Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
please check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to
use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Industry Specific Risk Factors
Risks Incident to Our Nascent Operation in the Tanker Vessel Sector
The tanker vessel industry is cyclical and volatile, which may lead to reductions and volatility in the charter rates we
are able to obtain, in vessel values, and in our earnings and available cash flow.
The tanker industry is both cyclical and volatile in terms of charter rates and profitability. For example, during the ten year period from
2011 through 2020, time charter equivalent, or TCE, spot rates for an Aframax tanker trading between Curacao and Texas City fluctuated between $6,620 to $59,490 per day. Periodic adjustments to the supply of and demand for oil tankers cause the
industry to be cyclical in nature. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short- and medium-term liquidity. A worsening of the current global economic conditions may
adversely affect our ability to charter or re-charter our vessels or to sell them on the expiration or termination of their charters, or any renewal or replacement charters that we enter into may not be sufficient to allow us to operate our vessels
profitably. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. The carrying values of our vessels may not represent their fair
market values or the amount that could be obtained by selling the vessels at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings.
The factors affecting the supply and demand for tanker vessels are outside of our control, and the nature, timing, and degree of changes in
industry conditions are unpredictable.
The factors that influence demand for tanker vessel capacity include:
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supply and demand for energy resources and oil and petroleum products;
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competition from, and supply and demand for, alternative sources of energy;
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regional availability of refining capacity and inventories;
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global and regional economic and political conditions and developments, including armed conflicts, terrorist activities, trade wars, tariffs embargoes, and strikes;
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currency exchange rates;
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changes in seaborne and other transportation patterns, including shifts in transportation demand between crude oil and refined oil products and the distance they are transported by sea and
changes in the price of crude oil and changes to the West Texas Intermediate and Brent Crude Oil pricing benchmarks, and changes in trade patterns;
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changes in governmental or maritime self-regulatory organizations' rules and regulations or actions taken by regulatory authorities;
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environmental and other legal and regulatory developments;
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government subsidies of shipbuilding;
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construction or expansion of new or existing pipelines or railways;
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weather and natural disasters;
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economic slowdowns caused by public health events such as the ongoing COVID-19 pandemic;
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developments in international trade, including those relating to the imposition of tariffs;
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changes in the production levels of crude oil (including in particular production by the Organization of Petroleum Exporting Countries, or OPEC, the United States, and other key producers); and
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international sanctions, embargoes, import and export restrictions, nationalizations, and wars.
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The factors that influence the supply of tanker vessel capacity include:
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demand for alternative sources of energy;
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the number of newbuilding orders and deliveries;
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the number of shipyards and availability of shipyards to deliver vessels;
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the recycling of older vessels, depending, amongst other things, on recycling rates and international recycling regulations;
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conversion of tanker vessels to other uses;
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the number of vessels that are out of service, namely those that are laid up, dry-docked, awaiting repairs, or otherwise not available for hire;
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availability of financing for new vessels;
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changes in national or international regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnages;
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changes in environmental and other regulations that may limit the useful lives of vessels;
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port or canal congestion and weather delays; and
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sanctions (in particular, sanctions on Iran and Venezuela, amongst others).
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Declines in crude oil and natural gas prices for an extended period of time, or market expectations of potential decreases in these prices,
could negatively affect our future growth in the tanker vessel sector. Sustained periods of low oil and natural gas prices typically result in reduced exploration and extraction because oil and natural gas companies' capital expenditure budgets are
subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a material effect on demand for our services, and periods of low demand can cause excess vessel supply and
intensify the competition in the industry, which often results in vessels, particularly older and less technologically-advanced vessels, being idle for long periods of time. We cannot predict the future level of demand for our services or future
conditions of the oil and natural gas industry. Any decrease in exploration, development, or production expenditures by oil and natural gas companies could reduce our revenues and materially harm our business, results of operations, and cash available
for distribution.
An over-supply of tanker capacity may lead to a reduction in charter rates, vessel values, and profitability.
The market supply of tanker vessels is affected by a number of factors, such as supply and demand for energy resources, including oil and
petroleum products, supply and demand for seaborne transportation of such energy resources, the current and expected price for newbuildings, and the number of vessels being recycled for scrap steel. If the capacity of new tanker vessels delivered
exceeds the capacity of tanker vessels being recycled for scrap steel or converted to non-trading tanker vessels, tanker vessel capacity will increase. If the supply of tanker vessel capacity increases and if the demand for tanker vessel capacity
decreases or does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our tanker vessels may have a material adverse effect on our results of operations and earnings and available cash,
and our ability to comply with the covenants in our loan agreements.
Our results of operations are subject to seasonal fluctuations, which may adversely affect our financial condition.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, charter rates. Peaks in
tanker vessel demand quite often precede seasonal oil consumption peaks, as refiners and suppliers anticipate consumer demand. Seasonal peaks in oil demand can broadly be classified into two main categories: (1) increased demand prior to Northern
Hemisphere winters as heating oil consumption increases and (2) increased demand for gasoline prior to the summer driving season in the United States. Unpredictable weather patterns and variations in oil reserves disrupt tanker scheduling. This
seasonality may result in quarter-to-quarter volatility in our operating results, as many of our vessels trade in the spot market. Seasonal variations in tanker vessel demand will affect any spot market-related rates that we may receive.
The current state of the global financial markets and current economic conditions may adversely impact our results of
operation, financial condition, cash flows, and ability to obtain financing or refinance our existing and future credit facilities on acceptable terms, which may negatively impact our business.
Global financial markets and economic conditions have been, and continue to be, volatile. Beginning in February 2020, due in part to fears
associated with the spread of COVID-19 (as more fully described below), global financial markets experienced volatility and a steep and abrupt downturn followed by a recovery, which volatility may continue as the COVID-19 pandemic continues. Credit
markets and the debt and equity capital markets have been distressed, and the uncertainty surrounding the future of the global credit markets has resulted in reduced access to credit worldwide, particularly for the shipping industry. These issues,
along with significant write-offs in the financial services sector, the re-pricing of credit risk, and the uncertain economic conditions, have made, and may continue to make, it difficult to obtain additional financing. The current state of global
financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices that will not be dilutive to our existing shareholders or preclude us from issuing equity at all. Economic conditions may also
adversely affect the market price of our common shares.
Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the
availability and cost of obtaining money from the public and private equity and debt markets has become more difficult. Many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms
similar to current debt, and reduced, and in some cases ceased, to provide funding to borrowers and other market participants, including equity and debt investors, and some have been unwilling to invest on attractive terms or even at all. Due to these
factors, we cannot be certain that financing will be available if needed and to the extent required or that we will be able to refinance our existing and future credit facilities on acceptable terms or at all. If financing or refinancing is not
available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, or we may be unable to enhance our existing business, complete additional vessel acquisitions, or otherwise take advantage of
business opportunities as they arise.
Credit markets in the United States and Europe have in the past experienced significant contraction, de-leveraging, and reduced liquidity,
and there is a risk that the U.S. federal government and state governments, and European authorities continue to implement a broad variety of governmental action and/or new regulation of the financial markets. Global financial markets and economic
conditions have been, and continue to be, disrupted and volatile. 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 may adversely affect our business or impair our ability to borrow amounts under our credit facilities or any future financial arrangements. In the absence of available financing, we also may be unable to take advantage of business
opportunities or respond to competitive pressures.
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. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors may have a material adverse effect on our results of operations and
financial condition and may cause the price of our common shares to decline.
If economic conditions throughout the world continue to deteriorate or become more volatile, it could impede our
operations.
The world economy faces a number of challenges, including the effects of volatile oil prices, trade tensions between the United States and
China and between the United States and the European Union, continuing turmoil and hostilities in the Middle East, the Korean Peninsula, North Africa, Venezuela, Iran and other geographic areas and countries, continuing threat of terrorist attacks
around the world, continuing instability and conflicts and other recent occurrences in the Middle East and in other geographic areas and countries, continuing economic weakness in the European Union, or the EU, and stabilizing growth in China, as well
as significant public health concerns such as the COVID-19 pandemic. If U.S. and world economic conditions weaken, the demand for energy, including crude oil and natural gas, may be negatively affected. There has historically been a strong link between
the development of the world economy and demand for energy, including crude oil and natural gas.
Our ability to secure funding is dependent on well-functioning capital markets and on an appetite to provide funding to the shipping
industry. If global economic conditions worsen or lenders for any reason decide not to provide debt financing to us, we may, among other things, not be able to secure additional financing to the extent required, on acceptable terms or at all. If
additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, or we may be unable to enhance our existing business, complete additional vessel acquisitions or
otherwise take advantage of business opportunities as they arise.
In Europe, large sovereign debts and fiscal deficits, low growth prospects, and high unemployment rates in a number of countries have
contributed to the rise of Eurosceptic parties, which would like their countries to leave the Euro. The exit of the United Kingdom, or the U.K., from the European Union, or the EU, as described more fully below, and potential new trade policies in the
United States further increase the risk of additional trade protectionism.
In China, a transformation of the Chinese economy continues to be underway, as China transforms from a production-driven economy towards a
service or consumer-driven economy. The Chinese economic transition implies that we expect challenges with the Chinese economy maintaining high levels of GDP growth rates in the near term. The annual year-over-year growth rate of China's GDP was
expected to be around 2% for the year ending December 31, 2020, as compared to 6.0 % for the year ending December 31, 2019. Furthermore, there is a continuing threat of a Chinese financial crisis resulting from massive personal and corporate
indebtedness and "trade wars." The International Monetary Fund has warned that continuing trade tensions, including significant tariff increases, between the United States and China are expected to result in a cumulative reduction in global GDP.
Additionally, following the emergence of COVID-19, industrial activity in China and other countries came to a quick halt in early 2020. The outbreak of COVID-19 initially had a very negative development for the Chinese economy and led to an economic
contraction. While the Chinese economy has since recovered and is growing, we cannot assure you that the Chinese economy will not contract in the future.
While the recent developments in Europe and China have been without significant immediate impact on our charter rates, an extended period of
deterioration in the world economy could reduce the overall demand for our services. Such changes could adversely affect our future performance, results of operations, cash flows, and financial position.
Further, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping
demand. In particular, leaders in the United States have indicated that the United States may seek to implement more protective trade measures. The results of the 2020 presidential election in the United States have created significant uncertainty
about the future relationship between the United States, China, and other exporting countries, including with respect to trade policies, treaties, government regulations, and tariffs. For example, in March 2018, former President Trump announced tariffs
on imported steel and aluminum into the United States that could have a negative impact on international trade generally, and in January 2019, the United States announced sanctions against Venezuela, which may have an effect on its oil output and in
turn affect global oil supply. However, it is not yet clear how the United States administration under President Biden may deviate from the former administration's protectionist foreign trade policies. Protectionist developments, or the perception that
they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from regions globally, (b) the
length of time required to transport goods, and (c) the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs, and other associated costs, which could
have an adverse impact on the shipping industry, and therefore, our charterers and their business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the
number of their time charters with us. This could have a material adverse effect on our business, results of operations, financial condition and our ability to pay any cash distributions to our shareholders.
Prospective investors should consider the potential impact, uncertainty, and risk associated with the development in the wider global
economy. A further economic downturn in any of these countries could have a material effect on our future performance, results of operations, cash flows, and financial position.
The U.K.'s withdrawal from the European Union may have a negative effect on
global economic conditions, financial markets and our business.
On June 23, 2016, in a referendum vote commonly referred to as "Brexit," a majority of voters in the
U.K. voted to exit the European Union. Since then, the U.K. and the EU have negotiated the terms of a withdrawal agreement, which was approved in October 2019 and ratified in January 2020. The U.K. formally exited the European Union on January 31,
2020, although a transition period remained in place until December 2020, during which the U.K. was subject to the rules and regulations of the EU while continuing to negotiate the parties' relationship going forward, including trade deals. It is
unclear what long-term economic, financial, trade, and legal implications the withdrawal of the U.K. from the European Union would have and how such withdrawal would affect our business. In addition, Brexit may lead other European Union member
countries to consider referendums regarding their European Union membership. Any of these events, along with any political, economic and regulatory changes that may occur, could cause political and economic uncertainty and harm our business and
financial results.
Brexit contributes to considerable uncertainty concerning the current and future economic environment. Brexit could adversely affect European
or worldwide political, regulatory, economic, or market conditions and could contribute to instability in global political institutions, regulatory agencies, and financial markets.
Tanker vessel values may fluctuate due to economic and technological factors, which may adversely affect our financial
condition, or result in the incurrence of a loss upon disposal of a tanker vessel, impairment losses, or increases in the cost of acquiring additional tanker vessels.
Tanker vessel values may fluctuate due to a number of different factors, including: general economic and market conditions affecting the
shipping industry; competition from other shipping companies; the types and sizes of available tanker vessels; the availability of other modes of transportation; increases in the supply of tanker vessel capacity; the cost of newbuildings; governmental
or other regulations; and the need to upgrade secondhand and previously owned tanker vessels as a result of charterer requirements, technological advances in vessel design or equipment or otherwise, including as a result of compliance with more
stringent emissions regulations. In addition, as tanker vessels grow older, they generally decline in value. Due to the cyclical nature of the shipping market, if we sell any of our owned tanker vessels at a time when prices are depressed, we could
incur a loss and our business, results of operations, cash flow, and financial condition could be adversely affected. Moreover, if the book value of a tanker vessel is impaired due to unfavorable market conditions, we may incur a loss that could
adversely affect our operating results. In 2020 and 2019, we recognized $0.34 million and $31.6 million of impairment charges, respectively, for one and three of our vessels, respectively.
Conversely, if tanker vessel values are elevated at a time when we wish to acquire additional tanker vessels, the cost of acquisition may
increase, and this could adversely affect our business, results of operations, cash flows, financial condition, and ability to pay dividends to our shareholders. Over the past ten years the value of a ten year old Aframax tanker has fluctuated widely
within a range of $17.0 million to $31.0 million.
An increase in operating costs could adversely affect our cash flows and financial condition.
Vessel operating expenses include the costs of crew, provisions, deck and engine stores, lube oil, bunkers, insurance, and maintenance and
repairs, which depend on a variety of factors, many of which are beyond our control. Some of these costs, primarily relating to insurance and enhanced security measures implemented after September 11, 2001, and as a result of increases in the frequency
of acts of piracy, have been increasing. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. Increases in any of these costs could have a material
adverse effect on our business, results of operations, cash flows, financial condition, and ability to pay dividends to our shareholders.
Rising fuel prices may adversely affect our profits.
Fuel is a significant, if not the largest, expense in our shipping operations when vessels are operated on the spot market under voyage
charters. While we do not directly bear the cost of fuel or bunkers under our time charters, fuel is also 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. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply, and demand for crude oil and natural gas, actions by the
OPEC, and other oil and natural gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. In April 2020, the crude oil price fell to under $27.00 per barrel (the lowest price over the
past ten years) following OPEC's inability to reach an agreement in respect of oil production cuts. However, fuel may become much more expensive in the future as a result of new regulations mandating a reduction in sulfur emissions to 0.5% as of
January 2020. Over the past ten years, the price of crude oil has fluctuated widely within a range of $26.6 to $125.5 per barrel. An increase in oil price in the future may reduce the profitability of our business. Other future regulations may have a
similar impact.
Compliance with safety and other vessel requirements imposed by classification societies may be very costly and may
adversely affect our business.
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The
classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the International Maritime Organization’s, or IMO’s, International Convention for
the Safety of Life at Sea of 1974, or SOLAS.
A vessel must undergo annual surveys, intermediate surveys, and special surveys. In lieu of a special survey, a vessel's machinery may be on
a continuous survey cycle under which the machinery would be surveyed periodically over a five-year period. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, or special survey, the vessel will be unable to
trade between ports and will be unemployable. If this were to happen to one or more of our vessels, it could negatively impact our results of operations and financial condition.
We are subject to regulation and liability under environmental laws that could require significant expenditures and
affect our cash flows and net income.
Our business and the operations of our vessels are materially affected by environmental regulation in the form of international conventions,
national, state, and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, including those governing the management and disposal of hazardous substances and
wastes, the cleanup of oil spills and other contamination, air emissions (including greenhouse gases), water discharges and ballast water management. These regulations include, but are not limited to, European Union regulations, the U.S. Oil Pollution
Act of 1990, requirements of the U.S. Coast Guard and the U.S. Environmental Protection Agency, the U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990), the U.S. Clean Water Act, and the U.S. Maritime Transportation Security Act of
2002, and regulations of the IMO, including the International Convention on Civil Liability for Oil Pollution Damage of 1969, the International Convention for the Prevention of Pollution from Ships of 1973, as modified by the Protocol of 1978,
collectively referred to as MARPOL 73/78 or MARPOL, including designations of Emission Control Areas, thereunder, SOLAS, the International Convention on Load Lines of 1966, the International Convention of Civil Liability for Bunker Oil Pollution
Damage, and the ISM Code. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such requirements or the impact thereof on the re-sale price or useful life of any vessel that we own or
will acquire. Additional conventions, laws, and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations. Government regulation of
vessels, particularly in the areas of safety and environmental requirements, continues to change, requiring us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. In
addition, we may incur significant costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential environmental violations, and in obtaining insurance coverage.
In addition, we are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates,
approvals, and financial assurances with respect to our operations. Our failure to maintain necessary permits, licenses, certificates, approvals, or financial assurances could require us to incur substantial costs or temporarily suspend the operation
of one or more of the vessels in our fleet or lead to the invalidation or reduction of our insurance coverage.
Environmental requirements can also affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, ship
modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters, or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under
local, national, and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including for cleanup obligations and natural resource damages, in the event that there is a release of petroleum or hazardous
substances from our vessels or otherwise in connection with our operations. We could also become subject to personal injury or property damage claims relating to the release of hazardous substances associated with our existing or historic operations.
Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines, and other sanctions, including, in certain instances, seizure or detention of our vessels.
We, or our in-house managers, may be unable to attract and retain qualified, skilled employees or crew necessary to
operate our business. In addition, labor interruptions could disrupt our business.
Our success will depend largely on our ability and on the ability of Unitized Ocean Transport Limited, or UOT, our wholly-owned subsidiary,
which acts as our in-house manager, to attract and retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to
attract and retain qualified crew members is intense. If we are not able to increase our charter rates to compensate for any crew cost increases, it could have a material adverse effect on our business, results of operations, cash flows, and financial
condition. Any inability we or UOT experience in the future to hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business, which could have a material adverse effect on our
financial condition, results of operations and cash flows.
Our vessels are manned by masters, officers, and crews that are employed by our vessel-owning subsidiaries. If not resolved in a timely and
cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out normally and could have a material adverse effect on our financial condition, results of operations, and cash flows.
We operate our vessels worldwide and as a result, our vessels are exposed to international risks and inherent operational
risks of the tanker vessel industry, which may adversely affect our business and financial condition.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes are at risk of being damaged or lost because of
events such as marine disasters, bad weather, and acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy, and other circumstances or events. 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
events may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships, and market disruptions, delay or rerouting, which may also
subject us to litigation. In addition, the operation of tanker vessels has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage and the associated costs could exceed the insurance
coverage available to us. Compared to other types of vessels, tanker vessels 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 tanker vessels.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs and maintenance are
unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may
adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility, or our
vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels' positions. The loss of earnings while these vessels are forced to wait for space, or to travel to more distant drydocking facilities, may
adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be
unable to prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations and available cash.
In addition, international shipping is subject to various security and customs inspection and related procedures in countries of origin and
destination and transshipment points. Inspection procedures can result in the seizure of the cargo and/or our vessels, delays in the loading, offloading, or delivery, and the levying of customs duties, fines, or other penalties against us. It is
possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases,
render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, results of operations, cash flows, financial condition, and available cash.
World events could affect our results of operations and financial condition.
Continuing conflicts and recent developments in the Middle East, including increased tensions between the U.S. and Iran, which in January
2020 escalated into a U.S. airstrike in Baghdad that killed a high-ranking Iranian general, as well as the Ukraine and other geographic countries and areas, geopolitical events such as Brexit, terrorist or other attacks, and war (or threatened war) or
international hostilities, such as those between the U.S. and North Korea, may lead to armed conflict or acts of terrorism around the world, which may contribute to further economic instability in the global financial markets and international
commerce. Additionally, any further escalations of tension between the U.S. and Iran could result in retaliation from Iran that could potentially affect the shipping industry through increased attacks on vessels in the Strait of Hormuz (which already
experienced an increased number of attacks on and seizures of vessels in 2019). 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,
the Gulf of Aden off the coast of Somalia, and in particular, the Gulf of Guinea region off Nigeria, which experienced increased incidents of piracy in recent years. Any of these occurrences could have a material adverse impact on our operating
results. Additionally, Brexit, or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties, and other regulatory matters
could in turn adversely impact our business and operations.
Outbreaks of epidemic and pandemic of diseases, such as the ongoing outbreak of COVID-19, and governmental responses
thereto could adversely affect our business.
Since the beginning of the calendar year 2020, the outbreak of COVID-19 that originated in China in late 2019 and that has spread to most
nations around the globe has resulted in numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus, including travel bans, quarantines, lockdown measures, and other emergency public health
measures. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets. If the COVID-19 pandemic continues on a prolonged basis, or becomes more severe, the adverse impact on
the global economy and the rate environment for tanker vessels may deteriorate further, and our operations and cash flows may be negatively impacted. Relatively weak global economic conditions during periods of volatility have, and may continue to
have, a number of adverse consequences for the tanker vessel sector, including, among other things:
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low charter rates, particularly for tanker vessels employed on short-term time charters or in the spot market;
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decreases in the market value of tanker vessels and a limited second-hand market for the sale of tanker vessels;
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limited financing for tanker vessels;
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loan covenant defaults; and
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declaration of bankruptcy by certain tanker vessel operators, tanker vessel owners, shipyards, and charterers.
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The COVID-19 pandemic and measures to contain its spread have negatively impacted regional and global economies and trade patterns in markets
in which we operate, the way we operate our business, and the businesses of our charterers and suppliers. These negative impacts could continue or worsen, even after the pandemic itself diminishes or ends. Companies, including us, have also taken
precautions, such as requiring employees to work remotely and imposing travel restrictions, while some other businesses have been required to close entirely. Moreover, we face significant risks to our personnel and operations due to the COVID-19
pandemic. Our crews face risk of exposure to COVID-19 as a result of travel to ports in which cases of COVID-19 have been reported. Our shore-based personnel likewise face risk of such exposure, as we maintain offices in areas that have been impacted
by the spread of COVID-19.
Measures against COVID-19 in a number of countries have restricted crew rotations on our vessels, which may continue or become more severe.
As a result, in 2020, we experienced and may continue to experience disruptions to our normal vessel operations caused by increased deviation time associated with positioning our vessels to countries in which we can undertake a crew rotation in
compliance with such measures. Delays in crew rotations have led to issues with crew fatigue and may continue to do so, which may result in delays or other operational issues. We have had and expect to continue to have increased expenses due to
incremental fuel consumption and days in which our vessels are unable to earn revenue in order to deviate to certain ports on which we would ordinarily not call during a typical voyage. We may also incur additional expenses associated with testing,
personal protective equipment, quarantines, and travel expenses such as airfare costs in order to perform crew rotations in the current environment. In 2020, delays in crew rotations also caused us to incur additional costs related to crew bonuses paid
to retain the existing crew members on board and may continue to do so.
The COVID-19 pandemic and measures in place against the spread of the virus have led to a highly difficult environment in which to dispose of
vessels, given the difficulty to physically inspect vessels. The impact of COVID-19 has also resulted in reduced industrial activity in China with temporary closures of factories and other facilities, labor shortages, and restrictions on travel. We
believe these disruptions, along with other seasonal factors, including lower demand for the cargoes we carry, such as crude oil and refined petroleum products, have contributed to lower tanker charter rates in the second half of 2020.
Epidemics may also affect personnel operating payment systems through which we receive revenues from the chartering of our vessels or pay for
our expenses, resulting in delays in payments. Organizations across industries, including ours, are rightly focusing on their employees' well-being whilst ensuring that their operations continue undisrupted and, at the same time, adapting to new ways
of operating. As such, employees are encouraged or even required to operate remotely, which significantly increases the risk of cybersecurity attacks.
While it is still too early to fully assess the overall impact that COVID-19 will have on our financial condition and operations and on the
tanker sector in general, we assess tanker charter rates have been reduced significantly as a result of COVID-19 and that the tanker industry in general and our Company specifically are likely to continue to be exposed to volatility in the near term.
Indicatively, vessels in our fleet which came up for charter renewal in the third and fourth quarters of 2020 were employed at comparably less favorable charter rates than those expected before the COVID-19 pandemic.
Further, containment measures and quarantine restrictions adopted by many countries worldwide have caused a significant impact on our ability
to embark and disembark crew members and on our seafarers themselves. As a result, since the outbreak of COVID-19 and as of the date of this report, we have encountered certain prolonged delays and surrounding complexities in embarking and disembarking
crew onto our ships which further resulted in increased operational costs and decreased revenues by reason of off-hires associated with crew rotation and related logistical complications associated with supplying our vessels with spares or other
supplies.
The occurrence or continued occurrence of any of the foregoing events or other epidemics, or an increase in the severity or duration of the
COVID-19 or other epidemics, could have a material adverse effect on our business, results of operations, cash flows, financial condition, the value of our vessels, and ability to pay dividends.
Acts of piracy on ocean-going vessels 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, in the Gulf of
Aden off the coast of Somalia, Sulu Sea and Celebes Sea, and in particular, the Gulf of Guinea region off Nigeria, which experienced increased incidents of piracy in recent years. Although the frequency of sea piracy worldwide has generally decreased
since 2013, sea piracy incidents continue to occur. Acts of piracy could result in harm or danger to the crews that man our vessels. In addition, if these piracy attacks result in regions in which our vessels are deployed being characterized by
insurers as "war risk" zones, or Joint War Committee "war and strikes" listed areas, premiums payable for such coverage could increase significantly, and such insurance coverage may be more difficult to obtain. In addition, crew costs, 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, detention hijacking, involving the hostile
detention of a vessel, 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.
If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed
by the U.S. or other governmental authorities, it could lead to monetary fines or penalties and adversely affect our reputation and the market for our common stock.
While none of our vessels have called on ports located in countries or territories that are the subject of country-wide or territory-wide
sanctions or embargoes imposed by the U.S. government or other governmental authorities ("Sanctioned Jurisdictions") in violation of sanctions or embargo laws in 2020, and we endeavor to take precautions reasonably designed to mitigate such risks, it
is possible that, in the future, our vessels may call on ports located in Sanctioned Jurisdictions on charterers' instructions and/or without our consent. If such activities result in a violation of sanctions or embargo laws, we could be subject to
monetary fines, penalties, or other sanctions, and our reputation and the market for our common shares could be adversely affected.
Sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the
same activities, and such sanctions and embargo laws and regulations may be amended or expanded over time. Current or future counterparties of ours may be affiliated with persons or entities that are or may be, in the future, the subject of sanctions
or embargoes imposed by the governments of the U.S., EU, and/or other international bodies. If we determine that such sanctions require us to terminate existing or future contracts to which we, or our subsidiaries, are party or if we are found to be
in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain
such compliance, any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to
divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries or territories
identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common stock may adversely affect the price at which our common stock trades. Moreover, our charterers may
violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common stock may
also be adversely affected by the consequences of war, the effects of terrorism, civil unrest, and governmental actions in the countries or territories that we operate in.
We conduct business in China, where the legal system is unpredictable and has inherent uncertainties that could limit the
legal protections available to us.
Some of our vessels may be chartered to Chinese customers, and from time to time on our charterers' instructions, our vessels may call on
Chinese ports. Such charters and voyages may be subject to regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees.
Applicable laws and regulations in China may not be well-publicized and may not be known to us or to our charterers in advance of us or our charterers becoming subject to them, and the implementation of such laws and regulations may be inconsistent.
Changes in Chinese laws and regulations, including with regards to tax matters, or changes in their implementation by local authorities, could affect our vessels if chartered to Chinese customers, as well as our vessels calling to Chinese ports, and
could have a material adverse impact on our business, financial condition and results of operations.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
A government of a vessel's registry could requisition for title or seize one or more of our vessels. Requisition for title occurs when a
government takes control of a vessel and becomes the owner. A government could also requisition one or more of our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at
dictated charter rates. Generally, requisitions occur during a period of war or emergency. Even if we were entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of the payment would be uncertain.
Government requisition of one or more of our vessels could have a material adverse effect on our business, results of operations, cash flows, and financial condition.
Failure to comply with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, could result in fines, criminal
penalties, and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are
committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics that is consistent and in full compliance with the FCPA. We are subject, however, to the risk that we, our affiliated
entities or our or their respective officers, directors, employees, and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. In addition, actual or alleged violations could damage our reputation and
ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Any such violation could result in substantial fines,
sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, earnings or financial condition.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports in areas where smugglers attempt to hide drugs and other contraband on vessels, with or without
the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims
and our vessels may be detained for a prolonged period of time which could have an adverse effect on our business, results of operations, cash flows, and financial condition.
Maritime claimants could arrest or attach our vessels, which would interrupt our business or have a negative effect on
our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, and other parties may be entitled to a maritime lien
against that vessel for unsatisfied debts, claims, or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting 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 funds to have the arrest or attachment lifted, which would have a negative effect on our cash flows.
In addition, in some jurisdictions, such as South Africa, under the "sister-ship" theory of liability, a claimant may arrest both the vessel
that is subject to the claimant's 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 ships.
Changing laws and evolving reporting requirements could have an adverse effect on our business.
Changing laws, regulations, and standards relating to reporting requirements, including the EU General Data Protection Regulation, or GDPR,
may create additional compliance requirements for us.
GDPR broadens the scope of personal privacy laws to protect the rights of EU citizens and requires organizations to report on data breaches
within 72 hours and be bound by more stringent rules for obtaining the consent of individuals on how their data can be used. GDPR was enforced on May 25, 2018, and non-compliance exposes entities to significant fines or other regulatory claims which
could have an adverse effect on our business, financial condition, and operations.
Company Specific Risk Factors
The market values of our vessels are highly volatile and may decline, which could limit the amount of funds that we can
borrow and trigger breaches of certain financial covenants under our future loan facilities.
The market values of our vessels are related to prevailing charter rates. While the market values of vessels and the charter market have a
very close relationship as the charter market moves from trough to peak, the time lag between the effect of charter rates on market values of ships can vary. The market values of our vessels have generally experienced high volatility, and you should
expect the market value of our vessels to fluctuate depending on a number of factors, including:
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the prevailing level of charter rates;
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general economic and market conditions affecting the shipping industry;
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competition from other shipping companies and other modes of transportation;
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the types, sizes, and ages of vessels;
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the supply of and demand for vessels;
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applicable governmental or other regulations;
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the need to upgrade secondhand and previously owned vessels as a result of charterer requirements;
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technological advances in vessel design or equipment or otherwise;
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fuel efficiency and level of air emissions;
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the cost of newbuildings; and
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The market values of our vessels are at low levels compared to historical averages. At times when we have loans outstanding with covenants
based on vessels' market values, if the market values of our vessels decline further, we may not be in compliance with certain covenants contained in such loan facilities, and we may not be able to refinance our debt or obtain additional financing or
incur debt on terms that are acceptable to us or at all. As of December 31, 2020, we had $58.1 million outstanding under our loan facilities and were in compliance with all our loan covenants. In the future, if we are not in compliance with the
covenants in our loan facilities or are unable to obtain waivers or amendments or otherwise remedy the relevant breaches, our lenders under the facility could accelerate our debt and foreclose on our fleet. We may not be successful in obtaining any
such waiver or amendment, and we may not be able to refinance our debt or obtain additional financing. Moreover, our loan facilities, as amended or pursuant to any waiver, and any refinancing or additional financing, may be more expensive and carry
more onerous terms than those in our existing debt agreements.
In addition, if the book value of a vessel is impaired due to unfavorable market conditions, or a vessel is sold at a price below its book
value, we would incur a loss that could adversely affect our operating results. During 2020, the value of one of our container vessels was impaired as a result of its classification as held for sale, and we recognized an impairment loss of $0.3
million.
We are currently subject to litigation and we may be subject to similar or other litigation in the future.
We, and our current executive officers, are defendants in a purported class action lawsuit pending in the U.S. District Court for the Eastern
District of New York. The lawsuit alleges violations of the Securities Exchange Act of 1934, as amended.
While we believe these claims to be without merit and intend to defend these lawsuits vigorously, we cannot predict their outcome.
Furthermore, we may, from time to time, be a party to other litigation in the normal course of business. Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts from our ability to
fully focus our internal resources on our business activities. In addition, legal fees and costs incurred in connection with such activities may be significant, and we could in the future be subject to judgments or enter into settlements of claims for
significant monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect on our cash flow, results of operations, and financial position.
With respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses we may
suffer in contesting and concluding such a lawsuit. Substantial litigation costs, including the substantial self-insured retention that we are required to satisfy before any insurance is applied to the claim, or an adverse result in any litigation may
adversely impact our business, operating results, or financial condition.
Our business, operating results, financial condition, and growth will depend on our ability to successfully charter our
vessels, for which we will face substantial competition.
The process of obtaining new medium-term time charters is highly competitive and generally involves an intensive screening process and
competitive bids, and often extends for several months. Charters are awarded based upon a variety of factors relating to the vessel operator, including:
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shipping industry relationships and reputation for customer service and safety;
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the experience and quality of ship operations, including cost-effectiveness;
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quality and experience of the seafaring crew;
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the ability to finance vessels at competitive rates and financial stability generally;
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relationships with shipyards and the ability to get suitable berths;
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the technical specifications of the vessel;
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construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications;
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willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
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competitiveness of the bid in terms of overall price.
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We expect substantial competition for providing tanker vessel transportation services from a number of experienced companies, including
state-sponsored entities and major shipping companies. Many of these competitors have significantly greater financial resources than we do and can therefore operate larger fleets and may be able to offer better charter rates. As a result of these
factors, we may be unable to attract new customers or secure medium-term time charters at profitable charter rates, if at all, which will impede our operating results, financial condition, and growth.
Furthermore, if our vessels become available for employment under new time charters during periods when charter rates are at depressed
levels, we may have to employ our tanker vessels at depressed charter rates, if we are able to secure employment for our vessels at all, which would lead to reduced or volatile earnings. Future charter rates may not be at a level that will enable us to
operate our vessels profitably.
The failure of our counterparties to meet their obligations to us under any vessel purchase agreements or charter
agreements could cause us to suffer losses or otherwise adversely affect our business.
Generally, we intend to selectively employ our vessels under voyage charters and under short-, medium- or long-term time charters, which
exposes us to counterparty risks. The ability and willingness of each of our counterparties to perform its obligations under a vessel purchase agreement or charter agreement with us will depend on a number of factors that are beyond our control and may
include, among other things, general economic conditions, the condition of the shipping market and the overall financial condition of the counterparty. From time to time, we may enter into agreements to acquire vessels, and if the seller of a vessel
fails to deliver a vessel to us as agreed, or if we cancel a purchase agreement because a seller has not met its obligations, this may have a material adverse effect on our business.
In addition, in depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their
obligations under charters, and our future customers may fail to pay charterhire or attempt to renegotiate charter rates. If our future charterers fail to meet their obligations to us or attempt to renegotiate our future charter agreements, it may be
difficult to secure substitute employment for such vessels, and any new charter arrangements we secure may be at lower rates. As a result, we could sustain significant losses, which could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
We may be unable to locate suitable vessels or dispose of vessels at reasonable prices, which would adversely affect our
ability to operate our business.
There are periods when we may be interested in further growing our fleet through selective acquisitions. Our business strategy is dependent
on identifying and purchasing suitable vessels. Changing market and regulatory conditions may limit the availability of suitable vessels because of customer preferences or because they are not or will not be compliant with existing or future rules,
regulations, and conventions. Additional vessels of the age and quality we desire may not be available for purchase at prices we are prepared to pay or at delivery times acceptable to us, and we may not be able to dispose of vessels at reasonable
prices, if at all. If we are unable to purchase and dispose of vessels at reasonable prices in accordance with our business strategy or in response to changing market and regulatory conditions, our business would be adversely affected.
Our purchasing and operating secondhand vessels, and the aging of our fleet may result in increased operating costs and
vessels off-hire, which could adversely affect our earnings.
While we will typically inspect secondhand vessels before purchase, this does not provide us with the same knowledge about their condition
that we would have had if these vessels had been built for and operated exclusively by us. Accordingly, we may not discover defects or other problems with such vessels before purchase. Any such hidden defects or problems, when detected, may be
expensive to repair, and if not detected, may result in accidents or other incidents for which we may become liable to third parties. In addition, when purchasing secondhand vessels, we do not receive the benefit of any builder warranties if the
vessels we buy are older than one year.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less
fuel efficient than more recently constructed vessels due to improvements in engine technology. Potential charterers may also choose not to charter older vessels. Governmental regulations, safety, and other equipment standards related to the age of
vessels may require expenditures for alterations or the addition of new equipment to some of our vessels and may restrict the type of activities in which these vessels may engage. We cannot assure you that, as our vessels age, market conditions will
justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives. As a result, regulations and standards could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
There is a lack of historical operating history provided with our secondhand vessel acquisitions, and profitable
operation of the vessels will depend on our skill and expertise.
Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification
society records, neither we, nor UOT, will conduct any historical financial due diligence process at times when we acquire vessels. Accordingly, neither we, nor UOT, will obtain the historical operating data for any secondhand vessels we may acquire in
the future from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in assessing our business or profitability. Most vessels are sold under a
standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel's 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 seller's technical manager and the seller is automatically terminated and the vessel's 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 also in the future acquire some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is
delivered to the buyer free of charter, and it is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is
under time charter, and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer's consent and the buyer's entering into a separate direct agreement with the charterer to assume the charter. The purchase of a vessel
itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer.
Due to the differences between the prior owners of these vessels and the Company with respect to the routes we expect to operate, our future
customers, the cargoes we expect to carry, the freight rates and charter rates we will charge in the future, and the costs we expect to incur in operating our vessels, we believe that our operating results will be significantly different from the
operating results of the vessels while owned by the prior owners. The profitable operation of the vessels will depend on our skill and expertise. If we are unable to operate the vessels profitably, it may have an adverse effect on our financial
condition, results of operations, and cash flows.
Technical innovation and technical quality and efficiency requirements from our customers could reduce our charterhire
income and the value of our tanker vessels.
Our customers, in particular those in the oil industry, have a high and increasing focus on quality and compliance standards with their
suppliers across the entire supply chain, including the shipping and transportation segment. Our continued compliance with these standards and quality requirements is vital for our operations. The charter rates and the value and operational life of a
vessel are determined by a number of factors, including the vessel's efficiency, operational flexibility, and physical life. Efficiency includes speed, fuel economy, and the ability to load and discharge cargo quickly. Flexibility includes the ability
to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel's physical life is related to its original design and construction, its maintenance, and the impact of the stress of operations. If new
vessels are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charterhire payments we receive for our
vessels, and the resale value of our vessels could significantly decrease. This could have an adverse effect on our results of operations, cash flows, financial condition, and ability to pay dividends.
Certain of our officers and directors participate in business activities not associated with us, and do not devote all of
their time to our business, which may create conflicts of interest and hinder our ability to operate successfully.
Our officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our shareholders. However, until his
resignation from such positions in February 2020 (as described below), our Chief Executive Officer, Director and Secretary, Mr. Andreas Michalopoulos, also served as Chief Financial Officer and Treasurer of Diana Shipping Inc. (Diana Shipping or DSI).
As a result, until his resignation as Chief Financial Officer and Treasurer of Diana Shipping in February 2020, our Chief Executive Officer, Director and Secretary had fiduciary duties to manage the business of Diana Shipping and its affiliates in a
manner beneficial to such entities and their shareholders. Consequently, until his resignation as Chief Financial Officer and Treasurer of Diana Shipping in February 2020, our Chief Executive Officer, Director and Secretary might have encountered
situations in which his fiduciary obligations to Diana Shipping and us are in conflict. Additionally, as described more fully below, certain of our now-resigned directors and executive officers, Mr. Anastasios Margaronis, Mr. Ioannis Zafirakis, and
Mrs. Semiramis Paliou, served as directors and/or executive officers of Diana Shipping during a portion of the period covered by this prospectus.
In addition, Mr. Anthony Argyropoulos, our Chief Financial Officer, participates in business activities not associated with us, and as a
result, may devote less time to us than if he was not engaged in other business activities. This may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest will
be resolved in our favor. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The Public Company Accounting Oversight Board inspection of our independent accounting firm could lead to findings in our
auditors' reports and challenge the accuracy of our published audited consolidated financial statements.
Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board, or PCAOB, inspections
that assess their compliance with U.S. law and professional standards in connection with the performance of audits of financial statements filed with the SEC. For several years certain European Union countries, including Greece, did not permit the
PCAOB to conduct inspections of accounting firms established and operating in such European Union countries, even if they were part of major international firms. Accordingly, unlike most U.S. public companies, the PCAOB was prevented from evaluating
our auditor's performance of audits and its quality control procedures, and, unlike stockholders of most U.S. public companies, we, and our stockholders, were deprived of the possible benefits of such inspections. Since 2015, Greece has agreed to allow
the PCAOB to conduct inspections of accounting firms operating in Greece. In the future, such PCAOB inspections could result in findings in our auditors' quality control procedures, question the validity of the auditor's reports on our published
consolidated financial statements and the effectiveness of our internal control over financial reporting, and cast doubt upon the accuracy of our published audited financial statements.
Our ability to obtain debt financing in the future may be dependent on the performance of our then existing charters and
the creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the
additional capital resources that we will require to purchase additional vessels in the future or may significantly increase our costs of obtaining such capital. Our inability to obtain financing at all or at a higher than anticipated cost may
materially affect our results of operation and our ability to implement our business strategy.
We may be unable to attract and retain key management personnel and other employees in the shipping industry, which may
negatively impact the effectiveness of our management and results of operations.
Our success depends to a significant extent upon the abilities and efforts of our management team, the Chairman of the Board, Mr. Symeon
Palios, and our Chief Executive Officer, Director and Secretary, Mr. Andreas Michalopoulos. Our success will depend upon our ability to retain key members of our management team and to hire new members as may be necessary. The loss of any of these
individuals could adversely affect our business prospects and financial condition. Difficulty in hiring and retaining replacement personnel could adversely affect our business, results of operations, and ability to pay dividends. We do not intend to
maintain "key man" life insurance on any of our officers or other members of our management team.
We recently underwent a transition with respect to certain of our directors and executive officers and this transition,
along with the possibility that we may in the future be unable to retain and recruit qualified key executives, key employees or key consultants, may delay our development efforts or otherwise harm our business.
At our 2020 annual shareholder meeting held on February 18, 2020, Mr. Andreas Michalopoulos was elected to our board of directors.
Additionally, in February 2020, as part of a long-term management succession plan, Mr. Anastasios Margaronis resigned from his position as our President, Mr. Ioannis Zafirakis resigned as our Chief Strategy Officer and Secretary, and Mrs. Semiramis
Paliou resigned as our Chief Operating Officer, in order to devote substantially all of their business time to other endeavors. The above-referenced management succession plan also included the appointment of Mr. Andreas Michalopoulos to the position
of Deputy Chief Executive Officer, as previously announced on October 31, 2019. Our board of directors appointed Mr. Christos Glavanis and Ms. Aliki Paliou as directors to fill the vacancies created by Messrs. Anastasios Margaronis and Mr. Nikolaos
Petmezas resignations as directors in February 2020. Our board of directors also appointed Mr. Michalopoulos as Secretary to replace Mr. Zafirakis, effective as of February 28, 2020. On October 19, 2020, we announced that our board of directors
appointed Mr. Andreas Michalopoulos to the position of Chief Executive Officer following the retirement of Mr. Symeon Palios from that position, and Mr. Anthony Argyropoulos to the position of Chief Financial Officer of the Company, succeeding Mr.
Michalopoulos in that capacity.
Our future development and prospects depend to a large degree on the experience, performance, and continued service of our senior management
team. Retention of these services or the identification of suitable replacements in case of future vacancies cannot be guaranteed. There can be no guarantee that the services of the current directors and senior management team will be retained or that
suitably skilled and qualified individuals can be identified and employed, which may adversely impact our ability to commercial and financial performance. The loss of the services of any of the directors or other members of the senior management team
and the costs of recruiting replacements may have a material adverse effect on our commercial and financial performance as well. If we are unable to hire, train and retain such personnel in a timely manner, our operations could be delayed, and our
ability to grow our business will be impaired and the delay and inability may have a detrimental effect upon our performance.
Ms. Aliki Paliou, one of our directors, may be deemed to beneficially own a significant percentage of our outstanding
common shares, and accordingly, may exert considerable influence over us and may have interests that are different from the interests of our other shareholders.
As of March 6, 2021, Ms. Aliki Paliou, one of our directors, may be deemed to beneficially own approximately 46.3% of our issued and
outstanding common shares, and therefore, has the power to exert considerable influence over our actions and the outcome of matters on which our shareholders are entitled to vote, including the election of our directors and other significant corporate
actions. The interests of Ms. Paliou may be different from your interests. Any such conflicts of interest could adversely affect our business, financial condition and results of operations, and the trading price of our common shares. Moreover, the
concentration of ownership may delay, deter or prevent acts that may be favored by or favorable to our other shareholders. Similarly, this concentration of share ownership may adversely affect the trading price of our shares because investors may
perceive disadvantages in owning shares in a company with concentrated ownership. Ms. Paliou is the daughter of Mr. Symeon Palios, our Chairman and former Chief Executive Officer, and is married to Andreas Michalopoulos, our Chief Executive Officer,
Director and Secretary.
We expect to continue to operate substantially outside the United States, which will expose us to political and
governmental instability, which could harm our operations.
We expect that our operations will continue to be primarily conducted outside the United States and may be adversely affected by changing or
adverse political and governmental conditions in the countries where our vessels are flagged or registered and in the regions where we otherwise engage in business. Any disruption caused by these factors may interfere with the operation of our vessels,
which could harm our business, financial condition, and results of operations. Past political efforts to disrupt shipping in these regions, particularly in the Arabian Gulf, have included attacks on ships and mining of waterways. In addition, terrorist
attacks outside this region and continuing hostilities in the Middle East and the world may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States and elsewhere. Any such attacks or disturbances
may disrupt our business, increase vessel operating costs, including insurance costs, and adversely affect our financial condition and results of operations. Our operations may also be adversely affected by expropriation of vessels, taxes, regulation,
tariffs, trade embargoes, economic sanctions, or disruption of or limit to trading activities or other adverse events or circumstances in or affecting the countries and regions where we operate or where we may operate in the future.
We generate all of our revenues in U.S. dollars and incur a portion of our expenses in other currencies, and therefore
exchange rate fluctuations could have an adverse impact on our results of operations.
We generate all of our revenues in U.S. dollars and incur a portion of our expenses in currencies other than the dollar. This difference
could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to the other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the U.S. dollar falls in value can increase,
decreasing our revenues. Further declines in the value of the dollar could lead to higher expenses payable by us.
While we historically have not mitigated the risk associated with exchange rate fluctuations through the use of financial derivatives, we may
employ such instruments from time to time in the future in order to minimize this risk. Our use of financial derivatives would involve certain risks, including the risk that losses on a hedged position could exceed the nominal amount invested in the
instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual obligations, which could have an adverse effect on our results.
Volatility in the London Interbank Offered Rate, or LIBOR, could affect our profitability, earnings, and cash flow.
The London Interbank Offered Rate (“LIBOR”), is the subject of recent national, international, and other regulatory guidance and proposals
for reform. These reforms and other pressures may cause LIBOR to be eliminated or to perform differently than in the past. The consequences of these developments cannot be entirely predicted but could include an increase in the cost of our variable
rate indebtedness and obligations. LIBOR has been volatile in the past, with the spread between LIBOR and the prime lending rate widening significantly at times. Because the interest rates borne by a majority of our outstanding indebtedness fluctuate
with changes in LIBOR, significant changes in LIBOR would have a material effect on the amount of interest payable on our debt, which in turn, could have an adverse effect on our financial condition.
Furthermore, the calculation of interest in most financing agreements in our industry has been based on published LIBOR rates. Due, in part,
to uncertainty relating to the LIBOR calculation process in recent years, it is likely that LIBOR will be phased out in the future. As a result, 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 financing agreements, our lending costs could increase significantly, which would have an adverse effect on our
profitability, earnings, and cash flow. In addition, the banks currently reporting information used to set LIBOR will likely stop such reporting after 2021, when their commitment to reporting information ends. The Alternative Reference Rate Committee,
a committee convened by the Federal Reserve that includes major market participants, has proposed an alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate, or "SOFR." The impact of such a transition from LIBOR to SOFR
could be significant for us.
In order to manage our exposure to interest rate fluctuations, we may, from time to time, use interest rate derivatives to effectively fix
some of our floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our
results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. Interest rate derivatives may also be impacted by
the transition from LIBOR to SOFR or other alternative rates.
We may have to pay tax on United States source income, which would reduce our earnings.
Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel owning or chartering
corporation, such as us and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for
deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code, or Section 883, and the applicable Treasury Regulations promulgated thereunder.
We intend to take the position that we qualified for this statutory tax exemption for U.S. federal income tax return reporting purposes for
our 2020 taxable year, and we intend to so qualify for future taxable years. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption for any future taxable year and thereby become
subject to U.S. federal income tax on our U.S.-source shipping income. For example, in certain circumstances, we may no longer qualify for exemption under Code Section 883 for a particular taxable year if shareholders, other than "qualified
shareholders", with a five percent or greater interest in our common shares owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year. Due to the factual nature of the issues involved,
there can be no assurances on our tax-exempt status.
If we are not entitled to exemption under Section 883 for any taxable year, we would be subject for those years to an effective 2% U.S.
federal income tax on the shipping income we derive during the year, which is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would result in
decreased earnings available for distribution to our shareholders.
We may be treated as a "passive foreign investment company," which could have certain adverse U.S. federal income tax
consequences to U.S. holders.
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for U.S. federal income tax purposes if either (1)
at least 75% of its gross income for any taxable year consists of certain types of "passive income", or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For
purposes of these tests, cash will be treated as an asset held for the production of passive income. For purposes of these tests, "passive income" generally includes dividends, interest, and gains from the sale or exchange of investment property and
rents and royalties other than those received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income." U.S.
holders of stock in a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition
of their stock in the PFIC.
Whether we will be treated as a PFIC will depend upon our method of operation. In this regard, we intend to treat the gross income we derive
or are deemed to derive from time or voyage chartering activities as services income rather than rental income. Accordingly, we believe that any income from time or voyage chartering activities will not constitute "passive income," and any assets that
we may own and operate in connection with the production of that income will not constitute passive assets. However, any gross income that we may be deemed to have derived from bareboat chartering activities will be treated as rental income and thus
will constitute "passive income," and any assets that we may own and operate in connection with the production of that income will constitute passive assets. There is substantial legal authority supporting this position consisting of case law and
Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority which
characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept our position with regard to our status from time to time as a PFIC,
and there is a risk that the IRS or a court of law could determine that we are or have been a PFIC for a particular taxable year.
If we are or have been a PFIC for any taxable year, U.S. holders of our common stock will face certain adverse U.S. federal income tax
consequences and information reporting obligations. Under the PFIC rules, unless such U.S. holders make certain elections available under the Code (which elections could themselves have certain adverse consequences for such U.S. holders), such U.S.
holders would be liable to pay U.S. federal income tax at the then-prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common stock, as if the excess distribution or gain
had been recognized ratably over such U.S. holder's holding period for such common stock. See "Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—United States Federal Income Taxation of U.S. Holders—PFIC Status
and Significant Tax Consequences" of the Annual Report for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. holders of our common stock if we are or were to be treated as a PFIC.
We may be subject to increased premium payments, or calls, because we obtain some of our insurance through protection and
indemnity associations.
We may be subject to increased premium payments, or calls, in amounts based on our claim records as well as the claim records of other
members of the protection and indemnity associations in the International Group, which is comprised of 13 mutual protection and indemnity associations and insures approximately 90% of the world's commercial tonnage and through which we receive
insurance coverage for tort liability, including pollution-related liability, as well as actual claims. Amounts we may be required to pay as a result of such calls will be unavailable for other purposes.
The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world.
Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization, or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor
under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a
debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S.
bankruptcy court's jurisdiction if any other bankruptcy court would determine it had jurisdiction.
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks in our operations and administration of our business. Information systems are
vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However, these
measures and technology may not adequately prevent security breaches. Our business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks or to steal data. A successful
cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to the unauthorized release of information or alteration of information in our systems. Any such attack or other breach of our information technology
systems could have a material adverse effect on our business and results of operations. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and
could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely
affect our business and results of operations.
If we do not identify suitable vessels for acquisition or successfully integrate any acquired vessels, we may not be able
to grow or to effectively manage our growth.
One of our strategies is to continue to grow by expanding our operations and adding tanker vessels to our fleet. Our future growth will
depend upon a number of factors, some of which may not be within our control. These factors include our ability to:
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identify suitable vessels for acquisitions at attractive prices, which may not be possible if asset prices rise too quickly;
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obtain financing for our existing and new operations;
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manage relationships with customers and suppliers;
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identify businesses engaged in managing, operating, or owning tanker vessels for acquisitions or joint ventures;
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integrate any acquired vessels successfully with our then-existing operations;
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attract, hire, train, integrate and retain qualified, highly trained personnel and crew to manage and operate our growing business and fleet;
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identify additional new markets;
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enhance our customer base;
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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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Our failure to effectively identify, purchase, develop, and integrate any new vessels could adversely affect our business, financial
condition, and results of operations. The number of employees that perform services for us and our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet, and we may not be able to
effectively hire more employees, or adequately improve those systems. We may incur unanticipated expenses as an operating company. Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet.
Finally, additional acquisitions may require additional equity issuances, which may dilute our common shareholders if issued at lower prices than the price they acquired their shares or debt issuances (with amortization payments), both of which could
reduce our cash flow. If we are unable to execute the points noted above, our financial condition may be adversely affected.
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining
additional qualified personnel and managing relationships with customers and suppliers, and integrating newly acquired operations into existing infrastructures. The expansion of our fleet may impose significant additional responsibilities on our
management and staff, and the management and staff of our commercial and technical managers, and may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans
or that we will not incur significant expenses and losses in connection with our future growth.
The IMO 2020 regulations may cause us to incur substantial costs and to procure low-sulfur fuel oil directly on the
wholesale market for storage at sea and onward consumption on our vessels.
Effective January 1, 2020, the IMO implemented a new regulation for a 0.50% global sulfur cap on emissions from vessels (the "IMO 2020
Regulations"). Under this new global cap, vessels are required to use marine fuels with a sulfur content of no more than 0.50% against the former regulations specifying a maximum of 3.50% sulfur in an effort to reduce the emission of sulfur oxide into
the atmosphere.
We have incurred increased costs to comply with these revised standards. Additional or new conventions, laws, and regulations may be adopted
that could require, among others, the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows, and financial condition.
Currently, none of our vessels are equipped with scrubbers, and as of January 1, 2020, we have transitioned to burning IMO compliant fuels.
We continue to evaluate different options in complying with IMO and other rules and regulations. We expect that our fuel costs and fuel inventories will increase in 2020 as a result of these sulfur emission regulations. Low sulfur fuel is more
expensive than standard marine fuel containing 3.5% sulfur content and may become more expensive or difficult to obtain as a result of increased demand. If the cost differential between low sulfur fuel and high sulfur fuel is significantly higher than
anticipated, or if low sulfur fuel is not available at ports on certain trading routes, it may not be feasible or competitive to operate our vessels on certain trading routes without installing scrubbers or without incurring deviation time to obtain
compliant fuel. Scrubbers may not be available to be installed on such vessels at a favorable cost or at all if we seek them at a later date.
Furthermore, although as of the date of this prospectus, over one year has passed since the IMO 2020 Regulations became effective, it is
uncertain how the availability of high-sulfur fuel around the world will be affected by the implementation of the IMO 2020 Regulations, and both the price of high-sulfur fuel generally and the difference between the cost of high-sulfur fuel and that of
low-sulfur fuel are also uncertain. Scarcity in the supply of high-sulfur fuel, or a lower-than-anticipated difference in the costs between the two types of fuel, may cause us to fail to recognize anticipated benefits from installing scrubbers.
Fuel is a significant, if not the largest, expense in our shipping operations when vessels are under voyage charter and is an important
factor in negotiating charter rates. Our operations and the performance of our vessels, and as a result, our results of operations, face a host of challenges. These include concerns over higher costs, international compliance, and the availability of
low-sulfur fuel at key international bunkering hubs such as Rotterdam and Singapore. In addition, we take seriously concerns raised in Europe that certain blends of low-sulfur fuels can emit greater amounts of harmful black carbon than the high-sulfur
fuels they are meant to replace. Costs of compliance with these and other related regulatory changes may be significant and may have a material adverse effect on our future performance, results of operations, cash flows, and financial position. As a
result, an increase in the price of fuel beyond our expectations may adversely affect our profitability at the time of charter negotiation.
While we carry cargo insurance to protect us against certain risks of loss of or damage to the procured commodities, we may not be adequately
insured to cover any losses from such operational risks, which could have a material adverse effect on us. 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, and our available cash.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of,
regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives, or mandates for renewable energy. More
specifically, on October 27, 2016, the International Maritime Organization's Marine Environment Protection Committee ("MEPC") announced its decision concerning the implementation of regulations mandating a reduction in sulfur emissions from 3.5%
currently to 0.5% as of the beginning of January 1, 2020. Additionally, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies levels of ambition to reducing
greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through the implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international
shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out
entirely.
Since January 1, 2020, ships must either remove sulfur from emissions or buy fuel with low sulfur content, which may lead to increased costs
and supplementary investments for ship owners. The interpretation of "fuel oil used on board" includes use in main engines, auxiliary engines, and boilers. Shipowners may comply with this regulation by (i) using 0.5% sulfur fuels on board, which are
available around the world but at a higher cost; (ii) installing scrubbers for cleaning of the exhaust gas; or (iii) by retrofitting vessels to be powered by liquefied natural gas, which may not be a viable option due to the lack of supply network and
high costs involved in this process. Costs of compliance with these regulatory changes may be significant and may have a material adverse effect on our future performance, results of operations, cash flows, and financial position.
In addition, although the emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the
United Nations Framework Convention on Climate Change, which required adopting countries to implement national programs to reduce emissions of certain gases, or the Paris Agreement (discussed further below), a new treaty may be adopted in the future
that includes restrictions on shipping emissions. Compliance with changes in laws, regulations, and obligations relating to climate change affects the propulsion options in subsequent vessel designs and could increase our costs related to acquiring new
vessels, operating and maintaining our existing tanker vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue
generation and strategic growth opportunities may also be adversely affected.
Adverse effects upon the crude oil and natural gas industry relating to climate change, including growing public concern about the
environmental impact of climate change, may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for crude oil and natural gas in the
future or create greater incentives for the use of alternative energy sources. In addition, the physical effects of climate change, including changes in weather patterns, extreme weather events, rising sea levels, and scarcity of water resources, may
negatively impact our operations. Any long-term material adverse effect on the crude oil and natural gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
Increasing scrutiny and changing expectations from investors, lenders, and other market participants with respect to our
Environmental, Social, and Governance ("ESG") policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain
institutional investors, investment funds, lenders, and other market participants are increasingly focused on ESG practices and, in recent years, have placed increasing importance on the implications and social cost of their investments. The increased
focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company's ESG practices. Companies that do not
adapt to, or comply with, investor, lender, or other industry shareholder expectations and standards which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a
legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.
We may face increasing pressures from investors, lenders, and other market participants, who are increasingly focused on climate change, to
prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain
invested in us and make further investments in us, especially given the highly focused and specific trade of crude oil transportation in which we are engaged. If we do not meet these standards, our business and/or our ability to access capital could be
harmed.
Additionally, certain investors and lenders may exclude oil transport companies, such as us, from their investing portfolios altogether due
to environmental, social, and governance factors. These limitations in both the debt and equity capital markets may affect our ability to grow as our plans for growth may include accessing the equity and debt capital markets. If those markets are
unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of
operations and impair our ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report, and comply with wide-ranging ESG requirements. The occurrence of any of the
foregoing could have a material adverse effect on our business and financial condition.
If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly competitive
international tanker vessel market, which would negatively affect our financial condition and our ability to expand our business.
The operation of tanker vessels and transportation of crude oil and refined petroleum products is extremely competitive, and reduced demand
for transportation of crude oil and refined petroleum products could lead to increased competition. Competition arises primarily from other tanker vessel owners, including major oil companies and national oil companies or companies linked to
authorities of oil producing or importing countries, as well as independent tanker companies, some of whom have substantially greater resources than we do. 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 operator to the charterers. Our ability to operate our vessels profitably depends on a variety of factors, including, but not limited to the (i) loss or reduction in business
from significant customers, (ii) unanticipated changes in demand for transportation of crude oil and petroleum products, (iii) changes in the production of, or demand for, oil and petroleum products, generally or in particular regions, (iv) greater
than anticipated levels of tanker vessel newbuilding orders or lower than anticipated levels of tanker vessel recyclings, and (v) changes in rules and regulations applicable to the tanker vessel industry, including legislation adopted by international
organizations such as IMO and the EU or by individual countries.
If we expand our business or provide new services in new geographic regions, we may not be able to compete profitably. 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.
Regulations relating to ballast water discharge came into effect during September 2019 and may adversely affect our
revenues and profitability.
The IMO has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be
discharged from a vessel's ballast water. Depending on the date of the International Oil Pollution Prevention (IOPP) renewal survey, existing vessels constructed before September 8, 2017, are required to comply with the updated D-2 standard on or
after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Vessels constructed on or after September 8, 2017, are required to comply
with the D-2 standards on or after September 8, 2017. We currently have 4 tanker vessels that have to install a ballast water management system or otherwise meet the D-2 (discharge) standard during their renewal survey linked to the ship's
International Oil Pollution Prevention Certificate after 8 September 2019, where costs of compliance may be substantial and adversely affect our revenues and profitability.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (VGP) program and U.S. National
Invasive Species Act (NISA) are currently in effect to regulate ballast discharge, exchange, and installation, the Vessel Incidental Discharge Act or VIDA, which was signed into law on December 4, 2018, requires that the EPA develop national standards
of performance for approximately 30 discharges, similar to those found in the VGP within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge National Standards of Performance under VIDA.
By approximately 2022, the U.S. Coast Guard must develop corresponding implementation, compliance, and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur
substantial costs, which may adversely affect our profitability.
Insurance may be difficult to obtain, or if obtained, may not be adequate to cover our losses that may result from our
operations due to the inherent operational risks of the shipping 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 include 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 actions, 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, and our available cash. In
addition, we may not be able to obtain adequate insurance coverage at reasonable rates in the future during adverse insurance market conditions.
Under our vessel management agreements with UOT, UOT is responsible for procuring and paying for insurance for our vessels. Our insurance
policies contain standard limitations, exclusions, and deductibles. The policies insure against those risks that the shipping industry commonly insures against, which are hull and machinery, protection and indemnity, and war risk. UOT currently
maintains hull and machinery coverage in an amount at least equal to the vessels' market value. UOT maintains an amount of protection and indemnity insurance that is at least equal to the standard industry level of coverage. We cannot assure you that
UOT will be able to procure adequate insurance coverage for our fleet in the future or that our insurers will pay any particular claim.
In addition, changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for
us to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts generally.
Because we obtain some of our insurance through protection and indemnity associations, which result in significant expenses to us, we may be
required to make additional premium payments. We may be subject to increased premium payments, or calls, in amounts based on our claim records, the claim records of our managers, as well as 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. In addition, our protection and indemnity associations may not have enough resources to cover claims made against them. 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, financial condition, and available cash.
Adverse market conditions could cause us to breach covenants in our credit facility and adversely affect our operating
results.
The market values of tanker vessels are subject to significant volatility. Indicatively, market prices for ten-year-old Aframax tankers over
the past ten years have fluctuated significantly from a high level of $31.0 million in 2015 to a low level of $17.0 million in 2012. You should expect the market value of our vessels to fluctuate depending on general economic and market conditions
affecting the shipping industry and prevailing charter rates, competition from other tanker companies and other modes of transportation, types, sizes, and ages of vessels, applicable governmental regulations and the cost of newbuildings. We believe
that our vessels' current aggregate market value will be in excess of loan to value amounts required under our credit facility. Our credit facilities generally require that the fair market value of the vessels pledged as collateral never be less than
125% or 135% of the aggregate principal amount outstanding under the loans. We were in compliance with these requirements as of December 31, 2020, and as of the date of this prospectus.
A decrease in vessel values could cause us to breach certain covenants in our existing credit facility and future financing agreements that
we may enter into from time to time. If we breach such covenants and are unable to remedy the relevant breach or obtain a waiver, our lenders could accelerate our debt and foreclose on our owned vessels. Additionally, if we sell one or more of our
vessels at a time when vessel prices have fallen, the sale price may be less than the vessel's carrying value on our consolidated financial statements, resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a
reduction in earnings.
A shift in consumer demand from crude oil towards other energy sources or changes to trade patterns for crude oil and
refined petroleum products may have a material adverse effect on our business.
A significant portion of our earnings are related to the crude oil industry. A shift in the consumer demand from crude oil towards other
energy resources such as wind energy, solar energy, hydrogen energy, or nuclear energy will potentially affect the demand for our vessels. This could have a material adverse effect on our future performance, results of operations, cash flows, and
financial position.
Seaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources of production, locations
of consumption, pricing differentials, and seasonality. Changes to the trade patterns of crude oil and oil products may have a significant negative or positive impact on the ton-mile and, therefore, the demand for our tanker vessels. This could have a
material adverse effect on our future performance, results of operations, cash flows, and financial position.
Risks Relating to our Common Shares and this Offering
The market price of our common shares is subject to significant fluctuations. Further, there is no guarantee of a
continuing public market for you to resell our common shares.
Our common shares commenced trading on the Nasdaq Global Market on January 19, 2011. Since January 2, 2013, our common shares have traded on
the Nasdaq Global Select Market, and since March 6, 2020, our common shares have traded on the Nasdaq Capital Market. We cannot assure you that an active and liquid public market for our common shares will continue. The Nasdaq Capital Market and each
national securities exchange have certain corporate governance requirements that must be met in order for us to maintain our listing. If we fail to maintain the relevant corporate governance requirements, our common shares could be delisted, which
would make it harder for you to monetize your investment in our common shares and would cause the value of your investment to decline.
Since June 2016, we have effected seven reverse stock splits of our common shares, each of which was approved by our board of directors and
by our shareholders at an annual or special meeting of such shareholders. There were no changes to the trading symbol, number of authorized shares, or par value of our common stock in connection with any of the reverse stock splits. See "Business –
History and Development of the Company" hereof.
The market price of our common shares has been and may in the future be subject to significant fluctuations as a result of many factors, some
of which are beyond our control. Among the factors that have in the past and could in the future affect our stock price are:
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the failure of securities analysts to publish research about us, or analysts to make appropriate changes in their financial estimates;
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announcements by us or our competitors of significant contracts, acquisitions, or capital commitments;
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variations in quarterly operating results;
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general economic conditions;
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terrorist or piracy acts;
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unforeseen events, such as natural disasters or pandemics (including the ongoing COVID-19 pandemic);
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future sales of our common shares or other securities; and
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investors' perception of us and the international tanker vessel sector.
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These broad market and industry factors may materially reduce the market price of our common shares, regardless of our operating performance.
The shipping industry has been highly unpredictable and volatile. The market for common shares in this industry may be equally volatile.
Therefore, we cannot assure you that you will be able to sell any of our common shares you may have purchased at a price greater than or equal to its original purchase price, or that you will be able to sell them at all.
A decline in the closing price of our common shares could result in a breach of the requirements for listing on the
Nasdaq Capital Market, and our common shares could be delisted from the Nasdaq Capital Market, or trading could be suspended.
On May 22, 2017, we received a notification of deficiency from the Nasdaq Stock Market, or Nasdaq, stating that because the closing bid price
of our common stock for the prior 30 consecutive business days was below $1.00 per share, we no longer met the minimum bid price requirement for listing on the Nasdaq Global Select Market. Additionally, on July 31, 2017, we received a second
notification of deficiency from Nasdaq stating that the market value of our publicly held shares fell below the $5,000,000 minimum requirement for listing on the Nasdaq Global Select Market for 30 consecutive business days. We regained compliance with
both deficiencies within the prescribed grace period for each of 180 calendar days by effecting reverse stock splits of our common shares. On January 10, 2019, we received another notification of deficiency from Nasdaq, stating that because the closing
bid price of our common stock was below the minimum $1.00 per share for 30 consecutive business days, we are not in compliance with Nasdaq Listing Rule 5450(a)(1). The applicable grace period to regain compliance was 180 days, or until July 9, 2019,
and we regained compliance with the foregoing deficiency within the prescribed grace period of 180 calendar days. On September 6, 2019, we received another notification of deficiency from Nasdaq, stating that because the closing bid price of our common
stock for the prior 30 consecutive business days was below $1.00 per share, we no longer met the minimum bid price requirement for listing on the Nasdaq Global Select Market. On March 5, 2020, Nasdaq approved our application to list our common stock on
the Nasdaq Capital Market and our securities were transferred to Nasdaq Capital Market at the opening of business on March 6, 2020. Also, on March 5, 2020, Nasdaq granted us an additional 180 calendar days, until August 31, 2020, to regain compliance
with the bid price requirement. On April 20, 2020, we were informed by Nasdaq that due to the COVID-19 pandemic, temporary relief had been granted related to the minimum bid price requirement, and as a result, our compliance period was, at that time,
suspended until June 30, 2020. Our applicable grace period to regain compliance was November 16, 2020, which included the temporary COVID-19 relief period and we regained compliance with the foregoing deficiency within the prescribed grace period. See
"Business – History and Development of the Company" hereof.
A decline in the closing price of our common shares could result in a breach of the requirements for listing on the Nasdaq Capital Market.
Although we would have an opportunity to take action to cure such a breach, including by effecting a reverse stock split if necessary, if we do not succeed, Nasdaq could commence suspension or delisting procedures in respect of our common shares. The
commencement of suspension or delisting procedures by an exchange remains, at all times, at the discretion of such exchange and would be publicly announced by the exchange. If a suspension or delisting were to occur, there would be significantly less
liquidity in the suspended or delisted securities. In addition, our ability to raise additional necessary capital through equity or debt financing would be greatly impaired. Furthermore, with respect to any suspended or delisted common shares, we would
expect decreases in institutional and other investor demand, analyst coverage, market making activity, and information available concerning trading prices and volume. Additionally, fewer broker-dealers would be willing to execute trades with respect to
such common shares. A suspension or delisting would likely decrease the attractiveness of our common shares to investors, may constitute a breach under certain of our credit facilities, constitute an event of default under certain classes of our
preferred stock and cause the trading volume of our common shares to decline, which could result in a further decline in the market price of our common shares.
We cannot assure you that our board of directors will declare dividend payments in the future, or when such payment might
occur.
On October 20, 2020, we announced that our board of directors approved a new variable quarterly dividend policy after previously suspending
the quarterly cash dividend on our common shares since the quarter ended June 30, 2016. On November 9, 2020, we made a dividend payment in the aggregate amount of $0.01 per share (or $0.10 per share, as adjusted for the reverse stock split effected on
November 2, 2020) to the shareholders of record at the close of business on October 30, 2020, with respect to the third quarter of 2020. While we have declared and paid cash dividends on our common shares in the past and currently do so, there can be
no assurance that our board of directors will declare dividend payments in the future.
If declared, our variable quarterly dividend is expected to be paid each February, May, August and November and to be a percentage of
available cash from operations during the previous quarter after cash payments for debt repayment and interest expense and reserves for the replacement of our vessels, scheduled drydockings, intermediate and special surveys, and other purposes as our
board of directors may from time to time determine are required, after taking into account contingent liabilities, the terms of any credit facility, our growth strategy and other cash needs as well as the requirements of Marshall Islands law, among
other factors. In addition, any credit facilities that we may enter into in the future may include restrictions on our ability to pay dividends.
The declaration and payment of dividends, even during times when we have sufficient funds and are not restricted from declaring and paying
dividends by our lenders or any other party, will always be subject to the discretion of our board of directors. Our board of directors may review and amend our dividend policy from time to time, taking into consideration our plans for future growth
and other factors. The actual timing and amount of dividend payments, if any, will be determined by our board of directors and will be affected by various factors, including our cash earnings, financial condition and cash requirements, the loss of a
vessel, the acquisition of one or more vessels, required capital expenditures, reserves established by our board of directors, increased or unanticipated expenses, a change in our dividend policy, additional borrowings or future issuances of
securities, many of which will be beyond our control.
We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we
have available for distribution as dividends. Our growth strategy contemplates that we will finance the acquisition of additional tanker vessels through a combination of primarily equity capital and, to a lesser extent, cash on hand and debt financing
on terms acceptable to us. If external sources of funds on terms acceptable to us are limited, our board of directors may determine to finance acquisitions with cash from operations, which would reduce or even eliminate the amount of cash available for
the payment of dividends.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us to satisfy our financial obligations and
to make dividend payments. In addition, our existing or future credit facilities may include restrictions on our ability to pay dividends.
The shipping sector is highly cyclical and volatile. We cannot predict with accuracy the amount of cash flows our operations will generate in
any given period. Our quarterly dividends, if any, will vary significantly from quarter to quarter as a result of variations in our operating performance, cash flow, and other contingencies, and we cannot assure you that we will generate available cash
for distribution in any quarter, and so we may not declare and pay any dividends in certain quarters, or at all. Our ability to resume payment of dividends will be subject to the limitations set forth above and in the section of this prospectus
entitled “Risk Factors”.
In times when we have debt outstanding, we intend to limit our dividends per share, if dividend payment is reinstated, to the amount that we
would have been able to pay if we were financed entirely with equity. In addition, any credit facilities that we may enter into in the future may include restrictions on our ability to pay dividends. Marshall Islands law generally prohibits the payment
of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend.
Future offerings of debt securities and amounts outstanding under any future credit facilities or other borrowings, which
would rank senior to our common stock upon our liquidation, and future offerings of equity securities, which would dilute our existing stockholders, may adversely affect the market value of our common stock.
In the future, we may attempt to increase our capital resources with further borrowing under credit facilities, making offerings of debt or
additional offerings of equity securities, including commercial paper, medium-term notes, senior or subordinated notes, and classes of preferred stock. Upon liquidation, holders of our debt securities and certain series of our preferred stock, and
lenders with respect to our credit facilities and other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce
the market value of our common stock, or both. Any preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments that would limit amounts available for distribution to holders of our common stock.
Because our decision to borrow additional amounts under credit facilities or issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of
our future indebtedness or offering of securities. Therefore, holders of our common stock bear the risk of our future offerings reducing the market value of our common stock and diluting their shareholdings in us or that in the event of bankruptcy,
liquidation, dissolution, or winding-up of the Company, all or substantially all of our assets will be distributed to holders of our debt securities or preferred stock or lenders with respect to our credit facilities and other borrowings.
We are a holding company, and we depend on the ability of our current and future subsidiaries to distribute funds to us
in order to satisfy our financial obligations and to make dividend payments.
We are a holding company, and our subsidiaries, which are directly or indirectly wholly-owned by us, conduct all of our operations and own
all of our operating assets. We have no significant assets other than the equity interests in our wholly-owned subsidiaries. As a result, our ability to satisfy our financial obligations and to pay dividends, if any, to our shareholders will depend on
the ability of our subsidiaries to distribute funds to us. In turn, the ability of our subsidiaries to make dividend payments to us will depend on them having profits available for distribution and, to the extent that we are unable to obtain dividends
from our subsidiaries, this will limit the discretion of our board of directors to pay or recommend the payment of dividends. Also, our subsidiaries are limited by Marshall Islands law which generally prohibits the payment of dividends other than from
surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend.
Because we are a foreign corporation, you may not have the same rights or protections that a shareholder in a U.S.
corporation may have.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and may make it more
difficult for our shareholders to protect their interests. Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA
resemble provisions of the corporation laws of a number of states in the United States. The rights and fiduciary responsibilities of directors under the law of the Marshall Islands are not as clearly established as the rights and fiduciary
responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions, and there have been few judicial cases in the Marshall Islands interpreting the BCA. Shareholder rights may differ as well. While the BCA
does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in
the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction. Therefore, you may have more difficulty in protecting your interests as a shareholder in the face
of actions by the management, directors or controlling stockholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.
Future sales of our common stock could cause the market price of our common stock to decline.
Our amended and restated articles of incorporation authorize us to issue up to 500,000,000 shares of common stock, of which 5,082,726 shares
were issued and outstanding as of the date of this prospectus.
We may offer and sell our common stock or securities convertible into our common stock from time to time, through one or more methods of
distribution, subject to market conditions and our capital needs. The market price of our common stock could decline from its current levels due to sales of a large number of shares in the market, including sales of shares by our large shareholders,
our issuance of additional shares, or securities convertible into our common stock or the perception that these sales could occur. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and
price that we deem appropriate to raise funds through future offerings of shares of our common stock. The issuance of such additional shares of common stock would also result in the dilution of the ownership interests of our existing shareholders.
As a key component of our business strategy, we intend to issue additional shares of common stock or other securities to
finance our growth as market conditions warrant. These issuances, which would generally not be subject to shareholder approval, may lower your ownership interests and may depress the market price of our common stock.
As a key component of our business strategy, we plan to finance potential future expansions of our fleet in large part with equity financing.
Pursuant to our amended and restated articles of incorporation, we are authorized to issue up to 500,000,000 common shares and 25,000,000 preferred shares, each with a par value of $0.01 per share. Therefore, subject to Nasdaq rules that are applicable
to us, we may issue additional shares of common stock and other equity securities of equal or senior rank, without shareholder approval, in a number of circumstances from time to time.
The issuance by us of additional shares of common stock or other equity securities of equal or senior rank will have the following effects:
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our existing shareholders' proportionate ownership interest in us may decrease;
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the relative voting strength of each previously outstanding share may be diminished;
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the market price of our common stock may decline; and
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the amount of cash available for dividends payable on our common stock, if any, may decrease.
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It may not be possible for our investors to enforce judgments of U.S. courts against us.
We are incorporated in the Republic of the Marshall Islands. Substantially all of our assets are located outside the United States. As a
result, it may be difficult or impossible for U.S. shareholders to serve process within the United States upon us or to enforce judgment upon us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in
which we are incorporated or where our assets are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in
original actions, liabilities against us based upon these laws.
Anti-takeover provisions in our organizational documents could make it difficult for our shareholders to replace or
remove our current board of directors or have the effect of discouraging, delaying, or preventing a merger or acquisition, which could adversely affect the value of our securities.
Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our shareholders to change
the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable.
These provisions include:
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authorizing our board of directors to issue "blank check" preferred stock without shareholder approval;
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providing for a classified board of directors with staggered, three-year terms;
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prohibiting cumulative voting in the election of directors;
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authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of two-thirds of the outstanding common shares entitled to vote generally in the election of
directors;
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limiting the persons who may call special meetings of shareholders; and
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establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings.
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These anti-takeover provisions could substantially impede the ability of our shareholders to benefit from a change in control and, as a
result, may adversely affect the value of our securities, if any, and the ability of our shareholders to realize any potential change of control premium.
Management will have broad discretion as to the use of the proceeds from this offering and may not use
the proceeds effectively.
Because we have not designated the amount of net proceeds from this offering to be used for any particular purpose, our management will have
broad discretion as to the application of the net proceeds from this offering and could use them for purposes other than those contemplated at the time of this offering. Our management may use the net proceeds for corporate purposes that may not
improve our financial condition or the market value of our common shares.
BUSINESS
This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially
from those anticipated in these forward-looking statements as a result of many factors. See the sections entitled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors".
For information on our business overview, fleet, chartering strategy, management of our fleet, fleet development and borrowing activities
please refer to the section entitled “Prospectus Summary”.
History and Development of the Company
Reverse Stock Splits and Trading Symbol
During 2016, 2017, and 2020, we effected seven reverse stock splits of our common shares, each of which was approved by our board of
directors and by our shareholders:
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On June 9, 2016, we effected a one-for-eight reverse stock split, which our shareholders approved at our annual meeting of shareholders held on February 24, 2016;
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On July 5, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017;
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On July 27, 2017, we effected a one-for-six reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017;
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On August 24, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017;
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On September 25, 2017, we effected a one-for-three reverse stock split, which our shareholders approved at our annual meeting of shareholders held on June 29, 2017;
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On November 2, 2017, we effected a one-for-seven reverse stock split, which our shareholders approved at the special meeting of shareholders held on October 26, 2017; and
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On November 2, 2020, we effected a one-for-ten reverse stock split, which our shareholders approved at the special meeting of shareholders held on October 29, 2020.
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There were no changes to the trading symbol, number of authorized shares, or par value of our common stock in connection with any of the
reverse stock splits. All share and per share amounts disclosed in this prospectus give effect to these seven reverse stock splits retroactively, for all periods presented.
On March 30, 2020, our ticker symbol on Nasdaq changed from "DCIX" to "PSHG".
Business Development and Capital Expenditures and Divestitures
In March 2017, we completed a registered direct offering of (i) 3,000 newly-designated Series B-1 convertible preferred shares, par value
$0.01 per share, and common shares underlying such Series B-1 convertible preferred shares, and (ii) warrants to purchase 6,500 of Series B-1 convertible preferred shares, 6,500 of Series B-1 convertible preferred shares underlying such warrants, and
common shares underlying such Series B-1 convertible preferred shares. Concurrently with the registered direct offering, we completed an offering of warrants to purchase 140,500 of Series B-2 convertible preferred shares in a private placement, in
reliance on Regulation S under the Securities Act. The securities in the registered direct offering and private placement were issued and sold to Kalani Investments Limited, or Kalani, an entity not affiliated with us, pursuant to a Securities Purchase
Agreement. In connection with the private placement, we entered into a Registration Rights Agreement with Kalani, pursuant to which the investor was granted certain registration rights with respect to the securities issued and sold in the private
placement. In 2018, we received $17.5 million of gross proceeds from the exercise of 17,490 Series B-2 preferred warrants to purchase an equal number of Series B-2 convertible preferred shares. In aggregate, in 2018, 17,529 Series B-2 convertible
preferred shares were converted to 1,025,0,27 common shares, thus leaving 250 Series B-2 convertible preferred shares outstanding on December 31, 2018. In 2019, we received $6.5 million of gross proceeds from the exercise of 6,470 Series B-2 preferred
warrants to purchase an equal number of Series B-2 convertible preferred shares. In aggregate, in 2019, 5,220 Series B-2 convertible preferred shares were converted to 710,051 common shares, thus leaving 1,500 Series B-2 convertible preferred shares
outstanding on December 31, 2019. Subsequent to December 31, 2019, and up to April 6, 2020, 1,100 Series B-2 convertible preferred shares were converted to 195,215 common shares, thus leaving 400 Series B-2 convertible preferred shares outstanding on
April 6, 2020. On April 7, 2020, we entered into an agreement with Kalani and repurchased and canceled all of our outstanding Series B-2 convertible preferred stock, as further described below.
In May 2017, we issued 100 shares of our newly-designated Series C Preferred Stock, par value $0.01 per share, to DSI, in exchange for a
reduction of $3.0 million in the principal amount of our then outstanding loan with DSI, thus leaving an outstanding principal balance of $42.4 million on such loan. The Series C Preferred Stock had no dividend or liquidation rights. The Series C
Preferred Stock voted with our common shares, and each share of the Series C Preferred Stock entitled the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series C Preferred Stock together
with its affiliates did not exceed 49.0% of the total number of votes eligible to be cast on all matters submitted to a vote of our stockholders. As of March 25, 2020, the 100 shares of Series C Preferred Stock remained outstanding. On March 26, 2020,
we repurchased all 100 shares of Series C Preferred Stock outstanding from DSI and canceled them. See "Certain Relationships and Related Party Transactions" hereof.
In June 2017, the repayment of our then existing RBS loan was partially funded with $10.0 million from our own cash, with $40.0 million from
a refinance of our then existing loan with Diana Shipping and with $35.0 million from a new loan agreement with Addiewell Ltd, or Addiewell, an unrelated party. After the refinance of our then existing unsecured loan facility with Diana Shipping, the
principal amount of the new secured loan amounted to $82.6 million, which included the $42.4 million outstanding principal balance as of June 30, 2017, increased by the flat fee of $0.2 million which was payable at maturity, and the additional drawdown
of $40.0 million. The new loans with Addiewell and Diana Shipping, which were secured by first and second priority mortgages over our containerships, each would mature in eighteen months from their signing, or on December 31, 2018, and bore interest at
the rate of 6% per annum for the first twelve months scaled to 9% for the next three months and further scaled to 12% for the remaining three months of the loans. Additionally, there was a discount premium amount of $10.0 million and $5.0 million for
the loans with Addiewell and Diana Shipping, respectively. During 2017 and 2018, we gradually repaid the outstanding balances of both loans by making use of equity and vessels' sales proceeds. The entire loan balances of Addiewell and Diana Shipping
were fully repaid, together with the applicable discount premiums, in May and July 2018, respectively, and the loan agreements were accordingly terminated.
From February to May 2018, we entered into five memoranda of agreement to sell the container vessels m/v
New Jersey (ex YM New Jersey), the m/v Sagitta, the m/v Centaurus, the m/v Puelo,
and the m/v Hamburg to unrelated parties for an aggregate sale price of $71.7 million, net of commissions. The vessels were delivered to their new owners between March and July of 2018.
In January 2019, we announced that our board of directors authorized a share repurchase program to purchase up to an aggregate of $6.0
million of our common shares, or the First Share Repurchase Program. The timing and amount of any repurchases would be determined by our management team and would depend on market conditions, capital allocation alternatives, applicable securities laws,
and other factors. The board of directors' authorization of the First Share Repurchase Program was effective immediately and expired on December 21, 2019. No common shares were repurchased as part of this program until its expiration.
In January 2019, we announced that we received written notification from the Nasdaq Stock Market LLC, or Nasdaq, dated January 10, 2019,
indicating that because the closing bid price of our 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, we were not in compliance with
Nasdaq Listing Rule 5450(a)(1). The applicable grace period to regain compliance was 180 days, or until July 9, 2019. We regained compliance on April 4, 2019, and thus cured this deficiency within the prescribed grace period.
In February 2019, we issued 574,779 restricted common shares as a one-time special award to the executive management and the non-executive
directors, pursuant to our board of directors' decision of February 15, 2018, in recognition of the successful refinancing of the RBS loan in 2017, which resulted in a significant gain of $42.2 million, net of expenses. The fair value of the award was
$5.0 million, and the number of shares issued was based on the share closing price of February 15, 2019. One third of the shares vested as of the issuance date, and the remainder two thirds vested ratably over two years from the issuance date.
In February 2019, the affirmative vote of a majority of all votes eligible to be cast by Shareholders entitled to attend and vote at our
Annual Meeting of Shareholders approved an amendment to our Amended and Restated Articles of Incorporation to change our name to "Performance Shipping Inc.", which was effected on February 25, 2019. Our common shares traded on the Nasdaq stock
exchange under the ticker "DCIX" until March 30, 2020, whereupon they commenced trading under the ticker "PSHG."
In June and November 2019, under two separate transactions, we acquired the entities Taburao Shipping Company Inc., Tarawa Shipping Company
Inc., and Rongelap Shipping Company Inc., which were affiliated with our Chairman and former Chief Executive Officer, Mr. Symeon Palios, for an aggregate purchase price of $21.0 million. Prior to their acquisition by us, each of the three
newly-acquired entities had signed contracts to purchase one Aframax tanker vessel each, the Blue Moon, the Briolette, and the P. Fos
from unaffiliated third-party sellers for a purchase price of $30.0 million, $30.0 million and $26.0 million respectively, and had paid advance deposits of $8.0 million, $2.0 million and $11.0 million, respectively, in connection therewith. In exchange
for the acquisition of the aforementioned entities, we agreed to pay a price equal to the aggregate deposits previously paid to the vessels' sellers. We paid the $21.0 million aggregate purchase price for the previously signed contracts of the Blue Moon, the Briolette, and the P. Fos in our common shares. Both transactions, which were unanimously approved by the
disinterested members of our board of directors, resulted in the issuance of an aggregate number of 2,170,947 of our common shares during 2019.
Also, in June 2019, we entered into Amendment No. 1 to the First Amended and Restated Shareholders Rights Agreement, dated as of August 28,
2016, by and between the Company and Computershare Trust Company, N.A., or the Rights Agreement, to amend the definition of "Acquiring Person" set out in the Rights Agreement.
In July 2019, we, through Taburao Shipping Company Inc. and Tarawa Shipping Company Inc. (the "Initial Borrowers"), entered into a loan
agreement with Nordea for a senior secured term loan facility of up to $33.0 million. The purpose of the loan facility was to partially finance the acquisition cost of the tanker vessels Blue Moon and Briolette, discussed above.
In August and November 2019, we took delivery of the tanker vessels Blue Moon and Briolette, respectively, and drew down the maximum amount of $16.5 million for each vessel, according to the Nordea loan agreement terms.
In the second half of 2019, as the market environment for our containers fleet continued to be negative and with difficult employment
opportunities, we initiated a number of actions for the gradual disposal of the whole container vessels' fleet, although no decision at that time was reached for a strategic shift to the tanker vessels segment. In August and September 2019, we entered
into two memoranda of agreement to sell the container vessels m/v Pamina and m/v Pucon to unrelated parties, for an aggregate sale price of $29.0 million, net of commissions. The vessels were delivered to their new owners in October and November 2019,
respectively.
In September 2019, we announced that we received written notification from Nasdaq dated September 6, 2019, indicating that because the
closing bid price of our 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, we were not in compliance with Nasdaq Listing Rule 5450(a)(1).
The applicable grace period to regain compliance was 180 days, or until March 4, 2020. On March 5, 2020, Nasdaq approved our application to list our common stock on the Nasdaq Capital Market, and our securities were transferred to Nasdaq Capital Market
at the opening of business on March 6, 2020. Moreover, Nasdaq notified us that in connection with the transfer of our securities to the Nasdaq Capital Market, we were granted an additional 180 calendar days, until August 31, 2020, in order to regain
compliance with the minimum $1.00 bid price per share requirement. On April 20, 2020, we were informed by Nasdaq that due to the COVID-19 pandemic, temporary relief had been granted related to the minimum bid price requirement, and as a result, our
compliance period was, at that time, suspended until June 30, 2020. Our applicable grace period to regain compliance was November 16, 2020, which included the temporary COVID-19 relief period. We regained compliance on November 18, 2020, and thus cured
this deficiency within the prescribed grace period.
In December 2019, we, through the "Initial Borrowers" and Rongelap Shipping Company Inc. (collectively "the Borrowers"), entered into an
amended and restated loan agreement with Nordea for a senior secured term loan facility of up to $47.0 million. The purpose of the amended agreement is to provide additional financing of up to $14.0 million for the acquisition of the tanker vessel P. Fos, discussed above. The amended agreement includes substantively identical terms to the initial agreement of July 2019, discussed above, in all other respects.
In January 2020, we took delivery of the tanker vessel P. Fos (ex Virgo Sun) and drew down the maximum amount of $14.0 million under the amended loan agreement with Nordea, as discussed above.
Also, in January 2020, we announced that our board of directors authorized a share repurchase program to purchase up to an aggregate of $6.0
million of our common shares. The timing and amount of the repurchases would be determined by our management team and would depend on market conditions, capital allocation alternatives, applicable securities laws, and other factors. From the program's
inception on January 29, 2020, and until the program expired on December 21, 2020, we repurchased 81,785 common shares of value $0.7 million, net of expenses. We canceled all common shares repurchased as part of this program.
Also, in January 2020, we contracted to sell to unaffiliated parties the container vessel m/v Rotterdam
for a gross sale price of $18.5 million. The vessel was delivered to her new owners on April 1, 2020.
In February 2020, we contracted to acquire, from unaffiliated parties, the tanker vessel P. Kikuma
(ex FSL Shanghai) for a gross sale price of $26.0 million. The vessel was delivered to us on March 30, 2020, and we funded its acquisition cost with cash on hand and bank financing – see below.
In February 2020, the election of Mr. Andreas Michalopoulos as Class I Director of the Company was approved by the requisite vote at our 2020
Annual General Meeting of Shareholders, or the 2020 Annual Meeting. Also effective as of the date of the 2020 Annual Meeting, Mr. Anastasios Margaronis, Mr. Nikolaos Petmezas, and Mr. Ioannis Zafirakis resigned from our board of directors due to other
business commitments. Our board of directors appointed Mr. Christos Glavanis and Ms. Aliki Paliou to the board of directors, effective as of February 28, 2020, to fill the existing vacancies created by the resignations of Messrs Margaronis and
Petmezas. Mr. Glavanis was also appointed as Chairman of the Compensation Committee. Finally, also effective February 28, 2020, Mr. Anastasios Margaronis resigned from his position as our President, Mr. Ioannis Zafirakis resigned as our Chief Strategy
Officer and Secretary, and Mrs. Semiramis Paliou resigned as our Chief Operating Officer, in order to devote substantially all of their business time to other endeavors. On the same date, Mr. Michalopoulos was appointed to replace Mr. Zafirakis as
Secretary. From October 31, 2019, to October 2020, Mr. Andreas Michalopoulos held the position of Deputy Chief Executive Officer. In October 2020, we announced that our board of directors appointed Mr. Michalopoulos to the position of Chief Executive
Officer following the retirement of Mr. Symeon Palios from that position. Our board of directors also appointed Mr. Anthony Argyropoulos to the position of Chief Financial Officer of the Company, succeeding Mr. Michalopoulos in that capacity.
On March 1, 2020, we terminated early our Brokerage Agreement with Steamship Shipbroking, which was originally due to expire on March 31,
2020, at no cost.
In March 2020, we signed the second amendment and restatement loan agreement with Nordea, which increases the maximum loan amount to $59.0
million. The purpose of the amended loan facility is to additionally finance the acquisition cost of the vessel P. Kikuma (ex FSL Shanghai), described above, by $12.0 million. The second amendment and
restatement loan agreement includes substantively identical terms to the previous loan agreement of December 2019. On March 26, 2020, we drew down the amount of $12.0 million in anticipation of the vessels' P. Kikuma
delivery – see above.
In March 2020, the disinterested members of our board of directors approved the repurchase of all of the shares of our Series C Preferred
Stock, held by DSI since 2017, for a purchase price of $1.5 million. Our board of directors had previously obtained from an independent third party a fairness opinion for the transaction. On March 25, 2020, we agreed with DSI for the re-purchase of the
shares, and on March 26, 2020, we paid the purchase price of $1.5 million and canceled all of the shares of our Series C Preferred Stock. See "Certain Relationships and Related Party Transactions" hereof.
On March 30, 2020, our ticker symbol on Nasdaq changed from "DCIX" to "PSHG."
In April 2020, we entered into an agreement with Kalani and re-purchased all 400 outstanding Series B-2 convertible preferred shares,
discussed above, for a purchase price of $0.4 million. We canceled these shares upon the conclusion of the transaction.
In August 2020, we sold the container m/v Domingo to an unrelated party, for a sale price of $5.6 million, net of commissions. The vessel was
delivered to her new owners in August 2020. At that point of time, we evaluated the results of the tanker vessels owned since 2019 and assessed that the prospects of the specific segment as being positive. Furthermore, we determined that our decision
to exit the container segment represented a strategic shift to the exclusive ownership of tanker vessels and that the disposal of all of our container vessels constituted a disposal of an entity's segment, that will have a major effect on our
operations and financial results.
In October 2020, we announced that our board of directors approved a new dividend policy pursuant to which we may declare and pay a variable
quarterly cash dividend. If declared, the quarterly dividend is expected to be paid each February, May, August and November. Our board of directors declared its first such dividend on its common stock of $0.10 per share (or $0.01 per share before the
adjustment for the reverse stock split of November 2, 2020), in accordance with the newly approved policy. The cash dividend was payable on November 9, 2020, to the shareholders of record at the close of business on October 30, 2020.
In November 2020, we contracted to acquire from an unaffiliated party the tanker vessel P. Yanbu
for a gross purchase price of $22.0 million. The vessel was delivered to us in December 2020.
In December 2020, we entered into an agreement for a new amortizing term loan facility of up to $31.5 million with Piraeus Bank S.A.
("Piraeus") through three of our separate wholly-owned subsidiaries. Proceeds from the facility were used to refinance outstanding indebtedness relating to P. Fos and P.
Kikuma under an existing term loan facility f with Nordea Bank Abp, filial i Norge, and to partially finance our acquisition of P. Yanbu. Also, in December 2020, we entered into a supplemental loan
agreement with Nordea to amend certain terms of our existing loan agreement. For additional information, please see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Loan Facilities" of our Annual Report.
On January 1, 2021, we granted to our Chief Financial Officer stock options to purchase 120,000 of our common shares as share-based
remuneration, which can be exercised only when our stock price increases. The stock options are exercisable at a price range between $10.00 and $30.00 per share, for a term of five years. The stock options were granted pursuant to, and in accordance
with, our Equity Incentive Plan.
On March 5, 2021, we entered into an At The Market Offering Agreement with H.C. Wainwright & Co., LLC, as sales agent, pursuant to which
we may offer and sell, from time to time, up to an aggregate of $5.9 million of our common shares, par value $0.01 per share.
Corporate Information
For our corporate information please refer to page 3 of this prospectus.
Organizational Structure
We are the sole owner of all of the issued and outstanding shares of the subsidiaries listed below:
Name of Subsidiary
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Place of Incorporation
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Rongerik Shipping Company Inc.
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Marshall Islands
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Utirik Shipping Company Inc.
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Marshall Islands
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Eluk Shipping Company Inc.
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Marshall Islands
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Oruk Shipping Company Inc.
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Marshall Islands
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Jabor Shipping Company Inc.
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Marshall Islands
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Delap Shipping Company Inc.
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Marshall Islands
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Dud Shipping Company Inc.
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Marshall Islands
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Unitized Ocean Transport Limited
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Marshall Islands
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Meck Shipping Company Inc.
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Marshall Islands
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Langor Shipping Company Inc.
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Marshall Islands
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Taburao Shipping Company Inc.
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Marshall Islands
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Tarawa Shipping Company Inc.
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Marshall Islands
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Rongelap Shipping Company Inc.
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Marshall Islands
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Toka Shipping Company Inc.
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Marshall Islands
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Arno Shipping Company Inc.
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Marshall Islands
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DESCRIPTION OF CAPITAL STOCK
The following is a summary of the description of our capital stock and the material terms of our amended and restated articles of
incorporation and amended and restated bylaws. Because the following is a summary, it does not contain all of the information that you may find useful. For more complete information, you should read the description of capital stock and the material
terms of our amended and restated articles of incorporation and amended and restated bylaws contained in the Annual Report, as updated by annual, quarterly, and other reports and documents we file with the SEC after the date of this prospectus and that
are incorporated by reference herein, together with our amended and restated articles of incorporation and amended and restated bylaws, copies of which have been filed as exhibits thereto. Please see the section of this prospectus entitled “Where You
Can Find Additional Information.”
Purpose
Our purpose, as stated in our amended and restated articles of incorporation, is to engage in any lawful act or activity for which
corporations may now or hereafter be organized under the BCA. Our amended and restated articles of incorporation and amended and restated bylaws do not impose any limitations on the ownership rights of our shareholders.
Authorized Capitalization
Under our amended and restated articles of incorporation, we have authorized 500,000,000 common shares, par value $0.01 per share, of which
5,082,726 shares were issued and outstanding as of April 5, 2021, and 25,000,000 preferred shares, par value $0.01 per share, of which no shares are issued and outstanding as of April 5, 2021.
Description of Common Shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that
may be applicable to any outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our Board of Directors out of funds legally available for dividends. Upon our dissolution or liquidation
or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of our preferred shares having liquidation preferences, if any, the holders of our common shares will be
entitled to receive pro rata our remaining assets available for distribution. Holders of our common shares do not have conversion, redemption or preemptive rights to subscribe to any of our securities. The rights, preferences, and privileges of holders
of common shares are subject to the rights of the holders of our preferred shares, including our existing classes of preferred shares and any preferred shares we may issue in the future.
Description of Preferred Shares
Our amended and restated articles of incorporation authorize our Board of Directors to establish one or more series of preferred stock and to
determine, with respect to any series of preferred stock, the terms and rights of that series, including the designation of the series, the number of shares of the series, the preferences and relative, participating, option or other special rights, if
any, and any qualifications, limitations or restrictions of such series, and the voting rights, if any, of the holders of the series.
Registrar and Transfer Agent
The registrar and transfer agent for our common shares is Computershare Trust Company, N.A.
Listing
Our common shares are listed on Nasdaq under the symbol “PSHG.”
CERTAIN MARSHALL ISLANDS COMPANY CONSIDERATIONS
Our corporate affairs are governed by our amended and restated articles of incorporation, amended and restated bylaws and the Marshall
Islands Business Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States, including Delaware. While the BCA also provides that it is to be interpreted according to
the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands, and we cannot predict whether Marshall Islands courts would
reach the same conclusions as Delaware or other courts in the United States. Accordingly, you may have more difficulty in protecting your interests under Marshall Islands law in the face of actions by our management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction that has developed a substantial body of case law. Furthermore, the Marshall Islands lacks a bankruptcy statute, and in the event of any bankruptcy, insolvency,
liquidation, dissolution, reorganization or similar proceeding involving the Company, the bankruptcy laws of the United States or of another country having jurisdiction over the Company would apply. The following table provides a comparison between
certain statutory provisions of the BCA and the Delaware General Corporation Law relating to shareholders' rights.
Marshall Islands
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Delaware
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Shareholder Meetings
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Held at a time and place as designated in the bylaws.
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May be held at such time or place as designated in the certificate of incorporation or the bylaws, or if not so designated, as determined by the board
of directors.
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Special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the articles of
incorporation or by the bylaws.
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Special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of
incorporation or by the bylaws.
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May be held in or outside of the Marshall Islands.
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May be held in or outside of Delaware.
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Notice:
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Notice:
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Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and
hour of the meeting and, unless it is an annual meeting, indicate that it is being issued by or at the direction of the person calling the meeting.
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Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any,
date and hour of the meeting, and the means of remote communication, if any.
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A copy of the notice of any meeting shall be given personally or sent by mail not less than 15 nor more than 60 days before the meeting.
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Written notice shall be given not less than 10 nor more than 60 days before the meeting.
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Shareholders' Voting Rights
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Any action required to be taken by a meeting of shareholders may be taken without a meeting if consent is in writing and is signed by all the
shareholders entitled to vote with respect to the subject matter thereof.
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Any action required to be taken by a meeting of shareholders may be taken without a meeting if a consent for such action is in writing and is signed by
shareholders having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
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Any person authorized to vote may authorize another person or persons to act for him by proxy.
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Any person authorized to vote may authorize another person or persons to act for him by proxy.
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Unless otherwise provided in the articles of incorporation or the bylaws, a majority of shares entitled to vote constitutes a quorum. In no event shall
a quorum consist of fewer than one-third of the common shares entitled to vote at a meeting.
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For stock corporations, the certificate of incorporation or bylaws may specify the number of shares required to constitute a quorum but in no event
shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares entitled to vote shall constitute a quorum.
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When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.
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When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.
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The articles of incorporation may provide for cumulative voting in the election of directors.
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The certificate of incorporation may provide for cumulative voting in the election of directors.
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Removal:
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Removal:
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If the articles of incorporation or the bylaws so provide, any or all of the directors may be removed without cause by vote of the shareholders.
Any or all of the directors may be removed for cause by vote of the shareholders.
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Any or all of the directors may be removed, with or without cause, by the holders of a majority of the shares entitled to vote except: (1) unless the
certificate of incorporation otherwise provides, in the case of a corporation whose board is classified, shareholders may effect such removal only for cause, or (2) if the corporation has cumulative voting, if less than the entire board is to
be removed, no director may be removed without cause if the votes cast against such director's removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board of directors, or, if there be
classes of directors, at an election of the class of directors of which such director is a part.
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Directors
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Number of board members can be changed by an amendment to the bylaws, by the shareholders, or by action of the board under the specific provisions of a
bylaw.
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Number of board members shall be fixed by, or in a manner provided by, the bylaws, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number shall be made only by amendment to the certificate of incorporation.
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The board of directors must consist of at least one member.
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The board of directors must consist of at least one member.
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If the board of directors is authorized to change the number of directors, it can only do so by a majority of the entire board of directors and so long
as no decrease in the number shortens the term of any incumbent director.
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Dissenter's Rights of Appraisal
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Shareholders have a right to dissent from any plan of merger, consolidation or sale of all or substantially all assets not made in the usual course of
business, and receive payment of the fair value of their shares. However, the right of a dissenting shareholder under the BCA to receive payment of the appraised fair value of his shares is not available for the shares of any class or series of
stock, which shares at the record date fixed to determine the shareholders entitled to receive notice of and to vote at the meeting of the shareholders to act upon the agreement of merger or consolidation, were either (i) listed on a securities
exchange or admitted for trading on an interdealer quotation system or (ii) held of record by more than 2,000 holders.
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Appraisal rights shall be available for the shares of any class or series of stock of a corporation in a merger or consolidation, subject to limited
exceptions, such as a merger or consolidation of corporations listed on a national securities exchange in which listed shares are the offered consideration or if such shares are held of record by more than 2,000 holders.
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A holder of any adversely affected shares who does not vote on or consent in writing to an amendment to the articles of incorporation has the right to
dissent and to receive payment for such shares if the amendment:
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Alters or abolishes any preferential right of any outstanding shares having preference; or
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Creates, alters or abolishes any provision or right in respect to the redemption of any outstanding shares.
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Alters or abolishes any preemptive right of such holder to acquire shares or other securities; or
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Excludes or limits the right of such holder to vote on any matter, except as such right may be limited by the voting rights given to new shares then
being authorized of any existing or new class.
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Shareholders' Derivative Actions
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An action may be brought in the right of a corporation to procure a judgment in its favor, by a holder of shares or of voting trust certificates or of a
beneficial interest in such shares or certificates. It shall be made to appear that the plaintiff is such a holder at the time the action is brought and that he was such a holder at the time of the transaction of which he complains, or that his
shares or his interest therein devolved upon him by operation of law.
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In any derivative suit instituted by a shareholder or a corporation, it shall be averred in the complaint that the plaintiff was a shareholder of the
corporation at the time of the transaction of which he complains or that such shareholder's stock thereafter devolved upon such shareholder by operation of law.
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A complaint shall set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board of directors or the
reasons for not making such effort. Such action shall not be discontinued, compromised or settled without the approval of the High Court of the Republic of The Marshall Islands.
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Attorneys' fees may be awarded if the action is successful.
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A corporation may require a plaintiff bringing a derivative suit to give security for reasonable expenses if the plaintiff owns less than 5% of any
class of stock and the common shares have a value of less than $50,000.
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TAX CONSIDERATIONS
The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations of the ownership and disposition by
a U.S. Holder and a Non-U.S. Holder, each as defined below, of the common stock. This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as dealers in securities or
commodities, financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates, persons liable for the alternative minimum tax, persons who hold common stock as part of a straddle, hedge, conversion transaction or integrated
investment, U.S. Holders whose functional currency is not the United States dollar, persons required to recognize income for U.S. federal income tax purposes no later than when such income is reported on an "applicable financial statement", persons
subject to the "base erosion and anti-avoidance" tax and investors that own, actually or under applicable constructive ownership rules, 10% or more of the Company's common stock, may be subject to special rules. This discussion deals only with holders
who hold the common stock as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local or foreign law of the ownership of
common stock.
Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax consequences of the Company's activities to
the Company and of the ownership of the Company's common stock to its shareholders. The Company is incorporated in the Marshall Islands. Under current Marshall Islands law, the Company is not subject to tax on income or capital gains, and no Marshall
Islands withholding tax will be imposed upon payments of dividends by the Company to its shareholders.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, the Company's U.S. counsel, the following are the material U.S. federal income tax consequences to
the Company of its activities and to U.S. Holders and Non-U.S Holders, each as defined below, of the common stock. The following discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code,
judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, all of which are subject to change, possibly with retroactive effect.
Taxation of Operating Income: In General
The following discussion addresses the U.S. federal income taxation of our operating income if we are engaged in the international operation
of vessels.
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation is subject to U.S. federal income
taxation in respect of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating
agreement, code sharing arrangements or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as "shipping income," to the
extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States
constitutes income from sources within the United States, which we refer to as "U.S.-source shipping income."
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within
the United States. We are not permitted by law to engage in transportation that produces income which is considered to be 100% from sources within the United States. Shipping income attributable to transportation exclusively between non-U.S. ports will
be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any U.S. federal income tax.
Exemption of Operating Income from U.S. Federal Income Taxation
Under Section 883 of the Code, or Section 883, we will be exempt from U.S. federal income taxation on our U.S.-source shipping income if:
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we are organized in a foreign country that grants an "equivalent exemption" to corporations organized in the United States, or U.S. corporations; and
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either:
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more than 50% of the value of our common stock is owned, directly or indirectly, by qualified shareholders, which we refer to as the "50% Ownership Test," or
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our common stock is "primarily and regularly traded on an established securities market" in a country that grants an "equivalent exemption" to U.S. corporations or in the United States, which we
refer to as the "Publicly-Traded Test."
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The Marshall Islands, the jurisdiction where we are incorporated, grant an "equivalent exemption" to U.S. corporations. We anticipate that
any of our shipowning subsidiaries will be incorporated in a jurisdiction that provides an "equivalent exemption" to U.S. corporations. Therefore, we will be exempt from U.S. federal income taxation with respect to our U.S.-source shipping income if
either the 50% Ownership Test or the Publicly-Traded Test is met.
We do not currently anticipate a circumstance under which we would be able to satisfy the 50% Ownership Test. Our ability to satisfy the
Publicly-Traded Test is discussed below.
Publicly-Traded Test
In order to satisfy the Publicly-Traded Test, our common stock must be primarily and regularly traded on one or more established securities
markets. The regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be considered to be "primarily traded" on an established securities market in a country if the
number of shares of each class of shares that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in
any other single country. Our common shares are "primarily traded" on the Nasdaq Global Select Market.
Under the regulations, stock of a foreign corporation will be considered to be "regularly traded" on an established securities market if one
or more classes of stock representing more than 50% of the outstanding stock, by both total combined voting power of all classes of shares entitled to vote and total value, are listed on such market, to which we refer as the "listing threshold." Since
our common shares are listed on the Nasdaq Global Select Market, we expect to satisfy the listing threshold.
It is further required that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of shares is traded
on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, which we refer to as the trading frequency test; and (ii) the aggregate number of stock of such class of
shares traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year, which we refer to as the trading
volume test. Even if these tests are not satisfied, the regulations provide that such trading frequency and trading volume tests will be deemed satisfied if, as is expected to be the case with our common shares, such class of stock is traded on an
established securities market in the United States and such shares are regularly quoted by dealers making a market in such shares, such as being traded and quoted on the Nasdaq Global Select Market.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that a class of shares will not be considered to be "regularly
traded" on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned, actually or constructively under specified share attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and value of such class of stock, to which we refer as the "Five Percent Override Rule."
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and value of our common stock,
or "5% Shareholders," the regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the SEC, as owning 5% or more of our common stock. The regulations further provide that an investment company
which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
In the event the Five Percent Override Rule is triggered, the regulations provide that the Five Percent Override Rule will nevertheless not
apply if we can establish that within the group of 5% Shareholders, there are sufficient qualified shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group from owning 50% or more of our common stock for more than
half the number of days during the taxable year.
Based on Schedules 13D and 13G filings, during the 2020 taxable year, less than 50% of the Company's common stock was owned by 5%
Shareholders. Therefore, the Company believes that it is not subject to the 5% Override Rule and thus has satisfied the Publicly Traded Test for the 2020 taxable year. However, there can be no assurance that the Company will continue to satisfy the
Publicly Traded Test in future taxable years. For example, the Company could be subject to the 5% Override Rule if another 5% Shareholder in combination with the Company's existing 5% Shareholders were to own 50% or more of the Company's common stock.
In such a case, the Company would be subject to the 5% Override Rule unless it could establish that, among the shares of the common stock owned by the 5% Shareholders, sufficient shares are owned by qualified shareholders, for purposes of Section 883
of the Code, to preclude non-qualified shareholders from owning 50% or more of the Company's common stock for more than half the number of days during the taxable year. The requirements of establishing this exception to the 5% Override Rule are onerous
and there is no assurance the Company will be able to satisfy them.
Based on the foregoing, the Company believes that it satisfied the Publicly Traded Test and therefore believes that it was exempt from U.S.
federal income tax under Section 883 of the Code, during the 2020 taxable year, and intends to take this position on its 2020 U.S. federal income tax returns.
Taxation in Absence of 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, which we refer to as the 4% gross basis tax regime. 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 our U.S.-source shipping income is considered to be "effectively connected" with the conduct of a U.S. trade or business, as
described below, any such "effectively connected" U.S.-source shipping income, net of applicable deductions, would be subject to the U.S. federal corporate income tax currently imposed at a rate of 21%. By statutory exclusion, the benefits of the
section 883 exemption are not available to income that is "effectively connected" with the conduct of a U.S. trade or business. In addition, we may be subject to an additional 30% "branch profits" tax on earnings effectively connected with the conduct
of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of such 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 (or, in the case of income from the bareboat chartering of a vessel, is attributable to a fixed place of business in the United States).
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We do not anticipate that we will have any vessel operating to or from the United States on a regularly scheduled basis. Based on the
foregoing and on the expected mode of our shipping operations and other activities, we do not anticipate that any of our U.S.-source shipping income will be "effectively connected" with the conduct of a U.S. trade or business.
United States Federal Income Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal income taxation with
respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for
this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of common stock that is an individual U.S. citizen or resident, a U.S.
corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
If a partnership holds the common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the
activities of the partnership. If you are a partner in a partnership holding the common stock, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of the passive foreign investment company, or PFIC, rules below, distributions made by us with respect to our
common stock, other than certain pro-rata distributions of our common stock, to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent
of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will be treated first as a nontaxable return of capital to the
extent of the U.S. Holder's tax basis in his common stock on a dollar-for-dollar basis and thereafter as a capital gain. Because we are not a United States corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends-received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common stock will generally be treated as income from sources outside the United States and will generally constitute "passive
category income" or, in the case of certain types of U.S. Holders, "general category income" for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate, which we refer to as a U.S. Individual Holder,
will generally be treated as "qualified dividend income" that is taxable to such U.S. Individual Holders at preferential tax rates, provided that (1) the common stock is readily tradable on an established securities market in the United States such as
the Nasdaq Global Select Market, on which our common stock is traded; (2) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year, as discussed below; (3) the U.S. Individual Holder has held
the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend; and (4) the U.S. Individual Holder is not under an obligation to make related payments with respect to
positions in substantially similar or related property.
There is no assurance that any dividends paid on our common stock will be eligible for these preferential rates in the hands of a U.S.
Individual Holder. Any distributions out of earnings and profits we pay which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.
Special rules may apply to any "extraordinary dividend," generally, a dividend paid by us in an amount which is equal to or in excess of ten
percent of a U.S. Holder's adjusted tax basis, or fair market value in certain circumstances, in a share of our common stock. If we pay an "extraordinary dividend" on our common stock that is treated as "qualified dividend income," then any loss
derived by a U.S. Individual Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common Stock
Subject to the discussion of the PFIC rules below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other
disposition of our common stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's tax basis in such stock. A U.S. Holder's tax basis in the common
stock generally will equal the U.S. Holder's acquisition cost less any prior return of capital. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's holding period is greater than one year at the time of the sale,
exchange or other disposition and will generally be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
PFIC Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for U.S. federal
income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such U.S. Holder held our common stock, either:
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at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental
business), which we refer to as the income test; or
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at least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income, which we refer to as the asset test.
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For purposes of determining whether we are a PFIC, cash will be treated as an asset which is held for the production of passive income. In
addition, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the subsidiary's stock. Income earned, or deemed
earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute "passive income" unless we were treated under specific rules as deriving our rental income in the
active conduct of a trade or business.
Our status as a PFIC will depend upon the operations of our vessels. Therefore, we can give no assurances as to whether we will be a PFIC
with respect to any taxable year. In making the determination as to whether we are a PFIC, we intend to treat the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of us or any of our wholly-owned
subsidiaries as services income, rather than rental income. Correspondingly, in the opinion of Seward & Kissel LLP, such income should not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in
connection with the production of such income, should not constitute passive assets for purposes of determining whether we are a PFIC. There is substantial legal authority supporting this position consisting of case law and IRS pronouncements
concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income
for other tax purposes. In the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with the opinion of Seward & Kissel LLP. On the other hand, any income we derive from
bareboat chartering activities will likely be treated as passive income for purposes of the income test. Likewise, any assets utilized in bareboat chartering activities will likely be treated as generating passive income for purposes of the asset test.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation
rules depending on whether the U.S. Holder makes an election to treat us as a "Qualified Electing Fund," which election we refer to as a "QEF election," or a "mark-to-market" election with respect to the common stock. In addition, if we are a PFIC, a
U.S. Holder will be required to file with respect to taxable years ending on or after December 31, 2013, IRS Form 8621 with the IRS.
Taxation of U.S. Holders Making a Timely QEF Election.
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an "Electing Holder," the Electing Holder must report each
year for U.S. federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions
were received from us by the Electing Holder. The Electing Holder's adjusted tax basis in the common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed
will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our
common stock. A U.S. Holder would make a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with his U.S. federal income tax return. After the end of each taxable year, we will determine whether we were a PFIC for such
taxable year. If we determine or otherwise become aware that we are a PFIC for any taxable year, we will provide each U.S. Holder with all necessary information, including a PFIC Annual Information Statement, in order to allow such holder to make a QEF
election for such taxable year.
Taxation of U.S. Holders Making a "Mark-to-Market" Election.
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will continue to be the case, our shares are
treated as "marketable stock," a U.S. Holder would be allowed to make a "mark-to-market" election with respect to our common stock, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related
Treasury regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common stock at the end of the taxable year over such holder's adjusted
tax basis in the common stock. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the common stock over their fair market value at the end of the taxable year, but only
to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder's tax basis in his common stock would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or
other disposition of our common stock would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the net
mark-to-market gains previously included by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election.
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who has not timely made a QEF or mark-to-market election for
the first taxable year in which it holds our common stock and during which we are treated as PFIC, whom we refer to as a "Non-Electing Holder," would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any
distributions received by the Non-Electing Holder on our common stock in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing
Holder's holding period for the common stock), and (2) any gain realized on the sale, exchange or other disposition of our common stock. Under these special rules:
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the excess distribution or gain would be allocated ratably to each day over the Non-Electing Holders' aggregate holding period for the common stock;
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the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and
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the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge
for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
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These adverse tax consequences would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow
funds or otherwise utilize leverage in connection with its acquisition of our common stock. In addition, if a Non-Electing Holder who is an individual dies while owning our common stock, such holder's successor generally would not receive a step-up in
tax basis with respect to such common stock.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common stock, other than a partnership or entity treated as a partnership for U.S. Federal income tax purposes,
that is not a U.S. Holder is referred to herein as a Non-U.S. Holder.
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on dividends received from us with respect to
our common stock, unless that income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. In general, if the Non-U.S. Holder is entitled to the benefits of certain U.S. income tax treaties with
respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale, exchange or
other disposition of our common stock, unless:
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the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. In general, if the Non-U.S. Holder is entitled to the benefits of certain income
tax treaties with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or
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the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
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If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common stock,
including dividends and the gain from the sale, exchange or other disposition of the stock, that is effectively connected with the conduct of that trade or business will generally be subject to regular U.S. federal income tax in the same manner as
discussed in the previous section relating to the taxation of U.S. Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the effectively connected income, which are subject to certain
adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting
requirements. Such payments will also be subject to backup withholding tax if you are a non-corporate U.S. Holder and you:
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fail to provide an accurate taxpayer identification number;
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are notified by the IRS that you have failed to report all interest or dividends required to be shown on your U.S. federal income tax returns; or
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in certain circumstances, fail to comply with applicable certification requirements.
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Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on
an applicable IRS Form W-8.
If you sell your common stock through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and
information reporting unless you certify that you are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common stock through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid
to you outside the United States then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even
if that payment is made to you outside the United States, if you sell your common stock through a non-U.S. office of a broker that is a U.S. person or has certain other contacts with the United States, unless you certify that you are a non-U.S. person,
under penalty of perjury, or you otherwise establish an exemption.
Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under the backup withholding
rules that exceed your U.S. federal income tax liability by timely filing a refund claim with the IRS.
U.S. Holders who are individuals (and to the extent specified in applicable Treasury Regulations, certain U.S. entities) who hold "specified
foreign financial assets" (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the
taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our common stock, unless the common
stock is held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect.
Additionally, in the event a U.S. Holder who is an individual (and to the extent specified in applicable Treasury regulations, a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment
and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed.