e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-51412
Quintana Maritime Limited
(Exact name of registrant as specified in its charter)
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Republic of the Marshall Islands
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98-0453513 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
c/o Quintana Management LLC
Attention: Stamatis Molaris
Pandoras 13 & Kyprou Street
166 74 Glyfada
Greece
(address of principal executive offices)
011-30-210-898-6820
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer þ Non-accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares of the Companys common stock, $0.01 par value, outstanding at July 31,
2006 was 24,148,242.
TABLE OF CONTENTS
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Quintana Maritime Limited
Unaudited Consolidated Balance Sheets
(All amounts expressed in U.S. Dollars)
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June 30, 2006 |
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December 31, 2005 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
3,571,555 |
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$ |
4,258,809 |
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Inventories |
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1,270,050 |
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378,488 |
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Due from charterers, net |
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2,380,054 |
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1,244,123 |
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Other receivables |
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541,467 |
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479,735 |
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Prepaid expenses and other current assets |
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851,017 |
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866,562 |
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Total current assets |
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8,614,143 |
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7,227,717 |
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Property and equipment: |
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Vessels, net of accumulated depreciation of
$23,176,669 and $11,309,344 |
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434,668,841 |
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446,474,869 |
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Advance for vessel acquisition |
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73,500,000 |
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Other fixed assets, net of accumulated
depreciation of $139,817 and $58,739 |
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441,919 |
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384,247 |
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Total property and equipment |
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508,610,760 |
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446,859,116 |
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Deferred financing costs, net of accumulated
amortization of $189,584 and $63,194 |
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1,897,911 |
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1,959,041 |
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Deferred time charter premium, net of
accumulated amortization of $1,495,371 and $439,815 |
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8,004,629 |
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9,060,185 |
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Deferred dry docking costs, net of accumulated
amortization of $519,751 and $279,865 |
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805,900 |
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919,556 |
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Total assets |
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$ |
527,933,343 |
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$ |
466,025,615 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
2,053,866 |
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$ |
1,473,592 |
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Sundry liabilities and accruals |
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1,348,915 |
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3,412,759 |
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Deferred income |
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990,213 |
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1,715,910 |
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Current portion of long term loan |
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90,000,000 |
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Total current liabilities |
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94,392,994 |
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6,602,261 |
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Long-term debt |
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210,000,000 |
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Obligations
to private placement investors |
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4,091,116 |
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Total
liabilities |
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98,484,110 |
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216,602,261 |
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12%
Mandatorily Convertible Preferred stock, net of issuance cost and
obligations to private placement investors |
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179,534,368 |
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Shareholders equity: |
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Common stock
at $0.01 par value 100,000,000 shares
authorized, 24,148,242 and 23,846,742 shares
outstanding |
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241,483 |
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238,468 |
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Additional paid-in capital |
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257,158,098 |
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254,732,530 |
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Deferred stock-based compensation |
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(6,587,340 |
) |
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(5,187,200 |
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Accumulated deficit |
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(897,376 |
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(360,444 |
) |
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Total shareholders equity |
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249,914,865 |
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249,423,354 |
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Total liabilities and shareholders equity |
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527,933,343 |
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$ |
466,025,615 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
Quintana Maritime Limited
Unaudited Consolidated Income Statements
(All amounts expressed in U.S. Dollars)
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Period From January |
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Three Months Ended June 30, |
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Six Months Ended |
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13, 2005 to June |
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2006 |
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2005 |
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June 30, 2006 |
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30, 2005 |
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Revenues: |
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Time charter voyage revenue |
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$ |
18,980,745 |
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$ |
7,262,910 |
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$ |
39,892,032 |
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$ |
7,262,910 |
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Revenue from charter operation |
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1,597,486 |
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3,230,343 |
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Commissions |
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(873,482 |
) |
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(285,369 |
) |
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(1,839,512 |
) |
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(285,369 |
) |
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Net revenue |
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19,704,749 |
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6,977,541 |
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41,282,863 |
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6,977,541 |
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Expenses: |
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Vessel operating expenses |
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3,551,743 |
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1,403,340 |
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7,323,074 |
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1,403,340 |
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Voyage expenses |
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1,112,496 |
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2,620,625 |
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General and administrative expenses |
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2,454,784 |
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992,048 |
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4,491,664 |
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1,148,914 |
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Depreciation and amortization |
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6,132,089 |
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1,898,352 |
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12,188,289 |
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1,898,352 |
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Total expenses |
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13,251,112 |
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4,293,740 |
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26,623,652 |
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4,450,606 |
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Operating income |
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6,453,637 |
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2,683,801 |
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14,659,211 |
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2,526,935 |
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Other expenses (income): |
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Interest expense |
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2,192,992 |
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1,621,639 |
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4,964,333 |
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1,621,639 |
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Interest income |
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(89,982 |
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(27,268 |
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(129,212 |
) |
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(27,268 |
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Finance costs |
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63,195 |
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333,066 |
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126,390 |
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(333,066 |
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Foreign exchange losses and other, net |
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113,491 |
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12,169 |
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155,685 |
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12,169 |
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Total other expenses |
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2,279,696 |
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1,939,606 |
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5,117,196 |
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1,939,606 |
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Net income |
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$ |
4,173,941 |
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$ |
744,195 |
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$ |
9,542,015 |
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$ |
587,329 |
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Earnings per common share: |
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Basic |
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$ |
0.04 |
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$ |
0.12 |
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0.27 |
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$ |
0.09 |
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Diluted |
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$ |
0.04 |
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$ |
0.12 |
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$ |
0.27 |
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$ |
0.09 |
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Weighted average shares outstanding: |
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Basic |
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23,387,822 |
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6,319,492 |
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23,367,942 |
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6,319,492 |
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Diluted |
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24,002,462 |
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6,319,492 |
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23,925,032 |
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6,319,492 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
Quintana Maritime Limited
Unaudited Consolidated Statements of Cash Flows
(All amounts expressed in U.S. Dollars)
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Period from |
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Six Months Ended June |
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January 13, 2005 to |
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30, 2006 |
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June 30, 2005 |
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Cash flows from operating activities: |
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Net income |
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$ |
9,542,015 |
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$ |
587,329 |
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Adjustments to reconcile net income to net cash from
operating activities: |
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Depreciation and amortization |
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12,188,289 |
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1,898,352 |
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Amortization of deferred finance costs |
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126,390 |
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320,363 |
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Amortization of time charter fair value |
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1,055,556 |
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Stock-based compensation |
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1,028,443 |
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Changes in assets and liabilities: |
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Increase in inventories |
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(891,562 |
) |
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(177,212 |
) |
Increase in due from charterers ,net |
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(1,135,931 |
) |
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(214,447 |
) |
Increase in other receivables |
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(61,732 |
) |
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(53,423 |
) |
Decrease (Increase) in prepaid expenses and other
current assets |
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15,545 |
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(492,054 |
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Increase in accounts payable |
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580,274 |
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2,044,313 |
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(Decrease) / Increase in sundry liabilities and accruals |
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(2,063,844 |
) |
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947,982 |
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(Decrease) / Increase in deferred income |
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(725,697 |
) |
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735,375 |
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Deferred dry-dock costs incurred |
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(126,230 |
) |
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(1,202,266 |
) |
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Net cash from operating activities |
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$ |
19,531,516 |
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$ |
4,394,312 |
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Cash flows from investing activities: |
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Vessel acquisitions |
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(61,297 |
) |
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(203,170,815 |
) |
Advances for vessel acquisitions |
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(73,500,000 |
) |
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(12,700,000 |
) |
Purchases of property, plant and equipment |
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(138,750 |
) |
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(236,640 |
) |
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Net cash used in investing activities |
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$ |
(73,700,047 |
) |
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$ |
(216,107,455 |
) |
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Cash flows from financing activities: |
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Proceeds from preferred stock issuance |
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190,937,750 |
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Proceeds from long-term debt |
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|
311,071,351 |
|
Repayment of debt |
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(120,000,000 |
) |
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(150,000,000 |
) |
Prepaid offering expenses |
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(1,046,859 |
) |
Payment of financing costs |
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(65,260 |
) |
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(4,550,520 |
) |
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Paid-in capital and common stock |
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|
68,405,637 |
|
Issuance of preferred stock cost |
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(7,312,266 |
) |
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Dividends paid |
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(10,078,947 |
) |
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Net cash from financing activities |
|
$ |
53,481,277 |
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|
$ |
223,879,609 |
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Net (decrease) / increase in cash and cash equivalents |
|
|
(687,254 |
) |
|
|
12,166,466 |
|
Cash and cash equivalents at beginning of period |
|
|
4,258,809 |
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Cash and cash equivalents at end of the period |
|
$ |
3,571,555 |
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|
$ |
12,166,466 |
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|
Supplemental disclosure of cash flow information: |
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|
Cash paid during the period for interest |
|
$ |
7,266,774 |
|
|
$ |
1,091,480 |
|
|
|
|
|
|
|
|
Deferred stock-based compensation |
|
$ |
6,587,340 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
1. Basis of Presentation and General Information
The Company
The accompanying unaudited consolidated financial statements include the accounts of Quintana
Maritime Limited and its wholly owned subsidiaries (collectively, the Company). The Company is
engaged in marine transportation of dry-bulk cargoes through the ownership and operation of
dry-bulk vessels.
The Company is a holding company incorporated on January 13, 2005, under the Laws of the
Republic of the Marshall Islands. The Company was formed by affiliates of each of Corbin J.
Robertson Jr., First Reserve Corporation (FRC) and American Metals & Coal International, Inc.
(AMCI). On July 20, 2005, the Company completed its initial public offering.
The Companys vessels are primarily available for charter on a time-charter basis. A time
charter involves placing a vessel at the charterers disposal for a set period of time during which
the charterer may use the vessel in return for the payment by the charterer of a specified daily or
monthly hire rate. In time charters, operating costswhich include crewing costs, repairs and
maintenance, stores, and lubricantsare typically paid by the owner of the vessel and specified
voyage costs such as fuel, canal and port charges are paid by the charterer.
The Company is the sole owner of all of the outstanding shares of the following subsidiaries,
each of which was formed in the Marshall Islands for the purpose of owning a vessel in the
Companys fleet. The table includes subsidiaries formed to own vessels that the Company has agreed
to purchase (see Note 13, Subsequent Events). For those subsidiaries, expected delivery dates for
the vessels are given:
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Deadweight Tonnage |
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Delivery |
Company |
|
Vessel |
|
Agreement Date |
|
(in metric tons) |
|
Built |
|
Date |
Fearless Shipco LLC
|
|
Fearless I
|
|
February 18, 2005
|
|
|
73,427 |
|
|
|
1997 |
|
|
April 11,2005 |
King Coal Shipco LLC
|
|
King Coal
|
|
February 25, 2005
|
|
|
72,873 |
|
|
|
1997 |
|
|
April 12,2005 |
Coal Glory Shipco LLC
|
|
Coal Glory
|
|
March 21, 2005
|
|
|
73,670 |
|
|
|
1995 |
|
|
April 13,2005 |
Iron Man Shipco LLC
|
|
Iron Man
|
|
March 15, 2005
|
|
|
72,861 |
|
|
|
1997 |
|
|
May 6, 2005 |
Coal Age Shipco LLC
|
|
Coal Age
|
|
March 15, 2005
|
|
|
72,861 |
|
|
|
1997 |
|
|
May 4, 2005 |
Barbara Shipco LLC
|
|
Barbara
|
|
March 24, 2005
|
|
|
73,390 |
|
|
|
1997 |
|
|
July 20, 2005 |
Coal Pride Shipco LLC
|
|
Coal Pride
|
|
March 29, 2005
|
|
|
72,600 |
|
|
|
1999 |
|
|
August 16, 2005 |
Linda Leah Shipco LLC
|
|
Linda Leah
|
|
March 24, 2005
|
|
|
73,390 |
|
|
|
1997 |
|
|
August 22, 2005 |
Iron Beauty Shipco LLC
|
|
Iron Beauty
|
|
September 2, 2005
|
|
|
165,500 |
|
|
|
2001 |
|
|
October 18, 2005 |
Kirmar Shipco LLC
|
|
Kirmar
|
|
September 2, 2005
|
|
|
165,500 |
|
|
|
2001 |
|
|
November 11, 2005 |
Iron Vassilis Shipco LLC
|
|
Iron Vassilis
|
|
May 3, 2006
|
|
|
82,000 |
|
|
|
2006 |
|
|
July 27, 2006 |
Grain Express Shipco LLC
|
|
Grain Express
|
|
May 3, 2006
|
|
|
76,466 |
|
|
|
2004 |
|
|
9/1/06 10/31/06* |
Iron Knight Shipco LLC
|
|
Iron Knight
|
|
May 3, 2006
|
|
|
76,429 |
|
|
|
2004 |
|
|
9/1/06 1/10/07* |
Grain Harvester Shipco LLC
|
|
Grain Harvester
|
|
May 3, 2006
|
|
|
76,417 |
|
|
|
2004 |
|
|
9/1/06 10/31/06* |
Iron Bradyn Shipco LLC
|
|
Iron Bradyn
|
|
May 3, 2006
|
|
|
82,769 |
|
|
|
2006 |
|
|
August 2006* |
Iron Fuzeyya Shipco LLC
|
|
Iron Fuzeyya
|
|
May 3, 2006
|
|
|
82,229 |
|
|
|
2006 |
|
|
August 2006* |
Iron Kalypso Shipco LLC
|
|
Iron Kalypso
|
|
May 3, 2006
|
|
|
82,204 |
|
|
|
2006 |
|
|
September 2006* |
Ore Hansa Shipco LLC
|
|
Ore Hansa
|
|
May 3, 2006
|
|
|
82,229 |
|
|
|
2006 |
|
|
September 2006* |
Santa Barbara Shipco LLC
|
|
Santa Barbara
|
|
May 3, 2006
|
|
|
82,266 |
|
|
|
2006 |
|
|
August 2006* |
Iron Elizabeth Shipco LLC
|
|
Iron Elizabeth
|
|
May 3, 2006
|
|
|
82,000 |
|
|
|
2006 |
|
|
August 2006* |
Iron Anne Shipco LLC
|
|
Iron Anne
|
|
May 3, 2006
|
|
|
82,000 |
|
|
**
|
|
September 2006* |
Pascha Shipco LLC
|
|
Pascha
|
|
May 3, 2006
|
|
|
82,300 |
|
|
**
|
|
December 2006* |
Iron Lindrew Shipco LLC
|
|
Iron Lindrew
|
|
May 3, 2006
|
|
|
82,300 |
|
|
**
|
|
January 2007* |
Coal Gypsy Shipco LLC
|
|
Coal Gypsy
|
|
May 3, 2006
|
|
|
82,300 |
|
|
**
|
|
December 2006* |
Coal Hunter Shipco LLC
|
|
Coal Hunter
|
|
May 3, 2006
|
|
|
82,300 |
|
|
**
|
|
December 2006* |
Iron Brooke Shipco LLC
|
|
Iron Brooke
|
|
May 3, 2006
|
|
|
82,300 |
|
|
**
|
|
March 2007* |
Iron Manolis Shipco LLC
|
|
Iron Manolis
|
|
May 3, 2006
|
|
|
82,300 |
|
|
**
|
|
May 2007* |
|
|
|
* |
|
Expected delivery dates |
|
** |
|
Under construction |
6
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
1. Basis of Presentation and General InformationThe Company (continued)
The operations of the vessels are managed by our wholly owned subsidiary, Quintana Management
LLC, which initially subcontracted the technical management of five vessels to Blossom Maritime
Corporation, a third-party technical management company. By October 2005, the Company had taken
over technical management of all its vessels.
In December 2005, the Company formed a wholly owned subsidiary, Quintana Logistics LLC, to
engage in limited chartering activities, including entry into contracts of affreightment. Under a
contract of affreightment, the Company would agree to ship a specified amount of cargo at a
specified rate per ton between designated ports over a particular period of time. Contracts of
affreightment generally do not specify particular vessels, so the Company would be permitted either
to use a free vessel that it owned or to charter in a third-party vessel.
2. Significant Accounting Policies
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (U.S. GAAP) for
interim financial information. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. In the opinion of the
management of the Company, all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of financial position, operating results and cash flows have been included
in the statements. Interim results are not necessarily indicative of results that may be expected
for the year ended December 31, 2006. These financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in the Companys periodic
filings with the Securities and Exchange Commission (SEC), including those included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2005. Please see Note 2 to our
consolidated financial statements included in our Form 10-K for the year ended December 31, 2005
for additional information regarding our significant accounting policies.
Earnings/(loss) per share
Earnings/(loss) per share has been calculated by dividing the net income/(loss) by the weighted
average number of common shares outstanding during the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to issue common stock were
exercised. The following dilutive securities are included in shares outstanding for purposes of
computing diluted earnings per share:
|
|
|
Restricted stock outstanding under the Companys 2005 Stock Incentive Plan |
|
|
|
|
Common shares issuable upon conversion of the Companys outstanding preferred stock |
|
|
|
|
Common shares issuable upon exercise of the Companys outstanding warrants |
The Company had no other dilutive securities for the periods indicated.
7
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
2.
Significant Accounting Policies Earnings (loss) per share (continued)
The Company calculates income available to common shareholders as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Period from |
|
|
|
Three Months Ended June 30, |
|
|
Ended June 30, |
|
|
January 13, 2005 |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
to June 30, 2005 |
|
Net income |
|
$ |
4,173,941 |
|
|
$ |
744,195 |
|
|
$ |
9,542,015 |
|
|
$ |
587,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred
stock dividend for
period from May 11,
2006 to May 30,
2006 |
|
|
(1,209,263 |
) |
|
|
|
|
|
|
(1,209,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred
stock dividend for
period from May 30,
2006 to June 30,
2006 |
|
|
(1,973,008 |
) |
|
|
|
|
|
|
(1,973,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common shareholders |
|
$ |
991,670 |
|
|
$ |
744,195 |
|
|
$ |
6,359,744 |
|
|
$ |
587,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company calculates the number of shares outstanding for the calculation of basic earnings
per share and diluted earnings per share as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Period from |
|
|
|
Three Months Ended June 30, |
|
|
|
Ended June 30, |
|
|
January 13, 2005 |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
to June 30, 2005 |
|
Weighted average
common shares
outstanding, basic |
|
|
23,387,822 |
|
|
|
6,319,492 |
|
|
|
23,367,942 |
|
|
|
6,319,492 |
|
Weighted average
restricted stock
awards |
|
|
614,640 |
|
|
|
|
|
|
|
557,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares
outstanding,
diluted |
|
|
24,002,462 |
|
|
|
6,319,492 |
|
|
|
23,925,032 |
|
|
|
6,319,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Advances for Vessel Acquisition
In connection with the Companys agreement on May 3, 2006 to buy 17 vessels (listed in Note
1), the Company paid a deposit of $73.5 million, or 10% of the total purchase price of $735.0
million. One of the vessels was delivered on July 27, 2006, and the Company expects to take
delivery of the remaining 16 vessels within the date ranges noted in Note 1. As of June 30, 2006,
the unpaid purchase price of the vessels was $661.5 million.
8
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
4. Deferred Charges
The deferred charges shown in the accompanying consolidated balance sheet at June 30, 2006 are
analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Charter |
|
|
|
Finance Costs |
|
|
Drydocking |
|
|
Fair Value |
|
|
|
(in thousands) |
|
March 31, 2006 |
|
$ |
1,896 |
|
|
$ |
800 |
|
|
$ |
8,532 |
|
Additions |
|
|
65 |
|
|
|
126 |
|
|
|
|
|
Amortization |
|
|
(63 |
) |
|
|
(120 |
) |
|
|
(527 |
) |
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
$ |
1,898 |
|
|
$ |
806 |
|
|
$ |
8,005 |
|
|
|
|
|
|
|
|
|
|
|
Iron Beauty was acquired with an accompanying time-charter agreement that was at an
above-market rate on the date of acquisition. The present value of the time charter in excess of
market rates was determined to be $9.5 million, and such amount was shown separately as a deferred
asset. This results in a daily rate of approximately $30,600 as recognized revenue. For cash flow
purposes, the company will continue to receive $36,500 per day less commissions.
5. Prepaid Expenses
The prepaid expenses shown in the accompanying consolidated balance sheet at June 30, 2006 and
December 31, 2005 are analyzed as follows:
|
|
|
|
|
|
|
|
|
Description |
|
June 30, 2006 |
|
|
December 31, 2005 |
|
|
|
(in thousands) |
|
Prepaid insurance |
|
$ |
557 |
|
|
$ |
700 |
|
Other prepaid expenses and other
current assets |
|
|
294 |
|
|
|
167 |
|
|
|
|
|
|
|
|
Total |
|
$ |
851 |
|
|
$ |
867 |
|
|
|
|
|
|
|
|
6. Sundry Liabilities and Accruals
The sundry liabilities and accruals shown in the accompanying consolidated balance sheet at
June 30, 2006 and December 31, 2005 are analyzed as follows:
|
|
|
|
|
|
|
|
|
Sundry Liabilities and Accruals |
|
June 30, 2006 |
|
|
December 31, 2005 |
|
|
|
(in thousands) |
|
Interest expense |
|
|
|
|
|
$ |
2,302 |
|
Other sundry liabilities and accruals |
|
$ |
1,349 |
|
|
|
1,111 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,349 |
|
|
$ |
3,413 |
|
|
|
|
|
|
|
|
9
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
7. Long-Term Debt
Revolving Credit Facility
The Company entered into a secured, 8-year, $250 million revolving credit facility on October
4, 2005. Indebtedness under the revolving credit facility bears interest at a rate equal to LIBOR
+ 0.975%. The Company incurs a commitment fee on the unused portion of the revolving credit
facility at a rate of 0.375% per annum. The Company may borrow under the facility to refinance the
term-loan facility and to fund acquisitions of vessels. In addition, the facility provides for a
$20-million sub-limit for borrowings for working-capital purposes and general corporate
requirements. Up to $25 million of the facility will be available for issuance of stand-by letters
of credit. The Company may not incur any additional indebtedness under the facility if the amount
of outstanding loans and letters of credit exceeds 65% of the fair market value of the vessels
serving as collateral. The Company is generally not permitted to pay dividends in excess of 65% of
its free cash flow. The Companys obligations under the revolving credit facility are secured by a
first-priority assignment of the Companys earnings related to its vessels. The credit agreement
also contains financial covenants requiring the Company to maintain a ratio of total debt to total
capitalization (each as defined in the credit agreement) of no more than 0.65 to 1.00; minimum
liquidity on the last day of each quarter of $525,000 per vessel; a ratio of EBITDA to cash
interest expense (each as defined in the credit agreement) of no less than 2.00 to 1.00 on a
trailing four-quarter basis; the fair market value of collateral of at least 135% of outstanding
loans and letter of credit; and consolidated net worth (as defined in the credit agreement) of at
least 80% of $248 million. As of June 30, 2006, $ 90.0 million was outstanding under the revolving
credit facility at an average interest rate of 6.34% As of June 30, 2006, the Company was in
compliance with all of its covenants under the facility. As of December 31, 2005, $ 210 million was
outstanding under the revolving credit facility at an average interest rate of 5.28%
On July 21, 2006, the Company repaid the outstanding principal amount of $90.0 million and
terminated the facility. See Note 13, Subsequent Events, for a description of the repayment and the
entry into a new revolving credit facility.
10
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
8. Related Party Transactions
Trade payables as of June 30, 2006 shown in the accompanying consolidated financial statements
include $114,772 related to expenses, including salaries of Company management, office rent, and
related expenses, paid for by Quintana Maritime Investors LLC and Quintana Minerals Corporation, on
behalf of the Company. On October 31, 2005, the Company and Quintana Minerals Corporation entered
into a service agreement, whereby Quintana Minerals agreed to provide certain administrative
services to the Company at cost, and the Company agreed to reimburse Quintana Minerals for the
expenses incurred by Quintana Minerals in providing those services. Quintana Minerals Corporation
is an affiliate of Corbin J. Robertson, the Chairman of the Board of Directors of the Company and
significant shareholder in the Company.
Affiliates of Mr. Robertson, the Chairman of the Board of the Company, and First Reserve
Corporation, whose affiliate owns approximately 12.9% of our common stock, have the right in
certain circumstances to require us to register their shares of common stock in connection with a
public offering and sale. In addition, in connection
with other registered offerings by us, affiliates of Mr. Robertson, First Reserve and certain other
stockholders will have the ability to exercise certain piggyback registration rights with respect
to their shares.
In addition, affiliates of Mr. Robertson, First Reserve Corporation, and Hans J. Mende, as
well as certain members of our board of directors and management, who together owned approximately
28.1% of our common stock as of June 1, 2006, purchased an aggregate of approximately $41.2 million
of units consisting of preferred stock and warrants in our May 2006 private placement. These
persons have registration rights, together with the other holders of preferred stock, with respect
to the shares of common stock into which the preferred stock is mandatorily convertible upon the
approval of the common shareholders of the Company.
In the second quarter of 2006, Quintana Logistics carried a cargo shipped by an affiliate of
AMCI International, Inc., which generated revenues of approximately $1.3 million during the
quarter. In addition, Quintana Logistics paid or will pay a brokerage fee of 2.5%, or approximately
$38,983, to AMCI International, Inc. The Company believes that the freight charged to and the
brokerage commissions paid to the AMCI affiliates were representative of market rates. Hans J.
Mende, a director of the Company, is the President and controlling stockholder of AMCI
International, Inc.
9. Commitments and Contingent Liabilities
In February 2005, the Company entered into a three-year, non-cancellable operating lease for
its office space in Greece. In December 2005, the Company amended the lease to add additional
office space and shorten the term of the lease by one month. Rental expense for the three months
ended June 30, 2006 was $71,365 Future rental commitments are payable as follows as of June 30,
2006:
|
|
|
|
|
|
|
Amount |
|
|
|
(in thousands) |
|
July 1, 2006 to June 30, 2007 |
|
$ |
213 |
|
July 1, 2007 to November 30, 2007 |
|
|
91 |
|
|
|
|
|
Total |
|
$ |
304 |
|
|
|
|
|
11
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
9. Commitments and Contingent Liabilities (continued)
The Company has entered into agreements with unaffiliated shipowning companies to purchase the
following vessels. The Company took delivery of Iron Vassilis in July 2006 and expects to take
delivery of the remaining
vessels on the dates indicated in the table below. As of June 30, 2006, the unpaid balance of
the purchase price for the following vessels was $661.5 million:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery |
Company |
|
Vessel |
|
Purchase Price |
|
|
Date |
Iron Vassilis Shipco LLC |
|
Iron Vassilis |
|
$ |
43,300,000 |
|
|
July 27, 2006 |
Grain Express Shipco LLC |
|
Grain Express |
|
|
39,600,000 |
|
|
9/1/06 10/31/06* |
Iron Knight Shipco LLC |
|
Iron Knight |
|
|
41,400,000 |
|
|
9/1/06 1/10/07* |
Grain Harvester Shipco LLC |
|
Grain Harvester |
|
|
41,000,000 |
|
|
9/1/06 10/31/06* |
Iron Bradyn Shipco LLC |
|
Iron Bradyn |
|
|
45,900,000 |
|
|
August 2006* |
Iron Fuzeyya Shipco LLC |
|
Iron Fuzeyya |
|
|
45,200,000 |
|
|
August 2006* |
Iron Kalypso Shipco LLC |
|
Iron Kalypso |
|
|
45,200,000 |
|
|
September 2006* |
Ore Hansa Shipco LLC |
|
Ore Hansa |
|
|
43,900,000 |
|
|
September 2006* |
Santa Barbara Shipco LLC |
|
Santa Barbara |
|
|
43,600,000 |
|
|
August 2006* |
Iron Elizabeth Shipco LLC |
|
Iron Elizabeth |
|
|
43,600,000 |
|
|
August 2006* |
Iron Anne Shipco LLC |
|
Iron Anne |
|
|
43,300,000 |
|
|
September 2006* |
Pascha Shipco LLC |
|
Pascha |
|
|
43,300,000 |
|
|
December 2006* |
Iron Lindrew Shipco LLC |
|
Iron Lindrew |
|
|
43,200,000 |
|
|
January 2007* |
Coal Gypsy Shipco LLC |
|
Coal Gypsy |
|
|
43,300,000 |
|
|
December 2006* |
Coal Hunter Shipco LLC |
|
Coal Hunter |
|
|
43,100,000 |
|
|
December 2006* |
Iron Brooke Shipco LLC |
|
Iron Brooke |
|
|
43,100,000 |
|
|
March 2007* |
Iron Manolis Shipco LLC |
|
Iron Manolis |
|
|
43,000,000 |
|
|
May 2007* |
|
|
|
|
|
|
|
|
Total cost |
|
|
|
$ |
735,000,000 |
|
|
|
Less 10% deposit |
|
|
|
|
(73,500,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total commitment |
|
|
|
$ |
661,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Expected delivery dates |
The Company has not been involved in any legal proceedings which may have, or have had a
significant effect on its business, financial position, results of operations or liquidity, nor is
the Company aware of any proceedings that are pending or threatened which may have a significant
effect on its business, financial position, results of operations or liquidity. From time to time,
the Company may be subject to legal proceedings and claims in the ordinary course of business,
principally disputes with charterers, personal injury and property casualty claims. The Company
expects that these claims would be covered by insurance, subject to customary deductibles. Those
claims, even if lacking merit, could result in the expenditure of significant financial and
managerial resources.
10. Equity Offering
On May 11, 2006, the Company sold, in a private placement, 2,045,558 units consisting of
2,045,558 shares of 12% Mandatorily Convertible Preferred Stock that have a liquidation preference
$93.75 per share and 8,182,232 Class A Warrants with an exercise price of $8.00 per share. Each
Unit sold in the private placement consists of one share of preferred stock and four warrants. The
preferred stock is cumulative and has no voting rights, except as provided in the statement of
designations of the preferred stock or by the laws of the Republic of the Marshall Islands. Holders
of the preferred stock shall generally be entitled to receive cash dividends at the per annum rate
of 12% of the liquidation preference of $93.75 per share. Dividends on the preferred stock are
cumulative and will be payable in cash quarterly on February 28, May 30, August 31 and November 30
of each year, commencing on August 31, 2006 for the initial period beginning on the date of
issuance, at an annual rate of 12.0% of the liquidation preference of $93.75 per share of the
Preferred Stock, when, as and if declared by the Companys board of directors out of legally
available funds. The conversion of the preferred Stock and the exercisability of the warrants are
subject to approval by the common shareholders at the special meeting called for August 11, 2006.
The sale of the units resulted in gross proceeds of approximately $191 million to the Company,
$41.2 million of which was attributable to investments by the Companys founders and management.
In the event of a change in control, as defined by the Statement of Designations governing the
Preferred Stock, the holders of the Preferred Stock have the right to cause the Company to redeem
for cash all of the preferred shares if the holders of the Preferred Stock are not offered value
of least equivalent, on an as-converted basis, to that given the holders of the common stock in the
change of the control. Since the occurrence of such events and whether or not the value that would
be offered to the holders of the Preferred Stock upon the occurrence of such events would at least
be equivalent to the value given to the holders of the common stock would not be solely within the
control of the Company, the Preferred Stock is classified as mezzanine equity in the accompanying
balance sheet.
In
the event that the holders of our common stock fail to approve the
conversion of the preferred stock by December 31, 2006, the
Company will be obligated to redeem the warrants from the warrant
holders at $0.50 per warrant, or an aggregate cost of
$4,091,116. This amount is presented as a liability in the
consolidated balance sheet under the caption Obligations to
private placement investors.
12
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
11. Cash Dividend
On May 30, 2006, the Company paid a cash dividend of $0.21 per common share to common
shareholders of record on May 22, 2006, for a total payment of $5.1 million.
On
March 15, 2006, the Company paid a cash dividend of $0.21 per common share to common
shareholders of record on March 10, 2006, for a total payment of
$5.0 million.
12. Stock Incentive Plan
The Company issued 301,500 shares of restricted common stock under its 2005 Stock Incentive
Plan during the three months ended June 30, 2006 at a fair market value of $8.06 per share. A total
of 9,000 of the restricted shares vest ratably between February 2007 and February 2009, and the
remaining 292,500 shares vest in February 2010. As of June 30, 2006 there were 753,250 shares of
restricted stock outstanding. The vesting of the restricted stock is not conditioned on anything
other than the passage of time and the grantees continued employment or services with the Company.
The Companys 2005 Stock Incentive Plan provides for a maximum of 3,000,000 shares of common stock
to be issued under the plan. As of June 30, 2006, 2,139,750 shares remained available for issuance
under the plan.
Outstanding Restricted Stock
Restricted stock outstanding as of June 30, 2006 includes the following:
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Weighted |
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Number of |
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Average Fair |
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Shares |
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Value Per Share |
Outstanding at December 31, 2005 |
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558,750 |
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$ |
10.39 |
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Granted |
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Vested |
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99,750 |
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$ |
10.39 |
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Canceled or expired |
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Outstanding at March 31, 2006 |
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459,000 |
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$ |
10.39 |
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Granted |
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301,500 |
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$ |
7.85 |
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Vested |
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7,250 |
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$ |
9.69 |
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Canceled or expired |
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Outstanding at June 30, 2006 |
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753,250 |
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$ |
9.46 |
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The total expense related to the restricted-stock awards is calculated by multiplying the
number of shares awarded by the average high and low sales price of the Companys common stock on
the grant date, which we consider to be its fair market value. The Company amortizes the expense
over the total vesting period of the awards on a straight-line basis.
Total compensation cost charged against income was $593,066 for the restricted stock for the
three months ended June 30, 2006. Total unamortized compensation cost relating to the restricted
stock at June 30, 2006 was $6.9 million. The total compensation cost related to unvested awards not
yet recognized is expected to be recognized over a weighted-average period of approximately 3
years.
13. Subsequent Events
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On July 7, 2006, the Company entered into an interest-rate swap transaction with Fortis
Bank (Nederland) N.V. (Fortis) on a variable notional amounts ranging from $295 million
to approximately $702 million, based on expected principal outstanding under the Companys
new revolving credit facility. Under the terms of the swap, the Company will make quarterly
payments to Fortis on the relevant notional amount at a fixed rate of 5.135%, and Fortis
will make quarterly floating-rate payments to the Company on the same notional amount. The
swap transaction effectively converts the Companys expected floating-rate interest
obligation under its new revolving credit facility to a fixed rate of 5.135%, exclusive of
margin due to its lenders. The swap is effective from July 1, 2006 to December 31, 2010. In
addition, Fortis has the option to enter into an additional swap with the Company effective
December 31, 2010 to December 31, 2014. Under the terms of the optional swap, the Company
will make quarterly fixed-rate payments of 5.00% to Fortis on
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13
Quintana Maritime Limited
Notes to the consolidated financial statements
(Unaudited)
(All amounts expressed in U.S. Dollars)
Note 13. Subsequent Events (continued)
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a notional amount of $504
million, and Fortis will make quarterly floating-rate payments to the Company on the same
notional amount. |
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On July 12, 2006, the Company filed a Notice of Special Meeting and Proxy Statement with
the Securities and Exchange Commission on Schedule 14A, relating to a special meeting of
shareholders to be held on August 11, 2006. Shareholders of record on July 7, 2006 are
entitled to vote at the special meeting. At the special meeting, the shareholders will vote
on a proposal to: |
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the conversion the Companys 12% Mandatorily Convertible Preferred Stock (the
Preferred Stock) sold in a private placement (the Private Placement) described in
this proxy statement into shares of the Companys common stock, |
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the exercisability of the 8,182,232 Class A Warrants (the Warrants) sold in the
Private Placement to purchase shares of the Companys common stock, and |
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the issuance of shares of the Companys common stock upon conversion of shares of
the Preferred Stock and the exercise of the Warrants. |
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On July 19, 2006, the Company, together with its wholly owned subsidiaries, entered into
an 8.25 year, $735 million senior secured revolving credit facility, with Fortis Bank
N.V./S.A. as arranger. Borrowings under the facility bear interest at LIBOR + 0.85% until
December 31, 2010 and LIBOR + 1.10% thereafter. In addition, the Company bears a commitment
fee of 0.45% on the undrawn portion of the facility. The Companys fleet and earnings
thereon collateralize the facility. Available commitments under the facility are reduced
over the term of the facility beginning on specified dates. The facility contains financial
covenants and customary events of default. For a description of the facility, please see
Item 2 Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources New Revolving Credit Facility. |
This credit facility replaces the Companys existing revolving credit facility. As a
result of the early extinguishment of the existing revolving credit facility, the Company
expects to take a charge of approximately $1.9 million in the third quarter of 2006 relating
to the unamortized portion of finance costs relating to that facility.
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On July 27, 2006, the Company took delivery of Iron Vassilis and paid the balance of the
purchase price of $39 million. The Company financed the purchase price with borrowings
under its new revolving credit facility. |
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On August 4, 2006, the Company declared a cash dividend of $0.21 per common share. The
dividend will be payable on August 30, 2006 to shareholders of record on August 23, 2006.
In addition, the Company declared a cash dividend of equivalent to the 12% coupon on the
12% Mandatorily Convertible Preferred Stock with respect to the period from May 11 to May
30, 2006, or an aggregate preferred dividend of $1.2 million. |
14
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should
be read in conjunction with our historical consolidated financial statements and the notes thereto
included elsewhere in this filing as well as in conjunction with our Annual Report on Form 10-K for
the year ended December 31, 2005.
This discussion contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as
amended and the Private Securities Litigation Reform Act of 1995 and are intended to be covered by
the safe harbor provided for under these sections. These statements may include words such as
believe, estimate, project, intend, expect, plan, anticipate, and similar expressions
in connection with any discussion of the timing or nature of future operating or financial
performance or other events. Forward looking statements reflect managements current expectations
and observations with respect to future events and financial performance. Where we express an
expectation or belief as to future events or results, such expectation or belief is expressed in
good faith and believed to have a reasonable basis. However, our forward-looking statements are
subject to risks, uncertainties, and other factors, which could cause actual results to differ
materially from future results expressed, projected, or implied by those forward-looking
statements. The principal factors that affect our financial position, results of operations and
cash flows include, charter market rates, which have recently increased to historic highs, and
periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily
in U.S. dollars, depreciation expenses, which are a function of the cost of our vessels,
significant vessel improvement costs and our vessels estimated useful lives, and financing costs
related to our indebtedness. Our actual results may differ materially from those anticipated in
these forward looking statements as a result of certain factors which could include the following:
(1) changes in demand in the dry-bulk market, including changes in production of, or demand for,
commodities and bulk cargoes, generally or in particular regions; (2) greater than anticipated
levels of dry-bulk-vessel newbuilding orders or lower than anticipated rates of dry-bulk-vessel
scrapping; (3) changes in rules and regulations applicable to the dry-bulk industry, including
legislation adopted by international bodies or organizations such as the International Maritime
Organization and the European Union or by individual countries; (4) actions taken by regulatory
authorities; (5) changes in trading patterns significantly affecting overall dry-bulk tonnage
requirements; (6) changes in the typical seasonal variations in dry-bulk charter rates; (7) changes
in the cost of other modes of bulk commodity transportation; (8) changes in general domestic and
international political conditions; (9) changes in the condition of the Companys vessels or
applicable maintenance or regulatory standards (which may affect, among other things, our
anticipated drydocking costs); (10) and other factors listed from time to time in our filings with
the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended
December 31, 2005 and our Registration Statement on Form S-1 filed with the Securities and Exchange
Commission. We disclaim any intent or obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise, except as may be required under
applicable securities laws.
Executive Overview
General
We are an international provider of dry-bulk marine transportation services that was
incorporated in the Marshall Islands on January 13, 2005 and began operations in April 2005. Prior
to the completion of our initial public offering, we financed the acquisition of our fleet through
capital contributions by affiliates of each of Corbin J. Robertson, Jr., First Reserve Corporation
and American Metals & Coal International and through borrowings. In July 2005, we completed our
initial public offering and used the net proceeds from that offering to repay outstanding debt and
to fund a portion of the purchase price of the remaining vessels in our initial fleet of eight
vessels. In October 2005, we entered into a $250-million revolving credit facility, and we drew
down amounts under that facility to pay down amounts outstanding under a term-loan facility and to
finance in part the acquisition of two Capesize vessels delivered in the fourth quarter of 2005. As
of June 30, 2006, we owned and operated a fleet of eight Panamax vessels and two Capesize vessels.
Acquisitions
15
In May 2006, we entered into memoranda of agreement with affiliates of Metrobulk Holding S.A.,
or Metrobulk, an unaffiliated third party, to purchase three Panamax drybulk carriers and 14
Kamsarmax drybulk carriers for an aggregate cash purchase price of $735 million (the
Acquisition). Kamsarmaxes are a Panamax sub-class that have more carrying capacity than typical
Panamax designs. These vessels, when delivered, will have an aggregate cargo-carrying capacity of
1,380,789 dwt. The three Panamax vessels were constructed in 2004. Five of the Kamsarmax vessels
were built in 2005 or 2006, and the remaining nine Kamsarmax vessels are under construction at
Tsuneishi Shipbuilding Co., Ltd. of Japan. The first vessel, Iron Vassilis, was delivered in July
2006, and the remaining vessels are expected to be delivered between August 2006 and June 2007.
Assuming delivery of these vessels to us on the currently anticipated schedule, our
post-Acquisition fleet would have a combined cargo-carrying capacity of 2,296,861 dwt and a dwt
weighted average age of 4.0 years in June 2007.
All of the vessels are under time charter agreements with an affiliate of Bunge Limited, or
Bunge, a multinational agribusiness company. Sixteen of the vessels in the acquisition fleet are or
will become subject to one master time charter with Bunge expiring at the end of 2010. Fourteen of
these sixteen vessels are now subject to the master time charter, and the two other vessels (Iron
Knight and Iron Bradyn) are currently under separate charters but will become subject to the master
time charter following the termination of their current charters. One of the vessels in the
acquisition fleet, Grain Harvester, is subject to a separate time charter with Bunge which expires
on or about August 2009.
We expect to finance the acquisition through a combination of the proceeds of a private
placement we closed on May 11, 2006 of units consisting of 12% Mandatorily Convertible Preferred
Stock and Class A Warrants and borrowings under our new revolving credit facility.
Results of Operations
Charters
We generate revenues by charging customers for the transportation of dry-bulk cargo using our
vessels. All our vessels are currently employed under time charters to well-established and
reputable charterers. We may employ vessels under spot-market charters in the future. A time
charter is a contract for the use of a vessel for a specific period of time during which the
charterer pays substantially all of the voyage expenses, including port and canal charges and the
cost of bunkers, but the vessel owner pays the vessel operating expenses. Under a spot-market
charter, the vessel owner pays both the voyage expenses (less specified amounts covered by the
voyage charterer) and the vessel operating expenses. Vessels operating in the spot-charter market
generate revenues that are less predictable than time charter revenues but may enable us to capture
increased profit margins during periods of improvements in dry-bulk rates. However, we will be
exposed to the risk of declining dry-bulk rates when operating in the spot market, which may have a
materially adverse impact on our financial performance.
Second Quarter 2006
In the three months ended June 30, 2006, our fleet had a utilization of 98.0%, compared to 80.8% in
the second quarter of 2005. We calculate fleet utilization by dividing the number of our operating
days during a period by the number of our ownership days during the period. The shipping industry
uses fleet utilization to measure a companys efficiency in finding suitable employment for its
vessels and minimizing the amount of days that its vessels are off-hire for reasons other than
scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel
positioning.
Our net daily revenues per ship per day for the total fleet for the second quarter of 2006 were
$20,046, compared to $19,711 in the corresponding period in 2005. Net daily revenue consists of our
voyage and time charter revenues less voyage expenses during a period divided by the number of our
operating days during the period, net of commissions but including idle time, which is consistent
with industry standards.
Vessel operating expenses per ship per day were $3,903 for the fleet in the second quarter of 2006,
compared to $3,964 in the second quarter of 2005. Vessel operating expenses include crew wages and
related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of
spares and consumable stores, tonnage taxes and other miscellaneous expenses. To arrive at a per
ship per day amount, we divide our total vessel operating expenses by the ownership days in the
period.
16
Six Months Ended June 30, 2006
In the six months ended June 30, 2006, our fleet had a utilization of 98.7%, compared to 80.8% in
the corresponding period in 2005.
Our net daily revenues per ship per day for the total fleet for the first six months of 2006 were
$20,975, compared to $19,711 in the corresponding period in 2005.
Vessel operating expenses per ship per day were $4,046 for the fleet in the second quarter of 2006,
compared to $3,964 in the second quarter of 2005.
All vessels owned by the Company were employed under time-charter contracts throughout the
three-month period ended June 30, 2006. As of June 30, 2006, those charters have remaining terms of
between less than one month and 45 months. We have rechartered the vessels whose charters expired
subsequent to the expiration of the period. We believe that these long-term charters provide better
stability of earnings and consequently increase our cash flow visibility to our shareholders.
Logistics Operations
In December 2005, the Company formed a wholly owned subsidiary, Quintana Logistics LLC, to
engage in limited chartering activities, including entry into contracts of affreightment. Under a
contract of affreightment, Quintana would agree to ship a specified amount of cargo at a specified
rate per ton between designated ports over a particular period of time. Contracts of affreightment
generally do not specify particular vessels, so Quintana would be permitted either to use a free
vessel that it owned or to charter in a third-party vessel.
Three Months Ended June 30, 2006 Compared with Three Months Ended June 30, 2005
Net Revenues
Net revenues for the three months ended June 30, 2006 were $19.7 million after brokerage
commissions of $0.9 million compared to $7.0 million after brokerage commissions of $0.3 million
for the corresponding period in 2005, an increase of 181%. In the three months ended June 30, 2006,
$19 million of our revenues was earned from time charters and $ 1.6 million was earned from our
Quintana Logistics operations. In the three months ended June 30, 2005, all of our revenues were
earned from time charters. The increase in revenues during the three months ended June 30, 2006
over the corresponding period in 2005 is primarily due to our
operating an average of 10.5 vessels for the entire quarter in
2006 compared to partial operations during the
corresponding 2005 period of an average of 3.9 ships.
Commissions and Other Voyage Expenses
When we employ our vessels on spot market voyage charters we incur expenses that include port
and canal charges and bunker expenses. We expect that port and canal charges and bunker expenses
will continue to represent a relatively small portion of our vessels overall expenses because we
expect the majority of our vessels to continue to be employed under time charters that require the
charterer to bear all of those expenses. As is common in the dry-bulk shipping industry, we pay
commissions ranging from 0% to 6.25% of the total daily charter hire rate of each charter to
unaffiliated ship brokers associated with the charterers, depending on the number of brokers
involved with arranging the charter.
For the quarter ended June 30, 2006, our commissions totaled $0.9 million, compared to
$0.3 million during the corresponding period in 2005, an increase of 200%. Commissions were higher
for the three months ended June 30, 2006 than the corresponding period in 2005 principally because
we operated 10 vessels for the entire three-month period in 2006, compared to an average of 3.9
vessels during the 2005 period.
17
We incurred voyage expenses for the quarter ended June 30, 2006 of $1.1 million attributable
to our Quintana Logistics operations. We did not incur any voyage expenses for the period ended
June 30, 2005 because we did not conduct any of our chartering activities under Quintana Logistics
until 2006.
Vessel Operating Expenses
For the three months ended June 30, 2006, our vessel operating expenses were $3.6 million, or
an average of $3,903 per ship per day, compared to operating expenses of $ 1.3 million during the
corresponding period in 2005, or an average of $3,964 per day. Vessel operating expenses include
crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance,
the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. The
increase in total operating expenses for the 2006 period was primarily due to the enlargement of
our fleet: we operated 10 vessels during the 2006 period, compared to an average of 3.9 vessels
during the 2005 period. Other factors beyond our control, some of which may affect the shipping
industry in general, including, for instance, developments relating to market prices for insurance,
may also cause these expenses to increase.
General and Administrative Expenses
For the three months ended June 30, 2006, we incurred $2.5 million of general and
administrative expenses, compared to $1.0 million for the three months ended June 30, 2005, an
increase of approximately $1.5 million, or 150% over the corresponding period in 2005. Our general
and administrative expenses include the salaries and other related costs of the executive officers
and other employees, our office rents, legal and auditing costs, regulatory compliance costs, other
miscellaneous office expenses, long-term compensation costs, and corporate overhead. Our general
and administrative expenses for the second quarter of 2006 were comparatively higher than those in
the corresponding period in 2005 because the Company had limited operations during the second
quarter of 2005.
Depreciation
We depreciate our vessels based on a straight line basis over the expected useful life of each
vessel, which is 25 years from the date of their initial delivery from the shipyard. Depreciation
is based on the cost of the vessel less its estimated residual value, which is estimated at $220
per lightweight ton, at the date of the vessels acquisition, which we believe is common in the
dry-bulk shipping industry. Secondhand vessels are depreciated from the date of their acquisition
through their remaining estimated useful life. However, when regulations place limitations over the
ability of a vessel to trade on a worldwide basis, its useful life is adjusted to end at the date
such regulations become effective. For the three months ended June 30, 2006, we recorded $6.1 million of vessel depreciation charges, compared to approximately $1.8 million for the three months
ended June 2005, an increase of $4.2 million, or 233%. We incurred significantly higher
depreciation charges in the second quarter of 2006 than in the corresponding period in 2005 because
we operated 10 vessels for the entire 2006 period, compared to an average of 3.9 vessels for the
2005 period. As a result of our recent agreement to purchase a fleet of 17 vessels, we expect our
depreciation charges to increase on a period-by-period basis as those vessels are delivered.
Time Charter Value Amortization
Iron Beauty was acquired in October 2005 with an existing time charter at an above-the-market
rate. We deduct the fair value of above-market time charters from the purchase price of the vessel
and allocate it to a deferred asset which is amortized over the remaining period of the time
charter as a reduction to hire revenue. With respect to Iron Beauty, This results in a daily rate
of approximately $30,600 as recognized revenue. For cash flow purposes the company will continue to
receive $36,500 per day less commissions. For the three months ended June 30, 2006, we recorded
$0.5 million of time charter amortization charges. Because we did not acquire Iron Beauty until the
fourth quarter of 2005, we did not record any time-charter amortization charges in the second
quarter of 2005. If we acquire additional vessels in the future that have above-market time
charters attached to them, our time-charter-value amortization is likely to increase.
Drydocking
We capitalize the total costs associated with a drydocking and amortize these costs on a
straightline basis through the date of the next drydocking, which is typically 30 to 60 months.
Regulations or incidents may change
18
the estimated dates of the next drydocking for our vessels. For the three months ended June
30, 2006, amortization expense related to drydocking totaled $119,943, compared to $33,350 for the
corresponding period in 2005, an increase of $ 86,593, or 260%. This increase was primarily due to
the fact that we were amortizing drydocking expense for a total of two vessels for six months in
the 2006 period, compared to one vessel for one month in the 2005 period.
Interest Expense
We incurred $2.2 million of interest expense in the second quarter of 2006, compared to $1.6
million in the second quarter of 2005. The difference is primarily attributable to larger principal
amounts outstanding under our revolving credit facility in the 2006 period compared to amounts
outstanding under our term loan facility in the 2005 period.
Six Months Ended June 30, 2006 Compared with the Period from January 13, 2005 to June 30, 2005
Net Revenues
Net revenues for the six months ended June 30, 2006 were $41.3 million after brokerage
commissions of $1.8 million compared to $7.0 million after brokerage commissions of $0.3 million for
period from January 13, 2005 to June 30, 2005, an increase of 490%. In the six months ended June
30, 2006, $39.9 million of our revenues was earned from time charters and $3.2 million was earned
from our Quintana Logistics operations. In the 2005 period, all of our revenues were earned from
time charters. The increase in revenues during the 2006 period over the corresponding period in
2005 is primarily due to our operating an average of 10.5 vessels in the 2006 period compared to partial operations of an average of 2.1 vessels during the corresponding
2005 period.
Commissions and Other Voyage Expenses
When we employ our vessels on spot market voyage charters we incur expenses that include port
and canal charges and bunker expenses. We expect that port and canal charges and bunker expenses
will continue to represent a relatively small portion of our vessels overall expenses because we
expect the majority of our vessels to continue to be employed under time charters that require the
charterer to bear all of those expenses. As is common in the dry-bulk shipping industry, we pay
commissions ranging from 0% to 6.25% of the total daily charter hire rate of each charter to
unaffiliated ship brokers associated with the charterers, depending on the number of brokers
involved with arranging the charter.
For the six months ended June 30, 2006, our commissions totaled $1.8 million, compared to $0.3
million during the corresponding period in 2005, an increase of 500%. Commissions were higher for
the six months ended June 30, 2006 than for the period from January 13 to June 30, 2005 principally
because we operated 10 vessels for the entire six-month period in 2006, compared to an average of
2.1 vessels during the 2005 period.
We incurred voyage expenses for the six months ended June 30, 2006 of $2.6 million
attributable to our Quintana Logistics operations. We did not incur any voyage expenses for the
period ended June 30, 2005 because we did not conduct any of our chartering activities under
Quintana Logistics until 2006.
Vessel Operating Expenses
For the six months ended June 30, 2006, our vessel operating expenses were $7.3 million, or an
average of $4,046 per ship per day, compared to operating expenses of $1.3 million during the
period from January 13, 2005 to June 30, 2005, or an average of $3,964 per day. Vessel operating
expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs
and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous
expenses. The increase in total operating expenses for the 2006 period was primarily due to the
enlargement of our fleet: we operated 10 vessels during the 2006 period, compared to an average of
2.1 vessels during the 2005 period. Other factors beyond our control, some of which may affect the
shipping industry in general, including, for instance, developments relating to market prices for
insurance, may also cause these expenses to increase.
19
General and Administrative Expenses
For the six months ended June 30, 2006, we incurred $4.5 million of general and administrative
expenses, compared to $1.1 million for the period from January 13, 2005 to June 30, 2005, an
increase of approximately $3.4 million, or 309%. Our general and administrative expenses include
the salaries and other related costs of the executive officers and other employees, our office
rents, legal and auditing costs, regulatory compliance costs, other miscellaneous office expenses,
long-term compensation costs, and corporate overhead. Our general and administrative expenses for
the six months ended June 30, 2006 were comparatively higher than those in the corresponding period
in 2005 because the Company had limited operations during the first half of 2005.
Depreciation
We depreciate our vessels based on a straight line basis over the expected useful life of each
vessel, which is 25 years from the date of their initial delivery from the shipyard. Depreciation
is based on the cost of the vessel less its estimated residual value, which is estimated at $220
per lightweight ton, at the date of the vessels acquisition, which we believe is common in the
dry-bulk shipping industry. Secondhand vessels are depreciated from the date of their acquisition
through their remaining estimated useful life. However, when regulations place limitations over the
ability of a vessel to trade on a worldwide basis, its useful life is adjusted to end at the date
such regulations become effective. For the six months ended June 30, 2006, we recorded $11.9
million of vessel depreciation charges, compared to approximately $1.8 million for the period from
January 13, 2005 to June 2005, an increase of $10.1 million, or 560%. We incurred significantly
higher depreciation charges in the first half of 2006 than in the corresponding period in 2005
because we operated ten vessels for the entire 2006 period, compared to an average of 2.1 vessels
for the 2005 period. As a result of our recent agreement to purchase a fleet of 17 vessels, we
expect our depreciation charges to increase on a period-by-period basis as those vessels are
delivered.
Time Charter Value Amortization
Iron Beauty was acquired in October 2005 with an existing time charter at an above-the-market
rate. We deduct the fair value of above-market time charters from the purchase price of the vessel
and allocate it to a deferred asset which is amortized over the remaining period of the time
charter as a reduction to hire revenue. With respect to Iron Beauty, This results in a daily rate
of approximately $30,600 as recognized revenue. For cash flow purposes the company will continue to
receive $36,500 per day less commissions. For the six months ended June 30, 2006, we recorded $1.1
million of time charter amortization charges. Because we did not acquire Iron Beauty until the
fourth quarter of 2005, we did not record any time-charter amortization charges in the
corresponding 2005 period. If we acquire additional vessels in the future that have above-market
time charters attached to them, our time-charter-value amortization is likely to increase.
Drydocking
We capitalize the total costs associated with a drydocking and amortize these costs on a
straightline basis through the date of the next drydocking, which is typically 30 to 60 months.
Regulations or incidents may change the estimated dates of the next drydocking for our vessels. For
the six months ended June 30, 2006, amortization expense related to drydocking totaled $239,886,
compared to $33,350 for the corresponding period in 2005, an increase of $206,536, or 620%. This
increase was primarily due to the fact that we were amortizing drydocking expense for a total of
two vessels for 6 months in the 2006 period, compared to one vessel for one month in the 2005
period.
Interest Expense
We incurred $5.0 million of interest expense in the first six months of 2006, compared to $1.6
million in the comparable period in 2005. The difference is primarily attributable to larger
principal amounts outstanding under our revolving credit facility in the 2006 period compared to
amounts outstanding under our term loan facility in the 2005 period.
20
Inflation
Inflation does not have significant impact on vessel operating or other expenses for vessels
under time charter. We may bear the risk of rising fuel prices if we enter into spot-market
charters or other contracts under which we bear voyage expenses. We do not consider inflation to be
a significant risk to costs in the current and foreseeable future economic environment. However,
should the world economy be affected by inflationary pressures this could result in increased
operating and financing costs.
Liquidity and Capital Resources
Cash and Capital Expenditures
For the three months ended June 30, 2006, we financed our capital requirements primarily from
proceeds from a private placement of equity and cash from operations. As of June 30, 2006, our cash
balance was approximately $3.6 million. We estimate that our cash flow from our charters will be
sufficient to fund our working capital requirements for the next twelve months. In order to finance
a portion the balance of the purchase price of vessels expected to be delivered in the Metrobulk
acquisition, we expect to issue additional equity or arrange alternate financing within the next
twelve months.
We intend to fund our future acquisition-related capital requirements principally through
borrowings under our revolving credit facility or equity issuances and to repay all or a portion of
such borrowings from time to time with a combination of the net proceeds of equity issuances and
cash from operations. We believe that funds will be available from these sources to support our
growth strategy, which involves the acquisition of additional vessels. Depending on market
conditions in the dry-bulk shipping industry and acquisition opportunities that may arise, we may
be required to obtain additional debt or equity financing.
Net cash provided by operating activities was $19.5 million for the six months ended June 30,
2006, compared to $4.4 million for the period from January 13, 2005 to June 30, 2005. Substantially
all our cash from operating activities is generated under our time charters.
Net cash used in investing activities was $73.7 million for the six months ended June 30,
2006, compared to $216.1 million for the period from January 13, 2005 to June 30, 2005. Of the cash
used in investing activities for the 2006 period, $73.5 million was attributable to deposits for
the acquisition of the Metrobulk vessels. In the 2005 period, nearly all of the cash used in
investing activities was used to acquire the vessels purchased in the first half of 2005.
Net cash from financing activities was $53.5 million for the six months ended June 30, 2006,
compared to $223.9 million for the period from January 13, 2005 to June 30, 2005. During the 2006
period, we repaid approximately $120 million under our revolving credit facility from $191 million
in proceeds from the equity issuance. The 2005 period reflects the repayment of approximately $150
million of debt and borrowings of approximately $311 million.
Contractual Obligations and Commercial Commitments
Existing Revolving Credit Facility
General. We and our subsidiaries entered into a $250,000,000 secured revolving credit
facility, dated as of October 4, 2005. We are generally permitted to borrow under the facility to
refinance the term-loan facility, to fund acquisitions of vessels, to pay certain dividends, and to
fund working-capital requirements. In October 2005, we applied borrowings under the revolving
credit facility to repay the term-loan facility described above and to finance the acquisition of
Iron Beauty, and in November 2005, we applied borrowings under the facility to finance the
acquisition of Kirmar. As of June 30, 2006, $90.0 million was outstanding under the facility.
Subsequent to the end of the period, we terminated this facility and refinanced outstanding amounts
under our new revolving credit facility, described below.
21
Fees and Interest. We paid an underwriting and structuring fee in connection with our entry
into the revolving credit facility, and we pay annual agency and security fees. We also incur a
commitment fee on the unused portion of the revolving credit facility at a rate of 0.375% per
annum.
Indebtedness under the revolving credit facility bears interest at a rate equal to LIBOR +
0.975%. See Item 3 for a description of interim rate locks entered into during the second quarter.
Term and Facility Limit. The revolving credit facility has a term of eight years and thus
matures in October 2013. The facility has a limit of $250 million, which we may expand by an
additional $50 million for a total of $300 million on identical terms. In addition, the facility
provides for a $20-million sub-limit for borrowings for working-capital purposes and general
corporate requirements. Up to $25 million of the facility will be available for issuance of
stand-by letters of credit.
We may generally borrow up to the facility limits, but we may not incur any additional
indebtedness under the facility if the amount of outstanding loans and letters of credit exceeds
65% of the fair market value of the vessels serving as collateral.
Prepayments. We may voluntarily prepay indebtedness under the facility at any time in minimum
principal amounts of $2.0 million and in multiples of $1.0 million. We may reborrow any amounts
that we prepay.
We are required to mandatorily repay indebtedness upon any sale of any vessel out of the net
sale proceeds received and upon any loss of any vessel upon the earlier of (i) 120 days of such
loss and (ii) receipt of insurance proceeds related to the loss. In addition, the total commitments
under the facility will be reduced annually beginning in October 2010. When those reductions occur,
we will be required to make payments to the extent the total amount outstanding under the facility
on the reduction date exceeds the reduced commitment. We must also prepay any borrowings used to
fund the deposit for a vessel to be acquired if the contract to buy that vessel is terminated.
Guaranty; Security. Our obligations under the facility are guaranteed by our subsidiaries. In
addition, our obligations under the facility are secured by a first-priority security interest of
the equity of those subsidiaries, a first-priority mortgage on our vessels, and a first-priority
assignment of our earnings related to our vessels, including time-charter revenues and insurance
proceeds. Our bank accounts that hold our vessel-related earnings are pledged to our lenders. In
addition, any obligations under foreign-currency or interest-rate swaps or similar arrangements
relating to our obligations under the credit facility will be secured by second-priority interests
on the collateral described above.
Conditions. When we borrow additional amounts under the facility, we are required to execute
customary documentation relating to the facility, including security documents, to satisfy certain
customary conditions precedent and to comply with terms and conditions included in the loan
documents.
Financial Covenants. The credit agreement also contains financial covenants requiring us to
maintain:
|
|
|
a ratio of total debt to total capitalization (each as defined in the credit
agreement) of no more than 0.65 to 1.00; |
|
|
|
|
minimum liquidity (including available borrowing capacity under the facility) on
the last day of each quarter of $525,000 per vessel; |
|
|
|
|
a ratio of EBITDA to cash interest expense (each as defined in the credit
agreement) of no less than 2.00 to 1.00 on a trailing four-quarter basis; |
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|
the fair market value of collateral of at least 135% of outstanding loans and letter of credit; and |
|
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|
consolidated net worth (as defined in the credit agreement) of at least 80% of $248.0 million. |
Restrictive Covenants. The credit facility contains customary restrictive covenants.
22
We are generally not permitted to pay dividends in excess of 65% of our free cash flow. In
addition, we may not pay any dividends if the value of the collateral securing the credit facility
is less than 135% of the amount of loans and letters of credit outstanding under the facility.
New Revolving Credit Facility
General. On July 19, 2006, we, together with our wholly owned subsidiaries, entered into an
8.25 year, $735 million senior secured revolving credit facility, with Fortis Bank N.V./S.A. as
arranger. This credit facility replaces our existing credit facility described above.
Security. Our obligations under the credit facility are secured by (i) first priority
cross-collateralized mortgages over the vessels; (ii) first priority assignment of all insurances,
operational accounts and earnings of the vessels; (iii) first priority pledges over the operating
accounts held with the agent, (iv) assignments of existing and future charters for the vessels, and
(v) assignments of interest rate swaps.
Interest. Borrowings under the revolving credit facility bear interest at the rate of LIBOR
plus 0.85% per annum (until December 31, 2010) and LIBOR plus 1.10% per annum thereafter. The full
amount borrowed under the revolving credit facility will mature on September 30, 2014.
Commitment Fee. We pay a commitment fee of 0.45% per annum on the undrawn amount of
commitments under the credit facility. This fee is payable quarterly in arrears.
Repayment. The loans do not amortize. Instead, the total available commitments reduce over
time according to the following schedule of thirty-two consecutive quarterly permanent commitment
reductions with the first such reduction occurring on the earlier of December 31, 2006 and the
fiscal quarter ending four months after the delivery of Hull 1375:
|
|
|
|
|
Reduction 1 |
|
$ |
10,000,000 |
|
Reductions 2 to 5 |
|
$ |
11,750,000 |
|
Reductions 6 to 17 |
|
$ |
13,250,000 |
|
Reductions 18 to 32 |
|
$ |
15,000,000 |
|
Together with the last (32nd) reduction, there is a balloon reduction equal to the lesser of either
$294 million or the remaining commitments after the last reduction. The Company may prepay the
loans at any time in whole or part without penalty. If the outstanding amount of the loan exceeds
the maximum available amount following permanent commitment reduction, a mandatory prepayment is
required equal to such excess.
Conditions. We are subject to customary conditions precedent before we may borrow under the
facility, including that no event of default is ongoing or would result from the borrowing, that
our representations and warranties are true and that no material adverse change has occurred.
Financial Covenants. The loan agreement also requires us to comply with the following
financial covenants:
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maintenance of fair market value of ship collateral equal to 115% of the outstanding
loans (until December 31, 2010) and 125% of the outstanding loans thereafter; |
|
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|
maintenance of an interest coverage ratio of not less than 2.0 to 1; |
|
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maintenance of a leverage ratio (total debt to market adjusted total assets) of no greater than 0.75 to 1; |
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|
maintenance of market value adjusted net worth of at least $200,000,000; and |
|
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|
|
maintenance of minimum liquidity (cash or time deposits plus available credit line) of
$550,000 per ship increasing to $741,000 per ship in 8 quarterly adjustments starting April
1, 2009. |
23
Restrictive Covenants. The facility contains customary restrictive covenants.
Use of Borrowings. The Company may use borrowings under the loan agreement to (i)
refinance the debt outstanding under the existing credit facility, (ii) partially finance the
acquisition cost of seventeen new vessels that the Company has contracted to acquire, (iii) finance
part of the acquisition cost of other additional vessels, which acquisitions are subject to
approval of the facility agent and the satisfaction of certain other conditions on the vessels, and
(iv) finance up to $20 million of working capital.
Events of Default. The loan agreement contains customary events of default, including
nonpayment of principal or interest, breach of covenants or material inaccuracy of representations,
default under other material indebtedness, bankruptcy, and change of control.
Shelf Registration Statement
On June 19, we filed a resale registration statement on Form S-1 with the Securities and
Exchange Commission, registering 2,045,558 units, 2,045,558 shares of 12% Mandatorily Convertible
Preferred Stock, and 8,182,232 Class A Warrants. This registration statement registers securities
on behalf of third parties, and we will not receive any proceeds from the sales of these
securities.
Contractual Obligations
The following table sets forth our expected contractual obligations and their maturity dates as of
June 30, 2006.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to |
|
Three |
|
More |
|
|
|
|
Within One |
|
Three |
|
Years to |
|
Than Five |
|
|
|
|
Year |
|
Years |
|
Five Years |
|
Years |
|
Total |
|
|
(in thousands) |
Revolving credit facility (1) |
|
$ |
90,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90,000 |
|
Acquisition of vessels |
|
|
661,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
661,500 |
|
Office lease(2) |
|
|
213 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
304 |
|
|
|
|
Total |
|
$ |
751,713 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
$ |
751,804 |
|
|
|
|
|
|
|
(1) |
|
The balance due under the revolving credit facility was repaid in full subsequent to the end
of the period. |
|
(2) |
|
Represents the U.S. Dollar equivalent of lease payments in Euros as calculated in accordance
with the rate of $1.27 to
1.00 as of
June 30, 2006. Such rate was $1.28 to
1.00 as of
July 31, 2006. Our office lease has a two-year term. |
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies
Information regarding the Companys Critical Accounting Policies is included in Item 7 of the
Companys Annual Report on Form 10-K for the year ended December 31, 2005.
Risks Related to our Business
|
|
|
Because we are a new company with a limited operating history, we may be less successful
in implementing our business strategy than a more seasoned company. |
|
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|
We cannot assure you that our board of directors will declare dividends. |
|
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|
|
Our earnings may be adversely affected if we do not successfully employ our vessels on
medium- or long-term time charters or take advantage of favorable opportunities in the spot
market. |
|
|
|
|
We may have difficulty properly managing our planned growth through acquisitions of
additional vessels. |
|
|
|
|
We cannot assure you that we will be able to borrow further amounts under our revolving
credit facility, which we may need to fund the acquisition of additional vessels. |
24
|
|
|
Restrictive covenants in our revolving credit facility impose, and any future debt
facilities will impose, financial and other restrictions on us. |
|
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|
Servicing future indebtedness would limit funds available for other purposes, such as
the payment of dividends. |
|
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|
Unless we set aside reserves for vessel replacement, at the end of a vessels useful
life our revenue will decline, which would adversely affect our cash flows and income. |
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|
Purchasing and operating secondhand vessels may result in increased operating costs and
reduced fleet utilization. |
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|
When our time charters end, we may not be able to replace them promptly or with profitable ones. |
|
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|
|
Charterers may default on time charters that provide for above-market rates. |
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|
Contracts of affreightment may result in losses. |
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|
The international dry-bulk shipping industry is highly competitive, and we may not be
able to compete successfully for charters with new entrants or established companies with
greater resources. |
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|
We may be unable to retain key management personnel and other employees in the shipping
industry, which may negatively impact the effectiveness of our management and results of
operations. |
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|
Risks associated with operating oceangoing vessels could negatively affect our business
and reputation, which could adversely affect our revenues and stock price. |
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|
The operation of dry-bulk carriers has certain unique operational risks. |
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|
Our vessels may suffer damage and we may face unexpected costs, which could adversely
affect our cash flow and financial condition. |
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|
|
The shipping industry has inherent operational risks that may not be adequately covered
by our insurance. |
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|
If we acquire additional dry-bulk carriers and those vessels are not delivered on time
or are delivered with significant defects, our earnings and financial condition could
suffer. |
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|
The aging of our fleet may result in increased operating costs in the future, which
could adversely affect our earnings. |
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|
We may earn United States source income that is subject to tax, thereby reducing our
earnings. |
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|
U.S. tax authorities could treat us as a passive foreign investment company, which
could have adverse U.S. federal income tax consequences to U.S. holders. |
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|
The enactment of proposed legislation could affect whether dividends paid by us
constitute qualified dividend income eligible for a preferential rate of federal income
taxation. |
|
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|
Because we expect to generate all of our revenues in U.S. dollars but may incur a
portion of our expenses in other currencies, exchange rate fluctuations could hurt our
results of operations. |
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|
We depend upon a limited number of customers for a large part of our revenues and the
loss of one or more of these customers could adversely affect our financial performance. |
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|
We are a holding company, and we depend on the ability of our subsidiaries to distribute
funds to us in order to satisfy our financial obligations and to make dividend payments. |
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|
As we expand our business, we may need to improve our operating and financial systems
and will need to recruit suitable employees and crew for our vessels. |
|
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|
The international dry-bulk shipping sector is extremely cyclical and volatile; these
factors may lead to reductions and volatility in our charter hire rates, vessel values and
results of operations. |
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|
Charter hire rates in the dry-bulk sector are above historical averages and future
growth will depend on continued economic growth in the world economy that exceeds the
capacity of the growing world fleets ability to match it. |
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|
We may not be able to draw down the full amount under our revolving credit facility if
the market value of our vessels declines. |
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|
We may breach some of the covenants under our revolving credit facility if the market
price of our vessels, which are above historical averages, declines. |
|
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|
Our substantial operations outside the United States expose us to political,
governmental and economic instability, which could harm our operations. |
|
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|
|
Seasonal fluctuations in industry demand could adversely affect our operating results
and the amount of available cash with which we can pay dividends. |
|
|
|
|
We are subject to regulation and liability under environmental laws that could require
significant expenditures and affect our cash flow and net income. |
25
|
|
|
We are subject to international safety regulations and the failure to comply with these
regulations may subject us to increased liability, may adversely affect our insurance
coverage and may result in a denial of access to, or detention in, certain ports. |
|
|
|
|
Maritime claimants could arrest one or more of our vessels, which could interrupt our
cash flow. |
|
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|
|
Governments could requisition our vessels during a period of war or emergency, resulting
in a loss of earnings. |
|
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|
|
Increased inspection procedures and tighter import and export controls could increase
costs and disrupt our business. |
|
|
|
|
An economic slowdown in Asia could have a material adverse effect on our business,
financial position and results of operations. |
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|
World events could affect our results of operations and financial condition. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rates
As of June 30, 2006, our revolving credit facility accrued interest at LIBOR plus 0.975%. Our
revolving credit facility permits us to fix LIBOR, effectively converting our floating-rate
obligations into fixed-rate obligations.
In the course of the second quarter, we locked LIBOR on the specified borrowings at the
indicated rates and expiry dates:
|
|
|
|
|
Amount of Borrowings (in |
|
LIBOR lock |
|
|
millions) |
|
rate |
|
Expiry Date |
103,000,000
|
|
4.82%
|
|
04/18/2006 |
37,000,000
|
|
4.83%
|
|
04/28/2006 |
102,000,000
|
|
4.90%
|
|
05/16/2006 |
Subsequent to the end of the period, we locked LIBOR on the specified borrowings at the
indicated rates and expiry dates:
|
|
|
|
|
Amount of Borrowings (in |
|
LIBOR lock |
|
|
millions) |
|
rate |
|
Expiry Date |
63,000,000
|
|
4.90%
|
|
05/18/2006 |
37,000,000
|
|
4,97%
|
|
05/18/2006 |
10,000,000
|
|
5.07%
|
|
05/31/2006 |
90,000,000
|
|
5.11%
|
|
06/30/2006 |
We repaid the total outstanding principal amount of $90.0million as of June 30, 2006 on July
21, 2006.
Effective June 30, 2006, we entered into a swap transaction with respect to our new revolving
credit facility. This swap effectively insulates us from interest-rate risk relating to the
floating rates payable under the facility under December 31, 2010, as we are required to pay a
fixed rate of 5.135%. On December 31, 2010, the counterparty to
the swap may exercise an option to lock our fixed rate at 5.00% through December 31, 2013. If
the counterparty does not exercise this option, we will be exposed to market rates at that time.
26
We may have sensitivity to interest rate changes with respect to future debt facilities.
Currency and Exchange Rates
We expect to generate all of our revenue in U.S. Dollars. The majority of our operating
expenses and management expenses are in U.S. Dollars, and we expect to incur up to approximately
20% of our operating expenses in currencies other than U.S. Dollars. This difference could lead to
fluctuations in net income due to changes in the value of the U.S. Dollar relative to other
currencies. We do not intend to use financial derivatives to mitigate the risk of exchange rate
fluctuations.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to
be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the Exchange
Act), is recorded, summarized and processed within time periods specified in the SECs rules and
forms. As of the end of the period covered by this report (the Evaluation Date), we carried out
an evaluation, under the supervision and with the participation of our management, including our
chief executive officer and our chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act). Based upon this evaluation, our chief executive officer and our chief financial
officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were
effective.
During the last fiscal quarter, there were no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We have not been involved in any legal proceedings which may have, or have had a significant
effect on our business, financial position, results of operations or liquidity, nor are we aware of
any proceedings that are pending or threatened which may have a significant effect on our business,
financial position, results of operations or liquidity. From time to time, we may be subject to
legal proceedings and claims in the ordinary course of business, principally personal injury and
property casualty claims. We expect that these claims would be covered by insurance, subject to
customary deductibles. Those claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources.
Legal Proceedings Related to Mr. Molaris
A private individual has filed a complaint with the public prosecutor for the Athens
Magistrates Court against Mr. Molaris and four others relating to allegations that, while Mr.
Molaris was employed by Stelmar Shipping Ltd., they conspired to defraud the individual of a
brokerage fee of 1.2 million purportedly owed by a shipyard in connection with the repair of a
vessel of Stelmar. Mr. Molaris believes the complaint is without merit and is vigorously contesting
these allegations. The prosecutor has referred the matter to a Greek judge for further
investigation. The judge will determine whether the claim has sufficient merit to forward the
matter on to a court for adjudication. We have been advised that an independent committee of the
board of directors of Stelmar has conducted an inquiry into these allegations and found no evidence
to support them.
Item 1A. Risk Factors
In addition to the risk factors described below, please see Item 2 of Part I, Managements
Discussion and Analysis of Financial Condition and Results of Operations Risk Factors.
Risks Related to the Acquisition
Our substantial debt levels may limit our flexibility in obtaining additional financing and in
pursuing other business opportunities.
Following the completion of the acquisition of all 17 of our new vessels, we will have
substantial indebtedness. We expect that upon the delivery of our contracted fleet of new vessels
we will have approximately $735 million of indebtedness outstanding under our new revolving credit
facility, and we will be a substantially more highly leveraged company than we have been
historically. We also expect to incur more indebtedness in connection with future acquisitions. Our high level of
debt could have important consequences to us, including the following:
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|
our ability to obtain additional financing, if necessary, for working capital, capital
expenditures, acquisitions or other purposes may be impaired or such financing may not be
available on favorable terms; |
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|
|
we may need to use a substantial portion of our cash from operations to make principal
and interest payments on our debt, reducing the funds that would otherwise be available
for operations, future business opportunities and dividends to our shareholders; |
|
|
|
|
our debt level could make us more vulnerable than our competitors with less debt to
competitive pressures or a downturn in our business or the economy generally; and |
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|
|
our debt level may limit our flexibility in responding to changing business and
economic conditions. |
Our ability to service our debt will depend upon, among other things, our future financial and
operating performance, which will be affected by prevailing economic conditions and financial,
business, regulatory and other factors, some of which are beyond our control. If our operating
results are not sufficient to service our current or future indebtedness, we will be forced to take
actions such as reducing dividends, reducing or delaying our business activities, acquisitions,
investments or capital expenditures, selling assets, restructuring or refinancing our debt, or
28
seeking additional equity capital or bankruptcy protection. We may not be able to effect any of
these remedies on satisfactory terms, or at all.
As we expand our business, we may need to improve our operating and financial systems and expand
our commercial and technical management staff, and will need to recruit suitable employees and crew
for our vessels.
With the acquisition of the additional 17 drybulk vessels, we will more than double the size
of our fleet. Our current operating and financial systems may not be adequate as we implement our
plan to expand the size of our fleet, and attempts to improve those systems may be ineffective. In
addition, as we expand our fleet, we will need to recruit suitable additional administrative and
management personnel. We cannot guarantee that we will be able to continue to hire suitable
employees as we expand our fleet. If we encounter business or financial difficulties, we may not be
able to adequately staff our vessels. If we are unable to grow our financial and operating systems
or to recruit suitable employees as we expand our fleet, our financial performance may be adversely
affected and, among other things, the amount of cash available for dividends to our shareholders
may be reduced.
Our acquisition of the new vessels is subject to a number of conditions, which may delay our
receipt of revenues.
We have entered into memoranda of agreement with affiliates of Metrobulk for the purchase of
the 17 vessels. However, the consummation of the Acquisition of these vessels is subject to a
number of conditions. We cannot guarantee whether or when all the conditions to the Acquisition
will be satisfied or waived, permitting the Acquisition to be consummated when and as currently
contemplated. The failure to consummate the Acquisition when and as currently contemplated would
delay our receipt of revenues under the time charters for the new vessels, and therefore materially
and adversely affect our results of operations and financial condition.
Delays in deliveries of newbuildings to be purchased in the Acquisition could materially and
adversely harm our operating results.
The nine newbuildings that we have agreed to purchase in the Acquisition are scheduled to be
delivered at various times over approximately the next year. The delivery of these vessels could be
delayed, which would delay our receipt of revenues under the time charters for these vessels, and
thereby adversely affect our results of operations and financial condition.
The delivery of the newbuildings could be delayed because of:
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work stoppages or other labor disturbances or other event that disrupts the operations of the shipbuilder; |
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quality or engineering problems; |
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changes in governmental regulations or maritime self-regulatory organization standards; |
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lack of raw materials; |
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bankruptcy or other financial crisis of the shipbuilder; |
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a backlog of orders at the shipbuilder; |
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hostilities, political or economic disturbances in the country where the vessels are being built; |
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weather interference or catastrophic event, such as a major earthquake or fire; |
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our requests for changes to the original vessel specifications; |
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shortages of or delays in the receipt of necessary construction materials, such as steel; |
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our inability to obtain requisite permits or approvals; or |
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a dispute with the shipbuilder. |
In addition, the shipbuilding contracts for the new vessels contains a force majeure
provision whereby the occurrence of certain events could delay delivery or possibly terminate the
contract. If delivery of a vessel is materially delayed or if a shipbuilding contract is
terminated, it could adversely affect our results of operations and financial condition and our
ability to pay dividends to our shareholders.
29
In addition, while we will purchase the vessels from Metrobulk or its affiliates, Metrobulk is
itself not in direct privity with the shipyard with respect to several of the newbuildings.
Accordingly, neither the sellers nor we may be in a position to fully monitor the progress of the
newbuildings or the compliance of the construction with expected specifications.
Problems in deliveries of secondhand vessels to be purchased in the Acquisition could materially
and adversely affect our operating results.
With respect to the delivery of the secondhand vessels we have contracted to purchase in the
Acquisition, certain events may arise which result in us not taking delivery of a vessel, such as a
total loss of a vessel, a constructive loss of a vessel, or substantial damage to a vessel prior to
delivery. In addition, the delivery of any of these secondhand vessels with substantial defects
could have similar consequences. We intend to conduct only a limited inspection of these secondhand
vessels. Any of these events could reduce our receipt of revenues under the time charters for these
vessels, and thereby materially and adversely affect our results of operation and financial
condition.
If we cannot complete the purchase of any of the vessels, we may use a portion of the proceeds of
the private placement for corporate purposes with which you may not agree.
If the seller of the vessels that we have agreed to purchase in the Acquisition fails to
deliver the vessels to us as agreed, or if we cancel a purchase because a seller has not met its
obligations, our management will have the discretion to apply the proceeds of the private placement
that we would have used to purchase those vessels to acquire other vessels, including vessels that
serve other shipping sectors and markets. In particular, certain events may arise that could result
in our not taking delivery of a vessel, such as the failure of the seller to tender the vessel for
delivery prior to a date established in the relevant memorandum of agreement, a total loss of a
vessel, a constructive total loss of a vessel, or substantial damage to a vessel prior to its
delivery. We have not escrowed the proceeds from the private placement and will not return the
proceeds to investors in the private placement if we do not take delivery of one or more vessels.
It may take a substantial period of time before we can locate and purchase other suitable vessels,
if at all. During this period, the portion of the proceeds of the private placement originally
planned for the acquisition of these vessels will be invested on a short-term basis and therefore
will not yield returns at rates comparable to those that these vessels might have earned. Moreover,
if we are able to purchase replacement vessels, such vessels may not generate as much cash flow as
the applicable vessels in the Acquisition Fleet.
We cannot assure you that we will be able to borrow adequate amounts under our new revolving credit
facility.
Our ability to borrow amounts under our credit facility is subject to the execution of
customary documentation relating to the facility, including security documents, satisfaction of
certain customary conditions precedent and compliance with terms and conditions included in the
loan documents. There are restrictions on the amount that can be advanced to us under the revolving
credit facility based on the market value of the vessel or vessels in respect of which the advance
is being made and, in certain circumstances, based additionally on the capacity of the vessel, and
the price at which we acquired the vessel and other factors. Prior to each drawdown, we will be
required, among other things, to meet specified financial ratios and other requirements. To the
extent that we are not able to satisfy these requirements, we may not be able to draw down the full
amount under our revolving credit facility. We may be required to prepay amounts borrowed under our
new revolving credit facility if we experience a change of control.
If the holders of our common stock do not approve the conversion, the warrants will not become
exercisable and we will not receive the proceeds of the exercise to pay a portion of the purchase
price of the Acquisition.
We expect to fund a portion of the purchase price of the Acquisition and our working capital
requirements from the aggregate exercise price of the warrants. If the holders of common stock do
not approve the conversion, the warrants will not become exercisable and we will be required to
redeem the warrants at a price of $0.50 per share. As a result, we will not receive the expected
proceeds of approximately $65.5 million from the exercise but will instead be required to pay a
redemption price of $4.1 million in respect of the warrants. In such event, we would have a
shortfall in our expected sources of funds and would be required to find additional financing to
fund the shortfall. We cannot assure you that we could do so, or do so on favorable terms.
Even if the holders of our common stock approve the conversion, warrant holders may not find
it in their interest to exercise the warrants and we may not receive the proceeds of the exercise
to pay a portion of the purchase price of the Acquisition.
30
We expect to fund a portion of the purchase price of the Acquisition and our working capital
requirements from the aggregate exercise price of the warrants. If the holders of common stock
approve the conversion, but the fair market value of our common stock is trading below the $8.00
exercise price of the warrants, it is highly unlikely that the holders thereof will find it in
their interest to exercise them at that time. In such event, we would have a shortfall in our
expected sources of funds, and would be required to find additional financing to fund the
shortfall. We cannot assure you that we could do so, or do so on favorable terms.
Restrictive covenants in our new revolving credit facility impose financial and other
restrictions on us, including our ability to pay dividends.
The new revolving credit facility we entered into on July 19, 2006 imposes operating and
financial restrictions on us and requires us to comply with certain financial covenants. These
restrictions and covenants may limit our ability to, among other things:
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pay dividends if an event of default has occurred and is continuing under our new
revolving credit facility or if the payment of the dividend would result in an event of
default; |
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incur additional indebtedness, including through the issuance of guarantees; |
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change the flag, class or management of our vessels; |
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create liens on our assets; |
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sell our vessels without replacing such vessels or prepaying a portion of our loan; |
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merge or consolidate with, or transfer all or substantially all our assets to, another person; or |
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change our business. |
Therefore, we may need to seek permission from our lenders in order to engage in some
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. If we do not comply with the
restrictions and covenants in our proposed revolving credit facility, we will not be able to pay
dividends to you, finance our future operations, make acquisitions or pursue business
opportunities.
We will derive all of our revenues with respect to the Acquisition Fleet from one charterer, and
the loss of this charterer or any time charter or any vessel could result in a significant loss of
revenues and cash flow.
Bunge and its affiliates initially will be the only charterer of the acquired vessels. As a
result, Bunges payments to us will be our sole source of operating cash flow from these vessels
over the term of the governing master time charter expiring December 31, 2010. After we acquire the
vessels, Bunge and its affiliates will account for a substantial majority of our revenues. Bunge
therefore will have a substantial amount of leverage in any discussions or disputes it may have
with us, which it may choose to exercise to our disadvantage. Because most of the time charters
with Bunge provide for annual rate determinations within an agreed rate structure during certain
periods, Bunge may have the opportunity to apply such leverage to such rate determinations. In
addition, at any given time in the future, if Bunge were to experience financial difficulties, we
cannot assure you that Bunge would be able to make charter payments to us or make them at the
levels provided for in our master time charter with Bunge. If Bunge is unable to make charter
payments to us, or makes them at a significantly lower level than we expect, our results of
operations and financial condition will be materially adversely affected.
We could lose Bunge or another party as a charterer or the benefits of a time charter if:
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the charterer fails to make charter payments to us; |
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the vessel is off-hire for more than 20 days in any year for reasons other than
drydocking required to maintain a vessels status with its classification society; or |
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we are unable to reach an agreement in advance with Bunge on the level of charter hire
to be paid to us within a specified daily hire rate range in any year. |
If we lose a time charter, we may be unable to re-deploy the related vessel on terms as favorable
to us as in the original time charter. In the worst case, we may not receive any revenues from that
vessel, but we may be required to pay expenses necessary to maintain the vessel in proper operating
condition.
31
The loss of any of our charterers, time 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 pay dividends to our shareholders.
We initially will depend on Bunge, which is an agribusiness, for all of our revenues from the
Acquisition Fleet and therefore we are exposed to risks in the agribusiness market.
Bunge and its affiliates initially will charter all of the vessels in the Acquisition Fleet.
Accordingly, our business will be exposed to all the economic and other risks inherent in the
agribusiness market. Changes in the economic, political, legal and other conditions in agribusiness
could adversely affect our business and results of operations. Based on Bunges filings with the
SEC, these risks include the following, among others:
The availability and demand for the agricultural commodities and agricultural commodity
products that Bunge uses and sells in its business can be affected by weather, disease and other
factors beyond its control.
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Bunge is vulnerable to cyclicality in the oilseed processing industry. |
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Bunge is vulnerable to increases in raw material prices. |
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Bunge is subject to economic and political instability and other risks of doing business
globally and in emerging markets. |
Deterioration in Bunges business as a result of these or other factors could have a material
adverse impact on Bunges ability to make timely charter hire payments to us and to renew its time
charters with us. This could have a material adverse impact on our financial condition and results
of operations.
Most of the Bunge charters provide for daily hire rates beginning in 2007 that are to be negotiated
within specified ranges, which may result in lower-than-expected revenues for certain vessels.
The Bunge master charter agreement provides for daily hire rates beginning in 2007 that are to
be negotiated within specified ranges. If the actual daily hire rate for one or more vessels were
below expected rates, our results of operations could be materially and adversely affected. The
Bunge master charter agreement also provides that in the event the parties are unable to reach
agreement in respect of rates for the following year, the contract will be automatically
terminated. If any such termination occurred, particularly during a depressed charter hire market,
we may be unable to rehire the applicable vessels at favorable rates or at all, and our results of
operations may be materially and adversely affected.
We may sell one or more of the 17 drybulk vessels that we have agreed to purchase in the
Acquisition and forego any anticipated revenues and cash flows from operating any of the vessels we
sell.
While we intend to purchase all 17 drybulk vessels in the Acquisition, attractive
opportunities may arise to sell one or more of these vessels while they are under construction or
after they are delivered. We will review any such opportunity and may conclude that the sale of one
or more vessels would be in our best interests. If we sell a vessel, we would forego any
anticipated revenues and anticipated cash flows from operating the vessel over its useful life.
Risks Relating to the Preferred Stock and the Warrants
We cannot assure you that our board of directors will declare dividends on the preferred stock
or common stock.
The declaration and payment of dividends, if any, on our preferred stock, and on any of our
common stock issuable upon conversion of the preferred stock or exercise of the warrants, will
always be subject to the discretion of our board of directors, the requirements of Marshall Islands
law and restrictive covenants under our new revolving credit facility. The timing and amount of any
dividends declared, if any, on our preferred stock or common stock will depend on, among other
things, our earnings, financial condition and cash requirements and availability, our ability to
obtain debt and equity financing on acceptable terms as contemplated by our growth strategy,
provisions of Marshall Islands law governing the payment of dividends and restrictive covenants in
our existing and future debt instruments. The international drybulk shipping industry is highly
volatile, and we cannot predict with certainty the amount of cash, if any, that will be available
for distribution as dividends in any period. Also, there may be a high degree of variability from
period to period in the amount of cash, if any, that is available for the payment of dividends.
32
We may incur expenses or liabilities or be subject to other circumstances in the future that
reduce or eliminate the amount of cash that we have available for distribution as dividends, if
any, including as a result of the risks described in this section of the prospectus. Our growth
strategy contemplates that we will finance the acquisition of additional vessels through a
combination of our operating cash flow and debt and equity financing. If financing is not available
to us on acceptable terms, our board of directors may determine to finance or refinance
acquisitions with a greater percentage of cash from operations to the extent available, which would
reduce or even eliminate the amount of cash available for the payment of dividends. We may also
enter into new financing or other agreements that will restrict our ability to pay dividends.
Under the terms of our revolving credit facility, we will not be permitted to pay dividends if
an event of default has occurred and is continuing or would occur as a result of the payment of
such dividend.
Marshall Islands law generally prohibits the payment of dividends other than from surplus or
while a company is insolvent or would be rendered insolvent by the payment of such a dividend. We
may not have sufficient surplus in the future to pay dividends, and our subsidiaries may not have
sufficient funds or surplus to make distributions to us.
If the holders of our common stock do not approve the conversion of the preferred stock for
shares of common stock, the shares of preferred stock will not convert into shares of common stock
and the warrants will not become exercisable to purchase shares of our common stock under any
circumstances.
The statement of designations governing the preferred stock provides that following a vote of
the shareholders of our common stock approving the conversion of our common stock for preferred
stock, all preferred stock will automatically convert into shares of our common stock at an
conversion rate of 12.5 shares of common stock for each share of preferred stock, subject to
adjustment, at any time.
We have filed definitive proxy materials with the SEC and have solicited the approval of the
holders of our common stock to this conversion at a special meeting called to consider this
proposal. We cannot assure you whether, or when, the holders of our common stock will approve the
conversion. If the holders of our common stock do not approve this conversion, then the preferred
stock will not convert into shares of our common stock and the warrants will not become exercisable
to purchase shares of our common stock under any circumstances. As a result, holders of preferred
stock may hold a security that does not have many of the benefits of our common stock, including
full voting rights and quotation on the Nasdaq National Market. In addition, investment in the
preferred stock likely will diminish in value if the holders of our common stock do not approve
this conversion. In such event, the continued existence of the preferred stock may cause the value
of our common stock to diminish in value as well, which would adversely affect us and thereby may
further cause the preferred stock to diminish in value.
Future sales of our common stock may result in a decrease in the market price of our common
stock, even if our business is doing well.
The market price of our common stock could decline due to the issuance and subsequent sales of
a large number of shares of our common stock in the market after this offering or the perception
that such sales could occur following the conversion of the shares of preferred stock and the
exercise of the warrants. This could make it more difficult to raise funds through future offerings
of common stock or securities convertible into common stock.
We had outstanding 24,148,242 shares of our common stock, based on the number of shares of
common stock outstanding as of June 30, 2006. Upon conversion of the 2,045,558 shares of preferred
stock we sold in the placement, assuming a conversion rate of 12.5 shares of common stock for each
share of preferred stock, we would have an additional 25,569,475 shares of common stock
outstanding, or a total of 49,717,717 shares of common stock, all of which may be resold in the
public market following the effectiveness of our resale registration statement. Assuming an
exercise of the warrants to purchase common stock, we would have an additional 8,182,232 shares of
common stock outstanding or a total of 57,899,949 shares of common stock, all of which may be
resold in the public market following the effectiveness of our resale registration statement. In
addition, certain of these shares of common stock may be sold in the public markets at any time,
subject to the volume and other limitations of Rule 144 under the Securities Act.
No public market exists for the units, the preferred stock or the warrants.
The units, the preferred stock and the warrants are new issues of securities with no
established trading market. We do not intend to list the units, the preferred stock or the warrants
for trading on any national securities exchange or arrange for any quotation system to quote prices
for them. The placement agents in the offering have
33
informed us that they intend to make a market in the preferred stock. However, the placement
agents are not obligated to do so and may cease market-making activities at any time. As a result,
we cannot assure you that an active trading market will develop for the preferred stock or the
warrants.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 11, 2006, the Company sold, in a private placement, 2,045,558 units (the Units)
consisting of 2,045,558 shares of 12% Mandatorily Convertible Preferred Stock that have a
liquidation preference $93.75 per share and 8,182,232 Class A Warrants. The placement closed on May
11, 2006. The Preferred Stock and Warrants will not be separately transferable until the earliest
to occur of 180 days after the date of issuance, the effective date of the registration statement
referred to above under Item 1.01, under the section captioned Registration Right Agreement or
such earlier date as Dahlman Rose & Co. LLC may determine.
The Company offered and sold the Preferred Stock and Warrants only to institutional
accredited investors, as such term is defined in Rule 501(a)(1), (2), (3) or (7) of the
Securities Act of 1933, as amended (the Securities Act), and certain accredited investors, as
such term is defined in Rule 501(a), who are officers or directors of the Company. The Placement
was exempt from the registration requirements of the Securities Act.
None of the Units sold in the Placement, the shares of Preferred Stock and Warrants, making up
the Units, nor the shares of Common Stock issuable upon conversion of the Preferred Stock or
exercise of the Warrants, have been registered under the Securities Act. The Company has agreed to
use commercially reasonable efforts to have a registration statement for the resale of the
securities sold in the Placement and the Common Stock issuable upon conversion of the Preferred
Stock and exercise of the Warrants be declared effective within 120 days after the date of the
closing of the Placement, subject to extension to 180 days under certain circumstances.
The gross proceeds of the sale of the Units are approximately $191 million to the Company,
before fees and expenses. If the Warrants become exercisable and are all exercised, the Company
would receive a gross exercise price of approximately $65.46 million, before fees and expenses. The
net proceeds from the sale of the Units and the exercise of the Warrants are estimated to be
approximately $248.4 million in the aggregate, after deducting the placement agents fees but
before deducting expenses. The Company intends to use the net proceeds of the Placement and the
exercise of the Warrants, together with a new revolving credit facility (as described in our
Current Report on Form 8-K dated July 24, 2006 filed with the SEC) and available funds, to purchase
the new vessels in the Acquisition and to pay outstanding amounts under our existing revolving
credit facility.
In connection with the Placement described in Item 3.02 of our Current Report on Form 8-K
dated May 12, 2006 filed with the SEC and pursuant to Section 35(5) of the Business Corporation Act
of the Republic of the Marshall Islands (the BCA), we have amended our Articles of Incorporation
by the filing under the BCA of a Statement of Designations setting forth the terms of the 2,045,558
shares of Preferred Stock.
Each Unit sold in the Placement consists of one share of Preferred Stock and four Warrants.
The Preferred Stock is cumulative and has no voting rights, except as provided in the Statement of
Designations of the Preferred Stock or by the laws of the Republic of the Marshall Islands. Holders
of the Preferred Stock shall generally be entitled to receive cash dividends at the per annum rate
of 12% of the liquidation preference of $93.75 per share. Dividends on the Preferred Stock are
cumulative and will be payable in cash quarterly on February 28, May 30, August 31 and November 30
of each year, commencing on August 31, 2006 for the initial period beginning on the date of
issuance, at an annual rate of 12.0% of the liquidation preference of $93.75 per share of the
Preferred Stock, when, as and if declared by the Companys board of directors out of legally
available funds.
The conversion of the Preferred Stock and the exercisability of the Warrants are subject to
approval by the common shareholders. We undertook to call by December 31, 2006 a special meeting of
the holders of our Common Stock to consider a proposal to approve the conversion. If the
shareholders approve the conversion, the Preferred Stock will convert automatically into shares of
Common Stock at a conversion rate is 12.5 shares of Common Stock per share of Preferred Stock
(subject to adjustment from time to time, the Conversion Rate) and each Warrant will entitle
holders to purchase a share of Common Stock at $8.00 per share (subject to adjustments under
certain circumstances to prevent dilution) at any time within three years from the closing. The
Warrants will expire on May 11, 2009. If the holders of Common Stock do not approve the conversion,
we will be required to redeem the
34
Warrants at a cash redemption price of $0.50 per Warrant. Pursuant to a Notice of Special Meeting
and Proxy Statement sent to common shareholders and filed with the SEC, the special meeting has
been called for August 11, 2006.
The Statement of Designations governing the Preferred Stock provides that, if the holders of
Preferred Stock are not offered value at least equivalent to that received by the holders of Common
Stock in certain specified transactions (including certain offers to purchase Common Stock;
mergers; share exchanges; consolidations or recapitalizations; and a sale of substantially all the
assets), the holders of Preferred Stock will have the right to cause us to repurchase their shares
of Preferred Stock at the applicable repurchase price, which is equal to the greater of (x) $93.75
and (y) the price per share of Common Stock offered or paid, as the case may be, to the holders of
our Common Stock multiplied by the then Conversion Rate.
For further information on the description of the Preferred Stock, see Item 3.02 of our
Current Report on Form 8-K dated May 12, 2006 filed with the SEC.
Item 4. Submission of Matters to a Vote of Security Holders
We held our annual meeting on May 9, 2006 in Athens, Greece. The two proposals presented for
approval at the meeting were (1) the re-election of our existing directors as of May 9, 2006 as
well as the election of an additional director and (2) the ratification of Deloitte. Hadjipavlou,
Sofianos & Cambanis, S.A. as our independent auditors for the year ended December 31, 2006. As of
the record date of the meeting, 23,846,742 shares of common stock were outstanding, and 22,012,314
shares were voted. Both proposals were approved. The votes were as follows:
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Proposal |
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For |
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Against/Withheld |
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Abstentions |
Item 1. Election of Directors |
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Corbin J. Robertson, Jr. |
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18,423,935 |
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3,588,379 |
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Stamatis Molaris |
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21,942,278 |
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70,036 |
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Joseph R. Edwards |
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18,423,935 |
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3,588,379 |
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Hans J. Mende |
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21,942,278 |
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70,036 |
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Corbin J. Robertson III |
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|
21,942,278 |
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|
70,036 |
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Gurpal Singh Grewal |
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|
21,942,078 |
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70,236 |
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S. James Nelson, Jr. |
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21,942,278 |
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70,036 |
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Peter Costalas |
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21,942,278 |
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70,036 |
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Item 2. Ratification of
Deloitte |
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21,810,116 |
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74,956 |
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127,242 |
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Item 6. Exhibits
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Exhibit |
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No. |
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Description |
3.1* |
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Amended and Restated Articles of Incorporation |
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3.2* |
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Amended and Restated By-laws |
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4.1* |
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Form of Share Certificate |
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4.2** |
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Form of Unit Certificate |
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4.3** |
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Form of Preferred Stock Certificate |
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4.4** |
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Form of Warrant |
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4.5** |
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Statement of Designations |
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4.6** |
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Warrant Agreement |
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10.1* |
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Agreement Related to Credit Facility |
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10.2* |
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First Supplemental Agreement to US$262,456,000 Credit Facility |
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10.3* |
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Second Supplemental Agreement to US$262,456,000 Credit Facility |
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10.4* |
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Registration Rights Agreement |
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10.5** |
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Memorandum of Agreement for purchase of Bulk One |
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10.6** |
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Memorandum of Agreement for purchase of Bulk Two |
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10.7** |
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Memorandum of Agreement for purchase of Bulk Three |
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10.8** |
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Memorandum of Agreement for purchase of Bulk Four |
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10.9** |
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Memorandum of Agreement for purchase of Bulk Five |
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10.10** |
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Memorandum of Agreement for purchase of Bulk Six |
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10.11** |
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Memorandum of Agreement for purchase of Bulk Seven |
35
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Exhibit |
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No. |
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Description |
10.12** |
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Memorandum of Agreement for purchase of Bulk Eight |
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10.13** |
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Memorandum of Agreement for purchase of Kamsarmax H.1373 |
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10.14** |
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Memorandum of Agreement for purchase of Kamsarmax H.1374 |
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10.15** |
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Memorandum of Agreement for purchase of Kamsarmax H.1375 |
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10.16** |
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Memorandum of Agreement for purchase of Kamsarmax H.1394 |
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10.17** |
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Memorandum of Agreement for purchase of Kamsarmax H.1395 |
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10.18** |
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Memorandum of Agreement for purchase of Kamsarmax H.1357 |
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10.19** |
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Memorandum of Agreement for purchase of Kamsarmax H.1358 |
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10.20** |
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Memorandum of Agreement for purchase of Kamsarmax H.1396 |
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10.21** |
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Memorandum of Agreement for purchase of Kamsarmax H.1359 |
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10.22** |
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Master Time Charter Party and Block Agreement dated November 21, 2005 |
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10.23** |
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Novation Agreement |
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10.24* |
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2005 Stock Incentive Plan |
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10.25 |
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Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed January 13, 2006) |
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10.26 |
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Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K filed January 13, 2006) |
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10.27 |
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Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
filed October 6, 2005) |
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10.28 |
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Services Agreement between Quintana Maritime Limited and Quintana Minerals Corporation, dated as
of October 31, 2005 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed
November 3, 2005) |
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31.1*** |
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Certification pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 by Chief Executive
Officer. |
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31.2*** |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer. |
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32.1**** |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer. |
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32.2**** |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer. |
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* |
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Incorporated by reference to the Companys Registration Statement filed on Form S-1 (File No.
333-124576) with the Securities and Exchange Commission on July 14, 2005. |
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** |
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Incorporated by reference to Amendment No. 1 to the Companys Registration Statement filed on
Form S-1 (File No. 333-135309) with the Securities and Exchange Commission on July 21, 2006 |
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*** |
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Filed herewith |
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**** |
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Furnished herewith |
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 9th day of August 2006.
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QUINTANA MARITIME LIMITED |
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By:
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/s/ Stamatis Molaris |
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Stamatis Molaris |
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Chief Executive Officer, President and Director |
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(Principal Executive Officer) |
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/s/ Paul J. Cornell |
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Paul J. Cornell |
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Chief Financial Officer |
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(Principal Financial Officer; Principal Accounting Officer) |
INDEX TO THE EXHIBITS
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Exhibit No. |
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Description |
3.1* |
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Amended and Restated Articles of Incorporation |
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3.2* |
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Amended and Restated By-laws |
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4.1* |
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Form of Share Certificate |
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4.2** |
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Form of Unit Certificate |
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4.3** |
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Form of Preferred Stock Certificate |
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4.4** |
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Form of Warrant |
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4.5** |
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Statement of Designations |
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4.6** |
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Warrant Agreement |
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10.1* |
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Agreement Related to Credit Facility |
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10.2* |
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First Supplemental Agreement to US$262,456,000 Credit Facility |
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10.3* |
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Second Supplemental Agreement to US$262,456,000 Credit Facility |
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10.4* |
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Registration Rights Agreement |
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10.5** |
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Memorandum of Agreement for purchase of Bulk One |
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10.6** |
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Memorandum of Agreement for purchase of Bulk Two |
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10.7** |
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Memorandum of Agreement for purchase of Bulk Three |
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10.8** |
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Memorandum of Agreement for purchase of Bulk Four |
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10.9** |
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Memorandum of Agreement for purchase of Bulk Five |
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10.10** |
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Memorandum of Agreement for purchase of Bulk Six |
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10.11** |
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Memorandum of Agreement for purchase of Bulk Seven |
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10.12** |
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Memorandum of Agreement for purchase of Bulk Eight |
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10.13** |
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Memorandum of Agreement for purchase of Kamsarmax H.1373 |
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10.14** |
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Memorandum of Agreement for purchase of Kamsarmax H.1374 |
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10.15** |
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Memorandum of Agreement for purchase of Kamsarmax H.1375 |
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10.16** |
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Memorandum of Agreement for purchase of Kamsarmax H.1394 |
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10.17** |
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Memorandum of Agreement for purchase of Kamsarmax H.1395 |
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10.18** |
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Memorandum of Agreement for purchase of Kamsarmax H.1357 |
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10.19** |
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Memorandum of Agreement for purchase of Kamsarmax H.1358 |
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10.20** |
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Memorandum of Agreement for purchase of Kamsarmax H.1396 |
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10.21** |
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Memorandum of Agreement for purchase of Kamsarmax H.1359 |
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10.22** |
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Master Time Charter Party and Block Agreement dated November 21, 2005 |
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10.23** |
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Novation Agreement |
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10.24* |
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2005 Stock Incentive Plan |
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10.25 |
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Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed January 13, 2006) |
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10.26 |
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Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K filed January 13, 2006) |
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10.27 |
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Revolving Credit Facility (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
filed October 6, 2005) |
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10.28 |
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Services Agreement between Quintana Maritime Limited and Quintana Minerals Corporation, dated as
of October 31, 2005 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed
November 3, 2005) |
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31.1*** |
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Certification pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 by Chief Executive
Officer. |
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31.2*** |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer. |
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32.1**** |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer. |
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32.2**** |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer. |
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* |
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Incorporated by reference to the Companys Registration Statement filed on Form S-1 (File No.
333-124576) with the Securities and Exchange Commission on July 14, 2005. |
|
** |
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Incorporated by reference to Amendment No. 1 to the Companys Registration Statement filed on
Form S-1 (File No. 333-135309) with the Securities and Exchange Commission on July 21, 2006 |
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*** |
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Filed herewith |
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**** |
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Furnished herewith |