SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
ANNUAL
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
(Mark
one)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE
ACT OF 1934
For
the
fiscal year ended December 31, 2005
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE
ACT OF 1934
For
the
transition period from ________________ to ________________
Commission
File No.: 001-32685
Star
Maritime Acquisition Corp.
_______________
(Exact
Name of issuer as specified in its charter)
|
Delaware
|
20-202873585
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
_______________
c/o
Schwartz & Weiss, P.C.
457
Madison Avenue
New York, New York
10022
(Address
of principal executive offices) (Zip Code)
Registrant's
telephone number, including area code: 212-752-3100
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $.0001 par value
(Title
of
Class)
Common
Stock Purchase Warrants
(Title
of
Class)
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
Indicate
by check mark if the registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer.
Large
Accelerated Filer o
Accelerated Filer o Non-Accelerated
Filer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
x No
o
State
the
aggregate market value of the voting and non-voting stock held by non-affiliates
of the Issuer: $186,788,250 (based upon the closing price of Issuer's Common
Stock, $.0001 par value, on December 30, 2005. This date was used because the
Issuer’s common stock was not publicly traded at the end of its most recently
completed second fiscal quarter.
Indicate
the number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date. 29,026,924 at March 30,
2006.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
TABLE
OF
CONTENTS
|
Part
I
|
| |
|
|
|
1.
|
Business
|
4
|
|
1A.
|
Risk
Factors
|
16
|
|
1B.
|
Unresolved
Staff Comments
|
28
|
|
2.
|
Properties
|
29
|
|
3.
|
Legal
Proceedings
|
29
|
|
4.
|
Submission
of Matters to a Vote of Security Holders
|
29
|
| |
|
|
|
Part
II
|
| |
|
|
|
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
|
|
|
6.
|
Selected
Financial Data
|
32
|
|
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
33
|
|
7A.
|
Quantitative
and Qualitative Disclosures About Market Risks
|
35
|
|
8.
|
Financial
Statements and Supplementary Data
|
35
|
|
9.
|
Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
|
35
|
|
9A.
|
Controls
and Procedures
|
35
|
|
9B.
|
Other
Information
|
36
|
| |
|
|
|
Part
III
|
| |
|
|
|
10.
|
Directors
and Executive Officers of the Registrant
|
37
|
|
11.
|
Executive
Compensation
|
40
|
|
12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
41
|
|
13.
|
Certain
Relationships and Related Transactions
|
42
|
|
14.
|
Principal
Accountant Fees and Services
|
44
|
| |
|
|
|
Part
IV
|
| |
|
|
|
15.
|
Exhibits
and Financial Statement Schedules
|
45
|
| |
|
|
INDEX
TO FINANCIAL STATEMENTS
|
F-1
|
Item
1. Business
Overview
We
are a
blank check company organized under the laws of the State of Delaware on May
13,
2005. We were formed to acquire, through a merger, capital stock exchange,
asset
acquisition or other similar business combination, one or more businesses in
the
shipping industry. On December 15, 2005, we consummated a private placement
whereby certain of our officers and directors purchased an aggregate of
1,132,500 units at $10.00 per unit, generating gross proceeds of $11,325,000.
On
December 21, 2005, we consummated our initial public offering of 18,867,500
units. Each unit consists of one share of our common stock and one warrant.
Each
warrant entitles the holder to purchase one share of our common stock at an
exercise price of $8.00 per share. The units sold in our initial public offering
were sold at an offering price of $10.00 per unit, generating gross proceeds
of
$188,675,000. After deducting the underwriting discounts and commissions, the
placement fee and the offering expenses, the total net proceeds to us from
the
offering and the private placement were approximately $189,125,000 of which
$188,675,000 was deposited into a trust account, $599,163 was used to repay
interest and debt to our Chairman and Chief Executive Officer, Mr. Akis
Tsirigakis for a loan advanced to us to cover expenses related to the public
offering and the remaining proceeds of $533,172(less approximately $170,000
of
additional financing fees accrued but not yet paid) became available to be
used
to provide for business, legal and accounting due diligence on prospective
business combinations and continuing operating expenses. From inception through
December 31, 2005, we incurred $50,211 of expenses towards the net proceeds
that
were not deposited into the trust account to pay operating expenses. The net
proceeds deposited into the trust account remain on deposit in the trust account
earning interest. As of December 31, 2005, there was $188,858,542 held in the
trust fund, including interest income of $183,542.
The
shipping industry provides a practical and cost-effective means of transporting
large volumes of cargoes. This is accomplished predominantly by the dry bulk
and
tanker sectors, while other related sectors tend to be specialized. The dry
bulk
sector involves the transportation of dry bulk and general cargoes, including,
among other products, coal, minerals, ore, steel products, forest products,
agricultural products, construction materials and heavy equipment, machinery
and
spare parts via dry bulk cargo vessels. The tanker sector involves the
transportation of wet products such as crude oil, refined petroleum cargoes
and
liquid chemicals via different types of tankers. Related sectors comprise,
but
are not limited to, the operation of vessels such as containerships, liquefied
gas carriers, offshore supply and anchor-handling vessels.
We
may
seek to acquire a company with agreements to purchase individual vessels, a
company with a fleet of vessels, a number of such companies as a group, or
an
entity which provides commercial management, operational and technical
management or other services to one or more segments of the shipping industry.
A
target company might be a holding company, the sole assets of which are one
or
more agreements to acquire individual vessels. If a company we acquire is a
holding company rather than an operating company, we will need to retain current
management, seek to retain new management or outsource the commercial and
technical management of the vessels by contracting with a shipping company
engaged in this business.
Dry
bulk sector overview
Dry
bulk
vessels are used to transport commodities such as iron ore, minerals, grains,
forest products, fertilizers, coking and steam coal. The dry bulk sector can
be
divided into four major vessel categories with reference to size. We may explore
acquisitions of either one or more vessels and/or operating companies that
are
focused on these segments of the dry bulk sector, including:
| · |
Capesize.
The largest of the dry bulk carrier vessels, with typical cargo capacity
over 80,000 dead weight tons, or dwt. Capesize vessels are used primarily
for one-way voyages with cargoes consisting of iron ore and coal.
Due to
the size of the vessels, there are only a few ports around the world
that
have the infrastructure to accommodate them. Capesize vessels cannot
traverse through the Panama Canal due to their
size.
|
| · |
Panamax.
The second largest of the dry bulk vessels, with cargo capacity typically
between 60,000 and 80,000 dwt. Panamax vessels are used for various
long
distance trade routes, including those that traverse through the
Panama
Canal. These vessels typically carry cargoes consisting of coal,
grains,
fertilizers, steel and forest
products.
|
| · |
Handymax.
Versatile vessels that are dispersed in various geographic locations
throughout the world. Handymax vessels typically have cargo capacity
of
35,000 to 60,000 dwt, and are primarily used to transport grains,
forest
products and fertilizers. These vessels are equipped with onboard
cranes
which allow for the loading and unloading of cargo.
|
| · |
Handysize.
The smallest of the dry bulk carrier vessels with cargo capacity
up to
35,000 dwt. These vessels are used mainly for regional voyages, are
extremely versatile and can be used in smaller ports that lack
infrastructure. Like Handymax vessels, Handysize vessels are also
equipped
with onboard cranes.
|
Prices
for individual vessels vary widely depending on the type, quality, age and
discounted future earnings.
Tanker
sector overview
The
world
tanker fleet is divided into two primary categories, crude oil and product
tankers. Tanker charterers of wet cargoes will typically charter the appropriate
sized tanker based on the length of journey, cargo size and port and canal
restrictions. Crude oil tankers are typically larger than product tankers.
The
four major tanker categories with reference to size are:
| · |
Very
Large Crude Carriers, or VLCCs.
Tanker vessels that are used to transport crude oil with cargo capacity
typically 200,000 to 320,000 dwt that are more than 300 meters in
length.
VLCCs are highly automated and their advanced computer systems allow
for a
minimal crew. The majority of the world’s crude oil is transported via
VLCCs.
|
| · |
Suezmax.
Tanker vessels with cargo capacity typically 120,000 to 200,000 dwt.
These
vessels are used in some of the fastest growing oil producing regions
of
the world, including the Caspian Sea and West Africa. Suezmax tankers
are
the largest ships able to transit the Suez Canal with a full payload
and
are capable of both long and short haul
voyages.
|
| · |
Aframax.
Tanker vessels with cargo capacity typically 80,000 to 120,000 dwt.
These
tankers carry crude oil and serve various trade routes from short
to
medium distances mainly in the North Sea and Venezuela. These vessels
are
able to enter a larger number of ports throughout the world as compared
to
the larger crude oil tankers.
|
| · |
Product.
Tanker vessels with cargo capacity typically less than 60,000 dwt.
Product
tankers are capable of carrying refined petroleum products, such
as fuel
oils, gasoline and jet fuel, as well as various edible oils, such
as
vegetable and palm oil.
|
Prices
for individual vessels vary widely depending on the type, quality, age and
discounted future earnings.
Container
sector overview
As
opposed to dry bulk vessels, which carry raw materials such as iron ore,
minerals, grains, forest products, coking and steam coal, container vessels
transport finished goods that are shipped in large containers. Instead of the
number of dead weight tons that they can carry, container vessels are sized
according to the number of containers that they can carry and whether the
vessels can traverse the Panama Canal. We may explore acquisitions of one or
more vessels and/or operating companies that operate container vessels that
can
ship products regionally or globally. Prices for individual vessels vary widely
depending on the type, quality, age and discounted future earnings.
Related
sectors
Related
sectors in which we might seek a business combination include, but are not
limited to, supply vessels, service vessels and anchor handlers that perform
various functions related to the supply and maintenance of offshore oil
rigs.
Shipping
services sector overview
In
addition to acquiring individual vessels and/or an operating company or
companies with a fleet of vessels, service businesses we may seek to acquire
could be engaged in, among other activities, operational management, brokerage,
maintenance and technical support. Service businesses we may seek to acquire
would typically be engaged in:
| · |
Technical
management services, such as crew retention and training, maintenance,
repair, capital expenditures, dry-docking, payment of vessel tonnage
tax,
maintaining insurance and other vessel operating activities;
or
|
| · |
Commercial
management services, such as finding employment for vessels, vessel
acquisition and disposition, freight and charter hire collection,
accounts
control, appointment of agents, bunkering and cargo claims handling
and
settlements.
|
Government
regulations
Government
regulation significantly affects the ownership and operation of vessels
including international conventions, national, state and local laws and
regulations in force in the countries in which vessels may operate or are
registered.
A
variety
of governmental and private entities subject vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities
(U.S.
Coast Guard, harbor master or equivalent), classification societies, flag state
administration (country of registry) and charterers, particularly terminal
operators. Certain of these entities require vessel owners to obtain permits,
licenses and certificates for the operation of their vessels. Failure to
maintain necessary permits or approvals could require a vessel owner to incur
substantial costs or temporarily suspend operation of one or more of its
vessels.
We
believe that the heightened level of environmental and quality concerns among
insurance underwriters, regulators and charterers is leading to greater
inspection and safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the industry. Increasing environmental
concerns have created a demand for vessels that conform to the stricter
environmental standards. Vessel owners are required to maintain operating
standards for all vessels that will emphasize operational safety, quality
maintenance, continuous training of officers and crews and compliance with
United States and international regulations. Because these laws and regulations
are frequently changed and may impose increasingly stricter requirements, we
cannot predict the ultimate cost of complying with these requirements, or the
impact of these requirements on our proposed business.
Environmental
regulations
The
International Maritime Organization or “IMO” has negotiated international
conventions that impose liability for oil pollution in international waters
and
a signatory’s territorial waters. In September 1997, the IMO adopted Annex VI to
the International Convention for the Prevention of Pollution from Ships, which
was ratified on May 18, 2004, and became effective on May 19, 2005. Annex VI
sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts
and
prohibits deliberate emissions of ozone depleting substances, such as
chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content
of fuel oil and allows for special areas to be established with more stringent
controls on sulfur emissions. Annex VI and new conventions, laws and regulations
that may be adopted, in the future, could adversely affect our ability to manage
vessels we acquire or operate.
Under
the
International Safety Management Code or “ISM Code”, promulgated by the IMO, the
party with operational control of a vessel is required to develop an extensive
safety management system that includes, among other things, the adoption of
a
safety and environmental protection policy setting forth instructions and
procedures for operating its vessels safely and describing procedures for
responding to emergencies.
The
ISM
Code requires that vessel operators obtain a safety management certificate
for
each vessel they operate. This certificate evidences compliance by a vessel’s
management with code requirements for a safety management system. No vessel
can
obtain a certificate unless its manager has been awarded a document of
compliance, issued by the respective flag state for the vessel, under the ISM
Code.
Noncompliance
with the ISM Code and other IMO regulations may subject a ship owner to
increased liability, may lead to decreases in available insurance coverage
for
affected vessels and may result in the denial of access to, or detention in,
some ports. For example, the United States Coast Guard and European Union
authorities have indicated that vessels not in compliance with the ISM Code
will
be prohibited from trading in ports in the United States and European Union.
The
United States Oil Pollution Act of 1990
The
United States Oil Pollution Act of 1990, or OPA, established an extensive
regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or whose vessels
operate in United States waters, which includes the United States’ territorial
sea and its two hundred nautical mile exclusive economic zone.
Under
OPA, vessel owners, operators and bareboat charterers are “responsible parties”
and are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war)
for
all containment and clean-up costs and other damages arising from discharges
or
threatened discharges of oil from their vessels. OPA defines these other damages
broadly to include:
· natural
resources damages and the costs of assessment thereof;
· real
and
personal property damages;
· net
loss
of taxes, royalties, rents, fees and other lost revenues;
· lost
profits or impairment of earning capacity due to property or natural resources
damage; and
· net
cost
of public services necessitated by a spill response, such as protection from
fire, safety or health hazards, and loss of subsistence use of natural
resources.
OPA
limits the liability of responsible parties to the greater of $600 per gross
ton
or $500,000 per dry bulk vessel that is over 300 gross tons (subject to possible
adjustment for inflation). These limits of liability do not apply if an incident
was directly caused by violation of applicable United States federal safety,
construction or operating regulations or by a responsible party’s gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with oil removal
activities.
OPA
requires owners and operators of vessels to establish and maintain with the
U.S.
Coast Guard evidence of financial responsibility sufficient to meet their
potential liabilities under OPA. In December 1994, the U.S. Coast Guard
implemented regulations requiring evidence of financial responsibility in the
amount of $1,500 per gross ton, which includes the OPA limitation on liability
of $1,200 per gross ton and the United States Comprehensive Environmental
Response, Compensation, and Liability Act liability limit of $300 per gross
ton.
Under the regulations, vessel owners and operators may evidence their financial
responsibility by showing proof of insurance, surety bond, self-insurance or
guaranty. Under OPA, an owner or operator of a fleet of vessels is required
only
to demonstrate evidence of financial responsibility in an amount sufficient
to
cover the vessels in the fleet having the greatest maximum liability under
OPA.
The
United States Coast Guard’s regulations concerning certificates of financial
responsibility provide, in accordance with OPA, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of
financial responsibility. In the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any contractual defense that it may
have had against the responsible party and is limited to asserting those
defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial
responsibility under pre-OPA laws, including the major protection and indemnity
organizations, have declined to furnish evidence of insurance for vessel owners
and operators if they are subject to direct actions or required to waive
insurance policy defenses.
The
United States Coast Guard’s financial responsibility regulations may also be
satisfied by evidence of surety bond, guaranty or by self-insurance. Under
the
self-insurance provisions, the vessel owner or operator must have a net worth
and working capital, measured in assets located in the United States against
liabilities located anywhere in the world, that exceeds the applicable amount
of
financial responsibility.
OPA
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for
oil
spills. Some states which have enacted such legislation have not yet issued
implementing regulations defining vessels owners’ responsibilities under these
laws.
Other
environmental initiatives
The
European Union is considering legislation that will affect the operation of
vessels and the liability of owners for oil pollution. It is difficult to
predict what legislation, if any, may be promulgated by the European Union
or
any other country or authority.
Although
the United States is not a party thereto, many countries have ratified and
follow the liability scheme adopted by the IMO and set out in the International
Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, or
the
CLC, and the Convention for the Establishment of an International Fund for
Oil
Pollution of 1971, as amended. Under these conventions, a vessel’s registered
owner is strictly liable for pollution damage caused on the territorial waters
of a contracting state by discharge of persistent oil, subject to certain
complete defenses. Many of the countries that have ratified the CLC have
increased the liability limits through a 1992 Protocol to the CLC. The liability
limits in the countries that have ratified this Protocol are currently
approximately $4 million plus approximately $566 per gross registered ton above
5,000 gross tons with an approximate maximum of $80.5 million per vessel, with
the exact amount tied to a unit of account which varies according to a basket
of
currencies. The right to limit liability is forfeited under the CLC where the
spill is caused by the owner’s actual fault or privity and, under the 1992
Protocol, where the spill is caused by the owner’s intentional or reckless
conduct. Vessels trading to contracting states must provide evidence of
insurance covering the limited liability of the owner. In jurisdictions where
the CLC has not been adopted, various legislative schemes or common law govern,
and liability is imposed either on the basis of fault or in a manner similar
to
the CLC.
Security
regulation
Since
the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the
Maritime Transportation Security Act of 2002, or MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the United States Coast
Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction
of
the United States. Similarly, in December 2002, amendments to the International
Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of
the
convention dealing specifically with maritime security. The new chapter went
into effect on July 1, 2004 and imposes various detailed security obligations
on
vessels and port authorities, most of which are contained in the newly created
International Ship and Port Facilities Security, or ISPS Code. Among the various
requirements are:
| ·
|
on-board
installation of automatic information systems, or AIS, to enhance
vessel-to-vessel and vessel-to-shore communications;
|
| ·
|
on-board
installation of ship security alert systems;
|
| ·
|
the
development of vessel security plans; and
|
| ·
|
compliance
with flag state security certification requirements.
|
The
United States Coast Guard regulations, intended to align with international
maritime security standards, exempt non-U.S. vessels from MTSA vessel security
measures provided such vessels have on board, by July 1, 2004, a valid
International Ship Security Certificate, or ISSC, that attests to the vessel’s
compliance with SOLAS security requirements and the ISPS Code.
Effecting
a business combination
General
We
are
not presently engaged in any substantive commercial business. We intend to
utilize cash derived from the proceeds of our initial public offering, our
capital stock, debt or a combination of these in effecting a business
combination. Although substantially all of the net proceeds of our initial
public offering are intended to be generally applied toward effecting a business
combination as described herein, the proceeds are not otherwise being designated
for any more specific purposes. A business combination may involve the
acquisition of, or merger with, a company which does not need substantial
additional capital but which desires to establish a public trading market for
its shares, while avoiding what it may deem to be adverse consequences of
undertaking a public offering itself. These include time delays, significant
expense, loss of voting control and compliance with various Federal and state
securities laws. In the alternative, we may seek to consummate a business
combination with a company that may be financially unstable or in its early
stages of development or growth. While we may seek to effect business
combinations with more than one target business, it is likely that we will
have
the ability to initially complete only a single business combination, although
this may entail the simultaneous acquisitions of several operating businesses
at
the same time.
Sources
of target businesses
Target
business candidates have been and will be brought to our attention from various
unaffiliated sources, including investment bankers, venture capital funds,
private equity funds, leveraged buyout funds, management buyout funds, ship
brokers and other members of the financial or shipping community who are aware
that we are seeking a business combination partner via public relations and
marketing efforts, direct contact by management or other similar efforts, who
may present solicited or unsolicited proposals. Any finder or broker would
only
be paid a fee upon the consummation of a business combination. The fee to be
paid to such persons would be a percentage of the fair market value of the
transaction with the percentage to be determined in an arm’s length negotiation
between the finder or broker and us based on market conditions at the time
we
enter into an agreement with such finder or broker. While we do not presently
anticipate engaging the services of professional firms that specialize in
acquisitions on any formal basis, we may decide to engage such firms in the
future or we may be approached on an unsolicited basis, in which event their
compensation (which would be equal to a percentage of the fair market value
of
the transaction as agreed upon at the time of such engagement or agreement
with
a party that brings us an unsolicited proposal, as the case may be) may be
paid
from the offering proceeds not held in trust. Our officers and directors as
well
as their affiliates may also bring to our attention target business candidates
that they become aware of through their business contacts. While our officers
and directors make no commitment as to the amount of time they will spend trying
to identify or investigate potential target businesses, they believe that the
various relationships they have developed over their careers together with
their
direct inquiry, will generate a number of potential target businesses that
will
warrant further investigation. In no event will we pay any of our existing
officers, directors or stockholders or any entity with which they are affiliated
any finder’s fee or other compensation for services rendered to us prior to or
in connection with the consummation of a business combination. In addition,
none
of our officers or directors will receive any finder’s fee, consulting fees or
any similar fees from any person or entity in connection with any business
combination involving us other than any compensation or fees that may be
received for any services provided following such business combination.
Selection
of a target business and structuring of a business combination
Subject
to the requirement that our initial business combination must be with a target
business or businesses with a collective fair market value that is at least
80%
of our net assets (exclusive of the underwriters’ contingent compensation being
held in the trust account) at the time of such acquisition, our management
has
virtually unrestricted flexibility in identifying and selecting a prospective
target business. In evaluating a prospective target business, our management
will conduct the necessary business, legal and accounting due diligence on
such
target business and will consider, among other factors, the
following:
· earnings
and growth potential;
· experience
and skill of management and availability of additional personnel;
· capital
requirements;
· competitive
position;
· financial
condition and results of operation;
· barriers
to entry into the shipping industry;
· breadth
of services offered;
· degree
of
current or potential market acceptance of the services;
· regulatory
environment of the industry; and
· costs
associated with effecting the business combination.
These
criteria are not intended to be exhaustive. Any evaluation relating to the
merits of a particular business combination will be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by our management in effecting a business combination consistent with our
business objective. In evaluating a prospective target business, we will conduct
an extensive due diligence review which will encompass, among other things,
meetings with incumbent management, where applicable, and inspection of
facilities, as well as review of financial and other information which will
be
made available to us. To the extent we effect a business combination with a
financially unstable company or an entity in its early stage of development
or
growth, including entities without established records of sales or earnings,
we
may be affected by numerous risks inherent in the business and operations of
financially unstable and early stage or potential emerging growth companies.
Although our management will endeavor to evaluate the risks inherent in a
particular target business, we cannot assure you that we will properly ascertain
or assess all significant risk factors.
The
time
and costs required to select and evaluate a target business and to structure
and
complete the business combination cannot presently be ascertained with any
degree of certainty. The costs we are incurring with respect to the
identification and evaluation of a prospective target business with which a
business combination is not ultimately completed will result in a loss to us
and
reduce the amount of capital available to otherwise complete a business
combination. However, we will not pay any finders or consulting fees to our
officers or directors, or any of their respective affiliates, for services
rendered to or in connection with a business combination.
Fair
market value of target business
The
initial target business or businesses that we acquire must have a collective
fair market value equal to at least 80% of our net assets at the time of such
acquisition. The fair market value of such business will be determined by our
board of directors based upon standards generally accepted by the financial
community, such as actual and potential sales, earnings and cash flow and book
value. The evaluation of a potential holding company acquisition where the
assets to be acquired are not in the possession of the target company would
be
based on established valuation criteria in the shipping industry for ships
as
well as agreements to acquire ships. This valuation process, which also applies
to an operating company that has among its assets one or more agreements to
purchase vessels, involves obtaining two or three appraisals from independent
ship brokers. These appraisals, in accordance with standard industry practice,
are based on a description of the particular vessel (including size, age and
type), as well as the appraisers’ review of publicly available maintenance
records for vessels that are not new. The value of the purchase agreement
reflects the value of the vessel underlying such agreement.
If
our
board is not able to independently determine that the target business has a
sufficient fair market value (for example, if one of the members of our board
of
directors is affiliated with the target business or if the financial analysis
is
too complicated for our board of directors to perform on their own), we will
obtain an opinion from an unaffiliated, independent investment banking firm
which is a member of the National Association of Securities Dealers, Inc. with
respect to the satisfaction of such criteria. Since any opinion, if obtained,
would merely state that fair market value meets the 80% of net assets threshold,
it is not anticipated that copies of such opinion would be distributed to our
stockholders, although copies will be provided to stockholders who request
it.
If we do obtain the opinion of an investment banking firm, a summary of the
opinion will be contained in the proxy statement that will be mailed to
stockholders in connection with obtaining approval of the business combination,
and the investment banking firm will consent to the inclusion of their report
in
our proxy statement. In addition, information about how stockholders will
be able to obtain a copy of the opinion from us will be contained in the proxy
statement. We will not be required to obtain an opinion from an investment
banking firm as to the fair market value if our board of directors independently
determines that the target business has sufficient fair market value.
Possible
lack of business diversification
While
we
may seek to effect business combinations with more than one target business,
our
initial business combination must be with a target business which satisfies
the
minimum valuation standard at the time of such acquisition, as discussed above.
Consequently, it is likely that we will have the ability to effect only one,
or
perhaps, two business combinations, although this may entail simultaneous
acquisitions of several entities at the same time. We may not be able to acquire
more than one target business because of various factors, including possible
complex domestic or international accounting issues, which would include
generating pro forma financial statements reflecting the operations of several
target businesses as if they had been combined, and numerous logistical issues,
which could include attempting to coordinate the timing of negotiations, proxy
statement disclosure and other legal issues and closings with multiple target
businesses. In addition, we would also be exposed to the risks that conditions
to closings with respect to the acquisition of one or more of the target
businesses would not be satisfied bringing the fair market value of the initial
business combination below the required fair market value of 80% of net assets
threshold. Accordingly, for an indefinite period of time, the prospects for
our
future viability may be entirely dependent upon the future performance of a
single business. Unlike other entities which may have the resources to complete
several business combinations of entities operating in multiple industries
or
multiple areas of a single industry, it is probable that we will not have the
resources to diversify our operations or benefit from the possible spreading
of
risks or offsetting of losses. By consummating a business combination with
only
a single entity, our lack of diversification may:
| ·
|
subject
us to numerous economic, competitive and regulatory developments,
any or
all of which may have a substantial adverse impact upon the particular
industry in which we may operate subsequent to a business combination;
and
|
| ·
|
result
in our dependency upon the development or market acceptance of a
single or
limited number of products, processes or
services.
|
Additionally,
since our business combination may entail the simultaneous acquisitions of
several entities at the same time and may be with different sellers, we will
need to convince such sellers to agree that the purchase of their entities
is
contingent upon the simultaneous closings of the other
acquisitions.
Limited
ability to evaluate the target business’ management
Although
we expect certain of our management, particularly Mr. Tsirigakis, to remain
associated with us following a business combination, it is likely that the
management of the target business at the time of the business combination will
remain in place, and we may employ other personnel following the business
combination. Although we intend to closely scrutinize the management of a
prospective target business when evaluating the desirability of effecting a
business combination, we cannot assure you that our assessment of the target
business’ management will prove to be correct. In addition, we cannot assure you
that the future management will have the necessary skills, qualifications or
abilities to manage a public company. Furthermore, the future role of our
officers and directors, if any, in the target business cannot presently be
stated with any certainty. Moreover, our current management will only be able
to
remain with the combined company after the consummation of a business
combination if they are able to negotiate and agree to mutually acceptable
employment terms in connection with any such combination, which terms would
be
disclosed to stockholders in any proxy statement relating to such transaction.
While it is possible that one or more of our directors will remain associated
in
some capacity with us following a business combination, it is unlikely that
any
of them will devote their full efforts to our affairs subsequent to a business
combination. Moreover, we cannot assure you that our officers and directors
will
have significant experience or knowledge relating to the operations of the
particular target business.
Following
a business combination, we may seek to recruit additional managers to supplement
the incumbent management of the target business. We cannot assure you that
we
will have the ability to recruit additional managers, or that those additional
managers will have the requisite skills, knowledge or experience necessary
to
enhance the incumbent management.
Opportunity
for stockholder approval of business combination
Prior
to
the completion of a business combination, we will submit the transaction to
our
stockholders for approval, even if the nature of the acquisition is such as
would not ordinarily require stockholder approval under applicable state law.
In
connection with seeking stockholder approval of a business combination, we
will
furnish our stockholders with proxy solicitation materials prepared in
accordance with the Securities Exchange Act of 1934, which, among other matters,
will include a description of the operations of the target business and audited
historical financial statements of the target business based on United States
generally accepted accounting principles.
In
connection with the vote required for any business combination, all of our
officers and directors, have agreed to vote their respective shares of common
stock owned by them immediately prior to the private placement and the initial
public offering in accordance with the majority of the shares of common stock
voted by the public stockholders. Our officers and directors have agreed to
vote
all the shares of our common stock acquired in the private placement, the
initial public offering or in the aftermarket in favor of any transaction that
they negotiate and present for approval to our stockholders. We will proceed
with the business combination only if a majority of the shares of common stock
voted by the public stockholders are voted in favor of the business combination
and public stockholders owning less than 33% of the shares sold in our initial
public offering and the private placement exercise their redemption rights.
Redemption
rights
At
the
time we seek stockholder approval of any business combination, we will offer
each public stockholder the right to have such stockholder’s shares of common
stock redeemed for cash if the stockholder votes against the business
combination and the business combination is approved and completed. The actual
per-share redemption price will be equal to $10.00 plus any interest not
previously released to us earned on their portion of the trust account and
on
that portion of the underwriters’ contingent compensation comprising the
redemption price (calculated as of two business days prior to the consummation
of the proposed business combination (net of taxes payable)). An eligible
stockholder may request redemption at any time after the mailing to our
stockholders of the proxy statement and prior to the vote taken with respect
to
a proposed business combination at a meeting held for that purpose, but the
request will not be granted unless the stockholder votes against the business
combination and the business combination is approved and completed. If a
stockholder votes against the business combination but fails to properly
exercise its redemption rights, such stockholder will not have its shares of
common stock redeemed. Any request for redemption, once made, may be withdrawn
at any time up to the date of the meeting. It is anticipated that the funds
to
be distributed to stockholders entitled to redeem their shares who elect
redemption will be distributed promptly after completion of a business
combination. Public stockholders who redeem their stock for their share of
the
trust account still have the right to exercise the warrants that they received
as part of the units. We will not complete any business combination if public
stockholders, owning 33% or more of the shares sold in our initial public
offering and the private placement, exercise their redemption
rights.
Liquidation
if no business combination
If
we do
not complete a business combination on or prior to June 21, 2007, or December
21, 2007 if the extension criteria described below have been satisfied, we
will
dissolve, the trust account will be liquidated and we will distribute to all
of
our public stockholders in proportion to their respective equity interests,
an
aggregate sum equal to the amount in the trust account, inclusive of any
interest (net of taxes payable) not previously released to us, plus any
remaining net assets. Messrs. Tsirigakis, Syllantavos, Anagnostou, Nikiforos,
Pappas, Erhardt and Søfteland
have
waived their rights to participate in any liquidation distribution with respect
to the shares of common stock owned by them. In addition, Maxim Group LLC and
EarlyBirdCapital, Inc. have agreed to waive their rights to the $4,000,000
of
contingent underwriting compensation and placement fees deposited in the trust
account for their benefit. There will be no distribution from the trust account
with respect to our warrants, which will expire worthless.
If
we are
unable to consummate a business combination and expend all of the funds in
our
trust account, other than the proceeds deposited in the trust account, and
without taking into account interest, if any, earned on the trust account,
the
initial per-share liquidation price to holders of the 18,867,500 shares entitled
to participate in liquidation distributions would be equal to the $10.00 per
unit offering price. The funds in the trust account could, however, become
subject to the claims of our creditors which could be prior to the claims of
our
public stockholders. Each member of our board of directors has agreed pursuant
to agreements with us and Maxim Group LLC, if we liquidate prior to the
consummation of a business combination, they will be personally liable to pay
debts and obligations to target businesses or vendors that are owed money by
us
for services rendered or products sold to us in excess of the net proceeds
of
the public offering not held in the trust account at that time. We cannot assure
you, however, that they would be able to satisfy those obligations. Accordingly,
we cannot assure you that the actual per-share liquidation price will not be
less than $10.00, plus interest (net of taxes payable), due to claims of
creditors.
If
we
enter into either a letter of intent, an agreement in principle or a definitive
agreement to complete a business combination on or prior to June 21, 2007,
but
are unable to complete the business combination by such date, then we will
have
an additional six months in which to complete the business combination
contemplated by the letter of intent, agreement in principle or definitive
agreement. If we are unable to do so on or prior to December 21, 2007, we will
then liquidate. Upon notice from us, the trustee of the trust account will
commence liquidating the investments constituting the trust account and will
turn over the proceeds to our transfer agent for distribution to our public
stockholders.
Our
public stockholders shall be entitled to receive funds from the trust account
only in the event of liquidation or if the stockholders seek to redeem their
respective shares for cash upon a business combination which the stockholder
voted against and which is actually completed by us. In no other circumstances
shall a stockholder have any right or interest of any kind to or in the trust
account.
Competition
In
identifying, evaluating and selecting a target business, we may encounter
intense competition from other entities having a business objective similar
to
ours. Many of these entities are well established and have extensive experience
identifying and effecting business combinations directly or through affiliates.
Many of these competitors possess greater technical, human and other resources
than us and our financial resources will be relatively limited when contrasted
with those of many of these competitors, which may limit our ability to compete
in acquiring certain sizable target businesses. This inherent competitive
limitation gives others an advantage in pursuing the acquisition of a target
business. Further:
| ·
|
our
obligation to seek stockholder approval of a business combination
or
obtain the necessary financial information to be included in the
proxy
statement to be sent to stockholders in connection with such business
combination may delay or prevent the completion of a
transaction;
|
| ·
|
our
obligation to redeem for cash up to 6,598,000 shares of common stock
held
by our public stockholders in certain instances will limit the manner
in
which we may structure a business combination (i.e., we will not
be able
to undertake an all cash acquisition transaction) and may reduce
the
resources available to us for this purpose, as well as for funding
a
target company’s business;
|
| ·
|
our
outstanding warrants, and the future dilution they potentially represent,
may not be viewed favorably by certain target businesses;
and
|
| ·
|
the
requirement to acquire either an entity with purchase agreements
for one
or more vessels or an operating business that has a fair market value
equal to at least 80% of our net assets at the time of the acquisition
could require us to acquire several companies or closely related
operating
businesses at the same time, all of which sales would be contingent
on the
closings of the other sales, which could make it more difficult to
consummate the business
combination.
|
Any
of
these factors may place us at a competitive disadvantage in successfully
negotiating a business combination. Our management believes, however, that
to
the extent that our target business is a privately held entity, our status
as a
well-financed public entity may give us a competitive advantage over entities
having a similar business objective as ours in acquiring a target business
with
significant growth potential on favorable terms.
If
we
succeed in effecting a business combination, there will be, in all likelihood,
intense competition from competitors of the target business. We cannot assure
you that, subsequent to a business combination, we will have the resources
or
ability to compete effectively.
Employees
We
have
four officers, two of whom are also members of our board of directors. These
individuals are not obligated to contribute any specific number of hours per
week and intend to devote only as much time as they deem necessary to our
affairs. The amount of time they will devote in any time period will vary based
on the availability of suitable target businesses to investigate, although
we
expect Mr. Tsirigakis to devote an average of approximately 10 hours per week
to
our business during the target identification stage, and close to full time
during due diligence and negotiation of a business combination. We do not intend
to have any full time employees prior to the consummation of a business
combination.
Item
1A. Risk Factors
Risks
associated with our business
We
are a development stage company with no operating history and, accordingly,
you
do not have any basis on which to evaluate our ability to achieve our business
objective.
We
are a
recently incorporated development stage company with no operating results to
date. Since we do not have an operating history, you have no basis upon which
to
evaluate our ability to achieve our business objective, which is to acquire
an
operating business. We will not generate any revenues until, at the earliest,
after the consummation of a business combination.
If
we are forced to liquidate before a business combination, our warrants will
expire worthless.
If
we are
unable to complete a business combination and are forced to liquidate the trust
account, there will be no distribution with respect to our outstanding warrants
and, accordingly, the warrants will expire worthless.
If
third parties bring claims against us, the funds in the trust account could
be
reduced and the per-share liquidation price received by stockholders will be
less than $10.00 per share.
Our
placing of funds in trust may not protect those funds from third party claims
against us. Although we will seek to have vendors, prospective target businesses
or other entities we engage execute agreements with us waiving any right, title,
interest or claim of any kind in or to any monies held in the trust account
for
the benefit of our public stockholders, there is no guarantee that they will
execute such agreements or even if they execute such agreements that they would
be prevented from bringing claims against the trust account. If any third party
refused to execute an agreement waiving such claims to the monies held in the
trust account, we would perform an analysis of the alternatives available to
us
if we chose not to engage such third party and evaluate if such engagement
would
be in the best interest of our stockholders if such third party refused to
waive
such claims. Examples of possible instances where we may engage a third party
that refused to execute a waiver include the engagement of a third party
consultant whose particular expertise or skills are believed by management
to be
significantly superior to those of other consultants that would agree to execute
a waiver or in cases where management is unable to find a provider of required
services willing to provide the waiver. In addition, there is no guarantee
that
such entities will agree to waive any claims they may have in the future as
a
result of, or arising out of, any negotiations, contracts or agreements with
us
and will not seek recourse against the trust account for any reason.
Accordingly, the proceeds held in trust could be subject to claims which could
take priority over the claims of our public stockholders and the per-share
liquidation price could be less than $10.00, plus interest not previously
released to us (net of taxes payable), due to claims of such creditors. If
we
are unable to complete a business combination and are forced to liquidate the
trust account, our officers and directors, severally, in accordance with their
respective beneficial ownership interests in us, will be personally liable
under
certain circumstances to ensure that the proceeds in the trust account are
not
reduced by the claims of various vendors or other entities that are owed money
by us for services rendered or contracted for or products sold to us or the
claims of any target businesses. However, we cannot assure you that they will
be
able to satisfy those obligations.
Since
we have not currently selected any target business with which to complete a
business combination, we are unable to currently ascertain the merits or risks
of the target business’ operations.
There
is
no current basis to evaluate the possible merits or risks of the target
business’ operations. To the extent we complete a business combination with a
financially unstable company or an entity in its development stage, we may
be
affected by numerous risks inherent in the business operations of those
entities. Although our management will endeavor to evaluate the risks inherent
in a particular target business, we cannot assure you that we will properly
ascertain or assess all of the significant risk factors.
We
may issue shares of our capital stock or debt securities to complete a business
combination, which would reduce the equity interest of our current stockholders
and likely cause a change in control of our ownership.
We
may
issue a substantial number of additional shares of our common stock or preferred
stock, or a combination of common and preferred stock, to complete a business
combination. The issuance of additional shares of our common stock or any number
of shares of our preferred stock:
| ·
|
may
significantly reduce the equity interest of our current stockholders;
|
| · |
will
likely cause a change in control if a substantial number of our shares
of
common stock are issued, which may affect, among other things, our
ability
to use our net operating loss carry forwards, if any, and most likely
also
result in the resignation or removal of our present officers and
directors; and
|
| · |
may
adversely affect prevailing market prices for our common stock.
|
Additionally,
the shipping industry is capital intensive, traditionally using substantial
amounts of indebtedness to finance vessel acquisitions, capital expenditures
and
working capital needs. If we finance the purchase of any of our vessels through
the issuance of debt securities, it could result in:
| ·
|
default
and foreclosure on our assets if our operating cash flow after a
business
combination were insufficient to pay our debt obligations;
|
| ·
|
acceleration
of our obligations to repay the indebtedness even if we have made
all
principal and interest payments when due if the debt security contained
covenants that required the maintenance of certain financial ratios
or
reserves and any such covenant were breached without a waiver or
renegotiation of that covenant;
|
| ·
|
our
immediate payment of all principal and accrued interest, if any,
if the
debt security was payable on demand; and
|
| ·
|
our
inability to obtain additional financing, if necessary, if the debt
security contained covenants restricting our ability to obtain additional
financing while such security was outstanding.
|
Our
officers and directors, control a substantial interest in us and thus may
influence certain actions requiring stockholder vote.
Our
officers and directors and their nominees own 35% of our issued and outstanding
shares of common stock which could permit them to effectively influence the
outcome of all matters requiring approval by our stockholders at such time,
including the election of directors and approval of significant corporate
transactions, following the consummation of our initial business combination.
In
addition, our board of directors is divided into three classes, each of which
will generally serve for a term of three years with only one class of directors
being elected in each year. It is unlikely that there will be an annual meeting
of stockholders to elect new directors prior to the consummation of a business
combination, in which case all of the current directors will continue in office
at least until the consummation of the business combination. If there is an
annual meeting, as a consequence of our “staggered” board of directors, only a
minority of the board of directors will be considered for election and our
officers and directors, because of their ownership position, will have
considerable influence regarding the outcome. Accordingly, our officers and
directors will continue to exert control at least until the consummation of
a
business combination.
We
will be dependent upon interest earned on the trust account to fund our search
for a target company and consummation of a business
combination.
Of
the
net proceeds of our initial public offering, only $533,172 (less approximately
$170,000 of additional financing fees accrued but not yet paid) is available
to
us outside the trust account to fund our working capital requirements. We will
be dependent upon sufficient interest being earned on the proceeds held in
the
trust account to provide us with the additional working capital we will need
to
search for a target company and consummate a business combination. While we
are
entitled to half of the interest earned on the trust account up to a maximum
of
$2,500,000, for such purpose, if interest rates were to decline substantially,
we may not have sufficient funds available to complete a business combination.
In such event, we would need to borrow funds from our insiders or others or
be
forced to liquidate.
Our
ability to successfully effect a business combination and to be successful
afterward will be totally dependent upon the efforts of our key personnel,
some
of whom may join us following a business combination and whom we would have
only
a limited ability to evaluate. It is also possible that our current officers
and
directors will resign upon the consummation of a business
combination.
Our
ability to successfully effect a business combination will be totally dependent
upon the efforts of our key personnel. The future role of our key personnel
following a business combination, however, cannot presently be fully
ascertained. Although we expect several of our management and other key
personnel, particularly our chairman of the board and chief executive officer,
to remain associated with us following a business combination, we may employ
other personnel following the business combination. Moreover, our current
management will only be able to remain with the combined company after the
consummation of a business combination if they are able to negotiate and agree
to mutually acceptable employment terms as part of any such combination, which
terms would be disclosed to stockholders in any proxy statement relating to
such
transaction. If we acquired a target business in an all-cash transaction, it
would be more likely that current members of management would remain with the
combined company if they chose to do so. If a business combination were
structured as a merger whereby the stockholders of the target company were
to
control the combined company following a business combination, it may be less
likely that our current management would remain with the combined company unless
it was negotiated as part of the transaction via the acquisition agreement,
an
employment agreement or other arrangement. In making the determination as to
whether current management should remain with us following the business
combination, management will analyze the experience and skill set of the target
business’ management and negotiate as part of the business combination that
certain members of current management remain if it is believed that it is in
the
best interests of the combined company post-business combination. If management
negotiates such retention as a condition to any potential business combination,
management may look unfavorably upon or reject a business combination with
a
potential target business whose owners refuse to retain members of our
management post-business combination, thereby resulting in a conflict of
interest. While we intend to closely scrutinize any additional individuals
we
engage after a business combination, we cannot assure you that our assessment
of
these individuals will prove to be correct. These individuals may be unfamiliar
with the requirements of operating a public company as well as United States
securities laws which could cause us to have to expend time and resources
helping them become familiar with such laws. This could be expensive and
time-consuming and could lead to various regulatory issues which may adversely
affect our operations.
If
we seek to effect a business combination with an entity that is directly or
indirectly affiliated with our officers or directors, conflicts of interest
could arise.
Our
officers and directors either currently have or may in the future have
affiliations with companies in the shipping industry. If we were to seek a
business combination with a target company with which one or more of our
officers or directors is affiliated, conflicts of interest could arise in
connection with negotiating the terms of and completing the business
combination. If conflicts arise, they may not necessarily be resolved in our
favor.
Our
officers and directors may allocate their time to other businesses thereby
causing conflicts of interest in their determination as to how much time to
devote to our affairs. This could have a negative impact on our ability to
consummate a business combination.
Our
officers and directors are not required to commit their full time to our
affairs, which may result in a conflict of interest in allocating their time
between our operations and other businesses. We do not intend to have any full
time employees prior to the consummation of a business combination. All of
our
executive officers are engaged in several other business endeavors and are
not
obligated to contribute any specific number of hours per week to our affairs.
If
our executive officers’ other business affairs require them to devote more
substantial amounts of time to such affairs, it could limit their ability to
devote time to our affairs and could have a negative impact on our ability
to
consummate a business combination.
Our
officers and directors may in the future become affiliated with entities engaged
in business activities similar to those intended to be conducted by us and
accordingly, may have conflicts of interest in determining to which entity
a
particular business opportunity should be presented.
Our
officers and directors may in the future become affiliated with entities,
including other “blank check” companies, engaged in business activities similar
to those intended to be conducted by us. Additionally, our officers and
directors may become aware of business opportunities which may be appropriate
for presentation to us as well as the other entities with which they are or
may
be affiliated. Further, certain of our officers and directors are currently
involved in other businesses that are similar to the business activities that
we
intend to conduct following a business combination. Due to these existing
affiliations, they may have fiduciary obligations to present potential business
opportunities to those entities prior to presenting them to us which could
cause
additional conflicts of interest. Accordingly, they may have conflicts of
interest in determining to which entity a particular business opportunity should
be presented.
All
of our officers and directors own shares of our common stock which will not
participate in liquidation distributions and therefore they may have a conflict
of interest in determining whether a particular target business is appropriate
for a business combination.
All
of
our officers and directors own shares of our common stock in our company but
have waived their right to receive distributions with respect to those shares
upon our liquidation upon our failure to complete a business combination. The
shares and warrants owned by our officers and directors and their affiliates
will be worthless if we do not consummate a business combination. The personal
and financial interests of our directors may influence their motivation in
identifying and selecting a target business and completing a business
combination timely. Consequently, our directors’ and officers’ discretion in
identifying and selecting a suitable target business may result in a conflict
of
interest when determining whether the terms, conditions and timing of a
particular business combination are appropriate and in our stockholders’ best
interest.
Our
officers and directors will not receive reimbursement for any out-of-pocket
expenses incurred by them to the extent that such expenses exceed the amount
in
the trust account unless the business combination is consummated and therefore
they may have a conflict of interest in determining whether a particular target
business is appropriate for a business combination and in the public
stockholders’ best interest.
Our
officers and directors, will not receive reimbursement for any out-of-pocket
expenses incurred by them to the extent that such expenses exceed the available
proceeds not deposited in the trust account and the portion of the interest
on
the trust account released to us (which, because interest rates are unknown,
may
be insufficient to fund all of our working capital requirements) unless the
business combination is consummated. The financial interest of our officers
and
directors could influence their motivation in selecting a target business and
thus, there may be a conflict of interest when determining whether a particular
business combination is in the stockholders’ best interest. For instance, our
officers and directors may, as part of any such combination, negotiate the
repayment of some or all of their out-of-pocket expenses in excess of the amount
not placed in the trust account, which if not agreed to by the target business’
owners, could cause our management to view such potential business combination
unfavorably, thereby resulting in a conflict of interest.
It
is probable that our initial business combination will be with a single target
business, which may cause us to be solely dependent on a single business and
a
limited number of services.
Our
initial business combination must be with a business or businesses with a
collective fair market value of at least 80% of our net assets at the time
of
such acquisition. We may not be able to acquire more than one target business
because of various factors, including possible complex accounting issues, which
would include generating pro forma financial statements reflecting the
operations of several target businesses as if they had been combined, and
numerous logistical issues, which could include attempting to coordinate the
timing of negotiations, proxy statement disclosure and closings with multiple
target businesses. In addition, we would also be exposed to the risk that
conditions to closings with respect to the acquisition of one or more of the
target businesses would not be satisfied bringing the fair market value of
the
initial business combination below the required fair market value of 80% of
our
net assets threshold. Accordingly, while it is possible that we may attempt
to
effect our initial business combination with more than one target business,
we
are more likely to choose a single target business if deciding between one
target business meeting such 80% threshold and comparable multiple target
business candidates collectively meeting the 80% threshold. Consequently, it
is
probable that, unless the purchase price consists substantially of our equity,
we will have the ability to complete only the initial business combination
with
the funds in the trust account. Accordingly, the prospects for our success
may
be:
| ·
|
solely
dependent upon the performance of a single business, or
|
| ·
|
dependent
upon the development or market acceptance of a single or limited
number of
processes or services.
|
In
this
case, we will not be able to diversify our operations or benefit from the
possible spreading of risks or offsetting of losses, unlike other entities
which
may have the resources to complete several business combinations in different
industries or different areas of a single industry.
Because
of our limited resources and the significant competition for business
combination opportunities, we may not be able to consummate an attractive
business combination.
We
expect
to encounter intense competition from other entities having a business objective
similar to ours, including venture capital funds, leveraged buyout funds and
operating businesses competing for acquisitions. Many of these entities are
well
established and have extensive experience in identifying and effecting business
combinations directly or through affiliates. Many of these competitors possess
greater technical, human and other resources than we do and our financial
resources will be relatively limited when contrasted with those of many of
these
competitors. While we believe that there are numerous potential target
businesses that we could acquire with the funds in our trust account, our
ability to compete in acquiring certain sizable target businesses will be
limited by our available financial resources. This inherent competitive
limitation gives others an advantage in pursuing the acquisition of certain
target businesses. Further, the obligation we have to seek stockholder approval
of a business combination may delay the consummation of a transaction, and
our
obligation to redeem for cash up to 32.99% of the shares of common stock sold
in
the public offering and the private placement in certain instances will limit
the manner in which we can structure a business combination (i.e. we will not
be
able to undertake an all cash acquisition) and may reduce the resources
available to us for such purpose, as well as for funding a target company’s
business. Additionally, our outstanding warrants, and the future dilution they
potentially represent, may not be viewed favorably by certain target businesses.
Any of these obligations may place us at a competitive disadvantage in
successfully negotiating a business combination.
We
may be unable to obtain additional financing, if required, to complete a
business combination or to fund the operations and growth of the target
business, which could compel us to restructure the transaction or abandon a
particular business combination.
We
cannot
ascertain the capital requirements for any particular transaction. If the net
proceeds of our initial public offering prove to be insufficient, either because
of the size of the business combination or the depletion of the available net
proceeds not held in trust (including interest earned on the trust account
released to us) in search of a target business, or because we become obligated
to redeem for cash a significant number of shares from dissenting stockholders,
we will be required to seek additional financing. We cannot assure you that
such
financing would be available on acceptable terms, if at all. To the extent
that
additional financing proves to be unavailable when needed to consummate a
particular business combination, we would be compelled to restructure the
transaction or abandon that particular business combination and seek an
alternative target business candidate. In addition, it is possible that we
could
use a portion of the funds not in the trust account (including amounts we
borrowed, if any) to make a deposit, down payment or fund a "no-shop" provision
with respect to a particular proposed business combination, although we do
not
have any current intention to do so. In the event that we were ultimately
required to forfeit such funds (whether as a result of our breach of the
agreement relating to such payment or otherwise), if such payment was large
enough and we had already used up the funds allocated to due diligence and
related expenses in connection with the aborted transaction, we could be left
with insufficient funds to continue searching for, or conduct due diligence
with
respect to, other potential target businesses. If we were unable to secure
additional financing (which could be provided by our officers and directors,
though they are under no obligation to do so), we would most likely fail to
consummate a business combination in the allotted time and would be forced
to
liquidate. In addition, if we consummate a business combination, we may require
additional financing to fund the operations or growth of the target business.
The failure to secure additional financing could have a material adverse effect
on the continued development or growth of the target business. None of our
officers, directors or stockholders is required to provide any financing to
us
in connection with or after a business combination.
Risks
associated with the shipping industry
If
charter rates fluctuate and the shipping industry continues to undergo cyclical
turns, it may have a negative impact on our profitability and operations.
The
shipping business, including the dry cargo market, has been cyclical in varying
degrees, experiencing fluctuations in charter rates, profitability and,
consequently, vessel values.
A
significant contraction in demand for imported commodities, such as iron ore
or
coal, as a result of economic downturns or changes in government policies in
certain regional markets could have a material adverse impact on dry cargo
freight rates, as well as the demand, in general for vessels. For instance,
a
downturn in the economy of countries such as China, which has experienced
substantial global economic growth during the past few years, could negatively
affect the shipping industry. The demand for dry cargo vessels is also greatly
affected by the demand for consumer goods and perishable foods, dry bulk
commodities and bagged and finished products, as well as commodity prices,
environmental concerns and competition. The supply of shipping capacity is
also
a function of the delivery of new vessels and the number of older vessels
scrapped, in lay-up, converted to other uses, reactivated or removed from active
service. Supply may also be affected by maritime transportation and other types
of governmental regulation, including that of international authorities. These
and other factors may cause a decrease in the demand for the services we may
ultimately provide. As a result, the operations of any prospective target
business we may ultimately complete a business combination with may be adversely
affected.
Changes
in the shipping industry may reduce the demand for the types of vessels we
seek
to acquire or the services we may ultimately provide and thereby reduce our
profitability.
The
future demand for vessels in the markets in which we may ultimately operate
will
be dependent, in large part, upon economic growth in the global economy,
seasonal and regional changes in demand and changes to the capacity of the
world
fleet. Adverse economic, political, social or other negative developments could
have a material adverse effect on the business that we may ultimately complete
a
business combination with. Many of the markets in which dry cargo vessels
operate have been characterized by oversupply. This is frequently the result
of
an overestimated growth in demand for these vessels in the applicable shipping
markets. For example, an oversupply of vessels carrying bulk cargo may be due
to, among other factors, an overestimation in the demand for imports of bulk
commodities like grain, sugar, iron ore or coal. While it is our intention
to
complete a business combination with a target business that operates in a market
that will afford the greatest value for the vessels that we ultimately own
and
operate, we cannot assure you that we will be able to successfully acquire
a
business that provides the valuable market that we seek, or that the value
of
the vessels that we ultimately acquire will maintain their value in any of
these
markets. Operating results
may be subject to seasonal fluctuations.
The
shipping industry has historically exhibited seasonal variations in demand
and,
as a result, in charter hire rates. This seasonality may result in
quarter-to-quarter volatility in our operating results. The dry bulk carrier
market is typically stronger in the fall and winter months in anticipation
of
increased consumption of coal and other raw materials in the northern hemisphere
during the winter months. In addition, unpredictable weather patterns in these
months tend to disrupt vessel scheduling and supplies of certain commodities.
As
a result, revenues are typically weaker during the fiscal quarters ended June
30
and September 30, and, conversely, typically stronger in fiscal quarters ended
December 31 and March 31.
If
we experienced a catastrophic loss and our insurance is not adequate to cover
such loss, it could have a material adverse affect on our operations.
The
ownership and operation of vessels in international trade is affected by a
number of risks, including mechanical failure, personal injury, vessel and
cargo
loss or damage, business interruption due to political conditions in foreign
countries, hostilities, labor strikes, adverse weather conditions and
catastrophic marine disaster, including environmental accidents and collisions.
All of these risks could result in liability, loss of revenues, increased costs
and loss of reputation. We intend to maintain insurance, consistent with
industry standards, against these risks on any vessels and other business assets
we may acquire upon completion of a business combination. However, we cannot
assure you that we will be able to adequately insure against all risks, that
any
particular claim will be paid out of our insurance, or that we will be able
to
procure adequate insurance coverage at commercially reasonable rates in the
future. Our insurers will also require us to pay certain deductible amounts,
before they will pay claims, and insurance policies may contain limitations
and
exclusions, which, although we believe will be standard for the shipping
industry, may nevertheless increase our costs and lower our profitability.
Additionally, any increase in environmental and other regulations may also
result in increased costs for, or the lack of availability of, insurance against
the risks of environmental damage, pollution and other claims for damages that
may be asserted against us. Our inability to obtain insurance sufficient to
cover potential claims or the failure of insurers to pay any significant claims,
could have a material adverse effect on our profitability and operations.
We
may incur significant costs in complying with environmental, safety and other
governmental regulations and our failure to comply with these regulations could
result in the imposition of penalties, fines and restrictions on our operations.
The
operation of vessels is subject to extensive and changing environmental
protection, safety and other federal, state and local laws, rules, regulations
and treaties, compliance with which may entail significant expense, including
expenses for ship modifications and changes in operating procedures. We cannot
assure you that we will be able to comply with all laws, rules, regulations
and
treaties following a business combination. If we are unable to adhere to these
requirements, it could result in the imposition of penalties and fines against
us, and could also result in the imposition of restrictions on our business
and
operations. Furthermore, the costs of compliance also could have a material
adverse effect on our profitability and operations.
World
events could affect our results of operations and financial
condition.
Terrorist
attacks such as the attacks on the United States on September 11, 2001 and
the
continuing response of the United States to these attacks, as well the threat
of
future terrorist attacks in the United States or elsewhere, continue to cause
uncertainty in the world financial markets and may affect our business,
operating results and financial condition. The continuing conflict in Iraq
may
lead to additional acts of terrorism and armed conflict around the world, which
may contribute to further economic instability in the global financial markets.
In the past, political conflicts have also resulted in attacks on vessels,
mining of waterways and other efforts to disrupt international shipping,
particularly in the Arabian Gulf region. Acts of terrorism and piracy have
also
affected vessels trading in regions such as the South China Sea. Any of theses
occurrences could have a material adverse impact on our operating results,
revenues and costs. If a business combination involves the ownership of vessels,
such vessels could be arrested by maritime claimants, which could result in
the
interruption of business and have an adverse effect on revenue and
profitability.
Crew
members, tort claimants, claimants for breach of certain maritime contracts,
vessel mortgagees, suppliers of goods and services to a vessel, shippers of
cargo and other persons may be entitled to a maritime lien against a vessel
for
unsatisfied debts, claims or damages, and in many circumstances a maritime
lien
holder may enforce its lien by “arresting” a vessel through court processes.
Additionally, in certain jurisdictions, such as South Africa, under the “sister
ship” theory of liability, a claimant may arrest not only the vessel with
respect to which the claimant’s lien has arisen, but also any “associated”
vessel owned or controlled by the legal or beneficial owner of that vessel.
If
any vessel ultimately owned and operated by us is “arrested”, this could result
in a material loss of revenues, or require us to pay substantial amounts to
have
the “arrest” lifted.
We
anticipate re-domiciling in the Marshall Islands in connection with a business
combination, and the laws of the Marshall Islands will likely govern all of
our
material agreements and we may not be able to enforce our legal rights.
In
connection with a business combination, we anticipate relocating the home
jurisdiction of our business from Delaware to the Marshall Islands to take
advantage of favorable tax laws. If we determine to do this, the laws of the
Marshall Islands will likely govern all of our material agreements. We cannot
assure you that the system of laws and the enforcement of existing laws in
the
Marshall Islands would be as certain in implementation and interpretation as
in
the United States. The inability to enforce or obtain a remedy under any of
our
future agreements could result in a significant loss of business, business
opportunities or capital. Any such reincorporation and the international nature
of the shipping industry will likely subject us to foreign
regulation.
Governments could
requisition vessels of a target company during a period of war or emergency,
resulting in a loss of earnings.
A
government could requisition a company’s vessels for title or hire. Requisition
for title occurs when a government takes control of a vessel and becomes her
owner, while requisition for hire occurs when a government takes control of
a
vessel and effectively becomes her charterer at dictated charter rates.
Generally, requisitions occur during periods of war or emergency, although
governments may elect to requisition vessels in other circumstances. Although
a
target company would be entitled to compensation in the event of a requisition
of any of its vessels, the amount and timing of payment would be
uncertain.
Because
our directors and officers reside outside of the United States and, after the
consummation of a business combination, substantially all of our assets may
be
located outside of the United States, it may be difficult for investors to
enforce their legal rights against such individuals.
All
of
our directors and officers reside outside of the United States and, after the
consummation of a business combination, substantially all of our assets may
be
located outside of the United States. As a result, it may not be possible for
investors in the United States to enforce their legal rights, to effect service
of process upon our directors or officers or to enforce judgments of United
States courts predicated upon civil liabilities and criminal penalties of our
directors and officers under Federal securities laws.
We
may become subject to United States Federal income taxation on our United States
source shipping income.
Due
to
the nature of the shipping industry, we may complete a business combination
with
a target business outside of the United States and, if such acquisition involved
our reincorporation as a foreign entity, would then attempt to qualify under
Section 883 of the U.S. Internal Revenue Code of 1986, as amended, for an
exemption from United States federal income tax on substantially all of our
shipping income. This exemption may not be available, or may subsequently be
lost, if 50% or more of our stock is owned, for more than half the number of
days during the taxable year, by persons in the United States. We can give
no
assurance that the ownership of our stock will permit us to qualify for the
Section 883 exemption. If we do not qualify for an exemption pursuant to Section
883, we will be subject to United States federal income tax, likely imposed
on a
gross basis at 4%, on our United States source shipping income, which
constitutes not more than 50% of our gross shipping income. In such case, we
may
seek to elect to be taxed under what is in essence an alternative tonnage tax
created by the American Job Creation Act of 2004, which would likely provide
for
a substantially reduced tax to the extent it applies. In such a case, our net
income and cash flow will be reduced by the amount of such tax.
If
we acquire a business that charters vessels on the spot market, it may increase
our risk of doing business following the business combination.
We
may
complete a business combination with a business that involves the chartering
of
vessels on a spot charter basis, either on voyage charters or short-term time
charters of less than 12 months’ duration. Although dependence on spot charters
is not unusual in the shipping industry, the spot charter market is highly
competitive and spot charter rates are subject to significant fluctuations
based
upon available charters and the supply of and demand for seaborne shipping
capacity. Although our focus on the spot charter market may enable us to benefit
from strengthening industry conditions should they occur, to do so we may be
required to consistently procure spot charter business. We cannot assure you
that spot charters will be available at rates that will be sufficient to enable
us to operate our business profitably.
In
addition, our dependence on the spot charter market may result in lower
utilization of our vessels and consequently decreased profitability. We cannot
assure you that rates in the spot charter market will not decline, that charters
in the spot charter market will continue to be available or that our dependence
on the spot charter market will not result in generally lower overall
utilization or decreased profitability, the occurrence of any of which events
could affect our ability to service our debt during these periods.
If
a target company has or obtains a vessel that is of second-hand or older nature,
it could increase our costs and decrease our profitability.
We
believe that competition for employment of second-hand vessels may be intense
in
the dry cargo market. Additionally, second-hand vessels may carry no warranties
from sellers with respect to their condition as compared to warranties from
shipyards available for newly-constructed vessels, and may be subject to
problems created by the use of their original owners. If we purchase any
second-hand vessels, we may incur additional expenditures as a result of these
risks, which may reduce our profitability.
While
it
will be our intention if we acquire a target business in this area to sell
or
retire our vessels before they are considered older vessels, under shipping
standards, in the rare case where we continue to own and operate a vessel for
a
longer period, we could be faced with the additional expenditures necessary
to
maintain a vessel in good operating condition as the age of a vessel increases.
Moreover, port-state authorities in certain jurisdictions may demand that
repairs be made to this type of vessel before allowing it to berth at or depart
a particular port, even though that vessel may be in class and in compliance
with all relevant international maritime conventions. Should any of these types
of problems or changes develop, income may be lost if a vessel goes off-hire
and
additional unforeseen and unbudgeted expenses may be incurred. If we choose
to
maintain any vessels past the age that we have planned, we cannot assure you
that market conditions will justify expenditures with respect to any of the
foregoing or enable us to operate these vessels profitably.
Management
services relating to a target company’s vessels may be performed by management
companies that are affiliates of our officers and directors which could result
in potential conflicts of interest.
If
we
complete a business combination which involves the acquisition of vessels,
we
anticipate engaging the services of one or more management companies to provide
technical and management services, relating to the operation of such vessels.
Whether or not members of existing management remain our officers or directors
post business combination, it is possible that these management services will
be
performed by management companies that are controlled by one or more of our
officers or directors (for example, by acting as our fleet’s technical managers
and performing all commercial management functions). The management companies
may receive fees and commissions on gross revenue received by us in respect
of
each vessel managed, a commission on the gross sale or purchase price of vessels
which we purchase or sell, and a commission on all insurance placed. If members
of our existing management remain as members of management following a business
combination, the relationships between our officers and directors and the
applicable management companies may give rise to conflicts of interest between
us on the one hand and the management companies on the other. In addition,
some
of our officers and directors also may hold senior management positions with
one
or more of these management companies. In light of their positions, these
individuals may experience conflicts of interest in selecting between our
interests and those of the applicable management companies. Because certain
financial information will be required to be provided to our stockholders in
connection with a proposed business combination, prospective target businesses
may be limited.
In
order
to seek stockholder approval of a business combination with an operating
business in the shipping industry, the proposed target business will be required
to have certain financial statements which are prepared in accordance with,
or
which can be reconciled to, U.S. generally accepted accounting principles and
audited in accordance with the standards of the United States Public Company
Accounting Oversight Board. Some of the businesses in the shipping industry
may
not keep financial statements in accordance with, or that can be reconciled
with, U.S. generally accepted accounting principles. To the extent that the
required financial statements or information cannot be prepared or obtained,
we
will not be able to complete a business combination with such entities.
Accordingly, these financial information requirements may limit the pool of
potential target businesses or vessels which we may acquire.
Risks
associated with our common stock.
Our
outstanding warrants may have an adverse effect on the market price of common
stock and make it more difficult to effect a business combination.
Currently,
we have outstanding warrants to purchase 20,000,000 shares of common stock.
To
the extent we issue shares of common stock to effect a business combination,
the
potential for the issuance of substantial numbers of additional shares upon
exercise of these warrants could make us a less attractive acquisition vehicle
in the eyes of a target business as such securities, when exercised, will
increase the number of issued and outstanding shares of our common stock and
reduce the value of the shares issued to complete the business combination.
Accordingly, our warrants may make it more difficult to effectuate a business
combination or increase the cost of the target business. Additionally, the
sale,
or even the possibility of sale, of the shares underlying the warrants could
have an adverse effect on the market price for our securities or on our ability
to obtain future public financing. If and to the extent these warrants are
exercised, you may experience dilution to your holdings.
If
our officers and directors exercise their registration rights, it may have
an
adverse effect on the market price our common stock and the existence of these
rights may make it more difficult to effect a business combination.
Our
officers and directors are entitled to demand that we register the resale of
their 9,026,924 shares of common stock owned by them prior to the offering
and
the private placement at any time after the date on which their shares are
released from escrow, which, except in limited circumstances, will not be before
December 15, 2008. Furthermore, certain of our officers and directors are
entitled to demand and “piggy-back” registration with respect to the 1,132,500
shares, 1,132,500 warrants and 1,132,500 shares underlying the warrants
comprising the units purchased in the private placement at any time after we
announce that we have entered a letter of intent, an agreement in principle
or a
definitive agreement in connection with a business combination. If our officers
and directors exercise their registration rights with respect to all of their
shares of common stock, then there will be an additional 10,159,424 shares
of
common stock eligible for trading in the public market. The presence of this
additional number of shares of common stock eligible for trading in the public
market may have an adverse effect on the market price of our common stock.
In
addition, the existence of these rights may make it more difficult to effectuate
a business combination or increase the cost of the target business, as the
stockholders of the target business may be discouraged from entering into a
business combination with us or request a higher price for their securities
as a
result of these registration rights and the potential future effect their
exercise may have on the trading market for our common stock.
The
American Stock Exchange may delist our securities from quotation on its exchange
which could limit investors' ability to make transactions in our securities
and
subject us to additional trading restrictions.
Our
securities are listed on the American Stock Exchange, a national securities
exchange. We cannot assure you that our securities will continue to be listed
on
the American Stock Exchange in the future prior to a business combination.
Additionally, in connection with our business combination, it is likely that
the
American Stock Exchange may require us to file a new initial listing application
and meet its initial listing requirements as opposed to its more lenient
continued listing requirements. We cannot assure you that we will be able to
meet those initial listing requirements at that time.
If
the
American Stock Exchange delists our securities from trading on its exchange,
we
could face significant material adverse consequences including:
| ·
|
a
limited availability of market quotations for our securities;
|
| ·
|
a
determination that our common stock is a "penny stock" which will
require
brokers trading in our common stock to adhere to more stringent rules
and
possibly resulting in a reduced level of trading activity in the
secondary
trading market for our common stock;
|
| ·
|
a
limited amount of news and analyst coverage for our company; and
|
| ·
|
a
decreased ability to issue additional securities or obtain additional
financing in the future.
|
If
we are deemed to be an investment company, we may be required to institute
burdensome compliance requirements and our activities may be restricted, which
may make it difficult for us to complete a business combination.
If
we are
deemed to be an investment company under the Investment Company Act of 1940,
our
activities may be restricted, including:
| ·
|
restrictions
on the nature of our investments;
|
| ·
|
restrictions
on the issuance of securities; and
|
| · |
which
may make it difficult for us to complete a business combination.
|
In
addition, we may have imposed upon us burdensome requirements, including:
| · |
registration
as an investment company;
|
| · |
adoption
of a specific form of corporate structure; and
|
| · |
reporting,
record keeping, voting, proxy and disclosure requirements
and other rules
and regulations.
|
We
do not
believe that our anticipated principal activities will subject us to the
Investment Company Act of 1940. To this end, the proceeds held in trust may
only
be invested by the trust agent in Treasury Bills issued by the United States
with maturity dates of 180 days or less or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act of
1940.
By restricting the investment of the proceeds to these instruments, we intend
to
meet the requirements for the exemption provided in Rule 3a-1 promulgated under
the Investment Company Act of 1940. If we were deemed to be subject to the
act,
compliance with these additional regulatory burdens would require additional
expense that we have not allotted for.
Our
directors may not be considered “independent” under the policies of the North
American Securities Administrators Association, Inc.
Under
the
policies of the North American Securities Administrators Association, Inc.,
an
international organization devoted to investor protection, because each of
our
directors owns shares of our securities and may receive reimbursement for
out-of-pocket expenses incurred by them in connection with activities on our
behalf such as identifying potential target businesses and performing due
diligence on suitable business combinations, state securities administrators
could take the position that such individuals are not “independent.” If this
were the case, they would take the position that we would not have the benefit
of independent directors examining the propriety of expenses incurred on our
behalf and subject to reimbursement. Additionally, there is no limit on the
amount of out-of-pocket expenses that could be incurred and there will be no
review of the reasonableness of the expenses by anyone other than our board
of
directors, which would include persons who may seek reimbursement, or a court
of
competent jurisdiction if such reimbursement is challenged. Although we believe
that all actions taken by our directors on our behalf will be in our best
interests, whether or not they are deemed to be “independent,” we cannot assure
you that this will actually be the case. If actions are taken, or expenses
are
incurred that are actually not in our best interests, it could have a material
adverse effect on our business and operations and the price of our stock held
by
the public stockholders.
Because
some of our directors and officers reside outside of the United States and,
after the consummation of a business combination, substantially all of our
assets may be located outside of the United States, it may be difficult for
investors to enforce their legal rights against such individuals or such
assets.
Some
of
our directors and officers reside outside of the United States and, after the
consummation of a business combination, substantially all of our assets may
be
located outside of the United States. As a result, it may not be possible for
investors in the United States to enforce their legal rights, to effect service
of process upon our directors or officers or to enforce judgments of United
States courts predicated upon civil liabilities and criminal penalties of our
directors and officers under Federal securities laws.
Because
we may acquire a company located outside of the United States, we may be subject
to various risks of the foreign jurisdiction in which we ultimately operate.
If
we
acquire a company that has sales or operations outside the United States, we
could be exposed to risks that negatively impact our future sales or
profitability following a business combination, especially if the acquired
company is in a developing country or a country that is not fully
market-oriented. If we were to acquire a business that operates in such a
country, our operations might not develop in the same way or at the same rate
as
might be expected in the United States or another country with an economy
similar to the market-oriented economies of member countries which are members
of the Organization for Economic Cooperation and Development, or the OECD (an
international organization helping governments through the economic, social
and
governance challenges of a globalized economy).
None
Item
2. Properties
We
maintain our executive offices at 457 Madison Avenue, New York, New York 10022.
Commencing in January 2006, the cost for this space provided by the law firm
of
Schwartz & Weiss, P.C. is $7,500 per month and includes certain other
additional services provided by such firm pursuant to a letter agreement. We
consider our current office space adequate for our current operations.
Item
4. Submission of Matters to a Vote of Security Holders
During
the fourth quarter of our fiscal year ended December 31, 2005, there were no
matters submitted to a vote of security holders.
The
Company’s Units, commenced trading on the American Stock Exchange under the
symbol “SEAU,” on December 16, 2005. Effective on February 27, 2006, the
Company’s Common Stock and Warrants began to trade separately under the symbols
“SEA,” and “SEAW”, respectively, and the Units ceased trading. The following
table sets forth the high and low sales information for the Company’s Units for
the period from December 16, 2005 through December 30, 2005.
| |
Units
|
|
Quarter
|
High
|
Low
|
|
First
Quarter*
|
-0-
|
-0-
|
|
Second
Quarter*
|
-0-
|
-0-
|
|
Third
Quarter*
|
-0-
|
-0-
|
|
Fourth
Quarter*
(October
1 to December 15)*
|
-0-
|
-0-
|
|
Fourth
Quarter
(December16
to December 30)
|
|
$9.80
|
__________
*
No
amounts are included as our securities had not commenced trading on the American
Stock Exchange.
Number
of Holders of Common Stock and Warrants.
On
March
29, 2006, there were nine holders of record of our Common Stock and six holders
of record of our Warrants which does not include individual participants in
security position listings that hold their securities in street name through
CEDE & Co. The Company’s Units
ceased
trading on February 27, 2006.
Dividends.
There
were no cash dividends or other cash distributions made by us during the fiscal
year ended December 31, 2005. Future dividend policy will be determined by
our
Board of Directors based on our earnings, financial condition, capital
requirements and other then existing conditions. It is anticipated that cash
dividends will not be paid to the holders of our common stock in the foreseeable
future.
Recent
Sales of Unregistered Securities.
On
May
17, 2005, we issued an aggregate of 9,026,924 shares of our common stock to
the
individuals set forth below for $25,000 in cash, at a purchase price of $0.003
per share, as follows:
|
Name
|
Number
of Shares
|
Relationship
to Us
|
| |
|
|
|
Prokopios
(Akis) Tsirigakis
|
8,915,712
|
Chairman
of the Board, Chief Executive Officer and President
|
|
George
Syllantavos
|
22,387
|
Chief
Financial Officer and Director
|
|
Christo
Anagnostou
|
10,832
|
Vice
President of Operations
|
|
Niko
Nikiforos
|
10,832
|
Vice
President of Business Development
|
|
Petros
Pappas
|
22,387
|
Director
|
|
Koert
Erhardt
|
22,387
|
Director
|
|
Tom
Søfteland
|
22,387
|
Director
|
On
June
6, 2005, Mr. Tsirigakis transferred an aggregate of 3,228,750 of his shares
for
$0.003 per share to the other officers and directors named above as
follows:
|
Name
|
Number
of Shares
|
|
George
Syllantavos
|
1,331,652
|
|
Christo
Anagnostou
|
169,706
|
|
Niko
Nikiforos
|
169,706
|
|
Petros
Pappas
|
699,768
|
|
Koert
Erhardt
|
428,959
|
|
Tom
Søfteland
|
428,959
|
On
October 19, 2005, Mr. Tsirigakis transferred an additional 2,029,570 shares
and
Messrs. Anagnostou, Nikiforos, Erhardt and Søfteland transferred an aggregate of
596,148 of the June 6, 2005 shares to Mr. Pappas.
On
December 15, 2005, we issued an aggregate of 1,132,500 units, including shares
of common stock and warrants to purchase common stock in a private placement
to the
individuals set forth below for $11,325,000 in cash, at a purchase price of
$10.00 per share, as follows:
|
Name
|
Number
of
Units
|
Relationship
to Us
|
|
Prokopios
(Akis) Tsirigakis
|
350,000
|
Chairman
of the Board, Chief Executive Officer and President
|
|
George
Syllantavos
|
132,500
|
Chief
Financial Officer and Director
|
|
Petros
Pappas
|
600,000
|
Director
|
|
Koert
Erhardt
|
50,000
|
Director
|
Maxim
Group LLC acted as placement agent with respect to the private placement of
the
units and received a placement fee equal to 4% in cash, or $453,000 of the
gross
proceeds, a non-accountable expense allowance equal to 1%, or $113,250 of the
gross proceeds and a contingent placement fee in the amount of 2% of the gross
proceeds, or $226,500, which is held in the trust account and will be paid
to
Maxim only upon consummation of a business combination. The warrants entitle
to
holders to purchase from us one share of our common stock at an exercise price
of $8.00.
The
securities were issued pursuant to the exemption from registration contained
in
Section 4(2) of the Securities Act as they were sold to sophisticated, wealthy
individuals. No underwriting discounts or commissions were paid with respect
to
such sales.
On
December 21, 2005,
we
consummated our initial public offering of 18,867,500 units. Each unit consists
of one share of common stock and one warrant. Each warrant entitles the holder
to purchase from us one share of our common stock at an exercise price of $8.00.
The units were sold at an offering price of $10.00 per unit, generating total
gross proceeds of $188,675,000. Maxim Group LLC acted as lead underwriter.
The
securities sold in the offering were registered under the Securities Act of
1933
on a registration statement on Form S-1 (No. 333-125662). The Securities and
Exchange Commission declared the registration statement effective on December
15, 2005.
On
December 15, 2005, we consummated a private placement whereby certain of our
officers and directors purchased an aggregate of 1,132,500 units at $10.00
per
unit, generating gross proceeds of $11,325,000. Maxim Group LLC acted as the
placement agent.
We
incurred a total of $7,547,000 in underwriting discounts and commissions,
$453,000 in placement fees and $2,900,380 of expenses related to the public
offering and private placement.
After
deducting the underwriting
discounts and commissions, the placement fee and the offering expenses, the
total net proceeds to us from the offering and the private placement was
approximately $189,125,000. Of
the
proceeds of the Offerings, $188,675,000 is being held in a trust account and
invested until the earlier of (i) the consummation of the first business
combination or (ii) the distribution of the trust account as described below.
The amount in the Trust Account includes $3,773,500 of contingent underwriting
compensation and $226,500 of contingent private placement fees which will be
paid to the underwriters if a business combination is consummated, but which
will be forfeited in part if public stockholders elect to have their shares
redeemed for cash if a business combination is not consummated. $599,163 of
the
net proceeds were used to repay debt and interest to Mr. Tsirigakis for a loan
used to cover expenses related to the public offering and the remaining proceeds
in the amount of $533,172 (less approximately $170,000 of additional financing
fees accrued but not yet paid) may be used to pay for business, legal and
accounting due diligence on prospective acquisitions and continuing general
and
administrative expenses.
From
inception through December 31, 2005, we have incurred $50,211 of expenses
towards the net proceeds that were not deposited into the trust account to
pay
operating expenses. The net proceeds deposited into the trust account remain
on
deposit in the trust account earning interest. As of December 31, 2005, there
was $188,858,542 held in the trust account, including interest income of
$183,542.
The
net
proceeds of the offering in the amount of $188,675,000 deposited into the trust
account have been invested in short-term U.S. Government Securities,
specifically Treasury Bills, having a maturity date of 180 days or
less.
Repurchases
of Equity Securities.
None
Item
6. Selected Financial Data
The
selected financial data presented below summarizes certain financial data which
has been derived from and should be read in conjunction with our financial
statements and notes thereto included in the section beginning on page F-1.
See also “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
| |
|
Period
from May 13, 2005
(Date
of Inception) to December
31, 2005
|
|
Income
Statement Data:
|
|
|
|
|
Formation
and Operating Costs
|
|
$
50,211
|
|
|
Interest
income
|
|
183,542
|
|
|
Provision
for income taxes
|
|
23,000
|
|
|
Net
income
|
|
110,331
|
|
|
Earnings
per share (basic and diluted)
|
|
0.01
|
|
| |
|
As
of
December
31, 2005
|
|
Balance
Sheet Data:
|
|
|
|
Investments
in trust account
|
|
$
188,858,542
|
|
|
Cash
|
|
593,281
|
|
|
Working
capital
|
|
185,225,951
|
|
|
Total
assets
|
|
189,579,589
|
|
|
Total
stockholders’ equity
|
|
120,574,551
|
|
Item
7. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
Overview
We
were
formed on May
13,
2005 to acquire, through a merger, capital stock exchange, asset acquisition
or
other similar business combination, one or more businesses in the shipping
industry.
Our
initial business combination must be with a target business or businesses whose
fair market value is at least equal to 80% of our net assets at the time of
such
acquisition. We intend to utilize cash derived from the proceeds of our recently
completed initial public offering, our capital stock, debt or a combination
of
cash, capital stock and debt, in effecting a business combination.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
expenses during the reporting period. Actual results could differ from those
estimates.
Management
does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying
financial statements.
Results
of Operations for the Period from May 13, 2005 (inception) to December 31,
2005
From
May
13, 2005 (the date of inception) through December 31, 2005, we incurred
$50,211
of operating expenses, which were paid from the net
proceeds that were not deposited into the trust account . During the
period,
we earned interest income of
$183,542 on the net proceeds of $188,675,000 that was deposited into the trust
account. Since we did not have any operations, all of our income was derived
from the interest income earned on funds held in the trust account. Our
operating expenses during the period consisted primarily of expenses related
to
office operations and professional fees. We also provided for $23,000 in income
taxes.
Commencing
in January 2006 and ending upon the acquisition of a target business, we began
incurring a fee of $7,500 per month for office space and certain other
additional services from the law firm of Schwartz & Weiss, P.C. In 2005, Mr.
Tsirigakis advanced a total of $590,000 at an interest rate of 4% per annum
for
payment of offering expenses on our behalf. These loans were repaid following
our initial public offering from the proceeds of the offering.
Liquidity
and Capital Resources.
On
December 15, 2005, we sold 1,132,500 units in a private placement to certain
of
our officers and directors. On December 21, 2005, we consummated our initial
public offering of 18,867,500 units. Each unit in the private placement and
the
public offering consists of one share of common stock and one redeemable common
stock purchase warrant. Each warrant entitles the holder to purchase from us
one
share of our common stock at an exercise price of $8.00. Our common stock and
warrants started trading separately as of February 27, 2006.
The
net
proceeds from the sale of our units, after deducting certain offering expenses
of $10,217,665 including underwriting discounts and commissions and placement
fees, were $189,807,335. Of this amount, $188,675,000 was placed in the trust
account, $599,163 was used to repay debt and interest to Mr. Tsirigakis for
a
loan used to cover expenses related to the public offering and the remaining
proceeds of $533,172 was deposited and is being held outside of the trust
account. The remaining proceeds (less $170,000 of additional financing fees
which are accrued but not yet paid) are available to be used by us to provide
for business, legal and accounting due diligence on prospective acquisitions
and
continuing general and administrative expenses. The net proceeds deposited
into
the trust account remain on deposit in the trust account earning interest.
As of
December 31, 2005, there was approximately $188,858,542 held in the trust
account, of which up to $4,000,000 will be paid to the underwriters if a
business combination is consummated, but which will be forfeited in part if
public stockholders elect to have their shares redeemed for cash if a business
combination is not consummated. We will use substantially all of the net
proceeds of the public offering to acquire a target business, including
identifying and evaluating prospective acquisition candidates, selecting the
target business, and structuring, negotiating and consummating the business
combination. To the extent that our capital stock is used in whole or in part
as
consideration to effect a business combination, the proceeds held in the trust
account as well as any other net proceeds not expended will be used to finance
the operations of the target business.
At
the
time we seek stockholder approval of our initial business combination, we will
offer each public stockholder the right to have such stockholder’s shares of
common stock redeemed for cash if the stockholder votes against the business
combination and the business combination is approved and completed. The actual
per-share redemption price will be equal to the amount in the trust account
(calculated as of two business days prior to the consummation of the proposed
business combination), inclusive of any interest, net of taxes payable, divided
by the number of shares sold in the public offering. We may effect a business
combination so long as public stockholders owning no more than 32.99% of the
shares sold in the offering vote against the business combination and exercise
their redemption rights. In accordance with the terms of the Offering, 6,598,000
shares of common stock are subject to possible redemption. Accordingly, at
December 31, 2005, $64,660,400, of the net proceeds from the Offering, has
been
classified as common stock subject to possible redemption in the Company’s
balance sheet.
We
believe we will have sufficient available funds outside of the trust account
to
operate through December 21, 2007, assuming that a business combination is
not
consummated during that time. We do not believe we will need to raise additional
funds in order to meet the expenditures required for operating our business.
However, we may need to raise additional funds through a private offering of
debt or equity securities if such funds are required to consummate a business
combination that is presented to us. We would only consummate such a financing
simultaneously with the consummation of a business combination.
Off-Balance
Sheet Arrangements
Options
and warrants issued in conjunction with our initial public offering are equity
linked derivatives and accordingly represent off balance sheet
arrangements. The options and warrants meet the scope exception in
paragraph 11(a) of FAS 133 and are accordingly not accounted for as derivatives
for purposes of FAS 133, but instead are accounted for as equity. See
Footnote 2 to the financial statements for more information.
Contractual
Obligations.
We
do not
have any long term debt, capital lease obligations, operating lease obligations,
purchase obligations or other long term liabilities.
Forward
Looking Statements
This
Annual Report on Form 10-K includes 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. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to known and unknown
risks, uncertainties and assumptions about us that may cause our actual results,
levels of activity, performance or achievements to be materially different
from
any future results, levels of activity, performance or achievements expressed
or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or
the negative of such terms or other similar expressions. Factors that might
cause or contribute to such a discrepancy include, but are not limited to,
those
described above under Item 1A “Risk Factors” and in our other Securities and
Exchange Commission filings. The following discussion should be read in
conjunction with our Financial Statements and related Notes thereto included
elsewhere in this report.
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates or
prices. We are not presently engaged in and, if a suitable business target
is
not identified by us prior to the prescribed liquidation date of the trust
account, we may not engage in, any substantive commercial business. Accordingly,
we are not and, until such time as we consummate a business combination, we
will
not be, exposed to risks associated with foreign exchange rates, commodity
prices, equity prices or other market-driven rates or prices. The net proceeds
of our initial public offering held in the trust account have been invested
only
in money market funds meeting certain conditions under Rule 2a-7 promulgated
under the Investment Company Act of 1940. Given our limited risk in our exposure
to money market funds, we do not view the interest rate risk to be significant.
Financial
statements are attached hereto following beginning on Page F-1.
None
An
evaluation of the effectiveness of our disclosure controls and procedures as
of
December 31, 2005 was made under the supervision and with the participation
of
our management, including our chief executive officer and chief financial
officer. Based on that evaluation, they concluded that our disclosure controls
and procedures are effective as of the end of the period covered by this report
to ensure that information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. During the period covered by this Annual
Report on Form 10-K, there has been no significant change in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Compliance
with Section 404 of the Sarbanes-Oxley Act of 2002
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (the Act), beginning with
our
Annual Report on Form 10-K for the fiscal year ending December 31, 2007, we
will
be required to furnish a report by our management on our internal control over
financial reporting. This report will contain, among other matters, an
assessment of the effectiveness of our internal control over financial reporting
as of the end of our fiscal year, including a statement as to whether or not
our
internal control over financial reporting is effective. This assessment must
include disclosure of any material weaknesses in our internal control over
financial reporting identified by management. If we identify one or more
material weaknesses in our internal control over financial reporting, we will
be
unable to assert our internal control over financial reporting is effective.
This report will also contain a statement that our independent registered public
accountants have issued an attestation report on management's assessment of
such
internal controls and conclusion on the operating effectiveness of those
controls.
Management
acknowledges its responsibility for internal controls over financial reporting
and seeks to continually improve those controls. We believe the system and
process documentation and evaluation needed to comply with Section 404 which
will begin in 2006 and continue in 2007 for documenting, evaluating and
monitoring our internal control over financial reporting is consistent with
the
objectives of Section 404 of the Act.
None
Our
current directors and executive officers are as follows:
| |
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Prokopios
(Akis) Tsirigakis
|
|
50
|
|
Chairman
of the Board, Chief Executive Officer and President
|
|
George
Syllantavos
|
|
41
|
|
Chief
Financial Officer, Secretary and Director
|
|
Christo
Anagnostou
|
|
57
|
|
Vice
President of Operations
|
|
Niko
Nikiforos
|
|
41
|
|
Vice
President of Business Development
|
|
Petros
Pappas
|
|
52
|
|
Director
|
|
Koert
Erhardt
|
|
49
|
|
Director
|
|
Tom
Søfteland
|
|
45
|
|
Director
|
Prokopios
(Akis) Tsirigakis
has been
our Chairman of the Board, Chief Executive Officer and President since
inception. Mr. Tsirigakis is experienced in ship management, ship ownership
and
overseeing new shipbuilding projects. Since November 2003, he has been the
Joint
Managing Director of Oceanbulk Maritime S.A., a dry cargo shipping company
that
has operated and managed as much as 1.6 million tons of deadweight vessels
and
which is part of the Oceanbulk Group of affiliated companies involved in the
service sectors of the shipping industry. Since November 1998, Mr. Tsirigakis
has been the Managing Director of Combine Marine Inc., a company which he
founded that provides ship management services to third parties and which is
part of the Oceanbulk Group. From 1991 to 1998, Mr. Tsirigakis was the
Vice-President and Technical Director of Konkar Shipping Agencies S.A. of
Athens, after having served as Konkar’s Technical Director from 1984 to 1991,
which at the time managed 16 dry bulk carriers, multi-purpose vessels and
tanker/combination carriers. From 1982 to 1984, Mr. Tsirigakis was the Technical
Manager of Konkar’s affiliate, Arkon Shipping Agencies Inc. of New York, a part
of the Archirodon Construction Group. He is a member of the Technical Committee
(CASTEC) of Intercargo, the International Association of Dry Cargo Shipowners,
and of the Technical Committees of Classification Societies. Mr. Tsirigakis
received his Masters and B.Sc. in Naval Architecture from The University of
Michigan, Ann Arbor and has three years of seagoing experience. Since its
initial public offering in February 2005, Mr. Tsirigakis has served on the
board
of directors of Dryships Inc., a company listed on the NASDAQ National Market
(NNM: DRYS) which provides international seaborne transportation services
carrying various dry-bulk cargoes.
George
Syllantavos has
been
our Chief Financial Officer and a member of our board of directors since
inception and our Secretary since December 2005. Since May 1999, he has been
President and General Manager of Vortex Ltd., an aviation consulting firm
specializing in strategic and fleet planning. From January 1998 to April 1999,
he served as a financial advisor to Hellenic Telecommunications Organization
S.A., where, on behalf of the Chief Executive Officer, he coordinated and led
the company’s listing on the New York Stock Exchange (NYSE:OTE) and where he had
responsibilities for the strategic planning and implementation of multiple
acquisitions of fixed-line telecommunications companies, including RomTelecom.
Mr. Syllantavos served as a financial and strategic advisor to both the Greek
Ministry of Industry & Energy (from June 1995 to May 1996) and the Greek
Ministry of Health (from May 1996 to January 1998), where, in 1997 and 1998,
he
helped structure the equivalent of a US$700 million bond issuance for the
payment of outstanding debts to supplier of the Greek National Health System.
From 1998 to 2004, he served as a member of the Investment Committee of Rand
Brothers & Co., a small U.S. merchant banking firm, where he reviewed and
analyzed more than 35 acquisition targets of small or medium sized
privately-held manufacturing firms in the U.S. and internationally, of which
he
negotiated, structured and directed the acquisition of three such firms with
transactions ranging in size from $7 million to $11 million. Mr. Syllantavos
has
a B.Sc. in Industrial Engineering from Roosevelt University and an MBA in
Operations Management, International Finance and Transportation Management
from
Northwestern University (Kellogg).
Christo
Anagnostou has
been
our Vice President of Operations since inception. Since May 2005, he has been
the General Manager of Combine Marine Inc., and since November 1999, he has
been
the General and Marine Operations Manager of Oceanbulk Maritime S.A., each
of
which are part of the Oceanbulk Group. In his capacities at Combine Marine
Inc.
and Oceanbulk Maritime S.A., he has been responsible for vessel acquisition
and
disposition transactions and the daily operational management of up to 32
vessels. From 1992 to October 1999, he served as the Operations Manager for
Cardiff Marine Inc., a shipping management company which at the time had a
fleet
of over 35 oceangoing dry-bulk, tanker, reefer and container vessels., From
1981
to 1991, Mr. Anagnostou was the Operations Manager for Hydroussa Shipping Co,
Ltd., and from 1974 to 1977, he was a Ship Operator for N.J. Goulandris (London)
Ltd., both of which are ship management companies based in London, England.
He
is a Supporting Member of the London Maritime Arbitrators Association. Mr.
Anagnostou received his B.Sc. in Economics from Athens Graduate University
of
Economics and Business Science and did his post graduate studies in Shipping
Management at the London School of Foreign Trade, Morley College - London.
Niko
Nikiforos
has been
our Vice President of Business Development since inception. Since September
1997, he has been the Managing Director of Oceanbulk Shipping and Trading S.A.,
which provides ocean transportation solutions for international commodity
companies and which, since December 2002, operates a regular liner service
between the United States and South America. Since 1997, he has also been the
Managing Director of Interchart Shipping Inc., which specializes in chartering
dry cargo ships and serves as the exclusive chartering broker for the Oceanbulk
Group. Since 1997, he has been the Commercial Director of Oceanbulk Maritime
S.A. From 1995 to 1997, he served as a Shipbroker for Link Maritime Enterprises
S.A., a ship brokering company. Mr. Nikiforos received his Diploma in Shipping
from the London School of Foreign Trade.
Petros
Pappas
has been
a member of the board of directors since inception. Throughout his career as
a
principal and manager in the shipping industry, Mr. Pappas has been involved
in
over 120 vessel acquisitions and disposals. In 1989, he founded Oceanbulk
Maritime S.A., a dry cargo shipping company that has operated managed vessels
aggregating as much as 1.6 million deadweight tons of cargo capacity. He
also founded the Oceanbulk Group of affiliated companies, which are involved
in
the service sectors of the shipping industry. The Oceanbulk Group is comprised
of Oceanbulk Maritime S.A., Interchart Shipping Inc., Oceanbulk Shipping and
Trading S.A., Interchart Shipping Inc., Oceanbulk Shipping and Trading S.A.,
Oceanbulk S & P, Combine Marine Inc., More Maritime Agencies Inc., and
Sentinel Marine Services Inc. Additionally, Mr. Pappas ranked among the top
25
Greek ship owners (by number of ocean going vessels) as evaluated by the U.S.
Department of Commerce’s 2004 report on the Greek shipping industry. Mr. Pappas
has been a Director of the UK Defense Club, a leading insurance provider of
legal defense services in the shipping industry worldwide, since January 2002,
and is a member of the Union of Greek Shipowners (UGS). Mr. Pappas received
his
B.A. in Economics and his MBA from The University of Michigan, Ann
Arbor.
Koert
Erhardt
has been
a member of the board of directors since inception. From September 2004 to
December 2004, he served as the Chief Executive Officer and a member of the
board of directors of CC Maritime S.A.M., an affiliate of the Coeclerici Group,
an international conglomerate whose businesses include shipping and transoceanic
transportation of dry bulk materials. From 1998 to September 2004, he served
as
General Manager of Coeclerici Armatori S.p.A. and Coeclerici Logistics S.p.A.,
affiliates of the Coeclerici Group, where he created a shipping pool that
commercially managed over 130 vessels with a carrying volume of 72 million
tons
and developed the use of Freight Forward Agreement trading as a hedging
mechanism to the pool’s exposure and positions. From 1994 to 1998, he served as
the General Manager of Bulkitalia, a prominent shipping concern which at the
time owned and operated over 40 vessels. From 1990 to 1994, Mr. Erhardt served
in various positions with Bulk Italia. From 1988 to 1990, he was the Managing
Director and Chief Operating Officer of Nedlloyd Dry Bulk, the dry bulk arm
of
the Nedlloyd Group, an international conglomerate whose interests include
container ship liner services, tankers, oil drilling rigs, pipe laying vessels
and ship brokering.. Mr. Erhardt received his Diploma in Maritime Economics
and
Logistics from Hogere Havenen Vervoersschool (now Erasmus University),
Rotterdam, and received his MBA International Executive Program at INSEAD,
Fontainebleau, France. Mr. Erhardt has also studied at the London School of
Foreign Trade.
Tom
Søfteland
has been
a member of the board of directors since inception. Since October 1996, he
has
been the Chief Executive Officer of Capital Partners A.S. of Bergen, Norway,
a
financial services firm that he founded and which specializes in shipping and
asset finance. From 1990 to October 1996, he held various positions at Industry
& Skips Banken, ASA, a bank specializing in shipping, most recently as its
Deputy Chief Executive Officer. Mr. Søfteland received his B.Sc. in Economics
from the Norwegian School of Business and Administration (NHH).
Board
of Directors
Our
board
of directors is divided into three classes with only one class of directors
being elected in each year and each class serving a three-year term. The term
of
office of the first class of directors, consisting of Petros Pappas, will expire
at our first annual meeting of stockholders. The term of office of the second
class of directors, consisting of Koert Erhardt and Tom Søfteland, will expire
at the second annual meeting. The term of office of the third class of
directors, consisting of Akis Tsirigakis and George Syllantavos, will expire
at
the third annual meeting.
These
individuals are playing key roles in identifying and evaluating prospective
acquisition candidates, selecting the target business, and structuring,
negotiating and consummating its acquisition. None of these individuals has
been
a principal of or affiliated with a public company or blank check company that
executed a business plan similar to our business plan and none of these
individuals is currently affiliated with such an entity. However, we believe
that the skills and expertise of these individuals, their collective access
to
acquisition opportunities and ideas, their contacts, and their transaction
expertise should enable them to successfully identify and effect an acquisition
although we cannot assure you that they will, in fact, be able to do
so.
Director
independence
Our
board
of directors has determined that Mr. Erhardt and Mr. Søfteland are "independent
directors" as defined in the American Stock Exchange listing standards and
Rule
10A-3 of the Exchange Act. We intend to locate and appoint at least one
additional independent director to serve on our board of directors who will
serve on our audit committee.
Board
committees
We
have
an audit committee, a nominating committee and a compensation committee. Our
board of directors has adopted a charter for the audit committee as well as
a
code of conduct and ethics that governs the conduct of our directors, officers
and employees.
Our
audit
committee consists of Mr. Erhardt, Mr. Søfteland and Mr. Pappas. Each member of
our audit committee is financially literate under the current listing standards
of the American Stock Exchange, and our board of directors has determined that
Mr. Søfteland qualifies as an "audit committee financial expert," as such term
is defined by SEC rules. We intend to locate and appoint at least one additional
independent director to our audit committee by December 21, 2006, at which
time
Mr. Pappas will resign from his position as a member of the audit committee.
The
audit
committee will review the professional services and independence of our
independent registered public accounting firm and our accounts, procedures
and
internal controls. The audit committee will also select our independent
registered public accounting firm, review and approve the scope of the annual
audit, review and evaluate with the independent public accounting firm our
annual audit and annual consolidated financial statements, review with
management the status of internal accounting controls, evaluate problem areas
having a potential financial impact on us that may be brought to the committee's
attention by management, the independent registered public accounting firm
or
the board of directors, and evaluate all of our public financial reporting
documents.
Code
of conduct and ethics
We
have
adopted a code of conduct and ethics applicable to our directors, officers
and
employees in accordance with applicable federal securities laws and the rules
of
the American Stock Exchange.
Section
16(a) of the Securities Exchange Act requires our directors, executive officers
and persons who own more than 10% of our common stock to file reports of
ownership and changes in ownership of our common stock with the Securities
and
Exchange Commission. Directors, executive officers and persons who own more
than
10% of our common stock are required by Securities and Exchange Commission
regulations to furnish to us copies of all Section 16(a) forms they file. To
our
knowledge, based solely upon review of the copies of such reports received
or
written representations from the reporting persons, we believe that during
the
year ended December 31, 2005, our directors, executive officers and persons
who
own more than 10% of our common stock complied with all Section 16(a) filing
requirements.
Item
11. Executive Compensation
No
executive officer has received any cash compensation for services rendered
and
no compensation of any kind, including finder’s and consulting fees, will be
paid to any of our officers and directors, or any of their respective
affiliates, for services rendered prior to or in connection with a business
combination. However, these individuals will be reimbursed for any out-of-pocket
expenses incurred in connection with activities on our behalf such as
identifying potential target businesses and performing due diligence on suitable
business combinations. Such individuals may be paid consulting, management
or
other fees from target businesses as a result of the business combination,
with
any and all amounts being fully disclosed to stockholders, to the extent then
known, in the proxy solicitation materials furnished to the stockholders. There
is no limit on the amount of these out-of-pocket expenses and there will be
no
review of the reasonableness of the expenses by anyone other than our board
of
directors, which includes persons who may seek reimbursement, or a court of
competent jurisdiction if such reimbursement is challenged. Because none of
our
directors may be deemed “independent,” we will generally not have the benefit of
independent directors examining the propriety of expenses incurred on our behalf
and subject to reimbursement.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
following table sets forth, as of March 24, 2006, certain information regarding
beneficial ownership of our common stock by each person who is known by us
to
beneficially own more than 5% of our common stock. The table also identifies
the
stock ownership of each of our directors, each of our officers, and all
directors and officers as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
Shares
of
common stock which an individual or group has a right to acquire within 60
days
pursuant to the exercise or conversion of options, warrants or other similar
convertible or derivative securities are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group,
but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
|
|
Amount
and
Nature
of
Beneficial
Ownership(2)(3)
|
Approximate
Percentage
of
Outstanding
Common
Stock
|
|
Prokopios
(Akis) Tsirigakis
|
4,007,392
|
12.6%
|
|
George
Syllantavos
|
1,486,539
|
4.66%
|
|
Christo
Anagnostou
|
116,108
|
*
|
|
Niko
Nikiforos
|
116,108
|
*
|
|
Petros
Pappas
|
3,947,873
|
11.53%
|
|
Koert
Erhardt
|
340,269
|
*
|
|
Tom
Søfteland
|
145,135
|
*
|
|
Sapling,
LLC (4)
|
1,105,467
|
3.8%
|
|
Fir
Tree Recovery (4)
|
405,533
|
1.4%
|
|
Amaranth
LLC (5)
|
2,235,000
|
7.7%
|
|
Amaranth
Advisors LLC (5)
|
2,235,000
|
7.7%
|
|
Nicholas
M. Maounis (5)
|
2,235,000
|
7.7%
|
|
Satellite
Fund I, LP (6)
|
70
|
*
|
|
Satellite
Fund II, LP (6)
|
218,290
|
*
|
|
Satellite
Fund IV, LP (6)
|
43,940
|
*
|
|
Satellite
Overseas Fund, Ltd. (6)
|
493,640
|
1.7%
|
|
The
Apogee Fund, Ltd. (6)
|
101,620
|
*
|
|
Satellite
Overseas Fund V, Ltd. (6)
|
55,270
|
*
|
|
Satellite
Overseas Fund VI, Ltd. (6)
|
29,440
|
*
|
|
Satellite
Overseas Fund VII, Ltd. (6)
|
120
|
*
|
|
Satellite
Overseas Fund VIII, Ltd. (6)
|
5,370
|
*
|
|
Satellite
Overseas Fund IX, Ltd. (6)
|
43,940
|
*
|
|
Satellite
Strategic Finance Partners, Ltd. (6)
|
501,000
|
1.73%
|
|
Satellite
Asset Management, L.P. (6)
|
1,492,700
|
5.14%
|
|
Satellite
Fund Management LLC (6)
|
1,492,700
|
5.14%
|
|
Satellite
Advisors, LLC (6)
|
262,300
|
*
|
|
All
directors and executive officers as a group (7
individuals)
|
10,159,424
|
35.00%
|
———————
*less
than one (1%) percent.
(1)
Unless otherwise indicated, the business address of each of the individuals
is
c/o Schwartz & Weiss, P.C., 457 Madison Avenue, New York, New York 10022.
(2)
Our
officers and directors have agreed to surrender to us for cancellation up to
an
aggregate of 200,000 shares in the event, and to the extent, stockholders
exercise their right to redeem their shares for cash upon a business
combination. The share amounts do not reflect any surrender of
shares.
(3)
Does
not include shares of common stock issuable upon exercise of warrants that
are
not exercisable in the next 60 days.
(4)
Derived from a joint filing of a Schedule 13G on February 9, 2006 filed by
Sapling, LLC and Fir Tree Recovery. Fir Tree, Inc. is the investment manager
of
both Sapling LLC and Fir Tree Recovery.
(5)
Derived from a Schedule 13G/A filed on February 10, 2006 by
Amaranth LLC, Amaranth Advisors LLC and Nicholas M. Maounis. Amaranth Advisors
L.L.C. is the trading advisor for Amaranth LLC ("Amaranth") and has been granted
investment discretion over portfolio investments, including the Common Stock
(as
defined below), held by it. Maounis is the managing member of Amaranth Advisors
L.L.C. and may, by virtue of his position as managing member, be deemed to
have
power to direct the vote and disposition of the Common Stock held for
Amaranth.
(6)
Derived from a joint filing of a Schedule 13G on February 14, 2006 by Satellite
I, Satellite II, Satellite IV (collectively, the "Delaware Funds") over which
Satellite Advisors has discretionary trading authority, as general partner,
and
(ii) Satellite Overseas, Apogee, Satellite Overseas V, Satellite Overseas VI,
Satellite Overseas VII, Satellite Overseas VIII, Satellite Overseas IX and
SSFP
(collectively, the "Offshore Funds" and together with the Delaware Funds, the
"Satellite Funds") over which Satellite Asset Management has discretionary
investment trading authority. The general partner of Satellite Asset Management
is Satellite Fund Management. Satellite Fund Management and Satellite Advisors
each share the same four members that make investment decisions on behalf of
the
Satellite Funds.
Item
13. Certain Relationships and Related Transactions
On
May
17, 2005, we issued an aggregate of 9,026,924 shares of our common stock to
the
individuals set forth below for $25,000 in cash, at a purchase price of $0.003
per share, as follows:
|
Name
|
|
Number
of
Shares
|
|
Relationship
to Us
|
|
Prokopios
(Akis) Tsirigakis
|
|
8,915,712
|
|
Chairman
of the Board, Chief Executive Officer and President
|
|
George
Syllantavos
|
|
22,387
|
|
Chief
Financial Officer and Director
|
|
Christo
Anagnostou
|
|
10,832
|
|
Vice
President of Operations
|
|
Niko
Nikiforos
|
|
10,832
|
|
Vice
President of Business Development
|
|
Petros
Pappas
|
|
22,387
|
|
Director
|
|
Koert
Erhardt
|
|
22,387
|
|
Director
|
|
Tom
Søfteland
|
|
22,387
|
|
Director
|
On
June
6, 2005, Mr. Tsirigakis transferred an aggregate of 3,228,750 of his shares
for
$0.003 per share to the other officers and directors named above as
follows:
|
Name
|
Number
of
Shares
|
|
George
Syllantavos
|
1,331,652
|
|
Christo
Anagnostou
|
169,706
|
|
Niko
Nikiforos
|
169,706
|
|
Petros
Pappas
|
699,768
|
|
Koert
Erhardt
|
428,959
|
|
Tom
Søfteland
|
428,959
|
On
October 19, 2005, Mr. Tsirigakis transferred an additional 2,029,570 shares
and
Messrs. Anagnostou, Nikiforos, Erhardt and Søfteland transferred an aggregate of
596,148 of the June 6, 2005 shares to Mr. Pappas.
The
holders of the majority of these shares are entitled to make up to two demands
that we register these shares. The holders of the majority of these shares
may
elect to exercise these registration rights at any time after the date on which
these shares of common stock are released from escrow, which, except in limited
circumstances, is not before December 15, 2008. In addition, these stockholders
have certain “piggy-back” registration rights on registration statements filed
subsequent to the date on which these shares of common stock are released from
escrow. We will bear the expenses incurred in connection with the filing of
any
such registration statements.
On
December 15, 2005, we issued an aggregate of 1,132,500 units, including shares
of common stock and warrants to purchase common stock in a private placement
to
the individuals set forth below for $11,325,000 in cash, at a purchase price
of
$10.00 per share, as follows:
|
Name
|
|
Number
of
Units
|
|
Relationship
to Us
|
|
Prokopios
(Akis) Tsirigakis
|
|
350,000
|
|
Chairman
of the Board, Chief Executive Officer and President
|
|
George
Syllantavos
|
|
132,500
|
|
Chief
Financial Officer and Director
|
|
Petros
Pappas
|
|
600,000
|
|
Director
|
|
Koert
Erhardt
|
|
50,000
|
|
Director
|
We
have
granted the holders of such units demand and “piggy-back” registration rights
with respect to the 1,132,500 shares, the 1,132,500 warrants and the 1,132,500
shares underlying the warrants at any time commencing on the date we announce
that we have entered into a letter of intent with respect to a proposed a
business combination. The demand registration may be exercised by the holders
of
a majority of such units. We will bear the expenses incurred in connection
with
the filing of any such registration statements.
Mr.
Tsirigakis advanced a total of $590,000 at an interest rate of 4% per annum
to
us on May 17, May 26 and December 15, 2005 to cover expenses related to the
initial public offering. We repaid these loans with interest upon completion
of
the public offering.
We
will
reimburse our officers and directors for any reasonable out-of-pocket business
expenses incurred by them in connection with certain activities on our behalf
such as identifying and investigating possible target businesses and business
combinations. There is no limit on the amount of accountable out-of-pocket
expenses reimbursable by us, which will be reviewed only by our board or a
court
of competent jurisdiction if such reimbursement is challenged.
All
ongoing and future transactions between us and any of our officers and directors
or their respective affiliates, including loans by our officers and directors,
will be on terms believed by us to be no less favorable than are available
from
unaffiliated third parties and such transactions or loans, including any
forgiveness of loans, will require prior approval in each instance by a majority
of our uninterested “independent” directors (to the extent we have any) or the
members of our board who do not have an interest in the transaction, in either
case, who had access, at our expense, to our attorneys or independent legal
counsel.
During
the fiscal year ended December 31, 2005, our principal independent accountant
was Goldstein Golub Kessler LLP, the services of which were provided in the
following categories and amount:
Audit
Fees
The
aggregate fees billed by Goldstein Golub Kessler LLP for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended December 31, 2005 and for services performed in connection with the
Company's registration statement on Form S-1 filed in 2005, were approximately
$59,238.
Audit
Related Fees
Other
than the fees described under the caption "Audit Fees" above, Goldstein Golub
Kessler LLP did not bill any fees for services rendered to us during fiscal
year
2005 for assurance and related services in connection with the audit or review
of our financial statements.
Tax
Fees
There
were no fees billed by Goldstein Golub Kessler LLP for professional services
rendered during the fiscal year ended December 31, 2005 for tax compliance,
tax
advice, and tax planning.
All
Other Fees
There
were no fees billed by Goldstein Golub Kessler LLP for other professional
services rendered during the fiscal year ended December 31, 2005.
Pre-Approval
of Services
Since
our
Audit Committee was not formed until December 2005, the Audit Committee did
not
pre-approve all of the foregoing services although any service rendered prior
to
the formation of our Audit Committee were approved by our board of directors.
Since the formation of our Audit Committee and on a going-forward basis, in
accordance with Section 10A(i) of the Securities Exchange Act of 1934, before
we
engage our independent accountant to render audit and non-audit services, the
engagement has been and will be approved by our audit committee.
PART
IV
Item
15. Exhibits and Financial Statement Schedules
(a)(1)
Financial
Statements
An
index
to Consolidated Financial Statements appears on page F-1.
(b)
Exhibits
| |
|
|
|
Exhibit
No.
|
|
Description
|
|
3.1
|
|
Form
of Third Amended and Restated Certificate of Incorporation
(1)
|
|
3.2
|
|
By-laws
(1)
|
|
4.1
|
|
Specimen
Unit Certificate (1)
|
|
4.2
|
|
Specimen
Common Stock Certificate (1)
|
|
4.3
|
|
Specimen
Warrant Certificate (1)
|
|
4.4
|
|
Form
of Warrant Agreement between American Stock Transfer & Trust Company
and the Registrant (1)
|
|
10.1
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Akis
Tsirigakis (1)
|
|
10.2
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and. George
Syllantavos (1)
|
|
10.3
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Christo
Anagnostou (1)
|
|
10.4
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Niko
Nikiforos (1)
|
|
10.5
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Koert
Erhardt (1)
|
|
10.6
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Tom
Søfteland (1)
|
|
10.7
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Petros
Pappas (1)
|
|
10.8
|
|
Form
of Investment Management Trust Agreement between American Stock Transfer
& Trust Company and the Registrant (1)
|
|
10.9
|
|
Form
of Stock Escrow Agreement between the Registrant, American Stock
Transfer
& Trust Company and the Initial Stockholders (1)
|
|
10.10
|
|
Form
of Services Agreement with Schwartz & Weiss, P.C.
(1)
|
|
10.11
|
|
Promissory
Note dated May 17, 2005 issued to Akis Tsirigakis (1)
|
|
10.12
|
|
Promissory
Note dated May 26, 2005 issued to Akis Tsirigakis (1)
|
|
10.13
|
|
Form
of Registration Rights Agreement among the Registrant and the Initial
Stockholders (1)
|
|
10.14
|
|
Form
of Placement Unit Agreement among the Registrant, Maxim Group LLC
and the
Initial Stockholders (1)
|
|
14
|
|
Code
of Business Conduct and Ethics (1)
|
|
31.1
|
|
Certification
of the Principal Executive Officer and Principal Financial Officer
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as
amended
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a) of
the
Securities Exchange Act of 1934, as amended
|
|
32
|
|
Certification
of the Principal Executive Officer and Principal Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
The
Sarbanes-Oxley Act of 2002
|
(1)
Incorporated by reference to the Registrant’s Registration Statement on Form S-1
(File No. 333-125662).
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) 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.
| |
STAR
MARITIME ACQUISITION CORPORATION
|
|
March
31, 2006
|
By: /s/
Prokopios (Akis) Tsirigakis
|
| |
Prokopios
(Akis) Tsirigakis, Chairman, Chief Executive Officer
and President
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
March
31, 2006
|
By: /s/
Prokopios (Akis) Tsirigakis
|
| |
Prokopios
(Akis) Tsirigakis, Chairman,
Chief Executive Officer
and President
|
| |
|
|
March
31, 2006
|
By: /s/
George Syllantavos
|
| |
George
Syllantavos, Chief Financial Officer, Secretary and Director
|
| |
|
|
March
31, 2006
|
By: /s/
Koert Erhardt
|
| |
Koert
Erhardt, Director
|
| |
|
|
March
31, 2006
|
By: /s/
Tom Søfteland
|
| |
Tom
Søfteland,
Director
|
| |
|
|
March
31, 2006
|
By: /s/
Petros Pappas
|
| |
Petros
Pappas, Director
|
Star
Maritime Acquisition Corp.
(a
corporation in the development stage)
Index
to Financial
Statements
Financial
Statements
| |
Page
|
|
Report
of independent registered public accounting firm
|
F-2
|
|
Balance
sheet as of December 31, 2005
|
F-3
|
|
Income
statement for the period from May 13, 2005 (inception) to December
31,
2005
|
F-4
|
|
Statement
of stockholders’ equity for the period from May 13, 2005
(inception) to December 31, 2005
|
F-5
|
|
Statement
of cash flows for the period from May 13, 2005 (inception) to
December 31, 2005
|
F-6
|
|
Notes
to financial statements
|
F-7
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Shareholders
Star
Maritime Acquisition Corp.
We
have
audited the accompanying balance sheet of Star Maritime Acquisition Corp. (a
corporation in the development stage) as of December 31, 2005 and the related
statements of income, stockholders’ equity and cash flows for the period from
May 13, 2005 (inception) through December 31, 2005. These financial statements
are the responsibility of the company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Star Maritime Acquisition Corp.
as
of December 31, 2005 and the results of its operations and its cash flows for
the period from May 13, 2005 (inception) through December 31, 2005 in conformity
with United States generally accepted accounting principles.
/s/
Goldstein
Golub Kessler LLP
Goldstein
Golub Kessler LLP
New
York,
New York
March
29,
2006
Star
Maritime Acquisition Corp.
(a
corporation in the development stage)
| |
|
December
31, 2005
|
|
|
Assets
|
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
|
|
$
|
593,281
|
|
|
Investments in trust account
|
|
|
188,858,542
|
|
|
Prepaid expenses and other current assets
|
|
|
118,766
|
|
|
Total
Current Assets
|
|
$
|
189,570,589
|
|
| Other
Asset-Deferred Tax Asset |
|
$ |
9,000 |
|
| Total
Assets |
|
$ |
189,579,589 |
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
| |
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable & accrued expenses
|
|
|
344,638
|
|
|
Deferred
underwriting fees
|
|
|
4,000,000
|
|
| |
|
|
|
|
|
Total
liabilities
|
|
|
4,344,638
|
|
| |
|
|
|
|
|
Common
Stock, $.0001 par value, 6,598,000 shares subject
|
|
|
|
|
|
to
possible redemption, at redemption value of $9.80 per
share
|
|
|
64,660,400
|
|
| |
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
| |
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
Preferred
Stock, $.0001 par value; authorized, 1,000,000 shares; none
issued
|
|
|
-
|
|
|
or outstanding
|
|
|
|
|
|
Common
Stock, $.0001 par value; authorized, 100,000,000 shares;
|
|
|
2,903
|
|
|
29,026,924 shares issued and outstanding
|
|
|
|
|
|
(including
6,598,000 shares subject to possible redemption)
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
120,461,317
|
|
|
Earnings
accumulated in the development stage
|
|
|
110,331
|
|
|
Total
Stockholders' Equity
|
|
|
120,574,551
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
189,579,589
|
|
See
accompanying notes to financial statements
Star
Maritime Acquisition Corp.
(a
corporation in the development stage)
Income
Statement
| |
|
Period
from
|
|
| |
|
May
13, 2005
|
|
| |
|
(inception)
to
|
|
| |
|
December
31, 2005
|
|
|
Formation
and operating costs
|
|
$
|
(50,211
|
)
|
|
Interest
income
|
|
|
183,542
|
|
|
Income
before provision for income taxes
|
|
|
133,331
|
|
|
Provision
for income taxes
|
|
|
23,000
|
|
|
Net
income
|
|
$
|
110,331
|
|
|
Weighted
average shares outstanding (basic and diluted)
|
|
|
9,918,282
|
|
|
Earnings
per share (basic and diluted)
|
|
$
|
0.01
|
|
See
accompanying notes to the financial statements
Star
Maritime Acquisition Corp.
(a
corporation in the development stage)
| |
|
|
|
|
|
|
|
Earnings
|
|
|
|
| |
|
|
|
|
|
|
|
accumulated
|
|
|
|
| |
|
|
|
|
|
Additional
|
|
in
the
|
|
Total
|
|
| |
|
Common
Stock
|
|
paid-in
|
|
development
|
|
stockholders'
|
|
| |
|
Shares
|
|
Amount
|
|
capital
|
|
stage
|
|
equity
|
|
|
May
13, 2005 (inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Issuance on May, 17, 2005 at $.003 per share
|
|
|
9,026,924
|
|
$
|
903
|
|
$
|
24,097
|
|
|
-
|
|
$
|
25,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement issued December 15, 2005 at $10 per share
|
|
|
1,132,500
|
|
|
113
|
|
|
11,324,887
|
|
|
|
|
|
11,325,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued December 21, 2005 at $10 per share
|
|
|
18,867,500
|
|
|
1,887
|
|
|
188,673,113
|
|
|
|
|
|
188,675,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
of offerings
|
|
|
|
|
|
|
|
|
(14,900,380
|
)
|
|
|
|
|
(14,900,380
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
subject to possible conversion of 6,598,000 shares
|
|
|
|
|
|
|
|
|
(64,660,400
|
)
|
|
|
|
|
(64,660,400
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
110,331
|
|
|
110,331
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
29,026,924
|
|
$
|
2,903
|
|
$
|
120,461,317
|
|
$
|
110,331
|
|
$
|
120,574,551
|
|
See
accompanying notes to financial statements
Star
Maritime Acquisition Corp.
(a
corporation in the development stage)
| |
|
Period
from
|
|
| |
|
May
13, 2005
|
|
| |
|
(inception)
to
|
|
| |
|
December
31, 2005
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
Income
|
|
$
|
110,331
|
|
|
Adjustments
to reconcile net income to net cash used in operating
activities:
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
| Increase
in value of trust account |
|
|
(183,542 |
)
|
| Increase
in deferred tax asset |
|
|
(9,000
|
)
|
|
Increase
in accounts payable and accrued expenses
|
|
|
174,053
|
|
|
Increase
in prepaid expenses and other current assets
|
|
|
(118,766
|
)
|
|
Net
cash used in operating activities
|
|
|
(26,924
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
Payment
to trust account
|
|
|
(188,675,000
|
)
|
|
Net
cash used in investing activities
|
|
|
(188,675,000
|
)
|
| |
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Gross
proceeds from public offering
|
|
|
188,675,000
|
|
|
Gross
proceeds from private offering
|
|
|
11,325,000
|
|
|
Proceeds
of notes payable to stockholder
|
|
|
590,000
|
|
|
Repayment
of notes payable to stockholder
|
|
|
(590,000
|
)
|
|
Proceeds
from sale of shares of common stock
|
|
|
25,000
|
|
|
Payment
of offering costs
|
|
|
(10,729,795
|
)
|
|
Net
cash provided by financing activities
|
|
|
189,295,205
|
|
|
Net
increase in cash
|
|
|
593,281
|
|
|
Cash,
beginning of period
|
|
|
-
|
|
|
Cash,
end of period
|
|
$
|
593,281
|
|
|
Supplemental
cash disclosure
|
|
|
|
|
|
Interest
paid
|
|
$
|
9,163
|
|
|
Supplemental
schedule of non-cash financing activites
|
|
|
|
|
|
Accrual of deferred underwriting fees
|
|
$
|
4,000,000
|
|
|
Accrual of offering costs
|
|
|
170,585
|
|
See
accompanying notes to financial statements
Star
Maritime Acquisition Corp.
(a
corporation in the development stage)
December
31, 2005
1.
- Organization, proposed business operations and summary of significant
accounting policies
Nature
of Operations
Star
Maritime Acquisition Corp. (the “Company”) was incorporated in Delaware on May
13, 2005. The Company was formed to serve as a vehicle for the acquisition
through a merger, capital stock exchange, asset acquisition, or other similar
business combination (“Business Combination”) with one or more businesses in the
shipping industry. The Company has neither engaged in any operations nor
generated revenue. At December 31, 2005 the Company had not yet commenced any
operations. All activity through December 31, 2005 relates to the Company’s
formation, private placement and public offering. The Company has selected
December 31 as its fiscal year end. The Company is considered to be in the
development stage and is subject to the risks associated with activities of
development stage companies.
The
registration statement for the Company’s initial public offering (the “Public
Offering”) was declared effective on December 15, 2005. The Company completed a
private placement (the “Private Placement”) on such date and received net
proceeds of $10,532,250. The Company consummated the Public Offering on December
21, 2005 and received net proceeds of $174,567,370. The Company’s management has
broad discretion with respect to the specific application of the net proceeds
of
the Private Placement and the Public Offering (collectively the “Offerings”) (as
described in Note 2), although substantially all of the net proceeds of the
Offerings are intended to be generally applied toward consummating a business
combination with a target company. As used herein, a “target business” shall
include an operating business in the international maritime industry and a
“business combination” shall mean the acquisition by the Company of a target
business.
Of
the
proceeds of the Offerings, $188,675,000 is being held in a trust account (“Trust
Account”) and invested until the earlier of (i) the consummation of the first
business combination or (ii) the distribution of the Trust Account as described
below. The amount in the Trust Account includes $3,773,500 of contingent
underwriting compensation and $226,500 of contingent private placement fees
(collectively, the “Discount”) which will be paid to the underwriters if a
business combination is consummated, but which will be forfeited in part if
public stockholders elect to have their shares redeemed for cash if a business
combination is not consummated. The remaining proceeds may be used to pay for
additional financing costs accrued but not yet paid, business, legal and
accounting due diligence on prospective acquisitions and continuing general
and
administrative expenses.
The
Company, after signing a definitive agreement for the acquisition of a target
business, will submit such transaction for stockholder approval. In the event
that public stockholders owning 33% or more of the outstanding stock sold in
the
Proposed Offerings vote against the business combination and elect to have
the
Company redeem their shares for cash, the business combination will not be
consummated. All of the Company’s stockholders prior to the Proposed Offerings,
including all of the officers and directors of the Company (“Initial
Stockholders”), have agreed to vote their 9,026,924 founding shares of common
stock in accordance with the vote of the majority in interest of all other
stockholders of the Company with respect to any business combination and to
vote the shares they acquired in the Private Placement or in the
aftermarket in favor of the business combination. After consummation of the
Company’s first business combination, all of these voting safeguards will no
longer be applicable.
With
respect to the first business combination which is approved and consummated,
any
holder of shares sold in the Public Offering, other than the Initial
Stockholders and their nominees (the “Public Stockholders”) who voted against
the business combination may demand that the Company redeem his or her shares.
The per share redemption price will equal $10.00 per share (inclusive of a
pro
rata portion of the discount ($.20 per share) and interest earned thereon).
Accordingly, Public Stockholders holding 32.99% of the aggregate number of
shares sold in the Proposed Offerings may seek redemption of their shares in
the
event of a business combination.
The
Company’s Certificate of Incorporation provides for mandatory liquidation of the
Company, without stockholder approval, in the event that the Company does not
consummate a business combination within 18 months from the date of consummation
of the Public Offering, or 24 months from the consummation of the Public
Offering if certain extension criteria have been satisfied. Our officers and
directors agreed to waive their respective rights to participate in any
liquidation distribution occuring upon our failure to consummate a business
combination with respect to those shares of common stock acquired by them prior
to the Public Offering and with respect to the shares included in the
1,132,000 units they purchased in the Private Placement. In addition, the
underwriters have agreed to waive their rights to the $3,773,500 of contingent
compensation and $226,500 of placement fees deposited in the trust account
for
their benefit. Accordingly, in the event we lquidate, our public stockholders
will receive $10.00 per unit plus interest (net of taxes payable and that
portion of the earned interest previously released to us). We will pay the
costs
of liquidation and dissolution from our remaining assets outside of the trust
account.
Cash
and cash equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
The
company maintains cash in bank deposit accounts which, at times, exceed
federally insured limits. The company has not experienced any losses on these
accounts.
Stock
split
On
October 18, 2005, the Company effected a .44430784 for one stock split in the
form of a stock dividend. All share and per share amounts in the financial
statements give retroactive effect to this stock split.
Income
taxes
Deferred
income taxes are provided for the differences between the bases of assets and
liabilities for financial reporting and income tax purposes. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Recently
issued accounting pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying
financial statements.
Earnings
per common share
Basic
earnings per share are computed by dividing the net income by the weighted
average common shares outstanding during the period. Diluted earnings per share
reflects the additional dilution for all potentially dilutive securities such
as
stock warrants and options. The effect of the 20,000,000 outstanding warrants,
issued in connection with the initial public offering and the private placement
described in Note 2 has not been considered in the diluted earnings per share
since the warrants are contingently exercisable.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
expenses during the reporting period. Actual results could differ from those
estimates.
2.
-- Offerings
Public
Offering
On
December 21, 2005, the Company sold 18,867,500 units to the public at a price
of
$10.00 per unit. Each unit consists of one share of the Company’s common stock,
$.0001 par value, and one redeemable common stock purchase warrant (“warrant”).
Each warrant entitles the holder to purchase from the Company one share of
common stock at an exercise price of $8.00 commencing the later of the
completion of a business combination with a target business or December 15,
2005
and expiring December 15, 2009. The warrants are redeemable at a price of $.01
per warrant upon 30 days notice after the warrants become exercisable, only
in
the event that the last sale price of the common stock is at least $14.25 per
share for any 20 trading days within 30 trading day period ending on the third
day prior to date on which notice of redemption is given.
Private
Placement
On
December 15, 2005, the Company sold to certain of its officers and directors
an
aggregate of 1,132,500 units identical to the units sold in the Public Offering
at a price of $10.00 per unit.
3.
-- Notes payable to stockholders
The
Company issued unsecured promissory notes to the Chief Executive Officer of
the
Company totaling $590,000 on May 17, May 26 and December 15, 2005. The Notes
carried an interest rate of 4% per annum and were paid in full with proceeds
from the Public Offering.
4.
- Income Taxes
The
provision for income taxes consists of the following:
|
|
|
|
|
|
Current
- State and Local
|
|
$
|
32,000
|
|
|
Deferred
- State and Local
|
|
|
(9,000
|
) |
|
Total
|
|
$
|
23,000
|
|
| |
The
total
provision for income taxes differs from the amount which would be computed
by
applying the U.S. Federal income tax rate to income before provision for
income
taxes as follows:
| |
|
|
|
|
|
Statutory
federal income tax rate
|
|
|
34
|
%
|
|
State
and local income taxes
|
|
|
17
|
%
|
|
Interest
income not taxable for federal tax purposes
|
|
|
(34
|
%)
|
|
Effective
Tax Rate
|
|
|
17
|
%
|
The tax effect of temporary differences that give rise
to the net deferred tax asset is as follows:
|
Startup
costs not currently deductible
|
|
$
|
9,000
|
|
5.
-- Commitments and Contingencies
The
Company has agreed to pay to an unaffiliated third party, $7,500 a month for
24
months, commencing in January, 2006, for office space and general and
administrative expenses.
The
Initial Stockholders have agreed to surrender up to an aggregate of 200,000
of
their shares of common stock to the Company for cancellation upon consummation
of a business combination in the event public stockholders exercise their right
to have the Company redeem their shares for cash. The number of shares that
the
Initial Stockholders will surrender will be determined by calculating the dollar
amount of the Trust Account (exclusive of interest) paid to redeeming
stockholders above the amount attributable to such stockholders ($9.23 per
share) and the Discount ($.20 per share) and dividing it by $10.00 (the value
attributed to the shares for purposes of this calculation). Accordingly, for
each 1,000 shares redeemed up to 3,508,772 shares, the Initial Stockholders
will
surrender 57 shares for cancellation.
The
Company has engaged the representative of the underwriters, on a non-exclusive
basis, as its agent for the solicitation of the exercise of the warrants. To
the
extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Securities and Exchange Commission, the Company has agreed
to
pay the representative for bona fide services rendered a commission equal to
5%
of the exercise price for each warrant exercised more than one year after the
date of the prospectus if the exercise was solicited by the underwriters. In
addition to soliciting, either orally or in writing, the exercise of the
warrants, the representative’s services may also include disseminating
information, either orally or in writing, to warrant holders about the Company
or the market for the Company’s securities, and assisting in the processing of
the exercise of the warrants. No compensation will be paid to the representative
upon the exercise of the warrants if:
| · |
the
market price of the underlying shares of common stock is lower than
the
exercise price;
|
| · |
the
holder of the warrants has not confirmed in writing that the
representative solicited the
exercise;
|
| · |
the
warrants are held in a discretionary
account;
|
| · |
the
warrants are exercised in an unsolicited transaction;
or
|
| · |
the
arrangements to pay the commission are not disclosed in the prospectus
provided to warrant holders at the time of
exercise.
|
6.
-- Common stock reserved for issuance
At
December 31, 2005, 20,000,000 shares of common stock were reserved for issuance
upon exercise of redeemable warrants.
7.
-- Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences, as may be determined
from
time to time by the Board of Directors.
EXHIBIT
INDEX
|
Exhibit
No.
|
|
Description
|
|
3.1
|
|
Form
of Third Amended and Restated Certificate of Incorporation
(1)
|
|
3.2
|
|
By-laws
(1)
|
|
4.1
|
|
Specimen
Unit Certificate (1)
|
|
4.2
|
|
Specimen
Common Stock Certificate (1)
|
|
4.3
|
|
Specimen
Warrant Certificate (1)
|
|
4.4
|
|
Form
of Warrant Agreement between American Stock Transfer & Trust Company
and the Registrant (1)
|
|
10.1
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Akis
Tsirigakis (1)
|
|
10.2
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and. George
Syllantavos (1)
|
|
10.3
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Christo
Anagnostou (1)
|
|
10.4
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Niko
Nikiforos (1)
|
|
10.5
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Koert
Erhardt (1)
|
|
10.6
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Tom
Søfteland (1)
|
|
10.7
|
|
Form
of Letter Agreement among the Registrant, Maxim Group LLC and Petros
Pappas (1)
|
|
10.8
|
|
Form
of Investment Management Trust Agreement between American Stock Transfer
& Trust Company and the Registrant (1)
|
|
10.9
|
|
Form
of Stock Escrow Agreement between the Registrant, American Stock
Transfer
& Trust Company and the Initial Stockholders (1)
|
|
10.10
|
|
Form
of Services Agreement with Schwartz & Weiss, P.C.
(1)
|
|
10.11
|
|
Promissory
Note dated May 17, 2005 issued to Akis Tsirigakis (1)
|
|
10.12
|
|
Promissory
Note dated May 26, 2005 issued to Akis Tsirigakis (1)
|
|
10.13
|
|
Form
of Registration Rights Agreement among the Registrant and the Initial
Stockholders (1)
|
|
10.14
|
|
Form
of Placement Unit Agreement among the Registrant, Maxim Group LLC
and the
Initial Stockholders (1)
|
|
14
|
|
Code
of Business Conduct and Ethics (1)
|
|
31.1
|
|
Certification
of the Principal Executive Officer and Principal Financial Officer
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as
amended
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a) of
the
Securities Exchange Act of 1934, as amended
|
|
32
|
|
Certification
of the Principal Executive Officer and Principal Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
The
Sarbanes-Oxley Act of 2002
|
(1)
Incorporated by reference to the Registrant’s Registration Statement on Form S-1
(File No. 333-125662).