F-1 1 y82917fv1.htm FORM F-1 fv1
 
Registration No. 333-      
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Crude Carriers Corp.
(Exact Name of Registrant as Specified in Its Charter)
         
Republic of The Marshall Islands
  4412   N/A
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (IRS Employer
Identification Number)
Crude Carriers Corp.
3 Iassonos Street,
185 37 Piraeus
Greece
+30 210 458 4950
(Address, including zip code, and
telephone number, including area
code, of Registrant’s principal
executive offices)
 
CT Corporation System
111 Eighth Avenue
New York, NY 10011
(212) 894-8800
(Name, address, including zip code,
and telephone number, including
area code, of agent for service)
Copies to:
 
 
 
 
     
Jay Clayton, Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
(212) 558-3445
(telephone number)
(212) 558-3588 (facsimile number) 
  Gregory M. Shaw, Esq.
Cravath, Swaine & Moore LLP
CityPoint, One Ropemaker Street
London, EC2Y 9HR, England
+44 207 453 1000
(telephone number)
+44 207 860 1150 (facsimile number)
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
 
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.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
             
      Proposed Maximum
     
Title of Each Class of
    Aggregate Offering
    Amount of
Securities to be Registered     Price(2)(3)     Registration Fee
Common Stock, par value $0.0001 per share(1)
    $310,500,000     $22,138.65
             
 
(1) In accordance with Rule 457(o) of the Securities Act, the number of shares of Common Stock being registered and the proposed maximum offering price per share are not included in this table.
 
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933.
 
(3) Includes Common Stock that may be sold pursuant to the underwriters’ over-allotment option.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


 

The Information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any jurisdiction where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS Subject to Completion March 1, 2010
 
13,500,000 Shares
 
LOGO
Common Stock
 
This is the initial public offering of our Common Stock. No public market currently exists for our Common Stock. We are offering all of the 13,500,000 shares of Common Stock offered by this prospectus. We expect the public offering price to be between $19.00 and $21.00 per share.
 
We have been cleared to apply to list our Common Stock on the New York Stock Exchange under the symbol “CRU”.
 
Investing in our Common Stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our Common Stock in “Risk Factors” beginning on page 12 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
                 
    Per Share     Total  
   
Public offering price
  $                $             
 
 
Underwriting discounts and commissions
  $     $  
 
 
Proceeds, before expenses, to us
  $     $    
 
 
 
The underwriters may also purchase up to an additional 2,025,000 shares of our Common Stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $           and our total proceeds, before expenses, will be $          .
 
Following this offering, we will have two classes of stock outstanding, Common Stock and Class B Stock. The rights of the holders of shares of Common Stock and Class B Stock are identical, except with respect to voting and conversion. Each share of Common Stock is entitled to one vote per share. Each share of Class B Stock is entitled to 10 votes per share and is convertible at any time at the election of the holder into one share of Common Stock. The aggregate voting power of the Class B Stock will be limited to a maximum of 49% of the voting power of our outstanding Common Stock and Class B Stock, voting together as a single class.
 
The underwriters are offering the Common Stock as set forth under “Underwriting.” Delivery of the shares will be made on or about          ,          2010.
 
UBS Investment Bank BofA Merrill Lynch Wells Fargo Securities
 
Nordea Markets Oppenheimer & Co.
 
Cantor Fitzgerald & Co. Pareto Securities RS Platou Markets ING


 

(IMAGE)
M/T “Miltiadis M II” 162,397 dwt built April 2006
at Daewoo Shipbuilding & Marine Engineering Co., Ltd, South Korea
(IMAGE)
M/T “Alexander the Great” 297,958 dwt under construction
at Universal Shipbuilding Corporation, Ariake, Japan


 

 
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SUMMARY
 
This section summarizes material information that appears later in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. As an investor or prospective investor, you should carefully review the entire prospectus, including the risk factors and the more detailed information that appears later.
 
Unless we specify otherwise, when used in this prospectus the terms “Crude Carriers,” the “Company,” “we,” “our” and “us” refer to Crude Carriers Corp. References to “Capital Maritime” or “Manager” are to Capital Maritime & Trading Corp. and its subsidiary Capital Ship Management Corp., which will provide to us commercial, technical, administrative and strategic services.
 
For the definition of some of the shipping and other terms used in this prospectus, please see “Glossary of Shipping Terms” at the end of this prospectus. Unless otherwise indicated, all references to “dollars” and “$” in this prospectus are to, and amounts are presented in, U.S. Dollars.
 
OVERVIEW
 
We are a newly formed transportation company incorporated in the Marshall Islands in October 2009 to conduct a shipping business focused on the crude tanker industry. We plan to acquire and operate a fleet of crude tankers that will transport mainly crude oil and fuel oil along worldwide shipping routes. Capital Maritime, an international shipping company, will serve as our Manager. We intend to leverage the expertise and reputation of our Manager to pursue growth opportunities in the crude oil tanker shipping market. We intend to maintain a flexible approach to chartering with the strategy of optimizing our selection of the available commercial opportunities over time. We currently expect to focus on the spot market, including all types of spot market—related engagements such as single voyage or short-term time charters, but retain the ability to evaluate and enter into longer-term period charters, including time- and bareboat charters with terms that may provide for profit sharing arrangements or with returns that are linked to spot market indices. We may also charter-in vessels, meaning we may charter vessels we do not own with the intention of chartering them in accordance with our chartering and fleet management strategy.
 
We have entered into agreements to acquire three modern, high-specification vessels and will aim to grow our fleet further through timely and selective acquisitions of vessels in a manner that is accretive to our earnings, cash flow and net asset value. We have entered into an agreement to acquire a modern, 2006-built high-specification Suezmax vessel from Capital Maritime, our Manager, at a price of $71.25 million, the average of two independent valuations. We have also entered into agreements to acquire two newbuilt very large crude carrier tankers (“VLCCs”) for $96.5 million each. We will acquire the Suezmax promptly following the consummation of this offering and expect delivery of the VLCCs in March 2010 and June 2010. We intend to finance our fleet primarily with equity and internally-generated cash flow. We have entered into a signed commitment letter with Nordea Bank Finland Plc, London Branch, to obtain a new $100 million revolving credit facility. We intend to utilize this credit facility opportunistically for the future growth of the Company beyond the acquisition of our initial fleet in a manner that will enhance our earnings, cash flow and net asset value. We do not expect to use this credit facility to acquire our initial fleet.
 
Our operations will be managed, under the supervision of our board of directors, by Capital Maritime as our Manager. Upon the closing of this offering, we will enter into a long-term management agreement pursuant to which our Manager and its affiliates will apply their expertise and experience in the tanker industry to provide us with commercial, technical, administrative and strategic services. The management agreement will be for an initial term of approximately ten years and will automatically renew for additional five-year periods unless terminated in accordance with its terms. We will pay our Manager fees for the services it provides us as well as reimburse our Manager for its costs and expenses incurred in providing certain of these services. In addition, if the management agreement is terminated under certain circumstances, we will pay our Manager a termination payment calculated in accordance


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with a pre-established formula. Please read “Our Manager and Management Agreement—Management Agreement” for further information regarding the management agreement.
 
At or prior to the closing of this offering, Crude Carriers Investments Corp., a related party to Capital Maritime, will make a capital contribution to us of $40 million in exchange for shares of our Class B Stock pursuant to a subscription agreement at a price per share equal to the public offering price in this offering. Our Class B Stock grants holders 10 votes per share and therefore we expect Crude Carriers Investments Corp. to have 49% of the voting power of our shares (a percentage that would be higher absent the 49% voting cap on shares of Class B Stock held by any Class B Stock holder, including its affiliates). Upon the completion of this offering, therefore, holders of our Common Stock will have 51% of the voting power in the Company and will have acquired that aggregate position for $270 million, whereas Crude Carriers Investments Corp. will have 49% of the voting power in the Company and will have acquired that position for $40 million. Except as described below, shares of our Common Stock and our Class B Stock have equivalent economic rights. Upon certain transfers, shares of Class B Stock will convert to shares of Common Stock on a one-for-one basis.
 
Under the subscription agreement between us and Crude Carriers Investments Corp. for Class B Shares, Crude Carriers Investments Corp. will be entitled, so long as Capital Maritime or any of its affiliates is our manager, to subscribe for an additional number of shares of Class B Stock equal to 2.0% of the number of shares of Common Stock issued after the consummation of this offering, excluding any shares of Common Stock issuable upon the exercise of the underwriters’ over-allotment option in this offering. These additional shares of Class B Stock would be issued to Crude Carriers Investments Corp. for additional nominal consideration equal to their aggregate par value of $0.0001 per share. Based on a capital contribution of $40 million by Crude Carriers Investments Corp. and an offering of shares at a price of $20.00 per share (the midpoint of the expected offering price), Crude Carriers Investments Corp. would therefore hold, at the completion of this offering, 2,000,000 shares of Class B Stock and a 12.9 percent economic interest in the Company, while the holders of Common Stock would hold 13,500,000 shares of Common Stock and a 87.1 percent economic interest in the Company.
 
We intend to distribute to our shareholders on a quarterly basis substantially all of our net cash flow less any amount required to maintain a reserve that our Board determines is appropriate. See “Our Dividend Policy and Restrictions on Dividends.”
 
OUR RELATIONSHIP WITH CAPITAL MARITIME
 
One of our key strengths is our relationship with Capital Maritime, our Manager, an international shipping company that owns and manages a fleet of tanker and dry bulk vessels. Capital Maritime has developed relationships with major international charterers including oil majors, traders, shipbuilders and financial institutions through its management team. Capital Maritime is qualified to engage in spot and long-term period business with a number of oil majors including BP p.l.c., Royal Dutch Shell plc, StatoilHydro ASA, Chevron Corporation, ExxonMobil Corporation and Total S.A. and has a history of conducting business with the major traders in the spot market including Vitol Group, ST Shipping and Transport Pte Ltd (the shipping affiliate of Glencore International AG) and Trafigura Beheer BV. We believe that we will benefit from these relationships in various respects, including that Capital Maritime’s qualification to do business with these and other companies will allow us to engage in commercial relationships with those companies without having to satisfy their qualification requirements independently. Capital Maritime’s management team includes several executives with experience in the shipping industry who we believe have a demonstrated track record of managing the strategic, commercial, technical and financial aspects of shipping businesses and maintaining cost-competitive and efficient operations. Because Capital Maritime will own only one tanker vessel upon the consummation of this offering, we do not expect that Capital Maritime will be a significant competitor. We estimate that vessels owned or managed by Capital Maritime ship less than 1% of the world’s seaborne oil.
 
At the time of this offering, we do not own any vessels. We have entered into a contract with Capital Maritime to acquire the Miltiadis M II, a modern, 2006-built Suezmax crude tanker (the “Initial


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Suezmax”), for $71.25 million, the average of two valuations from independent ship brokers (one such broker valued the Initial Suezmax at $71 million and another at between $72 million and $71 million), by purchasing all of the shares of the subsidiary of Capital Maritime that owns it. The Initial Suezmax was constructed by Daewoo Shipbuilding & Marine Engineering Co. Ltd. to include high specification features, including increased maneuvering capacity, adverse weather condition capacity (including ice with a thickness of 0.8 meters or less) and the ability to transport or store crude oil, fuel oil and clean petroleum products. According to industry data, a total of four Suezmax vessels with similar features have been built to date. Consummation of this transaction is contingent on the completion of this offering and it is expected to take place simultaneously with the completion of this offering. The Initial Suezmax is currently employed in the spot market. We believe that the terms of sale for the Initial Suezmax are consistent with similar transactions between unrelated third parties. The Initial Suezmax is currently subject to a mortgage and certain other encumbrances entered into in connection with Capital Maritime’s financing of the purchase of the Initial Suezmax. Prior to consummating the sale of the Initial Suezmax, Capital Maritime will cause the mortgage over the Initial Suezmax to be released and will use its reasonable best efforts to cause the cancellation and discharge of the other encumbrances on the Initial Suezmax in connection with the financing. See “Index to Financial Statements—Cooper Consultants Co.—Notes to Financial Statements—3(b)” for a description of the financing and the encumbrances it created. We expect these encumbrances to be cancelled and released before or at the completion of this offering.
 
Capital Maritime has agreed to purchase two very large crude carrier tankers newly-built at Universal Shipyards in Japan (the “Universal VLCCs”) for $96.5 million each. Capital Maritime has made a 20% deposit on these vessels. We have entered into contracts with Capital Maritime to acquire its rights to purchase the subisidiaries that hold the rights to the Universal VLCCs upon the consummation of this offering in exchange for a payment equal to the deposit made by Capital Maritime, plus a sale and purchase fee equal to 1% of the purchase price of the Universal VLCCs pursuant to the terms of the management agreement with our Manager. We expect the fee paid to Capital Maritime in connection with the acquisition of each vessel to be $965,000 pursuant to our management agreement with Capital Maritime. We have entered into these contracts with Capital Maritime rather than contracting directly with the entities selling the Universal VLCCs because we did not have the necessary funds available to make the deposits necessary to secure the Universal VLCCs when the opportunity to purchase them arose. Capital Maritime had the means to capitalize on the acquisition opportunity at the time it was presented. Upon the consummation of this offering, we will bear the entire risk of the loss of the $38.6 million deposit on the Universal VLCCs.
 
Substantially all of the proceeds of this offering and the capital contribution from Crude Carriers Investments Corp. will be used to purchase the Universal VLCCs and the Initial Suezmax. There are various factors that will affect whether and at what times we acquire vessels, but we currently estimate that we will purchase and take delivery of the Initial Suezmax upon the consummation of this offering, expect delivery of one Universal VLCC in March 2010 and expect delivery of the other Universal VLCC in June 2010. We may enter into additional contracts to acquire vessels prior to the consummation of this offering. Various factors could affect our vessel acquisition estimates, including delays in delivery of the Universal VLCCs. Please read the various risks discussed under “Risk Factors—Risk Factors Related to Our Planned Business & Operations—Industry Specific Risk Factors,” especially “—Delays, cancellations or non-completion of deliveries of newbuilding vessels could harm our operating results,” for more information.
 
Our initial fleet will be comprised of very large crude carrier vessels (known as “VLCCs”) and Suezmax vessels, and while we intend to evaluate all classes of crude tanker vessels, including Aframax and Panamax tanker vessels, for potential future acquisitions we anticipate that our fleet will continue to be comprised primarily of VLCC and Suezmax vessels. In evaluating additional vessel purchases, we plan to focus on modern vessels with specifications that we believe will provide an attractive return on equity and will be accretive to earnings and cash flow. Based on current market prices, we expect the purchase price for such vessels would likely be in a range from $75 million to $100 million for a VLCC vessel and in a range from $55 million to $75 million for a Suezmax vessel. In addition to the Initial


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Suezmax, Capital Maritime currently owns one additional modern, double-hull crude oil Suezmax tanker that we may elect to review as a potential acquisition in the future. Any purchase of a vessel from Capital Maritime or its affiliates will be subject to the approval of our Board of Directors. Our Board of Directors may (but is not obligated to) refer the purchase to a committee of independent directors for a recommendation, but our Board of Directors would not be bound by such a recommendation. However, in considering such a transaction, our Board of Directors will consider valuations of the vessel generated by independent third-party brokers.
 
Following the consummation of this offering, we expect to grant management options to purchase our Common Stock.
 
We intend to maintain a flexible approach to chartering with the strategy of optimizing our selection of the available commercial opportunities over time. We currently expect to focus on the spot market, including all types of spot market—related employment such as single voyage or short-term time charters, but retain the ability to evaluate and enter into longer-term period charters, including time- and bareboat charters with terms that may provide for profit sharing arrangements or with returns that are linked to spot market indices. Our goal is to provide shareholders with the opportunity to invest in a company with a strategic focus on the tanker market that intends to maintain a strong balance sheet and seeks to distribute regular dividends based on cash flows in excess of any amount required to maintain a reserve that our Board determines is appropriate.
 
FOUNDATIONS OF OUR BUSINESS
 
We believe that we will possess a number of strengths that will provide us with a competitive advantage in the tanker shipping industry, including the following:
 
Ø  Our Chairman and Chief Executive Officer, Board of Directors and management team have experience in the shipping industry.  Evangelos M. Marinakis, the Chairman of our Board of Directors and our Chief Executive Officer, is the founder and Chief Executive Officer of Capital Maritime and the founder and Chairman of Capital Product Partners L.P., a NASDAQ-listed product tanker company. Over the past 18 years, Mr. Marinakis has overseen the operations of Capital Maritime and its predecessor companies as it has grown from its initial fleet of 7 vessels to 36 owned, managed or contracted vessels today, 19 of which are owned by Capital Product Partners L.P. Mr. Marinakis has also overseen the operations of Capital Product Partners L.P. since its inception in 2007. Our management team also includes Ioannis E. Lazaridis, our President and the Chief Executive and Chief Financial Officer of Capital Product Partners L.P.; Gerasimos G. Kalogiratos, our Chief Financial Officer, who has 8 years of experience in the shipping and finance industries, specializing in shipping finance and vessel acquisitions; and Andreas C. Konialidis, our Chartering Manager, who has over 11 years of experience in the shipping industry, specializing in chartering and commercial management of vessels, and who will oversee our Manager’s chartering activities.
 
Ø  Our Manager has a track record in the commercial management of vessels.  Our Manager has a demonstrated track record of managing the commercial, technical and financial aspects implicated by our business. Our Manager’s team is experienced and has displayed expertise in identifying profitable chartering and vessel sale and acquisition opportunities, having purchased and sold a number of vessels and negotiated numerous charters over the past two decades. We expect the experience and expertise of our Manager and its employees to be key to our growth.
 
Ø  We intend to pursue a strategy of low leverage to maintain a strong balance sheet.  We will finance our initial fleet primarily with equity and internally-generated cash flow. We have also entered into a signed commitment letter with Nordea Bank Finland Plc, London Branch, to obtain a new $100 million revolving credit facility. Any future vessel acquisitions are expected to be financed primarily through future equity follow-on offerings and internally-generated cash flow. We intend to utilize this credit facility opportunistically for the future growth of the Company beyond the acquisition of our initial fleet in a manner that will enhance our earnings cash flow and net asset


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value. We do not expect to use this credit facility to acquire our initial fleet. In the event we utilize our credit facility, we expect to maintain low levels of leverage.
 
Ø  We intend to maintain an efficient management structure with competitive operating costs.  Our Manager will provide the commercial and technical management of our fleet pursuant to a management agreement (the “Management Agreement”). Capital Maritime will apply its experience in successfully managing the commercial and technical operations of its own fleet, including overseeing and arranging repairs, surveys, inspections in drydock, vetting by charterers, budgeting, operations, sale and purchase transactions and chartering in order to obtain the best possible operating performance from the vessels in our fleet. We expect to realize cost benefits based on a network of providers of vessel supplies, bunkers suppliers, crewing agencies, insurers, and other service providers that Capital Maritime and its management team have established over the years. See “Our Manager and Management Agreement—Management Agreement.” We believe our management structure will enhance the scalability of our business, allowing us to expand our fleet without substantial increases in overhead costs.
 
Ø  We believe we will benefit from Capital Maritime’s history of satisfying the operational, safety, environmental and technical vetting criteria imposed by oil majors and its relationships within the shipping industry.  We believe Capital Maritime’s reputation within the shipping industry and its network of relationships with many of the world’s leading oil companies, commodity traders and shipping companies will provide numerous benefits that are key to our long-term growth and success. Capital Maritime is among a limited number of shipping managers that have successfully satisfied the operational, safety, environmental and technical vetting criteria of some of the world’s most selective major international oil companies, including BP p.l.c., Royal Dutch Shell plc, StatoilHydro ASA, Chevron Corporation, ExxonMobil Corporation and Total S.A., and has qualified to do business with them. Although the world’s leading oil companies do not disclose lists of companies qualified to do business with them, we estimate that, historically, at any one time less than approximately 30 shipping managers are qualified to do so. Capital Maritime has also been qualified to charter vessels and enter into spot charter agreements with major refiners and traders such as Sunoco Inc, Koch Industries, Reliance Petrochemical Ltd, Vitol Group, ST Shipping and Transport Pte Ltd (the shipping affiliate of Glencore International AG), Trafigura Beheer BV., LITASCO SA (a subsidiary of Lukoil Oil Company), NOC Petroleum Group, S.A., Independent Petroleum Group, Addax Petroleum Corporation (a subsidiary of China Petrochemical Corporation) and Morgan Stanley. As our Manager, Capital Maritime’s qualification to do business with these and other companies will allow us to engage in commercial relationships with them without having to satisfy their qualification requirements independently. We believe that these relationships of our Manager and its track record within the shipping industry are likely to lead to greater asset acquisition and chartering opportunities for us and will provide significant opportunities for future growth.
 
Ø  We believe we will benefit from Capital Maritime’s ability to form strategic relationships with key players in the shipping industry.  Capital Maritime has a history of forming strategic relationships with key players in the shipping industry including oil majors and traders. We believe that the strategic relationships our Manager has cultivated and its history of conducting repeat business will give us an advantage in accessing certain business opportunities and understanding our customers’ commercial requirements. Although we may benefit from Capital Maritime’s prior relationships with oil majors and traders, vessels owned and managed by Capital Maritime do not ship a significant percentage of the world’s seaborne oil.
 
Ø  We intend to acquire a modern, high-quality fleet of tanker vessels.  Our initial fleet of vessels will have high specifications and an average age of approximately one year. Further vessel acquisitions will target modern vessels with high specifications. We believe that owning a modern, high-quality fleet is more attractive to charterers, reduces operating costs and allows our fleet to be more reliable, which improves utilization. The tanker shipping industry is highly regulated and we aim to own and operate vessels that satisfy all current and pending safety and environmental regulations. In certain circumstances, we will seek to acquire sister ships that we expect will provide further operating


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efficiencies. We expect that the combination of these factors will provide us with a competitive advantage in securing favorable employment for our vessels.
 
BUSINESS STRATEGY
 
Our strategy is to manage and expand our fleet in a manner that produces strong cash flows, which, in turn, fund dividends to our shareholders. Key elements of our business strategy include:
 
Ø  Strategically deploy our vessels in order to optimize the opportunities in the chartering market.  We intend to maintain a flexible approach to chartering with the strategy of optimizing our selection of the available commercial opportunities over time. We currently expect to focus on the spot market, including all types of spot market—related employment such as single voyage or short-term time charters, but retain the ability to evaluate and enter into longer-term period charters, including time- and bareboat charters with terms that may provide for profit sharing arrangements or with returns that are linked to spot market indices. We may also charter-in vessels, meaning we may charter vessels we do not own with the intention of chartering them in accordance with our chartering and fleet management strategy.
 
Ø  Strategically develop and grow our fleet.  We intend to acquire modern, high-quality tanker vessels through timely and selective acquisitions of vessels in a manner that is accretive to our earnings and cash flow. We currently view VLCC and Suezmax vessel classes as providing attractive return characteristics but will evaluate all classes of crude oil tanker vessels for potential acquisition, including Aframax and Panamax tankers. A key element of our acquisition strategy will be to pursue vessels at attractive valuations relative to the valuation of our public equity. In the current market, asset values in the tanker shipping industry are tending towards levels significantly below average historical values. We believe that these circumstances present an opportunity for us to seek to establish and then grow our fleet at favorable prices.
 
Ø  Return a substantial portion of our cash flow to shareholders through quarterly dividends.  We intend to distribute to our shareholders on a quarterly basis substantially all of our net cash flow less any amount required to maintain a reserve that our Board determines from time to time is appropriate for the operation and future growth of our fleet. See “Our Dividend Policy and Restrictions on Dividends.”
 
Ø  Maintain a strong balance sheet.  We believe that primarily using equity and internally-generated cash flows to finance our business will provide for a strong balance sheet and, as a result, greater flexibility to capture market opportunities. Although our use of equity rather than debt financing may result in substantial dilution to our shareholders, we believe that this approach is suited to the current global economic conditions, including the relatively restrictive credit environment. During periods of relatively low charter rates, revenue may be significantly reduced and, for levered companies, debt service can be a significant additional burden and can further limit the opportunities available to such companies by, for example, causing them to enter into long term charters at historically low rates. Currently, the spot market is experiencing a period of substantially low rates as compared to historic averages. Historical tanker spot market rates have been volatile as a result of the many conditions and factors that can affect the price, supply and demand for tanker capacity. The current global economic crisis has reduced demand for transportation of oil over longer distances. It is our current expectation that spot rates will increase as any significant recovery in the world economy and demand and supply of oil occurs. While a failure to recover from this crisis could leave such rates stagnant or lead to a further decline, we believe that having a strong balance sheet and trading in the spot market will allow us to more quickly capture higher charter rates when they increase while allowing us the flexibility to take advantage of other attractive business opportunities when they arise.
 
Ø  Operate a high-quality fleet.  We intend to maintain a modern, high-quality fleet that satisfies all current and pending safety and environmental standards and complies with charterer requirements through our Managers’ comprehensive maintenance program. In addition, our Manager will maintain the quality of our vessels by carrying out regular inspections, both while in port and at sea.


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Ø  Maintain cost-competitive, highly efficient operations.  Under the Management Agreement, Capital Maritime will coordinate and oversee the commercial and technical management of our fleet. We believe that Capital Maritime will be able to do so at a cost to us that would be competitive to what could be achieved by performing these functions in-house and that Capital Maritime’s rates are competitive with those that would be available to us through third-party managers. Vessels managed by Capital Maritime have been distinguished as top performing vessels in the BP fleet in the last two years. We expect the efficiency and operational expertise of the Capital Maritime fleet to provide our vessels with a competitive advantage over other charterers in the market.
 
OUR DIVIDEND POLICY
 
We intend to pay a variable quarterly dividend based on our cash available for distribution, which represents net cash flow during the previous quarter less any amount required to maintain a reserve that our board of directors determines from time to time is appropriate for the operation and future growth of our fleet, taking into account (among other factors) contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of the laws of the Republic of The Marshall Islands. These reserves may cover, among other things, drydocking, repairs, growth, claims, liabilities and other obligations, debt amortization, acquisitions of additional assets and working capital. Dividends will be paid equally on a per-share basis between our Common Stock and our Class B Stock. The declaration and payment of dividends is at the discretion of our board of directors, and there can be no assurance that we will not reduce or eliminate our dividend. Please read “Our Dividend Policy and Restrictions on Dividends” and “Risk Factors” for a more detailed description of the calculation of cash available for distribution and various factors that could reduce or eliminate our ability to pay dividends.
 
SUBSCRIPTION AND VOTING ARRANGEMENTS WITH CRUDE CARRIERS INVESTMENTS CORP. AND CERTAIN ARRANGEMENTS WITH CAPITAL MARITIME
 
At or prior to the closing of this offering, Crude Carriers Investments Corp., a related party to Capital Maritime, will make a capital contribution to us of $40 million in exchange for shares of our Class B Stock pursuant to a subscription agreement (the “Subscription Agreement”) at a price per share equal to the public offering price in this offering. Our Class B Stock grants holders 10 votes per share and therefore we expect Crude Carriers Investments Corp. to have 49% of the voting power of our shares (a percentage that would be higher absent the 49% voting cap on shares of Class B Stock held by any Class B Stock holder, including its affiliates). Upon the completion of this offering, therefore, holders of our Common Stock will have 51% of the voting power in the Company and will have acquired that aggregate position for $270 million, whereas Crude Carriers Investments Corp. will have 49% of the voting power in the Company and will have acquired that position for $40 million. Except as provided in the Subscription Agreement, shares of our Common Stock and our Class B Stock have equivalent economic rights. Upon certain transfers, shares of Class B Stock will convert to shares of Common Stock on a one-for one basis.
 
Under the Subscription Agreement, Crude Carriers Investments Corp. will be entitled, so long as Capital Maritime or any of its affiliates is our manager, to subscribe for an additional number of shares of Class B Stock equal to 2.0% of the number of shares of Common Stock issued after the consummation of this offering, excluding any shares of Common Stock issuable upon the exercise of the underwriters’ over-allotment option in this offering. These additional shares of Class B Stock would be issued to Crude Carriers Investments Corp. for additional nominal consideration equal to their aggregate par value of $0.0001 per share. Based on a capital contribution of $40 million by Crude Carriers Investments Corp. and an offering of shares at a price of $20.00 per share (the midpoint of the expected offering price), Crude Carriers Investments Corp. would therefore hold, at the completion of this offering, 2,000,000 shares of Class B Stock and a 12.9 percent economic interest in the Company, while the holders of Common Stock would hold 13,500,000 shares of Common Stock and a 87.1 percent economic interest in the Company.


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To preserve our ability to have certain items of our income be exempt from United States federal income taxation under Section 883 of the United States Internal Revenue Code of 1986, as amended (the “Code”), our amended and restated articles of incorporation will provide that if, at any time, any person or group other than Crude Carriers Investments Corp. owns beneficially 5% or more of the Common Stock then outstanding, then any Common Stock owned by that person or group in excess of 4.9% may not be voted. The voting rights of any such shareholders that would have been in excess of 4.9% shall be redistributed pro rata among other shareholders of our Common Stock holding less than 5.0% of our Common Stock. In addition, if Crude Carriers Investments Corp., its affiliates, their transferees and persons who acquired such shares with the prior approval of our Board of Directors, owns beneficially, and taking into account all applicable attribution rules under the Code, 50% or more of our Common Stock then outstanding and such shareholders are not qualified shareholders under the applicable U.S. Department of the Treasury (“Treasury”) regulations sufficient to reduce the nonqualified shareholders’ stake in the Common Stock below 50%, then any such Common Stock owned by such shareholders in excess of 49% may not be voted on any matter (except for purposes of nominating a person for election to our board). The voting rights of any such shareholder that is not a qualified shareholder in excess of 49% will be redistributed pro rata among the other Common Stock holders holding less than 4.9% of the Common Stock.
 
As our Manager, Capital Maritime will manage our business pursuant to the Management Agreement, under which it will provide to us commercial, technical, administrative, investor relations and strategic services. Commercial services primarily involve vessel chartering and vessel sale and purchase. Technical services primarily include vessel operation, maintenance, obtaining appropriate insurance, regulatory, vetting and classification society compliance, purchasing and crewing. Administrative services primarily include accounting, legal and financial compliance services. Investor relations services primarily include assisting with the preparation and dissemination of information, interacting with investors and engaging in public relations activities. Strategic services primarily include providing advice on acquisitions and dispositions, financings, strategic planning and general management of our business. We will pay our Manager a fee for these services and reimburse our Manager for the reasonable direct or indirect expenses it incurs in providing us such services, including the cost of Manager personnel who perform services for us. We expect that Capital Maritime will provide us with the majority of our staff. However, our board of directors and our executive officers have the authority to hire additional staff as they deem necessary.
 
We will also enter into (a) the business opportunities agreement by which we will have a right to take advantage of certain business opportunities that may be attractive to Capital Maritime and vice versa and (b) an agreement with Crude Carriers Investments Corp. by which we will provide to it and its affiliates registration rights under the Securities Act of 1933, as amended (the “Securities Act”), with respect to shares of our Common Stock and Class B Stock owned by it or them.
 
For further details about our agreements with Capital Maritime and Crude Carriers Investments Corp., please read “Our Manager and Management Agreement—Management Agreement,” and “Certain Relationships and Related-Party Transactions.”
 
CORPORATE INFORMATION
 
We maintain our principal executive offices at 3 Iassonos Street, 185 37 Piraeus, Greece. Our telephone number at that address is +30 210 4584950.


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THE OFFERING
 
Common Stock offered 13,500,000 shares.
 
15,525,000 shares if the underwriters exercise their over-allotment option in full.
 
Shares outstanding immediately after this offering 13,500,000 shares of Common Stock (assuming no exercise of the underwriters’ over-allotment option).
 
2,000,000 shares of Class B Stock (assuming an initial public offering price of $20.00 per share, the mid-point of the range shown on the cover of this prospectus).
 
Use of proceeds We intend to use substantially all of the proceeds from this offering, along with the capital contribution from Crude Carriers Investments Corp., to purchase our initial fleet.
 
Dividend policy We intend to pay a variable quarterly dividend based on our cash available for distribution, which represents net cash flow during the previous quarter less any amount required to maintain a reserve that our board of directors determines from time to time is appropriate for the operation and future growth of our fleet, taking into account (among other factors) contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of the laws of the Republic of The Marshall Islands. These reserves may cover, among other things, drydocking, repairs, growth, claims, liabilities and other obligations, debt amortization, acquisitions of additional assets and working capital. There is no guarantee that we will pay any dividends on our shares of Common Stock in any quarter, and our payment of dividends will be subject to compliance Marshall Islands law.
 
Class B Stock Upon the closing of this offering, Crude Carriers Investments Corp. will own all of our outstanding shares of Class B Stock. The Class B Stock is not being registered in this offering. The principal difference between our Common Stock and our Class B Stock is that each share of Class B Stock entitles the holder thereof to 10 votes on matters presented to our shareholders, while each share of Common Stock entitles the holder thereof to only one vote on such matters. However, the voting power of the Class B Stock held by any entity and its affiliates is limited to an aggregate maximum of 49% of the combined voting power of our Common Stock and Class B Stock. Holders of shares of Class B Stock may elect at any time to have such shares converted into shares of Common Stock on a one-for-one basis.
 
In addition, upon any transfer of shares of Class B Stock to a holder other than Crude Carriers Investments shares Corp. or any of its affiliates, such shares shall automatically and irrevocably convert into shares of Common Stock on a one-for-one basis.
 
If the aggregate number of shares of Common Stock and Class B Stock beneficially owned by Crude Carriers Investments


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Corp. and its affiliates falls below the number of shares of Class B Stock issued to Crude Carriers Investments Corp. for its $40 million subscription made in connection with this offering (estimated to be 2,000,000 shares assuming an initial public offering price of $20 per share, the mid-point of the range shown on the cover of this prospectus, such number of shares to be adjusted for any subdivision or conversion of the Class B Stock) then all shares of our Class B Stock will automatically convert into shares of our Common Stock.
 
Pursuant to the Subscription Agreement, Crude Carriers Investments Corp. will be entitled, so long as Capital Maritime or any of its affiliates is our manager, to subscribe for an additional number of shares of Class B Stock equal to 2.0% of the number of shares of Common Stock issued, excluding shares of Common Stock issued in this offering, shares of Common Stock issued under our 2010 Equity Incentive Plan (see “Management—2010 Equity Incentive Plan”) and future equity compensation. These additional shares would be issued for additional nominal consideration equal to their par value of $0.0001 per share.
 
Voting Rights To preserve our ability to have certain items of our income be exempt from United States federal income taxation under Section 883 of the Code, if, at any time, any person or group other than Crude Carriers Investments Corp. owns beneficially 5% or more of the Common Stock then outstanding, then any Common Stock owned by that person or group in excess of 4.9% may not be voted. The voting rights of any such shareholders in excess of 4.9% shall be redistributed pro rata among other shareholders of our Common Stock holding less than 5.0% of our Common Stock.
 
Tax considerations We believe that under current United States federal income tax law, some portion of the distributions you receive from us will constitute dividends, and if you are an individual citizen or resident of the United States or a U.S. estate or trust and meet certain holding period requirements, then such dividends are expected to be taxable as “qualified dividend income” subject to a maximum 15% United States federal income tax rate (on dividends paid in taxable years beginning before January 1, 2011). Distributions that are not treated as dividends will be treated first as a non-taxable return of capital to the extent of your tax basis in your Common Stock and thereafter as capital gain.
 
NYSE listing We have been cleared to apply to have our Common Stock approved for listing on the New York Stock Exchange under the symbol “CRU.”
 
Unless we indicate otherwise or the context otherwise requires, all information in this prospectus assumes that the underwriters do not exercise their over-allotment option.


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RISK FACTORS
 
Investing in our Common Stock involves substantial risk. You should carefully consider all the information in this prospectus prior to investing in our Common Stock. In particular, we urge you to consider carefully the factors set forth in the section of this prospectus entitled “Risk Factors” beginning on page 12.


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RISK FACTORS
 
Any investment in our Common Stock involves a high degree of risk. You should carefully consider the following risk factors together with all of the other information included in this prospectus when evaluating an investment in our Common Stock. Some of the following risks relate principally to us and our business and the industry in which we operate. Other risks relate principally to the securities market and ownership of our shares.
 
If any of the following risks actually occurs, our business, financial condition, operating results or cash flows could be materially adversely affected. In that case, we might not be able to pay dividends on shares of our Common Stock, the trading price of our Common Stock could decline, and you could lose all or part of your investment.
 
RISK FACTORS RELATED TO OUR PLANNED BUSINESS & OPERATIONS
 
Industry Specific Risk Factors
 
The current global economic downturn may negatively impact our business.
 
In the current global economy, operating businesses have been facing tightening credit, weakening demand for goods and services, deteriorating international liquidity conditions, and declining markets. Oil demand has contracted sharply as a result of the global economic slow down. Lower demand for crude oil as well as diminished trade credit available for the trading of such cargoes have led to decreased demand for tanker vessels, creating downward pressure on charter rates. See “The International Tanker Shipping Industry—Charter Rates & Asset Values.” If the current global economic environment persists or worsens, we may be negatively affected in the following ways:
 
Ø  We may not be able to employ our vessels at favorable charter rates or operate our vessels profitably.
 
Ø  The market value of our vessels could significantly decrease, which may cause us to recognize losses if any of our vessels are sold or if their values are impaired.
 
The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. Fluctuations in charter rates and tanker 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 factors affecting the supply and demand for tankers 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 capacity include:
 
Ø  demand for oil and oil products;
 
Ø  supply of oil and oil products;
 
Ø  regional availability of refining capacity;
 
Ø  acts of God and natural disasters including, but not limited to, hurricanes and typhoons;
 
Ø  global and regional economic and political conditions, including developments in international trade, fluctuations in industrial and agricultural production and armed conflicts;
 
Ø  the distance oil and oil products are to be moved by sea;
 
Ø  increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-oil pipelines to oil pipelines in those markets;
 
Ø  changes in seaborne and other transportation patterns;


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Risk factors
 
 
 
Ø  weather;
 
Ø  competition from alternative sources of energy, including nuclear power, natural gas and coal; and
 
Ø  refinery utilization and maintenance.
 
The factors that influence the supply of tanker capacity include:
 
Ø  the number of newbuilding deliveries;
 
Ø  the scrapping rate of older vessels;
 
Ø  the price of steel;
 
Ø  conversion of tankers to other uses;
 
Ø  the successful implementation of the single hull phase out;
 
Ø  port and canal congestion;
 
Ø  the number of vessels that are out of service; and
 
Ø  environmental and other concerns and regulations.
 
In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage, the efficiency and age profile of the existing fleet in the market and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
 
We anticipate that the future demand for our tanker vessels will be dependent upon economic growth in the world’s economies, including the Organisation for Economic Co-operation and Development (“OECD”) countries, China and India, seasonal and regional changes in demand, changes in the capacity of the global tanker vessel fleet and the sources and supply of tanker cargo to be transported by sea including output by member states of the Organization for Petroleum Exporting Countries (“OPEC”), West African oil producing countries and the former Soviet Union (“FSU”). Adverse economic, political, social or other developments could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Historically, the tanker markets have been volatile as a result of the many conditions and factors that can affect the price, supply and demand for tanker capacity. The current global economic crisis may reduce demand for transportation of oil over longer distances and supply of tankers to carry that oil, which may have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Changes in the oil markets could result in decreased demand for our vessels and services.
 
Demand for our vessels and services in transporting oil will depend upon world and regional oil markets. Any decrease in shipments of crude oil in those markets could have a material adverse effect on our business, financial condition and results of operations. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of oil, including competition from alternative energy sources. In the long-term it is possible that oil demand may be reduced by an increased reliance on alternative energy sources, a drive for increased efficiency in the use of oil as a result of environmental concerns or high oil prices. The current recession affecting the U.S. and world economies may result in protracted reduced consumption of oil products and a decreased demand for our vessels and lower charter rates, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.


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Risk factors
 
 
Charterhire rates for tanker vessels are volatile and are currently at relatively low levels as compared to recent levels and may further decrease in the future, which may adversely affect our earnings.
 
Oil tanker charterhire rates are sensitive to changes in demand for and supply of vessel capacity and consequently are volatile. Pricing of oil transportation services occurs in a highly competitive global tanker charter market. Charterhire rates are at relatively low rates as compared to recent levels. See “The International Tanker Shipping Industry—Charter Rates & Asset Values.” There can be no assurance that the tanker charter market will recover over the next several months and the market could continue to decline further. These circumstances, which result from the economic dislocation worldwide and the disruption of the credit markets, have had a number of adverse consequences for tanker shipping, including, among other things:
 
Ø  an absence of financing for vessels;
 
Ø  no active second-hand market for the sale of vessels;
 
Ø  extremely low charter rates, particularly for vessels employed in the spot market, which might not be sufficient to cover for the vessel’s operating expenses;
 
Ø  widespread loan covenant defaults in the tanker shipping industry; and
 
Ø  declaration of bankruptcy by some operators, traders and shipowners as well as charterers.
 
The occurrence of one or more of these events could adversely affect our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
The process for obtaining longer period charters is highly competitive.
 
Medium- to long-term time charters and bareboat charters have the potential to provide income at pre-determined rates over more extended periods of time. However, the process for obtaining longer term time charters and bareboat charters is highly competitive and generally involves a lengthy, intensive and continuous screening and vetting process and the submission of competitive bids that often extends for several months. In addition to the quality, age and suitability of the vessel, longer term shipping contracts tend to be awarded based upon a variety of other factors relating to the vessel operator, including:
 
Ø  the operator’s environmental, health and safety record;
 
Ø  compliance with the International Maritime Organization (“IMO”) (the United Nations agency for maritime safety and the prevention of marine pollution by ships) standards and the heightened industry standards that have been set by some energy companies;
 
Ø  shipping industry relationships, reputation for customer service, technical and operating expertise;
 
Ø  shipping experience and quality of ship operations, including cost-effectiveness;
 
Ø  quality, experience and technical capability of crews;
 
Ø  the ability to finance vessels at competitive rates and overall financial stability;
 
Ø  relationships with shipyards and the ability to obtain suitable berths;
 
Ø  construction management experience, including the ability to procure on-time delivery of new vessels according to customer specifications;
 
Ø  willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
 
Ø  competitiveness of the bid in terms of overall price.


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Risk factors
 
 
 
We may have trouble competing for medium- to long-term charters and our entry into such charters could negatively impact our returns.
 
It is likely that we will face substantial competition for medium- to long-term charter business from a number of experienced companies. Many of these competitors might have significantly greater financial resources than we do. It is also likely that we will face increased numbers of competitors entering into our transportation sectors. Many of these competitors have strong reputations and extensive resources and experience. Increased competition may cause greater price competition, especially for medium- to long-term charters.
 
As a result of these factors, we may be unable to expand our relationships with customers or obtain new customers for medium- to long-term time charters or bareboat charters on a profitable basis, if at all. However, if we employ our vessels under longer term time charters or bareboat charters, our vessels may not be available for trading in the spot market during an upturn in the tanker market cycle, when spot trading may be more profitable. If we cannot successfully employ our vessels in profitable time charters our results of operations and operating cash flow could be adversely affected.
 
Failure to fulfill oil majors’ vetting processes might adversely affect the employment of our vessels in the spot and period market.
 
Shipping in general and crude oil, refined product and chemical tankers in particular have been, and will remain, heavily regulated. Many international and national rules, regulations and other requirements—whether imposed by the classification societies, international statutes, national and local administrations or industry—must be complied with in order to enable a shipping company to operate and a vessel to trade.
 
Traditionally there have been relatively few commercial players in the oil trading business and the industry is continuously being consolidated. The so called “oil majors,” such as ExxonMobil, BP p.l.c., Royal Dutch Shell plc, Chevron, ConocoPhillips and Total S.A., together with a few smaller companies, represent a significant percentage of the production, trading and, especially, shipping (terminals) of crude and oil products world-wide.
 
Concerns for the environment have led the oil majors to develop and implement a strict due diligence process when selecting their commercial partners, especially vessels and vessel operators. The vetting process has evolved into a sophisticated and comprehensive assessment of both the vessel and the vessel operator.
 
While numerous factors are considered and evaluated prior to a commercial decision, the oil majors, through their association, Oil Companies International Marine Forum (“OCIMF”), have developed and are implementing two basic tools: (a) a Ship Inspection Report Programme (“SIRE”); and (b) the Tanker Management & Self Assessment (“TMSA”) Program. The former is a ship inspection based upon a thorough Vessel Inspection Questionnaire (“VIQ”), and performed by OCIMF-accredited inspectors, resulting in a report being logged on SIRE. The report is an important element of the ship evaluation undertaken by any oil major when a commercial need exists.
 
Based upon commercial needs, there are three levels of assessment used by the oil majors: (a) terminal use, which will clear a vessel to call at one of the oil major’s terminals; (b) voyage charter, which will clear the vessel for a single voyage; and (c) term charter, which will clear the vessel for use for an extended period of time.
 
While for the terminal use and voyage charter relationships a ship inspection and the operator’s TMSA will be sufficient for the assessment to be undertaken, a term charter relationship also requires a thorough office audit. An operator’s request for such an audit is by no means a guarantee one will be performed; it will take a long record of proven excellent safety and environmental protection on the


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Risk factors
 
 
operator’s part as well as high commercial interest on the part of the oil major to have an office audit performed.
 
Few ship management companies worldwide are evaluated by the oil majors and even fewer complete the evaluation successfully.
 
We will be dependent on spot charters and period charters with profit sharing arrangements, which are dependent on spot market fluctuations and any decrease in spot charter rates in the future may adversely affect our earnings and our ability to pay dividends.
 
Since we intend to charter a significant proportion of our vessels in the spot market, or place them on period charters with profit sharing arrangements, which are dependent on spot market fluctuations, we will be exposed to the cyclicality and volatility of the spot charter market and will be highly dependent on spot market charter rates.
 
Although spot chartering is common in the tanker industry, the spot charter market may fluctuate significantly based upon demand for seaborne transportation of crude oil and oil products as well as tanker supply. The world oil demand is influenced by many factors, including international economic activity; geographic changes in oil production, processing, and consumption; oil price levels; inventory policies of the major oil and oil trading companies; and strategic inventory policies of countries such as the United States and China. The successful operation of our vessels in the spot charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling ballast to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or to pay dividends.
 
Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
 
Our ability to obtain or renew the charters on our vessels, the charter rates payable under any replacement charters and vessel values will depend upon, among other things, economic conditions in the sectors in which our vessels operate at that time, changes in the supply and demand for vessel capacity and changes in the supply and demand for the seaborne transportation of energy resources.
 
We may derive a significant portion of our revenues from a limited number of customers, and the loss of any customer or charter or vessel could result in a significant loss of revenues and cash flow.
 
To the extent we derive a significant portion of our revenues and cash flow from a limited number of customers, a loss of a customer could result in a significant loss of revenues and cash flow. We could lose a customer or the benefits of a charter if:
 
Ø  the customer faces financial difficulties forcing it to declare bankruptcy or making it impossible for it to perform its obligations under the charter, including the payment of the agreed rates in a timely manner;
 
Ø  the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
 
Ø  the customer tries to re-negotiate the terms of the charter agreement due to prevailing economic and market conditions;
 
Ø  the customer exercises certain rights to terminate a charter or purchase a vessel;


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Risk factors
 
 
 
Ø  the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter;
 
Ø  a prolonged force majeure event affecting the customer, including damage to or destruction of relevant production facilities, war or political unrest prevents us from performing services for that customer; or
 
Ø  The customer terminates the charter because we fail to comply with the strict safety, environmental and vetting criteria of the charterer or the rules and regulations of various maritime organizations and bodies.
 
We may derive a significant portion of our revenues from time to time from medium- to long-term time charters (including bareboat charters).
 
If we lose a key charter, we may be unable to re-deploy the related vessel on terms as favorable to us due to the long-term nature of charters. If we are unable to re-deploy a vessel for which the charter has been terminated, we will not receive any revenues from that vessel, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition. Until such time as the vessel is re-chartered, we may have to operate it in the spot market at charter rates, which may not be as favorable to us as medium- to long-term charter rates that may be prevailing at the time.
 
Under certain charter agreements, a customer may be granted the right to purchase the vessel being chartered. If this right is exercised, we would not receive any further revenue from the vessel and may be unable to obtain a substitute vessel and charter. This may cause us to receive decreased revenue and cash flows from having fewer vessels operating in our fleet. Any replacement newbuilding would not generate revenues during its construction, and we may be unable to charter any replacement vessel on terms as favorable to us as those of the terminated charter. Any compensation under our charters for a purchase of the vessels may not adequately compensate us for the loss of the vessel and related time charter.
 
The loss of any of our customers, time or bareboat charters or vessels, or a decline in payments under our charters, could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.
 
Changes in charter rates could negatively impact our returns.
 
We may enter into agreements pursuant to which we agree to charter-in vessels. If the rates to charter-in vessels decline prior to us chartering out the vessels we have chartered in, our business, results of operations, cash flows, financial condition and ability to pay dividends could be negatively impacted.
 
An over-supply of tanker vessel capacity may lead to reductions in charterhire rates and profitability.
 
The market supply of tanker vessels has been increasing as a result of the delivery of substantial newbuilding orders over the last few years, which, based on the current order book is expected to continue into 2011. Newbuildings were delivered in significant numbers starting at the beginning of 2006 and continued to be delivered in significant numbers through 2007, 2008, and 2009 to date. In addition, the rate of newbuilding supply might accelerate in 2010. An oversupply of tanker vessel capacity may result in a reduction of charterhire rates. If such a reduction continues, we may only be able to charter our vessels at reduced or unprofitable rates, or we may not be able to charter these vessels at all. The occurrence of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.


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Risk factors
 
 
Delays, cancellations or non-completion of deliveries of newbuilding vessels could harm our operating results.
 
We expect to acquire two newbuilt VLCCs, the delivery of which could be delayed, not completed or cancelled, which would delay our receipt of revenues under charters or other contracts related to the vessels. The shipbuilder could fail to deliver the newbuilding vessel as agreed or we could cancel the purchase contract if the shipbuilder fails to meet its obligations. In addition, under charters we may enter into that are related to a newbuilding, if our delivery of the newbuilding to our customer is delayed, we may be required to pay liquidated damages during the delay. For prolonged delays, the customer may terminate the charter and, in addition to the resulting loss of revenues, we may be responsible for additional, substantial liquidated damages. The completion and delivery of newbuildings could be delayed, cancelled or otherwise not completed because of: quality or engineering problems; changes in governmental regulations or maritime self-regulatory organization standards; work stoppages or other labor disturbances at the shipyard; bankruptcy or other financial crisis of the shipbuilder; a backlog of orders at the shipyard; political or economic disturbances; weather interference or catastrophic event, such as a major earthquake or fire; requests for changes to the original vessel specifications; shortages of or delays in the receipt of necessary construction materials, such as steel; inability to finance the construction or conversion of the vessels; or inability to obtain requisite permits or approvals. If delivery of a vessel is materially delayed, it could materially adversely affect our results of operations and financial condition and our ability to pay dividends. Although the building contracts typically incorporate penalties for late delivery, we cannot assure you that the vessels will be delivered on time or that we will be able to collect the late delivery payment from the shipyards.
 
We cannot assure you that we will realize the expected benefits of our agreements to acquire the Universal VLCCs, scheduled to be delivered in March and June of 2010.
 
We will purchase from Capital Maritime the companies holding the contracts to acquire the Universal VLCC newbuildings for approximately $96.5 million per vessel. The two vessels are scheduled to be delivered in March and June of 2010. The delivery of the vessels is subject to the completion of customary documentation and closing conditions. Although we anticipate that the acquisition will be accretive, we cannot assure you that we will realize the expected benefits of the acquisition. Further, it is possible that the shipyard may fail to perform under the agreements, which might result in our being unable to purchase the vessels and having to write off the $38.6 million deposit for which we will reimburse Capital Maritime at closing. We cannot assure you that we will be able to repossess the vessels under construction or their parts in case of a default of the shipyard and, while we may have refund guarantees, we cannot assure you that we will be able to collect or that it will be in our interest to collect these guarantees.
 
New vessels may experience initial operational difficulties.
 
New vessels, during their initial period of operation, have the possibility of encountering structural, mechanical and electrical problems. Normally, we will receive the benefit of a warranty from the shipyard for new buildings, but we cannot assure you that the warranty will be able to resolve any problem with the vessel without additional costs to us.
 
The secondhand market for suitable vessels is currently slow, which may impede our ability to acquire suitable vessels and grow our fleet.
 
Although the secondhand sale and purchase market for tankers has traditionally been relatively liquid, activity in 2009 was much lower. Few VLCC, Suezmax, Aframax and Panamax crude tankers have been sold in that time, and even fewer of these vessels have been modern. See “The International Tanker Shipping Industry—Charter Rates & Asset Values.” Because we anticipate that our fleet will be comprised primarily of VLCC and Suezmax vessels (although we intend to evaluate all classes of crude


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Risk factors
 
 
tanker vessels, including Aframax and Panamax tanker vessels, for potential future acquisitions), should the secondhand tanker market remain relatively illiquid, we may have to purchase some or all of our fleet as newbuilding vessels. This could increase the purchase cost of our fleet and delay the growth of our fleet, as orders for newbuilding vessels typically take 14 to 36 months to fulfill. Please see “—Risk Factors Related to Our Planned Business & Operations—Company Specific Risk Factors—We will be required to make substantial capital expenditures to grow the size of our fleet, which may diminish our ability to pay dividends, increase our financial leverage, or dilute our shareholders’ ownership interest in us” for more information on certain risks associated with buying newbuilding vessels.
 
The market values of our vessels may decrease, which could adversely affect our operating results, cause us to breach one or more covenants in any credit facility we may enter into, or limit the total amount we may borrow under such a credit facility.
 
Tanker values declined in 2009, estimated to have begun in the summer of 2008. If the book value of one of our vessels is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that could adversely affect our financial results. Also, if we enter into a credit facility in the future, certain covenants of that credit facility may depend on the market value of our fleet. If the market value of our fleet declines, we may not be in compliance with certain provisions of the credit facility, and we may not be able to refinance our debt or obtain additional financing under the credit facility. The occurrence of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Decreases in shipments of crude oil may adversely affect our financial performance.
 
The demand for our oil tankers derives primarily from demand for Arabian Gulf and West African crude oil, along with crude oil from the FSU. Decreases in shipments of crude oil from these geographical areas would have a material adverse effect on our financial performance. Among the factors which could lead to such a decrease are:
 
Ø  increased crude oil production from other areas;
 
Ø  increased refining capacity in the Arabian Gulf, West Africa or the FSU;
 
Ø  increased use of existing and future crude oil pipelines in the Arabian Gulf, West Africa and the FSU;
 
Ø  a decision by Arabian Gulf, West African and the FSU oil-producing nations to increase their crude oil prices or to further decrease or limit their crude oil production; and
 
Ø  armed conflict in the Arabian Gulf and West Africa and political or other factors.
 
A wide range of economic, social and other factors can significantly affect the strength of the world’s industrial economies and their demand for crude oil from the mentioned geographical areas. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of oil, including competition from alternative energy sources. In the long-term it is possible that oil demand may be reduced by an increased reliance on alternative energy sources, a drive for increased efficiency in the use of oil as a result of environmental concerns or high oil prices. One such factor is the price of worldwide crude oil. The world’s oil markets have experienced high levels of volatility in the last 25 years. In July 2008, oil prices rose to a high of approximately $143 per barrel before decreasing to approximately $38 per barrel by the end of December 2008. Decreases in shipments of crude oil from the above mentioned geographical areas would have a material adverse effect on our financial performance.


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Risk factors
 
 
Disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the world could have a material adverse impact on our results of operations, financial condition and cash flows, and could cause the market price of our ordinary shares to decline.
 
Over the last year, global financial markets have experienced extraordinary disruption and volatility following adverse changes in the global credit markets. The credit markets in the United States have experienced significant contraction, deleveraging and reduced liquidity, and governments around the world have taken highly significant measures in response to such events, including the enactment of the Emergency Economic Stabilization Act of 2008 in the United States, and may implement other significant responses in the future. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The U.S. Securities and Exchange Commission (“SEC”), other regulators, self-regulatory organizations and exchanges have enacted temporary emergency regulations and may take other extraordinary actions in the event of market emergencies and may effect permanent changes in law or interpretations of existing laws. Recently, a number of financial institutions have experienced serious financial difficulties and, in some cases, have entered into bankruptcy proceedings or are in regulatory enforcement actions. These difficulties have resulted, in part, from declining markets for assets held by such institutions, particularly the reduction in the value of their mortgage and asset-backed securities portfolios. These difficulties have been compounded by a general decline in the willingness by banks and other financial institutions to extend credit. In addition, these difficulties may adversely affect the financial institutions that provide our credit facilities and may impair their ability to continue to perform under their financing obligations to us, which could have an impact on our ability to fund current and future obligations.
 
A further economic slowdown in the OECD area and the Asia Pacific region could have a material adverse impact on our results of operations, financial condition and cash flows, and could cause the market price of our ordinary shares to decline.
 
A significant number of the port calls we expect our vessels to make will likely involve the loading or discharging of cargo in ports in OECD countries and the Asia Pacific region. As a result, a negative change in economic conditions in any OECD country or in any Asia Pacific country, and particularly in China or Japan, could have an adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. In particular, in recent years, China has been one of the world’s fastest growing economies in terms of gross domestic product, although the growth rate of China’s economy slowed significantly in 2008 and 2009. We cannot assure you that the Chinese economy will not experience a significant contraction in the future. Moreover, a significant or protracted slowdown in the economies of the United States, the European Union (the “EU”) or various Asian countries may adversely affect economic growth in China and elsewhere.
 
We will be subject to regulation and liability under environmental and operational safety laws and conventions that could require significant expenditures, affect our cash flows and net income and could subject us to significant liability.
 
Our operations will be affected by extensive and changing international, national and local environmental protection laws, regulations, treaties, conventions and standards in force in international waters, the jurisdictional waters of the countries in which our vessels operate, as well as the countries of our vessels’ registration. Many of these requirements are designed to reduce the risk of oil spills, air emissions and other pollution, and to reduce potential negative environmental effects associated with the maritime industry in general. Our compliance with these requirements can be costly.
 
These requirements can affect the resale value or useful lives of our vessels, require reductions in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage or increased policy costs for environmental matters or result in the denial of access


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Risk factors
 
 
to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations and natural resource damages, in the event that there is a release of petroleum or other hazardous substances from our vessels or otherwise in connection with our operations. Violations of or liabilities under environmental requirements also can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels, and third-party claims for personal injury or property damage.
 
The United States Oil Pollution Act of 1990 (“OPA”) affects all vessel owners shipping oil or petroleum products to, from or within the United States. OPA allows for potentially unlimited liability without regard to fault of owners, operators and bareboat charterers of vessels for oil pollution in U.S. waters. Similarly, the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by most countries outside of the U.S., imposes liability for oil pollution in international waters. OPA expressly permits individual states to impose their own liability regimes with regard to hazardous materials and oil pollution incidents occurring within their boundaries. Coastal states in the U.S. have enacted pollution prevention liability and response laws, many providing for unlimited liability.
 
In addition to complying with OPA, relevant U.S. Coast Guard regulations, IMO regulations, such as Annex IV and Annex VI to the International Convention for the Prevention of Pollution from Ships (“MARPOL”), EU directives and other existing laws and regulations and those that may be adopted, shipowners may incur significant additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditure on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether.
 
For example, amendments to revise the regulations of MARPOL regarding the prevention of air pollution from ships were approved by the Marine Environment Protection Committee (“MEPC”) and formally adopted at MEPC’s 58th session held in October 2008. The amendments establish a series of progressive standards to further limit the sulphur content in fuel oil, which would be phased in through 2020, and new tiers of nitrogen oxide emission standards for new marine diesel engines, depending on their date of installation. The amendments are expected to enter into force under the tacit acceptance procedure in July 2010, or on some other date determined by the MEPC.
 
Further legislation, or amendments to existing legislation, applicable to international and national maritime trade is expected over the coming years in areas such as ship recycling, sewage systems, emission control (including emissions of greenhouse gases) and ballast treatment and handling. For example, legislation and regulations that require more stringent controls of air emissions from ocean-going vessels are pending or have been approved at the federal and state level in the U.S. Such legislation or regulations may require significant additional capital expenditures or operating expenses (such as increased costs for low-sulfur fuel) in order for us to maintain our vessels’ compliance with international and/or national regulations. In addition, various jurisdictions, including the IMO and the United States, have proposed or implemented requirements governing the management of ballast water to prevent the introduction of non-indigenous invasive species having adverse ecological impacts. For example, the IMO has adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (“BWM Convention”) which calls for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will enter into force 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping tonnage. As of December 31, 2009, 21 states, representing about 22.63% of the world’s merchant shipping tonnage, have ratified the BWM Convention. In the United States, ballast water


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Risk factors
 
 
management legislation has been enacted in several states, and federal legislation is currently pending in the U.S. Congress. In addition, the U.S. Environmental Protection Agency (“EPA”) has also adopted a rule which requires commercial vessels to obtain a “Vessel General Permit” from the U.S. Coast Guard in compliance with the Federal Water Pollution Control Act regulating the discharge of ballast water and other discharges into U.S. waters. Significant expenditures for the installation of additional equipment or new systems on board our vessels and changes in operating procedures may be required in order to comply with existing or future regulations regarding ballast water management, along with the potential for increased port disposal costs. Other requirements may also come into force regarding the protection of endangered species which could lead to changes in the routes our vessels follow or in trading patterns generally and thus to additional capital and operating expenditures. Furthermore, new environmental laws and regulatory requirements regarding greenhouse gas emissions can be expected to come into effect in a number of jurisdictions in the future that will affect our operations, fuel costs and capital expenditures.
 
Additionally, as a result of marine accidents we believe that regulation of the shipping industry will continue to become more stringent and more expensive for us and our competitors. In recent years, the IMO and EU have both accelerated their existing non-double-hull phase-out schedules in response to highly publicized oil spills and other shipping incidents involving companies unrelated to us. In addition, legislation is being discussed that would subject vessels to centralized routing. Future incidents may result in the adoption of even stricter laws and regulations, which could limit our operations or our ability to do business and which could have a material adverse effect on our business and financial results.
 
Increased inspection procedures by port authorities or other authorities and tighter import and export controls could increase costs and disrupt our business.
 
International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of the contents of our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us.
 
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002 (“MTSA”) came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea (“SOLAS”) created a new chapter of the convention dealing specifically with maritime security. The new chapter became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created International Ship and Port Facilities Security Code (“ISPS Code”). The ISPS Code is designed to protect ports and international shipping against terrorism. After July 1, 2004, to trade internationally, a vessel must attain an International Ship Security Certificate from a recognized security organization approved by the vessel’s flag state. For a further description of the various requirements, please see “Business—Environmental and Other Regulations—Vessel Security Regulations.”
 
The U.S. Coast Guard has developed the Electronic Notice of Arrival/Departure (“e-NOA/D”) application to provide the means of fulfilling the arrival and departure notification requirements of the U.S. Coast Guard and U.S. Customs and Border Protection (“CBP”) online. Prior to September 11, 2001, ships or their agents notified the Marine Safety Office/Captain Of The Port zone within 24 hours of the vessel’s arrival via telephone, fax, or e-mail. Due to the events of September 11, 2001, the U.S. Coast Guard’s National Vessel Movement Center (“NVMC”)/Ship Arrival Notification System was set up as part of a U.S. Department of Homeland Security initiative. Also, as a result of this initiative,


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Risk factors
 
 
the advance notice time requirement changed from 24 hours to 96 hours (or 24 hours, depending upon normal transit time). Notices of arrival or departure continue to be submitted via telephone, fax, or e-mail, but are now to be submitted to the NVMC, where watch personnel enter the information into a central U.S. Coast Guard database. Additionally, the National Security Agency has identified certain countries known for high terrorist activities and if a vessel has either called some of these identified countries in its previous ports or the members of the crew are from any of these identified countries, more stringent security requirements must be met.
 
On June 6, 2005, the Advanced Passenger Information System (“APIS”) Final Rule, 19 C.F.R. §§ 4.7b and 4.64, became effective. Pursuant to these regulations, a commercial carrier arriving into or departing from the United States is required to electronically transmit an APIS manifest to CBP through an approved electronic interchange and programming format. All international commercial carriers transporting passengers or crewmembers must obtain an international carrier bond and place it on file with the CBP prior to entry or departure from the United States. The minimum bond amount is $50,000.
 
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 shipping activities 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 ability to pay dividends.
 
We plan to operate our vessels worldwide, and as a result, our vessels will be exposed to international risks that could reduce revenue or increase expenses.
 
The international shipping industry is an inherently risky business involving global operations. Our vessels will be at a risk of damage or loss because of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss and bad weather. In addition, changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, market disruptions, delay or rerouting, which could reduce our revenue or increase our expenses.
 
If our vessels suffer damage due to the inherent operational risks of the tanker industry, we may experience unexpected drydocking costs and delays or total loss of our vessels, which may adversely affect our business and financial condition.
 
Our vessels and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the costs associated with a catastrophic spill could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision or other cause, due to the high flammability and high volume of the oil transported in tankers.
 
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of earnings 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


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Risk factors
 
 
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 that could negatively impact our business, financial condition, results of operations, cash flows and ability to pay dividends.
 
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.
 
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008 and 2009, the frequency of piracy incidents increased significantly, particularly in the Gulf of Aden off the coast of Somalia. If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones, as the Gulf of Aden temporarily was in May 2008, or Joint War Committee (“JWC”) “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which may be incurred to the extent we employ 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 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, results of operations, cash flows, financial condition and ability to pay dividends.
 
In response to piracy incidents in 2008 and 2009, particularly in the Gulf of Aden off the coast of Somalia, following consultation with regulatory authorities, we may station armed guards on some of our vessels in some instances. While our use of guards is intended to deter and prevent the hijacking of our vessels, it may also increase our risk of liability for death or injury to persons or damage to personal property. If we do not have adequate insurance in place to cover such liability, it could adversely impact our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Political instability, terrorist or other attacks, war or international hostilities can affect the tanker industry, which may adversely affect our business.
 
We conduct most of our operations outside of the United States, and our business, results of operations, cash flows, financial condition and ability to pay dividends may be adversely affected by the effects of political instability, terrorist or other attacks, war or international hostilities. Terrorist attacks such as the attacks on the United States on September 11, 2001, the bombings in Spain on March 11, 2004 and in London on July 7, 2005 and the continuing response of the United States to these attacks, as well as the threat of future terrorist attacks, continue to contribute to world economic instability and uncertainty in global financial markets. Future terrorist attacks could result in increased volatility of the financial markets in the United States and globally and could result in an economic recession in the United States or the world. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all.
 
In the past, political instability has also resulted in attacks on vessels, such as the attack on the M/T Limburg in October 2002, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on our business, financial condition, results of operations, cash flows and ability to pay dividends.


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Risk factors
 
 
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our net cash flows and net income.
 
The hull and machinery of every commercial vessel must be certified as being “in class” 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 SOLAS.
 
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. We expect our vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is also required to be drydocked every two to three years for inspection of its underwater parts.
 
If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and will be unemployable, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
We may be unable to attract and retain qualified, skilled employees or crew necessary to operate our business.
 
Our success depends in large part on the ability of our Manager, any affiliated or sub-contracting parties they may contract with on our behalf, and us to attract and retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract and retain qualified crew members is intense. If we are not able to increase our rates to compensate for any crew cost increases, it could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. Any inability our Manager, our third party technical managers, or we 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 business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Labor interruptions could disrupt our business.
 
We plan for our vessels to be manned by masters, officers and crews that are employed by third parties. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out normally and could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
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 South America and other areas where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims which could have an adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the related off-hire period.
 
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many


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Risk factors
 
 
jurisdictions, a maritime lienholder 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 result in a significant loss of earnings for the related off-hire period. In addition, in jurisdictions where the “sister ship” theory of liability applies, a claimant may arrest the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. In countries with “sister ship” liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we own.
 
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 our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government could also requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Increases in fuel prices could adversely affect our profits.
 
Spot charter arrangements generally provide that the vessel owner or pool operator bear the cost of fuel in the form of bunkers, which is a significant vessel operating expense. Because we do not intend to hedge our fuel costs, an increase in the price of fuel beyond our expectations may adversely affect our profitability, cash flows and ability to pay dividends. The price and supply of fuel is unpredictable and fluctuates as a result of events outside our control, including geo-political developments, supply and demand for oil and gas, actions by members of OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations.
 
Given that the vessel owner or pool operator bears the cost of fuel under spot charters, the recent volatility in fuel prices is one factor affecting profitability in the tanker spot market. To profitably price an individual charter, the vessel owner or pool operator must take into account the anticipated cost of fuel for the duration of the charter. Changes in the actual price of fuel at the time the charter is to be performed could result in the charter being performed at a significantly greater or lesser cost than originally anticipated and may result in losses or diminished profits. As an example of the volatility of fuel prices, in the last 12 months, the purchase price in the port of Fujairah, United Arab Emirates, of one of the most common fuels used by tanker vessels has fluctuated from approximately $254 to $495 per metric ton. The price of fuel also varies from port to port.
 
COMPANY SPECIFIC RISK FACTORS
 
We have no operating history on which you can evaluate our business strategy.
 
We are a recently-formed company with no operating history and will have no assets prior to the closing of this offering other than a capital contribution from Crude Carriers Investments Corp. Accordingly, there can be no assurance that our business strategy and operations will be successful.
 
We may not be able to establish our operations or implement our growth effectively.
 
Our business plan will primarily depend on identifying suitable vessels that are in good condition, acquiring these vessels at favorable prices and profitably employing them on charters to establish and expand our operations. There can be no assurance that we will be able to identify vessels that are suitable for our business plan. Furthermore, the price of vessels is volatile and beyond our control, and


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Risk factors
 
 
any purchase of a vessel involves the risk of misjudging the value of the vessel and of purchasing the vessel at a price higher than what we could have paid had we purchased the vessel at another time. In addition, there can be no assurance that the vessels we identify and acquire will perform at the levels we expect at the time they are acquired.
 
Our business plan will depend upon a number of factors, some of which may not be within our control. These factors include our ability to:
 
Ø  identify suitable vessels or shipping companies for acquisitions or joint ventures to establish our initial fleet and grow our fleet in the future;
 
Ø  successfully integrate any acquired vessels or businesses with our existing operations; and
 
Ø  obtain required financing for our existing and any new operations.
 
Growing any business by acquisition presents numerous risks, including undisclosed liabilities and obligations, difficulty obtaining additional qualified personnel, managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. In addition, competition from other companies, many of which have significantly greater financial resources than do we or Capital Maritime, may reduce our acquisition opportunities or cause us to pay higher prices. We cannot assure you that we will be successful in executing our plans to establish and grow our business or that we will not incur significant expenses and losses in connection with these plans. Our failure to effectively identify, purchase, develop and integrate any vessels or businesses could adversely affect our business, financial condition and results of operations. Our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including risks that we may:
 
Ø  fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;
 
Ø  incur or assume unanticipated liabilities, losses or costs associated with any vessels or businesses acquired, particularly if any vessel we acquire proves not to be in good condition;
 
Ø  be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
 
Ø  decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;
 
Ø  significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions; or
 
Ø  incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.
 
Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we generally inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.
 
Moreover, we plan to finance potential future expansions of our fleet primarily through equity financing, which we expect will mainly consist of issuances of additional shares of our Common Stock, and internally-generated cash flow. We also expect to enter into a credit facility that we will use opportunistically for the growth of the Company beyond our initial fleet in a manner that will enhance our earnings, cash flow and net asset value. If we are unable to complete equity issuances at prices that we deem acceptable, our internally-generated cash flow is insufficient, or we cannot enter into a credit facility on favorable terms, we may need to revise our growth plan or consider alternative forms of financing.


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Risk factors
 
 
Our earnings may be adversely affected if we do not successfully employ our vessels on time charters, in pools or take advantage of the current spot market on which we will heavily depend. Any decrease in spot charter rates may adversely affect our earnings and our ability to pay dividends.
 
We intend to employ a significant number of our vessels in the spot market, on certain short time charters, which are spot related, or in vessel pools trading in the spot market. Our financial performance will therefore be substantially affected by conditions in the tanker vessel spot market. The spot market is highly volatile and fluctuates based upon vessel and cargo supply and demand. Significant fluctuations in charter rates will result in significant fluctuations in the utilization of our vessels and our profitability. Although we may charter out some of our vessels on long-term time charters when we want to lock in favorable charter rates and generate predictable revenue streams, our vessels that are committed to time charters may not be available for spot voyages during an upswing in the shipping industry, when spot voyages might be more profitable. In addition, vessels may experience repeated periods of unemployment between spot charters. The successful operation of our vessels in the spot market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo, or ballast time. In the past, there have been periods when spot rates have declined below the operating cost of vessels. Future spot rates may decline significantly and may not be sufficient to enable our vessels trading in the spot market to operate profitably or for us to pay dividends and may have a material adverse effect on our cash flows and financial condition.
 
Capital Maritime and its affiliates may compete with us or claim business opportunities that would benefit us.
 
Aside from the Initial Suezmax, of the 36 vessels currently owned, managed or contracted by Capital Maritime, Capital Maritime owns and manages one vessel and manages another vessel that engage in activities similar to those we intend to conduct. In addition, Capital Maritime may otherwise compete with us and is not contractually restricted from doing so. The Business Opportunities Agreement will specify that we will have a right to take advantage of certain business opportunities, including certain spot charter, period charter, bareboat charter and vessel purchase opportunities. However, we will have a limited time period within which to exercise such right after which Capital Maritime will have the right to take advantage of any such opportunities for its own account. For example, we will have (a) a maximum of 48 hours to take advantage of period and bareboat charter opportunities, (b) a reasonable amount of time in light of the facts and circumstances to take advantage of spot charter opportunities, (c) 120 hours (and an additional 72 hours upon our request) to take advantage of vessel acquisition opportunities and (d) a maximum of 120 hours to take advantage of other business opportunities. These provisions may not materially restrict Capital Maritime’s ability to compete with us or claim business opportunities that would benefit us, and competition from Capital Maritime could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. Please read “Certain Relationships and Related-Party Transactions—Business Opportunities Agreement” for more information, including further detail regarding the time period within which we must exercise our right to take advantage of business opportunities.
 
Our strategy of financing vessel acquisitions primarily through equity offerings and our earnings may adversely affect our growth and earnings.
 
We plan to finance acquisitions for our fleet primarily through equity offerings and internally—generated cash flows. While we have entered into a commitment to obtain a revolving credit facility that will allow us to make opportunistic purchases of vessels, we do not anticipate entering into a credit facility of sufficient size to allow us to make large additions to our fleet solely through borrowings. Accordingly, if we are unable to complete equity offerings on acceptable terms or at all, or if our


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earnings are insufficient, we may be unable to take advantage of strategic opportunities to expand our fleet. As a result, our future earnings, cash flows and growth may be adversely affected. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for more information regarding our credit facility.
 
We may be unable to pay dividends.
 
We currently intend to pay a variable quarterly dividend equal to our cash available for distribution, which represents net cash flow during the previous quarter less any amount required to maintain a reserve that our board of directors determines from time to time is appropriate for the operation and future growth of our fleet, taking into account (among other factors) contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of the laws of the Republic of The Marshall Islands. The amount of cash available for distribution will principally depend upon the amount of cash we generate from our operations, which may fluctuate from quarter to quarter based upon, among other things:
 
Ø  the cyclicality in the spot and period vessel market;
 
Ø  the rates we obtain from our charters for spot or period charters;
 
Ø  the performance of pools and the rating of our vessels under such pool agreements;
 
Ø  the price and demand for tanker cargoes;
 
Ø  the level of our operating costs, such as the cost of crews, spares, stores, lubricants and insurance;
 
Ø  the number of off-hire days for our fleet and the timing of, and number of days required for, maintenance and drydocking of our vessels;
 
Ø  delays in the delivery of any vessels we have agreed to acquire;
 
Ø  prevailing global and regional economic and political conditions;
 
Ø  force majeure events;
 
Ø  compliance with oil major requirements and the vetting process; and
 
Ø  the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business.
 
The actual amount of cash generated will also depend upon other factors, such as:
 
Ø  the level of capital expenditures we make, including for maintaining existing vessels and acquiring new vessels, which we expect will be substantial;
 
Ø  our debt service requirements and the terms, covenants and restrictions on distributions contained in any credit agreement we may enter into;
 
Ø  fluctuations in our working capital needs; and
 
Ø  the amount of any cash reserves established by our board of directors, including reserves for the conduct of our operations and growth and other matters.
 
In addition, the declaration and payment of dividends is subject at all times to the discretion of our board of directors and compliance with the laws of the Republic of The Marshall Islands. Please read “Our Dividend Policy and Restrictions on Dividends” for more information.


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Risk factors
 
 
Our growth depends on continued growth in demand for crude oil and oil products and the continued demand for seaborne transportation of crude oil.
 
Our growth strategy focuses on expansion mainly in the crude oil shipping sector. Accordingly, our growth depends on continued growth in world and regional demand for oil and the transportation of crude oil by sea, which could be negatively affected by a number of factors, including:
 
Ø  the economic and financial developments globally, including actual and projected global economic growth;
 
Ø  fluctuations in the actual or projected price of crude oil and refined products;
 
Ø  refining capacity and its geographical location;
 
Ø  increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-oil pipelines to oil pipelines in those markets;
 
Ø  decreases in the consumption of oil due to increases in its price relative to other energy sources, other factors making consumption of oil less attractive, energy conservation measures or environmental requirements on consumers;
 
Ø  availability of new, alternative energy sources; and
 
Ø  negative or deteriorating global or regional economic or political conditions, particularly in oil consuming regions, which could reduce energy consumption or its growth.
 
The refining industry, which relies on crude oil as its prime source of supply for further processing, may respond to the economic downturn and demand weakness by reducing operating rates and by reducing or canceling certain investment expansion plans, including plans for additional refining capacity. Reduced demand for crude oil and the shipping of crude oil or the increased availability of pipelines used to transport crude oil, would have a material adverse effect on our future growth and could harm our business, results of operations, financial condition, cash flows and ability to pay dividends.
 
Our ability to grow and satisfy our financial needs may be adversely affected by our dividend policy.
 
The dividend policy we plan to adopt calls for us to distribute all of our cash available for distribution on a quarterly basis. Cash available for distribution may be reduced by any reserves that our board of directors may determine are required, in its sole discretion. Accordingly, our growth, if any, may not be as fast as businesses that reinvest their cash to expand ongoing operations.
 
In determining the amount of cash available for distribution, our board of directors will consider contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of Marshall Islands law as well as growth potential of the company. Please read “Our Dividend Policy and Restrictions on Dividends” for more information. We believe that we will generally finance maintenance from cash balances and expansion capital expenditures primarily from equity, internally-generated cash flow, and borrowings under a revolving credit facility we have committed to enter into. To the extent we do not have sufficient cash reserves or are unable to obtain financing for these purposes, our dividend policy may significantly impair our ability to meet our financial needs or to grow.
 
We must make substantial capital expenditures to maintain the operating capacity of our fleet, which may reduce the amount of cash for dividends to our shareholders.
 
We must make substantial capital expenditures to maintain the operating capacity of our fleet and we generally expect to finance these operating capital expenditures with cash balances including cash raised


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Risk factors
 
 
through equity offerings. We anticipate growing our fleet through the acquisition of vessels, which would increase the level of our operating capital expenditures.
 
The reserves we may establish include capital expenditures associated with drydocking a vessel, modifying an existing vessel or acquiring a new vessel to the extent these expenditures are incurred to maintain the operating capacity of our fleet. These expenditures could increase as a result of changes in the cost of labor and materials; customer requirements; increases in our fleet size or the cost of replacement vessels; governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; and competitive standards.
 
In addition, operating capital expenditures will vary significantly from quarter to quarter based on the number of vessels drydocked during that quarter, among other factors. Significant operating capital expenditures may reduce the amount of cash available for distribution to our shareholders.
 
We will be required to make substantial capital expenditures to grow the size of our fleet, which may diminish our ability to pay dividends, increase our financial leverage, or dilute our shareholders’ ownership interest in us.
 
We will be required to make substantial capital expenditures to increase the size of our fleet. We intend to expand our fleet by acquiring existing vessels from other parties or newbuilding vessels, which we refer to as newbuildings.
 
We generally will be required to make installment payments on any newbuildings prior to their delivery, even though delivery of the completed vessel will not occur until much later (approximately two to four years from the order). We typically would pay 10% to 25% of the purchase price of an existing vessel upon signing the purchase contract and pay the balance due on delivery (which may be a few months later). If we finance all or a portion of these acquisition costs by issuing debt securities, we will increase the aggregate amount of interest we must pay prior to generating cash from the operation of the newbuilding. Any interest expense we incur in connection with financing our vessel acquisitions, including capitalized interest expense, will decrease the amount of our dividends. If we finance these acquisition costs by issuing shares of Common Stock, we will dilute our quarterly per-share dividends prior to generating cash from the operation of the newbuilding.
 
To fund growth capital expenditures, we may be required to opportunistically incur borrowings, raise capital through the sale of debt or additional equity securities or use cash balances or cash from operations. Use of cash from operations will reduce the amount of cash available for distribution as dividends to our shareholders. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering, as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain funds for capital expenditures could have a material adverse effect on our business, results of operations and financial condition and on our ability to pay dividends. Even if we are successful in obtaining the necessary funds, the terms of such financings could limit our ability to pay dividends to shareholders. In addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant shareholder ownership or dividend dilution.
 
Our executive officers and the officers of our Manager will not devote all of their time to our business, which may hinder our ability to operate successfully.
 
Our executive officers and the officers of our Manager will be involved in other Capital Maritime business activities, which may result in their spending less time than is appropriate or necessary to manage our business successfully. This could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. In addition, the amount of time


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Risk factors
 
 
our officers will allocate among our business and the businesses of Capital Maritime could vary significantly from time to time depending on various circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses. There will be no formal requirements or guidelines for the allocation of our officers’ time between our business and Capital Maritime’s.
 
Our Manager may favor its and its affiliates’ interests in certain matters that may conflict with our own and we may lose business opportunities to our Manager that may otherwise be available to us.
 
Conflicts of interest may arise between Capital Maritime, our Manager, and its affiliates, on the one hand, and us and our shareholders, on the other hand. These conflicts include, among others, the following situations:
 
Ø  The Business Opportunities Agreement specifies that Capital Maritime must only inform us of certain spot, period and bareboat charter opportunities, certain vessel acquisition opportunities and certain other business opportunities that we would be capable of pursuing. We will have a limited time to exercise our right to pursue such opportunities before Capital Maritime can take advantage of such opportunities. The time period to take advantage of such opportunities can be 48 hours, 120 hours, 192 hours or a reasonable time in light of the circumstances, depending on the opportunity. See “Certain Relationships and Related-Party Transactions—Business Opportunity Agreement” for more information.
 
Ø  Our Manager will advise our board of directors about the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional Common Stock and cash reserves, each of which can affect the amount of the cash available for distribution to our shareholders.
 
Ø  Our executive officers and certain of our directors also serve as officers or directors of our Manager or its affiliates and such officers and directors will not spend all of their time on matters related to our business.
 
Ø  Our Manager will advise us of costs incurred by it and its affiliates that it believes are reimbursable by us.
 
As a result of these conflicts, our Manager may favor its own interests and the interests of its affiliates over our interests and those of our shareholders, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Our directors and officers that also hold positions with our Manager may have conflicts of interest with respect to business opportunities and other matters involving both companies.
 
Our officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our shareholders. However, our executive officers and certain of our directors also currently serve as executive officers or directors of Capital Maritime or its affiliates, and as a result, these individuals also have fiduciary duties to manage the business of Capital Maritime and its affiliates in a manner beneficial to such entities and their shareholders. Consequently, these officers and directors may encounter situations in which our interests and those of Capital Maritime and its affiliates conflict. We believe the principal situations in which these conflicts may occur are in the allocation of business opportunities to Capital Maritime or us, particularly with respect to the allocation of chartering or vessel purchase opportunities. Our amended and restated articles of incorporation and the Business Opportunities Agreement anticipate the possibility of such a conflict and define the conduct of certain of our affairs as it pertains to such conflicts. Our amended and restated articles of incorporation and the Business Opportunities Agreement specify that we will have a right to take advantage of certain business opportunities (including certain spot charter, period charter, bareboat charter and vessel purchase opportunities) within a limited time period, after which Capital Maritime will have the right to take advantage of any such opportunities for its own account. The resolution of these conflicts may


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Risk factors
 
 
not always be in our best interest or that of our shareholders and could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Our Manager has rights to terminate the Management Agreement and, under certain circumstances, could receive substantial sums in connection with such termination; however, even if our board of directors or our shareholders are dissatisfied with our Manager, there are limited circumstances under which we can terminate the Management Agreement.
 
The Management Agreement will have an initial term of approximately 10 years and will automatically renew for subsequent five-year terms provided that certain conditions are met. Our Manager has the right, after five years following the completion of this offering, to terminate the Management Agreement with 6 months’ notice. Our Manager also has the right to terminate the Management Agreement if we have materially breached the Management Agreement.
 
Our Manager may elect to terminate the Management Agreement upon the sale of all or substantially all of our assets to a third party, our liquidation or after any change of control of our company occurs. If our Manager so elects to terminate the Management Agreement, then our Manager may be paid a termination fee, which could be substantial. This termination payment shall initially be $9 million and shall increase on each one-year anniversary during which the Management Agreement remains in effect (on a compound basis) in accordance with the total percentage increase, if any, in the Consumer Price Index over the immediately preceding twelve months.
 
In addition, our rights to terminate the Management Agreement are limited. Even if we are not satisfied with the Manager’s efforts in managing our business, unless our Manager materially breaches the agreement, we may terminate the Management Agreement only if we provide notice of termination in the fourth quarter of 2019, which termination would be effective December 31, 2020.
 
If we elect to terminate the Management Agreement at either of these points or at the end of a subsequent renewal term, our Manager will receive a termination fee, which may be substantial. Please read “Our Manager and Management Agreement—Management Agreement—Term and Termination Rights” for a more detailed description of termination rights and the termination payment under the Management Agreement.
 
We will depend on Capital Maritime to assist us in operating our business and competing in our markets, and our business will be harmed if Capital Maritime fails to assist us effectively.
 
Upon the closing of this offering, we will enter into the Management Agreement with Capital Maritime as our Manager, pursuant to which Capital Maritime will provide to us commercial, technical, administrative, investor relations and strategic services, including vessel chartering, vessel sale and purchase, vessel operation, vessel maintenance, obtaining appropriate insurance, regulatory, vetting and classification society compliance, purchasing, crewing, strategic planning, and advice on financings, acquisitions and dispositions. Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory performance of these services by Capital Maritime. Capital Maritime has not exclusively managed tanker vessels; instead, while it has predominately managed tanker vessels, it also has managed a variety of vessel types. Furthermore, Capital Maritime’s past performance may not be indicative of their future performance on our behalf. Our business will be harmed if Capital Maritime fails to perform these services satisfactorily, if it stops providing these services to us for any reason or if it terminates the Management Agreement, as it is entitled to do under certain circumstances. The circumstances under which we are able to terminate the Management Agreement are extremely limited and do not include mere dissatisfaction with our Manager’s performance. In addition, upon any termination of the Management Agreement, we may lose our ability to benefit from economies of scale in purchasing supplies and other advantages that we believe our relationship with Capital Maritime will provide.


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Risk factors
 
 
If Capital Maritime suffers material damage to its reputation or relationships, it may harm our ability to:
 
Ø  acquire new vessels;
 
Ø  enter into new charters for our vessels;
 
Ø  obtain financing on commercially acceptable terms; or
 
Ø  maintain satisfactory relationships with charterers, suppliers and other third parties.
 
If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Our Manager is a privately held company and there is little publicly-available information about it.
 
The ability of our Manager to continue providing services for our benefit will depend in part on its own financial strength. Circumstances beyond our control could impair our Manager’s financial strength, and because it is a privately held company, little or no information about its financial strength is publicly available. As a result, an investor in our Common Stock might have little advance warning of problems affecting our Manager, even though these problems could have a material adverse effect on us. As part of our reporting obligations as a public company, we will disclose information regarding our Manager that has a material impact on us to the extent that we become aware of such information.
 
An increase in operating costs could adversely affect our cash flows and financial condition.
 
Under the Management Agreement, we must pay for vessel operating expenses (including crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses), and, for spot or voyage charters, voyage expenses (including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and conversions). These expenses depend upon a variety of factors, many of which are beyond our or our Manager’s control. Some of these costs, primarily relating to fuel, insurance and enhanced security measures, have been increasing and may increase in the future. Increases in any of these costs would decrease our earnings, cash flows and the amount of cash available for distribution to our shareholders.
 
Our purchasing and operating previously owned vessels may result in increased operating costs and vessels off-hire, which could adversely affect our earnings.
 
Our current business strategy includes growth through the acquisition of previously owned vessels. While we typically inspect previously owned 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. Also, when purchasing previously owned vessels, we do not receive the benefit of any builder warranties if the vessels we buy are older than one year.
 
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel efficient than more recently constructed vessels due to improvements in engine technology.
 
Governmental regulations, safety and other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to some of our vessels and may restrict the type of activities in which these vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels


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Risk factors
 
 
profitably during the remainder of their useful lives. As a result, regulations and standards could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Our Manager may elect to subcontract the technical management of our fleet to third party managers. Any failure of these technical managers to perform their obligations to us could adversely affect our business.
 
Our Manager may elect to subcontract part or all of the services of the technical management of our fleet, including crewing, maintenance and repair services, to third-party technical management companies. The failure of these technical managers to perform their obligations could materially and adversely affect our business, results of operations, cash flows, financial condition and ability to pay dividends. Although we may have rights against our third-party managers if they default on their obligations, our shareholders will share that recourse only indirectly to the extent that we recover funds.
 
In the highly competitive international tanker shipping industry, we may not be able to compete for charters with new entrants or established companies with greater resources.
 
We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, including oil majors, some of whom have substantially greater resources than we do. Competition for the transportation of crude oil can be intense and depends on the offered charter rate, the location, technical specification, quality of the vessel and the reputation of the vessel’s manager. Due in part to the highly fragmented market, competitors with greater resources could enter and operate larger fleets through consolidations or acquisitions that may be able to offer better prices and fleets than we are able to offer.
 
We expect to maintain all of our cash with a limited number of financial institutions including financial institutions that may be located in Greece, which will subject us to credit risk.
 
We expect to maintain all of our cash with a limited number of reputable financial institutions, including institutions that may be located in Greece. These financial institutions located in Greece may be subsidiaries of international banks or Greek financial institutions. We do not expect that these balances will be covered by insurance in the event of default by these financial institutions. The occurrence of such a default could therefore have a material adverse effect on our business, financial condition, results of operations and cash flows.
 
If we are unable to fund our capital expenditures, we may not be able to continue to operate some of our vessels, which would have a material adverse effect on our business and our ability to pay dividends.
 
In order to fund our capital expenditures, we generally plan to use equity financing, internally-generated cash flows and opportunistic drawdowns from a revolving credit facility we have committed to enter into. If equity financing is not available on favorable terms, we may have to use debt financing. Our ability to borrow money and access the capital markets through future offerings may be limited by our financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for necessary future capital expenditures could limit our ability to continue to operate some of our vessels or impair the values of our vessels and could have a material adverse effect on our business, results of operations, financial condition, cash flows and ability to pay dividends. Even if we are successful in obtaining such funds through financings, the terms of such financings could further limit our ability to pay dividends.


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Risk factors
 
 
Given the prevailing market and economic conditions, including the recent financial turmoil affecting the world’s debt, credit and capital markets, the ability of banks and credit institutions to finance new projects, including the acquisition of new vessels in the future, is uncertain, and the availability of liquidity is generally limited. As a result, the prevailing market and economic conditions may affect our ability to grow and expand our business.
 
We are a holding company, and we will depend on the ability of our future subsidiaries to distribute funds to us in order to satisfy our financial obligations or to make dividend payments.
 
We are a holding company, and our future subsidiaries, which will be all wholly owned by us either directly or indirectly, will conduct all of our operations and own all of our operating assets. We will have no significant assets other than the equity interests in our wholly owned subsidiaries. As a result, our ability to satisfy our financial obligations and to pay dividends to our shareholders will depend on the ability of our subsidiaries to distribute funds to us. In turn, the ability of our subsidiaries to make dividend payments to us will depend on them having profits available for distribution and, to the extent that we are unable to obtain dividends from our subsidiaries, this will limit the discretion of our board of directors to pay or recommend the payment of dividends.
 
Our ability to pay dividends on a quarterly basis will be affected by the amount of reserves our Board of Directors elects to make each quarter.
 
Dividends will be paid equally on a per-share basis between our Common Stock and our Class B Stock. Cash available for distribution represents net cash flow during the previous quarter less any amount required to maintain a reserve that our board of directors determines from time to time is appropriate for the operation and future growth of our fleet, taking into account (among other factors) contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs (including without limitation reserves for acquisitions of vessels, drydocking, special surveys, repairs, claims, liabilities and other obligations, debt amortization and acquisitions of additional assets) and the requirements of the laws of the Republic of The Marshall Islands. The level of reserves in any quarter is determined by our board of directors in its sole discretion. Any changes to the amount of reserves may decrease the amount of cash available for distribution.
 
If management is unable to continue to provide reports as to the effectiveness of our internal control over financial reporting or our independent registered public accounting firm is unable to continue to provide us with unqualified attestation reports as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our Common Stock.
 
Under Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), after we file our annual report on Form 20-F for our initial fiscal year, we will be required to include in each of our subsequent future annual reports on Form 20-F a report containing our management’s assessment of the effectiveness of our internal control over financial reporting and a related attestation of our independent registered public accounting firm. As our manager, Capital Maritime will provide substantially all of our financial reporting, and we will depend on the procedures they have in place. If, in such future annual reports on Form 20-F, our management cannot provide a report as to the effectiveness of our internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified attestation report as to the effectiveness of our internal control over financial reporting as required by Section 404, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our Common Stock.


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Risk factors
 
 
Our costs of operating as a public company will be significant, and our management will be required to devote substantial time to complying with public company regulations.
 
As a public company, we will incur significant legal, accounting and other expenses. In addition, Sarbanes-Oxley, as well as rules subsequently implemented by the SEC and the New York Stock Exchange (the “NYSE”), have imposed various requirements on public companies, including changes in corporate governance practices, and these requirements will continue to evolve. Our Manager, management personnel, and other personnel, if any, will need to devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
 
As a publicly traded entity, we will be required to comply with the SEC’s reporting requirements and with corporate governance and related requirements of Sarbanes-Oxley, the SEC and the NYSE, on which our common shares will be listed. Section 404 of Sarbanes-Oxley requires that we evaluate and determine the effectiveness of our internal control over financial reporting on an annual basis. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. While we expect to follow Capital Maritime’s model and systems for compliance with Section 404, we will be required to dedicate a significant amount of time and resources to ensure compliance with the regulatory requirements of Section 404. We will work with our legal, accounting and financial advisors to identify any areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. However, these and other measures we may take may not be sufficient to allow us to satisfy our obligations as a public company on a timely and reliable basis. We expect to incur significant legal, accounting and other expenses in complying with these and other applicable regulations. We anticipate that our incremental general and administrative expenses as a publicly traded company will include costs associated with annual reports to shareholders, tax returns, investor relations, registrar and transfer agent’s fees, incremental director and officer liability insurance costs and director compensation.
 
We may be unable to attract and retain key management personnel and other employees in the shipping industry, which may negatively affect the effectiveness of our management and our results of operations.
 
Our success depends to a significant extent upon the abilities and efforts of our management team and our ability to hire and retain key members of our management team. The loss of any of these individuals could adversely affect our business prospects and financial condition. Difficulty in hiring and retaining personnel could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. We do not intend to maintain “key man” life insurance on any of our officers.
 
We may not have adequate insurance to compensate us if we lose our vessels or to compensate third parties.
 
There are a number of risks associated with the operation of ocean-going vessels, including mechanical failure, collision, human error, war, terrorism, piracy, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. Any of these events may result in loss of revenues, increased costs and decreased cash flows. In addition, the operation of any vessel is subject to the inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade.
 
We intend to insure vessels we acquire against tort claims and some contractual claims (including claims related to environmental damage and pollution) through memberships in protection and indemnity


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Risk factors
 
 
associations or clubs (“P&I Associations”). As a result of such membership, the P&I Associations will provide us coverage for such tort and contractual claims. We will also carry hull and machinery insurance and war risk insurance for our fleet. We plan to insure our vessels for third-party liability claims subject to and in accordance with the rules of the P&I Associations in which the vessels are entered. We can give no assurance that we will be adequately insured against all risks. We may not be able to obtain adequate insurance coverage for our fleet in the future. The insurers may not pay particular claims. Our insurance policies contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue. We do not currently maintain off-hire insurance, which would cover the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled drydocking due to damage to the vessel from accidents. Accordingly, any extended vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our business and our ability to pay distributions to our shareholders. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves.
 
We cannot assure you that we will be able to renew our insurance policies on the same or commercially reasonable terms, or at all, in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, protection and indemnity insurance against risks of environmental damage or pollution. Any uninsured or underinsured loss could harm our business, results of operations, cash flows, financial condition and ability to pay dividends. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain certification with applicable maritime self-regulatory organizations. Further, we cannot assure you that our insurance policies will cover all losses that we incur, or that disputes over insurance claims will not arise with our insurance carriers. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. In addition, our insurance policies are subject to limitations and exclusions, which may increase our costs or lower our revenues, thereby possibly having a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. A catastrophic oil spill or marine disaster could exceed our insurance coverage, which could harm our business, financial condition, cash flows, operating results and ability to pay dividends. In addition, certain of our vessels may be placed under bareboat charters. Under the terms of these charters, the charterer may provide for the insurance of the vessel and as a result these vessels may not be adequately insured and/or in some cases may be self-insured. Any uninsured or underinsured loss could harm our business, financial condition, cash flows, operating results and ability to pay dividends. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain certification with applicable maritime self-regulatory organizations.
 
We will be subject to funding calls by our protection and indemnity associations, and our associations may not have enough resources to cover claims made against them.
 
We are indemnified for legal liabilities incurred while operating our vessels through membership in P&I Associations. P&I Associations are mutual insurance associations whose members must contribute to cover losses sustained by other association members. The objective of a P&I Association is to provide mutual insurance based on the aggregate tonnage of a member’s vessels entered into the association. Claims are paid through the aggregate premiums of all members of the association, although members


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Risk factors
 
 
remain subject to calls for additional funds if the aggregate premiums are insufficient to cover claims submitted to the association. Claims submitted to the association may include those incurred by members of the association, as well as claims submitted to the association from other P&I Associations with which our P&I Association has entered into interassociation agreements. We cannot assure you that the P&I Associations to which we belong will remain viable or that we will not become subject to additional funding calls which could adversely affect us.
 
We may have to pay United States federal income tax on U.S. source income, which would reduce our net income and cash flows.
 
We expect that we and certain corporate subsidiaries will qualify for an exemption pursuant to Section 883 of the Code (“Section 883”) upon the closing of this offering, and that we and these subsidiaries will therefore not be subject to United States federal income tax on our shipping income that is derived from U.S. sources, as described below. However, there are factual circumstances beyond our control that could cause us or any of these subsidiaries to lose the benefit of this tax exemption. Therefore, we can give no assurances on this matter. If we or any of these subsidiaries were not to qualify for the exemption under Section 883, 50% of our or such subsidiary’s gross shipping income attributable to transportation beginning or ending in the United States will be subject to a 4% tax without allowance for deductions. See “United States Federal Income Tax Considerations—Exemption of Operating Income from United States Federal Income Taxation.”
 
U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax consequences to U.S. shareholders.
 
A foreign corporation generally will be treated as a passive foreign investment company (“PFIC”) for United States federal income tax purposes if either (a) at least 75% of its gross income for any taxable year consists of “passive income” or (b) at least 50% of its assets (averaged over the year and generally determined based upon value) produce or are held for the production of “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to distributions they receive from the PFIC and gain, if any, they derive from the sale or other disposition of their stock in the PFIC.
 
For purposes of these tests, “passive income” generally includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury regulations.
 
If we would otherwise be a PFIC in our “start-up year” (defined as the first taxable year we earn gross income) as a result of a delay in purchasing vessels with the proceeds of the offering (or generally for any other reason), we will not be treated as a PFIC in that taxable year, provided that (a) no predecessor corporation was a PFIC, (b) it is established to the satisfaction of the United States Internal Revenue Service (the “IRS”) that we will not be a PFIC in either of the two succeeding taxable years, and (c) we are not, in fact, a PFIC for either succeeding taxable year. We will attempt to conduct our affairs in a manner so that, if applicable, we will satisfy the start-up year exception, but we cannot assure you that we will so qualify.
 
For purposes of these tests, income derived from the performance of services does not constitute “passive income.” By contrast, rental income would generally constitute passive income unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business. Based on our planned operations and certain estimates of our gross income and gross assets, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our spot chartering and time chartering activities as services income, rather than rental income. Accordingly, we believe that (a) our income from our


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Risk factors
 
 
spot chartering and time chartering activities does not constitute passive income and (b) the assets that we own and operate in connection with the production of that income do not constitute passive assets.
 
There is, however, no direct legal authority under the PFIC rules addressing our method of operation. Moreover, in a recent case not concerning PFICs, Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit held that a vessel time charter at issue generated predominantly rental income rather than services income. However, the court’s ruling was contrary to the position of the IRS that the time charter income at issue should have been treated as services income. Moreover, Tidewater analyzed time charters, while we anticipate that a significant portion of our income will be generated from spot charters.
 
No assurance, however, can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, because there are uncertainties in the application of the PFIC rules, because the PFIC test is an annual test, and because, although we intend to manage our business so as to avoid PFIC status to the extent consistent with our other business goals, there could be changes in the nature and extent of our operations in future years, there can be no assurance that we will not become a PFIC in any taxable year.
 
If we were to be treated as a PFIC for any taxable year (and regardless of whether we remain a PFIC for subsequent taxable years), our U.S. shareholders would face adverse U.S. tax consequences. Under the PFIC rules, unless a shareholder makes certain elections available under the Code (which elections could themselves have adverse consequences for such shareholder, as discussed under the section captioned “United States Federal Income Tax Considerations—United States Federal Income Taxation of U.S. Holders—Passive Foreign Investment Company Status and Significant Tax Consequences”), such shareholder would be liable to pay United States federal income tax at the highest applicable income tax rates on ordinary income upon the receipt of excess distributions and upon any gain from the disposition of our Common Stock, plus interest on such amounts, as if such excess distribution or gain had been recognized ratably over the shareholder’s holding period of our Common Stock. See the section captioned “United States Federal Income Tax Considerations—United States Federal Income Taxation of U.S. Holders—Passive Foreign Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the United States federal income tax consequences to U.S. shareholders if we are treated as a PFIC.
 
Because we will generate all of our revenues in U.S. dollars but incur a portion of our expenses in other currencies, exchange rate fluctuations could hurt our results of operations.
 
We will generate all of our revenues in U.S. dollars, but we may incur drydocking costs and special survey fees in other currencies. If our expenditures on such costs and fees were significant, and the U.S. dollar were weak against such currencies, our business, results of operations, cash flows, financial condition and ability to pay dividends could be adversely affected.
 
We cannot assure you that we will be able to borrow amounts under our revolving credit facility, and restrictive covenants in our revolving credit facility or future financing agreements may impose financial and other restrictions on us, such as limiting our ability to pay dividends.
 
In connection with this offering, we have entered into a signed commitment letter with Nordea Bank Finland Plc, London Branch, to obtain a new $100 million revolving credit facility. We intend to utilize this credit facility opportunistically for the future growth of the Company beyond the acquisition of our initial fleet in a manner that will enhance our earnings, cash flow and net asset value. Our ability to borrow amounts under the credit facility will be subject to the execution of customary documentation, satisfaction of certain customary conditions precedent and compliance with terms and conditions included in the loan documents. Our ability to borrow funds from the credit facility to acquire additional vessels under the credit facility will be partially dependent on whether the purchase of the


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Risk factors
 
 
acquired vessels meets certain financial criteria, and whether the vessels meet certain age and other requirements. Additionally, the credit facility will prohibit us from paying dividends to our shareholders if an event of default has occurred and is continuing or if an event of default will occur as a result of the payment of such dividend.
 
The operating and financial restrictions and covenants in our revolving credit facility and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to pursue and expand our business activities. For example, our credit facility contains restrictive covenants that may prohibit us from, among other things:
 
Ø  paying dividends;
 
Ø  incurring or guaranteeing indebtedness;
 
Ø  charging, pledging or encumbering our vessels;
 
Ø  changing the flag, class, management or ownership of our vessels;
 
Ø  changing the commercial and technical management of our vessels; and
 
Ø  selling or changing the beneficial ownership or control of our vessels.
 
Therefore, we may need to seek consent from our lenders in order to engage in certain corporate actions. Our lenders’ interests may be different from ours and we cannot guarantee that we will be able to obtain our lenders’ consent when needed. Our ability to comply with covenants and restrictions contained in our revolving credit facility or future debt instruments may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, we may fail to comply with these covenants. If we breach any of the restrictions, covenants, ratios or tests in our revolving credit facility or future financing agreements, our obligations may become immediately due and payable, and the lenders’ commitment, if any, to make further loans may terminate. A default under our revolving credit facility or future financing agreements could also result in foreclosure on any of our vessels and other assets securing related loans. The occurrence of any of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends. See the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility” for a more comprehensive discussion of our revolving credit facility.
 
Financing agreements containing operating and financial restrictions may restrict our business and financing activities.
 
The operating and financial restrictions and covenants in any future financing agreements, including our revolving credit facility, could adversely affect our ability to finance future operations or capital needs or to pursue and expand our business activities. For example, these financing arrangements may restrict our ability to:
 
Ø  pay dividends;
 
Ø  incur or guarantee indebtedness;
 
Ø  change ownership or structure, including mergers, consolidations, liquidations and dissolutions;
 
Ø  grow our business through borrowings alone;
 
Ø  incur liens on our assets;
 
Ø  sell, transfer, assign or convey assets;
 
Ø  make certain investments; and
 
Ø  enter into a new line of business.


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Risk factors
 
 
 
Our ability to comply with covenants and restrictions contained in debt instruments may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, we may fail to comply with these covenants. If we breach any of the restrictions, covenants, ratios or tests in the financing agreements, our obligations may become immediately due and payable, and the lenders’ commitment, if any, to make further loans may terminate. A default under financing agreements could also result in foreclosure on any of our vessels and other assets securing related loans. The occurrence of any of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
Restrictions in our potential future debt agreements may prevent us from paying dividends.
 
The payment of principal and interest on any debt we incur will reduce the amount of cash for dividends to our shareholders. In addition, we expect that our financing agreements will prohibit the payment of dividends upon the occurrence of the following events, among others:
 
Ø  failure to pay any principal, interest, fees, expenses or other amounts when due;
 
Ø  failure to notify the lenders of any material oil spill or discharge of hazardous material, or of any action or claim related thereto;
 
Ø  breach or lapse of any insurance with respect to the vessels;
 
Ø  breach of certain financial or other covenants;
 
Ø  failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;
 
Ø  default under other indebtedness;
 
Ø  bankruptcy or insolvency events;
 
Ø  failure of any representation or warranty to be materially correct;
 
Ø  a change of control, as defined in the applicable agreement; and
 
Ø  a material adverse effect, as defined in the applicable agreement.
 
Our ability to obtain debt financing may depend on the performance of our business, our Manager, and market conditions.
 
The actual or perceived credit quality of our business, our Manager, and market conditions affecting the spot charter market and the credit markets may materially affect our ability to obtain the additional capital resources that may be required to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing at all or at a higher than anticipated cost may have a material adverse affect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
 
We are relying on the companies from which we are acquiring the Universal VLCCs to pay all costs for the Universal VLCCs that we will not own until after completion of this offering.
 
The two Universal VLCCs are being built pursuant to two shipbuilding contracts entered into by Universal and the current contractors (the “VLCC Sellers”). The VLCC Sellers are responsible for all costs relating to the construction and delivery of the Universal VLCCs that the vessel-owning subsidiaries we will acquire have contracted to purchase, but that have not yet been delivered from the shipyard. When the vessels have passed inspection and been delivered to the VLCC Sellers, the vessel-owning subsidiaries will purchase the Universal VLCCs at specified prices. If the VLCC Sellers fail to continue to make construction payments for these vessels, we could lose access to the Universal VLCCs


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Risk factors
 
 
as a result of the default, which could harm our business and reduce our ability to pay dividends to our shareholders.
 
RISK FACTORS RELATED TO OUR COMMON STOCK AND CAPITAL STRUCTURE
 
The concentration of our capital stock ownership with Crude Carriers Investments Corp. and its affiliates and the superior voting rights of our Class B Stock held by Crude Carriers Investments Corp. will limit our Common Stock holders’ ability to influence corporate matters.
 
Under our amended and restated articles of incorporation that will be in effect before the closing of this offering, our Class B Stock will have 10 votes per share, and our Common Stock will have one vote per share, resulting in Crude Carriers Investments Corp. controlling in excess of 50% of the combined voting power of these two classes of stock but for the limit on the voting power of the Class B Stock held by it and its affiliates to an aggregate maximum of 49% of the combined voting power of our Common Stock and Class B Stock. Therefore, upon the closing of this offering, Crude Carriers Investments Corp. will own shares of Class B Stock representing 49% of the voting power of our outstanding capital stock (remaining at 49% if the underwriters exercise their over-allotment option in full). In addition, pursuant to the Subscription Agreement, Crude Carriers Investments Corp. will be entitled, so long as Capital Maritime or any of its affiliates is our manager, to subscribe for an additional number of shares of Class B Stock equal to 2.0% of the number of shares of Common Stock issued, excluding shares of Common Stock issued in this offering, shares of Common Stock issued under our 2010 Equity Incentive Plan (see “Management—2010 Equity Incentive Plan”) and future equity compensation. These additional shares would be issued for additional nominal consideration equal to their par value. In addition, members of our board of directors or our management team who are affiliated with Capital Maritime, a related party to Crude Carriers Investments Corp., or other individuals providing services under the Management Agreement who are affiliated with Capital Maritime, may receive equity awards under our 2010 Equity Incentive Plan.
 
Through its ownership of our Class B Stock and its relation to our Manager, Crude Carriers Investments Corp. will have substantial control and influence over our management and affairs and over all matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. In addition, because of this dual-class stock structure, Crude Carriers Investments Corp. will continue to be able to control all matters submitted to our shareholders for approval even though it will own significantly less than 50% of the aggregate number of outstanding shares of our Common Stock and Class B Stock. This concentrated control limits our Common Stock holders’ ability to influence corporate matters and, as a result, we may take actions that our Common Stock holders do not view as beneficial. As a result, the market price of our Common Stock could be adversely affected.
 
The voting rights of certain shareholders owning 5% or more of our Common Stock are restricted.
 
Our amended and restated articles of incorporation restrict Common Share holders’ voting rights by providing that if any person or group, other than Crude Carriers Investments Corp., owns beneficially 5% or more of the Common Stock then outstanding, then any such Common Stock owned by that person or group in excess of 4.9% may not be voted on any matter. The voting rights of any such Common Stock holders in excess of 4.9% will be redistributed pro rata among the other Common Stock holders holding less than 5.0% of the Common Stock.


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Risk factors
 
 
Because we are a foreign corporation, you may not have the same rights or protections that a shareholder in a United States corporation may have.
 
We are incorporated in the Republic of The Marshall Islands, which does not have a well-developed body of corporate law and may make it more difficult for our shareholders to protect their interests. Our corporate affairs are governed by our amended and restated articles of incorporation, our amended and restated bylaws and the Marshall Islands Business Corporations Act (“BCA”). The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, 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. See “Certain Marshall Islands Company Considerations.”
 
Provisions of our amended and restated articles of incorporation and amended and restated bylaws may have anti-takeover effects which could adversely affect the market price of our Common Stock.
 
Several provisions of our amended and restated articles of incorporation and amended and restated bylaws, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire our company. However, these anti-takeover provisions could also discourage, delay or prevent (a) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (b) the removal of incumbent officers and directors.
 
Dual Class Stock.  Our dual class stock structure, which will consist of Common Stock and Class B Stock, gives Crude Carriers Investments Corp. and its affiliates a significant degree of control over all matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets. The extent of this control is diminished because the aggregate voting power of the Class B Stock held by Crude Carriers Investments Corp. and its affiliates is limited to an aggregate maximum of 49% of the combined voting power of our outstanding Common Stock and Class B Stock. Nevertheless, this concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that other shareholders may view as beneficial.
 
Blank Check Preferred Stock.  Under the terms of our amended and restated articles of incorporation, our board of directors will have authority, without any further vote or action by our shareholders, to issue up to 100 million shares of “blank check” preferred stock. Our board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of Common Stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of us or the removal of our management and might harm the market price of our Common Stock. We have no current plans to issue any shares of preferred stock.
 
Classified Board of Directors.  Our amended and restated articles of incorporation provide for the division of our board of directors into three classes of directors, with each class as nearly equal in


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Risk factors
 
 
number as possible, serving staggered, three-year terms beginning upon the expiration of the initial term for each class. Approximately one-third of our board of directors is elected each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of us. It could also delay shareholders who do not agree with the policies of our board of directors from removing a majority of our board of directors for up to two years.
 
Election and Removal of Directors.  Our amended and restated articles of incorporation do not provide for cumulative voting in the election of directors. Our amended and restated bylaws require parties other than the board of directors to give advance written notice of nominations for the election of directors. Our amended and restated articles of incorporation also provide that our directors may be removed only for cause upon the affirmative vote of 662/3% of the outstanding shares of our capital stock entitled to vote for those directors or by a majority of the members of the board of directors then in office. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
 
Limited Actions by Shareholders.  Our amended and restated articles of incorporation and our amended and restated bylaws provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or as otherwise permitted by the BCA. Our amended and restated articles of incorporation and our amended and restated bylaws provide that, subject to certain exceptions, our Chairman or Chief Executive Officer, in either case at the direction of the board of directors, may call special meetings of our shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice.
 
Advance Notice Requirements for Shareholder Proposals and Director Nominations.  Our amended and restated bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder’s notice must be received at our principal executive offices not less than 90 days or more than 120 days before the date on which we first mailed our proxy materials for the preceding year’s annual meeting. Our amended and restated bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede a shareholder’s ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.
 
Bylaw Amendments.  Our amended and restated bylaws may only be repealed or amended by a vote of 662/3% or more of the total voting power of our outstanding capital stock. In light of the voting rights of our Class B Stock, any amendment of our bylaws will likely require the approval of Crude Carriers Investment Corp.
 
It may not be possible for our investors to enforce U.S. judgments against us.
 
We are incorporated in the Republic of The Marshall Islands, and we expect most of our future subsidiaries will also be organized in the Marshall Islands. We expect that substantially all of our assets and those of our subsidiaries will be located outside the United States. As a result, it may be difficult or impossible for United States shareholders to serve process within the United States upon us or to enforce judgment upon us for civil liabilities in United States courts. In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located (a) would enforce judgments of United States courts obtained in actions against us based upon the civil liability provisions of applicable United States federal and state securities laws or (b) would enforce, in original actions, liabilities against us based upon these laws.


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Risk factors
 
 
Future sales of our Common Stock could cause the market price of our Common Stock to decline.
 
The market price of our Common Stock could decline due to sales of a large number of shares in the market, including sales of shares by our large shareholders, or the perception that these sales could occur. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of Common Stock. Prior to or at the closing of this offering, we will enter into a registration rights agreement with Crude Carriers Investments Corp. pursuant to which we will grant Crude Carriers Investments Corp. certain registration rights with respect to our Common Stock and Class B Stock owned by them.
 
Purchasers in this offering will experience immediate and substantial dilution of $0.90 per share of Common Stock.
 
The assumed initial public offering price per share of Common Stock exceeds the pro forma net tangible book value per share of Common Stock and Class B Stock, immediately after this offering. Based on an assumed initial public offering price of $20.00 per share, you will incur immediate and substantial dilution of $0.90 per share. Please read “Dilution” for a more detailed description of the dilution that you will experience upon the completion of this offering.
 
As a key component of our business strategy, we intend to issue additional shares of Common Stock or other securities to finance our growth. These issuances, which would generally not be subject to shareholder approval, will dilute your ownership interests and may depress the market price of the Common Stock.
 
We plan to finance potential future expansions of our fleet primarily through equity financing and internally-generated cash flow. Therefore, subject to the rules of the NYSE, we plan to issue additional shares of Common Stock, and other equity securities of equal or senior rank, without shareholder approval, in a number of circumstances from time to time.
 
The issuance by us of shares of Common Stock or other equity securities of equal or senior rank will have the following effects:
 
Ø  Crude Carriers Investments Corp. will be entitled, so long as Capital Maritime or any of its affiliates is our manager, to subscribe for an additional number of shares of Class B Stock equal to 2.0% of the number of shares of Common Stock issued, excluding shares of Common Stock issued in this offering, shares of Common Stock issued under our 2010 Equity Incentive Plan (see “Management—2010 Equity Incentive Plan”) and future equity compensation. These additional shares would be issued for additional nominal consideration equal to their par value.
 
Ø  Our existing shareholders’ proportionate ownership interest in us will decrease.
 
Ø  The amount of cash available for distribution as dividends payable on our Common Stock may decrease.
 
Ø  The relative voting strength of each previously outstanding share may be diminished.
 
Ø  The market price of our Common Stock may decline.
 
In addition, if we issue shares of our Common Stock in a future offering at a price per share lower than the price per share in this offering, it will be dilutive to purchasers of Common Stock in this offering.
 
There is no existing market for our Common Stock, and we cannot be certain that an active trading market or a specific share price will be established.
 
Prior to this offering, there has been no public market for shares of our Common Stock. We have been cleared to apply for listing of our Common Stock on the NYSE under the symbol “CRU.” We cannot


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Risk factors
 
 
predict the extent to which investor interest in our company will lead to the development of an active trading market on the NYSE or otherwise or how liquid that market might become. The initial public offering price for the shares of our Common Stock will be determined by negotiations between us and the underwriters, and may not be indicative of the price that will prevail in the trading market following this offering. The market price for our Common Stock may decline below the initial public offering price, and our stock price is likely to be volatile following this offering.
 
Increases in interest rates may cause the market price of our shares to decline.
 
An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular for yield based equity investments such as our shares. Any such increase in interest rates or reduction in demand for our shares resulting from other relatively more attractive investment opportunities may cause the trading price of our shares to decline.
 
If the stock price of our Common Stock fluctuates after this offering, you could lose a significant part of your investment.
 
The market price of our Common Stock may be influenced by many factors, many of which are beyond our control, including those described above under “—Risk Factors Related to Our Planned Business & Operations” and the following:
 
Ø  the failure of securities analysts to publish research about us after this offering, or analysts making changes in their financial estimates;
 
Ø  announcements by us or our competitors of significant contracts, acquisitions or capital commitments;
 
Ø  variations in quarterly operating results;
 
Ø  general economic conditions;
 
Ø  terrorist acts;
 
Ø  future sales of our Common Stock or other securities; and
 
Ø  investors’ perception of us and the tanker shipping industry.
 
As a result of these factors, investors in our Common Stock may not be able to resell their shares at or above the initial offering price. These broad market and industry factors may materially reduce the market price of our Common Stock, regardless of our operating performance.


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Special note regarding forward-looking statements
 
The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. Statements included in this prospectus that are not historical facts (including, without limitation, our financial forecasts and any other statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements.
 
The indicative numerical examples, estimates and predictions under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” are forward-looking statements. Additionally, we use words such as “may,” “will,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “forecast,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue” or the negative of these terms or other comparable terminology to identify forward-looking statements, but they are not the only way we identify such statements. All forward-looking statements reflect our present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In addition to the risks related to our business discussed under “Risk Factors,” other factors could cause actual results to differ materially from those described in the forward-looking statements.
 
Forward-looking statements appear in a number of places and include statements with respect to, among other things:
 
Ø  expectations of our ability to pay dividends on our Common Stock;
 
Ø  future financial condition or results of operations and future revenues and expenses;
 
Ø  the repayment of our debt, if any;
 
Ø  general market conditions and shipping market trends, including charter rates and factors affecting supply and demand;
 
Ø  expected compliance with financing agreements and the expected effect of restrictive covenants in such agreements;
 
Ø  planned capital expenditures and the ability to fund capital expenditures from external financing sources;
 
Ø  the need to establish reserves that would reduce dividends on our Common Stock;
 
Ø  future supply of, and demand for, crude oil generally or in particular regions;
 
Ø  changes in demand or charterhire rates in the tanker shipping industry;
 
Ø  changes in the supply of tanker vessels, including newbuildings or lower than anticipated scrapping of older vessels;
 
Ø  changes in regulatory requirements applicable to the oil transport industry, including, without limitation, requirements adopted by international organizations or by individual countries and actions taken by regulatory authorities and governing such areas as safety and environmental compliance;
 
Ø  changes in the requirements and standards imposed on shipping companies by the oil majors;
 
Ø  increases in costs and expenses including but not limited to: crew wages, insurance, provisions, lube oil, bunkers, repairs, maintenance and general and administrative expenses;
 
Ø  the adequacy of our insurance arrangements;
 
Ø  changes in general domestic and international political conditions;


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Special note regarding forward-looking statements
 
 
 
Ø  changes in the condition of our vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs) and unanticipated drydock expenditures;
 
Ø  the ability to leverage Capital Maritime’s relationships and reputation in the shipping industry;
 
Ø  the ability to maintain qualifications for long-term business with oil majors and other major charterers;
 
Ø  the ability to maximize the use of vessels;
 
Ø  the ability to charter-in and subsequently charter out profitably;
 
Ø  operating expenses, availability of crew, number of off-hire days, drydocking requirements and insurance costs;
 
Ø  expected pursuit of strategic opportunities, including the acquisition of vessels and expansion into new markets;
 
Ø  expected financial flexibility to pursue acquisitions and other expansion opportunities;
 
Ø  the ability to compete successfully for future chartering and newbuilding opportunities;
 
Ø  the anticipated incremental general and administrative expenses as a public company and expenses under service agreements with other affiliates of Capital Maritime or third parties;
 
Ø  the anticipated taxation of our company and distributions to our shareholders;
 
Ø  the expected lifespan of our vessels;
 
Ø  the ability to employ and retain key employees;
 
Ø  customers’ increasing emphasis on environmental and safety concerns;
 
Ø  anticipated funds for liquidity needs and the sufficiency of cash flows; and
 
Ø  our business strategy and other plans and objectives for future operations.
 
Forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore are subject to a number of risks, uncertainties and assumptions, including those risks discussed in “Risk Factors” and those risks discussed in other reports we file with the SEC. The risks, uncertainties and assumptions are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
 
We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.


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Use of proceeds
 
We expect to receive net proceeds of approximately $251.4 million from the sale of shares of Common Stock offered by this prospectus, assuming an initial public offering price of $20.00 per share, the mid-point of the range shown on the cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Based upon the number of shares of Common Stock offered by us in this offering as set forth on the cover page of this prospectus, a $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share would increase (decrease) the net proceeds to us from this offering by approximately $12.50 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
Substantially all of the proceeds of this offering and the $40 million capital contribution from Crude Carriers Investments Corp. will be used to purchase the two Universal VLCCs and the Initial Suezmax. There are various factors that will affect whether and at what times we acquire vessels, but we currently estimate that we will purchase and take delivery of the Initial Suezmax upon the consummation of this offering, expect delivery of one Universal VLCC in March 2010 and expect delivery of the other Universal VLCC in June 2010. The amount of the proceeds of this offering that we expect will be transferred to our affiliates in connection with these transactions is approximately $109.85 million (comprised of the price of the Initial Suezmax of $71,250,000 and reimbursement of the deposits on the Universal VLCCs, an aggregate of $38,600,000). Prior to being deployed as set forth above, the proceeds that are not in use as working capital will be held in United States Treasury bills or deposits at leading financial institutions until such a time as we use them to acquire vessels. We may raise additional capital by issuing Common Stock after this offering.


50


 

 
Capitalization
 
The following unaudited table sets forth our capitalization at December 31, 2009, on an actual basis and as adjusted to give effect to (a) the sale of the Common Stock we are offering, assuming an offering price of approximately $20.00 per share of Common Stock, after deduction of the underwriting discount of 6.75% and expenses payable by us, (b) the capital contribution by Crude Carriers Investments Corp. to us of $40 million prior to the closing of this offering and (c) the acquisition of Cooper Consultants Co. (“Cooper”).
 
                 
    As of
 
    December 31, 2009  
    Actual     As Adjusted(5)  
   
 
Debt:
               
Short-term debt
    0       0  
Total Debt
    0       0  
                 
Shareholder’s equity:
               
Capital stock, par value $1.00 per share: 100 shares authorized; 100 and 0 shares issued and outstanding actual and as adjusted, respectively
    100       0(1 )
Common Stock, par value $0.0001 per share: 1 billion shares authorized; 0 and 13,500,000 shares issued and outstanding actual and as adjusted, respectively
    0       1,350 (2)
Class B Stock, par value $0.0001 per share: 100 million shares authorized; 0 and 2,000,000 shares issued and outstanding actual and as adjusted, respectively
    0       200 (2)
Additional paid in capital
    0       296,390,493 (3)(4)
Total shareholders’ equity
    100       296,392,043  
                 
Total capitalization
  $ 100     $ 296,392,043  
                 
 
 
(1) Crude Carriers Investment Corp. will surrender the Capital Stock of 100 issued shares in connection with its subscription for the Class B Stock.
 
(2) The amount of $1,350 and $200 represent the issuance of 13,500,000 Common shares and 2,000,000 Class B shares respectively with par value of $0.0001 per Common and Class B share according to the amended articles of incorporation of Crude Carriers Corp.
 
(3) Net proceeds of the offering and the $40 million contribution by Crude Carriers Investments Corp. amounted to 291,403,811 reduced by the Common Stock and Class B Stock of $1,350 and $200 respectively.
 
(4) Acquisition of the Initial Suezmax for a total consideration of $71,250,000. The difference between the acquisition price ($71,250,000) and the vessel’s net book value ($76,238,232), at December 31, 2009, amounted to $4,988,232 is recorded as an increase in the stockholders’ equity.
 
(5) Assumes the issuance of 13,500,000 shares of Common Stock and the issuance of 2,000,000 shares of Class B Stock and no exercise of the underwriters’ over-allotment option.


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Dilution
 
Dilution is the amount by which the offering price per share of Common Stock will exceed the net tangible book value per share of our Common Stock and Class B Stock after this offering. Assuming an initial public offering price of $20.00 per share of Common Stock, on a pro forma basis as of December 31, 2009, after giving effect to this offering of Common Stock, the application of the net proceeds in the manner described under “Use of Proceeds” and the formation and contribution transactions related to this offering, our pro forma net tangible book value was $44.7 million, or $22.35 per share. Purchasers of our Common Stock in this offering will experience substantial and immediate dilution in net tangible book value per share, as illustrated in the following table.
 
                 
Assumed initial public offering price per share of Common Stock
              $ 20.00  
Pro forma net tangible book value per share as of December 31, 2009, before giving effect to this offering(1)
  $ 22.35          
Decrease in net tangible book value per share attributable to purchasers in this offering
    3.25          
                 
Less: Pro forma net tangible book value per share after giving effect to this offering(2)
            19.10  
                 
Immediate dilution in net tangible book value per share to purchasers in this offering
          $ 0.90  
                 
 
 
(1) Determined by dividing the shares of our Class B Stock to be issued to Crude Carriers Investments Corp., a wholly owned subsidiary of Capital Maritime, for its contribution of $40 million to us into the pro forma net tangible book value of Crude Carriers.
 
(2) Determined by dividing the total number of shares of Common Stock and Class B Stock to be outstanding after this offering into our pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering.
 
The following table sets forth, on a pro forma basis as of December 31, 2009, the number of shares of Common Stock purchased from us and the total consideration contributed or paid to us by the purchasers of Common Stock in this offering or Class B Stock upon consummation of the transactions contemplated by this prospectus.
 
Crude Carriers Investments Corp. will only acquire Class B Stock prior to the consummation of this offering, and new investors will only acquire Common Stock in this offering.
 
                                 
    Shares Acquired     Total Consideration  
    Number     Percent     Amount     Percent  
   
 
Crude Carriers Investments Corp. 
    2,000,000       12.9 %     40,000,000       12.9 %
New investors
    13,500,000       87.1       270,000,000       87.1  
                                 


52


 

 
Our dividend policy and restrictions on dividends
 
You should read the following discussion of our dividend policy and restrictions on dividends in conjunction with specific assumptions included in this section. In addition, you should read “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.
 
OUR DIVIDEND POLICY
 
Our dividend policy reflects a basic judgment that our shareholders will generally be better served by our distributing our cash available for distribution rather than retaining it. We intend to finance our initial fleet primarily with equity and we have entered into a signed commitment letter with Nordea Bank Finland Plc, London Branch, to obtain a new $100 million revolving credit facility that we will use opportunistically for the growth of the Company beyond our initial fleet in a manner that will enhance our earnings, cash flows and net asset value. We do not expect to use this credit facility to acquire our initial fleet.
 
We intend to pay a variable quarterly dividend based on our cash available for distribution during the previous quarter. Dividends will be paid equally on a per-share basis between our Common Stock and our Class B Stock. Cash available for distribution equals our net cash flow during the previous quarter less any amount required to maintain a reserve that our board of directors determines from time to time is appropriate for the conduct and growth of our fleet (including without limitation reserves for acquisitions of vessels, drydocking, special surveys, off-hire of our vessels, repairs, claims, liabilities and other obligations, debt amortization and acquisitions of additional assets) and in compliance with Marshall Islands law.
 
LIMITATIONS ON DIVIDENDS AND OUR ABILITY TO CHANGE OUR DIVIDEND POLICY
 
There is no guarantee that our shareholders will receive dividends from us. Our dividend policy may be changed at any time by our board of directors and is subject to certain restrictions, including:
 
Ø  Our shareholders have no contractual or other legal right to receive dividends under our dividend policy or otherwise.
 
Ø  Our board of directors has authority to establish reserves for the prudent conduct and the growth of our business, after giving effect to contingent liabilities, the terms of any credit facilities we may enter into, our other cash needs and the requirements of Marshall Islands law. The establishment of these reserves could result in a reduction in dividends to our shareholders. We do not anticipate the need for reserves at this time.
 
Ø  Our board of directors may modify or terminate our dividend policy at any time. Even if our dividend policy is not modified or revoked, the amount of dividends we pay under our dividend policy and the decision to pay any dividend is determined by our board of directors.
 
Ø  Marshall Islands law generally prohibits the payment of a dividend when a company is insolvent or would be rendered insolvent by the payment of such a dividend or when the declaration or payment would be contrary to any restriction contained in the company’s articles of incorporation. Dividends may be declared and paid out of surplus only, but if there is no surplus, dividends may be declared or paid out of the net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year.
 
Ø  We may lack sufficient cash to pay dividends due to decreases in net voyage revenues or increases in operating expenses, principal and interest payments on outstanding debt, tax expenses, working capital requirements, capital expenditures or other anticipated or unanticipated cash needs.


53


 

 
Our dividend policy and restrictions on dividends
 
 
 
Ø  Our dividend policy may be affected by restrictions on distributions under any credit facilities we may enter into, which contain material financial tests and covenants that must be satisfied. If we are unable to satisfy these restrictions included in the credit facilities or if we are otherwise in default under the facilities, we would be prohibited from making dividend distributions to our shareholders, notwithstanding our dividend policy.
 
Ø  While we intend that future acquisitions to expand our fleet will enhance our ability to pay dividends over time, acquisitions could limit our cash available for distribution.
 
Our ability to make distributions to our shareholders will depend upon the performance of subsidiaries we will form to own and operate vessels, which are our principal cash-generating assets, and their ability to distribute funds to us. The ability of our ship-owning or other subsidiaries to make distributions to us may be restricted by, among other things, the provisions of future indebtedness, applicable corporate or limited liability company laws and other laws and regulations.
 
We have no operating history upon which to rely as to whether we will have sufficient cash available to pay dividends on our Common Stock. In addition, the tanker vessel spot charter market is highly volatile, and we cannot accurately predict the amount of dividend distributions, if any, that we may make in any period. Factors beyond our control may affect the charter market for our vessels, our charterers’ ability to satisfy their contractual obligations to us, and our voyage and operating expenses.


54


 

 
SELECTED FINANCIAL INFORMATION
 
We were incorporated in October 2009 and have no operating history. The following balance sheet as of December 31, 2009 has been derived from our audited financial statements, which are included in this prospectus. The balance sheet information provided below should be read in conjunction with the accompanying balance sheet of Crude Carriers Corp. and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All figures in the table below are in United States Dollars.
 
         
    As of
 
    December 31,
 
    2009  
   
 
ASSETS
Current assets
       
Cash and cash equivalents
  $ 175  
         
Total current assets
    175  
         
Other non-current assets
       
Deferred charges,
    294,725  
         
Total non-current assets
    294,725  
         
TOTAL ASSETS
  $ 294,900  
         
 
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
       
Due to related parties
    26,800  
Accrued Liabilities
    268,000  
         
Total current liabilities
    294,800  
         
Total liabilities
    294,800  
         
Stockholder’s equity
       
Capital stock, $1.00 par value per share; 100 shares issued and outstanding
    100  
         
Total stockholder’s equity
    100  
         
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY
  $ 294,900  
         


55


 

 
Selected financial information
 
 
The table below, containing selected financial information for the Initial Suezmax as of and for the years ended December 31, 2009, 2008 and 2007, and for the period from April 6, 2006 (inception) to December 31, 2006 has been derived from the audited financial statements for those periods of Cooper, the Capital Maritime subsidiary that currently owns the Initial Suezmax. The financial information below will change as of the consummation of the offering because Capital Maritime will assume all of Cooper’s liabilities and assets except for the Initial Suezmax and its inventories. Upon the consummation of this offering, we will acquire the Initial Suezmax and its inventories. Prior to consummating the sale of the Initial Suezmax, Capital Maritime will cause the mortgage on it to be released and Capital Maritime will use its reasonable best efforts to cause the cancellation and discharge of the other encumbrances on the Initial Suezmax. We expect these encumbrances to be cancelled and released before or at the completion of the offering. The information provided below should be read in conjunction with the accompanying financial statements of Cooper and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All figures in the table below, except number of shares, are in thousands of U.S. Dollars.
                                 
                      Period from
 
                      April 6,
 
                      2006
 
    Year Ended
    Year Ended
    Year Ended
    (inception) to
 
    December 31,
    December 31,
    December 31,
    December 31,
 
    2009     2008     2007     2006  
   
 
Income Statement Data:
                               
Revenues
  $ 16,870     $ 39,166     $ 24,665     $ 15,017  
Expenses:
                               
Voyage expenses(1)
    6,252       14,317       10,800       5,182  
Vessel operating expenses—related party(2)
    540       540       270       176  
Vessel operating expenses(2)
    2,457       2,351       2,243       1,292  
General and administrative expenses
          301              
Depreciation
    3,357       3,356       3,356       2,238  
Total operating expenses
    12,606       20,865       16,669       8,888  
                                 
Operating income (expense)
    4,264       18,301       7,996       6,129  
Interest expense and finance costs
    (530 )     (1,590 )     (3,132 )     (3,059 )
Interest income
          1       3        
Foreign currency gain (loss), net
    2             (21 )     (4 )
Net income (loss)
  $ 3,736     $ 16,712     $ 4,846     $ 3,066  
                                 
Earnings per share (basic and diluted):
                               
Common shares
                       
Class B shares
                       
Total units
                       
Weighted-average shares outstanding (basic and diluted):
                               
Common shares
                       
Class B shares
                       
Total units
                       
Balance Sheet Data (at end of period):
                               
Vessels, net
  $ 76,238     $ 79,595     $ 82,951     $ 86,307  
Total assets
    80,966       82,174       88,413       89,150  
Total long-term debt including current portion
    32,460       35,621       39,587       65,800  
Total stockholders’ equity
    46,860       43,124       26,412       21,566  
Number of shares
    500       500       500       500  
Cash Flow Data:
                               
Net cash provided by operating activities
  $ 3,161     $ 20,859     $ 9,313     $ 4,471  
Net cash (used in) investing activities
                      (88,545 )
Net cash (used in) / provided by financing activities
    (3,161 )     (20,869 )     (9,310 )     84,082  
 
 
(1) Vessel voyage expenses primarily consist of commissions, port expenses, canal dues and bunkers.
(2) Our vessel operating expenses have consisted primarily of crew costs, insurance, repairs and maintenance, stores, lubricants, spares and consumables, professional and legal fees and miscellaneous expenses. Operating expenses also include management fees payable to our manager, Capital Ship Management Corp., under the provisions of the management agreement between Cooper and Capital Ship Management Corp.


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Crude Carriers Corp.
 
 
 
Unaudited pro forma financial statements
 
As discussed in “Selected Financial Information,” the Company will acquire the Initial Suezmax from Capital Maritime by acquiring Cooper at the time of this offering. The Company and Cooper are entities that are currently commonly controlled by Capital Maritime. Therefore, the acquisition of the Initial Suezmax by the Company, once consummated, will be accounted for as a combination of entities under common control in a manner similar to a pooling of interests. Such accounting will result in the retroactive restatement of the historical financial statements of the Company as if the Initial Suezmax was owned by the Company for all periods presented, with Cooper being the predecessor entity.
 
The following unaudited pro forma condensed combined financial statements present the financial position of the Company as of and for the year ended December 31, 2009, assuming this offering and the related transactions had been completed as of January 1, 2009 for purposes of the unaudited pro forma condensed combined statement of income and as of December 31, 2009 for purposes of the unaudited pro forma condensed combined balance sheet. The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to this offering and the related transactions.
 
These unaudited pro forma condensed combined financial statements do not purport to represent what the Company’s financial position would actually have been had the completion of this offering and the related transactions in fact occurred on December 31, 2009, nor does it purport to project the Company’s financial position at any future date.
 
The following unaudited pro forma condensed combined financial statements should be read together with the audited financial statements of the Company and of Cooper and the accompanying notes included elsewhere in this prospectus. They should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


57


 

Crude Carriers Corp.
 
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
 
AS OF DECEMBER 31, 2009
 
                                 
                      Crude Carriers
 
    Crude Carriers
    Cooper Consultants
    Adjustments
    Corp. Pro Forma
 
    Corp.     Co.     (unaudited)     (unaudited)  
   
    (in thousands of United States dollars)  
 
ASSETS
Current assets
                               
Cash and cash equivalents(1),(2),(3)
  $     $ 1     $ (1 )   $  
Trade accounts receivable(1)
          1,340       (1,340 )      
Due from related parties(1)
          1,878       (1,878 )      
Prepayments and other assets(1)
          45       (45 )      
Inventories(1)
          1,411             1,411  
                                 
Total current assets
  $     $ 4,675     $ (3,264 )   $ 1,411  
                                 
Fixed assets
                               
Vessel, net(3)
          76,238             76,238  
Advances for vessels under construction(4)
                38,600       38,600  
                                 
Total fixed assets
  $     $ 76,238       38,600     $ 114,838  
Other non-current assets
                               
Deferred finance charges,(1)
    295       53       (53 )     295  
                                 
Total non-current assets
  $ 295     $ 76,291     $ 38,547     $ 115,133  
                                 
TOTAL ASSETS
  $ 295     $ 80,966     $ 35,283     $ 116,544  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
                               
Current portion of long-term debt
  $     $     $     $  
Current portion of related-party debt(1)
          3,161       (3,161 )      
Trade accounts payable(1)
          1,344       (1,344 )      
Due to related parties(5)
    27             71,261       71,288  
Accrued liabilities(1)
    268       302       (302 )     268  
                                 
Total current liabilities
  $ 295     $ 4,807     $ 66,454     $ 71,556  
                                 
Long-term liabilities
                               
Long-term related-party debt(1)
          29,299       (29,299 )      
                                 
Total long-term liabilities
  $     $ 29,299     $ (29,299 )   $  
                                 
Total liabilities
  $ 295     $ 34,106     $ 37,155     $ 71,556  
                                 
Commitments and contingencies
                               
Stockholder’s equity
                               
Common stock:
                               
Crude Carriers Corp.: 100 capital shares, $1.00 par value per share Cooper Consultants Co.: 1,000 common shares with no par value
                       
Additional paid-in capital(1),(3)
          18,500     $ (13,512 )     4,988  
Retained earnings
          28,360       (28,360 )      
Class B Stock(2)
                40,000       40,000  
                                 
Total stockholder’s equity
  $     $ 46,860     $ (1,872 )   $ 44,988  
                                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 295     $ 80,966     $ 35,283     $ 116,544  
                                 
 
 
(1) Only the Initial Suezmax and related inventories will be purchased by the Company concurrently upon the consummation of the offering.


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Crude Carriers Corp.
 
 
 
(2) Upon the consummation of the offering Crude Carriers Investments Corp. will make a cash contribution of $40,000 to us.
 
(3) Upon the consummation of the offering, we will acquire the shares of the vessel owning-company of the Initial Suezmax for $71,250. The difference between the acquisition price and the vessel’s net book value, which difference equals $4,988, will be recorded as an increase in stockholders’ equity representing a capital contribution to us by Capital Maritime.
 
(4) Upon the consummation of the offering, we expect to make two payments of $19,300 each toward the acquisition of the two Universal VLCCs. Upon the deliveries of these two vessels, which are expected to occur in March 2010 and June 2010, respectively, the Company will pay a sale and purchase fee of 1% of the total purchase price of each vessel to Capital Maritime & Trading Corp pursuant to the Management Agreement. The total purchase price of the two Universal VLCCs is $193,000 ($96,500 each) and the total sale and purchase fee is therefore $1,930. Such sale and purchase fee will be included as part of the total purchase consideration paid to Capital Maritime & Trading Corp. Any difference between the historical book value of these vessels and the total purchase consideration will be recorded in stockholders’ equity. Additionally, to the extent that the total purchase consideration exceeds the historical book value of these vessels, such excess may result in a reduction to income available to common shareholders for the purposes of computing earnings per share. We have excluded the sale and purchase fee from the unaudited pro forma condensed balance sheet as neither vessel will have been delivered as of the expected date of consummation of this offering.
 
(5) Proceeds from this offering have not been reflected as adjustments within our unaudited pro forma condensed combined balance sheet, consistent with the requirements of Article 11 of SEC Regulation S-X. We expect that the purchase of the Initial Suezmax and related inventories, and the initial payments associated with the two Universal VLCCs will be paid by Capital Maritime on our behalf, with repayment by us using proceeds from this offering.


59


 

Crude Carriers Corp.
 
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2009
 
                         
                Crude Carriers Corp.
 
    Cooper
    Adjustments
    Pro Forma
 
    Consultants Co.     (unaudited)     (unaudited)  
   
    (in thousands of United States dollars)  
 
Revenues
  $ 16,870           $ 16,870  
Expenses:
                       
Voyage expenses(1)
    6,252       210       6,462  
Vessel operating expenses
    2,457             2,457  
Vessel operating expenses—related party(1)
    540       7       547  
Vessel depreciation
    3,357             3,357  
                         
Operating Income
  $ 4,264           $ 4,047  
                         
Other income (expense), net:
                       
Interest expense & finance cost(2)
    (530 )     530        
Interest income
                 
Foreign currency loss, net
    2             2  
                         
Total other income (expense), net
    (528 )           2  
                         
Net Income
  $ 3,736     $ 747     $ 4,049  
                         
 
 
(1) Concurrently with the closing of this offering, we will enter into the Management Agreement with our Manager. We have assumed commercial fees of 1.25% on the Company’s gross revenues, technical management fees of $0.9 per vessel per day, Sarbanes-Oxley compliance fees of $0.1 per vessel per day, and reporting services fees of $50.0 per quarter.
 
(2) We intend to acquire the shares of the vessel-owning company of the Initial Suezmax with the offering proceeds and the cash contribution of Crude Carriers Investments Corp., and therefore we will not draw down any amount from the $100 million revolving credit facility that we have committed to enter into. As a result we do not have any interest charges in our unaudited pro forma condensed statement of income.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion in conjunction with the audited balance sheet and related notes of Crude Carriers Corp. and the audited financial statements and related notes and the unaudited interim financial statements and related notes of Cooper Consultants Co., the entity that holds the Initial Suezmax, included elsewhere in this prospectus. The financial statements have been prepared in accordance with U.S. GAAP and are presented in U.S. Dollars unless otherwise indicated.
 
This discussion includes forward-looking statements which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. For a discussion of some of those risks and uncertainties, see the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”
 
OVERVIEW
 
We are a newly formed transportation company incorporated in the Marshall Islands in October 2009 to conduct a shipping business focused on the crude tanker industry. We have no meaningful operating history as an independent company. We plan to acquire and operate a fleet of crude tankers that will transport mainly crude oil and fuel oil along worldwide shipping routes.
 
Limited Operating History
 
Below we discuss various factors that we believe will affect our future results as well as the historic results of operations for the Initial Suezmax, the vessel we have agreed to acquire from Capital Maritime. As you review and evaluate this discussion you should recognize that we have no meaningful operating history as an independent company and that the discussion of historical results is for a single vessel, while we intend to acquire and operate a fleet of vessels. Accordingly, the presentation of historical results for the Initial Suezmax may not be indicative of results that may be expected in the future.
 
Management of Operations
 
Our operations will be managed, under the supervision of our board of directors, by Capital Maritime as our Manager. Upon the closing of this offering, we will enter into the Management Agreement pursuant to which our Manager and its affiliates will provide us with commercial, technical, administrative and strategic services. The Management Agreement will be for an initial term of approximately ten years and will automatically renew for additional five-year periods unless terminated in accordance with its terms. We will pay our Manager fees for the services it provides us as well as reimburse our Manager for its costs and expenses incurred in providing certain of these services. In addition, if the Management Agreement is terminated under certain circumstances, we will pay our Manager a termination payment calculated in accordance with a pre-established formula. Please read “Our Manager and Management Agreement—Management Agreement” for further information regarding the Management Agreement.
 
Approach to Fleet Establishment; Initial Purchase
 
We intend to establish and grow our fleet through timely and selective acquisitions of vessels in a manner that is accretive to our earnings, cash flow and net asset value. We have entered into agreements with Capital Maritime to acquire the Initial Suezmax, which is currently deployed in the spot market, at a price of $71.25 million and the two Universal VLCCs for $96.5 million each.


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Management’s discussion and analysis of financial condition and results of operations
 
 
Substantially all of the proceeds of this offering and the $40 million capital contribution from Crude Carriers Investments Corp. will be used to purchase the Initial Suezmax and the Universal VLCCs. There are various factors that will affect whether and at what times we acquire vessels, but we currently estimate that we will purchase and take delivery of the Initial Suezmax upon the consummation of this offering, expect delivery of one Universal VLCC in March 2010 and expect delivery of the other Universal VLCC in June 2010. We intend to finance our fleet primarily with equity and internally-generated cash flow. We have entered into a signed commitment letter with Nordea Bank Finland Plc, London Branch, to obtain a new $100 million revolving credit facility. We intend to utilize this credit facility opportunistically for the future growth of the Company beyond the acquisition of our initial fleet in a manner that will enhance our earnings cash flow and net asset value. We do not expect to use this credit facility to acquire our initial fleet.
 
Approach to Chartering
 
We intend to maintain a flexible approach to chartering with the strategy of optimizing our selection of the available commercial opportunities over time. We currently expect to focus on the spot market, including all types of spot market—related engagements such as single voyage or short-term time charters, but retain the ability to evaluate and enter into longer-term period charters, including time- and bareboat charters with terms that may provide for profit sharing arrangements or with returns that are linked to spot market indices. We may also charter-in vessels, meaning we may charter vessels we do not own with the intention of chartering them in accordance with our chartering and fleet management strategy.
 
Our Charterers
 
We will generate revenues by charging our customers for the use of a vessel to transport their products. The Initial Suezmax has historically generated its revenue from a relatively small number of charterers. For the year ended December 31, 2009 Clearlake Shipping Ltd, ST Shipping and Transport Pte and Standard Tankers Bahamas (an affiliate of Exxon Mobil) accounted for 46%, 24%, and 16% of total revenue, respectively. For the year ended December 31, 2008 Petroleo Brasileiro SA, Sun International LTD, Valero Marketing and Supply Company, Petro-Canada and British Petroleum Shipping Limited accounted for 31%, 12%, 11%, 10% and 10% of total revenue, respectively. For the year ended December 31, 2007, British Petroleum Shipping Limited accounted for 87% of total revenue.
 
Dividend Policy
 
We intend to distribute to our shareholders on a quarterly basis substantially all of our net cash flow less any amount required to maintain a reserve that our Board determines from time to time is appropriate for the operation and future growth of our fleet. See “Our Dividend Policy and Restrictions on Dividends.”
 
Lack of Historical Operating Data for Vessels before Their Acquisition
 
Consistent with shipping industry practice, we may not be able obtain the historical operating data for our purchased vessels from the sellers, in part because that information may not be material to our decision to make acquisitions. 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. Should this information be available, we will request that it is provided. 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.


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Management’s discussion and analysis of financial condition and results of operations
 
 
FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS
 
We believe the principal factors that will affect our future results of operations are the economic, regulatory, financial, credit, political and governmental conditions that affect the shipping industry generally and that affect conditions in countries and markets in which our vessels engage in business. Other key factors that will be fundamental to our business, future financial condition and results of operations include:
 
Ø  levels of crude oil and oil product demand and inventories;
 
Ø  freight and charter hire levels and our ability to re-charter our vessels as their charters expire;
 
Ø  the supply of crude oil tankers and factors affecting supply, including the number of newbuildings entering the world tanker fleet each year;
 
Ø  the ability to increase the size of our fleet and make additional acquisitions that are accretive to our shareholders;
 
Ø  the ability of Capital Maritime’s commercial and chartering operations to successfully employ our vessels at economically attractive rates, particularly as our fleet expands and our charters expire;
 
Ø  our ability to benefit from new maritime regulations concerning the phase-out of single-hull vessels and the more restrictive regulations for the transport of certain products and cargoes;
 
Ø  the effective and efficient technical management of our vessels;
 
Ø  Capital Maritime’s ability to obtain and maintain major international oil company approvals and to satisfy their technical, health, safety and compliance standards; and
 
Ø  the strength of and growth in the number of our customer relationships, especially with major international oil companies and major commodity traders.
 
In addition to the factors discussed above, we believe certain specific factors have impacted, and will continue to impact, our results of operations. These factors include:
 
Ø  the freight and charter hire earned by our vessels under voyage, spot charters, time charters and bareboat charters;
 
Ø  our access to debt, and equity and the cost of such capital, required to acquire additional vessels and/or to implement our business strategy;
 
Ø  our ability to sell vessels at prices we deem satisfactory; and
 
Ø  our level of debt and the related interest expense and amortization of principal.
 
Please read “Risk Factors” for a discussion of certain risks inherent in our business.
 
PLAN OF OPERATION
 
Our plan of operation through the third quarter of 2010 is to:
 
Ø  Acquire the Initial Suezmax and the Universal VLCCs, completing the investment of substantially all of the proceeds of this offering.
 
Ø  Hire personnel as needed to support our operations.
 
Ø  Continue to seek opportunities to invest in crude tanker shipping after we complete the investment of the proceeds from this offering.
 
Given the price ranges of the types of vessels we plan to acquire, we anticipate that internally-generated cash flow, the proceeds from this offering and the capital contribution from Crude Carriers Investments Corp. will be sufficient to fund the operations of our fleet, including our working capital requirements, through the end of the third quarter of 2010. However, we may raise additional capital by issuing Common Stock after this offering.


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Management’s discussion and analysis of financial condition and results of operations
 
 
RESULTS OF OPERATIONS FOR THE INITIAL SUEZMAX
 
From January 1, 2007 through December 31, 2008, the Initial Suezmax was chartered only on voyage charters. The Initial Suezmax operated under a time charter for a part of the year ended December 31, 2009.
 
Voyage expenses are direct expenses to voyage revenues and primarily consist of commissions, port expenses, canal dues and bunkers. Voyage costs are paid for by the owner of the vessel under voyage charters. Under time charters and bareboat charters, voyage costs, except for commissions, are paid for by the charterer.
 
Vessel operating expenses consist primarily of crew costs, insurances, spares/repairs, stores and lubricants, and fees paid to the manager for the commercial and technical management of the vessel.
 
The following tables summarize voyage results, voyage expenses, and operating expenses for the years ended on December 31, 2009, 2008 and 2007.
 
Voyage Results Table
 
                         
    Year Ended December 31,  
    2009     2008     2007  
   
    (in thousands of United States dollars except number of days and TCE)  
 
Days
    365       366       365  
Gross Revenues
  $ 16,870     $ 39,166     $ 24,665  
Voyage Expenses
    6,252       14,317       10,800  
                         
Voyage revenues
    10,618       24,849       13,865  
                         
TCE
  $ 29,090     $ 67,893     $ 37,986  
                         
 
Voyage Expenses Table
 
                         
    Year Ended December 31,  
    2009     2008     2007  
   
    (in thousands of
 
    United States dollars)  
 
Commissions
  $ 423     $ 604     $ 80  
Port expenses
    477       2,096       3,867  
Bunkers
    5,352       11,602       6,836  
                         
Other
          15       17  
                         
Total
  $ 6,252     $ 14,317     $ 10,800  
                         


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Management’s discussion and analysis of financial condition and results of operations
 
 
Operating Expenses Table
 
                         
    Year Ended December 31,  
    2009     2008     2007  
   
    (in thousands of
 
    United States dollars)  
 
Crew costs and related costs
  $ 1,195     $ 1,243     $ 1,134  
Insurance expense
    460       362       385  
Spares, repairs, maintenance and other expenses
    388       282       273  
Stores and lubricants
    323       376       339  
Management fees
    540       540       270  
Other operating expenses
    91       88       112  
                         
Total
  $ 2,997     $ 2,891     $ 2,513  
                         
 
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 
Results for the Initial Suezmax for the years ended December 31, 2009 and December 31, 2008 differ primarily due to the 57% lower average daily time charter equivalent rate (“TCE”) of $29,090 compared to $67,893 that the initial Suezmax tanker earned in 2009 as compared to 2008. The tanker market deteriorated during 2009 on the back of the global economic slowdown.
 
Revenues
 
Revenues for the Initial Suezmax amounted to approximately $16.9 million for the year ended December 31, 2009, as compared to $39.2 million for the year ended December 31, 2008. The lower revenues during 2008 were mainly due to lower TCE spot rates prevailing in the market.
 
Voyage Expenses
 
Voyage expenses for the Initial Suezmax amounted to $6.3 million for the year ended December 31, 2009 as compared to $14.3 million for the year ended December 31, 2008. The lower expenses in 2009 were primarily due to a 53% decline in bunker expenses as the vessel was employed on a time charter for a part of 2009. Bunker expenses for 2009 amounted to $5.4 million as compared to $11.6 million in 2008.
 
Vessel Operating Expenses
 
For the year ended December 31, 2009, vessel operating expenses for the Initial Suezmax amounted to approximately $3.0 million, of which $0.5 million was paid to the manager; for the year ended December 31, 2008, vessel operating expenses for the Initial Suezmax amounted to approximately $2.9 million, of which $0.5 million was paid to the manager. The increase in operating expenses is attributable primarily to the increased insurance and spare and repairs expenses.
 
Depreciation
 
Depreciation of fixed assets for the Initial Suezmax amounted to $3.4 million for the years ended December 31, 2009 and 2008.
 
General and Administrative Expenses
 
General and Administrative expenses for the Initial Suezmax amounted to $0 for the year ended December 31, 2009 compared to $0.3 million for the year ended December 31, 2008, which represented an allowance for doubtful receivables.


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Management’s discussion and analysis of financial condition and results of operations
 
 
Other Income (Expense), Net
 
Other income (expense), net for the Initial Suezmax for the year ended December 31, 2009 was approximately $(0.5) million as compared to $(1.6) million for the year ended December 31, 2008. The decrease is primarily due to the lower interest rates and lower average loan outstanding during 2009.
 
Net Income
 
Net income for the Initial Suezmax for the year ended December 31, 2009 amounted to $3.7 million as compared to $16.7 million for the year ended December 31, 2008.
 
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
Results for the Initial Suezmax for the years ended December 31, 2008 and December 31, 2007 differ primarily due to the 79% higher average daily TCE of $67,893 compared to $37,986 that the Initial Suezmax earned in 2008 as compared to 2007.
 
Revenues
 
Revenues for the Initial Suezmax amounted to approximately $39.2 million for the year ended December 31, 2008, as compared to $24.7 million for the year ended December 31, 2007. The higher revenues during 2008 were mainly due to higher spot rates prevailing in the market resulting to a higher TCE earned compared to 2007.
 
Voyage Expenses
 
Voyage expenses for the Initial Suezmax amounted to $14.3 million for the year ended December 31, 2008 as compared to $10.8 million for the year ended December 31, 2007. The higher expenses in 2008 were primarily due to 70% increase in bunker expenses following higher prices for bunkers. Bunker expenses for 2008 amounted to $11.6 million as compared to $6.8 million in 2007.
 
Vessel Operating Expenses
 
For the year ended December 31, 2008, vessel operating expenses for the Initial Suezmax amounted to approximately $2.9 million, of which $0.5 million was paid to the manager; for the year ended December 31, 2007, vessel operating expenses for the Initial Suezmax amounted to approximately $2.5 million, of which $0.3 million was paid to the manager. The increase in operating expenses is attributable primarily to the 100% higher fees paid to the manager and to 10% increase in crew costs.
 
Depreciation
 
Depreciation of fixed assets for the Initial Suezmax amounted to $3.4 million for the years ended December 31, 2008 and 2007.
 
General and Administrative Expenses
 
General and Administrative expenses for the Initial Suezmax amounted to $0.3 million for the year ended December 31, 2008, which represented an allowance for doubtful receivables, as compared to $0 for the year ended December 31, 2007.
 
Other Income (Expense), Net
 
Other income (expense), net for the Initial Suezmax for the year ended December 31, 2008 was approximately $(1.6) million as compared to $(3.2) million for the year ended December 31, 2007. The decrease is primarily due to the lower interest rates and lower average loan outstanding during 2008.


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Management’s discussion and analysis of financial condition and results of operations
 
 
Net Income
 
Net income for the Initial Suezmax for the year ended December 31, 2008 amounted to $16.7 million as compared to $4.8 million for the year ended December 31, 2007.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Crude Carriers
 
Our primary initial sources of capital will be Crude Carriers Investments Corp.’s capital contribution of $40 million for 2,000,000 shares of our Class B Stock and the net proceeds from this offering of our Common Stock, which are expected to be $251.4 million after deduction of the underwriting discount and commissions. We will require capital to fund ongoing operations, acquisitions and potential debt service, for which we expect the main sources to be cash flow from operations and equity offerings.
 
We anticipate that internally-generated cash flow, the proceeds from this offering and the capital contribution from Crude Carriers Investments Corp. will be sufficient to fund the operations of our fleet, including our working capital requirements, through the end of the third quarter of 2010. We expect to make the following significant capital expenditures:
 
Ø  We will purchase the Initial Suezmax for $71.25 million upon the consummation of this offering
 
Ø  Upon the consummation of this offering, we expect to purchase, for an aggregate amount of $38.6 million, the right to acquire the Universal VLCCs.
 
Ø  In connection with the purchase of the first Universal VLCC, we expect to pay its seller $77.2 million upon delivery, currently expected in March 2010.
 
Ø  In connection with the purchase of the second Universal VLCC, we expect to pay its seller $77.2 million upon delivery, currently expected in June 2010.
 
Following this period, we expect to continue to fund the operations of our fleet, including our working capital requirements, and to finance potential future expansions of our fleet primarily with internally-generated cash flow and equity financing, which we expect will mainly consist of issuances of additional shares of our Common Stock. Because the spot market is highly volatile, cash flows from operations may be volatile. See “—Indicative Analysis of Commercial Opportunities,” particularly the indicative sensitivity tables, for illustrations of how variations in spot rates may affect income from our vessels and therefore our cash flows. If we are unable to complete equity issuances at prices that we deem acceptable, our internally-generated cash flow is insufficient or we cannot enter into a credit facility on favorable terms, then we may need to revise our growth plan or consider alternative forms of financing such as issuing debt.
 
Initial Suezmax
 
Cash Flows
 
The following tables summarize the cash and cash equivalents provided by/(used in) operating and financing activities for the Initial Suezmax. Amounts are presented in millions:
 
                         
    For the Year Ended December 31,  
    2009     2008     2007  
   
 
Net Cash Provided by Operating Activities
  $ 3.2     $ 20.9     $ 9.3  
Net Cash (Used in) Financing Activities
  $ (3.2 )   $ (20.9 )   $ (9.3 )


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Management’s discussion and analysis of financial condition and results of operations
 
 
Net Cash Provided by Operating Activities
 
Net cash provided by operating activities by the Initial Suezmax decreased to $3.2 million for the year ended December 31, 2009 from $20.9 million for the year ended December 31, 2008 primarily due to the decline of operating income in 2009. The increase in net cash provided by operating activities by the
 
Initial Suezmax for the year ended December 31, 2008 as compared to 2007 is primarily due to the increase in operating income in 2008.
 
Net Cash Used in Financing Activities
 
Net cash used in financing activities with respect to the Initial Suezmax amounted to $3.2 million for the year ended December 31, 2009, down from $20.9 million for the year ended December 31, 2008. During 2007, net cash used in financing activities amounted to $9.3 million.
 
Cash used in financing activities with respect to the Initial Suezmax for years 2009, 2008 and 2007 relates to repayments of the related party loan that Capital Maritime drew in 2006 to finance the Initial Suezmax.
 
Borrowings
 
The long-term related party borrowings are reflected in the balance sheet as “Long-term related—party debt” and as current liabilities in “Current portion of related—party long-term debt.” As of December 31, 2009, long-term debt with respect to the Initial Suezmax was $29.3 million and the current portion of long-term debt was $3.2 million, as compared to $32.5 million and $3.2 million, respectively, as of December 31, 2008. All liabilities in respect of the Initial Suezmax up to the transfer date will be assumed by Capital Maritime.
 
Revolving Credit Facility
 
We have entered into a signed commitment letter with Nordea Bank Finland Plc, London Branch, to obtain a new $100 million revolving credit facility. This commitment is subject only to documentation, which is to be completed no later than March 31, 2010. We intend to utilize this credit facility opportunistically for the future growth of the Company beyond the acquisition of our initial fleet in a manner that will enhance our earnings cash flow and net asset value. We do not expect to use this credit facility to acquire our initial fleet. We do not anticipate that this credit facility will be used to satisfy our long-term capital needs. Our obligations under the credit facility will be secured by first-priority mortgages covering each of our vessels and will be guaranteed by each of our subsidiaries that owns any of our vessels.
 
The financing under the credit facility is available to us only to fund the acquisition costs of crude tanker vessels, to be no more than five years old at the time of their acquisition, so long as the ratio of (x) the aggregate outstanding amount under the credit facility divided by (y) the combined fair market value of our vessels does not exceed 40%.
 
Borrowings under the credit facility will bear interest at a rate of 3.00% per annum over US$ LIBOR. We expect to be able to draw under the credit facility on or after May 1, 2010 until the fifth anniversary of the date we enter into the credit facility, at which date any amounts available for borrowing under the credit facility will automatically terminate and the outstanding amount under the credit facility must be repaid. We are required to repay all loans we draw under the credit facility with proceeds from a secondary offering within nine months of such drawdown. The credit facility has a final maturity date of the fifth anniversary of the date we enter into the credit facility, which we expect to be the date of the closing of this offering.


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Management’s discussion and analysis of financial condition and results of operations
 
 
Our credit facility contains restrictive covenants that prohibit us from, among other things: incurring or guaranteeing indebtedness; charging, pledging or encumbering our vessels; changing the flag, class, management or ownership of our vessels; changing the commercial and technical management of our vessels; and selling or changing the beneficial ownership or control of our vessels.
 
In addition, the credit facility will require us to:
 
Ø  maintain minimum liquidity by holding cash or cash equivalents of at least $1,000,000 per vessel we own;
 
Ø  maintain a ratio of EBITDA (as it will be defined in the credit facility) to interest expense of at least 3.00 to 1.00 on a trailing four-quarter basis commencing on June 30, 2010; and
 
Ø  maintain a minimum equity ratio of value adjusted stockholders’ equity to value adjusted total assets of at least 30%.
 
We will also be required to maintain an aggregate market value of our financed vessels equal to at least 160% of the aggregate amount outstanding under the credit facility. If the aggregate market value of our financed vessels falls below 160% of the aggregate amount outstanding under the credit facility, we will have a 45 day remedy period during which we may post additional collateral or reduce the amount outstanding under the credit facility.
 
The credit facility will prohibit us from paying dividends to our shareholders if an event of default has occurred and is continuing or if an event of default will occur as a result of the payment of such dividend. Events of default under the credit facility will include:
 
Ø  failure to pay principal or interest when due;
 
Ø  any breach of covenants that continues unremedied for 30 days;
 
Ø  any material inaccuracy of any representation or warranty;
 
Ø  the occurrence of a material adverse change;
 
Ø  our default under any indebtedness other than the credit facility of $10 million or greater;
 
Ø  a change of control, defined in the credit agreement to occur when two or more persons acting in concert or any individual person (other than the largest beneficial owner of our shares) (x) acquire, legally and/or beneficially and either directly or indirectly, an ownership interest and/or voting rights in excess of 50% of our issued share capital or (y) has the right or ability to control, either directly or indirectly, the affairs or composition of the majority of our Board of Directors;
 
Ø  a failure in the effectiveness of security documents entered into in connection with the credit agreement;
 
Ø  an unsatisfied uninsured material judgment following final appeal; or
 
Ø  certain events of insolvency or bankruptcy.
 
INDICATIVE ANALYSIS OF CERTAIN COMMERCIAL OPPORTUNITIES
 
Prospective Financial Information
 
The Company does not as a matter of course make public projections as to future sales, earnings, or other results. However, the management of the Company has prepared the prospective financial information set forth below to present an indicative analysis for the purpose of illustrating the variability of possible operating results and that actual results are not predictable with any meaningful level of precision. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the Company’s management, was prepared on a reasonable basis, reflects the best


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Management’s discussion and analysis of financial condition and results of operations
 
 
currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the vessels. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Registration Statement are cautioned not to place undue reliance on the prospective financial information.
 
Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.
 
Indicative Analysis—General
 
Substantially all of the proceeds of this offering and the $40 million capital contribution from Crude Carriers Investments Corp. will be used to purchase the two Universal VLCCs and the Initial Suezmax. There are various factors that will affect whether and at what times we acquire vessels, but we currently estimate that we will purchase and take delivery of the Initial Suezmax upon the consummation of this offering, expect delivery of one Universal VLCC in March 2010 and expect delivery of the other Universal VLCC in June 2010. We expect that we will identify and analyze a number of potential vessel acquisition candidates as we build our fleet and that such vessels may have diverse characteristics and circumstances including age, specification, construction quality and maintenance condition. In anticipation of such analysis and acquisition activity, we currently are monitoring and analyzing vessel acquisition markets and have presented below our indicative analysis of the acquisition of the Initial Suezmax and a modern VLCC tanker. Investors and potential investors should recognize that these markets and related markets, including the charter markets, in the past have had, and we expect in the future will have, significant and in some instances rapid fluctuations and that vessel values, performance and charter rates will vary widely. We also include in our analysis average spot earnings experienced by the industry over certain historic periods. Spot earnings are estimated as daily time charter equivalents (“TCEs”) of voyage freight rates, and expressed in $/day on the voyage based on third party industry data. See “The International Tanker Industry—Charter Rates & Asset Values.” In broad terms, earnings are calculated by taking the total revenue, deducting current bunker costs based on prices at representative regional bunker ports and estimated port costs (after currency adjustments) and then dividing the result by the number of voyage days. Average earnings for each ship type are averages of the voyage earnings for selected routes. Certain factors are not accounted for in the earnings calculations, including: (a) the payment of commissions; (b) other voyage-related costs; (c) vessel waiting time at port; and (d) time the vessel is off-hire.
 
The sensitivity tables below illustrate the variability of possible results and that actual results are not predictable with any meaningful level of precision. Investors and potential investors should recognize that actual vessel values and performance could be materially worse than is illustrated in the indicative sensitivity tables. Such adverse results could be driven by adverse changes in the factors considered in the indicative analysis, including charter rates, voyage expenses, operating expenses, and vessel utilization, as well as other factors, including those described above under “Risk Factors.” Many of these factors are beyond our control.
 
Indicative Analysis—Initial Suezmax
 
For purposes of indicative analysis, as of January 31, 2010 we assume:
 
Ø  That the acquisition cost of the Initial Suezmax will be $71.25 million, which is the average price of the Initial Suezmax derived from the reports of two independent ship brokers.


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Management’s discussion and analysis of financial condition and results of operations
 
 
 
Ø  Spot earnings for the Initial Suezmax of approximately $27,064 per day, based on the average spot earnings for 2009 obtained from third-party industry market analyses. We also include in the sensitivity analysis average rates experienced by the industry over certain historic periods. See “The International Tanker Industry—Charter Rates & Asset Values.”
 
Ø  Daily operating expenses of $9,500 per day, based on third-party industry market analyses, our experience with similar vessels and the estimated daily operating expenses of the Initial Suezmax, and no drydocking expenses.
 
Ø  358 revenue days out of 365 operating days, based on 98% utilization.
 
Ø  Voyage commissions of 3.75%.
 
Ø  Depreciation expenses of $3,356,460.56 per year.
 
On the basis of these assumptions, we estimate the annual vessel operating income could be approximately $2.5 million (vessel operating income in this case being estimated gross revenues less estimated vessel operating expenses of $9,500 per day less voyage commissions less depreciation). These estimates assume that the vessel is acquired debt free and do not include any allocation for corporate, general and administrative expenses. We estimate the residual scrap value of the Initial Suezmax to be $4.6 million on the basis of 25,743 lightweight tons at $180 per lightweight ton. See “—Critical Accounting Policies—Fixed Assets, net.”
 
This indicative sensitivity table below uses the same estimates and assumptions but varies only the estimated spot earnings per day for a range of historical rates. This indicative table illustrates the potential for volatility in vessel operating results.
 
Indicative Sensitivity Table—Initial Suezmax
Annual Vessel Operating Income Estimates
 
                                         
          Highest
                   
    Lowest Annual
    Annual
                January
 
    Average 1999
    Average
    Average
    Average
    2010
 
    2009     1999-2009     1999-2009     2009     Average  
   
 
Inflation-Adjusted Estimated Spot Earnings per Day
  $ 20,781     $ 78,415     $ 48,709     $ 27,064     $ 47,373  
Estimated Vessel Operating Income
  $ 330,623     $ 20,173,074     $ 9,946,017     $ 2,493,889     $ 9,485,888  
 
Indicative Analysis—Universal VLCC
 
For purposes of indicative analysis, as of January 31, 2010 we assume:
 
Ø  An acquisition cost for a Universal VLCC of $96.5 million.
 
Ø  A spot rate for a VLCC of approximately $36,455 per day, based on the average spot earnings for 2009 obtained from third-party market analyses. We also include the sensitivity analysis average rates experienced by the industry over certain historic periods. See “The International Tanker Industry—Charter Rates & Asset Values.”
 
Ø  Daily operating expenses of $10,500 per day, based on third-party industry market analyses and our experience with similar vessels, and no dry docking expenses.
 
Ø  358 revenue days out of 365 operating days, based on 98% utilization.
 
Ø  Voyage commissions of 3.75%.
 
Ø  Depreciation expenses of $3,572,000 per year.


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Management’s discussion and analysis of financial condition and results of operations
 
 
 
On the basis of these assumptions, we estimate the annual vessel operating income could be approximately $5.1 million (vessel operating income in this case being estimated gross revenues less estimated vessel operating expenses of $10,500 per day less voyage commissions less depreciation). These estimates assume that the vessel is acquired debt-free and do not include any allocation for corporate, general and administrative expenses. The residual scrap value has been calculated at $7.2 million on the basis of an estimated 40,000 lightweight tons for this type of vessel at $180 per lightweight ton; we do not yet know the exact lightweight of a Universal VLCC. See “—Critical Accounting Policies—Fixed Assets, net.”
 
This indicative sensitivity table below uses the same estimates and assumptions but varies only the estimated spot earnings per day for a range of historical rates. This indicative table illustrates the potential for volatility in vessel operating results.
 
Indicative Sensitivity Table—Modern VLCC
Annual Vessel Operating Income Estimates
 
                                         
          Highest
                   
    Lowest
    Annual
                January
 
    Annual
    Average
    Average
    Average
    2010
 
    Average 1999-2009     1999-2009     1999-2009     2009     Average  
   
 
Inflation-Adjusted Estimated Spot Earnings per Day
  $ 27,463     $ 110,318     $ 61,411     $ 36,455     $ 74,895  
Estimated Vessel Operating Income
  $ 2,050,633     $ 30,576,384     $ 13,738,382     $ 5,146,541     $ 18,380,990  
 
CONTRACTUAL OBLIGATIONS
 
Upon the consummation of this offering, the Company expects that its contractual obligations will be as follows:
 
                                         
    Payment due by period  
          Less then
                More than
 
    Total     1 year     1-3 years     3-5 years     5 years  
   
    (in thousands of U.S. dollars)  
 
Vessel Purchase Commitments(1)
  $ 264,250     $ 264,250     $     $     $  
Management fee(2)
    15,396       2,985       2,483       2,481       7,447  
Total
  $ 279,646     $ 267,235     $ 2,483     $ 2,481     $ 7,447  
 
 
(1) Purchase commitments represent outstanding purchase commitments that we will enter into upon the consummation of this offering for the acquisition of the Initial Suezmax and the two VLCCs that are scheduled to be delivered in March and June 2010.
 
(2) Concurrently with the closing of this offering, we will enter into the Management Agreement with our Manager. We have calculated a sale and purchase fee of $1,930 on the aggregate acquisition cost of the two Universal VLCCs, technical management fees of $0.9 per vessel per day, Sarbanes-Oxley compliance fees of $0.1 per vessel per day, and reporting services fees of $50.0 per quarter up beginning from March 1, 2010 up to December 31, 2020.
 
GENERAL AND ADMINISTRATIVE EXPENSES
 
Our general and administrative expenses will include fees payable under the Management Agreement, directors’ fees, office rent, travel, communications, insurance, legal, audit, investor relations and other professional expenses and other fees related to the expenses of a publicly-traded company.


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Management’s discussion and analysis of financial condition and results of operations
 
 
CRITICAL ACCOUNTING POLICIES
 
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe will be our most critical accounting policies that will involve a high degree of judgment and the methods of their application upon the acquisition of our fleet.
 
Vessel acquisitions
 
When we enter into an acquisition transaction, we determine whether the acquisition transaction is the purchase of an asset or a business based on the facts and circumstances of the transaction. As is customary in the shipping industry, the purchase of a vessel is normally treated as a purchase of an asset, as neither the historical operating data for the vessel is reviewed nor is such data material to our decision to make such acquisition, although various other factors must be assessed and taken into consideration. The acquisition of Cooper, the Capital Maritime subsidiary that owns the Initial Suezmax, will be treated as an acquisition of a business rather than an acquisition of an asset. In addition, we will account for our acquisition of Cooper as a transaction of entities under common control, and accordingly, we will initially value the assets transferred at their carrying amounts. Any difference between the carrying amount of the assets received and consideration paid by us to Capital Maritime will be recorded in equity.
 
If a vessel is acquired with an existing time charter, we allocate the purchase price of the vessel and the time charter based on, among other things, vessel market valuations and the present value (using an interest rate that reflects the risks associated with the acquired charters) of the difference between (a) the contractual amounts to be paid pursuant to the charter terms and (b) management’s estimate of the fair market charter rate, measured over a period equal to the remaining term of the charter. The capitalized above-market (assets) and below-market (liabilities) charters are amortized as a reduction or increase, respectively, to voyage revenues over the remaining term of the charter.
 
Trade receivables, net
 
Trade receivables, net include accounts receivable from charters net of the provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts will be assessed individually for purposes of determining the appropriate provision for doubtful accounts.
 
Our revenue is based on contracted charter parties. However, there is always the possibility of dispute over terms and payment of hires and freights. In particular, disagreements may arise as to the responsibility of lost time and revenue due to us as a result. Accordingly, we periodically assess the recoverability of amounts outstanding and estimate a provision if there is a possibility of non-recoverability.
 
Recognition of revenues and voyage and vessel operating expenses
 
We generate our revenues from voyage and time charter agreements. If a time or voyage charter agreement exists, the price is fixed, service is provided and the collection of the related revenue is reasonably assured, revenues are recorded over the term of the charter as service is provided and recognized on a pro-rata basis over the duration of the voyage. We do not begin recognizing voyage or time charter revenue until a charter contract has been agreed to both by us and the charterer. Demurrage income, which is included in voyage revenues, represents payments received from the charterer when loading or discharging time exceeded the stipulated time in the voyage charter and is recognized when earned. Probable losses such as uncollectible amounts from time and voyage charters are provided for in full at the time such losses can be estimated.


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Vessel voyage expenses are direct expenses to voyage revenues and primarily consist of commissions, port expenses, canal dues and bunkers. Commissions are expensed over the related charter period and all the other voyage expenses are expensed as incurred. For time charters all voyage expenses except commissions are assumed by the charterer of the vessel. For voyage charters all voyage costs are assumed by the owner of the vessel.
 
Vessel operating expenses are all expenses relating to the operation of the vessel, including crewing, insurance, repairs and maintenance, stores, lubricants, spares and consumables, professional and legal fees and miscellaneous expenses. Vessel operating expenses are recognized as incurred; payments in advance of services or use are recorded as prepaid expenses. Under voyage and time charter agreements the operating expenses are assumed by the owner of the vessel.
 
Fixed Assets, net
 
We record the value of our vessel at its cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation. We depreciate our vessel on a straight-line basis over its remaining economic useful life. Our estimate of the useful life of our vessel is 25 years from the date of initial delivery from the shipyard which is common shipping industry practice with tankers. Depreciation is based on cost less the estimated residual scrap value. Residual value calculation is based upon a vessel’s lightweight tonnage multiplied by a scrap rate of $180 per lightweight ton, which represents management’s best estimate based on historical trends and current industry conditions. An increase in the useful life of a tanker vessel or in its residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of a tanker vessel or in its residual value would have the effect of increasing the annual depreciation charge. However, when regulations place limitations over the ability of a vessel to trade on a worldwide basis, we will adjust the vessel’s useful life to end at the date such regulations preclude such vessel’s further commercial use.
 
Deferred drydocking costs
 
Our vessel is required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessel is operating. We defer the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Deferred drydocking costs will include actual costs incurred at the drydock yard; cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee the drydocking.
 
Impairment of long-lived assets
 
Impairment loss is recognized on a long-lived asset used in operations when indicators of impairment are present and the carrying amount of the long-lived asset is less than its fair value and it is not recoverable from the undiscounted cash flows estimated to be generated by the asset. In determining future benefits derived from use of long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds its undiscounted future net cash flows, the carrying value is reduced to its fair value. Various factors including future charter rates and vessel operating costs are included in this analysis. We did not note, for the years ended December 31, 2008 and 2007 any events or changes in circumstances indicating that the carrying amount of our vessel may not be recoverable. However, in the year ended December 31, 2009, market conditions changed significantly as a result of the credit crisis and resulting slowdown in world trade. Charter rates for tanker vessels fell and values of assets were affected although there were limited transactions to confirm that. We considered these market developments as indicators of potential impairment of the carrying amount of its asset. We performed the undiscounted cash flow test as of December 31, 2009. We determined undiscounted projected net


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Management’s discussion and analysis of financial condition and results of operations
 
 
operating cash flows for the vessel and compared it to the vessel’s carrying value. In developing estimates of future cash flows, we made assumptions about future charter rates, utilization rates, ship operating expenses, future dry docking costs and the estimated remaining useful life of the vessel. These assumptions are based on historical trends as well as future expectations that are in line with our historical performance and our expectations for the vessel utilization under our deployment strategy. Based on these assumptions we determined that the undiscounted cash flows support the vessel’s carrying amount as of December 31, 2009.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We currently do not have any off-balance sheet arrangements.
 
INFLATION
 
We expect that inflation will have only a moderate effect on our expenses under current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, general and administrative, and financing costs. However, we expect our costs to increase based on the anticipated increased costs for crewing, lube oil and bunkers.


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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our risk management policy
 
Our policy is to continuously monitor our exposure to business risks, including the impact of changes in interest rates and currency rates as well as inflation on earnings and cash flows. We intend to assess these risks and, when appropriate, take measures to minimize our exposure to the risks.
 
INTEREST RATE RISK
 
The international shipping industry is a capital intensive industry, requiring significant amounts of investment. We have entered into a commitment to obtain a revolving credit facility that will provide us with bridge financing for potential vessel acquisitions. Our interest expense under any such credit facility will be affected by changes in the general level of interest rates. Increasing interest rates could adversely impact our future earnings.
 
CURRENCY AND EXCHANGE RATES RISK
 
The international shipping industry’s functional currency is the U.S. Dollar. We expect that virtually all of our revenues and most of our operating costs will be in U.S. Dollars. We expect to incur certain operating expenses in currencies other than the U.S. Dollar, and we expect the foreign exchange risk associated with these operating expenses to be immaterial.
 
COMMODITY RISK
 
The price and supply of fuel is unpredictable and fluctuates as a result of events outside our control, including geo-political developments, supply and demand for oil and gas, actions by members of OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations. Because we do not intend to hedge our fuel costs, an increase in the price of fuel beyond our expectations may adversely affect our profitability, cash flows and ability to pay dividends.
 
INFLATION
 
Inflation is expected to have a minimal impact on vessel operating expenses, drydocking expenses and general and administrative expenses to date. Our management does not consider inflation to be a significant risk to direct expenses in the current and foreseeable economic environment. However, in the event that inflation becomes a significant factor in the global economy, inflationary pressures would result in increased operating, voyage and financing costs.


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THE INTERNATIONAL TANKER INDUSTRY
 
The information and data contained in this prospectus relating to the international tanker industry has been provided by Clarkson Research Services Limited, “CRSL”, and is taken from CRSL’s database and other sources. CRSL has advised that: (a) some information in CRSL’s database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in CRSL’s database; (c) whilst CRSL has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.
 
TANKER DEMAND AND SUPPLY OVERVIEW
 
The maritime shipping industry is fundamental to international trade as it is the only practicable and cost effective means of transporting large volumes of many essential commodities. Oil has been one of the world’s most important energy sources for a number of decades and the oil tanker industry plays a vital link in the global energy supply chain. In 2008, oil accounted for approximately 34.8% of world energy consumption. Oil demand grew steadily at an annual compound growth rate of 1.3% between 1999 and 2008, from approximately 75.3 million barrels per day (bpd) to 84.5 million bpd (according to BP Statistical Review of World Energy), primarily as result of global economic growth. The economic slowdown experienced in 2008 and much of 2009 has had an impact on overall oil demand, with the International Energy Agency (“IEA”) estimating that oil demand fell by 1.5% in 2009. However, in recent months the IEA has been upwardly revising its demand forecasts for 2009 and 2010, and in February projected a rise in demand of 1.6 million bpd to 86.5 million bpd in 2010, representing 1.8% annual growth. Of the 84.5 million bpd consumed in 2008, 39.5 million bpd (46.7%) was estimated to have been transported on tankers according to the BP Statistical Review of World Energy. The chart below illustrates the growth in oil demand in recent years, along with the IEA demand projections to the end of 2010. The graph also shows the seasonality of oil demand and the impact of the global economic slowdown on oil demand.
 
(PERFORMANCE GRAPH)
 
Source: IEA Oil Market Report, February 2010
 
Note:  The IEA do revise figures and forecasts over time. Current 2010 estimate as at February 2010 is 86.5 million bpd.
 
Between 2002 and 2008, seaborne crude oil trade measured in billion tonnes is estimated to have grown at 2.1%. Tanker demand, measured in tonne-miles, is a product of (a) the amount of cargo transported in tankers, multiplied by (b) the distance over which this cargo is transported. In tonne-mile terms,


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The international tanker industry
 
 
seaborne crude oil trade grew at 2.9% p.a. between 2002 and 2008, reflecting a small increase in the average length of haul. However in 2009, growth in seaborne crude oil trade has slowed significantly by approximately 4%. In the long term it is possible that oil demand may be reduced by an increased reliance on alternative sources and/or a drive for increased efficiency in the use of oil as a result of environmental concerns, declining reserves and/or high oil prices. Trading patterns are sensitive both to major geographical events and to small shifts, imbalances and disruptions at all stages—from wellhead production through refining to end use. Seaborne trading distances are also influenced by infrastructural factors, such as the availability of pipelines and canal “shortcuts.” Although oil can also be delivered by pipeline or rail, the vast majority of worldwide crude and refined petroleum products transportation has been conducted by tankers because transport by sea is typically the only or most cost-effective method.
 
(PERFORMANCE GRAPH)
 
Source: Fearnleys October 2009 / IEA February 2010
 
Note:  (e) = estimate, (p) = projection
 
Note:  The above chart shows ton-mile developments according to Fearnleys. Due to coverage and definitional issues, the numbers published by Fearnleys and Clarkson Research Services Limited differ. 2010 forecasts range considerably; Clarkson Research Services Limited’s 2010 projection for crude tanker deadweight demand is lower than Fearnleys.
 
Tanker charter hire and vessel values are strongly influenced by the supply of, and demand for tanker capacity. The crude tanker industry has historically developed in a cyclical fashion, although the length of these cycles has varied significantly. Supply and demand in the tanker market were closely matched in the five years prior to 2009, although they became divergent during 2009.
 
In recent years, the tanker fleet (>10,000 dwt) has grown strongly as a result of increased shipyard deliveries, growing by 5.8% in 2006, 6.0% in 2007 and 5.6% in 2008, and 7.3% in 2009. In the same periods, the VLCC fleet grew by 3.4%, 4.1%, 3.7% and 5.6%, while the Suezmax fleet grew by 7.0%, 4.3%, 1.2% and 8.8%, respectively.


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The international tanker industry
 
 
Figure 3: Tanker Phase-Out and Orderbook (assuming 2010 phase-out)
 
                                                                                                 
    VLCC     Suezmax     Aframax  
    Phase-Out(1)     Orderbook(2)     Phase-Out(1)     Orderbook(2)     Phase-Out(1)     Orderbook(2)  
    No.     million dwt     No.     million dwt     No.     million dwt     No.     million dwt     No.     million dwt     No.     million dwt  
   
 
2010
    87       23.89       75       23.16       24       3.52       53       8.14       34       3.17       85       9.36  
2011
                    93       28.97                       64       9.95       3       0.30       56       6.10  
2012
                    22       6.96       1       0.13       13       2.03       4       0.39       5       0.55  
2013
                    1       0.32       3       0.45       9       1.40       3       0.32       5       0.54  
2014
                                    2       0.30                       1       0.09       4       0.428  
2015
    5       1.50                       3       0.44                       10       1.02                  
                                                                                                 
Total
                                                                                               
Phase-Out
    92       25.39       191       59.41       33       4.84       139       21.51       55       5.28       155       16.97  
Total Fleet
    545       163.37                       402       61.57                       841       88.31                  
% of Fleet
            15.5 %             36.4 %             7.9 %             34.9 %             6.0 %             19.2 %
                                                                                                 
 
Source: Clarkson Research, 1st February 2010.
 
Note 1:  Phase-out figures based on CRSL estimates of IMO MARPOL Annex I, Regulation 20, 1st February 2010. It assumes phase-out of all single-hull vessels at the 2010 deadline (although some vessels will benefit from possible extensions granted by flag and port states), that double-bottomed and double-sided vessels will trade to 25 years and that the average demolition age is 30 years.
 
Note 2:  Orderbook as at 1st February 2010. These figures are subject to change as a result of delay, cancellation and further ordering. In 2009, recorded deliveries were 25% lower than expected at the start of the year for all tankers above 10,000 dwt while 3% of the scheduled 2009 deliveries have been removed completely from the orderbook. Delays and cancellations are expected to increase but estimates vary significantly.
 
The IMO phase-out applies to international voyages. Vessels may continue to trade coastally.
 
The aggregate tanker orderbook for new vessels has retreated from historical highs in 2008 to an equivalent of 29% of the fleet (128.5 million dwt) as of February 1st, 2010. Delivering the orderbook will present a number of challenges, both technical and financial and therefore some slippage or cancellations of orders at shipyards is expected. In 2009, approximately 25.3% of tanker deliveries (>10,000 dwt) expected to enter the fleet at the start of the year were not confirmed as delivered (i.e. “Non Delivery”). Despite this, there are still a considerable number of vessels to be delivered within the next few years.
 
There are approximately 42.3 million dwt of non double-hulled vessels that may be phased out by the end of 2010 due to IMO regulations and a further 8.8 million dwt of double-sided or double-bottomed vessels that are expected to be phased out before 2015. In total, non double-hull vessels represent 11.6% of the fleet in dwt. There are also 8.6 million dwt of double-hulled vessels over 20 years of age, which could be candidates for scrapping by 2015 because of their age. In total these vessels represent 13.6% of the tanker fleet. It is important to note that the IMO regulations do permit some trading extensions beyond 2010.
 
TANKER MARKET OVERVIEW
 
Tanker earnings fell significantly in 2009 following a near record year in 2008. A seasonal increase in demand caused by a cold weather snap in the northern hemisphere saw chartering rates improve in the final few months of 2009 and into 2010. In 2009, VLCC spot earnings averaged $36,671 per day, 63% lower than the 2008 average. Timecharter rates fell in 2009 as did timecharter activity. In 2006 there were 177 reported tanker timecharters, falling to 151 in 2007, 157 in 2008 and 104 in 2009. There were a total of 28 VLCC timecharter fixtures, 11 Suezmax timecharter fixtures and 31 Aframax timecharter fixtures in 2009.


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A resale (a new vessel able to give prompt delivery) VLCC price, as of February 2010, is estimated to be approximately $100 million, compared to a peak price of $195 million in August 2008 (inflation adjusted value of $190 million), and a five year average of $138m (inflation adjusted value of $142 million). Five year old VLCC prices as of February 2010 are estimated to be approximately $80 million, compared to a ten year average of $92 million (inflation adjusted value of $100 million). Five year old Suezmax prices as of February 2010 are estimated to be approximately $59 million, compared to a ten year average of $63 million (inflation adjusted value of $68 million). Since a peak in the summer of 2008 asset values have fallen from historical highs and are approximately half of peak prices now.
 
TANKER VESSEL TYPES
 
Crude oil tankers transport crude oil from points of production to points of consumption, typically oil refineries. Customers include oil companies, oil traders, large oil consumers, refiners, government agencies and storage facility operators.
 
The global oil tanker fleet is generally divided into five major categories of vessels, based on carrying capacity. In order to benefit from economies of scale, tanker charterers transporting crude oil will typically charter the largest possible vessel for a particular voyage, taking into consideration port and canal size restrictions and optimal cargo lot sizes. The five categories are shown in the table below.


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Figure 4: Tanker Vessel Types
 
             
Class of Tankers   Cargo capacity (dwt)   (’000 bbl)   Typical use
 
 
Ultra Large Crude Carrier “ULCCs”
  > 320,000   2,040   Long-haul crude oil transportations from the Middle East Gulf and West Africa to predominantly Far Eastern destinations such as China, Japan and Korea but also Northern Europe and the U.S. Gulf.
Very Large Crude Carrier “ULCCs”
  200,000 - 319,999    
 
 
Suezmax
  120,000 - 199,999   1,027   Medium-haul of both crude oil and fuel oil from the FSU, Middle East and West Africa to the United States and Europe.
 
 
Aframax
  80,000 - 119,999   715   Short- to medium-haul of crude oil and refined petroleum products from the North Sea, Baltic or West Africa to Europe or the East Coast of the U.S.; from the Middle East Gulf to the Pacific Rim and on regional trade routes in the North Sea, the Caribbean, the Mediterranean and the Indo-Pacific Basin.
 
 
Panamax
  60,000 - 79,999   492   Short- to medium-haul of crude oil and refined petroleum products worldwide, mostly on regional trade routes.
 
 
Handymax
  40,000 - 59,999   318   Short-haul of mostly refined petroleum products worldwide, usually on local or regional trade routes.
Handysize
  10,000 - 39,999   167
 
 
 
Source: Clarkson Research, 1st February 2010.
 
Note:  Average bbl per sector shown. “bbl” refers to the cargo carrying capacity for the vessel based on a conversion from metric to barrel capacity.
 
The focus of this tanker industry review will be on the larger crude carrying sectors, VLCCs and Suezmaxes.
 
VLCC TRADING ROUTES
 
VLCC activity has shown a trend towards Far East destinations, with China accounting for approximately 21% of all reported VLCC spot fixtures in 2009, Korea accounting for 12%, India 13% and “Other Far East’ (including Japan and Singapore) a further 30%. The market share of VLCC spot fixtures into OECD North America and the Atlantic generally fell significantly in 2009. A growing share of Middle East crude exports have been heading to the Far East in 2009 and this pattern is expected to persist with the growing economies of China and India demanding more crude for domestic consumption. In recent years, a number of trades have evolved which are relatively long-haul. This includes movements into South China from long-haul destinations such as West Africa and the


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Caribbean which in spot fixtures terms increased by 69% and 125% respectively between 2004 and 2009. In addition, there has been a 122% increase in spot fixtures from the Caribbean to Singapore over the same period. VLCC spot fixtures into West Coast India have increased 19% over 2004 to 2009. Single-hull VLCCs continue to be active loading out of the Middle East, but the Atlantic remains effectively closed to them. The number of areas actively receiving single hulls has narrowed, in 2009 the main spot discharge areas for single—hull VLCCs were Thailand, Taiwan and West Coast India. In 2009, the spot routes showing the largest year-on-year growth were West Africa to West Coast India, the Arabian Gulf to South China and Venezuela to South East Asia. Most Atlantic routes saw reduced volumes in 2009.
 
(PERFORMANCE GRAPH)
 
Note:  Based on publicly reported spot fixtures and is not comprehensive of all movements.
 
Abbreviations:  DH is Double Hull, NDH is Non-Double Hull, WAFR is West Africa, USG is United States Gulf, AG is Arabian Gulf, WCI is West Coast India, SPOR is Singapore, CAR is Caribbean, TWN is Taiwan, SCH is South China, JAP is Japan, KOR is South Korea, THAI is Thailand.


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Figure 6: Top 10 2009 VLCC Spot Fixture
Routes, Ranked by Cargo Size in M Tonnes
 
                     
Route   2009     ’04-’09 Growth  
   
 
1
  AG- South China     79       136 %
2
  AG- Korea     53       11 %
3
  WAF- US Gulf     34       (31 )%
4
  AG- Singapore     29       (42 )%
5
  AG- West Coast India     27       (1 )%
6
  Caribs- Singapore     27       122 %
7
  AG-Thailand     26       28 %
8
  AG- US Gulf     23       (63 )%
9
  AG-Taiwan     20       (2 )%
10
  WAF- West Cost India     15       12 %
                     
Others
    144       (37 )%
                 
Total
    478          
                 
 
Source: Clarkson Research, February 2010
 
Note:  Spot Fixtures data is not comprehensive and does not cover all cargo movements.
 
Note:  The% change 2004-2009 does not necessarily reflect actual cargo moved because of non spot and off market movements.
 
SUEZMAX TRADING ROUTES
 
Spot fixing activity for Suezmaxes continues to remain focused in the Atlantic, with North America accounting for 30% of spot fixtures in 2008. Activity has remained high for fixtures discharging in Europe, accounting for 35% of all fixtures in 2008. Former Soviet Union (“FSU”) exports through the Black Sea have increased over the past couple of years as Suezmaxes are the largest sized tanker able to navigate the Bosporus Strait. Suezmaxes have been less active east of the Suez, with spot fixture discharges accounting for only 22% in terms of vessel deadweight. West African exports are influenced by political unrest. FSU crude exports out of the Black Sea have increased over 2009 as several new Russian fields came online quicker than had originally been envisaged. Some FSU production has been transported to Far Eastern destinations such as China and South Korea and these trading patterns have acted to provide increased deadweight demand.
 
At certain seasonal points, crude exports from North Baltic ports and some of the northern regions of Russia require ice class vessels. Ice class tankers are vessels that have been constructed with strengthened hulls, a sufficient level of propulsive power for transit through ice-covered routes and specialized machinery and equipment for cold climates. The demand prospects for these tankers depend on oil exports from these “ice regions” and the severity of ice conditions. In recent years Baltic winters have generally been mild and as newbuildings have been delivered there has been an increase in the number of tankers with ice class 1A classification. As a result premiums paid for ice class tonnage have been limited. There are 22 Suezmax with ice class 1A notation, although many of these vessels trade globally rather than exclusively in “ice regions”.
 
There are a small number of Suezmax vessels with epoxy coated tanks (2% of the fleet), allowing storage and transportation opportunities of clean oil products cargoes. However, these opportunities have been rare in recent years and the majority of these vessels continue to trade crude. Vessels trading crude require extensive cleaning before trading clean. 46 Suezmax tankers operate with bow thrusters, potentially allowing some limited advantage due to additional maneuverability.
 


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(FLOW CHART)
 
Note:  Based on publicly reported spot fixtures and is not comprehensive of all movements.
 
Note:  Routes not showing a breakdown between DH and NDH are 100% DH.
 
Abbreviations:  DH is Double Hull, NDH is Non-Double Hull, WAFR is West Africa, USG is United States Gulf, AG is Arabian Gulf, WCI is West Coast India, SPOR is Singapore, CAR is Caribbean, TWN is Taiwan, SCH is South China, JAP is Japan, KOR is South Korea, THAI is Thailand.
 
Figure 8: Top 10 2009 Suezmax Spot Fixture Routes,
Ranked by Cargo Size in M Tonnes
 
                     
Route   2009     ’04-’09 Growth  
   
 
1
  WAF- US Gulf     28       3 %
2
  Black Sea- UK Cont     22       (34 )%
3
  WAF- UK Cont     17       163 %
4
  WAF- USAC     13       (37 )%
5
  AG- West Coast India     8       37 %
6
  WAF- Sth America     5       180 %
7
  East Med- West Med     5       (28 )%
8
  WAF- US Gulf     5       15 %
9
  WAF- West Med     5       (22 )%
10
  WAF- Brazil     5       43 %
                     
Others
    139       (31 )%
                 
Total
    254          
                 
 
Source: Clarkson Research, February 2010
 
Note:  Spot Fixtures data is not comprehensive and does not cover all cargo movements.
 
Note:  The % change 2004-2009 does not necessarily reflect actual cargo moved because of non spot and off market movements.

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OIL TANKER DEMAND
 
Demand for oil tankers is dictated by world oil demand and trade, which is influenced by many factors, including international economic activity; geographic changes in oil production, processing, and consumption; oil price levels; inventory policies of the major oil and oil trading companies; and strategic inventory policies of countries such as the United States and China.
 
Tanker demand, measured in tonne-miles, is a product of (a) the amount of cargo transported in tankers, multiplied by (b) the distance over which this cargo is transported. The distance is the more variable element of the tonne-mile demand equation and is determined by seaborne trading patterns, which are principally influenced by the locations of production and consumption. Seaborne trading patterns are also periodically influenced by geo-political events that divert tankers from normal trading patterns, as well as by inter-regional oil trading activity created by oil supply and demand imbalances.
 
Total seaborne oil trade has increased from 1.6 billion tonnes in 1990 to an estimated 2.7 billion tonnes in 2008. It is estimated to have declined to 2.6 billion tones in 2009. Tonnage of oil shipped is primarily a function of global oil consumption, which is driven by economic activity as well as the long-term impact of oil prices on the location and related volume of oil production. Tonnage of oil shipped is also influenced by transportation alternatives (such as pipelines) and the output of refineries.
 
(BAR CHART)
 
Note:  (e) = estimate, (p) = projection
 
Between 2002 and 2008 seaborne trade in crude oil has grown at a Compound Average Growth Rate (“CAGR”) of 2.1% per annum, and seaborne trade in refined petroleum products has grown at CAGR of 5.8% per annum. In tonne-mile terms, crude oil growth has been 2.9% between 2002 and 2008. These figures indicate that, in general terms, demand for world tanker tonnage is growing at a faster rate than global demand for crude oil (oil demand grew at an annual compound growth rate of 1.4% per year between 1999 and 2008), which implies that a larger proportion of global oil demand is being transported internationally by sea. Seaborne oil trade is estimated to have fallen by 3.8% in 2009, but is expected to return to growth in 2010 if global oil demand recovers. The graph below compares annual percentage growth in crude tanker tonne-miles and annual percentage growth in total world oil consumption.
 


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(BAR CHART)
 
Source: Fearnleys October 2009/IEA February 2010
 
Note:  (e) = estimate, (p) = projection
 
Note:  The above chart shows ton-mile developments according to Fearnleys. Due to coverage and definitional issues, the numbers published by Fearnleys and Clarkson Research Services Limited differ. 2010 forecasts range considerably; Clarkson Research Services Limited’s 2010 projection for crude tanker deadweight demand is lower than Fearnleys
 
Overall, both long-haul and short-haul production has increased since 1993, as can be seen in the graph below. Falling production in some mature short haul oil fields, such as the North Sea and South East Asia, has been offset by the increasing production of the FSU. Long haul production increases have largely been driven by Saudi Arabia, which has the greatest spare production capacity and greatest proven reserves, and Iraq, as the country recovers from war. Between 1998 and 2008 long-haul production has grown over 3 times as fast as short-haul production.
 
(PERFORMANCE GRAPH)
 
Note:  Short Haul (<5,000 mile voyage) defined as: UK, Norway, Ecuador, Venezuela, Mexico, Libya, Algeria, Egypt, Gabon, Nigeria, Indonesia, Former Soviet Union. Long Haul (>5,000 mile voyage) defined as: Qatar, UAE, Iraq, Iran, Kuwait, Neutral Zone, Saudi Arabia.
 
The growth in demand for oil and the changing location of supply is changing the structure of the tanker market. Between 2003 and 2008, over 80% of new production was located in three regions: the FSU, the Arabian Gulf and West Africa; together these three regions produced 50% of global supply in

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2008. Over the recent economic downturn Chinese oil companies have been particularly active in large capital injections to oil producers around the world. Long-term supply agreements have been reached with Venezuela, Brazil and for the development of FSU fields and investment is being considered for West Africa. Transporting significant volumes of crude from Venezuela to China would increase tonne-mile demand. During 2009 it was reported that Chinese oil companies have concluded supply agreements that will, if they materialise, result in over 200,000 bpd of crude oil being imported from Brazil and over 350,000 bpd of crude and products being imported from Venezuela.
 
Major consumers, including the United States, Europe and China, have been forced to diversify their supply as regional fields mature, meaning demand for long-haul and short-haul oil has continued to grow. The IEA reports that global oil demand fell by 0.3 million bpd in 2008 to 86.2 million bpd and is expected to have fallen a further 1.3 million bpd in 2009 to 84.9 million bpd. The IEA has been revising downwards their oil demand figures from the end of 2008 to mid-2009 as a result of the economic instability and the slowdown in global economic activity over the current downturn. However, in recent months, the IEA have been upwardly revising their demand forecasts for 2009 and 2010 and in February 2010 projected a rise in demand of 1.6 million bpd in 2010.
 
     
(BAR CHART)   (BAR CHART)
 
Note:  Forecasts are subject to revision.
 
Demand for oil is influenced by a number of factors. For example, between 2003 and 2008, U.S. oil demand is estimated to have fallen by over 0.5 million bpd, to 19.5 million bpd. In 2009 however, a severe economic slowdown forced oil demand to fall to around 18.7 million bpd. As a result of the rapid growth of the Chinese economy between 2003 and 2008, Chinese oil demand is estimated to have grown from 5.6 million bpd to 7.9 million bpd. Chinese oil imports increased by 11.4% in the first eleven months of 2009, with 92% of imports from long-haul destinations. The IEA estimates that Chinese oil demand grew by an average of 0.6 million bpd in 2009 and will further grow by 0.4 million bpd in 2010 in part due to the building of the Chinese strategic oil reserve. Over the same 2003 to 2008 period, the growth of India’s economy has expanded oil demand by 0.6 million bpd, to 3.1 million bpd. Finally, over the same period, the Middle East has seen its demand of oil grow by 1.6 million bpd to 7.1 million bpd. However, the global economic downturn has curtailed oil demand growth in 2009 and this has reduced tanker demand. International oil agencies expect oil demand to recover in 2010, with the IEA expecting oil demand to grow by 1.6 million bpd.
 
It is estimated that the United States, China and India together accounted for over a third of global oil demand in 2008. The combined demand from these three countries alone is responsible for 38% of the total demand growth between 2003 and 2008. The majority of this demand growth has been satisfied through oil imported by sea. Over this period, however, the Middle East accounted for 24% of demand growth (none of which was imported by sea).


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An oil price contango for much of the first six months of 2009 resulted in the short-term charter of tankers for oil storage. Estimates put the total volume of crude and products being held in tankers as a result of this short term floating storage at 130 million barrels at the height of storage activities in April 2009, principally on VLCCs and Suezmaxes. The use of vessels for floating storage through much of 2009 had a noticeable impact on the availability of tonnage. Estimates vary but around 40 VLCCs were engaged in short-term storage through April 2009. By the end of the year the oil price contango still prompted the use of tankers for storage but estimates put the number of VLCCs engaged at around 30 at the end of December 2009. Some recently delivered Suezmaxes have been chartered to transport clean cargoes due to arbitrage opportunities.
 
OIL TANKER SUPPLY
 
The effective supply of oil tanker capacity is determined by the size of the existing fleet, the rate of newbuilding deliveries, scrapping and casualties, the number of combined carriers (ships capable of carrying wet and dry cargoes) that are actually used for the carriage of oil, the number of vessels undergoing conversion out of the tanker fleet (dry bulk, offshore or heavy lift) and the number used as storage vessels and the amount of tonnage in lay-up (vessels idle, but still available for trading after a period of re-commissioning). The carrying capacity of the international tanker fleet is a critical determinant of pricing for tanker transportation services. The table below shows the tanker fleet.
 
Figure 14: World Crude Oil and Product Tanker Fleet By Vessel Size (over 10,000 dwt)
 
                                                                     
                    % share
    Average
          % Single
          % DH Fleet Over
 
Class   Size (Dwt)   Number     Million Dwt     of Dwt     Age     % Double     Hull (by Dwt)     % DB/DS     20 years (by Dwt)  
   
 
ULCC/
                                                                   
VLCC
  200,000 & above     545       163.4       37.2 %     8.6       84.5 %     14.6 %     0.9 %     0.0 %
Suezmax
  120,000-199,999     402       61.6       14.0 %     8.8       92.1 %     5.2 %     2.7 %     2.1 %
Aframax
  80,000-119,999     841       88.3       20.1 %     8.2       94.0 %     3.2 %     2.8 %     2.0 %
Others
  10-80,000 dwt     3,520       125.8       28.7 %     9.3       87.6 %     6.5 %     5.9 %     5.2 %
 
 
Total
  >10,000 dwt     5,308       439.1       100.0 %     9.0       88.4 %     8.7 %     3.0 %     2.2 %
 
 
 
Source: Clarkson Research, 1st February 2010
 
Note:  Includes ships above 10,000 dwt only. DB/DS Double Bottomed/ Double Sided, DH Double Hull


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The world tanker fleet (of 10,000 dwt and above) expanded from 274.3 million dwt at the beginning of 1996 to 439.1 million dwt at the start of February 2010, constituting a 60% expansion in just over 14 years. As of 1st February 2010, VLCCs made up 37% of the fleet in dwt terms, Suezmax tankers made up 14% in dwt terms and Aframax tankers made up 20% of the fleet in dwt terms. The chart below shows the development of the historical tanker fleet.
 
 
Source: Clarkson Research, February 2010
 
The level of newbuilding orders is a function primarily of newbuilding prices in relation to current and anticipated charter market conditions. The orderbook indicates the number of confirmed shipbuilding contracts for newbuilding vessels that are scheduled to be delivered into the market and is an indicator of how the global supply of vessels will develop over the next few years. At the start of February 2010, the world tanker orderbook for vessels above 10,000 dwt was 128.5 million dwt, equivalent to 29% of the existing fleet. 46% of the total tanker orderbook is due for delivery by the end of 2010. The outstanding orderbook includes some vessels that were not delivered in 2009 and have been re-scheduled to be delivered in 2010. The orderbook profile for deliveries to the end of 2010 is particularly heavy at 14% of the fleet. However, 12% of the current fleet is non double-hull, the majority of which will have to be phased out, converted, retro-fitted, or employed for other purposes by the end of 2010 if international regulations are strictly enforced. A further 2% of the tanker fleet is aged over 20 years and double hull.
 
The VLCC orderbook makes up almost 46% of the outstanding tanker orderbook in dwt terms, with Suezmaxes accounting for 17% and Aframaxes 13%. The majority of the tanker orderbook is due for delivery before the end of 2011.


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The table below shows the fleet, orderbook and the planned delivery schedule going forward.
 
Figure 16: Tanker Orderbook and Delivery Schedule
 
                                                                                         
    Orderbook (OB)     % of Fleet On Order for Delivery (by dwt):     2009 Non-
 
Class   Size (Dwt)     Number     Million Dwt     % of OB     % of fleet     2010     2011     2012     2013+     Total     Delivery Rate  
   
 
ULCC/
                                                                                       
VLCC
    200,000 & above       191       59.4       46.2 %     38.1 %     14.3 %     17.9 %     4.3 %     0.2 %     38.1 %     20.0 %
Suezmax
    120,000-199,999       139       21.5       16.7 %     35.6 %     13.5 %     16.5 %     3.4 %     2.3 %     35.6 %     34.7 %
Aframax
    80,000-119,999       155       17.0       13.2 %     19.3 %     10.7 %     6.9 %     0.6 %     1.1 %     19.3 %     11.3 %
Others
    10-80,000 dwt       833       30.6       23.8 %     24.3 %     14.4 %     8.3 %     1.4 %     0.2 %     24.3 %     33.8 %
 
 
Total
    >10,000 dwt       1,318       128.5       100.0 %     29.5 %     13.5 %     12.7 %     2.6 %     0.7 %     29.5 %     25.3 %
 
 
 
Source: Clarkson Research, 1st February 2010
 
Note:  Includes ships above 10,000 dwt only.
 
2009 non-delivery rates are estimates for 2009. Negative rates imply over-delivery of orders
 
Note:  Going forward, the orderbook will be influenced by delays, cancellations and the re-negotiation of contracts. Due to these technical and contractual issues, there is currently considerable uncertainty surrounding the orderbook. The figures quoted above relate to the orderbook as at 1st February 2010 and take no account for these potential delivery problems. Orderbook includes some orders originally scheduled for 2009 delivery.
 
Delivering the orderbook will present a number of challenges, both technical and financial. A proportion of ships on order have been contracted at shipyards that are either currently under construction (“Greenfield Shipyards”) or have delivered their first vessels in the past two years. Some of these projects are reported to be experiencing technical and financial problems and it is therefore expected that construction of some of the shipyards and vessels may be delayed. However some non established yards are also proceeding on schedule. Ship owners with vessels on order are also experiencing financing problems as a result of the reduced charter markets, declines in asset values and lack of bank financing availability. The current tanker orderbook has an estimated contract value of approximately $90 billion, with the VLCC and Suezmax orderbooks estimated to have a contract value of $27.5 billion and $12 billion. The average contract price for VLCCs in the current orderbook is $136 million compared to a current resale price of $100 million and newbuilding price of $99 million. The average contract price for Suezmaxes in the current orderbook is $82 million compared to a current resale price of $72 million and newbuilding price of $61.5 million. Estimates of the proportion financed vary, but it is likely that a significant proportion has yet to secure financing. As a result, it is expected that there will be delays and cancellations as a result of these financial challenges although in some cases vessels will continue to be built and resold by the yard involved.
 
Approximately 7% of the tankers on order have been contracted at shipyards currently under construction and which have never built ships before. 17% of the VLCC orderbook is on order at non established yards, while the corresponding figure for the Suezmax sector is 35%. A significant proportion of the non established yards are Chinese but some non established yards are also proceeding on schedule.
 
In the first eleven months of 2009, over 9.8 million dwt of tanker tonnage were been reportedly cancelled, although establishing accurate data is difficult. In addition, in 2009, 25.3% of deliveries expected to enter the fleet at the start of the year were not delivered. Approximately 20.0% of VLCCs and 34.7% of Suezmax deliveries expected to enter the fleet at the start 2009 were not confirmed as delivered. This is partly due to statistical reporting delays but also because of delays in construction and cancellations of orders. It is expected that cancellation levels will increase, although estimates vary significantly. Despite these delays and cancellations, there are still a considerable number of vessels to be delivered within the next few years and these deliveries may put downward pressure on charter rates or vessel prices.
 


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Source: Clarkson Research, February 2010
 
At any point in time, the level of scrapping activity is a function primarily of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs, which are in turn sometimes determined by industry regulations. Insurance companies and customers rely on the survey and classification regime to provide reasonable assurance of a tanker’s seaworthiness and tankers must be certified as “in-class” in order to continue to trade.
 
Tanker demolition (above 10,000 dwt) averaged 16.6 million dwt per annum between 2000 and 2003 but fell to 8.0 million dwt in 2004 and 4.0 million dwt in 2005, with a buoyant market encouraging owners to prolong the life of their elderly vessels. Despite record high scrap prices in 2006 and 2007, demolition fell to 3.0 million dwt per annum, due to the firm freight market encouraging owners to keep their ships in the market. However, a further 5.1 million dwt of tankers were converted out of the fleet during 2007. Inflated vessel earnings over the course of 2008 saw few vessels sold for scrap: only 76 vessels (representing 4.1 million dwt) were scrapped. A total of 130 vessels representing 8.4 million dwt were sold for scrap in 2009. Scrap prices have decreased from $700 per ldt in July 2008 to $320 per ldt at the end of October 2009 but have since firmed to above $400 per ldt at the start of February 2010. In the final quarter of 2009, 2 VLCCs, 3 Suezmaxes and 10 Aframaxes were sold for demolition. In total in 2009, 30 VLCCs of 8.2 million dwt and 17 Suezmaxes of 2.6 million dwt were removed from the fleet due to conversion and demolition.
 
Source: Clarkson Research, February 2010

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A number of single-hull tankers, the majority of which are VLCCs, have been converted or are under conversion to the dry bulk or offshore markets. Most of these vessels have undergone these conversions several years ahead of their phase-out timetable under IMO regulations. In 2008, approximately 11.3 million dwt of tankers were converted out of the fleet while in 2009 there were approximately 10.5 million dwt converted. There will be further conversions to dry bulk or offshore purposes going forward, although it is expected that this will be at significantly lower levels. During 2009, 8 single hull VLCCs were sold for demolition and 17 were reported as sold in the sale and purchase market. The majority of the sale and purchase market transactions involve plans to convert tonnage to offshore or dry bulk purposes. Middle Eastern sellers have been particularly active in selling single hull VLCCs to South America buyers with some ear-marked for conversion into dry bulk carriers to service the Brazil-China iron ore trade.
 
REGULATORY ENVIRONMENT
 
The seaborne transportation of crude oil, refined petroleum products and edible oils is subject to regulatory measures focused on increasing safety and providing greater protection for the marine environment at global and local levels. Governmental authorities and international conventions have historically regulated the oil and refined petroleum products transportation industry, and since 1990 the emphasis on environmental protection has increased. Legislation and regulations such as OPA, IMO protocols, and classification society procedures demand higher-quality vessel construction, maintenance, repair and operations. This development has accelerated in recent years in the wake of several high-profile accidents involving 1970s-built ships of single-hull construction, including the “ERIKA” in 1999 and the “PRESTIGE” in November 2002. A summary of selected regulations pertaining to the operation of tankers is shown in the table below.


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Figure 19: Summary of Selected Shipping Regulations
 
         
    Introduced/
   
Regulation   Modified   Features
 
 
OPA
  1989   Single-hull tankers banned by 2010 in the U.S.
        Double-sided and double-bottom tankers banned by 2015.
IMO MARPOL Regulation 13G
  1992   Single-hull tankers banned from trading by their 25th anniversary. All single-hull tankers fitted with segregated ballast tanks may continue trading to their 30th anniversary, provided they have had selected inspections. Newbuildings must be double-hull.
IMO MARPOL Regulation 13G
  2001   Phase-out of pre-MARPOL tankers by 2007. Remaining single-hull tankers phased-out by 2015.
IMO MARPOL Regulation 13G (Now called Annex 1, Regulation 20)
  2003   Phase-out of pre-MARPOL tankers by 2005. Remaining single-hull tankers phased-out by the end of 2010 or 2015, depending on port and flag states. Single-hull tankers over 15 years of age subject to Conditional Assessment Scheme.
 
 
IMO MARPOL Regulation 13H (Now called Annex 1, Regulation 21)
  2003   Single-hull tankers banned from carrying heavy oil grades by 2005, or 2008 for tankers between 600 -- 5,000 dwt.
EU 417/2002
  1999   25-year-old single-hull tankers to cease trading by 2007 unless they apply hydrostatic balance methods or segregated ballast tanks. Single-hull tankers fitted with segregated ballast tanks phased-out by 2015.
EU1723/2003
  2003   Pre-MARPOL single-hull tankers banned after 2005. Remaining single-hull tankers banned after 2010. Single-hull tankers banned from carrying heavy oil grades by 2003.
MARPOL Annex II, International Bulk Chemical Code (IBC)
  2004   Since January 1, 2007, vegetable oils which were previously categorized as being unrestricted will now be required to be carried in IMO II chemical tankers, or certain IMO III tankers that meet the environmental protection requirements of an IMO II tanker with regard to hull type (double-hull) and cargo tank location.
 
 
 
Source: Clarkson Research, February 2010.
 
Recently ratified international regulations include (a) the IMO regulations in 2003 to accelerate the phase-out of tankers without double-hulls and (b) limiting the transportation of fuel oil to double-hull vessels. As a result, oil companies acting as charterers, terminal operators, shippers and receivers are becoming increasingly selective with respect to the vessels they are willing to accept, inspecting and vetting both vessels and shipping companies on a periodic basis.


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The increasing focus on safety and protection of the environment has led oil companies as charterers, terminal operators, flag states, shippers and receivers to become increasingly selective with respect to the vessels they charter, vetting both vessels and shipping companies on a periodic basis or not allowing vessels into port. This vetting can include, but is not limited to, vessel condition, hull type, crewing, age and owner. Although these vetting procedures and increased regulations raise the operating cost and potential liabilities for tanker vessel owners and operators, they strengthen the relative competitive position of shipowners with higher quality tanker fleets and operations. When chartering vessels on longer period charters oil majors use additional vetting procedures which can include increased officer vetting and past performance consideration. Oil majors also tend to have a policy of chartering vessels for time charters that are below ten years of age. Analysis of chartering in the entire market shows that the level of single-hulled tonnage chartered by oil majors has dropped significantly in recent years.
 
The table below shows estimates of the number of VLCC, Suezmax and Aframax tankers due to be phased out under IMO MARPOL Annex I, Regulation 20 through 2010, alongside the current orderbook for delivery through 2010. The analysis assumes that the IMO phase-out program will be followed and that flag and port states will not allow extensions for single-hull vessels beyond 2010.
 
Figure 20: Tanker Phase-Out and Orderbook (assuming 2010 phase-out)
 
                                                                                                 
    VLCC     Suezmax     Aframax  
    Phase-Out1     Orderbook2     Phase-Out1     Orderbook2     Phase-Out1     Orderbook2  
    No.     million dwt     No.     million dwt     No.     million dwt     No.     million dwt     No.     million dwt     No.     million dwt  
   
 
2010
    87       23.89       75       23.16       24       3.52       53       8.14       34       3.17       85       9.36  
2011
                    93       28.97                       64       9.95       3       0.30       56       6.10  
2012
                    22       6.96       1       0.13       13       2.03       4       0.39       5       0.55  
2013
                    1       0.32       3       0.45       9       1.40       3       0.32       5       0.54  
2014
                                    2       0.30                       1       0.09       4       0.428  
2015
    5       1.50                       3       0.44                       10       1.02                  
 
 
Total Phase-Out
    92       25.39       191       59.41       33       4.84       139       21.51       55       5.28       155       16.97  
Total Fleet
    545       163.37                       402       61.57                       841       88.31                  
% of Fleet
            15.5 %             36.4 %             7.9 %             34.9 %             6.0 %             19.2 %
 
 
 
Source: Clarkson Research, 1st February 2010.
 
Note 1:  Phase-out figures based on CRSL estimates of IMO MARPOL Annex I, Regulation 20, 1st February 2010. It assumes phase-out of all single-hull vessels at the 2010 deadline (although some vessels will benefit from possible extensions granted by flag and port states), that double-bottomed and double-sided vessels will trade to 25 years and that the average demolition age is 30 years.
 
Note 2:  Orderbook as at 1st February 2010. These figures are subject to change as a result of delay, cancellation and further ordering. In 2009, recorded deliveries were 25% lower than expected at the start of the year for all tankers above 10,000 dwt while 3% of the scheduled 2009 deliveries have been removed completely from the orderbook. Delays and cancellations are expected to increase but estimates vary significantly.
 
The IMO phase-out applies to international voyages. Vessels may continue to trade coastally.
 
If the strict phase-out is fully adhered to in 2010, the VLCC fleet will contract for the first time since 2003 even assuming the orderbook is delivered in full as scheduled. A total of 87 VLCCs are set to be phased out this year comprising 23.9 million dwt against an orderbook delivery schedule of 75 vessels of 23.2 million dwt. However, it is uncertain as to whether the phase-out will be fully implemented and a number of vessels have been granted extensions by their flag states (see below) and may trade on.
 
A number of countries or regions have announced (either formally to the IMO or via press statements) that they will not allow the extended trading of non-double hull ships beyond 2010. These include the United States, European Union, South Korea, Mexico, China, Philippines and Australia. Other countries, such as oil importing states Japan, India and Singapore have indicated they will adopt a more


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flexible policy towards extensions. These status updates are based on publicly reported dialogue with the IMO and related press releases. It therefore remains possible that a significant proportion of single-hull ships may continue to trade beyond 2010, increasing the global supply of tanker capacity and putting downward pressure on rates. In addition, tankers may continue to trade in coastal domestic waters. Political decisions or oil spill incidents may change this flexible attitude. After the 1993-built, single-hulled VLCC “HEBEI SPIRIT” spilled 10,800 tons of crude oil in Korean international waters in November 2007, South Korea modified its policy towards single-hull vessels. Announcements from South Korean refiners and government officials have stated that limits on the number of single-hull vessels entering Korean ports will be introduced ahead of the IMO phase out schedule in 2010. In November 2009 it was reported by press sources that the main Middle East bunkering port of Fujairah in the Arabian Gulf will not permit laden single-hull tankers beyond January 1, 2010. Further press reports in November 2009 suggested that China also would not accept single hull tankers beyond January 2011. However, no official confirmation has been posted publicly by the IMO. Taiwan and Thailand remain the most active in terms of non double-hull spot discharges, with 50% of Taiwan spot fixtures in 2009 being non double-hulled and 66% of Thailand discharges being non double-hulled. India has also seen growth as a single-hull destination.
 
CHARTER RATES & ASSET VALUES
 
Seaborne crude oil and oil products transportation is an established industry. The two main types of oil tanker operators are independent operators, both publicly-listed and private companies, which charter out their vessels for voyage or time charter use, and major oil companies (including state-owned companies). At present, the majority of independent operators hire their tankers for one voyage at a time in the form of a spot charter at fluctuating rates based on existing tanker supply and demand. Competition is based primarily on the offered charter rate, the location, technical specification, and quality of the vessel and the reputation of the vessel’s manager. Oil tanker charter hire rates are sensitive to changes in demand for and supply of vessel capacity and consequently are volatile. Pricing of oil transportation services occurs in a highly competitive global tanker charter market.


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Figure 21: Top Spot Fixture Charterers in 2009 Based on Cargoes Carried