finance expenses, net
|
|
|
(16,966
|
)
|
|
|
|
|
|
|
(16,966
|
)
|
Interest income
|
|
|
630
|
|
|
|
|
|
|
|
630
|
|
Change in fair value of derivatives
|
|
|
(4,060
|
)
|
|
|
|
|
|
|
(4,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(5,936
|
)
|
|
$
|
|
|
|
$
|
(5,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
425,491
|
|
|
$
|
|
|
|
$
|
425,491
|
|
Operating
Revenue by Charterers
The Company reports financial information and evaluates its
revenues by total charter revenues. Although revenue can be
identified for different types of charters, management does not
identify expenses, profitability or other financial information
for different charters.
During the period January 1 to October 13, 2009, the
Company received 65% of its income from continuing operations
from three charterers (32%, 17%, and 16%, respectively).
During the period October 14 to December 31, 2009, the
Company received 55% of its income from continuing operations
from three charterers (22%, 21%, and 12%, respectively).
During the year ended December 31, 2008, the Company
received 65% of its income from continuing operations from three
charterers (35%, 19% and 11%, respectively).
During the year ended December 31, 2007, the Company
received 94% of its income from continuing operations from four
charterers (36%, 25%, 19% and 14%, respectively).
|
|
17.
|
FINANCIAL
INSTRUMENTS
|
The principal financial assets of the Company consist of cash
and cash equivalents, trade receivables and other assets. The
principal financial liabilities of the Company consist of
long-term bank loans, the 7% Notes and accounts payable.
F-37
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Fair
Values
The carrying amounts of the following financial instruments
approximate their fair values; cash and cash equivalents and
restricted cash accounts, trade and other receivables, due from
managing agent, due to related parties, derivative financial
instruments, 7% Notes and trade and other payables. The
fair values of long-term loans approximate the recorded values,
generally, due to their variable interest rates.
Warrant
Derivative Liability
The Company records the warrant derivative liability at fair
value, in the consolidated balance sheets under Derivative
financial instruments, with changes in fair value recorded
in Change in fair value of derivatives in the
consolidated statements of income.
For advisory services provided in connection with the
recapitalization, the Company authorized the issuance to a third
party, a six-year warrant to purchase 416,667 common shares that
resulted in $3,940 of general and administration expense
recorded in the statement of operations.
In connection with the issuance of the 7% Notes, the
Company issued to the Investment Bank of Greece warrants to
purchase up to 416,667 common shares at an exercise price
of $24.00 per share, which resulted in $3,940 of debt issuance
cost that were recorded as deferred issuance cost.
For the period from October 14, 2009 to December 31,
2009, the total fair value change on warrants amounted to
approximately $2,636 ($0 for the period ended January 1,
2009 to October 13, 2009 and $0 for the year ended
December 31, 2008).
Interest Rate Risk: Interest rate risk arises
on bank borrowings. The Company monitors the interest rate on
borrowings closely to ensure that the borrowings are maintained
at favorable rates. The interest rates relating to the long-term
loans are disclosed in note 11, Long-term Debt.
Concentration
of Credit Risk
The Company believes that no significant credit risk exists with
respect to the Companys cash due to the spread of this
risk among various different banks and the high credit status of
these counter-parties. The Company is also exposed to credit
risk in the event of non-performance by counter-parties to
derivative instruments. However, the Company limits this
exposure by entering into transactions with counter-parties that
have high credit ratings. Credit risk with respect to trade
accounts receivable is reduced by the Company by chartering its
vessels to established international charterers.
Interest
Rate Swaps
Outstanding swap agreements involve both the risk of a
counter-party not performing under the terms of the contract and
the risk associated with changes in market value. The Company
monitors its positions, the credit ratings of counter-parties
and the level of contracts it enters into with any one party.
The counter-parties to these contracts are major financial
institutions. The Company has a policy of entering into
contracts with counter-parties that meet stringent
qualifications and, given the high level of credit quality of
its derivative counter parties, the Company does not believe it
is necessary to obtain collateral arrangements.
The Company has entered into various interest rate swap
agreements in order to hedge the interest expense arising from
the Companys long-term borrowings detailed in
note 11. The interest rate swaps allow the Company to raise
long-term borrowings at floating rates and swap them into
effectively fixed rates. Under the interest rate swaps, the
Company agrees with the counter-party to exchange, at specified
intervals, the
F-38
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
difference between a fixed rate and floating rate interest
amount calculated by reference to the agreed notional amount.
The details of the Companys swap agreements are as follows:
Counter-party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of
|
|
|
|
Value
|
|
|
Termination
|
|
|
Notional
|
|
|
Fixed
|
|
|
Floating
|
|
December 31,
|
|
|
|
December 31,
|
|
Interest rate swaps
|
|
Date
|
|
|
Date
|
|
|
Amount
|
|
|
Rate
|
|
|
Rate
|
|
2009
|
|
|
|
2008
|
|
SMBC Bank
|
|
|
3/7/2006
|
|
|
|
4/4/2011
|
|
|
$
|
20,000
|
|
|
|
5.63
|
%
|
|
3-month
LIBOR
|
|
$
|
(1,475
|
)
|
|
|
$
|
(1,918
|
)
|
Bank of Ireland
|
|
|
3/7/2006
|
|
|
|
4/4/2011
|
|
|
$
|
20,000
|
|
|
|
5.63
|
%
|
|
3-month
LIBOR
|
|
|
(1,484
|
)
|
|
|
|
(1,925
|
)
|
HSH Nordbank
|
|
|
3/7/2006
|
|
|
|
4/4/2011
|
|
|
$
|
20,000
|
|
|
|
5.63
|
%
|
|
3-month
LIBOR
|
|
|
(1,483
|
)
|
|
|
|
(1,924
|
)
|
Nordea Bank
|
|
|
3/7/2006
|
|
|
|
4/4/2011
|
|
|
$
|
20,000
|
|
|
|
5.63
|
%
|
|
3-month
LIBOR
|
|
|
(1,481
|
)
|
|
|
|
(1,923
|
)
|
Bank of Scotland
|
|
|
3/7/2006
|
|
|
|
4/4/2011
|
|
|
$
|
20,000
|
|
|
|
5.63
|
%
|
|
3-month
LIBOR
|
|
|
(1,481
|
)
|
|
|
|
(1,941
|
)
|
Nordea Bank*
|
|
|
3/4/2008
|
|
|
|
4/4/2011
|
|
|
$
|
23,333
|
|
|
|
4.14
|
%
|
|
3-month
LIBOR
|
|
|
(1,195
|
)
|
|
|
|
(1,356
|
)
|
Bank of Scotland**
|
|
|
3/4/2008
|
|
|
|
3/4/2011
|
|
|
$
|
46,667
|
|
|
|
4.285
|
%
|
|
3-month
LIBOR
|
|
|
(1,249
|
)
|
|
|
|
(1,464
|
)
|
Marfin Egnatia Bank***
|
|
|
2/9/2009
|
|
|
|
2/9/2014
|
|
|
$
|
37,400
|
|
|
|
4.08
|
%
|
|
3-month
LIBOR
|
|
|
(1,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11,774
|
)
|
|
|
$
|
(12,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
As of
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2008
|
|
Short-term
|
|
$
|
(9,687
|
)
|
|
|
$
|
(12,451
|
)
|
Long-term
|
|
|
(2,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11,774
|
)
|
|
|
$
|
(12,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Synthetic swap including interest
rate cap detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counter-party
|
|
Value Date
|
|
Termination Date
|
|
Notional Amount
|
|
Cap
|
|
Nordea
|
|
|
03/04/08
|
|
|
|
04/04/11
|
|
|
$
|
23,333
|
|
|
|
4.14
|
%
|
|
|
|
**
|
|
Synthetic swap including interest
rate floor detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counter-party
|
|
Value Date
|
|
Termination Date
|
|
Notional Amount
|
|
Floor
|
|
Bank of Scotland
|
|
|
03/04/08
|
|
|
|
03/04/11
|
|
|
$
|
23,333
|
|
|
|
4.285
|
%
|
|
|
|
***
|
|
As part of the contribution from
Grandunion on October 13, 2009, the Company assumed a
$37,400 interest rate swap by Marfin Egnatia Bank.
|
The total fair value change of the interest rate swaps indicated
above is shown in the consolidated statements of operations.
These amounts were a gain of $3,012 and $2,554 for the periods
ended January 1, 2009 to October 13, 2009 and
October 14, 2009 to December 31, 2009, respectively.
For the years ended
F-39
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
December 31, 2008 and 2007 the amounts were a loss of
$6,515 and $4,060, respectively. The related asset or liability
is shown under derivative financial instruments in the balance
sheet.
Fair
Value Hierarchy
Effective January 1, 2008, the Company adopted fair value
measurement. The definition of fair value, prescribes methods
for measuring fair value, establishes a fair value hierarchy
based on the inputs used to measure fair value and expands
disclosures about the use of fair value measurements.
The following tables present the Companys assets and
liabilities that are measured at fair value on a recurring basis
and are categorized using the fair value hierarchy. The fair
value hierarchy has three levels based on the reliability of the
inputs used to determine fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel Valuations
|
|
$
|
39,500
|
|
|
$
|
|
|
|
$
|
39,500
|
|
|
$
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
12,451
|
|
|
$
|
|
|
|
$
|
12,451
|
|
|
$
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
11,774
|
|
|
$
|
|
|
|
$
|
11,774
|
|
|
$
|
|
|
Warrants
|
|
$
|
5,273
|
|
|
$
|
|
|
|
$
|
5,273
|
|
|
$
|
|
|
Make Whole Fundamental Change
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
47
|
|
|
$
|
|
|
The Companys derivative instruments are valued using
pricing models and the Company generally uses similar models to
value similar instruments. Where possible, the Company verifies
the values produced by its pricing models to market prices.
Valuation models require a variety of inputs, including
contractual terms, market prices, yield curves, credit spreads,
measures of volatility, and correlations of such inputs. The
Companys derivatives trade in liquid markets, and as such,
model inputs can generally be verified and do not involve
significant management judgment. Such instruments are typically
classified within Level 2 of the fair value hierarchy.
The Companys assessment included its evaluation of the
estimated fair market values for each vessel obtained by
third-party valuations for which management assumes
responsibility for all assumptions and judgements used, compared
to the carrying value. Where possible, third party valuations
consider a number of factors that include a combination of last
completed sales, present market candidates, buyers ideas and
sellers ideas of similar vessels and other information they may
possess. Based on this, third-party valuations make a
professional assessment of what the vessel is worth at a given
time assuming the vessels are in good working order and
condition in hull and machinery to be expected of vessels of
their age, size and type, that the vessels class is fully
maintained and free from all conditions and in sound seagoing
condition, and that the vessel is undamaged, fully equipped,
freely transferable and charter free. Such instruments are
typically classified within Level 2 of the fair value
hierarchy.
F-40
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
18.
|
CHANGES
IN ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
October 14,
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
2009 to
|
|
|
|
2009 to
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
October 13,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
(Increase) decrease in :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
(783
|
)
|
|
|
$
|
(1,480
|
)
|
|
$
|
(1,332
|
)
|
|
$
|
(259
|
)
|
Other receivables
|
|
|
89
|
|
|
|
|
1,704
|
|
|
|
(1,256
|
)
|
|
|
(861
|
)
|
Inventories
|
|
|
(110
|
)
|
|
|
|
(1,489
|
)
|
|
|
745
|
|
|
|
(473
|
)
|
Prepaid expenses
|
|
|
20
|
|
|
|
|
(135
|
)
|
|
|
714
|
|
|
|
(1,343
|
)
|
Due from managing agent
|
|
|
455
|
|
|
|
|
1,759
|
|
|
|
654
|
|
|
|
(370
|
)
|
Due from/to related parties
|
|
|
|
|
|
|
|
49
|
|
|
|
(643
|
)
|
|
|
3,089
|
|
Increase (decrease) in :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
|
991
|
|
|
|
|
6,546
|
|
|
|
(4,822
|
)
|
|
|
(3,405
|
)
|
Accrued liabilities
|
|
|
4,571
|
|
|
|
|
2,206
|
|
|
|
2,479
|
|
|
|
(1,992
|
)
|
Deferred income
|
|
|
(1,573
|
)
|
|
|
|
(1,134
|
)
|
|
|
(484
|
)
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Assets and Liabilities
|
|
$
|
3,660
|
|
|
|
$
|
8,026
|
|
|
$
|
(3,945
|
)
|
|
$
|
(5,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
1. The Company has entered into two office rental
agreements with a related party, Domina Petridou O.E., a company
with common shareholders, (see note 21) each at a
monthly rental of 4 plus stamp duties, with duration until
November 2015 and September 2016, respectively. One of these
agreements has been terminated during 2009. The other rental
agreement was terminated in 2010, of which three monthly rentals
were committed.
2. The Company has entered into an office rental agreement
with a related party, Terra Stabile A.E., a shareholder of which
is Michail Zolotas, our Chief Executive Officer and member of
our board of directors, (see note 21) at a monthly
rental of approximately 6 plus stamp duties, with duration
until November 2021.
The committed rent payments for Terra Stabile A.E. as of
December 31, 2009 are:
|
|
|
|
|
Successor
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
2010
|
|
$
|
110
|
|
2011
|
|
|
110
|
|
2012
|
|
|
110
|
|
2013
|
|
|
110
|
|
2014 and thereafter
|
|
|
873
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,313
|
|
|
|
|
|
|
F-41
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
(ii)
|
Management
agreements
|
Technical
Ship Management Agreements
At December 31, 2009, five vessel-owning subsidiaries of
the Company had technical ship management agreements with
International Tanker Management Limited (ITM) based
in Dubai. ITM and the vessel-owning companies of the High Land,
the High Rider and the Ostria have entered into annual
management agreements with ITM, which are cancellable by either
party with two-months notice. The agreed annual management fees
were $817, $743 and $480 for 2009, 2008 and 2007, respectively.
ITM provided technical ship management for the Newlead Avra
(formerly Altius) and the Newlead Fortune (formerly Fortius) at
December 31, 2009, but since February and March 2010,
respectively, the ships names have changed and technical ship
management for such vessels has been provided by Newlead
Shipping S.A., a related party with common shareholders. The
Chinook has a technical ship management agreement with Ernst
Jacob Ship Management GmbH (Ernst Jacob). The agreed
annual management fee for 2009, 2008 and 2007 was approximately
150, 142 and 138, respectively. At
December 31, 2009, the Australia, and the China and Brazil
each had a technical ship management agreement with Stamford
Navigation Inc. (Stamford) (as to the Australia) and
with Newfront Shipping S.A. (Newfront) (as to
the China and Brazil). The agreed annual management fee for 2009
was $140 for each vessel. These agreements were terminated, and
since March 1, 2010, Newlead Bulkers S.A. (Newlead
Bulkers), a related party with common shareholders, has
provided technical ship management for the Australia, China and
Brazil. There was no technical ship management agreement with
Stamford in 2008 and 2007.
Commercial
Ship Management Agreements
Magnus Carriers, a company owned by two of the Companys
former officers and directors, provided the ship-owning
companies of the Newlead Avra (formerly Altius), the Newlead
Fortune (formerly Fortius), the High Land, the High Rider, the
Ostria and the Chinook with non-exclusive commercial management
services through commercial management agreements entered into
in October 2007. These agreements were cancelled by the Company
effective May 1, 2009. See note 21 for the terms of
the agreements. At December 31, 2009, the commercial
management services for all the Companys product tankers
and dry bulk vessels are provided in-house. These agreements may
be terminated by either party with two-months notice.
Contingencies
The Company is involved in various disputes and arbitration
proceedings arising in the ordinary course of business.
Provisions have been recognized in the financial statements for
all such proceedings where the Company believes that a liability
may be probable, and for which the amounts are reasonably
estimable, based upon facts known at the date the financial
statements were prepared. For the year ended December 31,
2009 the Company has provided in respect of all claims an amount
equal to approximately $4,100. Other than those listed below,
there are no material legal proceedings to which the Company is
a party other than routine litigation incidental to the
Companys business:
|
|
|
|
|
The charterers of the Newlead Avra (formerly Altius) notified
the Company in October 2008 of their intention to pursue the
following claims and notified the appointment of an arbitrator
in relation to them:
|
|
|
|
|
a)
|
Damages suffered by
sub-charterers
of the vessel in respect of remaining on board cargo at New York
in September 2007;
|
|
|
b)
|
Damages suffered by
sub-charterers
of the vessel as a result of a change in management and the
consequent dispute regarding oil major approval from October
2007; and
|
F-42
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
|
|
|
c)
|
Damages suffered by
sub-charterers
of the vessel resulting from a grounding at Houston in October
2007.
|
|
|
|
|
|
The charterers of the Newlead Fortune (formerly Fortius)
notified the Company in October 2008 of their intention to
pursue the following claims, and notified the appointment of an
arbitrator in relation to them:
|
|
|
|
|
a)
|
Damages as a result of a change in management and the consequent
dispute regarding oil major approval from October 2007; and
|
|
|
b)
|
Damages resulting from the creation of Hydrogen Sulphide in the
vessels tanks at two ports in the United States.
|
All prior years contingencies were resolved in a settlement of
approximately $800, which was agreed to in March 2009, with ST
Shipping, the charterers of the Arius, against an initial claim
of approximately $1,300 arising under the charter party. The
settlement amount had been accrued in the consolidated financial
statements for the year ended December 31, 2008, and is
included in the vessel operating expenses.
The Company accrues for the cost of environmental liabilities
when management becomes aware that a liability is probable and
is able to reasonably estimate the probable exposure. Currently,
management is not aware of any such claims or contingent
liabilities, which should be disclosed, or for which a provision
should be established in the accompanying consolidated financial
statements. The Companys protection and indemnity
(P&I) insurance coverage for pollution is $1,000,000 per
vessel per incident.
The Company is not subject to tax on international shipping
income in its respective jurisdictions of incorporation or in
the jurisdictions in which their respective vessels are
registered. However, the vessel-owning companies vessels
are subject to tonnage taxes, which have been included in the
vessel operating expenses in the accompanying statements of
income.
Pursuant to the U.S. Internal Revenue Code (the
Code),
U.S.-source
income from the international operation of vessels is generally
exempt from U.S. tax if the company operating the vessels
meets certain requirements. Among other things, in order to
qualify for this exemption, the company operating the vessels
must be incorporated in a country which grants an equivalent
exemption from income taxes to U.S. corporations.
All of the Companys ship-operating subsidiaries satisfy
these initial criteria. In addition, these companies must be
more than 50% owned by individuals who are residents, as
defined, in the countries of incorporation or another foreign
country that grants an equivalent exemption to
U.S. corporations. These companies also currently satisfy
the more than 50% beneficial ownership requirement. In addition,
should the beneficial ownership requirement not be met, the
management of the Company believes that by virtue of a special
rule applicable to situations where the ship operating companies
are beneficially owned by a publicly traded company like the
Company, the more than 50% beneficial ownership requirement can
also be satisfied base d on the trading volume and the
anticipated widely-held ownership of the Companys shares,
but no assurance can be given that this will remain so in the
future, since continued compliance with this rule is subject to
factors outside of the Companys control.
F-43
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
|
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21.
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Transactions
Involving Related Parties
|
Management
services and commissions
Magnus Carriers Corporation, a related party, is a company that
provided commercial management services to certain Company
vessel-owning companies at a commission of 1.25% of hires and
freights earned by the vessels or fees of $7 per month per
vessel where no 1.25% commission was payable. In addition,
Magnus Carriers was entitled commission of 1% on the sale or
purchase price in connection with a vessel sale or purchase.
Until November 2008, Magnus Carriers also provided technical
management services for certain vessel-owning companies. These
agreements were cancelled by the Company on May 1, 2009.
The Company paid to Magnus Carriers commissions and fees in
respect of the commercial, technical management services, as
well as commission on the sale of vessels, this amounted to
approximately $400 for the period January 1, 2009 to
October 13, 2009 and $0 for the period October 14,
2009 to December 31, 2009 (2008: approximately $1,700,
2007: approximately $2,200) (figures include continuing and
discontinued operations).
Contributions
under management agreements
During the year ended December 31, 2009 the Company
received $0 (2008: approximately $1,400, 2007:
approximately $6,100) from Magnus Carriers under the
ship-management cost-sharing agreements for vessel operating
expenses as terminated. The Company also received during the
year ended December 31, 2009 an amount of $0 (2008:
approximately $600, 2007: approximately $1,400) for special
survey and dry-docking amortization (figures include continuing
and discontinued operations).
Crewing
Part of the crewing for the Company was undertaken by Magnus
Carriers, until May 2008, through a related entity, Poseidon
Marine Agency. Manning fees paid in 2009 amounted to $0 (2008:
approximately $10, 2007: approximately $100) (figures include
continuing and discontinued operations).
Rental of
equipment
The vessel owning companies of MSC Oslo and Saronikos Bridge
entered into an agreement with Magnus Carriers each for the rent
of a deck generator for its vessel. These agreements were
terminated in 2008 and the vessel-owning companies purchased the
deck generators from Magnus Carriers. Total fees paid to Magnus
Carriers in 2009 amounted to $0 (2008: approximately $270, 2007:
approximately $220) (figures include continuing and discontinued
operations).
SeaBreeze
As part of attaining revenue (commissions) for the
Companys vessels, the Company contracted with a related
entity, Sea Breeze Ltd., of which one of the former
Companys directors is a shareholder. Commissions paid in
2009 amounted to approximately $130 (2008: $0, 2007: $0)
(figures include continuing and discontinued operations).
Newfront
Stamford
The vessels Australia, China and Brazil had technical ship
management and commercial management agreements with Stamford
(as to the Australia), and Newfront (as to the China and the
Brazil). The agreed annual management fee for 2009 is $140 for
technical and $24 for commercial management for each vessel.
F-44
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
Total amount paid from October 14, 2009 to
December 31, 2009 amounted to $40 for each vessel. These
management agreements have a common beneficiary, which is a
related party. Since March 1, 2010, Newlead Bunkers, a
related party with common shareholders, has provided technical
ship management for the Australia, China and Brazil. There was
no technical ship management agreement with Stanford or Newfront
in 2008 or 2007. See the table listed in Amounts due (to)/ from
managing agents.
Terra
Stabile A.E.
The Company leases space in Piraeus, Greece from Terra Stabile
A.E., a shareholder of which is Michail Zolotas, the
Companys Chief Executive Officer and member of the
Companys Board of Directors. In November 2009, the Company
entered into a
12-year
lease agreement with the landowner (see note 19). Total
rent paid from January 1, 2009 to October 13, 2009 was
$0, and from October 14, 2009 to December 31, 2009 was
approximately $11.
Domina
Petridou O.E.
The Company lease office space in Glyfada, Greece from Domina
Petridou O.E., a company of which one of the former
Companys directors is a shareholder. In November 2005, the
Company entered into a
10-year
lease agreement with the landowner. In October 2007, the Company
entered into an additional nine-year lease agreement with the
landowner. These agreements have been terminated in 2009 and
2010 respectively (see note 19). Rent paid in 2009 amounted
to approximately $140 (2008: approximately $150, 2007:
approximately $80).
Amounts
paid to other related parties
During the year ended December 31, 2008, the Company paid a
commission on the sale of the Arius of approximately $200 to a
brokerage firm, of which one of the former Companys
directors is a shareholder.
Amounts
due (to)/ from managing agent
Amounts due (to)/ from managing agent are as follows:
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|
|
|
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|
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Successor
|
|
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Predecessor
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
International Tanker Management
|
|
$
|
(1,812
|
)
|
|
$
|
27
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|
Wilhelmsen Ship Management
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|
|
8
|
|
|
|
407
|
|
Newfront Shipping S.A.
|
|
|
40
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|
|
|
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|
Stamford Navigation Inc
|
|
|
(234
|
)
|
|
|
|
|
Ernst Jacob Ship Management GmbH
|
|
|
(56
|
)
|
|
|
(274
|
)
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|
|
|
|
|
|
|
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Total
|
|
$
|
(2,054
|
)
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
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22.
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DISCONTINUED
OPERATIONS
|
From 2005 up to December 31, 2009, the Company owned a
number of container vessels, chartering them to its customers
(the Container Market). During 2008 and the first
half of 2009, the Company sold three container vessels and a
product tanker to unaffiliated purchasers for approximately
$61,900, and during the second half of 2009, the Company had
available for sale its remaining two (2) container vessels
in its fleet to unaffiliated purchasers, for aggregate
consideration of approximately $12,800. The Company determined
that the vessels met the requirements of assets held for sale
and also the requirements as discontinued operations which are
reflected in the Companys consolidated statements of
income for all periods presented.
F-45
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
The following table represents the revenues and net income from
discontinued operations:
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Successor
|
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Predecessor
|
|
|
|
|
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October 14,
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January 1,
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|
Predecessor
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Predecessor
|
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2009 to
|
|
2009 to
|
|
Year Ended
|
|
Year Ended
|
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December 31,
|
|
October 13,
|
|
December 31,
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|
December 31,
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|
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2009
|
|
2009
|
|
2008
|
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2007
|
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Operating Revenues
|
|
$
|
1,591
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|
|
$
|
11,679
|
|
|
$
|
22,777
|
|
|
$
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37,364
|
|
Net loss
|
|
$
|
(2,007
|
)
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|
$
|
(30,316
|
)
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|
$
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(23,255
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)
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|
$
|
(2,797
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)
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The reclassification to discontinued operations had no effect on
the Companys previously reported consolidated net income.
In addition, to the financial statements themselves, certain
disclosures have been modified to reflect the effects of these
reclassifications on those disclosures.
a) On January 1, 2010, the Board of Directors made an
annual restricted share grant in an aggregate amount of 6,668
restricted common shares to the independent directors of the
Board of Directors. These restricted common shares vest 100% on
the first anniversary date of the grant.
b) In January 2010, the Company sold the MSC Seine and the
Saronikos Bridge for an aggregate purchase price resulting in
gross proceeds to the Company of approximately $12,800, paid in
cash. The Saronikos Bridge was delivered to her new owners on
January 7, 2010 and the MSC Seine was delivered on
January 20, 2010 (See note 2 caption assets held for
sale and note 7).
c) In February 2010, the Company signed a Stock Purchase
Agreement providing for the purchase of two geared, 80,000 dwt
Kamsarmaxes from COSCO Dalian Shipyard Co. Ltd. The vessels are
expected to be delivered in the fourth quarter of 2010 and 2011,
respectively. The aggregate purchase price of these vessels was
approximately $112,700. The charter attached for the first
vessel is for a five-year initial term at a net daily rate of
approximately $29, with an option to extend for an additional
two years. The charter for the second vessel is for a seven-year
term at a net daily rate of approximately $27.
Gabriel Petrides, a former Board member and an affiliate of
Rocket Marine, one of our principal stockholders, is a principal
of the seller of the two Kamsarmax vessels and is a principal of
the purchaser of the Chinook. The vote on Rocket Marines
shares is controlled by Grandunion pursuant to a voting
agreement, and Mr. Petrides left our board in October 2009.
Accordingly, even though Rocket Marine is a principal
stockholder, neither it nor Mr. Petrides has the ability to
influence us. We believe that the negotiations were conducted at
arms length and that the sale price represents is no less
favorable than would have been achieved through arms
length negotiations with a wholly-unaffiliated third party.
In relation to the above transaction, the Company has also
signed a Memorandum of Agreement for the sale of the product
tanker Chinook for approximately $8,500.
Once closed, the approximately $112,700 purchase price for the
two Kamsarmaxes will be paid by approximately $80,000 of debt
financing, cash and cash equivalents as well as the
consideration for the sale of the Chinook to be delivered
against the purchase price.
d) On February 26, 2009, the Company entered into a
five-month time charter beginning February 6, 2010 through
July 1, 2010 for the 1992-built, 41,450 dwt product tanker
High Land at a net of commission rate of approximately $8 per
day.
e) On July 27, 2010, NewLead announced that a
1-for-12
reverse split of its common shares had been approved by the
Companys Board of Directors and by written consent of a
majority of shareholders effective
F-46
NEWLEAD
HOLDINGS LTD.
Notes to
the Consolidated Financial Statements
(All amounts
expressed in thousands of U.S. dollars or Euro, as indicated,
except share data and where otherwise specified)
upon the opening markets on August 3, 2010. The reverse
share split consolidated every 12 common shares into one common
share, with par value of $0.01 per share.
As a result of the reverse share split, the number of common
shares outstanding had been reduced from 79,373,821 to
6,614,486 shares as of December 31, 2009 and from
28,961,877 to 2,413,490 as of December 31, 2008, which
takes into account rounding up of all fractional shares to the
nearest whole share. The number of authorized common shares and
preferred shares of NewLead were not affected by the reverse
share split.
The Consolidated Balance Sheets, the Consolidated Statements of
Operations (loss per share and weighted average number of
shares), the Consolidated Statements of Shareholders
Equity and Notes 1, 4, 12, 14, 15 and 17 have all been
adjusted retrospectively to reflect the 1:12 reverse share split
for all periods presented. The common shares, as well as the
conversion and exercise prices, underlying share option plans,
convertible notes and warrants have also been adjusted for all
periods presented.
F-47